Putnam
Managed
High Yield
Trust
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
5-31-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
As prospects for the world's securities markets grew more positive during
the past few months, fixed-income investors set aside some of their
concerns over risk and returned to a more venturesome frame of mind.
Higher-yielding lower-rated corporate bonds were among the beneficiaries
of this improved market environment.
For the managers of Putnam Managed High Yield Trust, the mood swing that
occurred during the fiscal year that ended on May 31, 1999, therefore was
a study in contrasts. It is heartening to note that the optimism over the
market's prospects expressed by the management team at the fiscal year's
midpoint was borne out by period's end. As you will read in the following
report, the managers remain generally optimistic as the fund enters its
new fiscal year.
I am pleased to announce the addition of Rosemary H. Thomsen to the fund's
management team. Rosemary joined Putnam in 1986 and is a senior portfolio
manager on the Credit Team within the Core Fixed Income Group. She has 17
years of investment experience.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
July 21, 1999
Report from the Fund Manager
Jennifer E. Leichter
Rosemary H. Thomsen
For high-yield bond investors, the past year offered a tale of two
markets. During the first half of Putnam Managed High Yield Trust's fiscal
year, concerns over Russia's financial collapse and subsequent margin
calls on certain highly leveraged portfolios caused many investors to shy
away from high-yield bonds. However, during the second half of the fund's
fiscal year, investors became more accepting of investments with an
element of risk, as they rediscovered the income potential of high-yield
bonds. This bipolar environment for high-yield bonds was reflected in your
fund's performance for the 12 months ended May 31, 1999.
Total return for 12 months ended 5/31/99
Net asset value Market price
- ----------------------------------------------------------------
-6.54% -2.06%
- ----------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 6.
* HIGH-YIELD SECURITIES REVIVE AFTER SLUMP
The flight to quality that swept the globe in the late summer and early
fall of 1998 created the most unfavorable environment for high-yield bonds
since 1990's recession-bound summer months. In the market volatility
following Russia's financial crisis, fixed-income investors suddenly
became highly risk averse and began selling off virtually all fixed-income
investments except U.S. Treasuries. Yield spreads (the difference in yield
between bonds with similar maturities) between high-yield bonds and
Treasury securities widened dramatically during the period, with most of
the widening taking place in August 1998. A second episode occurred in the
fall with the anticipated sale of the high-yield holdings of Long Term
Capital Management (a distressed hedge fund), an unexpectedly weak U.S.
jobs report, and signs of recession overseas. All quality tiers were
caught in the market rout, but the lower-quality, less liquid tiers were
hit hardest.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Telecommunications 17.5%
Broadcasting 9.0%
Cable television 5.4%
Gaming 3.5%
Electric utilities 3.4%
Footnote reads:
*Based on net assets as of 5/31/99. Holdings will vary over time.
During the second half of your fund's fiscal year, the high-yield bond
market staged a recovery as investors began accepting risk back into their
portfolios. Spreads against Treasuries narrowed during the second half of
your fund's fiscal year and net cash flows into the high-yield asset class
once again became positive. Investors were drawn to the sector's
attractive yields, as the investment climate grew increasingly amenable to
risk.
As your fund reached its fiscal year's end, the Federal Reserve Board
shifted its bias toward a tightening of interest rates -- an announcement
that reverberated in securities markets around the world and prompted a
selloff in the credit sectors during the last two weeks of the period.
Consequently, high-yield bonds shed some of the gains they had posted
since the beginning of 1999.
* TELECOMMUNICATIONS CONTINUED TO CONTRIBUTE TO PERFORMANCE
During the fiscal year, your fund's emphasis on the telecommunications
sector -- and the favorable climate for mergers and acquisitions that has
characterized this sector for some time -- contributed to relative
returns. Global Crossing Holdings, Ltd. and Covad Communications are two
examples of telecommunications holdings that served your fund well during
the period. While these holdings and others discussed in this report were
viewed favorably at the end of the period, all holdings are subject to
review and adjustment in accordance with the fund's investment strategy
and may well vary in the future.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Midland Funding Corp, Series A, 11.75%, 2005
Electric utilities
WinStar Communications, Inc. 144A, convertible senior discount notes
stepped-coupon zero % (14% 10/15/00), 2005
Telecommunications
International Cabletel, Inc. stepped-coupon, Series B,
zero % (11.5%, 2/1/01), 2006
Telecommunications
ICG Services, Inc. stepped-coupon, zero % (9.875%, 5/1/03), 2008
Telecommunications
GST Telecommunications, Inc. company guaranty stepped-coupon, zero %
(13.875, 12/15/00), 2005
Telecommunications
CSC Holdings, Inc. Series M,
11.125% cumulative preferred
Cable television
Quest Communications International, Inc. stepped-coupon, zero %, 2007
Telecommunications
Covad Communications Group, 144A warrants
Telecommunications
Intermedia Communications, Series B, 13.50% preferred
Communications
Global Crossing Holdings, Ltd., company guaranty 9.625%, 2008
Telecommunications
Footnote reads:
These holdings represent 10.3% of the fund's net assets as of 5/31/99.
Portfolio holdings will vary over time.
Global Crossing is putting together an undersea global fiber-optic
platform for data, voice, video, and Internet transmissions. The company's
Atlantic crossing cable will span four continents and address 80% of the
world's international traffic. During your fund's fiscal year, Global
Crossing announced agreements with U.S. West and Frontier Corp. for an
industry-transforming merger that will create a seamless end-to-end
local-to-global broadband network, provide integrated telecommunications
and data services, and accelerate the deployment of high-speed Internet
services to local, national, and global markets. Frontier Corp. provides
integrated communications services to business, carrier, and residential
customers nationwide and certain international countries. U.S. West
provides a full range of telecommunications services -- including
wireline, wireless PCS, data networking, directory, and information
services -- to more than 25 million customers nationally in some of the
country's fastest growing communities. During the period, U.S. West earned
credit upgrades from rating agencies. The merger will result in the first
global and local service provider in an era in which traditional regional
Bell operating companies and long-distance carriers are becoming obsolete.
Covad Communications is a competitive local exchange carrier (CLEC) that
provides high-speed digital communications services using digital
subscriber line technology to Internet service providers and customers. In
January 1999, Covad launched a nationwide remote access program,
integrating for the first time the company's digital subscriber line
service with the networks of investors AT&T and Qwest Communications
International. With the program, Covad is targeting its new TeleSpeed
Remote service to small to midsize businesses that want to connect remote
offices in other cities. The new offering will be faster than
long-distance dial-up service.
"[H]igh-yield corporates are worth considering for both tax-deferred and
tax-exempt IRAs and for diversifying some taxed portfolios invested for
income."
- -- S&P Personal Wealth, June 1999
On the negative side, your fund's health-care and energy exposures
detracted from returns. Health-care issuers believed the effects of
revised Medicare reimbursement formulas squeezed cash flows, while the
energy sector was hurt by low oil prices and a warm winter.
* CONTINUED FOCUS ON INDIVIDUAL SECURITY SELECTION
As this report is being written, we believe that the high-yield market is
fairly priced versus other market sectors and that yield spreads between
high-yield bonds and Treasury securities still offer attractive
opportunities. We are also monitoring the overall high-yield default rate,
which has been quite low in recent years but is now rising. We anticipate
some spread tightening over the next few months but believe that returns
in 1999's second half will come primarily from individual security
selection rather than from overall market movement.
We continue to emphasize telecommunications and media based on a favorable
earnings outlook. We are also placing less emphasis on industries, such as
steel, that depend on global price increases. The recent rise in the price
of oil has prompted concerns about a resurgence in global inflation; we
think these fears are likely to prove unfounded, at least in the near
term.
We plan to continue to emphasize diversification, companies with little
exposure to Asia and low commodity price risk, and securities with
attractive yields relative to their risk levels.
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 5/31/99, there is no guarantee the fund will
continue to hold these securities in the future. The lower credit ratings
of high-yield corporate bonds reflect a greater possibility that adverse
changes in the economy or their issuers may affect their ability to pay
principal and interest on the bonds.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Managed High Yield Trust is designed for investors seeking high current
income with a secondary objective of capital growth.
TOTAL RETURN FOR PERIODS ENDED 5/31/99
First Boston
Market High Yield Consumer
NAV price Bond Index price index
- ------------------------------------------------------------------------
1 year -6.54% -2.06% -0.70% 2.09%
- ------------------------------------------------------------------------
5 years 52.22 65.68 54.97 12.68
Annual average 8.77 10.62 9.16 2.42
- ------------------------------------------------------------------------
Life of fund (since 6/25/93) 59.46 61.80 62.78 15.10
Annual average 8.19 8.45 8.58 2.40
- ------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. Investment
returns, net asset value and market price will fluctuate so that an
investor's shares when sold may be worth more or less than their original
cost.
