Putnam
Managed
High Yield
Trust
SEMIANNUAL REPORT
November 30, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* Morningstar Inc., an independent rating agency, awarded Putnam
Managed High Yield Trust its highest rating -- 5 stars for overall
performance (based on the 3-year average annual return) as of December 31,
1997. Only 10% of the 144 funds in Morningstar's closed-end fixed-income
category receive 5 stars.*
* "Once again, junk bonds are proving resilient amid unrest in world-wide
financial markets. . . . [J]unk bonds are holding up because so much cash
is chasing their hefty yields."
-- The Wall Street Journal, November 6, 1997
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
12 Portfolio holdings
26 Financial statements
33 Results of December 4, 1997 shareholder meeting
* Morningstar rates a fund relative to other funds with similar investment
objectives based on the fund's 3-, 5-, and 10-year performance, adjusted
for risk factors and sales charges. Ratings are updated monthly: the top
10% of funds receive 5 stars and the next 22.5% receive 4 stars. Past
performance is not indicative of future results.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
A major disruption in the world's security markets a month before the close of
Putnam Managed High Yield Trust's semiannual period did not keep your fund
from delivering positive results for the six months ended November 30, 1997.
Even the impact on the fund's foreign holdings was comparatively minimal as a
result of the difficulties in Southeast Asia that touched off the global
market tremors. Foreign investors' flight to the safety of U.S. Treasury bonds
in fact may have had a greater effect on the performance of the high-yield
bonds in which your fund invests.
The portfolio's fortuitous positioning was not the result of clairvoyance on
the part of Fund Manager Jennifer Leichter. Skill, experience, and the backing
of Putnam's extensive credit research and analysis capability, however, are
clearly in evidence. Jennifer believes the market disruptions will prove
temporary and has seen no cause to waver from the fund's well-established
investment strategy. In the following report, she discusses performance during
the first half of fiscal 1998 and looks at prospects for the second half.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
January 21, 1997
Report from the Fund Manager
Jennifer E. Leichter
During the six months ended November 30, 1997, the U.S. stock market
repeatedly soared to record highs while the U.S. bond market enjoyed favorable
performance amid its status as one of the most attractively valued among major
global bond markets. Overall, near-ideal conditions prevailed on all fronts --
economic, inflation, and interest rate. That is, they prevailed until October
27, when fiscal ills of Southeast Asia, popularly termed the Asian Contagion
and Asian Flu, spilled over into financial markets around the world.
Bonds experienced their share of nerve-racking moments with high-yield issues
taking a back seat to Treasury securities for the first time during the
calendar year. In addition, domestic and foreign investors fled the stocks of
their own markets and rushed to the safety of high-quality U.S. government
debt.
Despite the market volatility and price setbacks of many high-yield issues
during the final weeks of the semiannual period, Putnam Managed High Yield
Trust closed the first half of fiscal 1998 on a positive note, posting
attractive gains at net asset value and market price. On pages 9 and 10 of
this report, you'll find full performance details.
* CONSOLIDATION, FAVORABLE LEGISLATION REMAIN PRIMARY CATALYSTS FOR PROFIT IN
MANY SECTORS
Holdings in the telecommunications, broadcasting, and cable sectors of the
high-yield market have driven the performance of your fund this year,
particularly in late summer, when these industries rallied handsomely. Ongoing
merger and acquisition activity as well as the continued positive effects of
last year's broad-based deregulation provided a wealth of opportunities for
both income and price appreciation.
Telecommunications company bonds were the strongest performers, benefiting
from positive operating results and high equity valuations. Additionally, as
the larger, more financially stable telecommunications players entered the
local markets through the acquisition of competitive local exchange carriers
(CLECs), many fund holdings experienced a handsome run-up in price as a result
of the resulting credit upgrades. Among the strongest performers were Brooks
Fiber Properties, recently purchased by WorldCom; Nextel Communications,
bolstered by the heavy addition of new subscribers to its digital network; and
WinStar Communications, which now serves 46 of the largest U.S. markets. While
these securities and others discussed in this report were viewed favorably
during the period, all holdings are subject to review in accordance with the
fund's investment strategy and may vary in the future.
Several broadcasting issues also merit mentioning, such as Echostar
Communications, Jacor, Global Star, and OrbComm, for which the company
revenues and internal cost savings were rather dramatic. Interestingly, the
combination of a massive rush to consolidate and a tremendous need for capital
tied the hands of many companies seeking to issue debt. Instead, preferred
stock became their chosen medium for raising cash. We took advantage of
several such opportunities, purchasing the preferred securities of SFX
Broadcasting, which has performed extremely well. In the cable area, we
purchased bonds issued by two FOX Network programming companies, Fox Kids and
Fox Liberty, the network's sports affiliate. Both proved their potential over
the period.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Telecommunications 10.5%
Cellular communications 8.0%
Broadcasting 6.1%
Cable 5.6%
Oil and gas 5.0%
Footnote reads:
*Based on net assets as of 11/30/97. Holdings will vary over time.
* CAREFULLY RESEARCHED FORAY INTO FOREIGN CORPORATE BONDS PROVES PROFITABLE
Other bonds that helped drive portfolio returns during the period were those
issued by foreign corporations in developing countries, arguably the
fastest-growing segment of the high-yield market. The fund's limited exposure
to these bonds helped in two ways. First, because the fund owned fewer foreign
corporate issues than many of its competitors, it experienced far less
downward pressure during October's correction. Second, the bonds we chose are
foreign dollar-based corporate issues that were extensively researched before
purchase and represent two industries that we believe have substantial
appreciation potential: cellular communications and paper. While their
operating costs are calculated in local currency, many such companies derive
their revenues from U.S. dollars, thereby gaining a measure of insulation from
adverse currency movements. Millicom International Cellular, Celcaribe, and
McCaw are three cellular firms we found attractive, and APP Finance and PT
Pindo Delhi appear poised for strong gains, since they are among the world's
lowest-cost paper producers.
* GREATER DIVERSIFICATION RESULTS IN MORE POCKETS OF INTERESTING PROSPECTS
As we mentioned in the fund's annual report, we have been in the process of
expanding the number of issues the fund owns, both to further enhance the
portfolio's diversification and to tap opportunities in companies not
typically considered mainstream high-yield issuers. To that end, we have
purchased more securities in industries in which the fund previously has had
limited exposure.
For example, near the end of fiscal 1997, we established a position in the
semiconductor industry through the purchase of "busted" convertible securities
- -- issues that trade more on their value as bonds than on the value of the
potential conversion to the underlying stock. More recently we entered the
regional banking area through the purchase of trust-preferred securities,
otherwise known as bank capital notes. These bonds are Ba-rated high-yield
issues and not that widely followed because of their complex nature; they
trade as bonds but banks can count them as equity in their capital structure.
Owning them gives the fund a bit more interest-rate exposure because they have
longer durations than traditional high-yield issues.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Midland Funding Corp.
Debentures Series A, 11 3/4s, 2005
Transamerican Energy 144A
Senior discounted notes stepped-coupon zero % (13s 6/15/00), 2002 (STP)
PSF Holdings LLC Class A
Common stock
NEXTEL Communications, Inc. 144A
Senior discounted notes stepped-coupon zero % (10.65s, 9/15/02), 2007 (STP)
Celcaribe S.A. 144A units
Stepped-coupon zero % (13 1/2s, 3/15/98), 2004 (Columbia) (STP)
Falcon Holdings Group, Inc.
Senior subordinated notes 11s, 2003 (PIK)
California Federated Bankcorp, Inc.
Series B, $11.50 preferred
Cablevision Systems Corp.
Series M, $11.125 dep. shares preferred (PIK)
NEXTEL Communications Inc. 144A
$13.00 preferred
Graphic Controls Corp.
Senior subordinated notes Series A, 12s, 2005
Footnote reads:
These holdings represent 13.1% of the fund's net assets as of 11/30/97.
