Putnam
High Yield
Advantage
Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
11-30-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The markets continued to provide their share of challenges and
opportunities as your fund closed its books on fiscal 1999. In the
following report, the fund's managers discuss performance for the period
and prospects for the months ahead.
This is the last letter to you and the other shareholders of Putnam High
Yield Advantage Fund that I will be signing. After more than 30 years as
Chairman of the Trustees and President of the Putnam Funds, the time has
come for me to step aside.
In June, John Hill will become Chairman. John is currently an independent
Trustee and has served on the board for the past 14 years. In addition, my
son, George Putnam, III, will take on the role of President. I am
confident that the leadership of the funds will be in exceptionally strong
hands.
I will become Chairman Emeritus, remain a shareholder, and stay in close
touch with the funds. It has been my privilege to serve you.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
January 19, 2000
Report from the Fund Managers
Robert M. Paine
Jeffrey Kaufman
During Putnam High Yield Advantage Fund's 1999 fiscal year, the high-yield
market bounced up, down, and then up again, buffeted by rising interest
rates and changing investor sentiment. When judging the performance of
your fund and high-yield bonds, it is important to consider two separate
issues: the effects of rising interest rates on all segments of the bond
market, and the performance of the high-yield market relative to other
fixed-income sectors. All in all, your fund performed admirably within a
very challenging environment.
Total return for 12 months ended 11/30/99
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- ----------------------------------------------------
2.89% -2.04% 1.98% -2.64% 2.66% -0.68%
- ----------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods and explanation of performance calculation
methods begin on page 5.
* INTEREST RATES EAT INTO RETURNS
High-yield bonds hit their stride in the first half of your fund's fiscal
year, recovering well from the pummeling they took during 1998's flight to
quality. But the market was knocked off pace in May, when the Federal
Reserve made clear its intention of raising short-term rates. The Fed's
goal was to head off inflation caused by continued robust economic growth
in the U.S. From that point through the end of the period, the
interest-rate backdrop turned generally sour for all segments of the
fixed-income market. A steady drumbeat of rising interest rates -- and the
corresponding counterpoint of falling bond prices -- echoed through the
markets, as investors anticipated, then digested, three short-term rate
hikes implemented by the Fed.
In the summer months, high-yield bonds were also hit hard by anticipatory
fears of reduced liquidity at the turn of the year 2000. Demand for
high-yield securities fell as dealers and investors sought to reduce their
high-yield positions. We believed these fears to be unfounded, especially
since our analysis of the high-yield market indicated nothing
fundamentally wrong with high-yield companies as a whole. Nevertheless, it
was necessary for us to bide our time until the fourth quarter, when
investors started to realize that their fears of impending doom within the
credit markets were essentially unfounded. When all was said and done,
total returns for high-yield bonds during your fund's fiscal year were
dampened by higher rates, but were better than Treasuries with comparable
maturities.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Telecommunications 14.8%
Broadcasting 6.8%
Cellular
communications 4.9%
Cable television 4.6%
Gaming 3.9%
Footnote reads:
*Based on net assets as of 11/30/99. Holdings will vary over time.
* TELECOMMUNICATIONS BONDS CONTINUE TO SHINE
Bonds of telecommunications companies proved to be the driving force
behind your fund's performance during its fiscal year. This is an industry
that represents a significant proportion of the high-yield market. It's a
growing sector, with deregulation spurring competition among new players
and new bond issues coming to market to fund growing businesses that
appear to be immune to the vicissitudes of the economy. The sector offers
many opportunities among companies that are trying to service the pipeline
of information, entertainment, the Internet, communications, and other
products to both individuals and businesses.
Two banner investments were Rhythms NetConnections and Covad
Communications, companies that we mentioned six months ago in your fund's
semiannual report dated May 31, 1999. 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.
Digital subscriber line technology (DSL) plays a key role in the business
of both these companies. Simply put, DSL enables the exchange of different
types of data or communications over the same line, in larger amounts. For
example, DSL might allow household users to transmit or receive data via
the Internet at the same time they hold a conversation over the same line.
Through this technology, productivity increases, networks can be expanded,
and users can realize significant savings in their service and networking
costs. Looking more specifically at the companies, Rhythms NetConnections
provides high-speed data communications to both businesses and
individuals, and expanded its nationwide network during the period. So did
Covad Communications, a competitive local exchange carrier (CLEC) that
offers DSL communications services to smaller businesses and individual
customers.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Midland Funding II Corp.
deb. 11 3/4 s, 2005
Electric utilities
NEXTEL Communications, Inc. 144A
9 3/8 s, 2009
Cellular communications
California Federal Bancorp, Inc.
Ser. A, $2.281 preferred
Banks
Lyondell Petrochemical Co.
sec. notes Ser. B, 9 7/8 s, 2007
Chemicals
Trump Castle Funding 144A
10 1/4 s, 2003
Gaming
BTI Telecom Corp.
sr. notes 10 1/2 s, 2007
Telephone services
Celcaribe S.A.
stepped-coupon 2004
Telephone services
Dobson Communications Corp. 144A
12.25% preferred
Cellular communications
International Cabletel, Inc.
stepped-coupon 2006
Telecommunications
Viatel, Inc.
stepped-coupon 2008
Telephone services
Footnote reads:
These holdings represent 8.0% of the fund's net assets as of 11/30/99.
Portfolio holdings will vary over time.
Media and broadcasting also proved to be fertile ground, helped by
increasing advertising revenues. Internet service providers purchased a
significant amount of advertising time in order to build name recognition
and market share. Two investments we'd highlight would be Spanish
Broadcasting, which benefited from the demographics of the country's Latin
population; and Chancellor Media, which was acquired by Clear Channel.
"Issues related to liquidity fears going into the Year 2000 restrained the
high-yield market in 1999. We believe these were problems of perception rather
than a reflection of fundamental difficulties in the market. Once January 1 is
behind us, we believe the backdrop for all markets, especially high-yield, will
improve."
- -- Robert Paine, manager,
Putnam High Yield Advantage Fund
With every period comes some disappointments, and this year was no
exception. Defaults were slightly on the upswing this year, after several
years of very exemplary performance in the high-yield market. Health care
and energy were two particular areas of difficulty, the former because of
cutbacks in Medicare funding and the latter because of low oil prices
earlier in the fiscal year. Fortunately, your fund had no exposure to one
of the year's higher-profile defaults, the failure of Iridium, a satellite
start-up funded by Motorola. Despite the increase in defaults, we do not
believe the high-yield market is one that is rife with a significant
amount of credit landmines. Although access to capital in the market has
declined and the perception may be that credit health is not as good as it
was a year ago, we believe that credit in the market as a whole remains
sound.
* MORE FAVORABLE CONDITIONS ANTICIPATED FOR 2000
Issues related to liquidity fears going into the Year 2000 restrained the
high-yield market in 1999. We believe these were problems of perception
rather than a reflection of fundamental difficulties in the market. Once
January 1 is behind us, we believe the backdrop for all markets,
especially high-yield, will improve. In addition, we believe the
high-yield market suffered from diminished access to capital because of
the credit crunch of 1998. It appears that situation has improved.
Further, we feel a more stable interest-rate environment and continued
modest economic growth should bode well for the high-yield marketplace.
Looking more closely at your fund, we intend to continue our emphasis on
finding attractive niches within the telecommunications market, because we
currently expect this sector to be less susceptible to market volatility.
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 11/30/99, 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.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 11/30/99
Class A Class B Class M
(inception dates) (3/25/86) (5/16/94) (12/1/94)
NAV POP NAV CDSC NAV POP
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 year 2.89% -2.04% 1.98% -2.64% 2.66% -0.68%
- --------------------------------------------------------------------------------------
5 years 40.47 33.84 35.29 33.59 38.77 34.32
Annual average 7.03 6.00 6.23 5.96 6.77 6.08
- --------------------------------------------------------------------------------------
10 years 151.39 139.53 130.98 130.98 145.00 137.03
Annual average 9.66 9.13 8.73 8.73 9.37 9.01
- --------------------------------------------------------------------------------------
Life of fund 211.58 196.74 175.68 175.68 198.10 188.33
Annual average 8.66 8.28 7.69 7.69 8.31 8.05
- --------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 11/30/99
Lehman Bros. First Boston
Corporate Bond High Yield Consumer
Index Index price index
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 year -1.13% 1.81% 2.68%
- --------------------------------------------------------------------------------------
5 years 50.24 54.17 12.49
Annual average 8.48 9.04 2.38
- --------------------------------------------------------------------------------------
10 years 121.66 180.75 33.76
Annual average 8.29 10.88 2.95
- --------------------------------------------------------------------------------------
Life of fund 204.88 264.24 54.78
Annual average 8.50 9.92 3.25
- --------------------------------------------------------------------------------------
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.
</TABLE>
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 11/30/90
Fund's class A Lehman Bros. Corp. First Boston
Date shares at POP Bond Index High Yield index
11/30/89 9,525 10,000 10,000
11/30/90 8,551 10,568 9,275
11/30/91 12,437 12,299 13,301
11/30/92 14,730 13,558 15,455
11/30/93 17,659 15,393 18,354
11/30/94 17,052 14,754 18,211
11/30/95 19,918 17,891 21,332
11/30/96 22,185 19,047 23,822
11/30/97 25,135 20,489 27,106
11/30/98 23,279 22,420 27,575
11/30/99 $23,953 $22,166 $28,075
Footnote reads:
Past performance is no assurance of future results. At the end of the same
time period, a $10,000 investment in the fund's class B shares would have
been valued at $23,098, and no contingent deferred sales charges would
apply; a $10,000 investment in the fund's class M shares would have been
valued at $24,500 ($23,703 at public offering price).
<TABLE>
<CAPTION>
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 11/30/99
Class A Class B Class M
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Distributions (number) 12 12 12
- --------------------------------------------------------------------------------------
Income $0.8353 $0.7744 $0.8170
- --------------------------------------------------------------------------------------
Capital gains -- -- --
- --------------------------------------------------------------------------------------
Return of capital 0.0287 0.0266 0.0280
- --------------------------------------------------------------------------------------
Total $0.8640 $0.8010 $0.8450
- --------------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- --------------------------------------------------------------------------------------
11/30/98 $8.35 $8.77 $8.32 $8.34 $8.62
- --------------------------------------------------------------------------------------
11/30/99 7.72 8.10 7.68 7.71 7.97
- --------------------------------------------------------------------------------------
Current return
(end of period)
- --------------------------------------------------------------------------------------
Current dividend rate1 10.65% 10.14% 10.00% 10.43% 10.09%
- --------------------------------------------------------------------------------------
Current 30-day SEC yield2 11.36 10.82 10.55 11.08 10.71
- --------------------------------------------------------------------------------------
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.
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 12/31/99 (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
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 year 5.92% 0.86% 5.14% 0.37% 5.69% 2.31%
- --------------------------------------------------------------------------------------
5 years 42.74 35.94 37.33 35.61 41.01 36.47
Annual average 7.38 6.33 6.55 6.28 7.12 6.42
- --------------------------------------------------------------------------------------
10 years 160.32 148.01 139.16 139.16 153.78 145.42
Annual average 10.04 9.51 9.11 9.11 9.76 9.39
- --------------------------------------------------------------------------------------
Life of fund 217.18 202.07 180.49 180.49 203.40 193.46
Annual average 8.74 8.36 7.78 7.78 8.39 8.13
- --------------------------------------------------------------------------------------
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 section for performance calculation method.
</TABLE>
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 class B CDSC declines from a 5% maximum during the
first year to 1% during the sixth year. After the sixth year, the CDSC no
longer applies.
