Putnam
Managed
High Yield
Trust
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
11-30-98
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Just as an engine may become sluggish during periods of prolonged use, the
sustained growth that high-yield bonds enjoyed throughout much of the
1990s stalled during the first half of Putnam Managed High Yield Trust's
fiscal 1999. Investors had bid up prices of high-yield bonds as the
economy boomed and fears of defaults diminished. However, this summer's
flight to quality brought the worst market for high-yield bonds since
1990's recession-bound third quarter. Worried by Russia's financial
collapse and subsequent margin calls on certain highly leveraged
portfolios, many investors suddenly became extremely risk averse and shied
away from high-yield bonds.
Despite the market's setback, Robert M. Paine and Jennifer E. Leichter,
your fund's managers, believe that high-yield bonds currently offer
investors value. Unlike stocks, high-yield bonds have not fully recovered
from the late summer setback and your fund's managers believe that this
sector of the market still has appreciation potential, particularly since
high-yield bonds tend to perform well in strong equity markets.
During the difficult environment that overshadowed the first half of the
fiscal year, your fund provided respectable results at both net asset
value and market price. For complete performance information, please refer
to the summary that begins on page 7.
* MARKET'S GLOBAL MARGIN CALL CAUSES HIGH-YIELD RETREAT
Seven years of price gains in the high-yield market were effectively
eradicated this past summer for reasons that had more to do with global
investor sentiment than with the business and economic fundamentals in the
United States. Signs of recession overseas, Russia's devastating financial
collapse, an unexpectedly weak U.S. jobs report, lower-than-expected
corporate earnings forecasts, and broad-based selling of high-yield debt
by highly leveraged, distressed hedge funds created a sky-is-falling
atmosphere. In response, investors came stampeding out of just about any
fixed-income security that involved credit risk. The result was lower
prices on all types of corporate bonds, including the high-yield bonds in
which your fund invests.
Many observers have been tempted to compare today's environment to the
difficult period high-yield investors experienced in 1989 and 1990, when
the yield spreads between high-yield bonds and Treasury securities (the
difference in yield between bonds with similar maturities) had widened
drastically. However, investors should be reminded that the 1989 and 1990
period featured 10% default rates on high-yield bonds, high long-term
interest rates, and an economy that was sliding into recession.
In contrast, today's environment features economic growth, low inflation,
and unusually low default rates. The profile of today's high-yield bond
issuers is also different. Many of these companies are in the more
growth-oriented cable, media, and technology industries and possess solid
balance sheets. Issues of many well-known companies, in fact, currently
carry the high-yield tag.
Your fund's management team believes that today's lower bids on high-yield
bonds have been based on investor fears of recession -- a concern that
Putnam Management does not share at this time. The fund's managers believe
the high-yield market is currently undervalued and exceptionally
attractive. In their opinion, the valuations, fundamentals, and technicals
all spell unusual opportunity for high-yield investors in the months
ahead.
* SECTOR SELECTION HELPS FUND NAVIGATE MARKET'S VOLATILITY
Despite the market's volatility, your fund's strategic underweighting in
steel and other commodities, along with a focus on key high-yield
industries, benefited the fund. High-equity valuations, favorable
regulatory developments, and new technologies have allowed the
telecommunications sector to evolve rapidly into one of today's most
dynamic growth industries.
Global Crossing is a good example of a telecommunications holding that
served your fund well during the period. The company is developing
undersea fiber-optic cable systems to help satisfy the growing demand for
reliable global telecommunications. Global Crossing's Atlantic crossing
cable is expected to link the United States, the United Kingdom, the
Netherlands, and Germany by 1999. While this holding and others discussed
in this report were viewed favorably at the end of the period, all
holdings are subject to review and adjustment in accordance with the
fund's investment strategy and may well vary in the future.
Favorable regulatory developments improved the market positions of
specialized cellular operators and competitive local exchange carriers
(CLECs), including fund holding Intermedia Communications, Inc. Intermedia
has experienced continuous revenue growth since its inception in 1986.
Building from its original base in Florida, Intermedia now provides
integrated telecommunications services nationally with a focus on
customers who have a substantial presence in the eastern United States.
Through a combination of internally generated growth and targeted
acquisitions, the company has expanded its service territory and
dramatically increased its customer base.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Telecommunications 15.4%
Broadcasting 8.4%
Telephone services 5.4%
Recreation and
gaming 4.2%
Cellular
communications 4.0%
Footnote reads:
*Based on net assets as of 11/30/98. Holdings will vary over time.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Midland Funding Corporation
Series A, 11.75%, 2005
NEXTEL Communications, Inc.
Series D, $13.00 cumulative preferred
Graphic Controls Corporation
Senior subordinated notes, Series A, 12s, 2005
International Cabletel, Inc.
Stepped coupon, Series B, zero % (11.5%, 2/1/01), 2006
PSF Holdings LLC
Class A
Global Crossing Holdings, Ltd.
Company guaranty 9.625%, 2008
WinStar Communications, Inc. 144A
Senior discount notes, stepped-coupon zero % (14.00%, 10/15/00), 2005
Celcaribe S.A. 144A
13.5%, 2004 (Colombia)
Transamerican Energy
Senior discount notes, stepped-coupon, Series B, zero % (13.00%, 6/15/99),
2002
GST Telecommunications, Inc.
Company guaranty, stepped-coupon zero % (13.875%, 15/15/00), 2005
Footnote reads:
These holdings represent 11.1% of the fund's net assets as of 11/30/98.
Portfolio holdings will vary over time.
Merger and acquisition activity continued to benefit many high-yield
companies during the period. Corporate bond issuers in the cable
television and broadcasting industries continued to take advantage of
relaxed regulations, which have increased competition for lucrative
business. In both industries, aggressive companies are seizing
opportunities through acquisition to secure market share and spread their
fixed costs over a greater number of households. Fund holding Chancellor
Media Corp., one of the largest radio broadcasting companies in the United
States, is one example of this trend. While there can be no assurances,
your fund's managers anticipate that Chancellor should continue to show
record cash flow growth due to the integration of several acquisitions,
including Capstar, a major radio company, LIN Television, and the Whiteco
outdoor advertising business.
* MARKET OFFERS FUNDAMENTAL VALUE
As the investment climate has warmed again to risk, investors appear to
have rediscovered high-yield bonds as a source of solid high-income
potential. Despite the high-yield market's revival over the past couple of
months, however, your fund's management team believes prices have not yet
caught up to fundamental values. They anticipate a recovery of the
high-yield market over the next several months as investors refocus on the
economy's continued underlying strength and compelling high-yield
valuations.
Though the specter of a credit crunch seems to have receded with three
interest-rate cuts in two months by the Federal Reserve Board, your fund's
management team continues to focus on companies with limited near-term
need for access to capital. The managers plan to continue to emphasize
diversification, companies with little exposure to Asia and low commodity
price risk, and securities with attractive yields relative to their risk
levels.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
January 20, 1999
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 11/30/98, 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 11/30/98
First Boston
Market High Yield Consumer
NAV price Bond Index Price Index
- ------------------------------------------------------------------------------
6 months -9.15% 1.64% -3.15% 0.74%
- ------------------------------------------------------------------------------
1 year -4.21 7.10 1.73 1.55
- ------------------------------------------------------------------------------
5 years 47.66 82.47 48.37 12.48
Annual average 8.11 12.78 8.36 2.38
- ------------------------------------------------------------------------------
Life of fund (6/25/93) 55.01 67.92 58.76 13.57
Annual average 8.41 10.02 8.91 2.38
- ------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. 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 11/30/98
- ------------------------------------------------------------------------------
Distributions (number) 6
- ------------------------------------------------------------------------------
Income $0.692
- ------------------------------------------------------------------------------
Capital gains --
- ------------------------------------------------------------------------------
Total $0.692
- ------------------------------------------------------------------------------
Share value NAV Market price
- ------------------------------------------------------------------------------
5/31/98 $14.83 $15.375
- ------------------------------------------------------------------------------
11/30/98 12.80 14.875
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate1 10.88% 9.36%
- ------------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by NAV
or POP at end of period.
