PUTNAM
HIGH YIELD
TRUST
[GRAPHIC OMITTED] [artwork]
SEMIANNUAL REPORT
February 28, 1995
[logo: BOSTON - LONDON - TOKYO]
<PAGE>
PERFORMANCE HIGHLIGHTS
o Putnam High Yield Trust's class A shares earned four out of a possible five
stars from Morningstar for risk-adjusted performance as of 2/28/95.
Morningstar is an independent mutual fund rating agency.*
o Performance should always be considered in light of a fund's investment
strategy. Putnam High Yield Trust is designed for investors seeking high
current income through a diversified portfolio of high-yielding lower-rated
corporate bonds, with a secondary objective of capital growth when consistent
with high current income.
FISCAL 1995 RESULTS AT A GLANCE
CLASS A CLASS B
TOTAL RETURN: NAV POP NAV CDSC
- ----------------------------------------------------------------------
(change in value during
period plus reinvested
distributions)
6 months ended 2/28/95 1.86% -2.96% 1.49% -3.33%
SHARE VALUE: NAV POP NAV
- ----------------------------------------------------------------------
8/31/94 $12.06 $12.66 $12.03
2/28/95 11.64 12.22 11.61
CAPITAL GAINS
LONG- SHORT-
DISTRIBUTIONS: NO. INCOME TERM TERM TOTAL
- ----------------------------------------------------------------------
Class A 6 $0.630 -- -- $0.630
Class B 6 0.587 -- -- 0.587
CURRENT RETURN: NAV POP NAV
- ----------------------------------------------------------------------
End of period
Current dividend rate<F1> 10.82% 10.31% 10.13%
Current 30-day SEC yield<F2> 8.96 8.52 8.15
Performance data represent past results and will differ for each share class.
For performance over longer periods, see page 8. Pop assumes 4.75% Maximum sales
charge. Cdsc assumes 5% maximum contingent deferred sales charge. <F1>Income
portion of most recent distribution, annualized and divided by nav or pop at end
of period. <F2>Based only on investment income, calculated using sec guidelines.
*Morningstar rates funds in relation to other funds with similar investment
objectives, based on the funds' 3-, 5-, and 10-year average annual returns,
adjusted for risk factors and sales charges. Ratings are updated monthly. The
four-star rating for the 3-year period ending 2/28/95 puts the fund in the top
32.5% Among all 2015 hybrid funds rated. For the 5- and 10-year periods ending
2/28/95 there were 1509 and 646 funds in the hybrid category. The fund received
five stars for the 5-year period and four stars for 10 years. Past performance
is not indicative of future results.
<PAGE>
FROM THE CHAIRMAN
[GRAPHIC OMITTED] [photo of George Putnam] (C) Karsh, Ottawa
Dear Shareholder:
By the time Putnam High Yield Trust reached the midpoint of its current fiscal
year on February 28, 1995, fixed-income investors had begun projecting
perceptibly brighter countenances than they had been able to muster over the
past year and a half.
For one thing, they were finally gaining confidence in the Federal Reserve
Board's ability to control inflation. For another, they were beginning to think
the economic recovery, now in its fifth year, might slow to the point where
interest rates would stop rising and, ultimately, decline. Lower rates mean
higher bond prices. Fund Manager Edward D'Alelio keeps close watch on these
trends as they apply to the high-yield bonds in which your fund invests.
Following one of the most volatile periods on record, 1995 may prove to be a
turnaround year for the bond market. In the report that follows, Ed reports on
what happened during the fiscal year's first half and takes a look at what lies
ahead.
Respectfully yours,
/s/ George Putnam
George Putnam
Chairman of the Trustees
April 19, 1995
<PAGE>
REPORT FROM THE FUND MANAGER
EDWARD D'ALELIO
In the pursuit of attractive long-term returns, fixed-income managers must
occasionally be satisfied with moderate short-term results. For the six months
ended February 28, 1995, this was definitely the situation with Putnam High
Yield Trust.
The fund's total returns of 1.86% and 1.49% for class A and class B shares,
respectively, at net asset value, appear somewhat disappointing when compared
with industry benchmarks. However, shareholders should note that these results
reflect recent portfolio changes that have not yet contributed substantially
to fund performance, but -- in our opinion -- have the potential to do so in
the future.
Despite the fund's modest short-term performance, our belief in the resiliency
of the high-yield bond market has not wavered. For the past six months, which
included the end of a devastating bond market decline, the First Boston High
Yield Index returned 3.91%. This compared favorably with results for U.S.
Treasury and corporate bonds, represented by the 2.92% and 3.55% returns of
the Lehman Brothers Treasury Bond Index and the Lehman Brothers Corporate Bond
Index, respectively.
o POSITIVE OVERALL MARKET CONDITIONS
While future results can never be assured, we believe the fund's performance
in the current market environment validates our research-oriented strategy by
producing positive results while successfully managing the risk. In the first
two months of 1995, for example, the fund's shares gained 3.53% in value at
NAV -- a significant change from the negative returns most bond-fund investors
endured throughout 1994.
<PAGE>
Putnam Management remains optimistic about near-term prospects for the
high-yield bond market. High-yield bonds are currently yielding between 4 and
4.5 percentage points more than comparable Treasury bonds. A graphic
description of the current value of high-yield bonds is provided below.
Many of the companies now issuing high-yield debt have recently experienced a
number of positive developments, and we expect the trend to continue. We
foresee favorable corporate earnings reports for the rest of 1995. With the
prospect of increased corporate cash flow, credit quality should improve as
companies are able to retire more debt. Of course, there can be no assurance
that this will occur.
o THE VALUE OF A MULTISECTOR STRATEGY
During this period, there were several favorable developments in many of the
major sectors in which the fund invests. For example, industries that
typically do better in a rising economy made an important contribution to your
fund's portfolio. Rising commodity prices in linerboard and aluminum helped
Gaylord Container, Stone Container, and Kaiser Aluminum perform above
expectations. As the fund moves into the second half of its fiscal year,
however, we are beginning to shift assets away from companies dependent on
increased economic activity and into
<PAGE>
companies that are relatively unaffected by the twists and turns of the
economy.
[GRAPHIC OMITTED] [bar chart: "HIGH YIELD BONDS STILL OFFER VALUE" showing 1993
& 1994 values of 8.25% and 10.73% for Average Yield and $103.08 and $91.02
for Average Price]
Because the high-yield bond market underperformed in 1994, bond prices fell.
At the same time, yields rose to higher levels. Source: First Boston High
Yield Index. Figures are not indicative of the fund's holdings.
<PAGE>
One sector we believe will be important to your fund's future is
telecommunications. Holdings in this sector made up approximately 4% of the
portfolio at the end of the period. Many of the companies in this relatively
young industry have yet to develop the returns that often translate into price
appreciation for their securities. However, as the wireless industry develops,
we believe stronger performance will result. Companies on which we are
currently focusing include Nextel Communications, Cencall, and Dial Call.
We also have a fairly positive outlook on the cable-television industry.
Should the U.S. Congress move to lessen regulatory constraints, we believe a
more efficient and profitable sector will emerge. Some major cable-TV holdings
we currently view favorably include Adelphia, Cablevision Systems, and Marcus
Cable.
The gaming industry began to show more potential as voters in Florida,
Massachusetts, and Rhode Island turned down license referendums. We believe
these events should enhance the value of existing facilities as well as slow
competition with Atlantic City.
Despite the generally constructive results from the fund's high-yield
investments, there was one position that proved disappointing. Grand Union
Company, a supermarket operator in the Northeast, announced in November that
it would formally reorganize its capital structure in an effort to reduce
debt, to improve liquidity, and to refurbish its supermarket base. The
announcement caused the prices of the company's high-yield bonds to decline in
value. Fortunately, the fund's Grand Union holdings amount to less than 1% of
the portfolio so the impact on performance, while discernible, was not
substantial.
