Putnam
Managed
High Yield
Trust
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
5-31-00
[SCALE LOGO OMITTED]
From the Trustees
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM, III]
Dear Shareholder:
It is a pleasure to greet you in our new roles as Chairman of the
Trustees and President of the Funds. As you know, both of us have been
members of the Board of Trustees for a number of years -- years in which
Putnam has experienced tremendous growth and transformed itself from a
respected U.S. investment management firm to a financial institution
with a global presence.
As the organization makes its way into the new century, we are certain
that the changes that lie ahead will be even more breathtaking in their
scope. What will not change is the Trustees' dedication to serving the
best interests of our shareholders.
We are pleased to announce the appointment of Rosemary H. Thomsen and
the Credit Team as your fund's managers. Rosemary has been with Putnam
since 1986 and is a managing director on the Credit Team within the Core
Fixed-Income Group. She has 17 years of investment experience.
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 19, 2000
REPORT FROM THE FUND MANAGER
Rosemary H. Thomsen
The performance of any mutual fund inevitably reflects market conditions
in its investment universe, and for much of the period that encompassed
Putnam Managed High Yield Trust's fiscal year, the 12 months ended
May 31, 2000, the high-yield market was weak. In this challenging
environment, the fund performed well relative to its peers during the
12-month period, although it underperformed the First Boston High Yield
Bond Index.
Total return for 12 months ended 5/31/00
NAV Market price
------------------------------------------------------------------------
-0.81% -15.61%
------------------------------------------------------------------------
Past performance is not indicative of future results. Performance
information for longer periods begins on page 6.
* HIGH YIELD BOND MARKET FACED CHALLENGES IN THE FIRST HALF OF 2000
During the summer months of 1999 and into the fall, high-yield bonds
declined in price in response to several Federal Reserve Board interest-
rate increases, which began at the end of June. In the final months of
last year, high-yield bonds benefited from a rally in the technology and
telecommunications sectors. However, since the beginning of this year
the spread between high yield bonds and Treasury bonds has widened from
5.39% to an historically wide level of 6.78%, and the bond market as a
whole has experienced declining prices. Thus, while your fund delivered
solid competitive performance, its results in absolute terms were
disappointing.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Telecommunications 14.3%
Broadcasting 7.9%
Telephone 6.2%
Cable television 5.6%
Paper and forest products 3.5%
*Based on net assets as of 5/31/00. Holdings will vary over time.
One of the reasons for the bond market weakness this year is the
continued increases in short-term interest rates by the Fed, which has
aggressively used monetary policy to try to slow the U.S. economy. This
has caused an inversion of the yield curve, a situation that occurs when
short-term interest rates are higher than long-term interest rates.
Investors have reacted either by putting money into safer, higher-
yielding short-term bonds or by sitting on the sidelines waiting for the
dust to settle in the stock market. There has also been an increase in
defaults among high-yield issuers. As a result of these factors, the
performance of high-yield bonds this year has lagged that of higher-
quality corporate and government bonds.
* TELECOM ISSUES DRIVE FUND'S PERFORMANCE
The fund's strong showing within its peer group can be attributed to an
overweight position in the telecommunications sector, which generally
performed well, despite correcting along with the technology sector in
April and May of this year. Also important was careful security
selection. Putnam has a large team of analysts dedicated to scrutinizing
every holding that is acquired and monitoring holdings on an ongoing
basis. This research capability enabled us to select bonds of companies
that had solid fundamental characteristics and helped us avoid the high-
yield bonds that underperformed during the period.
Telecommunications represented the top-performing sector in the high-
yield bond market during the fiscal year, and the funds' overweight
position here was a plus for the fund's performance. An increase in
merger and acquisition activity resulted in sharp price appreciation for
several fund holdings, including IPC Information Systems, which was
bought by Global Crossing, and Verio, which was acquired by NTT. In
addition a number of telecommunications companies went public during the
period, including portfolio holding Carrier 1. Stock offerings tend to
boost the value of a company's high-yield bonds because they add more
equity and cash to its balance sheet and thus improve its credit
profile. While these holdings and others discussed in this report were
viewed favorably at the end of the fiscal period, all holdings are
subject to review and adjustment in accordance with the fund's
investment strategy and may well vary in the future.
* SEVERAL STRATEGIES EMPLOYED IN A DIFFICULT ENVIRONMENT
In the first part of the year, we sold some of the fund's holdings after
their prices had risen, a strategy that locked in some attractive gains
before the market declined. When the high-yield market corrected in
March and April, we diversified the portfolio by increasing the fund's
exposure to bonds in value-oriented cyclical sectors, including the
steel, paper, and chemical industries. We acquired many of these
holdings at attractive prices, and when the market corrected in April
and May, these cyclical holdings performed well.
"According to Bear Stearns, the average high yield bond in its master
index returns 13.2%. With the Nasdaq's 6% decline this year, it seems
those yields are finally beginning to look like bargains to investors."
-- Financial Times, June 16, 2000
* FUND CONTINUES TO DIVERSIFY
The fund's telecommunications holdings sustained declines in April and
May of this year, along with the rest of the technology sector. We still
believe strongly in the long-term potential of this sector and expect to
maintain an overweight position for as long as our industry outlook
remains positive.
While the value of the fund's holdings declined in April and May, we
took some profits in some holdings before the market corrected, which
helped boost the fund's performance relative to its peers. Also, the
gains in the fund's telecommunications holdings that occurred prior to
April outweighed the declines of the final two months.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Midland Funding II Corp.
Debentures, series A 11.75%, 2005
Power producers
Level 3 Communication, Inc.
144A senior notes 11%, 2008
Telecommunications
Nextel Communications, Inc.
Senior notes 9 3/8%, 2009
Telecommunications
Trump Castle Funding
144a sub. notes 10 1/4%, 2003
Gaming and lottery
Premium Standard Farms, Inc.
Senior notes 11%, 2003
Agriculture
Benedek Communications Corp.
Senior discount notes stepped-coupon zero % (13 1/4%, 5/15/01), 2006
Broadcasting
Intermedia Communication
Series B 13.50% pfd.
Telecommunications
KMC Telecom Holdings, Inc.
Senior discount notes stepped-coupon zero % (12 1/2%, 2/15/03), 2006
Telephone
Diamond Cable Communication Co.
Senior discount notes stepped-coupon zero % (10 3/4%, 2/15/02), 2007
Cable television
PHI Holdings, Inc.
Senior sub. notes zero %, 2001
Broadcasting
These holdings represent 10.1% of the fund's assets
as of 5/31/00. Portfolio holdings will vary over time.
Two new holdings acquired during the fiscal period illustrate our
efforts to keep the portfolio diversified. The first, Jostens, makes
school rings and yearbooks for high school graduates. This is a stable
business, providing a steady level of cash flow, a positive for a high-
yield bond. Since the market environment was difficult, we were able to
structure an attractive deal for the fund. The second example is
Huntsman Packaging, which manufactures plastic food wrapping for
industrial use, also a stable business providing reliable cash flow.
Huntsman was also acquired at an attractive price with a yield of 13%.
* HIGH-YIELD OUTLOOK BECOMING MORE POSITIVE
While this has been a difficult market for high-yield bonds, we believe
that the Fed is nearing the end of its tightening cycle since the U.S.
economy appears to be showing signs of slowing. Should the Fed stop
tightening interest rates by mid summer, which we believe is a strong
possibility, the outlook for high-yield bonds, which are currently
trading at extremely low valuations, and are yielding 13% on average,
would improve. In addition, corporate earnings and merger and
acquisition activity have remained strong. Barring any significant
economic disruptions, we believe that high-yield bonds have the
potential to post solid returns from this point through the end of the
calendar year.
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 5/31/00, there is no guarantee the fund will
continue to hold these securities in the future.
The lower credit ratings of high-yield bonds reflect a greater
possibility that adverse changes in the economy or poor performance by
the issuers of these bonds may affect the issuer's ability to pay
principal and interest.
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 5/31/00
First Boston
Market High Yield Consumer
NAV price Bond Index price index
------------------------------------------------------------------------
1 year -0.81% -15.61% -2.53% 3.07%
------------------------------------------------------------------------
5 years 37.68 27.73 36.07 12.55
Annual average 6.60 5.02 6.35 2.39
------------------------------------------------------------------------
Life of fund
(since 6/25/93) 56.19 36.21 58.67 18.63
Annual average 6.65 4.56 6.90 2.50
------------------------------------------------------------------------
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 5/31/00
------------------------------------------------------------------------
Distributions
------------------------------------------------------------------------
Number 12
------------------------------------------------------------------------
Income $1.2167
------------------------------------------------------------------------
Return of capital1 $0.0653
------------------------------------------------------------------------
Total $1.2820
------------------------------------------------------------------------
Share value NAV Market price
------------------------------------------------------------------------
5/31/99 $12.30 $13.500
------------------------------------------------------------------------
5/31/00 10.91 10.188
------------------------------------------------------------------------
Current return (end of period)
------------------------------------------------------------------------
Current dividend rate2 11.11% 11.90%
------------------------------------------------------------------------
1 See page 35 for more information.
2 Income portion of most recent distribution, annualized and divided by
NAV or market price at end of period.
