Putnam
Managed
High Yield
Trust
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
5-31-02
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FROM THE TRUSTEES
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Dear Fellow Shareholder:
In a challenging market and economic environment during the fiscal year
ended May 31, 2002, Putnam Managed High Yield Trust delivered slightly
negative absolute returns at net asset value. As the year was marked by
geopolitical turmoil and corporate accounting problems, Putnam's extensive
research capabilities became an even more valuable asset to shareholders.
On the following pages, the report from your fund's management team will
provide a full discussion of what has been driving the fund's
performance as well as a view of prospects for the remainder of 2002.
You may notice as you read this report that we are now listing the team
that manages your fund. We do this to reflect more accurately how your
fund is managed as well as Putnam's firm belief in the value of team
management. The names of the individuals who comprise the management
team are shown at the end of management's discussion of performance.
We know that Putnam Investments values its relationship with you and its
other shareholders and that it appreciates your loyalty and patience as
your management team steers the fund through this period of market
uncertainty.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
July 17, 2002
REPORT FROM FUND MANAGEMENT
This fund is managed by the
Putnam Core Fixed-Income High-Yield Team
The fiscal year ended May 31, 2002, was marked by significant global
turmoil, including the terrorist attacks in the United States on
September 11. The U.S. economy experienced a significant slowdown,
exacerbated by the events of September 11, although it began to show
signs of recovery in the late fall and through the first quarter of
2002. The high-yield market also evolved during the 12-month period,
generating lackluster returns last summer, strong returns in the late
fall, and then more moderately positive returns during the first five
months of 2002.
While your fund's absolute return at net asset value for the period may
not appear impressive on its own, it is important to realize that this
result was well ahead of the average for closed-end high-yield funds
tracked by Lipper over the same period. The fund's performance at market
price reflects a change in investors' perception of the fund, possibly
due to increased volatility in the high-yield market over the past
several months. This change in perception caused the fund's return at
market price to be lower than its return at net asset value. While the
fund underperformed its benchmark, the CSFB High Yield Index, it is
important to keep in mind that your fund's benchmark is not an
investment vehicle. See the performance comparisons on page 7 for more
information.
Total return for 12 months ended 5/31/02
NAV Market price
-----------------------------------------------------------------------
-0.93% -2.91%
-----------------------------------------------------------------------
Past performance does not indicate future results. Performance based on
market prices for the shares will vary from performance based on the
portfolio's net asset value. Performance information for longer periods
begins on page 7.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Basic materials 11.3%
Communications
services 8.8%
Capital goods 7.7%
Broadcasting 7.1%
Health care 7.0%
Footnote reads:
*Based on net assets as of 5/31/02. Holdings will vary over time.
* HIGH-YIELD MARKET TURNED AROUND AFTER SEPTEMBER 11
In the past year, high-yield bonds have, to some degree, followed the
volatile trends of the economy and the equity markets. During the summer
of 2001, several high-yield sectors had solid performance, including
cable television, broadcasting, gaming, chemicals, and automotive. The
Federal Reserve Board's short-term interest-rate reductions that
occurred throughout 2001 caused a dramatic steepening of the yield curve
(meaning that the difference between short-term and long-term bond
yields increased significantly). This was positive for the bond market
in general and for high-yield bonds, but the latter continued to suffer
from the woes of the telecommunications industry. Defaults and large
price declines in the telecommunications sector plagued the high-yield
market throughout the summer of 2001. Fortunately, the
stronger-performing sectors helped offset those that lagged.
After September 11, high-yield bond prices fell sharply, as did those in
practically every asset class and market sector except for the
highest-quality bonds, short-term U.S. Treasuries. High-yield sectors
such as airlines, gaming, lodging, and other travel-related industries
all experienced undue price declines. In October and November, however,
the high-yield market quickly turned around on reports of a recovering
U.S. economy, positive news from the war in Afghanistan, and a resurgent
stock market. High-yield returns for October and November were strong,
even though the bond market generally was volatile, and the sector
finished 2001 well ahead of the major equity indexes.
This year, high-yield performance has continued to follow the ups and
downs of the stock market and the economy, but performance remained
solidly in positive territory for the first five months of the year. As
a result of the Enron scandal, credit quality and corporate financial
health have become important in a way that has not been the case for
many years. While the increased scrutiny has caused volatility in both
the equity and high-yield markets in the short term, it should be a
positive going forward. However, there may be further problematic
events, such as the recent difficulties reported by Worldcom in June.
This holding represented a fractional percentage of the fund's net
assets. As a result of our research, most of the fund's Worldcom
holdings were sold well before the scandal was reported.
Fund Profile
Putnam Managed High Yield Trust seeks high current income and the
potential for capital appreciation by investing in high-yield bonds
believed to have the potential for financial improvements and
credit-rating upgrades. The fund is designed for investors seeking high
income and capital appreciation, and who are willing to take on the
added risk of investing in below-investment-grade securities.
* "FALLEN ANGELS" HAVE CHANGED THE HIGH-YIELD LANDSCAPE
In the past year, companies that previously had been high-grade bond
issuers have entered the high-yield bond market. Many of these so-called
"fallen angels" still have strong cash flow, significant assets that
remain valuable, and the ability to generate consistent earnings. They
have come upon hard times, but remain attractive because of their
liquidity and their potential for higher returns.
At Putnam, we are fortunate to have a large fixed-income department with
a sizeable group of analysts on the investment-grade side who know these
companies well. This is a distinct advantage for Putnam over many of our
peers. Through our Knowledge Management initiative, in which we
regularly share information across different investing groups, we are
able to quickly gather valuable analytical insights from the
investment-grade bond analysts within our firm.
* MANAGEMENT STRATEGIES PRODUCED STRONG RELATIVE PERFORMANCE
Going into September 2001, the fund was positioned defensively, which
helped when the market declined in the wake of September 11. We had
improved the credit quality among the holdings throughout 2000 and into
2001, adding more BB-rated bonds. In addition, the fund was well
diversified across a range of industries outside telecommunications. Our
reduction of holdings in the telecommunications industry -- particularly
wireline companies (as opposed to wireless) -- was particularly helpful
in boosting the fund's relative performance, especially during the month
of September. These reductions were difficult to achieve, given the
significance of the telecom industry in the high-yield market and the
extent of the former's collapse.
In October and November of 2001, we increased the fund's weightings in
some of the beaten-down sectors, such as media, cable, broadcasting,
airlines, gaming, and lodging. This contrarian strategy paid off, as the
bonds in these sectors have seen solid performance since we acquired
them. The market in the weeks after September 11 was extremely bearish,
but we were not as pessimistic as many other investors were at the time.
For example, bonds that we acquired in the broadcasting industry have
benefited from higher-than-expected advertising revenues, as well as a
more favorable regulatory climate that has allowed companies to expand.
The gaming and lodging industries also benefited from the post-September
11 environment. Understandably, people were much less willing to travel
after the events of September 11, but there was a somewhat irrational
belief that travel and hotel occupancy would decline much more than it
actually did. As a result, our holdings in these sectors, acquired in
October and November, performed well when travel and hotel use recovered
more quickly than had been anticipated.
* LOWER MARKET YIELDS, DEFAULTS LED TO DIVIDEND REDUCTION
During the past 12 months, the fund's dividend was reduced for several
reasons. Market yields have come down significantly in the past year and
a half. In addition, your fund's managers have been replacing
poor-performing telecommunications bonds with higher-quality bonds,
which typically have lower yields. Finally, some bonds in the fund have
defaulted, and when a bond defaults its income is eliminated. As a
result of these factors, the fund did not earn its dividend for the
entire fiscal year; therefore, the fund had a non-taxable return of
capital to shareholders as part of its distributions (see page 37 for
details).
* OUTLOOK REMAINS POSITIVE FOR HIGH-YIELD BONDS
There are several reasons to remain optimistic about high-yield bonds
going forward. First, it appears default rates have peaked, which is
positive because it should signal a generally improving market
environment. Second, technical factors are quite positive. Money has
flowed into the market from both individual and institutional investors,
with several billion dollars invested in high-yield bonds already in
2002. Third, the yield curve is still steep, with short-term rates at a
40-year low. This gives investors incentive to take on more risk in
order to receive higher yields. Finally, after several years of focusing
solely on growth, the renewed emphasis on reducing debt should result in
higher credit quality.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
PSF Group Holdings, Inc., Class A
common stock
Basic materials
Echostar Broadband Corp.
senior notes, 10.375%, 2007
Broadcasting
Allied Waste Industries, Inc.
company guaranty, Series B, 10%, 2009
Capital goods
HMH Properties, Inc.
company guaranty, Series B, 7.875%, 2008
Lodging/tourism
Coinmach Corp.
144A senior notes, 9%, 2010
Commercial and consumer services
CSC Holdings, Inc.
series M, $11.125 cumulative preferred
Communication services
Southland Corp.
debentures, Series A, 4.5%, 2004
Retail
Paxson Communications Corp.
13.25% cumulative preferred
Broadcasting
GS Escrow Corp.
senior notes, 7.125%, 2005
Financial
PRIMEDIA, Inc.
company guaranty, 8.875%, 2011
Publishing
Footnote reads:
These holdings represent 9.1% of the fund's net assets as of 5/31/02.
Portfolio holdings will vary over time.
There are risks, as always. First, the Federal Reserve Board will
eventually begin raising short-term interest rates. We believe that this
will happen later than many are expecting (perhaps as late as 2003), and
that when the Fed does begin to raise rates, the increases will probably
be larger and will occur at regular intervals. Secondly, while the
impact of September 11 has receded significantly from an economic and
market psychology standpoint, corporate accounting scandals and
geopolitical events are still having a dampening effect on the equity
markets, which does influence high-yield bonds peripherally. We remain
acutely aware of these and other risks, and will continue to make
adjustments to your fund as are warranted by changes in the market and
economic environment.
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 5/31/02, there is no guarantee the fund will
continue to hold these securities in the future. Lower-rated bonds may
offer higher yields in return for more risk.
This fund is managed by the Putnam Core Fixed-Income High-Yield Team.
The members of this team are Stephen Peacher (Portfolio Leader),
Jeffrey Kaufman, Geoffrey Kelley, Krishna Memani, Neal Reiner, Paul
Scanlon, Rosemary Thomsen, and Joseph Towell.
PUTNAM'S POLICY ON CONFIDENTIALITY
In order to conduct business with our shareholders, we must obtain certain
personal information such as account holders' addresses, telephone numbers,
Social Security numbers, and the names of their financial advisors. We use
this information to assign an account number and to help us maintain
accurate records of transactions and account balances.
It is our policy to protect the confidentiality of your information,
whether or not you currently own shares of our funds, and in particular,
not to sell information about you or your accounts to outside marketing
firms. We have safeguards in place designed to prevent unauthorized
access to our computer systems and procedures to protect personal
information from unauthorized use.
Under certain circumstances, we share this information with outside
vendors who provide services to us, such as mailing and proxy
solicitation. In those cases, the service providers enter into
confidentiality agreements with us, and we provide only the information
necessary to process transactions and perform other services related to
your account. We may also share this information with our Putnam
affiliates to service your account or provide you with information about
other Putnam products or services. It is also our policy to share
account information with your financial advisor, if you've listed one on
your Putnam account.
If you would like clarification about our confidentiality policies or
have any questions or concerns, please don't hesitate to contact us at
1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or
Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time.
PERFORMANCE SUMMARY
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy.
TOTAL RETURN FOR PERIODS ENDED 5/31/02
Market CSFB High Yield Consumer
NAV price Index price index
-------------------------------------------------------------------------------
1 year -0.93% -2.91% 3.64% 1.13%
-------------------------------------------------------------------------------
5 years 1.42 10.79 16.58 12.12
Annual average 0.28 2.07 3.12 2.31
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Life of fund
(since 6/25/93) 50.23 56.50 70.23 24.31
Annual average 4.66 5.14 6.15 2.47
-------------------------------------------------------------------------------
Past performance does not indicate future results. More recent returns
may be less or more than those shown. Investment return, net asset
value, and market price will fluctuate and you may have a gain or a loss
when you sell your shares. Performance does not reflect taxes on
reinvested distributions.
LIPPER INFORMATION:
The average annualized return for the 7 funds in the Lipper High Current
Yield Funds (closed-end) category over the 12 months ended 5/31/02 was
-9.45%. Over the 5- and life of fund periods ended 5/31/02, annualized
returns for the category were -4.61% and 1.12%, respectively.
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 5/31/02
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Distributions
-------------------------------------------------------------------------------
Number 12
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Income $0.8696
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Capital gains --
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Return of
capital 1 $0.1214
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Total $0.9910
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Share value: NAV Market price
-------------------------------------------------------------------------------
5/31/01 $9.49 $10.80
-------------------------------------------------------------------------------
5/31/02 8.50 9.48
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Current return (end of period)
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Current
dividend
rate 2 9.60% 8.61%
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1 See page 37 for more information.
2 Most recent distribution, excluding capital gains, annualized and
divided by NAV or market price at end of period.
TOTAL RETURN FOR PERIODS ENDED 6/30/02 (most recent calendar quarter)
NAV Market price
-------------------------------------------------------------------------------
1 year -4.03% -10.91%
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5 years -5.46 -5.46
Annual average -1.12 -1.12
-------------------------------------------------------------------------------
Life of fund
(since 6/25/93) 42.91 35.73
Annual average 4.04 3.45
-------------------------------------------------------------------------------
Past performance does not indicate 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 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
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
Credit Suisse First Boston (CSFB) High Yield Index is an unmanaged list
of lower-rated higher-yielding U.S. corporate bonds. It assumes
reinvestment of all distributions and interest payments and does not
take into account brokerage fees or taxes. Securities in the fund do not
match those in the index and performance of the fund will differ. It is
not possible to invest directly in an index.
Lipper Inc. is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper.
A GUIDE TO THE FINANCIAL STATEMENTS
These sections of the report, as well as the accompanying Notes,
preceded by the Report of independent accountants, constitute the fund's
financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are
subtracted from this total. The result is divided by the number of
shares to determine the net asset value per share, which is calculated
separately for each class of shares. (For funds with preferred shares,
the amount subtracted from total assets includes the net assets
allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or
loss the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal year.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number
of the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed
here may not match the sources listed in the Statement of operations
because the distributions are determined on a tax basis and may be paid
in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios, and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also
includes the current reporting period. For open-end funds, a separate table
is provided for each share class.
