Putnam
High Yield
Advantage
Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
11-30-98
[LOGO: BOSTON * LONDON * TOKYO]
* "We believe the high-yield market has become oversold and is currently
extremely attractive. In our opinion, the valuations, fundamentals, and
technicals all spell great opportunity for high-yield investors in the
months ahead."
-- Rosemary H. Thomsen, manager
Putnam High Yield Advantage Fund
* "[High-yield] bonds are an especially valuable addition to fixed-income
portfolios in this age of superslim interest rates. . . . Others see
[high-yield] bonds as an attractive alternative to stocks."
-- The Wall Street Journal, December 1, 1998
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
14 Portfolio holdings
33 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
It would be an understatement to say that the past year was filled with
challenges for managers of high-yield bond portfolios -- including those
of Putnam High Yield Advantage Fund. In the following report, the fund's
managers discuss fiscal 1998 performance in detail and offer their views
on the prospects for both high-yield bonds and your fund in the months
ahead.
I am pleased to announce the addition of three new members to your fund's
management team. Jennifer E. Leichter, managing director and chief
investment officer of the credit team within the Core Fixed Income Group,
has been with Putnam since 1987 and has 15 years of investment experience.
Robert M. Paine, who also joined Putnam in 1987, is a member of the High
Yield Group and has 11 years of investment experience.
Jeffrey A. Kaufman came to Putnam earlier this year from MFS Investment
Management and Salomon Brothers and has 8 years of investment experience.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
January 20, 1999
Report from the Fund Managers
Rosemary H. Thomsen
Jennifer E. Leichter
Robert M. Paine
Jeffrey A. Kaufman
The changes in the high-yield bond market environment from the first half
of Putnam High Yield Advantage Fund's fiscal year to the second half of
the year were as dramatic as night and day. During the first half of the
year, a positive economic backdrop in the United States, combined with
strong market fundamentals, helped propel high-yield bond prices. However,
in late summer, nightfall descended on the high-yield market. The flight
to quality that swept the globe during the period brought the worst period
for high-yield bonds since 1990's recession-bound third quarter. Worried
by Russia's financial collapse and subsequent margin calls on certain
highly leveraged portfolios, many investors suddenly became extremely risk
averse and shied away from high-yield bonds.
Despite the market's setback, we believe high-yield bonds currently offer
investors exceptional value. Unlike stocks, high-yield bonds have not
fully recovered and we believe that this sector of the market still has
appreciation potential, particularly since high-yield bonds tend to
perform well in strong equity markets.
During the very difficult environment that existed during the 12 months
ended November 30, 1998, your fund's class A shares provided a total
return of -7.39% at net asset value and -11.81% at public offering price.
For more information on the fund's performance, including returns for
other share classes, please see pages 9, 10, and 11.
* MARKET'S GLOBAL MARGIN CALL CAUSES HIGH-YIELD RETREAT
During the first half of fiscal 1998, your fund's portfolio continued to
benefit from the sustained rally in high-yield bonds. In the booming
economy, fears of defaults diminished and investors bid up prices of
high-yield bonds. However, seven years of price gains in the high-yield
market were effectively eradicated this past summer for reasons that had
more to do with global investor sentiment than with the business and
economic fundamentals in the United States. A sky-is-falling atmosphere
was created by the combination of signs of recession overseas, Russia's
financial collapse, an unexpectedly weak U.S. jobs report,
lower-than-expected corporate earnings forecasts, and broad-based selling
of high-yield debt by distressed, highly leveraged hedge funds. In
response, investors came stampeding out of just about any fixed-income
security that involved credit risk. This drove down prices on all types of
corporate bonds, including the high-yield bonds in which your fund
invests.
Many have been tempted to compare today's environment to the difficult
period high-yield investors experienced in 1989 and 1990, when the yield
spreads between high-yield bonds and Treasury securities (the difference
in yield between bonds with similar maturities) had widened drastically.
However, investors should be reminded that the 1989 and 1990 period
featured 10% default rates on high-yield bonds, high long-term interest
rates, and an economy that was sliding into recession.
In contrast, today's environment features economic growth, low inflation,
and unusually low default rates. Today's high-yield companies are also
different. They are the more growth-oriented cable, media, and technology
companies with solid balance sheets. Many larger, well-known companies
also issue high-yield debt, including such names as Bethlehem Steel,
Borden, and Northwest Airlines (which are not currently held by the fund).
[GRAPHIC OMITTED: horizontal bar chart of TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Telecommunications 18.6%
Broadcasting 6.2%
Oil and gas 5.2%
Cellular communications 5.1%
Cable television 4.9%
Footnote reads:
*Based on net assets as of 11/30/98. Holdings will vary over time.
* FOCUS ON TELECOMMUNICATIONS, CABLE, AND BROADCASTING
Despite the market's volatility, your fund's strategic underweighting in
steel and other commodities, along with a focus on key high-yield
industries, proved beneficial. High-equity valuations, favorable
regulatory developments, and new technologies have allowed the
telecommunications sector to evolve rapidly into one of today's most
dynamic growth industries. Global Crossing is a good example of a
telecommunications holding that served your fund well during the period.
The company is developing undersea fiber-optic cable systems to help
satisfy the growing demand for reliable global telecommunications. Global
Crossing's Atlantic crossing cable is expected to link the United States,
the United Kingdom, the Netherlands, and Germany by 1999. While this
holding and others discussed in this report were viewed favorably at the
end of the period, all holdings are subject to review and adjustment in
accordance with the fund's investment strategy and may well vary in the
future.
Favorable regulatory developments improved the market positions of
specialized cellular operators and competitive local exchange carriers
(CLECs), including fund holding Intermedia Communications, Inc. Intermedia
has experienced continuous revenue growth since its inception in 1986.
Building from its original base in Florida, Intermedia now provides
integrated telecommunications services nationally with a focus on
customers who have a substantial presence in the eastern United States.
Through a combination of internally generated growth and targeted
acquisitions, the company has expanded its service territory and
dramatically increased its customer base.
Merger and acquisition activity continued to benefit many high-yield
companies during the period. Corporate bond issuers in the cable
television and broadcasting industries continued to take advantage of
relaxed regulations, which have increased competition for lucrative
business. In both industries, aggressive companies are seizing
opportunities through acquisition to secure market share and spread their
fixed costs over a greater number of households. Fund holding Chancellor
Media Corp., one of the largest radio broadcasting companies in the United
States, is one example of this trend. While there can be no assurances, we
anticipate that Chancellor should continue to show record cash flow growth
due to the integration of several acquisitions, including Capstar, a big
radio company, LIN Television, and the Whiteco outdoor advertising
business.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP HOLDINGS
Diamond Cable Communications Co. stepped-coupon, 2005
Cable television
Midland Funding Corp, Series A, 11.75%, 2005
Electric utilities
Transamerican Energy stepped-coupon, 2002
Oil and gas
NEXTEL Communications, Inc. Series E, $11.125 preferred
Cellular communications
Chancellor Media Corp. 144A, 8s, 2008
Broadcasting
WinStar Communications, Inc. stepped-coupon, 2007
Telecommunications
California Federal Bancorp Inc. Series A, $2.281 preferred
Banks
NEXTEL Communications, Inc. stepped-coupon, 2008
Cellular communications
Spanish Broadcasting Systems 14.25% cumulative preferred
Broadcasting
Global Crossing Holdings, Ltd., 9.625%, 2008
Telecommunications
Celcaribe S.A. stepped-coupon, 2004
Telelphone services
These holdings represent 9.4% of the fund's net assets as of 11/30/98.
Portfolio holdings will vary over time.
* HIGH-YIELD MARKET OFFERS FUNDAMENTAL VALUE
As the investment climate has warmed again to risk, investors appear to
have rediscovered high-yield bonds as a source of solid high-income
potential. Despite the high-yield market's revival over the past couple of
months, however, we believe prices have not yet caught up to fundamental
values. We anticipate a recovery of the high-yield market over the next
several months as investors refocus on the economy's continued underlying
strength and compelling high-yield valuations.
Though the specter of a credit crunch seems to have receded with three
interest-rate cuts in two months by the Federal Reserve Board, we continue
to focus on companies with limited near-term need for access to capital.
We plan to continue to emphasize diversification, companies with little
exposure to Asia and low commodity price risk, and securities with
attractive yields relative to their risk levels.
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 11/30/98, there is no guarantee the fund will
continue to hold these securities in the future. The lower credit ratings
of high-yield corporate bonds reflect a greater possibility that adverse
changes in the economy or their issuers may affect their ability to pay
principal and interest on the bonds.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
High Yield Advantage Fund is designed for investors seeking high current
income, with capital growth as a secondary objective.
TOTAL RETURN FOR PERIODS ENDED 11/30/98
Class A Class B Class M
(inception date) (3/25/86) (5/16/94) (12/1/94)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
1 year -7.39% -11.81% -7.99% -12.18% -7.64% -10.60%
- ------------------------------------------------------------------------------
5 years 31.84 25.56 25.98 24.39 30.14 25.91
Annual average 5.68 4.66 4.73 4.46 5.41 4.72
- ------------------------------------------------------------------------------
10 years 137.93 126.56 118.24 118.24 131.32 123.77
Annual average 9.05 8.52 8.12 8.12 8.75 8.39
- ------------------------------------------------------------------------------
Life of fund 202.82 188.39 170.33 170.33 190.38 180.87
Annual average 9.13 8.71 8.16 8.16 8.77 8.49
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 11/30/98
Lehman Bros. First Boston
Corporate Bond High Yield Bond Consumer
Index Index Price Index
- ------------------------------------------------------------------------------
1 year 9.42% 1.73% 1.55%
- ------------------------------------------------------------------------------
5 years 45.65 50.24 12.48
Annual average 7.81 8.48 2.38
- ------------------------------------------------------------------------------
10 years 156.20 179.84 36.33
Annual average 9.87 10.84 3.15
- ------------------------------------------------------------------------------
Life of fund 208.38 257.75 50.74
Annual average 9.30 10.59 3.29
- ------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. Returns for class A and class M
shares reflect the current maximum initial sales charges of 4.75% and
3.25% respectively. Class B share returns for the 1-, 5-, and 10-year
(where available) and life-of-fund periods reflect the applicable
contingent deferred sales charge (CDSC), which is 5% in the first year,
declines to 1% in the sixth year, and is eliminated thereafter. Returns
shown for class B and class M shares for periods prior to their inception
are derived from the historical performance of class A shares, adjusted to
reflect both the initial sales charge or CDSC, if any, currently
applicable to each class and in the case of class B and class M shares,
the higher operating expenses applicable to such shares. All returns
assume reinvestment of distributions at NAV. Investment return and
principal value will fluctuate so that an investor's shares when redeemed
may be worth more or less than their original cost.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 11/30/88
Lehman Bros. First Boston
Fund's class A Corporate Bond High Yield
shares at POP Index Index
11/30/88 9,525 10,000 10,000
11/30/89 9,273 11,427 10,148
11/30/90 8,322 12,076 9,413
11/30/91 12,105 14,053 13,498
11/30/92 14,336 15,492 15,684
11/30/93 17,186 17,590 18,626
11/30/94 16,595 16,860 18,480
11/30/95 19,385 20,444 21,648
11/30/96 21,591 21,767 24,176
11/30/97 24,462 23,414 27,508
11/30/98 $22,656 $25,620 $27,984
Footnote reads:
Past performance is no assurance of future results. At the end of the same
time period, a $10,000 investment in the fund's class B shares would have
been valued at $21,824 and no contingent deferred sales charges would
apply; a $10,000 investment in the fund's class M shares would have been
valued at $23,132 ($22,377 at public offering price). See first page of
performance section for performance calculation method.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 11/30/98
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 12 12 12
- ------------------------------------------------------------------------------
Income $0.946 $0.876 $0.921
- ------------------------------------------------------------------------------
Capital gains -- -- --
- ------------------------------------------------------------------------------
Total $0.946 $0.876 $0.921
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
11/30/97 $9.96 $10.46 $9.92 $9.95 $10.28
- ------------------------------------------------------------------------------
11/30/98 8.35 8.77 8.32 8.34 8.62
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate1 11.07% 10.54% 10.38% 10.79% 10.44%
- ------------------------------------------------------------------------------
Current 30-day SEC yield2 11.02 10.49 10.34 10.76 10.41
- ------------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by NAV
or POP at end of period.
