Putnam
Managed
High Yield
Trust
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
11-30-02
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[SCALE LOGO OMITTED]
FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III]
Dear Fellow Shareholder:
During the stock market's ongoing volatility, higher-rated bonds clearly
have been major beneficiaries of investors' flight to safety. However,
the lower-rated higher-yielding securities in which Putnam Managed High
Yield Trust invests faced quite a different environment, battling the
negative effects of the stock market's instability as well as high
default rates throughout most of the semiannual period that ended on
November 30, 2002. Despite this challenging environment, high-yield
bonds outperformed equities by a significant margin, proving their
value in a diversified investment program.
Your fund sustained a loss for the period, but outperformed the average
for its Lipper category. The fund underperformed its benchmark index,
primarily because of differences in composition between the two. In
addition, the decline in interest rates over the past several years
necessitated reductions in the fund's dividend. On the following pages,
the fund's management team discusses fund performance during the
semiannual period and provides an outlook for the months ahead.
As the fund enters the fiscal year's second half, the economic recovery
continues to exhibit signs that it is alive, if not as robust as some
investors might desire. Productivity continues to improve, interest
rates remain low, and inflation is still virtually nonexistent. In the
final months of the period, investors began to recognize these
attributes and respond accordingly. As investor psychology turns more
positive, high-yield bonds should benefit.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
January 15, 2003
REPORT FROM FUND MANAGEMENT
This fund is managed by the
Putnam Core Fixed-Income
High-Yield Team
During the first six months of Putnam Managed High Yield Trust's fiscal
year, the high-yield market was affected by changes in the economic
outlook, concerns over terrorist threats, and a wave of corporate
scandals. In addition, the market continued to be plagued by
high-profile defaults and credit problems among several issuers. Your
fund's management team kept the portfolio well diversified and Putnam's
research staff added value in a difficult credit environment by
carefully monitoring individual holdings and scrutinizing new issues
that came to market. As a result, although your fund's performance was
disappointing in absolute terms, it was ahead of its Lipper category
average for the semiannual period ending November 30, 2002 (see page 7
for details). The fund underperformed its benchmark, the CSFB High Yield
Index, because the fund tends to own bonds issued by larger,
better-known companies. The fund's benchmark index, by contrast, has
many more bonds issued by smaller companies. While these smaller-company
bonds outperformed larger-company bonds over this fiscal year, we
typically do not purchase these types of securities for the fund because
many are illiquid (cannot be easily sold) and therefore may carry
increased risk.
Total return for 6 months ended 11/30/02
NAV Market price
-----------------------------------------------------------------------
-3.31% -5.77%
-----------------------------------------------------------------------
Past performance does not indicate future results. Performance based on
market prices for the shares will vary from performance based on the
portfolio's net asset value. Performance information for longer periods
begins on page 7.
The fund's market price reflects the relative performance of the
underlying portfolio as well as changes in investor sentiment and market
trends. These include increases or decreases in demand for the types of
securities in which the fund invests. The fund's return at market price
was lower than its return at net asset value in large part because of
two dividend reductions that occurred during the period. The reasons for
these reductions are discussed on page four of this report. In addition
to the dividend, the fund's return at market price was lower because of
reduced demand during the period for high-yield securities, as investors
seeking relative safety favored higher-quality bond sectors.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Capital goods 8.0%
Health care 7.5%
Communications
services 7.1%
Broadcasting 6.4%
Energy 6.0%
Footnote reads:
*Based on net assets as of 11/30/02. Holdings will vary over time.
* PERIOD PROVED VOLATILE FOR HIGH-YIELD BONDS
After several strong months early in the year, during which investor
confidence was buoyed by a strengthening economy and rising equity
prices, the high-yield market hit a peak in early May 2002. In April,
the media had reported allegations of fraud at Adelphia, a large cable
company and significant high-yield issuer. A month later, the high-yield
market felt the effects of this scandal and began to decline. The fund
owned some Adelphia bonds, and the scandal's effect on these holdings
detracted from performance.
June brought no reprieve for investor confidence, as the stock market
and corporate-bond market were rocked by accounting scandals at WorldCom
and Tyco. In addition to reports of significant economic weakness, this
corporate malfeasance caused both the high-yield and equity markets to
continue declining through the middle of October. In response, investors
flocked to high-quality investments, such as U.S. Treasuries. The yield
on the 10-year U.S. Treasury bond, which moves in the opposite direction
of its price, declined to near-record lows of approximately 3.60% by the
end of September -- a level not seen since the 1950s. Finally, default
rates, which are measured by the number of companies failing to meet
payment obligations for their bonds, peaked in January 2002, according
to Moody's. However, this default rate remained elevated for much of the
year, and has just begun to show more meaningful improvement.
* THE FUND'S DEFENSIVE STRATEGY WAS ON TARGET
Despite the strong performance of high-yield bonds and the economy's
improvement in early 2002, we remained wary of how well the economic
recovery would hold up and were concerned about the effect that the
developing corporate scandals and continued geopolitical turmoil would
have on the high-yield market. We were also concerned about the
continued high level of defaults in the market. As a result, we kept the
portfolio diversified across a wide range of industry sectors and
individual holdings. Moreover, our staff of research analysts helped the
fund avoid a number of credit problems with individual holdings. A good
example was Tesoro Petroleum, a refining company that brought a new bond
issue to market in April 2002. Our analysts felt that these bonds
carried too much risk because of the volatility associated with the
refining industry and recommended against the purchase. Their analysis
proved correct -- the bonds declined in value by nearly 50% after coming
to market.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
PSF Group Holdings, Inc.
144A Class A common stock
Consumer staples
Echostar DBS Corp.
Senior notes, 10.375%, 2007
Broadcasting
HMH Properties, Inc.
Company guaranty, series B, 7.875%, 2008
Lodging/tourism
Young Broadcasting, Inc.
Company guaranty, 10%, 2011
Broadcasting
PRIMEDIA, Inc.
Company guaranty, 8.875%, 2011
Publishing
GS Escrow Corp.
Senior notes, 7.125%, 2005
Financial
Coinmach Corp.
Senior notes, 9%, 2010
Commercial and consumer services
CSC Holdings, Inc.
Series M, $11.125 cumulative preferred stock
Cable television
Six Flags, Inc.
Senior notes, 8.875%, 2010
Entertainment
Riverwood International Corp.
Company guaranty, 10.875%, 2008
Forest products and packaging
Footnote reads:
These holdings represented approximately 9.7% of the fund's net assets
as of 11/30/02. Portfolio holdings will vary over time.
In September, our view on the high-yield market became more positive.
While we believed that third quarter earnings would be lackluster, we
thought that the market was poised for a rally that would occur after
third quarter earnings were released in mid-October. This view was based
on the attractive valuations in the market, the prospects for an easing
by the Fed, and the fact that November has historically marked a
seasonally strong period for the high-yield market. As such, we began to
position the fund slightly more aggressively to better capture a
rallying market. In fact, the high-yield market bottomed on October 10
and posted a total return of over 6% from that date through the end of
November.
* SECTOR AND SECURITY SELECTION ALSO HELPED RELATIVE PERFORMANCE
While we did not significantly overweight specific sectors during the
period, many of the sectors in which the fund was invested made positive
contributions to performance. Examples include television broadcasting,
which has benefited from increased advertising expenditures, and gaming
and lodging, which has benefited from people taking vacations closer to
home and within the United States. We have kept the portfolio
underweighted in technology, which continues to struggle from a
reluctance of corporations to increase capital spending.
In the wireless industry, the fund owns Nextel, one of the largest
holdings in the fund and a strong performer. Nextel stands out in its
industry for a number of reasons. The company offers a service that
allows customers to reach each other with a push-to-talk feature
(similar to a walkie-talkie), in addition to traditional cellular
transmission. These "flexible calling groups" are convenient and highly
popular for a variety of uses, including construction, limousines,
trucking, sales management, and emergency services (which have increased
significantly after 9/11). The company is planning to expand the service
nationwide and globally. We believe that Nextel is well managed and were
pleased to see that the firm recently retired $2 billion in debt and
preferred stocks.
Fund Profile
Putnam Managed High Yield Trust seeks high current income and the
potential for capital appreciation by investing in corporate high-yield
bonds. The fund is designed for investors seeking high income and
capital appreciation, and who are willing to take on the added risk of
investing in below-investment-grade securities.
* DIVIDEND CUTS REFLECT DECLINE IN MARKET YIELDS OVER PAST SEVERAL YEARS
As a result of lower interest rates available in the marketplace, your
fund's managers reduced the fund's dividend twice during the last 12
months -- in December 2001 and April 2002. Yields on bonds in all
fixed-income sectors have been declining for the past several years, due
to slowing economic growth, Federal Reserve Board interest-rate cuts,
and strong inflows of funds into fixed-income securities which have
pushed bond prices up and yields down. (In the high-yield market, prices
have also fallen because of high default levels and increased credit
stress.) Despite these dividend reductions, your fund's distribution
rate remains in line with other mutual funds that invest in high-yield
bonds and well above those found in other fixed-income sectors.
* OUTLOOK REMAINS POSITIVE DESPITE SHORT-TERM CAVEATS
While high-yield bonds have underperformed other bond sectors
year-to-date, this sector historically has outperformed equities during
other periods. We remain confident in the potential of high-yield bonds
for 2003 due to a number of positive trends: yield spreads relative to
Treasuries are wide; default rates, having peaked earlier in the year,
are improving; and demand for these bonds is growing. Yields are high --
often exceeding 10% -- and there is potential for price appreciation. We
believe that overall credit quality is improving as companies are
working to improve their balance sheets. Also, many large companies have
entered the high-yield universe, having been recently downgraded from
investment-grade status. Many of these "fallen angels" have strong cash
flows and manageable amounts of debt and offer attractive yields
relative to their credit-risk profile. The economy is growing, and we do
not expect a double-dip recession in 2003. Finally, we have seen an
increase in demand, in part due to the fact that other fixed-income
alternatives offer much lower yields. In October, with the rally in the
stock market and a decline in Treasury performance, high-yield bonds
outperformed Treasuries. These trends characterize an environment in
which high-yield bonds have the potential to outperform other bond
sectors.
There are risks, of course, that may affect high-yield bond performance
in the short term. Default rates remain elevated, despite improvement,
and geopolitical turmoil, including the possibility of war with Iraq,
could also have a negative effect on the market. Moreover, companies
remain reluctant to increase capital spending, and until they do so, the
economy's growth will probably remain slow to moderate. As always, we
will keep a close eye on market and economic developments, maintain
diversification in the portfolio, and make adjustments as events and
conditions warrant.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 11/30/02, there is no guarantee the fund
will continue to hold these securities in the future. Lower-rated bonds
may offer higher yields in return for more risk.
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.
A NOTE ABOUT DUPLICATE MAILINGS
In response to investors' requests, the SEC has modified mailing
regulations for proxy statements, semiannual and annual reports, and
prospectuses. Putnam is now able to send a single copy of these materials
to customers who share the same address. This change will automatically
apply to all shareholders except those who notify us. If you would prefer
to receive your own copy, please call Putnam at 1-800-225-1581.
PERFORMANCE SUMMARY
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy.
TOTAL RETURN FOR PERIODS ENDED 11/30/02
Market CSFB High Yield Consumer
NAV price Index price index
-------------------------------------------------------------------------------
6 months -3.31% -5.77% -1.84% 1.11%
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1 year -2.29 -1.81 1.93 2.25
-------------------------------------------------------------------------------
5 years -10.23 -5.94 7.07 12.24
Annual average -2.14 -1.22 1.38 2.34
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Life of fund
(since 6/25/93) 45.26 47.47 67.10 25.78
Annual average 4.04 4.21 5.60 2.47
-------------------------------------------------------------------------------
Past performance does not indicate future results. More recent returns
may be less or more than those shown. Investment return, net asset value
and market price will fluctuate and you may have a gain or a loss when
you sell your shares. Performance does not reflect taxes on reinvested
distributions.
LIPPER INFORMATION:
The average cumulative return for the 8 funds in the Lipper High Current
Yield Funds category over the 6 months ended 11/30/02 was -5.88%. Over the
1-year, 5-year, and life-of-fund periods ended 11/30/02, annualized returns
for the category were -6.13%, -8.51%, and -0.87%, respectively.
