Putnam
High
Yield
Advantage
Fund
[Artwork]
SEMIANNUAL REPORT
May 31, 1994
[Putnam Logo]
Boston * London * Tokyo
<PAGE>
<PAGE>
PERFORMANCE HIGHLIGHTS
Morningstar awarded the fund a four-star rating for risk-adjusted performance
through May 31, 1994, and in its most recent analysis, on May 27, 1994, descri-
bed the fund as having "built a solid record investing in low-quality non-inves-
tment-grade paper." *
Lipper Analytical Services, an independent research firm, ranked the fund in the
top 20% of funds with similar investment objec-tives for its three- and five-
year returns through May 31, 1994. +
Performance should always be considered in light of a fund's investment strate-
gy. Putnam High Yield Advantage Fund is designed for investors seeking high cu-
rrent income, with capital growth as a secondary objective.
SEMIANNUAL RESULTS AT A GLANCE
- ------------------------------------------------------------------------------
Class A
Total return: NAV POP
6 months ended 5/31/94 (change in
value plus reinvested distributions) -0.19% -4.93%
- ------------------------------------------------------------------------------
Class A Class B(1)
Share value: NAV POP NAV
11/30/93 $10.41 $10.93 -
5/31/94 9.89 10.38 $9.88
- ------------------------------------------------------------------------------
Distributions:
Six months ended Number Income Capital gains Total
5/31/94 6 $0.511 - $0.511
- ------------------------------------------------------------------------------
Current return Class A Class B(1)
(end of period) NAV POP NAV CDSC
Current dividend rate(2) 10.31% 9.83% - -
Current 30-day SEC yield(3) 9.37 8.91 - -
- ------------------------------------------------------------------------------
Performance data represent past results. Investment return and net asset
value will fluctuate so an investor's shares, when redeemed, may be worth
more or less than their original cost. For performance over longer periods,
see pages 8 and 9. (1) The fund began offering class B shares on May 16,
1994. Performance for these shares will differ. (2) Income portion of most
recent distribution, annualized and divided by NAV or POP at end of period.
(3) Based only on investment income, calculated using SEC guidelines.
* Morningstar is an independent research firm that rates funds relative to funds
with similar objectives, based on risk-adjusted medium- and long-term total
return performance, as applicable, and adjusted for sales charges. Ratings
are updated bimonthly.
+ Lipper rankings vary over time and do not include the effects of sales char-
ges. For the five months ended May 31, 1994, the Class A shares of the fund
were ranked 40th out of 88 funds. For the 1-year, 3-year, 5-year and 10-year
periods, the Class A shares of the fund were ranked 23rd out of 75, 12th out
of 62, and 10th out of 59 respectively. Past performance is not indicative of
future results.
<PAGE>
<PAGE>
FROM THE CHAIRMAN [Photograph of George Putnam]
* (C) Karsh, Ottowa
Dear Shareholder:
The Federal Reserve Board's primary concern remains fighting not only inflation
but the fear of inflation. It is pursuing this goal by gradually raising the
short-term interest rates under its control to slow the economy's growth to what
it regards as a sustainable pace.
The policy continues as the effects of last year's tax increase are being keenly
felt by individuals and businesses. Dr. Robert Goodman, Putnam Investments' se-
nior economic advisor, believes this confluence could result in a greater slow-
ing of business than many observers now expect.
Bob also believes that as this slowing becomes more obvious, the Fed will come
under growing pressure from both the White House and Capitol Hill to ease up.
Insulated as it is from such political demands, the Fed is not likely to yield.
But the very fact that investors think it might could cause some more volatility
in the bond markets in the months ahead.
In the following report, Fund Manager Jin Ho explains how he is positioning your
fund's portfolio to respond to 1994's unfolding events.
Respectfully yours,
George Putnam
Chairman of the Trustees
July 20, 1994
* (C) Copyright.
<PAGE>
<PAGE>
REPORT FROM THE FUND MANAGER
JIN W. HO
There's been quite a stir in the bond markets over the past few months. Market-
wide price declines in the first quarter of 1994 were primarily a reaction to
real or perceived inflation, and initially, the Federal Reserve Board's interest
rate increases served to legitimize the fears of inflation-wary investors. While
all bonds are impacted by changes in interest rates, the corporate bonds held by
Putnam High Yield Advantage Fund tend to be less sensitive to these changes than
their government-issued siblings. In addition, the value of a corporate bond is
tied closely to the fortunes of its issuer and to the strength of the economy.
The fund's total return for class A shares at net asset value for the six months
ended May 31, 1994, was -0.19%, slightly better than that of the First Boston
High Yield Index, which declined 0.44%. The fund's advantage, however slight, is
testimony to its relatively defensive portfolio during the period.
CONSTRUCTING A DEFENSIVE PORTFOLIO
Today's economic environment poses many challenges to investors. Many of the
fundamental factors that drove the bond markets higher in the past - low infla-
tion, declining interest rates, and a steady stream of foreign money - are now
behind us. Far from being pessimistic about the U.S. corporate bond market, we
understand that bond selection now requires an even greater attention to solid,
fundamental analysis.
In an effort to construct a more defensive, diversified portfolio, we increased
the total number of holdings to 171 from 145 by period's end, spreading purcha-
ses among several industry groups. The chart on page 5 shows the top five indus-
tries represented in the fund's portfolio.
<PAGE>
<PAGE>
VALUE IN CYCLICAL BONDS
Many of the companies that appear to have the strongest potential in the current
environment are those whose fortunes are tied directly to the health of the eco-
nomy and thus tend to do particularly well during economic recoveries. When con-
sumers spend more money, these companies tend to profit by increasing their out-
put to meet the rising demand for their products.
Within this category, we have found particular value in the automotive, paper,
chemical, and steel industries. Many of these companies are still benefiting
from the cost-cutting measures and improvements in productivity that were begun
at the start of the decade. But at this stage of the recovery, some companies,
particularly in the paper and steel industries, are successfully pushing through
price increases. In many cases, we are finding that inventories are, in fact,
low and production capacity tight.
Over the years, the fund has held numerous bonds of cyclical companies. During
the period, we trimmed back or sold certain positions we believed had already
made significant gains. A case in point is Auburn Hills Trust, an automotive
parts manufacturer that in the past has been one of the fund's largest holdings.
Although the fund now holds fewer cyclical securities, we believe that those in
the portfolio represent significant value.
(Bar Chart)
TOP INDUSTRY SECTORS
11/30/93 5/31/94
- -------------------------------------------------------------
Recreation 10.10 8.60
Cable television 8.70 6.80
Cellular communications 5.20 6.50
Metals and mining 6.30 6.00
Forest products 4.50 4.90
- -------------------------------------------------------------
<PAGE>
<PAGE>
AN ATTRACTIVE NEW-ISSUE MARKET
During the period, we found that the most attractive bonds were in the new-issue
rather than the secondary market. Many Wall Street analysts are predicting a
glut of new issues this year - as much as $10 billion in the coming months. Ex-
cess supply in the new-issue market invariably results in discounted bond prices
and attractive yields, but can lead to price declines for existing bonds, as
well. We believe, however, that this anticipated level of new issuance is over-
stated and that, at any rate, there is enough demand in the market to take up
any foreseeable oversupply.
Professional money managers, for example, have more cash on hand than they did a
few months ago. What's more, several pension consultants, including SEI Capital
Markets Research, have been recommending high-yield bonds to their clients. Sin-
ce pension funds can easily reach several billion dollars in size, this demand
potential could be significant.
PORTFOLIO HIGHLIGHTS
Of the purchases we made during the period, the two companies profiled here ty-
pify the nature of the high-yield bond market. While the issuers of high-yield
bonds come in a wide variety of shapes and sizes, many, like these, are in the
forefront of technology and innovation, and have exciting products or services.
Premium Standard Farms is setting a new standard in pork processing. Following
the lead taken earlier in the poultry business, Premium Standard is producing
lean and consistently high quality pork by turning hog farming into a science.
The company uses computers to control everything from daily rations to tempera-
ture, and its hogs are housed in ultraclean indoor facilities to minimize disea-
se. We believe Premium Standard will continue to capture market share as one of
the premier pork producers in the United States.
