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:
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
5-31-05
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From the Trustees
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John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
During the period ended May 31, 2005, the Federal Reserve Board's series
of gradual increases in the federal funds rate occupied investors'
attention. The Fed's more restrictive monetary policy, along with high
energy prices, has moderated the pace of the economic expansion. Recent
reports show the economy is growing at a respectable rate of about 3.5%
annually, but some investors believe that this pace cannot sustain
corporate profits near their robust levels of late. This concern has
held the stock market in check and focused attention on credit risk in
the bond market, even as long-term bond yields remained low. Major
credit rating agencies underscored market concerns in early May by
downgrading bonds issued by Ford and General Motors. Amid the
uncertainties of this environment, security selection takes on even
greater importance and the in-depth, professional research and active
management that mutual funds can provide makes them an intelligent
choice for today's investors.
We want you to know that Putnam Investments' management team, under the
leadership of Chief Executive Officer Ed Haldeman, continues to focus on
investment performance and remains committed to putting the interests of
shareholders first. In keeping with these goals, we are including
additional disclosure about your fund's management team in this report.
Following the Outlook for Your Fund, we provide manager compensation
information that pertains to your fund. In addition, on page 13 of this
report we provide information about the 2004 approval by the Trustees of
your fund's management contract with Putnam.
We would also like to take this opportunity to announce the retirement
of one of your fund's Trustees, Ronald J. Jackson, who has been an
independent Trustee of the Putnam funds since 1996. We thank him for his
service.
In the following pages, members of your fund's management team discuss
the fund's performance, the strategies used to pursue the fund's
investment objectives during the reporting period, and the team's
outlook for the months ahead.
As always, we thank you for your continuing confidence in Putnam.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
July 20, 2005
Report from Fund Management
Fund highlights
* For the 12 months ended May 31, 2005, Putnam Managed High Yield Trust
had total returns of 10.44% at net asset value (NAV) and 8.43% at market
price.
* The fund's primary benchmark, the JP Morgan Developed High Yield
Index, returned 9.55% for the same period.
* The average return for the fund's Lipper category, High Current Yield
Funds (closed-end), was 11.32%.
* The fund's monthly dividend was reduced to $0.049 per share, effective
December 2004. See page 5 for details.
* See the Performance Summary beginning on page 10 for additional fund
performance, comparative performance, and Lipper data.
Performance commentary
For the first seven months of its past fiscal year, Putnam Managed High
Yield Trust benefited from solid economic growth, low inflation,
declining corporate default rates, and declining long-term interest
rates. In the latter five months, however, the market was more volatile
and the fund's performance was essentially flat. Nevertheless, for the
full fiscal year, the management team's successful security selection,
emphasis on risk management, and diversification across a range of
sectors and holdings enabled the fund to outperform its benchmark index,
based on results at NAV (net asset value). Although the fund
underperformed its Lipper peer group average, comparisons in this
category can be difficult because the category contains only eight
funds, some of which use leverage (which your fund is not permitted to
use) in order 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 results, it may
also be influenced by several other factors, including changes in
investor 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 5/31/05
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Market
(inception 6/25/93) NAV price
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1 year 10.44% 8.43%
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5 years 30.56 23.27
Annual average 5.48 4.27
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10 years 79.77 57.46
Annual average 6.04 4.64
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Annual average
(life of fund) 6.15 4.44
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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. Investment
return, net asset value, and market price will fluctuate and you may
have a gain or a loss when you sell your shares. Performance assumes
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
Looking back over the past 12 months, it appears that the start of the
2005 calendar year marked a change in the high-yield bond market. From
June through December 2004, high-yield bonds benefited from continued
economic growth, declining default rates, and declining long-term
interest rates that helped all bond sectors. These lower-rated bonds
posted strong returns through December, reflecting investors' generally
positive assessments of the creditworthiness of their issuers. Demand
for high-yield bonds remained strong, driven both by new investments and
by reinvestments created by bonds being called, tendered, and upgraded.
Moreover, new issuance, while active, was far below the level necessary
to satisfy the demand for high-yield bonds.
Beginning in March 2005, however, the high-yield market weakened amid
concerns of a maturing credit cycle. In addition, at its meetings in
January, February, and March, the Federal Reserve Board gradually
changed its viewpoint to reflect an increased concern about inflation.
The U.S. and international bond markets took this change as a signal
that future rate increases could be more frequent and higher. All bond
sectors sold off in response, but price declines in the high-yield
market were among the steepest. In April and May, the market recovered,
responding to news that first-quarter growth was lower than expected,
but the recovery could not fully offset the previous declines.
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MARKET SECTOR PERFORMANCE 12 MONTHS ENDED 5/31/05
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Bonds
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JP Morgan Developed High Yield Index (high-yield corporate
bonds) 9.55%
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Lehman Aggregate Bond Index (broad bond market) 6.82%
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Lehman GNMA Index (Government National Mortgage Association
bonds) 6.47%
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Citigroup Non-U.S. World Government Bond Index
(international government bonds) 9.29%
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Equities
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S&P 500 Index (broad stock market) 8.24%
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Russell 2000 Index (small-company stocks) 9.82%
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MSCI EAFE Index (international stocks) 14.62%
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These indexes provide an overview of performance in different market
sectors for the 12 months ended 5/31/05.
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Strategy overview
We continued to seek bonds from diverse sectors in our efforts to
enhance the fund's performance while managing its risk exposure.
Throughout much of the 2003 calendar year (prior to the beginning of the
period covered by this report), we had increased the fund's holdings of
bonds in the lower-quality tiers of the market -- namely, those with CCC
ratings. These bonds had delivered particularly strong performance
throughout 2003 and much of 2004. However, during the summer and fall of
calendar 2004, we sought to selectively reduce exposure to this part of
the market because of high valuations and a greater level of risk. We
began repositioning assets into higher-quality B- and BB-rated bonds
during the fall and winter months.
When the market declined in early 2005, the fund's performance was
helped by this reduced exposure. However, the fund was not significantly
underweighted, relative to its benchmark index, in these securities.
Consequently, the high-yield performance in the first quarter 2005 still
hurt the fund's returns, since it affected the entire high-yield
universe.
The fund's strategy of remaining diversified across a range of industry
sectors and holdings, while selectively underweighting and overweighting
certain industries, was also beneficial during this period. For example,
we had underweighted some specific industry sectors and holdings that
significantly underperformed, such as transportation and forest
products, which was helpful for relative performance -- especially
during the market's decline during the latter months of the period.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY WEIGHTINGS COMPARED]
TOP INDUSTRY WEIGHTINGS COMPARED
as of 11/30/04 as of 5/31/05
Utilities and power 7.5% 7.5%
Chemicals 6.5% 5.5%
Publishing 4.7% 5.5%
Telecommunications 4.9% 4.6%
Oil and gas 3.5% 4.5%
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 sectors and holdings affected performance
The fund's returns were helped both by the bonds and industry sectors we
avoided or deemphasized and by those we focused on more heavily. In this
mature stage of a credit cycle, the marginally higher potential returns
from owning riskier bonds does not, we feel, justify their added risk.
For example, the transportation and forest products sectors, which we
had underweighted relative to the benchmark, were among the
worst-performing sectors in the index, so our strategy helped relative
returns. The fund was also underweighted in the technology sector, which
contributed to relative performance. In the energy, media, and chemicals
sectors, all of which performed well, the fund's overweight strategy
proved valuable. In the utilities industry, bonds have benefited from
increased demand for energy, low interest rates, and a favorable
political climate in Washington.
[GRAPHIC OMITTED: TOP HOLDINGS]
TOP HOLDINGS
(Percent of fund's net assets as of 5/31/05)
1 Dow Jones CDX HY (3.5%)
144A pass-through certificates 7 3/4s, 2009
Other
2 PSF Group Holdings, Inc. (1.5%)
144A Class A common stock
Food
3 Qwest Corp. (0.8%)
144A notes 9 1/8s, 2012
Communications services
4 Nextel Communications, Inc. (0.7%)
Sr. notes 5.95s, 2014
Communications services
5 DPL, Inc. (0.6%)
Bonds 8 1/8s, 2031
Utilities and power
6 Qwest Communications
International, Inc. (0.6%)
144A sr. notes 8s, 2014
Communications services
7 CanWest Media, Inc. (Canada) (0.6%)
144A sr. sub. notes 8s, 2012
Publishing
8 Crown Euro Holdings SA
(France) (0.5%)
Sec. sr. notes 10 7/8s, 2013
Capital goods
9 Legrand SA (France) (0.5%)
Debs. 8 1/2s, 2025
Capital goods
10 NRG Energy, Inc. (0.5%)
144A sr. sec. notes 8s, 2013
Utilities and power
Footnote reads:
The fund's holdings will change over time.
Several holdings made significant contributions. In the utilities sector,
Williams Companies, a large natural gas company serving the northwestern
United States, California, Rocky Mountain, Gulf Coast, and Eastern
Seaboard markets, performed well due to significant increases in natural
gas prices. The company also benefited from management's focus on balance
sheet improvements, which involved focusing on its core pipeline business,
selling nonproductive assets, and paying down debt. In the energy sector,
El Paso Corporation, a natural gas company, also made a positive
contribution. El Paso owns North America's largest natural gas pipeline
system and is one of this continent's largest independent natural gas
providers. In the chemicals industry, the fund's investments in Huntsman
International, a major producer of basic chemicals and petrochemicals like
ethylene and propylene, helped returns. Although energy prices were high,
this cyclical sector continued to benefit from solid demand.
Among the detractors from performance during the period were securities
issued by Icon Health and Fitness, which manufactures equipment for the
health and 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 Fitness had disappointing financial results due to higher
steel costs and weak sales in some product lines, while Paxson had poor
results as hoped-for sales of some of its assets did not transpire. We
continue to hold Icon and Paxson because we believe the bonds are
attractively valued. Charter Communi cations, a cable TV company, also
detracted from results. We have kept Charter bonds in the portfolio
because we consider the company still attractively valued among cable
companies.
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
Fund's dividend reduced
Within the high-yield universe, yields are 120 basis points lower than
they were at 5/31/04. In order to balance attractive income with overall
credit quality, the team reduced exposure to the lowest-rated,
highest-yielding sectors, further reducing the portfolio's earnings. To
reflect this shift, your fund's monthly dividend was reduced from $0.054
per share to $0.049 per share, effective with the December 2004 payment.
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.
We believe the high-yield market is in the latter stages of a general
credit recovery, which began near the end of 2002. Current market
valuations are reasonable. We continue to employ the resources of our
research staff to avoid owning deteriorating, or problematic bonds,
while remaining on the alert to capitalize on any market downswings that
may present attractive buying opportunities. Strategically, we will
continue to seek ways to reduce the riskier holdings in the portfolio,
especially those with CCC ratings, and replace them with higher-quality
bonds, such as those with BB and BBB ratings.
While we don't expect to see the kind of robust returns from high-yield
bonds that occurred in 2003 and 2004, we believe this mature stage of
the high-yield recovery has the potential to continue. Obviously we
can't predict how long it will be until the cycle changes, but given
past history, if the economy shows moderate growth with relatively low
inflation, helping corporations to produce healthy cash flows, we
believe the potential exists for high-yield bonds to produce solid
positive returns over the next 6 to 12 months. That being said, we will
continue to 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. Lower-rated bonds
may offer higher yields in return for more risk. 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. The fund's shares trade on a stock exchange at market
prices, which may be lower than the fund's net asset value.
Your fund's management
Your fund is managed by the members of the Putnam Core Fixed-Income
High-Yield Team. Paul Scanlon is the Portfolio Leader and Robert Salvin
is a Portfolio Member of your fund. The Portfolio Leader and Portfolio
Member 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 Member have invested in the fund (in dollar ranges).
Information shown is as of May 31, 2005, and May 31, 2004.
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FUND PORTFOLIO LEADER AND PORTFOLIO MEMBER
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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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Paul Scanlon 2005 *
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Portfolio Leader 2004 *
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Robert Salvin 2005 *
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Portfolio Member N/A
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N/A indicates the individual was not a Portfolio Leader or Portfolio
Member as of 5/31/04.
Fund manager compensation
The total 2004 fund manager compensation that is attributable to your
fund is approximately $20,000. This amount includes a portion of 2004
compensation paid by Putnam Management to the fund managers listed in
this section for their portfolio management responsibilities, calculated
based on the fund assets they manage taken as a percentage of the total
assets they manage. The compensation amount also includes a portion of
the 2004 compensation paid to the Chief Investment Officer of the team
and the Group Chief Investment Officer of the fund's broader investment
category for their oversight responsibilities, calculated based on the
fund assets they oversee taken as a percentage of the total assets they
oversee. This amount does not include compensation of other personnel
involved in research, trading, administration, systems, compliance, or
fund operations; nor does it include non-compensation costs. These
percentages are determined as of the fund's fiscal period-end. For
personnel who joined Putnam Management during or after 2004, the
calculation reflects annualized 2004 compensation or an estimate of 2005
compensation, as applicable.
Other Putnam funds managed by the Portfolio Leader and Portfolio Member
Paul Scanlon 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, Putnam
Master Intermediate Income Trust, and Putnam Premier Income Trust.
Robert Salvin is also a Portfolio Member of Putnam High Income Bond
Fund, Putnam High Yield Advantage Fund, and Putnam High Yield Trust.
Paul Scanlon and Robert Salvin may also manage other accounts and
variable trust funds advised by Putnam Management or an affiliate.
Changes in your fund's Portfolio Leader and Portfolio Members
During the year ended May 31, 2005, Paul Scanlon became Portfolio Leader
and Robert Salvin became a Portfolio Member of your fund. These changes
followed the departure of Portfolio Leader Stephen Peacher and Portfolio
Member Rosemary Thomsen from your fund's management team, as well as the
departure of Portfolio Member Norman Boucher for another position at
Putnam.
Paul Scanlon joined Putnam in 1999. Currently, he is Team Leader, U.S.
High Yield, and in the past five years, his previous positions at Putnam
have included Portfolio Manager and Analyst. Robert Salvin joined Putnam
in 2000. Currently, he is a Portfolio Manager. His previous positions at
Putnam have included Analyst and Equity Capital Market Specialist.
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 as of
May 31, 2005, and May 31, 2004.
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PUTNAM EXECUTIVE BOARD
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$1 - $10,001 - $50,001- $100,001
Year $0 $10,000 $50,000 $100,000 and over
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Philippe Bibi 2005 *
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Chief Technology Officer 2004 *
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John Boneparth 2005 *
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Head of Global Institutional Mgmt 2004 *
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Joshua Brooks 2005 *
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Deputy Head of Investments N/A
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Kevin Cronin 2005 *
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Head of Investments 2004 *
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Charles Haldeman, Jr. 2005 *
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President and CEO 2004 *
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Amrit Kanwal 2005 *
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Chief Financial Officer 2004 *
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Steven Krichmar 2005 *
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Chief of Operations 2004 *
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Francis McNamara, III 2005 *
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General Counsel 2004 *
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Richard Monaghan 2005 *
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Head of Retail Management 2004 *
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Richard Robie, III 2005 *
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Chief Administrative Officer 2004 *
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Edward Shadek 2005 *
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Deputy Head of Investments N/A
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N/A indicates the individual was not a member of Putnam's Executive
Board as of 5/31/04.
Performance summary
This section shows your fund's performance during its fiscal year, which
ended May 31, 2005. 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 AND COMPARATIVE INDEX RESULTS FOR PERIODS ENDED 5/31/05
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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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1 year 10.44% 8.43% 9.55% 11.32%
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5 years 30.56 23.27 46.78 33.53
Annual average 5.48 4.27 7.98 5.83
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10 years 79.77 57.46 101.34 90.09
Annual average 6.04 4.64 7.25 6.50
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Annual average
Life of fund
(since 6/25/93) 6.15 4.44 -- 6.81
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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. Lipper calculations for reinvested dividends may differ
from actual performance.
* This index began operations on 12/31/94.
+ Over the 1-, 5-, and 10-year periods ended 5/31/05, there were 8, 4,
and 4 funds, respectively, in this Lipper category.
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PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 5/31/05
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Distributions (number) 12
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Income $0.618
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Capital gains --
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Total $0.618
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Share value: NAV Market price
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5/31/04 $8.82 $7.92
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5/31/05 9.04 7.97
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Current return (end of period)
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Current dividend rate 1 6.50% 7.38%
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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 6/30/05 (MOST RECENT CALENDER QUARTER)
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NAV Market price
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1 year 10.70% 12.75%
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5 years 30.68 22.77
Annual average 5.50 4.19
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10 years 81.55 61.82
Annual average 6.14 4.93
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Annual average
Life of fund
(since 6/25/93) 6.25 4.72
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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 Non-U.S. World Government Bond Index is an unmanaged index of
international investment-grade fixed-income securities.
JP Morgan Developed High Yield Index is an unmanaged index of high-yield
fixed-income securities issued in developed countries.
Lehman Aggregate Bond Index is an unmanaged index of U.S.
investment-grade 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 equity securities from developed countries in Western Europe,
the Far East, and Australasia.
Russell 2000 Index is an unmanaged index of the 2,000 smallest companies
in 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.
Trustee approval of management contract
General conclusions
The Board of Trustees of the Putnam funds oversees the management of
each fund and, as required by law, determines annually whether to
approve the continuance of each fund's management contract with Putnam
Management. In this regard the Board of Trustees, with the assistance of
its Contract Committee consisting solely of Independent Trustees,
requests and evaluates all information it deems reasonably necessary in
the circumstances. Over the course of several months beginning in March
and ending in June of 2004, the Contract Committee reviewed the
information provided by Putnam Management and other information
developed with the assistance of the Board's independent counsel and
independent staff. The Contract Committee reviewed and discussed key
aspects of this information with all of the Independent Trustees. Upon
completion of this review, the Contract Committee recommended and the
Independent Trustees approved the continuance of your fund's contract,
effective July 1, 2004.
This approval was based on the following conclusions:
* That the fee schedule currently in effect for your fund represents
reasonable compensation in light of the nature and quality of the
services being provided to the fund, the fees paid by competitive funds
and the costs incurred by Putnam Management in providing such service,
and
* That such fee schedule represents an appropriate sharing between fund
shareholders and Putnam Management of such economies of scale as may
exist in the management of the fund at current asset levels.
These conclusions were based on a comprehensive consideration of all
information provided to the Trustees and were not the result of any
single factor. Some of the factors that figured particularly in the
Trustees' deliberations are described below.
Model fee schedules and categories; total expenses
The Trustees, working in cooperation with Putnam Management, have
developed and implemented a series of model fee schedules for the Putnam
funds designed to ensure that each fund's management fee is consistent
with the fees for similar funds in the Putnam complex and compares
favorably with fees paid by competitive funds sponsored by other advisors.