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 11/30/02
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Distributions
(number) 6
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Income $0.4080
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Capital gains 1 --
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Total $0.4080
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Share value: NAV Market price
-------------------------------------------------------------------------------
5/31/02 $8.50 $9.48
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11/30/02 7.82 8.50
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Current return (end of period)
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Current dividend rate 2 10.43% 9.60%
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1 Capital gains, if any, are taxable for federal and, in most cases,
state purposes. For some investors, investment income may be subject to
the federal alternative minimum tax. Income from federally exempt funds
may be subject to state and local taxes.
2 Most recent distribution, excluding capital gains, annualized and
divided by NAV or market price at the end of the period.
TOTAL RETURN FOR PERIODS ENDED 12/31/02 (most recent calendar quarter)
NAV Market price
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6 months 2.13% 6.64%
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1 year -1.67 0.10
-------------------------------------------------------------------------------
5 years -10.75 -10.13
Annual average -2.25 -2.11
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Life of fund
(since 6/25/93) 45.97 44.83
Annual average 4.05 3.97
-------------------------------------------------------------------------------
Past performance does not indicate future results. More recent returns
may be less or more than those shown. Investment return, net asset
value, and market price will fluctuate and you may have a gain or a loss
when you sell your shares. Performance does not reflect taxes on
reinvested distributions.
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 common 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 BENCHMARKS
Credit Suisse First Boston (CSFB) High Yield Index is an unmanaged index
of high-yield debt securities. The index assumes reinvestment of all
distributions and does not account for fees. Securities and performance
of a fund and an index will differ. You cannot invest directly in an
index.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
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.
A GUIDE TO THE FINANCIAL STATEMENTS
These sections of the report, as well as the accompanying Notes,
constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are
subtracted from this total. The result is divided by the number of
shares to determine the net asset value per share, which is calculated
separately for each class of shares. (For funds with preferred shares,
the amount subtracted from total assets includes the net assets
allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or
loss the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number
of the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed
here may not match the sources listed in the Statement of operations
because the distributions are determined on a tax basis and may be paid
in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios, and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also includes
the current reporting period. For open-end funds, a separate table is
provided for each share class.
THE FUND'S PORTFOLIO
November 30, 2002 (Unaudited)
CORPORATE BONDS AND NOTES (86.6%) (a)
PRINCIPAL AMOUNT VALUE
Advertising and Marketing Services (0.1%)
-------------------------------------------------------------------------------------------------------------------
$196,618 Interact Operating Co. notes 14s, 2003 (In default) (NON) (PIK) $20
40,000 Lamar Media Corp. company guaranty 9 5/8s, 2006 41,400
-------------
41,420
Automotive (2.1%)
-------------------------------------------------------------------------------------------------------------------
35,000 American Axle & Manufacturing, Inc. company guaranty
9 3/4s, 2009 37,800
90,000 Collins & Aikman Products, Inc. company guaranty
11 1/2s, 2006 76,500
140,000 Collins & Aikman Products, Inc. company guaranty
10 3/4s, 2011 135,100
35,000 Dana Corp. notes 10 1/8s, 2010 35,875
135,000 Dana Corp. notes 9s, 2011 134,325
20,000 Dana Corp. notes 7s, 2029 14,600
EUR 5,000 Dana Corp. sr. notes 9s, 2011 4,600
$35,000 Delco Remy International, Inc. company guaranty
11s, 2009 17,500
25,000 Delco Remy International, Inc. company guaranty
10 5/8s, 2006 12,875
20,000 Delco Remy International, Inc. sr. notes 8 5/8s, 2007 16,200
115,000 Dura Operating Corp. company guaranty Ser. B,
8 5/8s, 2012 118,450
80,000 Dura Operating Corp. company guaranty Ser. D,
9s, 2009 74,400
110,000 Exide Corp. sr. notes 10s, 2005 (In default) (NON) 9,488
80,000 Federal Mogul Corp. notes 7 7/8s, 2010 (In default) (NON) 12,000
100,000 Federal Mogul Corp. notes 7 3/4s, 2006 (In default) (NON) 15,000
55,000 Ford Motor Credit Corp. notes 7 7/8s, 2010 54,647
30,000 Ford Motor Credit Corp. notes 7 3/8s, 2009 28,612
40,000 Ford Motor Credit Corp. notes 7 1/4s, 2011 37,712
30,000 Hayes Lemmerz International, Inc. 144A company
guaranty 11 7/8s, 2006 (In default) (NON) 15,000
150,000 Lear Corp. company guaranty Ser. B, 8.11s, 2009 159,375
180,000 Lear Corp. company guaranty Ser. B, 7.96s, 2005 187,200
EUR 30,000 Lear Corp. sr. notes 8 1/8s, 2008 30,286
$30,000 Tenneco Automotive, Inc. company guaranty
Ser. B, 11 5/8s, 2009 21,450
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1,248,995
Beverage (0.3%)
-------------------------------------------------------------------------------------------------------------------
30,000 Constellation Brands, Inc. company guaranty 8 1/2s, 2009 31,650
10,000 Constellation Brands, Inc. company guaranty Ser. B, 8s, 2008 10,700
150,000 Constellation Brands, Inc. sr. sub. notes Ser. B, 8 1/8s, 2012 159,000
-------------
201,350
Broadcasting (5.8%)
-------------------------------------------------------------------------------------------------------------------
10,000 Acme Communications, Inc. sr. disc. notes Ser. B, 12s, 2005 9,150
190,000 Acme Television company guaranty 10 7/8s, 2004 191,425
70,000 British Sky Broadcasting PLC company guaranty 8.2s, 2009
(United Kingdom) 75,775
210,000 British Sky Broadcasting PLC company guaranty 6 7/8s, 2009
(United Kingdom) 215,250
70,000 CD Radio, Inc. sec. notes 14 1/2s, 2009 27,300
160,000 Chancellor Media Corp. company guaranty 8s, 2008 172,000
440,000 Diva Systems Corp. sr. disc. notes stepped-coupon Ser. B,
zero % (12 5/8s, 3/1/03), 2008 (In default) (NON) (STP) 8,800
790,000 Echostar DBS Corp. sr. notes 10 3/8s, 2007 825,460
150,000 Echostar DBS Corp. sr. notes 9 1/8s, 2009 153,000
50,000 Emmis Communications Corp. company guaranty Ser. B,
8 1/8s, 2009 52,125
62,000 Emmis Communications Corp. sr. disc. notes stepped-coupon
zero % (12 1/2s, 3/15/06), 2011 (STP) 50,220
25,000 Granite Broadcasting Corp. sr. sub. notes 10 3/8s, 2005 20,531
115,000 Granite Broadcasting Corp. sr. sub. notes 9 3/8s, 2005 88,550
135,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 103,950
55,000 Gray Television, Inc. company guaranty 9 1/4s, 2011 58,988
10,000 Knology Holdings, Inc. sr. disc. notes 11 7/8s, 2007 3,900
10,000 LIN Holdings Corp. sr. disc. notes stepped-coupon zero %
(10s, 3/1/03), 2008 (STP) 10,175
20,000 LIN Holdings Corp. 144A sr. disc. notes stepped-coupon
zero % (10s, 3/1/03), 2008 (STP) 20,500
70,000 LIN Television Corp. company guaranty 8 3/8s, 2008 73,150
40,000 LIN Television Corp. company guaranty 8s, 2008 42,400
70,000 Pegasus Satellite sr. notes 12 3/8s, 2006 32,900
350,375 Quorum Broadcast Holdings, LLC notes stepped-coupon
zero % (15s, 5/15/06), 2009 (STP) 212,538
52,000 RCN Corp. sr. disc. notes stepped-coupon Ser. B, zero %
(9.8s, 2/15/03), 2008 (STP) 9,880
15,000 Sinclair Broadcast Group, Inc. company guaranty 9s, 2007 15,675
260,000 Sinclair Broadcast Group, Inc. company guaranty 8 3/4s, 2011 278,200
125,000 XM Satellite Radio Holdings, Inc. sec. notes 14s, 2010 50,000
556,000 Young Broadcasting, Inc. company guaranty 10s, 2011 554,610
21,000 Young Broadcasting, Inc. company guaranty Ser. B, 8 3/4s, 2007 20,475
-------------
3,376,927
Building Materials (1.3%)
-------------------------------------------------------------------------------------------------------------------
230,000 American Standard Companies, Inc. company guaranty
7 3/8s, 2005 240,350
55,000 Atrium Companies, Inc. company guaranty Ser. B, 10 1/2s, 2009 53,900
110,000 Better Minerals & Aggregates Co. company guaranty
13s, 2009 59,400
60,000 Building Materials Corp. company guaranty 8s, 2008 46,800
160,000 Dayton Superior Corp. company guaranty 13s, 2009 131,200
90,000 Nortek, Inc. sr. notes Ser. B, 8 7/8s, 2008 90,000
10,000 Nortek, Inc. sr. sub. notes Ser. B, 9 7/8s, 2011 9,950
60,000 Nortek, Inc. 144A sr. notes Ser. B, 9 1/8s, 2007 60,300
250,000 Owens Corning bonds 7 1/2s, 2018 (In default) (NON) 57,500
120,000 Owens Corning notes 7 1/2s, 2005 (In default) (NON) 27,600
-------------
777,000
Cable Television (1.7%)
-------------------------------------------------------------------------------------------------------------------
10,000 Adelphia Communications Corp. notes Ser. B, 9 7/8s, 2005
(In default) (NON) 3,800
20,000 Adelphia Communications Corp. sr. notes 10 7/8s, 2010
(In default) (NON) 7,800
90,000 Adelphia Communications Corp. sr. notes 10 1/4s, 2011
(In default) (NON) 35,100
5,000 Adelphia Communications Corp. sr. notes 10 1/4s, 2006
(In default) (NON) 1,925
5,000 Adelphia Communications Corp. sr. notes 9 3/8s, 2009
(In default) (NON) 1,975
105,000 Adelphia Communications Corp. sr. notes 7 7/8s, 2009
(In default) (NON) 39,900
40,000 Adelphia Communications Corp. sr. notes Ser. B, 9 7/8s, 2007
(In default) (NON) 15,200
25,000 Adelphia Communications Corp. sr. notes Ser. B, 8 3/8s, 2008
(In default) (NON) 9,625
35,000 Adelphia Communications Corp. sr. notes Ser. B, 7 3/4s, 2009
(In default) (NON) 13,475
9,407 Australis Media, Ltd. sr. disc. notes 15 3/4s, 2003 (Australia)
(In default) (NON) 1
315,000 Charter Communications Holdings, LLC/Capital Corp. sr. disc.
notes stepped-coupon zero % (11 3/4s, 5/15/06), 2011 (STP) 89,775
140,000 Charter Communications Holdings, LLC/Capital Corp. sr. disc.
notes stepped-coupon zero % (9.92s, 4/1/04), 2011 (STP) 54,600
90,000 Charter Communications Holdings, LLC/Capital Corp. sr. disc.