Portfolio holdings will vary over time.
* WE LOOK AHEAD WITH OPTIMISM
While the broad market's gyrations over the past two months have given many
investors cause for concern, we remain optimistic about the prospects for
high-yield bonds and your fund's holdings. This is because the high-yield
market of today is nothing like its 1980s predecessor. Corporations are more
fiscally fit, economic growth is steady and moderate, default rates are at
historic lows, and industry-wide consolidation continues at a brisk pace --
All of which provide a positive backdrop for the ongoing demand and
performance of high-yield issues. In fact, these factors, along with low
nominal yields worldwide, have actually helped buoy this asset class when
other fixed-income securities recently came under pressure.
While it is true that the high-yield market lately has underperformed
long-term Treasury bonds, we consider this more a result of foreign investors
pouring money into the Treasury market than any adverse changes in the
underlying fundamentals of many high-yield issuers. Furthermore the high-yield
market historically has experienced a greater degree of volatility near year's
end as investors strive to pare down their riskier assets only to witness a
rebound in the first quarter of the following calendar year. We are not saying
this will occur yet again, but over the past seven years, the high-yield
market realized 80% of its annual return in the first three months of the
year.
In any event, rest assured we will continue to structure a well-diversified
portfolio of bonds with attractive risk/reward characteristics and focus on
improving credits. We will also strive to take advantage of the buying
opportunity the recent price declines have presented by selectively purchasing
new holdings and selling more seasoned names that have met our target
appreciation levels.
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 11/30/97, there is no guarantee the fund will continue to hold
these securities in the future. The lower credit ratings of high-yield
corporate bonds reflect a greater possibility that adverse changes in the
economy or their issuers may affect their ability to pay principal and
interest on the bonds.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Managed High Yield Trust is designed for investors seeking high current
income with a secondary objective of capital growth.
TOTAL RETURN FOR PERIODS ENDED 11/30/97
First Boston
Market High Yield Consumer
NAV price Bond Index Price Index
- ------------------------------------------------------------------------------
6 months 9.24% 11.00% 6.87% 0.87%
- ------------------------------------------------------------------------------
1 year 15.88 20.52 13.79 1.83
- ------------------------------------------------------------------------------
Life of fund (6/25/93) 61.82 56.79 56.06 11.84
Annual average 11.48 10.69 10.60 2.57
- ------------------------------------------------------------------------------
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 11/30/97
- ------------------------------------------------------------------------------
Distributions (number) 6
- ------------------------------------------------------------------------------
Income $0.685
- ------------------------------------------------------------------------------
Capital gains --
- ------------------------------------------------------------------------------
Total $0.685
- ------------------------------------------------------------------------------
Share value NAV Market price
- ------------------------------------------------------------------------------
5/31/97 $14.08 $14.375
- ------------------------------------------------------------------------------
11/30/97 14.70 15.250
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate1 9.39% 9.05%
- ------------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by
NAV or market price at end of period.
TOTAL RETURN FOR PERIODS ENDED 12/31/97
(most recent calendar quarter)
Market
NAV price
- ------------------------------------------------------------------------------
6 months 8.25% 12.28%
- ------------------------------------------------------------------------------
1 year 15.60 19.61
- ------------------------------------------------------------------------------
Life of fund (6/25/93) 63.64 61.18
Annual average 11.51 11.14
- ------------------------------------------------------------------------------
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
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.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding common 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 Bond 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
costs, 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.
Portfolio of investments owned
November 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
CORPORATE BONDS AND NOTES (76.8%) *
PRINCIPAL AMOUNT VALUE
Advertising (0.4%)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
$ 50,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 54,500
345,000 Lamar Advertising Co. 144A sr. sub. notes 8 5/8s, 2007 348,881
--------------
403,381
Aerospace and Defense (1.9%)
- ------------------------------------------------------------------------------------------------------------
850,000 BE Aerospace sr. sub. notes Ser. B, 9 7/8s, 2006 901,000
440,000 Howmet Corp. sr. sub. notes 10s, 2003 488,400
120,000 K & F Industries, Inc.144A sr. sub. notes 9 1/4s, 2007 121,650
100,000 Moog Inc. sr. sub. notes Ser. B, 10s, 2006 105,000
200,000 Sequa Corp. med. term notes 10s, 2001 208,480
140,000 Tracor, Inc. sr. sub. notes 8 1/2s, 2007 141,050
125,000 United Defense Industries Inc. 144A sr. sub. notes 8 3/4s, 2007 124,375
--------------
2,089,955
Agriculture (1.5%)
- ------------------------------------------------------------------------------------------------------------
1,102,000 PMI Holdings Corp. sub. disc. deb. stepped-coupon Ser. B,
zero % (11 1/2s, 9/1/00), 2005 ++ 888,488
668,553 Premium Standard Farms, Inc. sr. secd. notes 11s, 2003 [2 DBL. DAGGERS] 735,408
--------------
1,623,896
Apparel (0.6%)
- ------------------------------------------------------------------------------------------------------------
150,000 GFSI, Inc. 144A notes 11 3/8s, 2009 154,500
295,000 Sassco Fashions Ltd. sr. notes 12 3/4s, 2004 312,700
135,000 William Carter Co. 144A sr. sub. notes 12s, 2008 144,450
--------------
611,650
Automotive Parts (1.0%)
- ------------------------------------------------------------------------------------------------------------
375,000 Aftermarket Technology Corp. sr. sub. notes Ser. D, 12s, 2004 416,250
500,000 Cambridge Industries Inc. 144A sr. sub. notes 10 1/4s, 2007 520,000
110,000 Hayes Wheels International, Inc. company guaranty Ser. B,
9 1/8s, 2007 113,300
--------------
1,049,550
Banks (2.1%)
- ------------------------------------------------------------------------------------------------------------
125,000 Albank Capital Trust 144A company guaranty 9.27s, 2027 136,611
320,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 315,200
