Putnam
Managed
High Yield
Trust
Item 1. Report to Stockholders:
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The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
11-30-04
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[SCALE LOGO OMITTED]
From the Trustees
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM, III]
John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
During the past several months, Putnam has introduced a number of
reforms for the benefit of shareholders, including increasing the amount
of disclosure for our funds. We are now including additional information
about your fund's management team. Following the Outlook for Your Fund,
we list any changes in your fund's Portfolio Leader and Portfolio
Members during the prior year period, as well as the current Portfolio
Leader's and Portfolio Members' other fund management responsibilities
at Putnam. We also show how much these individuals have invested in the
fund (in dollar ranges). Fund ownership (in dollar ranges) is also being
shown for the members of Putnam's Executive Board.
We are also pleased to announce that three new Trustees have joined your
fund's Board of Trustees. Nominated by your fund's independent Trustees,
these individuals have had outstanding careers as leaders in the
investment management industry. Myra R. Drucker is a Vice Chair of the
Board of Trustees of Sarah Lawrence College and serves as Chair of the
New York Stock Exchange (NYSE) Pension Managers Advisory Committee and
as a Trustee of Commonfund, a not-for-profit asset management firm.
Richard B. Worley is Managing Partner of Permit Capital LLC, an
investment management firm. Both Ms. Drucker and Mr. Worley are
independent Trustees (i.e., Trustees who are not "interested persons" of
your fund or its investment advisor). Charles E. Haldeman, Jr., the
third new Trustee, is President and Chief Executive Officer of Putnam
Investments.
During the period covered by the following report, Putnam Managed High
Yield Trust delivered respectable results. In the following pages, the
fund managers discuss fund performance, strategy, and their outlook for
fiscal 2005.
We thank you for your support of the Putnam funds throughout 2004 and
wish you all the best in 2005.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
January 19, 2005
Report from Fund Management
Fund highlights
* For the six months ended November 30, 2004, Putnam Managed High Yield
Trust had total returns of 9.27% at net asset value (NAV) and 9.87% at
market price.
* The fund's primary benchmark, the JP Morgan Developed High Yield
Index, returned 8.75% for the same period.
* The average return for the fund's Lipper category, High Current Yield
Funds (closed-end), was 9.91%.
* The fund's monthly dividend was reduced to $0.049 per share, effective
December 2004. See page 5 for more information.
* See the Performance Summary beginning on page 9 for complete fund
performance, comparative performance, and Lipper data.
Performance commentary
During the past six months, your fund benefited from a continuation of
the positive environment for high-yield bonds that has existed for the
past several years. As the period began, the bond market as a whole was
volatile due to reports of stronger growth and the increased likelihood
that the Federal Reserve Board would raise interest rates. However, as
the period progressed, high-yield bonds led the market. Fund
management's successful security selection and emphasis on the
strong-performing, lower-quality portion of the market enabled the fund
to outperform its benchmark index. Although the fund underperformed its
Lipper peer group average, comparisons in this category can be
misleading because it contains only eight funds, some of which use
leverage to boost returns. It is important to note that a fund's
performance at market price may differ from its results at NAV. Although
market price performance generally reflects investment re sults, it may
also be influenced by several other factors, including changes in in ves
t or perceptions of the fund or its investment advisor, market
conditions, fluctuations in supply and demand for the fund's shares, and
changes in fund distributions.
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TOTAL RETURN FOR
PERIODS ENDED 11/30/04
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Market
(inception 6/25/93) NAV price
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6 months 9.27% 9.87%
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1 year 12.73 9.03
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5 years 28.11 19.43
Annual average 5.08 3.61
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10 years 97.03 91.98
Annual average 7.02 6.74
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Annual average
(life of fund) 6.33 4.76
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Data is historical. Past performance does not guarantee future results.
More recent returns may be less or more than those shown. Invest ment
return, net asset value, and market price will fluctuate and you may
have a gain or a loss when you sell your shares. Performance as sumes
reinvestment of distributions and does not account for taxes.
FUND PROFILE
Putnam Managed High Yield Trust seeks high current income and, as a
secondary objective, capital growth, by investing in corporate
high-yield bonds. The fund is designed for investors seeking higher
fixed-income returns and who are willing to accept the added risks of
investing in below-investment-grade bonds.
Market overview
Over the past six months, high-yield bonds benefited from continued
economic growth and declining default rates. The economy's strength was
not always apparent, however, and stock and bond investors tended to
overreact to economic news both positively and negatively. The
high-yield market's strong performance has reflected investors'
generally positive assessment of the creditworthiness of high-yield
issuers. After default rates peaked in January 2002, overall credit
quality for high-yield bonds steadily improved. This improved quality
has been illustrated by the continued narrowing in the credit yield
spread, which is the yield difference between high-yield bonds and
Treasuries.
The fund's fiscal year began on a difficult note, as strong employment
gains in the prior month caused a sharp sell-off in all sectors of the
bond market, including high yield. Bond investors soon regained their
optimism, however, and yields across the board began a steady decline
that lasted through the end of the period. High-yield bonds were
particularly appealing to investors because of the higher income they
pay, and the continued financial improvement among many issuers. Demand
for high-yield bonds remained strong throughout the period, driven both
by money coming into the market as well as by reinvestment needs created
by bonds being called, tendered, and upgraded. New issuance, while
active, was not able to fully satisfy the demand for high-yield bonds.
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MARKET SECTOR PERFORMANCE 6 MONTHS ENDED 11/30/04
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Bonds
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JP Morgan Developed High Yield Index (global high-yield
corporate bonds) 8.75%
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Lehman Aggregate Bond Index (broad bond market) 3.82%
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Lehman GNMA Index (Government National Mortgage Association
bonds) 3.91%
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Citigroup World Government Bond Index (global government
bonds) 10.40%
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Equities
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S&P 500 Index (broad stock market) 5.68%
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Russell 2000 Index (stocks of small and midsize companies) 12.18%
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MSCI EAFE Index (international stocks) 12.58%
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These indexes provide an overview of performance in different market
sectors for the six months ended 11/30/04.
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Strategy overview
During the six-month period, we continued to seek bonds from a variety
of sectors in our efforts to enhance the fund's performance while
managing its risk exposure. Throughout much of fiscal 2003, we had
increased the fund's holdings of bonds that were in the lower-quality
portion of the market -- namely, those with CCC ratings. However,
although the fund remains overweighted in these securities relative to
its benchmark index, we have reduced this overweight because prices had
increased significantly. This reduction process began during the summer
months and continued through period-end.
Our allocation to the lower-rated portion of the market has provided
significant benefits to the fund. First, with the strengthening of the
economy, companies that issued lower-quality bonds were seeing
improvements in their businesses, reducing the risk that they would be
unable to make interest payments on their debt. As the business
prospects and financial results of these companies have improved with
the growing economy, their bonds have appreciated in price. Secondly,
with interest rates in the high-yield market having declined over the
past several years, we felt that the higher yields provided by the
lower-rated segment of the market would attract investors, bolster
demand for these securities, and contribute strongly to overall returns
-- which, in fact, is what occurred during the period. Finally,
higher-yielding, lower-quality bonds are typically less sensitive to
interest-rate changes, which we feel positions the fund appropriately
for any potential sharp rate increases in the future.
[GRAPHIC OMITTED: horizontal bar chart TOP SECTOR WEIGHTINGS COMPARED]
TOP SECTOR WEIGHTINGS COMPARED
as of as of
5/31/04 11/30/04
Utilities and power 8.2% 7.5%
Chemicals 5.9% 6.5%
Telecommunications 5.6% 4.9%
Publishing 3.8% 4.7%
Gaming and lottery 5.5% 4.3%
Footnote reads:
This chart shows how the fund's top weightings have changed over the
last six months. Weightings are shown as a percentage of net assets.
Holdings will vary over time.
How fund holdings affected performance
As part of our team approach to managing the portfolio, we employed
significant research resources to find bonds that we believed would add
as much value as possible, while remaining mindful of credit risk. In
the utilities and power sector, which generally performed well for the
fund as the sector continued to recover from its previous overexpansion,
securities issued by Edison Mission Energy, a subsidiary of Edison
International, were among the fund's strongest performers. Edison, which
owns California's second-largest electric utility, Southern California
Edison, also owns Edison Mission Energy. After poor performance in 2002,
the company sold assets and shored up its balance sheet, which drove
strong returns for a number of Edison Mission securities. El Paso
Corporation, a pipeline and exploration and production company, made a
positive contribution. Finally, Williams Companies, a large natural gas
company serving the northwestern United States, California, Rocky
Mountain, Gulf Coast, and Eastern Seaboard markets, performed well on
significant increases in natural gas prices. The company also benefited
from management's focus on balance sheet improvements, which involved
focusing on core pipeline business, selling nonproductive assets, and
paying down debt. In the communications services sector, which
experienced a recovery, Qwest Communications performed well. Qwest,
which owns U.S. West, benefited from increases in DSL subscriptions and
successful cost-cutting efforts.
[GRAPHIC OMITTED: TOP HOLDINGS]
TOP HOLDINGS
(Percent of fund's net assets as of 11/30/04)
1 Dow Jones CDX HY
144A 7 3/4s, 2009 (3.5%)
Pass-through certificates
Other
2 PSF Group Holdings, Inc. (1.2%)
144A Class A common stock
Food
3 Qwest Corp. (0.8%)
144A notes 9 1/8s, 2012
Communications services
4 NRG Energy, Inc. (0.7%)
144A sr. sec. notes 8s, 2013
Utilities and power
5 Canada, Inc. (Canada) (0.6%)
144A sr. sub. notes 8s, 2012
Publishing
6 Qwest Communications International,
Inc. (0.6%)
144A sr. notes 7 1/2s, 2014
Communications services
7 DPL, Inc. (0.6%)
Bonds 8 1/8s, 2031
Utilities and power
8 Crown Holdings SA (France) (0.5%)
Notes 10 7/8s, 2013
Capital goods
9 AEP Industries, Inc. (0.5%)
Sr. sub. notes 9 7/8s, 2007
Capital goods
10 THL Buildco, Inc. (Nortek, Inc.) (0.5%)
144A sr. sub. notes 8 1/2s, 2014
Building materials
Footnote reads:
The fund's holdings will change over time.
Among the detractors from performance during the period were securities
issued by Icon Health & Fitness, which manufactures equipment for the
fitness industry, and Paxson Communications, a large broadcast
television station group and owner of PAX TV, a television channel that
reaches households via broadcast, cable, and satellite networks. Icon
had disappointing financial results due to higher steel costs and weak
sales in some product lines, while Paxson had poor results as hoped-for
asset sales did not transpire. We continue to hold Icon and Paxson
because we believed as of the end of the period that the holdings were
appropriately valued.
Please note that all holdings discussed in this report are subject to
review in accordance with the fund's investment strategy and may vary in
the future.
OF SPECIAL INTEREST
Within the high-yield universe, yields are 120 basis points lower than a
year ago. As a result, your fund's monthly dividend was reduced,
effective with the December 2004 payment, from $0.054 per share to
$0.049 per share. Putnam Managed High Yield Trust has paid a
consistently strong dividend. This adjustment keeps the fund in line
with yields on other similar funds, as the portfolio tries to balance
yield with overall credit quality.
The outlook for your fund
The following commentary reflects anticipated developments that could
affect your fund over the next six months, as well as your management
team's plans for responding to them.
The fund's returns during the past six months remained significantly
higher than the historical averages for the high-yield market. Economic
conditions, though somewhat variable over the past year, have remained
generally favorable, with low inflation and moderate growth. While this
positive environment could continue into 2005, we have become more
cautious for several reasons. First, we believe the high cost of energy,
driven at least in part by geopolitical turmoil, may act like a tax on
both businesses and consumers, reducing the incentive and the ability
for both to continue spending. Additionally, performance has been strong
for high-yield bonds for the past few years and, as a result, yields are
relatively low (because bond yields move in the opposite direction of
bond prices). Moreover, credit yield spreads -- the difference between
lower- and higher-quality bond yields -- have narrowed a great deal, and
this narrowing is another sign that the market may be close to being
fully valued. We therefore believe it is unlikely that high-yield bond
prices will move significantly higher (and yields lower) from their
current levels. We also feel that default rates will likely reach a
trough in 2005, which will probably slow the momentum that high-yield
bonds have enjoyed over the past few years. That being said, we do not
foresee difficult times ahead for this sector in the coming year, as
companies remain healthy and cash flows strong. As always, we will
monitor economic and market events and make adjustments to the portfolio
that we deem necessary.
The views expressed in this report are exclusively those of Putnam
Management. They are not meant as investment advice. Mutual funds that
invest in bonds are subject to certain risks, including interest-rate
risk, credit risk, and inflation risk. As interest rates rise, the
prices of bonds fall. Long-term bonds are more exposed to interest-rate
risk than short-term bonds. Unlike bonds, bond funds have ongoing fees
and expenses. Lower-rated bonds may offer higher yields in return for
more risk.
Your fund's management
Your fund is managed by the members of the Putnam Core Fixed-Income
High-Yield Team. Stephen Peacher is the Portfolio Leader and Paul
Scanlon and Rosemary Thomsen are Portfolio Members of your fund. The
Portfolio Leader and Portfolio Members coordinate the team's management
of the fund.