Comparative benchmarks
The Lehman Brothers Corporate Bond Index* is an index of publicly issued,
fixed-rate, non-convertible investment-grade domestic corporate debt
securities frequently used as a general measure of the performance of
fixed-income securities.
The First Boston High Yield Index* is a market-weighted index including
publicly traded bonds having a rating below BBB by Standard & Poor's and
Baa by Moody's.
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, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values as
of the last day of the reporting period. Holdings are organized by asset
type and industry sector, country, or state to show areas of concentration
and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to
determine the net asset value per share, which is calculated separately
for each class of shares. (For funds with preferred shares, the amount
subtracted from total assets includes the net assets allocated to
remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss 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 sources listed in the Statement of operations because
the distributions are determined on a tax basis and may be paid in a
different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also
includes the current reporting period. For open-end funds, a separate
table is provided for each share class.
Report of independent accountants
The Board of Trustees and Shareholders
Putnam High Yield Advantage Fund
We have audited the accompanying statement of assets and liabilities of
Putnam High Yield Advantage Fund, including the fund's portfolio, as of
November 30, 1999, and the related statement of operations, statement of
changes in net assets and financial highlights for the year or period then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on
our audit. The statement of changes in net assets for the year ended
November 30, 1998 and the financial highlights for each of the years or
periods in the four-year period ended November 30, 1998 were audited by
other auditors whose report dated January 14, 1999 expressed an
unqualified opinion on that financial statement and those financial
highlights.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of November 30, 1999 by correspondence
with the custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of Putnam High Yield Advantage Fund as of November 30, 1999, the results
of its operations, changes in its net assets and financial highlights for
the year or period then ended, in conformity with generally accepted
accounting principles.
KPMG LLP
Boston, Massachusetts
January 6, 2000
<TABLE>
<CAPTION>
The fund's portfolio
November 30, 1999
CORPORATE BONDS AND NOTES (82.7%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
Advertising (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
$ 9,560,000 Aoa Holdings Llc 144A sr. notes 10 3/8s, 2006 $ 9,464,400
Aerospace and Defense (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
5,030,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 4,275,500
3,800,000 Argo-Tech Corp. company guaranty Ser. D,
8 5/8s, 2007 3,230,000
2,640,000 BE Aerospace, Inc. 144A sr. sub. notes 9 1/2s, 2008 2,362,800
4,470,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 3,687,750
--------------
13,556,050
Agriculture (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
13,591,395 Premium Standard Farms, Inc. sr. sec. notes
11s, 2003 (PIK) 12,504,083
Airlines (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
3,225,000 Airbus Industries 144A notes 12.266s, 2020 3,285,598
7,340,000 Calair LLC company guaranty 8 1/8s, 2008 6,780,325
2,750,000 Canadian Airlines Corp. sr. notes
12 1/4s, 2006 (Canada) 1,210,000
13,870,000 Canadian Airlines Corp. secd. notes
10s, 2005 (Canada) 10,125,100
15,470,000 Cathay International Ltd. 144A sr. notes
13s, 2008 (China) 7,735,000
4,100,000 Continental Airlines, Inc. sr. notes 9 1/2s, 2001 4,141,000
12,500,000 Trans World Airlines, Inc. sr. notes 11 1/2s, 2004 8,250,000
8,120,000 Trans World Airlines, Inc. sr. notes 11 3/8s, 2006 3,410,400
--------------
44,937,423
Apparel (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
6,360,000 Fruit of the Loom company guaranty 8 7/8s, 2006 763,200
2,825,000 GFSI, Inc. sr. disc. notes Ser. B, stepped-coupon zero %
(11 3/8s, 9/15/04), 2009 (STP) 1,130,000
12,490,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 12,646,125
3,645,000 William Carter Holdings Co. sr. sub. notes
Ser. A, 12s, 2008 3,572,100
--------------
18,111,425
Automotive Parts (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
8,677,000 Aftermarket Technology Corp. sr. sub. notes
12s, 2004 8,677,000
1,500,000 Aftermarket Technology Corp. sr. sub. notes
Ser. D, 12s, 2004 1,500,000
3,620,000 Dura Operating Corp. company guaranty
Ser. B, 9s, 2009 3,402,800
11,310,000 Federal Mogul Corp. notes 7 1/2s, 2009 10,106,616
6,910,000 Lear Corp. sub. notes 9 1/2s, 2006 6,910,000
8,565,000 Safety Components International, Inc. sr. sub. notes
Ser. B, 10 1/8s, 2007 5,139,000
1,020,000 Sanluis Corp. S.A. de C.V. sr. notes 8 7/8s,
2008 (Mexico) 897,600
3,790,000 Transportation Manufacturing Operations, Inc.
company guaranty 11 1/4s, 2009 3,865,800
--------------
40,498,816
Banks (2.5%)
- --------------------------------------------------------------------------------------------------------------------------
21,850,000 Advanta Corp. company guaranty Ser. B, 8.99s, 2026 14,421,000
8,150,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 7,633,779
850,000 Advanta Corp. med. term notes Ser. D, 6.98s, 2002 775,260
3,000,000 Advanta Corp. med. term notes Ser. D, 6.65s, 2000 2,994,030
1,700,000 Advanta Corp. med. term notes Ser. D, 6.584s, 2000 1,696,515
1,215,000 Advanta Corp. med. term notes Ser. D, 6.54s, 2000 1,211,817
2,100,000 First Federal Financial Corp. notes 11 3/4s, 2004 2,121,000
2,640,000 Imperial Credit Industries, Inc. sr. notes 9 7/8s, 2007 2,059,200
2,015,000 North Fork Capital Trust I company guaranty
8.7s, 2026 1,931,901
2,620,000 Ocwen Capital Trust I company guaranty
10 7/8s, 2027 1,624,400
2,990,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 2,810,600
6,310,000 Ocwen Financial Corp. notes 11 7/8s, 2003 5,820,975
1,205,000 Peoples Heritage Capital Trust company guaranty
Ser. B, 9.06s, 2027 1,136,002
2,900,000 Provident Capital Trust company guaranty 8.6s, 2026 2,687,662
6,470,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 5,867,708
3,490,000 Sovereign Bancorp Inc. sr. notes 10 1/2s, 2006 3,520,538
4,655,000 Sovereign Capital Trust company guaranty 9s, 2027 3,423,101
2,815,000 Webster Capital Trust I 144A bonds 9.36s, 2027 2,644,861
--------------
64,380,349
Basic Industrial Products (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
10,000 American Standard Companies, Inc. sr. notes
7 3/8s, 2008 9,200
7,160,000 Insilco Holding Co. 144A sr. disc. notes stepped-coupon
zero % (14s, 8/15/03), 2008 (STP) 3,436,800
--------------
3,446,000
Broadcasting (5.2%)
- --------------------------------------------------------------------------------------------------------------------------
5,430,000 Ackerly Group, Inc. sr. sub. notes Ser. B, 9s, 2009 5,253,525
14,370,000 Allbritton Communications Co. sr. sub. deb. Ser. B,
9 3/4s, 2007 14,370,000
9,275,520 Alabama River News bank term loan FRN
7.56s, 2002 7,605,926
234,062 Australis Media, Ltd. sr. disc. notes stepped-coupon
zero % (15 3/4s 5/15/00), 2003 (In default)
(Australia) (NON) (STP) 23
2,709,587 Australis Media, Ltd. sr. sec. disc. notes zero %, 2000
(In default) (Australia) (NON) 417,276
2,935,000 Benedek Communications Corp. sr. disc. notes stepped-
coupon zero % (13 1/4s, 5/15/01), 2006 (STP) 2,626,825
6,000,000 Benedek Broadcasting bank term loan Ser. B, FRN
9.41s, 2007 6,000,000
1,610,000 Bresnan Communications, Inc. sr. notes Ser. B, 8s, 2009 1,618,050
11,220,000 Capstar Broadcasting sr. disc. notes stepped-coupon
zero % (12 3/4s, 2/1/02), 2009 (STP) 9,873,600
1,820,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 1,856,400
7,100,000 CD Radio, Inc. sec. notes 14 1/2s, 2009 6,212,500
3,150,000 Central European Media Enterprises Ltd. sr. notes
9 3/8s, 2004 (Bermuda) 1,260,000
14,320,000 Chancellor Media Corp. company guaranty 8s, 2008 14,320,000
6,120,000 Citadel Broadcasting, Inc. company guaranty
9 1/4s, 2008 6,120,000
8,530,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 7,847,600
2,080,000 Fox/Liberty Networks LLC sr. notes 8 7/8s, 2007 2,121,600
7,260,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 6,969,600
8,000,000 Grupo Televisa S.A. sr. disc. notes stepped-coupon
zero % (13 1/4s, 5/15/01), 2008 (Mexico) (STP) 7,120,000
7,419,000 Lenfest Communications, Inc. sr. notes 8 3/8s, 2005 7,666,127
9,080,000 PHI Holdings, Inc. sr. sub. notes zero %, 2001 7,718,908
10,480,000 Radio One, Inc. company guaranty Ser. B, stepped-
coupon zero % (12s, 5/15/00), 2004 (STP) 11,030,200
5,880,000 Spanish Broadcasting Systems sr. sub notes
9 5/8s, 2009 5,894,700
--------------
133,902,860
Building and Construction (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
6,880,000 Albecca Inc. company guaranty 10 3/4s, 2008 5,246,000
4,700,000 American Architectural Products Corp. company
guaranty 11 3/4s, 2007 1,457,000
8,015,000 American Standard, Inc. company guaranty
7 3/8s, 2005 7,514,063
2,220,000 Atrium Companies Inc. company guaranty Ser. B,
10 1/2s, 2009 2,147,850
6,310,000 Building Materials Corp. company guaranty 8s, 2008 5,773,650
8,460,000 D.R. Horton, Inc. company guaranty 8s, 2009 7,783,200
7,650,000 Doskcil Manufacturing Co 144A sr. sub. notes
10 1/8s, 2007 2,448,000
13,295,818 Grove Investors LLC notes 14 1/2s, 2010 (PIK) 1,063,665
12,810,000 GS Superhighway Holdings sr. notes 10 1/4s, 2007 7,109,550
4,130,000 NCI Building Systems Inc. sr. sub. notes Ser. B,
9 1/4s, 2009 3,799,600
1,820,000 Toll Corp. company guaranty 8 1/8s, 2009 1,674,400
--------------
46,016,978
Business Equipment and Services (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
5,689,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 6,087,230
1,870,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B,
11s, 2006 1,851,300
2,986,622 Outsourcing Solutions, Inc. 144A bank term loan
Ser. C, FRN 8.41s, 2004 2,986,622
7,690,000 U.S. Office Products Co. company guaranty
9 3/4s, 2008 4,152,600
4,242,130 U.S. Office Products Co. bank term loan Ser. B,
FRN 8.09s, 2006 3,181,597
8,158,000 United Stationer Supply, Inc. sr. sub. notes
12 3/4s, 2005 8,790,245
--------------
27,049,594
Cable Television (4.4%)
- --------------------------------------------------------------------------------------------------------------------------
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
8,070,000 Acme Television sr. disc. notes stepped-coupon zero %
(10 7/8s, 9/30/00), 2004 (STP) 7,182,300
6,225,000 Adelphia Communications Corp. sr. notes Ser. B,
9 7/8s, 2007 6,349,500
11,400,000 Adelphia Communications Corp. sr. notes
7 7/8s, 2009 10,374,000
3,442,000 Century Communications Corp. sr. notes
8 7/8s, 2007 3,330,135
560,000 Century Communications Corp. sr. notes
8 3/4s, 2007 537,600
5,750,000 CSC Holdings, Inc. sr. sub. deb. 10 1/2s, 2016 6,411,250
2,010,000 CSC Holdings, Inc. sr. sub. deb. 9 7/8s, 2023 2,090,400
6,000,000 CSC Holdings, Inc. sr. sub. notes 9 1/4s, 2005 6,150,000
