Putnam
Managed
High Yield
Trust
SEMIANNUAL REPORT
November 30, 1996
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* Morningstar, an independent rating agency, gave Putnam Managed High
Yield Trust's class A shares its highest ranking of 5 stars for overall
performance as of December 31, 1996 (based on the fund's 3-year annual
returns). This rating put the fund among 10% of the 135 taxable bond
funds rated.*
* "Unlike other areas of the fixed-income market, where prices are
closely correlated to interest rates, performance in the high-yield
arena depends on astute security selection. That's why professionally
managed high-yield funds are a safer bet for most people than buying
individual issues."
-- The Wall Street Journal, June 6, 1996
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
10 Portfolio holdings
21 Financial statements
28 Results of December 5, 1996, shareholder meeting
* Morningstar ratings reflect risk-adjusted performance through 12/31/96
and are subject to change every month. Morningstar ratings are
calculated from a fund's 3-year returns (with fee adjustments) in excess
of 90-day Treasury bill returns and a risk factor that reflects
performance below 90-day Treasury bill returns. The 1-year rating is
calculated using the same methodology, but it is not a component of the
overall rating. For the 3-year performance, the fund received 5 stars
and there were 135 taxable bond funds rated. 10% of the funds in an
investment category receive 5 stars; 22.5% receive 4; 35% receive 3
stars. Performance of other share classes will vary. Past performance is
not indicative of future results.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
Dear Shareholder:
Putnam Managed High Yield Trust reached the midpoint of its current
fiscal year on November 30, 1996, on a high note, as the sector of the
fixed-income market in which it focuses its investments continued to
thrive along with the economy. What is more, high-yield bonds show no
signs of losing any of their vigor in the months ahead. This prospect
bodes well for your fund as it enters the second half of fiscal 1997.
Choosing the right securities from this universe means, among other
things, seeking out the companies least likely to default on their
obligations. Thus Putnam's extensive credit research capability played a
more important role than ever before in the management of your fund in
the prevailing market.
Fund Manager Jennifer Leichter will continue to tap that valuable
resource heavily as she leads the fund through the fiscal year's second
half. Jennifer discusses the fund's performance and prospects in the
following report.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
January 15, 1997
Report from the Fund Manager
Jennifer E. Leichter
Propelled by enduring economic expansion and healthy corporate earnings,
high-yield bonds sustained their spirited performance through much of
calendar 1996. Amid this rally, Putnam Managed High Yield Trust's
strategy of diversification across promising market sectors enabled it
to capitalize on prevailing trends and post favorable total returns for
the semiannual fiscal period ended November 30, 1996. Complete
performance information appears on pages 8 and 9.
* AMONG HIGH-YIELD BONDS, ABUNDANT SUPPLY FEEDS HARDY DEMAND
After investors enjoyed a year of outstanding economic growth in 1995,
many economists predicted a slump in 1996. However, economic indicators
showed resilience during the year, and, on several occasions, the Fed
opted to allow interest rates to run their course. Through it all, the
economy coasted along at a pace that bolstered the markets while keeping
inflation at bay.
As economic growth thrived, so did the level of new high-yield bond
issuance. Issuers began calendar 1996 at full sprint, bringing to market
$33.7 billion in new high-yield bonds by the end of April (more than
twice the amount issued over the same four-month period in 1995). In the
months that followed, new bonds continued to flow into the market at a
comparable pace and were absorbed by equally vigorous demand. Convinced
that recession was unlikely in 1996, investors remained committed to
high-yield bond investing and readily snatched up the new offerings. As
a result, high-yield bond funds have enjoyed nearly uninterrupted
positive cash flows since January of 1996.
Within the high-yield universe, lower-quality securities sharply
outperformed higher-quality Ba-rated bonds through much of the fiscal
period. Investors became more comfortable buying lower-grade bonds early
in the period when the economy exhibited stronger-than-expected growth
and other sectors of the bond market -- particularly Treasury securities
- -- began to struggle. When Treasuries (which are considered the highest-
quality securities available) started to rebound at the end of
September, higher-rated high-yield bonds prospered as well. For the
period as a whole, B-rated bonds outpaced higher-quality bonds, and your
fund's substantial allocation to these lower-grade securities enabled it
to benefit substantially from their superior relative performance.
* TELECOMMUNICATIONS INVESTMENTS CONTINUE TO FLOURISH
The long-awaited passage of the telecommunications deregulation reform
bill in February 1996 had a significant impact on the high-yield market.
The new law loosens onerous restrictions on radio stations, cable
television, and long distance telephone service. It allows a single
company to offer services in more than one of these areas (for example,
a telephone company may provide cable television service) or to own more
than one provider of a particular service in a certain region (a company
may own several radio stations in one city). Such freedom provides
economies of scale as companies spread their operating costs over more
than one outlet.
Among the fund's holdings, several competitive access providers (CAPs) -
- - which compete against local telephone companies primarily for
commercial customers -- were among the portfolio's most impressive
performers during the semiannual period. Companies of this type issue
high-yield securities to help finance the construction of the fiber-
optic network required to attract corporate customers and compete with
larger telephone service providers. Bonds issued by MFS Communications
and Intermedia Communications delivered solid gains for the fund, as did
those issued by Intelcom, another large CAP in the United States.
Intelcom's stock and bonds have prospered as it continues to build its
business. Furthermore, we believe Intelcom's strategy of continued
development with an eye toward eventual sale or strategic alliance
within the next two years speaks well of its high-yield potential. While
these securities and others discussed in this report were viewed
favorably during the period, all portfolio holdings are subject to
review and adjustment in accordance with the fund's investment strategy
and may vary in the future.
[GRAPHIC PIE CHART OMITTED: CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
Aaa-- 1.84%
Baa-- 0.66%
Ba-- 22.58%
B-- 70.77%
Below B-- 0.84%
Rating pending--3.31%
Footnote reads:
* As a percentage of market value as of 11/30/96. A bond rated Baa or
higher is considered investment grade. All ratings reflect Moody's
description unless noted otherwise; percentages may include unrated
bonds considered by Putnam Management to be of comparable quality.
Ratings will vary over time.
Elsewhere in the telecommunications industry, a noteworthy trend is
developing in the United Kingdom, where corporations are permitted to
jointly market telephone and cable television services. At the end of
calendar 1995, when the license holders sought high-yield bond financing
to construct competitive systems, we invested in several players in this
industry including Telewest Communications, Videotron Holdings,
International Cabletel, and Diamond Cable Communications. Late in the
period, Videotron was sold to a partnership made up of Bell Canada and
Cable and Wireless Plc. This acquisition helped to focus investor
interest on the telephone/cable television duopolies in the United
Kingdom and boosted security values.
* RETAIL AND GAMING HOLDINGS BOOST PERFORMANCE
Outside of the telecommunications industry, the fund profited from
investments in the retail industry. In this sector, your fund emphasizes
specialty niche-oriented boutiques such as Loehmans (an off-price
retailer), Specialty Retailers Inc. (a regional company based in Texas),
and Mother's Work (a marketer of maternity clothes). Sustained economic
growth during the fiscal period drove income levels upward, providing
consumers with more discretionary income to spend at retail stores.
Your fund continued to benefit from its exposure to the gaming industry,
another solid performer during the period. This industry typically
offers bonds with higher yields than other high-yield sectors offer
because gaming does not have the wide appeal that other sectors enjoy.
