Putnam
Managed
High Yield
Trust
Item 1. Report to Stockholders:
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The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
5-31-04
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From the Trustees
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John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
Looking back on the past 12 months in the financial markets, stocks and
bonds had generally steady results for most of the period. Markets were
lifted by the resurgence of the economy, prompted in part by the 2003
tax cuts and the Federal Reserve Board's low interest-rate policy.
Corporate earnings rose to their highest levels in years and many states
even experienced minor improvements in tax revenues. However, since
March 2004, uncertainty and volatility have returned to the markets.
Bonds in particular experienced broad setbacks in April because of
concerns that inflation could be sparked by vigorous job creation and
rising energy prices. Markets continue to show vulnerability to these
concerns and to the situation in Iraq.
As observers of financial markets for many years, we have gained the
perspective that periods of uncertainty and transition usually reflect
an effort by investors to incorporate new facts into their thinking. The
resulting volatility is uncomfortable, but over time, it allows
investors to set more realistic expectations for future investment
performance. Uncertainty on its own is no reason to alter a well-planned
investment strategy.
Putnam's portfolio management teams have monitored recent market
movements, relying on their analysis to manage risks and identify
opportunities. During the period ended May 31, 2004, your fund's
managers have kept the fund well diversified across a wide array of
industries and holdings, while taking advantage of those areas of the
high-yield market where they saw strength. In the latter part of the
period, fixed-income investors became concerned about the potential
impact of higher inflation and interest rates on their investments, and
all bond sectors were affected. High-yield bonds fared better than
other, higher-quality sectors, however. In addition, your fund's
management team kept abreast of the changing environment, accurately
foreseeing that lower-quality bonds would outperform, as they typically
do in the early stages of an economic recovery. As a result, your fund's
returns at net asset value were ahead of the average return for its
Lipper peer group, though your fund lagged its benchmark index.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
July 21, 2004
Report from Fund Management
Fund highlights
* For the fiscal year ended May 31, 2004, Putnam Managed High Yield
Trust had total returns of 12.95% at net asset value (NAV) and -4.99% at
market price.
* At NAV, your fund lagged the 13.26% return of its primary benchmark,
the JP Morgan Developed High Yield Index, primarily because your fund
had less exposure to deeply distressed bonds, which performed strongly
during the period in comparison to the benchmark.
* The fund's return at NAV was in line with the 12.83% average return of
the Lipper High Current Yield Funds (closed-end) category.
* The fund reduced its dividend during the period to $0.054 per share.
Please see page 5 for details.
* See the Performance Summary beginning on page 7 for complete fund
performance, comparative performance, and Lipper data.
Performance commentary
For most of its fiscal year, Putnam Managed High Yield Trust benefited
from a continuation of the positive environment that has fostered one of
the strongest periods of sustained performance for high-yield bonds in
many years. This environment has been characterized by a strengthening
economy -- and expectations that the strength would continue -- combined
with steadily declining default rates and significant improvements in
corporate balance sheets. However, in the final six weeks of the period,
the bond market as a whole became more volatile, as
stronger-than-expected employment growth and higher oil prices caused
concerns about higher inflation and the increased likelihood of Federal
Reserve interest-rate hikes later in the year. Although high-yield bonds
tend to perform well as the economy strengthens, the general bond-market
downturn affected this sector. Your fund weathered the volatility well,
however, and management's emphasis on lower-rated bonds helped the fund
turn in solid results at NAV. Returns at market price reflect changes in
investor demand, supply, and market conditions, as well as investment
results; it is possible that the lower return at market price reflects
decreasing investor enthusiasm for bond investments in light of
anticipated interest-rate increases.
FUND PROFILE
Putnam Managed High Yield Trust seeks high current income and, as a
secondary objective, capital growth, by investing in corporate
high-yield bonds. The fund is designed for investors seeking higher
fixed-income returns and who are willing to accept the added risks of
investing in below-investment-grade bonds.
Market overview
During the past 12 months, the high-yield market contended with periods
of significant volatility in the broader fixed-income markets -- the
most severe of which occurred during the summer of 2003 -- but the
sector benefited from the strengthening U.S. economy and declining
default rates. In addition, higher corporate profits and cash flows --
the byproduct of the economic recovery -- helped improve corporate
balance sheets.
As the new calendar year began, low inflation, accommodative Federal
Reserve monetary policy, and weak jobs data in February 2004 combined to
produce a general bond rally, and the high-yield market followed suit.
However, the fiscal year's final months provided strong evidence that
the U.S. recovery was steaming along and that the lackluster job market
was finally springing to life. Strong employment gains caused a sharp
sell-off in Treasuries in April, as investors factored in the high
probability of a Federal Reserve rate hike in June, with others to
follow in subsequent months. (Investors were proven correct, as the Fed
raised rates by a quarter of a percentage point on June 30, a month
after period end.) High-yield investors took this as a cue to sell
holdings during the latter part of April and May, causing a downturn in
the market and a widening of credit spreads (credit spreads are the
difference between high-yield bond yields and Treasury yields).
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MARKET SECTOR PERFORMANCE 12 MONTHS ENDED 5/31/04
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Bonds
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JP Morgan Developed High Yield Index (high-yield corporate
bond markets) 13.26%
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Lehman Aggregate Bond Index (broad bond market) -0.44%
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Lehman GNMA Index (Government National Mortgage Association
bonds) 1.52%
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Lehman Municipal Bond Index (tax-exempt bonds) -0.03%
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Equities
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S&P 500 Index (broad stock market) 18.33%
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Russell 2000 Index (stocks of small and midsize companies) 30.29%
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MSCI EAFE Index (international stocks) 32.66%
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These indexes provide an overview of performance in different market
sectors for the 12 months ended 5/31/04.
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Strategy overview
In this 12-month period, we continued to seek bonds from a diverse
variety of sectors in our efforts to enhance the fund's performance
while managing its risk exposure. In late 2002, we began a long-term
strategy of gradually increasing the weighting, relative to the fund's
benchmark, of lower-rated (i.e., lower-quality) bonds in the portfolio
-- a strategy that continued throughout the period. We saw two key
advantages to this strategy. First, with the improvement in the economy,
companies that issued lower-quality bonds were seeing improvements in
their businesses, reducing the risk that they would be unable to make
interest payments on their debt. As a result, their credit ratings rose
and their bonds appreciated in price. Secondly, with interest rates in
the high-yield market declining along with those in the rest of the bond
market over the past several years, lower-quality bonds have provided
higher yields. These lower-quality holdings have provided greater price
appreciation due to the improving credit quality of their issuers, while
their higher income streams these securities produce have enhanced the
bonds' total return ("total return" is the combination of income and
price appreciation). In addition, higher-yielding, lower-quality bonds
are typically less sensitive to rising interest rates than Treasuries,
and this has been the case during the period. At this point, we have
begun to consider reducing the fund's emphasis on lower-rated
securities. The high-yield market appears to be transitioning from a
period of extremely strong returns to one of more stable, moderate
returns, and we believe that a smaller overweight to lower-rated bonds
may be warranted.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY WEIGHTINGS COMPARED]
TOP INDUSTRY WEIGHTINGS COMPARED
as of 11/30/03 as of 5/31/04
Utilities and power 7.8% 8.2%
Chemicals 5.4% 5.9%
Telecommunications 6.7% 5.6%
Gaming and lottery 5.1% 5.5%
Oil and gas 4.1% 3.9%
Footnote reads:
This chart shows how the fund's top weightings have changed over the
last six months. Weightings are shown as a percentage of net assets.
Holdings will vary over time.
How fund holdings affected performance
In comparison to the benchmark index, your fund did not substantially
overweight or underweight any specific sectors during the period.
Instead, we focused on selecting high-yielding bonds issued by companies
we felt had solid balance sheets and were able to maintain a steady
stream of interest payments. By carefully researching each issue, we
also sought to avoid problematic companies (though in the high-yield
market, this objective is not guaranteed to be successful). Market
sectors that saw strong performance during the period included cable and
wireless, financials, transportation, utilities, and manufacturing, and
the fund generally participated in these gains. The strength of the
overall market, combined with lower interest rates, also allowed
companies to refinance their debt. The fund benefited from some
refinancings in which portfolio holdings were redeemed at prices above
par, providing the fund with a profit. Examples included bonds issued by
Samsonite, the luggage maker, and Sealy, the well-known mattress
company.
[GRAPHIC OMITTED: TOP HOLDINGS]
TOP HOLDINGS
1 DJ TRAC-X NA HY T1
144A notes 7 3/8s, 2009
Other
2 PSF Group Holdings, Inc.
144A Class A common stock
Food
3 Legrand SA (France)
Debs 8 1/2s, 2025
Manufacturing
4 Qwest Corp.
144A notes 9 1/8s, 2012
Communications services
5 Cablevision Systems Corp.
144A sr. notes 8s, 2012
Cable television
6 NRG Energy, Inc.
144A sr. sec. notes 8s, 2013
Utilities and power
7 AEP Industries, Inc.
sr. sub. notes 9 7/8s, 2007
Containers
8 Calpine Corp.
144A sec. notes 8 1/2s, 2010
Utilities and power
9 Argo-Tech Corp.
company guaranty 8 5/8s, 2007
Aerospace and defense
10 Allied Waste North America, Inc.
company guaranty Ser. B, 7 5/8s, 2006
Waste management
Footnote reads:
These holdings represented 9.9% of the fund's net assets as of 5/31/04.
The fund's holdings will change over time.
Among the fund's larger positions, Charter Communications was a key
contributor. While the firm faced competitive and financial pressures,
the company met expectations and management's moves to refinance debt
eased investor concerns about the company's liquidity.
The fund's sizeable stake in the chemicals sector also boosted returns,
including investments in Huntsman International, a major producer of
basic chemicals and petrochemicals like ethylene and propylene. Although
energy prices were high, leading to skepticism about the sector's
prospects, this cyclical sector benefited from the improving economy.
Among the detractors from performance during the period were securities
issued by Pegasus Communications, a satellite TV company that filed for
bankruptcy. In addition, Trico Marine Services, an energy services
company, performed poorly and its bonds defaulted. We have sold the
fund's Trico holdings, but the fund still holds a small position in
Pegasus convertible preferred stock.
Please note that all holdings discussed in this report are subject to
review in accordance with the fund's investment strategy and may vary in
the future.
OF SPECIAL INTEREST
The high-yield market has experienced dramatic changes in yield as well
as in the spread, or yield difference, compared to Treasuries. Since the
beginning of the market rebound in October 2002, yields in the
high-yield market have dropped nearly 40%, while the yield spread over
Treasuries has narrowed by more than 40%. As a result of these yield
declines, the dividend for Putnam Managed High Yield Trust was reduced
from $0.060 to $0.054 per share in October 2003.
The fund's management team
The fund is managed by the Putnam Core Fixed-Income High-Yield Team. The
members of the team are Stephen Peacher (Portfolio Leader), Norm Boucher
(Portfolio Member), Paul Scanlon (Portfolio Member), Rosemary Thomsen
(Portfolio Member), Jeffrey Kaufman, Geoffrey Kelley, Neal Reiner,
Robert Salvin, and Joseph Towell.
The outlook for your fund
The following commentary reflects anticipated developments that could
affect your fund over the next six months, as well as your management
team's plans for responding to them.
After its strong performance in 2003, we believe the high-yield market
has entered a new stage. The fundamental backdrop to the market remains
positive, with continuing declines in the default rate and a
strengthening economy, and last year's dramatic rally in prices
reflected much of this good news. Going forward, we believe gains will
be derived primarily from the yield advantage that this sector provides
over other types of fixed-income securities, as well as any appreciation
that arises from continued improvements in credit quality.
While substantial gains have already been achieved, we believe the
high-yield market appears likely to outperform higher-quality bond
sectors through the remainder of 2004 because high-yield bonds tend to
perform better when interest rates rise -- as we expect them to -- than
Treasuries and other higher-rated bonds. Although the valuations of
high-yield bonds have increased substantially, we believe the market is
still fairly valued in a historical context. The yield difference, or
spread, over Treasuries, which is a primary indicator of this sector's
value, has narrowed considerably in the past year (indicating rising
value for high-yield bonds relative to other bond sectors), but we
believe that continued spread-narrowing is possible, especially given
that Treasury yields are expected to increase. Such narrowing would be a
positive indicator for the high-yield market.
Of course, we remain vigilant about market and economic events, and will
keep the portfolio as diverse as possible to mitigate the effects of
market volatility caused by potentially higher interest rates.
The views expressed in this report are exclusively those of Putnam
Management. They are not meant as investment advice. Lower-rated bonds
may offer higher yields in return for more risk. This fund may have a
significant portion of its holdings in bonds. Mutual funds that invest
in bonds are subject to certain risks, including interest-rate risk,
credit risk, and inflation risk. As interest rates rise, the prices of
bonds fall. Long-term bonds are more exposed to interest-rate risk than
short-term bonds. Unlike bonds, bond funds have ongoing fees and
expenses.
Performance summary
This section shows your fund's performance during its fiscal year, which
ended May 31, 2004. In accordance with regulatory requirements, we also
include performance for the most current calendar quarter-end.
Performance should always be considered in light of a fund's investment
strategy. Data represents past performance. Past performance does not
guarantee future results. More recent returns may be less or more than
those shown. Investment return, net asset value, and market price will
fluctuate and you may have a gain or a loss when you sell your shares.
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TOTAL RETURN FOR PERIODS ENDED 5/31/04
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Lipper
JP Morgan High Current
Developed Yield Funds
Market High Yield (closed-end)
NAV price Index* category average
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1 year 12.95% -4.99% 13.26% 12.83%
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5 years 17.27 -4.06 29.26 19.76
Annual average 3.24 -0.83 5.27 3.58
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10 years 76.26 58.56 -- 85.84
Annual average 5.83 4.72 -- 6.30
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Annual average
Life of fund
(since 6/25/93) 5.77 4.08 -- 6.53
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Performance does not reflect taxes on reinvested distributions.
Index and Lipper results should be compared to fund performance at net
asset value.
* This index began operations on 12/31/94.
+ Over the 1-, 5-, and 10-year periods ended 5/31/04, there were 6, 4,
and 4 funds, respectively, in this Lipper category.
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TOTAL RETURN FOR PERIODS ENDED 6/30/04 (MOST RECENT CALENDAR QUARTER)
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NAV Market price
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1 year 11.36% -5.09%
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5 years 18.29 -6.02
Annual average 3.42 -1.23
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10 years 78.04 69.32
Annual average 5.94 5.41
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Annual average
Life of fund
(since 6/25/93) 5.86 4.02
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PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 5/31/04
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Putnam Managed High Yield Trust
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Distributions (number) 12
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Income 1 $0.6653
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Capital gains 1 --
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Return of capital 2 $0.0067
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Total $0.6720
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Share value: NAV Market price
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5/31/03 $8.45 $9.02
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5/31/04 8.82 7.92
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Current return (end of period)
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Current dividend rate 3 7.35% 8.18%
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1 Capital gains, if any, are taxable for federal and, in most cases,
state purposes. For some investors, investment income may be subject to
the federal alternative minimum tax. Income from federally exempt funds
may be subject to state and local taxes.
2 See page 40 for details.
3 Most recent distribution, excluding capital gains, annualized and
divided by NAV or market price at end of period.
Terms and definitions
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested
all distributions in the fund.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities divided by the number of outstanding shares.
Market price is the current trading price of one share of the fund.
Market prices are set by transactions between buyers and sellers on
exchanges such as the American Stock Exchange and the New York Stock
Exchange.
Comparative indexes
JP Morgan Developed High Yield Index is an unmanaged index used to
mirror the investable universe of the U.S. dollar global high-yield
corporate debt market of developed markets.
Lehman Aggregate Bond Index is an unmanaged index used as a general
measure of U.S. fixed-income securities.
Lehman GNMA Index is an unmanaged index of Government National Mortgage
Association bonds.
Lehman Municipal Bond Index is an unmanaged index of long-term
fixed-rate investment-grade tax-exempt bonds.
Morgan Stanley Capital International (MSCI) EAFE Index is an unmanaged
index of international stocks from Europe, Australasia, and the Far
East.
Russell 2000 Index is an unmanaged index of common stocks that generally
measure performance of small to midsize companies within the Russell
3000 Index.
S&P 500 Index is an unmanaged index of common stock performance.
Indexes assume reinvestment of all distributions and do not account for
fees. Securities and performance of a fund and an index will differ. You
cannot invest directly in an index.
Lipper is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper. Lipper category averages reflect
performance trends for funds within a category and are based on results
at net asset value.
Putnam's policy on confidentiality
In order to conduct business with our shareholders, we must obtain
certain personal information such as account holders' addresses,
telephone numbers, Social Security numbers, and the names of their
financial advisors. We use this information to assign an account number
and to help us maintain accurate records of transactions and account
balances.
It is our policy to protect the confidentiality of your information,
whether or not you currently own shares of our funds, and in particular,
not to sell information about you or your accounts to outside marketing
firms. We have safeguards in place designed to prevent unauthorized
access to our computer systems and procedures to protect personal
information from unauthorized use.
Under certain circumstances, we share this information with outside
vendors who provide services to us, such as mailing and proxy
solicitation. In those cases, the service providers enter into
confidentiality agreements with us, and we provide only the information
necessary to process transactions and perform other services related to
your account. We may also share this information with our Putnam
affiliates to service your account or provide you with information about
other Putnam products or services. It is also our policy to share
account information with your financial advisor, if you've listed one on
your Putnam account.
If you would like clarification about our confidentiality policies or
have any questions or concerns, please don't hesitate to contact us at
1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or
Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time.
Putnam is committed to managing our mutual funds in the best interests
of our shareholders. Our proxy voting guidelines and policies are
available on the Putnam Individual Investor Web site,
www.putnaminvestments.com, by calling Putnam's Shareholder Services at
1-800-225-1581, or on the SEC's Web site, www.sec.gov.
Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders of
Putnam Managed High Yield Trust:
We have audited the accompanying statement of assets and liabilities of
Putnam Managed High Yield Trust, including the fund's portfolio, as of
May 31, 2004, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years
in the period then ended and the financial highlights for each of the
four years in period then ended. These financial statements and
financial highlights are the responsibility of the fund's management.
Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform our audit to obtain reasonable
assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of May 31, 2004 by correspondence
with the custodian and brokers or by other appropriate auditing
procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Putnam Managed High Yield Trust as of May 31,
2004, the results of its operations for the year then ended, the changes
in its net assets for each of the two years in the period then ended,
and the financial highlights for each of the four years in the period
then ended, in conformity with accounting principles generally accepted
in the United States of America.