2 Based on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 12/31/98
(most recent calendar quarter)
Class A Class B Class M
(inception date) (3/25/86) (5/16/94) (12/1/94)
NAV POP NAV CDSC NAV POP
- -----------------------------------------------------------------------------
1 year -9.52% -13.84% -10.25% -14.34% -9.78% -12.75%
- -----------------------------------------------------------------------------
5 years 27.83 21.70 22.03 20.49 26.28 22.23
Annual average 5.03 4.01 4.06 3.80 4.78 4.10
- -----------------------------------------------------------------------------
10 years 135.09 123.85 115.55 115.55 128.61 121.20
Annual average 8.92 8.39 7.98 7.98 8.62 8.26
- -----------------------------------------------------------------------------
Life of fund 199.44 185.18 166.79 166.79 187.07 177.67
Annual average 8.97 8.55 7.99 7.99 8.61 8.33
- -----------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. Investment
returns and principal value will fluctuate so that an investor's shares
when sold may be worth more or less than their original cost.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the 4.75% maximum sales charge for class A
shares and 3.25% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of class B shares and assumes redemption at the end of the
period. Your fund's CDSC declines from a 5% maximum during the first year
to 1% during the sixth year. After the sixth year, the CDSC no longer
applies.
COMPARATIVE BENCHMARKS
Lehman Brothers Corporate Bond Index* is an unmanaged list of publicly
issued fixed-income non-convertible securities frequently used as a
general measure of the performance of the corporate bond market.
First Boston High Yield Index* is an unmanaged list of lower-rated
higher-yielding U.S. corporate bonds.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
*Securities indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities in
the fund do not match those in the indexes and performance of the fund
will differ. It is not possible to invest directly in an index.
Report of independent accountants
For the fiscal year ended November 30, 1998
To the Trustees and Shareholders of
Putnam High Yield Advantage Fund
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments owned, and the related statements
of operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of Putnam
High Yield Advantage Fund (the "fund") at November 30, 1998, and the
results of its operations, the changes in its net assets and the financial
highlights for the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the fund's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of investments owned at November 30, 1998 by
correspondence with the custodian, provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 14, 1999
<TABLE>
<CAPTION>
Portfolio of investments owned
November 30, 1998
CORPORATE BONDS AND NOTES (81.7%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
Advertising (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
$ 7,415,000 Lamar Advertising Co. company guaranty 8 5/8s, 2007 $ 7,785,750
8,325,000 Outdoor Communications, Inc. sr. sub. notes 9 1/4s, 2007 8,824,500
--------------
16,610,250
Aerospace and Defense (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
8,830,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 8,741,700
2,650,000 BE Aerospace, Inc. 144A sr. sub. notes 9 1/2s, 2008 2,795,750
1,150,000 Sequa Corp. med. term notes Ser. A, 10.15s, 2001 1,221,254
800,000 Sequa Corp. sr. sub. notes 9 3/8s, 2003 816,000
2,750,000 Sequa Corp. bonds 8 3/4s, 2001 2,818,750
--------------
16,393,454
Agriculture (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
12,211,222 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003 (PIK) 12,333,334
2,400,000 Purina Mills, Inc. sr. sub. notes 9s, 2010 2,472,000
--------------
14,805,334
Airlines (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
7,340,000 Calair LLC company guaranty 8 1/8s, 2008 6,872,075
6,675,000 Canadian Airlines Corp. sr. notes 12 1/4s, 2006 (Canada) 5,139,750
12,470,000 Canadian Airlines Corp. secd. notes 10s, 2005 (Canada) 10,599,500
16,100,000 Cathay International Ltd. 144A sr. notes 13s, 2008 (China) 5,152,000
12,500,000 Trans World Airlines, Inc. sr. notes 11 1/2s, 2004 10,937,500
8,120,000 Trans World Airlines, Inc. sr. notes 11 3/8s, 2006 5,724,600
--------------
44,425,425
Apparel (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
5,375,000 GFSI, Inc. sr. disc. notes Ser. B, stepped-coupon zero %
(11 3/8s, 9/15/04), 2009 (STP) 4,568,750
15,000,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 14,475,000
7,140,000 Sassco Fashions Ltd. sr. notes 12 3/4s, 2004 6,961,500
3,645,000 William Carter Holdings Co. sr. sub. notes Ser. A, 12s, 2008 3,991,275
1,000,000 William Carter Holdings Co. sr. sub. notes Ser. A, 10 3/8s, 2006 1,095,000
--------------
31,091,525
Automotive Parts (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
8,677,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 9,110,850
1,500,000 Aftermarket Technology Corp. sr. sub. notes Ser. D, 12s, 2004 1,575,000
8,565,000 Safety Components International, Inc. sr. sub. notes
Ser. B, 10 1/8s, 2007 8,565,000
--------------
19,250,850
Banks (2.5%)
- --------------------------------------------------------------------------------------------------------------------------
21,850,000 Advanta Corp. company guaranty Ser. B, 8.99s, 2026 7,647,500
9,200,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 8,500,892
850,000 Advanta Corp. med. term notes Ser. D, 6.98s, 2002 758,064
3,000,000 Advanta Corp. med. term notes Ser. D, 6.65s, 2000 2,876,070
1,700,000 Advanta Corp. med. term notes Ser. D, 6.584s, 2000 1,629,059
1,215,000 Advanta Corp. med. term notes Ser. D, 6.54s, 2000 1,162,342
2,100,000 First Federal Financial Corp. notes 11 3/4s, 2004 2,163,000
5,900,000 Fuji JGB Inv. LLC 144A FLIRB bonds 9.87s, 2049 (Japan) 4,194,251
9,960,000 Greenpoint Capital Trust I company guaranty 9.1s, 2027 10,593,954
2,640,000 Imperial Credit Industries, Inc. sr. notes 9 7/8s, 2007 2,059,200
2,915,000 North Fork Capital Trust I company guaranty 8.7s, 2026 3,230,461
2,620,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 2,043,600
2,990,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 2,780,700
6,310,000 Ocwen Financial Corp. notes 11 7/8s, 2003 5,552,800
3,555,000 Peoples Heritage Capital Trust company guaranty
Ser. B, 9.06s, 2027 3,665,489
4,465,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007 3,616,650
2,900,000 Provident Capital Trust company guaranty 8.6s, 2026 3,189,594
6,470,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 6,617,645
7,865,000 Sovereign Capital Trust company guaranty 9s, 2027 7,534,906
2,815,000 Webster Capital Trust I 144A bonds 9.36s, 2027 2,956,369
--------------
82,772,546
Basic Industrial Products (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
11,530,975 Grove Investors LLC 144A 14 1/2s, 2010 (PIK) 9,686,019
7,160,000 Insilco Holding Co. 144A sr. disc. notes stepped-coupon
zero % (14s, 8/15/03), 2008 (STP) 3,293,600
--------------
12,979,619
Broadcasting (4.5%)
- --------------------------------------------------------------------------------------------------------------------------
19,370,000 Allbritton Communications sr. sub. deb. Ser. B, 9 3/4s, 2007 20,532,200
2,000,000 American Radio Systems sr. sub. notes 9 3/4s, 2005 2,180,000
234,062 Australis Media, Ltd. sr. disc. notes stepped-coupon zero %,
(15 3/4s, 5/15/00), 2003 (In default) (Australia) (NON) (STP) 1,755
2,709,586 Australis Media, Ltd. sr. sec. disc. notes zero %, 2000
(In default) (Australia) (NON) 2,082,859
2,935,000 Benedek Communications Corp. sr. disc. notes
stepped-coupon zero % (13 1/4s, 5/15/01), 2006 (STP) 2,083,850
11,220,000 Capstar Broadcasting sr. disc. notes stepped-coupon
zero % (12 3/4s, 2/1/02), 2009 (STP) 9,200,400
6,900,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 7,210,500
3,150,000 Central European Media Enterprises Ltd. sr. notes
9 3/8s, 2004 (Bermuda) 2,583,000
195,000 Chancellor Media Corp. sr. sub notes Ser. B, 8 1/8s, 2007 195,000
23,570,000 Chancellor Media Corp. 144A sr. notes 8s, 2008 24,100,325
5,270,000 Citadel Broadcasting, Inc. 144A sr. sub. notes 9 1/4s, 2008 5,493,975
9,210,000 Fox Family Worldwide, Inc. sr. disc. notes stepped-coupon
zero % (10 1/4s, 11/1/02), 2007 (STP) 6,170,700
16,770,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 16,853,850
15,000,000 Fox/Liberty Networks LLC sr. disc. notes stepped-coupon
zero % (9 3/4s, 8/15/02), 2007 (STP) 10,725,000
2,345,000 Fox/Liberty Networks LLC sr. notes 8 7/8s, 2007 2,415,350
7,260,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 6,933,300
10,000,000 Grupo Televisa S.A. sr. disc. notes stepped-coupon zero %
(13 1/4s, 5/15/01), 2008 (Mexico) (STP) 7,525,000
9,080,000 PHI Holdings, Inc. sr. notes zero %, 2001 7,008,852
10,875,000 Primestar Bank term loan 8 5/8s, 2004 3,262,500
10,480,000 Radio One Inc. company guaranty Ser. B, stepped-coupon
zero % (12s, 5/15/00), 2004 (STP) 10,375,200
--------------
146,933,616
Building and Construction (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
5,960,000 Albecca Inc. 144A sr. sub. notes 10 3/4s, 2008 6,079,200
4,700,000 American Architectural Products Corp. company guaranty
11 3/4s, 2007 3,995,000
3,460,000 Building Materials Corp. 144A sr. notes 8s, 2008 3,511,900
7,650,000 Doskcil Manufacturing Co 144A sr. sub. notes 10 1/8s, 2007 7,191,000
16,310,000 GS Superhighway Holdings sr. notes 10 1/4s, 2007 6,850,200
1,620,000 GS Superhighway Holdings sr. notes 9 7/8s, 2004 696,600
19,730,000 MCII Holdings sec. notes 12s, 2002 14,994,800
--------------
43,318,700
Business Equipment and Services (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
5,070,000 Cendant Corp. notes 7 1/2s, 2000 5,081,915
4,540,000 Cex Holdings, Inc. 144A sr. sub. notes 9 5/8s, 2008 4,358,400
4,000,000 Outsourcing Solutions, Inc. 144A 8.621s, 2004 3,940,000
1,870,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 1,776,500
8,689,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 9,557,900
10,160,000 U.S. Office Products Co. 144A sr. sub notes 9 3/4s, 2008 7,112,000
8,158,000 United Stationer Supply, Inc. sr. sub. notes 12 3/4s, 2005 9,096,170
--------------
40,922,885
Cable Television (4.6%)
- --------------------------------------------------------------------------------------------------------------------------
28,440,000 21st Century Telecom Group, Inc. sr. disc. notes
stepped-coupon zero % (12 1/4s, 2/15/03), 2008 (STP) 11,944,800
5,000,000 Acme Television sr. disc. notes stepped-coupon zero %
(10 7/8s, 9/30/00), 2004 (STP) 3,937,500
1,000,000 Adelphia Communications Corp. sr. notes 9 1/2s, 2004 (PIK) 1,045,000