Despite such necessarily limited demand, this sector's high-yield bonds
rallied impressively during the period, driving prices higher and
pushing yields down toward rates that were in line with those of other
sectors. Among gaming companies, your fund focuses on smaller regional
facilities whose bonds still offer attractive yield advantages.
[GRAPHIC HORIZONTAL BAR CHART OMITTED: TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Cable television 6.9%
Recreation and gaming 6.6%
Telecommunications 6.5%
Cellular communications 5.5%
Electric utilities 5.5%
Footnote reads:
* Based on net assets as of 11/30/96. Sectors will vary over time.
* A HEALTHY OUTLOOK FOR BOND MARKETS
In the coming months, we expect business prospects to improve generally
as telecommunications deregulation continues to enhance revenues and
consolidation strengthens cash flows and drives down operating costs.
Our outlook for the economy is one of moderate growth in the near term
and a potential slowdown in economic growth toward mid-to-late 1997 --
with inflation remaining negligible. As economic and market conditions
develop, we will maintain our strategy of diversification among sectors
that we believe offer the greatest potential for solid, consistent
performance.
Footnote reads:
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 11/30/96, there is no guarantee the fund
will continue to hold these securities in the future.
High-yielding, lower-rated securities pose a greater risk to principal
than higher-rated securities. High-yield securities carry lower credit
ratings than investment-grade securities because there is a greater
possibility that negative changes in the issuer's business conditions or
in general economic conditions may hinder the issuer's ability to pay
principal and interest on its securities.
Performance summary
Performance should always be considered in light of a fund's investment
strategy. Putnam Managed High Yield Trust is designed for investors
seeking high current income with a secondary objective of capital
growth.
This section provides, at a glance, information about your fund's
performance. Total return shows how the value of the fund's shares
changed over time, assuming you held the shares through the entire
period and reinvested all distributions in the fund.
TOTAL RETURN FOR PERIODS ENDED 11/30/96
First Boston
Market High Yield Consumer
NAV price Bond Index Price Index
- ------------------------------------------------------------------------
6 months 5.84% 5.80% 6.49% 1.28%
- ------------------------------------------------------------------------
1 year 14.55 10.93 11.67 3.26
- ------------------------------------------------------------------------
Life of fund
(6/25/93) 39.64 30.10 37.15 9.83
Annual average 10.19 7.95 9.68 2.76
- ------------------------------------------------------------------------
Footnote reads:
Performance data represent past results and do not reflect future
performance. They do not take into account any adjustment for taxes
payable on reinvested distributions. Investment returns, net asset value
and market price will fluctuate so that an investor's shares, when sold,
may be worth more or less than their original cost.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 11/30/96
- ------------------------------------------------------------------------
Distributions (number) 6
- ------------------------------------------------------------------------
Income $0.66
- ------------------------------------------------------------------------
Total $0.66
- ------------------------------------------------------------------------
Share value NAV Market price
- ------------------------------------------------------------------------
5/31/96 $13.78 $13.750
- ------------------------------------------------------------------------
11/30/96 13.91 13.875
- ------------------------------------------------------------------------
Current return(end of period) NAV Market price
- ------------------------------------------------------------------------
Current dividend rate1 9.49% 9.51%
- ------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by
NAV or market price at end of period.
TOTAL RETURN FOR PERIODS ENDED 12/31/96
(most recent calendar quarter)
Market
NAV price
- ------------------------------------------------------------------------
6 months 6.90% 8.73%
- ------------------------------------------------------------------------
1 year 14.15 15.03
- ------------------------------------------------------------------------
Life of fund (6/25/93) 41.55 34.76
Annual average 10.38 8.84
- ------------------------------------------------------------------------
Footnote reads:
Performance data represent past results and do not reflect future
performance. They do not take into account any adjustment for taxes
payable on reinvested distributions. Investment returns, net asset value
and market price will fluctuate so that an investor's shares, when sold,
may be worth more or less than their original cost.
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, not including
any initial or contingent deferred sales charge.
Market price is 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. The index assumes reinvestment of all
distributions, does not take into account brokerage commissions or other
cost, and may pose different risks than the fund. Securities in the
fund's portfolio will differ from those in the index. It is not possible
to invest directly in an index.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
<TABLE>
<CAPTION>
Portfolio of investments owned
November 30, 1996 (Unaudited)
CORPORATE BONDS AND NOTES (84.0%) *
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
Advertising (0.4%)
- --------------------------------------------------------------------------------------------
$ 50,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 52,625
45,000 Outdoor Systems, Inc. sr. sub. notes 9 3/8s, 2006 45,450
285,000 Universal Outdoor, Inc. sr. sub. notes 9 3/4s, 2006 291,407
--------------
389,482
Aerospace and Defense (3.3%)
- --------------------------------------------------------------------------------------------
850,000 BE Aerospace sr. sub. notes Ser. B, 9 7/8s, 2006 884,000
565,000 Greenwich Air Services, Inc. sr. notes 10 1/2s, 2006 601,725
440,000 Howmet Corp. sr. sub. notes 10s, 2003 474,100
100,000 Moog Inc. sr. sub. notes Ser. B, 10s, 2006 103,500
200,000 Sequa Corp. med. term notes 10s, 2001 210,552
1,000,000 UNC, Inc. sr. notes 9 1/8s, 2003 1,015,000
110,000 UNC, Inc. sr. sub. notes 11s, 2006 117,425
--------------
3,406,302
Agriculture (1.3%)
- --------------------------------------------------------------------------------------------
1,102,000 PMI Holdings Corp. sub. disc. deb. stepped-coupon
Ser. B, zero % (11 1/2s, 9/1/00), 2005 ++ 719,055
634,068 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003
[2 DBL. DAGGERS] 646,749
--------------
1,365,804
Automotive Parts (2.3%)