For a complete listing of the members of the Putnam Core Fixed-Income
High-Yield Team, including those who are not Portfolio Leaders or
Portfolio Members of your fund, visit Putnam's Individual Investor Web
site at www.putnaminvestments.com.
Fund ownership
The table below shows how much the fund's current Portfolio Leader and
Portfolio Members have invested in the fund (in dollar ranges).
Information shown is for the current and prior year ended November 30.
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FUND PORTFOLIO LEADER AND PORTFOLIO MEMBERS
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$1 - $10,001 - $50,001- $100,001 - $500,001 - $1,000,001
Year $0 $10,000 $50,000 $100,000 $500,000 $1,000,000 and over
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Stephen Peacher 2004 *
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Portfolio Leader 2003 *
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Paul Scanlon 2004 *
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Portfolio Member 2003 *
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Rosemary Thomsen 2004 *
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Portfolio Member 2003 *
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Other funds managed by the Portfolio Leader and Portfolio Members
Stephen Peacher is also a Portfolio Leader of Putnam Floating Rate
Income Fund, Putnam High Yield Advantage Fund, and Putnam High Yield
Trust. He is also a Portfolio Member of Putnam Diversified Income Trust.
Paul Scanlon and Rosemary Thomsen are also Portfolio Members of Putnam
High Yield Advantage Fund and Putnam High Yield Trust.
Stephen Peacher, Paul Scanlon, and Rosemary Thomsen may also manage
other accounts advised by Putnam Management or an affiliate.
Changes in your fund's Portfolio Leader and Portfolio Members
During the six months ended November 30, 2004, Portfolio Member Norman
Boucher left your fund's management team for another position at Putnam.
Fund ownership
The table below shows how much the members of Putnam's Executive Board
have invested in the fund (in dollar ranges). Information shown is for
the current and prior year ended December 31.
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PUTNAM EXECUTIVE BOARD
$1 - $10,001 - $50,001- $100,001
Year $0 $10,000 $50,000 $100,000 and over
--------------------------------------------------------------------------------------------------
Philippe Bibi 2004 *
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Chief Technology Officer 2003 *
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John Boneparth 2004 *
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Head of Global Institutional Mgmt 2003 *
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Kevin Cronin 2004 *
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Deputy Head of Investments N/A
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Charles Haldeman, Jr. 2004 *
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President and CEO 2003 *
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Amrit Kanwal 2004 *
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Chief Financial Officer N/A
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Steven Krichmar 2004 *
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Chief of Operations N/A
--------------------------------------------------------------------------------------------------
Francis McNamara, III 2004 *
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General Counsel N/A
--------------------------------------------------------------------------------------------------
Richard Monaghan 2004 *
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Head of Retail Management 2003 *
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Stephen Oristaglio 2004 *
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Head of Investments 2003 *
--------------------------------------------------------------------------------------------------
Richard Robie, III 2004 *
--------------------------------------------------------------------------------------------------
Chief Administrative Officer N/A
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N/A indicates the individual was not a member of Putnam's Executive
Board as of 12/31/03.
Performance summary
This section shows your fund's performance during the first half of its
fiscal year, which ended November 30, 2004. In accordance with
regulatory requirements, we also include performance for the most
current calendar quarter-end. Performance should always be considered in
light of a fund's investment strategy. Data represents past performance.
Past performance does not guarantee 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.
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TOTAL RETURN FOR PERIODS ENDED 11/30/04
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Lipper
JP Morgan High Current
Developed Yield Funds
Market High Yield (closed-end)
NAV price Index* category average+
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6 months 9.27% 9.87% 8.75% 9.91%
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1 year 12.73 9.03 12.28 13.53
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5 years 28.11 19.43 42.28 30.18
Annual average 5.08 3.61 7.31 5.30
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10 years 97.03 91.98 -- 106.72
Annual average 7.02 6.74 -- 7.44
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Life of fund
(since 6/25/93)
Annual average 6.33 4.76 -- 7.05
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Performance assumes reinvestment of distributions and does not account
for taxes.
Index and Lipper results should be compared to fund performance at net
asset value.
* This index began operations on 12/31/94.
+ Over the 6-month and 1-, 5-, and 10-year periods ended 11/30/04, there
were 8, 8, 4, and 4 funds, respectively, in this Lipper category.
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PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 11/30/04
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Distributions (number) 6
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Income $0.324
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Capital gains --
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Total $0.324
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Share value: NAV Market price
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5/31/04 $8.82 $7.92
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11/30/04 9.27 8.37
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Current return (end of period)
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Current dividend rate 1 6.99% 7.74%
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1 Most recent distribution, excluding capital gains, annualized and
divided by NAV or market price at end of period.
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TOTAL RETURN FOR PERIODS ENDED 12/31/04 (MOST RECENT CALENDAR QUARTER)
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NAV Market price
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6 months 9.25% 10.76%
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1 year 11.29 3.98
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5 years 27.54 35.21
Annual average 4.99 6.22
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10 years 98.31 89.04
Annual average 7.09 6.58
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Life of fund
(since 6/25/93)
Annual average 6.41 4.77
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Terms and definitions
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested
all distributions in the fund.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares.
Market price is the current trading price of one share of the fund.
Market prices are set by transactions between buyers and sellers on
exchanges such as the American Stock Exchange and the New York Stock
Exchange.
Comparative indexes
Citigroup World Government Bond Index is an unmanaged index of
government bonds from 14 countries.
JP Morgan Developed High Yield Index is an unmanaged index used to
mirror the investable universe of the U.S. dollar global high-yield
corporate debt market of developed markets.
Lehman Aggregate Bond Index is an unmanaged index used as a general
measure of U.S. fixed-income securities.
Lehman GNMA Index is an unmanaged index of Government National Mortgage
Association bonds.
Morgan Stanley Capital International (MSCI) EAFE Index is an unmanaged
index of international stocks from Europe, Australasia, and the Far
East.
Russell 2000 Index is an unmanaged index of common stocks that generally
measure performance of small to midsize companies within the Russell
3000 Index.
S&P 500 Index is an unmanaged index of common stock performance.
Indexes assume reinvestment of all distributions and do not account for
fees. Securities and performance of a fund and an index will differ. You
cannot invest directly in an index.
Lipper is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper. Lipper category averages reflect
performance trends for funds within a category and are based on results
at net asset value.
A note about duplicate mailings
In response to investors' requests, the SEC has modified mailing
regulations for proxy statements, semiannual and annual reports, and
prospectuses. Putnam is now able to send a single copy of these
materials to customers who share the same address. This change will
automatically apply to all shareholders except those who notify us. If
you would prefer to receive your own copy, please call Putnam at
1-800-225-1581.
Proxy voting
Putnam is committed to managing our mutual funds in the best interests
of our shareholders. The Putnam funds' proxy voting guidelines and
procedures, as well as information regarding how your fund voted proxies
relating to portfolio securities during the 12-month period ended June
30, 2004, are available on the Putnam Individual Investor Web site,
www.putnaminvestments.com/individual, and on the SEC's Web site,
www.sec.gov. If you have questions about finding forms on the SEC's Web
site, you may call the SEC at 1-800-SEC-0330. You may also obtain the
Putnam funds' proxy voting guidelines and procedures at no charge by
calling Putnam's Shareholder Services at 1-800-225-1581.
Fund portfolio holdings
For periods ending on or after July 9, 2004, the fund will file a
complete schedule of its portfolio holdings with the SEC for the first
and third quarters of each fiscal year on Form N-Q. Shareholders may
obtain the fund's Forms N-Q on the SEC's Web site at www.sec.gov. In
addition, the fund's Forms N-Q may be reviewed and copied at the SEC's
public reference room in Washington, D.C. You may call the SEC at
1-800-SEC-0330 for information about the SEC's Web site or the operation
of the public reference room.
The fund's portfolio
November 30, 2004 (Unaudited)
Corporate bonds and notes (91.7%) (a)
Principal amount Value
Advertising and Marketing Services (0.2%)
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$100,000 Lamar Media Corp. company guaranty
7 1/4s, 2013 $108,000
Automotive (2.0%)
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50,000 ArvinMeritor, Inc. notes 8 3/4s,
2012 56,375
30,000 Dana Corp. notes 10 1/8s, 2010 33,900
225,000 Dana Corp. notes 9s, 2011 272,250
15,000 Dana Corp. notes 7s, 2029 15,000
40,000 Delco Remy International, Inc.
company guaranty 11s, 2009 42,200
205,000 Delco Remy International, Inc. sr.
sub. notes 9 3/8s, 2012 210,125
30,000 Dura Operating Corp. company
guaranty Ser. B, 8 5/8s, 2012 30,525
150,000 Lear Corp. company guaranty Ser. B,
8.11s, 2009 169,677
115,000 Meritor Automotive, Inc. notes 6.8s,
2009 118,163
95,000 Metaldyne Corp. 144A sr. notes 10s,
2013 92,150
EUR 20,000 Teksid Aluminum 144A company
guaranty 11 3/8s, 2011 (Luxembourg) 25,183
$70,000 Tenneco Automotive, Inc. company
guaranty Ser. B, 11 5/8s, 2009 74,312
130,000 Tenneco Automotive, Inc. sec. notes
Ser. B, 10 1/4s, 2013 153,075
100,000 Tenneco Automotive, Inc. 144A sr.
sub. notes 8 5/8s, 2014 104,000
--------------
1,396,935
Beverage (0.1%)
-------------------------------------------------------------------------------
45,000 Constellation Brands, Inc. company
guaranty Ser. B, 8s, 2008 49,275
45,000 Constellation Brands, Inc. sr. sub.
notes Ser. B, 8 1/8s, 2012 48,938
--------------
98,213
Broadcasting (3.0%)
-------------------------------------------------------------------------------
210,000 British Sky Broadcasting PLC company
guaranty 6 7/8s, 2009 (United
Kingdom) 229,624
300,000 DirecTV Holdings, LLC sr. notes
8 3/8s, 2013 336,750
440,000 Diva Systems Corp. sr. disc. notes
Ser. B, 12 5/8s, 2008 (In default)
(NON) 1,925
235,000 Echostar DBS Corp. sr. notes 6 3/8s,
2011 240,288
165,000 Echostar DBS Corp. 144A company
guaranty 6 5/8s, 2014 168,300
370,000 Granite Broadcasting Corp. sec.
notes 9 3/4s, 2010 347,800
105,000 Gray Television, Inc. company
guaranty 9 1/4s, 2011 118,125
6,090 Knology, Inc. 144A sr. notes 12s,
2009 (PIK) 5,877
155,000 Rainbow National Services, LLC 144A
sr. notes 8 3/4s, 2012 163,913
60,000 Sinclair Broadcast Group, Inc.
company guaranty 8 3/4s, 2011 64,500
301,000 Young Broadcasting, Inc. company
guaranty 10s, 2011 319,813
65,000 Young Broadcasting, Inc. sr. sub.
notes 8 3/4s, 2014 63,863
--------------
2,060,778
Building Materials (0.9%)
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60,000 Building Materials Corp. company
guaranty 8s, 2008 62,100
95,000 Dayton Superior Corp. sec. notes
10 3/4s, 2008 103,550
5,000 Owens Corning bonds 7 1/2s, 2018 (In
default) (NON) 3,925
120,000 Owens Corning notes 7 1/2s, 2005 (In
default) (NON) 94,200
350,000 THL Buildco, Inc. (Nortek, Inc.)
