N-CSR 1 pmhy1.txt PUTNAM MANAGED HIGH YIELD TRUST Putnam Managed High Yield Trust Item 1. Report to Stockholders: ------------------------------- The following is a copy of the report transmitted to stockholders pursuant to Rule 30e-1 under the Investment Company Act of 1940: SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK 11-30-04 [GRAPHIC OMITTED: WATCH] [SCALE LOGO OMITTED] From the Trustees [GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM, III] John A. Hill and George Putnam, III Dear Fellow Shareholder: During the past several months, Putnam has introduced a number of reforms for the benefit of shareholders, including increasing the amount of disclosure for our funds. We are now including additional information about your fund's management team. Following the Outlook for Your Fund, we list any changes in your fund's Portfolio Leader and Portfolio Members during the prior year period, as well as the current Portfolio Leader's and Portfolio Members' other fund management responsibilities at Putnam. We also show how much these individuals have invested in the fund (in dollar ranges). Fund ownership (in dollar ranges) is also being shown for the members of Putnam's Executive Board. We are also pleased to announce that three new Trustees have joined your fund's Board of Trustees. Nominated by your fund's independent Trustees, these individuals have had outstanding careers as leaders in the investment management industry. Myra R. Drucker is a Vice Chair of the Board of Trustees of Sarah Lawrence College and serves as Chair of the New York Stock Exchange (NYSE) Pension Managers Advisory Committee and as a Trustee of Commonfund, a not-for-profit asset management firm. Richard B. Worley is Managing Partner of Permit Capital LLC, an investment management firm. Both Ms. Drucker and Mr. Worley are independent Trustees (i.e., Trustees who are not "interested persons" of your fund or its investment advisor). Charles E. Haldeman, Jr., the third new Trustee, is President and Chief Executive Officer of Putnam Investments. During the period covered by the following report, Putnam Managed High Yield Trust delivered respectable results. In the following pages, the fund managers discuss fund performance, strategy, and their outlook for fiscal 2005. We thank you for your support of the Putnam funds throughout 2004 and wish you all the best in 2005. Respectfully yours, /S/ JOHN A. HILL /S/ GEORGE PUTNAM, III John A. Hill George Putnam, III Chairman of the Trustees President of the Funds January 19, 2005 Report from Fund Management Fund highlights * For the six months ended November 30, 2004, Putnam Managed High Yield Trust had total returns of 9.27% at net asset value (NAV) and 9.87% at market price. * The fund's primary benchmark, the JP Morgan Developed High Yield Index, returned 8.75% for the same period. * The average return for the fund's Lipper category, High Current Yield Funds (closed-end), was 9.91%. * The fund's monthly dividend was reduced to $0.049 per share, effective December 2004. See page 5 for more information. * See the Performance Summary beginning on page 9 for complete fund performance, comparative performance, and Lipper data. Performance commentary During the past six months, your fund benefited from a continuation of the positive environment for high-yield bonds that has existed for the past several years. As the period began, the bond market as a whole was volatile due to reports of stronger growth and the increased likelihood that the Federal Reserve Board would raise interest rates. However, as the period progressed, high-yield bonds led the market. Fund management's successful security selection and emphasis on the strong-performing, lower-quality portion of the market enabled the fund to outperform its benchmark index. Although the fund underperformed its Lipper peer group average, comparisons in this category can be misleading because it contains only eight funds, some of which use leverage to boost returns. It is important to note that a fund's performance at market price may differ from its results at NAV. Although market price performance generally reflects investment re sults, it may also be influenced by several other factors, including changes in in ves t or perceptions of the fund or its investment advisor, market conditions, fluctuations in supply and demand for the fund's shares, and changes in fund distributions. -------------------------------------------------- TOTAL RETURN FOR PERIODS ENDED 11/30/04 -------------------------------------------------- Market (inception 6/25/93) NAV price -------------------------------------------------- 6 months 9.27% 9.87% -------------------------------------------------- 1 year 12.73 9.03 -------------------------------------------------- 5 years 28.11 19.43 Annual average 5.08 3.61 -------------------------------------------------- 10 years 97.03 91.98 Annual average 7.02 6.74 -------------------------------------------------- Annual average (life of fund) 6.33 4.76 -------------------------------------------------- Data is historical. Past performance does not guarantee future results. More recent returns may be less or more than those shown. Invest ment return, net asset value, and market price will fluctuate and you may have a gain or a loss when you sell your shares. Performance as sumes reinvestment of distributions and does not account for taxes. FUND PROFILE Putnam Managed High Yield Trust seeks high current income and, as a secondary objective, capital growth, by investing in corporate high-yield bonds. The fund is designed for investors seeking higher fixed-income returns and who are willing to accept the added risks of investing in below-investment-grade bonds. Market overview Over the past six months, high-yield bonds benefited from continued economic growth and declining default rates. The economy's strength was not always apparent, however, and stock and bond investors tended to overreact to economic news both positively and negatively. The high-yield market's strong performance has reflected investors' generally positive assessment of the creditworthiness of high-yield issuers. After default rates peaked in January 2002, overall credit quality for high-yield bonds steadily improved. This improved quality has been illustrated by the continued narrowing in the credit yield spread, which is the yield difference between high-yield bonds and Treasuries. The fund's fiscal year began on a difficult note, as strong employment gains in the prior month caused a sharp sell-off in all sectors of the bond market, including high yield. Bond investors soon regained their optimism, however, and yields across the board began a steady decline that lasted through the end of the period. High-yield bonds were particularly appealing to investors because of the higher income they pay, and the continued financial improvement among many issuers. Demand for high-yield bonds remained strong throughout the period, driven both by money coming into the market as well as by reinvestment needs created by bonds being called, tendered, and upgraded. New issuance, while active, was not able to fully satisfy the demand for high-yield bonds. ------------------------------------------------------------------------------- MARKET SECTOR PERFORMANCE 6 MONTHS ENDED 11/30/04 ------------------------------------------------------------------------------- Bonds ------------------------------------------------------------------------------- JP Morgan Developed High Yield Index (global high-yield corporate bonds) 8.75% ------------------------------------------------------------------------------- Lehman Aggregate Bond Index (broad bond market) 3.82% ------------------------------------------------------------------------------- Lehman GNMA Index (Government National Mortgage Association bonds) 3.91% ------------------------------------------------------------------------------- Citigroup World Government Bond Index (global government bonds) 10.40% ------------------------------------------------------------------------------- Equities ------------------------------------------------------------------------------- S&P 500 Index (broad stock market) 5.68% ------------------------------------------------------------------------------- Russell 2000 Index (stocks of small and midsize companies) 12.18% ------------------------------------------------------------------------------- MSCI EAFE Index (international stocks) 12.58% ------------------------------------------------------------------------------- These indexes provide an overview of performance in different market sectors for the six months ended 11/30/04. ------------------------------------------------------------------------------- Strategy overview During the six-month period, we continued to seek bonds from a variety of sectors in our efforts to enhance the fund's performance while managing its risk exposure. Throughout much of fiscal 2003, we had increased the fund's holdings of bonds that were in the lower-quality portion of the market -- namely, those with CCC ratings. However, although the fund remains overweighted in these securities relative to its benchmark index, we have reduced this overweight because prices had increased significantly. This reduction process began during the summer months and continued through period-end. Our allocation to the lower-rated portion of the market has provided significant benefits to the fund. First, with the strengthening of the economy, companies that issued lower-quality bonds were seeing improvements in their businesses, reducing the risk that they would be unable to make interest payments on their debt. As the business prospects and financial results of these companies have improved with the growing economy, their bonds have appreciated in price. Secondly, with interest rates in the high-yield market having declined over the past several years, we felt that the higher yields provided by the lower-rated segment of the market would attract investors, bolster demand for these securities, and contribute strongly to overall returns -- which, in fact, is what occurred during the period. Finally, higher-yielding, lower-quality bonds are typically less sensitive to interest-rate changes, which we feel positions the fund appropriately for any potential sharp rate increases in the future. [GRAPHIC OMITTED: horizontal bar chart TOP SECTOR WEIGHTINGS COMPARED] TOP SECTOR WEIGHTINGS COMPARED as of as of 5/31/04 11/30/04 Utilities and power 8.2% 7.5% Chemicals 5.9% 6.5% Telecommunications 5.6% 4.9% Publishing 3.8% 4.7% Gaming and lottery 5.5% 4.3% Footnote reads: This chart shows how the fund's top weightings have changed over the last six months. Weightings are shown as a percentage of net assets. Holdings will vary over time. How fund holdings affected performance As part of our team approach to managing the portfolio, we employed significant research resources to find bonds that we believed would add as much value as possible, while remaining mindful of credit risk. In the utilities and power sector, which generally performed well for the fund as the sector continued to recover from its previous overexpansion, securities issued by Edison Mission Energy, a subsidiary of Edison International, were among the fund's strongest performers. Edison, which owns California's second-largest electric utility, Southern California Edison, also owns Edison Mission Energy. After poor performance in 2002, the company sold assets and shored up its balance sheet, which drove strong returns for a number of Edison Mission securities. El Paso Corporation, a pipeline and exploration and production company, made a positive contribution. Finally, Williams Companies, a large natural gas company serving the northwestern United States, California, Rocky Mountain, Gulf Coast, and Eastern Seaboard markets, performed well on significant increases in natural gas prices. The company also benefited from management's focus on balance sheet improvements, which involved focusing on core pipeline business, selling nonproductive assets, and paying down debt. In the communications services sector, which experienced a recovery, Qwest Communications performed well. Qwest, which owns U.S. West, benefited from increases in DSL subscriptions and successful cost-cutting efforts. [GRAPHIC OMITTED: TOP HOLDINGS] TOP HOLDINGS (Percent of fund's net assets as of 11/30/04) 1 Dow Jones CDX HY 144A 7 3/4s, 2009 (3.5%) Pass-through certificates Other 2 PSF Group Holdings, Inc. (1.2%) 144A Class A common stock Food 3 Qwest Corp. (0.8%) 144A notes 9 1/8s, 2012 Communications services 4 NRG Energy, Inc. (0.7%) 144A sr. sec. notes 8s, 2013 Utilities and power 5 Canada, Inc. (Canada) (0.6%) 144A sr. sub. notes 8s, 2012 Publishing 6 Qwest Communications International, Inc. (0.6%) 144A sr. notes 7 1/2s, 2014 Communications services 7 DPL, Inc. (0.6%) Bonds 8 1/8s, 2031 Utilities and power 8 Crown Holdings SA (France) (0.5%) Notes 10 7/8s, 2013 Capital goods 9 AEP Industries, Inc. (0.5%) Sr. sub. notes 9 7/8s, 2007 Capital goods 10 THL Buildco, Inc. (Nortek, Inc.) (0.5%) 144A sr. sub. notes 8 1/2s, 2014 Building materials Footnote reads: The fund's holdings will change over time. Among the detractors from performance during the period were securities issued by Icon Health & Fitness, which manufactures equipment for the fitness industry, and Paxson Communications, a large broadcast television station group and owner of PAX TV, a television channel that reaches households via broadcast, cable, and satellite networks. Icon had disappointing financial results due to higher steel costs and weak sales in some product lines, while Paxson had poor results as hoped-for asset sales did not transpire. We continue to hold Icon and Paxson because we believed as of the end of the period that the holdings were appropriately valued. Please note that all holdings discussed in this report are subject to review in accordance with the fund's investment strategy and may vary in the future. OF SPECIAL INTEREST Within the high-yield universe, yields are 120 basis points lower than a year ago. As a result, your fund's monthly dividend was reduced, effective with the December 2004 payment, from $0.054 per share to $0.049 per share. Putnam Managed High Yield Trust has paid a consistently strong dividend. This adjustment keeps the fund in line with yields on other similar funds, as the portfolio tries to balance yield with overall credit quality. The outlook for your fund The following commentary reflects anticipated developments that could affect your fund over the next six months, as well as your management team's plans for responding to them. The fund's returns during the past six months remained significantly higher than the historical averages for the high-yield market. Economic conditions, though somewhat variable over the past year, have remained generally favorable, with low inflation and moderate growth. While this positive environment could continue into 2005, we have become more cautious for several reasons. First, we believe the high cost of energy, driven at least in part by geopolitical turmoil, may act like a tax on both businesses and consumers, reducing the incentive and the ability for both to continue spending. Additionally, performance has been strong for high-yield bonds for the past few years and, as a result, yields are relatively low (because bond yields move in the opposite direction of bond prices). Moreover, credit yield spreads -- the difference between lower- and higher-quality bond yields -- have narrowed a great deal, and this narrowing is another sign that the market may be close to being fully valued. We therefore believe it is unlikely that high-yield bond prices will move significantly higher (and yields lower) from their current levels. We also feel that default rates will likely reach a trough in 2005, which will probably slow the momentum that high-yield bonds have enjoyed over the past few years. That being said, we do not foresee difficult times ahead for this sector in the coming year, as companies remain healthy and cash flows strong. As always, we will monitor economic and market events and make adjustments to the portfolio that we deem necessary. The views expressed in this report are exclusively those of Putnam Management. They are not meant as investment advice. Mutual funds that invest in bonds are subject to certain risks, including interest-rate risk, credit risk, and inflation risk. As interest rates rise, the prices of bonds fall. Long-term bonds are more exposed to interest-rate risk than short-term bonds. Unlike bonds, bond funds have ongoing fees and expenses. Lower-rated bonds may offer higher yields in return for more risk. Your fund's management Your fund is managed by the members of the Putnam Core Fixed-Income High-Yield Team. Stephen Peacher is the Portfolio Leader and Paul Scanlon and Rosemary Thomsen are Portfolio Members of your fund. The Portfolio Leader and Portfolio Members coordinate the team's management of the fund. For a complete listing of the members of the Putnam Core Fixed-Income High-Yield Team, including those who are not Portfolio Leaders or Portfolio Members of your fund, visit Putnam's Individual Investor Web site at www.putnaminvestments.com. Fund ownership The table below shows how much the fund's current Portfolio Leader and Portfolio Members have invested in the fund (in dollar ranges). Information shown is for the current and prior year ended November 30.