3,275,000 CSC Holdings, Inc. sr. notes 7 7/8s, 2007 3,227,447
5,925,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005
(United Kingdom) (STP) 5,510,250
2,075,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) (STP) 1,660,000
2,070,000 Globo Communicacoes company guaranty
10 1/2s, 2006 (Brazil) 1,718,100
1,170,000 Globo Communicacoes 144A company guaranty
10 1/2s, 2006 (Brazil) 971,100
7,875,000 Lamar Media Corp. sr. sub. notes 9 1/4s, 2007 7,766,719
6,890,000 Lamar Media Corp. company guaranty 8 5/8s, 2007 6,743,588
3,390,000 Pegasus Media & Communications notes Ser. B,
12 1/2s, 2005 3,678,150
3,050,000 RBS Participacoes S.A. 144A company guaranty
11s, 2007 (Brazil) 2,440,000
1,965,000 RCN Corp. sr. disc. notes stepped-coupon zero %
(11 1/8s, 10/15/02), 2007 (STP) 1,395,150
940,000 Rogers Cablesystems Ltd. notes 11s, 2015 (Canada) 1,071,600
6,380,000 Rogers Cablesystems Ltd. sr. notes Ser. B, 10s,
2005 (Canada) 6,826,600
8,820,000 Supercanal Holdings S.A. 144A sr. notes 11 1/2s, 2005
(Argentina) (In default) (NON) 4,542,300
6,980,000 TeleWest Communications Plc 144A sr. disc. notes
stepped-coupon zero % (9 1/4s, 4/15/04) 2009
(United Kingdom) (STP) 4,345,050
3,880,000 TV Azteca Holdings S.A. de C.V. sr. notes 11s,
2002 (Mexico) 3,346,500
1,950,000 TV Azteca Holdings S.A. de C.V. sr. notes 10 1/2s,
2007 (Mexico) 1,589,250
1,370,000 TV Azteca Holdings S.A. de C.V. sr. notes Ser. A,
10 1/8s, 2004 (Mexico) 1,185,050
--------------
113,524,439
Cellular Communications (4.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,980,000 Airgate PCS, Inc. sr. sub. notes stepped-coupon zero %
(13 1/2s, 10/1/04), 2009 (STP) 1,586,850
10,400,000 Call-Net Enterprises Inc. sr. disc. notes stepped-coupon
zero % (10.8s, 5/15/04), 2009 (Canada) (STP) 4,888,000
14,590,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon
zero % (9.27s, 8/15/02), 2007 (Canada) (STP) 8,462,200
3,890,000 Dobson Communications Corp. sr. notes
11 3/4s, 2007 4,356,800
7,560,000 McCaw International Ltd sr. disc. notes stepped-coupon
zero % (13s, 4/15/02), 2007 (STP) 5,027,400
18,175,000 Millicom International Cellular S.A. sr. disc. notes stepped-
coupon zero % (13 1/2s, 6/1/01), 2006 (Luxembourg) (STP) 13,994,750
23,140,000 NEXTEL Communications, Inc. sr. disc. notes stepped-
coupon zero % (12 1/8s, 4/15/03), 2008 (STP) 12,727,000
12,620,000 NEXTEL Communications, Inc. sr. notes 12s, 2008 14,055,525
3,600,000 NEXTEL Communications, Inc. sr. disc. notes stepped-
coupon zero % (9 3/4s, 10/31/02), 2007 (STP) 2,583,000
31,000,000 NEXTEL Communications, Inc. 144A sr. notes
9 3/8s, 2009 30,767,500
3,540,000 NEXTEL Partners, Inc. sr. disc. notes stepped-coupon
zero % (14s, 2/1/04), 2009 (STP) 2,292,150
255,000 Price Communications Wireless, Inc. 144A sr. notes
9 1/8s, 2006 258,825
6,490,000 US Unwired Inc. sr. disc. notes stepped-coupon zero %,
(13 3/8s, 11/1/04), 2009 (STP) 3,683,075
--------------
104,683,075
Chemicals (2.9%)
- --------------------------------------------------------------------------------------------------------------------------
5,745,000 Geo Specialty Chemicals 144A sr. sub. notes
10 1/8s, 2008 5,342,850
4,850,000 Huntsman Corp. 144A sr. sub. notes FRN 8.87s, 2007 4,510,500
13,220,000 Huntsman ICI Chemicals Inc. 144A sr. sub. notes
10 1/8s, 2009 13,682,700
6,350,000 Lyondell Petrochemical Co. sr. sub. notes
10 7/8s, 2009 6,588,125
19,245,000 Lyondell Petrochemical Co. sec. notes Ser. B,
9 7/8s, 2007 19,774,238
5,800,000 PCI Chemicals & Pharmaceuticals company guaranty
9 1/4s, 2007 (India) 4,524,000
4,465,000 Pioneer Americas Acquisition 144A sr. notes
9 1/4s, 2007 3,482,700
464,066 Pioneer Americas Acquisition bank term loan FRN
7.86s, 2006 357,331
3,903,615 Pioneer Americas Acquisition bank term loan FRN
8.87s, 2006 3,142,410
5,100,000 Royster-Clark Inc. 144A 1st mtge 10 1/4s, 2009 4,488,000
4,740,000 Sterling Chemicals Holdings sr. disc. notes stepped-
coupon zero % (13 1/2s, 8/15/01), 2008 (STP) 1,042,800
2,440,000 Sterling Chemicals Holdings company guaranty
Ser. B, 12 3/8s, 2006 2,476,600
7,730,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 5,024,500
--------------
74,436,754
Computer Services and Software (2.4%)
- --------------------------------------------------------------------------------------------------------------------------
3,205,000 Concentric Network Corp. sr. notes 12 3/4s, 2007 3,333,200
4,780,000 Cybernet Internet Services Intl., Inc. 144A sr. notes
14s, 2009 4,158,600
18,760,000 IPC Information Systems Inc. sr. disc. notes
10 7/8s, 2008 13,694,800
5,230,000 PSINet, Inc. 144A sr. notes 11 1/2s, 2008 5,439,200
10,600,000 PSINet, Inc. sr. notes 11s, 2009 10,838,500
4,470,000 Unisys Corp. sr. notes Ser. B, 12s, 2003 4,771,725
12,885,000 Unisys Corp. sr. notes 11 3/4s, 2004 14,205,713
3,690,000 Verio, Inc. 144A sr. notes 11 1/4s, 2008 3,856,050
2,300,000 Verio, Inc. sr. notes 10 3/8s, 2005 2,328,750
--------------
62,626,538
Conglomerates (--%)
- --------------------------------------------------------------------------------------------------------------------------
1,960,000 Cia Latino Americana 144A company guaranty
11 5/8s, 2004 (Argentina) 1,372,000
Consumer Durable Goods (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
1,887,000 Iron Age Corp. company guaranty 9 7/8s, 2008 1,415,250
11,665,000 Samsonite Corp. sr. sub. notes 10 3/4s, 2008 9,915,250
8,036,685 Sealy Mattress Co. 144A sr. notes 12s, 2008 7,795,584
7,860,000 Sealy Mattress Co. company guaranty Ser. B, stepped-
coupon zero % (10 7/8s, 12/15/02), 2007 (STP) 5,541,300
--------------
24,667,384
Consumer Services (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
14,500,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 15,007,500
1,900,000 Protection One, Inc. company guaranty 7 3/8s, 2005 1,425,000
--------------
16,432,500
Cosmetics (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
4,220,000 French Fragrances, Inc. company guaranty Ser. D,
10 3/8s, 2007 3,903,500
3,790,000 Revlon Consumer Products sr. notes 9s, 2006 2,994,100
9,437,000 Revlon Consumer Products sr. sub. notes
8 5/8s, 2008 5,237,535
--------------
12,135,135
Electric Utilities (3.4%)
- --------------------------------------------------------------------------------------------------------------------------
8,195,000 AES China Generating Co. sr. notes 10 1/8s, 2006 (China) 5,654,550
5,763,000 Calpine Corp. sr. notes 7 7/8s, 2008 5,446,035
11,530,000 CMS Energy Corp. sr. notes Ser. B, 6 3/4s, 2004 10,942,201
9,600,000 Midland Funding II Corp. deb. Ser. B, 13 1/4s, 2006 11,434,560
33,705,000 Midland Funding II Corp. deb. Ser. A, 11 3/4s, 2005 36,842,598
5,913,255 Northeast Utilities System notes Ser. A, 8.58s, 2006 5,936,790
2,742,667 Northeast Utilities System notes Ser. B, 8.38s, 2005 2,705,065
14,420,000 Panda Global Energy Co. company guaranty
12 1/2s, 2004 (China) 8,652,000
--------------
87,613,799
Electronics and Electrical Equipment (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
5,780,000 Flextronics International Ltd. sr. sub. notes Ser. B,
8 3/4s, 2007 5,664,400
4,590,000 Metromedia Fiber Network, Inc. sr. notes 10s, 2009 4,635,900
7,060,000 Metromedia Fiber Network, Inc. sr. notes
Ser. B, 10s, 2008 7,130,600
8,525,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 7,928,250
7,495,000 Viasystems, Inc. sr. notes Ser. B, 9 3/4s, 2007 4,347,100
1,910,000 Viasystems, Inc. sr. sub notes 9 3/4s, 2007 1,107,800
--------------
30,814,050
Energy-Related (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
6,110,000 RAM Energy, Inc. sr. notes 11 1/2s, 2008 2,688,400
9,790,000 York Power Funding 144A notes 12s, 2007
(Cayman Islands) 10,083,700
--------------
12,772,100
Entertainment (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
3,790,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 3,515,225
12,175,000 ITT Corp. notes 6 3/4s, 2005 10,897,477
400,000 Premier Parks, Inc.144A sr. disc. notes stepped-coupon
zero % (10s, 4/1/03), 2008 (STP) 272,000
1,940,000 Premier Parks, Inc. sr. notes 9 3/4s, 2007 1,923,025
3,500,000 Premier Parks bank term loan FRN 8.66s, 2005 3,521,875
5,220,000 SFX Entertainment, Inc. company guaranty
9 1/8s, 2008 4,906,800
7,690,000 SFX Entertainment, Inc. 144A company guaranty
Ser. B, 9 1/8s, 2008 7,247,825
5,000,000 SFX Entertainment, Inc. bank term loan Ser. B,
FRN 9.56s, 2006 4,968,750
--------------
37,252,977
Environmental Control (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
14,820,000 Allied Waste Industries, Inc. 144A sr. sub. notes
10s, 2009 13,541,775
3,703,181 Allied Waste Industries, Inc. bank term loan Ser. C,
FRN 8.50s, 2007 3,724,845
3,266,818 Allied Waste Industries, Inc. bank term loan Ser. B,
FRN 8.31s, 2006 3,252,705
10,250,000 Allied Waste Industries, Inc. company guaranty
Ser. B, 7 7/8s, 2009 9,096,875
4,690,000 Waste Management, Inc. sr. notes 7 1/8s, 2007 4,031,712
275,000 Waste Management, Inc. 144A sr. notes 6 7/8s, 2009 227,871
--------------
33,875,783
Financial Services (3.2%)
- --------------------------------------------------------------------------------------------------------------------------
10,645,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 6,786,188
2,960,000 AMRESCO, Inc. sr. sub. notes Ser. 98-A, 9 7/8s, 2005 1,642,800
4,600,000 Capital One Financial Corp. notes 7 1/8s, 2008 4,263,096
5,525,000 Colonial Capital II 144A company guaranty
8.92s, 2027 4,996,340
7,278,000 Conseco Financial Corp. sr. sub. notes 10 1/4s, 2002 7,590,954
9,630,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 1,251,900
4,770,000 Contifinancial Corp. sr. notes 8 1/8s, 2008 620,100
3,450,000 Contifinancial Corp. sr. notes 7 1/2s, 2002 345,000
3,090,000 CSBI Capital Trust I 144A company guaranty
11 3/4s, 2027 3,306,300
9,345,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 6,728,400
8,875,000 DTI Holdings Inc. sr. disc. notes Ser. B, stepped-coupon
zero % (12 1/2s, 03/01/03), 2008 (STP) 3,328,125
4,565,000 Imperial Credit Capital Trust I 144A company guaranty
10 1/4s, 2002 3,560,700
5,500,000 Local Financial Corp. 144A sr. notes 11s, 2004 5,720,000
11,740,664 Polytama International notes 11 1/4s,
2007 (Indonesia) 2,113,319
8,900,000 RBF Finance Co. company guaranty 11 3/8s, 2009 9,612,000
1,090,000 RBF Finance Co. company guaranty 11s, 2006 1,166,300
10,250,000 Resource America Inc. 144A sr. notes 12s, 2004 8,507,500
2,000,000 SRI Receivables Purchase 144A notes 12 1/2s, 2000 2,000,000
6,670,000 Superior Financial 144A sr. notes 8.65s, 2003 6,486,575
2,000,000 Vicap SA. Company guaranty 11 3/8s, 2007 (Mexico) 1,825,000
--------------
81,850,597
Food and Beverages (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
2,250,000 Ameriserve Food Co. 144A sec. notes 12s, 2006 1,800,000
10,405,000 Ameriserve Food Co. company guaranty
10 1/8s, 2007 3,329,600
3,810,000 Doane Pet Care Co. 144A sr. sub. notes 9 3/4s, 2007 3,657,600
1,000,000 Eagle Family Foods company guaranty Ser. B,
8 3/4s, 2008 800,000
7,290,000 RAB Enterprises, Inc. company guaranty
10 1/2s, 2005 5,103,000
10,250,000 RAB Food Holdings, Inc. sr. notes 13s, 2008 4,920,000
2,425,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 1,994,563
5,950,000 Triarc Consumer Products, Inc. 144A sr. sub. notes
10 3/4s, 2009 5,756,625
4,430,000 Vlassic Foods Intl. Inc. sr. sub notes Ser. B,
10 1/4s, 2009 4,208,500
--------------