NEXTEL Communications, Inc. provides mobile and cellular phone and paging servi-
ces to individuals and businesses throughout Los Angeles, San Francisco, New
York, Chicago,
<PAGE>
<PAGE>
TOP 10 HOLDINGS (5/31/94)
- -------------------------------------------------------------------------------
Gaylord Container, Co.
Manufacturer of paper packaging products
Adelphia Communications Corp.
Cable television systems
Marvel Holdings, Inc.
Entertainment publishing
Kaiser Aluminum & Chemical Corp.
Mining and production of aluminum
Haynes International, Inc.
Manufacturer of high-performance metals
PSF Finance Limited Partnership
Financing for PSF Industries, Inc.
Panamsat Limited Partnership
Satellite telecommunications services
Trump Taj Mahal
Hotel and casino
Centennial Cellular Corp.
Cellular telephone services
Amphenol Corp.
Electronic and fiber optic connectors
- -------------------------------------------------------------------------------
These holdings represent 20.96% of the fund's assets. Portfolio holdings are
subject to change.
Dallas, and Houston. With a significant presence in these markets, NEXTEL is
counting on being a major player in wireless data services, which will enable
computers to talk to each other without the aid of telephone lines or networks
- - a business many analysts say could generate annual sales of $8 billion by the
year 2000.
Putnam High Yield Advantage Fund is a portfolio managed for high current income
primarily through investments in high-yielding lower-rated fixed-income securi-
ties, which pose a greater risk to principal than higher-rated securities. High-
yield securities are rated lower than investment grade securities because there
is a greater possibility that negative changes in the issuer's business condi-
tion or in general economic conditions may hinder the issuer's ability to pay
principal and interest on the securities. Although the bonds of the companies
discussed here met the fund's selection criteria at the time of purchase, Putnam
Management's views on these companies should not be taken as investment advice.
There is no guarantee that these bonds will be held in the future.
<PAGE>
<PAGE>
PERFORMANCE SUMMARY
This section provides, at a glance, information about your fund's performance.
Total return shows how the value of the fund's shares changed over time, assum-
ing you held the shares through the entire period and reinvested all distribu-
tions back into the fund. We show total return in two ways: On a cumulative
long-term basis and how the fund might have grown each year, on average, over
varying periods. For comparative purposes, we show how the fund performed rela-
tive to appropriate indexes and benchmarks.
TOTAL RETURN FOR PERIODS ENDING 5/31/94
Lehman Bros. First Boston
Corporate High Yield
NAV POP Bond Index Index
- -------------------------------------------------------------------------------
1 year
Class A shares 7.99% 2.83% 0.75% 7.02%
- -------------------------------------------------------------------------------
5 years 73.47 65.20 58.35 77.18
Annual average
Class A shares 11.65 10.56 9.63 12.12
- -------------------------------------------------------------------------------
Life of fund *
Class A shares 129.27 118.34 102.77 136.87
- -------------------------------------------------------------------------------
Annualized Class B shares 10.68 10.02 9.03 11.12
- -------------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDING 6/30/94
(most recent calendar quarter)
NAV POP
- -------------------------------------------------------------------------------
1 year
Class A shares 5.36% 0.39%
- -------------------------------------------------------------------------------
5 years 70.69 62.59
Annual average
Class A shares 11.29 10.21
- -------------------------------------------------------------------------------
Life of fund *
Class A shares 128.89 117.98
- -------------------------------------------------------------------------------
Annualized Class B shares 10.53 9.88
- -------------------------------------------------------------------------------
Performance data represent past results. Investment returns and principal value
will fluctuate so an investor's shares, when sold, may be worth more or less
than their original cost. Fund performance data do not take into account any ad-
justment for taxes payable on reinvested distributions. * Shares of the fund now
known as class A shares were introduced on 3/25/86. Class B shares began being
offered on 5/16/94. Performance of each share class will differ.
<PAGE>
<PAGE>
TERMS AND DEFINITIONS
NET ASSET VALUE (NAV) is the value of all fund assets, minus liabilities, divi-
ded by the number of outstanding shares. It does not include any initial or con-
tingent deferred sales charges.
PUBLIC OFFERING PRICE (POP) is the price of a fund share plus the maximum sales
charge levied at the time of purchase. POP performance figures shown here assume
the maximum 4.75% sales charge.
COMPARATIVE BENCHMARKS
LEHMAN BROTHERS CORPORATE BOND INDEX is an unmanaged list of fixed-income secu-
rities frequently used as a general measure of the performance of the corporate
bond market. Securities in the fund do not match those in the index and may pose
different risks.
FIRST BOSTON HIGH YIELD INDEX is an unmanaged list of lower-rated higher-yield-
ing U.S. corporate bonds. It does not represent an investment return. Securities
in the fund do not match those in the index and may pose different risks.
<PAGE>
<PAGE>
PUTNAM FUND SELECTOR (TM)*
The Putnam Fund Selector shows the many opportunities for investors within every
investment strategy. All investors should first accumulate a base of conservati-
ve, cash-equivalent investments. Then, with the help of your investment advisor,
diversify your portfolio by investing in the Putnam Family of Funds.
(Pyramid Graphic)
Risk/Reward
PUTNAM GROWTH FUNDS
PUTNAM GROWTH AND INCOME FUNDS
PUTNAM INCOME OR TAX-FREE INCOME FUNDS
MOST CONSERVATIVE INVESTMENTS
* (TM) Trademark.
<PAGE>
<PAGE>
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund Diversified Equity Trust
Europe Growth Fund Global Growth Fund
Health Sciences Trust Investors Fund
Natural Resources Trust New Opportunities Fund
OTC Emerging Growth Fund Overseas Growth Fund
Vista Fund Voyager Fund
PUTNAM GROWTH AND INCOME FUNDS
Convertible Income-Growth Trust Dividend Growth Fund
Equity Income Fund The George Putnam Fund of Boston
The Putnam Fund for Growth and Income Managed Income Trust
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
Adjustable Rate U.S. Government Fund American Government Income Fund
Balanced Government Fund Corporate Asset Trust
Diversified Income Trust Federal Income Trust
Global Governmental Income Trust High Yield Advantage Fund
High Yield Trust Income Fund
U.S. Government Income Trust.
PUTNAM TAX-FREE INCOME FUNDS
Intermediate Tax Exempt Fund Municipal Income Fund
Tax Exempt Income Fund Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds*
Arizona, California, Florida, Massachusetts, Michigan,
Minnesota, New Jersey, New York, Ohio, and Pennsylvania
LIFESTAGE (SM) FUNDS
Putnam Asset Allocation Funds-three investment portfolios that spread your money
across a variety of stocks, bonds, and money market investments to help maximize
your return and reduce your risk.
The three portfolios:
Putnam Asset Allocation: Growth Portfolio
Putnam Asset Allocation: Balanced Portfolio
Putnam Asset Allocation: Conservative Portfolio
MOST CONSERVATIVE INVESTMENTS +
Putnam money market funds:
Daily Dividend Trust
Tax Exempt Money Market Fund
CDs and savings accounts. ++
* Not available in all states.
++ Not offered by Putnam Investments. Certificates of deposit offer a fixed ra-
te of return and may be insured, up to certain limits, by federal/state
agencies. Savings accounts may also be insured up to certain limits.
+ Relative to above.
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, in-
cluding charges and expenses. Please read it carefully before you invest or
send money.
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Semiannual Report
For the six months ended May 31, 1994
To the Trustees and Shareholders of
Putnam High Yield Advantage Fund
We have audited the accompanying statement of assets and liabilities of Putnam
High Yield Advantage Fund including the portfolio of investments owned, as of
May 31, 1994, the related statement of operations for the six months then ended,
the statement of changes in net assets for the six months then ended and for the
year ended November 30, 1993, and the "Financial Highlights" for the six months
ended May 31, 1994, for each of the seven years in the period ended November 30,
1993, and for the period March 26, 1986 (commencement of operations) to November
30, 1986 for class A shares, and for the period May 16, 1994 (commencement of
operations) to May 31, 1994 for Class B shares. These financial statements and
"Financial Highlights" are the responsibility of the Fund's management. Our res-
ponsibility is to express an opinion on these financial statements and "Finan-
cial Highlights" based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain rea-
sonable assurance about whether the financial statements and "Financial Highli-
ghts" are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial state-
ments. Our procedures included confirmation of securities owned as of May 31,
1994 by correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by mana-
gement, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and "Financial Highlights" referred to
above present fairly, in all material respects, the financial position of Putnam
High Yield Advantage Fund as of May 31, 1994, the results of its operations for
the six months then ended, the changes in its net assets for the six months then
ended and for the year ended November 30, 1993, and the "Financial Highlights"
for the six months ended May 31, 1994, for each of the seven years in the period
ended November 30, 1993, and for the period March 26, 1986 (commencement of ope-
rations) to November 30, 1986, for Class A shares, and for the period May 16,
1994 (commencement of operations) to May 31, 1994 for Class B shares, in con-
formity with generally accepted accounting principles.