TOTAL RETURN FOR PERIODS ENDED 12/31/98
(most recent calendar quarter)
Market
NAV price
- ------------------------------------------------------------------------------
6 months -10.07% 1.92%
- ------------------------------------------------------------------------------
1 year -6.12 3.97
- ------------------------------------------------------------------------------
5 years 43.47 77.09
Annual average 7.49 12.11
- ------------------------------------------------------------------------------
Life of fund (6/25/93) 53.54 67.57
Annual average 8.08 9.80
- ------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. 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 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.
<TABLE>
<CAPTION>
Portfolio of investments owned
November 30, 1998 (Unaudited)
CORPORATE BONDS AND NOTES (77.4%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C>
Advertising (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
$ 190,000 Adams Outdoor Advertising, sr. notes, 10 3/4s, 2006 $ 203,300
240,000 Lamar Advertising Co. company guaranty 8 5/8s, 2007 252,000
--------------
455,300
Aerospace and Defense (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
110,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 108,900
260,000 Aviation Sales Co. company guaranty 8 1/8s, 2008 257,400
350,000 BE Aerospace sr. sub. notes Ser. B, 9 7/8s, 2006 367,500
80,000 BE Aerospace 144A sr. sub. notes 9 1/2s, 2008 84,400
125,000 BE Aerospace sr. sub. notes Ser. B, 8s, 2008 122,500
120,000 K&F Industries, Inc. sr. sub. notes Ser. B, 9 1/4s, 2007 121,200
200,000 Sequa Corp. med. term notes 10s, 2001 211,718
125,000 United Defense Industries Inc.
company guaranty 8 3/4s, 2007 125,938
--------------
1,399,556
Agriculture (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
668,553 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003
(acquired 9/27/96 cost $653,090) (PIK) (RES) 675,239
230,000 Purina Mills, Inc. sr. sub. notes 9s, 2010 236,900
--------------
912,139
Airlines (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
160,000 Calair LLC company guaranty 8 1/8s, 2008 149,800
280,000 Canadian Airlines Corp. sec. notes 10s, 2005 (Canada) 238,000
350,000 Cathay International Ltd. 144A sr. notes
13s, 2008 (China) 112,000
300,000 Trans World Airlines, Inc. sr. notes 11 1/2s, 2004 262,500
170,000 Trans World Airlines, Inc. sr. notes 11 3/8s, 2006 119,850
--------------
882,150
Apparel (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
150,000 GFSI, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (11 3/8s, 9/15/04), 2009 (STP) 127,500
295,000 Sassco Fashions Ltd. sr. notes 12 3/4s, 2004 287,625
135,000 William Carter Co. sr. sub. notes Ser. A, 12s, 2008 147,825
--------------
562,950
Automotive Parts (2.3%)
- --------------------------------------------------------------------------------------------------------------------------
375,000 Aftermarket Technology Corp. sr. sub. notes
Ser. D, 12s, 2004 393,750
500,000 Cambridge Industries, Inc. company guaranty
Ser. B, 10 1/4s, 2007 430,000
500,000 Talon Automotive Group sr. sub. notes
Ser. B, 9 5/8s, 2008 480,000
400,000 Walbro Corp. company guaranty Ser. B, 10 1/8s, 2007 384,000
500,000 Walbro Corp. sr. notes Ser. B, 9 7/8s, 2007 480,000
--------------
2,167,750
Banks (2.0%)
- --------------------------------------------------------------------------------------------------------------------------
320,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 252,800
315,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 342,512
140,000 Fuji JGB Inv. LLC 144A FLIRB Ser. A, 9.87s, (Japan) 99,525
290,000 Greenpoint Capital Trust I company guaranty
9.1s, 2027 308,459
75,000 Ocwen Capital Trust I company guaranty
10 7/8s, 2027 58,500
165,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 153,450
100,000 Ocwen Financial Corp. notes 11 7/8s, 2003 88,000
150,000 Peoples Heritage Capital Trust company guaranty
Ser. B, 9.06s, 2027 154,662
150,000 Provident Capital Trust company guaranty 8.6s, 2026 164,979
85,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 86,940
125,000 Sovereign Capital Trust company guaranty 9s, 2027 119,754
110,000 Webster Capital Trust I 144A bonds 9.36s, 2027 115,524
--------------
1,945,105
Basic Industrial Products (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
180,000 Insilco Holding Co. 144A sr. disc. notes stepped-coupon
zero % (14s, 8/15/03), 2008 (STP) 82,800
Broadcasting (6.5%)
- --------------------------------------------------------------------------------------------------------------------------
750,000 Benedek Communications Corp. sr. disc. notes
stepped-coupon zero % (13 1/4s, 5/15/01), 2006 (STP) 532,500
435,000 Capstar Broadcasting sr. disc. notes stepped-coupon
zero % (12 3/4s, 2/1/02), 2009 (STP) 356,700
330,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 344,850
130,000 Chancellor Media Corp. sr. sub notes
Ser. B, 8 1/8s, 2007 130,000
620,000 Chancellor Media Corp. 144A sr. notes 8s, 2008 633,950
160,000 Citadel Broadcasting, Inc. sr. sub. notes 10 1/4s, 2007 174,000
30,000 Citadel Broadcasting, Inc. 144A sr. sub. notes
9 1/4s, 2008 31,275
535,000 Echostar Satellite Broadcast Corp. sr. disc. notes
stepped-coupon zero % (13 1/8s, 3/15/00), 2004 (STP) 518,950
575,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 577,875
510,000 Fox Family Worldwide, Inc. sr. disc. notes
stepped-coupon zero % (10 1/4s, 11/1/02), 2007 (STP) 341,700
340,000 Fox/Liberty Networks LLC sr. notes 8 7/8s, 2007 350,200
160,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 152,800
500,000 Lenfest Communications, Inc. sr. sub. notes
10 1/2s, 2006 566,250
60,000 Pegasus Communications Corp. 144A
sr. notes 9 3/4s, 2006 60,525
100,000 Pegasus Media & Communications notes
Ser. B, 12 1/2s, 2005 109,000
904,000 PHI Holdings, Inc. sr. notes zero %, 2001 697,798
225,000 Radio One Inc. company guaranty stepped-coupon
Ser. B, 7s, (12s, 5/15/00), 2004 (STP) 222,750
165,000 SFX Entertainment, Inc. 144A company guaranty
Ser. B, 9 1/8s, 2008 165,000
160,000 SFX Entertainment, Inc. 144A sr. sub. notes
9 1/8s, 2008 160,000
100,000 TV Azteca Holdings S.A. de C.V. sr. notes
11s, 2002 (Mexico) 87,000
--------------
6,213,123
Building and Construction (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
190,000 Albecca Inc. 144A sr. sub. notes 10 3/4s, 2008 193,800
110,000 American Architectural Products Corp.
