Putnam
Managed
High Yield
Trust
ANNUAL REPORT
May 31, 1995
[PUTNAM LOGO]
B O S T O N * L O N D O N * T O K Y O
<PAGE>
Performance highlights
> "This young fund -- it came to market in mid-1993 -- could be shaping up as
a fine all-weather vehicle."
-- Morningstar Closed-End Funds, May 5, 1995, referring to the fund's solid
defensive performance during 1994's difficult market environment -- which
placed it in the top third of its objective -- and its competitive
performance thus far in 1995.*
> Performance should always be considered in light of a fund's investment
strategy. Putnam Managed High Yield Trust is designed for investors seeking
high current income with a secondary objective of capital growth.
FISCAL 1995 RESULTS AT A GLANCE
<TABLE>
<CAPTION>
Total return NAV Market price
<S> <C> <C> <C>
...........................................................
(change in value during
period plus reinvested
distributions)
12 months ended 5/31/95 8.29% 9.20%
Share value NAV Market price
...........................................................
5/31/94 $13.40 $13.375
5/31/95 13.04 13.125
Distributions No. Income Total
...........................................................
12 $ 1.3200 $1.3200
Current return NAV Market price
...........................................................
End of period 10.12% 10.06%
Current dividend rate(1)
</TABLE>
Performance data represent past results. For performance over longer periods,
see pages 8 and 9.
(1) Income portion of most recent distribution, annualized and divided by
NAV or market price at end of period.
*Morningstar, Inc., an independent mutual-fund industry research and rating
organization, rates a fund relative to funds with similar investment
objectives. The performance noted above is for the period 1/1/94 to
12/31/94. During that period, there were 26 funds in the corporate
high-yield category and the fund placed in the 30th percentile within that
category. For the period 1/1/95 to 6/30/95, there were 27 funds in the
corporate high-yield category and the fund placed in the 48th percentile.
Past performance is not indicative of future results.
<PAGE>
From the Chairman
[Picture of George Putnam]
(c) Karsh, Ottawa
Dear Shareholder:
During the first five months of calendar 1995, the fixed-income markets made
considerable progress in recovering from some of the most challenging
conditions on record. The much improved environment for corporate high-yield
bonds is clearly reflected in Putnam Managed High Yield Trust's results for
the fiscal year ended May 31, 1995.
The consensus seems to be that the bond markets may continue to advance, but
at a slower pace. Concern that the Federal Reserve Board would raise interest
rates again appears to have been laid to rest as the Fed lowered a key rate
after the close of the period. Some observers are even predicting further
reductions before year's end.
Whether the Fed eases or not, Putnam Management believes that interest rates
are likely to be lower than current levels by the end of 1995. The inflation
rate could diminish further, too, making real rates of return even more
attractive.
On the pages that follow, Fund Manager Jennifer Leichter reviews the course
of the fixed-income markets in the context of your fund's performance and
prospects.
Respectfully yours,
[signature of George Putnam]
George Putnam
Chairman of the Trustees
July 19, 1995
<PAGE>
Report from the fund manager
Jennifer E. Leichter
Putnam Managed High Yield Trust's fiscal year ended May 31, 1995, spanned a
changing of the guard in fixed-income market leadership. During the first
half of the fiscal year, corporate high-yield bonds outperformed most
investment-grade fixed-income sectors, including U.S. Treasury securities.
However, as calendar 1995's sweeping bond-market rally has unfolded,
higher-quality bonds, which are generally more sensitive to interest rate
changes than many other fixed-income securities, have advanced further than
the corporate high-yield sector.
Such rotation in market leadership is a normal occurrence in the fixed-income
markets -- indeed, in all financial markets -- and is frequently only a
matter of degrees. Corporate high-yield funds have participated in this
year's bond market recovery, too. Your fund's 10.02% and 8.29% total returns
at net asset value for the calendar year-to-date and 12-month periods ended
May 31, 1995, respectively, are representative of the high-yield sector's
impressive rebound from 1994's difficult market.
> PROFITS FROM LATE CYCLICALS REDEPLOYED INTO SELECT EARLY CYCLICALS
Calendar 1995's market rally has enabled us to take profits on some of the
fund's later cyclical positions (securities of companies that tend to excel
in the later stages of an economic recovery). However, we have also begun
selectively to add positions in some early cyclical industries that are
currently out of favor. In late 1994 and early 1995, investors unloaded
securities from industries such as aerospace and textile manufacturing out of
fear that a less- vigorous economy would mean reduced cash flows and profits
for these industries.
As is so often the case in securities markets, selling pressure feeds on
itself and market sectors can be pushed down to prices significantly below
what an industry's business prospects may
<PAGE>
actually warrant. We believe this is what occurred in aerospace, textiles,
and several other industries. Consequently, we now believe that many securities
in these industries have fallen to levels representing attractive values.
Although there can be no assurances, certain early cyclical high-yield
securities may have the potential for moderate price gains as more
value-seeking investors move to capitalize on these downtrodden sectors.
> DEREGULATION MAY BENEFIT CABLE TV AND OTHER "INFORMATION SUPERHIGHWAY"
COMPETITORS
Believing that cable television companies are likely to be major
beneficiaries of new telecommunications legislation, we continued to increase
the fund's weighting in this industry. At the time of this writing, the U.S.
Senate had just passed a bill that constitutes a comprehensive rewrite of
telecommunications laws. The bill, if signed into law, would effectively
deregulate the cable TV industry and loosen various restrictions on local and
long-distance telephone service. In our view, deregulation will likely drive
down cable companies' operating costs and could spur industry consolidation.