144A sr. sub. notes 8 1/2s, 2014 376,250
--------------
640,025
Cable Television (3.0%)
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10,000 Adelphia Communications Corp. notes
Ser. B, 9 7/8s, 2005 (In default)
(NON) 8,975
20,000 Adelphia Communications Corp. sr.
notes 10 7/8s, 2010 (In default)
(NON) 18,650
90,000 Adelphia Communications Corp. sr.
notes 10 1/4s, 2011 (In default)
(NON) 87,525
5,000 Adelphia Communications Corp. sr.
notes 10 1/4s, 2006 (In default)
(NON) 4,538
5,000 Adelphia Communications Corp. sr.
notes 9 3/8s, 2009 (In default)
(NON) 4,663
40,000 Adelphia Communications Corp. sr.
notes Ser. B, 9 7/8s, 2007 (In
default) (NON) 35,900
80,000 Atlantic Broadband Finance, LLC 144A
sr. sub. notes 9 3/8s, 2014 76,800
195,000 Cablevision Systems Corp. 144A sr.
notes 8s, 2012 207,675
70,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (12 1/8s,
1/15/07), 2012 (STP) 43,050
35,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (11 3/4s,
5/15/06), 2011 (STP) 23,888
90,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
11 1/8s, 2011 77,400
200,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
10 3/4s, 2009 173,000
75,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
10 1/4s, 2010 63,000
265,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 10s,
2011 218,625
200,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 9 5/8s,
2009 166,000
20,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 8 5/8s,
2009 16,600
75,000 CSC Holdings, Inc. debs. 7 5/8s,
2018 79,125
80,000 CSC Holdings, Inc. sr. notes Ser. B,
7 5/8s, 2011 85,600
155,000 CSC Holdings, Inc. 144A sr. notes
6 3/4s, 2012 158,100
270,000 Kabel Deutsheland GmbH 144A sr.
notes 10 5/8s, 2014 (Germany) 310,500
30,000 Quebecor Media, Inc. sr. disc. notes
stepped-coupon zero % (13 3/4s,
7/15/06), 2011 (Canada) (STP) 29,550
155,000 Quebecor Media, Inc. sr. notes
11 1/8s, 2011 (Canada) 177,863
50,000 Videotron Ltee company guaranty
6 7/8s, 2014 (Canada) 51,625
--------------
2,118,652
Capital Goods (9.1%)
-------------------------------------------------------------------------------
370,000 AEP Industries, Inc. sr. sub. notes
9 7/8s, 2007 376,475
221,742 Air2 US 144A sinking fund Ser. D,
12.266s, 2020 (In default) (NON) (F) 2
240,000 Allied Waste North America, Inc.
company guaranty Ser. B, 8 1/2s,
2008 252,300
330,000 Allied Waste North America, Inc.
company guaranty Ser. B, 7 5/8s,
2006 339,075
30,000 Allied Waste North America, Inc.
sec. notes 6 1/2s, 2010 28,950
65,000 Amsted Industries, Inc. 144A sr.
notes 10 1/4s, 2011 71,500
320,000 Argo-Tech Corp. sr. notes 9 1/4s,
2011 349,600
35,000 BE Aerospace, Inc. sr. notes 8 1/2s,
2010 38,325
345,000 BE Aerospace, Inc. sr. sub. notes
Ser. B, 8s, 2008 343,275
15,000 Berry Plastics Corp. company
guaranty 10 3/4s, 2012 17,325
125,000 Blount, Inc. sr. sub. notes 8 7/8s,
2012 135,625
110,000 Browning-Ferris Industries, Inc.
debs. 7.4s, 2035 94,600
145,000 Browning-Ferris Industries, Inc. sr.
notes 6 3/8s, 2008 142,463
EUR 15,000 Crown Holdings SA bonds 10 1/4s,
2011 (France) 22,924
$320,000 Crown Holdings SA notes 10 7/8s,
2013 (France) 378,400
70,000 Crown Holdings SA notes 9 1/2s, 2011
(France) 79,275
476,000 Decrane Aircraft Holdings Co.
company guaranty zero %, 2008 180,880
120,000 Earle M. Jorgensen Co. sec. notes
9 3/4s, 2012 135,000
EUR 60,000 Flender Holdings 144A sr. notes 11s,
2010 (Germany) 94,804
$93,000 Flowserve Corp. company guaranty
12 1/4s, 2010 104,160
25,000 Hexcel Corp. sr. sub. notes 9 3/4s,
2009 26,188
130,000 Invensys, PLC notes 9 7/8s, 2011
(United Kingdom) 140,075
45,000 K&F Acquisitions, Inc. 144A sr. sub.
notes 7 3/4s, 2014 46,013
325,000 L-3 Communications Corp. company
guaranty 6 1/8s, 2013 334,750
310,000 Legrand SA debs. 8 1/2s, 2025
(France) 359,600
140,000 Manitowoc Co., Inc. (The) company
guaranty 10 1/2s, 2012 161,000
EUR 25,000 Manitowoc Co., Inc. (The) company
guaranty 10 3/8s, 2011 37,226
$290,000 Manitowoc Co., Inc. (The) sr. notes
7 1/8s, 2013 313,200
40,000 Mueller Group, Inc. sec. FRN 6.91s,
2011 41,400
95,000 Mueller Group, Inc. sr. sub. notes
10s, 2012 103,075
180,000 Owens-Brockway Glass company
guaranty 8 1/4s, 2013 195,750
75,000 Owens-Brockway Glass company
guaranty 7 3/4s, 2011 81,000
170,000 Owens-Brockway Glass sr. sec. notes
8 3/4s, 2012 189,550
15,000 Owens-Illinois, Inc. debs. 7.8s,
2018 15,338
155,000 Polypore, Inc. 144A sr. sub. notes
8 3/4s, 2012 161,200
250,000 Sequa Corp. sr. notes Ser. B,
8 7/8s, 2008 273,750
165,000 Siebe PLC 144A sr. unsub. 6 1/2s,
2010 (United Kingdom) 156,131
60,000 Solo Cup Co. sr. sub. notes 8 1/2s,
2014 62,400
75,000 Tekni-Plex, Inc. 144A sr. sec. notes
8 3/4s, 2013 74,625
35,000 Terex Corp. company guaranty 9 1/4s,
2011 39,550
190,000 Terex Corp. company guaranty Ser. B,
10 3/8s, 2011 214,225
90,000 Titan Corp. (The) company guaranty
8s, 2011 95,400
--------------
6,306,404
Chemicals (6.4%)
-------------------------------------------------------------------------------
130,000 Acetex Corp. sr. notes 10 7/8s, 2009
(Canada) 142,350
10,000 Avecia Group PLC company guaranty
11s, 2009 (United Kingdom) 9,400
205,000 BCP Caylux Holdings Luxembourg SCA
144A sr. sub. notes 9 5/8s, 2014
(Luxembourg) 230,113
185,000 Compass Minerals Group, Inc. company
guaranty 10s, 2011 207,200
50,000 Compass Minerals International, Inc.
sr. disc. notes stepped-coupon zero %
(12s, 6/1/08), 2013 (STP) 40,500
130,000 Compass Minerals International, Inc.
sr. notes stepped-coupon zero %
(12 3/4s, 12/15/07), 2012 (STP) 111,150
120,000 Crystal US Holdings, LLC/US Sub 3
Corp. 144A sr. disc. notes
stepped-coupon zero % (10s,
10/1/09), 2014 (STP) 82,200
95,000 Equistar Chemicals LP notes 8 3/4s,
2009 105,450
290,000 Equistar Chemicals LP/Equistar
Funding Corp. company guaranty
10 1/8s, 2008 332,775
180,000 Hercules, Inc. company guaranty
11 1/8s, 2007 216,000
140,000 Hercules, Inc. company guaranty
6 3/4s, 2029 144,550
35,000 Huntsman Advanced Materials, LLC
144A sec. FRN 11.86s, 2008 37,800
40,000 Huntsman Advanced Materials, LLC
144A sec. notes 11s, 2010 47,500
140,000 Huntsman Co., LLC sr. disc. notes
zero %, 2008 92,050
295,000 Huntsman ICI Chemicals, Inc. company
guaranty 10 1/8s, 2009 311,225
270,000 Huntsman ICI Holdings sr. disc.
notes zero %, 2009 150,525
120,000 Huntsman, LLC company guaranty
11 5/8s, 2010 142,800
60,000 Huntsman, LLC 144A company guaranty
11 1/2s, 2012 70,650
325,000 Innophos, Inc. 144A sr. sub. notes
8 7/8s, 2014 351,000
230,000 ISP Chemco, Inc. company guaranty
Ser. B, 10 1/4s, 2011 258,175
10,000 Lyondell Chemical Co. bonds 11 1/8s,
2012 11,825
130,000 Lyondell Chemical Co. company
guaranty 10 1/2s, 2013 154,050
100,000 Lyondell Chemical Co. company
guaranty 9 1/2s, 2008 109,000
65,000 Lyondell Chemical Co. notes Ser. A,
9 5/8s, 2007 71,663
250,000 Millennium America, Inc. company
guaranty 9 1/4s, 2008 282,500
EUR 10,000 Nalco Co. sr. notes 7 3/4s, 2011 14,439
EUR 10,000 Nalco Co. sr. sub. notes 9s, 2013 14,412
$300,000 Nalco Co. sr. sub. notes 8 7/8s,
2013 331,125
31,547 PCI Chemicals Canada sec. sr. notes
10s, 2008 (Canada) 32,651
70,155 Pioneer Companies, Inc. sec. FRN
5.475s, 2006 70,506
25,000 Resolution Performance Products, LLC
sr. notes 9 1/2s, 2010 27,000
EUR 50,000 Rockwood Specialities Group, Inc.
sr. sub. notes 7 5/8s, 2014 68,106
$50,000 Rockwood Specialities Group, Inc.
144A sub. notes 7 1/2s, 2014 51,250
27,275 Sterling Chemicals, Inc. sec. notes
10s, 2007 (PIK) 27,070
75,000 United Agri Products 144A sr. notes
8 1/4s, 2011 79,875
--------------
4,428,885
Commercial and Consumer Services (0.6%)
-------------------------------------------------------------------------------
115,000 IESI Corp. company guaranty 10 1/4s,
2012 136,850
245,000 Laidlaw International, Inc. sr.
notes 10 3/4s, 2011 282,056
--------------
418,906
Communication Services (8.2%)
-------------------------------------------------------------------------------
60,000 Alamosa Delaware, Inc. company
guaranty 11s, 2010 70,050
50,000 Alamosa Delaware, Inc. company
guaranty stepped-coupon zero %
(12s, 7/31/05), 2009 (STP) 53,500
70,000 Alamosa Delaware, Inc. sr. notes
8 1/2s, 2012 75,250
35,000 American Cellular Corp. company
guaranty 9 1/2s, 2009 29,488
114,000 American Tower Corp. sr. notes
9 3/8s, 2009 120,270
65,000 American Tower Corp. sr. notes
7 1/2s, 2012 67,438
125,000 American Towers, Inc. company
guaranty 7 1/4s, 2011 131,250
100,000 Asia Global Crossing, Ltd. sr. notes
13 3/8s, 2010 (Bermuda) (In default)
(NON) 7,000
165,000 Centennial Cellular Operating Co.
company guaranty 10 1/8s, 2013 179,850
25,000 Cincinnati Bell Telephone Co.
company guaranty 6.3s, 2028 22,375
195,000 Cincinnati Bell, Inc. sr. sub. notes
8 3/8s, 2014 194,513
70,000 Cincinnati Bell, Inc. sr. sub. notes
7 1/4s, 2023 67,375
185,000 Citizens Communications Co. notes
9 1/4s, 2011 215,063
160,000 Citizens Communications Co. sr.
notes 6 1/4s, 2013 159,000
305,405 Colo.com, Inc. 144A sr. notes
13 7/8s, 2010 (In default) (NON) 31
205,000 Crown Castle International Corp. sr.
notes 9 3/8s, 2011 229,600
45,000 Eircom Funding notes 8 1/4s, 2013
(Ireland) 49,950
65,000 Fairpoint Communications, Inc. sr.
sub. notes 12 1/2s, 2010 69,875
177,439 Firstworld Communication Corp. sr.
disc. notes zero %, 2008 (In
default) (NON) 18
20,728 Globix Corp. company guaranty 11s,
2008 (PIK) 19,070
175,000 Inmarsat Finance PLC company
guaranty 7 5/8s, 2012 (United
Kingdom) 178,938
175,000 Inmarsat Finance PLC 144A company
guaranty stepped-coupon zero %
(10 3/8s, 11/15/08), 2012 (United
Kingdom) (STP) 120,750
55,000 iPCS, Inc. 144A sr. notes 11 1/2s,
2012 60,500
135,000 Level 3 Financing, Inc. 144A sr.
notes 10 3/4s, 2011 120,488
120,000 Madison River Capital Corp. sr.
notes 13 1/4s, 2010 129,600
293,000 MCI, Inc. sr. notes 7.735s, 2014 299,593
45,000 MCI, Inc. sr. notes 6.688s, 2009 45,338
290,000 Nextel Communications, Inc. sr.
notes 7 3/8s, 2015 319,000
5,000 Nextel Communications, Inc. sr.
notes 6 7/8s, 2013 5,400
200,000 Nextel Communications, Inc. sr.
notes 5.95s, 2014 203,500
55,000 Nextel Partners, Inc. sr. notes
12 1/2s, 2009 62,700
225,000 Nextel Partners, Inc. sr. notes
8 1/8s, 2011 247,500
410,000 Qwest Communications International,
Inc. 144A sr. notes 7 1/2s, 2014 399,750
475,000 Qwest Corp. 144A notes 9 1/8s, 2012 540,313
65,000 Qwest Services Corp. 144A notes
14 1/2s, 2014 80,275
85,000 Qwest Services Corp. 144A notes 14s,
2010 100,725
50,000 Rogers Cantel, Ltd. debs. 9 3/4s,
2016 (Canada) 58,875
40,000 Rogers Wireless, Inc. sec. notes
9 5/8s, 2011 (Canada) 46,600
65,000 Rogers Wireless, Inc. 144A sec.
notes 7 1/2s, 2015 (Canada) 67,438
80,000 Rogers Wireless, Inc. 144A sr. sub.
notes 8s, 2012 (Canada) 83,000
45,000 Rural Cellular Corp. sr. notes
9 7/8s, 2010 45,450
90,000 Rural Cellular Corp. sr. sub. notes
9 3/4s, 2010 80,775
55,000 SBA Telecommunications Inc./SBA
Communication Corp. sr. disc. notes
stepped-coupon zero % (9 3/4s,
12/15/07), 2011 (STP) 45,788
110,000 TSI Telecommunication Services, Inc.
company guaranty Ser. B, 12 3/4s,
2009 124,575
65,000 UbiquiTel Operating Co. sr. notes
9 7/8s, 2011 71,338
270,000 UbiquiTel Operating Co. 144A sr.
