| UNITED STATES | ||
| SECURITIES AND EXCHANGE COMMISSION | ||
| Washington, D.C. 20549 | ||
| FORM N-CSR | ||
| CERTIFIED SHAREHOLDER REPORT OF REGISTERED | ||
| MANAGEMENT INVESTMENT COMPANIES | ||
| Investment Company Act file number: (811- 02796 ) | ||
| Exact name of registrant as specified in charter: Putnam High Yield Trust | ||
| Address of principal executive offices: One Post Office Square, Boston, Massachusetts 02109 | ||
| Name and address of agent for service: | Beth S. Mazor, Vice President | |
| One Post Office Square | ||
| Boston, Massachusetts 02109 | ||
| Copy to: | John W. Gerstmayr, Esq. | |
| Ropes & Gray LLP | ||
| One International Place | ||
| Boston, Massachusetts 02110 | ||
| Registrant’s telephone number, including area code: | (617) 292-1000 | |
| Date of fiscal year end: August 31, 2008 | ||
| Date of reporting period: September 1, 2007— August 31, 2008 | ||
Item 1. Report to Stockholders:
The following is a copy of the report transmitted to stockholders pursuant to Rule 30e-1 under the Investment Company Act of 1940:
What makes
Putnam different?
A time-honored tradition in money management
Since 1937, our values have been rooted in a profound sense of responsibility for the money entrusted to us.
A prudent approach to investing
We use a research-driven team approach to seek consistent, dependable, superior investment results over time, although there is no guarantee a fund will meet its objectives.
Funds for every investment goal
We offer a broad range of mutual funds and other financial products so investors and their financial representatives can build diversified portfolios.
A commitment to doing what’s right for investors
With a focus on investment performance, below-average expenses, and in-depth information about our funds, we put the interests of investors first and seek to set the standard for integrity and service.
Industry-leading service
We help investors, along with their financial representatives, make informed investment decisions with confidence.
In 1830, Massachusetts Supreme Judicial Court Justice Samuel Putnam established The Prudent Man Rule, a legal foundation for responsible money management.
THE PRUDENT MAN RULE
All that can be required of a trustee to invest is that he shall conduct himself faithfully and exercise a sound discretion. He is to observe how men of prudence, discretion, and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of the capital to be invested.
Putnam
High Yield
Trust
8 | 31 | 08
Annual Report
| Message from the Trustees | 1 |
| About the fund | 2 |
| Performance and portfolio snapshots | 4 |
| Interview with your fund’s Portfolio Leader | 5 |
| Performance in depth. | 8 |
| Expenses | 10 |
| Portfolio turnover | 12 |
| Risk | 12 |
| Your fund’s management. | 13 |
| Terms and definitions | 14 |
| Trustee approval of management contract | 15 |
| Other information for shareholders. | 18 |
| Financial statements | 19 |
| Federal tax information | 43 |
| About the Trustees | 44 |
| Officers | 47 |
Cover photograph: © Richard H. Johnson
Message from the Trustees
Dear Fellow Shareholder:
The financial markets are currently experiencing the kind of upheaval not seen in many years. Investor confidence has been shaken by losses across a range of sectors worldwide and by the collapse of several financial industry companies. We are encouraged by the federal government’s swift, decisive actions, which we believe will restore stability to the financial system in due course.
As a shareholder of this fund, you should feel confident about the financial standing of Putnam Investments. Our parent companies, Great-West Lifeco and Power Financial Corporation, are among the largest and most successful organizations in the financial services industry. All three companies are well capitalized with strong cash flows.
Lastly, we are pleased to announce that Robert L. Reynolds, a well-known leader and visionary in the mutual fund industry, has joined the Putnam leadership team as President and Chief Executive Officer of Putnam Investments, effective July 1, 2008. Charles E. Haldeman, Jr., former President and CEO, has taken on the role of Chairman of Putnam Investment Management, LLC, the firm’s fund management company. He continues to serve as President of the Funds and as a Trustee.
Mr. Reynolds brings to Putnam substantial industry experience and an outstanding record of success, including serving as Vice Chairman and Chief Operating Officer at Fidelity Investments from 2000 to 2007. We look forward to working with Bob as we continue our goal to position Putnam to exceed our shareholders’ expectations.
We would also like to take this opportunity to welcome new shareholders to the fund and to thank all of our investors for your continued confidence in Putnam during these challenging times.
About the fund
A disciplined approach to seeking high current income and capital growth
Unlike most types of fixed-income investments, high-yield bonds are more influenced by the performance of issuing companies than by interest rates. For this reason, distinguishing between opportunities and pitfalls in the high-yield bond market requires a rigorous selection process. With Putnam High Yield Trust, this process is highlighted by exhaustive research, investment diversification, and timely portfolio adjustments.
Because of the risks of high-yield bond investing, in-depth credit research is essential. The fund’s research team — more than 20 professionals, including analysts who specialize in different industry sectors — visits with the management of issuing companies and analyzes each company’s profitability and capital structure. The team then considers this information in the context of the bond’s total return profile before deciding whether it is an appropriate investment for the fund.
The fund’s portfolio typically consists of bonds issued by a broad range of companies. Holdings are diversified across industry sectors and among bonds with different credit ratings. While the fund invests primarily in the bonds of U.S. companies, its diversified approach allows it to include foreign bonds as well. The fund also invests in convertible securities as well as bank loans. Although diversification does not ensure a profit or protect against a loss and it is possible to lose money in a diversified portfolio, the fund’s diversification can help reduce the volatility that typically comes with higher-risk investments.
As the bond markets shift over time, the fund’s management team looks for ways to capitalize on developments that affect fixed-income securities in general and high-yield bonds in particular. For example, if credit spreads widen and prices of lower-rated securities decline, the team may look to take advantage of the improved valuation of higher-risk securities. Conversely, if the team believes that credit risk is likely to pick up or volatility is likely to increase, the team may look to reduce risk in the portfolio.
Lower-rated bonds may offer higher yields in return for more risk. Mutual funds that invest in bonds are subject to certain risks, including interest-rate risk, credit risk, and inflation risk. As interest rates rise, the prices of bonds fall. Long-term bonds are more exposed to interest-rate risk than short-term bonds. Unlike bonds, bond funds have ongoing fees and expenses.
What makes a bond “high yield”?
High-yield bonds are fixed-income investments typically issued by companies that lack an established earnings track record or a solid credit history. In general, high-yield bonds offer higher interest rates than investment-grade bonds to compensate for their increased risk. Because of this added risk, these bonds are typically rated below investment grade by an independent rating agency (for example, the lowest Moody’s Investors Service rating of investment-grade bonds is Baa). The lower the rating, the greater the possibility that a bond’s issuer will be unable to make interest payments or repay the principal.
High-yield bonds tend to be less dependent on interest rates than investment-grade bonds.
Performance and portfolio snapshots
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will fluctuate, and you may have a gain or a loss when you sell your shares. Performance of class A shares assumes reinvestment of distributions and does not account for taxes. Fund returns in the bar chart do not reflect a sales charge of 4.00%; had they, returns would have been lower. See pages 5 and 8–10 for additional performance information. For a portion of the periods, this fund may have limited expenses, without which returns would have been lower. A 1% short-term trading fee may apply. To obtain the most recent month-end performance, visit www.putnam.com.
* The inception of the JPMorgan Developed High Yield Index was 12/31/94, which was after the inception of the fund.
“As always, we aim to take advantage of the
opportunities presented to us, believing that
our approach can benefit shareholders as the
environment evolves.”
Paul Scanlon, Portfolio Leader, Putnam High Yield Trust
Credit qualities shown as a percentage of portfolio value as of 8/31/08. A bond rated Baa or higher (MIG3/VMIG3 or higher, for short-term debt) is considered investment grade. The chart reflects Moody’s ratings; percentages may include bonds not rated by Moody’s but considered by Putnam Management to be of comparable quality. Ratings will vary over time.
Credit quality overview
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Paul Scanlon
Paul, thanks for sitting down with us today to discuss High Yield Trust’s performance during its fiscal year. How did the fund perform?
The fund held up fairly well during a period of marked volatility, outperforming the overall high-yield bond market. For the 12 months ending August 31, 2008, the fund returned –0.50%, compared with –1.16% for its benchmark, the JPMorgan Developed High Yield Index, and –2.17% for its Lipper peer group, High Current Yield Funds.
What factors caused the high-yield market to post a negative return during High Yield Trust’s fiscal year?
The high-yield market was volatile during the period due to concerns about the subprime mortgage market, the health of the U.S. economy, and corporate business fundamentals. The default rate began the period at historically low levels but rose during the period, and most investors expected it to keep climbing. As 2008 began, there was a large overhang of new issuance, while at the same time there was subdued demand from increasingly risk-averse investors. Conditions improved in April and May in response to several moves by the Federal Reserve [the “Fed”], including intervention related to investment bank Bear Stearns. This backdrop — along with overall corporate earnings that met expectations — helped the high-yield market enjoy a temporary rally. However, this rebound was short-lived, as the market declined from June through the end of the period due to weak economic data that raised concerns about corporate business fu ndamentals and investors’ increasing aversion to risk.
What strategy did you pursue given this backdrop?
The fund was well positioned to weather this difficult period. We assumed a defensive posture, because we felt at the beginning of the period that overall spread levels — the yield advantage high-yield bonds offer over comparable Treasuries — didn’t compensate us enough for what we perceived to be growing risk in the market. To that end, we reduced some of our lower-rated positions. We also increased our investments in floating-rate bank loans issued by high-yield companies in order to temper the fund’s volatility. Bank loans are senior in a company’s capital structure (meaning they are paid off first in case of default) and are secured by a firm’s tangible assets or cash flows. These characteristics helped make the loans attractive when the economy and markets faltered, and helped the fund’s relative performance.
Broad market index and fund performance
This comparison shows your fund’s performance in the context of broad market indexes for the 12 months ended 8/31/08. See the previous page and pages 8–10 for additional fund performance information. Index descriptions can be found on page 14.
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What other moves did you make?
We were able to uncover buying opportunities among some lower-quality pockets of the market because high-yield bond prices were volatile. During the fiscal year, the fund benefited from overweights to the energy and metals/minerals areas, strong stock selection in aerospace, and underweighting financials. On the other hand, underweighting broadcasting, retail, and communication services held back results. Cable TV/wireless and consumer products were two sectors that were overweighted, with chemicals, food/tobacco, and gaming/leisure notable underweights during the year.
Which holdings contributed to performance relative to the benchmark?
As we mentioned, our energy company holdings buoyed performance. Energy companies are generally seen as being less sensitive to an economic downturn, which also helped these companies outperform. Rising coal prices helped our investment in International Coal, which we sold for a profit. Defense and aerospace firm DRS Technology appreciated on the strength of its contracts with the U.S. Department of Defense as well as from a takeover bid it received. Relative to the index, the fund benefited further from underweighting three index components that performed poorly: automotive part manufacturer Delphi, which struggled due to ongoing struggles for the auto industry; casino company Harrah’s, which suffered from investor concerns about how the economic downturn might curtail consumer spending on gambling; and financing company Residential Capital, which declined due to the company’s exposure to subprime mortgages.
Which securities and strategies detracted from performance?
Diversified media company Vertis underperformed because its proposed acquisition of a competitor, American Color Graphics, was called off. Underweighting retailer Dollar General also hurt, as the company outperformed many of its retail peers. Finally, while the fund benefited from underweighting the gaming/leisure area, our overweight positions in casino operators Trump Entertainment and Pinnacle Entertainment detracted from relative performance.
What’s your outlook, Paul?
The backdrop for the high-yield market is still mixed. Our fundamental outlook for the economy currently is negative, as we struggle with weaker economic conditions, the threat of building inflation, and issues surrounding the beleaguered banking sector. We believe that this environment likely will lead to deterioration in corporate business fundamentals. While the default rate remains low by historical measures, we expect it to
Top 10 holdings
This table shows the fund’s top 10 holdings and the percentage of the fund’s net assets that each represented as of 8/31/08. Holdings will vary over time.
| HOLDING (percentage of fund’s net assets) | COUPON (%) AND MATURITY DATE | SECTOR/INDUSTRY |
| NRG Energy, Inc. (0.8%) | 7.375s%, 2016 | Utilities and power/Power producers |
| Freeport-McMoRan Copper & Gold, Inc. (0.7%) | 8.375s%, 2017 | Basic materials/Metals |
| CCH I, LLC (0.7%) | 11s%, 2015 | Consumer staples/Cable television |
| SunGard Data Systems, Inc. (0.7%) | 9.125s%, 2013 | Technology/Computers |
| Intelsat Bermuda, Ltd. (Bermuda) (0.7%) | 11.25s%, 2016 | Communication services/Telecommunications |
| Legrand SA (France) (0.6%) | 8.5s%, 2025 | Capital goods/Manufacturing |
| HCA, Inc. (0.6%) | 9.125s%, 2014 | Health care/Health care |
| Ford Motor Credit Co., LLC (0.6%) | 9.875s%, 2011 | Consumer cyclicals/Automotive |
| Energy Future Holdings Corp. (0.6%) | 6.213s%, 2014 | Utilities and power/Electric utilities |
| Peabody Energy Corp. (0.6%) | 7.375s%, 2016 | Energy/Coal |
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rise — something that has been at least partially factored into market prices. To that end, we find current market valuations to be fair. On the positive side, market technicals — meaning factors of supply and demand — have improved significantly because we believe that we’ve worked through an unwieldy supply overhang that had weighed on the market. After years of relatively benign credit conditions, there is growing dispersion among quality tiers, sectors, and issuers. Given these conditions, we believe that an understanding of downside valuations, free cash-flow metrics, and available liquidity should continue to grow in relevance. We believe this kind of environment is one where our approach can prove significantly beneficial to our fellow shareholders.
Thank you, Paul, for your time and insights today.
The views expressed in this report are exclusively those of Putnam Management. They are not meant as investment advice.
Please note that the holdings discussed in this report may not have been held by the fund for the entire period. Portfolio composition is subject to review in accordance with the fund’s investment strategy and may vary in the future.
I N T H E N E W S
On October 3, lawmakers approved a $700 billion rescue plan for the ailing financial industry. In mid-September, with portions of the financial system perilously close to collapse, the Bush Administration, along with the heads of the U.S. Treasury and the Federal Reserve Bank, called upon Congressional lawmakers to quickly approve a plan to buy the failed mortgages and mortgage-related securities that are at the heart of the crisis. Treasury Secretary Henry Paulson said that this more aggressive, comprehensive plan was necessary because the “case-by-case” rescues of firms such as Bear Stearns, AIG, and Fannie Mae and Freddie Mac had not done enough to restore investor confidence.
Of special interest
Effective June 2008, your fund’s dividend has decreased from $0.049 to $0.045. This dividend change is due to income stemming from bank loans trending downward, which has driven down the distributable income of the fund.
Credit quality comparison
This chart shows how the fund’s credit quality has changed over the past six months. Credit qualities are shown as a percentage of portfolio value. A bond rated Baa or higher (MIG3/VMIG3 or higher, for short-term debt) is considered investment grade. The chart reflects Moody’s ratings; percentages may include bonds not rated by Moody’s but considered by Putnam Management to be of comparable quality. Ratings will vary over time.
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Your fund’s performance
This section shows your fund’s performance, price, and distribution information for periods ended August 31, 2008, the end of its most recent fiscal year. In accordance with regulatory requirements for mutual funds, we also include performance as of the most recent calendar quarter-end and expense information taken from the fund’s current prospectus. Performance should always be considered in light of a fund’s investment strategy. Data represents past performance. Past performance does not guarantee future results. More recent returns may be less or more than those shown. Investment return and principal value will fluctuate, and you may have a gain or a loss when you sell your shares. Performance information does not reflect any deduction for taxes a shareholder may owe on fund distributions or on the redemption of fund shares. For the most recent month-end performance, please visit the Individual Investors section of www.put nam.com or call Putnam at 1-800-225-1581. Class Y shares are generally only available to corporate and institutional clients and clients in other approved programs. See the Terms and Definitions section in this report for definitions of the share classes offered by your fund.