The Trustees reviewed the model fee schedule currently in effect for the
fund, including fee levels and breakpoints, and the assignment of the fund
to a particular fee category under this structure. The Trustees also
reviewed comparative fee and expense information for competitive funds.
The Trustees concluded that no changes should be made in the fund's
current fee schedule at this time. The Trustees noted that expense ratios
for a number of Putnam funds had been increasing recently as a result of
declining net assets and the natural operation of fee breakpoints. They
noted that such expense ratio increases were currently being controlled by
expense limitations implemented in January 2004. They also noted that the
competitive landscape regarding mutual fund fees may be changing as a
result of fee reductions accepted by various other fund groups in
connection with recent regulatory settlements and greater focus on fees
and expenses in the mutual fund industry generally. The Trustees indicated
an intention to monitor these developments closely.
Economies of scale
As noted above, the Trustees concluded that the fee schedule currently
in effect for your fund represents an appropriate sharing of economies
of scale at current asset levels. The Trustees indicated their intention
to continue their ongoing consideration of economies of scale and in
particular to consider further the possible operation of such economies
in the event that a significant recovery in the equity markets or net
fund sales were to raise asset levels substantially above current
levels. In this regard, the Trustees noted that they had reviewed data
relating to the substantial increase in asset levels of the Putnam funds
that occurred during the years leading up to the market peak in 2000,
the subsequent decline in assets and the resulting impact on revenues
and expenses of Putnam Management. The Trustees also noted that recent
declines in net assets in many Putnam funds, together with significant
changes in the cost structure of Putnam Management have altered the
economics of Putnam Management's business in significant ways. The
Trustees concluded that they would monitor these changes carefully and
evaluate the resulting impact on Putnam Management's economics and the
sharing of economies of scale between the parties.
Investment performance
The quality of the investment process provided by Putnam Management
represented a major factor in the Trustees' evaluation of the quality of
services provided by Putnam Management under the Management Contracts.
The Trustees recognized that a high quality investment process -- as
measured by the experience and skills of the individuals assigned to the
management of fund portfolios, the resources made available to such
personnel, and in general the ability of Putnam Management to attract
and retain high-quality personnel -- does not guarantee favorable
investment results for every fund in every time period. The Trustees
considered the investment performance of each fund over multiple time
periods and considered information comparing the fund's performance with
various benchmarks and with the performance of competitive funds. The
Trustees noted the satisfactory investment performance of many Putnam
funds.
They also noted the disappointing investment performance of certain
funds in recent years and continued to discuss with senior management of
Putnam Management the factors contributing to such under-performance and
actions being taken to improve performance. The Trustees recognized
that, in recent years, Putnam Management has made significant changes in
its investment personnel and processes and in the fund product line in
an effort to address areas of underperformance. The Trustees indicated
their intention to continue to monitor performance trends to assess the
effectiveness of these changes and to evaluate whether additional
remedial changes are warranted. As a general matter, the Trustees
concluded that consultation between the Trustees and Putnam Management
represents the most effective way to address investment performance
problems. The Trustees believe that investors in the Putnam funds and
their financial advisors have, as a general matter, effectively placed
their trust in the Putnam organization, under the supervision of the
funds' Trustees, to make appropriate decisions regarding the management
of the funds. The Trustees believe that the termination of the
Management Contract and engagement of a new investment adviser for
under-performing funds, with all the attendant disruptions, would not
serve the interests of fund shareholders at this time and would not
necessarily provide any greater assurance of improved investment
performance.
Brokerage and soft-dollar allocations; other benefits
The Trustees considered various potential benefits that Putnam
Management may receive in connection with the services it provides under
the Management Contract with your fund. These include principally
benefits related to brokerage and soft-dollar allocations, which pertain
mainly to funds investing in equity securities. The Trustees believe
that soft-dollar credits and other potential benefits associated with
the allocation of fund brokerage represent assets of the funds that
should be used for the benefit of fund shareholders. The Trustees noted
recent trends in the allocation of fund brokerage, including commission
costs, the allocation of brokerage to firms that provide research
services to Putnam Management, and the sources and application of
available soft-dollar credits. Effective December 31, 2003, reflecting a
decision made by the Trustees earlier that year, Putnam Management
ceased allocating brokerage in connection with the sale of fund shares.
In addition, in preparing its budget for commission allocations in 2004,
Putnam Management voluntarily reduced substantially the allocation of
brokerage commissions to acquire research services from third-party
service providers. In light of evolving best practices in the mutual
fund industry, the Trustees concluded that this practice should be
further curtailed and possibly eliminated in the near future. The
Trustees indicated that they would continue to monitor the allocation of
the funds' brokerage to ensure that the principle of "best price and
execution" remains paramount in the portfolio trading process.
Comparison of retail and institutional fee schedules
The information examined by the Trustees as part of the annual contract
reviews included information regarding fees charged by Putnam Management
and its affiliates to institutional clients such as defined benefit
pension plans and college endowments. This information included
comparison of such fees with fees charged to the Putnam funds, as well
as a detailed assessment of the differences in the services provided to
these two types of clients. The Trustees devoted special attention to
these issues and reviewed recent articles by critics of mutual fund
fees, articles by the ICI defending such fee differences, and relevant
guidance provided by decisions of the courts. The Trustees observed, in
this regard, that the differences in fee rates between institutional
clients and mutual funds are by no means uniform when examined by
individual asset sectors, suggesting that differences in the pricing of
investment management services to these types of clients reflects to a
substantial degree historical competitive forces operating in separate
market places. In reaching their conclusions, the Trustees considered
the fact that fee rates across all asset sectors are higher on average
for mutual funds than for institutional clients, and also considered the
differences between the services that Putnam provides to the Putnam
funds and those that it provides to institutional clients of the firm.
Settlement of regulatory charges related to market timing
Finally, in reaching their conclusions, the Trustees considered all
matters pertinent to the administrative charges filed against Putnam
Management by the SEC and the Commonwealth of Massachusetts in October
2003 relating to market timing, the firm's settlement of those charges,
and the conclusions and recommendations of the Trustees' Audit and
Pricing Committee based on its review of these matters. The Trustees
considered the actions taken by the owner of Putnam Management and its
new senior management to terminate or discipline the individuals
involved, to implement new compliance systems, to indemnify the funds
against all costs and liabilities related to these matters, and
otherwise to ensure that the interests of the funds and their
shareholders are fully protected. The Trustees noted that, in addition
to the settlements of the regulatory charges which will provide
comprehensive restitution for any losses suffered by shareholders, the
new senior management of Putnam Management has moved aggressively to
control expense ratios of funds affected by market timing, to reduce
charges to new investors, to improve disclosure of fees and expenses,
and to emphasize the paramount role of investment performance in
achieving shareholders' investment goals.
Other information for shareholders
Putnam's policy on confidentiality
In order to conduct business with our shareholders, we must obtain
certain personal information such as account holders' addresses,
telephone numbers, Social Security numbers, and the names of their
financial advisors. We use this information to assign an account number
and to help us maintain accurate records of transactions and account
balances. It is our policy to protect the confidentiality of your
information, whether or not you currently own shares of our funds, and
in particular, not to sell information about you or your accounts to
outside marketing firms. We have safeguards in place designed to prevent
unauthorized access to our computer systems and procedures to protect
personal information from unauthorized use. Under certain circumstances,
we share this information with outside vendors who provide services to
us, such as mailing and proxy solicitation. In those cases, the service
providers enter into confidentiality agreements with us, and we provide
only the information necessary to process transactions and perform other
services related to your account. We may also share this information
with our Putnam affiliates to service your account or provide you with
information about other Putnam products or services. It is also our
policy to share account information with your financial advisor, if
you've listed one on your Putnam account. If you would like
clarification about our confidentiality policies or have any questions
or concerns, please don't hesitate to contact us at 1-800-225-1581,
Monday through Friday, 8:30 a.m. to 7:00 p.m., or Saturdays from 9:00
a.m. to 5:00 p.m. Eastern Time.
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
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.
A guide to the financial statements
These sections of the report, as well as the accompanying Notes,
preceded by the Report of Independent Registered Public Accounting Firm,
constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are
subtracted from this total. The result is divided by the number of
shares to determine the net asset value per share, which is calculated
separately for each class of shares. (For funds with preferred shares,
the amount subtracted from total assets includes the net assets
allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or
loss the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal year.
Statement of changes in net assets shows how the fund's net assets were
affected by the fund's net investment gain or loss, by distributions to
shareholders, and by changes in the number of the fund's shares. It
lists distributions and their sources (net investment income or realized
capital gains) over the current reporting period and the most recent
fiscal year-end. The distributions listed here may not match the sources
listed in the Statement of operations because the distributions are
determined on a tax basis and may be paid in a different period from the
one in which they were earned.
Financial highlights provide an overview of the fund's investment
results, per-share distributions, expense ratios, net investment
income ratios, and portfolio turnover in one summary table, reflecting
the five most recent reporting periods. In a semiannual report, the
highlight table also includes the current reporting period. For open-end
funds, a separate table is provided for each share class.
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of
Putnam Managed High Yield Trust:
We have audited the accompanying statement of assets and liabilities of
Putnam Managed High Yield Trust, including the fund's portfolio, as of
May 31, 2005, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years
in the period then ended and the financial highlights for each of the
five years in period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management.
Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform our audit to obtain reasonable
assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of May 31, 2005 by correspondence
with the custodian and brokers or by other appropriate auditing
procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Putnam Managed High Yield Trust as of May 31,
2005, the results of its operations for the year then ended, the changes
in its net assets for each of the two years in the period then ended,
and the financial highlights for each of the five years in the period
then ended, in conformity with U.S. generally accepted accounting
principles.
KPMG LLP
Boston, Massachusetts
July 13, 2005
The fund's portfolio
May 31, 2005
Corporate bonds and notes (89.6%) (a)
Principal amount Value
Advertising and Marketing Services (0.2%)
-------------------------------------------------------------------------------
$100,000 Lamar Media Corp. company guaranty
7 1/4s, 2013 $105,500
Automotive (1.9%)
-------------------------------------------------------------------------------
50,000 ArvinMeritor, Inc. notes 8 3/4s,
2012 50,000
30,000 Dana Corp. notes 10 1/8s, 2010 31,032
190,000 Dana Corp. notes 9s, 2011 207,100
15,000 Dana Corp. notes 7s, 2029 12,549
40,000 Delco Remy International, Inc.
company guaranty 11s, 2009 35,500
160,000 Delco Remy International, Inc. sr.
sub. notes 9 3/8s, 2012 121,600
75,000 Dura Operating Corp. company
guaranty Ser. B, 8 5/8s, 2012 67,500
150,000 Lear Corp. company guaranty Ser. B,
8.11s, 2009 153,309
115,000 Meritor Automotive, Inc. notes 6.8s,
2009 111,263
95,000 Metaldyne Corp. 144A sr. notes 10s,
2013 79,800
EUR 20,000 Teksid Aluminum 144A company
guaranty 11 3/8s, 2011 (Luxembourg) 20,457
$100,000 Tenneco Automotive, Inc. company
guaranty 8 5/8s, 2014 96,500
300,000 Tenneco Automotive, Inc. sec. notes
Ser. B, 10 1/4s, 2013 334,500
--------------
1,321,110
Basic Materials (9.6%)
-------------------------------------------------------------------------------
130,000 Acetex Corp. sr. notes 10 7/8s, 2009
(Canada) 136,825
120,000 AK Steel Corp. company guaranty
7 3/4s, 2012 108,900
170,000 Almatis Investment Holdings S.a.r.l.
bonds 11s, 2013 (Luxembourg) (PIK) 170,000
125,000 ALROSA Finance SA 144A company
guaranty 8 7/8s, 2014 (Luxembourg) 135,625
130,000 BCP Crystal US Holdings Corp. sr.
sub. notes 9 5/8s, 2014 145,925
60,000 Century Aluminum Co. company
guaranty 7 1/2s, 2014 58,800
EUR 210,000 Cognis Holding GmbH & Co. 144A sr.
notes 9 1/2s, 2014 (Germany) 264,451
$185,000 Compass Minerals Group, Inc. company
guaranty 10s, 2011 201,650
50,000 Compass Minerals International, Inc.
sr. disc. notes
stepped-coupon Ser. B, zero % (12s,
6/1/08), 2013 (STP) 41,750
130,000 Compass Minerals International, Inc.
sr. notes stepped-coupon zero %
(12 3/4s, 12/15/07), 2012 (STP) 113,425
80,000 Crystal US Holdings, LLC. 144A sr.
disc. notes stepped-coupon zero %
(10s, 10/1/09), 2014 (STP) 55,000
95,000 Equistar Chemicals LP notes 8 3/4s,
2009 99,988
290,000 Equistar Chemicals LP/Equistar
Funding Corp. company guaranty
10 1/8s,2008 315,375
75,000 Georgia-Pacific Corp. bonds 7 3/4s,
2029 84,281
130,000 Georgia-Pacific Corp. company
guaranty 9 3/8s, 2013 147,225
250,000 Georgia-Pacific Corp. debs. 9 1/2s,
2011 299,375
210,000 Georgia-Pacific Corp. debs. 7.7s,
2015 237,300
175,000 Gerdau Ameristeel Corp. sr. notes
10 3/8s, 2011 (Canada) 190,750
160,000 Hercules, Inc. company guaranty
11 1/8s, 2007 180,800
140,000 Hercules, Inc. company guaranty
6 3/4s, 2029 136,500
35,000 Huntsman Advanced Materials, LLC
144A sec. FRN 10.89s, 2008 36,838
40,000 Huntsman Advanced Materials, LLC
144A sec. notes 11s, 2010 45,600
78,000 Huntsman, LLC company guaranty
11 5/8s, 2010 89,700
40,000 Huntsman, LLC 144A company guaranty
12s, 2012 46,000
325,000 Innophos, Inc. 144A sr. sub. notes
8 7/8s, 2014 316,875
5,000 Jefferson Smurfit Corp. company
guaranty 8 1/4s, 2012 4,913
10,000 Jefferson Smurfit Corp. company
guaranty 7 1/2s, 2013 9,350
EUR 101,948 JSG Holding PLC 144A sr. notes
11 1/2s, 2015 (Ireland) (PIK) 98,804
$10,000 Lyondell Chemical Co. bonds 11 1/8s,
2012 11,338
130,000 Lyondell Chemical Co. company
guaranty 10 1/2s, 2013 148,363
100,000 Lyondell Chemical Co. company
guaranty 9 1/2s, 2008 106,250
65,000 Lyondell Chemical Co. notes Ser. A,
9 5/8s, 2007 69,144
215,000 MDP Acquisitions PLC sr. notes
9 5/8s, 2012 (Ireland) 210,163
EUR 5,000 MDP Acquisitions PLC sr. notes
Ser. EUR, 10 1/8s, 2012 (Ireland) 6,312
EUR 10,000 Nalco Co. sr. notes 7 3/4s, 2011 13,044
EUR 65,000 Nalco Co. sr. sub. notes 9s, 2013 86,268
$300,000 Nalco Co. sr. sub. notes 8 7/8s,
2013 313,500
75,000 Norske Skog Canada, Ltd. sr. notes
7 3/8s, 2014 (Canada) 70,125
270,000 Novelis, Inc. 144A sr. notes 7 1/4s,
2015 (Canada) 264,600
31,547 PCI Chemicals Canada sec. sr. notes
10s, 2008 (Canada) 32,967
9,679 Pioneer Companies, Inc. sec.
sr.notes FRN 6.59s, 2006 9,679
60,000 PQ Corp. 144A company guaranty
7 1/2s, 2013 57,900
EUR 235,000 Rockwood Specialties Group, Inc.
company guaranty 7 5/8s, 2014 288,245
EUR 80,000 SGL Carbon SA 144A sr. notes 8 1/2s,
2012 (Luxembourg) 104,101
$110,000 Steel Dynamics, Inc. company
guaranty 9 1/2s, 2009 117,150
27,275 Sterling Chemicals, Inc. sec. notes
10s, 2007 (PIK) 27,275
40,000 Stone Container Corp. sr. notes
9 3/4s, 2011 42,400
140,000 Stone Container Corp. sr. notes
8 3/8s, 2012 139,650
215,000 Stone Container Finance company
guaranty 7 3/8s, 2014 (Canada) 199,413
25,000 Tembec Industries, Inc. company
guaranty 7 3/4s, 2012 (Canada) 18,563
90,000 Ucar Finance, Inc. company guaranty
10 1/4s, 2012 93,150
214,000 United States Steel Corp. sr. notes
9 3/4s, 2010 233,795
7,393 Wheeling-Pittsburgh Steel Corp. sr.
notes 6s, 2010 (PIK) 5,914
14,333 Wheeling-Pittsburgh Steel Corp. sr.
notes 5s, 2011 (PIK) 11,466
40,000 WHX Corp. sr. notes 10 1/2s, 2005
(In default) (b) (NON) 40,000
--------------
6,492,800
Beverage (0.1%)
-------------------------------------------------------------------------------
45,000 Constellation Brands, Inc. company
guaranty Ser. B, 8s, 2008 47,813
45,000 Constellation Brands, Inc. sr. sub.
notes Ser. B, 8 1/8s, 2012 47,025
--------------
94,838
Broadcasting (2.9%)
-------------------------------------------------------------------------------
210,000 British Sky Broadcasting PLC company
guaranty 6 7/8s, 2009 (United
Kingdom) 225,389
194,000 DirecTV Holdings, LLC sr. notes
8 3/8s, 2013 214,855
440,000 Diva Systems Corp. sr. disc. notes
Ser. B, 12 5/8s, 2008 (In default)
(NON) 2,200
235,000 Echostar DBS Corp. sr. notes 6 3/8s,
2011 237,350
165,000 Echostar DBS Corp. 144A company
guaranty 6 5/8s, 2014 165,413
255,000 Granite Broadcasting Corp. sec.
notes 9 3/4s, 2010 233,325
105,000 Gray Television, Inc. company
guaranty 9 1/4s, 2011 114,188
6,090 Knology, Inc. 144A sr. notes 12s,
2009 (PIK) 5,999
155,000 Rainbow National Services, LLC 144A
sr. notes 8 3/4s, 2012 170,306
150,000 Rainbow National Services, LLC 144A
sr. sub. debs. 10 3/8s, 2014 171,000
60,000 Sinclair Broadcast Group, Inc.
company guaranty 8 3/4s, 2011 63,600
301,000 Young Broadcasting, Inc. company
guaranty 10s, 2011 297,238
65,000 Young Broadcasting, Inc. sr. sub.