While there are no guarantees, such developments could provide a major boost
to the values -- and prices -- of cable TV bonds, and the securities of other
broadcasters.
TOP INDUSTRY SECTORS (5/31/95)*
Cable Television 6.1%
Gaming and Recreation 5.3%
Electric Utilities 4.5%
Cellular Communications 4.4%
Forest Products 4.1%
Chemicals 3.4%
*Based on percentage of net assets. Figures represent holdings in corporate
bonds and notes. Sector weightings will vary over time.
<PAGE>
> ENERGY HOLDINGS ENHANCE DIVERSIFICATION
An industry that has become somewhat more prominent in the fund since the
beginning of calendar 1995 is energy -- specifically, the securities of
smaller oil and gas companies involved in specialized exploration and
development activities. Companies such as Oklahoma City-based Chesapeake
Energy and several others, now represent an identifiable theme in the
portfolio.
The energy industry becomes more attractive to investors during periods when
uncertainty develops over future economic growth rates. This is because
energy tends to function in its own business cycle which is only partially
influenced by its suppliers and consumers. Consequently, allocating assets to
energy investments provides the fund with an excellent means of
diversification.
> SECURITIES OF COMMODITY PRODUCERS HELPED BY WEAK DOLLAR
Although we have reduced the fund's overall commitment to later cyclicals, we
continue to favor the bonds of major commodity producers -- industries such
as metals, papers, and chemicals -- that generate a significant portion of
their revenues from overseas exports. Because of the weak U.S. dollar, which
makes U.S. exports more affordable to foreign customers, many companies in
these industries are continuing to post strong export-driven profits. We
believe it is possible that this profit growth, and its beneficial effect on
commodity exporters' security prices, may continue for as long as the
dollar's weakness persists.
Going forward, along with our selective approach to cyclicals and our ongoing
emphasis on cable TV, we will continue to focus on opportunities in other
industries that may benefit from the trend toward telecommunications
deregulation. Industries such as Specialized Mobile Radio (SMR) -- in which
Nextel Communications, a major fund holding, is a leading player -- Direct
Satellite TV, and cellular communications, offer many exciting opportunities
for discerning high-yield investors. We are firm believers in the so called
"information superhighway" -- the integration of computer and
<PAGE>
TOP 10 HOLDINGS (5/31/95)
PSF Finance (L.P.) 12.00%, 2000
Finance
Midland Funding Corp. 11.75%, 2005
Electric utility
Pricellular Wire stepped-coupon 0%, 2001
Cellular communications
First PV Funding Corp. 10.15%, 2016
Electric utility
Insight Communications Co. stepped-coupon 8.25%, 2000
Cable television
Haynes Intl. 11.25%, 1998
Metals and mining
Healthtrust, Inc. 10.25%, 2004
Health care
Riverwood Intl. Corp. 11.25%, 2002
Forest products
Trump Castle Funding Corp. 11.75%, 2003
Recreation and gaming
Comdata Network, Inc. 13.25%, 2002
Financial services
These holdings represent 15.2% of the fund's net assets. Portfolio holdings
will vary over time.
communications technologies -- and believe that the better-managed companies
that service this growing technology may have the potential to produce
superior results for long-term investors.
The views expressed about the securities 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 5/31/95,
there is no guarantee the fund will continue to hold these securities in the
future. Putnam Managed High Yield Trust is a portfolio managed for high
current income primarily through investments in high-yielding lower-rated
fixed-income securities, which pose a greater risk to principal than
higher-rated securities. High-yield securities are rated lower than
investment-grade securities because there is a greater possibility that
negative changes in the issuer's business conditions or in general economic
conditions may hinder the issuer's ability to pay principal and interest on
the securities.
<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.
TOTAL RETURN FOR PERIODS ENDED 5/31/95
<TABLE>
<CAPTION>
First
Boston
Market High Yield
NAV price Bond Index CPI
<S> <C> <C> <C> <C>
1 year 8.29% 9.20% 11.04% 3.19%
Life of fund
(since 6/25/93) 13.44 6.65 16.65 5.40
Annual average 6.75 3.39 8.37 2.76
</TABLE>
TOTAL RETURN FOR PERIODS ENDED 6/30/95
most current calendar quarter
<TABLE>
<CAPTION>
NAV Market price
<S> <C> <C>
1 year 7.67% 17.00 %
Life of fund
(since 6/25/93) 13.18 6.65
Annual average 6.32 3.24
</TABLE>
Performance data represent past results. Investment returns, net asset value,
and market value will fluctuate so an investor's shares, when sold, may be
worth more or less than their original cost. Fund performance data do not
take into account any adjustment for taxes payable on reinvested
distributions.
TERMS AND DEFINITIONS
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares.
Market price is the current trading price of one share of the fund. Market
prices are set by transactions between buyers and sellers on the New York
Stock Exchange.
COMPARATIVE BENCHMARKS
First Boston High Yield Index is an unmanaged list of lower-rated, high-
yielding U.S. corporate bonds. It does not represent an investment return.
Securities in the fund's portfolio will differ from those in the Index.
Consumer Price Index (CPI) is a commonly used measure of inflation; it does
not represent an investment return.