company guaranty 11 3/4s, 2007 93,500
110,000 Building Materials Corp. 144A sr. notes 8s, 2008 111,650
70,000 CSC Holdings, Inc. deb. 7 7/8s, 2018 72,058
390,000 GS Superhighway Holdings sr. notes 9 7/8s, 2004 167,700
150,000 Presley Cos. sr. notes 12 1/2s, 2001 131,250
80,000 Republic Group Inc. 144A sr. sub. notes 9 1/2s, 2008 77,600
--------------
847,558
Buses (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
715,000 MCII Holdings sec. notes 12s, 2002 543,400
Business Equipment and Services (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
160,000 Cendant Corp. notes 7 1/2s, 2000 160,376
180,000 Cex Holdings, Inc. 144A sr. sub. notes 9 5/8s, 2008 172,800
100,000 Outsourcing Solutions, Inc. sr. sub. notes
Ser. B, 11s, 2006 95,000
240,000 U.S. Office Products Co. 144A sr. sub notes
9 3/4s, 2008 168,000
--------------
596,176
Cable Television (2.7%)
- --------------------------------------------------------------------------------------------------------------------------
568,831 Adelphia Communications Corp. sr. notes
Ser. B, 9 1/2s, 2004 (PIK) 594,428
330,000 Adelphia Communications Corp. 144A sr. notes
8 3/8s, 2008 337,838
300,000 Affinity Group Holdings sr. notes 11s, 2007 300,000
500,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005
(United Kingdom) (STP) 417,500
795,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) (STP) 578,363
80,000 Globo Communicacoes 144A sr. notes
10 5/8s, 2008 (Brazil) 58,800
190,000 Supercanal Holdings S.A. 144A sr. notes
11 1/2s, 2005 (Argentina) 104,500
60,000 TeleWest Communications PLC 144A sr. notes
11 1/4s, 2008 (United Kingdom) 68,100
260,000 United International Holdings sr. disc. notes
stepped-coupon Ser. B, zero %
(10 3/4s, 2/15/03), 2008 (STP) 152,100
--------------
2,611,629
Cellular Communications (2.5%)
- --------------------------------------------------------------------------------------------------------------------------
710,000 Allegiance Telecom, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (11 3/4s, 2/15/03), 2008 (STP) 347,900
215,000 Conecel Holdings 144A notes Ser. A, 14s, 2000 96,750
615,000 McCaw International Ltd sr. disc. notes stepped-coupon
zero % (13s, 4/15/02), 2007 (STP) 332,100
250,000 MetroNet Communications Corp. sr. disc.
stepped-coupon notes zero %
(9.95s, 6/15/03), 2008 (Canada) (STP) 155,000
635,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/01), 2006
(Luxembourg) (STP) 446,088
380,000 NEXTEL Communications, Inc. 144A
sr. notes 12s, 2008 422,750
330,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero % (12 1/8s, 4/15/03), 2008 (STP) 140,663
530,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero % (10.65s, 9/15/02), 2007 (STP) 351,125
110,000 Price Communications Wireless Inc. 144A
sr. notes 9 1/8s, 2006 114,400
--------------
2,406,776
Chemicals (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
300,000 Acetex Corp. sr. notes 9 3/4s, 2003 (Canada) 295,500
150,000 Geo Specialty Chemicals 144A sr. sub. notes
10 1/8s, 2008 145,500
140,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 137,550
200,000 PCI Chemicals & Pharmaceuticals company guaranty
9 1/4s, 2007 (Canada) 161,000
215,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 107,500
--------------
847,050
Computer Services and Software (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
70,000 Concentric Network Corp. sr. notes 12 3/4s, 2007 71,400
440,000 IPC Information Systems sr. disc. notes
stepped-coupon zero % (10 7/8s, 11/1/01), 2008 (STP) 277,200
240,000 PSINet, Inc. 144A sr. notes 11 1/2s, 2008 254,400
120,000 PSINet, Inc. sr. notes Ser. B, 10s, 2005 120,000
285,000 Unisys Corp. sr. notes 11 3/4s, 2004 326,325
110,000 Verio Inc. 144A sr. notes 11 1/4s, 2008 113,850
--------------
1,163,175
Conglomerates (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
250,000 Axia, Inc. company guaranty 10 3/4s, 2008 252,500
Consumer Durable Goods (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
40,000 Hedstrom Holdings, Inc. sr. disc. notes stepped-coupon
zero % (12s, 6/1/02), 2009 (STP) 19,200
170,000 Sealy Mattress Co. company guaranty stepped-coupon
Ser. B, zero % (10 7/8s, 12/15/02), 2007 (STP) 102,000
--------------
121,200
Consumer Non Durables (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
60,000 Amscan Holdings, Inc. sr. sub. notes 9 7/8s, 2007 56,400
105,000 Doane Products Co. 144A sr. sub. notes 9 3/4s, 2007 107,363
220,000 Samsonite Corp. sr. sub. notes 10 3/4s, 2008 184,800
215,000 Viasystems Inc. sr. sub notes 9 3/4s, 2007 213,925
--------------
562,488
Consumer Services (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
90,000 Protection One, Inc. sr. disc. notes stepped-coupon
zero %, (13 5/8s, 6/30/00), 2005 (STP) 102,600
Containers (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2005 100,000
320,000 Consumers International 144A sr. notes 10 1/4s, 2005 345,600
50,000 Owens-Illinois, Inc. deb. 7.8s, 2018 50,192
605,000 Radnor Holdings Inc. sr. notes 10s, 2003 598,950
150,000 Riverwood International Corp. company guaranty
10 7/8s, 2008 142,500
250,000 Riverwood International Corp. company guaranty
10 5/8s, 2007 257,500
--------------
1,494,742
Cosmetics (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
150,000 French Fragrances, Inc. company guaranty
Ser. D, 10 3/8s, 2007 151,500
120,000 Revlon, Inc. 144A sr. notes 9s, 2006 123,600
--------------
275,100
Electric Utilities (2.8%)
- --------------------------------------------------------------------------------------------------------------------------
1,600,000 Midland Funding Corp. deb. Ser. A, 11 3/4s, 2005 1,859,232
508,193 Northeast Utilities System notes Ser. A, 8.58s, 2006 547,253
362,069 Subic Power Corp. 144A sec. 9 1/2s, 2008 253,448
--------------
2,659,933
Electrical Equipment (--%)
- --------------------------------------------------------------------------------------------------------------------------
40,000 Samsung Electronics 144A company guaranty
9 3/4s, 2003 36,400
Electronic Components (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
75,000 Celestica International Ltd. 144A sr. sub. notes
10 1/2s, 2006 (Canada) 82,125
103,416 Cirent Semiconductor sr. sub. notes 10.22s, 2002 101,348
121,894 Cirent Semiconductor 144A sr. sub. notes
10.14s, 2004 119,456
125,000 Details, Inc. sr. sub. notes Ser. B, 10s, 2005 123,750
160,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 155,600
420,000 Metromedia Fiber Network, Inc. 144A sr. notes
10s, 2008 433,650