notes 8 3/4s, 2014 58,825
--------------
1,959,688
Building Materials (0.8%)
-------------------------------------------------------------------------------
60,000 Building Materials Corp. company
guaranty 8s, 2008 59,850
80,000 Dayton Superior Corp. sec. notes
10 3/4s, 2008 81,200
5,000 Owens Corning bonds 7 1/2s, 2018 (In
default) (NON) 4,050
120,000 Owens Corning notes 7 1/2s, 2006 (In
default) (NON) 97,800
350,000 THL Buildco, Inc. (Nortek Holdings,
Inc.) sr. sub. notes 8 1/2s, 2014 313,250
--------------
556,150
Cable Television (3.3%)
-------------------------------------------------------------------------------
20,000 Adelphia Communications Corp. sr.
notes 10 7/8s, 2010 (In default)
(NON) 17,550
90,000 Adelphia Communications Corp. sr.
notes 10 1/4s, 2011 (In default)
(NON) 81,900
5,000 Adelphia Communications Corp. sr.
notes 10 1/4s, 2006 (In default)
(NON) 4,275
5,000 Adelphia Communications Corp. sr.
notes 9 3/8s, 2009 (In default)
(NON) 4,450
40,000 Adelphia Communications Corp. sr.
notes Ser. B, 9 7/8s, 2007 (In
default) (NON) 34,600
255,000 Atlantic Broadband Finance, LLC 144A
sr. sub. notes 9 3/8s, 2014 240,338
195,000 Cablevision Systems Corp. 144A sr.
notes 8s, 2012 204,994
70,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (12 1/8s,
1/15/07), 2012 (STP) 40,600
35,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (11 3/4s,
5/15/06), 2011 (STP) 22,663
240,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
11 1/8s, 2011 178,800
200,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
10 3/4s, 2009 155,000
75,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
10 1/4s, 2010 55,313
265,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 10s,
2011 191,463
200,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 9 5/8s,
2009 149,500
20,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 8 5/8s,
2009 14,850
75,000 CSC Holdings, Inc. debs. 7 5/8s,
2018 78,000
80,000 CSC Holdings, Inc. sr. notes Ser. B,
7 5/8s, 2011 84,800
155,000 CSC Holdings, Inc. 144A sr. notes
6 3/4s, 2012 157,713
270,000 Kabel Deutscheland GmbH 144A company
guaranty 10 5/8s, 2014 (Germany) 288,225
30,000 Quebecor Media, Inc. sr. disc. notes
stepped-coupon zero % (13 3/4s,
7/15/06), 2011 (Canada) (STP) 29,625
155,000 Quebecor Media, Inc. sr. notes
11 1/8s, 2011 (Canada) 171,663
50,000 Videotron Ltee company guaranty
6 7/8s, 2014 (Canada) 50,063
--------------
2,256,385
Capital Goods (9.3%)
-------------------------------------------------------------------------------
65,000 AEP Industries, Inc. 144A sr. notes
7 7/8s, 2013 64,917
EUR 270,000 Aero Invest 1 SA 144A company
guaranty FRN 10.68s, 2015
(Luxembourg) 320,008
$240,000 Allied Waste North America, Inc.
company guaranty Ser. B, 8 1/2s,
2008 248,400
135,000 Amsted Industries, Inc. 144A sr.
notes 10 1/4s, 2011 144,450
320,000 Argo-Tech Corp. sr. notes 9 1/4s,
2011 345,600
35,000 BE Aerospace, Inc. sr. notes 8 1/2s,
2010 37,888
35,000 BE Aerospace, Inc. sr. sub. notes
Ser. B, 8 7/8s, 2011 35,700
310,000 BE Aerospace, Inc. sr. sub. notes
Ser. B, 8s, 2008 310,000
125,000 Blount, Inc. sr. sub. notes 8 7/8s,
2012 130,625
80,000 Browning-Ferris Industries, Inc.
debs. 7.4s, 2035 67,600
145,000 Browning-Ferris Industries, Inc. sr.
notes 6 3/8s, 2008 143,913
EUR 15,000 Crown Euro Holdings SA sec. notes
10 1/4s, 2011 (France) 20,547
$70,000 Crown Euro Holdings SA sec. notes
9 1/2s, 2011 (France) 76,650
320,000 Crown Euro Holdings SA sec. sr.
notes 10 7/8s, 2013 (France) 369,200
476,000 Decrane Aircraft Holdings Co.
company guaranty zero %, 2008 180,880
120,000 Earle M. Jorgensen Co. sec. notes
9 3/4s, 2012 126,000
EUR 60,000 Flender Holdings 144A sr. notes 11s,
2010 (Germany) 87,854
$80,000 Invensys, PLC notes 9 7/8s, 2011
(United Kingdom) 75,400
325,000 L-3 Communications Corp. company
guaranty 6 1/8s, 2013 321,750
310,000 Legrand SA debs. 8 1/2s, 2025
(France) 368,900
91,000 Manitowoc Co., Inc. (The) company
guaranty 10 1/2s, 2012 101,010
EUR 25,000 Manitowoc Co., Inc. (The) company
guaranty 10 3/8s, 2011 34,106
$290,000 Manitowoc Co., Inc. (The) sr. notes
7 1/8s, 2013 300,150
240,000 Milacron Escrow Corp. sec. notes
11 1/2s, 2011 250,800
175,000 Mueller Group, Inc. sr. sub. notes
10s, 2012 183,750
105,000 Mueller Holdings, Inc. disc. notes
stepped-coupon zero % (14 3/4s,
4/15/09), 2014 (STP) 75,863
180,000 Owens-Brockway Glass company
guaranty 8 1/4s, 2013 194,400
75,000 Owens-Brockway Glass company
guaranty 7 3/4s, 2011 79,875
170,000 Owens-Brockway Glass sr. sec. notes
8 3/4s, 2012 187,000
15,000 Owens-Illinois, Inc. debs. 7.8s,
2018 15,675
155,000 Polypore, Inc. sr. sub. notes
8 3/4s, 2012 134,075
250,000 Sequa Corp. sr. notes Ser. B,
8 7/8s, 2008 265,000
210,000 Siebe PLC 144A sr. unsub. 6 1/2s,
2010 (United Kingdom) 178,500
235,000 Solo Cup Co. sr. sub. notes 8 1/2s,
2014 225,600
35,000 Terex Corp. company guaranty 9 1/4s,
2011 37,800
190,000 Terex Corp. company guaranty Ser. B,
10 3/8s, 2011 206,625
325,000 Titan Corp. (The) company guaranty
8s, 2011 347,750
--------------
6,294,261
Commercial and Consumer Services (0.8%)
-------------------------------------------------------------------------------
245,000 Laidlaw International, Inc. sr.
notes 10 3/4s, 2011 277,156
300,000 Muzak LLC/Muzak Finance Corp sr.
notes 10s, 2009 240,000
--------------
517,156
Communication Services (7.2%)
-------------------------------------------------------------------------------
60,000 Alamosa Delaware, Inc. company
guaranty 11s, 2010 66,900
50,000 Alamosa Delaware, Inc. company
guaranty stepped-coupon zero %
(12s, 7/31/05), 2009 (STP) 54,625
70,000 Alamosa Delaware, Inc. sr. notes
8 1/2s, 2012 72,975
35,000 American Cellular Corp. company
guaranty 9 1/2s, 2009 34,125
58,000 American Tower Corp. sr. notes
9 3/8s, 2009 60,828
65,000 American Tower Corp. sr. notes
7 1/2s, 2012 67,925
125,000 American Towers, Inc. company
guaranty 7 1/4s, 2011 130,938
96,207 Asia Global Crossing, Ltd. sr. notes
13 3/8s, 2010 (Bermuda) (In default)
(NON) 4,810
75,000 Centennial Cellular Operating Co.
company guaranty 10 1/8s, 2013 83,719
25,000 Cincinnati Bell Telephone Co.
company guaranty 6.3s, 2028 22,000
80,000 Cincinnati Bell, Inc. sr. sub. notes
8 3/8s, 2014 79,200
70,000 Cincinnati Bell, Inc. sr. sub. notes
7 1/4s, 2023 64,575
60,000 Cincinnati Bell, Inc. 144A sr. notes
7s, 2015 57,450
185,000 Citizens Communications Co. notes
9 1/4s, 2011 204,888
160,000 Citizens Communications Co. sr.
notes 6 1/4s, 2013 154,400
205,000 Crown Castle International Corp. sr.
notes 9 3/8s, 2011 226,269
45,000 Eircom Funding company guaranty
Ser. US$, 8 1/4s, 2013 (Ireland) 47,250
20,728 Globix Corp. company guaranty 11s,
2008 (PIK) 19,484
175,000 Inmarsat Finance PLC company
guaranty 7 5/8s, 2012 (United
Kingdom) 182,000
175,000 Inmarsat Finance PLC company
guaranty stepped-coupon zero %
(10 3/8s, 10/15/08), 2012 (United
Kingdom) (STP) 129,500
160,000 Intelsat Bermuda, Ltd. 144A sr.
notes 8 5/8s, 2015 (Bermuda) 164,200
75,000 Intelsat Bermuda, Ltd. 144A sr.
notes 8 1/4s, 2013 (Bermuda) 76,313
55,000 iPCS, Inc. sr. notes 11 1/2s, 2012 60,225
20,000 IWO Escrow Co. 144A sec. FRN 6.891s,
2012 19,900
20,000 IWO Escrow Co. 144A sr. disc. notes
stepped-coupon zero % (10 3/4s,
1/15/10), 2015 (STP) 12,700
135,000 Level 3 Financing, Inc. 144A sr.
notes 10 3/4s, 2011 113,063
120,000 Madison River Capital Corp. sr.
notes 13 1/4s, 2010 127,200
205,000 MCI, Inc. sr. notes 8.735s, 2014 229,600
45,000 MCI, Inc. sr. notes 7.688s, 2009 47,138
5,000 Nextel Communications, Inc. sr.
notes 6 7/8s, 2013 5,313
490,000 Nextel Communications, Inc. sr.
notes 5.95s, 2014 501,025
55,000 Nextel Partners, Inc. sr. notes
12 1/2s, 2009 60,225
225,000 Nextel Partners, Inc. sr. notes
8 1/8s, 2011 244,688
410,000 Qwest Communications International,
Inc. 144A sr. notes 8s, 2014 395,650
475,000 Qwest Corp. 144A notes 9 1/8s, 2012 515,375
65,000 Qwest Services Corp. 144A notes 14s,
2014 76,863
85,000 Qwest Services Corp. 144A notes
13 1/2s, 2010 96,900
50,000 Rogers Cantel, Inc. debs. 9 3/4s,
2016 (Canada) 59,500
40,000 Rogers Wireless Communications, Inc.
sec. notes 9 5/8s, 2011 (Canada) 46,600
45,000 Rural Cellular Corp. sr. notes
9 7/8s, 2010 44,438
90,000 Rural Cellular Corp. sr. sub. notes
9 3/4s, 2010 79,650
55,000 SBA Communications Corp. 144A sr.
notes 8 1/2s, 2012 58,300
55,000 SBA Telecommunications, Inc./SBA
Communications Corp. sr. disc. notes
stepped-coupon zero % (9 3/4s,
12/15/07), 2011 (STP) 48,125
60,000 Valor Telecommunications Enterprises
LLC/Finance Corp. 144A sr. notes
7 3/4s, 2015 58,350
--------------
4,905,202
Consumer (0.9%)
-------------------------------------------------------------------------------
115,000 Icon Health & Fitness company
guaranty 11 1/4s, 2012 84,525
245,000 Jostens IH Corp. company guaranty
7 5/8s, 2012 234,588
260,000 Samsonite Corp. sr. sub. notes
8 7/8s, 2011 273,000
--------------
592,113
Consumer Goods (1.6%)
-------------------------------------------------------------------------------
105,000 Church & Dwight Co., Inc. 144A sr.
sub. notes 6s, 2012 105,000
45,000 Elizabeth Arden, Inc. company
guaranty 7 3/4s, 2014 46,463
190,000 Playtex Products, Inc. company
guaranty 9 3/8s, 2011 199,025
140,000 Playtex Products, Inc. sec. notes
8s, 2011 149,800
129,000 Prestige Brands, Inc. sr. sub. notes
9 1/4s, 2012 132,548
125,000 Remington Arms Co., Inc. company
guaranty 10 1/2s, 2011 119,375
45,000 Scotts Co. (The) sr. sub. notes
6 5/8s, 2013 45,450
280,000 Spectrum Brands, Inc. 144A sr. sub.
notes 7 3/8s, 2015 273,000
--------------
1,070,661
Consumer Services (0.2%)
-------------------------------------------------------------------------------
100,000 Brand Services, Inc. company
guaranty 12s, 2012 110,250
60,000 United Rentals (North America), Inc.
company guaranty 6 1/2s, 2012 59,025
--------------
169,275
Energy (7.2%)
-------------------------------------------------------------------------------
270,000 Arch Western Finance, LLC sr. notes
6 3/4s, 2013 269,325
70,000 Bluewater Finance, Ltd. company
guaranty 10 1/4s, 2012 (Cayman
Islands) 73,150
85,000 CHC Helicopter Corp. 144A sr. sub.
notes 7 3/8s, 2014 (Canada) 82,025
100,000 CHC Helicopter Corp. sr. sub. notes
7 3/8s, 2014 (Canada) 96,500
45,000 Chesapeake Energy Corp. company
guaranty 7 3/4s, 2015 48,713
75,000 Chesapeake Energy Corp. company
guaranty 9s, 2012 82,875
210,000 Chesapeake Energy Corp. sr. notes
7 1/2s, 2013 226,800
60,000 Chesapeake Energy Corp. sr. notes
7s, 2014 63,300
95,000 Comstock Resources, Inc. sr. notes
6 7/8s, 2012 93,575
25,000 Dresser-Rand Group, Inc. 144A sr.
sub. notes 7 3/8s, 2014 24,500
90,000 Encore Acquisition Co. company
guaranty 8 3/8s, 2012 97,200
45,000 Encore Acquisition Co. sr. sub.
notes 6 1/4s, 2014 43,875
130,000 Exco Resources, Inc. company
guaranty 7 1/4s, 2011 126,750
70,000 Forest Oil Corp. company guaranty
7 3/4s, 2014 74,375
35,000 Forest Oil Corp. sr. notes 8s, 2008 37,100
145,000 Forest Oil Corp. sr. notes 8s, 2011 158,775
110,000 Gazprom OAO 144A notes 9 5/8s, 2013
(Germany) 132,000
40,000 Hanover Compressor Co. sr. notes
8 5/8s, 2010 41,200
70,000 Hanover Compressor Co. sr. notes 9s,
2014 72,450
95,000 Hanover Compressor Co. sub. notes
zero %, 2007 82,175
30,000 Hanover Equipment Trust sec. notes
Ser. B, 8 3/4s, 2011 31,125
275,000 Harvest Operations Corp. sr. notes
7 7/8s, 2011 (Canada) 264,688
275,000 Inergy LP/Inergy Finance Corp. 144A
sr. notes 6 7/8s, 2014 257,125
65,000 KCS Energy, Inc. sr. notes 7 1/8s,
2012 64,675
280,000 Key Energy Services, Inc. sr. notes
6 3/8s, 2013 274,400
260,000 Massey Energy Co. sr. notes 6 5/8s,
2010 263,900
130,000 Newfield Exploration Co. sr. notes
7 5/8s, 2011 140,400
125,000 Newfield Exploration Co. sr. sub.
notes 6 5/8s, 2014 127,813
75,000 Pacific Energy Partners/Pacific
Energy Finance Corp. sr. notes
7 1/8s, 2014 78,000
135,000 Peabody Energy Corp. sr. notes
5 7/8s, 2016 132,975
45,000 Pemex Project Funding Master Trust
company guaranty 7 3/8s, 2014 49,950
30,000 Pemex Project Funding Master Trust
company guaranty 8 5/8s, 2022 35,850
100,000 Petroleum Geo-Services notes 10s,
2010 (Norway) 111,000
95,000 Plains Exploration & Production Co.
sr. notes 7 1/8s, 2014 101,413
145,000 Plains Exploration & Production Co.
sr. sub. notes 8 3/4s, 2012 158,050
110,000 Pogo Producing Co. sr. sub. notes
Ser. B, 8 1/4s, 2011 117,150
185,000 Pride International, Inc. sr. notes
7 3/8s, 2014 203,038
100,000 Seabulk International, Inc. company
guaranty 9 1/2s, 2013 113,250
140,000 Star Gas Partners LP/Star Gas
Finance Co. sr. notes 10 1/4s, 2013 130,200
280,000 Stone Energy Corp. sr. sub. notes
6 3/4s, 2014 266,000
45,000 Vintage Petroleum, Inc. sr. notes
8 1/4s, 2012 48,713
25,000 Vintage Petroleum, Inc. sr. sub.
notes 7 7/8s, 2011 26,250
--------------
4,922,628
Entertainment (1.8%)
-------------------------------------------------------------------------------
45,000 AMC Entertainment, Inc. sr. sub.
notes 9 7/8s, 2012 44,775
162,000 AMC Entertainment, Inc. sr. sub.
notes 8s, 2014 146,610
155,000 Cinemark USA, Inc. sr. sub. notes
9s, 2013 164,300
180,000 Cinemark, Inc. sr. disc. notes
stepped-coupon zero % (9 3/4s,
3/15/07), 2014 (STP) 126,450
335,000 LCE Acquisition Corp. 144A company
guaranty 9s, 2014 324,950
290,000 Six Flags, Inc. sr. notes 8 7/8s,
2010 269,700
55,000 Universal City Florida Holding Co.
sr. notes 8 3/8s, 2010 56,650
75,000 Universal City Florida Holding Co.
sr. notes FRN 7.96s, 2010 78,000
--------------
1,211,435
Financial (1.0%)
-------------------------------------------------------------------------------
55,000 Crescent Real Estate Equities LP
notes 7 1/2s, 2007 (R) 55,000
175,000 E(a)Trade Finance Corp. sr. notes
8s, 2011 182,875
194,590 Finova Group, Inc. notes 7 1/2s,
2009 82,701
85,000 UBS AG/Jersey Branch sr. notes
Ser. EMTN, 9.14s, 2008 (Jersey) 89,463
240,000 Western Financial Bank sub. debs.
