Putnam
High Yield
Advantage
Fund
Item 1. Report to Stockholders:
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The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
5-31-03
[GRAPHIC OMITTED: WOODCLAMP]
[SCALE LOGO OMITTED]
FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III]
Dear Fellow Shareholder:
We are pleased to report strong performance for Putnam High Yield
Advantage Fund for the semiannual period ended May 31, 2003. The fund
also performed above the average of its Lipper peer category at net
asset value. However, because the fund was underweighted in several
volatile industry sectors, its performance lagged that of its benchmark
index, which included more of these securities.
In one of the strongest periods for high-yield bonds since the early
1990s, your fund's management team focused on seeking ways to maintain
the fund's yield in a challenging interest-rate environment, in which
bond yields have declined significantly and many companies have called
bonds in order to refinance at lower rates. The team also provides its
views on the outlook for the second half of the fiscal year.
Meanwhile, we would like you to know how much we appreciate your
continued confidence in Putnam. No one can say for certain, of course,
how long the current strength in the high-yield market will last, but
the management team will continue to devote its full attention to
maintaining the fund's fine record.
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 16, 2003
REPORT FROM FUND MANAGEMENT
FUND HIGHLIGHTS
* During the semiannual period ended May 31, 2003, Putnam High Yield
Advantage Fund's class A shares had total returns of 13.31% at net asset
value (NAV) and 7.89% at public offering price (POP).
* The fund underperformed its benchmark, the JP Morgan Global High
Yield Index, which returned 14.75% for the period. We attribute this to
the fund's underweight in several volatile sectors that rebounded
strongly.
* However, at NAV, the fund outperformed the average return of 12.73%
for the Lipper High Current Yield Funds category. We attribute this
outperformance to generally successful selection of holdings.
* See the Performance Summary on page 7 for complete fund performance,
comparative index performance, and Lipper data.
* PERFORMANCE COMMENTARY
Over the course of the past six months, your fund benefited from a
period of exceptional strength for high-yield bonds. In this positive
environment, your fund outperformed its Lipper peer group average,
primarily as a result of successful security selection. The fund also
benefited from the management team's efforts to reduce risk by seeking
to avoid troubled sectors and maintaining a well-diversified portfolio.
Returns lagged those of the benchmark index, however, because the index
included certain deeply distressed holdings, which your fund did not
own. Many of these distressed issues saw huge price increases, as
bargain-hunting investors took advantage of the market's upward
momentum. We continued to seek opportunities for higher-yielding
securities during the period, while managing credit risk in the
portfolio.
Fund Profile
Putnam High Yield Advantage Fund seeks high current income and, as a
secondary objective, capital growth, by investing in a diversified
portfolio of high-yield bonds that includes a broad range of industries
and issuers. The fund is designed for investors who seek high income and
are willing to accept the added risks of investing in
below-investment-grade bonds.
* MARKET OVERVIEW
The first half of your fund's fiscal year occurred during one of the
strongest-performing periods for high-yield bonds since the early 1990s.
After struggling through the summer and early fall of 2002, the
high-yield sector finally reached a turning point in mid October, a few
weeks before the semiannual period began. As yields on Treasuries and
money market securities reached historic lows by early October (they
have since dropped even lower), investors who sought higher yields
became more willing to take on additional risk to attain them. With
encouragement from improved economic forecasts for 2003, investors moved
out of Treasuries in mid October and a strong high-yield rally
commenced.
In early 2003, investors remained nervous about the prospects of war
with Iraq and the strength of the U.S. economy, but their demand for
higher income than Treasuries could provide, combined with an improved
outlook for this investment sector, bolstered returns. When the war
ended sooner than expected, investors continued to focus on a number of
positive factors supporting high-yield bonds. For example, the decline
in the rate of corporate defaults (which peaked in early 2002) has been
of particular importance, as investors may perceive that lower default
rates are an indication of reduced risk in the market going forward.
Also, widespread efforts by companies to improve their balance sheets
has been perceived as a harbinger of improving credit quality over the
next few years.
MARKET SECTOR PERFORMANCE 6 MONTHS ENDED 5/31/03
Bonds
JP Morgan Global High Yield Index (high-yield bonds) 14.75%
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Lehman Aggregate Bond Index (broad bond market) 6.29%
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Lehman GNMA Index (mortgage-backed securities) 2.09%
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Lehman Municipal Bond Index (municipal bonds) 6.46%
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Equities
S&P 500 Index (broad stock market) 3.87%
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Russell 2000 Index (small- and large-company stocks) 9.34%
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MSCI EAFE Index (international stocks) 3.30%
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These indexes provide an overview of performance in different market
sectors for the six months ended 5/31/03.
* STRATEGY OVERVIEW
In this environment of strong returns and declining market yields, your
management team's primary goal was to seek ways to maintain yield in the
portfolio. To accomplish this objective, the team was willing to
consider bonds that offered higher yields in exchange for lower credit
quality.
Call risk became a significant factor during the period. High-yield
bonds typically are issued with a call feature. This provision allows an
issuer to "call" -- or redeem -- the bond from the bondholder after a
specified date (usually four to five years from the date of issuance).
Calling the bond allows the issuer to refinance the debt at a lower
rate. Obviously, when a bond is called, the bondholder (in this case,
your fund) no longer receives the interest income. However, in some
cases the bond is called at a significant premium, which is beneficial
to the fund. The challenge in a declining-rate environment is to find
new bonds that offer as high a level of income as possible without
incurring an unnecessary amount of credit risk. This goal is not always
easy, and in general, when yields decline in the marketplace, it
typically results in a need to lower the fund's dividend. Fortunately,
your fund's distribution rate was maintained throughout the six-month
period.
[GRAPHIC OMITTED: horizontal bar chart TOP SECTOR WEIGHTINGS COMPARED]
TOP SECTOR WEIGHTINGS COMPARED*
as of as of
Nov 30, 2002 May 31, 2003
Gaming and lottery 6.4% 5.7%
Chemicals 5.7% 5.3%
Telecommunications 4.7% 5.0%
Oil and gas 4.7% 4.7%
Broadcasting 5.1% 4.4%
Footnote reads:
*This chart shows how the fund's top sector weightings have changed over the
last six months. Weightings are shown as a percentage of net assets. Sectors
and holdings will vary over time
* HOW FUND HOLDINGS AND SECTOR ALLOCATIONS AFFECTED PERFORMANCE
Several of the larger holdings in the portfolio performed well during
the period and contributed to the fund's solid returns. Nextel and
Charter Communications were among the strongest performers, as the
wireless communications and cable television industries have been
strengthening. Some of these companies -- Nextel in particular -- have
been reducing debt and seeing large price increases for their bonds.
Nextel operates a large wireless telecommunications network with a
unique and successful walkie-talkie feature. The wireless sector has
been one of the strongest-performing sectors for the fund, though we
believe that the bulk of the returns from some of these holdings may be
behind us. Consequently, we have pared down the fund's exposure to
Nextel, one of the fund's best-performing holdings over the period, as
its bond prices have increased. Vivendi Universal, a France-based media
and communications conglomerate, performed strongly, as did DirecTV,
another satellite broadcasting firm. (Vivendi was sold at a profit
shortly before the end of the semiannual period). In broadcasting,
Paxson Communications Corp. has also performed well. Paxson owns and
operates 63 television stations, as well as the PAX TV cable network,
which provides family entertainment programming.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS*
CSC Holdings, Inc.
Series M, $11.125% cumulative preferred
Communication services
PSF Group Holdings, Inc. 144A
Common stock, Class A
Consumer staples
Sealy Mattress Co. 144A
Senior notes, zero %, 2008
Household furniture and appliances
Telus Corp. (Canada)
Notes, 8.0%, 2011
Communication services
Tyco International Group SA (Luxembourg)
Company guaranty, 6.375%, 2006
Conglomerate
Qwest Corp. 144A
Notes, 8.875%, 2012
Communication services
Qwest Services Corp. 144A
Notes, 13.5%, 2010
Communication services
Echostar DBS Corp.
Senior notes, 10.375%, 2007
Broadcasting
Regal Entertainment Group 144A
Common stock
Consumer staples
Hercules, Inc.
Company guaranty, 11.125%, 2007
Basic materials
Footnote reads:
*These holdings represent 7.2% of the fund's net assets as of 5/31/03. The
fund's holdings will change over time.
The fund's holdings of AK Steel Corp. and Collins and Aikman Corp. bonds
detracted from performance during the period. AK Steel Corp., an
Ohio-based steel manufacturer, had disappointing first-quarter 2003
financial results, primarily due to weak demand in the appliance,
construction and manufacturing markets. Collins and Aikman, a
manufacturer of auto and truck parts, severely underperformed earnings
expectations in the first quarter of 2003, incurring a loss. The company
attributed the first-quarter disappointment to problems in several of
its manufacturing facilities. Finally, HealthSouth, which owns and
operates a chain of rehabilitation, diagnostic imaging and outpatient
surgery centers, experienced significant losses due to charges of
accounting fraud over several years. The fund still owns all three of
these holdings, as we believe that the bonds still offer attractive
return potential. Of course, we will continue to evaluate the holdings
and make changes if we believe it is necessary to do so. The fund was
underweighted in technology and utility bonds, both of which performed
well, so this positioning hurt relative performance.
The oil and gas sector produced solid returns for the fund during the
period, as energy prices generally remained elevated due to uncertainties
surrounding the war in Iraq and a longer and colder (than normal) winter in
the northeastern United States.
Please note that all holdings and sectors discussed in this report are
subject to review in accordance with the fund's investment strategy and
may vary in the future.
* THE FUND'S MANAGEMENT TEAM
The fund is managed by the Putnam Core Fixed-Income High-Yield Team. The
members of this team are Stephen Peacher (Portfolio Leader), Norm
Boucher (Portfolio Member), Paul Scanlon (Portfolio Member), Rosemary
Thomsen (Portfolio Member), Jeffrey Kaufman, Geoffrey Kelley, Neil
Reiner, and Joseph Towell.
THE OUTLOOK FOR YOUR FUND
The following commentary reflects anticipated developments that could
affect your fund over the next six months, as well as your management
team's plans for responding to them.
The strong returns in the high-yield bond market since mid October 2002
have caused us to temper our enthusiasm for the sector somewhat in the
near term. However, our outlook for the longer term remains positive. We
believe there is evidence which supports a strengthening economy, low
inflation, and sustained demand for higher-yielding fixed-income
investments. On the economic front, we are seeing substantial fiscal and
monetary stimulus. Major stimuli include the recent tax cut (as well as
reduction in 2001), a weakened dollar, historically low interest rates,
and a commitment by the Federal Reserve Board to keep long-term interest
rates low by buying longer-maturity Treasury bonds on the open market.
All of these factors, we believe, should provide the U.S. economy with
the fuel it needs to continue expanding. Moreover, we believe that
market-specific trends continue to be positive: namely, declining
corporate default rates and improving corporate balance sheets.
While we are optimistic about the high-yield market for the next several
years, we know the market will experience short-term fluctuations. As
such, we will seek to maintain diversity among industry sectors and
individual holdings, and we will focus on reducing risk where possible.
The views expressed in this report are exclusively those of Putnam
Management. They are not meant as investment advice. Lower-rated bonds
may offer higher yields in return for more risk. The fund is closed to
new investors.
PERFORMANCE SUMMARY
This section provides information about your fund's performance during
its semiannual period, which ended May 31, 2003. In accordance with
regulatory requirements, we also include performance for the most
current calendar quarter-end. Performance should always be considered in
light of a fund's investment strategy. Past performance does not
indicate future results. More recent returns may be less or more than
those shown. Investment return and principal value will fluctuate and
you may have a gain or a loss when you sell your shares. A profile of
your fund's strategy appears on the first page of this report. See page
8 for definitions of some terms used in this section.
TOTAL RETURN FOR PERIODS ENDED 5/31/03
Class A Class B Class M
(inception dates) (3/25/86) (5/16/94) (12/1/94)
NAV POP NAV CDSC NAV POP
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6 months 13.31% 7.89% 12.84% 7.84% 13.36% 9.76%
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1 year 9.98 4.78 9.06 4.12 9.91 6.33
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5 years -2.93 -7.56 -6.87 -7.98 -3.60 -6.69
Annual average -0.59 -1.56 -1.41 -1.65 -0.73 -1.38
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10 years 57.13 49.62 43.96 43.96 54.08 49.11
Annual average 4.62 4.11 3.71 3.71 4.42 4.08
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Annual average
(life of fund) 7.26 6.96 6.32 6.32 6.97 6.76
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Performance assumes reinvestment of distributions and does not account
for taxes. Returns at public offering price (POP) for class A and M
shares reflect a sales charge of 4.75% and 3.25%, respectively. Class B
share returns reflect the applicable contingent deferred sales charge
(CDSC), which is 5% in the first year, declining to 1% in the sixth
year, and is eliminated thereafter. Performance for class B and M shares
before their inception is derived from the historical performance of
class A shares, adjusted for the applicable sales charge (or CDSC) and
higher operating expenses for such shares.
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/03
JP Morgan Lipper High Current
CSFB High Global High Yield Funds
Yield Index Yield Index* category average+
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6 months 15.38% 14.75% 12.73%
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1 year 13.26 12.02 8.61
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5 years 17.62 15.49 1.88
Annual average 3.30 2.92 0.15
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10 years 96.29 --** 63.17
Annual average 6.98 -- 4.90
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Annual average
(life of fund) 8.93 -- 6.77
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* Putnam Management has recently undertaken a review of the fund's benchmark.
This index replaces the CSFB High Yield Index as a performance benchmark for
this fund because, in Putnam Management's opinion, the securities tracked by
this index more accurately reflect the types of securities generally held by
the fund.
** This index began operations on 12/31/93.
+ Index and Lipper results should be compared to fund performance at net
asset value. Over the 6-month and 1-, 5-, and 10-year periods ended
5/31/03, there were 407, 385, 221, and 59 funds, respectively, in this
Lipper category.
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 5/31/03
Class A Class B Class M
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Distributions
(number) 6 6 6
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Income $0.258 $0.239 $0.252
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Capital gains -- -- --
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Total $0.258 $0.239 $0.252
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Share value: NAV POP NAV NAV POP
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11/30/02 $5.17 $5.43 $5.12 $5.18 $5.35
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5/31/03 5.58 5.86 5.52 5.60 5.79
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Current
dividend
rate 1 9.25% 8.81% 8.70% 9.00% 8.71%
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Current
30-day SEC
yield 2 7.57 7.20 6.80 7.23 7.07
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1 Most recent distribution, excluding capital gains, annualized and
divided by NAV or POP at end of period.
2 Based only on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 6/30/03(most recent calendar quarter)
Class A Class B Class M
(inception dates) (3/25/86) (5/16/94) (12/1/94)
NAV POP NAV CDSC NAV POP
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6 months 16.11% 10.53% 15.66% 10.66% 16.15% 12.44%
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1 year 19.17 13.61 18.06 13.06 19.07 15.17
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5 years -0.07 -4.78 -4.10 -5.24 -0.76 -3.97
Annual average -0.01 -0.98 -0.83 -1.07 -0.15 -0.81
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10 years 58.05 50.59 44.93 44.93 54.96 49.88
Annual average 4.68 4.18 3.78 3.78 4.48 4.13
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Annual average
(life of fund) 7.41 7.10 6.47 6.47 7.11 6.90
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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.
Net asset value (NAV) is the price, or value, of one share of a mutual
fund, without a sales charge. NAVs fluctuate with market conditions. The
NAV is calculated by dividing the net value of all the fund's assets by
the number of outstanding shares.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the 4.75% maximum sales charge for class A
shares and 3.25% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time
of the redemption of class B shares and assumes redemption at the end of
the period. Your fund's class B CDSC declines from a 5% maximum during
the first year to 1% during the sixth year. After the sixth year, the
CDSC no longer applies.
Class A shares are generally subject to an initial sales charge and no
sales charge on redemption (except on certain redemptions of shares
bought without 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 (except on certain
redemptions of shares bought without an initial sales charge).
COMPARATIVE INDEXES
JP Morgan Global High Yield Index is an unmanaged index of global
high-yield debt securities.
Credit Suisse First Boston (CSFB) High Yield Index is an unmanaged index
of high-yield debt securities.
Lehman Aggregate Bond Index is an unmanaged index used as a general
measure of U.S. fixed income securities.
Lehman GNMA Index is an unmanaged index of GNMA securities.
Lehman Municipal Bond Index is an unmanaged index of long-term
fixed-rate investment-grade tax-exempt bonds.
S&P 500 Index is an unmanaged index of common stock performance.
Russell 2000 Index is an unmanaged index of common stocks that generally
measure performance of small to midsize companies within the Russell
3000 Index.
The Morgan Stanley Capital International (MSCI) EAFE Index is an
unmanaged index of international stocks from Europe, Australasia, and
the Far East.
Indexes assume reinvestment of all distributions and do not account for
fees. Securities and performance of a fund and an index will differ. You
cannot invest directly in an index.
Lipper Inc. is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper. Lipper category averages reflect
performance trends for funds within a category and are based on results
at net asset value.
A NOTE ABOUT DUPLICATE MAILINGS
In response to investors' requests, the SEC has modified mailing regulations
for proxy statements, semiannual and annual reports, and prospectuses.
