Putnam
Managed
High Yield
Trust
Item 1. Report to Stockholders:
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The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
11-30-03
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[SCALE LOGO: OMITTED]
From the Trustees
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM, III]
John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
Looking back on an eventful year, we consider it important to take note
of the increasingly positive trends that have become apparent in the
U.S. economy and financial markets. The stimulus provided by fiscal and
monetary policies has drawn the economy out of the slump of early 2003
and rising profits prompted a broad rally for stocks. The bond market
steadied while offering pockets of opportunity. We see indications that
these trends can continue into 2004 and know that Putnam management
teams will seek to position the funds to benefit from them.
For the semiannual period ended November 30, 2003, Putnam Managed High
Yield Trust delivered solid returns at net asset value. However, its
results were slightly below both its benchmark index and its Lipper
category average. You will find the details on the facing page.
In the accompanying report, the managers provide a thorough discussion
of the fund's results not only in the context of the high-yield market
in which it invests, but also in terms of investor sentiment. Although
high-yield bonds were among the best-performing fixed-income securities
during the period, returning strength of stocks lured growing numbers of
investors into equities, dampening the entire fixed-income market. The
management team also offers its perspective on prospects for the fiscal
year's second half.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
January 21, 2004
Report from Fund Management
Fund highlights
* During the semiannual period ended November 30, 2003, Putnam Managed
High Yield Trust had total returns of 9.47% at net asset value (NAV) and
-4.26% at market price.
* At NAV, the fund slightly underperformed the 9.70% return of its
benchmark, the JP Morgan High Yield Developed Index, in part due to its
underweight in the utilities and technology sectors.
* At NAV, the fund also underperformed the average return of 9.92% for
the Lipper closed-end High Current Yield Funds category. Comparisons in
this category can be problematic, however, because it consists only of
six funds.
* Due to a decline in yields available in the market, the fund reduced
its dividend to $0.054 per share. This income reduction contributed to
the fund's negative return at market price. Please see page 5 for
details.
* See the Performance Summary beginning on page 7 for complete fund
performance, comparative performance, and Lipper data.
Performance commentary
The past six months have been a period of very strong returns for high-yield
bonds and, consequently, for your fund. This investment sector has benefited
from a number of positive events: Default rates have continued to decline,
credit quality has improved as companies have retired or refinanced debt,
and investor demand for high-yield bonds has been extremely strong,
accompanied by robust supply. Moreover, short-term interest rates have been
at historically low levels, creating a greater incentive for investors to
seek higher yields. In this environment, your fund's management team has
sought opportunities in lower-rated, higher-yielding issues, while
maintaining diversification in the portfolio across a large number of
holdings and sectors.
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 securities.
Market overview
This semiannual period began in the midst of an extremely positive period
for high-yield bonds. After the passing of a highly uncertain period leading
up to war in Iraq, investors turned their attention to the improving economy
and rising stock market in the late spring of 2003. These events, along with
significant demand for high-yield bonds and declining default rates, helped
the high-yield market to outperform all other fixed-income sectors during
the six-month period.
Due to the strengthening equity market, more companies have been able to
access the capital markets, raising capital to retire or refinance debt
and helping increase cash flows. Finally, the recovering economy has led
to an increase in profits and higher cash flows. All of these factors
have helped corporate default rates to continue their decline.
During the summer months, a sharp sell-off in Treasury bonds roiled the
fixed-income markets, causing yields to rise -- and prices to fall --
abruptly. High-yield bonds, which are less sensitive to interest-rate
changes, were less affected. In the fall, when the Treasury markets
calmed down, the high-yield sector continued to benefit from the
stronger economy and higher stock prices.
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MARKET SECTOR PERFORMANCE 6 MONTHS ENDED 11/30/03
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Bonds
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JP Morgan High Yield Developed Index (high-yield corporate
bonds) 9.70%
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Lehman Aggregate Bond Index (broad bond market) -1.04%
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Lehman GNMA Index (Government National Mortgage Association
Bonds) 0.81%
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Lehman Municipal Bond Index (tax-exempt bonds) 0.18%
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Equities
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S&P 500 Index (broad stock market) 10.80%
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Russell 2000 Index (stocks of small and midsize companies) 24.65%
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MSCI EAFE Index (international stocks) 20.26%
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These indexes provide an overview of performance in different market
sectors for the six months ended 11/30/03.
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Strategy overview
Our strategy for the fund during the past six months was to continue
seeking, on a selective basis, opportunities in lower-quality bonds that
offered both higher yields and the potential for an improvement in
credit quality. Our primary rationale was that, in an environment of
economic recovery and declining corporate default rates, we believed
these securities offered the greatest total return potential within the
high-yield universe. As the economy and stock market improved during the
period, investor appetite for risk generally increased. As a result,
many high-yield bonds -- especially those with lower ratings and higher
yields -- have appreciated significantly. Our focus on these lower-rated
issues, therefore, was beneficial for performance during the six-month
period.
To implement this strategy, we have generally underweighted BB-rated
bonds and have overweighted those with CCC ratings. We have sought bonds
issued by companies with adequate liquidity and a strong ability to meet
their obligations. Bonds with CCC ratings have been among the
best-performing bonds in the high-yield market.
[GRAPHIC OMITTED: horizontal bar chart TOP SECTOR WEIGHTINGS COMPARED]
TOP SECTOR WEIGHTINGS COMPARED
as of 5/31/03 as of 11/30/03
Utilities and power 6.7% 7.8%
Telecommunications 5.4% 6.7%
Chemicals 5.6% 5.4%
Gaming and lottery 5.6% 5.1%
Oil and gas 5.0% 4.1%
Footnote reads:
This chart shows how the fund's top sector weightings have changed over
the last six months. Weightings are shown as a percentage of net assets.
Sectors and holdings will vary over time.
How fund holdings affected performance
One of the strongest sectors in the high-yield market has been the
wireless industry. This industry has been growing at a rapid rate for
several years. Among the strongest performing telecommunications
holdings for the fund have been preferred stock issued by Rural Cellular
Corp., a leading wireless carrier for rural areas, and Nextel, a large
wireless telecommunications company that has performed well for the fund
over several years (We have pared this holding back as prices of the
securities have moved up.) Nextel has a significant telecommunications
network in the United States and was the first company to offer a
successful nationwide walkie-talkie feature.
The cable television industry has also outperformed this year, and the fund
benefited from owning several strong-performing issues. Companies in this
industry have seen steady cash flows from their cable businesses, as well as
growth in demand for high-speed Internet services. Consequently, there has
been greater interest among investors for both their stock and high-yield
bond offerings. In this industry, the fund's strongest-performing issuer was
Charter Communications LLC, which operates cable systems in 40 states for
nearly 12 million homes. The company also provides high-speed Internet
access through a network of coaxial and fiber-optic cable. In broadcasting,
another outperforming sector, the fund held Granite Broadcasting, which owns
and operates a number of network-affiliated television stations.
[GRAPHIC OMITTED: TOP HOLDINGS]
TOP HOLDINGS
1 PSF Group Holdings, Inc.*
144A Class A common stock
Food
2 CSC Holdings, Inc.
Series M, $11.125 cumulative preferred stock
Cable television
3 Qwest Services Corp.
144A notes, 13.5%, 2010
Communications services
4 Qwest Corp.
144A notes, 8.875%, 2012
Communications services
5 Young Broadcasting, Inc.
Company guaranty, 10%, 2011
Broadcasting
6 HMH Properties, Inc.
Company guaranty, Series B, 7.875%, 2008
Lodging/tourism
7 Calpine Corp.
144A sec. notes, 8.5%, 2010
Utilities and power
8 Six Flags, Inc.
Senior notes, 8.875%, 2010
Entertainment
9 JP Morgan
HYDI discount notes, 8%, 2008
Financial
10 Tyco International Group SA (Luxembourg)
Notes, 6.375%, 2011
Conglomerates
Footnotes read:
These holdings represent 7.4% of the fund's net assets as of 11/30/03.
The fund's holdings will change over time.
* Holding acquired through corporate restructuring.
The fund was underweighted in lower-quality bonds in the energy and
financial sectors. This strategy detracted from the fund's performance
relative to its benchmark index because these securities outperformed the
higher-quality bonds in these sectors that the fund owned. The fund's
performance was also hurt by AK Steel Corp, an Ohio-based steel manufacturer
that had disappointing financial results.
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
The high-yield market has experienced dramatic changes in yield as well as
in the yield spread, or difference in yields compared to Treasuries. Since
the beginning of the market recovery on October 10, 2002, yields in the
high-yield market have dropped nearly 40% from 14.1% to 8.66%; at the same
time, the yield spread over Treasuries has fallen by more than 40%. As a
result, in October 2003, there was a reduction in the fund's dividend from
$0.060 per share to $0.054 per share.
The fund's management team
The fund is managed by the Putnam Core Fixed-Income High-Yield Team. The
members of this team are Stephen Peacher (Portfolio Leader), Norman
Boucher (Portfolio Member), Paul Scanlon (Portfolio Member), Rosemary
Thomsen (Portfolio Member), Jeffrey Kaufmann, Geoffrey Kelley, Neil
Reiner, and Joseph Towell.
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.
High-yield bond returns have been significantly above their historical
average for the past year (including the past six months), and investors
should be cautioned that such returns are unlikely to be repeated in
2004. Nevertheless, we believe the near term should still be positive
for the high-yield sector, and that solid returns are achievable. Such
returns, we believe, would be driven by continued declines in default
rates, improvements in corporate earnings and cash flow that would
benefit credit quality, and low short-term interest rates. Continued low
interest rates, combined with a steep yield curve -- meaning that
longer-term rates would be significantly higher -- could continue to
drive demand for high-yield bonds, as has been the case so far in 2003.
There are potential headwinds in 2004 that could cause volatility in the
bond market. Interest rates may begin to rise, and continued
appreciation in stock prices is by no means a certainty. We plan to
maintain diversity in the portfolio across a large number of holdings
and sectors to mitigate the effects of potential market volatility.
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. The fund is closed to
new investors.
Performance summary
This section provides information about your fund's performance during
the first half of its fiscal year, which ended November 30, 2003. 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. Past performance
does not indicate future results. More recent returns may be less or
more than those shown. Investment return, net asset value, and market
price will fluctuate and you may have a gain or a loss when you sell
your shares. A profile of your fund's strategy appears on the first page
of this report. See page 9 for definitions of some terms used in this
section.
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TOTAL RETURN FOR PERIODS ENDED 11/30/03
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Lipper
JP Morgan closed-end
High Yield High Current
Market Developed Yield Funds
NAV price Index* category average+
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6 months 9.47% -4.26% 9.70% 9.92%
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1 year 23.20 5.82 25.72 28.00
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5 years 15.97 -6.91 28.07 19.39
Annual average 3.01 -1.42 5.07 3.48
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10 years 70.48 69.57 -- 78.10
Annual average 5.48 5.42 -- 5.85
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Annual average
Life of fund
(since 6/25/93) 5.74 4.36 -- 6.59
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Performance does not reflect taxes on reinvested distributions.
Index and Lipper results should be compared to fund performance at net
asset value.
* This index began operations on 12/31/94.
+ Over the 6-month and 1-, 5-, and 10-year periods ended 11/30/03, there
were 6, 5, 4, and 4 funds, respectively, in this Lipper category.
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PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 11/30/03
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Putnam Managed High Yield Trust
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Distributions
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Number 6
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Income 1 $0.348
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Capital gains 1 --
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Total $0.348
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Share value: NAV Market price
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5/31/03 $8.45 $9.02
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11/30/03 8.88 8.29
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Current return (end of period)
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Current dividend rate 2 7.30% 7.82%
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1 Capital gains, if any, are taxable for federal and, in most cases,
state purposes. For some investors, investment income may be subject to
the federal alternative minimum tax. Income from federally exempt funds
may be subject to state and local taxes.
2 Most recent distribution, excluding capital gains, annualized and
divided by NAV or market price at end of period.
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TOTAL RETURN FOR PERIODS ENDED 12/31/03 (MOST RECENT CALENDER QUARTER)
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NAV Market price
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6 months 9.30% 1.10%
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1 year 25.95 13.55
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5 years 20.49 -1.69
Annual average 3.80 -0.34
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10 years 71.65 73.75
Annual average 5.55 5.68
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Annual average
Life of fund (since
6/25/93) 5.95 4.84
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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
public exchanges such as the New York Stock Exchange or the American
stock exchange.
Comparative indexes
JP Morgan (formerly Chase) High Yield Developed Index is an unmanaged
index used to mirror the investable universe of U.S. dollar global
high-yield corporate debt securities for developed markets.
Lehman Aggregate Bond Index is an unmanaged index used as a general
measure of U.S. fixed-income securities.
Lehman GNMA Index is an unmanaged index of GNMA securities.
Lehman Municipal Bond Index is an unmanaged index of long-term
fixed-rate investment-grade tax-exempt bonds.
Morgan Stanley Capital International (MSCI) EAFE Index is an unmanaged
index of international stocks from Europe, Australasia, and the Far
East.
Russell 2000 Index is an unmanaged index of common stocks that generally
measure performance of small to midsize companies within the Russell
3000 Index.
S&P 500 Index is an unmanaged index of common stock performance.
