Putnam
Managed
High Yield
Trust
SEMIANNUAL REPORT
November 30, 1994
(Art--balance scales)
B O S T O N * L O N D O N * T O K Y O
<PAGE>
PERFORMANCE HIGHLIGHTS
> "Putnam Managed High Yield remains a solid choice for high-yield
exposure."
- -- Morningstar Mutual Funds, November 4, 1994.*
> 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.
SEMIANNUAL RESULTS AT A GLANCE
<TABLE>
<CAPTION>
Total return NAV Market price
<S> <C> <C> <C> <C> <C>
(change in value during
period plus reinvested
distributions)
6 months ended 11/30/94 -2.25% -9.25%
Share value NAV Market price
5/31/94 $13.40 $13.375
11/30/94 12.41 11.500
Capital gains
Distributions Long- Short-
No. Income term term Total
6 $ 0.66 -- -- $ 0.66
Current return NAV Market price
End of period
Current dividend rate(1) 10.64% 11.48%
<FN>
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.
* The fund has not been rated by Morningstar as of 11/30/94.
</TABLE>
<PAGE>
FROM THE CHAIRMAN
(Photo George Putnam)
(c) Karsh, Ottawa
Dear Shareholder:
As we begin a new year, most investors won't regret the passing of the old.
Since last February, when the Federal Reserve Board began a series of
increases in interest rates, 1994 was marked by sharp corrections followed by
small gains and extended uncertainty for virtually all financial markets.
Well in advance of the Fed's first increase, Fund Manager Jennifer Leichter
had adopted defensive strategies designed to reduce the impact of rising
rates on Putnam Managed High Yield Trust's portfolio. While defensive
strategies proved relatively successful, fund performance generally edged
into the negative numbers.
As you might expect, bonds bore the brunt of the downturn. Although shifts in
the market as a whole inevitably affect your fund, Putnam Management's
philosophy of selecting securities on an issue-by-issue basis with a thorough
examination of each issuer's credit quality should continue to help protect
your fund's portfolio.
In the accompanying report, Jennifer discusses the first half of fiscal 1995
and prospects in the challenging months ahead.
Respectfully yours,
(Signature George Putnam)
George Putnam
Chairman of the Trustees
January 18, 1995
<PAGE>
REPORT FROM THE FUND MANAGER
JENNIFER E. LEICHTER
Few fixed-income investors will look back on calendar 1994 with any degree of
fondness, but high-yield investors can take some consolation in the fact that
their disappointment is relatively modest. Although Putnam Managed High Yield
Trust, along with most fixed-income funds, ended the year with a negative
return, its decline was substantially less than those sustained by most
higher-quality funds.
Investors have questioned why high-yield bonds, which are generally expected
to perform well in a strengthening economy, have not delivered more
attractive results this year. It's important to remember high yields are,
after all, still bonds and the inflationary fears that prompted six interest
rate increases over the past year have been anathema to any fixed-income
investment. While your fund's return of -2.25% at net asset value for the six
months ended November 30, 1994, lagged the -1.67% return of the average high
current-yield fund, as tracked by Lipper Analytical Services, it was
competitive against the -4.04% average for 12 months.
The high-yield market also proved its mettle against the U.S. Treasury
market. The First Boston High Yield Index returned -0.74% for one year,
compared with -3.60% for the Lehman Brothers Treasury Bond Index (see chart).
> A VOLATILE MARKET EXPLAINED
At the beginning of 1994, Putnam Management's prediction of a strong U.S.
economy came to pass. However, several factors prevented the fund's portfolio
from taking full advantage of the rejuvenated economy.
Few investment professionals in January 1994 could have predicted the extent
of this year's decline in bond prices. The U.S. Treasury market turned in its
worst performance in years and its negative returns brought other
fixed-income investments down with it. High-yield bonds, which are often
linked to 10-year U.S.
<PAGE>
Treasury notes because of their similar maturities, also felt some of the
effects of their price declines.
Additionally, some of the fund's largest holdings declined in value. Early
success in new gaming jurisdictions drew new entrants--thus creating
aggressive competition. Communications companies, whose products are linked
to the "information superhighway," also saw their bonds depreciate as
investors realized that earnings growth would take longer than expected.
> A STRATEGY FOR A CHANGING ECONOMY
Although 1994 has been frustrating, we are taking steps to prepare for any
future changes in the economy. We believe the economy will remain strong over
the near term and inflation fears may persist. In anticipation of any future
economic downturn, however, we are beginning to shift the fund's assets away
from companies dependent on increased economic activity. Instead, we are
focusing on growth-oriented companies relatively unaffected by the twists and
turns of the economy.