<PAGE>
Report of Independent Accountants
For the Year Ended May 31, 1995
To the Trustees and Shareholders of
Putnam Managed High Yield Trust
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments owned, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Putnam Managed
High Yield Trust (the "fund") at May 31, 1995, and the results of its
operations, the changes in its net assets and the financial highlights for
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards, which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits,
which included confirmation of investments owned at May 31, 1995 by
correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
July 17, 1995
<PAGE>
Portfolio of investments owned
May 31, 1995
<TABLE>
<CAPTION>
CORPORATE BONDS AND NOTES (76.5%)*
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
Advertising (1.7%)
$ 750,000 Outdoor Systems, Inc. sr. notes 10-3/4s, 2003 $ 720,000
750,000 Universal Outdoor, Inc. sr. note stepped-coupon zero %, (14s, 7/1/99), 2004++ 445,838
495,000 Universal Outdoor, Inc. sub. deb. 11s, 2003 492,253
1,658,091
Aerospace and Defense (1.9%)
500,000 BE Aerospace sr. notes, 9-3/4s, 2003 495,000
400,000 Fairchild Corp. sr. notes 12-1/4s, 1999 406,000
1,000,000 UNC, Inc. 9-1/8s, 2003 980,000
1,881,000
Agriculture (3.3%)
1,102,000 PMI Holdings Corp. Ser. B, sub. disc. deb. stepped-coupon zero % (11-1/2s,
9/1/00), 2005++ 589,570
300,000 PSF Finance (L.P.) sr. exch. note 12-1/4s, 2004 309,525
2,250,000 PSF Finance (L.P.) sr. notes 12s, 2000 2,345,625
3,244,720
Aluminum (1.1%)
1,000,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes 12-3/4s, 2003 1,077,500
Automotive Parts (1.1%)
500,000 Aftermarket Tech sr. notes 144A 12s, 2004 532,500
500,000 Key Plastics Corp. sr. notes 14s, 1999 525,000
1,057,500
Broadcasting (2.1%)
600,000 Act III Broadcasting, Inc. sr. sub. notes 9-5/8s, 2003 609,000
500,000 New City Broadcasting Corp. sr. sub. notes 11-3/8s, 2003 485,000
650,000 Panamsat (L.P.) sr. sub. notes stepped-coupon zero % (11-3/8s, 8/1/98),
2003++ 461,500
500,000 SFX Broadcasting, Inc. sr. sub. notes 11-3/8s, 2000 522,500
2,078,000
Building and Construction (2.5%)
100,000 Miles Homes Services sr. notes 12s, 2001 82,000
1,000,000 Presley Co. sr. notes 12-1/2s, 2001 842,500
1,000,000 Schuller Intl. Corp. bonds 10-7/8s, 2004 1,097,500
400,000 Scotsman Group, Inc. sr. notes 9-1/2s, 2000 390,000
2,412,000
Building Products (1.6%)
500,000 American Standard, Inc. deb. 9-1/4s, 2016 502,500
1,000,000 Walter Industries Inc. sr. note Ser. B, 12.19s, 2000 1,017,500
1,520,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
Business Services (0.7%)
$ 720,000 Corporate Express, Inc. sr. sub. notes 9-1/8s, 2004 $ 698,400
Cable Television (6.1%)
500,000 Adelphia Communications Corp. sr. notes 12-1/2s, 2002 495,000
847,500 Adelphia Communications Corp. sr. notes 9-1/2s, 2004# 703,425
500,000 Cablevision Industries Corp. sr. notes 10-3/4s, 2002 540,000
500,000 Cablevision Industries Corp. sub. deb. 9-1/4s, 2008 505,000
800,000 Continental Cablevision, Inc. sr. deb. 9-1/2s, 2013 808,000
1,000,000 Falcon Holdings Group, Inc. sr. sub. notes 11s, 2003# 920,000
1,500,000 Insight Communications Co. sr. sub. notes stepped-coupon
8-1/4s (11-1/4s, 3/1/96), 2000++ 1,507,500
750,000 Marcus Cable Co. (L.P.) sr. sub. disc. note stepped-coupon
zero % (13-1/2s, 8/1/99), 2004++ 461,250
5,940,175
Cellular Communications (4.4%)
650,000 Cellular, Inc. sr. sub. disc. notes stepped-coupon zero
% (11-3/4s, 9/1/98), 2003++ 485,063
500,000 Cencall Communications Corp. sr. disc. notes
stepped-coupon zero % (10-1/8s, 1/15/99), 2004++ 245,000
500,000 Dial Call Communications, Inc. sr. disc. notes stepped
coupon zero % (12-1/4s, 2004) 2000++ 247,500
620,000 Horizon Cellular Telephone Co. sr. sub. disc. notes Ser.