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 5/31/99
- -------------------------------------------------------------------------
Distributions
- -------------------------------------------------------------------------
Number 12
- -------------------------------------------------------------------------
Income $1.3780
- -------------------------------------------------------------------------
Capital gains
Long-term 0.1639
- -------------------------------------------------------------------------
Short-term --
- -------------------------------------------------------------------------
Total $1.5419
- -------------------------------------------------------------------------
Share value NAV Market price
- -------------------------------------------------------------------------
5/31/98 $14.83 $15.375
- -------------------------------------------------------------------------
5/31/99 12.30 13.500
- -------------------------------------------------------------------------
Current return (end of period)
- -------------------------------------------------------------------------
Current dividend rate1 10.83% 9.87%
- -------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by
NAV or market value at end of period.
TOTAL RETURN FOR PERIODS ENDED 6/30/99 (most recent calendar quarter)
Market
NAV price
- --------------------------------------------------------------------------
1 year -6.07% 0.13%
- --------------------------------------------------------------------------
5 years 52.57 80.63
Annual average 8.82 12.55
- --------------------------------------------------------------------------
Life of fund (since 6/25/93) 60.39 64.64
Annual average 8.18 8.65
- --------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. Investment
returns and principal value will fluctuate so that an investor's shares
when sold may be worth more or less than their original cost.
Terms and definitions
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding common shares.
Market price is the current trading price of one share of the fund. Market
prices are set by transactions between buyers and sellers on the New York
Stock Exchange.
Comparative benchmarks
First Boston High Yield Bond Index is an unmanaged list of lower-rated,
high-yielding U.S. corporate bonds. The index assumes reinvestment of all
distributions, does not take into account brokerage commissions or other
costs, and may pose different risks than the fund. Securities in the
fund's portfolio will differ from those in the index. It is not possible
to invest directly in an index.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
A guide to the financial statements
These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values as of
the last day of the reporting period. Holdings are organized by asset type
and industry sector, country, or state to show areas of concentration and
diversification.
Statement of assets and liabilities shows how the fund's net assets and share
price is determined. All investment and non-investment assets are added
together. Any unpaid expenses and other liabilities are subtracted from this
total. The result is divided by the number of shares to determine the net
asset value per share, which is calculated separately for each class of
shares. (For funds with preferred shares, the amount subtracted from total
assets includes the net assets allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for the
reporting period. This is determined by adding up all the fund's earnings --
from dividends and interest income -- and subtracting its operating expenses.
This statement also lists any net gain or loss the fund realized on the sales
of its holdings and -- for holdings that remain in the portfolio -- any change
in unrealized gains or losses over the period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of the
fund's shares. It lists distributions and their sources (net investment income
or realized capital gains) over the current reporting period and the most
recent fiscal year-end. The distributions listed here may not match the amounts
listed in the Statement of Operations because the distributions are determined
on a tax basis and may be paid in a different period from the one in which they
were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also includes
the current reporting period. For open-ended funds, a separate table is
provided for each share class.
Report of independent accountants
For the fiscal year ended May 31, 1999
To the Trustees and Shareholders of
Putnam Managed High Yield Trust
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of Putnam Managed High
Yield Trust (the "fund") at May 31, 1999, and the results of its
operations, the changes in its net assets and the financial highlights for
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the
fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of investments owned at May 31, 1999 by correspondence with
the custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 16, 1999
<TABLE>
<CAPTION>
The fund's portfolio
May 31, 1999
CORPORATE BONDS AND NOTES (82.4%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
Advertising (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
$ 190,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 206,150
240,000 Lamar Advertising Co. company guaranty
8 5/8s, 2007 243,600
447,000 Outdoor Communications Inc. sr. sub. notes
9 1/4s, 2007 469,350
--------------
919,100
Aerospace and Defense (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
110,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 105,050
120,000 Argo-Tech Corp. 144A sr. sub. notes 8 5/8s, 2007 114,600
260,000 Aviation Sales Co. company guaranty 8 1/8s, 2008 260,000
80,000 BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 82,800
125,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 120,625
120,000 K&F Industries, Inc. sr. sub. notes Ser. B, 9 1/4s, 2007 121,950
80,000 L-3 Communications Corp. company guaranty
Ser. B, 8s, 2008 76,200
100,000 L-3 Communications Corp. sr. sub. notes
8 1/2s, 2008 98,250
130,000 L-3 Communications Corp. sr. sub. notes Ser. B,
10 3/8s, 2007 137,475
200,000 Sequa Corp. med. term notes 10s, 2001 206,678
--------------
1,323,628
Agriculture (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
705,323 Premium Standard Farms, Inc. sr. sec. notes
11s, 2003 (PIK) 652,424
Airlines (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
160,000 Calair LLC 144A company guaranty 8 1/8s, 2008 149,600
280,000 Canadian Airlines Corp. sec. 10s, 2005 (Canada) 207,900
300,000 Trans World Airlines, Inc. sr. notes 11 1/2s, 2004 253,500
170,000 Trans World Airlines, Inc. sr. notes 11 3/8s, 2006 88,400
--------------
699,400
Apparel (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
190,000 Fruit of the Loom 144A company guaranty
8 7/8s, 2006 182,400
90,000 GFSI, Inc. sr. disc. notes stepped-coupon Ser. B,
zero % (11 3/8s, 9/15/04), 2009 (STP) 63,000
60,000 Iron Age Corp. company guaranty 9 7/8s, 2008 43,800
235,000 Kasper A.S.L. Ltd. sr. notes 12 3/4s, 2004 233,825
135,000 William Carter Holdings Co. sr. sub. notes
Ser. A, 12s, 2008 140,400
95,000 William Carter Holdings Co. sr. sub. notes
Ser. A, 10 3/8s, 2006 98,325
--------------
761,750
Automotive (2.4%)
- --------------------------------------------------------------------------------------------------------------------------
375,000 Aftermarket Technology Corp. sr. sub. notes
Ser. D, 12s, 2004 390,000
170,000 Dura Operating Corp. 144A sr. sub. notes 9s, 2009 167,450
350,000 Federal Mogul Corp. 144A notes 7 1/2s, 2009 326,799
290,000 Hayes Lemmerz International, Inc. 144A
company guaranty 8 1/4s, 2008 279,850
140,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 143,150
30,000 San Luis Corp Sa Reg S 8 7/8s, 2008 24,600
500,000 Talon Automotive Group sr. sub. notes Ser. B,
9 5/8s, 2008 430,000
400,000 Walbro Corp. company guaranty Ser. B, 10 1/8s, 2007 444,000
--------------
2,205,849
Banks (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
315,000 Dime Capital Trust I bank guaranty Ser. A,