Indexes assume reinvestment of all distributions and do not account for
fees. Securities and performance of a fund and an index will differ. You
cannot invest directly in an index.
Lipper Inc. is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper. Lipper category averages reflect
performance trends for funds within a category and are based on results
at net asset value.
A note about duplicate mailings
In response to investors' requests, the SEC has modified mailing
regulations for proxy statements, semiannual and annual reports, and
prospectuses. Putnam is now able to send a single copy of these
materials to customers who share the same address. This change will
automatically apply to all shareholders except those who notify us. If
you would prefer to receive your own copy, please call Putnam at
1-800-225-1581.
Putnam is committed to managing our mutual funds in the best interests
of our shareholders. Our proxy voting guidelines and policies are
available on the Putnam Individual Investor Web site,
www.putnaminvestments.com, by calling Putnam's shareholder services line
at 1-800-225-1581, or on the SEC's Web site, www.sec.gov.
A guide to the financial statements
These sections of the report, as well as the accompanying Notes,
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 period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number
of the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed
here may not match the sources listed in the Statement of operations
because the distributions are determined on a tax basis and may be paid
in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment
results, per-share distributions, expense ratios, net investment
income ratios, and portfolio turnover in one summary table, reflecting
the five most recent reporting periods. In a semiannual report, the
highlight table also includes the current reporting period. For open-end
funds, a separate table is provided for each share class.
The fund's portfolio
November 30, 2003 (Unaudited)
Corporate bonds and notes (86.0%) (a)
Principal amount Value
Advertising and Marketing Services (0.2%)
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$100,000 Lamar Media Corp. company guaranty
7 1/4s, 2013 $106,750
Automotive (2.0%)
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50,000 ArvinMeritor, Inc. notes 8 3/4s,
2012 54,625
145,000 Collins & Aikman Products company
guaranty 10 3/4s, 2011 130,863
30,000 Dana Corp. notes 10 1/8s, 2010 34,350
165,000 Dana Corp. notes 9s, 2011 188,100
EUR 15,000 Dana Corp. notes 9s, 2011 19,777
$15,000 Dana Corp. notes 7s, 2029 13,725
40,000 Delco Remy International, Inc.
company guaranty 11s, 2009 38,600
75,000 Delco Remy International, Inc.
company guaranty 10 5/8s, 2006 74,438
105,000 Dura Operating Corp. company
guaranty Ser. D, 9s, 2009 97,388
30,000 Dura Operating Corp. 144A sr. notes
8 5/8s, 2012 30,525
150,000 Lear Corp. company guaranty Ser. B,
8.11s, 2009 174,375
EUR 30,000 Lear Corp. sr. notes 8 1/8s, 2008 40,273
$70,000 Meritor Automotive, Inc. notes 6.8s,
2009 71,050
105,000 Metaldyne Corp. 144A sr. notes 10s,
2013 100,800
EUR 50,000 Teksid Aluminum 144A company
guaranty 11 3/8s, 2011 (Luxembourg) 61,728
$70,000 Tenneco Automotive, Inc. company
guaranty Ser. B, 11 5/8s, 2009 73,850
130,000 Tenneco Automotive, Inc. sec. notes
Ser. B, 10 1/4s, 2013 147,550
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1,352,017
Basic Materials (8.1%)
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75,000 Acetex Corp. sr. notes 10 7/8s, 2009
(Canada) 83,625
25,000 Acetex Corp. 144A sr. notes 10 7/8s,
2009 (Canada) 27,750
120,000 AK Steel Corp. company guaranty
7 3/4s, 2012 81,000
120,000 Appleton Papers, Inc. company
guaranty Ser. B, 12 1/2s, 2008 135,300
80,000 Armco, Inc. sr. notes 8 7/8s, 2008 54,800
60,000 Avecia Group PLC company guaranty
11s, 2009 (United Kingdom) 51,000
105,000 Better Minerals & Aggregates Co.
company guaranty 13s, 2009 64,575
100,000 Compass Minerals Group, Inc. company
guaranty 10s, 2011 111,000
157,237 Doe Run Resources Corp. company
guaranty Ser. A1, 11 3/4s,
2008 (acquired various dates from
7/27/01 to 10/15/03, cost $98,556)
(RES) (PIK) 58,178
35,000 Equistar Chemicals LP notes 8 3/4s,
2009 35,175
290,000 Equistar Chemicals LP/Equistar
Funding Corp. company guaranty
10 1/8s,2008 307,400
60,000 Equistar Chemicals LP/Equistar
Funding Corp. 144A sr. notes
10 5/8s, 2011 63,600
75,000 Georgia-Pacific Corp. bonds 7 3/4s,
2029 72,188
65,000 Georgia-Pacific Corp. debs. 7.7s,
2015 67,113
90,000 Gerdau Ameristeel Corp/Gusap
Partners 144A sr. notes 10 3/8s,
2011 (Canada) 95,400
275,000 Hercules, Inc. company guaranty
11 1/8s, 2007 328,625
95,000 Huntsman Advanced Materials, LLC
144A sec. notes 11s, 2010 103,550
46,212 Huntsman Corp. bank term loan FRN
Ser. A, 5.957s, 2007 (acquired
various dates from 6/10/02 to
7/17/02, cost $39,765) (RES) 42,265
33,068 Huntsman Corp. bank term loan FRN
Ser. B, 8.938s, 2007 (acquired
various dates from 6/10/02 to
7/17/02, cost $27,840) (RES) 30,243
135,000 Huntsman ICI Chemicals, Inc. company
guaranty 10 1/8s, 2009 133,988
235,000 Huntsman ICI Holdings sr. disc.
notes zero %, 2009 102,813
EUR 75,000 Huntsman International, LLC sr. sub.
notes Ser. EXCH, 10 1/8s, 2009 83,602
$230,000 ISP Chemco, Inc. company guaranty
Ser. B, 10 1/4s, 2011 255,300
45,000 ISP Holdings, Inc. sec. sr. notes
Ser. B, 10 5/8s, 2009 48,600
10,000 Kaiser Aluminum & Chemical Corp. sr.
notes Ser. B, 10 7/8s, 2006 (In
default) (NON) 8,750
305,000 Kaiser Aluminum & Chemical Corp. sr.
sub. notes 12 3/4s, 2003 (In
default) (NON) 47,275
70,000 Louisiana-Pacific Corp. sr. notes
8 7/8s, 2010 82,600
100,000 Lyondell Chemical Co. company
guaranty 9 1/2s, 2008 101,500
20,000 Lyondell Chemical Co. company
guaranty 9 1/2s, 2008 20,250
165,000 Lyondell Chemical Co. notes Ser. A,
9 5/8s, 2007 169,950
30,000 Lyondell Chemical Co. sec. notes
Ser. B, 9 7/8s, 2007 30,900
EUR 10,000 MDP Acquisitions PLC sr. notes
10 1/8s, 2012 (Ireland) 13,328
$130,000 MDP Acquisitions PLC sr. notes
9 5/8s, 2012 (Ireland) 144,300
58,185 MDP Acquisitions PLC sub. notes
15 1/2s, 2013 (Ireland) (PIK) 66,913
30,000 Millennium America, Inc. 144A sr.
notes 9 1/4s, 2008 32,175
305,000 Millennium America, Inc. company
guaranty 9 1/4s, 2008 327,113
40,000 Millennium America, Inc. company
guaranty 7 5/8s, 2026 35,400
40,000 Nalco Co. 144A sr. notes 7 3/4s,
2011 41,600
EUR 10,000 Nalco Co. 144A sr. notes 7 3/4s,
2011 12,226
EUR 10,000 Nalco Co. 144A sr. sub. notes 9s,
2013 12,226
$145,000 Nalco Co. 144A sr. sub. notes
8 7/8s, 2013 150,800
80,000 Noveon International company
guaranty Ser. B, 11s, 2011 88,800
85,000 OM Group, Inc. company guaranty
9 1/4s, 2011 86,063
55,000 Pacifica Papers, Inc. sr. notes 10s,
2009 (Canada) 58,163
31,547 PCI Chemicals Canada sec. sr. notes
10s, 2008 (Canada) 28,787
70,155 Pioneer Cos., Inc. sec. FRN 4.64s,
2006 63,841
145,000 Potlatch Corp. company guaranty 10s,
2011 160,950
65,000 Resolution Performance Products, LLC
sr. notes 9 1/2s, 2010 64,350
60,000 Rhodia SA notes 9s, 2009 (France) 60,931
10,000 Rhodia SA 144A sr. notes 7 5/8s,
2010 (France) 9,400
65,000 Royster-Clark, Inc. 1st mtge.
10 1/4s, 2009 54,275
50,000 Salt Holdings Corp. 144A sr. disc.
notes stepped-coupon zero % (12s,
6/1/06), 2013 (STP) 32,500
130,000 Salt Holdings Corp. 144A sr. notes
stepped-coupon zero % (12 3/4s,
12/15/07), 2012 (STP) 97,500
5,000 Smurfit-Stone Container Corp.
company guaranty 8 1/4s, 2012 5,356
20,000 Solutia, Inc. company guaranty
11 1/4s, 2009 17,900
75,000 Solutia, Inc. debs. 6.72s, 2037 57,750
90,000 Steel Dynamics, Inc. company
guaranty 9 1/2s, 2009 98,325
25,566 Sterling Chemicals, Inc. sec. notes
10s, 2007 (PIK) 23,904
40,000 Stone Container Corp. sr. notes
9 3/4s, 2011 43,900
140,000 Stone Container Corp. sr. notes
8 3/8s, 2012 150,325
60,000 Tembec Industries, Inc. company
guaranty 7 3/4s, 2012 (Canada) 56,250
40,000 Texas Petrochemical Corp. sr. sub.
notes Ser. B, 11 1/8s, 2006 (In
default) (NON) 13,600
135,000 Ucar Finance, Inc. company guaranty
10 1/4s, 2012 149,174
100,000 United States Steel Corp. sr. notes
9 3/4s, 2010 107,250
90,000 WCI Steel, Inc. sr. notes Ser. B,
10s, 2004 (In default) (NON) 25,200
11,000 Weirton Steel Corp. sr. notes 10s,
2008 (In default) (NON) 2,035
120,000 Wheeling-Pittsburgh Steel Corp. sr.
notes 9 1/4s, 2007 (In default)
(NON) 1
6,875 Wheeling-Pittsburgh Steel Corp. sr.
notes 6s, 2010 2,750
13,751 Wheeling-Pittsburgh Steel Corp. sr.
notes 5s, 2011 6,876
80,000 WHX Corp. sr. notes 10 1/2s, 2005 68,000
--------------
5,368,552
Beverage (0.1%)
- -------------------------------------------------------------------------------
30,000 Constellation Brands, Inc. company
guaranty 8 1/2s, 2009 31,500
45,000 Constellation Brands, Inc. sr. sub.
notes Ser. B, 8 1/8s, 2012 49,275
--------------
80,775
Broadcasting (2.9%)
- -------------------------------------------------------------------------------
210,000 British Sky Broadcasting PLC company
guaranty 6 7/8s, 2009 (United
Kingdom) 232,120
440,000 Diva Systems Corp. sr. disc. notes
Ser. B, 12 5/8s, 2008 (In default)
(NON) 35,200
35,000 Echostar DBS Corp. sr. notes 9 3/8s,
2009 36,925
52,000 Echostar DBS Corp. sr. notes 9 1/8s,
2009 58,110
280,000 Echostar DBS Corp. 144A sr. notes
6 3/8s, 2011 280,000
10,000 Granite Broadcasting Corp. sr. sub.
notes 10 3/8s, 2005 9,900
115,000 Granite Broadcasting Corp. sr. sub.
notes 9 3/8s, 2005 113,850
145,000 Granite Broadcasting Corp. sr. sub.
notes 8 7/8s, 2008 137,750
105,000 Gray Television, Inc. company
guaranty 9 1/4s, 2011 116,550
5,370 Knology, Inc. 144A sr. notes 12s,
2009 (PIK) 5,316
70,000 Pegasus Satellite sr. notes 12 3/8s,
2006 60,900
350,375 Quorum Broadcast Holdings, LLC notes
stepped-coupon zero % (15s,
5/15/06), 2009 (STP) 265,479
52,000 RCN Corp. sr. disc. notes Ser. B,
zero %, 2008 24,960
60,000 Sinclair Broadcast Group, Inc.
company guaranty 8 3/4s, 2011 65,700
421,000 Young Broadcasting, Inc. company
guaranty 10s, 2011 443,103
21,000 Young Broadcasting, Inc. company
guaranty Ser. B, 8 3/4s, 2007 21,000
--------------
1,906,863
Building Materials (0.6%)
- -------------------------------------------------------------------------------
25,000 Atrium Cos., Inc. company guaranty
Ser. B, 10 1/2s, 2009 26,531
60,000 Building Materials Corp. company
guaranty 8s, 2008 58,800
100,000 Dayton Superior Corp. 144A sec.