140,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 144,200
55,000 Wavetek Corp. company guaranty 10 1/8s, 2007 53,350
--------------
1,213,479
Energy-Related (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
300,000 Calpine Corp. sr. notes 9 1/4s, 2004 304,500
30,000 Gothic Energy Corp. sr. disc. notes, stepped-coupon
Ser. B, zero % (14 1/8s, 5/1/03), 2006 (STP) 10,500
150,000 Gothic Production Corp. company guaranty
Ser. B, 11 1/8s, 2005 123,000
330,000 Niagara Mohawk Power Corp. sr. notes
Ser. G, 7 3/4s, 2008 351,410
360,000 Niagara Mohawk Power Corp. sr. disc. notes
stepped-coupon Ser. H, zero %
(8 1/2s, 7/3/03), 2010 (STP) 270,900
545,000 Panda Global Energy Co. company guaranty
12 1/2s, 2004 (China) 272,500
130,000 RAM Energy Inc. sr. notes 11 1/2s, 2008 94,900
220,000 York Power Funding 144A notes 12s, 2007
(Cayman Islands) 217,800
--------------
1,645,510
Environmental Control (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
95,000 ATC Group Services Inc. company guaranty 12s, 2008 28,500
195,000 Allied Waste Industries, Inc. company guaranty
10 1/4s, 2006 228,150
355,000 Allied Waste Industries, Inc. sr. disc. notes stepped-coupon
zero % (11.3s, 6/1/02), 2007 (STP) 305,300
--------------
561,950
Financial Services (2.3%)
- --------------------------------------------------------------------------------------------------------------------------
345,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 148,350
20,000 APP Intl. Finance Co,11 3/4s, 2005 17,000
250,000 Colonial Capital I 144A company guaranty 8.92s, 2027 257,500
220,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 173,800
120,000 Dine S.A. de C.V. company guaranty
8 3/4s, 2007 (Mexico) 105,600
730,000 DTI Holdings Inc. sr. disc. notes, stepped-coupon
Ser. B, zero % (12 1/2s, 03/01/03), 2008 (STP) 197,100
155,000 Imperial Credit Capital Trust I 144A
company guaranty 10 1/4s, 2002 116,250
175,000 Investors Capital Trust I company guaranty
Ser. B, 9.77s, 2027 191,625
90,000 Nationwide Credit Inc. sr. notes Ser. A, 10 1/4s, 2008 75,600
300,000 Netia Holdings B.V. 144A company guaranty
10 1/4s, 2007 (Poland) 264,000
50,000 Netia Holdings B.V. 144A company guaranty
stepped-coupon zero % (11 1/4s, 11/1/01), 2007
(Poland) (STP) 30,500
525,000 Pindo Deli Finance Mauritius Ltd. company guaranty
10 3/4s, 2007 (Indonesia) 307,125
350,000 Resource America Inc. 144A sr. notes 12s, 2004 294,000
--------------
2,178,450
Food and Beverages (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
250,000 Canandaigua Wine Co. sr. sub. notes
Ser. C, 8 3/4s, 2003 255,000
320,000 RAB Enterprises, Inc. 144A sr. notes 10 1/2s, 2005 292,800
--------------
547,800
Food Chains (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
230,000 Ameriserve Food Co. company guaranty 8 7/8s, 2006 215,050
50,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 54,500
250,000 Aurora Foods, Inc. 144A ser. sub. notes
Ser. D, 9 7/8s, 2007 272,500
235,000 Fleming Companies, Inc. company guaranty
Ser. B, 10 1/2s, 2004 230,300
300,000 Nebco Evans Holding Co. sr. disc. notes stepped-coupon
zero % (12 3/8s, 7/15/02), 2007 (STP) 144,000
500,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 425,000
--------------
1,341,350
Health Care (3.5%)
- --------------------------------------------------------------------------------------------------------------------------
400,000 Conmed Corp. company guaranty 9s, 2008 402,000
260,000 Fresenius Medical Capital Trust I company guaranty
9s, 2006 (Germany) 271,700
290,000 Fresenius Medical Capital Trust II company guaranty
7 7/8s, 2008 (Germany) 287,825
320,000 Global Health Sciences company guaranty 11s, 2008 217,600
220,000 Hudson Respiratory Care, Inc. sr. sub. notes
9 1/8s, 2008 168,300
200,000 Integrated Health Services, Inc. sr. sub. notes
Ser. A, 9 1/2s, 2007 197,500
300,000 Integrated Health Services, Inc. sr. sub. notes
Ser. A, 9 1/4s, 2008 292,500
480,000 Mariner Post-Acute Network, Inc. sr. sub. notes
Ser. B, 9 1/2s, 2007 393,600
100,000 Mariner Post-Acute Network, Inc. sr. sub. notes
stepped-coupon Ser. B, zero % (10 1/2s, 11/1/02),
2007 (STP) 49,000
130,000 MedPartners, Inc. sr. sub. notes 6 7/8s, 2000 110,968
460,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 418,600
120,000 Paragon Corp. Holdings, Inc. company guaranty
Ser. B, 9 5/8s, 2008 100,800
305,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B,
9 1/2s, 2007 268,400
150,000 Tenet Healthcare Corp. sr. notes 8s, 2005 155,250
--------------
3,334,043
Hospital Management and Medical Services (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
390,000 MedPartners, Inc. sr. notes 7 3/8s, 2006 326,313
Lodging (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
150,000 Epic Resorts LLP 144A sr. notes 13s, 2005 142,500
460,000 HMH Properties, Inc. company guaranty
Ser. B, 7 7/8s, 2008 453,100
300,000 Raintree Resorts International, Inc. sr. notes
Ser. B, 13s, 2004 180,000
--------------
775,600
Media (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
9,407 Australis Media, Ltd. sr. disc. notes stepped-coupon
1 3/4s, (15 3/4s 5/15/00), 2003 (Australia)
(In default) (NON) (STP) (PIK) 71
500,000 RBS Participacoes S.A. 144A company guaranty
11s, 2007 (Brazil) 340,000
250,000 Viacom International, Inc. sub. deb. 8s, 2006 258,125
--------------
598,196
Medical Supplies and Devices (1.9%)
- --------------------------------------------------------------------------------------------------------------------------
190,000 Dade International, Inc. sr. sub. notes
Ser. B, 11 1/8s, 2006 206,150
1,000,000 Graphic Controls Corp. sr. sub. notes Ser. A, 12s, 2005 1,150,000
250,000 Mediq, Inc. company guaranty 11s, 2008 235,000
180,000 Mediq, Inc. deb. zero %, 2009 84,600
350,000 Wright Medical Technology, Inc. 144A notes
Ser. C, 11 3/4s, 2000 210,000
--------------
1,885,750
Metals and Mining (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
70,000 Acindar Industria Argentina de Aceros S.A. bonds
11 1/4s, 2004 (Argentina) 60,200
170,000 Continental Global Group sr. notes Ser. B, 11s, 2007 147,900
90,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes
12 3/4s, 2003 89,100
160,000 Lodestar Holding, Inc. 144A sr. notes 11 1/2s, 2005 126,400
--------------
423,600
Motion Picture Distribution (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
230,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 235,750
260,000 Cinemark USA, Inc. sr. sub. notes 9 5/8s, 2008 273,000
250,000 United Artists Theatre 144A sr. sub. notes 9 3/4s, 2008 245,000
