Putnam
High Yield
Advantage
Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
5-31-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
As prospects for the world's securities markets grew more positive during
the past few months, fixed-income investors set aside some of their
concerns over risk and returned to a more venturesome frame of mind.
Higher-yielding lower-rated corporate bonds were among the beneficiaries
of this improved market environment.
For the managers of Putnam High Yield Advantage Fund, the mood swing that
occurred during the first half of fiscal 1999 therefore presented a
welcome change from the conditions that prevailed during the latter half
of fiscal 1998. It is heartening to note that the optimism over the
market's prospects expressed by the management team in the last report to
shareholders was borne out by period's end.
As you will read in the following report, the management team had
positioned your fund well for the high-yield bond market's dramatic
improvement during the period. The managers remain generally optimistic as
the fund enters the fiscal year's second half.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
July 21, 1999
Report from the Fund Manager
Robert M. Paine
Jeffrey A. Kaufman
Although the high-yield bond sector fell far behind higher-quality bonds
during last summer's flight to quality, it is once again a fixed-income
front-runner. During the first half of Putnam High Yield Advantage Fund's
1999 fiscal year, high-yield bonds staged a dramatic recovery as investors
rediscovered their income potential and became more accepting of their
credit risk. Your fund took advantage of this renewed strength, which is
reflected in its performance for the 6-month period ended May 31, 1999.
Total return for 6 months ended 5/31/99
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- -------------------------------------------------------------------
3.82% -1.16% 3.32% -1.59% 3.70% 0.33%
- -------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 6.
* CHANGING INVESTOR SENTIMENT SPARKS COMEBACK
High-yield bond investors have experienced highs and lows over the past
several months. Last August, high-yield corporate bonds were paying four
percentage points above the yield of 10-year Treasury notes. By historical
standards, this was a modest margin that reflected the strong performance
of the high-yield sector over several years. But at such narrow yield
spreads, high-yield bonds were not compensating investors enough to offset
the additional risk of investing in lower-grade securities.
Things changed in September. As we discussed in your fund's previous
annual report, dated November 30, 1998, the performance of high-yield
bonds suffered when a global margin call caused many investors to walk
away from riskier high-yield securities. In the wake of the Asian crisis,
the midyear drop in U.S. stocks, and the Russian debt default, investors
lost confidence in the sector. The resulting selloff drove high-yield bond
prices down, which meant a substantial increase in yields.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Telecommunications 17.9%
Broadcasting 6.7%
Cable
television 5.5%
Gaming 4.2%
Oil and gas 3.8%
Footnote reads:
*Based on net assets as of 5/31/99. Holdings will vary over time.
". . .high-yield corporates are worth considering for both tax-deferred
and tax-exempt IRAs and for diversifying some taxed portfolios invested
for income."
- -- S&P Personal Wealth, June 1999
As your fund began its current fiscal year, however, investors began
taking profits on higher-quality investments and accepting risk back in
their portfolios. With improvement in the emerging markets, high-yield
spreads against Treasuries narrowed and net cash flows into the high-yield
asset class once again became positive. Investors were drawn to the
sector's attractive yields, as the investment climate grew increasingly
amenable to risk.
Then, as your fund reached the midpoint of its fiscal year, the Federal
Reserve Board shifted its bias toward a tightening of interest rates -- an
announcement that reverberated in securities markets around the world. The
Fed's announcement prompted a selloff in the credit sectors during the
last two weeks of your fund's fiscal year.
* TELECOMMUNICATIONS CONTINUED TO CONTRIBUTE TO PERFORMANCE
During the fiscal year, your fund's emphasis on the telecommunications
sector -- and the favorable climate for mergers and acquisitions that has
characterized this sector for some time -- contributed to relative
returns. Rhythms NetConnections and Covad Communications are two examples
of telecommunications holdings that served your fund well during the
period. Both companies recently completed successful initial public
offerings. While these holdings and others discussed in this report were
viewed favorably at the end of the period, all holdings are subject to
review and adjustment in accordance with the fund's investment strategy
and may well vary in the future.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Midland Funding II Corp, Series A, 11.75%, 2005
Electric utilities
Covad Communications Group, 144A
Telecommunications
California Federal Bancorp Inc. Series A, $2.281 preferred
Banks
GST Telecommunications, Inc. stepped-coupon zero %
(13.875%), 2005
Telecommunications
Allbritton Communications Co. Series B, 9.75%, 2007
Broadcasting
Chancellor Media Corp.
144A, 8%, 2008
Broadcasting
Lyondell Petrochemical Co.
144A, 9.875%, 2007
Chemicals
MCII Holdings stepped-coupon
zero % (15%), 2002
Buses
Celcaribe S.A.
stepped-coupon, zero % (13.5%), 2004
Cellular communications
Trump Castle Funding
144A, 10.25%, 2003
Gaming
Footnote reads:
These holdings represent 7.9% of the fund's net assets as of 5/31/99.
Portfolio holdings will vary over time.
Rhythms NetConnections provides high-speed data communications services on
an end-to-end basis to business customers and end users utilizing Digital
Subscriber Line (DSL) technology. During the period, Rhythms announced
plans to expand its nationwide backbone that supports both ATM transport
and IP networking. By the end of summer 1999, Rhythms also will offer a
family of products and services under the Rhythms U.S. LAN brand name that
will allow enterprise and service provider customers to exploit the
benefits of the high-speed connectivity and simultaneous multimedia
transport that Rhythms offers. These advantages include increased
productivity, significant reduction in cost of services and network
management, and extended network reach. Rhythms NetConnections has
recently been recognized by Fortune magazine as one of its Cool Companies
of 1999.
Covad Communications is a competitive local exchange carrier (CLEC) that
provides high-speed digital communications services using digital
subscriber line technology to Internet service providers and customers. In
January 1999, Covad launched a nationwide remote access program,
integrating for the first time the company's digital subscriber line
service with the networks of investors AT&T and Qwest Communications
International. With the program, Covad is targeting its new TeleSpeed
Remote service to small to midsize businesses that want to connect remote
offices in other cities. The new offering will be faster than long
distance dial-up service.
"With improvement in the emerging markets, high-yield spreads against
Treasuries narrowed and net cash flows into the high-yield asset class once
again became positive. Investors were drawn to the sector's attractive
yields, as the investment climate grew increasingly amenable to risk."
- -- Robert M. Paine, manager, Putnam High Yield Advantage Fund
Another positive for your fund was Microsoft's $500 million investment in
NTL Inc., one of the portfolio's holdings. The deal spurred a substantial
rise in the value of that cable issuer's securities during the period.
On the negative side, your fund's health-care and energy exposures
detracted from returns. Health-care issuers believed the effects of
revised Medicare reimbursement formulas squeezed cash flows, while the
energy sector was hurt by low oil prices and a warm winter.
* CONTINUED FOCUS ON INDIVIDUAL SECURITY SELECTION
As this report is being written, we believe that the high-yield market is
fairly priced versus other market sectors and that yield spreads between
high-yield bonds and Treasury securities still offer attractive
opportunities. We are also monitoring the overall high-yield default rate,
which has been quite low in recent years but is now rising. We anticipate
some spread tightening over the next few months but believe that returns
in 1999's second half will come primarily from individual security
selection rather than from overall market movement.
We continue to emphasize telecommunications and media based on a favorable
earnings outlook. We are also placing less emphasis on industries, such as
steel, that depend on global price increases. The recent rise in the price
of oil has prompted concerns about a resurgence in global inflation; we
think these fears are likely to prove unfounded, at least in the near
term.
We plan to continue to emphasize diversification, companies with little
exposure to Asia and low commodity price risk, and securities with
attractive yields relative to their risk levels.
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 5/31/99, 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
an issuer's ability to pay principal and interest.
Performance summary
This section provides information about your fund's performance, which should
always be considered in light of its investment strategy. Putnam High Yield
Advantage Fund is designed for investors seeking high current income, with
capital growth as a secondary objective.
TOTAL RETURN FOR PERIODS ENDED 5/31/99
Class A Class B Class M
(inception dates) (3/25/86) (5/16/94) (12/1/94)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 3.82% -1.16% 3.32% -1.59% 3.70% 0.33%
- ------------------------------------------------------------------------------
1 year -8.52 -12.89 -9.24 -13.35 -8.77 -11.70
- ------------------------------------------------------------------------------
5 years 37.11 30.65 32.13 30.48 35.46 31.10
Annual average 6.52 5.49 5.73 5.46 6.26 5.56
- ------------------------------------------------------------------------------
10 years 137.86 126.53 118.29 118.29 131.44 123.84
Annual average 9.05 8.52 8.12 8.12 8.75 8.39
- ------------------------------------------------------------------------------
Life of fund 214.38 199.40 179.31 179.31 201.11 191.25
Annual average 9.08 8.68 8.10 8.10 8.72 8.45
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/99
Lehman Bros. First Boston
Corporate Bond High Yield Bond Consumer
Index Index price index
- ------------------------------------------------------------------------------
6 months -1.46% 2.53% 1.34%
- ------------------------------------------------------------------------------
1 year 3.19 -0.70 2.09
- ------------------------------------------------------------------------------
5 years 49.87 54.97 12.68
Annual average 8.43 9.16 2.42
- ------------------------------------------------------------------------------
10 years 137.34 174.38 34.25
Annual average 9.03 10.62 2.99
- ------------------------------------------------------------------------------
Life of fund 203.86 266.81 52.76
Annual average 8.81 10.37 3.27
- ------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. Returns for class A and class M
shares reflect the current maximum initial sales charges of 4.75% and
3.25% respectively. Class B share returns for the 1-, 5-, and 10-year
(where available) and life-of-fund periods reflect the applicable
contingent deferred sales charge (CDSC), which is 5% in the first year,
declines to 1% in the sixth year, and is eliminated thereafter. Returns
shown for class B and class M shares for periods prior to their inception
are derived from the historical performance of class A shares, adjusted to
reflect both the initial sales charge or CDSC, if any, currently
applicable to each class and in the case of class B and class M shares,
the higher operating expenses applicable to such shares. All returns
assume reinvestment of distributions at NAV. Investment return and
principal value will fluctuate so that an investor's shares when redeemed
may be worth more or less than their original cost.
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 5/31/99
Class A Class B Class M
- -----------------------------------------------------------------------------
Distributions (number) 6 6 6
- -----------------------------------------------------------------------------
Income $0.4480 $0.4170 $0.4380
- -----------------------------------------------------------------------------
Capital gains -- -- --
- -----------------------------------------------------------------------------
Total $0.4480 $0.4170 $0.4380
- -----------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- -----------------------------------------------------------------------------
11/30/98 $8.35 $8.77 $8.32 $8.34 $8.62
- -----------------------------------------------------------------------------
5/31/99 8.21 8.62 8.17 8.20 8.48
- -----------------------------------------------------------------------------
Current return (end of period)
- -----------------------------------------------------------------------------
Current dividend rate1 10.74% 10.19% 9.99% 10.54% 10.19%
- -----------------------------------------------------------------------------
Current 30-day SEC yield2 10.27 9.77 9.49 10.01 9.68
- -----------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
2 Based on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 6/30/99 (most recent calendar quarter)
Class A Class B Class M
(inception dates) (3/25/86) (5/16/94) (12/1/94)
NAV POP NAV CDSC NAV POP
- ----------------------------------------------------------------------------
6 months 5.16% 0.14% 4.80% -0.18% 5.05% 1.69%
- ----------------------------------------------------------------------------
1 year -8.35 -12.67 -9.08 -13.19 -8.59 -11.54
- ----------------------------------------------------------------------------
5 years 37.58 31.03 32.49 30.83 35.90 31.47
Annual average 6.59 5.55 5.79 5.52 6.33 5.62
- ----------------------------------------------------------------------------
10 years 134.85 123.71 115.60 115.60 128.69 121.21
Annual average 8.91 8.38 7.99 7.99 8.62 8.26
- ----------------------------------------------------------------------------
Life of fund 214.91 199.91 179.59 179.59 201.57 191.69
Annual average 9.04 8.64 8.06 8.06 8.68 8.41
- ----------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. Investment
returns and principal value will fluctuate so that an investor's shares
when sold may be worth more or less than their original cost. See first
page of performance summary for the method of calculation.
