Putnam
Managed
High Yield
Trust
Item 1. Report to Stockholders:
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The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
5-31-03
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From the Trustees
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Dear Fellow Shareholder:
We are pleased to report positive performance for Putnam Managed High Yield
Trust for the fiscal year ended May 31, 2003, although the fund lagged both
its benchmark index and its Lipper fund category average. The fund was
underweighted in several volatile industry sectors, including utilities and
technology, which performed well during the second half of the period.
As the turbulence in the high-yield market during the fiscal year's first
half gave way to one of the strongest periods for high-yield bonds since
the early 1990s, your fund's management team focused on finding
higher-yielding bonds in a challenging interest-rate environment, in which
bond yields have declined significantly. In the following report, the
managers provide a thorough discussion of fund performance and the
strategies they pursued, as well as their view of the outlook for the
fiscal year that has just begun.
Meanwhile, we would like you to know how much we appreciate your continued
confidence in Putnam. No one can say for certain, of course, how long the
current strength in the high-yield market will last, but the management
team will continue to devote its full attention to maintaining the fund's
fine record.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
July 16, 2003
Report from Fund Management
Fund highlights
* During the fiscal year ended May 31, 2003, Putnam Managed High Yield
Trust had total returns of 8.82% at net asset value (NAV) and 4.15% at
market price.
* Due to its underweight in volatile sectors, such as utilities and
technology, the fund underperformed its primary benchmark, the JP Morgan
Developed High Yield Index, which returned 11.86% for the period.
* The fund also underperformed the average return of 11.91% for the Lipper
High Current Yield Funds (Closed-End) category. Comparisons in this
category can be problematic, however, because it consists of only five
funds.
* The fund's dividend was reduced to $0.06 per share in January 2003. See
page 5 for more information.
* See the Performance Summary on page 7 for complete fund performance,
comparative index performance, and Lipper data.
Performance commentary
Over the course of the past 12 months, your fund had positive returns but
underperformed on a relative basis, due primarily to the higher percentage
of distressed and defaulted bonds in the benchmark index. The fact that the
fund is limited to owning no more than 5% in bonds rated below CCC at the
time of purchase affected our relative underweighting. Putnam is proposing
to increase this limit to 15%, subject to approval by the Trustees. In
particular, bonds of many distressed utilities companies were downgraded to
junk-bond status and became part of the index. These bonds subsequently
experienced dramatic rebounds, boosting the index results. While the fund
did participate in some of these gains, we maintained an underweight
position because of the high credit risk surrounding these companies. In
addition, the ongoing decline in bond yields continued to present a
challenge and led to a dividend reduction. This, in turn, reduced demand
for the fund and depressed the fund's return at market price.
FUND PROFILE
Putnam Managed High Yield Trust seeks high current income and, as a
secondary objective, capital growth, by investing in corporate high-yield
bonds. The fund is designed for investors seeking higher fixed-income
returns and who are willing to accept the added risks of investing in
below-investment-grade securities.
Market overview
The first half of your fund's fiscal year occurred during a precipitous
market decline, caused by a weakening economy, geopolitical turmoil, and
allegations of corporate malfeasance, among other factors. These sharp
declines were followed in the second half of the year by one of the
strongest-performing periods for high-yield bonds since the early 1990s.
Performance in the high-yield market turned around in mid October 2002, a
few weeks before the midpoint of the fund's fiscal year. As yields on
Treasuries and money market securities reached historic lows by early
October (they have since dropped even lower), investors who sought higher
yields became more willing to take on additional risk to attain them. With
encouragement from improved economic forecasts for 2003, investors moved
out of Treasuries in mid October and a strong high-yield rally commenced.
In early 2003, investors remained nervous about the prospects of war with
Iraq and the strength of the U.S. economy, but their demand for higher
income than Treasuries could provide continued to bolster the high-yield
market. When the war ended quickly, investors looked more closely at the
economic fundamentals and technical factors in the high-yield market and
realized that a supportive environment was in place. The decline in the
rate of corporate defaults (which peaked in early 2002) has been of
particular importance, as investors may perceive that lower default rates
are an indication of reduced risk in the market going forward. Also,
widespread efforts by companies to improve their balance sheets has been
perceived as a harbinger of improving credit quality over the next few
years.
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MARKET SECTOR PERFORMANCE 12 MONTHS ENDED 5/31/03
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Bonds
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JP Morgan Developed High Yield Index (high-yield bonds) 11.86%
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Lehman Aggregate Bond Index (taxable U.S. bonds) 11.58%
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Lehman GNMA Index (mortgage-backed securities) 6.13%
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Lehman Municipal Bond Index (municipal bonds) 10.36%
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Equities
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S&P 500 Index (broad stock market) -8.06%
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Russell 2000 Index (small- and midsize-company stocks) -8.18%
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MSCI EAFE (international stocks) -12.30%
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These indexes provide an overview of performance in different market
sectors for the 12 months ended 5/31/03.
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Strategy overview
After maintaining a defensive posture in the first several months of the
year, we began increasing the fund's weightings in higher-yielding bonds
during September's market lows, when there were many bargains to be found.
As the market strengthened, we continued to seek ways to increase yield
-- primarily by considering bonds that offered greater income in exchange
for lower credit quality. At the same time, we tried to be selective,
carefully analyzing these lower-rated issues in the face of an economy that
was still struggling.
Call risk became a significant factor during the second half of the period.
High-yield bonds typically are issued with a call feature. This provision
allows an issuer to "call" -- or redeem -- the bond from the bondholder
after a specified date (usually four to five years from the date of
issuance). Calling the bond allows the issuer to refinance the debt at a
lower rate. Obviously, when a bond is called, the bondholder (in this case,
your fund) no longer receives the interest income. However, in some cases
the bond is called at a significant premium, which is beneficial to the
fund. The challenge in a declining-rate environment is to find new bonds
that offer as high a level of income as possible without incurring an
unnecessary amount of credit risk.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY WEIGHTINGS COMPARED]
TOP INDUSTRY WEIGHTINGS COMPARED
as of 11/30/02 as of 5/31/03
Utilities and power 3.1% 6.7%
Chemicals 5.6% 5.6%
Gaming and lottery 5.9% 5.6%
Telecommunications 4.9% 5.4%
Oil and gas 4.4% 5.0%
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. Industry
weightings will vary over time.
How fund holdings and sector allocations affected performance
Several of the larger holdings in the portfolio performed well during the
period and contributed to the fund's solid returns. Nextel and Echostar
were among the strongest performers, as the wireless communications and
broadcasting industries have been strengthening and these companies --
Nextel in particular -- have been reducing debt and seeing large price
increases for their bonds. Nextel operates a large wireless
telecommunications network with a unique and successful walkie-talkie
feature. The wireless sector has been one of the strongest-performing
sectors for the fund, though we believe that the greater portion of the
returns from some of these holdings may be behind us. Consequently, we have
pared down our exposure to Nextel, one of the fund's strongest-performing
holdings over the period, as its bond prices have increased. Vivendi
Universal, a France-based media and communications conglomerate, performed
strongly, as did DirecTV, another satellite broadcasting firm (Vivendi was
sold at a profit shortly before the end of the fund's fiscal year). In
broadcasting, Paxson Communications Corp. has also performed well. Paxson
owns and operates 63 television stations, as well as the PAX TV cable
network, which provides family entertainment programming.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
1 PSF Group Holdings, Inc. 144A Class A
Common stock
Consumer staples
2 HYDI Credit Linked Note (issued by JPMorgan)
8%, 2008
Asset-backed securities
3 CSC Holdings, Inc.
Series M, $11.125 cum. pfd.
Cable television
4 HMH Properties, Inc.
Company guaranty, Series B, 7.875%, 2008
Lodging/tourism
5 PRIMEDIA, Inc.
Company guaranty, 8.875%, 2011
Publishing
6 Qwest Services Corp. 144A
Notes, 13.5%, 2010
Communication services
7 Qwest Corp. 144A
Notes 8.875%, 2012
Communication services
8 Six Flags, Inc.
Senior notes 8.875%, 2010
Entertainment
9 Telus Corp. (Canada)
Notes, 8%, 2011
Communication services
10 Paxson Communications Corp.
13.25% cum. pfd.
Broadcasting
Footnote reads:
Holdings represent 9.0% of net assets.
The fund's holdings of AK Steel Corp. and Collins and Aikman Corp. bonds
detracted from performance during the period. AK Steel Corp, an
Ohio-based steel manufacturer, had disappointing first-quarter 2003
financial results, primarily due to weak demand in the appliance,
construction, and manufacturing markets. Collins and Aikman, a
manufacturer of auto and truck parts, severely underperformed earnings
expectations in the first quarter of 2003, incurring a loss. The company
attributed the first-quarter disappointment to manufacturing problems.
Finally, HealthSouth, which owns and operates a chain of
rehabilitation, diagnostic imaging, and outpatient surgery centers,
experienced significant losses due to charges of accounting fraud over
several years. The fund still owns AK Steel, Collins and Aikman, and
HealthSouth, as we believe the bonds still offer attractive return
potential. Of course, we will continue to evaluate the holdings and make
changes if we believe it is necessary. The fund was underweighted in
technology and utility bonds, both of which performed well in the second
half of the fiscal year, so this positioning hurt the fund's relative
performance.
The oil and gas sector produced solid returns for the fund during the
period, as energy prices generally remained elevated due to uncertainties
surrounding the war in Iraq and a longer and colder than normal winter in
the northeastern United States.
Please note that all sectors and 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
Effective with the January distribution, the fund's monthly dividend was
reduced to $0.06 per share, reflecting a decline in the portfolio's income
stream. Bond yields in virtually all sectors have fallen substantially over
the past several years. As older bonds in the portfolio have matured or
been called, the assets have been reinvested at lower current rates. This
has reduced the income generated by the portfolio and necessitated the
reduction.
The fund's management team
The fund is managed by the Putnam Core Fixed-Income High-Yield Team. The
members of this team are Stephen Peacher (Portfolio Leader), Norm Boucher
(Portfolio Member), Paul Scanlon (Portfolio Member), Rosemary Thomsen
(Portfolio Member), Jeffrey Kaufman, Geoffrey Kelley, Neil Reiner, and
Joseph Towell.
The outlook for your fund
The following commentary reflects anticipated developments that could
affect your fund over the next six months, as well as your management
team's plans for responding to them.
The strong returns in the high-yield bond market since mid-October 2002
have caused us to temper our enthusiasm for the sector somewhat as it is
unlikely that the market can continue to produce such results. However, our
outlook for the longer term remains positive. We believe there is evidence
that supports a strengthening economy, low inflation, and sustained demand
for higher-yielding fixed-income investments. On the economic front, we are
seeing substantial fiscal and monetary stimulus. Major factors included the
recent tax cut (as well as reduction in 2001), a weakened dollar,
historically low interest rates, and a commitment by the Federal Reserve
Board to keep long-term interest rates low by buying longer-maturity
Treasury bonds on the open market. All of these factors, we believe, should
provide the U.S. economy with the fuel it needs to continue expanding.
Moreover, we believe that market-specific trends continue to be positive,
namely declining default rates and improving corporate balance sheets.
While we are optimistic about the high-yield market for the next several
years, we know the market will experience short-term fluctuations. As such,
we will seek to maintain diversification among industry sectors and
individual holdings, and we will focus on reducing risk where possible.
The views expressed in this report are exclusively those of Putnam
Management. They are not meant as investment advice. Lower-rated bonds may
offer higher yields in return for more risk.
Performance summary
This section provides information about your fund's performance during its
fiscal year, which ended May 31, 2003. We also include performance for the
most current calendar quarter-end. Performance should always be considered
in light of a fund's investment strategy. Past performance does not
indicate future results. More recent returns may be less or more than those
shown. Investment return, market price and principal value will fluctuate
and you may have a gain or a loss when you sell your shares. Performance
does not reflect taxes on reinvested distributions. A profile of your
fund's strategy appears on the first page of this report. See page 8 for
definitions of some terms used in this section.
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TOTAL RETURN FOR PERIODS ENDED 5/31/03
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JP Morgan Lipper High
CSFB Developed Current Yield
Market High Yield High Yield Funds (Closed-End)
NAV price Index Index* category average+
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1 year 8.82% 4.15% 13.26% 11.86% 11.91%
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5 years -4.18 -1.35 17.62 14.31 3.57
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Annual average -0.85 -0.27 3.30 2.71 0.61
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Life of fund
(since 6/25/93) 63.48 62.99 92.80 -- 80.80
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Annual average 5.07 5.04 6.84 -- 6.03
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* Putnam Management has recently undertaken a review of the fund's
benchmark. This index replaces the CSFB High Yield Index as a performance
benchmark for this fund because, in Putnam Management's opinion, the
securities tracked by this index more accurately reflect the types of
securities generally held by the fund. The JP Morgan index's inception date
was 12/31/94.
+ Index and Lipper results should be compared to fund performance at net asset
value. Over the 1-, 5-, and life-of-fund periods ended 5/31/03, there were
5, 4, and 3 funds, respectively, in this Lipper category.
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TOTAL RETURN FOR PERIODS ENDED 6/30/03 (most recent calendar quarter)
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NAV Market price
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1 year 17.63% 19.73%
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5 years -1.53 -1.10
Annual average -0.31 -0.22
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10 years 68.12 62.62
Annual average 5.33 4.98
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Annual average
Life of fund
(since 6/25/93) 5.33 4.98
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PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 5/31/03
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Putnam Managed High Yield Trust
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Distributions (number) 12
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Income 1 $0.7622
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Capital gains 1 --
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Return of capital 2 $0.0138
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Total $0.7760
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Share value: NAV Market price
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5/31/02 $8.50 $9.48
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5/31/03 8.45 9.02
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Current return (end of period)
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Current dividend rate 3 8.52% 7.98%
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1 Capital gains, if any, are taxable for federal and, in most cases, state
purposes. For some investors, investment income may be subject to the
federal alternative minimum tax. Income from federally exempt funds may be
subject to state and local taxes.
2 See page 43 for details.
3 Most recent distribution, excluding capital gains, annualized and divided
by NAV or market price at end of period.
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 the New York
Stock Exchange.
Comparative indexes
JP Morgan Developed High Yield Index is an unmanaged index of high-yield
debt securities from developed countries.
Credit Suisse First Boston (CSFB) High Yield Index is an unmanaged index of
high-yield debt securities.
Lehman Aggregate Bond Index is an unmanaged index used as a general measure
of U.S. fixed-income securities.
Lehman GNMA Index is an unmanaged index of GNMA securities.
Lehman Municipal Bond Index is an unmanaged index of long-term fixed-rate
investment-grade tax-exempt bonds.
S&P 500 Index is an unmanaged index of common stock performance.
Russell 2000 Index is an unmanaged index of common stocks that generally
measure performance of small to midsize companies within the Russell 3000
Index.
Morgan Stanley Capital International (MSCI) EAFE Index is an unmanaged
index of international stocks from Europe, Australasia, and the Far East.
Indexes assume reinvestment of all distributions and do not account for
fees. Securities and performance of a fund and an index will differ. You
cannot invest directly in an index.
Lipper Inc. is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper. Lipper category averages reflect
performance trends within a category and are based on results at net asset
value.
Putnam's policy on confidentiality
In order to conduct business with our shareholders, we must obtain certain
personal information such as account holders' addresses, telephone numbers,
Social Security numbers, and the names of their financial advisors. We use
this information to assign an account number and to help us maintain
accurate records of transactions and account balances.
It is our policy to protect the confidentiality of your information,
whether or not you currently own shares of our funds, and in particular,
not to sell information about you or your accounts to outside marketing
firms. We have safeguards in place designed to prevent unauthorized access
to our computer systems and procedures to protect personal information from
unauthorized use.
Under certain circumstances, we share this information with outside vendors
who provide services to us, such as mailing and proxy solicitation. In
those cases, the service providers enter into confidentiality agreements
with us, and we provide only the information necessary to process
transactions and perform other services related to your account. We may
also share this information with our Putnam affiliates to service your
account or provide you with information about other Putnam products or
services. It is also our policy to share account information with your
financial advisor, if you've listed one on your Putnam account.
If you would like clarification about our confidentiality policies or have
any questions or concerns, please don't hesitate to contact us at
1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or Saturdays
from 9:00 a.m. to 5:00 p.m. Eastern Time.
Putnam is committed to managing our mutual funds in the best interests of
our shareholders. Our proxy voting guidelines and policies are available on
the Putnam Individual Investor website, www.putnaminvestments.com, by
calling Putnam's Shareholder Services at 1-800-225-1581, or on the SEC's
website, www.sec.gov.
A guide to the financial statements
These sections of the report, as well as the accompanying Notes, preceded
by the Report of independent accountants, constitute the fund's financial
statements.
The fund's portfolio lists all the fund's investments and their values as
of the last day of the reporting period. Holdings are organized by asset
type and industry sector, country, or state to show areas of concentration
and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to determine
the net asset value per share, which is calculated separately for each
class of shares. (For funds with preferred shares, the amount subtracted
from total assets includes the net assets allocated to remarketed preferred
shares.)
Statement of operations shows the fund's net investment gain or loss. This
is done by first adding up all the fund's earnings ---- from dividends and
interest income ---- and subtracting its operating expenses to determine
net investment income (or loss). Then, any net gain or loss the fund
realized on the sales of its holdings ---- as well as any unrealized gains
or losses over the period ---- is added to or subtracted from the net
investment result to determine the fund's net gain or loss for the fiscal
year.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of
the fund's shares. It lists distributions and their sources (net investment
income or realized capital gains) over the current reporting period and the
most recent fiscal year-end. The distributions listed here may not match
the sources listed in the Statement of operations because the distributions
are determined on a tax basis and may be paid in a different period from
the one in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios, and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also
includes the current reporting period. For open-end funds, a separate table
is provided for each share class.
Report of independent accountants
The Board of Trustees and Shareholders of
Putnam Managed High Yield Trust:
We have audited the accompanying statement of assets and liabilities of
Putnam Managed High Yield Trust, including the fund's portfolio, as of May
31, 2003, and the related statement of operations for the year then ended,
the statements of changes in net assets for each of the years in the
two-year period then ended and financial highlights for each of the years
in the three-year period then ended. These financial statements and
financial highlights are the responsibility of the fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights for each
of the years in the two-year period ended May 31, 2000 were audited by
other auditors whose report dated July 11, 2000, expressed an unqualified
opinion on those financial highlights.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform our audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of May 31, 2003 by
correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of Putnam Managed High Yield Trust as of May 31, 2003, the results of its
operations for the year then ended, the changes in its net assets for each
of the years in the two-year period then ended and the financial highlights
for each of the years in the three-year period then ended in conformity
with accounting principles generally accepted in the United States of
America.
