Putnam
High Yield
Advantage
Fund
SEMIANNUAL REPORT
May 31, 1996
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "Junk-bond funds have been the bright spot in the battered
bond-fund arena this year."
-- The Wall Street Journal, June 6, 1996
* "Our emphasis on industries such as telecommunications,
cable television, and gaming, combined with a concentration in lower-
quality bonds, were the principal catalysts behind the fund's solid
performance over the past six months."
-- Jin W. Ho, Manager, Putnam High Yield Advantage Fund
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
11 Portfolio holdings
21 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
Dear Shareholder:
Unlike many other fixed-income investments, lower-rated high-yield bonds
thrive on a vibrant economy. That is because they are almost always
issued by companies under some pressure to maintain steady cash flows.
There is nothing like a strong economy to help in this regard.
Vigorous economies also invite higher interest rates and, in turn,
rising inflation -- conditions not always friendly to the performance of
other fixed-income securities. Thus, when recent economic indicators
suggested that the economy was still advancing at a rather rapid clip,
the broader bond market underwent a significant downturn.
Putnam High Yield Advantage Fund, however, was among the beneficiaries
of the existing market environment during the first half of its current
fiscal year, the six months ended May 31, 1996. In the midyear report
that follows, Fund Manager Jin Ho discusses performance to date and
takes a look at the fiscal year's second half.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
July 17, 1996
Report from the Fund Manager
Jin W. Ho
Anticipating an improving economic environment, high-yield bonds
outperformed all other fixed-income categories during the first six
months of Putnam High Yield Advantage Fund's 1996 fiscal year, which
ended on May 31.* Your fund participated in this rally by posting
positive results at net asset value, while many investment-grade bond
funds, including U.S. government securities funds, registered negative
returns over the period. (Please refer to the tables on pages 8 and 9
for complete performance information.)
* STRONG DEMAND MEETS HEAVY SUPPLY, PROPELLING MARKET
Demand for high-yield securities was extremely strong throughout the
period as investors became increasingly convinced that recession was
unlikely in 1996. This greater confidence in a reasonably healthy
economy stemmed both from the Federal Reserve Board's interest-rate cuts
in December and January and from improvement in a number of economic
indicators.
One sign of the depth of the high-yield market's strength during the
period is the current exceptionally high level of new issuance. A total
of $33.7 billion in new high-yield bonds was issued in just the first
four months of calendar 1996, which is more than twice the amount ($14.4
billion) issued over the same period last year.* The fact that the
market was able to digest this profusion of securities and still
outperform other fixed-income categories attests to the strong demand
for high-yield bonds over the period. An additional indicator of market
demand was the relatively strong level of new cash flows into high-yield
mutual funds compared with the flows into other types of bond funds.*
Within the high-yield universe, lower-quality securities sharply
outperformed higher-quality BB-rated securities.* Investors became more
comfortable buying lower-grade bonds when the economy began to exhibit
stronger-than-expected signs of growth. With more than 65% of its
investments in bonds rated single B, your fund benefited substantially
from the superior relative performance of lower-quality bonds over the
period. (Please see the chart below.)
*According to Putnam research
* WATERSHED LEGISLATION ENHANCES PROSPECTS FOR
KEY MARKET SECTORS
The long-awaited passage of the telecommunications deregulation reform
bill was a major event for the high-yield market during the period. This
legislation eases onerous and dated restrictions on the broadcast, cable
television, and telephone industries -- all of which are important
sectors in the high-yield market.
In addition to its other effects, the new law expands ownership rights
for television and radio broadcasters. A single broadcasting company may
now own several stations in the same geographic area, providing
broadcasters with increased potential for economies of scale as they
spread their operating costs over more than one outlet. As a result, the
high-yield bonds (and stocks) of radio broadcasters, in particular, have
performed extremely well.
In the telecommunications sector, following calendar 1995's strong
returns, the vast volume of new bonds that were issued following passage
of the bill caused the sector to underperform the broader high-yield
market during the period. We were pleased, nevertheless, by the
performance of two of your fund's larger holdings: NEXTEL Communications
and Intelcom Group.
[GRAPHICS OMITTED: vertical bar chart CREDIT QUALITY OVERVIEW*]
AAA 1.5%
BBB 0.3%
BB/Ba 22.5%
B 65.2%
Below B 6.1%
Not rated 0.1%
Footnote reads:
*Based on total market value of corporate-bond holdings as of 5/31/96.
Credit quality will vary over time
After spending the past few years developing its specialized mobile
radio system nationwide, NEXTEL should begin to receive the initial
results of the technology's performance over the summer months. NEXTEL's
common stock and bonds -- both owned by your fund during the fiscal
period -- moved up nicely as the market anticipated that its technology
will likely be well received.
Intelcom is the country's second-largest competitive access provider
(CAP). CAPs compete against local telephone companies primarily for
commercial customers. Intelcom's stock and bonds have advanced briskly
as it continues to grow its business. In addition, we believe the
strategy articulated by Intelcom's management of developing the company
with an eye toward ultimate sale or a major strategic alliance within
the next two years may bode well for high-yield investors.
Your fund continued to benefit from its exposure to the gaming industry,
which was one of the best-performing sectors over the period. Hilton
Hotels' acquisition of Bally provided a boost to the industry and may
signal the beginning of a trend, albeit modest, toward larger operators
acquiring profitable smaller operators with established franchises
outside of Las Vegas and Atlantic City. For the larger gaming companies,
small to medium-sized operators with significant presence in new gaming
jurisdictions represent the potential for significant volume growth in
lucrative developing markets.
* CONTINUING ECONOMIC GROWTH MAY PROVIDE
FAVORABLE MARKET BACKDROP
Indications of stronger-than-expected economic growth, such as the
report estimating that nearly 350,000 new jobs were created during May,
may provide continuing support for the high-yield market in the months
to come. A stronger economy typically translates into improving cash
flows for many high-yield issuers, enabling them to meet their debt
payments more easily. We currently plan to maintain our focus on
sectors, such as telecommunications, that we believe contain some of the
best opportunities for long-term growth in the underlying businesses.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS (5/31/96)*]
Cable television 12.7%
Telecommunications 9.8%
Gaming 7.7%
Broadcasting 7.2%
Oil and gas 6.1%
Footnote reads:
*Based on net assets. Industry weightings will vary over time.
Although the outlook for interest rates and Federal Reserve Board policy
remains uncertain, we believe the coupon income currently available from
high-yield bonds is attractive even in light of the risk of rising rates
and their potential impact on high-yield issuers. In any event, we will
continue to take a broadly diversified approach to selecting bonds with
yields that we believe represent a favorable risk-reward tradeoff.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 5/31/96, there is no guarantee the fund will
continue to hold these securities in the future.
High-yielding, lower-rated securities pose a greater risk to principal
than higher-rated securities. High-yield securities carry lower credit
ratings than investment-grade securities because there is a greater
possibility that negative changes in the issuer's business conditions,
or in general economic conditions, may hinder the issuer's ability to
pay principal and interest on its securities.
Performance summary
Performance should always be considered in light of a fund's investment
strategy. Putnam High Yield Advantage Fund is designed for investors
seeking high current income, with capital growth as a secondary
objective.
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, assuming you held the shares through the entire
period and reinvested all distributions in the fund.
