Putnam
High Yield
Advantage
Fund
ANNUAL REPORT
November 30, 1996
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* According to Lipper Analytical Services, Putnam High Yield Advantage
Fund's class A share total return ranked 7 out of 43 high current yield
funds for the 10-year period ended December 31, 1996, placing the fund
in the top 16% in this category.*
* "Unlike other areas of the fixed-income market, where prices are
closely correlated to interest rates, performance in the high-yield
arena depends on astute security selection. That's why professionally
managed high-yield funds are a safer bet for most people than buying
individual issues."
-- The Wall Street Journal, June 6, 1996
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
14 Portfolio holdings
29 Financial statements
40 Results of October 31, 1996 shareholder meeting
* Lipper Analytical Services, an independent research organization,
ranks funds according to total return performance. Their rankings vary
over time and do not reflect the effects of sales charges. For periods
ended 12/31/96, class A shares ranked 134 out of 148 and 31 out of 63
funds for 1- and 5-year performance, respectively; class B and class M
shares ranked 139 and 138, respectively, out of 148 funds for 1-year
performance and were not ranked over longer periods. Past performance is
not indicative of future results.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
Dear Shareholder:
Putnam High Yield Advantage Fund closed fiscal 1996 on November 30 on a
high note as the sector of the fixed-income market in which it focuses
its investments continued to thrive along with the economy. What is
more, high-yield bonds show no signs of losing any of their vigor as
your fund enters fiscal 1997.
Choosing the right securities from this universe means, among other
things, seeking out the companies least likely to default on their
obligations. Thus Putnam's extensive credit research capability played a
more important role than ever before in the fund's management in the
prevailing market.
Rosemary Thomsen will tap that resource heavily in her new role as your
fund's manager. She succeeds Jin Ho, who has assumed other managerial
responsibilities within the High-Yield Bond Group. A member of the group
since 1986, Rosemary has 12 years of investment experience. She
discusses the fund's performance and prospects in the following report.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
January 15, 1997
Report from the Fund Manager
Rosemary H. Thomsen
Propelled by enduring economic expansion and healthy corporate earnings,
high-yield bonds sustained their spirited performance through much of
calendar 1996. Amid this rally, Putnam High Yield Advantage Fund's
strategy of diversification across promising market sectors enabled it
to capitalize on prevailing trends and post favorable total returns for
the fiscal year ended November 30, 1996. The fund's class A shares
posted a solid 11.38% return at net asset value (6.14% at public
offering price), nearly matching the 11.67% return of the First Boston
High Yield Index. Complete performance information appears on pages 8
through 10.
* AMONG HIGH-YIELD BONDS, ABUNDANT SUPPLY FEEDS HARDY DEMAND
After investors enjoyed a year of outstanding economic growth in 1995,
many economists predicted a slump in 1996. However, economic indicators
showed resilience during the year, and, on several occasions, the Fed
opted to allow interest rates to run their course. Through it all, the
economy coasted along at a pace that bolstered the markets while keeping
inflation at bay.
As economic growth thrived, so did the level of new high-yield bond
issuance. Issuers began calendar 1996 at full sprint, bringing to market
$33.7 billion in new high-yield bonds by the end of April (more than
twice the amount issued over the same four-month period in 1995). In the
months that followed, new bonds continued to flow into the market at a
comparable pace and were absorbed by equally vigorous demand. Convinced
that recession was unlikely in 1996, investors remained committed to
high-yield bond investing and readily snatched up the new offerings. As
a result, high-yield bond funds have enjoyed nearly uninterrupted
positive cash flows since January of this year.
Within the high-yield universe, lower-quality securities sharply
outperformed higher-quality Ba-rated bonds through much of the fiscal
year. Investors became more comfortable buying lower-grade bonds early
in the period when the economy exhibited stronger-than-expected growth
and other sectors of the bond market -- particularly Treasury securities
- -- began to struggle. When Treasuries (which are considered the highest-
quality securities available) started to rebound at the end of
September, higher-rated high-yield bonds prospered as well. For the
period as a whole, B-rated bonds outpaced higher-quality bonds, and your
fund's substantial allocation to these lower-grade securities enabled it
to benefit substantially from their superior relative performance.
* TELECOMMUNICATIONS INVESTMENTS CONTINUE TO FLOURISH
The long-awaited passage of the telecommunications deregulation reform
bill early in the period had a significant impact on the high-yield
market. The new law loosens onerous restrictions on radio stations,
cable television, and long distance telephone service. It allows a
single company to offer services in more than one of these areas (for
example, a telephone company may provide cable television service) or to
own more than one provider of a particular service in a certain region
(a company may own several radio stations in one city). Such freedom
provides economies of scale as companies spread their operating costs
over more than one outlet.
[GRAPHIC PIE CHART OMITTED: CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
Below B-- 3.49%
Aaa-- 0.29%
B-- 67.28%
Not rated/rating pending-- 2.12%
Baa-- 1.48%
Ba-- 25.34%
Footnote reads:
* As a percentage of market value as of 11/30/96. A bond rated Baa or
higher is considered investment grade. All ratings reflect Moody's
descriptions unless noted otherwise; percentages may include unrated
bonds considered by Putnam Management to be of comparable quality.
Ratings will vary over time.
Among the fund's holdings, several competitive access providers (CAPs) -
- - which compete against local telephone companies primarily for
commercial customers -- were among the portfolio's most impressive
performers during the period. Companies of this type issue high-yield
securities to help finance the construction of the fiber-optic network
required to attract corporate customers and compete with larger
telephone service providers. Bonds issued by MFS Communications and
Intermedia Communications delivered solid gains for the fund, as did
those issued by Intelcom, the second-largest CAP in the United States.
Intelcom's stock and bonds have prospered as it continues to build its
business. Furthermore, we believe Intelcom's strategy of continued
development with an eye toward eventual sale or strategic alliance
within the next two years speaks well of its high-yield potential. While
these securities and others discussed in this report were viewed
favorably during the period, all portfolio holdings are subject to
review and adjustment in accordance with the fund's investment strategy
and may vary in the future.
Elsewhere in the telecommunications industry, a noteworthy trend is
developing in the United Kingdom, where, unlike in the United States,
one-stop cable and telephone services are now the standard. At the end
of calendar 1995, when these services were first combined, the British
market experienced a significant increase in high-yield bond issuance as
competitors sought the financing needed to keep pace. We took this
opportunity to invest in several players in this industry including
Telewest Communications, Videotron Holdings, International Cabletel, and
Diamond Cable Communication. While profits and security values over the
past year have generally fallen short of expectations across this
industry, we expect that the existing momentum toward more broad-based
marketing, advancing technology, and more prevalent corporate
consolidation will boost performance in 1997.
* RETAIL AND GAMING HOLDINGS BOOST PERFORMANCE
Outside of the telecommunications industry, the fund profited from
investments in the retail industry. In this sector, your fund emphasizes
specialty niche-oriented boutiques such as Specialty Retailers Inc. (a
regional company based in Texas) and Mother's Work (a provider of
maternity clothes). Sustained economic growth throughout 1996 drove
income levels upward, providing consumers with more discretionary income
to spend at retail stores.
[GRAPHIC HORIZONTAL BAR CHART OMITTED: TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Telecommunications 8.4%
Cable television 7.4%
Broadcasting 7.4%
Gaming 5.7%
Electric utilities 5.1%
Footnote reads:
* Based on net assets as of 11/30/96. Sectors will vary over time.
Your fund continued to benefit from its exposure to the gaming industry,
another solid performer during the period. This industry typically
offers bonds with higher yields than other high-yield sectors offer
because gaming does not have the wide appeal that other sectors enjoy.
Despite such necessarily limited demand, this sector's high-yield bonds
rallied impressively during the period, driving prices higher and
pushing yields down toward rates that were in line with those of other
sectors. Among gaming companies, your fund focuses on smaller regional
facilities whose bonds still offer attractive yield advantages.
* A HEALTHY OUTLOOK FOR BOND MARKETS
In the coming months, we expect business prospects to improve generally
as telecommunications deregulation continues to enhance revenues and
consolidation strengthens cash flows and drives down operating costs.
Our outlook for the economy is one of moderate growth in the near term
and a potential slowdown in economic growth toward mid-to-late 1997 --
with inflation remaining negligible. As economic and market conditions
develop, we will maintain our strategy of diversification among sectors
that we believe offer the greatest potential for solid, consistent
performance.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 11/30/96, 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 11/30/96
Class A Class B Class M
(inception date) (3/25/86) (5/16/94) (12/1/94)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
1 year 11.38% 6.14% 10.52% 5.52% 11.15% 7.53%
- ------------------------------------------------------------------------
5 years 78.38 69.97 -- -- -- --
Annual average 12.27 11.19 -- -- -- --
- ------------------------------------------------------------------------
10 years 179.46 166.15 -- -- -- --
Annual average 10.82 10.28 -- -- -- --
- ------------------------------------------------------------------------
Life of class -- -- 24.14 21.20 29.74 25.58
Annual average -- -- 8.85 7.83 13.90 12.06
- ------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 11/30/96
Lehman Bros. First Boston
Corporate Bond Index High Yield Index
- ------------------------------------------------------------------------
1 year 6.46% 11.67%
- ------------------------------------------------------------------------
5 years 54.84 79.09
Annual average 9.13 12.36
- ------------------------------------------------------------------------
10 years 145.28 191.64
Annual average 9.39 11.30
- ------------------------------------------------------------------------
Life of class B 29.20 30.57
Annual average 10.78 11.25
- ------------------------------------------------------------------------
Life of class M 29.09 30.81
Annual average 13.61 14.36
- ------------------------------------------------------------------------
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 the applicable sales charge, with the maximum
being 5%.
[GRAPHIC WORM CHART OMITTED: GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Lehman Corporate First Boston
Date/year Fund at POP Index Index
- ---------- ------------ ---------------- ------------
11/30/86 9,525 10,000 10,000
11/30/87 10,061 10,156 10,426
11/30/88 11,738 11,272 12,064
11/30/89 11,431 12,881 12,242
11/30/90 10,258 13,612 11,355
11/30/91 14,921 15,841 16,284
11/30/92 17,673 17,462 18,921
11/30/93 21,185 19,826 22,470
11/30/94 20,457 19,001 22,294
11/30/95 23,896 23,041 26,116
11/30/96 26,615 24,528 29,164
Footnote reads:
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 $12,414 on 11/30/96 ($12,120 with a redemption at the end of
the period). A $10,000 investment in the fund's class M shares at
inception on 12/1/94 would have been valued at $12,974 at net asset
value on 11/30/96 ($12,558 at public offering price).