31,569,888
Gaming (3.9%)
- --------------------------------------------------------------------------------------------------------------------------
3,406,914 Ameristar Casinos Inc. company guaranty
Ser. B, 8s, 2004 2,998,084
6,320,000 Argosy Gaming Co. company guaranty 10 3/4s, 2009 6,651,800
6,800,000 Boyd Gaming Corp. sr. sub. notes 9 1/2s, 2007 6,698,000
1,520,000 Circus Circus Enterprises, Inc. deb. 7s, 2036 1,329,483
6,442,678 Colorado Gaming & Entertainment Co. sr. notes
12s, 2003 6,120,544
16,855,000 Fitzgeralds Gaming Corp. company guaranty Ser. B,
12 1/4s, 2004 (In default) (NON) 9,101,700
9,470,000 Hollywood Casino Corp. company guaranty
11 1/4s, 2007 9,754,100
3,900,000 Hollywood Park, Inc. company guaranty Ser. B,
9 1/4s, 2007 3,831,750
8,025,000 Isle of Capri Black Hawk LLC 1st mortgage
Ser. B, 13s, 2004 8,707,125
2,690,000 Mohegan Tribal Gaming, Auth. sr. sub. notes
8 3/4s, 2009 2,649,650
3,880,000 Mohegan Tribal Gaming, Auth. sr. notes 8 1/8s, 2006 3,783,000
5,260,000 Park Place Entertainment sr. notes 8 1/2s, 2006 5,188,411
3,350,000 Riviera Black Hawk 144A 1st mtge. 13s, 2005 3,517,500
5,000,000 Trump A.C. company guaranty Ser. B, 11 1/4s, 2006 4,000,000
17,975,000 Trump Castle Funding 144A sub. notes 10 1/4s, 2003 18,201,126
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 5,142,500
--------------
100,206,023
Health Care (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
2,040,000 Columbia/HCA Healthcare Corp. deb. 8.36s, 2024 1,887,000
2,770,000 Columbia/HCA Healthcare Corp. notes 7 1/4s, 2008 2,389,125
2,524,400 Columbia/HCA Healthcare Corp. notes 6.91s, 2005 2,241,617
2,760,000 Columbia/HCA Healthcare Corp. med term notes
6.63s, 2045 2,617,556
7,430,000 Extendicare Health Services, Inc. company guaranty
9.35s, 2007 4,235,100
1,930,000 HEALTHSOUTH Corp. sr. notes 7s, 2008 1,600,375
4,005,000 Integrated Health Services, Inc. sr. sub. notes Ser. A,
9 1/2s, 2007 (In default) (NON) 360,450
4,765,000 Integrated Health Services, Inc. sr. sub. notes Ser. A,
9 1/4s, 2008 (In default) (NON) 428,850
70,000 Lifepoint Hospital Holdings 144A sr. sub. notes
10 3/4s, 2009 72,450
980,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B,
stepped-coupon zero % (10 1/2s, 11/1/02), 2007
(In default) (NON) (STP) 19,600
15,360,000 Mariner Post-Acute Network, Inc. sr. sub. notes
Ser. B, 9 1/2s, 2007 (In default) (NON) 460,800
15,935,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 3,983,750
6,570,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 3,465,675
4,280,000 Paragon Corp. Holdings, Inc. company guaranty
Ser. B, 9 5/8s, 2008 1,498,000
9,965,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B,
9 1/2s, 2007 (In default) (NON) 1,245,625
1,775,000 Sun Healthcare Group, Inc. 144A sr. sub. notes
9 3/8s, 2008 (In default) (NON) 221,875
3,263,000 Tenet Healthcare Corp. sr. notes 8s, 2005 3,124,323
2,650,000 Tenet Healthcare Corp. sr. notes Ser. B, 7 5/8s, 2008 2,424,750
4,550,000 Triad Hospitals Holdings 144A sr. sub. notes 11s, 2009 4,709,250
--------------
36,986,171
Lodging (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
6,300,000 Epic Resorts LLC company guaranty 13s, 2005 4,851,000
8,665,000 HMH Properties, Inc. sr. notes Ser. C, 8.45s, 2008 8,036,788
7,300,000 Host Marriott L.P. sr. notes Ser. E, 8 3/8s, 2006 6,935,000
2,000,000 Starwood Hotels bank term loan FRN 9.34s, 2003 2,000,000
3,750,000 Strategic Hotel bank term loan FRN 9.35s, 2004 3,750,000
--------------
25,572,788
Manufacturing (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
8,690,000 Blount, Inc. 144A sr. sub. notes 13s, 2009 9,102,775
5,000,000 Blount, Inc. bank term loan Ser. B, FRN 9.51s, 2006 5,000,000
2,520,000 Kappa Beheer BV. 144A company guaranty
10 5/8s, 2009 (New Zealand) 2,620,800
--------------
16,723,575
Medical Supplies and Devices (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
8,435,000 ALARIS Medical Systems, Inc. company guaranty
9 3/4s, 2006 6,916,700
1,496,250 Dade Behring bank term loan Ser. C, FRN
9.19s, 2006 1,496,250
1,496,250 Dade Behring bank term loan Ser. B, FRN
8.94s, 2006 1,496,250
3,825,000 Kinetic Concepts, Inc. company guaranty Ser. B,
9 5/8s, 2007 2,754,000
9,915,000 Leiner Health Products sr. sub. notes 9 5/8s, 2007 7,436,250
7,800,000 Mediq, Inc. deb. 13s, 2009 780,000
5,300,000 Mediq, Inc. company guaranty 11s, 2008 1,749,000
--------------
22,628,450
Metals and Mining (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
10,944,000 Anker Coal Group, Inc. 144A sec. notes 14 1/4s, 2007 (PIK) 5,472,000
11,390,000 Better Minerals & Aggregates Co. 144A sr. sub. notes
13s, 2009 11,247,625
7,160,000 Lodestar Holdings, Inc. company guaranty 11 1/2s, 2005 3,938,000
3,090,000 WHX Corp. sr. notes 10 1/2s, 2005 2,904,600
--------------
23,562,225
Motion Picture Distribution (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
5,750,000 Cinemark USA, Inc. sr. sub. notes Ser. D, 9 5/8s,
2008 (Mexico) 5,376,250
28,512,000 Diva Systems Corp. sr. disc. notes Ser. B, stepped-
coupon zero % (12 5/8s, 3/1/03), 2008 (STP) 7,413,120
10,070,000 United Artists Theatre sr. sub. notes Ser. B,
9 3/4s, 2008 2,026,588
--------------
14,815,958
Networking (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,510,000 Exodus Communications, Inc. 144A sr. notes
11 1/4s, 2008 1,540,200
Oil and Gas (2.6%)
- --------------------------------------------------------------------------------------------------------------------------
2,240,000 Belco Oil & Gas Corp. company guaranty Ser. B,
10 1/2s, 2006 2,296,000
3,510,000 Belco Oil & Gas Corp. sr. sub. notes Ser. B,
8 7/8s, 2007 3,299,400
8,675,000 Benton Oil & Gas Co. sr. notes 11 5/8s, 2003 6,246,000
135,000 Benton Oil & Gas Co. sr. notes 9 3/8s, 2007 87,750
2,465,000 Flores & Rucks, Inc. sr. sub. notes 9 3/4s, 2006 2,686,850
9,590,000 Gulf Canada Resources, Ltd. sr. notes 8 3/8s,
2005 (Canada) 9,330,878
2,610,000 Leviathan Gas Corp. company guaranty Ser. B,
10 3/8s, 2009 2,714,400
4,360,000 Ocean Energy, Inc. company guaranty Ser. B,
8 7/8s, 2007 4,403,600
9,665,000 Ocean Energy, Inc. company guaranty Ser. B,
8 3/8s, 2008 9,471,700
6,040,000 R&B Falcon Corp. sr. notes 12 1/4s, 2006 6,583,600
3,515,000 Seagull Energy sr. sub notes 8 5/8s, 2005 3,462,275
4,735,000 Seven Seas Petroleum sr. notes Ser. B, 12 1/2s, 2005 1,894,000
2,550,000 Triton Energy Ltd. sr. notes 9 1/4s, 2005 2,500,020
10,620,000 Vintage Petroleum sr. sub. notes 9 3/4s, 2009 10,938,600
3,475,000 XCL Ltd. 144A company guaranty 13 1/2s, 2004
(In default) (NON) 1,216,250
--------------
67,131,323
Packaging and Containers (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
7,790,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 7,517,350
3,000,000 Consumers International 144A sr. notes 10 1/4s, 2005 2,340,000
2,860,000 Innova S De R.L. sr. notes 12 7/8s, 2007 (Mexico) 2,466,750
1,405,558 Jefferson Smurft bank term loan Ser. B, FRN 9.38s, 2006 1,405,558
1,620,000 Owens-Illinois, Inc. deb. 7.8s, 2018 1,413,110
6,440,000 Owens-Illinois, Inc. sr. notes 7.35s, 2008 5,791,041
5,780,000 Owens-Illinois, Inc. sr. notes 7.15s, 2005 5,403,086
4,420,000 Riverwood International Corp. company guaranty
10 7/8s, 2008 4,397,900
5,115,000 Riverwood International Corp. company guaranty
10 5/8s, 2007 5,268,450
2,120,000 Riverwood International Corp. company guaranty
10 1/4s, 2006 2,162,400
--------------
38,165,645
Paper and Forest Products (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
9,650,000 APP Finance II Mauritius Ltd. sr. disc. notes stepped-
coupon zero % (12s, 2/15/04), 2049 (Indonesia) (STP) 5,983,000
5,009,000 Doman Industries Ltd. company guaranty 12s,
2004 (Canada) 5,221,883
6,555,000 Huntsman Packaging Corp. company guaranty
9 1/8s, 2007 6,227,250
6,560,000 Pacifica Papers, Inc. sr. notes 10s, 2009 (Canada) 6,756,800
9,860,000 Pindo Deli Finance Mauritius Ltd. company guaranty
10 3/4s, 2007 (Indonesia) 7,049,900
4,620,000 Repap New Brunswick secd. 11 1/2s, 2004 4,770,150
5,945,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 5,469,400
3,810,000 Tembec Industries, Inc. company guaranty 8 5/8s,
2009 (Canada) 3,848,100
--------------
45,326,483
Pharmaceuticals (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
6,616,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 6,351,360
1,340,000 ICN Pharmaceuticals, Inc. 144A sr. notes 8 3/4s, 2008 1,249,550
--------------
7,600,910
Photography (--%)
- --------------------------------------------------------------------------------------------------------------------------
2,650,000 PX Escrow Corp. sr. disc. notes stepped-coupon zero %
(9 5/8s, 2/1/02), 2006 (STP) 1,272,000
Publishing (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
3,830,000 Garden State Newspapers sr. sub. notes 8 5/8s, 2011 3,447,000
3,752,666 Von Hoffman Press, Inc. 144A sr. sub. notes
13 1/2s, 2009 3,414,926
--------------
6,861,926
Railroads (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
1,045,000 MRS Logistica, S.A. bonds Ser. B, 10 5/8s, 2005 (Brazil) 825,550
12,250,000 TFM S.A. de C.V. company guaranty stepped-coupon
zero % (11 3/4s, 6/15/02), 2009 (Mexico) (STP) 7,717,500
1,155,000 TFM S.A. de C.V. company guaranty 10 1/4s,
2007 (Mexico) 1,056,825
--------------
9,599,875
Restaurants (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
4,800,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 3,264,000
Retail (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
4,555,000 Home Interiors & Gifts, Inc. company guaranty
10 1/8s, 2008 3,826,200
2,250,000 K mart Corp. med. term notes 9s, 2020 2,040,773
400,000 K mart Corp. med. term notes 8.19s, 2003 391,184
300,000 K mart Corp. med. term notes 7.2s, 2000 299,592
775,000 Kasper A.S.L. Ltd. sr. notes 12 3/4s, 2004 647,125
9,045,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 9,045,000
11,960,000 NBTY Inc. 144A sr. sub. notes 8 5/8s, 2007 10,823,800
3,445,000 North Atlantic Trading Co. company guaranty
Ser. B, 11s, 2004 3,238,300
--------------
30,311,974
Satellite Services (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
2,010,952 Direct Sat 1 144A notes 8 1/4s, 2001 2,010,952
3,760,000 Echostar DBS Corp. sr. notes 9 3/8s, 2009 3,778,800
1,842,092 Echostar I 144A sr. notes 8 1/4s, 2001 1,842,092
3,945,000 Golden Sky Systems company guaranty 12 3/8s, 2006 4,063,350
5,535,000 Satelites Mexicanos S.A. de C.V. 144A sr. notes
10 1/8s, 2004 (Mexico) 4,151,250
--------------
15,846,444
Semiconductors (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
6,880,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 6,880,000
Specialty Consumer Products (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
9,910,000 Decora Industries, Inc. sr. sec. notes Ser. B, 11s, 2005 8,423,500
Steel (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
7,130,000 AK Steel Corp. sr. notes 9 1/8s, 2006 7,272,600
2,730,000 Armco, Inc. sr. notes 8 7/8s, 2008 2,750,475
7,080,000 LTV Corp. sr. notes 11 3/4s, 2009 7,292,400
9,125,000 National Steel Corp. 1st mtge. Ser. D, 9 7/8s, 2009 9,284,688
8,915,000 UCAR Global Enterprises sr. sub. notes Ser. B, 12s, 2005 9,271,600
7,110,000 WCI Steel, Inc. sr. notes Ser. B, 10s, 2004 7,234,425
500,000 Wheeling-Pittsburgh Steel Corp. sr. notes 9 1/4s, 2007 460,000
--------------
43,566,188
Telecommunications (12.5%)