Fund performance Total return for periods ended 8/31/08
| Class A | Class B | Class C | Class M | Class R | Class Y | |||||
| (inception dates) | (2/14/78) | (3/1/93) | (3/19/02) | (7/3/95) | (1/21/03) | (12/31/98) | ||||
| NAV | POP | NAV | CDSC | NAV | CDSC | NAV | POP | NAV | NAV | |
| Annual average (life of fund) | 8.68% | 8.53% | 7.77% | 7.77% | 7.85% | 7.85% | 8.30% | 8.18% | 8.39% | 8.75% |
| 10 years | 58.06 | 51.72 | 47.08 | 47.08 | 46.15 | 46.15 | 54.13 | 49.06 | 53.36 | 61.20 |
| Annual average | 4.68 | 4.26 | 3.93 | 3.93 | 3.87 | 3.87 | 4.42 | 4.07 | 4.37 | 4.89 |
| 5 years | 38.56 | 33.10 | 33.66 | 31.75 | 33.42 | 33.42 | 36.87 | 32.48 | 36.06 | 39.95 |
| Annual average | 6.74 | 5.89 | 5.97 | 5.67 | 5.94 | 5.94 | 6.48 | 5.79 | 6.35 | 6.95 |
| 3 years | 11.27 | 6.79 | 9.03 | 6.35 | 8.79 | 8.79 | 10.54 | 6.98 | 10.06 | 11.91 |
| Annual average | 3.62 | 2.21 | 2.92 | 2.07 | 2.85 | 2.85 | 3.40 | 2.27 | 3.25 | 3.82 |
| 1 year | –0.50 | –4.53 | –1.14 | –5.76 | –1.28 | –2.20 | –0.67 | –3.86 | –0.75 | –0.35 |
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. After sales charge returns (public offering price, or POP) for class A and M shares reflect a maximum 4.00% and 3.25% load, respectively, as of 1/2/08. Class B share returns reflect the applicable contingent deferred sales charge (CDSC), which is 5% in the first year, declining to 1% in the sixth year, and is eliminated thereafter. Class C shares reflect a 1% CDSC for the first year that is eliminated thereafter. Class R and Y shares have no initial sales charge or CDSC. Performance for class B, C, M, R, and Y shares before their inception is derived from the historical performance of class A shares, adjusted for the applicable sales charge (or CDSC) and, except for class Y shares, the higher operating expenses for such shares.
For a portion of the periods, this fund may have limited expenses, without which returns would have been lower.
A 1% short-term trading fee may be applied to shares exchanged or sold within 90 days of purchase.
Change in the value of a $10,000 investment ($9,600 after sales charge)
Cumulative total return from 8/31/98 to 8/31/08
Past performance does not indicate future results. At the end of the same time period, a $10,000 investment in the fund’s class B and class C shares would have been valued at $14,708 and $14,615, respectively, and no contingent deferred sales charges would apply. A $10,000 investment in the fund’s class M shares ($9,675 after sales charge) would have been valued at $14,906 at public offering price. A $10,000 investment in the fund’s class R and class Y shares would have been valued at $15,336 and $16,120, respectively.
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Comparative index returns For periods ended 8/31/08
| JPMorgan Developed | Lipper High Current Yield Funds | |
| High Yield Index | category average* | |
| Annual average (life of fund) | —† | 8.37% |
| 10 years | 72.25% | 57.12 |
| Annual average | 5.59 | 4.34 |
| 5 years | 39.05 | 32.52 |
| Annual average | 6.82 | 5.64 |
| 3 years | 11.68 | 8.60 |
| Annual average | 3.75 | 2.63 |
| 1 year | –1.16 | –2.17 |
Index and Lipper results should be compared to fund performance at net asset value.
* Over the 1-year, 3-year, 5-year, 10-year, and life-of-fund periods ended 8/31/08, there were 465, 394, 340, 176, and 11 funds, respectively, in this Lipper category.
† The inception of the JPMorgan Developed High Yield Index was 12/31/94, which was after the inception of the fund.
Fund price and distribution information For the 12-month period ended 8/31/08
| Distributions: | Class A | Class B | Class C | Class M | Class R | Class Y | ||
| Number | 12 | 12 | 12 | 12 | 12 | 12 | ||
| Income | $0.576 | $0.517 | $0.517 | $0.553 | $0.558 | $0.598 | ||
| Capital gains | — | — | — | — | — | — | ||
| Total | $0.576 | $0.517 | $0.517 | $0.553 | $0.558 | $0.598 | ||
| Share value: | NAV | POP | NAV | NAV | NAV | POP | NAV | NAV |
| 8/31/07 | $7.82 | $8.15* | $7.79 | $7.78 | $7.83 | $8.09 | $7.77 | $7.76 |
| 8/31/08 | 7.21 | 7.51 | 7.19 | 7.17 | 7.23 | 7.47 | 7.16 | 7.14 |
| Current yield (end of period) | NAV | POP | NAV | NAV | NAV | POP | NAV | NAV |
| Current dividend rate 1 | 7.49% | 7.19% | 6.84% | 6.86% | 7.30% | 7.07% | 7.37% | 7.73% |
| Current 30-day SEC yield 2,3 | ||||||||
| (with expense limitation) | N/A | 8.34 | 7.92 | 7.94 | N/A | 8.16 | 8.44 | 8.96 |
| Current 30-day SEC yield 3 | ||||||||
| (without expense limitation) | N/A | 8.34 | 7.92 | 7.93 | N/A | 8.16 | 8.44 | 8.95 |
The classification of distributions, if any, is an estimate. Final distribution information will appear on your year-end tax forms.
* Reflects an increase in sales charges that took effect on 1/2/08.
1 Most recent distribution, excluding capital gains, annualized and divided by NAV or POP at end of period.
2 For a portion of the period, this fund may have limited expenses, without which yields would have been lower.
3 Based only on investment income and calculated using the maximum offering price for each share class, in accordance with SEC guidelines.
Fund performance as of most recent calendar quarter Total return for periods ended 9/30/08
| Class A | Class B | Class C | Class M | Class R | Class Y | |||||
| (inception dates) | (2/14/78) | (3/1/93) | (3/19/02) | (7/3/95) | (1/21/03) | (12/31/98) | ||||
| NAV | POP | NAV | CDSC | NAV | CDSC | NAV | POP | NAV | NAV | |
| Annual average (life of fund) | 8.37% | 8.23% | 7.46% | 7.46% | 7.55% | 7.55% | 8.00% | 7.88% | 8.08% | 8.45% |
| 10 years | 48.49 | 42.50 | 38.14 | 38.14 | 37.39 | 37.39 | 44.82 | 40.07 | 44.05 | 51.59 |
| Annual average | 4.03 | 3.61 | 3.28 | 3.28 | 3.23 | 3.23 | 3.77 | 3.43 | 3.72 | 4.25 |
| 5 years | 24.98 | 19.98 | 20.67 | 18.94 | 20.45 | 20.45 | 23.63 | 19.58 | 22.65 | 26.31 |
| Annual average | 4.56 | 3.71 | 3.83 | 3.53 | 3.79 | 3.79 | 4.33 | 3.64 | 4.17 | 4.78 |
| 3 years | 3.49 | –0.62 | 1.37 | –1.12 | 1.16 | 1.16 | 2.70 | –0.65 | 2.30 | 4.16 |
| Annual average | 1.15 | –0.21 | 0.45 | –0.37 | 0.39 | 0.39 | 0.89 | –0.22 | 0.76 | 1.37 |
| 1 year | –10.34 | –13.90 | –10.95 | –15.11 | –10.96 | –11.80 | –10.47 | –13.40 | –10.64 | –10.15 |
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Fund’s annual operating expenses For the fiscal year ended 8/31/07
| Class A | Class B | Class C | Class M | Class R | Class Y | |
| Total annual fund operating expenses | 1.03% | 1.78% | 1.78% | 1.28% | 1.28% | 0.78% |
Expense information in this table is taken from the most recent prospectus, is subject to change, and may differ from that shown in the next section and in the financial highlights of this report. Expenses are shown as a percentage of average net assets.
Your fund’s expenses
As a mutual fund investor, you pay ongoing expenses, such as management fees, distribution fees (12b-1 fees), and other expenses. In the most recent six-month period, your fund limited these expenses; had it not done so, expenses would have been higher. Using the following information, you can estimate how these expenses affect your investment and compare them with the expenses of other funds. You may also pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial representative.
Review your fund’s expenses
The following table shows the expenses you would have paid on a $1,000 investment in Putnam High Yield Trust from March 1, 2008, to August 31, 2008. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
| Class A | Class B | Class C | Class M | Class R | Class Y | |
| Expenses paid per $1,000* | $5.51 | $9.29 | $9.28 | $6.77 | $6.77 | $4.25 |
| Ending value (after expenses) | $1,010.80 | $1,008.20 | $1,006.80 | $1,010.60 | $1,009.60 | $1,011.00 |
* Expenses for each share class are calculated using the fund’s annualized expense ratio for each class, which represents the ongoing expenses as a percentage of average net assets for the six months ended 8/31/08. The expense ratio may differ for each share class (see the last table in this section). Expenses are calculated by multiplying the expense ratio by the average account value for the period; then multiplying the result by the number of days in the period; and then dividing that result by the number of days in the year.
Estimate the expenses you paid
To estimate the ongoing expenses you paid for the six months ended August 31, 2008, use the following calculation method. To find the value of your investment on March 1, 2008, call Putnam at 1-800-225-1581.
Compare expenses using the SEC’s method
The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the following table shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total costs) of investing in the fund with those of other funds. All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.
| Class A | Class B | Class C | Class M | Class R | Class Y | |
| Expenses paid per $1,000* | $5.53 | $9.32 | $9.32 | $6.80 | $6.80 | $4.27 |
| Ending value (after expenses) | $1,019.66 | $1,015.89 | $1,015.89 | $1,018.40 | $1,018.40 | $1,020.91 |
* Expenses for each share class are calculated using the fund’s annualized expense ratio for each class, which represents the ongoing expenses as a percentage of average net assets for the six months ended 8/31/08. The expense ratio may differ for each share class (see the last table in this section). Expenses are calculated by multiplying the expense ratio by the average account value for the period; then multiplying the result by the number of days in the period; and then dividing that result by the number of days in the year.
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Compare expenses using industry averages
You can also compare your fund’s expenses with the average of its peer group, as defined by Lipper, an independent fund-rating agency that ranks funds relative to others that Lipper considers to have similar investment styles or objectives. The expense ratio for each share class shown indicates how much of your fund’s average net assets have been used to pay ongoing expenses during the period.
| Class A | Class B | Class C | Class M | Class R | Class Y | |
| Your fund’s annualized expense ratio* | 1.09% | 1.84% | 1.84% | 1.34% | 1.34% | 0.84% |
| Average annualized expense ratio for Lipper peer group† | 1.13% | 1.88% | 1.88% | 1.38% | 1.38% | 0.88% |
* For the fund’s most recent fiscal half year; may differ from expense ratios based on one-year data in the financial highlights.
† Putnam keeps fund expenses below the Lipper peer group average expense ratio by limiting our fund expenses if they exceed the Lipper average. The Lipper average is a simple average of front-end load funds in the peer group that excludes 12b-1 fees as well as any expense offset and brokerage/service arrangements that may reduce fund expenses. To facilitate the comparison in this presentation, Putnam has adjusted the Lipper average to reflect 12b-1 fees. Investors should note that the other funds in the peer group may be significantly smaller or larger than the fund and that an asset-weighted average would likely be lower than the simple average. Also, the fund and Lipper report expense data at different times; the fund’s expense ratio shown here is annualized data for the most recent six-month period, while the quarterly updated Lipper average is based on the most recent fiscal year-end data available for the peer group funds as of 6/30/08.
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Your fund’s portfolio turnover and Morningstar® Risk
Putnam funds are actively managed by teams of experts who buy and sell securities based on intensive analysis of companies, industries, economies, and markets. Portfolio turnover is a measure of how often a fund’s managers buy and sell securities for your fund. A portfolio turnover of 100%, for example, means that the managers sold and replaced securities valued at 100% of a fund’s average portfolio value within a given period. Funds with high turnover may be more likely to generate capital gains that must be distributed to shareholders as taxable income. High turnover may also cause a fund to pay more brokerage commissions and other transaction costs, which may detract from performance.
Funds that invest in bonds or other fixed-income instruments may have higher turnover than funds that invest only in stocks. Short-term bond funds tend to have higher turnover than longer-term bond funds, because shorter-term bonds will mature or be sold more frequently than longer-term bonds. You can use the following table to compare your fund’s turnover with the average turnover for funds in its Lipper category.
Turnover comparisons
Percentage of holdings that change every year
| 2008 | 2007 | 2006 | 2005 | 2004 | |
| Putnam High Yield Trust | 28% | 57% | 46% | 41% | 62% |
| Lipper High Current Yield Funds category average | 85% | 83% | 83% | 73% | 95% |
Turnover data for the fund is calculated based on the fund’s fiscal-year period, which ends on August 31. Turnover data for the fund’s Lipper category is calculated based on the average of the turnover of each fund in the category for its fiscal year ended during the indicated year. Fiscal years vary across funds in the Lipper category, which may limit the comparability of the fund’s portfolio turnover rate to the Lipper average. Comparative data for 2008 is based on information available as of 8/31/08.
Your fund’s Morningstar® Risk
This risk comparison is designed to help you understand how your fund compares with other funds. The comparison utilizes a risk measure developed by Morningstar, an independent fund-rating agency. This risk measure is referred to as the fund’s Morningstar Risk.
Your fund’s Morningstar Risk is shown alongside that of the average fund in its Morningstar category. The risk bar broadens the comparison by translating the fund’s Morningstar Risk into a percentile, which is based on the fund’s ranking among all funds rated by Morningstar as of September 30, 2008. A higher Morningstar Risk generally indicates that a fund’s monthly returns have varied more widely.
Morningstar determines a fund’s Morningstar Risk by assessing variations in the fund’s monthly returns — with an emphasis on downside variations — over a 3-year period, if available. Those measures are weighted and averaged to produce the fund’s Morningstar Risk. The information shown is provided for the fund’s class A shares only; information for other classes may vary. Morningstar Risk is based on historical data and does not indicate future results. Morningstar does not purport to measure the risk associated with a current investment in a fund, either on an absolute basis or on a relative basis. Low Morningstar Risk does not mean that you cannot lose money on an investment in a fund. Copyright 2008 Morningstar, Inc. All Rights Reserved. The information contained herein (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.
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Your fund’s management
Your fund is managed by the members of the Putnam Fixed-Income High-Yield Team. Paul Scanlon is the Portfolio Leader and Norman Boucher and Robert Salvin are Portfolio Members of your fund. The Portfolio Leader and Portfolio Members coordinate the team’s management of the fund.
For a complete listing of the members of the Putnam Fixed-Income High-Yield Team, including those who are not Portfolio Leaders or Portfolio Members of your fund, please visit the Individual Investors section of www.putnam.com.
Trustee and Putnam employee fund ownership
As of August 31, 2008, all of the Trustees of the Putnam funds owned fund shares. The table below shows the approximate value of investments in the fund and all Putnam funds as of that date by the Trustees and Putnam employees. These amounts include investments by the Trustees’ and employees’ immediate family members and investments through retirement and deferred compensation plans.
| Assets in | Total assets in | ||
| the fund | all Putnam funds | ||
| Trustees | $611,000 | $75,000,000 | |
| Putnam employees | $3,671,000 | $517,000,000 | |
Other Putnam funds managed by the Portfolio Leader and Portfolio Members
Paul Scanlon is also a Portfolio Leader of Putnam High Yield Advantage Fund and Putnam Floating Rate Income Fund. He is also a Portfolio Member of Putnam Diversified Income Trust, Putnam Premier Income Trust, and Putnam Master Intermediate Income Trust.
Norman Boucher is also a Portfolio Member of Putnam High Yield Advantage Fund and Putnam Floating Rate Income Fund.
Robert Salvin is also a Portfolio Leader of Putnam High Income Securities Fund and a Portfolio Member of Putnam High Yield Advantage Fund, Putnam Floating Rate Income Fund, and Putnam Convertible Income-Growth Trust.
Paul Scanlon, Norman Boucher, and Robert Salvin may also manage other accounts and variable trust funds advised by Putnam Management or an affiliate.
Investment team fund ownership
The following table shows how much the fund’s current Portfolio Leader and Portfolio Members have invested in the fund and in all Putnam mutual funds (in dollar ranges). Information shown is as of August 31, 2008, and August 31, 2007.
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Terms and definitions
Important terms
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 price, or value, of one share of a mutual fund, without a sales charge. NAVs fluctuate with market conditions. NAV is calculated by dividing the net assets of each class of shares by the number of outstanding shares in the class.
Public offering price (POP) is the price of a mutual fund share plus the maximum sales charge levied at the time of purchase. POP performance figures shown here assume the 4.00% maximum sales charge for class A shares and 3.25% for class M shares.
Contingent deferred sales charge (CDSC) is generally a charge applied at the time of the redemption of class B or C shares and assumes redemption at the end of the period. Your fund’s class B CDSC declines from a 5% maximum during the first year to 1% during the sixth year. After the sixth year, the CDSC no longer applies. The CDSC for class C shares is 1% for one year after purchase.