KPMG LLP
Boston, Massachusetts
July 2, 2003
The fund's portfolio
May 31, 2003
Corporate bonds and notes (87.7%) (a)
Principal amount Value
Advertising and Marketing Services (0.2%)
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$196,618 Interact Operating Co. notes 14s,
2003 (In default) (NON) (PIK) $20
100,000 Lamar Media Corp. company guaranty
7 1/4s, 2013 104,250
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104,270
Automotive (1.5%)
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45,000 ArvinMeritor, Inc. notes 8 3/4s,
2012 49,050
180,000 Collins & Aikman Products, Inc.
company guaranty 11 1/2s, 2006 118,800
145,000 Collins & Aikman Products, Inc.
company guaranty 10 3/4s, 2011 125,425
35,000 Dana Corp. notes 10 1/8s, 2010 38,150
170,000 Dana Corp. notes 9s, 2011 177,225
EUR 15,000 Dana Corp. notes 9s, 2011 17,905
$15,000 Dana Corp. notes 7s, 2029 12,675
35,000 Delco Remy International, Inc.
company guaranty 11s, 2009 22,050
55,000 Delco Remy International, Inc.
company guaranty 10 5/8s, 2006 35,750
150,000 Dura Operating Corp. company
guaranty Ser. D, 9s, 2009 132,750
150,000 Lear Corp. company guaranty Ser. B,
8.11s, 2009 167,250
EUR 30,000 Lear Corp. sr. notes 8 1/8s, 2008 37,882
$30,000 Tenneco Automotive, Inc. company
guaranty Ser. B, 11 5/8s, 2009 26,850
------------
961,762
Basic Materials (10.2%)
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185,000 Acetex Corp. sr. notes 10 7/8s, 2009
(Canada) 205,350
205,000 AK Steel Corp. company guaranty
7 3/4s, 2012 162,975
180,000 Appleton Papers, Inc. company
guaranty Ser. B, 12 1/2s, 2008 202,500
80,000 Armco, Inc. sr. notes 8 7/8s, 2008 64,400
130,000 Avecia Group PLC company guaranty
11s, 2009 (United Kingdom) 114,400
105,000 Better Minerals & Aggregates Co.
company guaranty 13s, 2009 71,400
100,000 Compass Minerals Group, Inc. company
guaranty 10s, 2011 111,000
148,688 Doe Run Resources Corp. company
guaranty Ser. A1, 11 3/4s, 2008
(acquired various dates from
7/27/01 to 4/1/03, cost $95,137)
(RES) (PIK) 59,475
35,000 Equistar Chemicals LP notes 6 1/2s,
2006 33,250
35,000 Equistar Chemicals LP notes 8 3/4s,
2009 33,250
260,000 Equistar Chemicals LP/Equistar
Funding Corp. company guaranty
10 1/8s, 2008 263,900
60,000 Equistar Chemicals LP/Equistar
Funding Corp. 144A sr. notes
10 5/8s, 2011 60,900
45,000 Four M Corp. sr. notes Ser. B, 12s,
2006 45,900
75,000 Georgia-Pacific Corp. debs. 9 1/2s,
2011 77,625
45,000 Georgia-Pacific Corp. debs. 7.7s,
2015 40,950
55,000 Georgia-Pacific Corp. notes 8 1/8s,
2011 53,350
25,000 Georgia-Pacific Corp. notes 7 1/2s,
2006 24,875
135,000 Georgia-Pacific Corp. 144A sr. notes
8 7/8s, 2010 140,400
330,000 Hercules, Inc. company guaranty
11 1/8s, 2007 379,500
67,581 Huntsman Corp. bank term loan FRN
Ser. A, 6.129s, 2007 (acquired
various dates from 6/10/02 to
7/17/02, cost 58,035) (RES) 60,710
32,419 Huntsman Corp. bank term loan FRN
Ser. B, 8 1/8s, 2007 (acquired
various dates from 6/10/02 to
7/17/02, cost $27,840) (RES) 29,123
180,000 Huntsman ICI Chemicals, Inc. company
guaranty 10 1/8s, 2009 170,550
250,000 Huntsman ICI Holdings sr. disc.
notes zero %, 2009 95,000
EUR 90,000 Huntsman International, LLC sr. sub.
notes Ser. EXCH, 10 1/8s, 2009 93,668
$108,000 IMC Global, Inc. company guaranty
Ser. B, 10 7/8s, 2008 119,880
230,000 ISP Chemco, Inc. company guaranty
Ser. B, 10 1/4s, 2011 250,700
40,000 ISP Holdings, Inc. sec. sr. notes
Ser. B, 10 5/8s, 2009 41,200
10,000 Kaiser Aluminum & Chemical Corp. sr.
notes Ser. B, 10 7/8s, 2006 (In
default) (NON) 7,000
305,000 Kaiser Aluminum & Chemical Corp. sr.
sub. notes 12 3/4s, 2003 (In
default) (NON) 18,300
70,000 Louisiana-Pacific Corp. sr. notes
8 7/8s, 2010 78,750
55,000 Lyondell Chemical Co. bonds 11 1/8s,
2012 55,825
20,000 Lyondell Chemical Co. company
guaranty 9 1/2s, 2008 19,200
140,000 Lyondell Chemical Co. notes Ser. A,
9 5/8s, 2007 137,550
85,000 Lyondell Chemical Co. sr. sub. notes
10 7/8s, 2009 79,475
140,000 Lyondell Chemical Co. 144A sec.
notes 9 1/2s, 2008 134,400
EUR 10,000 MDP Acquisitions PLC sr. notes
10 1/8s, 2012 (Ireland) 12,566
$80,000 MDP Acquisitions PLC sr. notes
9 5/8s, 2012 (Ireland) 86,100
53,926 MDP Acquisitions PLC sub. notes
15 1/2s, 2013 (Ireland) (PIK) 61,206
30,000 MDP Acquisitions PLC 144A sr. notes
9 5/8s, 2012 (Ireland) 32,288
210,000 Millennium America, Inc. company
guaranty 9 1/4s, 2008 226,800
35,000 Millennium America, Inc. 144A sr.
notes 9 1/4s, 2008 37,800
90,000 Noveon International company
guaranty Ser. B, 11s, 2011 100,800
135,000 OM Group, Inc. company guaranty
9 1/4s, 2011 117,450
70,000 Oregon Steel Mills, Inc. company
guaranty 10s, 2009 63,000
125,000 Pacifica Papers, Inc. sr. notes 10s,
2009 (Canada) 131,250
31,547 PCI Chemicals Canada sec. sr. notes
10s, 2008 (Canada) 27,130
70,155 Pioneer Cos., Inc. sec. FRN 4.79s,
2006 59,281
145,000 Potlatch Corp. company guaranty 10s,
2011 156,963
55,000 Resolution Performance Products, LLC
144A sr. notes 9 1/2s, 2010 55,000
5,000 Rhodia SA 144A sr. sub. notes
8 7/8s, 2011 (France) 5,013
370,000 Riverwood International Corp.
company guaranty 10 7/8s, 2008 380,638
125,000 Royster-Clark, Inc. 1st mtge.
10 1/4s, 2009 101,250
110,000 Salt Holdings Corp. 144A sr. disc.
notes stepped-coupon zero % (12s,
6/1/06), 2013 (STP) 61,600
70,000 Salt Holdings Corp. 144A sr. notes
stepped-coupon zero % (12 3/4s,
12/15/07), 2012 (STP) 47,600
5,000 Smurfit-Stone Container Corp.
company guaranty 8 1/4s, 2012 5,225
135,000 Solutia, Inc. company guaranty
11 1/4s, 2009 108,000
105,000 Steel Dynamics, Inc. company
guaranty 9 1/2s, 2009 108,150
25,566 Sterling Chemicals, Inc. sec. notes
10s, 2007 22,882
40,000 Stone Container Corp. sr. notes
9 3/4s, 2011 43,400
140,000 Stone Container Corp. sr. notes
9 1/4s, 2008 150,500
140,000 Stone Container Corp. sr. notes
8 3/8s, 2012 146,650
110,000 Stone Container Corp. 144A company
guaranty 11 1/2s, 2006 (Canada) 117,150
50,000 Tembec Industries, Inc. company
guaranty 8 5/8s, 2009 (Canada) 49,500
135,000 Tembec Industries, Inc. company
guaranty 8 1/2s, 2011 (Canada) 133,650
60,000 Tembec Industries, Inc. company
guaranty 7 3/4s, 2012 (Canada) 57,000
40,000 Texas Petrochemical Corp. sr. sub.
notes Ser. B, 11 1/8s, 2006 13,600
125,000 Ucar Finance, Inc. company guaranty
10 1/4s, 2012 120,156
90,000 WCI Steel, Inc. sr. notes Ser. B,
10s, 2004 24,300
11,000 Weirton Steel Corp. sr. notes 10s,
2008 (In default) (NON) 1,100
120,000 Wheeling-Pittsburgh Steel Corp. sr.
notes 9 1/4s, 2007 (In default)
(NON) 600
80,000 WHX Corp. sr. notes 10 1/2s, 2005 68,000
------------
6,470,329
Beverage (0.1%)
-------------------------------------------------------------------------------
30,000 Constellation Brands, Inc. company
guaranty 8 1/2s, 2009 31,313
45,000 Constellation Brands, Inc. sr. sub.
notes Ser. B, 8 1/8s, 2012 47,138
------------
78,451
Broadcasting (3.1%)
-------------------------------------------------------------------------------
4,000 Acme Communications, Inc. sr. disc.
notes Ser. B, 12s, 2005 4,090
210,000 British Sky Broadcasting PLC company
guaranty 6 7/8s, 2009 (United Kingdom) 231,000
220,000 DirecTV Holdings, LLC 144A sr. notes
8 3/8s, 2013 243,650
440,000 Diva Systems Corp. sr. disc. notes
Ser. B, 12 5/8s, 2008 (In default)
(NON) 14,300
35,000 Echostar DBS Corp. sr. notes 9 3/8s,
2009 37,494
80,000 Echostar DBS Corp. sr. notes 9 1/8s,
2009 89,000
15,000 Emmis Communications Corp. sr. disc.
notes stepped-coupon zero %
(12 1/2s, 3/15/06), 2011 (STP) 12,975
10,000 Granite Broadcasting Corp. sr. sub.
notes 10 3/8s, 2005 9,950
115,000 Granite Broadcasting Corp. sr. sub.
notes 9 3/8s, 2005 112,844
145,000 Granite Broadcasting Corp. sr. sub.
notes 8 7/8s, 2008 139,200
55,000 Gray Television, Inc. company
guaranty 9 1/4s, 2011 59,675
5,000 Knology, Inc. 144A sr. notes 12s,
2009 (PIK) 3,950
70,000 LIN Television Corp. company
guaranty 8 3/8s, 2008 73,063
40,000 LIN Television Corp. company
guaranty 8s, 2008 42,800
30,000 LIN Television Corp. 144A sr. sub.
notes 6 1/2s, 2013 30,000
70,000 Pegasus Satellite sr. notes 12 3/8s,
2006 63,700
350,375 Quorum Broadcast Holdings, LLC notes
stepped-coupon zero % (15s,
5/15/06), 2009 (STP) 245,263
52,000 RCN Corp. sr. disc. notes Ser. B,
zero %, 2008 19,500
60,000 Sinclair Broadcast Group, Inc.
company guaranty 8 3/4s, 2011 64,950
30,000 Sinclair Broadcast Group, Inc. 144A
company guaranty 8s, 2012 31,763
381,000 Young Broadcasting, Inc. company
guaranty 10s, 2011 398,145
21,000 Young Broadcasting, Inc. company
guaranty Ser. B, 8 3/4s, 2007 21,105
------------
1,948,417
Building Materials (0.6%)
-------------------------------------------------------------------------------
55,000 Atrium Cos., Inc. company guaranty
Ser. B, 10 1/2s, 2009 58,438
60,000 Building Materials Corp. company
guaranty 8s, 2008 53,400
95,000 Dayton Superior Corp. company
guaranty 13s, 2009 81,225
90,000 Nortek, Inc. sr. notes Ser. B,
8 7/8s, 2008 93,375
10,000 Nortek, Inc. sr. sub. notes Ser. B,
9 7/8s, 2011 10,475
60,000 Nortek, Inc. 144A sr. notes Ser. B,
9 1/8s, 2007 62,400
5,000 Owens Corning bonds 7 1/2s, 2018 (In
default) (NON) 1,925
120,000 Owens Corning notes 7 1/2s, 2005 (In
default) (NON) 46,200
------------
407,438
Cable Television (2.1%)
-------------------------------------------------------------------------------
10,000 Adelphia Communications Corp. notes
Ser. B, 9 7/8s, 2005 (In default)
(NON) 5,500
20,000 Adelphia Communications Corp. sr.
notes 10 7/8s, 2010 (In default)
(NON) 11,100
90,000 Adelphia Communications Corp. sr.
notes 10 1/4s, 2011 (In default)
(NON) 49,950
5,000 Adelphia Communications Corp. sr.
notes 10 1/4s, 2006 (In default)
(NON) 2,750
5,000 Adelphia Communications Corp. sr.
notes 9 3/8s, 2009 (In default)
(NON) 2,825
40,000 Adelphia Communications Corp. sr.
notes Ser. B, 9 7/8s, 2007 (In
default) (NON) 22,000
9,407 Australis Media, Ltd. sr. disc.
notes 15 3/4s, 2003 (Australia) (In
default) (NON) (DEF) 1
70,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (12 1/8s,
1/15/07), 2012 (STP) 30,800
35,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (11 3/4s,
5/15/06), 2011 (STP) 16,275
55,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (11 3/4s,
1/15/05), 2010 (STP) 30,250
140,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (9.92s,
4/1/04), 2011 (STP) 86,800
290,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
11 1/8s, 2011 211,700
200,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
10 3/4s, 2009 146,000
75,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
10 1/4s, 2010 53,625
110,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 10s,
2011 79,200
75,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 9 5/8s,
2009 54,000
50,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 8 5/8s,
2009 36,000
20,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 8 1/4s,
2007 14,600
165,000 CSC Holdings, Inc. sr. notes 7 7/8s,
2007 169,538
55,000 Insight Midwest LP/Insight Capital,
Inc. sr. notes 10 1/2s, 2010 59,400
90,000 Olympus Cable bank term loan FRN
Ser. B, 6 1/4s, 2010 (acquired
6/20/02, cost $78,435) (RES) 79,470
20,000 Rogers Cablesystems, Ltd. sr. notes
Ser. B, 10s, 2005 (Canada) 21,400
320,000 TeleWest Communications PLC debs.
11s, 2007 (United Kingdom) (In
default) (NON) 94,400
146,000 United Pan-Europe NV sr. disc. notes
12 1/2s, 2009 (Netherlands) (In
default) (NON) 18,615
240,000 United Pan-Europe NV sr. disc. notes
stepped-coupon zero % (13 3/4s,
2/1/05), 2010 (Netherlands) (In
default) (NON) (STP) 30,000
20,000 United Pan-Europe NV 144A bonds
10 7/8s, 2009 (Netherlands) (In
default) (NON) 4,100
------------
1,330,299
Capital Goods (9.1%)
-------------------------------------------------------------------------------
40,000 Advanced Glass Fiber Yarns bank term
loan FRN Ser. A, 6 3/4s, 2004
(acquired 9/12/02, cost $28,000)
(RES) 24,000
50,000 Advanced Glass Fiber Yarns sr. sub.
notes 9 7/8s, 2009 (In default)
(NON) 2,500
155,000 AEP Industries, Inc. sr. sub. notes
9 7/8s, 2007 151,900
75,000 Allied Waste North America, Inc.
company guaranty Ser. B, 8 7/8s,
2008 80,063
240,000 Allied Waste North America, Inc.
company guaranty Ser. B, 8 1/2s,
2008 253,800
330,000 Allied Waste North America, Inc.
company guaranty Ser. B, 7 5/8s,
2006 339,075
195,000 Allied Waste North America, Inc.
144A company guaranty 9 1/4s, 2012 209,138
40,000 Applied Extrusion Technologies, Inc.
company guaranty Ser. B, 10 3/4s,
2011 29,200
360,000 Argo-Tech Corp. company guaranty
8 5/8s, 2007 327,600
80,000 Argo-Tech Corp. company guaranty
Ser. D, 8 5/8s, 2007 72,800
5,000 BE Aerospace, Inc. sr. sub. notes
Ser. B, 8 7/8s, 2011 3,600
230,000 BE Aerospace, Inc. sr. sub. notes
Ser. B, 8s, 2008 166,750
35,000 Berry Plastics Corp. company
guaranty 10 3/4s, 2012 38,150
210,000 Blount, Inc. company guaranty 13s,
2009 163,800
150,000 Blount, Inc. company guaranty 7s,
2005 139,500
60,000 Browning-Ferris Industries, Inc.
debs. 7.4s, 2035 54,900
100,000 Browning-Ferris Industries, Inc. sr.
notes 6 3/8s, 2008 96,000
EUR 45,000 BSN Financing Co. SA company
guaranty Ser. EUR, 10 1/4s, 2009
(Luxembourg) 51,332
$75,000 Crown Holdings SA 144A sec. notes
10 7/8s, 2013 (France) 79,125
240,000 Crown Holdings SA 144A sec. notes
9 1/2s, 2011 (France) 250,200
240,000 Decrane Aircraft Holdings Co.
company guaranty Ser. B, 12s, 2008 108,000
105,000 Earle M. Jorgensen Co. sec. notes
9 3/4s, 2012 109,725
175,000 FIMEP SA 144A sr. notes 10 1/2s,
2013 (France) 191,625
88,000 Flowserve Corp. company guaranty
12 1/4s, 2010 101,200
15,000 Fonda Group, Inc. sr. sub. notes
Ser. B, 9 1/2s, 2007 7,350
25,000 Hexcel Corp. sr. sub. notes 9 3/4s,
2009 24,188
90,000 High Voltage Engineering Corp. sr.
notes 10 3/4s, 2004 14,400
180,000 Insilco Holding Co. sr. disc. notes
stepped-coupon zero % (14s,
8/15/03), 2008 (In default) (NON)
(STP) 3,600
EUR 50,000 Invensys, PLC sr. unsub. notes
5 1/2s, 2005 (United Kingdom) 51,097
$80,000 Jordan Industries, Inc. sr. notes
Ser. D, 10 3/8s, 2007 33,600
65,000 K&F Industries, Inc. sr. sub. notes
Ser. B, 9 5/8s, 2010 69,713
30,000 K&F Industries, Inc. sr. sub. notes
Ser. B, 9 1/4s, 2007 31,388
200,000 L-3 Communications Corp. sr. sub.
notes 8 1/2s, 2008 208,500
125,000 Laidlaw International, Inc. 144A sr.