CHART PLOT POINTS:
0 0
1.26 0.39
3.07 1.78
3.23 -0.41
0.19 -2.64
- -1.15 -3.4
- -0.59 -3.52
- -1.25 -3.73
- -0.79 -1.98
- -0.04 -1.96
0.36 -3.33
0.43 -3.39
- -0.74 -3.58
Source: First Boston High Yield Index and Lehman Brothers Treasury Bond
Index. Graph compares the change in cumulative total returns, plotted
monthly. Treasury bonds are guaranteed by the full faith and credit of the
U.S. government and present no credit risks as compared to high-yield bonds.
<PAGE>
Putnam Management's emphasis on cyclical companies has proved effective in
helping the fund stay competitive in a down market. We have now begun to
shift the portfolio's assets from companies whose recent prosperity reflects
the benefits of increased economic activity toward those -- such as Stone
Container, a linerboard company -- that use higher cash flow growth to pay
down debt. Stronger balance sheets can lead to credit upgrades, which, in
turn, can contribute to higher bond prices and thus appreciation of the
investment.
Retail companies are also included in this category. We believe
well-capitalized retailers not only can stay competitive in a down market,
but can also generate additional cash flow that could be used to reduce
outstanding debt.
> A DIVERSIFIED SECTOR STRATEGY
Long-term investors should keep in mind that with every downturn there is
opportunity. We still believe many of the areas in which the fund invests are
undervalued. In order to improve the portfolio's diversification, however, we
own holdings across many companies within several key sectors.
Over time, we believe the cable and media sector will become more important
to people's information needs. We expect cable to benefit from potential
consolidation and acquisition, as telephone and data transmission services
become part of the "second wire into the home." Cablevison Systems is one
current holding that has shown stable earnings from its core business and is
well-positioned to take advantage of developments in this area.
With the "information superhighway" becoming reality, cellular communications
will also play a big role. We believe the market offers many young cellular
companies good earnings potential, including Pricellular, Cellular Inc., and
Horizon Cellular.
Although the gaming industry became depressed last year, we believe this
sector has potential. Specifically, as voters nationwide turn down license
referendums, existing properties may begin to carry more value. In our
opinion, this market should perform, on a selective basis, better in 1995.
> PREPARATION FOR THE FUTURE
In general, we believe companies that derive a good amount of their business
from overseas markets will be the better performers
<PAGE>
TOP FIVE INDUSTRY SECTORS*
Cable Television 7.3%
Forest Products 6.9%
Recreation 6.8%
Broadcasting 5.0%
Retail 4.5%
*Based on a percentage of net assets as of 11/30/94
*Figures may vary in the future.
in 1995. Some of these companies fall into the chemical, paper, and
telecommunications areas. We are also improving the portfolio's credit
quality in an effort to shield it from any potential economic weakness.
Looking further ahead, we think investors are underestimating the level of
inflation we are likely to see over the next year. We believe your fund's
portfolio is well positioned to deal with any inflationary pressures that may
arise over the near term. Additionally, through its diversification, your
fund should be ready to face any future economic downturn.
The view 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 November
30, 1994, there is no guarantee the fund will continue to hold these
securities in the future.
7
<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 at net asset value. 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 11/30/94
<TABLE>
<CAPTION>
First Boston
High Yield
NAV Market price Bond Index CPI
<S> <C> <C> <C> <C>
6 months -2.25% -9.25% -0.15% 1.49%
Life-of-fund
(since 6/25/93) 2.40 -11.37 4.89 3.67
Annual average 1.67 -8.10 3.42 2.53
</TABLE>
TOTAL RETURN FOR PERIODS ENDED 12/31/94
(most recent calendar quarter)
<TABLE>
<CAPTION>
NAV Market price
<S> <C> <C>
1 year -4.54% -5.32%
Life-of-fund
(since 6/25/93) 2.15 -10.41
Annual average 1.41 -6.98
<FN>
Performance data represent past results. Investment returns, net asset values
and market price 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.
</TABLE>
<PAGE>
TERMS AND DEFINITIONS
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of oustanding 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 a market-weighted index including publicly
traded bonds having a rating below BBB by Standard & Poor's and Moody's.
Lehman Brothers Treasury Bond Index is an unmanaged list of publicly issued
U.S. Treasury obligations. Performance figures for the index reflect changes
in market prices and reinvestment of all interest payments.
Consumer Price Index (CPI) is a commonly used measure of inflation; it does
not represent an investment return.