- --------------------------------------------------------------------------------------------
275,000 A.P.S. Inc. company guaranty 11 7/8s, 2006 299,750
500,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 555,000
185,000 CSK Auto, Inc. 144A sr. sub. notes 11s, 2006 190,550
250,000 Exide Corp. sr. notes 10s, 2005 260,625
70,000 Hawk Corp. 144A sr. notes 10 1/4s, 2003 71,400
500,000 Key Plastics Corp. sr. notes 14s, 1999 520,000
415,000 Lear Corp. sub. notes 9 1/2s, 2006 446,125
80,000 Speedy Muffler King, Inc. company guaranty 10 7/8s, 2006 85,200
--------------
2,428,650
Banks (0.6%)
- --------------------------------------------------------------------------------------------
500,000 Chevy Chase Savings Bank Inc. sub. deb. 9 1/4s, 2005 522,500
150,000 Provident Capital Trust 144A jr. sub. notes 8.6s, 2026 154,209
--------------
676,709
Broadcasting (2.5%)
- --------------------------------------------------------------------------------------------
500,000 Argyle Television Corp. sr. sub. notes 9 3/4s, 2005 506,250
600,000 Paxson Communications Corp. 144A sr. sub. notes
11 5/8s, 2002 615,000
848,000 Petracom Holdings, Inc. notes stepped-coupon zero %
(17 1/2s, 8/1/98), 2003 ++ 729,280
700,000 SFX Broadcasting, Inc. sr. sub. notes Ser. B, 10 3/4s, 2006 735,000
--------------
2,585,530
Building Products (0.6%)
- --------------------------------------------------------------------------------------------
335,000 Cemex S.A. 144A bonds 12 3/4s, 2006 (Mexico) 371,850
250,000 Southdown Inc. sr. sub. notes Ser. B, 10s, 2006 261,250
--------------
633,100
Building and Construction (3.7%)
- --------------------------------------------------------------------------------------------
175,000 Atrium Companies Inc. 144A sr. sub. notes 10 1/2s, 2006 178,063
90,000 Clark Material Handling Co. 144A sr. notes 10 3/4s, 2006 92,025
575,000 Inter-City Products sr. notes 9 3/4s, 2000 580,750
750,000 NVR, Inc. sr. notes 11s, 2003 783,750
600,000 Presley Cos. sr. notes 12 1/2s, 2001 585,000
400,000 Scotsman Group, Inc. sr. secd. notes 9 1/2s, 2000 412,000
1,100,000 Terex Corp. sr. notes Ser. B, 13 1/4s, 2002 1,188,000
--------------
3,819,588
Buses (0.1%)
- --------------------------------------------------------------------------------------------
115,000 Blue Bird Body Co. 144A sr. sub. notes 10 3/4s, 2006 119,169
Business Services (1.0%)
- --------------------------------------------------------------------------------------------
720,000 Corporate Express, Inc. sr. sub. notes Ser. B, 9 1/8s, 2004 727,200
150,000 Intertek Finance PLC 144A sr. sub. notes 10 1/4s, 2006
(United Kingdom) 153,375
155,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 168,950
--------------
1,049,525
Cable Television (6.9%)
- --------------------------------------------------------------------------------------------
974,095 Adelphia Communications Corp. sr. notes 9 1/2s, 2004
[2 DBL. DAGGERS] 818,240
200,000 Bell Cablemedia PLC sr. disc. notes zero %
(11.95s, 7/15/99), 2004 (United Kingdom) 171,000
250,000 CF Cable TV, Inc. sr. notes 11 5/8s, 2005 (Canada) 290,000
500,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005
(United Kingdom) ++ 348,750
1,174,241 Falcon Holdings Group, Inc. sr. sub. notes 11s, 2003
[2 DBL. DAGGERS] 1,045,074
1,000,000 Heartland Wireless Communications, Inc. sr. notes 13s, 2003 1,090,000
500,000 Lenfest Communications, Inc. sr. notes 8 3/8s, 2005 483,750
750,000 Marcus Cable Co. (L.P.) sr. sub. disc. notes stepped-coupon
zero % (13 1/2s, 8/1/99), 2004 ++ 587,813
1,535,000 Telewest Communications PLC deb. stepped-coupon
zero % (11s, 10/1/00), 2007 (United Kingdom) ++ 1,039,963
1,045,000 UIH Australia sr. disc. notes stepped-coupon Ser. B, zero %
(14s, 5/15/01), 2006 ++ 548,625
250,000 Videotron Holdings. sr. disc. notes stepped-coupon
zero % (11s, 8/15/00), 2005 (United Kingdom) ++ 196,875
600,000 Wireless One, Inc. sr. notes 13s, 2003 612,000
--------------
7,232,090
Cellular Communications (5.5%)
- --------------------------------------------------------------------------------------------
945,000 Call-Net Enterprises sr. disc. notes stepped-coupon
zero % (13 1/4s, 12/1/99), 2004 ++ 760,725
250,000 Comunicacion Celular bonds stepped-coupon
zero % (13 1/8s, 11/15/00), 2003 (Colombia)++ 158,750
250,000 Dial Call Communications, Inc. sr. disc. notes
stepped-coupon zero % (12 1/4s, 4/15/99), 2004 ++ 173,750
1,000,000 Intercel, Inc. sr. disc. notes stepped-coupon zero %
(12s, 5/1/01), 2006 ++ 607,500
200,000 International Wireless Inc. 144A sr. disc. notes zero %, 2001 110,000
635,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/01), 2006
(Luxembourg) ++ 377,825
1,000,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero % (9 3/4s, 2/15/99), 2004 ++ 661,250
1,900,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero % (11 1/2s, 9/1/98), 2003 ++ 1,429,750
630,000 Orbcomm Global Capital Corp. 144A sr. notes 14s, 2004 625,275
1,000,000 Pricellular Wireless Corp. sr. disc. notes stepped-coupon
zero % (12 1/4s, 10/1/98), 2003 ++ 842,500
--------------
5,747,325
Chemicals (1.8%)
- --------------------------------------------------------------------------------------------
600,000 Acetex Corp. sr. notes 9 3/4s, 2003 (Canada) 585,000
85,000 Freedom Chemicals, Inc. 144A sr. sub. notes 10 5/8s, 2006 88,081
700,000 Harris Chemical Corp. sr. secd. disc. notes 10 1/4s, 2001 722,750
300,000 ISP Holdings, Inc. 144A sr. notes 9 3/4s, 2002 309,750
155,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 ++ 86,800
85,000 Texas Petrochemical 144A sr. sub. notes 11 1/8s, 2006 90,950
--------------
1,883,331
Computer Services (0.3%)
- --------------------------------------------------------------------------------------------
285,000 Unisys Corp. sr. notes 11 3/4s, 2004 297,825
Conglomerates (0.6%)
- --------------------------------------------------------------------------------------------
600,000 Axia, Inc. sr. sub. notes Ser. B, 11s, 2001 612,000
Consumer Durable Goods (0.2%)
- --------------------------------------------------------------------------------------------
275,000 Icon Fitness Corp. 144A sr. disc. notes stepped-coupon
zero % (14s, 11/15/01), 2006 ++ 143,000
85,000 Rayovac Corp. 144A sr. sub. notes 10 1/4s, 2006 87,125
--------------
230,125
Consumer Services (0.5%)
- --------------------------------------------------------------------------------------------
522,000 Coinmach Corp. sr. notes Ser. B, 11 3/4s, 2005 563,760
Containers (2.2%)
- --------------------------------------------------------------------------------------------
500,000 Four M Corp. sr. notes Ser. B, 12s, 2006 523,750
1,360,000 Ivex Holdings Corp. sr. disc. deb. stepped-coupon
zero % (13 1/4s, 3/15/00), 2005 ++ 1,020,000
500,000 Ivex Packaging Corp. sr. sub. notes 12 1/2s, 2002 535,000
60,000 Printpack, Inc. 144A sr. notes 10 5/8s, 2006 62,400
120,000 Printpack, Inc. 144A sr. notes 9 7/8s, 2004 124,200
--------------
2,265,350
Electric Utilities (4.9%)
- --------------------------------------------------------------------------------------------