<PAGE>
[GRAPHIC OMITTED] [bar chart: "TOP INDUSTRY SECTORS*" showing percentages of 5
industry sectors: Finance 7.8%; Cable television 6.8%; Forest products 4.7%;
Cellular communications 4.1%; Health care 4.1%]
*Based on net assets on 2/28/95. Holdings will vary over time.
o OPTIMISTIC OUTLOOK
Despite investors' belief that the Federal Reserve Board may be at the end of
its current interest-rate-tightening cycle, we believe we have positioned the
portfolio to withstand any unexpected interest-rate increases. With this in
mind, we will continue to emphasize a diversified portfolio of high-yield
securities with improving credit prospects. Should corporate credit quality
improve, as we expect, we believe the fund will have an additional level of
protection from any potential economic weakness.
Furthermore, we believe the high-yield market will increasingly be driven by
the performance of individual companies rather than broad economic trends.
Should this be the case, Putnam's disciplined approach to credit research
certainly should pay off in the months ahead.
The views expressed about the companies mentioned in this report are
exclusively those of Putnam Management and are not meant as investment advice.
Although the described holdings were viewed favorably as of 2/28/95, there is
no guarantee the fund will continue to hold these securities in the future.
The lower credit ratings of high-yield corporate and municipal bonds reflect a
greater possibility that adverse changes in the economy or their issuers may
affect their ability to pay principal and interest on the bonds.
<PAGE>
PERFORMANCE SUMMARY
This section provides, at a glance, information about your fund's performance.
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions back into the fund. We show total return in two ways: on a
cumulative long-term basis and on average how the fund might have grown each
year over varying periods. For comparative purposes, we show how the fund
performed relative to appropriate indexes and benchmarks.
TOTAL RETURN FOR PERIODS ENDED 2/28/95
LEHMAN BROS. FIRST BOSTON.
CLASS A CLASS B CORPORATE HIGH YIELD
NAV POP NAV CDSC BOND INDEX BOND INDEX
- -------------------------------------------------------------------------------
6 months 1.86% -2.96% 1.49% -3.33% 3.55% 3.91%
- -------------------------------------------------------------------------------
1 year -3.75 -8.33 -4.46 -8.80 1.41 0.61
- -------------------------------------------------------------------------------
5 years 94.36 85.10 -- -- 57.61 102.21
Annual average 14.22 13.10 -- -- 9.53 15.13
- -------------------------------------------------------------------------------
10 years 180.77 167.36 -- -- 187.58 N/A
Annual average 10.88 10.33 -- -- 11.14 N/A
- -------------------------------------------------------------------------------
Life of class B -- -- 10.20 6.58 8.14 16.42
Annual average -- -- 4.97 3.24 4.00 7.90
- -------------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 3/31/95
(most recent calendar quarter)
CLASS A CLASS B
NAV POP NAV CDSC
- -------------------------------------------------------------------------------
1 year 0.55% -4.22% -0.19% -4.71%
- -------------------------------------------------------------------------------
5 years 93.76 84.50 -- --
Annual average 14.14 13.03 -- --
- -------------------------------------------------------------------------------
10 years 181.89 168.51 -- --
Annual average 10.92 10.38 -- --
- -------------------------------------------------------------------------------
Life of class B 11.13 8.42
Annual average 5.20 3.96
- -------------------------------------------------------------------------------
Fund performance data do not take into account any adjustment for taxes payable
on reinvested distributions or, for class a shares, distribution fees prior to
implementation of the class A distribution plan in 1990. Effective 3/1/93 the
fund began offering class B shares. Performance of share classes will differ.
Performance data represent past results. Investment returns and principal value
will fluctuate so an investor's shares, when sold, may be worth more or less
than their original cost.
<PAGE>
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.
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.
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
THE FIRST BOSTON HIGH YIELD INDEX is a market-weighted, unmanaged index
including publicly traded bonds having a rating below BBB by Standard & Poor's
and Baa by Moody's.
THE LEHMAN BROTHERS CORPORATE BOND INDEX is an unmanaged list of publicly
issued, fixed-rate non-convertible investment-grade domestic corporate debt
securities frequently used as a general measure of the performance of
fixed-income securities.
The average quality of bonds included in these indexes will differ from the
average quality of bonds in which the fund customarily invests, and securities
held by the fund will differ from those in the indexes. Index performance
reflects changes in market prices and reinvestment of all interest payments.
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS OWNED
February 28, 1995 (Unaudited)
CORPORATE BONDS AND NOTES (77.0%)<F1>
PRINCIPAL AMOUNT VALUE
ADVERTISING (0.9%)
- -----------------------------------------------------------------------------------------------
<C> <S> <C>
$ 9,150,000 Lamar Advertising Co. sr. secd. notes 11s, 2003 $ 8,875,500
12,000,000 Outdoor Systems, Inc. sr. notes 10 3/4s, 2003 10,800,000
10,700,000 Universal Outdoor, Inc. sub. deb. 11s, 2003 9,737,000
--------------
29,412,500
ALUMINUM (1.4%)
- -----------------------------------------------------------------------------------------------
44,750,000 Kaiser Aluminum & Chemical Corp. sr.
sub. notes 12 3/4s, 2003 46,540,000
AGRICULTURE (3.4%)
- -----------------------------------------------------------------------------------------------
32,846,000 PM Acquisition Corp. sub. disc. deb. stepped-
coupon zero % (11 1/2s, 3/1/00), 2005 <F4> 15,109,160
13,000,000 PSF Finance (L.P.) 144A sr. notes 12 1/4s, 2004 13,381,875
29,600,000 Premium Standard Farms sr. secd. notes 12s, 2000 144A 30,969,000
69,739,000 Premium Standard Farms sr. secd. disc. note stepped-
coupon zero % (12s, 9/15/96), 2003 <F4> 56,314,243
--------------
115,774,278
APPAREL (0.9%)
- -----------------------------------------------------------------------------------------------
31,250,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 30,000,000
AUTOMOTIVE (0.8%)
- -----------------------------------------------------------------------------------------------
10,000,000 JPS Automotive Products sr. notes 11 1/8s, 2001 9,875,000
10,000,000 Key Plastics Corp. sr. notes 14s, 1999 10,700,000
7,375,000 SPX Corp. sr. sub. notes 11 3/4s, 2002 7,614,688
--------------
28,189,688
BANKS (0.1%)
- -----------------------------------------------------------------------------------------------
4,950,000 Chevy Chase Savings Bank Inc. sub. deb. 9 1/4s, 2005 4,578,750
BROADCASTING (3.0%)
- -----------------------------------------------------------------------------------------------
9,000,000 Act III Broadcasting, Inc. sr. sub. notes 9 5/8s, 2003 8,550,000
8,500,000 Granite Broadcasting Corp. sr. sub. deb. 12 3/4s, 2002 8,755,000
14,875,000 New City Broadcasting Corp. sr. sub. notes 11 3/8s, 2003 13,833,750
7,375,000 Outlet Broadcasting, Inc. sr. sub. notes 10 7/8s, 2003 7,375,000
59,500,000 Panamsat (L.P.) sr. sub. notes stepped-coupon zero %
(11 3/8s, 8/1/98), 2003 <F4> 38,972,500
1,500,000 Rogers Cantel Mobile Inc. deb. 10 3/4s, 2001 1,548,750
7,150,000 SFX Broadcasting, Inc. sr. sub. notes 11 3/8s, 2000 7,167,875
21,460,000 Telemedia Broadcasting Corp. 144A deb. 6.4s, 2004 18,670,200
--------------
104,873,075
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
BUILDING AND CONSTRUCTION (1.7%)
- -----------------------------------------------------------------------------------------------
$ 9,000,000 Beazer Homes sr. notes 9s, 2004 $ 7,785,000
21,900,000 Presley Co. sr. notes 12 1/2s, 2001 18,834,000
16,750,000 Scotsman Group, Inc. sr. notes 9 1/2s, 2000 15,996,250
12,750,000 U.S. Home Corp. sr. notes 9 3/4s, 2003 11,602,500
2,000,000 Webb (Del.) E Corp. sr. sub. deb. 9 3/4s, 2003 1,780,000
2,250,000 Webb (Del.) E Corp. sr. sub. deb. 9s, 2006 1,822,500
--------------
57,820,250
BUILDING PRODUCTS (1.3%)
- -----------------------------------------------------------------------------------------------
17,575,000 Nortek, Inc. sr. sub. notes 9 7/8s, 2004 16,169,000
25,000,000 Southdown, Inc. sr. sub. notes Ser. B, 14s, 2001 27,250,000
--------------
43,419,000
CABLE TELEVISION (6.8%)
- -----------------------------------------------------------------------------------------------
81,570,000 Adelphia Communications Corp. sr. notes 12 1/2s, 2002 78,715,050
6,665,000 Adelphia Communications Corp. sr. deb. 11 7/8s, 2004 6,131,800
11,250,000 Cablevision Systems Corp. sr. sub. reset deb. 10 3/4s, 2004 11,756,250
7,500,000 Cablevision Systems Corp. sr. sub. deb. 9 7/8s, 2023 7,143,750
8,500,000 Century Communications Corp. sr. sub. deb. 11 7/8s, 2003 9,010,000
21,990,852 Falcon Holdings Group, Inc. sr. sub. notes 11s, 2003 <F3> 18,252,407
11,300,000 Insight Communications Co. sr. sub. notes stepped-
coupon 8 1/4s (11 1/4s, 3/1/96), 2000 <F4> 10,791,500
23,183,000 Jones Intercable, Inc. sub. deb. 11 1/2s, 2004 24,805,810
21,100,000 Marcus Cable Co. (L.P.) sr. deb. 11 7/8s, 2005 20,783,500
41,145,000 Marcus Cable Co. (L.P.) sr. sub. disc. note stepped-coupon
zero % (13 1/2s, 8/1/99), 2004 <F4> 24,275,550
17,500,000 Summit Communications Group, Inc. sr. sub. deb.