PRICE AND DISTRIBUTION INFORMATION
12 months ended 11/30/96
Class A Class B Class M
- ------------------------------------------------------------------------
Distributions (number) 12 12 12
- ------------------------------------------------------------------------
Income $0.901 $0.833 $0.88
- ------------------------------------------------------------------------
Total $0.901 $0.833 $0.88
- ------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------
11/30/95 $9.52 $9.99 $9.49 $9.51 $9.83
- ------------------------------------------------------------------------
11/30/96 9.65 10.13 9.61 9.64 9.96
- ------------------------------------------------------------------------
Current return
(end of period)
- ------------------------------------------------------------------------
Current dividend rate1 8.95% 8.53% 8.24% 8.84% 8.55%
- ------------------------------------------------------------------------
Current 30-day SEC yield2 8.35 7.95 7.61 8.07 7.81
- ------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
2 Based on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 12/31/96
(most recent calendar quarter)
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
1 year 10.59% 5.34% 9.73% 4.73% 10.26% 6.71%
- ------------------------------------------------------------------------
5 years 78.93 70.46 -- -- -- --
Annual average 12.34 11.26 -- -- -- --
- ------------------------------------------------------------------------
10 years 179.81 166.47 -- -- -- --
Annual average 10.84 10.30 -- -- -- --
- ------------------------------------------------------------------------
Life of class -- -- 25.64 22.70 31.24 27.03
Annual average -- -- 9.07 8.09 13.89 12.13
- ------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. Investment returns
and principal value will fluctuate so that an investor's shares, when
sold, may be worth more or less than their original cost.
TERMS AND DEFINITIONS
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 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.
WELCOME TO
www.putnaminv.com
Now you can get up-to-date information about your funds, learn more
about investing and retirement planning, and access market news and an
economic outlook from Putnam experts -- with just a few clicks of the
mouse!
VISIT PUTNAM'S NEW SITE ON THE WORLD WIDE WEB TO FIND OUT:
* the benefits of investing with Putnam
* Putnam's money management philosophy
* daily fund pricing and long-term fund performance
* how to tell if your retirement savings plan is on track
* how quickly money can accumulate in a tax-deferred investment
You can also read Dr. Robert Goodman's economic commentary and Putnam's
Capital Markets Forum outlook, search for a particular Putnam fund by
name or objective . . . and much more.
The site can be accessed through any of the major online services
(America Online, CompuServe, Prodigy) that offer web access. Of course,
you can also access it via Netscape and an independent Internet service
provider.
New features will be added to the site on an ongoing basis. So, visit us
at http://www.putnaminv.com -- often!
Report of independent accountants
For the fiscal year ended November 30, 1996
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, 1996, and the related statement of operations
for the year then ended, the statements 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 responsibility 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
standards. 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 in the financial statements. Our procedures included
confirmation of securities owned as of November 30, 1996, by
correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Putnam High Yield Advantage Fund as of November
30, 1996, 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 14, 1997
<TABLE>
<CAPTION>
Portfolio of investments owned
November 30, 1996
CORPORATE BONDS AND NOTES (86.2%) *
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
Advertising (0.5%)
- --------------------------------------------------------------------------------------------
$ 650,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 684,125
3,890,000 Lamar Advertising Co. sr. sub. notes 9 5/8s, 2006 3,958,075
830,000 Outdoor Systems, Inc. sr. sub. notes 9 3/8s, 2006 838,300
4,985,000 Universal Outdoor, Inc. sr. sub. notes 9 3/4s, 2006 5,097,152
--------------
10,577,652
Aerospace and Defense (1.8%)
- --------------------------------------------------------------------------------------------
5,660,000 BE Aerospace sr. notes 9 3/4s, 2003 5,928,850
2,425,000 BE Aerospace sr. sub. notes Ser. B, 9 7/8s, 2006 2,522,000
6,770,000 Greenwich Air Services, Inc. sr. notes 10 1/2s, 2006 7,210,050
2,850,000 Howmet Corp. sr. sub. notes 10s, 2003 3,070,875
6,790,000 Moog Inc. sr. sub. notes Ser. B, 10s, 2006 7,027,650
100,000 Sequa Corp. med. term notes 10s, 2001 105,276
2,200,000 Sequa Corp. sr. notes 9 5/8s, 1999 2,255,000
235,000 Sequa Corp. sr. sub. notes 9 3/8s, 2003 240,875
11,200,000 UNC, Inc. sr. sub. notes 11s, 2006 11,956,000
--------------
40,316,576
Agriculture (0.6%)
- --------------------------------------------------------------------------------------------
1,000,000 AGCO Corp. sr. sub. notes 8 1/2s, 2006 1,025,000
6,367,000 PMI Holdings Corp. sub. disc. deb. stepped-coupon
Ser. B, zero % (11 1/2s, 9/1/00), 2005 ++ 4,154,468
7,787,667 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003 7,943,421
--------------
13,122,889
Apparel (0.7%)
- --------------------------------------------------------------------------------------------
14,050,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 14,471,500
Automotive Parts (1.9%)
- --------------------------------------------------------------------------------------------
11,200,000 A.P.S. Inc. company guaranty 11 7/8s, 2006 12,208,000
7,360,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 8,169,600
2,000,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 2,220,000
3,400,000 CSK Auto, Inc. 144A sr. sub. notes 11s, 2006 3,502,000
1,425,000 Hawk Corp. 144A sr. notes 10 1/4s, 2003 1,453,500
4,925,000 Key Plastics Corp. sr. notes 14s, 1999 5,122,000
6,055,000 Lear Corp. sub. notes 9 1/2s, 2006 6,509,125
1,285,000 Speedy Muffler King, Inc. company guaranty 10 7/8s, 2006 1,368,525
-------------
40,552,750
Banks (1.0%)
- --------------------------------------------------------------------------------------------
9,635,000 First Nationwide Holdings 144A sr. sub. notes 10 5/8s, 2003 10,309,450
1,500,000 First Nationwide Holdings sr. notes 12 1/2s, 2003 1,642,500
7,000,000 First Nationwide Holdings sr. sub. notes 9 1/8s, 2003 7,070,000
3,005,000 Provident Capital Trust 144A jr. sub. notes 8.6s, 2026 3,089,320
--------------
22,111,270
Basic Industrial Products (0.2%)
- --------------------------------------------------------------------------------------------
1,645,000 Astor Corp. 144A sr. sub. notes 10 1/2s, 2006 1,677,900
1,350,000 Clark-Schwebel sr. notes 10 1/2s, 2006 1,437,750
1,000,000 Mettler Toledo, Inc. company guaranty 9 3/4s, 2006 1,045,000
1,595,000 Ryder TRS Inc. 144A sr. sub. notes 10s, 2006 1,622,913
--------------
5,783,563
Broadcasting (7.4%)
- --------------------------------------------------------------------------------------------
8,700,000 Allbritton Communications sr. sub. deb. Ser. B, 9 3/4s, 2007 8,308,500
3,000,000 Argyle Television Corp. sr. sub. notes 9 3/4s, 2005 3,037,500
1,000,000 Benedek Communications Corp. sr. disc. notes
stepped-coupon zero % (13 1/4s, 5/15/01), 2006 ++ 550,000
1,130,000 Chancellor Broadcasting Co. sr. sub. notes 9 3/8s, 2004 1,127,175
3,450,000 Commodore Media, Inc. sr. sub. notes stepped-coupon
7 1/2s, (13 1/4s, 5/1/98), 2003 ++ 3,588,000
2,500,000 Echostar Satellite Broadcast Corp. sr. disc. notes
stepped-coupon zero % (13 1/8s, 3/15/00), 2004 ++ 1,900,000
2,000,000 Echostar Communications Corp. stepped-coupon
zero % (12 7/8s,6/1/99), 2004 ++ 1,620,000
450,000 Granite Broadcasting Corp. sr. sub. deb. 12 3/4s, 2002 492,750
9,000,000 Granite Broadcasting Corp. sr. sub. notes 10 3/8s, 2005 9,022,500
8,260,000 Heartland Wireless Communications Inc. sr. notes 13s, 2003 9,003,400
12,160,000 Jacor Communications, Inc. sr. sub. notes 10 1/8s, 2006 12,464,000
10,000,000 Lenfest Communications, Inc. sr. sub. notes 10 1/2s, 2006 10,425,000
8,675,000 New City Broadcasting Corp. sr. sub. notes 11 3/8s, 2003 9,542,500
7,550,000 Park Broadcasting, Inc. sr. notes Ser. B, 11 3/4s, 2004 8,814,625
8,500,000 Paxson Communications Corp. 144A sr. sub. notes
11 5/8s, 2002 8,712,500
5,000,000 Pegasus Media & Communications notes Ser. B, 12 1/2s, 2005 5,400,000
8,462,000 Petracom Holdings, Inc. notes stepped-coupon zero %
(17 1/2s, 8/1/98), 2003 ++ 7,277,320
15,725,000 SFX Broadcasting, Inc. sr. sub. notes Ser. B, 10 3/4s, 2006 16,511,250