16,380,000 Adelphia Communications Corp. sr. notes Ser. B, 9 7/8s, 2007 18,038,475
10,680,000 Adelphia Communications Corp. 144A sr. notes 8 3/8s, 2008 10,933,650
2,170,000 CSC Holdings, Inc. deb. 7 7/8s, 2018 2,223,729
2,925,000 CSC Holdings, Inc. sr. notes 7 7/8s, 2007 3,088,127
5,750,000 CSC Holdings, Inc. sr. sub. deb. 10 1/2s, 2016 6,727,500
2,075,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) (STP) 1,509,563
51,775,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005
(United Kingdom) (STP) 43,232,125
3,530,000 Globo Communicacoes 144A sr. notes 10 5/8s, 2008 (Brazil) 2,594,550
4,170,000 Globo Communicacoes 144A company guaranty 10 1/2s,
2006 (Brazil) 3,044,100
2,070,000 Globo Communicacoes company guaranty 10 1/2s,
2006 (Brazil) 1,511,100
7,900,000 Marcus Cable Co. (L.P.) sr. disc. notes stepped-coupon
zero % (14 1/4s, 6/15/00), 2005 (STP) 7,495,125
1,870,000 Pegasus Communications Corp. 144A sr. notes 9 3/4s, 2006 1,886,363
6,000,000 Pegasus Media & Communications notes Ser. B, 12 1/2s, 2005 6,540,000
3,050,000 RBS Participacoes S.A. 144A company guaranty 11s,
2007 (Brazil) 2,074,000
9,845,000 RCN Corp. sr. disc. notes stepped-coupon zero %,
(11 1/8s, 10/15/02), 2007 (STP) 5,660,875
8,820,000 Supercanal Holdings S.A. 144A sr. notes 11 1/2s, 2005
(Argentina) 4,851,000
2,150,000 TeleWest Communications PLC 144A sr. notes 11 1/4s,
2008 (United Kingdom) 2,440,250
3,880,000 TV Azteca Holdings S.A. de C.V. sr. notes 11s, 2002 (Mexico) 3,375,600
1,950,000 TV Azteca Holdings S.A. de C.V. sr. notes Ser. B, 10 1/2s,
2007 (Mexico) 1,735,500
9,960,000 United International Holdings sr. disc. notes Ser. B,
stepped-coupon zero % (10 3/4s, 2/15/03), 2008 (STP) 5,826,600
--------------
151,715,532
Cellular Communications (3.3%)
- --------------------------------------------------------------------------------------------------------------------------
28,054,000 CellNet Data Systems, Inc. sr. disc. notes stepped-coupon
zero % (14s, 10/1/02), 2007 (STP) 7,855,120
18,115,000 Cencall Communications Corp. sr. disc. notes stepped-coupon
zero % (10 1/8s, 1/15/99), 2004 (STP) 17,979,138
6,330,000 CTI Holdings S.A. sr. notes stepped-coupon zero %
(11 1/2s,4/15/03), 2008 (Argentina) (STP) 2,880,150
7,060,000 Dobson Wireline Co. 144A sr. notes 12 1/4s, 2008 6,495,200
5,350,000 Dobson Communications Corp. sr. notes 11 3/4s, 2007 5,564,000
8,310,000 McCaw International Ltd sr. disc. notes stepped coupon
zero % (13s, 4/15/02), 2007 (STP) 4,487,400
23,175,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/01), 2006
(Luxembourg) (STP) 16,280,438
12,620,000 NEXTEL Communications, Inc. 144A sr. notes 12s, 2008 14,039,750
50,950,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (12 1/8s, 4/15/03), 2008 (STP) 21,717,438
11,690,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (9 3/4s, 10/31/02), 2007 (STP) 7,393,925
2,325,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (10.65s, 9/15/02), 2007 (STP) 1,540,313
--------------
106,232,872
Chemicals (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
5,745,000 Geo Specialty Chemicals 144A sr. sub. notes 10 1/8s, 2008 5,572,650
4,570,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 4,490,025
3,230,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 3,221,925
4,850,000 Huntsman Corp. 144A sr. sub. notes FRN 9.188s, 2007 4,607,500
1,923,077 Lyondell Petrochemical Co. Bank term loan C
7 1/4s, 1999 1,865,385
13,076,923 Lyondell Petrochemical Co. Bank term loan D
7 1/4s, 2000 12,684,615
5,800,000 PCI Chemicals & Pharmaceuticals company guaranty 9 1/4s,
2007 (India) 4,669,000
5,200,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 (STP) 2,132,000
8,830,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 4,415,000
8,915,000 Union Carbide Global Enterprises sr. sub. notes
Ser. B, 12s, 2005 9,360,750
--------------
53,018,850
Coal (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
7,160,000 Lodestar Holding, Inc. 144A sr. notes 11 1/2s, 2005 5,656,400
Computer Services and Software (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
3,205,000 Concentric Network Corp. sr. notes 12 3/4s, 2007 3,269,100
20,260,000 IPC Information Systems sr. disc. notes stepped-coupon
zero % (10 7/8s, 11/1/01), 2008 (STP) 12,763,800
7,750,000 Psinet, Inc. 144A sr. notes 11 1/2s, 2008 8,215,000
840,000 Psinet, Inc. sr. notes Ser. B, 10s, 2005 840,000
5,885,000 Unisys Corp. sr. notes 11 3/4s, 2004 6,738,325
3,706,000 Unisys Corp. deb. 9 3/4s, 2016 3,854,240
3,690,000 Verio Inc. 144A sr. notes 11 1/4s, 2008 3,819,150
--------------
39,499,615
Conglomerates (--%)
- --------------------------------------------------------------------------------------------------------------------------
1,960,000 Cia Latino Americana 144A company guaranty 11 5/8s,
2004 (Argentina) 1,332,800
Consumer Durable Goods (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
3,245,000 Remington Products Co. sr. sub. notes Ser. B, 11s, 2006 2,303,950
7,860,000 Sealy Mattress Co. company guaranty Ser. B, stepped-coupon
zero % (10 7/8s, 12/15/02), 2007 (STP) 4,716,000
6,500,000 Sealy Mattress Co. 144A sr. notes 12s, 2008 5,525,000
--------------
12,544,950
Consumer Non Durables (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
2,495,000 Amscan Holdings, Inc. sr. sub. notes 9 7/8s, 2007 2,345,300
1,235,000 Hedstrom Holdings, Inc. sr. disc. notes stepped-coupon
zero % (12s, 6/1/02), 2009 (STP) 592,800
5,560,000 Samsonite Corp. sr. sub. notes 10 3/4s, 2008 4,670,400
--------------
7,608,500
Consumer Services (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
15,402,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 16,788,180
3,060,000 Protection One, Inc. sr. disc. notes stepped-coupon zero %
(13 5/8s, 6/30/00), 2005 (STP) 3,488,400
--------------
20,276,580
Cosmetics (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
4,220,000 French Fragrances, Inc. company guaranty Ser. D,
10 3/8s, 2007 4,262,200
3,790,000 Revlon, Inc. 144A sr. notes 9s, 2006 3,903,700
--------------
8,165,900
Electric Utilities (2.6%)
- --------------------------------------------------------------------------------------------------------------------------
8,195,000 AES China Generating Co. sr. notes 10 1/8s, 2006 (China) 5,285,775
2,000,000 Connecticut Light & Power Co. 1st mtge. Ser. D, 7 7/8s, 2024 2,092,740
9,600,000 Midland Funding Corp. deb. Ser. B, 13 1/4s, 2006 12,258,624
35,705,000 Midland Funding II Corp. deb. Ser. A, 11 3/4s, 2005 41,489,924
800,000 Niagara Mohawk Power Corp. med. term notes 9.95s,
2000 (Philippines) 841,360
9,960,000 Niagara Mohawk Power Corp. sr. disc. notes Ser. H, zero %
(8 1/2s, 7/1/03), 2010 (STP) (Philippines) 7,494,900
6,486,145 Northeast Utilities System notes Ser. A, 8.58s, 2006 6,984,670
1,600,000 Northeast Utilities System notes Ser. B, 8.38s, 2005 1,655,776
14,420,000 Panda Global Energy Co. company guaranty 12 1/2s,
2004 (China) 7,210,000
--------------
85,313,769
Electronics and Electrical Equipment (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
1,907,549 Cirent Semiconductor sr. sub. notes 10.22s, 2002 1,869,398
2,281,671 Cirent Semiconductor 144A sr. sub. notes 10.14s, 2004 2,236,037
5,000,000 Details, Inc. sr. discount notes Ser. B, stepped-coupon zero %
(12 1/2s, 11/15/02), 2007 (STP) 3,000,000
2,790,000 Details, Inc. sr. sub. notes Ser. B, 10s, 2005 2,762,100
550,000 The DII Group, Inc. sr. sub. notes 8 1/2s, 2007 534,875
5,780,000 Flextronics International Ltd. sr. sub. notes Ser. B, 8 3/4s, 2007 5,866,700
13,320,000 Metromedia Fiber Network, Inc. 144A sr. notes 10s, 2008 13,752,900
8,525,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 8,780,750
1,760,000 Samsung Electronics 144A company guaranty 9 3/4s, 2003 1,601,600
5,615,000 Viasystems, Inc. sr. notes Ser. B, 9 3/4s, 2007 5,586,925
3,410,000 Viasystems, Inc. sr. sub notes 9 3/4s, 2007 3,392,950
--------------
49,384,235
Energy-Related (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
4,600,000 CE Casecnan Water & Energy sr. notes Ser. A, 11.45s, 2005
(Philippines) 3,772,000
6,110,000 RAM Energy Inc. sr. notes 11 1/2s, 2008 4,460,300
8,740,000 York Power Funding 144A notes 12s, 2007 (Cayman Islands) 8,652,600
--------------
16,884,900
Entertainment (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
8,390,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 8,599,750
9,925,000 Premier Parks, Inc.144A sr. disc. notes stepped-coupon
zero % (10s, 4/1/03), 2008 (STP) 6,749,000
5,220,000 SFX Entertainment Inc. 144A sr. sub. notes 9 1/8s, 2008 5,220,000
7,690,000 SFX Entertainment, Inc. 144A company guaranty Ser. B,
9 1/8s, 2008 7,690,000
5,275,000 Six Flags Corp. sr. sub. notes 12 1/4s, 2005 5,828,875
--------------
34,087,625
Environmental Control (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
14,910,000 Allied Waste Industries, Inc. sr. disc. notes stepped-coupon
zero % (11.3s, 6/1/02), 2007 (STP) 12,822,600
4,420,000 ATC Group Services Inc. company guaranty 12s, 2008 1,326,000
--------------
14,148,600
Financial Services (2.4%)
- --------------------------------------------------------------------------------------------------------------------------
10,645,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 4,577,350
3,000,000 Colombia Holdings sr. notes 10s, 1999 3,048,750
5,525,000 Colonial Capital I 144A company guaranty 8.92s, 2027 5,690,750
10,110,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 7,986,900
9,345,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 7,382,550
1,770,000 Dollar Financial Group Inc. sr. notes Ser. A, 10 7/8s, 2006 1,787,700
35,915,000 DTI Holdings Inc. sr. disc. notes Ser. B, stepped-coupon
zero % (12 1/2s, 3/01/03), 2008 (STP) 9,697,050
4,565,000 Imperial Credit Capital Trust I 144A company guaranty
10 1/4s, 2002 3,423,750
4,690,000 Investors Capital Trust I company guaranty
Ser. B, 9.77s, 2027 5,135,550
5,500,000 Local Financial Corp. 144A sr. notes 11s, 2004 5,555,000
468,813 Pioneer Americas Bank term loan 8.47s, 2006 389,115
3,951,807 Pioneer Americas Bank term loan 8.715s, 2006 3,280,000
13,310,000 Polytama International notes 11 1/4s, 2007 (Indonesia) 2,662,000
10,250,000 Resource America Inc. 144A sr. notes 12s, 2004 8,610,000
1,970,000 Sampoerna International Finance Co. 144A company
guaranty 8 3/8s, 2006 (Indonesia) 1,024,400
2,000,000 SRI Receivables Purchase 144A notes 12 1/2s, 2000 2,040,000
6,670,000 Superior Financial 144A sr. notes 8.65s, 2003 6,542,853
--------------
78,833,718
Food and Beverages (2.7%)
- --------------------------------------------------------------------------------------------------------------------------
10,405,000 Ameriserve Food Co. company guaranty 10 1/8s, 2007 9,260,450
5,345,000 Ameriserve Food Co. company guaranty 8 7/8s, 2006 4,997,575
13,455,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 14,665,950