notes stepped-coupon zero % (11 3/4s, 1/15/05), 2010 (STP) 29,700
150,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes
11 1/8s, 2011 76,500
130,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes
10 3/4s, 2009 65,650
30,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes
10s, 2011 14,700
10,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes
10s, 2009 4,950
130,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes
9 5/8s, 2009 63,700
15,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes
8 5/8s, 2009 7,350
20,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes
8 1/4s, 2007 9,800
165,000 CSC Holdings, Inc. sr. notes 7 7/8s, 2007 156,338
775,000 Diamond Cable Communications PLC sr. disc. notes zero %,
2007 (United Kingdom) (In default) (NON) 73,625
150,000 Diamond Cable Communications PLC sr. disc. notes zero %,
2005 (United Kingdom) (In default) (NON) 14,250
70,000 Insight Communications Company, Inc. sr. disc. notes
stepped-coupon zero % (12 1/4s, 2/15/06), 2011 (STP) 34,650
50,000 International Cabletel, Inc. sr. disc. notes 11 1/2s, 2006
(In default) (NON) 5,000
20,000 NTL Communications Corp. sr. notes stepped-coupon Ser. B,
zero % (12 3/8s, 10/1/03), 2008 (In default) (NON) (STP) 1,600
90,000 Olympus Cable bank term loan FRN Ser. B, 6 1/4s, 2010
(acquired 6/20/02, cost $78,435) (RES) 69,150
100,000 ONO Finance PLC sr. notes 13s, 2009 (United Kingdom) 25,000
20,000 Rogers Cablesystems, Ltd. sr. notes Ser. B, 10s, 2005 (Canada) 20,600
320,000 TeleWest Communications PLC debs. 11s, 2007
(United Kingdom) (In default) (NON) 54,400
146,000 United Pan-Europe NV sr. disc. notes 12 1/2s, 2009
(Netherlands) (In default) (NON) 5,110
240,000 United Pan-Europe NV sr. disc. notes stepped-coupon
zero % (13 3/4s, 2/1/05), 2010 (Netherlands) (In default) (NON) (STP) 8,400
20,000 United Pan-Europe NV 144A bonds 10 7/8s, 2009
(Netherlands) (In default) (NON) 800
-------------
1,014,449
Capital Goods (8.0%)
-------------------------------------------------------------------------------------------------------------------
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) 7,500
130,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 126,100
60,000 Allied Waste North America, Inc. company guaranty
Ser. B, 8 7/8s, 2008 61,500
235,000 Allied Waste North America, Inc. company guaranty
Ser. B, 8 1/2s, 2008 239,700
15,000 Allied Waste North America, Inc. company guaranty
Ser. B, 7 7/8s, 2009 14,925
330,000 Allied Waste North America, Inc. company guaranty
Ser. B, 7 5/8s, 2006 331,650
195,000 Allied Waste North America, Inc. 144A company guaranty
9 1/4s, 2012 201,825
70,000 Amkor Technologies, Inc. sr. notes 9 1/4s, 2006 67,550
40,000 Amkor Technologies, Inc. sr. notes 9 1/4s, 2008 38,400
110,000 Applied Extrusion Technologies, Inc. company guaranty
Ser. B, 10 3/4s, 2011 72,600
80,000 Argo-Tech Corp. company guaranty Ser. D, 8 5/8s, 2007 56,800
360,000 Argo-Tech Corp. 144A company guaranty 8 5/8s, 2007 255,600
5,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8 7/8s, 2011 3,875
295,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 228,625
80,000 Berry Plastics Corp. company guaranty 10 3/4s, 2012 86,000
210,000 Blount, Inc. company guaranty 13s, 2009 131,250
60,000 Browning-Ferris Industries, Inc. debs. 7.4s, 2035 46,800
100,000 Browning-Ferris Industries, Inc. sr. notes 6 3/8s, 2008 91,860
20,000 Cummins, Inc. debs. 7 1/8s, 2028 16,622
240,000 Decrane Aircraft Holdings Co. company guaranty
Ser. B, 12s, 2008 96,000
105,000 Earle M. Jorgensen Co. sec. notes 9 3/4s, 2012 105,525
108,000 Flowserve Corp. company guaranty 12 1/4s, 2010 116,640
50,000 Fonda Group, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 25,000
40,000 Hexcel Corp. sr. sub. notes 9 3/4s, 2009 30,000
90,000 High Voltage Engineering Corp. sr. notes 10 3/4s, 2004 27,000
100,000 IESI Corp. 144A sr. sub. notes 10 1/4s, 2012 98,000
180,000 Insilco Holding Co. sr. disc. notes stepped-coupon zero %
(14s, 8/15/03), 2008 (STP) 3,600
65,000 Jackson Products, Inc. company guaranty Ser. B, 9 1/2s, 2005 40,300
80,000 Jordan Industries, Inc. sr. notes Ser. D, 10 3/8s, 2007 45,200
200,000 L-3 Communications Corp. sr. sub. notes 8 1/2s, 2008 209,500
75,000 Laidlaw, Inc. debs. 8 3/4s, 2025 (Canada) (In default) (NON) 32,813
20,000 Laidlaw, Inc. debs. 8 1/4s, 2023 (Canada) (In default) (NON) 8,975
190,000 Laidlaw, Inc. notes 7.65s, 2006 (Canada) (In default) (NON) 85,975
55,000 Manitowoc Company, Inc. (The) 144A sr. sub. notes
10 1/2s, 2012 57,200
200,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 180,000
230,000 Owens-Brockway Glass company guaranty 8 7/8s, 2009 238,625
105,000 Owens-Brockway Glass 144A sec. notes 8 3/4s, 2012 108,150
50,000 Owens-Illinois, Inc. debs. 7.8s, 2018 42,750
40,000 Owens-Illinois, Inc. sr. notes 8.1s, 2007 38,800
100,000 Pliant Corp. company guaranty 13s, 2010 90,000
15,000 Pliant Corp. sr. sub. notes 13s, 2010 13,500
55,000 Rexnord Corp. 144A sr. sub. notes 10 1/8s, 2012 56,925
130,000 Roller Bearing Company of America company guaranty
Ser. B, 9 5/8s, 2007 122,200
190,000 Tekni-Plex, Inc. company guaranty Ser. B, 12 3/4s, 2010 182,400
35,000 Terex Corp. company guaranty 8 7/8s, 2008 33,075
150,000 Terex Corp. company guaranty Ser. B, 10 3/8s, 2011 145,500
25,000 Trimas Corp. 144A company guaranty 9 7/8s, 2012 25,750
80,000 Trimas Corp. 144A sr. sub. notes 9 7/8s, 2012 82,400
130,000 Waste Management, Inc. sr. notes 7 3/8s, 2010 138,545
80,000 Waste Management, Inc. sr. notes 6 1/2s, 2008 81,550
-------------
4,665,080
Chemicals (5.4%)
-------------------------------------------------------------------------------------------------------------------
185,000 Acetex Corp. sr. notes 10 7/8s, 2009 (Canada) 195,175
10,000 Airgas, Inc. company guaranty 9 1/8s, 2011 10,900
50,000 ARCO Chemical Co. debs. 9.8s, 2020 43,250
170,000 Avecia Group PLC company guaranty 11s, 2009
(United Kingdom) 143,650
100,000 Compass Minerals Group, Inc. company guaranty 10s, 2011 108,500
35,000 Equistar Chemicals LP notes 8 3/4s, 2009 31,500
240,000 Equistar Chemicals LP/Equistar Funding Corp. company
guaranty 10 1/8s, 2008 230,400
50,000 Ferro Corp. sr. notes 9 1/8s, 2009 52,516
205,000 Hercules, Inc. company guaranty 11 1/8s, 2007 226,525
67,581 Huntsman Corp. bank term loan FRN Ser. A, 6.299s, 2007
(acquired various dates from 6/10/02 to 7/17/02,
cost $58,035) (RES) 55,979
32,419 Huntsman Corp. bank term loan FRN Ser. B, 7.813s, 2007
(acquired various dates from 6/10/02 to 7/17/02,
cost $27,840) (RES) 26,854
215,000 Huntsman ICI Chemicals, Inc. company guaranty
10 1/8s, 2009 190,813
200,000 Huntsman ICI Holdings sr. disc. notes zero %, 2009 48,000
EUR 65,000 Huntsman International, LLC sr. sub. notes Ser. EXCH,
10 1/8s, 2009 52,366
$173,000 IMC Global, Inc. company guaranty Ser. B, 10 7/8s, 2008 192,246
220,000 ISP Chemco, Inc. company guaranty Ser. B, 10 1/4s, 2011 226,050
55,000 Lyondell Chemical Co. bonds 11 1/8s, 2012 58,025
60,000 Lyondell Chemical Co. company guaranty 9 1/2s, 2008 60,300
20,000 Lyondell Chemical Co. notes Ser. A, 9 5/8s, 2007 20,200
135,000 Lyondell Chemical Co. sec. notes Ser. B, 9 7/8s, 2007 136,350
140,000 Lyondell Chemical Co. sr. sub. notes 10 7/8s, 2009 129,500
100,000 Lyondell Chemical Co. 144A sec. notes 9 1/2s, 2008 98,000
140,000 Millenium America, Inc. company guaranty 9 1/4s, 2008 146,300
50,000 Millenium America, Inc. company guaranty 7s, 2006 48,500
70,000 Millenium America, Inc. 144A sr. notes 9 1/4s, 2008 73,143
90,000 Noveon, Inc. company guaranty Ser. B, 11s, 2011 97,200
215,000 OM Group, Inc. company guaranty 9 1/4s, 2011 92,450
31,547 PCI Chemicals Canada sec. sr. notes 10s, 2008 (Canada) 21,452
73,849 Pioneer Companies, Inc. sec. FRN 5.298s, 2006 50,217
60,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007
(In default) (NON) 10,800
160,000 Royster-Clark, Inc. 1st mtge. 10 1/4s, 2009 118,400
60,000 Solutia, Inc. company guaranty 11 1/4s, 2009 46,800
30,000 Sterling Chemicals Holdings sr. disc. notes 13 1/2s, 2008
(In default) (NON) 150
80,000 Sterling Chemicals, Inc. company guaranty Ser. B,
12 3/8s, 2006 (In default) (NON) 89,600
40,000 Texas Petrochemical Corp. sr. sub. notes Ser. B, 11 1/8s, 2006 26,000
-------------
3,158,111
Commercial and Consumer Services (1.2%)
-------------------------------------------------------------------------------------------------------------------
55,000 Brand Services, Inc. 144A sr. sub. notes 12s, 2012 57,475
440,000 Coinmach Corp. sr. notes 9s, 2010 462,000
110,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006
(In default) (NON) 22,138
50,000 United Rentals (North America), Inc. company guaranty
Ser. B, 10 3/4s, 2008 51,750
90,000 Williams Scotsman, Inc. company guaranty 9 7/8s, 2007 84,600
-------------
677,963
Communication Services (6.1%)
-------------------------------------------------------------------------------------------------------------------
110,000 Airgate PCS, Inc. sr. sub. notes stepped-coupon zero %
(13 1/2s, 10/1/04), 2009 (STP) 17,600
120,000 Alamosa Delaware, Inc. company guaranty 13 5/8s, 2011 45,600
50,000 Alamosa Delaware, Inc. company guaranty 12 1/2s, 2011 18,000
250,000 Alamosa PCS Holdings, Inc. company guaranty stepped-coupon
zero % (12 7/8s, 2/15/05), 2010 (STP) 47,500
200,000 American Cellular Corp. company guaranty 9 1/2s, 2009 37,000
20,000 Arch Communications, Inc. sr. notes 13 3/4s, 2008
(In default) (NON) 100
20,000 Arch Communications, Inc. sr. notes 13s, 2007 (In default) (NON) 100
100,000 Asia Global Crossing, Ltd. sr. notes 13 3/8s, 2010 (Bermuda)
(In default) (NON) 15,000
318,870 Colo.com, Inc. 144A sr. notes 13 7/8s, 2010 (In default) (NON) 6,377
80,000 Crown Castle International Corp. sr. disc. notes stepped-coupon
zero % (10 3/8s, 5/15/04), 2011 (STP) 52,200
145,000 Crown Castle International Corp. sr. notes 9 3/8s, 2011 121,800
50,000 Crown Castle International Corp. sr. notes 9s, 2011 40,750
490,000 Cybernet Internet Services International, Inc. 144A sr. disc.