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders
Putnam Managed High Yield Trust:
We have audited the accompanying statement of assets and liabilities of
Putnam Managed High Yield Trust, including the fund's portfolio, as of
May 31, 2002, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the years in
the two-year period then ended and financial highlights for each of the
years in the two-year period then ended. These financial statements and
financial highlights are the responsibility of the fund's management.
Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits. The financial
highlights for each of the years in the three-year period ended May 31,
2000 were audited by other auditors whose report dated July 11, 2000,
expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform our audit to obtain reasonable assurance about
whether the financial statements and financial highlights are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as
of May 31, 2002 by correspondence with the custodian and brokers. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Putnam Managed High Yield Trust as of May 31,
2002, the results of its operations for the year then ended, and changes
in its net assets and financial highlights for each of the years in the
two-year period then ended in conformity with accounting principles
generally accepted in the United States of America.
KPMG LLP
Boston, Massachusetts
July 2, 2002
THE FUND'S PORTFOLIO
May 31, 2002
CORPORATE BONDS AND NOTES (84.3%) (a)
PRINCIPAL AMOUNT VALUE
Advertising and Marketing Services (0.2%)
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$ 196,618 Interact Operating Co. notes 14s, 2003 (PIK) $ 20
40,000 Lamar Media Corp. company guaranty 9 5/8s, 2006 41,800
67,000 Lamar Media Corp. sr. sub. notes 9 1/4s, 2007 70,015
-------------
111,835
Automotive (2.4%)
-------------------------------------------------------------------------------------------------------------------
80,000 Asbury Automotive Group, Inc. 144A sr. sub. notes 9s, 2012 80,200
135,000 Collins & Aikman Products, Inc. company guaranty 11 1/2s, 2006 135,000
140,000 Collins & Aikman Products, Inc. 144A sr. notes 10 3/4s, 2011 147,000
200,000 Dana Corp. notes 9s, 2011 202,000
20,000 Dana Corp. notes 7s, 2029 15,200
50,000 Delco Remy International, Inc. company guaranty 11s, 2009 46,500
10,000 Delco Remy International, Inc. company guaranty 10 5/8s, 2006 9,200
20,000 Delco Remy International, Inc. sr. notes 8 5/8s, 2007 18,800
190,000 Dura Operating Corp. company guaranty Ser. D, 9s, 2009 191,900
80,000 Dura Operating Corp. 144A sr. notes 8 5/8s, 2012 82,800
110,000 Exide Corp. sr. notes 10s, 2005 (In default) (NON) 18,700
80,000 Federal Mogul Corp. notes 7 7/8s, 2010 (In default) (NON) 16,800
150,000 Federal Mogul Corp. notes 7 3/4s, 2006 (In default) (NON) 31,500
30,000 Ford Motor Credit Corp. notes 7 3/8s, 2009 31,010
50,000 Hayes Lemmerz International, Inc. 144A company guaranty
11 7/8s, 2006 (In default) (NON) 38,500
130,000 Lear Corp. company guaranty Ser. B, 8.11s, 2009 135,673
180,000 Lear Corp. company guaranty Ser. B, 7.96s, 2005 185,980
30,000 Tenaga Nasional Berhad company guaranty 11 5/8s, 2009 25,650
70,000 United Auto Group, Inc. 144A sr. sub. notes 9 5/8s, 2012 73,500
30,000 Venture Holdings Trust 144A sr. notes Ser. B, 9 1/2s, 2005 24,000
-------------
1,509,913
Basic Materials (9.0%)
-------------------------------------------------------------------------------------------------------------------
150,000 Acetex Corp. sr. notes 10 7/8s, 2009 (Canada) 156,750
50,000 AK Steel Corp. company guaranty 7 7/8s, 2009 50,125
100,000 AK Steel Corp. sr. notes 9 1/8s, 2006 104,000
190,000 Appleton Papers, Inc. 144A sr. sub. notes 12 1/2s, 2008 193,800
140,000 ARCO Chemical Co. deb. 9.8s, 2020 125,300
80,000 Armco, Inc. sr. notes 8 7/8s, 2008 77,600
170,000 Avecia Group PLC company guaranty 11s, 2009 (United Kingdom) 173,400
130,000 Better Minerals & Aggregates Co. company guaranty 13s, 2009 134,550
90,000 Centaur Mining & Exploration company guaranty 11s, 2007 (Australia)
(In default) (NON) 5,625
100,000 Compass Minerals Group, Inc. 144A sr. sub. notes 10s, 2011 106,000
170,000 Doe Run Resources Corp. company guaranty Ser. B, 11 1/4s, 2005
(In default) (NON) 51,000
20,000 Doe Run Resources Corp. company guaranty Ser. B, 11 1/4s, 2005
(In default) (NON) 6,000
50,000 Doe Run Resources Corp. company guaranty FRN Ser. B, 8.536s, 2003
(In default) (NON) 15,000
300,000 Equistar Chemicals LP/Equistar Funding Corp. company guaranty
10 1/8s, 2008 294,000
50,000 Ferro Corp. sr. notes 9 1/8s, 2009 53,095
150,000 Four M Corp. sr. notes Ser. B, 12s, 2006 154,125
30,000 Georgia Gulf Corp. company guaranty 10 3/8s, 2007 32,400
30,000 Georgia-Pacific Corp. notes 8 7/8s, 2031 28,904
80,000 Georgia-Pacific Corp. notes 8 1/8s, 2011 78,243
30,000 Georgia-Pacific Corp. notes 7 1/2s, 2006 29,436
40,000 Haynes International, Inc. sr. notes 11 5/8s, 2004 32,000
200,000 Hercules, Inc. company guaranty 11 1/8s, 2007 226,000
350,000 Huntsman ICI Chemicals, Inc. company guaranty 10 1/8s, 2009 323,750
50,000 Huntsman International, LLC 144A sr. notes 9 7/8s, 2009 51,250
150,000 IMC Global, Inc. company guaranty Ser. B, 10 7/8s, 2008 167,948
270,000 ISP Chemco, Inc. company guaranty Ser. B, 10 1/4s, 2011 286,200
10,000 Kaiser Aluminum & Chemical Corp. sr. notes Ser. B, 10 7/8s, 2006
(In default) (NON) 8,000
305,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes 12 3/4s, 2003
(In default) (NON) 61,000
195,000 LTV Corp. company guaranty 11 3/4s, 2009 (In default) (NON) 975
190,000 LTV Corp. company guaranty 8.2s, 2007 (In default) (NON) 238
60,000 Lyondell Chemical Co. company guaranty 9 1/2s, 2008 57,900
40,000 Lyondell Chemical Co. notes Ser. A, 9 5/8s, 2007 39,200
140,000 Lyondell Chemical Co. sec. notes Ser. B, 9 7/8s, 2007 136,850
20,000 Lyondell Chemical Co. sr. sub. notes 10 7/8s, 2009 18,600
50,000 Millenium America, Inc. company guaranty 9 1/4s, 2008 51,750
50,000 Norske Skog Canada, Ltd. company guaranty 8 5/8s, 2011 (Canada) 50,750
80,000 Nortek, Inc. sr. notes Ser. B, 8 7/8s, 2008 81,000
10,000 Nortek, Inc. sr. sub. notes Ser. B, 9 7/8s, 2011 10,175
60,000 Nortek, Inc. 144A sr. notes Ser. B, 9 1/8s, 2007 61,350
70,000 Noveon, Inc. company guaranty Ser. B, 11s, 2011 75,250
120,000 OM Group, Inc. company guaranty 9 1/4s, 2011 125,100
90,000 Oregon Steel Mills 1st mtge. 11s, 2003 90,225
32,000 P&L Coal Holdings Corp. company guaranty Ser. B, 9 5/8s, 2008 33,920
140,000 Pacifica Papers, Inc. sr. notes 10s, 2009 (Canada) 147,700
31,547 PCI Chemicals Canada sec. sr. notes 10s, 2008 (Canada) 23,660
90,000 Phelps Dodge Corp. sr. notes 8 3/4s, 2011 90,960
73,849 Pioneer Companies, Inc. sec. FRN 5.381s, 2006 54,648
60,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 (In default) (NON) 15,000
140,000 Potlatch Corp. company guaranty 10s, 2011 152,600
365,000 Riverwood International Corp. company guaranty 10 7/8s, 2008 379,600
160,000 Royster-Clark, Inc. 1st mtge. 10 1/4s, 2009 120,400
80,000 Steel Dynamics, Inc. 144A sr. notes 9 1/2s, 2009 84,200
30,000 Sterling Chemicals Holdings sr. disc. notes 13 1/2s, 2008 (In default) (NON) 150
100,000 Sterling Chemicals, Inc. company guaranty Ser. B, 12 3/8s, 2006
(In default) (NON) 88,000
40,000 Stone Container Corp. sr. notes 9 3/4s, 2011 42,600
140,000 Stone Container Corp. sr. notes 9 1/4s, 2008 148,400
80,000 Stone Container Corp. 144A company guaranty 11 1/2s,
2006 (Canada) 86,000
70,000 Tembec Industries, Inc. company guaranty 8 1/2s, 2011 (Canada) 71,225
60,000 Tembec Industries, Inc. company guaranty 7 3/4s, 2012 (Canada) 58,800
40,000 Texas Petrochemical Corp. sr. sub. notes Ser. B, 11 1/8s, 2006 33,600
140,000 United States Steel, LLC 144A company guaranty 10 3/4s, 2008 147,000
90,000 WCI Steel, Inc. sr. notes Ser. B, 10s, 2004 45,000
20,000 Weirton Steel Corp 144A sr. notes 10 3/4s, 2005 (In default) (NON) 5,000
120,000 Wheeling-Pittsburgh Steel Corp. sr. notes 9 1/4s, 2007 (In default) (NON) 2,400
80,000 WHX Corp. sr. notes 10 1/2s, 2005 60,000
-------------
5,715,727
Beverage (0.3%)
-------------------------------------------------------------------------------------------------------------------
30,000 Constellation Brands, Inc. company guaranty 8 1/2s, 2009 31,050
150,000 Constellation Brands, Inc. sr. sub. notes Ser. B, 8 1/8s, 2012 155,625
-------------
186,675
Broadcasting (5.9%)
-------------------------------------------------------------------------------------------------------------------
190,000 Acme Television company guaranty 10 7/8s, 2004 193,800
120,000 Benedek Communications Corp. sr. disc. notes 13 1/4s, 2006
(In default) (NON) 120,000
70,000 British Sky Broadcasting PLC company guaranty 8.2s, 2009
(United Kingdom) 71,693
210,000 British Sky Broadcasting PLC company guaranty 6 7/8s, 2009
(United Kingdom) 200,495
70,000 CD Radio, Inc. sec. notes 14 1/2s, 2009 31,500
140,000 Chancellor Media Corp. company guaranty 8s, 2008 144,900
440,000 Diva Systems Corp. sr. disc. notes stepped-coupon Ser. B, zero %
(12 5/8s, 3/1/03), 2008 (STP) 57,750
790,000 Echostar Broadband Corp. sr. notes 10 3/8s, 2007 827,525
150,000 Echostar DBS Corp. 144A sr. notes 9 1/8s, 2009 150,750
50,000 Emmis Communications Corp. company guaranty Ser. B, 8 1/8s, 2009 51,000
80,000 Emmis Communications Corp. sr. disc. notes stepped-coupon zero %
(12 1/2s, 3/15/06), 2011 (STP) 59,600
162,877 Fox Family Worldwide, Inc. sr. disc. notes 10 1/4s, 2007 174,685
195,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 206,700
110,000 Fox/Liberty Networks, LLC sr. disc. notes stepped-coupon zero %
(9 3/4s, 8/15/02), 2007 (STP) 113,850
110,000 Fox/Liberty Networks, LLC sr. notes 8 7/8s, 2007 114,950
110,000 Granite Broadcasting Corp. sr. sub. notes 9 3/8s, 2005 101,200
120,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 108,000
10,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon zero %
(11 7/8s, 10/15/02), 2007 (STP) 3,725
70,000 LIN Holdings Corp. sr. disc. notes stepped-coupon zero %
(10s, 3/1/03), 2008 (STP) 66,450
70,000 LIN Television Corp. company guaranty 8 3/8s, 2008 70,350
70,000 Pegasus Satellite sr. notes 12 3/8s, 2006 33,600
350,375 Quorum Broadcast Holdings, LLC notes stepped-coupon zero %
(15s, 5/15/06), 2009 (acquired 5/15/01, cost $139,227) (RES) (STP) 197,882
52,000 RCN Corp. sr. disc. notes stepped-coupon Ser. B, zero %
(9.8s, 2/15/03), 2008 (STP) 9,880
30,000 Sinclair Broadcast Group, Inc. company guaranty 9s, 2007 30,525
260,000 Sinclair Broadcast Group, Inc. 144A sr. sub. notes 8 3/4s, 2011 267,800
130,000 XM Satellite Radio Holdings, Inc. sec. notes 14s, 2010 84,500
260,000 Young Broadcasting, Inc. company guaranty 10s, 2011 257,400
30,000 Young Broadcasting, Inc. company guaranty Ser. B, 8 3/4s, 2007 29,700
-------------
3,780,210
Building Materials (0.6%)
-------------------------------------------------------------------------------------------------------------------
50,000 Atrium Companies, Inc. company guaranty Ser. B, 10 1/2s, 2009 50,750
60,000 Building Materials Corp. company guaranty 8s, 2008 51,000
160,000 Dayton Superior Corp. company guaranty 13s, 2009 161,400
160,000 Morrison Knudsen Corp. 144A sr. notes 11s, 2010 (In default) (NON) 33,600
120,000 Owens Corning bonds 7 1/2s, 2018 (In default) (NON) 48,600
50,000 Owens Corning notes 7 1/2s, 2005 (In default) (NON) 20,250
-------------
365,600
Cable Television (2.8%)
-------------------------------------------------------------------------------------------------------------------
70,000 Adelphia Communications Corp. sr. notes 10 1/4s, 2011 (In default) (NON) 52,500
120,000 Adelphia Communications Corp. sr. notes 7 7/8s, 2009 (In default) (NON) 88,200
20,000 Adelphia Communications Corp. sr. notes Ser. B, 7 3/4s, 2009
(In default) (NON) 14,900
9,407 Australis Media, Ltd. sr. disc. notes 15 3/4s, 2003 (Australia)
(In default) (NON) (PIK) 1
160,000 Century Communications Corp. sr. notes 8 7/8s, 2007 112,800
60,000 Century Communications Corp. sr. notes 8 3/8s, 2007 42,000
120,000 Charter Communications Holdings, LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (13 1/2s, 1/15/06), 2011 (STP) 72,000
410,000 Charter Communications Holdings, LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (11 3/4s, 5/15/06), 2011 (STP) 223,450
280,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes
11 1/8s, 2011 259,000
70,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes
10 3/4s, 2009 64,575
10,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes
10s, 2009 8,975
20,000 Charter Communications Holdings, LLC/Capital Corp. 144A sr. disc.