------------------------------------------------------------------------------------------------------------- FUND PORTFOLIO LEADER AND PORTFOLIO MEMBERS ------------------------------------------------------------------------------------------------------------- $1 - $10,001 - $50,001- $100,001 - $500,001 - $1,000,001 Year $0 $10,000 $50,000 $100,000 $500,000 $1,000,000 and over ------------------------------------------------------------------------------------------------------------- Stephen Peacher 2004 * ------------------------------------------------------------------------------------------------------------- Portfolio Leader 2003 * ------------------------------------------------------------------------------------------------------------- Paul Scanlon 2004 * ------------------------------------------------------------------------------------------------------------- Portfolio Member 2003 * ------------------------------------------------------------------------------------------------------------- Rosemary Thomsen 2004 * ------------------------------------------------------------------------------------------------------------- Portfolio Member 2003 * -------------------------------------------------------------------------------------------------------------
Other funds managed by the Portfolio Leader and Portfolio Members Stephen Peacher is also a Portfolio Leader of Putnam Floating Rate Income Fund, Putnam High Yield Advantage Fund, and Putnam High Yield Trust. He is also a Portfolio Member of Putnam Diversified Income Trust. Paul Scanlon and Rosemary Thomsen are also Portfolio Members of Putnam High Yield Advantage Fund and Putnam High Yield Trust. Stephen Peacher, Paul Scanlon, and Rosemary Thomsen may also manage other accounts advised by Putnam Management or an affiliate. Changes in your fund's Portfolio Leader and Portfolio Members During the six months ended November 30, 2004, Portfolio Member Norman Boucher left your fund's management team for another position at Putnam. Fund ownership The table below shows how much the members of Putnam's Executive Board have invested in the fund (in dollar ranges). Information shown is for the current and prior year ended December 31.
-------------------------------------------------------------------------------------------------- PUTNAM EXECUTIVE BOARD $1 - $10,001 - $50,001- $100,001 Year $0 $10,000 $50,000 $100,000 and over -------------------------------------------------------------------------------------------------- Philippe Bibi 2004 * -------------------------------------------------------------------------------------------------- Chief Technology Officer 2003 * -------------------------------------------------------------------------------------------------- John Boneparth 2004 * -------------------------------------------------------------------------------------------------- Head of Global Institutional Mgmt 2003 * -------------------------------------------------------------------------------------------------- Kevin Cronin 2004 * -------------------------------------------------------------------------------------------------- Deputy Head of Investments N/A -------------------------------------------------------------------------------------------------- Charles Haldeman, Jr. 2004 * -------------------------------------------------------------------------------------------------- President and CEO 2003 * -------------------------------------------------------------------------------------------------- Amrit Kanwal 2004 * -------------------------------------------------------------------------------------------------- Chief Financial Officer N/A -------------------------------------------------------------------------------------------------- Steven Krichmar 2004 * -------------------------------------------------------------------------------------------------- Chief of Operations N/A -------------------------------------------------------------------------------------------------- Francis McNamara, III 2004 * -------------------------------------------------------------------------------------------------- General Counsel N/A -------------------------------------------------------------------------------------------------- Richard Monaghan 2004 * -------------------------------------------------------------------------------------------------- Head of Retail Management 2003 * -------------------------------------------------------------------------------------------------- Stephen Oristaglio 2004 * -------------------------------------------------------------------------------------------------- Head of Investments 2003 * -------------------------------------------------------------------------------------------------- Richard Robie, III 2004 * -------------------------------------------------------------------------------------------------- Chief Administrative Officer N/A --------------------------------------------------------------------------------------------------
N/A indicates the individual was not a member of Putnam's Executive Board as of 12/31/03. Performance summary This section shows your fund's performance during the first half of its fiscal year, which ended November 30, 2004. In accordance with regulatory requirements, we also include performance for the most current calendar quarter-end. Performance should always be considered in light of a fund's investment strategy. Data represents past performance. Past performance does not guarantee future results. More recent returns may be less or more than those shown. Investment return, net asset value, and market price will fluctuate and you may have a gain or a loss when you sell your shares. ---------------------------------------------------------------------------- TOTAL RETURN FOR PERIODS ENDED 11/30/04 ---------------------------------------------------------------------------- Lipper JP Morgan High Current Developed Yield Funds Market High Yield (closed-end) NAV price Index* category average+ ---------------------------------------------------------------------------- 6 months 9.27% 9.87% 8.75% 9.91% ---------------------------------------------------------------------------- 1 year 12.73 9.03 12.28 13.53 ---------------------------------------------------------------------------- 5 years 28.11 19.43 42.28 30.18 Annual average 5.08 3.61 7.31 5.30 ---------------------------------------------------------------------------- 10 years 97.03 91.98 -- 106.72 Annual average 7.02 6.74 -- 7.44 ---------------------------------------------------------------------------- Life of fund (since 6/25/93) Annual average 6.33 4.76 -- 7.05 ---------------------------------------------------------------------------- Performance assumes reinvestment of distributions and does not account for taxes. Index and Lipper results should be compared to fund performance at net asset value. * This index began operations on 12/31/94. + Over the 6-month and 1-, 5-, and 10-year periods ended 11/30/04, there were 8, 8, 4, and 4 funds, respectively, in this Lipper category. ----------------------------------------------------------------------- PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 11/30/04 ----------------------------------------------------------------------- Distributions (number) 6 ----------------------------------------------------------------------- Income $0.324 ----------------------------------------------------------------------- Capital gains -- ----------------------------------------------------------------------- Total $0.324 ----------------------------------------------------------------------- Share value: NAV Market price ----------------------------------------------------------------------- 5/31/04 $8.82 $7.92 ----------------------------------------------------------------------- 11/30/04 9.27 8.37 ----------------------------------------------------------------------- Current return (end of period) ----------------------------------------------------------------------- Current dividend rate 1 6.99% 7.74% ----------------------------------------------------------------------- 1 Most recent distribution, excluding capital gains, annualized and divided by NAV or market price at end of period. ------------------------------------------------------------------------- TOTAL RETURN FOR PERIODS ENDED 12/31/04 (MOST RECENT CALENDAR QUARTER) ------------------------------------------------------------------------- NAV Market price ------------------------------------------------------------------------- 6 months 9.25% 10.76% ------------------------------------------------------------------------- 1 year 11.29 3.98 ------------------------------------------------------------------------- 5 years 27.54 35.21 Annual average 4.99 6.22 ------------------------------------------------------------------------- 10 years 98.31 89.04 Annual average 7.09 6.58 ------------------------------------------------------------------------- Life of fund (since 6/25/93) Annual average 6.41 4.77 ------------------------------------------------------------------------- Terms and definitions Total return shows how the value of the fund's shares changed over time, assuming you held the shares through the entire period and reinvested all distributions in the fund. Net asset value (NAV) is the value of all your fund's assets, minus any liabilities, divided by the number of outstanding shares. Market price is the current trading price of one share of the fund. Market prices are set by transactions between buyers and sellers on exchanges such as the American Stock Exchange and the New York Stock Exchange. Comparative indexes Citigroup World Government Bond Index is an unmanaged index of government bonds from 14 countries. JP Morgan Developed High Yield Index is an unmanaged index used to mirror the investable universe of the U.S. dollar global high-yield corporate debt market of developed markets. Lehman Aggregate Bond Index is an unmanaged index used as a general measure of U.S. fixed-income securities. Lehman GNMA Index is an unmanaged index of Government National Mortgage Association bonds. Morgan Stanley Capital International (MSCI) EAFE Index is an unmanaged index of international stocks from Europe, Australasia, and the Far East. Russell 2000 Index is an unmanaged index of common stocks that generally measure performance of small to midsize companies within the Russell 3000 Index. S&P 500 Index is an unmanaged index of common stock performance. Indexes assume reinvestment of all distributions and do not account for fees. Securities and performance of a fund and an index will differ. You cannot invest directly in an index. Lipper is a third-party industry ranking entity that ranks funds (without sales charges) with similar current investment styles or objectives as determined by Lipper. Lipper category averages reflect performance trends for funds within a category and are based on results at net asset value. A note about duplicate mailings In response to investors' requests, the SEC has modified mailing regulations for proxy statements, semiannual and annual reports, and prospectuses. Putnam is now able to send a single copy of these materials to customers who share the same address. This change will automatically apply to all shareholders except those who notify us. If you would prefer to receive your own copy, please call Putnam at 1-800-225-1581. Proxy voting Putnam is committed to managing our mutual funds in the best interests of our shareholders. The Putnam funds' proxy voting guidelines and procedures, as well as information regarding how your fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2004, are available on the Putnam Individual Investor Web site, www.putnaminvestments.com/individual, and on the SEC's Web site, www.sec.gov. If you have questions about finding forms on the SEC's Web site, you may call the SEC at 1-800-SEC-0330. You may also obtain the Putnam funds' proxy voting guidelines and procedures at no charge by calling Putnam's Shareholder Services at 1-800-225-1581. Fund