10 1/2s, 2005 18,200,000
5,500,000 Videotron Hldgs sr. disc. notes stepped-coupon zero %
(11 1/8s, 7/1/99), 2004 <F4> 3,245,000
--------------
233,110,617
CELLULAR COMMUNICATIONS (4.1%)
- -----------------------------------------------------------------------------------------------
24,000,000 Cellular, Inc. sr. sub. disc. notes stepped-coupon zero %
(11 3/4s, 9/1/98), 2003 <F4> 16,680,000
11,625,000 Cencall Communications Corp. sr. disc. notes stepped-
coupon zero % (10 1/8s, 1/15/99), 2004 <F4> 4,417,500
40,300,000 Centennial Cellular Corp. sr. notes 8 7/8s, 2001 37,479,000
8,250,000 Dial Call Communication sr. disc. notes Ser. B, stepped-
coupon zero % (10 1/4s, 12/15/98), 2005 <F4> 2,846,250
8,000,000 Horizon Cellular Telephone Co. sr. sub. disc. notes Ser. B,
stepped-coupon zero % (11 3/8s, 10/1/97), 2000 <F4> 6,040,000
97,750,000 NEXTEL Communications, Inc. sr. disc. notes stepped-
coupon zero % (11 1/2s, 9/1/98), 2003 <F4> 42,521,250
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
CELLULAR COMMUNICATIONS (continued)
- -----------------------------------------------------------------------------------------------
$49,000,000 NEXTEL Communications, Inc. sr. disc. notes stepped-
coupon zero % (9 3/4s, 2/15/99), 2004 <F4> $ 19,110,000
14,365,000 Pricellular Wire sr. disc. notes stepped-coupon
zero % (14s, 11/15/97), 2001 <F4> 10,701,925
--------------
139,795,925
CHEMICALS (3.5%)
- -----------------------------------------------------------------------------------------------
58,103,000 G-I Holdings, Inc. sr. notes zero %, 1998 37,185,920
61,225,000 Harris Chemical Corp. sr. sub. notes 10 3/4s, 2003 60,306,625
13,500,000 Harris Chemical sr. secd. disc. notes stepped-coupon
zero % (10 1/4s, 1/15/96), 2001 <F4> 12,015,000
19,500,000 OSI Specialties Corp. sr. secd. disc. deb. Ser. B,
stepped-coupon zero % (11 1/2s, 4/15/99), 2004 <F4> 12,577,500
--------------
122,085,045
CONGLOMERATES (1.1%)
- -----------------------------------------------------------------------------------------------
2,190,000 Axia, Inc. sr. sub. units Ser. B 11s, 2001 1,971,000
30,200,000 Jordan Industries, Inc. sr. notes 10 3/8s, 2003 28,086,000
9,100,000 MacAndrews & Forbes Holdings, Inc. sub. deb.
notes 13s, 1999 9,100,000
--------------
39,157,000
CONSUMER SERVICES (1.2%)
- -----------------------------------------------------------------------------------------------
26,000,000 Flagstar Corp. sr. notes 10 7/8s, 2002 25,350,000
15,600,000 Solon Automated Services, Inc. sr. sub. deb. 13 3/4s, 2002 14,976,000
1,500,000 Solon Automated Services, Inc. notes 12 3/4s, 2001 1,410,000
--------------
41,736,000
CONTAINERS (1.5%)
- -----------------------------------------------------------------------------------------------
35,800,000 Ivex Packaging Corp. sr. sub. notes 12 1/2s, 2002 37,411,000
13,770,000 United States Can Co. sr. sub. notes 13 1/2s, 2002 15,147,000
--------------
52,558,000
ELECTRIC UTILITIES (1.5%)
- -----------------------------------------------------------------------------------------------
4,000,000 Long Island Lighting Co. deb. 9s, 2022 3,415,000
4,000,000 Long Island Lighting Co. deb. 8.9s, 2019 3,380,000
8,000,000 Midland Funding Corp. II deb. Ser. B, 13 1/4s, 2006 8,220,000
15,000,000 Midland Funding Corp. II deb. Ser. A, 11 3/4s, 2005 14,287,500
22,000,000 Texas New Mexico Power Corp. secd. deb. 12 1/2s, 1999 23,498,750
--------------
52,801,250
ELECTRONICS (2.1%)
- -----------------------------------------------------------------------------------------------
34,450,000 Amphenol Corp. sr. sub. notes 12 3/4s, 2002 38,584,000
74,250,000 International Semi-Tech. Corp. sr. disc. notes
stepped-coupon zero % (11 1/2s, 8/15/00), 2003 <F4> 32,670,000
--------------
71,254,000
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
ENTERTAINMENT (2.1%)
- -----------------------------------------------------------------------------------------------
$10,000,000 Time Warner Inc. notes zero %, 2002 $ 9,687,500
69,250,000 Viacom International, Inc. sub. deb. 8s, 2006 62,151,875
--------------
71,839,375
FINANCE (7.8%)
- -----------------------------------------------------------------------------------------------
15,000,000 Comdata Network, Inc. sr. notes 12 1/2s, 1999 16,031,250
25,000,000 Ford Motor Credit Co. med. term notes 14s, 1996 27,156,250
40,000,000 General Electric Capitol Corp med. term notes
14s, 1996 43,500,000
17,500,000 General Electric Capitol Corp. med. term notes
14s, 1996 19,042,188
50,000,000 International Business Machine Credit Corp.