Terms and definitions
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the 4.75% maximum sales charge for class A
shares and 3.25% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of class B shares and assumes redemption at the end of the
period. Your fund's CDSC declines from a 5% maximum during the first year
to 1% during the sixth year. After the sixth year, the CDSC no longer
applies.
Comparative benchmarks
Lehman Brothers Municipal Bond Index* is an unmanaged list of publicly
issued fixed-income non-convertible securities frequently used as a
general measure of the performance of the corporate bond market.
First Boston High Yield Bond Index* is an unmanaged list of lower-rated
higher-yielding U.S. corporate bonds.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
*Securities indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities in
the fund do not match those in the indexes and performance of the fund
will differ. It is not possible to invest directly in an index.
A guide to the financial statements
These sections of the report constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values as of
the last day of the reporting period. Holdings are organized by asset type and
industry sector, country, or state to show areas of concentration and
diversification.
Statement of assets and liabilities shows how the fund's net assets and share
price is determined. All investment and non-investment assets are added
together. Any unpaid expenses and other liabilities are subtracted from this
total. The result is divided by the number of shares to determine the net
asset value per share, which is calculated separately for each class of
shares. (For funds with preferred shares, the amount subtracted from total
assets includes the net assets allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for the
reporting period. This is determined by adding up all the fund's earnings --
from dividends and interest income -- and subtracting its operating expenses.
This statement also lists any net gain or loss the fund realized on the sales
of its holdings and -- for holdings that remain in the portfolio -- any change
in unrealized gains or losses over the period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of the
fund's shares. It lists distributions and their sources (net investment income
or realized capital gains) over the current reporting period and the most
recent fiscal year-end. The distributions listed here may not match the
amounts listed in the Statement of Operations because the distributions are
determined on a tax basis and may be paid in a different period from the one
in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also includes
the current reporting period. For open-ended funds, a separate table is
provided for each share class.
<TABLE>
<CAPTION>
The fund's portfolio
May 31, 1999 (Unaudited)
CORPORATE BONDS AND NOTES (83.0%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
Advertising (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
$ 9,560,000 Aoa Holdings LLC 144A sr. notes 10 3/8s, 2006 $ 9,560,000
6,890,000 Lamar Advertising Co. company guaranty 8 5/8s, 2007 6,993,350
8,325,000 Outdoor Communications Inc. sr. sub. notes 9 1/4s, 2007 8,741,250
--------------
25,294,600
Aerospace and Defense (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
8,830,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 8,432,650
3,800,000 Argo-Tech Corp. 144A sr. sub. notes 8 5/8s, 2007 3,629,000
2,650,000 BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 2,742,750
1,150,000 Sequa Corp. med. term notes Ser. A, 10.15s, 2001 1,191,458
--------------
15,995,858
Agriculture (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
12,882,839 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003 (PIK) 11,916,626
Airlines (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
7,340,000 Calair LLC 144A company guaranty 8 1/8s, 2008 6,862,900
6,675,000 Canadian Airlines Corp. sr. notes 12 1/4s, 2006 (Canada) 2,670,000
12,470,000 Canadian Airlines Corp. secd. notes 10s, 2005 (Canada) 9,258,975
4,100,000 Continental Airlines, Inc. sr. notes 9 1/2s, 2001 4,212,750
12,500,000 Trans World Airlines, Inc. sr. notes 11 1/2s, 2004 10,562,500
8,120,000 Trans World Airlines, Inc. sr. notes 11 3/8s, 2006 4,222,400
--------------
37,789,525
Apparel (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
6,360,000 Fruit of the Loom 144A company guaranty 8 7/8s, 2006 6,105,600
2,825,000 GFSI, Inc. sr. disc. notes Ser. B, stepped-coupon zero %
(11 3/8s, 9/15/04), 2009 (STP) 1,977,500
15,000,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 15,150,000
3,645,000 William Carter Holdings Co. sr. sub. notes Ser. A, 12s, 2008 3,790,800
--------------
27,023,900
Automotive Parts (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
8,677,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 9,024,080
1,500,000 Aftermarket Technology Corp. sr. sub. notes Ser. D, 12s, 2004 1,560,000
5,620,000 Dura Operating Corp. 144A sr. sub. notes 9s, 2009 5,535,700
11,310,000 Federal Mogul Corp. 144A notes 7 1/2s, 2009 10,560,260
6,910,000 Lear Corp. sub. notes 9 1/2s, 2006 7,549,175
8,525,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 8,716,813
720,000 Navistar International Corp. sr. notes Ser. B, 8s, 2008 723,600
8,565,000 Safety Components International, Inc. sr. sub. notes
Ser. B, 10 1/8s, 2007 7,665,675
1,020,000 San Luis Corp. sr. notes 8 7/8s, 2008 (Mexico) 836,400
--------------
52,171,703
Banks (2.9%)
- --------------------------------------------------------------------------------------------------------------------------
21,850,000 Advanta Corp. company guaranty Ser. B, 8.99s, 2026 14,639,500
9,150,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 8,436,209
850,000 Advanta Corp. med. term notes Ser. D, 6.98s, 2002 737,545
3,000,000 Advanta Corp. med. term notes Ser. D, 6.65s, 2000 2,911,140
1,700,000 Advanta Corp. med. term notes Ser. D, 6.584s, 2000 1,649,544
1,215,000 Advanta Corp. med. term notes Ser. D, 6.54s, 2000 1,176,509
300,000 Chevy Chase Savings Bank Inc. sub. deb. 9 1/4s, 2008 304,500
9,345,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 7,849,800
2,100,000 First Federal Financial Corp. notes 11 3/4s, 2004 2,152,500
9,960,000 Greenpoint Capital Trust I company guaranty 9.1s, 2027 10,179,718
2,915,000 North Fork Capital Trust I company guaranty 8.7s, 2026 2,922,200
2,620,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 2,043,600
2,990,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 2,990,000
6,310,000 Ocwen Financial Corp. notes 11 7/8s, 2003 6,057,600
3,555,000 Peoples Heritage Capital Trust company guaranty Ser. B,
9.06s, 2027 3,423,892
2,900,000 Provident Capital Trust company guaranty 8.6s, 2026 2,843,740
6,470,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 6,201,236
7,865,000 Sovereign Capital Trust company guaranty 9s, 2027 7,688,195
2,815,000 Webster Capital Trust I 144A bonds 9.36s, 2027 2,792,339
--------------
86,999,767
Basic Industrial Products (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
12,381,972 Grove Investors LLC 144A bond 14 1/2s, 2010 (PIK) 8,172,102
7,160,000 Insilco Holding Co. sr. disc. notes stepped-coupon zero %
(14s, 8/15/03), 2008 (STP) 3,293,600
4,280,000 Paragon Corp. Holdings, Inc. company guaranty
Ser. B, 9 5/8s, 2008 2,482,400
--------------
13,948,102
Broadcasting (4.1%)
- --------------------------------------------------------------------------------------------------------------------------
5,430,000 Ackerly Group, Inc. sr. sub. notes Ser. B, 9s, 2009 5,484,300
19,370,000 Allbritton Communications Co. sr. sub. deb. Ser. B, 9 3/4s, 2007 19,757,400
234,062 Australis Media, Ltd. sr. disc. notes stepped-coupon zero %,
(15 3/4s 5/15/00), 2003 (In default) (Australia) (NON) (STP) (PIK) 2,341
2,709,587 Australis Media, Ltd. sr. sec. disc. notes zero %, 2000
(In default) (Australia) (NON) 2,110,226
2,935,000 Benedek Communications Corp. sr. disc. notes
stepped-coupon zero % (13 1/4s, 5/15/01), 2006 (STP) 2,414,038
11,220,000 Capstar Broadcasting sr. disc. notes stepped-coupon
zero % (12 3/4s, 2/1/02), 2009 (STP) 9,480,900
6,820,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 7,050,175
3,150,000 Central European Media Enterprises Ltd. sr. notes
9 3/8s, 2004 (Bermuda) 2,709,000
19,500,000 Chancellor Media Corp. 144A sr. notes 8s, 2008 19,305,000
6,120,000 Citadel Broadcasting, Inc. company guaranty 9 1/4s, 2008 6,456,600
8,530,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 8,103,500
2,080,000 Fox/Liberty Networks LLC sr. notes 8 7/8s, 2007 2,204,800
7,260,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 7,151,100
10,000,000 Grupo Televisa S.A. de C.V. sr. disc. notes stepped-coupon
zero % (13 1/4s, 5/15/01), 2008 (Mexico) (STP) 7,700,000
9,080,000 PHI Holdings, Inc. sr. sub. notes zero %, 2001 7,215,876
10,480,000 Radio One Inc. company guaranty Ser. B, stepped-coupon
zero % (12s, 5/15/00), 2004 (STP) 10,899,200
3,880,000 TV Azteca Holdings S.A. de C.V. sr. notes 11s, 2002 (Mexico) 3,181,600
1,950,000 TV Azteca S.A. de C.V. sr. notes 10 1/2s, 2007 (Mexico) 1,423,500
--------------
122,649,556
Building and Construction (1.9%)
- --------------------------------------------------------------------------------------------------------------------------
6,970,000 Albecca Inc. company guaranty 10 3/4s, 2008 5,785,100
4,700,000 American Architectural Products Corp. company guaranty
11 3/4s, 2007 3,854,000
2,080,000 American Standard Companies, Inc. sr. notes 7 3/8s, 2008 1,976,000
8,515,000 American Standard Companies, Inc. company guaranty
7 3/8s, 2005 8,185,044
2,220,000 Atrium Companies Inc. 144A sr. sub. notes 10 1/2s, 2009 2,186,700
6,310,000 Building Materials Corp. 144A sr. notes 8s, 2008 5,994,500
1,960,000 Cia Latino Americana 144A company guaranty
11 5/8s, 2004 (Argentina) 1,097,600
7,650,000 Doskcil Manufacturing Co 144A sr. sub. notes 10 1/8s, 2007 4,207,500
11,380,000 D.R. Horton, Inc. company guaranty 8s, 2009 10,981,700
13,810,000 GS Superhighway Holdings sr. notes 10 1/4s, 2007 (China) 6,628,800
1,620,000 GS Superhighway Holdings sr. notes 9 7/8s, 2004 (China) 810,000
4,130,000 NCI Building Systems 144A sr. sub. notes 9 1/4s, 2009 4,078,375
1,820,000 Toll Corp. company guaranty 8 1/8s, 2009 1,783,600
--------------
57,568,919
Buses (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
19,580,000 MCII Holdings sec. notes, stepped-coupon zero %
(15s,11/18/99), 2002 (STP) 19,139,450
Business Equipment and Services (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
4,540,000 Cex Holdings, Inc. company guaranty Ser. B, 9 5/8s, 2008 4,267,600
1,870,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 1,813,900
2,993,311 Outsourcing Solutions, Inc. 144A 8.621s, 2004 2,925,962
8,689,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 9,644,790
10,160,000 U.S. Office Products Co. company guaranty 9 3/4s, 2008 6,299,200
4,245,802 U.S. Office Products Co. bank term loan 7.53s, 2006 3,587,703
8,158,000 United Stationer Supply, Inc. sr. sub. notes 12 3/4s, 2005 8,994,195
--------------
37,533,350
Cable Television (5.5%)