TOTAL RETURN FOR PERIODS ENDED 5/31/96
Class A Class B Class M
(inception date) (3/25/86) (5/16/94) (12/1/94)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
6 months 5.20% 0.25% 4.86% -0.14% 5.09% 1.67%
- ------------------------------------------------------------------------
1 year 12.03 6.70 11.17 6.17 11.65 7.98
- ------------------------------------------------------------------------
5 years 96.67 87.44 -- -- -- --
Annual average 14.48 13.39 -- -- -- --
- ------------------------------------------------------------------------
10 years 166.34 153.63 -- -- -- --
Annual average 10.29 9.75 -- -- -- --
- ------------------------------------------------------------------------
Life of class -- -- 17.78 14.88 22.66 18.73
Annual average -- -- 8.31 7.00 4.59 12.13
- ------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/96
Lehman Bros. First Boston
Corporate Bond High Yield Bond
Index Index
- ------------------------------------------------------------------------
6 months -1.97% 4.86%
- ------------------------------------------------------------------------
1 year 4.53 10.45
- ------------------------------------------------------------------------
5 years 53.85 93.48
Annual average 9.00 14.10
- ------------------------------------------------------------------------
10 years 142.60 180.90
Annual average 9.27 10.88
- ------------------------------------------------------------------------
Life of class B 18.97 22.62
Annual average 9.07 10.72
- ------------------------------------------------------------------------
Life of class M 18.87 22.84
Annual average 12.21 14.70
- ------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. They 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. Investment returns and net asset
value will fluctuate so that an investor's shares when sold may be worth
more or less than their original cost. POP assumes 4.75% maximum sales
charge for class A shares and 3.25% for class M shares. CDSC for class B
shares assumes 5% maximum contingent deferred sales charge.
TOTAL RETURN FOR PERIODS ENDED 6/30/96
(most recent calendar quarter)
Class A Class B Class M
(inception date) (3/25/86) (5/16/94) (12/1/94)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
6 months 3.07% -1.82% 2.62% -2.29% 2.85% 0.46%
- ------------------------------------------------------------------------
1 year 11.06 5.76 10.21 5.21 10.68 7.04
- ------------------------------------------------------------------------
5 years 92.02 82.89 -- -- -- --
Annual average 13.94 12.83 -- -- -- --
- ------------------------------------------------------------------------
10 years 164.35 151.87 -- -- -- --
Annual average 10.21 9.68 -- -- -- --
- ------------------------------------------------------------------------
Life of class -- -- 17.50 14.63 22.42 18.50
Annual average -- -- 7.87 6.62 13.66 11.34
- ------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. They 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. Investment returns and net asset
value will fluctuate so that an investor's shares, when sold, may be
worth more or less than their original cost.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 5/31/96
Class A Class B Class M
- ------------------------------------------------------------------------
Distributions (number) 6 6 6
- ------------------------------------------------------------------------
Income $0.468 $0.435 $0.457
- ------------------------------------------------------------------------
Total $0.468 $0.435 $0.457
- ------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------
11/30/95 $9.52 $9.99 $9.49 $9.51 $9.83
- ------------------------------------------------------------------------
5/31/96 9.54 10.02 9.51 9.53 9.85
- ------------------------------------------------------------------------
Current return (end of period) NAV POP NAV NAV POP
- ------------------------------------------------------------------------
Current dividend rate1 9.43% 8.98% 8.71% 9.19% 8.89%
- ------------------------------------------------------------------------
Current 30-day SEC yield2 7.79 7.42 7.03 7.54 7.29
- ------------------------------------------------------------------------
1Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
2Based on investment income, calculated using SEC guidelines.
TERMS AND DEFINITIONS
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the maximum 4.75% sales charge for class A
shares and 3.25% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time
of the redemption of class B shares and assumes redemption at the end of
the period. Your fund's CDSC declines from a 5% maximum during the first
year to 1% during the sixth year. After the sixth year, the CDSC no
longer applies.
COMPARATIVE BENCHMARKS
Lehman Brothers Corporate Bond Index* is an unmanaged list of publicly
issued fixed-income non-convertible securities frequently used as a
general measure of the performance of the corporate bond market.
First Boston High Yield Bond Index* is an unmanaged list of lower-rated
higher-yielding U.S. corporate bonds.
*Securities indexes assume reinvestment of all distributions and
interest payments and do not take into account brokerage fees or taxes.
Securities in the fund do not match those in the indexes and the fund's
performance will differ. It is not possible to invest directly in an
index.
<TABLE>
<CAPTION>
Portfolio of investments owned
May 31,1996 (Unaudited)
CORPORATE BONDS AND NOTES (81.5%)*
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
Advertising (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
$3,825,000 Outdoor Systems, Inc. sr. notes 10 3/4s, 2003 $3,939,750
5,325,000 Universal Outdoor, Inc. sub. deb. 11s, 2003 5,511,375
--------------
9,451,125
Aerospace and Defense (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
4,500,000 BE Aerospace sr. notes 9 3/4s, 2003 4,545,000
2,850,000 Howmet Corp. 144A sr. sub. notes 10s, 2003 3,021,000
2,200,000 Sequa Corp. sr. notes 9 5/8s, 1999 2,178,000
5,000,000 UNC, Inc. 144A sr. sub. notes 11s, 2006 5,075,000
--------------
14,819,000
Agriculture (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
6,367,000 PMI Holdings Corp. sub. disc. deb. stepped-coupon Ser. B,
zero % (11 1/2s, 9/1/00), 2005 ++ 3,629,190
12,000,000 PSF Finance (L.P.) sr. exch. notes 12 1/4s, 2004 (acquired
3/16/95 cost $12,000,000) (In Default) +(double dagger) 8,400,000
14,620,842 PSF Finance (L.P.) sr. notes 12s, 2000 (acquired various
dates from 3/21/95 to 3/31/95 cost $14,676,222) (In Default)
+(double dagger) 10,234,589
5,000,000 PSF Finance (L.P.) sr. disc. notes stepped-coupon zero % (12s, 9/15/96),
2003 (acquired 5/31/95 cost $4,200,000) (In Default) +++(double dagger) 3,500,000
--------------
25,763,779
Aluminum (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
6,100,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes 12 3/4s, 2003 6,588,000
Automotive Parts (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 2,140,000
4,000,000 Key Plastics Corp. sr. notes 14s, 1999 4,150,000
--------------
6,290,000
Banking (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