Current yield is the annual rate of return earned from dividends or interest of an investment. Current yield is expressed as a percentage of the price of a security, fund share, or principal investment.
Share classes
Class A shares are generally subject to an initial sales charge and no CDSC (except on certain redemptions of shares bought without an initial sales charge).
Class B shares are not subject to an initial sales charge. They may be subject to a CDSC.
Class C shares are not subject to an initial sales charge and are subject to a CDSC only if the shares are redeemed during the first year.
Class M shares have a lower initial sales charge and a higher 12b-1 fee than class A shares and no CDSC (except on certain redemptions of shares bought without an initial sales charge).
Class R shares are not subject to an initial sales charge or CDSC and are available only to certain defined contribution plans.
Class Y shares are not subject to an initial sales charge or CDSC, and carry no 12b-1 fee. They are generally only available to corporate and institutional clients and clients in other approved programs.
Comparative indexes
JPMorgan Developed High Yield Index is an unmanaged index of high-yield fixed-income securities issued in developed countries.
Lehman Aggregate Bond Index is an unmanaged index of U.S. investment-grade fixed-income securities.
Merrill Lynch 91-Day Treasury Bill Index is an unmanaged index that seeks to measure the performance of U.S. Treasury bills available in the marketplace.
S&P 500 Index is an unmanaged index of common stock performance.
Indexes assume reinvestment of all distributions and do not account for fees. Securities and performance of a fund and an index will differ. You cannot invest directly in an index.
Lipper is a third-party industry-ranking entity that ranks mutual funds. Its rankings do not reflect sales charges. Lipper rankings are based on total return at net asset value relative to other funds that have similar current investment styles or objectives as determined by Lipper. Lipper may change a fund’s category assignment at its discretion. Lipper category averages reflectperformance trends for funds within a category.
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Trustee approval of management contract
General conclusions
The Board of Trustees of the Putnam funds oversees the management of each fund and, as required by law, determines annually whether to approve the continuance of your fund’s management contract with Putnam Investment Management (“Putnam Management”) and the sub-management contract, in respect of your fund, between Putnam Management’s affiliate, Putnam Investments Limited (“PIL”), and Putnam Management. In this regard, the Board of Trustees, with the assistance of its Contract Committee consisting solely of Trustees who are not “interested persons” (as such term is defined in the Investment Company Act of 1940, as amended) of the Putnam funds (the “Independent Trustees”), requests and evaluates all information it deems reasonably necessary under the circumstances. Over the course of several months ending in June 2008, the Contract Committee met several times to consider the information provided by Putnam Management and oth er information developed with the assistance of the Board’s independent counsel and independent staff. The Contract Committee reviewed and discussed key aspects of this information with all of the Independent Trustees. The Contract Committee recommended, and the Independent Trustees approved, the continuance of your fund’s management and sub-management contract, effective July 1, 2008. (Because PIL is an affiliate of Putnam Management and Putnam Management remains fully responsible for all services provided by PIL, the Trustees have not evaluated PIL as a separate entity, and all subsequent references to Putnam Management below should be deemed to include reference to PIL as necessary or appropriate in the context.)
The Independent Trustees’ approval was based on the following conclusions:
• That the fee schedule in effect for your fund represented reasonable compensation in light of the nature and quality of the services being provided to the fund, the fees paid by competitive funds and the costs incurred by Putnam Management in providing such services, and
• That this fee schedule represented an appropriate sharing between fund shareholders and Putnam Management of such economies of scale as may exist in themanagement of the fund at current asset levels.
These conclusions were based on a comprehensive consideration of all information provided to the Trustees, were subject to the continued application of certain expense reductions and waivers and other considerations noted below, and were not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations and how the Trustees considered these factors are described below, although individual Trustees may have evaluated the information presented differently, giving different weights to various factors. It is also important to recognize that the fee arrangements for your fund and the other Putnam funds are the result of many years of review and discussion between the Independent Trustees and Putnam Management, that certain aspects of such arrangements may receive greater scrutiny in some years than others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements in prio r years.
Management fee schedules and categories; total expenses
The Trustees reviewed the management fee schedules in effect for all Putnam funds, including fee levels and breakpoints, and the assignment of funds to particular fee categories. In reviewing fees and expenses, the Trustees generally focused their attention on material changes in circumstances — for example, changes in a fund’s size or investment style, changes in Putnam Management’s operating costs or responsibilities, or changes in competitive practices in the mutual fund industry — that suggest that consideration of fee changes might be warranted. The Trustees concluded that the circumstances did not warrant changes to the management fee structure of your fund, which had been carefully developed over the years, re-examined on many occasions and adjusted where appropriate. In this regard, the Trustees also noted that shareholders of your fund voted in 2007 to approve new management contracts containing an identical fee structure. The Trustees focused on two areas of particular interest, as discussed further below:
• Competitiveness. The Trustees reviewed comparative fee and expense information for competitive funds, which indicated that, in a custom peer group of competitive funds selected by Lipper Inc., your fund ranked in the 55th percentile in management fees and in the 41st percentile in total expenses (less any applicable 12b-1 fees) as of December 31, 2007 (the first percentile being the least expensive funds and the 100th percentile being the most expensive funds). (Because the fund’s custom peer group is smaller than the fund’s broad Lipper Inc. peer group, this expense information may differ from the Lipper peer expense information found elsewhere in this report.) The Trustees noted that expense ratios for a number of Putnam funds, which show the percentage of fund assets used to pay for management and administrative services, distribution (12b-1) fees and other expenses, had been increas ing recently as a result of declining net assets and the natural operation of fee breakpoints.
The Trustees noted that the expense ratio increases described above were currently being controlled by expense limitations initially implemented in January 2004. The Trustees have received a commitment from Putnam Management and its parent company to continue this program through at least June 30, 2009. These expense limitations give effect to a commitment by Putnam Management that the expense ratio of each open-end fund would be no higher than the average expense ratio of the competitive funds included in the fund’s relevant Lipper universe (exclusive of any applicable 12b-1 charges in each case). The Trustees observed that this commitment to limit fund expenses has served shareholders well since its inception.
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In order to ensure that the expenses of the Putnam funds continue to meet evolving competitive standards, the Trustees requested, and Putnam Management agreed, to extend for the twelve months beginning July 1, 2008, an additional expense limitation for certain funds at an amount equal to the average expense ratio (exclusive of 12b-1 charges) of a custom peer group of competitive funds selected by Lipper to correspond to the size of the fund. This additional expense limitation will be applied to those open-end funds that had above-average expense ratios (exclusive of 12b-1 charges) based on the custom peer group data for the period ended December 31, 2007. This additional expense limitation will not be applied to your fund because it had a below-average expense ratio relative to its custom peer group.
In addition, the Trustees devoted particular attention to analyzing the Putnam funds’ fees and expenses relative to those of competitors in fund complexes of comparable size and with a comparable mix of asset categories. The Trustees concluded that this analysis did not reveal any matters requiring further attention at the current time.
• Economies of scale. Your fund currently has the benefit of breakpoints in its management fee that provide shareholders with significant economies of scale, which means that the effective management fee rate of the fund (as a percentage of fund assets) declines as the fund grows in size and crosses specified asset thresholds. Conversely, if the fund shrinks in size — as has been the case for many Putnam funds in recent years — these breakpoints result in increasing fee levels. In recent years, the Trustees have examined the operation of the existing breakpoint structure during periods of both growth and decline in asset levels. The Trustees concluded that the fee schedule in effect for your fund represented an appropriate sharing of economies of scale at current asset levels.
In connection with their review of the management fees and total expenses of the Putnam funds, the Trustees also reviewed the costs of the services to be provided and profits to be realized by Putnam Management and its affiliates from the relationship with the funds. This information included trends in revenues, expenses and profitability of Putnam Management and its affiliates relating to the investment management and distribution services provided to the funds. In this regard, the Trustees also reviewed an analysis of Putnam Management’s revenues, expenses and profitability with respect to the funds’ management contracts, allocated on a fund-by-fund basis.
Investment performance
The quality of the investment process provided by Putnam Management represented a major factor in the Trustees’ evaluation of the quality of services provided by Putnam Management under your fund’s management contract. The Trustees were assisted in their review of the Putnam funds’ investment process and performance by the work of the Investment Oversight Coordinating Committee of the Trustees and the Investment Oversight Committees of the Trustees, which had met on a regular monthly basis with the funds’ portfolio teams throughout the year. The Trustees concluded that Putnam Management generally provides a high-quality investment process — as measured by the experience and skills of the individuals assigned to the management of fund portfolios, the resources made available to such personnel, and in general the ability of Putnam Management to attract and retain high-quality personnel — but also recognized that this does not guarantee favorab le investment results for every fund in every time period. The Trustees considered the investment performance of each fund over multiple time periods and considered information comparing each fund’s performance with various benchmarks and with the performance of competitive funds.
While the Trustees noted the satisfactory investment performance of certain Putnam funds, they considered the disappointing investment performance of many funds in recent periods, particularly over periods in 2007 and 2008. They discussed with senior management of Putnam Management the factors contributing to such underperformance and actions being taken to improve performance. The Trustees recognized that, in recent years, Putnam Management has taken steps to strengthen its investment personnel and processes to address areas of underperformance, including recent efforts to further centralize Putnam Management’s equity research function. In this regard, the Trustees took into consideration efforts by Putnam Management to improve its ability to assess and mitigate investment risk in individual funds, across asset classes, and across the complex as a whole. The Trustees indicated their intention to continue to monitor performance trends to assess the effectiveness of these efforts and to evaluate whether additional changes to address areas of underperformance are warranted.
In the case of your fund, the Trustees considered that your fund’s class A share cumulative total return performance at net asset value was in the following percentiles of its Lipper Inc. peer group (Lipper High Current Yield Funds) for the one-year, three-year and five-year periods ended December 31, 2007 (the first percentile being the best-performing funds and the 100th percentile being the worst-performing funds):
| One-year period | 33rd | ||
| Three-year period | 28th | ||
| Five-year period | 29th | ||
(Because of the passage of time, these performance results may differ from the performance results for more recent periods shown elsewhere in this report.) Over the one-year, three-year and five-year periods ended December 31, 2007, there were 455, 388, and 334 funds, respectively, in your fund’s Lipper peer group.* Past performance is no guarantee of future returns.
* The percentile rankings for your fund’s class A share annualized total return performance in the Lipper High Current Yield Funds category for the one-year, five-year, and ten-year periods ended September 30, 2008, were 51%, 28%, and 37%, respectively. Over the one-year, five-year, and ten-year periods ended September 30, 2008, your fund ranked 236th out of 466, 92nd out of 338, and 68th out of 185 funds, respectively. Note that this more recent information was not available when the Trustees approved the continuance of your fund’s management contract.
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As a general matter, the Trustees believe that cooperative efforts between the Trustees and Putnam Management represent the most effective way to address investment performance problems. The Trustees noted that investors in the Putnam funds have, in effect, placed their trust in the Putnam organization, under the oversight of the funds’ Trustees, to make appropriate decisions regarding the management of the funds. Based on the responsiveness of Putnam Management in the recent past to Trustee concerns about investment performance, the Trustees concluded that it is preferable to seek change within Putnam Management to address performance shortcomings. In the Trustees’ view, the alternative of engaging a new investment adviser for an underperforming fund would entail significant disruptions and would not provide any greater assurance of improved investment performance.
Brokerage and soft-dollar allocations; other benefits
The Trustees considered various potential benefits that Putnam Management may receive in connection with the services it provides under the management contract with your fund. These include benefits related to brokerage and soft-dollar allocations, whereby a portion of the commissions paid by a fund for brokerage may be used to acquire research services that may be useful to Putnam Management in managing the assets of the fund and of other clients. The Trustees considered changes made in 2008, at Putnam Management’s request, to the Putnam funds’ brokerage allocation policy, which expanded the permitted categories of brokerage and research services payable with soft dollars and increased the permitted soft dollar allocation to third-party services over what had been authorized in previous years. The Trustees indicated their continued intent to monitor the potential benefits associated with the allocation of fund brokerage and trend s in industry practice to ensure that the principle of seeking “best price and execution” remains paramount in the portfolio trading process.
The Trustees’ annual review of your fund’s management contract arrangements also included the review of its distributor’s contract and distribution plan with Putnam Retail Management Limited Partnership and the investor servicing agreement with Put-nam Fiduciary Trust Company (“PFTC”), each of which provides benefits to affiliates of Putnam Management. In the case of the investor servicing agreement, the Trustees considered that certain shareholder servicing functions were shifted to a third-party service provider by PFTC in 2007.
Comparison of retail and institutional fee schedules
The information examined by the Trustees as part of their annual contract review has included for many years information regarding fees charged by Putnam Management and its affiliates to institutional clients such as defined benefit pension plans, college endowments, etc. This information included comparisons of such fees with fees charged to the funds, as well as a detailed assessment of the differences in the services provided to these two types of clients. The Trustees observed, in this regard, that the differences in fee rates between institutional clients and mutual funds are by no means uniform when examined by individual asset sectors, suggesting that differences in the pricing of investment management services to these types of clients reflect to a substantial degree historical competitive forces operating in separate market places. The Trustees considered the fact that fee rates across different asset classes are typically higher on average for mutual funds than for institutional clients, as well as the differences between the services that Putnam Management provides to the Putnam funds and those that it provides to institutional clients of the firm, but did not rely on such comparisons to any significant extent in concluding that the management fees paid by your fund are reasonable.
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Other information for shareholders
Putnam’s policy on confidentiality
In order to conduct business with our shareholders, we must obtain certain personal information such as account holders’ addresses, telephone numbers, Social Security numbers, and the names of their financial representatives. We use this information to assign an account number and to help us maintain accurate records of transactions and account balances. It is our policy to protect the confidentiality of your information, whether or not you currently own shares of our funds, and, in particular, not to sell information about you or your accounts to outside marketing firms. We have safeguards in place designed to prevent unauthorized access to our computer systems and procedures to protect personal information from unauthorized use. Under certain circumstances, we share this information with outside vendors who provide services to us, such as mailing and proxy solicitation. In those cases, the service providers enter into confidentiality agreements with us, and we provide only the information necessary to process transactions and perform other services related to your account. We may also share this information with our Putnam affiliates to service your account or provide you with information about other Putnam products or services. It is also our policy to share account information with your financial representative, if you’ve listed one on your Putnam account. If you would like clarification about our confidentiality policies or have any questions or concerns, please don’t hesitate to contact us at 1-800-225-1581, Monday through Friday, 8:30 a.m. to 8:00 p.m., or Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time.
Proxy voting
Putnam is committed to managing our mutual funds in the best interests of our shareholders. The Putnam funds’ proxy voting guidelines and procedures, as well as information regarding how your fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2008, are available in the Individual Investors section of www.putnam.com, and on the SEC’s Web site, www.sec.gov. If you have questions about finding forms on the SEC’s Web site, you may call the SEC at 1-800-SEC-0330. You may also obtain the Putnam funds’ proxy voting guidelines and procedures at no charge by calling Putnam’s Shareholder Services at 1-800-225-1581.
Fund portfolio holdings
The fund will file a complete schedule of its portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. Shareholders may obtain the fund’s Forms N-Q on the SEC’s Web site at www.sec.gov. In addition, the fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. You may call the SEC at 1-800-SEC-0330 for information about the SEC’s Web site or the operation of the Public Reference Room.
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Financial statements
These sections of the report, as well as the accompanying Notes, preceded by the Report of Independent Registered Public Accounting Firm, 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 liquidation preference of preferred shares.)
Statement of operations shows the fund’s net investment gain or loss. This is done by first adding up all the fund’s earnings — from dividends and interest income — and subtracting its operating expenses to determine net investment income (or loss). Then, any net gain or loss the fund realized on the sales of its holdings — as well as any unrealized gains or losses over the period — is added to or subtracted from the net investment result to determine the fund’s net gain or loss for the fiscal year.
Statement of changes in net assets shows how the fund’s net assets were affected by the fund’s net investment gain or loss, 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 semi-annual report, the highlight table also includes the current reporting period.
