Putnam
High Yield
Advantage
Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
5-31-00
[SCALE LOGO OMITTED]
From the Trustees
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM, III]
Dear Shareholder:
It is a pleasure to greet you in our new roles as Chairman of the
Trustees and President of the Funds. As you know, both of us have been
members of the Board of Trustees for a number of years -- years in which
Putnam has experienced tremendous growth and transformed itself from a
respected U.S. investment management firm to a financial institution
with a global presence.
As the organization makes its way into the new century, we are certain
that the changes that lie ahead will be even more breathtaking in their
scope. What will not change is the Trustees' dedication to serving the
best interests of our shareholders.
We embark upon this new era of Putnam's rich heritage with confidence
and we look forward to the opportunity of continuing to help you meet
your financial objectives for many years to come.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
July 19, 2000
REPORT FROM THE FUND MANAGER
Rosemary H. Thomsen
and the Credit Team
The performance of any mutual fund inevitably reflects market conditions
in its investment universe, and for the six months ended May 31, 2000,
the high-yield market was generally weak. High-yield bonds benefited in
the final months of 1999 from a rally in the technology and
telecommunications sectors. However, since the beginning of this year,
the spread between high-yield bonds and Treasury bonds has widened from
5.39% to a historically wide level of 6.78%, and the bond market as a
whole has experienced declining prices. Thus, while Putnam High Yield
Advantage Fund has delivered strong competitive performance, its results
in absolute terms are disappointing.
Total return for 6 months ended 5/31/00
Class A Class B Class M
NAV POP NAV CDSC NAV POP
------------------------------------------------------------
-0.64% -5.30% -0.88% -5.60% -0.75% -3.99%
------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods and explanation of performance
calculation methods begin on page 6.
* FUND OUTPERFORMED IN DIFFICULT MARKET
Reasons for the bond market's weakness include the sharp increases in
short-term interest rates by the Federal Reserve Board, which has
aggressively used monetary policy to try to slow the U.S. economy. This
has caused an inversion of the yield curve, which occurs when short-term
interest rates are higher than long-term rates. Investors have reacted
by either putting money into safer, higher-yielding short-term bonds or
sitting on the sidelines waiting for the dust to settle in the stock
market. There has also been an increase in defaults among high-yield
issuers. As a result of these factors, the performance of high-yield
bonds this year has lagged that of higher-quality corporate and
government bonds.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Telecommunications 14.5%
Broadcasting 6.7%
Telephone 6.2%
Cable TV 4.7%
Gaming and Lottery 3.6%
Footnote reads:
*Based on net assets as of 5/31/00. Holdings will vary over time.
Your fund performed well in comparison with its peers during the
semiannual period and has had even stronger competitive performance year
to date. From December 31, 1999, through June 30, 2000, the fund's class
A shares at net asset value ranked in the 40th percentile in the Lipper
High Current Yield Funds category, ranking 148 out of 373 funds.1 This
solid peergroup ranking can be attributed to an overweight position in the
telecommunications sector, which generally performed well, despite being
hurt (along with the technology sector) in April and May of this year.
Also important is careful security selection. Putnam's team of analysts
are dedicated to scrutinizing every holding that is acquired and
monitoring holdings on an ongoing basis. This research capability
enabled us to select bonds of companies that had solid fundamental
characteristics, which in turn helped us avoid the high-yield bonds that
underperformed during the period.
Telecommunications has been the top-performing sector in the high-yield
bond market for several years, and the overweight position here was a
plus for the fund's performance. An increase in merger and acquisition
activity resulted in sharp price appreciation for several fund holdings,
including IPC Communications, which was bought by Global Crossing, and
Verio, which was acquired by NTT. In addition, a number of
telecommunications companies went public during the period, including
portfolio holding Carrier 1. Stock offerings tend to boost the value of
a company's high-yield bonds because they add more equity and cash to
its balance sheet and thus improve its credit profile. While these
holdings and others discussed in this report were viewed favorably at
the end of the fiscal period, all holdings are subject to review and
adjustment in accordance with the fund's investment strategy and may
well vary in the future.
1Lipper is an industry research firm whose rankings are based on total
return performance, vary over time, and do not reflect the effects of
sales charges. The fund's class A shares ranked 182 out of 351, 97 out
of 122 and 22 out of 53 for 1-, 5-, and 10-year performance, respectively,
as of 5/31/00. Performance of other share classes will vary. Past
performance is not indicative of future results.
"According to Bear Stearns, the average high-yield bond in its master
index returns 13.2%. With the Nasdaq's 6% decline this year, it seems
those yields are finally beginning to look like bargains to investors."
-- Financial Times, June 16, 2000
* STRATEGIES EMPLOYED IN DIFFICULT ENVIRONMENT
To meet the challenge of managing a portfolio of high-yield bonds in a
rising interest-rate environment, we increased the fund's exposure to
floating-rate commercial bank loans. Floating-rate securities provide a
good defense against rising interest rates because their rates are reset
as market interest rates rise. As a result, their price typically does
not decline in a rising-rate environment.
In the first part of this year, we sold some of the fund's holdings
after their prices had risen, thus locking in attractive gains before
the market declined. When the high-yield market corrected in March and
April, we diversified the portfolio by increasing the fund's exposure to
bonds in value-oriented cyclical sectors, including the steel, paper,
and chemicals industries. We acquired many of these holdings at
attractive prices, and when the market corrected in April and May, these
cyclical holdings performed well.
* FUND CONTINUES TO DIVERSIFY
The fund's telecommunications holdings experienced declines in April and
May along with the rest of the technology sector. We still believe
strongly in the long-term potential of this sector and expect to
maintain an overweight position for as long as our industry outlook
remains positive. While the value of the fund's holdings declined in
April and May, we took profits in some holdings before the market
corrected, which helped boost the fund's performance relative to its
peers. Also the gains in the fund's telecommunications holdings that
occurred prior to April outweighed the declines of the final two months.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Midland Funding II Corp.
Deb. Ser. A, 11 3/4s, 2005
Power producers
WinStar Communications, Inc.
144A 14.25% cum. pfd.
Telecommunications
Millicom International Cellular S.A.
Sr. disc. notes stepped-coupon zero %
(13 1/2s, 6/1/01), 2006 (Luxembourg)
Telecommunications
CSC Holdings, Inc.
Ser. M, $11.125 cum. pfd.
Cable television
Dobson Communications Corp.
144A 12.25% pfd.
Cellular communications
Nextel Communications, Inc.
Sr. disc. notes stepped-coupon zero %
(12 1/8s, 4/15/03), 2008
Telecommunications
Allied Waste Industries, Inc.
Company guaranty Ser. B, 10s, 2009
Waste management
Paxson Communications Corp.
$13.25 cum. pfd.
Broadcasting
Advanta Corp.
Company guaranty Ser. B, 8.99s, 2026
Financial
Intermedia Communication
Ser. B, 13.50% pfd.
Telecommunications
Footnote reads:
These holdings represent 7.9% of the fund's net assets as of 5/31/00.
Portfolio holdings will vary over time.
Two new holdings acquired during the fiscal period illustrate our
efforts to keep the portfolio diversified. The first, Jostens, makes
school rings and yearbooks for high school graduates. This is a stable
business, providing a steady level of cash flow -- a positive for a
high-yield bond. Since the market environment was difficult, we were
able to structure an attractive deal for the fund. The second example is
Huntsman Packaging, which manufactures plastic food wrapping for
industrial use, also a stable business providing reliable cash flow.
Huntsman was also acquired at an attractive price with a yield of 13%.
* HIGH-YIELD OUTLOOK BECOMING MORE POSITIVE
While this has been a difficult market for high-yield bonds, we believe
that the Fed is nearing the end of its tightening cycle since the U.S.
economy appears to be showing signs of slowing. Should the Fed stop
tightening interest rates by mid summer, which we believe is a strong
possibility, the outlook for high-yield bonds, which are currently
trading at extremely low valuations and are yielding 13% on average,
would improve. In addition, corporate earnings and merger and
acquisition activity have remained strong. Barring any significant
economic disruptions, we believe that high-yield bonds have the
potential to post solid returns from this point through the end of the
calendar year.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 5/31/00, there is no guarantee the fund will
continue to hold these securities in the future.
The lower credit ratings of high-yield bonds reflect a greater
possibility that adverse changes in the economy or poor performance by
the issuers of these bonds may affect the issuer's ability to pay
principal and interest.
PERFORMANCE SUMMARY
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
High Yield Advantage Fund is designed for investors seeking high current
income, with capital growth as a secondary objective.
TOTAL RETURN FOR PERIODS ENDED 5/31/00
Class A Class B Class M
(inception dates) (3/25/86) (5/16/94) (12/1/94)
NAV POP NAV CDSC NAV POP
---------------------------------------------------------------------
6 months -0.64% -5.30% -0.88% -5.60% -0.75% -3.99%
---------------------------------------------------------------------
1 year -1.52 -6.20 -2.17 -6.60 -1.75 -5.00
---------------------------------------------------------------------
5 years 27.24 21.19 22.62 21.07 25.62 21.49
Annual average 4.94 3.92 4.16 3.90 4.67 3.97
---------------------------------------------------------------------
10 years 159.54 147.35 138.67 138.67 153.10 144.86
Annual average 10.01 9.48 9.09 9.09 9.73 9.37
---------------------------------------------------------------------
Life of fund 209.60 194.85 173.24 173.24 195.84 186.15
Annual average 8.30 7.92 7.35 7.35 7.95 7.70
---------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/00
Lehman Brothers First Boston
Corporate Bond High Yield Consumer
Index Index price index
---------------------------------------------------------------------
6 months -0.36% -1.84% 1.72%
---------------------------------------------------------------------
1 year -0.03 -2.53 3.07
---------------------------------------------------------------------
5 years 31.62 36.07 12.55
Annual average 5.65 6.35 2.39
---------------------------------------------------------------------
10 years 117.85 177.20 32.59
Annual average 8.10 10.73 2.86
---------------------------------------------------------------------
Life of fund 203.76 257.54 57.44
Annual average 8.16 9.41 3.26
---------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. Returns for class A and class M
shares reflect the current maximum initial sales charges of 4.75% and
3.25%, respectively. Class B share returns for the 1-, 5-, and 10-year
(where available) and life-of-fund periods reflect the applicable
contingent deferred sales charge (CDSC), which is 5% in the first year,
declines to 1% in the sixth year, and is eliminated thereafter. Returns
shown for class B and class M shares for periods prior to their
inception are derived from the historical performance of class A shares,
adjusted to reflect both the initial sales charge or CDSC, if any,
currently applicable to each class and in the case of class B and class
M shares the higher operating expenses applicable to such shares. All
returns assume reinvestment of distributions at NAV. Investment return
and principal value will fluctuate so that an investor's shares when
redeemed may be worth more or less than their original cost.
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 5/31/00
Class A Class B Class M
---------------------------------------------------------------------------
Distributions (number) 6 6 6
---------------------------------------------------------------------------
Income $0.4110 $0.3820 $0.4020
---------------------------------------------------------------------------
Capital Gains -- -- --
---------------------------------------------------------------------------
Total $0.4110 $0.3820 $0.4020
---------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
---------------------------------------------------------------------------
11/30/99 $7.72 $8.10 $7.68 $7.71 $7.97
---------------------------------------------------------------------------
5/31/00 7.27 7.63 7.24 7.26 7.50
---------------------------------------------------------------------------
Current return (end of period)
---------------------------------------------------------------------------
Current dividend rate1 11.31% 10.77% 10.61% 11.07% 10.72%
---------------------------------------------------------------------------
Current 30-day SEC yield4 11.69 11.13 10.90 11.33 11.05
---------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
2 Based on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 6/30/00
Class A Class B Class M
(inception dates) (3/25/86) (5/16/94) (12/1/94)
NAV POP NAV CDSC NAV POP
---------------------------------------------------------------------
6 months -0.93% -5.65% -1.18% -5.88% -1.05% -4.25%
---------------------------------------------------------------------
1 year -0.22 -5.00 -0.86 -5.35 -0.45 -3.65
---------------------------------------------------------------------
5 years 28.26 22.14 23.61 22.05 26.63 22.46
Annual average 5.10 4.08 4.33 4.07 4.83 4.14
---------------------------------------------------------------------
10 years 157.67 145.40 137.16 137.16 151.28 143.16
Annual average 9.93 9.39 9.02 9.02 9.65 9.29
---------------------------------------------------------------------
Life of fund 214.23 199.27 177.18 177.18 200.22 190.38
Annual average 8.35 7.98 7.41 7.41 8.01 7.76
---------------------------------------------------------------------
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 or C 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 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.