notes 10 3/4s, 2011 125,625
75,000 Laidlaw, Inc. debs. 8 3/4s, 2025
(Canada) (In default) (NON) 37,406
20,000 Laidlaw, Inc. debs. 8 1/4s, 2023
(Canada) (In default) (NON) 10,175
190,000 Laidlaw, Inc. notes 7.65s, 2006
(Canada) (In default) (NON) 96,188
50,000 Manitowoc Co., Inc. (The) company
guaranty 10 1/2s, 2012 55,125
EUR 25,000 Manitowoc Co., Inc. (The) company
guaranty 10 3/8s, 2011 30,870
$200,000 Motors and Gears, Inc. sr. notes
Ser. D, 10 3/4s, 2006 174,000
245,000 Owens-Brockway Glass company
guaranty 8 7/8s, 2009 259,700
130,000 Owens-Brockway Glass sr. sec. notes
8 3/4s, 2012 138,288
95,000 Owens-Brockway Glass 144A sr. notes
8 1/4s, 2013 95,950
90,000 Owens-Brockway Glass 144A sr. sec.
notes 7 3/4s, 2011 92,025
75,000 Oxford Industries Inc. 144A sr.
notes 8 7/8s, 2011 75,375
35,000 Pliant Corp. company guaranty 13s,
2010 32,200
90,000 Pliant Corp. 144A sec. notes
11 1/8s, 2009 92,700
130,000 Roller Bearing Company of America
company guaranty Ser. B,
9 5/8s, 2007 110,500
250,000 Sequa Corp. sr. notes Ser. B,
8 7/8s, 2008 262,500
40,000 Siebe PLC 144A notes 7 1/8s, 2007
(United Kingdom) 33,400
35,000 Siebe PLC 144A sr. unsub. 6 1/2s,
2010 (United Kingdom) 26,425
40,000 Sweetheart Cup Co. company guaranty
12s, 2004 34,800
205,000 Tekni-Plex, Inc. company guaranty
Ser. B, 12 3/4s, 2010 200,388
35,000 Terex Corp. company guaranty 8 7/8s,
2008 35,525
175,000 Terex Corp. company guaranty Ser. B,
10 3/8s, 2011 186,375
60,000 Trimas Corp. company guaranty
9 7/8s, 2012 60,600
45,000 Trimas Corp. 144A company guaranty
9 7/8s, 2012 45,450
------------
5,799,409
Commercial and Consumer Services (0.5%)
-------------------------------------------------------------------------------
190,000 Coinmach Corp. sr. notes 9s, 2010 200,925
200,467 Derby Cycle Corp. (The) sr. notes
10s, 2008 (In default) (NON) 11,026
EUR 107,751 Derby Cycle Corp. (The) sr. notes
9 3/8s, 2008 (In default) (NON) 3,563
$115,000 IESI Corp. company guaranty 10 1/4s,
2012 118,450
110,000 Outsourcing Solutions, Inc. sr. sub.
notes Ser. B, 11s, 2006 (In default)
(NON) 1,100
------------
335,064
Communication Services (7.6%)
-------------------------------------------------------------------------------
40,000 Airgate PCS, Inc. sr. sub. notes
stepped-coupon zero %
(13 1/2s, 10/1/04), 2009 (STP) 18,400
120,000 Alamosa Delaware, Inc. company
guaranty 13 5/8s, 2011 91,200
50,000 Alamosa Delaware, Inc. company
guaranty 12 1/2s, 2011 36,750
160,000 Alamosa PCS Holdings, Inc. company
guaranty stepped-coupon zero %
(12 7/8s, 2/15/05), 2010 (STP) 85,600
200,000 American Cellular Corp. company
guaranty 9 1/2s, 2009 75,000
90,000 American Tower Corp. sr. notes
9 3/8s, 2009 88,650
170,000 American Tower Escrow Corp. 144A
disc. notes zero %, 2008 106,250
100,000 Asia Global Crossing, Ltd. sr. notes
13 3/8s, 2010 (Bermuda) (In
default) (NON) 13,000
318,870 Colo.com, Inc. 144A sr. notes
13 7/8s, 2010 (In default) (NON) 6,377
10,000 Colt Telecommunications Group PLC
sr. disc. notes 12s, 2006 (United
Kingdom) 9,800
80,000 Crown Castle International Corp. sr.
disc. notes stepped-coupon zero %
(10 3/8s, 5/15/04), 2011 (STP) 72,000
145,000 Crown Castle International Corp. sr.
notes 9 3/8s, 2011 145,000
50,000 Crown Castle International Corp. sr.
notes 9s, 2011 49,500
150,000 Dobson/Sygnet Communications, Inc.
sr. notes 12 1/4s, 2008 156,000
65,000 Fairpoint Communications Inc. sr.
sub. notes 12 1/2s, 2010 66,300
200,000 Firstworld Communication Corp. sr.
disc. notes zero %, 2008 (In
default) (NON) 20
28,524 Globix Corp. company guaranty 11s,
2008 (PIK) 21,393
20,000 Horizon PCS, Inc. company guaranty
13 3/4s, 2011 2,400
200,000 iPCS, Inc. sr. disc. notes
stepped-coupon zero % (14s,
7/15/05), 2010 (In default) (NON)
(STP) 12,000
93,000 IWO Holdings, Inc. company guaranty
14s, 2011 17,670
80,000 Leap Wireless International, Inc.
company guaranty 12 1/2s, 2010 (In
default) (NON) 10,400
90,000 Madison River Capital Corp. sr.
notes 13 1/4s, 2010 85,950
35,000 MCI Communications Corp. debs.
7 3/4s, 2025 (In default) (NON) 27,125
35,000 MCI Communications Corp. debs.
7 3/4s, 2024 (In default) (NON) 27,125
40,000 Metrocall, Inc. sr. sub. notes
9 3/4s, 2007 (In default) (NON) 800
200,000 Metromedia Fiber Network, Inc. sr.
notes Ser. B, 10s, 2008 (In default)
(NON) 10,000
133,000 Millicom International Cellular SA
144A sr. notes 11s, 2006
(Luxembourg) 125,020
76,000 Nextel Communications, Inc. bank
term loan FRN Ser. A, 2.564s, 2007
(acquired 11/20/02, cost $68,685)
(RES) 72,248
5,000 Nextel Communications, Inc. sr.
disc. notes 9.95s, 2008 5,225
70,000 Nextel Communications, Inc. sr.
notes 9 1/2s, 2011 76,300
340,000 Nextel Communications, Inc. sr.
notes 9 3/8s, 2009 364,650
190,000 Nextel Partners, Inc. sr. disc.
notes stepped-coupon zero % (14s,
2/1/04), 2009 (STP) 192,375
80,000 Nextel Partners, Inc. sr. notes
12 1/2s, 2009 89,200
115,000 Nextel Partners, Inc. sr. notes 11s,
2010 123,625
90,000 Nextel Partners, Inc. sr. notes 11s,
2010 96,750
200,000 Orbital Imaging Corp. sr. notes
Ser. B, 11 5/8s, 2005 (In default)
(NON) 50,000
85,000 PanAmSat Corp. company guaranty
8 1/2s, 2012 90,950
30,000 Qwest Capital Funding, Inc. company
guaranty 7 3/4s, 2006 27,150
410,000 Qwest Corp. 144A notes 8 7/8s, 2012 461,250
425,000 Qwest Services Corp. 144A notes
13 1/2s, 2010 483,438
10,000 Rogers Cantel, Ltd. debs. 9 3/8s,
2008 (Canada) 10,450
115,000 Rogers Cantel, Ltd. sr. sub. notes
8.8s, 2007 (Canada) 116,725
40,000 Rogers Wireless, Inc. sec. notes
9 5/8s, 2011 (Canada) 44,400
80,000 SBA Communications Corp. sr. disc.
notes 12s, 2008 74,000
85,000 SBA Communications Corp. sr. notes
10 1/4s, 2009 70,125
28,000 Telecorp PCS, Inc. company guaranty
10 5/8s, 2010 33,320
13,000 Telecorp PCS, Inc. company guaranty
stepped-coupon zero % (11 5/8s,
4/15/04), 2009 (STP) 13,358
360,000 Telus Corp. notes 8s, 2011 (Canada) 412,650
40,000 Time Warner Telecom, Inc. sr. notes
10 1/8s, 2011 35,200
90,000 Time Warner Telecom, Inc. sr. notes
9 3/4s, 2008 79,200
135,000 Triton PCS, Inc. company guaranty
11s, 2008 143,100
35,000 Triton PCS, Inc. 144A sr. notes
8 1/2s, 2013 35,000
90,000 TSI Telecommunication Services, Inc.
company guaranty Ser. B, 12 3/4s,
2009 87,300
87,000 UbiquiTel Operating Co. 144A company
guaranty stepped-coupon zero %
(14s, 4/15/05), 2010 (STP) 40,890
225,000 US UnWired, Inc. company guaranty
stepped-coupon Ser. B, zero %
(13 3/8s, 11/1/04), 2009 (STP) 81,000
75,000 US West Capital Funding, Inc.
company guaranty 6 1/4s, 2005 69,563
------------
4,839,172
Conglomerates (1.0%)
-------------------------------------------------------------------------------
55,000 Tyco International Group SA company
guaranty 6 3/4s, 2011 (Luxembourg) 56,238
320,000 Tyco International Group SA company
guaranty 6 3/8s, 2006 (Luxembourg) 329,600
40,000 Tyco International Group SA company
guaranty 6 3/8s, 2005 (Luxembourg) 41,300
215,000 Tyco International Group SA notes
6 3/8s, 2011 (Luxembourg) 215,538
------------
642,676
Consumer (1.0%)
-------------------------------------------------------------------------------
200,000 Icon Health & Fitness company
guaranty 11 1/4s, 2012 210,000
100,000 Jostens, Inc. sr. sub. notes
12 3/4s, 2010 117,000
300,000 Samsonite Corp. sr. sub. notes
10 3/4s, 2008 300,000
------------
627,000
Consumer Goods (0.9%)
-------------------------------------------------------------------------------
125,000 Armkel, LLC/Armkel Finance sr. sub.
notes 9 1/2s, 2009 139,688
20,000 Elizabeth Arden, Inc. sec. notes
Ser. B, 11 3/4s, 2011 22,000
70,000 French Fragrances, Inc. company
guaranty Ser. D, 10 3/8s, 2007 70,000
30,000 French Fragrances, Inc. sr. notes
Ser. B, 10 3/8s, 2007 30,675
115,000 Playtex Products, Inc. company
guaranty 9 3/8s, 2011 119,600
70,000 Polaroid Corp. sr. notes 11 1/2s,
2006 (In default) (NON) 4,900
130,000 Remington Arms Co., Inc. 144A
company guaranty 10 1/2s, 2011 130,325
70,000 Revlon Consumer Products sr. notes
9s, 2006 42,700
65,000 Revlon Consumer Products sr. notes
8 1/8s, 2006 39,650
------------
599,538
Consumer Services (0.4%)
-------------------------------------------------------------------------------
70,000 Brand Services, Inc. company
guaranty 12s, 2012 77,000
50,000 United Rentals (North America), Inc.
company guaranty Ser. B, 10 3/4s,
2008 53,250
125,000 Williams Scotsman, Inc. company
guaranty 9 7/8s, 2007 118,125
------------
248,375
Distribution (0.1%)
-------------------------------------------------------------------------------
120,000 Fleming Cos., Inc. company guaranty
10 1/8s, 2008 (In default) (NON) 19,200
90,000 Fleming Cos., Inc. sr. notes 9 1/4s,
2010 (In default) (NON) 15,750
------------
34,950
Energy (6.3%)
-------------------------------------------------------------------------------
120,000 Belden & Blake Corp. company
guaranty Ser. B, 9 7/8s, 2007 112,800
60,000 Bluewater Finance, Ltd. 144A sr.
notes 10 1/4s, 2012 60,600
110,000 BRL Universal Equipment sec. notes
8 7/8s, 2008 117,975
75,000 Chesapeake Energy Corp. company
guaranty 9s, 2012 82,875
25,000 Chesapeake Energy Corp. sr. notes
Ser. B, 8 1/2s, 2012 26,188
235,000 Chesapeake Energy Corp. 144A sr.
notes 7 1/2s, 2013 244,400
5,000 Compton Petro Corp. sr. notes 9.9s,
2009 (Canada) 5,400
170,000 Comstock Resources, Inc. company
guaranty 11 1/4s, 2007 182,750
140,000 Dresser, Inc. company guaranty
9 3/8s, 2011 141,400
20,000 El Paso Energy Partners LP company
guaranty Ser. B, 8 1/2s, 2011 21,300
70,000 Encore Acquisition Co. company
guaranty 8 3/8s, 2012 74,200
125,000 Forest Oil Corp. company guaranty
7 3/4s, 2014 128,125
50,000 Forest Oil Corp. sr. notes 8s, 2011 52,875
55,000 Forest Oil Corp. sr. notes 8s, 2008 58,025
140,000 Gazprom OAO 144A notes 9 5/8s, 2013
(Russia) 156,660
50,000 Hornbeck Offshore Services, Inc. sr.
notes 10 5/8s, 2008 54,250
50,000 Key Energy Services, Inc. sr. notes
6 3/8s, 2013 50,688
15,000 Leviathan Gas Corp. company guaranty
Ser. B, 10 3/8s, 2009 16,125
130,000 Newfield Exploration Co. sr. notes
7 5/8s, 2011 143,000
100,000 Parker Drilling Co. company guaranty
Ser. B, 10 1/8s, 2009 104,500
30,000 Pemex Project Funding Master Trust
144A bonds 8 5/8s, 2022 35,100
65,000 Pemex Project Funding Master Trust
144A notes 7 3/8s, 2014 71,825
270,000 Pioneer Natural Resources Co.
company guaranty 9 5/8s, 2010 332,422
20,000 Pioneer Natural Resources Co.
company guaranty 7.2s, 2028 21,600
70,000 Plains All American Pipeline
LP/Plains All American Finance Corp.
company guaranty 7 3/4s, 2012 76,300
100,000 Plains Exploration & Production Co.
company guaranty Ser. B, 8 3/4s,
2012 106,500
80,000 Plains Exploration & Production Co.
144A sr. sub. notes 8 3/4s, 2012 85,200
110,000 Pogo Producing Co. sr. sub. notes
Ser. B, 8 1/4s, 2011 121,000
10,000 Pride International, Inc. sr. notes
10s, 2009 10,925
125,000 Pride Petroleum Services, Inc. sr.
notes 9 3/8s, 2007 129,375
135,000 Star Gas Partners LP/Star Gas
Finance Co. 144A sr. notes 10 1/4s,
2013 138,375
50,000 Stone Energy Corp. company guaranty
8 3/4s, 2007 52,000
80,000 Stone Energy Corp. sr. sub. notes
8 1/4s, 2011 84,000
60,000 Swift Energy Co. sr. sub. notes
10 1/4s, 2009 63,600
95,000 Swift Energy Co. sr. sub. notes
9 3/8s, 2012 99,275
60,000 Tesoro Petroleum Corp. 144A sr.
disc. notes 8s, 2008 60,000
130,000 Trico Marine Services, Inc. company
guaranty 8 7/8s, 2012 114,400
25,000 Universal Compression, Inc. 144A sr.
notes 7 1/4s, 2010 25,281
45,000 Vintage Petroleum, Inc. sr. notes
8 1/4s, 2012 48,600
160,000 Vintage Petroleum, Inc. sr. sub.
notes 9 3/4s, 2009 170,800
25,000 Vintage Petroleum, Inc. sr. sub.
notes 7 7/8s, 2011 25,938
155,000 Westport Resources Corp. company
guaranty 8 1/4s, 2011 168,175
65,000 Westport Resources Corp. 144A
company guaranty 8 1/4s, 2011 70,525
25,000 XTO Energy, Inc. sr. notes 7 1/2s,
2012 27,625
40,000 XTO Energy, Inc. 144A sr. notes
6 1/4s, 2013 41,700
------------
4,014,677
Entertainment (1.8%)
-------------------------------------------------------------------------------
80,000 AMC Entertainment, Inc. sr. sub.
notes 9 7/8s, 2012 83,400
160,000 AMC Entertainment, Inc. sr. sub.
notes 9 1/2s, 2009 163,200
150,000 Cinemark USA, Inc. sr. sub. notes
Ser. B, 8 1/2s, 2008 153,750
80,000 Cinemark USA, Inc. 144A sr. sub.
notes 9s, 2013 86,000
35,000 Cinemark USA, Inc. 144A sr. sub.
notes 9s, 2013 37,625
120,000 Premier Parks, Inc. sr. notes 10s,
2007 120,300
75,000 Regal Cinemas, Inc. company guaranty
Ser. B, 9 3/8s, 2012 81,188
100,000 Silver Cinemas, Inc. sr. sub. notes
10 1/2s, 2005 (In default) (NON) 10
460,000 Six Flags, Inc. sr. notes 8 7/8s,
2010 438,725
------------
1,164,198
Financial (2.3%)
-------------------------------------------------------------------------------
180,000 Advanta Corp. 144A company guaranty
Ser. B, 8.99s, 2026 92,700
70,000 Chevy Chase Savings Bank, Inc. sub.
debs. 9 1/4s, 2005 70,175
20,000 Crescent Real Estate Equities LP
notes 7 1/2s, 2007 (R) 20,300
145,000 Crescent Real Estate Equities LP sr.
notes 9 1/4s, 2009 (R) 155,571
404,000 Finova Group, Inc. notes 7 1/2s,
2009 164,630
54,000 Imperial Credit Industries, Inc.
sec. notes 12s, 2005 (In default)
(NON) 135
90,000 iStar Financial, Inc. sr. notes
8 3/4s, 2008 (R) 96,750
80,000 iStar Financial, Inc. sr. notes 7s,
2008 (R) 82,600
61,000 Nationwide Credit, Inc. sr. notes
Ser. A, 10 1/4s, 2008 (In default)
(NON) 305
160,000 Peoples Bank - Bridgeport sub. notes
9 7/8s, 2010 (acquired 1/12/01,
cost $166,509) (RES) 195,324
220,000 Resource America, Inc. 144A sr.
notes 12s, 2004 220,000
140,000 Sovereign Bancorp, Inc. sr. notes
10 1/2s, 2006 168,700
85,000 UBS AG/Jersey Branch sr. notes
Ser. EMTN, 9.14s, 2008 (Jersey) 85,000
100,000 Western Financial Bank sub. debs.