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Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders
Putnam High Yield Trust:
We have audited the accompanying statement of assets and liabilities of Putnam High Yield Trust, including the fund’s portfolio, as of August 31, 2008, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform our audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of August 31, 2008 by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Putnam High Yield Trust as of August 31, 2008, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
October 16, 2008
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The fund’s portfolio 8/31/08
| CORPORATE BONDS | Principal | |
| AND NOTES (77.1%)* | amount | Value |
| Advertising and Marketing Services (0.3%) | ||
| Lamar Media Corp. company guaranty | ||
| 7 1/4s, 2013 S | $4,050,000 | $3,847,500 |
| Lamar Media Corp. sr. unsec. sub. | ||
| notes Ser. C, 6 5/8s, 2015 | 1,255,000 | 1,112,244 |
| 4,959,744 | ||
| Automotive (2.9%) | ||
| Allison Transmission 144A company | ||
| guaranty 11s, 2015 | 4,195,000 | 3,859,400 |
| Dana Corp.escrow sr. notes, 5.85s, | ||
| 2015 (In default) † | 6,095,000 | 143,842 |
| Ford Motor Credit Co., LLC notes | ||
| 7 7/8s, 2010 S | 6,665,000 | 5,745,423 |
| Ford Motor Credit Co., LLC sr. notes | ||
| 9 7/8s, 2011 | 12,395,000 | 10,168,181 |
| Ford Motor Credit Co., LLC sr. unsec. | ||
| notes 9 3/4s, 2010 | 4,215,000 | 3,691,514 |
| Ford Motor Credit Co., LLC unsec. | ||
| notes 7 3/8s, 2009 | 6,310,000 | 5,864,665 |
| General Motors Corp. sr. unsec. unsub. | ||
| notes 7.2s, 2011 | 9,760,000 | 6,270,800 |
| Lear Corp. company guaranty | ||
| 8 1/2s, 2013 S | 2,250,000 | 1,800,000 |
| Meritor Automotive, Inc. notes | ||
| 6.8s, 2009 | 870,000 | 856,950 |
| Tenneco Automotive, Inc. company | ||
| guaranty 8 5/8s, 2014 S | 2,300,000 | 1,955,000 |
| Tenneco Automotive, Inc. sec. notes | ||
| Ser. B, 10 1/4s, 2013 | 311,000 | 323,440 |
| Tenneco, Inc. sr. unsec. notes company | ||
| guaranty 8 1/8s, 2015 | 965,000 | 866,088 |
| TRW Automotive, Inc. 144A company | ||
| guaranty sr. notes 7 1/4s, 2017 S | 4,820,000 | 4,145,200 |
| UCI Holdco, Inc. sr. unsec. notes FRN | ||
| 10.276s, 2013 ‡‡ | 3,371,999 | 2,596,439 |
| 48,286,942 | ||
| Basic Materials (7.6%) | ||
| Airgas, Inc. 144A company guaranty sr. | ||
| sub. notes 7 1/8s, 2018 | 4,655,000 | 4,701,550 |
| AK Steel Corp. company guaranty | ||
| 7 3/4s, 2012 | 6,250,000 | 6,390,625 |
| Aleris International, Inc. company | ||
| guaranty 10s, 2016 | 2,440,000 | 1,701,900 |
| Aleris International, Inc. company | ||
| guaranty 9s, 2014 ‡‡ | 5,040,000 | 3,931,200 |
| ARCO Chemical Co. debs. | ||
| 10 1/4s, 2010 | 1,525,000 | 1,525,000 |
| Builders FirstSource, Inc. company | ||
| guaranty sr. sec. notes FRN | ||
| 7.054s, 2012 | 4,885,000 | 3,297,375 |
| Century Aluminum Co. company | ||
| guaranty 7 1/2s, 2014 | 2,785,000 | 2,701,450 |
| Clondalkin Acquisition BV 144A | ||
| company guaranty sr. sec. notes FRN | ||
| 4.776s, 2013 (Netherlands) | 3,270,000 | 2,685,488 |
| Compass Minerals International, Inc. | ||
| sr. disc. notes Ser. B, 12s, 2013 | 1,550,000 | 1,631,375 |
| Freeport-McMoRan Copper & | ||
| Gold, Inc. sr. unsec. notes 8 3/8s, 2017 | 11,865,000 | 12,547,238 |
| Freeport-McMoRan Copper & | ||
| Gold, Inc. sr. unsec. notes 8 1/4s, 2015 S | 5,930,000 | 6,226,500 |
| CORPORATE BONDS | Principal | ||
| AND NOTES (77.1%)* cont. | amount | Value | |
| Basic Materials cont. | |||
| Freeport-McMoRan Copper & | |||
| Gold, Inc. sr. unsec. notes FRN | |||
| 5.883s, 2015 | $2,095,000 | $2,112,067 | |
| Georgia-Pacific Corp. debs. | |||
| 9 1/2s, 2011 | 4,275,000 | 4,339,125 | |
| Gerdau Ameristeel Corp. sr. notes | |||
| 10 3/8s, 2011 (Canada) | 5,905,000 | 6,126,438 | |
| Hercules, Inc. company guaranty | |||
| 6 3/4s, 2029 | 4,570,000 | 4,592,850 | |
| Hexion U.S. Finance Corp./Hexion | |||
| Nova Scotia Finance, ULC company | |||
| guaranty 9 3/4s, 2014 | 2,460,000 | 2,047,950 | |
| Huntsman International, LLC company | |||
| guaranty sr. unsec. sub. notes | |||
| 7 7/8s, 2014 | 4,140,000 | 3,850,200 | |
| Huntsman, LLC company guaranty | |||
| sr. unsub. notes 11 5/8s, 2010 | 1,000 | 1,035 | |
| International Paper Co. bonds | |||
| 7.4s, 2014 | 3,255,000 | 3,320,875 | |
| Jefferson Smurfit Corp. company | |||
| guaranty 8 1/4s, 2012 | 1,353,000 | 1,177,110 | |
| Metals USA, Inc. sec. notes | |||
| 11 1/8s, 2015 | 6,050,000 | 6,322,250 | |
| Momentive Performance | |||
| Materials, Inc. company guaranty sr. | |||
| unsec. notes 9 3/4s, 2014 S | 9,330,000 | 8,420,325 | |
| Mosaic Co. (The) 144A sr. unsec. | |||
| unsub. notes 7 5/8s, 2016 | 3,440,000 | 3,617,611 | |
| Mosaic Co. (The) 144A sr. unsec. | |||
| unsub. notes 7 3/8s, 2014 | 780,000 | 806,623 | |
| NewPage Corp. company guaranty | |||
| 10s, 2012 | 2,910,000 | 2,822,700 | |
| NewPage Holding Corp. sr. notes | |||
| FRN 9.986s, 2013 ‡‡ | 1,662,177 | 1,541,669 | |
| Norske Skog Canada, Ltd. company | |||
| guaranty Ser. D, 8 5/8s, 2011 (Canada) | 4,651,000 | 3,808,006 | |
| Novelis, Inc. company guaranty | |||
| 7 1/4s, 2015 | 6,057,000 | 5,617,868 | |
| Rockwood Specialties Group, Inc. | |||
| company guaranty 7 5/8s, 2014 | EUR | 3,140,000 | 4,292,268 |
| Smurfit-Stone Container | |||
| Enterprises, Inc. sr. unsec. unsub. notes | |||
| 8s, 2017 S | $1,620,000 | 1,296,000 | |
| Steel Dynamics, Inc. company guaranty | |||
| sr. unsec. unsub. notes 7 3/8s, 2012 | 920,000 | 910,800 | |
| Steel Dynamics, Inc. company guaranty | |||
| sr. unsec. unsub. notes 6 3/4s, 2015 | 8,140,000 | 7,590,550 | |
| Stone Container Corp. sr. notes | |||
| 8 3/8s, 2012 | 2,405,000 | 2,110,388 | |
| Tube City IMS Corp. company guaranty | |||
| 9 3/4s, 2015 | 3,295,000 | 3,080,825 | |
| Verso Paper Holdings, LLC/ Verso | |||
| Paper, Inc. company guaranty | |||
| 11 3/8s, 2016 | 1,390,000 | 1,181,500 | |
| 128,326,734 | |||
| Broadcasting (1.9%) | |||
| Clear Channel Communications, Inc. | |||
| sr. unsec. notes 7.65s, 2010 | 3,870,000 | 3,695,850 | |
| Clear Channel Communications, Inc. | |||
| sr. unsec. notes 5 1/2s, 2014 | 810,000 | 394,875 | |
21
| CORPORATE BONDS | Principal | |
| AND NOTES (77.1%)* cont. | amount | Value |
| Broadcasting cont. | ||
| DirecTV Holdings, LLC company | ||
| guaranty 6 3/8s, 2015 S | $9,527,000 | $8,979,198 |
| DirecTV Holdings, LLC 144A sr. notes | ||
| 7 5/8s, 2016 | 1,410,000 | 1,406,475 |
| Echostar DBS Corp. company | ||
| guaranty 7s, 2013 | 240,000 | 228,000 |
| Echostar DBS Corp. sr. notes | ||
| 6 3/8s, 2011 S | 7,990,000 | 7,810,225 |
| Sirius Satellite Radio, Inc. sr. unsec. | ||
| notes 9 5/8s, 2013 | 5,610,000 | 4,389,825 |
| Univision Communications, Inc. 144A | ||
| company guaranty unsec. notes | ||
| 9 3/4s, 2015 ‡‡ | 3,150,000 | 2,252,250 |
| Young Broadcasting, Inc. company | ||
| guaranty 10s, 2011 | 4,339,000 | 1,562,040 |
| Young Broadcasting, Inc. sr. sub. notes | ||
| 8 3/4s, 2014 | 1,140,000 | 364,800 |
| 31,083,538 | ||
| Building Materials (1.0%) | ||
| Associated Materials, Inc. company | ||
| guaranty 9 3/4s, 2012 | 6,577,000 | 6,560,558 |
| NTK Holdings, Inc. sr. disc. notes | ||
| zero %, 2014 | 4,195,000 | 1,761,900 |
| Texas Industries, Inc. sr. unsec. notes | ||
| 7 1/4s, 2013 | 1,995,000 | 1,865,325 |
| Texas Industries, Inc. 144A company | ||
| guaranty sr. unsec. notes 7 1/4s, 2013 | 790,000 | 744,575 |
| THL Buildco, Inc. (Nortek | ||
| Holdings, Inc.) sr. sub. notes | ||
| 8 1/2s, 2014 | 7,430,000 | 4,532,300 |
| THL Buildco, Inc. (Nortek | ||
| Holdings, Inc.) 144A sr. sec. notes | ||
| 10s, 2013 | 945,000 | 883,575 |
| 16,348,233 | ||
| Cable Television (2.5%) | ||
| Adelphia Communications Corp. | ||
| zero %, 2011 | 90,000 | 7,763 |
| Adelphia Communications Corp. | ||
| zero %, 2009 | 5,000 | 419 |
| Adelphia Communications Corp. | ||
| zero %, 2009 | 2,918,000 | 244,383 |
| Adelphia Communications Corp. | ||
| zero %, 2008 | 5,000 | 419 |
| Adelphia Communications Corp. | ||
| escrow zero %, 2009 | 2,471,000 | 206,946 |
| Adelphia Communications Corp. | ||
| escrow bonds zero %, 2010 | 3,231,000 | 270,596 |
| Atlantic Broadband Finance, LLC | ||
| company guaranty 9 3/8s, 2014 | 1,980,000 | 1,791,900 |
| Cablevision Systems Corp. sr. notes | ||
| Ser. B, 8s, 2012 | 1,130,000 | 1,118,700 |
| CCH I Holdings, LLC company | ||
| guaranty 12 1/8s, 2015 | 187,000 | 100,980 |
| CCH I, LLC sec. notes 11s, 2015 | 15,401,000 | 11,820,268 |
| CCH II, LLC sr. unsec. notes | ||
| 10 1/4s, 2010 | 4,325,000 | 4,152,000 |
| CCH II, LLC sr. unsec. notes Ser. B, | ||
| 10 1/4s, 2010 | 9,505,000 | 9,077,275 |
| CSC Holdings, Inc. sr. notes | ||
| 6 3/4s, 2012 S | 5,255,000 | 5,123,625 |
| CORPORATE BONDS | Principal | ||
| AND NOTES (77.1%)* cont. | amount | Value | |
| Cable Television cont. | |||
| CSC Holdings, Inc. sr. notes Ser. B, | |||
| 7 5/8s, 2011 | $4,000 | $4,020 | |
| NTL Cable PLC sr. notes 9 1/8s, 2016 | |||
| (United Kingdom) | 2,200,000 | 2,095,500 | |
| Rainbow National Services, LLC | |||
| 144A sr. notes 8 3/4s, 2012 | 5,125,000 | 5,227,500 | |
| 41,242,294 | |||
| Capital Goods (5.0%) | |||
| Alliant Techsystems, Inc. sr. sub. notes | |||
| 6 3/4s, 2016 | 2,693,000 | 2,618,943 | |
| Allied Waste North America, Inc. sec. | |||
| notes Ser. B, 5 3/4s, 2011 S | 860,000 | 853,550 | |
| Baldor Electric Co. company guaranty | |||
| 8 5/8s, 2017 | 1,665,000 | 1,685,813 | |
| BBC Holding Corp. sr. notes | |||
| 8 7/8s, 2014 | 4,220,000 | 3,502,600 | |
| Berry Plastics Corp. company guaranty | |||
| sr. sec. notes FRN 7.541s, 2015 | 2,685,000 | 2,550,750 | |
| Blount, Inc. sr. sub. notes 8 7/8s, 2012 | 3,115,000 | 3,177,300 | |
| Bombardier, Inc. 144A sr. unsec. notes | |||
| FRN 8.09s, 2013 (Canada) | EUR | 2,680,000 | 3,883,194 |
| Crown Americas, LLC/Crown | |||
| Americas Capital Corp. sr. notes | |||
| 7 5/8s, 2013 | $2,755,000 | 2,803,213 | |
| General Cable Corp. company | |||
| guaranty sr. unsec. notes FRN | |||
| 5.166s, 2015 | 4,895,000 | 4,234,175 | |
| Hawker Beechcraft | |||
| Acquisition Co., LLC sr. sub. notes | |||
| 9 3/4s, 2017 | 3,753,000 | 3,677,940 | |
| Hawker Beechcraft | |||
| Acquisition Co., LLC sr. unsec. notes | |||
| 8 1/2s, 2015 S | 1,476,000 | 1,487,070 | |
| Hexcel Corp. sr. sub. notes | |||
| 6 3/4s, 2015 | 7,065,000 | 6,853,050 | |
| L-3 Communications Corp. company | |||
| guaranty Ser. B, 6 3/8s, 2015 S | 5,525,000 | 5,290,188 | |
| Legrand SA unsec. unsub. debs. | |||
| 8 1/2s, 2025 (France) | 10,560,000 | 10,921,838 | |
| Owens-Brockway Glass Container, Inc. | |||
| company guaranty 6 3/4s, 2014 | EUR | 725,000 | 975,099 |
| Owens-Illinois, Inc. debs. 7 1/2s, 2010 | $15,000 | 15,338 | |
| RBS Global, Inc. / Rexnord Corp. | |||
| company guaranty 9 1/2s, 2014 | 7,185,000 | 7,005,375 | |
| Ryerson Tull, Inc. 144A sec. notes | |||
| 12s, 2015 | 4,390,000 | 4,302,200 | |
| TD Funding Corp. company guaranty | |||
| 7 3/4s, 2014 | 4,315,000 | 4,196,338 | |
| Terex Corp. company guaranty | |||
| 7 3/8s, 2014 | 5,370,000 | 5,289,450 | |
| Titan International, Inc. company | |||
| guaranty 8s, 2012 | 6,100,000 | 6,039,000 | |
| WCA Waste Corp. company | |||
| guaranty 9 1/4s, 2014 | 3,545,000 | 3,509,550 | |
| 84,871,974 | |||
| Coal (1.1%) | |||
| Arch Western Finance, LLC sr. notes | |||
| 6 3/4s, 2013 S | 8,665,000 | 8,643,338 | |
| Peabody Energy Corp. company | |||
| guaranty 7 3/8s, 2016 S | 9,405,000 | 9,687,150 | |
| 18,330,488 | |||
| 22 |
| CORPORATE BONDS | Principal | ||
| AND NOTES (77.1%)* cont. | amount | Value | |
| Communication Services (7.7%) | |||
| American Tower Corp. sr. notes | |||
| 7 1/2s, 2012 | $2,635,000 | $2,687,700 | |