9.33s, 2027 332,728
290,000 Greenpoint Capital Trust I company guaranty
9.1s, 2027 296,397
75,000 Ocwen Capital Trust I company guaranty
10 7/8s, 2027 58,500
165,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 165,000
100,000 Ocwen Financial Corp. notes 11 7/8s, 2003 96,000
150,000 Peoples Heritage Capital Trust company guaranty
Ser. B, 9.06s, 2027 144,468
150,000 Provident Capital Trust company guaranty 8.6s, 2026 147,090
85,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 81,469
125,000 Sovereign Capital Trust company guaranty 9s, 2027 122,190
110,000 Webster Capital Trust I 144A bonds 9.36s, 2027 109,115
--------------
1,552,957
Broadcasting (7.1%)
- --------------------------------------------------------------------------------------------------------------------------
170,000 Ackerly Group, Inc. sr. sub. notes Ser. B, 9s, 2009 171,700
200,000 Acme Television sr. disc. notes stepped-coupon
zero % (10 7/8s, 9/30/00), 2004 (STP) 171,000
440,000 Allbritton Communications Co. sr. sub. notes
Ser. B, 8 7/8s, 2008 429,000
9,407 Australis Media, Ltd. sr. disc. notes stepped-coupon
1 3/4s, (15 3/4s 5/15/00), 2003 (In default)
(Australia) (STP) (PIK) (NON) 94
750,000 Benedek Communications Corp. sr. disc. notes stepped-
coupon zero % (13 1/4s, 5/15/01), 2006 (STP) 616,875
435,000 Capstar Broadcasting sr. disc. notes stepped-coupon
zero % (12 3/4s, 2/1/02), 2009 (STP) 367,575
330,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 341,138
730,000 Chancellor Media Corp. 144A sr. notes 8s, 2008 722,700
30,000 Citadel Broadcasting, Inc. company guaranty
9 1/4s, 2008 31,650
160,000 Citadel Broadcasting, Inc. sr. sub. notes 10 1/4s, 2007 174,400
660,000 Echostar DBS Corp. 144A sr. notes 9 3/8s, 2009 671,550
245,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 232,750
210,000 Globo Communicacoes 144A company guaranty
10 1/2s, 2006 (Brazil) 149,100
160,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 157,600
500,000 Lenfest Communications, Inc. sr. sub. notes
10 1/2s, 2006 590,000
60,000 Pegasus Communications Corp. sr. notes
Ser. B, 9 3/4s, 2006 61,650
100,000 Pegasus Media & Communications notes Ser. B,
12 1/2s, 2005 110,000
904,000 PHI Holdings, Inc. sr. sub. notes 16s, 2001 718,409
225,000 Radio One Inc. company guaranty stepped-coupon
Ser. B, 7s, (12s, 5/15/00), 2004 (STP) 234,000
500,000 RBS Participacoes S.A. 144A company guaranty
11s, 2007 (Brazil) 325,000
160,000 SFX Entertainment Inc. company guaranty
9 1/8s, 2008 158,400
100,000 TV Azteca Holdings S.A. de C.V. sr. notes
11s, 2002 (Mexico) 82,000
--------------
6,516,591
Building and Construction (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
110,000 American Architectural Products Corp. company
guaranty 11 3/4s, 2007 90,200
70,000 Atrium Companies Inc. 144A sr. sub. notes
10 1/2s, 2009 68,950
170,000 Building Materials Corp. 144A sr. notes 8s, 2008 161,500
320,000 D.R. Horton, Inc. company guaranty 8s, 2009 308,800
390,000 GS Superhighway Holdings sr. notes
9 7/8s, 2004 (China) 195,000
120,000 NCI Building Systems 144A sr. sub. notes 9 1/4s, 2009 118,500
160,000 Toll Corp. company guaranty 8 1/8s, 2009 156,800
--------------
1,099,750
Buses (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
715,000 MCII Holdings sec. notes 12s, 2002 698,913
Business Equipment and Services (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
180,000 CEX Holdings, Inc. company guaranty Ser. B,
9 5/8s, 2008 169,200
100,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B,
11s, 2006 97,000
240,000 U.S. Office Products Co. company guaranty
9 3/4s, 2008 148,800
--------------
415,000
Cable Television (4.1%)
- --------------------------------------------------------------------------------------------------------------------------
95,831 Adelphia Communications Corp. sr. notes
9 1/2s, 2004 (PIK) 99,185
210,000 Adelphia Communications Corp. sr. notes
7 7/8s, 2009 198,975
220,000 Adelphia Communications Corp. 144A sr. notes
8 3/8s, 2008 217,800
300,000 Century Communications Corp. sr. notes 8 7/8s, 2007 304,500
470,000 Charter Communications Holdings LLC
144A sr. disc. notes stepped-coupon zero %
(9.92s, 4/1/04), 2011 (STP) 290,225
380,000 Charter Communications Holdings LLC 144A
sr. notes 8 5/8s, 2009 371,450
70,000 CSC Holdings, Inc. deb. 7 7/8s, 2018 69,245
50,000 CSC Holdings, Inc. sr. sub. deb. 9 7/8s, 2013 54,875
795,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) (STP) 617,119
160,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005
(United Kingdom) (STP) 142,800
520,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon
zero %, (11 7/8s, 10/15/02), 2007 (STP) 312,000
430,000 NTL Inc. sr. notes Ser. B, 10s, 2007 (United Kingdom) 447,200
190,000 NTL Inc. 144A sr. notes 11 1/2s, 2008
(United Kingdom) 210,900
100,000 OnePoint Communications Corp. 144A sr. notes
14 1/2s, 2008 49,000
60,000 RCN Corp. sr. disc. notes stepped-coupon zero %,
(11 1/8s, 10/15/02), 2007 (STP) 39,600
190,000 Supercanal Holdings S.A. 144A sr. notes
11 1/2s, 2005 (Argentina) (In default) (NON) 85,500
220,000 TeleWest Communications PLC 144A sr. disc. notes
stepped-coupon zero %, (9 1/4, 4/15/04), 2009 (STP) 144,100
260,000 United International Holdings sr. disc. notes stepped-
coupon Ser. B, zero % (10 3/4s, 2/15/03), 2008 (STP) 170,950
--------------
3,825,424
Cellular Communications (2.4%)
- --------------------------------------------------------------------------------------------------------------------------
440,000 Celcaribe S.A. sr. notes 13 1/2s, 2004 (Colombia) 382,800
215,000 Conecel Holdings 144A notes Ser. A, 14s, 2000 27,950
615,000 McCaw International Ltd sr. disc. notes stepped-coupon
zero % (13s, 4/15/02), 2007 (STP) 375,150
635,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/01), 2006
(Luxembourg) (STP) 495,300
310,000 NEXTEL Communications, Inc. sr. disc. notes stepped-
coupon zero % (12 1/8s, 4/15/03), 2008 (STP) 158,100
350,000 NEXTEL Communications, Inc. sr. disc. notes stepped-
coupon zero % (10.65s, 9/15/02), 2007 (STP) 245,000
380,000 NEXTEL Communications, Inc. 144A sr. notes
12s, 2008 426,550
80,000 Price Communications Wireless, Inc. 144A sr.
notes 9 1/8s, 2006 82,000
--------------
2,192,850
Chemicals (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
150,000 Geo Specialty Chemicals, Inc. 144A sr. sub. notes
10 1/8s, 2008 144,750
120,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 115,800
590,000 Lyondell Petrochemical Co. 144A sec. notes
9 7/8s, 2007 591,468
210,000 Lyondell Petrochemical Co. 144A sr. sub. notes
10 7/8s, 2009 213,150
200,000 PCI Chemicals & Pharmaceuticals company guaranty
9 1/4s, 2007 (Canada) 170,000
160,000 Royster-Clark Inc. 144A 1st mtge 10 1/4s, 2009 161,600
210,000 Scotts Co 144A sr. sub. notes 8 5/8s, 2009 210,525
--------------
1,607,293
Computer Services and Software (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
70,000 Concentric Network Corp. sr. notes 12 3/4s, 2007 73,850
240,000 PSINet, Inc. sr. notes 11 1/2s, 2008 252,000
120,000 PSINet, Inc. sr. notes Ser. B, 10s, 2005 120,000
140,000 Unisys Corp. sr. notes Ser. B, 12s, 2003 152,950
285,000 Unisys Corp. sr. notes 11 3/4s, 2004 318,488
110,000 Verio Inc. 144A sr. notes 11 1/4s, 2008 116,050
80,000 Verio Inc. sr. notes 10 3/8s, 2005 82,400
--------------
1,115,738
Conglomerates (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
250,000 Axia, Inc. company guaranty 10 3/4s, 2008 245,000
350,000 Cathay International Ltd. 144A sr. notes
13s, 2008 (China) (In default) (NON) 150,500
45,000 Dine S.A. de C.V. company guaranty
8 3/4s, 2007 (Mexico) 37,800
--------------
433,300
Consumer Durable Goods (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
190,000 Albecca Inc. company guaranty 10 3/4s, 2008 157,700
40,000 Hedstrom Holdings, Inc. 144A sr. disc. notes stepped-
coupon zero % (12s, 6/1/02), 2009 (STP) 18,000
550,000 Samsonite Corp. sr. sub. notes 10 3/4s, 2008 412,500
170,000 Sealy Mattress Co. company guaranty stepped-coupon
Ser. B, zero % (10 7/8s, 12/15/02), 2007 (STP) 110,925
--------------
699,125