Coopers & Lybrand
Boston, Massachusetts
July 17, 1994
<PAGE>
<PAGE>
PORTFOLIO OF INVESTMENTS OWNED
May 31, 1994
CORPORATE BONDS AND NOTES (89.4%) (a)
PRINCIPAL AMOUNT VALUE
RECREATION (8.6%)
- -------------------------------------------------------------------------------
$ 5,500,000 AMC Entertainment, Inc. sr. sub. deb. 12 5/8s, 2002 $ 6,050,000
500,000 AMC Entertainment, Inc. sr. sub. deb. 11 7/8s, 2000 540,000
3,535,000 Arizona Charlies Corp. sub. deb. 12s, 2000(b) 3,535,000
1,167,000 Belle Casinos Inc. sr. sub. deb. 12s, 2000(b) 1,120,320
1,480,000 Capitol Queen Corp. sr. sub. deb. 12s, 2000(b) 1,258,000
2,220,000 Casino Magic Finance Corp. 1st. Mortgage, deb.
11 1/2s, 2001 1,998,000
9,000,000 Golden Nugget Finance Corp. 1st mtge. deb. Ser. B,
10 5/8s, 2003 6,750,000
4,000,000 Grand Casino Resorts Inc. notes 12 1/2s, 2000 4,230,000
4,975,000 Lady Luck Gaming 1st mortgage 10 1/2s, 2001(b) 4,477,500
1,124,000 Louisiana Casino Cruises Corp. sr. sub. deb.
11 1/2s, 1998(b) 876,720
7,000,000 Pioneer Finance Corp. gtd. 1st mtge. 13 1/2s, 1998 7,210,000
3,500,000 President Riverboat Casinos sr. sub. notes
11 3/4, 2001 3,325,000
3,078,000 Trump Castle Funding sr. sub. 11 1/2s, 2000(b) 3,078,000
6,000,000 Trump Plaza Funding, Inc. 1st mtge. notes
10 7/8s, 2001 5,190,000
12,998,067 Trump Taj Mahal deb. 11.35s, 1999(c) 11,373,308
-------------
61,011,848
CABLE TELEVISION (6.8%)
- -------------------------------------------------------------------------------
21,500,000 Adelphia Communications Corp. sr. notes 12 1/2s, 2002 22,145,000
3,650,000 Cablevision Systems Corp. sr. sub. reset deb.
10 3/4s, 2004 3,686,500
2,000,000 Century Communications Corp. sr. sub. deb.
11 7/8s, 2003 2,120,000
2,500,000 Continental Cablevision, Inc. sr. deb. 9 1/2s, 2013 2,300,000
11,638,760 Falcon Holdings Group L.P. sr. sub. notes 11s, 2003(c) 11,056,822
3,500,000 Jones Intercable, Inc. sub. deb. 11 1/2s, 2004 3,640,000
3,000,000 Marcus Cable Co. (L.P.) sr. deb. 11 7/8s, 2005 2,955,000
-------------
47,903,322
CELLULAR COMMUNICATIONS (6.5%)
- -------------------------------------------------------------------------------
5,550,000 Cellular, Inc. sr. sub. disc. notes stepped-coupon
zero % (11 3/4s, 9/1/98), 2003(d) 3,385,500
9,170,000 Cencall Communications Corp. sr. disc. notes
stepped-coupon zero % (10 1/8s, 1/15/99), 2004(d) 5,135,200
12,400,000 Centennial Cellular Corp. sr. notes 8 7/8s, 2001 11,346,000
8,250,000 Dial Call Communication Inc. sr. disc. notes Ser. B
stepped coupon zero %, (10 1/4s,12/15/98) 2005(b)(d) 4,413,750
6,318,000 Horizon Cellular Telephone Co. sr. sub. disc. notes
stepped-coupon zero % (11 3/8s, 10/1/97), 2000(d) 4,359,420
15,000,000 NEXTEL Communications Inc. sr. disc. notes stepped-
coupon zero % (9 3/4s, 2/15/99), 2004(d) 8,775,000
13,500,000 NEXTEL Communications Inc. sr. disc. notes stepped-
coupon zero % (11 1/2s, 9/1/98), 2003(d) 8,572,500
-------------
45,987,370
METALS AND MINING (6.0%)
- -------------------------------------------------------------------------------
4,000,000 Haynes International, Inc. Ser .B sr. notes
11 1/4s, 1998 3,860,000
11,750,000 Haynes International, Inc. sr. sub. notes
13 1/2s, 1999 11,515,000
10,800,000 Horsehead Industries, Inc. sub. notes 14s, 1999 10,422,000
16,100,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes
12 3/4s, 2003 16,422,000
-------------
42,219,000
<PAGE>
<PAGE>
FOREST PRODUCTS (4.9%)
- -------------------------------------------------------------------------------
$ 3,500,000 Container Corp. America sr. notes Ser. A
11 1/4s, 2004 $ 3,622,500
28,500,000 Gaylord Container Corp. sr. sub. deb. stepped-coupon
zero % (12 3/4s, 5/15/96), 2005(d) 23,655,000
7,000,000 Riverwood International Corp. sr. sub. notes
11 1/4s, 2002 7,253,750
-------------
34,531,250
CHEMICALS (3.6%)
- -------------------------------------------------------------------------------
1,325,000 Arcadian Partners L.P. sr. notes, 10 3/4s, 2005 1,305,125
7,500,000 G-I Holdings Inc. sr. notes zero %, 1998 4,575,000
4,000,000 Harris Chemical Corp. sr. secd. disc. notes stepped-
coupon zero % (10 1/4s, 1/15/96), 2001(d) 3,200,000
7,500,000 Harris Chemical Corp. sr. sub. notes 10 3/4s, 2003 6,975,000
4,000,000 OSI Specialty Inc. sr. sub. notes 9 1/4s, 2003 3,840,000
1,000,000 UCC Investors Holding, Inc. sr. sub. notes 11s, 2003 1,032,500
19,703 UCC Investors Holding, Inc. sr. notes Class A
10 1/2s, 2002 275,842
7,000,000 UCC Investors Holding, Inc. sub. disc. notes stepped-
coupon zero % (12s, 5/1/98), 2005(d) 4,620,000
-------------
25,823,467
FOOD (2.9%)
- -------------------------------------------------------------------------------
5,000,000 Fresh Del Monte Produce N.V. Corp. deb. 10s, 2003(b) 4,575,000
12,000,000 PSF Finance L.P. sr. notes 12 1/4s, 2004(b) 12,000,000
3,000,000 Specialty Foods Corp. sr. sub. notes 11 1/4s, 2003 2,880,000
2,470,000 Specialty Foods Acquisition Corp. sr. secd. disc. deb
stepped-coupon zero %, (13s, 8/15/99), 2005(d) 1,086,800
-------------
20,541,800
PUBLISHING (2.7%)
- -------------------------------------------------------------------------------
1,750,000 General Media sr. notes 10 5/8s, 2000(b) 1,636,250
3,500,000 Marvel Holdings Inc. sr. notes 9 1/8s, 1998(b) 3,132,500
21,000,000 Marvel Holdings, Inc. sr. secd. disc. notes
zero %, 1998 12,810,000
3,000,000 Marvel Holdings, Inc. sr. secd. notes zero %, 1998 1,830,000
-------------
19,408,750
CONGLOMERATES (2.7%)
- -------------------------------------------------------------------------------
9,750,000 Jordan Industries, Inc. sr. notes 10 3/8s, 2003 9,360,000
2,475,000 MacAndrews & Forbes Holdings Inc. sub. deb. 13s, 1999 2,481,187
6,623,000 PA Holdings Corp. sr. sub. notes 13 3/4s, 1999 7,020,380
-------------
18,861,567
HEALTH CARE (2.6%)
- -------------------------------------------------------------------------------
4,125,000 Abbey Healthcare Group, Inc. sr. sub. notes
9 1/2s, 2002 3,795,000
4,223,600 EPIC Healthcare Group, Inc. jr. sub. notes 11s, 2003(c) 2,562,240
5,625,000 Multicare Cos., Inc. sr. sub. notes 12 1/2s, 2002 6,300,000
5,000,000 Ornda Healthcorp sr. sub. notes 12 1/4s, 2002 5,400,000
-------------
18,057,240
<PAGE>
<PAGE>
INSURANCE (2.5%)
- -------------------------------------------------------------------------------
2,000,000 American Annuity Group, Inc. sr. notes 9 1/2s, 2001 $ 1,952,500
6,500,000 Bankers Life Holding Corp. sr. sub. notes Ser.
