Putnam
High Yield
Advantage
Fund
[Artwork]
Annual Report
November 30, 1994
[Putnam Logo]
Boston * London * Tokyo
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PERFORMANCE HIGHLIGHTS
"Overall, however, this fund has done a very competent job searching out high-
yield bonds that have provided solid income as well as appreciation."
Morningstar Mutual Funds analysis, 12/9/94 *
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
current income, with capital growth as a secondary objective.
FISCAL 1994 RESULTS AT A GLANCE
CLASS A CLASS B
TOTAL RETURN: NAV POP NAV CDSC
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12 months ended 11/30/94
(change in value during period
plus reinvested distributions) -3.43% -8.03% -- --
Life of class B (5/16/94) -- -- -3.12% -7.72%
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SHARE VALUE: NAV POP NAV
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11/30/93 $10.41 $10.93 --
05/16/94 1Effective 5-16-94, the
fund began offering class B shares -- -- $9.83
11/30/94 9.07 9.52 9.05
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DISTRIBUTIONS NO. INCOME CAPITAL GAINS TOTAL
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Class A 12 $1.021 -- $1.021
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Class B 6 0.486 -- 0.486
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CURRENT RETURN NAV POP NAV
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End of period
Current dividend rate (1) 11.25% 10.71% 10.61%
Current 30-day SEC yield (2) 10.18 9.68 9.40
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Performance data represent past results and will differ for each share class.
For performance over longer periods, see pages 8 and 9. POP assumes 4.75% ma-
ximum sales charge. CDSC assumes 5% maximum contingent deferred sales charge.
(1) Income portion of most recent distribution, annualized and divided by NAV
or POP at end of period. (2) Based only on investment income, calculated using
SEC guidelines.
* Morningstar is an independent rating agency that rates a fund in relation to
other funds with similar investment objectives, based on the fund's three-,
five-, and ten-year average annual returns, adjusted for risk factors and sa-
les charges. Ratings are updated monthly.
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FROM THE CHAIRMAN [Photograph of George Putnam]
* (C) Karsh, Ottawa
Dear Shareholder:
As we begin a new year, most investors won't regret the passing of the old. Sin-
ce last February, when the Federal Reserve Board began raising short-term inte-
rest rates, 1994 was marked by volatility in virtually all financial markets.
Well in advance of the Fed's first increase, Fund Manager Jin Ho adopted defen-
sive strategies designed to reduce the impact of rising rates on Putnam High
Yield Advantage Fund's portfolio. While defensive strategies proved relatively
successful, fund performance generally edged into the negative numbers.
As you might expect, bonds bore the brunt of 1994's market downturn. Although
shifts in the market as a whole inevitably affect your fund, Putnam Management's
philosophy of selecting securities on an issue-by-issue basis with a thorough
examination of each issuer's credit quality should continue to help protect your
fund's portfolio.
In the accompanying report, Jin discusses the fiscal year just ended and pros-
pects in the challenging months ahead.
Respectfully yours,
George Putnam
Chairman of the Trustees
January 18, 1995
* (C) Copyright
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REPORT FROM THE FUND MANAGER
JIN W. HO
The challenges in the fixed-income markets during your fund's fiscal year cannot
be overstated. An accelerating U.S. economy and a shift to a more restrictive
monetary policy by the Federal Reserve Board spelled the end of one of the long-
est bond-market advances in history. The 10-year U.S.Treasury note -- a yard-
stick for the corporate bond market -- posted a -8.27% total return for the 12
months ended November 30, 1994, compared with an average total return of 11.55%
for the previous five years.
The corporate high-yield market, while faring considerably better than virtually
all other domestic fixed-income sectors, was not immune to the overall bearish
environment. The First Boston High Yield Index, a commonly used indicator for
high-yield bond performance, declined -0.74% for the period.
An improving economy generally affects high-yield bonds positively; the sector's
relative outperformance clearly bears witness to this fact. However, the degree
to which interest rates rose this year -- well over two percentage points for
maturities across the spectrum -- largely negated the positive economic effects
for both the high-yield market and Putnam High Yield Advantage Fund. Aside from
prevailing market conditions, the fund's -3.43% 12-month return for class A sha-
res at net asset value is attributable to difficulties in primarily three sec-
tors: gaming, telecommunications, and cable television.
CONVERGENCE OF FACTORS DEPRESSES GAMING SECURITIES
Since 1993, we have been significant investors in bonbds issued by casino ope-
rators, and these investments have generally produced substantial returns. In
1994, however, several factors converged to dampen the market's enthusiasm for
this factor.
Until recently, Atlantic City, New Jersey, was the only major U.S. gaming juris-
diction outside of the Las Vegas area. A proliferation of new gambling jurisdic-
tions have sprung up throughout the country over the past two years. Investors
in Atlantic City casino bonds have become concerned about the impact of this in-
creased competition. Because of this reaction, our Atlantic City casino holdings
underperformed this year.
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The mushrooming of gambling licenses in several af the new jurisdictions has al-
so weighed heavily on the gaming sector recently. State lawmakers, anxious to
create new sources of revenue, cleared the way for overcapacity in certain areas
of the country. This, in turn, has put downward pressure on many operators' pro-
fitability, negatively impacting the credit quality and, thus, the prices of
their bonds.
We believe most of the decline in this sector is behind us and prices have rea-
ched a low point. Nonetheless, the fund's casino holdings have been reduced and
will remain so until this area show signs of stabilizing. Given this year's pri-
ce declines, we think selected issues could appreciate from their current de-
pressed levels in 1995.
NEXTEL STILL VIABLE COMPETITOR ON "INFORMATION SUPERHIGHWAY"
Nextel Communications, a major U.S. provider of wireless communications techno-
logy and services, is one of our largest positions in the telecommunications
sector. The breakdown of Nextel's negotiations with MCI Communications, during
which
[Bar Chart - Page 5]
TOP INDUSTRY SECTORS *
Cable Cellular Forest
Television Communications Products Chemicals Finance Recreation
7.8% 5.8% 5.5% 5.0% 4.6% 4.4%
* As a percentage of net assets.
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MCI proposed an investment of approximately $1.3 billion in Nextel over several
years, undermined the bonds' performance. Investors' concern about the viability
of Nextel's technology added further uncertainty.