Consumer Services (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
90,000 Protection One, Inc. sr. disc. notes stepped-coupon
zero %, (13 5/8s, 6/30/00), 2005 (STP) 100,350
Cosmetics (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
150,000 French Fragrances, Inc. company guaranty
Ser. D, 10 3/8s, 2007 151,500
120,000 Revlon Consumer Products sr. notes 9s, 2006 123,600
--------------
275,100
Electric Utilities (3.8%)
- --------------------------------------------------------------------------------------------------------------------------
300,000 Calpine Corp. sr. notes 9 1/4s, 2004 303,750
360,000 CMS Energy Corp. sr. notes 6 3/4s, 2004 348,487
1,600,000 Midland Funding II Corp. deb. Ser. A, 11 3/4s, 2005 1,784,000
470,422 Northeast Utilities System notes Ser. A, 8.58s, 2006 468,822
545,000 Panda Global Energy Co. company guaranty
12 1/2s, 2004 (China) 272,500
310,000 York Power Funding 144A notes 12s, 2007
(Cayman Islands) 313,100
--------------
3,490,659
Electronics (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
160,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 158,400
215,000 Viasystems Inc. sr. sub notes 9 3/4s, 2007 188,125
55,000 Wavetek Corp. company guaranty 10 1/8s, 2007 49,500
--------------
396,025
Entertainment (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
225,000 Premier Parks, Inc.144A sr. disc. notes stepped-coupon
zero %, (10s, 4/1/03), 2008 (STP) 156,375
165,000 SFX Entertainment, Inc. 144A company guaranty
Ser. B, 9 1/8s, 2008 167,063
250,000 Six Flags Corp. sr. notes 8 7/8s, 2006 253,750
--------------
577,188
Environmental Control (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
510,000 Allied Waste Industries, Inc. company guaranty
Ser. B, 7 7/8s, 2009 479,400
Financial Services (2.7%)
- --------------------------------------------------------------------------------------------------------------------------
345,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 263,063
100,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 92,199
340,000 Advanta Corp. med-term notes Ser. D, 6.92s, 2002 294,613
100,000 AMRESCO, Inc. sr. sub. notes Ser. 98-A, 9 7/8s, 2005 83,000
140,000 Capital One Financial Corp. notes 7 1/8s, 2008 132,808
250,000 Colonial Capital I 144A company guaranty 8.92s, 2027 234,947
260,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 228,800
70,000 Contifinancial Corp. sr. notes 8 1/8s, 2008 61,600
180,000 Contifinancial Corp. sr. notes 7 1/2s, 2002 156,600
320,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 268,800
155,000 Imperial Credit Capital Trust I 144A company guaranty
10 1/4s, 2002 124,000
175,000 Investors Capital Trust I company guaranty
Ser. B, 9.77s, 2027 163,625
90,000 Nationwide Credit Inc. sr. notes Ser. A, 10 1/4s, 2008 63,450
350,000 Resource America Inc. 144A sr. notes 12s, 2004 320,250
--------------
2,487,755
Food and Beverages (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
50,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 52,375
250,000 Aurora Foods, Inc. 144A ser. sub. notes Ser. D,
9 7/8s, 2007 261,875
105,000 Doane Pet Care Co. sr. sub. notes 9 3/4s, 2007 107,625
140,000 NBTY Inc. 144A sr. sub. notes 8 5/8s, 2007 121,800
320,000 RAB Enterprises, Inc. company guaranty 10 1/2s, 2005 182,400
180,000 Trairc Consumer Products, Inc. 144A sr. sub. notes
10 1/4s, 2009 178,200
--------------
904,275
Gaming (3.5%)
- --------------------------------------------------------------------------------------------------------------------------
320,000 Argosy Gaming Co. company guaranty 13 1/4s, 2004 363,200
250,000 Aztar Corp. sr. sub. notes 13 3/4s, 2004 270,000
210,000 Boyd Gaming Corp. sr. sub. notes 9 1/2s, 2007 209,475
50,000 Circus Circus Enterprises, Inc. deb. 7s, 2036 46,191
100,000 Circus Circus Enterprises, Inc. sr. notes 6.45s, 2006 91,703
380,000 Fitzgeralds Gaming Corp. company guaranty
Ser. B, 12 1/4s, 2004 159,600
110,000 Harrahs Entertainment, Inc. company guaranty
7 1/2s, 2009 107,625
300,000 Hollywood Casino Corp. 144A sec. notes
11 1/4s, 2007 299,250
130,000 Hollywood Park, Inc. company guaranty
Ser. B, 9 1/4s, 2007 132,438
300,000 Horseshoe Gaming Holdings 144A sr. sub. notes
8 5/8s, 2009 291,000
120,000 Isle of Capri Black Hawk LLC 144A 1st mortgage
Ser. B, 13s, 2004 133,200
200,000 Mohegan Tribal Gaming, Auth. 144A sr. sub. notes
8 3/4s, 2009 200,000
160,000 Park Place Entertainment sr. sub. notes 7 7/8s, 2005 153,600
525,000 PRT Funding Corp. sr. notes 11 5/8s, 2004
(In default) (NON) 235,594
110,000 Riviera Black Hawk 144A 1st mtge. 13s, 2005 110,000
430,000 Trump Castle Funding 144A sub. notes 10 1/4s, 2003 435,375
--------------
3,238,251
Health Care (3.2%)
- --------------------------------------------------------------------------------------------------------------------------
60,000 Columbia/HCA Healthcare Corp. deb. 8.36s, 2024 56,004
70,000 Columbia/HCA Healthcare Corp. med. term notes
7.69s, 2025 58,808
290,000 Columbia/HCA Healthcare Corp. med. term notes
6.63s, 2045 271,472
100,000 Columbia/HCA Healthcare Corp. notes 7 1/4s, 2008 89,260
300,000 Conmed Corp. company guaranty 9s, 2008 300,000
220,000 Hudson Respiratory Care, Inc. sr. sub. notes
9 1/8s, 2008 178,200
280,000 Integrated Health Services, Inc. sr. sub. notes Ser. A,
9 1/2s, 2007 183,400
300,000 Integrated Health Services, Inc. sr. sub. notes
Ser. A, 9 1/4s, 2008 195,000
140,000 Lifepoint Hospital Holdings 144A sr. sub. notes
10 3/4s, 2009 142,450
480,000 Mariner Post-Acute Network, Inc. sr. sub. notes
Ser. B, 9 1/2s, 2007 168,000
100,000 Mariner Post-Acute Network, Inc. sr. sub. notes stepped-
coupon Ser. B, zero % (10 1/2s, 11/1/02), 2007 (STP) 22,000
220,000 MedPartners, Inc. sr. notes 7 3/8s, 2006 191,950
130,000 MedPartners, Inc. sr. sub. notes 6 7/8s, 2000 119,925
460,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 368,000
120,000 Paragon Corp. Holdings, Inc. company guaranty
Ser. B, 9 5/8s, 2008 69,600
305,000 Sun Healthcare Group, Inc. sr. sub. notes
Ser. B, 9 1/2s, 2007 (In default) (NON) 57,950
60,000 Sun Healthcare Group, Inc. 144A sr. sub. notes
9 3/8s, 2008 (In default) (NON) 11,400
200,000 Tenet Healthcare Corp. sr. notes 8 5/8s, 2003 202,500
150,000 Tenet Healthcare Corp. sr. notes 8s, 2005 147,000
140,000 Triad Hospitals Holdings 144A sr. sub. notes
11s, 2009 142,800
--------------
2,975,719
Lodging (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
150,000 Epic Resorts LLC company guaranty Ser. B, 13s, 2005 138,000
460,000 HMH Properties, Inc. company guaranty Ser. B,
7 7/8s, 2008 425,500
50,000 Host Marriott L.P. 144A sr. notes 8 3/8s, 2006 48,500
370,000 ITT Corp. notes 6 3/4s, 2005 340,348
--------------
952,348
Manufacturing (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
90,000 Applied Power Inc. sr. sub. notes 8 3/4s, 2009 87,075
180,000 Insilco Holding Co. sr. disc. Notes stepped-coupon
zero % (14s, 8/15/03), 2008 (STP) 82,800
300,000 Telecom Tech, Inc. company guaranty 9 3/4s, 2008 300,000
--------------
469,875
Medical Supplies and Devices (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
190,000 Dade International, Inc. sr. sub. notes Ser. B,
11 1/8s, 2006 203,775
170,000 Mediq, Inc. company guaranty 11s, 2008 146,200
180,000 Mediq, Inc. deb. stepped-coupon zero %
(13s, 6/1/03), 2009 (STP) 72,000
--------------
421,975
Metals and Mining (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
300,000 Ameristeel Corp. company guaranty Ser. B,
8 3/4s, 2008 300,750
170,000 Continental Global Group sr. notes Ser. B, 11s, 2007 153,000
160,000 Lodestar Holdings, Inc. company guaranty
11 1/2s, 2005 128,000
250,000 Weirton Steel Co. sr. notes 11 3/8s, 2004 245,000
160,000 WHX Corp. sr. notes 10 1/2s, 2005 157,600
--------------
984,350
Motion Picture Distribution (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
230,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 220,800
150,000 Cinemark USA, Inc. sr. sub. notes 9 5/8s, 2008 153,563
620,000 Diva Systems Corp. sr. disc. notes, stepped-coupon
Ser. B, zero % (12 5/8s, 3/1/03), 2008 (STP) 204,600
330,000 United Artists Theatre sr. sub. notes 9 3/4s, 2008 260,700