<TABLE>
<CAPTION>
THE FUND'S PORTFOLIO
May 31, 2000 (Unaudited)
CORPORATE BONDS AND NOTES (79.7%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
Advertising and Marketing Services (0.6%)
-------------------------------------------------------------------------------------------------------------------
$ 9,560,000 Aoa Holdings LLC sr. notes 10 3/8s, 2006 $ 9,177,600
3,702,150 Interact Operating Co. notes 14s, 2003 1,110,645
2,875,000 Lamar Media Corp. sr. sub. notes 9 1/4s, 2007 2,731,250
230,000 Lamar Media Corp. company guaranty 8 5/8s, 2007 212,750
----------------
13,232,245
Aerospace and Defense (1.0%)
-------------------------------------------------------------------------------------------------------------------
7,510,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 5,257,000
1,430,000 Argo-Tech Corp. company guaranty Ser. D, 8 5/8s, 2007 1,043,900
2,170,000 BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 1,855,350
4,470,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 3,531,300
1,960,000 Decrane Aircraft Holdings company guaranty Ser. B, 12s, 2008 1,734,600
3,280,000 L-3 Communications Corp. sr. sub. notes Ser. B, 10 3/8s, 2007 3,288,200
4,600,000 L-3 Communications Corp. company guaranty Ser. B, 8s, 2008 4,013,500
----------------
20,723,850
Agriculture (0.6%)
-------------------------------------------------------------------------------------------------------------------
13,081,395 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003 (PIK) 11,838,662
Airlines (0.9%)
-------------------------------------------------------------------------------------------------------------------
3,217,331 Air 2 US 144A notes 12.266s, 2020 3,306,740
6,830,000 Calair LLC 144A company guaranty 8 1/8s, 2008 5,566,450
7,555,000 Canadian Airlines Corp. secd. notes 10s, 2005
(In default) (Canada) (NON) 7,706,100
1,810,000 Continental Airlines, Inc. notes 8s, 2005 1,600,999
----------------
18,180,289
Automotive (1.6%)
-------------------------------------------------------------------------------------------------------------------
8,627,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 8,691,703
3,620,000 Dura Operating Corp. company guaranty Ser. B, 9s, 2009 3,185,600
860,000 Exide Corp. sr. notes 10s, 2005 756,800
50,000 Federal Mogul Corp. notes 7 3/4s, 2006 40,911
8,600,000 Federal Mogul Corp. notes 7 1/2s, 2009 6,138,594
2,000,000 Federal Mogul Corp. notes 7 3/8s, 2006 1,557,480
2,991,427 Federal Mogul Corp. bank term loan FRN 8.61s, 2010 2,692,284
5,910,000 Lear Corp. sub. notes 9 1/2s, 2006 5,692,571
1,300,000 Oxford Automotive, Inc. company guaranty Ser. D,
10 1/8s, 2007 1,183,000
8,565,000 Safety Components International, Inc. sr. sub. notes Ser. B,
10 1/8s, 2007 (In default) (NON) 1,284,750
2,060,000 Tenneco, Inc. company guaranty Ser. B, 11 5/8s, 2009 1,920,950
----------------
33,144,643
Banking (2.1%)
-------------------------------------------------------------------------------------------------------------------
1,720,000 Chevy Chase Savings Bank, Inc. sub. deb. 9 1/4s, 2008 1,479,200
2,730,000 Chevy Chase Savings Bank, Inc. sub. deb. 9 1/4s, 2005 2,511,600
3,025,000 Colonial Capital II 144A company guaranty 8.92s, 2027 2,740,175
1,560,000 CSBI Capital Trust I 144A company guaranty, 2027 1,669,200
5,280,000 GS Escrow Corp. sr. notes 7 1/8s, 2005 4,707,806
7,380,000 Hanvit Bank 144A sub. notes 11 3/4s, 2010 (Korea) 6,715,800
2,980,000 Local Financial Corp. sr. notes 11s, 2004 2,980,000
715,000 North Fork Capital Trust I company guaranty 8.7s, 2026 663,291
685,000 Peoples Heritage Capital Trust company guaranty Ser. B,
9.06s, 2027 659,484
2,950,000 Provident Capital Trust company guaranty 8.6s, 2026 2,794,211
6,470,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 5,148,761
3,490,000 Sovereign Bancorp, Inc. sr. notes 10 1/2s, 2006 3,437,650
4,655,000 Sovereign Capital Trust company guaranty 9s, 2027 3,230,710
3,270,000 Superior Financial 144A sr. notes 8.65s, 2003 3,095,032
2,815,000 Webster Capital Trust I 144A bonds 9.36s, 2027 2,699,782
----------------
44,532,702
Beverage (0.3%)
-------------------------------------------------------------------------------------------------------------------
7,040,000 Triarc Consumer Products, Inc. company guaranty
10 1/4s, 2009 6,494,400
Broadcasting (5.1%)
-------------------------------------------------------------------------------------------------------------------
7,630,000 Acme Television sr. disc. notes stepped-coupon zero %
(10 7/8s, 9/30/00), 2004 (STP) 7,095,900
7,830,000 Allbritton Communications Co. sr. sub. deb. Ser. B,
9 3/4s, 2007 7,242,750
234,062 Australis Media, Ltd. sr. disc. notes stepped-coupon zero %
(15 3/4s, 5/15/00), 2003 (In default) (Australia) (STP) (PIK) (NON) 23
2,709,586 Australis Media, Ltd. sr. sec. disc. notes zero %, 2000
(In default) (Australia) (NON) 406,438
6,000,000 Benedek Communications bank term loan FRN 9.97s, 2007 5,925,000
10,460,000 Capstar Broadcasting sr. disc. notes stepped-coupon zero %
(12 3/4s, 2/1/02), 2009 (STP) 9,387,850
4,755,000 Capstar Broadcasting sub. deb. 12s, 2009 (PIK) 5,444,475
7,100,000 CD Radio, Inc. sec. notes 14 1/2s, 2009 6,461,000
3,150,000 Central European Media Enterprises, Ltd. sr. notes 9 3/8s,
2004 (Bermuda) 945,000
7,320,000 Chancellor Media Corp. company guaranty 8s, 2008 7,301,700
4,350,000 Citadel Broadcasting, Inc. company guaranty 9 1/4s, 2008 4,110,750
1,537,987 Direct Sat 1 144A notes 8 1/4s, 2001 1,537,987
9,749,000 Diva Systems Corp. sr. disc. notes Sr. B, stepped-coupon
zero % (12 5/8s, 3/1/03), 2008 (STP) 4,971,990
4,070,000 Echostar DBS Corp. sr. notes 9 3/8s, 2009 3,805,450
1,406,460 Echostar I 144A sr. notes 8 1/4s, 2001 1,406,460
890,000 Fox Family Worldwide, Inc. sr. disc. notes stepped-coupon
zero % (10 1/4s, 11/1/02), 2007 (STP) 534,000
3,914,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 3,326,900
1,400,000 Golden Sky DBS, Inc. sr. disc. notes Ser. B, stepped-coupon
zero % (13 1/2s, 3/1/04), 2007 (STP) 938,000
3,945,000 Golden Sky Systems company guaranty Ser. B, 12 3/8s, 2006 4,329,638
3,040,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 2,591,600
3,675,000 Onepoint Communications, Inc. company guaranty Ser. B,
14 1/2s, 2008 2,388,750
3,390,000 Pegasus Media & Communications notes Ser. B, 12 1/2s, 2005 3,525,600
8,470,000 PHI Holdings, Inc. sr. sub. notes zero %, 2001 7,503,573
2,900,000 Radio One, Inc. company guaranty Ser. B, 12s, 2004 3,095,750
5,880,000 Spanish Broadcasting Systems sr. sub notes 9 5/8s, 2009 5,659,500
3,880,000 TV Azteca S.A. de C.V. sr. notes 11s, 2002 (Mexico) 3,666,600
1,950,000 TV Azteca S.A. de C.V. sr. notes 10 1/2s, 2007 (Mexico) 1,677,000
1,370,000 TV Azteca S.A. de C.V. sr. notes Ser. A, 10 1/8s,
2004 (Mexico) 1,219,300
----------------
106,498,984
Building Materials (0.9%)
-------------------------------------------------------------------------------------------------------------------
4,700,000 American Architectural Products Corp. company
guaranty 11 3/4s, 2007 1,175,000
8,015,000 American Standard, Inc. company guaranty 7 3/8s, 2005 7,413,875
10,000 American Standard, Inc. company guaranty 7 1/8s, 2003 9,425
2,220,000 Atrium Companies, Inc. company guaranty Ser. B,
10 1/2s, 2009 1,864,800
6,310,000 Building Materials Corp. company guaranty 8s, 2008 5,237,300
4,130,000 NCI Building Systems, Inc. sr. sub. notes Ser. B, 9 1/4s, 2009 3,784,113
----------------
19,484,513
Cable Television (3.9%)
-------------------------------------------------------------------------------------------------------------------
1,090,000 Adelphia Communications Corp. sr. notes Ser. B,
9 7/8s, 2007 1,030,050
5,050,000 Adelphia Communications Corp. sr. notes 7 7/8s, 2009 4,115,750
3,442,000 Century Communications Corp. sr. notes 8 7/8s, 2007 3,028,960
10,165,000 Charter Communications Holdings LLC sr. notes
8 5/8s, 2009 8,386,125
2,700,000 Charter Communications Holdings LLC bank term loan
FRN 8.79s, 2008 2,686,500
5,000,000 Charter Communications Holdings LLC bank term loan
FRN 8.8s, 2008 4,975,000
2,810,000 Classic Cable, Inc. 144A sr. sub. notes 10 1/2s, 2010 2,536,025
770,000 Classic Cable, Inc. company guaranty Ser. B, 9 3/8s, 2009 662,200
5,750,000 CSC Holdings, Inc. sr. sub. deb. 10 1/2s, 2016 5,980,000
2,010,000 CSC Holdings, Inc. sr. sub. deb. 9 7/8s, 2023 1,989,900
45,000 CSC Holdings, Inc. sr. notes 7 7/8s, 2007 41,705
11,350,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon zero %,
(11 7/8s, 10/15/02), 2007 (STP) 7,037,000
2,810,000 NTL Communications Corp. sr. notes Ser. B, 11 1/2s, 2008 2,824,050
4,645,000 NTL, Inc. sr. notes Ser. B, stepped-coupon zero %
(9 3/4s, 4/1/03), 2008 (United Kingdom) (STP) 2,879,900
4,920,000 RCN Corp. sr. notes 10 1/8s, 2010 3,936,000
940,000 Rogers Cablesystems, Ltd. notes 11s, 2015 (Canada) 1,024,600
8,820,000 Supercanal Holdings S.A. 144A sr. notes 11 1/2s, 2005
(In default) (Argentina) (NON) 3,704,400
1,940,000 TeleWest Communications Plc 144A notes 10 7/8s,
2005 (Cayman Islands) 1,959,788
5,200,000 TeleWest Communications Plc 144A 9 7/8s, 2010
(United Kingdom) 4,992,000
5,060,000 TeleWest Communications Plc sr. disc. notes zero %,
(9 1/4, 4/15/04), 2009 (United Kingdom) (STP) 2,985,400
26,080,000 United Pan-Europe N.V. 144A sr. discount notes
stepped-coupon zero % (13.75s, 8/1/05) 2010
(Netherlands) (STP) 11,344,800
9,590,000 United Pan-Europe N.V. 144A sr. discount notes
stepped-coupon zero % (12 1/2s, 8/1/04) 2009
(Netherlands) (STP) 4,459,350
2,010,000 United Pan-Europe N.V. 144A senior notes 10 7/8s,
2009 (Netherlands) 1,668,300
----------------
84,247,803
Cellular Communications (0.1%)
-------------------------------------------------------------------------------------------------------------------
933,333 American Cellular Corp. bank term loan FRN 9.31s, 2008 931,000
1,066,667 American Cellular Corp. bank term loan FRN 9.56s,2008 1,064,000
1,000,000 Western Wireless Corp. bank term loan FRN 9.50s, 2008 1,002,500
----------------
2,997,500
Chemicals (3.3%)
-------------------------------------------------------------------------------------------------------------------
5,645,000 Geo Specialty Chemicals, Inc. sr. sub. notes 10 1/8s, 2008 4,798,250
4,850,000 Huntsman Corp. 144A sr. sub. notes FRN 9.188s, 2007 4,413,500
10,830,000 Huntsman ICI Chemicals, Inc. company guaranty
10 1/8s, 2009 10,721,700
5,650,000 Lyondell Petrochemical Co. sr. sub. notes 10 7/8s, 2009 5,452,250
13,415,000 Lyondell Petrochemical Co. sec. notes Ser. B, 9 7/8s, 2007 12,945,475
7,550,000 PCI Chemicals & Pharmaceuticals company guaranty 9 1/4s,
2007 (India) 5,285,000
4,115,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007 3,003,950
461,691 Pioneer Americas Acquisition bank term loan FRN 10.75s ,2006 378,587
3,879,518 Pioneer Canada bank term loan FRN 10.625s, 2006 3,220,000
1,370,000 Polymer Group, Inc. company guaranty Ser. B, 8 3/4s, 2008 1,078,875
12,561,386 Polytama International notes 11 1/4s, 2007 (Indonesia) 1,004,911
5,100,000 Royster-Clark, Inc. 1st mtge. 10 1/4s, 2009 4,156,500
4,740,000 Sterling Chemicals Holdings sr. disc. notes stepped-
coupon zero % (13 1/2s, 8/15/01), 2008 (STP) 2,180,400
2,440,000 Sterling Chemicals, Inc. company guaranty Ser. B,
12 3/8s, 2006 2,501,000
3,160,000 Sterling Chemicals, Inc. sr. sub. notes 11 3/4s, 2006 2,591,200
750,000 Sterling Chemicals, Inc. sr. sub. notes Ser. A, 11 1/4s, 2007 592,500
6,320,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 4,424,000
----------------
68,748,098
Coal (0.1%)
-------------------------------------------------------------------------------------------------------------------
7,160,000 Lodestar Holdings, Inc. company guaranty 11 1/2s, 2005 1,217,200
Commercial and Consumer Services (0.7%)
-------------------------------------------------------------------------------------------------------------------
6,640,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 6,308,000
10,830,000 GS Superhighway Holdings sr. notes 10 1/4s, 2007 (China) 7,751,694
----------------
14,059,694
Computers (0.3%)
-------------------------------------------------------------------------------------------------------------------
4,885,000 Unisys Corp. sr. notes 11 3/4s, 2004 5,226,950
Conglomerates (0.2%)
-------------------------------------------------------------------------------------------------------------------
7,160,000 Insilco Holding Co. sr. disc. notes stepped-coupon zero %
(14s, 8/15/03), 2008 (STP) 3,436,800
Construction (0.5%)
-------------------------------------------------------------------------------------------------------------------