11,500,000 Sinclair Broadcasting Group sr. sub. notes 10s, 2005 11,615,000
10,000,000 TCI Communications Inc. sr. notes 6 7/8s, 2006 9,126,500
13,920,000 Telemedia Broadcasting Corp. 144A deb. stepped-coupon
3.8s, (16s, 6/15/99), 2004 ++ 12,632,400
11,000,000 Telewest Communications PLC deb. stepped-coupon
zero % (11s, 10/1/00), 2007 (United Kingdom) ++ 7,452,500
300,000 Young Broadcasting Corp. company guaranty Ser. B, 9s, 2006 282,000
--------------
158,905,420
Building and Construction (2.5%)
- --------------------------------------------------------------------------------------------
3,550,000 Atrium Companies Inc. 144A sr. sub. notes 10 1/2s, 2006 3,612,125
7,500,000 Cemex S.A. 144A bonds 12 3/4s, 2006 (Mexico) 8,325,000
1,770,000 Clark Material Handling Co. 144A sr. notes 10 3/4s, 2006 1,809,825
10,380,000 Inter-City Products sr. notes 9 3/4s, 2000 10,483,800
4,180,000 Presley Cos. sr. notes 12 1/2s, 2001 4,075,500
6,800,000 Scotsman Group, Inc. sr. secd. notes 9 1/2s, 2000 7,004,000
17,710,000 Terex Corp. sr. notes Ser. B, 13 1/4s, 2002 19,126,800
--------------
54,437,050
Building Products (1.1%)
- --------------------------------------------------------------------------------------------
9,500,000 Nortek, Inc. sr. sub. notes 9 7/8s, 2004 9,452,500
7,825,000 Southdown Inc. sr. sub. notes Ser. B, 10s, 2006 8,177,125
4,225,000 Triangle Pacific Corp. sr. notes 10 1/2s, 2003 4,499,625
3,350,000 Waxman Industries Inc. sr. notes stepped-coupon
Ser. B, zero % (12 3/4s, 6/1/99), 2004 ++ 2,445,500
--------------
24,574,750
Buses (0.1%)
- --------------------------------------------------------------------------------------------
2,025,000 Blue Bird Body Co. 144A sr. sub. notes 10 3/4s, 2006 2,098,406
Business Services (0.5%)
- --------------------------------------------------------------------------------------------
2,800,000 Intertek Finance PLC 144A sr. sub. notes 10 1/4s, 2006
(United Kingdom) 2,863,000
1,145,000 Iron Mountain Inc. sr. sub. notes 10 1/8s, 2006 1,207,975
1,060,000 Muzak Inc. sr. notes 10s, 2003 1,081,200
4,549,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 4,958,410
--------------
10,110,585
Cable Television (7.4%)
- --------------------------------------------------------------------------------------------
2,000,000 Adelphia Communications Corp. notes Ser. B, 9 7/8s, 2005 1,775,000
19,550,000 Adelphia Communications Corp. sr. notes 12 1/2s, 2002 19,745,500
16,500,000 American Telecasting, Inc. sr. disc. notes stepped-coupon
zero % (14 1/2s, 8/15/00), 2005 ++ 9,570,000
2,250,000 Bell Cablemedia PLC sr. disc. notes zero %
(11 7/8s, 9/15/00), 2005 (United Kingdom) 1,766,250
3,350,000 Bell Cablemedia PLC sr. disc. notes zero %
(11.95s, 7/15/99), 2004 (United Kingdom) 2,864,250
10,400,000 Benedek Broadcasting sr. notes 11 7/8s, 2005 11,180,000
8,750,000 Cablevision Systems Corp. sr. sub. deb. 10 1/2s, 2016 8,837,500
8,000,000 Century Communications Corp. sr. sub. deb. 11 7/8s, 2003 8,540,000
6,000,000 CF Cable TV, Inc. sr. notes 11 5/8s, 2005 (Canada) 6,960,000
9,000,000 Charter Communications International disc. notes
stepped-coupon Ser. B, zero % (14s, 3/15/01), 2007 ++ 5,130,000
4,250,000 Charter Communications International sr. notes 11 1/4s, 2006 4,356,250
5,000,000 Comcast Corp. sr. sub. notes 9 1/2s, 2008 5,150,000
13,500,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005
(United Kingdom) ++ 9,416,250
8,242,339 Falcon Holdings Group, Inc. sr. sub. notes 11s, 2003
[2 DBL. DAGGERS] 7,335,682
950,000 Heartland Wireless Communication Inc.144A sr. notes 13s, 2003 992,750
4,000,000 Insight Communications Co. sr. sub. notes 11 1/4s, 2000 4,060,000
10,000,000 Marcus Cable Co. (L.P.) sr. disc. notes stepped-coupon
zero % (14 1/4s, 6/15/00), 2005 ++ 6,850,000
17,700,000 Marcus Cable Co. (L.P.) sr. sub. disc. notes
stepped-coupon zero % (13 1/2s, 8/1/99), 2004 ++ 13,872,375
6,000,000 Rogers Cablesystems Ltd. notes 11s, 2015 6,450,000
2,100,000 Sullivan Broadcasting sr. sub. notes 10 1/4s, 2005 2,128,875
580,000 Tele-Communications, Inc. sr. notes 7 3/8s, 2000 590,515
3,500,000 Telewest Communications PLC deb. 9 5/8s, 2006
(United Kingdom) 3,578,750
4,500,000 Tevecap S.A. 144A sr. notes 12 5/8s, 2004 (Brazil) 4,584,375
18,745,000 UIH Australia sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 5/15/01), 2006 ++ 9,841,125
4,500,000 Videotron Holdings sr. disc. notes stepped-coupon
zero % (11s, 8/15/2000), 2005 (United Kingdom) ++ 3,543,750
1,000,000 Wireless One, Inc. sr. notes 13s, 2003 1,020,000
--------------
160,139,197
Cellular Communications (4.2%)
- --------------------------------------------------------------------------------------------
5,550,000 Cellular, Inc. sr. sub. disc. notes stepped-coupon
zero % (11 3/4s, 9/1/98), 2003 ++ 4,995,000
55,970,000 Cencall Communications Corp. sr. disc. notes
stepped-coupon zero % (10 1/8s, 1/15/99), 2004 ++ 37,220,050
6,000,000 Centennial Cellular Corp. sr. notes 10 1/8s, 2005 6,015,000
14,000,000 Clearnet Communications, Inc. sr. disc. notes
stepped-coupon zero % (14 3/4s, 12/15/00), 2005 ++ 8,785,000
2,750,000 Commnet Cellular, Inc. bonds 11 1/4s, 2005 2,915,000
3,670,000 International Wireless Inc. 144A sr. disc. notes zero %, 2001 2,018,500
18,675,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/01), 2006
(Luxembourg) ++ 11,111,625
2,000,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero % (9 3/4s, 2/15/99), 2004 ++ 1,322,500
4,935,000 Orbcomm Global Capital Corp. 144A sr. notes 14s, 2004 4,897,988
9,000,000 Pricellular Wireless Corp. 144A sr. notes 10 3/4s, 2004 9,315,000
1,700,000 Western Wireless Corp. 144A sr. sub. notes 10 1/2s, 2007 1,751,000
--------------
90,346,663
Chemicals (2.0%)
- --------------------------------------------------------------------------------------------
5,000,000 Acetex Corp. sr. notes 9 3/4s, 2003 (Canada) 4,875,000
7,025,000 Arcadian Partner sr. notes 10 3/4s, 2005 7,824,094
1,500,000 Freedom Chemicals, Inc. 144A sr. sub. notes 10 5/8s, 2006 1,554,375
4,000,000 Harris Chemical Corp. sr. secd. disc. notes 10 1/4s, 2001 4,130,000
8,750,000 Harris Chemical Corp. sr. sub. notes 10 3/4s, 2003 8,903,125
3,250,000 ISP Holdings, Inc. 144A sr. notes 9 3/4s, 2002 3,355,625
4,115,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 ++ 2,304,400
1,220,000 Texas Petrochemical 144A sr. sub. notes 11 1/8s, 2006 1,305,400
7,000,000 Union Carbide Global Enterprises sr. sub. Ser. B, 12s, 2005 8,076,250
--------------
42,328,269
Computer Equipment (0.5%)
- --------------------------------------------------------------------------------------------
11,140,000 Computervision Corp. sr. sub. notes 11 3/8s, 1999 11,641,300
Computer Services (0.5%)
- --------------------------------------------------------------------------------------------
10,400,000 Unisys Corp. sr. notes 11 3/4s, 2004 10,868,000
Conglomerates (0.4%)
- --------------------------------------------------------------------------------------------
3,700,000 ADT Ltd. sr. sub. notes 9 1/4s, 2003 3,922,000
1,350,000 Congoleum Corp. sr. notes 9s, 2001 1,350,000
2,475,000 MacAndrews & Forbes Holdings, Inc. sub. deb.
notes 13s, 1999 2,475,000
--------------
7,747,000
Consumer Durable Goods (1.0%)
- --------------------------------------------------------------------------------------------
5,585,000 Icon Fitness Corp. 144A sr. disc. notes stepped-coupon
zero % (14s, 11/15/01), 2006 ++ 2,904,200
6,150,000 IHF Holdings, Inc. sr. disc. notes Ser. B, zero %
(15s, 11/15/99), 2004 ++ 4,735,500
1,520,000 Rayovac Corp. 144A sr. sub. notes 10 1/4s, 2006 1,558,000
12,765,000 Remington Products Co. sr. sub. notes Ser. B, 11s, 2006 11,839,538
--------------
21,037,238
Consumer Services (0.5%)
- --------------------------------------------------------------------------------------------
9,495,000 Coinmach Corp. sr. notes Ser. B, 11 3/4s, 2005 10,254,600
Containers (1.7%)
- --------------------------------------------------------------------------------------------
1,400,000 Amtrol, Inc. 144A sr. sub. notes 10 5/8s, 2006 1,410,500
5,000,000 Four M Corp. sr. notes Ser. B, 12s, 2006 5,237,500
8,075,000 Ivex Holdings Corp. sr. disc. deb. stepped-coupon
zero % (13 1/4s, 3/15/00), 2005 ++ 6,056,250
7,705,000 Ivex Packaging Corp. sr. sub. notes 12 1/2s, 2002 8,244,350
5,000,000 Owens Illinois, Inc. deb. 11s, 2003 5,531,250
925,000 Printpack, Inc. 144A sr. notes 10 5/8s, 2006 962,000
1,850,000 Printpack, Inc. 144A sr. notes 9 7/8s, 2004 1,914,750
6,665,000 US Can Corp. 144A sr. sub. notes 10 1/8s, 2006 6,964,925
--------------
36,321,525
Electric Utilities (5.1%)
- --------------------------------------------------------------------------------------------
3,000,000 Chesapeake Energy Corp. sr. notes 9 1/8s, 2006 3,105,000
2,300,000 Cleveland Electric Illuminating Co. 1st mtge.