It is our belief, however, that the termination of talks with MCI will not mate-
rially hinder Nextel's implementation of its short- to intermediate-term busi-
ness plan. As for technological concerns, we are confident that the presence of
Motorola, with its significant ownership stake in Nextel, will add credibility
and resources to Nextel's development efforts.
We are firm believers in the "information superhighway" concept -- the integra-
tion of computer and communications technologies. We think Nextel will make a
significant contribution to the deployment of this technology. Consequently, we
have increased our position in Nextel's bonds, believing they offer favorable
performance potential.
CABLE TELEVISION OUTLOOK IMPACTED BY RATE REGULATION
Another important group of players in the information superhighway drama are ca-
ble television companies. Along with telephone companies, they have the poten-
tial of being the delivery system for a virtual panorama of services to homes
and businesses across the country.
The introduction of rate regulation earlier this year injected a degree of an-
xiety into the investment outlook for cable companies. The newly elected pro-
business Congress, however, could cause cable bonds to rebound in 1995 if it
were to pass improved telecommunications legislation.
EXPANDED DIVERSIFICATION AS ECONOMIC STRENGTH CONTINUES
Our regular conversations with the management teams of various companies, cou-
pled with consistently strong economic statistics, have shown us that economic
activity is firm across the board. With healthy consumer demand, and continuing
business expansion, we think the Fed is likely to continue in its efforts to
stem inflation by raising short-term interest rates.
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TOP 10 HOLDINGS (11/30/94)
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COMPANY % OF PORTFOLIO *
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Gaylord Container Corp. 2.74%
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Adelphia Communications Corp. 2.74%
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PFS Finance Corp. LP 1.79%
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Panamsat LP 1.77%
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UCC Investors Holdings 1.75%
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Centennial Cellular Corp. 1.71%
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Echostar Communications Corp. 1.71%
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Ivex Packaging Corp. 1.67%
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Amphenol Corp. 1.64%
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Toyota Credit Corp. 1.56%
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* Based on net assets. Portfolio holdings are subject to change.
We remain committed to seeking high current income and competitive total returns
through a highly diversified portfolio. Since the beginning of the fiscal year,
we have increased the number of issues in the fund's portfolio from 145 to 177.
As we move forward into 1995, we plan to further diversify the portfolio across
different types of high-yield securities, as well as across various industries
and issuers.
With a positive economic outlook as a backdrop, we are continuing in our efforts
to position the fund to capitalize on the attractive values available in the
high-yield market. We will bring the full scope of our research resources to
bear to identify what we believe are the best opportunities in a highly diverse
marketplace.
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 these bonds will be held in the future.
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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 on average how the fund might have grown each year over va-
rying periods. For comparative purposes, we show how the fund performed relati-
ve to appropriate indexes and benchmarks.
TOTAL RETURN FOR PERIODS ENDED 11/30/94
FIRST
LEHMAN BROS. BOSTON
CLASS A CLASS B CORPORATE HIGH YIELD
NAV POP NAV CDSC BOND INDEX INDEX
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1 year -3.43% -8.03% -- -- -4.25% -0.74%
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5 years 78.96 70.52 -- -- 47.28 82.18
Annual average 12.34 11.26 -- -- 8.05 12.75
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Life of class A 121.81 111.24 -- -- 102.62 136.36
Annual average 9.61 9.00 -- -- 8.48 10.43
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Life of class B -- -- -3.12 -7.72 -0.28 -0.15
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TOTAL RETURN FOR PERIODS ENDED 12/31/94
(most recent calendar quarter)
Class A Class B
NAV POP NAV CDSC
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1 year -5.15% -9.69% -- --
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5 years 82.36 73.74 -- --
Annual average 12.77 11.68 -- --
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Life of class A 122.20 111.61 -- --
Annual average 9.53 8.92 -- --
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Life of class
Annual average -- -- -2.89% -7.46%
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Fund performance data do not take into account any adjustment for taxes payable
on reinvested distributions or, for class A shares, distribution fees prior to
implementation of the class A distribution plan in 1990. The fund began opera-
tions on 3/25/86, offering shares now known as class A. Effective 5/16/94, the
fund began offering class B shares. Performance data represent past results and
will differ for each share class. Investment returns and principal value will
fluctuate so an investor's shares, when sold, may be worth more or less than
their original cost.
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GROWTH OF A $10,000 INVESTMENT
Cumulative total return on a $10,000 investment since 3/25/86
Fund's Class A Lehman Bros. Consumer
Shares at POP Corp. Bond Index Price Index
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3/25/86 $ 9,525 $ 10,000 $ 10,000
11/30/86 9,834 10,681 10,147
87 10,389 10,848 10,607
88 12,120 12,039 11,057
89 11,804 13,758 11,572
90 10,593 14,527 12,298
91 15,407 16,907 12,665
92 18,248 18,632 13,051
93 21,875 21,160 13,401
94 $ 21,124 $ 20,262 $ 13,759
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Past performance is no assurance of future results. A $10,000 investment in the
fund's class B shares at inception on 5/16/94 would have been valued at $9,688
by 11/30/94 ($9,228 with a redemption at the end of the period).
TERMS AND DEFINITIONS
NET ASSET VALUE (NAV) is the value of all your fund's assets, minus any liabili-
ties, divided by the number of outstanding shares, not including any initial or
contingent deferred sales charges.
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 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. The average quality of bonds in the index will differ from those in
which the fund customarily invests. Index performance reflects changes in market
prices and reinvestment of all interest payments. 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 high-yielding
U.S. corporate bonds. It does not represent an investment return.
CONSUMER PRICE INDEX (CPI) is a commonly used measure of inflation; it does not
represent an investment return.
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THE 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 Chart - Page 10]
Risk/Reward
PUTNAM GROWTH FUNDS
PUTNAM GROWTH AND INCOME FUNDS
PUTNAM INCOME OR TAX-FREE FUNDS
MOST CONSERVATIVE INVESTMENTS
* (TM) Trademark
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PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund Capital Appreciation Fund
Diversified Equity Trust Europe Growth Fund
Global Growth Fund Health Sciences Trust
Investors Fund Natural Resources Fund *
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 Asste 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 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: Balanced Portfolio
Putnam Asset Allocation: Conservative Portfolio
Putnam Asset Allocation: Growth Portfolio
MOST CONSERVATIVE INVESTMENTS ++
Putnam money market funds:
Money Market Fund +++
Tax Exempt Money Market Fund
California Tax Exempt Money Market Fund
New York Tax Exempt Money Market Fund
CDs and savings accounts **
* Formerly Energy-Resources Trust.