<PAGE>
PORTFOLIO OF INVESTMENTS OWNED
November 30, 1994 (Unaudited)
<TABLE>
<CAPTION>
Corporate Bonds and Notes (80.8%)(a)
Principal Amount Value
<S> <C> <C>
Cable Television (7.3%)
$1,000,000 Adelphia Communications Corp. sr. notes 9-1/2s, 2004(b)) $ 760,000
500,000 Cablevision Industries Corp. sub. deb. 9-1/4s, 2008 432,500
1,250,000 Continental Broadcasting, Inc. sr. sub. notes 10-5/8s, 2003 1,262,500
2,000,000 Insight Communications Co. sr. sub. notes stepped- coupon
8-1/4s (11-1/4s, 3/1/96), 2000(c)) 1,880,000
1,250,000 Jones Intercable, Inc. sr. sub. deb. 10-1/2s, 2008 1,231,250
1,200,000 Summit Communications Group, Inc. sr. sub. deb. 10-1/2s, 2005 1,260,000
6,826,250
Recreation (6.0%)
550,000 Arizona Charlies Corp. sub. deb. Ser. B, 12s, 2000(d)) 452,031
200,000 Capital Gaming International, Inc. sr. notes Ser. B, 11-1/2s,
2001 110,000
400,000 Capitol Queen Corp. sr. sub. deb. Ser. B, 12s, 2000 320,000
350,000 Casino America, Inc. 1st mtge. deb. 11-1/2s, 2001(d)) 290,500
800,000 Elsinore Corp. 1st mtge. 12-1/2s, 2000 384,000
725,000 Fitzgerald Gaming Co. sr. notes stepped-coupon 13-1/4s
(13-1/2s, 12/15/94), 1996(c)(d)) 449,500
1,000,000 Golden Nugget Finance Corp. 1st mtge. deb. Ser. B, 10-5/8s,
2003 580,000
1,750,000 Grand Casino Resorts, Inc. notes 12-1/2s, 2000 1,645,000
150,000 Greate Bay Property Funding Corp. 1st mtge. 10-7/8s, 2004 117,000
414,000 Louisiana Casino Cruises Corp. sr. sub. deb. 11-1/2s,
1998(d)) 314,640
432,000 Trump Castle Funding Corp. sr. sub. notes 11-1/2s, 2000(d)) 432,000
750,000 Trump Plaza Funding, Inc. 1st mtge. notes 10-7/8s, 2001 513,750
5,608,421
Broadcasting (5.0%)
100,000 Act III Broadcasting, Inc. sr. sub. notes 9-5/8s, 2003 91,000
1,000,000 Granite Broadcasting Corp. sr. sub. deb. 12-3/4s, 2002 1,030,000
500,000 New City Broadcasting Corp. sr. sub. notes 11-3/8s, 2003 475,000
1,500,000 Outlet Broadcasting, Inc. sr. sub. notes 10-7/8s, 2003 1,485,000
1,650,000 Panamsat (L.P.) sr. sub. notes stepped-coupon zero %
(11-3/8s, 8/1/98), 2003(c)) 1,089,000
500,000 SFX Broadcasting, Inc. sr. sub. notes 11-3/8s, 2000 502,500
4,672,500
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT Value
Forest Products (4.5%)
$ 250,000 Container Corp. of America sr. notes Ser. A, 11-1/4s, 2004 $ 252,500
2,500,000 Gaylord Container Corp. sr. sub. disc. deb. stepped- coupon
zero % (12-3/4s, 5/15/96), 2005(c) 2,175,000
1,000,000 Stone Container Corp. deb. sr. sub. notes 11-1/2s, 1999 982,500
350,000 Stone Container Corp. 1st mtge. 10-3/4s, 2002 336,875
500,000 Williamhouse Regency (Delaware), Inc. sr. sub. deb. 11-1/2s,
2005 470,000
4,216,875
Retail (4.5%)
2,500,000 Finlay Enterprises, Inc. sr. disc. deb. stepped-coupon zero %
(12s, 5/1/98), 2005(c)) 1,537,500
300,000 Loehmanns' Holdings, Inc. sr. sub. notes 13-3/4s, 1999 300,000
2,000,000 Loehmanns' Holdings, Inc. sr. sub. notes 10-1/2s, 1997 1,940,000
500,000 Parisian, Inc. sr. sub. notes 9-7/8s, 2003 415,000
4,192,500
Chemicals (4.5%)
1,000,000 G-I Holdings, Inc. sr. notes zero %, 1998 600,000
500,000 Harris Chemical Corp. sr. sub. notes 10-3/4s, 2003 452,500
250,000 Huntsman Corp. 1st mtge. 11s, 2004 254,375
750,000 OSI Specialties sr. secd. disc. deb. stepped-coupon zero %
(11-1/2s, 4/15/99), 2004(c)) 450,000
1,000,000 UCC Investors Holding, Inc. sr. sub. notes 11s, 2003 975,000
1,500,000 UCC Investors Holding, Inc. sr. notes 10-1/2s, 2002 1,455,000
4,186,875
Health Care (4.3%)