- --------------------------------------------------------------------------------------------------------------------------
28,440,000 21st Century Telecom Group, Inc. sr. disc. notes
stepped-coupon zero % (12 1/4s, 2/15/03), 2008 (STP) 13,082,400
7,500,000 Acme Television sr. disc. notes stepped-coupon zero %
(10 7/8s, 9/30/00), 2004 (STP) 6,412,500
13,150,000 Adelphia Communications Corp. sr. notes Ser. B, 9 7/8s, 2007 14,136,250
8,580,000 Adelphia Communications Corp. sr. notes 7 7/8s, 2009 8,129,550
3,442,000 Century Communications Corp. sr. notes 8 7/8s, 2007 3,493,630
5,000,000 Charter Communications Bank term Loan B 7 1/2s, 2008 5,006,250
17,320,000 Charter Communications Holdings LLC 144A sr. disc. notes
stepped-coupon zero % (9.92s, 4/1/04), 2011 (STP) 10,695,100
12,290,000 Charter Communications Holdings LLC 144A sr. notes
8 5/8s, 2009 12,013,475
5,750,000 CSC Holdings, Inc. sr. sub. deb. 10 1/2s, 2016 6,670,000
2,010,000 CSC Holdings, Inc. sr. sub. deb. 9 7/8s, 2023 2,236,125
6,000,000 CSC Holdings, Inc. sr. sub. notes 9 1/4s, 2005 6,390,000
2,170,000 CSC Holdings, Inc. deb. 7 7/8s, 2018 2,146,607
5,445,000 CSC Holdings, Inc. sr. notes 7 7/8s, 2007 5,564,300
2,300,000 CSC Holdings, Inc. deb. 7 5/8s, 2018 2,219,201
5,925,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005
(United Kingdom) (STP) 5,288,063
2,075,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) (STP) 1,610,719
28,512,000 Diva Systems Corp. sr. disc. notes, stepped-coupon
Ser. B, zero % (12 5/8s, 3/1/03), 2008 (STP) 9,408,960
2,070,000 Globo Communicacoes company guaranty
10 1/2s, 2006 (Brazil) 1,469,700
1,170,000 Globo Communicacoes 144A company guaranty
10 1/2s, 2006 (Brazil) 830,700
7,419,000 Lenfest Communications, Inc. sr. notes 8 3/8s, 2005 7,901,235
6,140,000 NTL Inc. 144A sr. notes 11 1/2s, 2008 (United Kingdom) 6,815,400
4,975,000 NTL Inc. sr. notes Ser. B, stepped-coupon zero %
(9 3/4s, 4/1/03), 2008 (United Kingdom) (STP) 3,333,250
3,050,000 RBS Participacoes S.A. 144A company guaranty
11s, 2007 (Brazil) 1,982,500
1,965,000 RCN Corp. sr. disc. notes stepped-coupon zero %,
(11 1/8s, 10/15/02), 2007 (STP) 1,296,900
940,000 Rogers Cablesystems Ltd. notes 11s, 2015 (Canada) 1,085,700
410,000 Rogers Cablesystems Ltd. company guaranty 10s, 2007
(Canada) 451,000
6,380,000 Rogers Cablesystems Ltd. sr. notes Ser. B, 10s, 2005 (Canada) 7,097,750
995,000 Rogers Cablesystems Ltd. notes 9 5/8s, 2002 (Canada) 1,044,750
8,820,000 Supercanal Holdings S.A. 144A sr. notes 11 1/2s, 2005
(Argentina) (In default) (NON) 3,969,000
1,250,000 TeleWest Communications PLC 144A notes 11 1/4s, 2008 1,415,625
6,980,000 TeleWest Communications PLC 144A sr. disc. notes
stepped-coupon zero % (9 1/4, 4/15/04), 2009 (STP) 4,571,900
9,920,000 United International Holdings sr. disc. notes stepped-coupon
Ser. B, zero % (10 3/4s, 2/15/03), 2008 (STP) 6,522,400
--------------
164,290,940
Cellular Communications (3.2%)
- --------------------------------------------------------------------------------------------------------------------------
21,400,000 Celcaribe S.A. sr. notes stepped-coupon zero %
(13 1/2s, 3/15/04), 2004 (Colombia) (STP) 18,618,000
28,054,000 CellNet Data Systems, Inc. sr. disc. notes stepped-coupon
zero % (14s, 10/1/02), 2007 (STP) 10,099,440
7,815,000 Cencall Communications Corp. sr. disc. notes 10 1/8s, 2004 8,049,450
3,890,000 Dobson Communications Corp. sr. notes 11 3/4s, 2007 4,201,200
7,560,000 McCaw International Ltd sr. disc. notes stepped-coupon
zero % (13s, 4/15/02), 2007 (STP) 4,611,600
23,175,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/01), 2006
(Luxembourg) (STP) 18,076,500
23,140,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (12 1/8s, 4/15/03), 2008 (STP) 11,801,400
12,620,000 NEXTEL Communications, Inc. 144A sr. notes 12s, 2008 14,165,950
545,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (10.65s, 9/15/02), 2007 (STP) 381,500
890,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (9.95s, 2/15/03), 2008 (STP) 591,850
7,210,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (9 3/4s, 10/31/02), 2007 (STP) 4,902,800
255,000 Price Communications Wireless, Inc. 144A sr. notes 9 1/8s, 2006 261,375
--------------
95,761,065
Chemicals (2.1%)
- --------------------------------------------------------------------------------------------------------------------------
5,745,000 Geo Specialty Chemicals, Inc. 144A sr. sub. notes 10 1/8s, 2008 5,543,925
1,420,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 1,370,300
4,850,000 Huntsman Corp. 144A sr. sub. notes FRN 9.03s, 2007 4,292,250
6,350,000 Lyondell Petrochemical Co. 144A sr. sub. notes 10 7/8s, 2009 6,445,250
19,245,000 Lyondell Petrochemical Co. 144A sec. notes 9 7/8s, 2007 19,293,113
5,800,000 PCI Chemicals & Pharmaceuticals company guaranty
9 1/4s, 2007 (India) 4,930,000
4,465,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007 3,795,250
3,927,711 Pioneer Americas Acquisition bank term loan 8.715s, 2006 3,377,832
466,439 Pioneer Americas Acquisition bank term loan 8.47s, 2006 401,138
11,180,714 Polytama International notes 11 1/4s, 2007 (Indonesia) 2,124,336
5,100,000 Royster-Clark Inc. 144A 1st mtge 10 1/4s, 2009 5,151,000
4,740,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 (STP) 2,168,550
7,730,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 4,251,500
--------------
63,144,444
Computer Services and Software (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
3,205,000 Concentric Network Corp. sr. notes 12 3/4s, 2007 3,381,275
6,490,000 Interact Systems, Inc. 144A stepped-coupon zero %
(14s, 8/1/99), 2003 (STP) 1,168,200
18,760,000 IPC Information Systems sr. disc. notes stepped-coupon
zero % (10 7/8s, 11/1/01), 2008 (STP) 13,694,800
7,750,000 PSINet, Inc. sr. notes 11 1/2s, 2008 8,137,500
840,000 PSINet, Inc. sr. notes Ser. B, 10s, 2005 840,000
4,470,000 Unisys Corp. sr. notes Ser. B, 12s, 2003 4,883,475
14,885,000 Unisys Corp. sr. notes 11 3/4s, 2004 16,633,988
3,690,000 Verio Inc. 144A sr. notes 11 1/4s, 2008 3,892,950
2,300,000 Verio Inc. sr. notes 10 3/8s, 2005 2,369,000
--------------
55,001,188
Conglomerates (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
15,470,000 Cathay International Ltd. 144A sr. notes 13s, 2008 (China)
(In default) (NON) 6,652,100
Consumer Durable Goods (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
1,235,000 Hedstrom Holdings, Inc. 144A sr. disc. notes stepped-coupon
zero % (12s, 6/1/02), 2009 (STP) 555,750
1,887,000 Iron Age Corp. company guaranty 9 7/8s, 2008 1,377,510
7,135,872 Sealy Mattress Co. 144A sr. notes 12s, 2008 6,993,154
7,860,000 Sealy Mattress Co. company guaranty Ser. B, stepped-coupon
zero % (10 7/8s, 12/15/02), 2007 (STP) 5,128,650
--------------
14,055,064
Consumer Non Durable Goods (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
11,665,000 Samsonite Corp. sr. sub. notes 10 3/4s, 2008 8,748,750
Consumer Services (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
15,402,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 16,788,180
3,060,000 Protection One, Inc. sr. disc. notes stepped-coupon
zero % (13 5/8s, 6/30/00), 2005 (STP) 3,411,900
--------------
20,200,080
Cosmetics (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
4,220,000 French Fragrances, Inc. company guaranty Ser. D, 10 3/8s, 2007 4,262,200
3,790,000 Revlon Consumer Products sr. notes 9s, 2006 3,903,700
4,250,000 Revlon Consumer Products sr. sub. notes 8 5/8s, 2008 4,101,250
--------------
12,267,150
Electric Utilities (2.6%)
- --------------------------------------------------------------------------------------------------------------------------
8,195,000 AES China Generating Co. sr. notes 10 1/8s, 2006 (China) 5,121,875
2,780,000 Applied Power Inc. sr. sub. notes 8 3/4s, 2009 2,689,650
2,000,000 Connecticut Light & Power Co. 1st mtge. Ser. D, 7 7/8s, 2024 1,997,980
9,600,000 Midland Funding II Corp. deb. Ser. B, 13 1/4s, 2006 11,553,408
35,705,000 Midland Funding II Corp. deb. Ser. A, 11 3/4s, 2005 39,811,075
5,913,255 Northeast Utilities System notes Ser. A, 8.58s, 2006 5,893,150
2,742,667 Northeast Utilities System notes Ser. B, 8.38s, 2005 2,735,344
14,420,000 Panda Global Energy Co. company guaranty
12 1/2s, 2004 (China) 7,210,000
--------------
77,012,482
Electronics and Electrical Equipment (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
5,780,000 Flextronics International Ltd. sr. sub. notes Ser. B, 8 3/4s, 2007 5,808,900
10,370,000 Metromedia Fiber Network, Inc. sr. notes Ser. B, 10s, 2008 10,810,725
1,530,000 Viasystems, Inc. sr. sub notes 9 3/4s, 2007 1,338,750
7,495,000 Viasystems, Inc. sr. notes Ser. B, 9 3/4s, 2007 6,558,125
--------------
24,516,500
Energy-Related (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
5,763,000 Calpine Corp. sr. notes 7 7/8s, 2008 5,633,333
1,795,000 Calpine Corp. sr. notes 7 3/4s, 2009 1,742,945
6,110,000 RAM Energy Inc. sr. notes 11 1/2s, 2008 3,253,575
9,790,000 York Power Funding 144A notes 12s, 2007 (Cayman Islands) 9,887,900
--------------
20,517,753
Entertainment (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
3,175,000 Premier Parks, Inc.144A sr. disc. notes stepped-coupon
zero %, (10s, 4/1/03), 2008 (STP) 2,206,625
5,220,000 SFX Entertainment Inc. company guaranty 9 1/8s, 2008 5,167,800
7,690,000 SFX Entertainment, Inc. 144A company guaranty Ser. B,
9 1/8s, 2008 7,786,125
--------------
15,160,550
Environmental Control (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
16,750,000 Allied Waste Industries, Inc. company guaranty
Ser. B, 7 7/8s, 2009 15,745,000
Financial Services (2.9%)
- --------------------------------------------------------------------------------------------------------------------------
10,645,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 8,116,813
2,960,000 AMRESCO, Inc. sr. sub. notes Ser. 98-A, 9 7/8s, 2005 2,456,800
4,600,000 Capital One Financial Corp. notes 7 1/8s, 2008 4,363,698
5,525,000 Colonial Capital I 144A company guaranty 8.92s, 2027 5,192,318
9,630,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 8,474,400
3,530,000 Contifinancial Corp. sr. notes 8 1/8s, 2008 3,106,400
3,450,000 Contifinancial Corp. sr. notes 7 1/2s, 2002 3,001,500
3,090,000 CSBI Capital Trust I 144A company guaranty 11 3/4s, 2027 3,306,300
7,278,000 Green Tree Acceptance Corp. sr. sub. notes 10 1/4s, 2002 7,672,540
4,565,000 Imperial Credit Capital Trust I 144A company guaranty
10 1/4s, 2002 3,652,000
2,640,000 Imperial Credit Industries, Inc. sr. notes 9 7/8s, 2007 2,138,400
5,500,000 Local Financial Corp. 144A sr. notes 11s, 2004 5,692,500
8,900,000 RBF Finance 144A company guaranty 11 3/8s, 2009 8,989,000
1,090,000 RBF Finance 144A company guaranty 11s, 2006 1,095,450
10,250,000 Resource America Inc. 144A sr. notes 12s, 2004 9,378,750
2,000,000 SRI Receivables Purchase 144A notes 12 1/2s, 2000 1,860,000
6,670,000 Superior Financial 144A sr. notes 8.65s, 2003 6,258,128
2,000,000 Vicap SA. company guaranty 11 3/8s, 2007 (Mexico) 1,860,000
--------------
86,614,997
Food and Beverages (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
10,405,000 Ameriserve Food Co. company guaranty 10 1/8s, 2007 8,948,300
4,060,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 4,252,850