Putnam is now able to send a single copy of these materials to customers who
share the same address. This change will automatically apply to all
shareholders except those who notify us. If you would prefer to receive your
own copy, please call Putnam at 1-800-225-1581.
A GUIDE TO THE FINANCIAL STATEMENTS
These sections of the report, as well as the accompanying Notes,
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.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or
loss the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal 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.
THE FUND'S PORTFOLIO
May 31, 2003 (Unaudited)
CORPORATE BONDS AND NOTES (85.8%) (a)
PRINCIPAL AMOUNT VALUE
Advertising and Marketing Services (0.3%)
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$369,065 Adams Outdoor Advertising bank term loan FRN
4.5843s, 2008 (acquired 4/2/03, cost $368,142) (RES) $369,526
4,852,762 Interact Operating Co. notes 14s, 2003 (In default) (NON) (PIK) 485
1,000,000 Lamar Advertising Co. Structured Notes Ser. 01-1 5 1/4s,
2006 (issued by COUNTS Trust) 997,500
1,500,000 Lamar Advertising Co. Structured Notes Ser. 01-6 9.84s,
2006 (issued by COUNTS Trust) 1,511,250
2,165,000 Lamar Media Corp. company guaranty 7 1/4s, 2013 2,257,013
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5,135,774
Automotive (1.6%)
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1,150,000 ArvinMeritor, Inc. notes 8 3/4s, 2012 1,253,500
3,935,000 Collins & Aikman Products, Inc. company guaranty
11 1/2s, 2006 2,597,100
3,880,000 Collins & Aikman Products, Inc. company guaranty
10 3/4s, 2011 3,356,200
765,000 Dana Corp. notes 10 1/8s, 2010 833,850
1,955,000 Dana Corp. notes 9s, 2011 2,038,088
820,000 Dana Corp. notes 7s, 2029 692,900
565,000 Delco Remy International, Inc. company guaranty
11s, 2009 355,950
1,265,000 Delco Remy International, Inc. company guaranty
10 5/8s, 2006 822,250
3,260,000 Dura Operating Corp. company guaranty Ser. D, 9s, 2009 2,885,100
1,675,000 Lear Corp. company guaranty Ser. B, 8.11s, 2009 1,867,625
2,520,000 Lear Corp. company guaranty Ser. B, 7.96s, 2005 2,664,900
EUR 450,000 Lear Corp. sr. notes 8 1/8s, 2008 568,229
$2,790,000 Lear Corp. Structured Notes 8.46s, 2006
(issued by STEERS Credit Linked Trust 2001) 3,013,200
760,000 Tenneco Automotive, Inc. company guaranty
Ser. B, 11 5/8s, 2009 680,200
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23,629,092
Basic Materials (9.5%)
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40,000 Abitibi-Consolidated Finance LP company guaranty
7 7/8s, 2009 44,363
3,805,000 Acetex Corp. sr. notes 10 7/8s, 2009 (Canada) 4,223,550
280,000 AK Steel Corp. company guaranty 7 7/8s, 2009 229,600
2,435,000 AK Steel Corp. company guaranty 7 3/4s, 2012 1,935,825
5,274,910 Alabama River Newsprint bank term loan FRN 4 3/8s, 2004
(acquired various dates from 4/14/98 to 4/30/98,
cost $4,793,168) (RES) 4,984,790
3,805,000 Appleton Papers, Inc. company guaranty Ser. B, 12 1/2s, 2008 4,280,625
2,730,000 Armco, Inc. sr. notes 8 7/8s, 2008 2,197,650
645,000 Avecia Group PLC company guaranty 11s, 2009
(United Kingdom) 567,600
2,440,000 Better Minerals & Aggregates Co. company guaranty
13s, 2009 1,659,200
1,325,000 Compass Minerals Group, Inc. company guaranty 10s, 2011 1,470,750
4,518,506 Doe Run Resources Corp. company guaranty Ser. A1,
11 3/4s, 2008 (acquired various dates from
11/29/02 to 5/27/03, cost $2,693,402) (RES) (PIK) 1,807,402
730,000 Equistar Chemical notes 6 1/2s, 2006 693,500
750,000 Equistar Chemicals LP notes 8 3/4s, 2009 712,500
5,615,000 Equistar Chemicals LP/Equistar Funding Corp. company
guaranty 10 1/8s, 2008 5,699,225
1,485,000 Equistar Chemicals LP/Equistar Funding Corp.
144A sr. notes 10 5/8s, 2011 1,507,275
1,000,000 Four M Corp. sr. notes Ser. B, 12s, 2006 1,020,000
1,255,000 Georgia-Pacific Corp. debs. 9 1/2s, 2011 1,298,925
960,000 Georgia-Pacific Corp. debs. 7.7s, 2015 873,600
1,155,000 Georgia-Pacific Corp. notes 8 1/8s, 2011 1,120,350
1,115,000 Georgia-Pacific Corp. notes 7 1/2s, 2006 1,109,425
2,765,000 Georgia-Pacific Corp. 144A sr. notes 8 7/8s, 2010 2,875,600
6,605,000 Hercules, Inc. company guaranty 11 1/8s, 2007 7,595,750
1,810,084 Huntsman Corp. bank term loan FRN Ser. A, 6.1291s,
2007 (acquired various dates from 3/1/02 to 5/1/03,
cost $1,447,715) (RES) 1,626,059
868,314 Huntsman Corp. bank term loan FRN Ser. B, 8 1/8s,
2007 (acquired various dates from 3/1/02 to 5/1/03,
cost $694,482) (RES) 780,035
4,015,000 Huntsman ICI Chemicals, Inc. company guaranty
10 1/8s, 2009 3,804,213
5,905,000 Huntsman ICI Holdings sr. disc. notes zero %, 2009 2,243,900
EUR 1,890,000 Huntsman International, LLC sr. sub. notes Ser. EXCH,
10 1/8s, 2009 1,967,036
$1,050,000 IMC Global, Inc. company guaranty Ser. B, 11 1/4s, 2011 1,165,500
1,385,000 IMC Global, Inc. company guaranty Ser. B, 10 7/8s, 2008 1,537,350
4,855,000 ISP Chemco, Inc. company guaranty Ser. B, 10 1/4s, 2011 5,291,950
890,000 ISP Holdings, Inc. sec. sr. notes Ser. B, 10 5/8s, 2009 916,700
4,020,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes
12 3/4s, 2003 (In default) (DEF) (NON) 241,200
1,750,000 Lyondell Chemical Co. bonds 11 1/8s, 2012 1,776,250
480,000 Lyondell Chemical Co. company guaranty 9 1/2s, 2008 460,800
1,895,000 Lyondell Chemical Co. notes Ser. A, 9 5/8s, 2007 1,861,838
3,110,000 Lyondell Chemical Co. sr. sub. notes 10 7/8s, 2009 2,907,850
1,880,000 Lyondell Chemical Co. 144A sec. notes 9 1/2s, 2008 1,804,800
EUR 265,000 MDP Acquisitions bonds 10 1/8s, 2012 (Ireland) 332,987
$2,205,000 MDP Acquisitions PLC sr. notes 9 5/8s, 2012 (Ireland) 2,373,131
1,197,194 MDP Acquisitions PLC sub. notes 15 1/2s, 2013 (Ireland) (PIK) 1,358,815
3,060,000 Millennium America, Inc. company guaranty 9 1/4s, 2008 3,304,800
735,000 Millennium America, Inc. 144A sr. notes 9 1/4s, 2008 793,800
1,865,000 Noveon International bonds 13s, 2011 1,902,300
2,110,000 Noveon International company guaranty Ser. B, 11s, 2011 2,363,200
1,875,000 OM Group, Inc. company guaranty 9 1/4s, 2011 1,631,250
1,570,000 Oregon Steel Mills, Inc. company guaranty 10s, 2009 1,413,000
3,060,000 Pacifica Papers, Inc. sr. notes 10s, 2009 (Canada) 3,213,000
476,488 PCI Chemicals Canada sec. sr. notes 10s, 2008 (Canada) 409,780
1,746,842 Pioneer Cos., Inc. sec. FRN 4.79s, 2006 1,476,081
2,190,000 Potlatch Corp. company guaranty 10s, 2011 2,370,675
1,200,000 Resolution Performance Products, LLC 144A sr. notes
9 1/2s, 2010 1,200,000
145,000 Rhodia SA 144A sr. sub. notes 8 7/8s, 2011 (France) 145,363
6,410,000 Riverwood International Corp. company guaranty
10 7/8s, 2008 6,594,288
445,000 Riverwood International Corp. company guaranty
10 5/8s, 2007 462,244
4,055,000 Royster-Clark, Inc. 1st mtge. 10 1/4s, 2009 3,284,550
2,475,000 Salt Holdings Corp. 144A sr. disc. notes stepped-coupon
zero % (12s, 6/1/06), 2013 (STP) 1,386,000
1,585,000 Salt Holdings Corp. 144A sr. notes stepped-coupon
zero % (12 3/4s, 12/15/07), 2012 (STP) 1,077,800
590,000 Smurfit-Stone Container Corp. company guaranty
8 1/4s, 2012 616,550
2,895,000 Solutia, Inc. company guaranty 11 1/4s, 2009 2,316,000
2,340,000 Steel Dynamics, Inc. company guaranty 9 1/2s, 2009 2,410,200
603,999 Sterling Chemicals, Inc. sec. notes 10s, 2007 (PIK) 540,579
468,000 Stone Container Corp. sr. notes 9 1/4s, 2008 503,100
3,235,000 Stone Container Corp. sr. notes 8 3/8s, 2012 3,388,663
4,215,000 Stone Container Corp. 144A company guaranty
11 1/2s, 2006 (Canada) 4,488,975
1,110,000 Tembec Industries, Inc. company guaranty 8 5/8s,
2009 (Canada) 1,098,900
2,860,000 Tembec Industries, Inc. company guaranty 8 1/2s,
2011 (Canada) 2,831,400
980,000 Tembec Industries, Inc. company guaranty 7 3/4s,
2012 (Canada) 931,000
170,000 Texas Petrochemical Corp. sr. sub. notes 11 1/8s, 2006 57,800
920,000 Texas Petrochemical Corp. sr. sub. notes Ser. B,
11 1/8s, 2006 312,800
2,800,000 Ucar Finance, Inc. company guaranty 10 1/4s, 2012 2,691,500
2,240,000 WCI Steel, Inc. sr. notes Ser. B, 10s, 2004 604,800
187,000 Weirton Steel Corp. sr. notes FRN 10s, 2008 (In default) (NON) 18,700
2,390,000 Wheeling-Pittsburgh Steel Corp. sr. notes 9 1/4s, 2007
(In default) (NON) 11,950
2,040,000 WHX Corp. sr. notes 10 1/2s, 2005 1,734,000
-------------
137,942,967
Beverage (0.2%)
- -------------------------------------------------------------------------------------------------------------------
570,000 Constellation Brands, Inc. company guaranty 8 1/2s, 2009 594,938
1,640,000 Constellation Brands, Inc. company guaranty Ser. B, 8s, 2008 1,758,900
145,000 Constellation Brands, Inc. sr. sub. notes Ser. B, 8 1/8s, 2012 151,888
-------------
2,505,726
Broadcasting (3.4%)
- -------------------------------------------------------------------------------------------------------------------
94,000 Acme Communications, Inc. sr. disc. notes Ser. B, 12s, 2005 96,115
4,140,000 British Sky Broadcasting PLC company guaranty 6 7/8s, 2009
(United Kingdom) 4,554,000
185,000 DirecTV bank term loan FRN Ser. B, 4.7539s, 2010
(acquired 3/4/03, cost $185,000) (RES) 185,833
4,765,000 DirecTV Holdings, LLC 144A sr. notes 8 3/8s, 2013 5,277,238
12,449,000 Diva Systems Corp. sr. disc. notes Ser. B, 12 5/8s, 2008
(In default) (NON) 404,593
8,625,000 Echostar DBS Corp. sr. notes 10 3/8s, 2007 9,530,625
700,000 Echostar DBS Corp. sr. notes 9 3/8s, 2009 749,875
5,630,000 Echostar DBS Corp. sr. notes 9 1/8s, 2009 6,263,375
280,000 Emmis Communications Corp. bank term loan FRN
Ser. C, 3 5/8s, 2009 (acquired 6/20/02, cost $280,000) (RES) 280,100
407,000 Emmis Communications Corp. sr. disc. notes stepped-coupon
zero % (12 1/2s, 3/15/06), 2011 (STP) 352,055
720,000 Granite Broadcasting Corp. sr. sub. notes 10 3/8s, 2005 716,400
2,667,000 Granite Broadcasting Corp. sr. sub. notes 9 3/8s, 2005 2,616,994
2,720,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 2,611,200
170,000 Knology, Inc. 144A sr. notes 12s, 2009 (PIK) 134,300
680,000 LIN Television Corp. 144A sr. sub. notes 6 1/2s, 2013 680,000
150,000 Pegasus Communications Corp. sr. notes Ser. B, 9 3/4s, 2006 131,250
1,615,000 Pegasus Satellite sr. notes 12 3/8s, 2006 1,469,650
9,068,539 Quorum Broadcast Holdings, LLC notes stepped-coupon
zero % (15s, 5/15/06), 2009 (STP) 6,347,977
1,657,000 RCN Corp. sr. disc. notes Ser. B, zero %, 2008 621,375
1,450,000 Sinclair Broadcast Group, Inc. 144A company guaranty
8s, 2012 1,535,188
4,082,000 Young Broadcasting, Inc. company guaranty 10s, 2011 4,265,690
510,000 Young Broadcasting, Inc. company guaranty Ser. B,
8 3/4s, 2007 512,550
-------------
49,336,383
Building Materials (0.6%)
- -------------------------------------------------------------------------------------------------------------------
1,365,000 Atrium Cos., Inc. company guaranty Ser. B, 10 1/2s, 2009 1,450,313
1,450,000 Building Materials Corp. company guaranty 8s, 2008 1,290,500
2,291,000 Dayton Superior Corp. company guaranty 13s, 2009 1,958,805
2,360,000 Nortek, Inc. sr. notes Ser. B, 8 7/8s, 2008 2,448,500
240,000 Nortek, Inc. sr. sub. notes Ser. B, 9 7/8s, 2011 251,400
1,470,000 Owens Corning bonds 7 1/2s, 2018 (In default) (NON) 565,950
2,620,000 Owens Corning notes 7 1/2s, 2005 (In default) (NON) 1,008,700
-------------
8,974,168
Cable Television (2.1%)
- -------------------------------------------------------------------------------------------------------------------
40,000 Adelphia Communications Corp. notes Ser. B, 9 7/8s, 2005
(In default) (NON) 22,000
200,000 Adelphia Communications Corp. sr. notes 10 7/8s, 2010
(In default) (NON) 111,000
155,000 Adelphia Communications Corp. sr. notes 9 3/8s, 2009
(In default) (NON) 87,575
3,027,000 Adelphia Communications Corp. sr. notes 7 7/8s, 2009
(In default) (NON) 1,664,850
1,119,000 Adelphia Communications Corp. sr. notes Ser. B, 9 7/8s, 2007
(In default) (NON) 615,450
451,000 Adelphia Communications Corp. sr. notes Ser. B, 7 3/4s, 2009
(In default) (NON) 248,050
234,062 Australis Media, Ltd. sr. disc. notes 15 3/4s, 2003 (Australia)
(In default) (DEF) (NON) 23
2,290,000 Century Cable Holdings bank term loan FRN 6 1/4s, 2009
(acquired various dates from 5/20/02 to 6/5/02,
cost $2,017,175) (RES) 1,874,528
1,467,929 Charter Communications Holdings, LLC bank term loan FRN
Ser. B, 3.57s, 2008 (acquired 3/16/99, cost $1,467,929) (RES) 1,347,559
1,515,000 Charter Communications Holdings, LLC/Capital Corp. sr. disc.
notes stepped-coupon zero % (12 1/8s, 1/15/07), 2012 (STP) 666,600
3,225,000 Charter Communications Holdings, LLC/Capital Corp. sr. disc.
notes stepped-coupon zero % (11 3/4s, 5/15/06), 2011 (STP) 1,499,625
1,565,000 Charter Communications Holdings, LLC/Capital Corp. sr. disc.
notes stepped-coupon zero % (11 3/4s, 1/15/05), 2010 (STP) 860,750
8,009,000 Charter Communications Holdings, LLC/Capital Corp.
sr. notes 11 1/8s, 2011 5,846,570
4,921,000 Charter Communications Holdings, LLC/Capital Corp.
sr. notes 10 3/4s, 2009 3,592,330
1,620,000 Charter Communications Holdings, LLC/Capital Corp.
sr. notes 10 1/4s, 2010 1,158,300
1,735,000 Charter Communications Holdings, LLC/Capital Corp.
sr. notes 10s, 2011 1,249,200
1,070,000 Charter Communications Holdings, LLC/Capital Corp.
sr. notes 9 5/8s, 2009 770,400
1,100,000 Charter Communications Holdings, LLC/Capital Corp.
sr. notes 8 5/8s, 2009 792,000
380,000 Charter Communications Holdings, LLC/Capital Corp.