750,000 American Medical International, Inc. sr. sub. notes 9-1/2s,
2006 751,875
1,250,000 Charter Medical Corp. sr. sub. notes 11-1/4s, 2004 1,287,500
500,000 Healthtrust, Inc. sub. notes 10-3/4s, 2002 527,500
700,000 Healthtrust, Inc. sub. notes 10-1/4s, 2004 738,500
500,000 Ornda Healthcorp sr. sub. notes 12-1/4s, 2002 522,500
200,000 Paracelsus Healthcare Corp. sr. sub. notes 9-7/8s, 2003 190,500
4,018,375
Metals and Mining (3.6%)
1,500,000 Haynes International, Inc. sr. notes Ser. B, 11-1/4s, 1998 1,320,000
2,000,000 Horsehead Industries, Inc. sub. notes 14s, 1999 1,980,000
3,300,000
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT Value
Agriculture (3.4%)
$ 902,000 PMI Acquisition Corp. sub. disc. deb. stepped-coupon zero %
(11-1/2s, 9/1/00), 2005(c)) $ 451,000
300,000 PSF Finance L.P. sr. notes 12-1/4s, 2004(d)) 308,438
2,250,000 Premium Standard Farms sr. secd. notes 12s, 2000(d)) 2,413,125
3,172,563
Cellular Communications (2.3%)
750,000 Cellular, Inc. sr. sub. disc. notes stepped-coupon zero %
(11-3/4s, 9/1/98), 2003(c)) 506,250
620,000 Horizon Cellular Telephone Co. sr. sub. disc. notes Ser. B,
stepped-coupon zero % (11-3/8s, 10/1/97), 2000(c)) 449,500
250,000 NEXTEL Communications, Inc. sr. disc. notes stepped- coupon
zero % (9-3/4s, 2/15/99), 2004(c)) 93,125
1,000,000 NEXTEL Communications, Inc. sr. disc. notes stepped- coupon
zero % (11-1/2s, 9/1/98), 2003(c)) 430,000
1,000,000 Pricellular Wire sr. disc. notes stepped-coupon zero % (1/2s,
5/15/95), 2001(c)(d)) 667,500
2,146,375
Entertainment (2.0%)
2,200,000 Viacom International sub. deb. 8s, 2006 1,881,000
Food Chains (2.3%)
1,000,000 Grand Union Co. sr. sub. notes Ser. A 12-1/4s, 2002 395,000
1,000,000 Grand Union Co. sr. sub. notes 12-1/4s, 2002 395,000
500,000 Safeway, Inc. med. term notes 8.57s, 2003 488,750
900,000 Stater Brothers sr. notes 11s, 2001(d)) 846,000
2,084,750
Oil and Gas (2.0%)
140,000 Flores & Rucks, Inc. sr. notes 13-1/2s, 2004 140,000
500,000 Global Marine deb. notes 12-3/4s, 1999 525,000
1,250,000 TransTexas Gas Corp. sr. secd. notes 10-1/2s, 2000 1,187,500
1,852,500
Restaurants (1.9%)
500,000 American Restaurant Group, Inc. sr. notes Ser. B 12s, 1998 467,500
1,500,000 American Restaurant Group, Inc. sr. notes stepped- coupon
zero % (14s, 12/15/98), 2005(c)) 720,000
500,000 Flagstar Cos. sr. sub. notes 11-3/8s, 2003 410,000
201,000 Flagstar Cos. sr. sub. deb. 11-1/4s, 2004 161,802
1,759,302
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT Value
Electronics (1.8%)
$ 366,000 Amphenol Corp. sr. sub. notes 12-3/4s, 2002 $ 411,750
500,000 Amphenol Corp. sr. notes 10.95s, 2001 535,000
1,600,000 International Semi-Tech. sr. secd. disc. notes stepped-
coupon zero % (11-1/2s, 8/15/00), 2003(c)) 704,000
1,650,750
Advertising (1.6%)
750,000 Outdoor Systems, Inc. sr. notes 10-3/4s, 2003 682,500
495,000 Universal Outdoor, Inc. sub. deb. 11s, 2003 455,400
750,000 Universal Outdoor, Inc. sr. disc. notes stepped coupon
zero % (14s, 7/1/99), 2004(c)) 397,500
1,535,400
Publishing (1.6%)
500,000 Marvel III Holdings, Inc. sr. notes Ser. B 9-1/8s, 1998(d)) 437,500
1,750,000 Marvel Parent Holdings, Inc. sr. secd. disc. notes zero %,
1998 1,085,000
1,522,500
Motion Picture Distribution (1.6%)
1,000,000 Cinemark USA sr. notes 12s, 2002 1,050,000
500,000 Plitt Theatres, Inc. sr. sub. notes 10-7/8s, 2004 470,000
1,520,000
Electric Utilities (1.6%)
1,318,763 Midland Cogeneration Venture L.P. deb. 10.33s, 2002 1,266,010