notes 10 3/4s, 2008 102,125
140,000 Nortek Holdings, Inc. 144A sr. notes
stepped-coupon zero % (10s,
11/15/07), 2011 (STP) 98,000
10,000 Nortek, Inc. sr. sub. notes Ser. B,
9 7/8s, 2011 10,888
60,000 Nortek, Inc. 144A sr. notes Ser. B,
9 1/8s, 2007 61,800
5,000 Owens Corning bonds 7 1/2s, 2018 (In
default) (NON) 1,963
120,000 Owens Corning notes 7 1/2s, 2005 (In
default) (NON) 47,100
--------------
407,207
Cable Television (2.7%)
- -------------------------------------------------------------------------------
10,000 Adelphia Communications Corp. notes
Ser. B, 9 7/8s, 2005 (In default)
(NON) 8,300
20,000 Adelphia Communications Corp. sr.
notes 10 7/8s, 2010 (In default)
(NON) 16,600
90,000 Adelphia Communications Corp. sr.
notes 10 1/4s, 2011 (In default)
(NON) 76,950
5,000 Adelphia Communications Corp. sr.
notes 10 1/4s, 2006 (In default)
(NON) 4,156
5,000 Adelphia Communications Corp. sr.
notes 9 3/8s, 2009 (In default)
(NON) 4,275
40,000 Adelphia Communications Corp. sr.
notes Ser. B, 9 7/8s, 2007 (In
default) (NON) 33,200
9,407 Australis Media, Ltd. sr. disc.
notes 15 3/4s, 2003 (Australia) (In
default) (DEF) (NON) 1
70,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (12 1/8s,
1/15/07), 2012 (STP) 37,100
35,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (11 3/4s,
5/15/06), 2011 (STP) 20,388
90,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (9.92s,
4/1/04), 2011 (STP) 69,300
105,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (11 3/4s,
1/15/05), 2010 (STP) 77,175
290,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
11 1/8s, 2011 247,950
200,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
10 3/4s, 2009 171,000
75,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
10 1/4s, 2010 62,063
265,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 10s,
2011 212,000
110,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 9 5/8s,
2009 88,825
20,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 8 5/8s,
2009 16,000
165,000 CSC Holdings, Inc. sr. notes 7 7/8s,
2007 169,124
115,000 Mediacom LLC/Mediacom Capital Corp.
sr. notes 9 1/2s, 2013 114,138
90,000 Olympus Cable bank term loan FRN
Ser. B, 6s, 2010 (acquired 6/20/02,
cost $78,435) (RES) 85,230
45,000 ONO Finance PLC sr. notes 14s, 2011
(United Kingdom) 43,200
20,000 ONO Finance PLC sr. notes 13s, 2009
(United Kingdom) 19,200
EUR 30,000 ONO Finance PLC sr. notes Ser. REGS,
14s, 2011 (United Kingdom) 33,081
$320,000 TeleWest Communications PLC debs.
11s, 2007 (United Kingdom) (In
default) (NON) 186,400
--------------
1,795,656
Capital Goods (9.8%)
- -------------------------------------------------------------------------------
40,000 Advanced Glass Fiber Yarns bank term
loan FRN Ser. A, 6 1/2s,
2004 (acquired 9/12/02, cost
$28,000) (RES) 24,000
50,000 Advanced Glass Fiber Yarns sr. sub.
notes 9 7/8s, 2009 (In default)
(NON) 2,250
145,000 AEP Industries, Inc. sr. sub. notes
9 7/8s, 2007 144,638
221,742 Air2 US 144A sinking fund Ser. D,
12.266s, 2020 (In default) (NON) 6,652
195,000 Allied Waste North America, Inc.
company guaranty Ser. B, 9 1/4s,
2012 217,425
240,000 Allied Waste North America, Inc.
company guaranty Ser. B, 8 1/2s,
2008 262,800
330,000 Allied Waste North America, Inc.
company guaranty Ser. B, 7 5/8s,
2006 344,850
90,000 Allied Waste North America, Inc.
144A sec. notes 6 1/2s, 2010 90,450
360,000 Argo-Tech Corp. company guaranty
8 5/8s, 2007 354,600
80,000 Argo-Tech Corp. company guaranty
Ser. D, 8 5/8s, 2007 78,800
15,000 BE Aerospace, Inc. sr. sub. notes
Ser. B, 8 7/8s, 2011 13,688
220,000 BE Aerospace, Inc. sr. sub. notes
Ser. B, 8s, 2008 200,200
35,000 BE Aerospace, Inc. 144A sr. notes
8 1/2s, 2010 37,013
35,000 Berry Plastics Corp. company
guaranty 10 3/4s, 2012 39,725
145,000 Blount, Inc. company guaranty 13s,
2009 147,175
170,000 Blount, Inc. company guaranty 7s,
2005 170,638
110,000 Browning-Ferris Industries, Inc.
debs. 7.4s, 2035 102,300
100,000 Browning-Ferris Industries, Inc. sr.
notes 6 3/8s, 2008 98,750
EUR 90,000 BSN Financing Co. SA company
guaranty Ser. EUR, 10 1/4s,
2009 (Luxembourg) 114,346
EUR 55,000 BSN Glasspack 144A sec. notes
9 1/4s, 2009 (France) 70,208
$90,000 Crown Holdings SA notes 10 7/8s,
2013 (France) 103,950
300,000 Crown Holdings SA notes 9 1/2s, 2011
(France) 336,000
240,000 Decrane Aircraft Holdings Co.
company guaranty Ser. B, 12s, 2008 120,000
120,000 Earle M. Jorgensen Co. sec. notes
9 3/4s, 2012 130,800
110,000 FIMEP SA sr. notes 10 1/2s, 2013
(France) 127,600
EUR 60,000 Flender Holdings 144A sr. notes 11s,
2010 (Denmark) 79,108
$93,000 Flowserve Corp. company guaranty
12 1/4s, 2010 107,880
15,000 Fonda Group, Inc. sr. sub. notes
Ser. B, 9 1/2s, 2007 13,050
25,000 Hexcel Corp. sr. sub. notes 9 3/4s,
2009 26,063
180,000 Insilco Holding Co. sr. disc. notes
zero %, 2008 (In default) (NON) 855
EUR 50,000 Invensys, PLC sr. unsub. notes
5 1/2s, 2005 (United Kingdom) 58,612
$80,000 Jordan Industries, Inc. sr. notes
Ser. D, 10 3/8s, 2007 36,000
85,000 K&F Industries, Inc. sr. sub. notes
Ser. B, 9 5/8s, 2010 94,350
23,000 K&F Industries, Inc. sr. sub. notes
Ser. B, 9 1/4s, 2007 23,805
325,000 L-3 Communications Corp. company
guaranty 6 1/8s, 2013 322,563
175,000 Laidlaw International, Inc. 144A sr.
notes 10 3/4s, 2011 192,500
110,000 Legrand SA debs. 8 1/2s, 2025
(France) 115,225
10,000 Manitowoc Co., Inc. (The) company
guaranty 10 1/2s, 2012 11,300
EUR 25,000 Manitowoc Co., Inc. (The) company
guaranty 10 3/8s, 2011 32,527
$40,000 Manitowoc Co., Inc. (The) sr. notes
7 1/8s, 2013 40,900
55,000 Motors and Gears, Inc. sr. notes
Ser. D, 10 3/4s, 2006 46,200
105,000 Owens-Brockway Glass company
guaranty 8 7/8s, 2009 112,875
95,000 Owens-Brockway Glass company
guaranty 8 1/4s, 2013 99,513
90,000 Owens-Brockway Glass company
guaranty 7 3/4s, 2011 94,500
130,000 Owens-Brockway Glass sr. sec. notes
8 3/4s, 2012 142,025
20,000 Pliant Corp. company guaranty 13s,
2010 18,200
90,000 Pliant Corp. sec. notes 11 1/8s,
2009 93,600
115,000 Roller Bearing Company of America
company guaranty Ser. B, 9 5/8s,
2007 106,950
250,000 Sequa Corp. sr. notes Ser. B,
8 7/8s, 2008 271,875
10,000 Siebe PLC 144A notes 7 1/8s, 2007
(United Kingdom) 10,125
35,000 Siebe PLC 144A sr. unsub. 6 1/2s,
2010 (United Kingdom) 33,338
90,000 Sweetheart Cup Co. company guaranty
12s, 2004 88,650
90,000 TD Funding Corp. 144A sr. sub. notes
8 3/8s, 2011 95,400
210,000 Tekni-Plex, Inc. company guaranty
Ser. B, 12 3/4s, 2010 222,600
60,000 Tekni-Plex, Inc. 144A sr. sec. notes
8 3/4s, 2013 60,150
35,000 Terex Corp. company guaranty 9 1/4s,
2011 38,850
190,000 Terex Corp. company guaranty Ser. B,
10 3/8s, 2011 212,800
90,000 Titan Corp. (The) 144A sr. sub.
notes 8s, 2011 103,050
110,000 Trimas Corp. company guaranty
9 7/8s, 2012 113,300
60,000 Vought Aircraft Industries, Inc.
144A sr. notes 8s, 2011 60,900
--------------
6,518,497
Commercial and Consumer Services (0.5%)
- -------------------------------------------------------------------------------
190,000 Coinmach Corp. sr. notes 9s, 2010 206,625
181,488 Derby Cycle Corp. (The) sr. notes
10s, 2008 (In default) (NON) 9,982
EUR 97,550 Derby Cycle Corp. (The) sr. notes
9 3/8s, 2008 (In default) (NON) 3,288
$115,000 IESI Corp. company guaranty 10 1/4s,
2012 124,775
--------------
344,670
Communication Services (8.5%)
- -------------------------------------------------------------------------------
240,000 ACC Escrow Corp. 144A sr. notes 10s,
2011 262,800
110,500 Alamosa Delaware, Inc. company
guaranty 11s, 2010 114,920
35,000 American Cellular Corp. company
guaranty 9 1/2s, 2009 (In default)
(NON) 33,250
60,000 American Tower Corp. sr. notes
9 3/8s, 2009 63,000
125,000 American Towers, Inc. 144A sr. sub.
notes 7 1/4s, 2011 125,625
100,000 Asia Global Crossing, Ltd. sr. notes
13 3/8s, 2010 (Bermuda) (In default)
(NON) 14,750
315,000 Centennial Cellular Operating Co.
company guaranty 10 1/8s, 2013 332,325
50,000 Cincinnati Bell, Inc. notes 7 1/4s,
2023 48,500
175,000 Cincinnati Bell, Inc. 144A company
guaranty 7 1/4s, 2013 182,000
125,000 Cincinnati Bell, Inc. 144A sr. sub.
notes 8 3/8s, 2014 131,250
311,173 Colo.com, Inc. 144A sr. notes
13 7/8s, 2010 (In default) (NON) 778
10,000 Colt Telecommunications Group PLC
sr. disc. notes 12s, 2006 (United
Kingdom) 10,000
100,000 Crown Castle International Corp. sr.
disc. notes stepped-coupon zero %
(10 3/8s, 5/15/04), 2011 (STP) 104,000
145,000 Crown Castle International Corp. sr.
notes 9 3/8s, 2011 159,500
50,000 Crown Castle International Corp. sr.
notes 9s, 2011 52,750
185,000 Dobson Communications Corp. 144A sr.
notes 8 7/8s, 2013 186,156
45,000 Eircom Funding 144A sr. sub. notes
8 1/4s, 2013 (Ireland) 48,825
65,000 Fairpoint Communications, Inc. sr.
sub. notes 12 1/2s, 2010 70,525
200,000 Firstworld Communication Corp. sr.
disc. notes zero %, 2008 (In
default) (NON) 20
31,713 Globix Corp. company guaranty 11s,
2008 (PIK) 27,273
20,000 Horizon PCS, Inc. company guaranty
13 3/4s, 2011 (In default) (NON) 4,500
200,000 iPCS, Inc. sr. disc. notes
stepped-coupon zero % (14s,
7/15/05), 2010 (In default) (NON)
(STP) 22,000
93,000 IWO Holdings, Inc. company guaranty
14s, 2011 14,880
15,000 Level 3 Communications, Inc. sr.
notes 9 1/8s, 2008 13,538
260,000 Level 3 Financing, Inc. 144A sr.
notes 10 3/4s, 2011 271,700
120,000 Madison River Capital Corp. sr.
notes 13 1/4s, 2010 131,700
200,000 Metromedia Fiber Network, Inc. sr.
notes Ser. B, 10s, 2008 (In default)
(NON) 12,750
128,000 Millicom International Cellular SA
144A sr. notes 11s,
2006 (Luxembourg) 131,200
205,000 Nextel Communications, Inc. sr.
notes 9 1/2s, 2011 232,931
205,000 Nextel Communications, Inc. sr.
notes 9 3/8s, 2009 223,963
175,000 Nextel Communications, Inc. sr.