sr. notes 8 1/4s, 2007 277,400
880,000 CSC Holdings, Inc. sr. notes 7 7/8s, 2007 904,200
1,215,000 Insight Midwest LP/Insight Capital, Inc. sr. notes 10 1/2s, 2010 1,312,200
1,670,000 Olympus Cable bank term loan FRN Ser. B, 6 1/4s, 2010
(acquired various dates from 5/20/02 to 11/6/02,
cost $1,451,825) (RES) 1,474,610
510,000 Rogers Cablesystems, Ltd. sr. notes Ser. B, 10s, 2005 (Canada) 545,700
6,120,000 TeleWest Communications PLC debs. 11s, 2007
(United Kingdom) (In default) (NON) 1,805,400
180,000 TeleWest Communications PLC debs. 9 5/8s, 2006
(United Kingdom) (In default) (NON) 53,100
965,000 TeleWest Communications PLC sr. notes Ser. S, 9 7/8s,
2010 (United Kingdom) (In default) (NON) 265,375
385,000 TeleWest Communications PLC 144A sr. notes 11 1/4s,
2008 (United Kingdom) (In default) (NON) 113,575
600,000 United Pan-Europe NV sr. disc. notes 12 1/2s, 2009
(Netherlands) (In default) (NON) 76,500
14,980,000 United Pan-Europe NV sr. disc. notes stepped-coupon
zero % (13 3/4s, 2/1/05), 2010 (Netherlands)
(In default) (NON) (STP) 1,872,500
510,000 United Pan-Europe NV 144A bonds 10 7/8s, 2009
(Netherlands) (In default) (NON) 104,550
-------------
31,211,920
Capital Goods (8.5%)
- -------------------------------------------------------------------------------------------------------------------
1,030,000 Advanced Glass Fiber Yarns bank term loan FRN Ser. A,
6 3/4s, 2004 (acquired 9/12/02, cost $721,000) (RES) 618,000
940,000 Advanced Glass Fiber Yarns sr. sub. notes 9 7/8s, 2009
(In default) (NON) 47,000
3,367,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 3,299,660
237,857 Allied Waste Industries, Inc. bank term loan FRN 4.5287s,
2010 (acquired 4/25/03, cost $237,857) (RES) 239,170
39,643 Allied Waste Industries, Inc. bank term loan FRN Ser. C,
4.5287s, 2010 (acquired 4/25/03, cost $39,643) (RES) 39,851
3,655,000 Allied Waste North America, Inc. company guaranty
Ser. B, 10s, 2009 3,842,319
1,895,000 Allied Waste North America, Inc. company guaranty
Ser. B, 8 7/8s, 2008 2,022,881
4,660,000 Allied Waste North America, Inc. company guaranty
Ser. B, 8 1/2s, 2008 4,927,950
160,000 Allied Waste North America, Inc. company guaranty
Ser. B, 7 5/8s, 2006 164,400
1,000,000 Allied Waste North America, Inc. company guaranty
Ser. B, 7 3/8s, 2004 1,020,000
5,555,000 Allied Waste North America, Inc. 144A company guaranty
9 1/4s, 2012 5,957,738
1,025,000 Applied Extrusion Technologies, Inc. company guaranty
Ser. B, 10 3/4s, 2011 748,250
6,640,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 6,042,400
550,000 Argo-Tech Corp. company guaranty Ser. D, 8 5/8s, 2007 500,500
50,000 BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 36,750
1,072,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8 7/8s, 2011 771,840
4,030,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 2,921,750
865,000 Berry Plastics Corp. company guaranty 10 3/4s, 2012 942,850
4,903,000 Blount, Inc. company guaranty 13s, 2009 3,824,340
3,285,000 Blount, Inc. company guaranty 7s, 2005 3,055,050
2,755,000 Browning-Ferris Industries, Inc. debs. 7.4s, 2035 2,520,825
1,090,000 Browning-Ferris Industries, Inc. sr. notes 6 3/8s, 2008 1,046,400
EUR 1,025,000 BSN Financing Co. SA company guaranty Ser. EUR,
10 1/4s, 2009 (Luxembourg) 1,169,238
$1,665,000 Crown Holdings SA 144A sec. notes 10 7/8s,
2013 (France) 1,756,575
5,420,000 Crown Holdings SA 144A sec. notes 9 1/2s,
2011 (France) 5,650,350
5,000,000 Decrane Aircraft Holdings Co. company guaranty
Ser. B, 12s, 2008 2,250,000
2,530,000 Earle M. Jorgensen Co. sec. notes 9 3/4s, 2012 2,643,850
3,770,000 FIMEP SA 144A sr. notes 10 1/2s, 2013 (France) 4,128,150
404,623 Flowserve Corp. bank term loan FRN Ser. C, 4.0956s,
2009 (acquired 4/30/02, cost $404,623) (RES) 404,455
2,321,000 Flowserve Corp. company guaranty 12 1/4s, 2010 2,669,150
380,000 Fonda Group, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 186,200
16,462,890 Grove Investors, LLC notes 14 1/2s, 2010 (PIK) 82,314
460,000 Hexcel Corp. sr. sub. notes 9 3/4s, 2009 445,050
2,250,000 High Voltage Engineering Corp. sr. notes 10 3/4s, 2004 360,000
7,160,000 Insilco Holding Co. sr. disc. notes stepped-coupon zero %
(14s, 8/15/03), 2008 (In default) (NON) (STP) 143,200
EUR 1,025,000 Invensys, PLC sr. unsub. notes 5 1/2s, 2005 (United Kingdom) 1,047,493
$1,185,000 Jordan Industries, Inc. sr. notes Ser. D, 10 3/8s, 2007 497,700
1,445,000 K&F Industries, Inc. sr. sub. notes Ser. B, 9 5/8s, 2010 1,549,763
620,000 K&F Industries, Inc. sr. sub. notes Ser. B, 9 1/4s, 2007 648,675
2,220,000 L-3 Communications Corp. company guaranty
Ser. B, 8s, 2008 2,325,450
1,000,000 L-3 Communications Corp. Structured Notes Ser. 01-5,
8.82s, 2009 (Issued by COUNTS Trust) 1,010,000
390,000 L-3 Communications Corp. 144A Structured Notes
8 1/2s, 2006 (Issued by Credit and Repackaged
Securities, Ltd.) (Cayman Islands) 439,647
2,845,000 Laidlaw International Inc, 144A sr. notes 10 3/4s, 2011 2,859,225
1,560,000 Laidlaw, Inc. debs. 8 3/4s, 2025 (Canada) (In default) (NON) 778,050
490,000 Laidlaw, Inc. debs. 8 1/4s, 2023 (Canada) (In default) (NON) 249,288
3,545,000 Laidlaw, Inc. notes 7.65s, 2006 (Canada) (In default) (NON) 1,794,656
1,155,000 Manitowoc Co., Inc. (The) company guaranty 10 1/2s, 2012 1,273,388
EUR 705,000 Manitowoc Co., Inc. (The) company guaranty 10 3/8s, 2011 870,534
$4,180,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 3,636,600
5,505,000 Owens-Brockway Glass company guaranty 8 7/8s, 2009 5,835,300
2,775,000 Owens-Brockway Glass sr. sec. notes 8 3/4s, 2012 2,951,906
2,110,000 Owens-Brockway Glass 144A sr. notes 8 1/4s, 2013 2,131,100
1,970,000 Owens-Brockway Glass 144A sr. sec. notes 7 3/4s, 2011 2,014,325
1,740,000 Oxford Industries Inc. 144A sr. notes 8 7/8s, 2011 1,748,700
685,000 Pliant Corp. company guaranty 13s, 2010 630,200
1,980,000 Pliant Corp. 144A sec. notes 11 1/8s, 2009 2,039,400
2,730,000 Roller Bearing Company of America company guaranty
Ser. B, 9 5/8s, 2007 2,320,500
1,125,000 Sequa Corp. sr. notes 9s, 2009 1,192,500
2,580,000 Sequa Corp. sr. notes Ser. B, 8 7/8s, 2008 2,709,000
890,000 Siebe PLC 144A notes 7 1/8s, 2007 (United Kingdom) 743,150
780,000 Siebe PLC 144A sr. unsub. 6 1/2s, 2010 (United Kingdom) 588,900
915,000 Sweetheart Cup Co. company guaranty 12s, 2004 796,050
4,520,000 Tekni-Plex, Inc. company guaranty Ser. B, 12 3/4s, 2010 4,418,300
750,000 Terex Corp. company guaranty 8 7/8s, 2008 761,250
2,550,000 Terex Corp. company guaranty Ser. B, 10 3/8s, 2011 2,715,750
1,260,000 Trimas Corp. company guaranty 9 7/8s, 2012 1,272,600
1,060,000 Trimas Corp. 144A company guaranty 9 7/8s, 2012 1,070,600
1,633,007 United Defense Industries, Inc. bank term loan FRN
Ser. B, 3.32s, 2009 (acquired 7/1/02, cost $1,633,007) (RES) 1,633,590
-------------
123,032,046
Commercial and Consumer Services (0.6%)
- -------------------------------------------------------------------------------------------------------------------
EUR 1,250,000 CB Bus AB sr. sub. notes 11s, 2010 (Sweden) 999,600
$4,425,000 Coinmach Corp. sr. notes 9s, 2010 4,679,438
5,172,889 Derby Cycle Corp. (The) sr. notes 10s, 2008 (In default) (NON) 284,509
DEM 2,667,049 Derby Cycle Corp. (The) sr. notes 9 3/8s, 2008 (In default) (NON) 88,200
$2,620,000 IESI Corp. company guaranty 10 1/4s, 2012 2,698,600
2,900,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006
(In default) (NON) 29,000
-------------
8,779,347
Communication Services (7.6%)
- -------------------------------------------------------------------------------------------------------------------
1,445,000 Airgate PCS, Inc. sr. sub. notes stepped-coupon zero %
(13 1/2s, 10/1/04), 2009 (STP) 664,700
2,840,000 Alamosa Delaware, Inc. company guaranty 13 5/8s, 2011 2,158,400
1,260,000 Alamosa Delaware, Inc. company guaranty 12 1/2s, 2011 926,100
3,943,000 Alamosa PCS Holdings, Inc. company guaranty
stepped-coupon zero % (12 7/8s, 2/15/05), 2010 (STP) 2,109,505
4,900,000 American Cellular Corp. company guaranty 9 1/2s, 2009 1,837,500
2,020,000 American Tower Corp. sr. notes 9 3/8s, 2009 1,989,700
3,790,000 American Tower Escrow Corp. 144A disc. notes
zero %, 2008 2,368,750
3,010,000 American Tower, Inc. Structured Notes 12.58s, 2005
(issued by STEERS Credit Linked Trust 2001) 3,040,100
2,330,000 Asia Global Crossing, Ltd. sr. notes 13 3/8s, 2010
(Bermuda) (In default) (NON) 302,900
2,861,215 Colo.com, Inc. 144A sr. notes 13 7/8s, 2010 (In default) (NON) 57,224
205,000 Colt Telecommunications Group PLC sr. disc. notes
12s, 2006 (United Kingdom) 200,900
1,360,000 Crown Castle International Corp. sr. disc. notes
stepped-coupon zero % (10 3/8s, 5/15/04), 2011 (STP) 1,224,000
3,255,000 Crown Castle International Corp. sr. notes 9 3/8s, 2011 3,255,000
705,000 Crown Castle International Corp. sr. notes 9s, 2011 697,950
755,000 Dobson Communications Corp. sr. notes 10 7/8s, 2010 796,525
970,000 Dobson/Sygnet Communications, Inc. sr. notes
12 1/4s, 2008 1,008,800
1,485,000 Fairpoint Communications Inc. sr. sub. notes 12 1/2s, 2010 1,514,700
7,840,000 Firstworld Communication Corp. sr. disc. notes zero %,
2003 (In default) (NON) 784
681,634 Globix Corp. company guaranty 11s, 2008 (PIK) 511,226
550,000 Horizon PCS, Inc. company guaranty 13 3/4s, 2011 66,000
4,430,000 iPCS, Inc. sr. disc. notes stepped-coupon zero %
(14s, 7/15/05), 2010 (In default) (NON) (STP) 265,800
2,282,000 IWO Holdings, Inc. company guaranty 14s, 2011 433,580
2,215,000 Leap Wireless International, Inc. company guaranty
12 1/2s, 2010 (In default) (NON) 287,950
2,070,000 Madison River Capital Corp. sr. notes 13 1/4s, 2010 1,976,850
775,000 MCI Communications Corp. debs. 7 3/4s, 2025 (In default) (NON) 600,625
775,000 MCI Communications Corp. debs. 7 3/4s, 2024 600,625
1,110,000 Metrocall, Inc. sr. sub. notes 9 3/4s, 2007 (In default) (NON) 22,200
1,020,000 Metromedia Fiber Network, Inc. sr. notes 10s, 2009
(In default) (NON) 51,000
3,830,000 Metromedia Fiber Network, Inc. sr. notes Ser. B, 10s, 2008
(In default) (NON) 191,500
3,011,000 Millicom International Cellular SA 144A sr. notes 11s, 2006
(Luxembourg) 2,830,340
3,182,500 Nextel Communications, Inc. bank term loan FRN
Ser. A, 2.5641s, 2007 (acquired various dates from
10/30/02 to 11/14/02, cost $2,806,131) (RES) 3,025,364
75,000 Nextel Communications, Inc. sr. disc. notes 9.95s, 2008 78,375
1,745,000 Nextel Communications, Inc. sr. notes 12s, 2008 1,880,238
3,450,000 Nextel Communications, Inc. sr. notes 9 1/2s, 2011 3,760,500
210,000 Nextel Communications, Inc. sr. notes 9 3/8s, 2009 225,225
4,455,000 Nextel Partners, Inc. sr. disc. notes stepped-coupon zero %
(14s, 2/1/04), 2009 (STP) 4,510,688
2,205,000 Nextel Partners, Inc. sr. notes 12 1/2s, 2009 2,458,575
2,645,000 Nextel Partners, Inc. sr. notes 11s, 2010 2,843,375
2,065,000 Nextel Partners, Inc. sr. notes 11s, 2010 2,219,875
5,180,000 Orbital Imaging Corp. sr. notes Ser. D, 11 5/8s, 2005
(In default) (NON) 1,295,000
1,695,000 PanAmSat Corp. company guaranty 8 1/2s, 2012 1,813,650
2,035,000 Qwest Capital Funding, Inc. company guaranty
7 3/4s, 2006 1,841,675
8,940,000 Qwest Corp. 144A notes 8 7/8s, 2012 10,057,500
8,660,000 Qwest Services Corp. 144A notes 13 1/2s, 2010 9,850,750
2,700,000 Rogers Cantel, Ltd. sr. sub. notes 8.8s, 2007 (Canada) 2,740,500
750,000 Rural Cellular Corp. sr. sub. notes Ser. B, 9 5/8s, 2008 603,750
1,705,000 SBA Communications Corp. sr. disc. notes 12s, 2008 1,577,125
1,895,000 SBA Communications Corp. sr. notes 10 1/4s, 2009 1,563,375
498,000 Telecorp PCS, Inc. company guaranty 10 5/8s, 2010 592,620
565,000 Telecorp PCS, Inc. company guaranty stepped-coupon
zero % (11 5/8s, 4/15/04), 2009 (STP) 580,538
9,175,000 Telus Corp. notes 8s, 2011 (Canada) 10,516,844
975,000 Time Warner Telecom, Inc. bank term loan FRN Ser. A,
3.04s, 2009 (acquired 1/8/03, cost $838,500) (RES) 913,250
1,155,000 Time Warner Telecom, Inc. sr. notes 10 1/8s, 2011 1,016,400
2,395,000 Time Warner Telecom, Inc. sr. notes 9 3/4s, 2008 2,107,600
3,905,000 Triton PCS, Inc. company guaranty zero %, 2008 4,139,300
720,000 Triton PCS, Inc. 144A sr. notes 8 1/2s, 2013 741,600
1,590,000 TSI Telecommunication Services, Inc. company guaranty
Ser. B, 12 3/4s, 2009 1,542,300
1,907,000 UbiquiTel Operating Co. 144A company guaranty
stepped-coupon zero % (14s, 4/15/05), 2010 (STP) 896,290
5,350,000 US UnWired, Inc. company guaranty stepped-coupon
Ser. B, zero % (13 3/8s, 11/1/04), 2009 (STP) 1,926,000
1,580,000 US West Capital Funding, Inc. company guaranty
6 1/4s, 2005 1,465,450
-------------
110,774,966
Conglomerates (0.9%)
- -------------------------------------------------------------------------------------------------------------------
9,795,000 Tyco International Group SA company guaranty
6 3/8s, 2006 (Luxembourg) 10,088,850
2,290,000 Tyco International Group SA notes 6 3/8s, 2011
(Luxembourg) 2,295,725
-------------
12,384,575
Consumer (0.9%)
- -------------------------------------------------------------------------------------------------------------------
4,275,000 Icon Health & Fitness company guaranty 11 1/4s, 2012 4,488,750
502,007 Jostens, Inc. bank term loan FRN Ser. C, 4.04s, 2009
(acquired 7/30/02, cost $502,007) (RES) 501,275
1,230,000 Jostens, Inc. sr. sub. notes 12 3/4s, 2010 1,439,100
7,045,000 Samsonite Corp. sr. sub. notes 10 3/4s, 2008 7,045,000
-------------
13,474,125
Consumer Goods (0.9%)
- -------------------------------------------------------------------------------------------------------------------
2,695,000 Armkel, LLC/Armkel Finance sr. sub. notes 9 1/2s, 2009 3,011,663
350,000 Elizabeth Arden, Inc. sec. notes Ser. B, 11 3/4s, 2011 385,000
1,650,000 French Fragrances, Inc. company guaranty Ser. D,
10 3/8s, 2007 1,650,000