9 5/8s, 2012 258,000
--------------
668,039
Food (2.0%)
-------------------------------------------------------------------------------
21,963 Archibald Candy Corp. company
guaranty 10s, 2007 (In default)
(NON) (PIK) (F) 4,678
335,000 Dean Foods Co. sr. notes 6 5/8s,
2009 345,469
100,000 Del Monte Corp. sr. sub. notes
8 5/8s, 2012 109,000
80,000 Del Monte Corp. 144A sr. sub. notes
6 3/4s, 2015 79,800
285,000 Pinnacle Foods Holding Corp. sr.
sub. notes 8 1/4s, 2013 243,675
GBP 150,000 RHM Finance, Ltd. sinking fund 8.8s,
2017 (Kenya) 320,962
EUR 195,000 United Biscuits Finance company
guaranty 10 5/8s, 2011 (United
Kingdom) 248,571
--------------
1,352,155
Gaming & Lottery (3.4%)
-------------------------------------------------------------------------------
$60,000 Ameristar Casinos, Inc. company
guaranty 10 3/4s, 2009 65,550
160,000 Boyd Gaming Corp. sr. sub. notes
8 3/4s, 2012 173,200
30,000 Boyd Gaming Corp. sr. sub. notes
7 3/4s, 2012 31,875
60,000 Boyd Gaming Corp. sr. sub. notes
6 3/4s, 2014 60,900
40,000 Mandalay Resort Group sr. notes
6 3/8s, 2011 40,200
175,000 MGM Mirage, Inc. company guaranty
8 1/2s, 2010 192,938
125,000 MGM Mirage, Inc. company guaranty
6s, 2009 124,844
40,000 Mirage Resorts, Inc. debs. 7 1/4s,
2017 40,700
155,000 Park Place Entertainment Corp. sr.
notes 7 1/2s, 2009 169,338
115,000 Park Place Entertainment Corp. sr.
notes 7s, 2013 125,638
95,000 Park Place Entertainment Corp. sr.
sub. notes 8 7/8s, 2008 104,975
185,000 Penn National Gaming, Inc. sr. sub.
notes 8 7/8s, 2010 198,413
50,000 Penn National Gaming, Inc. 144A sr.
sub. notes 6 3/4s, 2015 48,750
70,000 Pinnacle Entertainment, Inc. sr.
sub. notes 8 3/4s, 2013 72,800
150,000 Pinnacle Entertainment, Inc. sr.
sub. notes 8 1/4s, 2012 150,750
120,000 Resorts International Hotel and
Casino, Inc. company guaranty
11 1/2s, 2009 136,200
130,000 Scientific Games Corp. 144A sr. sub.
notes 6 1/4s, 2012 127,400
90,000 Station Casinos, Inc. sr. notes 6s,
2012 90,225
90,000 Station Casinos, Inc. sr. sub. notes
6 7/8s, 2016 92,475
280,000 Wynn Las Vegas, LLC/Wynn Las Vegas
Capital Corp. 144A 1st mtge. 6 5/8s,
2014 268,800
--------------
2,315,971
Health Care (5.3%)
-------------------------------------------------------------------------------
70,000 AmerisourceBergen Corp. company
guaranty 7 1/4s, 2012 76,475
100,000 AmerisourceBergen Corp. sr. notes
8 1/8s, 2008 108,250
170,000 Ardent Health Services, Inc. sr.
sub. notes 10s, 2013 206,618
310,000 Community Health Systems, Inc. sr.
sub. notes 6 1/2s, 2012 308,450
45,000 DaVita, Inc. 144A sr. notes 6 5/8s,
2013 45,450
85,000 DaVita, Inc. 144A sr. sub. notes
7 1/4s, 2015 85,425
150,000 Elan Finance PLC/Elan Finance Corp.
144A sr. notes 7 3/4s, 2011
(Ireland) 129,750
50,000 HCA, Inc. debs. 7.19s, 2015 51,985
60,000 HCA, Inc. notes 8.36s, 2024 66,471
70,000 HCA, Inc. notes 7.69s, 2025 73,629
10,000 HCA, Inc. notes 7s, 2007 10,378
65,000 HCA, Inc. notes 6 3/8s, 2015 66,252
55,000 HCA, Inc. notes 5 3/4s, 2014 53,861
185,000 Healthsouth Corp. notes 7 5/8s, 2012 177,600
75,000 Healthsouth Corp. sr. notes 8 1/2s,
2008 75,750
45,000 Healthsouth Corp. sr. notes 8 3/8s,
2011 44,663
45,000 Healthsouth Corp. sr. sub. notes
10 3/4s, 2008 46,463
35,000 MedQuest, Inc. company guaranty
Ser. B, 11 7/8s, 2012 35,000
180,000 MQ Associates, Inc. sr. disc. notes
stepped-coupon zero % (12 1/4s,
8/15/08), 2012 (STP) 102,600
120,000 Omnicare, Inc. sr. sub. notes
6 1/8s, 2013 117,300
40,000 Service Corp. International debs.
7 7/8s, 2013 41,000
15,000 Service Corp. International notes
7.2s, 2006 15,413
5,000 Service Corp. International notes
6 7/8s, 2007 5,250
20,000 Service Corp. International notes
6 1/2s, 2008 20,450
50,000 Service Corp. International notes
Ser. (a), 7.7s, 2009 52,813
140,000 Service Corp. International 144A sr.
notes 6 3/4s, 2016 138,600
135,000 Stewart Enterprises, Inc. 144A sr.
notes 6 1/4s, 2013 131,288
85,000 Tenet Healthcare Corp. notes 7 3/8s,
2013 83,300
255,000 Tenet Healthcare Corp. sr. notes
9 7/8s, 2014 274,125
90,000 Tenet Healthcare Corp. sr. notes
6 1/2s, 2012 85,950
130,000 Triad Hospitals, Inc. sr. notes 7s,
2012 135,200
225,000 Triad Hospitals, Inc. sr. sub. notes
7s, 2013 227,813
85,000 Universal Hospital Services, Inc.
sr. notes 10 1/8s, 2011 (Canada) 85,850
250,000 Vanguard Health Holding Co. II, LLC
sr. sub. notes 9s, 2014 270,000
55,000 Ventas Realty LP/Capital Corp.
company guaranty 9s, 2012 (R) 62,425
40,000 Ventas Realty LP/Capital Corp. sr.
notes 6 5/8s, 2014 (R) 39,800
55,000 Ventas Realty LP/Capital Corp. 144A
sr. notes 6 3/4s, 2010 (R) 55,963
--------------
3,607,610
Homebuilding (2.6%)
-------------------------------------------------------------------------------
70,000 Beazer Homes USA, Inc. company
guaranty 8 5/8s, 2011 74,375
25,000 Beazer Homes USA, Inc. company
guaranty 8 3/8s, 2012 26,625
20,000 D.R. Horton, Inc. company guaranty
8s, 2009 21,757
120,000 D.R. Horton, Inc. sr. notes 7 7/8s,
2011 133,200
25,000 D.R. Horton, Inc. sr. notes 6 7/8s,
2013 26,563
50,000 D.R. Horton, Inc. sr. notes 5 7/8s,
2013 50,121
90,000 K. Hovnanian Enterprises, Inc.
company guaranty 8 7/8s, 2012 95,850
70,000 K. Hovnanian Enterprises, Inc.
company guaranty 6 3/8s, 2014 69,300
50,000 K. Hovnanian Enterprises, Inc. sr.
notes 6 1/2s, 2014 50,000
275,000 KB Home sr. notes 5 3/4s, 2014 269,947
60,000 Meritage Homes Corp. 144A sr. notes
6 1/4s, 2015 56,100
70,000 Schuler Homes, Inc. company guaranty
10 1/2s, 2011 78,302
10,000 Standard Pacific Corp. sr. notes
6 7/8s, 2011 10,175
215,000 Standard Pacific Corp. sr. notes
6 1/4s, 2014 206,400
55,000 Technical Olympic USA, Inc. company
guaranty 10 3/8s, 2012 58,300
80,000 Technical Olympic USA, Inc. company
guaranty 9s, 2010 82,400
320,000 Technical Olympic USA, Inc. sr. sub.
notes 7 1/2s, 2015 292,757
30,000 WCI Communities, Inc. company
guaranty 10 5/8s, 2011 32,025
130,000 WCI Communities, Inc. company
guaranty 9 1/8s, 2012 134,875
--------------
1,769,072
Household Furniture and Appliances (0.5%)
-------------------------------------------------------------------------------
200,000 Sealy Mattress Co. sr. sub. notes
8 1/4s, 2014 202,500
135,000 Simmons Bedding Co. sr. sub. notes
7 7/8s, 2014 118,800
--------------
321,300
Lodging/Tourism (1.8%)
-------------------------------------------------------------------------------
55,000 FelCor Lodging LP company guaranty
9s, 2008 (R) 58,575
115,000 Gaylord Entertainment Co. sr. notes
8s, 2013 119,313
33,000 HMH Properties, Inc. company
guaranty Ser. B, 7 7/8s, 2008 (R) 33,578
60,000 Host Marriott LP company guaranty
Ser. G, 9 1/4s, 2007 (R) 64,725
165,000 Host Marriott LP sr. notes Ser. M,
7s, 2012 (R) 169,538
255,000 John Q. Hammons Hotels LP/John Q.
Hammons Hotels Finance Corp. III
1st mtge. Ser. B, 8 7/8s, 2012 278,588
130,000 MeriStar Hospitality Corp. company
guaranty 9 1/8s, 2011 (R) 132,925
65,000 MeriStar Hospitality Corp. company
guaranty 9s, 2008 (R) 66,300
80,000 Starwood Hotels & Resorts Worldwide,
Inc. company guaranty 7 3/8s, 2007 83,400
95,000 Starwood Hotels & Resorts Worldwide,
Inc. debs. 7 3/8s, 2015 104,381
105,000 Starwood Hotels & Resorts Worldwide,
Inc. notes 6 3/4s, 2005 105,919
--------------
1,217,242
Media (0.7%)
-------------------------------------------------------------------------------
270,000 Affinity Group, Inc. sr. sub. notes
9s, 2012 271,350
130,000 Affinity Group, Inc. 144A sr. notes
10 7/8s, 2012 120,900
100,000 Warner Music Group sr. sub. notes
7 3/8s, 2014 99,500
--------------
491,750
Other (3.5%)
-------------------------------------------------------------------------------
2,375,000 Dow Jones CDX HY 144A pass-through
certificates 7 3/4s, 2009 2,382,422
Publishing (5.5%)
-------------------------------------------------------------------------------
300,000 Advertising Direct 144A sr. notes
9 1/4s, 2012 (Canada) 314,250
382,086 CanWest Media, Inc. 144A sr. sub.
notes 8s, 2012 (Canada) 394,504
315,000 Cenveo Corp, sr. sub. notes 7 7/8s,
2013 298,463
185,000 Dex Media West, LLC/Dex Media
Finance Co. sr. notes Ser. B,
8 1/2s, 2010 202,113
85,000 Dex Media, Inc. disc. notes zero %,
2013 67,575
345,000 Dex Media, Inc. notes 8s, 2013 366,563
315,000 Houghton Mifflin Co. sr. sub. notes
9 7/8s, 2013 329,175
175,000 MediaNews Group, Inc. sr. sub. notes
6 7/8s, 2013 169,750
130,000 PRIMEDIA, Inc. company guaranty
8 7/8s, 2011 136,500
190,000 PRIMEDIA, Inc. sr. notes 8s, 2013 190,475
80,000 R.H. Donnelley Corp. 144A sr. notes
6 7/8s, 2013 82,000
170,000 R.H. Donnelley Finance Corp. I 144A
company guaranty 8 7/8s, 2010 185,300
85,000 R.H. Donnelley Finance Corp. I 144A
sr. sub. notes 10 7/8s, 2012 98,388
20,000 R.H. Donnelley, Inc. company
guaranty 8 7/8s, 2010 21,800
335,000 Reader's Digest Association, Inc.
(The) sr. notes 6 1/2s, 2011 331,650
340,000 Vertis, Inc. company guaranty
Ser. B, 10 7/8s, 2009 331,500
120,000 Vertis, Inc. 144A sub. notes
13 1/2s, 2009 91,200
105,000 WRC Media Corp. sr. sub. notes
12 3/4s, 2009 100,538
--------------
3,711,744
Restaurants (0.3%)
-------------------------------------------------------------------------------
80,000 Domino's, Inc. sr. sub. notes
8 1/4s, 2011 84,000
155,000 Sbarro, Inc. company guaranty 11s,
2009 150,350
--------------
234,350
Retail (2.2%)
-------------------------------------------------------------------------------
80,000 Asbury Automotive Group, Inc. sr.
sub. notes 8s, 2014 76,200
160,000 Autonation, Inc. company guaranty
9s, 2008 174,000
60,000 Bear Creek Corp. 144A sr. notes 9s,
2013 57,900
155,000 JC Penney Co., Inc. debs. 7.95s,
2017 174,763
90,000 JC Penney Co., Inc. debs. 7 1/8s,
2023 93,150
20,000 JC Penney Co., Inc. notes 9s, 2012 23,300
5,000 JC Penney Co., Inc. notes 8s, 2010 5,500
80,000 Jean Coutu Group, Inc. sr. notes
7 5/8s, 2012 (Canada) 81,600
90,000 Jean Coutu Group, Inc. sr. sub.
notes 8 1/2s, 2014 (Canada) 87,525
135,000 Movie Gallery, Inc. 144A sr. unsecd.
notes 11s, 2012 139,388
EUR 85,000 Ray Acquisition sr. notes 9 3/8s,
2015 (France) 98,435
$100,000 Rite Aid Corp. company guaranty
9 1/2s, 2011 103,000
5,000 Rite Aid Corp. debs. 6 7/8s, 2013 4,250
75,000 Rite Aid Corp. sr. notes 9 1/4s,
2013 69,750
80,000 Rite Aid Corp. 144A sec. notes
7 1/2s, 2015 73,600
195,000 Saks, Inc. company guaranty 7s, 2013 176,963
70,000 United Auto Group, Inc. company
guaranty 9 5/8s, 2012 73,500
--------------
1,512,824
Technology (3.1%)
-------------------------------------------------------------------------------
200,000 Advanced Micro Devices, Inc. sr.
notes 7 3/4s, 2012 197,000
250,000 Celestica, Inc. sr. sub. notes
7 7/8s, 2011 (Canada) 260,000
115,000 Iron Mountain, Inc. company guaranty
8 5/8s, 2013 117,588
125,000 Iron Mountain, Inc. company guaranty
7 3/4s, 2015 123,125
10,000 Lucent Technologies, Inc. debs.
6 1/2s, 2028 8,600
175,000 Lucent Technologies, Inc. debs.
6.45s, 2029 151,375
65,000 New ASAT Finance Ltd. company
guaranty 9 1/4s, 2011 (Cayman
Islands) 51,675
65,000 SCG Holding Corp. 144A notes zero %,
2011 97,500
110,000 Seagate Technology Hdd Holdings
company guaranty 8s, 2009 (Cayman
Islands) 117,700
25,000 TSI Telecommunication Services, Inc.
company guaranty Ser. B, 12 3/4s,
2009 27,750
280,000 UGS Corp. company guaranty 10s, 2012 308,000
130,000 Xerox Capital Trust I company
guaranty 8s, 2027 134,550
65,000 Xerox Corp. notes Ser. MTN, 7.2s,
2016 69,875
210,000 Xerox Corp. sr. notes 7 5/8s, 2013 228,900
180,000 Xerox Corp. sr. notes 6 7/8s, 2011 190,350
--------------
2,083,988
Textiles (1.0%)
-------------------------------------------------------------------------------
205,000 Levi Strauss & Co. sr. notes
12 1/4s, 2012 222,425
190,000 Levi Strauss & Co. 144A sr. notes
9 3/4s, 2015 184,300
75,000 Oxford Industries, Inc. sr. notes
8 7/8s, 2011 77,625
120,000 Russell Corp. company guaranty
9 1/4s, 2010 126,000
68,000 William Carter Holdings Co. (The)
company guaranty Ser. B, 10 7/8s,
2011 75,310
--------------
685,660
Tire & Rubber (0.4%)
-------------------------------------------------------------------------------
35,000 Goodyear Tire & Rubber Co. (The)
notes 8 1/2s, 2007 35,875
180,000 Goodyear Tire & Rubber Co. (The)
notes 7.857s, 2011 171,900
35,000 Goodyear Tire & Rubber Co. (The)
notes 6 3/8s, 2008 34,038
--------------
241,813
Transportation (1.2%)
-------------------------------------------------------------------------------
95,000 American Airlines, Inc. pass-through
certificates Ser. 01-1, 6.817s,
2011 88,588
170,000 Calair, LLC/Calair Capital Corp.
company guaranty 8 1/8s, 2008 131,750
200,000 Kansas City Southern Railway Co.
company guaranty 9 1/2s, 2008 218,000
30,000 Kansas City Southern Railway Co.
company guaranty 7 1/2s, 2009 30,975
120,000 Navistar International Corp. company
guaranty Ser. B, 9 3/8s, 2006 124,800
85,000 Navistar International Corp. 144A
sr. notes 6 1/4s, 2012 80,750
61,754 NWA Trust sr. notes Ser. A, 9 1/4s,
2012 63,606
40,000 Travelcenters of America, Inc.
company guaranty 12 3/4s, 2009 44,000
--------------
782,469
Utilities & Power (7.3%)
-------------------------------------------------------------------------------
13,000 AES Corp. (The) sr. notes 8 7/8s,
2011 14,300
4,000 AES Corp. (The) sr. notes 8 3/4s,
2008 4,280
130,000 AES Corp. (The) 144A sec. notes 9s,
2015 145,275
190,000 AES Corp. (The) 144A sec. notes
8 3/4s, 2013 211,850
100,000 Allegheny Energy Supply 144A bonds
8 1/4s, 2012 108,875
65,000 Allegheny Energy Supply 144A sec.
notes 10 1/4s, 2007 72,475
135,000 ANR Pipeline Co. debs. 9 5/8s, 2021 170,057
130,000 CMS Energy Corp. sr. notes 8.9s,
2008 140,075
40,000 CMS Energy Corp. sr. notes 8 1/2s,
2011 43,500
30,000 CMS Energy Corp. sr. notes 7 3/4s,
2010 31,650
95,000 Colorado Interstate Gas Co. 144A sr.
notes 5.95s, 2015 93,226
340,000 DPL, Inc. bonds 8 1/8s, 2031 399,573
245,000 Dynegy Holdings, Inc. 144A sec.
notes 10 1/8s, 2013 271,950
65,000 Dynegy-Roseton Danskamme company
guaranty Ser. A, 7.27s, 2010 63,700
100,000 Dynegy-Roseton Danskamme company
guaranty Ser. B, 7.67s, 2016 94,000
45,000 Edison Mission Energy sr. notes 10s,
2008 49,950
40,000 El Paso CGP Co. notes 7 3/4s, 2010 40,000
95,000 El Paso Corp. sr. notes 8.05s, 2030 90,488
65,000 El Paso Corp. sr. notes 7 3/8s, 2012 63,050
65,000 El Paso Corp. sr. notes Ser. MTN,
7.8s, 2031 60,856
30,000 El Paso Natural Gas Co. debs.
8 5/8s, 2022 34,750
170,000 El Paso Production Holding Co.
company guaranty 7 3/4s, 2013 176,375
115,000 Ferrellgas Partners LP/Ferrellgas
Partners Finance sr. notes 6 3/4s,
2014 106,950
225,000 Midwest Generation, LLC sec. sr.
notes 8 3/4s, 2034 250,875
135,000 Mission Energy Holding Co. sec.
notes 13 1/2s, 2008 159,300
70,000 Monongahela Power Co. 1st mtge.