250,000 Midland Funding Corp. II deb. Ser. A 11-3/4s, 2005 241,250
1,507,260
Building Products (1.5%)
500,000 American Standard, Inc. deb. 9-1/4s, 2016 452,500
1,500,000 American Standard, Inc. sr. sub. deb. stepped-coupon
zero % (10-1/2s, 6/1/98) 2005(c)) 945,000
1,397,500
Conglomerates (1.3%)
1,500,000 Jordan Industries, Inc. sr. sub. disc. deb. stepped-coupon
zero % (11-3/4s, 8/1/98), 2002(c)) 780,000
850,000 Talley Industries, Inc. sr. disc. deb. stepped-coupon zero %
(12-1/4s, 10/15/98), 2005(c)) 425,000
1,205,000
Financial Services (1.2%)
1,000,000 Comdata Network, Inc. sr. sub. deb. 13-1/4s, 2002 1,100,000
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT Value
Aluminum (1.1%)
$1,000,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes 12-3/4s, 2003 $ 1,010,000
Shipping (1.0%)
1,050,000 Viking Star Shipping sr. secd. notes 9-5/8s, 2003 976,500
Steel (1.0%)
500,000 AK Steel Corp. sr. notes 10-3/4s, 2004 481,250
500,000 Bayou Steel Corp. 1st mtge. 10-1/4s, 2001 450,000
931,250
Communications (1.0%)
1,500,000 Pagemart, Inc. sr. disc. notes stepped-coupon zero %
(12-1/4s, 11/1/98), 2003(c)) 930,000
Apparel (1.0%)
1,000,000 Guess Jeans, Inc. sr. sub. notes 9-1/2s, 2003 920,000
Building and Construction (0.9%)
100,000 Miles Homes Services sr. notes 12s, 2001 72,000
500,000 Presley Co. sr. notes 12-1/2s, 2001 445,000
400,000 Scotsman Group, Inc. sr. notes 9-1/2s, 2000 362,000
879,000
Environmental Control (0.9%)
1,000,000 Envirosource, Inc. sr. notes 9-3/4s, 2003 860,000
Finance (0.9%)
750,000 Delaware Management sr. notes Ser. B, 10-1/4s, 2004 731,250
100,000 First Federal Financial Corp. notes 11-3/4s, 2004 99,000
830,250
Textiles (0.8%)
750,000 Foamex (L.P.) Capital Corp. sr. notes 11-1/4s, 2002 757,500
Insurance (0.8%)
450,000 American Life Holding Co. sr. sub. notes 11-1/4s, 2004 445,500
300,000 Reliance Group Holdings sr. sub. deb. 9-3/4s, 2003 256,500
702,000
Home Furnishings (0.8%)
720,984 Simmons Mattress Corp. deb. 8s, 2003(b)(d)) 699,354
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT Value
Business Services (0.7%)
$ 720,000 Corporate Express, Inc. sr. sub. notes 9-5/8s, 2004 $ 635,400
Automotive Parts (0.6%)
500,000 Key Plastics Corp. sr. notes 14s, 1999 552,500
Computer Equipment (0.6%)
650,000 Computervision Corp. sr. sub. notes 11-3/8s, 1999 533,000
Specialty Consumer Products (0.6%)
1,140,000 Equitable Bag Co. sr. notes 12-3/8s, 2002(e) 513,000
Containers (0.5%)
500,000 Ivex Packaging Corp. sr. sub. notes 12-1/2s, 2002 502,500
School Buses (0.5%)
500,000 Blue Bird Body Co. sub. deb. Ser. B 11-3/4s, 2002 500,000
Telephone Services (0.5%)
945,000 Call-Net Enterprises stepped-coupon zero % (13-1/4s,
12/1/99), 2004(c) 489,038
Real Estate (0.5%)
500,000 Chelsea Piers Ser. B 12-1/2s, 2004 410,625
35,000 Chelsea Piers Ser. B, stepped-coupon zero %
(11s, 6/15/99), 2009(c)(d) 29,050
439,675
Food (0.3%)
250,000 Specialty Foods Corp. sr. sub. notes 11-1/4s, 2003 222,500
Total Corporate Bonds and Notes
(cost $80,950,687) $75,280,163
Units (6.1%)(a))
Number of Units Value
100 Axia, Inc. sr. sub. units Ser. B 11s, 2001(d)) $ 98,000
85 Celcaribe S.A. units stepped-coupon zero % (13-1/2s,
3/15/98), 2004(c)(d)) 724,625
500,000 Chesapeake Energy Corp. deb. units 12s, 2001 656,250
500,000 Chesapeake Energy Corp. sr. exch. units 12s, 2001 507,500
1,000 Dial Call Corp. units stepped-coupon zero % (12-1/4s, 380,000
10/15/99), 2004(c)(d)
<PAGE>