9 5/8s, 2012 106,000
------------
1,458,190
Food (1.2%)
-------------------------------------------------------------------------------
59,803 Archibald Candy Corp. company
guaranty 10s, 2007 (PIK) 35,882
160,000 Aurora Foods, Inc. 144A sr. sub.
notes Ser. D, 9 7/8s, 2007 67,200
35,000 Dean Foods Co. sr. notes 6 5/8s,
2009 36,313
40,000 Del Monte Corp. company guaranty
Ser. B, 9 1/4s, 2011 43,500
100,000 Del Monte Corp. 144A sr. sub. notes
8 5/8s, 2012 106,125
35,000 Dole Food Co. sr. notes 7 1/4s, 2009 36,925
45,000 Dole Food Co. 144A sr. notes 8 7/8s,
2011 47,700
130,000 Eagle Family Foods company guaranty
Ser. B, 8 3/4s, 2008 87,100
195,000 Land O'Lakes, Inc. sr. notes 8 3/4s,
2011 146,250
110,000 Premier International Foods PLC sr.
notes 12s, 2009 (United Kingdom) 121,000
245,000 Vlasic Foods International, Inc. sr.
sub. notes Ser. B, 10 1/4s, 2009
(In default) (NON) 49,000
------------
776,995
Gaming & Lottery (5.6%)
-------------------------------------------------------------------------------
80,000 Aladdin Gaming Holdings, LLC sr.
disc. notes Ser. B, 13 1/2s, 2010
(In default) (NON) 400
110,000 Ameristar Casinos, Inc. company
guaranty 10 3/4s, 2009 122,100
155,000 Argosy Gaming Co. company guaranty
10 3/4s, 2009 168,950
20,000 Argosy Gaming Co. sr. sub. notes 9s,
2011 21,350
120,000 Boyd Gaming Corp. sr. sub. notes
8 3/4s, 2012 128,400
70,000 Chumash Casino & Resort Enterprise
144A sr. notes 9s, 2010 75,250
115,000 Herbst Gaming, Inc. sec. notes
Ser. B, 10 3/4s, 2008 125,350
40,000 Herbst Gaming, Inc. 144A sec. sr.
notes 10 3/4s, 2008 43,600
140,000 Hollywood Park, Inc. company
guaranty Ser. B, 9 1/4s, 2007 133,350
180,000 Horseshoe Gaming Holdings company
guaranty 8 5/8s, 2009 189,900
155,000 International Game Technology sr.
notes 8 3/8s, 2009 186,388
165,000 Majestic Investor Holdings/Capital
Corp. company guaranty 11.653s,
2007 163,350
10,000 MGM Mirage, Inc. coll. sr. notes
6 7/8s, 2008 10,575
230,000 MGM Mirage, Inc. company guaranty
8 1/2s, 2010 263,925
15,000 MGM Mirage, Inc. company guaranty
8 3/8s, 2011 16,538
60,000 Mirage Resorts, Inc. notes 6 3/4s,
2008 63,300
20,000 Mohegan Tribal Gaming Authority sr.
notes 8 1/8s, 2006 21,350
130,000 Mohegan Tribal Gaming Authority sr.
sub. notes 8 3/4s, 2009 137,150
40,000 Mohegan Tribal Gaming Authority sr.
sub. notes 8 3/8s, 2011 42,500
130,000 Mohegan Tribal Gaming Authority sr.
sub. notes 8s, 2012 137,150
175,000 Park Place Entertainment Corp. sr.
notes 7 1/2s, 2009 187,250
95,000 Park Place Entertainment Corp. sr.
sub. notes 8 7/8s, 2008 103,075
20,000 Park Place Entertainment Corp. sr.
sub. notes 8 1/8s, 2011 21,150
65,000 Park Place Entertainment Corp. 144A
sr. notes 7s, 2013 66,950
80,000 Penn National Gaming, Inc. company
guaranty Ser. B, 11 1/8s, 2008 88,000
205,000 Penn National Gaming, Inc. sr. sub.
notes 8 7/8s, 2010 215,250
40,000 Pinnacle Entertainment, Inc. sr.
sub. notes Ser. B, 9 1/2s, 2007 38,300
55,000 Resorts International Hotel and
Casino, Inc. company guaranty
11 1/2s, 2009 49,913
80,000 Riviera Holdings Corp. company
guaranty 11s, 2010 75,600
140,000 Station Casinos, Inc. sr. notes
8 3/8s, 2008 149,800
70,000 Trump Atlantic City Associates
company guaranty 11 1/4s, 2006 53,550
260,000 Trump Casino Holdings, LLC 144A
mtge. 11 5/8s, 2010 239,200
175,000 Venetian Casino Resort, LLC company
guaranty 11s, 2010 191,406
15,000 Wheeling Island Gaming, Inc. company
guaranty 10 1/8s, 2009 15,150
------------
3,545,470
Health Care (6.6%)
-------------------------------------------------------------------------------
80,000 ALARIS Medical Systems, Inc. company
guaranty 9 3/4s, 2006 82,800
140,000 ALARIS Medical Systems, Inc. sec.
notes Ser. B, 11 5/8s, 2006 168,000
10,000 ALARIS Medical, Inc. sr. disc. notes
stepped-coupon zero % (11 1/8s,
8/1/03), 2008 (STP) 10,450
303,400 Alderwoods Group, Inc. company
guaranty 12 1/4s, 2009 315,536
2,400 Alderwoods Group, Inc. company
guaranty 11s, 2007 2,430
131,000 Alliance Imaging, Inc. sr. sub.
notes 10 3/8s, 2011 129,690
80,000 AmerisourceBergen Corp. company
guaranty 7 1/4s, 2012 86,400
100,000 AmerisourceBergen Corp. sr. notes
8 1/8s, 2008 109,750
70,000 Bio-Rad Labs Corp. sr. sub. notes
11 5/8s, 2007 77,000
150,000 Biovail Corp. sr. sub. notes 7 7/8s,
2010 (Canada) 158,250
177,000 Conmed Corp. company guaranty 9s,
2008 184,523
35,000 Dade Behring, Inc. company guaranty
11.91s, 2010 39,375
90,000 Extendicare Health Services, Inc.
company guaranty 9 1/2s, 2010 90,900
105,000 Hanger Orthopedic Group, Inc.
company guaranty 10 3/8s, 2009 112,350
10,000 Hanger Orthopedic Group, Inc. sr.
sub. notes 11 1/4s, 2009 10,750
50,000 HCA, Inc. debs. 7.19s, 2015 54,475
200,000 HCA, Inc. notes 8 3/4s, 2010 240,690
60,000 HCA, Inc. notes 8.36s, 2024 68,352
70,000 HCA, Inc. notes 7.69s, 2025 75,299
10,000 HCA, Inc. notes 7s, 2007 10,851
205,000 Healthsouth Corp. notes 7 5/8s, 2012
(In default) (NON) 136,325
105,000 Healthsouth Corp. sr. notes 8 1/2s,
2008 (In default) (NON) 70,875
45,000 Healthsouth Corp. sr. notes 8 3/8s,
2011 (In default) (NON) 29,925
45,000 Healthsouth Corp. sr. sub. notes
10 3/4s, 2008 (In default) (NON) 16,650
75,000 IASIS Healthcare Corp. company
guaranty 13s, 2009 83,625
35,000 IASIS Healthcare Corp. 144A sr. sub.
notes 8 1/2s, 2009 35,044
180,000 Integrated Health Services, Inc. sr.
sub. notes Ser. A, 9 1/2s, 2007
(In default) (NON) 3,825
110,000 Integrated Health Services, Inc. sr.
sub. notes Ser. A, 9 1/4s, 2008 (In
default) (NON) 2,475
130,000 Kinetic Concepts, Inc. company
guaranty Ser. B, 9 5/8s, 2007 133,900
250,000 Magellan Health Services, Inc. sr.
sub. notes 9s, 2008 (In default)
(NON) 87,500
55,000 Magellan Health Services, Inc. 144A
sr. notes 9 3/8s, 2007 (In default)
(NON) 53,075
180,000 Mediq, Inc. debs. stepped-coupon
zero % (13s, 6/1/03), 2009 (In
default) (NON) (STP) 18
130,000 MedQuest, Inc. company guaranty
Ser. B, 11 7/8s, 2012 126,750
EUR 65,000 NYCO Holdings 144A sr. notes
11 1/2s, 2013 (Denmark) 76,708
$90,000 Omnicare, Inc. company guaranty
Ser. B, 8 1/8s, 2011 97,200
205,000 PacifiCare Health Systems, Inc.
company guaranty 10 3/4s, 2009 225,500
95,000 Province Healthcare Co. sr. sub.
notes 7 1/2s, 2013 95,000
40,000 Service Corp. International debs.
7 7/8s, 2013 40,000
20,000 Service Corp. International notes
7.7s, 2009 20,200
15,000 Service Corp. International notes
7.2s, 2006 15,150
5,000 Service Corp. International notes
6 7/8s, 2007 4,975
20,000 Service Corp. International notes
6 1/2s, 2008 19,600
185,000 Service Corp. International notes
6s, 2005 185,925
50,000 Service Corp. International notes
Ser. (a), 7.7s, 2009 50,500
130,000 Stewart Enterprises, Inc. notes
10 3/4s, 2008 144,950
140,000 Triad Hospitals Holdings company
guaranty Ser. B, 11s, 2009 156,100
160,000 Triad Hospitals, Inc. company
guaranty Ser. B, 8 3/4s, 2009 173,600
55,000 Ventas Realty LP/Capital Corp.
company guaranty 9s, 2012 59,675
------------
4,172,941
Homebuilding (1.9%)
-------------------------------------------------------------------------------
80,000 Beazer Homes USA, Inc. company
guaranty 8 5/8s, 2011 87,400
50,000 D.R. Horton, Inc. company guaranty
8 1/2s, 2012 54,750
120,000 D.R. Horton, Inc. sr. notes 7 7/8s,
2011 129,600
30,000 D.R. Horton, Inc. sr. notes 6 7/8s,
2013 30,300
30,000 K. Hovnanian Enterprises, Inc.
company guaranty 10 1/2s, 2007 34,800
55,000 K. Hovnanian Enterprises, Inc.
company guaranty 8 7/8s, 2012 58,300
80,000 K. Hovnanian Enterprises, Inc.
company guaranty 8s, 2012 84,800
35,000 K. Hovnanian Enterprises, Inc. 144A
sr. sub. notes 7 3/4s, 2013 35,613
145,000 KB Home sr. sub. notes 9 1/2s, 2011 159,500
10,000 KB Home sr. sub. notes 7 3/4s, 2010 10,550
135,000 Ryland Group, Inc. sr. notes 9 3/4s,
2010 153,900
95,000 Schuler Homes, Inc. company guaranty
10 1/2s, 2011 106,400
5,000 Technical Olympic USA, Inc. company
guaranty 10 3/8s, 2012 5,225
25,000 Technical Olympic USA, Inc. company
guaranty 9s, 2010 26,000
15,000 Technical Olympic USA, Inc. 144A sr.
sub. notes 10 3/8s, 2012 15,675
100,000 Toll Corp. company guaranty 8 1/8s,
2009 105,500
30,000 WCI Communities, Inc. company
guaranty 10 5/8s, 2011 32,475
90,000 WCI Communities, Inc. company
guaranty 9 1/8s, 2012 92,925
------------
1,223,713
Household Furniture and Appliances (0.5%)
-------------------------------------------------------------------------------
130,000 Sealy Mattress Co. company guaranty
Ser. B, zero %, 2002 126,750
170,000 Sealy Mattress Co. sr. sub. notes
Ser. B, 9 7/8s, 2007 162,350
------------
289,100
Lodging/Tourism (2.6%)
-------------------------------------------------------------------------------
220,000 FelCor Lodging LP company guaranty
9 1/2s, 2008 (R) 220,000
155,000 Hilton Hotels Corp. notes 7 5/8s,
2012 166,238
55,000 HMH Properties, Inc. company
guaranty Ser. A, 7 7/8s, 2005 (R) 56,100
545,000 HMH Properties, Inc. company
guaranty Ser. B, 7 7/8s, 2008 (R) 543,638
55,000 HMH Properties, Inc. sr. notes
Ser. C, 8.45s, 2008 56,375
60,000 Host Marriott LP company guaranty
Ser. G, 9 1/4s, 2007 (R) 63,300
50,000 Host Marriott LP sr. notes Ser. E,
8 3/8s, 2006 (R) 50,875
105,000 ITT Corp. notes 6 3/4s, 2005 108,544
190,000 John Q. Hammons Hotels LP/John Q.
Hammons Hotels Finance Corp. III
1st mtge. Ser. B, 8 7/8s, 2012 193,800
90,000 RFS Partnership LP company guaranty
9 3/4s, 2012 91,125
10,000 Starwood Hotels & Resorts Worldwide,
Inc. company guaranty 7 7/8s, 2012 10,600
80,000 Starwood Hotels & Resorts Worldwide,
Inc. company guaranty 7 3/8s, 2007 83,800
------------
1,644,395
Media (0.2%)
-------------------------------------------------------------------------------
85,000 Capital Records Inc. 144A company
guaranty 8 3/8s, 2009 82,864
GBP 20,000 EMI Group PLC company guaranty
9 3/4s, 2008 (United Kingdom) 32,567
------------
115,431
Publishing (4.4%)
-------------------------------------------------------------------------------
$310,000 Affinity Group Holdings sr. notes
11s, 2007 313,875
45,000 CanWest Media, Inc. 144A notes
7 5/8s, 2013 (Canada) 47,250
80,000 Garden State Newspapers, Inc. sr.
sub. notes 8 5/8s, 2011 82,200
50,000 Garden State Newspapers, Inc. sr.
sub. notes Ser. B, 8 3/4s, 2009 51,000
80,000 Hollinger International Publishing,
Inc. sr. notes 9s, 2010 83,800
258,356 Hollinger Participation Trust 144A
sr. notes 12 1/8s, 2010 (Canada)
(PIK) 273,857
90,000 Key3media Group, Inc. company
guaranty 11 1/4s, 2011 (In default)
(NON) 675
95,000 Mail-Well I Corp. company guaranty
9 5/8s, 2012 96,900
520,000 PRIMEDIA, Inc. company guaranty
8 7/8s, 2011 543,400
80,000 PRIMEDIA, Inc. company guaranty
7 5/8s, 2008 79,000
135,000 PRIMEDIA, Inc. 144A sr. notes 8s,
2013 135,338
60,000 Quebecor Media, Inc. sr. disc. notes
stepped-coupon zero % (13 3/4s,
7/15/06), 2011 (Canada) (STP) 47,700
130,000 Quebecor Media, Inc. sr. notes
11 1/8s, 2011 (Canada) 144,300
130,000 RH Donnelley Finance Corp. I 144A
sr. notes 8 7/8s, 2010 141,700
145,000 RH Donnelley Finance Corp. I 144A
sr. sub. notes 10 7/8s, 2012 164,213
155,000 Vertis, Inc. company guaranty
Ser. B, 10 7/8s, 2009 149,963
190,000 Vertis, Inc. 144A sec. notes 9 3/4s,
2009 190,950
110,000 Von Hoffman Press, Inc. company
guaranty 10 1/4s, 2009 114,400
110,614 Von Hoffman Press, Inc. debs. 13s,
2009 (PIK) 99,553
------------
2,760,074
Restaurants (0.8%)
-------------------------------------------------------------------------------
40,000 Domino's, Inc. company guaranty
Ser. B, 10 3/8s, 2009 43,850
100,000 Sbarro, Inc. company guaranty 11s,
2009 96,750
90,000 Yum! Brands, Inc. sr. notes 8 7/8s,
2011 103,050
50,000 Yum! Brands, Inc. sr. notes 8 1/2s,
2006 55,000
160,000 Yum! Brands, Inc. sr. notes 7.65s,
2008 175,600
------------
474,250
Retail (2.6%)
-------------------------------------------------------------------------------
100,000 Asbury Automotive Group, Inc.
company guaranty 9s, 2012 94,000
160,000 Autonation, Inc. company guaranty
9s, 2008 174,400
65,000 Gap, Inc. (The) notes 6.9s, 2007 69,875
65,000 Hollywood Entertainment Corp. sr.
sub. notes 9 5/8s, 2011 69,225
140,000 J. Crew Operating Corp. 144A sr.
sub. notes 10 3/8s, 2007 131,600
185,000 JC Penney Co., Inc. debs. 7.95s,
2017 178,525
15,000 JC Penney Co., Inc. debs. 7.65s,
2016 14,250
35,000 JC Penney Co., Inc. notes 9s, 2012 37,450
5,000 JC Penney Co., Inc. notes 8s, 2010 5,113
60,000 JC Penney Co., Inc. notes Ser. MTNA,
7.05s, 2005 61,800
60,000 NBTY, Inc. sr. sub. notes Ser. B,
8 5/8s, 2007 61,650
40,000 Rite Aid Corp. debs. 6 7/8s, 2013 33,700
100,000 Rite Aid Corp. 144A notes 9 1/2s,
2011 106,000
105,000 Rite Aid Corp. 144A sr. notes
9 1/4s, 2013 100,800
40,000 Rite Aid Corp. 144A sr. sec. notes
8 1/8s, 2010 40,800
280,000 Saks, Inc. company guaranty 8 1/4s,
2008 298,200
125,000 Southland Corp. debs. Ser. A,
4 1/2s, 2004 123,750
70,000 United Auto Group, Inc. company
guaranty 9 5/8s, 2012 72,100
------------
1,673,238
Technology (2.9%)
-------------------------------------------------------------------------------
115,000 AMI Semiconductor, Inc. 144A sr.
sub. notes 10 3/4s, 2013 127,650
110,000 Amkor Technologies, Inc. sr. notes
9 1/4s, 2006 115,170
10,000 Amkor Technologies, Inc. 144A sr.
notes 7 3/4s, 2013 9,900
40,000 Fairchild Semiconductor
International, Inc. company guaranty
10 3/8s, 2007 42,150
115,000 Iron Mountain, Inc. company guaranty
8 5/8s, 2013 125,638
200,000 Iron Mountain, Inc. company guaranty
8 1/8s, 2008 (Canada) 206,500
10,000 Lucent Technologies, Inc. debs.
6 1/2s, 2028 6,975
360,000 Lucent Technologies, Inc. debs.