10,810,000 Better Minerals & Aggregates Co. company
guaranty 13s, 2009 10,647,850
Consumer (0.6%)
-------------------------------------------------------------------------------------------------------------------
4,245,000 Home Interiors & Gifts, Inc. company guaranty
10 1/8s, 2008 2,674,350
11,805,000 Samsonite Corp. sr. sub. notes 10 3/4s, 2008 9,798,150
----------------
12,472,500
Consumer Finance (0.2%)
-------------------------------------------------------------------------------------------------------------------
3,080,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 (In default) (NON) 300,300
4,770,000 Contifinancial Corp. sr. notes 8 1/8s, 2008 (In default) (NON) 465,075
3,450,000 Contifinancial Corp. sr. notes 7 1/2s, 2002 (In default) (NON) 345,000
2,980,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 2,592,600
----------------
3,702,975
Consumer Goods (1.4%)
-------------------------------------------------------------------------------------------------------------------
3,540,000 Decora Industries, Inc. sr. sec. notes Ser. B, 11s, 2005 1,416,000
4,220,000 French Fragrances, Inc. company guaranty Ser. D,
10 3/8s, 2007 4,051,200
6,395,000 Leiner Health Products sr. sub. notes 9 5/8s, 2007 4,764,275
11,400,000 NBTY, Inc. 144A sr. sub. notes 8 5/8s, 2007 9,861,000
3,000,000 Revlon Consumer Products sr. notes 9s, 2006 2,100,000
5,657,000 Revlon Consumer Products sr. sub. notes 8 5/8s, 2008 2,885,070
5,990,000 Revlon Consumer Products sr. notes 8 1/8s, 2006 4,133,100
----------------
29,210,645
Consumer Services (0.3%)
-------------------------------------------------------------------------------------------------------------------
5,689,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 5,859,670
Consumer Staples (--%)
-------------------------------------------------------------------------------------------------------------------
1,570,000 Doskcil Manufacturing Co 144A sr. sub. notes 10 1/8s, 2007 549,500
Containers (1.7%)
-------------------------------------------------------------------------------------------------------------------
11,200,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 9,184,000
3,000,000 Consumers International 144A sr. notes 10 1/4s, 2005 1,710,000
2,000,000 Huntsman Packaging Corp. bank term loan FRN 9.72s, 2008 2,000,000
6,555,000 Huntsman Packaging Corp. company guaranty 9 1/8s, 2007 7,081,170
1,405,558 Jefferson Smurfit Corp. bank term loan FRN 9.875s, 2006 1,405,558
1,620,000 Owens-Illinois, Inc. deb. 7.8s, 2018 1,427,544
6,440,000 Owens-Illinois, Inc. sr. notes 7.35s, 2008 5,746,348
5,780,000 Owens-Illinois, Inc. sr. notes 7.15s, 2005 5,279,279
845,000 Radnor Holdings, Inc. sr. notes 10s, 2003 733,038
----------------
34,566,937
Distribution (0.5%)
-------------------------------------------------------------------------------------------------------------------
7,290,000 RAB Enterprises, Inc. company guaranty 10 1/2s, 2005 4,811,400
10,250,000 RAB Holdings, Inc. sr. notes 13s, 2008 5,125,000
----------------
9,936,400
Electric Utilities (1.3%)
-------------------------------------------------------------------------------------------------------------------
5,045,000 AES China Generating Co. sr. notes 10 1/8s, 2006 (China) 3,178,350
570,000 CMS Energy Corp. sr. notes 7 1/2s, 2009 492,338
9,460,000 CMS Energy Corp. sr. notes Ser. B, 6 3/4s, 2004 8,561,300
3,623,227 Northeast Utilities System notes Ser. A, 8.58s, 2006 3,608,517
2,131,733 Northeast Utilities System notes Ser. B, 8.38s, 2005 2,110,267
14,420,000 Panda Global Energy Co. company guaranty 12 1/2s,
2004 (China) 5,047,000
3,000,000 TNP Enterprises Inc. bank term loan FRN 9.211s, 2005 3,003,750
----------------
26,001,522
Energy (0.9%)
-------------------------------------------------------------------------------------------------------------------
2,610,000 Leviathan Gas Corp. company guaranty Ser. B, 10 3/8s, 2009 2,636,100
1,120,000 Parker Drilling Corp. company guaranty Ser. D, 9 3/4s, 2006 1,052,800
3,040,000 R & B Falcon Corp. sr. notes 12 1/4s, 2006 3,298,400
10,700,000 RBF Finance Co. company guaranty 11 3/8s, 2009 11,502,500
400,000 RBF Finance Co. company guaranty 11s, 2006 425,000
----------------
18,914,800
Entertainment (1.4%)
-------------------------------------------------------------------------------------------------------------------
2,044,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2011 991,340
6,435,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 3,217,500
3,100,000 Cinemark USA, Inc. sr. sub. notes Ser. D, 9 5/8s, 2008 (Mexico) 1,922,000
1,710,000 Premier Parks, Inc. sr. notes 9 3/4s, 2007 1,628,775
3,500,000 Premier Parks, Inc. bank term loan FRN 9.37s, 2005 3,526,250
5,000,000 SFX Entertainment, Inc. bank term loan FRN 10.25s, 2006 4,993,750
5,220,000 SFX Entertainment, Inc. company guaranty 9 1/8s, 2008 5,220,000
7,320,000 SFX Entertainment, Inc. 144A company guaranty Ser. B,
9 1/8s, 2008 7,356,600
1,600,000 Silver Cinemas, Inc. sr. sub. notes 10 1/2s, 2005 (In default) (NON) 160,000
4,776,000 United Artists Theatre 144A notes FRN 10.415s, 2007
(In default) (NON) 95,520
10,616,000 United Artists Theatre sr. sub. notes 9 3/4s, 2008
(In default) (NON) 212,320
----------------
29,324,055
Financial (2.9%)
-------------------------------------------------------------------------------------------------------------------
8,315,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 3,991,200
21,850,000 Advanta Corp. company guaranty Ser. B, 8.99s, 2026 13,765,500
8,150,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 7,730,112
850,000 Advanta Corp. med. term notes Ser. D, 6.98s, 2002 797,980
579,000 AMRESCO, Inc. sr. sub. notes Ser. 97-A, 10s, 2004 364,770
4,500,000 AMRESCO, Inc. sr. sub. notes Ser. 98-A, 9 7/8s, 2005 2,475,000
1,880,000 Conseco Finance Trust III, Inc. bonds 8.796s, 2027 714,400
3,398,000 Conseco Financial Corp. sr. sub. notes 10 1/4s, 2002 2,208,700
7,245,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 3,984,750
1,190,000 Finova Capital Corp. sr. notes 7 5/8s, 2009 971,849
1,160,000 Finova Capital Corp. sr. notes 6 3/4s, 2009 845,396
500,000 Finova Capital Corp. notes 6 1/8s, 2004 404,665
4,565,000 Imperial Credit Capital Trust I 144A company
guaranty 10 1/4s, 2002 3,697,650
2,640,000 Imperial Credit Industries, Inc. sr. notes 9 7/8s, 2007 1,920,600
2,320,000 Nationwide Credit, Inc. sr. notes Ser. A, 10 1/4s, 2008 1,577,600
1,780,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 943,400
2,870,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 2,697,800
2,060,000 Ocwen Financial Corp. notes 11 7/8s, 2003 1,884,900
10,145,000 Resource America, Inc. 144A sr. notes 12s, 2004 8,623,250
----------------
59,599,522
Food (0.7%)
-------------------------------------------------------------------------------------------------------------------
4,280,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 2,182,800
2,770,000 Aurora Foods, Inc. 144A ser. sub. notes Ser. D, 9 7/8s, 2007 1,412,700
2,593,484 Aurora Foods, Inc. bank term loan FRN 9.86s, 2110 2,340,619
4,775,000 Eagle Family Foods company guaranty Ser. B, 8 3/4s, 2008 3,091,813
3,440,000 Doane Pet Care Co. sr. sub. notes 9 3/4s, 2007 3,182,000
5,330,000 Vlasic Foods Intl., Inc. sr. sub notes Ser. B, 10 1/4s, 2009 3,038,100
----------------
15,248,032
Gaming & Lottery (3.6%)
-------------------------------------------------------------------------------------------------------------------
3,087,016 Ameristar Casinos, Inc. company guaranty Ser. B, 8s, 2004 2,778,315
1,690,000 Boyd Gaming Corp. sr. sub. notes 9 1/2s, 2007 1,605,500
16,855,000 Fitzgeralds Gaming Corp. company guaranty Ser. B, 12 1/4s,
2004 (In default) (NON) 9,438,800
9,560,000 Hollywood Casino Corp. company guaranty 11 1/4s, 2007 9,703,400
3,680,000 Hollywood Park, Inc. company guaranty Ser. B, 9 1/4s, 2007 3,643,200
3,955,000 Isle of Capri Black Hawk LLC 144A 1st mortgage
Ser. B, 13s, 2004 4,310,950
756,000 Isle of Capri Black Hawk LLC bank term loan FRN
9.494s, 2006 758,835
864,000 Isle of Capri Black Hawk LLC bank term loan FRN
9.369s, 2006 867,240
1,880,000 Isle of Capri Casinos, Inc. company guaranty 8 3/4s, 2009 1,654,400
4,310,000 Mohegan Tribal Gaming, Auth. sr. sub. notes 8 3/4s, 2009 4,008,300
1,150,000 Mohegan Tribal Gaming, Auth. sr. notes 8 1/8s, 2006 1,072,375
500,000 Park Place Entertainment 144A sr. sub. notes 9 3/8s, 2007 483,750
400,000 Park Place Entertainment sr. sub. notes 7 7/8s, 2005 366,000
6,550,000 Peninsula Gaming LLC bank term loan FRN 12 1/4s, 2006 6,435,375
3,150,000 Riviera Black Hawk, Inc. 1st mtge. 13s, 2005 3,370,500
2,960,000 Trump A.C. 1st mtge. 11 1/4s, 2006 2,072,000
5,000,000 Trump A.C. company guaranty Ser. B, 11 1/4s, 2006 3,500,000
9,495,000 Trump Castle Funding 144A sub. notes 10 1/4s, 2003 9,589,950
2,500,000 Trump Castle Hotel 144A sr. sub. notes 10 1/4s, 2003 2,525,000
6,050,000 Trump Holdings & Funding Corp. sr. notes 15 1/2s, 2005 3,448,500
4,500,000 Venetian Casino company guaranty 12 1/4s, 2004 4,320,000
----------------
75,952,390
Health Care (2.0%)
-------------------------------------------------------------------------------------------------------------------
8,435,000 ALARIS Medical Systems, Inc. company guaranty 9 3/4s, 2006 6,241,900
1,825,000 Bio-Rad Labs Corp. 144A sr. sub. notes 11 5/8s, 2007 1,852,375
2,040,000 Columbia/HCA Healthcare Corp. deb. 8.36s, 2024 1,815,600
1,100,000 Columbia/HCA Healthcare Corp. notes 7 1/4s, 2008 951,500
960,000 Columbia/HCA Healthcare Corp. notes 7s, 2007 816,000
2,524,400 Columbia/HCA Healthcare Corp. notes 6.91s, 2005 2,234,094
2,760,000 Columbia/HCA Healthcare Corp. med. term notes
6.63s, 2045 2,606,627
611,435 Dade Behring, Inc. bank term loan FRN 9.25s, 2007 608,378
611,425 Dade Behring, Inc. bank term loan FRN 9s, 2006 608,368
3,825,000 Kinetic Concepts, Inc. company guaranty Ser. B,
9 5/8s, 2007 2,811,375
70,000 Lifepoint Hospital Holdings company guaranty Ser. B,
10 3/4s, 2009 71,400
6,240,000 Magellan Health Services, Inc. sr. sub. notes 9s, 2008 2,308,800
7,800,000 Mediq, Inc. deb. stepped-coupon zero %
(13s, 6/1/03), 2009 (STP) 390,000
6,080,000 Mediq, Inc. company guaranty 11s, 2008 608,000
8,450,000 Paracelsus Healthcare sr. sub. notes 10s, 2006
(In default) (NON) 1,690,000
3,263,000 Tenet Healthcare Corp. sr. notes 8s, 2005 3,067,220
4,410,000 Tenet Healthcare Corp. sr. notes Ser. B, 7 5/8s, 2008 3,946,950
6,590,000 Triad Hospitals Holdings company guaranty Ser. B,
11s, 2009 6,738,275
2,992,500 Vanguard Health bank term loan Ser. B, FRN 11s, 2001 2,992,500
----------------
42,359,362
Homebuilding (0.5%)
-------------------------------------------------------------------------------------------------------------------
2,320,000 D.R. Horton, Inc. company guaranty 8s, 2009 1,948,800
2,230,000 Del Webb Corp. sr. sub. deb. 9 3/8s, 2009 1,781,213
2,600,000 Lennar Corp. 144A sr. notes 9.95s, 2010 2,470,000
2,810,000 Lennar Corp. sr. notes 7 5/8s, 2009 2,332,300
520,000 M.D.C. Holdings, Inc. sr. notes 8 3/8s, 2008 449,150
1,570,000 Toll Corp. company guaranty 8 1/8s, 2009 1,379,638
380,000 Webb Corp. sr. sub. deb. 10 1/4s, 2010 316,825
----------------
10,677,926
Household Furniture & Appliances (0.6%)
-------------------------------------------------------------------------------------------------------------------
7,040,000 Albecca, Inc. company guaranty 10 3/4s, 2008 5,561,600
8,283,143 Sealy Mattress Co. 144A sr. notes 12s, 2008 (PIK) 7,620,492
----------------
13,182,092
Industrial (0.1%)
-------------------------------------------------------------------------------------------------------------------
1,170,000 Levi Strauss & Co. 144A notes 7s, 2006 795,600
1,190,000 Levi Strauss & Co. 144A notes 6.8s, 2003 910,350
----------------
1,705,950
Lodging/Tourism (1.3%)
-------------------------------------------------------------------------------------------------------------------
3,590,000 Epic Resorts LLC company guaranty Ser. B, 13s, 2005 1,795,000
8,665,000 HMH Properties, Inc. sr. notes Ser. C, 8.45s, 2008 7,668,525
7,300,000 Host Marriott L.P. sr. notes Ser. E, 8 3/8s, 2006 6,643,000
5,845,000 ITT Corp. notes 6 3/4s, 2005 5,195,153
2,000,000 Starwood Hotels and Resorts bank term loan FRN
8.8s, 2003 2,007,500
930,000 Starwood Hotels & Resorts notes 6 3/4s, 2003 863,459
3,731,250 Strategic Hotel bank term loan FRN 10.358s, 2004 3,768,563
----------------
27,941,200
Manufacturing (1.3%)
-------------------------------------------------------------------------------------------------------------------
8,640,000 Blount, Inc. company guaranty 13s, 2009 8,553,600