notes 9 7/8s, 2011 296,325
100,000 Western Wireless Corp. sr. notes
9 1/4s, 2013 108,000
--------------
5,703,500
Conglomerates (0.6%)
-------------------------------------------------------------------------------
55,000 Tyco International Group SA company
guaranty 6 3/4s, 2011 (Luxembourg) 61,457
325,000 Tyco International Group SA company
guaranty 6s, 2013 (Luxembourg) 349,911
--------------
411,368
Consumer (1.0%)
-------------------------------------------------------------------------------
115,000 Icon Health & Fitness company
guaranty 11 1/4s, 2012 97,463
95,000 Jostens Holding Corp. sr. disc.
notes stepped-coupon zero %
(10 1/4s, 12/1/08), 2013 (STP) 67,450
245,000 Jostens IH Corp. 144A company
guaranty 7 5/8s, 2012 256,638
260,000 Samsonite Corp. sr. sub. notes
8 7/8s, 2011 276,575
--------------
698,126
Consumer Goods (1.2%)
-------------------------------------------------------------------------------
45,000 Elizabeth Arden, Inc. company
guaranty 7 3/4s, 2014 47,925
200,000 Playtex Products, Inc. company
guaranty 9 3/8s, 2011 213,500
140,000 Playtex Products, Inc. sec. notes
8s, 2011 153,300
215,000 Prestige Brands, Inc. 144A sr. sub.
notes 9 1/4s, 2012 226,825
125,000 Remington Arms Co., Inc. company
guaranty 10 1/2s, 2011 116,250
45,000 Scotts Co. (The) sr. sub. notes
6 5/8s, 2013 47,588
--------------
805,388
Consumer Services (0.4%)
-------------------------------------------------------------------------------
100,000 Brand Services, Inc. company
guaranty 12s, 2012 112,000
60,000 United Rentals (North America), Inc.
company guaranty 6 1/2s, 2012 58,800
130,000 Williams Scotsman, Inc. company
guaranty 9 7/8s, 2007 128,700
--------------
299,500
Energy (7.3%)
-------------------------------------------------------------------------------
190,000 Arch Western Finance, LLC sr. notes
6 3/4s, 2013 199,025
80,000 Arch Western Finance, LLC 144A sr.
notes 6 3/4s, 2013 83,800
90,000 Belden & Blake Corp. 144A sec. notes
8 3/4s, 2012 97,425
70,000 Bluewater Finance, Ltd. company
guaranty 10 1/4s, 2012 (Cayman
Islands) 75,950
110,000 BRL Universal Equipment sec. notes
8 7/8s, 2008 115,775
100,000 CHC Helicopter Corp. sr. sub. notes
7 3/8s, 2014 (Canada) 105,500
75,000 Chesapeake Energy Corp. company
guaranty 9s, 2012 85,875
45,000 Chesapeake Energy Corp. company
guaranty 7 3/4s, 2015 49,388
210,000 Chesapeake Energy Corp. sr. notes
7 1/2s, 2013 231,000
60,000 Chesapeake Energy Corp. sr. notes
7s, 2014 64,800
95,000 Comstock Resources, Inc. sr. notes
6 7/8s, 2012 98,325
140,000 Dresser, Inc. company guaranty
9 3/8s, 2011 154,000
90,000 Encore Acquisition Co. company
guaranty 8 3/8s, 2012 99,450
45,000 Encore Acquisition Co. sr. sub.
notes 6 1/4s, 2014 45,900
130,000 Exco Resources, Inc. company
guaranty 7 1/4s, 2011 139,425
70,000 Forest Oil Corp. company guaranty
7 3/4s, 2014 76,125
145,000 Forest Oil Corp. sr. notes 8s, 2011 164,575
35,000 Forest Oil Corp. sr. notes 8s, 2008 38,763
70,000 Hanover Compressor Co. sr. notes 9s,
2014 77,525
65,000 Hanover Compressor Co. sr. notes
8 5/8s, 2010 70,525
95,000 Hanover Compressor Co. sub. notes
zero %, 2007 80,750
65,000 Hanover Equipment Trust sec. notes
Ser. B, 8 3/4s, 2011 70,525
275,000 Harvest Operations Corp. 144A sr.
notes 7 7/8s, 2011 (Canada) 280,500
55,000 Hornbeck Offshore Services, Inc.
144A sr. notes 6 1/8s, 2014 54,313
65,000 KCS Energy, Inc. sr. notes 7 1/8s,
2012 68,250
280,000 Key Energy Services, Inc. sr. notes
6 3/8s, 2013 284,200
260,000 Massey Energy Co. sr. notes 6 5/8s,
2010 270,400
130,000 Newfield Exploration Co. sr. notes
7 5/8s, 2011 146,250
125,000 Newfield Exploration Co. 144A sr.
sub. notes 6 5/8s, 2014 134,063
120,000 Offshore Logistics, Inc. company
guaranty 6 1/8s, 2013 123,000
75,000 Pacific Energy Partners/Pacific
Energy Finance Corp. sr. notes
7 1/8s, 2014 80,625
135,000 Peabody Energy Corp. sr. notes
5 7/8s, 2016 135,506
30,000 Pemex Project Funding Master Trust
company guaranty 8 5/8s, 2022 34,200
45,000 Pemex Project Funding Master Trust
company guaranty 7 3/8s, 2014 49,221
100,000 Petro Geo-Services notes 10s, 2010
(Norway) 114,000
90,000 Plains Exploration & Production Co.
company guaranty Ser. B, 8 3/4s,
2012 101,250
95,000 Plains Exploration & Production Co.
sr. notes 7 1/8s, 2014 104,500
55,000 Plains Exploration & Production Co.
sr. sub. notes 8 3/4s, 2012 61,875
110,000 Pogo Producing Co. sr. sub. notes
Ser. B, 8 1/4s, 2011 120,725
290,000 Pride International, Inc. 144A sr.
notes 7 3/8s, 2014 321,175
100,000 Seabulk International, Inc. company
guaranty 9 1/2s, 2013 107,500
170,000 Star Gas Partners LP/Star Gas
Finance Co. sr. notes 10 1/4s, 2013 181,475
25,000 Universal Compression, Inc. sr.
notes 7 1/4s, 2010 26,750
45,000 Vintage Petroleum, Inc. sr. notes
8 1/4s, 2012 50,175
25,000 Vintage Petroleum, Inc. sr. sub.
notes 7 7/8s, 2011 26,875
--------------
5,101,254
Entertainment (2.0%)
-------------------------------------------------------------------------------
75,000 AMC Entertainment, Inc. sr. sub.
notes 9 7/8s, 2012 81,375
132,000 AMC Entertainment, Inc. sr. sub.
notes 8s, 2014 130,020
155,000 Cinemark USA, Inc. sr. sub. notes
9s, 2013 178,250
180,000 Cinemark, Inc. sr. disc. notes
stepped-coupon zero %
(9 3/4s, 3/15/07), 2009 (STP) 132,300
335,000 LCE Acquisition Corp. 144A company
guaranty 9s, 2014 360,125
175,000 Six Flags, Inc. sr. notes 9 5/8s,
2014 172,156
335,000 Six Flags, Inc. sr. notes 8 7/8s,
2010 336,675
--------------
1,390,901
Financial (1.3%)
-------------------------------------------------------------------------------
55,000 Crescent Real Estate Equities LP
notes 7 1/2s, 2007 (R) 56,925
145,000 Crescent Real Estate Equities LP sr.
notes 9 1/4s, 2009 (R) 158,413
175,000 E*Trade Finance Corp. 144A sr.
notes 8s, 2011 186,813
232,870 Finova Group, Inc. notes 7 1/2s,
2009 111,778
85,000 UBS AG/Jersey Branch sr. notes
Ser. EMTN, 9.14s, 2008 (Jersey) 90,950
240,000 Western Financial Bank sub. debs.
9 5/8s, 2012 273,600
--------------
878,479
Food (1.3%)
-------------------------------------------------------------------------------
35,271 Archibald Candy Corp. company
guaranty 10s, 2007 (In default)
(NON) (PIK) 14,108
60,000 ASG Consolidated, LLC/ASG Finance,
Inc. 144A sr. disc. notes
stepped-coupon zero % (11 1/2s,
11/1/08), 2011 38,400
335,000 Dean Foods Co. sr. notes 6 5/8s,
2009 354,263
40,000 Del Monte Corp. company guaranty
Ser. B, 9 1/4s, 2011 43,800
100,000 Del Monte Corp. sr. sub. notes
8 5/8s, 2012 111,750
45,000 Dole Food Co. sr. notes 8 7/8s, 2011 49,275
35,000 Dole Food Co. sr. notes 8 5/8s, 2009 38,325
285,000 Pinnacle Foods Holding Corp. 144A
sr. sub. notes 8 1/4s, 2013 257,925
--------------
907,846
Forest Products and Packaging (2.2%)
-------------------------------------------------------------------------------
75,000 Georgia-Pacific Corp. bonds 7 3/4s,
2029 82,500
130,000 Georgia-Pacific Corp. company
guaranty 9 3/8s, 2013 151,450
250,000 Georgia-Pacific Corp. debs. 9 1/2s,
2011 310,625
210,000 Georgia-Pacific Corp. debs. 7.7s,
2015 239,400
10,000 Jefferson Smurfit Corp. company
guaranty 7 1/2s, 2013 10,725
5,000 Jefferson Smurfit Corp. company
guaranty company guaranty 8 1/4s,
2012 5,475
215,000 MDP Acquisitions PLC sr. notes
9 5/8s, 2012 (Ireland) 245,100
EUR 5,000 MDP Acquisitions PLC sr. notes
Ser. EUR, 10 1/8s, 2012 (Ireland) 7,571
$122,740 MDP Acquisitions PLC sub. notes
15 1/2s, 2013 (Ireland) (PIK) 142,992
75,000 Norske Skog Canada, Ltd. sr. notes
7 3/8s, 2014 (Canada) 77,813
40,000 Stone Container Corp. sr. notes
9 3/4s, 2011 44,200
140,000 Stone Container Corp. sr. notes
8 3/8s, 2012 153,300
35,000 Stone Container Finance company
guaranty 7 3/8s, 2014 (Canada) 37,713
25,000 Tembec Industries, Inc. company
guaranty 7 3/4s, 2012 (Canada) 23,938
--------------
1,532,802
Gaming & Lottery (4.3%)
-------------------------------------------------------------------------------
60,000 Ameristar Casinos, Inc. company
guaranty 10 3/4s, 2009 66,600
65,000 Argosy Gaming Co. sr. sub. notes 7s,
2014 72,313
160,000 Boyd Gaming Corp. sr. sub. notes
8 3/4s, 2012 180,000
30,000 Boyd Gaming Corp. sr. sub. notes
7 3/4s, 2012 32,775
60,000 Boyd Gaming Corp. sr. sub. notes
6 3/4s, 2014 63,150
70,000 Chumash Casino & Resort Enterprise
144A sr. notes 9s, 2010 78,050
85,000 Hollywood Park, Inc. company
guaranty Ser. B, 9 1/4s, 2007 86,913
40,000 Inn of the Mountain Gods sr. notes
12s, 2010 46,600
75,000 Mandalay Resort Group sr. notes
6 3/8s, 2011 78,281
10,000 MGM Mirage, Inc. coll. sr. notes
6 7/8s, 2008 10,775
205,000 MGM Mirage, Inc. company guaranty
8 1/2s, 2010 232,931
60,000 MGM Mirage, Inc. company guaranty
6s, 2009 61,425
40,000 Mirage Resorts, Inc. debs. 7 1/4s,
2017 41,600
220,000 Mohegan Tribal Gaming Authority sr.
sub. notes 6 3/8s, 2009 226,600
155,000 Park Place Entertainment Corp. sr.
notes 7 1/2s, 2009 173,600
115,000 Park Place Entertainment Corp. sr.
notes 7s, 2013 126,788
95,000 Park Place Entertainment Corp. sr.
sub. notes 8 7/8s, 2008 107,706
185,000 Penn National Gaming, Inc. sr. sub.
notes 8 7/8s, 2010 203,038
95,000 Pinnacle Entertainment, Inc. sr.
sub. notes 8 3/4s, 2013 102,363
125,000 Pinnacle Entertainment, Inc. sr.
sub. notes 8 1/4s, 2012 129,375
120,000 Resorts International Hotel and
Casino, Inc. company guaranty
11 1/2s, 2009 141,000
90,000 Station Casinos, Inc. sr. notes 6s,
2012 92,700
90,000 Station Casinos, Inc. sr. sub. notes
6 7/8s, 2016 93,825
215,000 Trump Atlantic City Associates
company guaranty 11 1/4s, 2006 (In
default) (NON) 195,919
90,000 Venetian Casino Resort, LLC company
guaranty 11s, 2010 102,600
280,000 Wynn Las Vegas, LLC/Wynn Las Vegas
Capital Corp. 144A 1st mtge. 6 5/8s,
2014 277,200
--------------
3,024,127
Health Care (5.6%)
-------------------------------------------------------------------------------
125,000 Alderwoods Group, Inc. 144A sr.