--------------
839,663
Oil and Gas (2.6%)
- --------------------------------------------------------------------------------------------------------------------------
145,000 Abraxas Petroleum Corp. company guaranty
Ser. D, 11 1/2s, 2004 85,550
170,000 Belco Oil & Gas Corp. company guaranty Ser. B,
10 1/2s, 2006 177,225
30,000 Benton Oil & Gas Co. sr. notes 9 3/8s, 2007 21,825
150,000 Eagle Geophysical, Inc. company guaranty Ser. B,
10 3/4s, 2008 90,000
80,000 Flores & Rucks, Inc. sr. sub. notes 9 3/4s, 2006 84,800
30,000 Gothic Energy Corp. sr. disc. notes, stepped-coupon
Ser. B, zero % (14 1/8s, 5/1/03), 2006 (STP) 10,500
150,000 Gothic Production Corp. company guaranty Ser. B,
11 1/8s, 2005 129,000
140,000 Gulf Canada Resources, Ltd. sr. notes
8 3/8s, 2005 (Canada) 140,000
160,000 HS Resources, Inc. sr. sub. notes Ser. B, 9 1/4s, 2006 157,200
80,000 Leviathan Gas Corp.144A sr. sub. notes 10 3/8s, 2009 80,800
160,000 Ocean Energy, Inc. company guaranty Ser. B,
8 7/8s, 2007 160,800
200,000 Ocean Energy, Inc. company guaranty Ser. B,
8 3/8s, 2008 198,000
190,000 R & B Falcon Corp. 144A sr. notes 12 1/4s, 2006 191,900
130,000 RAM Energy Inc. sr. notes 11 1/2s, 2008 69,225
280,000 RBF Finance 144A company guaranty 11 3/8s, 2009 282,800
30,000 RBF Finance 144A company guaranty 11s, 2006 30,150
20,000 Transamerican Energy sr. disc. notes stepped-coupon
Ser. B, zero % (13s, 6/15/99), 2002 (In default) (NON) (STP) 2,200
780,000 Transamerican Energy sr. notes Ser. B,
11 1/2s, 2002 (In default) (NON) 85,800
280,000 Transamerican Refining Corp. sr. sub. notes Ser. B,
16s, 2003 (In default) (NON) 14,000
402,000 TransTexas Gas Corp. sr. sub. notes Ser. D,
13 3/4s, 2001 (In default) (NON) 20,100
330,000 Vintage Petroleum 144A sr. sub. notes 9 3/4s, 2009 338,250
--------------
2,370,125
Packaging and Containers (3.1%)
- --------------------------------------------------------------------------------------------------------------------------
240,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 241,200
320,000 Consumers International 144A sr. notes 10 1/4s, 2005 329,600
185,000 Huntsman Packaging Corp. company guaranty
9 1/8s, 2007 183,150
250,000 Impac Group Inc. company guaranty Ser. B,
10 1/8s, 2008 243,750
250,000 Owens-Illinois, Inc. sr. notes 8.1s, 2007 253,013
50,000 Owens-Illinois, Inc. deb. 7.8s, 2018 47,698
30,000 Owens-Illinois, Inc. sr. notes 7.35s, 2008 28,637
200,000 Packaging Corp. 144A sr. sub. notes 9 5/8s, 2009 203,000
605,000 Radnor Holdings Inc. sr. notes 10s, 2003 635,250
150,000 Riverwood International Corp. company guaranty
10 7/8s, 2008 148,500
250,000 Riverwood International Corp. company guaranty
10 5/8s, 2007 260,625
300,000 Riverwood International Corp. company guaranty
10 1/4s, 2006 306,000
--------------
2,880,423
Paper and Forest Products (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
200,000 APP Finance II Mauritius Ltd. bonds stepped-coupon
12s, (16s, 2/15/04), 2049 (Indonesia) (STP) 122,000
20,000 Boise Cascade Co. med. term notes Ser. A, 7.43s, 2005 18,812
250,000 Pacifica Papers, Inc. 144A sr. notes 10s, 2009 (Canada) 257,500
315,000 Pindo Deli Finance Mauritius Ltd. company guaranty
10 3/4s, 2007 (Indonesia) 198,450
80,000 Republic Group, Inc. sr. sub. notes 9 1/2s, 2008 80,000
120,000 Tembec Industries, Inc. company guaranty
8 5/8s, 2009 (Canada) 120,300
--------------
797,062
Pharmaceuticals (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
320,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 331,200
Photography (--%)
- --------------------------------------------------------------------------------------------------------------------------
70,000 PX Escrow Corp. sr. disc. notes stepped-coupon zero %
(9 5/8s, 2/1/02), 2006 (STP) 42,700
Publishing (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
300,000 Affinity Group Holdings sr. notes 11s, 2007 294,000
120,000 American Media Operation, Inc. 144A sr. sub. notes
10 1/4s, 2009 121,500
110,000 Perry-Judd company guaranty 10 5/8s, 2007 112,200
65,598 Von Hoffman Press, Inc. 144A sr. sub. notes
13 1/2s, 2009 66,910
85,000 Von Hoffman Press, Inc. 144A sr. sub. notes
10 3/8s, 2007 86,700
--------------
681,310
Railroads (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
320,000 TFM S.A. de C.V. company guaranty stepped-coupon
zero %, (11 3/4s, 6/15/02), 2009 (Mexico) (STP) 192,000
REITs (Real Estate Investment Trust) (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
370,000 Tanger Properties Ltd. partnership gtd. notes
8 3/4s, 2001 370,437
Restaurants (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
250,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 248,125
Retail (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
90,000 Home Interiors & Gifts, Inc. company guaranty
10 1/8s, 2008 90,675
600,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 624,000
500,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 425,000
--------------
1,139,675
Satellite Services (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
230,000 Golden Sky Systems company guaranty
Ser. B, 12 3/8s, 2006 258,750
265,000 Innova S De R.L. sr. notes 12 7/8s, 2007 (Mexico) 210,675
--------------
469,425
Semiconductors (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
250,000 Amkor Technologies, Inc. 144A sr. notes 9 1/4s, 2006 242,500
96,808 Cirent Semiconductor sr. sub. notes 10.22s, 2002 98,261
112,845 Cirent Semiconductor 144A sr. sub. notes
10.14s, 2004 114,538
534,574 Fairchild Semiconductor Corp. 144A sr. sub. notes
11.74s, 2008 (PIK) 502,500
200,000 Zilog, Inc. company guaranty Ser. B, 9 1/2s, 2005 175,000
--------------
1,132,799
Specialty Consumer Products (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
220,000 Decora Industries, Inc. sr. sec. notes Ser. B, 11s, 2005 211,200
Steel (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
490,000 AK Steel Corp. 144A sr. notes 7 7/8s, 2009 477,750
80,000 Armco, Inc. sr. notes 8 7/8s, 2008 82,000
150,000 National Steel Corp. 144A 1st mtge. 9 7/8s, 2009 152,625
--------------
712,375
Telecommunications (16.2%)
- --------------------------------------------------------------------------------------------------------------------------
385,000 21st Century Telecom Group, Inc. sr. disc. notes stepped-
coupon zero % (12 1/4s, 2/15/03), 2008 (STP) 177,100
500,000 Barak I.T.C. sr. disc. notes stepped-coupon Ser. B, zero %
(12 1/2s, 11/15/02), 2007 (Israel) (STP) 287,500
170,000 Bestel S.A. de C.V. sr. disc. notes stepped-coupon zero %
(12 3/4s, 5/15/03), 2005 (Mexico) (STP) 108,800
150,000 Birch Telecommunications, Inc. sr. notes 14s, 2008 143,625
150,000 CapRock Communications Corp. sr. notes
Ser. B, 12s, 2008 151,500
180,000 CapRock Communications Corp. 144A sr. notes
11 1/2s, 2009 175,500
200,000 Colt Telecommunications Group PLC sr. disc. notes
stepped-coupon zero %, (12s, 12/15/01), 2006
(United Kingdom) (STP) 170,500
170,000 Covad Communications Group, Inc. 144A sr. notes
12 1/2s, 2009 162,775
640,000 Covad Communications Group, Inc. sr. disc.
notes stepped-coupon Ser. B, zero %
(13 1/2s, 03/15/03), 2008 (STP) 348,800
730,000 DTI Holdings Inc. sr. disc. notes, stepped-coupon
Ser. B, zero % (12 1/2s, 03/01/03), 2008 (STP) 288,350
500,000 Econophone, Inc. 144A notes stepped-coupon zero %
(11s, 2/15/03), 2008 (STP) 267,500
200,000 Esprit Telecom Group PLC sr. notes 11 1/2s, 2007
(United Kingdom) 215,000
690,000 Firstworld Communication Corp. sr. disc. notes stepped-
coupon zero % (13, 4/15/03), 2008 (STP) 351,900
800,000 Focal Communications Corp. sr. disc. notes, stepped-
coupon Ser. B, zero % (12 1/8s, 02/15/03), 2008 (STP) 472,000
690,000 Global Crossing Holdings, Ltd. company guaranty
9 5/8s, 2008 755,550
1,050,000 GST Telecommunications, Inc. company guaranty stepped-
coupon zero % (13 7/8s, 12/15/00), 2005 (STP) 850,500
140,000 Hyperion Telecommunications, Inc. sr. disc. notes stepped-
coupon Ser. B, zero % (13s, 4/15/01), 2003 (STP) 114,800
220,000 Hyperion Telecommunications, Inc. sr. notes Ser. B,
12 1/4s, 2004 231,000
160,000 Hyperion Telecommunications, Corp. 144A sr. sub.