TOTAL RETURN FOR PERIODS ENDED 6/30/00 (most recent calendar quarter)
Market
NAV price
------------------------------------------------------------------------
1 year 0.18% -13.71%
------------------------------------------------------------------------
5 years 38.89 31.80
Annual average 6.79 5.68
------------------------------------------------------------------------
Life of fund (since 6/25/93) 58.50 41.72
Annual average 6.79 5.10
------------------------------------------------------------------------
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.
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
The First Boston High Yield Bond Index is a market-weighted index
including publicly traded bonds having a rating below BBB by Standard &
Poor's and Baa by Moody's. The index assumes reinvestment of all
distributions and interest payments and does not take into account
brokerage fees or taxes. Securities in the fund do not match those in
the index and performance of the fund will differ. 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 are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are
subtracted from this total. The result is divided by the number of
shares to determine the net asset value per share, which is calculated
separately for each class of shares. (For funds with preferred shares,
the amount subtracted from total assets includes the net assets
allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss
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 sources listed in the Statement of operations
because the distributions are determined on a tax basis and may be paid
in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment
results, per-share distributions, expense ratios, net investment income
ratios and portfolio turnover in one summary table, reflecting the five
most recent reporting periods. In a semiannual report, the highlight
table also includes the current reporting period. For open-end funds, a
separate table is provided for each share class.
REPORT OF INDEPENDENT ACCOUNTANTS
For the fiscal year ended May 31, 2000
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, 2000, and the results of its
operations, the changes in its net assets and the financial highlights
for the periods indicated, in conformity with accounting principles
generally accepted in the United States. 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
auditing standards generally accepted in the United States, 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, 2000 by correspondence with the custodian, provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 11, 2000
THE FUND'S PORTFOLIO
May 31, 2000
<TABLE>
CORPORATE BONDS AND NOTES (82.4%) *
PRINCIPAL AMOUNT VALUE
<CAPTION>
Advertising and Marketing Services (1.0%)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 190,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 193,325
150,000 Interact Operating Co. notes 14s, 2003 45,000
447,000 Lamar Media Corp. sr. sub. notes 9 1/4s, 2007 424,650
140,000 Lamar Media Corp. company guaranty 8 5/8s, 2007 129,500
------------
792,475
Aerospace and Defense (1.3%)
--------------------------------------------------------------------------------------------
200,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 140,000
120,000 Argo-Tech Corp. company guaranty Ser. D, 8 5/8s, 2007 87,600
405,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 319,950
90,000 Decrane Aircraft Holdings company guaranty Ser. B, 12s, 2008 79,650
130,000 L-3 Communications Corp. sr. sub. notes Ser. B, 10 3/8s, 2007 130,325
100,000 L-3 Communications Corp. sr. sub. notes 8 1/2s, 2008 90,250
80,000 L-3 Communications Corp. company guaranty Ser. B, 8s, 2008 69,800
200,000 Sequa Corp. med. term notes 10s, 2001 201,090
------------
1,118,665
Agriculture (0.8%)
--------------------------------------------------------------------------------------------
744,115 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003 (PIK) 673,424
Airlines (0.9%)
--------------------------------------------------------------------------------------------
229,453 Airbus Industries 144A 12.266s, 2020 235,830
160,000 Calair LLC 144A company guaranty 8 1/8s, 2008 130,400
280,000 Canadian Airlines Corp. secd. notes 10s, 2005 (In default)
(Canada) (NON) 285,600
80,000 Continental Airlines, Inc. notes 8s, 2005 70,762
------------
722,592
Automotive (1.6%)
--------------------------------------------------------------------------------------------
235,000 Aftermarket Technology Corp. sr. sub. notes Ser. D, 12s, 2004 236,763
170,000 Dura Operating Corp. company guaranty Ser. B, 9s, 2009 149,600
190,000 Federal Mogul Corp. notes 7 3/4s, 2006 155,462
350,000 Federal Mogul Corp. notes 7 1/2s, 2009 249,827
260,000 Hayes Lemmerz International, Inc. company guaranty Ser. B,
8 1/4s, 2008 219,700
500,000 Talon Automotive Group sr. sub. notes Ser. B, 9 5/8s, 2008 200,000
90,000 Tenneco, Inc. company guaranty Ser. B, 11 5/8s, 2009 83,925
------------
1,295,277
Banking (2.1%)
--------------------------------------------------------------------------------------------
230,000 Chevy Chase Savings Bank Inc. sub. deb. 9 1/4s, 2005 211,600
130,000 Colonial Capital II 144A company guaranty 8.92s, 2027 117,760
70,000 CSBI Capital Trust I 144A company guaranty 11 3/4s, 2027 74,900
15,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 13,543
290,000 GS Escrow Corp. sr. notes 7 1/8s, 2005 258,573
265,000 Hanvit Bank 144A sub. notes 11 3/4s, 2010 (Korea) 241,150
140,000 Local Financial Corp. sr. notes 11s, 2004 140,000
150,000 Provident Capital Trust company guaranty 8.6s, 2026 142,079
85,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 67,642
150,000 Sovereign Bancorp Inc. sr. notes 10 1/2s, 2006 147,750
125,000 Sovereign Capital Trust company guaranty 9s, 2027 86,754
140,000 Superior Financial 144A sr. notes 8.65s, 2003 132,509
110,000 Webster Capital Trust I 144A bonds 9.36s, 2027 105,498
------------
1,739,758
Beverage (0.2%)
--------------------------------------------------------------------------------------------
180,000 Triarc Consumer Products, Inc. company guaranty
10 1/4s, 2009 166,050
Broadcasting (6.1%)
--------------------------------------------------------------------------------------------
270,000 Acme Television sr. disc. notes stepped-coupon zero %
(10 7/8s, 9/30/00), 2004 (STP) 251,100
440,000 Allbritton Communications Co. sr. sub. notes Ser. B,
8 7/8s, 2008 387,200
206,700 AMFM Operating, Inc. deb. 12 5/8s, 2006 (PIK) 236,155
9,407 Australis Media, Ltd. sr. disc. notes 15 3/4% 2003
(In default) (Australia) (NON) 1
750,000 Benedek Communications Corp. sr. disc. notes stepped-coupon
zero % (13 1/4s, 5/15/01), 2006 (STP) 650,625
435,000 Capstar Broadcasting sr. disc. notes stepped-coupon zero %
(12 3/4s, 2/1/02), 2009 (STP) 390,413
158,200 Capstar Broadcasting sub. deb. 12s, 2009 181,139
220,000 CD Radio, Inc. sec. notes 14 1/2s, 2009 200,200
120,000 Chancellor Media Corp. company guaranty 8s, 2008 119,700
70,000 Citadel Broadcasting, Inc. sr. sub. notes 10 1/4s, 2007 68,600
30,000 Citadel Broadcasting, Inc. company guaranty 9 1/4s, 2008 28,350
190,000 Diva Systems Corp. sr. disc. notes, stepped-coupon Ser. B,
zero % (12 5/8s, 3/1/03), 2008 (STP) 96,900
410,000 Echostar DBS Corp. sr. notes 9 3/8s, 2009 383,350
80,000 Fox Family Worldwide, Inc. sr. disc. notes stepped-coupon
zero % (10 1/4s, 11/1/02), 2007 (STP) 48,000
245,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 208,250
180,000 Golden Sky Systems company guaranty Ser. B, 12 3/8s, 2006 197,550
120,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 102,300
60,000 Pegasus Communications Corp. sr. notes Ser. B, 9 3/4s, 2006 57,600
100,000 Pegasus Media & Communications notes Ser. B, 12 1/2s, 2005 104,000
654,000 PHI Holdings, Inc. sr. sub. notes zero %, 2001 579,379
225,000 Radio One Inc. company guaranty Ser. B, 12s, 2004 (STP) 240,188