- --------------------------------------------------------------------------------------------------------------------------
13,355,000 Barak I.T.C. sr. disc. notes Ser. B, stepped-coupon
zero % (12 1/2s, 11/15/02), 2007 (Israel) (STP) 7,211,700
7,660,000 Bestel S.A. de C.V. sr. disc. notes stepped-coupon zero %
(12 3/4s, 5/15/03), 2005 (Mexico) (STP) 4,825,800
5,625,000 Birch Telecommunications, Inc. sr. notes 14s, 2008 5,681,250
3,850,000 CapRock Communications Corp. sr. notes Ser. B,
12s, 2008 3,946,250
7,530,000 Carrier1 Intl. S.A. sr. notes Ser. B, 13 1/4s, 2009
(Luxembourg) 8,019,450
17,320,000 Charter Communications Holdings LLC sr. disc. notes
stepped-coupon zero % (9.92s, 4/1/04), 2011 (STP) 10,478,600
8,015,000 Charter Communications Holdings LLC sr. notes
8 5/8s, 2009 7,574,175
5,000,000 Charter Communications Holdings LLC term loan B,
7 1/2s, 2008 5,000,000
7,705,000 Conecel Holdings 144A notes Ser. A, 14s, 2000
(In default) (NON) 693,450
13,600,000 Covad Communications Group, Inc. sr. disc. notes Ser. B,
stepped-coupon zero % (13 1/2s, 03/15/03), 2008 (STP) 8,432,000
355,000 Covad Communications Group, Inc. sr. notes
12 1/2s, 2009 365,650
2,580,000 Econophone, Inc. company guaranty 13 1/2s, 2007 2,721,900
17,020,000 Econophone, Inc. 144A notes stepped-coupon zero %
(11s, 2/15/03), 2008 (STP) 11,573,600
5,000,000 Esprit Telecom Group PLC sr. notes 11 1/2s, 2007
(United Kingdom) 5,025,000
15,820,000 Firstworld Communication Corp. sr. disc. notes stepped-
coupon zero % (13, 4/15/03), 2008 (STP) 8,542,800
13,300,000 Focal Communications Corp. sr. disc. notes Ser. B,
stepped-coupon zero % (12 1/8s, 02/15/03), 2008 (STP) 7,980,000
6,860,000 Global Crossing Holdings, Ltd. company guaranty
9 5/8s, 2008 6,860,000
2,810,000 Globe Telecom 144A sr. notes 13s, 2009 3,006,700
18,658,000 GST Telecommunications, Inc. company guaranty
stepped-coupon zero % (13 7/8s, 12/15/00), 2005 (STP) 13,806,920
45,000 Hyperion Telecommunications, Inc. sr. disc. notes Ser. B,
stepped-coupon zero % (13s, 4/15/01), 2003 (STP) 39,600
210,000 Hyperion Telecommunications, Inc. sr. sub. notes
12s, 2007 219,450
10,850,000 ICG Communications, Inc. sr. disc. notes stepped-coupon
zero % (10s, 02/15/03), 2008 (STP) 5,642,000
5,950,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon zero %
(13 1/2s, 9/15/00), 2005 (Canada) (STP) 5,161,625
8,395,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero %
(9 7/8s, 5/1/03), 2008 (STP) 4,197,500
6,490,000 Interact Systems, Inc. 144A sr. disc. notes 14s, 2003 1,038,400
3,160,000 Intermedia Communications, Inc. sr. notes Ser. B,
8.6s, 2008 2,875,600
6,790,000 Intermedia Communications, Inc. sr. notes Ser. B,
8 1/2s, 2008 6,144,950
17,590,000 International Cabletel, Inc. sr. notes Ser. B, stepped-
coupon zero % (11 1/2s, 2/01/01), 2006 (STP) 15,831,000
23,645,000 KMC Telecom Holdings, Inc. sr. disc. notes stepped-
coupon zero % (12 1/2s, 2/15/03), 2008 (STP) 12,413,625
14,660,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon
zero % (11 7/8s, 10/15/02), 2007 (STP) 9,089,200
3,650,000 L-3 Communications Corp. sr. sub. notes Ser. B,
10 3/8s, 2007 3,759,500
4,600,000 L-3 Communications Corp. company guaranty
Ser. B, 8s, 2008 4,186,000
7,060,000 Logix Communications Enterprises sr. notes
12 1/4s, 2008 5,295,000
9,390,000 Microcell Telecommunications sr. disc. notes Ser. B,
stepped-coupon zero % (14s, 12/1/01), 2006
(Canada) (STP) 7,981,500
1,880,000 Netia Holdings B.V. 144A company guaranty stepped-
coupon zero % (11 1/4s, 11/1/01), 2007 (Poland) (STP) 1,184,400
3,320,000 Netia Holdings B.V. 144A company guaranty
10 1/4s, 2007 (Poland) 2,822,000
4,000,000 Nextlink Communications, Inc. sr. disc. notes stepped-
coupon zero % (12 1/4s, 6/1/04), 2009 (STP) 2,420,000
2,760,000 Nextlink Communications, Inc. 144A sr. notes
10 1/2s, 2009 2,794,500
8,545,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 9,057,700
6,140,000 NTL, Inc. sr. notes Ser. B, 11 1/2s, 2008 6,661,900
4,975,000 NTL, Inc. sr. notes stepped-coupon zero %
(9 3/4s, 4/1/03), 2008 (STP) 3,395,438
5,000,000 Omnipoint Midwest notes 8s, 2006 4,850,000
5,180,000 Orbital Imaging Corp. sr. notes Ser. D, 11 5/8s, 2005 3,367,000
7,485,000 Pathnet, Inc. sr. notes 12 1/4s, 2008 4,790,400
78,000 Qwest Communications International, Inc. sr. notes
Ser. B, 7 1/4s, 2008 75,358
9,590,000 Rhythms Netconnections, Inc. sr. disc. notes Ser. B,
stepped-coupon zero % (13 1/2s, 5/15/03), 2008 (STP) 4,986,800
7,480,000 Rogers Cantel, Inc. sr. sub. notes 8.8s, 2007 (Canada) 7,536,100
7,610,000 Startec Global Communications Corp. sr. notes
12s, 2008 6,088,000
4,430,000 Tele1 Europe B.V. sr. notes 13s, 2009 (Netherlands) 4,496,450
4,950,000 Telehub Communications Corp. company guaranty
stepped-coupon zero % (13 7/8s, 7/31/02), 2005 (STP) 643,500
7,490,000 Time Warner Telecom, Inc. sr. notes 9 3/4s, 2008 7,714,700
5,000,000 United Pan-Europe N.V. 144A 13 3/8s, 2009
(Netherlands) 2,850,000
11,560,000 United Pan-Europe N.V. 144A stepped-coupon zero %
(12 1/2s, 8/01/04), 2009 (Netherlands) (STP) 6,647,000
5,240,000 United Pan-Europe N.V. 144A 10 7/8s, 2009
(Netherlands) 5,371,000
7,945,000 Versatel Telecom B.V. sr. notes 13 1/4s, 2008
(Netherlands) 8,381,975
2,230,000 Versatel Telecom B.V. sr. notes 13 1/4s, 2008
(Netherlands) 2,352,650
9,605,000 WinStar Communications, Inc. sr. sub. notes stepped-
coupon zero % (15s, 3/1/02), 2007 (STP) 11,814,150
5,860,000 WinStar Communications. Inc. sr. sub. notes 11s, 2008 5,391,200
1,510,000 WinStar Communications, Inc. sr. sub. notes 10s, 2008 1,343,900
--------------
322,656,316
Telephone Services (3.8%)
- --------------------------------------------------------------------------------------------------------------------------
4,119,000 Allegiance Telecom, Inc. sr. disc. notes Ser. B, stepped-
coupon zero % (11 3/4s, 2/15/03), 2008 (STP) 2,924,490
18,915,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 17,165,363
4,515,000 Call-Net Enterprises Inc. sr. notes 8s, 2008 (Canada) 3,476,550
21,400,000 Celcaribe S.A. sr. notes stepped-coupon zero %
(13 1/2s, 3/15/04), 2004 (Colombia) (STP) 16,050,000
6,425,000 Facilicom International sr. notes Ser. B, 10 1/2s, 2008 5,654,000
3,570,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 3,213,000
3,070,000 ITC Deltacom, Inc. sr. notes 11s, 2007 3,192,800
860,000 Long Distance International, Inc. 144A sr. notes
12 1/4s, 2008 430,000
4,385,000 Onepoint Communications, Inc. company guaranty
Ser. B, 14 1/2s, 2008 2,850,250
6,330,000 Primus Telecommunications Group, Inc. sr. notes
Ser. B, 9 7/8s, 2008 5,602,050
8,787,000 RSL Communications, Ltd. company guaranty
12 1/4s, 2006 8,743,065
4,340,000 RSL Communications, Ltd. 144A company guaranty
10 1/2s, 2008 4,101,300
3,150,000 RSL Communications, Ltd. company guaranty
9 1/8s, 2008 2,772,000
10,175,000 Transtel S.A. pass-through certificates 12 1/2s,
2007 (Colombia) 5,291,000
25,870,000 Viatel, Inc. sr. disc. notes stepped-coupon zero %
(12 1/2s, 4/15/03), 2008 (STP) 15,780,700
--------------
97,246,568
Theaters (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
3,000,000 Regal Cinemas, Inc. sr. sub. notes 9 1/2s, 2008 2,445,000
Transportation (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
7,045,000 Johnstown America Industries, Inc. company guaranty
Ser. C, 11 3/4s, 2005 7,150,675
4,770,000 Johnstown America Industries, Inc. sr. sub. notes
11 3/4s, 2005 4,841,550
3,240,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 3,191,400
6,000,000 Pegasus Shipping 144A company guaranty
11 7/8s, 2004 1,860,000
825,000 Transportacion Maritima Mexicana S.A. de C.V. notes
9 1/4s, 2003 668,250
--------------
17,711,875
Wireless Communications (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,620,000 CellNet Data Systems, Inc. notes 15s, 2000 1,620,000
28,054,000 CellNet Data Systems, Inc. sr. disc. notes stepped-coupon
zero % (14s, 10/1/02), 2007 (STP) 3,647,020
2,330,000 Clearnet Communications, Inc. sr. disc. notes stepped-
coupon zero % (14 3/4s, 12/15/00), 2005 (STP) 2,265,925
7,390,000 Paging Network Do Brasil sr. notes 13 1/2s,
2005 (Brazil) 1,108,500
1,650,000 Paging Network, Inc. 144A sr. sub. notes 10s, 2008 511,500
6,370,000 Telecorp PCS Inc. company guaranty stepped-coupon
zero % (11 5/8s, 4/15/04), 2009 (STP) 4,108,650
4,890,000 Voicestream Wire Corp. sr. disc. notes stepped-coupon
zero % (11 7/8s, 11/15/04), 2009 (STP) 2,970,675
12,750,000 Voicestream Wire Corp. 144A sr. notes 10 3/8s, 2009 13,291,870
--------------
29,524,140
--------------
Total Corporate Bonds and Notes
(cost $2,569,381,113) $2,135,364,554
PREFERRED STOCKS (8.9%) (a)
NUMBER OF SHARES VALUE
Banks (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
882,025 California Federal Bancorp, Inc. Ser. A, $2.281 pfd. $ 20,507,081
187,205 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. 10,109,070
50,000 Chevy Chase Savings Bank $3.25 pfd. 1,512,500
3,050 First Republic 144A 10.50% pfd. 3,019,500
--------------
35,148,151
Broadcasting (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
10,054 Benedek Communications $11.50 pfd. (PIK) 8,043,200
47,550 Capstar Broadcasting, Inc. 144A $12.00 pfd. (PIK) 5,563,350
24,031 Citadel Broadcasting Inc. 144A $13.25 cum. pfd. (PIK) 2,763,565
1,702 Granite Broadcasting 144A $12.75 pfd. (PIK) 1,736,040
1,142 Paxson Communications Corp. $13.25 cum. pfd. (PIK) 11,534,200
11,007 Spanish Broadcasting Systems 14.25% cum. pfd. (PIK) 11,832,525
--------------
41,472,880
Building and Construction (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
150,300 Brand Scaffold Services, Inc. 144A $3.625 pfd. 4,208,400
Cable Television (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
3,259 21st Century Telecom Group 144A 13.75%
cum. pfd. (PIK) 1,629,500
42,186 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 4,577,181
--------------
6,206,681
Cellular Communications (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
15,966 Dobson Communications Corp. 144A
12.25% pfd. (PIK) 15,966,000
2,687 NEXTEL Communications, Inc. Ser. E,
$11.125 pfd. (PIK) 2,713,870
--------------
18,679,870
Chemicals (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
125,000 ZSC Specialty Chemicals Plc $16.00 pfd. (PIK) 3,750,000
Computer Services (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
6,038 Concentric Network Corp. Ser. B, 13.50% pfd. (PIK) 6,068,190
Electric Utilities (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
76,830 Public Service Co. of New Hampshire $2.651
1st mtge. pfd. 1,920,750
Food and Beverages (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
260,000 Doane Products Co. $14.25 pfd. 11,700,000
Health Care (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
12,770 Fresenius Medical Capital Trust I Ser. D,
9.00% pfd. (Germany) 12,099,575
12,340 Fresenius Medical Capital Trust II 7.875%
pfd. (Germany) 11,167,700
--------------
23,267,275
Insurance and Finance (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
130,000 CGA Group Ltd. 144A Ser. A, $13.75 pfd. (PIK) 3,510,000
Motion Picture Distribution (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
232,990 Diva Systems Corp. Ser. C, $6.00 pfd. 931,960
538,000 Diva Systems Corp. Ser. D, $6.00 pfd. 2,152,000
--------------
3,083,960
Oil and Gas (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
5,004 R&B Falcon Corp. 13.875% pfd. 5,204,160