portfolio holdings For periods ending on or after July 9, 2004, the fund will file a complete schedule of its portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. Shareholders may obtain the fund's Forms N-Q on the SEC's Web site at www.sec.gov. In addition, the fund's Forms N-Q may be reviewed and copied at the SEC's public reference room in Washington, D.C. You may call the SEC at 1-800-SEC-0330 for information about the SEC's Web site or the operation of the public reference room. The fund's portfolio November 30, 2004 (Unaudited) Corporate bonds and notes (91.7%) (a) Principal amount Value Advertising and Marketing Services (0.2%) ------------------------------------------------------------------------------- $100,000 Lamar Media Corp. company guaranty 7 1/4s, 2013 $108,000 Automotive (2.0%) ------------------------------------------------------------------------------- 50,000 ArvinMeritor, Inc. notes 8 3/4s, 2012 56,375 30,000 Dana Corp. notes 10 1/8s, 2010 33,900 225,000 Dana Corp. notes 9s, 2011 272,250 15,000 Dana Corp. notes 7s, 2029 15,000 40,000 Delco Remy International, Inc. company guaranty 11s, 2009 42,200 205,000 Delco Remy International, Inc. sr. sub. notes 9 3/8s, 2012 210,125 30,000 Dura Operating Corp. company guaranty Ser. B, 8 5/8s, 2012 30,525 150,000 Lear Corp. company guaranty Ser. B, 8.11s, 2009 169,677 115,000 Meritor Automotive, Inc. notes 6.8s, 2009 118,163 95,000 Metaldyne Corp. 144A sr. notes 10s, 2013 92,150 EUR 20,000 Teksid Aluminum 144A company guaranty 11 3/8s, 2011 (Luxembourg) 25,183 $70,000 Tenneco Automotive, Inc. company guaranty Ser. B, 11 5/8s, 2009 74,312 130,000 Tenneco Automotive, Inc. sec. notes Ser. B, 10 1/4s, 2013 153,075 100,000 Tenneco Automotive, Inc. 144A sr. sub. notes 8 5/8s, 2014 104,000 -------------- 1,396,935 Beverage (0.1%) ------------------------------------------------------------------------------- 45,000 Constellation Brands, Inc. company guaranty Ser. B, 8s, 2008 49,275 45,000 Constellation Brands, Inc. sr. sub. notes Ser. B, 8 1/8s, 2012 48,938 -------------- 98,213 Broadcasting (3.0%) ------------------------------------------------------------------------------- 210,000 British Sky Broadcasting PLC company guaranty 6 7/8s, 2009 (United Kingdom) 229,624 300,000 DirecTV Holdings, LLC sr. notes 8 3/8s, 2013 336,750 440,000 Diva Systems Corp. sr. disc. notes Ser. B, 12 5/8s, 2008 (In default) (NON) 1,925 235,000 Echostar DBS Corp. sr. notes 6 3/8s, 2011 240,288 165,000 Echostar DBS Corp. 144A company guaranty 6 5/8s, 2014 168,300 370,000 Granite Broadcasting Corp. sec. notes 9 3/4s, 2010 347,800 105,000 Gray Television, Inc. company guaranty 9 1/4s, 2011 118,125 6,090 Knology, Inc. 144A sr. notes 12s, 2009 (PIK) 5,877 155,000 Rainbow National Services, LLC 144A sr. notes 8 3/4s, 2012 163,913 60,000 Sinclair Broadcast Group, Inc. company guaranty 8 3/4s, 2011 64,500 301,000 Young Broadcasting, Inc. company guaranty 10s, 2011 319,813 65,000 Young Broadcasting, Inc. sr. sub. notes 8 3/4s, 2014 63,863 -------------- 2,060,778 Building Materials (0.9%) ------------------------------------------------------------------------------- 60,000 Building Materials Corp. company guaranty 8s, 2008 62,100 95,000 Dayton Superior Corp. sec. notes 10 3/4s, 2008 103,550 5,000 Owens Corning bonds 7 1/2s, 2018 (In default) (NON) 3,925 120,000 Owens Corning notes 7 1/2s, 2005 (In default) (NON) 94,200 350,000 THL Buildco, Inc. (Nortek, Inc.) 144A sr. sub. notes 8 1/2s, 2014 376,250 -------------- 640,025 Cable Television (3.0%) ------------------------------------------------------------------------------- 10,000 Adelphia Communications Corp. notes Ser. B, 9 7/8s, 2005 (In default) (NON) 8,975 20,000 Adelphia Communications Corp. sr. notes 10 7/8s, 2010 (In default) (NON) 18,650 90,000 Adelphia Communications Corp. sr. notes 10 1/4s, 2011 (In default) (NON) 87,525 5,000 Adelphia Communications Corp. sr. notes 10 1/4s, 2006 (In default) (NON) 4,538 5,000 Adelphia Communications Corp. sr. notes 9 3/8s, 2009 (In default) (NON) 4,663 40,000 Adelphia Communications Corp. sr. notes Ser. B, 9 7/8s, 2007 (In default) (NON) 35,900 80,000 Atlantic Broadband Finance, LLC 144A sr. sub. notes 9 3/8s, 2014 76,800 195,000 Cablevision Systems Corp. 144A sr. notes 8s, 2012 207,675 70,000 Charter Communications Holdings, LLC/Capital Corp. sr. disc. notes stepped-coupon zero % (12 1/8s, 1/15/07), 2012 (STP) 43,050 35,000 Charter Communications Holdings, LLC/Capital Corp. sr. disc. notes stepped-coupon zero % (11 3/4s, 5/15/06), 2011 (STP) 23,888 90,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes 11 1/8s, 2011 77,400 200,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes 10 3/4s, 2009 173,000 75,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes 10 1/4s, 2010 63,000 265,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes 10s, 2011 218,625 200,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes 9 5/8s, 2009 166,000 20,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes 8 5/8s, 2009 16,600 75,000 CSC Holdings, Inc. debs. 7 5/8s, 2018 79,125 80,000 CSC Holdings, Inc. sr. notes Ser. B, 7 5/8s, 2011 85,600 155,000 CSC Holdings, Inc. 144A sr. notes 6 3/4s, 2012 158,100 270,000 Kabel Deutsheland GmbH 144A sr. notes 10 5/8s, 2014 (Germany) 310,500 30,000 Quebecor Media, Inc. sr. disc. notes stepped-coupon zero % (13 3/4s, 7/15/06), 2011 (Canada) (STP) 29,550 155,000 Quebecor Media, Inc. sr. notes 11 1/8s, 2011 (Canada) 177,863 50,000 Videotron Ltee company guaranty 6 7/8s, 2014 (Canada) 51,625 -------------- 2,118,652 Capital Goods (9.1%) ------------------------------------------------------------------------------- 370,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 376,475 221,742 Air2 US 144A sinking fund Ser. D, 12.266s, 2020 (In default) (NON) (F) 2 240,000 Allied Waste North America, Inc. company guaranty Ser. B, 8 1/2s, 2008 252,300 330,000 Allied Waste North America, Inc. company guaranty Ser. B, 7 5/8s, 2006 339,075 30,000 Allied Waste North America, Inc. sec. notes 6 1/2s, 2010 28,950 65,000 Amsted Industries, Inc. 144A sr. notes 10 1/4s, 2011 71,500 320,000 Argo-Tech Corp. sr. notes 9 1/4s, 2011 349,600 35,000 BE Aerospace, Inc. sr. notes 8 1/2s, 2010 38,325 345,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 343,275 15,000 Berry Plastics Corp. company guaranty 10 3/4s, 2012 17,325 125,000 Blount, Inc. sr. sub. notes 8 7/8s, 2012 135,625 110,000 Browning-Ferris Industries, Inc. debs. 7.4s, 2035 94,600 145,000 Browning-Ferris Industries, Inc. sr. notes 6 3/8s, 2008 142,463 EUR 15,000 Crown Holdings SA bonds 10 1/4s, 2011 (France) 22,924 $320,000 Crown Holdings SA notes 10 7/8s, 2013 (France) 378,400 70,000 Crown Holdings SA notes 9 1/2s, 2011 (France) 79,275 476,000 Decrane Aircraft Holdings Co. company guaranty zero %, 2008 180,880 120,000 Earle M. Jorgensen Co. sec. notes 9 3/4s, 2012 135,000 EUR 60,000 Flender Holdings 144A sr. notes 11s, 2010 (Germany) 94,804 $93,000 Flowserve Corp. company guaranty 12 1/4s, 2010 104,160 25,000 Hexcel Corp. sr. sub. notes 9 3/4s, 2009 26,188 130,000 Invensys, PLC notes 9 7/8s, 2011 (United Kingdom) 140,075 45,000 K&F Acquisitions, Inc. 144A sr. sub. notes 7 3/4s, 2014 46,013 325,000 L-3 Communications Corp. company guaranty 6 1/8s, 2013 334,750 310,000 Legrand SA debs. 8 1/2s, 2025 (France) 359,600 140,000 Manitowoc Co., Inc. (The) company guaranty 10 1/2s, 2012 161,000 EUR 25,000 Manitowoc Co., Inc. (The) company guaranty 10 3/8s, 2011 37,226 $290,000 Manitowoc Co., Inc. (The) sr. notes 7 1/8s, 2013 313,200 40,000 Mueller Group, Inc. sec. FRN 6.91s, 2011 41,400 95,000 Mueller Group, Inc. sr. sub. notes 10s, 2012 103,075 180,000 Owens-Brockway Glass company guaranty 8 1/4s, 2013 195,750 75,000 Owens-Brockway Glass company guaranty 7 3/4s, 2011 81,000 170,000 Owens-Brockway Glass sr. sec. notes 8 3/4s, 2012 189,550 15,000 Owens-Illinois, Inc. debs. 7.8s, 2018 15,338 155,000 Polypore, Inc. 144A sr. sub. notes 8 3/4s, 2012 161,200 250,000 Sequa Corp. sr. notes Ser. B, 8 7/8s, 2008 273,750 165,000 Siebe PLC 144A sr. unsub. 6 1/2s, 2010 (United Kingdom) 156,131 60,000 Solo Cup Co. sr. sub. notes 8 1/2s, 2014 62,400 75,000 Tekni-Plex, Inc. 144A sr. sec. notes 8 3/4s, 2013 74,625 35,000 Terex Corp. company guaranty 9 1/4s, 2011 39,550 190,000 Terex Corp. company guaranty Ser. B, 10 3/8s, 2011 214,225 90,000 Titan Corp. (The) company guaranty 8s, 2011 95,400 -------------- 6,306,404 Chemicals (6.4%) ------------------------------------------------------------------------------- 130,000 Acetex Corp. sr. notes 10 7/8s, 2009 (Canada) 142,350 10,000 Avecia Group PLC company guaranty 11s, 2009 (United Kingdom) 9,400 205,000 BCP Caylux Holdings Luxembourg SCA 144A sr. sub. notes 9 5/8s, 2014 (Luxembourg) 230,113 185,000 Compass Minerals Group, Inc. company guaranty 10s, 2011 207,200 50,000 Compass Minerals International, Inc. sr. disc. notes stepped-coupon zero % (12s, 6/1/08), 2013 (STP) 40,500 130,000 Compass Minerals International, Inc. sr. notes stepped-coupon zero % (12 3/4s, 12/15/07), 2012 (STP) 111,150 120,000 Crystal US Holdings, LLC/US Sub 3 Corp. 144A sr. disc. notes stepped-coupon zero % (10s, 10/1/09), 2014 (STP) 82,200 95,000 Equistar Chemicals LP notes 8 3/4s, 2009 105,450 290,000 Equistar Chemicals LP/Equistar Funding Corp. company guaranty 10 1/8s, 2008 332,775 180,000 Hercules, Inc. company guaranty 11 1/8s, 2007 216,000 140,000 Hercules, Inc. company guaranty 6 3/4s, 2029 144,550 35,000 Huntsman Advanced Materials, LLC 144A sec. FRN 11.86s, 2008 37,800 40,000 Huntsman Advanced Materials, LLC 144A sec. notes 11s, 2010 47,500 140,000 Huntsman Co., LLC sr. disc. notes zero %, 2008 92,050 295,000 Huntsman ICI Chemicals, Inc. company guaranty 10 1/8s, 2009 311,225 270,000 Huntsman ICI Holdings sr. disc. notes zero %, 2009 150,525 120,000 Huntsman, LLC company guaranty 11 5/8s, 2010 142,800 60,000 Huntsman, LLC 144A company guaranty 11 1/2s, 2012 70,650 325,000 Innophos, Inc. 144A sr. sub. notes 8 7/8s, 2014 351,000 230,000 ISP Chemco, Inc. company guaranty Ser. B, 10 1/4s, 2011 258,175 10,000 Lyondell Chemical Co. bonds 11 1/8s, 2012 11,825 130,000 Lyondell Chemical Co. company guaranty 10 1/2s, 2013 154,050 100,000 Lyondell Chemical Co. company guaranty 9 1/2s, 2008 109,000 65,000 Lyondell Chemical Co. notes Ser. A, 9 5/8s, 2007 71,663 250,000 Millennium America, Inc. company guaranty 9 1/4s, 2008 282,500 EUR 10,000 Nalco Co. sr. notes 7 3/4s, 2011 14,439 EUR 10,000 Nalco Co. sr. sub. notes 9s, 2013 14,412 $300,000 Nalco Co. sr. sub. notes 8 7/8s, 2013 331,125 31,547 PCI Chemicals Canada sec. sr. notes 10s, 2008 (Canada) 32,651 70,155 Pioneer Companies, Inc. sec. FRN 5.475s, 2006 70,506 25,000 Resolution Performance Products, LLC sr. notes 9 1/2s, 2010 27,000 EUR 50,000 Rockwood Specialities Group, Inc. sr. sub. notes 7 5/8s, 2014 68,106 $50,000 Rockwood Specialities Group, Inc. 144A sub. notes 7 1/2s, 2014 51,250 27,275 Sterling Chemicals, Inc. sec. notes 10s, 2007 (PIK) 27,070 75,000 United Agri Products 144A sr. notes 8 1/4s, 2011 79,875 -------------- 4,428,885 Commercial and Consumer Services (0.6%) ------------------------------------------------------------------------------- 115,000 IESI Corp. company guaranty 10 1/4s, 2012 136,850 245,000 Laidlaw International, Inc. sr. notes 10 3/4s, 2011 282,056 -------------- 418,906 Communication Services (8.2%) ------------------------------------------------------------------------------- 60,000 Alamosa Delaware, Inc. company guaranty 11s, 2010 70,050 50,000 Alamosa Delaware, Inc. company guaranty stepped-coupon zero % (12s, 7/31/05), 2009 (STP) 53,500 70,000 Alamosa Delaware, Inc. sr. notes 8 1/2s, 2012 75,250 35,000 American Cellular Corp. company guaranty 9 1/2s, 2009 29,488 114,000 American Tower Corp. sr. notes 9 3/8s, 2009 120,270 65,000 American Tower Corp. sr. notes 7 1/2s, 2012 67,438 125,000 American Towers, Inc. company guaranty 7 1/4s, 2011 131,250 100,000 Asia Global Crossing, Ltd. sr. notes 13 3/8s, 2010 (Bermuda) (In default) (NON) 7,000 165,000 Centennial Cellular Operating Co. company guaranty 10 1/8s, 2013 179,850 