270,000 Spanish Broadcasting Systems sr. sub notes 9 5/8s, 2009 259,875
100,000 TV Azteca Holdings S.A. de C.V. sr. notes 11s, 2002 (Mexico) 94,500
50,000 TV Azteca S.A. de C.V. sr. notes 10 1/2s, 2007 (Mexico) 43,000
80,000 TV Azteca S.A. de C.V. sr. notes Ser. A, 10 1/8s, 2004 (Mexico) 71,200
------------
4,999,575
Building Materials (0.7%)
--------------------------------------------------------------------------------------------
110,000 American Architectural Products Corp. company guaranty
11 3/4s, 2007 27,500
250,000 American Standard, Inc. company guaranty 7 1/8s, 2003 235,625
70,000 Atrium Companies Inc. company guaranty Ser. B, 10 1/2s, 2009 58,800
170,000 Building Materials Corp. company guaranty 8s, 2008 141,100
120,000 NCI Building Systems Inc. sr. sub. notes Ser. B, 9 1/4s, 2009 109,950
------------
572,975
Cable Television (4.9%)
--------------------------------------------------------------------------------------------
90,000 Adelphia Communications Corp. sr. notes Ser. B, 9 7/8s, 2007 85,050
170,000 Adelphia Communications Corp. sr. notes 7 7/8s, 2009 138,550
300,000 Century Communications Corp. sr. notes 8 7/8s, 2007 264,000
680,000 Charter Communications Holdings LLC sr. notes 8 5/8s, 2009 561,000
130,000 Classic Cable, Inc. 144A sr. sub. notes 10 1/2s, 2010 117,325
30,000 Classic Cable, Inc. company guaranty Ser. B, 9 3/8s, 2009 25,800
50,000 CSC Holdings, Inc. sr. sub. deb. 9 7/8s, 2013 49,500
70,000 CSC Holdings, Inc. deb. 7 7/8s, 2018 60,275
795,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) (STP) 590,648
450,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon zero %,
(11 7/8s, 10/15/02), 2007 (STP) 279,000
430,000 NTL Inc. sr. notes Ser. B, 10s, 2007 (United Kingdom) 404,200
160,000 Onepoint Communications, Inc. company guaranty Ser. B,
14 1/2s, 2008 104,000
230,000 RCN Corp. sr. notes 10 1/8s, 2010 184,000
190,000 Supercanal Holdings S.A. 144A sr. notes 11 1/2s, 2005
(In default) (Argentina) (NON) 79,800
290,000 TeleWest Communications Plc 144A 9 7/8s, 2010 278,400
70,000 TeleWest Communications Plc 144A sr. disc. notes
stepped-coupon zero %, (11 3/8s, 2/1/05), 2010
(United Kingdom) (STP) 37,100
150,000 TeleWest Communications Plc sr. disc. notes zero %
(9 1/4s, 4/15/04), 2009 (United Kingdom) (STP) 88,500
360,000 United Pan-Europe N.V. 144A zero % (13 3/4s, 2/01/05),
2010 (STP) 156,600
500,000 United Pan-Europe N.V. 144A zero % (12 1/2s, 8/01/04),
2009 (STP) 232,500
370,000 United Pan-Europe N.V. 144A 10 7/8s, 2009 307,100
------------
4,043,348
Chemicals (3.3%)
--------------------------------------------------------------------------------------------
150,000 Geo Specialty Chemicals, Inc. sr. sub. notes 10 1/8s, 2008 127,500
270,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 247,050
450,000 Huntsman ICI Chemicals Inc. company guaranty 10 1/8s, 2009 445,500
590,000 Lyondell Petrochemical Co. sec. notes Ser. B, 9 7/8s, 2007 569,350
210,000 Lyondell Petrochemical Co. sr. sub. notes 10 7/8s, 2009 202,650
500,000 PCI Chemicals & Pharmaceuticals company guaranty 9 1/4s,
2007 (Canada) 350,000
250,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007 182,500
60,000 Polymer Group, Inc. company guaranty Ser. B, 8 3/4s, 2008 49,200
160,000 Royster-Clark Inc. 1st mtge. 10 1/4s, 2009 130,400
110,000 Sterling Chemicals, Inc. company guaranty Ser. B, 12 3/8s, 2006 112,750
180,000 Sterling Chemicals, Inc. sr. sub. notes 11 3/4s, 2006 147,600
30,000 Sterling Chemicals, Inc. sr. sub. notes Ser. A, 11 1/4s, 2007 23,700
185,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 129,500
------------
2,717,700
Coal (0.1%)
--------------------------------------------------------------------------------------------
310,000 Lodestar Holdings, Inc. company guaranty 11 1/2s, 2005 52,700
Commercial and Consumer Services (0.7%)
--------------------------------------------------------------------------------------------
280,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 266,000
390,000 GS Superhighway Holdings sr. notes 9 7/8s, 2004 (China) 265,200
50,000 Iron Mountain, Inc. company guaranty 8 3/4s, 2009 44,875
------------
576,075
Computers (0.4%)
--------------------------------------------------------------------------------------------
285,000 Unisys Corp. sr. notes 11 3/4s, 2004 304,950
Conglomerates (0.1%)
--------------------------------------------------------------------------------------------
180,000 Insilco Holding Co. sr. disc. notes stepped-coupon zero %
(14s, 8/15/03), 2008 (STP) 86,400
Construction (0.6%)
--------------------------------------------------------------------------------------------
410,000 Better Minerals & Aggregates Co. company guaranty 13s, 2009 403,850
80,000 Republic Group, Inc. sr. sub. notes 9 1/2s, 2008 64,000
------------
467,850
Consumer (0.7%)
--------------------------------------------------------------------------------------------
230,000 Home Interiors & Gifts, Inc. company guaranty 10 1/8s, 2008 144,900
550,000 Samsonite Corp. sr. sub. notes 10 3/4s, 2008 456,500
------------
601,400
Consumer Finance (0.2%)
--------------------------------------------------------------------------------------------
150,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 (In default) (NON) 14,625
220,000 Contifinancial Corp. sr. notes 8 1/8s, 2008 (In default) (NON) 21,450
180,000 Contifinancial Corp. sr. notes 7 1/2s, 2002 (In default) (NON) 18,000
50,000 Finova Capital Corp. sr. notes 7 5/8s, 2009 40,834
130,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 113,100
------------
208,009
Consumer Goods (0.9%)
--------------------------------------------------------------------------------------------
160,000 Decora Industries, Inc. sr. sec. notes Ser. B, 11s, 2005 64,000
150,000 French Fragrances, Inc. company guaranty Ser. D, 10 3/8s, 2007 144,000
340,000 NBTY Inc. 144A sr. sub. notes 8 5/8s, 2007 294,100
120,000 Revlon Consumer Products sr. notes 9s, 2006 84,000
150,000 Revlon Consumer Products sr. sub. notes 8 5/8s, 2008 76,500
100,000 Revlon Consumer Products sr. notes 8 1/8s, 2006 69,000
------------
731,600
Consumer Staples (0.1%)
--------------------------------------------------------------------------------------------
130,000 Doskcil Manufacturing Co 144A sr. sub. notes 10 1/8s, 2007 45,500
Containers (1.9%)
--------------------------------------------------------------------------------------------
390,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 319,800
320,000 Consumers International 144A sr. notes 10 1/4s, 2005 182,400
185,000 Huntsman Packaging Corp. company guaranty 9 1/8s, 2007 199,850
250,000 Impac Group Inc. company guaranty Ser. B, 10 1/8s, 2008 262,500
250,000 Owens-Illinois, Inc. sr. notes 8.1s, 2007 235,533
50,000 Owens-Illinois, Inc. deb. 7.8s, 2018 44,060
30,000 Owens-Illinois, Inc. sr. notes 7.35s, 2008 26,769
355,000 Radnor Holdings Inc. sr. notes 10s, 2003 307,963
------------
1,578,875
Distribution (0.2%)
--------------------------------------------------------------------------------------------
320,000 RAB Enterprises, Inc. company guaranty 10 1/2s, 2005 211,200
Electric Utilities (1.3%)
--------------------------------------------------------------------------------------------
60,000 CMS Energy Corp. sr. notes 7 1/2s, 2009 51,825
400,000 CMS Energy Corp. sr. notes Ser. B, 6 3/4s, 2004 362,000
425,783 Northeast Utilities System notes Ser. A, 8.58s, 2006 424,054
545,000 Panda Global Energy Co. company guaranty 12 1/2s,
2004 (China) 190,750
------------
1,028,629
Energy (1.7%)
--------------------------------------------------------------------------------------------
315,000 Leviathan Gas Corp. company guaranty Ser. B, 10 3/8s, 2009 318,150
120,000 Parker Drilling Corp. company guaranty Ser. D, 9 3/4s, 2006 112,800
190,000 R & B Falcon Corp. sr. notes 12 1/4s, 2006 206,150
300,000 R & B Falcon Corp. sr. notes Ser. B, 7 3/8s, 2018 230,250
455,000 RBF Finance Co. company guaranty 11 3/8s, 2009 489,125