B 13s, 2002 7,410,000
2,000,000 National RE Holdings Corp. sr. sub. notes 14
1/2s, 1999 2,210,000
5,500,000 Reliance Group Holdings sr. sub. notes 9 3/4s, 2003 5,032,500
1,250,000 Reliance Group Holdings sr. notes 9s, 2000 1,137,500
-------------
17,742,500
BUILDING PRODUCTS (2.3%)
- -------------------------------------------------------------------------------
1,439,000 American Standard, Inc. sub. disc. deb. 14 1/4s, 2003 1,482,170
3,125,000 Overhead Door Corp. sr. notes 12 1/4s, 2000 3,296,875
7,500,000 Southdown, Inc. sr. sub. notes Ser. B, 14s, 2001 8,437,500
3,000,000 Triangle Pacific Corp. sr. notes 10 1/2s, 2003 3,000,000
-------------
16,216,545
COMMUNICATIONS (2.3%)
- -------------------------------------------------------------------------------
8,400,000 Echostar Communication Corp. stepped coupon zero %
(12 7/8s, 12/1/99), 2004(d) 4,510,548
18,500,000 Panamsat L.P. sr. sub. notes stepped-coupon zero %
(11 3/8s, 8/1/98), 2003(d) 11,701,250
-------------
16,211,798
SPECIALTY CONSUMER PRODUCTS (2.2%)
- -------------------------------------------------------------------------------
9,375,000 Equitable Bag Co. sr. notes 12 3/8s, 2002(f) 7,125,000
8,150,000 Playtex Family Products Corp. sr. sub. notes 9s, 2003 7,273,875
1,500,000 Revlon Consumer Products Corp. sr. notes Ser. B,
9 3/8s, 2001 1,256,250
-------------
15,655,125
CONTAINERS (2.1%)
- -------------------------------------------------------------------------------
6,500,000 Anchor Glass Container Corp. sr. sub. deb. 9
7/8s, 2008 5,996,250
8,705,000 Ivex Packaging Corp. sr. sub. notes 12 1/2s, 2002 9,162,012
-------------
15,158,262
BROADCASTING (2.1%)
- -------------------------------------------------------------------------------
2,000,000 Act III Broadcasting Inc. sr. sub. notes 9 5/8s, 2003 1,920,000
3,000,000 Argyle Television Operations sr. sub. notes 9
7/8s, 2003 3,030,000
6,500,000 Granite Broadcasting Corp. sr. sub. deb. 12 3/4s, 2002 6,695,000
1,000,000 New City Broadcasting Corp. sr. sub. notes 11
3/8s, 2003 1,020,000
2,150,000 SFX Broadcasting deb. 11 3/8s, 2000 2,193,000
-------------
14,858,000
FOOD CHAINS (2.1%)
- -------------------------------------------------------------------------------
6,500,000 Grand Union Co. sr. sub. notes 12 1/4s, 2002 6,500,000
4,140,000 Megafoods Stores Inc. sr. notes 10 1/4s, 2000 3,394,800
2,750,000 Penn Traffic Co. sr. sub. notes 9 5/8s, 2003 2,605,625
2,230,000 Stater Brothers sr. notes 11s, 2001(b) 2,235,575
-------------
14,736,000
<PAGE>
<PAGE>
ELECTRICAL EQUIPMENT (1.9%)
- -------------------------------------------------------------------------------
10,050,000 Amphenol Corp. sr. sub. notes 12 3/4s, 2002 $ 11,155,500
2,500,000 SPX Corp. sr. sub. notes 11 3/4s, 2002 2,537,500
-------------
13,693,000
RETAIL (1.8%)
- -------------------------------------------------------------------------------
5,000,000 County Seat Stores units 12s, 2001 4,825,000
4,888,000 Duane Reade Corp. sr. notes Ser. B 12s, 2002 5,107,960
3,000,000 Finlay Enterprises, Inc. sr. notes 10 5/8s, 2003 3,000,000
-------------
12,932,960
ELECTRONICS (1.6%)
- -------------------------------------------------------------------------------
$22,000,000 International Semi-Tech. Micro-Electric sr. disc. notes
stepped-coupon zero % (11 1/2s, 8/15/00), 2003(d) 11,000,000
ELECTRIC UTILITIES (1.5%)
- -------------------------------------------------------------------------------
2,000,000 Midland Funding Corp. II sub. secd. lease oblig.
bonds Ser. B, 13 1/4s, 2006 2,120,000
8,000,000 Texas New Mexico Power Corp. secd. deb. 12 1/2s, 1999 8,560,000
-------------
10,680,000
STEEL (1.5%)
- -------------------------------------------------------------------------------
6,500,000 AK Steel Corp. sr. notes 10 3/4s, 2004 6,597,500
3,100,000 WCI Steel Inc. sr. notes Ser. B 10 1/2s, 2002(b) 3,115,500
1,000,000 Wheeling-Pittsburgh Corp. sr. notes 9 3/8s, 2003 930,000
-------------
10,643,000
AGRICULTURE (1.4%)
- -------------------------------------------------------------------------------
1,350,000 PMI Acquisition Corp. sr. sub. notes 10 1/4s, 2003 1,360,125
6,367,000 PMI Holdings Corp. sub. disc. deb. stepped-coupon
zero % (11 1/2s, 9/1/00), 2005(d) 3,143,706
597,400 Premium Standard Farms exch. pfd. units 12 1/2s, 2000(b) 654,153
4,408,842 Premium Standard Farms sr. secd. notes 12s, 2000(b) 4,827,682
-------------
9,985,666
TOBACCO (1.4%)
- -------------------------------------------------------------------------------
5,475,000 Consolidated Cigar Corp. deb. 10 1/2s, 2003 4,927,500
5,000,000 Mafco, Inc. sr. sub. notes 11 7/8s, 2002 5,050,000
-------------
9,977,500
GAS (1.3%)
- -------------------------------------------------------------------------------
9,500,000 TransTexas Gas Corp. sr. secd. notes 10 1/2s, 2000 9,500,000
RESTAURANTS (1.3%)
- -------------------------------------------------------------------------------
10,036,000 Flagstar Companies sr. sub. deb. 11 1/4s, 2004 9,283,300
ADVERTISING (1.2%)
- -------------------------------------------------------------------------------
3,500,000 Outdoor Systems, Inc. deb. 10 3/4s, 2003 3,430,000
5,000,000 Universal Outdoor Inc. sub. deb. 11s, 2003 5,025,000
-------------
8,455,000
<PAGE>
<PAGE>
SCHOOL BUSSES (1.1%)
- -------------------------------------------------------------------------------
7,500,000 Blue Bird Acquisition Corp. sub. deb. 11 3/4s, 2002 $ 7,800,000
TELEPHONE SERVICES (1.1%)
- -------------------------------------------------------------------------------
10,000,000 MFS Communications sr. dic. notes stepped-coupon
zero % (9 3/8s, 1/15/99), 2004(d) 6,000,000
2,000,000 USA Mobile Communications sr. notes 9 1/2s, 2004 1,780,000
-------------
7,780,000
FINANCE (1.0%)
- -------------------------------------------------------------------------------
3,000,000 Comdata Network, Inc. sr. notes 12 1/2s, 1999 3,262,500
4,000,000 Delaware Management Holdings sr. notes 10 1/4s, 2004(b) 3,880,000
-------------
7,142,500
REAL ESTATE (1.0%)
- -------------------------------------------------------------------------------
7,300,000 Scotsman Group Inc. sr. secd. notes 9 1/2s, 2000 6,898,500
CONSUMER SERVICES (1.0%)
- -------------------------------------------------------------------------------
$ 5,000,000 Solon Automated Services, Inc. sr. sub. deb.