notes stepped-coupon zero % (12 1/8s, 1/15/07), 2012 (STP) 10,000
30,000 Charter Communications Holdings, LLC/Capital Corp. 144A sr. notes
10s, 2011 26,100
60,000 Charter Communications Holdings, LLC/Capital Corp. 144A sr. notes
9 5/8s, 2009 53,250
50,000 CSC Holdings, Inc. sr. sub. deb. 9 7/8s, 2013 49,625
775,000 Diamond Cable Communication PLC sr. disc. notes zero %, 2007
(United Kingdom) (In default) (NON) 217,000
150,000 Diamond Cable Communications PLC sr. disc. notes zero %, 2005
(United Kingdom) (In default) (NON) 42,000
80,000 Frontier Vision bank term loan FRN Ser. B, 4.045s, 2006
(acquired 5/20/02, cost $74,000) (NON) 71,200
30,000 Insight Communications Company, Inc. sr. disc. notes stepped-coupon
zero % (12 1/4s, 2/15/06), 2011 (STP) 16,200
50,000 International Cabletel, Inc. sr. disc. notes 11 1/2s, 2006 (In default) (NON) 17,000
20,000 NTL Communications Corp. sr. notes stepped-coupon Ser. B, zero %
(12 3/8s, 10/1/03), 2008 (In default) (NON) (STP) 5,400
100,000 ONO Finance PLC sr. notes 13s, 2009 (United Kingdom) 36,500
20,000 Rogers Cablesystems, Ltd. sr. notes Ser. B, 10s, 2005 (Canada) 21,500
130,000 Rogers Cablesystems, Ltd. sr. sub. notes 8.8s, 2007 (Canada) 109,850
320,000 TeleWest Communications PLC deb. 11s, 2007 (United Kingdom) 142,400
146,000 United Pan-Europe NV sr. disc. notes 12 1/2s, 2009 (Netherlands) 15,513
260,000 United Pan-Europe NV sr. disc. notes stepped-coupon zero %
(13 3/4s, 2/1/05), 2010 (Netherlands) (STP) 27,625
-------------
1,799,564
Capital Goods (7.4%)
-------------------------------------------------------------------------------------------------------------------
80,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 80,400
510,000 Allied Waste Industries, Inc. company guaranty Ser. B, 10s, 2009 515,100
330,000 Allied Waste Industries, Inc. company guaranty Ser. B, 7 5/8s, 2006 325,050
30,000 Allied Waste North America, Inc. company guaranty Ser. B, 8 1/2s, 2008 30,000
40,000 Amkor Technology, Inc. sr. notes 9 1/4s, 2008 39,900
80,000 Amkor Technology, Inc. sr. notes 9 1/4s, 2006 79,600
60,000 Applied Extrusion Technologies, Inc. company guaranty Ser. B,
10 3/4s, 2011 57,450
360,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 334,800
80,000 Argo-Tech Corp. company guaranty Ser. D, 8 5/8s, 2007 74,400
285,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 262,200
190,000 Blount, Inc. company guaranty 13s, 2009 130,150
150,000 Brand Scaffold Services, Inc. sr. notes 10 1/4s, 2008 146,250
60,000 Browning-Ferris Industries, Inc. deb. 7.4s, 2035 48,450
60,000 Browning-Ferris Industries, Inc. sr. notes 6 3/8s, 2008 54,000
100,000 Day International Group, Inc. company guaranty 9 1/2s, 2008 75,000
240,000 Decrane Aircraft Holdings Co. company guaranty Ser. B, 12s, 2008 220,800
140,000 Earle M. Jorgensen Co. 144A sec. notes 9 3/4s, 2012 141,400
123,000 Flowserve Corp. company guaranty 12 1/4s, 2010 138,990
40,000 Hexcel Corp. sr. sub. notes 9 3/4s, 2009 30,800
90,000 High Voltage Engineering Corp. sr. notes 10 3/4s, 2004 32,400
180,000 Insilco Holding Co. sr. disc. notes stepped-coupon zero %
(14s, 8/15/03), 2008 (STP) 23,400
90,000 Jackson Products, Inc. company guaranty Ser. B, 9 1/2s, 2005 58,500
30,000 Jordan Industries, Inc. sr. notes Ser. D, 10 3/8s, 2007 21,000
30,000 Joy Global, Inc. 144A company guaranty 8 3/4s, 2012 30,450
100,000 L-3 Communications Corp. sr. sub. notes 8 1/2s, 2008 103,500
170,000 L-3 Communications Corp. sr. sub. notes Ser. B, 10 3/8s, 2007 178,925
100,000 Laidlaw, Inc. notes 7.65s, 2006 (Canada) (In default) (NON) 61,750
190,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 180,500
200,000 Owens-Brockway Glass 144A sec. notes 8 7/8s, 2009 208,000
50,000 Owens-Illinois, Inc. debs. 7.8s, 2018 42,500
95,000 Owens-Illinois, Inc. debs. 7 1/2s, 2010 86,925
10,000 Owens-Illinois, Inc. sr. notes 7.15s, 2005 9,575
80,000 Pliant Corp. company guaranty 13s, 2010 83,600
30,000 Pliant Corp. 144A sr. sub. notes 13s, 2010 31,350
130,000 Roller Bearing Company of America company guaranty Ser. B,
9 5/8s, 2007 124,800
190,000 Tekni-Plex, Inc. company guaranty Ser. B, 12 3/4s, 2010 199,500
40,000 Terex Corp. company guaranty 8 7/8s, 2008 41,200
100,000 Terex Corp. company guaranty Ser. B, 10 3/8s, 2011 109,500
70,000 Trimas Corp. 144A sr. sub. notes 9 7/8s, 2012 71,225
130,000 Waste Management, Inc. sr. notes 7 3/8s, 2010 133,957
80,000 Waste Management, Inc. sr. notes 6 1/2s, 2008 79,758
-------------
4,697,055
Commercial and Consumer Services (0.8%)
-------------------------------------------------------------------------------------------------------------------
475,000 Coinmach Corp. 144A sr. notes 9s, 2010 492,813
Communication Services (7.1%)
-------------------------------------------------------------------------------------------------------------------
200,000 360Networks, Inc. sr. notes 13s, 2008 (Canada) (In default) (NON) 2,000
120,000 Alamosa Delaware, Inc. company guaranty 13 5/8s, 2011 100,800
50,000 Alamosa Delaware, Inc. company guaranty 12 1/2s, 2011 41,750
10,000 Alamosa PCS Holdings, Inc. company guaranty stepped-coupon zero %
(12 7/8s, 2/15/05), 2010 (STP) 4,600
200,000 American Cellular Corp. company guaranty 9 1/2s, 2009 80,000
450,000 American Tower Corp. sr. notes 9 3/8s, 2009 309,375
20,000 Arch Communications, Inc. sr. notes 13 3/4s, 2008 (In default) (NON) 100
20,000 Arch Communications, Inc. sr. notes 13s, 2007 (In default) (NON) 100
40,000 Asia Global Crossing, Ltd. sr. notes 13 3/8s, 2010 (Bermuda)
(In default) (NON) 9,200
100,000 Birch Telecommunications, Inc. sr. notes 14s, 2008 (In default) (NON) 2,000
14,000 Call-Net Enterprises, Inc. company guaranty 10 5/8s, 2008 (Canada) 7,840
318,870 Colo.com, Inc. 144A sr. notes 13 7/8s, 2010 (In default) (NON) 6,377
120,000 Crown Castle International Corp. sr. disc. notes stepped-coupon
zero % (10 3/8s, 5/15/04), 2011 (STP) 69,000
60,000 Crown Castle International Corp. sr. notes 10 3/4s, 2011 52,200
170,000 Crown Castle International Corp. sr. notes 9 3/8s, 2011 136,000
490,000 Cybernet Internet Services International, Inc. 144A sr. disc. notes
stepped-coupon zero % (13s, 8/15/04), 2009 (Denmark) (STP) 4,900
150,000 Dobson/Sygnet Communications, Inc. sr. notes 12 1/4s, 2008 136,500
230,000 Equinix, Inc. sr. notes 13s, 2007 34,500
120,000 Esprit Telecom Group PLC sr. notes 11 1/2s, 2007 (United Kingdom)
(In default) (NON) 300
420,000 Firstworld Communication Corp. sr. disc. notes stepped-coupon
zero % (13s, 4/15/03), 2008 (In default) (NON) (STP) 43,050
90,000 FLAG, Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) (In default) (NON) 12,600
20,000 Global Crossing Holdings, Ltd. company guaranty 9 5/8s, 2008
(Bermuda) (In default) (NON) 375
30,000 Global Crossing Holdings, Ltd. company guaranty 9 1/2s, 2009
(Bermuda) (In default) (NON) 563
430,000 Global Crossing Holdings, Ltd. company guaranty 9 1/8s, 2006
(Bermuda) (In default) (NON) 8,063
145,000 Globix Corp. sr. notes 12 1/2s, 2010 (In default) (NON) 25,375
350,000 Horizon PCS, Inc. company guaranty stepped-coupon zero %
(14s, 10/1/05), 2010 (STP) 92,750
20,000 Horizon PCS, Inc. 144A sr. notes 13 3/4s, 2011 11,800
20,000 Hyperion Telecommunications Corp., Inc. sr. disc. notes Ser. B, zero %,
2003 (In default) (NON) 50
230,000 Hyperion Telecommunications Corp., Inc. sr. sub. notes 12s, 2007
(In default) (NON) 575
200,000 iPCS, Inc. sr. disc. notes stepped-coupon zero % (14s, 7/15/05), 2010 (STP) 100,000
140,000 IWO Holdings, Inc. company guaranty 14s, 2011 109,200
260,000 Leap Wireless International, Inc. company guaranty 12 1/2s, 2010 91,000
99,000 Level 3 Communications, Inc. sr. disc. notes stepped-coupon zero %
(10 1/2s, 12/1/03), 2008 (STP) 28,710
20,000 Madison River Capital Corp. sr. notes 13 1/4s, 2010 16,000
390,000 McCaw International, Ltd. sr. disc. notes 13s, 2007 (In default) (NON) 19,500
120,000 MCI WorldCom, Inc. notes 7 3/4s, 2007 63,000
90,000 MCI WorldCom, Inc. sr. notes 6.4s, 2005 52,200
50,000 Metrocall, Inc. sr. sub. notes 11s, 2008 (In default) (NON) 500
20,000 Metrocall, Inc. sr. sub. notes 10 3/8s, 2007 (In default) (NON) 50
40,000 Metrocall, Inc. sr. sub. notes 9 3/4s, 2007 (In default) (NON) 400
200,000 Metromedia Fiber Network, Inc. sr. notes Ser. B, 10s, 2008 (In default) (NON) 6,000
160,000 Microcell Telecommunications sr. disc. notes Ser. B, 14s, 2006 (Canada) 22,400
90,000 Millicom International Cellular SA sr. disc. notes 13 1/2s,
2006 (Luxembourg) 50,400
130,000 Nextel Communications, Inc. sr. disc. notes stepped-coupon zero %
(9 3/4s, 10/31/02), 2007 (STP) 84,500
300,000 Nextel Communications, Inc. sr. notes 12s, 2008 220,500
80,000 Nextel Communications, Inc. sr. notes 9 1/2s, 2011 50,800
420,000 Nextel Communications, Inc. sr. notes 9 3/8s, 2009 277,200
110,000 Nextel Partners, Inc. sr. notes 11s, 2010 68,200
30,000 Nextel Partners, Inc. sr. notes 11s, 2010 18,600
70,000 Nextel Partners, Inc. 144A sr. notes 12 1/2s, 2009 47,600
50,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 (In default) (NON) 7,250
200,000 Orbital Imaging Corp. sr. notes Ser. B, 11 5/8s, 2005 (In default) (NON) 22,000
140,000 PanAmSat Corp. 144A sr. notes 8 1/2s, 2012 140,457
230,000 Price Communications Wireless, Inc. 144A sr. notes 9 1/8s, 2006 238,050
40,000 PSINet, Inc. sr. notes 11 1/2s, 2008 (In default) (NON) 4,000
40,000 PSINet, Inc. sr. notes Ser. B, 10s, 2005 (In default) (NON) 4,000
200,000 Qwest Capital Funding, Inc. company guaranty 7 3/4s, 2006 165,000
40,000 Qwest Capital Funding, Inc. company guaranty 7 1/4s, 2011 30,200
230,000 Qwest Capital Funding, Inc. company guaranty 7s, 2009 171,350
130,000 Qwest Capital Funding, Inc. company guaranty 6 3/8s, 2008 95,550
90,000 Qwest Communications International, Inc. sr. notes Ser. B, 7 1/2s, 2008 72,000
40,000 Rhythms Netconnections, Inc. sr. notes Ser. B, 14s, 2010 (In default) (NON) 2,400
50,000 Rogers Wireless, Inc. sec. notes 9 5/8s, 2011 (Canada) 43,500
190,000 SBA Communications Corp. sr. notes 10 1/4s, 2009 132,050
130,000 Spectrasite Holdings, Inc. sr. disc. notes stepped-coupon zero %
(11 1/8s, 4/15/04), 2009 (STP) 37,700
50,000 Tele1 Europe B.V. sr. notes 13s, 2009 (Netherlands) 7,000
143,000 Telecorp PCS, Inc. company guaranty 10 5/8s, 2010 154,440
13,000 Telecorp PCS, Inc. company guaranty stepped-coupon zero %
(11 5/8s, 4/15/04), 2009 (STP) 11,407
90,000 Telehub Communications Corp. company guaranty stepped-coupon
zero % (13 7/8s, 7/31/02), 2005 (In default) (NON) (STP) 1
100,000 Time Warner Telecom, Inc. sr. notes 9 3/4s, 2008 53,000
117,000 Tritel PCS, Inc. company guaranty 10 3/8s, 2011 125,483
30,000 Triton PCS, Inc. company guaranty 9 3/8s, 2011 26,550
140,000 Triton PCS, Inc. company guaranty 8 3/4s, 2011 121,800
90,000 TSI Telecommunication Services, Inc. 144A sr. sub. notes 12 3/4s, 2009 87,750
350,000 UbiquiTel Operating Co. company guaranty stepped-coupon zero %
(14s, 4/15/05), 2010 (STP) 87,500
160,000 US UnWired, Inc. company guaranty stepped-coupon Ser. B, zero %
(13 3/8s, 11/1/04), 2009 (STP) 94,400
60,000 USA Mobile Communications, Inc. sr. notes 14s, 2004 (In default) (NON) 5,400
40,000 USA Mobile Communications, Inc. sr. notes 9 1/2s, 2004 (In default) (NON) 3,600
140,000 WebLink Wireless, Inc. sr. disc. notes stepped-coupon zero %