Packaging and Containers (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
31,679 Packaging Corp. of America $12.375 pfd. (PIK) 3,453,011
Restaurants (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
134,665 AmeriKing, Inc. $3.25 pfd. (PIK) 2,457,636
Telecommunications (2.3%)
- --------------------------------------------------------------------------------------------------------------------------
4,774 ICG Holdings, Inc. $14.25 pfd. (Canada) (PIK) 4,344,340
11,069 ICG Holdings, Inc., 144A $14.00 pfd. (Canada) (PIK) 9,851,410
15,788 Intermedia Communication Ser. B, 13.50% pfd. (PIK) 14,998,600
6,124 IXC Communications, Inc. 12.50% pfd. (PIK) 6,721,090
150,728 Nextlink Communications, Inc. 144A $7.00 cum. pfd. 7,762,494
3,199 Pegasus Communications Corp. Ser. A, $12.75 cum. pfd. 3,390,940
14,400 WinStar Communications, Inc. 144A 14.25% cum. pfd. (PIK) 12,096,000
--------------
59,164,874
--------------
Total Preferred Stocks (cost $244,762,459) $ 229,295,838
CONVERTIBLE BONDS AND NOTES (1.3%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$13,680,000 Cybernet Internet Service 144A cv. sr. disc. notes
stepped-coupon zero % (13s, 8/15/04), 2009 (STP) $ 7,524,000
14,500,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 7,503,750
3,106,000 GST Telecommunications, Inc. cv. sr. disc. notes stepped-
coupon zero % (13 7/8s, 12/15/00), 2005 (STP) 2,950,700
3,350,000 Integrated Device Technology, Inc. cv. sub. notes
5 1/2s, 2002 3,404,438
12,000,000 Micron Technology, Inc. cv. notes 6 1/2s, 2005 9,360,000
4,550,000 Total Renal Care Holdings, Inc. 144A cv. notes
7s, 2009 2,775,500
--------------
Total Convertible Bonds and Notes
(cost $37,271,994) $ 33,518,388
UNITS (0.8%) (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) $ 1,968
5,620 Earthwatch 144A units 13s, 2007 3,934,000
8,490 Equinix, Inc 144A units 13s, 2007 8,659,800
6,550 Peninsula Gaming LLC 144A units 12 1/4s, 2006 6,451,750
7,555 XCL Ltd. units sr. sec. notes 13 1/2s, 2004 (In default) (NON) 2,644,250
46,287 XCL Ltd. 144A units cv. cum. pfd. 9 1/2s, 2006 (PIK) 69,431
--------------
Total Units (cost $50,971,329) $ 21,761,199
COMMON STOCKS (1.1%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
3,685 AmeriKing, Inc. (NON) $ 36,850
1,036,363 Capstar Broadcasting Partners (NON) 3,212,725
250,000 Chesapeake Energy Corp. 750,000
37,500 Contour Energy Co. (NON) 28,125
75,000 French Fragrances, Inc. (NON) 548,438
96,900 Intermedia Communications, Inc. (NON) 2,701,089
41,666 Lady Luck Gaming Corp. (NON) 416,660
2,655 Mothers Work, Inc. (NON) 27,214
7,830 Paging Do Brazil Holdings Co., LLC Class B (Brazil) (NON) 78
1,730 Premium Holdings (L.P.) 144A (NON) 6,919
707,186 PSF Holdings LLC Class A (NON) (AFF) 8,663,029
121,400 Spanish Broadcasting System, Inc. Class B (NON) 2,883,250
85,200 Specialty Foods Acquisition Corp. 144A (NON) 1,704
75,985 Viatel, Inc. (NON) 3,191,370
110,330 WinStar Communications, Inc. (NON) 5,599,256
--------------
Total Common Stocks (cost $39,755,131) $ 28,066,707
WARRANTS (1.0%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
2,570 21st Century Telecom Group 144A 2/15/10 $ 25,700
750 Airgate Pcs, Inc. 10/1/09 54,375
590 American Mobile Satellite Corp. 4/1/08 26,550
256 Anker Coal Group, Inc. 10/28/09 0
7,660 Bestel S.A. (Mexico) 5/15/05 229,800
4,500 Birch Telecommunications, Inc. 144A (PIK) 6/15/08 247,500
21,300 CD Radio, Inc. 144A 5/15/09 1,118,250
35,457 Cellnet Data Systems, Inc. 10/1/07 354,570
130,000 CGA Group Ltd. 144A 2/11/07 1,300
7,530 Carrier 1 International 2/19/09 150,600
46,200 ClearNet Communications, Inc. 144A 9/15/05 323,400
13,030 Club Regina, Inc. 144A 12/1/04 13,030
104,017 Consorcio Ecuatoriano 144A (Ecuador) 10/1/00 10,402
4,780 Cybernet Internet Services 144A 7/1/09 382,400
5,390 Diva Systems Corp. 5/15/06 970,200
85,536 Diva Systems Corp. 3/1/08 684,288
86,125 DTI Holdings, Inc. 3/1/08 861
10,370 E. Spire Communications, Inc. 11/1/05 311,100
5,100 Econophone, Inc. 144A 7/1/07 484,500
6,300 Epic Resorts LLP 6/15/05 63
4,335 Esat Holdings, Inc. (Ireland) 2/1/07 303,450
15,720 Firstworld Communication 4/15/08 1,100,400
6,250 Globalstar Telecom 144A 2/15/04 500,000
13,285 Hyperion Telecommunications 144A 4/15/01 2,324,875
122,350 ICG Communications 10/15/05 2,202,300
7,160 Insilco Holding Co. 8/15/08 72
6,490 Interact Systems, Inc. 8/1/03 65
3,670 International Wireless Communications
Holdings 144A 8/15/01 4
8,904 Isle of Capri Casinos 5/3/01 178
30,260 KMC Telecom Holdings, Inc. 4/15/08 90,780
29,100 Knology Holdings, Inc. 144A 10/15/07 72,750
860 Long Distance International, Inc. 144A 4/13/08 1,720
8,310 McCaw International Ltd. 4/15/07 35,318
7,800 Mediq Inc. 144A 6/1/09 78
3,025 Metronet Communications 144A 8/15/07 257,125
3,170 MGC Communications, Inc. 144A 10/1/04 475,500
77,500 Network Plus Corp. 12/31/00 5,751,275
4,385 Onepoint Communications, Inc. 6/1/08 43,850
8,890 Orion Network Systems 1/15/07 100,013
33,580 Pagemart, Inc. 144A 12/31/03 260,245
7,485 Pathnet, Inc. 144A 4/15/08 74,850
12,800 Paxson Communications Corp. 144A 6/30/03 38,400
89,120 Powertel, Inc. 2/1/06 423,320
4,660 R&B Falcon Corp. 144A 5/1/09 1,165,000
7,760 Startec Global Communications Corp. 5/15/08 7,760
2,365 Sterling Chemicals Holdings 8/15/08 37,840
4,430 Tele1 Europe B.V. 5/15/09 376,550
4,950 Telehub Communications Corp. 7/31/05 24,750
23,545 UIH Australia/Pacific, Inc. 144A 5/15/06 706,350
79,200 USN Communications Inc. 8/15/04 792
10,175 Versatel Telecom B.V. 144A (Netherlands) 5/15/08 2,950,750
4,870 WAM!NET, Inc. 3/1/05 110,793
3,000 Wireless One, Inc. 10/19/00 3
668 Wright Medical Technology, Inc. 144A 6/30/03 7
--------------
Total Warrants (cost $20,998,318) $ 24,826,052
COLLATERALIZED MORTGAGE OBLIGATIONS (1.0%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 1,200,000 Amresco Commercial Mortgage Funding I 7s, 2029 $ 951,375
8,700,000 Criimi Mae Commercial Mortgage Trust Ser. 1998-C1,
Class C, 7s, 2012 6,019,313
2,325,000 CS First Boston Mortgage Securities Corp. Ser. 1999-C1,
Class F, 8.18s, 2009 2,103,398
Fannie Mae
1,381,444 Ser. G93-9, Interest Only (IO), 8.00s, 2023 398,158
712,000 Ser. 1997-23, Class SJ, IO, 5.64s, 2023 142,400
Fannie Mae Strip
199,481 Ser. 241, Class 2, IO, 8.50, 2023 55,699
1,670,290 Ser. 252, Class 2, IO, 7.5s, 2023 499,521
864,926 Ser. 215, Class 2, IO, 7.00s, 2023 249,612
4,709,000 Ser. 304, Class 2, IO, 6.00s, 2028 1,342,065
Freddie Mac
1,810,000 Ser. 2033, Class SL, IO, 9.165s, 2021 536,213
2,168,000 Ser. 1849, Class DA, IO, 9.012s, 2022 684,275
826,000 Ser. 2032, Class SK, IO, 8.62s, 2024 316,978
199,000 Ser. 2183, Class SG, 6.40s, 2014 158,703
2,634,607 Government National Mortgage Association
Ser. 1999-27, Class SB, 7.04s, 2026 1,972,662
4,100,000 General Growth Properties Ala Moana Ser. 1999-C1,
Class F, 9.00s, 2004 4,083,344
2,800,000 GS Mortgage Securities Corp. II Ser. 1999-FL2A,
Class G, 7.48s, 2013 2,616,250
6,189,322 Merrill Lynch Mortgage Investors, Inc. Ser. 1996-C2,
IO, 1.58s, 2028 432,284
55,977,530 Mortgage Capital Funding, Inc. Ser. 98-MC1, Class X,
IO, 0.493s, 2009 2,112,277
--------------
Total Collateralized Mortgage Obligations
(cost $25,167,724) $ 24,674,527
CONVERTIBLE PREFERRED STOCKS (0.7%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
25,000 Chesapeake Energy Corp. 144A $3.50 cv. cum. pfd. $ 703,125
162,295 Global Telesystems, Inc. 144A $3.625 cv. pfd. 8,561,061
30,800 LTV Corp. (The) 144A $4.13 cv. pfd. 1,686,300
452 Paxson Communications Corp. 144A $9.75 cv. pfd. (PIK) 4,825,100
30,100 PSINet, Inc. Ser. C, $3.38 cv. pfd. 1,482,425
10,780 Verio Inc. 144A $3.375 cv. pfd. 501,270
9,155 XCL Ltd 144A Ser. A, $9.50 cv. cum. pfd. (PIK) 13,732
--------------
Total Convertible Preferred Stocks
(cost $18,183,423) $ 17,773,013
ASSET-BACKED SECURITIES (--%) (a) (cost $1,009,947)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 1,370,000 Green Tree Financial Corp. Ser. 1997-1, Class B2,
7.76s, 2028 $ 1,000,047
SHORT-TERM INVESTMENTS (1.0%) (a) (cost $25,000,000)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$25,000,000 Interest in $539,313,000 joint repurchase agreement
dated November 30, 1999, with S.B.C. Warburg, Inc.
due December 1, 1999 with respect to various U.S.
Treasury obligations -- maturity value of $25,003,938
for an effective yield of 5.67% $ 25,000,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $3,032,501,438) (b) $2,541,280,325
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $2,582,477,358.
(b) The aggregate identified cost on a tax basis is $3,033,874,868, resulting in gross unrealized appreciation and
depreciation of $44,471,561 and $537,066,104, respectively, or net unrealized depreciation of $492,594,543.
(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.
The rates shown on Floating Rate Notes (FRN) are the current interest rates shown at November 30, 1999, which are
subject to change based on the terms of the security.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
November 30, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $3,032,501,438) (Note 1) $2,541,280,325
- -----------------------------------------------------------------------------------------------
Cash 3,128,269
- -----------------------------------------------------------------------------------------------
Dividends, interest and other receivables 53,800,548
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,636,896
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 8,680,502
- -----------------------------------------------------------------------------------------------
Total assets 2,608,526,540
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 12,197,277
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 7,971,323
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 3,737,307
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 150,994
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 93,883
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 5,273
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,758,664
- -----------------------------------------------------------------------------------------------
Other accrued expenses 134,461
- -----------------------------------------------------------------------------------------------
Total liabilities 26,049,182
- -----------------------------------------------------------------------------------------------
Net assets $2,582,477,358
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $3,430,884,870
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (5,227,915)
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and
foreign currency transactions (Note 1) (352,170,265)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
assets and liabilities in foreign currencies (491,009,332)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $2,582,477,358
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($956,094,002 divided by 123,865,024 shares) $7.72
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $7.72)* $8.10
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($791,036,210 divided by 102,961,301 shares)** $7.68
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($826,256,956 divided by 107,173,419 shares) $7.71
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $7.71)* $7.97
- -----------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($9,090,190 divided by 1,177,604 shares) $7.72
