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
5-31-04
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From the Trustees
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John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
Over the past several months, Putnam has introduced a number of
voluntary reforms. We would like to call your attention to two of them
that are now being included in these reports to provide shareholders
with more useful information about their investments. Following the
performance tables in the Performance Summary, you will find new expense
and risk comparison information for your fund. The expense comparison
information enables you to estimate the amount you have actually paid
for ongoing expenses, such as management fees and distribution (or
12b-1) fees, and to compare these expenses with the average expenses of
funds in your fund's Lipper peer group. The risk comparison shows your
fund's risk relative to similar funds as tracked by Morningstar, an
independent fund-rating company. We believe the expense and risk
comparisons are valuable tools for you and your financial advisor to use
when making decisions about your financial program. These enhancements
to our reports are just part of the additional disclosure we are
committed to providing to shareholders.
During the six-month period, your fund's returns at net asset value were
well ahead of the average return for its Lipper peer group, though the
fund lagged its benchmark index. This performance occurred amid a
changing bond market environment. As the U.S. economy has continued to
strengthen, bond investors have become increasingly wary about the
potential impact of higher inflation and interest rates on their
fixed-income investments. In the latter part of the period, these
concerns became more pronounced, and all bond sectors were affected. The
high-yield part of the market in which your fund invests fared better
than other, higher-quality sectors, however. In addition, your fund's
management team kept abreast of the changing environment, accurately
foreseeing that lower-quality bonds would outperform, as they typically
do in the early stages of an economic recovery. Of course, as the market
cycle continues to evolve, the fund's management team will make
adjustments to the portfolio that it deems necessary.
As always, we appreciate your support of Putnam Investments.
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 21, 2004
Report from Fund Management
Fund highlights
* For the semiannual period ended May 31, 2004, Putnam High Yield
Advantage Fund's class A shares had total returns of 2.90% at net asset
value (NAV) and -1.93% at public offering price (POP).
* Your fund underperformed the 3.29% return of its primary benchmark,
the JP Morgan Global High Yield Index.
* However, your fund's results at NAV outperformed the 2.14% average
return for the Lipper High Current Yield Funds category.
* See the Performance Summary beginning on page 7 for complete fund
performance, comparative performance, and Lipper data.
Performance commentary
For much of this semiannual period, Putnam High Yield Advantage Fund
benefited from a continuation of the positive environment that has
fostered one of the strongest periods of sustained performance for
high-yield bonds in many years. This environment has been characterized
by a strengthening economy -- and expectations that the strength would
continue -- combined with steadily declining default rates and
significant improvements in corporate balance sheets. However, in the
final six weeks of the period, the bond market as a whole became more
volatile, as stronger-than-expected employment growth and higher oil
prices caused concerns about higher inflation and the increased
likelihood of Federal Reserve interest-rate hikes later in the year.
Although high-yield bonds tend to perform well as the economy
strengthens, the general bond market downturn affected this sector. Your
fund weathered the volatility well, however, and its emphasis on
lower-rated bonds helped it to outperform the average for its Lipper
category, based on results at NAV.
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
From December 1, 2003, through March 2004, the high-yield bond market
benefited from a downward trend in interest rates and a positive
economic environment. The market's strength was illustrated by a
narrowing of the credit yield spread, or difference in yield between
high-yield bonds and Treasuries, a change that reflected a more
optimistic forecast for economic growth. In December 2003, the first
month of the period, high-yield bonds contended with Treasury market
volatility as investors tried to gauge the economy's strength and the
likelihood for higher interest rates in 2004. During this month,
high-yield bonds proved their resilience to interest-rate changes,
turning in strong monthly returns and outperforming higher-quality
sectors. As the new calendar year began, low inflation, an accommodative
Federal Reserve monetary policy, and weak jobs data combined to push
bond prices up and yields down. The high-yield market followed suit, as
default rates continued to decline and higher corporate profits and cash
flows -- the byproduct of the economic recovery -- helped improve
corporate balance sheets.
During April and May, however, we saw increasing evidence that the U.S.
recovery was steaming along and that the lackluster jobs market was
finally springing to life. Strong employment gains caused a sharp
sell-off of Treasuries in April, as investors factored in a high
probability of a Federal Reserve rate hike in June, with others to
follow in subsequent months. Some high-yield investors took this as a
signal to reduce exposure to the sector during the latter part of April
and May, causing a widening of credit spreads.
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MARKET SECTOR PERFORMANCE 6 MONTHS ENDED 5/31/04
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Bonds
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JP Morgan Global High Yield Index (global high-yield
corporate bonds) 3.29%
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Lehman Aggregate Bond Index (broad bond market) 0.60%
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Lehman GNMA Index (Government National Mortgage Association
bonds) 0.71%
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Lehman Municipal Bond Index (tax-exempt bonds) -0.22%
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Equities
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S&P 500 Index (broad stock market) 6.79%
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Russell 2000 Index (stocks of small and midsize companies) 4.53%
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MSCI EAFE Index (international stocks) 10.32%
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These indexes provide an overview of performance in different market
sectors for the six months ended 5/31/04.
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Strategy overview
During the past six months, we continued to seek bonds from a diverse
variety of sectors in our efforts to enhance the fund's performance
while managing its risk exposure. In late 2002, we began a long-term
strategy of gradually increasing the weighting, relative to the fund's
benchmark, of lower-rated (i.e., lower-quality) bonds in the portfolio
- -- which continued throughout this semiannual period. As a result,
during the past six months, the fund was overweighted, relative to its
benchmark index, in the higher-yielding, lower-quality portion of the
high-yield market. We saw two key advantages to this strategy. First,
with the improvement in the economy, companies that issued lower-quality
bonds were seeing improvements in their businesses, reducing the risk
that they would be unable to make interest payments on their debt. As
the business prospects and financial results of these companies
improved, their credit ratings also rose and their bonds appreciated in
price. Secondly, with interest rates in the high-yield market having
declined over the past several years, lower-quality bonds have provided
higher yields.
These lower-quality holdings have also provided strong price
appreciation due to the improving credit quality of their issuers.
Finally, higher-yielding, lower-quality bonds are typically less
sensitive to rising interest rates than Treasuries, and this has been
the case during the period.
At this point, we have begun to consider reducing the fund's overweight
to the lower-rated part of the high-yield market, as we believe the
market is transitioning from a period of extremely strong returns to one
of more stable, moderate returns.
[GRAPHIC OMITTED: horizontal bar chart TOP SECTOR WEIGHTINGS COMPARED]
TOP SECTOR WEIGHTINGS COMPARED
as of 11/30/03 as of 5/31/04
Consumer cyclicals 22.2% 23.5%
Consumer staples 11.9% 12.4%
Basic materials 8.1% 10.8%
Utilities and power 8.5% 9.1%
Capital goods 8.2% 7.8%
Footnote reads:
This chart shows how the fund's top weightings have changed over the
last six months. Weightings are shown as a percentage of net assets.
Holdings will vary over time.
How fund holdings affected performance
In comparison to the benchmark index, your fund did not substantially
overweight or underweight any specific sectors during the period.
Instead, we focused on selecting high-yielding bonds issued by companies
we felt had solid balance sheets and were able to maintain a steady
stream of payments. By carefully researching each issue, we also sought
to avoid underperforming companies (although this objective is not
guaranteed to be successful). Market sectors that saw strong performance
during the period included manufacturing, metals, transportation,
chemicals, and financials, and the fund generally participated in these
gains. The strength of the overall market, combined with lower interest
rates, also allowed companies to refinance their debt. The fund
benefited from some refinancings in which portfolio holdings were
redeemed at prices above par (the amount due at maturity), providing the
fund with a profit. Examples included bonds issued by Samsonite, the
luggage maker, and Sealy, the well-known mattress company.
[GRAPHIC OMITTED: TOP HOLDINGS]
TOP HOLDINGS
1 Neon Capital, Ltd. 144A
Limited recourse secured notes,
Ser. 96, 1.458%, 2013
Asset-backed securities
2 Qwest Corp. 144A
Notes, 9.125%, 2012
Communications services
3 Canadian Imperial Bank of Commerce
Notes, 1.1%, 2004
Financial
4 Equistar Chemicals LP/
Equistar Funding Corp.
Company guaranty, 10.125%, 2008
Basic materials
5 NRG Energy, Inc. 144A
Senior secured notes, 8%, 2013
Utilities and power
6 MCI, Inc.
Senior notes, 7.735%, 2014
Communications services
7 Trump Casino Holdings, LLC
Company guaranty, 12.625%, 2010
Gaming and lottery
8 CSC Holdings, Inc.
Debentures, 7.625%, 2018
Cable television
9 Lyondell Chemical Co.
Notes, Ser. A, 9.625%, 2007
Basic materials
10 Dynegy Holdings, Inc. 144A
Secured notes, 10.125%, 2013
Utilities and power
Footnote reads:
These holdings represented 6.5% of the fund's net assets as of 5/31/04.
The fund's holdings will change over time.
Among the fund's larger positions, Charter Communications was a key
contributor. While the firm faced competitive and financial pressures,
the company met expectations and management's moves to refinance debt
eased investor concerns about the company's liquidity.
The fund's sizeable stake in the chemicals sector also boosted returns,
including investments in Huntsman International, a major producer of
basic chemicals and petrochemicals like ethylene and propylene. Although
energy prices were high, leading to skepticism about the sector's
prospects, this cyclical sector benefited from the improving economy.
Among the detractors from performance during the period were securities
issued by Qwest Communications, a large telecommunications provider that
has come under competitive pressures in the local telephone market. In
addition, Trico Marine Services, an energy services company, performed
poorly and its bonds defaulted. We continue to hold on to the Qwest
position because we believe there is value in the company. We sold the
fund's position in the Trico bonds that had defaulted, but the fund
retains a position in a Trico bank term loan, which is not in default.
Please note that all holdings 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 the team are Stephen Peacher (Portfolio Leader), Norm Boucher
(Portfolio Member), Paul Scanlon (Portfolio Member), Rosemary Thomsen
(Portfolio Member), Jeffrey Kaufman, Geoffrey Kelley, Neal Reiner,
Robert Salvin, 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.
After strong performance in 2003, we believe the high-yield market has
entered a new stage. The fundamental backdrop to the market remains
positive, with continuing declines in the default rate and a
strengthening economy, but last year's dramatic rally in prices
reflected much of this good news. Going forward, we believe gains will
be derived primarily from the yield advantage that this sector provides
over other types of fixed-income securities, as well as from continued
improvements in credit quality.
While large gains have already been achieved, we believe the high-yield
market appears likely to outperform higher-quality bond sectors for the
foreseeable future, because high-yield bonds have tended to perform
better when interest rates have risen than Treasuries and other
higher-rated bonds. Although the valuations of high-yield bonds have
increased substantially, we believe the market is still fairly valued in
a historical context. The yield difference, or spread, over Treasuries,
which is a primary indicator of this sector's value, has narrowed
considerably in the past year (indicating rising value for high-yield
bonds relative to other bond sectors), but we believe that continued
spread-narrowing is possible, especially given that Treasury yields are
expected to increase. Such narrowing would be a positive indicator for
the high-yield market.
Of course, we remain vigilant about market and economic events, and will
keep the portfolio as diverse as possible across industry sectors and
individual holdings to mitigate the effects of market volatility caused
by potentially higher interest rates.
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. This fund may have a
significant portion of its holdings in bonds. Mutual funds that invest
in bonds are subject to certain risks, including interest-rate risk,
credit risk, and inflation risk. As interest rates rise, the prices of
bonds fall. Long-term bonds are more exposed to interest-rate risk than
short-term bonds. Unlike bonds, bond funds have ongoing fees and
expenses. The fund is closed to new investors.
Performance summary
This section shows your fund's performance during the first half of its
fiscal year, which ended May 31, 2004. 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. Data represents past performance. Past
performance does not guarantee 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. For the most recent month-end performance, please visit
www.putnaminvestments.com.
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TOTAL RETURN FOR PERIODS ENDED 5/31/04
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Class A Class B Class M
(inception dates) (3/25/86) (5/16/94) (12/1/94)
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NAV POP NAV CDSC NAV POP
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6 months 2.90% -1.93% 2.54% -2.42% 2.79% -0.58%
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1 year 13.19 7.79 12.28 7.28 12.73 9.03
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5 years 20.12 14.40 15.21 13.80 19.12 15.19
Annual average 3.73 2.73 2.87 2.62 3.56 2.87
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10 years 64.71 56.93 52.22 52.22 61.36 56.16
Annual average 5.12 4.61 4.29 4.29 4.90 4.56
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Annual average (life
of fund) 7.58 7.29 6.64 6.64 7.28 7.08
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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 (which
for class A shares does not reflect a reduction in sales charge that
went into effect on January 28, 2004; if this reduction had been in
place for all periods indicated, returns would have been higher.) 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.
A 2% short-term trading fee will be imposed on shares exchanged or sold
within 5 days of purchase. In addition, there is a 1% short-term trading
fee for this fund on shares sold or exchanged between 6 and 90 days.
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/04
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JP Morgan Global Lipper High Current
High Yield Yield Funds category
Index average++
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6 months 3.29% 2.14%
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1 year 13.24 10.89
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5 years 30.80 17.04
Annual average 5.52 2.99
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10 years 108.10 67.07
Annual average 7.60 5.13
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Annual average
(life of fund) --+ 7.04
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Index and Lipper results should be compared to fund performance at net
asset value.
+ This index began operations on 12/31/93.
++ Over the 6-month and 1-, 5-, and 10-year periods ended 5/31/04, there
were 427, 411, 269, and 81 funds, respectively, in this Lipper
category.
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PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 5/31/04
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Class A Class B Class M
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Distributions (number) 6 6 6
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Income $0.222 $0.199 $0.216
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Capital gains -- -- --
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Total $0.222 $0.199 $0.216
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Share value: NAV POP NAV NAV POP
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11/30/03 $5.88 $6.17 $5.81 $5.89 $6.09
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5/31/04 5.83 6.10* 5.76 5.84 6.04
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Current return (end of period)
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Current dividend rate 1 7.62% 7.28% 6.88% 7.40% 7.15%
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Current 30-day SEC yield 2 6.46 6.17 5.71 6.15 6.01
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* Reflects a reduction in sales charges that took effect on January 28,
2004.
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.
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TOTAL RETURN FOR PERIODS ENDED 6/30/04 (MOST RECENT CALENDAR QUARTER)
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Class A Class B Class M
(inception dates) (3/25/86) (5/16/94) (12/1/94)
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NAV POP NAV CDSC NAV POP
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6 months 1.72% -3.13% 1.51% -3.39% 1.61% -1.67%
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1 year 11.44 6.22 10.51 5.50 10.99 7.42
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5 years 21.50 15.68 16.56 15.13 20.49 16.62
Annual average 3.97 2.96 3.11 2.86 3.80 3.12
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10 years 67.17 59.20 54.43 54.43 63.74 58.41
Annual average 5.27 4.76 4.44 4.44 5.05 4.71
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Annual average
(life of fund) 7.62 7.34 6.68 6.68 7.32 7.12
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Understanding your
fund's expenses
As a mutual fund investor, you pay ongoing expenses, such as management
fees, distribution fees (12b-1 fees), and other expenses. Using the
information below, you can estimate how these expenses affect your
investment and compare them with the expenses of other funds. You may
also pay one-time transaction expenses, including sales charges (loads)
and redemption fees, which are not shown in this section and would have
resulted in higher total expenses. For more information, see your fund's
prospectus or talk to your financial advisor.
Review your fund's expenses
The table below shows the expenses you would have paid on a $1,000
investment in Putnam High Yield Advantage Fund from December 1, 2003, to
May 31, 2004. It also shows how much a $1,000 investment would be worth
at the close of the period, assuming actual returns and expenses.
EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming actual returns for the 6 months ended 5/31/04
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Class A Class B Class M
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Expenses paid per
$1,000* $5 $9 $7
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Ending value (after
expenses) $1,029 $1,025 $1,028
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* Expenses for each share class are calculated using the fund's
annualized expense ratio for each class, which represents the ongoing
expenses as a percentage of net assets for the six months ended 5/31/04.
The expense ratio may differ for each share class (see the table at the
bottom of the next page). Expenses are calculated by multiplying the
expense ratio by the average account value for the period; then
multiplying the result by the number of days in the period; and then
dividing that result by the number of days in the year.