3,450,000 Canandaigua Wine Co. sr. sub. notes Ser. C, 8 3/4s, 2003 3,519,000
15,265,000 Doane Products Co. 144A sr. sub. notes 9 3/4s, 2007 15,608,463
1,000,000 Eagle Family Foods company guaranty Ser. B, 8 3/4s, 2008 940,000
10,100,000 Fleming Companies, Inc. company guaranty
Ser. B, 10 5/8s, 2007 9,948,500
6,765,000 Nebco Evans Holding Co. sr. disc. notes stepped-coupon
zero % (12 3/8s, 7/15/02), 2007 (STP) 3,247,200
7,290,000 RAB Enterprises, Inc. 144A sr. notes 10 1/2s, 2005 6,670,350
10,250,000 RAB Food Holdings, Inc. 144A sr. notes 13s, 2008 9,225,000
7,500,000 Signature Brands Ltd. sr. sub. notes 13s, 2002 (Canada) 8,400,000
2,425,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 2,061,250
--------------
88,543,738
Gaming (3.3%)
- --------------------------------------------------------------------------------------------------------------------------
11,049,000 Argosy Gaming Co. company guaranty 13 1/4s, 2004 12,374,880
25,000 Autotote Corp. company guaranty Ser. B, 10 7/8s, 2004 26,000
2,060,000 Circus Circus Enterprises, Inc. sr. notes 6.45s, 2006 1,853,753
2,990,000 Circus Circus Enterprises, Inc. sr. sub. notes 9 1/4s, 2005 3,079,700
10,845,000 Coast Hotels & Casinos, Inc. 1st mtge. company guaranty
Ser. B, 13s, 2002 12,146,400
4,000,000 Coast Hotels & Casinos, Inc. company guaranty Ser. B,
10 7/8s, 2001 4,120,000
6,442,678 Colorado Gaming & Entertainment Co. sr. notes 12s, 2003 7,022,519
16,900,000 Fitzgeralds Gaming Corp. company guaranty Ser. B,
12 1/4s, 2004 9,633,000
10,220,000 Hollywood Casino Corp. sr. notes 12 3/4s, 2003 10,731,000
8,235,000 Isle of Capri Black Hawk LLC 1st mortgage Ser. B, 13s, 2004 8,399,700
11,370,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 6,253,500
5,000,000 Trump A.C. company guaranty Ser. B, 11 1/4s, 2006 4,500,000
17,975,000 Trump Castle Funding 144A sub. notes 10 1/4s, 2003 18,154,750
2,500,000 Trump Castle Hotel 144A sr. sub. notes 10 1/4s, 2003 2,525,000
6,050,000 Trump Holdings & Funding Corp. sr. notes 15 1/2s, 2005 6,443,250
--------------
107,263,452
Health Care (4.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,880,000 Conmed Corp. company guaranty 9s, 2008 1,889,400
14,310,000 Extendicare Health Services, Inc. company guaranty 9.35s, 2007 13,719,713
13,340,000 Fresenius Medical Capital Trust II company guaranty 7 7/8s,
2008 (Germany) 13,239,950
83,000 Genesis Health Ventures, Inc. sr. sub. notes 9 3/4s, 2005 83,000
10,445,000 Global Health Sciences company guaranty 11s, 2008 7,102,600
6,485,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s, 2007 6,403,938
10,615,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s, 2008 10,349,625
2,295,000 Magellan Health Services, Inc. sr. sub. notes 9s, 2008 2,134,350
15,460,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B,
9 1/2s, 2007 12,677,200
980,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B,
stepped-coupon zero % (10 1/2s, 11/1/02), 2007 (STP) 480,200
16,155,000 MedPartners, Inc. sr. notes 7 3/8s, 2006 13,516,889
8,470,000 MedPartners, Inc. sr. sub. notes 6 7/8s, 2000 7,229,992
18,235,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 17,232,075
6,570,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 5,978,700
4,280,000 Paragon Corp. Holdings, Inc. company guaranty Ser. B,
9 5/8s, 2008 3,595,200
4,940,000 PharMerica, Inc. company guaranty 8 3/8s, 2008 4,297,800
14,730,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 12,962,400
4,860,000 Tenet Healthcare Corp. 144A sr. sub. notes 8 1/8s, 2008 5,017,950
--------------
137,910,982
Lodging (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
6,300,000 Epic Resorts LLP 144A sr. notes 13s, 2005 5,985,000
13,030,000 Raintree Resorts International, Inc. sr. notes
Ser. B, 13s, 2004 7,818,000
2,000,000 Starwood Hotels Resorts Bank term loan
7.861s, 2003 1,970,000
--------------
15,773,000
Medical Supplies and Devices (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
8,435,000 ALARIS Medical Systems, Inc. company guaranty 9 3/4s, 2006 8,435,000
5,375,000 Graphic Controls Corp. sr. sub. notes Ser. A, 12s, 2005 6,181,250
2,100,000 Imagyn Medical Technologies, Inc. company guaranty
12 1/2s, 2004 315,000
3,825,000 Kinetic Concepts, Inc. company guaranty Ser. B, 9 5/8s, 2007 3,691,125
9,915,000 Leiner Health Products sr. sub. notes 9 5/8s, 2007 10,336,388
9,110,000 Mediq, Inc. company guaranty 11s, 2008 8,563,400
7,800,000 Mediq, Inc. deb. 13s, 2009 3,666,000
9,530,000 Wright Medical Technology, Inc. 144A notes Ser. C,
11 3/4s, 2000 5,718,000
--------------
46,906,163
Metals and Mining (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
13,680,000 Anker Coal Group, Inc. sr. notes Ser. B, 9 3/4s, 2007 7,387,200
2,662,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes 12 3/4s, 2003 2,635,380
7,280,000 WHX Corp. sr. notes 10 1/2s, 2005 6,952,400
--------------
16,974,980
Motion Picture Distribution (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
6,000,000 Cinemark USA, Inc. sr. sub. notes Ser. D, 9 5/8s, 2008 (Mexico) 6,285,000
8,890,000 United Artists Theatre sr. sub. notes Ser. B, 9 3/4s, 2008 8,712,200
--------------
14,997,200
Oil and Gas (4.5%)
- --------------------------------------------------------------------------------------------------------------------------
7,955,000 Abraxas Petrolem Corp. 144A company guaranty Ser. D,
11 1/2s, 2004 6,841,300
1,220,000 American Eco Corp. company guaranty Ser. B, 9 5/8s, 2008 793,000
8,675,000 Benton Oil & Gas Co. sr. notes 11 5/8s, 2003 6,072,500
1,025,000 Benton Oil & Gas Co. sr. notes 9 3/8s, 2007 625,250
7,345,000 Chesapeake Energy Corp. company guaranty Ser. B,
9 5/8s, 2005 6,720,675
5,208,000 Chesapeake Energy Corp. sr. notes 9 1/8s, 2006 4,478,880
2,570,000 Coho Energy, Inc. sr. sub. notes 8 7/8s, 2007 2,396,525
5,155,000 Dailey Petroleum Services Corp. company guaranty
9 1/2s, 2008 2,371,300
1,935,000 Flores & Rucks, Inc. sr. sub. notes 9 3/4s, 2006 2,051,100
1,330,000 Gothic Energy Corp. sr. disc. notes Ser. B, stepped-coupon
zero % (14 1/8s, 5/1/03), 2006 (STP) 465,500
6,000,000 Gothic Production Corp. company guaranty Ser. B,
11 1/8s, 2005 4,920,000
5,000,000 Gulf Canada Resources, Ltd. sr. sub. notes 9 5/8s, 2005 (Canada) 5,237,500
4,540,000 Gulf Canada Resources, Ltd. sr. notes 8 3/8s, 2005 (Canada) 4,676,200
3,550,000 HS Resources, Inc. company guaranty 9 1/4s, 2006 3,496,750
6,690,000 Michael Petroleum Corp. sr. notes Ser. B, 11 1/2s, 2005 5,352,000
7,680,000 Northern Offshore 144A company guaranty 10s, 2005 4,915,200
1,420,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 1,476,800
7,395,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 7,727,775
3,125,000 Pacalta Resources Ltd. sr. notes Ser. B, 10 3/4s, 2004 (Canada) 2,656,250
3,730,000 Panaco, Inc. company guaranty Ser. B, 10 5/8s, 2004 2,946,700
4,735,000 Seven Seas Petroleum sr. notes Ser. B, 12 1/2s, 2005 3,314,500
7,600,000 Southwest Royalties, Inc. company guaranty 10 1/2s, 2004 3,876,000
113,200,000 Transamerican Energy sr. disc. notes Ser. B, stepped-coupon
zero % (13s, 6/15/99), 2002 (STP) 39,620,000
35,935,000 Transamerican Energy sr. notes Ser. B, 11 1/2s, 2002 13,655,300
8,736,000 TransTexas Gas Corp. sr. sub. notes Ser. D, 13 3/4s, 2001 6,988,800
3,475,000 XCL Ltd. 144A company guaranty 13 1/2s, 2004 3,509,750
--------------
147,185,555
Packaging and Containers (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
7,790,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 7,790,000
1,620,000 Owens-Illinois, Inc. deb. 7.8s, 2018 1,626,221
20,175,000 Riverwood International Corp. company guaranty 10 7/8s, 2008 19,166,250
9,000,000 Riverwood International Corp. company guaranty 10 5/8s, 2007 9,270,000
1,220,000 Riverwood International Corp. company guaranty 10 1/4s, 2006 1,241,350
--------------
39,093,821
Paper and Forest Products (1.9%)
- --------------------------------------------------------------------------------------------------------------------------
11,720,000 APP Finance II Mauritius Ltd. bonds sr. disc. notes
stepped-coupon zero % (12s, 2/15/04), 2049 (Indonesia) (STP) 7,032,000
870,000 APP International Finance Co. notes 11 3/4s, 2005
(Netherlands) 739,500
620,000 Boise Cascade Co. med. term notes Ser. A, 7.43s, 2005 600,451
6,555,000 Huntsman Packaging Corp. company guaranty 9 1/8s, 2007 6,555,000
7,950,000 Indah Kiat Financial Mauritius Ltd. company guaranty 10s,
2007 (Indonesia) 5,088,000
11,000,000 Jefferson Smurfit Term Bank term loan B 8.65s, 2006 11,027,500
14,190,000 Pindo Deli Finance Mauritius Ltd. company guaranty 10 3/4s,
2007 (Indonesia) 8,301,150
15,005,000 PT Pabrik Kertas Tjiwi Kimia company guaranty 10s,
2004 (Indonesia) 9,678,225
12,905,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 10,065,900
1,360,000 Repap New Brunswick 144A sr. notes 9s, 2004 (Canada) 1,332,800
--------------
60,420,526
Pharmaceuticals (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
2,670,000 Biovail Corp. International 144A sr. notes 10 7/8s, 2005 2,710,050
9,550,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 9,454,500
--------------
12,164,550
Photography (--%)
- --------------------------------------------------------------------------------------------------------------------------
2,650,000 PX Escrow Corp. sr. disc. notes stepped-coupon zero %
(9 5/8s, 2/1/02), 2006 (STP) 1,457,500
Publishing (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
10,078,507 Alabama River Newsprint Co. Bank term loan
7.562s, 2002 7,558,880
2,550,000 American Media Operation, Inc. sr. sub. notes 11 5/8s, 2004 2,607,375
3,294,252 Von Hoffman Press, Inc. 144A sr. sub. notes 13 1/2s, 2009 3,426,022
--------------
13,592,277
Railroads (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,935,000 TFM S.A. de C.V. company guaranty 10 1/4s, 2007 (Mexico) 1,741,500
14,750,000 TFM S.A. de C.V. company guaranty stepped-coupon
zero % (11 3/4s, 6/15/02), 2009 (Mexico) (STP) 7,965,000
--------------
9,706,500
Restaurants (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
4,800,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 4,680,000
Retail (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
7,675,000 Amazon.com, Inc. sr. disc. notes stepped-coupon zero %
(10s, 5/01/03), 2008 (STP) 5,065,500
4,555,000 Home Interiors & Gifts, Inc. 144A sr. sub. notes 10 1/8s, 2008 4,475,288
1,700,000 K mart Corp. deb. 13 1/2s, 2009 1,765,926
2,250,000 K mart Corp. med. term notes 9s, 2020 2,298,555
400,000 K mart Corp. med. term notes 8.19s, 2003 412,876
300,000 K mart Corp. med. term notes 8s, 2001 304,761
300,000 K mart Corp. med. term notes 7.2s, 2000 302,463
9,045,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 9,316,350
16,460,000 NBTY, Inc. 144A sr. sub. notes 8 5/8s, 2007 16,130,800