(11 1/4s, 2/1/03), 2008 (STP) 350
30,000 Williams Communications Group, Inc. sr. notes 11 7/8s, 2010
(In default) (NON) 2,700
20,000 Williams Communications Group, Inc. sr. notes 11.7s, 2008 (In default) (NON) 2,000
30,000 Williams Communications Group, Inc. sr. notes 10.7s, 2007 (In default) (NON) 2,850
670,000 WinStar Communications, Inc. sr. disc. notes stepped-coupon zero %
(14 3/4s, 4/15/05), 2010 (In default) (NON) (STP) 67
190,000 WinStar Communications, Inc. sr. notes 12 3/4s, 2010 (In default) (NON) 19
20,000 WinStar Communications, Inc. sr. notes 12 1/2s, 2008 (In default) (NON) 2
180,000 World Access, Inc. sr. notes Ser. B, 13 1/4s, 2008 (In default) (NON) 6,300
30,000 WorldCom, Inc.-WorldCom Group notes 8 1/4s, 2010 15,000
40,000 WorldCom, Inc.-WorldCom Group notes 7 1/2s, 2011 19,600
-------------
4,512,229
Conglomerates (0.4%)
-------------------------------------------------------------------------------------------------------------------
300,000 Tyco International Group SA company guaranty 6 3/8s,
2006 (Luxembourg) 273,000
Consumer (0.9%)
-------------------------------------------------------------------------------------------------------------------
206,765 Derby Cycle Corp. (The) sr. notes 10s, 2008 (In default) (NON) 4,135
EUR 117,131 Derby Cycle Corp. (The) sr. notes 9 3/8s, 2008 (In default) (NON) 1,119
$ 90,000 Icon Health & Fitness 144A sr. sub. notes 11 1/4s, 2012 89,100
210,000 Jostens, Inc. sr. sub. notes 12 3/4s, 2010 237,300
300,000 Samsonite Corp. sr. sub. notes 10 3/4s, 2008 253,500
-------------
585,154
Consumer Goods (0.7%)
-------------------------------------------------------------------------------------------------------------------
60,000 Albecca, Inc. company guaranty 10 3/4s, 2008 66,450
70,000 Armkel, LLC/Armkel Finance sr. sub. notes 9 1/2s, 2009 73,500
70,000 French Fragrances, Inc. company guaranty Ser. D, 10 3/8s, 2007 66,500
10,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 9,150
100,000 Playtex Products, Inc. company guaranty 9 3/8s, 2011 107,000
40,000 Revlon Consumer Products sr. notes 9s, 2006 28,500
50,000 Revlon Consumer Products sr. notes 8 1/8s, 2006 35,625
70,000 Revlon Consumer Products sr. sub. notes 8 5/8s, 2008 32,200
-------------
418,925
Consumer Services (0.2%)
-------------------------------------------------------------------------------------------------------------------
110,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 94,600
50,000 United Rentals (North America), Inc. company guaranty Ser. B,
10 3/4s, 2008 55,000
-------------
149,600
Energy (5.2%)
-------------------------------------------------------------------------------------------------------------------
130,000 Belco Oil & Gas Corp. sr. sub. notes Ser. B, 8 7/8s, 2007 133,575
110,000 BRL Universal Equipment sec. notes 8 7/8s, 2008 113,300
70,000 Chesapeake Energy Corp. company guaranty 8 3/8s, 2008 70,350
210,000 Chesapeake Energy Corp. company guaranty 8 1/8s, 2011 210,525
60,000 Comstock Resources, Inc. company guaranty 11 1/4s, 2007 63,150
60,000 Comstock Resources, Inc. 144A sr. notes 11 1/4s, 2007 63,150
20,000 Denbury Resources, Inc. company guaranty Ser. B, 9s, 2008 19,800
110,000 Dresser, Inc. company guaranty 9 3/8s, 2011 114,400
30,000 Dresser, Inc. 144A sr. sub. notes 9 3/8s, 2011 31,200
50,000 El Paso Energy Partners L.P. company guaranty Ser. B, 8 1/2s, 2011 50,500
50,000 Forest Oil Corp. sr. notes 8s, 2011 50,500
70,000 Forest Oil Corp. sr. notes 8s, 2008 70,875
70,000 Forest Oil Corp. 144A sr. notes 7 3/4s, 2014 67,900
20,000 Grant Prideco, Inc. company guaranty Ser. B, 9 5/8s, 2007 20,900
60,000 Key Energy Services, Inc. company guaranty Ser. C, 8 3/8s, 2008 61,800
125,000 Leviathan Gas Corp. company guaranty Ser. B, 10 3/8s, 2009 132,813
50,000 Magnum Hunter Resources, Inc. 144A sr. notes 9.6s, 2012 52,625
130,000 Newfield Exploration Co. sr. notes 7 5/8s, 2011 129,675
10,000 Nuevo Energy Co. sr. sub. notes Ser. B, 9 1/2s, 2008 10,100
205,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 216,396
100,000 Parker Drilling Co. company guaranty Ser. AI, 10 1/8s, 2009 103,000
20,000 Parker Drilling Co. 144A company guaranty 10 1/8s, 2009 20,800
50,000 Petronas Capital, Ltd. 144A company guaranty 7s, 2012 (Malaysia) 51,125
240,000 Pioneer Natural Resources Co. company guaranty 9 5/8s, 2010 267,000
30,000 Pioneer Natural Resources Co. company guaranty 7 1/2s, 2012 30,150
70,000 Pogo Producing Co. sr. sub. notes Ser. B, 8 1/4s, 2011 72,275
10,000 Pride International, Inc. sr. notes 10s, 2009 10,850
130,000 Pride Petroleum Services, Inc. sr. notes 9 3/8s, 2007 135,850
70,000 Snyder Oil Corp. sr. sub. notes 8 3/4s, 2007 73,332
50,000 Stone Energy Corp. company guaranty 8 3/4s, 2007 51,688
80,000 Stone Energy Corp. sr. sub. notes 8 1/4s, 2011 80,800
30,000 Swift Energy Co. sr. sub. notes 10 1/4s, 2009 30,450
90,000 Swift Energy Co. sr. sub. notes 9 3/8s, 2012 89,100
60,000 Trico Marine Services, Inc. company guaranty Ser. G, 8 1/2s, 2005 62,025
100,000 Trico Marine Services, Inc. 144A sr. notes 8 7/8s, 2012 100,750
190,000 Vintage Petroleum, Inc. sr. sub. notes 9 3/4s, 2009 188,575
60,000 Vintage Petroleum, Inc. 144A sr. notes 8 1/4s, 2012 58,800
70,000 Westport Resources Corp. company guaranty 8 1/4s, 2011 71,750
70,000 XTO Energy, Inc. sr. notes 7 1/2s, 2012 71,050
60,000 XTO Energy, Inc. 144A sr. sub. notes Ser. B, 8 3/4s, 2009 63,000
-------------
3,315,904
Entertainment (1.5%)
-------------------------------------------------------------------------------------------------------------------
80,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2011 80,800
60,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 60,600
10,000 Cinemark USA, Inc. sr. sub. notes Ser. B, 9 5/8s, 2008 10,000
150,000 Cinemark USA, Inc. sr. sub. notes Ser. B, 8 1/2s, 2008 143,250
120,000 Premier Parks, Inc. sr. notes 9 3/4s, 2007 124,800
130,000 Regal Cinemas, Inc. 144A sr. sub. notes 9 3/8s, 2012 136,175
100,000 Silver Cinemas, Inc. sr. sub. notes 10 1/2s, 2005 (In default) (NON) 10
380,000 Six Flags, Inc. 144A sr. notes 8 7/8s, 2010 383,800
-------------
939,435
Financial (4.2%)
-------------------------------------------------------------------------------------------------------------------
240,000 Advanta Corp. 144A company guaranty Ser. B, 8.99s, 2026 146,400
10,000 AMRESCO, Inc. sr. sub. notes Ser. 97-A, 10s, 2004 (In default) (NON) 2,150
170,000 AMRESCO, Inc. sr. sub. notes Ser. 98-A, 9 7/8s, 2005 (In default) (NON) 36,550
70,000 Chevy Chase Savings Bank, Inc. sub. deb. 9 1/4s, 2005 70,350
70,000 CIT Group, Inc. sr. notes 7 3/4s, 2012 71,546
130,000 Colonial Capital II 144A company guaranty 8.92s, 2027 116,710
20,000 Comdisco, Inc. notes 7 1/4s, 2001 (In default) (NON) (DEF) 16,475
20,000 Comdisco, Inc. notes 6 3/8s, 2001 (In default) (NON) (DEF) 16,125
40,000 Comdisco, Inc. notes 5.95s, 2002 (In default) (NON) (DEF) 32,000
130,000 Conseco Finance Trust III, Inc. bonds 8.796s, 2027 33,150
80,000 Conseco Financing Trust II company guaranty 8.7s, 2026 20,400
200,000 Crescent Real Estate Equities LP 144A sr. notes 9 1/4s, 2009 (R) 206,105
15,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 16,506
414,000 Finova Group, Inc. notes 7 1/2s, 2009 144,900
430,000 GS Escrow Corp. sr. notes 7 1/8s, 2005 453,199
54,000 Imperial Credit Industries, Inc. sec. notes 12s, 2005 7,560
70,000 iStar Financial, Inc. sr. notes 8 3/4s, 2008 (R) 72,100
100,000 Nationwide Credit, Inc. sr. notes Ser. A, 10 1/4s, 2008 (In default) (NON) 28,500
60,000 Newcourt Credit Group, Inc. company guaranty 6 7/8s, 2005 58,447
65,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 52,650
58,000 Ocwen Federal Bank sub. deb. 12s, 2005 58,000
160,000 Peoples Bank- Bridgeport sub. notes 9 7/8s, 2010
(acquired 1/12/01, cost $166,509) (RES) 169,619
150,000 Provident Capital Trust company guaranty 8.6s, 2026 132,600
220,000 Resource America, Inc. 144A sr. notes 12s, 2004 225,500
150,000 Sovereign Bancorp, Inc. sr. notes 10 1/2s, 2006 166,500
140,000 Superior Financial Corp. 144A sr. notes 8.65s, 2003 143,163
80,000 Webster Capital Trust I 144A bonds 9.36s, 2027 79,574
100,000 Western Financial Bank sub. debs. 9 5/8s, 2012 101,000
-------------
2,677,779
Food (1.2%)
-------------------------------------------------------------------------------------------------------------------
200,000 Archibald Candy Corp. company guaranty 10 1/4s, 2004 (In default) (NON) 100,000
10,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 6,600
230,000 Aurora Foods, Inc. 144A sr. sub. notes Ser. D, 9 7/8s, 2007 151,800
40,000 Del Monte Corp. company guaranty Ser. B, 9 1/4s, 2011 42,000
130,000 Eagle Family Foods company guaranty Ser. B, 8 3/4s, 2008 100,425
110,000 Premier International Foods PLC sr. notes 12s, 2009 (United Kingdom) 120,175
320,000 RAB Enterprises, Inc. company guaranty 10 1/2s, 2005 192,000
245,000 Vlasic Foods International, Inc. sr. sub. notes Ser. B, 10 1/4s, 2009
(In default) (NON) 52,675
-------------
765,675
Gaming & Lottery (6.0%)
-------------------------------------------------------------------------------------------------------------------
80,000 Aladdin Gaming Holdings, LLC sr. disc. notes stepped-coupon Ser. B,
zero % (13 1/2s, 3/1/03), 2010 (In default) (NON) (STP) 2,600
50,000 Ameristar Casinos, Inc. company guaranty 10 3/4s, 2009 55,125
120,000 Argosy Gaming Co. company guaranty 10 3/4s, 2009 132,000
20,000 Argosy Gaming Co. sr. sub. notes 9s, 2011 21,100
125,000 Autotote Corp. company guaranty Ser. B, 12 1/2s, 2010 140,000
120,000 Boyd Gaming Corp. 144A sr. sub. notes 8 3/4s, 2012 123,900
86,021 Fitzgeralds Gaming Corp. company guaranty Ser. B, 12 1/4s, 2004
(In default) (NON) 30,107
110,000 Herbst Gaming, Inc. sec. notes Ser. B, 10 3/4s, 2008 117,150
170,000 Hollywood Casino Corp. company guaranty 11 1/4s, 2007 187,850
20,000 Hollywood Park, Inc. company guaranty Ser. B, 9 1/4s, 2007 19,300
160,000 Horseshoe Gaming Holdings company guaranty 8 5/8s, 2009 166,400
170,000 International Game Technology sr. notes 8 3/8s, 2009 179,775
210,000 Majestic Investor Holdings/Majestic Investor Capital Corp. 144A
company guaranty 11.653s, 2007 203,175
10,000 Mandalay Resort Group sr. notes 9 1/2s, 2008 10,850
40,000 Mandalay Resort Group sr. sub. notes 9 3/8s, 2010 42,800
190,000 Mandalay Resort Group sr. sub. notes Ser. B, 10 1/4s, 2007 206,625
10,000 MGM Mirage, Inc. coll. sr. notes 6 7/8s, 2008 9,888
220,000 MGM Mirage, Inc. company guaranty 8 1/2s, 2010 234,755
110,000 MGM Mirage, Inc. company guaranty 8 3/8s, 2011 113,575
60,000 Mirage Resorts, Inc. notes 6 3/4s, 2008 58,984
40,000 Mohegan Tribal Gaming Authority sr. notes 8 1/8s, 2006 40,900
130,000 Mohegan Tribal Gaming Authority sr. sub. notes 8 3/4s, 2009 134,713
50,000 Mohegan Tribal Gaming Authority sr. sub. notes 8 3/8s, 2011 51,250
130,000 Mohegan Tribal Gaming Authority 144A sr. sub. notes 8s, 2012 130,975
160,000 Park Place Entertainment Corp. sr. notes 7 1/2s, 2009 157,467
160,000 Park Place Entertainment Corp. sr. sub. notes 8 7/8s, 2008 165,800
30,000 Penn National Gaming, Inc. company guaranty Ser. B, 11 1/8s, 2008 32,400
140,000 Penn National Gaming, Inc. sr. sub. notes 8 7/8s, 2010 138,600
70,000 Resorts International Hotel and Casino, Inc. 144A 1st mtge.