30,000 RBF Finance Co. company guaranty 11s, 2006 31,875
------------
1,388,350
Entertainment (1.1%)
--------------------------------------------------------------------------------------------
110,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2011 53,350
130,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 65,000
150,000 Cinemark USA, Inc. sr. sub. notes 8 1/2s, 2008 (Mexico) 90,000
120,000 Premier Parks, Inc. sr. notes 9 3/4s, 2007 114,300
160,000 SFX Entertainment Inc. company guaranty 9 1/8s, 2008 160,000
165,000 SFX Entertainment, Inc. 144A company guaranty Ser. B,
9 1/8s, 2008 165,825
100,000 Silver Cinemas, Inc. sr. sub. notes 10 1/2s, 2005
(In default) (NON) 10,000
250,000 Six Flags Corp. sr. notes 8 7/8s, 2006 237,500
330,000 United Artists Theatre sr. sub. notes 9 3/4s, 2008
(In default) (NON) 6,600
------------
902,575
Financial (2.5%)
--------------------------------------------------------------------------------------------
365,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 175,200
340,000 Advanta Corp. med-term notes Ser. D, 6.92s, 2002 318,964
100,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 94,848
10,000 AMRESCO, Inc. sr. sub. notes Ser. 97-A, 10s, 2004 6,300
220,000 AMRESCO, Inc. sr. sub. notes Ser. 98-A, 9 7/8s, 2005 121,000
240,000 Conseco Finance Trust III, Inc. bonds 8.796s, 2027 91,200
160,000 Conseco Financial Corp. sr. sub. notes 10 1/4s, 2002 104,000
310,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 170,500
155,000 Imperial Credit Capital Trust I 144A company guaranty
10 1/4s, 2002 125,550
175,000 Investors Capital Trust I company guaranty Ser. B, 9.77s, 2027 152,250
100,000 Nationwide Credit Inc. sr. notes Ser. A, 10 1/4s, 2008 68,000
75,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 39,750
165,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 155,100
100,000 Ocwen Financial Corp. notes 11 7/8s, 2003 91,500
350,000 Resource America Inc. 144A sr. notes 12s, 2004 297,500
------------
2,011,662
Food (0.7%)
--------------------------------------------------------------------------------------------
190,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 96,900
130,000 Aurora Foods, Inc. 144A ser. sub. notes Ser. D, 9 7/8s, 2007 66,300
300,000 Eagle Family Foods company guaranty Ser. B, 8 3/4s, 2008 194,250
105,000 Doane Pet Care Co. sr. sub. notes 9 3/4s, 2007 sr. sub. notes
9 3/4s, 2007 97,125
215,000 Vlasic Foods Intl. Inc. sr. sub notes Ser. B, 10 1/4s, 2009 122,550
------------
577,125
Gaming & Lottery (3.5%)
--------------------------------------------------------------------------------------------
50,000 Ameristar Casinos, Inc. company guaranty Ser. B, 10 1/2s, 2004 49,500
210,000 Boyd Gaming Corp. sr. sub. notes 9 1/2s, 2007 199,500
380,000 Fitzgeralds Gaming Corp. company guaranty Ser. B, 12 1/4s,
2004 (In default) (NON) 212,800
510,000 Hollywood Casino Corp. company guaranty 11 1/4s, 2007 517,650
130,000 Hollywood Park, Inc. company guaranty Ser. B, 9 1/4s, 2007 128,700
120,000 Isle of Capri Black Hawk LLC 144A 1st mortgage Ser. B,
13s, 2004 130,800
90,000 Isle of Capri Casinos, Inc. company guaranty 8 3/4s, 2009 79,200
190,000 Mohegan Tribal Gaming, Auth. sr. sub. notes 8 3/4s, 2009 176,700
40,000 Mohegan Tribal Gaming, Auth. sr. notes 8 1/8s, 2006 37,300
40,000 Park Place Entertainment sr. sub. notes 7 7/8s, 2005 36,600
110,000 Riviera Black Hawk Inc. 1st mtge. 13s, 2005 117,700
440,000 Trump A.C. 1st mtge. 11 1/4s, 2006 308,000
680,000 Trump Castle Funding 144A sub. notes 10 1/4s, 2003 686,800
190,000 Venetian Casino company guaranty 12 1/4s, 2004 182,400
------------
2,863,650
Health Care (2.5%)
--------------------------------------------------------------------------------------------
250,000 ALARIS Medical Systems, Inc. company guaranty 9 3/4s, 2006 185,000
70,000 Bio-Rad Labs Corp. 144A sr. sub. notes 11 5/8s, 2007 71,050
60,000 Columbia/ HCA Healthcare Corp. deb. 8.36s, 2024 53,400
70,000 Columbia/HCA Healthcare Corp. med. term notes notes
7.69s, 2025 56,263
290,000 Columbia/HCA Healthcare Corp. med. term notes 6.63s, 2045 273,885
300,000 Conmed Corp. company guaranty 9s, 2008 276,000
130,000 Dade International, Inc. sr. sub. notes Ser. B, 11 1/8s, 2006 84,500
220,000 Hudson Respiratory Care, Inc. sr. sub. notes 9 1/8s, 2008 171,325
80,000 Lifepoint Hospital Holdings company guaranty Ser. B,
10 3/4s, 2009 81,600
180,000 Magellan Health Services, Inc. sr. sub. notes 9s, 2008 66,600
170,000 Mediq, Inc. company guaranty 11s, 2008 17,000
180,000 Mediq, Inc. deb. stepped-coupon zero % (13s, 6/1/03), 2009 (STP) 9,000
310,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 (In default) (NON) 62,000
200,000 Tenet Healthcare Corp. sr. notes 8 5/8s, 2003 194,000
150,000 Tenet Healthcare Corp. sr. notes 8s, 2005 141,000
280,000 Triad Hospitals Holdings company guaranty Ser. B, 11s, 2009 286,300
------------
2,028,923
Homebuilding (0.7%)
--------------------------------------------------------------------------------------------
110,000 D.R. Horton, Inc. company guaranty 8s, 2009 92,400
50,000 Del Webb Corp. sr. sub. deb. 9 3/8s, 2009 39,938
220,000 Lennar Corp. 144A sr. notes 9.95s, 2010 209,000
40,000 M.D.C. Holdings, Inc. sr. notes 8 3/8s, 2008 34,550
160,000 Toll Corp. company guaranty 8 1/8s, 2009 140,600
60,000 Webb Corp. sr. sub. deb. 10 1/4s, 2010 50,025
------------
566,513
Household Furniture & Appliances (0.4%)
--------------------------------------------------------------------------------------------
250,000 Albecca Inc. company guaranty 10 3/4s, 2008 197,500
170,000 Sealy Mattress Co. company guaranty stepped-coupon
Ser. B, zero % (10 7/8s, 12/15/02), 2007 (STP) 119,425
------------
316,925
Lodging/Tourism (1.0%)
--------------------------------------------------------------------------------------------
160,000 Epic Resorts LLC company guaranty Ser. B, 13s, 2005 80,000
460,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 393,300
50,000 Host Marriott L.P. sr. notes Ser. E, 8 3/8s, 2006 45,500
310,000 ITT Corp. notes 6 3/4s, 2005 275,534
------------
794,334
Manufacturing (1.5%)
--------------------------------------------------------------------------------------------
90,000 Applied Power Inc. sr. sub. notes 8 3/4s, 2009 92,700
250,000 Axia, Inc. company guaranty 10 3/4s, 2008 190,000
300,000 Blount Inc. company guaranty 13s, 2009 297,000
170,000 Continental Global Group sr. notes Ser. B, 11s, 2007 51,000
160,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 161,600
400,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 388,000
90,000 Roller Bearing Co. company guaranty Ser. B, 9 5/8s, 2007 82,350
------------
1,262,650
Medical Services (0.2%)
--------------------------------------------------------------------------------------------
250,000 Extendicare Health Services, Inc. company guaranty 9.35s, 2007 124,375
180,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s,
2007 (In default) (NON) 3,600
110,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s,
2008 (In default) (NON) 2,200
100,000 Mariner Post-Acute Network, Inc. sr. sub. notes
stepped-coupon Ser. B, zero % (10 1/2s, 11/1/02), 2007
(In default) (NON) (STP) 750
480,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B, 9 1/2s,
2007 (In default) (NON) 3,600
305,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007
(In default) (NON) 6,100
60,000 Sun Healthcare Group, Inc. 144A sr. sub. notes 9 3/8s, 2008
(In default) (NON) 1,200
------------
141,825
Medical Technology (0.1%)
--------------------------------------------------------------------------------------------
70,000 Hanger Orthopedic Group, Inc. sr. sub. notes 11 1/4s, 2009 60,550
Metals (1.6%)
--------------------------------------------------------------------------------------------
230,000 AK Steel Corp. company guaranty 7 7/8s, 2009 202,400
80,000 Armco, Inc. sr. notes 8 7/8s, 2008 74,400