--------------
753,750
Oil and Gas (3.0%)
- --------------------------------------------------------------------------------------------------------------------------
205,000 Abraxas Petroleum Corp. Ser. D company guaranty
11 1/2s, 2004 176,300
30,000 American Eco Corp. company guaranty
Ser. B, 9 5/8s, 2008 19,500
30,000 Benton Oil & Gas Co. sr. notes 9 3/8s, 2007 18,300
20,000 Chesapeake Energy Corp. company guaranty
Ser. B, 9 5/8s, 2005 18,300
250,000 Chesapeake Energy Corp. sr. notes 9 1/8s, 2006 215,000
70,000 Coho Energy, Inc. sr. sub. notes 8 7/8s, 2007 65,275
150,000 Eagle Geophysical, Inc. company guaranty
Ser. B, 10 3/4s, 2008 135,000
140,000 Gulf Canada Resources, Ltd. sr. notes
8 3/8s, 2005 (Canada) 144,200
150,000 Michael Petroleum Corp. sr. notes
Ser. B, 11 1/2s, 2005 120,000
170,000 Northern Offshore 144A company guaranty
10s, 2005 108,800
120,000 Ocean Energy, Inc. company guaranty
Ser. B, 8 7/8s, 2007 124,800
150,000 Ocean Energy, Inc. company guaranty
Ser. B, 8 3/8s, 2008 156,750
100,000 Panaco, Inc. company guaranty Ser. B, 10 5/8s, 2004 79,000
120,000 Southwest Royalties, Inc. company guaranty
10 1/2s, 2004 61,200
2,300,000 Transamerican Energy sr. disc. notes stepped-coupon
Ser. B, zero % (13s, 6/15/99), 2002 (STP) 805,000
780,000 Transamerican Energy sr. notes Ser. B, 11 1/2s, 2002 296,400
402,000 TransTexas Gas Corp. sr. sub. notes Ser. D, 13 3/4s, 2001 321,600
--------------
2,865,425
Paper and Forest Products (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
200,000 APP Finance II Mauritius Ltd. bonds 12s,
(16s, 2/15/04) 2049 (Indonesia) (STP) 120,000
20,000 Boise Cascade Co. med. term notes Ser. A, 7.43s, 2005 19,369
185,000 Huntsman Packaging Corp. company guaranty
9 1/8s, 2007 185,000
250,000 Impac Group Inc. company guaranty Ser. B,
10 1/8s, 2008 246,250
420,000 Indah Kiat Financial Mauritius Ltd. company guaranty
10s, 2007 (Indonesia) 268,800
380,000 PT Pabrik Kertas Tjiwi Kimia company guaranty
10s, 2004 (Indonesia) 245,100
15,000 Repap New Brunswick sr. notes
10 5/8s, 2005 (Canada) 11,700
45,000 Repap New Brunswick 144A sr. notes
9s, 2004 (Canada) 44,100
300,000 Riverwood International Corp. company guaranty
10 1/4s, 2006 305,250
--------------
1,445,569
Pharmaceuticals (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
80,000 Biovail Corp. International 144A sr. notes
10 7/8s, 2005 81,200
320,000 ICN Pharmaceuticals, Inc. 144A sr. notes
9 1/4s, 2005 316,800
--------------
398,000
Photography (--%)
- --------------------------------------------------------------------------------------------------------------------------
70,000 PX Escrow Corp. sr. disc. notes stepped-coupon zero %
(9 5/8s, 2/1/02), 2006 (STP) 38,500
Publishing (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
110,000 Perry-Judd company guaranty 10 5/8s, 2007 115,500
61,472 Von Hoffman Press, Inc. 144A sr. sub. notes
13 1/2s, 2009 63,931
85,000 Von Hoffman Press, Inc. 144A sr. sub. notes
10 3/8s, 2007 87,975
--------------
267,406
Railroads (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
320,000 TFM S.A. de C.V. company guaranty stepped-coupon
zero %, (11 3/4s, 6/15/02), 2009 (Mexico) (STP) 172,800
Recreation (3.5%)
- --------------------------------------------------------------------------------------------------------------------------
320,000 Argosy Gaming Co. company guaranty 13 1/4s, 2004 358,400
250,000 Aztar Corp. sr. sub. notes 13 3/4s, 2004 267,500
155,000 Casino America, Inc. sr. notes 12 1/2s, 2003 171,275
90,000 Circus Circus Enterprises, Inc. sr. sub. notes
9 1/4s, 2005 92,700
70,000 Circus Circus Enterprises, Inc. sr. notes 6.45s, 2006 62,992
500,000 Coast Hotels & Casinos, Inc. company guaranty
Ser. B, 13s, 2002 560,000
380,000 Fitzgeralds Gaming Corp. company guaranty
12 1/4s, 2004 216,600
120,000 Isle of Capri Black Hawk LLC 1st mortgage
Ser. B, 13s, 2004 122,400
357,000 Louisiana Casino Cruises Corp. 1st mtge.
11 1/2s, 1998 357,000
225,000 Premier Parks, Inc.144A sr. disc. notes stepped-coupon
zero %, (10s, 4/1/03), 2008 (STP) 153,000
525,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 (In Default) 288,750
250,000 Six Flags Corp. sr. notes 8 7/8s, 2006 260,000
430,000 Trump Castle Funding 144A sub. notes 10 1/4s, 2003 434,300
--------------
3,344,917
Restaurants (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
250,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 243,750
Retail (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
280,000 Amazon.com Inc. sr. disc. notes stepped-coupon zero %
(10s, 05/01/03), 2008 (STP) 184,800
80,000 Guitar Center Management Co. 144A sr. notes
11s, 2006 84,800
90,000 Home Interiors & Gifts, Inc. 144A sr. sub. notes
10 1/8s, 2008 88,425
600,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 618,000
100,000 NBTY Inc. 144A sr. sub. notes 8 5/8s, 2007 98,000
95,000 William Carter Co. sr. sub. notes Ser. A, 10 3/8s, 2006 104,025
--------------
1,178,050
Satellite Services (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
230,000 Golden Sky Systems 144A sr. sub. notes
12 3/8s, 2006 240,350
70,000 TCI Satellite Entertainment, Inc. sr. sub. notes
10 7/8s, 2007 28,000
--------------
268,350
Semiconductors (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
250,000 AMSC Acquisition Co. Inc., company guaranty
Ser. B, 12 1/4s, 2008 165,000
505,165 Fairchild Semiconductor Corp. 144A sr. sub. notes
11.74s, 2008 (PIK) 414,235
330,000 Zilog, Inc. company guaranty Ser. B, 9 1/2s, 2005 250,800
--------------
830,035
Shipping (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
190,000 Johnstown America Industries, Inc. company guaranty
Ser. C, 11 3/4s, 2005 200,450
120,000 MC Shipping, Inc. sr. notes Ser. B, 11 1/4s, 2008 78,000
--------------
278,450
Specialty Consumer Products (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
220,000 Decora Industries, Inc. sr. sec. notes Ser. B, 11s, 2005 202,400
Steel (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
160,000 WHX Corp. sr. notes 10 1/2s, 2005 152,800
Telecommunications (12.2%)
- --------------------------------------------------------------------------------------------------------------------------
385,000 21st Century Telecom Group, Inc. sr. disc. notes
stepped-coupon zero % (12 1/4s, 2/15/03), 2008 (STP) 161,700
500,000 Barak I.T.C. sr. disc. notes stepped-coupon
Ser. B, zero % (12 1/2s, 11/15/02), 2007 (STP) 257,500
150,000 CapRock Communications Corp. sr. notes
Ser. B, 12s, 2008 142,500
110,000 Charter Communications International, Inc.