6.45s, 2029 252,000
140,000 Lucent Technologies, Inc. notes
7 1/4s, 2006 133,350
10,000 Lucent Technologies, Inc. notes
5 1/2s, 2008 8,600
175,000 Nortel Networks Corp. notes 6 1/8s,
2006 (Canada) 169,750
95,000 ON Semiconductor Corp. company
guaranty 13s, 2008 92,150
135,000 SCG Holding & Semiconductor Corp.
company guaranty 12s, 2009 110,025
110,000 Seagate Technology Hdd Holdings
company guaranty 8s, 2009 (Cayman
Islands) 117,700
64,685 Telex Communications Group, Inc. sr.
sub. notes Ser. A, zero %, 2006 35,577
90,000 Titan Corp. (The) 144A sr. sub.
notes 8s, 2011 91,800
35,000 Xerox Cap Europe PLC company
guaranty 5 7/8s, 2004 (United
Kingdom) 34,869
140,000 Xerox Corp. 144A sr. notes 9 3/4s,
2009 152,950
10,000 Xerox Credit Corp. sr. notes 6.1s,
2003 10,025
------------
1,842,779
Textiles (0.7%)
-------------------------------------------------------------------------------
100,000 Galey & Lord, Inc. company guaranty
9 1/8s, 2008 (In default) (NON) 1,750
185,000 Levi Strauss & Co. 144A sr. notes
12 1/4s, 2012 153,550
95,000 Russell Corp. company guaranty
9 1/4s, 2010 103,550
40,000 Tommy Hilfiger USA, Inc. company
guaranty 6 1/2s, 2003 40,000
105,000 William Carter Holdings Co. (The)
company guaranty Ser. B, 10 7/8s,
2011 118,650
------------
417,500
Tire & Rubber (0.1%)
-------------------------------------------------------------------------------
100,000 Goodyear Tire & Rubber Co. (The)
notes 7.857s, 2011 72,000
Transportation (2.3%)
-------------------------------------------------------------------------------
10,000 Air Canada Corp. sr. notes 10 1/4s,
2011 (Canada) 3,900
221,742 Air2 US 144A sinking fund Ser. D,
12.266s, 2020 (In default) (NON) 19,957
85,000 Allied Holdings, Inc. company
guaranty Ser. B, 8 5/8s, 2007 65,450
65,000 American Airlines, Inc. pass-through
certificates Ser. 01-1, 6.817s, 2011 50,050
45,000 American Airlines, Inc. pass-through
certificates Ser. 99-1, 7.024s, 2009 39,825
39,010 American Airlines, Inc. pass-through
certificates Ser. 99-1, 6.855s, 2009 34,719
170,000 Calair, LLC/Calair Capital Corp.
company guaranty 8 1/8s, 2008 134,300
60,000 Continental Airlines, Inc.
pass-through certificates Ser. D,
7.568s, 2006 36,000
70,000 Delta Air Lines, Inc. pass-through
certificates Ser. 00-1, 7.779s, 2005 55,189
46,095 Delta Air Lines, Inc. pass-through
certificates Ser. 02-1, 7.779s, 2012 35,493
155,000 Evergreen International Aviation,
Inc. 144A sec. notes 12s, 2010 152,675
200,000 Kansas City Southern Railway Co.
company guaranty 9 1/2s, 2008 219,000
30,000 Kansas City Southern Railway Co.
company guaranty 7 1/2s, 2009 30,300
185,000 Navistar International Corp. company
guaranty Ser. B, 9 3/8s, 2006 192,400
25,000 Navistar International Corp. sr.
notes Ser. B, 8s, 2008 23,563
10,000 Northwest Airlines, Inc. company
guaranty 8.52s, 2004 9,150
120,000 Northwest Airlines, Inc. company
guaranty 7 5/8s, 2005 96,600
100,000 Northwest Airlines, Inc. sr. notes
9 7/8s, 2007 76,000
68,954 NWA Trust sr. notes Ser. A, 9 1/4s,
2012 68,264
40,000 Travel Centers of America, Inc.
company guaranty 12 3/4s, 2009 44,400
110,000 US Air, Inc. pass-through
certificates Ser. 93-A3, 10 3/8s,
2013 (In default) (NON) 44,000
------------
1,431,235
Utilities & Power (6.5%)
-------------------------------------------------------------------------------
13,000 AES Corp. (The) sr. notes 8 7/8s,
2011 11,830
4,000 AES Corp. (The) sr. notes 8 3/4s,
2008 3,720
30,000 AES Corp. (The) 144A sec. notes 10s,
2005 31,050
130,000 AES Corp. (The) 144A sec. notes 9s,
2015 131,300
125,000 AES Corp. (The) 144A sec. notes
8 3/4s, 2013 125,625
170,000 Allegheny Energy Supply 144A bonds
8 1/4s, 2012 143,650
65,000 Allegheny Energy, Inc. notes 7 3/4s,
2005 63,213
70,000 Avon Energy Partners Holdings 144A
notes 7.05s, 2007 (United Kingdom) 60,200
5,000 Avon Energy Partners Holdings 144A
notes 6.46s, 2008 (United Kingdom) 4,300
20,000 Calpine Canada Energy Finance
company guaranty 8 1/2s, 2008
(Canada) 14,000
90,000 Calpine Corp. sr. notes 10 1/2s,
2006 72,675
10,000 Calpine Corp. sr. notes 8 3/4s, 2007 7,000
220,000 Calpine Corp. sr. notes 8 5/8s, 2010 149,050
280,000 Calpine Corp. sr. notes 8 1/2s, 2011 190,400
60,000 Calpine Corp. sr. notes 7 7/8s, 2008 39,750
65,000 Calpine Corp. sr. notes 7 5/8s, 2006 48,100
50,000 CenterPoint Energy Resources Corp.
debs. 6 1/2s, 2008 54,412
25,000 CenterPoint Energy Resources Corp.
144A notes 7 7/8s, 2013 29,250
45,000 CMS Energy Corp. bank term loan FRN
Ser. A, 7 1/2s, 2004 (acquired
4/21/03, cost $44,563) (RES) 45,225
15,000 CMS Energy Corp. bank term loan FRN
Ser. B, 7 1/2s, 2004 (acquired
4/21/03, cost $14,888) (RES) 14,981
25,000 CMS Energy Corp. bank term loan FRN
Ser. C, 9s, 2004 (acquired 4/21/03,
cost $24,688) (RES) 25,000
130,000 CMS Energy Corp. sr. notes 8.9s,
2008 129,350
60,000 CMS Energy Corp. sr. notes 8 1/2s,
2011 58,350
40,000 CMS Panhandle Holding Corp. sr.
notes 6 1/2s, 2009 41,600
140,000 Dynegy Holdings, Inc. company
guaranty 6 3/4s, 2005 127,400
55,000 Dynegy Holdings, Inc. sr. notes
6 7/8s, 2011 44,000
60,000 Edison Mission Energy sr. notes 10s,
2008 53,400
60,000 Edison Mission Energy sr. notes
9 7/8s, 2011 51,900
25,000 El Paso CGP Co. debs. 6 1/2s, 2008 21,031
35,000 El Paso CGP Co. notes 6 3/8s, 2009 28,744
20,000 El Paso Corp. sr. notes 7 3/8s, 2012 16,600
155,000 El Paso Production Holding Co. 144A
sr. notes 7 3/4s, 2013 154,613
115,000 Gemstone Investor, Ltd. 144A company
guaranty 7.71s, 2004 112,125
70,000 Midland Funding II Corp. debs.
Ser. A, 11 3/4s, 2005 75,425
140,000 Mirant Americas Generation, Inc. sr.
notes 7.2s, 2008 87,850
45,000 Mirant Corp. 144A sr. notes 7.9s,
2009 24,300
60,000 Mission Energy Holding Co. sec.
notes 13 1/2s, 2008 39,600
50,000 Northwest Pipeline Corp. 144A sr.
notes 8 1/8s, 2010 54,000
135,000 Northwestern Corp. notes 8 3/4s,
2012 106,650
70,000 Pacific Gas & Electric Co. 144A sr.
notes 7 3/8s, 2005 (In default)
(NON) 71,575
25,000 PG&E Gas Transmission Northwest sr.
notes 7.1s, 2005 24,750
105,000 PSEG Energy Holdings, Inc. 144A
notes 7 3/4s, 2007 111,563
85,000 SEMCO Energy, Inc. 144A sr. notes
7 3/4s, 2013 90,100
5,000 Sierra Pacific Power Co. general
ref. mtge. Ser. A, 8s, 2008 5,144
30,000 Sierra Pacific Power Co.
collateralized Ser. MTNC, 6.82s,
2006 29,213
120,000 Sierra Pacific Resources notes
8 3/4s, 2005 120,150
20,000 Southern California Edison Co. notes
6 3/8s, 2006 20,000
160,000 Southern California Edison Co. 144A
1st mtge. 8s, 2007 173,600
55,000 Teco Energy, Inc. notes 10 1/2s,
2007 62,563
30,000 Teco Energy, Inc. notes 7.2s, 2011 29,775
75,000 Teco Energy, Inc. notes 7s, 2012 73,500
85,000 Tiverton/Rumford Power Associates,
LP 144A pass-through certificates
9s, 2018 70,550
105,000 Western Resources, Inc. sr. notes
9 3/4s, 2007 115,500
100,000 Williams Cos., Inc. (The) FRN
Ser. A, 6 3/4s, 2006 97,000
130,000 Williams Cos., Inc. (The) notes
9 1/4s, 2004 132,600
125,000 Williams Cos., Inc. (The) notes
6 1/2s, 2006 118,750
65,000 Williams Holdings Of Delaware notes
6 1/2s, 2008 59,800
306,523 York Power Funding 144A notes 12s,
2007 (Cayman Islands) (In default)
(NON) 229,892
------------
4,127,694
------------
Total Corporate bonds and notes
(cost $58,430,177) $55,631,030
Preferred stocks (3.4%) (a)
Number of shares Value
-------------------------------------------------------------------------------
4,237 Chevy Chase Capital Corp. Ser. A,
$5.188 pfd. $237,272
30 Crown Castle International Corp.
12.75% pfd. 30,900
5,279 CSC Holdings, Inc. Ser. M, $11.125
cum. pfd. 550,336
66,000 Diva Systems Corp. 144A Ser. D, zero % pfd. 660
8,200 Doane Pet Care Co. $7.125 pfd. 328,000
7 Dobson Communications Corp. 13.00%
pfd. (PIK) 6,370
175 Dobson Communications Corp. 12.25%
pfd. (PIK) 159,223
80 First Republic Capital Corp. 144A
10.50% pfd. 84,000
20 Granite Broadcasting Corp. 12.75%
cum. pfd. 14,600
2,814 Lodgian, Inc. Ser. A, $7.06 cum.
pfd. (PIK) 51,862
30 Metrocall Holdings, Inc. Ser. A,
15.00% cum. pfd. 270
635 Microcell Telecommunications, Inc.
$1.35 (Canada) 5,087
69 Nextel Communications, Inc. Ser. E,
11.125% pfd. (PIK) 71,070
7,394 North Atlantic Trading Co. 12.00%
pfd. (PIK) 147,880
1 NTL Europe, Inc. Ser. A, $5.00 cum. pfd.
(PIK) 3
42 Paxson Communications Corp. 13.25%
cum. pfd. (PIK) 399,000
100 PRIMEDIA, Inc. Ser. F, $9.20 cum.
pfd. 8,850
381 Rural Cellular Corp. 12.25% pfd.
(PIK) 72,390
------------
Total Preferred stocks
(cost $2,781,290) $2,167,773
Common stocks (2.1%) (a)
Number of shares Value
Basic Materials (0.1%)
-------------------------------------------------------------------------------
14,327 Pioneer Cos., Inc. (NON) $55,159
839 Polymer Group, Inc. Class A (NON) 7,249
10 Sterling Chemicals, Inc. (NON) 180
------------
62,588
Broadcasting (--%)
-------------------------------------------------------------------------------
31 Quorum Broadcast Holdings, Inc.
Class E (acquired 5/15/01,
cost $30,765) (RES) (NON) 6,074
102 RCN Corp. (NON) 158
------------
6,232
Communication Services (0.1%)
-------------------------------------------------------------------------------
626 Birch Telecom, Inc. (NON) 2,166
3,010 Covad Communications Group, Inc.
(NON) 3,206
262 FLAG Telecom Group, Ltd. (Bermuda)
(NON) 9,039
3,325 Globix Corp. (NON) 10,141
35 Metrocall Holdings, Inc. (NON) 2,275
5 Microcell Telecommunications, Inc. Class A
(Canada) (NON) 40
632 Microcell Telecommunications, Inc. Class B
(Canada) (NON) 5,292
7 NTL Europe, Inc. (NON) 1
434 Vast Solutions, Inc. Class B1 (NON) 217
434 Vast Solutions, Inc. Class B2 (NON) 217
434 Vast Solutions, Inc. Class B3 (NON) 217
------------
32,811
Consumer Cyclicals (0.3%)
-------------------------------------------------------------------------------
8,269 Fitzgeralds Gaming Corp. (NON) 83
3,334 Lodgian, Inc. (NON) 11,369
20,000 Loewen Group International, Inc.
(NON) 2
160,000 Morrison Knudsen Corp. (NON) 12,000
61,158 Sirius Satellite Radio, Inc. (NON) 97,853
40,417 VS Holdings, Inc. (NON) 30,313
346 Washington Group International, Inc.
(NON) 7,463
------------
159,083
Consumer Staples (1.6%)
-------------------------------------------------------------------------------
244 Premium Holdings (LP) 144A (NON) 5,134
576 PSF Group Holdings, Inc. 144A Class
A (NON) 1,008,653
------------
1,013,787
Electric Utilities (--%)
-------------------------------------------------------------------------------
2,471 Jasper Energy 144A (NON) 154
Financial (--%)
-------------------------------------------------------------------------------
180,000 AMRESCO Creditor Trust (NON) (R) 16,020
505,286 Contifinancial Corp. Liquidating
Trust Units 5,052
1 Imperial Credit Industries, Inc. (NON) 1
------------
21,073
Food (--%)
-------------------------------------------------------------------------------
324 Archibald Candy Corp. (NON) 923
4,427 Aurora Foods, Inc. (NON) 2,435
------------
3,358
Health Care (--%)
-------------------------------------------------------------------------------
384 Alderwoods Group, Inc. (NON) 2,250
453 Mariner Health Care, Inc. (NON) 3,398
313 Mediq, Inc. (NON) 31
178 Sun Healthcare Group, Inc. (NON) 178
------------
5,857
Natural Gas (--%)
-------------------------------------------------------------------------------
506 York Research Corp. 144A (NON) 30
Technology (--%)
-------------------------------------------------------------------------------
84 Comdisco Holding Co., Inc. (NON) 8,673
------------
Total Common stocks (cost $4,711,670) $1,313,646
Asset-backed securities (1.5%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$855,000 HYDI Credit Linked Note (issued by
JPMorgan) 8s, 2008 $869,963
60,000 Verdi Synthetic CLO (collateralized
loan obligation) 144A Ser. 1A,
Class E2, 11.15s, 2010 60,000
------------
Total Asset-backed securities (cost $940,493) $929,963
Convertible bonds and notes (1.1%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$95,000 American Tower Corp. cv. notes 5s,
2010 $79,919
35,000 Amkor Technology, Inc. cv. notes
5 3/4s, 2006 31,106
40,000 CenterPoint Energy, Inc. 144A cv.
sr. notes 3 3/4s, 2023 45,200
490,000 Cybernet Internet Services
International, Inc. 144A cv. sr.
disc. notes stepped-coupon zero %
(13s, 8/15/04) 2009 (Denmark) (In
default) (NON) (STP) 490
90,000 DaVita, Inc. cv. sub. notes 7s, 2009 94,163
EUR 65,000 Koninklijke Ahold NV cv. sub. notes
3s, 2003 (Netherlands) 32,866
$45,000 Kulicke & Soffa Industries, Inc. cv.
sub. notes 4 3/4s, 2006 35,550
3,000 Millicom International Cellular SA
144A cv. bonds zero %, 2006
(Luxembourg) (PIK) 5,550
380,000 Nextel Communications, Inc. cv. sr.
notes 6s, 2011 397,100
------------
Total Convertible bonds and notes
(cost $1,084,895) $721,944
Foreign government bonds and notes (1.0%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$100,000 Bulgaria (Republic of) 144A bonds
8 1/4s, 2015 $118,750
20,000 Colombia (Republic of) bonds
11 3/4s, 2020 25,030
15,000 Colombia (Republic of) bonds
10 3/8s, 2033 17,138
20,000 Colombia (Republic of) bonds
Ser. NOV, 9 3/4s, 2009 22,500
30,000 Colombia (Republic of) notes
10 3/4s, 2013 34,800
5,000 Colombia (Republic of) unsub.
9 3/4s, 2009 5,608
115,000 Ecuador (Republic of) bonds
stepped-coupon Ser. REGS, 5s (6s,
8/15/03), 2030 (STP) 73,600
30,000 Philippines (Republic of) bonds 9s,
2013 32,175
180,000 Russia (Federation of) unsub.
stepped-coupon 5s (7 1/2s,
3/31/07), 2030 (STP) 176,220
120,000 United Mexican States bonds
Ser. MTN, 8.3s, 2031 141,900
------------
Total Foreign government bonds and
notes (cost $517,024) $647,721
Units (0.4%) (a)
Number of units Value
-------------------------------------------------------------------------------
550,000 Australis Media, Ltd. units 15 3/4s,
2003 (Australia) (In default) (NON)
(DEF) $55
205,000 HMP Equity Holdings Corp. units zero
%, 2008 98,400
450,000 XCL, Ltd. 144A units 13 1/2s, 2004
(In default) (NON) 135,000
2,950 XCL, Ltd. 144A units cum. cv. pfd.
zero % (In default) (NON) (PIK) 1,475
------------
Total Units (cost $1,360,804) $234,930
Brady bonds (0.2%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$52,800 Peru (Republic of) bonds Ser. PDI,
5s, 2017 $45,609
30,000 Peru (Republic of) coll. FLIRB
4 1/2s, 2017 (acquired various dates
from 5/14/02 to 8/23/02, cost
$19,969)(RES) 24,450
60,000 Peru (Republic of) coll. FLIRB Ser.