13 3/4s, 2002 5,250,000
1,500,000 Solon Automated Services, Inc. notes 12 3/4s, 2001 1,575,000
-------------
6,825,000
AUTOMOTIVE PARTS (0.9%)
- -------------------------------------------------------------------------------
3,000,000 Exide Corp. sr. sub. deb. stepped-coupon zero %
(12 1/4s, 12/15/97), 2004(d) 2,145,000
4,000,000 Key Plastics Corp. sr. notes 14s, 1999 4,580,000
-------------
6,725,000
ENERGY (0.8%)
- -------------------------------------------------------------------------------
6,000,000 Maxus Energy Corp. Global Notes 9 3/8s, 2003 5,460,000
MOTION PICTURE DISTRIBUTION (0.7%)
- -------------------------------------------------------------------------------
2,095,000 Cinemark Mexico U.S.A. Inc. sr. sub. notes 12s, 2003(b) 2,053,100
2,750,000 Cinemark USA sr. notes 12s, 2002 2,970,000
-------------
5,023,100
MACHINERY (0.6%)
- -------------------------------------------------------------------------------
4,000,000 Specialty Equipment Co. sr. sub. notes 11 3/8s, 2003 4,000,000
LODGING (0.6%)
- -------------------------------------------------------------------------------
4,300,000 Red Roof Inns sr. notes 9 5/8s, 2003(b) 3,999,000
TEXTILES (0.5%)
- -------------------------------------------------------------------------------
3,500,000 Foamex (L.P.) Capital Corp. sr. notes 11 1/4s, 2002 3,640,000
AIRLINES (0.5%)
- -------------------------------------------------------------------------------
3,825,000 USAir, Inc. sr. notes 10 3/8s, 2013 3,222,563
<PAGE>
<PAGE>
HOME BUILDING (0.3%)
- -------------------------------------------------------------------------------
2,500,000 Webb (Delaware) sr. sub. deb. 9 3/4s, 2003 $ 2,350,000
SHIPPING (0.3%)
- -------------------------------------------------------------------------------
2,300,000 Viking Star Shipping sr. secd. notes 9 5/8s, 2003 2,265,500
COMPUTERS (0.3%)
- -------------------------------------------------------------------------------
14,484,000 DR Holdings Inc. sr. sub. deb. 15 1/2s, 2002(c)(f) 2,172,600
PRINTING (0.3%)
- -------------------------------------------------------------------------------
2,000,000 U.S. Banknote Corp. sr. notes 10 3/8s, 2002 1,960,000
BUSINESS SERVICES (0.2%)
- -------------------------------------------------------------------------------
1,870,000 Corporate Express, Inc. sr. notes 9 5/8s, 2004
(acquired 2/22/94, cost $1,870,000)(e) 1,683,000
HEALTH CARE SERVICES (0.2%)
- -------------------------------------------------------------------------------
1,750,000 U.S. Home Corp. sr. notes 9 3/4s, 2003 1,636,250
MEDICAL SUPPLIES (0.2%)
- -------------------------------------------------------------------------------
1,500,000 Wright Medical Technology Inc. sr. secd. notes Ser. B,
10 3/4s, 2000 1,425,000
APPAREL (0.1%)
- -------------------------------------------------------------------------------
1,000,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 950,000
- -------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES (cost $651,629,874) $634,032,283
UNITS (3.1%) (a)
NUMBER OF UNITS VALUE
1,450,000 Capital Gaming International Inc. sr. secd. units
11 1/2s, 2001(b) $ 1,595,000
2,200,000 Chesapeake Energy Corp. deb. units 12s, 2001 2,200,000
5,000,000 OSI Specialty Inc. sr. sub. units stepped-coupon
zero % (11 1/2s, 4/15/99), 2004 (acquired 4/12/94,
cost $2,862,250)(d)(e) 3,000,000
730,000 Page Mart Inc. sr. disc. units stepped-coupon zero %
(12 1/4s, 11/1/98), 2003(b)(d) 4,547,900
202,730 Pyramid Communications units $3.125 pfd. 5,068,250
5,750,000 Santa Fe Hotel, Inc. units 11s, 2000 5,750,000
-------------
TOTAL UNITS (cost $21,715,109) $ 22,161,150
-------------
<PAGE>
<PAGE>
CONVERTIBLE PREFERRED STOCKS (1.1%) (a)
NUMBER OF SHARES VALUE
25,000 Chrysler Corp. Ser. A, $4.625 dep. shs. cv. pfd.(b) $ 3,462,500
76,220 Conseco, Inc. Ser. D, $3.25 cv. pfd. 3,982,495
-------------
TOTAL CONVERTIBLE PREFERRED STOCKS (cost $7,402,125) $ 7,444,995
COMMON STOCKS (0.6%) (a)
NUMBER OF SHARES VALUE
368 CDK Holding Corp. Rights (acquired 10/31/88,
cost $20,643)(e) $ 12,144
41,197 Computervision Corp.(acquired 8/21/92,
cost $370,773)(e) 108,142
60,000 Dr Pepper Bottling Holdings, Inc. Class A(f) 187,500
45,217 Grand Casinos, Inc.(f) 785,645
14,480 Kendall International, Inc.(f) 698,660
70,538 Lear Seating Corp. 1,313,761
2,141 PMI Holdings Corp. 428,200
1,132 Premium Holdings L.P .(acquired 1/4/94, cost $67,920)(e) 113,200
49 RJR Nabisco Holdings Corp.(f) 282
541,314 Solon Automated Services, Inc. (acquired 6/18/92,
cost $323,250)(e) 338,321
50 Southland Corp.(f) 241
112,500 Specialty Foods Corp. 112,500
44,572 Spectra Vision Inc. 133,716
15,710 Taj Mahal Holding Corp. Class A 314,200
-------------
TOTAL COMMON STOCKS (cost $3,161,231) $ 4,546,512
PREFERRED STOCKS (0.6%) (a) (cost $4,040,000)
NUMBER OF SHARES VALUE
40,000 Calfed Inc. Ser.B, $10.625 pfd. $ 4,035,000
YANKEE BONDS AND NOTES (0.4%) (a)(f)
PRINCIPAL AMOUNT VALUE
$ 2,000,000 Eletson Holdings, Inc. 1st pfd. mtge. notes 9
1/4s, 2003 $ 1,900,000
1,085,000 Banco de Galicia Inc. global notes 9s, 2003 987,350
-------------
TOTAL YANKEE BONDS AND NOTES (cost $3,080,031) $ 2,887,350
-------------
WARRANTS (0.4%) (a)
NUMBER OF WARRANTS EXPIRATION DATE VALUE
92,500 Becker Gaming Corp.(b) 11/15/00 $ 231,250
1,167 Belle Casinos Inc. 10/15/03 5,835
610 CDK Holding Corp. Class A
(acquired 10/31/88, cost$34,165)(e) 7/07/99 20,130
653 CDK Holding Corp. Class B
(acquired 10/31/88, cost $18,269)(e) 7/07/99 20,243
3,625 Capital Gaming 2/01/99 3,625
13,320 Casino Magic Finance Corp. 10/14/96 6,660
23,278 Cinemark Mexico 8/01/03 215,322
5,000 County Seat Stores 10/01/98 100,000
12,730 Dial Call Communication 12/15/98 127,300
344,600 Gaylord Container Corp. 7/31/95 1,335,325
750 General Media(b) 12/31/00 9,000
<PAGE>
<PAGE>
3,372 Louisiana Casino Cruises, Inc. 12/01/98 $ 13,488
21,000 President Riverboat Casinos 9/15/96 42,000
55,000 Southdown, Inc. 11/01/96 302,500
668 Wright Medical Technology Inc. 6/30/03 50,118
-------------
TOTAL WARRANTS (cost $2,294,779) $ 2,482,796
CONVERTIBLE BONDS AND NOTES (0.1%) (a) (cost $1,000,000)
PRINCIPAL AMOUNT VALUE
$ 1,000,000 Sahara Mission cv. sub. notes 12s, 1995 $ 1,000,000
SHORT-TERM INVESTMENTS (3.9%) (a)
PRINCIPAL AMOUNT VALUE
$10,000,000 Merrill Lynch & Co. Inc. 4.25s, June 1, 1994 $ 10,000,000
17,417,000 Interest in $489,000,000 joint repurchase agreement
dated May 31, 1994 with Kidder Peabody & Co. Inc.