165,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes 12 3/4s, 2003 153,450
305,000 LTV Corp. company guaranty 11 3/4s, 2009 271,450
300,000 National Steel Corp. 1st mtge. Ser. D, 9 7/8s, 2009 282,000
60,000 Oregon Steel Mills 1st mortgage 11s, 2003 38,400
110,000 WCI Steel, Inc. sr. notes Ser. B, 10s, 2004 103,400
120,000 Wheeling-Pittsburgh Steel Corp. sr. notes 9 1/4s, 2007 105,600
120,000 WHX Corp. sr. notes 10 1/2s, 2005 108,900
------------
1,340,000
Office Equipment & Supplies (--%)
--------------------------------------------------------------------------------------------
51,000 U.S. Office Products Co. company guaranty 9 3/4s, 2008 7,140
Oil & Gas (1.9%)
--------------------------------------------------------------------------------------------
330,000 Belco Oil & Gas Corp. company guaranty Ser. B, 10 1/2s, 2006 335,775
90,000 Belco Oil & Gas Corp. sr. sub. notes Ser. B, 8 7/8s, 2007 83,475
30,000 Benton Oil & Gas Co. sr. notes 9 3/8s, 2007 17,775
90,000 Giant Industries Corp. company guaranty 9s, 2007 80,213
160,000 HS Resources, Inc. sr. sub. notes Ser. B, 9 1/4s, 2006 154,400
50,000 Nuevo Energy Co. sr. sub. notes Ser. B, 9 1/2s, 2008 48,125
160,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 154,400
200,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 188,000
100,000 Pioneer Natural Resources Co. company guaranty 9 5/8s, 2010 102,375
130,000 RAM Energy Inc. sr. notes 11 1/2s, 2008 65,000
50,000 Stone Energy Corp. company guaranty 8 3/4s, 2007 46,500
260,000 Vintage Petroleum sr. sub. notes 9 3/4s, 2009 260,000
------------
1,536,038
Paper & Forest Products (3.5%)
--------------------------------------------------------------------------------------------
300,000 APP Finance II Mauritius Ltd. bonds stepped-coupon 12s,
(16s, 2/15/04), 2049 (Indonesia) (STP) 135,000
100,000 APP Global Finance III sec. notes FRN 10.345s, 2002
(Cayman Islands) 68,000
20,000 Boise Cascade Co. med. term notes Ser. A, 7.43s, 2005 18,979
150,000 Doman Industries Ltd. company guaranty 12s, 2004 (Canada) 151,875
100,000 Doman Industries 144A 8 3/4s, 2004 80,250
320,000 Gaylord Container Corp. sr. sub. notes 9 7/8s, 2008 236,800
320,000 Indah Kiat Financial Mauritius Ltd. company guaranty 10s, 2007
(Indonesia) 176,000
80,000 Kappa Beheer BV company guaranty 10 5/8s, 2009
(Netherlands) 80,800
310,000 Pacifica Papers, Inc. sr. notes 10s, 2009 (Canada) 306,900
200,000 Packaging Corp. company guaranty 9 5/8s, 2009 196,000
410,000 Pindo Deli Finance Mauritius Ltd. company guaranty 10 3/4s,
2007 (Indonesia) 225,500
432,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 384,480
555,000 Riverwood International Corp. company guaranty
10 7/8s, 2008 510,600
190,000 Riverwood International Corp. company guaranty
10 5/8s, 2007 186,200
120,000 Tembec Industries, Inc. company guaranty 8 5/8s, 2009
(Canada) 112,800
------------
2,870,184
Pharmaceuticals (0.6%)
--------------------------------------------------------------------------------------------
320,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 311,200
40,000 ICN Pharmaceuticals, Inc. 144A sr. notes 8 3/4s, 2008 36,800
120,000 MedPartners, Inc. sr. sub. notes 6 7/8s, 2000 117,600
------------
465,600
Power Producers (3.2%)
--------------------------------------------------------------------------------------------
300,000 Calpine Corp. sr. notes 9 1/4s, 2004 294,000
1,860,000 Midland Funding II Corp. deb. Ser. A, 11 3/4s, 2005 1,995,092
307,000 York Power Funding 144A notes 12s, 2007 (Cayman Islands) 300,860
------------
2,589,952
Publishing (0.3%)
--------------------------------------------------------------------------------------------
300,000 Affinity Group Holdings sr. notes 11s, 2007 249,000
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) 201,600
Restaurants (0.1%)
--------------------------------------------------------------------------------------------
170,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 79,900
Retail (1.3%)
--------------------------------------------------------------------------------------------
220,000 Amazon.com Inc. sr. disc. notes stepped-coupon zero %
(10s, 5/01/03), 2008 (STP) 130,350
10,000 Iron Age Holdings Corp. sr. disc. notes stepped-coupon
zero % (12 1/8s, 5/1/03), 2009 (STP) 1,500
100,000 Iron Age Corp. company guaranty 9 7/8s, 2008 69,000
155,000 Mahindra & Mahindra Ltd. 12s, 2008 131,750
200,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 182,000
210,000 Saks, Inc. company guaranty 8 1/4s, 2008 173,263
500,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 413,750
------------
1,101,613
Semiconductor (0.3%)
--------------------------------------------------------------------------------------------
210,000 Amkor Technology, Inc. sr. notes 9 1/4s, 2006 200,550
40,000 Chippac Intl. Ltd. 144A company guaranty 12 3/4s, 2009 42,000
------------
242,550
Shipping (--%)
--------------------------------------------------------------------------------------------
120,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 (In default) (NON) 33,600
Software (--%)
--------------------------------------------------------------------------------------------
90,000 Telehub Communications Corp. company guaranty
stepped-coupon zero % (13 7/8s, 7/31/02), 2005 (STP) 4,500
Specialty Printing (0.2%)
--------------------------------------------------------------------------------------------
110,000 Perry-Judd company guaranty 10 5/8s, 2007 91,300
70,025 Von Hoffman Press, Inc. 144A sr. sub. notes 13 1/2s, 2009 63,023
------------
154,323
Technology (1.1%)
--------------------------------------------------------------------------------------------
190,000 Fairchild Semiconductor Corp. company guaranty 10 3/8s, 2007 189,050
300,000 Telecommunications Techniques, Inc. company guaranty
9 3/4s, 2008 273,000
355,000 Viasystems, Inc. sr. sub notes 9 3/4s, 2007 301,750
170,000 Zilog, Inc. company guaranty Ser. B, 9 1/2s, 2005 149,600
------------
913,400
Technology Services (1.7%)
--------------------------------------------------------------------------------------------
960,000 CellNet Data Systems, Inc. sr. disc. notes stepped-coupon
zero % (14s, 10/1/02), 2007 (STP) 76,800
70,000 Concentric Network Corp. sr. notes 12 3/4s, 2007 73,325
350,000 Covad Communications Group, Inc. sr. disc. notes
stepped-coupon Ser. B, zero % (13 1/2s, 03/15/03), 2008 (STP) 213,500
110,000 Covad Communications Group, Inc. sr. notes 12 1/2s, 2009 103,400
70,000 Covad Communications Group, 144A sr. notes 12s, 2010 64,575
150,000 Cybernet Internet Services Intl., Inc. 144A sr. notes 14s, 2009 105,000
70,000 Exodus Communications, Inc. sr. notes 10 3/4s, 2009 69,300
650,000 Firstworld Communication Corp. sr. disc. notes stepped-coupon
zero % (13, 4/15/03), 2008 (STP) 294,125
125,000 Globix Corp. sr. notes 12 1/2s, 2010 105,000
200,000 Orbital Imaging Corp. sr. notes Ser. B, 11 5/8s, 2005 100,000
40,000 PSINet, Inc. sr. notes 11s, 2009 36,200
100,000 Rhythms Netconnections Inc. 144A sr. notes 14s, 2010 82,000
110,000 Verio Inc. sr. notes 11 1/4s, 2008 122,375
------------
1,445,600
Telecommunications (12.2%)
--------------------------------------------------------------------------------------------
390,000 360Networks, Inc. 144A sr. notes 13s, 2008 (Canada) 385,125
20,000 American Mobile Satellite Corp. company guaranty
12 1/4s, 2008 12,200
500,000 Barak I.T.C. sr. disc. notes stepped-coupon Ser. B, zero %
(12 1/2s, 11/15/02), 2007 (Israel) (STP) 250,000
170,000 Bestel S.A.de C.V. sr. disc. notes stepped-coupon zero %
(12 3/4s, 5/15/03), 2005 (Mexico) (STP) 122,400
50,000 Call-Net Enterprises, Inc. sr. notes 9 3/8s, 2009 (Canada) 30,000
80,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon zero %
(8.94s, 8/15/03), 2008 (Canada) (STP) 28,800
140,000 Call-Net Enterprises Inc. sr. notes 8s, 2008 (Canada) 77,000
240,000 Carrier1 Intl. S.A. sr. notes Ser. B, 13 1/4s, 2009 (Luxembourg) 234,000
440,000 Celcaribe S.A. sr. notes stepped-coupon zero %