250,000 Chesapeake Energy Corp. sr. notes 9 1/8s, 2006 258,750
250,000 El Paso Electric Co. 1st mtge. Ser. E, 9.4s, 2011 266,250
599,000 First PV Funding deb. 10.15s, 2016 634,940
70,000 Hidro Pierda Aguila 144A bonds 10 5/8s, 2001 (Argentina) 71,050
1,000,000 Long Island Lighting Co. deb. 9s, 2022 1,021,080
1,600,000 Midland Funding Corp. deb. Ser. A, 11 3/4s, 2005 1,778,128
500,000 Niagara Mohawk Power Corp. 1st mtge. 8 3/4s, 2022 486,480
570,000 Northeast Utilities System notes Ser. A, 8.58s, 2006 569,042
--------------
5,085,720
Electronics (2.3%)
- --------------------------------------------------------------------------------------------
500,000 Amphenol Corp. sr. notes 10.95s, 2001 545,270
216,000 Amphenol Corp. sr. sub. notes 12 3/4s, 2002 237,600
115,000 Celestica International Ltd. 144A sr. sub. notes
10 1/2s, 2006 (India) 118,738
135,597 Cirent Semiconductor 144A sr. sub. notes 10.22s, 2002 135,597
136,153 Cirent Semiconductor 144A sr. sub. notes 10.14s, 2004 136,153
1,700,000 International Semi-Tech. Corp. sr. secd. disc. notes
stepped-coupon zero % (11 1/2s, 8/15/00), 2003
(Canada) ++ 1,054,000
195,000 Motors and Gears Inc. 144A sr. notes Ser. A, 10 3/4s, 2006 199,388
--------------
2,426,746
Entertainment (1.1%)
- --------------------------------------------------------------------------------------------
120,000 Guitar Center Management 144A sr. notes 11s, 2006 126,600
250,000 Premier Parks, Inc. sr. notes Ser. A, 12s, 2003 272,500
250,000 Six Flags Corp. sr. sub. notes stepped-coupon zero %
(12 1/4s, 6/15/98), 2005 ++ 230,000
500,000 Trump Holdings & Funding Corp. sr. notes 15 1/2s, 2005 570,000
--------------
1,199,100
Environmental Control (0.2%)
- --------------------------------------------------------------------------------------------
195,000 Allied Waste Industries, Inc. 144A sr. sub. notes
10 1/4s, 2006 199,631
Finance (0.7%)
- --------------------------------------------------------------------------------------------
715,000 MCII Holding (USA), Inc. 144A bonds zero %
(12.0s, 11/15/98), 2002 586,300
100,000 Ocwen Financial Corp. notes 11 7/8s, 2003 107,000
--------------
693,300
Financial Services (1.7%)
- --------------------------------------------------------------------------------------------
325,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 331,500
220,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 226,600
600,000 Keystone Group, Inc. sr. secd. notes 9 3/4s, 2003 648,000
165,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 176,550
300,000 Olympic Financial Ltd. sr. notes 13s, 2000 330,000
100,000 Outsourcing Solutions Inc. 144A sr. sub. notes 11s, 2006 104,250
--------------
1,816,900
Food and Beverages (0.6%)
- --------------------------------------------------------------------------------------------
250,000 Canandaigua Wine Co. 144A sr. sub. notes 8 3/4s, 2003 241,563
250,000 Mafco, Inc. sr. sub. notes 11 7/8s, 2002 262,500
200,000 Specialty Foods Acquisition Corp. sr. sub. notes
11 1/4s, 2003 170,500
--------------
674,563
Food Chains (1.3%)
- --------------------------------------------------------------------------------------------
500,000 Safeway, Inc. med. term notes 8.57s, 2003 537,800
500,000 Southland Corp. 1st priority sr. sub. deb. 5s, 2003 411,250
500,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 385,000
--------------
1,334,050
Funeral/Cemetery Services (0.1%)
- --------------------------------------------------------------------------------------------
90,000 Rose Hills Acquisition Corp. 144A sr. sub. notes
9 1/2s, 2004 91,125
Health Care (0.2%)
- --------------------------------------------------------------------------------------------
200,000 Merit Behavioral Care sr. sub. notes 11 1/2s, 2005 212,000
Hospital Management (1.6%)
- --------------------------------------------------------------------------------------------
90,000 Genesis Health Ventures, Inc. 144A sr. sub. notes
9 1/4s, 2006 92,138
750,000 Integrated Health Services sr. sub. notes 9 5/8s, 2002 766,875
750,000 Tenet Healthcare Corp. sr. sub. notes 10 1/8s, 2005 828,750
--------------
1,687,763
Insurance (0.5%)
- --------------------------------------------------------------------------------------------
500,000 Reliance Group Holdings, Inc. sr. sub. deb. 9 3/4s, 2003 517,500
Lodging (1.3%)
- --------------------------------------------------------------------------------------------
850,000 Host Marriott Corp. sr. notes Ser. B, 9 1/2s, 2005 875,500
500,000 John Q Hammons Hotels, Inc. 1st mtge. 9 3/4s, 2005 506,250
--------------
1,381,750
Media (1.1%)
- --------------------------------------------------------------------------------------------
1,150,000 Commodore Media, Inc. sr. sub. notes stepped-coupon
7 1/2s, (13 1/4s, 5/1/98), 2003 ++ 1,196,000
Medical Management (0.4%)
- --------------------------------------------------------------------------------------------
500,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 432,500
Medical Supplies and Devices (1.4%)
- --------------------------------------------------------------------------------------------
1,000,000 Graphic Controls Corp. sr. sub. notes Ser. A, 12s, 2005 1,095,000
350,000 Wright Medical Technology, Inc. sr. secd. notes Ser. B,
10 3/4s, 2000 355,250
--------------
1,450,250
Metals and Mining (0.9%)
- --------------------------------------------------------------------------------------------
100,000 NL Industries, Inc. sr. notes 11 3/4s, 2003 102,250
400,000 Renco Metals, Inc. sr. notes 11 1/2s, 2003 416,000
195,000 Royal Oak Mines Inc. company guaranty Ser. B, 11s,
2006 (Canada) 200,850
265,000 WCI Steel, Inc. 144A sr. notes 10s, 2004 267,650
--------------
986,750
Motion Picture Distribution (0.6%)
- --------------------------------------------------------------------------------------------
326,400 Cinemark Mexico USA notes Ser. B, 13s, 2003 (Mexico)
[2 DBL. DAGGERS] 310,080
22,100 Cinemark Mexico USA notes Ser. D, 13s, 2003 (Mexico)
[2 DBL. DAGGERS] 20,995
340,000 Cinemark USA sr. sub. notes 9 5/8s, 2008 340,000
--------------
671,075
Networking (0.8%)
- --------------------------------------------------------------------------------------------
1,315,000 CellNet Data Systems, Inc. 144A sr. disc. notes
stepped-coupon zero % (13s, 6/15/00), 2005 ++ 854,750
Office Equipment (0.1%)
- --------------------------------------------------------------------------------------------
100,000 United Stationer Supply, Inc. sr. sub. notes 12 3/4s, 2005 110,375
Oil and Gas (3.6%)
- --------------------------------------------------------------------------------------------
145,000 Abraxas Petrolem Corp. 144A sr. notes 11 1/2s, 2004 150,438
110,000 Cliffs Drilling Co. company guaranty Ser. B, 10 1/4s, 2003 115,775
100,000 Flores & Rucks, Inc. sr. sub. notes 9 3/4s, 2006 105,250
500,000 Flores & Rucks, Inc. sr. notes 13 1/2s, 2004 591,250
145,000 Forcenergy, Inc. sr. sub. notes 9 1/2s, 2006 151,706