notes stepped-coupon zero % (13s, 8/15/04), 2009
(Denmark) (STP) 490
150,000 Dobson/Sygnet Communications, Inc. sr. notes 12 1/4s, 2008 118,500
230,000 Equinix, Inc. sr. notes 13s, 2007 (In default) (NON) 23,000
200,000 Firstworld Communication Corp. sr. disc. notes stepped-coupon
zero % (13s, 4/15/03), 2008 (In default) (NON) (STP) 19,000
28,524 Globix Corp. company guaranty 11s, 2008 (PIK) 2,248
145,000 Globix Corp. sr. notes 12 1/2s, 2010 (In default) (NON) 23,925
20,000 Horizon PCS, Inc. company guaranty 13 3/4s, 2011 3,300
200,000 iPCS, Inc. sr. disc. notes stepped-coupon zero %
(14s, 7/15/05), 2010 (STP) 10,000
140,000 IWO Holdings, Inc. company guaranty 14s, 2011 25,200
80,000 Leap Wireless International, Inc. company guaranty
12 1/2s, 2010 10,400
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) 1,000
160,000 Microcell Telecommunications sr. disc. notes Ser. B, 14s,
2006 (Canada) (In default) (NON) 3,200
40,000 Millicom International Cellular SA sr. disc. notes 13 1/2s,
2006 (Luxembourg) 16,000
80,000 Nextel Communications, Inc. bank term loan FRN Ser. A,
2.938s, 2007 (acquired 11/20/02, cost $72,300) (RES) 72,175
20,000 Nextel Communications, Inc. sr. disc. notes stepped-coupon
zero % (9.95s, 2/15/03), 2008 (STP) 18,450
180,000 Nextel Communications, Inc. sr. disc. notes 9 3/4s, 2007 170,100
260,000 Nextel Communications, Inc. sr. notes 12s, 2008 261,300
385,000 Nextel Communications, Inc. sr. notes 9 3/8s, 2009 358,050
40,000 Nextel Communications, Inc. 144A sr. disc. notes 10.65s, 2007 39,100
155,000 Nextel Partners, Inc. sr. disc. notes stepped-coupon zero %
(14s, 2/1/04), 2009 (STP) 111,600
100,000 Nextel Partners, Inc. sr. notes 12 1/2s, 2009 91,500
80,000 Nextel Partners, Inc. sr. notes 11s, 2010 68,800
200,000 Orbital Imaging Corp. sr. notes Ser. B, 11 5/8s, 2005
(In default) (NON) 30,000
215,000 PanAmSat Corp. 144A sr. notes 8 3/4s, 2012 209,625
30,000 Qwest Capital Funding, Inc. company guaranty 7 3/4s, 2006 20,850
300,000 Qwest Capital Funding, Inc. company guaranty 7 1/4s, 2011 184,500
340,000 Qwest Capital Funding, Inc. company guaranty 7s, 2009 212,500
130,000 Qwest Capital Funding, Inc. company guaranty 6 3/8s, 2008 79,300
37,459 Rhythms Netconnections, Inc. sr. notes Ser. B, 14s, 2010
(In default) (NON) 749
130,000 Rogers Cantel, Ltd. sr. sub. notes 8.8s, 2007 (Canada) 111,800
50,000 Rogers Wireless, Inc. sec. notes 9 5/8s, 2011 (Canada) 46,500
110,000 SBA Communications Corp. sr. notes 10 1/4s, 2009 58,850
28,000 Telecorp PCS, Inc. company guaranty 10 5/8s, 2010 30,030
13,000 Telecorp PCS, Inc. company guaranty stepped-coupon
zero % (11 5/8s, 4/15/04), 2009 (STP) 11,960
305,000 Telus Corp. notes 8s, 2011 (Canada) 285,175
55,000 Telus Corp. notes 7 1/2s, 2007 (Canada) 52,250
85,000 Time Warner Telecom, Inc. sr. notes 10 1/8s, 2011 45,050
55,000 Time Warner Telecom, Inc. sr. notes 9 3/4s, 2008 30,250
30,000 Triton PCS, Inc. company guaranty 9 3/8s, 2011 26,700
155,000 Triton PCS, Inc. company guaranty 8 3/4s, 2011 134,850
55,000 Triton PCS, Inc. company guaranty zero %, 2008 48,400
90,000 TSI Telecommunication Services, Inc. company guaranty
Ser. B, 12 3/4s, 2009 72,000
350,000 UbiquiTel Operating Co. company guaranty stepped-coupon
zero % (14s, 4/15/05), 2010 (STP) 21,000
160,000 US UnWired, Inc. company guaranty stepped-coupon
Ser. B, zero % (13 3/8s, 11/1/04), 2009 (STP) 16,000
140,000 WebLink Wireless, Inc. sr. disc. notes stepped-coupon zero %
(11 1/4s, 2/1/03), 2008 (In default) (NON) (STP) 88
30,000 Williams Communications Group, Inc. sr. notes 11 7/8s, 2010
(In default) (NON) 3,900
20,000 Williams Communications Group, Inc. sr. notes 11.7s, 2008
(In default) (NON) 2,600
30,000 Williams Communications Group, Inc. sr. notes 10.7s, 2007
(In default) (NON) 3,900
-------------
3,588,992
Conglomerates (1.0%)
-------------------------------------------------------------------------------------------------------------------
55,000 Tyco International Group SA company guaranty 6 3/4s,
2011 (Luxembourg) 49,775
355,000 Tyco International Group SA company guaranty 6 3/8s,
2006 (Luxembourg) 337,250
40,000 Tyco International Group SA company guaranty 6 3/8s,
2005 (Luxembourg) 38,000
210,000 Tyco International Group SA notes 6 3/8s, 2011 (Luxembourg) 187,950
-------------
612,975
Consumer Goods (2.2%)
-------------------------------------------------------------------------------------------------------------------
125,000 Armkel, LLC/Armkel Finance sr. sub. notes 9 1/2s, 2009 135,313
206,765 Derby Cycle Corp. (The) sr. notes 10s, 2008 (In default) (NON) 4,135
DEM 117,131 Derby Cycle Corp. (The) sr. notes 9 3/8s, 2008 (In default) (NON) 1,191
$70,000 French Fragrances, Inc. company guaranty Ser. D, 10 3/8s, 2007 65,100
10,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 9,200
160,000 Icon Health & Fitness company guaranty 11 1/4s, 2012 139,200
160,000 Jostens, Inc. sr. sub. notes 12 3/4s, 2010 181,600
115,000 Playtex Products, Inc. company guaranty 9 3/8s, 2011 127,075
70,000 Polaroid Corp. sr. notes 11 1/2s, 2006 (In default) (NON) 3,500
70,000 Revlon Consumer Products sr. notes 9s, 2006 45,500
65,000 Revlon Consumer Products sr. notes 8 1/8s, 2006 42,250
300,000 Samsonite Corp. sr. sub. notes 10 3/4s, 2008 243,000
130,000 Sealy Mattress Co. company guaranty stepped-coupon
Ser. B, zero % (10 7/8s, 12/15/02), 2007 (STP) 128,700
170,000 Sealy Mattress Co. sr. sub. notes Ser. B, 9 7/8s, 2007 164,900
-------------
1,290,664
Distribution (0.3%)
-------------------------------------------------------------------------------------------------------------------
85,000 Fleming Companies, Inc. company guaranty 10 1/8s, 2008 74,375
60,000 Fleming Companies, Inc. company guaranty 9 7/8s, 2012 36,600
10,000 Fleming Companies, Inc. company guaranty Ser. D,
10 5/8s, 2007 6,900
90,000 Fleming Companies, Inc. sr. notes 9 1/4s, 2010 76,950
-------------
194,825
Energy (5.8%)
-------------------------------------------------------------------------------------------------------------------
130,000 Belco Oil & Gas Corp. sr. sub. notes Ser. B, 8 7/8s, 2007 135,200
110,000 BRL Universal Equipment sec. notes 8 7/8s, 2008 114,125
210,000 Chesapeake Energy Corp. company guaranty 9s, 2012 224,175
100,000 Chesapeake Energy Corp. company guaranty 8 3/8s, 2008 105,750
25,000 Chesapeake Energy Corp. sr. notes Ser. B, 8 1/2s, 2012 26,250
170,000 Comstock Resources, Inc. company guaranty 11 1/4s, 2007 180,200
20,000 Denbury Resources, Inc. company guaranty Ser. B, 9s, 2008 20,700
140,000 Dresser, Inc. company guaranty 9 3/8s, 2011 135,100
20,000 El Paso Energy Partners LP/El Paso Energy Partners
Finance Corp. 144A company guaranty 8 1/2s, 2011 18,200
70,000 Encore Acquisition Co. 144A sr. sub. notes 8 3/8s, 2012 73,850
90,000 Forest Oil Corp. company guaranty 7 3/4s, 2014 92,250
50,000 Forest Oil Corp. sr. notes 8s, 2011 53,000
55,000 Forest Oil Corp. sr. notes 8s, 2008 58,300
40,000 Grant Prideco Escrow Corp. 144A sr. notes 9s, 2009 41,200
35,000 Hornbeck Offshore Services, Inc. sr. notes 10 5/8s, 2008 36,838
75,000 Leviathan Gas Corp. company guaranty Ser. B, 10 3/8s, 2009 74,250
40,000 Magnum Hunter Resources, Inc. company guaranty 9.6s, 2012 42,700
90,000 Mission Resources Corp. company guaranty Ser. C, 10
7/8s, 2007 51,300
130,000 Newfield Exploration Co. sr. notes 7 5/8s, 2011 137,150
100,000 Parker Drilling Co. company guaranty Ser. B, 10 1/8s, 2009 100,000
50,000 Petronas Capital, Ltd. 144A company guaranty 7s, 2012
(Malaysia) 53,125
270,000 Pioneer Natural Resources Co. company guaranty
9 5/8s, 2010 316,348
20,000 Pioneer Natural Resources Co. company guaranty
6 1/2s, 2008 20,168
70,000 Plains All American Pipeline LP/Plains All American Finance
Corp. 144A sr. notes 7 3/4s, 2012 72,450
100,000 Plans Exploration & Production Co. 144A sr. sub. notes
8 3/4s, 2012 104,500
110,000 Pogo Producing Co. sr. sub. notes Ser. B, 8 1/4s, 2011 117,425
10,000 Pride International, Inc. sr. notes 10s, 2009 10,900
145,000 Pride Petroleum Services, Inc. sr. notes 9 3/8s, 2007 151,525
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 83,200
60,000 Swift Energy Co. sr. sub. notes 10 1/4s, 2009 55,200
95,000 Swift Energy Co. sr. sub. notes 9 3/8s, 2012 90,250
130,000 Trico Marine Services, Inc. company guaranty 8 7/8s, 2012 117,000
45,000 Vintage Petroleum, Inc. sr. notes 8 1/4s, 2012 46,575
160,000 Vintage Petroleum, Inc. sr. sub. notes 9 3/4s, 2009 167,200
25,000 Vintage Petroleum, Inc. sr. sub. notes 7 7/8s, 2011 24,375
95,000 Westport Resources Corp. company guaranty 8 1/4s, 2011 98,325
25,000 XTO Energy, Inc. sr. notes 7 1/2s, 2012 26,500
60,000 XTO Energy, Inc. 144A sr. sub. notes Ser. B, 8 3/4s, 2009 62,550
-------------
3,390,154
Entertainment (1.7%)
-------------------------------------------------------------------------------------------------------------------
80,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2011 78,600
160,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 157,600
10,000 Cinemark USA, Inc. sr. sub. notes Ser. B, 9 5/8s, 2008 9,925
150,000 Cinemark USA, Inc. sr. sub. notes Ser. B, 8 1/2s, 2008 142,500
20,000 Premier Parks, Inc. sr. disc. notes stepped-coupon zero %
(10s, 4/1/03), 2008 (STP) 19,000
120,000 Premier Parks, Inc. sr. notes 9 3/4s, 2007 116,400
75,000 Regal Cinemas, Inc. company guaranty Ser. B, 9 3/8s, 2012 80,063
100,000 Silver Cinemas, Inc. sr. sub. notes 10 1/2s, 2005 (In default) (NON) 10
440,000 Six Flags, Inc. sr. notes 8 7/8s, 2010 408,100
-------------
1,012,198
Financial (3.6%)
-------------------------------------------------------------------------------------------------------------------
180,000 Advanta Corp. 144A company guaranty Ser. B, 8.99s, 2026 96,300
70,000 Chevy Chase Savings Bank, Inc. sub. debs. 9 1/4s, 2005 69,300
95,000 Colonial Capital II 144A company guaranty 8.92s, 2027 87,989
11,660 Comdisco Holding Co., Inc./Comdisco, Inc. sec. notes
Ser. B, 11s, 2005 11,485
20,000 Crescent Real Estate Equities LP FRN 7 1/2s, 2007 19,450
190,000 Crescent Real Estate Equities LP sr. notes 9 1/4s, 2009 195,700
439,000 Finova Group, Inc. notes 7 1/2s, 2009 151,455
430,000 GS Escrow Corp. sr. notes 7 1/8s, 2005 477,313
54,000 Imperial Credit Industries, Inc. sec. notes 12s, 2005
(In default) (NON) 4,320