+ Not available in all states.
++ Relative to above.
+++ Formerly Putnam Daily Dividend Trust.
** Not offered by Putnam Investments. Certificates of deposit offer a fixed
rate of return and may be insured, up to certain limits, by federal/state
agencies. Savings accounts may also be insured up to certain limits.
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. Read it carefully before you invest or send
money.
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REPORT OF INDEPENDENT ACCOUNTANTS
For the Year Ended November 30, 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
November 30, 1994, the related statement of operations for the year then ended,
the statement of changes in net assets for each of the two years in the period
then ended, and the "Financial Highlights" for each of the periods indicated
therein. These financial statements and "Financial Highlights" are the responsi-
bility of the fund's management. Our responsibility is to express an opinion on
these financial statements and "Financial 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
reasonable assurance about whether the financial statements and "Financial
Highlights" are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures on the financial
statements. Our procedures included confirmation of investments as of November
30, 1994, by correspondence with the custodian and brokers. An audit also in-
cludes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presenta-
tion. We believe that our audits provide a reasonable basis for our opinion.
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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 November 30, 1994, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the "Financial Highlights" for each of the periods
indicated therein, in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
January 13, 1995
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PORTFOLIO OF INVESTMENTS OWNED
November 30, 1994
CORPORATE BONDS AND NOTES (85.9%)(a)
PRINCIPAL AMOUNT VALUE
CABLE TELEVISION (7.8%)
$19,500,000 Adelphia Communications Corp. sr. notes 12 1/2s, 2002 $ 18,915,000
3,650,000 Cablevision Systems Corp. sr. sub. reset deb. 10 3/4s,
2004 3,586,125
5,000,000 Century Communications Corp. sr. sub. deb. 11 7/8s, 2003 5,162,500
2,000,000 Comcast Corp. sr. sub. deb. 10 5/8s, 2012 1,910,000
10,696,391 Falcon Holdings Group, Inc. sr. sub. notes 11s, 2003(b) 9,519,788
3,500,000 Jones Intercable, Inc. sub. deb. 11 1/2s, 2004 3,675,000
3,000,000 Marcus Cable Co. (L.P.) sr. deb. 11 7/8s, 2005 2,820,000
14,450,000 Marcus Cable Co. (L.P.) sr. sub. disc. note
stepped-coupon zero% (13 1/2s, 8/1/99), 2004(c) 7,514,000
1,500,000 Videotron Hldgs sr. disc. notes stepped coupon zero%
(11 1/8s, 7/1/99), 2004(c) 761,250
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53,863,663
CELLULAR COMMUNICATIONS (5.8%)
5,550,000 Cellular, Inc. sr. sub. disc. notes stepped-coupon zero%
(11 3/4s, 9/1/98), 2003(c) 3,746,250
9,170,000 Cencall Communications Corp. sr. disc. notes
stepped-coupon zero% (10 1/8s, 1/15/99), 2004(c) 3,392,900
13,400,000 Centennial Cellular Corp. sr. notes 8 7/8s, 2001 11,859,000
8,250,000 Dial Call Communication sr. disc. notes Ser. B
stepped-coupon zero%, (10 1/4s, 12/15/98) 2005(c)(d) 2,825,625
6,318,000 Horizon Cellular Telephone Co. sr. sub. disc. notes Ser.
B, stepped-coupon zero% (11 3/8s, 10/1/97), 2000(c) 4,580,550
11,250,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero% (11 1/2s, 9/1/98), 2003(c) 4,837,500
7,500,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero% (9 3/4s, 2/15/99), 2004(c) 2,793,750
7,300,000 Pagemart, Inc. sr. disc. notes stepped-coupon zero%
(12 1/4s, 11/1/98), 2003(c) 4,526,000
2,000,000 USA Mobile Communications sr. notes 9 1/2s, 2004 1,680,000
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40,241,575
FOREST PRODUCTS (5.5%)
28,500,000 Gaylord Container Corp. sr. sub. disc. deb.
stepped-coupon zero% (12 3/4s, 5/15/96), 2005(c) 24,795,000
5,500,000 Riverwood International Corp. sr. sub. notes 11 1/4s,
2002 5,610,000
3,000,000 Stone Container Corp. 1st mtge. 10 3/4s, 2002 2,887,500
5,000,000 Stone Container Corp. sr. notes 11 1/2s, 2004 4,912,500
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38,205,000
CHEMICALS (5.0%)
11,500,000 G-I Holdings, Inc. sr. notes zero%, 1998 6,900,000
9,000,000 Harris Chemical Corp. sr. sub. notes 10 3/4s, 2003 8,145,000
4,000,000 Harris Chemical Corp. sr. secd. disc. notes
stepped-coupon zero% (10 1/4s, 1/15/96), 2001(c) 3,160,000
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CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
CHEMICALS (continued)
$ 5,000,000 OSI Specialties sr. secd. disc. deb. stepped-coupon
zero% (11 1/2s, 4/15/99), 2004(c) $ 3,000,000
1,000,000 UCC Investors Holding, Inc. sr. sub. notes 11s, 2003 975,000
19,500,000 UCC Investors Holding, Inc. sub. disc. notes
stepped-coupon zero% (12s, 5/1/98), 2005(c) 12,090,000
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34,270,000
FINANCE (4.6%)
5,000,000 Delaware Management sr. notes Ser. B, 10 1/4s, 2004 4,875,000
7,500,000 General Electric Capitol Corp. med. term notes 14s, 1996 8,207,813
7,500,000 General Electric Credit med. term notes 14s, 1995 7,945,313
10,000,000 Toyota Credit Corp. med. term notes 15s, 1995 10,787,500
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31,815,626
RECREATION (4.4%)
3,535,000 Arizona Charlies Corp. sub. deb. Ser. B, 12s, 2000(d) 2,905,328
1,450,000 Capital Gaming International, Inc. sr.notes 11 1/2s, 2001 797,500
1,480,000 Capitol Queen Corp. sr. sub. deb. Ser. B, 12s, 2000(d) 1,184,000
7,000,000 Golden Nugget Finance Corp. 1st mtge. deb. Ser. B,
10 5/8s, 2003 4,060,000
4,000,000 Grand Casino Resorts, Inc. notes 12 1/2s, 2000 3,760,000