notes 7 3/4s, 2012 133,438
105,000 AmerisourceBergen Corp. company
guaranty 7 1/4s, 2012 115,238
100,000 AmerisourceBergen Corp. sr. notes
8 1/8s, 2008 110,250
170,000 Ardent Health Services, Inc. sr.
sub. notes 10s, 2013 170,425
110,000 Ellan Finance Corp. 144A sr. notes
7 3/4s, 2011 (Ireland) 116,325
60,000 Extendicare Health Services, Inc.
company guaranty 9 1/2s, 2010 67,200
100,000 Extendicare Health Services, Inc.
sr. sub. notes 6 7/8s, 2014 102,500
50,000 HCA, Inc. debs. 7.19s, 2015 51,681
60,000 HCA, Inc. notes 8.36s, 2024 64,069
70,000 HCA, Inc. notes 7.69s, 2025 70,212
10,000 HCA, Inc. notes 7s, 2007 10,480
65,000 HCA, Inc. notes 6 3/8s, 2015 64,271
55,000 HCA, Inc. notes 5 3/4s, 2014 52,669
185,000 Healthsouth Corp. notes 7 5/8s, 2012 182,688
75,000 Healthsouth Corp. sr. notes 8 1/2s,
2008 77,156
45,000 Healthsouth Corp. sr. notes 8 3/8s,
2011 45,450
45,000 Healthsouth Corp. sr. sub. notes
10 3/4s, 2008 47,138
65,000 Insight Health Services Corp. 144A
company guaranty 9 7/8s, 2011 65,975
51,360 Magellan Health Services, Inc. sr.
notes Ser. A, 9 3/8s, 2008 55,405
35,000 MedQuest, Inc. company guaranty
Ser. B, 11 7/8s, 2012 40,950
180,000 MQ Associates, Inc. sr. disc. notes
stepped-coupon zero %
(12 1/4s, 8/15/08), 2012 (STP) 127,800
120,000 Omnicare, Inc. sr. sub. notes
6 1/8s, 2013 120,600
133,000 PacifiCare Health Systems, Inc.
company guaranty 10 3/4s, 2009 152,618
130,000 Province Healthcare Co. sr. sub.
notes 7 1/2s, 2013 146,250
40,000 Service Corp. International debs.
7 7/8s, 2013 43,800
15,000 Service Corp. International notes
7.2s, 2006 15,600
5,000 Service Corp. International notes
6 7/8s, 2007 5,250
20,000 Service Corp. International notes
6 1/2s, 2008 20,850
50,000 Service Corp. International notes
Ser. (a), 7.7s, 2009 54,500
140,000 Service Corp. International/US 144A
sr. notes 7s, 2016 147,000
130,000 Stewart Enterprises, Inc. notes
10 3/4s, 2008 142,025
85,000 Tenet Healthcare Corp. notes 7 3/8s,
2013 82,875
10,000 Tenet Healthcare Corp. sr. notes
6 1/2s, 2012 9,300
155,000 Tenet Healthcare Corp. sr. notes
6 3/8s, 2011 143,763
180,000 Tenet Healthcare Corp. 144A sr.
notes 9 7/8s, 2014 193,500
130,000 Triad Hospitals, Inc. sr. notes 7s,
2012 137,150
225,000 Triad Hospitals, Inc. sr. sub. notes
7s, 2013 230,625
85,000 Universal Hospital Services, Inc.
sr. notes 10 1/8s, 2011 89,675
55,000 US Oncology, Inc. 144A sr. notes 9s,
2012 61,050
40,000 US Oncology, Inc. 144A sr. sub.
notes 10 3/4s, 2014 45,700
95,000 Vanguard Health Holding Co. II, LLC
144A sr. sub. notes 9s, 2014 100,938
55,000 Ventas Realty LP/Capital Corp.
company guaranty 9s, 2012 (R) 63,663
40,000 Ventas Realty LP/Capital Corp. 144A
sr. notes 6 5/8s, 2014 (R) 40,700
60,000 VWR International, Inc. 144A sr.
notes 6 7/8s, 2012 62,400
--------------
3,881,152
Homebuilding (2.4%)
-------------------------------------------------------------------------------
70,000 Beazer Homes USA, Inc. company
guaranty 8 5/8s, 2011 76,650
25,000 Beazer Homes USA, Inc. company
guaranty 8 3/8s, 2012 27,500
20,000 D.R. Horton, Inc. company guaranty
8s, 2009 22,400
120,000 D.R. Horton, Inc. sr. notes 7 7/8s,
2011 136,800
25,000 D.R. Horton, Inc. sr. notes 6 7/8s,
2013 27,125
50,000 D.R. Horton, Inc. sr. notes 5 7/8s,
2013 50,688
90,000 K. Hovnanian Enterprises, Inc.
company guaranty 8 7/8s, 2012 99,900
70,000 K. Hovnanian Enterprises, Inc.
company guaranty 6 3/8s, 2014 70,000
50,000 K. Hovnanian Enterprises, Inc. sr.
notes 6 1/2s, 2014 50,750
275,000 KB Home sr. notes 5 3/4s, 2014 270,188
50,000 Meritage Corp. company guaranty
9 3/4s, 2011 55,625
35,000 Meritage Corp. sr. notes 7s, 2014 36,313
70,000 Schuler Homes, Inc. company guaranty
10 1/2s, 2011 79,800
135,000 Standard Pacific Corp. sr. notes
7 3/4s, 2013 146,475
10,000 Standard Pacific Corp. sr. notes
6 7/8s, 2011 10,475
215,000 Standard Pacific Corp. sr. notes
6 1/4s, 2014 211,775
55,000 Technical Olympic USA, Inc. company
guaranty 10 3/8s, 2012 61,600
80,000 Technical Olympic USA, Inc. company
guaranty 9s, 2010 86,200
30,000 WCI Communities, Inc. company
guaranty 10 5/8s, 2011 33,525
130,000 WCI Communities, Inc. company
guaranty 9 1/8s, 2012 144,300
--------------
1,698,089
Household Furniture and Appliances (0.3%)
-------------------------------------------------------------------------------
200,000 Sealy Mattress Co. sr. sub. notes
8 1/4s, 2014 211,500
Leisure (0.1%)
-------------------------------------------------------------------------------
80,000 K2, Inc. 144A sr. notes 7 3/8s, 2014 87,600
Lodging/Tourism (1.6%)
-------------------------------------------------------------------------------
7,000 FelCor Lodging LP company guaranty
10s, 2008 (R) 7,350
45,000 FelCor Lodging LP company guaranty
9s, 2008 (R) 50,400
115,000 Gaylord Entertainment Co. sr. notes
8s, 2013 124,200
73,000 HMH Properties, Inc. company
guaranty Ser. B, 7 7/8s, 2008 (R) 75,099
60,000 Host Marriott LP company guaranty
Ser. G, 9 1/4s, 2007 (R) 66,750
98,000 Host Marriott LP sr. notes Ser. E,
8 3/8s, 2006 (R) 102,410
165,000 Host Marriott LP 144A sr. notes 7s,
2012 (R) 174,075
95,000 ITT Corp. debs. 7 3/8s, 2015 106,875
105,000 ITT Corp. notes 6 3/4s, 2005 107,888
130,000 MeriStar Hospital Corp. company
guaranty 9 1/8s, 2011 (R) 140,075
65,000 MeriStar Hospital Corp. company
guaranty 9s, 2008 (R) 68,575
80,000 Starwood Hotels & Resorts Worldwide,
Inc. company guaranty 7 3/8s, 2007 85,400
--------------
1,109,097
Media (0.7%)
-------------------------------------------------------------------------------
130,000 Affinity Group, Inc. sr. sub. notes
9s, 2012 140,400
85,000 Capital Records, Inc. 144A company
guaranty 8 3/8s, 2009 95,533
140,000 Vivendi Universal SA sr. notes
6 1/4s, 2008 (France) 151,200
100,000 Warner Music Group 144A sr. sub.
notes 7 3/8s, 2014 102,500
--------------
489,633
Metals (1.9%)
-------------------------------------------------------------------------------
120,000 AK Steel Corp. company guaranty
7 3/4s, 2012 122,400
80,000 Armco, Inc. sr. notes 8 7/8s, 2008 82,500
60,000 Century Aluminum Co. 144A company
guaranty 7 1/2s, 2014 63,000
175,000 Gerdau Ameristeel Corp. sr. notes
10 3/8s, 2011 (Canada) 205,188
85,000 International Steel Group, Inc. sr.
notes 6 1/2s, 2014 90,313
10,000 Kaiser Aluminum & Chemical Corp. sr.
notes Ser. B, 10 7/8s, 2006 (In
default) (NON) 8,550
EUR 80,000 SGL Carbon SA 144A sr. notes 8 1/2s,
2012 (Luxembourg) 116,305
$110,000 Steel Dynamics, Inc. company
guaranty 9 1/2s, 2009 121,825
175,000 Ucar Finance, Inc. company guaranty
10 1/4s, 2012 197,750
214,000 United States Steel Corp. sr. notes
9 3/4s, 2010 246,100
7,201 Wheeling-Pittsburgh Steel Corp. sr.
notes 6s, 2010 5,401
13,998 Wheeling-Pittsburgh Steel Corp. sr.
notes 5s, 2011 10,499
40,000 WHX Corp. sr. notes 10 1/2s, 2005 38,000
--------------
1,307,831
Other (3.5%)
-------------------------------------------------------------------------------
2,375,000 Dow Jones CDX HY 144A pass-through
certificates 7 3/4s, 2009 2,410,583
Publishing (4.7%)
-------------------------------------------------------------------------------
300,000 Advertising Direct 144A sr. notes
9 1/4s, 2012 (Canada) 313,500
382,086 Canada, Inc. 144A sr. sub. notes 8s,
2012 (Canada) 408,832
185,000 Dex Media West, LLC/Dex Media
Finance Co. sr. notes Ser. B,
8 1/2s, 2010 206,275
85,000 Dex Media, Inc. disc. notes zero %,
2013 65,238
345,000 Dex Media, Inc. notes 8s, 2013 369,581
140,000 Houghton Mifflin Co. sr. sub. notes
9 7/8s, 2013 154,000
175,000 MediaNews Group, Inc. sr. sub. notes
6 7/8s, 2013 179,375
185,000 Primedia, Inc. company guaranty
8 7/8s, 2011 190,550
80,000 Primedia, Inc. company guaranty
7 5/8s, 2008 80,000
135,000 Primedia, Inc. 144A sr. notes 8s,
2013 133,650
335,000 Reader's Digest Association, Inc.
(The) sr. notes 6 1/2s, 2011 349,238
20,000 RH Donnelley Finance Corp. I company
guaranty 8 7/8s, 2010 22,400
170,000 RH Donnelley Finance Corp. I 144A
sr. notes 8 7/8s, 2010 190,400
85,000 RH Donnelley Finance Corp. I 144A
sr. sub. notes 10 7/8s, 2012 101,575
245,000 Vertis, Inc. company guaranty
Ser. B, 10 7/8s, 2009 267,050
120,000 Vertis, Inc. 144A sub. notes
13 1/2s, 2009 127,200
105,000 WRC Media Corp. sr. sub. notes
12 3/4s, 2009 98,831
--------------
3,257,695
Restaurants (0.3%)
-------------------------------------------------------------------------------
80,000 Domino's, Inc. sr. sub. notes
8 1/4s, 2011 87,200
155,000 Sbarro, Inc. company guaranty 11s,
2009 155,000
--------------
242,200
Retail (2.2%)
-------------------------------------------------------------------------------
80,000 Asbury Automotive Group, Inc. sr.
sub. notes 8s, 2014 79,200
160,000 Autonation, Inc. company guaranty
9s, 2008 182,400
90,000 Finlay Fine Jewelry Corp. sr. notes
8 3/8s, 2012 96,975
155,000 JC Penney Co., Inc. debs. 7.95s,
2017 181,544
30,000 JC Penney Co., Inc. debs. 7.65s,
2016 34,313
90,000 JC Penney Co., Inc. debs. 7 1/8s,
2023 96,975
20,000 JC Penney Co., Inc. notes 9s, 2012 24,600
5,000 JC Penney Co., Inc. notes 8s, 2010 5,700
80,000 Jean Coutu Group, Inc. 144A sr.
notes 7 5/8s, 2012 (Canada) 83,600
155,000 Jean Coutu Group, Inc. 144A sr. sub.
notes 8 1/2s, 2014 (Canada) 157,325
100,000 Rite Aid Corp. company guaranty
9 1/2s, 2011 109,750
5,000 Rite Aid Corp. debs. 6 7/8s, 2013 4,550
15,000 Rite Aid Corp. notes 7 1/8s, 2007 15,150
40,000 Rite Aid Corp. sec. notes 8 1/8s,
2010 42,600
75,000 Rite Aid Corp. sr. notes 9 1/4s,
2013 77,438
5,000 Rite Aid Corp. 144A notes 6s, 2005 5,088
195,000 Saks, Inc. company guaranty 7s, 2013 197,925
70,000 Toys R Us, Inc. notes 7 5/8s, 2011 70,700
70,000 United Auto Group, Inc. company
guaranty 9 5/8s, 2012 78,225
--------------
1,544,058
Technology (3.4%)
-------------------------------------------------------------------------------
200,000 Advanced Micro Devices, Inc. 144A
sr. notes 7 3/4s, 2012 204,000
82,000 AMI Semiconductor, Inc. company
guaranty 10 3/4s, 2013 96,145
70,000 Amkor Technologies, Inc. sr. sub.
notes 10 1/2s, 2009 65,450
150,000 Celestica, Inc. sr.sub. notes
7 7/8s, 2011 (Canada) 159,000
115,000 Iron Mountain, Inc. company guaranty
8 5/8s, 2013 121,900
125,000 Iron Mountain, Inc. company guaranty
7 3/4s, 2015 126,875
10,000 Lucent Technologies, Inc. debs.