KPMG LLP
Boston, Massachusetts
July 2, 2004
The fund's portfolio
May 31, 2004
Corporate bonds and notes (92.1%) (a)
Principal amount Value
Advertising and Marketing Services (0.2%)
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$100,000 Lamar Media Corp. company guaranty
7 1/4s, 2013 $102,750
Aerospace and Defense (2.6%)
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360,000 Argo-Tech Corp. company guaranty
8 5/8s, 2007 366,750
80,000 Argo-Tech Corp. company guaranty
Ser. D, 8 5/8s, 2007 81,500
35,000 BE Aerospace, Inc. sr. notes 8 1/2s,
2010 37,188
15,000 BE Aerospace, Inc. sr. sub. notes
Ser. B, 8 7/8s, 2011 14,100
220,000 BE Aerospace, Inc. sr. sub. notes
Ser. B, 8s, 2008 207,900
240,000 Decrane Aircraft Holdings Co.
company guaranty Ser. B, 12s, 2008 156,000
25,000 Hexcel Corp. sr. sub. notes 9 3/4s,
2009 26,063
85,000 K&F Industries, Inc. sr. sub. notes
Ser. B, 9 5/8s, 2010 93,075
23,000 K&F Industries, Inc. sr. sub. notes
Ser. B, 9 1/4s, 2007 23,345
325,000 L-3 Communications Corp. company
guaranty 6 1/8s, 2013 303,875
250,000 Sequa Corp. sr. notes Ser. B,
8 7/8s, 2008 265,000
90,000 Titan Corp. (The) 144A sr. sub.
notes 8s, 2011 98,550
60,000 Vought Aircraft Industries, Inc.
144A sr. notes 8s, 2011 56,100
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1,729,446
Automotive (2.3%)
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50,000 ArvinMeritor, Inc. notes 8 3/4s,
2012 53,625
145,000 Collins & Aikman Products company
guaranty 10 3/4s, 2011 143,550
30,000 Dana Corp. notes 10 1/8s, 2010 33,900
165,000 Dana Corp. notes 9s, 2011 186,863
15,000 Dana Corp. notes 7s, 2029 13,800
40,000 Delco Remy International, Inc.
company guaranty 11s, 2009 42,000
95,000 Delco Remy International, Inc. 144A
sr. sub. notes 9 3/8s, 2012 91,913
30,000 Dura Operating Corp. company
guaranty Ser. B, 8 5/8s, 2012 30,075
105,000 Dura Operating Corp. company
guaranty Ser. D, 9s, 2009 101,850
150,000 Lear Corp. company guaranty Ser. B,
8.11s, 2009 171,285
EUR 30,000 Lear Corp. sr. notes 8 1/8s, 2008 41,212
$70,000 Meritor Automotive, Inc. notes 6.8s,
2009 71,050
105,000 Metaldyne Corp. 144A sr. notes 10s,
2013 101,325
EUR 50,000 Teksid Aluminum 144A company
guaranty 11 3/8s, 2011 (Luxembourg) 61,666
$70,000 Tenneco Automotive, Inc. company
guaranty Ser. B, 11 5/8s, 2009 75,600
130,000 Tenneco Automotive, Inc. sec. notes
Ser. B, 10 1/4s, 2013 144,300
165,000 Visteon Corp. sr. notes 8 1/4s, 2010 174,075
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1,538,089
Beverage (0.1%)
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45,000 Constellation Brands, Inc. sr. sub.
notes Ser. B, 8 1/8s, 2012 47,250
Broadcasting (2.7%)
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210,000 British Sky Broadcasting PLC company
guaranty 6 7/8s, 2009 (United
Kingdom) 229,866
300,000 DirecTV Holdings, LLC sr. notes
8 3/8s, 2013 331,500
440,000 Diva Systems Corp. sr. disc. notes
Ser. B, 12 5/8s, 2008 (In default)
(NON) 1,100
52,000 Echostar DBS Corp. sr. notes 9 1/8s,
2009 56,940
280,000 Echostar DBS Corp. sr. notes 6 3/8s,
2011 273,700
260,000 Granite Broadcasting Corp. 144A sec.
notes 9 3/4s, 2010 247,650
105,000 Gray Television, Inc. company
guaranty 9 1/4s, 2011 114,713
5,719 Knology, Inc. 144A sr. notes 12s,
2009 (PIK) 5,705
70,000 Pegasus Satellite sr. notes 12 3/8s,
2006 34,300
52,000 RCN Corp. sr. disc. notes Ser. B,
zero %, 2008 (In default) (NON) 27,560
60,000 Sinclair Broadcast Group, Inc.
company guaranty 8 3/4s, 2011 64,200
301,000 Young Broadcasting, Inc. company
guaranty 10s, 2011 310,406
65,000 Young Broadcasting, Inc. 144A sr.
sub. notes 8 3/4s, 2014 63,375
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1,761,015
Building Materials (0.6%)
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60,000 Building Materials Corp. company
guaranty 8s, 2008 59,700
95,000 Dayton Superior Corp. sec. notes
10 3/4s, 2008 93,100
45,000 Interface, Inc. 144A sr. sub. notes
9 1/2s, 2014 44,663
100,000 Nortek Holdings, Inc. 144A sr. notes
stepped-coupon zero % (10s,
11/15/07), 2011 (STP) 75,000
65,000 Nortek, Inc. sr. sub. notes Ser. B,
9 7/8s, 2011 71,988
5,000 Owens Corning bonds 7 1/2s, 2018 (In
default) (NON) 2,000
120,000 Owens Corning notes 7 1/2s, 2005 (In
default) (NON) 48,000
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394,451
Cable Television (3.2%)
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10,000 Adelphia Communications Corp. notes
Ser. B, 9 7/8s, 2005 (In default)
(NON) 10,300
20,000 Adelphia Communications Corp. sr.
notes 10 7/8s, 2010 (In default)
(NON) 20,950
90,000 Adelphia Communications Corp. sr.
notes 10 1/4s, 2011 (In default)
(NON) 95,400
5,000 Adelphia Communications Corp. sr.
notes 10 1/4s, 2006 (In default)
(NON) 5,150
5,000 Adelphia Communications Corp. sr.
notes 9 3/8s, 2009 (In default)
(NON) 5,250
40,000 Adelphia Communications Corp. sr.
notes Ser. B, 9 7/8s, 2007 (In
default) (NON) 41,200
80,000 Atlantic Broadband Finance, LLC 144A
sr. sub. notes 9 3/8s, 2014 74,800
430,000 Cablevision Systems Corp. 144A sr.
notes 8s, 2012 425,700
70,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (12 1/8s,
1/15/07), 2012 (STP) 42,000
35,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (11 3/4s,
5/15/06), 2011 (STP) 23,100
90,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
11 1/8s, 2011 78,300
200,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
10 3/4s, 2009 174,000
75,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
10 1/4s, 2010 63,563
265,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 10s,
2011 216,638
200,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 9 5/8s,
2009 167,000
20,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 8 5/8s,
2009 16,400
75,000 CSC Holdings, Inc. debs. 7 5/8s,
2018 70,500
125,000 CSC Holdings, Inc. sr. notes 7 7/8s,
2007 130,000
115,000 Mediacom, LLC/Mediacom Capital Corp.
sr. notes 9 1/2s, 2013 110,975
90,000 Olympus Cable bank term loan FRN
Ser. B, 6s, 2010 (acquired 6/20/02,
cost $78,435) (RES) 87,284
30,000 Quebecor Media, Inc. sr. disc. notes
stepped-coupon zero % (13 3/4s,
7/15/06), 2011 (Canada) (STP) 27,450
155,000 Quebecor Media, Inc. sr. notes
11 1/8s, 2011 (Canada) 175,538
50,000 Videotron Ltee company guaranty
6 7/8s, 2014 (Canada) 49,250
--------------
2,110,748
Chemicals (5.6%)
-------------------------------------------------------------------------------
130,000 Acetex Corp. sr. notes 10 7/8s, 2009
(Canada) 141,050
80,000 Avecia Group PLC company guaranty
11s, 2009 (United Kingdom) 58,400
185,000 Compass Minerals Group, Inc. company
guaranty 10s, 2011 205,350
50,000 Compass Minerals International, Inc.
sr. disc. notes stepped-coupon zero %
(12s, 6/1/08), 2013 (STP) 37,000
130,000 Compass Minerals International, Inc.
sr. notes stepped-coupon zero %
(12 3/4s, 12/15/07), 2012 (STP) 102,700
35,000 Equistar Chemicals LP notes 8 3/4s,
2009 36,225
290,000 Equistar Chemicals LP/Equistar
Funding Corp. company guaranty
10 1/8s, 2008 314,650
60,000 Equistar Chemicals LP/Equistar
Funding Corp. sr. notes 10 5/8s,
2011 65,850
180,000 Hercules, Inc. company guaranty
11 1/8s, 2007 209,700
140,000 Hercules, Inc. 144A sr. sub. notes
6 3/4s, 2029 131,600
35,000 Huntsman Advanced Materials, LLC
144A sec. FRN 10s, 2008 35,394
40,000 Huntsman Advanced Materials, LLC
144A sec. notes 11s, 2010 44,500
140,000 Huntsman Co., LLC 144A sr. disc.
notes zero %, 2008 80,500
26,448 Huntsman Corp. bank term loan FRN
Ser. A, 5.938s, 2007 (acquired
various dates from 6/10/02 to
7/17/02, cost $22,867) (RES) 26,165
20,229 Huntsman Corp. bank term loan FRN
Ser. B, 10.1885s, 2007 (acquired
various dates from 6/10/02 to
7/17/02, cost $17,417) (RES) 20,027
220,000 Huntsman ICI Chemicals, Inc. company
guaranty 10 1/8s, 2009 226,600
270,000 Huntsman ICI Holdings sr. disc.
notes zero %, 2009 132,300
EUR 75,000 Huntsman International, LLC sr. sub.
notes Ser. EXCH, 10 1/8s, 2009 89,751
$75,000 Huntsman, LLC company guaranty
11 5/8s, 2010 80,813
230,000 ISP Chemco, Inc. company guaranty
Ser. B, 10 1/4s, 2011 255,875
10,000 Lyondell Chemical Co. bonds 11 1/8s,
2012 10,950
130,000 Lyondell Chemical Co. company
guaranty 10 1/2s, 2013 139,750
100,000 Lyondell Chemical Co. company
guaranty 9 1/2s, 2008 103,000
225,000 Lyondell Chemical Co. notes Ser. A,
9 5/8s, 2007 235,125
225,000 Millennium America, Inc. company
guaranty 9 1/4s, 2008 238,500
25,000 Millennium America, Inc. 144A sr.
notes 9 1/4s, 2008 26,500
25,000 Nalco Co. 144A sr. notes 7 3/4s,
2011 26,125
EUR 10,000 Nalco Co. 144A sr. notes 7 3/4s,
2011 12,492
EUR 10,000 Nalco Co. 144A sr. sub. notes 9s,
2013 12,388
$300,000 Nalco Co. 144A sr. sub. notes
8 7/8s, 2013 313,500
31,547 PCI Chemicals Canada sec. sr. notes
10s, 2008 (Canada) 29,654
70,155 Pioneer Companies, Inc. sec. FRN
4.61s, 2006 66,296
75,000 Resolution Performance Products, LLC
sec. notes 8s, 2009 77,063
25,000 Resolution Performance Products, LLC
sr. notes 9 1/2s, 2010 25,563
EUR 5,000 Rhodia SA unsub. Ser. EMTN, 6 1/4s,
2005 (France) 6,231
$27,275 Sterling Chemicals, Inc. sec. notes
10s, 2007 (PIK) 25,911
75,000 United Agri Products 144A sr. notes
8 1/4s, 2011 84,000
--------------
3,727,498
Commercial and Consumer Services (0.9%)
-------------------------------------------------------------------------------
190,000 Coinmach Corp. sr. notes 9s, 2010 198,550
181,488 Derby Cycle Corp. (The) sr. notes
10s, 2008 (In default) (NON) 18
DEM 97,550 Derby Cycle Corp. (The) sr. notes
9 3/8s, 2008 (In default) (NON) 6
$115,000 IESI Corp. company guaranty 10 1/4s,
2012 124,200
245,000 Laidlaw International, Inc. sr.
notes 10 3/4s, 2011 262,456
--------------
585,230
Communication Services (7.8%)
-------------------------------------------------------------------------------
60,000 Alamosa Delaware, Inc. company
guaranty 11s, 2010 65,850
50,000 Alamosa Delaware, Inc. company
guaranty stepped-coupon zero %
(12s, 7/31/05), 2009 (STP) 48,500
75,000 Alamosa Delaware, Inc. 144A sr.
notes 8 1/2s, 2012 73,500
35,000 American Cellular Corp. company
guaranty 9 1/2s, 2009 30,713
155,000 American Cellular Corp. sr. notes
Ser. B, 10s, 2011 136,400
310,000 American Tower Corp. sr. notes
9 3/8s, 2009 331,700
65,000 American Tower Corp. 144A sr. notes
7 1/2s, 2012 62,563
125,000 American Towers, Inc. company
guaranty 7 1/4s, 2011 124,375
100,000 Asia Global Crossing, Ltd. sr. notes
13 3/8s, 2010 (Bermuda) (In
default) (NON) 9,000
160,000 Centennial Cellular Operating Co.
company guaranty 10 1/8s, 2013 163,200
25,000 Cincinnati Bell Telephone Co.
company guaranty 6.3s, 2028 21,750
60,000 Cincinnati Bell, Inc. company
guaranty 7 1/4s, 2013 56,400
70,000 Cincinnati Bell, Inc. notes 7 1/4s,
2023 64,750
195,000 Cincinnati Bell, Inc. sr. sub. notes
8 3/8s, 2014 174,525
308,182 Colo.com, Inc. 144A sr. notes
13 7/8s, 2010 (In default) (NON) 31
145,000 Crown Castle International Corp. sr.
notes 9 3/8s, 2011 156,963
165,000 Dobson Communications Corp. sr.
notes 8 7/8s, 2013 129,113
45,000 Eircom Funding notes 8 1/4s, 2013
(Ireland) 45,900
65,000 Fairpoint Communications, Inc. sr.
sub. notes 12 1/2s, 2010 68,738
177,439 Firstworld Communication Corp. sr.
disc. notes zero %, 2008 (In
default) (NON) 18
18,674 Globix Corp. company guaranty 11s,
2008 (PIK) 15,126
150,000 Inmarsat Finance PLC 144A company
guaranty 7 5/8s, 2012 (United
Kingdom) 148,125
55,000 iPCS, Inc. 144A sr. notes 11 1/2s,
2012 55,550
215,000 iPCS, Inc. sr. disc. notes
stepped-coupon zero % (14s,
7/15/05), 2010 (In default) (NON)
(STP) 97,825
135,000 Level 3 Financing, Inc. 144A sr.
notes 10 3/4s, 2011 118,800
120,000 Madison River Capital Corp. sr.
notes 13 1/4s, 2010 130,800
368,000 MCI, Inc. sr. notes 7.735s, 2014 334,420
45,000 MCI, Inc. sr. notes 6.688s, 2009 42,188
205,000 Nextel Communications, Inc. sr.
notes 9 1/2s, 2011 229,600
205,000 Nextel Communications, Inc. sr.
notes 9 3/8s, 2009 221,144
175,000 Nextel Communications, Inc. sr.
notes 7 3/8s, 2015 176,313
55,000 Nextel Partners, Inc. sr. notes
12 1/2s, 2009 64,075
225,000 Nextel Partners, Inc. sr. notes
8 1/8s, 2011 230,625
50,000 PanAmSat Corp. company guaranty
8 1/2s, 2012 56,000
230,000 Qwest Communications International,
Inc. 144A sr. notes 7 1/2s, 2014 209,300
475,000 Qwest Corp. 144A notes 9 1/8s, 2012 503,500
65,000 Qwest Services Corp. 144A notes 14s,
2014 77,025
40,000 Rogers Wireless, Inc. sec. notes
9 5/8s, 2011 (Canada) 45,400
45,000 Rural Cellular Corp. sr. notes
9 7/8s, 2010 45,113
30,000 SBA Communications Corp. sr. notes
10 1/4s, 2009 29,700
55,000 SBA Telecommunications, Inc. 144A
sr. disc. notes stepped-coupon zero %
(9 3/4s, 12/15/07), 2011 (STP) 40,150
70,000 Triton PCS, Inc. company guaranty
8 3/4s, 2011 61,425
110,000 TSI Telecommunication Services, Inc.
company guaranty Ser. B, 12 3/4s,
2009 118,250
87,000 UbiquiTel Operating Co. bonds
stepped-coupon zero % (14s,
4/15/05), 2010 (STP) 85,260
65,000 UbiquiTel Operating Co. 144A sr.
notes 9 7/8s, 2011 65,000
60,000 US UnWired, Inc. company guaranty
stepped-coupon Ser. B, zero %
(13 3/8s, 11/1/04), 2009 (STP) 61,800
100,000 Western Wireless Corp. sr. notes
9 1/4s, 2013 103,000
--------------
5,129,503
Conglomerates (1.2%)
-------------------------------------------------------------------------------
180,000 Tyco International Group SA company
guaranty 7s, 2028 (Luxembourg) 186,839
235,000 Tyco International Group SA company
guaranty 6 7/8s, 2029 (Luxembourg) 240,475
55,000 Tyco International Group SA company
guaranty 6 3/4s, 2011 (Luxembourg) 59,096
325,000 Tyco International Group SA company
guaranty 6s, 2013 (Luxembourg) 329,194
5,000 Tyco International Group SA notes
6 3/8s, 2011 (Luxembourg) 5,256
--------------
820,860
Construction (0.1%)
-------------------------------------------------------------------------------
105,000 Better Minerals & Aggregates Co.
company guaranty 13s, 2009 84,000
Consumer (0.9%)
-------------------------------------------------------------------------------
165,000 Icon Health & Fitness company
guaranty 11 1/4s, 2012 179,850
170,000 Jostens Holding Corp. sr. disc.
notes stepped-coupon zero %
(10 1/4s, 12/1/08), 2013 (STP) 113,900
100,000 Jostens, Inc. sr. sub. notes
12 3/4s, 2010 111,500
215,000 Samsonite Corp. 144A sr. sub. notes
8 7/8s, 2011 215,000
--------------
620,250
Consumer Goods (1.2%)
-------------------------------------------------------------------------------
125,000 Armkel, LLC/Armkel Finance sr. sub.