5,972,494 Blount, Inc. bank term loan FRN 10.83s, 2006 5,994,891
4,320,000 Burke Industries, Inc. company guaranty 10s, 2007 1,771,200
4,780,000 Flextronics International, Ltd. sr. sub. notes Ser. B,
8 3/4s, 2007 4,493,200
13,777,912 Grove Investors LLC notes 14 1/2s, 2010 (PIK) 551,116
3,915,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 3,797,550
1,060,000 Roller Bearing Co. company guaranty Ser. B, 9 5/8s, 2007 969,900
----------------
26,131,457
Medical Services (0.2%)
-------------------------------------------------------------------------------------------------------------------
5,510,000 Extendicare Health Services, Inc. company guaranty
9.35s, 2007 2,741,225
4,005,000 Integrated Health Services, Inc. sr. sub. notes Ser. A,
9 1/2s, 2007 (In default) (NON) 80,100
4,765,000 Integrated Health Services, Inc. sr. sub. notes Ser. A,
9 1/4s, 2008 (In default) (NON) 95,300
980,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B,
stepped-coupon zero % (10 1/2s, 11/1/02), 2007
(In default) (STP) (NON) 7,350
15,360,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B,
9 1/2s, 2007 (In default) (NON) 115,200
15,935,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 816,669
9,965,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B, 9 1/2s,
2007 (In default) (NON) 199,300
1,775,000 Sun Healthcare Group, Inc. 144A sr. sub. notes 9 3/8s,
2008 (In default) (NON) 35,500
----------------
4,090,644
Medical Technology (0.1%)
-------------------------------------------------------------------------------------------------------------------
1,690,000 Hanger Orthopedic Group, Inc. sr. sub. notes 11 1/4s, 2009 1,461,850
Metals (1.9%)
-------------------------------------------------------------------------------------------------------------------
1,260,000 AK Steel Corp. sr. notes 9 1/8s, 2006 1,187,550
2,520,000 AK Steel Corp. company guaranty 7 7/8s, 2009 2,217,600
11,723,760 Anker Coal Group, Inc. company guaranty Ser. B,
14 1/4s, 2007 (PIK) 5,275,692
2,730,000 Armco, Inc. sr. notes 8 7/8s, 2008 2,538,900
330,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes
12 3/4s, 2003 306,900
3,375,000 Kaiser Aluminum & Chemical Corp. sr. notes 9 7/8s, 2002 3,231,563
6,775,000 LTV Corp. company guaranty 11 3/4s, 2009 6,029,750
6,835,000 National Steel Corp. 1st mtge. Ser. D, 9 7/8s, 2009 6,424,900
1,570,000 Oregon Steel Mills 1st mortgage 11s, 2003 1,004,800
6,480,000 WCI Steel, Inc. sr. notes Ser. B, 10s, 2004 6,091,200
2,390,000 Wheeling-Pittsburgh Steel Corp. sr. notes 9 1/4s, 2007 2,103,200
3,090,000 WHX Corp. sr. notes 10 1/2s, 2005 2,804,175
----------------
39,216,230
Office Equipment & Supplies (0.2%)
-------------------------------------------------------------------------------------------------------------------
7,191,000 U.S. Office Products Co. company guaranty 9 3/4s, 2008 1,006,740
3,742,986 U.S. Office Products Co. bank term loan FRN 10.21s, 2006 2,620,091
----------------
3,626,831
Oil & Gas (1.9%)
-------------------------------------------------------------------------------------------------------------------
2,280,000 Belco Oil & Gas Corp. company guaranty Ser. B,
10 1/2s, 2006 2,319,900
4,460,000 Belco Oil & Gas Corp. sr. sub. notes Ser. B, 8 7/8s, 2007 4,136,650
167,000 Benton Oil & Gas Co. sr. notes 11 5/8s, 2003 105,210
135,000 Benton Oil & Gas Co. sr. notes 9 3/8s, 2007 79,988
2,020,000 Giant Industries Corp. company guaranty 9s, 2007 1,800,325
3,620,000 HS Resources, Inc. company guaranty 9 1/4s, 2006 3,484,250
1,050,000 Nuevo Energy Co. sr. sub. notes Ser. B, 9 1/2s, 2008 1,013,575
2,090,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 2,016,850
6,355,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 5,973,700
2,130,000 Pioneer Natural Resources Co. company guaranty
9 5/8s, 2010 2,180,588
6,110,000 RAM Energy, Inc. sr. notes 11 1/2s, 2008 3,055,000
1,575,000 Seagull Energy sr. sub notes 8 5/8s, 2005 1,512,000
4,735,000 Seven Seas Petroleum sr. notes Ser. B, 12 1/2s, 2005 1,041,700
4,020,000 Snyder Oil Corp. sr. sub. notes 8 3/4s, 2007 3,969,750
780,000 Stone Energy Corp. company guaranty 8 3/4s, 2007 725,400
5,680,000 Vintage Petroleum sr. sub. notes 9 3/4s, 2009 5,680,000
3,475,000 XCL, Ltd. 144A company guaranty 13 1/2s, 2004
(In default) (NON) 625,500
----------------
39,720,386
Paper & Forest Products (3.2%)
-------------------------------------------------------------------------------------------------------------------
8,874,026 Alabama River Newsprint bank term loan FRN 8.25s,
2002 7,542,922
10,115,000 APP Finance II Mauritius, Ltd. bonds stepped-coupon 12s,
(16s, 2/15/04), 2049 (Indonesia) (STP) 4,551,750
2,500,000 APP Global Finance III sec. notes FRN 10.345s, 2002
(Cayman Islands) 1,700,000
5,009,000 Doman Industries, Ltd. company guaranty 12s,
2004 (Canada) 5,071,613
2,900,000 Doman Industries, Ltd. 144A sr. notes 8 3/4s, 2004 (Canada) 2,327,250
1,735,000 Gaylord Container Corp. sr. sub. notes 9 7/8s, 2008 1,283,900
255,000 Gaylord Container Corp. sr. notes Ser. B, 9 3/8s, 2007 206,550
7,055,000 Indah Kiat Financial Mauritius, Ltd. company guaranty 10s,
2007 (Indonesia) 3,880,250
2,520,000 Kappa Beheer BV company guaranty 10 5/8s,
2009 (Netherlands) 2,545,200
6,560,000 Pacifica Papers, Inc. sr. notes 10s, 2009 (Canada) 6,494,400
10,005,000 Pindo Deli Finance Mauritius, Ltd. company guaranty
10 3/4s, 2007 (Indonesia) 5,502,750
4,620,000 Repap New Brunswick, Inc. notes 11 1/2s, 2004 4,620,000
5,155,000 Repap New Brunswick, Inc. sr. notes 10 5/8s, 2005 (Canada) 4,587,950
6,310,000 Riverwood International Corp. company guaranty
10 7/8s, 2008 5,805,200
5,115,000 Riverwood International Corp. company guaranty
10 5/8s, 2007 5,012,700
1,690,000 Riverwood International Corp. company guaranty
10 1/4s, 2006 1,622,400
3,810,000 Tembec Industries, Inc. company guaranty 8 5/8s,
2009 (Canada) 3,581,400
----------------
66,336,235
Pharmaceuticals (0.5%)
-------------------------------------------------------------------------------------------------------------------
6,796,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 6,609,110
4,820,000 ICN Pharmaceuticals, Inc. 144A sr. notes 8 3/4s, 2008 4,434,400
----------------
11,043,510
Photography/Imaging (0.1%)
-------------------------------------------------------------------------------------------------------------------
5,180,000 Orbital Imaging Corp. sr. notes Ser. D, 11 5/8s, 2005 2,590,000
Power Producers (2.3%)
-------------------------------------------------------------------------------------------------------------------
5,763,000 Calpine Corp. sr. notes 7 7/8s, 2008 5,345,828
9,600,000 Midland Funding II Corp. deb. Ser. B, 13 1/4s, 2006 11,167,296
20,945,000 Midland Funding II Corp. deb. Ser. A, 11 3/4s, 2005 22,466,235
9,698,000 York Power Funding 144A notes 12s, 2007 (Cayman Islands) 9,504,040
----------------
48,483,399
Publishing (0.4%)
-------------------------------------------------------------------------------------------------------------------
2,738,615 Big Flower Holdings bank term loan FRN 9.625s, 2010 2,731,768
3,830,000 Garden State Newspapers sr. sub. notes 8 5/8s, 2011 3,293,800
2,800,000 Ziff Davis bank term loan FRN 10.26s, 2007 2,800,000
----------------
8,825,568
Railroads (0.2%)
-------------------------------------------------------------------------------------------------------------------
6,250,000 TFM S.A. de C.V. company guaranty stepped-coupon
zero % (11 3/4s, 6/15/02), 2009 (Mexico) (STP) 3,937,500
1,155,000 TFM S.A. de C.V. company guaranty 10 1/4s, 2007 (Mexico) 958,650
----------------
4,896,150
Restaurants (0.1%)
-------------------------------------------------------------------------------------------------------------------
3,920,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 1,842,400
Retail (1.0%)
-------------------------------------------------------------------------------------------------------------------
4,790,000 Amazon.com, Inc. sr. disc. notes stepped-coupon zero %
(10s,05/01/03), 2008 (STP) 2,838,075
2,157,000 Iron Age Corp. company guaranty 9 7/8s, 2008 1,488,330
170,000 Iron Age Holdings Corp. sr. disc. notes stepped-coupon
zero % (12 1/8s, 5/1/03), 2009 (STP) 25,500
4,175,000 Grupo Elektra SA 144A notes 12s, 2008 (Mexico) 3,548,750
2,000,000 K mart Corp. med. term notes 9s, 2020 1,854,700
400,000 K mart Corp. med. term notes 8.19s, 2003 385,140
300,000 K mart Corp. med. term notes 7.2s, 2000 299,697
4,465,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 4,063,150
4,780,000 Saks, Inc. company guaranty 8 1/4s, 2008 3,943,787
2,500,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 2,068,750
----------------
20,515,879
Semiconductor (0.8%)
-------------------------------------------------------------------------------------------------------------------
5,010,000 Amkor Technology, Inc. sr. notes 9 1/4s, 2006 4,784,550
1,280,000 Chippac Intl., Ltd. 144A company guaranty 12 3/4s, 2009 1,344,000
12,000,000 Micron Technology, Inc. notes 6 1/2s, 2005 9,720,000
----------------
15,848,550
Shipping (0.2%)
-------------------------------------------------------------------------------------------------------------------
3,280,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 (In default) (NON) 918,400
6,000,000 Pegasus Shipping 144A company guaranty 11 7/8s,
2004 (In default) (NON) 2,280,000
----------------
3,198,400
Software (--%)
-------------------------------------------------------------------------------------------------------------------
4,950,000 Telehub Communications Corp. company guaranty
stepped-coupon zero % (13 7/8s, 7/31/02), 2005 (STP) 247,500
Specialty Printing (0.2%)
-------------------------------------------------------------------------------------------------------------------
3,752,666 Von Hoffman Press, Inc. 144A sr. sub. notes 13 1/2s, 2009 3,377,399
Technology (0.6%)
-------------------------------------------------------------------------------------------------------------------
6,100,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 6,008,500
7,495,000 Viasystems, Inc. sr. notes Ser. B, 9 3/4s, 2007 6,370,750
280,000 Viasystems, Inc. sr. sub notes 9 3/4s, 2007 238,000
780,000 Zilog, Inc. company guaranty Ser. B, 9 1/2s, 2005 686,400
----------------
13,303,650
Technology Services (1.2%)
-------------------------------------------------------------------------------------------------------------------
3,205,000 Concentric Network Corp. sr. notes 12 3/4s, 2007 3,357,238
8,205,000 Covad Communications Group, Inc. sr. disc. notes Ser. B,
stepped-coupon zero % (13 1/2s, 03/15/03), 2008 (STP) 5,005,050
295,000 Covad Communications Group, Inc. sr. notes 12 1/2s, 2009 277,300
1,780,000 Covad Communications Group, Inc. 144A sr. notes 12s, 2010 1,642,050
4,780,000 Cybernet Internet Services Intl., Inc. 144A sr. notes 14s, 2009 3,346,000
2,340,000 Exodus Communications, Inc. sr. notes 10 3/4s, 2009 2,316,600
2,845,000 Globix Corp. sr. notes 12 1/2s, 2010 2,389,800
930,000 PSINet, Inc. sr. notes 11s, 2009 841,650
2,200,000 Rhythms Netconnections, Inc. 144A sr. notes 14s, 2010 1,804,000
3,690,000 Verio, Inc. sr. notes 11 1/4s, 2008 4,105,125
----------------
25,084,813
Telecommunications (12.4%)
-------------------------------------------------------------------------------------------------------------------
8,440,000 360Networks, Inc. 144A sr. notes 13s, 2008 (Canada) 8,334,500
4,470,000 Alaska Communications Systems Corp. company
guaranty 9 3/8s, 2009 4,023,000
350,000 American Mobile Satellite Corp. company guaranty
12 1/4s, 2008 213,500
10,855,000 Barak I.T.C. sr. disc. notes Ser. B, stepped-coupon zero %
(12 1/2s, 11/15/02), 2007 (Israel) (STP) 5,427,500
7,660,000 Bestel S.A. de C.V. sr. disc. notes stepped-coupon zero %
(12 3/4s, 5/15/03), 2005 (Mexico) (STP) 5,515,200
1,000,000 Call-Net Enterprises, Inc. sr. notes 9 3/8s, 2009 600,000
3,225,000 Call-Net Enterprises, Inc. sr. notes 8s, 2008 (Canada) 1,773,750
7,530,000 Carrier1 Intl. S.A. sr. notes Ser. B, 13 1/4s, 2009
(Luxembourg) 7,341,750
10,635,000 Celcaribe S.A. sr. notes stepped-coupon zero %
(13 1/2s, 3/15/04), 2004 (Colombia) (STP) 8,508,000
23,174,000 CellNet Data Systems, Inc. sr. disc. notes stepped-coupon
zero % (14s, 10/1/02), 2007 (STP) 1,853,920
390,000 Clearnet Communications, Inc. sr. disc. notes stepped-
coupon zero % (14 3/4s, 12/15/00), 2005 (STP) 397,800
2,310,000 Crown Castle International bank term loan FRN
9.46s 2008 2,315,775
2,580,000 Econophone, Inc. company guaranty 13 1/2s, 2007 2,296,200
5,000,000 Esprit Teleom Group Plc sr. notes 11 1/2s, 2007
(United Kingdom) 4,200,000