20YR, 4 1/2s, 2017 48,900
------------
Total Brady bonds (cost $105,411) $118,959
Convertible preferred stocks (0.1%) (a)
Number of shares Value
-------------------------------------------------------------------------------
332 Knology, Inc. 144A Ser. D, zero %
cv. pfd. $299
1,400 LTV Corp. 144A $4.125 cv. pfd. (In
default) (NON) 14
3,069 Telex Communications, Inc. zero %
cv. pfd. (In default) (NON) 3,069
180 Weirton Steel Corp. Ser. C, zero %
cv. pfd. 45
1,160 Williams Cos., Inc. (The) 144A $2.75
cv. pfd. 63,220
580 XCL, Ltd. 144A Ser. A, 9.50% cum.
cv. pfd. (In default) (NON) (PIK) 290
------------
Total Convertible preferred stocks
(cost $190,534) $66,937
Warrants (--%) (a) (NON) Expiration
Number of warrants date Value
-------------------------------------------------------------------------------
170 American Tower Corp. Class A 8/1/08 $18,700
150 Birch Telecommunications, Inc. 144A 6/15/08 1
250 Comunicacion Celular SA 144A
(Colombia) 11/15/03 250
200 Dayton Superior Corp. 144A 6/15/09 50
1,250 Diva Systems Corp. 144A 3/1/08 13
1 Doe Run Resources Corp. 144A 12/31/12 1
200 Horizon PCS, Inc. 10/1/10 1
180 Insilco Holding Co. 8/15/08 1
200 iPCS, Inc. 144A 7/15/10 50
76 IWO Holdings, Inc. 1/15/11 19
106 Leap Wireless International, Inc.
144A 4/15/10 1
50 MDP Acquisitions PLC 144A (Ireland) 10/1/13 125
391 Microcell Telecommunications
(Canada) 5/1/08 399
235 Microcell Telecommunications
(Canada) 5/1/05 86
70 Mikohn Gaming Corp. 144A 8/15/08 1
8 NTL, Inc. 1/13/11 9
80 Pliant Corp. 144A 6/1/10 40
84 Solutia, Inc. 144A 7/15/09 97
447 Sun Healthcare Group, Inc. 2/28/05 1
120 Travel Centers of America, Inc. 144A 5/1/09 1,200
350 Ubiquitel, Inc. 144A 4/15/10 1
260 Verado Holdings, Inc. 144A 4/15/08 3
10 Versatel Telecom NV (Netherlands) 5/15/08 1
214 Washington Group International, Inc.
Ser. A 1/25/06 428
244 Washington Group International, Inc.
Ser. B 1/25/06 464
131 Washington Group International, Inc.
Ser. C 1/25/06 223
190 XM Satellite Radio Holdings, Inc.
144A 3/15/10 1
------------
Total Warrants (cost $125,774) $22,166
Short-term investments (2.1%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$88,028 Short-term investments held as
collateral for loaned securities
with yields ranging from 1.20% to 1.37%
and due dates ranging from June 2,
2003 to July 25, 2003 (d) $87,997
1,236,173 Short-term investments held in
Putnam commingled cash account with
yields ranging from 1.21% to 2.63%
and due dates ranging from June 2,
2003 to July 28, 2003 (d) 1,236,173
------------
Total Short-term investments
(cost $1,324,170) $1,324,170
-------------------------------------------------------------------------------
Total Investments (cost $71,572,242) $63,179,239
-------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $63,417,723.
(DEF) Security is in default of principal and interest.
(NON) Non-income-producing security.
(STP) The interest rate and date shown parenthetically represent the new
interest or dividend rate to be paid and the date the fund will begin
accruing interest or dividend income at this rate.
(RES) Restricted, excluding 144A securities, as to public resale. The total
market value of restricted securities held at May 31, 2003 was $636,080
or 1.0% of net assets.
(PIK) Income may be received in cash or additional securities at the
discretion of the issuer.
(R) Real Estate Investment Trust.
(d) See Note 1 to the financial statements.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
FLIRB represents Front Loaded Interest Reduction Bond.
The rates shown on Floating Rate Notes (FRN) are the current interest
rates shown at May 31, 2003, which are subject to change based on the
terms of the security.
-------------------------------------------------------------------------------
Forward Currency Contracts to Buy at May 31, 2003
(aggregate face value $20,797)
Market Aggregate Delivery Unrealized
Value Face Value Date Appreciation
-------------------------------------------------------------------------------
Euro $20,806 $20,797 6/18/03 $9
-------------------------------------------------------------------------------
Forward Currency Contracts to Sell at May 31, 2003
(aggregate face value $396,471)
Market Aggregate Delivery Unrealized
Value Face Value Date Depreciation
-------------------------------------------------------------------------------
British Pound $29,949 $29,262 6/18/03 $(687)
Euro 398,605 367,209 6/18/03 (31,396)
-------------------------------------------------------------------------------
$(32,083)
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities
May 31, 2003
Assets
-----------------------------------------------------------------------------
Investments in securities, at value, including $83,317 of
securities on loan (identified cost $71,572,242) (Note 1) $63,179,239
-----------------------------------------------------------------------------
Cash 43,239
-----------------------------------------------------------------------------
Dividends, interest and other receivables 1,345,404
-----------------------------------------------------------------------------
Receivable for securities sold 340,244
-----------------------------------------------------------------------------
Receivable for open forward currency contracts (Note 1) 9
-----------------------------------------------------------------------------
Receivable for closed forward currency contracts (Note 1) 1,023
-----------------------------------------------------------------------------
Total assets 64,909,158
-----------------------------------------------------------------------------
Liabilities
-----------------------------------------------------------------------------
Distributions payable to shareholders 450,373
-----------------------------------------------------------------------------
Payable for securities purchased 740,065
-----------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 116,717
-----------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 25,191
-----------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 22,491
-----------------------------------------------------------------------------
Payable for administrative services (Note 2) 527
-----------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 32,083
-----------------------------------------------------------------------------
Payable for closed forward currency contracts (Note 1) 3,631
-----------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 87,997
-----------------------------------------------------------------------------
Other accrued expenses 12,360
-----------------------------------------------------------------------------
Total liabilities 1,491,435
-----------------------------------------------------------------------------
Net assets $63,417,723
Represented by
-----------------------------------------------------------------------------
Paid-in capital (Note 1) $105,237,159
-----------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (1,292,445)
-----------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (32,112,055)
-----------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and
liabilities in foreign currencies (8,414,936)
-----------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $63,417,723
Computation of net asset value
-----------------------------------------------------------------------------
Net asset value per share ($63,417,723 divided by 7,507,107
shares) $8.45
-----------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of operations
Year ended May 31, 2003
Investment income:
-----------------------------------------------------------------------------
Interest $5,912,074
-----------------------------------------------------------------------------
Dividends 259,521
-----------------------------------------------------------------------------
Securities lending 42
-----------------------------------------------------------------------------
Total investment income 6,171,637
-----------------------------------------------------------------------------
Expenses:
-----------------------------------------------------------------------------
Compensation of Manager (Note 2) 445,846
-----------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 163,374
-----------------------------------------------------------------------------
Compensation of Trustees (Note 2) 10,557
-----------------------------------------------------------------------------
Administrative services (Note 2) 5,951
-----------------------------------------------------------------------------
Auditing 36,323
-----------------------------------------------------------------------------
Other 63,253
-----------------------------------------------------------------------------
Total expenses 725,304
-----------------------------------------------------------------------------
Expense reduction (Note 2) (2,012)
-----------------------------------------------------------------------------
Net expenses 723,292
-----------------------------------------------------------------------------
Net investment income 5,448,345
-----------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (6,398,864)
-----------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (7,914)
-----------------------------------------------------------------------------
Net realized loss on credit default contracts (Note 1) (76,808)
-----------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the year (21,933)
-----------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 6,473,911
-----------------------------------------------------------------------------
Net loss on investments (31,608)
-----------------------------------------------------------------------------
Net increase in net assets resulting from operations $5,416,737
-----------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets
Year ended May 31
Decrease in net assets 2003 2002
-------------------------------------------------------------------------------
Operations:
-------------------------------------------------------------------------------
Net investment income $5,448,345 $6,438,418
-------------------------------------------------------------------------------
Net realized loss on investments and
foreign currency transactions (6,483,586) (9,794,916)
-------------------------------------------------------------------------------
Net unrealized appreciation of investments
and assets and liabilities in foreign
currencies 6,451,978 3,409,816
-------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 5,416,737 53,318
Distributions to shareholders: (Note 1)
-------------------------------------------------------------------------------
From net investment income (5,721,276) (6,527,642)
-------------------------------------------------------------------------------
From return of capital (103,566) (911,084)
-------------------------------------------------------------------------------
Total decrease in net assets (408,105) (7,385,408)
Net assets
-------------------------------------------------------------------------------
Beginning of year 63,825,828 71,211,236
-------------------------------------------------------------------------------
End of year (including distributions in
excess of net investment income of
$1,292,445 and $1,179,808, respectively) $63,417,723 $63,825,828
-------------------------------------------------------------------------------
Number of fund shares
-------------------------------------------------------------------------------
Shares outstanding at beginning and end of
year 7,507,107 7,507,107
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
Per-share Year ended May 31
operating performance 2003 2002 2001
-------------------------------------------------------------------------------
Net asset value, beginning of
period $8.50 $9.49 $10.91
-------------------------------------------------------------------------------
Investment operations:
-------------------------------------------------------------------------------
Net investment income (a) .73 .86 1.16
-------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.01) (.86) (1.41)
-------------------------------------------------------------------------------
Total from investment
operations .72 -- (d) (.25)
-------------------------------------------------------------------------------
Less distributions:
-------------------------------------------------------------------------------
From net investment income (.76) (.87) (1.17)
-------------------------------------------------------------------------------
From net realized gain
on investments -- -- --
-------------------------------------------------------------------------------
From return of capital (.01) (.12) --
-------------------------------------------------------------------------------
Total distributions (.77) (.99) (1.17)
-------------------------------------------------------------------------------
Net asset value, end of period $8.45 $8.50 $9.49
-------------------------------------------------------------------------------
Market price, end of period $9.02 $9.48 $10.80
-------------------------------------------------------------------------------
Total return at market price
(%)(b) 4.15 (2.91) 18.34
-------------------------------------------------------------------------------
Ratios and supplemental data
-------------------------------------------------------------------------------
Net assets, end of period (in
thousands $63,418 $63,826 $71,211
-------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)(c) 1.22 1.19 1.14
-------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 9.17 9.69 11.41
-------------------------------------------------------------------------------
Portfolio turnover (%) 73.72 73.39 97.63
-------------------------------------------------------------------------------
Financial highlights (continued)
(For a common share outstanding throughout the period)
Per-share Year ended May 31
operating performance 2000 1999
-------------------------------------------------------------------------------
Net asset value, beginning of
period $12.30 $14.83
-------------------------------------------------------------------------------
Investment operations:
-------------------------------------------------------------------------------
Net investment income (a) 1.16 1.24
-------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1.27) (2.23)
-------------------------------------------------------------------------------
Total from investment
operations (.11) (.99)
-------------------------------------------------------------------------------
Less distributions:
-------------------------------------------------------------------------------
From net investment income (1.21) (1.38)
-------------------------------------------------------------------------------
From net realized gain
on investments -- (.16)
-------------------------------------------------------------------------------
From return of capital (.07) --
-------------------------------------------------------------------------------
Total distributions (1.28) (1.54)
-------------------------------------------------------------------------------
Net asset value, end of period $10.91 $12.30
-------------------------------------------------------------------------------
Market price, end of period $10.19 $13.50
-------------------------------------------------------------------------------
Total return at market price
(%)(b) (15.61) (2.30)
-------------------------------------------------------------------------------
Ratios and supplemental data
-------------------------------------------------------------------------------
Net assets, end of period (in
thousands $81,898 $92,368
-------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)(c) 1.08 1.11
-------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 9.92 9.50
-------------------------------------------------------------------------------
Portfolio turnover (%) 97.22 47.56
--------------------------------------------------------------------------------
(a) Per share net investment income has been determined on
the basis of the weighted number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment.
(c) Includes amounts paid through expense offset arrangements (Note 2).
(d) Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial statements.
Notes to financial statements
May 31, 2003
Note 1
Significant accounting policies
Putnam Managed High Yield Trust (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a non-diversified,
closed-end management investment company. The fund's investment objective
is to seek high current income. The fund intends to achieve its objective
by investing in high yielding income securities.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
fund invests in higher yielding, lower rated bonds that have a higher rate
of default due to the nature of the investments. 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
market value on the basis of valuations furnished by an independent pricing
service or dealers, approved by the Trustees. Such services or dealers
determine valuations for normal institutional-size trading units of such
securities using methods based on market transactions for comparable
securities and various relationships, generally recognized by institutional
traders, between securities. Investments for which market quotations are
readily available are valued at the last reported sales price on its
principal exchange, or official closing price for certain markets. If no
sales are reported -- as in the case of some securities traded
over-the-counter -- a security is valued at its last reported bid price.
For foreign investments, if trading or events occurring in other markets
after the close of the principal exchange in which the securities are
traded are expected to materially affect the value of the investments, then
those investments are valued, taking into consideration these events, at
their fair value following procedures approved by the Trustees. Securities
quoted in foreign currencies are translated into U.S. dollars at the
current exchange rate. Short-term investments having remaining maturities
of 60 days or less are valued at amortized cost, which approximates fair
value. Other investments, including restricted securities, are valued at
fair value following procedures approved by the Trustees. Such valuations
and procedures are reviewed periodically by the Trustees.
B) Joint trading account The fund may transfer uninvested cash balances,
including cash collateral received under security lending 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 is
recognized on the ex-dividend date. Non-cash dividends, if any, are
recorded at the fair market value of the securities received. All
premiums/discounts are amortized/accreted on a yield-to-maturity basis.
D) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when earned or incurred. The fund
does not isolate that portion of realized or unrealized gains or losses
resulting from changes in the foreign exchange rate on investments from
fluctuations arising from changes in the market prices of the securities.
Such gains and losses are included with the net realized and unrealized
gain or loss on investments. Net realized gains and losses on foreign
currency transactions represent net realized exchange gains or losses on
closed forward currency contracts, disposition of foreign currencies,
currency gains and losses realized between the trade and settlement dates
on securities transactions and the difference between the amount of
investment income and foreign withholding taxes recorded on the fund's
books and the U.S. dollar equivalent amounts actually received or paid. Net
unrealized appreciation and depreciation of assets and liabilities in
foreign currencies arise from changes in the value of open forward currency
contracts and assets and liabilities other than investments at the period
end, resulting from changes in the exchange rate. Investments in foreign
securities involve certain risks, including those related to economic
instability, unfavorable political developments, and currency fluctuations,
not present with domestic investments.
E) Forward currency contracts The fund may buy and sell forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date. These contracts are used to
protect against a decline in value relative to the U.S. dollar of the
currencies in which its portfolio securities are denominated or quoted (or
an increase in the value of a currency in which securities a fund intends
to buy are denominated, when a fund holds cash reserves and short-term
investments). The U.S. dollar value of forward currency contracts is
determined using current forward currency exchange rates supplied by a
quotation service. The market value of the contract will fluctuate with
changes in currency exchange rates. The contract is marked-to-market daily
and the change in market value is recorded as an unrealized gain or loss.
When the contract is closed, the fund records a realized gain or loss equal
to the difference between the value of the contract at the time it was
opened and the value at the time it was closed. The fund could be exposed
to risk if the value of the currency changes unfavorably, if the
counterparties to the contracts are unable to meet the terms of their
contracts or if the fund is unable to enter into a closing position.
Forward currency contracts outstanding at period end are listed after The
fund's portfolio.
F) Credit default contracts The fund may enter into credit default
contracts where one party, the protection buyer, makes an upfront payment
to a counterparty, the protection seller, in exchange for the right to
receive a contingent payment as a result of a credit event related to a
specified security or index. The upfront payment received by the fund, as
the protection seller, is recorded as a liability on the fund's books. 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. Credit default
contracts outstanding at period end 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 May 31, 2003, the value of securities loaned amounted to
$83,317. The fund received cash collateral of $87,997, which is pooled with
collateral of other Putnam funds into 41 issuers of high-grade short-term
investments.
H) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated investment
companies. It is also the intention of the fund to distribute an amount
sufficient to avoid imposition of any excise tax under Section 4982 of the
Internal Revenue Code of 1986, as amended. Therefore, no provision has been
made for federal taxes on income, capital gains or unrealized appreciation
on securities held nor for excise tax on income and capital gains.
At May 31, 2003, the fund had a capital loss carryover of approximately
$30,180,000 available to the extent allowed by tax law to offset future
capital gains, if any. The amount of the carryover and the expiration dates
are:
Loss Carryover Expiration
--------------------------------
$2,584,000 May 31, 2007
4,168,000 May 31, 2008
3,778,000 May 31, 2009
8,385,000 May 31, 2010
11,265,000 May 31, 2011
Pursuant to federal income tax regulations applicable to regulated
investment companies, the fund has elected to defer to its fiscal year
ending May 31, 2004 $1,867,482 of losses recognized during the period
November 1, 2002 to May 31, 2003.
I) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Distributions from capital gains, if any, are recorded on the ex-dividend
date and paid at least annually. The amount and character of income and
gains to be distributed are determined in accordance with income tax
regulations, which may differ from generally accepted accounting
principles. These differences include temporary and permanent differences
of losses on wash sale transactions, foreign currency gains and losses,
post-October loss deferrals, dividends payable, defaulted bond interest,
market discount and interest on payment-in-kind securities.
Reclassifications are made to the fund's capital accounts to reflect income
and gains available for distribution (or available capital loss carryovers)
under income tax regulations. For the year ended May 31, 2003, the fund
reclassified $160,294 to decrease distributions in excess of net investment
income and $45,465 to increase paid-in-capital, with an increase to
accumulated net realized loss of $205,759.
The tax basis components of distributable earnings and the federal tax cost
as of period end were as follows:
Unrealized appreciation $3,651,168
Unrealized depreciation (12,450,669)
------------
Net unrealized depreciation (8,799,501)
Undistributed ordinary income --
Capital loss carryforward (30,180,445)
Post October loss (1,867,482)
Cost for federal income
tax purposes $71,978,740
Note 2
Management fee, administrative services and other transactions
Compensation of Putnam Management, for management and investment
advisory services, is paid quarterly based on the average net assets of
the fund. Such fee is based on the following annual rates: 0.75% of the
first $500 million of the average weekly net assets, 0.65% of the next
$500 million, 0.60% of the next $500 million and 0.55% thereafter.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and their
staff who provide administrative services to the fund. The aggregate amount
of all such reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam, LLC. Investor servicing agent
functions are provided by Putnam Investor Services, a division of PFTC.
The fund has entered into an arrangement with PFTC whereby credits realized
as a result of uninvested cash balances are used to reduce a portion of the
fund's expenses. For the year ended May 31, 2003, the fund's expenses were
reduced by $2,012 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $534 has been allocated to the fund, and an additional fee for
each Trustees meeting attended. Trustees receive additional fees for
attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with the
Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have served
as a Trustee for at least five years. Benefits under the Pension Plan are
equal to 50% of the Trustee's average total retainer and meeting fees for
the three years preceding retirement. Pension expense for the fund is
included in Compensation of Trustees in the Statement of operations.
Accrued pension liability is included in Payable for compensation of
Trustees in the Statement of assets and liabilities.
Note 3
Purchases and sales of securities
During the year ended May 31, 2003, cost of purchases and proceeds from
sales of investment securities other than short-term investments aggregated
$42,549,000 and $41,597,805, respectively. There were no purchases and
sales of U.S. government obligations.
Federal tax information
(Unaudited)
For the year-ended May 31, 2003, a portion of the fund's distribution
represents a return of capital and is therefore not taxable to
shareholders.
The fund has designated 4.18% of the distributions from net investment
income as qualifying for the dividends received deduction for corporations.
For its tax year ended May 31, 2003, the fund hereby designates 1.33%, or
the maximum amount allowable, of its net taxable income as qualified
dividends taxed at individual net capital gain rates.