B, stepped-coupon zero % (11-3/8s, 10/1/97), 2000++ 489,800
1,900,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero % (11-1/2s, 9/1/98), 2003++ 1,102,000
250,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero % (9-3/4s, 2/15/99), 2004++ 123,750
2,000,000 Pricellular Wire sr. disc. notes stepped-coupon zero %
(14s, 11/15/97), 2001++ 1,580,000
4,273,113
Chemicals (3.4%)
250,000 Carlisle Plastic sr. notes 10-1/4s, 1997 252,500
1,000,000 G-I Holdings, Inc. sr. notes zero %, 1998 680,000
900,000 Harris Chemical sr. secd. disc. notes stepped-coupon zero
% (10-1/4s, 1/15/96), 2001++ 814,500
750,000 OSI Specialties Corp. sr. secd. disc. deb. stepped-coupon
zero % (11-1/2s, 4/15/99), 2004++ 536,250
1,000,000 OSI Specialties Corp. sr. sub. notes 9-1/4s, 2003 1,010,000
3,293,250
Computer Equipment (0.6%)
650,000 Computervision Corp. sr. sub. notes 11-3/8s, 1999 624,000
Conglomerates (1.1%)
600,000 Axia, Inc. sr. sub. notes Ser. B 11s, 2001 564,000
850,000 Talley Industries, Inc. sr. disc. deb. stepped-coupon zero
% (12-1/4s, 10/15/98), 2005++ 531,250
1,095,250
Consumer Services (0.4%)
400,000 Solon Automated Services, Inc. notes 12-3/4s, 2001 392,000
<PAGE>
Containers (1.1%)
$1,000,000 Ivex Holdings Corp. sr. disc. deb. stepped-coupon zero
% (13-1/4s, 3/15/00), 2005++ $ 550,000
500,000 Ivex Packaging Corp. sr. sub. notes 12-1/2s, 2002 537,500
1,087,500
Electric Utilities (4.5%)
400,000 Cleveland Electric Illuminating 1st mtge. 9-1/2s, 2005 403,000
400,000 Cleveland Electric Illuminating 1st. mtge.
9s, 2023 363,568
1,500,000 First PV Funding Corp. deb. 10.15s, 2016 1,530,000
1,600,000 Midland Funding Corp. II deb. Ser. A, 11-3/4s, 2005 1,656,000
500,000 Toledo Edison 1st. mtge. 7-7/8s, 2004 461,125
4,413,693
Electronics (1.8%)
500,000 Amphenol Corp. sr. notes 10.45s, 2001 538,370
366,000 Amphenol Corp. sr. sub. notes 12-3/4s, 2002 418,613
1,600,000 International Semi-Tech. Corp. sr. disc. notes stepped-
coupon zero % (11-1/2s, 8/15/00), 2003++ 824,000
1,780,983
Entertainment (0.5%)
500,000 Time Warner Inc. notes zero %, 2002 489,375
Financial Services (1.1%)
1,000,000 Comdata Network, Inc. sr. sub. deb. 13-1/4s, 2002 1,105,000
Food Chains (2.0%)
1,000,000 Grand Union Co. Ser. A sr. sub. notes 12-1/4s, 2002
(In Default)+ 300,000
1,300,000 Grand Union Co. sr. sub. notes 12-1/4s, 2002
(In Default)+ 390,000
500,000 Safeway, Inc. med. term notes 8.57s, 2003 526,250
500,000 Southland Corp. 1st priority sr. sub. deb. 5s, 2003 381,250
500,000 Southland Corp. deb. Ser. A, 4-1/2s, 2004 341,250
1,938,750
Forest Products (4.1%)
900,000 Gaylord Container Corp. sr. notes 11-1/2s, 2001 958,500
1,050,000 Riverwood International Corp. sr. sub. notes
11-1/4, 2002 1,155,000
1,000,000 Stone Container Corp. deb. sr. sub. notes 11-1/2s, 1999 1,040,000
350,000 Stone Container Corp. 1st mtge. 10-3/4s, 2002 371,000
250,000 Stone Container Corp. sr. sub. notes 10-3/4s, 1997 257,500
250,000 Stone Container Corp. sr. sub. notes 9-7/8s, 2001 248,750
4,030,750
Health Care (3.2%)
1,200,000 Healthtrust, Inc. sub. notes 10-1/4s, 2004 1,386,000
750,000 National Medical Enterprises Inc. sr. notes 10-1/8s, 2005 791,250
500,000 Ornda Healthcorp sr. sub. notes 12-1/4s, 2002 550,000
400,000 Paracelsus Healthcare Corp. sr. sub. notes
9-7/8s, 2003 402,000
3,129,250
<PAGE>
Home Furnishings (1.8%)
$1,816,623 Simmons Mattress Corp. 144A deb. 8s, 2003## $1,793,915
Hospital Management (2.7%)
850,000 Continental Medical Systems Inc. sr. sub. notes 10-7/8s,
2002 884,000
1,000,000 Continental Medical Systems Inc. sr. sub. notes
Ser. B, 10-3/8s, 2003 1,025,000
750,000 Integrated Health Services 144A sr. sub. notes 9-5/8s,
2002 761,250
2,670,250
Insurance (0.8%)
450,000 American Life Holding Co. sr. sub. notes 11-1/4s, 2004 468,000
300,000 Reliance Group Holdings, Inc. sr. sub. deb. 9-3/4s, 2003 294,000
762,000
Lodging (0.7%)
750,000 John Q. Hammons Hotels 1st. mtge. notes 8-7/8s, 2004 716,250
Metals and Mining (1.5%)
1,500,000 Haynes International, Inc. sr. notes Ser. B, 11-1/4s, 1998 1,440,000