5,630,000 Flag, Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 4,841,800
8,530,000 Global Crossing Holdings, Ltd. company guaranty
9 1/2s, 2009 (Bermuda) 8,028,863
5,960,000 Global Crossing Holdings, Ltd. company guaranty
9 1/8s, 2006 (Bermuda) 5,602,400
6,065,000 Innova S De R.L. sr. notes 12 7/8s, 2007 (Mexico) 5,458,500
7,270,000 Intira Corp. bonds 13s, 2010 3,889,450
14,500,000 IPC Information Systems, Inc. sr. disc. notes zero %
(10 7/8s), 2008 (STP) 12,832,500
4,000,000 Level 3 Communication, Inc. 144A sr. notes 11 1/4s, 2010 3,740,000
350,000 Level 3 Communication, Inc. 144A sr. notes 11s, 2008 333,375
4,050,000 Level 3 Communications Corp. sr. notes 9 1/8s, 2008 3,483,000
2,240,000 Loral Space & Communication, Ltd. sr. notes 9 1/2s, 2006 1,663,200
7,560,000 McCaw International, Ltd sr. disc. notes stepped coupon zero %
(13s, 4/15/02), 2007 (STP) 5,292,000
4,590,000 Metromedia Fiber Network, Inc. sr. notes 10s, 2009 4,371,975
4,360,000 Metromedia Fiber Network, Inc. sr. notes Ser. B, 10s, 2008 4,152,900
22,160,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/01), 2006
(Luxembourg) (STP) 18,836,000
4,165,000 Neuvo Grupo Iusacell S.A. 144A sr. notes 14 1/4s,
2006 (Mexico) 4,165,000
23,140,000 Nextel Communications, Inc. sr. disc. notes stepped-coupon
zero % (12 1/8s, 4/15/03), 2008 (STP) 14,346,800
6,420,000 Nextel Communications, Inc. sr. notes 12s, 2008 6,741,000
11,020,000 Nextel Communications, Inc. sr. notes 9 3/8s, 2009 10,413,900
3,390,000 Nextel Partners, Inc. 144A sr. notes 11s, 2010 3,245,925
4,075,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 3,912,000
11,300,000 NorthPoint Communications Group, Inc. 144A notes
12 7/8s, 2010 9,718,000
2,780,000 Pagemart Wireless, Inc. sr. disc. notes stepped-coupon zero %
(11 1/4s, 2/1/03), 2008 (STP) 1,251,000
7,390,000 Paging Network Do Brasil sr. notes 13 1/2s, 2005 (Brazil) 295,600
1,650,000 Paging Network, Inc. 144A sr. sub. notes 10s, 2008
(In default) (NON) 462,000
7,910,000 Pathnet, Inc. sr. notes 12 1/4s, 2008 4,666,900
255,000 Price Communications Wireless, Inc. 144A sr. notes
9 1/8s, 2006 257,550
6,330,000 Primus Telecommunications Group, Inc. sr. notes Ser. B,
9 7/8s, 2008 4,747,500
7,480,000 Rogers Cantel, Inc. sr. sub. notes 8.8s, 2007 (Canada) 7,255,600
5,057,000 RSL Communications, Ltd. company guaranty 12 1/4s, 2006 5,019,073
1,900,000 RSL Communications, Ltd. 144A company guaranty
10 1/2s, 2008 1,330,000
6,880,000 RSL Communications, Ltd. company guaranty 9 1/8s, 2008 4,609,600
2,500,000 Rural Cellular bank term loan FRN 9.43s, 2009 2,493,750
4,110,000 Satelites Mexicanos S.A. de C.V. 144A sr. notes 10 1/8s,
2004 (Mexico) 2,630,400
1,380,000 Spectrasite Holdings, Inc. 144A sr. disc. notes stepped-
coupon zero % (12 7/8s, 3/15/05), 2010 (STP) 703,800
1,340,000 Spectrasite Holdings, Inc. sr. disc. notes stepped-coupon
zero % (11 1/4s, 4/15/04), 2009 (STP) 723,600
310,000 Spectrasite Holdings, Inc. 144A sr. notes 10 3/4s, 2010 306,900
7,610,000 Startec Global Communications Corp. sr. notes 12s, 2008 6,354,350
1,000,000 Steers Gblx 144A notes 9.843s, 2005 1,001,250
25,040,000 Viatel, Inc. sr. disc. notes stepped-coupon zero %
(12 1/2s, 4/15/03), 2008 (STP) 12,770,400
11,676,000 Viatel, Inc. sr. notes 11 1/2s, 2009 9,224,040
6,045,000 World Access, Inc. sr. notes Ser. B, 13 1/4s, 2008 5,410,275
----------------
259,383,071
Telephone (5.6%)
-------------------------------------------------------------------------------------------------------------------
6,400,000 Airgate PCS, Inc. sr. sub. notes stepped-coupon zero %
(13 1/2s, 10/1/04), 2009 (STP) 3,600,000
9,680,000 Alamosa PCS Holdings, Inc. company guaranty stepped-
coupon zero % (12 7/8s, 2/15/05), 2010 (STP) 4,791,600
5,395,000 Birch Telecommunications, Inc. sr. notes 14s, 2008 5,341,050
12,705,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 9,719,325
15,820,000 Firstworld Communication Corp. sr. disc. notes stepped-
coupon zero % (13, 4/15/03), 2008 (STP) 7,158,550
10,360,000 Focal Communications Corp. sr. disc. notes Ser. B,
stepped-coupon zero % (12 1/8s, 02/15/03), 2008 (STP) 6,630,400
3,745,000 Focal Communications Corp. 144A sr. notes 11 7/8s, 2010 3,595,200
8,570,000 ICG Communications, Inc. sr. disc. notes stepped-coupon
zero % (10s, 02/15/03), 2008 (STP) 4,199,300
975,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon zero %
(13 1/2s, 9/15/00), 2005 (Canada) (STP) 931,125
7,660,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero %
(9 7/8s, 5/1/03), 2008 (STP) 3,676,800
320,000 Intercel, Inc. sr. disc. notes stepped-coupon zero %
(12s, 2/1/01), 2006 (STP) 291,200
22,665,000 KMC Telecom Holdings, Inc. sr. disc. notes stepped-coupon
zero % (12 1/2s, 2/15/03), 2008 (STP) 11,105,850
10,490,000 Logix Communications Enterprises sr. notes 12 1/4s, 2008 4,196,000
6,780,000 Madison River Capital 144A sr. notes 13 1/4s, 2010 6,169,800
2,960,000 MGC Communications, Inc. 144A sr. notes 13s, 2010 2,782,400
4,510,000 Microcell Telecommunications sr. disc. notes Ser. B,
stepped-coupon zero % (14s, 12/1/01), 2006
(Canada) (STP) 4,149,200
1,880,000 Netia Holdings B.V. 144A company guaranty stepped-
coupon zero % (11 1/4s, 11/1/01), 2007 (Poland) (STP) 1,297,200
2,955,000 Netia Holdings B.V. 144A company guaranty 10 1/4s,
2007 (Poland) 2,467,425
650,000 Nextlink Communications, Inc. 144A sr. disc. notes
stepped-coupon zero % (12 1/8s, 12/1/04), 2009 (STP) 351,000
2,760,000 Nextlink Communications, Inc. 144A sr. notes 10 1/2s, 2009 2,601,300
4,430,000 Tele1 Europe BV 144A notes 13s, 2009 4,297,100
5,110,000 Telecorp PCS, Inc. company guaranty stepped-coupon
zero % (11 5/8s, 4/15/04), 2009 (STP) 3,347,050
5,870,000 Transtel S.A. pass-through certificates 12 1/2s, 2007 2,054,500
2,380,000 Tritel PCS, Inc. company guaranty stepped-coupon
zero % (12 3/4s, 5/15/04), 2009 (STP) 1,582,700
11,230,000 US Unwired, Inc. company guaranty Ser. B, stepped-coupon
zero % (13 3/8s, 11/1/04), 2009 (STP) 6,148,425
4,315,000 Versatel Telecom B.V. sr. notes 13 1/4s, 2008 (Netherlands) 4,185,550
1,950,000 Versatel Telecom B.V. sr. notes 13 1/4s, 2008 (Netherlands) 1,891,500
7,300,000 Voicestream Wire Corp. 144A notes 10 3/8s, 2009 7,482,500
3,886,000 WinStar Communications, Inc. sr. disc. notes zero %
(14 3/4s, 4/15/05), 2010 (STP) 1,690,410
----------------
117,734,460
Textiles (0.8%)
-------------------------------------------------------------------------------------------------------------------
2,260,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 1,107,400
2,825,000 GFSI, Inc. sr. disc. notes Ser. B, stepped-coupon zero %
(11 3/8s, 9/15/04), 2009 (STP) 649,750
8,990,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 8,990,000
775,000 Kasper A.S.L., Ltd. sr. notes 12 3/4s, 2004 403,000
880,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2008 699,600
2,220,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2005 1,864,800
3,645,000 William Carter Holdings Co. sr. sub. notes Ser. A, 12s, 2008 3,280,500
----------------
16,995,050
Tobacco (0.2%)
-------------------------------------------------------------------------------------------------------------------
3,445,000 North Atlantic Trading Co. company guaranty Ser. B,
11s, 2004 3,066,050
Transportation Services (0.2%)
-------------------------------------------------------------------------------------------------------------------
205,000 Transportacion Maritima Mexicana S.A. de C.V. sr. notes
10s, 2006 (Mexico) 153,750
1,630,000 Transportacion Maritima Mexicana S.A. de C.V. notes
9 1/4s, 2003 (Mexico) 1,320,300
3,000,000 Transportation Technologies Industries, Inc. bank term
loan FRN 10.34s, 2007 2,977,500
----------------
4,451,550
Trucks & Parts (0.1%)
-------------------------------------------------------------------------------------------------------------------
3,580,000 Transportation Manufacturing Operations, Inc. company
guaranty 11 1/4s, 2009 3,043,000
Utilities (0.2%)
-------------------------------------------------------------------------------------------------------------------
10,925,000 Cathay International, Ltd. 144A sr. notes 13s, 2008 (China) 4,916,250
Waste Management (1.4%)
-------------------------------------------------------------------------------------------------------------------
17,960,000 Allied Waste Industries, Inc. company guaranty Ser. B,
10s, 2009 14,188,400
3,266,818 Allied Waste Industries, Inc. bank term loan Ser. B.,
FRN 8.937s, 2006 2,964,866
3,703,181 Allied Waste Industries, Inc. bank term loan Ser. C.,
FRN 9.187s, 2007 3,359,193
2,780,000 Allied Waste Industries, Inc. company guaranty Ser. B,
7 7/8s, 2009 2,335,200
2,000,000 Allied Waste North America company guaranty
7 3/8s, 2004 1,760,000
4,690,000 Waste Management, Inc. sr. notes 7 1/8s, 2007 4,101,019
275,000 Waste Management, Inc. company guaranty 6 7/8s, 2009 231,476
----------------
28,940,154
Water Utilities (0.1%)
-------------------------------------------------------------------------------------------------------------------
2,790,000 Azurix Corp. 144A notes 10 3/8s, 2007 2,483,100
----------------
Total Corporate Bonds and Notes (cost $2,084,120,358) $ 1,662,771,197
PREFERRED STOCKS (8.6%) (a)
NUMBER OF SHARES VALUE
Banking (0.7%)
-------------------------------------------------------------------------------------------------------------------
251,025 California Federal Bancorp, Inc. Ser. A, $2.281 Preferred (pfd.) $ 5,836,331
137,205 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. (PIK) 6,448,635
18,300 Chevy Chase Savings Bank $3.25 pfd. 468,938
3,050 First Republic 144A 10.50% pfd. 2,729,750
----------------
15,483,654
Broadcasting (1.5%)
-------------------------------------------------------------------------------------------------------------------
3,149 Benedek Communications 11.50% pfd. (PIK) 2,440,475
232,990 Diva Systems Corp. Ser. C, $6.00 pfd. 1,397,940
538,000 Diva Systems Corp. Ser. D, $6.00 pfd. 3,228,000
25,623 Citadel Broadcasting Inc. 144A $13.25 cum. pfd. (PIK) 2,741,661
8,101 Granite Broadcasting 144A 12.75% pfd. (PIK) 7,047,870
1,439 Paxson Communications Corp. $13.25 cum. pfd. (PIK) 13,886,350
----------------
30,742,296
Building and Construction (0.2%)
-------------------------------------------------------------------------------------------------------------------
150,300 Brand Scaffold Services, Inc. 144A $3.625 pfd. 4,133,250
Cable Television (0.8%)
-------------------------------------------------------------------------------------------------------------------
162,454 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 16,895,216
Cellular Communications (0.8%)
-------------------------------------------------------------------------------------------------------------------
16,974 Dobson Communications Corp. 144A 12.25% pfd. (PIK) 16,295,040
Chemicals (0.1%)
-------------------------------------------------------------------------------------------------------------------
125,000 Avecia Group Plc $4.00 pfd. (PIK) 3,187,500
Electric Utilities (0.1%)
-------------------------------------------------------------------------------------------------------------------
76,830 Public Service Co. of New Hampshire $2.65 1st mtge. pfd. 1,920,750
Food (0.5%)
-------------------------------------------------------------------------------------------------------------------
245,060 Doane Products Co. $7.125 pfd. 11,027,700
Insurance and Finance (0.2%)
-------------------------------------------------------------------------------------------------------------------
130,000 CGA Group, Ltd. 144A Ser. A, $13.75 pfd. (PIK) 3,510,000
Medical Services (0.3%)
-------------------------------------------------------------------------------------------------------------------
7,150 Fresenius Medical Capital Trust I Ser. D, 9.00% company
guaranty, pfd. (Germany) 6,595,875
Oil and Gas (0.3%)
-------------------------------------------------------------------------------------------------------------------
5,357 R&B Falcon Corp. 13.875% pfd. 5,946,270
Restaurants (0.1%)
-------------------------------------------------------------------------------------------------------------------
143,559 AmeriKing, Inc. $3.25 pfd. (PIK) 1,148,472
Technology Services (0.3%)
-------------------------------------------------------------------------------------------------------------------
6,453 Concentric Network Corp. Ser. B, 13.50% pfd. (PIK) 6,103,731
Telecommunications (2.1%)
-------------------------------------------------------------------------------------------------------------------
14,777 Intermedia Communication Ser. B, 13.50% pfd. (PIK) 13,742,610