notes 7 3/8s, 2015 184,188
80,000 Nextel Partners, Inc. sr. notes
12 1/2s, 2009 92,400
90,000 Nextel Partners, Inc. sr. notes 11s,
2010 99,000
295,000 Nextel Partners, Inc. 144A sr. notes
8 1/8s, 2011 306,800
200,000 Orbital Imaging Corp. sr. notes
Ser. B, 11 5/8s, 2005 (In default)
(NON) 124,000
50,000 PanAmSat Corp. company guaranty
8 1/2s, 2012 54,372
410,000 Qwest Corp. 144A notes 8 7/8s, 2012 465,350
455,000 Qwest Services Corp. 144A notes
13 1/2s, 2010 535,154
10,000 Rogers Cantel, Ltd. debs. 9 3/8s,
2008 (Canada) 10,450
40,000 Rogers Wireless, Inc. sec. notes
9 5/8s, 2011 (Canada) 46,700
265,000 Telus Corp. notes 8s, 2011 (Canada) 304,332
105,000 TSI Telecommunication Services, Inc.
company guaranty Ser. B, 12 3/4s,
2009 114,844
87,000 UbiquiTel Operating Co. bonds
stepped-coupon zero % (14s,
4/15/05), 2010 (STP) 62,640
95,000 US UnWired, Inc. company guaranty
stepped-coupon Ser. B, zero %
(13 3/8s, 11/1/04), 2009 (STP) 62,700
180,000 Western Wireless Corp. sr. notes
9 1/4s, 2013 187,200
30,000 Williams Communications Group, Inc.
notes zero %, 2010 (In default)
(NON) 1
20,000 Williams Communications Group, Inc.
notes zero %, 2008 (In default)
(NON) 1
30,000 Williams Communications Group, Inc.
notes zero %, 2007 (In default)
(NON) 1
--------------
5,677,542
Conglomerates (1.0%)
- -------------------------------------------------------------------------------
180,000 Tyco International Group SA company
guaranty 7s, 2028 (Luxembourg) 181,575
55,000 Tyco International Group SA company
guaranty 6 3/4s, 2011 (Luxembourg) 59,125
350,000 Tyco International Group SA notes
6 3/8s, 2011 (Luxembourg) 367,500
45,000 Tyco International Group SA 144A sr.
notes 6s, 2013 (Luxembourg) 45,513
--------------
653,713
Consumer (1.1%)
- -------------------------------------------------------------------------------
200,000 Icon Health & Fitness company
guaranty 11 1/4s, 2012 218,250
170,000 Jostens Holding Corp. 144A sr. disc.
notes stepped-coupon zero %
(10 1/4s, 12/1/08), 2013 (STP) 107,100
100,000 Jostens, Inc. sr. sub. notes
12 3/4s, 2010 114,500
300,000 Samsonite Corp. sr. sub. notes
10 3/4s, 2008 311,250
--------------
751,100
Consumer Goods (1.1%)
- -------------------------------------------------------------------------------
125,000 Armkel, LLC/Armkel Finance sr. sub.
notes 9 1/2s, 2009 136,875
30,000 French Fragrances, Inc. company
guaranty Ser. D, 10 3/8s, 2007 30,750
29,000 French Fragrances, Inc. sr. notes
Ser. B, 10 3/8s, 2007 30,029
270,000 Playtex Products, Inc. company
guaranty 9 3/8s, 2011 265,275
70,000 Polaroid Corp. sr. notes 11 1/2s,
2006 (In default) (NON) 14,700
120,000 Remington Arms Co., Inc. company
guaranty 10 1/2s, 2011 124,800
70,000 Revlon Consumer Products sr. notes
9s, 2006 47,600
65,000 Revlon Consumer Products sr. notes
8 1/8s, 2006 44,200
45,000 Scotts Co. (The) 144A sr. sub notes
6 5/8s, 2013 45,450
--------------
739,679
Consumer Services (0.4%)
- -------------------------------------------------------------------------------
100,000 Brand Services, Inc. company
guaranty 12s, 2012 115,000
50,000 United Rentals (North America), Inc.
company guaranty Ser. B, 10 3/4s,
2008 55,750
130,000 Williams Scotsman, Inc. company
guaranty 9 7/8s, 2007 126,750
--------------
297,500
Distribution (0.1%)
- -------------------------------------------------------------------------------
120,000 Fleming Cos., Inc. company guaranty
10 1/8s, 2008 (In default) (NON) 20,400
90,000 Fleming Cos., Inc. sr. notes 9 1/4s,
2010 (In default) (NON) 15,525
--------------
35,925
Energy (6.0%)
- -------------------------------------------------------------------------------
145,000 Arch Western Finance, LLC 144A sr.
notes 6 3/4s, 2013 149,531
120,000 Belden & Blake Corp. company
guaranty Ser. B, 9 7/8s, 2007 113,400
110,000 BRL Universal Equipment sec. notes
8 7/8s, 2008 118,250
75,000 Chesapeake Energy Corp. company
guaranty 9s, 2012 86,250
45,000 Chesapeake Energy Corp. company
guaranty 8 1/8s, 2011 49,163
235,000 Chesapeake Energy Corp. sr. notes
7 1/2s, 2013 252,625
170,000 Comstock Resources, Inc. company
guaranty 11 1/4s, 2007 183,600
140,000 Dresser, Inc. company guaranty
9 3/8s, 2011 146,650
14,000 El Paso Energy Partners LP company
guaranty Ser. B, 8 1/2s, 2011 15,330
90,000 Encore Acquisition Co. company
guaranty 8 3/8s, 2012 95,400
125,000 Forest Oil Corp. company guaranty
7 3/4s, 2014 130,938
50,000 Forest Oil Corp. sr. notes 8s, 2011 53,750
35,000 Forest Oil Corp. sr. notes 8s, 2008 37,625
60,000 Gazprom OAO 144A notes 9 5/8s, 2013
(Russia) 65,100
65,000 Hornbeck Offshore Services, Inc. sr.
notes 10 5/8s, 2008 71,338
50,000 Key Energy Services, Inc. sr. notes
6 3/8s, 2013 50,250
15,000 Leviathan Gas Corp. company guaranty
Ser. B, 10 3/8s, 2009 16,275
90,000 Massey Energy Co. 144A sr. notes
6 5/8s, 2010 90,450
130,000 Newfield Exploration Co. sr. notes
7 5/8s, 2011 142,350
75,000 Offshore Logistics, Inc. company
guaranty 6 1/8s, 2013 72,000
100,000 Parker Drilling Co. company guaranty
Ser. B, 10 1/8s, 2009 104,000
30,000 Pemex Project Funding Master Trust
company guaranty 8 5/8s, 2022 33,150
160,000 Pemex Project Funding Master Trust
company guaranty 7 3/8s, 2014 168,608
270,000 Pioneer Natural Resources Co.
company guaranty 9 5/8s, 2010 333,983
20,000 Pioneer Natural Resources Co.
company guaranty 7.2s, 2028 20,862
70,000 Plains All American Pipeline
LP/Plains All American Finance
Corp. company guaranty 7 3/4s, 2012 77,700
100,000 Plains Exploration & Production Co.
company guaranty Ser. B, 8 3/4s,
2012 109,500
80,000 Plains Exploration & Production Co.
sr. sub. notes 8 3/4s, 2012 87,600
110,000 Pogo Producing Co. sr. sub. notes
Ser. B, 8 1/4s, 2011 121,550
10,000 Pride International, Inc. sr. notes
10s, 2009 10,725
77,000 Pride Petroleum Services, Inc. sr.
notes 9 3/8s, 2007 79,310
100,000 Seabulk International, Inc. 144A sr.
notes 9 1/2s, 2013 104,250
135,000 Star Gas Partners LP/Star Gas
Finance Co. sr. notes 10 1/4s, 2013 146,475
60,000 Swift Energy Co. sr. sub. notes
10 1/4s, 2009 64,950
95,000 Swift Energy Co. sr. sub. notes
9 3/8s, 2012 103,550
155,000 Trico Marine Services, Inc. company
guaranty 8 7/8s, 2012 100,750
25,000 Universal Compression, Inc. sr.
notes 7 1/4s, 2010 25,875
45,000 Vintage Petroleum, Inc. sr. notes
8 1/4s, 2012 49,050
25,000 Vintage Petroleum, Inc. sr. sub.
notes 7 7/8s, 2011 26,125
130,000 Westport Resources Corp. company
guaranty 8 1/4s, 2011 141,700
90,000 Westport Resources Corp. 144A
company guaranty 8 1/4s, 2011 98,100
25,000 XTO Energy, Inc. sr. notes 7 1/2s,
2012 28,375
55,000 XTO Energy, Inc. sr. notes 6 1/4s,
2013 58,025
--------------
4,034,488
Entertainment (1.7%)
- -------------------------------------------------------------------------------
100,000 AMC Entertainment, Inc. sr. sub.
notes 9 7/8s, 2012 109,500
10,000 AMC Entertainment, Inc. sr. sub.
notes 9 1/2s, 2011 10,500
130,000 AMC Entertainment, Inc. sr. sub.
notes 9 1/2s, 2009 133,900
115,000 Cinemark USA, Inc. sr. sub. notes
9s, 2013 127,650
150,000 Cinemark USA, Inc. sr. sub. notes
Ser. B, 8 1/2s, 2008 156,000
120,000 Premier Parks, Inc. sr. notes 10s,
2007 124,200
75,000 Regal Cinemas, Inc. company guaranty
Ser. B, 9 3/8s, 2012 85,125
410,000 Six Flags, Inc. sr. notes 8 7/8s,
2010 402,825
--------------
1,149,700
Financial (2.3%)
- -------------------------------------------------------------------------------
180,000 Advanta Corp. 144A company guaranty
Ser. B, 8.99s, 2026 126,450
70,000 Chevy Chase Savings Bank, Inc. sub.
debs. 9 1/4s, 2005 70,088
55,000 Crescent Real Estate Equities LP
notes 7 1/2s, 2007 (R) 56,788
145,000 Crescent Real Estate Equities LP sr.
notes 9 1/4s, 2009 (R) 158,231
404,000 Finova Group, Inc. notes 7 1/2s,
2009 224,220
95,000 iStar Financial, Inc. sr. notes
8 3/4s, 2008 (R) 106,400
25,000 iStar Financial, Inc. sr. notes 7s,
2008 (R) 26,500
371,250 JP Morgan HYDI disc. notes 8s, 2008 378,675
61,000 Nationwide Credit, Inc. sr. notes
Ser. A, 10 1/4s, 2008 (In default)
(NON) 1
160,000 Peoples Bank - Bridgeport sub. notes
9 7/8s, 2010 (acquired 1/12/01, cost
$166,509) (RES) 191,742
85,000 UBS AG/Jersey Branch sr. notes
Ser. EMTN, 9.14s, 2008 (Jersey) 85,000
100,000 Western Financial Bank sub. debs.
9 5/8s, 2012 112,000
--------------
1,536,095
Food (1.2%)
- -------------------------------------------------------------------------------
62,793 Archibald Candy Corp. company
guaranty 10s, 2007 (PIK) 25,117
35,000 Dean Foods Co. sr. notes 6 5/8s,
2009 36,575
40,000 Del Monte Corp. company guaranty
Ser. B, 9 1/4s, 2011 43,900
100,000 Del Monte Corp. 144A sr. sub. notes
8 5/8s, 2012 109,000
45,000 Dole Food Co. sr. notes 8 7/8s, 2011 48,656
35,000 Dole Food Co. sr. notes 8 5/8s, 2009 37,844
130,000 Eagle Family Foods company guaranty
Ser. B, 8 3/4s, 2008 92,300
195,000 Land O'Lakes, Inc. sr. notes 8 3/4s,
2011 178,425
35,000 Parmalat Capital Finance, Ltd.
company guaranty 6 5/8s,
2008 (Cayman Islands) 31,850
65,000 Pinnacle Foods Holding Corp. 144A
sr. sub. notes 8 1/4s, 2013 66,625
110,000 Premier International Foods PLC sr.
notes 12s, 2009 (United Kingdom) 119,900
--------------
790,192
Gaming & Lottery (5.1%)
- -------------------------------------------------------------------------------
110,000 Ameristar Casinos, Inc. company
guaranty 10 3/4s, 2009 125,950
80,000 Argosy Gaming Co. company guaranty
10 3/4s, 2009 86,600
20,000 Argosy Gaming Co. sr. sub. notes 9s,
2011 22,025
120,000 Boyd Gaming Corp. sr. sub. notes
8 3/4s, 2012 130,200
70,000 Chumash Casino & Resort Enterprise
144A sr. notes 9 1/4s, 2010 76,825
155,000 Herbst Gaming, Inc. sec. notes
Ser. B, 10 3/4s, 2008 173,213
120,000 Hollywood Park, Inc. company
guaranty Ser. B, 9 1/4s, 2007 123,900
180,000 Horseshoe Gaming Holdings company
guaranty 8 5/8s, 2009 191,475
75,000 Inn of the Mountain Gods 144A sr.
notes 12s, 2010 79,500
75,000 Mandalay Resort Group 144A sr. notes
6 1/2s, 2009 77,063
10,000 MGM Mirage, Inc. coll. sr. notes
6 7/8s, 2008 10,625
230,000 MGM Mirage, Inc. company guaranty
8 1/2s, 2010 261,625
15,000 MGM Mirage, Inc. company guaranty
8 3/8s, 2011 16,763
60,000 Mirage Resorts, Inc. notes 6 3/4s,
2008 63,450
20,000 Mohegan Tribal Gaming Authority sr.