315,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 351,981
400,000 Greenpoint Capital Trust I company guaranty 9.1s, 2027 435,040
165,000 Ocwen Federal Bank sub. deb. 12s, 2005 183,150
100,000 Ocwen Financial Corp. notes 11 7/8s, 2003 112,000
75,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 80,625
150,000 Peoples Heritage Capital Trust company guaranty Ser. B,
9.06s, 2027 163,158
150,000 Provident Capital Trust company guaranty 8.6s, 2026 157,734
85,000 Riggs Capital Trust 144A bonds 8 5/8s, 2006 90,319
125,000 Sovereign Capital Trust company guaranty 9s, 2027 134,930
110,000 Webster Capital Trust I 144A bonds 9.36s, 2027 123,509
--------------
2,284,257
Basic Industrial Products (0.1%)
- ------------------------------------------------------------------------------------------------------------
60,000 Roller Bearing Co. 144A sr. sub. notes 9 5/8s, 2007 60,450
Broadcasting (4.2%)
- ------------------------------------------------------------------------------------------------------------
200,000 Acme Television/Finance 144A sr. disc. notes stepped-coupon
zero % (10 7/8s, 9/30/00), 2004 ++ 146,000
300,000 Affinity Group Holdings sr. notes 11s, 2007 318,750
500,000 Argyle Television Corp. sr. sub. notes 9 3/4s, 2005 555,625
200,000 Australias Hldngs PTY Ltd. sr. disc, notes stepped-coupon
zero % (15s, 11/01/00), 2002 ++ 96,000
750,000 Benedek Communications Corp. sr. disc. notes stepped-coupon
zero % (13 1/4s, 5/15/01), 2006 ++ 551,250
435,000 Capstar Broadcasting sr. disc. notes stepped-coupon zero %
(12 3/4s, 2/1/02), 2009 ++ 308,850
180,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 183,600
160,000 Citadel Broadcasting Co. 144A sr. sub notes 10 1/4s, 2007 171,200
560,000 Fox/Liberty Networks LLC 144A sr. notes 8 7/8s, 2007 555,800
210,000 Globo Communicacoes 144A company guaranty 10 1/2s,
2006 (Brazil) 193,200
95,000 Jacor Communications, Inc. company guaranty 9 3/4s, 2006 101,175
200,000 Paxson Communications Corp. 144A sr. sub. notes
11 5/8s, 2002 215,000
100,000 Pegasus Media & Communications notes Ser. B, 12 1/2s, 2005 114,000
55,000 Pegasus Communications Corp. 144A sr. notes 9 5/8s, 2005 55,000
848,000 Petracom Holdings, Inc. notes stepped-coupon zero %
(17 1/2s, 8/1/98), 2003 ++ 814,080
225,000 Radio One Inc. company guaranty stepped-coupon Ser. B, 7s,
(12s, 5/15/00), 2004 ++ 222,750
70,000 TV Azteca S.A. de C.V. sr. notes 10 1/2s, 2007 (Mexico) 72,800
--------------
4,675,080
Building and Construction (1.4%)
- ------------------------------------------------------------------------------------------------------------
185,000 Altos Hornos de Mexico bonds ser. A 11 3/8s 2002 (Mexico) 192,400
350,000 GS Superhighway Holdings 144A sr. notes 10 1/4s, 2007 340,375
150,000 Presley Cos. sr. notes 12 1/2s, 2001 141,375
733,000 Terex Corp. sr. notes Ser. B, 13 1/4s, 2002 838,369
--------------
1,512,519
Buses (0.6%)
- ------------------------------------------------------------------------------------------------------------
715,000 Consorcio/MCII Holdings sec. notes stepped-coupon zero %
(12s, 11/15/98), 2002 ++ 648,863
Business Services (1.2%)
- ------------------------------------------------------------------------------------------------------------
200,000 Axiohm Transactions Solutions 144A sr. sub. notes 9 3/4s, 2007 200,500
720,000 Corporate Express, Inc. sr. sub. notes Ser. B, 9 1/8s, 2004 741,600
230,000 Iron Mountain, Inc. 144A sr. sub. notes 8 3/4s, 2009 233,450
100,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 111,500
--------------
1,287,050
Cable Television (4.2%)
- ------------------------------------------------------------------------------------------------------------
1,068,831 Adelphia Communications Corp. sr. notes 9 1/2s, 2004 [2 DBL. DAGGERS] 1,082,191
200,000 Bell Cablemedia PLC sr. disc. notes zero % stepped-coupon
zero % (11.95s, 7/15/99), 2004 (United Kingdom) ++ 185,800
500,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005
(United Kingdom) ++ 377,500
795,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) ++ 520,725
1,306,924 Falcon Holdings Group, Inc. sr. sub. notes 11s, 2003 [2 DBL. DAGGERS] 1,372,270
500,000 FrontierVision Holdings LP 144A sr. discount notes
stepped-coupon zero % (11 7/8s, 9/15/01), 2007 ++ 348,750
1,045,000 UIH Australia/Pacific, Inc. sr. disc. notes stepped-coupon Ser. B,
zero % (14s, 5/15/01), 2006 (Australia) ++ 679,250
190,000 Wireless One, Inc. sr. notes 13s, 2003 95,000
--------------
4,661,486
Cellular Communications (5.0%)
- ------------------------------------------------------------------------------------------------------------
300,000 Cencall Communications Corp. sr. disc. notes stepped-coupon
zero % (10 1/8s, 1/15/99), 2004 ++ 262,125
500,000 Comcast UK Cable, Ltd. deb. stepped-coupon zero %
(11.2s, 11/15/00), 2007 (Bermuda) ++ 398,750
250,000 Comunicacion Cellular bonds stepped-coupon zero %
(13 1/8s, 11/15/00), 2003 (Colombia) ++ 188,125
200,000 Dobson Communications Corp. 11 3/4s, 2007 208,000
400,000 Heartland Wireless Communications, Inc. sr. notes 13s, 2003 160,000
820,000 Intercel, Inc. sr. disc. notes stepped-coupon zero %
(12s, 5/1/01), 2006 ++ 585,275
815,000 McCaw International Ltd sr. discount notes stepped coupon
zero % (13s, 4/15/02), 2007 ++ 478,813
635,000 Millicom International Cellular S.A. sr. disc. notes stepped-
coupon zero % (13 1/2s, 6/1/01), 2006 (Luxembourg) ++ 463,550
50,000 NEXTEL Communications, Inc. 144A sr. disc. notes
stepped-coupon zero % (9 3/4s, 10/31/02), 2007 ++ 28,875
2,470,000 NEXTEL Communications, Inc. 144A sr. disc. notes
stepped-coupon zero % (10.65s, 9/15/02), 2007 ++ 1,500,525
100,000 Nextlink Communications sr. notes 9 5/8s, 2007 101,000
160,000 Omnipoint Corp. sr. notes 11 5/8s, 2006 169,600
1,000,000 Pricellular Wireless Corp. sr. disc. notes stepped-coupon
zero % (12 1/4s, 10/1/98), 2003 ++ 1,001,250
--------------
5,545,888
Chemicals (2.3%)
- ------------------------------------------------------------------------------------------------------------
600,000 Acetex Corp. sr. notes 9 3/4s, 2003 (Canada) 621,000
490,000 Harris Chemical Corp. sr. sub. notes 10 3/4s, 2003 515,725
370,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 385,725
200,000 PCI Chemicals & Pharmaceuticals 144A sr. notes 9 1/4s,
2007 (Canada) 197,000
115,000 Pharmaceutical Fine Chemicals 144A sr. sub. notes 9 3/4s,
2007 (Switzerland) 115,575
200,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007 198,500
210,000 Sovereign Specialty Chemical 144A sr. sub. notes 9 1/2s, 2007 215,775
155,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 ++ 103,075
175,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 152,688
--------------
2,505,063
Computer Equipment (0.2%)
- ------------------------------------------------------------------------------------------------------------
170,000 Computervision Corp. sr. sub. notes 11 3/8s, 1999 167,450
Computer Services (0.4%)
- ------------------------------------------------------------------------------------------------------------
95,000 DecisionOne Corp. sr. sub. notes 9 3/4s, 2007 97,375
285,000 Unisys Corp. sr. notes 11 3/4s, 2004 323,475
--------------
420,850