3,545,000 North Atlantic Trading Co. company guaranty Ser. B, 11s, 2004 3,491,825
--------------
43,564,344
Satellite Services (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
3,248,686 Direct Sat 1 144A notes 8 1/4s, 2001 3,244,625
14,660,000 Echostar Satellite Broadcast Corp. sr. disc. notes
stepped-coupon zero % (13 1/8s, 3/15/00), 2004 (STP) 14,220,200
3,066,201 Echostar I 144A sr. notes 8 1/4s, 2001 3,062,369
7,890,000 Golden Sky Systems 144A sr. sub. notes 12 3/8s, 2006 8,245,050
5,535,000 Satelites Mexicanos S.A. de C.V. 144A sr. notes 10 1/8s,
2004 (Mexico) 4,649,400
4,690,000 TCI Satellite Entertainment, Inc. sr. disc. notes stepped-coupon
zero % (12 1/4s, 2/1/02), 2007 (STP) 1,172,500
2,811,000 TCI Satellite Entertainment, Inc. sr. sub. notes 10 7/8s, 2007 1,124,400
--------------
35,718,544
Semiconductors (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
9,480,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 9,290,400
15,244,076 Fairchild Semiconductor Corp. 144A sr. sub. notes 11.74s, 2008 12,500,143
15,870,000 Zilog, Inc. company guaranty Ser. B, 9 1/2s, 2005 12,061,200
--------------
33,851,743
Specialty Consumer Products (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
9,910,000 Decora Industries, Inc. sec. Ser. B, 11s, 2005 9,117,200
Telecommunications (14.9%)
- --------------------------------------------------------------------------------------------------------------------------
11,450,000 Barak I.T.C. sr. disc. notes Ser. B, stepped-coupon zero %
(12 1/2s, 11/15/02), 2007 (Israel) (STP) 5,896,750
6,240,000 CapRock Communications Corp. sr. notes Ser. B, 12s, 2008 5,928,000
9,000,000 Charter Communications International, Inc. disc. notes
Ser. B, stepped-coupon zero % (14s, 3/15/01), 2007 (STP) 8,010,000
2,250,000 Charter Communications International, Inc. sr. notes
Ser. B, 11 1/4s, 2006 2,475,000
7,705,000 Conecel Holdings 144A notes Ser. A, 14s, 2000 3,467,250
2,470,000 Consorcio Ecuatoiano notes 14s, 2002 (Ecuador) 1,358,500
33,820,000 Covad Communications Group sr. disc. notes Ser. B,
stepped-coupon zero % (13 1/2s, 3/15/03), 2008 (STP) 16,910,000
5,100,000 Econophone Inc. company guaranty 13 1/2s, 2007 5,151,000
18,640,000 Econophone, Inc. 144A notes stepped-coupon zero %
(11s, 2/15/03), 2008 (STP) 8,947,200
11,585,000 E. Spire Communications, Inc. sr. notes 13 3/4s, 2007 12,453,875
9,500,000 E. Spire Communications, Inc. sr. disc. notes stepped-coupon
zero % (13s, 11/1/00), 2005 (STP) 7,267,500
5,750,000 Esprit Telecom Group PLC sr. notes 11 1/2s, 2007
(United Kingdom) 5,807,500
35,370,000 Firstworld Communication Corp. sr. disc. notes
stepped-coupon zero % (13, 4/15/03) 2008 (STP) 10,257,300
25,800,000 Focal Communications Corp. sr. disc. notes Ser. B,
stepped-coupon zero % (12 1/8s, 2/15/03), 2008 (STP) 13,932,000
19,800,000 Global Crossing Holdings, Ltd. company guaranty 9 5/8s, 2008 21,186,000
25,188,000 GST Telecommunications, Inc. company guaranty
stepped-coupon zero % (13 7/8s, 12/15/00), 2005 (STP) 18,387,240
28,420,000 GST Telecommunications, Inc. 144A sr. disc. notes
stepped-coupon zero % (10 1/2s, 5/1/03), 2008 (STP) 13,641,600
6,355,000 Hyperion Telecommunication Inc. sr. disc. notes Ser. B,
stepped-coupon zero % (13s, 4/15/01), 2003 (STP) 4,750,363
8,120,000 Hyperion Telecommunications, Inc. sr. notes Ser. B,
12 1/4s, 2004 8,404,200
10,850,000 ICG Communications, Inc. sr. disc. notes stepped-coupon
zero % (10s, 2/15/03), 2008 (STP) 5,750,500
11,130,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon zero %
(13 1/2s, 9/15/00), 2005 (STP) 9,293,550
38,440,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero %
(9 7/8s, 5/1/03), 2008 (STP) 19,796,600
12,065,000 Intelcom Group USA, Inc. company guaranty stepped-coupon
zero % (12 1/2s, 5/1/01), 2006 (STP) 8,928,100
6,490,000 Interact Systems, Inc. sr. disc. notes stepped-coupon zero %
(14s, 8/1/00), 2003 (STP) 324,500
1,220,000 Intercel, Inc. sr. disc. notes stepped-coupon zero % (12s, 2/1/01),
2006 (STP) 890,600
8,410,000 Intermedia Communications, Inc. sr. notes Ser. B, 8.6s, 2008 8,199,750
20,635,000 Intermedia Communications, Inc. sr. notes Ser. B, 8 1/2s, 2008 20,015,950
19,750,000 International Cabletel, Inc. sr. notes Ser. B, stepped-coupon
zero % (11 1/2s, 2/01/01), 2006 (STP) 16,738,125
11,840,000 IXC Communications, Inc. sr. sub. notes 9s, 2008 11,958,400
31,670,000 KMC Telecom Holdings, Inc. sr. disc. notes stepped-coupon
zero % (12 1/2s, 2/15/03), 2008 (STP) 15,518,300
29,100,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon zero %
(11 7/8s, 10/15/02), 2007 (STP) 14,259,000
1,910,000 L-3 Communications Corp. sr. sub. notes 8 1/2s, 2008 1,962,525
3,650,000 L-3 Communications Corp. sr. sub. notes Ser. B, 10 3/8s, 2007 4,015,000
2,025,000 MetroNet Communications Corp. sr. notes
12s, 2007 (Canada) 2,268,000
4,500,000 MetroNet Communications Corp. sr. disc. notes
stepped-coupon zero % (10 3/4s, 11/1/02), 2007
(Canada) (STP) 2,970,000
10,020,000 MetroNet Communications Corp. 144A sr. notes 10 5/8s,
2008 (Canada) 10,721,400
9,595,000 MetroNet Communications Corp. sr. disc. stepped-coupon
notes zero % (9.95s, 6/15/03), 2008 (Canada) (STP) 5,948,900
6,445,000 Microcell Telecommunications sr. disc. notes Ser. B,
stepped-coupon zero % (14s, 12/1/01), 2006 (Canada) (STP) 4,849,863
1,880,000 Netia Holdings B.V. 144A company guaranty stepped-coupon
zero % (11 1/4s, 11/1/01), 2007 (Poland) (STP) 1,146,800
3,320,000 Netia Holdings B.V. 144A company guaranty 10 1/4s, 2007
(Poland) 2,921,600
10,150,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 9,947,000
6,400,000 NTL Inc. 144A sr. notes 11 1/2s, 2008 7,144,320
16,210,000 NTL Inc. 144A sr. notes stepped-coupon zero %
(9 3/4s, 4/01/03), 2008 (STP) 10,374,400
14,790,000 Pathnet, Inc. sr. notes 12 1/4s, 2008 11,166,450
12,060,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (9.47s, 10/15/02), 2007 (STP) 9,346,500
20,230,000 Rhythms Netconnections, Inc. sr. disc. notes Ser. B, zero %
(13 1/2s, 5/15/03), 2008 (STP) 8,294,300
7,760,000 STARTEC Global Communications Corp. sr. notes 12s, 2008 6,596,000
17,230,000 Teligent, Inc. sr. disc. notes Ser. B, stepped-coupon zero %
(11 1/2s, 3/1/03), 2008 (STP) 8,830,375
9,305,000 Teligent, Inc. sr. notes 11 1/2s, 2007 8,886,275
7,565,000 Time Warner Telecom Inc. sr. notes 9 3/4s, 2008 8,018,900
7,920,000 USN Communications, Inc. sr. disc. notes Ser. B, stepped-coupon
zero % (14 5/8s, 8/15/00), 2004 (STP) 1,188,000
7,945,000 Versatel Teleco 144A sr. notes 13 1/4s, 2008 7,937,055
3,160,000 Vialog Corp. company guaranty 12 3/4s, 2001 2,528,000
11,690,000 WinStar Communications, Inc. sr. sub. notes 11s, 2008 9,118,200
24,055,000 WinStar Communications, Inc. sr. sub. notes stepped-coupon
zero % (15s, 3/01/02), 2007 (STP) 23,814,450
8,250,000 WinStar Communications, Inc. company guaranty
14 1/2s, 2005 9,281,250
--------------
485,180,216
Telephone Services (4.4%)
- --------------------------------------------------------------------------------------------------------------------------
2,820,000 Allegiance Telecom, Inc. sr. notes 12 7/8s, 2008 2,820,000
27,449,000 Allegiance Telecom, Inc. sr. disc. notes Ser. B, stepped-coupon
zero % (11 3/4s, 2/15/03), 2008 (STP) 13,450,010
19,065,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 14,680,050
21,400,000 Celcaribe S.A. sr. notes stepped-coupon zero %
(13 1/2s, 1/13/99), 2004 (Colombia) (STP) 21,186,000
6,425,000 Facilicom International sr. notes Ser. B., 10 1/2s, 2008 5,268,500
725,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 728,625
3,070,000 ITC Deltacom, Inc. sr. notes 11s, 2007 3,346,300
7,570,000 Long Distance International, Inc. 144A sr. notes 12 1/4s, 2008 6,056,000
3,810,000 MJD Communications, Inc. notes Ser. B, FRN, 9.16s, 2008 3,657,600
1,680,000 MJD Communications, Inc. sr. sub. notes Ser. B, 9 1/2s, 2008 1,680,000
4,385,000 OnePoint Communications, Corp. 144A sr. notes 14 1/2s, 2008 2,451,215
7,320,000 Primus Telecommunications Group, Inc. sr. notes Ser. B,
9 7/8s, 2008 6,697,800
9,117,000 RSL Communications, Ltd. company guaranty 12 1/4s, 2006 9,572,850
6,100,000 RSL Communications, Ltd. company guaranty 9 1/8s, 2008 5,673,000
9,140,000 RSL Communications, Ltd. company guaranty
stepped-coupon zero % (10 1/8s, 3/1/03), 2008 (STP) 5,164,100
10,175,000 Transtel S.A. 144A pass through certificates
12 1/2s, 2007 (Colombia) 3,561,250
5,100,000 US Xchange LLC 144A sr. notes 15s, 2008 5,355,000
35,245,000 Viatel, Inc. sr. disc. notes stepped-coupon zero %
(12 1/2s, 4/15/03), 2008 (STP) 19,913,425
13,760,000 Viatel, Inc. sr. notes 11 1/4s, 2008 13,656,800
--------------
144,918,525
Transportation (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
5,480,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 5,343,000
6,245,000 Johnstown America Industries, Inc. company guaranty Ser. C,
11 3/4s, 2005 6,588,475
4,770,000 Johnstown America Industries, Inc. sr. sub. notes 11 3/4s, 2005 5,032,350
6,000,000 Pegasus Shipping 144A sr. sub. notes 11 7/8s, 2004 5,250,000
--------------
22,213,825
Wireless Communications (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
10,100,000 American Mobile Satellite Corp. company guaranty
12 1/4s, 2008 6,666,000
5,680,000 Comcast Cellular Holdings sr. notes Ser. B, 9 1/2s, 2007 6,134,400
8,000,000 Paging Network Do Brasil sr. notes 13 1/2s, 2005 (Brazil) 3,920,000
1,650,000 Paging Network, Inc. 144A sr. sub. notes 10s, 2008 1,699,500
4,390,000 Telesystem International Wireless Inc. sr. disc. notes Ser. C,
stepped-coupon, zero % (10 1/2s, 11/1/02), 2007 (STP) 1,756,000
5,910,000 WAM!NET, Inc. company guaranty Ser. B, stepped-coupon
zero % (13 1/4s, 3/1/02), 2005 (STP) 3,014,100
--------------
23,190,000
--------------
Total Corporate Bonds and Notes (cost $3,134,664,359) $2,668,633,691
PREFERRED STOCKS (8.9%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Apparel (--%)
- --------------------------------------------------------------------------------------------------------------------------
47 Anvil Holdings Ser. B, $3.25 pfd. (PIK) $ 705
Banks (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
882,200 California Federal Bancorp Inc. Ser. A, $2.281 pfd. 22,937,200
187,205 Chevy Chase Capital Corp. Ser. A, $5.19 pfd. 9,617,657
50,000 Chevy Chase Savings Bank $3.25 pfd. 1,475,000
--------------
34,029,857
Broadcasting (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
42,320 Capstar Broadcasting Inc. 144A $12.00 pfd. (PIK) 5,036,080
79,413 Citadel Broadcasting Inc. 144A $13.25 cum. pfd. (PIK) 9,470,000
1,564 Paxson Communications Corp. $13.25 cum. pfd. (PIK) 13,685,000
21,062 Spanish Broadcasting Systems 14.25% cum. pfd. (PIK) 21,219,965
--------------
49,411,045
Building and Construction (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