7,000,000 Bancomext Trust Division 144A bank guaranty 11 1/4s, 2006 (Mexico) 6,982,500
2,100,000 First Federal Financial Corp. notes 11 3/4s, 2004 2,073,750
--------------
9,056,250
Broadcasting (7.2%)
- --------------------------------------------------------------------------------------------------------------------------
10,100,000 Allbritton Communications Corp. 144A sr. sub. notes 9 3/4s, 2007 9,292,000
3,000,000 Argyle Television Corp. sr. sub. notes 9 3/4s, 2005 2,895,000
1,130,000 Chancellor Broadcasting Co. sr. sub. notes 9 3/8s, 2004 1,056,550
9,000,000 Granite Broadcasting Corp. sr. sub. notes 10 3/8s, 2005 8,865,000
8,675,000 New City Broadcasting Corp. sr. sub. notes 11 3/8s, 2003 9,716,000
13,500,000 Panamsat (L.P.) sr. sub. notes stepped-coupon zero % (11
3/8s, 8/1/98), 2003 ++ 11,576,250
7,550,000 Park Broadcasting, Inc. 144A sr. notes 11 3/4s, 2002 7,606,625
10,500,000 Paxson Communications Corp. sr. sub. notes 11 5/8s, 2002 11,025,000
9,725,000 SFX Broadcasting, Inc. 144A sr. sub. notes 10 3/4s, 2006 9,725,000
9,500,000 Sinclair Broadcasting Group sr. sub. notes 10s, 2005 9,191,250
7,500,000 Spanish Broadcasting Systems sr. notes stepped-coupon 7
1/2s (12 1/2s, 6/15/97), 2002 ++ 7,350,000
2,100,000 Sullivan Broadcasting sr. sub. notes 10 1/4s, 2005 1,989,750
13,317,000 Telemedia Broadcasting Corp. 144A deb. stepped-coupon 3.8s
(16s, 6/15/99), 2004 ++ 12,035,239
3,300,000 Young Broadcasting Corp. company guaranty Ser. B, 9s, 2006 2,986,500
--------------
105,310,164
Building Products (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
9,500,000 Nortek, Inc. sr. sub. notes 9 7/8s, 2004 9,072,500
Building and Construction (2.2%)
- --------------------------------------------------------------------------------------------------------------------------
400,000 Inter-City Products sr. notes 9 3/4s, 2000 368,000
10,450,000 Presley Co. sr. notes 12 1/2s, 2001 10,084,250
6,800,000 Scotsman Group, Inc. sr. secd. notes 9 1/2s, 2000 6,868,000
14,500,000 Terex Corp. (New) 144A sr. notes 13 3/4s, 2002 14,862,500
--------------
32,182,750
Cable Television (11.8%)
- --------------------------------------------------------------------------------------------------------------------------
21,000,000 Adelphia Communications Corp. sr. notes 12 1/2s, 2002 21,577,500
16,500,000 American Telecasting, Inc. sr. disc. notes stepped-coupon
zero % (14 1/2s, 8/15/00), 2005 ++ 10,725,000
15,250,000 Bell Cablemedia PLC sr. disc. notes stepped-coupon zero %
(11 7/8s, 9/15/00), 2005 (United Kingdom)++ 9,607,500
2,000,000 Bell Cablemedia PLC sr. disc. notes stepped-coupon zero %
(11.95s, 7/15/99), 2004 (United Kingdom)++ 1,430,000
10,400,000 Benedek Broadcasting sr. notes 11 7/8s, 2005 11,102,000
6,000,000 CF Cable TV, Inc. sr. notes 11 5/8s, 2005 (Canada) 6,525,000
8,000,000 Century Communications Corp. sr. sub. deb. 11 7/8s, 2003 8,540,000
13,500,000 Diamond Cable Communication Co. sr. disc. notes stepped-coupon
zero % (11 3/4s, 12/15/00), 2005 ++ 8,133,750
7,812,644 Falcon Holdings Group, Inc. sr. sub. notes 11s, 2003 (2 double daggers) 7,539,201
950,000 Heartland Wireless Communication Inc.144A sr. notes 13s, 2003 1,040,250
8,260,000 Heartland Wireless Communication Inc. sr. notes 13s, 1999 9,013,725
32,750,000 International Cabletel, Inc. sr. notes stepped-coupon Ser. B,
zero % (11 1/2s, 2/01/01), 2006 ++ 19,158,750
10,000,000 Marcus Cable Co. sr. disc. notes stepped-coupon zero % (14 1/4s,
6/15/00), 2005 ++ 6,300,000
17,700,000 Marcus Cable Co. (L.P.) sr. sub. disc. notes stepped-coupon zero %
(13 1/2s, 8/1/99), 2004 ++ 12,854,625
6,000,000 Rogers Cablesystems Ltd. notes 11s, 2015 6,240,000
10,000,000 Telewest Communications PLC deb. 9 5/8s, 2006 (United Kingdom) 9,962,500
1,000,000 Telewest Communications PLC deb. stepped-coupon zero % (11s, 10/1/00),
2007 (United Kingdom) ++ 595,000
21,575,000 UIH Australia/Pacific 144A sr. disc. notes stepped-coupon zero %
(14s, 5/15/01), 2006 (Australia)++ 11,434,750
1,500,000 Videotron Holdings. sr. disc. notes stepped coupon zero % (11
1/8s, 7/1/99), 2004 (United Kingdom) ++ 1,125,000
12,500,000 Videotron Holdings. sr. disc. notes stepped-coupon zero % (11s,
8/15/00), 2005 (United Kingdom) ++ 8,375,000
1,000,000 Wireless One, Inc. sr. notes 13s, 2003 1,060,000
--------------
172,339,551
Cellular Communications (4.7%)
- --------------------------------------------------------------------------------------------------------------------------
5,550,000 Cellular, Inc. sr. sub. disc. notes stepped-coupon zero %
(11 3/4s, 9/1/98), 2003 ++ 4,592,625
55,970,000 Cencall Communications Corp. sr. disc. notes stepped-coupon
zero % (10 1/8s, 1/15/99), 2004 ++ 34,841,325
6,000,000 Centennial Cellular Corp. sr. notes 10 1/8s, 2005 5,880,000
2,750,000 Commnet Cellular, Inc. bonds 11 1/4s, 2005 2,935,625
18,675,000 Milicom International Cellular 144A sr. disc. notes stepped-coupon
zero % (13 1/2s, 6/01/00), 2006 (Luxembourg)++ 9,897,750
5,000,000 Pricellular Wireless Corp. sr. disc. notes stepped-coupon
zero % (12 1/4s, 10/1/98), 2003 ++ 3,925,000
7,000,000 Rogers Cantel Mobile, Inc. deb. 9 3/8s, 2008 (Canada) 6,947,500
--------------
69,019,825
Chemicals (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 Arcadian Partner sr. notes 10 3/4s, 2005 4,340,000
5,000,000 G-I Holdings, Inc. sr. disc. notes Ser. B, zero %, 1998 4,012,500
10,750,000 Harris Chemical Corp. sr. sub. notes 10 3/4s, 2003 10,669,375
4,000,000 Harris Chemical Corp. sr. secd. disc. notes 10 1/4s, 2001 4,060,000
--------------
23,081,875
Computer Equipment (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
11,140,000 Computervision Corp. sr. sub. notes 11 3/8s, 1999 11,641,300
Conglomerates (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
2,475,000 MacAndrews & Forbes Holdings, Inc. sub. deb. notes 13s, 1999 2,478,094
Consumer Durable Goods (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
10,000,000 International Semi-Tech. Corp. sr. secd. disc. notes stepped-coupon
zero % (11 1/2s, 8/15/00), 2003 (Canada) ++ 5,850,000
8,265,000 Remington Products Co. LLC 144A sr. sub. notes 11s, 2006 8,223,675
--------------
14,073,675
Consumer Services (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
9,495,000 Coinmach Corp. sr. notes Ser. B, 11 3/4s, 2005 9,779,850
Containers (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 Four M Corp. 144A sr. notes 12s, 2006 5,100,000
7,705,000 Ivex Packaging Corp. sr. sub. notes 12 1/2s, 2002 8,128,775
--------------
13,228,775
Electric Utilities (3.3%)
- --------------------------------------------------------------------------------------------------------------------------
7,000,000 CTC Mansfield deb. 11 1/8s, 2016 7,123,760
3,035,000 Cleveland Electric Illuminating Co. 1st mtge. Ser. B, 9 1/2s, 2005 2,951,538
2,250,000 El Paso Electric Co. 1st mtge. Ser. E, 9.4s, 2011 2,261,250
2,000,000 El Paso Electric Co. 1st mtge. Ser. D, 8.9s, 2006 1,995,000
5,700,000 First PV Funding deb. Ser. 86A, 10.3s, 2014 5,933,016
2,000,000 Midland Funding Corp. deb. Ser. B, 13 1/4s, 2006 2,227,500
15,660,000 Midland Funding Corp. deb. Ser. A, 11 3/4s, 2005 16,560,450
8,000,000 Texas New Mexico Pwr. deb. 12 1/2s, 1999 8,656,880