(13 1/2s, 3/15/04), 2004 (Colombia) (STP) 352,000
170,000 Esprit Teleom Group PLC sr. notes 11 1/2s, 2007
(United Kingdom) 142,800
330,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 283,800
440,000 Global Crossing Holdings, Ltd. company guaranty 9 5/8s, 2008 418,000
440,000 Global Crossing Holdings Ltd. company guaranty 9 1/8s,
2006 (Bermuda) 413,600
185,000 Innova S De R.L. sr. notes 12 7/8s, 2007 (Mexico) 166,500
370,000 IPC Information Systems Inc. sr. disc. notes zero %
(10 7/8s, 11/1/01), 2008 (STP) 327,450
1,000,000 Level 3 Communication, Inc. 144A sr. notes 11s, 2008 952,500
90,000 Loral Space & Communication, Ltd. sr. notes 9 1/2s, 2006 66,825
50,000 Metromedia Fiber Network, Inc. sr. notes 10s, 2009 47,625
360,000 Metromedia Fiber Network, Inc. sr. notes Ser. B, 10s, 2008 342,900
490,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/01), 2006
(Luxembourg) (STP) 416,500
145,000 Neuvo Grupo Iusacell S.A. 144A sr. notes 14 1/4s,
2006 (Mexico) 145,000
310,000 Nextel Communications, Inc. sr. disc. notes stepped-coupon
zero % (12 1/8s, 4/15/03), 2008 (STP) 192,200
380,000 Nextel Communications, Inc. sr. notes 12s, 2008 399,000
890,000 Nextel Communications, Inc. sr. notes 9 3/8s, 2009 841,050
150,000 Nextel Partners, Inc. 144A sr. notes 11s, 2010 143,625
190,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 182,400
450,000 NorthPoint Communications Group, Inc. 144A notes
12 7/8s, 2010 387,000
120,000 Pagemart Wireless, Inc. sr. disc. notes stepped-coupon zero %
(11 1/4s, 2/1/03), 2008 (STP) 54,000
110,000 Paging Network Do Brasil sr. notes 13 1/2s, 2005 (Brazil) 4,400
330,000 Pathnet, Inc. sr. notes 12 1/4s, 2008 194,700
80,000 Price Communications Wireless, Inc. 144A sr. notes
9 1/8s, 2006 80,800
500,000 Primus Telecommunications Group, Inc. sr. notes 12 3/4s, 2009 425,000
350,000 RSL Communications, Ltd. 144A 12 7/8s, 2010 276,500
140,000 RSL Communications, Ltd. 144A 10 1/2s, 2008 98,000
130,000 RSL Communications, Ltd. company guaranty 9 1/8s, 2008 87,100
100,000 Satelites Mexicanos S.A. de C.V. 144A sr. notes 10 1/8s,
2004 (Mexico) 64,000
275,000 SBA Communications Corp. sr. disc. notes stepped-coupon
zero % (12s, 3/1/03), 2008 (STP) 187,000
200,000 Spectrasite Holdings, Inc. sr. disc. notes stepped-coupon zero %
(12s, 7/15/03), 2008 (STP) 127,000
915,000 Viatel, Inc. sr. disc. notes stepped-coupon zero %
(12 1/2s, 4/15/03), 2008 (SSTP) 466,650
343,000 Viatel, Inc. sr. notes 11 1/2s, 2009 270,970
360,000 World Access, Inc. sr. notes Ser. B, 13 1/4s, 2008 322,200
------------
10,018,620
Telephone (5.7%)
--------------------------------------------------------------------------------------------
130,000 Airgate PCS, Inc. sr. sub. notes stepped-coupon zero %
(13 1/2s, 10/1/04), 2009 (STP) 73,125
510,000 Alamosa PCS Holdings, Inc. company guaranty stepped-coupon
zero % (12 7/8s, 2/15/05), 2010 (STP) 252,450
100,000 Birch Telecommunications, Inc. sr. notes 14s, 2008 99,000
410,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 313,650
305,000 Focal Communications Corp. sr. disc. notes, stepped-coupon
Ser. B, zero % (12 1/8s, 02/15/03), 2008 (STP) 195,200
80,000 Hyperion Telecommunications Corp., Inc. sr. notes Ser. B,
12 1/4s, 2004 80,200
20,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon zero %
(13 1/2s, 9/15/00), 2005 (Canada) (STP) 19,100
1,260,000 KMC Telecom Holdings, Inc. sr. disc. notes stepped-coupon
zero % (12 1/2s, 2/15/03), 2008 (STP) 617,400
460,000 Logix Communications Enterprises sr. notes 12 1/4s, 2008 184,000
310,000 Madison River Capital 144A sr. notes 13 1/4s, 2010 282,100
250,000 McLeodUSA, Inc. sr. notes 9 1/2s, 2008 237,500
140,000 MGC Communications, Inc. 144A sr. notes 13s, 2010 131,600
260,000 Microcell Telecommunications sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 12/1/01), 2006 (Canada) (STP) 239,200
50,000 Netia Holdings B.V. 144A company guaranty stepped-coupon
zero % (11 1/4s, 11/1/01), 2007 (Poland) (STP) 34,500
300,000 Netia Holdings B.V. 144A company guaranty 10 1/4s,
2007 (Poland) 250,500
40,000 Nextlink Communications 144A sr. disc. notes stepped-coupon
zero % (12 1/8s, 12/1/04), 2009 (STP) 21,600
100,000 Nextlink Communications Inc. 144A sr. notes 10 1/2s, 2009 94,250
130,000 Tele1 Europe BV 144A 13s, 2009 (Netherlands) 126,100
220,000 Telecorp PCS Inc. company guaranty stepped-coupon zero %
(11 5/8s, 4/15/04), 2009 (STP) 144,100
100,000 Time Warner Telecom Inc. sr. notes 9 3/4s, 2008 93,000
100,000 Transtel S.A. pass through certificates 12 1/2s, 2007 35,000
350,000 US Unwired, Inc. company guaranty, stepped-coupon Ser. B,
zero % (13 3/8s, 11/1/04), 2009 (STP) 191,625
180,000 Versatel Telecom B.V. sr. notes 13 1/4s, 2008 (Netherlands) 174,600
70,000 Versatel Telecom B.V. sr. notes 13 1/4s, 2008 (Netherlands) 67,900
340,000 Voicestream Wire Corp. 144A 10 3/8s, 2009 348,500
153,000 WinStar Communications. Inc. 144A sr. disc. notes zero %
(14 3/4s, 4/15/05), 2010 (STP) 66,555
296,000 WinStar Communications. Inc. 144A sr. notes 12 3/4s, 2010 275,280
------------
4,648,035
Textiles (1.0%)
--------------------------------------------------------------------------------------------
80,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 39,200
90,000 GFSI, Inc. sr. disc. notes stepped-coupon Ser. B, zero %
(11 3/8s, 9/15/04), 2009 (STP) 20,700
250,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 250,000
235,000 Kasper A.S.L. Ltd. sr. notes 12 3/4s, 2004 122,200
40,000 Levi Strauss & Co. 144A notes 7s, 2006 27,200
40,000 Levi Strauss & Co. 144A notes 6.8s, 2003 30,600
100,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2005 84,000
135,000 William Carter Holdings Co. sr. sub. notes Ser. A, 12s, 2008 121,500
95,000 William Carter Holdings Co. sr. sub. notes Ser. A,
10 3/8s, 2006 86,450
------------
781,850
Transportation Services (0.1%)
--------------------------------------------------------------------------------------------
60,000 Transportacion Maritima Mexicana S.A. de C.V. sr. notes 10s,
2006 (Mexico) 45,000
Trucks & Parts (0.1%)
--------------------------------------------------------------------------------------------
110,000 Transportation Manufacturing Operations Inc. company
guaranty 11 1/4s, 2009 93,500
Utilities (0.2%)
--------------------------------------------------------------------------------------------
350,000 Cathay International Ltd. 144A sr. notes 13s, 2008 (China) 157,500
Waste Management (0.9%)
--------------------------------------------------------------------------------------------
340,000 Allied Waste Industries, Inc. company guaranty Ser. B,
10s, 2009 268,600
540,000 Allied Waste Industries, Inc. company guaranty Ser. B,
7 7/8s, 2009 453,600
------------
722,200
Water Utilities (0.2%)
--------------------------------------------------------------------------------------------
160,000 Azurix Corp. 144A notes 10 3/8s, 2007 142,400
------------
Total Corporate Bonds and Notes (cost $79,022,315) $ 67,494,214
PREFERRED STOCKS (7.9%) *
NUMBER OF SHARES VALUE
Banking (0.4%)
--------------------------------------------------------------------------------------------
6,240 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. (PIK) $ 293,280
80 First Republic 144A $10.50 pfd. 71,600
------------
364,880
Broadcasting (1.9%)
--------------------------------------------------------------------------------------------
116 Benedek Communications 11.50% pfd. (PIK) 89,900
1,879 Citadel Broadcasting Inc. 144A $13.25 cum. pfd. (PIK) 201,053
66,000 Diva Systems Corp. Ser. D, $6.00 pfd. 396,000
315 Granite Broadcasting 144A 12.75% pfd. (PIK) 274,050
57 Paxson Communications Corp. $13.25 cum. pfd. (PIK) 550,050
--------------
1,511,053
Cable Television (0.7%)
--------------------------------------------------------------------------------------------
5,388 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 560,352
Cellular Communications (0.9%)