25,000 Cincinnati Bell Telephone Co. company guaranty 6.3s, 2028 22,375 195,000 Cincinnati Bell, Inc. sr. sub. notes 8 3/8s, 2014 194,513 70,000 Cincinnati Bell, Inc. sr. sub. notes 7 1/4s, 2023 67,375 185,000 Citizens Communications Co. notes 9 1/4s, 2011 215,063 160,000 Citizens Communications Co. sr. notes 6 1/4s, 2013 159,000 305,405 Colo.com, Inc. 144A sr. notes 13 7/8s, 2010 (In default) (NON) 31 205,000 Crown Castle International Corp. sr. notes 9 3/8s, 2011 229,600 45,000 Eircom Funding notes 8 1/4s, 2013 (Ireland) 49,950 65,000 Fairpoint Communications, Inc. sr. sub. notes 12 1/2s, 2010 69,875 177,439 Firstworld Communication Corp. sr. disc. notes zero %, 2008 (In default) (NON) 18 20,728 Globix Corp. company guaranty 11s, 2008 (PIK) 19,070 175,000 Inmarsat Finance PLC company guaranty 7 5/8s, 2012 (United Kingdom) 178,938 175,000 Inmarsat Finance PLC 144A company guaranty stepped-coupon zero % (10 3/8s, 11/15/08), 2012 (United Kingdom) (STP) 120,750 55,000 iPCS, Inc. 144A sr. notes 11 1/2s, 2012 60,500 135,000 Level 3 Financing, Inc. 144A sr. notes 10 3/4s, 2011 120,488 120,000 Madison River Capital Corp. sr. notes 13 1/4s, 2010 129,600 293,000 MCI, Inc. sr. notes 7.735s, 2014 299,593 45,000 MCI, Inc. sr. notes 6.688s, 2009 45,338 290,000 Nextel Communications, Inc. sr. notes 7 3/8s, 2015 319,000 5,000 Nextel Communications, Inc. sr. notes 6 7/8s, 2013 5,400 200,000 Nextel Communications, Inc. sr. notes 5.95s, 2014 203,500 55,000 Nextel Partners, Inc. sr. notes 12 1/2s, 2009 62,700 225,000 Nextel Partners, Inc. sr. notes 8 1/8s, 2011 247,500 410,000 Qwest Communications International, Inc. 144A sr. notes 7 1/2s, 2014 399,750 475,000 Qwest Corp. 144A notes 9 1/8s, 2012 540,313 65,000 Qwest Services Corp. 144A notes 14 1/2s, 2014 80,275 85,000 Qwest Services Corp. 144A notes 14s, 2010 100,725 50,000 Rogers Cantel, Ltd. debs. 9 3/4s, 2016 (Canada) 58,875 40,000 Rogers Wireless, Inc. sec. notes 9 5/8s, 2011 (Canada) 46,600 65,000 Rogers Wireless, Inc. 144A sec. notes 7 1/2s, 2015 (Canada) 67,438 80,000 Rogers Wireless, Inc. 144A sr. sub. notes 8s, 2012 (Canada) 83,000 45,000 Rural Cellular Corp. sr. notes 9 7/8s, 2010 45,450 90,000 Rural Cellular Corp. sr. sub. notes 9 3/4s, 2010 80,775 55,000 SBA Telecommunications Inc./SBA Communication Corp. sr. disc. notes stepped-coupon zero % (9 3/4s, 12/15/07), 2011 (STP) 45,788 110,000 TSI Telecommunication Services, Inc. company guaranty Ser. B, 12 3/4s, 2009 124,575 65,000 UbiquiTel Operating Co. sr. notes 9 7/8s, 2011 71,338 270,000 UbiquiTel Operating Co. 144A sr. notes 9 7/8s, 2011 296,325 100,000 Western Wireless Corp. sr. notes 9 1/4s, 2013 108,000 -------------- 5,703,500 Conglomerates (0.6%) ------------------------------------------------------------------------------- 55,000 Tyco International Group SA company guaranty 6 3/4s, 2011 (Luxembourg) 61,457 325,000 Tyco International Group SA company guaranty 6s, 2013 (Luxembourg) 349,911 -------------- 411,368 Consumer (1.0%) ------------------------------------------------------------------------------- 115,000 Icon Health & Fitness company guaranty 11 1/4s, 2012 97,463 95,000 Jostens Holding Corp. sr. disc. notes stepped-coupon zero % (10 1/4s, 12/1/08), 2013 (STP) 67,450 245,000 Jostens IH Corp. 144A company guaranty 7 5/8s, 2012 256,638 260,000 Samsonite Corp. sr. sub. notes 8 7/8s, 2011 276,575 -------------- 698,126 Consumer Goods (1.2%) ------------------------------------------------------------------------------- 45,000 Elizabeth Arden, Inc. company guaranty 7 3/4s, 2014 47,925 200,000 Playtex Products, Inc. company guaranty 9 3/8s, 2011 213,500 140,000 Playtex Products, Inc. sec. notes 8s, 2011 153,300 215,000 Prestige Brands, Inc. 144A sr. sub. notes 9 1/4s, 2012 226,825 125,000 Remington Arms Co., Inc. company guaranty 10 1/2s, 2011 116,250 45,000 Scotts Co. (The) sr. sub. notes 6 5/8s, 2013 47,588 -------------- 805,388 Consumer Services (0.4%) ------------------------------------------------------------------------------- 100,000 Brand Services, Inc. company guaranty 12s, 2012 112,000 60,000 United Rentals (North America), Inc. company guaranty 6 1/2s, 2012 58,800 130,000 Williams Scotsman, Inc. company guaranty 9 7/8s, 2007 128,700 -------------- 299,500 Energy (7.3%) ------------------------------------------------------------------------------- 190,000 Arch Western Finance, LLC sr. notes 6 3/4s, 2013 199,025 80,000 Arch Western Finance, LLC 144A sr. notes 6 3/4s, 2013 83,800 90,000 Belden & Blake Corp. 144A sec. notes 8 3/4s, 2012 97,425 70,000 Bluewater Finance, Ltd. company guaranty 10 1/4s, 2012 (Cayman Islands) 75,950 110,000 BRL Universal Equipment sec. notes 8 7/8s, 2008 115,775 100,000 CHC Helicopter Corp. sr. sub. notes 7 3/8s, 2014 (Canada) 105,500 75,000 Chesapeake Energy Corp. company guaranty 9s, 2012 85,875 45,000 Chesapeake Energy Corp. company guaranty 7 3/4s, 2015 49,388 210,000 Chesapeake Energy Corp. sr. notes 7 1/2s, 2013 231,000 60,000 Chesapeake Energy Corp. sr. notes 7s, 2014 64,800 95,000 Comstock Resources, Inc. sr. notes 6 7/8s, 2012 98,325 140,000 Dresser, Inc. company guaranty 9 3/8s, 2011 154,000 90,000 Encore Acquisition Co. company guaranty 8 3/8s, 2012 99,450 45,000 Encore Acquisition Co. sr. sub. notes 6 1/4s, 2014 45,900 130,000 Exco Resources, Inc. company guaranty 7 1/4s, 2011 139,425 70,000 Forest Oil Corp. company guaranty 7 3/4s, 2014 76,125 145,000 Forest Oil Corp. sr. notes 8s, 2011 164,575 35,000 Forest Oil Corp. sr. notes 8s, 2008 38,763 70,000 Hanover Compressor Co. sr. notes 9s, 2014 77,525 65,000 Hanover Compressor Co. sr. notes 8 5/8s, 2010 70,525 95,000 Hanover Compressor Co. sub. notes zero %, 2007 80,750 65,000 Hanover Equipment Trust sec. notes Ser. B, 8 3/4s, 2011 70,525 275,000 Harvest Operations Corp. 144A sr. notes 7 7/8s, 2011 (Canada) 280,500 55,000 Hornbeck Offshore Services, Inc. 144A sr. notes 6 1/8s, 2014 54,313 65,000 KCS Energy, Inc. sr. notes 7 1/8s, 2012 68,250 280,000 Key Energy Services, Inc. sr. notes 6 3/8s, 2013 284,200 260,000 Massey Energy Co. sr. notes 6 5/8s, 2010 270,400 130,000 Newfield Exploration Co. sr. notes 7 5/8s, 2011 146,250 125,000 Newfield Exploration Co. 144A sr. sub. notes 6 5/8s, 2014 134,063 120,000 Offshore Logistics, Inc. company guaranty 6 1/8s, 2013 123,000 75,000 Pacific Energy Partners/Pacific Energy Finance Corp. sr. notes 7 1/8s, 2014 80,625 135,000 Peabody Energy Corp. sr. notes 5 7/8s, 2016 135,506 30,000 Pemex Project Funding Master Trust company guaranty 8 5/8s, 2022 34,200 45,000 Pemex Project Funding Master Trust company guaranty 7 3/8s, 2014 49,221 100,000 Petro Geo-Services notes 10s, 2010 (Norway) 114,000 90,000 Plains Exploration & Production Co. company guaranty Ser. B, 8 3/4s, 2012 101,250 95,000 Plains Exploration & Production Co. sr. notes 7 1/8s, 2014 104,500 55,000 Plains Exploration & Production Co. sr. sub. notes 8 3/4s, 2012 61,875 110,000 Pogo Producing Co. sr. sub. notes Ser. B, 8 1/4s, 2011 120,725 290,000 Pride International, Inc. 144A sr. notes 7 3/8s, 2014 321,175 100,000 Seabulk International, Inc. company guaranty 9 1/2s, 2013 107,500 170,000 Star Gas Partners LP/Star Gas Finance Co. sr. notes 10 1/4s, 2013 181,475 25,000 Universal Compression, Inc. sr. notes 7 1/4s, 2010 26,750 45,000 Vintage Petroleum, Inc. sr. notes 8 1/4s, 2012 50,175 25,000 Vintage Petroleum, Inc. sr. sub. notes 7 7/8s, 2011 26,875 -------------- 5,101,254 Entertainment (2.0%) ------------------------------------------------------------------------------- 75,000 AMC Entertainment, Inc. sr. sub. notes 9 7/8s, 2012 81,375 132,000 AMC Entertainment, Inc. sr. sub. notes 8s, 2014 130,020 155,000 Cinemark USA, Inc. sr. sub. notes 9s, 2013 178,250 180,000 Cinemark, Inc. sr. disc. notes stepped-coupon zero % (9 3/4s, 3/15/07), 2009 (STP) 132,300 335,000 LCE Acquisition Corp. 144A company guaranty 9s, 2014 360,125 175,000 Six Flags, Inc. sr. notes 9 5/8s, 2014 172,156 335,000 Six Flags, Inc. sr. notes 8 7/8s, 2010 336,675 -------------- 1,390,901 Financial (1.3%) ------------------------------------------------------------------------------- 55,000 Crescent Real Estate Equities LP notes 7 1/2s, 2007 (R) 56,925 145,000 Crescent Real Estate Equities LP sr. notes 9 1/4s, 2009 (R) 158,413 175,000 E*Trade Finance Corp. 144A sr. notes 8s, 2011 186,813 232,870 Finova Group, Inc. notes 7 1/2s, 2009 111,778 85,000 UBS AG/Jersey Branch sr. notes Ser. EMTN, 9.14s, 2008 (Jersey) 90,950 240,000 Western Financial Bank sub. debs. 9 5/8s, 2012 273,600 -------------- 878,479 Food (1.3%) ------------------------------------------------------------------------------- 35,271 Archibald Candy Corp. company guaranty 10s, 2007 (In default) (NON) (PIK) 14,108 60,000 ASG Consolidated, LLC/ASG Finance, Inc. 144A sr. disc. notes stepped-coupon zero % (11 1/2s, 11/1/08), 2011 38,400 335,000 Dean Foods Co. sr. notes 6 5/8s, 2009 354,263 40,000 Del Monte Corp. company guaranty Ser. B, 9 1/4s, 2011 43,800 100,000 Del Monte Corp. sr. sub. notes 8 5/8s, 2012 111,750 45,000 Dole Food Co. sr. notes 8 7/8s, 2011 49,275 35,000 Dole Food Co. sr. notes 8 5/8s, 2009 38,325 285,000 Pinnacle Foods Holding Corp. 144A sr. sub. notes 8 1/4s, 2013 257,925 -------------- 907,846 Forest Products and Packaging (2.2%) ------------------------------------------------------------------------------- 75,000 Georgia-Pacific Corp. bonds 7 3/4s, 2029 82,500 130,000 Georgia-Pacific Corp. company guaranty 9 3/8s, 2013 151,450 250,000 Georgia-Pacific Corp. debs. 9 1/2s, 2011 310,625 210,000 Georgia-Pacific Corp. debs. 7.7s, 2015 239,400 10,000 Jefferson Smurfit Corp. company guaranty 7 1/2s, 2013 10,725 5,000 Jefferson Smurfit Corp. company guaranty company guaranty 8 1/4s, 2012 5,475 215,000 MDP Acquisitions PLC sr. notes 9 5/8s, 2012 (Ireland) 245,100 EUR 5,000 MDP Acquisitions PLC sr. notes Ser. EUR, 10 1/8s, 2012 (Ireland) 7,571 $122,740 MDP Acquisitions PLC sub. notes 15 1/2s, 2013 (Ireland) (PIK) 142,992 75,000 Norske Skog Canada, Ltd. sr. notes 7 3/8s, 2014 (Canada) 77,813 40,000 Stone Container Corp. sr. notes 9 3/4s, 2011 44,200 140,000 Stone Container Corp. sr. notes 8 3/8s, 2012 153,300 35,000 Stone Container Finance company guaranty 7 3/8s, 2014 (Canada) 37,713 25,000 Tembec Industries, Inc. company guaranty 7 3/4s, 2012 (Canada) 23,938 -------------- 1,532,802 Gaming & Lottery (4.3%) ------------------------------------------------------------------------------- 60,000 Ameristar Casinos, Inc. company guaranty 10 3/4s, 2009 66,600 65,000 Argosy Gaming Co. sr. sub. notes 7s, 2014 72,313 160,000 Boyd Gaming Corp. sr. sub. notes 8 3/4s, 2012 180,000 30,000 Boyd Gaming Corp. sr. sub. notes 7 3/4s, 2012 32,775 60,000 Boyd Gaming Corp. sr. sub. notes 6 3/4s, 2014 63,150 70,000 Chumash Casino & Resort Enterprise 144A sr. notes 9s, 2010 78,050 85,000 Hollywood Park, Inc. company guaranty Ser. B, 9 1/4s, 2007 86,913 40,000 Inn of the Mountain Gods sr. notes 12s, 2010 46,600 75,000 Mandalay Resort Group sr. notes 6 3/8s, 2011 78,281 10,000 MGM Mirage, Inc. coll. sr. notes 6 7/8s, 2008 10,775 205,000 MGM Mirage, Inc. company guaranty 8 1/2s, 2010 232,931 60,000 MGM Mirage, Inc. company guaranty 6s, 2009 61,425 40,000 Mirage Resorts, Inc. debs. 7 1/4s, 2017 41,600 220,000 Mohegan Tribal Gaming Authority sr. sub. notes 6 3/8s, 2009 226,600 155,000 Park Place Entertainment Corp. sr. notes 7 1/2s, 2009 173,600 115,000 Park Place Entertainment Corp. sr. notes 7s, 2013 126,788 95,000 Park Place Entertainment Corp. sr. sub. notes 8 7/8s, 2008 107,706 185,000 Penn National Gaming, Inc. sr. sub. notes 8 7/8s, 2010 203,038 95,000 Pinnacle Entertainment, Inc. sr. sub. notes 8 3/4s, 2013 102,363 125,000 Pinnacle Entertainment, Inc. sr. sub. notes 8 1/4s, 2012 129,375 120,000 Resorts International Hotel and Casino, Inc. company guaranty 11 1/2s, 2009 141,000 90,000 Station Casinos, Inc. sr. notes 6s, 2012 92,700 90,000 Station Casinos, Inc. sr. sub. notes 6 7/8s, 2016 93,825 215,000 Trump Atlantic City Associates company guaranty 11 1/4s, 2006 (In default) (NON) 195,919 90,000 Venetian Casino Resort, LLC company guaranty 11s, 2010 102,600 280,000 Wynn Las Vegas, LLC/Wynn