Estimate the expenses you paid
To estimate the ongoing expenses you paid for the six months ended May
31, 2004, use the calculation method below. To find the value of your
investment on December 1, 2003, go to www.putnaminvestments.com and log
on to your account. Click on the "Transaction History" tab in your Daily
Statement and enter 12/01/2003 in both the "from" and "to" fields.
Alternatively, call Putnam at 1-800-225-1581.
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HOW TO CALCULATE THE EXPENSES YOU PAID
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Total
Value of your Expenses paid expenses
investment on 12/1/03 [DIV] $1,000 X per $1,000 = paid
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Example Based on a $10,000 investment in class A shares of your fund.
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$10,000 [DIV] $1,000 X $5 (see table above) = $50
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Comparing your fund's expenses with those of other funds
Using the SEC's method to compare expenses
The Securities and Exchange Commission (SEC) has established guidelines
to help investors assess fund expenses. Per these guidelines, the table
below shows your fund's expenses based on a $1,000 investment, assuming
a hypothetical 5% annualized return. You can use this information to
compare the ongoing expenses (but not transaction expenses or total
costs) of investing in the fund with those of other funds. All mutual
fund shareholder reports will provide this information to help you make
this comparison. Please note that you cannot use this information to
estimate your actual ending account balance and expenses paid during the
period.
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EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming a hypothetical 5% annualized return for the 6 months ended 5/31/04
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Class A Class B Class M
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Expenses paid per $1,000* $5 $9 $7
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Ending value (after expenses) $1,020 $1,016 $1,018
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* Expenses for each share class are calculated using the fund's
annualized expense ratio for each class, which represents the ongoing
expenses as a percentage of net assets for the six months ended 5/31/04.
The expense ratio may differ for each share class (see the table at the
bottom of this page). Expenses are calculated by multiplying the expense
ratio by the average account value for the period; then multiplying the
result by the number of days in the period; and then dividing that
result by the number of days in the year.
Using industry averages to compare expenses
You can also compare your fund's expenses with industry averages, as
determined by Lipper, an independent fund-rating agency that ranks funds
relative to others that Lipper considers to have similar investment
styles or objectives. The expense ratio for each share class shown below
indicates how much of your fund's net assets have been used to pay
ongoing expenses during the period.
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EXPENSE RATIO COMPARISONS USING ANNUALIZED DATA
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Class A Class B Class M
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Your fund's annualized
expense ratio 1.08% 1.83% 1.33%
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Average annualized expense
ratio for Lipper peer group+ 1.14% 1.89% 1.39%
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+ For class A shares, expenses shown represent the average of the
expenses of front-end load funds viewed by Lipper as having the same
investment classification or objective as the fund, calculated in
accordance with Lipper's standard reporting methodology for comparing
expenses within a given universe. All Lipper data is for the most recent
fiscal periods available as of 3/31/04. For class B and M shares, Putnam
has adjusted the Lipper total expense average to reflect higher 12b-1
fees incurred by these classes of shares. The peer group may include
funds that are significantly larger or smaller than the fund, which may
limit the comparability of the fund's expenses to the Lipper average.
Risk comparison
As part of new initiatives to enhance disclosure, we are including a
risk comparison to help you understand how your fund compares with other
funds. The comparison utilizes a risk measure developed by Morningstar,
an independent fund-rating agency. This risk measure is referred to as
the fund's Overall Morningstar Risk.
[GRAPHIC OMITTED: chart MORNINGSTAR [REGISTRATION MARK] RISK]
MORNINGSTAR [REGISTRATION MARK] RISK
Fund's Overall
Morningstar Risk 0.62
Taxable bond
fund average 0.33
0% Increasing Risk 100%
Your fund's Overall Morningstar Risk is shown alongside that of the
average fund in its broad asset class, as determined by Morningstar. The
risk bar broadens the comparison by translating the fund's Overall
Morningstar Risk into a percentile, which is based on the fund's ranking
among all funds rated by Morningstar as of 6/30/04. A higher Overall
Morningstar Risk generally indicates that a fund's monthly returns have
varied more widely.
Morningstar determines a fund's Overall Morningstar Risk by assessing
variations in the fund's monthly returns -- with an emphasis on downside
variations -- over 3-, 5-, and 10-year periods, if available. Those
measures are weighted and averaged to produce the fund's Overall
Morningstar Risk. The information shown is provided for the fund's class
A shares only; information for other classes may vary. Overall
Morningstar Risk is based on historical data and does not indicate
future results. Morningstar does not purport to measure the risk
associated with a current investment in a fund, either on an absolute
basis or on a relative basis. Low Overall Morningstar Risk does not mean
that you cannot lose money on an investment in a fund. Copyright 2004
Morningstar, Inc. All Rights Reserved. The information contained herein
(1) is proprietary to Morningstar and/or its content providers; (2) may
not be copied or distributed; and (3) is not warranted to be accurate,
complete, or timely. Neither Morningstar nor its content providers are
responsible for any damages or losses arising from any use of this
information.
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 (since reduced to 4.50%) 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 used to mirror
the investable universe of the U.S. dollar global high-yield corporate
debt market of both developed and emerging markets.
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 Government National Mortgage
Association bonds.
Lehman Municipal Bond Index is an unmanaged index of long-term
fixed-rate investment-grade tax-exempt bonds.
Morgan Stanley Capital International (MSCI) EAFE Index is an unmanaged
index of international stocks from Europe, Australasia, and the Far
East.
Russell 2000 Index is an unmanaged index of common stocks that generally
measure performance of small to midsize companies within the Russell
3000 Index.
S&P 500 Index is an unmanaged index of common stock performance.
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 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.
Putnam is committed to managing our mutual funds in the best interests
of our shareholders. Our proxy voting guidelines and policies are
available on the Putnam Individual Investor Web site,
www.putnaminvestments.com, by calling Putnam's Shareholder Services at
1-800-225-1581, or on the SEC's Web site, www.sec.gov.
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, 2004 (Unaudited)
Corporate bonds and notes (89.3%) (a)
Principal amount Value
Advertising and Marketing Services (0.1%)
- -------------------------------------------------------------------------------
$1,715,000 Lamar Media Corp. company guaranty
7 1/4s, 2013 $1,762,163
Automotive (2.7%)
- -------------------------------------------------------------------------------
1,145,000 ArvinMeritor, Inc. notes 8 3/4s,
2012 1,228,013
3,880,000 Collins & Aikman Products company
guaranty 10 3/4s, 2011 3,841,200
675,000 Dana Corp. notes 10 1/8s, 2010 762,750
4,875,000 Dana Corp. notes 9s, 2011 5,520,938
820,000 Dana Corp. notes 7s, 2029 754,400
750,000 Delco Remy International, Inc.
company guaranty 11s, 2009 787,500
1,800,000 Delco Remy International, Inc. 144A
sr. sub. notes 9 3/8s, 2012 1,741,500
760,000 Dura Operating Corp. company
guaranty Ser. B, 8 5/8s, 2012 761,900
1,470,000 Dura Operating Corp. company
guaranty Ser. D, 9s, 2009 1,425,900
1,165,000 Federal Mogul Corp. bank term loan
FRN Ser. A, 3.35s, 2005 (acquired
10/29/03, cost $958,213) (RES) 1,067,068
2,700,000 Federal Mogul Corp. bank term loan
FRN Ser. B, 3.6s, 2005 (acquired
10/29/03, cost $2,220,750) (RES) 2,473,033
265,552 Hayes Lemmerz International, Inc.
bank term loan FRN 4.99s,
2009 (acquired 6/3/03, cost
$262,897) (RES) 268,540
1,675,000 Lear Corp. company guaranty Ser. B,
8.11s, 2009 1,912,684
1,620,000 Meritor Automotive, Inc. notes 6.8s,
2009 1,644,300
2,525,000 Metaldyne Corp. 144A sr. notes 10s,
2013 2,436,625
45,000 Plastech 2nd. lien bank term loan
FRN 5.79s, 2011 (acquired 2/9/04,
cost $45,000) (RES) 45,506
154,785 Tenneco Automotive, Inc. bank term
loan FRN 4.36s, 2010 (acquired
12/10/03, cost $154,785) (RES) 156,977
69,828 Tenneco Automotive, Inc. bank term
loan FRN 4.35s, 2010 (acquired
12/10/03, cost $69,828) (RES) 70,817
5,020,000 Tenneco Automotive, Inc. sec. notes
Ser. B, 10 1/4s, 2013 5,572,200
210,000 TRW Automotive bank term loan FRN
3.438s, 2011 (acquired 1/7/04, cost
$210,000) (RES) 212,850
--------------
32,684,701
Basic Materials (9.6%)
- -------------------------------------------------------------------------------
2,150,000 Acetex Corp. sr. notes 10 7/8s, 2009
(Canada) 2,332,750
190,000 AK Steel Corp. company guaranty
7 7/8s, 2009 170,525
1,680,000 AK Steel Corp. company guaranty
7 3/4s, 2012 1,470,000
1,175,000 Appleton Papers, Inc. company
guaranty Ser. B, 12 1/2s, 2008 1,410,000
2,730,000 Armco, Inc. sr. notes 8 7/8s, 2008 2,525,250
2,110,000 Avecia Group PLC company guaranty
11s, 2009 (United Kingdom) 1,540,300
2,440,000 Better Minerals & Aggregates Co.
company guaranty 13s, 2009 1,952,000
447,750 Buckeye Technologies, Inc. bank term
loan FRN 3.65s, 2010 (acquired
11/20/03 and 11/21/03, cost
$450,000) (RES) 451,668
2,255,000 Compass Minerals Group, Inc. company
guaranty 10s, 2011 2,503,050
1,000,000 Compass Minerals International, Inc.
sr. disc. notes stepped-coupon zero %
(12s, 6/1/08), 2013 (STP) 740,000
3,060,000 Compass Minerals International, Inc.
sr. notes stepped-coupon zero %
(12 3/4s, 12/15/07), 2012 (STP) 2,417,400
5,053,074 Doe Run Resources Corp. company
guaranty Ser. A1, 11 3/4s,
2008 (acquired various dates from
11/29/02 to 5/12/04, cost
$2,956,684) (RES) (PIK) 3,082,375
750,000 Equistar Chemicals LP notes 8 3/4s,
2009 776,250
6,685,000 Equistar Chemicals LP/Equistar
Funding Corp. company guaranty
10 1/8s, 2008 7,253,225
485,000 Equistar Chemicals LP/Equistar
Funding Corp. sr. notes 10 5/8s,
2011 532,288
1,330,000 Four M Corp. sr. notes Ser. B, 12s,
2006 1,336,650
3,000,000 Georgia-Pacific Corp. bonds 7 3/4s,
2029 2,790,000
610,000 Georgia-Pacific Corp. company
guaranty 8 7/8s, 2010 678,625
1,750,000 Georgia-Pacific Corp. debs. 7.7s,
2015 1,802,500
2,000 Georgia-Pacific Corp. sr. notes
7 3/8s, 2008 2,105
2,630,000 Gerdau Ameristeel Corp. sr. notes
10 3/8s, 2011 (Canada) 2,893,000
298,500 Graphics Packaging bank term loan
FRN 3.86s, 2010 (acquired 8/6/03,
cost $298,500) (RES) 301,920
525,000 Hercules, Inc. bank term loan FRN
3.61s, 2010 (acquired 4/7/04, cost
$525,000) (RES) 530,906
4,715,000 Hercules, Inc. company guaranty
11 1/8s, 2007 5,492,975
2,610,000 Hercules, Inc. 144A sr. sub. notes
6 3/4s, 2029 2,453,400
675,000 Huntsman Advanced Materials, LLC
144A sec. FRN 10s, 2008 682,594
135,000 Huntsman Advanced Materials, LLC
144A sec. notes 11s, 2010 150,188
1,985,000 Huntsman Co., LLC 144A sr. disc.
notes zero %, 2008 1,141,375
1,308,840 Huntsman Corp. bank term loan FRN
Ser. A, 5.938s, 2007 (acquired
various dates from 7/17/02 to
9/24/03, cost $1,191,644) (RES) 1,294,817
873,023 Huntsman Corp. bank term loan FRN
Ser. B, 10.1875s, 2007 (acquired
various dates from 3/28/02 to
9/24/03, cost $785,540) (RES) 864,293
2,880,000 Huntsman ICI Chemicals, Inc. company
guaranty 10 1/8s, 2009 2,966,400
6,255,000 Huntsman ICI Holdings sr. disc.
notes zero %, 2009 3,064,950
EUR 1,585,000 Huntsman International, LLC sr. sub.
notes Ser. EXCH, 10 1/8s, 2009 1,896,735
$1,460,000 Huntsman LLC company guaranty
11 5/8s, 2010 1,573,150
440,000 International Steel Group, Inc. 144A
sr. notes 6 1/2s, 2014 410,300
3,255,000 ISP Chemco, Inc. company guaranty
Ser. B, 10 1/4s, 2011 3,621,188
1,545,000 Kaiser Aluminum & Chemical Corp. sr.
sub. notes 12 3/4s, 2003 (In
default) (DEF) (NON) 139,050
255,000 Lyondell Chemical Co. bonds 11 1/8s,
2012 279,225
2,000,000 Lyondell Chemical Co. company
guaranty 9 1/2s, 2008 2,060,000
5,760,000 Lyondell Chemical Co. notes Ser. A,
9 5/8s, 2007 6,019,200
EUR 145,000 MDP Acquisitions PLC sr. notes
10 1/8s, 2012 (Ireland) 188,568
$2,780,000 MDP Acquisitions PLC sr. notes
9 5/8s, 2012 (Ireland) 3,016,300
1,393,824 MDP Acquisitions PLC sub. notes
15 1/2s, 2013 (Ireland) (PIK) 1,575,021
3,260,000 Millennium America, Inc. company
guaranty 9 1/4s, 2008 3,455,600
925,000 Millennium America, Inc. 144A sr.
notes 9 1/4s, 2008 980,500
264,793 Nalco Co. bank term loan FRN Ser. B,
3.629s, 2010 (acquired 11/6/03,
cost $264,793) (RES) 265,308
915,000 Nalco Co. 144A sr. notes 7 3/4s,
2011 956,175
EUR 290,000 Nalco Co. 144A sr. notes 7 3/4s,
2011 362,264
EUR 290,000 Nalco Co. 144A sr. sub. notes 9s,
2013 359,254
3,710,000 Nalco Co. 144A sr. sub. notes
8 7/8s, 2013 3,876,950
1,375,000 Norske Skog Canada 144A sr. notes
7 3/8s, 2014 (Canada) 1,344,562
2,115,330 Noveon International bonds 13s, 2011 2,242,249
476,488 PCI Chemicals Canada sec. sr. notes
10s, 2008 (Canada) 447,899
1,746,842 Pioneer Companies, Inc. sec. FRN
4.61s, 2006 1,650,766
2,190,000 Potlatch Corp. company guaranty 10s,
2011 2,409,000
1,445,000 Resolution Performance Products, LLC
sec. notes 8s, 2009 1,484,738
85,000 Resolution Performance Products, LLC
sr. notes 9 1/2s, 2010 86,913
EUR 35,000 Rhodia SA unsub. Ser. EMTN, 6 1/4s,
2005 (France) 43,615
EUR 1,565,000 SGL Carbon SA 144A sr. notes 8 1/2s,
2012 (Luxembourg) 1,852,735
$270,000 SGL Carbon, LLC bank term loan FRN
4.22s, 2009 (acquired 2/26/04, cost
$271,350) (RES) 270,000
590,000 Smurfit-Stone Container Corp.
company guaranty 8 1/4s, 2012 606,225
135,000 Smurfit-Stone Container Corp.
company guaranty 7 1/2s, 2013 132,300
299,250 St. Mary's Cement Corp. bank term
loan FRN 3.61s, 2009 (acquired
11/26/03, cost $299,250) (RES) 302,804
1,370,000 Steel Dynamics, Inc. company
guaranty 9 1/2s, 2009 1,500,150
644,388 Sterling Chemicals, Inc. sec. notes
10s, 2007 (PIK) 612,169
3,810,000 Stone Container Corp. sr. notes
8 3/8s, 2012 3,924,300
3,090,000 Ucar Finance, Inc. company guaranty
10 1/4s, 2012 3,445,350
1,435,000 United Agri Products 144A sr. notes
8 1/4s, 2011 1,607,200
1,149,000 United States Steel, LLC sr. notes
10 3/4s, 2008 1,298,370
1,125,000 WCI Steel, Inc. sr. notes Ser. B,
10s, 2004 (In default) (NON) 562,500
545,000 Wellman 1st. lien bank term loan FRN
6s, 2009 (acquired 2/4/04, cost
$545,000) (RES) 552,266
955,000 Wellman 2nd. lien bank term loan FRN
8 3/4s, 2010 (acquired 2/4/04, cost
$935,900) (RES) 932,717
136,940 Wheeling-Pittsburgh Steel Corp. sr.