70,000 iStar Financial, Inc. sr. notes 8 3/4s, 2008 73,500
61,000 Nationwide Credit, Inc. sr. notes Ser. A, 10 1/4s, 2008
(In default) (NON) 4,270
65,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 50,050
160,000 Peoples Bank- Bridgeport sub. notes 9 7/8s, 2010 173,187
220,000 Resource America, Inc. 144A sr. notes 12s, 2004 220,000
140,000 Sovereign Bancorp, Inc. sr. notes 10 1/2s, 2006 156,100
140,000 Superior Financial Corp. 144A sr. notes 8.65s, 2003 141,508
80,000 Webster Capital Trust I 144A bonds 9.36s, 2027 78,226
100,000 Western Financial Bank sub. debs. 9 5/8s, 2012 97,000
-------------
2,107,153
Food (1.2%)
-------------------------------------------------------------------------------------------------------------------
200,000 Archibald Candy Corp. company guaranty 10 1/4s, 2004
(In default) (NON) 98,000
230,000 Aurora Foods, Inc. 144A sr. sub. notes Ser. D, 9 7/8s, 2007 105,800
40,000 Del Monte Corp. company guaranty Ser. B, 9 1/4s, 2011 40,800
45,000 Dole Food Co. notes 6 3/8s, 2005 44,503
130,000 Eagle Family Foods company guaranty Ser. B, 8 3/4s, 2008 88,400
70,000 Land O'Lakes, Inc. sr. notes 8 3/4s, 2011 40,075
110,000 Premier International Foods PLC sr. notes 12s, 2009
(United Kingdom) 118,800
310,000 RAB Enterprises, Inc. company guaranty 10 1/2s, 2005
(In default) (NON) 155,000
245,000 Vlasic Foods International, Inc. sr. sub. notes Ser. B,
10 1/4s, 2009 (In default) (NON) 41,650
-------------
733,028
Forest Products and Packaging (3.6%)
-------------------------------------------------------------------------------------------------------------------
20,000 Abitibi-Consolidated, Inc. bonds 8.55s, 2010 (Canada) 21,125
190,000 Appleton Papers, Inc. company guaranty Ser. B,
12 1/2s, 2008 203,300
150,000 Four M Corp. sr. notes Ser. B, 12s, 2006 154,875
150,000 Georgia-Pacific Corp. debs. 9 1/2s, 2011 144,750
30,000 Georgia-Pacific Corp. notes 8 7/8s, 2031 25,650
25,000 Georgia-Pacific Corp. notes 7 1/2s, 2006 23,625
70,000 Louisiana-Pacific Corp. sr. notes 8 7/8s, 2010 73,150
EUR 10,000 MDP Acquisitions PLC sr. notes Ser. REGS, 10 1/8s,
2012 (Ireland) 10,170
$110,000 MDP Acquisitions PLC 144A sr. notes 9 5/8s, 2012 (Ireland) 116,050
45,000 Norske Skog Canada, Ltd. company guaranty 8 5/8s,
2011 (Canada) 46,238
160,000 Pacifica Papers, Inc. sr. notes 10s, 2009 (Canada) 172,000
145,000 Potlatch Corp. company guaranty 10s, 2011 158,775
365,000 Riverwood International Corp. company guaranty
10 7/8s, 2008 372,300
45,000 Smurfit-Stone Container Corp. 144A sr. notes 8 1/4s, 2012 46,575
40,000 Stone Container Corp. sr. notes 9 3/4s, 2011 43,600
140,000 Stone Container Corp. sr. notes 9 1/4s, 2008 151,550
100,000 Stone Container Corp. sr. notes 8 3/8s, 2012 104,750
80,000 Stone Container Corp. 144A company guaranty 11 1/2s,
2006 (Canada) 85,200
85,000 Tembec Industries, Inc. company guaranty 8 1/2s, 2011
(Canada) 87,763
60,000 Tembec Industries, Inc. company guaranty 7 3/4s, 2012
(Canada) 59,850
-------------
2,101,296
Gaming & Lottery (5.9%)
-------------------------------------------------------------------------------------------------------------------
80,000 Aladdin Gaming Holdings, LLC sr. disc. notes stepped-coupon
Ser. B, zero % (13 1/2s, 3/1/03), 2010 (In default) (NON) (STP) 1,600
60,000 Ameristar Casinos, Inc. company guaranty 10 3/4s, 2009 65,850
140,000 Argosy Gaming Co. company guaranty 10 3/4s, 2009 154,700
20,000 Argosy Gaming Co. sr. sub. notes 9s, 2011 21,200
30,000 Boyd Gaming Corp. sr. sub. notes 9 1/2s, 2007 31,313
120,000 Boyd Gaming Corp. sr. sub. notes 8 3/4s, 2012 126,000
60,000 Chumash Casino & Resort Enterprise 144A sr. notes
9s, 2010 63,600
86,021 Fitzgeralds Gaming Corp. company guaranty Ser. B,
12 1/4s, 2004 (In default) (NON) 30,107
115,000 Herbst Gaming, Inc. sec. notes Ser. B, 10 3/4s, 2008 120,463
195,000 Hollywood Casino Corp. company guaranty 11 1/4s, 2007 212,063
105,000 Hollywood Park, Inc. company guaranty Ser. B, 9 1/4s, 2007 89,513
180,000 Horseshoe Gaming Holdings company guaranty 8 5/8s, 2009 191,700
170,000 International Game Technology sr. notes 8 3/8s, 2009 189,125
230,000 Majestic Investor Holdings/Capital Corp. company guaranty
11.653s, 2007 211,600
10,000 Mandalay Resort Group sr. notes 9 1/2s, 2008 11,075
10,000 Mandalay Resort Group sr. sub. notes 9 3/8s, 2010 10,600
10,000 MGM Mirage, Inc. coll. sr. notes 6 7/8s, 2008 10,061
230,000 MGM Mirage, Inc. company guaranty 8 1/2s, 2010 250,220
15,000 MGM Mirage, Inc. company guaranty 8 3/8s, 2011 15,938
50,000 Mikohn Gaming Corp. company guaranty Ser. B,
11 7/8s, 2008 37,500
60,000 Mirage Resorts, Inc. notes 6 3/4s, 2008 59,985
40,000 Mohegan Tribal Gaming Authority sr. notes 8 1/8s, 2006 42,500
130,000 Mohegan Tribal Gaming Authority sr. sub. notes 8 3/4s, 2009 139,100
40,000 Mohegan Tribal Gaming Authority sr. sub. notes 8 3/8s, 2011 42,400
130,000 Mohegan Tribal Gaming Authority sr. sub. notes 8s, 2012 136,500
160,000 Park Place Entertainment Corp. sr. notes 7 1/2s, 2009 162,400
110,000 Park Place Entertainment Corp. sr. sub. notes 8 7/8s, 2008 117,150
50,000 Penn National Gaming, Inc. company guaranty Ser. B,
11 1/8s, 2008 54,375
200,000 Penn National Gaming, Inc. sr. sub. notes 8 7/8s, 2010 205,500
40,000 Pinnacle Entertainment, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 34,500
125,000 Resorts International Hotel and Casino, Inc. company guaranty
11 1/2s, 2009 111,875
140,000 Station Casinos, Inc. sr. notes 8 3/8s, 2008 146,650
70,000 Trump Atlantic City Associates company guaranty
11 1/4s, 2006 54,075
10,000 Trump Castle Funding, Inc. sr. sub. notes 11 3/4s, 2003 9,300
265,000 Venetian Casino Resort, LLC 144A 2nd mtge. 11s, 2010 279,575
15,000 Wheeling Island Gaming, Inc. company guaranty 10 1/8s, 2009 14,925
-------------
3,455,038
Health Care (7.2%)
-------------------------------------------------------------------------------------------------------------------
140,000 ALARIS Medical Systems, Inc. sec. notes Ser. B, 11 5/8s, 2006 156,800
80,000 ALARIS Medical Systems, Inc. 144A company guaranty
9 3/4s, 2006 81,600
10,000 ALARIS Medical, Inc. sr. disc. notes stepped-coupon zero %
(11 1/8s, 8/1/03), 2008 (STP) 9,100
303,400 Alderwoods Group, Inc. company guaranty 12 1/4s, 2009 275,336
2,500 Alderwoods Group, Inc. company guaranty 11s, 2007 2,450
105,000 Alliance Imaging, Inc. sr. sub. notes 10 3/8s, 2011 108,675
100,000 AmerisourceBergen Corp. sr. notes 8 1/8s, 2008 107,500
80,000 AmerisourceBergen Corp. 144A sr. notes 7 1/4s, 2012 82,800
70,000 Bio-Rad Labs Corp. sr. sub. notes 11 5/8s, 2007 78,050
150,000 Biovail Corp. sr. sub. notes 7 7/8s, 2010 (Canada) 154,500
200,000 Conmed Corp. company guaranty 9s, 2008 208,000
35,000 Dade Behring, Inc. company guaranty 11.91s, 2010 37,275
90,000 Extendicare Health Services, Inc. 144A sr. notes
9 1/2s, 2010 87,750
105,000 Hanger Orthopedic Group, Inc. company guaranty
10 3/8s, 2009 110,775
10,000 Hanger Orthopedic Group, Inc. sr. sub. notes 11 1/4s, 2009 10,600
40,000 HCA, Inc. debs. 7.19s, 2015 39,078
70,000 HCA, Inc. med. term notes 7.69s, 2025 65,676
200,000 HCA, Inc. notes 8 3/4s, 2010 217,956
60,000 HCA, Inc. notes 8.36s, 2024 60,678
10,000 HCA, Inc. notes 7s, 2007 10,167
265,000 Healthsouth Corp. notes 7 5/8s, 2012 218,625
105,000 Healthsouth Corp. sr. notes 8 1/2s, 2008 92,925
45,000 Healthsouth Corp. sr. notes 8 3/8s, 2011 38,025
75,000 IASIS Healthcare Corp. company guaranty 13s, 2009 81,375
14,000 Insight Health Services Corp. company guaranty Ser. B,
9 7/8s, 2011 13,720
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) 2,338
130,000 Kinetic Concepts, Inc. company guaranty Ser. B, 9 5/8s, 2007 133,900
165,000 Magellan Health Services, Inc. sr. sub. notes 9s, 2008 28,875
55,000 Magellan Health Services, Inc. 144A sr. notes 9 3/8s, 2007 39,600
170,000 Mediq, Inc. company guaranty 11s, 2008 (In default) (NON) 1,700
180,000 Mediq, Inc. debs. stepped-coupon zero % (13s, 6/1/03), 2009
(In default) (NON) (STP) 18
105,000 MedQuest, Inc. 144A sr. sub. notes 11 7/8s, 2012 108,150
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 217,300
150,000 Rotech Healthcare, Inc. 144A sr. sub. notes 9 1/2s, 2012 150,000
40,000 Service Corp. International debs. 7 7/8s, 2013 35,600
20,000 Service Corp. International notes 7.7s, 2009 19,200
20,000 Service Corp. International notes 6 1/2s, 2008 18,300
200,000 Service Corp. International notes 6s, 2005 191,000
50,000 Service Corp. International 144A notes 7.7s, 2009 45,750
130,000 Stewart Enterprises, Inc. notes 10 3/4s, 2008 143,000
50,000 Tenet Healthcare Corp. sr. notes 6 1/2s, 2012 45,000
80,000 Tenet Healthcare Corp. sr. notes 6 3/8s, 2011 71,600
25,000 Tenet Healthcare Corp. sr. notes 5 3/8s, 2006 22,750
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 172,000
80,000 Vanguard Health Systems, Inc. company guaranty 9 3/4s, 2011 74,800
120,000 Ventas Realty LP/Capital Corp. company guaranty 9s, 2012 122,400
-------------
4,249,842
Homebuilding (2.3%)
-------------------------------------------------------------------------------------------------------------------
80,000 Beazer Homes USA, Inc. company guaranty 8 5/8s, 2011 82,800
50,000 D.R. Horton, Inc. company guaranty 8 1/2s, 2012 51,000
120,000 D.R. Horton, Inc. sr. notes 7 7/8s, 2011 119,400
90,000 Del Webb Corp. sr. sub. debs. 9 3/8s, 2009 95,400
30,000 K. Hovnanian Enterprises, Inc. company guaranty
10 1/2s, 2007 32,400
10,000 K. Hovnanian Enterprises, Inc. company guaranty
8 7/8s, 2012 9,550
80,000 K. Hovnanian Enterprises, Inc. company guaranty 8s, 2012 77,600
115,000 KB Home sr. sub. notes 9 1/2s, 2011 123,194
130,000 Lennar Corp. company guaranty Ser. B, 9.95s, 2010 144,950
75,000 Lennar Corp. sr. notes 7 5/8s, 2009 76,875
20,000 M.D.C. Holdings, Inc. sr. notes 8 3/8s, 2008 20,800
170,000 Ryland Group, Inc. sr. notes 9 3/4s, 2010 187,850
80,000 Schuler Homes, Inc. company guaranty 10 1/2s, 2011 83,200
40,000 Standard Pacific Corp. sr. notes 9 1/2s, 2010 41,000
15,000 Standard Pacific Corp. sr. notes 8 1/2s, 2009 15,375
100,000 Toll Corp. company guaranty 8 1/8s, 2009 102,000
15,000 WCI Communities, Inc. company guaranty 10 5/8s, 2011 14,700
105,000 WCI Communities, Inc. company guaranty 9 1/8s, 2012 93,975
-------------
1,372,069
Lodging/Tourism (3.2%)