Motion Picture Distribution (1.1%)
1,000,000 Cinemark USA sr. notes 12s, 2002 1,083,750
Oil and Gas (2.9%)
1,000,000 Chesapeake Energy Corp. sr. exch. notes 12s, 2001 1,052,500
700,000 Flores & Rucks, Inc. sr. notes 13-1/2s, 2004 780,500
250,000 Maxus Energy Corp. deb. 11-1/4s, 2013 246,250
750,000 Maxus Energy Corp. notes 9-1/2s, 2003 712,500
2,791,750
Paging (1.6%)
1,000,000 Mobile Telecommunications Tech. sr. notes 13-1/2s, 2002 1,072,500
700,000 Pagemart, Inc. sr. disc. notes stepped-coupon zero %
(12-1/4s, 11/1/98), 2003++ 448,000
1,520,500
Publishing (0.9%)
500,000 Marvel Holdings, Inc. Ser. B sr. notes zero %, 1998 352,500
750,000 Marvel Parent Holdings, Inc. sr. secd. disc. notes zero
%, 1998 521,250
873,750
Real Estate (1.2%)
50,000 Chelsea Piers 144A Ser. B, stepped-coupon zero %
(11s, 6/15/99), 2009++ 45,125
750,000 Chelsea Piers Ser. B stepped-coupon zero %
(12-1/2s, 6/15/99), 2004++ 669,375
500,000 HMH Properties Inc. 144A sr. notes 9-1/2s, 2005 490,000
1,204,500
Recreation (5.3%)
550,000 Arizona Charlies Corp. 1st mtge. Ser. B, 12s, 2000 440,000
2,000 Capital Gaming International, Inc. notes zero %, 1995 880
200,000 Capitol Queen Corp. 1st mtge note Ser. B, 12s, 2000 176,000
350,000 Casino America Inc. 1st mtge. deb. 11-1/2s, 2001 350,000
<PAGE>
Recreation (continued)
$ 725,000 Fitzgerald Gaming Co. 144A sr. notes 13s, 1996 $ 456,750
1,150,000 Lady Luck Gaming Corp. 1st. mtge. 10-1/2s, 2001 787,750
414,000 Louisiana Casino Cruises Corp. 1st mtge. 11-1/2s, 1998 380,880
750,000 Stratosphere Corp. 1st mtge. 14-1/4s, 2002 780,000
1,719,000 Trump Castle Funding Corp. mtge. 11-3/4s, 2003 1,143,135
432,000 Trump Castle Funding Corp. sr. sub. notes 11-1/2s, 2000 432,000
250,000 Trump Plaza Funding, Inc. 1st mtge. notes 10-7/8s, 2001 226,250
5,173,645
Restaurants (1.2%)
750,000 American Restaurant Group, Inc. sr. secd. notes,
Ser. A, 12s, 1998 637,500
201,000 Flagstar Corp. sr. sub. deb. 11-1/4s, 2004 153,765
500,000 Flagstar Corp. sr. sub. notes 11-3/8s, 2003 385,000
1,176,265
Retail (2.3%)
1,500,000 Finlay Enterprises, Inc. sr. disc. deb. stepped-coupon
zero % (12s, 5/1/98), 2005++ 997,500
800,000 Loehmanns' Holdings, Inc. sr. notes 10-1/2s, 1997 788,000
500,000 Loehmanns' Holdings, Inc. sr. sub. notes 13-3/4s, 1999 492,500
50,000 Waban, Inc. sr. sub. notes 11s, 2004 52,000
2,330,000
School Buses (0.5%)
500,000 Blue Bird Body Co. sub. deb. Ser. B, 11-3/4s, 2002 512,500
Steel (0.3%)
250,000 Jorgensen Earle M. Co. sr. notes 10-3/4s, 2000 247,500
Telephone Services (0.6%)
945,000 Call-Net Enterprises stepped-coupon zero %
(13-1/4s, 12/1/99), 2004++ 561,092
Textiles (0.3%)
500,000 Foamex (L.P.) Capital Corp. sr. disc. note
stepped-coupon zero % (14s, 7/1/99), 2004++ 285,000
Total Corporate Bonds and Notes
(cost $73,974,531) $74,362,967
</TABLE>
<TABLE>
<CAPTION>
UNITS (10.0%)*
NUMBER OF UNITS VALUE
<S> <C> <C>
90 Celcaribe S.A. 144A units stepped-coupon zero % (13-1/2s,
3/15/98), 2004++ $ 775,800
1,150 Commodore Media Inc, 144A units stepped-coupon 7-1/2s,
(13-1/4s, 5/1/98), 2003++ 1,012,000
2,015 Echostar Communication Corp. units stepped-coupon zero %
(12-7/8s, 6/1/99), 2004++ 1,088,100
250,000 Elsinore Corp 144A 1st. property mtge. units 20s, 1996 250,000
500 Health-O-Meter Products, Inc. units 13s, 2002 470,000
1,000 Heartland Wireless Communication, Inc. 144A units
13s, 2003 1,065,000
500,000 Hemmeter Enterprises Inc., sr. notes 12s, 2000## 235,000
750,000 Hollywood Casino 144A units 13-1/2s, 1998 855,000
1,000 ICF Kaiser International, Inc. sr. sub. units 12s, 2003 947,500
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
UNITS
NUMBER OF UNITS VALUE
<S> <C> <C>
$ 450,000 Intermedia Communications of Florida units
13-1/2s, 2005 $ 452,250
224,720 New Street Acquisition Corp. units 12s, 1998## 224,720
1,000 Peoples Choice TV Corp. Unit zero % (13-1/8s,
6/1/2000), 2004++ 525,000
1,000 Total Renal Care units stepped-coupon zero %
(12s, 8/15/97), 2004++ 900,000
1,000 WRT Energy Corp. units 13-7/8s, 2002 1,020,000