| American Tower Corp. 144A sr. notes | |||
| 7s, 2017 S | 2,450,000 | 2,437,750 | |
| BCM Ireland Finance Ltd. 144A FRN | |||
| 9.965s, 2016 (Cayman Islands) | EUR | 1,715,000 | 2,152,168 |
| Centennial Cellular Operating Co., LLC | |||
| company guaranty 10 1/8s, 2013 | $3,145,000 | 3,278,663 | |
| Centennial Communications Corp. | |||
| sr. notes 10s, 2013 | 1,015,000 | 1,055,600 | |
| Centennial Communications Corp. | |||
| sr. unsec. notes FRN 8.541s, 2013 | 1,155,000 | 1,149,225 | |
| Cincinnati Bell, Inc. company guaranty | |||
| 7s, 2015 | 2,210,000 | 2,033,200 | |
| Citizens Communications Co. notes | |||
| 9 1/4s, 2011 | 4,245,000 | 4,393,575 | |
| Cricket Communications, Inc. company | |||
| guaranty 9 3/8s, 2014 | 7,235,000 | 7,171,694 | |
| Cricket Communications, Inc. company | |||
| guaranty sr. unsec. notes Ser. *, | |||
| 9 3/8s, 2014 | 705,000 | 698,831 | |
| Digicel Group, Ltd. 144A sr. unsec. | |||
| notes 8 7/8s, 2015 (Jamaica) | 3,100,000 | 2,910,280 | |
| Digicel, Ltd. 144A sr. unsec. unsub. | |||
| notes 9 1/4s, 2012 (Jamaica) | 3,550,000 | 3,638,750 | |
| Inmarsat Finance PLC company | |||
| guaranty stepped-coupon zero % | |||
| (10 3/8s, 11/15/08), 2012 | |||
| (United Kingdom) †† S | 7,197,000 | 7,331,944 | |
| Intelsat Bermuda, Ltd. company | |||
| guaranty sr. unsec. notes 11 1/4s, | |||
| 2016 (Bermuda) | 10,665,000 | 11,211,581 | |
| Intelsat Intermediate Holding Co., Ltd. | |||
| company guaranty stepped-coupon | |||
| zero % (9 1/4s, 2/1/10), 2015 | |||
| (Bermuda) †† | 2,355,000 | 2,007,638 | |
| iPCS, Inc. company guaranty sr. sec. | |||
| notes FRN 4.926s, 2013 S | 1,965,000 | 1,743,938 | |
| Level 3 Financing, Inc. company | |||
| guaranty 9 1/4s, 2014 | 5,355,000 | 4,913,213 | |
| Level 3 Financing, Inc. company | |||
| guaranty 8 3/4s, 2017 | 3,135,000 | 2,727,450 | |
| MetroPCS Wireless, Inc. company | |||
| guaranty sr. unsec. notes 9 1/4s, 2014 | 8,510,000 | 8,435,538 | |
| Nextel Communications, Inc. | |||
| company guaranty sr. unsec. notes | |||
| Ser. D, 7 3/8s, 2015 S | 6,820,000 | 5,541,250 | |
| Nordic Telephone Co. Holdings ApS | |||
| 144A sr. sec. bond 8 7/8s, 2016 | |||
| (Denmark) | 1,035,000 | 996,188 | |
| PAETEC Holding Corp. company | |||
| guaranty sr. unsec. unsub. notes | |||
| 9 1/2s, 2015 | 2,530,000 | 2,049,300 | |
| Qwest Communications | |||
| International, Inc. company guaranty | |||
| 7 1/2s, 2014 | 7,470,000 | 6,797,700 | |
| Qwest Corp. sr. unsec. unsub. notes | |||
| 8 7/8s, 2012 | 5,180,000 | 5,218,850 | |
| Qwest Corp. sr. unsec. unsub. notes | |||
| 7 1/4s, 2025 | 2,875,000 | 2,314,375 | |
| CORPORATE BONDS | Principal | ||
| AND NOTES (77.1%)* cont. | amount | Value | |
| Communication Services cont. | |||
| Rural Cellular Corp. sr. unsec. sub. | |||
| FRN 8.623s, 2012 | $1,450,000 | $1,479,000 | |
| Rural Cellular Corp. sr. unsec. sub. | |||
| notes FRN 5.681s, 2013 | 2,685,000 | 2,738,700 | |
| Sprint Capital Corp. company guaranty | |||
| 6 7/8s, 2028 | 6,365,000 | 5,410,250 | |
| Syniverse Technologies, Inc. sr. sub. | |||
| notes Ser. B, 7 3/4s, 2013 | 3,400,000 | 3,196,000 | |
| Time Warner Telecom, Inc. company | |||
| guaranty 9 1/4s, 2014 | 2,300,000 | 2,331,625 | |
| West Corp. company guaranty | |||
| 11s, 2016 | 1,540,000 | 1,205,050 | |
| West Corp. company guaranty | |||
| 9 1/2s, 2014 | 2,805,000 | 2,391,263 | |
| Wind Aquisition Fin. SA notes 9 3/4s, | |||
| 2015 (Netherlands) | EUR | 2,085,000 | 3,007,611 |
| Windstream Corp. company guaranty | |||
| 8 5/8s, 2016 | $8,105,000 | 8,023,950 | |
| Windstream Corp. company guaranty | |||
| 8 1/8s, 2013 | 4,260,000 | 4,217,400 | |
| 128,897,250 | |||
| Consumer (0.7%) | |||
| Jostens IH Corp. company guaranty | |||
| 7 5/8s, 2012 | 6,600,000 | 6,451,500 | |
| Yankee Acquisition Corp. company | |||
| guaranty Ser. B, 8 1/2s, 2015 S | 6,400,000 | 4,928,000 | |
| 11,379,500 | |||
| Consumer Goods (1.3%) | |||
| Church & Dwight Co., Inc. company | |||
| guaranty 6s, 2012 | 2,279,000 | 2,222,025 | |
| Elizabeth Arden, Inc. company guaranty | |||
| 7 3/4s, 2014 | 3,800,000 | 3,553,000 | |
| Jarden Corp. company guaranty | |||
| 7 1/2s, 2017 S | 4,175,000 | 3,715,750 | |
| Prestige Brands, Inc. sr. sub. notes | |||
| 9 1/4s, 2012 | 6,279,000 | 6,310,395 | |
| Spectrum Brands, Inc. company | |||
| guaranty 7 3/8s, 2015 | 7,305,000 | 3,835,125 | |
| Spectrum Brands, Inc. sr. unsec. | |||
| sub. notes company guaranty | |||
| stepped-coupon 11 1/2s (12s, | |||
| 10/2/08), 2013 †† ‡��� | 3,520,000 | 2,464,000 | |
| 22,100,295 | |||
| Consumer Services (0.1%) | |||
| United Rentals NA, Inc. company | |||
| guaranty 6 1/2s, 2012 | 875,000 | 780,938 | |
| 780,938 | |||
| Energy (Oil Field) (3.1%) | |||
| CHC Helicopter Corp. sr. sub. notes | |||
| 7 3/8s, 2014 (Canada) | 8,235,000 | 8,564,400 | |
| Complete Production Services, Inc. | |||
| company guaranty 8s, 2016 | 4,520,000 | 4,440,900 | |
| Dresser-Rand Group, Inc. company | |||
| guaranty 7 3/8s, 2014 | 714,000 | 701,505 | |
| Helix Energy Solutions Group, Inc. | |||
| 144A sr. unsec. notes 9 1/2s, 2016 | 7,545,000 | 7,507,275 | |
| Hornbeck Offshore Services, Inc. | |||
| sr. notes Ser. B, 6 1/8s, 2014 | 2,350,000 | 2,185,500 | |
| Inergy LP/Inergy Finance Corp. | |||
| sr. unsec. notes 6 7/8s, 2014 | 8,670,000 | 7,803,000 | |
| Key Energy Services, Inc. 144A | |||
| sr. notes 8 3/8s, 2014 | 2,535,000 | 2,554,013 | |
23
| CORPORATE BONDS | Principal | |
| AND NOTES (77.1%)* cont. | amount | Value |
| Energy (Oil Field) cont. | ||
| Offshore Logistics, Inc. company | ||
| guaranty 6 1/8s, 2013 | $4,060,000 | $3,816,400 |
| Oslo Seismic Services, Inc. 1st mtge. | ||
| 8.28s, 2011 | 2,810,604 | 2,892,797 |
| Pacific Energy Partners/Pacific Energy | ||
| Finance Corp. sr. notes 7 1/8s, 2014 | 3,335,000 | 3,343,127 |
| Pride International, Inc. sr. unsec. notes | ||
| 7 3/8s, 2014 | 3,105,000 | 3,151,575 |
| Stallion Oilfield Services/Stallion Oilfield | ||
| Finance Corp. 144A sr. unsec. notes | ||
| 9 3/4s, 2015 | 7,790,000 | 5,745,125 |
| 52,705,617 | ||
| Entertainment (1.4%) | ||
| AMC Entertainment, Inc. company | ||
| guaranty 11s, 2016 | 2,608,000 | 2,647,120 |
| Avis Budget Car Rental, LLC company | ||
| guaranty 7 3/4s, 2016 S | 4,160,000 | 2,839,200 |
| Avis Budget Car Rental, LLC company | ||
| guaranty 7 5/8s, 2014 | 2,720,000 | 1,931,200 |
| Cinemark, Inc. sr. disc. notes | ||
| stepped-coupon zero % (9 3/4s, | ||
| 3/15/09), 2014 †† | 3,020,000 | 2,914,300 |
| Hertz Corp. company guaranty | ||
| 8 7/8s, 2014 | 5,330,000 | 4,990,213 |
| Marquee Holdings, Inc. sr. disc. notes | ||
| 12s, 2014 | 5,200,000 | 4,134,000 |
| Universal City Florida Holding Co. | ||
| sr. notes 8 3/8s, 2010 | 1,132,000 | 1,100,870 |
| Universal City Florida Holding Co. | ||
| sr. unsec. notes FRN 7.551s, 2010 | 3,396,000 | 3,285,630 |
| 23,842,533 | ||
| Financial (2.7%) | ||
| E*Trade Financial Corp. sr. unsec. | ||
| notes 8s, 2011 | 3,615,000 | 3,271,575 |
| GMAC, LLC sr. unsec. unsub. notes | ||
| 7 3/4s, 2010 S | 8,695,000 | 6,938,532 |
| GMAC, LLC sr. unsec. unsub. notes | ||
| 7s, 2012 | 1,490,000 | 894,204 |
| GMAC, LLC sr. unsec. unsub. notes | ||
| 6 7/8s, 2012 | 15,110,000 | 8,864,206 |
| GMAC, LLC sr. unsec. unsub. notes | ||
| 6 3/4s, 2014 | 14,926,000 | 8,104,311 |
| GMAC, LLC sr. unsec. unsub. notes | ||
| 6 5/8s, 2012 | 2,265,000 | 1,325,365 |
| GMAC, LLC sr. unsec. unsub. notes | ||
| FRN 4.881s, 2014 | 1,127,000 | 591,505 |
| HUB International Holdings, Inc. 144A | ||
| sr. sub. notes 10 1/4s, 2015 | 1,285,000 | 1,024,788 |
| HUB International Holdings, Inc. 144A | ||
| sr. unsec. unsub. notes 9s, 2014 | 915,000 | 816,638 |
| Lender Processing Services, Inc. 144A | ||
| sr. unsec. notes 8 1/8s, 2016 | 3,830,000 | 3,892,238 |
| Leucadia National Corp. sr. unsec. | ||
| notes 8 1/8s, 2015 | 1,495,000 | 1,504,344 |
| Leucadia National Corp. sr. unsec. | ||
| notes 7 1/8s, 2017 | 3,590,000 | 3,379,088 |
| Liberty Mutual Group 144A company | ||
| guaranty FRB 10 3/4s, 2058 | 1,980,000 | 1,842,869 |
| Nuveen Investments, Inc. 144A | ||
| sr. notes 10 1/2s, 2015 | 2,770,000 | 2,402,975 |
| CORPORATE BONDS | Principal | |
| AND NOTES (77.1%)* cont. | amount | Value |
| Financial cont. | ||
| Rouse Co., LP (The)/TRC Property | ||
| Holdings, Inc. 144A sr. unsec. unsub. | ||
| notes 6 3/4s, 2013 R | $505,000 | $419,701 |
| USI Holdings Corp. 144A sr. unsec. | ||
| notes FRN 6.679s, 2014 | 840,000 | 669,900 |
| 45,942,239 | ||
| Food (1.0%) | ||
| Archibald Candy Corp. company | ||
| guaranty 10s, 2008 (In default) † F | 878,534 | 122 |
| Chiquita Brands International, Inc. | ||
| sr. notes 7 1/2s, 2014 | 5,035,000 | 4,090,938 |
| Chiquita Brands International, Inc. | ||
| sr. unsec. unsub. notes 8 7/8s, 2015 | 820,000 | 699,050 |
| Dean Foods Co. company guaranty | ||
| 7s, 2016 S | 3,405,000 | 3,149,625 |
| Del Monte Corp. sr. sub. notes | ||
| 8 5/8s, 2012 | 6,390,000 | 6,453,900 |
| Pinnacle Foods Finance LLC sr. sub. | ||
| notes 10 5/8s, 2017 | 2,590,000 | 2,072,000 |
| 16,465,635 | ||
| Gaming & Lottery (2.7%) | ||
| Boyd Gaming Corp. sr. sub. notes | ||
| 7 1/8s, 2016 | 3,415,000 | 2,586,863 |
| Boyd Gaming Corp. sr. sub. notes | ||
| 6 3/4s, 2014 | 1,050,000 | 811,125 |
| Harrah’s Operating Co., Inc. 144A | ||
| company guaranty sr. notes | ||
| 10 3/4s, 2016 | 7,840,000 | 5,272,400 |
| Mashantucket Western Pequot Tribe | ||
| 144A bonds 8 1/2s, 2015 | 5,475,000 | 3,996,750 |
| MGM Mirage, Inc. company guaranty | ||
| 8 1/2s, 2010 S | 3,382,000 | 3,272,085 |
| MGM Mirage, Inc. company guaranty | ||
| 6s, 2009 | 7,177,000 | 7,033,460 |
| MGM Mirage, Inc. sr. notes | ||
| 6 3/4s, 2012 | 2,000 | 1,720 |
| Pinnacle Entertainment, Inc. company | ||
| guaranty sr. unsec. sub. notes | ||
| 7 1/2s, 2015 | 5,015,000 | 3,886,625 |
| Pinnacle Entertainment, Inc. sr. sub. | ||
| notes 8 1/4s, 2012 | 4,935,000 | 4,811,625 |
| Station Casinos, Inc. sr. notes | ||
| 6s, 2012 S | 3,895,000 | 2,716,763 |
| Trump Entertainment Resorts, Inc. | ||
| sec. notes 8 1/2s, 2015 | 12,655,000 | 5,789,663 |
| Wynn Las Vegas, LLC/Wynn Las Vegas | ||
| Capital Corp. 1st mtge. 6 5/8s, 2014 S | 5,975,000 | 5,444,719 |
| 45,623,798 | ||
| Health Care (7.7%) | ||
| Community Health Systems, Inc. | ||
| company guaranty 8 7/8s, 2015 S | 8,855,000 | 8,943,550 |
| DaVita, Inc. company guaranty | ||
| 6 5/8s, 2013 S | 4,470,000 | 4,358,250 |
| Elan Finance PLC/Elan Finance Corp. | ||
| company guaranty 7 3/4s, 2011 | ||
| (Ireland) | 6,570,000 | 6,175,800 |
| HCA, Inc. company guaranty sr. sec. | ||
| notes 9 5/8s, 2016 ‡‡ | 3,780,000 | 3,813,075 |
| HCA, Inc. sr. sec. notes 9 1/4s, 2016 | 9,070,000 | 9,330,763 |
| HCA, Inc. sr. sec. notes 9 1/8s, 2014 | 10,235,000 | 10,516,463 |
| HCA, Inc. sr. unsec. notes 7 7/8s, 2011 | 116,000 | 114,550 |
24
| CORPORATE BONDS | Principal | |
| AND NOTES (77.1%)* cont. | amount | Value |
| Health Care cont. | ||
| HCA, Inc. sr. unsec. notes 6 3/8s, 2015 | $2,250,000 | $1,856,250 |
| HCA, Inc. sr. unsec. notes 5 3/4s, 2014 | 2,385,000 | 1,976,569 |
| Health Management Associates, Inc. | ||
| sr. notes 6 1/8s, 2016 | 6,020,000 | 5,237,400 |
| IASIS Healthcare/IASIS Capital Corp. | ||
| sr. sub. notes 8 3/4s, 2014 | 400,000 | 401,000 |
| Omnicare, Inc. company guaranty | ||
| 6 3/4s, 2013 | 435,000 | 407,813 |
| Omnicare, Inc. sr. sub. notes | ||
| 6 1/8s, 2013 | 1,215,000 | 1,123,875 |
| Psychiatric Solutions, Inc. company | ||
| guaranty 7 3/4s, 2015 | 4,952,000 | 4,803,440 |
| Select Medical Corp. company guaranty | ||
| 7 5/8s, 2015 | 7,840,000 | 6,742,400 |
| Service Corporation International | ||
| debs. 7 7/8s, 2013 | 3,897,000 | 3,906,743 |