Consumer Durable Goods (0.2%)
- ------------------------------------------------------------------------------------------------------------
40,000 Hedstrom Holdings, Inc. 144A sr. disc. notes stepped-coupon
zero % (12s, 6/1/02), 2009 ++ 24,000
275,000 Icon Fitness Corp. 144A sr. disc. notes stepped-coupon Ser. B,
zero % (14s, 11/15/01), 2006 ++ 156,750
--------------
180,750
Consumer Non Durables (0.8%)
- ------------------------------------------------------------------------------------------------------------
975,000 International Semi-Tech. Corp. sr. secd. disc. notes
stepped-coupon zero % (11 1/2s 8/15/00), 2003
(Canada) ++ 409,500
405,000 Viasystems Inc. 144A sr. sub. notes 9 3/4s, 2007 419,175
--------------
828,675
Consumer Services (0.5%)
- ------------------------------------------------------------------------------------------------------------
522,000 Coinmach Corp. sr. notes Ser. B, 11 3/4s, 2005 578,115
Containers (1.2%)
- ------------------------------------------------------------------------------------------------------------
100,000 AEP Industries, Inc. 144A sr. sub. notes 9 7/8s, 2007 101,000
320,000 Consumers International 144A sr. notes 10 1/4s, 2005 348,800
185,000 Huntsman Packaging Corp. 144A sr. sub. notes 9 1/8s, 2007 190,088
215,000 Innova S De R.L. sr. notes 12 7/8s, 2007 (Mexico) 211,775
485,000 Radnor Holdings Inc. sr. notes 10s, 2003 501,975
--------------
1,353,638
Cosmetics (0.8%)
- ------------------------------------------------------------------------------------------------------------
230,000 Carson, Inc. 144A sr. sub. notes 10 3/8s, 2007 236,900
80,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 84,000
800,000 Revlon Worldwide Corp. sr. disc. notes Ser. B, zero %, 2001 554,000
--------------
874,900
Electric Utilities (3.2%)
- ------------------------------------------------------------------------------------------------------------
210,000 AES Corp. sr. sub. notes 8 3/8s, 2007 206,325
200,000 Espirito Santo Centrais 144A sr. notes 10s, 2007 (Brazil) 192,000
588,000 First PV Funding deb. 10.15s, 2016 630,360
1,600,000 Midland Funding Corp. deb. Ser. A, 11 3/4s, 2005 1,912,848
542,530 Northeast Utilities System notes Ser. A, 8.58s, 2006 537,023
--------------
3,478,556
Electronic Components (1.1%)
- ------------------------------------------------------------------------------------------------------------
110,000 Argo-Tech Corp. 144A sr. sub. notes 8 5/8s, 2007 108,900
115,000 Celestica International Ltd. sr. sub. notes 10 1/2s,
2006 (Canada) 121,900
117,878 Cirent Semiconductor sr. sub. notes 10.22s, 2002 120,384
136,153 Cirent Semiconductor sr. sub. notes 10.14s, 2004 139,387
160,000 DII Group, Inc. 144A sr. sub. notes 8 1/2s, 2007 158,000
125,000 Details, Inc. 144A sr. sub. notes 10s, 2005 126,563
170,000 Flextronics International Ltd. 144A sr. sub. notes 8 3/4s, 2007 169,575
100,000 HCC Industries, Inc. 144A sr. sub. notes 10 3/4s, 2007 104,000
85,000 Therma-Wave Inc. sr. notes Ser. B, 10 5/8s, 2004 90,100
55,000 Wavetek Corp. company guaranty 10 1/8s, 2007 56,375
--------------
1,195,184
Energy-Related (0.7%)
- ------------------------------------------------------------------------------------------------------------
300,000 Calpine Corp. sr. notes 9 1/4s, 2004 307,500
545,000 Panda Global Energy Co. company guaranty 12 1/2s, 2004 512,300
--------------
819,800
Entertainment (0.8%)
- ------------------------------------------------------------------------------------------------------------
510,000 Fox Kids Worldwide Inc. 144A sr. discount notes
stepped-coupon zero % (10 1/4s, 11/1/02), 2007 ++ 291,975
655,000 Fox Kids Worldwide Inc. 144A sr. notes 9 1/4s, 2007 623,888
--------------
915,863
Environmental Control (0.4%)
- ------------------------------------------------------------------------------------------------------------
355,000 Allied Waste Industries, Inc. 144A sr. disc. notes
stepped-coupon zero % (11.3s, 6/1/02), 2007 ++ 244,063
195,000 Allied Waste Industries, Inc. company guaranty 10 1/4s, 2006 212,550
--------------
456,613
Financial Services (1.4%)
- ------------------------------------------------------------------------------------------------------------
325,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 325,000
200,000 Colonial Capital I 144A company guaranty 8.92s, 2027 212,000
220,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 228,250
120,000 Dine S.A. de C.V. 144A company guaranty
8 3/4s, (Luxembourg) 116,700
155,000 Imperial Credit Capital Trust I 144A company guaranty
10 1/4s, 2002 152,675
150,000 Intertek Finance PLC 144A sr. sub. notes 10 1/4s,
2006 (United Kingdom) 157,500
175,000 Investors Capital Trust I company guaranty Ser. B, 9.77s, 2027 185,719
90,000 Netia Holdings B.V. 144A company guaranty
10 1/4s, 2007(Poland) 85,275
50,000 Netia Holdings B.V. 144A company guaranty stepped-
coupon zero % (11 1/4s, 11/1/02), (Poland) ++ 28,250
100,000 Resource America Inc. 144A bonds 12s, 2004 102,750
--------------
1,594,119
Food and Beverages (0.6%)
- ------------------------------------------------------------------------------------------------------------
250,000 Canandaigua Wine Co. sr. sub. notes Ser. C, 8 3/4s, 2003 253,750
65,000 Del Monte Corp. sr. sub. notes Ser. B, 12 1/4s, 2007 70,850
300,000 Doane Products Co. sr. notes 10 5/8s, 2006 321,000
40,000 Windy Hill Pet Food Co. sr. sub. notes 9 3/4s, 2007 41,200
--------------
686,800
Food Chains (1.5%)
- ------------------------------------------------------------------------------------------------------------
230,000 Ameriserve Food Co. 144A sr. notes 8 7/8s, 2006 230,000
50,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 52,500
235,000 Fleming Companies, Inc. 144A sr. sub. notes 10 1/2s, 2004 244,400
200,000 Jitney-Jungle Stores company guaranty 12s, 2006 226,000
200,000 Jitney-Jungle Stores 144A sr. sub. notes 10 3/8s, 2007 207,000
300,000 Nebco Evans Holding Co. 144A sr. disc. notes stepped-
coupon zero % (12 3/8s, 7/15/02), 2007 ++ 195,000
500,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 408,750
110,000 Southern Foods Group 144A sr. sub. notes 9 7/8s, 2007 114,400
--------------
1,678,050
Health Care (2.3%)
- ------------------------------------------------------------------------------------------------------------
350,000 Columbia/HCA Healthcare Corp. notes 6.91s, 2005 334,317
90,000 Genesis Health Ventures, Inc. sr. sub. notes 9 1/4s, 2006 91,125
400,000 Integrated Health Services, Inc. 144A sr. sub. notes 9 1/4s, 2008 399,000
200,000 Merit Behavioral Care sr. sub. notes 11 1/2s, 2005 232,000
520,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 540,800
610,000 Paragon Health Networks, Inc. 144A sr. sub. notes 9 1/2s, 2007 606,950
305,000 Sun Healthcare Group Inc. 144A sr. sub. notes 9 1/2s, 2007 310,338
--------------
2,514,530
Insurance (0.5.0%)
- ------------------------------------------------------------------------------------------------------------
500,000 Reliance Group Holdings, Inc. sr. sub. deb. 9 3/4s, 2003 527,845
Lodging (0.4%)
- ------------------------------------------------------------------------------------------------------------