due June 1, 1994 with respect to various U.S. Treasury
obligations-maturity value of $17,419,051 for an
effective yield of 4.24% 17,419,051
-------------
TOTAL SHORT-TERM INVESTMENTS (cost $27,419,051) $ 27,419,051
-------------
TOTAL INVESTMENTS (cost $721,742,200)(g) $706,009,137
(a) Percentages indicated are based on net assets of $709,004,979, which corres-
pond to a net asset value per share of $9.89 and $9.88 for Class A and Class
B shares respectively.
(b) Secur ities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from regis-
tration, normally to qualified institutional buyers. As of May 31, 1994,
these securities were valued at $70,713,700 or 10.0% of net assets.
(c) Income may be received in additional securities or cash at the discretion of
the issuer.
(d) The interest rate and date shown parenthetically represent the next interest
rate to be paid and the date the Fund will begin accruing this rate.
(e) Restricted as to public resale except for rule 144A securities. At the date
of acquisition these securities were valued at cost. There were no outstand-
ing unrestricted securities of the same class as those held. Total market
value of restricted securities owned at May 31, 1994 was $5,295,180 or 0.7%
of net assets.
(f) Non-income-producing security.
(g) The aggregate identified cost on a tax basis is $721,802,201, resulting in
gross unrealized appreciation and depreciation of $16,533,302 and
$32,326,366, respectively, or net unrealized depreciation of $15,793,064.
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1994
ASSETS
- -------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $721,742,200) (Note 1) $706,009,137
Cash 997,142
Receivable for securities sold 1,599,337
Dividends, interests and other receivables 14,342,976
Receivable for shares of the Fund sold 2,151,459
- -------------------------------------------------------------------------------
TOTAL ASSETS 725,100,051
LIABILITIES
- -------------------------------------------------------------------------------
Payable for securities purchased 13,972,749
Payable for shares of the Fund repurchased 605,755
Payable for compensation of Manager (Note 2) 949,181
Payable for administrative services (Note 2) 2,688
Payable for compensation of Trustees (Note 2) 2,065
Payable for investor servicing and custodian fees (Note 2) 177,121
Payable for distribution fees (Note 2) 290,756
Other accrued expenses 94,757
- -------------------------------------------------------------------------------
TOTAL LIABILITIES 16,095,072
- -------------------------------------------------------------------------------
NET ASSETS $709,004,979
REPRESENTED BY
- -------------------------------------------------------------------------------
Paid-in capital (Notes 1, 4 and 5) $773,088,896
Undistributed net investment income 3,678,231
Accumulated net realized loss on investment transactions (52,029,085)
Net unrealized depreciation of investments (15,733,063)
- -------------------------------------------------------------------------------
TOTAL - REPRESENTING NET ASSETS APPLICABLE
TO CAPITAL SHARES OUTSTANDING $709,004,979
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
- -------------------------------------------------------------------------------
Net asset value and redemption price of Class A
shares ($707,383,959 divided by 71,536,455 shares) $ 9.89
Offering price per share (100/95.25 of $9.89) * $10.38
Net asset value and offering price of Class B
shares ($1,621,020 divided by 164,126 shares) + $ 9.88
- -------------------------------------------------------------------------------
* 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.
<PAGE>
<PAGE>
STATEMENT OF OPERATIONS
For the six months ended May 31, 1994
INVESTMENT INCOME:
- -------------------------------------------------------------------------------
Interest $ 39,045,535
- -------------------------------------------------------------------------------
Dividends 135,662
- -------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 39,181,197
- -------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,944,073
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 403,829
- -------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 11,725
- -------------------------------------------------------------------------------
Reports to shareholders 69,605
- -------------------------------------------------------------------------------
Auditing 35,716
- -------------------------------------------------------------------------------
Legal 16,897
- -------------------------------------------------------------------------------
Postage 113,642
- -------------------------------------------------------------------------------
Administrative services (Note 2) 8,237
- -------------------------------------------------------------------------------
Distribution fees - class A (Note 2) 922,888
- -------------------------------------------------------------------------------
Distribution fees - class B (Note 2) 356
- -------------------------------------------------------------------------------
Registration fees 60,303
- -------------------------------------------------------------------------------
Other expenses 14,683
- -------------------------------------------------------------------------------
TOTAL EXPENSES 3,601,954
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME 35,579,243
- -------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 13,298,404
- -------------------------------------------------------------------------------
Net unrealized depreciation of investments during the period (48,842,971)
- -------------------------------------------------------------------------------
NET LOSS ON INVESTMENTS AND OPTIONS (35,544,567)
- -------------------------------------------------------------------------------
NET INCREASE IN NET ASSETSRESULTING FROM OPERATIONS $ 34,676
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
Six
months ended Year ended
May 31 November 30
1994 1993
- -------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $35,579,243 $67,144,384
- -------------------------------------------------------------------------------
Net realized gain on investments 13,298,404 22,128,062
- -------------------------------------------------------------------------------
Net realized loss on forward currency contracts - (28,347)
- -------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investments and options (48,842,971) 18,654,171
- -------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 34,676 107,898,270
- -------------------------------------------------------------------------------
Undistributed net investment income included in
price of shares sold and repurchased, net - 363,601
- -------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
NET INVESTMENT INCOME:
- -------------------------------------------------------------------------------
Class A (36,571,578) (68,524,430)
- -------------------------------------------------------------------------------
Class B - -
- -------------------------------------------------------------------------------
In excess of net investment income- Class A - (534,703)
- -------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 3,069,655 218,749,645
- -------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (33,467,247) 257,952,383
- -------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------
Beginning of period 742,472,226 484,519,843
- -------------------------------------------------------------------------------
END OF PERIOD (including undistributed net
investment income and distribution in excess
of net investment income of $3,678,231 and
$(534,703) respectively) $709,004,979 $742,472,226
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS *
(For a share outstanding throughout the period)
For the period For the period
May 16, 1994 Six March 26, 1986
(commencement of months (commencement of
operations) to ended operations) to
May 31 May 31 Year ended November 30 November 30
- ---------------------------------------- -------------------------------------------------------------------------------------------
1994 1994 1993 1992 1991 1990 1989 1988 1987 1986
- ---------------------------------------- -------------------------------------------------------------------------------------------
Class B Class A
- ---------------------------------------- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $9.83 $10.41 $9.74 $9.30 $7.38 $9.69 $11.35 $10.94 $11.61 $12.00
- ---------------------------------------- -------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
- ---------------------------------------- -------------------------------------------------------------------------------------------
Net investment income .06(e) .50 1.13 1.23 1.14 1.18 1.37 1.35 1.36 .69
- ---------------------------------------- -------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments (.01) (.51) .70 .42 1.98 (2.09) (1.60) .38 (.71) (.31)
- ---------------------------------------- -------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS .05 (.01) 1.83 1.65 3.12 (.91) (.23) 1.73 .65 .38
- ---------------------------------------- -------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
- ---------------------------------------- -------------------------------------------------------------------------------------------
From net investment income - (.51) (1.15) (1.21) (1.15) (1.33) (1.32) (1.32) (1.32) (.77)
- ---------------------------------------- -------------------------------------------------------------------------------------------
In excess of net investment
income(a) - - (.01) - - - - - - -
- ---------------------------------------- -------------------------------------------------------------------------------------------
From net realized gain on
investments - - - - - (.07) (0.11) - - -
- ---------------------------------------- -------------------------------------------------------------------------------------------
Paid-in capital (a) - - - - (.05) - - - - -
- ---------------------------------------- -------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS - (.51) (1.16) (1.21) (1.20) (1.40) (1.43) (1.32) (1.32) (.77)
- ---------------------------------------- -------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $9.88 $9.89 $10.41 $9.74 $9.30 $7.38 $9.69 $11.35 $10.94 $11.61
- ---------------------------------------- -------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE (%) (b) 12.75(c) (.38)(c) 19.88 18.44 45.46 (10.26) (2.61) 16.67 5.64 4.79(c)
- ---------------------------------------- -------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(in thousands) $1,621 $707,384 $742,472 $484,520 $369,150 $248,111 $346,188 $398,221 $309,912 $196,934
- ---------------------------------------- -------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) 2.13(c) .96(c) .96 1.14 1.33 1.37 1.23 1.07 1.12 1.24(c)
- ---------------------------------------- -------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 15.66(c) 10.95(c) 11.04 12.40 13.38 13.92 12.55 12.04 11.65 10.06(c)
- ---------------------------------------- -------------------------------------------------------------------------------------------
Portfolio turnover (%) 35.22(d) 35.22(d) 50.89 68.29 74.45 63.29 76.88 97.36 121.08 133.40(d)
- ---------------------------------------- -------------------------------------------------------------------------------------------
</TABLE>
* Financial highlights for periods ended through November 30, 1992 have been
restated to conform with requirements issued by the SEC in April 1993.