Units
Number of Units Value
1,865,000 Echostar Communication Corp. units stepped-coupon zero %
(12-7/8s, 6/1/99), 2004(c)) $ 969,800
250,000 Elsinore Corp. units 20s, 1996 245,000
775,000 Foamex (L.P.) Capital Corp. units stepped-coupon zero %
(13-1/2s, 1/1/95), 2004(c)) 410,750
750,000 Hollywood Casino units 13-1/2s, 1998 622,500
1,000,000 ICF Kaiser International, Inc. sr. sub. units 12s, 2003 860,000
212,000 New Street Acquisition Corp. units 12s, 1998(b)) 212,000
Total Units (cost $5,916,946) $5,686,425
Yankee Bonds and Notes (2.8%)(a))
Principal Amount Value
$ 300,000 Cinemark Mexico notes 12s, 2003 $ 291,000
500,000 Fresh Del Monte Produce Corp. sr. notes Ser. B 10s, 2003 375,000
400,000 Ispat Mexicana, S.A. sr. notes 10-3/8s, 2001 367,000
750,000 Ispat Mexicana, S.A. deb. 10-3/8s, 2001 688,125
920,000 Methanex Corp. sr. notes 8-7/8s, 2001 878,600
Total Yankee Bonds and Notes (cost $2,858,207) $2,599,725
Preferred Stocks (1.6%)(a))
Number of Shares Value
11,000 First Nationwide Bank $11.50 pfd. $1,091,750
15,951 Pyramid Communications Inc. Ser. C, $3.125 pfd. 370,869
Total Preferred Stocks (cost $1,485,449) $1,462,619
</TABLE>
<TABLE>
<CAPTION>
Warrants (0.7%)(a)(e))
Number of Warrants Expiration
Date Value
<S> <C> <C> <C>
25,000 Becker Gaming Corp.(d)) 11/15/00 $ 26,563
4,550 Capital Gaming
International,
Inc.(d)) 2/1/99 5,688
1,142 Casino America, Inc. 11/15/96 1,142
6,900 Casino Magic Finance
Corp. 10/14/96 431
3,340 Cinemark Mexico 8/1/03 30,895
42,635 Elsinore Corp.(d)) 10/4/98 31,976
725 Fitzgerald Gaming 3/15/99 39,877
49,280 Gaylord Container Corp. 7/31/96 338,800
492 Louisiana Casino
Cruises, Inc.(d)) 12/1/98 7,380
6,000 Miles Homes, Inc. 4/1/97 3,000
750 OSI Specialties
Corp.(d)) 4/15/99 7,500
6,900 Pagemart, Inc.(d)) 12/31/03 48,300
1,800 President Riverboat
Casinos, Inc. 9/15/96 900
4,560 UCC Investor Holding,
Inc. 10/30/99 59,280
750 Universal Outdoor,
Inc.(d)) 7/1/04 30,000
101 Wright Medical
Technology, Inc.(d)) 6/30/03 12,229
Total Warrants (cost
$602,812) $643,961
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Common Stocks (0.6%)(a)(e))
Number of Shares Value
<S> <C> <C>
1,500 American Restaurant Group, Inc. $ 30,000
3,000 Arcadian Corp. 105,000
300 Axia Holding Corp.(d)) 19
2,667 Capital Gaming International, Inc. 21,003
5,000 Finlay Enterprises, Inc. Class A 72,500
106,701 Loehmanns' Holdings, Inc.(d)) 106,701
303 PMI Holdings Corp. 60,600
244 Premium Holdings L.P.(d)) 24,448
525 Pyramid Communications Inc. New Class
B(d)) 13,325
12,750 Specialty Foods Corp. 9,563
2,273 Taj Mahal Holding Corp. Class A 22,730
10,000 Triangle Pacific Corp. 118,750
Total Common Stocks (cost $444,932) $ 584,639
Convertible Bonds (0.5%)(a)(d)(cost $500,000)
Principal Amount Value
$ 500,000 Sahara Mission cv. sub. notes 12s, 1995 $ 500,000
Short-Term Investments (6.0%)(a))
Principal Amount Value
$ 2,000,000 Federal National Mortgage Assn. 5.45s,
December 8, 1994 $ 1,997,881
3,560,000 Interest in $500,000,000 joint repurchase
agreement dated November 30, 1994 with
Bankers Trust due December 1, 1994 with
respect to various bulk repurchase
agreements--maturity value of $3,560,569
for an effective yield of 5.75% 3,560,569
Total Short-Term Investments (cost
$5,558,450) $ 5,558,450
Total Investments (cost $98,317,483) (f)) $92,315,982
<FN>
(a) Percentages indicated are based on net assets of $93,172,166, which
corresponds to a net asset value per share of $12.41.