555,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 567,488
1,890,000 Playtex Products, Inc. company guaranty 9 3/8s, 2011 1,965,600
1,900,000 Polaroid Corp. sr. notes 11 1/2s, 2006 (In default) (NON) 133,000
2,900,000 Remington Arms Co., Inc. 144A company guaranty
10 1/2s, 2011 2,907,250
1,515,000 Revlon Consumer Products sr. notes 9s, 2006 924,150
1,400,000 Revlon Consumer Products sr. notes 8 1/8s, 2006 854,000
-------------
12,398,151
Consumer Services (0.4%)
- -------------------------------------------------------------------------------------------------------------------
1,475,000 Brand Services, Inc. company guaranty 12s, 2012 1,622,500
1,390,000 United Rentals (North America), Inc. company guaranty
Ser. B, 10 3/4s, 2008 1,480,350
2,680,000 Williams Scotsman, Inc. company guaranty 9 7/8s, 2007 2,532,600
-------------
5,635,450
Distribution (0.1%)
- -------------------------------------------------------------------------------------------------------------------
2,880,000 Fleming Cos., Inc. company guaranty 10 1/8s, 2008
(In default) (NON) 460,800
2,070,000 Fleming Cos., Inc. sr. notes 9 1/4s, 2010 (In default) (NON) 362,250
-------------
823,050
Energy (6.3%)
- -------------------------------------------------------------------------------------------------------------------
2,615,000 Belden & Blake Corp. company guaranty Ser. B,
9 7/8s, 2007 2,458,100
1,330,000 Bluewater Finance, Ltd. 144A sr. notes 10 1/4s, 2012 1,343,300
2,810,000 BRL Universal Equipment sec. notes 8 7/8s, 2008 3,013,725
1,700,000 Chesapeake Energy Corp. company guaranty 9s, 2012 1,878,500
510,000 Chesapeake Energy Corp. company guaranty 8 3/8s, 2008 553,350
595,000 Chesapeake Energy Corp. sr. notes Ser. B, 8 1/2s, 2012 623,263
3,805,000 Chesapeake Energy Corp. 144A sr. notes 7 1/2s, 2013 3,957,200
50,000 Compton Petro Corp. sr. notes 9.9s, 2009 (Canada) 54,000
3,615,000 Comstock Resources, Inc. company guaranty 11 1/4s, 2007 3,886,125
277,500 Constellation Energy Group, Inc. bank term loan FRN
Ser. B, 4.0625s, 2008 (acquired 3/20/03,
cost $277,500) (RES) 278,333
2,905,000 Dresser, Inc. company guaranty 9 3/8s, 2011 2,934,050
830,000 El Paso Energy Partners LP company guaranty Ser. B,
8 1/2s, 2011 883,950
1,680,000 Encore Acquisition Co. company guaranty 8 3/8s, 2012 1,780,800
2,325,000 Forest Oil Corp. company guaranty 7 3/4s, 2014 2,383,125
1,370,000 Forest Oil Corp. sr. notes 8s, 2011 1,448,775
1,320,000 Forest Oil Corp. sr. notes 8s, 2008 1,392,600
3,190,000 Gazprom OAO 144A notes 9 5/8s, 2013 (Russia) 3,569,610
1,295,000 Hornbeck Offshore Services, Inc. sr. notes 10 5/8s, 2008 1,405,075
1,130,000 Key Energy Services, Inc. sr. notes 6 3/8s, 2013 1,145,538
1,230,000 Leviathan Gas Corp. company guaranty Ser. B,
10 3/8s, 2009 1,322,250
3,120,000 Newfield Exploration Co. sr. notes 7 5/8s, 2011 3,432,000
1,540,000 Parker & Parsley Co. sr. notes 8 1/4s, 2007 1,755,600
2,290,000 Parker Drilling Co. company guaranty Ser. B, 10 1/8s, 2009 2,393,050
138,750 Peabody Energy Corp. bank term loan FRN Ser. B, 3.8111s,
2010 (acquired 3/20/03, cost $138,750) (RES) 139,478
650,000 Pemex Project Funding Master Trust 144A bonds
8 5/8s, 2022 760,500
1,430,000 Pemex Project Funding Master Trust 144A notes
7 3/8s, 2014 1,580,150
3,860,000 Pioneer Natural Resources Co. company guaranty
9 5/8s, 2010 4,752,397
1,085,000 Pioneer Natural Resources Co. company guaranty
7.2s, 2028 1,171,800
1,475,000 Plains All American Pipeline LP/Plains All American Finance
Corp. company guaranty 7 3/4s, 2012 1,607,750
2,360,000 Plans Exploration & Production Co. company guaranty
Ser. B, 8 3/4s, 2012 2,513,400
1,855,000 Plans Exploration & Production Co. 144A sr. sub. notes
8 3/4s, 2012 1,975,575
1,805,000 Pogo Producing Co. sr. sub. notes Ser. B, 8 1/4s, 2011 1,985,500
270,000 Pride International, Inc. sr. notes 10s, 2009 294,975
3,000,000 Pride Petroleum Services, Inc. sr. notes 9 3/8s, 2007 3,105,000
1,475,000 Seven Seas Petroleum, Inc. sr. notes Ser. B, 12 1/2s, 2005
(In default) (NON) 162,250
2,895,000 Star Gas Partners LP/Star Gas Finance Co. 144A sr. notes
10 1/4s, 2013 2,967,375
1,555,000 Star Gas Propane bank term loan FRN 8.04s, 2009
(acquired 5/7/03, cost $1,523,900) (RES) 1,531,675
490,000 Stone Energy Corp. company guaranty 8 3/4s, 2007 509,600
2,390,000 Stone Energy Corp. sr. sub. notes 8 1/4s, 2011 2,509,500
1,380,000 Swift Energy Co. sr. sub. notes 10 1/4s, 2009 1,462,800
1,960,000 Swift Energy Co. sr. sub. notes 9 3/8s, 2012 2,048,200
1,350,000 Tesoro Petroleum Corp. 144A sr. disc. notes 8s, 2008 1,350,000
3,060,000 Trico Marine Services, Inc. company guaranty 8 7/8s, 2012 2,692,800
565,000 Universal Compression, Inc. 144A sr. notes 7 1/4s, 2010 571,356
1,140,000 Vintage Petroleum, Inc. sr. notes 8 1/4s, 2012 1,231,200
3,330,000 Vintage Petroleum, Inc. sr. sub. notes 9 3/4s, 2009 3,554,775
595,000 Vintage Petroleum, Inc. sr. sub. notes 7 7/8s, 2011 617,313
1,740,000 Westport Resources Corp. company guaranty 8 1/4s, 2011 1,887,900
1,415,000 Westport Resources Corp. 144A company guaranty
8 1/4s, 2011 1,535,275
3,475,000 XCL, Ltd. 144A company guaranty 13 1/2s, 2004
(In default) (NON) 1,042,500
1,490,000 XTO Energy, Inc. sr. notes 7 1/2s, 2012 1,646,450
855,000 XTO Energy, Inc. 144A sr. notes 6 1/4s, 2013 891,338
-------------
91,991,151
Entertainment (1.5%)
- -------------------------------------------------------------------------------------------------------------------
1,500,000 AMC Entertainment, Inc. sr. sub. notes 9 7/8s, 2012 1,563,750
1,480,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2011 1,528,100
2,555,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 2,606,100
2,281,034 Carmike Cinemas, Inc. bank term loan FRN Ser. B, 7 3/4s,
2005 (acquired various dates from 8/7/00 to 3/6/02,
cost $1,772,146) (RES) 2,264,640
1,755,000 Cinemark USA, Inc. 144A sr. sub. notes 9s, 2013 1,886,625
725,000 Cinemark USA, Inc. 144A sr. sub. notes 9s, 2013 779,375
6,695,000 Premier Parks, Inc. sr. notes 10s, 2007 6,711,738
1,600,000 Silver Cinemas, Inc. sr. sub. notes 10 1/2s, 2005 (In default) (NON) 160
200,000 Six Flags, Inc. bank term loan FRN Ser. B, 3.57s, 2009
(acquired 1/15/03, cost $199,750) (RES) 198,500
3,845,000 Six Flags, Inc. sr. notes 8 7/8s, 2010 3,667,169
-------------
21,206,157
Financial (2.1%)
- -------------------------------------------------------------------------------------------------------------------
4,810,000 Advanta Corp. 144A company guaranty Ser. B, 8.99s, 2026 2,477,150
1,650,000 Chevy Chase Savings Bank, Inc. sub. debs. 9 1/4s, 2005 1,654,125
820,000 Conseco, Inc. 144A company guaranty 10 3/4s, 2009
(In default) (NON) 348,500
820,000 Conseco, Inc. 144A company guaranty 8 3/4s, 2006
(In default) (NON) 348,500
440,000 Crescent Real Estate Equities LP notes 7 1/2s, 2007 (R) 446,600
3,420,000 Crescent Real Estate Equities LP sr. notes 9 1/4s, 2009 (R) 3,669,318
8,894,000 Finova Group, Inc. notes 7 1/2s, 2009 3,624,305
1,364,000 Imperial Credit Industries, Inc. sec. notes 12s, 2005
(In default) (NON) 3,410
2,155,000 iStar Financial, Inc. sr. notes 8 3/4s, 2008 (R) 2,316,625
1,660,000 iStar Financial, Inc. sr. notes 7s, 2008 (R) 1,713,950
1,425,000 Nationwide Credit, Inc. sr. notes Ser. A, 10 1/4s, 2008
(In default) (NON) 7,125
1,612,000 Ocwen Federal Bank sub. debs. 12s, 2005 1,620,060
26,000 Ocwen Financial Corp. notes 11 7/8s, 2003 26,130
5,155,000 Resource America, Inc. 144A sr. notes 12s, 2004 5,155,000
2,795,000 Sovereign Bancorp, Inc. sr. notes 10 1/2s, 2006 3,367,975
1,910,000 UBS AG/Jersey Branch sr. notes Ser. EMTN, 9.14s,
2008 (Jersey) 1,910,000
2,310,000 Western Financial Bank sub. debs. 9 5/8s, 2012 2,448,600
-------------
31,137,373
Food (1.9%)
- -------------------------------------------------------------------------------------------------------------------
1,533,970 Archibald Candy Corp. company guaranty 10s, 2007 (PIK) 920,382
3,605,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 1,514,100
45,000 Aurora Foods, Inc. 144A sr. sub. notes Ser. D, 9 7/8s, 2007 18,900
665,000 Dean Foods Co. sr. notes 6 5/8s, 2009 689,938
970,000 Del Monte Corp. company guaranty Ser. B, 9 1/4s, 2011 1,054,875
2,170,000 Del Monte Corp. 144A sr. sub. notes 8 5/8s, 2012 2,302,913
464,376 Del Monte Foods Co. bank term loan FRN Ser. B,
5.0643s, 2010 (acquired 12/16/02, cost $462,054) (RES) 468,556
1,490,000 Doane Pet Care Co. sr. sub. debs. 9 3/4s, 2007 1,363,350
71,477 Dole Food Co. bank term loan FRN Ser. B, 5 1/8s, 2008
(acquired 3/28/03, cost $71,477) (RES) 71,596
755,000 Dole Food Co. sr. notes 7 1/4s, 2009 796,525
955,000 Dole Food Co. 144A sr. notes 8 7/8s, 2011 1,012,300
3,365,000 Eagle Family Foods company guaranty Ser. B, 8 3/4s, 2008 2,254,550
4,150,000 Land O'Lakes, Inc. sr. notes 8 3/4s, 2011 3,112,500
2,860,000 Premier International Foods PLC sr. notes 12s, 2009
(United Kingdom) 3,146,000
4,510,000 Premium Standard Farms, Inc. sr. notes 9 1/4s, 2011 4,149,200
11,243,738 RAB Holdings, Inc. sr. notes zero %, 2010 1,124,374
3,125,000 RAB Enterprises, Inc. company guaranty 10 1/2s, 2005 1,250,000
469,971 Suiza Foods Corp. bank term loan FRN Ser. B, 3.54s, 2008
(acquired 4/26/02, cost $473,202) (RES) 470,078
5,835,000 Vlasic Foods International, Inc. sr. sub. notes Ser. B,
10 1/4s, 2009 (In default) (NON) 1,167,000
-------------
26,887,137
Gaming & Lottery (5.7%)
- -------------------------------------------------------------------------------------------------------------------
2,110,000 Aladdin Gaming Holdings, LLC sr. disc. notes Ser. B, zero %,
2010 (In default) (NON) 10,550
2,475,000 Ameristar Casinos, Inc. company guaranty 10 3/4s, 2009 2,747,250
3,200,000 Argosy Gaming Co. company guaranty 10 3/4s, 2009 3,488,000
440,000 Argosy Gaming Co. sr. sub. notes 9s, 2011 469,700
2,870,000 Boyd Gaming Corp. sr. sub. notes 8 3/4s, 2012 3,070,900
1,485,000 Chumash Casino & Resort Enterprise 144A sr. notes
9s, 2010 1,596,375
2,810,000 Herbst Gaming, Inc. sec. notes Ser. B, 10 3/4s, 2008 3,062,900
870,000 Herbst Gaming, Inc. 144A sec. sr. notes 10 3/4s, 2008 948,300
2,470,000 Hollywood Park, Inc. company guaranty Ser. B, 9 1/4s, 2007 2,352,675
4,010,000 Horseshoe Gaming Holdings company guaranty 8 5/8s, 2009 4,230,550
3,030,000 International Game Technology sr. notes 8 3/8s, 2009 3,643,575
3,260,000 Majestic Investor Holdings/Capital Corp. company guaranty
11.653s, 2007 3,227,400
330,000 MGM Mirage, Inc. coll. sr. notes 6 7/8s, 2008 348,975
5,470,000 MGM Mirage, Inc. company guaranty 8 1/2s, 2010 6,276,825
865,000 MGM Mirage, Inc. company guaranty 8 3/8s, 2011 953,663
1,370,000 Mirage Resorts, Inc. notes 6 3/4s, 2008 1,445,350
685,000 Mohegan Tribal Gaming Authority sr. notes 8 1/8s, 2006 731,238
3,650,000 Mohegan Tribal Gaming Authority sr. sub. notes 8 3/4s, 2009 3,850,750
1,530,000 Mohegan Tribal Gaming Authority sr. sub. notes 8 3/8s, 2011 1,625,625
4,550,000 Park Place Entertainment Corp. sr. notes 7 1/2s, 2009 4,868,500
1,575,000 Park Place Entertainment Corp. sr. sub. notes 8 7/8s, 2008 1,708,875
435,000 Park Place Entertainment Corp. sr. sub. notes 8 1/8s, 2011 460,013
1,420,000 Park Place Entertainment Corp. 144A sr. notes 7s, 2013 1,462,600
6,550,000 Peninsula Gaming, LLC company guaranty 12 1/4s, 2006 6,713,750
1,265,000 Penn National Gaming, Inc. company guaranty Ser. B,
11 1/8s, 2008 1,391,500
4,500,000 Penn National Gaming, Inc. sr. sub. notes 8 7/8s, 2010 4,725,000
185,000 Pinnacle Entertainment, Inc. bank term loan FRN Ser. B,
5.9425s, 2008 (acquired 4/3/03, cost $182,688) (RES) 185,116
850,000 Pinnacle Entertainment, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 813,875
1,085,000 Resorts International Hotel and Casino, Inc. company
guaranty 11 1/2s, 2009 984,638
1,720,000 Riviera Holdings Corp. company guaranty 11s, 2010 1,625,400
648,375 Scientific Gaming bank term loan FRN Ser. B, 4.88s, 2008
(acquired 12/11/02, cost $645,133) (RES) 649,023
3,200,000 Station Casinos, Inc. sr. notes 8 3/8s, 2008 3,424,000
5,735,000 Trump Casino Holdings, LLC 144A mtge. 11 5/8s, 2010 5,276,200
3,640,000 Venetian Casino Resort, LLC company guaranty
11s, 2010 3,981,250
385,000 Wheeling Island Gaming, Inc. company guaranty
10 1/8s, 2009 388,850
-------------
82,739,191
Health Care (6.4%)
- -------------------------------------------------------------------------------------------------------------------
1,155,000 ALARIS Medical Systems, Inc. company guaranty
9 3/4s, 2006 1,195,425
3,390,000 ALARIS Medical Systems, Inc. sec. notes Ser. B,
11 5/8s, 2006 4,068,000
1,290,000 ALARIS Medical, Inc. sr. disc. notes stepped-coupon zero %
(11 1/8s, 8/1/03), 2008 (STP) 1,348,050
7,161,500 Alderwoods Group, Inc. company guaranty 12 1/4s, 2009 7,447,960
63,100 Alderwoods Group, Inc. company guaranty 11s, 2007 63,889
2,950,000 Alliance Imaging, Inc. sr. sub. notes 10 3/8s, 2011 2,920,500
1,730,000 AmerisourceBergen Corp. company guaranty
7 1/4s, 2012 1,868,400
2,470,000 AmerisourceBergen Corp. sr. notes 8 1/8s, 2008 2,710,825
1,355,000 Bio-Rad Labs Corp. sr. sub. notes 11 5/8s, 2007 1,490,500
3,500,000 Biovail Corp. sr. sub. notes 7 7/8s, 2010 (Canada) 3,692,500
298,500 Community Health Systems, Inc. bank term loan FRN
Ser. B, 3.84s, 2010 (acquired 7/11/02, cost $298,500) (RES) 297,241
745,000 Dade Behring, Inc. company guaranty 11.91s, 2010 838,125
2,040,000 Extendicare Health Services, Inc. company guaranty
9 1/2s, 2010 2,060,400
164,538 Genesis Health Ventures, Inc. sec. notes FRN 6.29s, 2007 162,893
1,550,000 Hanger Orthopedic Group, Inc. company guaranty
10 3/8s, 2009 1,658,500
140,000 Hanger Orthopedic Group, Inc. sr. sub. notes
11 1/4s, 2009 150,500
3,090,000 HCA, Inc. debs. 7.19s, 2015 3,366,527
2,210,000 HCA, Inc. notes 8 3/4s, 2010 2,659,623