notes 8 1/8s, 2006 21,525
40,000 Mohegan Tribal Gaming Authority sr.
sub. notes 8 3/8s, 2011 43,600
220,000 Mohegan Tribal Gaming Authority sr.
sub. notes 6 3/8s, 2009 225,500
175,000 Park Place Entertainment Corp. sr.
notes 7 1/2s, 2009 190,750
65,000 Park Place Entertainment Corp. sr.
notes 7s, 2013 68,413
95,000 Park Place Entertainment Corp. sr.
sub. notes 8 7/8s, 2008 106,163
20,000 Park Place Entertainment Corp. sr.
sub. notes 8 1/8s, 2011 22,025
100,000 Penn National Gaming, Inc. company
guaranty Ser. B, 11 1/8s, 2008 112,500
185,000 Penn National Gaming, Inc. sr. sub.
notes 8 7/8s, 2010 199,800
60,000 Pinnacle Entertainment, Inc. sr.
sub. notes 8 3/4s, 2013 59,700
110,000 Resorts International Hotel and
Casino, Inc. company guaranty
11 1/2s, 2009 116,875
100,000 Riviera Holdings Corp. company
guaranty 11s, 2010 101,875
140,000 Station Casinos, Inc. sr. notes
8 3/8s, 2008 150,500
120,000 Trump Atlantic City Associates
company guaranty 11 1/4s, 2006 90,300
260,000 Trump Casino Holdings, LLC company
guaranty 11 5/8s, 2010 233,350
175,000 Venetian Casino Resort, LLC company
guaranty 11s, 2010 202,563
--------------
3,384,653
Health Care (5.6%)
- -------------------------------------------------------------------------------
233,400 Alderwoods Group, Inc. company
guaranty 12 1/4s, 2009 261,408
131,000 Alliance Imaging, Inc. sr. sub.
notes 10 3/8s, 2011 135,913
105,000 AmerisourceBergen Corp. company
guaranty 7 1/4s, 2012 111,563
100,000 AmerisourceBergen Corp. sr. notes
8 1/8s, 2008 110,750
170,000 Ardent Health Services 144A sr. sub.
notes 10s, 2013 181,900
75,000 Biovail Corp. sr. sub. notes 7 7/8s,
2010 (Canada) 72,375
35,000 Dade Behring, Inc. company guaranty
11.91s, 2010 40,163
90,000 Extendicare Health Services, Inc.
company guaranty 9 1/2s, 2010 98,550
105,000 Hanger Orthopedic Group, Inc.
company guaranty 10 3/8s, 2009 118,913
50,000 HCA, Inc. debs. 7.19s, 2015 52,368
60,000 HCA, Inc. notes 8.36s, 2024 64,917
70,000 HCA, Inc. notes 7.69s, 2025 71,785
10,000 HCA, Inc. notes 7s, 2007 10,758
205,000 Healthsouth Corp. notes 7 5/8s, 2012 187,575
75,000 Healthsouth Corp. sr. notes 8 1/2s,
2008 70,500
45,000 Healthsouth Corp. sr. notes 8 3/8s,
2011 41,288
45,000 Healthsouth Corp. sr. sub. notes
10 3/4s, 2008 41,400
75,000 IASIS Healthcare Corp. company
guaranty 13s, 2009 84,000
15,000 IASIS Healthcare Corp. company
guaranty 8 1/2s, 2009 15,373
180,000 Integrated Health Services, Inc. sr.
sub. notes Ser. A, 9 1/2s, 2007 (In
default) (NON) 1
110,000 Integrated Health Services, Inc. sr.
sub. notes Ser. A, 9 1/4s, 2008 (In
default) (NON) 1
250,000 Magellan Health Services, Inc. sr.
sub. notes 9s, 2008 (In default)
(NON) 172,500
55,000 Magellan Health Services, Inc. 144A
sr. notes 9 3/8s, 2007 (In default)
(NON) 60,775
180,000 Mediq, Inc. debs. 13s, 2009 (In
default) (NON) 18
130,000 MedQuest, Inc. company guaranty
Ser. B, 11 7/8s, 2012 142,513
60,000 NeighborCare, Inc. 144A sr. sub.
notes 6 7/8s, 2013 60,450
120,000 Omnicare, Inc. sr. sub. notes
6 1/8s, 2013 119,700
133,000 PacifiCare Health Systems, Inc.
company guaranty 10 3/4s, 2009 152,950
115,000 Province Healthcare Co. sr. sub.
notes 7 1/2s, 2013 116,150
40,000 Service Corp. International debs.
7 7/8s, 2013 39,400
15,000 Service Corp. International notes
7.2s, 2006 15,413
5,000 Service Corp. International notes
6 7/8s, 2007 5,100
20,000 Service Corp. International notes
6 1/2s, 2008 20,200
185,000 Service Corp. International notes
6s, 2005 187,313
50,000 Service Corp. International notes
Ser. (a), 7.7s, 2009 52,375
130,000 Stewart Enterprises, Inc. notes
10 3/4s, 2008 146,250
55,000 Tenet Healthcare Corp. notes 7 3/8s,
2013 53,213
10,000 Tenet Healthcare Corp. sr. notes
6 1/2s, 2012 9,200
310,000 Tenet Healthcare Corp. sr. notes
6 3/8s, 2011 286,750
190,000 Triad Hospitals, Inc. 144A sr. sub.
notes 7s, 2013 189,525
85,000 Universal Hospital Services, Inc.
144A sr. notes 10 1/8s, 2011 87,975
55,000 Ventas Realty LP/Capital Corp.
company guaranty 9s, 2012 61,600
--------------
3,750,871
Homebuilding (1.7%)
- -------------------------------------------------------------------------------
80,000 Beazer Homes USA, Inc. company
guaranty 8 5/8s, 2011 87,800
25,000 Beazer Homes USA, Inc. company
guaranty 8 3/8s, 2012 27,500
120,000 D.R. Horton, Inc. sr. notes 7 7/8s,
2011 137,400
25,000 D.R. Horton, Inc. sr. notes 6 7/8s,
2013 26,750
85,000 D.R. Horton, Inc. sr. notes 5 7/8s,
2013 84,469
30,000 K. Hovnanian Enterprises, Inc.
company guaranty 10 1/2s, 2007 35,250
90,000 K. Hovnanian Enterprises, Inc.
company guaranty 8 7/8s, 2012 98,438
95,000 K. Hovnanian Enterprises, Inc.
company guaranty 8s, 2012 103,550
15,000 K. Hovnanian Enterprises, Inc. sr.
notes 6 1/2s, 2014 14,963
50,000 Meritage Corp. 144A sr. notes
9 3/4s, 2011 56,250
135,000 Ryland Group, Inc. sr. notes 9 3/4s,
2010 155,250
5,000 Ryland Group, Inc. sr. notes 5 3/8s,
2008 5,200
70,000 Schuler Homes, Inc. company guaranty
10 1/2s, 2011 80,063
30,000 Technical Olympic USA, Inc. company
guaranty 10 3/8s, 2012 33,300
65,000 Technical Olympic USA, Inc. company
guaranty 9s, 2010 69,388
30,000 WCI Communities, Inc. company
guaranty 10 5/8s, 2011 33,450
90,000 WCI Communities, Inc. company
guaranty 9 1/8s, 2012 98,550
--------------
1,147,571
Household Furniture and Appliances (0.5%)
- -------------------------------------------------------------------------------
130,000 Sealy Mattress Co. company guaranty
Ser. B, 10 7/8s, 2007 134,875
170,000 Sealy Mattress Co. sr. sub. notes
Ser. B, 9 7/8s, 2007 174,250
--------------
309,125
Lodging/Tourism (2.6%)
- -------------------------------------------------------------------------------
155,000 FelCor Lodging LP company guaranty
9 1/2s, 2008 (R) 165,850
85,000 Gaylord Entertainment Co. 144A sr.
notes 8s, 2013 87,975
155,000 Hilton Hotels Corp. notes 7 5/8s,
2012 171,663
410,000 HMH Properties, Inc. company
guaranty Ser. B, 7 7/8s, 2008 423,325
60,000 Host Marriott LP company guaranty
Ser. G, 9 1/4s, 2007 (R) 65,625
98,000 Host Marriott LP sr. notes Ser. E,
8 3/8s, 2006 (R) 103,880
120,000 Host Marriott LP 144A sr. notes
7 1/8s, 2013 (R) 118,800
105,000 ITT Corp. notes 6 3/4s, 2005 110,250
210,000 John Q. Hammons Hotels LP/John Q.
Hammons Hotels Finance Corp. III
1st mtge. Ser. B, 8 7/8s, 2012 229,950
50,000 Meristar Hospitality Corp. company
guaranty 9 1/8s, 2011 (R) 52,375
115,000 RFS Partnership LP company guaranty
9 3/4s, 2012 123,338
10,000 Starwood Hotels & Resorts Worldwide,
Inc. company guaranty 7 7/8s, 2012 11,088
80,000 Starwood Hotels & Resorts Worldwide,
Inc. company guaranty 7 3/8s, 2007 85,700
--------------
1,749,819
Media (0.4%)
- -------------------------------------------------------------------------------
85,000 Capitol Records, Inc. 144A company
guaranty 8 3/8s, 2009 86,700
140,000 Vivendi Universal SA 144A notes
6 1/4s, 2008 (France) 147,000
--------------
233,700
Publishing (3.8%)
- -------------------------------------------------------------------------------
239,000 Affinity Group Holdings sr. notes
11s, 2007 244,975
185,000 Dex Media West, LLC 144A sr. notes
8 1/2s, 2010 202,113
85,000 Dex Media, Inc. 144A disc. notes
stepped-coupon zero % (9s,
11/15/08), 2013 (STP) 55,888
100,000 Dex Media, Inc. 144A notes 8s, 2013 101,750
80,000 Garden State Newspapers, Inc. sr.
sub. notes 8 5/8s, 2011 84,400
273,884 Hollinger Participation Trust 144A
sr. notes 12 1/8s, 2010 (Canada)
(PIK) 317,705
185,000 PRIMEDIA, Inc. company guaranty
8 7/8s, 2011 191,475
80,000 PRIMEDIA, Inc. company guaranty
7 5/8s, 2008 79,600
135,000 PRIMEDIA, Inc. 144A sr. notes 8s,
2013 135,844
30,000 Quebecor Media, Inc. sr. disc. notes
stepped-coupon zero % (13 3/4s,
7/15/06), 2011 (Canada) (STP) 26,250
155,000 Quebecor Media, Inc. sr. notes
11 1/8s, 2011 (Canada) 178,250
20,000 RH Donnelley Finance Corp. I company
guaranty 8 7/8s, 2010 22,450
170,000 RH Donnelley Finance Corp. I 144A
sr. notes 8 7/8s, 2010 190,825
85,000 RH Donnelley Finance Corp. I 144A
sr. sub. notes 10 7/8s, 2012 100,406
155,000 Vertis, Inc. company guaranty
Ser. B, 10 7/8s, 2009 158,875
120,000 Vertis, Inc. sub. notes 13 1/2s,
2009 112,200
75,000 Vertis, Inc. 144A sec. notes 9 3/4s,
2009 80,250
50,000 Videotron Ltee 144A notes 6 7/8s,
2014 (Canada) 51,375
110,000 Von Hoffman Press, Inc. company
guaranty 10 1/4s, 2009 115,500
110,614 Von Hoffman Press, Inc. debs. 13s,
2009 (PIK) 99,000
--------------
2,549,131
Restaurants (0.9%)
- -------------------------------------------------------------------------------
110,000 Domino's, Inc. 144A sr. sub. notes
8 1/4s, 2011 115,913
140,000 Sbarro, Inc. company guaranty 11s,
2009 108,500
90,000 Yum! Brands, Inc. sr. notes 8 7/8s,
2011 108,450
50,000 Yum! Brands, Inc. sr. notes 8 1/2s,
2006 55,563
120,000 Yum! Brands, Inc. sr. notes 7.7s,
2012 137,700
40,000 Yum! Brands, Inc. sr. notes 7.65s,
2008 45,100
--------------
571,226
Retail (2.2%)
- -------------------------------------------------------------------------------
80,000 Asbury Automotive Group, Inc.
company guaranty 9s, 2012 84,200
160,000 Autonation, Inc. company guaranty
9s, 2008 182,000
65,000 Gap, Inc. (The) notes 6.9s, 2007 71,744
100,000 Hollywood Entertainment Corp. sr.
sub. notes 9 5/8s, 2011 107,500
75,000 J. Crew Operating Corp. 144A sr.
sub. notes 10 3/8s, 2007 77,438
185,000 JC Penney Co., Inc. debs. 7.95s,
2017 205,350
30,000 JC Penney Co., Inc. debs. 7.65s,
2016 32,850
25,000 JC Penney Co., Inc. debs. 7 1/8s,
2023 26,375
35,000 JC Penney Co., Inc. notes 9s, 2012 41,650
5,000 JC Penney Co., Inc. notes 8s, 2010 5,725
100,000 Rite Aid Corp. company guaranty
9 1/2s, 2011 112,500
5,000 Rite Aid Corp. debs. 6 7/8s, 2013 4,738
15,000 Rite Aid Corp. notes 7 1/8s, 2007 15,225
40,000 Rite Aid Corp. sec. notes 8 1/8s,
2010 43,000
75,000 Rite Aid Corp. sr. notes 9 1/4s,
2013 80,625
5,000 Rite Aid Corp. 144A notes 6s, 2005 4,988
245,000 Saks, Inc. company guaranty 8 1/4s,
2008 277,463
10,000 TM Group Holdings sr. notes 11s,
2008 (United Kingdom) 10,600
70,000 United Auto Group, Inc. company
guaranty 9 5/8s, 2012 77,700
--------------
1,461,671
Technology (2.8%)
- -------------------------------------------------------------------------------
82,000 AMI Semiconductor, Inc. company
guaranty 10 3/4s, 2013 97,785
87,000 DigitalNet Holdings Inc. 144A sr.
notes 9s, 2010 95,483
EUR 140,000 Getronics NV sub. notes 13s, 2008
(Netherlands) 81,595
$115,000 Iron Mountain, Inc. company guaranty
8 5/8s, 2013 125,063
125,000 Iron Mountain, Inc. company guaranty
8 1/8s, 2008 (Canada) 130,625
10,000 Lucent Technologies, Inc. debs.