1,000,000 Lady Luck Gaming Corp. 1st. mtge. 10 1/2s, 2001(d) 420,000
7,000,000 Pioneer Finance Corp. gtd. 1st. mtge. 13 1/2s, 1998 5,460,000
3,500,000 Presiden Riverboat Casinos, Inc. sr.sub. notes 13s, 2001 3,080,000
3,078,000 Trump Castle Funding Corp. sr.sub. notes 11 1/2s, 2000(d) 3,078,000
9,498,067 Trump Taj Mahal deb. Ser. A, 11.35s, 1999(b) 5,888,802
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30,633,630
METAL AND MINING (4.4%)
1,750,000 Geneva Steel Co. sr. notes 11 1/8s, 2001 1,627,500
10,750,000 Haynes International, Inc. sr. sub. notes 13 1/2s, 1999 6,665,000
4,000,000 Haynes International, Inc. sr. sub. notes ser. B,
11 1/4s, 1998 3,520,000
10,800,000 Horsehead Industries, Inc. sub. notes 14s, 1999 10,692,000
7,600,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes
12 3/4s, 2003 7,676,000
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30,180,500
BUILDING PRODUCTS (3.7%)
12,200,000 American Standard, Inc. sr. sub. deb. stepped-coupon
zero% (10 1/2s, 6/1/98) 2005(c) 7,686,000
4,000,000 Nortek, Inc. sr. sub. notes 9 7/8s, 2004 3,520,000
3,125,000 Overhead Door Corp. sr. notes 12 1/4s, 2000 3,187,500
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 2,850,000
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25,681,000
ELECTRONICS (3.0%)
10,500,000 Amphenol Corp. sr. sub. notes 12 3/4s, 2002 11,306,250
22,000,000 International Semi-Tech. sr. secd. disc. notes
stepped-coupon zero% (11 1/2s, 8/15/00), 2003(c) 9,680,000
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20,986,250
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CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
INSURANCE (3.0%)
$ 5,600,000 American Life Holding Co. sr. sub. notes 11 1/4s, 2004 $ 5,544,000
6,500,000 Bankers Life Holding Corp. sr. sub. notes Ser. B,
13s, 2002 7,215,000
2,000,000 National RE Holding Corp. sr. sub. notes 14 1/2s, 1999 2,160,000
6,750,000 Reliance Group Holdings sr. sub. deb. 9 3/4s, 2003 5,771,250
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20,690,250
AGRICULTURE (2.9%)
6,367,000 PMI Acquisition Corp. sub. disc. deb. stepped-coupon
zero% (11 1/2s, 3/1/00), 2005(c) 3,183,500
12,000,000 PSF Finance L.P. sr. notes 12 1/4s, 2004(d) 12,337,500
4,408,842 Premium Standard Farms sr. secd. notes 12s, 2000(d) 4,728,483
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20,249,483
BROADCASTING (2.9%)
2,000,000 Granite Broadcasting Corp. sr. sub. deb. 12 3/4s, 2002 2,060,000
2,500,000 New City Broadcasting Corp. sr. sub. notes 11 3/8s, 2003 2,375,000
18,500,000 Panamsat (L.P.) sr. sub. notes stepped-coupon zero%
(11 3/8s, 8/1/98), 2003(c) 12,210,000
4,346,000 Telemedia Broadcasting Corp. deb. 6.4s, 2004(d) 3,520,260
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20,165,260
BUILDING AND CONSTRUCTION (2.6%)
2,500,000 Beazer Homes sr. notes 9s, 2004 2,075,000
2,500,000 Del. Webb Corp. sr. sub. deb. 9 3/4s, 2003 2,150,000
8,250,000 Presley Co. sr. notes 12 1/2s, 2001 7,342,500
4,800,000 Scotsman Group, Inc. sr. notes 9 1/2s, 2000 4,344,000
1,750,000 U.S. Home Corp. sr. notes 9 3/4s, 2003 1,513,750
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17,425,250
ENTERTAINMENT (2.4%)
19,250,000 Viacom International sub. deb. 8s, 2006 16,458,750
CONTAINERS (2.3%)
4,500,000 Anchor Glass Container Corp. sr. sub. deb. 9 7/8s, 2008 4,050,000
11,455,000 Ivex Packaging Corp. sr. sub. notes 12 1/2s, 2002 11,512,270
-------------
15,562,270
PUBLISHING (2.1%)
2,750,000 General Media Corp. sr. secd. notes 10 5/8s, 2000 2,598,750
3,000,000 Marvel Holdings, Inc. sr. secd. notes zero%, 1998 1,890,000
16,000,000 Marvel Parent Holdings, Inc. sr. secd. disc. notes
zero%, 1998 9,920,000
-------------
14,408,750
HEALTH CARE (2.1%)
4,125,000 Abbey Healthcare Group, Inc. sr. sub. notes 9 1/2s, 2002 3,764,063
4,000,000 Ornda Healthcorp sr. sub. notes 12 1/4s, 2002 4,180,000
6,100,000 Surgical Health Corp. sr. sub. notes 11 1/2s, 2004 6,039,000
-------------
13,983,063
<PAGE>
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
CONSUMER SERVICES (1.9%)
$ 7,000,000 Flagstar Corp. sr. note 10 7/8s, 2002 $ 6,370,000
5,000,000 Solon Automated Services, Inc. sr. sub. deb. 13 3/4s,
2002 5,025,000
1,500,000 Solon Automated Services, Inc. notes 12 3/4s, 2001 1,440,000
-------------
12,835,000
RETAIL (1.6%)
5,000,000 County Seat Stores sr. sub. notes units 12s, 2001 5,100,000
3,888,000 Duane Reade Corp. sr. notes 12s, 2002 3,343,680
2,750,000 Loehmanns. Holdings, Inc. sr. sub. notes 13 3/4s, 1999 2,750,000
-------------
11,193,680
ELECTRIC UTILITIES (1.5%)
2,000,000 Midland Funding Corp. II deb. Ser. B, 13 1/4s, 2006 2,037,500
8,000,000 Texas New Mexico Power Corp. secd. deb. 12 1/2s, 1999 8,480,000
-------------
10,517,500
MOTION PICTURE DISTRIBUTION (1.5%)
5,500,000 AMC Entertainment, Inc. sr. sub. deb. 12 5/8s, 2002 5,885,000
500,000 AMC Entertainment, Inc. sr. sub. deb. 11 7/8s, 2000 525,000
2,750,000 Cinemark USA sr. notes 12s, 2002 2,887,500
1,000,000 Plitt Theatres, Inc. sr. sub. notes 10 7/8s, 2004 940,000
-------------
10,237,500
SPECIALTY CONSUMER PRODUCTS (1.4%)
9,375,000 Equitable Bag Co. sr. notes 12 3/8s, 2002(e) 4,218,750
6,150,000 Playtex Family Products Corp. sr. sub. notes 9s, 2003 5,227,500
-------------
9,446,250
AUTOMOTIVE (1.3%)
2,400,000 JPS Automotive sr. notes 11 1/8s, 2001 2,304,000
4,000,000 Key Plastics Corp. sr. notes 14s, 1999 4,420,000
2,500,000 SPX Corp. sr. sub. notes 11 3/4s, 2002 2,468,750
-------------
9,192,750
TOBACCO (1.2%)
3,975,000 Consolidated Cigar Corp. deb. 10 1/2s, 2003 3,577,500
5,000,000 Mafco, Inc. sr. sub. notes 11 7/8s, 2002 4,800,000
-------------
8,377,500
FOOD (1.2%)
7,000,000 Fresh Del Monte Produce Corp. sr. notes, Ser. B, 10s,
2003 5,250,000
650,000 Specialty Foods Acquisition Corp. sr. secd. disc. deb.