notes 15s, 1996 53,281,250
50,000,000 Xerox Credit Corp. med. term notes 17s, 1996 54,875,000
50,000,000 Xerox Credit Corp. med. term. notes 15s, 1996 53,312,500
--------------
267,198,438
FINANCIAL SERVICES (0.9%)
- -----------------------------------------------------------------------------------------------
26,500,000 Delaware Management Holdings, Inc. sr. notes
Ser. B, 10 1/4s, 2004 28,487,500
2,250,000 Keystone Group, Inc. sr. secd. notes 9 3/4s, 2003 2,205,000
--------------
30,692,500
FOOD (2.6%)
- -----------------------------------------------------------------------------------------------
71,713,000 Del Monte Corp. sub. deb. notes 12 1/4s, 2002 <F3> 61,852,463
10,000,000 Mafco, Inc. sr. sub. notes 11 7/8s, 2002 9,500,000
15,700,000 Specialty Foods Corp. sr. sub. notes 11 1/4s, 2003 14,993,500
3,135,000 Specialty Foods Acquisition Corp. sr. secd. disc. deb.
stepped-coupon zero %, (13s, 8/15/99), 2005 <F4> 1,489,125
--------------
87,835,088
FOOD CHAINS (1.6%)
- -----------------------------------------------------------------------------------------------
95,550,000 Grand Union Co. sr. sub. notes 12 1/4s, 2002
(In Default) <F5> 31,531,500
5,500,000 Ralphs Grocery sr. sub. notes 10 1/4s, 2002 5,417,500
18,500,000 Stater Brothers sr. notes 144A 11s, 2001 17,760,000
--------------
54,709,000
FOREST PRODUCTS (4.7%)
- -----------------------------------------------------------------------------------------------
11,750,000 Container Corp. of America sr. notes Ser. A,
11 1/4s, 2004 12,337,500
90,000,000 Gaylord Container Corp. sr. sub. disc. deb. stepped-
coupon zero % (12 3/4s, 5/15/96), 2005 <F4> 83,250,000
21,500,000 Riverwood International Corp. sr. sub. notes
11 1/4s, 2002 22,575,000
27,300,000 Stone Container Corp. (Del.) sr. notes 11 1/2s, 2004 28,938,000
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
FOREST PRODUCTS (continued)
- -----------------------------------------------------------------------------------------------
$ 3,575,000 Stone Container Corp. (Del.) sr. sub notes 11s, 1999 $ 3,646,500
12,000,000 Stone Container Corp. (Del.) 1st mtge. 10 3/4s, 2002 12,420,000
--------------
163,167,000
HEALTH CARE (4.1%)
- -----------------------------------------------------------------------------------------------
22,950,000 Abbey Healthcare Group, Inc. sr. sub. notes 9 1/2s, 2002 22,605,750
6,000,000 American Medical International Inc. jr. sub. deb.
stepped-coupon zero % (15s, 11/25/95), 2005 <F3><F4> 11,160,000
12,000,000 Community Health Systems sr. sub. deb. 10 1/4s, 2003 12,180,000
9,900,000 Integrated Health Services sr. sub. notes 10 3/4s, 2004 10,197,000
7,500,000 Multicare Cos., Inc. sr. sub. notes 12 1/2s, 2002 8,550,000
20,000,000 National Medical Enterprises Inc. sr. notes 10 1/8s, 2005 20,425,000
12,250,000 National Medical Enterprises Inc. sr. notes 9 5/8s, 2002 12,479,688
20,150,000 Ornda Healthcorp sr. sub. notes 12 1/4s, 2002 21,812,375
5,810,000 Quorum Health Group, Inc. sr. sub. notes 11 7/8s, 2002 6,245,750
15,000,000 Smithkline Beecham Corp. med. term notes
17 3/4s, 1996 16,593,750
--------------
142,249,313
HOME FURNISHINGS (0.2%)
- -----------------------------------------------------------------------------------------------
8,113,028 Simmons Mattress Corp. deb. 8s, 2003 <F3> 8,011,615
INSURANCE (1.6%)
- -----------------------------------------------------------------------------------------------
15,500,000 American Life Holding Co. sr. sub. notes 11 1/4s, 2004 15,732,500
5,500,000 National RE Holdings Corp. sr. sub. notes 14 1/2s, 1999 5,905,625
11,500,000 Reliance Group Holdings, Inc. sr. notes 9s, 2000 10,810,000
24,800,000 Reliance Group Holdings, Inc. sr. sub. deb. 9 3/4s, 2003 22,692,000
--------------
55,140,125
LODGING (1.1%)
- -----------------------------------------------------------------------------------------------
20,700,000 John Q. Hammons Hotels 1st. mtge. notes 8 7/8s, 2004 19,251,000
20,500,000 Red Roof Inns sr. notes 9 5/8s, 2003 19,680,000
--------------
38,931,000
MACHINERY (0.4%)
- -----------------------------------------------------------------------------------------------
13,550,000 Specialty Equipment Co. sr. sub. notes 11 3/8s, 2003 13,346,750
MEDICAL SUPPLIES (0.2%)
- -----------------------------------------------------------------------------------------------
6,500,000 Wright Medical Technology, Inc. sr. secd. notes
Ser. B, 10 3/4s, 2000 6,240,000
METALS AND MINING (0.5%)
- -----------------------------------------------------------------------------------------------
8,750,000 Haynes International, Inc. sr. notes Ser. B, 11 1/4s, 1998 8,050,000
13,750,000 Haynes International, Inc. sr. sub. notes 13 1/2s, 1999 8,937,500
--------------
16,987,500
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
MOTION PICTURE DISTRIBUTION (1.8%)
- -----------------------------------------------------------------------------------------------
$ 7,500,000 AMC Entertainment, Inc. sr. note 11 7/8s, 2000 $ 8,025,000
21,000,000 AMC Entertainment, Inc. sr. sub. deb. 12 5/8s, 2002 22,732,500
875,000 Act III Theatres, Inc. sr. sub. notes 11 7/8s, 2003 910,000
8,900,000 Cinemark Mexico USA, Inc. sr. sub. notes 12s, 2002 9,389,500
20,700,000 Plitt Theatres, Inc. sr. sub. notes 10 7/8s, 2004 19,665,000
--------------
60,722,000
OIL AND GAS (0.9%)
- -----------------------------------------------------------------------------------------------
12,500,000 Chesapeake Energy Corp. sr. exch. notes 12s, 2001 12,812,500
10,315,000 Flores & Rucks, Inc. sr. notes 13 1/2s, 2004 10,624,450
9,990,000 Maxus Energy Corp. notes 9 3/8s, 2003 8,578,913
--------------
32,015,863
PAGING (0.6%)
- -----------------------------------------------------------------------------------------------
10,500,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 10,841,250
15,700,000 Pagemart, Inc. sr. disc. notes stepped-coupon
zero % (12 1/4s, 11/1/98), 2003 <F4> 9,635,875
--------------
20,477,125
PUBLISHING (1.2%)
- -----------------------------------------------------------------------------------------------
8,640,000 General Media Corp. sr. secd. notes 10 5/8s, 2000 7,603,200
52,000,000 Marvel Parent Holdings, Inc. sr. secd. disc. notes
zero %, 1998 33,150,000
--------------
40,753,200
RECREATION (2.6%)
- -----------------------------------------------------------------------------------------------
9,470,000 Arizona Charlies Corp. sub. deb. Ser. B, 12s, 2000 7,576,000
2,120,000 Capitol Queen Corp. 144A 1st mtge note Ser. B,
12s, 2000 1,908,000
8,000,000 Golden Nugget Finance Corp. 1st mtge. deb. Ser. B,
10 5/8s, 2003 6,040,000
11,440,000 Grand Casino Resorts, Inc. notes 12 12 1/2s, 2000 11,440,000
6,500,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 5,427,500
7,090,000 Pioneer Finance Corp. gtd. 1st mtge. 13 1/2s, 1998 5,636,550
22,600,000 Showboat, Inc. 1st Mtge. deb. 9 1/4s, 2008 19,662,000
14,931,000 Trump Castle Funding Corp. 144A sr. sub. notes
11 1/2s, 2000 14,931,000
22,341,998 Trump Taj Mahal Funding, Inc. deb. Ser. A, 11.35s, 1999 <F3> 15,862,819
--------------
88,483,869
RESTAURANTS (0.5%)