notes 9 1/2s, 2009 135,000
45,000 Elizabeth Arden, Inc. 144A company
guaranty 7 3/4s, 2014 44,775
200,000 Playtex Products, Inc. company
guaranty 9 3/8s, 2011 193,500
140,000 Playtex Products, Inc. 144A sec.
notes 8s, 2011 143,850
135,000 Prestige Brands, Inc. 144A sr. sub.
notes 9 1/4s, 2012 128,250
125,000 Remington Arms Co., Inc. company
guaranty 10 1/2s, 2011 120,625
45,000 Scotts Co. (The) 144A sr. sub. notes
6 5/8s, 2013 44,325
--------------
810,325
Consumer Services (0.4%)
-------------------------------------------------------------------------------
100,000 Brand Services, Inc. company
guaranty 12s, 2012 114,000
130,000 Williams Scotsman, Inc. company
guaranty 9 7/8s, 2007 126,750
--------------
240,750
Containers (3.0%)
-------------------------------------------------------------------------------
370,000 AEP Industries, Inc. sr. sub. notes
9 7/8s, 2007 375,550
15,000 Berry Plastics Corp. company
guaranty 10 3/4s, 2012 16,613
EUR 15,000 Crown Holdings SA bonds 10 1/4s,
2011 (France) 19,782
$255,000 Crown Holdings SA notes 10 7/8s,
2013 (France) 285,600
285,000 Crown Holdings SA notes 9 1/2s, 2011
(France) 309,225
DEM 140,000 Impress Metal Packaging Holding NV
sr. sub. notes 9 7/8s,
2007 (Netherlands) 78,142
$180,000 Owens-Brockway Glass company
guaranty 8 1/4s, 2013 179,100
90,000 Owens-Brockway Glass company
guaranty 7 3/4s, 2011 91,800
130,000 Owens-Brockway Glass sr. sec. notes
8 3/4s, 2012 136,825
75,000 Pliant Corp. sec. notes 11 1/8s,
2009 79,500
145,000 Solo Cup Co. 144A sr. sub. notes
8 1/2s, 2014 145,000
210,000 Tekni-Plex, Inc. company guaranty
Ser. B, 12 3/4s, 2010 210,000
75,000 Tekni-Plex, Inc. 144A sr. sec. notes
8 3/4s, 2013 72,000
--------------
1,999,137
Energy (6.2%)
-------------------------------------------------------------------------------
145,000 Arch Western Finance, LLC 144A sr.
notes 6 3/4s, 2013 145,000
150,000 Belden & Blake Corp. company
guaranty Ser. B, 9 7/8s, 2007 150,000
110,000 BRL Universal Equipment sec. notes
8 7/8s, 2008 117,700
100,000 CHC Helicopter Corp. 144A sr. sub.
notes 7 3/8s, 2014 (Canada) 97,500
75,000 Chesapeake Energy Corp. company
guaranty 9s, 2012 83,813
45,000 Chesapeake Energy Corp. company
guaranty 7 3/4s, 2015 46,463
235,000 Chesapeake Energy Corp. sr. notes
7 1/2s, 2013 242,638
95,000 Comstock Resources, Inc. sr. notes
6 7/8s, 2012 90,250
140,000 Dresser, Inc. company guaranty
9 3/8s, 2011 149,800
14,000 El Paso Energy Partners LP company
guaranty Ser. B, 8 1/2s, 2011 15,470
90,000 Encore Acquisition Co. company
guaranty 8 3/8s, 2012 96,750
45,000 Encore Acquisition Co. 144A sr. sub.
notes 6 1/4s, 2014 42,300
130,000 Exco Resources, Inc. 144A company
guaranty 7 1/4s, 2011 129,350
125,000 Forest Oil Corp. company guaranty
7 3/4s, 2014 127,500
50,000 Forest Oil Corp. sr. notes 8s, 2011 53,000
35,000 Forest Oil Corp. sr. notes 8s, 2008 36,838
60,000 Gazprom OAO 144A notes 9 5/8s, 2013
(Russia) 61,425
70,000 Hanover Compressor Co. sr. notes 9s,
2014 71,400
65,000 Hanover Compressor Co. sr. notes
8 5/8s, 2010 66,463
95,000 Hanover Compressor Co. sub. notes
zero %, 2007 72,675
65,000 Hanover Equipment Trust sec. notes
Ser. A, 8 1/2s, 2008 68,250
65,000 Hornbeck Offshore Services, Inc. sr.
notes 10 5/8s, 2008 70,850
65,000 KCS Energy, Inc. 144A sr. notes
7 1/8s, 2012 63,375
50,000 Key Energy Services, Inc. sr. notes
6 3/8s, 2013 47,375
15,000 Leviathan Gas Corp. company guaranty
Ser. B, 10 3/8s, 2009 15,778
90,000 Massey Energy Co. sr. notes 6 5/8s,
2010 89,325
130,000 Newfield Exploration Co. sr. notes
7 5/8s, 2011 139,750
75,000 Offshore Logistics, Inc. company
guaranty 6 1/8s, 2013 69,750
100,000 Parker Drilling Co. company guaranty
Ser. B, 10 1/8s, 2009 105,250
135,000 Peabody Energy Corp. sr. notes
5 7/8s, 2016 122,175
30,000 Pemex Project Funding Master Trust
company guaranty 8 5/8s, 2022 31,350
160,000 Pemex Project Funding Master Trust
company guaranty 7 3/8s, 2014 162,000
100,000 Petro Geo-Services notes 10s, 2010
(Norway) 102,500
70,000 Plains All American Pipeline
LP/Plains All American Finance
Corp. company guaranty 7 3/4s, 2012 76,586
100,000 Plains Exploration & Production Co.
company guaranty Ser. B, 8 3/4s,
2012 108,000
80,000 Plains Exploration & Production Co.
sr. sub. notes 8 3/4s, 2012 86,400
110,000 Pogo Producing Co. sr. sub. notes
Ser. B, 8 1/4s, 2011 121,000
10,000 Pride International, Inc. sr. notes
10s, 2009 10,500
77,000 Pride Petroleum Services, Inc. sr.
notes 9 3/8s, 2007 78,251
100,000 Seabulk International, Inc. company
guaranty 9 1/2s, 2013 102,625
170,000 Star Gas Partners LP/Star Gas
Finance Co. sr. notes 10 1/4s, 2013 181,050
25,000 Universal Compression, Inc. sr.
notes 7 1/4s, 2010 25,875
45,000 Vintage Petroleum, Inc. sr. notes
8 1/4s, 2012 47,925
25,000 Vintage Petroleum, Inc. sr. sub.
notes 7 7/8s, 2011 25,688
220,000 Westport Resources Corp. company
guaranty 8 1/4s, 2011 244,200
--------------
4,092,163
Entertainment (1.4%)
-------------------------------------------------------------------------------
100,000 AMC Entertainment, Inc. sr. sub.
notes 9 7/8s, 2012 105,500
7,000 AMC Entertainment, Inc. sr. sub.
notes 9 1/2s, 2011 7,245
100,000 AMC Entertainment, Inc. 144A sr.
sub. notes 8s, 2014 96,000
115,000 Cinemark USA, Inc. sr. sub. notes
9s, 2013 125,350
180,000 Cinemark, Inc. 144A sr. disc. notes
stepped-coupon zero % (9 3/4s,
3/15/09), 2014 (STP) 114,300
335,000 Six Flags, Inc. sr. notes 8 7/8s,
2010 329,138
155,000 Six Flags, Inc. 144A sr. notes
9 5/8s, 2014 152,869
--------------
930,402
Financial (1.1%)
-------------------------------------------------------------------------------
55,000 Crescent Real Estate Equities LP
notes 7 1/2s, 2007 (R) 54,863
145,000 Crescent Real Estate Equities LP sr.
notes 9 1/4s, 2009 (R) 158,648
293,473 Finova Group, Inc. notes 7 1/2s,
2009 162,878
66,000 iStar Financial, Inc. sr. notes
8 3/4s, 2008 (R) 72,105
25,000 iStar Financial, Inc. sr. notes 7s,
2008 (R) 25,875
80,000 iStar Financial, Inc. sr. notes 6s,
2010 (R) 77,600
85,000 UBS AG/Jersey Branch sr. notes
Ser. EMTN, 9.14s, 2008 (Jersey) 87,763
100,000 Western Financial Bank sub. debs.
9 5/8s, 2012 108,500
--------------
748,232
Food (1.3%)
-------------------------------------------------------------------------------
60,740 Archibald Candy Corp. company
guaranty 10s, 2007 (In default)
(NON) (PIK) 41,911
35,000 Dean Foods Co. sr. notes 6 5/8s,
2009 35,700
40,000 Del Monte Corp. company guaranty
Ser. B, 9 1/4s, 2011 42,900
100,000 Del Monte Corp. sr. sub. notes
8 5/8s, 2012 106,250
45,000 Dole Food Co. sr. notes 8 7/8s, 2011 45,675
35,000 Dole Food Co. sr. notes 8 5/8s, 2009 35,350
130,000 Eagle Family Foods company guaranty
Ser. B, 8 3/4s, 2008 93,600
195,000 Land O'Lakes, Inc. sr. notes 8 3/4s,
2011 182,325
140,000 Pinnacle Foods Holding Corp. 144A
sr. sub. notes 8 1/4s, 2013 138,250
110,000 Premier International Foods PLC sr.
notes 12s, 2009 (United Kingdom) 117,700
--------------
839,661
Forest Products and Packaging (3.0%)
-------------------------------------------------------------------------------
100,000 Appleton Papers, Inc. company
guaranty Ser. B, 12 1/2s, 2008 120,000
65,000 Four M Corp. sr. notes Ser. B, 12s,
2006 65,325
75,000 Georgia-Pacific Corp. bonds 7 3/4s,
2029 69,750
130,000 Georgia-Pacific Corp. company
guaranty 9 3/8s, 2013 146,575
250,000 Georgia-Pacific Corp. debs. 9 1/2s,
2011 286,250
210,000 Georgia-Pacific Corp. debs. 7.7s,
2015 216,300
EUR 5,000 MDP Acquisitions PLC sr. notes
10 1/8s, 2012 (Ireland) 6,502
$215,000 MDP Acquisitions PLC sr. notes
9 5/8s, 2012 (Ireland) 233,275
62,781 MDP Acquisitions PLC sub. notes
15 1/2s, 2013 (Ireland) (PIK) 70,943
75,000 Norske Skog Canada 144A sr. notes
7 3/8s, 2014 (Canada) 73,340
145,000 Potlatch Corp. company guaranty 10s,
2011 159,500
5,000 Smurfit-Stone Container Corp.
company guaranty 8 1/4s, 2012 5,138
10,000 Smurfit-Stone Container Corp.
company guaranty 7 1/2s, 2013 9,800
40,000 Stone Container Corp. sr. notes
9 3/4s, 2011 43,200
140,000 Stone Container Corp. sr. notes
8 3/8s, 2012 144,200
325,000 Stone Container Corp. 144A company
guaranty 11 1/2s, 2006 329,875
25,000 Tembec Industries, Inc. company
guaranty 7 3/4s, 2012 (Canada) 23,875
--------------
2,003,848
Gaming & Lottery (5.5%)
-------------------------------------------------------------------------------
110,000 Ameristar Casinos, Inc. company
guaranty 10 3/4s, 2009 125,400
20,000 Argosy Gaming Co. sr. sub. notes 9s,
2011 22,050
120,000 Argosy Gaming Co. 144A sr. sub.
notes 7s, 2014 116,100
160,000 Boyd Gaming Corp. sr. sub. notes
8 3/4s, 2012 170,000
30,000 Boyd Gaming Corp. sr. sub. notes
7 3/4s, 2012 29,925
70,000 Chumash Casino & Resort Enterprise
144A sr. notes 9s, 2010 75,950
155,000 Herbst Gaming, Inc. sec. notes
Ser. B, 10 3/4s, 2008 178,250
105,000 Herbst Gaming, Inc. 144A sr. sub.
notes 8 1/8s, 2012 105,525
185,000 Hollywood Park, Inc. company
guaranty Ser. B, 9 1/4s, 2007 188,700
180,000 Horseshoe Gaming Holdings company
guaranty 8 5/8s, 2009 187,650
40,000 Inn of the Mountain Gods 144A sr.
notes 12s, 2010 43,600
75,000 Mandalay Resort Group sr. notes
6 3/8s, 2011 73,125
10,000 MGM Mirage, Inc. coll. sr. notes
6 7/8s, 2008 10,400
160,000 MGM Mirage, Inc. company guaranty
8 1/2s, 2010 176,400
60,000 MGM Mirage, Inc. company guaranty
6s, 2009 59,475
20,000 Mohegan Tribal Gaming Authority sr.
notes 8 1/8s, 2006 21,150
40,000 Mohegan Tribal Gaming Authority sr.
sub. notes 8 3/8s, 2011 42,700
220,000 Mohegan Tribal Gaming Authority sr.
sub. notes 6 3/8s, 2009 218,350
155,000 Park Place Entertainment Corp. sr.
notes 7 1/2s, 2009 161,588
85,000 Park Place Entertainment Corp. sr.
notes 7s, 2013 85,000
95,000 Park Place Entertainment Corp. sr.
sub. notes 8 7/8s, 2008 103,313
100,000 Penn National Gaming, Inc. company
guaranty Ser. B, 11 1/8s, 2008 110,250
185,000 Penn National Gaming, Inc. sr. sub.
notes 8 7/8s, 2010 197,950
95,000 Pinnacle Entertainment, Inc. sr.
sub. notes 8 3/4s, 2013 93,338
45,000 Pinnacle Entertainment, Inc. 144A
sr. sub. notes 8 1/4s, 2012 42,638
120,000 Resorts International Hotel and
Casino, Inc. company guaranty
11 1/2s, 2009 133,200
100,000 Riviera Holdings Corp. company
guaranty 11s, 2010 107,250
90,000 Station Casinos, Inc. sr. notes 6s,
2012 86,400
90,000 Station Casinos, Inc. sr. sub. notes
6 7/8s, 2016 84,600
215,000 Trump Atlantic City Associates
company guaranty 11 1/4s, 2006 181,675
260,000 Trump Casino Holdings, LLC company
guaranty 12 5/8s, 2010 263,900
150,000 Venetian Casino Resort, LLC company
guaranty 11s, 2010 172,313
--------------
3,668,165
Health Care (5.7%)
-------------------------------------------------------------------------------
35,000 ALARIS Medical Systems, Inc. sr.
sub. notes 7 1/4s, 2011 38,413
233,400 Alderwoods Group, Inc. company
guaranty 12 1/4s, 2009 257,907
105,000 AmerisourceBergen Corp. company
guaranty 7 1/4s, 2012 107,363
100,000 AmerisourceBergen Corp. sr. notes
8 1/8s, 2008 108,000
170,000 Ardent Health Services, Inc. sr.
sub. notes 10s, 2013 180,625
15,000 Biovail Corp. sr. sub. notes 7 7/8s,
2010 (Canada) 14,588
32,528 Dade Behring, Inc. company guaranty
11.91s, 2010 37,245
60,000 Extendicare Health Services, Inc.
company guaranty 9 1/2s, 2010 66,150
100,000 Extendicare Health Services, Inc.
144A sr. sub. notes 6 7/8s, 2014 94,000
105,000 Hanger Orthopedic Group, Inc.
company guaranty 10 3/8s, 2009 113,400
50,000 HCA, Inc. debs. 7.19s, 2015 50,541
60,000 HCA, Inc. notes 8.36s, 2024 62,122
70,000 HCA, Inc. notes 7.69s, 2025 67,805
10,000 HCA, Inc. notes 7s, 2007 10,588
35,000 HCA, Inc. notes 5 3/4s, 2014 32,495
185,000 Healthsouth Corp. notes 7 5/8s, 2012 182,225
75,000 Healthsouth Corp. sr. notes 8 1/2s,
2008 71,625
45,000 Healthsouth Corp. sr. notes 8 3/8s,
2011 44,100
45,000 Healthsouth Corp. sr. sub. notes
10 3/4s, 2008 43,313
65,000 Insight Health Services Corp. 144A
company guaranty 9 7/8s, 2011 66,138
51,360 Magellan Health Services, Inc. sr.
notes Ser. A, 9 3/8s, 2008 55,340
180,000 Mediq, Inc. debs. 13s, 2009 (In
default) (NON) 18
130,000 MedQuest, Inc. company guaranty
Ser. B, 11 7/8s, 2012 146,250
60,000 NeighborCare, Inc. 144A sr. sub.
notes 6 7/8s, 2013 60,300
35,000 Omega Health Care Investors 144A sr.
notes 7s, 2014 33,250
120,000 Omnicare, Inc. sr. sub. notes
6 1/8s, 2013 114,600
133,000 PacifiCare Health Systems, Inc.
company guaranty 10 3/4s, 2009 151,953
130,000 Province Healthcare Co. sr. sub.
notes 7 1/2s, 2013 124,800
40,000 Service Corp. International debs.