notes 6s, 2010 82,164
273,881 Wheeling-Pittsburgh Steel Corp. sr.
notes 5s, 2011 164,329
1,670,000 WHX Corp. sr. notes 10 1/2s, 2005 1,503,000
--------------
117,696,888
Beverage (0.2%)
- -------------------------------------------------------------------------------
173,440 Constellation Brands, Inc. bank term
loan FRN 3.213s, 2008 (acquired
11/3/03, cost $173,440) (RES) 175,717
1,640,000 Constellation Brands, Inc. company
guaranty Ser. B, 8s, 2008 1,767,100
145,000 Constellation Brands, Inc. sr. sub.
notes Ser. B, 8 1/8s, 2012 152,250
--------------
2,095,067
Broadcasting (1.8%)
- -------------------------------------------------------------------------------
231,257 DirecTV bank term loan FRN Ser. B,
3.399s, 2010 (acquired 3/4/03 and
8/5/03, cost $231,257) (RES) 234,263
3,765,000 DirecTV Holdings, LLC sr. notes
8 3/8s, 2013 4,160,325
12,449,000 Diva Systems Corp. sr. disc. notes
Ser. B, 12 5/8s, 2008 (In default)
(NON) 31,123
250,000 Echostar DBS Corp. FRN 4.49s, 2008 258,438
3,655,000 Echostar DBS Corp. sr. notes 9 1/8s,
2009 4,002,225
5,850,000 Echostar DBS Corp. sr. notes 6 3/8s,
2011 5,718,375
5,350,000 Granite Broadcasting Corp. 144A sec.
notes 9 3/4s, 2010 5,095,875
1,615,000 Pegasus Satellite sr. notes 12 3/8s,
2006 791,350
277,000 Young Broadcasting, Inc. company
guaranty 10s, 2011 285,656
1,330,000 Young Broadcasting, Inc. 144A sr.
sub. notes 8 3/4s, 2014 1,296,750
--------------
21,874,380
Building Materials (0.8%)
- -------------------------------------------------------------------------------
1,450,000 Building Materials Corp. company
guaranty 8s, 2008 1,442,750
2,166,000 Dayton Superior Corp. sec. notes
10 3/4s, 2008 2,122,680
805,000 Interface, Inc. 144A sr. sub. notes
9 1/2s, 2014 798,963
2,230,000 Nortek Holdings, Inc. 144A sr. notes
stepped-coupon zero % (10s,
11/15/07), 2011 (STP) 1,672,500
1,355,000 Nortek, Inc. sr. sub. notes Ser. B,
9 7/8s, 2011 1,500,663
1,470,000 Owens Corning bonds 7 1/2s, 2018 (In
default) (NON) 588,000
2,620,000 Owens Corning notes 7 1/2s, 2005 (In
default) (NON) 1,048,000
--------------
9,173,556
Cable Television (3.7%)
- -------------------------------------------------------------------------------
40,000 Adelphia Communications Corp. notes
Ser. B, 9 7/8s, 2005 (In default)
(NON) 41,200
200,000 Adelphia Communications Corp. sr.
notes 10 7/8s, 2010 (In default)
(NON) 209,500
3,027,000 Adelphia Communications Corp. sr.
notes 7 7/8s, 2009 (In default)
(NON) 2,981,595
1,119,000 Adelphia Communications Corp. sr.
notes Ser. B, 9 7/8s, 2007 (In
default) (NON) 1,152,570
451,000 Adelphia Communications Corp. sr.
notes Ser. B, 7 3/4s, 2009 (In
default) (NON) 451,000
1,530,000 Atlantic Broadband Finance, LLC 144A
sr. sub. notes 9 3/8s, 2014 1,430,550
4,875,000 Cablevision Systems Corp. 144A sr.
notes 8s, 2012 4,826,250
2,290,000 Century Cable Holdings bank term
loan FRN 6s, 2009 (acquired various
dates from 5/20/02 to 6/5/02, cost
$2,017,175) (RES) 2,220,345
360,000 Charter bank term loan FRN 4.42s,
2011 (acquired 4/21/04, cost
$360,000) (RES) 355,590
285,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (12 1/8s,
1/15/07), 2012 (STP) 171,000
5,959,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
11 1/8s, 2011 5,184,330
4,921,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
10 3/4s, 2009 4,281,270
5,415,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 10s,
2011 4,426,763
1,950,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 9 5/8s,
2009 1,628,250
6,410,000 CSC Holdings, Inc. debs. 7 5/8s,
2018 6,025,400
880,000 CSC Holdings, Inc. sr. notes 7 7/8s,
2007 915,200
2,005,000 Mediacom LLC/Mediacom Capital Corp.
sr. notes 9 1/2s, 2013 1,934,825
1,670,000 Olympus Cable bank term loan FRN
Ser. B, 6s, 2010 (acquired 5/20/02,
cost $1,451,825) (RES) 1,619,601
3,480,000 Quebecor Media, Inc. sr. notes
11 1/8s, 2011 (Canada) 3,941,100
1,175,000 Videotron Ltee company guaranty
6 7/8s, 2014 (Canada) 1,157,375
--------------
44,953,714
Capital Goods (7.8%)
- -------------------------------------------------------------------------------
2,892,000 AEP Industries, Inc. sr. sub. notes
9 7/8s, 2007 2,935,380
416,550 AGCO Corp. bank term loan FRN
3.405s, 2008 (acquired 12/3/03,
cost $416,550) (RES) 422,278
234,884 Allied Waste Industries, Inc. bank
term loan FRN 3.888s, 2010 (acquired
4/25/03, cost $234,884) (RES) 237,967
39,643 Allied Waste Industries, Inc. bank
term loan FRN Ser. C, 1.09s,
2010 (acquired 4/25/03, cost
$39,643) (RES) 40,174
1,660,000 Allied Waste North America, Inc.
company guaranty Ser. B, 8 1/2s,
2008 1,792,800
160,000 Allied Waste North America, Inc.
company guaranty Ser. B, 7 5/8s,
2006 167,200
2,170,000 Allied Waste North America, Inc.
144A sec. notes 6 1/2s, 2010 2,099,475
397,000 Amsted Industries bank term loan FRN
5.102s, 2010 (acquired 8/12/03,
cost $395,015) (RES) 400,970
5,240,000 Argo-Tech Corp. company guaranty
8 5/8s, 2007 5,338,250
550,000 Argo-Tech Corp. company guaranty
Ser. D, 8 5/8s, 2007 560,313
1,362,000 BE Aerospace, Inc. sr. sub. notes
Ser. B, 8 7/8s, 2011 1,280,280
3,740,000 BE Aerospace, Inc. sr. sub. notes
Ser. B, 8s, 2008 3,534,300
3,344,000 Blount, Inc. company guaranty 13s,
2009 3,527,920
1,759,000 Blount, Inc. company guaranty 7s,
2005 1,794,180
4,780,000 Browning-Ferris Industries, Inc.
debs. 7.4s, 2035 4,039,100
1,090,000 Browning-Ferris Industries, Inc. sr.
notes 6 3/8s, 2008 1,100,900
EUR 270,000 Crown Holdings SA bonds 10 1/4s,
2011 (France) 356,073
$2,375,000 Crown Holdings SA notes 10 7/8s,
2013 (France) 2,660,000
4,520,000 Crown Holdings SA notes 9 1/2s, 2011
(France) 4,904,200
5,000,000 Decrane Aircraft Holdings Co.
company guaranty Ser. B, 12s, 2008 3,250,000
286,363 EaglePicher bank term loan FRN
4.11s, 2009 (acquired 8/6/03, cost
$288,113) (RES) 288,153
1,330,000 Earle M. Jorgensen Co. sec. notes
9 3/4s, 2012 1,449,700
1,355,000 FIMEP SA sr. notes 10 1/2s, 2013
(France) 1,517,600
422,481 Flowserve Corp. bank term loan FRN
Ser. C, 3 7/8s, 2009 (acquired
4/30/02 and 2/26/04, cost $425,056)
(RES) 426,283
1,741,000 Flowserve Corp. company guaranty
12 1/4s, 2010 1,967,330
191,250 Goodman Manufacturing bank term loan
FRN 3 1/4s, 2009 (acquired
11/20/03, cost $191,250) (RES) 193,402
460,000 Hexcel Corp. sr. sub. notes 9 3/4s,
2009 479,550
DEM 2,685,000 Impress Metal Packaging Holding NV
sr. sub. notes 9 7/8s,
2007 (Netherlands) 1,498,656
$180,000 Invensys, PLC bank term loan FRN
4.611s, 2009 (acquired 3/11/04,
cost $179,550) (United Kingdom)
(RES) 180,900
3,395,000 Invensys, PLC notes 9 7/8s, 2011
(United Kingdom) 3,361,050
829,500 JII Holdings, LLC 144A sec. notes
13s, 2007 746,550
2,055,000 K&F Industries, Inc. sr. sub. notes
Ser. B, 9 5/8s, 2010 2,250,225
486,000 K&F Industries, Inc. sr. sub. notes
Ser. B, 9 1/4s, 2007 493,290
1,260,000 L-3 Communications Corp. company
guaranty 6 1/8s, 2013 1,178,100
3,850,000 Legrand SA debs. 8 1/2s, 2025
(France) 3,965,500
290,000 Manitowoc Co., Inc. (The) company
guaranty 10 1/2s, 2012 324,800
EUR 670,000 Manitowoc Co., Inc. (The) company
guaranty 10 3/8s, 2011 883,588
$865,000 Manitowoc Co., Inc. (The) sr. notes
7 1/8s, 2013 865,000
595,000 Motors and Gears, Inc. sr. notes
Ser. D, 10 3/4s, 2006 499,800
216,743 Mueller Group bank term loan FRN
4.35s, 2011 (acquired 4/22/04, cost
$216,743) (RES) 217,827
645,000 Mueller Group Inc. 144A sec. FRN
5.919s, 2011 661,125
900,000 Mueller Group Inc. 144A sr. sub.
notes 10s, 2012 922,500
2,725,000 Owens-Brockway Glass company
guaranty 8 1/4s, 2013 2,711,375
1,970,000 Owens-Brockway Glass company
guaranty 7 3/4s, 2011 2,009,400
2,775,000 Owens-Brockway Glass sr. sec. notes
8 3/4s, 2012 2,920,688
233,130 Pike Electric bank term loan FRN
4 3/8s, 2010 (acquired 2/27/04,
cost $236,336) (RES) 235,462
1,430,000 Pliant Corp. sec. notes 11 1/8s,
2009 1,515,800
1,585,000 Polypore, Inc. 144A sr. sub. notes
8 3/4s, 2012 1,596,888
1,575,000 Roller Bearing Company of America
company guaranty Ser. B, 9 5/8s,
2007 1,543,500
296,250 Roper bank term loan FRN 3.127s,
2008 (acquired 12/22/03, cost
$296,250) (RES) 299,953
1,385,000 Sequa Corp. sr. notes Ser. B,
8 7/8s, 2008 1,468,100
880,000 Siebe PLC 144A sr. unsub. 6 1/2s,
2010 (United Kingdom) 765,600
224,438 Solo Cup Co. bank term loan FRN
3.61s, 2011 (acquired 2/19/04, cost
$225,788) (RES) 227,187
1,850,000 Solo Cup Co. 144A sr. sub. notes
8 1/2s, 2014 1,850,000
4,970,000 Tekni-Plex, Inc. company guaranty
Ser. B, 12 3/4s, 2010 4,970,000
1,410,000 Tekni-Plex, Inc. 144A sr. sec. notes
8 3/4s, 2013 1,353,600
3,155,000 Terex Corp. company guaranty Ser. B,
10 3/8s, 2011 3,502,050
2,250,000 Titan Corp. (The) 144A sr. sub.
notes 8s, 2011 2,463,750
99,750 Transdigm, Inc. bank term loan FRN
3.35s, 2010 (acquired 4/19/04, cost
$99,750) (RES) 100,342
795,000 Trimas Corp. company guaranty
9 7/8s, 2012 854,625
--------------
95,201,009
Commercial and Consumer Services (1.1%)
- -------------------------------------------------------------------------------
EUR 1,250,000 CB Bus AB sr. sub. notes 11s, 2010
(Sweden) 1,069,226
$4,415,000 Coinmach Corp. sr. notes 9s, 2010 4,613,675
98,477 Corrections Corporation of America
bank term loan FRN 3.936s,
2008 (acquired 8/5/03, cost $98,477)
(RES) 98,723
4,683,147 Derby Cycle Corp. (The) sr. notes
10s, 2008 (In default) (NON) 468
EUR 2,414,547 Derby Cycle Corp. (The) sr. notes
9 3/8s, 2008 (In default) (NON) 151
$199,000 IESI Corp. bank term loan FRN
4.147s, 2010 (acquired 10/20/03 and
10/21/03, cost $200,083) (RES) 200,866
2,620,000 IESI Corp. company guaranty 10 1/4s,
2012 2,829,600
1,400 Laidlaw International, Inc. bank
term loan FRN 5 1/2s, 2009
(acquired 6/18/03, cost $1,372)
(RES) 1,419
4,195,000 Laidlaw International, Inc. sr.
notes 10 3/4s, 2011 4,493,894
--------------
13,308,022
Communication Services (7.4%)
- -------------------------------------------------------------------------------
1,620,000 Alamosa Delaware, Inc. company
guaranty 11s, 2010 1,777,950
1,047,000 Alamosa Delaware, Inc. company
guaranty stepped-coupon zero %
(12s, 7/31/05), 2009 (STP) 1,015,590
1,530,000 Alamosa Delaware, Inc. 144A sr.
notes 8 1/2s, 2012 1,499,400
785,000 American Cellular Corp. company
guaranty 9 1/2s, 2009 688,838
2,940,000 American Cellular Corp. sr. notes
Ser. B, 10s, 2011 2,587,200
1,305,000 American Tower Corp. sr. notes
9 3/8s, 2009 1,396,350
1,300,000 American Tower Corp. 144A sr. notes
7 1/2s, 2012 1,251,250
2,965,000 American Towers, Inc. company
guaranty 7 1/4s, 2011 2,950,175
2,330,000 Asia Global Crossing, Ltd. sr. notes
13 3/8s, 2010 (Bermuda) (In default)
(NON) 209,700
717,000 Centennial Cellular Operating Co.,
LLC sr. sub. notes 10 3/4s, 2008 734,925
3,195,000 Centennial Cellular Operating Co.
company guaranty 10 1/8s, 2013 3,258,900
520,000 Cincinnati Bell Telephone Co.
company guaranty 6.3s, 2028 452,400
1,530,000 Cincinnati Bell, Inc. company
guaranty 7 1/4s, 2013 1,438,200
1,575,000 Cincinnati Bell, Inc. notes 7 1/4s,
2023 1,456,875
3,065,000 Cincinnati Bell, Inc. sr. sub. notes
8 3/8s, 2014 2,743,175
2,765,309 Colo.com, Inc. 144A sr. notes
13 7/8s, 2010 (In default) (NON) 277
150,000 Consolidated Communications bank
term loan FRN 3.973s, 2012
(acquired 4/7/04, cost $150,000)
(RES) 150,375
199,000 Crown Castle International Corp.
bank term loan FRN 4.61s,
2010 (acquired 10/3/03, cost
$199,000) (RES) 202,134
3,255,000 Crown Castle International Corp. sr.
notes 9 3/8s, 2011 3,523,538
199,000 Dobson Communications Corp. bank
term loan FRN 4.664s, 2010
(acquired 10/20/03, cost $199,000)
(RES) 198,378
3,045,000 Dobson Communications Corp. sr.
notes 8 7/8s, 2013 2,382,713
1,485,000 Fairpoint Communications, Inc. sr.