--------------
47,709,394
Electronics (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
10,050,000 Amphenol Corp. sr. sub. notes 12 3/4s, 2002 11,055,000
6,790,000 Moog, Inc. 144A sr. sub. notes 10s, 2006 6,925,800
--------------
17,980,800
Energy -Related (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 Calpine Corp. sr. notes 9 1/4s, 2004 4,737,500
Entertainment (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,170,000 Cobblestone Golf Group 144A sr. notes 11 1/2s, 2003 1,187,550
Environmental Control (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
8,345,000 Allied Waste Industries sr. sub. notes 12s, 2004 9,054,325
Food and Beverages (2.1%)
- --------------------------------------------------------------------------------------------------------------------------
22,000,000 Del Monte Corp. sub. notes 12 1/4s, 2002 (2 double daggers) 20,680,000
5,000,000 Mafco, Inc. sr. sub. notes 11 7/8s, 2002 5,275,000
6,750,000 Specialty Foods Acquisition Corp. sr. sub. notes 11 1/4s, 2003 5,298,750
--------------
31,253,750
Gaming (7.3%)
- --------------------------------------------------------------------------------------------------------------------------
3,195,000 Argosy Gaming Co. 144A 1st mtge. 13 1/4s, 2004 3,195,000
3,535,000 Arizona Charlies Corp. 1st mtge. Ser. B, 12s, 2000 2,297,750
6,500,000 Aztar Corp. sr. sub. notes 11s, 2002 6,727,500
740,000 Capitol Queen Corp. 1st mtge. notes Ser. B, 12s, 2000 (In Default) + 518,000
9,000,000 Casino America, Inc. 144A 1st mtge. 11 1/2s, 2001 9,540,000
10,000,000 Coast Hotels & Casinos, Inc. 1st mtge. 13s, 2002 10,650,000
7,000,000 Grand Casinos, Inc. 1st mtge. 10 1/8s, 2003 7,175,000
1,650,000 Harveys Casino Resorts sr. sub. notes 10 5/8s, 2006 1,658,250
3,000,000 Hemmeter Enterprises Inc. sr. notes 12s, 2000 (2 double daggers) 1,410,000
9,200,000 Hollywood Casino Corp. sr. notes 12 3/4s, 2003 8,970,000
6,500,000 Mohegan Tribal Gaming 144A sr. notes 13 1/2s, 2002 7,962,500
590,000 Pioneer Finance Corp. 1st mtge. 13 1/2s, 1998 548,700
10,396,000 Players International Inc. sr. notes 10 7/8s, 2005 10,577,930
1,500,000 Showboat Marina Casino 144A 1st mtge. 13 1/2s, 2003 1,620,000
19,900,000 Trump A.C. 1st mtge. 11 1/4s, 2006 20,049,250
3,078,000 Trump Castle Funding Corp. sr. sub. notes 11 1/2s, 2000 3,078,000
8,800,000 Trump Holdings & Funding Corp. sr. notes 15 1/2s, 2005 10,252,000
--------------
106,229,880
Health Care (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
7,500,000 Dynacare, Inc. sr. notes 10 3/4s, 2006 (Canada) 7,453,125
5,350,000 Ivac Corp. sr. notes 9 1/4s, 2002 5,390,125
2,000,000 Merit Behavorial Care sr. sub. notes 11 1/2s, 2005 2,115,000
--------------
14,958,250
Insurance (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
5,600,000 American Life Holding Co. sr. sub. notes 11 1/4s, 2004 5,880,000
Lodging (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
14,500,000 HMH Properties, Inc. sr. notes 9 1/2s, 2005 14,028,750
9,300,000 Red Roof Inns sr. notes 9 5/8s, 2003 8,974,500
1,500,000 Wyndham Hotel Corp. sr. sub. notes 10 1/2s, 2006 1,501,875
--------------
24,505,125
Media (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
3,450,000 Commodore Media, Inc. sr. sub. notes stepped-coupon 7 1/2s (13
1/4s, 5/1/98), 2003 ++ 3,553,500
8,000,000 Marvel Parent Holdings, Inc. sr. secd. disc. notes zero %, 1998 6,240,000
3,000,000 Park Newspapers, Inc. 144A sr. notes 11 7/8s, 2004 3,075,000
8,462,000 Petracom Holdings, Inc. notes stepped-coupon zero % (17 1/2s,
8/1/98), 2003 ++ 6,187,838
--------------
19,056,338
Medical Supplies and Devices (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 Dade International, Inc. 144A sr. notes 11 1/8s, 2006 4,120,000
3,000,000 Wright Medical Technology, Inc. sr. secd. notes Ser. B,
10 3/4s, 2000 2,992,500
--------------
7,112,500
Motion Picture Distribution (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,095,000 Cinemark Mexico notes 12s, 2003 (Mexico) 1,948,350
2,750,000 Cinemark USA sr. notes 12s, 2002 2,983,750
10,000,000 United Artists notes 11 1/2s, 2002 10,450,000
--------------
15,382,100
Oil and Gas (6.1%)
- --------------------------------------------------------------------------------------------------------------------------
7,650,000 Benton Oil & Gas Corp. 144A sr. notes 11 5/8s, 2003 7,860,375
3,700,000 Chesapeake Energy Corp. sr. notes 12s, 2001 4,005,250
11,500,000 Chesapeake Energy Corp. sr. notes 10 1/2s, 2002 12,103,750
3,000,000 Chesapeake Energy Corp. sr. notes 9 1/8s, 2006 2,985,000
9,500,000 Clark USA, Inc. sr. notes Ser. B, 10 7/8s, 2005 9,903,750
5,000,000 Gulf Canada Resources Ltd. sr. sub. notes 9 5/8s, 2005 (Canada) 5,025,000
4,500,000 Maxus Energy Corp. deb. 11 1/2s, 2015 4,702,500
1,000,000 Maxus Energy Corp. global notes 9 7/8s, 2002 1,000,000
5,170,000 Maxus Energy Corp. notes 9 1/2s, 2003 5,105,375
500,000 Maxus Energy Corp. notes 9 3/8s, 2003 483,750
5,500,000 Transamerican Refining Corp. 1st mtge. 16 1/2s, 2002 4,950,000
9,500,000 Transamerican Refining Corp. 1st mtge. stepped-coupon zero %
(18 1/2s, 2/15/98), 2002 ++ 6,080,000
25,750,000 Transtexas Gas Corp. sr. secd. notes 11 1/2s, 2002 25,235,000
--------------
89,439,750
Paging (4.8%)
- --------------------------------------------------------------------------------------------------------------------------
1,500,000 A+ Network Inc. sr. sub. notes 11 7/8s, 2005 1,560,000
14,050,000 Arch Communications Group sr. disc. notes stepped-coupon zero %
(10 7/8s, 3/15/01), 2008 ++ 7,938,250
7,500,000 Metrocall, Inc. sr. sub. notes 10 3/8s, 2007 7,387,500
23,000,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 24,092,500
6,000,000 Mobilemedia Corp. sr. sub. notes 9 3/8s, 2007 5,670,000
1,000,000 Mobilemedia Corp. sr, sud. notes stepped-coupon zero %
(10 1/2s, 12/1/98), 2003 ++ 745,000
7,300,000 Pagemart, Inc. sr. disc. notes stepped-coupon zero %
(12 1/4s, 11/1/98), 2003 ++ 5,493,250
15,000,000 Paging Network, Inc. sr. sub. notes 10 1/8s, 2007 15,393,750
1,740,000 Pronet, Inc. sr. sub. notes 10 7/8s, 2006 1,740,000
--------------
70,020,250
Paper and Forest Products (3.4%)
- --------------------------------------------------------------------------------------------------------------------------
6,000,000 APP International Finance Co. notes 11 3/4s, 2005 (Netherlands) 6,210,000
10,000,000 Florida Coast Paper LLC 144A 1st mtge. 12 3/4s, 2003 10,225,000
3,750,000 Gaylord Container Corp. sr. notes 11 1/2s, 2001 3,843,750
18,000,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 16,740,000
7,500,000 Riverwood International company guaranty 10 7/8s, 2008 7,462,500
5,820,000 Stone Container Corp. deb. sr. sub. notes 11 1/2s, 1999 5,878,200
--------------
50,359,450
Retail (1.9%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 County Seat Stores Inc. sr. sub. notes 12s, 2002 3,560,000
4,143,000 Finlay Enterprises, Inc. sr. disc. deb. stepped-coupon zero %
(12s, 5/1/98), 2005 ++ 3,324,758
1,500,000 K Mart Corp. med. term notes 8.18s, 2003 1,285,635
1,000,000 K Mart Corp. med. term notes 7 3/8s, 2000 890,000
1,400,000 K Mart Corp. med. term notes 7.24s, 1999 1,260,000