150,300 Brand Scaffold Services, Inc. 144A $3.625 pfd. 4,509,000
Cable Television (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
2,755 21st Century Telecom Group 144A 13.75% cum. pfd. (PIK) 1,790,750
37,804 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 4,262,401
2,828 Pegasus Communications Corp. Ser. A, $12.75 cum. pfd. 2,856,280
--------------
8,909,431
Cellular Communications (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
14,129 Dobson Communications Corp. 144A 12.25% pfd. (PIK) 12,998,680
16,055 NEXTEL Communications, Inc. Ser. D, $13.00 cum. pfd. (PIK) 16,456,375
31,350 NEXTEL Communications, Inc. Ser. E, $11.125 pfd. (PIK) 27,705,563
--------------
57,160,618
Computer Services and Software (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
5,289 Concentric Network Corp. Ser. B, 13.50% pfd. (PIK) 4,442,760
Cosmetics (--%)
- --------------------------------------------------------------------------------------------------------------------------
1,609 Renaissance Cosmetics Inc. 14.00% pfd. (PIK) 1,609
Electric Utilities (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
115,245 Public Service Co. of New Hampshire $2.651 1st mtge. pfd. 2,996,370
Financial Services (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
3,090,000 CSBI Capital Trust I 144A $11.75 pfd. 3,244,500
Food and Beverages (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
260,000 Doane Products Co. $14.25 pfd. 11,440,000
81,266 Nebco Evans Holding Co. 144A $11.25 pfd. (PIK) 4,063,300
--------------
15,503,300
Health Care (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
15,370,000 Fresenius Medical Care AG. pfd. Ser. D, 9.00% pfd. (Germany) 16,061,650
Insurance and Finance (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
130,000 CGA Group Ltd. 144A Ser. A, $13.75 pfd. (PIK) 3,640,000
Motion Picture Distribution (--%)
- --------------------------------------------------------------------------------------------------------------------------
116,495 Diva Systems Corp. Ser. C, $6.00 pfd. 1,048,455
269,000 Diva Systems Corp. Ser. D, $6.00 pfd. 2,421,000
--------------
3,469,455
Restaurants (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
184,254 AmeriKing, Inc. $3.25 pfd. (PIK) 4,606,350
Satellite Services (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
3,683 Echostar Communications, Inc. 12.125% pfd. (PIK) 4,051,300
Telecommunications (2.4%)
- --------------------------------------------------------------------------------------------------------------------------
1,900 E. Spire Communications, Inc.144A 14.75% pfd. (PIK) 1,330,000
3,132 E. Spire Communications, Inc. 12.75% pfd. (PIK) 2,035,800
7,402 Hyperion Telecommunications Ser. B, 12.875% pfd. (PIK) 6,143,660
9,645 ICG Holdings, Inc. 144A $14.00 pfd. (Canada) (PIK) 9,355,650
6,668 ICG Holdings, Inc. $14.00 pfd. (Canada) (PIK) 6,601,320
14,643 IXC Communications, Inc. 12.50% pfd. (PIK) 15,265,328
14,504 Intermedia Communication Ser. B, 13.50% pfd. (PIK) 15,011,640
194,453 Nextlink Communications, Inc. 144A $7.00 cum. pfd. 10,403,236
14,400 WinStar Communications, Inc. 144A 14.25% pfd. (PIK) 12,240,000
--------------
78,386,634
--------------
Total Preferred Stocks (cost $317,638,123) $ 290,424,584
CONVERTIBLE BONDS AND NOTES (2.0%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
$ 30,042,000 APP Global Finance Ltd. cv. bond zero %, 2012
(United Kingdom) $ 5,332,455
10,000,000 APP Global Finance Ltd. 144A cv. company guaranty 3 1/2s,
2003 (United Kingdom) 6,675,000
2,900,000 Argosy Gaming cv. sub. notes 12s, 2001 2,918,125
14,500,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 8,754,375
3,106,000 GST Telecommunications, Inc. cv. sr. disc. notes
stepped-coupon zero % (13 7/8s, 12/15/00), 2005 (STP) 3,106,000
5,750,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s, 2002 3,974,688
10,790,000 Jacor Communications, Inc. cv. sr. notes zero %, 2011 8,780,363
5,000,000 Lam Research Corp. cv. sub. notes 5s, 2002 3,900,000
5,000,000 Lam Research Corp. 144A cv. sub. notes 5s, 2002 3,900,000
5,475,000 NovaCare, Inc. cv. sub. deb. 5 1/2s, 2000 4,462,125
5,514,000 Polymax 144A cv. notes 2s, 2006 2,178,030
1,000,000 Protection One, Inc. cv. sr. sub. notes 6 3/4s, 2003 1,107,500
7,110,000 WinStar Communications. Inc. 144A cv. sr. disc. notes
stepped-coupon zero % (14s, 10/15/00), 2005 (STP) 8,887,500
--------------
Total Convertible Bonds and Notes (cost $76,506,547) $ 63,976,161
UNITS (1.5%) (a)
NUMBER OF UNITS VALUE
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
19,680 Australis Media, Ltd. units stepped-coupon zero %
(15 3/4s, 5/15/03), 2003 (In Default) (Australia) (STP) (NON) $ 147,600
7,660 Bestel S.A. de CV units, stepped-coupon zero %
(12 3/4s, 5/15/03), 2005 (Mexico) (STP) 4,596,000
4,500 Birch Telecom, Inc. 144A units 14s, 2008 4,185,000
28,512 Diva Systems Corp. 144A units stepped-coupon zero %
(12 5/8s, 3/01/03), 2008 (STP) 8,553,600
10,000 Network Plus Corp. units pfd. 13 1/2s, 2009 (PIK) 10,000,000
4,950 Telehub Communications Corp. units stepped-coupon
zero % (13 7/8s, 7/31/02), 2005 (STP) 2,623,500
14,550 Transam Refinance, Inc. units 16s, 2003 5,092,500
2,230 Versatel Teleco units 13 1/4s, 2008 2,252,300
7,555 XCL Ltd. units sr. sec. notes 13 1/2s, 2004 7,838,313
44,189 XCL Ltd. 144A units cv. cum. pfd. 9 1/2s, 2006 (PIK) 3,711,876
--------------
Total Units (cost $85,973,867) $ 49,000,689
FOREIGN GOVERNMENT BONDS AND NOTES (0.1%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
FRF 27,010,000 Ivory Coast - 144A FLIRB collateralized FRB 2s, 2018 $ 1,331,713
FRF 27,010,000 Ivory Coast - 144A PDI bonds FRB 1.9s, 2018 1,379,275
--------------
Total Foreign Government Bonds and Notes
(cost $3,895,756) $ 2,710,988
COMMON STOCKS (0.7%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
27,500 American Mobile Satellite Corp. (NON) $ 127,188
3,685 AmeriKing, Inc. (NON) 147,400
1,036,363 Capstar Broadcasting Partners (NON) 1,295,454
124,360 CellNet Data Systems, Inc. (NON) 730,615
250,000 Chesapeake Energy Corp. 343,750
60,000 Dr Pepper Bottling Holdings, Inc. Class A (NON) 1,740,000
75,000 French Fragrances Inc. (NON) 487,500
119,400 GST Telecommunications, Inc. (Canada) (NON) 828,338
74,908 Hedstrom Holdings, Inc. 144A 74,908
210,000 Intermedia Communications, Inc. (NON) 3,622,500
41,667 Lady Luck Gaming Corp. (NON) 182,292
2,655 Mothers Work, Inc. (NON) 31,860
5,300 Paging Do Brazil Holdings Co., LLC Class B, (Brazil) 53
1,730 Premium Holdings (L.P.) 144A (NON) 6,919
707,186 PSF Holdings LLC Class A (acquired various dates
from 9/15/93 to 5/31/95, cost $24,258,998) (NON)(RES)(AFF) 12,389,899
11,924 RSL Communications, Ltd. Class A (NON) 268,290
85,200 Specialty Foods Acquisition Corp. 144A (NON) 4,260
--------------
Total Common Stocks (cost $39,313,812) $ 22,281,226
CONVERTIBLE PREFERRED STOCKS (0.5%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
134,210 Cendant Corp. $3.75 cv. pfd. $ 4,512,811
51,600 Chancellor Media Corp. $3.00 cv. cum. pfd. 4,166,700
53,640 Chesapeake Energy Corp. 144A $3.50 cv. cum. pfd. 965,520
25,000 Kelly Oil & Gas Corp. $2.625 cv. pfd. 375,000
400 Paxson Communications Corp. 144A $9.75 cv. pfd. (PIK) 3,920,000
18,508 Viatel, Inc. Ser. A, $10.00 cv. pfd. (PIK) 1,110,480
6,341 XCL Ltd 144A Ser. A, $9.50 cv. cum. pfd. (PIK) 532,631
--------------
Total Convertible Preferred Stocks (cost $22,941,189) $ 15,583,142
WARRANTS (0.4%) (a) (NON) Expiration
NUMBER OF WARRANTS Date VALUE
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
2,570 21st Century Telecom Group 144A 2/15/10 $ 77,100
32,209 Allegiance Telecom, Inc. 2/3/08 515,344
10,100 American Mobile Satellite Corp. 4/1/08 50,500
92,500 Becker Gaming Corp. 144A 11/15/00 9
32,988 Capital Gaming International, Inc. 2/1/99 1,320
8,904 Casino America, Inc. 5/3/01 178
35,457 Cellnet Data Systems, Inc. 10/1/07 709,140
130,000 CGA Group Ltd. 144A 4/15/01 2,600
46,200 ClearNet Communications, Inc. 144A 9/15/05 369,600
13,030 Club Regina, Inc. 144A 12/1/04 13,030
5,620 Colt Telecommunications Group PLC 12/31/06 1,348,800
3,205 Concentric Network Corp. 12/15/07 384,600
104,017 Consorcio Ecuatoriano 144A (Ecuador) 10/1/00 52,009
40,320 Covad Communications Group 144A 3/15/08 403,200
5,390 Diva Systems Corp. 5/15/06 1,482,250
211,325 DTI Holdings Inc. 3/1/08 10,566
10,370 E. Spire Communications, Inc. 11/1/05 103,700
5,100 Econophone, Inc. 144A 7/15/07 255,000
6,300 Epic Resorts LLP 6/15/05 63
4,335 Esat Holdings, Inc. (Ireland) 2/1/07 288,278
35,370 Firstworld Communication 4/15/08 353,700
6,250 Globalstar Telecom 144A 2/15/04 375,000
13,285 Hyperion Telecommunications 144A 4/15/01 814,769
7,160 Insilco Holding Co. 8/15/08 1
122,350 Intelcom Group 144A 10/15/05 2,569,350
6,490 Interact Systems, Inc. 8/1/03 65
5,000 Intermedia Communications 6/1/00 235,305
3,670 International Wireless Communications
Holdings 144A 8/15/01 37
35,460 KMC Telecom Holdings, Inc. 4/15/08 88,650
29,100 Knology Holdings, Inc. 144A 10/15/07 43,650
7,570 Long Distance International, Inc. 144A 4/13/08 18,925
8,310 McCaw International Ltd. 4/15/07 33,240
7,800 Mediq Inc. 144A 6/1/09 78
3,025 Metronet Communications 144A 8/15/07 102,850
3,170 MGC Communications, Inc. 144A 10/1/04 86,890
4,385 Onepoint Communications, Inc. 6/1/08 4,385
8,890 Orion Network Systems 1/15/07 102,235
33,580 Pagemart, Inc. 144A 12/31/03 268,640
14,790 Pathnet, Inc. 144A 4/15/08 147,900
12,800 Paxson Communications Corp. 144A 6/30/03 128
89,120 Powertel, Inc. 2/1/06 356,480
30,905 President Riverboat Casinos, Inc. 9/30/99 3,091
80,920 Rhythms Netcon 144A 5/15/08 606,900
5,675 Spanish Broadcasting Systems 144A 6/30/99 1,163,375
7,760 STARTEC Global Communications Corp. 5/15/08 1,940
2,365 Sterling Chemicals Holdings 8/15/08 28,380
23,545 UIH Australia/Pacific, Inc. 144A 5/15/06 117,725
79,200 USN Communications Inc. 8/15/04 9,900
7,945 Versatel 144A 5/15/08 95,340
3,160 Vialog Corp. 11/15/01 41,080
18,370 WAM!NET, Inc. 3/1/05 146,960
3,000 Wireless One, Inc. 10/19/00 30
668 Wright Medical Technology, Inc. 144A 6/30/03 7
--------------
Total Warrants (cost $21,580,859) $ 13,884,293
SHORT-TERM INVESTMENTS (3.6%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
$ 15,000,000 Chevron U.S.A. Inc. effective yield of 5.17%, December 3, 1998 $ 14,995,692
25,000,000 Ciesco L.P. effective yield of 5.07%, December 3, 1998 24,992,958
25,000,000 Federal Home Loan Mortgage Federation effective yield
of 4.8%, December 23, 1998 24,926,667
750,000 Louisiana Casino Cruises Corp. 1st mtge. 11 1/2s, 1998 750,000
20,000,000 USAA Capital Corp. effective yield of 5.02%,
December 18, 1998 19,951,550
32,391,000 Interest in $250,576,000 joint repurchase agreement dated
November 30, 1998 with Credit Suisse First Boston
due December 1, 1998 with respect to various U.S.