6 1/2s, 2028 8,525
175,000 Lucent Technologies, Inc. debs.
6.45s, 2029 150,063
10,000 Lucent Technologies, Inc. notes
5 1/2s, 2008 10,300
65,000 New ASAT Finance, Ltd. 144A company
guaranty 9 1/4s, 2011 (Cayman
Islands) 57,850
175,000 Nortel Networks Corp. notes 6 1/8s,
2006 (Canada) 176,750
153,000 ON Semiconductor Corp. company
guaranty 13s, 2008 175,185
65,000 SCG Holding Corp. 144A notes zero %,
2011 92,950
110,000 Seagate Technology Hdd Holdings
company guaranty 8s, 2009 (Cayman
Islands) 118,250
155,000 UGS Corp. 144A sr. sub. notes 10s,
2012 176,700
130,000 Xerox Capital Trust I company
guaranty 8s, 2027 132,275
65,000 Xerox Corp. notes Ser. MTN, 7.2s,
2016 67,925
210,000 Xerox Corp. sr. notes 7 5/8s, 2013 230,475
180,000 Xerox Corp. sr. notes 6 7/8s, 2011 190,350
--------------
2,360,968
Textiles (0.9%)
-------------------------------------------------------------------------------
260,000 Levi Strauss & Co. sr. notes
12 1/4s, 2012 274,300
75,000 Oxford Industries, Inc. sr. notes
8 7/8s, 2011 81,000
40,000 Phillips-Van Heusen Corp. sr. notes
7 1/4s, 2011 41,900
120,000 Russell Corp. company guaranty
9 1/4s, 2010 129,750
68,000 William Carter Holdings Co. (The)
company guaranty Ser. B, 10 7/8s,
2011 77,860
--------------
604,810
Tire & Rubber (0.4%)
-------------------------------------------------------------------------------
35,000 Goodyear Tire & Rubber Co. (The)
notes 8 1/2s, 2007 37,100
180,000 Goodyear Tire & Rubber Co. (The)
notes 7.857s, 2011 178,650
35,000 Goodyear Tire & Rubber Co. (The)
notes 6 3/8s, 2008 35,000
--------------
250,750
Tobacco (0.1%)
-------------------------------------------------------------------------------
110,000 North Atlantic Trading Co. sr. notes
9 1/4s, 2012 85,800
Transportation (1.0%)
-------------------------------------------------------------------------------
95,000 American Airlines, Inc. pass-through
certificates Ser. 01-1, 6.817s,
2011 87,638
170,000 Calair, LLC/Calair Capital Corp.
company guaranty 8 1/8s, 2008 134,300
200,000 Kansas City Southern Railway Co.
company guaranty 9 1/2s, 2008 227,000
30,000 Kansas City Southern Railway Co.
company guaranty 7 1/2s, 2009 31,238
120,000 Navistar International Corp. company
guaranty Ser. B, 9 3/8s, 2006 128,400
63,692 NWA Trust sr. notes Ser. A, 9 1/4s,
2012 65,683
40,000 Travel Centers of America, Inc.
company guaranty 12 3/4s, 2009 45,300
--------------
719,559
Utilities & Power (7.5%)
-------------------------------------------------------------------------------
13,000 AES Corp. (The) sr. notes 8 7/8s,
2011 14,885
4,000 AES Corp. (The) sr. notes 8 3/4s,
2008 4,400
130,000 AES Corp. (The) 144A sec. notes 9s,
2015 149,500
190,000 AES Corp. (The) 144A sec. notes
8 3/4s, 2013 215,650
100,000 Allegheny Energy Supply 144A bonds
8 1/4s, 2012 113,250
65,000 Allegheny Energy Supply 144A sec.
notes 10 1/4s, 2007 74,263
50,000 CenterPoint Energy Resources Corp.
debs. 6 1/2s, 2008 53,608
25,000 CenterPoint Energy Resources Corp.
sr. notes Ser. B, 7 7/8s, 2013 29,384
15,000 CMS Energy Corp. pass-through
certificates 7s, 2005 15,030
130,000 CMS Energy Corp. sr. notes 8.9s,
2008 143,975
40,000 CMS Energy Corp. sr. notes 8 1/2s,
2011 45,500
30,000 CMS Energy Corp. sr. notes 7 3/4s,
2010 32,775
340,000 DPL, Inc. bonds 8 1/8s, 2031 383,350
55,000 Dynegy Holdings, Inc. sr. notes
6 7/8s, 2011 53,075
245,000 Dynegy Holdings, Inc. 144A sec.
notes 10 1/8s, 2013 286,038
65,000 Dynegy-Roseton Danskamme company
guaranty Ser. A, 7.27s, 2010 65,975
100,000 Dynegy-Roseton Danskamme company
guaranty Ser. B, 7.67s, 2016 96,500
45,000 Edison Mission Energy sr. notes 10s,
2008 52,200
40,000 El Paso CGP Co. notes 7 3/4s, 2010 41,200
65,000 El Paso Corp. sr. notes 7 3/8s, 2012 64,838
160,000 El Paso Corp. sr. notes Ser. MTN,
7 3/4s, 2032 147,200
30,000 El Paso Natural Gas Co. debs.
8 5/8s, 2022 34,200
170,000 El Paso Production Holding Co.
company guaranty 7 3/4s, 2013 177,225
115,000 Ferrellgas Partners LP/Ferrellgas
Partners Finance sr. notes 6 3/4s,
2014 118,450
35,000 Kansas Gas & Electric debs. 8.29s,
2016 36,127
225,000 Midwest Generation, LLC sec. sr.
notes 8 3/4s, 2034 255,094
145,000 Mission Energy Holding Co. sec.
notes 13 1/2s, 2008 181,794
70,000 Monongahela Power Co. 144A 1st.
mtge. 6.7s, 2014 76,902
85,000 Nevada Power Co. 2nd mtge. 9s, 2013 98,600
55,000 Nevada Power Co. 144A general ref.
mtge. 5 7/8s, 2015 55,275
175,000 Northwest Pipeline Corp. company
guaranty 8 1/8s, 2010 195,344
10,000 Northwestern Corp. debs. 6.95s, 2028
(In default) (NON) 8,800
20,000 Northwestern Corp. notes 8 3/4s,
2012 (In default) (NON) 1
445,000 NRG Energy, Inc. 144A sr. sec. notes
8s, 2013 491,724
100,000 Orion Power Holdings, Inc. sr. notes
12s, 2010 126,000
25,000 PG&E Gas Transmission Northwest sr.
notes 7.1s, 2005 25,517
105,000 PSEG Energy Holdings, Inc. notes
7 3/4s, 2007 112,350
85,000 SEMCO Energy, Inc. sr. notes 7 3/4s,
2013 93,075
110,000 SEMCO Energy, Inc. 144A sr. notes
7 3/4s, 2013 113,300
25,000 Sierra Pacific Power Co. general
ref. mtge. 6 1/4s, 2012 26,125
165,000 Sierra Pacific Resources sr. notes
8 5/8s, 2014 188,100
20,000 Southern California Edison Co. notes
6 3/8s, 2006 20,686
55,000 Teco Energy, Inc. notes 10 1/2s,
2007 63,663
35,000 Teco Energy, Inc. notes 7.2s, 2011 38,675
55,000 Teco Energy, Inc. notes 7s, 2012 59,950
15,000 Tennessee Gas Pipeline Co. debs. 7s,
2028 14,700
75,000 Tennessee Gas Pipeline Co. unsecd.
notes 7 1/2s, 2017 81,844
20,000 Transcontinental Gas Pipeline Corp.
debs. 7 1/4s, 2026 21,700
105,000 Utilicorp Canada Finance Corp.
company guaranty 7 3/4s, 2011
(Canada) 110,250
75,000 Utilicorp United, Inc. sr. notes
9.95s, 2011 85,125
70,000 Western Resources, Inc. sr. notes
9 3/4s, 2007 78,485
25,000 Williams Cos., Inc. (The) notes
8 3/4s, 2032 28,875
25,000 Williams Cos., Inc. (The) notes
8 1/8s, 2012 28,875
95,000 Williams Cos., Inc. (The) notes
7 5/8s, 2019 105,925
73,041 York Power Funding 144A notes 12s,
2007 (Cayman Islands) (In default)
(NON) (F) 7
--------------
5,235,359
--------------
Total Corporate bonds and notes
(cost $60,957,671) $63,826,773
Common stocks (2.0%) (a)
Number of shares Value
-------------------------------------------------------------------------------
307 AboveNet, Inc. (NON) (S) $7,982
384 Alderwoods Group, Inc. (NON) 4,063
180,000 AMRESCO Creditor Trust (acquired
various dates from 5/5/99 to
5/10/00, cost $38,828) (NON)(RES)
(R)(F) 180
324 Archibald Candy Corp. (NON) (F) 1
195 Birch Telecom, Inc. (NON) (F) 2
20,176 Coinmach Service Corp. IDS (Income
Deposit Securities) (NON) (S) 275,200
85 Comdisco Holding Co., Inc. (S) 2,125
505,286 Contifinancial Corp. Liquidating
Trust Units 5,053
3,010 Covad Communications Group, Inc.
(NON) (S) 4,696
83 Crown Castle International Corp.
(NON) 1,401
5,403 Globix Corp. (NON) 16,479
115,000 iPCS Escrow, Inc. (NON) 115
3,613 iPCS, Inc. (NON) 92,493
33 Knology, Inc. (NON) 114
19 Leucadia National Corp. 1,191
1,111 Lodgian, Inc. (NON) 11,788
20,000 Loewen Group International, Inc.
(NON) (F) 2
978 Northwestern Corp. (NON) 16,826
136 Polymer Group, Inc. Class A (NON) 2,584
576 PSF Group Holdings, Inc. 144A Class
A (NON) (F) 863,685
10 Sterling Chemicals, Inc. (NON) 320
178 Sun Healthcare Group, Inc. (NON) 1,335
40 USA Mobility, Inc. (NON) 1,454
259,509 VFB, LLC (acquired various dates
from 12/21/99 to 10/27/00, cost
$214,226) (NON)(RES) 49,307
40,417 VS Holdings, Inc. (NON) 30,313
816 Washington Group International, Inc.
(NON) 31,824
--------------
Total Common stocks
(cost $4,225,013) $1,420,533
Foreign government bonds and notes (1.3%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$35,000 Colombia (Republic of) bonds
10 3/8s, 2033 $39,638
35,000 Colombia (Republic of) bonds
Ser. NOV, 9 3/4s, 2009 39,515
75,000 Colombia (Republic of) notes
10 3/4s, 2013 87,900
115,000 Ecuador (Republic of) bonds
stepped-coupon Ser. REGS, 8s, 2030 98,670
140,000 Indonesia (Republic of) 144A sr.
notes 6 3/4s, 2014 137,200
45,000 Peru (Republic of) bonds 8 3/4s,
2033 45,473
10,000 Philippines (Republic of) bonds
8 3/8s, 2011 10,000
155,000 Philippines (Republic of) sr. notes
8 7/8s, 2015 152,908
170,000 Russia (Federation of) unsub.
stepped-coupon 5s (7 1/2s,
3/31/07), 2030 (STP) 168,725
18,667 Ukraine (Government of) sr. notes
Ser. REGS, 11s, 2007 19,531
120,000 United Mexican States bonds
Ser. MTN, 8.3s, 2031 135,840
--------------
Total Foreign government bonds and
notes (cost $856,486) $935,400
Preferred stocks (0.6%) (a)
Number of shares Value
-------------------------------------------------------------------------------
1,828 Doane Pet Care Co. $7.125 pfd. $82,260
3 Dobson Commu1,140
80 First Republic Capital Corp. 144A
10.50% pfd. 82,800
2,152 iStar Financial, Inc. Ser. F, $1.95
cum. pfd. (R) 54,661
19 Paxson Communications Corp. 14.25%
cum. pfd. (PIK) (S) 142,500
100 Primedia, Inc. Ser. F, $9.20 cum.
pfd. 8,750
84 Rural Cellular Corp. Ser. B, 11.375%
cum. pfd. (PIK) 67,200
--------------
Total Preferred stocks
(cost $486,749) $439,311
Convertible bonds and notes (0.6%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$490,000 Cybernet Internet Services
International, Inc. 144A cv. sr.
disc. notes 13s, 2009 (Denmark) (In
default) (NON) $5
65,000 Fairchild Semiconductor
International, Inc. cv. company
guaranty 5s, 2008 65,406
390,000 Kulicke & Soffa Industries, Inc. cv.
sub. notes 0.5s, 2008 300,300
50,000 WCI Communities, Inc. cv. sr. sub.
notes 4s, 2023 57,875
--------------
Total Convertible bonds and notes
(cost $811,431) $423,586
Convertible preferred stocks (0.3%) (a)
Number of shares Value
-------------------------------------------------------------------------------
1,537 Crown Castle International Corp.