stepped-coupon zero%, (13s, 8/15/99), 2005(c) 269,750
3,000,000 Specialty Foods Acquisition Corp. sr. sub. notes
11 1/4s, 2003 2,670,000
-------------
8,189,750
<PAGE>
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
CONGLOMERATES (1.1%)
$ 2,750,000 Jordan Industries, Inc. sr. notes 10 3/8s, 2003 $ 2,475,000
2,475,000 MacAndrews & Forbes Holdings Inc. sub. deb. notes 13s,
1999 2,425,500
2,883,000 PA Holdings Corp. sr. sub. notes 13 3/4s, 1999 3,027,150
-------------
7,927,650
FOOD CHAINS (1.1%)
14,750,000 Grand Union Co. sr. sub. notes 12 1/4s, 2002 5,826,250
2,230,000 Stater Brothers sr. notes 11s, 2001(d) 2,096,200
-------------
7,922,450
ADVERTISING (1.1%)
3,500,000 Outdoor Systems, Inc. sr. notes 10 3/4s, 2003 3,185,000
5,000,000 Universal Outdoor, Inc. sub. deb. 11s, 2003 4,600,000
-------------
7,785,000
OIL AND GAS (1.1%)
1,480,000 Maxus Energy Corp. notes 9 3/8s, 2003 1,287,600
6,500,000 TransTexas Gas Corp. sr. secd. notes 10 1/2s, 2000 6,175,000
-------------
7,462,600
SCHOOL BUSES (1.0%)
6,750,000 Blue Bird Body Co. sub. deb. Ser. B, 11 3/4s, 2002 6,750,000
NURSING HOMES (0.9%)
5,625,000 Multicare Cos., Inc. sr. sub. notes 12 1/2s, 2002 6,356,250
TELEPHONE SERVICES (0.8%)
9,800,000 MFS Communications sr. disc. notes stepped-coupon
zero% (9 3/8s, 1/15/99), 2004(c) 5,586,000
LODGING (0.6%)
4,300,000 Red Roof Inns sr. notes 9 5/8s, 2003 3,870,000
TEXTILES (0.5%)
3,500,000 Foamex (L.P.) Capital Corp. sr. notes 11 1/4s, 2002 3,535,000
FINANCIAL SERVICES (0.5%)
3,000,000 Comdata Network, Inc. sr. notes 12 1/2s, 1999 3,210,000
MEDICAL SUPPLIES (0.4%)
3,000,000 Wright Medical Technology, Inc. sr. secd. notes Ser. B,
10 3/4s, 2000 2,940,000
MACHINERY (0.4%)
2,500,000 Specialty Equipment Co. sr. sub. notes 11 3/8s, 2003 2,425,000
SHIPPING (0.3%)
2,300,000 Viking Star Shipping sr. secd. notes 9 5/8s, 2003 2,139,000
-------------
TOTAL CORPORATE BONDS AND NOTES (cost $646,550,261) $592,719,200
<PAGE>
<PAGE>
UNITS (4.1%)(a)
NUMBER OF UNITS VALUE
- -------------------------------------------------------------------------------
2,200,000 Chesapeake Energy Corp. deb. units 12s, 2001 $ 2,887,500
1,500,000 Chesapeake Energy Corp. sr. exch. notes 12s, 2001 1,522,500
22,650,000 Echostar Communication Corp. units stepped-coupon
zero% (12 7/8s, 6/1/99), 2004(c) 11,778,000
5,825,000 Foamex (L.P.) Capital Corp. units stepped-coupon zero%
(13 1/2s, 1999), 2004(c)(d) 3,087,250
597,400 Premium Standard Farms exch. pfd. units 12 1/2s, 2000(d) 639,218
2,000,000 Renaissance Cosmetics units 13 3/4s, 2001(d) 1,920,000
5,750,000 Santa Fe Hotel, Inc. units 11s, 2000 5,175,000
1,460,000 Total Renal Care units stepped-coupon zero% (12s,
8/15/99), 2004(c) 1,065,800
-------------
TOTAL UNITS (cost $28,276,823) $ 28,075,268
PREFERRED STOCKS (2.0%)(a)
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------
40,000 California Federal Bank Ser. B, $10.625 exch. pfd. $ 4,000,000
50,000 First Nationwide Bank $11.50 exch. pfd. 4,962,500
209,065 Pyramid Communications, Inc. Ser. C, $3.125 exch. pfd. 4,860,761
-------------
TOTAL PREFERRED STOCKS (cost $14,086,398) $ 13,823,261
YANKEE BONDS AND NOTES (0.9%)(a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------
$ 1,085,000 Banco de Galicia Inc. global notes 9s, 2003 $ 851,725
2,095,000 Cinemark Mexico notes 12s, 2003 2,032,150
2,000,000 Eletson Holdings, Inc. mtge. notes 9 1/4s, 2003 1,780,000
2,000,000 Ispat Mexicana, S.A. deb. 10 3/8s, 2001 1,835,000
-------------
TOTAL YANKEE BONDS AND NOTES (cost $6,974,369) $ 6,498,875
WARRANTS (0.6%)(a)(e)
NUMBER OF WARRANTS EXPIRATION DATE VALUE
- -------------------------------------------------------------------------------
92,500 Becker Gaming Corp.(d) 11/15/00 $ 98,281
610 CDK Holding Corp. Class A
(acquired 10/31/88, $34,165)(f) 7/7/99 24,400
653 CDK Holding Corp. Class B
(acquired 10/31/88, $18,269)(f) 7/7/99 24,814
32,988 Capital Gaming International, Inc. 2/1/99 41,235
13,320 Casino Magic Finance Corp. 10/14/96 833
15,375 Chesapeake Energy Corp. 3/1/99 445,875
23,278 Cinemark Mexico 8/1/03 215,322
5,000 County Seat Holdings, Inc. 10/15/98 100,000
12,730 Dial Call Communication(d) 12/15/98 35,008
344,600 Gaylord Container Corp. 7/31/96 2,369,125
750 General Media Corp.(d) 12/31/00 9,375
5,000 OSI Specialties Corp.(d) 4/15/99 50,000
33,580 Pagemart, Inc.(d) 12/31/03 235,060
30,905 President Riverboat Casinos, Inc.(d) 9/30/99 108,168
21,000 President Riverboat Casinos, Inc. 9/15/96 10,500
55,000 Southdown, Inc. 10/31/96 27,500
102 Telemedia Broadcasting Corp. 4/1/04 76,793
668 Wright Medical Technology, Inc.(d) 6/30/03 81,191
-------------
TOTAL WARRANTS (cost $2,784,426) $ 3,953,480
<PAGE>
<PAGE>
COMMON STOCKS (0.3%)(a)(e)
NUMBER OF SHARES VALUE
368 CDK Holding Corp. Rights $ 14,720
1 Capital Gaming International, Inc. 8
11,001 Computervision Corp. 37,128
27,453 Computervision Corp.(acquired 8/21/92, $247,077)(f) 68,633
60,000 Dr Pepper Bottling Holdings, Inc. Class A 210,000
1 Lear Seating Corp. 10
2,141 PMI Holdings Corp. 428,200
1,730 Premium Holdings L.P.(d) 172,970
7,097 Pyramid Communications Inc. New Class B(d) 180,075
541,314 Solon Automated Services, Inc. 338,321
85,200 Specialty Foods Corp. 63,900
15,710 Taj Mahal Holding Corp. Class A 157,100
19,703 UCC Investors Holding, Inc. (acquired 3/28/94,
$275,842)(f) 270,916
-------------
TOTAL COMMON STOCKS (cost $1,542,089) $ 1,941,981
CONVERTIBLE BONDS (0.1%)(a)(d) (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 Federal Home Loan Mortgage Corp. 5.45s,
December 8, 1994 $ 9,989,403
16,935,000 Interest in $500,000,000 joint repurchase agreement
dated November 30, 1994 with Bankers Trust due
December 1, 1994 with respect to various bulk
repurchase agreements -- maturiry value of
$16,737,705 for an effective yield of 5.75% 16,937,705
-------------
TOTAL SHORT-TERM INVESTMENTS (cost $26,927,108) $ 26,927,108
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS (cost $728,141,474)(g) $674,939,173
- -------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $690,111,307, which corres-
ponds to a net asset value per share of $9.07 for Class A and Class B res-
pectively.
(b) Income may be received in additional securities or cash at the discretion
of the issuer.
(c) 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.