treasury obligations -- maturity value of $32,395,724
for an effective yield of 5.25% 32,395,724
--------------
Total Short-Term Investments (cost $118,012,591) $ 118,012,591
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $3,820,527,103) (b) $3,244,507,365
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $3,263,382,838.
(b) The aggregate identified cost on a tax basis is $3,822,234,841, resulting in gross unrealized appreciation and
depreciation of $11,007,786 and $588,735,262, respectively, or net unrealized depreciation of $577,727,476.
(NON) Non-income-producing security.
(STP) The interest rate and date shown parenthetically represent the new interest rate to be paid and the date the
fund will begin receiving interest at this rate.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities
held at November 30, 1998 was $12,389,899 or 0.4% of net assets.
(PIK) Income may be received in cash or additional securities at the discretion of the issuer.
(AFF) Affiliated Companies (Note 5).
144A after the name of a security represents those exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified
institutional buyers.
FLIRB represents Front Loaded Interest Reduction Bond.
The rates shown on Floating Rate Bonds (FRB) and Floating Rate Notes (FRN) are the current interest rates
shown at November 30, 1998, which are subject to change based on the terms of the security.
- -------------------------------------------------------------------------------
Forward Currency Contracts to Sell at November 30, 1998
<S> <C> <C> <C> <C>
Market Aggregate Face Delivery Unrealized
Value Value Date Depreciation
- -------------------------------------------------------------------------------
French Franc $3,915,286 $3,809,934 Dec-98 $(105,352)
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
November 30, 1998
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $3,820,527,103) (Note 1) $3,244,507,365
- -----------------------------------------------------------------------------------------------
Cash 17,346,343
- -----------------------------------------------------------------------------------------------
Dividends, interest and other receivables 62,332,551
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 12,092,628
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 261,633,612
- -----------------------------------------------------------------------------------------------
Total assets 3,597,912,499
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 313,756,585
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 13,699,023
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 4,389,404
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 67,614
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 86,936
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 5,336
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 2,172,405
- -----------------------------------------------------------------------------------------------
Payable for open forward currency contracts 105,352
- -----------------------------------------------------------------------------------------------
Other accrued expenses 247,006
- -----------------------------------------------------------------------------------------------
Total liabilities 334,529,661
- -----------------------------------------------------------------------------------------------
Net assets $3,263,382,838
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $3,897,337,415
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (2,530,046)
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and
foreign currency transactions (Note 1) (55,299,441)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets
and liabilities in foreign currencies (576,125,090)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $3,263,382,838
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,261,784,911 divided by 151,067,379 shares) $8.35
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $8.35)* $8.77
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($1,052,251,428 divided by 126,546,253 shares)** $8.32
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($949,346,499 divided by 113,773,517 shares) $8.34
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $8.34)* $8.62
- -----------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group
sales the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent
deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended November 30, 1998
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Interest (net of foreign tax $88,115) $ 445,065,561
- -----------------------------------------------------------------------------------------------
Dividends 28,923,025
- -----------------------------------------------------------------------------------------------
Total investment income 473,988,586
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 23,937,532
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 5,071,970
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 129,085
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 32,785
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 3,712,273
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 12,414,846
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 8,659,284
- -----------------------------------------------------------------------------------------------
Reports to shareholders 158,250
- -----------------------------------------------------------------------------------------------
Auditing 166,585
- -----------------------------------------------------------------------------------------------
Legal 125,325
- -----------------------------------------------------------------------------------------------
Postage 78,631
- -----------------------------------------------------------------------------------------------
Other 146,991
- -----------------------------------------------------------------------------------------------
Total expenses 54,633,557
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (1,316,326)
- -----------------------------------------------------------------------------------------------
Net expenses 53,317,231
- -----------------------------------------------------------------------------------------------
Net investment income 420,671,355
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 4,419,932
- -----------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (44,830)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the year (105,343)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the year (669,620,604)
- -----------------------------------------------------------------------------------------------
Net loss on investments (665,350,845)
- -----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(244,679,490)
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended November 30
-------------------------------
1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 420,671,355 $ 290,676,492
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign
currency transactions 4,375,102 41,052,134
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments and assets and liabilities in
foreign currencies (669,725,947) 64,017,168
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (244,679,490) 395,745,794
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (144,701,997) (112,832,859)
- ---------------------------------------------------------------------------------------------------------------
Class B (113,287,380) (72,788,644)
- ---------------------------------------------------------------------------------------------------------------
Class M (162,681,979) (105,092,366)
- ---------------------------------------------------------------------------------------------------------------
In excess of net investment income
Class A (886,697) (2,616,295)
- ---------------------------------------------------------------------------------------------------------------
Class B (694,197) (1,687,775)
- ---------------------------------------------------------------------------------------------------------------
Class M (996,874) (2,436,813)
- ---------------------------------------------------------------------------------------------------------------
Increase (decrease) from capital share transactions (Note 4) (720,018,793) 2,393,734,681
- ---------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (1,387,947,407) 2,492,025,723
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 4,651,330,245 2,159,304,522
- ---------------------------------------------------------------------------------------------------------------
End of year (including distributions in excess of net
investment income of $2,530,046 and
$--, respectively) $3,263,382,838 $4,651,330,245
- ---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended November 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.96 $9.65 $9.52 $9.07 $10.41
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .95(d) .90 .89 1.00 .98
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1.61) .32 .14 .45 (1.30)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.66) 1.22 1.03 1.45 (.32)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.94) (.89) (.90) (1.00) (1.02)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.01) (.02) --(c) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.95) (.91) (.90) (1.00) (1.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.35 $9.96 $9.65 $9.52 $9.07
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) (7.39) 13.30 11.38 16.81 (3.43)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,261,785 $1,436,699 $1,071,702 $870,810 $653,094
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .92 .97 1.09 1.12 1.03
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 9.81 9.17 9.24 10.35 10.87
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 89.53 67.62 74.47 89.96 69.61
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended November 30, 1995 and thereafter, includes
amounts paid through expense offset arrangements. Prior period ratios exclude these amounts. (Note 2)
(c) Distributions in excess of net investment income were less than $0.01 per share.
(d) Per share net investment income has been determined on the basis of the weighted average
number of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share May 16, 1994+
operating performance Year ended November 30 to Nov. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.92 $9.61 $9.49 $9.05 $9.83
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .87(d) .83 .82 .92 .48
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1.59) .32 .13 .45 (.77)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.72) 1.15 .95 1.37 (.29)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.87) (.82) (.83) (.93) (.49)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.01) (.02) --(c) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.88) (.84) (.83) (.93) (.49)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.32 $9.92 $9.61 $9.49 $9.05
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) (7.99) 12.52 10.52 15.94 (3.12)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,052,251 $1,143,329 $623,097 $287,877 $37,017
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.67 1.72 1.84 1.85 1.02*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 9.06 8.41 8.50 9.61 7.47*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 89.53 67.62 74.47 89.96 69.61
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended November 30, 1995 and thereafter, includes
amounts paid through expense offset arrangements. Prior period ratios exclude these amounts. (Note 2)
(c) Distributions in excess of net investment income were less than $0.01 per share.
(d) Per share net investment income has been determined on the basis of the weighted average
number of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
For the year
Per-share Dec. 1, 1994+
operating performance Year ended November 30 to Nov. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $9.95 $9.64 $9.51 $9.05
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .92(d) .87 .87 .99
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1.61) .33 .14 .45
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.69) 1.20 1.01 1.44
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.91) (.87) (.88) (.98)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.01) (.02) --(c) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.92) (.89) (.88) (.98)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.34 $9.95 $9.64 $9.51
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) (7.64) 13.05 11.15 16.72
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $949,346 $2,071,302 $464,506 $20,077
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.17 1.22 1.36 1.35
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 9.56 8.93 8.86 10.06
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 89.53 67.62 74.47 89.96
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended November 30, 1995 and thereafter, includes
amounts paid through expense offset arrangements. Prior period ratios exclude these amounts. (Note 2)
(c) Distributions in excess of net investment income were less than $0.01 per share.
(d) Per share net investment income has been determined on the basis of the weighted average
number of shares outstanding during the period.
</TABLE>
Notes to financial statements
November 30, 1998
Note 1
Significant accounting policies
Putnam High Yield Advantage Fund (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The fund seeks high current income
primarily through a diversified portfolio of high-yielding, lower-rated
corporate bonds. Capital growth is a secondary objective when consistent
with the objective of high current income.
The fund offers class A, class B and class M shares. Effective December
30, 1998, the fund began offering Class Y shares. Class A shares are sold
with a maximum front-end sales charge of 4.75%. Class B shares, which
convert to class A shares after approximately eight years, do not pay a
front-end sales charge, but pay a higher ongoing distribution fee than
class A shares, and are subject to a contingent deferred sales charge, if
those shares are redeemed within six years of purchase. Class M shares are
sold with a maximum front-end sales charge of 3.25% and pay an ongoing
distribution fee that is lower than class B shares and higher than class A
shares.