sub. notes 12 1/2s, 2010 1,570,388
6,988,128 Firstworld Communication Corp. sr.
disc. notes zero %, 2008 (In
default) (NON) 699
446,273 Globix Corp. company guaranty 11s,
2008 (PIK) 361,481
3,030,000 Inmarsat Finance PLC 144A company
guaranty 7 5/8s, 2012 (United
Kingdom) 2,992,125
1,025,000 Ipcs Inc. 144A sr. notes 11 1/2s,
2012 1,035,250
2,590,000 Level 3 Financing Inc. 144A sr.
notes 10 3/4s, 2011 2,279,200
2,855,000 Madison River Capital Corp. sr.
notes 13 1/4s, 2010 3,111,950
6,951,000 MCI, Inc. sr. notes 7.735s, 2014 6,316,721
912,000 MCI, Inc. sr. notes 6.688s, 2009 855,000
3,250,000 Nextel Communications, Inc. sr.
notes 5.95s, 2014 3,014,375
1,507,000 Nextel Partners, Inc. sr. notes
12 1/2s, 2009 1,755,655
4,220,000 Nextel Partners, Inc. sr. notes
8 1/8s, 2011 4,325,500
1,695,000 PanAmSat Corp. company guaranty
8 1/2s, 2012 1,898,400
300,625 Qwest Communications International,
Inc. bank term loan FRN 6 1/2s, 2007
(acquired 6/5/03, cost $297,619)
(RES) 309,794
4,450,000 Qwest Communications International,
Inc. 144A sr. notes 7 1/2s, 2014 4,049,500
360,000 Qwest Communications International,
Inc. 144A sr. notes FRN 4.75s, 2009 333,000
10,230,000 Qwest Corp. 144A notes 9 1/8s, 2012 10,843,800
1,290,000 Qwest Services Corp. 144A notes 14s,
2014 1,528,650
2,100,000 Rural Cellular Corp. sr. sub. notes
9 3/4s, 2010 1,932,000
750,000 Rural Cellular Corp. sr. sub. notes
Ser. B, 9 5/8s, 2008 697,500
150,000 SBA Senior Finance Inc. bank term
loan FRN 4.65s, 2008 (acquired
2/3/04, cost $150,000) (RES) 150,328
600,000 SBA Communications Corp. sr. notes
10 1/4s, 2009 594,000
1,170,000 SBA Telecommunications Inc. 144A sr.
disc. notes stepped-coupon zero %
(9 3/4s, 12/15/07), 2011 (STP) 854,100
1,325,000 Triton PCS, Inc. company guaranty
8 3/4s, 2011 1,162,688
2,430,000 TSI Telecommunication Services, Inc.
company guaranty Ser. B, 12 3/4s,
2009 2,612,250
1,907,000 UbiquiTel Operating Co. bonds
stepped-coupon zero % (14s,
4/15/05), 2010 (STP) 1,868,860
1,275,000 UbiquiTel Operating Co. 144A sr.
notes 9 7/8s, 2011 1,275,000
1,390,000 US UnWired, Inc. company guaranty
stepped-coupon Ser. B, zero %
(13 3/8s, 11/1/04), 2009 (STP) 1,431,700
1,835,000 Western Wireless Corp. sr. notes
9 1/4s, 2013 1,890,050
--------------
90,968,307
Conglomerates (0.8%)
- -------------------------------------------------------------------------------
4,810,000 Tyco International Group SA company
guaranty 7s, 2028 (Luxembourg) 4,992,746
1,395,000 Tyco International Group SA company
guaranty 6 7/8s, 2029 (Luxembourg) 1,427,502
3,705,000 Tyco International Group SA notes
6 3/8s, 2011 (Luxembourg) 3,894,829
--------------
10,315,077
Consumer (1.0%)
- -------------------------------------------------------------------------------
3,620,000 Icon Health & Fitness company
guaranty 11 1/4s, 2012 3,945,800
3,635,000 Jostens Holding Corp. sr. disc.
notes stepped-coupon zero %
(10 1/4s, 12/1/08), 2013 (STP) 2,435,450
379,110 Jostens, Inc. bank term loan FRN
Ser. B, 3.72s, 2010 (acquired
7/28/03, cost $379,110) (RES) 381,669
1,230,000 Jostens, Inc. sr. sub. notes
12 3/4s, 2010 1,371,450
3,940,000 Samsonite Corp. 144A sr. sub. notes
8 7/8s, 2011 3,940,000
--------------
12,074,369
Consumer Goods (1.4%)
- -------------------------------------------------------------------------------
2,695,000 Armkel, LLC/Armkel Finance sr. sub.
notes 9 1/2s, 2009 2,910,600
900,000 Elizabeth Arden, Inc. 144A company
guaranty 7 3/4s, 2014 895,500
3,650,000 Playtex Products, Inc. company
guaranty 9 3/8s, 2011 3,531,375
2,725,000 Playtex Products, Inc. 144A secd.
notes 8s, 2011 2,799,938
2,515,000 Prestige Brands, Inc. 144A sr. sub.
notes 9 1/4s, 2012 2,389,250
3,450,000 Remington Arms Co., Inc. company
guaranty 10 1/2s, 2011 3,329,250
199,800 Scotts Co. (The) bank term loan FRN
3 1/8s, 2010 (acquired 10/16/03,
cost $199,800) (RES) 202,110
1,030,000 Scotts Co. (The) 144A sr. sub. notes
6 5/8s, 2013 1,014,550
--------------
17,072,573
Consumer Services (0.5%)
- -------------------------------------------------------------------------------
2,525,000 Brand Services, Inc. company
guaranty 12s, 2012 2,878,500
300,000 Itron, Inc. bank term loan FRN
3.41s, 2010 (acquired 11/20/03,
cost $300,000) (RES) 301,875
2,845,000 Williams Scotsman, Inc. company
guaranty 9 7/8s, 2007 2,773,875
--------------
5,954,250
Energy (7.6%)
- -------------------------------------------------------------------------------
3,155,000 Arch Western Finance, LLC 144A sr.
notes 6 3/4s, 2013 3,155,000
3,400,000 Belden & Blake Corp. company
guaranty Ser. B, 9 7/8s, 2007 3,400,000
2,810,000 BRL Universal Equipment sec. notes
8 7/8s, 2008 3,006,700
1,920,000 CHC Helicopter Corp. 144A sr. sub.
notes 7 3/8s, 2014 (Canada) 1,872,000
1,700,000 Chesapeake Energy Corp. company
guaranty 9s, 2012 1,899,750
1,094,000 Chesapeake Energy Corp. company
guaranty 7 3/4s, 2015 1,129,555
3,805,000 Chesapeake Energy Corp. sr. notes
7 1/2s, 2013 3,928,663
1,775,000 Comstock Resources, Inc. sr. notes
6 7/8s, 2012 1,686,250
270,000 Dresser, Inc. bank term loan FRN
4.68s, 2010 (acquired 2/27/04, cost
$272,025) (RES) 273,291
2,905,000 Dresser, Inc. company guaranty
9 3/8s, 2011 3,108,350
2,240,000 Encore Acquisition Co. company
guaranty 8 3/8s, 2012 2,408,000
880,000 Encore Acquisition Co. 144A sr. sub.
notes 6 1/4s, 2014 827,200
2,565,000 Exco Resources, Inc. 144A company
guaranty 7 1/4s, 2011 2,552,175
1,325,000 Forest Oil Corp. company guaranty
7 3/4s, 2014 1,351,500
1,370,000 Forest Oil Corp. sr. notes 8s, 2011 1,452,200
855,000 Forest Oil Corp. sr. notes 8s, 2008 899,888
1,350,000 Gazprom OAO 144A notes 9 5/8s, 2013
(Russia) 1,382,063
1,315,000 Hanover Compressor Co. sr. notes 9s,
2014 1,341,300
1,305,000 Hanover Compressor Co. sr. notes
8 5/8s, 2010 1,334,363
1,970,000 Hanover Compressor Co. sub. notes
zero %, 2007 1,507,050
1,315,000 Hanover Equipment Trust sec. notes
Ser. A, 8 1/2s, 2008 1,380,750
1,645,000 Hornbeck Offshore Services, Inc. sr.
notes 10 5/8s, 2008 1,793,050
1,260,000 KCS Energy, Inc. 144A sr. notes
7 1/8s, 2012 1,228,500
1,130,000 Key Energy Services, Inc. sr. notes
6 3/8s, 2013 1,070,675
1,230,000 Leviathan Gas Corp. company guaranty
Ser. B, 10 3/8s, 2009 1,293,812
127,652 Magellan Midstream Holdings bank
term loan FRN 3.92s, 2008 (acquired
6/13/03, cost $126,376) (RES) 128,291
2,170,000 Massey Energy Co. sr. notes 6 5/8s,
2010 2,153,725
3,120,000 Newfield Exploration Co. sr. notes
7 5/8s, 2011 3,354,000
1,860,000 Offshore Logistics, Inc. company
guaranty 6 1/8s, 2013 1,729,800
2,304,888 Oslo Seismic Services, Inc. 1st
mtge. 8.28s, 2011 2,327,937
200,000 Parker Drilling Co. bank term loan
FRN 5.35s, 2007 (acquired 10/22/03,
cost $200,000) (RES) 201,250
2,290,000 Parker Drilling Co. company guaranty
Ser. B, 10 1/8s, 2009 2,410,225
137,363 Peabody Energy Corp. bank term loan
FRN Ser. B, 2.859s, 2010 (acquired
3/20/03, cost $137,363) (RES) 138,290
2,610,000 Peabody Energy Corp. sr. notes
5 7/8s, 2016 2,362,050
650,000 Pemex Project Funding Master Trust
company guaranty 8 5/8s, 2022 679,250
4,025,000 Pemex Project Funding Master Trust
company guaranty 7 3/8s, 2014 4,075,313
2,025,000 Petro Geo-Services notes 10s, 2010
(Norway) 2,075,625
1,475,000 Plains All American Pipeline
LP/Plains All American Finance
Corp. company guaranty 7 3/4s, 2012 1,613,777
2,360,000 Plains Exploration & Production Co.
company guaranty Ser. B, 8 3/4s,
2012 2,548,800
1,855,000 Plains Exploration & Production Co.
sr. sub. notes 8 3/4s, 2012 2,003,400
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 283,500
1,847,000 Pride Petroleum Services, Inc. sr.
notes 9 3/8s, 2007 1,877,014
2,445,000 Seabulk International, Inc. company
guaranty 9 1/2s, 2013 2,509,181
1,475,000 Seven Seas Petroleum, Inc. sr. notes
Ser. B, 12 1/2s, 2005 (In default)
(NON) 15
3,535,000 Star Gas Partners LP/Star Gas
Finance Co. sr. notes 10 1/4s, 2013 3,764,775
1,315,769 Star Gas Propane 1st Mtge. 8.04s,
2009 (acquired 5/7/03, cost
$1,289,454) (RES) 1,421,031
875,000 Trico Marine Services, Inc. bank
term loan FRN 7.152s, 2009
(acquired 2/3/04, cost $857,500)
(RES) 743,750
565,000 Universal Compression, Inc. sr.
notes 7 1/4s, 2010 584,775
1,140,000 Vintage Petroleum, Inc. sr. notes
8 1/4s, 2012 1,214,100
595,000 Vintage Petroleum, Inc. sr. sub.
notes 7 7/8s, 2011 611,363
4,751,000 Westport Resources Corp. company
guaranty 8 1/4s, 2011 5,273,610
--------------
93,352,432
Entertainment (1.4%)
- -------------------------------------------------------------------------------
2,020,000 AMC Entertainment, Inc. sr. sub.
notes 9 7/8s, 2012 2,131,100
1,246,000 AMC Entertainment, Inc. sr. sub.
notes 9 1/2s, 2011 1,289,610
1,900,000 AMC Entertainment, Inc. 144A sr.
sub. notes 8s, 2014 1,824,000
270,000 AMF Bowling Worldwide bank term loan
FRN 4.152s, 2009 (acquired 2/25/04,
cost $270,000) (RES) 271,350
3,080,000 Cinemark USA, Inc. sr. sub. notes
9s, 2013 3,357,200
3,395,000 Cinemark, Inc. 144A sr. disc. notes
stepped-coupon zero % (9 3/4s,
3/15/09), 2014 (STP) 2,155,825
270,000 MGM bank term loan FRN 3.6s, 2011
(acquired 4/21/04, cost $270,000)
(RES) 270,878
90,544 Six Flags, Inc. bank term loan FRN
Ser. B, 3.6s, 2009 (acquired
1/15/03, cost $90,431) (RES) 91,148
5,230,000 Six Flags, Inc. 144A sr. notes
9 5/8s, 2014 5,158,088
--------------
16,549,199
Financial (1.3%)
- -------------------------------------------------------------------------------
1,205,000 Crescent Real Estate Equities LP
notes 7 1/2s, 2007 (R) 1,201,988
2,475,000 Crescent Real Estate Equities LP sr.
notes 9 1/4s, 2009 (R) 2,707,964
5,449,952 Finova Group, Inc. notes 7 1/2s,
2009 3,024,723
1,515,000 iStar Financial, Inc. sr. notes
8 3/4s, 2008 (R) 1,655,138
1,660,000 iStar Financial, Inc. sr. notes 7s,
2008 (R) 1,718,100
1,570,000 iStar Financial, Inc. sr. notes 6s,
2010 (R) 1,522,900
1,910,000 UBS AG/Jersey Branch sr. notes
Ser. EMTN, 9.14s, 2008 (Jersey) 1,972,075
2,310,000 Western Financial Bank sub. debs.
9 5/8s, 2012 2,506,350
--------------
16,309,238
Food (1.6%)
- -------------------------------------------------------------------------------
1,557,998 Archibald Candy Corp. company
guaranty 10s, 2007 (In default)
(NON) (PIK) 1,075,019
665,000 Dean Foods Co. sr. notes 6 5/8s,
2009 678,300
970,000 Del Monte Corp. company guaranty
Ser. B, 9 1/4s, 2011 1,040,325
2,170,000 Del Monte Corp. sr. sub. notes
8 5/8s, 2012 2,305,625
319,588 Del Monte Foods Co. bank term loan
FRN Ser. B, 3.408s, 2010 (acquired
12/16/02, cost $317,991) (RES) 323,484
3,240,000 Doane Pet Care Co. sr. sub. debs.