130,000 Kelley Oil & Gas Corp. 144A sr. sub. notes 10 3/8s, 2006 132,600
250,000 Maxus Energy Corp. deb. 11 1/4s, 2013 255,625
100,000 Maxus Energy Corp. global notes 9 7/8s, 2002 103,000
750,000 Maxus Energy Corp. notes 9 1/2s, 2003 746,250
155,000 Parker Drilling Co. 144A company guaranty 9 3/4s, 2006 160,425
500,000 Transamerican Refining Corp. 1st mtge. stepped-coupon
Ser. 1, zero % (18.5s, 2/15/98), 2002 ++ 406,250
800,000 Transtexas Gas Corp. sr. secd. notes 11 1/2s, 2002 868,000
--------------
3,786,569
Paging (3.1%)
- --------------------------------------------------------------------------------------------
1,000,000 Metrocall, Inc. sr. sub. notes 10 3/8s, 2007 880,000
750,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 776,250
300,000 Pagemart Nationwide, Inc. sr. disc. notes stepped-coupon
zero % (15s, 2/1/00), 2005 ++ 204,000
340,000 Paging Network, Inc. 144A sr. sub. notes 10s, 2008 340,000
700,000 Pagemart, Inc. sr. disc. notes stepped-coupon zero %
(12 1/4s, 11/1/98), 2003 ++ 544,250
250,000 Pricellular Wireless Corp. 144A sr. notes 10 3/4s, 2004 258,750
200,000 ProNet, Inc. sr. sub. notes 11 7/8s, 2005 189,000
--------------
3,192,250
Paper and Forest Products (2.0%)
- --------------------------------------------------------------------------------------------
350,000 Domtar, Inc. deb. 9 1/2s, 2016 (Canada) 382,375
520,000 Florida Coast Paper LLC 1st mtge. Ser. B, 12 3/4s, 2003 551,200
300,000 Gaylord Container Corp. sr. sub. disc. deb. 12 3/4s, 2005 328,500
750,000 Riverwood International company guaranty 10 7/8s, 2008 675,000
150,000 Stone Container Corp. sr. notes 11 7/8s, 2016 157,500
--------------
2,094,575
Real Estate (0.6%)
- --------------------------------------------------------------------------------------------
400,000 Chelsea Piers 1st mtge. Ser. B, 12 1/2s, 2004 392,000
25,000 Chelsea Piers 144A 1st mtge. stepped-coupon Ser. B,
zero % (11s, 6/15/99), 2009 ++ 23,375
250,000 Tanger Properties L.P. Gtd. notes 8 3/4s, 2001 (R) 253,835
--------------
669,210
Recreation and Gaming (6.3%)
- --------------------------------------------------------------------------------------------
155,000 Alliance Gaming Corp. sr. notes 12 7/8s, 2003 161,588
350,000 Argosy Gaming Co. 1st mtge. 13 1/4s, 2004 325,500
550,000 Arizona Charlies Corp. 1st mtge. Ser. B, 12s, 2000 385,000
250,000 Aztar Corp. sr. sub. notes 13 3/4s, 2004 257,500
200,000 Capitol Queen Corp. 1st mtge. notes Ser. B, 12s, 2000
(In Default)+ 150,000
700,000 Casino America, Inc. sr. notes 12 1/2s, 2003 679,000
175,000 Casino Magic Corp. 144A 1st mtge. 13s, 2003 173,250
500,000 Coast Hotels & Casino company guaranty Ser. B, 13s, 2002 537,500
250,000 Elsinore Corp. 1st mtge. 20s, 2000 (In Default) + 237,500
500,000 Grand Casinos, Inc. 1st mtge. 10 1/8s, 2003 503,750
120,000 Harveys Casino Resorts sr. sub. notes 10 5/8s, 2006 127,200
700,000 Hollywood Casino Corp. sr. notes 12 3/4s, 2003 644,000
950,000 Lady Luck Gaming 1st mtge. 11 7/8s, 2001 912,000
357,000 Louisiana Casino Cruises Corp. 1st mtge. 11 1/2s, 1998 360,570
500,000 Mohegan Tribal Gaming 144A sr. sec. notes 13 1/2s, 2002 640,000
432,000 Trump Castle Funding Corp. sr. sub. notes 11 1/2s, 2000 436,320
--------------
6,530,678
Restaurants (0.3%)
- --------------------------------------------------------------------------------------------
70,000 AmeriKing. Inc. sr. notes 10 3/4s, 2006 71,400
250,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 253,750
--------------
325,150
Retail (2.9%)
- --------------------------------------------------------------------------------------------
1,500,000 Finlay Enterprises, Inc. sr. disc. deb. stepped-coupon
zero % (12s, 5/1/98), 2005 ++ 1,286,250
850,000 K mart Corp. med. term notes Ser. C, 7.85s, 2002 780,513
275,000 Loehmanns, Inc. sr. notes 11 7/8s, 2003 291,500
600,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 612,000
--------------
2,970,263
Shipping (0.2%)
- --------------------------------------------------------------------------------------------
100,000 Newport News Shipbuilding 144A sr. notes 8 5/8s, 2006 101,800
90,000 Newport News Shipbuilding 144A sr. sub. notes 9 1/4s, 2006 92,205
--------------
194,005
Specialty Consumer Products (0.5%)
- --------------------------------------------------------------------------------------------
500,000 Herff Jones, Inc. sr. sub. notes 11s, 2005 537,500
Steel (0.9%)
- --------------------------------------------------------------------------------------------
900,000 Ispat Mexicana, S.A. 144A deb. 10 3/8s, 2001 (Mexico) 927,000
Supermarkets (0.9%)
- --------------------------------------------------------------------------------------------
900,000 Ralphs Grocery sr. notes 10.45s, 2004 927,000
Telecommunications (6.5%)
- --------------------------------------------------------------------------------------------
930,000 American Communication Services, Inc. sr. disc. notes
stepped-coupon zero % (12 3/4s, 4/1/01), 2006 ++ 502,200
1,700,000 Brooks Fiber Properties, Inc. sr. disc. notes stepped-coupon
zero % (10 7/8s, 3/1/01), 2006 ++ 1,113,500
115,000 Frontiervision Operating Partners L.P. sr. sub. notes 11s, 2006 114,425
1,120,000 GST Telecommunications,Inc. company guaranty
stepped-coupon zero % (13 7/8s, 15/15/00), 2005 ++ 649,600
270,000 Hyperion Telecommunication sr. disc. notes stepped-coupon
Ser. B, zero % (13s, 4/15/01), 2003 ++ 156,600
1,270,000 ICG Holding Inc. sr. disc. notes stepped-coupon zero %
(13 1/2s, 9/15/00), 2005 ++ 876,300
750,000 Intermedia Communications of Florida, Inc. sr. disc. notes
stepped-coupon zero % (12 1/2s, 5/15/01), 2006 ++ 489,375
450,000 Intermedia Communications of Florida, Inc. sr. notes
Ser. B, 13 1/2s, 2005 515,250
1,700,000 International Cabletel, Inc. sr. notes stepped-coupon
Ser. B, zero % (11 1/2s, 2/1/01), 2006 ++ 1,088,000
160,000 Omnipoint Corp. 144A sr. notes Ser. A 11 5/8s, 2006 168,400
160,000 Omnipoint Corp. 144A sr. notes 11 5/8s, 2006 168,400
500,000 Teleport Communications Group Inc. sr. disc. notes
stepped-coupon zero % (11 1/8s, 7/1/01), 2007 ++ 338,750
1,100,000 Winstar Communications, Inc. 144A stepped-coupon
zero % (14s, 10/15/00), 2005 ++ 638,000
--------------
6,818,800
Textiles (0.5%)
- --------------------------------------------------------------------------------------------
330,000 Polysindo International Finance company guaranty
11 3/8s, 2006 (Indonesia) 354,750
150,000 Reeves Industries Inc. bonds 11s, 2002 144,375
--------------
499,125
--------------
Total Corporate Bonds and Notes (cost $83,874,934) $ 87,799,638
PREFERRED STOCKS (6.1%) *
NUMBER OF SHARES VALUE
Banks (1.7%)
- --------------------------------------------------------------------------------------------
6,240 Chevy Chase Capital Corp. Ser. A, $10.375 pfd. $ 319,800
2,000 California Federal Bank Ser. B, $10.625 exch. pfd. 219,000
11,000 First Nationwide Bank $11.50 pfd. 1,245,750
--------------
1,784,550
Broadcasting (0.4%)
- --------------------------------------------------------------------------------------------