Total Units
(cost $9,522,206) $9,820,370
YANKEE BONDS AND NOTES (4.3%)*
PRINCIPAL AMOUNT VALUE
$ 250,000 CF Cable TV., Inc. sr. notes 11-5/8s, 2005 $ 266,250
300,000 Cinemark Mexico notes 12s, 2003 279,000
1,600,000 Fresh Del Monte Produce Corp. NV sr. notes,
Ser. B, 10s, 2003 1,360,000
1,150,000 Ispat Mexicana, SA deb. 10-3/8s, 2001 989,000
100,000 Maxus Energy Corp. global notes 9-7/8s, 2002 97,000
1,200,000 Repap New Brunswick sr. notes 10-5/8s, 2005 1,222,500
Total Yankee Bonds and Notes
(cost $4,364,807) $4,213,750
PREFERRED STOCKS (3.1%)*
NUMBER OF SHARES VALUE
14,000 California Federal Bank Ser. B, $10.625, exch. pfd. $1,477,000
11,000 First Nationwide Bank $11.50, pfd. 1,177,000
16,947 Pyramid Communications, Inc. Ser. C, $3.125 exch. pfd. 415,202
Total Preferred Stocks
(cost $2,987,751) $3,069,202
COMMON STOCKS (1.9%)*+
NUMBER OF SHARES VALUE
1,500 American Restaurant Group, Inc. $ 25,500
9,000 Arcadian Corp. 120,375
1,800 Axia Holding Corp. 144A 50,400
2,667 Capital Gaming International, Inc. 144A 4,083
10,250 Chesapeake Energy Corp. 278,031
10,504 Elsinore Corp. 7,878
3,333 Finlay Enterprises, Inc. 40,829
106,701 Loehmanns' Holdings, Inc. 144A 106,701
60,000 Nextel Communications, Inc. Class A 810,000
303 PMI Holdings Corp. 144A 60,600
244 Premium Holdings L.P. 144A 24,448
525 Pyramid Communications, Inc. New Class B 144A 12,602
12,750 Specialty Foods Corp. 38,250
13,000 Tele-Communications Inc. Class A 274,625
2,273 Taj Mahal Holding Corp. Class A 22,730
Total Common Stocks
(cost $1,641,511) $1,877,052
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EUROBONDS (1.6%)*
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
$1,000,000 Argentina (Republic of) Floating Rate Note 5s,
2023 $ 500,000
1,240,000 Banco Del Dud S.A. Sr. unsub. med. term notes 10-1/8s,
1997 1,097,400
Total Eurobonds
(cost $1,512,200) $ 1,597,400
</TABLE>
<TABLE>
<CAPTION>
WARRANTS (0.6%)*+
NUMBER OF
WARRANTS EXPIRATION DATE VALUE
<S> <C> <C> <C>
25,000 Becker Gaming Corp. 144A 11/15/00 $ 25,000
4,550 Capital Gaming International, Inc. 2/1/99 4,550
1,142 Casino America, Inc. 11/15/96 571
6,900 Casino Magic Finance Corp. 10/14/96 345
3,340 Cinemark Mexico USA, Inc. 8/1/03 30,945
500 Dial Page, Inc. 1/1/97 650
10,000 Elsinore Corp. Warrants 10/8/98 1,000
725 Fitzgerald Gaming Co. 144A 3/15/99 39,875
500 Foamex (L.P.) Capital Corp.144A 7/1/99 7,500
29,280 Gaylord Container Corp. 7/31/96 248,880
492 Louisiana Casino Cruises, Inc. 144A 12/1/98 7,380
6,000 Miles Homes, Inc. 4/1/97 3,000
750 OSI Specialties Corp. 144A 4/15/99 15,000
6,900 Pagemart, Inc. 144A 12/31/03 65,550
1,800 President Riverboat Casinos, Inc. 144A 9/23/96 90
4,560 UCC Investor Holding, Inc. 10/30/99 51,300
750 Universal Outdoor, Inc. 144A 7/1/04 30,000
101 Wright Medical Technology, Inc. 144A 6/30/03 16,606
Total Warrants
(cost $471,889) $ 548,242
CONVERTIBLE BONDS AND NOTES (0.5%)*
(cost $500,000)
PRINCIPAL AMOUNT VALUE
$500,000 Sahara Mission cv. sub. notes 12s, 1995 $ 500,000
Total Investments
(cost $94,974,895)*** $95,988,983
</TABLE>
NOTES
* Percentages indicated are based on net assets of $97,901,037, which
correspond to a net asset value per share of $13.04.
++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.
##Income may be received in cash or additional securities at the discretion of
the issuer.
+Non-income-producing security.
***The aggregate identified cost on a tax cost basis is $94,986,034,
resulting in gross unrealized appreciation and depreciation of $4,026,671
and $3,023,722, respectively, or net unrealized appreciation of
$1,002,949.
144A after the name of a security represents those securities exempt from
registration under Rule 144A of the Securities Act of 1933. These securities
may be resold in transactions exempt from registration, normally to qualified
institutional buyers.
The rates shown on Floating Rate Notes (FRN) are the current interest rates
at May 31, 1995, which are subject to change based on the terms of the
security.