(b) Income may be received in additional securities or cash at the
discretion of the issuer.
(c) The interest rate and date shown parenthetically represent the next
interest rate to be paid and the date the fund will begin receiving
interest at this rate.
(d) Securities exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At November
30, 1994, these securities were valued at $9,356,392 or 10.0% of net
assets.
(e) Non-income-producing security.
(f) The aggregate identified cost on a tax basis is $98,317,483, resulting
in gross unrealized appreciation and depreciation of $1,374,907 and
$7,376,408, respectively, or net unrealized depreciation of $6,001,501.
</TABLE>
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1994 (Unaudited)
<TABLE>
<S> <C>
Assets
Investments in securities, at value (identified cost $98,317,483) (Note 1) $ 92,315,982
Cash 217
Dividends and interest receivable 2,048,728
Receivable for securities sold 350,676
Unamortized organization expenses (Note 1) 21,731
Total assets 94,737,334
Liabilities
Distributions payable to shareholders 822,641
Payable for securities purchased 485,477
Payable for compensation of Trustees (Note 3) 151
Payable for compensation of Manager (Note 3) 179,796
Payable for investor servicing and custodian fees (Note 3) 20,935
Payable for administrative services (Note 3) 3,736
Other accrued expenses 52,432
Total liabilities 1,565,168
Net assets $ 93,172,166
Represented by
Paid-in capital $105,342,659
Distributions in excess of net investment income (22,563)
Accumulated net realized loss on investments (6,146,429)
Net unrealized depreciation of investments (6,001,501)
Total -- Representing net assets applicable to capital shares outstanding $ 93,172,166
Computation of net asset value and offering price
Net asset value per share ($93,172,166 divided by 7,507,107 shares) $ 12.41
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF OPERATIONS
For the six months ended November 30, 1994 (Unaudited)
<TABLE>
<S> <C>
Investment income
Interest $ 5,393,647
Dividends 169,725
Total investment income 5,563,372
Expenses:
Compensation of Manager (Note 3) 353,618
Investor servicing and custodian fees (Note 3) 48,265
Compensation of Trustees (Note 3) 4,443
Reports to shareholders 10,769
Auditing 1,950
Legal 20,010
Postage 4,543
Administrative services (Note 3) 4,444
Exchange listing fees 14,000
Amortization of organization expenses (Note 1) 2,587
Registration fees 653
Other expenses 19,868
Total expenses 485,150
Net investment income 5,078,222
Net realized loss on investments (Notes 1 and 4) (5,813,094)
Net unrealized depreciation of investments during the period (1,753,281)
Net loss on investment transactions (7,566,375)
Net decrease in net assets resulting from operations $ (2,488,153)
</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
Six months (commencement of
ended operations) to
November 30 May 31
1994* 1994
<S> <C> <C>
Increase (decrease) in net assets
Operations:
Net investment income $ 5,078,222 $ 9,199,849
Net realized loss on investments (5,813,094) (201,289)
Net unrealized depreciation of investments (1,753,281) (4,248,220)
Net increase (decrease) in assets resulting from operations (2,488,153) 4,750,340
Distributions to shareholders from net investment income (4,954,609) (9,199,919)
In excess of net investment income -- (198,427)
Increase (decrease) from capital share transactions (Note 2) -- 105,162,864
Total increase (decrease) in net assets (7,442,762) 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 $22,563 and $146,176, respectively) $ 93,172,166 $100,614,928
Number of fund shares
Shares outstanding at beginning of period 7,507,107 7,107
Shares issued in public offering -- 7,500,000
Shares outstanding at end of period (Note 2) 7,507,107 7,507,107
</TABLE>
*Unaudited
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
Six months (commencement
ending of operations) to
November 30 May 31
1994+ 1994
<S> <C> <C>
Net Asset Value, Beginning of Period $ 13.40 $ 14.01*
Investment Operations
Net Investment Income .68 1.23
Net Realized and Unrealized Loss on
Investments (1.01) (.59)
Total from Investment Operations (.33) .64
Less Distributions from:
Net Investment Income (.66) (1.22)
In excess of net investment income -- (.03)
Total Distributions (.66) (1.25)
Net Asset Value, End of Period $ 12.41 $ 13.40
Market value, end of period $11.500 $ 13.375
Total Investment Return at Market
Value (%) (b)) (9.25)(a) (2.34)(a)
Net Assets, End of Period (in
thousands) $93,172 $100,615
Ratio of Expenses to Average Net
Assets (%) .48(a)) 1.00(a))
Ratio of Net Investment Income to
Average Net Assets (%) 5.70(a)) 8.82(a))
Portfolio Turnover Rate (%) 35.28(a) 80.21(a)
<FN>
* Represents initial asset value of $14.07 less offering expenses of
approximately $0.06.