2,761 Nextel Communications, Inc. Ser. E, $11.125 pfd. (PIK) 2,512,510
3,402 Pegasus Communications Corp. Ser. A, $12.75 cum. pfd. 3,606,120
4,400 Rural Cellular Corp. 12.25% pfd. (PIK) 4,373,600
14,400 WinStar Communications, Inc. 144A 14.25% cum. pfd. (PIK) 20,304,000
----------------
44,538,840
Telephone (0.6%)
-------------------------------------------------------------------------------------------------------------------
10,196 ICG Holdings, Inc. 14.25% pfd. (Canada) 7,952,880
5,036 ICG Holdings, Inc., 144A 14.00% pfd. (Canada) (PIK) 3,676,280
----------------
11,629,160
----------------
Total Preferred Stocks (cost $185,905,351) $ 179,157,754
UNITS (2.2%) (a)
NUMBER OF UNITS VALUE
-------------------------------------------------------------------------------------------------------------------
7,215 App China Group 144A units 14s, 2010 $ 4,256,850
19,680 Australis Media, Ltd. units stepped-coupon zero %
(15 3/4s, 5/15/00), 2003 (In default) (Australia) (STP) (NON) 1,968
3,320 Colo.com 144A units 13 7/8s, 2010 3,320,000
5,620 Earthwatch 144A unit zero %, 2007 (STP) 3,484,400
7,950 Equinix, Inc. 144A units 13s, 2007 8,188,500
260 Huntsman Packaging Corp. units 13s, 2010 255,775
8,610 Jostens, Inc. units 12 3/4s, 2010 8,394,750
3,270 Leap Wireless 144A units 12 1/2s, 2010 3,106,500
6,505 Maxcom Telecom 144A units 13 3/4s, 2007 5,594,300
6,770 Ubiquitel Operating Co. units company guaranty
stepped-coupon zero % (14s, 4/15/05), 2010 (STP) 3,655,800
7,555 XCL, Ltd. units sr. sec. notes 13 1/2s, 2004 (In default) (NON) 755,500
44,189 XCL, Ltd. 144A units cv. cum. pfd. zero % (In default) (NON) (PIK) 22,095
5,050 XM Satellite Radio, Inc, 144A units 14s, 2010 4,343,000
----------------
Total Units (cost $81,618,100) $ 45,379,438
COLLATERALIZED MORTGAGE OBLIGATIONS (1.3%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$1,200,000 Amresco Commercial Mortgage Funding I Ser. 97-C1,
Class G, 7s, 2029 $ 946,688
39,265,233 Commercial Mortgage Asset Trust Ser. 99-C1, Class X,
Interest Only (IO), 0.913s, 2020 2,421,867
5,375,000 Criimi Mae Commercial Mortgage Trust Ser. 98-C1,
Class C, 7s, 2012 3,843,125
2,325,000 CS First Boston Mortgage Securities Corp. Ser. 99-C1,
Class F, 8.18s, 2009 2,164,430
Fannie Mae
1,935 Ser. 92-184, Class J, IO, 11.46s, 2022 78,473
1,162 Ser. 92-181, Class PJ, IO, 10.075s, 2022 40,957
180,561 Ser. 241, Class 2, IO, 8 1/2s, 2023 53,604
1,460,503 Ser. 150, Class 2, IO, 8 1/2s, 2022 433,587
575,583 Ser. 158, Class 2, IO, 8 1/2s, 2022 170,876
807,633 Ser. 181, Class 2, IO, 8 1/2s, 2022 239,766
504,852 Ser. 203, IO, Class 2, 8s, 2023 163,604
1,285,357 Ser. G93-9, Class IO, 8s, 2023 387,625
340,000 Ser. 00-4, Class SX, 7.757s, 2023 309,400
Fannie Mae
3,023,516 Ser. 218, Class 2, IO, 7.5s, 2023 972,722
6,361,902 Ser. 221, Class 2,IO, 7.5s, 2023 2,039,785
824,397 Ser. 215, Class 2, IO, 7s, 2023 258,010
712,000 Ser. 97-23, Class SJ, IO, 5.198s, 2023 154,193
Freddie Mac
1,810,000 Ser. 2033, Class SL, IO, 8.147s, 2021 537,344
826,000 Ser. 2032, Class SK, IO, 7.605s, 2024 382,025
1,893,600 Ser. 2183, Class SG, 4.155s, 2014 1,342,089
4,100,000 General Growth Properties-Ala Moana Ser. 99-C1,
Class F, 9.385s, 2004 4,105,605
Government National Mortgage Association
2,246,770 Ser. 00-10, Class SB, 9.05s, 2030 1,953,285
2,307,374 Ser. 00-16, Class SA, 9.05s, 2026 1,875,463
2,800,000 GS Mortgage Securities Corp. Ser. 99-FL2A, Class G,
8.195s, 2013 2,660,000
6,044,888 Merrill Lynch Mortgage Investors, Inc. Ser. 96-C2, Class IO,
1.746s, 2028 388,195
----------------
Total Collateralized Mortgage Obligations
(cost $27,904,020) $ 27,922,718
CONVERTIBLE BONDS AND NOTES (1.2%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$13,680,000 Cybernet Internet Service 144A cv. sr. disc. notes
stepped-coupon zero % (13s, 8/15/04), 2009 (STP) $ 6,566,400
12,060,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 6,572,700
3,880,000 Parker Drilling Co. cv. sub. notes 5 1/2s, 2004 2,963,350
1,720,000 Redback Networks, Inc. 144A cv. sub. notes 5s, 2007 1,257,750
3,870,000 Total Renal Care Holdings, Inc. 144A cv. notes 7s, 2009 2,384,888
6,250,000 Waste Management, Inc. cv. sub. notes 4s, 2002 5,609,375
----------------
Total Convertible Bonds and Notes (cost $30,158,802) $ 25,354,463
CONVERTIBLE PREFERRED STOCKS (1.2%) (a)
NUMBER OF SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
15,200 Global Crossing 7.00% cv. cum. pfd. $ 2,633,400
9,900 Global Crossing 6.75% cv. cum. pfd. 2,128,500
12,800 Global Crossing 144A 7.00% cv. cum. pfd. 2,230,783
102,295 Global Telesystems, Inc. 144A $3.625 cv. cum. pfd. 2,186,556
6,490 Interact Electronic 14.00% cv. cum. pfd. 6,490
40,800 LTV Corp. (The) 144A $4.125 cv. cum. pfd. 1,718,700
474 Paxson Communications Corp. 144A 9.75% cv. pfd. (PIK) 4,266,000
46,125 Penisula Gaming Partners 144A 7.14% cv. pfd. 276,750
159,400 PsiNet, Inc. 144A $3.50 cv. cum. pfd. 5,419,600
47,050 RSL Communications, Ltd. 144A $3.75cv. pfd. (Bermuda) 1,658,513
10,780 Verio, Inc. 144A $3.375 cv. pfd. 646,800
13,900 Verio, Inc. Ser. A, $3.375 cv. cum. pfd. 834,000
573 World Access, Inc. 144A Ser. D, zero %, cv. pfd. 573,000
8,740 XCL, Ltd 144A Ser. A, 9.50% cv. cum. pfd. 4,370
----------------
Total Convertible Preferred Stocks (cost $31,923,069) $ 24,583,462
WARRANTS (1.2%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
-------------------------------------------------------------------------------------------------------------------
256 Anker Coal Group, Inc. 144A 10/28/09 $ 1
7,660 Bestel S.A. (Mexico) 5/15/05 919,200
4,500 Birch Telecommunications, Inc. 144A (PIK) 6/15/08 247,500
7,330 CD Radio, Inc. 144A 5/15/09 733,000
35,457 Cellnet Data Systems, Inc. 10/1/07 4
130,000 CGA Group, Ltd. 144A 2/11/07 1,300
46,200 ClearNet Communications, Inc. 144A 9/15/05 623,700
13,030 Club Regina, Inc. 144A 12/1/04 130
4,780 Cybernet Internet 144A 7/1/09 286,800
5,100 Destia Communications 144A 7/15/07 433,500
5,390 Diva Systems Corp. 5/15/06 3,234,000
29,246 Diva Systems Corp. 3/1/08 409,444
10,370 E. Spire Communications, Inc. 11/1/05 238,510
4,300 Epic Resorts 6/15/05 43
7,320 Firstworld Communication 4/15/08 512,400
6,250 Globalstar Telecommunications 2/15/04 31,250
122,350 ICG Communications 10/15/05 1,957,600
7,160 Insilco Holding Co. 8/15/08 25,060
6,490 Interact Systems, Inc. 8/1/03 65
6,490 Interact Systems, Inc. 144A 12/15/09 65
3,670 International Wireless Communications
Holdings 144A 8/15/01 4
120,127 Intira Corp. Class A 2/1/10 12
41,281 Intira Corp. Class B 2/1/10 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 10/22/07 218,250
8,310 McCaw International, Ltd. 4/15/07 33,240
7,800 Mediq, Inc. 144A 6/1/09 78
3,025 Metronet Communications 144A 8/15/07 453,750
940 Motient Corp. 144A 4/1/08 23,500
77,500 Network Plus Corp. 12/31/00 3,797,500
7,003 Network Plus Corp. 2/19/09 3,151,350
4,385 Onepoint Communications, Inc. 6/1/08 87,700
8,890 Orion Network Systems 1/15/07 97,790
33,580 Pagemart, Inc. 144A 12/31/03 369,380
7,485 Pathnet, Inc. 144A 4/15/08 74,850
12,800 Paxson Communications Corp. 144A 6/30/03 38,400
11,486 Powertel, Inc. 2/1/06 631,730
4,660 R&B Falcon Corp. 144A 5/1/09 2,283,400
7,760 Startec Global Communications Corp. 5/15/08 139,680
2,365 Sterling Chemicals Holdings 8/15/08 28,380
4,950 Telehub Communications Corp. 7/31/05 2,475
23,545 UIH Australia/Pacific, Inc. 144A 5/15/06 706,350
79,200 USN Communications, Inc. 8/15/04 791
6,510 Versatel Telecom International 5/15/08 1,822,800
4,870 WAM!NET, Inc. 3/1/05 53,570
3,000 Wireless One, Inc. 10/19/00 3
668 Wright Medical Technology, Inc. 144A 6/30/03 7
125,000 ZSC Specialty Chemicals Plc 144A 6/30/11 203,125
125,000 ZSC Specialty Chemicals Plc 144A 6/30/11 78,125
----------------
Total Warrants (cost $17,700,940) $ 24,040,774
COMMON STOCKS (0.9%) (a)
NUMBER OF SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
270,890 360Networks, Inc. 144A (acquired 5/11/00
cost $3,033,968) (Canada) (NON) (RES) $ 3,033,968
1 Advanced Radio Telecom Corp. (NON) 10
3,685 AmeriKing, Inc. (NON) 36,850
1,036,363 Capstar Broadcasting Partners (NON) 4,145,452
37,500 Contour Energy Co. (NON) 65,625
17,096 MGC Communications, Inc. 700,936
2,655 Mothers Work, Inc. (NON) 26,882
7,830 Paging Do Brazil Holdings Co., LLC 144A Class B, (Brazil) (NON) 78
1,730 Premium Holdings (L.P.) 144A (NON) 17,297
707,186 PSF Holdings LLC Class A (NON)(AFF) 7,071,860
3,745 RCN Corp. (NON) 86,369
816 RCN Corp. 144A (NON) 8
121,400 Spanish Broadcasting Systems (NON) 1,657,110
85,200 Specialty Foods Acquisition Corp. (NON) 852
78,024 Tele1 Europe Holding AB ADR (Sweden) (NON) 897,276
33,385 Viatel, Inc. (NON) 832,538
5,800 VoiceStream Wireless Corp. (NON) 664,100
----------------
Total Common Stocks (cost $32,410,909) $ 19,237,211
SHORT-TERM INVESTMENTS (0.5%) (a) (cost $9,970,000)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$ 9,970,000 Interest in $616,280,000 joint repurchase agreement
dated May 31, 2000 with S.B.C. Warburg, Inc.
due June 1, 2000 with respect to various U.S. Treasury
obligations -- maturity value of $9,971,761 for an
effective yield of 6.36% $ 9,970,000
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $2,501,711,549) (b) $ 2,018,417,017
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $2,085,503,853.
(b) The aggregate identified cost on a tax basis is $2,503,076,990,
resulting in gross unrealized appreciation and depreciation of
$39,340,359 and $524,000,332, respectively, or net unrealized
depreciation of $484,659,973.
(NON) Non-income-producing security.
(STP) The interest rate and date shown parenthetically represent the new
interest rate to be paid and the date the fund will begin receiving
interest at this rate.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at May 31, 2000 was
$3,033,968 or 0.1% of net assets.
(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 May 31, 2000, which are subject to change based
on the terms of the security.
------------------------------------------------------------------------------
Swap Contracts Outstanding at May 31, 2000 (Unaudited)
Notional Termination Unrealized
Amount Date Appreciation
------------------------------------------------------------------------------
Agreement with Merrill Lynch
Capital Services dated May 5,
2000 to receive semi-annually
the notional amount multiplied
by 11.3025% and pay quarterly
the notional amount multiplied
by three months LIBOR adjusted
by a specified spread $1,000,000 Apr-05 $6,500
------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
May 31, 2000 (Unaudited)
<S> <C>
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $2,501,711,549) (Note 1) $2,018,417,017
-------------------------------------------------------------------------------------------
Cash 16,203,367
-------------------------------------------------------------------------------------------
Dividends, interest and other receivables 46,819,401
-------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 2,920,994
-------------------------------------------------------------------------------------------
Receivable for securities sold 24,011,827
-------------------------------------------------------------------------------------------
Receivable for open swap contract (Note 1) 6,500
-------------------------------------------------------------------------------------------
Total assets 2,108,379,106
Liabilities
-------------------------------------------------------------------------------------------
Payable for securities purchased 12,790,305
-------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 5,302,758
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 3,249,643
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 119,730
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 98,875
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 3,070
-------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,186,352
-------------------------------------------------------------------------------------------
Other accrued expenses 124,520
-------------------------------------------------------------------------------------------
Total liabilities 22,875,253
-------------------------------------------------------------------------------------------
Net assets $2,085,503,853
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $3,063,885,275
-------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (9,869,385)
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (485,458,437)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
assets and liabilities in foreign currencies (483,053,600)
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $2,085,503,853