Ser. B, 9 1/2s, 2005 2,487,335
1,250,000 Cleveland Electric Illuminating Co. 1st mtge. Ser. E, 9s, 2023 1,288,350
7,000,000 CTC Mansfield Funding deb. 11 1/8s, 2016 7,739,410
6,000,000 El Paso Electric Co. 1st mtge. Ser. D, 8.9s, 2006 6,346,380
6,925,000 El Paso Electric Co. 1st mtge. Ser. E, 9.4s, 2011 7,375,125
4,030,000 Empresa Distribuidora Norte 144A notes
9 3/4s, 2001 (Argentina) 4,135,788
4,288,000 First PV Funding deb. Ser. 86A, 10.3s, 2014 4,545,280
1,185,000 Hidro Pierda Aguila 144A bonds 10 5/8s, 2001 (Argentina) 1,202,775
12,879,000 Long Island Lighting Co. deb. 9s, 2022 13,150,489
3,000,000 Long Island Lighting Co. refunding mtge. notes 9 3/4s, 2021 3,082,500
1,350,000 Long Island Lighting Co. refunding mtge. notes 9 5/8s, 2024 1,385,438
16,660,000 Midland Funding Corp. deb. Ser. A, 11 3/4s, 2005 18,514,758
3,000,000 Midland Funding Corp. deb. Ser. B, 13 1/4s, 2006 3,542,280
5,000,000 Niagara Mohawk Power Corp. 1st mtge. 7 3/4s, 2006 4,723,550
2,500,000 Niagara Mohawk Power Corp. 1st mtge. 6 7/8s, 2001 2,384,675
9,900,000 Niagara Mohawk Power Corp. 1st mtge. 5 7/8s, 2002 8,895,843
7,275,000 Northeast Utilities System notes Ser. A, 8.58s, 2006 7,262,778
8,000,000 Texas New Mexico Pwr. deb. 12 1/2s, 1999 8,765,440
--------------
109,933,194
Electronics (1.7%)
- --------------------------------------------------------------------------------------------
10,050,000 Amphenol Corp. sr. sub. notes 12 3/4s, 2002 11,055,000
2,110,000 Celestica International Ltd. 144A sr. sub. notes
10 1/2s, 2006 (India) 2,178,575
2,501,122 Cirent Semiconductor 144A sr. sub. notes 10.22s, 2002 2,501,122
2,511,386 Cirent Semiconductor 144A sr. sub. notes 10.14s, 2004 2,511,386
24,260,000 International Semi-Tech. Corp. sr. secd. disc. notes
stepped-coupon zero % (11 1/2s, 8/15/00),
2003 (Canada) ++ 15,041,200
3,575,000 Motors and Gears Inc. 144A sr. notes Ser. A, 10 3/4s, 2006 3,655,438
--------------
36,942,721
Energy-Related (0.2%)
- --------------------------------------------------------------------------------------------
5,000,000 Calpine Corp. sr. notes 9 1/4s, 2004 4,887,500
Entertainment (0.5%)
- --------------------------------------------------------------------------------------------
2,135,000 Cobblestone Holdings Inc. sr. notes Ser. B, zero %, 2004 886,025
4,695,000 Guitar Center Management 144A sr. notes 11s, 2006 4,953,225
2,000,000 Premier Parks, Inc. sr. notes Ser. A, 12s, 2003 2,180,000
3,800,000 Six Flags Corp. sr. sub. notes stepped-coupon zero %
(12 1/4s, 6/15/98), 2005 ++ 3,496,000
--------------
11,515,250
Environmental Control (0.2%)
- --------------------------------------------------------------------------------------------
3,900,000 Allied Waste Industries, Inc. 144A sr. sub. notes 10 1/4s, 2006 3,992,625
Finance (0.8%)
- --------------------------------------------------------------------------------------------
11,265,000 MCII Holding (USA), Inc. bonds zero %
(12s,11/15/98), 2002 ++ 9,237,300
6,310,000 Ocwen Financial Corp. notes 11 7/8s, 2003 6,751,700
2,000,000 SRI Receivables Purchase 144A notes 12 1/2s, 2000 2,095,000
--------------
18,084,000
Financial Services (1.9%)
- --------------------------------------------------------------------------------------------
8,355,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 8,522,100
10,335,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 10,645,050
1,705,000 Dollar Financial Group Inc. 144A sr. notes 10 7/8s, 2006 1,732,706
2,100,000 First Federal Financial Corp. notes 11 3/4s, 2004 2,142,000
8,125,000 Keystone Group, Inc. sr. secd. notes 9 3/4s, 2003 8,775,000
2,750,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 2,942,500
2,800,000 Olympic Financial Ltd. sr. notes 13s, 2000 3,080,000
1,870,000 Outsourcing Solutions Inc. 144A sr. sub. notes 11s, 2006 1,949,475
750,000 PMI Acquisition Corp. sr. sub. notes 10 1/4s, 2003 763,125
--------------
40,551,956
Food Chains (--%)
- --------------------------------------------------------------------------------------------
500,000 Southland Corp. 1st priority sr. sub. deb. 5s, 2003 411,250
Food and Beverages (1.4%)
- --------------------------------------------------------------------------------------------
4,590,000 Canandaigua Wine Co. 144A sr. sub. notes 8 3/4s, 2003 4,435,088
908,000 Del Monte Corp. notes 12 1/4s, 2002 [2 DBL. DAGGERS] 908,000
6,525,000 Doane Products Co. sr. notes 10 5/8s, 2006 6,949,125
8,250,000 Foodmaker, Inc. sr. sub. notes 9 3/4s, 2002 8,208,750
5,000,000 Mafco, Inc. sr. sub. notes 11 7/8s, 2002 5,250,000
4,000,000 Specialty Foods Acquisition Corp. sr. sub. notes 11 1/4s, 2003 3,410,000
--------------
29,160,963
Funeral/Cemetery Services (0.1%)
- --------------------------------------------------------------------------------------------
1,740,000 Rose Hills Acquistion Corp. 144A sr. sub. notes 9 1/2s, 2004 1,761,750
Gaming (5.7%)
- --------------------------------------------------------------------------------------------
8,130,000 Argosy Gaming Co. 1st mtge. 13 1/4s, 2004 7,560,900
3,535,000 Arizona Charlies Corp. 1st mtge. Ser. B, 12s, 2000 2,474,500
6,500,000 Aztar Corp. sr. sub. notes 11s, 2002 5,996,250
740,000 Capitol Queen Corp. 1st mtge. notes Ser. B, 12s, 2000
(In default) + 555,000
15,115,000 Casino America, Inc. sr. notes 12 1/2s, 2003 14,661,550
4,710,000 Casino Magic Corp. 144A 1st mtge. 13s, 2003 4,662,900
10,000,000 Coast Hotels & Casino company guaranty Ser. B, 13s, 2002 10,750,000
891,000 Colorado Gaming & Entertainment Co. sr. notes 12s, 2003
[2 DBL. DAGGERS] 846,450
8,000,000 Grand Casinos, Inc. 1st mtge. 10 1/8s, 2003 8,060,000
6,290,000 Harveys Casino Resorts sr. sub. notes 10 5/8s, 2006 6,667,400
9,200,000 Hollywood Casino Corp. sr. notes 12 3/4s, 2003 8,464,000
7,250,000 Lady Luck Gaming 1st mtge. 11 7/8s, 2001 6,960,000
6,850,000 Mohegan Tribal Gaming sr. notes Ser. B, 13 1/2s, 2002 8,768,000
590,000 Pioneer Finance Corp. 1st mtge. 13 1/2s, 1998 531,000
10,396,000 Players International Inc. sr. notes 10 7/8s, 2005 10,292,040
12,000,000 Trump A.C. 1st mtge. 11 1/4s, 2006 11,340,000
3,078,000 Trump Castle notes 11 1/2s, 2000 3,108,780
9,400,000 Trump Holdings & Funding Corp. sr. notes 15 1/2s, 2005 10,716,000
--------------
122,414,770
Health Care (1.7%)
- --------------------------------------------------------------------------------------------
7,647,000 Abbey Healthcare Group Inc. sr. sub. deb. 9 1/2s, 2002 7,991,115
7,320,000 IMED Corp. sr. sub. notes 9 3/4s, 2006 7,393,200
5,400,000 Integrated Health Services sr. sub. notes 9 5/8s, 2002 5,521,500
2,000,000 Merit Behavioral Care sr. sub. notes 11 1/2s, 2005 2,120,000
12,530,000 Paracelsus Healthcare Corp. sr. sub. notes 10s, 2006 10,838,450
1,900,000 Quorum Health Group, Inc. sr. sub. notes 8 3/4s, 2005 1,952,250
--------------
35,816,515
Hospital Management (0.1%)
- --------------------------------------------------------------------------------------------
1,470,000 Genesis Health Ventures, Inc. 144A sr. sub. notes
9 1/4s, 2006 1,504,913
Insurance (1.1%)
- --------------------------------------------------------------------------------------------
11,450,000 American Life Holding Co. sr. sub. notes 11 1/4s, 2004 13,167,500
10,150,000 Reliance Group Holdings, Inc. sr. sub. deb. 9 3/4s, 2003 10,505,250
--------------
23,672,750
Leisure (0.1%)
- --------------------------------------------------------------------------------------------
1,170,000 Cobblestone Golf Group sr. notes Ser. B, 11 1/2s, 2003 1,219,725
Lodging (0.7%)
- --------------------------------------------------------------------------------------------
1,350,000 Eldorado Resorts LLC 144A sr. sub. notes 10 1/2s, 2006 1,417,500
14,105,000 Host Marriott Corp. sr. notes Ser. B, 9 1/2s, 2005 14,528,150
--------------
15,945,650
Media (1.0%)
- --------------------------------------------------------------------------------------------
795,000 Gray Communications System Inc. sr. sub. notes
10 5/8s, 2006 818,850
20,750,000 Viacom International, Inc. sub. deb. 8s, 2006 20,127,500
--------------
20,946,350
Medical Supplies and Devices (1.0%)
- --------------------------------------------------------------------------------------------
6,000,000 Dade International, Inc. 144A sr. sub. notes 11 1/8s, 2006 6,480,000
4,850,000 Graphic Controls Corp. sr. sub. notes Ser. A, 12s, 2005 5,310,750
9,030,000 Wright Medical Technology, Inc. sr. secd. notes
Ser. B, 10 3/4s, 2000 9,165,450
--------------
20,956,200
Metals and Mining (1.0%)
- --------------------------------------------------------------------------------------------
1,500,000 Ispat Mexicana S.A. deb. 10 3/8s, 2001 (Mexico) 1,545,000
500,000 Ispat Mexicana S.A. 144A deb. 10 3/8s, 2001 (Mexico) 515,000
3,700,000 NL Industries, Inc. sr. notes 11 3/4s, 2003 3,783,250
4,160,000 Renco Metals, Inc. sr. notes 11 1/2s, 2003 4,326,400
5,545,000 Royal Oak Mines Inc. company guaranty
Ser. B, 11s, 2006 (Canada) 5,711,350
5,320,000 WCI Steel, Inc. 144A sr. notes 10s, 2004 5,373,200
--------------
21,254,200
Motion Picture Distribution (1.1%)
- --------------------------------------------------------------------------------------------
2,279,500 Cinemark Mexico USA notes Ser. B, 13s, 2003 (Mexico)
[2 DBL. DAGGERS] 2,165,525
87,400 Cinemark Mexico USA notes Ser. D, 13s, 2003 (Mexico)
[2 DBL. DAGGERS] 83,030
11,205,000 Cinemark USA sr. sub. notes notes 9 5/8s, 2008 11,205,000
1,900,000 Cobb Theatres LLC company guaranty 10 5/8s, 2003 1,985,500
8,145,000 United Artists notes 11 1/2s, 2002 8,613,338
--------------
24,052,393
Networking (0.5%)
- --------------------------------------------------------------------------------------------
15,545,000 CellNet Data Systems, Inc. 144A sr. disc. notes
stepped-coupon zero % (13s, 6/15/00), 2005 ++ 10,104,250
Oil and Gas (4.4%)
- --------------------------------------------------------------------------------------------
2,725,000 Abraxas Petroleum Corp. 144A sr. notes 11 1/2s, 2004 2,827,188
9,650,000 Benton Oil & Gas Co. sr. notes 11 5/8s, 2003 10,615,000
11,500,000 Chesapeake Energy Corp. sr. notes 10 1/2s, 2002 12,535,000
920,000 Costilla Energy, Inc. sr. notes 10 1/4s, 2006 929,200
7,595,000 Flores & Rucks Corp. sr. sub. notes 9 3/4s, 2006 7,993,738
2,715,000 Forcenergy, Inc. sr. sub. notes 9 1/2s, 2006 2,840,569
5,000,000 Gulf Canada Resources, Ltd. sr. sub. notes
9 5/8s, 2005 (Canada) 5,468,750
2,800,000 Gulf Canada Resources, Ltd. sr. sub. deb.