| Service Corporation International | ||
| sr. unsec. unsub. notes 6 3/4s, 2016 | 4,820,000 | 4,434,400 |
| Stewart Enterprises, Inc. sr. notes | ||
| 6 1/4s, 2013 | 6,905,000 | 6,663,325 |
| Sun Healthcare Group, Inc. company | ||
| guaranty sr. unsec. unsub. notes | ||
| 9 1/8s, 2015 | 3,875,000 | 3,875,000 |
| Surgical Care Affiliates, Inc. 144A sr. sub. | ||
| notes 10s, 2017 | 4,280,000 | 3,210,000 |
| Surgical Care Affiliates, Inc. 144A | ||
| sr. unsec. notes 8 7/8s, 2015 ‡‡ | 2,750,000 | 2,392,500 |
| Tenet Healthcare Corp. notes | ||
| 7 3/8s, 2013 | 7,500,000 | 7,040,625 |
| Tenet Healthcare Corp. sr. unsec. | ||
| notes 6 1/2s, 2012 | 1,370,000 | 1,325,475 |
| Tenet Healthcare Corp. sr. unsec. | ||
| unsub. notes 6 3/8s, 2011 | 6,547,000 | 6,317,855 |
| US Oncology, Inc. company guaranty | ||
| 9s, 2012 | 4,985,000 | 4,985,000 |
| Vanguard Health Holding Co. II, LLC | ||
| sr. sub. notes 9s, 2014 | 7,124,000 | 6,999,330 |
| Ventas Realty LP/Capital Corp. | ||
| company guaranty 9s, 2012 R | 6,415,000 | 6,767,825 |
| Ventas Realty LP/Capital Corp. | ||
| company guaranty 6 3/4s, 2010 R | 2,255,000 | 2,266,275 |
| Ventas Realty LP/Capital Corp. | ||
| sr. notes 6 5/8s, 2014 R | 1,730,000 | 1,675,938 |
| Ventas Realty LP/Capital Corp. | ||
| sr. notes 6 1/2s, 2016 R | 2,310,000 | 2,194,500 |
| 129,855,989 | ||
| Homebuilding (1.0%) | ||
| D.R. Horton, Inc. company guaranty | ||
| 8s, 2009 | 395,000 | 395,000 |
| D.R. Horton, Inc. company guaranty | ||
| sr. unsub. notes 5s, 2009 | 2,960,000 | 2,930,400 |
| D.R. Horton, Inc. sr. notes 7 7/8s, 2011 | 4,000 | 3,800 |
| K. Hovnanian Enterprises, Inc. company | ||
| guaranty sr. sec. notes 11 1/2s, 2013 | 2,640,000 | 2,696,100 |
| Meritage Homes Corp. company | ||
| guaranty 6 1/4s, 2015 | 4,325,000 | 3,373,500 |
| Meritage Homes Corp. sr. notes | ||
| 7s, 2014 | 760,000 | 604,200 |
| CORPORATE BONDS | Principal | |
| AND NOTES (77.1%)* cont. | amount | Value |
| Homebuilding cont. | ||
| Realogy Corp. company guaranty | ||
| sr. notes zero %, 2014 ‡‡ | $3,505,000 | $1,647,350 |
| Realogy Corp. company guaranty | ||
| sr. unsec. notes 10 1/2s, 2014 | 5,630,000 | 3,321,700 |
| Toll Brothers, Inc. company guaranty | ||
| sr. unsec. sub. notes 8 1/4s, 2011 | 2,505,000 | 2,417,325 |
| 17,389,375 | ||
| Household Furniture and Appliances (0.1%) | ||
| Sealy Mattress Co. sr. sub. notes | ||
| 8 1/4s, 2014 | 2,432,000 | 1,957,760 |
| 1,957,760 | ||
| Lodging/Tourism (0.8%) | ||
| FelCor Lodging LP company guaranty | ||
| 8 1/2s, 2011 R | 2,685,000 | 2,591,025 |
| Host Marriott LP company guaranty | ||
| Ser. Q, 6 3/4s, 2016 R | 130,000 | 111,800 |
| Host Marriott LP sr. notes | ||
| 7 1/8s, 2013 R | 100,000 | 94,250 |
| Host Marriott LP sr. notes Ser. M, | ||
| 7s, 2012 R | 9,300,000 | 8,695,500 |
| Seminole Hard Rock Entertainment, Inc. | ||
| 144A sr. sec. notes FRN 5.276s, 2014 | 3,225,000 | 2,588,063 |
| 14,080,638 | ||
| Media (2.1%) | ||
| Affinion Group, Inc. company guaranty | ||
| 11 1/2s, 2015 | 2,630,000 | 2,564,250 |
| Affinion Group, Inc. company guaranty | ||
| 10 1/8s, 2013 | 6,635,000 | 6,535,475 |
| Affinity Group, Inc. sr. sub. notes | ||
| 9s, 2012 | 4,965,000 | 4,418,850 |
| Idearc, Inc. company guaranty 8s, 2016 | 11,540,000 | 5,221,850 |
| Liberty Media, LLC sr. notes 5.7s, 2013 | 1,895,000 | 1,671,163 |
| Liberty Media, LLC sr. unsec. notes | ||
| 7 7/8s, 2009 | 2,340,000 | 2,367,965 |
| Nielsen Finance LLC/Nielsen Finance Co. | ||
| company guaranty 10s, 2014 | 4,980,000 | 5,042,250 |
| Nielsen Finance LLC/Nielsen Finance Co. | ||
| company guaranty stepped-coupon | ||
| zero % (12 1/2s, 8/1/11), 2016 †† | 5,025,000 | 3,442,125 |
| R.H. Donnelley, Inc. 144A company | ||
| guaranty sr. unsec. notes 11 3/4s, 2015 | 6,501,000 | 4,778,235 |
| R.H. Donnelley Corp. sr. unsec. notes | ||
| 6 7/8s, 2013 | 21,000 | 11,550 |
| R.H. Donnelley Corp. sr. unsec. unsub. | ||
| notes 8 7/8s, 2017 | 72,000 | 37,080 |
| 36,090,793 | ||
| Oil & Gas (7.2%) | ||
| Chaparral Energy, Inc. company | ||
| guaranty sr. unsec. notes 8 7/8s, 2017 | 6,790,000 | 5,890,325 |
| Chesapeake Energy Corp. sr. notes | ||
| 7 1/2s, 2013 | 3,605,000 | 3,641,050 |
| Chesapeake Energy Corp. sr. notes | ||
| 7s, 2014 | 2,775,000 | 2,747,250 |
| Compton Petroleum Corp. company | ||
| guaranty 7 5/8s, 2013 (Canada) | 9,165,000 | 8,603,644 |
| Comstock Resources, Inc. sr. notes | ||
| 6 7/8s, 2012 | 4,580,000 | 4,408,250 |
| Connacher Oil and Gas, Ltd. 144A | ||
| sec. notes 10 1/4s, 2015 (Canada) | 4,755,000 | 4,909,538 |
| Denbury Resources, Inc. sr. sub. notes | ||
| 7 1/2s, 2015 | 4,460,000 | 4,354,075 |
25
| CORPORATE BONDS | Principal | |
| AND NOTES (77.1%)* cont. | amount | Value |
| Oil & Gas cont. | ||
| El Paso Natural Gas Co. debs. | ||
| 8 5/8s, 2022 | $1,775,000 | $1,954,426 |
| Encore Acquisition Co. sr. sub. notes | ||
| 6 1/4s, 2014 | 2,265,000 | 2,027,175 |
| Encore Acquisition Co. sr. sub. notes | ||
| 6s, 2015 | 6,129,000 | 5,347,553 |
| Forest Oil Corp. sr. notes 8s, 2011 | 4,319,000 | 4,416,178 |
| Harvest Operations Corp. sr. notes | ||
| 7 7/8s, 2011 (Canada) | 6,030,000 | 5,351,625 |
| Hilcorp Energy I LP/Hilcorp Finance Co. | ||
| 144A sr. unsec. notes 7 3/4s, 2015 | 2,335,000 | 2,113,175 |
| Newfield Exploration Co. sr. sub. notes | ||
| 7 1/8s, 2018 | 2,415,000 | 2,270,100 |
| Newfield Exploration Co. sr. sub. notes | ||
| 6 5/8s, 2014 S | 6,730,000 | 6,334,613 |
| PetroHawk Energy Corp. company | ||
| guaranty 9 1/8s, 2013 | 8,945,000 | 8,900,275 |
| Petroleum Development Corp. | ||
| company guaranty sr. unsec. notes | ||
| 12s, 2018 | 3,285,000 | 3,432,825 |
| Petroplus Finance, Ltd. company | ||
| guaranty 6 3/4s, 2014 (Bermuda) S | 4,925,000 | 4,457,125 |
| Plains Exploration & Production Co. | ||
| company guaranty 7 3/4s, 2015 | 875,000 | 833,438 |
| Plains Exploration & Production Co. | ||
| company guaranty 7s, 2017 S | 5,520,000 | 4,968,000 |
| Quicksilver Resources, Inc. company | ||
| guaranty 7 1/8s, 2016 | 3,675,000 | 3,197,250 |
| Quicksilver Resources, Inc. company | ||
| guaranty sr. unsec. notes 8 1/4s, 2015 S | 1,360,000 | 1,315,800 |
| Range Resources Corp. company | ||
| guaranty sr. sub. notes 7 1/4s, 2018 | 1,450,000 | 1,406,500 |
| Sabine Pass LNG LP sec. notes | ||
| 7 1/2s, 2016 | 3,775,000 | 3,303,125 |
| SandRidge Energy, Inc. sr. notes | ||
| 8s, 2018 | 560,000 | 525,000 |
| SandRidge Energy, Inc. 144A company | ||
| guaranty sr. unsec. FRN 6.416s, 2014 | 1,965,000 | 1,842,818 |
| SandRidge Energy, Inc. 144A company | ||
| guaranty sr. unsec. notes | ||
| 8 5/8s, 2015 ‡‡ S | 5,500,000 | 5,321,250 |
| Targa Resources, Inc. company guaranty | ||
| sr. unsec. notes 8 1/2s, 2013 | 7,670,000 | 7,286,500 |
| Whiting Petroleum Corp. company | ||
| guaranty 7s, 2014 | 7,100,000 | 6,745,000 |
| Williams Cos., Inc. (The) sr. unsec. | ||
| notes 8 1/8s, 2012 | 25,000 | 26,563 |
| Williams Cos., Inc. (The) sr. unsec. | ||
| notes 7 5/8s, 2019 | 1,525,000 | 1,593,625 |
| Williams Cos., Inc. (The) 144A notes | ||
| 6 3/8s, 2010 | 1,915,000 | 1,943,725 |
| 121,467,796 | ||
| Publishing (1.0%) | ||
| American Media, Inc. sr. unsec. sub. | ||
| notes company guaranty 8 7/8s, 2011 | 835,000 | 617,900 |
| American Media, Inc. sr. unsec. sub. | ||
| notes company guaranty Ser. B, | ||
| 10 1/4s, 2009 | 5,770,000 | 4,442,900 |
| American Media, Inc. 144A company | ||
| guaranty sr. unsec. sub. notes | ||
| 10 1/4s, 2009 | 209,797 | 161,544 |
| CORPORATE BONDS | Principal | |
| AND NOTES (77.1%)* cont. | amount | Value |
| Publishing cont. | ||
| American Media, Inc. 144A company | ||
| guaranty sr. unsec. sub. notes | ||
| 8 7/8s, 2011 | $30,361 | $22,467 |
| CanWest Media, Inc. company guaranty | ||
| 8s, 2012 (Canada) | 3,499,006 | 3,004,771 |
| Cenveo Corp. 144A company guaranty | ||
| sr. unsec. notes 10 1/2s, 2016 | 2,700,000 | 2,639,250 |
| Dex Media, Inc. disc. notes | ||
| stepped-coupon zero % (9s, | ||
| 11/15/08), 2013 †† | 1,085,000 | 629,300 |
| Quebecor Media, Inc. sr. unsec. notes | ||
| Ser. *, 7 3/4s, 2016 (Canada) | 1,020,000 | 958,800 |
| Reader’s Digest Association, Inc. (The) | ||
| company guaranty sr. unsec. sub. notes | ||
| 9s, 2017 | 5,105,000 | 3,063,000 |
| Vertis, Inc. company guaranty Ser. B, | ||
| 10 7/8s, 2009 (In default) | 8,778,000 | 614,460 |
| Vertis, Inc. 144A unsec. sub. notes | ||
| 13 1/2s, 2009 (In default) | 2,405,000 | 36,075 |
| 16,190,467 | ||
| Restaurants (0.1%) | ||
| Buffets, Inc. company guaranty 12 1/2s, | ||
| 2014 (In default) | 1,920,000 | 19,200 |
| OSI Restaurant Partners, Inc. company | ||
| guaranty 10s, 2015 | 2,035,000 | 1,119,250 |
| 1,138,450 | ||
| Retail (1.6%) | ||
| Asbury Automotive Group, Inc. sr. sub. | ||
| notes 8s, 2014 | 3,595,000 | 2,804,100 |
| Autonation, Inc. company guaranty | ||
| sr. unsec. notes FRN 4.791s, 2013 | 1,650,000 | 1,361,250 |
| Bon-Ton Stores, Inc. (The) company | ||
| guaranty 10 1/4s, 2014 | 3,080,000 | 1,455,300 |
| Harry & David Holdings, Inc. company | ||
| guaranty 9s, 2013 | 3,645,000 | 2,697,300 |
| Harry & David Holdings, Inc. company | ||
| guaranty sr. unsec. notes FRN | ||
| 7.81s, 2012 | 1,125,000 | 708,750 |
| Michaels Stores, Inc. company guaranty | ||
| 11 3/8s, 2016 | 7,115,000 | 4,553,600 |
| Neiman-Marcus Group, Inc. company | ||
| guaranty 9s, 2015 | 6,505,000 | 6,326,110 |
| Rite Aid Corp. company guaranty | ||
| 9 3/8s, 2015 | 3,860,000 | 2,489,700 |
| Rite Aid Corp. sec. notes 7 1/2s, 2017 | 985,000 | 817,550 |
| United Auto Group, Inc. company | ||
| guaranty 7 3/4s, 2016 | 4,915,000 | 3,987,291 |
| 27,200,951 | ||
| Technology (5.3%) | ||
| Activant Solutions, Inc. company | ||
| guaranty 9 1/2s, 2016 | 2,890,000 | 2,181,950 |
| Advanced Micro Devices, Inc. sr. notes | ||
| 7 3/4s, 2012 | 2,191,000 | 1,665,160 |
| Amkor Technologies, Inc. sr. notes | ||
| 7 3/4s, 2013 | 2,622,000 | 2,458,125 |
| Avago Technologies Finance company | ||
| guaranty 11 7/8s, 2015 (Singapore) | 1,160,000 | 1,270,200 |
| Avago Technologies Finance company | ||
| guaranty 10 1/8s, 2013 (Singapore) | 1,175,000 | 1,264,594 |
| Avago Technologies Finance company | ||
| guaranty FRN 8.182s, 2013 (Singapore) | 18,000 | 18,000 |
26
| CORPORATE BONDS | Principal | |
| AND NOTES (77.1%)* cont. | amount | Value |
| Technology cont. | ||
| Celestica, Inc. sr. sub. notes 7 7/8s, | ||
| 2011 (Canada) | $990,000 | $992,475 |
| Celestica, Inc. sr. sub. notes 7 5/8s, | ||
| 2013 (Canada) | 2,045,000 | 1,963,200 |
| Ceridian Corp. 144A sr. unsec. notes | ||
| 11 1/4s, 2015 | 3,885,000 | 3,472,219 |
| Compucom Systems, Inc. sr. sub. notes | ||
| 12 1/2s, 2015 | 1,625,000 | 1,503,125 |
| Freescale Semiconductor, Inc. company | ||
| guaranty sr. unsec. notes 8 7/8s, 2014 S | 8,000,000 | 6,480,000 |
| Freescale Semiconductor, Inc. company | ||
| guaranty sr. unsec. sub. notes | ||
| 10 1/8s, 2016 S | 6,035,000 | 4,631,863 |
| Freescale Semiconductor, Inc. company | ||
| guaranty sr. unsec. sub. notes | ||
| 9 1/8s, 2014 ‡‡ | 985,000 | 768,300 |
| Iron Mountain, Inc. company guaranty | ||
| 8 3/4s, 2018 | 1,860,000 | 1,901,850 |
| Iron Mountain, Inc. company guaranty | ||
| 8 5/8s, 2013 | 1,696,000 | 1,704,480 |
| Iron Mountain, Inc. company guaranty | ||
| 7 3/4s, 2015 | 125,000 | 125,000 |
| Iron Mountain, Inc. company guaranty | ||
| 6 5/8s, 2016 | 235,000 | 221,488 |
| Iron Mountain, Inc. company guaranty | ||
| sr. unsec. sub. notes 8s, 2020 | 2,710,000 | 2,642,250 |
| Lucent Technologies, Inc. unsec. debs. | ||
| 6.45s, 2029 | 3,434,000 | 2,386,630 |
| New ASAT Finance, Ltd. company | ||
| guaranty 9 1/4s, 2011 (Cayman Islands) | 3,055,000 | 1,959,019 |
| Nortel Networks, Ltd. company | ||
| guaranty sr. unsec. notes 10 3/4s, | ||