(d) Securities 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 November 30,
1994 these securities were valued at $40,711,992 or 5.9% of net assets.
(e) Non-income-producing security.
(f) Restricted, excluding 144A securities, as to public resale. At the date of
acquisition these securities were valued at cost. There were no outstanding
unrestricted securities of the same class as those held. Total market value
of restricted securities owned at November 30, 1994 was $388,763 or 0.06%
of net assets.
(g) The aggregate identified cost on a tax basis is $728,201,474, resulting in
gross unrealized appreciation and depreciation of $13,404,733 and
$66,667,034, respectively, or net unrealized depreciation of $53,262,301.
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1994
ASSETS
- -------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $728,141,474) (Note 1) $674,939,173
Cash 273
Receivable for securities sold 2,804,589
Dividends, interest and other receivables 15,182,097
Receivable for shares of the fund sold 3,039,974
- -------------------------------------------------------------------------------
TOTAL ASSETS $695,966,106
- -------------------------------------------------------------------------------
LIABILITIES
- -------------------------------------------------------------------------------
Distributions to shareholders 13,612
Payable for shares of the fund repurchased 4,090,964
Payable for compensation of Manager (Note 2) 1,173,007
Payable for administrative services (Note 2) 6,499
Payable for compensation of Trustees (Note 2) 351
Payable for investor servicing and custodian fees (Note 2) 166,143
Payable for distribution fees (Note 2) 308,016
Other accrued expenses 96,207
- -------------------------------------------------------------------------------
TOTAL LIABILITIES 5,854,799
- -------------------------------------------------------------------------------
NET ASSETS $690,111,307
- -------------------------------------------------------------------------------
REPRESENTED BY
- -------------------------------------------------------------------------------
Paid-in capital (Notes 1, 4 and 5) $822,274,731
Undistributed net investment income (Notes 1 and 5) 3,232,514
Accumulated net realized loss on investment transactions
(Notes 1 and 5) (82,193,637)
Net unrealized depreciation of investments (53,202,301)
- -------------------------------------------------------------------------------
TOTAL -- REPRESENTING NET ASSETS APPLICABLE TO
CAPITAL SHARES OUTSTANDING $690,111,307
- -------------------------------------------------------------------------------
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
- -------------------------------------------------------------------------------
Net asset value and redemption price of Class A shares
($653,094,530 divided by 72,032,400 shares) $9.07
Offering price per Class A share (100/95.25 of $9.07) * $9.52
Net asset value and offering price of Class B shares
($37,016,777 divided by 4,090,992 shares) + $9.05
- -------------------------------------------------------------------------------
* 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
Year ended November 30, 1994
- -------------------------------------------------------------------------------
INVESTMENT INCOME:
- -------------------------------------------------------------------------------
Interest $ 78,484,770
- -------------------------------------------------------------------------------
Dividends 541,197
- -------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 79,025,967
- -------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) $ 4,397,110
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 774,523
- -------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 25,280
- -------------------------------------------------------------------------------
Reports to shareholders 147,824
- -------------------------------------------------------------------------------
Auditing 68,271
- -------------------------------------------------------------------------------
Legal 49,820
- -------------------------------------------------------------------------------
Postage 158,698
- -------------------------------------------------------------------------------
Administrative services (Note 2) 15,948
- -------------------------------------------------------------------------------
Distribution fees . Class A (Note 2) 1,788,189
- -------------------------------------------------------------------------------
Distribution fees . Class B (Note 2) 92,245
- -------------------------------------------------------------------------------
Registration fees 74,964
- -------------------------------------------------------------------------------
OTHER EXPENSES 26,070
- -------------------------------------------------------------------------------
TOTAL EXPENSES 7,618,942
- -------------------------------------------------------------------------------
Net investment income 71,407,025
- -------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (8,794,847)
- -------------------------------------------------------------------------------
Net unrealized depreciation of investments during the period (86,312,209)
- -------------------------------------------------------------------------------
NET LOSS ON INVESTMENTS (95,107,056)
- -------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(23,700,031)
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
November 30, 1994
YEAR ENDED NOVEMBER 30
1994 1993
- -------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $ 71,407,025 $ 67,144,384
- -------------------------------------------------------------------------------
Net realized gain (loss) on investments (8,794,847) 22,128,062
- -------------------------------------------------------------------------------
Net realized loss on forward currency contracts -- (28,347)
- -------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investments (86,312,209) 18,654,171
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (23,700,031) 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 (73,482,433) (68,524,430)
- -------------------------------------------------------------------------------