9 1/4s, 2004 (Canada) 2,978,500
5,000,000 HS Resources, Inc. 144A sr. sub. notes 9 1/4s, 2006 5,075,000
2,380,000 Kelley Oil & Gas Corp. 144A sr. sub. notes 10 3/8s, 2006 2,427,600
4,500,000 Maxus Energy Corp. deb. 11 1/2s, 2015 4,725,000
1,000,000 Maxus Energy Corp. global notes 9 7/8s, 2002 1,030,000
5,170,000 Maxus Energy Corp. notes 9 1/2s, 2003 5,144,150
500,000 Maxus Energy Corp. notes 9 3/8s, 2003 510,000
2,890,000 Parker Drilling Co. 144A company guaranty 9 3/4s, 2006 2,991,150
5,500,000 Transamerican Refining Corp. 1st mtge. variable rate
Ser. 2, 16 1/2s, (16s, 8/15/98), 2002 5,445,000
1,250,000 Transamerican Refining Corp. 1st mtge. stepped-coupon
Ser. 1, zero % (18 1/2s, 2/15/98), 2002 ++ 1,015,625
18,750,000 Transtexas Gas Corp. sr. secd. notes 11 1/2s, 2002 20,343,750
--------------
94,895,220
Paging (1.8%)
- --------------------------------------------------------------------------------------------
9,320,000 Arch Communications Group sr. disc. notes
stepped-coupon zero % (10 7/8s, 3/15/01), 2008 ++ 5,359,000
7,500,000 Metrocall, Inc. sr. sub. notes 10 3/8s, 2007 6,600,000
14,000,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 14,490,000
4,500,000 Paging Network, Inc. sr. sub. notes 10 1/8s, 2007 4,511,250
8,590,000 Paging Network, Inc. 144A sr. sub. notes 10s, 2008 8,590,000
--------------
39,550,250
Paper and Forest Products (3.8%)
- --------------------------------------------------------------------------------------------
8,300,000 APP International Finance Co. notes 11 3/4s,
2005 (Netherlands) 8,818,750
5,325,000 Domtar, Inc. notes 8 3/4s, 2006 (Canada) 5,644,500
14,500,000 Florida Coast Paper LLC 1st mtge. Ser. B, 12 3/4s, 2003 15,370,000
3,750,000 Gaylord Container Corp. sr. notes 11 1/2s, 2001 3,993,750
5,200,000 Rainy River Forest Products sr. notes 10 3/4s,
2001 (Canada) 5,642,000
18,135,000 Repap New Brunswick sr. notes 10 5/8s,
2005 (Canada) 17,590,950
15,000,000 Riverwood International company guranty 10 7/8s, 2008 13,500,000
6,000,000 Stone Container Corp. sr. notes 11 7/8s, 2016 6,300,000
4,000,000 Stone Container Corp. sr. notes 11 1/2s, 2004 4,160,000
1,950,000 Stone Container Corp. 1st mtge. 10 3/4s, 2002 2,020,688
--------------
83,040,638
Publishing (0.2%)
- --------------------------------------------------------------------------------------------
2,000,000 American Media Operation, Inc. sr. sub. notes 11 5/8s, 2004 2,135,000
3,000,000 Park Newspapers, Inc. sr. notes 11 7/8s, 2004 3,457,500
--------------
5,592,500
REIT's (Real Estate Investment Trust) (0.1%)
- --------------------------------------------------------------------------------------------
2,100,000 Tanger Properties L.P. Gtd. notes 8 3/4s, 2001 2,132,214
Recreation (0.3%)
- --------------------------------------------------------------------------------------------
950,000 Grate Bay Property Funding Corp. 1st mtge. 10 7/8s, 2004 817,000
6,219,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 5,099,580
--------------
5,916,580
Restaurants (0.1%)
- --------------------------------------------------------------------------------------------
1,420,000 AmeriKing. Inc. sr. notes 10 3/4s, 2006 1,448,400
Retail (2.3%)
- --------------------------------------------------------------------------------------------
2,500,000 Brylane (L.P.) sr. sub. notes 10s, 2003 2,568,750
1,600,000 Ethan Allen Interiors Inc. sr. notes 8 3/4s, 2001 1,662,000
4,143,000 Finlay Enterprises, Inc. sr. disc. deb. stepped-coupon
zero % (12s, 5/1/98), 2005 ++ 3,552,623
3,275,000 Finlay Enterprises, Inc. sr. notes 10 5/8s, 2003 3,324,125
2,000,000 K mart Corp. deb. 8 3/8s, 2022 1,620,000
400,000 K mart Corp. med. term notes 8.19s, 2003 363,604
1,000,000 K mart Corp. med. term notes 7 3/8s, 2000 928,620
1,400,000 K mart Corp. med. term notes 7.24s, 1999 1,324,288
3,000,000 K mart Corp. med. term notes 7.17s, 2000 2,763,270
4,100,000 K mart Corp. med. term notes 7.01s, 2000 3,754,944
1,500,000 K mart Corp. med. term notes 6.78s, 1999 1,400,865
1,500,000 K mart Corp. med. term notes 8.18s, 2003 1,362,780
7,550,000 Loehmanns, Inc. sr. notes 11 7/8s, 2003(acquired various
dates from 5/7/96 to 5/14/96, cost $7,695,625)[DBL. DAGGER] 8,003,000
8,500,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 8,670,000
1,000,000 Parisian, Inc. sr. sub. notes 9 7/8s, 2003 1,005,000
4,700,000 Phar-Mor, Inc. sr. notes 11.72s, 2002 4,876,250
1,500,000 Specialty Retailers, Inc. sr. sub. notes 11s, 2003 1,560,000
1,000,000 Waban, Inc. sr. sub. notes 11s, 2004 1,120,000
--------------
49,860,119
Shipping (0.3%)
- --------------------------------------------------------------------------------------------
1,990,000 Newport News Shipbuilding 144A sr. notes 8 5/8s, 2006 2,025,820
1,770,000 Newport News Shipbuilding 144A sr. sub. notes
9 1/4s, 2006 1,813,365
2,000,000 Transport Maritima Mexicana S.A. de CV sr. notes
10s, 2006 (Mexico) 1,992,500
--------------
5,831,685
Specialty Consumer Products (0.3%)
- --------------------------------------------------------------------------------------------
2,415,000 Genesco, Inc. sr. notes 10 3/8s, 2003 2,390,850
5,000,000 Herff Jones, Inc. sr. sub. notes 11s, 2005 5,375,000
--------------
7,765,850
Supermarkets (1.0%)
- --------------------------------------------------------------------------------------------
2,000,000 Eagle Food Centers. Inc. sr. notes 8 5/8s, 2000 1,910,000
3,000,000 Ralphs Grocery Co. company guaranty 10.45s, 2004 3,120,000
8,000,000 Ralphs Grocery Co. sr. sub. notes 11s, 2005 8,140,000
4,000,000 Smiths Food & Drug Centers sr. sub. notes 11 1/4s, 2007 4,360,000
4,505,000 Stater Brothers sr. notes 11s, 2001 4,820,350
--------------
22,350,350
Telecommunications (8.4%)
- --------------------------------------------------------------------------------------------
7,045,000 American Communication Services, Inc. sr. disc. notes
stepped-coupon zero % (12 3/4s, 4/1/01), 2006 ++ 3,804,300
2,920,000 Brooks Fiber Properties, Inc. 144A sr. disc. notes
stepped-coupon zero % (11 7/8s, 11/1/01), 2006 ++ 1,846,900
16,500,000 Brooks Fiber Properties, Inc. sr. disc. notes
stepped-coupon zero % (10 7/8s, 3/1/01), 2006 ++ 10,807,500
2,400,000 Celcaribe S.A. sr. notes stepped-coupon zero %
(13 1/2s, 3/15/98), 2004 ++ 2,004,000
6,000,000 Fonorola, Inc. sr. notes 12 1/2s, 2002 (Canada) 6,525,000
1,970,000 Frontiervision Operating Partners L.P. sr. sub.