-------------------------------------------------------------------------------------------------------------------
280,000 Felcor Lodging LP company guaranty 9 1/2s, 2008 (R) 288,400
35,000 Felcor Lodging LP company guaranty 8 1/2s, 2008 (R) 34,650
155,000 Hilton Hotels Corp. notes 7 5/8s, 2012 156,085
640,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 630,400
55,000 HMH Properties, Inc. sr. notes Ser. C, 8.45s, 2008 55,138
60,000 Host Marriott LP company guaranty Ser. G, 9 1/4s, 2007 (R) 61,800
50,000 Host Marriott LP sr. notes Ser. E, 8 3/8s, 2006 (R) 50,250
120,000 ITT Corp. notes 6 3/4s, 2005 118,800
190,000 John Q. Hammons Hotels LP/John Q. Hammons Hotels
Finance Corp. III 1st mtge. Ser. B, 8 7/8s, 2012 192,375
120,000 Lodgian Financing Corp. company guaranty 12 1/4s, 2009
(In default) (NON) 66,300
75,000 Meristar Hospitality Corp. company guaranty 9 1/8s,
2011 (R) 69,000
90,000 RFS Partnership LP company guaranty 9 3/4s, 2012 92,700
55,000 Starwood Hotels & Resorts Worldwide, Inc. 144A notes
7 7/8s, 2012 54,313
35,000 Starwood Hotels & Resorts Worldwide, Inc. 144A notes
7 3/8s, 2007 34,475
-------------
1,904,686
Metals (1.2%)
-------------------------------------------------------------------------------------------------------------------
20,000 AK Steel Corp. company guaranty 7 7/8s, 2009 20,450
200,000 AK Steel Corp. 144A company guaranty 7 3/4s, 2012 204,500
80,000 Armco, Inc. sr. notes 8 7/8s, 2008 79,200
170,000 Doe Run Resources Corp. company guaranty Ser. B, 11 1/4s,
2005 (In default) (NON) 44,200
20,000 Doe Run Resources Corp. company guaranty Ser. B(a), 11 1/4s,
2005 (In default) (NON) 6,400
50,000 Doe Run Resources Corp. company guaranty FRN Ser. B,
8.119s, 2003 (In default) (NON) 11,500
25,000 Haynes International, Inc. sr. notes 11 5/8s, 2004 16,313
10,000 Kaiser Aluminum & Chemical Corp. sr. notes Ser. B, 10 7/8s,
2006 (In default) (NON) 6,713
305,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes 12 3/4s,
2003 (In default) (NON) 30,500
80,000 Oregon Steel Mills, Inc. 144A 1st mtge. 10s, 2009 81,200
32,000 P&L Coal Holdings Corp. company guaranty Ser. B,
9 5/8s, 2008 33,760
85,000 Steel Dynamics, Inc. company guaranty 9 1/2s, 2009 90,525
10,000 United States Steel, LLC sr. notes 10 3/4s, 2008 10,100
90,000 WCI Steel, Inc. sr. notes Ser. B, 10s, 2004 20,700
11,000 Weirton Steel Corp. sr. notes FRN 10s, 2008 1,320
120,000 Wheeling-Pittsburgh Steel Corp. sr. notes 9 1/4s, 2007
(In default) (NON) 3,600
80,000 WHX Corp. sr. notes 10 1/2s, 2005 61,600
-------------
722,581
Publishing (4.0%)
-------------------------------------------------------------------------------------------------------------------
310,000 Affinity Group Holdings sr. notes 11s, 2007 310,000
80,000 Garden State Newspapers, Inc. sr. sub. notes 8 5/8s, 2011 80,600
50,000 Garden State Newspapers, Inc. sr. sub. notes Ser. B, 8 3/4s, 2009 50,875
70,000 Hollinger International Publishing, Inc. company guaranty
9 1/4s, 2007 70,263
331,117 Hollinger Participation Trust 144A sr. notes 12 1/8s, 2010
(Canada) (PIK) 312,906
90,000 Key3media Group, Inc. company guaranty 11 1/4s, 2011 4,500
95,000 Mail-Well I Corp. company guaranty 9 5/8s, 2012 82,175
110,000 Perry-Judd company guaranty 10 5/8s, 2007 104,500
520,000 PRIMEDIA, Inc. company guaranty 8 7/8s, 2011 479,700
80,000 PRIMEDIA, Inc. company guaranty 7 5/8s, 2008 71,400
130,000 PRIMEDIA, Inc. company guaranty Ser. B, 8 1/2s, 2006 122,200
60,000 Quebecor Media, Inc. sr. disc. notes stepped-coupon zero %
(13 3/4s, 7/15/06), 2011 (Canada) (STP) 33,000
130,000 Quebecor Media, Inc. sr. notes 11 1/8s, 2011 (Canada) 120,250
95,000 RH Donnelley Finance Corp. I 144A sr. notes 8 7/8s, 2010 99,394
100,000 RH Donnelley Finance Corp. I 144A sr. sub. notes
10 7/8s, 2012 105,750
120,000 Vertis, Inc. company guaranty Ser. B, 10 7/8s, 2009 122,400
35,000 Vertis, Inc. 144A sr. notes 10 7/8s, 2009 35,700
110,000 Von Hoffman Press, Inc. company guaranty 10 1/4s, 2009 103,400
97,068 Von Hoffman Press, Inc. debs. zero %, 2009 (PIK) 56,299
-------------
2,365,312
Restaurants (0.8%)
-------------------------------------------------------------------------------------------------------------------
40,000 Domino's, Inc. company guaranty Ser. B, 10 3/8s, 2009 43,300
100,000 Sbarro, Inc. company guaranty 11s, 2009 92,500
90,000 Yum! Brands, Inc. sr. notes 8 7/8s, 2011 98,550
50,000 Yum! Brands, Inc. sr. notes 8 1/2s, 2006 53,375
160,000 Yum! Brands, Inc. sr. notes 7.65s, 2008 168,000
-------------
455,725
Retail (2.3%)
-------------------------------------------------------------------------------------------------------------------
80,000 Amazon.com, Inc. sr. sub. notes stepped-coupon zero %
(10s, 5/1/03), 2008 (STP) 78,400
100,000 Asbury Automotive Group, Inc. company guaranty 9s, 2012 92,000
160,000 Autonation, Inc. company guaranty 9s, 2008 168,000
65,000 Gap, Inc. (The) notes 6.9s, 2007 63,700
15,000 JC Penney Company, Inc. debs. 7.65s, 2016 12,975
50,000 JC Penney Company, Inc. debs. 7.4s, 2037 49,750
60,000 JC Penney Company, Inc. notes Ser. A MTN, 7.05s, 2005 58,800
170,000 JC Penney Company, Inc. 144A notes 9s, 2012 171,700
120,000 Kmart Corp. 144A notes 9 7/8s, 2008 (In default) (NON) 24,300
60,000 NBTY, Inc. sr. sub. notes Ser. B, 8 5/8s, 2007 60,600
40,000 Rite Aid Corp. debs. 6 7/8s, 2013 22,800
80,000 Rite Aid Corp. notes 7 1/8s, 2007 53,600
280,000 Saks, Inc. company guaranty 8 1/4s, 2008 280,000
125,000 Southland Corp. debs. Ser. A, 4 1/2s, 2004 116,250
70,000 United Auto Group, Inc. 144A sr. sub. notes 9 5/8s, 2012 70,175
-------------
1,323,050
Technology (2.3%)
-------------------------------------------------------------------------------------------------------------------
40,000 Fairchild Semiconductor International, Inc. company guaranty
10 3/8s, 2007 42,600
115,000 Iron Mountain, Inc. company guaranty 8 5/8s, 2013 121,900
200,000 Iron Mountain, Inc. company guaranty 8 1/8s, 2008 (Canada) 206,500
10,000 Lucent Technologies, Inc. debs. 6 1/2s, 2028 4,800
360,000 Lucent Technologies, Inc. debs. 6.45s, 2029 172,800
70,000 ON Semiconductor Corp. 144A company guaranty
12s, 2008 50,400
40,000 SCG Holding & Semiconductor Corp. company guaranty
12s, 2009 14,800
110,000 Seagate Technology Hdd Holdings 144A sr. notes 8s, 2009 114,400
250,000 Sequa Corp. sr. notes Ser. B, 8 7/8s, 2008 245,000
64,685 Telex Communications Group, Inc. sr. sub. notes Ser. A,
zero %, 2006 35,577
100,000 Unisys Corp. sr. notes 7 1/4s, 2005 102,000
35,000 Xerox Cap Europe PLC company guaranty 5 7/8s, 2004
(United Kingdom) 33,513
40,000 Xerox Corp. notes 5 1/2s, 2003 38,600
155,000 Xerox Corp. 144A sr. notes 9 3/4s, 2009 148,800
10,000 Xerox Credit Corp. sr. notes 6.1s, 2003 9,650
-------------
1,341,340
Textiles (0.9%)
-------------------------------------------------------------------------------------------------------------------
100,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008
(In default) (NON) 10,000
90,000 GFSI, Inc. sr. disc. notes stepped-coupon Ser. B, zero %
(11 3/8s, 9/15/04), 2009 (STP) 4,388
45,000 Levi Strauss & Co. notes 7s, 2006 39,600
85,000 Levi Strauss & Co. sr. notes 11 5/8s, 2008 83,938
EUR 10,000 Levi Strauss & Co. sr. notes 11 5/8s, 2008 9,399
$100,000 Levi Strauss & Co. 144A sr. notes 12 1/4s, 2012 98,750
95,000 Russell Corp. company guaranty 9 1/4s, 2010 99,750
40,000 Tommy Hilfiger USA, Inc. company guaranty 6 1/2s, 2003 40,200
105,000 William Carter Holdings Co. (The) company guaranty
Ser. B, 10 7/8s, 2011 113,400
-------------
499,425
Transportation (2.2%)
-------------------------------------------------------------------------------------------------------------------
10,000 Air Canada Corp. sr. notes 10 1/4s, 2011 (Canada) 6,500
221,742 Airbus Industries 144A sinking fund Ser. D, 12.266s, 2020 38,805
80,000 Allied Holdings, Inc. company guaranty Ser. B, 8 5/8s, 2007 60,000
170,000 Calair, LLC/Calair Capital Corp. company guaranty
8 1/8s, 2008 102,000
60,000 Continental Airlines, Inc. pass-through certificates Ser. D,
7.568s, 2006 27,000
70,000 Delta Air Lines, Inc. pass-through certificates Ser. 00-1,
Class C, 7.779s, 2005 52,332
50,000 Delta Air Lines, Inc. pass-through certificates Ser. C,
7.779s, 2012 37,500
170,000 Kansas City Southern Railway Co. company guaranty
9 1/2s, 2008 185,725
60,000 Kansas City Southern Railway Co. company guaranty
7 1/2s, 2009 62,550
125,000 Navistar International Corp. company guaranty Ser. B,
9 3/8s, 2006 121,250
80,000 Navistar International Corp. sr. notes Ser. B, 8s, 2008 67,600
10,000 Northwest Airlines, Inc. company guaranty 8.52s, 2004 7,850
120,000 Northwest Airlines, Inc. company guaranty 7 5/8s, 2005 76,800
100,000 Northwest Airlines, Inc. sr. notes 9 7/8s, 2007 61,000
70,615 NWA Trust sr. notes Ser. A, 9 1/4s, 2012 64,064
170,000 RailAmerica Transportation company guaranty 12 7/8s, 2010 175,100
30,000 Transportation Manufacturing Operations, Inc. company
guaranty 11 1/4s, 2009 19,200
40,000 Travel Centers of America, Inc. company guaranty
12 3/4s, 2009 42,400
110,000 US Air, Inc. pass-through certificates Ser. 93A3, 10 3/8s,
2013 (In default) (NON) 55,000
-------------
1,262,676
Utilities & Power (2.9%)
-------------------------------------------------------------------------------------------------------------------
80,000 AES Corp. (The) sr. notes 8 7/8s, 2011 36,400
70,000 AES Corp. (The) sr. notes 8 3/4s, 2008 31,500
20,000 Calpine Canada Energy Finance company guaranty 8 1/2s,
2008 (Canada) 8,800
90,000 Calpine Corp. sr. notes 10 1/2s, 2006 42,750
10,000 Calpine Corp. sr. notes 8 3/4s, 2007 4,450
220,000 Calpine Corp. sr. notes 8 5/8s, 2010 97,350
280,000 Calpine Corp. sr. notes 8 1/2s, 2011 126,700
60,000 Calpine Corp. sr. notes 7 7/8s, 2008 26,100
130,000 CMS Energy Corp. sr. notes 8.9s, 2008 112,450
60,000 CMS Energy Corp. sr. notes 8 1/2s, 2011 51,000
40,000 CMS Panhandle Holding Corp. sr. notes 6 1/2s, 2009 37,870
65,000 Consumers Energy bank term loan FRN 6.32s, 2004
(acquired 9/17/02, cost $62,400) (RES) 62,806
60,000 Edison Mission Energy sr. notes 10s, 2008 27,000
60,000 Edison Mission Energy sr. notes 9 7/8s, 2011 27,000
135,000 Midland Funding II Corp. debs. Ser. A, 11 3/4s, 2005 136,350
60,000 Mission Energy Holding Co. sec. notes 13 1/2s, 2008 13,200
70,000 Pacific Gas & Electric Co. 144A sr. notes 7 3/8s, 2005