6 1/2s, 2028 7,600
175,000 Lucent Technologies, Inc. debs.
6.45s, 2029 133,438
10,000 Lucent Technologies, Inc. notes
5 1/2s, 2008 9,125
175,000 Nortel Networks Corp. notes 6 1/8s,
2006 (Canada) 176,094
135,000 ON Semiconductor Corp. company
guaranty 13s, 2008 156,600
95,000 SCG Holding & Semiconductor Corp.
company guaranty 12s, 2009 102,125
110,000 Seagate Technology Hdd Holdings
company guaranty 8s, 2009 (Cayman
Islands) 119,350
64,685 Telex Communications Group, Inc. sr.
sub. notes Ser. A, zero %, 2006 32,343
130,000 Xerox Capital Trust I company
guaranty 8s, 2027 120,250
55,000 Xerox Corp. company guaranty 9 3/4s,
2009 62,425
65,000 Xerox Corp. notes Ser. MTN, 7.2s,
2016 63,213
195,000 Xerox Corp. sr. notes 7 5/8s, 2013 200,850
140,000 Xerox Corp. sr. notes 7 1/8s, 2010 144,200
--------------
1,858,164
Textiles (0.6%)
- -------------------------------------------------------------------------------
100,000 Galey & Lord, Inc. company guaranty
9 1/8s, 2008 (In default) (NON) 750
160,000 Levi Strauss & Co. sr. notes
12 1/4s, 2012 115,600
75,000 Oxford Industries, Inc. 144A sr.
notes 8 7/8s, 2011 79,875
120,000 Russell Corp. company guaranty
9 1/4s, 2010 124,800
68,000 William Carter Holdings Co. (The)
company guaranty Ser. B, 10 7/8s,
2011 77,265
--------------
398,290
Tire & Rubber (--%)
- -------------------------------------------------------------------------------
35,000 Goodyear Tire & Rubber Co. (The)
notes 7.857s, 2011 29,750
Transportation (1.9%)
- -------------------------------------------------------------------------------
85,000 Allied Holdings, Inc. company
guaranty Ser. B, 8 5/8s, 2007 81,600
95,000 American Airlines, Inc. pass-through
certificates Ser. 01-1, 6.817s,
2011 85,025
15,000 American Airlines, Inc. pass-through
certificates Ser. 99-1, 7.024s,
2009 15,300
170,000 Calair, LLC/Calair Capital Corp.
company guaranty 8 1/8s, 2008 153,000
60,000 Continental Airlines, Inc.
pass-through certificates Ser. D,
7.568s, 2006 50,400
70,000 Delta Air Lines, Inc. pass-through
certificates Ser. 00-1, 7.779s,
2005 63,578
46,095 Delta Air Lines, Inc. pass-through
certificates Ser. 02-1, 7.779s,
2012 40,794
115,000 Evergreen International Aviation,
Inc. 144A sec. notes 12s, 2010 92,000
200,000 Kansas City Southern Railway Co.
company guaranty 9 1/2s, 2008 224,250
30,000 Kansas City Southern Railway Co.
company guaranty 7 1/2s, 2009 31,200
120,000 Navistar International Corp. company
guaranty Ser. B, 9 3/8s, 2006 129,900
25,000 Navistar International Corp. sr.
notes Ser. B, 8s, 2008 25,500
10,000 Northwest Airlines, Inc. company
guaranty 8.52s, 2004 10,050
120,000 Northwest Airlines, Inc. company
guaranty 7 5/8s, 2005 113,400
67,292 NWA Trust sr. notes Ser. A, 9 1/4s,
2012 68,975
40,000 Travel Centers of America, Inc.
company guaranty 12 3/4s, 2009 46,000
103,957 US Air, Inc. pass-through
certificates Ser. 93-A3,
10 3/8s, 2013 (In default) (NON) 31,187
--------------
1,262,159
Utilities & Power (7.6%)
- -------------------------------------------------------------------------------
13,000 AES Corp. (The) sr. notes 8 7/8s,
2011 13,585
4,000 AES Corp. (The) sr. notes 8 3/4s,
2008 4,140
130,000 AES Corp. (The) 144A sec. notes 9s,
2015 141,700
190,000 AES Corp. (The) 144A sec. notes
8 3/4s, 2013 205,675
170,000 Allegheny Energy Supply 144A bonds
8 1/4s, 2012 159,800
65,000 Allegheny Energy Supply 144A sec.
notes 10 1/4s, 2007 67,275
45,000 Allegheny Energy, Inc. notes 7 3/4s,
2005 45,338
70,000 Avon Energy Partners Holdings 144A
notes 7.05s, 2007 (United Kingdom) 65,100
5,000 Avon Energy Partners Holdings 144A
notes 6.46s, 2008 (United Kingdom) 4,502
70,000 Calpine Canada Energy Finance
company guaranty 8 1/2s, 2008
(Canada) 51,625
10,000 Calpine Corp. sr. notes 8 3/4s, 2007 7,950
15,000 Calpine Corp. sr. notes 8 5/8s, 2010 10,913
110,000 Calpine Corp. sr. notes 8 1/2s, 2011 80,025
145,000 Calpine Corp. sr. notes 7 7/8s, 2008 105,850
440,000 Calpine Corp. 144A sec. notes
8 1/2s, 2010 408,100
50,000 CenterPoint Energy Resources Corp.
debs. 6 1/2s, 2008 53,362
25,000 CenterPoint Energy Resources Corp.
144A notes 7 7/8s, 2013 28,308
25,000 CMS Energy Corp. pass-through
certificates 7s, 2005 25,375
130,000 CMS Energy Corp. sr. notes 8.9s,
2008 137,475
40,000 CMS Energy Corp. sr. notes 8 1/2s,
2011 41,700
30,000 CMS Energy Corp. 144A sr. notes
7 3/4s, 2010 30,675
55,000 Dynegy Holdings, Inc. sr. notes
6 7/8s, 2011 47,575
310,000 Dynegy Holdings, Inc. 144A sec.
notes 10 1/8s, 2013 341,775
30,000 Dynegy-Roseton Danskamme company
guaranty Ser. A, 7.27s, 2010 29,700
35,000 Dynegy-Roseton Danskamme company
guaranty Ser. B, 7.67s, 2016 31,850
45,000 Edison Mission Energy sr. notes 10s,
2008 45,450
60,000 Edison Mission Energy sr. notes
9 7/8s, 2011 60,600
55,000 Edison Mission Energy sr. notes
7.73s, 2009 51,150
115,000 El Paso Corp. sr. notes 7 3/8s, 2012 97,750
90,000 El Paso Corp. sr. notes Ser. MTN,
7 3/4s, 2032 70,650
30,000 El Paso Natural Gas Co. debs.
8 5/8s, 2022 29,550
30,000 El Paso Natural Gas Co. sr. notes
Ser. A, 7 5/8s, 2010 29,775
155,000 El Paso Production Holding Co. 144A
sr. notes 7 3/4s, 2013 148,025
20,000 Gemstone Investor, Ltd. 144A company
guaranty 7.71s, 2004 20,025
35,000 Kansas Gas & Electric debs. 8.29s,
2016 36,268
64,151 Midland Funding II Corp. debs.
Ser. A, 11 3/4s, 2005 69,283
140,000 Mirant Americas Generation, Inc. sr.
notes 7.2s, 2008 (In default) (NON) 118,300
45,000 Mission Energy Holding Co. sec.
notes 13 1/2s, 2008 41,175
115,000 Nevada Power Co. 144A 2nd mtge. 9s,
2013 125,638
60,000 Northwest Pipeline Corp. company
guaranty 8 1/8s, 2010 66,450
100,000 Orion Power Holdings, Inc. sr. notes
12s, 2010 116,500
70,000 Pacific Gas & Electric Co. 144A sr.
notes 10 3/8s, 2005 (In default)
(NON) 71,050
140,000 PG&E Corp. 144A sec. notes 6 7/8s,
2008 149,100
25,000 PG&E Gas Transmission Northwest sr.
notes 7.1s, 2005 25,500
105,000 PSEG Energy Holdings, Inc. notes
7 3/4s, 2007 108,281
85,000 SEMCO Energy, Inc. 144A sr. notes
7 3/4s, 2013 88,400
160,000 Southern California Edison Co. 1st
mtge. 8s, 2007 181,400
20,000 Southern California Edison Co. notes
6 3/8s, 2006 20,950
55,000 Teco Energy, Inc. notes 10 1/2s,
2007 64,006
35,000 Teco Energy, Inc. notes 7.2s, 2011 36,269
90,000 Teco Energy, Inc. notes 7s, 2012 92,138
65,000 Teco Energy, Inc. sr. notes 7 1/2s,
2010 68,981
15,000 Tennessee Gas Pipeline Co. debs. 7s,
2028 13,800
105,000 Utilicorp Canada Finance Corp.
company guaranty 7 3/4s, 2011
(Canada) 98,438
105,000 Western Resources, Inc. sr. notes
9 3/4s, 2007 120,258
25,000 Williams Cos., Inc. (The) notes
8 3/4s, 2032 26,313
25,000 Williams Cos., Inc. (The) notes
8 1/8s, 2012 27,000
95,000 Williams Cos., Inc. (The) notes
6 1/2s, 2006 97,850
130,000 Williams Cos., Inc. (The) notes
Ser. A, 6 3/4s, 2006 133,900
120,000 Williams Cos., Inc. (The) sr. notes
8 5/8s, 2010 132,750
65,000 Williams Holdings Of Delaware notes
6 1/2s, 2008 65,975
298,930 York Power Funding 144A notes 12s,
2007 (Cayman Islands) (In default)
(NON) 209,251
--------------
5,097,572
--------------
Total Corporate bonds and notes
(cost $57,073,061) $57,350,623
Common stocks (2.2%) (a)
Number of shares Value
- -------------------------------------------------------------------------------
384 Alderwoods Group, Inc. (NON) $3,402
180,000 AMRESCO Creditor Trust (acquired
various dates from 5/5/99 to
5/10/00, cost $38,828) (NON) (RES)
(R) 5,040
30 Arch Wireless, Inc. Class A (NON) 524
324 Archibald Candy Corp. (NON) 923
4,427 Aurora Foods, Inc. (NON) 71
626 Birch Telecom, Inc. (NON) 6
84 Comdisco Holding Co., Inc. (NON) 4,452
505,286 Contifinancial Corp. Liquidating
Trust Units 7,579
3,010 Covad Communications Group, Inc.
(NON) 12,040
105 Crown Castle International Corp.
(NON) 1,303
3,325 Globix Corp. (NON) 15,628
2,471 Jasper Energy 144A (NON) 154
19 Leucadia National Corp. 807
45 Leucadia National Corp. (Rights)
(NON) 1
3,334 Lodgian, Inc. (NON) 20,804
20,000 Loewen Group International, Inc.