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of assets and liabilities
May 31, 1995
<TABLE>
<CAPTION>
Assets
<S> <C>
Investments in securities, at value (identified cost $94,974,895)
(Note 1) $ 95,988,983
Cash 593,450
Dividends and interest receivable 2,102,780
Receivable for securities sold 1,928,840
Unamortized organization expenses (Note 1) 18,341
Total assets 100,632,394
Liabilities
Distributions payable to shareholders 826,579
Payable for securities purchased 1,660,083
Payable for compensation of Trustees (Note 2) 227
Payable for compensation of Manager (Note 2) 182,422
Payable for administrative services 544
Payable for investor servicing and custodian fees (Note 2) 17,660
Other accrued expenses 43,842
Total liabilities 2,731,357
Net assets $ 97,901,037
Represented by
Paid-in capital (Note 1) $ 105,342,573
Distributions in excess of net investment income (Note 1) (70,066)
Accumulated net realized loss on investments (Note 1) (8,385,558)
Net unrealized appreciation of investments 1,014,088
Total -- Representing net assets applicable to capital shares
outstanding $ 97,901,037
Computation of net asset value
Net asset value per share ($97,901,037 divided by 7,507,107 shares) $13.04
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of operations
Year ended May 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Investment income:
Interest $10,778,281
Dividends 99,703
Total investment income 10,877,984
Expenses:
Compensation of Manager (Note 2) 703,411
Investor servicing and custodian fees (Note 2) 81,545
Compensation of Trustees (Note 2) 9,012
Reports to shareholders 49,436
Auditing 25,466
Legal 28,627
Postage 24,760
Administrative services (Note 2) 4,469
Exchange listing fees 22,390
Amortization of organization expenses (Note 1) 5,977
Other expenses 7,169
Total expenses 962,262
Net investment income 9,915,722
Net realized loss on investments (Notes 1 and 3) (7,978,652)
Net realized loss on written options (Notes 1and 3) (4,063)
Net unrealized appreciation of investments during the
period 5,262,308
Net loss on investment transactions (2,720,407)
Net increase in net assets resulting from operations $ 7,195,315
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of changes in net assets
<TABLE>
<CAPTION>
For the period
June 25, 1993
(commencement of
Year ended operations) to
May 31 May 31
1995 1994
<S> <C> <C>
Increase (decrease) in net assets
Operations:
Net investment income $ 9,915,722 $ 9,199,849
Net realized loss on investments and written
options (7,982,715) (201,289)
Net unrealized appreciation (depreciation) of
investments 5,262,308 (4,248,220)
Net increase in net assets resulting from
operations 7,195,315 4,750,340
Distributions to shareholders:
From net investment income (9,909,206) (9,199,919)
In excess of net investment income -- (198,427)
Increase from capital share transactions -- 105,525,000
Offering costs charged to paid-in-capital -- (362,136)
Total increase (decrease) in net assets (2,713,891) 100,514,858
Net Assets
Beginning of period 100,614,928 100,070
End of period (including distributions in excess
of net investment income of $139,660 and
$146,176, respectively) $ 97,901,037 $100,614,928
Number of fund shares
Shares outstanding at beginning of period 7,501,107 7,107
Shares issued in public offering -- 7,500,000
Shares outstanding at end of period 7,507,107 7,507,107
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Financial Highlights
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
For the period
June 25, 1993
(commencement
Year of operations)
ended to
May 31 May 31
1995 1994
<S> <C> <C>
Net asset value, beginning of period $ 13.40 $ 14.01*
Investment operations
Net investment income 1.32 1.23
Net realized and unrealized loss on investments (.36) (.59)
Total from investment operations .96 .64
Less distributions from:
Net investment income (1.32) (1.22)
In excess of net investment income -- (.03)
Total distributions (1.32) (1.25)
Net asset value, end of period $ 13.04 $ 13.40
Market value, end of period $ 13.125 $ 13.375
Total investment return at market value
(%)(b) 9.20 (2.52)(a)
Net assets, end of period (in thousands) $97,901 $100,615
Ratio of expenses to average net assets (%) 1.00 1.00(a)
Ratio of net investment income to average net
assets (%) 10.32 8.82(a)
Portfolio turnover rate (%) 103.91 80.21(a)
</TABLE>
* Represents initial asset value of $14.07 less offering expenses of
approximately $0.06.
(a) Not annualized
(b) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charge.
<PAGE>
Notes to financial statements
Note 1 May 31, 1995
Significant accounting policies
The fund is registered under the Investment Company Act of 1940, as amended,
as a non-diversified, closed- end management investment company. The fund's
investment objective is to seek high current income. The fund intends to
achieve its objective by investing in high yielding income securities. 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 Market quotations are not considered to be readily
available for some 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.
Certain securities 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. 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.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account, along with the cash of other
registered investment companies managed by Putnam Investment Management, Inc.
("Putnam Management"), the fund's manager, a wholly owned subsidiary of
Putnam Investments Inc., and certain other accounts. These balances may be
invested in one or more repurchase agreements and/or short-term money market
instruments.
C) Repurchase agreements The fund, or any joint trading account, through its
custodian, receives delivery of the underlying securities, the market value
of which at the time of purchase is required to be in an amount at least
equal to the resale price, including accrued interest. 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, stepped-coupon
bonds, and payment in kind
<PAGE>
securities is accreted according to the effective yield method.
E) 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 May 31, 1995 the fund had capital loss carryovers of approximately
$4,314,000 available to offset futures realized capital gains, if any. To the
extent that capital loss carryovers are used to offset realized gains, it is
unlikely that gains so offset will be distributed to shareholders, since any
such distribution might be taxable as ordinary income. The amount of the
carryover and the expiration dates are as follows:
<TABLE>
<CAPTION>
Loss Carryover Expiration
<S> <C>
$307,397 May 31, 2002
$4,006,372 May 31, 2003
</TABLE>
F) Distributions to shareholders Income dividends are declared and
distributed monthly by the fund. Capital gains distributions, if any, are
recorded on the ex-dividend date and paid annually.