150,000 Host Marriott Travel Plaza sr. notes Ser. B, 9 1/2s, 2005 158,250
250,000 Prime Hospitality Corp. sub. notes 9 3/4s, 2007 266,250
--------------
424,500
Machinery (0.1%)
- ------------------------------------------------------------------------------------------------------------
80,000 Bucyrus International, Inc. 144A sr. notes 9 3/4s, 2007 80,800
Media (--%)
- ------------------------------------------------------------------------------------------------------------
4,871 Australis Media, Ltd. sr. disc. notes stepped-coupon
1 3/4s, (15 3/4s 5/15/00), 2003 (Australia) ++ [2 DBL. DAGGERS] 1,461
Medical Supplies and Devices (2.3%)
- ------------------------------------------------------------------------------------------------------------
500,000 Dade International, Inc. sr. sub. notes Ser. B, 11 1/8s, 2006 558,750
1,000,000 Graphic Controls Corp. sr. sub. notes Ser. A, 12s, 2005 1,115,000
500,000 Imagyn Medical Technologies company guaranty 12 1/2s, 2004 477,500
350,000 Wright Medical Technology, Inc. 144A notes Ser. C, 11 3/4s, 2000 355,250
--------------
2,506,500
Metals and Mining (0.6%)
- ------------------------------------------------------------------------------------------------------------
70,000 Acindar Industria Argentina de Aceros S.A. bonds 11 1/4s,
2004 (Argentina) 67,900
165,000 Anker Coal Group, Inc. 144A sr. notes 9 3/4s, 2007 165,825
120,000 Armco, Inc. sr. notes 9s, 2007 118,500
170,000 Continental Global Group sr. notes Ser. B, 11s, 2007 181,050
150,000 Murrin Murrin Holdings 144A sr. notes 9 3/8s, 2007
(Australia) 150,000
--------------
683,275
Motion Picture Distribution (0.9%)
- ------------------------------------------------------------------------------------------------------------
280,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 287,000
362,500 Cinemark Mexico USA notes Ser. B, 13s, 2003 (Mexico) [2 DBL. DAGGERS] 376,094
24,400 Cinemark Mexico USA notes Ser. D, 13s, 2003 (Mexico) [2 DBL. DAGGERS] 25,315
340,000 Cinemark USA, Inc. sr. sub. notes Ser. B, 9 5/8s, 2008 351,900
--------------
1,040,309
Oil and Gas (4.0%)
- ------------------------------------------------------------------------------------------------------------
145,000 Abraxas Petroleum Corp. 144A sr. notes Ser. B,
11 1/2s, 2004 156,600
40,000 Benton Oil & Gas Co. 144A sr. notes 9 3/8s, 2007 40,500
250,000 Chesapeake Energy Corp. sr. notes 9 1/8s, 2006 258,125
150,000 Coho Energy, Inc. sr. sub. notes 8 7/8s, 2007 149,625
125,000 DI Industries Inc. sr. notes 8 7/8s, 2007 128,125
100,000 Panaco, Inc. 144A sr. notes 10 5/8s, 2004 99,500
125,000 Pride Petroleum Services, Inc. sr. notes 9 3/8s, 2007 133,750
100,000 Southwest Royalties, Inc. 144A company guaranty
10 1/2s, 2004 99,000
2,300,000 Transamerican Energy 144A sr. disc. notes stepped-
coupon zero % (13s 6/15/2000), 2002 ++ 1,868,750
910,000 Transamerican Energy 144A sr. notes 11 1/2s, 2002 910,000
402,000 TransTexas Gas Corp. 144A sr. sub. notes 13 3/4s, 2001 450,240
85,000 Wiser Oil Co. company guaranty 9 1/2s, 2007 84,575
--------------
4,378,790
Paging (1.8%)
- ------------------------------------------------------------------------------------------------------------
900,000 Arch Communications Group sr. disc. notes stepped-
coupon zero % (10 7/8s, 3/15/01), 2008 ++ 589,500
750,000 Metrocall, Inc. sr. sub. notes 10 3/8s, 2007 761,250
350,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 399,875
300,000 Pagemart Nationwide, Inc. sr. disc. notes stepped-coupon
zero % (15s, 2/1/00), 2005 ++ 247,500
--------------
1,998,125
Paper and Forest Products (3.4%)
- ------------------------------------------------------------------------------------------------------------
200,000 APP Finance II Mauritius Ltd. bonds 12s, 2049 (Indonesia) ++ 187,000
520,000 Florida Coast Paper LLC 1st mtge. Ser. B, 12 3/4s, 2003 556,400
420,000 Indah Kiat Financial Mauritius 144A 10s, 2007 (Indonesia) 382,200
315,000 Pindo Deli Finance Mauritius Ltd. 144A company guaranty
10 3/4s, 2007 (India) 291,375
350,000 PT Pabrik Kertas Tjiwi Kimia 144A company guaranty 10s,
2004 (Indonesia) 320,250
650,000 Repap New Brunswick sr. notes 9 7/8s, 2000 (Canada) 659,750
220,000 Riverwood International Corp. company guaranty 10 5/8s, 2007 223,575
300,000 Riverwood International Corp. company guaranty 10 1/4s, 2006 306,000
250,000 Stone Container Corp. sr. notes 11 7/8s, 2016 275,000
495,000 Stone Container Corp. 144A company guaranty 11 1/2s, 2006 524,700
--------------
3,726,250
Pharmaceuticals (0.4%)
- ------------------------------------------------------------------------------------------------------------
400,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 420,000
Publishing (0.1%)
- ------------------------------------------------------------------------------------------------------------
85,000 Von Hoffman Press Inc. 144A sr. sub. notes 10 3/8s, 2007 90,950
REIT's (Real Estate Investment Trust) (0.3%)
- ------------------------------------------------------------------------------------------------------------
320,000 HMH Properties, Inc. company guaranty Ser. B, 8 7/8s,
2007 (Canada) 329,600
Railroads (0.2%)
- ------------------------------------------------------------------------------------------------------------
60,000 TFM S.A. de C.V. 144A company guaranty 10 1/4s,
2007 (Mexico) 62,100
320,000 TFM S.A. de C.V. 144A company guaranty stepped-coupon
zero % (11 3/4s, 6/15/02), 2009 (Mexico) ++ 211,200
--------------
273,300
Recreation and Gaming (3.6%)
- ------------------------------------------------------------------------------------------------------------
250,000 Aztar Corp. sr. sub. notes 13 3/4s, 2004 286,875
100,000 Azteca Holdings 144A sr. notes 11s, 2002 102,500
150,000 101 Main L.L.C. P/P 144A 13s, 2000 151,500
155,000 Casino America, Inc. sr. notes 12 1/2s, 2003 167,981
100,000 Casino Magic Finance Corp. 1st mtge. 11 1/2s, 2001 97,500
85,000 CLN Holdings, Inc. sr. disc. notes zero %, 2001 46,750
500,000 Coast Hotels & Casinos, Inc. company guaranty Ser. B, 13s, 2002 562,500
321,183 Elsinore Corp. 144A exch. 1st mortgage 11 1/2s, 2000 308,336
120,000 Isle of Capri Black Hawk LLC 144A 1st mortgage 13s, 2004 121,200
950,000 Lady Luck Gaming 1st mtge. 11 7/8s, 2001 969,000
357,000 Louisiana Casino Cruises Corp. 1st mtge. 11 1/2s, 1998 360,570
525,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 412,125
432,000 Trump Castle Funding Corp. sr. sub. notes 11 1/2s, 2000 436,320
--------------
4,023,157
Restaurants (0.2%)
- ------------------------------------------------------------------------------------------------------------
250,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 271,563
Retail (1.8%)
- ------------------------------------------------------------------------------------------------------------
80,000 Guitar Center Management Co. sr. notes 11s, 2006 89,200
100,000 J Crew Operating Corp. 144A sr. sub. notes 10 3/8s, 2007 98,500
850,000 K mart Corp. med. term notes 7.85s, 2002 854,029
600,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 642,000
100,000 NBTY, Inc. 144A sr. sub. notes 8 5/8s, 2007 98,000