7 7/8s, 2013 39,300
15,000 Service Corp. International notes
7.2s, 2006 15,713
5,000 Service Corp. International notes
6 7/8s, 2007 5,075
20,000 Service Corp. International notes
6 1/2s, 2008 20,000
50,000 Service Corp. International notes
Ser. (a), 7.7s, 2009 51,000
140,000 Service Corp. International 144A sr.
notes 6 3/4s, 2016 128,100
130,000 Stewart Enterprises, Inc. notes
10 3/4s, 2008 144,625
85,000 Tenet Healthcare Corp. notes 7 3/8s,
2013 75,650
10,000 Tenet Healthcare Corp. sr. notes
6 1/2s, 2012 8,500
155,000 Tenet Healthcare Corp. sr. notes
6 3/8s, 2011 132,138
190,000 Tenet Healthcare Corp. sr. notes
5 3/8s, 2006 180,500
245,000 Triad Hospitals, Inc. sr. notes 7s,
2012 246,225
190,000 Triad Hospitals, Inc. sr. sub. notes
7s, 2013 182,400
85,000 Universal Hospital Services, Inc.
sr. notes 10 1/8s, 2011 86,700
55,000 Ventas Realty LP/Capital Corp.
company guaranty 9s, 2012 60,225
60,000 VWR International, Inc. 144A sr.
notes 6 7/8s, 2012 59,400
--------------
3,770,705
Homebuilding (1.8%)
-------------------------------------------------------------------------------
80,000 Beazer Homes USA, Inc. company
guaranty 8 5/8s, 2011 84,400
25,000 Beazer Homes USA, Inc. company
guaranty 8 3/8s, 2012 26,313
120,000 D.R. Horton, Inc. sr. notes 7 7/8s,
2011 129,900
25,000 D.R. Horton, Inc. sr. notes 6 7/8s,
2013 25,250
50,000 D.R. Horton, Inc. sr. notes 5 7/8s,
2013 47,250
10,000 K. Hovnanian Enterprises, Inc.
company guaranty 10 1/2s, 2007 11,475
90,000 K. Hovnanian Enterprises, Inc.
company guaranty 8 7/8s, 2012 93,600
50,000 K. Hovnanian Enterprises, Inc. sr.
notes 6 1/2s, 2014 45,750
70,000 K. Hovnanian Enterprises, Inc. 144A
sr. notes 6 3/8s, 2014 63,000
50,000 Meritage Corp. company guaranty
9 3/4s, 2011 54,500
40,000 Meritage Corp. 144A sr. notes 7s,
2014 37,800
70,000 Schuler Homes, Inc. company guaranty
10 1/2s, 2011 79,800
20,000 Standard Pacific Corp. sr. notes
7 3/4s, 2013 19,900
215,000 Standard Pacific Corp. sr. notes
6 1/4s, 2014 193,500
55,000 Technical Olympic USA, Inc. company
guaranty 10 3/8s, 2012 57,200
35,000 Technical Olympic USA, Inc. company
guaranty 9s, 2010 36,313
35,000 Technical Olympic USA, Inc. 144A
sub. notes 7 1/2s, 2011 32,375
30,000 WCI Communities, Inc. company
guaranty 10 5/8s, 2011 32,550
130,000 WCI Communities, Inc. company
guaranty 9 1/8s, 2012 138,450
--------------
1,209,326
Household Furniture and Appliances (0.3%)
-------------------------------------------------------------------------------
200,000 Sealy Mattress Co. 144A sr. sub.
notes 8 1/4s, 2014 195,000
Lodging/Tourism (2.2%)
-------------------------------------------------------------------------------
73,000 FelCor Lodging LP company guaranty
10s, 2008 (R) 77,745
115,000 Gaylord Entertainment Co. 144A sr.
notes 8s, 2013 114,425
155,000 Hilton Hotels Corp. notes 7 5/8s,
2012 165,850
154,000 HMH Properties, Inc. company
guaranty Ser. B, 7 7/8s, 2008 157,850
60,000 Host Marriott LP company guaranty
Ser. G, 9 1/4s, 2007 (R) 66,000
35,000 Host Marriott LP sr. notes 7 1/8s,
2013 (R) 34,038
98,000 Host Marriott LP sr. notes Ser. E,
8 3/8s, 2006 (R) 102,410
85,000 ITT Corp. debs. 7 3/8s, 2015 84,150
105,000 ITT Corp. notes 6 3/4s, 2005 108,675
210,000 John Q. Hammons Hotels LP/John Q.
Hammons Hotels Finance Corp. III
1st mtge. Ser. B, 8 7/8s, 2012 226,800
90,000 Meristar Hospitality Corp. company
guaranty 9 1/8s, 2011 (R) 91,350
105,000 Meristar Hospitality Corp. company
guaranty 9s, 2008 (R) 105,525
10,000 Starwood Hotels & Resorts Worldwide,
Inc. company guaranty 7 7/8s, 2012 10,500
80,000 Starwood Hotels & Resorts Worldwide,
Inc. company guaranty 7 3/8s, 2007 84,000
--------------
1,429,318
Machinery (1.2%)
-------------------------------------------------------------------------------
EUR 60,000 Flender Holdings 144A sr. notes 11s,
2010 (Germany) 83,157
$140,000 Manitowoc Co., Inc. (The) company
guaranty 10 1/2s, 2012 156,800
EUR 25,000 Manitowoc Co., Inc. (The) company
guaranty 10 3/8s, 2011 32,970
$290,000 Manitowoc Co., Inc. (The) sr. notes
7 1/8s, 2013 290,000
35,000 Terex Corp. company guaranty 9 1/4s,
2011 37,713
190,000 Terex Corp. company guaranty Ser. B,
10 3/8s, 2011 210,900
--------------
811,540
Manufacturing (2.8%)
-------------------------------------------------------------------------------
145,000 Blount, Inc. company guaranty 13s,
2009 152,975
60,000 Blount, Inc. company guaranty 7s,
2005 61,200
75,000 FIMEP SA sr. notes 10 1/2s, 2013
(France) 84,000
93,000 Flowserve Corp. company guaranty
12 1/4s, 2010 105,090
130,000 Invensys PLC notes 9 7/8s, 2011
(United Kingdom) 128,700
56,000 JII Holdings, LLC 144A sec. notes
13s, 2007 50,400
615,000 Legrand SA debs. 8 1/2s, 2025
(France) 633,450
25,000 Motors and Gears, Inc. sr. notes
Ser. D, 10 3/4s, 2006 21,000
35,000 Mueller Group, Inc. 144A sec. FRN
5.919s, 2011 35,875
50,000 Mueller Group, Inc. 144A sr. sub.
notes 10s, 2012 51,250
85,000 Polypore, Inc. 144A sr. sub. notes
8 3/4s, 2012 85,638
75,000 Roller Bearing Company of America
company guaranty Ser. B, 9 5/8s,
2007 73,500
10,000 Siebe PLC 144A notes 7 1/8s, 2007
(United Kingdom) 9,600
165,000 Siebe PLC 144A sr. unsub. 6 1/2s,
2010 (United Kingdom) 143,550
110,000 Trimas Corp. company guaranty
9 7/8s, 2012 118,250
--------------
1,754,478
Media (0.5%)
-------------------------------------------------------------------------------
100,000 Affinity Group, Inc. 144A sr. sub.
notes 9s, 2012 101,500
85,000 Capital Records, Inc. 144A company
guaranty 8 3/8s, 2009 92,225
140,000 Vivendi Universal SA sr. notes
6 1/4s, 2008 (France) 146,300
--------------
340,025
Metal Fabricators (0.2%)
-------------------------------------------------------------------------------
120,000 Earle M. Jorgensen Co. sec. notes
9 3/4s, 2012 130,800
Metals (2.0%)
-------------------------------------------------------------------------------
120,000 AK Steel Corp. company guaranty
7 3/4s, 2012 105,000
80,000 Armco, Inc. sr. notes 8 7/8s, 2008 74,000
166,278 Doe Run Resources Corp. company
guaranty Ser. A1, 11 3/4s,
2008 (acquired various dates from
7/27/01 to 5/13/04, cost $103,800)
(RES) (PIK) 101,430
175,000 Gerdau Ameristeel Corp. sr. notes
10 3/8s, 2011 (Canada) 192,500
85,000 International Steel Group, Inc. 144A
sr. notes 6 1/2s, 2014 79,263
10,000 Kaiser Aluminum & Chemical Corp. sr.
notes Ser. B, 10 7/8s, 2006 (In
default) (NON) 9,950
120,000 Kaiser Aluminum & Chemical Corp. sr.
sub. notes 12 3/4s, 2003 (In
default) (DEF) (NON) 10,800
EUR 80,000 SGL Carbon SA 144A sr. notes 8 1/2s,
2012 (Luxembourg) 94,709
$110,000 Steel Dynamics, Inc. company
guaranty 9 1/2s, 2009 120,450
175,000 Ucar Finance, Inc. company guaranty
10 1/4s, 2012 195,125
214,000 United States Steel Corp. sr. notes
9 3/4s, 2010 235,935
45,000 WCI Steel, Inc. sr. notes Ser. B,
10s, 2004 (In default) (NON) 22,500
6,875 Wheeling-Pittsburgh Steel Corp. sr.
notes 6s, 2010 4,125
13,751 Wheeling-Pittsburgh Steel Corp. sr.
notes 5s, 2011 8,251
65,000 WHX Corp. sr. notes 10 1/2s, 2005 58,500
--------------
1,312,538
Other (3.5%)
-------------------------------------------------------------------------------
2,375,000 DJ TRAC-X NA HY T1 144A notes
7 3/8s, 2009 2,276,998
Publishing (3.8%)
-------------------------------------------------------------------------------
185,000 Dex Media West, LLC 144A sr. notes
8 1/2s, 2010 201,650
85,000 Dex Media, Inc. 144A disc. notes
stepped-coupon zero % (9s,
11/15/08), 2013 (STP) 54,825
250,000 Dex Media, Inc. 144A notes 8s, 2013 238,125
80,000 Garden State Newspapers, Inc. sr.
sub. notes 8 5/8s, 2011 83,200
290,618 Hollinger Participation Trust 144A
sr. notes 12 1/8s, 2010 (Canada)
(PIK) 337,117
95,000 Houghton Mifflin Co. sr. sub. notes
9 7/8s, 2013 97,375
175,000 MediaNews Group, Inc. sr. sub. notes
6 7/8s, 2013 168,875
185,000 PRIMEDIA, Inc. company guaranty
8 7/8s, 2011 184,538
80,000 PRIMEDIA, Inc. company guaranty
7 5/8s, 2008 79,800
135,000 PRIMEDIA, Inc. 144A sr. notes 8s,
2013 128,250
65,000 Reader's Digest Association, Inc.
(The) sr. notes 6 1/2s, 2011 64,025
20,000 RH Donnelley Finance Corp. I company
guaranty 8 7/8s, 2010 22,000
170,000 RH Donnelley Finance Corp. I 144A
sr. notes 8 7/8s, 2010 187,000
85,000 RH Donnelley Finance Corp. I 144A
sr. sub. notes 10 7/8s, 2012 99,450
155,000 Vertis, Inc. company guaranty
Ser. B, 10 7/8s, 2009 165,463
120,000 Vertis, Inc. sub. notes 13 1/2s,
2009 121,800
110,000 Von Hoffman Press, Inc. company
guaranty 10 1/4s, 2009 109,450
118,080 Von Hoffman Press, Inc. debs. 13s,
2009 (PIK) 99,187
105,000 WRC Media Corp. sr. sub. notes
12 3/4s, 2009 89,250
--------------
2,531,380
Restaurants (0.4%)
-------------------------------------------------------------------------------
110,000 Domino's, Inc. sr. sub. notes
8 1/4s, 2011 116,325
140,000 Sbarro, Inc. company guaranty 11s,
2009 117,250
--------------
233,575
Retail (1.8%)
-------------------------------------------------------------------------------
80,000 Asbury Automotive Group, Inc. sr.
sub. notes 8s, 2014 74,000
160,000 Autonation, Inc. company guaranty
9s, 2008 179,200
50,000 Finlay Fine Jewelry Corp. 144A sr.
notes 8 3/8s, 2012 50,875
155,000 JC Penney Co., Inc. debs. 7.95s,
2017 171,275
30,000 JC Penney Co., Inc. debs. 7.65s,
2016 32,250
90,000 JC Penney Co., Inc. debs. 7 1/8s,
2023 92,700
20,000 JC Penney Co., Inc. notes 9s, 2012 23,550
5,000 JC Penney Co., Inc. notes 8s, 2010 5,625
100,000 Rite Aid Corp. company guaranty
9 1/2s, 2011 108,000
5,000 Rite Aid Corp. debs. 6 7/8s, 2013 4,450
15,000 Rite Aid Corp. notes 7 1/8s, 2007 15,075
40,000 Rite Aid Corp. sec. notes 8 1/8s,
2010 41,400
75,000 Rite Aid Corp. sr. notes 9 1/4s,
2013 76,875
5,000 Rite Aid Corp. 144A notes 6s, 2005 4,963
195,000 Saks, Inc. company guaranty 7s, 2013 192,075
70,000 Toys R US, Inc. notes 7 5/8s, 2011 70,000
70,000 United Auto Group, Inc. company
guaranty 9 5/8s, 2012 74,900
--------------
1,217,213
Technology (2.6%)
-------------------------------------------------------------------------------
82,000 AMI Semiconductor, Inc. company
guaranty 10 3/4s, 2013 95,940
87,000 DigitalNet Holdings, Inc. sr. notes
9s, 2010 91,350
115,000 Iron Mountain, Inc. company guaranty
8 5/8s, 2013 122,188
125,000 Iron Mountain, Inc. company guaranty
7 3/4s, 2015 124,063
10,000 Lucent Technologies, Inc. debs.
6 1/2s, 2028 7,550
175,000 Lucent Technologies, Inc. debs.
6.45s, 2029 132,125
10,000 Lucent Technologies, Inc. notes
5 1/2s, 2008 9,300
175,000 Nortel Networks Corp. notes 6 1/8s,
2006 (Canada) 170,844
88,000 ON Semiconductor Corp. company
guaranty 13s, 2008 101,200
65,000 SCG Holding Corp. 144A notes zero %,
2011 91,650
110,000 Seagate Technology Hdd Holdings
company guaranty 8s, 2009 (Cayman
Islands) 115,225
110,000 UGS Corp. 144A sr. sub. notes 10s,
2012 113,025
130,000 Xerox Capital Trust I company
guaranty 8s, 2027 113,287
55,000 Xerox Corp. company guaranty 9 3/4s,
2009 60,574
65,000 Xerox Corp. notes Ser. MTN, 7.2s,
2016 60,450
210,000 Xerox Corp. sr. notes 7 5/8s, 2013 207,013
125,000 Xerox Corp. sr. notes 7 1/8s, 2010 125,000
--------------
1,740,784
Textiles (0.7%)
-------------------------------------------------------------------------------
160,000 Levi Strauss & Co. sr. notes
12 1/4s, 2012 146,000
75,000 Oxford Industries, Inc. 144A sr.
notes 8 7/8s, 2011 79,500
40,000 Phillips-Van Heusen Corp. 144A sr.
notes 7 1/4s, 2011 39,600
120,000 Russell Corp. company guaranty
9 1/4s, 2010 125,100
68,000 William Carter Holdings Co. (The)
company guaranty Ser. B, 10 7/8s,
2011 77,520
--------------
467,720
Tire & Rubber (0.4%)
-------------------------------------------------------------------------------
35,000 Goodyear Tire & Rubber Co. (The)
notes 8 1/2s, 2007 34,475
260,000 Goodyear Tire & Rubber Co. (The)
notes 7.857s, 2011 225,550
35,000 Goodyear Tire & Rubber Co. (The)
notes 6 3/8s, 2008 31,150
--------------
291,175
Tobacco (0.1%)
-------------------------------------------------------------------------------
65,000 North Atlantic Trading Co. 144A sr.
notes 9 1/4s, 2012 63,375
Transportation (1.5%)
-------------------------------------------------------------------------------
221,742 Air2 US 144A sinking fund Ser. D,
12.266s, 2020 (In default) (NON) 2
85,000 Allied Holdings, Inc. company
guaranty Ser. B, 8 5/8s, 2007 80,113
95,000 American Airlines, Inc. pass-through
certificates Ser. 01-1, 6.817s,
2011 84,075
170,000 Calair, LLC/Calair Capital Corp.
company guaranty 8 1/8s, 2008 127,500
70,000 Delta Air Lines, Inc. pass-through
certificates Ser. 00-1, 7.779s, 2005 45,798
41,742 Delta Air Lines, Inc. pass-through
certificates Ser. 02-1, 7.779s, 2012 27,132
200,000 Kansas City Southern Railway Co.
company guaranty 9 1/2s, 2008 217,000
30,000 Kansas City Southern Railway Co.
company guaranty 7 1/2s, 2009 30,300
120,000 Navistar International Corp. company
guaranty Ser. B, 9 3/8s, 2006 127,800
15,000 Navistar International Corp. sr.
notes Ser. B, 8s, 2008 15,300
120,000 Northwest Airlines, Inc. company
guaranty 7 5/8s, 2005 114,600
65,631 NWA Trust sr. notes Ser. A, 9 1/4s,
2012 64,646
40,000 Travel Centers of America, Inc.
company guaranty 12 3/4s, 2009 46,400
--------------
980,666
Utilities & Power (8.0%)
-------------------------------------------------------------------------------
13,000 AES Corp. (The) sr. notes 8 7/8s,
2011 13,553
4,000 AES Corp. (The) sr. notes 8 3/4s,
2008 4,080
130,000 AES Corp. (The) 144A sec. notes 9s,
2015 137,800
190,000 AES Corp. (The) 144A sec. notes
8 3/4s, 2013 200,450
170,000 Allegheny Energy Supply 144A bonds
8 1/4s, 2012 164,475
65,000 Allegheny Energy Supply 144A sec.
notes 10 1/4s, 2007 70,200
90,000 Calpine Canada Energy Finance
company guaranty 8 1/2s, 2008
(Canada) 53,550
30,000 Calpine Corp. 144A sec. notes
8 3/4s, 2013 24,975
440,000 Calpine Corp. 144A sec. notes
8 1/2s, 2010 367,400
50,000 CenterPoint Energy Resources Corp.
debs. 6 1/2s, 2008 52,853
25,000 CenterPoint Energy Resources Corp.
sr. notes Ser. B, 7 7/8s, 2013 27,856
15,000 CMS Energy Corp. pass-through
certificates 7s, 2005 15,075
130,000 CMS Energy Corp. sr. notes 8.9s,
2008 136,175
40,000 CMS Energy Corp. sr. notes 8 1/2s,
2011 40,700
30,000 CMS Energy Corp. 144A sr. notes
7 3/4s, 2010 30,000
30,000 DPL, Inc. bonds 8 1/8s, 2031 28,500
180,000 DPL, Inc. sr. notes 6 7/8s, 2011 180,000
55,000 Dynegy Holdings, Inc. sr. notes
6 7/8s, 2011 45,100
245,000 Dynegy Holdings, Inc. 144A sec.
notes 10 1/8s, 2013 259,700
65,000 Dynegy-Roseton Danskamme company
guaranty Ser. A, 7.27s, 2010 60,450
100,000 Dynegy-Roseton Danskamme company
guaranty Ser. B, 7.67s, 2016 81,500
45,000 Edison Mission Energy sr. notes 10s,
2008 47,250
20,000 Edison Mission Energy sr. notes
7.73s, 2009 18,950
65,000 El Paso Corp. sr. notes 7 3/8s, 2012 54,925
160,000 El Paso Corp. sr. notes Ser. MTN,
7 3/4s, 2032 126,000
30,000 El Paso Natural Gas Co. debs.