disc. notes stepped-coupon Ser. B, zero %
(14s, 3/15/01), 2007 (STP) 97,900
85,000 Consorcio Ecuatoriano notes 14s, 2002 (Ecuador) 46,750
640,000 Covad Communications Group sr. disc. notes stepped-
coupon Ser. B, zero % (13 1/2s, 03/15/03), 2008 (STP) 320,000
500,000 Econophone, Inc. 144A notes stepped-coupon zero %
(11s, 2/15/03), 2008 (STP) 240,000
200,000 Esprit Telecom Group PLC sr. notes 11 1/2s, 2007
(United Kingdom) 202,000
800,000 Focal Communications Corp. sr. disc. notes,
stepped-coupon zero % (12 1/8s, 02/15/03), 2008 (STP) 432,000
940,000 Global Crossing Holdings, Ltd. company guaranty
9 5/8s, 2008 1,005,800
1,050,000 GST Telecommunications, Inc. company guaranty
stepped-coupon zero % (13 7/8s, 15/15/00),
2005 (STP) 766,500
220,000 Hyperion Telecommunications, Inc. sr. notes
Ser. B, 12 1/4s, 2004 227,700
140,000 Hyperion Telecommunications, Inc. sr. disc. notes
stepped-coupon Ser. B, zero % (13s, 4/15/01), 2003 (STP) 104,650
300,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon
zero % (13 1/2s, 9/15/00), 2005 (STP) 250,500
1,410,000 ICG Services, Inc. sr. disc. notes stepped-coupon
zero % (9 7/8s, 5/1/03), 2008 (STP) 726,150
220,000 Intermedia Communications, Inc. sr. notes
Ser. B, 8.6s, 2008 214,500
1,200,000 International Cabletel, Inc. sr. notes stepped-coupon
Ser. B, zero % (11 1/2s, 2/01/01), 2006 (STP) 1,017,000
270,000 IXC Communications, Inc. sr. sub. notes 9s, 2008 272,700
1,260,000 KMC Telecom Holdings, Inc. sr. disc. notes stepped-coupon
zero % (12 1/2s, 2/15/03), 2008 (STP) 617,400
700,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon
zero %, (11 7/8s, 10/15/02), 2007 (STP) 343,000
130,000 L-3 Communications Corp. sr. sub. notes Ser. B,
10 3/8s, 2007 143,000
100,000 L-3 Communications Corp. sr. sub. notes 8 1/2s, 2008 102,750
120,000 MetroNet Communications Corp. sr. disc. notes
stepped-coupon zero % (10 3/4s, 11/1/02),
2007 (Canada) (STP) 79,200
390,000 MetroNet Communications Corp. 144A sr. notes
10 5/8s, 2008 417,300
150,000 Microcell Telecommunications sr. disc. notes
stepped-coupon Ser. B, zero % (14s, 12/1/01), 2006
(Canada) (STP) 112,875
320,000 Pathnet, Inc. sr. notes 12 1/4s, 2008 241,600
500,000 Primus Telecom Group sr. notes 11 3/4s, 2004 520,000
1,000,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (8.29s, 2/1/03), 2008 (STP) 752,500
455,000 Rhythms Netconnections, Inc. sr. disc. notes stepped-
coupon Ser. B, zero % (13 1/2s, 5/15/03), 2008 (STP) 186,550
300,000 Telecommunications Techniques, Inc. company guaranty
9 3/4s, 2008 291,000
280,000 Teligent, Inc. sr. notes 11 1/2s, 2007 267,400
430,000 Time Warner Telecom Inc. sr. notes 9 3/4s, 2008 455,800
150,000 USN Communications, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (14 5/8s, 8/15/00), 2004 (STP) 22,500
180,000 Versatel Teleco 144A sr. notes 13 1/4s, 2008 179,820
80,000 Vialog Corp. company guaranty 12 3/4s, 2001 64,000
320,000 WinStar Communications. Inc. sr. sub. notes 15s, 2007 316,800
150,000 WinStar Communications. Inc. sr. sub. notes 11s, 2008 117,000
--------------
11,716,345
Telephone Services (4.3%)
- --------------------------------------------------------------------------------------------------------------------------
500,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 385,000
200,000 Colt Telecommunications Group PLC sr. disc. notes
stepped-coupon zero %, (12s, 12/15/01), 2006
(United Kingdom) (STP) 168,000
160,000 E. Spire Communications, Inc. sr. notes 13 3/4s, 2007 172,000
140,000 Facilicom International sr. notes Ser. B., 10 1/2s, 2008 114,800
280,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 281,400
210,000 Globo Communicacoes 144A company guaranty
10 1/2s, 2006 (Brazil) 153,300
450,000 Intermedia Communications, Inc. sr. notes
Ser. B, 8 1/2s, 2008 436,500
143,000 ITC Deltacom, Inc. sr. notes 11s, 2007 155,870
690,000 Firstworld Communication Corp. sr. disc. notes
stepped-coupon zero %, (13s, 4/15/03), 2008 (STP) 200,100
240,000 Long Distance International, Inc. 144A sr. notes
12 1/4s, 2008 192,000
65,000 MJD Communications, Inc. sr. sub. notes
Ser. B, 9 1/2s, 2008 65,000
80,000 MJD Communications, Inc. notes Ser. B, FRN,
9.16s, 2008 76,800
190,000 NTL Inc. 144A sr. notes 11 1/2s, 2008
(United Kingdom) 212,097
430,000 NTL Inc. sr. notes Ser. B, 10s, 2007
(United Kingdom) 447,200
100,000 OnePoint Communications, Corp. 144A sr. notes
14 1/2s, 2008 55,900
160,000 Primus Telecommunications Group, Inc. sr. notes
Ser. B, 9 7/8s, 2008 146,400
330,000 RCN Corp. sr. disc. notes stepped-coupon zero %,
(11 1/8s, 10/15/02), 2007 (STP) 189,750
130,000 RSL Communications, Ltd. company guaranty
9 1/8s, 2008 120,900
200,000 RSL Communications, Ltd. company guaranty,
stepped-coupon zero % (10 1/8s, 3/1/03), 2008 (STP) 113,000
100,000 Transtel S.A. 144A pass through certificates
12 1/2s, 2007 (Colombia) 35,000
725,000 Viatel, Inc. sr. disc. notes stepped-coupon zero %
(12 1/2s, 4/15/03), 2008 (STP) 409,625
--------------
4,130,642
Textiles (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
340,000 Galey & Lord Inc. company guaranty 9 1/8s, 2008 311,100
140,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 139,300
90,000 Polymer Group, Inc. company guaranty
Ser. B, 8 3/4s, 2008 88,200
--------------
538,600
Transportation (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
140,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 136,500
Wireless Communications (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
410,000 Allbritton Communications Co. sr. sub. notes
Ser. B, 8 7/8s, 2008 414,100
180,000 Comcast Cellular Holdings sr. notes Ser. B, 9 1/2s, 2007 194,400
140,000 CTI Holdings S.A. sr. notes stepped-coupon
zero % (11 1/2s,4/15/03), 2008 (STP) 63,700
200,000 Dobson Wireline Co. 144A sr. notes 12 1/4s, 2008 184,000
200,000 Orbital Imaging Corp. sr. notes Ser. B, 11 5/8s, 2005 202,000
300,000 Paging Network Do Brasil sr. notes 13 1/2s, 2005 (Brazil) 147,000
115,000 Telesystem International Wireless Inc. sr. disc. notes
stepped-coupon Ser. C, zero %,
(10 1/2s, 11/1/02), 2007 (STP) 46,000
420,000 Teligent, Inc. sr. disc. notes stepped-coupon Ser. B,
zero % (11 1/2s, 3/1/03), 2008 (STP) 215,250
--------------
1,466,450
--------------
Total Corporate Bonds and Notes
(cost $81,543,496) $ 74,402,380
PREFERRED STOCKS (8.1%) (a)
NUMBER OF SHARES VALUE
Banks (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
6,240 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. (PIK) $ 320,580
Broadcasting (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
200,000 Acme Television Ser. B, company guaranty stepped-coupon
zero % (10 7/8s, 9/30/00) 2004 (STP) 157,500
1,409 Capstar Broadcasting Inc. 144A $12.00 pfd. 167,671
2,385 Citadel Broadcasting Inc. 144A $13.25 cum. pfd. (PIK) 284,411
298 Granite Broadcasting 144A $12.75 pfd. (PIK) 279,375
1,830 SFX Broadcasting, Inc. Ser. E, $12.625 pfd. (PIK) 219,600
568 Spanish Broadcasting Systems $14.25 cum. pfd. (PIK) 572,260
--------------
1,680,817
Building and Construction (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
6,403 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 721,938
Cable Television (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
33,000 Diva Systems Corp. Ser. D, $6.00 pfd. 297,000
36 Paxson Communications Corp. 13.25% cum. pfd. (PIK) 315,000
--------------
612,000
Cellular Communications (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
227 Dobson Communications 144A $12.25 pfd. (PIK) 208,840
1,168 NEXTEL Communications, Inc. Ser. D, $13.00
cum. pfd. (PIK) 1,197,200
--------------
1,406,040
Communications (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
683 Intermedia Communication Ser. B, $13.50 pfd. (PIK) 706,905
Computer Services (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
123 Concentric Network Corp. Ser. B, $13.50 pfd. (PIK) 103,320