220,000 Zale Corp. 144A sr. notes 8 1/2s, 2007 218,350
--------------
2,000,079
Satellite Services (2.5%)
- ------------------------------------------------------------------------------------------------------------
250,000 Echostar DBS Corp. 144A company guaranty 12 1/2s, 2002 265,938
535,000 Echostar Satellite Broadcast Corp. sr. disc. notes
stepped-coupon zero % (13 1/8s, 3/15/00), 2004 ++ 441,375
190,000 Esat Holdings Ltd. sr. notes stepped-coupon zero %
(12 1/2s, 2/01/02), 2007 (Ireland) ++ 133,000
405,000 Iridium LLC/Capital Corp. company guaranty Ser. B, 14s, 2005 433,350
250,000 Iridium LLC/Capital Corp. 144A sr. notes 11 1/4s, 2005 241,875
250,000 Iridium LLC/Capital Corp. company guaranty Ser. A, 13s, 2005 258,125
630,000 Orbcomm Global Capital Corp. sr. notes Ser. B, 14s, 2004 670,950
165,000 Pratama Datakom Asia BV 144A company guaranty 12 3/4s,
2005 (Indonesia) 132,000
165,000 TCI Satellite Entertainment 144A sr. sub. notes 10 7/8s, 2007 170,775
--------------
2,747,388
Semiconductors (0.4%)
- ------------------------------------------------------------------------------------------------------------
425,000 Fairchild Semiconductor Corp. 144A sr. sub. notes 11.74s, 2008 434,563
Steel (0.3%)
- ------------------------------------------------------------------------------------------------------------
360,000 Hylsa S.A. de C.V. 144A bonds 9 1/4s, 2007 (Mexico) 351,887
Telecommunications (7.6%)
- ------------------------------------------------------------------------------------------------------------
250,000 Advanced Radio Telecom Corp. sr. notes 14s, 2007 237,500
160,000 American Communications Services, Inc. 144A
sr. notes 13 3/4s, 2007 183,200
720,000 American Communications Services, Inc. sr. disc. notes
stepped-coupon zero % (12 3/4s, 4/1/01), 2006 ++ 507,600
85,000 Consorcio Ecuatoriano 144A notes 14s, 2002 (Ecuador) 85,000
1,250,000 GST Telecommunications, Inc. company guaranty
stepped-coupon zero % (13 7/8s, 12/15/00), 2005 ++ 912,500
450,000 Hyperion Telecommunication Inc. sr. disc. notes
stepped-coupon Ser. B, zero % (13s, 4/15/01), 2003 ++ 308,250
500,000 Hyperion Telecommunications, Inc. sr. notes Ser. B, 12 1/4s, 2004 535,000
1,370,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon zero %
(13 1/2s, 9/15/00), 2005 ++ 1,096,000
220,000 ITC Deltacom, Inc. sr. notes 11s, 2007 235,950
750,000 Intermedia Communications, Inc. sr. disc. notes stepped-coupon
zero % (12 1/2s, 5/15/01), 2006 ++ 581,250
145,000 Intermedia Communications, Inc. 144A sr. notes 8 7/8s, 2007 145,000
1,200,000 International Cabletel, Inc. sr. notes stepped-coupon Ser. B,
zero % (11 1/2s, 2/01/01), 2006 ++ 906,000
550,000 International Wireless Communications, Inc. sr. disc. notes
zero %, 2001 297,000
130,000 L-3 Communications Corp. sr. sub. notes Ser. B, 10 3/8s, 2007 140,400
120,000 Metronet Communications 144A sr. disc. notes
stepped-coupon zero % (10.75s, 11/1/02), 2007 ++ 69,900
730,000 Teleport Communications Group Inc. sr. disc. notes
stepped-coupon zero % (11 1/8s, 7/1/01), 2007 ++ 578,525
560,000 Teligent, Inc. sr. notes 11 1/2s, 2007 560,000
320,000 WinStar Communications. Inc. 144A sr. sub. notes zero %, 2007 372,800
550,000 WinStar Communications, Inc. 144A sr. disc. notes
stepped-coupon zero % (14s, 10/15/00), 2005 ++ 420,750
170,000 WinStar Equipment Corp. company guaranty 12 1/2s, 2004 185,300
--------------
8,357,925
Telephone Services (1.5%)
- ------------------------------------------------------------------------------------------------------------
280,000 BTI Telecom Corp. 144A sr. notes 10 1/2s, 2007 278,600
250,000 Barak ITC 144A sr. disc. notes stepped-coupon zero %
(12 1/2s, 11/15/02), 2007 (Israel) ++ 138,125
340,000 McLeodUSA, Inc. sr. disc. notes stepped-coupon zero %
(10 1/2s, 3/1/02), 2007 ++ 232,900
430,000 NTL Inc. sr. notes Ser. B, 10s, 2007 (United Kingdom) 450,425
540,000 RCN Corp. 144A sr. disc. notes stepped-coupon zero %
(11 1/8s, 10/15/02), 2007 ++ 317,250
75,000 RCN Corp. 144A sr. notes 10s, 2007 75,188
100,000 Transtel S.A. 144A Pass through Certificates 12 1/2s,
2007 (Colombia) 94,000
160,000 Viatel, Inc. sr. disc. notes stepped-coupon zero %
(15s, 1/15/00), 2005 ++ 121,600
--------------
1,708,088
Textiles (0.7%)
- ------------------------------------------------------------------------------------------------------------
85,000 Glenoit Corp. 144A sr. sub. notes 11s, 2007 91,800
200,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 196,500
330,000 Polysindo International Finance company guaranty 11 3/8s,
2006 (Indonesia) 331,650
140,000 Worldtex, Inc. 144A sr. notes 9 5/8s, 2007 140,700
--------------
760,650
Transportation (0.5%)
- ------------------------------------------------------------------------------------------------------------
190,000 Johnstown America Industries, Inc. 144A sr. sub. notes
11 3/4s, 2005 206,625
290,000 Kitty Hawk, Inc. 144A sr. notes 9.95s, 2004 291,088
--------------
497,713
Wireless Communications (0.4%)
- ------------------------------------------------------------------------------------------------------------
105,000 FWT, Inc. 144A sr. sub. notes 9 7/8s, 2007 105,263
150,000 Paging Network Do Brasil sr. notes 13 1/2s, 2005 (Brazil) 130,500
120,000 Powertel, Inc. sr. notes 11 1/8s, 2007 127,200
115,000 Telesystem International Wireless Inc. 144A sr. disc. notes
stepped-coupon zero % (10 1/2s, 11/1/02),
2007 (Canada) ++ 62,675
--------------
425,638
--------------
Total Corporate Bonds and Notes (cost $82,157,135) $ 84,763,337
PREFERRED STOCKS (8.7%) *
NUMBER OF SHARES VALUE
Apparel (--%)
- ------------------------------------------------------------------------------------------------------------
52 Anvil Holdings Ser. B, $3.25 pfd [2 DBL. DAGGERS] $ 1,248
Banks (1.6%)
- ------------------------------------------------------------------------------------------------------------
2,000 California Federal Bank Ser. B, $10.625 exch. pfd. 218,500
11,000 California Federated Bankcorp, Inc. Ser. B, $11.50 pfd. 1,237,500
6,240 Chevy Chase Capital Corp. Ser. A, $5.19 pfd. 318,240
--------------
1,774,240
Broadcasting (1.4%)
- ------------------------------------------------------------------------------------------------------------
1,250 Capstar Broadcasting $12.00 pfd. 141,250
2,100 Citadel Broadcasting Inc. 144A $13.25 pfd. 241,500
265 Granite Broadcasting 144A $12.75 pfd. [2 DBL. DAGGERS] 281,563
3,240 SFX Broadcasting, Inc. Ser. E, $12.625 pfd. [2 DBL. DAGGERS] 382,320
496 Spanish Broadcasting Systems $14.25 cum. pfd. 525,760
--------------
1,572,393
Cable Television (1.4%)
- ------------------------------------------------------------------------------------------------------------
10,428 Cablevision Systems Corp. Ser. M, $11.125 dep. shs. pfd. [2 DBL. DAGGERS] 1,194,006
33,000 Diva Systems Corp. Ser. C, $6.00 pfd. 354,750
--------------
1,548,756
Cellular Communication (1.4%)
- ------------------------------------------------------------------------------------------------------------
1,000 Nextel Communications Inc. 144A $13.00 pfd. [2 DBL. DAGGERS] 1,145,000
5,965 Nextlink Communications, Inc. 144A $7.00 pfd. 357,900
--------------
1,502,900
Electric Utilities (0.6%)