2,040,000 HCA, Inc. notes 8.36s, 2024 2,323,984
165,000 HCA, Inc. notes 7s, 2007 179,045
930,000 HCA, Inc. sr. notes 7 7/8s, 2011 1,056,117
4,509,000 Healthsouth Corp. notes 7 5/8s, 2012 (In default) (NON) 2,998,485
1,245,000 Healthsouth Corp. sr. notes 8 1/2s, 2008 (In default) (NON) 840,375
955,000 Healthsouth Corp. sr. notes 8 3/8s, 2011 (In default) (NON) 635,075
1,930,000 Healthsouth Corp. sr. sub. notes 10 3/4s, 2008 (In default) (NON) 714,100
1,645,000 IASIS Healthcare Corp. company guaranty 13s, 2009 1,834,175
745,000 IASIS Healthcare Corp. 144A sr. sub. notes 8 1/2s, 2009 745,931
3,620,000 Kinetic Concepts, Inc. company guaranty Ser. B, 9 5/8s, 2007 3,728,600
5,335,000 Magellan Health Services, Inc. sr. sub. notes 9s, 2008
(In default) (NON) 1,867,250
1,040,000 Magellan Health Services, Inc. 144A sr. notes 9 3/8s, 2007
(In default) (NON) 1,003,600
612,806 Mariner Health Care, Inc. company guaranty FRN
6.85s, 2009 600,550
185,000 Medex Inc. bank term loan FRN 5.07s, 2009
(acquired 5/16/03, cost $184,538) (RES) 185,578
7,800,000 Mediq, Inc. debs. stepped-coupon zero % (13s, 6/1/03),
2009 (In default) (NON) (STP) 780
2,930,000 MedQuest, Inc. company guaranty Ser. B, 11 7/8s, 2012 2,856,750
15,935,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 (In default) (NON) 239,025
1,420,000 NYCO Holdings 144A 11 1/2s, 2013 1,675,765
2,360,000 Omnicare, Inc. company guaranty Ser. B, 8 1/8s, 2011 2,548,800
4,780,000 PacifiCare Health Systems, Inc. company guaranty
10 3/4s, 2009 5,258,000
2,115,000 Province Healthcare Co. sr. sub. notes 7 1/2s, 2013 2,115,000
1,150,000 Service Corp. International debs. 7 7/8s, 2013 1,150,000
610,000 Service Corp. International notes 7.7s, 2009 616,100
290,000 Service Corp. International notes 7.2s, 2006 292,900
90,000 Service Corp. International notes 6 7/8s, 2007 89,550
435,000 Service Corp. International notes 6 1/2s, 2008 426,300
4,230,000 Service Corp. International notes 6s, 2005 4,251,150
1,045,000 Service Corp. International notes Ser. (a), 7.7s, 2009 1,055,450
3,230,000 Stewart Enterprises, Inc. notes 10 3/4s, 2008 3,601,450
2,250,000 Triad Hospitals Holdings company guaranty
Ser. B, 11s, 2009 2,508,750
983,636 Triad Hospitals, Inc. bank term loan FRN Ser. B, 4.32s,
2008 (acquired 4/23/01, cost $993,473) (RES) 987,325
5,075,000 Triad Hospitals, Inc. company guaranty Ser. B, 8 3/4s, 2009 5,506,375
1,130,000 Ventas Realty LP/Capital Corp. company guaranty 9s, 2012 1,226,050
-------------
93,118,243
Homebuilding (1.7%)
- -------------------------------------------------------------------------------------------------------------------
1,130,000 Beazer Homes USA, Inc. company guaranty 8 5/8s, 2011 1,234,525
940,000 D.R. Horton, Inc. company guaranty 8 1/2s, 2012 1,029,300
1,105,000 D.R. Horton, Inc. company guaranty 8s, 2009 1,209,975
1,070,000 D.R. Horton, Inc. sr. notes 7 7/8s, 2011 1,155,600
710,000 D.R. Horton, Inc. sr. notes 6 7/8s, 2013 717,100
2,030,000 K. Hovnanian Enterprises, Inc. company guaranty
10 1/2s, 2007 2,354,800
930,000 K. Hovnanian Enterprises, Inc. company guaranty
8 7/8s, 2012 985,800
380,000 K. Hovnanian Enterprises, Inc. company guaranty 8s, 2012 402,800
800,000 K. Hovnanian Enterprises, Inc. 144A sr. sub. notes
7 3/4s, 2013 814,000
3,040,000 KB Home sr. sub. notes 9 1/2s, 2011 3,344,000
220,000 KB Home sr. sub. notes 7 3/4s, 2010 232,100
1,575,000 Ryland Group, Inc. sr. notes 9 3/4s, 2010 1,795,500
75,000 Ryland Group, Inc. sr. sub. notes 9 1/8s, 2011 83,625
95,000 Ryland Group, Inc. sr. sub. notes 8 1/4s, 2008 99,038
2,150,000 Schuler Homes, Inc. company guaranty 10 1/2s, 2011 2,408,000
150,000 Schuler Homes, Inc. company guaranty 9s, 2008 156,750
150,000 Technical Olympic USA, INC. company guaranty
10 3/8s, 2012 156,750
510,000 Technical Olympic USA, INC. company guaranty 9s, 2010 530,400
370,000 Technical Olympic USA, INC. 144A sr. sub. notes
10 3/8s, 2012 386,650
210,000 Toll Corp. company guaranty 8 1/8s, 2009 221,550
1,590,000 Toll Corp. sr. sub. notes 8 1/4s, 2011 1,733,100
625,000 WCI Communities, Inc. company guaranty 10 5/8s, 2011 676,563
2,260,000 WCI Communities, Inc. company guaranty 9 1/8s, 2012 2,333,450
-------------
24,061,376
Household Furniture and Appliances (0.8%)
- -------------------------------------------------------------------------------------------------------------------
925,000 Sealy Mattress Co. sr. sub. notes Ser. B, 9 7/8s, 2007 883,375
12,239,069 Sealy Mattress Co. 144A sr. notes zero %, 2008 11,321,139
-------------
12,204,514
Lodging/Tourism (2.4%)
- -------------------------------------------------------------------------------------------------------------------
4,140,000 FelCor Lodging LP company guaranty 9 1/2s, 2008 (R) 4,140,000
3,415,000 Hilton Hotels Corp. notes 7 5/8s, 2012 3,662,588
1,195,000 HMH Properties, Inc. company guaranty Ser. A, 7 7/8s, 2005 1,218,900
1,150,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 1,147,125
3,645,000 HMH Properties, Inc. sr. notes Ser. C, 8.45s, 2008 3,736,125
1,710,000 Host Marriott LP company guaranty Ser. G, 9 1/4s, 2007 (R) 1,804,050
7,300,000 Host Marriott LP sr. notes Ser. E, 8 3/8s, 2006 (R) 7,427,750
3,295,000 ITT Corp. notes 6 3/4s, 2005 3,406,206
4,520,000 John Q. Hammons Hotels LP/John Q. Hammons Hotels
Finance Corp. III 1st mtge. Ser. B, 8 7/8s, 2012 4,610,400
2,190,000 RFS Partnership LP company guaranty 9 3/4s, 2012 2,217,375
1,270,000 Starwood Hotels & Resorts Worldwide, Inc. company
guaranty 7 3/8s, 2007 1,330,325
231,250 Wyndham International, Inc. bank term loan FRN
6.029s, 2006 (acquired 5/21/03, cost $185,000) (RES) 185,867
-------------
34,886,711
Media (0.1%)
- -------------------------------------------------------------------------------------------------------------------
1,000,000 Capital Records Inc. 144A company guaranty 8 3/8s, 2009 974,873
GBP 445,000 EMI Group eurobonds 9 3/4s, 2008 (United Kingdom) 724,625
-------------
1,699,498
Publishing (3.7%)
- -------------------------------------------------------------------------------------------------------------------
$231,250 Affinity Group Holdings bank term loan FRN 5.279s, 2009
(acquired 5/27/03, cost $230,672) (RES) 231,395
6,648,000 Affinity Group Holdings sr. notes 5.279s, 2007 6,731,100
995,000 CanWest Media, Inc. 144A notes 7 5/8s, 2013 (Canada) 1,044,750
2,700,000 Garden State Newspapers, Inc. sr. sub. notes 8 5/8s, 2011 2,774,250
1,730,000 Hollinger International Publishing, Inc. sr. notes 9s, 2010 1,812,175
4,237,274 Hollinger Participation Trust 144A sr. notes 12 1/8s, 2010
(Canada) (PIK) 4,491,510
2,320,000 Key3media Group, Inc. company guaranty 11 1/4s, 2011
(In default) (NON) 17,400
2,190,000 Mail-Well I Corp. company guaranty 9 5/8s, 2012 2,233,800
185,000 Moore Wallace bank term loan FRN Ser. B, 4.2688s, 2010
(acquired 3/13/03, cost $185,000) (RES) 185,809
4,700,000 PRIMEDIA, Inc. company guaranty 8 7/8s, 2011 4,911,500
2,440,000 PRIMEDIA, Inc. company guaranty 7 5/8s, 2008 2,409,500
3,465,000 PRIMEDIA, Inc. 144A sr. notes 8s, 2013 3,473,663
1,550,000 Quebecor Media, Inc. sr. disc. notes stepped-coupon
zero % (13 3/4s, 7/15/06), 2011 (Canada) (STP) 1,232,250
2,890,000 Quebecor Media, Inc. sr. notes 11 1/8s, 2011 (Canada) 3,207,900
2,760,000 RH Donnelley Finance Corp. I 144A sr. notes 8 7/8s, 2010 3,008,400
2,200,000 RH Donnelley Finance Corp. I 144A sr. sub. notes
10 7/8s, 2012 2,491,500
3,595,000 Vertis, Inc. company guaranty Ser. B, 10 7/8s, 2009 3,478,163
4,280,000 Vertis, Inc. 144A sec. notes 9 3/4s, 2009 4,301,400
5,928,090 Von Hoffman Press, Inc. debs. 13s, 2009 (PIK) 5,335,281
-------------
53,371,746
Restaurants (0.7%)
- -------------------------------------------------------------------------------------------------------------------
1,090,000 Domino's, Inc. company guaranty Ser. B, 10 3/8s, 2009 1,194,913
2,310,000 Sbarro, Inc. company guaranty 11s, 2009 2,234,925
1,480,000 Yum! Brands, Inc. sr. notes 8 7/8s, 2011 1,694,600
1,020,000 Yum! Brands, Inc. sr. notes 8 1/2s, 2006 1,122,000
3,600,000 Yum! Brands, Inc. sr. notes 7.65s, 2008 3,951,000
-------------
10,197,438
Retail (2.5%)
- -------------------------------------------------------------------------------------------------------------------
174,135 Advance Stores bank term loan FRN Ser. C, 4.0625s,
2007 (acquired 3/4/03, cost $174,135) (RES) 174,353
2,390,000 Asbury Automotive Group, Inc. company guaranty 9s, 2012 2,246,600
3,925,000 Autonation, Inc. company guaranty 9s, 2008 4,278,250
1,340,000 Gap, Inc. (The) notes 6.9s, 2007 1,440,500
1,445,000 Hollywood Entertainment Corp. sr. sub. notes 9 5/8s, 2011 1,538,925
3,140,000 J. Crew Operating Corp. 144A sr. sub. notes 10 3/8s, 2007 2,951,600
4,895,000 JC Penney Co., Inc. debs. 7.95s, 2017 4,723,675
300,000 JC Penney Co., Inc. debs. 7.65s, 2016 285,000
1,000,000 JC Penney Co., Inc. notes 9s, 2012 1,070,000
100,000 JC Penney Co., Inc. notes 8s, 2010 102,250
1,250,000 NBTY, Inc. sr. sub. notes Ser. B, 8 5/8s, 2007 1,284,375
185,000 Rite Aid Corp. bank term loan FRN 6 3/4s, 2008
(acquired 5/16/03, cost $184,769) (RES) 186,156
885,000 Rite Aid Corp. debs. 6 7/8s, 2013 745,613
2,180,000 Rite Aid Corp. 144A notes 9 1/2s, 2011 2,310,800
2,425,000 Rite Aid Corp. 144A sr. notes 9 1/4s, 2013 2,328,000
730,000 Rite Aid Corp. 144A sr. sec. notes 8 1/8s, 2010 744,600
4,620,000 Saks, Inc. company guaranty 8 1/4s, 2008 4,920,300
2,500,000 Southland Corp. debs. Ser. A, 4 1/2s, 2004 2,475,000
1,790,000 United Auto Group, Inc. company guaranty 9 5/8s, 2012 1,843,700
-------------
35,649,697
Technology (2.6%)
- -------------------------------------------------------------------------------------------------------------------
2,450,000 AMI Semiconductor, Inc. 144A sr. sub. notes 10 3/4s, 2013 2,719,500
810,000 Amkor Technologies, Inc. sr. notes 9 1/4s, 2006 848,070
1,710,000 Amkor Technologies, Inc. structured notes 12.58s, 2005
(issued by STEERS Credit Linked Trust 2000) 1,658,700
231,250 Amkor Technology, Inc. bank term loan FRN 5.32s, 2006
(acquired 4/17/03, cost $231,553) (RES) 232,291
225,000 Amkor Technology, Inc. 144A sr. notes 7 3/4s, 2013 222,750
560,000 Fairchild Semiconductor International, Inc. company
guaranty 10 3/8s, 2007 590,100
4,170,000 Iron Mountain, Inc. company guaranty 8 5/8s, 2013 4,555,725
745,000 Iron Mountain, Inc. company guaranty 8 1/8s, 2008 (Canada) 769,213
175,000 Iron Mountain, Inc. sr. sub. notes 8 1/4s, 2011 187,250
310,000 Lucent Technologies, Inc. debs. 6 1/2s, 2028 216,225
7,250,000 Lucent Technologies, Inc. debs. 6.45s, 2029 5,075,000
3,040,000 Lucent Technologies, Inc. notes 7 1/4s, 2006 2,895,600
190,000 Lucent Technologies, Inc. notes 5 1/2s, 2008 163,400
3,805,000 Nortel Networks Corp. notes 6 1/8s, 2006 (Canada) 3,690,850
2,110,000 ON Semiconductor Corp. company guaranty 13s, 2008 2,046,700
3,933,000 SCG Holding & Semiconductor Corp. company guaranty
12s, 2009 3,205,395
1,570,000 Seagate Technology Hdd Holdings company guaranty
8s, 2009 (Cayman Islands) 1,679,900
1,283,746 Telex Communications Group, Inc. sr. sub. notes Ser. A,
zero %, 2006 706,060
2,250,000 Titan Corp. (The) 144A sr. sub. notes 8s, 2011 2,295,000
770,000 Xerox Cap Europe PLC company guaranty 5 7/8s, 2004
(United Kingdom) 767,113
487,519 Xerox Corp. bank term loan FRN Ser. A, 5.8212s, 2005
(acquired 12/5/02, cost $458,268) (RES) 483,427
850,000 Xerox Corp. notes Ser. D, 6 1/4s, 2026 854,250
2,150,000 Xerox Corp. 144A sr. notes 9 3/4s, 2009 2,348,875
170,000 Xerox Credit Corp. sr. notes 6.1s, 2003 170,425
-------------
38,381,819
Textiles (0.7%)
- -------------------------------------------------------------------------------------------------------------------
2,600,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008
(In default) (NON) 45,500
4,485,000 Levi Strauss & Co. 144A sr. notes 12 1/4s, 2012 3,722,550
2,115,000 Russell Corp. company guaranty 9 1/4s, 2010 2,305,350
1,070,000 Tommy Hilfiger USA, Inc. company guaranty 6 1/2s, 2003 1,070,000
170,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2008 38,250
2,450,000 William Carter Holdings Co. (The) company guaranty
Ser. B, 10 7/8s, 2011 2,768,500
-------------
9,950,150
Tire & Rubber (0.1%)
- -------------------------------------------------------------------------------------------------------------------
2,220,000 Goodyear Tire & Rubber Co. (The) notes 7.857s, 2011 1,598,400
Tobacco (0.2%)
- -------------------------------------------------------------------------------------------------------------------
3,445,000 North Atlantic Trading Co. company guaranty Ser. B, 11s, 2004 3,445,000
Transportation (2.1%)
- -------------------------------------------------------------------------------------------------------------------
240,000 Air Canada Corp. sr. notes 10 1/4s, 2011 (Canada) 93,600
3,109,209 Air2 US 144A sinking fund Ser. D, 12.266s, 2020
(In default) (NON) 279,829
1,760,000 Allied Holdings, Inc. company guaranty Ser. B, 8 5/8s, 2007 1,355,200
1,415,000 American Airlines, Inc. pass-through certificates
Ser. 01-1, 6.817s, 2011 1,089,550
935,000 American Airlines, Inc. pass-through certificates
Ser. 99-1, 7.024s, 2009 827,475
864,221 American Airlines, Inc. pass-through certificates
Ser. 99-1, 6.855s, 2009 769,157
111,840 Aran Shipping & Trading SA notes 8.3s, 2004
(Greece) (In default) (NON) 55,920
4,360,000 Calair, LLC/Calair Capital Corp. company guaranty
8 1/8s, 2008 3,444,400
1,430,000 Continental Airlines, Inc. pass-through certificates
Ser. D, 7.568s, 2006 858,000
1,720,000 Delta Air Lines, Inc. pass-through certificates
Ser. 00-1, Class C, 7.779s, 2005 1,356,078
1,060,188 Delta Air Lines, Inc. pass-through certificates
Ser. C, 7.779s, 2012 816,345
3,525,000 Evergreen International Aviation Inc. 144A sec.