Las Vegas Capital Corp. 144A 1st mtge. 6 5/8s, 2014 277,200 -------------- 3,024,127 Health Care (5.6%) ------------------------------------------------------------------------------- 125,000 Alderwoods Group, Inc. 144A sr. notes 7 3/4s, 2012 133,438 105,000 AmerisourceBergen Corp. company guaranty 7 1/4s, 2012 115,238 100,000 AmerisourceBergen Corp. sr. notes 8 1/8s, 2008 110,250 170,000 Ardent Health Services, Inc. sr. sub. notes 10s, 2013 170,425 110,000 Ellan Finance Corp. 144A sr. notes 7 3/4s, 2011 (Ireland) 116,325 60,000 Extendicare Health Services, Inc. company guaranty 9 1/2s, 2010 67,200 100,000 Extendicare Health Services, Inc. sr. sub. notes 6 7/8s, 2014 102,500 50,000 HCA, Inc. debs. 7.19s, 2015 51,681 60,000 HCA, Inc. notes 8.36s, 2024 64,069 70,000 HCA, Inc. notes 7.69s, 2025 70,212 10,000 HCA, Inc. notes 7s, 2007 10,480 65,000 HCA, Inc. notes 6 3/8s, 2015 64,271 55,000 HCA, Inc. notes 5 3/4s, 2014 52,669 185,000 Healthsouth Corp. notes 7 5/8s, 2012 182,688 75,000 Healthsouth Corp. sr. notes 8 1/2s, 2008 77,156 45,000 Healthsouth Corp. sr. notes 8 3/8s, 2011 45,450 45,000 Healthsouth Corp. sr. sub. notes 10 3/4s, 2008 47,138 65,000 Insight Health Services Corp. 144A company guaranty 9 7/8s, 2011 65,975 51,360 Magellan Health Services, Inc. sr. notes Ser. A, 9 3/8s, 2008 55,405 35,000 MedQuest, Inc. company guaranty Ser. B, 11 7/8s, 2012 40,950 180,000 MQ Associates, Inc. sr. disc. notes stepped-coupon zero % (12 1/4s, 8/15/08), 2012 (STP) 127,800 120,000 Omnicare, Inc. sr. sub. notes 6 1/8s, 2013 120,600 133,000 PacifiCare Health Systems, Inc. company guaranty 10 3/4s, 2009 152,618 130,000 Province Healthcare Co. sr. sub. notes 7 1/2s, 2013 146,250 40,000 Service Corp. International debs. 7 7/8s, 2013 43,800 15,000 Service Corp. International notes 7.2s, 2006 15,600 5,000 Service Corp. International notes 6 7/8s, 2007 5,250 20,000 Service Corp. International notes 6 1/2s, 2008 20,850 50,000 Service Corp. International notes Ser. (a), 7.7s, 2009 54,500 140,000 Service Corp. International/US 144A sr. notes 7s, 2016 147,000 130,000 Stewart Enterprises, Inc. notes 10 3/4s, 2008 142,025 85,000 Tenet Healthcare Corp. notes 7 3/8s, 2013 82,875 10,000 Tenet Healthcare Corp. sr. notes 6 1/2s, 2012 9,300 155,000 Tenet Healthcare Corp. sr. notes 6 3/8s, 2011 143,763 180,000 Tenet Healthcare Corp. 144A sr. notes 9 7/8s, 2014 193,500 130,000 Triad Hospitals, Inc. sr. notes 7s, 2012 137,150 225,000 Triad Hospitals, Inc. sr. sub. notes 7s, 2013 230,625 85,000 Universal Hospital Services, Inc. sr. notes 10 1/8s, 2011 89,675 55,000 US Oncology, Inc. 144A sr. notes 9s, 2012 61,050 40,000 US Oncology, Inc. 144A sr. sub. notes 10 3/4s, 2014 45,700 95,000 Vanguard Health Holding Co. II, LLC 144A sr. sub. notes 9s, 2014 100,938 55,000 Ventas Realty LP/Capital Corp. company guaranty 9s, 2012 (R) 63,663 40,000 Ventas Realty LP/Capital Corp. 144A sr. notes 6 5/8s, 2014 (R) 40,700 60,000 VWR International, Inc. 144A sr. notes 6 7/8s, 2012 62,400 -------------- 3,881,152 Homebuilding (2.4%) ------------------------------------------------------------------------------- 70,000 Beazer Homes USA, Inc. company guaranty 8 5/8s, 2011 76,650 25,000 Beazer Homes USA, Inc. company guaranty 8 3/8s, 2012 27,500 20,000 D.R. Horton, Inc. company guaranty 8s, 2009 22,400 120,000 D.R. Horton, Inc. sr. notes 7 7/8s, 2011 136,800 25,000 D.R. Horton, Inc. sr. notes 6 7/8s, 2013 27,125 50,000 D.R. Horton, Inc. sr. notes 5 7/8s, 2013 50,688 90,000 K. Hovnanian Enterprises, Inc. company guaranty 8 7/8s, 2012 99,900 70,000 K. Hovnanian Enterprises, Inc. company guaranty 6 3/8s, 2014 70,000 50,000 K. Hovnanian Enterprises, Inc. sr. notes 6 1/2s, 2014 50,750 275,000 KB Home sr. notes 5 3/4s, 2014 270,188 50,000 Meritage Corp. company guaranty 9 3/4s, 2011 55,625 35,000 Meritage Corp. sr. notes 7s, 2014 36,313 70,000 Schuler Homes, Inc. company guaranty 10 1/2s, 2011 79,800 135,000 Standard Pacific Corp. sr. notes 7 3/4s, 2013 146,475 10,000 Standard Pacific Corp. sr. notes 6 7/8s, 2011 10,475 215,000 Standard Pacific Corp. sr. notes 6 1/4s, 2014 211,775 55,000 Technical Olympic USA, Inc. company guaranty 10 3/8s, 2012 61,600 80,000 Technical Olympic USA, Inc. company guaranty 9s, 2010 86,200 30,000 WCI Communities, Inc. company guaranty 10 5/8s, 2011 33,525 130,000 WCI Communities, Inc. company guaranty 9 1/8s, 2012 144,300 -------------- 1,698,089 Household Furniture and Appliances (0.3%) ------------------------------------------------------------------------------- 200,000 Sealy Mattress Co. sr. sub. notes 8 1/4s, 2014 211,500 Leisure (0.1%) ------------------------------------------------------------------------------- 80,000 K2, Inc. 144A sr. notes 7 3/8s, 2014 87,600 Lodging/Tourism (1.6%) ------------------------------------------------------------------------------- 7,000 FelCor Lodging LP company guaranty 10s, 2008 (R) 7,350 45,000 FelCor Lodging LP company guaranty 9s, 2008 (R) 50,400 115,000 Gaylord Entertainment Co. sr. notes 8s, 2013 124,200 73,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 (R) 75,099 60,000 Host Marriott LP company guaranty Ser. G, 9 1/4s, 2007 (R) 66,750 98,000 Host Marriott LP sr. notes Ser. E, 8 3/8s, 2006 (R) 102,410 165,000 Host Marriott LP 144A sr. notes 7s, 2012 (R) 174,075 95,000 ITT Corp. debs. 7 3/8s, 2015 106,875 105,000 ITT Corp. notes 6 3/4s, 2005 107,888 130,000 MeriStar Hospital Corp. company guaranty 9 1/8s, 2011 (R) 140,075 65,000 MeriStar Hospital Corp. company guaranty 9s, 2008 (R) 68,575 80,000 Starwood Hotels & Resorts Worldwide, Inc. company guaranty 7 3/8s, 2007 85,400 -------------- 1,109,097 Media (0.7%) ------------------------------------------------------------------------------- 130,000 Affinity Group, Inc. sr. sub. notes 9s, 2012 140,400 85,000 Capital Records, Inc. 144A company guaranty 8 3/8s, 2009 95,533 140,000 Vivendi Universal SA sr. notes 6 1/4s, 2008 (France) 151,200 100,000 Warner Music Group 144A sr. sub. notes 7 3/8s, 2014 102,500 -------------- 489,633 Metals (1.9%) ------------------------------------------------------------------------------- 120,000 AK Steel Corp. company guaranty 7 3/4s, 2012 122,400 80,000 Armco, Inc. sr. notes 8 7/8s, 2008 82,500 60,000 Century Aluminum Co. 144A company guaranty 7 1/2s, 2014 63,000 175,000 Gerdau Ameristeel Corp. sr. notes 10 3/8s, 2011 (Canada) 205,188 85,000 International Steel Group, Inc. sr. notes 6 1/2s, 2014 90,313 10,000 Kaiser Aluminum & Chemical Corp. sr. notes Ser. B, 10 7/8s, 2006 (In default) (NON) 8,550 EUR 80,000 SGL Carbon SA 144A sr. notes 8 1/2s, 2012 (Luxembourg) 116,305 $110,000 Steel Dynamics, Inc. company guaranty 9 1/2s, 2009 121,825 175,000 Ucar Finance, Inc. company guaranty 10 1/4s, 2012 197,750 214,000 United States Steel Corp. sr. notes 9 3/4s, 2010 246,100 7,201 Wheeling-Pittsburgh Steel Corp. sr. notes 6s, 2010 5,401 13,998 Wheeling-Pittsburgh Steel Corp. sr. notes 5s, 2011 10,499 40,000 WHX Corp. sr. notes 10 1/2s, 2005 38,000 -------------- 1,307,831 Other (3.5%) ------------------------------------------------------------------------------- 2,375,000 Dow Jones CDX HY 144A pass-through certificates 7 3/4s, 2009 2,410,583 Publishing (4.7%) ------------------------------------------------------------------------------- 300,000 Advertising Direct 144A sr. notes 9 1/4s, 2012 (Canada) 313,500 382,086 Canada, Inc. 144A sr. sub. notes 8s, 2012 (Canada) 408,832 185,000 Dex Media West, LLC/Dex Media Finance Co. sr. notes Ser. B, 8 1/2s, 2010 206,275 85,000 Dex Media, Inc. disc. notes zero %, 2013 65,238 345,000 Dex Media, Inc. notes 8s, 2013 369,581 140,000 Houghton Mifflin Co. sr. sub. notes 9 7/8s, 2013 154,000 175,000 MediaNews Group, Inc. sr. sub. notes 6 7/8s, 2013 179,375 185,000 Primedia, Inc. company guaranty 8 7/8s, 2011 190,550 80,000 Primedia, Inc. company guaranty 7 5/8s, 2008 80,000 135,000 Primedia, Inc. 144A sr. notes 8s, 2013 133,650 335,000 Reader's Digest Association, Inc. (The) sr. notes 6 1/2s, 2011 349,238 20,000 RH Donnelley Finance Corp. I company guaranty 8 7/8s, 2010 22,400 170,000 RH Donnelley Finance Corp. I 144A sr. notes 8 7/8s, 2010 190,400 85,000 RH Donnelley Finance Corp. I 144A sr. sub. notes 10 7/8s, 2012 101,575 245,000 Vertis, Inc. company guaranty Ser. B, 10 7/8s, 2009 267,050 120,000 Vertis, Inc. 144A sub. notes 13 1/2s, 2009 127,200 105,000 WRC Media Corp. sr. sub. notes 12 3/4s, 2009 98,831 -------------- 3,257,695 Restaurants (0.3%) ------------------------------------------------------------------------------- 80,000 Domino's, Inc. sr. sub. notes 8 1/4s, 2011 87,200 155,000 Sbarro, Inc. company guaranty 11s, 2009 155,000 -------------- 242,200 Retail (2.2%) ------------------------------------------------------------------------------- 80,000 Asbury Automotive Group, Inc. sr. sub. notes 8s, 2014 79,200 160,000 Autonation, Inc. company guaranty 9s, 2008 182,400 90,000 Finlay Fine Jewelry Corp. sr. notes 8 3/8s, 2012 96,975 155,000 JC Penney Co., Inc. debs. 7.95s, 2017 181,544 30,000 JC Penney Co., Inc. debs. 7.65s, 2016 34,313 90,000 JC Penney Co., Inc. debs. 7 1/8s, 2023 96,975 20,000 JC Penney Co., Inc. notes 9s, 2012 24,600 5,000 JC Penney Co., Inc. notes 8s, 2010 5,700 80,000 Jean Coutu Group, Inc. 144A sr. notes 7 5/8s, 2012 (Canada) 83,600 155,000 Jean Coutu Group, Inc. 144A sr. sub. notes 8 1/2s, 2014 (Canada) 157,325 100,000 Rite Aid Corp. company guaranty 9 1/2s, 2011 109,750 5,000 Rite Aid Corp. debs. 6 7/8s, 2013 4,550 15,000 Rite Aid Corp. notes 7 1/8s, 2007 15,150 40,000 Rite Aid Corp. sec. notes 8 1/8s, 2010 42,600 75,000 Rite Aid Corp. sr. notes 9 1/4s, 2013 77,438 5,000 Rite Aid Corp. 144A notes 6s, 2005 5,088 195,000 Saks, Inc. company guaranty 7s, 2013 197,925 70,000 Toys R Us, Inc. notes 7 5/8s, 2011 70,700 70,000 United Auto Group, Inc. company guaranty 9 5/8s, 2012 78,225 -------------- 1,544,058 Technology (3.4%) ------------------------------------------------------------------------------- 200,000 Advanced Micro Devices, Inc. 144A sr. notes 7 3/4s, 2012 204,000 82,000 AMI Semiconductor, Inc. company guaranty 10 3/4s, 2013 96,145 70,000 Amkor Technologies, Inc. sr. sub. notes 10 1/2s, 2009 65,450 150,000 Celestica, Inc. sr.sub. notes 7 7/8s, 2011 (Canada) 159,000 115,000 Iron Mountain, Inc. company guaranty 8 5/8s, 2013 121,900 125,000 Iron Mountain, Inc. company guaranty 7 3/4s, 2015 126,875 10,000 Lucent Technologies, Inc. debs. 6 1/2s, 2028 8,525 175,000 Lucent Technologies, Inc. debs. 6.45s, 2029 150,063 10,000 Lucent Technologies, Inc. notes 5 1/2s, 2008 10,300 65,000 New ASAT Finance, Ltd. 144A company guaranty 9 1/4s, 2011 (Cayman Islands) 57,850 175,000 Nortel Networks Corp. notes 6 1/8s, 2006 (Canada) 176,750 153,000 ON Semiconductor Corp. company guaranty 13s, 2008 175,185 65,000 SCG Holding Corp. 144A notes zero %, 2011 92,950 110,000 Seagate Technology Hdd Holdings company guaranty 8s, 2009 (Cayman Islands) 118,250 155,000 UGS Corp. 144A sr. sub. notes 10s, 2012 176,700 130,000 Xerox Capital Trust I company guaranty 8s, 2027 132,275 65,000 Xerox Corp. notes Ser. MTN, 7.2s, 2016 67,925 210,000 Xerox Corp. sr. notes 7 5/8s, 2013 230,475 180,000 Xerox Corp. sr. notes 6 7/8s, 2011 190,350 -------------- 2,360,968 Textiles (0.9%) ------------------------------------------------------------------------------- 260,000 Levi Strauss & Co. sr. notes 12 1/4s, 2012 274,300 75,000 Oxford Industries, Inc. sr. notes 8 7/8s, 2011 81,000 40,000 Phillips-Van Heusen Corp. sr. notes 7 1/4s, 2011 41,900 120,000 Russell Corp. company guaranty 9 1/4s, 2010 129,750 68,000 William Carter Holdings Co. (The) company guaranty Ser. B, 10 7/8s, 2011 77,860 -------------- 604,810 Tire & Rubber (0.4%) ------------------------------------------------------------------------------- 35,000 Goodyear Tire & Rubber Co. (The) notes 8 1/2s, 2007 37,100 180,000 Goodyear Tire & Rubber Co. (The) notes 7.857s, 2011 178,650 35,000 Goodyear Tire & Rubber Co. (The) notes 6 3/8s, 2008 35,000 -------------- 250,750 Tobacco (0.1%) ------------------------------------------------------------------------------- 110,000 North Atlantic Trading Co. sr. notes 9 1/4s, 2012 85,800 