385 Paxson Communications Corp. $12.50 pfd.
[2 DBL. DAGGERS] 365,750
Cable Television (0.5%)
- --------------------------------------------------------------------------------------------
6,427 Cablevision Systems Ser. M, $11.125 dep. shs. pfd. 565,576
Electric Utilities (0.6%)
- --------------------------------------------------------------------------------------------
5,421 El Paso Electric Co. $11.40 pfd. [2 DBL. DAGGERS] 596,310
Entertainment (1.1%)
- --------------------------------------------------------------------------------------------
1,059 Time Warner Inc. Ser. M, $10.25 pfd. [2 DBL. DAGGERS] 1,139,749
Gaming (0.3%)
- --------------------------------------------------------------------------------------------
3,000 Alliance Gaming Corp. Ser. B, $15.00 pfd. [2 DBL. DAGGERS] 282,000
Health Care (0.2%)
- --------------------------------------------------------------------------------------------
260 Fresenius Medical Care Ser. D, $9.00 pfd. 264,550
Paper and Forest Products (1.0%)
- --------------------------------------------------------------------------------------------
37,100 SDW Hldgs Corp. 144A $3.50 pfd. 1,075,900
Publishing (0.3%)
- --------------------------------------------------------------------------------------------
2,722 K-III Communications $3.85 pfd. 270,839
--------------
Total Preferred Stocks (cost $6,010,325) $ 6,345,224
UNITS (2.7%) *
NUMBER OF UNITS VALUE
- --------------------------------------------------------------------------------------------
20 AmeriKing, Inc. units zero %, 2008 $ 21,200
550 Australis Media units stepped-coupon zero %
(14s, 5/15/00), 2003 (Australia) ++ 299,750
70 Celcaribe S.A. 144A units stepped-coupon zero %
(13 1/2s, 3/15/98), 2004 ++ 763,000
1,100 Fitzgerald Gaming Co. units 13s, 2002 836,000
500 Health-O-Meter Product units 13s, 2002 560,000
380 Real Time Data 144A units stepped-coupon zero %
(13 1/2s, 8/15/01), 2006 ++ 205,200
300 Wireless One Inc. units stepped-coupon zero %
(13 1/2s, 8/1/01), 2006 ++ 147,000
--------------
Total Units (cost $2,754,584) $ 2,832,150
COMMON STOCKS (2.8%) *
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------
1,800 Axia Holding Corp. 144A + $ 90,000
10,062 Chesapeake Energy Corp. + 657,803
10,504 Elsinore Corp. + 1,050
10,000 Exide Corp. 255,000
3,333 Finlay Enterprises, Inc. 49,162
40,650 Grand Union Co. (acquired from 7/13/94
to 1/10/95, cost $1,727,265)[DBL. DAGGER]+ 233,738
40,000 NEXTEL Communications, Inc. Class A + 600,000
303 PMI Holdings Corp. + 66,660
244 Premium Holdings L.P. 144A + 1,222
57,579 PSF Holdings LLC Class A 978,843
12,750 Specialty Foods Corp. + 9,563
4,400 Terex Corp. Rights expiration date 5/15/00 8,800
--------------
Total Common Stocks (cost $4,862,747) $ 2,951,841
CONVERTIBLE BONDS AND NOTES (1.0%) *
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------
$ 140,000 GST Telecommunications, Inc. sr. disc. cv. notes
stepped-coupon zero % (13 7/8s, 15/15/00), 2005 ++ $ 130,200
150,000 Integrated Device Technology, Inc. cv. sub. notes
5 1/2s, 2002 131,063
100,000 National Semiconductor Corp. cv. deb. 6 1/2s, 2002 98,375
150,000 VLSI Technology, Inc. cv. sub. notes 8 1/4s, 2005 146,438
800,000 Winstar Communications. Inc. cv sr. disc. notes
zero %, 2005 528,000
--------------
Total Convertible Bonds and Notes (cost $835,636) $ 1,034,076
CONVERTIBLE PREFERRED STOCKS (1.0%) *
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------
20,000 Cablevision Systems Corp. Ser. I, $8.50 cv. pfd. $ 407,500
10,000 Granite Broadcasting $1.938 cv. pfd. 587,500
--------------
Total Convertible Preferred Stocks (cost $1,101,250) $ 995,000
WARRANTS (0.6%) *+
NUMBER OF WARRANTS DATE VALUE
- --------------------------------------------------------------------------------------------
25,000 Becker Gaming Corp. 144A 11/15/00 $ 6,250
4,550 Capital Gaming International, Inc. 2/1/99 182
5,260 CellNet Data Systems, Inc. 6/15/00 163,060
250 Comunicacion Cellular S.A. 144A (Colombia) 11/15/20 19,375
6,000 DeGeorge Financial Corp. 4/1/97 60
500 Fitzgerald Gaming Co. 144A 3/15/99 50
6,000 Heartland Wireless Communications, Inc. 144A 4/15/00 30,000
270 Hyperion Telecommunication 144A 4/15/01 5,400
4,191 Intelcom Group 9/15/05 64,961
450 Intermedia Communications of Florida, Inc. 144A 6/1/00 22,500
200 International Wireless Communications Holdings 8/15/01 2
492 Louisiana Casino Cruises Corp. 144A 12/1/98 8,364
500 NEXTEL Communications Inc. 12/1/98 10
6,900 Pagemart, Inc. 144A 12/31/03 56,925
600 Petracom Holdings, Inc. 8/1/05 4,275
3,710 SDW Hldgs Corp. Ser. B 144A 4/1/04 48,230
155 Sterling Chemicals Holdings 8/15/08 5,425
35,000 Transamerican Refining Corp. 2/15/02 70,000
4,560 UCC Investor Holding, Inc.
(acquired 3/16/94, cost $59,280)[DBL. DAGGER] 10/30/99 59,280
101 Wright Medical Technology, Inc. 144A 6/30/03 13,083
--------------
Total Warrants (cost $533,729) $ 577,432
FOREIGN GOVERNMENT BONDS AND NOTES (0.5%) *(cost $498,525)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------
$ 920,000 Bank of Foreign Economic Affairs of Russia
(Vnesheconombank) principal loan 144A
8s, 2020 +##[2 DBL. DAGGERS] $ 534,750
SHORT-TERM INVESTMENTS (1.8%) *(cost $1,856,577)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------
$ 1,856,000 Interest in $732,975,000 joint repurchase agreement
dated November 29, 1996 with Morgan (J.P.) &
Co., Inc. due December 2, 1996 with respect to
various U.S. Treasury obligations -- maturity value
of $1,856,577 for an effective yield of 5.60% $ 1,856,577
- --------------------------------------------------------------------------------------------
Total Investments (cost $102,328,307)*** $ 104,926,688
- --------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $104,415,184.