- -----------------------------------------------------------------------------------------------
21,729,000 Flagstar Corp. sr. sub. deb. 11 1/4s, 2004 18,469,650
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
RETAIL (1.9%)
- -----------------------------------------------------------------------------------------------
$ 8,320,000 Brylane (L.P.) sr. sub. notes 10s, 2003 $ 8,195,200
16,500,000 County Seat Stores sr. sub. notes 12s, 2001 16,417,500
7,000,000 Duane Reade Corp. sr. notes 12s, 2002 5,180,000
46,610,000 Duane Reade Holding sub. notes stepped-coupon
zero % (15s, 9/15/99), 2004 <F4> 17,245,700
6,650,000 Finlay Enterprises, Inc. sr. disc. deb. stepped-coupon
zero % (12s, 5/1/98), 2005 <F4> 4,189,500
6,000,000 LoehmannsO Holdings, Inc. sr. sub. notes 13 3/4s, 1999 5,820,000
9,700,000 Specialty Retailers, Inc. sr. sub. notes 11s, 2003 8,924,000
--------------
65,971,900
SCHOOL BUSSES (0.4%)
- -----------------------------------------------------------------------------------------------
12,000,000 Blue Bird Body Co. sr. sub. deb. Ser. B, 11 3/4s, 2002 12,240,000
SHIPPING (0.2%)
- -----------------------------------------------------------------------------------------------
5,700,000 Viking Star Shipping sr. secd. notes 9 5/8s, 2003 5,301,000
SOFT DRINKS (0.1%)
- -----------------------------------------------------------------------------------------------
5,000,000 Dr. Pepper Bottling Co. (Texas) sr. disc. notes
stepped-coupon zero % (11 5/8s, 2/15/98), 2003 <F4> 3,450,000
SPECIALTY CONSUMER PRODUCTS (1.3%)
- -----------------------------------------------------------------------------------------------
4,761,000 Equitable Bag Co. sr. notes 11s, 2004 3,808,800
43,740,000 Playtex Family Products Corp. sr. sub. notes 9s, 2003 39,912,741
--------------
43,721,541
STEEL (0.3%)
- -----------------------------------------------------------------------------------------------
10,000,000 WCI Steel Inc. sr. secd. notes 10 1/2s, 2002 9,700,000
TELEPHONE SERVICES (0.9%)
- -----------------------------------------------------------------------------------------------
18,595,000 Call-Net Enterprises stepped-coupon zero %
(13 1/4s, 12/1/99), 2004 <F4> 10,227,250
33,200,000 MFS Communications sr. disc. notes stepped-coupon
zero % (9 3/8s, 1/15/99), 2004 <F4> 21,082,000
--------------
31,309,250
TEXTILES (1.2%)
- -----------------------------------------------------------------------------------------------
27,135,000 Foamex (L.P.) Capital Corp. sr. secd. disc. deb. 14s, 2004 14,992,088
22,000,000 Foamex (L.P.) Capital Corp. sr. sub. deb. 11 7/8s, 2004 21,175,000
5,500,000 Foamex (L.P.) Capital Corp. sr. notes 11 1/4s, 2002 5,362,500
--------------
41,529,588
- -----------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(cost $2,915,227,479) $2,643,598,068
<PAGE>
UNITS (2.7%)<F1>
NUMBER OF UNITS VALUE
- -----------------------------------------------------------------------------------------------
69,750 Echostar Communication Corp. units stepped-
coupon zero % (12 7/8s, 12/1/99), 2004 <F4> $ 32,085,000
24,000 ICF Kaiser International, Inc. sr. sub. units 12s, 2003 21,780,000
66,500 Premium Standard Farms 144A exch. pfd. units
12 1/2s, 2000 6,957,563
8,000 Renaissance Cosmetics Inc. units 13 3/4s, 2001 7,780,000
1,286 Santa Fe Hotel, Inc. units 11s, 2000 12,088,400
12,680 Total Renal Care units stepped-coupon
zero % (12s, 8/15/99), 2004 <F4> 11,158,400
--------------
TOTAL UNITS (cost $103,065,983) $ 91,849,363
YANKEE BONDS AND NOTES (1.5%)<F1>
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------
$ 5,395,000 Banco de Galicia, Inc.144A global notes 9s, 2003 $ 3,159,447
10,850,000 Cinemark Mexico notes 12s, 2003 10,090,500
25,600,000 Fresh Del Monte Produce Corp. sr. notes,
Ser. B, 10s, 2003 17,920,000
25,000,000 Ispat Mexicana 144A sr. notes 10 3/8s, 2001 18,750,000
--------------
TOTAL YANKEE BONDS AND NOTES (cost $65,253,740) $ 49,919,947
PREFERRED STOCKS (1.3%)<F1>
NUMBER OF SHARES VALUE
- -----------------------------------------------------------------------------------------------
112,000 California Federal Bank Ser. B, $10.625, exch. pfd. $ 11,312,000
7,407 Duane Reade Corp. zero % pfd. <F5> 1,199,999
220,000 First Nationwide Bank $11.50, exch. pfd. 21,890,000
444,682 Pyramid Communications, Inc. Ser. C, $3.125, exch. pfd. <F5> 10,033,140
--------------
TOTAL PREFERRED STOCKS (cost $45,198,706) $ 44,435,139
COMMON STOCKS (0.8%)<F1><F5>
NUMBER OF SHARES VALUE
- -----------------------------------------------------------------------------------------------
6,570 Axia Holding Corp. 144A $ 183,960
276,750 Chesapeake Energy Corp. 4,358,813
1,347,070 Computervision Corp. 7,577,269
64,149 Computervision Corp. (acquired 8/21/92,
cost $577,341) <F2> 252,587
55,025 Dr Pepper/Seven-Up Companies, Inc. 1,808,947
66,667 Duane Reade Corp. 133,333
452,380 Equitable Bag Co. Class A 678,570
<PAGE>
COMMON STOCKS (continued)
NUMBER OF SHARES VALUE
- -----------------------------------------------------------------------------------------------
13,300 Finlay Enterprises, Inc. Class A $ 133,000
70,086 Grand Casinos, Inc. 1,121,376
61,710 Lear Seating Corp. 1,288,196
11,048 PMI Holdings Corp. 144A 2,209,600
8,407 Premium Holdings L.P. 144A 840,706
14,193 Pyramid Communications, Inc. New Class B 144A 340,643
79 RJR Nabisco Holdings Corp. 444
1,688,900 Solon Automated Services, Inc. 1,055,563
236,025 Specialty Foods Corp. 472,050
81,372 Taj Mahal Holding Corp. Class A 813,720
100,000 UCC Investors Holding, Inc. 1,375,000
120,330 Wang Laboratories, Inc. 1,489,084
--------------
TOTAL COMMON STOCKS (cost $16,631,173) $ 26,132,861
<CAPTION>
WARRANTS (0.6%) <F5><F1>
NUMBER OF EXPIRATION
WARRANTS DATE VALUE
- -----------------------------------------------------------------------------------------------
<C> <S> <C> <C>
265,000 Becker Gaming Corp. 144A 11/15/00 $ 281,563
136,500 Capital Gaming International, Inc. 2/1/99 136,500
42,125 Casino America, Inc. 11/15/96 42,125
53,280 Casino Magic Finance Corp. 10/14/96 3,330
120,548 Cinemark Mexico USA, Inc. 8/1/03 1,115,069
20,000 County Seat Holdings, Inc. 10/15/98 400,000
27,135 Foamex (L.P.) Capital Corp. 7/1/99 407,025
1,688,688 Gaylord Container Corp. 144A 7/31/96 17,520,138
8,140 General Media Corp. 144A 12/31/00 113,960
19,500 OSI Specialties Corp. 144A 4/15/99 390,000
72,220 Pagemart, Inc. 144A 12/31/03 532,623
44,150 President Riverboat Casinos, Inc. 9/30/99 176,600
30,000 President Riverboat Casinos, Inc. 144A 9/23/96 1,875
220,000 Southdown, Inc. 144A 10/31/96 110,000
8,936 Southland Corp. 3/5/96 22,340
506 Telemedia Broadcasting Corp. 144A 4/1/04 379,148
403 Wright Medical Technology, Inc. 144A 6/30/03 60,414
--------------
TOTAL WARRANTS (cost $10,864,908) $ 21,692,710
<CAPTION>
CONVERTIBLE PREFERRED STOCKS (0.5%)<F1> (cost $9,037,891)
NUMBER OF SHARES VALUE
- -----------------------------------------------------------------------------------------------
<C> <S> <C>
147,500 Chrysler Corp. Ser. A, $4.625 dep. shs. cv. pfd.144A $ 17,810,625
CONVERTIBLE BONDS AND NOTES (0.1%)<F1> (cost $ 4,825,000)
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------