Transportation (1.0%) ------------------------------------------------------------------------------- 95,000 American Airlines, Inc. pass-through certificates Ser. 01-1, 6.817s, 2011 87,638 170,000 Calair, LLC/Calair Capital Corp. company guaranty 8 1/8s, 2008 134,300 200,000 Kansas City Southern Railway Co. company guaranty 9 1/2s, 2008 227,000 30,000 Kansas City Southern Railway Co. company guaranty 7 1/2s, 2009 31,238 120,000 Navistar International Corp. company guaranty Ser. B, 9 3/8s, 2006 128,400 63,692 NWA Trust sr. notes Ser. A, 9 1/4s, 2012 65,683 40,000 Travel Centers of America, Inc. company guaranty 12 3/4s, 2009 45,300 -------------- 719,559 Utilities & Power (7.5%) ------------------------------------------------------------------------------- 13,000 AES Corp. (The) sr. notes 8 7/8s, 2011 14,885 4,000 AES Corp. (The) sr. notes 8 3/4s, 2008 4,400 130,000 AES Corp. (The) 144A sec. notes 9s, 2015 149,500 190,000 AES Corp. (The) 144A sec. notes 8 3/4s, 2013 215,650 100,000 Allegheny Energy Supply 144A bonds 8 1/4s, 2012 113,250 65,000 Allegheny Energy Supply 144A sec. notes 10 1/4s, 2007 74,263 50,000 CenterPoint Energy Resources Corp. debs. 6 1/2s, 2008 53,608 25,000 CenterPoint Energy Resources Corp. sr. notes Ser. B, 7 7/8s, 2013 29,384 15,000 CMS Energy Corp. pass-through certificates 7s, 2005 15,030 130,000 CMS Energy Corp. sr. notes 8.9s, 2008 143,975 40,000 CMS Energy Corp. sr. notes 8 1/2s, 2011 45,500 30,000 CMS Energy Corp. sr. notes 7 3/4s, 2010 32,775 340,000 DPL, Inc. bonds 8 1/8s, 2031 383,350 55,000 Dynegy Holdings, Inc. sr. notes 6 7/8s, 2011 53,075 245,000 Dynegy Holdings, Inc. 144A sec. notes 10 1/8s, 2013 286,038 65,000 Dynegy-Roseton Danskamme company guaranty Ser. A, 7.27s, 2010 65,975 100,000 Dynegy-Roseton Danskamme company guaranty Ser. B, 7.67s, 2016 96,500 45,000 Edison Mission Energy sr. notes 10s, 2008 52,200 40,000 El Paso CGP Co. notes 7 3/4s, 2010 41,200 65,000 El Paso Corp. sr. notes 7 3/8s, 2012 64,838 160,000 El Paso Corp. sr. notes Ser. MTN, 7 3/4s, 2032 147,200 30,000 El Paso Natural Gas Co. debs. 8 5/8s, 2022 34,200 170,000 El Paso Production Holding Co. company guaranty 7 3/4s, 2013 177,225 115,000 Ferrellgas Partners LP/Ferrellgas Partners Finance sr. notes 6 3/4s, 2014 118,450 35,000 Kansas Gas & Electric debs. 8.29s, 2016 36,127 225,000 Midwest Generation, LLC sec. sr. notes 8 3/4s, 2034 255,094 145,000 Mission Energy Holding Co. sec. notes 13 1/2s, 2008 181,794 70,000 Monongahela Power Co. 144A 1st. mtge. 6.7s, 2014 76,902 85,000 Nevada Power Co. 2nd mtge. 9s, 2013 98,600 55,000 Nevada Power Co. 144A general ref. mtge. 5 7/8s, 2015 55,275 175,000 Northwest Pipeline Corp. company guaranty 8 1/8s, 2010 195,344 10,000 Northwestern Corp. debs. 6.95s, 2028 (In default) (NON) 8,800 20,000 Northwestern Corp. notes 8 3/4s, 2012 (In default) (NON) 1 445,000 NRG Energy, Inc. 144A sr. sec. notes 8s, 2013 491,724 100,000 Orion Power Holdings, Inc. sr. notes 12s, 2010 126,000 25,000 PG&E Gas Transmission Northwest sr. notes 7.1s, 2005 25,517 105,000 PSEG Energy Holdings, Inc. notes 7 3/4s, 2007 112,350 85,000 SEMCO Energy, Inc. sr. notes 7 3/4s, 2013 93,075 110,000 SEMCO Energy, Inc. 144A sr. notes 7 3/4s, 2013 113,300 25,000 Sierra Pacific Power Co. general ref. mtge. 6 1/4s, 2012 26,125 165,000 Sierra Pacific Resources sr. notes 8 5/8s, 2014 188,100 20,000 Southern California Edison Co. notes 6 3/8s, 2006 20,686 55,000 Teco Energy, Inc. notes 10 1/2s, 2007 63,663 35,000 Teco Energy, Inc. notes 7.2s, 2011 38,675 55,000 Teco Energy, Inc. notes 7s, 2012 59,950 15,000 Tennessee Gas Pipeline Co. debs. 7s, 2028 14,700 75,000 Tennessee Gas Pipeline Co. unsecd. notes 7 1/2s, 2017 81,844 20,000 Transcontinental Gas Pipeline Corp. debs. 7 1/4s, 2026 21,700 105,000 Utilicorp Canada Finance Corp. company guaranty 7 3/4s, 2011 (Canada) 110,250 75,000 Utilicorp United, Inc. sr. notes 9.95s, 2011 85,125 70,000 Western Resources, Inc. sr. notes 9 3/4s, 2007 78,485 25,000 Williams Cos., Inc. (The) notes 8 3/4s, 2032 28,875 25,000 Williams Cos., Inc. (The) notes 8 1/8s, 2012 28,875 95,000 Williams Cos., Inc. (The) notes 7 5/8s, 2019 105,925 73,041 York Power Funding 144A notes 12s, 2007 (Cayman Islands) (In default) (NON) (F) 7 -------------- 5,235,359 -------------- Total Corporate bonds and notes (cost $60,957,671) $63,826,773 Common stocks (2.0%) (a) Number of shares Value ------------------------------------------------------------------------------- 307 AboveNet, Inc. (NON) (S) $7,982 384 Alderwoods Group, Inc. (NON) 4,063 180,000 AMRESCO Creditor Trust (acquired various dates from 5/5/99 to 5/10/00, cost $38,828) (NON)(RES) (R)(F) 180 324 Archibald Candy Corp. (NON) (F) 1 195 Birch Telecom, Inc. (NON) (F) 2 20,176 Coinmach Service Corp. IDS (Income Deposit Securities) (NON) (S) 275,200 85 Comdisco Holding Co., Inc. (S) 2,125 505,286 Contifinancial Corp. Liquidating Trust Units 5,053 3,010 Covad Communications Group, Inc. (NON) (S) 4,696 83 Crown Castle International Corp. (NON) 1,401 5,403 Globix Corp. (NON) 16,479 115,000 iPCS Escrow, Inc. (NON) 115 3,613 iPCS, Inc. (NON) 92,493 33 Knology, Inc. (NON) 114 19 Leucadia National Corp. 1,191 1,111 Lodgian, Inc. (NON) 11,788 20,000 Loewen Group International, Inc. (NON) (F) 2 978 Northwestern Corp. (NON) 16,826 136 Polymer Group, Inc. Class A (NON) 2,584 576 PSF Group Holdings, Inc. 144A Class A (NON) (F) 863,685 10 Sterling Chemicals, Inc. (NON) 320 178 Sun Healthcare Group, Inc. (NON) 1,335 40 USA Mobility, Inc. (NON) 1,454 259,509 VFB, LLC (acquired various dates from 12/21/99 to 10/27/00, cost $214,226) (NON)(RES) 49,307 40,417 VS Holdings, Inc. (NON) 30,313 816 Washington Group International, Inc. (NON) 31,824 -------------- Total Common stocks (cost $4,225,013) $1,420,533 Foreign government bonds and notes (1.3%) (a) Principal amount Value ------------------------------------------------------------------------------- $35,000 Colombia (Republic of) bonds 10 3/8s, 2033 $39,638 35,000 Colombia (Republic of) bonds Ser. NOV, 9 3/4s, 2009 39,515 75,000 Colombia (Republic of) notes 10 3/4s, 2013 87,900 115,000 Ecuador (Republic of) bonds stepped-coupon Ser. REGS, 8s, 2030 98,670 140,000 Indonesia (Republic of) 144A sr. notes 6 3/4s, 2014 137,200 45,000 Peru (Republic of) bonds 8 3/4s, 2033 45,473 10,000 Philippines (Republic of) bonds 8 3/8s, 2011 10,000 155,000 Philippines (Republic of) sr. notes 8 7/8s, 2015 152,908 170,000 Russia (Federation of) unsub. stepped-coupon 5s (7 1/2s, 3/31/07), 2030 (STP) 168,725 18,667 Ukraine (Government of) sr. notes Ser. REGS, 11s, 2007 19,531 120,000 United Mexican States bonds Ser. MTN, 8.3s, 2031 135,840 -------------- Total Foreign government bonds and notes (cost $856,486) $935,400 Preferred stocks (0.6%) (a) Number of shares Value ------------------------------------------------------------------------------- 1,828 Doane Pet Care Co. $7.125 pfd. $82,260 3 Dobson Commu1,140 80 First Republic Capital Corp. 144A 10.50% pfd. 82,800 2,152 iStar Financial, Inc. Ser. F, $1.95 cum. pfd. (R) 54,661 19 Paxson Communications Corp. 14.25% cum. pfd. (PIK) (S) 142,500 100 Primedia, Inc. Ser. F, $9.20 cum. pfd. 8,750 84 Rural Cellular Corp. Ser. B, 11.375% cum. pfd. (PIK) 67,200 -------------- Total Preferred stocks (cost $486,749) $439,311 Convertible bonds and notes (0.6%) (a) Principal amount Value ------------------------------------------------------------------------------- $490,000 Cybernet Internet Services International, Inc. 144A cv. sr. disc. notes 13s, 2009 (Denmark) (In default) (NON) $5 65,000 Fairchild Semiconductor International, Inc. cv. company guaranty 5s, 2008 65,406 390,000 Kulicke & Soffa Industries, Inc. cv. sub. notes 0.5s, 2008 300,300 50,000 WCI Communities, Inc. cv. sr. sub. notes 4s, 2023 57,875 -------------- Total Convertible bonds and notes (cost $811,431) $423,586 Convertible preferred stocks (0.3%) (a) Number of shares Value ------------------------------------------------------------------------------- 1,537 Crown Castle International Corp. $3.125 cum. cv. pfd. $75,313 917 Omnicare, Inc. $2.00 cv. pfd. 47,799 1,160 Williams Cos., Inc. (The) 144A $2.75 cv. pfd. 98,745 -------------- Total Convertible preferred stocks (cost $156,761) $221,857 Units (0.3%) (a) (cost $812,266) Number of units Value ------------------------------------------------------------------------------- 446 XCL Equity Units (F) $197,851 Warrants (0.2%) (a) (NON) Expiration Number of warrants date Value ------------------------------------------------------------------------------- 108 AboveNet, Inc. 9/8/08 $864 127 AboveNet, Inc. 9/8/10 508 200 Dayton Superior Corp. 144A 6/15/09 1 1 Doe Run Resources Corp. 144A (F) 10/29/12 1 205 Huntsman Co., LLC 144A 5/15/11 71,747 89 MDP Acquisitions PLC 144A 10/1/13 3,560 70 Mikohn Gaming Corp. 144A 8/15/08 105 8 NTL, Inc. 1/13/11 34 80 Pliant Corp. 144A 6/1/10 1 120 Travel Centers of America, Inc. 144A 5/1/09 600 350 Ubiquitel, Inc. 144A 4/15/10 1 503 Washington Group International, Inc. Ser. A 1/25/06 5,835 575 Washington Group International, Inc. Ser. B 1/25/06 5,290 310 Washington Group International, Inc. Ser. C 1/25/06 2,527 190 XM Satellite Radio Holdings, Inc. 144A 3/15/10 15,200 -------------- Total Warrants (cost $154,669) $106,274 Brady bonds (0.1%) (a) (cost $98,306) Principal amount Value ------------------------------------------------------------------------------- $105,600 Peru (Republic of) FRB Ser. PDI, 5s, 2017 $98,736 Senior loans (0.1%) (a) (c) (cost $81,016) Principal amount Value ------------------------------------------------------------------------------- $90,000 Olympus Cable bank term loan FRN Ser. B, 6 3/4s, 2010 $88,959 Asset-backed securities (0.1%) (a) (cost $60,000) Principal amount Value ------------------------------------------------------------------------------- $60,000 Verdi Synthetic CLO 144A Ser. 1A, Class E2, 11.15s, 2010 $60,263 Short-term investments (2.8%) (a) Principal amount Value ------------------------------------------------------------------------------- $393,596 Short-term investments held as collateral for loaned securities with yields ranging from 1.94% to 2.21% and due dates ranging from December 1, 2004 to January 7, 2005 (d) $393,449 1,527,879 Putnam Prime Money Market Fund (e) 1,527,879 -------------- Total Short-term investments (cost $1,921,328) $1,921,328 ------------------------------------------------------------------------------- Total Investments (cost $70,621,696) $69,740,871 ------------------------------------------------------------------------------- (a) Percentages indicated are based on net assets of $69,622,305. (NON) Non-income-producing security. (STP) The interest rate and date shown parenthetically represent the new interest rate to be paid and the date the fund will begin accruing interest at this rate. (RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities held at November 30, 2004 was $49,487 or less than 0.1% of net assets. (PIK) Income may be received in cash or additional securities at the discretion of the issuer. (F) Security is valued at fair value following procedures approved by the Trustees. (R) Real Estate Investment Trust. (S) Securities on loan, in part or in entirety, at November 30, 2004. (c) Senior loans are exempt from registration under the Security Act of 1933, as amended, but contain certain restrictions on resale and cannot be sold publicly. These loans pay interest at rates which adjust periodically. The interest rate shown for senior loans are the current interest rates at November 30, 2004. Senior loans are also subject to mandatory and/or optional prepayment which cannot be predicted. As a result, the remaining maturity may be substantially less than the stated maturity shown. (d) See Note 1 to the financial statements. (e) See Note 4 to the financial statements regarding investments in Putnam Prime Money Market Fund. 144A after the name of a security represents those exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. The rates shown on Floating Rate Bonds (FRB) and Floating Rate Notes (FRN) are the current interest rates at November 30, 2004.