- ------------------------------------------------------------------------------------------------------------
6,064 El Paso Electric Co., $11.40 cum. pfd. [2 DBL. DAGGERS] 667,040
Health Care (0.2%)
- ------------------------------------------------------------------------------------------------------------
260 Fresenius Medical Care pfd. Ser. D, zero % 271,050
Insurance (0.3%)
- ------------------------------------------------------------------------------------------------------------
14,500 CGA Group Ltd. 144A Ser. A, $13.75 pfd. [2 DBL. DAGGERS] 362,500
Publishing (0.1%)
- ------------------------------------------------------------------------------------------------------------
2,020 Von Hoffman Corp. 144A $13.50 pfd. 57,772
Restaurants (0.1%)
- ------------------------------------------------------------------------------------------------------------
4,387 AmeriKing, Inc. $3.25 pfd. [2 DBL. DAGGERS] 118,449
Satellite Services (0.1%)
- ------------------------------------------------------------------------------------------------------------
150 Echostar Communications Corp. 144A $12.125 154,125
Telecommunications (1.5%)
- ------------------------------------------------------------------------------------------------------------
200 America Communication Services, Inc. 144A
$12.75 pfd. [2 DBL. DAGGERS] 195,500
110 Hyperion Telecommunications, Inc. 144A
$12.875 pfd. [2 DBL. DAGGERS] 107,525
355 IXC Communications, Inc. 144A $12.50 pfd. [2 DBL. DAGGERS] 408,250
290 Intermedia Communication Ser. B, $13.50 pfd. 345,100
487 NTL Inc. 144A Ser. B, $13.00 pfd. [2 DBL. DAGGERS] 550,310
--------------
1,606,685
--------------
Total Preferred Stocks (cost $8,780,382) $ 9,637,158
UNITS (6.4%) *
NUMBER OF UNITS VALUE
- ------------------------------------------------------------------------------------------------------------
550 Australis Media, Ltd. units stepped-coupon zero %
(15 3/4s, 5/15/00), 2003 (Australia) ++ $ 165,000
70 Celcaribe S.A. 144A units stepped-coupon zero %
(13 1/2s, 3/15/98), 2004 (Columbia) ++ 1,400,000
1,840 Cellnet Data Systems, Inc. 144A units stepped-coupon zero %
(14s, 10/01/02), 2007 ++ 934,665
200 Colt Telecommunications Group PLC units stepped-coupon
zero % (12s, 12/15/01), 2006 (United Kingdom) ++ 153,000
215 Conecel Holdings 144A units 14s, 2000 215,000
180 Club Regina Resort units 144A, 13s, 2004 180,000
620 DecisionOne Corp. units stepped-coupon zero %
(11 1/2s, 8/01/02), 2008 ++ 406,100
1,050 Fitzgerald Gaming Co. units 13s, 2002 1,060,500
495 Knology Holdings Inc. units stepped-coupon
zero % (11 7/8s,10/15/02), 2007 ++ 254,925
185 Real Time Data 144A units stepped-coupon zero %
(13 1/2s, 8/15/01), 2006 ++ 101,750
500 Signature Brands USA Inc. units 13s, 2002 540,000
170 Stone Container Corp. units sr. sub. 12 1/4s, 2002 176,375
150 USN Communications Inc. units stepped-coupon
zero % (14 5/8s, 8/15/02), 2004 ++ 111,000
110 Vialog Corp. units 12 3/4s, 2001 112,475
300 Wireless One, Inc. units stepped-coupon zero %
(13 1/2s, 8/1/01), 2006 ++ 75,000
450 XCL Ltd . sr. sec. notes units 13 1/2s, 2004 585,000
2,950 XCL Ltd. units cum. pfd. 9.50% 545,750
--------------
Total Units (cost $5,271,563) $ 7,016,540
CONVERTIBLE BONDS AND NOTES (2.9%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$ 510,000 APP Global Finance (V) Ltd. 144A cv. sec. 2s, 2000
(United Kingdom) $ 451,350
275,000 Corporate Express, Inc. cv. notes 4 1/2s, 2000 248,188
500,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 318,125
140,000 GST Telecommunications, Inc. cv. sr. disc. notes stepped-
coupon zero % (13 7/8s, 12/15/00), 2005 ++ 190,400
200,000 Integrated Device Technology, Inc. cv. sub. notes
5 1/2s, 2002 170,500
100,000 National Semiconductor Corp. 144A cv. deb.
6 1/2s, 2002 101,125
500,000 NovaCare, Inc. cv. sub. deb. 5 1/2s, 2000 471,250
350,000 Polymax 144A cv. notes 2s, 2006 276,500
150,000 VLSI Technology, Inc. cv. sub. notes 8 1/4s, 2005 148,313
800,000 WinStar Communications. Inc. 144A cv. sr. disc. notes
stepped-coupon zero % (14s, 10/15/00), 2005 ++ 848,000
--------------
Total Convertible Bonds and Notes (cost $2,696,984) $ 3,223,751
COMMON STOCKS (2.5%) *
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
6,071 Advanced Radio Telecom Corp. + $ 57,675
100 AmeriKing, Inc. + 5,000
1,800 Axia Holding Corp. 144A + 90,000
10,520 CellNet Data Systems, Inc. + 88,105
10,124 Chesapeake Energy Corp. + 77,828
4,500 Exide Corp. 107,438
3,333 Finlay Enterprises, Inc. + 71,660
1,000 French Fragrances Inc. + 9,813
2,426 Hedstrom Holdings, Inc. 144A 2,426
10,000 NEXTEL Communications, Inc. Class A + 252,500
3,019 NEXTEL Communications, Inc. 144A
(acquired 9/12/97, cost $48716) [DBL. DAGGERS] 72,418
150 Paging Do Brazil Holdings Co., LLC Class B 2
303 PMI Holdings Corp. + 96,960
244 Premium Holdings L.P. 144A + 978
57,579 PSF Holdings LLC Class A + 1,727,370
12,750 Specialty Foods Corp. + 1,275
4,400 Terex Corp. Rights + 88,000
--------------
Total Common Stocks (cost $2,694,593) $ 2,749,448
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 FRN Libor
plus 2020 + ## +++ $ 524,400
WARRANTS (0.5) * EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- ------------------------------------------------------------------------------------------------------------
25,000 Becker Gaming Corp. 144A 11/15/00 $ 250
4,550 Capital Gaming International, Inc. 2/1/99 182
14,500 CGA Group Ltd. 144A 1/1/04 145
250 Comunicacion Cellular (Colombia) 11/15/20 15,000
4,560 Crompton Knowles Corp.
(acquired 3/16/94, cost $59,280) [DBL. DAGGERS] 10/31/99 57,000
190 Esat Holdings, Inc. 144A (Ireland) 1/1/04 6,650
500 Fitzgerald Gaming Co. 144A 3/15/99 50
6,000 Heartland Wireless Communications Inc. 144A 4/15/00 60
270 Hyperion Telecommunications 144A 4/15/01 16,200
4,191 ICG Communications 9/15/05 56,579
450 Intermedia Communications 6/1/00 33,750
200 International Wireless Communications
Holdings 144A 8/15/01 12,000
1,250 Iridium World Com 144A 7/15/05 170,000
492 Louisiana Casino Cruises, Inc. 144A 12/1/98 24,600
815 McCaw International Ltd. 4/15/07 245
500 NEXTEL Communications Inc. 1/1/99 500
5,380 Nextlink Communications, Inc. 144A 2/1/09 54
6,900 Pagemart, Inc. 144A 12/31/03 51,750
600 Petracom Holdings, Inc. 8/1/05 4,275
215 Spanish Broadcasting Systems 144A 6/30/99 50,525
155 Sterling Chemicals Holdings 8/15/08 5,890
500 Urohealth Systems Inc. 4/10/04 2,500
101 Wright Medical Technology, Inc. 144A 6/30/03 10,064
--------------
Total Warrants (cost $486,531) $ 518,269
CONVERTIBLE PREFERRED STOCKS (0.4%) *(cost $601,250)
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
10,000 Granite Broadcasting $1.938 cv. pfd. $ 480,000
SHORT-TERM INVESTMENTS (1.1%) *(cost $1,205,572)
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$ 1,205,000 Interest in $607,352,000 joint repurchase agreement
dated November 28, 1997 with UBS Securities due
December 1, 1997 with respect to various U.S. Treasury
obligations -- maturity value of $1,205,572 for an
effective yield of 5.70% $ 1,205,382
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $104,392,535) *** $110,118,285
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $110,327,174.