notes 12s, 2010 3,472,125
3,170,000 Kansas City Southern Railway Co. company guaranty
9 1/2s, 2008 3,471,150
700,000 Kansas City Southern Railway Co. company guaranty
7 1/2s, 2009 707,000
3,230,000 Navistar International Corp. company guaranty Ser. B,
9 3/8s, 2006 3,359,200
1,200,000 Navistar International Corp. sr. notes Ser. B, 8s, 2008 1,131,000
470,000 Northwest Airlines, Inc. company guaranty 8.52s, 2004 430,050
2,640,000 Northwest Airlines, Inc. company guaranty 7 5/8s, 2005 2,125,200
4,090,000 Northwest Airlines, Inc. sr. notes 9 7/8s, 2007 3,108,400
900,000 Travel Centers of America, Inc. company guaranty
12 3/4s, 2009 999,000
233,000 United AirLines, Inc. debs. 9 1/8s, 2012 (In default) (NON) 22,718
2,540,000 US Air, Inc. pass-through certificates Ser. 93-A3, 10 3/8s,
2013 (In default) (NON) 1,016,000
-------------
30,787,397
Utilities & Power (6.7%)
- -------------------------------------------------------------------------------------------------------------------
595,000 AES Corp. (The) 144A sec. notes 10s, 2005 615,825
2,960,000 AES Corp. (The) 144A sec. notes 9s, 2015 2,989,600
2,740,000 AES Corp. (The) 144A sec. notes 8 3/4s, 2013 2,753,700
3,625,000 Allegheny Energy Supply 144A bonds 8 1/4s, 2012 3,063,125
1,290,000 Allegheny Energy, Inc. notes 7 3/4s, 2005 1,254,525
1,605,000 Avon Energy Partners Holdings 144A notes 7.05s, 2007
(United Kingdom) 1,380,300
145,000 Avon Energy Partners Holdings 144A notes 6.46s, 2008
(United Kingdom) 124,700
5,975,000 Calpine Canada Energy Finance company guaranty
8 1/2s, 2008 (Canada) 4,182,500
1,840,000 Calpine Corp. sr. notes 10 1/2s, 2006 1,485,800
540,000 Calpine Corp. sr. notes 8 3/4s, 2007 378,000
2,090,000 Calpine Corp. sr. notes 8 5/8s, 2010 1,415,975
3,225,000 Calpine Corp. sr. notes 8 1/2s, 2011 2,193,000
1,133,000 Calpine Corp. sr. notes 7 7/8s, 2008 750,613
1,600,000 Calpine Corp. sr. notes 7 5/8s, 2006 1,184,000
1,045,000 CenterPoint Energy Resources Corp. debs. 6 1/2s, 2008 1,137,216
905,000 CenterPoint Energy Resources Corp. 144A general
ref. mtge. 7 7/8s, 2013 1,058,836
1,035,000 CMS Energy Corp. bank term loan FRN Ser. A, 7 1/2s,
2004 (acquired 4/21/03, cost $1,027,238) (RES) 1,040,175
320,000 CMS Energy Corp. bank term loan FRN Ser. B, 7 1/2s,
2004 (acquired 4/21/03, cost $317,600) (RES) 319,600
500,000 CMS Energy Corp. bank term loan FRN Ser. C, 9s, 2004
(acquired 4/21/03, cost $493,750) (RES) 500,000
5,430,000 CMS Energy Corp. sr. notes 8.9s, 2008 5,402,850
1,400,000 CMS Energy Corp. sr. notes 8 1/2s, 2011 1,361,500
3,040,000 Dynegy Holdings Inc. company guaranty 6 3/4s, 2005 2,766,400
1,200,000 Dynegy Holdings, Inc. sr. notes 6 7/8s, 2011 960,000
1,720,000 Edison Mission Energy sr. notes 10s, 2008 1,530,800
1,550,000 Edison Mission Energy sr. notes 9 7/8s, 2011 1,340,750
580,000 El Paso CGP Co. debs. 6 1/2s, 2008 487,925
745,000 El Paso CGP Co. notes 6 3/8s, 2009 611,831
450,000 El Paso Corp. sr. notes 7 3/8s, 2012 373,500
3,530,000 El Paso Production Holding Co. 144A sr. notes
7 3/4s, 2013 3,521,175
2,420,000 Gemstone Investor, Ltd. 144A company guaranty
7.71s, 2004 2,359,500
2,068,000 Midland Funding II Corp. debs. Ser. B, 13 1/4s, 2006 2,342,010
1,020,000 Mirant Americas Generation, Inc. sr. notes 8.3s, 2011 647,700
2,680,000 Mirant Americas Generation, Inc. sr. notes 7 5/8s, 2006 1,976,500
1,040,000 Mirant Americas Generation, Inc. sr. notes 7.2s, 2008 652,600
930,000 Mirant Corp. 144A sr. notes 7.9s, 2009 502,200
1,200,000 Mirant Corp. 144A sr. notes 7.4s, 2004 882,000
1,070,000 Mission Energy Holding Co. sec. notes 13 1/2s, 2008 706,200
189 Northeast Utilities notes Ser. A, 8.58s, 2006 219
1,070,000 Northwest PIpeline Corp. 144A sr. notes 8 1/8s, 2010 1,155,600
3,045,000 Northwestern Corp. notes 8 3/4s, 2012 2,405,550
1,700,000 Pacific Gas & Electric Co. 144A sr. notes 7 3/8s, 2005
(In default) (NON) 1,738,250
590,000 PG&E Gas Transmission Northwest sr. notes 7.1s, 2005 584,100
2,290,000 PSEG Energy Holdings, Inc. 144A notes 7 3/4s, 2007 2,433,125
1,855,000 SEMCO Energy, Inc. 144A sr. notes 7 3/4s, 2013 1,966,300
70,000 Sierra Pacific Power Co. general ref. mtge. Ser. A, 8s, 2008 72,013
700,000 Sierra Pacific Power Co. med. term notes Ser. C, 6.82s, 2006 681,625
2,735,000 Sierra Pacific Resources notes 8 3/4s, 2005 2,738,419
445,000 Southern California Edison Co. notes 6 3/8s, 2006 445,000
3,970,000 Southern California Edison Co. 144A 1st mtge. 8s, 2007 4,307,450
1,175,000 Teco Energy, Inc. notes 10 1/2s, 2007 1,336,563
590,000 Teco Energy, Inc. notes 7.2s, 2011 585,575
1,535,000 Teco Energy, Inc. notes 7s, 2012 1,504,300
1,960,000 Tiverton/Rumford Power Associates, LP 144A pass-through
certificates 9s, 2018 1,626,800
2,490,000 Western Resources, Inc. sr. notes 9 3/4s, 2007 2,739,000
2,230,000 Williams Cos., Inc. (The) FRN Ser. A, 6 3/4s, 2006 2,163,100
2,845,000 Williams Cos., Inc. (The) notes 9 1/4s, 2004 2,901,900
2,810,000 Williams Cos., Inc. (The) notes 6 1/2s, 2006 2,669,500
1,430,000 Williams Holdings Of Delaware notes 6 1/2s, 2008 1,315,600
8,079,435 York Power Funding 144A notes 12s, 2007
(Cayman Islands) (In default) (NON) 6,059,576
-------------
97,682,496
-------------
Total Corporate Bonds and Notes (cost $1,370,944,120) $1,247,033,234
PREFERRED STOCKS (3.7%) (a)
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
146,575 Avecia Group PLC $4.00 pfd. (acquired various dates
from 6/24/99 to 1/28/03, cost $3,439,077)
(United Kingdom) (RES) (PIK) $2,491,775
91,299 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. 5,112,744
13,020 Chevy Chase Savings Bank, Inc. $3.25 pfd. 351,540
670 Crown Castle International Corp. 12.75% pfd. 690,100
154,967 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. 16,155,310
13,159 Decrane Aircraft Holdings Co. $16.00 pfd. (PIK) 131,593
232,990 Diva Systems Corp. Ser. C, 6.00% cum. pfd. 2,330
538,000 Diva Systems Corp. 144A Ser. D, zero % pfd. 5,380
109,200 Doane Pet Care Co. $7.125 pfd. 4,368,000
5,132 Dobson Communications Corp. 12.25% pfd. (PIK) 4,670,102
3,050 First Republic Capital Corp. 144A 10.50% pfd. 3,202,500
493 Granite Broadcasting Corp. 12.75% cum. pfd. 359,890
527 Leiner Health Products Ser. C, zero % pfd. --
66,020 Lodgian, Inc. Ser. A, $7.06 cum. pfd. (PIK) 1,216,749
839 Metrocall Holdings, Inc. Ser. A, 15.00% cum. pfd. 7,551
15,805 Microcell Telecommunications, Inc. zero % (Canada) 126,615
788 Nextel Communications, Inc. Ser. D, 13.00% cum. pfd. (PIK) 815,580
6,901 Nextel Communications, Inc. Ser. E, 11.125% pfd. (PIK) 7,108,030
36,076 North Atlantic Trading Co. 12.00% pfd. (PIK) 721,520
123 NTL Europe, Inc. Ser. A, zero % cum. pfd. 381
541 Paxson Communications Corp. 13.25% cum. pfd. (PIK) 5,139,500
2 Pegasus Satellite Ser. B, 12.75% cum. pfd. (PIK) 1,760
3,700 PRIMEDIA, Inc. Ser. F, $9.20 cum. pfd. 327,450
6,512 Rural Cellular Corp. 12.25% pfd. (PIK) 1,237,280
-------------
Total Preferred Stocks (cost $71,926,529) $54,243,680
COMMON STOCKS (2.3%) (a)
NUMBER OF SHARES VALUE
Basic Materials (0.1%)
- -------------------------------------------------------------------------------------------------------------------
356,733 Pioneer Cos., Inc. (NON) $1,373,422
22,042 Polymer Group, Inc. Class A (NON) 190,443
1,789 Sterling Chemicals, Inc. (NON) 32,202
-------------
1,596,067
Broadcasting (0.1%)
- -------------------------------------------------------------------------------------------------------------------
1,036,363 Capstar Broadcasting 144A 1,647,817
1,199 RCN Corp. (NON) 1,858
-------------
1,649,675
Communication Services (0.1%)
- -------------------------------------------------------------------------------------------------------------------
23,447 Birch Telecom, Inc. (NON) 81,127
72,356 Covad Communications Group, Inc. (NON) 77,059
5,928 FLAG Telecom Group, Ltd. (Bermuda) (NON) 204,516
79,472 Globix Corp. (NON) 242,390
973 Metrocall Holdings, Inc. (NON) 63,245
132 Microcell Telecommunications, Inc. Class A (Canada) (NON) 1,062
15,710 Microcell Telecommunications, Inc. Class B (Canada) (NON) 131,575
18,495 Vast Solutions, Inc. Class B1 (NON) 9,248
18,495 Vast Solutions, Inc. Class B2 (NON) 9,248
18,495 Vast Solutions, Inc. Class B3 (NON) 9,248
-------------
828,718
Consumer Cyclicals (0.4%)
- -------------------------------------------------------------------------------------------------------------------
78,222 Lodgian, Inc. (NON) 266,737
530,000 Loewen Group International, Inc. (NON) 53
4,100,000 Morrison Knudsen Corp. (NON) 307,500
458,377 Safety Components International, Inc. (AFF) 2,635,668
1,432,850 Sirius Satellite Radio, Inc. (NON) 2,292,560
8,891 Washington Group International, Inc. (NON) 191,779
-------------
5,694,297
Consumer Staples (1.4%)
- -------------------------------------------------------------------------------------------------------------------
1,730 Premium Holdings (LP) 144A (NON) 36,323
7,072 PSF Group Holdings, Inc. 144A Class A (NON) (AFF) 12,375,755
798 Quorum Broadcast Holdings, Inc. Class E
(acquired 5/15/01, cost $796,385) (NON) (RES) 157,222
387,638 Regal Entertainment Group 144A 7,755,473
-------------
20,324,773
Energy (--%)
- -------------------------------------------------------------------------------------------------------------------
37,500 Contour Energy Co. 1,050
65,143 Jasper Energy 144A (NON) (AFF) 4,071
13,327 York Research Corp. 144A (NON) (AFF) 800
-------------
5,921
Financial (0.2%)
- -------------------------------------------------------------------------------------------------------------------
4,279,000 AMRESCO Creditor Trust (NON) (R) 380,831
10,381,424 Contifinancial Corp. Liquidating Trust Units 103,814
17,000 Wayland Investment Fund II (acquired 2/2/01,
cost $1,700,000) (RES) 1,989,000
-------------
2,473,645
Food (--%)
- -------------------------------------------------------------------------------------------------------------------
8,333 Archibald Candy Corp. (NON) 23,749
127,694 Aurora Foods, Inc. (NON) 70,232
-------------
93,981
Health Care (0.1%)
- -------------------------------------------------------------------------------------------------------------------
10,182 Alderwoods Group, Inc. (NON) 59,667
18,118 Genesis Health Ventures, Inc. (NON) 312,717
79,021 Mariner Health Care, Inc. (NON) 592,658
11,200 Mediq, Inc. (NON) 1,120
-------------
966,162
Technology (--%)
- -------------------------------------------------------------------------------------------------------------------
1,965 Comdisco Holding Co., Inc. (NON) 202,886
-------------
Total Common Stocks (cost $87,367,552) $33,836,125
FOREIGN GOVERNMENT BONDS AND NOTES (1.0%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
$2,443,000 Bulgaria (Republic of) 144A bonds 8 1/4s, 2015 $2,901,063
520,000 Colombia (Republic of) bonds 11 3/4s, 2020 650,780
380,000 Colombia (Republic of) bonds 10 3/8s, 2033 434,150
495,000 Colombia (Republic of) bonds Ser. NOV, 9 3/4s, 2009 556,875
750,000 Colombia (Republic of) notes 10 3/4s, 2013 870,000
175,000 Colombia (Republic of) unsub. 9 3/4s, 2009 196,263
2,580,000 Ecuador (Republic of) bonds stepped-coupon Ser. REGS,
6s (7s, 8/15/03), 2030 (STP) 1,651,200
700,000 Philippines (Republic of) bonds 9s, 2013 750,750
3,710,000 Russia (Federation of) unsub. stepped-coupon 5s
(7 1/2s, 3/31/07), 2030 (STP) 3,632,090
2,830,000 United Mexican States bonds Ser. MTN, 8.3s, 2031 3,346,475
-------------
Total Foreign Government Bonds and Notes
(cost $11,921,490) $14,989,646
CONVERTIBLE BONDS AND NOTES (0.9%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
$2,235,000 American Tower Corp. cv. notes 5s, 2010 $1,880,194
750,000 Amkor Technology, Inc. cv. notes 5 3/4s, 2006 666,563
900,000 CenterPoint Energy, Inc. 144A cv. sr. notes 3 3/4s, 2023 1,017,000
13,680,000 Cybernet Internet Services International, Inc. 144A cv.
sr. disc. notes stepped-coupon zero % (13s, 8/15/04)
2009 (Denmark) (In default) (NON) (STP) 13,680
3,870,000 DaVita, Inc. cv. sub. notes 7s, 2009 4,048,988
EUR 1,480,000 Koninklijke Ahold NV cv. sub. notes 3s, 2003 (Netherlands) 748,331
$1,040,000 Kulicke & Soffa Industries, Inc. cv. sub. notes 4 3/4s, 2006 821,600
76,000 Millicom International Cellular SA 144A cv. bonds zero %,
2006 (Luxembourg) (PIK) 140,600
3,435,000 Nextel Communications, Inc. cv. sr. notes 6s, 2011 3,589,575
-------------
Total Convertible Bonds and Notes (cost $22,704,311) $12,926,531
CONVERTIBLE PREFERRED STOCKS (0.8%) (a)
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
376,165 Digitalglobe Inc. 144A Ser. C, 8 1/2s cv. pfd. $376,165
12,800 Global Crossing, Ltd. 144A 7.00% cum. cv. pfd. (Bermuda)
(In default) (NON) 128
6,490 Interact Electronic Marketing, Inc. 14.00% cum. cv. pfd.