+ Unaudited.
(a)Not annualized
(b)Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
November 30, 1994
Note 1
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 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. Market quotations are not considered to
be readily available for long-term corporate bonds and notes; such
investments are stated at fair market 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. 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 market 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., 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, 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 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 securities is accreted according to the effective
yield method.
<PAGE>
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 November 30, 1994 the fund had capital loss carryovers of approximately
$307,000, available to offset future realized capital gains, if any. This
amount will expire May 31, 2002. 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.
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, payment-in-kind securities, 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 regulations.
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
Initial capitalization and offering of shares
The fund was established a Massachusetts business trust under laws of
Massachusetts on April 16, 1993.
During the period June 10, 1993 to June 24, 1993, the fund had no operations
other that those related to organizational matters, including the initial
capital contribution of $100,000 and the issuance of common shares to Putnam
Investments, Inc., on June 10, 1993.
On June 25, 1993, the fund completed the initial offering of 6,600,000 of its
common shares for which it received net proceeds of $92,862,000 before
deducting $362,136 of initial offering expenses and the fund's organizational
expenses of $29,884 were paid initially by the fund's Manager, and the fund
reimbursed the Manager for such costs. During the period June 10, 1993 to
June 25, 1993, invested initial capital resulted in interest income of $70.
Regular investment operations commenced on June 25, 1993.
On August 3, 1993, the fund completed a supplemental offering of 900,000
shares for which it received net proceeds of $12,663,000.
Note 3
Management fee, administrative services, and other transactions
Compensation of Putnam Investment Management Inc., the fund's Manager, for
management and investment advisory services is paid quarterly based on the
average weekly net assets of the fund. Such management and investment
advisory fee is based on the following annual rates: 0.55% of the first $500
million, 0.48% of the next $500 million, 0.44% of the next
<PAGE>
$500 million, and 0.40% of any amount over $1.5 billion.
The fund compensates the Manager for administrative services based on
quarterly net assets of the fund. Such administrative fees are based on the
following annual rate: 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 $600 or any
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 currently 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 November 30, 1994 have been reduced by credits
allowed by PFTC.
Note 4
Purchases and sales of securities
During the six months ended November 30, 1994, purchases and sales of
investment securities other than short-term investments aggregated
$33,438,624 and $39,676,190 respectively. In determining the net gain or loss
on securities sold, the cost of securities has been determined on the
identified cost basis.
<PAGE>
SELECTED QUARTERLY DATA
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
November 30, August 31, May 31, February 28,
1994 1994 1994 1994
<S> <C> <C> <C> <C>
Total investment income:
Total $ 2,960,538 $ 2,602,834 $ 2,784,355 $ 2,824,221
Per Share $ .40 $ .34 $ .38 $ .37
Net investment income:
Total $ 2,721,030 $ 2,357,192 $ 2,504,991 $ 2,571,558
Per share $ .37 $ .31 $ .34 $ .34
Net realized and unrealized gains
(losses) on investments:
Total $ (4,144,729) $ (3,421,646) $ (8,148,590) $ 2,811,315
Per share $ (.56) $ (.45) $ (1.09) $ .37
Net increase (decrease) in assets
resulting from operations:
Total $ (1,423,699) $ (1,064,454) $ (5,634,599) $ 5,382,873
Per share $ (.19) $ (.14) $ (.75) $ .71
Net assets at end of period:
Total $ 93,172,166 $ 97,073,166 $ 100,614,928 $ 108,708,327
Per share $ 12.41 $ 12.93 $ 13.40 $ 14.48
</TABLE>
<TABLE>
<CAPTION>
For the period
June 25, 1993
(commencement
Three months ended of operations) to
November 30, August 31,
1993 1993
<S> <C> <C>
Total investment income:
Total $ 2,883,439 $ 1,748,199
Per Share $ .38 $ .24
Net investment income:
Total $ 2,565,194 $ 1,558,106
Per share $ .34 $ .21
Net realized and unrealized gains
(losses) on investments:
Total $ 1,684,482 $ (796,716)
Per share $ .22 $ (.09)
Net increase (decrease) in assets
resulting from operations:
Total $ 4,249,676 $ 761,390
Per share $ .56 $ .12
Net assets at end of period:
Total $ 106,943,904 $ 105,218,364
Per share $ 14.25 $ 14.02
</TABLE>
<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
John R. Verani
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
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 Commentary.
<PAGE>
PUTNAMINVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
590-15832
<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)