8 5/8s, 2022 28,650
30,000 El Paso Natural Gas Co. sr. notes
Ser. A, 7 5/8s, 2010 30,375
205,000 El Paso Production Holding Co.
company guaranty 7 3/4s, 2013 193,725
115,000 Ferrellgas Partners LP/Ferrellgas
Partners Finance 144A sr. notes
6 3/4s, 2014 110,113
35,000 Kansas Gas & Electric debs. 8.29s,
2016 36,446
205,000 Midwest Generation, LLC 144A sec.
notes 8 3/4s, 2034 201,925
145,000 Mission Energy Holding Co. sec.
notes 13 1/2s, 2008 158,050
115,000 Nevada Power Co. 144A 2nd mtge. 9s,
2013 125,781
175,000 Northwest Pipeline Corp. company
guaranty 8 1/8s, 2010 187,906
10,000 Northwestern Corp. debs. 6.95s, 2028
(In default) (NON) 8,150
20,000 Northwestern Corp. notes 8 3/4s,
2012 (In default) (NON) 16,500
25,000 Northwestern Corp. notes 7 7/8s,
2007 (In default) (NON) 20,625
415,000 NRG Energy, Inc. 144A sr. sec. notes
8s, 2013 413,963
100,000 Orion Power Holdings, Inc. sr. notes
12s, 2010 123,000
140,000 PG&E Corp. 144A sec. notes 6 7/8s,
2008 147,000
25,000 PG&E Gas Transmission Northwest sr.
notes 7.1s, 2005 25,750
105,000 PSEG Energy Holdings, Inc. notes
7 3/4s, 2007 109,200
85,000 SEMCO Energy, Inc. sr. notes 7 3/4s,
2013 86,913
110,000 SEMCO Energy, Inc. 144A sr. notes
7 3/4s, 2013 100,100
25,000 Sierra Pacific Power Co. 144A
general ref. mtge. 6 1/4s, 2012 23,750
165,000 Sierra Pacific Resources 144A sr.
notes 8 5/8s, 2014 159,638
20,000 Southern California Edison Co. notes
6 3/8s, 2006 21,037
55,000 Teco Energy, Inc. notes 10 1/2s,
2007 61,600
35,000 Teco Energy, Inc. notes 7.2s, 2011 34,475
55,000 Teco Energy, Inc. notes 7s, 2012 53,213
15,000 Tennessee Gas Pipeline Co. debs. 7s,
2028 13,050
20,000 Transcontinental Gas Pipeline Corp.
debs. 7 1/4s, 2026 19,600
105,000 Utilicorp Canada Finance Corp.
company guaranty 7 3/4s, 2011
(Canada) 96,600
35,000 Utilicorp United, Inc. sr. notes
9.95s, 2011 35,000
70,000 Western Resources, Inc. sr. notes
9 3/4s, 2007 79,602
25,000 Williams Cos., Inc. (The) notes
8 3/4s, 2032 24,750
25,000 Williams Cos., Inc. (The) notes
8 1/8s, 2012 26,375
95,000 Williams Cos., Inc. (The) notes
7 5/8s, 2019 89,063
120,000 Williams Cos., Inc. (The) sr. notes
8 5/8s, 2010 130,500
65,000 Williams Holdings Of Delaware notes
6 1/2s, 2008 68,250
73,041 York Power Funding 144A notes 12s,
2007 (Cayman Islands) (In default)
(NON) 7
--------------
5,302,199
Waste Management (1.3%)
-------------------------------------------------------------------------------
240,000 Allied Waste North America, Inc.
company guaranty Ser. B, 8 1/2s,
2008 259,200
330,000 Allied Waste North America, Inc.
company guaranty Ser. B, 7 5/8s,
2006 344,850
90,000 Allied Waste North America, Inc.
144A sec. notes 6 1/2s, 2010 87,075
110,000 Browning-Ferris Industries, Inc.
debs. 7.4s, 2035 92,950
100,000 Browning-Ferris Industries, Inc. sr.
notes 6 3/8s, 2008 101,000
--------------
885,075
--------------
Total Corporate bonds and notes
(cost $61,221,159) $60,927,663
Common stocks (1.6%) (a)
Number of shares Value
-------------------------------------------------------------------------------
307 AboveNet, Inc. (NON) $9,514
384 Alderwoods Group, Inc. (NON) 4,957
180,000 AMRESCO Creditor Trust (acquired
various dates from 5/5/99 to
5/10/00, cost $38,828) (RES) (NON)
(R) 180
40 Arch Wireless, Inc. Class A (NON) 1,268
324 Archibald Candy Corp. (NON) 16
195 Birch Telecom, Inc. (NON) 2
84 Comdisco Holding Co., Inc. (NON) 1,932
505,286 Contifinancial Corp. Liquidating
Trust Units 5,053
3,010 Covad Communications Group, Inc.
(NON) 6,472
291 Crown Castle International Corp.
(NON) 4,286
5,403 Globix Corp. (NON) 13,453
33 Knology, Inc. (NON) 203
19 Leucadia National Corp. 944
1,111 Lodgian, Inc. (NON) 16,443
20,000 Loewen Group International, Inc.
(NON) 2
288 Mariner Health Care, Inc. (NON) 4,612
10,434 Pioneer Cos., Inc. (NON) 49,040
136 Polymer Group, Inc. Class A (NON) 1,768
576 PSF Group Holdings, Inc. 144A Class
A (NON) 863,685
102 RCN Corp. (NON) 18
10 Sterling Chemicals, Inc. (NON) 220
178 Sun Healthcare Group, Inc. (NON) 1,602
259,509 VFB, LLC (acquired various dates
from 12/21/99 to 10/27/00, cost
$214,226) (RES) (NON) 49,307
40,417 VS Holdings, Inc. (NON) 2,021
533 Washington Group International, Inc.
(NON) 18,698
--------------
Total Common stocks
(cost $4,247,305) $1,055,696
Preferred stocks (1.0%) (a)
Number of shares Value
-------------------------------------------------------------------------------
4,746 Avecia Group PLC $4.00 pfd. (United
Kingdom) (PIK) $56,952
1,828 Doane Pet Care Co. $7.125 pfd. 76,776
3 Dobson Communications Corp. 13.00%
pfd. (PIK) 2,055
80 First Republic Capital Corp. 144A
10.50% pfd. 82,800
2,152 iStar Financial, Inc. $1.95 cum.
pfd. 51,670
17 Paxson Communications Corp. 13.25%
cum. pfd. (PIK) 151,300
100 PRIMEDIA, Inc. Ser. F, $9.20 cum.
pfd. 8,700
36 Rural Cellular Corp. Ser. B, 11.375%
cum. pfd. 30,240
270 Rural Cellular Corp. 12.25% pfd.
(PIK) 172,800
--------------
Total Preferred stocks
(cost $762,830) $633,293
Foreign government bonds and notes (0.8%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$35,000 Colombia (Republic of) bonds
10 3/8s, 2033 $32,305
15,000 Colombia (Republic of) bonds
Ser. NOV, 9 3/4s, 2009 15,600
30,000 Colombia (Republic of) notes
10 3/4s, 2013 31,110
10,000 Colombia (Republic of) unsub.
9 3/4s, 2009 10,440
115,000 Ecuador (Republic of) bonds
stepped-coupon Ser. REGS, 6s (7s,
8/15/04), 2030 (STP) 81,075
45,000 Peru (Republic of) bonds 8 3/4s,
2033 37,800
60,000 Russia (Federation of) unsub.
stepped-coupon 5s (7 1/2s,
3/31/07), 2030 (STP) 54,570
125,000 Ukraine (Government of) 144A bonds
7.65s, 2013 119,750
120,000 United Mexican States bonds
Ser. MTN, 8.3s, 2031 125,940
--------------
Total Foreign government bonds and
notes (cost $494,401) $508,590
Convertible preferred stocks (0.4%) (a)
Number of shares Value
-------------------------------------------------------------------------------
1,537 Crown Castle International Corp.
$3.125 cv. pfd. $69,934
917 Omnicare, Inc. $2.00 cv. pfd. 57,459
1,112 Pegasus Communications Corp. Ser. C,
6.50% cum. cv. pfd. 35,028
1,160 Williams Cos., Inc. (The) 144A $2.75
cv. pfd. 82,215
--------------
Total Convertible preferred stocks
(cost $236,000) $244,636
Units (0.3%) (a)
Number of units Value
-------------------------------------------------------------------------------
160,000 Morrison Knudsen Corp. zero %, 2032 $21,600
446 XCL Equity Units 197,851
--------------
Total Units (cost $913,153) $219,451
Convertible bonds and notes (0.2%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$20,000 AES Corp. (The) cv. sub. notes
4 1/2s, 2005 $19,675
85,000 Amkor Technologies, Inc. cv. notes
5 3/4s, 2006 81,281
490,000 Cybernet Internet Services
International, Inc. 144A cv. sr.
disc. notes stepped-coupon zero %
(13s, 8/15/04) 2009 (Denmark) (In
default) (NON) (STP) 5
5,000 Tower Automotive, Inc. cv. sub.
notes 5s, 2004 5,000
30,000 WCI Communities, Inc. cv. sr. sub.
notes 4s, 2023 33,075
--------------
Total Convertible bonds and notes
(cost $544,771) $139,036
Brady bonds (0.1%) (a) (cost $67,374)
Principal amount Value
-------------------------------------------------------------------------------
$72,800 Peru (Republic of) FRB Ser. PDI, 5s,
2017 $61,334
Asset-backed securities (0.1%) (a) (cost $60,000)
Principal amount Value
-------------------------------------------------------------------------------
$60,000 Verdi Synthetic CLO 144A Ser. 1A,
Class E2, 11.15s, 2010 $60,263
Warrants (0.3%) (a) (NON) Expiration
Number of warrants date Value
-------------------------------------------------------------------------------
108 AboveNet, Inc. 9/8/08 $864
127 AboveNet, Inc. 9/8/10 635
200 Dayton Superior Corp. 144A 6/15/09 2
1 Doe Run Resources Corp. 144A 12/31/12 1
205 Huntsman Co., LLC 144A 5/15/11 36,900
89 MDP Acquisitions PLC 144A (Ireland) 10/1/13 2,937
70 Mikohn Gaming Corp. 144A 8/15/08 28
8 NTL, Inc. 1/13/11 62
80 Pliant Corp. 144A 6/1/10 1
84 Solutia, Inc. 144A 7/15/09 1
120 Travel Centers of America, Inc. 144A 5/1/09 600
350 Ubiquitel, Inc. 144A 4/15/10 1
329 Washington Group International, Inc.
Ser. A 1/25/06 3,074
376 Washington Group International, Inc.
Ser. B 1/25/06 2,801
202 Washington Group International, Inc.
Ser. C 1/25/06 1,343
190 XM Satellite Radio Holdings, Inc.
144A 3/15/10 9,500
--------------
Total Warrants (cost $159,790) $58,750
Short-term investments (2.7%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$162,506 Short-term investments held as
collateral for loaned
securities with yields ranging from
1.00% to 1.21% and due dates ranging
from June 1, 2004 to June 11, 2004
(d) $162,496
1,621,889 Putnam Prime Money Market Fund (e) 1,621,889
--------------
Total Short-term investments
(cost $1,784,385) $1,784,385
-------------------------------------------------------------------------------
Total Investments (cost $70,491,168) $65,693,097
-------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $66,178,621.
(DEF) Security is in default of principal and interest.
(NON) Non-income-producing security.
(STP) The interest rate and date shown parenthetically represent the new
interest rate to be paid and the date the fund will begin accruing
interest at this rate.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at May 31, 2004 was
$284,393 or 0.4% 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.
(e) See Note 4 to the financial statements regarding investments in
Putnam Prime Money Market Fund.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
The rates shown on Floating Rate Bonds (FRB) and Floating Rate Notes
(FRN) are the current interest rates at May 31, 2004.
Forward currency contracts to buy at May 31, 2004
(aggregate face value $106,888)
Aggregate Delivery Unrealized
Value face value date appreciation
---------------------------------------------------------------------
British Pound $36,315 $36,224 9/15/04 $91
Euro 71,158 70,664 9/15/04 494
---------------------------------------------------------------------
$585
---------------------------------------------------------------------
Forward currency contracts to sell at May 31, 2004
(aggregate face value $591,493)
Aggregate Delivery Unrealized
Value face value date depreciation
---------------------------------------------------------------------
Euro $596,184 $591,493 9/15/04 $(4,691)
---------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of assets and liabilities
May 31, 2004
Assets
-------------------------------------------------------------------------------
Investments in securities, at value, including $172,909 of
securities on loan (identified cost $70,491,168) (Note 1) $65,693,097
-------------------------------------------------------------------------------
Cash 58,315
-------------------------------------------------------------------------------
Foreign currency (cost $19,910) (Note 1) 20,078
-------------------------------------------------------------------------------
Dividends, interest and other receivables 1,418,238
-------------------------------------------------------------------------------
Receivable for securities sold 454,840
-------------------------------------------------------------------------------
Receivable for open forward currency contracts (Note 1) 585
-------------------------------------------------------------------------------
Receivable for closed forward currency contracts (Note 1) 22,274
-------------------------------------------------------------------------------
Total assets 67,667,427
Liabilities
-------------------------------------------------------------------------------
Distributions payable to shareholders 405,334
-------------------------------------------------------------------------------
Payable for securities purchased 733,054
-------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 128,516
-------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 24,476
-------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 26,986
-------------------------------------------------------------------------------
Payable for administrative services (Note 2) 520
-------------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 4,691
-------------------------------------------------------------------------------
Payable for closed forward currency contracts (Note 1) 328
-------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 162,496
-------------------------------------------------------------------------------
Other accrued expenses 2,405
-------------------------------------------------------------------------------
Total liabilities 1,488,806
-------------------------------------------------------------------------------
Net assets $66,178,621
Represented by
-------------------------------------------------------------------------------
Paid-in capital (Note 1) $104,868,809
-------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (667,383)
-------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (33,220,526)
-------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and
liabilities in foreign currencies (4,802,279)
-------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $66,178,621
Computation of net asset value
-------------------------------------------------------------------------------
Net asset value per share ($66,178,621 divided by 7,507,107
shares) $8.82
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of operations
Year ended May 31, 2004
Investment income:
-------------------------------------------------------------------------------
Interest (including interest income of $811 from investment
in affiliated issuers) (Note 4) $5,647,355
-------------------------------------------------------------------------------
Dividends 183,393
-------------------------------------------------------------------------------
Securities lending 818
-------------------------------------------------------------------------------
Total investment income 5,831,566
Expenses:
-------------------------------------------------------------------------------
Compensation of Manager (Note 2) 499,185
-------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 158,841
-------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 11,210
-------------------------------------------------------------------------------
Administrative services (Note 2) 4,981
-------------------------------------------------------------------------------
Other 119,369
-------------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Note 4) (155)
-------------------------------------------------------------------------------
Total expenses 793,431
-------------------------------------------------------------------------------
Expense reduction (Note 2) (1,008)
-------------------------------------------------------------------------------
Net expenses 792,423
-------------------------------------------------------------------------------
Net investment income 5,039,143
-------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (787,079)
-------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (59,657)
-------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the year 17,725
-------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 3,594,932
-------------------------------------------------------------------------------
Net gain on investments 2,765,921
-------------------------------------------------------------------------------
Net increase in net assets resulting from operations $7,805,064
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of changes in net assets
Year ended May 31
Increase (decrease) in net assets 2004 2003
-------------------------------------------------------------------------------
Operations:
-------------------------------------------------------------------------------
Net investment income $5,039,143 $5,448,345
-------------------------------------------------------------------------------
Net realized loss on investments and foreign
currency transactions (846,736) (6,483,586)
-------------------------------------------------------------------------------
Net unrealized appreciation of investments
and assets and liabilities in foreign
currencies 3,612,657 6,451,978
-------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 7,805,064 5,416,737
-------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
-------------------------------------------------------------------------------
From net investment income (4,993,812) (5,721,276)
-------------------------------------------------------------------------------
From return of capital (50,354) (103,566)
-------------------------------------------------------------------------------
Total increase (decrease) in net assets 2,760,898 (408,105)
Net assets
-------------------------------------------------------------------------------
Beginning of year 63,417,723 63,825,828
-------------------------------------------------------------------------------
End of year (including distributions in
excess of net investment income of $667,383
and $1,292,445, respectively) $66,178,621 $63,417,723
-------------------------------------------------------------------------------
Number of fund shares
-------------------------------------------------------------------------------
Shares outstanding at beginning and end of
year 7,507,107 7,507,107
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
Per-share Year ended May 31
operating performance 2004 2003 2002 2001 2000
---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $8.45 $8.50 $9.49 $10.91 $12.30
---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .67 (d) .73 .86 1.16 1.16
---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .37 (.01) (.86) (1.41) (1.27)
---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.04 .72 -- (e) (.25) (.11)
---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.66) (.76) (.87) (1.17) (1.21)
---------------------------------------------------------------------------------------------------------------------------------
From return of capital (.01) (.01) (.12) -- (.07)
---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.67) (.77) (.99) (1.17) (1.28)
---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.82 $8.45 $8.50 $9.49 $10.91
---------------------------------------------------------------------------------------------------------------------------------
Market price,
end of period $7.92 $9.02 $9.48 $10.80 $10.19
---------------------------------------------------------------------------------------------------------------------------------
Total return at
market price (%)(b) (4.99) 4.15 (2.91) 18.34 (15.61)
---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $66,179 $63,418 $63,826 $71,211 $81,898
---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.19 (d) 1.22 1.19 1.14 1.08
---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 7.57 (d) 9.17 9.69 11.41 9.92
---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 66.18 73.72 73.39 97.63 97.22
---------------------------------------------------------------------------------------------------------------------------------
(a) Per share net investment income has been determined on the basis of
the weighted number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment.
(c) Includes amounts paid through expense offset arrangements (Note 2).
(d) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses of the fund for the period ended May
31, 2004 reflect a reduction of less than 0.01% based on average net
assets (Note 4).
(e) Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial
statements.
Notes to financial statements
May 31, 2004
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 primary investment
objective is to seek high current income. The fund intends to achieve
its objective by investing in high yielding income securities. The fund
invests in higher yielding, lower rated bonds that have a higher rate of
default due to the nature of the investments.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with accounting principles generally accepted in the United States of
America and requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities in the financial
statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period. Actual results could
differ from those estimates.