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 generally
accepted accounting principles and requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities. Actual results could differ from those estimates.
A) Security valuation Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported sale price, or, if no sales are reported -- as in the case of
some securities traded over-the-counter -- the last reported bid price.
Securities quoted in foreign currencies are translated into U.S. dollars
at the current exchange rate. Short-term investments having remaining
maturities of 60 days or less are stated at amortized cost, which
approximates market value, and other investments, including restricted
securities, are stated at fair value following procedures approved by the
Trustees. Market quotations are not considered to be readily available for
long-term corporate bonds and notes; such investments are stated at fair
value on the basis of valuations furnished by a pricing service, approved
by the Trustees, which determines valuations for normal,
institutional-size trading units of such securities using methods based on
market transactions for comparable securities and various relationships
between securities which are generally recognized by institutional
traders.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account along with the cash of other
registered investment companies and certain other accounts managed by
Putnam Investment Management, Inc. ("Putnam Management"), the fund's
Manager, a wholly-owned subsidiary of Putnam Investments, Inc.. These
balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the market
value of which at the time of purchase is required to be in an amount at
least equal to the resale price, including accrued interest. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. Putnam Management is responsible for determining that the
value of these underlying securities is at all times at least equal to the
resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Interest income is recorded on the accrual basis.
Dividend income is recorded on the ex-dividend date except that certain
dividends from foreign securities are recorded as soon as the fund is
informed of the ex-dividend date. Discounts on zero coupon bonds, original
issue discount bonds, stepped-coupon bonds and payment in kind bonds are
accreted according to the yield-to-maturity basis. Any premium resulting
from the purchase of stepped-coupon securities is amortized on a
yield-to-maturity basis.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when accrued or incurred. The fund
does not isolate that portion of realized or unrealized gains or losses
resulting from changes in the foreign exchange rate on investments from
fluctuations arising from changes in the market prices of the securities.
Such gains and losses are included with the net realized and unrealized
gain or loss on investments. Net realized gains and losses on foreign
currency transactions represent net realized exchange gains or losses on
closed forward currency contracts, disposition of foreign currencies and
the difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized appreciation
and depreciation of assets and liabilities in foreign currencies arise
from changes in the value of open forward currency contracts and assets
and liabilities other than investments at the period end, resulting from
changes in the exchange rate.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date, to protect against a decline
in value relative to the U.S. dollar of the currencies in which its
portfolio securities are denominated or quoted (or an increase in the
value of a currency in which securities a fund intends to buy are
denominated, when a fund holds cash reserves and short-term investments).
The U.S. dollar value of forward currency contracts is determined using
current forward currency exchange rates supplied by a quotation service.
The market value of the contract will fluctuate with changes in currency
exchange rates. The contract is "marked to market" daily and the change in
market value is recorded as an unrealized gain or loss. When the contract
is closed, the fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed. The fund could be exposed to risk if
the value of the currency changes unfavorably, if the counterparties to
the contracts are unable to meet the terms of their contracts or if the
fund is unable to enter into a closing position.
G) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintain an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the year ended
November 30, 1998, the fund had no borrowings against the line of credit.
H) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated investment
companies. It is also the intention of the fund to distribute an amount
sufficient to avoid imposition of any excise tax under Section 4982 of the
Internal Revenue Code of 1986, as amended. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held nor for excise tax on income and capital
gains.
At November 30, 1998, the fund had a capital loss carryover of
approximately $53,592,000 available to offset future capital gains, if
any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
-------------- -----------------
$ 2,548,000 November 30, 1999
16,967,000 November 30, 2002
34,077,000 November 30, 2003
I) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date. At
certain times, the fund may pay distributions at a level rate even though,
as a result of market conditions or investment decisions, the fund may not
achieve projected investment results for a given period. The amount and
character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences include temporary and
permanent differences of losses on wash sale transactions, foreign
currency gains and losses, defaulted bond interest and interest on
payment-in-kind securities. Reclassifications are made to the fund's
capital accounts to reflect income and gains available for distribution
(or available capital loss carryovers) under income tax regulations. For
the year ended November 30, 1998, the fund reclassified $47,723 to
decrease distributions in excess of net investment income and $1,517,330
to decrease paid-in-capital, with a decrease to accumulated net realized
losses of $1,469,607. The calculation of net investment income per share
in the financial highlights table excludes these adjustments.
Note 2
Management fees, administrative services, and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund.
Such fee is based on the following annual rates: 0.70% of the first $500
million of average net assets, 0.60% of the next $500 million, 0.55% of
the next $500 million, 0.50% of the next $5 billion, 0.475% of the next $5
billion, 0.455% of the next $5 billion, 0.44% of the next $5 billion, and
0.43% thereafter.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The aggregate
amount of all such reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the year ended November 30, 1998, fund expenses were reduced by
$1,316,326 under expense offset arrangements with PFTC and brokerage
service arrangements. Investor servicing and custodian fees reported in
the Statement of operations exclude these credits. The fund could have
invested a portion of the assets utilized in connection with the expense
offset arrangements in an income producing asset if it had not entered
into such arrangements.
Each Trustee of the fund receives an annual Trustee fee, of which $2,760
has been allocated to the fund, and an additional fee for each Trustee's
meeting attended. Trustees who are not interested persons of Putnam
Management and who serve on committees of the Trustees receive additional
fees for attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
in the fund and are invested in certain Putnam funds until distribution in
accordance with the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as Trustee for at least five years. Benefits under the Pension Plan
are equal to 50% of the Trustee's average total retainer and meeting fees
for the three years preceding retirement. Pension expense for the fund is
included in Compensation of Trustees in the Statement of operations.
Accrued pension liability is included in Payable for compensation of
Trustees in the Statement of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to its
class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to compensate
Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments
Inc., for services provided and expenses incurred by it in distributing
shares of the fund. The Plans provide for payments by the fund to Putnam
Mutual Funds Corp. at an annual rate up to 0.35%, 1.00% and 1.00% of the
average net assets attributable to class A, class B and class M shares,
respectively. The Trustees currently limit payment by the fund to an
annual rate of 0.25%, 1.00% and 0.50% of the average net assets
attributable to class A, class B and class M shares respectively.
For the year ended November 30, 1998, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $635,125 and $18,419 from the sale
of class A and class M shares, respectively and received $2,393,379 in
contingent deferred sales charges from redemptions of class B shares. A
deferred sales charge of up to 1% is assessed on certain redemptions of
class A shares. For the year ended November 30, 1998, Putnam Mutual Funds
Corp., acting as underwriter received $34,197 on class A redemptions.
Note 3
Purchase and sales of securities
During the year ended November 30, 1998, purchases and sales of investment
securities other than short-term investments aggregated $3,836,920,059 and
$4,561,285,800, respectively. There were no purchases and sales of U.S.
government obligations. In determining the net gain or loss on securities
sold, the cost of securities has been determined on the identified cost
basis.
Note 4
Capital shares
At November 30, 1998, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Year ended
November 30, 1998
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 50,620,751 $484,922,630
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 8,389,457 79,501,117
- -----------------------------------------------------------------------------
59,010,208 564,423,747
Shares
repurchased (52,204,650) (495,189,794)
- -----------------------------------------------------------------------------
Net increase 6,805,558 $ 69,233,953
- -----------------------------------------------------------------------------
Year ended
November 30, 1997
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 84,416,332 $826,734,675
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 6,293,823 61,557,151
- -----------------------------------------------------------------------------
90,710,155 888,291,826
Shares
repurchased (57,530,762) (562,643,340)
- -----------------------------------------------------------------------------
Net increase 33,179,393 $325,648,486
- -----------------------------------------------------------------------------
Year ended
November 30, 1998
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 39,651,789 $385,510,919
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 5,889,362 55,596,820
- -----------------------------------------------------------------------------
45,541,151 441,107,739
Shares
repurchased (34,270,855) (322,108,428)
- -----------------------------------------------------------------------------
Net increase 11,270,296 $118,999,311
- -----------------------------------------------------------------------------
Year ended
November 30, 1997
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 93,850,150 $918,070,746
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 3,708,531 36,188,311
- -----------------------------------------------------------------------------
97,558,681 954,259,057
Shares
repurchased (47,098,085) (460,535,573)
- -----------------------------------------------------------------------------
Net increase 50,460,596 $493,723,484
- -----------------------------------------------------------------------------
Year ended
November 30, 1998
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 41,793,143 $407,149,278
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 538,429 5,110,109
- -----------------------------------------------------------------------------
42,331,572 412,259,387
Shares
repurchased (136,787,356) (1,320,511,444)
- -----------------------------------------------------------------------------
Net decrease (94,455,784) $(908,252,057)
- -----------------------------------------------------------------------------
Year ended
November 30, 1997
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 202,591,979 $1,990,624,142
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 397,255 3,884,813
- -----------------------------------------------------------------------------
202,989,234 1,994,508,955
Shares
repurchased (42,956,933) (420,146,244)
- -----------------------------------------------------------------------------
Net increase 160,032,301 $1,574,362,711
- -----------------------------------------------------------------------------
Note 5
Transactions with Affiliated Issuers
Transactions during the year with companies in which the fund owned at
least 5% of the voting securities were as follows:
Purchase Sales Dividend Market
Affiliates cost cost Income Value
- -----------------------------------------------------------------------------
PSF Holdings LLC Class A $- $- $- $12,389,899
Federal tax information
(Unaudited)
The fund has designated 7.36% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
The Form 1099 you receive in January 1999 will show the tax status of all
distributions paid to your account in calendar 1998.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund (dbl. dagger)
Capital Opportunities Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Opportunities Fund (dbl dagger)
OTC & Emerging Growth Fund
Research Fund
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Quality Bond Fund (dagger)
High Yield Advantage Fund (dbl. dagger)
High Yield Total Return Fund
High Yield Trust (dbl. dagger)
High Yield Trust II
Income Fund
Intermediate U.S. Government
Income Fund
Money Market Fund**
Preferred Income Fund
Strategic Income Fund*
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund**
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds (section mark)
Arizona, California, Florida, Massachusetts, Michigan, Minnesota,
New Jersey, New York, Ohio and Pennsylvania
State tax-free money market funds (section mark)
California, New York
LIFESTAGE SM FUNDS
Putnam Asset Allocation Funds-three investment portfolios that
spread your money across a variety of stocks, bonds, and money
market investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* Formerly Putnam Diversified Income Trust II
(dagger) Formerly Putnam Federal Income Trust
(dbl. dagger) Closed to new investors. Some exceptions may apply.
Contact Putnam for details.
(section mark) Not available in all states.
** An investment in a money market fund is neither insured nor
guaranteed by the U.S. government. These funds are managed
to maintain a price of $1.00 per share, although there is no
assurance that this price will be maintained in the future.
Please call your financial advisor or Putnam at 1-800-225-1581 to
obtain a prospectus for any Putnam fund. It contains more complete
information, including charges and expenses. Please read it
carefully before you invest or send money.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Rosemary H. Thomsen
Vice President and Fund Manager
Jennifer E. Leichter
Vice President and Fund Manager
Robert M. Paine
Vice President and Fund Manager
Jeffrey A. Kaufman
Vice President and Fund Manager
John R. Verani
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam of Putnam
California Tax Exempt Income Fund. It may also be used as sales literature
when preceded or accompanied by the current prospectus, which gives
details of sales charges, investment objectives, and operating policies of
the fund, and the most recent copy of Putnam's Quarterly Performance
Summary. For more information, or to request a prospectus, call toll free:
1-800-225-1581. You can also learn more at Putnam Investments' website:
http://www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution, are not insured by the Federal
Deposit Insurance Corporation (FDIC), the Federal Reserve Board or any
other agency, and involve risk, including the possible loss of principal
amount invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
www.putnaminv.com
- --------------------
BULK RATE
U.S. POSTAGE
PAID
PUTNAM
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