9 3/4s, 2007 2,948,400
100,170 Dole Food Co. bank term loan FRN
Ser. D, 3.66s, 2009 (acquired
3/28/03 and 11/20/03, cost $100,170)
(RES) 101,218
955,000 Dole Food Co. sr. notes 8 7/8s, 2011 969,325
755,000 Dole Food Co. sr. notes 8 5/8s, 2009 762,550
3,365,000 Eagle Family Foods company guaranty
Ser. B, 8 3/4s, 2008 2,422,800
2,150,000 Land O'Lakes, Inc. sr. notes 8 3/4s,
2011 2,010,250
409,404 Pinnacle Foods Holding Corp. bank
term loan FRN 4.258s, 2010
(acquired 11/26/03, cost $409,404)
(RES) 413,242
115,596 Pinnacle Foods Holding Corp. bank
term loan FRN 4.258s, 2010
(acquired 11/26/03, cost $115,596)
(RES) 116,680
1,510,000 Pinnacle Foods Holding Corp. 144A
sr. sub. notes 8 1/4s, 2013 1,491,125
2,860,000 Premier International Foods PLC sr.
notes 12s, 2009 (United Kingdom) 3,060,200
--------------
19,718,543
Gaming & Lottery (5.9%)
- -------------------------------------------------------------------------------
2,475,000 Ameristar Casinos, Inc. company
guaranty 10 3/4s, 2009 2,821,500
440,000 Argosy Gaming Co. sr. sub. notes 9s,
2011 485,100
1,300,000 Argosy Gaming Co. 144A sr. sub.
notes 7s, 2014 1,257,750
1,575,000 Boyd Gaming Corp. sr. sub. notes
8 3/4s, 2012 1,673,438
545,000 Boyd Gaming Corp. sr. sub. notes
7 3/4s, 2012 543,638
1,485,000 Chumash Casino & Resort Enterprise
144A sr. notes 9s, 2010 1,611,225
3,680,000 Herbst Gaming, Inc. sec. notes
Ser. B, 10 3/4s, 2008 4,232,000
1,975,000 Herbst Gaming, Inc. 144A sr. sub.
notes 8 1/8s, 2012 1,984,875
3,375,000 Hollywood Park, Inc. company
guaranty Ser. B, 9 1/4s, 2007 3,442,500
4,010,000 Horseshoe Gaming Holdings company
guaranty 8 5/8s, 2009 4,180,425
1,240,000 Inn of the Mountain Gods 144A sr.
notes 12s, 2010 1,351,600
1,760,000 Mandalay Resort Group sr. notes
6 3/8s, 2011 1,716,000
330,000 MGM Mirage, Inc. coll. sr. notes
6 7/8s, 2008 343,200
4,120,000 MGM Mirage, Inc. company guaranty
8 1/2s, 2010 4,542,300
1,370,000 MGM Mirage, Inc. company guaranty
6s, 2009 1,358,013
1,530,000 Mohegan Tribal Gaming Authority sr.
sub. notes 8 3/8s, 2011 1,633,275
2,690,000 Mohegan Tribal Gaming Authority sr.
sub. notes 6 3/8s, 2009 2,669,825
3,645,000 Park Place Entertainment Corp. sr.
notes 7 1/2s, 2009 3,799,913
1,830,000 Park Place Entertainment Corp. sr.
notes 7s, 2013 1,830,000
1,575,000 Park Place Entertainment Corp. sr.
sub. notes 8 7/8s, 2008 1,712,813
125,000 Park Place Entertainment Corp. sr.
sub. notes 8 1/8s, 2011 132,188
1,755,000 Penn National Gaming, Inc. company
guaranty Ser. B, 11 1/8s, 2008 1,934,888
510,000 Penn National Gaming, Inc. sr. sub.
notes 8 7/8s, 2010 545,700
176,394 Pinnacle Entertainment, Inc. bank
term loan FRN 4.6s, 2009 (acquired
12/15/03, cost $176,394) (RES) 178,232
1,780,000 Pinnacle Entertainment, Inc. sr.
sub. notes 8 3/4s, 2013 1,748,850
890,000 Pinnacle Entertainment, Inc. 144A
sr. sub. notes 8 1/4s, 2012 843,275
2,515,000 Resorts International Hotel and
Casino, Inc. company guaranty
11 1/2s, 2009 2,791,650
2,175,000 Riviera Holdings Corp. company
guaranty 11s, 2010 2,332,688
643,512 Scientific Games Holdings bank term
loan FRN 4.673s, 2008 (acquired
12/11/02, cost $640,295) (RES) 648,875
2,165,000 Station Casinos, Inc. sr. notes 6s,
2012 2,078,400
1,775,000 Station Casinos, Inc. sr. sub. notes
6 7/8s, 2016 1,668,500
4,655,000 Trump Atlantic City Associates
company guaranty 11 1/4s, 2006 3,933,475
6,120,000 Trump Casino Holdings, LLC company
guaranty 12 5/8s, 2010 6,211,800
3,130,000 Venetian Casino Resort, LLC company
guaranty 11s, 2010 3,595,588
--------------
71,833,499
Health Care (7.0%)
- -------------------------------------------------------------------------------
61,602 ALARIS Medical Systems, Inc. bank
term loan FRN 3.36s, 2009 (acquired
6/30/03, cost $61,602) (RES) 62,314
610,000 ALARIS Medical Systems, Inc. sr.
sub. notes 7 1/4s, 2011 669,475
172,436 Alderwoods Group, Inc. bank term
loan FRN 4.023s, 2008 (acquired
9/9/03, cost $172,436) (RES) 174,591
4,086,500 Alderwoods Group, Inc. company
guaranty 12 1/4s, 2009 4,515,583
2,315,000 AmerisourceBergen Corp. company
guaranty 7 1/4s, 2012 2,367,088
2,470,000 AmerisourceBergen Corp. sr. notes
8 1/8s, 2008 2,667,600
4,270,000 Ardent Health Services, Inc. sr.
sub. notes 10s, 2013 4,536,875
248,750 Beverly Enterprises, Inc. bank term
loan FRN 4.207s, 2008 (acquired
10/20/03, cost $248,128) (RES) 251,393
365,000 Biovail Corp. sr. sub. notes 7 7/8s,
2010 (Canada) 354,963
295,500 Community Health Systems, Inc. bank
term loan FRN Ser. B, 3.62s, 2010
(acquired 7/11/02, cost $295,500)
(RES) 299,785
397,000 Concentra bank term loan FRN 4.957s,
2009 (acquired 8/12/03, cost
$397,000) (RES) 401,466
691,328 Dade Behring, Inc. company guaranty
11.91s, 2010 791,571
695,955 DaVita, Inc. bank term loan FRN
Ser. B, 3.184s, 2009 (acquired
7/17/03 and 1/30/04, cost $700,080)
(RES) 701,828
1,500,000 Extendicare Health Services, Inc.
company guaranty 9 1/2s, 2010 1,653,750
1,820,000 Extendicare Health Services, Inc.
144A sr. sub. notes 6 7/8s, 2014 1,710,800
199,000 Hanger Orthopedic Group, Inc. bank
term loan FRN 3.86s, 2009 (acquired
9/29/03, cost $199,000) (RES) 199,995
1,550,000 Hanger Orthopedic Group, Inc.
company guaranty 10 3/8s, 2009 1,674,000
3,090,000 HCA, Inc. debs. 7.19s, 2015 3,123,434
2,040,000 HCA, Inc. notes 8.36s, 2024 2,112,153
165,000 HCA, Inc. notes 7s, 2007 174,709
675,000 HCA, Inc. notes 5 3/4s, 2014 626,683
930,000 HCA, Inc. sr. notes 7 7/8s, 2011 1,003,346
4,104,000 Healthsouth Corp. notes 7 5/8s, 2012 4,042,440
1,050,000 Healthsouth Corp. sr. notes 8 1/2s,
2008 1,002,750
955,000 Healthsouth Corp. sr. notes 8 3/8s,
2011 935,900
1,395,000 Healthsouth Corp. sr. notes 7s, 2008 1,367,100
1,270,000 Insight Health Services Corp. 144A
company guaranty 9 7/8s, 2011 1,292,225
267,250 Kinetic Concepts, Inc. bank term
loan FRN 3.11s, 2011 (acquired
8/5/03, cost $267,938) (RES) 268,586
971,175 Magellan Health Services, Inc. sr.
notes Ser. A, 9 3/8s, 2008 1,046,441
229,516 Medex, Inc. bank term loan FRN
4.135s, 2009 (acquired 5/16/03 and
6/16/03, cost $229,404) (RES) 231,237
7,800,000 Mediq, Inc. debs. 13s, 2009 (In
default) (NON) 780
2,930,000 MedQuest, Inc. company guaranty
Ser. B, 11 7/8s, 2012 3,296,250
1,455,000 NeighborCare, Inc. 144A sr. sub.
notes 6 7/8s, 2013 1,462,275
635,000 Omega Health Care Investors 144A sr.
notes 7s, 2014 603,250
3,040,000 Omnicare, Inc. sr. sub. notes
6 1/8s, 2013 2,903,200
3,103,000 PacifiCare Health Systems, Inc.
company guaranty 10 3/4s, 2009 3,545,178
2,885,000 Province Healthcare Co. sr. sub.
notes 7 1/2s, 2013 2,769,600
1,150,000 Service Corp. International debs.
7 7/8s, 2013 1,129,875
290,000 Service Corp. International notes
7.2s, 2006 303,775
90,000 Service Corp. International notes
6 7/8s, 2007 91,350
435,000 Service Corp. International notes
6 1/2s, 2008 435,000
1,045,000 Service Corp. International notes
Ser. (a), 7.7s, 2009 1,065,900
2,650,000 Service Corp. International 144A sr.
notes 6 3/4s, 2016 2,424,750
2,460,000 Stewart Enterprises, Inc. notes
10 3/4s, 2008 2,736,750
1,140,000 Tenet Healthcare Corp. notes 7 3/8s,
2013 1,014,600
105,000 Tenet Healthcare Corp. sr. notes
6 1/2s, 2012 89,250
2,235,000 Tenet Healthcare Corp. sr. notes
6 3/8s, 2011 1,905,338
4,205,000 Tenet Healthcare Corp. sr. notes
5 3/8s, 2006 3,994,750
745,561 Triad Hospitals, Inc. bank term loan
FRN Ser. B, 3.35s, 2008 (acquired
4/23/01, cost $753,016) (RES) 754,569
4,575,000 Triad Hospitals, Inc. sr. notes 7s,
2012 4,597,875
4,330,000 Triad Hospitals, Inc. sr. sub. notes
7s, 2013 4,156,800
2,140,000 Universal Hospital Services, Inc.
sr. notes 10 1/8s, 2011 2,182,800
2,230,000 Ventas Realty LP/Capital Corp.
company guaranty 9s, 2012 2,441,850
90,000 VWR International Inc. bank term
loan FRN 3.77s, 2011 (acquired
4/5/04, cost $90,000) (RES) 91,103
1,180,000 VWR International, Inc. 144A sr.
notes 6 7/8s, 2012 1,168,200
--------------
85,425,149
Homebuilding (2.2%)
- -------------------------------------------------------------------------------
1,130,000 Beazer Homes USA, Inc. company
guaranty 8 5/8s, 2011 1,192,150
615,000 Beazer Homes USA, Inc. company
guaranty 8 3/8s, 2012 647,288
1,070,000 D.R. Horton, Inc. sr. notes 7 7/8s,
2011 1,158,275
3,075,000 D.R. Horton, Inc. sr. notes 5 7/8s,
2013 2,905,875
1,630,000 K. Hovnanian Enterprises, Inc.
company guaranty 10 1/2s, 2007 1,870,425
2,315,000 K. Hovnanian Enterprises, Inc.
company guaranty 8 7/8s, 2012 2,407,600
2,475,000 K. Hovnanian Enterprises, Inc. sr.
notes 6 1/2s, 2014 2,264,625
1,330,000 K. Hovnanian Enterprises, Inc. 144A
sr. notes 6 3/8s, 2014 1,197,000
150,000 Landsource bank term loan FRN
3.688s, 2010 (acquired 1/12/04,
cost $150,000) (RES) 151,688
1,180,000 Meritage Corp. company guaranty
9 3/4s, 2011 1,286,200
775,000 Meritage Corp. 144A sr. notes 7s,
2014 732,375
2,055,000 Ryland Group, Inc. sr. sub. notes
9 1/8s, 2011 2,265,638
1,510,000 Schuler Homes, Inc. company guaranty
10 1/2s, 2011 1,721,400
735,000 Standard Pacific Corp. sr. notes
7 3/4s, 2013 731,325
1,295,000 Technical Olympic USA, Inc. company
guaranty 10 3/8s, 2012 1,346,800
965,000 Technical Olympic USA, Inc. company
guaranty 9s, 2010 1,001,188
635,000 Technical Olympic USA, Inc. 144A
sub. notes 7 1/2s, 2011 587,375
625,000 WCI Communities, Inc. company
guaranty 10 5/8s, 2011 678,125
2,660,000 WCI Communities, Inc. company
guaranty 9 1/8s, 2012 2,832,900
--------------
26,978,252
Household Furniture and Appliances (0.3%)
- -------------------------------------------------------------------------------
180,000 Sealy Mattress Co. bank term loan
FRN 3.86s, 2012 (acquired 4/2/04,
cost $180,000) (RES) 181,800
3,770,000 Sealy Mattress Co. 144A sr. sub.
notes 8 1/4s, 2014 3,675,750
--------------
3,857,550
Lodging/Tourism (2.4%)
- -------------------------------------------------------------------------------
2,715,000 Gaylord Entertainment Co. 144A sr.
notes 8s, 2013 2,701,425
3,415,000 Hilton Hotels Corp. notes 7 5/8s,
2012 3,654,050
1,710,000 Host Marriott LP company guaranty
Ser. G, 9 1/4s, 2007 (R) 1,881,000
1,340,000 Host Marriott LP sr. notes 7 1/8s,
2013 (R) 1,303,150
5,608,000 Host Marriott LP sr. notes Ser. E,
8 3/8s, 2006 (R) 5,860,360
1,655,000 ITT Corp. debs. 7 3/8s, 2015 1,638,450
1,360,000 ITT Corp. notes 6 3/4s, 2005 1,407,600
4,980,000 John Q. Hammons Hotels LP/John Q.
Hammons Hotels Finance Corp. III
1st mtge. Ser. B, 8 7/8s, 2012 5,378,400
1,215,000 Meristar Hospitality Corp. company
guaranty 9 1/8s, 2011 (R) 1,233,225
2,980,000 Meristar Hospitality Corp. company
guaranty 9s, 2008 (R) 2,994,900
1,270,000 Starwood Hotels & Resorts Worldwide,
Inc. company guaranty 7 3/8s, 2007 1,333,500
--------------
29,386,060
Media (0.3%)
- -------------------------------------------------------------------------------
53,612 Affinity Group Holdings bank term
loan FRN Ser. B1, 5.169s,
2009 (acquired 5/27/03, cost
$53,478) (RES) 54,014
134,031 Affinity Group Holdings bank term
loan FRN Ser. B2, 5.16s,
2009 (acquired 5/27/03, cost
$133,696) (RES) 135,036
1,915,000 Affinity Group, Inc. 144A sr. sub.
notes 9s, 2012 1,943,725
1,000,000 Capital Records, Inc. 144A company
guaranty 8 3/8s, 2009 1,085,000
225,000 Lions Gate Entertainment bank term
loan FRN 4.36s, 2008 (acquired
12/15/03, cost $225,000) (RES) 226,406
185,000 Vivendi Universal SA bank term loan
FRN Ser. B, 3.85s, 2008 (acquired
6/23/03, cost $185,000) (France)
(RES) 185,983
600,000 Warner Music bank term loan FRN
4.177s, 2011 (acquired 4/8/04, cost
$603,000) (RES) 605,875
--------------
4,236,039
Publishing (3.9%)
- -------------------------------------------------------------------------------
362,593 Dex Media West, LLC bank term loan
FRN 3.861s, 2010 (acquired 9/9/03,
cost $362,593) (RES) 364,729
4,790,000 Dex Media West, LLC 144A sr. notes
8 1/2s, 2010 5,221,100
2,015,000 Dex Media, Inc. 144A disc. notes
stepped-coupon zero % (9s,
11/15/08), 2013 (STP) 1,299,675
3,700,000 Dex Media, Inc. 144A notes 8s, 2013 3,524,250
4,766,420 Hollinger Participation Trust 144A
sr. notes 12 1/8s, 2010 (Canada)
(PIK) 5,529,047
1,145,000 Houghton Mifflin Co. sr. sub. notes
9 7/8s, 2013 1,173,625
3,670,000 PRIMEDIA, Inc. company guaranty
8 7/8s, 2011 3,660,825
2,440,000 PRIMEDIA, Inc. company guaranty
7 5/8s, 2008 2,433,900
3,465,000 PRIMEDIA, Inc. 144A sr. notes 8s,
2013 3,291,750
1,265,000 Reader's Digest Association, Inc.