3,000,000 K Mart Corp. med. term notes 7.17s, 2000 2,643,750
4,100,000 K Mart Corp. med. term notes 7.01s, 2000 3,587,500
1,500,000 K Mart Corp. med. term notes 6.78s, 1999 1,340,625
7,550,000 Loehmann's, Inc. sr. notes 11 7/8s, 2003 (acquired various
dates from 5/7/96 to 5/14/96 cost $7,695,625)(double dagger) 7,776,500
2,000,000 SRI Receivables Purchase 144A notes 12 1/2s, 2000 2,030,000
--------------
27,698,768
School Buses (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,210,000 Blue Bird Body Co. sub. deb. Ser. B, 11 3/4s, 2002 2,287,350
Specialty Consumer Products (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 Herff Jones, Inc. sr. sub. notes 11s, 2005 2,100,000
Steel (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
3,000,000 Ispat Mexicana, SA 144A deb. 10 3/8s, 2001 (Mexico) 2,880,000
4,000,000 Ispat Mexicana, SA deb. 10 3/8s, 2001 (Mexico) 3,840,000
--------------
6,720,000
Supermarkets (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
4,480,000 Stater Brothers sr. notes 11s, 2001 4,648,000
Telecommunication (6.2%)
- --------------------------------------------------------------------------------------------------------------------------
4,045,000 America Communication Services, Inc. 144A sr. disc. notes
stepped-coupon zero % (12 3/4s, 4/1/01), 2006 ++ 2,123,625
15,000,000 Brooks Fiber Properties 144A sr. disc. notes stepped-coupon
zero % (10 7/8s, 3/1/01), 2006 ++ 8,306,250
9,000,000 Charter Communications Holdings 144A sr. disc. notes stepped-coupon
zero % (14s, 3/15/01), 2007 ++ 4,995,000
4,250,000 Charter Communications International, Inc. 144A sr. notes 11 1/4s, 2006 4,313,750
6,000,000 Fonorola, Inc. sr. notes 12 1/2s, 2002 (Canada) 6,510,000
34,500,000 Intelcom Group, Inc. sr. disc. notes stepped-coupon zero % (13 1/2s,
9/15/00), 2005 ++ 21,045,000
19,415,000 Intelcom Group (USA), Inc. 144A sr. disc. notes stepped-coupon zero %
(12 1/2s, 5/1/01), 2003 ++ 10,872,400
11,000,000 Intermedia Communications of Florida, Inc. sr. disc. notes stepped-coupon
zero % (12 1/2s, 5/15/01), 2006 ++ 6,132,500
5,000,000 Intermedia Communications of Florida, Inc. sr. notes Ser. B,
13 1/2s, 2005 5,600,000
16,800,000 MFS Communications sr. disc. notes stepped-coupon zero %
(9 3/8s, 1/15/99), 2004 ++ 12,726,000
8,500,000 Nextlink Communications, Inc. 144A sr. notes 12 1/2s, 2006 8,616,875
--------------
91,241,400
Textiles (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
6,375,000 Day International Group, Inc. sr. sub. notes 11 1/8s, 2005 6,566,250
2,300,000 Decorative Home Accents sr. notes Ser. B, 13s, 2002 1,932,000
--------------
8,498,250
--------------
Total Corporate Bonds and Notes (cost $1,185,264,139) $1,192,237,243
COMMON STOCKS (4.1%)*
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
250,000 Aztar Corp. + $2,875,000
130,100 Cablevision Systems Corp. Class A + 6,244,800
120,000 Clearnet Communications, Inc. CLass A (Canada) 2,445,000
140,000 Comcast Corp. Class A 2,432,500
49,854 Computervision Corp. + 579,553
23,000 Decorative Home Accents + 16,100
60,000 Dr Pepper Bottling Holdings, Inc. Class A + 180,000
322,554 Grand Union Co. (acquired 8/18/95 cost $14,144,337) + (double dagger) 2,177,240
200,000 GST Telecommunications, Inc. (Canada) + 2,875,000
27,797 Echostar Communications Corp. Class A + 958,997
315,000 Exide Corp. 7,402,500
1,700 Intelcom Group, Inc. + 45,050
150,000 Mobilemedia Corp. + 2,868,750
545,000 NEXTEL Communications, Inc. Class A + 11,308,750
2,141 PMI Holdings Corp. 144A + 428,200
1,730 Premium Holdings L.P. 144A + 43,242
85,200 Specialty Foods Corp. + 42,600
252,350 Tele-Communications Inc. Class A + 4,763,106
21,960 Total Renal Care Holdings, Inc. (acquired various dates from 8/4/94
to 1/25/95 cost $35,424)+(double dagger) 905,850
62,866 Total Renal Care Holdings + 1,926,843
19,703 UCC Investors Holding, Inc. (acquired 3/28/94 cost $275,842)
+(double dagger) 295,545
144,600 Viacom, Inc. Class A + 5,964,750
60,000 Viacom, Inc. Class B + 2,542,500
--------------
Total Common Stocks (cost $75,022,346) $59,321,876
UNITS (5.6%) *
NUMBER OF UNITS VALUE
- --------------------------------------------------------------------------------------------------------------------------
12,500 Australis Media units stepped-coupon zero % (14s, 5/15/00),
2003 (Australia) ++ $7,812,500
15,545 Cellnet Data Systems Inc. units stepped-coupon zero % (13s,
6/15/00), 2005 ++ 10,920,363
1,400 Clearnet Communications, Inc. units 14 3/4s, 2005 8,820,000
2,135 Cobblestone Holdings, Inc. 144A units zero %, 2004 779,275
5,390 Diva Systems Corp. 144A units stepped-coupon zero %(13s,
5/15/01), 2005 ++ 2,886,453
6,590 Fitzgerald Gaming Co. units 13s, 2002 5,799,200
3,106 GST Telecommunications, Inc. 144A units stepped-coupon zero %
(13 7/8s, 12/15/00), 2005 (Canada) ++ 17,548,900
3,285 Hyperion Communications 144A units stepped-coupon zero %
(13s, 4/15/01), 2003++ 1,872,450
3,585 Intercel, Inc. units stepped-coupon zero % (12s, 2/1/01), 2006 ++ 22,585,500
5,974 Premium Standard Farms 144A exch. pfd. units 12 1/2s, 2000
(acquired 9/15/93 cost $597,400)+(double dagger) 313,635
3,210 Terex Corp. 144A units 13 3/4s, 2002 3,290,250
--------------
Total Units (cost $76,544,707) $82,628,526
BRADY BONDS (2.9%) *
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$14,873,000 Argentina (Republic of) bonds 4s, 2023 $8,012,829
5,204,000 Argentina (Republic of) bonds 4s, 2023 3,584,255
6,291,000 Brazil (Government f) notes 6.812s, 2024 4,285,744
2,625,811 Brazil (Republic of) bond 4s, 2014 1,575,487
8,290,000 Brazil (Republic of) Ser. EI-L 6-5s, FRN 2006 6,414,388
3,133,000 Ecuador (Government of) FRN 7 1/4s, 2025 1,762,313
1,513,000 Philippines (Central Bank of) bonds 5 3/4s, 2017 (Philippines) 1,212,291
2,676,000 Poland (Government of) 144A FRN 7 1/8s, 2024 2,461,920
7,498,000 United Mexican States deb. Ser. B, 6 1/4s, 2019 4,808,093
7,703,000 United Mexican States FRB Ser. A, 4.188s, 2019 6,046,855
3,500,000 Venezuela (Government of) FRN VEB, 4.313s, 2007 2,419,375
--------------
Total Brady Bonds (cost $42,849,996) $42,583,550
PREFERRED STOCKS (2.5%) *
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
109,028 Cablevision Systems Corp. 144A Ser. L, $ 11.125 pfd. $10,602,973
62,300 California Federal Bank Ser. B, $10.625, exch. pfd. 6,775,125
20,000 El Paso Electric Co. $11.40 pfd (2 double daggers) 2,040,000
50,000 First Nationwide Bank $11.50 pfd. 5,500,000
11,250 Time Warner, Inc. 144A Ser. K, $10.25 pfd. 11,250,000
--------------
Total Preferred Stocks (cost $35,617,311) $36,168,098
FOREIGN GOVERNMENT BONDS AND NOTES (0.6%) *
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$4,102,000 Morocco (Government of) bonds 4 1/2s, 1999 $2,917,548
1,428,005 Panama (Republic of) FRN 7 1/4s, 2002 1,328,045
9,264,000 Russia (Government of) non performing bonds1999 + 4,006,680
--------------
Total Foreign Government Bonds and Notes (cost $7,366,384) $8,252,273
CONVERTIBLE BONDS AND NOTES(1.0%) *
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$14,500,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 $8,482,500
$7,543,000 Pricellular Wireless 144A cv. sub. notes stepped-coupon