11 1/2s, 2009 66,150
70,000 Riviera Black Hawk, Inc. 1st mtge. 13s, 2005 72,100
140,000 Station Casinos, Inc. sr. notes 8 3/8s, 2008 144,550
40,000 Station Casinos, Inc. 144A sr. sub. notes 9 3/4s, 2007 41,100
30,000 Sun International Hotels, Ltd. 144A sr. sub. notes 8 7/8s,
2011 (Bahamas) 31,013
70,000 Trump Atlantic City Associates company guaranty 11 1/4s, 2006 52,850
10,000 Trump Atlantic City Associates company guaranty Ser. B, 11 1/4s, 2006 7,500
70,000 Trump Castle Funding, Inc. sr. sub. notes 11 3/4s, 2003 60,550
250,000 Venetian Casino Resort, LLC 144A 2nd mtge. 11s, 2010 259,375
140,000 Venetian Casino, Inc. company guaranty 12 1/4s, 2004 148,575
60,000 Wheeling Island Gaming, Inc. 144A sr. notes 10 1/8s, 2009 62,850
-------------
3,854,677
Health Care (6.3%)
-------------------------------------------------------------------------------------------------------------------
150,000 ALARIS Medical Systems, Inc. sec. notes Ser. B, 11 5/8s, 2006 168,750
80,000 ALARIS Medical Systems, Inc. 144A company guaranty 9 3/4s, 2006 80,000
10,000 ALARIS Medical, Inc. sr. disc. notes stepped-coupon zero %
(11 1/8s, 8/1/03), 2008 (STP) 8,300
253,500 Alderwoods Group, Inc. company guaranty 12 1/4s, 2009 263,006
2,600 Alderwoods Group, Inc. company guaranty 11s, 2007 2,633
85,000 Alliance Imaging, Inc. sr. sub. notes 10 3/8s, 2011 91,481
100,000 AmerisourceBergen Corp. sr. notes 8 1/8s, 2008 104,500
70,000 Bio-Rad Labs Corp. sr. sub. notes 11 5/8s, 2007 78,225
150,000 Biovail Corp. sr. sub. notes 7 7/8s, 2010 (Canada) 150,214
200,000 Conmed Corp. company guaranty 9s, 2008 206,500
10,000 Hanger Orthopedic Group, Inc. sr. sub. notes 11 1/4s, 2009 10,313
140,000 Hanger Orthopedic Group, Inc. 144A sr. notes 10 3/8s, 2009 149,100
70,000 HCA, Inc. deb. 7.19s, 2015 71,455
70,000 HCA, Inc. med. term notes 7.69s, 2025 69,047
290,000 HCA, Inc. med. term notes 6.63s, 2045 290,548
100,000 HCA, Inc. notes 8 3/4s, 2010 112,149
60,000 HCA, Inc. notes 8.36s, 2024 63,372
10,000 HCA, Inc. notes 7s, 2007 10,271
20,000 HCA, Inc. sr. notes 7 7/8s, 2011 21,375
160,000 Healthsouth Corp. sr. sub. notes 10 3/4s, 2008 177,600
80,000 Insight Health Services Corp. company guaranty Ser. B, 9 7/8s, 2011 82,400
180,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s, 2007
(In default) (NON) 18
110,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s, 2008
(In default) (NON) 11
130,000 Kinetic Concepts, Inc. company guaranty Ser. B, 9 5/8s, 2007 132,925
290,000 Magellan Health Services, Inc. sr. sub. notes 9s, 2008 223,300
480,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007
(In default) (NON) 6,000
100,000 Mariner Post-Acute Network, Inc. sr. sub. notes stepped-coupon
Ser. B, zero % (10 1/2s, 11/1/02), 2007 (In default) (NON) (STP) 750
170,000 Mediq, Inc. company guaranty 11s, 2008 (In default) (NON) 1,700
180,000 Mediq, Inc. deb. stepped-coupon zero % (13s, 6/1/03), 2009
(In default) (NON) (STP) 18
90,000 Omnicare, Inc. company guaranty Ser. B, 8 1/8s, 2011 94,950
230,000 PacifiCare Health Systems, Inc. 144A sr. notes 10 3/4s, 2009 233,450
110,000 Rotech Healthcare, Inc. 144A sr. sub. notes 9 1/2s, 2012 113,850
40,000 Service Corp. International debs. 7 7/8s, 2013 36,000
20,000 Service Corp. International notes 7.7s, 2009 18,550
250,000 Service Corp. International notes 6s, 2005 231,875
130,000 Stewart Enterprises, Inc. notes 10 3/4s, 2008 143,650
140,000 Triad Hospitals Holdings company guaranty Ser. B, 11s, 2009 156,100
200,000 Triad Hospitals, Inc. company guaranty Ser. B, 8 3/4s, 2009 213,000
100,000 Vanguard Health Systems, Inc. company guaranty 9 3/4s, 2011 105,500
120,000 Ventas Realty LP/Capital Corp. 144A sr. notes 9s, 2012 124,200
-------------
4,047,086
Homebuilding (2.0%)
-------------------------------------------------------------------------------------------------------------------
100,000 Beazer Homes USA, Inc. company guaranty 8 5/8s, 2011 103,500
10,000 D.R. Horton, Inc. company guaranty 8s, 2009 10,175
120,000 D.R. Horton, Inc. sr. notes 7 7/8s, 2011 117,600
50,000 D.R. Horton, Inc. 144A sr. notes 8 1/2s, 2012 50,125
110,000 Del Webb Corp. sr. sub. deb. 9 3/8s, 2009 115,775
30,000 K. Hovnanian Enterprises, Inc. company guaranty 10 1/2s, 2007 32,850
80,000 K. Hovnanian Enterprises, Inc. 144A sr. notes 8s, 2012 78,400
10,000 K. Hovnanian Enterprises, Inc. 144A sr. sub. notes 8 7/8s, 2012 9,900
170,000 KB Home sr. sub. notes 9 1/2s, 2011 177,650
130,000 Lennar Corp. company guaranty Ser. B, 9.95s, 2010 145,600
20,000 M.D.C. Holdings, Inc. sr. notes 8 3/8s, 2008 20,400
160,000 Ryland Group, Inc. sr. notes 9 3/4s, 2010 174,400
40,000 Standard Pacific Corp. sr. notes 9 1/2s, 2010 42,400
20,000 Standard Pacific Corp. sr. notes 8 1/2s, 2009 20,350
110,000 Toll Corp. company guaranty 8 1/8s, 2009 108,900
80,000 WCI Communities, Inc. 144A sr. sub. notes 9 1/8s, 2012 82,000
-------------
1,290,025
Household Furniture and Appliances (0.4%)
-------------------------------------------------------------------------------------------------------------------
130,000 Sealy Mattress Co. company guaranty stepped-coupon Ser. B, zero %
(10 7/8s, 12/15/02), 2007 (STP) 130,000
105,000 Sealy Mattress Co. sr. sub. notes Ser. B, 9 7/8s, 2007 108,675
-------------
238,675
Lodging/Tourism (2.7%)
-------------------------------------------------------------------------------------------------------------------
210,000 Felcor Lodging LP company guaranty 9 1/2s, 2008 (R) 218,400
70,000 Felcor Lodging LP company guaranty 9 1/2s, 2008 (R) 72,800
35,000 Felcor Lodging LP company guaranty 8 1/2s, 2008 (R) 35,088
520,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 505,050
10,000 HMH Properties, Inc. sr. notes Ser. C, 8.45s, 2008 10,000
60,000 Host Marriott L.P. company guaranty Ser. G, 9 1/4s, 2007 61,800
50,000 Host Marriott L.P. sr. notes Ser. E, 8 3/8s, 2006 49,750
120,000 ITT Corp. notes 6 3/4s, 2005 120,304
190,000 John Q. Hamons Hotels 144A 1st mtge. 8 7/8s, 2012 191,900
60,000 Lodgian Financing Corp. company guaranty 12 1/4s, 2009 (In default) (NON) 31,350
90,000 Meristar Hospitality Corp. company guaranty 9 1/8s, 2011 90,900
50,000 MeriStar Hospitality Operating Partnership/MeriStar Hospitality
Finance Corp. 144A sr. notes 10 1/2s, 2009 (R) 52,625
70,000 Mikohn Gaming Corp. company guaranty Ser. B, 11 7/8s, 2008 67,900
90,000 RFS Partnership LP 144A sr. notes 9 3/4s, 2012 94,050
90,000 Starwood Hotels & Resorts Worldwide, Inc. 144A notes 7 7/8s, 2012 91,453
-------------
1,693,370
Media (0.5%)
-------------------------------------------------------------------------------------------------------------------
310,000 Affinity Group Holdings sr. notes 11s, 2007 303,800
Publishing (2.6%)
-------------------------------------------------------------------------------------------------------------------
50,000 Belo Corp. sr. notes 7 1/8s, 2007 50,604
80,000 Garden State Newspapers, Inc. sr. sub. notes 8 5/8s, 2011 79,400
50,000 Garden State Newspapers, Inc. sr. sub. notes Ser. B, 8 3/4s, 2009 49,750
70,000 Hollinger International Publishing, Inc. company guaranty 9 1/4s, 2007 72,275
312,338 Hollinger Participation Trust 144A sr. notes 12 1/8s, 2010 (Canada) (PIK) 301,406
90,000 Key3media Group, Inc. company guaranty 11 1/4s, 2011 48,600
60,000 Mail-Well I Corp. 144A company guaranty 9 5/8s, 2012 60,600
110,000 Perry-Judd company guaranty 10 5/8s, 2007 106,700
520,000 PRIMEDIA, Inc. company guaranty 8 7/8s, 2011 400,400
80,000 PRIMEDIA, Inc. company guaranty 7 5/8s, 2008 58,400
130,000 PRIMEDIA, Inc. company guaranty Ser. B, 8 1/2s, 2006 101,400
60,000 Quebecor Media, Inc. sr. disc. notes stepped-coupon zero %
(13 3/4s, 7/15/06), 2011 (Canada) (STP) 37,200
80,000 Quebecor Media, Inc. sr. notes 11 1/8s, 2011 (Canada) 82,000
110,000 Von Hoffman Press, Inc. 144A company guaranty 10 1/4s, 2009 114,675
90,931 Von Hoffman Press, Inc. 144A sr. sub. notes 13 1/2s, 2009 77,291
-------------
1,640,701
Restaurants (0.7%)
-------------------------------------------------------------------------------------------------------------------
30,000 Domino's, Inc. company guaranty Ser. B, 10 3/8s, 2009 32,363
100,000 Sbarro, Inc. company guaranty 11s, 2009 102,500
90,000 Tricon Global Restaurants, Inc. sr. notes 8 7/8s, 2011 95,400
160,000 Tricon Global Restaurants, Inc. sr. notes 7.65s, 2008 161,600
70,000 Tricon Global Restaurants, Inc. sr. notes 7.45s, 2005 71,400
-------------
463,263
Retail (2.6%)
-------------------------------------------------------------------------------------------------------------------
80,000 Amazon.com, Inc. sr. sub. notes stepped-coupon zero %
(10s, 5/1/03), 2008 (STP) 73,600
160,000 Autonation, Inc. company guaranty 9s, 2008 168,400
110,000 Fleming Companies, Inc. company guaranty 10 1/8s, 2008 116,325
10,000 Fleming Companies, Inc. company guaranty Ser. D, 10 5/8s, 2007 10,350
100,000 Fleming Companies, Inc. 144A sr. sub. notes 9 7/8s, 2012 101,000
50,000 Great Atlantic & Pacific Tea Co. notes 7 3/4s, 2007 48,500
10,000 Iron Age Holdings Corp. sr. disc. notes stepped-coupon zero %
(12 1/8s, 5/1/03), 2009 (STP) 700
50,000 JC Penney Company, Inc. debs. 7.4s, 2037 49,313
60,000 JC Penney Company, Inc. notes 7.6s, 2007 59,400
30,000 JC Penney Company, Inc. notes 7 3/8s, 2008 29,550
60,000 JC Penney Company, Inc. notes Ser. MTNA, 7.05s, 2005 58,500
150,000 K mart Corp. 144A notes 9 7/8s, 2008 (In default) (NON) 64,500
10,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 10,000
60,000 NBTY, Inc. sr. sub. notes Ser. B, 8 5/8s, 2007 59,700
80,000 Rite Aid Corp. notes 7 1/8s, 2007 55,200
280,000 Saks, Inc. company guaranty 8 1/4s, 2008 278,600
500,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 465,000
40,000 Tommy Hilfiger USA, Inc. company guaranty 6 1/2s, 2003 40,100
-------------
1,688,738
Technology (2.0%)
-------------------------------------------------------------------------------------------------------------------
40,000 Fairchild Semiconductor International, Inc. company guaranty
10 3/8s, 2007 42,700
20,000 Iron Mountain, Inc. company guaranty 8 3/4s, 2009 20,500
200,000 Iron Mountain, Inc. company guaranty 8 1/8s, 2008 (Canada) 201,000
10,000 Lucent Technologies, Inc. deb. 6 1/2s, 2028 6,350
360,000 Lucent Technologies, Inc. deb. 6.45s, 2029 228,600
100,000 ON Semiconductor Corp. 144A company guaranty 12s, 2008 96,000
70,000 Polaroid Corp. sr. notes 11 1/2s, 2006 (In default) (NON) 700
60,000 SCG Holding & Semiconductor Corp. company guaranty 12s, 2009 49,200
110,000 Seagate Technology Hdd Holdings 144A sr. notes 8s, 2009 111,650
250,000 Sequa Corp. sr. notes Ser. B, 8 7/8s, 2008 247,500
90,000 Telecommunications Techniques, Inc. company guaranty 9 3/4s, 2008 18,900
64,685 Telex Communications Group, Inc. sr. sub. notes zero %, 2006
(In default) (NON) 35,577
10,000 Xerox Corp. notes 5 1/2s, 2003 9,225
230,000 Xerox Corp. 144A sr. notes 9 3/4s, 2009 212,750
10,000 Xerox Credit Corp. sr. notes 6.1s, 2003 9,200
-------------
1,289,852
Textiles (0.8%)
-------------------------------------------------------------------------------------------------------------------
100,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 (In default) (NON) 16,000
90,000 GFSI, Inc. sr. disc. notes stepped-coupon Ser. B, zero %
(11 3/8s, 9/15/04), 2009 (STP) 4,500
135,000 Kasper A.S.L., Ltd. sr. notes 12 3/4s, 2004 (In default) (NON) 25,650
120,000 Levi Strauss & Co. sr. notes 11 5/8s, 2008 124,200
80,000 Russell Corp. 144A sr. notes 9 1/4s, 2010 82,800
105,000 William Carter Holdings Co. (The) company guaranty Ser. B,
10 7/8s, 2011 114,450
230,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2005 144,900
-------------
512,500
Transportation (2.7%)
-------------------------------------------------------------------------------------------------------------------
10,000 Air Canada Corp. sr. notes 10 1/4s, 2011 (Canada) 8,000
230,000 Airbus Industries 144A notes Ser. D, 12.266s, 2020 176,413