(a) See Note 1 to Financial Statements.
(b) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Annualized.
(d) Not annualized.
(e) Per share net investment income has been determined on the basis of the
weighted average number of shares outstanding during the period.
<PAGE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
May 31, 1994
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
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 cu-
rrent income through a diversified portfolio of high-yielding, lower-rated cor-
porate bonds with potential for capital growth.
The fund offers both Class A and Class B shares. The fund commenced its public
offering of Class B shares on May 16, 1994. Class A shares are sold with a maxi-
mum front-end sales charge of 4.75%. Class B shares do not pay a front-end sales
charge, but pay a higher ongoing distribution fee than Class A shares, and may
be subject to a contingent deferred sales charge if those shares are redeemed
within six years of purchase. Expenses of the fund are borne pro-rata by the
holders of both classes of shares, except that each class bears expenses unique
to that class including the distribution fees applicable to such class. Each vo-
tes 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. In addi-
tion, the Trustees declare separate dividends on each class of shares. Shares of
each class would receive their pro-rata share of the net assets of the fund, if
the fund were liquidated.
The following is a summary of significant accounting policies consistently fo-
llowed by the fund in the preparation of its financial statements. The policies
are in conformity with generally accepted accounting principles.
A) SECURITY VALUATION Investments for which market quotations are readily avail-
able are stated at market value, which is determined using the last reported sa-
le price, or, if no sales are reported - as in the case of some securities tra-
ded over-the-counter - the last reported bid price, except that certain U.S. go-
vernment obligations are stated at the mean between the bid and asked prices.
Securities whose market quotations are not readily available are stated at fair
market value on the basis of valuations furnished by pricing services approved
by the Trustees, which determine valuations for normal, institutional-size tra-
ding units of such securities using methods based on market transactions for
comparable securities and various relationships between securities that are ge-
nerally recognized by institutional traders. Short-term investments having re-
maining maturities of 60 days or less are stated at amortized cost, which appro-
ximates market value, and other investments including restricted securities are
stated at fair market value following procedures approved by the Trustees.
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 compa-
nies managed by Putnam Investment Management , Inc., the fund's Manager, a who-
lly-owned subsidiary of Putnam Investments, Inc., and certain other accounts.
These balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
<PAGE>
<PAGE>
C) REPURCHASE AGREEMENTS The fund, through its custodian, receives delivery of
the underlying securities, the value of which at the time of purchase is requi-
red to be in an amount at least equal to the resale price, including accrued in-
terest. The fund's Manager is responsible for determining that the value of the-
se underlying securities is at all times at least equal to the resale price, in-
cluding 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). In-
terest income is recorded on the accrual basis and dividend income is recorded
on the ex-dividend date.
Discount on zero coupon bonds, original issue discount bonds and stepped-coupon
bonds is accreted according to the effective yield method. Certain securities
held by the fund pay interest in the form of cash or additional securities; in-
terest on such securities is recorded on the accrual basis at the lower of cou-
pon rate or market value of the securities to be received, and is allocated to
the cost of the securities received on the payment date. Foreign-denominated
receivables and payables are "marked-to-market" using the current exchange rate.
The fluctuation between the original exchange rate and the current exchange rate
is recorded daily as unrealized gain or loss. Upon receipt or payment, the fund
realizes a gain or loss amounting to the difference between the original value
and the ending value of the receivable or payable. Foreign currency gains and
losses related to interest income are reported as part of interest income.
E) FORWARD CURRENCY CONTRACTS A forward currency contract is an agreement be-
tween two parties to buy and sell currency at a set price on a future date. 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 by the fund as an unrealized gain or loss. When the contract is clo-
sed, 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 maximum potential loss from forward currency contracts is the
aggregate face value in U.S. dollars at the time the contract was opened; how-
ever, management believes the likelihood of such a loss to be remote.
F) FEDERAL TAXES It is the policy of the fund to distribute all of its income
within the prescribed time and otherwise comply with the provisions of the In-
ternal 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 subject to Section 4982 of the Internal Revenue Code of 1986.
Therefore, no provision has been made for federal taxes on income, capital gains
or unrealized appreciation of securities held and excise tax on income and capi-
tal gains.
At November 30, 1993, the fund had a capital loss carryover of approximately
$65,192,437, available to offset future capital gains, if any. To the extend
that the capital loss carry over is used to offset realized gains, it is unli-
kely that the gains so offset will be distributed to shareholders, since any
such distribution might be taxable as ordinary income.
<PAGE>
<PAGE>
LOSS CARRYOVER EXPIRATION
- ----------------------------------------------------
$49,783,676 November 30, 1998
$15,408,761 November 30, 1999
G) DISTRIBUTIONS TO SHAREHOLDERS Distributions to shareholders are recorded by
the fund on the ex-dividend date. At certain times, the fund may pay distribu-
tions at a level rate even though, as a result of market conditions or invest-
ment decisions, the fund may not achieve projected investment results for a gi-
ven period.
H) EQUALIZATION Prior to December 1, 1993, the fund used the accounting practice
known as equalization to keep a continuing shareholder's per share interest in
undistributed net investment income unaffected by sales or repurchases of fund
shares. This was accomplished by allocating a per share portion of the proceeds
from sales and the costs of repurchases of shares to undistributed net invest-
ment income.
As of December 1, 1993, the fund discontinued using equalization. This change
has no effect on the fund's total net assets, net asset value per share, or its
net increase (decrease) in net assets from operations. Discontinuing the use of
equalization will result in simpler financial statements. The cumulative effect
of the change was to decrease undistributed net investment income and increase
paid-in capital previously reported through November 30, 1993 by $3,362,395.
NOTE 2
MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS
Compensation of Putnam Investment Management, Inc., the fund's Manager, a who-
lly-owned subsidiary of Putnam Investments, Inc., for management and investment
advisory services is paid quarterly based on the average net assets of the fund
for the quarter. 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 and 0.50% of any amount over $1.5 billion, subject to
reduction in any year under current law to the extent that expenses (exclusive
of brokerage, interest and taxes) of the Fund exceed 2.5% of the first $30 mi-
llion of average net assets, 2.0% of the next $70 million and 1.5% of any amount
over $100 million and by the amount of certain brokerage commissions and fees
(less expenses) received by affiliates of the Manager on the fund's portfolio
transactions. Prior to May 5, 1994 such fee was based on the following annual
rates: 0.70% of the first $100 million of average net assets, 0.60% of the next
$100 million, 0.50% of the next $300 million, 0.45% of the next $500 million and
0.425% of any amount over $1 billion.
The fund also reimburses the Manager for the compensation and related expenses
of certain officers of the fund and their staff who provide administrative ser-
vices to the fund. The aggregate amount of all such reimbursements is determined
annually by the Trustees. For the six months ended May 31, 1994, the fund paid
$8,237 for these services.