notes 11s, 2006 1,960,150
24,848,000 GST Telecommunications, Inc. company guaranty
stepped-coupon zero % (13 7/8s, 15/15/00), 2005 ++ 14,411,840
3,285,000 Hyperion Telecommunication sr. disc. notes
stepped-coupon Ser. B, zero % (13s, 4/15/01), 2003 ++ 1,905,300
19,565,000 ICG Holding Inc. company guaranty stepped-coupon
zero % (12 1/2s, 5/1/01), 2006 ++ 12,521,600
34,500,000 ICG Holding Inc. sr. disc. notes stepped-coupon
zero % (13 1/2s, 9/15/00), 2005 ++ 23,805,000
14,000,000 Intermedia Communications of Florida, Inc. sr. disc.
notes stepped-coupon zero % (12 1/2s, 5/15/01),
2006 ++ 9,135,000
5,000,000 Intermedia Communications of Florida, Inc. sr. notes
Ser. B, 13 1/2s, 2005 5,725,000
33,750,000 International Cabletel, Inc. sr. notes stepped-coupon
Ser. B, zero % (11 1/2s, 2/01/01),
2006 (United Kingdom) ++ 21,600,000
10,000,000 Mobilemedia notes 7 1/2s, 2026 (acquired 11/7/96,
cost $9,350,000)[DBL. DAGGER] ## 9,000,000
10,500,000 Nextlink Communications sr. notes 12 1/2s, 2006 11,051,250
7,500,000 Omnipoint Corp. 144A sr. notes Ser. A 11 5/8s, 2006 7,893,750
2,480,000 Omnipoint Corp. 144A sr. notes 11 5/8s, 2006 2,610,200
5,000,000 Pricellular Wireless Corp. sr. disc. notes stepped-coupon
zero % (12 1/4s, 10/1/98), 2003 ++ 4,212,500
7,000,000 Rogers Cantel, Inc. deb. 9 3/8s, 2008 (Canada) 7,350,000
30,250,000 Teleport Communications Group Inc. sr. disc. notes
stepped-coupon zero % (11 1/8s, 7/1/01), 2007 ++ 20,494,375
5,000,000 Winstar Communications, Inc. 144A stepped-coupon
zero % (14s, 10/15/00), 2005 ++ 2,900,000
--------------
181,563,665
Textiles (0.8%)
- --------------------------------------------------------------------------------------------
6,375,000 Day International Group, Inc. sr. sub. notes 11 1/8s, 2005 6,757,500
4,000,000 Polysindo International Eka company guaranty
13s, 2001 (Indonesia) 4,475,000
4,645,000 Polysindo International Finance company guaranty
11 3/8s, 2006 (Indonesia) 4,993,375
950,000 Reeves Industries Inc. bonds 11s, 2002 914,375
--------------
17,140,250
--------------
Total Corporate Bonds and Notes (cost $1,808,043,941) $1,859,962,849
BRADY BONDS (3.3%) *
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------
$23,054,000 Argentina (Republic of) FRB Ser. L-D 6.375s, 2023 $17,492,223
8,413,364 Brazil (Republic of) FRB 8s, 2014[PIE WEDGE] 6,162,790
25,044,000 Brazil (Republic of) FRB 6.5s, 2024 19,033,440
4,853,000 Ecuador (Government of) FRN 6.5s, 2025 3,372,835
23,839,000 United Mexican States deb. Ser. B, 6 1/4s, 2019 17,611,061
9,750,000 Venezuela (Government of) FRN, 6.625s, 2007 8,409,375
--------------
Total Brady Bonds (cost $72,933,641) $72,081,724
PREFERRED STOCKS (3.3%) *
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------
21,000 Alliance Gaming Corp. Ser. B, $15.00 pfd. [2 DBL. DAGGERS] $1,974,000
186,615 Cablevision Systems Ser. M, $11.125 dep. shs. pfd. 16,422,120
66,300 California Federal Bank Ser. B, $10.625 exch. pfd. 7,259,850
131,680 Chevy Chase Capital Corp. Ser. A, $10.38 pfd. 6,748,600
50,000 Chevy Chase Savings Bank $13.00 pfd. 1,625,000
116,495 Diva Systems Corp. Ser. C, $6.00 pfd. 1,019,331
21,685 El Paso Electric Co. $11.40 pfd [2 DBL. DAGGERS] 2,385,350
5,270 Fresenius Medical Care Ser. D, $9.00 pfd. 5,362,225
6,630 Paxson Communications Corp. $12.50 pfd. [2 DBL. DAGGERS] 6,298,500
22,194 Time Warner Inc. Ser. M, $10.25 pfd. [2 DBL. DAGGERS] 23,886,293
--------------
Total Preferred Stocks (cost $72,744,625) $72,981,269
<CAPTION>
FOREIGN GOVERNMENT BONDS AND NOTES (1.6%) *
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
USD 914,000 Morocco (Government of) FRN 3.318s, 2009 $740,340
USD 49,562,000 Bank of Foreign Economic Affairs of Russia
(Vnesheconombank) principal loan 144A
8s, 2020 +##[2 DBL. DAGGERS] 28,807,913
USD 4,827,000 Bank of Foreign Economic Affairs of Russia
(Vnesheconombank) interest notes 144A
8s, 2015 +##[2 DBL. DAGGERS] 3,324,596
USD 3,315,000 United Mexican States bonds 11 1/2s, 2026 3,464,175
--------------
Total Foreign Government Bonds and Notes
(cost $32,701,152) $36,337,024
<CAPTION>
COMMON STOCKS (1.8%) *
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
150,000 Aztar Corp. + $1,087,500
2,135 Cobblestone Holdings Inc. + 21,350
131,050 Colorado Gaming & Entertainment Co. + 556,963
349,854 Computervision Corp. + 3,323,613
60,000 Dr Pepper Bottling Holdings, Inc. Class A + 180,000
315,000 Exide Corp. 8,032,500
322,554 Grand Union Co. (acquired 8/18/95, cost $14,142,875)
[DBL. DAGGER]+ 1,854,686
119,400 GST Telecommunications, Inc. (Canada) + 1,134,300
65,000 Intermedia Communications, Inc. + 1,933,750
545,000 NEXTEL Communications, Inc. Class A + 8,175,000
2,141 PMI Holdings Corp. 144A + 471,020
1,730 Premium Holdings L.P. 144A + 8,648
707,186 PSF Holdings LLC Class A+ 12,022,162
85,200 Specialty Foods Corp. + 63,900
12,840 Terex Corp. Rights expiration date 5/15/00 + 25,680
19,703 UCC Investors Holding, Inc. (acquired 3/28/94,
cost $275,842)[DBL. DAGGER] 295,545
--------------
Total Common Stocks (cost $66,805,127) $39,186,617
CONVERTIBLE BONDS AND NOTES (1.7%) *
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------
$1,975,000 Argosy Gaming cv. sub. notes 12s, 2001 $1,651,594
14,500,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 8,700,000
3,106,000 GST Telecommunications, Inc. cv. sr. disc. notes
stepped-coupon zero % (13 7/8s, 15/15/00), 2005 2,888,580
2,750,000 Integrated Device Technology, Inc. cv. sub. notes
5 1/2s, 2002 2,402,813
1,780,000 National Semiconductor Corp. cv. deb. 6 1/2s, 2002 1,751,075
7,543,000 Pricellular Wireless Corp. 144A cv. sub. notes
stepped-coupon zero % (10 3/4s, 8/15/00), 2004 ++ 7,165,850
5,200,000 Protection One Alarm cv. sr. sub. notes 6 3/4s, 2003 4,823,000
2,750,000 VLSI Technology, Inc. cv. sub. notes 8 1/4s, 2005 2,684,688
5,610,000 Winstar Communications. Inc., cv. sr. disc. notes zero %,
2005 3,702,600
--------------
Total Convertible Bonds and Notes (cost $32,959,383) $35,770,200
UNITS (1.9%) *
NUMBER OF UNITS VALUE
- -------------------------------------------------------------------------------------------
445 AmeriKing, Inc. units zero %, 2008 $471,700
8,190 Australis Media units stepped-coupon zero %
(14s, 5/15/2000), 2003 (Australia) ++ 4,463,550
5,390 Diva Systems Corp. 144A units stepped-coupon zero %
(13s, 5/15/01), 2006 ++ 3,072,300
6,590 Fitzgerald Gaming Co. units 13s, 2002 5,008,400
6,490 Interact Systems, Inc. 144A units stepped-coupon zero %
(14s, 8/1/99), 2003 ++ 4,413,200
2,785 Intercel, Inc. unit stepped-coupon zero %
(12s, 2/1/01), 2006 ++ 16,710,000
2,880 Real Time Data 144A units stepped-coupon zero %
(13 1/2s, 8/15/01), 2006 ++ 1,555,200
8,810 Wireless One Inc. units stepped-coupon zero %
(13 1/2s, 8/1/01), 2006 ++ 4,316,900
--------------
Total Units (cost $42,046,298) $40,011,250
<CAPTION>
WARRANTS (0.2%) *+ EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
92,500 Becker Gaming Corp. 144A 11/15/00 $23,125
32,988 Capital Gaming International, Inc. 2/1/99 1,320
8,904 Casino America, Inc. 5/3/01 8,904
62,180 Cellnet Data Systems 6/15/00 1,927,580
46,200 ClearNet Communications, Inc. 144A 9/15/05 311,850
5,000 County Seat Holdings, Inc. 10/15/98 50
49,560 Heartland Wireless Communications, Inc. 144A 4/15/00 247,800
3,285 Hyperion Telecommunication 144A 4/15/01 65,700
97,350 Intelcom Group 9/15/05 1,508,925
5,000 Intermedia Communications 144A 6/1/00 250,000
3,670 International Wireless Inc. 8/15/01 37
12,730 NEXTEL Communications, Inc. 12/15/98 255
33,580 Pagemart, Inc. 144A 12/31/03 277,035
11,999 Petracom Holdings, Inc. 8/1/05 85,493
30,905 President Riverboat Casinos, Inc. 9/30/99 15,452
2,365 Sterling Chemicals Holdings 8/15/08 82,775
240 Telemedia Broadcasting Corp. 4/1/04 179,930
3,000 Wireless One, Inc. 10/19/00 3,000
668 Wright Medical Technology, Inc. 144A 6/30/03 86,870
--------------
Total Warrants (cost $3,628,334) $5,076,101
<CAPTION>
SHORT-TERM INVESTMENTS (0.5%)*
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MXP 18,580,130 Mexican Treasury Bill zero%, June 5, 1997 $2,388,149
$7,448,000 Interest in $732,975,000 joint repurchase
agreement dated November 29, 1996 with
Morgan (J.P.) & Co., Inc. due December 2, 1996
with respect to various U.S. Treasury obligations --
maturity value of $7,451,492 for an effective
yield of 5.60% 7,450,328
--------------
Total Short-Term Investments (cost $9,799,270) $9,838,477
- -------------------------------------------------------------------------------------------
Total Investments (cost $2,141,661,771) *** $2,171,245,511
- -------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $2,159,304,522.