6.7s, 2014 77,088
85,000 Nevada Power Co. 2nd mtge. 9s, 2013 95,413
135,000 Northwest Pipeline Corp. company
guaranty 8 1/8s, 2010 146,813
348,000 NRG Energy, Inc. 144A sr. sec. notes
8s, 2013 367,140
100,000 Orion Power Holdings, Inc. sr. notes
12s, 2010 119,500
105,000 PSEG Energy Holdings, Inc. notes
7 3/4s, 2007 108,150
85,000 SEMCO Energy, Inc. sr. notes 7 3/4s,
2013 88,339
110,000 SEMCO Energy, Inc. 144A sr. notes
7 3/4s, 2013 110,000
25,000 Sierra Pacific Power Co. general
ref. mtge. 6 1/4s, 2012 25,313
165,000 Sierra Pacific Resources sr. notes
8 5/8s, 2014 178,613
55,000 Teco Energy, Inc. notes 10 1/2s,
2007 62,975
35,000 Teco Energy, Inc. notes 7.2s, 2011 36,969
55,000 Teco Energy, Inc. notes 7s, 2012 57,613
10,000 Teco Energy, Inc. 144A sr. notes
6 3/4s, 2015 10,250
15,000 Tennessee Gas Pipeline Co. debs. 7s,
2028 15,176
30,000 Tennessee Gas Pipeline Co. unsecd.
notes 7 1/2s, 2017 32,951
140,000 Texas Genco LLC/Texas Genco
Financing Corp. 144A sr. notes
6 7/8s, 2014 143,850
20,000 Transcontinental Gas Pipeline Corp.
debs. 7 1/4s, 2026 21,550
105,000 Utilicorp Canada Finance Corp.
company guaranty 7 3/4s, 2011
(Canada) 105,525
75,000 Utilicorp United, Inc. sr. notes
9.95s, 2011 80,250
25,000 Williams Cos., Inc. (The) notes
8 3/4s, 2032 29,313
25,000 Williams Cos., Inc. (The) notes
8 1/8s, 2012 28,125
95,000 Williams Cos., Inc. (The) notes
7 5/8s, 2019 104,975
73,041 York Power Funding 144A notes 12s,
2007 (Cayman Islands) (In default)
(NON) (F) 1
--------------
4,943,272
--------------
Total Corporate bonds and notes
(cost $60,307,392) $60,790,883
Common stocks (2.8%) (a)
Number of shares Value
-------------------------------------------------------------------------------
307 AboveNet, Inc. (NON) $9,057
13,481 Alderwoods Group, Inc. (Canada)
(NON) 186,712
180,000 AMRESCO Creditor Trust (acquired
various dates from 5/05/99 to
5/10/00, cost $38,828) (NON) (RES)
(F) (R) 180
195 Birch Telecom, Inc. (NON) (F) 1
4,405 Celanese Corp. Ser. A (NON) 68,189
20,176 Coinmach Service Corp. IDS (Income
Deposit Securities) 262,288
85 Comdisco Holding Co., Inc. 1,445
112 Compass Minerals International, Inc. 2,523
505,286 Contifinancial Corp. Liquidating
Trust Units 632
3,010 Covad Communications Group, Inc.
(NON) 3,793
235 Crown Castle International Corp.
(NON) 4,178
5,403 Globix Corp. (NON) 15,399
115,000 iPCS Escrow, Inc. (NON) (F) 115
3,613 iPCS, Inc. (NON) 112,906
33 Knology, Inc. (NON) 62
116 Magellan Health Services, Inc. (NON) 3,767
978 Northwestern Corp. 28,342
4,727 Pride International, Inc. (NON) 106,594
576 PSF Group Holdings, Inc. 144A Class
A (acquired 3/15/95, cost
$1,982,405) (NON) (RES) (F) 1,023,622
10 Sterling Chemicals, Inc. (NON) 260
178 Sun Healthcare Group, Inc. (NON) 1,246
40 USA Mobility, Inc. (NON) 1,058
259,509 VFB LLC (acquired various dates from
12/21/99 to 10/27/00, cost $214,226)
(NON) (RES) 53,199
40,417 VS Holdings, Inc. (NON) 40
--------------
Total Common stocks
(cost $4,400,865) $1,885,608
Convertible bonds and notes (1.2%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$490,000 Cybernet Internet Services
International, Inc. 144A cv. sr.
disc. notes 13s, 2009 (Canada) (In
default) (NON) $5
65,000 Fairchild Semiconductor
International, Inc. cv. company
guaranty 5s, 2008 63,294
390,000 Kulicke & Soffa Industries, Inc. cv.
sub. notes 0.5s, 2008 263,738
677,000 Lear Corp. cv. company guaranty zero %,
2022 302,958
220,000 ON Semiconductor Corp. cv. sr. sub.
notes zero %, 2024 157,575
50,000 WCI Communities, Inc. cv. sr. sub.
notes 4s, 2023 60,250
--------------
Total Convertible bonds and notes
(cost $1,285,356) $847,820
Foreign government bonds and notes (1.2%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$165,000 Brazil (Federal Republic of) bonds
10 1/2s, 2014 $193,050
35,000 Colombia (Republic of) bonds
10 3/8s, 2033 40,390
35,000 Colombia (Republic of) unsub.
9 3/4s, 2009 39,550
140,000 Indonesia (Republic of) 144A sr.
notes 6 3/4s, 2014 137,900
60,000 Peru (Republic of) bonds 8 3/8s,
2016 66,600
150,000 Philippines (Republic of) bonds
8 3/8s, 2011 154,875
120,000 United Mexican States bonds
Ser. MTN, 8.3s, 2031 146,880
45,000 Venezuela (Republic of) notes
10 3/4s, 2013 50,850
--------------
Total Foreign government bonds and
notes (cost $783,064) $830,095
Convertible preferred stocks (0.8%) (a)
Number of shares Value
-------------------------------------------------------------------------------
1,537 Crown Castle International Corp.
$3.125 cum. cv. pfd. $72,239
2,929 Emmis Communications Corp. Ser. A,
$3.125 cum. cv. pfd. 117,160
6,062 Huntsman Corp. $2.50 cv. pfd. 267,486
1,160 Williams Cos., Inc. (The) 144A $2.75
cv. pfd. 101,935
--------------
Total Convertible preferred stocks
(cost $588,342) $558,820
Preferred stocks (0.5%) (a)
Number of shares Value
-------------------------------------------------------------------------------
1,266 Doane Pet Care Co. $7.125 pfd. $101,280
3 Dobson Communications Corp. 13.00% pfd.
(PIK) 2,046
80 First Republic Capital Corp. 144A
10.50% pfd. 84,000
13 Paxson Communications Corp. 14.25%
cum. pfd. (PIK) 85,150
84 Rural Cellular Corp. Ser. B, 11.375%
cum. pfd. 70,980
--------------
Total Preferred stocks
(cost $351,614) $343,456
Units (0.4%) (a) (cost $812,266)
Number of units Value
-------------------------------------------------------------------------------
446 XCL Equity Units (F) $303,881
Brady bonds (0.3%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$119,413 Brazil (Federal Republic of) FRB
Ser. 18 YR, 4.31s, 2012 $114,637
102,000 Peru (Republic of) FRB Ser. 20 YR,
5s, 2017 97,410
--------------
Total Brady bonds (cost $208,228) $212,047
Senior loans (0.1%) (a) (c) (cost $81,522)
Principal amount Value
-------------------------------------------------------------------------------
$90,000 Olympus Cable bank term loan FRN
Ser. B, 7 3/4s, 2010 $87,863
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 $60,572
Warrants (--%) (a) (NON) Expiration
Number of warrants date Value
-------------------------------------------------------------------------------
108 AboveNet, Inc. 9/8/08 $648
127 AboveNet, Inc. 9/8/10 254
200 Dayton Superior Corp. 144A 6/15/09 1
1 Doe Run Resources Corp. 144A 10/29/12 1
89 MDP Acquisitions PLC 144A 10/1/13 2,492
70 Mikohn Gaming Corp. 144A 8/15/08 1,361
8 NTL, Inc. 1/13/11 10
80 Pliant Corp. 144A 6/1/10 1
120 TravelCenters of America, Inc. 144A 5/1/09 15
350 Ubiquitel, Inc. 144A 4/15/10 1
310 Washington Group International, Inc.
Ser. C 1/25/06 4,219
190 XM Satellite Radio Holdings, Inc.
144A 3/15/10 11,970
--------------
Total Warrants (cost $127,021) $20,973
Short-term investments (1.6%) (a) (cost $1,082,846)
Principal amount Value
-------------------------------------------------------------------------------
$1,082,846 Putnam Prime Money Market Fund (e) $1,082,846
-------------------------------------------------------------------------------
Total Investments (cost $70,088,516) $67,024,864
-------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $67,879,486.
(b) Security is in default of principal and interest.
(NON) Non-income-producing security.
(STP) The interest rate and date shown parenthetically represent the new
interest rate to be paid and the date the fund will begin accruing
interest income at this rate.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at May 31, 2005 was
$1,077,001 or 1.6% 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.
(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 May 31, 2005. 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 (Notes 1 and 5).
(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 May 31, 2005.
At May 31, 2005, liquid assets totaling $83,000 have been designated as
collateral for open swap contracts.
Forward currency contracts to buy at May 31, 2005
(aggregate face value $70,749)
Aggregate Delivery Unrealized
Value face value date depreciation
------------------------------------------------------------------------------------------------------
Euro $67,436 $70,749 6/15/05 $(3,313)
------------------------------------------------------------------------------------------------------
Forward currency contracts to sell at May 31, 2005
(aggregate face value $2,174,994)
Aggregate Delivery Unrealized
Value face value date appreciation
------------------------------------------------------------------------------------------------------
British Pound $321,243 $335,160 6/15/05 $13,917
Euro 1,728,015 1,839,834 6/15/05 111,819
------------------------------------------------------------------------------------------------------
$125,736
------------------------------------------------------------------------------------------------------
Credit default contracts outstanding at May 31, 2005
Notional Unrealized
amount appreciation
------------------------------------------------------------------------------------------------------
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 $1,195
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. 24,593 559
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. 12,296 556
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. 9,222 391
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. 6,148 195
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. 3,074 189
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 31
------------------------------------------------------------------------------------------------------
$3,116
------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of assets and liabilities
May 31, 2005
Assets
-------------------------------------------------------------------------------
Investment in securities, at value (Note 1):
-------------------------------------------------------------------------------
Unaffiliated issuers (identified cost $69,005,670) $65,942,018
-------------------------------------------------------------------------------
Affiliated issuers (identified cost $1,082,846) (Note 4) 1,082,846
-------------------------------------------------------------------------------
Dividends, interest and other receivables 1,375,471
-------------------------------------------------------------------------------
Receivable for securities sold 37,305
-------------------------------------------------------------------------------
Receivable for open credit default contracts (Note 1) 3,116
-------------------------------------------------------------------------------
Receivable for open forward currency contracts (Note 1) 125,736
-------------------------------------------------------------------------------
Receivable for closed forward currency contracts (Note 1) 3,458
-------------------------------------------------------------------------------
Total assets 68,569,950
Liabilities
-------------------------------------------------------------------------------
Distributions payable to shareholders 367,800
-------------------------------------------------------------------------------
Payable for securities purchased 80,937
-------------------------------------------------------------------------------
Payable for compensation of Manager (Notes 2 and 4) 128,525
-------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 29,197
-------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 32,185
-------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,066
-------------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 3,313
-------------------------------------------------------------------------------
Other accrued expenses 46,441
-------------------------------------------------------------------------------
Total liabilities 690,464
-------------------------------------------------------------------------------
Net assets $67,879,486
Represented by
-------------------------------------------------------------------------------
Paid-in capital (Unlimited shares authorized) (Note 1) $104,875,944
-------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (504,220)
-------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (33,553,444)
-------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and
liabilities in foreign currencies (2,938,794)
-------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $67,879,486
Computation of net asset value
-------------------------------------------------------------------------------
Net asset value per share ($67,879,486 divided by 7,507,107
shares) $9.04
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of operations
Year ended May 31, 2005
Investment income:
-------------------------------------------------------------------------------
Interest (including interest income of $34,581 from
investments in affiliated issuers) (Note 4) $5,423,931
-------------------------------------------------------------------------------
Dividends 63,761
-------------------------------------------------------------------------------
Securities lending 189
-------------------------------------------------------------------------------
Total investment income 5,487,881
Expenses:
-------------------------------------------------------------------------------
Compensation of Manager (Note 2) 513,865
-------------------------------------------------------------------------------
Investor servicing fees (Note 2) 34,472
-------------------------------------------------------------------------------
Custodian fees (Note 2) 100,624
-------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 14,125
-------------------------------------------------------------------------------
Administrative services (Note 2) 15,681
-------------------------------------------------------------------------------
Auditing 44,357
-------------------------------------------------------------------------------
Other 74,362
-------------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Note 4) (2,780)
-------------------------------------------------------------------------------
Total expenses 794,706
-------------------------------------------------------------------------------
Expense reduction (Note 2) (1,161)
-------------------------------------------------------------------------------
Net expenses 793,545
-------------------------------------------------------------------------------
Net investment income 4,694,336
-------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (201,473)
-------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (18,022)
-------------------------------------------------------------------------------
Net realized gain on swap contracts (Note 1) 1,340
-------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the year 125,950
-------------------------------------------------------------------------------
Net unrealized appreciation of investments and swap
contracts during the year 1,737,535
-------------------------------------------------------------------------------
Net gain on investments 1,645,330
-------------------------------------------------------------------------------
Net increase in net assets resulting from operations $6,339,666
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of changes in net assets
Year ended May 31
Increase in net assets 2005 2004
-------------------------------------------------------------------------------
Operations:
-------------------------------------------------------------------------------
Net investment income $4,694,336 $5,039,143
-------------------------------------------------------------------------------
Net realized loss on investments and foreign
currency transactions (218,155) (846,736)
-------------------------------------------------------------------------------
Net unrealized appreciation of investments
and assets and liabilities in foreign
currencies 1,863,485 3,612,657
-------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 6,339,666 7,805,064
-------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
-------------------------------------------------------------------------------
From net investment income (4,638,801) (4,993,812)
-------------------------------------------------------------------------------
From return of capital -- (50,354)
-------------------------------------------------------------------------------
Total increase in net assets 1,700,865 2,760,898
Net assets
-------------------------------------------------------------------------------
Beginning of year 66,178,621 63,417,723
-------------------------------------------------------------------------------
End of year (including distributions in
excess of net investment income of $504,220
and $667,383, respectively) $67,879,486 $66,178,621
-------------------------------------------------------------------------------
Number of fund shares
-------------------------------------------------------------------------------
Shares outstanding at beginning and end of
year 7,507,107 7,507,107
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
Per-share Year ended May 31
operating performance 2005 2004 2003 2002 2001
---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $8.82 $8.45 $8.50 $9.49 $10.91
---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .63 (d) .67 (d) .73 .86 1.16
---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .21 .37 (.01) (.86) (1.41)
---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .84 1.04 .72 -- (e) (.25)
---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.62) (.66) (.76) (.87) (1.17)
---------------------------------------------------------------------------------------------------------------------------------
From return of capital -- (.01) (.01) (.12) --
---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.62) (.67) (.77) (.99) (1.17)
---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.04 $8.82 $8.45 $8.50 $9.49
---------------------------------------------------------------------------------------------------------------------------------
Market price,
end of period $7.97 $7.92 $9.02 $9.48 $10.80
---------------------------------------------------------------------------------------------------------------------------------
Total return at
market price (%)(b) 8.43 (4.99) 4.15 (2.91) 18.34
---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $67,879 $66,179 $63,418 $63,826 $71,211
---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.16 (d) 1.19 (d) 1.22 1.19 1.14
---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 6.85 (d) 7.57 (d) 9.17 9.69 11.41
---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 53.12 66.18 73.72 73.39 97.63
---------------------------------------------------------------------------------------------------------------------------------
(a) Per share net investment income has been determined on the basis of
the weighted average number of common 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
May 31, 2005 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
May 31, 2005
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.
In the normal course of business, the fund enters into contracts that
may include agreements to indemnify another party under given
circumstances. The fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be, but have not
yet been, made against the fund. However, the fund expects the risk of
material loss to be remote.
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 certain 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 issues of high-grade short-term investments
having maturities of up to 397 days for collateral received under
security lending arrangements and up to 90 days for other cash
investments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the market
value of which at the time of purchase is required to be in an amount at
least equal to the resale price, including accrued interest. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. Putnam Management is responsible for determining that the
value of these underlying securities is at all times at least equal to the
resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are 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.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when 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.
F) 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.
G) 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 counter party, 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.
H) Federal taxes It is the policy of the fund to distribute all of its
income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code 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, 2005, the fund had a capital loss carryover of $33,361,798
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
1,858,608 May 31, 2012
1,322,746 May 31, 2013
Pursuant to federal income tax regulations applicable to regulated
investment companies, the fund has elected to defer to its fiscal year
ending May 31, 2006 $149,157 of losses recognized during the period
November 1, 2004 to May 31, 2005.
I) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Distributions from capital gains, if any, are recorded on the
ex-dividend date and paid at least annually. The amount and character of
income and gains to be distributed are determined in accordance with
income tax regulations, which may differ from generally accepted
accounting principles. These differences include temporary and permanent
differences of losses on wash sale transactions, foreign currency gains
and losses, post-October loss deferrals, nontaxable dividends, dividends
payable, defaulted bond interest, market discount and interest on
payment-in-kind securities. Reclassifications are made to the fund's
capital accounts to reflect income and gains available for distribution
(or available capital loss carryovers) under income tax regulations. For
the year ended May 31, 2005, the fund reclassified $107,628 to decrease
distributions in excess of net investment income and $7,135 to increase
paid-in-capital, with an increase to accumulated net losses of $114,763.
The tax basis components of distributable earnings and the federal tax
cost as of period end were as follows:
Unrealized appreciation $2,352,956
Unrealized depreciation (5,652,039)
------------------
Net unrealized depreciation (3,299,083)
Undistributed ordinary income 187,455
Capital loss carryforward (33,361,798)
Post-October loss (149,157)
Cost for federal income
tax purposes $70,323,947
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 the following annual rates: 0.75% of the first $500 million,
0.65% of the next $500 million, 0.60% of the next $500 million and 0.55%
thereafter.
In June 2005, the Trustees and Putnam Management agreed to a reduced
management fee structure for the fund that will go into effect on
January 1, 2006. Effective on that date, the fund's management fee is
expected to be an annual rate of 0.75% of the weekly average net assets
of the fund (based on the fund's current asset level), with additional
breakpoints leading to lower fee rates at higher asset levels.