(The) sr. notes 6 1/2s, 2011 1,246,025
510,000 RH Donnelley Finance Corp. I company
guaranty 8 7/8s, 2010 561,000
3,630,000 RH Donnelley Finance Corp. I 144A
sr. notes 8 7/8s, 2010 3,993,000
820,000 RH Donnelley Finance Corp. I 144A
sr. sub. notes 10 7/8s, 2012 959,400
3,595,000 Vertis, Inc. company guaranty
Ser. B, 10 7/8s, 2009 3,837,663
2,930,000 Vertis, Inc. sub. notes 13 1/2s,
2009 2,973,950
6,328,236 Von Hoffman Press, Inc. debs. 13s,
2009 (PIK) 5,315,718
247,500 WRC Media Corp. bank term loan FRN
6.761s, 2009 (acquired 3/25/04,
cost $247,500) (RES) 246,572
1,905,000 WRC Media Corp. sr. sub. notes
12 3/4s, 2009 1,619,250
--------------
47,251,479
Restaurants (0.4%)
- -------------------------------------------------------------------------------
1,435,000 Domino's, Inc. sr. sub. notes
8 1/4s, 2011 1,517,513
3,320,000 Sbarro, Inc. company guaranty 11s,
2009 2,780,500
--------------
4,298,013
Retail (2.2%)
- -------------------------------------------------------------------------------
101,360 Advance Stores bank term loan FRN
Ser. C, 3.145s, 2007 (acquired
3/4/03, cost $101,360) (RES) 102,279
1,925,000 Asbury Automotive Group, Inc. sr.
sub. notes 8s, 2014 1,780,625
3,925,000 Autonation, Inc. company guaranty
9s, 2008 4,396,000
91,607 Couche-Tard bank term loan FRN
3 3/8s, 2010 (acquired 12/16/03,
cost $91,607) (RES) 92,447
920,000 Finlay Fine Jewelry Corp. 144A sr.
notes 8 3/8s, 2012 936,100
4,080,000 JC Penney Co., Inc. debs. 7.95s,
2017 4,508,400
690,000 JC Penney Co., Inc. debs. 7.65s,
2016 741,750
2,230,000 JC Penney Co., Inc. debs. 7 1/8s,
2023 2,296,900
510,000 JC Penney Co., Inc. notes 9s, 2012 600,525
100,000 JC Penney Co., Inc. notes 8s, 2010 112,500
185,000 Rite Aid Corp. bank term loan FRN
4.1s, 2008 (acquired 5/16/03, cost
$184,769) (RES) 188,978
2,180,000 Rite Aid Corp. company guaranty
9 1/2s, 2011 2,354,400
150,000 Rite Aid Corp. debs. 6 7/8s, 2013 133,500
310,000 Rite Aid Corp. notes 7 1/8s, 2007 311,550
730,000 Rite Aid Corp. sec. notes 8 1/8s,
2010 755,550
1,755,000 Rite Aid Corp. sr. notes 9 1/4s,
2013 1,798,875
145,000 Rite Aid Corp. 144A notes 6s, 2005 143,913
3,243,000 Saks, Inc. company guaranty 7s, 2013 3,194,355
1,790,000 United Auto Group, Inc. company
guaranty 9 5/8s, 2012 1,915,300
--------------
26,363,947
Technology (2.2%)
- -------------------------------------------------------------------------------
1,791,000 AMI Semiconductor, Inc. company
guaranty 10 3/4s, 2013 2,095,470
1,425,000 DigitalNet Holdings, Inc. sr. notes
9s, 2010 1,496,250
4,170,000 Iron Mountain, Inc. company guaranty
8 5/8s, 2013 4,430,625
175,000 Iron Mountain, Inc. sr. sub. notes
8 1/4s, 2011 182,000
310,000 Lucent Technologies, Inc. debs.
6 1/2s, 2028 234,050
4,185,000 Lucent Technologies, Inc. debs.
6.45s, 2029 3,159,675
190,000 Lucent Technologies, Inc. notes
5 1/2s, 2008 176,700
1,963,000 ON Semiconductor Corp. company
guaranty 13s, 2008 2,257,450
1,185,000 SCG Holding Corp. 144A notes zero %,
2011 1,670,850
1,570,000 Seagate Technology Hdd Holdings
company guaranty 8s, 2009 (Cayman
Islands) 1,644,575
2,005,000 UGS Corp. 144A sr. sub. notes 10s,
2012 2,060,138
1,565,000 Xerox Corp. notes Ser. MTN, 7.2s,
2016 1,455,450
4,285,000 Xerox Corp. sr. notes 7 5/8s, 2013 4,224,059
1,880,000 Xerox Corp. sr. notes 7 1/8s, 2010 1,880,000
--------------
26,967,292
Textiles (0.9%)
- -------------------------------------------------------------------------------
3,785,000 Levi Strauss & Co. sr. notes
12 1/4s, 2012 3,453,813
1,740,000 Oxford Industries, Inc. 144A sr.
notes 8 7/8s, 2011 1,844,400
765,000 Phillips-Van Heusen Corp. 144A sr.
notes 7 1/4s, 2011 757,350
2,770,000 Russell Corp. company guaranty
9 1/4s, 2010 2,887,725
1,591,000 William Carter Holdings Co. (The)
company guaranty Ser. B, 10 7/8s,
2011 1,813,740
--------------
10,757,028
Tire & Rubber (0.4%)
- -------------------------------------------------------------------------------
180,000 Goodyear Tire & Rubber Co. (The)
bank term loan FRN 5.61s,
2006 (acquired 2/19/04, cost
$180,000) (RES) 180,394
335,000 Goodyear Tire & Rubber Co. (The)
notes 8 1/2s, 2007 329,975
4,975,000 Goodyear Tire & Rubber Co. (The)
notes 7.857s, 2011 4,315,813
750,000 Goodyear Tire & Rubber Co. (The)
notes 6 3/8s, 2008 667,500
--------------
5,493,682
Tobacco (0.1%)
- -------------------------------------------------------------------------------
1,280,000 North Atlantic Trading Co. 144A sr.
notes 9 1/4s, 2012 1,248,000
Transportation (1.3%)
- -------------------------------------------------------------------------------
3,109,209 Air2 US 144A sinking fund Ser. D,
12.266s, 2020 (In default) (NON) 31
1,760,000 Allied Holdings, Inc. company
guaranty Ser. B, 8 5/8s, 2007 1,658,800
2,045,000 American Airlines, Inc. pass-through
certificates Ser. 01-1, 6.817s,
2011 1,809,825
4,375,000 Calair, LLC/Calair Capital Corp.
company guaranty 8 1/8s, 2008 3,281,250
1,720,000 Delta Air Lines, Inc. pass-through
certificates Ser. 00-1, 7.779s, 2005 1,125,318
960,067 Delta Air Lines, Inc. pass-through
certificates Ser. 02-1, 7.779s, 2012 624,043
3,170,000 Kansas City Southern Railway Co.
company guaranty 9 1/2s, 2008 3,439,450
700,000 Kansas City Southern Railway Co.
company guaranty 7 1/2s, 2009 707,000
2,640,000 Northwest Airlines, Inc. company
guaranty 7 5/8s, 2005 2,521,200
246,304 Pacer International, Inc. bank term
loan FRN 4.185s, 2010 (acquired
6/10/03, cost $247,676) (RES) 249,383
900,000 Travel Centers of America, Inc.
company guaranty 12 3/4s, 2009 1,044,000
233,000 United AirLines, Inc. debs. 9 1/8s,
2012 (In default) (NON) 22,135
--------------
16,482,435
Utilities & Power (9.0%)
- -------------------------------------------------------------------------------
2,960,000 AES Corp. (The) 144A sec. notes 9s,
2015 3,137,600
3,055,000 AES Corp. (The) 144A sec. notes
8 3/4s, 2013 3,223,025
3,625,000 Allegheny Energy Supply 144A bonds
8 1/4s, 2012 3,507,188
1,300,000 Allegheny Energy Supply 144A sec.
notes 10 1/4s, 2007 1,404,000
450,000 Allegheny Energy, Inc. bank term
loan FRN 5.613s, 2011 (acquired
3/5/04, cost $450,000) (RES) 449,679
2,383,000 Calpine Canada Energy Finance
company guaranty 8 1/2s, 2008
(Canada) 1,417,885
540,000 Calpine Corp. 144A sec. notes
8 3/4s, 2013 449,550
6,845,000 Calpine Corp. 144A sec. notes
8 1/2s, 2010 5,715,575
1,045,000 CenterPoint Energy Resources Corp.
debs. 6 1/2s, 2008 1,104,631
905,000 CenterPoint Energy Resources Corp.
sr. notes Ser. B, 7 7/8s, 2013 1,008,381
370,000 CMS Energy Corp. pass-through
certificates 7s, 2005 371,850
2,930,000 CMS Energy Corp. sr. notes 8.9s,
2008 3,069,175
1,000,000 CMS Energy Corp. sr. notes 8 1/2s,
2011 1,017,500
740,000 CMS Energy Corp. 144A sr. notes
7 3/4s, 2010 740,000
540,000 DPL, Inc. bonds 8 1/8s, 2031 513,000
2,380,000 DPL, Inc. sr. notes 6 7/8s, 2011 2,380,000
1,200,000 Dynegy Holdings, Inc. sr. notes
6 7/8s, 2011 984,000
5,675,000 Dynegy Holdings, Inc. 144A sec.
notes 10 1/8s, 2013 6,015,500
1,460,000 Dynegy-Roseton Danskamme company
guaranty Ser. A, 7.27s, 2010 1,357,800
2,180,000 Dynegy-Roseton Danskamme company
guaranty Ser. B, 7.67s, 2016 1,776,700
1,230,000 Edison Mission Energy sr. notes 10s,
2008 1,291,500
50,000 Edison Mission Energy sr. notes
9 7/8s, 2011 50,250
520,000 Edison Mission Energy sr. notes
7.73s, 2009 492,700
1,600,000 El Paso Corp. sr. notes 7 3/8s, 2012 1,352,000
3,370,000 El Paso Corp. sr. notes Ser. MTN,
7 3/4s, 2032 2,653,875
765,000 El Paso Natural Gas Co. debs.
8 5/8s, 2022 730,575
715,000 El Paso Natural Gas Co. sr. notes
Ser. A, 7 5/8s, 2010 723,938
4,485,000 El Paso Production Holding Co.
company guaranty 7 3/4s, 2013 4,238,325
2,200,000 Ferrellgas Partners LP/Ferrellgas
Partners Finance 144A sr. notes
6 3/4s, 2014 2,106,500
870,000 Kansas Gas & Electric debs. 8.29s,
2016 905,931
3,875,000 Midwest Generation LLC 144A sec.
notes 8 3/4s, 2034 3,816,875
300,000 Mission Energy Holding Co. bank term
loan FRN 7s, 2006 (acquired
12/10/03, cost $298,500) (RES) 301,594
3,195,000 Mission Energy Holding Co. sec.
notes 13 1/2s, 2008 3,482,550
2,655,000 Nevada Power Co. 144A 2nd mtge. 9s,
2013 2,903,906
1,260,000 Northwest Pipeline Corp. company
guaranty 8 1/8s, 2010 1,352,925
215,000 Northwestern Corp. debs. 6.95s, 2028
(In default) (NON) 175,225
380,000 Northwestern Corp. notes 8 3/4s,
2012 (In default) (NON) 313,500
1,800,000 Northwestern Corp. notes 7 7/8s,
2007 (In default) (NON) 1,485,000
7,110,000 NRG Energy, Inc. 144A sr. sec. notes
8s, 2013 7,092,225
2,285,000 Orion Power Holdings, Inc. sr. notes
12s, 2010 2,810,550
3,395,000 PG&E Corp. 144A sec. notes 6 7/8s,
2008 3,564,750
590,000 PG&E Gas Transmission Northwest sr.
notes 7.1s, 2005 607,700
2,290,000 PSEG Energy Holdings, Inc. notes
7 3/4s, 2007 2,381,600
1,855,000 SEMCO Energy, Inc. sr. notes 7 3/4s,
2013 1,896,738
515,000 Sierra Pacific Power Co. 144A
general ref. mtge. 6 1/4s, 2012 489,250
3,150,000 Sierra Pacific Resources 144A sr.
notes 8 5/8s, 2014 3,047,625
445,000 Southern California Edison Co. notes
6 3/8s, 2006 468,077
1,175,000 Teco Energy, Inc. notes 10 1/2s,
2007 1,316,000
680,000 Teco Energy, Inc. notes 7.2s, 2011 669,800
1,165,000 Teco Energy, Inc. notes 7s, 2012 1,127,138
305,000 Tennessee Gas Pipeline Co. debs. 7s,
2028 265,350
225,000 Teton Power Funding bank term loan
FRN 4.36s, 2011 (acquired 2/4/04,
cost $225,000) (RES) 226,688
350,000 Transcontinental Gas Pipeline Corp.
debs. 7 1/4s, 2026 343,000
180,000 Unisource Energy bank term loan FRN
5.652s, 2011 (acquired 3/25/04,
cost $178,200) (RES) 177,525
4,065,000 Utilicorp Canada Finance Corp.
company guaranty 7 3/4s, 2011
(Canada) 3,739,800
670,000 Utilicorp United, Inc. sr. notes
9.95s, 2011 670,000
1,671,000 Western Resources, Inc. sr. notes
9 3/4s, 2007 1,900,220
2,150,000 Williams Cos., Inc. (The) notes
8 3/4s, 2032 2,128,500
2,075,000 Williams Cos., Inc. (The) notes
7 5/8s, 2019 1,945,313
2,745,000 Williams Cos., Inc. (The) sr. notes
8 5/8s, 2010 2,985,187
1,430,000 Williams Holdings Of Delaware notes
6 1/2s, 2008 1,501,500
183,615 Williams Products bank term loan FRN
3.6s, 2007 (acquired 6/4/03, cost
$183,615) (RES) 185,221
1,925,252 York Power Funding 144A notes 12s,
2007 (Cayman Islands) (In default)
(NON) 193
--------------
109,560,158
--------------
Total Corporate bonds and notes
(cost $1,113,953,642) $1,091,202,071
Asset-backed securities (3.3%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$1,805,000 CDO Repackaging Trust Series 144A
FRN Ser. 03-3, Class A, 9.49s, 2008 $1,782,438
785,000 Denali Capital CLO III Ltd. FRN
Ser. B-2L, 9.149s, 2015 (Cayman
Islands) 792,605
615,000 Dryden Leveraged Loan CDO 144A FRN
Ser. 03-4A, Class D, 9.87s, 2015 621,150
1,825,000 Goldentree Loan Opportunities II,
Ltd. 144A FRN Ser. 2A, Class
5A, 9.96s, 2015 (Cayman Islands) 1,827,281
6,271,893 Neon Capital, Ltd. 144A limited
recourse secured notes Ser.
94, 1.686s, 2013 (acquired 12/19/03,
cost $6,342,150) (RES) (f) 5,907,308
3,901,050 Neon Capital, Ltd. 144A limited
recourse secured notes Ser.
95, 2.319s, 2013 (acquired 12/19/03,
cost $4,283,135) (RES) (f) 3,157,272
14,668,569 Neon Capital, Ltd. 144A limited
recourse secured notes Ser.
96, 1.458s, 2013 (acquired 12/19/03,
cost $14,698,569) (RES) (f) (g) 13,525,447
6,684,836 Neon Capital, Ltd. 144A limited
recourse secured notes Ser.
97, 1.105s, 2013 (acquired 12/23/03,
cost $5,904,502) (RES) (f) 5,857,728
2,382,544 Neon Capital, Ltd. 144A limited
recourse secured notes Ser.
98, 1.637s, 2014 (acquired 12/23/03,
cost $2,442,476) (RES) (f) 2,177,893
725,000 Octagon Investment Parties VI, Ltd.
FRN Ser. 03-6A, Class B2L, 9.46s,
2016 728,625
2,460,000 Providian Gateway Master Trust Ser.
02, Class B, zero %, 2006 2,128,638
1,305,000 Verdi Synthetic CLO 144A Ser. 1A,
Class E2, 11.15s, 2010 1,310,709
--------------
Total Asset-backed securities
(cost $42,741,189) $39,817,094
Foreign government bonds and notes (0.9%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$910,000 Colombia (Republic of) bonds
10 3/8s, 2033 $839,930
385,000 Colombia (Republic of) bonds
Ser. NOV, 9 3/4s, 2009 400,400
750,000 Colombia (Republic of) notes
10 3/4s, 2013 777,750
285,000 Colombia (Republic of) unsub.
9 3/4s, 2009 297,540
2,580,000 Ecuador (Republic of) bonds
stepped-coupon Ser. REGS, 7s (8s,
8/15/04), 2030 (STP) 1,818,900
915,000 Peru (Republic of) bonds 8 3/4s,
2033 768,600
1,335,000 Russia (Federation of) unsub.
stepped-coupon 5s (7 1/2s,
3/31/07), 2030 (STP) 1,214,183
2,370,000 Ukraine (Government of) 144A bonds
7.65s, 2013 2,270,460
2,830,000 United Mexican States bonds
Ser. MTN, 8.3s, 2031 2,970,085
--------------
Total Foreign government bonds and
notes (cost $10,945,755) $11,357,848
Brady bonds (0.1%) (a) (cost $1,280,099)
Principal amount Value
- -------------------------------------------------------------------------------
$1,383,200 Peru (Republic of) FRB Ser. PDI, 5s,
2017 $1,165,346
Convertible bonds and notes (0.1%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$465,000 AES Corp. (The) cv. sub. notes
4 1/2s, 2005 $457,444
150,000 Tower Automotive, Inc. cv. sub.
notes 5s, 2004 150,000
560,000 WCI Communities, Inc. cv. sr. sub.
notes 4s, 2023 617,400
--------------
Total Convertible bonds and notes
(cost $1,244,726) $1,224,844
Short-term investments (4.6%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$10,000,000 Canadian Imperial Bank of Commerce
1.1s, December 20, 2004 $9,991,600
5,000,000 Federal National Mortgage Assn.