| 2016 (Canada) | 1,675,000 | 1,549,375 |
| Nortel Networks, Ltd. company | ||
| guaranty sr. unsec. notes FRN 7.041s, | ||
| 2011 (Canada) | 4,925,000 | 4,567,938 |
| Nortel Networks, Ltd. 144A sr. unsecd. | ||
| notes company guaranty 10 3/4s, | ||
| 2016 (Canada) | 2,365,000 | 2,187,625 |
| NXP BV/NXP Funding, LLC company | ||
| guaranty sr. sec. notes FRN 5.541s, | ||
| 2013 (Netherlands) | 4,720,000 | 3,669,800 |
| NXP BV/NXP Funding, LLC sec. notes | ||
| 7 7/8s, 2014 (Netherlands) | 5,180,000 | 4,247,600 |
| Open Solutions, Inc. 144A sr. sub. | ||
| notes 9 3/4s, 2015 | 3,355,000 | 2,382,050 |
| Sanmina Corp. company guaranty | ||
| sr. unsec. sub. notes 6 3/4s, 2013 | 805,000 | 726,513 |
| Sanmina Corp. sr. unsec. sub. notes | ||
| 8 1/8s, 2016 | 1,245,000 | 1,123,613 |
| Seagate Technology Hdd Holdings | ||
| company guaranty 6.8s, 2016 | ||
| (Cayman Islands) | 2,580,000 | 2,313,820 |
| SunGard Data Systems, Inc. company | ||
| guaranty 10 1/4s, 2015 | 4,796,000 | 4,831,970 |
| SunGard Data Systems, Inc. company | ||
| guaranty 9 1/8s, 2013 | 11,633,000 | 11,807,495 |
| Travelport LLC company guaranty | ||
| 11 7/8s, 2016 | 1,450,000 | 1,091,125 |
| CORPORATE BONDS | Principal | |
| AND NOTES (77.1%)* cont. | amount | Value |
| Technology cont. | ||
| Travelport LLC company guaranty | ||
| 9 7/8s, 2014 | $3,800,000 | $3,106,500 |
| Unisys Corp. sr. unsec. unsub. notes | ||
| 12 1/2s, 2016 | 2,590,000 | 2,577,050 |
| Xerox Capital Trust I company | ||
| guaranty 8s, 2027 | 3,365,000 | 3,204,012 |
| 88,996,414 | ||
| Textiles (1.2%) | ||
| Hanesbrands, Inc. company guaranty | ||
| sr. unsec. notes FRN Ser. B, | ||
| 6.508s, 2014 | 7,695,000 | 6,656,175 |
| Levi Strauss & Co. sr. unsec. notes | ||
| 8 7/8s, 2016 S | 4,115,000 | 3,538,900 |
| Levi Strauss & Co. sr. unsec. unsub. | ||
| notes 9 3/4s, 2015 | 8,088,000 | 7,289,310 |
| Oxford Industries, Inc. sr. notes | ||
| 8 7/8s, 2011 | 3,590,000 | 3,491,275 |
| 20,975,660 | ||
| Utilities & Power (6.0%) | ||
| AES Corp. (The) sr. unsec. unsub. | ||
| notes 8s, 2017 | 1,840,000 | 1,812,400 |
| AES Corp. (The) 144A sec. notes | ||
| 8 3/4s, 2013 | 3,863,000 | 3,998,205 |
| AES Corp. (The) 144A sr. notes | ||
| 8s, 2020 | 1,435,000 | 1,374,013 |
| Allegheny Energy Supply 144A sr. unsec. | ||
| bond 8 1/4s, 2012 | 3,310,000 | 3,475,500 |
| Cleveland Electric Illuminating Co. (The) | ||
| 144A sr. notes Ser. D, 7.88s, 2017 | 10,000 | 10,930 |
| CMS Energy Corp. sr. notes | ||
| 8 1/2s, 2011 | 1,294,000 | 1,360,785 |
| CMS Energy Corp. sr. notes | ||
| 7 3/4s, 2010 | 1,760,000 | 1,812,635 |
| Colorado Interstate Gas Co. debs. | ||
| 6.85s, 2037 | 3,610,000 | 3,367,000 |
| Dynegy-Roseton Danskamme | ||
| company guaranty Ser. B, 7.67s, 2016 | 5,430,000 | 5,307,825 |
| Edison Mission Energy sr. unsec. notes | ||
| 7 3/4s, 2016 | 2,130,000 | 2,130,000 |
| Edison Mission Energy sr. unsec. notes | ||
| 7 1/2s, 2013 | 2,495,000 | 2,501,238 |
| Edison Mission Energy sr. unsec. notes | ||
| 7.2s, 2019 | 3,925,000 | 3,768,000 |
| Edison Mission Energy sr. unsec. notes | ||
| 7s, 2017 S | 2,750,000 | 2,633,125 |
| El Paso Corp. sr. notes Ser. MTN, | ||
| 7.8s, 2031 | 135,000 | 133,313 |
| Ferrellgas LP/Finance sr. notes | ||
| 8 3/4s, 2012 | 217,000 | 201,810 |
| Ferrellgas LP/Finance sr. notes | ||
| 6 3/4s, 2014 | 5,575,000 | 4,850,250 |
| Ferrellgas LP/Finance 144A sr. notes | ||
| 6 3/4s, 2014 | 1,350,000 | 1,174,500 |
| Ipalco Enterprises, Inc. sr. sec. notes | ||
| 7 5/8s, 2011 | 1,950,000 | 2,028,000 |
| Ipalco Enterprises, Inc. 144A sr. sec. | ||
| notes 7 1/4s, 2016 | 625,000 | 626,563 |
| Mirant Americas Generation, Inc. | ||
| sr. unsec. notes 8.3s, 2011 | 4,214,000 | 4,308,815 |
| Mirant North America, LLC company | ||
| guaranty 7 3/8s, 2013 | 6,700,000 | 6,649,750 |
27
| CORPORATE BONDS | Principal | |
| AND NOTES (77.1%)* cont. | amount | Value |
| Utilities & Power cont. | ||
| NRG Energy, Inc. company guaranty | ||
| 7 3/8s, 2017 | $2,710,000 | $2,649,025 |
| NRG Energy, Inc. sr. notes 7 3/8s, 2016 | 14,110,000 | 13,933,625 |
| Orion Power Holdings, Inc. sr. unsec. | ||
| notes 12s, 2010 | 4,085,000 | 4,411,800 |
| PNM Resources, Inc. unsec. unsub. | ||
| notes 9 1/4s, 2015 | 5,125,000 | 5,176,250 |
| Sierra Pacific Power Co. general ref. | ||
| mtge. 6 1/4s, 2012 | 1,238,000 | 1,273,186 |
| Sierra Pacific Resource sr. unsec. notes | ||
| 8 5/8s, 2014 | 5,255,000 | 5,496,205 |
| Teco Finance, Inc. company guaranty | ||
| sr. unsec. unsub. notes 7.2s, 2011 | 1,680,000 | 1,709,635 |
| Teco Finance, Inc. company guaranty | ||
| sr. unsec. unsub. notes 7s, 2012 | 2,785,000 | 2,813,878 |
| Teco Finance, Inc. company guaranty | ||
| sr. unsec unsub. notes 6 3/4s, 2015 | 370,000 | 362,907 |
| Tennessee Gas Pipeline Co. sr. unsec. | ||
| unsub. debs. 7 1/2s, 2017 | 1,495,000 | 1,560,660 |
| Tennessee Gas Pipeline Co. sr. unsec. | ||
| unsub. debs. 7s, 2028 | 710,000 | 686,337 |
| Transcontinental Gas Pipeline Corp. | ||
| sr. unsec. debs. 7 1/4s, 2026 | 5,220,000 | 5,397,261 |
| Utilicorp United, Inc. sr. unsec. notes | ||
| 7.95s, 2011 | 173,000 | 179,225 |
| Williams Partners LP/ Williams Partners | ||
| Finance Corp. sr. unsec. notes | ||
| 7 1/4s, 2017 S | 2,050,000 | 2,055,125 |
| 101,229,776 | ||
| Total corporate bonds and notes | ||
| (cost $1,455,584,409) | $1,297,761,821 | |
| SENIOR LOANS (10.8%)* c | Principal amount | Value |
| Automotive (0.3%) | ||
| Allison Transmission bank term loan | ||
| FRN Ser. B, 5.332s, 2014 | $3,353,834 | $3,007,970 |
| Dana Corp. bank term loan FRN | ||
| 6 3/4s, 2015 | 2,532,275 | 2,327,584 |
| 5,335,554 | ||
| Basic Materials (1.0%) | ||
| Domtar Corp. bank term loan FRN | ||
| 3.838s, 2014 (Canada) | 2,633,222 | 2,521,310 |
| Georgia-Pacific, LLC bank term loan | ||
| FRN Ser. B, 4.451s, 2013 | 5,833,022 | 5,507,516 |
| Graphic Packaging Corp. bank term | ||
| loan FRN Ser. C, 5.55s, 2014 | 1,084,550 | 1,045,913 |
| Huntsman International, LLC bank | ||
| term loan FRN Ser. B, 4.213s, 2012 | 4,821,402 | 4,541,491 |
| Ineos Holdings, Ltd. bank term loan | ||
| FRN Ser. B2, 4.885s, 2014 | ||
| (United Kingdom) | 613,737 | 518,608 |
| Ineos Holdings, Ltd. bank term loan | ||
| FRN Ser. C2, 5.385s, 2015 | ||
| (United Kingdom) | 613,737 | 518,608 |
| NewPage Holding Corp. bank term | ||
| loan FRN 6.563s, 2014 | 1,318,375 | 1,284,427 |
| Rockwood Specialties Group, Inc. bank | ||
| term loan FRN Ser. E, 4.299s, 2012 | 1,271,948 | 1,218,798 |
| 17,156,671 | ||
| SENIOR LOANS (10.8%)* c cont. | Principal amount | Value |
| Broadcasting (0.3%) | ||
| Univision Communications, Inc. bank | ||
| term loan FRN Ser. B, 5.028s, 2014 | $4,745,000 | $3,806,543 |
| Young Broadcasting, Inc. bank term | ||
| loan FRN Ser. B, 5.313s, 2012 | 236,472 | 193,907 |
| 4,000,450 | ||
| Cable Television (0.2%) | ||
| Cablevision Systems Corp. bank term | ||
| loan FRN 4.214s, 2013 | 2,469,734 | 2,348,717 |
| 2,348,717 | ||
| Capital Goods (0.8%) | ||
| Allied Waste Industries, Inc. bank term | ||
| loan FRN 6.82s, 2012 | 1,393,035 | 1,359,563 |
| Allied Waste Industries, Inc. bank term | ||
| loan FRN 3.97s, 2012 | 2,029,742 | 1,980,971 |
| Hawker Beechcraft Acquisition Co., LLC | ||
| bank term loan FRN 2.601s, 2014 | 98,694 | 91,893 |
| Hawker Beechcraft Acquisition Co., LLC | ||
| bank term loan FRN Ser. B, 4.801s, 2014 | 1,889,252 | 1,759,071 |
| Manitowoc Co., Inc. (The) bank term | ||
| loan FRN Ser. B, 6 1/2s, 2014 | 1,400,000 | 1,396,500 |
| Sensata Technologies BV bank term | ||
| loan FRN 4.543s, 2013 (Netherlands) | 1,005,529 | 882,980 |
| Sequa Corp. bank term loan FRN | ||
| 6.025s, 2014 | 1,985,524 | 1,889,558 |
| Transdigm, Inc. bank term loan FRN | ||
| 4.801s, 2013 | 630,000 | 607,950 |
| Wesco Aircraft Hardware Corp. bank | ||
| term loan FRN 8.56s, 2014 | 2,055,000 | 1,998,488 |
| Wesco Aircraft Hardware Corp. bank | ||
| term loan FRN 5.06s, 2013 | 1,590,000 | 1,524,413 |
| 13,491,387 | ||
| Communication Services (0.4%) | ||
| Alltel Communications, Inc. bank term | ||
| loan FRN Ser. B2, 5.314s, 2015 | 3,321,633 | 3,282,604 |
| Alltel Communications, Inc. bank term | ||
| loan FRN Ser. B3, 4.966s, 2015 | 3,441,332 | 3,428,213 |
| Cricket Communications, Inc. bank | ||
| term loan FRN Ser. B, 6 1/2s, 2013 | 82,081 | 80,987 |
| 6,791,804 | ||
| Consumer Cyclicals (2.8%) | ||
| CCM Merger, Inc. bank term loan | ||
| FRN Ser. B, 4.798s, 2012 | 1,830,669 | 1,643,026 |
| Claire’s Stores, Inc. bank term loan | ||
| FRN 5.445s, 2014 | 2,223,470 | 1,485,754 |
| Dex Media West, LLC/Dex Media | ||
| Finance Co. bank term loan FRN | ||
| Ser. B, 7s, 2014 | 970,000 | 887,550 |
| GateHouse Media, Inc. bank term loan | ||
| FRN Ser. B, 4.65s, 2014 | 2,399,620 | 1,289,796 |
| GateHouse Media, Inc. bank term loan | ||
| FRN Ser. DD, 4.788s, 2014 | 895,380 | 481,267 |
| Goodman Global Holdings, Inc. bank | ||
| term loan FRN Ser. B, 7 1/2s, 2011 | 3,204,650 | 3,162,669 |
| Goodyear Tire & Rubber Co. (The) | ||
| bank term loan FRN 4.54s, 2010 | 8,970,000 | 8,185,120 |
| Isle of Capri Casinos, Inc. bank term | ||
| loan FRN 4.551s, 2014 | 1,360,765 | 1,158,351 |
| Isle of Capri Casinos, Inc. bank term | ||
| loan FRN Ser. A, 4.551s, 2014 | 410,291 | 349,260 |
| Isle of Capri Casinos, Inc. bank term | ||
| loan FRN Ser. B, 4.551s, 2014 | 544,306 | 463,340 |
28
| SENIOR LOANS (10.8%)* c cont. | Principal amount | Value |
| Consumer Cyclicals cont. | ||
| Landsource Communities/NWHL | ||
| Investment bank term loan FRN | ||
| 6 3/4s, 2013 | $4,048,593 | $2,615,391 |
| Lear Corp bank term loan FRN | ||
| 5.134s, 2013 | 4,003,788 | 3,548,972 |
| Navistar Financial Corp. bank term | ||
| loan FRN 5.695s, 2012 | 2,241,333 | 2,064,827 |
| Navistar International Corp. bank term | ||
| loan FRN 6.191s, 2012 | 6,163,667 | 5,678,268 |
| Standard-Pacific Corp. bank term loan | ||
| FRN Ser. B, 4.557s, 2013 | 2,270,000 | 1,838,700 |
| Ticketmaster bank term loan FRN | ||
| Ser. B, 5.73s, 2014 | 1,160,000 | 1,165,800 |
| Tribune Co. bank term loan FRN | ||
| Ser. B, 5.786s, 2014 | 8,672,400 | 5,953,603 |
| Tropicana Entertainment bank term | ||
| loan FRN Ser. B, 6 1/4s, 2011 | 2,650,000 | 2,144,844 |
| United Components, Inc. bank term | ||
| loan FRN Ser. D, 4.81s, 2012 | 527,778 | 500,069 |
| Visteon Corp. bank term loan FRN | ||
| Ser. B, 5.47s, 2013 | 3,760,000 | 2,679,000 |
| Visteon Corp. bank term loan FRN | ||
| Ser. B1, 6.1s, 2013 | 145,000 | 103,313 |
| 47,398,920 | ||
| Consumer Staples (1.1%) | ||
| Charter Communications | ||
| Operating, LLC bank term loan FRN | ||
| 8 1/2s, 2014 | 763,088 | 750,793 |
| Charter Communications, Inc. bank | ||
| term loan FRN 4.8s, 2014 | 707,557 | 618,031 |
| Citadel Communications bank term | ||
| loan FRN Ser. B, 4.275s, 2014 | 1,175,000 | 942,938 |
| Dole Food Co., Inc. bank term loan FRN | ||
| Ser. B, 7.546s, 2013 | 331,116 | 303,902 |
| Dole Food Co., Inc. bank term loan FRN | ||
| Ser. C, 7.46s, 2013 | 1,103,719 | 1,013,007 |
| Dole Food Co., Inc. bank term loan FRN | ||
| Ser. C, 5.23s, 2013 | 150,166 | 137,824 |
| Mediacom Communications Corp. | ||
| bank term loan FRN Ser. C, | ||
| 4.223s, 2015 | 3,984,505 | 3,678,695 |
| Pinnacle Foods Holding Corp. bank | ||
| term loan FRN Ser. B, 5.433s, 2014 | 999,962 | 911,840 |
| Rental Service Corp. bank term loan | ||
| FRN 6.3s, 2013 | 5,885,710 | 4,763,747 |
| Rite-Aid Corp. bank term loan FRN | ||
| Ser. B, 4.223s, 2014 | 334,163 | 296,152 |
| Six Flags Theme Parks bank term loan | ||
| FRN 4.795s, 2015 | 5,633,973 | 4,822,078 |
| 18,239,007 | ||
| Energy (—%) | ||
| Enterprise GP Holdings, LP bank term | ||
| loan FRN 4.905s, 2014 | 375,000 | 366,328 |
| 366,328 | ||