*** The aggregate identified cost on a tax basis is $2,142,093,115,
resulting in gross unrealized appreciation and depreciation
of $127,302,505 and $98,150,109, respectively, or net unrealized appreciation
of $29,152,396.
+ 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.
[DBL. DAGGER] Restricted, excluding 144A securities, as to public resale. The total market value of
restricted securities held at November 30, 1996 was $19,153,231 or less than 1.0%
of net assets.
[2 DBL. DAGGERS] Income may be received in cash or additional securities at the discretion of the issuer.
[PIE WEDGE] A portion of the income will be received in additional securities.
## When issued security.
144A after the name of a security represents those exempt from registration under Rule
144A of the Securities Act of 1933. These securities may be resold in transactions
exempt from registration, normally to qualified institutional buyers.
The rate shown on FRB and FRN are the current interest rates shown at November 30, 1996,
which are subject to change based on the terms of the security.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
November 30, 1996
<S> <C>
Assets
- ----------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $2,141,661,771) (Note 1) $2,171,245,511
- ----------------------------------------------------------------------------------------
Cash 11,342,326
- ----------------------------------------------------------------------------------------
Dividends, interest and other receivables 40,180,213
- ----------------------------------------------------------------------------------------
Receivable for shares of the fund sold 7,833,049
- ----------------------------------------------------------------------------------------
Receivable for securities sold 6,528,671
- ----------------------------------------------------------------------------------------
Total assets 2,237,129,770
Liabilities
- ----------------------------------------------------------------------------------------
Payable for securities purchased 71,212,521
- ----------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,608,332
- ----------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 2,770,863
- ----------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 300,544
- ----------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 21,391
- ----------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 9,832
- ----------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,214,874
- ----------------------------------------------------------------------------------------
Payable for closed forward currency contracts 30,077
- ----------------------------------------------------------------------------------------
Other accrued expenses 656,814
- ----------------------------------------------------------------------------------------
Total liabilities $77,825,248
- ----------------------------------------------------------------------------------------
Net assets $2,159,304,522
Represented by
- ----------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) 2,227,534,300
- ----------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (153,344)
- ----------------------------------------------------------------------------------------
Accumulated net realized loss on investment and foreign
currency transactions (Note 1) (97,660,123)
- ----------------------------------------------------------------------------------------
Net unrealized appreciation of investments 29,583,689
- ----------------------------------------------------------------------------------------
Total - Representing net assets applicable to
capital shares outstanding $2,159,304,522
Computation of net asset value and offering price
- ----------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,071,701,528 divided by 111,082,428 shares) $9.65
- ----------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $9.65)* $10.13
- ----------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($623,096,856 divided by 64,815,361 shares)** $9.61
- ----------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($464,506,138 divided by 48,197,000 shares) $9.64
- ----------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $9.64)* $9.96
- ----------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or
more and on group sales the offering price is reduced.
** Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended November 30, 1996
<S> <C>
Investment income:
- ----------------------------------------------------------------------------------------
Interest $152,976,744
- ----------------------------------------------------------------------------------------
Dividends 2,494,935
- ----------------------------------------------------------------------------------------
Total investment income 155,471,679
Expenses:
- ----------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 9,236,284
- ----------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 2,069,199
- ----------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 56,041
- ----------------------------------------------------------------------------------------
Administrative services (Note 2) 29,468
- ----------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 2,412,906
- ----------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 4,564,217
- ----------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 435,861
- ----------------------------------------------------------------------------------------
Reports to shareholders 98,975
- ----------------------------------------------------------------------------------------
Registration fees 332,232
- ----------------------------------------------------------------------------------------
Auditing 87,039
- ----------------------------------------------------------------------------------------
Legal 162,590
- ----------------------------------------------------------------------------------------
Postage 424,887
- ----------------------------------------------------------------------------------------
Other 185,589
- ----------------------------------------------------------------------------------------
Total expenses 20,095,288
- ----------------------------------------------------------------------------------------
Expense reduction (Note 2) (582,271)
- ----------------------------------------------------------------------------------------
Net expenses 19,513,017
- ----------------------------------------------------------------------------------------
Net investment income 135,958,662
- ----------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 19,433,210
- ----------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (738,066)
- ----------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the year 3,708
- ----------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 7,203,144
- ----------------------------------------------------------------------------------------
Net gain on investments 25,901,996
- ----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $161,860,658
- ----------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended November 30
-------------------------------------
1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------
Net investment income $135,958,662 $94,058,310
- ----------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and
foreign currency transactions 18,695,144 (31,075,100)
- ----------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 7,206,852 75,579,138
- ----------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 161,860,658 138,562,348
- ----------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------
From net investment income
Class A (90,491,621) (81,579,408)
- ----------------------------------------------------------------------------------------------------------
Class B (39,385,557) (13,725,209)
- ----------------------------------------------------------------------------------------------------------
Class M (7,710,205) (955,481)
- ----------------------------------------------------------------------------------------------------------
In excess of net investment income
Class A (100,855) --
- ----------------------------------------------------------------------------------------------------------
Class B (43,896) --
- ----------------------------------------------------------------------------------------------------------
Class M (8,593) --
- ----------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 956,420,816 446,350,218
- ----------------------------------------------------------------------------------------------------------
Total increase in net assets 980,540,747 488,652,468
- ----------------------------------------------------------------------------------------------------------
Net assets
- ----------------------------------------------------------------------------------------------------------
Beginning of year 1,178,763,775 690,111,307
- ----------------------------------------------------------------------------------------------------------
End of year (including distributions in excess of
net investment income of $153,344 and undistributed
net investment income of $1,451,218, respectively) $2,159,304,522 $1,178,763,775
- ----------------------------------------------------------------------------------------------------------
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
December 1, 1994
(commencement
Year ended of operations) Year ended
November 30 to November 30 November 30
- -------------------------------------------------------------------------------------------
1996 1995 1996 1995
- -------------------------------------------------------------------------------------------
Class M Class B
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $9.51 $9.05 $9.49 $9.05
- -------------------------------------------------------------------------------------------
Investment operations
- -------------------------------------------------------------------------------------------
Net investment income .87 .99 .82 .92
- -------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .14 .45 .13 .45
- -------------------------------------------------------------------------------------------
Total from investment operations 1.01 1.44 .95 1.37
- -------------------------------------------------------------------------------------------
Distributions to shareholders:
- -------------------------------------------------------------------------------------------
From net investment income (.88) (.98) (.83) (.93)
- -------------------------------------------------------------------------------------------
In excess of net investment income --(c) -- --(c) --
- -------------------------------------------------------------------------------------------
Total distributions (.88) (.98) (.83) (.93)
- -------------------------------------------------------------------------------------------
Net asset value,
end of period $9.64 $9.51 $9.61 $9.49
- -------------------------------------------------------------------------------------------
Total investment return at
net asset value (%)(a) 11.15 16.72 10.52 15.94
- -------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $464,506 $20,077 $623,097 $287,877
- -------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)(b) 1.36 1.35 1.84 1.85
- -------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets (%) 8.86 10.06 8.50 9.61
- -------------------------------------------------------------------------------------------
Portfolio turnover (%) 74.47 89.96 74.47 89.96
- -------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (Continued)
(For a share outstanding throughout the period)
For the period
May 16, 1994
(commencement
of operations) Year ended
to November 30 November 30
- -------------------------------------------------------------------------------------------
1994 1996 1995 1994
- -------------------------------------------------------------------------------------------
Class A
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $9.83 $9.52 $9.07 $10.41
- -------------------------------------------------------------------------------------------
Investment operations
- -------------------------------------------------------------------------------------------
Net investment income .48 .89 1.00 .98
- -------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.77) .14 .45 (1.30)
- -------------------------------------------------------------------------------------------
Total from investment operations (.29) 1.03 1.45 (.32)
- -------------------------------------------------------------------------------------------
Distributions to shareholders:
- -------------------------------------------------------------------------------------------
From net investment income (.49) (.90) (1.00) (1.02)
- -------------------------------------------------------------------------------------------
In excess of net investment income -- --(c) -- --
- -------------------------------------------------------------------------------------------
Total distributions (.49) (.90) (1.00) (1.02)
- -------------------------------------------------------------------------------------------
Net asset value,
end of period $9.05 $9.65 $9.52 $9.07
- -------------------------------------------------------------------------------------------
Total investment return at
net asset value (%)(a) (3.12)* 11.38 16.81 (3.43)
- -------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $37,017 $1,071,702 $870,810 $653,094
- -------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)(b) 1.02* 1.09 1.12 1.03
- -------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets (%) 7.47* 9.24 10.35 10.87
- -------------------------------------------------------------------------------------------
Portfolio turnover (%) 69.61 74.47 89.96 69.61
- -------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (Continued)
(For a share outstanding throughout the period)
Year ended November 30
- ---------------------------------------------------------------
1993 1992
- ---------------------------------------------------------------
Class A
- ---------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $9.74 $9.30
- ---------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------
Net investment income 1.13 1.23
- ---------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .70 .42
- ---------------------------------------------------------------
Total from investment operations 1.83 1.65
- ---------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------
From net investment income (1.15) (1.21)
- ---------------------------------------------------------------
In excess of net investment income (.01) --
- ---------------------------------------------------------------
Total distributions (1.16) (1.21)
- ---------------------------------------------------------------
Net asset value,
end of period $10.41 $9.74
- ---------------------------------------------------------------
Total investment return at
net asset value (%)(a) 19.88 18.44
- ---------------------------------------------------------------
Net assets, end of period
(in thousands) $742,472 $484,520
- ---------------------------------------------------------------
Ratio of expenses to average
net assets (%)(b) .96 1.14
- ---------------------------------------------------------------
Ratio of net investment income to
average net assets (%) 11.04 12.40
- ---------------------------------------------------------------
Portfolio turnover (%) 50.89 68.29
- ---------------------------------------------------------------
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does
not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended
November 30, 1995 and thereafter, includes amounts paid through
expense offset arrangements. Prior period ratios exclude these
amounts. (Note 2)
(c) Distributions in excess of net investment income were less than $0.01
per share.