*** The aggregate identified cost on a tax basis is $104,395,592,
resulting in gross unrealized appreciation and depreciation of
$7,546,923 and $1,824,230, respectively, or net unrealized appreciation
of $5,722,693.
+ Non-income-producing security.
++ The interest rate and date shown parenthetically represent the
new interest rate to be paid and the date the fund will begin receiving
interest at this rate.
++++ Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at November 30, 1997
was $129,418 or 0.1% of net assets.
+++++ Income may be received in cash or additional securities at the
discretion of the issuer.
## When-issued securities (Note 1).
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, 1997 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities at value
(identified cost $104,392,535) (Note 1) $110,118,285
- ---------------------------------------------------------------------------------------------------
Cash 449,606
- ---------------------------------------------------------------------------------------------------
Dividends, interest and other receivables 1,773,304
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 747,315
- ---------------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 3,397
- ---------------------------------------------------------------------------------------------------
Total assets 113,091,907
Liabilities
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 862,437
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 1,632,771
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 129,733
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 18,885
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 7,741
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 71,812
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 41,354
- ---------------------------------------------------------------------------------------------------
Total liabilities 2,764,733
- ---------------------------------------------------------------------------------------------------
Net assets $110,327,174
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Note 1) $105,735,101
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 33,439
- ---------------------------------------------------------------------------------------------------
Distributions in excess of gains on investments (Note 1) (1,167,116)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 5,725,750
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $110,327,174
Computation of net asset value
- ---------------------------------------------------------------------------------------------------
Net asset value per share ($110,327,174 divided by 7,507,107 shares) $14.70
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended November 30, 1997 (Unaudited)
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Dividends $ 100,332
- --------------------------------------------------------------------------------------------------
Interest income 5,475,845
- --------------------------------------------------------------------------------------------------
Total investment income 5,576,177
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 336,237
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 88,872
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 6,426
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 74,074
- --------------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 2,964
- --------------------------------------------------------------------------------------------------
Reports to shareholders 15,840
- --------------------------------------------------------------------------------------------------
Auditing 16,293
- --------------------------------------------------------------------------------------------------
Legal 7,245
- --------------------------------------------------------------------------------------------------
Postage 14,614
- --------------------------------------------------------------------------------------------------
Exchange listing fees 9,522
- --------------------------------------------------------------------------------------------------
Other 9,464
- --------------------------------------------------------------------------------------------------
Total expenses 581,551
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (30,893)
- --------------------------------------------------------------------------------------------------
Net expenses 550,658
- --------------------------------------------------------------------------------------------------
Net investment income 5,025,519
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 2,726,071
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 2,027,912
- --------------------------------------------------------------------------------------------------
Net gain on investments 4,753,983
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $9,779,502
- --------------------------------------------------------------------------------------------------
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
1997* 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 5,025,519 $ 10,073,281
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments 2,726,071 2,080,249
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 2,027,912 84,513
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 9,779,502 12,238,043
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income (5,142,035) (10,013,933)
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 4,637,467 2,224,110
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period 105,689,707 103,465,597
- ----------------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $33,439 and $149,955, respectively) $110,327,174 $105,689,707
- ----------------------------------------------------------------------------------------------------------------------
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)
- ---------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share Nov. 30, 1997 June 25, 1993+
operating performance (Unaudited) Year ended May 31 to May 31
- ---------------------------------------------------------------------------------------------------------------------------
1997 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $14.08 $13.78 $13.04 $13.40 $14.01(c)
- ---------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income .67 1.34 1.27 1.32 1.23
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .63 .29 .79 (.36) (.59)
- ---------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.30 1.63 2.06 .96 .64
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------
From net
investment income (.68) (1.33) (1.30) (1.32) (1.22)
- ---------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- (.02) -- (.03)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.68) (1.33) (1.32) (1.32) (1.25)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $14.70 $14.08 $13.78 $13.04 $13.40
- ---------------------------------------------------------------------------------------------------------------------------
Market value,
end of period $15.250 $14.375 $13.750 $13.125 $13.375
- ---------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------
Total investment return
at market value (%)(a) 11.00* 14.88 15.30 9.20 (2.52)*
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $110,327 $105,690 $103,466 $97,901 $100,615
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .53* 1.06 1.04 1.00 1.00*
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.58* 9.70 9.49 10.32 8.82*
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 43.43* 62.57 74.70 103.91 80.21*
- ---------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* 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 arangements. Prior period ratios exclude
these amounts. (Note 2)
(c) Represents initial net asset value of $14.07 less offering expenses of approximately $0.06.
</TABLE>
Notes to financial statements
November 30, 1997 (Unaudited)
Note 1
Significant accounting policies
Putnam Managed High Yield Trust (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
preparation of financial statements is in conformity with generally accepted
accounting principles and requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities. Actual
results could differ from those estimates.
A) Security valuation Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported sale price, or, if no sales are reported -- as in the case of some
securities traded over-the-counter -- the last reported bid price. 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 or dealers, 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 discount bonds, stepped-coupon bonds and payment in kind bonds are
accreted according to the yield-to-maturity basis.
Securities purchased or sold on a (when-issued or forward commitment 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 taxable
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, as amended. 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, 1997, the fund had a capital loss carryover of approximately
$3,122,000 available to offset future capital gains, if any. The amount of the
carryover and the expiration dates are:
Loss Carryover Expiration
------------------ --------------
$1,876,000 May 31, 2003
$1,246,000 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 at
least 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. 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 $29,984. These expenses are being amortized on projected net
asset levels 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 of
average net assets, 0.65% of the next $500 million, 0.60% of the next $500
million, and 0.55% of any amount thereafter.
The fund reimburses Putnam Management an allocated amount 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 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, 1997, fund expenses were reduced by
$30,893 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.
Each Trustee of the fund receives an annual Trustee fee, of which $560 has
been allocated to the fund, 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 has adopted a Trustee Fee Deferral Plan (the "Deferral 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
Deferral 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, 1997, purchases and sales of
investment securities other than short-term investments aggregated $47,508,839
and $46,645,910, 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 4, 1997 shareholder meeting
An annual meeting of shareholders of the fund was held on December 4, 1997.
At the meeting, each of the nominees for Trustees was elected, as follows:
Abstentions
Votes and Broker
Votes for withheld Non-Votes
Jameson Adkins Baxter 7,084,745 72,035 2,900
Hans H. Estin 7,085,221 71,559 2,900
John A. Hill 7,093,346 63,434 2,900
R.J. Jackson 7,092,358 64,422 2,900
Elizabeth T. Kennan 7,085,438 71,342 2,900
Lawrence J. Lasser 7,091,540 65,240 2,900
Robert E. Patterson 7,085,460 71,320 2,900
Donald S. Perkins 7,084,475 72,305 2,900
William F. Pounds 7,087,061 69,719 2,900
George Putnam 7,084,027 72,753 2,900
George Putnam, III 7,090,893 65,887 2,900
A.J.C. Smith 7,092,948 63,832 2,900
W.T. Stephens 7,091,423 68,257 0
W. Nicholas Thorndike 7,093,690 63,090 2,900
A proposal to ratify the selection of Price Waterhouse LLP as the independent
auditors of your fund was approved as follows: 7,081,642 votes for and 18,512
votes against with 59,526 abstentions and broker non-votes.
All tabulations are rounded to nearest whole number.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
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
Tim Ferguson
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.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
36888-590 1/98