$3.125 cum. cv. pfd. $75,313
917 Omnicare, Inc. $2.00 cv. pfd. 47,799
1,160 Williams Cos., Inc. (The) 144A $2.75
cv. pfd. 98,745
--------------
Total Convertible preferred stocks
(cost $156,761) $221,857
Units (0.3%) (a) (cost $812,266)
Number of units Value
-------------------------------------------------------------------------------
446 XCL Equity Units (F) $197,851
Warrants (0.2%) (a) (NON) Expiration
Number of warrants date Value
-------------------------------------------------------------------------------
108 AboveNet, Inc. 9/8/08 $864
127 AboveNet, Inc. 9/8/10 508
200 Dayton Superior Corp. 144A 6/15/09 1
1 Doe Run Resources Corp. 144A (F) 10/29/12 1
205 Huntsman Co., LLC 144A 5/15/11 71,747
89 MDP Acquisitions PLC 144A 10/1/13 3,560
70 Mikohn Gaming Corp. 144A 8/15/08 105
8 NTL, Inc. 1/13/11 34
80 Pliant Corp. 144A 6/1/10 1
120 Travel Centers of America, Inc. 144A 5/1/09 600
350 Ubiquitel, Inc. 144A 4/15/10 1
503 Washington Group International, Inc.
Ser. A 1/25/06 5,835
575 Washington Group International, Inc.
Ser. B 1/25/06 5,290
310 Washington Group International, Inc.
Ser. C 1/25/06 2,527
190 XM Satellite Radio Holdings, Inc.
144A 3/15/10 15,200
--------------
Total Warrants (cost $154,669) $106,274
Brady bonds (0.1%) (a) (cost $98,306)
Principal amount Value
-------------------------------------------------------------------------------
$105,600 Peru (Republic of) FRB Ser. PDI, 5s,
2017 $98,736
Senior loans (0.1%) (a) (c) (cost $81,016)
Principal amount Value
-------------------------------------------------------------------------------
$90,000 Olympus Cable bank term loan FRN
Ser. B, 6 3/4s, 2010 $88,959
Asset-backed securities (0.1%) (a) (cost $60,000)
Principal amount Value
-------------------------------------------------------------------------------
$60,000 Verdi Synthetic CLO 144A Ser. 1A,
Class E2, 11.15s, 2010 $60,263
Short-term investments (2.8%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$393,596 Short-term investments held as
collateral for loaned
securities with yields ranging from
1.94% to 2.21% and due dates ranging
from December 1, 2004 to January 7,
2005 (d) $393,449
1,527,879 Putnam Prime Money Market Fund (e) 1,527,879
--------------
Total Short-term investments
(cost $1,921,328) $1,921,328
-------------------------------------------------------------------------------
Total Investments (cost $70,621,696) $69,740,871
-------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $69,622,305.
(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 at this rate.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at November 30, 2004
was $49,487 or less than 0.1% of net assets.
(PIK) Income may be received in cash or additional securities at the
discretion of the issuer.
(F) Security is valued at fair value following procedures approved by
the Trustees.
(R) Real Estate Investment Trust.
(S) Securities on loan, in part or in entirety, at November 30, 2004.
(c) Senior loans are exempt from registration under the Security Act of
1933, as amended, but contain certain restrictions on resale and cannot
be sold publicly. These loans pay interest at rates which adjust
periodically. The interest rate shown for senior loans are the current
interest rates at November 30, 2004. Senior loans are also subject to
mandatory and/or optional prepayment which cannot be predicted. As a
result, the remaining maturity may be substantially less than the stated
maturity shown.
(d) See Note 1 to the financial statements.
(e) See Note 4 to the financial statements regarding investments in
Putnam Prime Money Market Fund.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
The rates shown on Floating Rate Bonds (FRB) and Floating Rate Notes
(FRN) are the current interest rates at November 30, 2004.
Forward currency contracts to sell at November 30, 2004 (Unaudited)
(aggregate face value $349,929)
Aggregate Delivery Unrealized
Value face value date depreciation
----------------------------------------------------------------------------------
Euro $350,973 $349,929 3/16/05 $(1,044)
----------------------------------------------------------------------------------
Credit default contracts outstanding at November 30, 2004 (Unaudited)
Unrealized
Notional appreciation/
amount depreciation
------------------------------------------------------------------------------------------------------
Agreement with Goldman Sachs effective September 2, 2004,
terminating on the date on which the notional amount is reduced
to zero or the date on which the assets securing the reference
obligation are liquidated, the fund receives a payment of the
outstanding notional amount times 2.35% and the fund pays in
the event of a credit default in one of the underlying securities
in the basket of BB CMBS securities. $24,593 $366
Agreement with Goldman Sachs effective September 2, 2004,
terminating on the date on which the notional amount is reduced
to zero or the date on which the assets securing the reference
obligation are liquidated, the fund receives a payment of the
outstanding notional amount times 2.55625% and the fund pays
in the event of a credit default in one of the underlying securities
in the basket of BB CMBS securities. 24,593 125
Agreement with Goldman Sachs effective September 2, 2004,
terminating on the date on which the notional amount is reduced
to zero or the date on which the assets securing the reference
obligation are liquidated, the fund receives a payment of the
outstanding notional amount times 2.4625% and the fund pays
in the event of a credit default in one of the underlying securities
in the basket of BB CMBS securities. 12,296 218
Agreement with Goldman Sachs effective September 2, 2004,
terminating on the date on which the notional amount is reduced
to zero or the date on which the assets securing the reference
obligation are liquidated, the fund receives a payment of the
outstanding notional amount times 2.433% and the fund pays
in the event of a credit default in one of the underlying securities
in the basket of BB CMBS securities. 9,222 173
Agreement with Goldman Sachs effective September 2, 2004,
terminating on the date on which the notional amount is reduced
to zero or the date on which the assets securing the reference
obligation are liquidated, the fund receives a payment of the
outstanding notional amount times 2.475% and the fund pays
in the event of a credit default in one of the underlying securities
in the basket of BB CMBS securities. 6,148 66
Agreement with Goldman Sachs effective September 2, 2004,
terminating on the date on which the notional amount is reduced
to zero or the date on which the assets securing the reference
obligation are liquidated, the fund receives a payment of the
outstanding notional amount times 2.5% and the fund pays
in the event of a credit default in one of the underlying securities
in the basket of BB CMBS securities. 3,074 125
Agreement with Goldman Sachs effective September 2, 2004,
terminating on the date on which the notional amount is reduced
to zero or the date on which the assets securing the reference
obligation are liquidated, the fund receives a payment of the
outstanding notional amount times 2.6% and the fund pays
in the event of a credit default in one of the underlying securities
in the basket of BB CMBS securities. 3,074 (80)
------------------------------------------------------------------------------------------------------
$993
------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of assets and liabilities
November 30, 2004 (Unaudited)
Assets
-------------------------------------------------------------------------------
Investment in securities, at value, including $383,185
of securities on loan (Note 1):
-------------------------------------------------------------------------------
Unaffiliated issuers (identified cost $69,093,817) $68,212,992
-------------------------------------------------------------------------------
Affiliated issuers (identified cost $1,527,879) (Note 4) 1,527,879
-------------------------------------------------------------------------------
Cash 93,273
-------------------------------------------------------------------------------
Dividends, interest and other receivables 1,388,918
-------------------------------------------------------------------------------
Receivable for securities sold 701,754
-------------------------------------------------------------------------------
Receivable for open credit default contracts (Note 1) 1,073
-------------------------------------------------------------------------------
Receivable for closed forward currency contracts (Note 1) 8,711
-------------------------------------------------------------------------------
Total assets 71,934,600
Liabilities
-------------------------------------------------------------------------------
Distributions payable to shareholders 405,332
-------------------------------------------------------------------------------
Payable for securities purchased 1,243,378
-------------------------------------------------------------------------------
Payable for compensation of Manager (Notes 2 and 4) 128,308
-------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 31,544
-------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 30,082
-------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,046
-------------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 1,044
-------------------------------------------------------------------------------
Payable for closed forward currency contracts (Note 1) 42,873
-------------------------------------------------------------------------------
Payable for open credit default contracts (Note 1) 80
-------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 393,449
-------------------------------------------------------------------------------
Other accrued expenses 35,159
-------------------------------------------------------------------------------
Total liabilities 2,312,295
-------------------------------------------------------------------------------
Net assets $69,622,305
Represented by
-------------------------------------------------------------------------------
Paid-in capital (unlimited shares authorized) (Note 1) $104,868,809
-------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (706,059)
-------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (33,659,746)
-------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and
liabilities in foreign currencies (880,699)
-------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $69,622,305
-------------------------------------------------------------------------------
Computation of net asset value
-------------------------------------------------------------------------------
Net asset value per share ($69,622,305 divided by 7,507,107
shares) $9.27
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of operations
Six months ended November 30, 2004 (Unaudited)
Investment income:
-------------------------------------------------------------------------------
Interest (including interest income of $14,892 from
investments in affiliated issuers) (Note 4) $2,757,614
-------------------------------------------------------------------------------
Dividends 29,564
-------------------------------------------------------------------------------
Securities lending 176
-------------------------------------------------------------------------------
Total investment income 2,787,354
Expenses:
-------------------------------------------------------------------------------
Compensation of Manager (Note 2) 258,104
-------------------------------------------------------------------------------
Investor servicing fees (Note 2) 17,182
-------------------------------------------------------------------------------
Custodian fees (Note 2) 51,923
-------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 5,445
-------------------------------------------------------------------------------
Administrative services (Note 2) 3,120
-------------------------------------------------------------------------------
Auditing 22,426
-------------------------------------------------------------------------------
Other 37,869
-------------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Note 4) (1,529)
-------------------------------------------------------------------------------
Total expenses 394,540
-------------------------------------------------------------------------------
Expense reduction (Note 2) (507)
-------------------------------------------------------------------------------
Net expenses 394,033
-------------------------------------------------------------------------------
Net investment income 2,393,321
-------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (403,988)
-------------------------------------------------------------------------------
Net realized gain on credit default contracts (Note 1) 313
-------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (35,545)
-------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the period 3,341
-------------------------------------------------------------------------------
Net unrealized appreciation of investments and credit
default contracts during the period 3,918,239
-------------------------------------------------------------------------------
Net gain on investments 3,482,360
-------------------------------------------------------------------------------
Net increase in net assets resulting from operations $5,875,681
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of changes in net assets
Six months ended Year ended
November 30 May 31
Increase in net assets 2004* 2004
-------------------------------------------------------------------------------
Operations:
-------------------------------------------------------------------------------
Net investment income $2,393,321 $5,039,143
-------------------------------------------------------------------------------
Net realized loss on investments and foreign
currency transactions (439,220) (846,736)
-------------------------------------------------------------------------------
Net unrealized appreciation of investments
and assets and liabilities in foreign
currencies 3,921,580 3,612,657
-------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 5,875,681 7,805,064
-------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
-------------------------------------------------------------------------------
From net investment income (2,431,997) (4,993,812)
-------------------------------------------------------------------------------
From return of capital -- (50,354)
-------------------------------------------------------------------------------
Total increase in net assets 3,443,684 2,760,898
Net assets
-------------------------------------------------------------------------------
Beginning of period 66,178,621 63,417,723
-------------------------------------------------------------------------------
End of period (including distributions in
excess of net investment income of $706,059
and $667,383, respectively) $69,622,305 $66,178,621
-------------------------------------------------------------------------------
Number of fund shares
-------------------------------------------------------------------------------
Shares outstanding at beginning and end of
period 7,507,107 7,507,107
-------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
Six months
ended
Nov. 30
Per-share (Unaudited) Year ended May 31
operating performance 2004 2004 2003 2002 2001 2000
------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $8.82 $8.45 $8.50 $9.49 $10.91 $12.30
------------------------------------------------------------------------------------------------------------------------------
Investment operations:
------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .32 (d) .67 (d) .73 .86 1.16 1.16
------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .45 .37 (.01) (.86) (1.41) (1.27)
------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .77 1.04 .72 -- (e) (.25) (.11)
------------------------------------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.32) (.66) (.76) (.87) (1.17) (1.21)
------------------------------------------------------------------------------------------------------------------------------
From return of capital -- (.01) (.01) (.12) -- (.07)
------------------------------------------------------------------------------------------------------------------------------
Total distributions (.32) (.67) (.77) (.99) (1.17) (1.28)
------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.27 $8.82 $8.45 $8.50 $9.49 $10.91
------------------------------------------------------------------------------------------------------------------------------
Market price,
end of period $8.37 $7.92 $9.02 $9.48 $10.80 $10.19
------------------------------------------------------------------------------------------------------------------------------
Total return at
market price (%)(b) 9.87* (4.99) 4.15 (2.91) 18.34 (15.61)
------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $69,622 $66,179 $63,418 $63,826 $71,211 $81,898
------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .58* (d) 1.19 (d) 1.22 1.19 1.14 1.08
------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.52* (d) 7.57 (d) 9.17 9.69 11.41 9.92
------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 31.19* 66.18 73.72 73.39 97.63 97.22
------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(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) Reflects waivers of certain fund expenses in connection with
investments in Putnam Prime Money Market Fund during the period. As a
result of such waivers, the expenses of the fund for the periods ended
November 30, 2004 and May 31, 2004 reflect a reduction of less than
0.01% based on average net assets (Note 4).