70,000 American Airlines, Inc. bonds Ser. 01-2, Class B, 8.608s, 2011 73,798
40,000 American Airlines, Inc. 144A pass-through certificates Ser. 01-2,
Class A-2, 7.858s, 2011 42,470
100,000 AMR Corp. debs. 9s, 2012 96,000
170,000 Calair, LLC/Calair Capital Corp. company guaranty 8 1/8s, 2008 143,650
60,000 Continental Airlines, Inc. pass-through certificates Ser. D, 7.568s, 2006 52,200
70,000 Delta Air Lines, Inc. pass-through certificates Ser. 00-1, Class C,
7.779s, 2005 71,012
50,000 Delta Air Lines, Inc. pass-through certificates Ser. C, 7.779s, 2012 50,569
170,000 Kansas City Southern Railway Co. company guaranty 9 1/2s, 2008 183,600
90,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 (In default) (NON) 13,050
120,000 Navistar International Corp. company guaranty Ser. B, 9 3/8s, 2006 126,000
80,000 Navistar International Corp. sr. notes Ser. B, 8s, 2008 78,000
10,000 Northwest Airlines, Inc. company guaranty 8.52s, 2004 9,500
120,000 Northwest Airlines, Inc. company guaranty 7 5/8s, 2005 112,800
100,000 Northwest Airlines, Inc. sr. notes 9 7/8s, 2007 95,500
72,277 NWA Trust sr. notes Ser. A, 9 1/4s, 2012 72,277
170,000 RailAmerica Transportation company guaranty 12 7/8s, 2010 187,000
30,000 Transportation Manufacturing Operations, Inc. company guaranty
11 1/4s, 2009 23,100
40,000 Travel Centers of America, Inc. company guaranty 12 3/4s, 2009 44,000
110,000 US Air, Inc. pass-through certificates Ser. 93A3, 10 3/8s, 2013 70,400
-------------
1,729,339
Utilities & Power (4.2%)
-------------------------------------------------------------------------------------------------------------------
60,000 AES Corp. (The) notes 8 3/4s, 2008 45,600
250,000 AES Corp. (The) sr. notes 9 3/8s, 2010 193,750
20,000 AES Corp. (The) sr. notes 8 7/8s, 2011 14,800
110,000 Calpine Canada Energy Finance company guaranty 8 1/2s,
2008 (Canada) 91,025
90,000 Calpine Corp. sr. notes 10 1/2s, 2006 79,200
10,000 Calpine Corp. sr. notes 8 3/4s, 2007 8,000
150,000 Calpine Corp. sr. notes 8 5/8s, 2010 120,000
300,000 Calpine Corp. sr. notes 8 1/2s, 2011 240,000
60,000 Calpine Corp. sr. notes 7 7/8s, 2008 49,200
130,000 CMS Energy Corp. sr. notes 8.9s, 2008 126,750
60,000 CMS Energy Corp. sr. notes 8 1/2s, 2011 57,600
40,000 CMS Energy Corp. sr. notes Ser. B, 6 3/4s, 2004 38,400
60,000 Edison Mission Energy sr. notes 10s, 2008 60,900
295,000 Midland Funding II debs. Ser. A, 11 3/4s, 2005 315,650
210,000 Mission Energy Holding Co. sec. notes 13 1/2s, 2008 218,400
90,000 Mission Resources Corp. company guaranty Ser. C, 10 7/8s, 2007 81,450
70,000 Pacific Gas & Electric Co. 144A sr. notes 7 3/8s, 2005 (In default) (NON) 70,000
160,000 Southern California Edison Co. notes 8.95s, 2003 161,200
20,000 Southern California Edison Co. notes 6 3/8s, 2006 19,000
150,000 Tiverton/Rumford Power Associates, LP 144A pass-through certificates
9s, 2018 123,000
125,000 Western Resources, Inc. 144A 1st mtge. 7 7/8s, 2007 124,574
105,000 Western Resources, Inc. 144A sr. notes 9 3/4s, 2007 103,750
360,000 York Power Funding 144A notes 12s, 2007 (Cayman Islands)
(In default) (NON) 331,200
-------------
2,673,449
-------------
Total Corporate Bonds and Notes (cost $63,346,043) $ 53,722,568
PREFERRED STOCKS (3.2%) (a)
NUMBER OF SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
7,806 AmeriKing, Inc. $3.25 cum. pfd. (PIK) $ 78
5,075 Chevy Chase Preferred Capital Corp. Ser. A, $5.188 pfd. 289,275
50,000 CSBI Capital Trust I 144A company guaranty Ser. A, 11.75%, 2027 56,000
5,279 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 475,110
220 Delta Financial Corp. Ser. A, $10.00 cum. pfd. 2,530
66,000 Diva Systems Corp. 144A Ser. D, zero % pfd. 660
8,200 Doane Pet Care Co. $7.125 pfd. 287,000
7 Dobson Communications Corp. 13.00% pfd. 5,600
160 Dobson Communications Corp. 12.25% pfd. (PIK) 127,677
80 First Republic Capital Corp. 144A 10.50% pfd. 79,600
91 Granite Broadcasting Corp. 12.75% cum. pfd. (PIK) 62,790
66 Nextel Communications, Inc. Ser. E, 11.125% pfd. (PIK) 21,120
6,365 North Atlantic Trading Co. zero % pfd. (PIK) 108,205
51 Paxson Communications Corp. 13.25% cum. pfd. (PIK) 453,900
100 PRIMEDIA, Inc. Ser. F, $9.20 cum. pfd. 4,000
338 Rural Cellular Corp. 12.25% pfd. (PIK) 84,611
-------------
Total Preferred Stocks (cost $3,007,136) $ 2,058,156
FOREIGN GOVERNMENT BONDS AND NOTES (2.9%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$ 42,450 Argentina (Republic of) bonds Ser. 2018, 2.89s, 2018 (In default) (NON) $ 8,490
80,000 Brazil (Federal Republic of) bonds 10 1/8s, 2027 55,320
90,000 Brazil (Federal Republic of) notes 14 1/2s, 2009 89,685
75,000 Brazil (Federal Republic of) notes 11s, 2012 60,938
65,000 Brazil (Federal Republic of) unsub. notes 11s, 2040 47,548
175,000 Bulgaria (Republic of) 144A bonds 8 1/4s, 2015 171,938
50,000 Colombia (Republic of) bonds 11 3/4s, 2020 49,500
EUR 15,000 Colombia (Republic of) notes Ser. EMTN, 11 1/2s, 2011 13,936
$ 15,000 Colombia (Republic of) unsub. bonds Ser. 15A, 11 3/8s, 2008 13,999
20,000 Ecuador (Republic of) bonds Ser. REGS, 12s, 2012 15,050
40,000 Ecuador (Republic of) bonds stepped-coupon Ser. REGS, 5s
(6s, 8/15/02), 2030 (STP) 20,500
10,000 Malaysia (Government of) bonds 7 1/2s, 2011 10,570
14,850 Peru (Republic of) bonds Ser. PDI, 4s, 2017 11,491
60,000 Russia (Federation of) bonds 12 3/4s, 2028 73,950
105,000 Russia (Federation of) unsub. notes 10s, 2007 112,875
115,000 Russia (Federation of) unsub. notes 8 1/4s, 2010 113,850
525,000 Russia (Federation of) unsub. stepped-coupon 5s
(7 1/2s, 3/31/07), 2030 (STP) 376,163
45,000 South Africa (Republic of) notes 7 3/8s, 2012 45,225
15,000 Turkey (Republic of) bonds 11 3/4s, 2010 15,375
20,000 Turkey (Republic of) notes 11 1/2s, 2012 20,420
140,000 United Mexican States bonds 11 3/8s, 2016 177,800
80,000 United Mexican States bonds Ser. MTN, 8.3s, 2031 79,720
25,000 United Mexican States notes 8 1/8s, 2019 24,975
155,000 United Mexican States notes Ser. A, 9 7/8s, 2010 178,250
100,000 Venezuela (Republic of) bonds 9 1/4s, 2027 68,500
-------------
Total Foreign Government Bonds and Notes (cost $1,726,585) $ 1,856,068
COMMON STOCKS (2.2%) (a)
NUMBER OF SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
384 Alderwoods Group, Inc. (NON) $ 3,168
100 AmeriKing, Inc. (NON) 1
9,148 Arch Wireless, Inc. (NON) 11
4,427 Aurora Foods, Inc. (NON) 8,898
683 Call-Net Enterprises, Inc. Class B (Canada) (NON) 505
50,942 Celcaribe SA (Colombia) (NON) 509
505,286 Contifinancial Corp. Liquidating Trust Units 22,738
3,010 Covad Communications Group, Inc. 144A (NON) 3,657
181 Delta Funding Residual Exchange Company, LLC (NON) 39,549
235 Delta Funding Residual Management, Inc. (NON) 2
4,680 Doskocil Manufacturing Company, Inc. (NON) 14,040
8,769 Fitzgerald Gaming Corp. (NON) 87
1 Imperial Credit Industries, Inc. (NON) 1
20,000 Loewen Group International, Inc. (NON) 2
310,000 Paracelsus Healthcare Corp. (NON) 31
14,327 Pioneer Companies, Inc. (NON) 28,654
244 Premium Holdings (L.P.) 144A 5,134
576 PSF Group Holdings, Inc. Class A 1,209,159
31 Quorum Broadcast Holdings, LLC Class E
(acquired 5/15/01, cost $30,765) (RES) 23,647
102 RCN Corp. (NON) 171
35 RSL Communications, Ltd. Class A (NON) 1
12,750 Specialty Foods Acquisition Corp. 144A (NON) 128
178 Sun Healthcare Group, Inc. (NON) 3,371
434 Vast Solutions, Inc. Class B1 (NON) 1,302
434 Vast Solutions, Inc. Class B2 (NON) 1,302
434 Vast Solutions, Inc. Class B3 (NON) 1,302
40,416 VS Holdings, Inc. (NON) 40,416
-------------
Total Common Stocks (cost $3,749,551) $ 1,407,786
CONVERTIBLE BONDS AND NOTES (0.7%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$ 90,000 American Tower Corp. cv. notes 5s, 2010 $ 50,742
170,000 DaVita, Inc. cv. sub. notes 7s, 2009 165,750
120,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 (In default) (NON) 600
16,000 Hexcel Corp. cv. sub. notes 7s, 2003 13,520
410,000 Nextel Communications, Inc. cv. sr. notes 5 1/4s, 2010 216,275
-------------
Total Convertible Bonds and Notes (cost $603,704) $ 446,887
BRADY BONDS (0.5%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$ 295,538 Brazil (Federal Republic of) bonds 8s, 2014 $ 221,654
25,000 Brazil (Federal Republic of) government guaranty FRB 3 1/8s, 2012 17,000
105,000 Brazil (Federal Republic of) government guaranty Ser. 30YR,
3.063s, 2024 72,062
15,000 Peru (Republic of) coll. FLIRB 3 1/4s, 2017 10,707
-------------
Total Brady Bonds (cost $345,080) $ 321,423
UNITS (0.3%) (a)
NUMBER OF UNITS VALUE
-------------------------------------------------------------------------------------------------------------------
550 Australis Media, Ltd. units 15 3/4s, 2003 (Australia) (In default) (NON) $ 55
120 Hercules Trust II units 6.50% cum. cv. pfd. 72,600
450 XCL, Ltd. 144A units 13 1/2s, 2004 (In default) (NON) 135,000
2,950 XCL, Ltd. 144A units 9.50% cum. cv. pfd. (In default) (NON) (PIK) 1,475
-------------
Total Units (cost $1,314,632) $ 209,130
WARRANTS (0.1%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
-------------------------------------------------------------------------------------------------------------------
150 Birch Telecommunications, Inc. 144A (PIK) 6/15/08 $ 2
14,500 CGA Group, Ltd. 144A 2/11/07 145
370 Colo.com, Inc. 144A 3/15/10 4
250 Comunicacion Cellular 144A (Colombia) 11/15/03 250
200 Dayton Superior Corp. 6/15/09 2,000
10 Decrane Aircraft Holdings Co. 9/30/08 1
3,286 Delta Financial Corp. 12/21/10 1
1,250 Diva Systems Corp. 144A 3/1/08 13
200 Horizon PCS, Inc. 10/1/10 250
6,691 ICG Communications, Inc. 10/15/05 67
4,023 Imperial Credit Industries, Inc. 8/1/08 4
180 Insilco Holding Co. 8/15/08 180
200 iPCS, Inc. 144A 7/15/10 200
440 Iridium World Com 144A 7/15/05 1
110 IWO Holdings, Inc. 1/15/11 3,300
210 Jostens, Inc. 5/1/10 2,100
800 KMC Telecommunications Holdings, Inc. 144A 4/15/08 8
700 Knology Holdings, Inc. 10/22/07 18
106 Leap Wireless International, Inc. 144A 4/15/10 1,590
592 Loral Space & Communications, Ltd. 12/27/06 6
815 McCaw International, Ltd. 4/15/07 8
180 Mediq, Inc. 144A 6/1/09 2
70 Mikohn Gaming Corp. 144A 8/15/08 140
200 Orbital Imaging Corp. 144A 3/1/05 1
6,900 Pagemart, Inc. 144A 12/31/03 69
80 Pliant Corp. 144A 6/1/10 160
300 Raintree Resort 144A 12/1/04 3
155 Sterling Chemicals Holdings 8/15/08 93
447 Sun Healthcare Group, Inc. 2/28/05 45
90 Telehub Communications Corp. 144A 7/31/05 1
121 Telex Communications Group, Inc. 3/30/07 1
120 Travel Centers of America, Inc. 144A 5/1/09 1
350 Ubiquitel, Inc. 144A 4/15/10 8,745
1,045 UIH Australia/Pacific, Inc. 144A 5/15/06 10
3,700 United Artists Theatre 3/2/08 29,600
1,500 USN Communications Inc. 8/15/04 1
260 Veraldo Holdings, Inc. 144A 4/15/08 3
10 Versatel Telecom NV (Netherlands) 5/15/08 5
190 XM Satellite Radio Holdings, Inc. 144A 3/15/10 190
-------------
Total Warrants (cost $653,962) $ 49,218
CONVERTIBLE PREFERRED STOCKS (--%) (a)
NUMBER OF SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
1,400 LTV Corp. 144A $4.125 cv. pfd. (In default) (NON) $ 175
3,069 Telex Communications, Inc. zero % cv. pfd. (In default) (NON) 3,069
36 World Access, Inc. 144A Ser. D, zero % cv. pfd. 9
580 XCL, Ltd. 144A Ser. A, 9.50% cum. cv. pfd. (In default) (NON) (PIK) 290
-------------
Total Convertible Preferred Stocks (cost $175,705) $ 3,543
SHORT-TERM INVESTMENTS (6.7%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$ 3,657 Short-term investments held as collateral for loaned securities with
yields ranging from 1.78% to 1.85% and due dates ranging from
June 3, 2002 to July 30, 2002 (d) $ 3,655
4,298,197 Short-term investments held in Putnam commingled cash account
with yields ranging from 1.74% to 1.83% and due dates ranging from
June 3, 2002 to July 29, 2002 (d) 4,298,197
-------------
Total Short-Term Investments (cost $4,301,852) $ 4,301,852
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $79,224,250) (b) $ 64,376,631
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $63,825,828.