Food Chains (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,794 Nebco Evans Holding Co. 144A $11.25 pfd. (PIK) 89,700
Insurance (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
14,500 CGA Group Ltd. 144A Ser. A, $13.75 pfd. (PIK) 406,000
Restaurants (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
4,997 AmeriKing, Inc. $3.25 pfd. (PIK) 124,925
Satellite Services (--%)
- --------------------------------------------------------------------------------------------------------------------------
4 Echostar Communications, Inc. $12.125 pfd. (PIK) 4,400
Telecommunications (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
235 21st Century Telecom Group 144A
$13.75 cum. pfd. (PIK) 152,750
254 Hyperion Telecommunications Ser. B, $12.875 pfd. (PIK) 210,820
411 IXC Communications, Inc. $12.50 pfd. (PIK) 428,468
6,843 Nextlink Communications, Inc. 144A $7.00 cum. pfd. 366,101
15 NTL Inc. 144A Ser. B, $13.00 pfd. (PIK) 15,975
330 WinStar Communications, Inc. 144A
$14.25 cum. pfd. (PIK) 280,500
--------------
1,454,614
Telephone Services (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
224 E. Spire Communications, Inc. 12.75% pfd. (PIK) 145,600
364 Viatel, Inc. Ser. A, $10.00 cv. pfd. (PIK) 21,840
--------------
167,440
--------------
Total Preferred Stocks (cost $8,249,071) $ 7,798,679
UNITS (3.2%) (a)
NUMBER OF UNITS VALUE
- --------------------------------------------------------------------------------------------------------------------------
550 Australis Media, Ltd. units stepped-coupon zero %,
(15 3/4s, 5/15/00), 2003 (In Default)
(Australia) (STP) (NON) $ 4,125
170 Bestel S.A.de CV units, stepped-coupon zero %
(12 3/4s,5/15/03), 2005 (STP) 102,000
150 Birch Telecom, Inc. 144A units 14s, 2008 139,500
44 Celcaribe S.A. 144A units 13 1/2s, 2004 (Colombia) 858,000
620 Diva Systems Corp. 144A units stepped-coupon zero %
(13s, 5/15/01), 2008 (STP) 186,000
180 Mediq Inc. 144A units, stepped-coupon zero %
(13s, 6/1/03) 2009 (STP) 2
370 Network Plus units 13 1/2s, 2009 370,000
500 Signature Brands USA, Inc. units 13s, 2002 560,000
280 Transamerican Refining units 16s, 2003 98,000
70 Versatel Telecom units 13 1/4s, 2008 70,700
450 XCL Ltd. units sr. sec. notes 13 1/2s, 2004 466,875
2,950 XCL Ltd. 144A units cv. cum. pfd. 9 1/2s, 2006 (PIK) 247,800
--------------
Total Units (cost $3,462,092) $ 3,103,002
CONVERTIBLE BONDS AND NOTES (2.6%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 650,000 Argosy Gaming cv. sub. notes 12s, 2001 $ 654,063
275,000 Corporate Express, Inc. cv. notes 4 1/2s, 2000 243,031
140,000 GST Telecommunications, Inc. cv. sr. disc. notes
stepped-coupon zero %, (13 7/8s, 12/15/00), 2005 (STP) 140,000
200,000 Integrated Device Technology, Inc. cv. sub. notes
5 1/2s, 2002 138,250
260,000 Jacor Communications, Inc. cv. sr. notes zero %, 2011 211,575
280,000 Polymax 144A cv. notes 2s, 2006 110,600
800,000 WinStar Communications. Inc. 144A cv. sr. disc. notes
stepped-coupon zero % (14s, 10/15/00), 2005 (STP) 1,000,000
--------------
Total Convertible Bonds and Notes
(cost $2,200,716) $ 2,497,519
COMMON STOCKS (1.2%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
100 AmeriKing, Inc. (NON) $ 4,000
1,800 Axia Holding Inc. 144A (NON) 25,200
10,520 CellNet Data Systems, Inc. (NON) 61,805
10,124 Chesapeake Energy Corp. (NON) 13,921
3,333 Finlay Enterprises, Inc. 26,456
1,000 French Fragrances Inc. (NON) 6,500
2,426 Hedstrom Holdings, Inc. 144A 2,426
175 Mothers Work, Inc. (NON) 2,100
150 Paging Do Brazil Holdings Co., LLC Class B, (Brazil) 2
244 Premium Holdings (L.P.) 144A (NON) 978
57,579 PSF Holdings LLC Class A
(acquired 3/15/95 cost $1,982,405) (NON) (RES) 1,008,784
12,750 Specialty Foods Corp. 144A (NON) 638
--------------
Total Common Stocks (cost $2,229,271) $ 1,152,810
WARRANTS (0.7%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
220 21st Century Telecom Group 144A 2/15/10 $ 6,600
700 Allegiance Telecom, Inc. 2/3/08 11,200
250 American Mobile Satellite Corp. 4/1/08 1,250
25,000 Becker Gaming Corp. 144A 11/15/00 3
4,550 Capital Gaming International, Inc. 2/1/99 182
1,490 Cellnet Data Systems, Inc. 6/15/00 29,800
14,500 CGA Group Ltd. 144A 1/1/04 290
300 Club Regina, Inc. 144A 12/1/04 300
200 Colt Telecommunications Group PLC 12/31/06 48,000
250 Comunicacion Cellular 144A (Colombia) 11/15/20 17,250
70 Concentric Network Corp. 12/15/07 8,400
2,902 Consorcio Ecuatoriano 144A 10/1/00 1,451
640 Covad Communications Group 144A 3/15/08 6,400
3,650 DTI Holdings Inc. 3/1/08 183
150 Epic Resorts 6/15/05 2
190 Esat Holdings, Inc. (Ireland) 2/1/07 12,635
690 Firstworld Communication 4/15/08 6,900
500 Fitzgerald Gaming Co. 144A 3/15/99 250
8,269 Fitzgeralds Gaming Co. 3/15/99 4,134
270 Hyperion Telecommunications 144A 4/15/01 16,557
180 Insilco Holding Co. 8/15/08 1
6,691 Intelcom Group 144A 10/15/05 140,511
450 Intermedia Communications, Inc. 6/1/00 21,177
200 International Wireless Communications
Holdings 144A 8/15/01 2
1,250 Iridium World Com 144A 7/15/05 193,750
800 KMC Telecom Holdings, Inc. 4/15/08 2,000
700 Knology Holdings, Inc. 144A 10/15/07 1,050
240 Long Distance International, Inc. 144A 4/13/08 600
492 Louisiana Casino Cruises, Inc. 144A 12/1/98 17,220
815 McCaw International Ltd. 4/15/07 3,260
500 NEXTEL Communications Inc. 1/1/99 1
100 Onepoint Communications, Inc. 6/1/08 100
200 Orbital Imaging Corp. 144A 3/1/05 8,000
6,900 Pagemart, Inc. 144A 12/31/03 55,200
320 Pathnet, Inc. 144A 4/15/08 3,200
1,820 Rhythms Netcon 144A 5/15/08 13,650
215 Spanish Broadcasting Systems 144A 6/30/99 44,075
155 Sterling Chemicals Holdings 8/15/08 1,860
1,045 UIH Australia/Pacific, Inc. 144A 5/15/06 5,225
1,500 USN Communications Inc. 8/15/00 188
180 Versatel 144A 5/15/08 2,160
80 Vialog Corp. 11/15/01 1,040
101 Wright Medical Technology, Inc. 144A 6/30/03 1
--------------
Total Warrants (cost $708,314) $ 686,058
CONVERTIBLE PREFERRED STOCKS (0.2%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
1,200 Chancellor Media Corp. $3.00 cv. cum. pfd. $ 96,900
1,195 Chesapeake Energy Corp. 144A $3.50 cv. cum. pfd. 21,510
421 XCL Ltd 144A Ser. A, $9.50 cv. cum. pfd. (PIK) 35,355
--------------
Total Convertible Preferred Stocks (cost $229,402) $ 153,765
SHORT-TERM INVESTMENTS (5.6%) (a) (cost $5,346,787)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$5,346,000 Interest in $525,650,000 joint repurchase agreement
dated November 30, 1998 with SBC Warburg
Securities due 12/1/98 with respect to various
U.S. Treasury obligations -- maturity value of
$5,346,787 for an effective yield of 5.30% $ 5,346,787
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $103,969,149) (b) $ 95,141,000
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $96,067,847.
(b) The aggregate identified cost on a tax basis is $103,969,862, resulting in gross unrealized appreciation and
depreciation of $3,853,971 and $12,682,833, respectively, or net unrealized depreciation of $8,828,862.
(NON) Non-income-producing security.
(STP) 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.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities
held at November 30, 1998 was $1,684,023 or 1.8% of net assets.
(PIK) Income may be received in cash or additional securities at the discretion of the issuer.
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 rates shown on Floating Rate Notes (FRN) are the current interest rates shown at November 30, 1998, which
are subject to change based on the terms of the security.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
November 30, 1998 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $103,969,149) (Note 1) $ 95,141,000
- -----------------------------------------------------------------------------------------------
Cash 72,574
- -----------------------------------------------------------------------------------------------