--------------------------------------------------------------------------------------------
215 Dobson Communications 13.00% pfd. (PIK) 221,988
270 Dobson Communications Corp. 144A $12.25 pfd. (PIK) 259,200
268 Rural Cellular Corp. $12.25 pfd. (PIK) 266,392
------------
747,580
Food (--%)
--------------------------------------------------------------------------------------------
450 Doane Products Co. $7.125 pfd. 20,250
Insurance and Finance (0.5%)
--------------------------------------------------------------------------------------------
14,500 CGA Group Ltd. 144A Ser. A, $13.75 pfd. (PIK) 391,500
Medical Services (0.4%)
--------------------------------------------------------------------------------------------
230,000 Fresenius Medical Capital Trust I Ser. D, 9.00% company
guaranty, pfd. (Germany) 212,175
80,000 Fresenius Medical Capital Trust II 7.875% company guaranty,
pfd. (Germany) 70,800
------------
282,975
Oil and Gas (0.2%)
--------------------------------------------------------------------------------------------
183 R&B Falcon Corp. $13.875 pfd. (PIK) 203,130
Restaurants (0.1%)
--------------------------------------------------------------------------------------------
6,047 AmeriKing, Inc. $3.25 pfd. (PIK) 48,376
Technology Services (0.2%)
--------------------------------------------------------------------------------------------
149 Concentric Network Corp. Ser. B, 13.50% pfd.(PIK) 140,935
Telecommunications (2.1%)
--------------------------------------------------------------------------------------------
694 Intermedia Communication Ser. B, 13.50% pfd. (PIK) 645,420
199 Nextel Communications, Inc. Ser. D, 13.00% cum. pfd. (PIK) 200,990
7,528 Nextlink Communications, Inc. 144A $7.00 cum. pfd. (PIK) 376,400
15 NTL Inc. 144A Ser. B, 13.00% pfd. (PIK) 15,000
330 WinStar Communications, Inc. 144A $14.25 cum. pfd. (PIK) 465,300
------------
1,703,110
Telephone (0.5%)
--------------------------------------------------------------------------------------------
600 ICG Holdings, Inc., 144A $14.00 pfd. (Canada) (PIK) 438,000
------------
Total Preferred Stocks (cost $6,657,860) $ 6,412,141
UNITS (2.5%) *
NUMBER OF UNITS VALUE
--------------------------------------------------------------------------------------------
265 App China Group 144A units 14s, 2010 $ 156,350
550 Australis Media, Ltd. units 15 3/4s, 2003 (In default)
(Australia) (NON) 55
370 Colo.com 144A units 13 7/8s, 2010 370,000
310 Equinix, Inc. 144A units 13s, 2007 319,300
140 Huntsman Packaging Corp. units 13s, 2010 137,725
360 Jostens, Inc. units 12 3/4s, 2010 351,000
150 Leap Wireless 144A units 12 1/2s, 2010 142,500
245 Maxcom Telecom 144A units 13 3/4s, 2007 210,700
310 Ubiquitel Operating Co. company guaranty stepped-coupon
zero % (14s, 4/15/05), 2010 (STP) 167,400
450 XCL Ltd. units sr. sec. notes 13 1/2s, 2004 (In default) (NON) 45,000
2,950 XCL Ltd. 144A units cum. pfd. 9.50% (In default) (NON) (PIK) 1,475
180 XM Satellite Radio Inc, 144A units 14s, 2010 154,800
------------
Total Units (cost $3,401,377) $ 2,056,305
COMMON STOCKS (1.1%) * (NON)
NUMBER OF SHARES VALUE
--------------------------------------------------------------------------------------------
7,310 360Networks, Inc. 144A (acquired 5/11/2000, cost $81,872)
(Canada) (RES) $ 81,872
100 AmeriKing, Inc. 1,000
1,800 Axia Holding Inc. 144A (PIK) 23,400
50,942 Celcaribe 6,368
8,769 Fitzgerald Gaming Corp. 2,192
175 Mothers Work, Inc. 1,772
244 Premium Holdings (L.P.) 144A 2,445
57,579 PSF Holdings LLC Class A 575,700
628 RCN Corp. 14,483
69 RCN Corp. 144A 1
4,586 Spanish Broadcasting Systems 62,599
12,750 Specialty Foods Acquisition Corp. 128
2,289 Tele1 Europe Holding AB ADR (Sweden) 26,324
2,962 Viatel, Inc. 73,865
200 VoiceStream Wireless Corp. 22,900
------------
Total Common Stocks (cost $2,265,490) $ 895,049
CONVERTIBLE BONDS AND NOTES (0.9%) *
PRINCIPAL AMOUNT VALUE
--------------------------------------------------------------------------------------------
$ 490,000 Cybernet Internet Service 144A cv. sr. disc. notes
stepped-coupon zero %, (13s, 8/15/04), 2009 (STP) $ 235,200
500,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 272,500
30,000 Parker Drilling Co. cv. sub. notes 5 1/2s, 2004 22,913
260,000 Waste Management, Inc. cv. sub. notes 4s, 2002 233,350
------------
Total Convertible Bonds and Notes (cost $820,408) $ 763,963
WARRANTS (0.9%) * (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
--------------------------------------------------------------------------------------------
170 Bestel S.A. (Mexico) 5/15/05 $ 20,400
150 Birch Telecommunications, Inc. 144A 6/15/08 8,250
660 CD Radio, Inc. 144A 5/15/09 66,000
1,490 Cellnet Data Systems, Inc. 10/1/07 1
14,500 CGA Group Ltd. 144A 2/11/07 145
300 Club Regina, Inc. 144A 12/1/04 3
250 Comunicacion Cellular 144A (Colombia) 11/15/03 500
150 Cybernet Internet 144A 7/1/09 9,000
590 Diva Systems Corp. 3/1/08 8,257
260 Firstworld Communication 4/15/08 18,200
6,691 ICG Communications 10/15/05 107,050
180 Insilco Holding Co. 8/15/08 630
200 International Wireless Communications
Holdings 144A 8/15/01 1
440 Iridium World Com 144A 7/15/05 1
800 KMC Telecom Holdings, Inc. 4/15/08 2,400
700 Knology Holdings 10/22/07 5,250
815 McCaw International Ltd. 4/15/07 3,260
180 Mediq Inc. 144A 6/1/09 2
30 Motient Corp. 144A 4/1/08 750
2,867 Network Plus Corp. 12/31/00 140,482
225 Network Plus Corp. 2/19/09 101,250
100 Onepoint Communications, Inc. 6/1/08 2,000
200 Orbital Imaging Corp. 144A 3/1/05 4,000
6,900 Pagemart, Inc. 144A 12/31/03 75,900
320 Pathnet, Inc. 144A 4/15/08 3,200
160 R&B Falcon Corp. 144A 5/1/09 78,400
500 Signature Brands Ltd. 8/15/02 5
155 Sterling Chemicals Holdings 8/15/08 1,860
90 Telehub Communications Corp. 7/31/05 45
1,045 UIH Australia/Pacific, Inc. 144A 5/15/06 31,350
1,500 USN Communications Inc. 8/15/04 15
220 Versatel Telecom International 5/15/08 61,600
100,640 Wright Medical Technology, Inc. 144A 6/30/03 1
------------
Total Warrants (cost $441,001) $ 750,208
CONVERTIBLE PREFERRED STOCKS (0.8%) *
NUMBER OF SHARES VALUE
--------------------------------------------------------------------------------------------
500 Global Crossing 7.00% cum cv. pfd $ 86,625
700 Global Crossing 6.75% cum cv. pfd 150,500
5,060 Global Telesystems, Inc. 144A $3.625 cv. pfd. 108,158
1,400 LTV Corp. (The) 144A $4.125 cv. pfd. 58,875
5,800 PsiNet, Inc. 144A $3.50 cv. pfd. 197,200
200 RSL Communications Ltd. 144A $3.75 cv. pfd. (Bermuda) 7,050
800 Verio, Inc. Ser. A, $3.375 cv. pfd. 48,000
33 World Access, Inc. 144A zero % cv. pfd. 33,000
580 XCL Ltd 144A Ser. A, 9.50% cv. cum. pfd. 290
------------
Total Convertible Preferred Stocks (cost $938,490) $ 689,698
SHORT-TERM INVESTMENTS (2.4%) * (cost $1,991,000)
PRINCIPAL AMOUNT VALUE
--------------------------------------------------------------------------------------------
$ 1,991,000 Interest in $455,458,000 joint repurchase agreement dated
May 31, 2000 with Salomon, Smith Barney, Inc. due
June 1, 2000 with respect to various U.S. Treasury
obligations -- maturity value of $1,991,352 for an
effective yield of 6.37% $ 1,991,000
--------------------------------------------------------------------------------------------
Total Investments (cost $95,537,941) *** $ 81,052,578
--------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $81,897,756.
*** The aggregate identified cost on a tax basis is $95,597,048, resulting in gross
unrealized appreciation and depreciation of $1,698,084 and $16,242,554, respectively,
or net unrealized depreciation of $14,544,470.
(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 income at this rate.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of
restricted securities held at May 31, 2000 was $81,872 or less than 0.1% 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.
ADR after the name of a foreign holding stands for American Depository Receipts
representing ownership of foreign securities on deposit with a domestic custodian bank.