(b) The aggregate identified cost on a tax basis is $79,441,041,
resulting in gross unrealized appreciation and depreciation of
$1,960,090 and $17,024,500, respectively, or net unrealized depreciation
of $15,064,410.
(DEF) Security is in default of principal and interest.
(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 accruing
interest income at this rate.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at May 31, 2002 was
$462,348 or 0.7% of net assets.
(PIK) Income may be received in cash or additional securities at the
discretion of the issuer.
(R) Real Estate Investment Trust.
(d) See footnote 1 to the financial statements.
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.
FLIRB represents Front Loaded Interest Reduction Bond.
The rates shown on Floating Rate Bonds (FRB) and Floating Rate
Notes (FRN) are the current interest rates shown at May 31, 2002, which
are subject to change based on the terms of the security.
------------------------------------------------------------------------------
Written Options Outstanding at May 31, 2002
(premiums received $169,993)
Expiration Date/ Market
Contract amount Strike Price Value
------------------------------------------------------------------------------
$990,000 JP Morgan HYDI Index
8.75 bond OTC
option (Morgan
Guaranty Trust)
(Put) May 07/100 USD $189,288
------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF ASSETS AND LIABILITIES
May 31, 2002
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value, including $3,211 of securities on loan
(identified cost $79,224,250) (Note 1) $ 64,376,631
-------------------------------------------------------------------------------------------
Cash 90,511
-------------------------------------------------------------------------------------------
Dividends, interest and other receivables 1,353,352
-------------------------------------------------------------------------------------------
Receivable for securities sold 534,094
-------------------------------------------------------------------------------------------
Total assets 66,354,588
Liabilities
-------------------------------------------------------------------------------------------
Distributions payable to shareholders 510,426
-------------------------------------------------------------------------------------------
Payable for securities purchased 1,653,621
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 123,206
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 23,185
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 19,021
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 988
-------------------------------------------------------------------------------------------
Written options outstanding, at value (premiums received
$169,993) (Notes 1 and 3) 189,288
-------------------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 3,655
-------------------------------------------------------------------------------------------
Other accrued expenses 5,370
-------------------------------------------------------------------------------------------
Total liabilities 2,528,760
-------------------------------------------------------------------------------------------
Net assets $ 63,825,828
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Note 1) $105,295,260
-------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (1,179,808)
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (25,422,710)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (14,866,914)
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $ 63,825,828
Computation of net asset value
-------------------------------------------------------------------------------------------
Net asset value per share ($63,825,828 divided by 7,507,107
shares) $8.50
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF OPERATIONS
Year ended May 31, 2002
Investment income:
-------------------------------------------------------------------------------------------
Interest $ 6,912,760
-------------------------------------------------------------------------------------------
Dividends 312,350
-------------------------------------------------------------------------------------------
Securities lending 141
-------------------------------------------------------------------------------------------
Total investment income 7,225,251
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 497,946
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 160,924
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 9,734
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 5,931
-------------------------------------------------------------------------------------------
Other 113,934
-------------------------------------------------------------------------------------------
Total expenses 788,469
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (1,636)
-------------------------------------------------------------------------------------------
Net expenses 786,833
-------------------------------------------------------------------------------------------
Net investment income 6,438,418
-------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (9,808,431)
-------------------------------------------------------------------------------------------
Net realized gain on written options (Notes 1 and 3) 14,401
-------------------------------------------------------------------------------------------
Net realized and unrealized loss on foreign currency
transactions (Note 1) (879)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and written options
during the year 3,409,809
-------------------------------------------------------------------------------------------
Net loss on investments (6,385,100)
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 53,318
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF CHANGES IN NET ASSETS
Year ended May 31
----------------------------------
2002 2001
-------------------------------------------------------------------------------------------------------
Decrease in net assets
-------------------------------------------------------------------------------------------------------
Operations:
-------------------------------------------------------------------------------------------------------
Net investment income $ 6,438,418 $ 8,694,566
-------------------------------------------------------------------------------------------------------
Net realized loss on investments and foreign currency
transactions (9,794,916) (6,814,174)
-------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments and assets
and liabilities in foreign currencies during the year 3,409,816 (3,799,510)
-------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 53,318 (1,919,118)
-------------------------------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
-------------------------------------------------------------------------------------------------------
From net investment income (6,527,642) (8,767,402)
-------------------------------------------------------------------------------------------------------
From return of capital (911,084) --
-------------------------------------------------------------------------------------------------------
Total decrease in net assets (7,385,408) (10,686,520)
Net assets
-------------------------------------------------------------------------------------------------------
Beginning of year 71,211,236 81,897,756
-------------------------------------------------------------------------------------------------------
End of year (including distributions in excess of net investment
income of $1,179,808 and $983,040, respectively) $63,825,828 $71,211,236
-------------------------------------------------------------------------------------------------------
Number of fund shares
-------------------------------------------------------------------------------------------------------
Shares outstanding at beginning and end of year 7,507,107 7,507,107
-------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
-----------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended May 31
-----------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
-----------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $9.49 $10.91 $12.30 $14.83 $14.08
-----------------------------------------------------------------------------------------------------
Investment operations:
-----------------------------------------------------------------------------------------------------
Net investment income (a) .86 1.16 1.16 1.24 1.44
-----------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.86) (1.41) (1.27) (2.23) .69
-----------------------------------------------------------------------------------------------------
Total from
investment operations --(d) (.25) (.11) (.99) 2.13
-----------------------------------------------------------------------------------------------------
Less distributions:
-----------------------------------------------------------------------------------------------------
From net
investment income (.87) (1.17) (1.21) (1.38) (1.38)
-----------------------------------------------------------------------------------------------------
From net realized
gain on investments -- -- -- (.16) --
-----------------------------------------------------------------------------------------------------
From return of capital (.12) -- (.07) -- --
-----------------------------------------------------------------------------------------------------
Total distributions (.99) (1.17) (1.28) (1.54) (1.38)
-----------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.50 $9.49 $10.91 $12.30 $14.83
-----------------------------------------------------------------------------------------------------
Market value,
end of period $9.48 $10.80 $10.19 $13.50 $15.38
-----------------------------------------------------------------------------------------------------
Total return at
market value (%)(b) (2.91) 18.34 (15.61) (2.30) 16.96
-----------------------------------------------------------------------------------------------------
Ratios and supplemental data
-----------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $63,826 $71,211 $81,898 $92,368 $111,333
-----------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.19 1.14 1.08 1.11 1.05
-----------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 9.69 11.41 9.92 9.50 9.75
-----------------------------------------------------------------------------------------------------
Portfolio turnover (%) 73.39 97.63 97.22 47.56 85.45
-----------------------------------------------------------------------------------------------------
(a) Per share net investment income has been determined on the basis
of the weighted number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment.
(c) Includes amounts paid through expense offset arrangements (Note 2).
(d) Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
May 31, 2002
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 accounting
principles generally accepted in the United States of America and requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities in the financial statements and the
reported amounts of increases and decreases in net assets from operations
during the reporting period. 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 sales price on its principal exchange, or if no sales are reported
-- as in the case of some securities traded over-the-counter -- the last
reported bid price. Securities quoted in foreign currencies are translated
into U.S. dollars at the current exchange rate. Short-term investments
having remaining maturities of 60 days or less are stated at amortized
cost, which approximates market value. 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 debt obligations; such investments are stated
at fair value on the basis of valuations furnished by an independent
pricing service or dealers, approved by the Trustees, which determine
valuations for normal institutional-size trading units of such securities
using methods based on market transactions for comparable securities and
variable relationships, generally recognized by institutional traders,
between securities.
B) Joint trading account The fund may transfer uninvested cash balances,
including cash collateral received under security lending arrangements,
into a joint trading account along with the cash of other registered
investment companies and certain other accounts managed by Putnam
Investment Management, LLC ("Putnam Management"), the fund's manager, an
indirect wholly-owned subsidiary of Putnam, LLC. These balances may be
invested in issuers of high-grade short-term investments having
maturities of up to 397 days for collateral received under security
lending arrangements and up to 90 days for other cash investments.
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). Gains or losses on securities sold are determined
on the identified cost basis.
Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date. Non-cash dividends, if any, are recorded
at the fair market value of the securities received. All premiums/
discounts are amortized/accreted on a yield-to-maturity basis.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when accrued or incurred. The
fund does not isolate that portion of realized or unrealized gains or
losses resulting from changes in the foreign exchange rate on
investments from fluctuations arising from changes in the market prices
of the securities. Such gains and losses are included with the net
realized and unrealized gain or loss on investments. Net realized gains
and losses on foreign currency transactions represent net realized
exchange gains or losses on closed forward currency contracts,
disposition of foreign currencies and the difference between the amount
of investment income and foreign withholding taxes recorded on the
fund's books and the U.S. dollar equivalent amounts actually received or
paid. Net unrealized appreciation and depreciation of assets and
liabilities in foreign currencies arise from changes in the value of
open forward currency contracts and assets and liabilities other than
investments at the period end, resulting from changes in the exchange
rate. Investments in foreign securities involve certain risks, including
those related to economic instability, unfavorable political
developments, and currency fluctuations, not present with domestic
investments.
F) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or in which it may invest to increase its current
returns.
The potential risk to the fund is the change in value of futures and
options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed. Realized gains and losses on purchased options are included in
realized gains and losses on investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. The Fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in the value of the futures contract. Such receipts or
payments are known as "variation margin." Exchange traded options are
valued at the last sale price, or if no sales are reported, the last bid
price for purchased options and the last ask price for written options.
Options traded over-the-counter are valued using prices supplied by
dealers.
G) Security lending The fund may lend securities, through its agent
Citibank N.A., to qualified borrowers in order to earn additional
income. The loans are collateralized by cash and/or securities in an
amount at least equal to the market value of the securities loaned. The
market value of securities loaned is determined daily and any additional
required collateral is allocated to the fund on the next business day.
The risk of borrower default will be borne by Citibank N.A., the fund
will bear the risk of loss with respect to the investment of the cash
collateral. Income from securities lending is included in investment
income on the Statement of operations. At May 31, 2002, the value of
securities loaned amounted to $3,211. The fund received cash collateral
of $3,655, which is pooled with collateral of other Putnam funds into 40
issuers of high-grade short-term investments.
H) 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, 2002, the fund had a capital loss carryover of approximately
$18,916,000 available to the extent allowed by tax law to offset future
capital gains, if any. The amount of the carryover and the expiration dates
are:
Loss Carryover Expiration
-------------- ------------------
$2,584,000 May 31, 2007
4,168,000 May 31, 2008
3,778,000 May 31, 2009
8,386,000 May 31, 2010
I) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Distributions from capital gains, 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. These differences include temporary and permanent differences
of losses on wash sale transactions, foreign currency gains and losses,
post-October loss deferrals, defaulted bond interest, market discount and
interest on payment-in-kind securities. 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. For the year ended May 31, 2002, the fund reclassified
$107,544 to increase distributions in excess of net investment income and
$67,014 to increase paid-in-capital, with a decrease to accumulated net
realized losses of $40,530. As of May 31, 2002, there was no undistributed
ordinary income on a tax basis.
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 the average weekly 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 wholly-owned subsidiary of Putnam,
LLC. Investor servicing agent functions are provided by Putnam Investor
Services, a division of PFTC.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. For the year ended May 31, 2002, the
fund's expenses were reduced by $1,636 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $473 has been allocated to the fund, and an additional fee for
each Trustees meeting attended. 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
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 a 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 year ended May 31, 2002, cost of purchases and proceeds from
sales of investment securities other than U.S. government obligations and
short-term investments aggregated $45,664,290 and $49,134,822,
respectively. There were no purchases and sales of U.S. government
obligations.