The Form 1099 you receive in January 2004 will show the tax status of all
distributions paid to your account in calendar 2003.
About the Trustees
Jameson A. Baxter (9/6/43), Trustee since 1994
President, Baxter Associates, Inc. (a consulting and private investments
firm)
Director of ASHTA Chemicals, Inc., Banta Corporation (a printing and
digital imaging firm), Ryerson Tull, Inc. (a steel service corporation),
Advocate Health Care, and the National Center for Nonprofit Boards.
Chairman Emeritus of the Board of Trustees, Mount Holyoke College. Until
2002, Mrs. Baxter was a director of Intermatic Corporation, a manufacturer
of energy control products. Also held various positions in investment
banking and corporate finance, including Vice President and principal of
the Regency Group and Vice President and consultant to First Boston Corp.
Charles B. Curtis (4/27/40), Trustee since 2001
President and Chief Operating Officer, Nuclear Threat Initiative (a private
foundation dealing with national security issues), also serves as Senior
Advisor to the United Nations Foundation
Member of the Council on Foreign Relations and the Trustee Advisory Council
of the Applied Physics Laboratory at Johns Hopkins University. Until 2003,
Mr. Curtis was a member of the Electric Power Research Institute Advisory
Council, and the University of Chicago Board of Governors for Argonne
National Laboratory. Prior to 2002, Mr. Curtis was a member of the Board of
Directors of the Gas Technology Institute and the Board of Directors of the
Environment and Natural Resources Program Steering Committee, John F.
Kennedy School of Government, Harvard University. Until 2001, Mr. Curtis
was a Member of the Department of Defense's Policy Board and Director of
EG&G Technical Services, Inc. (fossil energy research and development
support). Prior to May 1997, Mr. Curtis was Deputy Secretary of Energy. He
served as Chairman of the Federal Energy Regulatory Commission from 1977 to
1987 and has held positions on the staff of the U.S. House of
Representatives, the U.S. Treasury Department, and the Securities and
Exchange Commission. Mr. Curtis is also a lawyer with over 15 years of
experience.
John A. Hill (1/31/42), Trustee since 1985 and Chairman since 2000
Vice-Chairman and Managing Director, First Reserve Corporation (a
registered investment advisor investing in companies in the world-wide
energy industry on behalf of institutional investors)
Director of Devon Energy Corporation (formerly known as Snyder Oil
Corporation), TransMontaigne Oil Company, Continuum Health Partners of New
York, Sarah Lawrence College, and various private companies owned by First
Reserve Corporation. Trustee of TH Lee, Putnam Investment Trust (a
closed-end investment company). Prior to acquiring First Reserve in 1983,
Mr. Hill held executive positions with several advisory firms and various
positions with the federal government, including Associate Director of the
Office of Manage ment and Budget and Deputy Director of the Federal Energy
Administration.
Ronald J. Jackson (12/17/43), Trustee since 1996
Private investor
Former Chairman, President, and Chief Executive Officer of Fisher-Price,
Inc. (a toy manufacturer). Previously served as President and Chief
Executive Officer of Stride-Rite, Inc. and Kenner Parker Toys. Also held
financial and marketing positions with General Mills, Parker Brothers, and
Talbots. President of the Kathleen and Ronald J. Jackson Foundation
(charitable trust). Member of the Board of Overseers of WGBH (public
television and radio). Member of the Board of Overseers of the Peabody
Essex Museum.
Paul L. Joskow (6/30/47), Trustee since 1997
Elizabeth and James Killian Professor of Economics and Management and
Director of the Center for Energy and Environmental Policy Research,
Massachusetts Institute of Technology
Director, National Grid Transco (formerly National Grid Group, a
UK-based holding company with interests in electric and gas transmission
and distribution and telecommunications infrastructure), and the
Whitehead Institute for Biomedical Research (a non-profit research
institution). President of the Yale University Council. Prior to
February 2002, March 2000, and September 1998, Dr. Joskow was a Director
of State Farm Indemnity Company (an automobile insurance company),
Director of New England Electric System (a public utility holding
company) and a consultant to National Economic Research Associates,
respectively.
Elizabeth T. Kennan (2/25/38), Trustee since 1992
Chairman, Cambus-Kenneth Bloodstock (a limited liability company involved
in thoroughbred horse breeding and farming), President Emeritus of Mount
Holyoke College
Director, Northeast Utilities, and Talbots (a distributor of women's
apparel). Trustee of Centre College. Prior to 2001, Dr. Kennan was a member
of the Oversight Committee of Folger Shakespeare Library. Prior to
September 2000, June 2000, and November 1999, Dr. Kennan was a Director of
Chastain Real Estate, Bell Atlantic, and Kentucky Home Life Insurance,
respectively. Prior to 1995, Dr. Kennan was a Trustee of Notre Dame
University. For 12 years, she was on the faculty of Catholic University.
John H. Mullin, III (6/15/41), Trustee since 1997
Chairman and CEO of Ridgeway Farm (a limited liability company engaged in
timber and farming)
Director Alex. Brown Realty, Inc., Sonoco Products, Inc. (a packaging
company), The Liberty Corporation (a company engaged in the broadcasting
industry), and Progress Energy, Inc. (a utility company, formerly known as
Carolina Power & Light). Trustee Emeritus of Washington & Lee University.
Prior to October 1997, January 1998, and May 2001, Mr. Mullin was a
Director of Dillon, Read & Co. Inc., The Ryland Group, Inc., and Graphic
Packaging International Corp., respectively.
Robert E. Patterson (3/15/45), Trustee since 1984
Senior Partner of Cabot Properties, L.P. and Chairman of Cabot Properties,
Inc.
Chairman of the Joslin Diabetes Center, Trustee of SEA Education
Association, and Director of Brandywine Trust Company (a trust company).
Prior to February 1998, Mr. Patterson was Executive Vice President and
Director of Acquisitions of Cabot Partners Limited Partnership. Prior to
December 2001, Mr. Patterson was President and Trustee of Cabot Industrial
Trust (publicly traded real estate investment trust). Prior to 1990, Mr.
Patterson was Executive Vice President of Cabot, Cabot & Forbes Realty
Advisors, the predecessor of Cabot Partners, and prior to that was Senior
Vice President of the Beal Companies.
W. Thomas Stephens (9/2/42), Trustee since 1997
Corporate Director
Director of Xcel Energy Incorporated (public utility company), TransCanada
Pipelines, Norske Canada, Inc. (paper manufacturer), and Qwest
Communications (communications company). Until 2003, Mr. Stephens was a
Director of Mail-Well, a printing and envelope company. Prior to July 2001
and October 1999, Mr. Stephens was Chairman of Mail-Well and
MacMillan-Bloedel (forest products company). Prior to 1996, Mr. Stephens
was Chairman and Chief Executive Officer of Johns Manville.
W. Nicholas Thorndike (3/28/33), Trustee since 1992
Director of various corporations and charitable organizations, including
Courier Corporation (a book manufacturer and publisher) and Providence
Journal Co. (a newspaper publisher)
Trustee of Northeastern University and Honorary Trustee of Massachusetts
General Hospital. Prior to September 2000, April 2000, and December 2001,
Mr. Thorndike was a Director of Bradley Real Estate, Inc., a Trustee of
Eastern Utilities Associates, and a Trustee of Cabot Industrial Trust,
respectively. Previously served as Chairman of the Board and managing
partner of Wellington Management/Thorndike Doran Paine & Lewis, and
Chairman and Director of Ivest Fund.
Lawrence J. Lasser* (11/1/42), Trustee since 1992 and Vice President
since 1981
President and Chief Executive Officer of Putnam Investments and Putnam
Management
Director of Marsh & McLennan Companies, Inc. and the United Way of
Massachusetts Bay. Member of the Board of Governors of the Investment
Company Institute, Trustee of the Museum of Fine Arts, Boston, a Trustee
and Member of the Finance and Executive Committees of Beth Israel
Deaconess Medical Center, Boston, and a Member of the CareGroup Board of
Managers Investment Committee, the Council on Foreign Relations, and the
Commercial Club of Boston.
George Putnam, III* (8/10/51), Trustee since 1984 and President since 2000
President, New Generation Research, Inc. (a publisher of financial advisory
and other research services relating to bankrupt and distressed companies)
and New Generation Advisers, Inc. (a registered investment adviser)
Director of The Boston Family Office, L.L.C. (registered investment
advisor), Trustee of St. Mark's School, and Trustee of Shore Country Day
School. Until 2002, Mr. Putnam was a Trustee of the SEA Education
Association. Previously, Mr. Putnam was an attorney with the firm of
Dechert Price & Rhoads.
A.J.C. Smith* (4/13/34), Trustee since 1986
Director of Marsh & McLennan Companies, Inc.
Director of Trident Corp. (a limited partnership with over 30 institutional
investors). Trustee of the Carnegie Hall Society, the Educational
Broadcasting Corporation and the National Museums of Scotland. Chairman of
the Central Park Conservancy. Member of the Board of Overseers of the Joan
and Sanford I. Weill Graduate School of Medical Sciences of Cornell
University. Fellow of the Faculty of Actuaries in Edinburgh, the Canadian
Institute of Actuaries, and the Conference of Actuaries. Associate of the
Society of Actuaries. Member of the American Actuaries, the International
Actuarial Association and the International Association of Consulting
Actuaries. Prior to May 2000 and November 1999, Mr. Smith was Chairman and
CEO, respectively, of Marsh & McLennan Companies, Inc.
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of May 31, 2003, there were 104 Putnam Funds.
Each Trustee serves for an indefinite term, until his or her resignation,
death, or removal.
* Trustees who are or may be deemed to be "interested persons" (as defined
in the Investment Company Act of 1940) of the fund, Putnam Management,
Putnam Retail Management or Marsh & McLennan Companies, Inc., the parent
company of Putnam LLC and its affiliated companies. Messrs. Putnam, III,
Lasser and Smith are deemed "interested persons" by virtue of their
positions as officers or shareholders of the fund or Putnam Management,
Putnam Retail Management or Marsh & McLennan Companies, Inc. George Putnam,
III is the President of your fund and each of the other Putnam funds.
Lawrence J. Lasser is the President and Chief Executive Officer of Putnam
Investments and Putnam Management. Mr. Lasser and Mr. Smith serve as
Directors of Marsh & McLennan Companies, Inc.
Officers
In addition to George Putnam, III and Lawrence J. Lasser,
the other officers of the fund are shown below:
Charles E. Porter (7/26/38)
Executive Vice President, Treasurer and Principal Financial
Officer
Since 1989
Managing Director, Putnam Investments
and Putnam Management
Patricia C. Flaherty (12/1/46)
Senior Vice President
Since 1993
Senior Vice President, Putnam Investments and Putnam
Management
Karnig H. Durgarian (1/13/56)
Vice President and Principal Executive Officer
Since 2002
Senior Managing Director, Putnam Investments
Steven D. Krichmar (6/27/58)
Vice President and Principal Financial Officer
Since 2002
Managing Director, Putnam Investments. Prior to July 2001,
Partner, PricewaterhouseCoopers LLP
Michael T. Healy (1/24/58)
Assistant Treasurer and Principal
Accounting Officer
Since 2000
Managing Director, Putnam Investments
Brett C. Browchuk (2/27/63)
Vice President
Since 1994
Managing Director, Putnam Investments and Putnam Management
Charles E. Haldeman Jr. (10/29/48)
Vice President
Since 2002
Senior Managing Director, Putnam Investments and Putnam
Management. Prior to October 2002, Chief Executive Officer,
Lincoln National Investment Companies; prior to January
2000, President and Chief Operating Officer, United Asset
Management.
Beth S. Mazor (4/6/58)
Vice President
Since 2002
Senior Vice President, Putnam Investments
Richard A. Monaghan (8/25/54)
Vice President
Since 1998
Senior Managing Director, Putnam Investments and Putnam
Retail Management. Prior to November 1998, Managing
Director, Merrill Lynch
Stephen M. Oristaglio (8/21/55)
Vice President
Since 1998
Senior Managing Director, Putnam Investments and Putnam
Management. Prior to July 1998, Managing Director, Swiss
Bank Corp.
Gordon H. Silver (7/3/47)
Vice President
Since 1990
Senior Managing Director, Putnam Investments, Putnam
Management and Putnam Retail Management
Mark C. Trenchard
(6/5/62) Vice President
Since 2002
Senior Vice President, Putnam Investments
Judith Cohen (6/7/45)
Clerk and Assistant Treasurer
Since 1993
Clerk and Assistant Treasurer, The Putnam Funds
Jerome J. Jacobs (8/20/58)
Vice President
Since 1996
Managing Director of Putnam Management
Kevin Cronin (6/13/61)
Vice President
Since 2001
Managing Director of Putnam Management
Stephen Peacher (6/15/64)
Vice President
Since 2000
Managing Director of Putnam Management
The address of each Officer is One Post Office Square, Boston, MA 02109.
Fund information
About Putnam Investments
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition and
practice since 1830. Founded over 65 years ago, Putnam Investments was
built around the concept that a balance between risk and reward is the
hallmark of a well-rounded financial program. We presently manage over 100
mutual funds in growth, value, blend, fixed income, and international.
Investment Manager
Putnam Investment
Management, LLC
One Post Office Square
Boston, MA 02109
Marketing Services
Putnam Retail Management
One Post Office Square
Boston, MA 02109
Custodian
Putnam Fiduciary Trust Company
Legal Counsel
Ropes & Gray LLP
Independent Accountants
KPMG LLP
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
Officers
George Putnam, III
President
Charles E. Porter
Executive Vice President, Treasurer and Principal Financial Officer
Patricia C. Flaherty
Senior Vice President
Karnig H. Durgarian
Vice President and Principal Executive Officer
Steven D. Krichmar
Vice President and Principal Financial Officer
Michael T. Healy
Assistant Treasurer and Principal Accounting Officer
Brett C. Browchuk
Vice President
Kevin Cronin
Vice President
Charles E. Haldeman, Jr.
Vice President
Lawrence J. Lasser
Vice President
Beth S. Mazor
Vice President
Richard A. Monaghan
Vice President
Stephen M. Oristaglio
Vice President
Gordon H. Silver
Vice President
Mark C. Trenchard
Vice President
Stephen C. Peacher
Vice President
Judith Cohen
Clerk and Assistant Treasurer
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or visit
our Web site (www.putnaminvestments.com) any time for up-to-date
information about the fund's NAV.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
----------------------
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
----------------------
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88666 590 7/03
Item 2. Code of Ethics:
-----------------------
Not applicable
Item 3. Audit Committee Financial Expert:
-----------------------------------------
Not applicable
Item 4. Principal Accountant Fees and Services:
-----------------------------------------------
Not applicable
Items 5-6. [Reserved]
---------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed End
-------------------------------------------------------------------------
Management Investment Companies:
--------------------------------
Proxy Voting Guidelines of the Putnam Funds
-------------------------------------------
The proxy voting guidelines below summarize the Funds' positions on
various issues of concern to investors, and give a general indication of
how Fund portfolio securities will be voted on proposals dealing with a
particular issue. The Funds' proxy voting service is instructed to vote
all proxies relating to Fund portfolio securities in accordance with
these guidelines, except as otherwise instructed by the Proxy
Coordinator.
The proxy voting guidelines are just that - guidelines. The guidelines
are not exhaustive and do not include all potential voting issues.
Because proxy issues and the circumstances of individual companies are
so varied, there may be instances when the Funds may not vote in strict
adherence to these guidelines. For example, the proxy voting service is
expected to bring to the Proxy Coordinator's attention proxy questions
that are company-specific and of a non-routine nature and, although
covered by the guidelines, may be more appropriately handled on a
case-by-case basis.
Similarly, Putnam Management's investment professionals, as part of
their ongoing review and analysis of all Fund portfolio holdings, are
responsible for monitoring significant corporate developments, including
proxy proposals submitted to shareholders, and notifying the Proxy
Coordinator of circumstances where the interests of Fund shareholders
may warrant a vote contrary to these guidelines. In such instances, the
investment professionals will submit a written recommendation to the
Proxy Coordinator and the person or persons designated by Putnam
Management's Legal and Compliance Department to assist in processing
referral items pursuant to the Funds' "Proxy Voting Procedures." The
Proxy Coordinator, in consultation with the Senior Vice President,
Executive Vice President and/or the Chair of the Board Policy and
Nominating Committee, as appropriate, will determine how the Funds'
proxies will be voted. When indicated, the Chair of the Board Policy
and Nominating Committee may consult with other members of the Committee
or the full board of Trustees.
The following guidelines are grouped according to the types of proposals
generally presented to shareholders. Part I deals with proposals which
have been approved and recommended by a company's board of directors.
Part II deals with proposals submitted by shareholders for inclusion in
proxy statements. Part III addresses unique considerations pertaining
to foreign issuers.
I. Board-Approved Proposals
---------------------------
The vast majority of matters presented to shareholders for a vote
involve proposals made by a company itself (sometimes referred to as
"management proposals"), which have been approved and recommended by its
board of directors. In view of the enhanced corporate governance
practices currently being implemented in public companies and the Funds'
intent to hold corporate boards accountable for their actions in
promoting shareholder interests, the Funds' proxies generally will be
voted in support of decisions reached by independent boards of
directors. Accordingly, the Funds' proxies will be voted for
board-approved proposals, except as follows:
A. Matters Relating to the Board of Directors
---------------------------------------------
The board of directors has the important role of overseeing management
and its performance on behalf of shareholders. The Funds' proxies will
be voted for the election of the company's nominees for directors and
for board-approved proposals on other matters relating to the board of
directors (provided that such nominees and other matters have been
approved by an independent nominating committee), except as follows:
* The Funds will withhold votes for the entire board of directors if
* The board does not have a majority of independent directors; or
* The board does not have nominating, audit and compensation committees
composed solely of independent directors.
Commentary: While these requirements will likely become mandatory for
most public companies in the near future as a result of pending NYSE and
NASDAQ rule proposals, the Funds' Trustees believe that there is no
excuse for public company boards that fail to implement these vital
governance reforms at their next annual meeting. For these purposes, an
"independent director" is a director who meets all requirements to serve
as an independent director of a company under the pending NYSE rule
proposals (i.e., no material business relationships with the company, no
present or recent employment relationship with the company (including
employment of immediate family members) and, in the case of audit
committee members, no compensation for non-board services). As
indicated below, the Funds will generally vote on a case-by-case basis
on board-approved proposals where the board fails to meet these basic
independence standards.
* The Funds will withhold votes for any nominee for director who is
considered an independent director by the company and who has received
compensation from the company other than for service as a director
(e.g., investment banking, consulting, legal or financial advisory
fees).
Commentary: The Funds' Trustees believe that receipt of compensation
for services other than service as a director raises significant
independence issues. The Funds will withhold votes for any nominee for
director who is considered an independent director by the company and
who receives such compensation.