Trustees of the fund receive an annual Trustee's fee of $1,560 and an additional
fee for each Trustees' meeting attended. Trustees who are not interested persons
of the Manager and who serve on committees of the Trustees receive additional
fees for attendance at certain committee meetings.
<PAGE>
<PAGE>
Custodial functions for the fund are provided by Putnam Fiduciary Trust Company
(PFTC), a subsidiary of Putnam Investments, Inc. Investor servicing agent func-
tions are provided by Putnam Investor Services, a division of PFTC. Fees paid
for these investor servicing and custodial functions for the six months ended
May 31, 1994 amounted to $403,829.
Investor servicing and custodian fees reported in the Statement of operations
for the six months ended May 31, 1993 have been reduced by credits allowed by
PFTC.
The fund has adopted a distribution plan with respect to its Class A shares (the
"Class A Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The purpose of the Class A Plan 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 Class A shares. The Trustees have appro-
ved payment by the fund to Putnam Mutual Funds Corp. at an annual rate of 0.25%
of the fund's average net assets attributable to Class A shares. For the six mo-
nths ended May 31, 1994, the fund paid $922,888 in distribution fees for Class A
shares.
During the six months ended May 31, 1994, Putnam Mutual Funds Corp., acting as
an underwriter, received net commissions of $300,431 from the sale of Class A
shares of the Fund.
A deferred sales charge of up to 1% is assessed on certain redemptions of Class
A shares repurchased as part of an investment of $1 million or more. For the pe-
riod ended May 31, 1994, Putnam Mutual Funds Corp., acting as an underwriter re-
ceived $26,388 on such redemptions.
The fund has adopted a separate distribution plan with respect to its Class B
shares (the "Class B Plan") pursuant to Rule 12b-1 under the Investment Company
Act of 1940. The purpose of Class B Plan is to compensate Putnam Mutual Funds
Corp., for services provided and expenses incurred by it in distributing Class
B shares. The Class B Plan provides for payments by the fund to Putnam Mutual
Funds Corp. at an annual rate of 1.00% of the fund's average net assets attri-
butable to Class B shares. For the six months ended May 31, 1994, the fund paid
Putnam Mutual Funds Corp. distribution fees of $356 for Class B shares.
Putnam Mutual Funds Corp. also receives the proceeds on the contingent deferred
sales charges on its Class B share redemptions within six years of purchase. The
charge is based on declining rates, which begin at 5% of the net asset value of
the redeemed shares. Putnam Mutual Funds Corp. received no monies on Class B re-
demptions.
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the six months ended May 31, 1994, purchases and sales of investment
securities other than short-term investments aggregated $253,148,777 and
$306,387,373 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.
<PAGE>
<PAGE>
NOTE 4
CAPITAL SHARES
At May 31, 1994 there was an unlimited number of shares of beneficial interest
authorized. Transactions in capital shares were as follows:
SIX MONTHS ENDED MAY 31, 1994
CLASS A SHARES AMOUNT
- --------------------------------------------------------------------------------
Shares sold 20,919,003 $217,193,340
Shares issued inconnection with
reinvestment of distributions 1,743,620 18,001,889
22,662,623 235,195,229
Shares repurchased (22,467,979) (233,743,017)
- --------------------------------------------------------------------------------
NET INCREASE 194,644 $ 1,452,212
- --------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1993
CLASS A SHARES AMOUNT
- --------------------------------------------------------------------------------
Shares sold 40,865,725 $415,633,545
Shares issued inconnection with
reinvestment of distributions 3,401,816 34,357,401
44,258,541 449,990,946
Shares repurchased (22,675,269) (230,877,700)
Portion represented by undistributed
net investment income - (363,601)
- --------------------------------------------------------------------------------
NET INCREASE 21,583,272 $218,749,645
- --------------------------------------------------------------------------------
MAY 16, 1994
(COMMENCEMENT OF OPERATIONS) TO
MAY 31, 1994
CLASS B SHARES AMOUNT
- --------------------------------------------------------------------------------
Shares sold 164,327 $1,619,431
Shares repurchased (201) (1,988)
- --------------------------------------------------------------------------------
NET INCREASE 164,126 $1,617,443
- --------------------------------------------------------------------------------
NOTE 5
RECLASSIFICATION OF CAPITAL ACCOUNTS
Effective December 1, 1993, Putnam High Yield Advantage Fund has adopted the
provisions of Statement of Position 93-2 "Determination, Disclosure and Finan-
cial Statement Presentation of Income, Capital Gain and Return of Capital dis-
tributions by Investment Companies (SOP). The SOP requires the fund to report
the undistributed net investment income (accumulated loss) and accumulated net
realized gain (loss) accounts in such a manner as to approximate amounts avail-
able for future tax distributions (or to offset future realized capital gains).
In implementing the SOP the fund has reclassified $8,981,321 to increase accumu-
lated net realized loss, $8,567,664 to increase undistributed net investment in-
come, with an increase of $413,657 to additional paid-in capital. These adjust-
ments represent the cumulative amounts necessary to report these balances on a
tax basis through November 30, 1993. These reclassifications have no impact on
the total net asset value of the fund.
<PAGE>
<PAGE>
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
Coopers & Lybrand
TRUSTEES
George Putnam, Chairman William Pounds, Vice Chairman
Jameson Adkins Baxter Hans H. Estin
John A. Hill Elizabeth T. Kennan
Lawrence J. Lasser Donald S. Perkins
Robert E. Patterson George Putnam, III
A.J.C. Smith W. Nicholas Thorndike
OFFICERS
George Putnam Charles E. Porter
President Executive Vice President
Patricia C. Flaherty Lawrence J. Lasser
Senior Vice President Vice President
Gordon H. Silver Gary N. Coburn
Vice President Vice President
Jin W. Ho William N. Shiebler
Vice President and Fund Manager Vice President
John R. Verani Paul M. O'Neil
Vice President Vice President
John D. Hughes Beverly Marcus
Vice President and Treasurer Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam High Yield Advanta-
ge Fund. It may also be used as sales literature when preceded or accompanied by
the current prospectus, which gives details of sales charges, investment objec-
tives and operating policies of the fund, and the most recent Putnam Quarterly
Performance Summary.
<PAGE>
<PAGE>
OUR COMMITMENT TO QUALITY SERVICE
CHOOSE AWARD-WINNING SERVICE.
Putnam Investor Services has won the DALBAR Quality Tested Service Seal every
year since the award's 1990 inception. DALBAR, an independent research firm, ran
more than 10,000 tests of 38 shareholder service components. In every category,
Putnam outperformed the industry standard.
HELP YOUR INVESTMENT GROW.
Set up a regular program for investing with as little as $25 a month from a
Putnam fund or from your checking or savings account. *
SWITCH FUNDS EASILY.
You can move money from one account to another with the same class of shares
without a service charge. (This privilege is subject to change or termination.)
ACCESS YOUR MONEY QUICKLY.
You can get checks sent regularly or redeem shares any business day at the then-
current net asset value, which may be more or less than their original cost. For
details about any of these or other services, contact your financial advisor or
call the toll-free number shown below and speak with a helpful Putnam represen-
tative.
To make an additional investment in this or any other Putnam fund, contact your
financial advisor or call our toll-free number:
1-800-225-1581.
* Regular investing, of course, does not guarantee a profit or protect against
a loss in a declining market. Investors should consider their ability to con-
tinue purchasing shares during periods of low price levels.
<PAGE>
<PAGE>
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
Bulk Rate
U.S. Postage
Paid
Boston, MA
Permit No. 53749
60-13000
<PAGE>
<PAGE>
APPENDIX TO FORM N-30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED AND
EDGAR-FILED TEXTS:
(1) Boldface typeface is displayed with capital letters, italic typeface is
displayed in normal type.
(2) Because the printed page breaks are not reflected, certain tabular and
columnar headings and symbols are displayed differently in this filing.
(3) Bullet points and similar graphic signals are omitted.
(4) Page numbering has been omitted.
(5) The trademark symbol has been replaced by (TM).
(6) The copyright symbol has been replaced by (C).
(7) The dagger symbol has been replaced by (+).
(8) The registered mark symbol has been replaced by (R).