notes 12s, 2007 163,200
300,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon zero %
(13 1/2s, 9/15/00), 2005 (STP) 270,000
1,410,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero %
(9 7/8s, 5/1/03), 2008 (STP) 853,050
220,000 Intermedia Communications, Inc. sr. notes
Ser. B, 8.6s, 2008 205,700
450,000 Intermedia Communications, Inc. sr. notes
Ser. B, 8 1/2s, 2008 418,500
1,200,000 International Cabletel, Inc. sr. notes stepped-coupon
Ser. B, zero % (11 1/2s, 2/01/01), 2006 (STP) 1,050,000
440,000 IPC Information Systems sr. disc. notes stepped-coupon
zero % (10 7/8s, 11/1/01), 2008 (STP) 321,200
1,260,000 KMC Telecom Holdings, Inc. sr. disc. notes stepped-coupon
zero % (12 1/2s, 2/15/03), 2008 (STP) 667,800
200,000 Logix Communications Enterprises sr. notes
12 1/4s, 2008 189,000
360,000 Metromedia Fiber Network, Inc. 144A sr. notes
10s, 2008 375,300
120,000 MetroNet Communications Corp. sr. disc. notes
stepped-coupon zero % (10 3/4s, 11/1/02), 2007
(Canada) (STP) 95,400
250,000 MetroNet Communications Corp. sr. disc. notes stepped-
coupon zero % (9.95s, 6/15/03), 2008 (Canada) (STP) 185,000
390,000 MetroNet Communications Corp. 144A sr. notes
10 5/8s, 2008 (Canada) 445,575
280,000 Microcell Telecommunications sr. disc. notes stepped-
coupon Ser. B, zero % (14s, 12/1/01), 2006
(Canada) (STP) 224,000
50,000 Netia Holdings B.V. 144A company guaranty stepped-
coupon zero % (11 1/4s, 11/1/01), 2007
(Poland) (STP) 32,500
300,000 Netia Holdings B.V. 144A company guaranty
10 1/4s, 2007 (Poland) 276,000
290,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 298,700
320,000 Pathnet, Inc. sr. notes 12 1/4s, 2008 179,200
500,000 Primus Telecom Group sr. notes 11 3/4s, 2004 512,500
1,000,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (9.47s, 10/15/02), 2007 (STP) 784,320
425,000 Rhythms Netconnections, Inc. sr. disc. notes stepped-
coupon Ser. B, zero % (13 1/2s, 5/15/03), 2008 (STP) 225,250
140,000 RSL Communications, Ltd. 144A 10 1/2s, 2008 137,900
40,000 TeleWest Communications PLC 144A 11 1/4s, 2008 45,300
90,000 Telehub Communications Corp. company guaranty
stepped-coupon zero % (13 7/8s, 7/31/02),
2005 (STP) 61,200
370,000 Teligent, Inc. sr. disc. notes stepped-coupon Ser. B,
zero % (11 1/2s, 3/1/03), 2008 (STP) 213,675
280,000 Teligent, Inc. sr. notes 11 1/2s, 2007 272,300
430,000 Time Warner Telecom Inc. sr. notes 9 3/4s, 2008 451,500
180,000 Versatel Telecom B.V. sr. notes 13 1/4s, 2008
(Netherlands) 187,650
70,000 Versatel Telecom B.V. sr. notes 13 1/4s, 2008
(Netherlands) 72,975
320,000 WinStar Communications, Inc. sr. sub. notes stepped-
coupon zero % (15s, 3/1/02), 2007 (STP) 339,200
150,000 WinStar Communications. Inc. sr. sub. notes 11s, 2008 126,750
--------------
14,953,345
Telephone Services (3.3%)
- --------------------------------------------------------------------------------------------------------------------------
360,000 Allegiance Telecom, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (11 3/4s, 2/15/03), 2008 (STP) 223,200
500,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 457,500
180,000 Call-Net Enterprises Inc. sr. notes 8s, 2008 (Canada) 160,200
640,000 Call-Net Enterprises Inc. sr. disc. notes stepped-coupon
zero % (10.8s, 5/15/04), 2009 (Canada) (STP) 358,400
130,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-
coupon zero % (9.27s, 8/15/02), 2007 (Canada) (STP) 80,600
400,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon
zero % (8.94s, 8/15/03), 2008 (Canada) (STP) 236,000
140,000 Facilicom International sr. notes Ser. B, 10 1/2s, 2008 109,200
280,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 266,000
143,000 ITC Deltacom, Inc. sr. notes 11s, 2007 154,440
80,000 Long Distance International, Inc. sr. notes
12 1/4s, 2008 55,200
50,000 McLeodUSA, Inc. 144A sr. notes 8 1/8s, 2009 47,000
160,000 Primus Telecommunications Group, Inc. sr. notes
Ser. B, 9 7/8s, 2008 154,400
130,000 RSL Communications, Ltd. company guaranty
9 1/8s, 2008 118,300
100,000 Transtel S.A. 144A pass-through certificates
12 1/2s, 2007 (Colombia) 57,000
915,000 Viatel, Inc. sr. disc. notes stepped-coupon zero %
(12 1/2s, 4/15/03), 2008 (STP) 597,038
--------------
3,074,478
Textiles (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
240,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 153,600
140,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 136,850
90,000 Polymer Group, Inc. company guaranty Ser. B,
8 3/4s, 2008 87,075
--------------
377,525
Transportation (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
220,000 Johnstown America Industries, Inc. company guaranty
Ser. C, 11 3/4s, 2005 235,950
120,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 119,100
--------------
355,050
Wireless Communications (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
150,000 American Mobile Satellite Corp. company guaranty
12 1/4s, 2008 104,250
200,000 Orbital Imaging Corp. sr. notes Ser. B, 11 5/8s, 2005 182,000
110,000 Paging Network Do Brasil sr. notes 13 1/2s,
2005 (Brazil) 46,200
220,000 Telecorp PCS Inc. 144A sr. disc. notes stepped-coupon
zero %, (11 5/8s, 4/15/04), 2009 (STP) 113,300
115,000 Telesystem International Wireless Inc. sr. disc. notes
stepped-coupon Ser. C, zero %, (10 1/2s, 11/1/02),
2007 (Canada) (STP) 57,500
--------------
503,250
--------------
Total Corporate Bonds and Notes
(cost $82,651,581) $ 76,154,529
PREFERRED STOCKS (8.0%) (a)
NUMBER OF SHARES VALUE
Banks (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
6,240 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. (PIK) $ 332,280
80 First Republic 144A Ser. A, $10.50 cum. pfd. 80,000
--------------
412,280
Broadcasting (1.9%)
- --------------------------------------------------------------------------------------------------------------------------
1,493 Capstar Broadcasting, Inc. 144A $12.00 pfd. (PIK) 180,653
1,945 Capstar Communications, Inc. Ser. E, $12.625
cum. pfd. (PIK) 239,235
2,543 Citadel Broadcasting Inc. 144A $13.25 cum. pfd. (PIK) 305,160
316 Granite Broadcasting 144A $12.75 pfd. (PIK) 316,000
40 Paxson Communications Corp. $13.25 cum. pfd. (PIK) 356,000
319 Spanish Broadcasting Systems $14.25 cum. pfd. (PIK) 341,330
--------------
1,738,378
Cable Television (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
6,764 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 794,770
66,000 Diva Systems Corp. Ser. D, $6.00 pfd. 396,000
--------------
1,190,770
Cellular Communications (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
190 Dobson Communications 144A 13.00% pfd. (PIK) 187,150
241 Dobson Communications Corp. 144A $12.25 pfd. (PIK) 224,130
177 NEXTEL Communications, Inc. Ser. D, 13.00%
cum. pfd. (PIK) 192,930
--------------
604,210
Communications (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
729 Intermedia Communication Ser. B, 13.50% pfd. (PIK) 765,450