A) Security valuation Market quotations are not considered to be readily
available for certain debt obligations; such investments are valued at
fair value on the basis of valuations furnished by an independent
pricing service or dealers, approved by the Trustees. Such services or
dealers determine valuations for normal institutional-size trading units
of such securities using methods based on market transactions for
comparable securities and various relationships, generally recognized by
institutional traders, between securities. Many securities markets and
exchanges outside the U.S. close prior to the close of the New York
Stock Exchange and, therefore, the closing prices for securities in such
markets or on such exchanges may not fully reflect events that occur
after such close but before the close of the New York Stock Exchange.
Accordingly, on certain days, the fund will fair value foreign
securities taking into account multiple factors, including movements in
the U.S. securities markets. The number of days on which fair value
prices will be used will depend on market activity and it is possible
that fair value prices will be used by the fund to a significant extent.
Securities quoted in foreign currencies are translated into U.S. dollars
at the current exchange rate. Short-term investments having remaining
maturities of 60 days or less are valued at amortized cost, which
approximates fair value. Other investments, including restricted
securities, are valued at fair value following procedures approved by
the Trustees. Such valuations and procedures are reviewed periodically
by the Trustees.
B) Joint trading account The fund may transfer uninvested cash balances,
including cash collateral received under security lending arrangements,
into a joint trading account along with the cash of other registered
investment companies and certain other accounts managed by Putnam
Investment Management, LLC ("Putnam Management"), the fund's manager, an
indirect wholly-owned subsidiary of Putnam, LLC. These balances may be
invested in issuers of high-grade short-term investments having
maturities of up to 397 days for collateral received under security
lending arrangements and up to 90 days for other cash investments.
C) Security transactions and related investment income Security
transactions are recorded on the trade date (date the order to buy or
sell is executed). Gains or losses on securities sold are determined on
the identified cost basis.
Interest income is recorded on the accrual basis. Dividend income, net
of applicable withholding taxes, is recognized on the ex-dividend date
except that certain dividends from foreign securities are recognized as
soon as the fund is informed of the ex-dividend date. Non-cash
dividends, if any, are recorded at the fair market value of the
securities received. All premiums/discounts are amortized/accreted on a
yield-to-maturity basis.
D) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when earned or incurred. The
fund does not isolate that portion of realized or unrealized gains or
losses resulting from changes in the foreign exchange rate on
investments from fluctuations arising from changes in the market prices
of the securities. Such gains and losses are included with the net
realized and unrealized gain or loss on investments. Net realized gains
and losses on foreign currency transactions represent net realized
exchange gains or losses on closed forward currency contracts,
disposition of foreign currencies, currency gains and losses realized
between the trade and settlement dates on securities transactions and
the difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized
appreciation and depreciation of assets and liabilities in foreign
currencies arise from changes in the value of open forward currency
contracts and assets and liabilities other than investments at the
period end, resulting from changes in the exchange rate. Investments in
foreign securities involve certain risks, including those related to
economic instability, unfavorable political developments, and currency
fluctuations, not present with domestic investments.
E) Forward currency contracts The fund may buy and sell forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date. These contracts are used to
protect against a decline in value relative to the U.S. dollar of the
currencies in which its portfolio securities are denominated or quoted
(or an increase in the value of a currency in which securities a fund
intends to buy are denominated, when a fund holds cash reserves and
short-term investments). The U.S. dollar value of forward currency
contracts is determined using current forward currency exchange rates
supplied by a quotation service. The market value of the contract will
fluctuate with changes in currency exchange rates. The contract is
marked-to-market daily and the change in market value is recorded as an
unrealized gain or loss. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed. The fund could be exposed to risk if the value of the currency
changes unfavorably, if the counterparties to the contracts are unable
to meet the terms of their contracts or if the fund is unable to enter
into a closing position. Forward currency contracts outstanding at
period end, if any, are listed after the fund's portfolio.
F) Security lending The fund may lend securities, through its agents, to
qualified borrowers in order to earn additional income. The loans are
collateralized by cash and/or securities in an amount at least equal to
the market value of the securities loaned. The market value of
securities loaned is determined daily and any additional required
collateral is allocated to the fund on the next business day. The risk
of borrower default will be borne by the fund's agents; the fund will
bear the risk of loss with respect to the investment of the cash
collateral. Income from securities lending is included in investment
income on the statement of operations. At May 31, 2004, the value of
securities loaned amounted to $172,909. The fund received cash
collateral of $162,496, which is pooled with collateral of other Putnam
funds into 17 issuers of high-grade short-term investments.
G) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986 (the "Code"), as amended.
Therefore, no provision has been made for federal taxes on income,
capital gains or unrealized appreciation on securities held nor for
excise tax on income and capital gains.
At May 31, 2004, the fund had a capital loss carryover of $32,039,053
available to the extent allowed by the Code to offset future net capital
gain, if any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
-----------------------------
$2,584,483 May 31, 2007
4,168,119 May 31, 2008
3,778,275 May 31, 2009
8,384,999 May 31, 2010
11,264,568 May 31, 2011
1,858,609 May 31, 2012
Pursuant to federal income tax regulations applicable to regulated
investment companies, the fund has elected to defer to its fiscal year
ending May 31, 2005 $1,145,185 of losses recognized during the period
November 1, 2003 to May 31, 2004.
H) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Distributions from capital gains, if any, are recorded on the
ex-dividend date and paid at least annually. The amount and character of
income and gains to be distributed are determined in accordance with
income tax regulations, which may differ from generally accepted
accounting principles. These differences include temporary and permanent
differences of losses on wash sale transactions, foreign currency gains
and losses, post-October loss deferrals, nontaxable dividends, dividends
payable, defaulted bond interest, market discount and interest on
payment-in-kind securities. Reclassifications are made to the fund's
capital accounts to reflect income and gains available for distribution
(or available capital loss carryovers) under income tax regulations. For
the year ended May 31, 2004, the fund reclassified $579,731 to decrease
distributions in excess of net investment income and $317,996 to
decrease paid-in-capital, with an increase to accumulated net realized
loss of $261,735.
The tax basis components of distributable earnings and the federal tax
cost as of period end were as follows:
Unrealized appreciation $2,574,856
Unrealized depreciation (7,669,010)
------------
Net unrealized depreciation (5,094,154)
Capital loss carryforward (32,039,053)
Post October loss (1,145,185)
Cost for federal income
tax purposes $70,787,251
Note 2
Management fee, administrative
services and other transactions
Putnam Management is paid for management and investment advisory
services quarterly based on the average net assets of the fund. Such fee
is based on 0.75% of the average weekly net assets.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The
aggregate amount of all such reimbursements is determined annually by
the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company ("PFTC"), a subsidiary of Putnam, LLC. Putnam
Investor Services, a division of PFTC, provides investor servicing agent
functions to the fund. During the year ended May 31, 2004, the fund paid
PFTC $158,841 for these services.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. For the year ended May 31, 2004, the
fund's expenses were reduced by $1,008 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $550, as a quarterly retainer, has been allocated to the fund, and
an additional fee for each Trustees meeting attended. Trustees receive
additional fees for attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan"),
which allows the Trustees to defer the receipt of all or a portion of
Trustees fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with
the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as a Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in Trustee compensation and expenses in the
statement of operations. Accrued pension liability is included in
Payable for Trustee compensation and expenses in the statement of assets
and liabilities.
Note 3
Purchases and sales of securities
During the year ended May 31, 2004, cost of purchases and proceeds from
sales of investment securities other than short-term investments
aggregated $41,992,320 and $43,033,153, respectively. There were no
purchases or sales of U.S. government securities.
Note 4
Investment in Putnam Prime
Money Market Fund
The fund invests in the Putnam Prime Money Market Fund, an open-end
management investment company managed by Putnam Management. Management
fees paid by the fund are reduced by an amount equal to the management
fees paid by Putnam Prime Money Market Fund with respect to assets
invested by the fund in Putnam Prime Money Market Fund. Income
distributions earned by the fund are recorded as income in the statement
of operations and totaled $811 for the period ended May 31, 2004.
Note 5
Regulatory matters and litigation
On April 8, 2004, Putnam Management entered into agreements with the
Securities and Exchange Commission and the Massachusetts Securities
Division representing a final settlement of all charges brought against
Putnam Management by those agencies on October 28, 2003 in connection
with excessive short-term trading by Putnam employees and, in the case
of the charges brought by the Massachusetts Securities Division, by
participants in some Putnam-administered 401(k) plans. The settlement
with the SEC requires Putnam Management to pay $5 million in
disgorgement plus a civil monetary penalty of $50 million, and the
settlement with the Massachusetts Securities Division requires Putnam
Management to pay $5 million in restitution and an administrative fine
of $50 million. The settlements also leave intact the process
established under an earlier partial settlement with the SEC under which
Putnam Management agreed to pay the amount of restitution determined by
an independent consultant, which may exceed the disgorgement and
restitution amounts specified above, pursuant to a plan to be developed
by the independent consultant.
Putnam Management, and not the investors in any Putnam fund, will bear
all costs, including restitution, civil penalties and associated legal
fees stemming from both of these proceedings. The SEC's and
Massachusetts Securities Division's allegations and related matters also
serve as the general basis for numerous lawsuits, including purported
class-action lawsuits filed against Putnam Management and certain
related parties, including certain Putnam funds. Putnam Management has
agreed to bear any costs incurred by Putnam funds in connection with
these lawsuits. Based on currently available information, Putnam
Management believes that the likelihood that the pending private
lawsuits and purported class-action lawsuits will have a material
adverse financial impact on the fund is remote, and the pending actions
are not likely to materially affect its ability to provide investment
management services to its clients, including the Putnam funds.
Review of these matters by counsel for Putnam Management and by separate
independent counsel for the Putnam funds and their independent Trustees
is continuing.
Federal tax information
(Unaudited)
For the year ended May 31, 2004, a portion of the fund's distribution
represents a return of capital and is therefore not taxable to
shareholders.
The fund has designated 3.64% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
For its tax year ended May 31, 2004, the fund hereby designates 2.07% or
the maximum amount allowable, of its net taxable income as qualified
dividends taxed at individual net capital gain rates.
The Form 1099 you receive in January 2005 will show the tax status of
all distributions paid to your account in calendar 2004.
About the Trustees
Jameson A. Baxter (9/6/43), Trustee since 1994
Ms. Baxter is the President of Baxter Associates, Inc., a private
investment firm that she founded in 1986.
Ms. Baxter serves as a Director of ASHTA Chemicals, Inc., Banta
Corporation (a printing and digital imaging firm), Ryerson Tull, Inc. (a
steel service corporation), Advocate Health Care, and BoardSource,
formerly the National Center for Nonprofit Boards. She is Chairman
Emeritus of the Board of Trustees, Mount Holyoke College, having served
as Chairman for five years and as a board member for thirteen years.
Until 2002, Ms. Baxter was a Director of Intermatic Corporation (a
manufacturer of energy control products).
Ms. Baxter has held various positions in investment banking and
corporate finance, including Vice President and Principal of the Regency
Group, and Vice President of and Consultant to First Boston Corporation.
She is a graduate of Mount Holyoke College.
Charles B. Curtis (4/27/40), Trustee since 2001
Mr. Curtis is President and Chief Operating Officer of the Nuclear
Threat Initiative (a private foundation dealing with national security
issues) and serves as Senior Advisor to the United Nations Foundation.
Mr. Curtis is a member of the Council on Foreign Relations and the
Trustee Advisory Council of the Applied Physics Laboratory, Johns
Hopkins University. Until 2003, Mr. Curtis was a member of the Electric
Power Research Institute Advisory Council and the University of Chicago
Board of Governors for Argonne National Laboratory. Prior to 2002, Mr.
Curtis was a Member of the Board of Directors of the Gas Technology
Institute and the Board of Directors of the Environment and Natural
Resources Program Steering Committee, John F. Kennedy School of
Government, Harvard University. Until 2001, Mr. Curtis was a member of
the Department of Defense Policy Board and Director of EG&G Technical
Services, Inc. (a fossil energy research and development support
company).
Prior to May 1997, Mr. Curtis was Deputy Secretary of Energy. He served
as Chairman of the Federal Energy Regulatory Commission from 1977 to
1981 and has held positions on the staff of the U.S. House of
Representatives, the U.S. Treasury Department, and the Securities and
Exchange Commission.
John A. Hill (1/31/42), Trustee since 1985 and Chairman since 2000
Mr. Hill is Vice Chairman and Managing Director of First Reserve
Corporation, a private equity buyout firm that specializes in energy
investments in the diversified worldwide energy industry.
Mr. Hill is a Director of Devon Energy Corporation, TransMontaigne Oil
Company, Continuum Health Partners of New York, and various private
companies controlled by First Reserve Corporation, as well as a Trustee
of TH Lee Putnam Investment Trust (a closed-end investment company). He
is also a Trustee of Sarah Lawrence College.
Prior to acquiring First Reserve Corporation in 1983, Mr. Hill held
executive positions in investment banking and investment management with
several firms and with the federal government, including Deputy
Associate Director of the Office of Management and Budget, and Deputy
Director of the Federal Energy Administration. He is active in various
business associations, including the Economic Club of New York, and
lectures on energy issues in the United States and Europe. Mr. Hill
holds a B.A. degree in Economics from Southern Methodist University and
pursued graduate studies there as a Woodrow Wilson Fellow.
Ronald J. Jackson (12/17/43), Trustee since 1996
Mr. Jackson is a private investor.
Mr. Jackson is President of the Kathleen and Ronald J. Jackson
Foundation (a charitable trust). He is also a member of the Board of
Overseers of WGBH (a public television and radio station) as well as a
member of the Board of Overseers of the Peabody Essex Museum.
Mr. Jackson is the former Chairman, President, and Chief Executive
Officer of Fisher-Price, Inc. (a major toy manufacturer), from which he
retired in 1993. He previously served as President and Chief Executive
Officer of Stride-Rite, Inc. (a manufacturer and distributor of
footwear) and of Kenner Parker Toys, Inc. (a major toy and game
manufacturer). Mr. Jackson was President of Talbots, Inc. (a distributor
of women's apparel) and has held financial and marketing positions with
General Mills, Inc. and Parker Brothers (a toy and game company). Mr.
Jackson is a graduate of the University of Michigan Business School.
Paul L. Joskow (6/30/47), Trustee since 1997
Dr. Joskow is the Elizabeth and James Killian Professor of Economics and
Management, and Director of the Center for Energy and Environmental
Policy Research at the Massachusetts Institute of Technology.
Dr. Joskow serves as a Director of National Grid Transco (a UK-based
holding company with interests in electric and gas transmission and
distribution, and telecommunications infrastructure) as well as a
Director of TransCanada Corporation (a gas transmission and power
company). He also serves on the board of the Whitehead Institute for
Biomedical Research (a non-profit research institution) and has been
President of the Yale University Council since 1993. Prior to February
2002, he was a Director of State Farm Indemnity Company (an automobile
insurance company) and prior to March 2000 he was a Director of New
England Electric System (a public utility holding company).
Dr. Joskow has published five books and numerous articles on topics in
industrial organization, government regulation of industry, and
competition policy. He is active in industry restructuring,
environmental, energy, competition, and privatization policies --
serving as an advisor to governments and corporations worldwide. Dr.
Joskow holds a Ph.D. and M. Phil from Yale University and B.A. from
Cornell University.
Elizabeth T. Kennan (2/25/38), Trustee since 1992
Dr. Kennan is a Partner in Cambus-Kenneth Farm, LLC (cattle and
thoroughbred horses). She is President Emeritus of Mount Holyoke
College.
Dr. Kennan serves as Lead Director (formerly Chairman) of Northeast
Utilities and is a Director of Talbots, Inc. She has served as Director
on a number of other boards, including Bell Atlantic, Chastain Real
Estate, Shawmut Bank, Berkshire Life Insurance, and Kentucky Home Life
Insurance. She is a Trustee of Centre College and of Midway College in
Midway, Kentucky. She is also a member of The Trustees of Reservations
and a Trustee of the National Trust for Historic Preservation. Dr.
Kennan has served on the oversight committee of the Folger Shakespeare
Library, as President of Five Colleges Incorporated, as a Trustee of
Notre Dame University, and is active in various educational and civic
associations.
As a member of the faculty of Catholic University for twelve years,
until 1978, Dr. Kennan directed the post-doctoral program in Patristic
and Medieval Studies, taught history, and published numerous articles.
Dr. Kennan holds a Ph.D. from the University of Washington in Seattle,
an M.S. from St. Hilda's College at Oxford University, and an A.B. from
Mount Holyoke College. She holds several honorary doctorates.
John H. Mullin, III (6/15/41), Trustee since 1997
Mr. Mullin is the Chairman and CEO of Ridgeway Farm (a limited liability
company engaged in timber and farming).
Mr. Mullin serves as a Director of The Liberty Corporation (a
broadcasting company), Progress Energy, Inc. (a utility company,
formerly known as Carolina Power & Light), and Sonoco Products, Inc. (a
packaging company). Mr. Mullin is Trustee Emeritus of Washington & Lee
University, where he served as Chairman of the Investment Committee.
Prior to May 2001, he was a Director of Graphic Packaging International
Corp. Prior to February 2004, he was a Director of Alex Brown Realty,
Inc.
Mr. Mullin also served as a Director of Dillon, Read & Co., Inc. until
October 1997 and The Ryland Group, Inc. until January 1998. Mr. Mullin
is a graduate of Washington & Lee University and The Wharton Graduate
School, University of Pennsylvania.
Robert E. Patterson (3/15/45), Trustee since 1984
Mr. Patterson is Senior Partner of Cabot Properties, Inc., a private
equity firm specializing in real estate investments, and Chairman of
Cabot Properties, Inc.
Mr. Patterson serves as Chairman of the Joslin Diabetes Center and as a
Director of Brandywine Trust Company, LLC. Prior to June 2003, he was a
Trustee of Sea Education Association. Prior to December 2001, he was
President and Trustee of Cabot Industrial Trust (a publicly traded real
estate investment trust). Prior to February 1998, Mr. Patterson was
Executive Vice President and Director of Acquisitions of Cabot Partners
Limited Partnership (a registered investment advisor involved in
institutional real estate investments). Prior to 1990, he served as
Executive Vice President of Cabot, Cabot & Forbes Realty Advisors, Inc.
(the predecessor company of Cabot Partners) and as a Senior Vice
President of the Beal Companies (a real estate management, investment,
and development firm).
Mr. Patterson practiced law and held various positions in state
government, and was the founding Executive Director of the Massachusetts
Industrial Finance Agency. Mr. Patterson is a graduate of Harvard
College and Harvard Law School.
W. Thomas Stephens (9/2/42), Trustee since 1997
Mr. Stephens serves on a number of corporate boards.