1.34s, September 17, 2004 4,979,900
7,205 Short-term investments held as
collateral for loaned
securities with yields ranging from
1.00% to 1.21% and due dates ranging
from June 1, 2004 to June 11, 2004 (d) 7,205
40,658,991 Putnam Prime Money Market Fund (e) 40,658,991
--------------
Total Short-term investments
(cost $55,637,696) $55,637,696
- -------------------------------------------------------------------------------
Total Investments
(cost $1,225,803,107) $1,200,404,899
- -------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $1,221,604,997.
(DEF) Security is in default of principal and interest.
(NON) Non-income-producing security.
(STP) The interest rate and date shown parenthetically represent the new
interest rate to be paid and the date the fund will begin accruing
interest at this rate.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at May 31, 2004 was
$66,748,791 or 5.5% of net assets.
(PIK) Income may be received in cash or additional securities at the
discretion of the issuer.
(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.
The rates shown on Floating Rate Bonds (FRB) and Floating Rate Notes
(FRN) are the current interest rates shown at May 31, 2004.
(e) See Note 5 to the financial statements regarding investments in the
Putnam Prime Money Market Fund.
(f) The notes are secured by debt and equity securities and equity
participation agreements held by Neon Capital, Ltd.
(g) The notes are primarily secured by shares of PSF Group Holdings,
Inc. class A common stock valued at approximately $10.6 million.
Forward currency contracts to buy at May 31, 2004 (Unaudited)
(aggregate face value $722,925)
Unrealized
Aggregate Delivery appreciation/
Value face value date (depreciation)
- ------------------------------------------------------------------------------------------------------
British Pound $281,080 $280,372 9/15/04 $708
Canadian Dollar 440,961 442,553 9/15/04 (1,592)
- ------------------------------------------------------------------------------------------------------
$(884)
- ------------------------------------------------------------------------------------------------------
Forward currency contracts to sell at May 31, 2004 (Unaudited)
Aggregate Delivery Unrealized
Value face value date depreciation
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Euro $8,302,219 $8,237,146 9/15/04 $(65,073)
- ------------------------------------------------------------------------------------------------------
Interest rate swap contracts outstanding at May 31, 2004 (Unaudited)
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 $2,250,360
- ------------------------------------------------------------------------------------------------------
Total return swap contracts outstanding at May 31, 2004 (Unaudited)
Notional Termination Unrealized
amount date depreciation
- ------------------------------------------------------------------------------------------------------
Agreement with Lehman Brothers Special
Financing, Inc. dated June 16, 2003 to
receive (pay) quarterly the notional amount
multiplied by the return of the Lehman U.S.
High Yield Index and pay quarterly the notional
amount multiplied by the three month
USD-LIBOR adjusted by a specified spread. $11,075,800 6/1/05 $(211,385)
Agreement with Lehman Brothers Special
Financing, Inc. dated September 30, 2003 to
receive (pay) semi-annually the notional
amount multiplied by the total rate of
return of the Lehman Brothers U.S. High
Yield Index and pay semi-annually the
notional amount multiplied by the six month
USD-LIBOR adjusted by a specified spread. 5,418,878 10/1/04 (141,849)
- ------------------------------------------------------------------------------------------------------
$(353,234)
- ------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities
May 31, 2004 (Unaudited)
Assets
- -------------------------------------------------------------------------------
Investments in securities, at value, including $7,225 of
securities on loan (identified cost $1,225,803,107) (Note 1) $1,200,404,899
- -------------------------------------------------------------------------------
Cash 1,687,275
- -------------------------------------------------------------------------------
Foreign currency (cost $358,508) (Note 1) 361,543
- -------------------------------------------------------------------------------
Interest and other receivables 25,514,801
- -------------------------------------------------------------------------------
Receivable for shares of the fund sold 4,797,344
- -------------------------------------------------------------------------------
Receivable for securities sold 8,053,819
- -------------------------------------------------------------------------------
Receivable for open swap contracts (Note 1) 2,250,360
- -------------------------------------------------------------------------------
Receivable for open forward currency contracts (Note 1) 709
- -------------------------------------------------------------------------------
Receivable for closed forward currency contracts (Note 1) 322,740
- -------------------------------------------------------------------------------
Total assets 1,243,393,490
Liabilities
- -------------------------------------------------------------------------------
Payable for securities purchased 12,987,213
- -------------------------------------------------------------------------------
Payable for shares of the fund repurchased 5,198,420
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 2,007,304
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 302,961
- -------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 167,773
- -------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,231
- -------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 576,582
- -------------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 66,666
- -------------------------------------------------------------------------------
Payable for closed forward currency contracts (Note 1) 10,240
- -------------------------------------------------------------------------------
Payable for open swap contracts (Note 1) 353,234
- -------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 7,205
- -------------------------------------------------------------------------------
Other accrued expenses 108,664
- -------------------------------------------------------------------------------
Total liabilities 21,788,493
- -------------------------------------------------------------------------------
Net assets $1,221,604,997
Represented by
- -------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $2,537,151,718
- -------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (12,085,758)
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (1,279,849,110)
- -------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and
liabilities in foreign currencies (23,611,853)
- -------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $1,221,604,997
Computation of net asset value and offering price
- -------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($473,785,902 divided by 81,307,929 shares) $5.83
- -------------------------------------------------------------------------------
Offering price per class A share (100/95.50 of $5.83)* $6.10
- -------------------------------------------------------------------------------
Net asset value and offering price per class B share
($148,535,347 divided by 25,802,757 shares)** $5.76
- -------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($576,486,909 divided by 98,698,260 shares) $5.84
- -------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $5.84)* $6.04
- -------------------------------------------------------------------------------
Net asset value, offering price and redemption price per
class Y share ($22,796,839 divided by 3,848,799 shares) $5.92
- -------------------------------------------------------------------------------
* 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, 2004 (Unaudited)
Investment income:
- -------------------------------------------------------------------------------
Interest (including interest income of $24,635 from
investment in affiliated issuers) (Note 5) $54,620,475
- -------------------------------------------------------------------------------
Dividends 281,138
- -------------------------------------------------------------------------------
Securities lending 2
- -------------------------------------------------------------------------------
Total investment income 54,901,615
Expenses:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 4,104,068
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,003,671
- -------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 23,149
- -------------------------------------------------------------------------------
Administrative services (Note 2) 12,600
- -------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 620,018
- -------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 888,586
- -------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 1,531,524
- -------------------------------------------------------------------------------
Other 276,576
- -------------------------------------------------------------------------------
Non-recurring costs (Note 7) 59,003
- -------------------------------------------------------------------------------
Costs assumed by Manager (Note 7) (59,003)
- -------------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Note 5) (4,829)
- -------------------------------------------------------------------------------
Total expenses 8,455,363
- -------------------------------------------------------------------------------
Expense reduction (Note 2) (26,341)
- -------------------------------------------------------------------------------
Net expenses 8,429,022
- -------------------------------------------------------------------------------
Net investment income 46,472,593
- -------------------------------------------------------------------------------
Net realized loss on investments (including net realized
loss of $25,027,727 on sales of investments in affiliated
issuers) (Notes 1,3 and 6) (83,462,275)
- -------------------------------------------------------------------------------
Net realized gain on swap contracts (Note 1) 2,635,459
- -------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (894,895)
- -------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the period 705,389
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments and swap
contracts during the period 73,036,627
- -------------------------------------------------------------------------------
Net loss on investments (7,979,695)
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $38,492,898
- -------------------------------------------------------------------------------
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
Increase (decrease) in net assets 2004* 2003
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $46,472,593 $119,903,477
- -------------------------------------------------------------------------------
Net realized loss on investments and foreign
currency transactions (81,721,711) (97,072,008)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments
and assets and liabilities in foreign
currencies 73,742,016 286,209,237
- -------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 38,492,898 309,040,706
- -------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
- -------------------------------------------------------------------------------
From net investment income
Class A (18,305,378) (46,294,044)
- -------------------------------------------------------------------------------
Class B (6,004,445) (20,604,626)
- -------------------------------------------------------------------------------
Class M (22,031,550) (58,221,075)
- -------------------------------------------------------------------------------
Class Y (882,929) (1,913,562)
- -------------------------------------------------------------------------------
Decrease from capital share transactions
(Note 4) (139,091,816) (83,475,786)
- -------------------------------------------------------------------------------
Total increase (decrease) in net assets (147,823,220) 98,531,613
Net assets
- -------------------------------------------------------------------------------
Beginning of period 1,369,428,217 1,270,896,604
- -------------------------------------------------------------------------------
End of period (including distributions in
excess of net investment income of
$12,085,758 and $11,334,049, respectively) $1,221,604,997 $1,369,428,217
- -------------------------------------------------------------------------------
* 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
May 31
Per-share (Unaudited) Year ended November 30
operating performance 2004 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $5.88 $5.17 $5.84 $6.30 $7.72 $8.35
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .22 (d) .48 .56 .68 .81 .80
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.05) .73 (.62) (.40) (1.41) (.57)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .17 1.21 (.06) .28 (.60) .23
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.22) (.50) (.58) (.71) (.82) (.83)
- ---------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- (.03) (.03) -- (.03)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.22) (.50) (.61) (.74) (.82) (.86)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.83 $5.88 $5.17 $5.84 $6.30 $7.72
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 2.90* 24.65 (0.93) 4.46 (8.69) 2.89
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $473,786 $507,140 $462,586 $561,101 $625,449 $956,094
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .54* (d) 1.03 1.03 1.00 .95 .95
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.65* (d) 8.61 10.35 11.01 10.96 9.99
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 37.39* 78.78 60.35 81.23 68.37 49.29
- ---------------------------------------------------------------------------------------------------------------------------------
* 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).
(d) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses of the fund for the period ended May
31, 2004 reflect a reduction of less than 0.01% based on average net
assets for class A shares (Note 5).
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
May 31
Per-share (Unaudited) Year ended November 30
operating performance 2004 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $5.81 $5.12 $5.79 $6.27 $7.68 $8.32
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .19 (d) .43 .52 .63 .75 .74
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.04) .72 (.62) (.42) (1.39) (.58)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .15 1.15 (.10) .21 (.64) .16
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.20) (.46) (.54) (.66) (.77) (.77)
- ---------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- (.03) (.03) -- (.03)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.20) (.46) (.57) (.69) (.77) (.80)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.76 $5.81 $5.12 $5.79 $6.27 $7.68
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 2.54* 23.56 (1.71) 3.35 (9.29) 1.98
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $148,535 $199,990 $258,113 $372,989 $482,280 $791,036
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .91* (d) 1.78 1.78 1.75 1.70 1.70
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.28* (d) 7.94 9.58 10.27 10.20 9.24
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 37.39* 78.78 60.35 81.23 68.37 49.29
- ---------------------------------------------------------------------------------------------------------------------------------
* 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).
(d) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses of the fund for the period ended May
31, 2004 reflect a reduction of less than 0.01% based on average net
assets for class B shares (Note 5).
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
May 31
Per-share (Unaudited) Year ended November 30
operating performance 2004 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $5.89 $5.18 $5.85 $6.29 $7.71 $8.34
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .21 (d) .47 .55 .67 .79 .79
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.04) .73 (.62) (.38) (1.40) (.57)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .17 1.20 (.07) .29 (.61) .22
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.22) (.49) (.57) (.70) (.81) (.82)
- ---------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- (.03) (.03) -- (.03)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.22) (.49) (.60) (.73) (.81) (.85)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.84 $5.89 $5.18 $5.85 $6.29 $7.71
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 2.79* 24.32 (1.15) 4.59 (8.92) 2.66
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $576,487 $638,046 $534,636 $693,973 $534,387 $826,257
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .66* (d) 1.28 1.28 1.25 1.20 1.20
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.53* (d) 8.34 10.10 10.75 10.71 9.72
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 37.39* 78.78 60.35 81.23 68.37 49.29
- ---------------------------------------------------------------------------------------------------------------------------------
* 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).
(d) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses of the fund for the period ended May
31, 2004 reflect a reduction of less than 0.01% based on average net
assets for class M shares (Note 5).
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS Y
- ---------------------------------------------------------------------------------------------------------------------------------
For the
Six months period
ended Dec. 31,
May 31 1998+
Per-share (Unaudited) Year ended November 30 to Nov. 30
operating performance 2004 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $5.97 $5.23 $5.88 $6.32 $7.72 $8.19
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .23 (d) .50 .59 .68 .84 .74
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.05) .76 (.62) (.37) (1.40) (.41)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .18 1.26 (.03) .31 (.56) .33
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.23) (.52) (.59) (.72) (.84) (.77)
- ---------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- (.03) (.03) -- (.03)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.23) (.52) (.62) (.75) (.84) (.80)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.92 $5.97 $5.23 $5.88 $6.32 $7.72
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 2.96* 25.21 (0.36) 4.97 (8.20) 4.15*
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $22,797 $24,253 $15,562 $15,278 $7,122 $9,090
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .41* (d) .78 .78 .75 .70 .64*
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.78* (d) 8.83 10.60 11.33 11.30 9.54*
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 37.39* 78.78 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).
(d) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses of the fund for the period ended May
31, 2004 reflect a reduction of less than 0.01% based on average net
assets for class Y shares (Note 5).
The accompanying notes are an integral part of these financial
statements.
Notes to financial statements
May 31, 2004 (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. These securities may have a higher rate of default due
to the nature of the investments. 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 4.50%. Prior to
January 28, 2004, the maximum front-end sales charge for class A shares
was 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), bank trust departments, and trust companies.
Effective December 1, 2003 a redemption fee of 1.00% which is retained
by the fund, may apply to shares of any class redeemed (either by
selling or by exchanging to another fund) within 90 days of purchase.
Effective April 19, 2004 (May 3, 2004 for defined contribution plans
administered by Putnam) a 2.00% redemption fee may apply to any shares
that are redeemed (either by selling or exchanging into another fund)
within 5 days of purchase. A 1.00% redemption fee would apply to any
shares that are redeemed (either by selling or exchanging into another
fund) within 6-90 days of purchase.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with 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 the last reported sales price on their
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.
Market quotations are not considered to be readily available for certain
debt obligations; such investments are valued at fair 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. Many securities markets and exchanges outside the
U.S. close prior to the close of the New York Stock Exchange and
therefore the closing prices for securities in such markets or on such
exchanges may not fully reflect events that occur after such close but
before the close of the New York Stock Exchange. Accordingly, on certain
days, the fund will fair value foreign securities taking into account
multiple factors, including movements in the U.S. securities markets.
The number of days on which fair value prices will be used will depend
on market activity and it is possible that fair value prices will be
used by the fund to a significant extent. 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. Such valuations and
procedures are reviewed periodically by the Trustees.
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, net
of applicable withholding taxes, is recognized on the ex-dividend date,
except that certain dividends from foreign securities are recognized as
soon as the fund is informed of 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, if any, are listed after the fund's portfolio.
F) Total return swap contracts The fund may enter into total return swap
contracts, which are arrangements to exchange a market linked return for
a periodic payment, both based on a notional principal amount. To the
extent that the total return of the security or index underlying the
transaction exceeds or falls short of the offsetting interest rate
obligation, the fund will receive a payment from or make a payment to
the counterparty, respectively. Total return 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 received or
made are recorded as realized gains or loss. The fund could be exposed
to credit or market risk due to unfavorable changes in the fluctuation
of interest rates or in the price of the underlying security or index,
the possibility that there is no liquid market for these agreements or
that the counterparty may default on its obligation to perform. Risks
may exceed amounts recognized on the statement of assets and
liabilities. Total return swap contracts outstanding at period end, if
any, 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 received or made
are recorded as realized gains 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. Risks may exceed amounts recognized on the statement of assets
and liabilities. Interest rate swap contracts outstanding at period end,
if any, 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, 2004, the value of
securities loaned amounted to $7,225. The fund received cash collateral
of $7,205 which is pooled with collateral of other Putnam funds into 17
issuers of high grade short-term investments.