$ 4,825,000 Sahara Mission cv. sub. notes 12s, 1995 $ 4,825,000
<PAGE>
<CAPTION>
PUT OPTIONS PURCHASED (--%)
NUMBER OF EXPIRATION DATE/
CONTRACTS STRIKE PRICE VALUE
- -----------------------------------------------------------------------------------------------
<C> <S> <C> <C>
676,000 U.S. Treasury Bond Futures Apr. 95/$100.28 $ 175,760
384,000 U.S. Treasury Bond Futures Apr. 95/$102.28 403,200
--------------
TOTAL PUT OPTIONS ON U.S. TREASURY BONDS
(cost $1,747,625) $ 578,960
<CAPTION>
SHORT-TERM INVESTMENTS (12.6%)<F1>
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------
<C> <S> <C>
$60,481,000 Federal Home Loan Mortgage Corp. 5.95s, March 1, 1995 $ 60,481,000
30,000,000 Federal National Mortgage Assn. 5.92s, March 1, 1995 29,965,466
42,500,000 General Electric Credit med. term notes 14s, 1995 44,492,188
40,000,000 Household Finance Corp. 5.97s, March 2, 1995 39,993,367
20,000,000 Morgan (J.P.) & Co. Inc. 5.95s, March 1, 1995 19,933,890
37,500,000 Pepisco Inc. variable rate med. term notes 17s, 1996 40,804,688
50,000,000 Pepisco Inc. variable rate med. term notes 15s, 1995 53,937,500
20,000,000 Sears, Roebuck Accept. Corp. 6s, March 16, 1995 19,950,000
40,000,000 Toyota Motor Credit Corp. med. term notes 15s, 1995 43,125,000
30,000,000 Toyota Motor Credit Corp. med. term notes 15s, 1995 31,968,750
50,000,000 Interest in $875,000,000 joint repurchase agreement
dated February 28, 1995 with Goldman Sachs, due
March 1, 1995 with respect to various U.S. Treasury
obligations -- maturity value of $50,008,403 for an
effective yield of 6.05% 50,008,403
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $315,407,751) $ 434,660,252
- -----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(cost $3,487,260,256)<F6> $3,335,502,925
- -----------------------------------------------------------------------------------------------
<FN>
<F1> Percentages indicated are based on net assets of $3,442,523,272, which
correspond to a net asset value per share for class A and class B shares of
$11.64 and $11.61 respectively.
<F2> Restricted as to public resale, excluding Rule 144A securities. At the
date of acquisition, these securities were valued at cost. There were no
outstanding unrestricted securities of the same class as those held. Total
market value of restricted securities owned at February 28, 1995 was
$252,587 or less than 1% of net assets.
<F3> Income may be received in cash or additional securities at the discretion
of the issuer.
<F4> The interest rate and date shown parenthetically represent the next
interest rate to be paid and the date the Fund will begin accruing this
rate.
<F5> Non-income-producing security.
<F6> The aggregate identified cost on a tax cost basis is $3,487,710,250
resulting in gross unrealized appreciation and depreciation of $56,723,764
and $208,931,089 respectively, or net unrealized appreciation of
$152,207,325.
144A after the name of a security represents those securities exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration, normally
to qualified institutional buyers.
</FN>
<PAGE>
<CAPTION>
WRITTEN OPTIONS OUTSTANDING at February 28,1995 (Premium received $135,859)
EXPIRATION
NUMBER OF DATE/STRIKE
CONTRACTS PRICE VALUE
- -----------------------------------------------------------------------------------------------
<C> <S> <C> <C>
185,000 U.S. Treasury Bond Futures Apr. 95/$100.33 $ 347,800
</TABLE>
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1995 (Unaudited)
ASSETS
- ------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $3,487,260,256) (Note 1) $3,335,502,925
- ------------------------------------------------------------------------------
Cash 10,397
- ------------------------------------------------------------------------------
Dividends, interest and other receivables 77,299,727
- ------------------------------------------------------------------------------
Receivable for shares of the fund sold 11,467,687
- ------------------------------------------------------------------------------
Receivable for securities sold 82,772,485
- ------------------------------------------------------------------------------
TOTAL ASSETS 3,507,053,221
- ------------------------------------------------------------------------------
LIABILITIES
- ------------------------------------------------------------------------------
Payable for securities purchased 51,800,596
- ------------------------------------------------------------------------------
Payable for shares of the fund repurchased 4,329,707
- ------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 4,489,232
- ------------------------------------------------------------------------------
Payable for administrative services (Note 2) 8,612
- ------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 2,055
- ------------------------------------------------------------------------------
Distributions payable to shareholders 162,454
- ------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 990,806
- ------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 2,132,827
- ------------------------------------------------------------------------------
Other accrued expenses 265,860
- ------------------------------------------------------------------------------
Written options outstanding (premium received $135,859) 347,800
- ------------------------------------------------------------------------------
TOTAL LIABILITIES 64,529,949
- ------------------------------------------------------------------------------
NET ASSETS 3,442,523,272
- ------------------------------------------------------------------------------
REPRESENTED BY
- ------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) 4,224,566,094
- ------------------------------------------------------------------------------
Distributions in excess of net investment income (6,778,602)
- ------------------------------------------------------------------------------
Accumulated net realized loss on investment transactions (Note 1) (623,294,948)
- ------------------------------------------------------------------------------
Net unrealized depreciation of investments (151,969,272)
- ------------------------------------------------------------------------------
TOTAL--REPRESENTING NET ASSETS APPLICABLE TO
CAPITAL SHARES OUTSTANDING 3,442,523,272
- ------------------------------------------------------------------------------
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
- ------------------------------------------------------------------------------
Net asset value and redemption price of class A shares
($2,831,712,276 divided by 243,352,146 shares) $11.64
- ------------------------------------------------------------------------------
Offering price per share (100/95.25 of $11.64)<F1> $12.22
- ------------------------------------------------------------------------------
Net asset value and offering price of class B shares
($610,810,996 divided by 52,624,797 shares)<F1> $11.61
- ------------------------------------------------------------------------------
<F1> 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.