Forward currency contracts to sell at November 30, 2004 (Unaudited) (aggregate face value $349,929) Aggregate Delivery Unrealized Value face value date depreciation ---------------------------------------------------------------------------------- Euro $350,973 $349,929 3/16/05 $(1,044) ----------------------------------------------------------------------------------
Credit default contracts outstanding at November 30, 2004 (Unaudited) Unrealized Notional appreciation/ amount depreciation ------------------------------------------------------------------------------------------------------ Agreement with Goldman Sachs effective September 2, 2004, terminating on the date on which the notional amount is reduced to zero or the date on which the assets securing the reference obligation are liquidated, the fund receives a payment of the outstanding notional amount times 2.35% and the fund pays in the event of a credit default in one of the underlying securities in the basket of BB CMBS securities. $24,593 $366 Agreement with Goldman Sachs effective September 2, 2004, terminating on the date on which the notional amount is reduced to zero or the date on which the assets securing the reference obligation are liquidated, the fund receives a payment of the outstanding notional amount times 2.55625% and the fund pays in the event of a credit default in one of the underlying securities in the basket of BB CMBS securities. 24,593 125 Agreement with Goldman Sachs effective September 2, 2004, terminating on the date on which the notional amount is reduced to zero or the date on which the assets securing the reference obligation are liquidated, the fund receives a payment of the outstanding notional amount times 2.4625% and the fund pays in the event of a credit default in one of the underlying securities in the basket of BB CMBS securities. 12,296 218 Agreement with Goldman Sachs effective September 2, 2004, terminating on the date on which the notional amount is reduced to zero or the date on which the assets securing the reference obligation are liquidated, the fund receives a payment of the outstanding notional amount times 2.433% and the fund pays in the event of a credit default in one of the underlying securities in the basket of BB CMBS securities. 9,222 173 Agreement with Goldman Sachs effective September 2, 2004, terminating on the date on which the notional amount is reduced to zero or the date on which the assets securing the reference obligation are liquidated, the fund receives a payment of the outstanding notional amount times 2.475% and the fund pays in the event of a credit default in one of the underlying securities in the basket of BB CMBS securities. 6,148 66 Agreement with Goldman Sachs effective September 2, 2004, terminating on the date on which the notional amount is reduced to zero or the date on which the assets securing the reference obligation are liquidated, the fund receives a payment of the outstanding notional amount times 2.5% and the fund pays in the event of a credit default in one of the underlying securities in the basket of BB CMBS securities. 3,074 125 Agreement with Goldman Sachs effective September 2, 2004, terminating on the date on which the notional amount is reduced to zero or the date on which the assets securing the reference obligation are liquidated, the fund receives a payment of the outstanding notional amount times 2.6% and the fund pays in the event of a credit default in one of the underlying securities in the basket of BB CMBS securities. 3,074 (80) ------------------------------------------------------------------------------------------------------ $993 ------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. Statement of assets and liabilities November 30, 2004 (Unaudited) Assets ------------------------------------------------------------------------------- Investment in securities, at value, including $383,185 of securities on loan (Note 1): ------------------------------------------------------------------------------- Unaffiliated issuers (identified cost $69,093,817) $68,212,992 ------------------------------------------------------------------------------- Affiliated issuers (identified cost $1,527,879) (Note 4) 1,527,879 ------------------------------------------------------------------------------- Cash 93,273 ------------------------------------------------------------------------------- Dividends, interest and other receivables 1,388,918 ------------------------------------------------------------------------------- Receivable for securities sold 701,754 ------------------------------------------------------------------------------- Receivable for open credit default contracts (Note 1) 1,073 ------------------------------------------------------------------------------- Receivable for closed forward currency contracts (Note 1) 8,711 ------------------------------------------------------------------------------- Total assets 71,934,600 Liabilities ------------------------------------------------------------------------------- Distributions payable to shareholders 405,332 ------------------------------------------------------------------------------- Payable for securities purchased 1,243,378 ------------------------------------------------------------------------------- Payable for compensation of Manager (Notes 2 and 4) 128,308 ------------------------------------------------------------------------------- Payable for investor servicing and custodian fees (Note 2) 31,544 ------------------------------------------------------------------------------- Payable for Trustee compensation and expenses (Note 2) 30,082 ------------------------------------------------------------------------------- Payable for administrative services (Note 2) 1,046 ------------------------------------------------------------------------------- Payable for open forward currency contracts (Note 1) 1,044 ------------------------------------------------------------------------------- Payable for closed forward currency contracts (Note 1) 42,873 ------------------------------------------------------------------------------- Payable for open credit default contracts (Note 1) 80 ------------------------------------------------------------------------------- Collateral on securities loaned, at value (Note 1) 393,449 ------------------------------------------------------------------------------- Other accrued expenses 35,159 ------------------------------------------------------------------------------- Total liabilities 2,312,295 ------------------------------------------------------------------------------- Net assets $69,622,305 Represented by ------------------------------------------------------------------------------- Paid-in capital (unlimited shares authorized) (Note 1) $104,868,809 ------------------------------------------------------------------------------- Distributions in excess of net investment income (Note 1) (706,059) ------------------------------------------------------------------------------- Accumulated net realized loss on investments and foreign currency transactions (Note 1) (33,659,746) ------------------------------------------------------------------------------- Net unrealized depreciation of investments and assets and liabilities in foreign currencies (880,699) ------------------------------------------------------------------------------- Total -- Representing net assets applicable to capital shares outstanding $69,622,305 ------------------------------------------------------------------------------- Computation of net asset value ------------------------------------------------------------------------------- Net asset value per share ($69,622,305 divided by 7,507,107 shares) $9.27 ------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements. Statement of operations Six months ended November 30, 2004 (Unaudited) Investment income: ------------------------------------------------------------------------------- Interest (including interest income of $14,892 from investments in affiliated issuers) (Note 4) $2,757,614 ------------------------------------------------------------------------------- Dividends 29,564 ------------------------------------------------------------------------------- Securities lending 176 ------------------------------------------------------------------------------- Total investment income 2,787,354 Expenses: ------------------------------------------------------------------------------- Compensation of Manager (Note 2) 258,104 ------------------------------------------------------------------------------- Investor servicing fees (Note 2) 17,182 ------------------------------------------------------------------------------- Custodian fees (Note 2) 51,923 ------------------------------------------------------------------------------- Trustee compensation and expenses (Note 2) 5,445 ------------------------------------------------------------------------------- Administrative services (Note 2) 3,120 ------------------------------------------------------------------------------- Auditing 22,426 ------------------------------------------------------------------------------- Other 37,869 ------------------------------------------------------------------------------- Fees waived and reimbursed by Manager (Note 4) (1,529) ------------------------------------------------------------------------------- Total expenses 394,540 ------------------------------------------------------------------------------- Expense reduction (Note 2) (507) ------------------------------------------------------------------------------- Net expenses 394,033 ------------------------------------------------------------------------------- Net investment income 2,393,321 ------------------------------------------------------------------------------- Net realized loss on investments (Notes 1 and 3) (403,988) ------------------------------------------------------------------------------- Net realized gain on credit default contracts (Note 1) 313 ------------------------------------------------------------------------------- Net realized loss on foreign currency transactions (Note 1) (35,545) ------------------------------------------------------------------------------- Net unrealized appreciation of assets and liabilities in foreign currencies during the period 3,341 ------------------------------------------------------------------------------- Net unrealized appreciation of investments and credit default contracts during the period 3,918,239 ------------------------------------------------------------------------------- Net gain on investments 3,482,360 ------------------------------------------------------------------------------- Net increase in net assets resulting from operations $5,875,681 ------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements. Statement of changes in net assets Six months ended Year ended November 30 May 31 Increase in net assets 2004* 2004 ------------------------------------------------------------------------------- Operations: ------------------------------------------------------------------------------- Net investment income $2,393,321 $5,039,143 ------------------------------------------------------------------------------- Net realized loss on investments and foreign currency transactions (439,220) (846,736) ------------------------------------------------------------------------------- Net unrealized appreciation of investments and assets and liabilities in foreign currencies 3,921,580 3,612,657 ------------------------------------------------------------------------------- Net increase in net assets resulting from operations 5,875,681 7,805,064 ------------------------------------------------------------------------------- Distributions to shareholders: (Note 1) ------------------------------------------------------------------------------- From net investment income (2,431,997) (4,993,812) ------------------------------------------------------------------------------- From return of capital -- (50,354) ------------------------------------------------------------------------------- Total increase in net assets 3,443,684 2,760,898 Net assets ------------------------------------------------------------------------------- Beginning of period 66,178,621 63,417,723 ------------------------------------------------------------------------------- End of period (including distributions in excess of net investment income of $706,059 and $667,383, respectively) $69,622,305 $66,178,621 ------------------------------------------------------------------------------- Number of fund shares ------------------------------------------------------------------------------- Shares outstanding at beginning and end of period 7,507,107 7,507,107 ------------------------------------------------------------------------------- * Unaudited The accompanying notes are an integral part of these financial statements.
Financial highlights (For a common share outstanding throughout the period) Six months ended Nov. 30 Per-share (Unaudited) Year ended May 31 operating performance 2004 2004 2003 2002 2001 2000 ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $8.82 $8.45 $8.50 $9.49 $10.91 $12.30 ------------------------------------------------------------------------------------------------------------------------------ Investment operations: ------------------------------------------------------------------------------------------------------------------------------ Net investment income (a) .32 (d) .67 (d) .73 .86 1.16 1.16 ------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments .45 .37 (.01) (.86) (1.41) (1.27) ------------------------------------------------------------------------------------------------------------------------------ Total from investment operations .77 1.04 .72 -- (e) (.25) (.11) ------------------------------------------------------------------------------------------------------------------------------ Less distributions: ------------------------------------------------------------------------------------------------------------------------------ From net investment income (.32) (.66) (.76) (.87) (1.17) (1.21) ------------------------------------------------------------------------------------------------------------------------------ From return of capital -- (.01) (.01) (.12) -- (.07) ------------------------------------------------------------------------------------------------------------------------------ Total distributions (.32) (.67) (.77) (.99) (1.17) (1.28) ------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $9.27 $8.82 $8.45 $8.50 $9.49 $10.91 ------------------------------------------------------------------------------------------------------------------------------ Market price, end of period $8.37 $7.92 $9.02 $9.48 $10.80 $10.19 ------------------------------------------------------------------------------------------------------------------------------ Total return at market price (%)(b) 9.87* (4.99) 4.15 (2.91) 18.34 (15.61) ------------------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data ------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $69,622 $66,179 $63,418 $63,826 $71,211 $81,898 ------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(c) .58* (d) 1.19 (d) 1.22 1.19 1.14 1.08 ------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) 3.52* (d) 7.57 (d) 9.17 9.69 11.41 9.92 ------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 31.19* 66.18 73.72 73.39 97.63 97.22 ------------------------------------------------------------------------------------------------------------------------------
* Not annualized. (a) Per share net investment income has been determined on the basis of the weighted number of shares outstanding during the period. (b) Total return assumes dividend reinvestment. (c) Includes amounts paid through expense offset arrangements (Note 2). (d) Reflects waivers of certain fund expenses in connection with investments in Putnam Prime Money Market Fund during the period. As a result of such waivers, the expenses of the fund for the periods ended November 30, 2004 and May 31, 2004 reflect a reduction of less than 0.01% based on average net assets (Note 4). (e) Amount represents less than $0.01 per share. The accompanying notes are an integral part of these financial statements. Notes to financial statements November 30, 2004 (Unaudited) Note 1 Significant accounting policies Putnam Managed High Yield Trust (the "fund"), a Massachusetts business trust, is registered under the Investment Company Act of 1940, as amended, as a non-diversified, closed-end management investment company. The fund's primary investment objective is to seek high current income. The fund intends to achieve its objective by investing in high yielding income securities. The fund invests in higher yielding, lower rated bonds that have a higher rate of default due to the nature of the investments. The following is a summary of significant accounting policies consistently followed by the fund in the preparation of its financial statements. The preparation of financial statements is in conformity with accounting principles generally accepted in the United States of America and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. A) Security valuation Market quotations are not considered to be readily available for certain debt obligations; such investments are valued at fair value on the basis of valuations furnished by an independent pricing service or dealers, approved by the Trustees. Such services or dealers determine valuations for normal institutional-size trading units of such securities using methods based on market transactions for comparable securities and various relationships, generally recognized by institutional traders, between securities. Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange. Accordingly, on certain days, the fund will fair value foreign securities taking into account multiple factors, including movements in the U.S. securities markets. The number of days on which fair value prices will be used will depend on market activity and it is possible that fair value prices will be used by the fund to a significant extent. Securities quoted in foreign currencies are translated into U.S. dollars at the current exchange rate. Short-term investments having remaining maturities of 60 days or less are valued at amortized cost, which approximates fair value. Other investments, including restricted securities, are valued at fair value following procedures approved by the Trustees. Such valuations and procedures are reviewed periodically by the Trustees. B) Joint trading account Pursuant to an Exemptive Order from the Securities and Exchange Commission, the fund may transfer uninvested cash balances, including cash collateral received under security lending arrangements, into a joint trading account along with the cash of other registered investment companies and certain other accounts managed by Putnam Investment Management, LLC ("Putnam Management"), the fund's manager, an indirect wholly-owned subsidiary of Putnam, LLC. These balances may be invested in issuers of high-grade short-term investments having maturities of up to 397 days for collateral received under security lending arrangements and up to 90 days for other cash investments. C) Security transactions and related investment income Security transactions are recorded on the trade date (date the order to buy or sell is executed). Gains or losses on securities sold are determined on the identified cost basis. Interest income is recorded on the accrual basis. Dividend income, net of applicable withholding taxes, is recognized on the ex-dividend date except that certain dividends from foreign securities are recognized as soon as the fund is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair market value of the securities received. All premiums/discounts are amortized/ accreted on a yield-to-maturity basis. The fund earned certain fees in connection with its senior loan purchasing activities. These fees are treated as market discount and are recorded as income in the statement of operations. D) Foreign currency translation The accounting records of the fund are maintained in U.S. dollars. The market value of foreign securities, currency holdings, and other assets and liabilities are recorded in the books and records of the fund after translation to U.S. dollars based on the exchange rates on that day. The cost of each security is determined using historical exchange rates. Income and withholding taxes are translated at prevailing exchange rates when earned or incurred. The fund does not isolate that portion of realized or unrealized gains or losses resulting from changes in the foreign exchange rate on investments from fluctuations arising from changes in the market prices of the securities. Such gains and losses are included with the net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net realized exchange gains or losses on closed forward currency contracts, disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions and the difference between the amount of investment income and foreign withholding taxes recorded on the fund's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized appreciation and depreciation of assets and liabilities in foreign currencies arise from changes in the value of open forward currency contracts and assets and liabilities other than investments at the period end, resulting from changes in the exchange rate. Investments in foreign securities involve certain risks, including those related to economic instability, unfavorable political developments, and currency fluctuations, not present with domestic investments. E) Forward currency contracts The fund may buy and sell forward currency contracts, which are agreements between two parties to buy and sell currencies at a set price on a future date. These contracts are used to protect against a decline in value relative to the U.S. dollar of the currencies in which its portfolio securities are denominated or quoted (or an increase in the value of a currency in which securities a fund intends to buy are denominated, when a fund holds cash reserves and short term investments). The U.S. dollar value of forward currency contracts is determined using current forward currency exchange rates supplied by a quotation service. The market value of the contract will fluctuate with changes in currency exchange rates. The contract is marked to market daily and the change in market value is recorded as an unrealized gain or loss. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The fund could be exposed to risk if the value of the currency changes unfavorably, if the counterparties to the contracts are unable to meet the terms of their contracts or if the fund is unable to enter into a closing position. Risks may exceed amounts recognized on the statement of assets and liabilities. Forward currency contracts outstanding at period end, if any, are listed after the fund's portfolio. F) Credit default contracts The fund may enter into credit default contracts where one party, the protection buyer, makes an upfront or periodic payment to a counterparty, the protection seller, in exchange for the right to receive a contingent payment. The maximum amount of the payment may equal the notional amount, at par, of the underlying index or security as a result of a related credit event. An upfront payment received by the fund, as the protection seller, is recorded as a liability on the fund's books. An upfront payment made by the fund, as the protection buyer, is recorded as an asset on the fund's books. Periodic payments received or paid by the fund are recorded as realized gains or losses. The credit default contracts are marked-to-market daily based upon quotations from market makers and the change, if any, is recorded as unrealized gain or loss. Payments received or made as a result of a credit event or termination of the contract are recognized, net of a proportional amount of the upfront payment, as realized gains or losses. In addition to bearing the risk that the credit event will occur, the fund could be exposed to market risk due to unfavorable changes in interest rates or in the price of the underlying security or index, the possibility that the fund may be unable to close out its position at the same time or at the same price as if it had purchased comparable publicly traded securities or that the counterparty may default on its obligation to perform. Risks of loss may exceed amounts recognized on the statement of assets and liabilities. Credit default contracts outstanding at period end, if any, are listed after the fund's portfolio. G) Security lending The fund may lend securities, through its agents, to qualified borrowers in order to earn additional income. The loans are collateralized by cash and/or securities in an amount at least equal to the market value of the securities loaned. The market value of securities loaned is determined daily and any additional required collateral is allocated to the fund on the next business day. The risk of borrower default will be borne by the fund's agents; the fund will bear the risk of loss with respect to the investment of the cash collateral. Income from securities lending is included in investment income on the statement of operations. At November 30, 2004, the value of securities loaned amounted to $383,185. The fund received cash collateral of $393,449 which is pooled with collateral of other Putnam funds into 20 issuers of high-grade short-term investments. H) Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time and otherwise comply with the provisions of the Internal Revenue Code of 1986 (the "Code") applicable to regulated investment companies. It is also the intention of the fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Code, as amended. Therefore, no provision has been made for federal taxes on income, capital gains or unrealized appreciation on securities held nor for excise tax on income and capital gains. At May 31, 2004, the fund had a capital loss carryover of $32,039,053 available to the extent allowed by the Code to offset future net capital gain, if any. The amount of the carryover and the expiration dates are: Loss Carryover Expiration ------------------------------ $2,584,483 May 31, 2007 4,168,119 May 31, 2008 3,778,275 May 31, 2009 8,384,999 May 31, 2010 11,264,568 May 31, 2011 1,858,609 May 31, 2012 Pursuant to federal income tax regulations applicable to regulated investment companies, the fund has elected to defer to its fiscal year ending May 31, 2005 $1,145,185 of losses recognized during the period November 1, 2003 to May 31, 2004. The aggregate identified cost on a tax basis is $70,917,779, resulting in gross unrealized appreciation and depreciation of $4,266,290 and $5,443,198, respectively, or net unrealized depreciation of $1,176,908. I) Distributions to shareholders Distributions to shareholders from net investment income are recorded by the fund on the ex-dividend date. Distributions from capital gains, if any, are recorded on the ex-dividend date and paid at least annually. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. Note 2 Management fee, administrative services and other transactions Putnam Management is paid for management and investment advisory services quarterly based on the average net assets of the fund. Such fee is based on 0.75% of the average weekly net assets. Effective September 13, 2004, Putnam Investments Limited ("PIL"), an affiliate of Putnam Management is authorized by the Trustees to manage a separate portion of the assets of the fund as determined by Putnam Management from time to time. Putnam Management pays a quarterly sub-management fee to PIL for its services at an annual rate of 0.40% of the average net assets of the portion of the fund managed by PIL. The fund reimburses Putnam Management an allocated amount for the compensation and related expenses of certain officers of the fund and their staff who provide administrative services to the fund. The aggregate amount of all such reimbursements is determined annually by the Trustees. Custodial functions for the fund's assets are provided by Putnam Fiduciary Trust Company ("PFTC"), a subsidiary of Putnam, LLC. Putnam Investor Services, a division of PFTC, provides investor servicing agent functions to the fund. During the six months ended November 30, 2004, the fund paid PFTC $69,105 for these services. The fund has entered into an arrangement with PFTC whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the fund's expenses. For the six months ended November 30, 2004, the fund's expenses were reduced by $507 under these arrangements. Each independent Trustee of the fund receives an annual Trustee fee, of which $539, as a quarterly retainer, as been allocated to the fund, and an additional fee for each Trustees meeting attended. Trustees receive additional fees for attendance at certain committee meetings. The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which allows the Trustees to defer the receipt of all or a portion of Trustees fees payable on or after July 1, 1995. The deferred fees remain invested in certain Putnam funds until distribution in accordance with the Deferral Plan. The fund has adopted an unfunded noncontributory defined benefit pension plan (the "Pension Plan") covering all Trustees of the fund who have served as a Trustee for at least five years. Benefits under the Pension Plan are equal to 50% of the Trustee's average total retainer and meeting fees for the three years preceding retirement. Pension expense for the fund is included in Trustee compensation and expenses in the statement of operations. Accrued pension liability is included in Payable for Trustee compensation and expenses in the statement of assets and liabilities. The Trustees have terminated the Pension Plan with respect to any Trustee first elected after 2003. Note 3 Purchases and sales of securities During the six months ended November 30, 2004, cost of purchases and proceeds from sales of investment securities other than short-term investments aggregated $20,600,706 and $20,319,035, respectively. There were no purchases or sales of U.S. government securities. Note 4 Investment in Putnam Prime Money Market Fund Pursuant to an Exemptive Order from the Securities and Exchange Commission, the fund invests in Putnam Prime Money Market Fund, an open-end management investment company managed by Putnam Management. Management fees paid by the fund are reduced by an amount equal to the management fees paid by Putnam Prime Money Market Fund with respect to assets invested by the fund in Putnam Prime Money Market Fund. For the period ended November 30, 2004, management fees paid were reduced by $1,529 relating to the fund's investment in Putnam Prime Money Market Fund. Income distributions earned by the fund are recorded as income in the statement of operations and totaled $14,892 for the period ended November 30, 2004. Note 5 Senior loan commitments Senior loans are purchased or sold on a when-issued or delayed delivery basis and may be settled a month or more after the trade date; interest income is accrued based on the terms of the securities. Senior loans can be acquired through an agent, by assignment from another holder of the loan, or as a participation interest in another holder's portion of the loan. When the fund invests in a loan or participation, the fund is subject to the risk that an intermediate participant between the fund and the borrower will fail to meet its obligations to the fund, in addition to the risk that the borrower under the loan may default on its obligations. Note 6 Regulatory matters and litigation On April 8, 2004, Putnam Management entered into agreements with the Securities and Exchange Commission and the Massachusetts Securities Division representing a final settlement of all charges brought against Putnam Management by those agencies on October 28, 2003 in connection with excessive short-term trading by Putnam employees and, in the case of the charges brought by the Massachusetts Securities Division, by participants in some Putnam-administered 401(k) plans. The settlement with the SEC requires Putnam Management to pay $5 million in disgorgement plus a civil monetary penalty of $50 million, and the settlement with the Massachusetts Securities Division requires Putnam Management to pay $5 million in restitution and an administrative fine of $50 million. The settlements also leave intact the process established under an earlier partial settlement with the SEC under which Putnam Management agreed to pay the amount of restitution determined by an independent consultant, which may exceed the disgorgement and restitution amounts specified above, pursuant to a plan to be developed by the independent consultant. Putnam Management, and not the investors in any Putnam fund, will bear all costs, including restitution, civil penalties and associated legal fees stemming from both of these proceedings. The SEC's and Massachusetts Securities Division's allegations and related matters also serve as the general basis for numerous lawsuits, including purported class-action lawsuits filed against Putnam Management and certain related parties, including certain Putnam funds. Putnam Management has agreed to bear any costs incurred by Putnam funds in connection with these lawsuits. Based on currently available information, Putnam Management believes that the likelihood that the pending private lawsuits and purported class-action lawsuits will have a material adverse financial impact on the fund is remote, and the pending actions are not likely to materially affect its ability to provide investment management services to its clients, including the Putnam funds. Results of October 14, 2004 shareholder meeting (Unaudited) An annual meeting of shareholders of the fund was held on October 14, 2004. At the meeting, each of the nominees for Trustees was elected, as follows: Votes Votes for withheld ----------------------------------------------------------------- Jameson A. Baxter 6,210,457 159,461 Charles B. Curtis 6,209,907 160,011 Myra R. Drucker 6,205,910 164,008 Charles E. Haldeman, Jr. 6,211,747 158,171 John A. Hill 6,214,022 155,896 Ronald J. Jackson 6,215,937 153,981 Paul L. Joskow 6,214,637 155,281 Elizabeth T. Kennan 6,205,557 164,361 John H. Mullin, III 6,217,907 152,011 Robert E. Patterson 6,209,437 160,481 George Putnam, III 6,215,959 153,959 A.J.C. Smith 6,208,753 161,165 W. Thomas Stephens 6,215,407 154,511 Richard B. Worley 6,213,960 155,958 All tabulations are rounded to the nearest whole number. Fund information About Putnam Investments One of the largest mutual fund families in the United States, Putnam Investments has a heritage of investment leadership dating back to Judge Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition and practice since 1830. Founded over 65 years ago, Putnam Investments was built around the concept that a balance between risk and reward is the hallmark of a well-rounded financial program. We presently manage over 100 mutual funds in growth, value, blend, fixed income, and international. Investment Manager Putnam Investment Management, LLC One Post Office Square Boston, MA 02109 Marketing Services Putnam Retail Management One Post Office Square Boston, MA 02109 Custodian Putnam Fiduciary Trust Company Legal Counsel Ropes & Gray LLP Trustees John A. Hill, Chairman Jameson Adkins Baxter Charles B. Curtis Myra R. Drucker Charles E. Haldeman, Jr. Ronald J. Jackson Paul L. Joskow Elizabeth T. Kennan John H. Mullin, III Robert E. Patterson George Putnam, III A.J.C. Smith W. Thomas Stephens Richard B. Worley Officers George Putnam, III President Charles E. Porter Executive Vice President, Associate Treasurer and Principal Executive Officer Jonathan S. Horwitz Senior Vice President and Treasurer Steven D. Krichmar Vice President and Principal Financial Officer Michael T. Healy Assistant Treasurer and Principal Accounting Officer Daniel T. Gallagher Vice President and Legal and Compliance Liaison Officer Beth S. Mazor Vice President James P. Pappas Vice President Richard S. Robie, III Vice President Mark C. Trenchard Vice President and BSA Compliance Officer Francis J. McNamara, III Vice President and Chief Legal Officer Charles A. Ruys de Perez Vice President and Chief Compliance Officer Judith Cohen Clerk and Assistant Treasurer Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or visit our Web site (www.putnaminvestments.com) any time for up-to-date information about the fund's NAV. [LOGO OMITTED] PUTNAM INVESTMENTS The Putnam Funds One Post Office Square Boston, Massachusetts 02109 PRSRT STD U.S. POSTAGE PAID PUTNAM INVESTMENTS Do you want to save paper and receive this document faster? Shareholders can sign up for email delivery of shareholder reports on www.putnaminvestments.com. 216556 1/05 Item 2. Code of Ethics: ----------------------- Not applicable Item 3. Audit Committee Financial Expert: ----------------------------------------- Not applicable Item 4. Principal Accountant Fees and Services: ----------------------------------------------- Not applicable Item 5. Audit Committee: Not applicable ------------------------- Item 6. Schedule of Investments: Not applicable -------------------------------- Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End ------------------------------------------------------------------------- Management Investment Companies: Not applicable -------------------------------- Item 8. Purchases of Equity Securities by Closed-End Management Investment -------------------------------------------------------------------------- Companies and Affiliated Purchasers: Not applicable ------------------------------------ Item 9. Submission of Matters to a Vote of Security Holders: ------------------------------------------------------------ Not applicable Item 10. Controls and Procedures: --------------------------------- (a) The registrant's principal executive officer and principal financial officer have concluded, based on their evaluation of the effectiveness of the design and operation of the registrant's disclosure controls and procedures as of a date within 90 days of the filing date of this report on Form N-CSR, that the design and operation of such procedures are generally effective to provide reasonable assurance that information required to be disclosed by the investment company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms. (b) Changes in internal control over financial reporting: Not applicable Item 11. Exhibits: ------------------ (a) Not applicable (b) A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2 under the Investment Company Act of 1940, as amended, and the officer certifications as required by Section 906 of the Sarbanes-Oxley Act of 2002 are filed herewith. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 an the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NAME OF REGISTRANT By (Signature and Title): /s/Michael T. Healy -------------------------- Michael T. Healy Principal Accounting Officer Date: January 28, 2005 Pursuant to the requirements of the Securities Exchange Act of 1934 an the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title): /s/Charles E. Porter --------------------------- Charles E. Porter Principal Executive Officer Date: January 28, 2005 By (Signature and Title): /s/Steven D. Krichmar --------------------------- Steven D. Krichmar Principal Financial Officer Date: January 28, 2005