(NON) 2
453 Mariner Health Care, Inc. (NON) 6,433
313 Mediq, Inc. (NON) 31
175 Metrocall Holdings, Inc. (NON) 8,663
5 Microcell Telecommunications, Inc.
Class A (Canada) (NON) 66
631 Microcell Telecommunications, Inc.
Class B (Canada) (NON) 8,981
9,928 Millennium Chemicals, Inc. 107,421
160,000 Morrison Knudsen Corp. (NON) 22,400
14,327 Pioneer Cos., Inc. (NON) 75,217
839 Polymer Group, Inc. Class A (NON) 6,083
576 PSF Group Holdings, Inc. 144A Class
A (NON) 950,054
31 Quorum Broadcast Holdings, Inc.
Class E (acquired 5/15/01, cost
$30,765) (NON) (RES) 1,653
102 RCN Corp. (NON) 104
61,158 Sirius Satellite Radio, Inc. (NON) 125,985
10 Sterling Chemicals, Inc. (NON) 210
178 Sun Healthcare Group, Inc. (NON) 1,291
259,509 VFB LLC (acquired various dates from
12/21/99 to 10/27/00, cost
$214,226) (NON) (RES) 49,307
40,417 VS Holdings, Inc. (NON) 30,313
392 Washington Group International, Inc.
(NON) 13,140
506 York Research Corp. 144A (NON) 32
--------------
Total Common stocks
(cost $4,887,714) $1,480,120
Preferred stocks (2.1%) (a)
Number of shares Value
- -------------------------------------------------------------------------------
5,279 CSC Holdings, Inc. Ser. M, $11.125
cum. pfd. $556,935
66,000 Diva Systems Corp. 144A Ser. D, zero %
pfd. 660
1,828 Doane Pet Care Co. $7.125 pfd. 78,604
87 Dobson Communications Corp. 13.00%
pfd. (PIK) 92,220
80 First Republic Capital Corp. 144A
10.50% pfd. 82,800
2,152 iStar Financial, Inc. $1.95 cum.
pfd. 54,338
2,814 Lodgian, Inc. Ser. A, $7.06 cum.
pfd. (PIK) 57,687
21 Metrocall Holdings, Inc. Ser. A,
15.00% cum. pfd. 240
635 Microcell Telecommunications, Inc.
$1.35 pfd. (Canada) 8,427
7,844 North Atlantic Trading Co. 12.00%
pfd. (PIK) 133,348
1 NTL Europe, Ser. A, $5.00 cum. pfd. 5
17 Paxson Communications Corp. 13.25%
cum. pfd. (PIK) 154,700
100 PRIMEDIA, Inc. Ser. F, $9.20 cum.
pfd. 9,100
255 Rural Cellular Corp. 12.25% pfd.
(PIK) 160,650
--------------
Total Preferred stocks
(cost $1,882,129) $1,389,714
Foreign government bonds and notes (0.7%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$100,000 Bulgaria (Republic of) 144A bonds
8 1/4s, 2015 $116,050
35,000 Colombia (Republic of) bonds
10 3/8s, 2033 35,753
25,000 Colombia (Republic of) bonds
Ser. NOV, 9 3/4s, 2009 26,850
30,000 Colombia (Republic of) notes
10 3/4s, 2013 33,150
115,000 Ecuador (Republic of) bonds
stepped-coupon Ser. REGS, 7s (8s,
8/15/04), 2030 (STP) 80,213
60,000 Russia (Federation of) unsub.
stepped-coupon 5s (7 1/2s,
3/31/07), 2030 (STP) 56,790
120,000 United Mexican States bonds
Ser. MTN, 8.3s, 2031 132,300
--------------
Total Foreign government bonds and
notes (cost $410,087) $481,106
Convertible bonds and notes (0.6%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$20,000 AES Corp. (The) cv. sub. notes
4 1/2s, 2005 $19,250
85,000 Amkor Technologies, Inc. cv. notes
5 3/4s, 2006 86,063
40,000 CenterPoint Energy, Inc. 144A cv.
sr. notes 3 3/4s, 2023 42,450
490,000 Cybernet Internet Services
International, Inc. 144A cv. sr.
disc. notes stepped-coupon zero %
(13s, 8/15/04) 2009 (Denmark) (In
default) (NON) (STP) 490
45,000 Kulicke & Soffa Industries, Inc. cv.
sub. notes 4 3/4s, 2006 46,013
3,000 Millicom International Cellular SA
144A cv. bonds zero %,
2006 (Luxembourg) (PIK) 16,800
145,000 Nextel Communications, Inc. cv. sr.
notes 6s, 2011 169,650
5,000 Tower Automotive, Inc. cv. sub.
notes 5s, 2004 4,925
--------------
Total Convertible bonds and notes
(cost $735,635) $385,641
Units (0.5%) (a)
Number of units Value
- -------------------------------------------------------------------------------
550,000 Australis Media, Ltd. units 15 3/4s,
2003 (Australia) (In default) (DEF)
(NON) $55
205,000 HMP Equity Holdings Corp. units zero %,
2008 108,650
35,000 Tom Brown Inc. units 7 1/4s, 2013 36,575
446 XCL equity units 197,851
--------------
Total Units (cost $1,512,747) $343,131
Convertible preferred stocks (0.3%) (a)
Number of shares Value
- -------------------------------------------------------------------------------
1,537 Crown Castle International Corp.
$3.125 cv. pfd. $68,973
332 Knology, Inc. 144A Ser. D, zero %
cv. pfd. 332
917 Omnicare, Inc. $2.00 cv. pfd. 55,479
3,069 Telex Communications, Inc. zero %
cv. pfd. (In default) (NON) 3,069
1,160 Williams Cos., Inc. (The) 144A $2.75
cv. pfd. 72,355
--------------
Total Convertible preferred stocks
(cost $166,728) $200,208
Brady bonds (0.2%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$51,700 Peru (Republic of) bonds Ser. PDI,
5s, 2017 $47,564
30,000 Peru (Republic of) coll. FLIRB
4 1/2s, 2017 (acquired various
dates from 5/14/02 to 8/23/02, cost
$19,969) (RES) 26,100
60,000 Peru (Republic of) coll. FLIRB Ser.
20YR, 4 1/2s, 2017 52,200
--------------
Total Brady bonds (cost $105,318) $125,864
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 $60,000
Warrants (--%) (a) (NON) Expiration
Number of warrants date Value
- -------------------------------------------------------------------------------
200 Dayton Superior Corp. 144A 6/15/09 $1
1 Doe Run Resources Corp. 114A 12/31/12 1
180 Insilco Holding Co. 8/15/08 1
81 MDP Acquisitions PLC 144A (Ireland) 10/1/13 4,050
391 Microcell Telecommunications
(Canada) 5/1/08 851
234 Microcell Telecommunications
(Canada) 5/1/05 338
70 Mikohn Gaming Corp. 144A 8/15/08 1
8 NTL. Inc 1/13/11 60
80 Pliant Corp. 144A 6/1/10 1
84 Solutia, Inc. 144A 7/15/09 1,512
447 Sun Healthcare Group, Inc. 2/28/05 1
120 Travel Centers of America, Inc. 144A 5/1/09 1,200
350 Ubiquitel, Inc. 144A 4/15/10 4
10 Versatel Telecom NV (Netherlands) 5/15/08 1
242 Washington Group International, Inc.
Ser. A 1/25/06 2,360
276 Washington Group International, Inc.
Ser. B 1/25/06 1,973
148 Washington Group International, Inc.
Ser. C 1/25/06 888
190 XM Satellite Radio Holdings, Inc.
144A 3/15/10 6,835
--------------
Total Warrants (cost $79,427) $20,078
Short-term investments (6.0%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$119,845 Short-term investments held as
collateral for loaned
securities with yields ranging from
1.00% to 1.10% and due dates ranging
from December 1, 2003 to January 16,
2004 (d) $119,804
3,899,676 Short-term investments held in
Putnam commingled cash account with
yields ranging from 1.01% to 1.11%
and due dates ranging from December
1, 2003 to January 23, 2004 (d) 3,899,676
--------------
Total Short-term investments
(cost $4,019,480) $4,019,480
- -------------------------------------------------------------------------------
Total Investments (cost $70,932,326) $65,855,965
- -------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $66,691,902.
(DEF) Security is in default of principal and interest.
(NON) Non-income-producing security.
(STP) The interest rate and date shown parenthetically represent the new
interest rate to be paid and the date the fund will begin accruing
interest at this rate.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at
November 30, 2003 was $513,758 or 0.8% of net assets.
(PIK) Income may be received in cash or additional securities at the
discretion of the issuer.
(R) Real Estate Investment Trust.
(d) See Note 1 to the financial statements.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
FLIRB represents Front Loaded Interest Reduction Bond.
The rates shown on Floating Rate Notes (FRN) are the current interest
rates at November 30, 2003.
Forward currency contracts to buy at November 30, 2003 (Unaudited)
(aggregate face value $33,698)
Market Aggregate Delivery Unrealized
value face value date appreciation
- -------------------------------------------------------------------------------
British Pound $34,111 $33,689 3/17/04 $413
- -------------------------------------------------------------------------------
Forward currency contracts to sell at November 30, 2003 (Unaudited)
(aggregate face value $620,979)
Market Aggregate Delivery Unrealized
value face value date depreciation
- -------------------------------------------------------------------------------
Euro $677,266 $620,979 12/17/03 $(56,287)
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of assets and liabilities
November 30, 2003 (Unaudited)
Assets
- -------------------------------------------------------------------------------
Investments in securities, at value, including $118,554 of
securities on loan (identified cost $70,932,326) (Note 1) $65,855,965
- -------------------------------------------------------------------------------
Cash 36,675
- -------------------------------------------------------------------------------
Dividends, interest and other receivables 1,275,292
- -------------------------------------------------------------------------------
Receivable for securities sold 577,086
- -------------------------------------------------------------------------------
Receivable for open forward currency contracts (Note 1) 413
- -------------------------------------------------------------------------------
Receivable for closed forward currency contracts (Note 1) 3,073
- -------------------------------------------------------------------------------
Total assets 67,748,504
Liabilities
- -------------------------------------------------------------------------------
Distributions payable to shareholders 405,335
- -------------------------------------------------------------------------------
Payable for securities purchased 244,402
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 123,740
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 34,423
- -------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 25,460
- -------------------------------------------------------------------------------
Payable for administrative services (Note 2) 364
- -------------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 56,287
- -------------------------------------------------------------------------------
Payable for closed forward currency contracts (Note 1) 4,191
- -------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 119,804
- -------------------------------------------------------------------------------
Other accrued expenses 42,596
- -------------------------------------------------------------------------------
Total liabilities 1,056,602
- -------------------------------------------------------------------------------
Net assets $66,691,902
Represented by
- -------------------------------------------------------------------------------
Paid-in capital (Note 1) $105,237,159
- -------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (1,353,329)
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (32,061,196)
- -------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and
liabilities in foreign currencies (5,130,732)
- -------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $66,691,902
Computation of net asset value
- -------------------------------------------------------------------------------
Net asset value per share ($66,691,902 divided by 7,507,107
shares) $8.88
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of operations
Six months ended November 30, 2003 (Unaudited)
Investment income:
- -------------------------------------------------------------------------------
Interest $2,854,502
- -------------------------------------------------------------------------------
Dividends 95,239
- -------------------------------------------------------------------------------
Securities lending 471
- -------------------------------------------------------------------------------
Total investment income 2,950,212
Expenses:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 246,285
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 77,456
- -------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 5,460
- -------------------------------------------------------------------------------
Administrative services (Note 2) 2,030
- -------------------------------------------------------------------------------
Other 68,268
- -------------------------------------------------------------------------------
Total expenses 399,499
- -------------------------------------------------------------------------------
Expense reduction (Note 2) (564)
- -------------------------------------------------------------------------------
Net expenses 398,935
- -------------------------------------------------------------------------------
Net investment income 2,551,277
- -------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 47,269
- -------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 3,590
- -------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the period (32,438)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 3,316,642
- -------------------------------------------------------------------------------
Net gain on investments 3,335,063
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $5,886,340
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of changes in net assets
Six months ended Year ended
November 30 May 31
Increase (decrease) in net assets 2003* 2003
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $2,551,277 $5,448,345
- -------------------------------------------------------------------------------
Net realized gain (loss) on investments and
foreign currency transactions 50,859 (6,483,586)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments
and assets and liabilities in foreign
currencies 3,284,204 6,451,978
- -------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 5,886,340 5,416,737
- -------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
- -------------------------------------------------------------------------------
From net investment income (2,612,161) (5,721,276)
- -------------------------------------------------------------------------------
From return of capital -- (103,566)
- -------------------------------------------------------------------------------
Total increase (decrease) in net assets 3,274,179 (408,105)
Net assets
- -------------------------------------------------------------------------------
Beginning of period 63,417,723 63,825,828
- -------------------------------------------------------------------------------
End of period (including distributions in
excess of net investment income of
$1,353,329 and $1,292,445, respectively) $66,691,902 $63,417,723
- -------------------------------------------------------------------------------
Number of fund shares
- -------------------------------------------------------------------------------
Shares outstanding at beginning and end of
period 7,507,107 7,507,107
- -------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
Six months
ended
Nov. 30
Per-share (Unaudited) Year ended May 31
operating performance 2003 2003 2002 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $8.45 $8.50 $9.49 $10.91 $12.30 $14.83
- ----------------------------------------------------------------------------------------------------------
Investment operations:
- ----------------------------------------------------------------------------------------------------------
Net investment income (a) .34 .73 .86 1.16 1.16 1.24
- ----------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .44 (.01) (.86) (1.41) (1.27) (2.23)
- ----------------------------------------------------------------------------------------------------------
Total from
investment operations .78 .72 -- (d) (.25) (.11) (.99)
- ----------------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------------
From net
investment income (.35) (.76) (.87) (1.17) (1.21) (1.38)
- ----------------------------------------------------------------------------------------------------------
From net realized
gain on investments -- -- -- -- -- (.16)
- ----------------------------------------------------------------------------------------------------------
From return of capital -- (.01) (.12) -- (.07) --
- ----------------------------------------------------------------------------------------------------------
Total distributions (.35) (.77) (.99) (1.17) (1.28) (1.54)
- ----------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.88 $8.45 $8.50 $9.49 $10.91 $12.30
- ----------------------------------------------------------------------------------------------------------
Market price,
end of period $8.29 $9.02 $9.48 $10.80 $10.19 $13.50
- ----------------------------------------------------------------------------------------------------------
Total return at
market price (%)(b) (4.26)* 4.15 (2.91) 18.34 (15.61) (2.30)
- ----------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) 66,692 $63,418 $63,826 $71,211 $81,898 $92,368
- ----------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .61* 1.22 1.19 1.14 1.08 1.11
- ----------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.92* 9.17 9.69 11.41 9.92 9.50
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 30.76* 73.72 73.39 97.63 97.22 47.56
- ----------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income has been determined on the basis of
the weighted number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment.