(In default) (NON) 67,900
160,000 Southern California Edison Co. notes 8.95s, 2003 159,200
20,000 Southern California Edison Co. notes 6 3/8s, 2006 18,200
150,000 Tiverton/Rumford Power Associates, LP 144A pass-through
certificates 9s, 2018 75,000
125,000 Western Resources, Inc. 1st mtge. 7 7/8s, 2007 125,000
105,000 Western Resources, Inc. sr. notes 9 3/4s, 2007 94,500
20,000 Williams Companies, Inc. (The) FRN Ser. A, 6 3/4s, 2006 13,600
360,000 York Power Funding 144A notes 12s, 2007 (Cayman Islands)
(In default) (NON) 324,000
-------------
1,719,126
-------------
Total Corporate Bonds and Notes (cost $59,774,478) $50,863,450
PREFERRED STOCKS (3.1%) (a)
NUMBER OF SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
261 AmeriKing, Inc. $3.25 cum. pfd. (PIK) $3
4,695 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. 263,624
50,000 CSBI Capital Trust I 144A company guaranty Ser. A,
11.75% pfd. 57,500
5,279 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. 459,273
220 Delta Financial Corp. Ser. A, $10.00 cum. pfd. 1,210
66,000 Diva Systems Corp. 144A Ser. D, zero % pfd. 660
8,200 Doane Pet Care Co. $7.125 pfd. 246,000
7 Dobson Communications Corp. 13.00% pfd. (PIK) 3,430
170 Dobson Communications Corp. 12.25% pfd. (PIK) 83,114
80 First Republic Capital Corp. 144A 10.50% pfd. 84,000
91 Granite Broadcasting Corp. 12.75% cum. pfd. 48,230
68 Nextel Communications, Inc. Ser. E, 11.125% pfd. (PIK) 58,480
6,969 North Atlantic Trading Co. 12.00% pfd. (PIK) 128,927
2 NTL, Inc. Ser. B, $13.00 1
55 Paxson Communications Corp. 13.25% cum. pfd. (PIK) 297,000
100 PRIMEDIA, Inc. Ser. F, $9.20 cum. pfd. 3,300
359 Rural Cellular Corp. 12.25% pfd. (PIK) 79,079
-------------
Total Preferred Stocks (cost $2,886,484) $1,813,831
FOREIGN GOVERNMENT BONDS AND NOTES (2.0%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$42,450 Argentina (Republic of) unsub. Ser. 2018, 2.89s, 2018
(In default) (NON) $8,490
155,000 Bulgaria (Republic of) 144A bonds 8 1/4s, 2015 167,788
50,000 Colombia (Republic of) bonds 11 3/4s, 2020 49,950
EUR 15,000 Colombia (Republic of) notes Ser. E MTN, 11 1/2s, 2011 14,188
$5,000 Colombia (Republic of) unsub. 9 3/4s, 2009 4,820
EUR 25,000 Colombia (Republic of) unsub. bonds Ser. 15A, 11 3/8s, 2008 24,107
$20,000 Ecuador (Republic of) bonds Ser. REGS, 12s, 2012 11,350
145,000 Ecuador (Republic of) bonds stepped-coupon Ser. REGS, 5s
(6s, 8/15/03), 2030 (STP) 63,655
10,000 El Salvador (Republic of) 144A bonds 7 3/4s, 2023 9,868
10,000 Malaysia (Government of) bonds 7 1/2s, 2011 11,205
30,000 Peru (Republic of) notes 9 1/8s, 2008 29,730
450,000 Russia (Federation of) unsub. stepped-coupon 5s
(7 1/2s, 3/31/07), 2030 (STP) 352,800
110,000 South Africa (Republic of) notes 7 3/8s, 2012 116,600
110,000 United Mexican States bonds 11 3/8s, 2016 142,890
110,000 United Mexican States bonds Ser. MTN, 8.3s, 2031 113,190
100,000 Venezuela (Republic of) bonds 9 1/4s, 2027 71,250
-------------
Total Foreign Government Bonds and Notes
(cost $1,090,742) $1,191,881
COMMON STOCKS (2.1%) (a)
NUMBER OF SHARES VALUE
Broadcasting (--%)
-------------------------------------------------------------------------------------------------------------------
102 RCN Corp. (NON) $70
31 Quorum Broadcast Holdings, Inc. Class E (acquired 5/15/01,
cost $30,765) (RES) 6,721
-------------
6,791
Chemicals (0.1%)
-------------------------------------------------------------------------------------------------------------------
14,327 Pioneer Companies, Inc. (NON) 28,654
Commercial & Consumer Services (--%)
-------------------------------------------------------------------------------------------------------------------
20,000 Loewen Group International, Inc. 2
Communication Services (--%)
-------------------------------------------------------------------------------------------------------------------
9,148 Arch Wireless, Inc. (NON) 1
203 Call-Net Enterprises, Inc. Class B (Canada) (NON) 77
50,942 Celcaribe SA (Colombia) 509
3,010 Covad Communications Group, Inc. 144A (NON) 4,033
263 FLAG Telecom Holdings, Ltd. (Bermuda) 1,643
3,325 Globix Corp. 4,156
434 Vast Solutions, Inc. Class B1 (NON) 217
434 Vast Solutions, Inc. Class B2 (NON) 217
434 Vast Solutions, Inc. Class B3 (NON) 217
-------------
11,070
Consumer Cyclicals (0.1%)
-------------------------------------------------------------------------------------------------------------------
160,000 Morrison Knudsen Corp. 6,400
40,417 VS Holdings, Inc. 40,417
311 Washington Group International, Inc. (NON) 4,183
-------------
51,000
Consumer Goods (--%)
-------------------------------------------------------------------------------------------------------------------
4,680 Doskocil Manufacturing Co., Inc. 17,082
Consumer Staples (1.7%)
-------------------------------------------------------------------------------------------------------------------
244 Premium Holdings (LP) 144A 5,134
576 PSF Group Holdings, Inc. 144A Class A 1,007,633
-------------
1,012,767
Financial (0.2%)
-------------------------------------------------------------------------------------------------------------------
180,000 AMRESCO Capital Trust, Inc. (R) 13,320
84 Comdisco Holding Co., Inc. (NON) 5,880
505,286 Contifinancial Corp. Liquidating Trust Units 18,948
220 Delta Funding Residual Exchange Co., LLC (NON) 42,790
220 Delta Funding Residual Management, Inc. (NON) 2
1 Imperial Credit Industries, Inc. (NON) 1
-------------
80,941
Food (--%)
-------------------------------------------------------------------------------------------------------------------
4,427 Aurora Foods, Inc. (NON) 2,745
Gaming & Lottery (--%)
-------------------------------------------------------------------------------------------------------------------
8,269 Fitzgeralds Gaming Corp. 83
Health Care (--%)
-------------------------------------------------------------------------------------------------------------------
384 Alderwoods Group, Inc. (NON) 1,651
453 Mariner Health Care, Inc. (NON) 3,398
178 Sun Healthcare Group, Inc. (NON) 368
-------------
5,417
-------------
Total Common Stocks (cost $4,606,160) $1,216,622
CONVERTIBLE BONDS AND NOTES (0.9%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$140,000 American Tower Corp. cv. notes 5s, 2010 $90,825
90,000 DaVita, Inc. cv. sub. notes 7s, 2009 90,225
16,000 Hexcel Corp. cv. sub. notes 7s, 2003 13,620
350,000 Nextel Communications, Inc. cv. sr. notes 5 1/4s, 2010 255,063
60,000 Province Healthcare Co. cv. sub. notes 4 1/2s, 2005 54,450
70,000 Tyco International, Ltd. cv. notes zero %, 2020 (Bermuda) 49,350
-------------
Total Convertible Bonds and Notes (cost $532,891) $553,533
UNITS (0.3%) (a)
NUMBER OF UNITS VALUE
-------------------------------------------------------------------------------------------------------------------
550,000 Australis Media, Ltd. units 15 3/4s, 2003 (Australia)
(In default) (NON) $55
50,000 MDP Acquisitions PLC 144A units 15 1/2s, 2013 (Ireland) (PIK) 54,000
450,000 XCL, Ltd. 144A units 13 1/2s, 2004 (In default) (NON) 135,000
2,950 XCL, Ltd. 144A units cum. cv. pfd. 9.50% (In default) (NON) (PIK) 738
-------------
Total Units (cost $1,312,627) $189,793
CONVERTIBLE PREFERRED STOCKS (0.2%) (a)
NUMBER OF SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
174 Hercules Trust II 6.50% units cum. cv. pfd. $93,960
1,400 LTV Corp. 144A $4.125 cv. pfd. (In default) (NON) 175
3,069 Telex Communications, Inc. zero % cv. pfd. (In default) (NON) 3,069
180 Weirton Steel Corp. Ser. C, zero % cv. pfd. 180
580 XCL, Ltd. 144A Ser. A, 9.50% cum. cv. pfd. (In default) (NON) (PIK) 145
-------------
Total Convertible Preferred Stocks (cost $213,619) $97,529
BRADY BONDS (0.2%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$65,000 Argentina (Republic of) govt. guaranty Ser. L-GP, 6s, 2023
(In default) (NON) $29,822
49,000 Peru (Republic of) bonds Ser. PDI, 4s, 2017 36,628
30,000 Peru (Republic of) coll. FLIRB 4s, 2017 20,475
15,000 Peru (Republic of) coll. FLIRB Ser. 20YR, 4s, 2017 10,238
-------------
Total Brady Bonds (cost $94,407) $97,163
WARRANTS (--%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
-------------------------------------------------------------------------------------------------------------------
150 Birch Telecommunications, Inc. 144A (PIK) 6/15/08 $2
250 Comunicacion Cellular 144A (Colombia) 11/15/03 250
200 Dayton Superior Corp. 6/15/09 200
1,250 Diva Systems Corp. 144A 3/1/08 13
200 Horizon PCS, Inc. 10/1/10 1
180 Insilco Holding Co. 8/15/08 2
200 iPCS, Inc. 144A 7/15/10 50
110 IWO Holdings, Inc. 1/15/11 28
106 Leap Wireless International, Inc. 144A 4/15/10 1
70 Mikohn Gaming Corp. 144A 8/15/08 70
80 Pliant Corp. 144A 6/1/10 400
60 Solutia, Inc. 144A 7/15/09 1
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 Veraldo Holdings, Inc. 144A 4/15/08 3
10 Versatel Telecom NV (Netherlands) 5/15/08 5
192 Washington Group International, Inc. Ser. A 1/25/06 139
219 Washington Group International, Inc. Ser. B 1/25/06 110
118 Washington Group International, Inc. Ser. C 1/25/06 59
190 XM Satellite Radio Holdings, Inc. 144A 3/15/10 1
-------------
Total Warrants (cost $106,283) $2,537
SHORT-TERM INVESTMENTS (4.6%) (a)
PRINCIPAL AMOUNT/SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
$91 Short-term investments held as collateral for loaned securities
with yields ranging from 1.19% to 1.99% and due dates
ranging from December 2, 2002 to January 17, 2003 (d) $91
2,727,904 Short-term investments held in Putnam commingled cash
account with yields ranging from 1.23% to 1.80% and
due dates ranging from December 2, 2002 to
January 22, 2003 (d) 2,727,904
-------------
Total Short-Term Investments (cost $2,727,995) $2,727,995
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $73,345,686) $58,754,334
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $58,723,472.
(NON) Non-income-producing security.
(STP) The interest rate and date shown parenthetically represent the new
interest rate to be paid and the date the fund will begin accruing
interest at this rate.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at November 30, 2002
was $317,685 or 0.5% 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 November 30, 2002, which are subject to change
based on the terms of the security.