Computer Services (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
131 Concentric Network Corp. Ser. B, 13.50% pfd. (PIK) 130,345
Insurance (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
14,500 CGA Group Ltd. 144A Ser. A, $13.75 pfd. (PIK) 391,500
Medical Supplies and Devices (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
260,000 Fresenius Medical Capital Trust I Ser. D, 9.00%
company guaranty, pfd. (Germany) 267,800
290,000 Fresenius Medical Capital Trust II 7.875% company
guaranty, pfd. (Germany) 287,825
--------------
555,625
Oil and Gas (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
160 R& B Falcon Corp. $13.875 cv. pfd. 164,800
Packaging and Containers (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
900 Packaging Corp. America 144A $12.375 pfd. (PIK) 94,500
Restaurants (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
5,323 AmeriKing, Inc. $3.25 pfd. (PIK) 127,752
Telecommunications (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
259 21st Century Telecom Group 144A 13.75%
cum. pfd. (PIK) 134,680
436 IXC Communications, Inc. $12.50 pfd. (PIK) 422,920
7,329 Nextlink Communications, Inc. 144A $7.00
cum. pfd. (PIK) 375,611
15 NTL Inc. 144A Ser. B, 13.00% pfd. (PIK) 16,500
33,057 TCR Holding Corp. Class E, zero % pfd. 2,083
330 WinStar Communications, Inc. 144A $14.25
cum. pfd. (PIK) 267,300
--------------
1,219,094
--------------
Total Preferred Stocks (cost $7,436,980) $ 7,394,704
CONVERTIBLE BONDS AND NOTES (2.5%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 650,000 Argosy Gaming cv. sub. notes 12s, 2001 $ 664,625
275,000 Corporate Express, Inc. cv. notes 4 1/2s, 2000 246,125
140,000 GST Telecommunications, Inc. cv. sr. disc. notes stepped-
coupon zero %, (13 7/8s, 12/15/00), 2005 (STP) 166,600
200,000 Integrated Device Technology, Inc. cv. sub. notes
5 1/2s, 2002 155,000
800,000 WinStar Communications. Inc. 144A cv. sr. disc. notes
stepped-coupon zero % (14s, 10/15/00), 2005 (STP) 1,120,000
--------------
Total Convertible Bonds and Notes
(cost $1,805,534) $ 2,352,350
UNITS (1.8%) (a)
NUMBER OF UNITS VALUE
- --------------------------------------------------------------------------------------------------------------------------
550 Australis Media, Ltd. units stepped-coupon zero %,
(15 3/4s, 5/15/00), 2003 (Australia)
(In default) (STP) (NON) $ 5,500
240 Network Plus Corp. units 13 1/4s, 2009 239,400
370 Network Plus 144a units 13 1/2s, 2009 381,100
500 Signature Brands USA, Inc. units 13s, 2002 550,000
130 Tele1 Eur Bv 144a units 13s, 2009 131,300
450 XCL Ltd. units sr. sec. notes 13 1/2s, 2004 301,500
2,950 XCL Ltd. 144A units cv. cum. pfd. 9 1/2s, 2006 (PIK) 61,950
--------------
Total Units (cost $2,398,840) $ 1,670,750
WARRANTS (1.7%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
220 21st Century Telecom Group 144A 2/15/10 $ 4,400
160 American Mobile Satellite Corp. 4/1/08 4,000
170 Bestel S.A. de C.V. (Mexico) 5/15/05 340
150 Birch Telecommunications, Inc. 144A 6/15/08 750
1,490 Cellnet Data Systems, Inc. 9/15/07 35,760
14,500 CGA Group Ltd. 144A 1/1/04 145
300 Club Regina, Inc. 144A 4/15/06 300
200 Colt Telecommunications Group PLC 12/31/06 95,000
250 Comunicacion Cellular 144A (Colombia) 11/15/03 15,000
2,902 Consorcio Ecuatoriano 144A (Ecuador) 10/1/00 290
640 Covad Communications Group 144A
(acquired on 5/27/98, cost $309,757) (RES) 3/15/08 766,080
1,860 Diva Systems Corp. 3/1/08 22,320
3,650 DTI Holdings Inc. 3/1/08 37
150 Epic Resorts 6/15/05 2
190 Esat Holdings, Inc. (Ireland) 2/1/07 13,490
690 Firstworld Communication 4/15/08 34,500
270 Hyperion Telecommunications 144A 4/15/01 14,850
6,691 ICG Communications 10/15/05 133,820
180 Insilco Holding Co. 8/15/08 --
450 Intermedia Communications, Inc. 6/1/00 41,850
200 International Wireless Communications
Holdings 144A 8/15/01 2
440 Iridium World Com 144A 7/15/05 1,760
800 KMC Telecom Holdings, Inc. 4/15/08 2,600
700 Knology Holdings, Inc. 144A 10/15/07 1,400
80 Long Distance International, Inc. 144A 4/13/08 160
815 McCaw International Ltd. 4/15/07 3,464
180 Mediq Inc. 144A 6/1/09 2
100 OnePoint Communications Corp. 6/1/08 100
200 Orbital Imaging Corp. 144A 3/1/05 6,000
6,900 Pagemart, Inc. 144A 12/31/03 55,200
320 Pathnet, Inc. 144A 4/15/08 3,200
1,820 Rhythms Netcon 144A 5/15/08 264,810
215 Spanish Broadcasting Systems 144A 6/30/99 44,075
155 Sterling Chemicals Holdings 8/15/08 3,100
90 Telehub Communications Corp. 7/31/05 3,600
280 Transamerican Refining Corp. 6/30/03 --
1,045 UIH Australia/Pacific, Inc. 144A 5/15/06 1,045
1,500 USN Communications Inc. 8/15/04 15
250 Versatel 144A 5/15/08 15,000
101 Wright Medical Technology, Inc. 144A 6/30/03 1
--------------
Total Warrants (cost $452,445) $ 1,588,468
COMMON STOCKS (1.3%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
1,021 Allegiance Telecom, Inc. (NON) $ 37,777
100 AmeriKing, Inc. (NON) 3,900
1,800 Axia Holding Inc. 144A (PIK) (NON) 24,750
71,544 Celcaribe S.A. 144A (Colombia) (NON) 143,088
10,520 CellNet Data Systems, Inc. (NON) 93,365
10,124 Chesapeake Energy Corp. 21,514
8,769 Fitzgerald Gaming Corp. (NON) 2,192
1,000 French Fragrances Inc. (NON) 7,594
2,426 Hedstrom Holdings, Inc. 144A (NON) 2,426
175 Mothers Work, Inc. (NON) 1,903
1,180 NEXTEL Communications, Inc. Class A (NON) 43,513
150 Paging Do Brazil Holdings Co., LLC 144A
Class B, (Brazil) (NON) 2
244 Premium Holdings L.P. 144A (NON) 856
57,579 PSF Holdings LLC Class A (NON) 690,945
12,750 Specialty Foods Corp. (NON) 319
2,894 Viatel, Inc. (NON) 130,228
--------------
Total Common Stocks (cost $2,326,911) $ 1,204,372
CONVERTIBLE PREFERRED STOCKS (0.4%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
1,195 Chesapeake Energy Corp. $3.50 cv. cum. pfd. $ 23,900
5,060 Global Telesystems, Inc. 144A $3.625 cv. pfd. 315,618
580 XCL Ltd 144A Ser. A, $9.50 cv. cum. pfd. 12,180
--------------
Total Convertible Preferred Stocks (cost $362,155) $ 351,698
SHORT-TERM INVESTMENTS (0.8%) (a) (cost $727,000)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$727,000 Interest in $277,448,000 joint repurchase agreement
dated May 28, 1999 with Credit Suisse First Boston
due June 1, 1999 respect to various U.S. Treasury
obligations -- maturity value of $727,387 for an
effective yield of 4.79% $ 727,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $98,161,446) (b) $ 91,443,871
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $92,367,823.
(b) The aggregate identified cost on a tax basis is $98,164,409, resulting in gross unrealized appreciation and
depreciation of $4,376,927 and $11,097,465, respectively, or net unrealized depreciation of $6,720,538.
(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 receiving interest at this rate.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities held at
May 31, 1999 was $766,080 or 0.8% of net assets.
(PIK) Income may be received in cash or additional securities at the discretion of the issuer.