Dividends, interest and other receivables 1,985,610
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 585,855
- -----------------------------------------------------------------------------------------------
Total assets 97,785,039
Liabilities
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 870,769
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 590,291
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 177,611
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 22,169
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 10,499
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 742
- -----------------------------------------------------------------------------------------------
Other accrued expenses 45,111
- -----------------------------------------------------------------------------------------------
Total liabilities 1,717,192
- -----------------------------------------------------------------------------------------------
Net assets $ 96,067,847
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Note 1) $105,946,586
- -----------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 389,799
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (1,440,389)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (8,828,149)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $ 96,067,847
Computation of net asset value
- -----------------------------------------------------------------------------------------------
Net asset value per share ($96,067,847 divided by 7,507,107 shares) $12.80
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended November 30, 1998 (Unaudited)
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Dividends $ 445,053
- -----------------------------------------------------------------------------------------------
Interest income (net of foreign tax of $21) 4,996,507
- -----------------------------------------------------------------------------------------------
Total investment income 5,441,560
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 391,579
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 82,465
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 6,374
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 2,392
- -----------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 384
- -----------------------------------------------------------------------------------------------
Reports to shareholders 14,969
- -----------------------------------------------------------------------------------------------
Auditing 27,214
- -----------------------------------------------------------------------------------------------
Legal 3,482
- -----------------------------------------------------------------------------------------------
Postage 16,093
- -----------------------------------------------------------------------------------------------
Exchange listing fees 8,085
- -----------------------------------------------------------------------------------------------
Other 23,253
- -----------------------------------------------------------------------------------------------
Total expenses 576,290
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (5,642)
- -----------------------------------------------------------------------------------------------
Net expenses 570,648
- -----------------------------------------------------------------------------------------------
Net investment income 4,870,912
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (2,702,964)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the period (12,238,520)
- -----------------------------------------------------------------------------------------------
Net loss on investments (14,941,484)
- -----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(10,070,572)
- -----------------------------------------------------------------------------------------------
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
1998* 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 4,870,912 $ 10,807,578
- ---------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (2,702,964) 5,444,693
- ---------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (12,238,520) (287,467)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (10,070,572) 15,964,804
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income (5,194,518) (10,321,574)
- ---------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (15,265,090) 5,643,230
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 111,332,937 105,689,707
- ---------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $389,799 and $713,405, respectively) $ 96,067,847 $111,332,937
- ---------------------------------------------------------------------------------------------------------------
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 June 25, 1993+
operating performance (Unaudited) Year ended May 31 to May 31
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $14.83 $14.08 $13.78 $13.04 $13.40 $14.01(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .65 1.44 1.34 1.27 1.32 1.23
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1.99) .69 .29 .79 (.36) (.59)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (1.34) 2.13 1.63 2.06 .96 .64
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.69) (1.38) (1.33) (1.30) (1.32) (1.22)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- -- (.02) -- (.03)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.69) (1.38) (1.33) (1.32) (1.32) (1.25)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.80 $14.83 $14.08 $13.78 $13.04 $13.40
- ------------------------------------------------------------------------------------------------------------------------------------
Market value,
end of period $14.875 $15.375 $14.375 $13.750 $13.125 $13.375
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at market value (%)(a) 1.64* 16.96 14.88 15.30 9.20 (2.52)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $96,068 $111,333 $105,690 $103,466 $97,901 $100,615
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .57* 1.05 1.06 1.04 1.00 1.00*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.78* 9.75 9.70 9.49 10.32 8.82*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 21.30* 85.45 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, 1998 (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 certain 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. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. 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.
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.
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 $29,884. These expenses have been fully
amortized 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% 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, 1998, fund expenses were reduced by
$5,642 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
Purchases and sales of securities
During the six months ended November 30, 1998, purchases and sales of
investment securities other than short-term investments aggregated
$20,837,543 and $24,451,350, 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.
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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
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
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
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Edward H. D'Alelio
Vice President
Robert M. Paine
Vice President and Fund Manager
Jennifer E. Leichter
Vice President and Fund Manager
John R. Verani
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or visit
our website (www.putnaminv.com) any 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
www.putnaminv.com
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