11,940,000 Doane Products Co. sr. sub. notes 9 3/4s, 2007 12,238,500
3,445,000 North Atlantic Trading Co. company guaranty Ser. B, 11s, 2004 3,496,675
7,290,000 RAB Enterprises, Inc. company guaranty 10 1/2s, 2005 4,155,300
10,250,000 RAB Holdings, Inc. sr. notes 13s, 2008 4,100,000
7,500,000 Signature Brands Ltd. sr. sub. notes 13s, 2002 (Canada) 8,250,000
5,950,000 Triarc Consumer Products, Inc. 144A sr. sub. notes
10 1/4s, 2009 5,890,500
--------------
51,332,125
Gaming (4.1%)
- --------------------------------------------------------------------------------------------------------------------------
12,989,000 Argosy Gaming Co. company guaranty 13 1/4s, 2004 14,742,515
25,000 Autotote Corp. company guaranty Ser. B, 10 7/8s, 2004 26,250
6,800,000 Boyd Gaming Corp. sr. sub. notes 9 1/2s, 2007 6,783,000
1,520,000 Circus Circus Enterprises, Inc. deb. 7s, 2036 1,404,191
3,340,000 Circus Circus Enterprises, Inc. sr. notes 6.45s, 2006 3,062,880
6,442,678 Colorado Gaming & Entertainment Co. sr. notes 12s, 2003 (PIK) 6,378,251
16,855,000 Fitzgeralds Gaming Corp. company guaranty
Ser. B, 12 1/4s, 2004 7,079,100
2,060,000 Harrahs Entertainment, Inc. company guaranty 7 1/2s, 2009 2,015,525
9,440,000 Hollywood Casino Corp. 144A sec. notes 11 1/4s, 2007 9,416,400
3,900,000 Hollywood Park, Inc. company guaranty Ser. B, 9 1/4s, 2007 3,973,125
7,720,000 Horseshoe Gaming Holdings 144A sr. sub. notes 8 5/8s, 2009 7,488,400
8,175,000 Isle of Capri Black Hawk LLC 144A 1st mortgage
Ser. B, 13s, 2004 9,074,250
2,690,000 Mohegan Tribal Gaming, Auth. 144A sr. sub. notes 8 3/4s, 2009 2,690,000
3,880,000 Mohegan Tribal Gaming, Auth. 144A sr. notes 8 1/8s, 2006 3,821,800
4,940,000 Park Place Entertainment sr. sub. notes 7 7/8s, 2005 4,742,400
11,370,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 (In default) (NON) 5,102,288
3,350,000 Riviera Black Hawk 144A 1st mtge. 13s, 2005 3,350,000
5,000,000 Trump A.C. company guaranty Ser. B, 11 1/4s, 2006 4,350,000
17,975,000 Trump Castle Funding 144A sub. notes 10 1/4s, 2003 18,199,688
2,500,000 Trump Castle Hotel 144A sr. sub. notes 10 1/4s, 2003 2,531,250
6,050,000 Trump Holdings & Funding Corp. sr. notes 15 1/2s, 2005 6,171,000
--------------
122,402,313
Health Care (3.2%)
- --------------------------------------------------------------------------------------------------------------------------
2,040,000 Columbia/HCA Healthcare Corp. deb. 8.36s, 2024 1,904,136
380,000 Columbia/HCA Healthcare Corp. med. term notes
7.69s, 2025 319,242
3,000,000 Columbia/HCA Healthcare Corp. notes 7 1/4s, 2008 2,677,800
6,268,900 Columbia/HCA Healthcare Corp. notes 6.91s, 2005 5,741,497
2,760,000 Columbia/HCA Healthcare Corp. med. term notes 6.63s, 2045 2,583,664
13,630,000 Extendicare Health Services, Inc. company guaranty 9.35s, 2007 10,495,100
1,930,000 HEALTHSOUTH Corp. sr. notes 7s, 2008 1,775,870
8,285,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s, 2007 5,426,675
10,615,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s, 2008 6,899,750
4,440,000 Lifepoint Hospital Holdings 144A sr. sub. notes 10 3/4s, 2009 4,517,700
980,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B,
stepped-coupon zero % (10 1/2s, 11/1/02), 2007 (STP) 215,600
15,360,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B,
9 1/2s, 2007 5,376,000
2,335,000 MedPartners, Inc. sr. notes 7 3/8s, 2006 2,037,288
16,985,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 13,120,913
6,570,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 5,256,000
9,965,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 1,893,350
1,775,000 Sun Healthcare Group, Inc. 144A sr. sub. notes 9 3/8s, 2008 337,250
16,503,000 Tenet Healthcare Corp. 144A sr. sub. notes 8 1/8s, 2008 15,925,395
3,263,000 Tenet Healthcare Corp. sr. notes 8s, 2005 3,197,740
2,650,000 Tenet Healthcare Corp.144A sr. notes 7 5/8s, 2008 2,517,500
4,550,000 Triad Hospitals Holdings 144A sr. sub. notes 11s, 2009 4,641,000
--------------
96,859,470
Lodging (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
6,300,000 Epic Resorts LLC company guaranty Ser. B, 13s, 2005 5,796,000
8,665,000 HMH Properties, Inc. sr. notes Ser. C, 8.45s, 2008 8,296,738
7,300,000 Host Marriott L.P. 144A sr. notes 8 3/8s, 2006 7,081,000
12,175,000 ITT Corp. notes 6 3/4s, 2005 11,199,296
2,000,000 Starwood Hotels Resorts bank term loan 7.861s, 2003 2,002,500
--------------
34,375,534
Medical Supplies and Devices (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
8,435,000 ALARIS Medical Systems, Inc. company guaranty 9 3/4s, 2006 8,561,525
3,825,000 Kinetic Concepts, Inc. company guaranty Ser. B, 9 5/8s, 2007 3,538,125
9,915,000 Leiner Health Products sr. sub. notes 9 5/8s, 2007 9,964,575
7,800,000 Mediq, Inc. deb. stepped-coupon zero % (13s, 6/1/03), 2009 (STP) 3,120,000
5,300,000 Mediq, Inc. company guaranty 11s, 2008 4,558,000
--------------
29,742,225
Metals and Mining (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
13,680,000 Anker Coal Group, Inc. sr. notes Ser. B, 9 3/4s, 2007
(In default) (NON) 6,976,800
7,160,000 Lodestar Holdings, Inc. company guaranty 11 1/2s, 2005 5,728,000
5,860,000 WHX Corp. sr. notes 10 1/2s, 2005 5,772,100
--------------
18,476,900
Motion Picture Distribution (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
8,000,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 7,680,000
5,750,000 Cinemark USA, Inc. sr. sub. notes Ser. D, 9 5/8s, 2008 (Mexico) 5,778,750
310,000 Cinemark USA, Inc. sr. sub. notes 8 1/2s, 2008 (Mexico) 299,150
10,070,000 United Artists Theatre 144A sr. sub. notes 9 3/4s, 2008 7,955,300
--------------
21,713,200
Oil and Gas (3.5%)
- --------------------------------------------------------------------------------------------------------------------------
4,110,000 Abraxas Petroleum Corp. 144A company guaranty Ser. D,
11 1/2s, 2004 2,424,900
2,240,000 Belco Oil & Gas Corp. company guaranty Ser. B, 10 1/2s, 2006 2,335,200
3,510,000 Belco Oil & Gas Corp. sr. sub. notes Ser. B, 8 7/8s, 2007 3,448,575
8,675,000 Benton Oil & Gas Co. sr. notes 11 5/8s, 2003 6,332,750
1,025,000 Benton Oil & Gas Co. sr. notes 9 3/8s, 2007 745,688
11,530,000 CMS Energy Corp. sr. notes 6 3/4s, 2004 11,161,271
2,465,000 Flores & Rucks, Inc. sr. sub. notes 9 3/4s, 2006 2,612,900
1,330,000 Gothic Energy Corp. sr. disc. notes, Ser. B, stepped-coupon
zero % (14 1/8s, 5/1/03), 2006 (STP) 465,500
6,000,000 Gothic Production Corp. company guaranty
Ser. B, 11 1/8s, 2005 5,160,000
5,000,000 Gulf Canada Resources Ltd. sr. sub. notes 9 5/8s, 2005 (Canada) 5,100,000
4,590,000 Gulf Canada Resources, Ltd. sr. notes 8 3/8s, 2005 (Canada) 4,590,000
2,610,000 Leviathan Gas Corp.144A sr. sub. notes 10 3/8s, 2009 2,636,100
8,045,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 8,085,225
11,885,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 11,766,150
2,000,000 Petro Geo-Services ADR notes 7 1/2s, 2007 (Norway) 2,040,880
6,040,000 R & B Falcon Corp. 144A sr. notes 12 1/4s, 2006 6,100,400
1,830,000 Seagull Energy sr. sub notes 8 5/8s, 2005 1,797,975
4,735,000 Seven Seas Petroleum sr. notes Ser. B, 12 1/2s, 2005 2,509,550
35,294,000 Transamerican Energy sr. disc. notes Ser. B, stepped-coupon
zero % (13s, 6/15/99), 2002 (In default) (NON) (STP) 3,882,340
35,935,000 Transamerican Energy sr. notes Ser. B, 11 1/2s, 2002
(In default) (NON) 3,952,850
14,550,000 Transamerican Refining Corp. sr. sub. notes Ser. B, 16s, 2003
(In default) (NON) 727,500
8,736,000 TransTexas Gas Corp. sr. sub. notes Ser. D, 13 3/4s, 2001
(In default) (NON) 436,800
2,550,000 Triton Energy Ltd. sr. notes 9 1/4s, 2005 2,500,964
10,620,000 Vintage Petroleum 144A sr. sub. notes 9 3/4s, 2009 10,885,500
3,475,000 XCL Ltd. 144A company guaranty 13 1/2s, 2004 2,328,250
--------------
104,027,268
Packaging and Containers (2.3%)
- --------------------------------------------------------------------------------------------------------------------------
7,790,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 7,828,950
1,320,000 Ball Corp. company guaranty 8 1/4s, 2008 1,320,000
3,000,000 Consumers International 144A sr. notes 10 1/4s, 2005 3,090,000
6,555,000 Huntsman Packaging Corp. company guaranty 9 1/8s, 2007 6,489,450
2,160,000 Innova S De R.L. sr. notes 12 7/8s, 2007 (Mexico) 1,717,200
10,945,000 Jefferson Smurfit bank term loan B 8.65s, 2006 10,958,681
1,620,000 Owens-Illinois, Inc. deb. 7.8s, 2018 1,545,399
6,440,000 Owens-Illinois, Inc. sr. notes 7.35s, 2008 6,147,366
11,280,000 Owens-Illinois, Inc. sr. notes 7.15s, 2005 10,897,721
6,250,000 Packaging Corp. 144A sr. sub. notes 9 5/8s, 2009 6,343,750
5,870,000 Riverwood International Corp. company guaranty 10 7/8s, 2008 5,811,300
6,000,000 Riverwood International Corp. company guaranty 10 5/8s, 2007 6,255,000
2,120,000 Riverwood International Corp. company guaranty 10 1/4s, 2006 2,162,400
--------------
70,567,217
Paper and Forest Products (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
9,677,013 Alabama River Newsprint bank term loan 7.562s, 2002 7,160,990
11,720,000 APP Finance II Mauritius Ltd. bonds stepped-coupon zero %
(12s, 2/15/04), 2049 (Indonesia) (STP) 7,149,200
620,000 Boise Cascade Co. med. term notes Ser. A, 7.43s, 2005 583,184
8,300,000 Pacifica Papers, Inc. 144A sr. notes 10s, 2009 (Canada) 8,549,000
11,910,000 Pindo Deli Finance Mauritius Ltd. company guaranty 10 3/4s,
2007 (Indonesia) 7,503,300
4,620,000 Repap New Brunswick 144A sec. notes 11 1/2s, 2004 (Canada) 4,666,200
3,810,000 Tembec Industries, Inc. company guaranty 8 5/8s, 2009 (Canada) 3,819,525
--------------
39,431,399
Pharmaceuticals (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
2,670,000 Biovail Corp. International sr. notes 10 7/8s, 2005 2,723,400
9,550,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 9,884,250
--------------
12,607,650
Photography (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,650,000 PX Escrow Corp. sr. disc. notes stepped-coupon zero %
(9 5/8s, 2/1/02), 2006 (STP) 1,616,500
Publishing (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
4,010,000 American Media Operation, Inc. 144A sr. sub. notes
10 1/4s, 2009 4,060,125
3,830,000 Garden State Newspapers 144A sr. sub. notes 8 5/8s, 2011 3,715,100
3,515,378 Von Hoffman Press, Inc. 144A sr. sub. notes 13 1/2s, 2009 3,585,686
--------------
11,360,911
Railroads (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
1,935,000 TFM S.A. de C.V. company guaranty 10 1/4s, 2007 (Mexico) 1,702,800
14,750,000 TFM S.A. de C.V. company guaranty stepped-coupon zero %
(11 3/4s, 6/15/02), 2009 (Mexico) (STP) 8,850,000
--------------
10,552,800
Restaurants (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
4,800,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 4,764,000
Retail (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
4,555,000 Home Interiors & Gifts, Inc. company guaranty 10 1/8s, 2008 4,589,163
1,700,000 K mart Corp. deb. 13 1/2s, 2009 1,764,770
2,250,000 K mart Corp. med. term notes 9s, 2020 2,141,843
400,000 K mart Corp. med. term notes 8.19s, 2003 396,368
300,000 K mart Corp. med. term notes 8s, 2001 299,016
300,000 K mart Corp. med. term notes 7.2s, 2000 300,555