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 accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
May 31, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $98,161,446) (Note 1) $ 91,443,871
- -----------------------------------------------------------------------------------------------
Dividends, interest and other receivables 1,797,622
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 430,987
- -----------------------------------------------------------------------------------------------
Total assets 93,672,480
Liabilities
- -----------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 10,328
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 833,200
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 190,000
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 177,609
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 22,390
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 11,197
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 762
- -----------------------------------------------------------------------------------------------
Other accrued expenses 59,171
- -----------------------------------------------------------------------------------------------
Total liabilities 1,304,657
- -----------------------------------------------------------------------------------------------
Net assets $ 92,367,823
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Note 1) $106,772,932
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (856,292)
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (6,831,242)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (6,717,575)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $ 92,367,823
Computation of net asset value
- -----------------------------------------------------------------------------------------------
Net asset value per share ($92,367,823 divided by 7,507,107 shares) $12.30
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended May 31, 1999
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Dividends $ 804,301
- -----------------------------------------------------------------------------------------------
Interest income 9,549,050
- -----------------------------------------------------------------------------------------------
Total investment income 10,353,351
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 736,167
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 175,937
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 12,826
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 4,629
- -----------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 384
- -----------------------------------------------------------------------------------------------
Reports to shareholders 23,435
- -----------------------------------------------------------------------------------------------
Registration fees 75
- -----------------------------------------------------------------------------------------------
Auditing 48,105
- -----------------------------------------------------------------------------------------------
Legal 11,091
- -----------------------------------------------------------------------------------------------
Postage 18,954
- -----------------------------------------------------------------------------------------------
Exchange listing fees 16,170
- -----------------------------------------------------------------------------------------------
Other 34,304
- -----------------------------------------------------------------------------------------------
Total expenses 1,082,077
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (7,510)
- -----------------------------------------------------------------------------------------------
Net expenses 1,074,567
- -----------------------------------------------------------------------------------------------
Net investment income 9,278,784
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (6,541,670)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the year (10,127,946)
- -----------------------------------------------------------------------------------------------
Net loss on investments (16,669,616)
- -----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $ (7,390,832)
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended May 31
-------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 9,278,784 $ 10,807,578
- ---------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (6,541,670) 5,444,693
- ---------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (10,127,946) (287,467)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (7,390,832) 15,964,804
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income (10,343,967) (10,321,574)
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments (1,230,315) --
- ---------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (18,965,114) 5,643,230
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 111,332,937 105,689,707
- ---------------------------------------------------------------------------------------------------------------
End of year (including distributions in excess of net
investment income and undistributed net investment
income of $856,292 and $713,405, respectively) $ 92,367,823 $111,332,937
- ---------------------------------------------------------------------------------------------------------------
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.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended May 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $14.83 $14.08 $13.78 $13.04 $13.40
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.24 1.44 1.34 1.27 1.32
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (2.23) .69 .29 .79 (.36)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.99) 2.13 1.63 2.06 .96
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (1.38) (1.38) (1.33) (1.30) (1.32)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- -- (.02) --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized
gain on investments (.16) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.38) (1.38) (1.33) (1.32) (1.32)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.46 $14.83 $14.08 $13.78 $13.04
- ------------------------------------------------------------------------------------------------------------------------------------
Market value,
end of period $13.500 $15.375 $14.375 $13.750 $13.125
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
market value (%)(a) (2.06) 16.96 14.88 15.30 9.20
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $92,368 $111,333 $105,690 $103,466 $97,901
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.11 1.05 1.06 1.04 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 9.50 9.75 9.70 9.49 10.32
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 47.56 85.45 62.57 74.70 103.91
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended May 31, 1996, and thereafter, includes amounts paid
through expense offset arangements. Prior period ratios exclude these amounts. (Note 2)
</TABLE>
Notes to financial statements
May 31, 1999
Note 1
Significant accounting policies
Putnam Managed High Yield Trust (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a non-diversified,
closed-end management investment company. The fund's investment objective
is to seek high current income. The fund intends to achieve its objective
by investing in high yielding income securities.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with generally
accepted accounting principles and requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities. Actual results could differ from those estimates.
A) Security valuation Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported sale price, or, if no sales are reported -- as in the case of
some securities traded over-the-counter -- the last reported bid price.
Short-term investments having remaining maturities of 60 days or less are
stated at amortized cost, which approximates market value, and other
investments, including restricted securities are stated at fair value
following procedures approved by the Trustees. Market quotations are not
considered to be readily available for certain long-term corporate bonds
and notes; such investments are stated at fair value on the basis of
valuations furnished by a pricing service, approved by the Trustees or
dealers, which determines valuations for normal, institutional-size
trading units of such securities using methods based on market
transactions for comparable securities and various relationships between
securities which are generally recognized by institutional traders.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account along with the cash of other
registered investment companies and certain other accounts managed by
Putnam Investment Management, Inc. ("Putnam Management"), the fund's
Manager, a wholly-owned subsidiary of Putnam Investments, Inc. These
balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the market
value of which at the time of purchase is required to be in an amount at
least equal to the resale price, including accrued interest. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. Putnam Management is responsible for determining that the
value of these underlying securities is at all times at least equal to the
resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Interest income is recorded on the accrual basis.
Dividend income is recorded on the ex-dividend date. Discounts on zero
coupon bonds, original issue discount bonds, stepped-coupon bonds and
payment in kind bonds are accreted according to the yield-to-maturity
basis.
E) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated investment
companies. It is also the intention of the fund to distribute an amount
sufficient to avoid imposition of any excise tax under Section 4982 of the
Internal Revenue Code of 1986, as amended. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held nor for excise tax on income and capital
gains. At May 31, 1999, the fund had a capital loss carryover of
approximately $2,584,000 available to offset future capital gains, if any,
which will expire on May 31, 2007.
F) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, 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 interest on
payment-in-kind securities, losses on wash sale transactions, post-October
loss deferrals, dividends payable, defaulted bond interest and market
discount. 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,
1999, the fund reclassified $504,514 to increase distributions in excess
of net investment income and $321,832 to increase accumulated net realized
losses, with an increase to paid-in-capital of $826,346. The calculation
of net investment income per share in the financial highlights table
excludes these adjustments.
G) Unamortized organization expenses Expenses incurred by the fund in
connection with its organization, its registration with the Securities and
Exchange Commission and with various states and the initial public
offering of its shares were $29,884. These expenses have been fully
amortized on a straight line basis over a five-year period.
Note 2
Management fee, administrative
services, and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund.
Such fee is based on the following annual rates: 0.75% of the first $500
million of average net assets, 0.65% of the next $500 million, 0.60% of
the next $500 million, and 0.55% thereafter.
As part of the subcustodian contract between the subcustodian bank and
Putnam Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments,
Inc., the subcustodian bank has a lien on the securities of the fund to
the extent permitted by the fund's investment restrictions to cover any
advances made by the subcustodian bank for the settlement of securities
purchased by the fund. At May 31, 1999, the payable to the subcustodian
bank represents the amount due for cash advance for the settlement of a
security purchased.
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 PFTC. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the year ended May 31, 1999, fund expenses were reduced by $7,510
under expense offset arrangements with PFTC. Investor servicing and
custodian fees reported in the Statement of operations exclude these
credits. The fund could have invested a portion of the assets utilized in
connection with the expense offset arrangements in an income producing
asset if it had not entered into such arrangements.
Each Trustee of the fund receives an annual Trustee fee, of which $530 has
been allocated to the fund, and an additional fee for each Trustee's
meeting attended. Trustees who are not interested persons of Putnam
Management and who serve on committees of the 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
in the fund and are 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 Trustee for at least five years. Benefits under the Pension Plan
are equal to 50% of the Trustee's average total retainer and meeting fees
for the three years preceding retirement. Pension expense for the fund is
included in Compensation of Trustees in the Statement of operations.
Accrued pension liability is included in Payable for compensation of
Trustees in the Statement of assets and liabilities.
Note 3
Purchases and sales of securities
During the year ended May 31, 1999, purchases and sales of investment
securities other than short-term investments aggregated $44,814,589 and
$46,843,093, respectively. There were no purchases and sales of U.S.
government obligations. In determining the net gain or loss on securities
sold, the cost of securities has been determined on the identified cost
basis.
Federal tax information
(Unaudited)
The Fund has designated 11.85% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
The Form 1099 you receive in January 2000 will show the tax status of all
distributions paid to your account in calendar 1999.
Results of September 4, 1998 shareholder meeting
(Unaudited)
A meeting of shareholders of the fund was held on September 4, 1998. At
the meeting, each of the nominees for Trustees was elected, as follows:
Common Shares
Votes
Votes for withheld
Jameson Adkins Baxter 4,946,279 265,221
Hans H. Estin 4,956,914 254,586
John A. Hill 4,959,093 252,407
R.J. Jackson 4,956,675 254,825
Paul L. Joskow 4,957,955 253,545
Elizabeth T. Kennan 4,959,703 251,797
Lawrence J. Lasser 4,960,721 250,779
John H. Mullin III 4,964,721 246,779
Robert E. Patterson 4,964,721 246,779
Donald S. Perkins 4,965,385 246,115
William F. Pounds 4,965,385 246,115
George Putnam 4,965,785 245,715
George Putnam, III 4,965,785 245,715
A.J.C. Smith 4,965,785 245,715
W. Thomas Stephens 4,965,785 245,715
W. Nicholas Thorndike 4,965,785 245,715
A proposal to ratify the selection of PricewaterhouseCoopers LLP as
independent auditors for the fund was approved as follows: 5,059,982 votes
for, and 48,335 votes against, with 103,183 abstentions and non-broker
votes. A proposal to approve an amendment to the fund's fundamental
investment restriction with respect to making loans was approved as
follows: 3,715,622 votes for, and 433,674 votes against, with 1,062,204
abstentions and non-broker votes.
Fund information
WEB SITE
www.putnaminv.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Edward H. D'Alelio
Vice President
Jennifer E. Leichter
Vice President and Fund Manager
Rosemary H. Thomsen
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
Beverly Marcus
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.putnaminv.com) any time for up-to-date information about
the fund's NAV.
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PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
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BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
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For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
53209 590 7/99