Class B (935,321) --
- -------------------------------------------------------------------------------
In excess of net investment income
Class A -- (534,703)
- -------------------------------------------------------------------------------
Class B -- --
- -------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 45,756,866 218,749,645
- -------------------------------------------------------------------------------
Total increase (decrease) in net assets (52,360,919) 257,952,383
- -------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------
BEGINNING OF PERIOD 742,472,226 484,519,843
- -------------------------------------------------------------------------------
END OF PERIOD (including undistributed
(overdistributed) net investment income of
$3,232,514 and $(534,703) respectively) $690,111,307 $742,472,226
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
For the period
May 16, 1994
(commencement of
operations) to
November 30 Year ended November 30
1994 1994 1993 1992
- -------------------------------------------------------------------------------
Class B Class A
- -------------------------------------------------------------------------------
Net asset value, beginning
of period $9.83 $10.41 $9.74 $9.30
- -------------------------------------------------------------------------------
Investment operations
Net investment income .48 .98 1.13 1.23
- -------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments (.77) (1.30) .70 .42
- -------------------------------------------------------------------------------
Total from investment operations (.29) (.32) 1.83 1.65
- -------------------------------------------------------------------------------
Less distributions:
From net investment income (.49) (1.02) (1.15) (1.21)
- -------------------------------------------------------------------------------
In excess of net investment income(a) -- -- (.01) --
- -------------------------------------------------------------------------------
From net realized gain on investments -- -- -- --
- -------------------------------------------------------------------------------
Paid in capital (a) -- -- -- --
- -------------------------------------------------------------------------------
Total distributions (.49) (1.02) (1.16) (1.21)
- -------------------------------------------------------------------------------
Net asset value, end of period $9.05 $9.07 $10.41 $9.74
- -------------------------------------------------------------------------------
Total investment return at
net asset value (%) (b) (3.12)(c) (3.43) 19.88 18.44
- -------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $37,017 $653,094 $742,472 $484,520
- -------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%) 1.02(c) 1.03 .96 1.14
- -------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 7.47(c) 10.87 11.04 12.40
- -------------------------------------------------------------------------------
Portfolio turnover (%)(c) 69.61(c) 69.61 50.89 68.29
- -------------------------------------------------------------------------------
(a) See Note 1 to Financial Statements.
(b) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Not Annualized.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (Continued)
(For a share outstanding throughout the period)
For the period
March 26, 1986
(commencement of
operations) to
Year ended November 30 November 30
1991 1990 1989 1988 1987 1986
- -------------------------------------------------------------------------------------------------------------------------
Class A
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $7.38 $9.69 $11.35 $10.94 $11.61 $12.00
- -------------------------------------------------------------------------------------------------------------------------
Investment operations
Net investment income 1.14 1.18 1.37 1.35 1.36 .69
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments 1.98 (2.09) (1.60) .38 (.71) (.31)
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.12 (.91) (.23) 1.73 .65 .38
- -------------------------------------------------------------------------------------------------------------------------
Less distributions:
From net investment income (1.15) (1.33) (1.32) (1.32) (1.32) (.77)
- -------------------------------------------------------------------------------------------------------------------------
In excess of net investment income(a) -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- (.07) (0.11) -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Paid in capital (a) (.05) -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Total distributions (1.20) (1.40) (1.43) (1.32) (1.32) (.77)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.30 $7.38 $9.69 $11.35 $10.94 $11.61
- -------------------------------------------------------------------------------------------------------------------------
Total investment return at
net asset value (%) (b) 45.46 (10.26) (2.61) 16.67 5.64 3.26(c)
- -------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $369,150 $248,111 $346,188 $398,221 $309,912 $196,934
- -------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%) 1.33 1.37 1.23 1.07 1.12 .85(c)
- -------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 13.38 13.92 12.55 12.04 11.65 6.86(c)
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%)(c) 74.45 63.29 76.88 97.36 121.08 133.70(c)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
November 30, 1994
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
The fund is registered under the Investment Company Act or 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 offer 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
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. 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 asstes 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 principals.
A SECURITY VALUATION Investment for which market quotations are readily avail-
able are stated at market value, which is determined using the last reported
sales price, or, if no sales are reported -- as in the case of some securities
traded over-the-counter -- the last reported bid price, except that certain U.S.
government obligations are stated at the mean between the bid and asked prices.