775,000 Kasper A.S.L. Ltd. sr. notes 12 3/4s, 2004 771,125
9,045,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 9,406,800
13,960,000 NBTY Inc. 144A sr. sub. notes 8 5/8s, 2007 12,145,200
--------------
31,814,840
Satellite Services (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
2,465,392 Direct Sat 1 144A notes 8 1/4s, 2001 2,465,392
11,260,000 Echostar DBS Corp. 144A sr. notes 9 3/8s, 2009 11,457,050
2,562,992 Echostar I 144A sr. notes 8 1/4s, 2001 2,562,992
7,640,000 Golden Sky Systems company guaranty Ser. B, 12 3/8s, 2006 8,595,000
5,950,000 Pegasus Media & Communications notes Ser. B, 12 1/2s, 2005 6,545,000
5,535,000 Satelites Mexicanos S.A. de C.V. 144A sr. notes 10 1/8s, 2004
(Mexico) 4,428,000
--------------
36,053,434
Semiconductors (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,785,661 Cirent Semiconductor sr. sub. notes 10.22s, 2002 1,812,446
2,114,359 Cirent Semiconductor 144A sr. sub. notes 10.14s, 2004 2,146,074
16,131,548 Fairchild Semiconductor Corp. 144A sr. sub. notes
11.74s, 2008 (PIK) 15,163,655
6,880,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 6,862,800
6,603,000 Zilog, Inc. company guaranty Ser. B, 9 1/2s, 2005 5,777,625
--------------
31,762,600
Specialty Consumer Products (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
9,910,000 Decora Industries, Inc. sr. sec. notes Ser. B, 11s, 2005 9,513,600
Steel (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
7,130,000 AK Steel Corp. sr. notes 9 1/8s, 2006 7,379,550
2,730,000 Armco, Inc. sr. notes 8 7/8s, 2008 2,798,250
5,200,000 National Steel Corp. 144A 1st mtge. 9 7/8s, 2009 5,291,000
3,925,000 National Steel Corp. 144A 1st mtge. Ser. B, 9 7/8s, 2009 3,993,688
561,000 Oregon Steel Mills 1st mortgage 11s, 2003 586,245
8,915,000 UCAR Global Enterprises sr. sub. notes Ser. B, 12s, 2005 9,494,475
7,110,000 WCI Steel, Inc. sr. notes Ser. B, 10s, 2004 7,323,300
--------------
36,866,508
Supermarkets (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,425,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 2,061,250
Telecommunications (12.5%)
- --------------------------------------------------------------------------------------------------------------------------
13,355,000 Barak I.T.C. sr. disc. notes stepped-coupon Ser. B, zero %
(12 1/2s, 11/15/02), 2007 (Israel) (STP) 7,679,125
7,660,000 Bestel S.A.de C.V. sr. disc. notes stepped-coupon zero %
(12 3/4s, 5/15/03), 2005 (Mexico) (STP) 4,902,400
5,650,000 Birch Telecommunications, Inc. sr. notes 14s, 2008 5,409,875
6,240,000 CapRock Communications Corp. sr. notes Ser. B, 12s, 2008 6,302,400
3,990,000 CapRock Communications Corp. 144A sr. notes 11 1/2s, 2009 3,890,250
7,705,000 Conecel Holdings 144A notes Ser. A, 14s, 2000 1,001,650
9,250,000 Covad Communications Group Inc. sr. notes 12 1/2s, 2009 8,856,875
14,100,000 Covad Communications Group, Inc. sr. disc. notes Ser. B,
stepped-coupon zero % (13 1/2s, 03/15/03), 2008 (STP) 7,684,500
34,185,000 DTI Holdings Inc. sr. disc. notes, stepped-coupon Ser. B,
zero % (12 1/2s, 03/01/03), 2008 (STP) 13,503,075
2,580,000 Econophone, Inc. company guaranty 13 1/2s, 2007 2,734,800
18,640,000 Econophone, Inc. 144A notes stepped-coupon zero %
(11s, 2/15/03), 2008 (STP) 9,972,400
5,750,000 Esprit Telecom Group PLC sr. notes 11 1/2s, 2007
(United Kingdom) 6,181,250
15,820,000 Firstworld Communication Corp. sr. disc. notes
stepped-coupon zero % (13s, 4/15/03), 2008 (STP) 8,068,200
20,300,000 Focal Communications Corp. sr. disc. notes Ser. B,
stepped-coupon zero % (12 1/8s, 02/15/03), 2008 (STP) 11,977,000
11,385,000 Global Crossing Holdings, Ltd. company guaranty 9 5/8s, 2008 12,466,575
25,188,000 GST Telecommunications, Inc. company guaranty
stepped-coupon zero % (13 7/8s, 12/15/00), 2005 (STP) 20,402,280
1,520,000 GST Telecommunications, Inc. 144A sr. disc. notes
stepped-coupon zero % (10 1/2s, 5/1/03), 2008 (STP) 855,000
45,000 Hyperion Telecommunications, Corp. sr. disc. notes Ser. B,
stepped-coupon zero % (13s, 4/15/01), 2003 (STP) 36,900
635,000 Hyperion Telecommunications, Corp. sr. notes Ser. B,
12 1/4s, 2004 666,750
2,960,000 Hyperion Telecommunications, Corp. 144A sr. sub. notes
12s, 2007 3,019,200
10,850,000 ICG Communications, Inc. sr. disc. notes stepped-coupon
zero % (10s, 02/15/03), 2008 (STP) 6,618,500
5,950,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon zero %
(13 1/2s, 9/15/00), 2005 (Canada) (STP) 5,355,000
25,085,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero %
(9 7/8s, 5/1/03), 2008 (STP) 15,176,425
8,315,000 Intelcom Group (USA), Inc. company guaranty
stepped-coupon zero % (12 1/2s, 5/1/01), 2006 (STP) 6,818,300
6,410,000 Intermedia Communications, Inc. sr. notes Ser. B, 8.6s, 2008 5,993,350
16,490,000 Intermedia Communications, Inc. sr. notes Ser. B, 8 1/2s, 2008 15,335,700
19,750,000 International Cabletel, Inc. sr. notes Ser. B, stepped-coupon
zero % (11 1/2s, 2/01/01), 2006 (STP) 17,281,250
23,645,000 KMC Telecom Holdings, Inc. sr. disc. notes stepped-coupon
zero % (12 1/2s, 2/15/03), 2008 (STP) 12,531,850
4,290,000 KMC Telecommunications 144A sr. notes 13 1/2s, 2009 4,268,550
16,660,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon
zero % (11 7/8s, 10/15/02), 2007 (STP) 9,996,000
3,650,000 L-3 Communications Corp. sr. sub. notes Ser. B, 10 3/8s, 2007 3,859,875
4,600,000 L-3 Communications Corp. company guaranty Ser. B, 8s, 2008 4,381,500
7,060,000 Logix Communications Enterprises sr. notes 12 1/4s, 2008 6,671,700
2,025,000 MetroNet Communications Corp. sr. notes 12s, 2007 (Canada) 2,349,000
4,500,000 MetroNet Communications Corp. sr. disc. notes
stepped-coupon zero % (10 3/4s, 11/1/02), 2007
(Canada) (STP) 3,577,500
10,020,000 MetroNet Communications Corp. 144A sr. notes
10 5/8s, 2008 (Canada) 11,447,850
9,595,000 MetroNet Communications Corp. sr. disc. notes
stepped-coupon zero % (9.95s, 6/15/03), 2008 (Canada) (STP) 7,100,300
9,390,000 Microcell Telecommunications sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 12/1/01), 2006 (Canada) (STP) 7,512,000
1,880,000 Netia Holdings B.V. 144A company guaranty stepped-coupon
zero % (11 1/4s, 11/1/01), 2007 (Poland) (STP) 1,222,000
3,320,000 Netia Holdings B.V. 144A company guaranty 10 1/4s, 2007
(Poland) 3,054,400
10,905,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 11,232,150
5,180,000 Orbital Imaging Corp. 144A sr. notes 11 5/8s, 2005 4,713,800
14,790,000 Pathnet, Inc. sr. notes 12 1/4s, 2008 8,282,400
615,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (9.47s, 10/15/02), 2007 (STP) 482,357
4,700,000 Qwest Communications International, Inc. sr. notes
Ser. B, 7 1/2s, 2008 4,708,366
78,000 Qwest Communications International, Inc. 144A sr. notes
7 1/4s, 2008 77,356
13,030,000 Rhythms Netconnections, Inc. sr. disc. notes Ser. B,
stepped-coupon zero % (13 1/2s, 5/15/03), 2008 (STP) 6,905,900
7,480,000 Rogers Cantel, Inc. sr. sub. notes 8.8s, 2007 (Canada) 7,592,200
7,610,000 Startec Global Communications Corp. sr. notes 12s, 2008 6,772,900
4,950,000 Telehub Communications Corp. company guaranty
stepped-coupon zero % (13 7/8s, 7/31/02), 2005 (STP) 3,366,000
7,490,000 Time Warner Telecom Inc. sr. notes 9 3/4s, 2008 7,864,500
2,230,000 Versatel Telecom B.V. sr. notes 13 1/4s, 2008 (Netherlands) 2,324,775
7,945,000 Versatel Telecom B.V. sr. notes 13 1/4s, 2008 (Netherlands) 8,282,663
9,605,000 WinStar Communications, Inc. sr. sub. notes stepped-coupon
zero % (15s, 3/1/02), 2007 (STP) 10,181,300
5,860,000 WinStar Communications. Inc. sr. sub. notes 11s, 2008 4,951,700
1,510,000 WinStar Communications, Inc. sr. sub. notes 10s, 2008 1,268,400
--------------
375,168,322
Telephone Services (3.8%)
- --------------------------------------------------------------------------------------------------------------------------
10,959,000 Allegiance Telecom, Inc. sr. disc. notes Ser. B, stepped-coupon
zero % (11 3/4s, 2/15/03), 2008 (STP) 6,794,580
18,915,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 17,307,225
20,820,000 Call-Net Enterprises Inc. sr. disc. notes stepped-coupon zero %
(10.8s, 5/15/04), 2009 (Canada) (STP) 11,659,200
16,040,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon zero %
(9.27s, 8/15/02), 2007 (Canada) (STP) 9,944,800
950,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon zero %
(8.94s, 8/15/03), 2008 (Canada) (STP) 560,500
4,515,000 Call-Net Enterprises, Inc. sr. notes 8s, 2008 (Canada) 4,018,350
6,425,000 Facilicom International sr. notes Ser. B, 10 1/2s, 2008 5,011,500
725,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 688,750
3,070,000 ITC Deltacom, Inc. sr. notes 11s, 2007 3,315,600
1,420,000 Long Distance International, Inc. sr. notes 12 1/4s, 2008 979,800
1,950,000 McLeodUSA, Inc. 144A sr. notes 8 1/8s, 2009 1,833,000
4,385,000 OnePoint Communications Corp. 144A sr. notes 14 1/2s, 2008 2,148,650
7,320,000 Primus Telecommunications Group, Inc. sr. notes Ser. B,
9 7/8s, 2008 7,063,800
8,787,000 RSL Communications, Ltd. company guaranty 12 1/4s, 2006 9,753,570
4,340,000 RSL Communications, Ltd. 144A notes 10 1/2s, 2008 4,274,900
3,150,000 RSL Communications, Ltd. company guaranty 9 1/8s, 2008 2,866,500
10,175,000 Transtel S.A. 144A pass-through certificates 12 1/2s, 2007
(Colombia) 5,799,750
25,870,000 Viatel, Inc. sr. disc. notes stepped-coupon zero %
(12 1/2s, 4/15/03), 2008 (STP) 16,880,175
1,940,000 Viatel, Inc. sr. notes 11 1/4s, 2008 1,971,525
--------------
112,872,175
Textiles (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,230,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2008 1,214,625
1,090,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2005 1,076,375
--------------
2,291,000
Transportation (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
7,045,000 Johnstown America Industries, Inc. company guaranty
Ser. C, 11 3/4s, 2005 7,555,763
4,770,000 Johnstown America Industries, Inc. sr. sub. notes 11 3/4s, 2005 5,115,825
3,240,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 3,215,700
6,000,000 Pegasus Shipping 144A notes 11 7/8s, 2004 4,215,000
--------------
20,102,288
Wireless Communications (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
4,710,000 American Mobile Satellite Corp. company guaranty
12 1/4s, 2008 3,273,450
340,000 Clearnet Communications, Inc. sr. disc. notes stepped-coupon
zero % (14 3/4s, 12/15/00), 2005 (STP) 306,000
7,390,000 Paging Network Do Brasil sr. notes 13 1/2s, 2005 (Brazil) 3,103,800
1,650,000 Paging Network, Inc. 144A sr. sub. notes 10s, 2008 1,039,500
7,260,000 Telecorp PCS Inc. 144A sr. disc. notes stepped-coupon
11 5/8s, (11 5/8s, 4/15/04), 2009 (STP) 3,738,900
4,390,000 Telesystem International Wireless Inc. sr. disc. notes Ser. C,
stepped-coupon zero % (10 1/2s, 11/1/02), 2007 (STP) 2,195,000
--------------
13,656,650
--------------
Total Corporate Bonds and Notes (cost $2,893,875,158) $2,489,711,598
PREFERRED STOCKS (7.9%) (a)
NUMBER OF SHARES VALUE
Banks (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
882,025 California Federal Bancorp Inc. Ser. A, $2.281 pfd. $ 23,373,663
187,205 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. 9,968,666
50,000 Chevy Chase Savings Bank $3.25 pfd. 1,487,500
3,050 First Republic 144A Ser. A, $10.50 cum. pfd. 3,050,000