- -----------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group
sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent
deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended November 30, 1999
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Interest $ 297,172,822
- -----------------------------------------------------------------------------------------------
Dividends 25,046,434
- -----------------------------------------------------------------------------------------------
Total investment income 322,219,256
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 16,607,601
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 2,831,449
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 71,370
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 31,114
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 2,744,692
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 9,233,454
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 4,552,917
- -----------------------------------------------------------------------------------------------
Reports to shareholders 121,094
- -----------------------------------------------------------------------------------------------
Registration fees 248,369
- -----------------------------------------------------------------------------------------------
Auditing 40,376
- -----------------------------------------------------------------------------------------------
Legal 107,726
- -----------------------------------------------------------------------------------------------
Postage 202,918
- -----------------------------------------------------------------------------------------------
Other 300,502
- -----------------------------------------------------------------------------------------------
Total expenses 37,093,582
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (357,583)
- -----------------------------------------------------------------------------------------------
Net expenses 36,735,999
- -----------------------------------------------------------------------------------------------
Net investment income 285,483,257
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (291,795,790)
- -----------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 296,864
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the period 317,133
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 84,798,625
- -----------------------------------------------------------------------------------------------
Net loss on investments (206,383,168)
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 79,100,089
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended November 30
-------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 285,483,257 $ 420,671,355
- ---------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and
foreign currency transactions (291,498,926) 4,375,102
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments and assets and liabilities in foreign currencies 85,115,758 (669,725,947)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 79,100,089 (244,679,490)
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (109,490,952) (144,701,997)
- ---------------------------------------------------------------------------------------------------------------
Class B (85,471,441) (113,287,380)
- ---------------------------------------------------------------------------------------------------------------
Class M (89,588,544) (162,681,979)
- ---------------------------------------------------------------------------------------------------------------
Class Y (932,320) --
- ---------------------------------------------------------------------------------------------------------------
In excess of net investment income
Class A (4,295,817) (886,697)
- ---------------------------------------------------------------------------------------------------------------
Class B (3,353,426) (694,197)
- ---------------------------------------------------------------------------------------------------------------
Class M (3,514,957) (996,874)
- ---------------------------------------------------------------------------------------------------------------
Class Y (36,579) --
- ---------------------------------------------------------------------------------------------------------------
Return of capital
Class A (3,905,040) --
- ---------------------------------------------------------------------------------------------------------------
Class B (3,048,373) --
- ---------------------------------------------------------------------------------------------------------------
Class M (3,195,212) --
- ---------------------------------------------------------------------------------------------------------------
Class Y (33,252) --
- ---------------------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (453,139,656) (720,018,793)
- ---------------------------------------------------------------------------------------------------------------
Total decrease in net assets (680,905,480) (1,387,947,407)
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 3,263,382,838 4,651,330,245
- ---------------------------------------------------------------------------------------------------------------
End of year (including distributions in excess of net
investment income of $5,227,915 and
$2,530,046, respectively) $2,582,477,358 $3,263,382,838
- ---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended November 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.35 $9.96 $9.65 $9.52 $9.07
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .80(c) .95(c) .90 .89 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.57) (1.61) .32 .14 .45
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .23 (.66) 1.22 1.03 1.45
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.80) (.94) (.89) (.90) (1.00)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.03) (.01) (.02) -- (d) --
- ------------------------------------------------------------------------------------------------------------------------------------
Return of capital (.03) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.86) (.95) (.91) (.90) (1.00)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.72 $8.35 $9.96 $9.65 $9.52
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 2.89 (7.39) 13.30 11.38 16.81
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $956,094 $1,261,785 $1,436,699 $1,071,702 $870,810
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .95 .92 .97 1.09 1.12
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 9.99 9.81 9.17 9.24 10.35
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 49.29 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) Includes amounts paid through expense offset arrangements (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
(d) Distributions in excess of net investment income were less than $0.01 per share.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended November 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.32 $9.92 $9.61 $9.49 $9.05
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .74(c) .87(c) .83 .82 .92
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.58) (1.59) .32 .13 .45
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .16 (.72) 1.15 .95 1.37
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.74) (.87) (.82) (.83) (.93)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.03) (.01) (.02) -- (d) --
- ------------------------------------------------------------------------------------------------------------------------------------
Return of capital (.03) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.80) (.88) (.84) (.83) (.93)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.68 $8.32 $9.92 $9.61 $9.49
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 1.98 (7.99) 12.52 10.52 15.94
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $791,036 $1,052,251 $1,143,329 $623,097 $287,877
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.70 1.67 1.72 1.84 1.85
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 9.24 9.06 8.41 8.50 9.61
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 49.29 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) Includes amounts paid through expense offset arrangements (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
(d) Distributions in excess of net investment income were less than $0.01 per share.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
For the year
Per-share Dec. 1, 1994+
operating performance Year ended November 30 to Nov. 30
- ------------------------------------------------------------------------------------------------------------------------------------
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 .79(c) .92(c) .87 .87 .99
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.57) (1.61) .33 .14 .45
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .22 (.69) 1.20 1.01 1.44
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.79) (.91) (.87) (.88) (.98)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.03) (.01) (.02) -- (d) --
- ------------------------------------------------------------------------------------------------------------------------------------
Return of capital (.03) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.85) (.92) (.89) (.88) (.98)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.71 $8.34 $9.95 $9.64 $9.51
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 2.66 (7.64) 13.05 11.15 16.72
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $826,257 $949,346 $2,071,302 $464,506 $20,077
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.20 1.17 1.22 1.36 1.35
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 9.72 9.56 8.93 8.86 10.06
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 49.29 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) Includes amounts paid through expense offset arrangements (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
(d) Distributions in excess of net investment income were less than $0.01 per share.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS Y
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Dec. 31, 1998+
operating performance to Nov. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $8.19
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .74(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.41)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .33
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.74)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.03)
- ------------------------------------------------------------------------------------------------------------------------------------
Return of capital (.03)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.80)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.72
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 4.15*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $9,090
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .64*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 9.54*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 49.29
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
(d) Distributions in excess of net investment income were less than $0.01 per share.