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 year ended May 31, 2005, the fund paid
PFTC $135,096 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 year ended May 31, 2005, the
fund's expenses were reduced by $1,161 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $539, as a quarterly retainer, has been allocated to the fund, and
an additional fee for each Trustees meeting attended. Trustees receive
additional fees for attendance at certain committee meetings. George
Putnam III also receives the foregoing fees for his services as Trustee.
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 year ended May 31, 2005, cost of purchases and proceeds from
sales of investment securities other than short-term investments
aggregated $35,238,335 and $34,936,536, 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 and administrative services fees paid by Putnam Prime Money
Market Fund with respect to assets invested by the fund in Putnam Prime
Money Market Fund. For the year ended May 31, 2005, management fees paid
were reduced by $2,780 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 $34,581 for the year
ended May 31, 2005. During the year ended May 31, 2005, cost of purchases
and cost of sales of investments in Putnam Prime Money Market Fund
aggregated $16,538,211 and $17,077,254, respectively.
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
Putnam Management has entered into agreements with the Securities and
Exchange Commission and the Massachusetts Securities Division settling
charges connected 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.
Pursuant to these settlement agreements, Putnam Management will pay a
total of $193.5 million in penalties and restitution, with $153.5
million being paid to shareholders and the funds. The restitution amount
will be allocated to shareholders pursuant to a plan developed by an
independent consultant, with payments to shareholders following approval
of the plan by the SEC and the Massachusetts Securities Division.
The Securities and Exchange Commission'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 will bear any costs incurred by
Putnam funds in connection with these lawsuits. 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.
Federal tax information
(Unaudited)
The fund has designated 1.12% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
For its tax year ended May 31, 2005, the fund hereby designates 1.12% or
the maximum amount allowable, of its net taxable income as qualified
dividends taxed at individual net capital gain rates.
The Form 1099 you receive in January 2006 will show the tax status of
all distributions paid to your account in calendar 2005.
Compliance certifications
(Unaudited)
On November 11, 2004, your fund submitted a CEO annual certification to
the New York Stock Exchange ("NYSE") on which the fund's principal
executive officer certified that he was not aware, as of that date, of
any violation by the fund of the NYSE's Corporate Governance listing
standards. In addition, as required by Section 302 of the Sarbanes-Oxley
Act of 2002 and related SEC rules, the fund's principal executive and
principal financial officers have made quarterly certifications,
included in filings with the SEC on Forms N-CSR and N-Q, relating to,
among other things, the fund's disclosure controls and procedures and
internal control over financial reporting.
About the Trustees
Jameson A. Baxter (9/6/43), Trustee since 1994
Ms. Baxter is the President of Baxter Associates, Inc., a private
investment firm that she founded in 1986.
Ms. Baxter serves as a Director of ASHTA Chemicals, Inc., Banta
Corporation (a printing and digital imaging firm), Ryerson Tull, Inc. (a
steel service corporation), the Mutual Fund Directors Forum, Advocate
Health Care and BoardSource, formerly the National Center for Nonprofit
Boards. She is Chairman Emeritus of the Board of Trustees, Mount Holyoke
College, having served as Chairman for five years and as a board member
for thirteen years. Until 2002, Ms. Baxter was a Director of Intermatic
Corporation (a manufacturer of energy control products).
Ms. Baxter has held various positions in investment banking and
corporate finance, including Vice President and Principal of the Regency
Group, and Vice President of and Consultant to First Boston Corporation.
She is a graduate of Mount Holyoke College.
Charles B. Curtis (4/27/40), Trustee since 2001
Mr. Curtis is President and Chief Operating Officer of the Nuclear
Threat Initiative (a private foundation dealing with national security
issues) and serves as Senior Advisor to the United Nations Foundation.
Mr. Curtis is a member of the Council on Foreign Relations and the
Trustee Advisory Council of the Applied Physics Laboratory, Johns
Hopkins University. Until 2003, Mr. Curtis was a member of the Electric
Power Research Institute Advisory Council and the University of Chicago
Board of Governors for Argonne National Laboratory. Prior to 2002, Mr.
Curtis was a Member of the Board of Directors of the Gas Technology
Institute and the Board of Directors of the Environment and Natural
Resources Program Steering Committee, John F. Kennedy School of
Government, Harvard University. Until 2001, Mr. Curtis was a member of
the Department of Defense Policy Board and Director of EG&G Technical
Services, Inc. (a fossil energy research and development support
company).
From August 1997 to December 1999, Mr. Curtis was a Partner at Hogan &
Hartson L.L.P., a Washington, D.C. law firm. Prior to May 1997, Mr.
Curtis was Deputy Secretary of Energy. He served as Chairman of the
Federal Energy Regulatory Commission from 1977 to 1981 and has held
positions on the staff of the U.S. House of Representatives, the U.S.
Treasury Department, and the SEC.
Myra R. Drucker (1/16/48), Trustee since 2004
Ms. Drucker is a Vice Chair of the Board of Trustees of Sarah Lawrence
College, a Trustee of Commonfund (a not-for-profit firm specializing in
asset management for educational endowments and foundations) and a member
of the Investment Committee of the Kresge Foundation (a charitable trust).
She is also an ex-officio member of the New York Stock Exchange (NYSE)
Pension Managers Advisory Committee, having served as Chair for seven
years and a member of the Executive Committee of the Committee on
Investment of Employee Benefit Assets. She is Chair of the Advisory Board
of Hamilton Lane Advisors (an investment management firm) and a member of
the Advisory Board of RCM (an investment management firm). Until August
31, 2004, Ms. Drucker was Managing Director and a member of the Board of
Directors of General Motors Asset Management and Chief Investment Officer
of General Motors Trust Bank. Ms. Drucker also served as a member of the
NYSE Corporate Accountability and Listing Standards Committee and the
NYSE/NASD IPO Advisory Committee.
Prior to joining General Motors Asset Management in 2001, Ms. Drucker
held various executive positions in the investment management industry.
Ms. Drucker served as Chief Investment Officer of Xerox Corporation (a
technology and service company in the document industry), where she was
responsible for the investment of the company's pension assets. Ms.
Drucker was also Staff Vice President and Director of Trust Investments
for International Paper (a paper, paper distribution, packaging and
forest products company) and previously served as Manager of Trust
Investments for Xerox Corporation. Ms. Drucker received a B.A. degree in
Literature and Psychology from Sarah Lawrence College and pursued
graduate studies in economics, statistics and portfolio theory at Temple
University.
John A. Hill (1/31/42), Trustee since 1985 and Chairman since 2000
Mr. Hill is Vice Chairman of First Reserve Corporation, a private equity
buyout firm that specializes in energy investments in the diversified
worldwide energy industry.
Mr. Hill is a Director of Devon Energy Corporation, TransMontaigne Oil
Company and various private companies controlled by First Reserve
Corporation, as well as a Trustee of TH Lee, Putnam Investment Trust (a
closed-end investment company advised by an affiliate of Putnam
Management). He is also a Trustee of Sarah Lawrence College. Until 2005,
he was a Director of Continuum Health Partners of New York.
Prior to acquiring First Reserve Corporation in 1983, Mr. Hill held
executive positions in investment banking and investment management with
several firms and with the federal government, including Deputy
Associate Director of the Office of Management and Budget and Deputy
Director of the Federal Energy Administration. He is active in various
business associations, including the Economic Club of New York, and
lectures on energy issues in the United States and Europe. Mr. Hill
holds a B.A. degree in Economics from Southern Methodist University and
pursued graduate studies there as a Woodrow Wilson Fellow.
Paul L. Joskow (6/30/47), Trustee since 1997
Dr. Joskow is the Elizabeth and James Killian Professor of Economics and
Management, and Director of the Center for Energy and Environmental
Policy Research at the Massachusetts Institute of Technology.
Dr. Joskow serves as a Director of National Grid Transco (a UK-based
holding company with interests in electric and gas transmission and
distribution and telecommunications infrastructure) and TransCanada
Corporation (an energy company focused on natural gas transmission and
power services). Prior to February 2005, he served on the board of the
Whitehead Institute for Biomedical Research (a non-profit research
institution) and has been President of the Yale University Council
since 1993. Prior to February 2002, he was a Director of State Farm
Indemnity Company (an automobile insurance company), and, prior to March
2000, he was a Director of New England Electric System (a public utility
holding company).
Dr. Joskow has published five books and numerous articles on topics in
industrial organization, government regulation of industry, and
competition policy. He is active in industry restructuring,
environmental, energy, competition and privatization policies -- serving
as an advisor to governments and corporations worldwide. Dr. Joskow
holds a Ph.D. and M. Phil from Yale University and a B.A. from Cornell
University.
Elizabeth T. Kennan (2/25/38), Trustee since 1992
Dr. Kennan is a Partner of Cambus-Kenneth Farm (thoroughbred horse and
cattle breeding). She is President Emeritus of Mount Holyoke College.
Dr. Kennan served as Chairman and is now Lead Director of Northeast
Utilities. Until 2005, she was a Director of Talbots, Inc. She has
served as Director on a number of other boards, including Bell Atlantic,
Chastain Real Estate, Shawmut Bank, Berkshire Life Insurance and
Kentucky Home Life Insurance. She is a Trustee of the National Trust for
Historic Preservation, of Centre College and of Midway College in
Midway, Kentucky. She is also a member of The Trustees of Reservations.
Dr. Kennan has served on the oversight committee of the Folger
Shakespeare Library, as President of Five Colleges Incorporated, as a
Trustee of Notre Dame University and is active in various educational
and civic associations.
As a member of the faculty of Catholic University for twelve years,
until 1978, Dr. Kennan directed the post-doctoral program in Patristic
and Medieval Studies, taught history and published numerous articles.
Dr. Kennan holds a Ph.D. from the University of Washington in Seattle,
an M.S. from St. Hilda's College at Oxford University and an A.B. from
Mount Holyoke College. She holds several honorary doctorates.
John H. Mullin, III (6/15/41), Trustee since 1997
Mr. Mullin is the Chairman and CEO of Ridgeway Farm (a limited liability
company engaged in timber and farming).
Mr. Mullin serves as a Director of The Liberty Corporation (a
broadcasting company), Progress Energy, Inc. (a utility company,
formerly known as Carolina Power & Light) and Sonoco Products, Inc. (a
packaging company). Mr. Mullin is Trustee Emeritus of The National
Humanities Center and Washington & Lee University, where he served as
Chairman of the Investment Committee. Prior to May 2001, he was a
Director of Graphic Packaging International Corp. Prior to February
2004, he was a Director of Alex Brown Realty, Inc.
Mr. Mullin is also a past Director of Adolph Coors Company; ACX
Technologies, Inc.; Crystal Brands, Inc.; Dillon, Read & Co., Inc.;
Fisher-Price, Inc.; and The Ryland Group, Inc. Mr. Mullin is a graduate
of Washington & Lee University and The Wharton Graduate School,
University of Pennsylvania.
Robert E. Patterson (3/15/45), Trustee since 1984
Mr. Patterson is Senior Partner of Cabot Properties, L.P. and Chairman
of Cabot Properties, Inc. (a private equity firm investing in commercial
real estate).
Mr. Patterson serves as Chairman Emeritus and Trustee of the Joslin
Diabetes Center and as a Director of Brandywine Trust Group, LLC. Prior
to June 2003, he was a Trustee of Sea Education Association. Prior to
December 2001, he was President and Trustee of Cabot Industrial Trust (a
publicly traded real estate investment trust). Prior to February 1998,
he was Executive Vice President and Director of Acquisitions of Cabot
Partners Limited Partnership (a registered investment adviser involved
in institutional real estate investments). Prior to 1990, he served as
Executive Vice President of Cabot, Cabot & Forbes Realty Advisors, Inc.
(the predecessor company of Cabot Partners).
Mr. Patterson practiced law and held various positions in state
government and was the founding Executive Director of the Massachusetts
Industrial Finance Agency. Mr. Patterson is a graduate of Harvard
College and Harvard Law School.
W. Thomas Stephens (9/2/42), Trustee since 1997
Mr. Stephens is Chairman and Chief Executive Officer of Boise Cascade,
L.L.C. (a paper, forest products and timberland assets company).
Mr. Stephens serves as a Director of TransCanada Pipelines Limited.
Until 2004, Mr. Stephens was a Director of Xcel Energy Incorporated (a
public utility company), Qwest Communications, and Norske Canada, Inc.
(a paper manufacturer). Until 2003, Mr. Stephens was a Director of
Mail-Well, Inc. (a diversified printing company). He served as Chairman
of Mail-Well until 2001 and as CEO of MacMillan- Bloedel, Ltd. (a forest
products company) until 1999.
Prior to 1996, Mr. Stephens was Chairman and Chief Executive Officer of
Johns Manville Corporation. He holds B.S. and M.S. degrees from the
University of Arkansas.
Richard B. Worley (11/15/45), Trustee since 2004
Mr. Worley is Managing Partner of Permit Capital, LLC, an investment
management firm.
Mr. Worley serves on the Executive Committee of the University of
Pennsylvania Medical Center, is a Trustee of The Robert Wood Johnson
Foundation (a philanthropic organization devoted to health care issues)
and is a Director of The Colonial Williamsburg Foundation (a historical
preservation organization). Mr. Worley also serves on the investment
committees of Mount Holyoke College and World Wildlife Fund (a wildlife
conservation organization).
Prior to joining Permit Capital LLC in 2002, Mr. Worley served as Chief
Strategic Officer of Morgan Stanley Investment Management. He previously
served as President, Chief Executive Officer and Chief Investment
Officer of Morgan Stanley Dean Witter Investment Management and as a
Managing Director of Morgan Stanley, a financial services firm. Mr.
Worley also was the Chairman of Miller Anderson & Sherrerd, an
investment management firm.
Mr. Worley holds a B.S. degree from University of Tennessee and pursued
graduate studies in economics at the University of Texas.
Charles E. Haldeman, Jr.* (10/29/48), Trustee since 2004
Mr. Haldeman is President and Chief Executive Officer of Putnam, LLC
("Putnam Investments"). He is a member of Putnam Investments' Executive
Board of Directors and Advisory Council. Prior to November 2003, Mr.
Haldeman served as Co-Head of Putnam Investments' Investment Division.
Prior to joining Putnam Investments in 2002, Mr. Haldeman held executive
positions in the investment management industry. He previously served as
Chief Executive Officer of Delaware Investments and President & Chief
Operating Officer of United Asset Management. Mr. Haldeman was also a
partner and director of Cooke & Bieler, Inc. (an investment management
firm).
Mr. Haldeman currently serves as a Trustee of Dartmouth College and as
Emeritus Trustee of Abington Memorial Hospital. He is a graduate of
Dartmouth College, Harvard Law School and Harvard Business School. Mr.
Haldeman is also a Chartered Financial Analyst (CFA) charterholder.
George Putnam, III* (8/10/51), Trustee since 1984 and President
since 2000
Mr. Putnam is President of New Generation Research, Inc. (a publisher of
financial advisory and other research services), and of New Generation
Advisers, Inc. (a registered investment advisor to private funds). Mr.
Putnam founded the New Generation companies in 1986.
Mr. Putnam is a Director of The Boston Family Office, LLC (a registered
investment adviser). He is a Trustee of St. Mark's School, Shore Country
Day School, and until 2002 was a Trustee of the Sea Education
Association.
Mr. Putnam previously worked as an attorney with the law firm of Dechert
LLP (formerly known as Dechert Price & Rhoads) in Philadelphia. He is a
graduate of Harvard College, Harvard Business School and Harvard Law
School.
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of May 31, 2005, there were 108 Putnam Funds. All Trustees serve as
Trustees of all Putnam funds.
Each Trustee serves for an indefinite term, until his or her
resignation, retirement at age 72, death, or removal.
* Trustees who are or may be deemed to be "interested persons" (as
defined in the Investment Company Act of 1940) of the fund, Putnam
Management, Putnam Retail Management, or Marsh & McLennan Companies,
Inc., the parent company of Putnam, LLC and its affiliated companies.
Messrs. Haldeman and Putnam III are deemed "interested persons" by
virtue of their positions as officers of the fund, Putnam Management or
Putnam Retail Management and as shareholders of Marsh & McLennan
Companies, Inc. Mr. Putnam, III is the President of your fund and each
of the other Putnam funds. Mr. Haldeman is President and Chief Executive
Officer of Putnam Investments.
Officers
In addition to George Putnam, III, the other officers of the
fund are shown below:
Charles E. Porter (7/26/38)
Executive Vice President, Associate Treasurer and Principal
Executive Officer
Since 1989
Jonathan S. Horwitz (6/4/55)
Senior Vice President and Treasurer
Since 2004
Prior to 2004, Managing Director,
Putnam Investments
Steven D. Krichmar (6/27/58)
Vice President and Principal Financial Officer
Since 2002
Senior Managing Director, Putnam Investments. Prior to July
2001, Partner, PricewaterhouseCoopers LLP
Michael T. Healy (1/24/58)
Assistant Treasurer and Principal
Accounting Officer
Since 2000
Managing Director, Putnam Investments
Beth S. Mazor (4/6/58)
Vice President
Since 2002
Senior Vice President, Putnam Investments
Daniel T. Gallagher (2/27/62)
Senior Vice President, Staff Counsel and Compliance Liaison
Since 2004
Prior to 2004, Associate, Ropes & Gray LLP; prior to 2000,
Law Clerk, Massachusetts Supreme Judicial Court
Francis J. McNamara, III (8/19/55)
Vice President and Chief Legal Officer
Since 2004
Senior Managing Director, Putnam Investments, Putnam Management and
Putnam Retail Management. Prior to 2004, General Counsel, State
Street Research & Management Company
James P. Pappas (2/24/53)
Vice President
Since 2004
Managing Director, Putnam Investments and Putnam Management.
During 2002, Chief Operating Officer, Atalanta/Sosnoff
Management Corporation; prior to 2001, President and Chief
Executive Officer, UAM Investment Services, Inc.
Richard S. Robie, III (3/30/60)
Vice President
Since 2004
Senior Managing Director, Putnam Investments, Putnam Management and
Putnam Retail Management. Prior to 2003, Senior Vice President,
United Asset Management Corporation
Charles A. Ruys de Perez (10/17/57)
Vice President and Chief Compliance Officer
Since 2004
Managing Director, Putnam Investments
Mark C. Trenchard (6/5/62)
Vice President and BSA Compliance Officer
Since 2002
Senior Vice President, Putnam Investments
Judith Cohen (6/7/45)
Vice President, Clerk and Assistant Treasurer
Since 1993
The address of each Officer is One Post Office Square,
Boston, MA 02109.
Fund information
About Putnam Investments
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition
and practice since 1830. Founded 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
Investment Sub-Manager
Putnam Investments Limited
57-59 St. James Street
London, England SW1A 1LD
Marketing Services
Putnam Retail Management
One Post Office Square
Boston, MA 02109
Custodian
Putnam Fiduciary Trust Company
Legal Counsel
Ropes & Gray LLP
Independent Registered Public Accounting Firm
KPMG LLP
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Myra R. Drucker
Charles E. Haldeman, Jr.