--------------
37,879,829
Broadcasting (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
10,054 Benedek Communications $11.50 pfd. (PIK) 7,791,850
44,859 Capstar Broadcasting, Inc. 144A $12.00 pfd. (PIK) 5,427,939
34,674 Citadel Broadcasting Inc. 144A $13.25 cum. pfd. (PIK) 4,160,880
232,990 Diva Systems Corp. Ser. C, $6.00 pfd. 1,397,940
538,000 Diva Systems Corp. Ser. D, $6.00 pfd. 3,228,000
1,600 Granite Broadcasting 144A $12.75 pfd. (PIK) 1,600,000
1,764 Paxson Communications Corp. $13.25 cum. pfd. (PIK) 15,699,600
3,008 Pegasus Communications Corp. Ser. A, $12.75 cum. pfd. 3,346,400
10,275 Spanish Broadcasting Systems 14.25% cum. pfd. (PIK) 10,994,250
--------------
53,646,859
Building and Construction (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
150,300 Brand Scaffold Services, Inc. 144A $3.625 pfd. 4,659,300
Cable Television (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
3,047 21st Century Telecom Group 144A $13.75 cum. pfd. (PIK) 1,584,440
39,935 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 4,692,363
--------------
6,276,803
Cellular Communications (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
15,017 Dobson Communications Corp. 144A 12.25% pfd. (PIK) 13,965,810
2,545 NEXTEL Communications, Inc. Ser. E, $11.125 pfd. (PIK) 2,545,000
--------------
16,510,810
Computer Services and Software (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
5,651 Concentric Network Corp. Ser. B, 13.50% pfd. (PIK) 5,622,745
Electric Utilities (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
115,245 Public Service Co. of New Hampshire $2.651 1st mtge. pfd. 2,938,748
Food and Beverages (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
260,000 Doane Products Co. $14.25 pfd. 11,700,000
Insurance and Finance (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
130,000 CGA Group Ltd. 144A Ser. A, $13.75 pfd. (PIK) 3,510,000
Medical Supplies and Devices (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
15,370,000 Fresenius Medical Capital Trust I Ser. D, 9.00% company
guaranty, pfd. (Germany) 15,831,100
13,340,000 Fresenius Medical Capital Trust II 7.875% company guaranty,
pfd. (Germany) 13,239,950
--------------
29,071,050
Oil and Gas (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
4,660 R& B Falcon Corp. 13.875% cv. pfd. 4,799,800
165,490 TCR Holding Corp. Ser. C, zero %, pfd. 9,267
1,176,163 TCR Holding Corp. Ser. D, zero %, pfd. 62,337
150,000 TCR Holding Corp. Ser. E, zero %, pfd. 9,450
--------------
4,880,854
Packaging and Containers (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
29,940 Packaging Corp. America 144A $12.375 pfd. (PIK) 3,143,700
Restaurants (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
126,322 AmeriKing, Inc. $3.25 pfd. (PIK) 3,031,728
Telecommunications (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
4,450 ICG Holdings, Inc. $14.25 pfd. (Canada) 4,450,000
10,333 ICG Holdings, Inc., 144A $14.00 pfd. (Canada) (PIK) 9,971,345
14,775 Intermedia Communications, Inc. Ser. B, 13.50% pfd. (PIK) 15,513,750
3,837 IXC Communications, Inc. 12.50% pfd. (PIK) 3,721,890
140,707 Nextlink Communications, Inc. 144A $7.00 cum. pfd. (PIK) 7,211,234
14,400 WinStar Communications, Inc. 144A 14.25% cum. pfd. (PIK) 11,664,000
--------------
52,532,219
--------------
Total Preferred Stocks (cost $245,643,886) $ 235,404,645
WARRANTS (2.2%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
2,570 21st Century Telecom Group 144A 2/15/10 $ 51,400
5,300 American Mobile Satellite Corp. 4/1/08 132,500
7,660 Bestel S.A. de C.V. (Mexico) 5/15/05 15,320
4,500 Birch Telecommunications, Inc. 144A 6/15/08 22,500
35,457 Cellnet Data Systems, Inc. 10/1/07 850,968
130,000 CGA Group Ltd. 144A 4/15/01 1,300
46,200 ClearNet Communications, Inc. 144A 9/15/05 358,050
13,030 Club Regina, Inc. 144A 12/1/04 13,030
5,620 Colt Telecommunications Group PLC 12/31/06 2,669,500
104,017 Consorcio Ecuatoriano 144A (Ecuador) 10/1/00 10,402
31,800 Covad Communications Group 144A 3/15/08 38,064,600
5,390 Diva Systems Corp. 5/15/06 1,304,380
85,536 Diva Systems Corp. 3/1/08 1,026,432
202,675 DTI Holdings Inc. 3/1/08 2,027
10,370 E. Spire Communications, Inc. 11/1/05 155,550
5,100 Econophone, Inc. 144A 7/15/07 357,000
6,300 Epic Resorts 6/15/05 63
4,335 Esat Holdings, Inc. (Ireland) 2/1/07 307,785
15,720 Firstworld Communication 4/15/08 786,000
6,250 Globalstar Telecommunications 2/15/04 312,500
13,285 Hyperion Telecommunications Corp. 144A 4/15/01 730,675
122,350 ICG Communications, Inc. 10/15/05 2,447,000
7,160 Insilco Holding Co. 8/15/08 7
6,490 Interact Systems, Inc. 8/1/03 65
5,000 Intermedia Communications 6/1/00 465,000
3,670 International Wireless Communications
Holdings 144A 8/15/01 37
8,904 Isle of Capri Casinos 5/3/01 89
30,260 KMC Telecom Holdings, Inc. 4/15/08 98,345
29,100 Knology Holdings, Inc. 144A 10/15/07 58,200
1,420 Long Distance International, Inc. 144A 4/13/08 2,840
8,310 McCaw International Ltd. 4/15/07 35,318
7,800 Mediq Inc. 144A 6/1/09 78
3,025 MetroNet Communications Corp. 144A 8/15/07 163,350
3,170 MGC Communications, Inc. 144A 10/1/04 412,100
4,385 OnePoint Communications Corp. 6/1/08 4,385
8,890 Orion Network Systems 1/15/07 102,235
33,580 Pagemart, Inc. 144A 12/31/03 268,640
14,790 Pathnet, Inc. 144A 4/15/08 147,900
12,800 Paxson Communications Corp. 144A 6/30/03 128
89,120 Powertel, Inc. 2/1/06 356,480
30,905 President Riverboat Casinos, Inc. 9/30/99 927
80,920 Rhythms Netconnections, Inc. 144A 5/15/08 11,773,860
5,675 Spanish Broadcasting Systems 144A 6/30/99 1,163,375
7,760 STARTEC Global Communications Corp. 5/15/08 7,760
2,365 Sterling Chemicals Holdings 8/15/08 47,300
4,950 Telehub Communications Corp. 7/31/05 198,000
14,550 Transamerican Refining Corp. 6/30/03 15
23,545 UIH Australia/Pacific, Inc. 144A 5/15/06 23,545
79,200 USN Communications Inc. 8/15/04 792
10,175 Versatel Telecom B.V. 144A (Netherlands) 5/15/08 610,500
4,870 WAM!NET, Inc. 3/1/05 109,575
3,000 Wireless One, Inc. 10/19/00 30
668,230 Wright Medical Technology, Inc. 144A 6/30/03 7
--------------
Total Warrants (cost $19,931,475) $ 65,669,865
CONVERTIBLE BONDS AND NOTES (1.7%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 2,900,000 Argosy Gaming cv. sub. notes 12s, 2001 $ 2,965,250
14,500,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 8,700,000
3,106,000 GST Telecommunications, Inc. cv. sr. disc. notes stepped-coupon
zero % (13 7/8s, 12/15/00), 2005 (STP) 3,696,140
5,750,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s, 2002 4,456,250
5,000,000 Lam Research Corp. cv. sub. notes 5s, 2002 4,162,500
5,000,000 Lam Research Corp. 144A cv. sub. notes 5s, 2002 4,162,500
12,000,000 Micron Technology, Inc cv. 6 1/2s, 2005 9,240,000
1,000,000 Protection One, Inc. cv. sr. sub. notes 6 3/4s, 2003 913,750
4,550,000 Total Renal Care Holdings, Inc. 144A cv. 7s, 2009 3,753,750
7,110,000 WinStar Communications. Inc. 144A cv. sr. disc. notes
stepped-coupon zero % (14s, 10/15/00), 2005 (STP) 9,954,000
--------------
Total Convertible Bonds and Notes (cost $53,968,766) $ 52,004,140
COMMON STOCKS (1.0%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
46,992 Allegiance Telecom, Inc. (NON) $ 1,738,704
3,685 AmeriKing, Inc. (NON) 143,715
1,036,363 Capstar Broadcasting Partners (NON) 2,487,271
124,360 CellNet Data Systems, Inc. (NON) 1,103,695
250,000 Chesapeake Energy Corp. (NON) 531,250
75,000 French Fragrances Inc. (NON) 569,531
119,400 GST Telecommunications, Inc. (Canada) (NON) 1,462,650
74,908 Hedstrom Holdings, Inc. 144A (NON) 74,908
210,000 Intermedia Communications, Inc. (NON) 5,315,625
41,666 Lady Luck Gaming Corp. (NON) 177,081
2,655 Mothers Work, Inc. (NON) 28,873
4,330 Paging Do Brazil Holdings Co., LLC 144A Class B, (Brazil) (NON) 43
1,730 Premium Holdings (L.P.) 144A (NON) 6,054
707,186 PSF Holdings LLC Class A (NON) (AFF) 8,486,232
85,200 Specialty Foods Acquisition Corp. (NON) 2,130
150,986 Viatel, Inc. (NON) 6,794,356
--------------
Total Common Stocks (cost $43,664,669) $ 28,922,118
UNITS (0.9%) (a)
NUMBER OF UNITS VALUE
- --------------------------------------------------------------------------------------------------------------------------
19,680 Australis Media, Ltd. units stepped-coupon zero %,
(15 3/4s, 5/15/00), 2003 (In default) (Australia) (NON) (STP) $ 196,800
7,530 Carrier1 144A units 13.50% cum. pfd. 7,511,175
10,000 Network Plus Corp. units 13 1/2s, 2009 (PIK) 10,300,000
4,430 Tele1 Europe Bv 144A units 13s, 2009 (Netherlands) 4,474,300
7,555 XCL Ltd. units sr. sec. notes 13 1/2s, 2004 5,061,850
44,189 XCL Ltd. 144A units cum. pfd. 9 1/2s, 2006 (PIK) 927,969
--------------
Total Units (cost $52,314,580) $ 28,472,094
CONVERTIBLE PREFERRED STOCKS (0.8%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
134,210 Cendant Corp. $3.75 cv. pfd. $ 4,194,063
51,600 Chancellor Media Corp. $3.00 cum. cv. pfd. 5,256,750
25,000 Chesapeake Energy Corp. $3.50 cum. cv. pfd. 500,000
162,295 Global Telesystems, Inc. 144A $3.625 cv. pfd. 10,123,151
25,000 Kelly Oil & Gas Corp. $2.625 cv. pfd. 125,000
432 Paxson Communications Corp. 144A $9.75 cv. pfd. (PIK) 4,320,000
8,740 XCL Ltd 144A Ser. A, $9.50 cum. cv. pfd. 183,540
--------------
Total Convertible Preferred Stocks (cost $25,998,123) $ 24,702,504
COLLATERALIZED MORTGAGE OBLIGATIONS (0.4%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 8,700,000 Criimi Mae Commercial Mortgage Trust Ser. 98-C1,
Class C, 7s, 2012 $ 6,198,070
2,791,679 Fannie Mae Strip Ser. 299, Class 2 Interest Only (IO), 6.5s, 2028 830,525
3,463,085 Freddie Mac Strip Ser. 201, IO 6s, 2029 1,104,940
2,800,000 GS Mortgage Securities Corp. II Ser. 99-FL2AC, Class G,
7.03s, 2013 2,577,750
6,304,840 Merrill Lynch Mortgage Investors, Inc. Ser. 96-C2,
IO 1.56s, 2028 459,317
56,340,515 Mortgage Capital Funding, Inc. Ser. 98-MC1, Class X,
IO 0.72s, 2009 2,253,621
--------------
Total Collateralized Mortgage Obligations (cost $13,407,296) $ 13,424,223
FOREIGN GOVERNMENT BONDS AND NOTES (0.1%) (a) (cost $2,219,400)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 2,240,000 Brazil (Government of) bond 11 5/8s, 2004 $ 2,032,800
BRADY BONDS (0.1%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
FRF 26,334,750 Ivory Coast -- PDI bonds FRB 1.9s, 2018 $ 1,148,997
FRF 13,655,000 Ivory Coast -- 144A FLIRB collateralized FRB
2s, 2018 498,242
--------------
Total Brady Bonds (cost $3,028,529) $ 1,647,239
SHORT-TERM INVESTMENTS (0.2%) (a) (cost $6,259,000)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 6,259,000 Interest in $277,448,000 joint repurchase agreement
dated May 28, 1999 with Credit Suisse First Boston
due June 1, 1999 with respect to various U.S. Treasury
obligations -- maturity value of $6,262,331 for an effective
yield of 4.79% $ 6,259,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $3,360,310,882) (b) $2,948,250,226
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $2,998,756,664.
(b) The aggregate identified cost on a tax basis is $3,362,018,620, resulting in gross unrealized appreciation and
depreciation of $409,834,995 and $823,603,389, respectively, or net unrealized depreciation of $413,768,394.
(NON) Non-income-producing security.