Mr. Stephens serves as a Director of Xcel Energy Incorporated (a public
utility company), TransCanada Pipelines Limited, Norske Canada, Inc. (a
paper manufacturer), and Qwest Communications. Until 2003, Mr. Stephens
was a Director of Mail-Well, Inc. (a diversified printing company). He
served as Chairman of Mail-Well until 2001 and as CEO of
MacMillan-Bloedel, Ltd. (a forest products company) until 1999.
Prior to 1996, Mr. Stephens was Chairman and Chief Executive Officer of
Johns Manville Corporation. He holds B.S. and M.S. degrees from the
University of Arkansas.
W. Nicholas Thorndike (3/28/33), Trustee since 1992
Mr. Thorndike serves on the boards of various corporations and
charitable organizations.
Mr. Thorndike is a Director of Courier Corporation (a book publisher and
manufacturer). He is also a Trustee of Northeastern University and an
honorary Trustee of Massachusetts General Hospital, where he previously
served as Chairman and President. Prior to December 2003, he was a
Director of The Providence Journal Co. (a newspaper publisher). Prior to
September 2000, he was a Director of Bradley Real Estate, Inc.; prior to
April 2000, he was a Trustee of Eastern Utilities Associates; and prior
to December 2001, he was a Trustee of Cabot Industrial Trust.
Mr. Thorndike has also served as Chairman of the Board and Managing
Partner of Wellington Management Company/Thorndike, Doran, Paine & Lewis
(a registered investment advisor that manages mutual funds and
institutional assets), as a Trustee of the Wellington Group of Funds
(currently The Vanguard Group), and as Chairman and a Director of Ivest
Fund, Inc. Mr. Thorndike is a graduate of Harvard College.
George Putnam, III* (8/10/51), Trustee since 1984 and President
since 2000
Mr. Putnam is President of New Generation Research, Inc. (a publisher of
financial advisory and other research services), and of New Generation
Advisers, Inc. (a registered investment advisor to private funds). Mr.
Putnam founded the New Generation companies in 1986.
Mr. Putnam is a Director of The Boston Family Office, LLC (a registered
investment advisor). He is a Trustee of St. Mark's School, Shore Country
Day School, and until 2002 was a Trustee of the Sea Education
Association.
Mr. Putnam previously worked as an attorney with the law firm of Dechert
Price & Rhoads in Philadelphia. He is a graduate of Harvard College,
Harvard Business School, and Harvard Law School.
A.J.C. Smith* (4/13/34), Trustee since 1986
Mr. Smith is Chairman of Putnam Investments and a Director of and
Consultant to Marsh & McLennan Companies, Inc.
Mr. Smith is also a Director of Trident Corp. (a limited partnership
with over thirty institutional investors). He is also a Trustee of the
Carnegie Hall Society, the Educational Broadcasting Corporation, and the
National Museums of Scotland. He is Chairman of the Central Park
Conservancy and a Member of the Board of Overseers of the Joan and
Sanford I. Weill Graduate School of Medical Sciences of Cornell
University. Prior to May 2000 and November 1999, Mr. Smith was Chairman
and CEO, respectively, of Marsh & McLennan Companies, Inc.
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of May 31, 2004, there were 102 Putnam Funds.
Each Trustee serves for an indefinite term, until his or her
resignation, retirement at age 72, death, or removal.
* Trustees who are or may be deemed to be "interested persons" (as
defined in the Investment Company Act of 1940) of the fund, Putnam
Management, Putnam Retail Management, or Marsh & McLennan Companies,
Inc., the parent company of Putnam, LLC and its affiliated companies.
Messrs. Putnam, III, and Smith are deemed "interested persons" by virtue
of their positions as officers or shareholders of the fund or Putnam
Management, Putnam Retail Management, or Marsh & McLennan Companies,
Inc. George Putnam, III is the President of your fund and each of the
other Putnam funds. Mr. Smith serves as a Director of Marsh & McLennan
Companies, Inc. and as Chairman of Putnam Investments.
Officers
In addition to George Putnam, III, the other officers of the
fund are shown below:
Charles E. Porter (7/26/38)
Executive Vice President, Associate Treasurer and Principal
Executive Officer
Since 1989
Managing Director, Putnam Investments
and Putnam Management
Jonathan S. Horwitz (6/4/55)
Senior Vice President and Treasurer
Since 2004
Managing Director, Putnam Investments
Patricia C. Flaherty (12/1/46)
Senior Vice President
Since 1993
Senior Vice President, Putnam Investments and Putnam
Management
Steven D. Krichmar (6/27/58)
Vice President and Principal Financial Officer
Since 2002
Senior Managing Director, Putnam Investments. Prior to July
2001, Partner, PricewaterhouseCoopers LLP
Michael T. Healy (1/24/58)
Assistant Treasurer and Principal
Accounting Officer
Since 2000
Managing Director, Putnam Investments
Beth S. Mazor (4/6/58)
Vice President
Since 2002
Senior Vice President, Putnam Investments
Daniel T. Gallagher (2/27/62)
Vice President and Legal and Compliance Liaison Officer
Since 2004
Vice President, Putnam Investments. Prior to 2004, Associate
at Ropes & Gray LLP; prior to 2000, Law Clerk for the
Massachusetts Supreme Judicial Court
Francis J. McNamara, III (8/19/55)
Vice President and Chief Legal Officer
Since 2004
Senior Managing Director, Putnam
Investments, Putnam Management and
Putnam Retail Management. Prior to 2004, General Counsel of
State Street Research & Management Company
James P. Pappas (2/24/53)
Vice President
Since 2004
Managing Director, Putnam Investments and Putnam Management.
From 2001 to 2002, Chief Operating Officer, Atalanta/Sosnoff
Management Corporation; prior to 2001, President and Chief
Executive Officer, UAM Investment Services, Inc.
Richard S. Robie, III (3/30/60)
Vice President
Since 2004
Senior Managing Director, Putnam
Investments, Putnam Management and
Putnam Retail Management. Prior to 2003, Senior Vice
President, United Asset Management Corporation
Mark C. Trenchard (6/5/62)
Vice President and BSA Compliance Officer
Since 2002
Senior Vice President, Putnam Investments
Judith Cohen (6/7/45)
Clerk and Assistant Treasurer
Since 1993
Clerk and Assistant Treasurer, The Putnam Funds
The address of each Officer is One Post Office Square,
Boston, MA 02109.
Fund information
About Putnam Investments
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition
and practice since 1830. Founded over 65 years ago, Putnam Investments
was built around the concept that a balance between risk and reward is
the hallmark of a well-rounded financial program. We presently manage
over 100 mutual funds in growth, value, blend, fixed income, and
international.
Investment Manager
Putnam Investment
Management, LLC
One Post Office Square
Boston, MA 02109
Marketing Services
Putnam Retail Management
One Post Office Square
Boston, MA 02109
Custodian
Putnam Fiduciary Trust Company
Legal Counsel
Ropes & Gray LLP
Independent Registered
Public Accounting Firm
KPMG LLP
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
John H. Mullin, III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
Officers
George Putnam, III
President
Charles E. Porter
Executive Vice President,
Associate Treasurer and Principal Executive
Officer
Jonathan S. Horwitz
Senior Vice President and Treasurer
Patricia C. Flaherty
Senior Vice President
Steven D. Krichmar
Vice President and Principal Financial Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
Beth S. Mazor
Vice President
Daniel T. Gallagher
Vice President and Legal and
Compliance Liaison Officer
James P. Pappas
Vice President
Richard S. Robie, III
Vice President
Mark C. Trenchard
Vice President and BSA Compliance Officer
Francis J. McNamara, III
Vice President and Chief Legal Officer
Judith Cohen
Clerk and Assistant Treasurer
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or
visit our Web site (www.putnaminvestments.com) any time for up-to-date
information about the fund's NAV.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
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215024 590 7/04
Item 2. Code of Ethics:
-----------------------
All officers of the Fund, including its principal executive, financial and
accounting officers, are employees of Putnam Investment Management, LLC,
the Fund's investment manager. As such they are subject to a comprehensive
Code of Ethics adopted and administered by Putnam Investments which is
designed to protect the interests of the firm and its clients. The Fund
has adopted a Code of Ethics which incorporates the Code of Ethics of
Putnam Investments with respect to all of its officers and Trustees who are
employees of Putnam Investment Management, LLC. For this reason, the Fund
has not adopted a separate code of ethics governing its principal
executive, financial and accounting officers.
Item 3. Audit Committee Financial Expert:
-----------------------------------------
The Funds' Audit and Pricing Committee is comprised solely of Trustees
who are "independent" (as such term has been defined by the Securities
and Exchange Commission ("SEC") in regulations implementing Section 407
of the Sarbanes-Oxley Act (the "Regulations")). The Trustees believe
that each of the members of the Audit and Pricing Committee also possess
a combination of knowledge and experience with respect to financial
accounting matters, as well as other attributes, that qualify them for
service on the Committee. In addition, the Trustees have determined
that all members of the Funds' Audit and Pricing Committee meet the
financial literacy requirements of the New York Stock Exchange's rules
and that Mr. Patterson and Mr. Stephens qualify as "audit committee
financial experts" (as such term has been defined by the Regulations)
based on their review of their pertinent experience and education.
Certain other Trustees, although not on the Audit and Pricing Committee,
would also qualify as "audit committee financial experts." The SEC has
stated that the designation or identification of a person as an audit
committee financial expert pursuant to this Item 3 of Form N-CSR does
not impose on such person any duties, obligations or liability that are
greater than the duties, obligations and liability imposed on such
person as a member of the Audit and Pricing Committee and the Board of
Trustees in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services:
-----------------------------------------------
The following table presents fees billed in each of the last two
fiscal years for services rendered to the fund by the fund's
independent auditors:
Audit Audit-Related Tax All Other
Fiscal year ended Fees Fees Fees Fees
----------------- ---------- ------------- ------- ---------
May 31, 2004 $35,200 $-- $3,300 $12
May 31, 2003 $33,200 $-- $3,100 $--
For the fiscal years ended May 31, 2004 and May 31, 2003, the
fund's independent auditors billed aggregate non-audit fees in the
amounts of $3,312 and $ 3,100 , respectively, to the fund, Putnam
Management and any entity controlling, controlled by or under common
control with Putnam Management that provides ongoing services to the
fund.
Audit Fees represents fees billed for the fund's last two fiscal
years.
Audit-Related Fees represents fees billed in the fund's last two
fiscal years for services traditionally performed by the fund's
auditor, including accounting consultation for proposed transactions
or concerning financial accounting and reporting standards and other
audit or attest services not required by statute or regulation.
Tax Fees represent fees billed in the fund's last two fiscal years
for tax compliance, tax planning and tax advice services. Tax
planning and tax advice services include assistance with tax audits,
employee benefit plans and requests for rulings or technical advice
from taxing authorities.
All Other Fees represent fees billed for services relating to
interfund trading.
Pre-Approval Policies of the Audit and Pricing Committee. The Audit
and Pricing Committee of the Putnam funds has determined that, as a
matter of policy, all work performed for the funds by the funds'
independent auditors will be pre-approved by the Committee and will
generally not be subject to pre-approval procedures.
Under certain circumstances, the Audit and Pricing Committee
believes that it may be appropriate for Putnam Investment
Management, LLC ("Putnam Management") and certain of its affiliates
to engage the services of the funds' independent auditors, but only
after prior approval by the Committee. Such requests are required
to be submitted in writing to the Committee and explain, among other
things, the nature of the proposed engagement, the estimated fees,
and why this work must be performed by that particular audit firm.
The Committee will review the proposed engagement at its next
meeting.
Since May 6, 2003, all work performed by the independent auditors
for the funds, Putnam Management and any entity controlling,
controlled by or under common control with Putnam Management that
provides ongoing services to the fund was pre-approved by the
Committee or a member of the Committee pursuant to the pre-approval
policies discussed above. Prior to that date, the Committee had a
general policy to pre-approve the independent auditor's engagements
for non-audit services with the funds, Putnam Management and any
entity controlling, controlled by or under common control with
Putnam Management that provides ongoing services to the fund.
The following table presents fees billed by the fund's principal
auditor for services required to be approved pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X.
Audit-Related Tax All Other Total Non-
Fiscal year ended Fees Fees Fees Audit Fees
----------------- ------------- ---- --------- ----------
May 31, 2004 $-- $-- $-- $--
May 31, 2003 $-- $-- $-- $--
Item 5. Audit Committee
------------------------
(a) The fund has a separately-designated audit committee
established in accordance with Section 3(a)(58)(A) of the Securities
Exchange Act of 1934, as amended. The Audit Committee of the fund's
Board of Trustees is composed of the following persons:
Paul L. Joskow (Chairperson)
Robert E. Patterson
W. Thomas Stephens
Elizabeth T. Kennan
(b) Not applicable
Item 6. [Reserved]
---------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed End
-------------------------------------------------------------------------
Management Investment Companies:
--------------------------------
Proxy Voting Guidelines of the Putnam Funds
-------------------------------------------
The proxy voting guidelines below summarize the Funds' positions on
various issues of concern to investors, and give a general indication of
how Fund portfolio securities will be voted on proposals dealing with a
particular issue. The Funds' proxy voting service is instructed to vote
all proxies relating to Fund portfolio securities in accordance with
these guidelines, except as otherwise instructed by the Proxy
Coordinator.
The proxy voting guidelines are just that - guidelines. The guidelines
are not exhaustive and do not include all potential voting issues.
Because proxy issues and the circumstances of individual companies are
so varied, there may be instances when the Funds may not vote in strict
adherence to these guidelines. For example, the proxy voting service is
expected to bring to the Proxy Coordinator's attention proxy questions
that are company-specific and of a non-routine nature and, although
covered by the guidelines, may be more appropriately handled on a
case-by-case basis.
Similarly, Putnam Management's investment professionals, as part of
their ongoing review and analysis of all Fund portfolio holdings, are
responsible for monitoring significant corporate developments, including
proxy proposals submitted to shareholders, and notifying the Proxy
Coordinator of circumstances where the interests of Fund shareholders
may warrant a vote contrary to these guidelines. In such instances, the
investment professionals will submit a written recommendation to the
Proxy Coordinator and the person or persons designated by Putnam
Management's Legal and Compliance Department to assist in processing
referral items pursuant to the Funds' "Proxy Voting Procedures." The
Proxy Coordinator, in consultation with the Senior Vice President,
Executive Vice President and/or the Chair of the Board Policy and
Nominating Committee, as appropriate, will determine how the Funds'
proxies will be voted. When indicated, the Chair of the Board Policy
and Nominating Committee may consult with other members of the Committee
or the full board of Trustees.
The following guidelines are grouped according to the types of proposals
generally presented to shareholders. Part I deals with proposals which
have been approved and recommended by a company's board of directors.
Part II deals with proposals submitted by shareholders for inclusion in
proxy statements. Part III addresses unique considerations pertaining
to foreign issuers.
I. Board-Approved Proposals
---------------------------
The vast majority of matters presented to shareholders for a vote
involve proposals made by a company itself (sometimes referred to as
"management proposals"), which have been approved and recommended by its
board of directors. In view of the enhanced corporate governance
practices currently being implemented in public companies and the Funds'
intent to hold corporate boards accountable for their actions in
promoting shareholder interests, the Funds' proxies generally will be
voted in support of decisions reached by independent boards of
directors. Accordingly, the Funds' proxies will be voted for
board-approved proposals, except as follows:
A. Matters Relating to the Board of Directors
---------------------------------------------
The board of directors has the important role of overseeing management
and its performance on behalf of shareholders. The Funds' proxies will
be voted for the election of the company's nominees for directors and
for board-approved proposals on other matters relating to the board of
directors (provided that such nominees and other matters have been
approved by an independent nominating committee), except as follows:
* The Funds will withhold votes for the entire board of directors if
* The board does not have a majority of independent directors; or
* The board does not have nominating, audit and compensation committees
composed solely of independent directors.
Commentary: While these requirements will likely become mandatory for
most public companies in the near future as a result of pending NYSE and
NASDAQ rule proposals, the Funds' Trustees believe that there is no
excuse for public company boards that fail to implement these vital
governance reforms at their next annual meeting. For these purposes, an
"independent director" is a director who meets all requirements to serve
as an independent director of a company under the pending NYSE rule
proposals (i.e., no material business relationships with the company, no
present or recent employment relationship with the company (including
employment of immediate family members) and, in the case of audit
committee members, no compensation for non-board services). As
indicated below, the Funds will generally vote on a case-by-case basis
on board-approved proposals where the board fails to meet these basic
independence standards.
* The Funds will withhold votes for any nominee for director who is
considered an independent director by the company and who has received
compensation from the company other than for service as a director
(e.g., investment banking, consulting, legal or financial advisory
fees).
Commentary: The Funds' Trustees believe that receipt of compensation
for services other than service as a director raises significant
independence issues. The Funds will withhold votes for any nominee for
director who is considered an independent director by the company and
who receives such compensation.
* The Funds will withhold votes for the entire board of directors if the
board has more than 19 members or fewer than five members, absent
special circumstances.
Commentary: The Funds' Trustees believe that the size of the board of
directors can have a direct impact on the ability of the board to govern
effectively. Boards that have too many members can be unwieldy and
ultimately inhibit their ability to oversee management performance.
Boards that have too few members can stifle innovation and lead to
excessive influence by management.
* The Funds will vote on a case-by-case basis in contested elections of
directors.
* The Funds will withhold votes for any nominee for director who attends
less than 75% of board and committee meetings without valid reasons for
the absences (i.e., illness, personal emergency, etc.).
Commentary: Being a director of a company requires a significant time
commitment to adequately prepare for and attend the company's board and
committee meetings. Directors must be able to commit the time and
attention necessary to perform their fiduciary duties in proper fashion,
particularly in times of crisis.
The Funds' Trustees are concerned about over-committed directors. In
some cases, directors may serve on too many boards to make a meaningful
contribution. This may be particularly true for senior executives of
public companies (or other directors with substantially full-time
employment) who serve on more than a few outside boards. The Funds may
withhold votes from such directors on a case-by-case basis where it
appears that they may be unable to discharge their duties properly
because of excessive commitments.
* The Funds will withhold votes for any nominee for director of a public
company (Company A) who is employed as a senior executive of another
public company (Company B) if a director of Company B serves as a senior
executive of Company A (commonly referred to as an "interlocking
directorate").
Commentary: The Funds' Trustees believe that interlocking directorships
are inconsistent with the degree of independence required for outside
directors of public companies.