I) 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 (the "Code"), 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, 2003, the fund had a capital loss carryover of
$1,195,969,270 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
- ----------------------------------
$299,611,582 November 30, 2007
217,396,296 November 30, 2008
265,227,969 November 30, 2009
309,407,794 November 30, 2010
104,325,629 November 30, 2011
The aggregate identified cost on a tax basis is $1,236,162,402,
resulting in gross unrealized appreciation and depreciation of
$39,729,852 and $75,487,355, respectively, or net unrealized
depreciation of $35,757,503.
J) 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.
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.
Effective January 28, 2004, Putnam Management has agreed to limit its
compensation (and, to the extent necessary, bear other expenses) through
December 31, 2004, to the extent that the fund's net expenses as a
percentage of average net assets exceed the average expense ratio for
the fund's Lipper peer group of front-end load funds.
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. Putnam
Investor Services, a division of PFTC, provides investor servicing agent
functions to the fund. During the six months ended May 31, 2004, the
fund paid PFTC $801,134 for these services.
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, 2004,
the fund's expenses were reduced by $26,341 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $2,039, as a quarterly retainer, 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 Trustee compensation and expenses in
the statement of operations. Accrued pension liability is included in
Payable for Trustee compensation and expenses 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 in distributing shares of the fund. The Plans
provide for payments by the fund to Putnam Retail Management at annual
rates of 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, 2004, Putnam Retail Management, acting
as underwriter, received net commissions of $4,846 and $2,276 from the
sale of class A and class M shares, respectively, and $38,873 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, 2004, Putnam Retail Management, acting as
underwriter, received no monies on class A and class M redemptions.
Note 3
Purchases and sales of securities
During the six months ended May 31, 2004, cost of purchases and proceeds
from sales of investment securities other than short-term investments
aggregated $462,352,654 and $592,587,495, respectively. There were no
purchases or sales of U.S. government securities.
Note 4
Capital shares
At May 31, 2004, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended May 31, 2004
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 7,221,217 $43,176,640
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 1,835,433 10,934,708
- ----------------------------------------------------------------
9,056,650 54,111,348
Shares repurchased (14,023,555) (83,766,789)
- ----------------------------------------------------------------
Net decrease (4,966,905) $(29,655,441)
- ----------------------------------------------------------------
Year ended November 30, 2003
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 28,188,329 $157,328,392
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 5,513,070 30,232,108
- ----------------------------------------------------------------
33,701,399 187,560,500
Shares repurchased (36,917,620) (207,771,318)
- ----------------------------------------------------------------
Net decrease (3,216,221) $(20,210,818)
- ----------------------------------------------------------------
Six months ended May 31, 2004
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 350,179 $2,076,845
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 593,904 3,500,242
- ----------------------------------------------------------------
944,083 5,577,087
Shares repurchased (9,571,550) (56,546,565)
- ----------------------------------------------------------------
Net decrease (8,627,467) $(50,969,478)
- ----------------------------------------------------------------
Year ended November 30, 2003
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 1,626,969 $8,822,699
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 2,165,044 11,693,609
- ----------------------------------------------------------------
3,792,013 20,516,308
Shares repurchased (19,796,484) (109,110,360)
- ----------------------------------------------------------------
Net decrease (16,004,471) $(88,594,052)
- ----------------------------------------------------------------
Six months ended May 31, 2004
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 9,218,160 $55,336,222
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 58,046 346,741
- ----------------------------------------------------------------
9,276,206 55,682,963
Shares repurchased (18,848,179) (112,839,240)
- ----------------------------------------------------------------
Net decrease (9,571,973) $(57,156,277)
- ----------------------------------------------------------------
Year ended November 30, 2003
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 56,328,086 $310,148,376
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 182,088 999,029
- ----------------------------------------------------------------
56,510,174 311,147,405
Shares repurchased (51,535,585) (291,712,357)
- ----------------------------------------------------------------
Net increase 4,974,589 $19,435,048
- ----------------------------------------------------------------
Six months ended May 31, 2004
- ----------------------------------------------------------------
Class Y Shares Amount
- ----------------------------------------------------------------
Shares sold 644,052 $3,927,587
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 145,200 882,929
- ----------------------------------------------------------------
789,252 4,810,516
Shares repurchased (1,002,962) (6,121,136)
- ----------------------------------------------------------------
Net decrease (213,710) $(1,310,620)
- ----------------------------------------------------------------
Year ended November 30, 2003
- ----------------------------------------------------------------
Class Y Shares Amount
- ----------------------------------------------------------------
Shares sold 2,340,522 $12,994,936
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 340,829 1,913,562
- ----------------------------------------------------------------
2,681,351 14,908,498
Shares repurchased (1,593,438) (9,014,462)
- ----------------------------------------------------------------
Net increase 1,087,913 $5,894,036
- ----------------------------------------------------------------
Note 5
Investment in Putnam Prime
Money Market Fund
The fund invests in the Putnam Prime Money Market Fund, an open end
management investment company managed by Putnam Management. Management
fees paid by the fund are reduced by an amount equal to the management
fees paid by Putnam Prime Money Market Fund with respect to assets
invested by the fund in Putnam Prime Money Market Fund. Income
distributions earned by the fund are recorded as income in the statement
of operations and totaled $24,635 for the period ended May 31, 2004.
Note 6
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
- ------------------------------------------------------------------------------------------------
Jasper Energy 144A* $-- $-- $-- $--
PSF Group Holdings Inc 144 A Class A -- 24,256,158 -- --
XCL Equity Units -- 17,289,640 -- --
York Research Corp 144A* -- -- -- --
- ------------------------------------------------------------------------------------------------
Totals $-- $41,545,798 $-- $--
- ------------------------------------------------------------------------------------------------
* Securities removed from portfolio as a result of a corporate action.
Market values are shown for those securities affiliated at period end.
Note 7
Regulatory matters and litigation
On April 8, 2004, Putnam Management entered into agreements with the
Securities and Exchange Commission and the Massachusetts Securities
Division representing a final settlement of all charges brought against
Putnam Management by those agencies on October 28, 2003 in connection
with excessive short-term trading by Putnam employees and, in the case
of the charges brought by the Massachusetts Securities Division, by
participants in some Putnam-administered 401(k) plans. The settlement
with the SEC requires Putnam Management to pay $5 million in
disgorgement plus a civil monetary penalty of $50 million, and the
settlement with the Massachusetts Securities Division requires Putnam
Management to pay $5 million in restitution and an administrative fine
of $50 million. The settlements also leave intact the process
established under an earlier partial settlement with the SEC under which
Putnam Management agreed to pay the amount of restitution determined by
an independent consultant, which may exceed the disgorgement and
restitution amounts specified above, pursuant to a plan to be developed
by the independent consultant.
Putnam Management, and not the investors in any Putnam fund, will bear
all costs, including restitution, civil penalties and associated legal
fees stemming from both of these proceedings. The SEC's and
Massachusetts Securities Division's allegations and related matters also
serve as the general basis for numerous lawsuits, including purported
class action lawsuits filed against Putnam Management and certain
related parties, including certain Putnam funds. Putnam Management has
agreed to bear any costs incurred by Putnam funds in connection with
these lawsuits. Based on currently available information, Putnam
Management believes that the likelihood that the pending private
lawsuits and purported class action lawsuits will have a material
adverse financial impact on the fund is remote, and the pending actions
are not likely to materially affect its ability to provide investment
management services to its clients, including the Putnam funds.
For the period ended May 31, 2004, Putnam Management has assumed $59,003
of legal, shareholder servicing and communication, audit, and Trustee
fees incurred by the Fund in connection with these matters.
Review of these matters by counsel for Putnam Management and by separate
independent counsel for the Putnam funds and their independent Trustees
is continuing. The fund may experience increased redemptions as a result
of these matters, which could result in increased transaction costs and
operating expenses.
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds.
Investors should carefully consider the investment objective, risks,
charges, and expenses of a fund before investing. For a prospectus
containing this and other information for any Putnam fund or product,
call your financial advisor at 1-800-225-1581 and ask for a prospectus.
Please read the prospectus carefully before investing.
Growth Funds
Discovery Growth Fund
Growth Opportunities Fund
Health Sciences Trust
International New Opportunities Fund*
New Opportunities Fund
OTC & Emerging Growth Fund
Small Cap Growth Fund
Vista Fund
Voyager Fund
Blend Funds
Capital Appreciation Fund
Capital Opportunities Fund
Europe Equity Fund*
Global Equity Fund*
Global Natural Resources Fund*
International Capital Opportunities Fund*
International Equity Fund*
Investors Fund
Research Fund
Tax Smart Equity Fund
Utilities Growth and Income Fund
Value Funds
Classic Equity Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
International Growth and Income Fund*
Mid Cap Value Fund
New Value Fund
Small Cap Value Fund+
Income Funds
American Government Income Fund
Diversified Income Trust
Global Income Trust*
High Yield Advantage Fund*+
High Yield Trust*
Income Fund
Intermediate U.S. Government Income Fund
Money Market Fund++
U.S. Government Income Trust
Tax-free Income Funds
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund++
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
Asset Allocation Funds
Putnam Asset Allocation Funds--three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* A 1% redemption fee on total assets redeemed or exchanged between 6
and 90 days of purchase may be imposed for all share classes of these
funds.
+ Closed to new investors.
++ An investment in a money market fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the fund seeks to preserve your investment at $1.00 per share,
it is possible to lose money by investing in the fund.
With the exception of money market funds, a 2% redemption fee will be
applied to shares exchanged or sold within 5 days of purchase.
Check your account balances and the most recent month-end performance at
www.putnaminvestments.com.
Services for shareholders
Investor services
Help your investment grow Set up a program for systematic investing with
as little as $25 a month from a Putnam fund or from your own savings or
checking account. (Regular investing does not guarantee a profit or
protect against loss in a declining market.)
Switch funds easily* You can move money from one Putnam fund to another
within the same class of shares without a service charge.
Access your money easily You can have checks sent regularly or redeem
shares any business day at the then-current net asset value, which may
be more or less than the original cost of the shares. Class B and class
C shares carry a sales charge that is applied to certain withdrawals.
How to buy additional shares You may buy shares through your financial
advisor or directly from Putnam. To open an account by mail, send a
check made payable to the name of the fund along with a completed fund
application. To add to an existing account, complete the investment slip
found at the top of your Confirmation of Activity statement and return
it with a check payable to your fund.
For more information
Visit www.putnaminvestments.com
A secure section of our Web site contains complete information on your
account, including balances and transactions, updated daily. You may
also conduct transactions, such as exchanges, additional investments,
and address changes. Log on today to get your password.
Use our toll-free number 1-800-225-1581 Ask a helpful Putnam
representative or your financial advisor for details about any of these
or other services, or see your prospectus.
* This privilege is subject to change or termination. An exchange of
funds may result in a taxable event. In addition, a 2% redemption fee
will be applied to shares exchanged or sold within 5 days of purchase,
and certain funds have imposed a 1% redemption fee on total assets
redeemed or exchanged between 6 and 90 days of purchase.
Putnam puts your interests first
In January, Putnam announced a number of voluntary initiatives designed
to reduce fund expenses, provide investors with more useful information,
and help safeguard the interests of all Putnam investors. For details,
visit www.putnaminvestments.com.
Cost-cutting initiatives
Reduced sales charges
Effective immediately, the maximum sales charge for class A shares has
been reduced to 5.25% for equity funds (formerly 5.75%) and 4.50% for
most income funds (formerly 4.75%).*
Lower class B purchase limit
To help ensure that investors are in the most cost-effective share
class, the maximum amount that can be invested in class B shares has
been reduced to $100,000. (Larger trades or accumulated amounts will be
directed to class A shares.)
Ongoing expenses will be limited
During calendar 2004, total ongoing expenses, including management fees
for all funds, will be maintained at or below the average of each fund's
industry peers in its Lipper load-fund universe. For more information,
please see the Statement of Additional information.
Additional measures are being taken to reduce expenses for shareholders
in the six global and international funds that had short-term trading
issues.
Improved disclosure
Putnam fund prospectuses and shareholder reports are being revised to
disclose additional information that will help shareholders compare
funds and weigh their costs and risks along with their potential
benefits. Shareholders will find easy-to-understand information about
fund expense ratios, portfolio manager compensation, risk comparisons,
brokerage commissions, and employee and trustee ownership of Putnam
funds. Disclosure of breakpoint discounts is also being enhanced to
alert investors to potential cost savings.
Protecting investors' interests
New short-term trading fee introduced
To discourage short-term trading, which can interfere with a fund's
long-term strategy, a 2% short-term trading fee will be imposed on any
Putnam fund shares redeemed or exchanged within five calendar days of
purchase.
* The maximum sales charge for class A shares of Putnam U.S. Intermediate
Government Income Fund remains 3.25%.
Fund information
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
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,
Associate Treasurer and Principal Executive
Officer
Jonathan S. Horwitz
Senior Vice President and Treasurer
Patricia C. Flaherty
Senior Vice President
Steven D. Krichmar
Vice President and
Principal Financial Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
Beth S. Mazor
Vice President
Daniel T. Gallagher
Vice President and Legal and
Compliance Liaison Officer
James P. Pappas
Vice President
Richard S. Robie, III
Vice President
Mark C. Trenchard
Vice President and BSA Compliance Officer
Francis J. McNamara, III
Vice President and Chief Legal Officer
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, the most recent copy of Putnam's
Quarterly Performance Summary, and Putnam's Quarterly Ranking Summary.
For more recent performance, please visit www.putnaminvestments.com.
Investors should carefully consider the investment objective, risks,
charges, and expenses of a fund, which are described in its prospectus.
For this and other information or to request a prospectus, call
1-800-225-1581 toll free. Please read the prospectus carefully before
investing. 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.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
Call 1-800-225-1581 or visit our Web site
www.putnaminvestments.com.
SA032-215022 060/327/702 7/04
Not FDIC Insured May Lose Value No Bank Guarantee
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ----------------------------------------------------------------------------
Putnam High Yield Advantage Fund
Supplement to Semiannual Report dated 5/31/04
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, and M shares, which are discussed more extensively in the
semiannual report.
RESULTS AT A GLANCE
- ----------------------------------------------------------------------------
Total return for periods ended 5/31/04
NAV
6 months 2.96%
1 year 13.41
5 years 22.81
Annual average 4.19
10 years 68.56
Annual average 5.36
Life of fund (since class A inception, 3/25/86)
Annual average 7.72
Share value: NAV
11/30/03 $5.97
5/31/04 $5.92
- ----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
6 $0.228 -- $0.228
- ----------------------------------------------------------------------------
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. Submission of Matters to a Vote of Security Holders:
- ------------------------------------------------------------
Not applicable
Item 10. Controls and Procedures:
- ---------------------------------
(a) The registrant's principal executive officer and principal financial
officer 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 generally 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.
Although such officers reached the conclusion expressed in the
preceding paragraph, they are aware of matters that raise concerns
with respect to controls, each of which arose in connection with the
administration of 401(k) plans by Putnam Fiduciary Trust Company.
The first matter, which occurred in early 2001, involved the willful
circumvention of controls by certain Putnam employees in connection
with the correction of operational errors with respect to a 401(k)
client's investment in certain Putnam Funds, which led to losses in
five Putnam Funds (not including the registrant). Such officers
became aware of this matter in February 2004. The second matter,
which occurred in 2002, involved the willful circumvention by
certain Putnam employees of policies and procedures in connection
with the payment of Putnam corporate expenses. Such officers did
not learn that this matter involved a Putnam Fund until January
2004. Putnam has made restitution to the affected Funds,
implemented a number of personnel changes, including senior
personnel, begun to implement changes in procedures to address these
items and informed the SEC, the Funds' Trustees and independent
auditors. An internal investigation and review of procedures and
controls are currently ongoing.
In reaching the conclusion expressed herein, the registrant's
principal executive officer and principal financial officer
considered a number of factors, including the nature of the matters
described above, when the matters occurred, the individuals
involved, personnel changes that have occurred since these matters
occurred, the results to date of the current ongoing investigation
and the overall quality of controls at Putnam at this time.
(b) Changes in internal control over financial reporting:
Not applicable
Item 11. 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 27, 2004
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/Charles E. Porter
---------------------------
Charles E. Porter
Principal Executive Officer
Date: July 27, 2004
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: July 27, 2004