(c) Includes amounts paid through expense offset arrangements (Note 2).
(d) Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial
statements.
Notes to financial statements
November 30, 2003 (Unaudited)
Note 1
Significant accounting policies
Putnam Managed High Yield Trust (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a non-diversified,
closed-end management investment company. The fund's investment
objective is to seek high current income. The fund intends to achieve
its objective by investing in high yielding income securities. Higher
yielding, lower rated securities have a higher rate of default due to
the nature of the investments.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with accounting principles generally accepted in the United States of
America and requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities in the financial
statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period. Actual results could
differ from those estimates.
A) Security valuation Market quotations are not considered to be readily
available for certain debt obligations; such investments are valued at
fair value on the basis of valuations furnished by an independent
pricing service or dealers, approved by the Trustees. Such services or
dealers determine valuations for normal institutional-size trading units
of such securities using methods based on market transactions for
comparable securities and various relationships, generally recognized by
institutional traders, between securities. Investments for which market
quotations are readily available are valued at the last reported sales
price on their principal exchange, or official closing price for certain
markets. If no sales are reported -- as in the case of some securities
traded over-the-counter -- a security is valued at its last reported bid
price. For foreign investments, if trading or events occurring in other
markets after the close of the principal exchange in which the foreign
investments are traded are expected to materially affect the value of
the investments, then those investments are valued, taking into
consideration these events, at their fair value following procedures
approved by the Trustees. Securities quoted in foreign currencies are
translated into U.S. dollars at the current exchange rate. Short-term
investments having remaining maturities of 60 days or less are valued at
amortized cost, which approximates fair value. Other investments,
including restricted securities, are valued at fair value following
procedures approved by the Trustees. Such valuations and procedures are
reviewed periodically by the Trustees.
B) Joint trading account The fund may transfer uninvested cash balances,
including cash collateral received under security lending arrange ments,
into a joint trading account along with the cash of other registered
investment companies and certain other accounts managed by Putnam
Investment Management, LLC ("Putnam Management"), the fund's manager, an
indirect wholly-owned subsidiary of Putnam, LLC. These balances may be
invested in issuers of high-grade short-term investments having
maturities of up to 397 days for collateral received under security
lending arrangements and up to 90 days for other cash investments.
C) Security transactions and related investment income Security
transactions are recorded on the trade date (date the order to buy or
sell is executed). Gains or losses on securities sold are determined on
the identified cost basis.
Interest income is recorded on the accrual basis. Dividend income 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.
D) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when earned or incurred. The
fund does not isolate that portion of realized or unrealized gains or
losses resulting from changes in the foreign exchange rate on
investments from fluctuations arising from changes in the market prices
of the securities. Such gains and losses are included with the net
realized and unrealized gain or loss on investments. Net realized gains
and losses on foreign currency transactions represent net realized
exchange gains or losses on closed forward currency contracts,
disposition of foreign currencies, currency gains and losses realized
between the trade and settlement dates on securities transactions and
the difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized
appreciation and depreciation of assets and liabilities in foreign
currencies arise from changes in the value of open forward currency
contracts and assets and liabilities other than investments at the
period end, resulting from changes in the exchange rate. Investments in
foreign securities involve certain risks, including those related to
economic instability, unfavorable political developments, and currency
fluctuations, not present with domestic investments.
E) Forward currency contracts The fund may buy and sell forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date. These contracts are used to
protect against a decline in value relative to the U.S. dollar of the
currencies in which its portfolio securities are denominated or quoted
(or an increase in the value of a currency in which securities a fund
intends to buy are denominated, when a fund holds cash reserves and
short-term investments). The U.S. dollar value of forward currency
contracts is determined using current forward currency exchange rates
supplied by a quotation service. The market value of the contract will
fluctuate with changes in currency exchange rates. The contract is
marked-to-market daily and the change in market value is recorded as an
unrealized gain or loss. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed. The fund could be exposed to risk if the value of the currency
changes unfavorably, if the counterparties to the contracts are unable
to meet the terms of their contracts or if the fund is unable to enter
into a closing position. Forward currency contracts outstanding at
period end are listed after The fund's portfolio.
F) Security lending The fund may lend securities, through its agents, to
qualified borrowers in order to earn additional income. The loans are
collateralized by cash and/or securities in an amount at least equal to
the market value of the securities loaned. The market value of
securities loaned is determined daily and any additional required
collateral is allocated to the fund on the next business day. The risk
of borrower default will be borne by the fund's agents; the fund will
bear the risk of loss with respect to the investment of the cash
collateral. Income from securities lending is included in investment
income on the Statement of operations. At November 30, 2003, the value
of securities loaned amounted to $118,554. The fund received cash
collateral of $119,804, which is pooled with collateral of other Putnam
funds into 32 issuers of high-grade short-term investments.
G) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986, as amended. Therefore, no
provision has been made for federal taxes on income, capital gains or
unrealized appreciation on securities held nor for excise tax on income
and capital gains.
At May 31, 2003, the fund had a capital loss carryover of $30,180,445
available to the extent allowed by tax law 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
8,385,000 May 31, 2010
11,264,568 May 31, 2011
Pursuant to federal income tax regulations applicable to regulated
investment companies, the fund has elected to defer to its fiscal year
ending May 31, 2004 $1,867,482 of losses recognized during the period
November 1, 2002 to May 31, 2003.
The aggregate identified cost on a tax basis is $71,338,824, resulting
in gross unrealized appreciation and depreciation of $4,293,129 and
$9,775,988, respectively, or net unrealized depreciation of $5,482,859.
H) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Distributions from capital gains, if any, are recorded on the
ex-dividend date and paid at least annually. The amount and character of
income and gains to be distributed are determined in accordance with
income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations.
Note 2
Management fee, administrative
services and other transactions
Putnam Management is paid for management and investment advisory
services quarterly based on the average net assets of the fund. Such fee
is based on 0.75% of the average weekly net assets.
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. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. For the six months ended November 30,
2003, the fund's expenses were reduced by $564 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $530 has been allocated to the fund, and an additional fee for
each Trustees meeting attended. Trustees receive additional fees for
attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with
the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as a Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in 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.
Note 3
Purchases and sales of securities
During the six months ended November 30, 2003, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $20,450,909 and $24,062,175, respectively. There
were no purchases and sales of U.S. government obligations.
Note 4
Regulatory matters and litigation
On November 13, 2003, Putnam Management agreed to entry of an order by
the Securities and Exchange Commission (SEC) in partial resolution of
administrative and cease-and-desist proceedings initiated by the SEC on
October 28, 2003 in connection with alleged excessive short-term trading
by at least six Putnam Management investment professionals. The SEC's
findings reflect that four of those employees engaged in such trading in
funds over which they had investment decision-making responsibility and
had access to non-public information regarding, among other things,
current portfolio holdings, and valuations. The six individuals are no
longer employed by Putnam Management. Under the order, Putnam Management
will make restitution for losses attributable to excessive short-term
trading by Putnam employees, institute new employee trading restrictions
and enhanced employee trading compliance, retain an independent
compliance consultant, and take other remedial actions. Putnam
Management neither admitted nor denied the order's findings, which
included findings that Putnam Management willfully violated provisions
of the federal securities laws. A civil monetary penalty and other
monetary relief, if any, will be determined at a later date. If a
hearing is necessary to determine the amounts of such penalty or other
relief, Putnam Management will be precluded from arguing that it did not
violate the federal securities laws in the manner described in the SEC
order, the findings set forth in the SEC order will be accepted as true
by the hearing officer and additional evidence may be presented. Putnam
Management, and not the investors in any Putnam fund, will bear all
costs, including restitution, civil penalties and associated legal fees.
Administrative proceedings instituted by the Commonwealth of
Massachusetts on October 28, 2003 against Putnam Management in
connection with alleged market timing activities by Putnam employees and
by participants in some Putnam-administered 401(k) plans are pending.
Putnam Management has committed to make complete restitution for any
losses suffered by Putnam shareholders as a result of any improper
market-timing activities by Putnam employees or within
Putnam-administered 401(k) plans.
The SEC's and Commonwealth's allegations and related matters also serve
as the general basis for numerous lawsuits, including purported class
action lawsuits filed against Putnam Management and certain related
parties, including certain Putnam funds. Putnam Management has agreed to
bear any costs incurred by Putnam funds in connection with these
lawsuits. Based on currently available information, Putnam Management
believes that the likelihood that the pending private lawsuits and
purported class action lawsuits will have a material adverse financial
impact on the fund is remote, and the pending actions are not likely to
materially affect its ability to provide investment management services
to its clients, including the Putnam funds.
Review of these matters by counsel for Putnam Management and by separate
independent counsel for the Putnam funds and their independent Trustees
is continuing. In addition, Marsh & McLennan Companies, Inc., Putnam
Management's parent company, has engaged counsel to conduct a separate
review of Putnam Management's policies and controls related to
short-term trading.
Results of October 7, 2003
shareholder meeting
An annual meeting of shareholders of the fund was held on October 7,
2003. At the meeting, each of the nominees for Trustees was elected, as
follows:
Votes
Votes for withheld
- -----------------------------------------------------------------
Jameson A. Baxter 6,597,140 221,608
Charles B. Curtis 6,592,590 226,158
John A. Hill 6,599,088 219,660
Ronald J. Jackson 6,598,140 220,608
Paul L. Joskow 6,602,440 216,308
Elizabeth T. Kennan 6,592,140 226,608
Lawrence J. Lasser* 6,601,440 217,308
John H. Mullin III 6,596,130 222,618
Robert E. Patterson 6,598,190 220,558
George Putnam, III 6,597,840 220,908
A.J.C. Smith 6,599,040 219,708
W. Thomas Stephens 6,600,730 218,018
W. Nicholas Thorndike 6,598,990 219,758
All tabulations are rounded to nearest whole number.
*Mr. Lasser resigned from the Board of Trustees of the Putnam
funds on November 3, 2003.
Fund information
About Putnam Investments
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition
and practice since 1830. Founded over 65 years ago, Putnam Investments
was built around the concept that a balance between risk and reward is
the hallmark of a well-rounded financial program. We presently manage
over 100 mutual funds in growth, value, blend, fixed income, and
international.
Investment Manager
Putnam Investment
Management, LLC
One Post Office Square
Boston, MA 02109
Marketing Services
Putnam Retail Management
One Post Office Square
Boston, MA 02109
Custodian
Putnam Fiduciary Trust Company
Legal Counsel
Ropes & Gray LLP
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
Officers
George Putnam, III
President
Charles E. Porter
Executive Vice President,
Treasurer and Principal
Financial Officer
Patricia C. Flaherty
Senior Vice President
Karnig H. Durgarian
Vice President and
Principal Executive Officer
Steven D. Krichmar
Vice President and
Principal Financial Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
Beth S. Mazor
Vice President
Gordon H. Silver
Vice President
Mark C. Trenchard
Vice President and
BSA Compliance Officer
William H. Woolverton
Vice President and
Chief Legal Officer
Judith Cohen
Clerk and Assistant Treasurer
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or
visit our Web site (www.putnaminvestments.com) any time for up-to-date
information about the fund's NAV.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
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Shareholders can sign up for email delivery of shareholder reports on
www.putnaminvestments.com.
203435 590 1/04
Item 2. Code of Ethics:
- -----------------------
Not applicable
Item 3. Audit Committee Financial Expert:
- -----------------------------------------
Not applicable
Item 4. Principal Accountant Fees and Services:
- -----------------------------------------------
Not applicable
Items 5-6. [Reserved]
- ---------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed End
- -------------------------------------------------------------------------
Management Investment Companies: Not applicable
--------------------------------
Item 8. [Reserved]
- ------------------
Item 9. Controls and Procedures:
- --------------------------------
(a) The registrant's principal executive officer and principal financial
officers have concluded, based on their evaluation of the effectiveness
of the design and operation of the registrant's disclosure controls and
procedures as of a date within 90 days of the filing date of this report
on Form N-CSR, that the design and operation of such procedures are
effective to provide reasonable assurance that information required to
be disclosed by the investment company in the reports that it files or
submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized, and reported within the time periods specified in
the Commission's rules and forms.
(b) Changes in internal control over financial reporting:
Not applicable
Item 10. Exhibits:
- ------------------
(a) Not applicable
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act of 2002
are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: January 23, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By (Signature and Title): /s/Karnig H. Durgarian
---------------------------
Karnig H. Durgarian
Principal Executive Officer
Date: January 23, 2004
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Financial Officer
Date: January 23, 2004
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: January 23, 2004