Securities whose market quotations are not readily available are stated at fair
value on the basis of valuations furnished by pricing services approved by the
Trustees, which determine valuations for normal, institutional-size trading
units of such securities using methods based on market transactions for compara-
ble securities and various relationships between securities that are generally
recognized by institutional traders. Short-term investments having remaining
maturities of 60 days or less are stated at amortized cost, which approximates
market value, and other investments are stated at fair value following procedu-
res 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 com-
panies managed by Putnam Investment Management, Inc., the fund's Manager, a
wholly-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 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. The fund's Manager is responsible for determining that the
value of these underlying securities is at all times at least equal to the re-
sale 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). 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 "market-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 between
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 re-
corded by the fund 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 va-
lue of the contract was opened; however, 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, 1994, the fund had a capital loss carryover of approximately
$82,133,637, available to offset future capital gains, if any. To the extent
that the capital loss carryover is used to offset realized gains, it is unlike-
ly that the gains so offset will be distributed to shareholders, since any such
distribution might be taxable as ordinary income.
LOSS CARRYOVER EXPIRATION
- -------------------------------------------------
$ 49,757,478 November 30, 1998
15,408,761 November 30, 1999
16,967,398 November 30, 2002
<PAGE>
<PAGE>
G DISTRIBUTIONS TO SHAREHOLDERS Distributions to shareholders are recorded by
the fund on the exdividend 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.
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. The differences include treatment of losses on wash sales
transactions and post-October losses. 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, 1994, the fund reclassified $1,572,677 to increase distribu-
tions in excess of net investment income, $8,071,301 to increase accumulated
realized loss and $6,498,624 to increase paid-in capital.
Current year reclassifications were excluded from the calculation of net invest-
ment income per share shown in Financial Highlights.
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 sa-
les and the costs of repurchases of shares to undistributed net investment inco-
me.
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. The cumulative effect of
the change was to decrease undistributed net investment income and increase pa-
id-in capital on December 1, 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 to the extent that expenses (exclusive of brokerage, in-
terest and taxes) of the fund exceed 2.5% of the first $30 million of average
net assets, 2.0% of the next $70 million and 1.5% of any amount over $100 mi-
llion and by the amount of certain brokerage commissions and fees (less expen-
ses) received by affiliates of the Manager on the fund's portfolio transactions.
Prior to May 6, 1994, such fee was based on the following annual rates: 0.70% on
the first $100 million of average net assets, 0.60% of the next $100 million,
0.50% of the next $300 million, and 0.45% 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.
<PAGE>
<PAGE>
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.
Custodial functions for the fund are provided by Putnam Fiduciary Trust Company
(PFTCl), a subsidiary of Putnam Investments, Inc. Investor servicing agent func-
tions are provided by Putnam Investor Services, a division of PFTC.
Investor servicing and custodian fees reported in the Statement of operations
for the year ended November 30, 1994 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 Invesments Inc., for services provided and ex-
penses incurred by it in distributing Class A shares. The Trustees have approved
payment by the fund to Putnam Mutual Fund Corp. at an annual rate of 0.25% of
the fund's average net assets attributable to Class A shares.
During the year ended November 30, 1994, Putnam Mutual Funds Corp., acting as an
underwriter, received net commissions of $481,458 from the sale of Class A sha-
res of the fund.
A deferred sales charge of up to 1% is assesses on certain redemptions of Class
A shares repurchased as part of an investment of $1 million or more. For the
year ended November 30, 1994, Putnam Mutual Funds Corp., acting as an underwri-
ter, received $44,222 on such redemptions.
The fund has adopted a 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 ser-
vices 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 attributable to 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 contingent deferred sa-
les charges of $1,214,734 from redemptions during the year ended November 30,
1994.
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the year ended November 30, 1994, gross purchases and gross sales of in-
vestment securities other than short-term investments aggregated $457,758,060
and $446,875,257 respectively. There were no purchases and sales of U.S. govern-
ment 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, 1994, there was an unlimited number of shares of beneficial in-
terest authorized. Transactions in capital shares were as follows:
<PAGE>
<PAGE>
YEAR ENDED NOVEMBER 30 1994
CLASS A SHARES AMOUNT
- -------------------------------------------------------------------------------
Shares sold 35,660,670 $358,899,704
Shares issued in connection with
reinvestment of distributions 3,581,537 35,469,811
- -------------------------------------------------------------------------------
39,242,207 394,369,515
- -------------------------------------------------------------------------------
Shares repurchased (38,551,619) (387,466,479)
Portion represented by undistributed
net investment income -- --
- -------------------------------------------------------------------------------
NET INCREASE 690,588 $ 6,903,036
YEAR ENDED NOVEMBER 30, 1993
CLASS A SHARES AMOUNT
- -------------------------------------------------------------------------------
Shares sold 40,856,725 $415,633,545
Shares issued in connection 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
NOVEMBER 30, 1994
CLASS B SHARES AMOUNT
- -------------------------------------------------------------------------------
Shares sold 4,486,855 $ 42,572,031
Shares issued in connection with
reinvestment of distributions 42,903 401,973
- -------------------------------------------------------------------------------
4,529,758 42,974,004
- -------------------------------------------------------------------------------
Shares repurchased (438,766) (4,120,174)
- -------------------------------------------------------------------------------
NET INCREASE 4,090,992 $ 38,853,830
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 which have no im-
pact 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 L.L.P.
TRUSTEES
George Putnam, Chairman William F. Pounds, Vice Chairman
Jameson Adkins Baxter Hans H. Estin
John A. Hill Elizabeth T. Kennan
Lawrence J. Lasser Robert E. Patterson
Donald S. Perkins George Putnam, III
A.J.C. Smith W. Nicholas Thorndike
OFFICERS
George Putnam Charles E. Porter
President Executive Vice President
Patricia C. Flaherty John R. Verani
Senior Vice President Vice President
Lawrence J. Lasser Gordon H. Silver
Vice President Vice President
Gary N. Coburn Edward H. D.Alelio
Vice President Vice President
Jin W. Ho William N. Shiebler
Vice President and Fund Manager Vice President
Paul M. O.Neil John D. Hughes
Vice President Vice President and Treasurer
Beverly Marcus
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 copy of Putnam's
Quarterly Performance Summary. For more information, or to request a prospectus,
call toll-free: 1-800-225-1581.
<PAGE>
<PAGE>
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Bulk Rate
U.S. Postage
Paid
Putnam
Investments
060/327-15842
<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).