*** The aggregate identified cost on a tax basis is $102,327,941, resulting in gross unrealized
appreciation and depreciation of $6,349,811 and $3,751,064, respectively, or net unrealized
appreciation of $2,598,747.
+ Non-income-producing security.
## When issued security.
++ The interest rate and date shown parenthetically represent the new interest rate to be
paid and the date the fund will begin receiving interest income at this rate.
[DBL. DAGGER] Restricted, excluding 144A securities, as to public resale. The total market value of
restricted securities held at November 30, 1996 was $293,018 or less than 1.0% of net assets.
[2 DBL. DAGGERS] Income may be received in cash or additional securities at the discretion of the issuer.
(R) Real Estate Investment Trust
144A after the name of a security represents those exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
November 30, 1996 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------
Investments in securities, at value
(identified cost $102,328,307) (Note 1) $104,926,688
- ---------------------------------------------------------------------------
Cash 539,763
- ---------------------------------------------------------------------------
Dividends, interest and other receivables 1,882,998
- ---------------------------------------------------------------------------
Receivable for securities sold 2,000
- ---------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 9,341
- ---------------------------------------------------------------------------
Total assets 107,360,790
Liabilities
- ---------------------------------------------------------------------------
Distributions payable to shareholders 824,828
- ---------------------------------------------------------------------------
Payable for securities purchased 1,837,918
- ---------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 191,031
- ---------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 19,883
- ---------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 819
- ---------------------------------------------------------------------------
Payable for administrative services (Note 2) 3,256
- ---------------------------------------------------------------------------
Other accrued expenses 67,871
- ---------------------------------------------------------------------------
Total liabilities 2,945,606
- ---------------------------------------------------------------------------
Net assets $104,415,184
Represented by
- ---------------------------------------------------------------------------
Paid-in capital (Note 1) $106,051,065
- ---------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (187,478)
- ---------------------------------------------------------------------------
Accumulated net realized loss on investment (Note 1) (4,046,784)
- ---------------------------------------------------------------------------
Net unrealized appreciation of investments 2,598,381
- ---------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $104,415,184
Computation of net asset value
- ---------------------------------------------------------------------------
Net asset value per share ($104,415,184 divided by
7,507,107 shares) $13.91
- ---------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended November 30, 1996 (Unaudited)
<S> <C>
Investment income:
- ----------------------------------------------------------------------------
Interest $5,235,801
- ----------------------------------------------------------------------------
Dividends 303,451
- ----------------------------------------------------------------------------
Total investment income 5,539,252
- ----------------------------------------------------------------------------
Expenses:
- ----------------------------------------------------------------------------
Compensation of Manager (Note 2) $ 385,915
- ----------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 64,964
- ----------------------------------------------------------------------------
Compensation of Trustees (Note 2) 6,607
- ----------------------------------------------------------------------------
Administrative services (Note 2) 5,743
- ----------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 2,996
- ----------------------------------------------------------------------------
Reports to shareholders 15,619
- ----------------------------------------------------------------------------
Registration fees 250
- ----------------------------------------------------------------------------
Auditing 14,988
- ----------------------------------------------------------------------------
Legal 21,829
- ----------------------------------------------------------------------------
Postage 38,434
- ----------------------------------------------------------------------------
Exchange listing fees 8,085
- ----------------------------------------------------------------------------
Other 1,797
- ----------------------------------------------------------------------------
Total expenses 567,227
- ----------------------------------------------------------------------------
Expense reduction (Note 2) (2,768)
- ----------------------------------------------------------------------------
Net expenses 564,459
- ----------------------------------------------------------------------------
Net investment income 4,974,793
- ----------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 1,944,174
- ----------------------------------------------------------------------------
Net unrealized depreciation during the period (1,014,944)
- ----------------------------------------------------------------------------
Net gain on investments 929,230
- ----------------------------------------------------------------------------
Net increase in net assets resulting from operations $5,904,023
- ----------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
November 30 May 31
1996* 1996
- -------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- -------------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------------
Net investment income $ 4,974,793 $ 9,564,010
- -------------------------------------------------------------------------------------
Net realized gain on investments 1,944,174 3,310,311
- -------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments (1,014,944) 2,599,237
- -------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 5,904,023 15,473,558
- -------------------------------------------------------------------------------------
Distributions to shareholders:
- -------------------------------------------------------------------------------------
From net investment income (4,954,436) (9,771,229)
- -------------------------------------------------------------------------------------
In excess of net investment income -- (137,769)
- -------------------------------------------------------------------------------------
Total increase in net assets 949,587 5,564,560
- -------------------------------------------------------------------------------------
Net assets
- -------------------------------------------------------------------------------------
Beginning of period 103,465,597 97,901,037
- -------------------------------------------------------------------------------------
End of period (including distributions in excess
of net investment income of $187,478 and
$207,835, respectively) $104,415,184 $103,465,597
- -------------------------------------------------------------------------------------
Number of fund shares
- -------------------------------------------------------------------------------------
Shares outstanding at beginning and end of period 7,507,107 7,507,107
- -------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
For the period
Six months June 25, 1993
ended (commencement
November 30 of operations)
(Unaudited) Year ended May 31 to May 31
-------------------------------------------------------------------------------
1996 1996 1995 1994
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $ 13.78 $ 13.04 $ 13.40 $ 14.01+
- -----------------------------------------------------------------------------------------------------------------------
Investment operations
- -----------------------------------------------------------------------------------------------------------------------
Net investment income .66 1.27 1.32 1.23
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments .13 .79 (.36) (.59)
- -----------------------------------------------------------------------------------------------------------------------
Total from investment operations .79 2.06 .96 .64
- -----------------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------------
From net investment income (.66) (1.30) (1.32) (1.22)
- -----------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- (.02) -- (.03)
- -----------------------------------------------------------------------------------------------------------------------
Total distributions (.66) (1.32) (1.32) (1.25)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 13.91 $ 13.78 $ 13.04 $ 13.40
- -----------------------------------------------------------------------------------------------------------------------
Market value, end of period $ 13.875 $ 13.750 $13.125 $ 13.375
- -----------------------------------------------------------------------------------------------------------------------
Total investment return at
market value (%)(a) 5.80* 15.30 9.20 (2.52)*
- -----------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $104,415 $103,466 $97,901 $100,615
- -----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)(b) .55* 1.04 1.00 1.00*
- -----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets (%) 4.83* 9.49 10.32 8.82*
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 30.92* 74.70 103.91 80.21*
- -----------------------------------------------------------------------------------------------------------------------
+ Represents initial net asset value of $14.07 less offering expenses of approximately $0.06.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended May 31, 1996, and thereafter, includes amounts
paid through expense offset arrangements. Prior period ratios exclude these amounts. (Note 2)
</TABLE>
Notes to financial statements
November 30, 1996 (Unaudited)
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 with a
secondary objective of capital growth. 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 preparation
of financial statements is in conformity with generally accepted
accounting principles and require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities.