</TABLE>
Notes to financial statements
November 30, 1999
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
of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period.
Actual results could differ from those estimates.
A) Security valuation Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported sales price on its principal exchange, 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. 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 certain debt obligations; such investments are
stated at fair value on the basis of valuations furnished by a pricing
service or dealers, approved by the Trustees, which determine valuations
for normal institutional-size trading units of such securities using
methods based on market transactions for comparable securities and
variable relationships between securities that 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). Gains or losses on securities sold are determined on
the identified cost basis.
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. Investments in foreign securities involve
certain risks, including those related to economic instability,
unfavorable political developments, and currency fluctuations, not present
with domestic investments.
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 year ended
November 30, 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, 1999, the fund had a capital loss carryover of
approximately $350,805,000 available to offset future capital gains, if
any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
- -------------- ----------------
$ 16,967,000 October 31, 2002
34,077,000 October 31, 2003
299,761,000 October 31, 2007
I) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid at least annually. The amount and character of income and gains
to be distributed are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
differences include temporary and permanent differences of losses on wash
sale transactions, foreign currency gains and losses, the expiration of a
capital loss carryover, defaulted bond interest, paydown gains and losses
on mortgage-backed securities and interest on payment-in-kind securities.
Reclassifications are made to the fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryovers) under income tax regulations. For the year ended November 30,
1999, the fund reclassified $8,502,910 to decrease distributions in excess
of net investment income and $3,131,012 to decrease paid-in-capital, with
an increase to accumulated net realized losses of $5,371,898. The
calculation of net investment income per share in the financial highlights
table excludes these adjustments.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund.
Such fee is based on the following annual rates: 0.70% of the first $500
million of average net assets, 0.60% of the next $500 million, 0.55% of
the next $500 million, 0.50% of the next $5 billion, 0.475% of the next $5
billion, 0.455% of the next $5 billion, 0.44% of the next $5 billion, and
0.43% thereafter.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The aggregate
amount of all such reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the year ended November 30, 1999, fund expenses were reduced by
$357,583 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 $2,796
has been allocated to the fund, and an additional fee for each Trustee's
meeting attended. Trustees receive additional fees for attendance at
certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with the
Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as a Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and meeting
fees for the three years preceding retirement. Pension expense for the
fund is included in Compensation of Trustees in the Statement of
operations. Accrued pension liability is included in Payable for
compensation of Trustees in the Statement of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to its
class A, class B 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 year ended November 30, 1999, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $104,568 and $2,746 from the sale
of class A and class M shares, respectively, and $2,661,679 in contingent
deferred sales charges from redemptions of class B shares. A deferred
sales charge of up to 1% is assessed on certain redemptions of class A
shares. For the year ended November 30, 1999, Putnam Mutual Funds Corp.,
acting as underwriter received $25,014 on class A redemptions.
Note 3
Purchases and sales of securities
During the year ended November 30, 1999, cost of purchases and proceeds
from sales of investment securities other than short-term investments
aggregated $1,403,874,286 and $1,876,383,553, respectively. There were no
purchases and sales of U.S. government obligations.
Note 4
Capital shares
At November 30, 1999, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Year ended November 30, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 25,735,965 $ 208,715,865
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 7,859,940 63,288,271
- -----------------------------------------------------------------------------
33,595,905 272,004,136
Shares
repurchased (60,798,260) (493,378,553)
- -----------------------------------------------------------------------------
Net decrease (27,202,355) $(221,374,417)
- -----------------------------------------------------------------------------
Year ended November 30, 1998
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 50,620,751 $484,922,630
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 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
- -----------------------------------------------------------------------------
Year ended November 30, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 10,457,839 $ 83,919,735
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 5,429,714 43,548,224
- -----------------------------------------------------------------------------
15,887,553 127,467,959
Shares
repurchased (39,472,505) (317,424,032)
- -----------------------------------------------------------------------------
Net decrease (23,584,952) $(189,956,073)
- -----------------------------------------------------------------------------
Year ended November 30, 1998
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 39,651,789 $385,510,919
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 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
- -----------------------------------------------------------------------------
Year ended November 30, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 31,038,892 $ 251,622,244
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 478,146 3,844,452
- -----------------------------------------------------------------------------
31,517,038 255,466,696
Shares
repurchased (38,117,136) (306,995,757)
- -----------------------------------------------------------------------------
Net decrease (6,600,098) $ (51,529,061)
- -----------------------------------------------------------------------------
Year ended November 30, 1998
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 41,793,143 $ 407,149,278
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 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)
- -----------------------------------------------------------------------------
From December 31, 1998
(commencement of operations)
to November 30, 1999
- -----------------------------------------------------------------------------
Class Y Shares Amount
- -----------------------------------------------------------------------------
Shares sold 1,523,699 $12,480,571
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 122,701 1,002,151
- -----------------------------------------------------------------------------
1,646,400 13,482,722
Shares
repurchased (468,796) (3,762,827)
- -----------------------------------------------------------------------------
Net increase 1,177,604 $ 9,719,895
- -----------------------------------------------------------------------------
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:
<TABLE>
<CAPTION>
Purchase Sales Dividend Market
Affiliates cost cost Income Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PSF Holdings LLC Class A $-- $-- $-- $8,663,029
</TABLE>
Note 6
Change in Independent
Accountants (unaudited)
Based on the recommendation of the Audit Committee of the fund, the Board
of Trustees has determined not to retain PricewaterhouseCoopers LLP as
this fund's independent accountant and voted to appoint KPMG LLP for the
fund's fiscal year ended November 30, 1999. During the two previous fiscal
years, PricewaterhouseCoopers LLP audit reports contained no adverse
opinion or disclaimer of opinion; nor were its reports qualified or
modified as to uncertainty, audit scope, or accounting principle. Further,
in connection with its audits for the two previous fiscal years and
through July 14, 1999, there were no disagreements between the fund and
PricewaterhouseCoopers LLP on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure,
which if not resolved to the satisfaction of PricewaterhouseCoopers LLP
would have caused it to make reference to the disagreements in its report
on the financial statements for such years.
Federal tax information
(Unaudited)
For the year ended November 30, 1999, a portion of the Fund's distribution
represents a return of capital and is therefore not taxable to
shareholders.
The fund has designated 8.6% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
The Form 1099 you receive in January 2000 will show the tax status of all
distributions paid to your account in calendar 1999.
Our commitment to quality service
* CHOOSE AWARD-WINNING SERVICE
Putnam Investments has won the DALBAR Service Award 8 times in the past 9
years. In 1997 and 1998, Putnam was the only company to win all three
DALBAR awards: for service to investors, to financial advisors, and to
variable annuity contract holders.*
* HELP YOUR INVESTMENTS GROW
Set up a systematic program for investing with as little as $25 a month
from a Putnam money market fund or from your checking or savings account.+
* SWITCH FUNDS EASILY
Within the same class of shares, you can move money from one account to
another without a service charge. (This privilege is subject to change or
termination.)
* ACCESS YOUR MONEY QUICKLY
You can get checks sent regularly or redeem shares any business day at the
then-current net asset value, which may be more or less than the original
cost of the shares.
For details about any of these or other services, contact your financial
advisor or call the toll-free number shown below and speak with a helpful
Putnam representative. To learn more about Putnam, visit our Web site.
www.putnaminv.com
To make an additional investment in this or any other Putnam fund, contact
your financial advisor or call our toll-free number.
1-800-225-1581
* DALBAR, Inc., an independent research firm, presents the awards to financial
services firms that provide consistently excellent service.
+ Regular investing, of course, does not guarantee a profit or protect against
a loss in a declining market.
Welcome to www.putnaminv.com
Now you can use your PC to get up-to-date information about your funds, learn
more about investing and retirement planning, and access market news and
economic outlooks from Putnam.
VISIT PUTNAM'S SITE ON THE WORLD WIDE WEB FOR:
* the benefits of investing with Putnam
* Putnam's money management philosophy
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* your current account value, portfolio value and transaction history
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You can also read Putnam economist Dr. Robert Goodman's commentary and
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The site can be accessed through any of the major online services (America
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access it via Netscape or Microsoft Internet Explorer, using an independent
Internet service provider.
New features will be added to the site regularly. So be sure
to bookmark us at
http://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
INDEPENDENT ACCOUNTANTS
KPMG LLP
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 Kaufman
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
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
57704 AN032 060/327/702 1/00
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ------------------------------------------------------------------------
Putnam High Yield Advantage Fund
Supplement to Annual Report dated 11/30/99
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 annual report.
ANNUAL RESULTS AT A GLANCE
- ------------------------------------------------------------------------
Total return
for periods ended 11/30/99 NAV
1 year 3.11%
5 years 40.77
Annual average 7.08
10 years 151.93
Annual average 9.68
Life of fund (since class A inception, 3/25/86) 212.25
Annual average 8.68
Share value: NAV
12/31/98* $8.19
11/30/99 7.72
- ------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
11 $0.8040 -- $0.8040
- ------------------------------------------------------------------------
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.
* Class Y share inception date.