Forward Currency Contracts to Sell at November 30, 2002 (Unaudited)
Market Aggregate Face Delivery Unrealized
Value Value Date Appreciation
------------------------------------------------------------------------------
Euro $25,244 $25,578 12/18/02 $334
------------------------------------------------------------------------------
Credit Default Contracts Outstanding at November 30, 2002 (Unaudited)
(premiums received $164,893)
Market
Notional Amount Value
------------------------------------------------------------------------------
$960,300 Agreement with JPMorgan Chase Bank effective
May 14, 2002, maturing on May 15, 2007, to
receive a premium equal to 17.171% times the
notional amount. For each credit default event
related to one of the 100 issues within the HYDI
100 8.75%, 5/15/07 Bond Index, the fund makes a
payment of the proportional notional amount times
the difference between the par value and the
then-market value of the defaulted issue $232,652
------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF ASSETS AND LIABILITIES
November 30, 2002 (Unaudited)
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value, including $62 of securities on loan
(identified cost $73,345,686) (Note 1) $58,754,334
-------------------------------------------------------------------------------------------
Cash 3,383
-------------------------------------------------------------------------------------------
Dividends, interest and other receivables 1,353,943
-------------------------------------------------------------------------------------------
Receivable for securities sold 218,832
-------------------------------------------------------------------------------------------
Receivable for open forward currency contracts (Note 1) 334
-------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts (Note 1) 242
-------------------------------------------------------------------------------------------
Total assets 60,331,068
Liabilities
-------------------------------------------------------------------------------------------
Distributions payable to shareholders 510,424
-------------------------------------------------------------------------------------------
Payable for securities purchased 674,925
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 107,269
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 20,785
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 21,292
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 562
-------------------------------------------------------------------------------------------
Credit default contracts outstanding, at value (premiums
received $164,893) (Note 1) 232,652
-------------------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 91
-------------------------------------------------------------------------------------------
Other accrued expenses 39,596
-------------------------------------------------------------------------------------------
Total liabilities 1,607,596
-------------------------------------------------------------------------------------------
Net assets $58,723,472
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Note 1) $105,295,260
-------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (1,451,847)
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (30,461,199)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and
liabilities in foreign currencies (14,658,742)
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares
outstanding $58,723,472
Computation of net asset value
-------------------------------------------------------------------------------------------
Net asset value per share ($58,723,472 divided by 7,507,107
shares) $7.82
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF OPERATIONS
Six months ended November 30, 2002 (Unaudited)
Investment income:
-------------------------------------------------------------------------------------------
Interest $3,010,077
-------------------------------------------------------------------------------------------
Dividends 149,771
-------------------------------------------------------------------------------------------
Securities lending 10
-------------------------------------------------------------------------------------------
Total investment income 3,159,858
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 220,986
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 80,654
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 4,936
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 2,732
-------------------------------------------------------------------------------------------
Other 62,861
-------------------------------------------------------------------------------------------
Total expenses 372,169
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (2,822)
-------------------------------------------------------------------------------------------
Net expenses 369,347
-------------------------------------------------------------------------------------------
Net investment income 2,790,511
-------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (5,017,468)
-------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 215
-------------------------------------------------------------------------------------------
Net realized loss on credit default contracts (Note 1) (21,236)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in foreign
currencies during the period 369
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and credit default
contracts during the period 207,803
-------------------------------------------------------------------------------------------
Net loss on investments (4,830,317)
-------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(2,039,806)
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF CHANGES IN NET ASSETS
Six months ended Year ended
November 30 May 31
2002* 2002
-------------------------------------------------------------------------------------------------------
Decrease in net assets
-------------------------------------------------------------------------------------------------------
Operations:
-------------------------------------------------------------------------------------------------------
Net investment income $2,790,511 $6,438,418
-------------------------------------------------------------------------------------------------------
Net realized loss on investments and foreign currency
transactions (5,038,489) (9,794,916)
-------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 208,172 3,409,816
-------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (2,039,806) 53,318
-------------------------------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
-------------------------------------------------------------------------------------------------------
From net investment income (3,062,550) (6,527,642)
-------------------------------------------------------------------------------------------------------
From return of capital -- (911,084)
-------------------------------------------------------------------------------------------------------
Total decrease in net assets (5,102,356) (7,385,408)
Net assets
-------------------------------------------------------------------------------------------------------
Beginning of period 63,825,828 71,211,236
-------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of net investment
income of $1,451,847 and $1,179,808, respectively) $58,723,472 $63,825,828
-------------------------------------------------------------------------------------------------------
Number of fund shares
-------------------------------------------------------------------------------------------------------
Shares outstanding at beginning and end of period 7,507,107 7,507,107
-------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share Nov. 30
operating performance (Unaudited) Year ended May 31
------------------------------------------------------------------------------------------------------------------
2002 2002 2001 2000 1999 1998
------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $8.50 $9.49 $10.91 $12.30 $14.83 $14.08
------------------------------------------------------------------------------------------------------------------
Investment operations:
------------------------------------------------------------------------------------------------------------------
Net investment income (a) .37 .86 1.16 1.16 1.24 1.44
------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.64) (.86) (1.41) (1.27) (2.23) .69
------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.27) --(d) (.25) (.11) (.99) 2.13
------------------------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------------------------
From net
investment income (.41) (.87) (1.17) (1.21) (1.38) (1.38)
------------------------------------------------------------------------------------------------------------------
From net realized
gain on investments -- -- -- -- (.16) --
------------------------------------------------------------------------------------------------------------------
From return of capital -- (.12) -- (.07) -- --
------------------------------------------------------------------------------------------------------------------
Total distributions (.41) (.99) (1.17) (1.28) (1.54) (1.38)
------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.82 $8.50 $9.49 $10.91 $12.30 $14.83
------------------------------------------------------------------------------------------------------------------
Market value,
end of period $8.50 $9.48 $10.80 $10.19 $13.50 $15.38
------------------------------------------------------------------------------------------------------------------
Total return at
market value (%)(b) (5.77)* (2.91) 18.34 (15.61) (2.30) 16.96
------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $58,723 $63,826 $71,211 $81,898 $92,368 $111,333
------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .64* 1.19 1.14 1.08 1.11 1.05
------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.78* 9.69 11.41 9.92 9.50 9.75
------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 32.21* 73.39 97.63 97.22 47.56 85.45
------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income has been determined on the basis
of the weighted number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment.
(c) Includes amounts paid through expense offset arrangements (Note 2).
(d) Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
November 30, 2002 (Unaudited)
Note 1
Significant accounting policies
Putnam Managed High Yield Trust (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a non-diversified,
closed-end management investment company. The fund's investment
objective is to seek high current income. The fund intends to achieve
its objective by investing in high yielding income securities.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with accounting principles generally accepted in the United States of
America and requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities in the financial
statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period. Actual results could
differ from those estimates.
A) Security valuation Market quotations are not considered to be readily
available for certain debt obligations; such investments are stated at
fair value on the basis of valuations furnished by an independent
pricing service or dealers, approved by the Trustees, which determine
valuations for normal institutional-size trading units of such
securities using methods based on market transactions for comparable
securities and variable relationships, generally recognized by
institutional traders, between securities. 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. Investments for which
market quotations are readily available are stated at market value,
which is determined using the last reported sales price on its principal
exchange, or if no sales are reported -- as in the case of some
securities traded over-the-counter -- the last reported bid price.
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 stated at amortized cost, which
approximates market value. Other investments, including restricted
securities, are stated at fair value following procedures approved 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) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be in an
amount at least equal to the resale price, including accrued interest.
Collateral for certain tri-party repurchase agreements is held at the
counterparty's custodian in a segregated account for the benefit of the
fund and the counterparty. Putnam Management is responsible for
determining that the value of these underlying securities is at all
times at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for 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
recorded on the ex-dividend date except that certain dividends from
foreign securities are recorded as soon as the fund is informed of the
ex-dividend date. Non-cash dividends, if any, are recorded at the fair
market value of the securities received. All premiums/discounts are
amortized/ accreted on a yield-to-maturity basis.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when accrued or incurred. The
fund does not isolate that portion of realized or unrealized gains or
losses resulting from changes in the foreign exchange rate on
investments from fluctuations arising from changes in the market prices
of the securities. Such gains and losses are included with the net
realized and unrealized gain or loss on investments. Net realized gains
and losses on foreign currency transactions represent net realized
exchange gains or losses on closed forward currency contracts,
disposition of foreign currencies, currency gains and losses realized
between the trade and settlement dates on securities transactions and
the difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized
appreciation and depreciation of assets and liabilities in foreign
currencies arise from changes in the value of open forward currency
contracts and assets and liabilities other than investments at the
period end, resulting from changes in the exchange rate. Investments in
foreign securities involve certain risks, including those related to
economic instability, unfavorable political developments, and currency
fluctuations, not present with domestic investments.
F) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or in which it may invest to increase its current
returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform. 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. Realized gains and losses on purchased options are included in
realized gains and losses on investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. The fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in the value of the futures contract. Such receipts or
payments are known as "variation margin." Exchange traded options are
valued at the last sale price, or if no sales are reported, the last bid
price for purchased options and the last ask price for written options.
Options traded over-the-counter are valued using prices supplied by
dealers.
G) Credit default contracts The fund may engage in credit default
contracts where one party, the protection buyer, makes an upfront
payment to a counter party, 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
funds 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 recorded,
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 counter party may
default on its obligation to perform.
H) Security lending The fund may lend securities, through its agent
Citibank N.A., 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 Citibank N.A., the fund
will bear the risk of loss with respect to the investment of the cash
collateral. Income from securities lending is included in investment
income on the Statement of operations. At November 30, 2002, the value
of securities loaned amounted to $62. The fund received cash collateral
of $91 which is pooled with collateral of other Putnam funds into 31
issuers of high-grade short-term investments.
I) 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, 2002, the fund had a capital loss carryover of approximately
$18,916,000 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
8,386,000 May 31, 2010
The aggregate identified cost on a tax basis is $73,562,477, resulting
in gross unrealized appreciation and depreciation of $2,207,729 and
$17,015,872, respectively, or net unrealized depreciation of
$14,808,143.
Pursuant to federal income tax regulations applicable to regulated
investment companies, the fund has elected to defer to its fiscal year
ending May 31, 2003 approximately $6,290,000 of losses recognized during
the period November 1, 2001 to May 31, 2002.
J) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Distributions from capital gains, if any, are recorded on the
ex-dividend date and paid at least annually. The amount and character of
income and gains to be distributed are determined in accordance with
income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations.
Note 2
Management fee, administrative services
and other transactions
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 wholly-owned subsidiary of Putnam,
LLC. Investor servicing agent functions are provided by Putnam Investor
Services, a division of PFTC.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. For the six months ended November 30,
2002, the fund's expenses were reduced by $2,822 under these
arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $537 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 six months ended November 30, 2002, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $17,963,949 and $17,685,600, respectively. There
were no purchases and sales of U.S. government obligations.
RESULTS OF OCTOBER 3, 2002 SHAREHOLDER MEETING
(Unaudited)
An annual meeting of shareholders of the fund was held on October 3,
2002. At the meeting, each of the nominees for Trustees was elected, as
follows:
Common Shares
Votes
Votes for withheld
Jameson A. Baxter 6,667,724 203,174
Charles B. Curtis 6,667,724 203,174
John A. Hill 6,667,724 203,174
Ronald J. Jackson 6,667,724 203,174
Paul L. Joskow 6,667,724 203,174
Elizabeth T. Kennan 6,667,724 203,174
Lawrence J. Lasser 6,667,724 203,174
John H. Mullin III 6,667,724 203,174
Robert E. Patterson 6,667,724 203,174
George Putnam, III 6,667,724 203,174
A.J.C. Smith 6,667,394 203,504
W. Thomas Stephens 6,667,724 203,174
W. Nicholas Thorndike 6,667,394 203,504
All tabulations are rounded to nearest whole number.
FUND INFORMATION
ABOUT PUTNAM INVESTMENTS
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition and
practice since 1830. Founded over 65 years ago, Putnam Investments was
built around the concept that a balance between risk and reward is the
hallmark of a well-rounded financial program. We presently manage over 100
mutual funds in growth, value, blend, fixed income, and international.
INVESTMENT MANAGER
Putnam Investment Management, LLC
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
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
Charles E. Haldeman, Jr.
Vice President
Lawrence J. Lasser
Vice President
Richard G. Leibovitch
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
John R. Verani
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.
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PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
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PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
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For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
84102 590 1/03