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 market
discount, post October losses, defaulted bonds, capital loss carryovers,
dividends payable, and losses on wash sale transactions. Reclassifications
are made to the fund's capital accounts in order that they reflect income and
gains available for distribution (or available capital loss carryovers) under
income tax regulation. During the year ended May 31, 1995, the fund
reclassified $69,594 to decrease distributions in excess of net investment
income $69,508 to increase accumulated net realized loss on investments with
an decrease of $86 to paid-in-capital. Current year reclassifications were
excluded from the calculation of net investment income per share shown in the
financial highlights.
G) Unamortized organization expenses Expenses incurred by the fund in
connection with its organization aggregated $29,884. These expenses are being
amortized on a straight-line basis over a five-year period.
Note 2
Management fee, administrative services, and other transactions
Compensation of Putnam Management includes fees for management and investment
advisory services as well as administrative services. Such management and
investment advisory fees are paid quarterly based on the average weekly net
assets of the fund and is calculated using the following annual rates: 0.55%
of the first $500 million, 0.48% of the next $500 million, 0.44% of the next
$500 million, and 0.40% of any amount over $1.5 billion. The administrative
fees are based on quarterly average net assets of the fund and
<PAGE>
are calculated using the following annual rates: 0.20% of the first $500
million, 0.17% of the next $500 million, 0.16% of the next $500 million, and
0.15% of any amount over $1.5 billion.
The fund also reimburses the Manager for the compensation and related
expenses of certain officers of the fund and their staff who provide
administrative 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 $590 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 wholly owned 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 year ended May 31, 1995 have been reduced by credits allowed by PFTC.
Note 3
Purchases and sales of securities
During the year ended May 31, 1995, purchases and sales of investment
securities other than short-term investments aggregated $96,900,978 and
$99,969,415, respectively. In determining the net gain or loss on securities
sold, the cost of securities has been determined on the identified cost
basis.
Written options transactions during the period are summarized as follows:
<TABLE>
<CAPTION>
Contract Premium
Amount Received
<S> <C> <C>
Contracts outstanding at beginning of
year $ -- $ --
Options written 500,000 3,672
Options closed 500,000 3,672
Written options outstanding $ -- $ --
</TABLE>
<PAGE>
Selected quarterly data
(unaudited)
<TABLE>
<CAPTION>
Net realized Net increase
and unrealized (decrease)
Investment Net invest- gain (loss) on in net assets
income ment income investments from operations
Quarter Per Per Per Per
ended Total Share Total Share Total Share Total Share
<S> <C> <C> <C> <C> <C> <C> <C> <C>
8/31/93 $1,748,199 $.24 $1,558,106 $.21 $ (796,716) $ (.09) $ 761,390 $ .12
11/30/93 2,883,439 .38 2,565,194 .34 1,684,482 .22 4,249,676 .56
2/28/94 2,824,221 .37 2,571,558 .34 2,811,315 .37 5,382,873 .71
5/31/94 2,784,355 .38 2,504,991 .34 (8,148,590) (1.09) (5,643,599) (.75)
8/31/94 2,602,834 .34 2,357,192 .31 (3,421,646) (.45) (1,064,454) (.14)
11/30/94 2,960,538 .40 2,721,030 .37 (4,144,729) (.56) (1,423,699) (.19)
2/28/95 2,681,975 .36 2,454,668 .33 1,360,907 .18 3,815,575 .51
5/31/95 2,632,637 .35 2,382,832 .31 3,485,061 .47 5,867,893 .78
</TABLE>
<PAGE>
Federal tax information
The fund had $1.32 in distributions from net investment income constituting
dividend income for federal income tax purposes.
The Form 1099 you receive in January 1996 will show the tax status of all
distributions paid to your account in calendar 1995.
Results of February 2, 1995 shareholder meeting (Unaudited)
An annual meeting of the shareholders of the fund was held on February 2,
1995. At the meeting, each of the nominees for Trustees was elected as
follows:
<TABLE>
<CAPTION>
Votes Votes
for withheld
<S> <C> <C>
Jameson Adkins Baxter 7,012,325 113,120
Hans H. Estin 7,013,512 111,933
John A. Hill 7,013,853 111,592
Elizabeth T. Kennan 7,011,984 113,461
Lawrence J. Lasser 7,012,461 112,985
Robert E. Patterson 7,009,832 115,613
Donald S. Perkins 7,101,805 114,640
William F. Pounds 7,014,027 111,419
George Putnam 7,014,378 111,068
George Putnam, III 7,011,946 113,500
A.J.C. Smith 7,014,686 110,759
W. Nicholas Thorndike 7,011,912 113,533
</TABLE>
A proposal to ratify the selection of Price Waterhouse LLP as auditors for
the fund was approved as follows: 6,989,002 votes for, and 39,938 votes
against, with 96,506 abstentions and broker non-votes. All tabulations have
been rounded to the nearest whole number.
<PAGE>
Fund information
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT
ACCOUNTANTS
Price Waterhouse LLP
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
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
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
Edward H. D'Alelio
Vice President
Jennifer E. Leichter
Vice President and Fund Manager
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
<PAGE>
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time for
up-to-date information about the fund's NAV or to request Putnam's quarterly
Closed-End Fund Commentary.
<PAGE>
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
18999-590
<PAGE>
APPENDIX TO FORM N-30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED
AND EDGAR-FILED TEXTS:
(1) Bold and italic typefaces are displayed in normal type.
(2) Headers (e.g., the name of the fund) are omitted.
(3) Certain tabular and columnar headings and symbols are displayed
differently in this filing.
(4) Bullet points and similar graphic signals are omitted.
(5) Page numbering is omitted.
(6) Trademark symbol replaced with (TM)