</TABLE>
Notes to financial statements
November 30, 1996
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 through a diversified portfolio of high-
yielding, lower-rated corporate bonds. Capital growth is a secondary
objective when consistent with the objective of a high current income.
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 -- the last reported bid
price. Securities quoted in foreign currencies are translated into U.S.
dollars at the current exchange rate. Short-term investments having
remaining maturities of 60 days or less are stated at amortized cost,
which approximates market value, and other investments, including
restricted securities, are stated at fair value following procedures
approved by the Trustees. Market quotations are not considered to be
readily available for long-term corporate bonds and notes; such
investments are stated at fair value on the basis of valuations
furnished by a pricing service, approved by the Trustees, which
determines valuations for normal, institutional-size trading units of
such securities using methods based on market transactions for
comparable securities and various relationships between securities which
are generally recognized by institutional traders.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested
cash balances into a joint trading account along with the cash of other
registered investment companies and certain other accounts managed by
Putnam Investment Management, Inc. ("Putnam Management"), the fund's
Manager, a wholly-owned subsidiary of Putnam Investments, Inc.. These
balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be in an
amount at least equal to the resale price, including accrued interest.
Putnam Management is responsible for determining that the value of these
underlying securities is at all times at least equal to the resale
price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed).
Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date, except that certain dividends from
foreign securities are recorded as soon as the fund is informed of the
ex-dividend date. Discounts on zero coupon bonds, original issue,
stepped-coupon bonds and payment in kind bonds are accreted according to
the effective yield method.
Securities purchased or sold on a when-issued or delayed delivery basis
may be settled a month or more after the trade date; interest income is
accrued based on the terms of the security. Losses may arise due to
changes in the market value of the underlying securities or if the
counterparty does not perform under the contract.
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
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 nor for excise tax on income and capital
gains.
At November 30, 1996, the fund had a capital loss carryover of
approximately $97,229,000 available to offset future capital gains,
if any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
------------------ ------------------
$30,776,000 November 30, 1998
15,409,000 November 30, 1999
16,967,000 November 30, 2002
34,077,000 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. These differences include treatment of
losses on wash sale transactions, realized and unrealized gains and
losses on forward foreign currency contracts, currency gains and losses
on foreign bonds, defaulted bond interest, amortization of bond premium,
interest on payment-in-kind securities. Reclassifications are made to
the fund's capital accounts to reflect income and gains available for
distribution (or available capital loss carryovers) under income tax
regulations. For the year ended November 30, 1996, the fund reclassified
$177,503 to decrease distributions in excess of net investment income
and $487,047 to decrease paid-in-capital, with a decrease to accumulated
net realized loss on investments of $309,544. The calculation of net
investment income per share in the financial highlights table excludes
these adjustments.
Note 2
Management fees, administrative services, and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on the following annual rates: 0.70% of the
first $500 million, 0.60% of the next $500 million, 0.55% of the next
$500 million, 0.50% of any amount over $1.5 billion.
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.
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 year ended November 30, 1996, fund expenses were reduced by
$582,271 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.
Trustees of the fund receive an annual Trustees fee of $2,420 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 in the fund
and are invested in certain Putnam funds until distribution in
accordance with the Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total compensation for
the three years preceding retirement. Pension expense for the fund is
included in Compensation of trustees in the Statement of operations.
Accrued pension liability is included in Payable for compensation of
Trustees in the Statement of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of
Putnam Investments Inc., for services provided and expenses incurred by
it in distributing shares of the fund. The Plans provide for payments by
the fund to Putnam Mutual Funds Corp. at an annual rate up to 0.35%,
1.00% and 1.00% of the average net assets attributable to class A, class
B and class M shares, respectively. The Trustees 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 year ended November 30, 1996, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $782,688 and $42,006 from the
sale of class A and class M shares, respectively and $979,424 in
contingent deferred sales charges from redemptions of class B shares. A
deferred sales charge of up to 1% is assessed on certain redemptions of
class A shares. For the year ended November 30, 1996, Putnam Mutual
Funds Corp., acting as underwriter received $40,402 on class A
redemptions.
Note 3
Purchase and sales of securities
During the year ended November 30, 1996, purchases and sales of
investment securities other than short-term investments aggregated
$2,063,749,665 and $1,098,358,479, respectively. There were no purchases
and sales of U.S. government obligations. In determining the net gain or
loss on securities sold, the cost of securities has been determined on
the identified cost basis.
Note 4
Capital shares
At November 30, 1996, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Year ended
November 30, 1996
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 47,193,610 $451,272,043
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 4,702,689 44,772,621
- ----------------------------------------------------
51,896,299 496,044,664
Shares
repurchased (32,325,152) (309,244,808)
- ----------------------------------------------------
Net increase 19,571,147 $186,799,856
- ----------------------------------------------------
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
- ----------------------------------------------------
Year ended
November 30, 1996
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 44,638,934 $425,459,899
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 1,790,363 16,975,750
- ----------------------------------------------------
46,429,297 442,435,649
Shares
repurchased (11,949,679) (113,790,264)
- ----------------------------------------------------
Net increase 34,479,618 $328,645,385
- ----------------------------------------------------
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
- ----------------------------------------------------
Year ended
November 30, 1996
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 46,977,814 $449,474,407
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 200,933 1,909,357
- ----------------------------------------------------
47,178,747 451,383,764
Shares
repurchased (1,092,778) (10,408,189)
- ----------------------------------------------------
Net increase 46,085,969 $440,975,575
- ----------------------------------------------------
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
- ----------------------------------------------------
Federal tax information
(Unaudited)
The fund has designated 1.83% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
Results of October 31, 1996 shareholder meeting
A meeting of shareholders of the fund was held on October 31, 1996. At
the meeting, each of the nominees for Trustees was elected, as follows:
Votes
Votes for witheld
Jameson Adkins Baxter 94,812,593 2,254,270
Hans H. Estin 94,719,564 2,347,299
John A. Hill 94,835,037 2,231,826
Ronald J. Jackson 94,787,452 2,279,411
Elizabeth T. Kennan 94,849,920 2,216,943
Lawrence J. Lasser 94,884,446 2,182,417
Robert E. Patterson 94,878,859 2,188,004
Donald S. Perkins 94,850,251 2,216,612
William F. Pounds 94,858,851 2,208,012
George Putnam 94,820,043 2,246,820
George Putnam, III 94,829,329 2,237,534
Eli Shapiro 94,655,277 2,411,586
A.J.C. Smith 94,779,934 2,286,929
W. Nicholas Thorndike 94,745,245 2,321,618
A proposal to ratify the selection of Coopers & Lybrand L.L.P. as
auditors for the fund was approved as follows: 93,590,224 votes for, and
766,388 votes against, with 2,710,251 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to diversification of investments was approved as follows:
87,654,990 votes for, and 3,446,172 votes against, with 5,965,701
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in the voting securities of a single issuer was
approved as follows: 86,236,823 votes for, and 4,509,799 votes against,
with 6,320,241 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to making loans through purchases of debt obligations,
repurchase agreements and securities loans was approved as follows:
84,497,887 votes for, and 6,205,745 votes against, with 6,363,231
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in real estate was approved as follows:
85,934,602 votes for, and 5,105,360 votes against, with 6,026,901
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to concentration of its assets was approved as follows:
86,825,100 votes for, and 4,070,445 votes against, with 6,171,318
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in senior securities was approved as follows:
87,387,720 votes for, and 3,388,612 votes against, with 6,290,531
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in commodities or commodity contracts was
approved as follows: 85,063,281 votes for, and 5,989,806 votes against,
with 6,013,776 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in securities of issuers in which management
of the fund or Putnam Investment Management, Inc. owns securities was
approved as follows: 85,007,691 votes for, and 5,540,660 votes against,
with 6,518,512 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to margin transactions was approved as follows: 84,089,402
votes for, and 6,370,985 votes against, with 6,606,476 abstentions and
broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to short sales was approved as follows: 84,449,046 votes
for, and 6,043,662 votes against, with 6,574,155 abstentions and broker
non-votes.
A proposal to eliminate the fund's fundamental investment restriction
which limits the fund's ability to pledge assets was approved as
follows: 83,851,921 votes for, and 6,620,944 votes against, with
6,593,998 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in restricted securities was approved as
follows: 84,660,959 votes for, and 5,746,290 votes against, with
6,659,614 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in certain oil, gas and mineral interests
was approved as follows: 85,862,858 votes for, and 4,949,694 votes
against, with 6,254,311 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investing to gain control of a company's management was
approved as follows: 84,814,257 votes for, and 5,656,748 votes against,
with 6,595,858 abstentions and broker non-votes.
All tabulations are rounded to nearest whole number.
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
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
William J. Curtin
Vice President
Peter Carman
Vice President
Edward H. D'Alelio
Vice President
Rosemary H. Thomsen
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.
You can also learn more at Putnam Investments' website:
http://www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution, are not insured by the
Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board
or any other agency, and involve risk, including the possible loss of
principal amount invested.
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- ---------------------
29942-060/327/702 1/97