(STP) The interest rate and date shown parenthetically represent the new interest rate to be paid and the date the fund
will begin receiving interest at this rate.
(PIK) Income may be received in cash or additional securities at the discretion of the issuer.
(AFF) Affiliated Companies (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.
FLIRB represents Front Loaded Interest Reduction Bond.
The rates shown on Floating Rate Bonds (FRB) and Floating Rate Notes (FRN) are the current interest rates shown at
May 31, 1999, which are subject to change based on the terms of the security.
- -------------------------------------------------------------------------------
Forward Currency Contracts to Sell at May 31, 1999 (Unaudited)
Market Aggregate Face Delivery Unrealized
Value Value Date Appreciation
- -------------------------------------------------------------------------------
Euro Dollar $2,991,429 $3,150,584 June-99 $159,155
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
May 31, 1999 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $3,360,310,882) (Note 1) $2,948,250,226
- -----------------------------------------------------------------------------------------------
Dividends, interest and other receivables 62,066,427
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 6,295,119
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 8,682,674
- -----------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 159,155
- -----------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 13,992
- -----------------------------------------------------------------------------------------------
Total assets 3,025,467,593
Liabilities
- -----------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 437,425
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 8,865,468
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 10,512,323
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 4,347,594
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 247,009
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 43,801
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 5,337
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 2,111,245
- -----------------------------------------------------------------------------------------------
Other accrued expenses 140,727
- -----------------------------------------------------------------------------------------------
Total liabilities 26,710,929
- -----------------------------------------------------------------------------------------------
Net assets $2,998,756,664
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $3,686,142,688
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (16,745,121)
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (258,950,772)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and liabilities
in foreign currencies (411,690,131)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $2,998,756,664
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,107,465,806 divided by 134,878,681 shares) $8.21
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $8.21)* $8.62
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($943,665,864 divided by 115,472,569 shares)** $8.17
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($937,071,868 divided by 114,249,968 shares) $8.20
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $8.20)* $8.48
- -----------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($10,553,126 divided by 1,285,335 shares) $8.21
- -----------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group
sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent
deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended May 31, 1999 (Unaudited)
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Interest $156,196,040
- -----------------------------------------------------------------------------------------------
Dividends 14,490,185
- -----------------------------------------------------------------------------------------------
Total investment income 170,686,225
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 8,766,036
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,732,895
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 39,400
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 15,529
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,464,192
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 4,943,813
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 2,323,836
- -----------------------------------------------------------------------------------------------
Reports to shareholders 75,073
- -----------------------------------------------------------------------------------------------
Registration fees 248,369
- -----------------------------------------------------------------------------------------------
Auditing 63,077
- -----------------------------------------------------------------------------------------------
Legal 52,907
- -----------------------------------------------------------------------------------------------
Postage 85,188
- -----------------------------------------------------------------------------------------------
Other 171,134
- -----------------------------------------------------------------------------------------------
Total expenses 19,981,449
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (151,834)
- -----------------------------------------------------------------------------------------------
Net expenses 19,829,615
- -----------------------------------------------------------------------------------------------
Net investment income 150,856,610
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (203,794,919)
- -----------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 143,588
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the period 475,877
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 163,959,082
- -----------------------------------------------------------------------------------------------
Net loss on investments (39,216,372)
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $111,640,238
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
May 31 November 30
1999* 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 150,856,610 $ 420,671,355
- ---------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions (203,651,331) 4,375,102
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments
and assets and liabilities in foreign currencies 164,434,959 (669,725,947)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 111,640,238 (244,679,490)
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (63,976,555) (144,701,997)
- ---------------------------------------------------------------------------------------------------------------
Class B (50,208,311) (113,287,380)
- ---------------------------------------------------------------------------------------------------------------
Class M (50,428,543) (162,681,979)
- ---------------------------------------------------------------------------------------------------------------
Class Y (458,276) --
- ---------------------------------------------------------------------------------------------------------------
In excess of net investment income
Class A -- (886,697)
- ---------------------------------------------------------------------------------------------------------------
Class B -- (694,197)
- ---------------------------------------------------------------------------------------------------------------
Class M -- (996,874)
- ---------------------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (211,194,727) (720,018,793)
- ---------------------------------------------------------------------------------------------------------------
Total decrease in net assets (264,626,174) (1,387,947,407)
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 3,263,382,838 4,651,330,245
- ---------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of net
investment income of $16,745,121 and $2,530,046,
respectively) $2,998,756,664 $3,263,382,838
- ---------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share May 31
operating performance (Unaudited) Year ended November 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.35 $9.96 $9.65 $9.52 $9.07 $10.41
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .41(d) .95(d) .90 .89 1.00 .98
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.10) (1.61) .32 .14 .45 (1.30)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .31 (.66) 1.22 1.03 1.45 (.32)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.45) (.94) (.89) (.90) (1.00) (1.02)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.01) (.02) --(c) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.45) (.95) (.91) (.90) (1.00) (1.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.21 $8.35 $9.96 $9.65 $9.52 $9.07
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 3.82* (7.39) 13.30 11.38 16.81 (3.43)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,107,466 $1,261,785 $1,436,699 $1,071,702 $870,810 $653,094
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .48* .92 .97 1.09 1.12 1.03
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.98* 9.81 9.17 9.24 10.35 10.87
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 32.46* 89.53 67.62 74.47 89.96 69.61
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended November 30, 1995 and thereafter, includes amounts
paid through expense offset arrangements. Prior period ratios exclude these amounts. (Note 2)
(c) Distributions in excess of net investment income were less than $0.01 per share.
(d) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during
the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share May 31 May 16, 1994+
operating performance (Unaudited) Year ended November 30 to Nov. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.32 $9.92 $9.61 $9.49 $9.05 $9.83
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .38(d) .87(d) .83 .82 .92 .48
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.11) (1.59) .32 .13 .45 (.77)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .27 (.72) 1.15 .95 1.37 (.29)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.42) (.87) (.82) (.83) (.93) (.49)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.01) (.02) --(c) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.42) (.88) (.84) (.83) (.93) (.49)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.17 $8.32 $9.92 $9.61 $9.49 $9.05
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 3.32* (7.99) 12.52 10.52 15.94 (3.12)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $943,666 $1,052,251 $1,143,329 $623,097 $287,877 $37,017
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .86* 1.67 1.72 1.84 1.85 1.02*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.60* 9.06 8.41 8.50 9.61 7.47*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 32.46* 89.53 67.62 74.47 89.96 69.61
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended November 30, 1995 and thereafter, includes amounts
paid through expense offset arrangements. Prior period ratios exclude these amounts. (Note 2)
(c) Distributions in excess of net investment income were less than $0.01 per share.