* The Funds will withhold votes for the entire board of directors if the
board has more than 19 members or fewer than five members, absent
special circumstances.
Commentary: The Funds' Trustees believe that the size of the board of
directors can have a direct impact on the ability of the board to govern
effectively. Boards that have too many members can be unwieldy and
ultimately inhibit their ability to oversee management performance.
Boards that have too few members can stifle innovation and lead to
excessive influence by management.
* The Funds will vote on a case-by-case basis in contested elections of
directors.
* The Funds will withhold votes for any nominee for director who attends
less than 75% of board and committee meetings without valid reasons for
the absences (i.e., illness, personal emergency, etc.).
Commentary: Being a director of a company requires a significant time
commitment to adequately prepare for and attend the company's board and
committee meetings. Directors must be able to commit the time and
attention necessary to perform their fiduciary duties in proper fashion,
particularly in times of crisis.
The Funds' Trustees are concerned about over-committed directors. In
some cases, directors may serve on too many boards to make a meaningful
contribution. This may be particularly true for senior executives of
public companies (or other directors with substantially full-time
employment) who serve on more than a few outside boards. The Funds may
withhold votes from such directors on a case-by-case basis where it
appears that they may be unable to discharge their duties properly
because of excessive commitments.
* The Funds will withhold votes for any nominee for director of a public
company (Company A) who is employed as a senior executive of another
public company (Company B) if a director of Company B serves as a senior
executive of Company A (commonly referred to as an "interlocking
directorate").
Commentary: The Funds' Trustees believe that interlocking directorships
are inconsistent with the degree of independence required for outside
directors of public companies.
Board independence depends not only on its members' individual
relationships, but also the board's overall attitude toward management.
Independent boards are committed to good corporate governance practices
and, by providing objective independent judgment, enhancing shareholder
value. The Funds may withhold votes on a case-by-case basis from some or
all directors that, through their lack of independence, have failed to
observe good corporate governance practices or, through specific
corporate action, have demonstrated a disregard for the interest of
shareholders.
* The Funds will vote against proposals to classify a board, absent
special circumstances indicating that shareholder interests would be
better served by this structure.
Commentary: Under a typical classified board structure, the directors
are divided into three classes, with each class serving a three-year
term. The classified board structure results in directors serving
staggered terms, with usually only a third of the directors up for
re-election at any given annual meeting. The Funds' Trustees generally
believe that it is appropriate for directors to stand for election each
year, but recognize that, in special circumstances, shareholder
interests may be better served under a classified board structure.
B. Executive Compensation
-------------------------
The Funds generally favor compensation programs that relate executive
compensation to a company's long-term performance. The Funds will vote
on a case-by-case basis on board-approved proposals relating to
executive compensation, except as follows:
* Except where the Funds are otherwise withholding votes for the entire
board of directors, the Funds will vote for stock option plans which
will result in an average annual dilution of 1.67% or less (including
all equity-based plans).
* The Funds will vote against stock option plans that permit replacing
or repricing of underwater options (and against any proposal to
authorize such replacement or repricing of underwater options).
* The Funds will vote against stock option plans that permit issuance of
options with an exercise price below the stock's current market price.
* Except where the Funds are otherwise withholding votes for the entire
board of directors, the Funds will vote for employee stock purchase
plans that have the following features: (1) the shares purchased under
the plan are acquired for no less than 85% of their market value, (2)
the offering period under the plan is 27 months or less, and (3)
dilution is 10% or less.
Commentary: Companies should have compensation programs that are
reasonable and that align shareholder and management interests over the
longer term. Further, disclosure of compensation programs should provide
absolute transparency to shareholders regarding the sources and amounts
of, and the factors influencing, executive compensation. Appropriately
designed equity-based compensation plans can be an effective way to
align the interests of long-term shareholders with the interests of
management. The Funds may vote against executive compensation proposals
on a case-by-case basis where compensation is excessive by reasonable
corporate standards, or where a company fails to provide transparent
disclosure of executive compensation. In voting on proposals relating to
executive compensation, the Funds will consider whether the proposal has
been approved by an independent compensation committee of the board.
C. Capitalization
-----------------
Many proxy proposals involve changes in a company's capitalization,
including the authorization of additional stock, the repurchase of
outstanding stock or the approval of a stock split. The management of a
company's capital structure involves a number of important issues,
including cash flow, financing needs and market conditions that are
unique to the circumstances of each company. As a result, the Funds will
vote on a case-by-case basis on board-approved proposals involving
changes to a company's capitalization, except that where the Funds are
not otherwise withholding votes from the entire board of directors:
* The Funds will vote for proposals relating to the authorization of
additional common stock (except where such proposals relate to a
specific transaction).
* The Funds will vote for proposals to effect stock splits (excluding
reverse stock splits.)
* The Funds will vote for proposals authorizing share repurchase
programs.
Commentary: A company may decide to authorize additional shares of
common stock for reasons relating to executive compensation or for
routine business purposes. For the most part, these decisions are best
left to the board of directors and senior management. The Funds will
vote on a case-by-case basis, however, on other proposals to change a
company's capitalization, including the authorization of common stock
with special voting rights, the authorization or issuance of common
stock in connection with a specific transaction (e.g., an acquisition,
merger or reorganization) or the authorization or issuance of preferred
stock. Actions such as these involve a number of considerations that may
impact a shareholder's investment and warrant a case-by-case
determination.
D. Acquisitions, Mergers, Reincorporations, Reorganizations and
Other Transactions
---------------------------------------------------------------
Shareholders may be confronted with a number of different types of
transactions, including acquisitions, mergers, reorganizations involving
business combinations, liquidations and sale of all or substantially all
of a company's assets, which may require their consent. Voting on such
proposals involves considerations unique to each transaction. As a
result, the Funds will vote on a case-by-case basis on board-approved
proposals to effect these types of transactions, except as follows:
* The Funds will vote for mergers and reorganizations involving business
combinations designed solely to reincorporate a company in Delaware.
Commentary: A company may reincorporate into another state through a
merger or reorganization by setting up a "shell" company in a different
state and then merging the company into the new company. While
reincorporation into states with extensive and established corporate
laws - notably Delaware - provides companies and shareholders with a
more well-defined legal framework, generally speaking, shareholders must
carefully consider the reasons for a reincorporation into another
jurisdiction, including especially offshore jurisdictions.
E. Anti-Takeover Measures
-------------------------
Some proxy proposals involve efforts by management to make it more
difficult for an outside party to take control of the company without
the approval of the company's board of directors. These include adoption
of a shareholder rights plan, requiring supermajority voting on
particular issues, adoption of fair price provisions, issuance of blank
check preferred stock and creating a separate class of stock with
disparate voting rights. Such proposals may adversely affect shareholder
rights, lead to management entrenchment, or create conflicts of
interest. As a result, the Funds will vote against board-approved
proposals to adopt such anti-takeover measures, except as follows:
* The Funds will vote on a case-by-case basis on proposals to ratify or
approve shareholder rights plans (commonly referred to as "poison
pills"); and
* The Funds will vote on a case-by-case basis on proposals to adopt fair
price provisions.
Commentary: The Funds' Trustees recognize that poison pills and fair
price provisions may enhance shareholder value under certain
circumstances. As a result, the Funds will consider proposals to approve
such matters on a case-by-case basis.
F. Other Business Matters
-------------------------
Many proxies involve approval of routine business matters, such as
changing the company's name, ratifying the appointment of auditors and
procedural matters relating to the shareholder meeting. For the most
part, these routine matters do not materially affect shareholder
interests and are best left to the board of directors and senior
management of the company. The Funds will vote for board-approved
proposals approving such matters, except as follows:
* The Funds will vote on a case-by-case basis on proposals to amend a
company's charter or bylaws (except for charter amendments necessary or
to effect stock splits to change a company's name or to authorize
additional shares of common stock).
* The Funds will vote against authorization to transact other
unidentified, substantive business at the meeting.
* The Funds will vote on a case-by-case basis on other business matters
where the Funds are otherwise withholding votes for the entire board of
directors.
Commentary: Charter and bylaw amendments and the transaction of other
unidentified, substantive business at a shareholder meeting may directly
affect shareholder rights and have a significant impact on shareholder
value. As a result, the Funds do not view such items as routine business
matters. Putnam Management's investment professionals and the Funds'
proxy voting service may also bring to the Proxy Coordinator's attention
company-specific items which they believe to be non-routine and
warranting special consideration. Under these circumstances, the Funds
will vote on a case-by-case basis.
II. Shareholder Proposals
-------------------------
SEC regulations permit shareholders to submit proposals for inclusion in
a company's proxy statement. These proposals generally seek to change
some aspect of a company's corporate governance structure or to change
some aspect of its business operations. The Funds will vote in
accordance with the recommendation of the company's board of directors
on all shareholder proposals, except as follows:
* The Funds will vote for shareholder proposals to declassify a board,
absent special circumstances which would indicate that shareholder
interests are better served by a classified board structure.
* The Funds will vote for shareholder proposals to require shareholder
approval of shareholder rights plans.
* The Funds will vote for shareholder proposals that are consistent with
the Fund's proxy voting guidelines for board-approved proposals.
* The Funds will vote on a case-by-case basis on other shareholder
proposals where the Funds are otherwise withholding votes for the entire
board of directors.
Commentary: In light of the substantial reforms in corporate governance
that are currently underway, the Funds' Trustees believe that effective
corporate reforms should be promoted by holding boards of directors -
and in particular, their independent directors - accountable for their
actions, rather than imposing additional legal restrictions on board
governance through piecemeal proposals. Generally speaking, shareholder
proposals relating to business operations are often motivated primarily
by political or social concerns, rather than the interests of
shareholders as investors in an economic enterprise. As stated above,
the Funds' Trustees believe that boards of directors and management are
responsible for ensuring that their businesses are operating in
accordance with high legal and ethical standards and should be held
accountable for resulting corporate behavior. Accordingly, the Funds
will generally support the recommendations of boards that meet the basic
independence and governance standards established in these guidelines.
Where boards fail to meet these standards, the Funds will generally
evaluate shareholder proposals on a case-by-case basis.
III. Voting Shares of Foreign Issuers
-------------------------------------
Many of the Funds invest on a global basis and, as a result, they may be
required to vote shares held in foreign issuers - i.e., issuers that are
incorporated under the laws of a foreign jurisdiction and that are not
listed a U.S. securities exchange or the NASDAQ stock market. Because
foreign issuers are incorporated under the laws of countries and
jurisdictions outside the U.S., protection for shareholders may vary
significantly from jurisdiction to jurisdiction. Laws governing foreign
issuers may, in some cases, provide substantially less protection for
shareholders. As a result, the foregoing guidelines, which are premised
on the existence of a sound corporate governance and disclosure
framework, may not be appropriate under some circumstances for foreign
issuers. The Funds will vote proxies of foreign issuers in accordance
with the foregoing guidelines where applicable, except as follows:
* The Funds will vote for shareholder proposals calling for a majority
of the directors to be independent of management.
* The Funds will vote for shareholder proposals seeking to increase the
independence of board nominating, audit and compensation committees.
* The Funds will vote for shareholder proposals that implement corporate
governance standards similar to those established under U.S. federal law
and the listing requirements of U.S. stock exchanges, and that do not
otherwise violate the laws of the jurisdiction under which the company
is incorporated.
* The Funds will vote on case-by-case basis on proposals relating to (1)
the issuance of common stock in excess of 20% of a company's outstanding
common stock where shareholders do not have preemptive rights, or (2)
the issuance of common stock in excess of 100% of a company's
outstanding common stock where shareholders have preemptive rights.
Commentary: In many non-U.S. markets, shareholders who vote proxies for
shares of a foreign issuer are not able to trade in that company's stock
within a given period of time on or around the shareholder meeting date.
This practice is known as "share blocking." In countries where share
blocking is practiced, the Funds will vote proxies only with direction
from Putnam Management's investment professionals.
As adopted March 14, 2003
Proxy Voting Procedures of the Putnam Funds
-------------------------------------------
The Role of the Funds' Trustees
-------------------------------
The Trustees of the Putnam Funds exercise control of the voting of
proxies through their Board Policy and Nominating Committee, which is
composed entirely of independent Trustees. The Board Policy and
Nominating Committee oversees the proxy voting process and participates,
as needed, in the resolution of issues which need to be handled on a
case-by-case basis. The Committee annually reviews and recommends for
approval by the Trustees guidelines governing the Funds' proxy votes,
including how the Funds vote on specific proposals and which matters are
to be considered on a case-by-case basis. The Trustees are assisted in
this process by their independent administrative staff ("Fund
Administration"), independent legal counsel, and an independent proxy
voting service. The Trustees also receive assistance from Putnam
Investment Management, LLC ("Putnam Management"), the Funds' investment
adviser, on matters involving investment judgments. In all cases, the
ultimate decision on voting proxies rests with the Trustees, acting as
fiduciaries on behalf of the shareholders of the Funds.
The Role of the Proxy Voting Service
------------------------------------
The Funds have engaged an independent proxy voting service to assist in
the voting of proxies. The proxy voting service is responsible for
coordinating with the Funds' custodians to ensure that all proxy
materials received by the custodians relating to the Funds' portfolio
securities are processed in a timely fashion. To the extent applicable,
the proxy voting service votes all proxies in accordance with the proxy
voting guidelines established by the Trustees. The proxy voting service
will refer proxy questions to the Proxy Coordinator (described below)
for instructions under circumstances where: (1) the application of the
proxy voting guidelines is unclear, (2) a particular proxy question is
not covered by the guidelines, or (3) the guidelines call for specific
instructions on a case-by-case basis. The proxy voting service is also
requested to call to the Proxy Coordinator's attention specific proxy
questions which, while governed by a guideline, appear to involve
unusual or controversial issues. The Funds also utilize research
services relating to proxy questions provided by the proxy voting
service and by other firms.
The Role of the Proxy Coordinator
---------------------------------
Each year, a member of Fund Administration is appointed Proxy
Coordinator to assist in the coordination and voting of the Funds'
proxies. The Proxy Coordinator will deal directly with the proxy voting
service and, in the case of proxy questions referred by the proxy voting
service, will solicit voting recommendations and instructions from Fund
Administration, the Chair of the Board Policy and Nominating Committee,
and Putnam Management's investment professionals, as appropriate. The
Proxy Coordinator is responsible for ensuring that these questions and
referrals are responded to in a timely fashion and for transmitting
appropriate voting instructions to the proxy voting service.
Voting Procedures for Referral Items
-------------------------------------
As discussed above, the proxy voting service will refer proxy questions
to the Proxy Coordinator under certain circumstances. When the
application of the proxy voting guidelines is unclear or a particular
proxy question is not covered by the guidelines (and does not involve
investment considerations), the Proxy Coordinator will assist in
interpreting the guidelines and, as appropriate, consult with the Senior
Vice President of Fund Administration, the Executive Vice President of
Fund Administration and the Chair of the Board Policy and Nominating
Committee on how the Funds' shares will be voted.
For proxy questions that require a case-by-case analysis pursuant to the
guidelines or that are not covered by the guidelines but involve
investment considerations, the Proxy Coordinator will refer such
questions, through a written request, to Putnam Management's investment
professionals for a voting recommendation. Such referrals will be made
in cooperation with the person or persons designated by Putnam
Management's Legal and Compliance Department to assist in processing
such referral items. In connection with each such referral item, the
Legal and Compliance Department will conduct a conflicts of interest
review, as described below under "Conflicts of Interest," and provide a
conflicts of interest report (the "Conflicts Report") to the Proxy
Coordinator describing the results of such review. After receiving a
referral item from the Proxy Coordinator, Putnam Management's investment
professionals will provide a written recommendation to the Proxy
Coordinator and the person or persons designated by the Legal and
Compliance Department to assist in processing referral items. Such
recommendation will set forth (1) how the proxies should be voted, (2)
the basis and rationale for such recommendation, and (3) any contacts
the investment professionals have had with respect to the referral item
with non-investment personnel of Putnam Management or with outside
parties (except for routine communications from proxy solicitors). The
Proxy Coordinator will then review the investment professionals'
recommendation and the Conflicts Report with the Senior Vice President
and/or Executive Vice President in determining how to vote the Funds'
proxies. The Proxy Coordinator will maintain a record of all proxy
questions that have been referred to Putnam Management's investment
professionals, the voting recommendation and the Conflicts Report.
In some situations, the Proxy Coordinator, the Senior Vice President
and/or the Executive Vice President may determine that a particular
proxy question raises policy issues requiring consultation with the
Chair of the Board Policy and Nominating Committee who, in turn, may
decide to bring the particular proxy question to the Committee or the
full board of Trustees for consideration.
Conflicts of Interest
---------------------
Occasions may arise where a person or organization involved in the proxy
voting process may have a conflict of interest. A conflict of interest
may exist, for example, if Putnam Management has a business relationship
with (or is actively soliciting business from) either the company
soliciting the proxy or a third party that has a material interest in
the outcome of a proxy vote or that is actively lobbying for a
particular outcome of a proxy vote. Any individual with knowledge of a
personal conflict of interest (e.g., familial relationship with company
management) relating to a particular referral item shall disclose that
conflict to the Proxy Coordinator and the Legal and Compliance
Department and otherwise remove himself or herself from the proxy voting
process. The Legal and Compliance Department will review each item
referred to Putnam Management's investment professionals to determine if
a conflict of interest exists and will provide the Proxy Coordinator
with a Conflicts Report for each referral item that (1) describes any
conflict of interest; (2) discusses the procedures used to address such
conflict of interest; and (3) discloses any contacts from parties
outside Putnam Management (other than routine communications from proxy
solicitors) with respect to the referral item not otherwise reported in
an investment professional's recommendation. The Conflicts Report will
also include written confirmation that any recommendation from an
investment professional provided under circumstances where a conflict of
interest exists was made solely on the investment merits and without
regard to any other consideration.
As adopted March 14, 2003
Item 8. [Reserved]
------------------
Item 9. Controls and Procedures:
--------------------------------
The registrant's principal executive officer and principal financial
officers have concluded, based on their evaluation of the effectiveness
of the design and operation of the registrant's disclosure controls and
procedures as of a date within 90 days of the filing date of this report
on Form N-CSR, that the design and operation of such procedures are
effective to provide reasonable assurance that information required to
be disclosed by the investment company in the reports that it files or
submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized, and reported within the time periods specified in
the Commission's rules and forms.
There have been no significant changes in the registrant's internal
controls subsequent to the date of their evaluation.
Item 10. Exhibits:
------------------
(a) Not applicable
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act of 2002
are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: July 24, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By (Signature and Title): /s/Karnig H. Durgarian
---------------------------
Karnig H. Durgarian
Principal Executive Officer
Date: July 24, 2003
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Financial Officer
Date: July 24, 2003
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: July 24, 2003