Paul L. Joskow
Elizabeth T. Kennan
John H. Mullin, III
Robert E. Patterson
George Putnam, III
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
Beth S. Mazor
Vice President
Daniel T. Gallagher
Senior Vice President, Staff Counsel
and Compliance Liaison
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
Vice President, Clerk and Assistant Treasurer
Call 1-800-225-1581 weekdays from 9:00 a.m. to 5:00 p.m. Eastern Time,
or visit our Web site (www.putnaminvestments.com) anytime for up-to-date
information about the fund's NAV.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
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AN707-225865 7/05
Item 2. Code of Ethics:
-----------------------
(a) All officers of the Fund, including its principal executive, financial and
accounting officers, are employees of Putnam Investment Management, LLC,
the Fund's investment manager. As such they are subject to a comprehensive
Code of Ethics adopted and administered by Putnam Investments which is
designed to protect the interests of the firm and its clients. The Fund
has adopted a Code of Ethics which incorporates the Code of Ethics of
Putnam Investments with respect to all of its officers and Trustees who are
employees of Putnam Investment Management, LLC. For this reason, the Fund
has not adopted a separate code of ethics governing its principal
executive, financial and accounting officers.
(c) In July 2004, Putnam Investment Management, LLC, the Fund's investment
manager, Putnam Retail Management Limited Partnership, the Fund's principal
underwriter, and Putnam Investments Limited, the sub-manager for a portion
of the assets of certain funds as determined by Putnam Management from time
to time, adopted several amendments to their Code of Ethics. Some of these
amendments were adopted as a result of Putnam Investment Management's
partial settlement order with the SEC on November 13, 2003. Insofar as such
Code of Ethics applies to the Fund's principal executive officer, principal
financial officer and principal accounting officer, the amendments provided
for the following: (i) a 90-day blackout period for all shares of Putnam
open-end funds (except for money market funds) purchased or sold (including
exchanges into or out of a fund) by Putnam employees and certain family
members; (ii) a one-year holding period for all access persons that operates
in the same manner as the 90-day rule; (iii) delivery by Putnam employees to
the Code of Ethics Administrator of both quarterly account statements for
all brokerage accounts (irrespective of activity in the accounts) and
account statements for any Putnam funds not held at Putnam or for any funds
sub-advised by Putnam; (iv) a prohibition of Putnam employees from making
more than 25 trades in individual securities in their personal accounts in
any given quarter; (v) the extension of the existing prohibition of access
persons from a purchase and sale or sale and purchase of an individual
security within 60 days to include trading based on tax-lot election; (vi)
the inclusion of trades in Marsh & McLennan Companies, Inc. (ultimate parent
company of Putnam Investment Management) securities in pre-clearance and
reporting requirements; (vii) a prohibition of limit and good-until-canceled
orders as inconsistent with the requirements of daily pre-clearance; (viii)
new limits and procedures for accounts managed by outside managers and
brokers, in order for trading in such accounts to be exempt from
pre-clearance requirements; (ix) a new gift and entertainment policy that
imposes a reporting obligation on all meals and entertainment and new limits
on non-meal entertainment; (x) a number of alternatives for the reporting of
irregular activity.
In December 2004, additional amendments to the Code of Ethics were adopted.
Insofar as such Code of Ethics applies to the Fund's principal executive
officer, principal financial officer and principal accounting officer, the
amendments provided for the following: (i) implementation of minimum
monetary sanctions for violations of the Code; (ii) expansion of the
definition of "access person" under the Code to include all Putnam employees
with access to non-public information regarding Putnam-managed mutual fund
portfolio holdings; (iii) lengthening the period during which access persons
are required to complete quarterly reports; (iv) reducing the maximum number
of trades than can be made by Putnam employees in their personal accounts in
any calendar quarter from 25 trades to 10 trades; and (v) lengthening the
required holding period for securities by access persons from 60 days to 90
days.
In March 2005, additional amendments to the Code of Ethics were adopted,
that went into effect on April 1, 2005. Insofar as such Code of Ethics
applies to the Fund's principal executive officer, principal financial
officer and principal accounting officer, the amendments (i) prohibit Putnam
employees and their immediate family members from having any direct or
indirect personal financial interest in companies that do business with
Putnam (excluding investment holdings in public companies that are not
material to the employee), unless such interest is disclosed and approved by
the Code of Ethics Officer; (ii) prohibit Putnam employees from using Putnam
assets, letterhead or other resources in making political or campaign
contributions, solicitations or endorsements;(iii) require Putnam employees
to obtain pre-clearance of personal political or campaign contributions or
other gifts to government officials or political candidates in certain
jurisdictions and to officials or candidates with whom Putnam has or is
seeking to establish a business relationship and (iv) require Putnam
employees to obtain pre-approval from Putnam's Director of Government
Relations prior to engaging in lobbying activities.
Item 3. Audit Committee Financial Expert:
-----------------------------------------
The Funds' Audit and Pricing Committee is comprised solely of Trustees
who are "independent" (as such term has been defined by the Securities
and Exchange Commission ("SEC") in regulations implementing Section 407
of the Sarbanes-Oxley Act (the "Regulations")). The Trustees believe
that each of the members of the Audit and Pricing Committee also possess
a combination of knowledge and experience with respect to financial
accounting matters, as well as other attributes, that qualify them for
service on the Committee. In addition, the Trustees have determined
that all members of the Funds' Audit and Pricing Committee meet the
financial literacy requirements of the New York Stock Exchange's rules
and that Mr. Patterson, Mr. Stephens and Mr. Worley qualify as "audit
committee financial experts" (as such term has been defined by the
Regulations) based on their review of their pertinent experience and
education. Certain other Trustees, although not on the Audit and Pricing
Committee, would also qualify as "audit committee financial experts."
The SEC has stated that the designation or identification of a person
as an audit committee financial expert pursuant to this Item 3 of Form
N-CSR does not impose on such person any duties, obligations or liability
that are greater than the duties, obligations and liability imposed on
such person as a member of the Audit and Pricing Committee and the Board
of Trustees in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services:
-----------------------------------------------
The following table presents fees billed in each of the last two fiscal
years for services rendered to the fund by the fund's independent auditors:
Audit Audit-Related Tax All Other
Fiscal year ended Fees Fees Fees Fees
----------------- ---------- ------------- ------- ---------
May 31, 2005 $40,500 $-- $3,800 $--
May 31, 2004 $35,200 $-- $3,300 $12
For the fiscal years ended May 31, 2005 and May 31, 2004, the fund's
independent auditors billed aggregate non-audit fees in the amounts of
$3,800 and $3,312 respectively, to the fund, Putnam Management and any
entity controlling, controlled by or under common control with Putnam
Management that provides ongoing services to the fund.
Audit Fees represents fees billed for the fund's last two fiscal years.
Audit-Related Fees represents fees billed in the fund's last two fiscal
years for services traditionally performed by the fund's auditor, including
accounting consultation for proposed transactions or concerning financial
accounting and reporting standards and other audit or attest services not
required by statute or regulation.
Tax Fees represent fees billed in the fund's last two fiscal years for tax
compliance, tax planning and tax advice services. Tax planning and tax
advice services include assistance with tax audits, employee benefit plans
and requests for rulings or technical advice from taxing authorities.
All Other Fees Fees represent fees billed for services relating to
calculation of investment performance.
Pre-Approval Policies of the Audit and Pricing Committee. The Audit and
Pricing Committee of the Putnam funds has determined that, as a matter of
policy, all work performed for the funds by the funds' independent auditors
will be pre-approved by the Committee and will generally not be subject to
pre-approval procedures.
Under certain circumstances, the Audit and Pricing Committee believes that
it may be appropriate for Putnam Investment Management, LLC ("Putnam
Management") and certain of its affiliates to engage the services of the
funds' independent auditors, but only after prior approval by the Committee.
Such requests are required to be submitted in writing to the Committee and
explain, among other things, the nature of the proposed engagement, the
estimated fees, and why this work must be performed by that particular audit
firm. The Committee will review the proposed engagement at its next
meeting.
Since May 6, 2003, all work performed by the independent auditors for the
funds, Putnam Management and any entity controlling, controlled by or under
common control with Putnam Management that provides ongoing services to the
fund was pre-approved by the Committee or a member of the Committee pursuant
to the pre-approval policies discussed above. Prior to that date, the
Committee had a general policy to pre-approve the independent auditor's
engagements for non-audit services with the funds, Putnam Management and any
entity controlling, controlled by or under common control with Putnam
Management that provides ongoing services to the fund.
The following table presents fees billed by the fund's principal auditor for
services required to be approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X.
Audit-Related Tax All Other Total Non-
Fiscal year ended Fees Fees Fees Audit Fees
----------------- ------------- ---- --------- ----------
May 31, 2005 $-- $-- $-- $--
May 31, 2004 $-- $-- $-- $--
Item 5. Audit Committee
------------------------
(a) The fund has a separately-designated audit committee
established in accordance with Section 3(a)(58)(A) of the Securities
Exchange Act of 1934, as amended. The Audit Committee of the fund's
Board of Trustees is composed of the following persons:
Myra R. Drucker
Paul L. Joskow (Chairperson)
Robert E. Patterson
W. Thomas Stephens
Richard B. Worley
(b) Not applicable
Item 6. Schedule of Investments: Not applicable
--------------------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End
-------------------------------------------------------------------------
Management Investment Companies:
--------------------------------
Proxy voting guidelines of the Putnam funds
-------------------------------------------
The proxy voting guidelines below summarize the funds' positions on
various issues of concern to investors, and give a general
indication of how fund portfolio securities will be voted on
proposals dealing with particular issues. The funds' proxy voting
service is instructed to vote all proxies relating to fund portfolio
securities in accordance with these guidelines, except as otherwise
instructed by the Proxy Coordinator, a member of the Office of the
Trustees who is appointed to assist in the coordination and voting
of the funds' proxies.
The proxy voting guidelines are just that - guidelines. The
guidelines are not exhaustive and do not include all potential
voting issues. Because proxy issues and the circumstances of
individual companies are so varied, there may be instances when the
funds may not vote in strict adherence to these guidelines. For
example, the proxy voting service is expected to bring to the Proxy
Coordinator's attention proxy questions that are company-specific
and of a non-routine nature and that, even if covered by the
guidelines, may be more appropriately handled on a case-by-case
basis.
Similarly, Putnam Management's investment professionals, as part of
their ongoing review and analysis of all fund portfolio holdings,
are responsible for monitoring significant corporate developments,
including proxy proposals submitted to shareholders, and notifying
the Proxy Coordinator of circumstances where the interests of fund
shareholders may warrant a vote contrary to these guidelines. In
such instances, the investment professionals will submit a written
recommendation to the Proxy Coordinator and the person or persons
designated by Putnam Management's Legal and Compliance Department to
assist in processing referral items pursuant to the funds' "Proxy
Voting Procedures." The Proxy Coordinator, in consultation with the
funds' Senior Vice President, Executive Vice President, and/or the
Chair of the Board Policy and Nominating Committee, as appropriate,
will determine how the funds' proxies will be voted. When
indicated, the Chair of the Board Policy and Nominating Committee
may consult with other members of the Committee or the full Board of
Trustees.
The following guidelines are grouped according to the types of
proposals generally presented to shareholders. Part I deals with
proposals that have been put forth by management and approved and
recommended by a company's board of directors. Part II deals with
proposals submitted by shareholders for inclusion in proxy
statements. Part III addresses unique considerations pertaining to
non-U.S. issuers.
The Putnam funds will disclose their proxy votes in accordance with
the timetable established by SEC rules (i.e., not later than August
31 of each year for the most recent 12-month period ended June 30).
I. BOARD-APPROVED PROPOSALS
----------------------------
The vast majority of matters presented to shareholders for a vote
involve proposals made by a company itself (sometimes referred to as
"management proposals"), which have been approved and recommended by
its board of directors. In view of the enhanced corporate
governance practices currently being implemented in public companies
and of the funds' intent to hold corporate boards accountable for
their actions in promoting shareholder interests, the funds' proxies
generally will be voted for the decisions reached by majority
independent boards of directors, except as otherwise indicated in
these guidelines. Accordingly, the funds' proxies will be voted for
board-approved proposals, except as follows:
Matters relating to the Board of Directors
------------------------------------------
Uncontested Election of Directors
The funds' proxies will be voted for the election of a company's
nominees for the board of directors, except as follows:
The funds will withhold votes for the entire board of directors if
* the board does not have a majority of independent directors,
* the board has not established independent nominating, audit, and
compensation committees,
* the board has more than 19 members or fewer than five members,
absent special circumstances,
* the board has not acted to implement a policy requested in a
shareholder proposal that received the support of a majority of the
shares of the company at its previous two annual meetings, or
* the board has adopted or renewed a shareholder rights plan
(commonly referred to as a "poison pill") without shareholder
approval during the current or prior calendar year.
The funds will withhold votes for any nominee for director who:
* is considered an independent director by the company and who has
received compensation from the company other than for service as a
director (e.g., investment banking, consulting, legal, or financial
advisory fees),
* attends less than 75% of board and committee meetings without
valid reasons for the absences (e.g., illness, personal emergency,
etc.),
* as a director of a public company (Company A), is employed as a
senior executive of another public company (Company B) if a director
of Company B serves as a senior executive of Company A (commonly
referred to as an "interlocking directorate"), or
* serves on more than five unaffiliated public company boards (for
the purpose of this guideline, boards of affiliated registered
investment companies will count as one board).
Commentary:
Board independence: Unless otherwise indicated, for the purposes of
determining whether a board has a majority of independent directors
and independent nominating, audit, and compensation committees, an
"independent director" is a director who (1) meets all requirements
to serve as an independent director of a company under the final
NYSE Corporate Governance Rules (e.g., no material business
relationships with the company and no present or recent employment
relationship with the company (including employment of an immediate
family member as an executive officer)), and (2) has not accepted
directly or indirectly any consulting, advisory, or other
compensatory fee from the company other than in his or her capacity
as a member of the board of directors or any board committee. The
funds' Trustees believe that the receipt of compensation for
services other than service as a director raises significant
independence issues.
Board size: The funds' Trustees believe that the size of the board
of directors can have a direct impact on the ability of the board to
govern effectively. Boards that have too many members can be
unwieldy and ultimately inhibit their ability to oversee management
performance. Boards that have too few members can stifle innovation
and lead to excessive influence by management.
Time commitment: Being a director of a company requires a
significant time commitment to adequately prepare for and attend the
company's board and committee meetings. Directors must be able to
commit the time and attention necessary to perform their fiduciary
duties in proper fashion, particularly in times of crisis. The
funds' Trustees are concerned about over-committed directors. In
some cases, directors may serve on too many boards to make a
meaningful contribution. This may be particularly true for senior
executives of public companies (or other directors with
substantially full-time employment) who serve on more than a few
outside boards. The funds may withhold votes from such directors on
a case-by-case basis where it appears that they may be unable to
discharge their duties properly because of excessive commitments.
Interlocking directorships: The funds' Trustees believe that
interlocking directorships are inconsistent with the degree of
independence required for outside directors of public companies.
Corporate governance practices: Board independence depends not only
on its members' individual relationships, but also on the board's
overall attitude toward management. Independent boards are
committed to good corporate governance practices and, by providing
objective independent judgment, enhancing shareholder value. The
funds may withhold votes on a case-by-case basis from some or all
directors who, through their lack of independence, have failed to
observe good corporate governance practices or, through specific
corporate action, have demonstrated a disregard for the interest of
shareholders.
Contested Elections of Directors
The funds will vote on a case-by-case basis in contested elections
of directors.
Classified Boards
The funds will vote against proposals to classify a board, absent
special circumstances indicating that shareholder interests would be
better served by this structure.
Commentary: Under a typical classified board structure, the
directors are divided into three classes, with each class serving a
three-year term. The classified board structure results in
directors serving staggered terms, with usually only a third of the
directors up for re-election at any given annual meeting. The
funds' Trustees generally believe that it is appropriate for
directors to stand for election each year, but recognize that, in
special circumstances, shareholder interests may be better served
under a classified board structure.
Other Board-Related Proposals
The funds will generally vote for board-approved proposals that have
been approved by a majority independent board, and on a case-by-case
basis on board-approved proposals where the board fails to meet the
guidelines' basic independence standards (i.e., majority of
independent directors and independent nominating, audit, and
compensation committees).
Executive Compensation
----------------------
The funds generally favor compensation programs that relate
executive compensation to a company's long-term performance. The
funds will vote on a case-by-case basis on board-approved proposals
relating to executive compensation, except as follows:
Except where the funds are otherwise withholding votes for the
entire board of directors, the funds will vote for stock option and
restricted stock plans that will result in an average annual
dilution of 1.67% or less (based on the disclosed term of the plan
and including all equity-based plans).
The funds will vote against stock option and restricted stock
plans that will result in an average annual dilution of greater than
1.67% (based on the disclosed term of the plan and including all
equity-based plans).
The funds will vote against any stock option or restricted stock
plan where the company's actual grants of stock options and
restricted stock under all equity-based compensation plans during
the prior three (3) fiscal years have resulted in an average annual
dilution of greater than 1.67%.
The funds will vote against stock option plans that permit the
replacing or repricing of underwater options (and against any
proposal to authorize such replacement or repricing of underwater
options).
The funds will vote against stock option plans that permit
issuance of options with an exercise price below the stock's current
market price.
Except where the funds are otherwise withholding votes for the
entire board of directors, the funds will vote for an employee stock
purchase plan that has the following features: (1) the shares
purchased under the plan are acquired for no less than 85% of their
market value; (2) the offering period under the plan is 27 months or
less; and (3) dilution is 10% or less.
Commentary: Companies should have compensation programs that are
reasonable and that align shareholder and management interests over
the longer term. Further, disclosure of compensation programs
should provide absolute transparency to shareholders regarding the
sources and amounts of, and the factors influencing, executive
compensation. Appropriately designed equity-based compensation
plans can be an effective way to align the interests of long-term
shareholders with the interests of management. The funds may vote
against executive compensation proposals on a case-by-case basis
where compensation is excessive by reasonable corporate standards,
or where a company fails to provide transparent disclosure of
executive compensation. In voting on a proposal relating to
executive compensation, the funds will consider whether the proposal
has been approved by an independent compensation committee of the
board.
Capitalization
--------------
Many proxy proposals involve changes in a company's capitalization,
including the authorization of additional stock, the issuance of
stock, the repurchase of outstanding stock, or the approval of a
stock split. The management of a company's capital structure
involves a number of important issues, including cash flow,
financing needs, and market conditions that are unique to the
circumstances of the company. As a result, the funds will vote on a
case-by-case basis on board-approved proposals involving changes to
a company's capitalization, except that where the funds are not
otherwise withholding votes from the entire board of directors:
The funds will vote for proposals relating to the authorization
and issuance of additional common stock (except where such proposals
relate to a specific transaction).