Written option transactions during the year are summarized as follows:
Contract Premiums
Amounts Received
---------------------------------------------------------------------------
Written options outstanding
at beginning of year $ -- $ --
---------------------------------------------------------------------------
Options opened 1,990,000 349,613
Options closed (1,000,000) (179,620)
---------------------------------------------------------------------------
Written options outstanding
at end of year $ 990,000 $ 169,993
---------------------------------------------------------------------------
Note 4
New accounting pronouncement
As required, the fund has adopted the provisions of the AICPA Audit and
Accounting Guide, Audits of Investment Companies. This Guide requires
that the fund amortize premiums and accrete discounts on all
fixed-income securities, and classify as interest income gains and
losses realized on paydowns on mortgage-backed securities. Prior to June
1, 2001, the fund did not amortize premiums for certain fixed-income
securities. Adopting these accounting principles did not affect the
fund's net asset value, but did change the classification of certain
amounts between interest income and realized and unrealized gain/loss in
the Statement of operations. The adoption of this principle was not
material to the financial statements.
FEDERAL TAX INFORMATION
(Unaudited)
The Form 1099 you receive in January 2003 will show the tax status of
all distributions paid to your account in calendar 2002.
For the year ended May 31, 2002, a portion of the fund's distribution
represents a return of capital and is therefore not taxable to
shareholders.
The fund has designated 1.49% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
TRUSTEES
Name, Address, 1 Date of Birth,
Position(s) Held with Fund
and Length of Service Principal Occupation(s)
as a Putnam Fund Trustee 2 During Past 5 Years Other Directorships Held by Trustee
-------------------------------------------------------------------------------------------------------
Jameson A. Baxter (9/6/43), President, Baxter Director of ASHTA Chemicals, Inc.,
Trustee since 1994 Associates, Inc. Banta Corporation (a printing and
(a management digital imaging firm), Intermatic
consulting and private Corporation (manufacturer of energy
investments firm) control products), Ryerson Tull, Inc.
(a steel service corporation),
Advocate Health Care, and the
National Center for Nonprofit
Boards. Chairman Emeritus
of the Board of Trustees, Mount
Holyoke College. Also held various
positions in investment banking and
corporate finance, including Vice
President and principal of the
Regency Group and consultant to
First Boston Corp.
Charles B. Curtis (4/27/40), President and Chief Member of the Council on Foreign
Trustee since 2001 Operating Officer, Relations, the Electric Power
Nuclear Threat Research Institute Advisory Council,
Initiative (a private the Board of Directors of the Gas
foundation dedicated Technology Institute, the University
to reducing the threat of Chicago Board of Governors for
of weapons of mass Argonne National Laboratory, the
destruction), also serves Board of Directors of the
as Senior Advisor to the Environment and Natural Resources
United Nations Program Steering Committee,
Foundation John F. Kennedy School of
Government, Harvard University.
Prior to 2002, Mr. Curtis was a
member of the Board of Directors of
the Gas Technology Institute. Until
2001, Mr. Curtis was a Member of
the Department of Defense's Policy
Board and Director of EG&G
Technical Services, Inc. (fossil energy
research and development support)
and prior to May 1997, Mr. Curtis
was Deputy Secretary of Energy.
John A. Hill (1/31/42), Vice-Chairman and Director of Devon Energy
Trustee since 1985 and Managing Director, Corporation (formerly known as
Chairman since 2000 First Reserve Snyder Oil Corporation),
Corporation TransMontaigne Oil Company,
(a registered investment Continuum Health Partners of
advisor investing in New York, Sarah Lawrence College,
companies in the and various private companies owned
world-wide energy by First Reserve Corporation.
industry on behalf of Trustee of TH Lee, Putnam
institutional investors) Investment Trust (a closed-end
investment company). Prior to
acquiring First Reserve in 1983,
Mr. Hill held executive positions
with several advisory firms and
various positions with the federal
government, including Associate
Director of the Office of Manage
ment and Budget and Deputy
Director of the Federal Energy
Administration.
Ronald J. Jackson Private investor Former Chairman, President, and
(12/17/43), Chief Executive Officer of Fisher-
Trustee since 1996 Price, Inc. (a toy manufacturer).
Previously served as President and
Chief Executive Officer of Stride-
Rite, Inc. and Kenner Parker Toys.
Also held financial and marketing
positions with General Mills, Parker
Brothers, and Talbots. President of
the Kathleen and Ronald J. Jackson
Foundation (charitable trust).
Member of the Board of Overseers of
WGBH (public television and radio).
Member of the Board of Overseers of
the Peabody Essex Museum.
Paul L. Joskow (6/30/47), Elizabeth and James Director, National Grid Group
Trustee since 1997 Killian Professor of (a UK-based holding company
Economics and with interests in electric power,
Management and natural gas distribution, and
Director of the Center telecommunications networks), and
for Energy and the Whitehead Institute for
Environmental Policy Biomedical Research (a non-profit
Research, Massachusetts research institution). President of the
Institute of Technology Yale University Council. Prior to
February 2002, March 2000, and
September 1998, Dr. Joskow was a
Director of State Farm Indemnity
Company (an automobile insurance
company), Director of New England
Electric System (a public utility
holding company) and a consultant
to National Economic Research
Associates, respectively.
Elizabeth T. Kennan Chairman, Cambus- Director, Northeast Utilities, and
(2/25/38), Kenneth Bloodstock (a Talbots (a distributor of women's
Trustee since 1992 limited liability company apparel). Trustee of Centre College.
involved in thoroughbred Prior to 2001, Dr. Kennan was a
horse breeding and member of the Oversight Committee
farming), President of Folger Shakespeare Library.
Emeritus of Mount Prior to September 2000, June 2000,
Holyoke College and November 1999, Dr. Kennan
was a Director of Chastain Real
Estate, Bell Atlantic, and Kentucky
Home Life Insurance, respectively.
Prior to 1995, Dr. Kennan was a
Trustee of Notre Dame University.
For 12 years, she was on the faculty
of Catholic University.
John H. Mullin, III Chairman and CEO Director Alex. Brown Realty, Inc.,
(6/15/41), of Ridgeway Farm The Liberty Corporation (a company
Trustee since 1997 (a limited liability engaged in the broadcasting
company engaged in industry), and Progress Energy, Inc.
timber and farming) (a utility company, formerly known
as Carolina Power & Light). Trustee
Emeritus of Washington & Lee
University. Prior to October 1997,
January 1998, and May 2001, Mr.
Mullin was a Director
of Dillon, Read and Co. Inc.,
The Ryland Group, Inc., and
Graphic Packaging International
Corp., respectively.
Robert E. Patterson Senior Partner of Cabot Chairman of the Joslin Diabetes
(3/15/45), Properties, LLP and Center, Trustee of SEA Education
Trustee since 1984 Chairman of Cabot Association, and Director of
Properties, Inc. Brandywine Trust Company (a trust
company). Prior to February 1998,
Mr. Patterson was Executive Vice
President and Director of
Acquisitions of Cabot Partners
Limited Partnership. Prior to
December 2001, Mr. Patterson was
President and Trustee of Cabot
Industrial Trust (publicly traded real
estate investment trust). Prior to
1990, Mr. Patterson was Executive
Vice President of Cabot, Cabot &
Forbes Realty Advisors, the
predecessor of Cabot Partners, and
prior to that was Senior Vice
President of the Beal Companies.
W. Thomas Stephens Corporate Director Director of Qwest Communications
(9/2/42), (communications company), Xcel
Trustee since 1997 Energy Incorporated (public utility
company), TransCanada Pipelines,
Norske Canada, Inc. (paper
manufacturer) and Mail-Well
(printing and envelope company).
Prior to July 2001 and October 1999,
Mr. Stephens was Chairman of Mail-
Well and MacMillan-Bloedel (forest
products company). Prior to 1996,
Mr. Stephens was Chairman and
Chief Executive Officer of
Johns Manville.
W. Nicholas Thorndike Director of various Trustee of Northeastern University and
(3/28/33), corporations and Honorary Trustee of Massachusetts
Trustee since 1992 charitable General Hospital. Prior to
organizations, September 2000, April 2000, and
including Courier December 2001, Mr. Thorndike was
Corporation (a book a Director of Bradley Real Estate,
manufacturer) and Inc., a Trustee of Eastern Utilities
Providence Journal Co. Associates, and a Trustee of Cabot
(a newspaper publisher) Industrial Trust, respectively.
Previously served as Chairman of the
Board and managing partner of
Wellington Management/Thorndike
Doran Paine & Lewis, and Chairman
and Director of Ivest Fund.
Lawrence J. Lasser* President and Chief Director of Marsh & McLennan
(11/1/42), Executive Officer Companies, Inc. and the United Way
Trustee since 1992 of Putnam of Massachusetts Bay. Member of the
Vice President since 1981 Investments, LLC, Board of Governors of the Investment
and Putnam Investment Company Institute, Trustee of the
Management, LLC Museum of Fine Arts, Boston, a
Trustee and Member of the Finance
and Executive Committees of Beth
Israel Deaconess Medical Center,
Boston, and a Member of the
CareGroup Board of Managers
Investment Committee, the Council
on Foreign Relations, and the
Commercial Club of Boston.
George Putnam, III* President, New Director of The Boston Family
(8/10/51), Generation Research, Office, L.L.C. (registered investment
Trustee since 1984 and Inc. (a publisher of advisor), Trustee of the SEA
President since 2000 financial advisory and Education Association, Trustee of
other research services St. Mark's School, and Trustee of
relating to bankrupt and Shore Country Day School.
distressed companies) Previously, Mr. Putnam was an
and New Generation attorney with the firm of Dechert
Advisers, Inc. Price & Rhoads.
(a registered
investment adviser)
A.J.C. Smith (4/13/34),* Director of Marsh & Director of Trident Corp. (a limited
Trustee since 1986 McLennan partnership with over 30 institutional
Companies, Inc. investors). Trustee of the Carnegie
Hall Society, the Educational
Broadcasting Corporation and the
National Museums of Scotland.
Chairman of the Central Park
Conservancy. Member of the Board
of Overseers of the Joan and
Sanford I. Weill Graduate School
of Medical Sciences of Cornell
University. Fellow of the Faculty of
Actuaries in Edinburgh, the
Canadian Institute of Actuaries, and
the Conference of Actuaries.
Associate of the Society of Actuaries.
Member of the American Actuaries,
the International Actuarial
Association and the International
Association of Consulting Actuaries.
Prior to May 2000 and November
1999, Mr. Smith was Chairman and
CEO, respectively, of Marsh &
McLennan Companies, Inc.
--------------------------------------------------------------------------------------------------------
1 The address of each Trustee is One Post Office Square, Boston, MA 02109. As of May 31, 2002, there
were 113 Putnam Funds.
2 Each Trustee serves for an indefinite term, until his or her resignation, death, or removal.
* Trustees who are or may be deemed to be "interested persons" (as defined in the Investment Company Act
of 1940) of the fund, Putnam Management or Putnam Retail Management. Messrs. Putnam, III, Lasser, and
Smith are deemed "interested persons" by virtue of their positions as officers or shareholders of the
fund, or officers of Putnam Management, Putnam Retail Management, or Marsh & McLennan Companies, Inc.,
the parent company of Putnam Management and Putnam Retail Management. George Putnam, III, is the
President of your Fund and each of the other Putnam Funds. Lawrence J. Lasser has been the President,
Chief Executive Officer, and a Director of Putnam Investments, LLC, and Putnam Management since 1985,
having begun his career there in 1969. Mr. Lasser currently also serves as a Director of Marsh &
McLennan Companies, Inc., the parent company of Putnam Management. A.J.C. Smith is a Director of
Marsh & McLennan Companies, Inc.
OFFICERS
Name, Address, 1 Date of Birth, Inception of Service
Position(s) Held with Fund with the Putnam Funds Principal Occupation(s) During Past 5 Years
---------------------------------------------------------------------------------------------------------------
Charles E. Porter (7/26/38), Since 1989 Managing Director, Putnam Investments,
Executive Vice President, LLC and Putnam Management
Treasurer & Principal
Financial Officer
Patricia C. Flaherty Since 1993 Senior Vice President, Putnam
(12/1/46), Investments, LLC and Putnam Management
Senior Vice President
Michael T. Healy (1/24/58), Since 2000 Managing Director, Putnam
Assistant Treasurer and Investments, LLC
Principal Accounting
Officer
Gordon H. Silver (7/3/47), Since 1990 Senior Managing Director, Putnam
Vice President Investments, LLC and Putnam Management
Brett C. Browchuk Since 1994 Managing Director, Putnam Investments,
(2/27/63), Vice President LLC and Putnam Management
Ian Ferguson (7/3/57), Since 1997 Senior Managing Director, Putnam
Vice President Investments, LLC and Putnam Management
Richard G. Leibovitch Since 1999 Managing Director of Putnam Investments,
(10/31/63), Vice President LLC and Putnam Management. Prior to
February 1999, Managing Director at
J.P. Morgan.
Richard A. Monaghan Since 1998 Managing Director, Putnam Investments,
(8/25/54), LLC, Putnam Management and Putnam
Vice President Retail Management
John R. Verani Since 1988 Senior Vice President, Putnam
(6/11/39), Investments, LLC and Putnam Management
Vice President
Stephen M. Oristaglio Since 1998 Senior Managing Director of Putnam
(8/21/55), Investments LLC and Putnam
Vice President Management.
Kevin M. Cronin Since 2001 Managing Director of Putnam
(6/13/61), Management. Prior to February 1997,
Vice President Vice President and Fund Manager, MFS
Investment Management.
Stephen C. Peacher, Since 2000 Managing Director of Putnam
(6/15/64), Management.
Vice President
---------------------------------------------------------------------------------------------------------------
1 The address of each Officer is One Post Office Square, Boston, MA 02109.
FUND INFORMATION
ABOUT PUTNAM INVESTMENTS
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition and
practice since 1830. Founded 65 years ago, Putnam Investments was built
around the concept that a balance between risk and reward is the hallmark
of a well-rounded financial program. We presently manage over 100 mutual
funds in growth, value, blend, fixed income, and international.
INVESTMENT MANAGER
Putnam Investment Management, LLC
One Post Office Square
Boston,MA 02109
MARKETING SERVICES
Putnam Retail Management
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
KPMG LLP
TRUSTEES
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam, III
President
Charles E. Porter
Executive Vice President and Treasurer
Patricia C. Flaherty
Senior Vice President
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen M. Oristaglio
Vice President
Stephen C. Peacher
Vice President
Richard G. Leibovitch
Vice President
Richard A. Monaghan
Vice President
John R. Verani
Vice President
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or
visit our Web site (www.putnaminvestments.com) anytime for up-to-date
information about the fund's NAV.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
---------------------
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
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For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
79314 590 7/02