(In default) (NON) 65
9,622 Knology, Inc. 144A Ser. D, zero % cv. pfd. 8,660
40,800 LTV Corp. 144A $4.125 cv. pfd. (In default) (NON) $408
3,199 Lucent Technologies, Inc. 8.00% cv. pfd. 3,294,970
636 Paxson Communications Corp. 144A 9.75% cv. pfd. (PIK) 5,215,200
46,125 Peninsula Gaming Partners 144A $7.14 cv. pfd. 276,751
60,914 Telex Communications, Inc. zero % cv. pfd. (In default) (NON) 60,914
32,800 Titan Capital Trust $2.875 cum. cv. pfd. 1,663,616
3,060 Weirton Steel Corp. Ser. C, zero % cv. pfd. 765
26,180 Williams Cos., Inc. (The) 144A $2.75 cv. pfd. 1,426,810
8,740 XCL, Ltd. 144A Ser. A, 9.50% cum. cv. pfd. (In default) (NON) (PIK) 4,370
-------------
Total Convertible Preferred Stocks (cost $18,345,549) $12,328,822
UNITS (0.3%) (a)
NUMBER OF UNITS VALUE
- -------------------------------------------------------------------------------------------------------------------
19,680,000 Australis Media, Ltd. units 15 3/4s, 2003 (Australia)
(In default) (DEF) (NON) $1,968
4,510,000 HMP Equity Holdings Corp. units zero %, 2008 2,164,800
7,555,000 XCL, Ltd. 144A units 13 1/2s, 2004 (In default) (NON) 2,266,500
44,189 XCL, Ltd. 144A units cum. cv. pfd. zero % (In default) (NON) (PIK) 22,095
-------------
Total Units (cost $34,177,400) $4,455,363
BRADY BONDS (0.2%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
$1,200,000 Peru (Republic of) bonds Ser. PDI, 5s, 2017 $1,036,560
660,000 Peru (Republic of) coll. FLIRB 4 1/2s, 2017
(acquired various dates from 5/14/02 to 8/23/02,
cost $440,738) (RES) 537,900
1,300,000 Peru (Republic of) coll. FLIRB Ser. 20YR, 4 1/2s, 2017 1,059,500
-------------
Total Brady Bonds (cost $2,335,221) $2,633,960
ASSET-BACKED SECURITIES (0.1%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
$1,305,000 Verdi Synthetic Clo 144A Ser. 1A, Class E2, 11.15s, 2010 $1,305,000
-------------
Total Asset-Backed Securities (cost $1,305,000) $1,305,000
WARRANTS (0.1%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- -------------------------------------------------------------------------------------------------------------------
3,790 American Tower Corp. Class A 8/1/08 $416,900
4,500 Birch Telecommunications, Inc. 144A 6/15/08 5
4,190 Dayton Superior Corp. 144A 6/15/09 1,048
75,583 Delta Financial Corp. (Canada) 12/21/10 37,792
37,346 Diva Systems Corp. 144A 3/1/08 373
9,175 Diva Systems Corp. 144A 5/15/06 92
13 Doe Run Resources Corp. 144A 12/31/12 --
1 Globix Corp. Class B 6/30/10 --
4,790 Horizon PCS, Inc. 10/1/10 5
7,160 Insilco Holding Co. 8/15/08 1
6,490 Interact Systems, Inc. 8/1/03 6
6,490 Interact Systems, Inc. 144A 12/15/09 65
4,430 iPCS, Inc. 144A 7/15/10 1,108
1,827 IWO Holdings, Inc. 1/15/11 457
2,582 Leap Wireless International, Inc. 144A 4/15/10 26
1,110 MDP Acquisitions PLC 144A 10/1/13 2,775
3,025 Metronet Communications 144A 8/15/07 30
9,726 Microcell Telecommunications 5/1/08 9,917
5,835 Microcell Telecommunications (Canada) 5/1/05 2,125
1,720 Mikohn Gaming Corp. 144A 8/15/08 17
1,840 ONO Finance PLC 144A (United Kingdom) 2/15/11 2
8,890 Orion Network Systems 1/15/07 89
12,800 Paxson Communications Corp. 144A 6/30/03 13
1,860 Pliant Corp. 144A 6/1/10 930
2,255 R.A.B. Holdings, Inc. 4/30/10 23
1,967 Solutia, Inc. 144A 7/15/09 2,459
2,700 Travel Centers of America, Inc. 144A 5/1/09 27,000
7,630 Ubiquitel, Inc. 144A 4/15/10 1
835,000 United Mexican States Ser. B (Mexico) 6/30/04 6,680
835,000 United Mexican States Ser. C (Mexico) 6/30/05 1,253
835,000 United Mexican States Ser. D (Mexico) 6/30/06 334
835,000 United Mexican States Ser. E (Mexico) 6/30/07 334
7,320 Verado Holdings, Inc. 144A 4/15/08 73
150 Versatel Telecom NV (Netherlands) 5/15/08 --
5,488 Washington Group International, Inc. Ser. A 1/25/06 10,976
6,272 Washington Group International, Inc. Ser. B 1/25/06 11,917
3,390 Washington Group International, Inc. Ser. C 1/25/06 5,763
5,020 XM Satellite Radio Holdings, Inc. 144A 3/15/10 1
125,000 ZSC Specialty Chemicals PLC 144A (United Kingdom) 6/30/11 203,125
125,000 ZSC Specialty Chemicals PLC 144A (United Kingdom) 6/30/11 78,125
-------------
Total Warrants (cost $5,268,616) $821,840
SHORT-TERM INVESTMENTS (2.7%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
$2,866,844 Short-term investments held as collateral for loaned
securities with yields ranging from 1.20% to 1.37%
and due dates ranging from June 2, 2003 to
July 25, 2003 (d) $2,865,829
36,655,947 Short-term investments held in Putnam commingled cash
account with yields ranging from 1.21% to 2.63% and
due dates ranging from June 2, 2003 to July 28, 2003 (d) 36,655,947
-------------
Total Short-Term Investments (cost $39,521,776) $39,521,776
- -------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,665,817,564) $1,424,095,977
- -------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $1,453,230,332.
(DEF) Security is in default of principal and interest.
(NON) Non-income-producing security.
(STP) The interest or dividend rate and date shown parenthetically
represent the new interest or dividend rate to be paid and the date the
fund will begin accruing interest or dividend income at this rate.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at May 31, 2003 was
$38,547,506 or 2.3% of net assets. net assets.
(PIK) Income may be received in cash or additional securities at the
discretion of the issuer.
(AFF) Affiliated Companies (Note 5).
(R) Real Estate Investment Trust.
(d) See Note 1 to the financial statements.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
FLIRB represents Front Loaded Interest Reduction Bond.
The rates shown on Floating Rate Bonds (FRB) and Floating Rate
Notes (FRN) are the current interest rates shown at May 31, 2003, which
are subject to change based on the terms of the security.
- ------------------------------------------------------------------------------
Forward Currency Contracts to Sell at May 31, 2003
Market Aggregate Face Delivery Unrealized
Value Value Date Depreciation
- ------------------------------------------------------------------------------
Euro $8,881,890 $8,233,552 6/18/03 $(648,338)
British Pounds 666,108 650,233 6/18/03 (15,875)
- ------------------------------------------------------------------------------
$(664,213)
- ------------------------------------------------------------------------------
Swap Contracts outstanding at May 31, 2003
Notional Termination Unrealized
Amount Date Appreciation
- ------------------------------------------------------------------------------
Agreement with Merrill Lynch
Capital Services, Inc. dated
October 27, 2000 to receive
semi-annually the notional amount
multiplied by 6.74% and pay
quarterly the notional amount
multiplied by the three month
USD-LIBOR. $34,900,000 10/31/05 $4,199,496
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF ASSETS AND LIABILITIES
May 31, 2003 (Unaudited)
Assets
- -------------------------------------------------------------------------------------------
Investments in securities, at value, including $2,348,959 of securities
on loan (identified cost $1,665,817,564) (Note 1) $1,424,095,977
- -------------------------------------------------------------------------------------------
Cash 375,503
- -------------------------------------------------------------------------------------------
Dividends, interest and other receivables 29,489,736
- -------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 19,208,671
- -------------------------------------------------------------------------------------------
Receivable for securities sold 8,249,893
- -------------------------------------------------------------------------------------------
Receivable for open swap contracts (Note 1) 4,199,496
- -------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts (Note 1) 24,379
- -------------------------------------------------------------------------------------------
Total assets 1,485,643,655
Liabilities
- -------------------------------------------------------------------------------------------
Payable for securities purchased 23,032,788
- -------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 2,523,914
- -------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 2,146,352
- -------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 174,536
- -------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 140,400
- -------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,288
- -------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 696,037
- -------------------------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 664,213
- -------------------------------------------------------------------------------------------
Payable for closed forward currency contracts (Note 1) 79,461
- -------------------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 2,865,829
- -------------------------------------------------------------------------------------------
Other accrued expenses 87,505
- -------------------------------------------------------------------------------------------
Total liabilities 32,413,323
- -------------------------------------------------------------------------------------------
Net assets $1,453,230,332
Represented by
- -------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $2,879,361,720
- -------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (20,391,297)
- -------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (1,167,552,995)
- -------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and
liabilities in foreign currencies (238,187,096)
- -------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares
outstanding $1,453,230,332
Computation of net asset value and offering price
- -------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($503,640,808 divided by 90,233,333 shares) $5.58
- -------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $5.58)* $5.86
- -------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($244,438,862 divided by 44,302,652 shares)** $5.52
- -------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($682,725,831 divided by 121,989,102 shares) $5.60
- -------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $5.60)* $5.79
- -------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($22,424,831 divided by 3,959,531 shares) $5.66
- -------------------------------------------------------------------------------------------
* 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.
STATEMENT OF OPERATIONS
Six months ended May 31, 2003 (Unaudited)
Investment income:
- -------------------------------------------------------------------------------------------
Interest $63,314,399
- -------------------------------------------------------------------------------------------
Dividends 3,749,203
- -------------------------------------------------------------------------------------------
Securities lending 1,068
- -------------------------------------------------------------------------------------------
Total investment income 67,064,670
Expenses:
- -------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 4,125,214
- -------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 772,140
- -------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 23,285
- -------------------------------------------------------------------------------------------
Administrative services (Note 2) 13,790
- -------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 587,271
- -------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 1,245,253
- -------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 1,453,587
- -------------------------------------------------------------------------------------------
Other 427,276
- -------------------------------------------------------------------------------------------
Total expenses 8,647,816
- -------------------------------------------------------------------------------------------
Expense reduction (Note 2) (10,440)
- -------------------------------------------------------------------------------------------
Net expenses 8,637,376
- -------------------------------------------------------------------------------------------
Net investment income 58,427,294
- -------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (37,167,756)
- -------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 1,124
- -------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (155,156)
- -------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in foreign
currencies during the period (673,221)
- -------------------------------------------------------------------------------------------
Net unrealized appreciation of investments, futures contracts and swap contracts
during the period 146,049,231
- -------------------------------------------------------------------------------------------
Net gain on investments 108,054,222
- -------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $166,481,516
- -------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF CHANGES IN NET ASSETS
Six months ended Year ended
May 31 November 30
2003* 2002
- -------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
- -------------------------------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------------------------------
Net investment income $58,427,294 $144,208,571
- -------------------------------------------------------------------------------------------------------
Net realized loss on investments and foreign currency
transactions (37,321,788) (300,385,610)
- -------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and liabilities
in foreign currencies 145,376,010 133,706,285
- -------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 166,481,516 (22,470,754)
- -------------------------------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
- -------------------------------------------------------------------------------------------------------
From net investment income
Class A (22,812,873) (53,227,954)
- -------------------------------------------------------------------------------------------------------
Class B (11,384,401) (31,292,702)
- -------------------------------------------------------------------------------------------------------
Class M (27,601,116) (62,513,216)
- -------------------------------------------------------------------------------------------------------
Class Y (900,137) (1,731,707)
- -------------------------------------------------------------------------------------------------------
From return of capital
Class A -- (3,038,726)
- -------------------------------------------------------------------------------------------------------
Class B -- (1,786,466)
- -------------------------------------------------------------------------------------------------------
Class M -- (3,568,811)
- -------------------------------------------------------------------------------------------------------
Class Y -- (98,861)
- -------------------------------------------------------------------------------------------------------
Increase (decrease) from capital share transactions (Note 4) 78,550,739 (192,714,951)
- -------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 182,333,728 (372,444,148)
Net assets
- -------------------------------------------------------------------------------------------------------
Beginning of period 1,270,896,604 1,643,340,752
- -------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of net investment
income of $20,391,297 and $16,120,064, respectively) $1,453,230,332 $1,270,896,604
- -------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share May 31
operating performance (Unaudited) Year ended November 30
- ------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $5.17 $5.84 $6.30 $7.72 $8.35 $9.96
- ------------------------------------------------------------------------------------------------------------------
Investment operations:
- ------------------------------------------------------------------------------------------------------------------
Net investment income (a) .24 .56 .68 .81 .80 .95
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments .43 (.62) (.40) (1.41) (.57) (1.61)
- ------------------------------------------------------------------------------------------------------------------
Total from
investment operations .67 (.06) .28 (.60) .23 (.66)
- ------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------
From net
investment income (.26) (.58) (.71) (.82) (.83) (.95)
- ------------------------------------------------------------------------------------------------------------------
From return of capital -- (.03) (.03) -- (.03) --
- ------------------------------------------------------------------------------------------------------------------
Total distributions (.26) (.61) (.74) (.82) (.86) (.95)
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.58 $5.17 $5.84 $6.30 $7.72 $8.35
- ------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 13.31* (0.93) 4.46 (8.69) 2.89 (7.39)
- ------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $503,641 $462,586 $561,101 $625,449 $956,094 $1,261,785
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .53* 1.03 1.00 .95 .95 .92
- ------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.54* 10.35 11.01 10.96 9.99 9.81
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 40.53* 60.35 81.23 68.37 49.29 89.53
- ------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements (Note 2).
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share May 31
operating performance (Unaudited) Year ended November 30
- ------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $5.12 $5.79 $6.27 $7.68 $8.32 $9.92
- ------------------------------------------------------------------------------------------------------------------
Investment operations:
- ------------------------------------------------------------------------------------------------------------------
Net investment income (a) .22 .52 .63 .75 .74 .87
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments .42 (.62) (.42) (1.39) (.58) (1.59)
- ------------------------------------------------------------------------------------------------------------------
Total from
investment operations .64 (.10) .21 (.64) .16 (.72)
- ------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------
From net
investment income (.24) (.54) (.66) (.77) (.77) (.88)
- ------------------------------------------------------------------------------------------------------------------
From return of capital -- (.03) (.03) -- (.03) --
- ------------------------------------------------------------------------------------------------------------------
Total distributions (.24) (.57) (.69) (.77) (.80) (.88)
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.52 $5.12 $5.79 $6.27 $7.68 $8.32
- ------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 12.84* (1.71) 3.35 (9.29) 1.98 (7.99)
- ------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $244,439 $258,113 $372,989 $482,280 $791,036 $1,052,251
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .91* 1.78 1.75 1.70 1.70 1.67
- ------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.17* 9.58 10.27 10.20 9.24 9.06
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 40.53* 60.35 81.23 68.37 49.29 89.53
- ------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements (Note 2).
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share May 31
operating performance (Unaudited) Year ended November 30
- ------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $5.18 $5.85 $6.29 $7.71 $8.34 $9.95
- ------------------------------------------------------------------------------------------------------------------
Investment operations:
- ------------------------------------------------------------------------------------------------------------------
Net investment income (a) .23 .55 .67 .79 .79 .92
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments .44 (.62) (.38) (1.40) (.57) (1.61)
- ------------------------------------------------------------------------------------------------------------------
Total from
investment operations .67 (.07) .29 (.61) .22 (.69)
- ------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------
From net
investment income (.25) (.57) (.70) (.81) (.82) (.92)
- ------------------------------------------------------------------------------------------------------------------
From return of capital -- (.03) (.03) -- (.03) --
- ------------------------------------------------------------------------------------------------------------------
Total distributions (.25) (.60) (.73) (.81) (.85) (.92)
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.60 $5.18 $5.85 $6.29 $7.71 $8.34
- ------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 13.36* (1.15) 4.59 (8.92) 2.66 (7.64)
- ------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $682,726 $534,636 $693,973 $534,387 $826,257 $949,346
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .66* 1.28 1.25 1.20 1.20 1.17
- ------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.41* 10.10 10.75 10.71 9.72 9.56
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 40.53* 60.35 81.23 68.37 49.29 89.53
- ------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements (Note 2).