Computation of net asset value and offering price
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($778,258,335 divided by 107,030,618 shares) $7.27
-------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $7.27)* $7.63
-------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($633,461,681 divided by 87,539,978 shares)** $7.24
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($663,846,080 divided by 91,426,988 shares) $7.26
-------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $7.26.)* $7.50
-------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($9,937,757 divided by 1,364,437 shares) $7.28
-------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000
or more and on group sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Six months ended May 31, 2000 (Unaudited)
<S> <C>
Investment income:
-------------------------------------------------------------------------------------------
Interest $ 124,087,874
-------------------------------------------------------------------------------------------
Dividends 9,212,453
-------------------------------------------------------------------------------------------
Total investment income 133,300,327
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 6,780,102
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,041,933
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 30,630
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 9,494
-------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,104,387
-------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 3,598,962
-------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 1,888,232
-------------------------------------------------------------------------------------------
Reports to shareholders 142,625
-------------------------------------------------------------------------------------------
Auditing 17,440
-------------------------------------------------------------------------------------------
Legal 54,222
-------------------------------------------------------------------------------------------
Postage 78,117
-------------------------------------------------------------------------------------------
Other 178,593
-------------------------------------------------------------------------------------------
Total expenses 14,924,737
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (193,093)
-------------------------------------------------------------------------------------------
Net expenses 14,731,644
-------------------------------------------------------------------------------------------
Net investment income 118,568,683
-------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (133,288,172)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the period 22,651
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
swap contracts during the period 7,933,081
-------------------------------------------------------------------------------------------
Net loss on investments (125,332,440)
-------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $ (6,763,757)
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
Six months ended Year ended
May 31 November 30
2000* 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment income $ 118,568,683 $ 285,483,257
--------------------------------------------------------------------------------------------------
Net realized loss on investments (133,288,172) (291,498,926)
--------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 7,955,732 85,115,758
--------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (6,763,757) 79,100,089
--------------------------------------------------------------------------------------------------
Distributions to shareholders:
--------------------------------------------------------------------------------------------------
From net investment income
Class A (46,996,740) (109,490,952)
--------------------------------------------------------------------------------------------------
Class B (35,985,848) (85,471,441)
--------------------------------------------------------------------------------------------------
Class M (39,712,362) (89,588,544)
--------------------------------------------------------------------------------------------------
Class Y (515,203) (932,320)
--------------------------------------------------------------------------------------------------
In excess of net investment income
Class A -- (4,295,817)
--------------------------------------------------------------------------------------------------
Class B -- (3,353,426)
--------------------------------------------------------------------------------------------------
Class M -- (3,514,957)
--------------------------------------------------------------------------------------------------
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) (366,999,595) (453,139,656)
--------------------------------------------------------------------------------------------------
Total decrease in net assets (496,973,505) (680,905,480)
Net assets
--------------------------------------------------------------------------------------------------
Beginning of period 2,582,477,358 3,263,382,838
--------------------------------------------------------------------------------------------------
End of period (including distributions in excess
of net investment income of $9,869,385 and
$5,227,915, respectively) $2,085,503,853 $2,582,477,358
--------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS A
------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share May 31
operating performance (Unaudited) Year ended November 30
-------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $7.72 $8.35 $9.96 $9.65 $9.52 $9.07
-------------------------------------------------------------------------------------------------------------
Investment operations
-------------------------------------------------------------------------------------------------------------
Net investment income .40(c) .80(c) .95(c) .90 .89 1.00
-------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.44) (.57) (1.61) .32 .14 .45
-------------------------------------------------------------------------------------------------------------
Total from
investment operations (.04) .23 (.66) 1.22 1.03 1.45
-------------------------------------------------------------------------------------------------------------
Less distributions:
-------------------------------------------------------------------------------------------------------------
From net
investment income (.41) (.80) (.94) (.89) (.90) (1.00)
-------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.03) (.01) (.02) --(d) --
-------------------------------------------------------------------------------------------------------------
Return of capital -- (.03) -- -- -- --
-------------------------------------------------------------------------------------------------------------
Total distributions (.41) (.86) (.95) (.91) (.90) (1.00)
-------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.27 $7.72 $8.35 $9.96 $9.65 $9.52
-------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
-------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (0.64)* 2.89 (7.39) 13.30 11.38 16.81
-------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $778,258 $956,094 $1,261,785 $1,436,699 $1,071,702 $870,810
-------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .48* .95 .92 .97 1.09 1.12
-------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.17* 9.99 9.81 9.17 9.24 10.35
-------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 33.56* 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
-------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share May 31
operating performance (Unaudited) Year ended November 30
-------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $7.68 $8.32 $9.92 $9.61 $9.49 $9.05
-------------------------------------------------------------------------------------------------------------
Investment operations
-------------------------------------------------------------------------------------------------------------
Net investment income .37(c) .74(c) .87(c) .83 .82 .92
-------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.43) (.58) (1.59) .32 .13 .45
-------------------------------------------------------------------------------------------------------------
Total from
investment operations (.06) .16 (.72) 1.15 .95 1.37
-------------------------------------------------------------------------------------------------------------
Less distributions:
-------------------------------------------------------------------------------------------------------------
From net
investment income (.38) (.74) (.87) (.82) (.83) (.93)
-------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.03) (.01) (.02) --(d) --
-------------------------------------------------------------------------------------------------------------
Return of capital -- (.03) -- -- -- --
-------------------------------------------------------------------------------------------------------------
Total distributions (.38) (.80) (.88) (.84) (.83) (.93)
-------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.24 $7.68 $8.32 $9.92 $9.61 $9.49
-------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
-------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (0.88)* 1.98 (7.99) 12.52 10.52 15.94
-------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $633,462 $791,036 $1,052,251 $1,143,329 $623,097 $287,877
-------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .85* 1.70 1.67 1.72 1.84 1.85
-------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.80* 9.24 9.06 8.41 8.50 9.61
-------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 33.56* 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
-----------------------------------------------------------------------------------------------------------------
Six months
ended For the year
Per-share May 31 Dec. 1, 1994+
operating performance (Unaudited) Year ended November 30 to Nov. 30
-----------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $7.71 $8.34 $9.95 $9.64 $9.51 $9.05
---------------------------------------------------------------------------------------------------------------
Investment operations
---------------------------------------------------------------------------------------------------------------
Net investment income .39(c) .79(c) .92(c) .87 .87 .99
---------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.44) (.57) (1.61) .33 .14 .45
---------------------------------------------------------------------------------------------------------------
Total from
investment operations (.05) .22 (.69) 1.20 1.01 1.44
---------------------------------------------------------------------------------------------------------------
Less distributions:
---------------------------------------------------------------------------------------------------------------
From net
investment income (.40) (.79) (.91) (.87) (.88) (.98)
---------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.03) (.01) (.02) --(d) --
---------------------------------------------------------------------------------------------------------------
Return of capital -- (.03) -- -- -- --
---------------------------------------------------------------------------------------------------------------
Total distributions (.40) (.85) (.92) (.89) (.88) (.98)
---------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.26 $7.71 $8.34 $9.95 $9.64 $9.51
---------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
---------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (0.75)* 2.66 (7.64) 13.05 11.15 16.72
---------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $663,846 $826,257 $949,346 $2,071,302 $464,506 $20,077
---------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .60* 1.20 1.17 1.22 1.36 1.35
---------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.06* 9.72 9.56 8.93 8.86 10.06
---------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 33.56* 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>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS Y
-----------------------------------------------------------------
Six months For the
ended period Dec.
Per-share May 31 31, 1998+
operating performance (Unaudited) to Nov. 30
-----------------------------------------------------------------
2000 1999
-----------------------------------------------------------------
Net asset value,
beginning of period $7.72 $8.19