(d) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during
the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the year
Per-share May 31 Dec. 1, 1994+
operating performance (Unaudited) Year ended November 30 to Nov. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.34 $9.95 $9.64 $9.51 $9.05
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .40(d) .92(d) .87 .87 .99
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.10) (1.61) .33 .14 .45
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .30 (.69) 1.20 1.01 1.44
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.44) (.91) (.87) (.88) (.98)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.01) (.02) --(c) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.44) (.92) (.89) (.88) (.98)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.20 $8.34 $9.95 $9.64 $9.51
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 3.70* (7.64) 13.05 11.15 16.72
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $937,072 $949,346 $2,071,302 $464,506 $20,077
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .61* 1.17 1.22 1.36 1.35
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.84* 9.56 8.93 8.86 10.06
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 32.46* 89.53 67.62 74.47 89.96
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended November 30, 1995 and thereafter, includes amounts
paid through expense offset arrangements. Prior period ratios exclude these amounts. (Note 2)
(c) Distributions in excess of net investment income were less than $0.01 per share.
(d) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during
the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS Y
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Dec. 31, 1998+
Per-share to May 31
operating performance (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $8.19
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .39(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .01
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .40
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.38)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.38)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.21
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 4.97*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $10,553
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .30*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.43*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 32.46*
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended November 30, 1995 and thereafter, includes amounts
paid through expense offset arrangements. Prior period ratios exclude these amounts. (Note 2)
(c) Distributions in excess of net investment income were less than $0.01 per share.
(d) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during
the period.
</TABLE>
Notes to financial statements
May 31, 1999 (Unaudited)
Note 1
Significant accounting policies
Putnam High Yield Advantage Fund (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The fund seeks high current income
primarily through a diversified portfolio of high-yielding, lower-rated
corporate bonds. Capital growth is a secondary objective when consistent
with the objective of high current income.
The fund offers class A, class B, class M and class Y shares. The fund
began offering class Y shares on December 31, 1998. 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 higher than class A shares but lower than class B
shares. Class Y shares, which are sold at net asset value, are generally
subject to the same expenses as class A, class B and class M shares, but
do not bear a distribution fee. Class Y shares are sold to defined
contribution plans that invest at least $150 million in a combination of
Putnam funds and other accounts managed by affiliates of Putnam Investment
Management, Inc. ("Putnam Management"), the fund's Manager, a wholly-owned
subsidiary of Putnam Investments, Inc.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if that fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with 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 Management. These balances may be invested in one or more
repurchase agreements and/or short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the market
value of which at the time of purchase is required to be in an amount at
least equal to the resale price, including accrued interest. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. Putnam Management is responsible for determining that the
value of these underlying securities is at all times at least equal to the
resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). 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.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when accrued or incurred. The fund
does not isolate that portion of realized or unrealized gains or losses
resulting from changes in the foreign exchange rate on investments from
fluctuations arising from changes in the market prices of the securities.
Such gains and losses are included with the net realized and unrealized
gain or loss on investments. Net realized gains and losses on foreign
currency transactions represent net realized exchange gains or losses on
closed forward currency contracts, disposition of foreign currencies and
the difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized appreciation
and depreciation of assets and liabilities in foreign currencies arise
from changes in the value of open forward currency contracts and assets
and liabilities other than investments at the period end, resulting from
changes in the exchange rate.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date, to protect against a decline
in value relative to the U.S. dollar of the currencies in which its
portfolio securities are denominated or quoted (or an increase in the
value of a currency in which securities a fund intends to buy are
denominated, when a fund holds cash reserves and short-term investments).
The U.S. dollar value of forward currency contracts is determined using
current forward currency exchange rates supplied by a quotation service.
The market value of the contract will fluctuate with changes in currency
exchange rates. The contract is "marked to market" daily and the change in
market value is recorded as an unrealized gain or loss. When the contract
is closed, the fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed. The fund could be exposed to risk if
the value of the currency changes unfavorably, if the counterparties to
the contracts are unable to meet the terms of their contracts or if the
fund is unable to enter into a closing position.
G) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintain an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the six months
ended May 31, 1999, 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
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated investment
companies. It is also the intention of the fund to distribute an amount
sufficient to avoid imposition of any excise tax under Section 4982 of the
Internal Revenue Code of 1986, as amended. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held nor for excise tax on income and capital
gains.
At November 30, 1998, the fund had a capital loss carryover of
approximately $53,592,000 available to offset future capital gains, if
any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
- -------------- -----------------
$ 2,548,000 November 30, 1999
16,967,000 November 30, 2002
34,077,000 November 30, 2003
I) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date. 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. Reclassifications are made to the fund's
capital accounts to reflect income and gains available for distribution
(or available capital loss carryovers) under income tax regulations.
Note 2
Management 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.
As part of the subcustodian contract between the subcustodian bank and
Putnam Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments,
Inc. the subcustodian bank has a lien on the securities of the fund to the
extent permitted by the fund's investment restrictions to cover any
advances made by the subcustodian bank for the settlement of securities
purchased by the fund. At May 31, 1999, the payable to the subcustodian
bank represents the amount due for cash advance for the settlement of a
security purchased.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The aggregate
amount of all such reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by PFTC. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the six months ended May 31, 1999, fund expenses were reduced by
$151,834 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 $2,090
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 have approved payment by the fund to an annual
rate of 0.25%, 1.00% and 0.50% of the average net assets attributable to
class A, class B and class M shares respectively.
For the six months ended May 31, 1999, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $73,142 and $2,164 from the
sale of class A and class M shares, respectively and $1,379,336 in
contingent deferred sales charges from redemptions of class B shares. A
deferred sales charge of up to 1% is assessed on certain redemptions of
class A shares. For the six months ended May 31, 1999, Putnam Mutual Funds
Corp., acting as underwriter received $19,071 on class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended May 31, 1999, purchases and sales of
investment securities other than short-term investments aggregated
$980,930,693 and $1,178,619,330, respectively. There were no purchases and
sales of U.S. government obligations. In determining the net gain or loss
on securities sold, the cost of securities has been determined on the
identified cost basis.
Note 4
Capital shares
At May 31, 1999, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended May 31, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 15,088,947 $ 124,407,224
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 4,251,231 34,858,939
- -----------------------------------------------------------------------------
19,340,178 159,266,163
Shares
repurchased (35,528,876) (293,369,657)
- -----------------------------------------------------------------------------
Net decrease (16,188,698) $(134,103,494)
- -----------------------------------------------------------------------------
Year ended November 30, 1998
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 50,620,751 $ 484,922,630
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 8,389,457 79,501,117
- -----------------------------------------------------------------------------
59,010,208 564,423,747
Shares
repurchased (52,204,650) (495,189,794)
- -----------------------------------------------------------------------------
Net increase 6,805,558 $ 69,233,953
- -----------------------------------------------------------------------------
Six months ended May 31, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 6,022,056 $ 49,279,217
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 2,943,979 24,034,992
- -----------------------------------------------------------------------------
8,966,035 73,314,209
Shares
repurchased (20,039,719) (164,315,174)
- -----------------------------------------------------------------------------
Net decrease (11,073,684) $(91,000,965)
- -----------------------------------------------------------------------------
Year ended November 30, 1998
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 39,651,789 $ 385,510,919
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 5,889,362 55,596,820
- -----------------------------------------------------------------------------
45,541,151 441,107,739
Shares
repurchased (34,270,855) (322,108,428)
- -----------------------------------------------------------------------------
Net increase 11,270,296 $ 118,999,311
- -----------------------------------------------------------------------------
Six months ended May 31, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 17,192,434 $ 141,224,216
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 257,310 2,107,524
- -----------------------------------------------------------------------------
17,449,744 143,331,740
Shares
repurchased (16,973,293) (139,966,941)
- -----------------------------------------------------------------------------
Net increase 476,451 $ 3,364,799
- -----------------------------------------------------------------------------
Year ended November 30, 1998
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 41,793,143 $ 407,149,278
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 538,429 5,110,109
- -----------------------------------------------------------------------------
42,331,572 412,259,387
Shares
repurchased (136,787,356) (1,320,511,444)
- -----------------------------------------------------------------------------
Net decrease (94,455,784) $(908,252,057)
- -----------------------------------------------------------------------------
For the period December 31, 1998
(commencement of operations) to
May 31, 1999
- -----------------------------------------------------------------------------
Class Y Shares Amount
- -----------------------------------------------------------------------------
Shares sold 1,440,757 $11,833,473
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 54,703 458,276
- -----------------------------------------------------------------------------
1,495,460 12,291,749
Shares
repurchase (210,125) (1,746,816)
- -----------------------------------------------------------------------------
Net increase 1,285,335 $10,544,933
- -----------------------------------------------------------------------------
Note 5
Transactions with Affiliated Issuers
Transactions during the year with companies in which the fund owned at least
5% of the voting securities were as follows:
Purchase Sales Dividend Market
Affiliates cost cost Income Value
- -----------------------------------------------------------------------------
PSF Holdings LLC Class A $-- $-- $-- $8,486,232
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds. Please
call your financial advisor or Putnam at 1-800-225-1581 to obtain a prospectus
for any Putnam fund. It contains more complete information, including charges
and expenses. Please read it carefully before you invest or send money.
GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund [DBL. DAGGER]
Capital Opportunities Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Opportunities Fund [DBL. DAGGER]
OTC & Emerging Growth Fund
Research Fund
Vista Fund
Voyager Fund
Voyager Fund II
GROWTH AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGER]
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Intermediate U.S. Government
Income Fund
Money Market Fund **
Preferred Income Fund
Strategic Income Fund *
U.S. Government Income Trust
TAX-FREE INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund**
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota,
New Jersey, New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK] **
California, New York
ASSET ALLOCATION FUNDS
Putnam Asset Allocation Funds-three investment portfolios that spread your
money across a variety of stocks, bonds, and money market investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* Formerly Putnam Diversified Income Trust II
[DBL. DAGGER] Closed to new investors. Some exceptions may apply. Contact
Putnam for details.
[SECTION MARK] Not available in all states.
** An investment in a money market fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the funds seek to preserve your investment at $1.00 per share, it
is possible to lose money by investing in the fund.
Check your account balances and current performance at www.putnaminv.com.
Fund information
WEB SITE
www.putnaminv.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Edward H. D'Alelio
Vice President
Robert M. Paine
Vice President and Fund Manager
Jeffrey A. Kaufman
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam High Yield
Advantage Fund. It may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details of sales
charges, investment objectives, and operating policies of the fund, and
the most recent copy of Putnam's Quarterly Performance Summary. For more
information or to request a prospectus, call toll free: 1-800-225-1581.
You can also learn more at Putnam Investments' Web site: 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
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
SA032-53207 060/327/702 7/99
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ----------------------------------------------------------------------------
Putnam High Yield Advantage Fund
Supplement to Semiannual Report dated 5/31/99
The following information has been prepared to provide class Y shareholders
with a performance overview specific to their holdings. Class Y shares are
offered exclusively to defined contribution plans investing $150 million or
more in one or more of Putnam's funds or private accounts. Performance of
class Y shares, which incur neither a front-end load, distribution fee, nor
contingent deferred sales charge, will differ from performance of class A,
B, and M shares, which are discussed more extensively in the semiannual
report.
SEMIANNUAL RESULTS AT A GLANCE
- ----------------------------------------------------------------------------
Total return
for periods ended 5/31/99 NAV
6 months 3.92%
1 year -8.43
5 years 37.25
Annual average 6.54
Life of fund (since class A inception, 3/25/86) 214.69
Annual average 9.09
Share value: NAV
11/30/98 $8.35
5/31/99 $8.21
- ----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
6 $0.379 -- $0.379
- ----------------------------------------------------------------------------
Please note that past performance does not indicate future results. Returns
shown for class Y shares for periods prior to their inception are derived
from the historical performance of class A shares, adjusted to reflect the
initial sales charge currently applicable to class A shares. These returns
have not been adjusted to reflect differences in operating expenses which,
for class Y shares, are lower than the operating expenses applicable to
class A shares. All returns assume reinvestment of distributions at net
asset value. Performance data reflects an expense limitation previously in
effect. Without the expense limitation, total returns would have been lower.
Investment return and principal value will fluctuate so your shares, when
redeemed, may be worth more or less than their original cost. See full
report for information on comparative benchmarks. If you have questions,
please consult your fund prospectus or call Putnam toll free at
1-800-752-9894.