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS Y
- -----------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share May 31 Dec. 31, 1998+
operating performance (Unaudited) Year ended November 30 to Nov. 30
- -----------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
- -----------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $5.23 $5.88 $6.32 $7.72 $8.19
- -----------------------------------------------------------------------------------------------------
Investment operations:
- -----------------------------------------------------------------------------------------------------
Net investment income (a) .25 .59 .68 .84 .74
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments .44 (.62) (.37) (1.40) (.41)
- -----------------------------------------------------------------------------------------------------
Total from
investment operations .69 (.03) .31 (.56) .33
- -----------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------
From net
investment income (.26) (.59) (.72) (.84) (.77)
- -----------------------------------------------------------------------------------------------------
From return of capital -- (.03) (.03) -- (.03)
- -----------------------------------------------------------------------------------------------------
Total distributions (.26) (.62) (.75) (.84) (.80)
- -----------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.66 $5.23 $5.88 $6.32 $7.72
- -----------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 13.67* (0.36) 4.97 (8.20) 4.15*
- -----------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $22,425 $15,562 $15,278 $7,122 $9,090
- -----------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .41* .78 .75 .70 .64*
- -----------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.65* 10.60 11.33 11.30 9.54*
- -----------------------------------------------------------------------------------------------------
Portfolio turnover (%) 40.53* 60.35 81.23 68.37 49.29
- -----------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements (Note 2).
The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
May 31, 2003 (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 and class M 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 certain eligible purchasers including
certain defined contribution plans (including corporate IRAs), certain
college savings plans, bank trust departments and trust companies.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The fund invests in higher yielding, lower rated bonds that
have a higher rate of default due to the nature of the investments. The
preparation of financial statements is in conformity with accounting
principles generally accepted in the United States of America and
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities in 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 valued at market valued at last reported sales
price on its principal exchange, or official closing price for certain
markets. If no sales are reported -- as in the case of some securities
traded over-the-counter -- a security is valued at its last reported bid
price. For foreign investments, if trading or events occurring in other
markets after the close of the principal exchange in which the foreign
investments are traded are expected to materially affect the value of
the investments, then those investments are valued, taking into
consideration these events, at their fair value following procedures
approved by the Trustees. 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 valued at
amortized cost, which approximates fair value. Other investments,
including restricted securities, are valued 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 valued at market value on the basis of valuations
furnished by an independent pricing service or dealers, approved by the
Trustees. Such services or dealers determine valuations for normal
institutional-size trading units of such securities using methods based
on market transactions for comparable securities and various
relationships, generally recognized by institutional traders, between
securities.
B) Joint trading account The fund may transfer uninvested cash balances,
including cash collateral received under security lending arrangements,
into a joint trading account along with the cash of other registered
investment companies and certain other accounts managed by Putnam
Investment Management, LLC ("Putnam Management"), the fund's manager, an
indirect wholly-owned subsidiary of Putnam, LLC. These balances may be
invested in issuers of high-grade short-term investments having
maturities of up to 397 days for collateral received under security
lending arrangements and up to 90 days for other cash investments.
C) Security transactions and related investment income Security
transactions are recorded 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
recognized on the ex-dividend date. Non-cash dividends, if any, are
recorded at the fair market value of the securities received. All
premiums/discounts are amortized/accreted on a yield-to-maturity basis.
D) 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 earned 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, currency gains and losses realized
between the trade and settlement dates on securities transactions 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.
E) Forward currency contracts The fund may buy and sell forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date. These contracts are used to
protect against a decline in value relative to the U.S. dollar of the
currencies in which its portfolio securities are denominated or quoted
(or an increase in the value of a currency in which securities a fund
intends to buy are denominated, when a fund holds cash reserves and
short term investments). The U.S. dollar value of forward currency
contracts is determined using current forward currency exchange rates
supplied by a quotation service. The market value of the contract will
fluctuate with changes in currency exchange rates. The contract is
marked to market daily and the change in market value is recorded as an
unrealized gain or loss. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed. The fund could be exposed to risk if the value of the currency
changes unfavorably, if the counterparties to the contracts are unable
to meet the terms of their contracts or if the fund is unable to enter
into a closing position. Forward currency contracts outstanding at
period end are listed after The fund's portfolio.
F) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or in which it may invest to increase its current
returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed. Realized gains and losses on purchased options are included in
realized gains and losses on investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. The fund and the broker
agree to exchange an amount of cash equal to the daily fluctuation in
the value of the futures contract. Such receipts or payments are known
as "variation margin." Exchange traded options are valued at the last
sale price, or if no sales are reported, the last bid price for
purchased options and the last ask price for written options. Options
traded over-the-counter are valued using prices supplied by dealers.
Futures and written option contracts outstanding at period end are
listed after The fund's portfolio.
G) Interest rate swap contracts The fund may enter into interest rate
swap contracts, which are arrangements between two parties to exchange
cash flows based on a notional principal amount, to manage the fund's
exposure to interest rates. Interest rate swap contracts are marked to
market daily based upon quotations from market makers and the change, if
any, is recorded as unrealized gain or loss. Payments made or received
are recognized as part of interest income. A portion of the payments
received or made upon early termination are recognized as realized gain
or loss. The fund could be exposed to credit or market risk due to
unfavorable changes in the fluctuation of interest rates or if the
counterparty defaults on its obligation to perform. Interest rate swap
contracts outstanding at period end are listed after The fund's
portfolio.
H) Security lending The fund may lend securities, through its agents, to
qualified borrowers in order to earn additional income. The loans are
collateralized by cash and/or securities in an amount at least equal to
the market value of the securities loaned. The market value of
securities loaned is determined daily and any additional required
collateral is allocated to the fund on the next business day. The risk
of borrower default will be borne by the fund's agents; the fund will
bear the risk of loss with respect to the investment of the cash
collateral. Income from securities lending is included in investment
income on the Statement of operations. At May 31, 2003, the value of
securities loaned amounted to $2,348,959. The fund received cash
collateral of $2,865,829 which is pooled with collateral of other Putnam
funds into 41 issuers of high-grade short-term investments.
I) 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 that
borrowings not exceed prospectus limitations. For the six months ended
May 31, 2003, the fund had no borrowings against the line of credit.
J) 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, 2002, the fund had a capital loss carryover of
approximately $1,125,720,000 available to the extent allowed by tax law
to offset future capital gains, if any. The amount of the carryover and
the expiration dates are:
Loss Carryover Expiration
- -------------- -----------------
$34,076,000 November 30, 2003
299,612,000 November 30, 2007
217,396,000 November 30, 2008
265,228,000 November 30, 2009
309,408,000 November 30, 2010
The aggregate identified cost on a tax basis is $1,674,723,572,
resulting in gross unrealized appreciation and depreciation of
$87,252,883 and $337,880,478, respectively, or net unrealized
depreciation of $250,627,595.
K) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Distributions from capital gains, 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. Prior
year distributions in the Statement of changes in net assets have been
reclassified to conform with current year presentation.
Note 2
Management fee, administrative
services and other transactions
Putnam Management is paid for management and investment advisory
services 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 then 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, LLC. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. For the six months ended May 31, 2003,
the fund's expenses were reduced by $10,440 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $1,992 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, a wholly-owned subsidiary of
Putnam, LLC and Putnam Retail Management GP, 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 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 at the annual rates 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, 2003, Putnam Retail Management, acting
as underwriter, received net commissions of $14,935 and $196 from the
sale of class A and class M shares, respectively and $83,530 in
contingent deferred sales charges from redemptions of class B shares. A
deferred sales charge of up to 1.00% and 0.40% is assessed on certain
redemptions of class A and class M shares, respectively. For the six
months ended May 31, 2003, Putnam Retail Management, acting as
underwriter, received $258 and no monies on class A and class M
redemptions, respectively.
Note 3
Purchases and sales of securities
During the six months ended May 31, 2003, cost of purchases and proceeds
from sales of investment securities other than short-term investments
aggregated $553,989,488 and $516,122,996, respectively. There were no
purchases and sales of U.S. government obligations.
Note 4
Capital shares
At May 31, 2003, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended May 31, 2003
- ---------------------------------------------------------------------------
Class A Shares Amount
- ---------------------------------------------------------------------------
Shares sold 9,858,318 $52,609,921
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 2,888,757 15,254,474
- ---------------------------------------------------------------------------
12,747,075 67,864,395
Shares repurchased (12,004,797) (63,677,599)
- ---------------------------------------------------------------------------
Net increase 742,278 $4,186,796
- ---------------------------------------------------------------------------
Year ended November 30, 2002
- ---------------------------------------------------------------------------
Class A Shares Amount
- ---------------------------------------------------------------------------
Shares sold 16,950,525 $91,521,096
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 6,659,050 36,085,304
- ---------------------------------------------------------------------------
23,609,575 127,606,400
Shares repurchased (30,242,801) (164,742,461)
- ---------------------------------------------------------------------------
Net decrease (6,633,226) $(37,136,061)
- ---------------------------------------------------------------------------
Six months ended May 31, 2003
- ---------------------------------------------------------------------------
Class B Shares Amount
- ---------------------------------------------------------------------------
Shares sold 972,606 $5,112,021
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 1,227,209 6,408,795
- ---------------------------------------------------------------------------
2,199,815 11,520,816
Shares repurchased (8,331,858) (43,746,482)
- ---------------------------------------------------------------------------
Net decrease (6,132,043) $(32,225,666)
- ---------------------------------------------------------------------------
Year ended November 30, 2002
- ---------------------------------------------------------------------------
Class B Shares Amount
- ---------------------------------------------------------------------------
Shares sold 2,330,456 $13,003,095
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 3,145,330 16,686,072
- ---------------------------------------------------------------------------
5,475,786 29,689,167
Shares repurchased (19,433,779) (104,521,662)
- ---------------------------------------------------------------------------
Net decrease (13,957,993) $(74,832,495)
- ---------------------------------------------------------------------------
Six months ended May 31, 2003
- ---------------------------------------------------------------------------
Class M Shares Amount
- ---------------------------------------------------------------------------
Shares sold 35,507,049 $191,176,269
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 98,120 518,898
- ---------------------------------------------------------------------------
35,605,169 191,695,167
Shares repurchased (16,911,711) (90,412,230)
- ---------------------------------------------------------------------------
Net increase 18,693,458 $101,282,937
- ---------------------------------------------------------------------------
Year ended November 30, 2002
- ---------------------------------------------------------------------------
Class M Shares Amount
- ---------------------------------------------------------------------------
Shares sold 22,647,781 $119,525,107
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 261,861 1,425,379
- ---------------------------------------------------------------------------
22,909,642 120,950,486
Shares repurchased (38,248,542) (203,987,244)
- ---------------------------------------------------------------------------
Net decrease (15,338,900) $(83,036,758)
- ---------------------------------------------------------------------------
Six months ended May 31, 2003
- ---------------------------------------------------------------------------
Class Y Shares Amount
- ---------------------------------------------------------------------------
Shares sold 1,401,243 $7,531,169
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 166,876 900,137
- ---------------------------------------------------------------------------
1,568,119 8,431,306
Shares repurchased (583,184) (3,124,634)
- ---------------------------------------------------------------------------
Net increase 984,935 $5,306,672
- ---------------------------------------------------------------------------
Year ended November 30, 2002
- ---------------------------------------------------------------------------
Class Y Shares Amount
- ---------------------------------------------------------------------------
Shares sold 1,235,425 $6,900,480
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 333,612 1,830,568
- ---------------------------------------------------------------------------
1,569,037 8,731,048
Shares repurchased (1,190,896) (6,440,685)
- ---------------------------------------------------------------------------
Net increase 378,141 $2,290,363
- ---------------------------------------------------------------------------
Note 5
Transactions with affiliated issuers
Transactions during the period 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
- -----------------------------------------------------------------------------------
Name of affiliate
- -----------------------------------------------------------------------------------
Jasper Energy 144A Class A $-- $-- $-- $4,071
PSF Holdings, Inc. 144A Class A -- -- -- 12,375,755
Safety Components Intl, Inc. -- -- -- 2,635,668
York Research Corp. 144A -- -- -- 800
- -----------------------------------------------------------------------------------
Totals $-- $-- $-- $15,016,294
- -----------------------------------------------------------------------------------
Market values are shown for these securities affiliated at period end.
[PHOTO OMITTED: SAMUEL PUTNAM]
Putnam is a leader in global money management
Putnam Investments traces its heritage to the early 19th century when
ship captains hired trustees to manage their money while they were away
at sea. In a landmark 1830 decision that involved one such trustee,
Massachusetts Supreme Judicial Court Justice Samuel Putnam established
The Prudent Man Rule, a legal foundation for responsible money
management. In 1937, his great-great grandson founded Putnam with The
George Putnam Fund of Boston, the first fund to offer a balanced
portfolio of stocks and bonds. Today, Putnam Investments is one of the
largest investment management firms in the world, and this balanced
approach remains the foundation of everything we do.
With over 65 years of experience, Putnam has nearly $251 billion in
assets under management, over 100 mutual funds, over 13 million
shareholder accounts, and nearly 3,000 institutional and 401(k) clients.
(Information as of 12/31/02.)
We're one of the largest mutual fund companies in the United States.
Putnam has won the DALBAR award for service twelve times in the past
thirteen years. Putnam offers products in every investment category,
including growth, value, and blend as well as international and fixed
income.
Teamwork is a cornerstone of Putnam's investment philosophy. Our funds
are managed by teams in a collaborative environment that promotes an
active exchange of information.
Putnam's disciplined investment philosophy is based on style
consistency. We aim for less volatility over the short term and strong,
consistent performance over time. Our truth in labeling approach helps
us adhere to every fund's stated objective, style, and risk positioning.
We are committed to helping financial advisors provide sound, sensible
guidance, information, and expertise to help investors reach their
financial goals.
FUND INFORMATION
ABOUT PUTNAM INVESTMENTS
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition and
practice since 1830. Founded over 65 years ago, Putnam Investments was built
around the concept that a balance between risk and reward is the hallmark of
a well-rounded financial program. We presently manage over 100 mutual funds
in growth, value, blend, fixed income, and international.
INVESTMENT MANAGER
Putnam Investment Management, LLC
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray LLP
TRUSTEES
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
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, Treasurer
and Principal Financial Officer
Patricia C. Flaherty
Senior Vice President
Karnig H. Durgarian
Vice President and Principal
Executive Officer
Steven D. Krichmar
Vice President and Principal
Financial Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
Brett C. Browchuk
Vice President
Charles E. Haldeman, Jr.
Vice President
Lawrence J. Lasser
Vice President
Beth S. Mazor
Vice President
Richard A. Monaghan
Vice President
Stephen M. Oristaglio
Vice President
Gordon H. Silver
Vice President
Mark C. Trenchard
Vice President
Stephen C. Peacher
Vice President
Judith Cohen
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam High Yield
Advantage Fund. It may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details of sales
charges, investment objectives, and operating policies of the fund, and
the most recent copy of Putnam's Quarterly Performance Summary and
Putnam's Quarterly Ranking Summary. For more information or to request a
prospectus, call toll free: 1-800-225-1581. The fund's Statement of
Additional Information contains additional information about the fund's
Trustees and is available without charge upon request by calling
1-800-225-1581.
Visit www.putnaminvestments.com or call a representative at 1-800-225-1581.
NOT FDIC INSURED, MAY LOSE VALUE, NO BANK GUARANTEE
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------------
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
SA032-88661 060/327/702 7/03
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ----------------------------------------------------------------------------
Putnam High Yield Advantage Fund
Supplement to Semiannual Report dated 5/31/03
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 clients that meet the
eligibility requirements specified in the fund's prospectus for such
shares. Performance of class Y shares, which do not incur a front-end
load, a distribution fee, or a contingent deferred sales charge, will
differ from the performance of class A, B, C, and M shares, which are
discussed more extensively in the annual report.
RESULTS AT A GLANCE
- ----------------------------------------------------------------------------
Total return for periods ended 5/31/03
NAV
6 months 13.67%
1 year 10.49
5 years -0.84
Annual average -0.17
10 years 60.50
Annual average 4.85
Life of fund (since class A inception, 3/25/86)
Annual average 7.40
Share value: NAV
11/30/02 $5.23
5/31/03 $5.66
- ----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
6 $0.264 -- $0.264
- ----------------------------------------------------------------------------
Please note that past performance is not indicative of future results.
More recent returns may be more or less than those shown. Returns shown
for class Y shares for periods prior to their inception are derived from
the historical performance of class A shares, and are not 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, typically are lower than the
operating expenses applicable to class A shares. All returns assume
reinvestment of distributions at net asset value. 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.
Item 2. Code of Ethics:
- -----------------------
Not applicable
Item 3. Audit Committee Financial Expert:
- -----------------------------------------
Not applicable
Item 4. Principal Accountant Fees and Services:
- -----------------------------------------------
Not applicable
Items 5-6. [Reserved]
- ---------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed End
- -------------------------------------------------------------------------
Management Investment Companies: Not applicable
--------------------------------
Item 8. [Reserved]
- ------------------
Item 9. Controls and Procedures:
- --------------------------------
The registrant's principal executive officer and principal financial
officers have concluded, based on their evaluation of the effectiveness
of the design and operation of the registrant's disclosure controls and
procedures as of a date within 90 days of the filing date of this report
on Form N-CSR, that the design and operation of such procedures are
effective to provide reasonable assurance that information required to
be disclosed by the investment company in the reports that it files or
submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized, and reported within the time periods specified in
the Commission's rules and forms.
There have been no significant changes in the registrant's internal
controls subsequent to the date of their evaluation.
Item 10. Exhibits:
- ------------------
(a) Not applicable
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act of 2002
are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: July 24, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By (Signature and Title): /s/Karnig H. Durgarian
---------------------------
Karnig H. Durgarian
Principal Executive Officer
Date: July 24, 2003
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Financial Officer
Date: July 24, 2003
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: July 24, 2003