Board independence depends not only on its members' individual
relationships, but also the board's overall attitude toward management.
Independent boards are committed to good corporate governance practices
and, by providing objective independent judgment, enhancing shareholder
value. The Funds may withhold votes on a case-by-case basis from some or
all directors that, through their lack of independence, have failed to
observe good corporate governance practices or, through specific
corporate action, have demonstrated a disregard for the interest of
shareholders.
* The Funds will vote against proposals to classify a board, absent
special circumstances indicating that shareholder interests would be
better served by this structure.
Commentary: Under a typical classified board structure, the directors
are divided into three classes, with each class serving a three-year
term. The classified board structure results in directors serving
staggered terms, with usually only a third of the directors up for
re-election at any given annual meeting. The Funds' Trustees generally
believe that it is appropriate for directors to stand for election each
year, but recognize that, in special circumstances, shareholder
interests may be better served under a classified board structure.
B. Executive Compensation
-------------------------
The Funds generally favor compensation programs that relate executive
compensation to a company's long-term performance. The Funds will vote
on a case-by-case basis on board-approved proposals relating to
executive compensation, except as follows:
* Except where the Funds are otherwise withholding votes for the entire
board of directors, the Funds will vote for stock option plans which
will result in an average annual dilution of 1.67% or less (including
all equity-based plans).
* The Funds will vote against stock option plans that permit replacing
or repricing of underwater options (and against any proposal to
authorize such replacement or repricing of underwater options).
* The Funds will vote against stock option plans that permit issuance of
options with an exercise price below the stock's current market price.
* Except where the Funds are otherwise withholding votes for the entire
board of directors, the Funds will vote for employee stock purchase
plans that have the following features: (1) the shares purchased under
the plan are acquired for no less than 85% of their market value, (2)
the offering period under the plan is 27 months or less, and (3)
dilution is 10% or less.
Commentary: Companies should have compensation programs that are
reasonable and that align shareholder and management interests over the
longer term. Further, disclosure of compensation programs should provide
absolute transparency to shareholders regarding the sources and amounts
of, and the factors influencing, executive compensation. Appropriately
designed equity-based compensation plans can be an effective way to
align the interests of long-term shareholders with the interests of
management. The Funds may vote against executive compensation proposals
on a case-by-case basis where compensation is excessive by reasonable
corporate standards, or where a company fails to provide transparent
disclosure of executive compensation. In voting on proposals relating to
executive compensation, the Funds will consider whether the proposal has
been approved by an independent compensation committee of the board.
C. Capitalization
-----------------
Many proxy proposals involve changes in a company's capitalization,
including the authorization of additional stock, the repurchase of
outstanding stock or the approval of a stock split. The management of a
company's capital structure involves a number of important issues,
including cash flow, financing needs and market conditions that are
unique to the circumstances of each company. As a result, the Funds will
vote on a case-by-case basis on board-approved proposals involving
changes to a company's capitalization, except that where the Funds are
not otherwise withholding votes from the entire board of directors:
* The Funds will vote for proposals relating to the authorization of
additional common stock (except where such proposals relate to a
specific transaction).
* The Funds will vote for proposals to effect stock splits (excluding
reverse stock splits.)
* The Funds will vote for proposals authorizing share repurchase
programs.
Commentary: A company may decide to authorize additional shares of
common stock for reasons relating to executive compensation or for
routine business purposes. For the most part, these decisions are best
left to the board of directors and senior management. The Funds will
vote on a case-by-case basis, however, on other proposals to change a
company's capitalization, including the authorization of common stock
with special voting rights, the authorization or issuance of common
stock in connection with a specific transaction (e.g., an acquisition,
merger or reorganization) or the authorization or issuance of preferred
stock. Actions such as these involve a number of considerations that may
impact a shareholder's investment and warrant a case-by-case
determination.
D. Acquisitions, Mergers, Reincorporations, Reorganizations and
Other Transactions
---------------------------------------------------------------
Shareholders may be confronted with a number of different types of
transactions, including acquisitions, mergers, reorganizations involving
business combinations, liquidations and sale of all or substantially all
of a company's assets, which may require their consent. Voting on such
proposals involves considerations unique to each transaction. As a
result, the Funds will vote on a case-by-case basis on board-approved
proposals to effect these types of transactions, except as follows:
* The Funds will vote for mergers and reorganizations involving business
combinations designed solely to reincorporate a company in Delaware.
Commentary: A company may reincorporate into another state through a
merger or reorganization by setting up a "shell" company in a different
state and then merging the company into the new company. While
reincorporation into states with extensive and established corporate
laws - notably Delaware - provides companies and shareholders with a
more well-defined legal framework, generally speaking, shareholders must
carefully consider the reasons for a reincorporation into another
jurisdiction, including especially offshore jurisdictions.
E. Anti-Takeover Measures
-------------------------
Some proxy proposals involve efforts by management to make it more
difficult for an outside party to take control of the company without
the approval of the company's board of directors. These include adoption
of a shareholder rights plan, requiring supermajority voting on
particular issues, adoption of fair price provisions, issuance of blank
check preferred stock and creating a separate class of stock with
disparate voting rights. Such proposals may adversely affect shareholder
rights, lead to management entrenchment, or create conflicts of
interest. As a result, the Funds will vote against board-approved
proposals to adopt such anti-takeover measures, except as follows:
* The Funds will vote on a case-by-case basis on proposals to ratify or
approve shareholder rights plans (commonly referred to as "poison
pills"); and
* The Funds will vote on a case-by-case basis on proposals to adopt fair
price provisions.
Commentary: The Funds' Trustees recognize that poison pills and fair
price provisions may enhance shareholder value under certain
circumstances. As a result, the Funds will consider proposals to approve
such matters on a case-by-case basis.
F. Other Business Matters
-------------------------
Many proxies involve approval of routine business matters, such as
changing the company's name, ratifying the appointment of auditors and
procedural matters relating to the shareholder meeting. For the most
part, these routine matters do not materially affect shareholder
interests and are best left to the board of directors and senior
management of the company. The Funds will vote for board-approved
proposals approving such matters, except as follows:
* The Funds will vote on a case-by-case basis on proposals to amend a
company's charter or bylaws (except for charter amendments necessary or
to effect stock splits to change a company's name or to authorize
additional shares of common stock).
* The Funds will vote against authorization to transact other
unidentified, substantive business at the meeting.
* The Funds will vote on a case-by-case basis on other business matters
where the Funds are otherwise withholding votes for the entire board of
directors.
Commentary: Charter and bylaw amendments and the transaction of other
unidentified, substantive business at a shareholder meeting may directly
affect shareholder rights and have a significant impact on shareholder
value. As a result, the Funds do not view such items as routine business
matters. Putnam Management's investment professionals and the Funds'
proxy voting service may also bring to the Proxy Coordinator's attention
company-specific items which they believe to be non-routine and
warranting special consideration. Under these circumstances, the Funds
will vote on a case-by-case basis.
II. Shareholder Proposals
-------------------------
SEC regulations permit shareholders to submit proposals for inclusion in
a company's proxy statement. These proposals generally seek to change
some aspect of a company's corporate governance structure or to change
some aspect of its business operations. The Funds will vote in
accordance with the recommendation of the company's board of directors
on all shareholder proposals, except as follows:
* The Funds will vote for shareholder proposals to declassify a board,
absent special circumstances which would indicate that shareholder
interests are better served by a classified board structure.
* The Funds will vote for shareholder proposals to require shareholder
approval of shareholder rights plans.
* The Funds will vote for shareholder proposals that are consistent with
the Fund's proxy voting guidelines for board-approved proposals.
* The Funds will vote on a case-by-case basis on other shareholder
proposals where the Funds are otherwise withholding votes for the entire
board of directors.
Commentary: In light of the substantial reforms in corporate governance
that are currently underway, the Funds' Trustees believe that effective
corporate reforms should be promoted by holding boards of directors -
and in particular, their independent directors - accountable for their
actions, rather than imposing additional legal restrictions on board
governance through piecemeal proposals. Generally speaking, shareholder
proposals relating to business operations are often motivated primarily
by political or social concerns, rather than the interests of
shareholders as investors in an economic enterprise. As stated above,
the Funds' Trustees believe that boards of directors and management are
responsible for ensuring that their businesses are operating in
accordance with high legal and ethical standards and should be held
accountable for resulting corporate behavior. Accordingly, the Funds
will generally support the recommendations of boards that meet the basic
independence and governance standards established in these guidelines.
Where boards fail to meet these standards, the Funds will generally
evaluate shareholder proposals on a case-by-case basis.
III. Voting Shares of Foreign Issuers
-------------------------------------
Many of the Funds invest on a global basis and, as a result, they may be
required to vote shares held in foreign issuers - i.e., issuers that are
incorporated under the laws of a foreign jurisdiction and that are not
listed a U.S. securities exchange or the NASDAQ stock market. Because
foreign issuers are incorporated under the laws of countries and
jurisdictions outside the U.S., protection for shareholders may vary
significantly from jurisdiction to jurisdiction. Laws governing foreign
issuers may, in some cases, provide substantially less protection for
shareholders. As a result, the foregoing guidelines, which are premised
on the existence of a sound corporate governance and disclosure
framework, may not be appropriate under some circumstances for foreign
issuers. The Funds will vote proxies of foreign issuers in accordance
with the foregoing guidelines where applicable, except as follows:
* The Funds will vote for shareholder proposals calling for a majority
of the directors to be independent of management.
* The Funds will vote for shareholder proposals seeking to increase the
independence of board nominating, audit and compensation committees.
* The Funds will vote for shareholder proposals that implement corporate
governance standards similar to those established under U.S. federal law
and the listing requirements of U.S. stock exchanges, and that do not
otherwise violate the laws of the jurisdiction under which the company
is incorporated.
* The Funds will vote on case-by-case basis on proposals relating to (1)
the issuance of common stock in excess of 20% of a company's outstanding
common stock where shareholders do not have preemptive rights, or (2)
the issuance of common stock in excess of 100% of a company's
outstanding common stock where shareholders have preemptive rights.
Commentary: In many non-U.S. markets, shareholders who vote proxies for
shares of a foreign issuer are not able to trade in that company's stock
within a given period of time on or around the shareholder meeting date.
This practice is known as "share blocking." In countries where share
blocking is practiced, the Funds will vote proxies only with direction
from Putnam Management's investment professionals.
As adopted March 14, 2003
Proxy Voting Procedures of the Putnam Funds
-------------------------------------------
The Role of the Funds' Trustees
-------------------------------
The Trustees of the Putnam Funds exercise control of the voting of
proxies through their Board Policy and Nominating Committee, which is
composed entirely of independent Trustees. The Board Policy and
Nominating Committee oversees the proxy voting process and participates,
as needed, in the resolution of issues which need to be handled on a
case-by-case basis. The Committee annually reviews and recommends for
approval by the Trustees guidelines governing the Funds' proxy votes,
including how the Funds vote on specific proposals and which matters are
to be considered on a case-by-case basis. The Trustees are assisted in
this process by their independent administrative staff ("Fund
Administration"), independent legal counsel, and an independent proxy
voting service. The Trustees also receive assistance from Putnam
Investment Management, LLC ("Putnam Management"), the Funds' investment
adviser, on matters involving investment judgments. In all cases, the
ultimate decision on voting proxies rests with the Trustees, acting as
fiduciaries on behalf of the shareholders of the Funds.
The Role of the Proxy Voting Service
------------------------------------
The Funds have engaged an independent proxy voting service to assist in
the voting of proxies. The proxy voting service is responsible for
coordinating with the Funds' custodians to ensure that all proxy
materials received by the custodians relating to the Funds' portfolio
securities are processed in a timely fashion. To the extent applicable,
the proxy voting service votes all proxies in accordance with the proxy
voting guidelines established by the Trustees. The proxy voting service
will refer proxy questions to the Proxy Coordinator (described below)
for instructions under circumstances where: (1) the application of the
proxy voting guidelines is unclear, (2) a particular proxy question is
not covered by the guidelines, or (3) the guidelines call for specific
instructions on a case-by-case basis. The proxy voting service is also
requested to call to the Proxy Coordinator's attention specific proxy
questions which, while governed by a guideline, appear to involve
unusual or controversial issues. The Funds also utilize research
services relating to proxy questions provided by the proxy voting
service and by other firms.
The Role of the Proxy Coordinator
---------------------------------
Each year, a member of Fund Administration is appointed Proxy
Coordinator to assist in the coordination and voting of the Funds'
proxies. The Proxy Coordinator will deal directly with the proxy voting
service and, in the case of proxy questions referred by the proxy voting
service, will solicit voting recommendations and instructions from Fund
Administration, the Chair of the Board Policy and Nominating Committee,
and Putnam Management's investment professionals, as appropriate. The
Proxy Coordinator is responsible for ensuring that these questions and
referrals are responded to in a timely fashion and for transmitting
appropriate voting instructions to the proxy voting service.
Voting Procedures for Referral Items
------------------------------------
As discussed above, the proxy voting service will refer proxy questions
to the Proxy Coordinator under certain circumstances. When the
application of the proxy voting guidelines is unclear or a particular
proxy question is not covered by the guidelines (and does not involve
investment considerations), the Proxy Coordinator will assist in
interpreting the guidelines and, as appropriate, consult with the Senior
Vice President of Fund Administration, the Executive Vice President of
Fund Administration and the Chair of the Board Policy and Nominating
Committee on how the Funds' shares will be voted.
For proxy questions that require a case-by-case analysis pursuant to the
guidelines or that are not covered by the guidelines but involve
investment considerations, the Proxy Coordinator will refer such
questions, through a written request, to Putnam Management's investment
professionals for a voting recommendation. Such referrals will be made
in cooperation with the person or persons designated by Putnam
Management's Legal and Compliance Department to assist in processing
such referral items. In connection with each such referral item, the
Legal and Compliance Department will conduct a conflicts of interest
review, as described below under "Conflicts of Interest," and provide a
conflicts of interest report (the "Conflicts Report") to the Proxy
Coordinator describing the results of such review. After receiving a
referral item from the Proxy Coordinator, Putnam Management's investment
professionals will provide a written recommendation to the Proxy
Coordinator and the person or persons designated by the Legal and
Compliance Department to assist in processing referral items. Such
recommendation will set forth (1) how the proxies should be voted, (2)
the basis and rationale for such recommendation, and (3) any contacts
the investment professionals have had with respect to the referral item
with non-investment personnel of Putnam Management or with outside
parties (except for routine communications from proxy solicitors). The
Proxy Coordinator will then review the investment professionals'
recommendation and the Conflicts Report with the Senior Vice President
and/or Executive Vice President in determining how to vote the Funds'
proxies. The Proxy Coordinator will maintain a record of all proxy
questions that have been referred to Putnam Management's investment
professionals, the voting recommendation and the Conflicts Report.
In some situations, the Proxy Coordinator, the Senior Vice President
and/or the Executive Vice President may determine that a particular
proxy question raises policy issues requiring consultation with the
Chair of the Board Policy and Nominating Committee who, in turn, may
decide to bring the particular proxy question to the Committee or the
full board of Trustees for consideration.
Conflicts of Interest
---------------------
Occasions may arise where a person or organization involved in the proxy
voting process may have a conflict of interest. A conflict of interest
may exist, for example, if Putnam Management has a business relationship
with (or is actively soliciting business from) either the company
soliciting the proxy or a third party that has a material interest in
the outcome of a proxy vote or that is actively lobbying for a
particular outcome of a proxy vote. Any individual with knowledge of a
personal conflict of interest (e.g., familial relationship with company
management) relating to a particular referral item shall disclose that
conflict to the Proxy Coordinator and the Legal and Compliance
Department and otherwise remove himself or herself from the proxy voting
process. The Legal and Compliance Department will review each item
referred to Putnam Management's investment professionals to determine if
a conflict of interest exists and will provide the Proxy Coordinator
with a Conflicts Report for each referral item that (1) describes any
conflict of interest; (2) discusses the procedures used to address such
conflict of interest; and (3) discloses any contacts from parties
outside Putnam Management (other than routine communications from proxy
solicitors) with respect to the referral item not otherwise reported in
an investment professional's recommendation. The Conflicts Report will
also include written confirmation that any recommendation from an
investment professional provided under circumstances where a conflict of
interest exists was made solely on the investment merits and without
regard to any other consideration.
As adopted March 14, 2003
Item 8. [Reserved]
------------------
Item 9. Submission of Matters to a Vote of Security Holders:
------------------------------------------------------------
Not applicable
Item 10. Controls and Procedures:
--------------------------------
(a) The registrant's principal executive officer and principal
financial officer have concluded, based on their evaluation of the
effectiveness of the design and operation of the registrant's
disclosure controls and procedures as of a date within 90 days of
the filing date of this report on Form N-CSR, that the design and
operation of such procedures are generally effective to provide
reasonable assurance that information required to be disclosed by
the investment company in the reports that it files or submits under
the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the
Commission's rules and forms.
Although such officers reached the conclusion expressed in the
preceding paragraph, they are aware of matters that raise concerns
with respect to controls, each of which arose in connection with the
administration of 401(k) plans by Putnam Fiduciary Trust Company.
The first matter, which occurred in early 2001, involved the willful
circumvention of controls by certain Putnam employees in connection
with the correction of operational errors with respect to a 401(k)
client's investment in certain Putnam Funds, which led to losses in
five Putnam Funds (not including the registrant). Such officers
became aware of this matter in February 2004. The second matter,
which occurred in 2002, involved the willful circumvention by
certain Putnam employees of policies and procedures in connection
with the payment of Putnam corporate expenses. Such officers did
not learn that this matter involved a Putnam Fund until January
2004. Putnam has made restitution to the affected Funds,
implemented a number of personnel changes, including senior
personnel, begun to implement changes in procedures to address these
items and informed the SEC, the Funds' Trustees and independent
auditors. An internal investigation and review of procedures and
controls are currently ongoing.
In reaching the conclusion expressed herein, the registrant's
principal executive officer and principal financial officer
considered a number of factors, including the nature of the matters
described above, when the matters occurred, the individuals
involved, personnel changes that have occurred since these matters
occurred, the results to date of the current ongoing investigation
and the overall quality of controls at Putnam at this time.
(b) Changes in internal control over financial reporting:
Not applicable
Item 11. Exhibits:
------------------
(a) The Code of Ethics of The Putnam Funds, which incorporates the
Code of Ethics of Putnam Investments, is filed herewith.
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act
of 2002 are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: July 27, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Executive Officer
Date: July 27, 2004
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: July 27, 2004