Actual results could differ from those estimates.
A) Security valuation Investments for which market quotations are
readily available are stated at market value, which is determined using
the last reported sale price, or, if no sales are reported -- as in the
case of some securities traded over-the-counter -- the last reported bid
price. Securities quoted in foreign currencies are translated into U.S.
dollars at the current exchange rate. Short-term investments having
remaining maturities of 60 days or less are stated at amortized cost,
which approximates market value, and other investments, including
restricted securities, are stated at fair value following procedures
approved by the Trustees. Market quotations are not considered to be
readily available for long-term corporate bonds and notes; such
investments are stated at fair value on the basis of valuations
furnished by a pricing service, approved by the Trustees, which
determines valuations for normal, institutional-size trading units of
such securities using methods based on market transactions for
comparable securities and various relationships between securities which
are generally recognized by institutional traders.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested
cash balances into a joint trading account along with the cash of other
registered investment companies and certain other accounts managed by
Putnam Investment Management, Inc. ("Putnam Management"), the fund's
Manager, a wholly-owned subsidiary of Putnam Investments, Inc.. These
balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be in an
amount at least equal to the resale price, including accrued interest.
Putnam Management is responsible for determining that the value of these
underlying securities is at all times at least equal to the resale
price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed).
Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date.
Discounts on zero coupon bonds, original issue, stepped-coupon bonds and
payment in kind bonds are accreted according to the effective yield
method.
Securities purchased or sold on a when-issued or delayed delivery basis
may be settled a month or more after the trade date; interest income is
accrued based on the terms of the security. Losses may arise due to
changes in the market value of the underlying securities or if the
counterparty does not perform under the contract.
E) Federal taxes It is the policy of the fund to distribute all of its
income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held nor for excise tax on income and capital
gains.
At May 31, 1996, the fund had a capital loss carryover of approximately
$5,970,000 available to offset future capital gains, if any. The amount
of the carryover and the expiration dates are:
Loss Carryover Expiration
---------------- ------------------
$ 307,000 May 31, 2002
4,212,000 May 31, 2003
1,451,000 May 31, 2004
F) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid monthly. The amount and character of income and gains to be
distributed are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles.
Reclassifications are made to the fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryovers) under income tax regulations.
G) Unamortized organization expenses Expenses incurred by the fund in
connection with its organization, its registration with the Securities
and Exchange Commission and with various states and the initial public
offering of its shares were $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, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on the following annual rates: 0.75% of the
first $500 million, 0.65% of the next $500 million, 0.60% of the next
$500 million, and 0.55% of any amount over $1.5 billion.
The fund reimburses Putnam Management for the compensation and related
expenses of certain officers of the fund and their staff who provide
administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam
Investments, Inc. Investor servicing agent functions are provided by
Putnam Investor Services, a division of PFTC.
For the six months ended November 30, 1996, fund expenses were reduced
by $2,768 under expense offset arrangements with PFTC. Investor
servicing and custodian fees reported in the Statement of operations
exclude these credits. The fund could have invested a portion of the
assets utilized in connection with the expense offset arrangements in an
income producing asset if it had not entered into such arrangements.
Trustees of the fund receive an annual Trustees fee of $800 and an
additional fee for each Trustee's meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of
the Trustees receive additional fees for attendance at certain committee
meetings.
The fund adopted a Trustee Fee Deferral Plan (the "Plan") which allows
the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund
and are invested in certain Putnam funds until distribution in
accordance with the Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in Compensation of trustees in the Statement of
operations. Accrued pension liability is included in Payable for
compensation of Trustees in the Statement of assets and liabilities.
Note 3
Purchase and sales of securities
During the six months ended November 30, 1996, purchases and sales of
investment securities other than short-term investments aggregated
$31,327,323 and $33,015,435, 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.
Results of December 5, 1996 shareholder meeting
A meeting of shareholders of the fund was held on December 5, 1996. At
the meeting, each of the nominees for Trustees was elected, as follows:
Votes
Votes for withheld
Jameson Adkins Baxter 3,801,449 107,070
Hans H. Estin 3,802,570 105,949
John A. Hill 3,805,014 103,505
Ronald J. Jackson 3,804,511 104,008
Elizabeth T. Kennan 3,799,684 108,835
Lawrence J. Lasser 3,804,705 103,814
Robert E. Patterson 3,805,942 102,577
Donald S. Perkins 3,803,816 104,703
William F. Pounds 3,805,390 103,129
George Putnam 3,807,086 101,433
George Putnam, III 3,802,201 106,318
Eli Shapiro 3,796,228 112,291
A.J.C. Smith 3,806,622 101,897
W. Nicholas Thorndike 3,803,732 104,787
A proposal to ratify the selection of Price Waterhouse LLP as auditors
for the fund was approved as follows: 3,777,779 votes for, and 41,897
votes against, with 88,843 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to diversification of investments was approved as follows:
3,073,406 votes for, and 135,934 votes against, with 699,179 abstentions
and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in the securities of a single issuer was approved
as follows: 2,974,295 votes for, and 206,508 votes against, with 727,716
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to making loans through purchases of debt obligations,
repurchase agreements and securities loans was approved as follows:
2,835,786 votes for, and 371,687 votes against, with 701,046 abstentions
and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in commodities or commodity contracts was
approved as follows: 2,870,448 votes for, and 344,066 votes against,
with 694,005 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in securities of issuers in which management
of the fund or Putnam Investment Management, Inc. owns securities was
approved as follows: 2,890,471 votes for, and 317,289 votes against,
with 700,759 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to margin transactions was approved as follows: 2,817,228
votes for, and 379,313 votes against, with 711,978 abstentions and
broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to short sales was approved as follows: 2,804,291 votes
for, and 392,282 votes against, with 711,946 abstentions and broker non-
votes.
A proposal to eliminate the fund's fundamental investment restriction
which limits the fund's ability to pledge assets was approved as
follows: 2,797,899 votes for, and 401,590 votes against, with 709,030
abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in certain oil, gas and mineral interests
was approved as follows: 2,942,199 votes for, and 251,029 votes against,
with 715,291 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investing to gain control of a company's management was
approved as follows: 2,900,498 votes for, and 304,435 votes against,
with 703,586 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in other investment companies was approved
as follows: 2,925,828 votes for, and 265,405 votes against, with 717,286
abstentions and broker non-votes.
All tabulations are rounded to nearest whole number.
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* CHANGE IN INVESTMENT POLICY
In September the Trustees, at the request of Putnam Management, approved
a change in Putnam Managed High Yield Trust's investment policy. Before
adoption of the change, the fund was restricted to investment in
securities with a minimum rating of B. Under the new policy, the rating
floor was moved one full category down; the fund may now invest up to 5%
of its assets in securities rated, at the time of investment, Caa by
Moody's or CCC by Standard & Poor's, or in unrated securities of
comparable quality.
The change brings the fund's policy into conformity with the policies of
Putnam's other high-yield bond funds and the competing funds to which it
is compared in the marketplace. It will also permit the fund to
participate in the full range of high-yield investments.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
William J. Curtin
Vice President
Peter Carman
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
Beverly Marcus
Clerk and Assistant Treasurer
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.
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
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Bulk Rate
U.S. Postage
PAID
Putnam
Investments
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29943-590 1/97