<F2> Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF OPERATIONS
Six months ended February 28, 1995 (Unaudited)
INVESTMENT INCOME:
- -----------------------------------------------------------------------------
Interest $185,928,093
- -----------------------------------------------------------------------------
Dividends 2,018,274
- -----------------------------------------------------------------------------
TOTAL INVESTMENT INCOME $187,946,367
- -----------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------------------
Compensation of Manager (Note 2) 9,138,140
- -----------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,976,853
- -----------------------------------------------------------------------------
Compensation of Trustees (Note 2) 38,118
- -----------------------------------------------------------------------------
Auditing 71,501
- -----------------------------------------------------------------------------
Report to shareholders 68,942
- -----------------------------------------------------------------------------
Legal 41,731
- -----------------------------------------------------------------------------
Postage 178,643
- -----------------------------------------------------------------------------
Administrative services (Note 2) 26,187
- -----------------------------------------------------------------------------
Distribution feesNClass A (Note 2) 4,018,686
- -----------------------------------------------------------------------------
Distribution feesNClass B (Note 2) 2,752,717
- -----------------------------------------------------------------------------
Other 36,687
- -----------------------------------------------------------------------------
TOTAL EXPENSES 18,348,205
- -----------------------------------------------------------------------------
NET INVESTMENT INCOME 169,598,162
- -----------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (107,591,315)
- -----------------------------------------------------------------------------
Net unrealized depreciation of investments and written
options during the period (1,843,188)
- -----------------------------------------------------------------------------
NET LOSS ON INVESTMENT TRANSACTIONS (109,434,503)
- -----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 60,163,659
- -----------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28 AUGUST 31
1995* 1994
- -------------------------------------------------------------------------------
INCREASE IN NET ASSETS
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $169,598,162 $346,496,500
- -------------------------------------------------------------------------------
Net realized gain (loss) on investments (107,591,315) 59,173,723
- -------------------------------------------------------------------------------
Net unrealized depreciation of investments
and written options (1,843,188) (318,941,272)
- -------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 60,163,659 86,728,851
- -------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
- -------------------------------------------------------------------------------
Net investment income
- -------------------------------------------------------------------------------
Class A (149,802,623) (312,520,631)
- -------------------------------------------------------------------------------
Class B (27,996,698) (40,210,044)
- -------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 139,408,933 258,156,724
- -------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 21,773,271 (7,845,000)
- -------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------
Beginning of period 3,420,750,001 3,428,595,001
- -------------------------------------------------------------------------------
END OF PERIOD (including distributions in excess of
and undistributed net investment income of
$6,778,602 and $1,422,557, respectively) $3,442,523,272 $3,420,750,001
- -------------------------------------------------------------------------------
*Unaudited
The accompanying notes are an integral part of these financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
MARCH 1, 1993
(COMMENCE-
MENT OF
SIX MONTHS YEAR OPERATIONS) SIX MONTHS
ENDED ENDED TO ENDED
FEBRUARY 28 AUGUST 31 AUGUST 31 FEBRUARY 28
- -----------------------------------------------------------------------------------------------------------------------------
1995* 1994 1993 1995* 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
CLASS B
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.03 $12.99 $12.84 $12.06 $13.01 $12.76 $11.55
- -----------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income .55 1.18 .62 .60 1.27 1.46 1.57
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments (.38) (.94) .23 (.39) (.93) .28 1.22
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS .17 .24 .85 .21 .34 1.74 2.79
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (.59) (1.20) (.70) (.63) (1.29) (1.45) (1.56)
In excess of net investment income -- -- -- -- -- (.04) --
Net realized gain on investments -- -- -- -- -- -- (.02)
Paid-in capital -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.59) (1.20) (.70) (.63) (1.29) (1.49) (1.58)
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $11.61 $12.03 $12.99 $11.64 $12.06 $13.01 $12.76
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET
VALUE (%) <F1> 1.49<F2> 1.66 6.80<F2> 1.86<F2> 2.46 14.50 25.50
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(IN THOUSANDS) $610,811 $535,002 $238,647 $2,831,712 $2,885,748 $3,189,948 $2,449,282
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%) .84<F2> 1.69 .85<F2> .49<F2> .94 .92 .97
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets (%) 4.81<F2> 9.06 4.92<F2> 5.14<F2> 9.82 11.27 12.63
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 29.72<F2> 55.00 50.90<F2> 29.72<F2> 55.00 50.90 47.05
- -----------------------------------------------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
[ FINANCIAL HIGHLIGHTS continued ]
[ (For a share outstanding throughout the period) continued ]
YEAR ENDED AUGUST 31
- --------------------------------------------------------------------------------------------------------------------------
1991 1990 1989 1988 1987 1986 1985
- --------------------------------------------------------------------------------------------------------------------------
CLASS A
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.99 $13.84 $14.57 $15.28 $15.52 $15.42 $14.82
- --------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
- --------------------------------------------------------------------------------------------------------------------------
Net investment income 1.52 1.64 1.89 1.82 1.91 1.96 2.11
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments .66 (2.69) (.71) (.67) (.22) .34 .71
- --------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 2.18 (1.05) 1.18 1.15 1.69 2.30 2.82
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (1.52) (1.67) (1.86) (1.86) (1.93) (2.20) (2.22)
In excess of net investment income -- -- -- -- -- -- --
Net realized gain on investments -- (.02) (.05) -- -- -- --
Paid-in capital (.10) (.11) -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (1.62) (1.80) (1.91) (1.86) (1.93) (2.20) (2.22)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $11.55 $10.99 $13.84 $14.57 $15.28 $15.52 $15.42
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET
VALUE (%) <F1> 22.47 (7.58) 8.47 8.25 11.34 15.76 20.32
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(IN THOUSANDS) $1,832,181 $1,651,544 $2,415,203 $2,390,123 $2,287,344 $2,361,819 $1,308,290
- --------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%) 1.09 .95 .72 .61 .61 .57 .60
- --------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets (%) 14.18 13.76 13.15 12.38 12.15 12.34 13.64
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 72.53 47.64 51.03 75.38 92.81 77.21 160.84
- --------------------------------------------------------------------------------------------------------------------------
<FN>
<F1> Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
<F2> Not annualized
* Unaudited.
</FN>
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
February 28, 1995
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 by investing primarily in high-yielding, lower-rated fixed-income
securities constituting a portfolio that Putnam Management believes does not
involve undue risk to income or principal.
The fund offers both class A and class B shares. Class A shares are sold with a
maximum front-end sales charge of 4.75%. Class B shares do not pay a front-end
sales charge, but pay a higher ongoing distribution fee than class A shares, and
may be subject to a contingent deferred sales charge, if those shares are
redeemed within six years of purchase. Expenses of the fund are borne pro-rata
by the holders of both classes of shares, except that each class bears expenses
unique to that class (including the distribution fees applicable to such class).
Each 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
policies are in conformity with generally accepted accounting principles.
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, except that
certain U.S. government obligations are stated at the mean between the last
reported bid and asked prices. 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, 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 that are
generally recognized by institutional traders. (See Section E of Note 1 with
respect to valuation of options.)
B JOINT TRADING ACCOUNT Pursuant to an exemptive order issued by the Securities
and Exchange Commission, The fund may transfer uninvested cash balances into a
joint trading account, along with the cash of other registered investment
companies managed by Putnam Investment Management, Inc. (Putnam Management), the
fund's Manager, a wholly-owned subsidiary of Putnam Investments, Inc., and
certain other accounts. These balances may be invested in one or more repurchase
agreements and/or short-term money market instruments.
<PAGE>
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. The fund's Manager 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 and dividend income is recorded
on the ex-dividend date.
Discount on zero coupon bonds, original issue discount bonds and step-up bonds
is accreted according to the effective yield method. Certain securities held by
the fund pay interest in the form of additional securities; interest on such
securities is recorded on the accrual basis by means of the effective yield
method, and is allocated to the cost of the securities received on the payment
date.
E OPTION ACCOUNTING PRINCIPLES The fund may, to the extent consistent with its
investment objective and policies, seek to increase its current returns by
writing covered call and put options on securities it owns or in which it may
invest. When a fund writes a call or put option, an amount equal to the premium
received by the fund is included in the fund's "Statements of assets and
liabilities" as an asset and an equivalent liability. The amount of the
liability is subsequently "marked-to-market" to reflect the current market value
of an option written. The current market value of an option is the last sale
price or, in the absence of a sale, the last offering price. If an option
expires on its stipulated expiration date, or if the fund enters into a closing
purchase transaction, the fund realizes a gain (or loss if the cost of a closing
purchase transaction exceeds the premium received when the option was written)
without regard to any unrealized gain or loss on the underlying security, and
the liability related to such option is extinguished. If a written call option
is exercised, the fund realizes a gain or loss from the sale of the underlying
security and the proceeds of the sale are increased by the premium originally
received. If a written put option is exercised, the amount of the premium
originally received reduces the cost of the security that the fund purchases
upon exercise of the option.