(e) Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial
statements.
Notes to financial statements
November 30, 2004 (Unaudited)
Note 1
Significant accounting policies
Putnam Managed High Yield Trust (the "fund"), a Massachusetts business
trust, is registered under the Investment Company Act of 1940, as
amended, as a non-diversified, closed-end management investment company.
The fund's primary investment objective is to seek high current income.
The fund intends to achieve its objective by investing in high yielding
income securities. The fund invests in higher yielding, lower rated
bonds that have a higher rate of default due to the nature of the
investments.
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 Market quotations are not considered to be readily
available for certain debt obligations; such investments are valued at
fair value on the basis of valuations furnished by an independent
pricing service or dealers, approved by the Trustees. Such services or
dealers determine valuations for normal institutional-size trading units
of such securities using methods based on market transactions for
comparable securities and various relationships, generally recognized by
institutional traders, between securities. Many securities markets and
exchanges outside the U.S. close prior to the close of the New York
Stock Exchange and therefore the closing prices for securities in such
markets or on such exchanges may not fully reflect events that occur
after such close but before the close of the New York Stock Exchange.
Accordingly, on certain days, the fund will fair value foreign
securities taking into account multiple factors, including movements in
the U.S. securities markets. The number of days on which fair value
prices will be used will depend on market activity and it is possible
that fair value prices will be used by the fund to a significant extent.
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 valued at amortized cost, which
approximates fair value. Other investments, including restricted
securities, are valued at fair value following procedures approved by
the Trustees. Such valuations and procedures are reviewed periodically
by the Trustees.
B) Joint trading account Pursuant to an Exemptive Order from the
Securities and Exchange Commission, 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) Security transactions and related investment income Security
transactions are recorded 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, net
of applicable withholding taxes, is recognized on the ex-dividend date
except that certain dividends from foreign securities are recognized as
soon as the fund is informed of 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.
The fund earned certain fees in connection with its senior loan
purchasing activities. These fees are treated as market discount and are
recorded as income in the statement of operations.
D) 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 earned 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, currency gains and losses realized
between the trade and settlement dates on securities transactions 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.
E) Forward currency contracts The fund may buy and sell forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date. These contracts are used to
protect against a decline in value relative to the U.S. dollar of the
currencies in which its portfolio securities are denominated or quoted
(or an increase in the value of a currency in which securities a fund
intends to buy are denominated, when a fund holds cash reserves and
short term investments). The U.S. dollar value of forward currency
contracts is determined using current forward currency exchange rates
supplied by a quotation service. The market value of the contract will
fluctuate with changes in currency exchange rates. The contract is
marked to market daily and the change in market value is recorded as an
unrealized gain or loss. 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. The fund could be exposed to risk if the value of the currency
changes unfavorably, if the counterparties to the contracts are unable
to meet the terms of their contracts or if the fund is unable to enter
into a closing position. Risks may exceed amounts recognized on the
statement of assets and liabilities. Forward currency contracts
outstanding at period end, if any, are listed after the fund's
portfolio.
F) Credit default contracts The fund may enter into credit default
contracts where one party, the protection buyer, makes an upfront or
periodic payment to a counterparty, the protection seller, in exchange
for the right to receive a contingent payment. The maximum amount of the
payment may equal the notional amount, at par, of the underlying index
or security as a result of a related credit event. An upfront payment
received by the fund, as the protection seller, is recorded as a
liability on the fund's books. An upfront payment made by the fund, as
the protection buyer, is recorded as an asset on the fund's books.
Periodic payments received or paid by the fund are recorded as realized
gains or losses. The credit default contracts are marked-to-market daily
based upon quotations from market makers and the change, if any, is
recorded as unrealized gain or loss. Payments received or made as a
result of a credit event or termination of the contract are recognized,
net of a proportional amount of the upfront payment, as realized gains
or losses. In addition to bearing the risk that the credit event will
occur, the fund could be exposed to market risk due to unfavorable
changes in interest rates or in the price of the underlying security or
index, the possibility that the fund may be unable to close out its
position at the same time or at the same price as if it had purchased
comparable publicly traded securities or that the counterparty may
default on its obligation to perform. Risks of loss may exceed amounts
recognized on the statement of assets and liabilities. Credit default
contracts outstanding at period end, if any, are listed after the fund's
portfolio.
G) Security lending The fund may lend securities, through its agents, 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 the fund's agents; 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 November 30, 2004, the value
of securities loaned amounted to $383,185. The fund received cash
collateral of $393,449 which is pooled with collateral of other Putnam
funds into 20 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 of 1986 (the "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 Code, 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, 2004, the fund had a capital loss carryover of $32,039,053
available to the extent allowed by the Code to offset future net capital
gain, if any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
------------------------------
$2,584,483 May 31, 2007
4,168,119 May 31, 2008
3,778,275 May 31, 2009
8,384,999 May 31, 2010
11,264,568 May 31, 2011
1,858,609 May 31, 2012
Pursuant to federal income tax regulations applicable to regulated
investment companies, the fund has elected to defer to its fiscal year
ending May 31, 2005 $1,145,185 of losses recognized during the period
November 1, 2003 to May 31, 2004.
The aggregate identified cost on a tax basis is $70,917,779, resulting
in gross unrealized appreciation and depreciation of $4,266,290 and
$5,443,198, respectively, or net unrealized depreciation of $1,176,908.
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. 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.
Note 2
Management fee, administrative
services and other transactions
Putnam Management is paid for management and investment advisory
services quarterly based on the average net assets of the fund. Such fee
is based on 0.75% of the average weekly net assets.
Effective September 13, 2004, Putnam Investments Limited ("PIL"), an
affiliate of Putnam Management is authorized by the Trustees to manage a
separate portion of the assets of the fund as determined by Putnam
Management from time to time. Putnam Management pays a quarterly
sub-management fee to PIL for its services at an annual rate of 0.40% of
the average net assets of the portion of the fund managed by PIL.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The
aggregate amount of all such reimbursements is determined annually by
the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company ("PFTC"), a subsidiary of Putnam, LLC. Putnam
Investor Services, a division of PFTC, provides investor servicing agent
functions to the fund. During the six months ended November 30, 2004,
the fund paid PFTC $69,105 for these services.
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 six months ended November 30,
2004, the fund's expenses were reduced by $507 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $539, as a quarterly retainer, as 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 Trustee compensation and expenses in the
statement of operations. Accrued pension liability is included in
Payable for Trustee compensation and expenses in the statement of assets
and liabilities. The Trustees have terminated the Pension Plan with
respect to any Trustee first elected after 2003.
Note 3
Purchases and sales of securities
During the six months ended November 30, 2004, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $20,600,706 and $20,319,035, respectively. There
were no purchases or sales of U.S. government securities.
Note 4
Investment in Putnam Prime
Money Market Fund
Pursuant to an Exemptive Order from the Securities and Exchange
Commission, the fund invests in Putnam Prime Money Market Fund, an
open-end management investment company managed by Putnam Management.
Management fees paid by the fund are reduced by an amount equal to the
management fees paid by Putnam Prime Money Market Fund with respect to
assets invested by the fund in Putnam Prime Money Market Fund. For the
period ended November 30, 2004, management fees paid were reduced by
$1,529 relating to the fund's investment in Putnam Prime Money Market
Fund. Income distributions earned by the fund are recorded as income in
the statement of operations and totaled $14,892 for the period ended
November 30, 2004.
Note 5
Senior loan commitments
Senior loans are purchased or sold on a when-issued or delayed delivery
basis and may be settled a month or more after the trade date; interest
income is accrued based on the terms of the securities. Senior loans can
be acquired through an agent, by assignment from another holder of the
loan, or as a participation interest in another holder's portion of the
loan. When the fund invests in a loan or participation, the fund is
subject to the risk that an intermediate participant between the fund
and the borrower will fail to meet its obligations to the fund, in
addition to the risk that the borrower under the loan may default on its
obligations.
Note 6
Regulatory matters and litigation
On April 8, 2004, Putnam Management entered into agreements with the
Securities and Exchange Commission and the Massachusetts Securities
Division representing a final settlement of all charges brought against
Putnam Management by those agencies on October 28, 2003 in connection
with excessive short-term trading by Putnam employees and, in the case
of the charges brought by the Massachusetts Securities Division, by
participants in some Putnam-administered 401(k) plans. The settlement
with the SEC requires Putnam Management to pay $5 million in
disgorgement plus a civil monetary penalty of $50 million, and the
settlement with the Massachusetts Securities Division requires Putnam
Management to pay $5 million in restitution and an administrative fine
of $50 million. The settlements also leave intact the process
established under an earlier partial settlement with the SEC under which
Putnam Management agreed to pay the amount of restitution determined by
an independent consultant, which may exceed the disgorgement and
restitution amounts specified above, pursuant to a plan to be developed
by the independent consultant.
Putnam Management, and not the investors in any Putnam fund, will bear
all costs, including restitution, civil penalties and associated legal
fees stemming from both of these proceedings. The SEC's and
Massachusetts Securities Division's allegations and related matters also
serve as the general basis for numerous lawsuits, including purported
class-action lawsuits filed against Putnam Management and certain
related parties, including certain Putnam funds. Putnam Management has
agreed to bear any costs incurred by Putnam funds in connection with
these lawsuits. Based on currently available information, Putnam
Management believes that the likelihood that the pending private
lawsuits and purported class-action lawsuits will have a material
adverse financial impact on the fund is remote, and the pending actions
are not likely to materially affect its ability to provide investment
management services to its clients, including the Putnam funds.
Results of October 14, 2004 shareholder meeting
(Unaudited)
An annual meeting of shareholders of the fund was held on October 14,
2004. At the meeting, each of the nominees for Trustees was elected, as
follows:
Votes
Votes for withheld
-----------------------------------------------------------------
Jameson A. Baxter 6,210,457 159,461
Charles B. Curtis 6,209,907 160,011
Myra R. Drucker 6,205,910 164,008
Charles E. Haldeman, Jr. 6,211,747 158,171
John A. Hill 6,214,022 155,896
Ronald J. Jackson 6,215,937 153,981
Paul L. Joskow 6,214,637 155,281
Elizabeth T. Kennan 6,205,557 164,361
John H. Mullin, III 6,217,907 152,011
Robert E. Patterson 6,209,437 160,481
George Putnam, III 6,215,959 153,959
A.J.C. Smith 6,208,753 161,165
W. Thomas Stephens 6,215,407 154,511
Richard B. Worley 6,213,960 155,958
All tabulations are rounded to the nearest whole number.
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 over 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 LLP
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Myra R. Drucker
Charles E. Haldeman, Jr.
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
John H. Mullin, III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
Richard B. Worley
Officers
George Putnam, III
President
Charles E. Porter
Executive Vice President,
Associate Treasurer and
Principal Executive Officer
Jonathan S. Horwitz
Senior Vice President and Treasurer
Steven D. Krichmar
Vice President and
Principal Financial Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
Daniel T. Gallagher
Vice President and Legal and
Compliance Liaison Officer
Beth S. Mazor
Vice President
James P. Pappas
Vice President
Richard S. Robie, III
Vice President
Mark C. Trenchard
Vice President and BSA
Compliance Officer
Francis J. McNamara, III
Vice President and Chief
Legal Officer
Charles A. Ruys de Perez
Vice President and Chief
Compliance Officer
Judith Cohen
Clerk and Assistant Treasurer
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or
visit our Web site (www.putnaminvestments.com) any time for up-to-date
information about the fund's NAV.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
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216556 1/05
Item 2. Code of Ethics:
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Not applicable
Item 3. Audit Committee Financial Expert:
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Not applicable
Item 4. Principal Accountant Fees and Services:
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Not applicable
Item 5. Audit Committee: Not applicable
-------------------------
Item 6. Schedule of Investments: Not applicable
--------------------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End
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Management Investment Companies: Not applicable
--------------------------------
Item 8. Purchases of Equity Securities by Closed-End Management Investment
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Companies and Affiliated Purchasers: Not applicable
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Item 9. Submission of Matters to a Vote of Security Holders:
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Not applicable
Item 10. Controls and Procedures:
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(a) The registrant's principal executive officer and principal
financial officer have concluded, based on their evaluation of the
effectiveness of the design and operation of the registrant's
disclosure controls and procedures as of a date within 90 days of
the filing date of this report on Form N-CSR, that the design and
operation of such procedures are generally effective to provide
reasonable assurance that information required to be disclosed by
the investment company in the reports that it files or submits under
the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the
Commission's rules and forms.
(b) Changes in internal control over financial reporting:
Not applicable
Item 11. Exhibits:
------------------
(a) Not applicable
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act
of 2002 are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: January 28, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Executive Officer
Date: January 28, 2005
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: January 28, 2005