zero % (10 3/4s, 8/15/00) ++ 6,562,410
--------------
Total Convertible Bonds and Notes (cost $14,291,194) $15,044,910
WARRANTS (0.2%)*+
NUMBER OF WARRANTS EXPIRATION DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
92,500 Becker Gaming Corp. 144A 11/15/00 $23,120
32,988 Capital Gaming International, Inc. 2/1/99 1,320
13,320 Casino Magic Finance Corp. 10/14/96 666
23,278 Cinemark Mexico USA, Inc. 8/1/03 215,671
3,450 Commodore Media 144A 5/1/00 448,500
5,000 County Seat Holdings, Inc. 10/15/98 50,000
49,560 Heartland Wireless Communications 144A 4/15/00 247,800
97,350 Intelcom Group, Inc. 144A 10/15/05 1,119,525
5,000 Intermedia Communications of Florida 144A 6/1/00 225,000
12,730 NEXTEL Communications Inc. 1/1/98 127
33,580 Pagemart, Inc. 144A 12/31/03 289,628
11,999 Petracom Holdings, Inc. 8/1/05 85,493
30,905 President Riverboat Casinos, Inc. 9/30/99 30,905
21,000 President Riverboat Casinos, Inc. 144A 9/23/96 1,050
55,000 Southdown, Inc. 144A 10/31/96 446,875
240 Telemedia Broadcasting Corp. 144A 4/1/04 179,930
3,000 Wireless One, Inc. 10/14/00 21,000
668 Wright Medical Technology, Inc. 144A 6/30/03 86,870
--------------
Total Warrants (cost $2,011,564) $3,473,480
SHORT-TERM INVESTMENTS (0.4%) *
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$2,149,096 U.S. Dollar Certificate of Deposit, (Issued by J.P. Morgan Securities,
Inc. The principal at redemption is linked to
the bid price for the Polish Treasury Bill, at maturity, multiplied
by the changes in the spot rate of the Polish Zloty
from issue date to maturity date), zero % April 16, 1997 $1,773,864
3,376,000 Federal Home Loan Mortgage Corp. effective yield of 5.30%, June 3, 1996 3,375,006
--------------
Total Short-Term Investments (cost $5,181,991) $5,148,870
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,444,149,632)*** $1,444,858,826
- --------------------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $1,462,605,136.
+ Non-income producing security.
++ 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.
(double dagger) Restricted, excluding 144A as to public resale. The total market value of restricted securities held
at April 30, 1996 was $33,603,359 or 2.3% of net assets.
(2 double daggers) Income may be received in cash or additional securities at the discretion of the issuer.
*** The aggregate identified cost on a tax basis is $1,444,587,907, resulting in gross unrealized appreciation
and appreciation of $160,052,739, and $159,781,820, respectively, or net unrealized depreciation of
$270,919.
144A after the name of a security represents those securities exempt from registration under Rule 144A of
the Securities Act of 1933. These securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
The rate shown on Floating Rate Notes (FRN) and Floating Rate Bonds (FRB) are the current interest
rates shown at May 31, 1996, which are subject to change based on the terms of the security.
<CAPTION>
- -----------------------------------------------------------------------
Forward Currency Contracts to Sell at May 31,1996
Market Aggregate Face Delivery Unrealized
Value Value Date (Depreciation)
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deutschemarks $945,808 $940,246 4/16/97 ($5,562)
- -----------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
May 31,1996 (Unaudited)
<S> <C>
Assets
- --------------------------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $1,444,149,632) (Note1) $1,444,858,826
- --------------------------------------------------------------------------------------------------------------------
Cash 14,789,889
- --------------------------------------------------------------------------------------------------------------------
Dividends and interest receivable 22,593,303
- --------------------------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 6,859,788
- --------------------------------------------------------------------------------------------------------------------
Receivable for securities sold 25,179,462
- --------------------------------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 918
- --------------------------------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 36,427
- --------------------------------------------------------------------------------------------------------------------
Total assets 1,514,318,613
Liabilities
- --------------------------------------------------------------------------------------------------------------------
Payable for securities purchased 43,733,193
- --------------------------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 4,419,084
- --------------------------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 2,170,308
- --------------------------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 2,453
- --------------------------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 4,072
- --------------------------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 799,047
- --------------------------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 354,355
- --------------------------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 6,480
- --------------------------------------------------------------------------------------------------------------------
Other accrued expenses 224,485
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 51,713,477
- --------------------------------------------------------------------------------------------------------------------
Net assets $1,462,605,136
Represented by
- --------------------------------------------------------------------------------------------------------------------
Paid-in-capital (Notes 1 and 4) 1,554,720,030
- --------------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (2,597,403)
- --------------------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency transactions (Note 1) (90,221,134)
- --------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and liabilities in foreign currencies 703,643
- --------------------------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $1,462,605,136
Computation of net asset value and offering price
- --------------------------------------------------------------------------------------------------------------------
Net asset value and redemption price of class A shares ($960,153,360 divided by 100,612,808 shares) $9.54
- --------------------------------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $9.54)* $10.02
- --------------------------------------------------------------------------------------------------------------------
Net asset value and offering price of class B shares ($465,266,620 divided by 48,915,826 shares)** $9.51
- --------------------------------------------------------------------------------------------------------------------
Net asset value and redemption price of class M shares ($37,185,156 divided by 3,899,945 shares) $9.53
- --------------------------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $9.53)* $9.85
- --------------------------------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000
or more and on group sales the offering price is reduced.
** Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended May 31,1996 (Unaudited)
<S> <C>
Investment Income:
- ----------------------------------------------------------------------------------------------------------
Interest $66,266,106
- ----------------------------------------------------------------------------------------------------------
Dividends 806,285
- ----------------------------------------------------------------------------------------------------------
Total investment income 67,072,391
Expenses:
- ----------------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 4,124,852
- ----------------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,009,424
- ----------------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 18,721
- ----------------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,153,249
- ----------------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 1,869,035
- ----------------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 71,634
- ----------------------------------------------------------------------------------------------------------
Administrative services (Note 2) 12,055
- ----------------------------------------------------------------------------------------------------------
Reports to shareholders 23,971
- ----------------------------------------------------------------------------------------------------------
Auditing 38,589
- ----------------------------------------------------------------------------------------------------------
Legal 42,432
- ----------------------------------------------------------------------------------------------------------
Postage 88,506
- ----------------------------------------------------------------------------------------------------------
Registration fees 99,793
- ----------------------------------------------------------------------------------------------------------
Other 23,300
- ----------------------------------------------------------------------------------------------------------
Total expenses 8,575,561
- ----------------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (373,770)
- ----------------------------------------------------------------------------------------------------------
Net expenses 8,201,791
- ----------------------------------------------------------------------------------------------------------
Net investment income 58,870,600
- ----------------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 26,968,888
- ----------------------------------------------------------------------------------------------------------
Net realized loss on forward currency contracts and foreign currency translation. (Note 1) (525,211)
- ----------------------------------------------------------------------------------------------------------
Net unrealized depreciation on forward currency contracts and foreign currency
translation during the period (1,843)
- ----------------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments during the period (21,671,351)
- ----------------------------------------------------------------------------------------------------------
Net gain on investments 4,770,483
- ----------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $63,641,083
- ----------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
May 31 November 30
1996* 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- -----------------------------------------------------------------------------------------------------
Operations:
- -----------------------------------------------------------------------------------------------------
Net investment income $58,870,600 $94,058,310
- -----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions 26,443,677 (31,075,100)
- -----------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments
and assets and liabilities (21,673,194) 75,579,138
- -----------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 63,641,083 138,562,348
- -----------------------------------------------------------------------------------------------------
Distributions to shareholders:
- -----------------------------------------------------------------------------------------------------
From net investment income
- -----------------------------------------------------------------------------------------------------
Class A (44,714,773) (81,579,408)
- -----------------------------------------------------------------------------------------------------
Class B (16,855,566) (13,725,209)
- -----------------------------------------------------------------------------------------------------
Class M (1,348,882) (955,481)
- -----------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 283,119,499 446,350,218
- -----------------------------------------------------------------------------------------------------
Total increase in net assets 283,841,361 488,652,468
- -----------------------------------------------------------------------------------------------------
Net assets
- -----------------------------------------------------------------------------------------------------
Beginning of period 1,178,763,775 690,111,307
- -----------------------------------------------------------------------------------------------------
End of period (including distributions in excess of net
investment income and undistributed net investment income
of $2,597,403 and $1,451,218, respectively) $1,462,605,136 $1,178,763,775
- -----------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
For the year For the period
December 1, 1994 May 16, 1994
Six months (commencement Six months (commencement
ended of operation) ended Year ended of operations)
May 31 to November May 31 November 30 to November 30
---------------------------------------------------------------------
1996 * 1995 1996 * 1995 1994
---------------------------------------------------------------------
Class M Class B
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $9.51 $9.05 $9.49 $9.05 $9.83
- --------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------
Net investment income .43 .99 .41 .92 .48
- --------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments .05 .45 .05 .45 (.77)
- --------------------------------------------------------------------------------------------------------------
Total from investment operations .48 1.44 .46 1.37 (.29)
- --------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- --------------------------------------------------------------------------------------------------------------
From net investment income (.46) (.98) (.44) (.93) (.49)
- --------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------
From paid in capital -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------
Total distributions (.46) (.98) (.44) (.93) (.49)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.53 $9.51 $9.51 $9.49 $9.05
- --------------------------------------------------------------------------------------------------------------
Total investment return at net
asset value (%)(a) 5.09 (c) 16.72 4.86 (c) 15.94 (3.12)(c)
- --------------------------------------------------------------------------------------------------------------
Net assets, end of period (in
thousands) $37,185 $20,077 $465,267 $287,877 $37,017
- --------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets (%)(b) .66 (c) 1.35 .91 (c) 1.85 1.02 (c)
- --------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets (%) 4.42 (c) 10.06 4.17 (c) 9.61 7.47 (c)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 85.77 (c) 89.96 85.77 (c) 89.96 69.61
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
Six months
ended
May 31 Year ended November 30
---------------------------------------------------------------------------------
1996 * 1995 1994 1993 1992 1991
---------------------------------------------------------------------------------
Class B Class A
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $9.52 $9.07 $10.41 $9.74 $9.30 $7.38
- -----------------------------------------------------------------------------------------------------------------------
Investment operations
- -----------------------------------------------------------------------------------------------------------------------
Net investment income .44 1.00 .98 1.13 1.23 1.14
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments .05 .45 (1.30) .70 .42 1.98
- -----------------------------------------------------------------------------------------------------------------------
Total from investment operations .49 1.45 (.32) 1.83 1.65 3.12
- -----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- -----------------------------------------------------------------------------------------------------------------------
From net investment income (.47) (1.00) (1.02) (1.15) (1.21) (1.15)
- -----------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- -- (.01) -- --
- -----------------------------------------------------------------------------------------------------------------------
From paid in capital -- -- -- -- -- (.05)
- -----------------------------------------------------------------------------------------------------------------------
Total distributions (.47) (1.00) (1.02) (1.16) (1.21) (1.20)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.54 $9.52 $9.07 $10.41 $9.74 $9.30
- -----------------------------------------------------------------------------------------------------------------------
Total investment return at net
asset value (%)(a) 5.20 (c) 16.81 (3.43) 19.88 18.44 45.46
- -----------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in
thousands) $960,153 $870,810 $653,094 $742,472 $484,520 $369,150
- -----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets (%)(b) .54 (c) 1.12 1.03 .96 1.14 1.33
- -----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets (%) 4.55 (c) 10.35 10.87 11.04 12.40 13.38
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 85.77 (c) 89.96 69.61 50.89 68.29 74.45
- -----------------------------------------------------------------------------------------------------------------------
* Unaudited
(a) Total investment return assumes dividend reinvestment
and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended November 30,
1995 and thereafter, includes amounts paid through expense offset arrangements.
Prior period ratios exclude these amounts. ( Note 2)
(c) Not annualized.
</TABLE>
Notes to financial statements
May 31, 1996 (Unaudited)
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 current income primarily through a diversified portfolio
of high-yielding, lower-rated corporate bonds.
The fund offers class A, class B and class M shares. Class A shares are
sold with a maximum front-end sales charge of 4.75%. Class B shares,
which convert to class A shares after approximately eight years, do not
pay a front-end sales charge, but pay a higher ongoing distribution fee
than class A shares, and are subject to a contingent deferred sales
charge, if those shares are redeemed within six years of purchase. Class
M shares are sold with a maximum front-end sales charge of 3.25% and pay
an ongoing distribution fee that is lower than class B shares and higher
than class A shares.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with generally accepted accounting principles and requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities. Actual results could differ from those
estimates.