The risk in writing a call option is that the fund relinquishes the opportunity
to profit if the market price of the underlying security increases and the
option is exercised. In writing a put option, the fund assumes the risk of
incurring a loss if the market price of the underlying security decreases and
the option is exercised. In addition, there is the risk the fund may not be able
to enter into a closing transaction because of an illiquid secondary market.
Each fund may also, to the extent consistent with its investment objectives and
policies, buy put options to protect its portfolio holdings in an underlying
security against a decline in market value. A fund may buy call options to hedge
against an increase in the price of the securities that the fund ultimately
wants to buy. These funds may also buy and sell combinations of put and call
options on the same underlying security to earn additional income. The premium
paid by a fund for the pur-
<PAGE>
chase of a put or call option is included in the fund's "Statement of assets and
liabilities" as an investment and is subsequently "marked-to-market" to reflect
the current market value of the option. If an option the fund has purchased
expires on the stipulated expiration date, the fund realizes a loss in the
amount of the cost of the option. If the fund enters into a closing sale
transaction, the fund realizes a gain or loss depending on whether proceeds from
the closing sale transaction are greater or less than the cost of the option,
the cost of securities acquired by exercising the call is increased by the
premium paid to buy the call. If the fund exercises a put option, it realizes a
gain or loss from the sale of the underlying security and the proceeds from such
sale are decreased by the premium originally paid. The risk associated with
purchasing options is limited to the premium originally paid.
F FEDERAL TAXES It is the policy of the fund to distribute all of its income
within the prescribed time and otherwise comply with the provisions of the
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 of securities held and excise tax on income and
capital gains.
At August 31, 1994, the fund had approximately $504,037,458 in capital loss
carryovers available to offset future realized capital gains, if any. To the
extent that the capital loss carryovers are used to offset realized gains, it is
unlikely that the gains so offset will be distributed to shareholders, since any
such distribution might be taxable as ordinary income.
LOSS CARRYOVER EXPIRATION
- ------------------------------------
$ 20,860,516 August 31, 1996
53,128,974 August 31, 1997
23,057,542 August 31, 1998
296,761,877 August 31, 1999
110,228,549 August 31, 2000
- ------------------------------------
$504,037,458
- ------------------------------------
G DISTRIBUTIONS TO SHAREHOLDERS Distributions to shareholders are recorded by
the fund on the ex-dividend date. 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
included treatment of post-October losses, payment in-kind and market discount.
Reclassifications are made to the fund's capital accounts to reflect income and
gains available for distribution (or available capital loss carryovers) under
income tax regulations.
NOTE 2
MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund for the
quarter. Such fee is based on the following annual rates: 0.70% of the first
$500 million of average net assets, 0.60% of the next $500 million, 0.55% of the
next $500 million, 0.50% of any amount over $1.5 billion, subject to reduction,
under current law, in any year to the extent that expenses (exclusive of
brokerage, interest and taxes) of the fund exceed 2.5% of the first $30 million
of average net assets, 2.0% of the next $70 million and 1.5% of any amount over
$100 million, and by the amount of certain brokerage commissions and fees (less
expenses) received by affiliates of the Manager on the fund's portfolio
transactions.
The fund also reimburses the Manager for the compensation and related
<PAGE>
expenses of certain officers of the fund and their staff who provide
administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Trustees of the fund receive an annual Trustee's fee of $4,830 and an additional
fee for each Trustees' meeting attended. Trustees who are not interested persons
of the Manager and who serve on committees of the Trustees receive additional
fees for attendance at certain committee meetings.
Custodial functions for the fund are provided by Putnam Fiduciary Trust Company
(PFTC), a subsidiary of Putnam Investments, Inc. Investor servicing agent
functions are provided by Putnam Investor Services, a division of PFTC.
Investor servicing and custodian fees reported in the Statement of operations
for the six months ended February 28, 1995 have been reduced by credits allowed
by PFTC.
The fund has adopted distribution plans with respect to its class A and class B
shares (the "plans") 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 Trustees have
approved payment by the fund to Putnam Mutual Funds Corp. at an annual rate of
0.25% and 1.00% of the average net assets attributable to class A and class B
shares, respectively.
During the six months ended February 28, 1995, Putnam Mutual Funds Corp., acting
as an underwriter, received net commissions of $310,321 from the sale of Class A
shares and $905,375 in contingent deferred sales charges from redemptions of
class B shares of the fund. A deferred sales charge of up to 1% is assessed on
certain redemptions of Class A shares purchased as part of an investment of $1
million or more. For the six months ended February 28, 1995, Putnam Mutual Funds
Corp., acting as underwriter, received $13,909 on Class A redemptions.
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the six months ended February 28, 1995, purchases and sales of investment
securities other than short-term investments aggregated $875,027,840 and
$891,407,582, 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.
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -------------------------------------------
Outstanding at
beginning of year -- $ --
Options written 185,000 135,859
- -------------------------------------------
185,000 135,859
- -------------------------------------------
Written options
outstanding at
end of period 185,000 $135,859
- -------------------------------------------
NOTE 4
CAPITAL SHARES
At February 28, 1995, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
<PAGE>
SIX MONTHS ENDED FEBRUARY 28 YEAR ENDED AUGUST 31
1995 1994
- -------------------------------------------------------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------
Shares sold 23,695,624 $275,426,966 71,549,404 $ 922,107,257
Shares issued in
connection with
reinvestment of
distributions 6,201,143 72,154,035 11,702,459 150,364,549
- -------------------------------------------------------------------------------
29,896,767 347,581,001 83,251,863 1,072,471,806
Shares repurchased (25,851,170) (302,518,726) (89,047,285) (1,152,902,095)
- -------------------------------------------------------------------------------
NET INCREASE (DECREASE) 4,045,597 $ 45,062,275 (5,795,422) (80,430,289)
- -------------------------------------------------------------------------------
SIX MONTHS ENDED FEBRUARY 28 YEAR ENDED AUGUST 31
1995 1994
- -------------------------------------------------------------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------
Shares sold 13,851,792 $160,924,539 38,919,687 $ 513,222,306
Shares issued in
connection with
reinvestment of
distributions 1,123,166 13,033,348 2,339,679 19,411,308
- -------------------------------------------------------------------------------
14,974,958 173,957,887 41,259,366 532,633,672
Shares repurchased (6,840,359) (79,611,229) (15,141,949) (194,046,659)
- -------------------------------------------------------------------------------
NET INCREASE 8,134,599 $ 94,346,658 26,117,417 $ 338,587,013
- -------------------------------------------------------------------------------
<PAGE>
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
Edward H. D'Alelio
Vice President and Fund Manager
F. Mark Turner
Vice President
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
John D. Hughes
Vice President and Treasurer
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam High Yield Trust.
It may also be used as sales literature when preceded or accompanied by the
current prospectus, which gives details of sales charges, investment objectives
and operating policies of the fund, and the most recent copy of Putnam's
Quarterly Performance Summary. For more information or to request a prospectus,
call toll free 1-800-225-1581.
Shares of mutual funds are not deposits or obligations of, or guaranteed or
endorsed by, any financial institution, are not insured by the Federal Deposit
Insurance Corporation (FDIC), the Federal Reserve Board or any other agency, and
involve risk, including the possible loss of principal amount invested.
<PAGE>
[logo: PUTNAM INVESTMENTS]
THE PUTNAM FUNDS
One Post Office Square
Boston, Massachusetts 02109
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Putnam
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014/324-17494