-----------------------------------------------------------------
Investment operations
-----------------------------------------------------------------
Net investment income (c) .41 .74
-----------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.43) (.41)
-----------------------------------------------------------------
Total from
investment operations (.02) .33
-----------------------------------------------------------------
Less distributions:
-----------------------------------------------------------------
From net
investment income (.42) (.74)
-----------------------------------------------------------------
In excess of net
investment income -- (.03)
-----------------------------------------------------------------
Return of capital -- (.03)
-----------------------------------------------------------------
Total distributions (.42) (.80)
-----------------------------------------------------------------
Net asset value,
end of period $7.28 $7.72
-----------------------------------------------------------------
Ratios and supplemental data
-----------------------------------------------------------------
Total return at
net asset value (%)(a) (0.39)* 4.15*
-----------------------------------------------------------------
Net assets, end of period
(in thousands) $9,938 $9,090
-----------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .35* .64*
-----------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.31* 9.54*
-----------------------------------------------------------------
Portfolio turnover (%) 33.56* 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.
NOTES TO FINANCIAL STATEMENTS
May 31, 2000 (Unaudited)
Note 1
Significant accounting policies
Putnam High Yield Advantage Fund (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The fund seeks high current income
primarily through a diversified portfolio of high-yielding, lower-rated
corporate bonds. Capital growth is a secondary objective when consistent
with the objective of high current income.
The fund offers class A, class B, class M and class Y shares. 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) Interest rate swap contracts The fund may engage in interest rate
swap agreements, which are agreements between two parties to exchange
cash flows based on a notional amount. The fund may enter into interest
rate swap agreements, to change the funds exposure to interest rates.
Interest rate swaps are marked to market daily based upon quotations
from market makers and the change, if any, is recorded as unrealized
gain or loss. Net payments are included as part of interest income.
Payments received or made at the end of the measurement period are
recorded as realized gains or losses. The fund could be exposed to
credit or market risk due to unfavorable changes in the fluctuation of
interest rates or that the counterparty may default on its obligation to
perform.
G) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintain an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the six months
ended May 31, 2000, 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. Reclassifications are made to the fund's capital accounts to
reflect income and gains available for distribution (or available
capital loss carryovers) under income tax regulations.
Note 2
Management fees, administrative
services, and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on the following annual rates: 0.70% of the
first $500 million of average net assets, 0.60% of the next $500
million, 0.55% of the next $500 million, 0.50% of the next $5 billion,
0.475% of the next $5 billion, 0.455% of the next $5 billion, 0.44% of
the next $5 billion, and 0.43% thereafter.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The
aggregate amount of all such reimbursements is determined annually by
the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments, Inc.
Investor servicing agent functions are provided by Putnam Investor
Services, a division of PFTC.
For the six months ended May 31, 2000, fund expenses were reduced by
$193,093 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 $2,726
has been allocated to the fund, and an additional fee for each Trustees
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 Retail Management, Inc., 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 Retail Management, Inc. at an annual rate up to
0.35%, 1.00% and 1.00% of the average net assets attributable to class
A, class B and class M shares, respectively. The Trustees have approved
payment by the fund to an annual rate of 0.25%, 1.00% and 0.50% of the
average net assets attributable to class A, class B and class M shares,
respectively.
For the six months ended May 31, 2000, Putnam Retail Management, Inc.,
acting as underwriter received net commissions of $23,376 and $655 from
the sale of class A and class M shares, respectively and $1,154,869 in
contingent deferred sales charges from redemptions of class B shares. A
deferred sales charge of up to 1% is assessed on certain redemptions of
class A shares. For the six months ended May 31, 2000, Putnam Retail
Management, Inc., acting as underwriter received $14,123 on class A
redemptions.
Note 3
Purchases and sales of securities
During the six months ended May 31, 2000, cost of purchases and proceeds
from sales of investment securities other than short-term investments
aggregated $779,260,350 and $1,188,654,746, respectively. There were no
purchases and sales of U.S. government obligations.
NOTE 4
Capital shares
At May 31, 2000, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended May 31, 2000
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 11,675,405 $ 91,019,149
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 3,534,372 26,933,194
---------------------------------------------------------------------------
15,209,777 117,952,343
Shares
repurchased (32,044,183) (247,457,398)
---------------------------------------------------------------------------
Net decrease (16,834,406) $(129,505,055)
---------------------------------------------------------------------------
Year ended November 30, 1999
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 25,735,965 $ 208,715,865
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 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)
---------------------------------------------------------------------------
Six months ended May 31, 2000
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 2,408,496 $ 18,402,857
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 2,253,240 17,107,264
---------------------------------------------------------------------------
4,661,736 35,510,121
Shares
repurchased (20,083,059) (153,557,516)
---------------------------------------------------------------------------
Net decrease (15,421,323) $(118,047,395)
---------------------------------------------------------------------------
Year ended November 30, 1999
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 10,457,839 $ 83,919,735
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 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)
---------------------------------------------------------------------------
Six months ended May 31, 2000
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 3,558,284 $ 27,087,543
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 194,193 1,480,668
---------------------------------------------------------------------------
3,752,477 28,568,211
Shares
repurchased (19,498,908) (149,451,980)
---------------------------------------------------------------------------
Net decrease (15,746,431) $(120,883,769)
---------------------------------------------------------------------------
Year ended November 30, 1999
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 31,038,892 $251,622,244
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 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)
---------------------------------------------------------------------------
Six months ended May 31, 2000
---------------------------------------------------------------------------
Class Y Shares Amount
---------------------------------------------------------------------------
Shares sold 325,286 $2,510,206
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 66,548 515,203
---------------------------------------------------------------------------
391,834 3,025,409
Shares
repurchased (205,001) (1,588,785)
---------------------------------------------------------------------------
Net increase 186,833 $1,436,624
---------------------------------------------------------------------------
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
dividends 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:
Purchase Sales Dividend Market
Affiliates cost cost Income Value
-----------------------------------------------------------------------
PSF Holdings LLC Class A $-- $-- $-- $7,071,860
THE PUTNAM FAMILY OF FUNDS
The following is a complete list of Putnam's open-end mutual funds.
Please call your financial advisor or Putnam at 1-800-225-1581 to obtain
a prospectus for any Putnam fund. It contains more complete information,
including charges and expenses. Please read it carefully before you
invest or send money.
GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Capital Opportunities Fund
Europe Growth Fund
Global Equity Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Century Growth Fund
New Opportunities Fund
OTC & Emerging Growth Fund
Research Fund
Tax Smart Equity Fund
Vista Fund
Voyager Fund
Voyager Fund II
GROWTH AND INCOME FUNDS
Balanced Retirement Fund
Classic Equity Fund *
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
International Growth and Income Fund
New Value Fund
Small Cap Value Fund
Utilities Growth and Income Fund
INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGER]
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Intermediate U.S. Government Income Fund
Money Market Fund **
Preferred Income Fund
Strategic Income Fund
U.S. Government Income Trust
TAX-FREE INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund **
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK] **
California, New York
ASSET ALLOCATION FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* Formerly Putnam Growth and Income Fund II
[DBL. DAGGER] Closed to new investors. Some exceptions may apply.
Contact Putnam for details.
[SECTION MARK] Not available in all states.
** An investment in a money market fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the funds seek to preserve your investment at $1.00 per share, it
is possible to lose money by investing in the fund.
Check your account balances and current performance at www.putnaminv.com.
FUND INFORMATION
WEB SITE
www.putnaminv.com
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management, Inc.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
John A. Hill, 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, III
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
Rosemary H. Thomsen
Vice President and Fund Manager
Richard A. Monaghan
Vice President
Richard G. Leibovitch
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
SA032-62269 060/327/702 7/00
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
---------------------------------------------------------------------------
Putnam High Yield Advantage Fund
Supplement to Semiannual Report dated 5/31/00
The following information has been prepared to provide class Y shareholders
with a performance overview specific to their holdings. Class Y shares are
offered exclusively to defined contribution plans investing $150 million or
more in one or more of Putnam's funds or private accounts. Performance of
class Y shares, which incur neither a front-end load, distribution fee, nor
contingent deferred sales charge, will differ from performance of class A,
B, and M shares, which are discussed more extensively in the semiannual
report.
SEMIANNUAL RESULTS AT A GLANCE
---------------------------------------------------------------------------
Total return
for periods ended 5/31/00 NAV
6 months -0.39%
1 year -1.16
5 years 27.84
Annual average 5.03
10 years 160.74
Annual average 10.06
Life of fund (since class A inception, 3/25/86) 211.04
Annual average 8.33
---------------------------------------------------------------------------
Share value: NAV
11/30/99 $7.72
5/31/00 $7.28
---------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
6 $0.420 -- $0.420
---------------------------------------------------------------------------
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.