The rates shown on Floating Rate Notes (FRN) are current interest rates shown at
May 31, 2000, which are subject to change based on the terms of the security.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
May 31, 2000
<CAPTION>
Assets
----------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value
(identified cost $95,537,941) (Note 1) $ 81,052,578
----------------------------------------------------------------------------------
Cash 4,866
----------------------------------------------------------------------------------
Dividends, interest and other receivables 1,866,819
----------------------------------------------------------------------------------
Receivable for securities sold 893,277
----------------------------------------------------------------------------------
Total assets 83,817,540
Liabilities
----------------------------------------------------------------------------------
Distributions payable to shareholders 758,144
----------------------------------------------------------------------------------
Payable for securities purchased 909,195
----------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 160,640
----------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 11,715
----------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 14,416
----------------------------------------------------------------------------------
Payable for administrative services (Note 2) 705
----------------------------------------------------------------------------------
Other accrued expenses 64,969
----------------------------------------------------------------------------------
Total liabilities 1,919,784
----------------------------------------------------------------------------------
Net assets $ 81,897,756
Represented by
----------------------------------------------------------------------------------
Paid-in capital (Note 1) $106,219,718
----------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (1,102,847)
----------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (8,741,895)
----------------------------------------------------------------------------------
Net unrealized depreciation of investments (14,477,220)
----------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $ 81,897,756
Computation of net asset value
----------------------------------------------------------------------------------
Net asset value per share ($81,897,756 divided by 7,507,107 shares) $10.91
----------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
Year ended May 31, 2000
<CAPTION>
Investment income:
----------------------------------------------------------------------------------
<S> <C>
Dividends $ 711,211
----------------------------------------------------------------------------------
Interest income 8,971,134
----------------------------------------------------------------------------------
Total investment income 9,682,345
Expenses:
----------------------------------------------------------------------------------
Compensation of Manager (Note 2) 660,034
----------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 148,005
----------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 11,283
----------------------------------------------------------------------------------
Administrative services (Note 2) 4,332
----------------------------------------------------------------------------------
Reports to shareholders 18,584
----------------------------------------------------------------------------------
Registration fees 75
----------------------------------------------------------------------------------
Auditing 42,167
----------------------------------------------------------------------------------
Legal 13,671
----------------------------------------------------------------------------------
Postage 11,173
----------------------------------------------------------------------------------
Exchange listing fee 35,035
----------------------------------------------------------------------------------
Other 7,905
----------------------------------------------------------------------------------
Total expenses 952,264
----------------------------------------------------------------------------------
Expense reduction (Note 2) (3,915)
----------------------------------------------------------------------------------
Net expenses 948,349
----------------------------------------------------------------------------------
Net investment income 8,733,996
----------------------------------------------------------------------------------
Net realized loss on investments (Note 1) (1,821,193)
----------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities
in foreign currencies during the year 8,143
----------------------------------------------------------------------------------
Net unrealized depreciation of investments during the year (7,767,788)
----------------------------------------------------------------------------------
Net loss on investments (9,580,838)
----------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $ (846,842)
----------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
Year ended May 31
--------------------------------
2000 1999
<CAPTION>
----------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets
----------------------------------------------------------------------------------
Operations:
----------------------------------------------------------------------------------
Net investment income $ 8,733,996 $ 9,278,784
----------------------------------------------------------------------------------
Net realized loss on investments (1,821,193) (6,541,670)
----------------------------------------------------------------------------------
Net unrealized depreciation of investments (7,759,645) (10,127,946)
----------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (846,842) (7,390,832)
----------------------------------------------------------------------------------
Distributions to shareholders:
----------------------------------------------------------------------------------
From net investment income (8,884,513) (10,343,967)
----------------------------------------------------------------------------------
In excess of net investment (247,729) --
----------------------------------------------------------------------------------
From net realized gain on investments -- (1,230,315)
----------------------------------------------------------------------------------
From return of capital (490,983) --
----------------------------------------------------------------------------------
Total decrease in net assets (10,470,067) (18,965,114)
Net assets
----------------------------------------------------------------------------------
Beginning of year 92,367,823 111,332,937
----------------------------------------------------------------------------------
End of year (including distributions in excess
of net investment income of $1,102,847 and
$856,292, respectively) $ 81,897,756 $ 92,367,823
----------------------------------------------------------------------------------
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>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<CAPTION>
-------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended May 31
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2000 1999 1998 1997 1996
-------------------------------------------------------------------------------------------------------
Net asset value
beginning of period $12.30 $14.83 $14.08 $13.78 $13.04
-------------------------------------------------------------------------------------------------------
Investment operations
-------------------------------------------------------------------------------------------------------
Net investment income 1.16 1.24 1.44 1.34 1.27
-------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1.27) (2.23) .69 .29 .79
-------------------------------------------------------------------------------------------------------
Total from
investment operations (.11) (.99) 2.13 1.63 2.06
-------------------------------------------------------------------------------------------------------
Less distributions:
-------------------------------------------------------------------------------------------------------
From net
investment income (1.18) (1.38) (1.38) (1.33) (1.30)
-------------------------------------------------------------------------------------------------------
In excess of net
investment income (.03) -- -- -- (.02)
-------------------------------------------------------------------------------------------------------
From net realized
gain on investments -- (.16) -- -- --
-------------------------------------------------------------------------------------------------------
Return of capital (.07) -- -- -- --
-------------------------------------------------------------------------------------------------------
Total distributions (1.28) (1.54) (1.38) (1.33) (1.32)
-------------------------------------------------------------------------------------------------------
Net asset value,
end of period $10.91 $12.30 $14.83 $14.08 $13.78
-------------------------------------------------------------------------------------------------------
Market value,
end of period $10.188 $13.500 $15.375 $14.375 $13.750
-------------------------------------------------------------------------------------------------------
Ratios and supplemental data
-------------------------------------------------------------------------------------------------------
Total return at
market value (%)(a) (15.61) (2.06) 16.96 14.88 15.30
-------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $81,898 $92,368 $111,333 $105,690 $103,466
-------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.08 1.11 1.05 1.06 1.04
-------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 9.92 9.50 9.75 9.70 9.49
-------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 97.22 47.56 85.45 62.57 74.70
-------------------------------------------------------------------------------------------------------
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (Note 2).
</TABLE>
NOTES TO FINANCIAL STATEMENTS
May 31, 2000
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 sales price on its principal exchange, or if no sales
are reported -- as in the case of some securities traded over-the-
counter -- the last reported bid price. Short-term investments having
remaining maturities of 60 days or less are stated at amortized cost,
which approximates market value. Other investments, including restricted
securities, are stated at fair value following procedures approved by
the Trustees. Market quotations are not considered to be readily
available for certain debt obligations; such investments are stated at
fair value on the basis of valuations furnished by a pricing service or
dealers, approved by the Trustees, which determine valuations for normal
institutional-size trading units of such securities using methods based
on market transactions for comparable securities and variable
relationships between securities that 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). Gains or losses on securities sold are determined
on the identified cost basis.
Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date, except that certain dividends from
foreign securities are recorded as soon as the fund is informed of the
ex-dividend date. 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, 2000, the fund had a capital loss carryover of approximately
$6,752,000 available to offset future capital gains, if any. The amount
of the carryover and the expiration dates are:
Loss Carryover Expiration
---------------- ----------------
$2,584,000 May 31, 2007
4,168,000 May 31, 2008
F) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when accrued or incurred. The
fund does not isolate that portion of realized or unrealized gains or
losses resulting from changes in the foreign exchange rate on
investments from fluctuations arising from changes in the market prices
of the securities. Such gains and losses are included with the net
realized and unrealized gain or loss on investments. Net realized gains
and losses on foreign currency transactions represent net realized
exchange gains or losses on closed forward currency contracts,
disposition of foreign currencies 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.
G) 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 losses on wash sale transactions, post-October loss
deferrals, dividends payable, defaulted bond interest, market discount
and interest on payment-in-kind securities. Reclassifications are made
to the fund's capital accounts to reflect income and gains available for
distribution (or available capital loss carryovers) under income tax
regulations. For the year ended May 31, 2000, the fund reclassified
$151,691 to decrease distributions in excess of net investment income
and $62,231 to decrease paid-in-capital, with an increase to accumulated
net realized losses of $89,460. The calculation of net investment income
per share in the financial highlights table excludes these adjustments.
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.
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 Investments, Inc.
Investor servicing agent functions are provided by Putnam Investor
Services, a division of PFTC.
For the year ended May 31, 2000, fund expenses were reduced by $3,915
under expense offset arrangements with PFTC and brokerage service
arrangements. 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 $492
has been allocated to the fund, and an additional fee for each Trustees
meeting attended. Trustees receive additional fees for attendance at
certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with
the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as a Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in Compensation of Trustees in the Statement of
operations. Accrued pension liability is included in Payable for
compensation of Trustees in the Statement of assets and liabilities.
Note 3
Purchases and sales of securities
During the year ended May 31, 2000, cost of purchases and proceeds from
sales of investment securities other than short-term investments
aggregated $82,305,288 and $86,414,236, respectively. There were no
purchases and sales of U.S. government obligations.
FEDERAL TAX INFORMATION
(Unaudited)
The fund has designated 7.85% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
For the year ended May 31, 2000, a portion of the Fund's distribution
represents a return of capital and is therefore not taxable to
shareholders.
The Form 1099 you receive in January 2001 will show the tax status of
all distributions paid to your account in calendar 2000.
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Putnam Investment Management, Inc.
One Post Office Square
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Putnam Fiduciary Trust Company
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Ropes & Gray
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
TRUSTEES
John A. Hill, 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, III
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
Rosemary H. Thomsen
Vice President and Fund Manager
Richard A. Monaghan
Vice President
Richard G. Leibovitch
Vice President
John R. Verani
Vice President
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.
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
62270 590 7/00