A) Security valuation Investments for which market quotations are
readily available are stated at market value, which is determined using
the last reported sale price, or, if no sales are reported -- as in the
case of some securities traded over-the-counter -- at the last reported
bid price. Securities whose market quotations are not readily available
are stated at fair value on the basis of valuations furnished by dealers
or 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 comparable 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 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 companies managed by Putnam Investment Management,
Inc. ("Putnam Management"), 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.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be in an
amount at least equal to the resale price, including accrued interest.
Putnam Management is responsible for determining that the value of these
underlying securities is at all times at least equal to the resale
price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed).
Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date. Discounts on zero coupon bonds,
original issue, stepped-coupon bonds and payment in kind bonds are
accreted according to the effective yield method.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when accrued or incurred. The
fund does not isolate that portion of realized or unrealized gains or
losses resulting from changes in the foreign exchange rate on
investments from fluctuations arising from changes in the market prices
of the securities. Such fluctuations are included with the net realized
and unrealized gain or loss on investments. Net realized gains and
losses on foreign currency transactions represent net exchange gains or
losses on closed forward currency contracts, disposition of foreign
currencies and the difference between the amount of investment income
and foreign withholding taxes recorded on the fund's books and the U.S.
dollar equivalent amounts actually received or paid. Net unrealized
gains and losses on foreign currency transactions arise from changes in
the value of open forward currency contracts and assets and liabilities
other than investments at the period end, resulting from changes in the
exchange rate.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date, to protect against a decline
in value relative to the U.S. dollar of the currencies in which its
portfolio securities are denominated or quoted (or an increase in the
value of a currency in which securities a fund intends to buy are
denominated, when a fund holds cash reserves and short-term
investments). The U.S. dollar value of forward currency contracts is
determined using forward currency exchange rates supplied by a quotation
service. The market value of the contract will fluctuate with changes in
currency exchange rates. The contract is "marked to market" daily and
the change in market value is recorded as an unrealized gain or loss.
When the contract is closed, the fund records a realized gain or loss
equal to the difference between the value of the contract at the time it
was opened and the value at the time it was closed. The fund could be
exposed to risk if the value of the currency changes unfavorably, if the
counterparties to the contracts are unable to meet the terms of their
contracts or if the fund is unable to enter into a closing position.
G) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held and for excise tax on income and capital
gains.
At November 30, 1995, the fund had a capital loss carryover of
approximately $116,227,000 available to offset future capital gains, if
any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
- --------------------------------------------
$49,757,478 November 30, 1998
$15,408,761 November 30, 1999
$16,967,398 November 30, 2002
$34,093,363 November 30, 2003
H) Distributions to shareholders Distributions to shareholders are
recorded by the fund on the ex-dividend date. At certain times, the fund
may pay distributions at a level rate even though, as a result of market
conditions or investment decisions, the fund may not achieve projected
investment results for a given period. The amount and character of
income and gains to be distributed are determined in accordance with
income tax regulations which may differ from generally accepted
accounting principles. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations.
Note 2
Management fee, administrative services and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on the following annual rates: 0.70% of the
first $500 million, 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, under
current law, to reduction in any year by the amount of certain brokerage
commissions and fees (less expenses) received by affiliates of Putnam
Management on the fund's portfolio transactions.
The fund reimburses Putnam Management for the compensation and related
expenses of certain officers of the fund and their staff who provide
administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Trustees of the fund receive an annual Trustees fee of $2,370 and an
additional fee for each Trustee's meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of
the Trustees receive additional fees for attendance at certain committee
meetings.
The fund adopted a Trustee Fee Deferral Plan (the "Plan") which allows
the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain invested in
certain Putnam funds until distribution in accordance with the Plan.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam
Investments, Inc. Investor servicing agent functions are provided by
Putnam Investor Services, a division of PFTC.
For the six months ended May 31, 1996, fund expenses were reduced by
$373,770 under expense offset arrangements with PFTC. Investor servicing
and custodian fees reported in the Statement of operations exclude these
credits. The fund could have invested a portion of the assets utilized
in connection with the expense offset arrangements in an income
producing asset if it had not entered into such arrangements.
The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of
Putnam Investments, Inc., for services provided and expenses incurred by
it in distributing shares of the fund. The Plans provide for payments by
the fund to Putnam Mutual Funds Corp. at an annual rate up to 0.35%,
1.00% and 1.00% of the average net assets attributable to class A, class
B and class M shares, respectively. The Trustees have approved payment
by the fund at an annual rate of 0.25%, 1.00% and 0.50% of the average
net assets attributable to class A, class B and class M shares
respectively.
For the six months ended May 31, 1996, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $421,617 and $26,169 from the
sale of class A and class M shares, respectively and $375,742 in
contingent deferred sales charges from redemptions of class B shares. A
deferred sales charge of up to 1% is assessed on certain redemptions of
class A shares. For the six months ended May 31, 1996, Putnam Mutual
Funds Corp., acting as underwriter received $17,296 on class A
redemptions.
Note 3
Purchase and sales of securities
During the six months ended May 31, 1996, purchases and sales of
investment securities other than short-term investments aggregated
$856,395,622 and $589,216,503, respectively. There were no purchases and
sales of U.S. government obligations. In determining the net gain or
loss on securities sold, the cost of securities has been determined on
the identified cost basis.
Note 4
Capital shares
At May 31, 1996, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
May 31, 1996
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 23,277,986 $224,148,208
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 2,262,621 21,683,790
- ----------------------------------------------------
25,540,607 245,831,998
Shares
repurchased (16,439,080) (158,280,343)
- ----------------------------------------------------
Net increase 9,101,527 $87,551,655
- ----------------------------------------------------
Year ended
November 30, 1995
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 37,029,176 $344,750,753
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 3,862,693 35,951,835
- ----------------------------------------------------
40,891,869 380,702,588
Shares
repurchased (21,412,988) (199,585,575)
- ----------------------------------------------------
Net increase 19,478,881 $181,117,013
- ----------------------------------------------------
Six months ended
May 31, 1996
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 22,678,191 $217,674,344
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 743,038 7,096,633
- ----------------------------------------------------
23,421,229 224,770,977
Shares
repurchased (4,841,146) (46,409,267)
- ----------------------------------------------------
Net increase 18,580,083 $178,361,710
- ----------------------------------------------------
Year ended
November 30, 1995
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 28,775,818 $269,420,613
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 609,853 5,495,388
- ----------------------------------------------------
29,385,671 274,916,001
Shares
repurchased (3,140,920) (29,409,833)
- ----------------------------------------------------
Net increase 26,244,751 $245,506,168
- ----------------------------------------------------
Six months ended
May 31, 1996
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 2,164,909 $20,813,665
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 82,524 789,579
- ----------------------------------------------------
2,247,433 21,603,244
Shares
repurchased (458,519) (4,397,110)
- ----------------------------------------------------
Net increase 1,788,914 $17,206,134
- ----------------------------------------------------
December 1, 1994
(commencement of
operations) to
November 30, 1995
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 2,308,932 $21,594,908
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 62,000 583,860
- ----------------------------------------------------
2,370,932 22,178,768
Shares
repurchased (259,901) (2,451,731)
- ----------------------------------------------------
Net increase 2,111,031 $19,727,037
- ----------------------------------------------------
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
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
Edward H. D'Alelio
Vice President
Jin W. Ho
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam High Yield
Advantage Fund. It may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details of sales
charges, investment objectives, and operating policies of the fund, and
the most recent copy of Putnam's Quarterly Performance Summary. For
more information, or to request a prospectus, call toll free: 1-800-225-
1581.
Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution, are not insured by the
Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board
or any other agency, and involve risk, including the possible loss of
principal amount invested.
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- -------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- -------------
25857-060/327/702 7/96