The funds will vote for proposals to effect stock splits
(excluding reverse stock splits).
The funds will vote for proposals authorizing share repurchase
programs.
Commentary: A company may decide to authorize additional shares of
common stock for reasons relating to executive compensation or for
routine business purposes. For the most part, these decisions are
best left to the board of directors and senior management. The
funds will vote on a case-by-case basis, however, on other proposals
to change a company's capitalization, including the authorization of
common stock with special voting rights, the authorization or
issuance of common stock in connection with a specific transaction
(e.g., an acquisition, merger or reorganization), or the
authorization or issuance of preferred stock. Actions such as these
involve a number of considerations that may affect a shareholder's
investment and that warrant a case-by-case determination.
Acquisitions, Mergers, Reincorporations, Reorganizations and Other
------------------------------------------------------------------
Transactions
------------
Shareholders may be confronted with a number of different types of
transactions, including acquisitions, mergers, reorganizations
involving business combinations, liquidations, and the sale of all
or substantially all of a company's assets, which may require their
consent. Voting on such proposals involves considerations unique to
each transaction. As a result, the funds will vote on a
case-by-case basis on board-approved proposals to effect these types
of transactions, except as follows:
The funds will vote for mergers and reorganizations involving
business combinations designed solely to reincorporate a company in
Delaware.
Commentary: A company may reincorporate into another state through
a merger or reorganization by setting up a "shell" company in a
different state and then merging the company into the new company.
While reincorporation into states with extensive and established
corporate laws - notably Delaware - provides companies and
shareholders with a more well-defined legal framework, shareholders
must carefully consider the reasons for a reincorporation into
another jurisdiction, including especially an offshore jurisdiction.
Anti-Takeover Measures
----------------------
Some proxy proposals involve efforts by management to make it more
difficult for an outside party to take control of the company
without the approval of the company's board of directors. These
include the adoption of a shareholder rights plan, requiring
supermajority voting on particular issues, the adoption of fair
price provisions, the issuance of blank check preferred stock, and
the creation of a separate class of stock with disparate voting
rights. Such proposals may adversely affect shareholder rights,
lead to management entrenchment, or create conflicts of interest.
As a result, the funds will vote against board-approved proposals to
adopt such anti-takeover measures, except as follows:
The funds will vote on a case-by-case basis on proposals to ratify
or approve shareholder rights plans; and
The funds will vote on a case-by-case basis on proposals to adopt
fair price provisions.
Commentary: The funds' Trustees recognize that poison pills and
fair price provisions may enhance shareholder value under certain
circumstances. As a result, the funds will consider proposals to
approve such matters on a case-by-case basis.
Other Business Matters
----------------------
Many proxies involve approval of routine business matters, such as
changing a company's name, ratifying the appointment of auditors,
and procedural matters relating to the shareholder meeting. For the
most part, these routine matters do not materially affect
shareholder interests and are best left to the board of directors
and senior management of the company. The funds will vote for
board-approved proposals approving such matters, except as follows:
The funds will vote on a case-by-case basis on proposals to amend
a company's charter or bylaws (except for charter amendments
necessary or to effect stock splits to change a company's name or to
authorize additional shares of common stock).
The funds will vote against authorization to transact other
unidentified, substantive business at the meeting.
The funds will vote on a case-by-case basis on other business
matters where the funds are otherwise withholding votes for the
entire board of directors.
Commentary: Charter and bylaw amendments and the transaction of
other unidentified, substantive business at a shareholder meeting
may directly affect shareholder rights and have a significant impact
on shareholder value. As a result, the funds do not view such items
as routine business matters. Putnam Management's investment
professionals and the funds' proxy voting service may also bring to
the Proxy Coordinator's attention company-specific items that they
believe to be non-routine and warranting special consideration.
Under these circumstances, the funds will vote on a case-by-case
basis.
II. SHAREHOLDER PROPOSALS
--------------------------
SEC regulations permit shareholders to submit proposals for
inclusion in a company's proxy statement. These proposals generally
seek to change some aspect of the company's corporate governance
structure or to change some aspect of its business operations. The
funds generally will vote in accordance with the recommendation of
the company's board of directors on all shareholder proposals,
except as follows:
The funds will vote for shareholder proposals to declassify a
board, absent special circumstances which would indicate that
shareholder interests are better served by a classified board
structure.
The funds will vote for shareholder proposals to require
shareholder approval of shareholder rights plans.
The funds will vote for shareholder proposals that are consistent
with the funds' proxy voting guidelines for board-approved
proposals.
The funds will vote on a case-by-case basis on other shareholder
proposals where the funds are otherwise withholding votes for the
entire board of directors.
Commentary: In light of the substantial reforms in corporate
governance that are currently underway, the funds' Trustees believe
that effective corporate reforms should be promoted by holding
boards of directors - and in particular their independent directors
- accountable for their actions, rather than imposing additional
legal restrictions on board governance through piecemeal proposals.
Generally speaking, shareholder proposals relating to business
operations are often motivated primarily by political or social
concerns, rather than the interests of shareholders as investors in
an economic enterprise. As stated above, the funds' Trustees
believe that boards of directors and management are responsible for
ensuring that their businesses are operating in accordance with high
legal and ethical standards and should be held accountable for
resulting corporate behavior. Accordingly, the funds will generally
support the recommendations of boards that meet the basic
independence and governance standards established in these
guidelines. Where boards fail to meet these standards, the funds
will generally evaluate shareholder proposals on a case-by-case
basis.
III. VOTING SHARES OF NON-U.S. ISSUERS
---------------------------------------
Many of the Putnam funds invest on a global basis, and, as a result,
they may be required to vote shares held in non-U.S. issuers - i.e.,
issuers that are incorporated under the laws of foreign
jurisdictions and that are not listed on a U.S. securities exchange
or the NASDAQ stock market. Because non-U.S. issuers are
incorporated under the laws of countries and jurisdictions outside
the U.S., protection for shareholders may vary significantly from
jurisdiction to jurisdiction. Laws governing non-U.S. issuers may,
in some cases, provide substantially less protection for
shareholders. As a result, the foregoing guidelines, which are
premised on the existence of a sound corporate governance and
disclosure framework, may not be appropriate under some
circumstances for non-U.S. issuers.
In many non-U.S. markets, shareholders who vote proxies of a
non-U.S. issuer are not able to trade in that company's stock on or
around the shareholder meeting date. This practice is known as
"share blocking." In countries where share blocking is practiced,
the funds will vote proxies only with direction from Putnam
Management's investment professionals.
In addition, some non-U.S. markets require that a company's shares
be re-registered out of the name of the local custodian or nominee
into the name of the shareholder for the meeting. This practice is
known as "share re-registration." As a result, shareholders,
including the funds, are not able to trade in that company's stock
until the shares are re-registered back in the name of the local
custodian or nominee. In countries where share re-registration is
practiced, the funds will generally not vote proxies.
The funds will vote proxies of non-U.S. issuers in accordance with
the foregoing guidelines where applicable, except as follows:
Uncontested Election of Directors
---------------------------------
Japan
For companies that have established a U.S.-style corporate
structure, the funds will withhold votes for the entire board of
directors if
* the board does not have a majority of outside directors,
* the board has not established nominating and compensation
committees composed of a majority of outside directors, or
* the board has not established an audit committee composed of a
majority of independent directors.
The funds will withhold votes for the appointment of members of a
company's board of statutory auditors if a majority of the members
of the board of statutory auditors is not independent.
Commentary:
Board structure: Recent amendments to the Japanese Commercial Code
give companies the option to adopt a U.S.-style corporate structure
(i.e., a board of directors and audit, nominating, and compensation
committees). The funds will vote for proposals to amend a company's
articles of incorporation to adopt the U.S.-style corporate
structure.
Definition of outside director and independent director: Corporate
governance principles in Japan focus on the distinction between
outside directors and independent directors. Under these
principles, an outside director is a director who is not and has
never been a director, executive, or employee of the company or its
parent company, subsidiaries or affiliates. An outside director is
"independent" if that person can make decisions completely
independent from the managers of the company, its parent,
subsidiaries, or affiliates and does not have a material
relationship with the company (i.e., major client, trading partner,
or other business relationship; familial relationship with current
director or executive; etc.). The guidelines have incorporated
these definitions in applying the board independence standards
above.
Korea
The funds will withhold votes for the entire board of directors if
* the board does not have a majority of outside directors,
* the board has not established a nominating committee composed of
at least a majority of outside directors, or
* the board has not established an audit committee composed of at
least three members and in which at least two-thirds of its members
are outside directors.
Commentary: For purposes of these guideline, an "outside director"
is a director that is independent from the management or controlling
shareholders of the company, and holds no interests that might
impair performing his or her duties impartially from the company,
management or controlling shareholder. In determining whether a
director is an outside director, the funds will also apply the
standards included in Article 415-2(2) of the Korean Commercial Code
(i.e., no employment relationship with the company for a period of
two years before serving on the committee, no director or employment
relationship with the company's largest shareholder, etc.) and may
consider other business relationships that would affect the
independence of an outside director.
United Kingdom
The funds will withhold votes for the entire board of directors if
* the board does not have at least a majority of independent
non-executive directors,
* the board has not established nomination committees composed of a
majority of independent non-executive directors, or
* the board has not established compensation and audit committees
composed of (1) at least three directors (in the case of smaller
companies, two directors) and (2) solely of independent
non-executive directors.
The funds will withhold votes for any nominee for director who is
considered an independent director by the company and who has
received compensation from the company other than for service as a
director (e.g., investment banking, consulting, legal, or financial
advisory fees).
Commentary:
Application of guidelines: Although the U.K.'s Combined Code on
Corporate Governance ("Combined Code") has adopted the "comply and
explain" approach to corporate governance, the funds' Trustees
believe that the guidelines discussed above with respect to board
independence standards are integral to the protection of investors
in U.K. companies. As a result, these guidelines will be applied in
a prescriptive manner.
Definition of independence: For the purposes of these guidelines, a
non-executive director shall be considered independent if the
director meets the independence standards in section A.3.1 of the
Combined Code (i.e., no material business or employment
relationships with the company, no remuneration from the company for
non-board services, no close family ties with senior employees or
directors of the company, etc.), except that the funds do not view
service on the board for more than nine years as affecting a
director's independence.
Smaller companies: A smaller company is one that is below the FTSE
350 throughout the year immediately prior to the reporting year.
Canada
In January 2004, Canadian securities regulators issued proposed
policies that would impose new corporate governance requirements on
Canadian public companies. The recommended practices contained in
these new corporate governance requirements mirror corporate
governance reforms that have been adopted by the NYSE and other U.S.
national securities exchanges and stock markets. As a result, the
funds will vote on matters relating to the board of directors of
Canadian issuers in accordance with the guidelines applicable to
U.S. issuers.
Commentary: Like the U.K.'s Combined Code, the proposed policies on
corporate governance issued by Canadian securities regulators embody
the "comply and explain" approach to corporate governance. Because
the funds' Trustees believe that the board independence standards
contained in the proxy voting guidelines are integral to the
protection of investors in Canadian companies, these standards will
be applied in a prescriptive manner.
Other Matters
-------------
The funds will vote for shareholder proposals calling for a
majority of a company's directors to be independent of management.
The funds will vote for shareholder proposals seeking to increase
the independence of board nominating, audit, and compensation
committees.
The funds will vote for shareholder proposals that implement
corporate governance standards similar to those established under
U.S. federal law and the listing requirements of U.S. stock
exchanges, and that do not otherwise violate the laws of the
jurisdiction under which the company is incorporated.
The funds will vote on a case-by-case basis on proposals relating
to (1) the issuance of common stock in excess of 20% of the
company's outstanding common stock where shareholders do not have
preemptive rights, or (2) the issuance of common stock in excess of
100% of the company's outstanding common stock where shareholders
have preemptive rights.
As adopted December 10, 2004
Proxy Voting Procedures of the Putnam Funds
-------------------------------------------
The proxy voting procedures below explain the role of the funds' Trustees,
the proxy voting service and the Proxy Coordinator, as well as how the
process will work when a proxy question needs to be handled on a
case-by-case basis, or when there may be a conflict of interest.
The role of the funds' Trustees
-------------------------------------------
The Trustees of the Putnam funds exercise control of the voting of proxies
through their Board Policy and Nominating Committee, which is composed
entirely of independent Trustees. The Board Policy and Nominating Committee
oversees the proxy voting process and participates, as needed, in the
resolution of issues that need to be handled on a case-by-case basis. The
Committee annually reviews and recommends, for Trustee approval, guidelines
governing the funds' proxy votes, including how the funds vote on specific
proposals and which matters are to be considered on a case-by-case basis.
The Trustees are assisted in this process by their independent
administrative staff ("Office of the Trustees"), independent legal counsel,
and an independent proxy voting service. The Trustees also receive
assistance from Putnam Investment Management, LLC ("Putnam Management"), the
funds' investment advisor, on matters involving investment judgments. In
all cases, the ultimate decision on voting proxies rests with the Trustees,
acting as fiduciaries on behalf of the shareholders of the funds.
The role of the proxy voting service
-------------------------------------------
The funds have engaged an independent proxy voting service to assist in the
voting of proxies. The proxy voting service is responsible for coordinating
with the funds' custodians to ensure that all proxy materials received by
the custodians relating to the funds' portfolio securities are processed in
a timely fashion. To the extent applicable, the proxy voting service votes
all proxies in accordance with the proxy voting guidelines established by
the Trustees. The proxy voting service will refer proxy questions to the
Proxy Coordinator (described below) for instructions under circumstances
where: (1) the application of the proxy voting guidelines is unclear; (2) a
particular proxy question is not covered by the guidelines; or (3) the
guidelines call for specific instructions on a case-by-case basis. The
proxy voting service is also requested to call to the Proxy Coordinator's
attention specific proxy questions that, while governed by a guideline,
appear to involve unusual or controversial issues. The funds also utilize
research services relating to proxy questions provided by the proxy voting
service and by other firms.
The role of the Proxy Coordinator
-------------------------------------------
Each year, a member of the Office of the Trustees is appointed Proxy
Coordinator to assist in the coordination and voting of the funds' proxies.
The Proxy Coordinator will deal directly with the proxy voting service and,
in the case of proxy questions referred by the proxy voting service, will
solicit voting recommendations and instructions from the Office of the
Trustees, the Chair of the Board Policy and Nominating Committee, and Putnam
Management's investment professionals, as appropriate. The Proxy
Coordinator is responsible for ensuring that these questions and referrals
are responded to in a timely fashion and for transmitting appropriate voting
instructions to the proxy voting service.
Voting procedures for referral items
-------------------------------------------
As discussed above, the proxy voting service will refer proxy questions to
the Proxy Coordinator under certain circumstances. When the application of
the proxy voting guidelines is unclear or a particular proxy question is not
covered by the guidelines (and does not involve investment considerations),
the Proxy Coordinator will assist in interpreting the guidelines and, as
appropriate, consult with one of more senior staff members of the Office of
the Trustees and the Chair of the Board Policy and Nominating Committee on
how the funds' shares will be voted.
For proxy questions that require a case-by-case analysis pursuant to the
guidelines or that are not covered by the guidelines but involve investment
considerations, the Proxy Coordinator will refer such questions, through a
written request, to Putnam Management's investment professionals for a
voting recommendation. Such referrals will be made in cooperation with the
person or persons designated by Putnam Management's Legal and Compliance
Department to assist in processing such referral items. In connection with
each such referral item, the Legal and Compliance Department will conduct a
conflicts of interest review, as described below under "Conflicts of
Interest," and provide a conflicts of interest report (the "Conflicts
Report") to the Proxy Coordinator describing the results of such review.
After receiving a referral item from the Proxy Coordinator, Putnam
Management's investment professionals will provide a written recommendation
to the Proxy Coordinator and the person or persons designated by the Legal
and Compliance Department to assist in processing referral items. Such
recommendation will set forth (1) how the proxies should be voted; (2) the
basis and rationale for such recommendation; and (3) any contacts the
investment professionals have had with respect to the referral item with
non-investment personnel of Putnam Management or with outside parties
(except for routine communications from proxy solicitors). The Proxy
Coordinator will then review the investment professionals' recommendation
and the Conflicts Report with one of more senior staff members of the Office
of the Trustees in determining how to vote the funds' proxies. The Proxy
Coordinator will maintain a record of all proxy questions that have been
referred to Putnam Management's investment professionals, the voting
recommendation, and the Conflicts Report.
In some situations, the Proxy Coordinator and/or one of more senior staff
members of the Office of the Trustees may determine that a particular proxy
question raises policy issues requiring consultation with the Chair of the
Board Policy and Nominating Committee, who, in turn, may decide to bring the
particular proxy question to the Committee or the full Board of Trustees for
consideration.
Conflicts of interest
-------------------------------------------
Occasions may arise where a person or organization involved in the proxy
voting process may have a conflict of interest. A conflict of interest may
exist, for example, if Putnam Management has a business relationship with
(or is actively soliciting business from) either the company soliciting the
proxy or a third party that has a material interest in the outcome of a
proxy vote or that is actively lobbying for a particular outcome of a proxy
vote. Any individual with knowledge of a personal conflict of interest
(e.g., familial relationship with company management) relating to a
particular referral item shall disclose that conflict to the Proxy
Coordinator and the Legal and Compliance Department and otherwise remove
himself or herself from the proxy voting process. The Legal and Compliance
Department will review each item referred to Putnam Management's investment
professionals to determine if a conflict of interest exists and will provide
the Proxy Coordinator with a Conflicts Report for each referral item that
(1) describes any conflict of interest; (2) discusses the procedures used to
address such conflict of interest; and (3) discloses any contacts from
parties outside Putnam Management (other than routine communications from
proxy solicitors) with respect to the referral item not otherwise reported
in an investment professional's recommendation. The Conflicts Report will
also include written confirmation that any recommendation from an investment
professional provided under circumstances where a conflict of interest
exists was made solely on the investment merits and without regard to any
other consideration.
As adopted March 11, 2005
Item 8. Purchases of Equity Securities by Closed-End Management Investment
--------------------------------------------------------------------------
Companies and Affiliated Purchasers: Not applicable
------------------------------------
Item 9. Submission of Matters to a Vote of Security Holders:
------------------------------------------------------------
Not applicable
Item 10. Controls and Procedures:
--------------------------------
(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, that the design and operation of
such procedures are generally effective to provide reasonable
assurance that information required to be disclosed by the registrant
in this report 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) The Code of Ethics of The Putnam Funds, which incorporates the
Code of Ethics of Putnam Investments, is filed herewith.
(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
and 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: July 28, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934
and 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: July 28, 2005
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: July 28, 2005