| Financial (0.1%) | ||
| General Growth Properties, Inc. bank | ||
| term loan FRN Ser. A, 3.62s, 2010 R | 350,000 | 306,688 |
| Nuveen Investments, Inc. bank term | ||
| loan FRN Ser. B, 5.467s, 2014 | 1,266,825 | 1,169,913 |
| 1,476,601 | ||
| SENIOR LOANS (10.8%)* c cont. | Principal amount | Value |
| Health Care (1.7%) | ||
| Bausch & Lomb, Inc. bank term loan | ||
| FRN Ser. B, 6.051s, 2015 | $3,393,768 | $3,303,137 |
| Bausch & Lomb, Inc. bank term loan | ||
| FRN Ser. DD, 6.051s, 2015 U | 852,705 | 829,934 |
| Biomet, Inc. bank term loan FRN | ||
| Ser. B, 5.801s, 2015 | 1,980,013 | 1,939,175 |
| Community Health Systems, Inc. bank | ||
| term loan FRN Ser. B, 4.854s, 2014 | 3,853,939 | 3,642,412 |
| Community Health Systems, Inc. bank | ||
| term loan FRN Ser. DD, 0 1/2s, 2014 U | 201,620 | 190,554 |
| Fenwal Controls of Japan, LTD. bank | ||
| term loan FRN 7.899s, 2014 | 500,000 | 436,250 |
| Fenwal Controls of Japan, LTD. bank | ||
| term loan FRN 4.899s, 2014 (Japan) | 5,234,626 | 4,567,212 |
| Fenwal Controls of Japan, LTD. bank | ||
| term loan FRN Ser. DD, 5.052s, | ||
| 2014 (Japan) | 881,570 | 769,170 |
| Healthsouth Corp. bank term loan FRN | ||
| Ser. B, 5.29s, 2013 | 3,942,924 | 3,730,286 |
| Hologic, Inc. bank term loan FRN | ||
| Ser. B, 5 3/4s, 2013 U | 1,170,787 | 1,163,470 |
| IASIS Healthcare, LLC/IASIS Capital Corp. | ||
| bank term loan FRN 8.043s, 2014 | 6,373,687 | 5,513,240 |
| United Surgical Partners | ||
| International, Inc. bank term loan FRN | ||
| 4.631s, 2014 | 3,192,889 | 2,897,546 |
| 28,982,386 | ||
| Homebuilding (0.2%) | ||
| Realogy Corp. bank term loan FRN | ||
| 5.32s, 2013 R | 712,950 | 588,481 |
| Realogy Corp. bank term loan FRN | ||
| Ser. B, 5.462s, 2013 R | 2,648,100 | 2,185,787 |
| 2,774,268 | ||
| Media (0.1%) | ||
| Idearc, Inc. bank term loan FRN Ser. B, | ||
| 4.786s, 2014 | 3,098,543 | 2,168,980 |
| 2,168,980 | ||
| Oil & Gas (0.1%) | ||
| Quicksilver Resources, Inc. bank term | ||
| loan FRN 7 3/4s, 2013 | 1,075,000 | 1,064,250 |
| Targa Resources, Inc. bank term loan | ||
| FRN 4.654s, 2012 | 783,280 | 751,165 |
| Targa Resources, Inc. bank term loan | ||
| FRN 2.676s, 2012 | 442,088 | 423,963 |
| 2,239,378 | ||
| Retail (0.1%) | ||
| Michaels Stores, Inc. bank term loan | ||
| FRN Ser. B, 4 3/4s, 2013 | 2,236,545 | 1,724,238 |
| 1,724,238 | ||
| Technology (0.5%) | ||
| Compucom Systems, Inc. bank term | ||
| loan FRN 5.97s, 2014 | 1,776,550 | 1,643,309 |
| First Data Corp. bank term loan FRN | ||
| Ser. B1, 5.252s, 2014 | 2,689,675 | 2,464,789 |
| First Data Corp. bank term loan FRN | ||
| Ser. B3, 5.552s, 2014 | 2,689,675 | 2,463,933 |
| Flextronics International, Ltd. bank | ||
| term loan FRN Ser. B, 5.041s, 2014 | ||
| (Singapore) | 623,636 | 565,755 |
| Flextronics International, Ltd. bank | ||
| term loan FRN Ser. B, 5.041s, 2014 | ||
| (Singapore) | 2,170,252 | 1,968,826 |
| 9,106,612 | ||
29
| SENIOR LOANS (10.8%)* c cont. | Principal amount | Value |
| Transportation (—%) | ||
| UAL Corp. bank term loan FRN Ser. B, | ||
| 4.573s, 2014 | $198,872 | $145,011 |
| 145,011 | ||
| Utilities & Power (1.1%) | ||
| Energy Future Holdings Corp. bank | ||
| term loan FRN Ser. B2, 6.213s, 2014 | 10,689,075 | 9,961,620 |
| Energy Future Holdings Corp. bank | ||
| term loan FRN Ser. B3, 6.269s, 2014 | 9,011,900 | 8,381,067 |
| 18,342,687 | ||
| Total senior loans (cost $198,810,136) | $182,088,999 | |
| CONVERTIBLE BONDS | Principal | |
| AND NOTES (2.3%)* | amount | Value |
| Acquicor Technology, Inc. 144A | ||
| cv. notes 8s, 2011 | $2,357,000 | $1,249,210 |
| Alliant Techsystems, Inc. cv. sr. sub. | ||
| notes 2 3/4s, 2024 | 2,965,000 | 4,024,988 |
| Chiquita Brands International cv. sr. | ||
| unsec. notes 4 1/4s, 2016 | 1,825,000 | 1,660,750 |
| Countrywide Financial Corp. cv. unsec. | ||
| sr. FRN company guaranty zero%, 2037 | 2,165,000 | 2,100,050 |
| General Growth Properties, Inc. | ||
| 144A cv. sr. notes 3.98s, 2027 | 3,430,000 | 2,473,888 |
| Intel Corp. cv. sub. bonds 2.95s, 2035 | 4,395,000 | 4,318,088 |
| L-3 Communications Corp. 144A | ||
| cv. bonds 3s, 2035 | 5,115,000 | 6,029,306 |
| Level 3 Communications, Inc. cv. sr. | ||
| notes 3 1/2s, 2012 | 2,785,000 | 2,374,213 |
| NII Holdings, Inc. 144A cv. sr. unsec. | ||
| notes 3 1/8s, 2012 | 3,720,000 | 3,194,550 |
| Pantry, Inc. (The) cv. sr. sub. notes | ||
| 3s, 2012 | 5,190,000 | 4,054,688 |
| Safeguard Scientifics, Inc. cv. sr. notes | ||
| 2 5/8s, 2024 | 425,000 | 329,375 |
| Transocean, Inc. cv. sr. unsec. notes | ||
| Ser. C, 1 1/2s, 2037 | 2,635,000 | 2,704,169 |
| Trinity Industries, Inc. cv. sub. notes | ||
| 3 7/8s, 2036 S | 3,812,000 | 3,688,110 |
| Total convertible bonds and notes | ||
| (cost $37,910,670) | $38,201,385 | |
| COMMON STOCKS (1.7%)* | Shares | Value |
| AboveNet, Inc. † | 2,194 | $131,640 |
| Adelphia Recovery Trust (Ser. ACC-1) † | 8,448,187 | 380,168 |
| Bohai Bay Litigation, LLC (Units) F § | 3,899 | 55,172 |
| Chesapeake Energy Corp. S | 39,686 | 1,920,802 |
| Cinemark Holdings, Inc. S | 181,700 | 2,669,173 |
| Community Health Systems, Inc. † S | 82,280 | 2,839,483 |
| Dana Holding Corp. † | 215,857 | 1,368,533 |
| Decrane Aircraft Holdings, Inc. † F § | 29,311 | 29 |
| DigitalGlobe, Inc. 144A † § | 645,566 | 645,566 |
| El Paso Corp. S | 133,705 | 2,240,896 |
| Elizabeth Arden, Inc. † | 71,165 | 1,456,036 |
| Jarden Corp. † S | 95,645 | 2,455,207 |
| NRG Energy, Inc. † S | 71,850 | 2,704,434 |
| COMMON STOCKS (1.7%)* cont. | Shares | Value |
| Pinnacle Entertainment , Inc. † S | 117,825 | $1,306,679 |
| Qwest Communications International, Inc. S | 345,050 | 1,304,289 |
| Service Corporation International | 267,640 | 2,732,604 |
| Titan Europe PLC (United Kingdom) | 251,690 | 654,521 |
| Titan International, Inc. S | 29,806 | 797,012 |
| VFB LLC (acquired various dates | ||
| from 12/21/99 to 12/8/03, | ||
| cost $9,772,641) ‡ † F § | 12,955,347 | 267,994 |
| Williams Cos., Inc. (The) | 74,187 | 2,291,636 |
| Total common stocks (cost $42,861,609) | $28,221,874 | |
| CONVERTIBLE PREFERRED STOCKS (1.1%)* | Shares | Value |
| Crown Castle International Corp. | ||
| $3.125 cum. cv. pfd. | 61,600 | $3,372,600 |
| Digital Realty Trust, Inc. $1.094 cv. pfd. | 103,440 | 2,592,465 |
| Emmis Communications Corp. Ser. A, | ||
| $3.125 cum. cv. pfd. | 81,807 | 1,840,658 |
| Freeport-McMoRan Copper & Gold, Inc. | ||
| $6.75 cv. pfd. | 26,163 | 3,391,379 |
| Interpublic Group of Companies, Inc. | ||
| 144A Ser. B, 5.25% cum. cv. pfd | 4,964 | 4,206,990 |
| Lehman Brothers Holdings, Inc. Ser. P, | ||
| 7.25% cv. pfd. | 4,338 | 2,819,700 |
| Total convertible preferred stocks | ||
| (cost $19,855,169) | $18,223,792 | |
| COLLATERALIZED MORTGAGE | Principal | |
| OBLIGATIONS (0.4%)* | amount | Value |
| DLJ Commercial Mortgage Corp. 144A | ||
| Ser. 98-CF2, Class B5, 5.95s, 2031 | $3,816,434 | $3,033,683 |
| GE Capital Commercial Mortgage Corp. | ||
| 144A Ser. 00-1, Class G, 6.131s, 2033 | 2,470,000 | 1,632,423 |
| Mach One Commercial Mortgage | ||
| Trust 144A | ||
| Ser. 04-1A, Class J, 5.45s, 2040 (Canada) | 2,435,000 | 1,144,450 |
| Ser. 04-1A, Class K, 5.45s, 2040 (Canada) | 880,000 | 387,200 |
| Ser. 04-1A, Class L, 5.45s, 2040 (Canada) | 400,000 | 168,000 |
| Total collateralized mortgage obligations | ||
| (cost $7,553,086) | $6,365,756 | |
| FOREIGN GOVERNMENT BONDS | Principal | |
| AND NOTES (0.2%)* | amount | Value |
| Argentina (Republic of) bonds FRB | ||
| zero %, 2013 | $5,430,000 | $2,614,545 |
| Argentina (Republic of) sr. unsec. | ||
| unsub. bonds FRB 3.127s, 2012 | 935,000 | 372,130 |
| Total foreign government bonds | ||
| and notes (cost $3,228,381) | $2,986,675 | |
30
| WARRANTS (—%)* † | Expiration date | Strike price | Warrants | Value |
| AboveNet, Inc. | 9/08/08 | $20.00 | 923 | $36,920 |
| AboveNet, Inc. | 9/08/10 | 24.00 | 1,086 | 32,634 |
| Decrane Aircraft Holdings Co. Class B | 6/30/10 | 116.00 | 1 | — |
| Decrane Aircraft Holdings Co. Class B | 6/30/10 | 116.00 | 1 | — |
| New ASAT Finance, Ltd. (Cayman Islands) F | 2/01/11 | .01 | 794,300 | 12,378 |
| Dayton Superior Corp. 144A F | 6/15/09 | .01 | 8,614 | 22,517 |
| Smurfit Kappa Group PLC 144A (Ireland) | 10/01/13 | EUR .001 | 4,599 | 131,810 |
| ZSC Specialty Chemicals PLC 144A (United Kingdom) | 6/30/11 | $.01 | 300,000 | 3,000 |
| ZSC Specialty Chemicals PLC (Preferred) 144A (United Kingdom) | 6/30/11 | .01 | 300,000 | 3,000 |
| Total warrants (cost $730,927) | $242,259 | |||
| PREFERRED STOCKS (—%)* | Shares | Value |
| Decrane Aircraft Holdings, Inc. $16.00 pfd. ‡‡ | 21,000 | $147,000 |
| Total preferred stocks (cost $244,765) | $147,000 | |
| SHORT-TERM INVESTMENTS (10.5%)* | Principal amount/shares | Value |
| Short-term investments held as collateral for loaned securities with yields ranging from 1.75% to 3.03% | ||
| and due dates ranging from September 2, 2008 to October 28, 2008 d | $105,983,699 | $105,851,316 |
| Putnam Prime Money Market Fund e | 71,035,537 | 71,035,537 |
| Total short-term investments (cost $176,886,853) | $176,886,853 | |
| TOTAL INVESTMENTS | ||
| Total investments (cost $1,943,666,005) | $1,751,126,414 | |
Key to holding’s currency abbreviations EUR Euro
* Percentages indicated are based on net assets of $1,683,241,494.
† Non-income-producing security.
† † The interest rate and date shown parenthetically represent the new interest rate to be paid and the date the fund will begin accruing interest at this rate.
‡ Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities held at August 31, 2008 was $267,994 or less than 0.1% of net assets.
‡‡ Income may be received in cash or additional securities at the discretion of the issuer.
§ Affiliated Companies (Note 8).
c Senior loans are exempt from registration under the Securities Act of 1933, as amended, but contain certain restrictions on resale and cannot be sold publicly. These loans pay interest at rates which adjust periodically. The interest rates shown for senior loans are the current interest rates at August 31, 2008. Senior loans are also subject to mandatory and/or optional prepayment which cannot be predicted. As a result, the remaining maturity may be substantially less than the stated maturity shown (Notes 1 and 7).
d See Note 1 to the financial statements.
e See Note 5 to the financial statements regarding investments in Putnam Prime Money Market Fund.
F Is valued at fair value following procedures approved by the Trustees. On August 31, 2008, fair value pricing was also used for certain foreign securities in the portfolio (Note 1).
R Real Estate Investment Trust.
S Securities on loan, in part or in entirety, at August 31, 2008.
U These securities, in part or in entirety, represents unfunded loan commitments (Note 7).
At August 31, 2008, liquid assets totaling $2,776,094 have been designated as collateral for open forward commitments and swap contracts.
144A after the name of an issuer represents securities exempt from registration under Rule 144A under the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.
The rates shown on Floating Rate Bonds (FRB) and Floating Rate Notes (FRN) are the current interest rates at August 31, 2008.
The dates shown on debt obligations are the original maturity dates.
31
| FORWARD CURRENCY CONTRACTS TO BUY at 8/31/08 | |||||
| Aggregate | Delivery | Unrealized | |||
| Value | face value | date | depreciation | ||
| Euro | $1,109,183 | $1,171,527 | 9/17/08 | $(62,344) | |
| Total | $(62,344) | ||||
| FORWARD CURRENCY CONTRACTS TO SELL at 8/31/08 | |||||
| Aggregate | Delivery | Unrealized | |||
| Value | face value | date | appreciation | ||
| Euro | $16,041,526 | $16,951,367 | 9/17/08 | $909,841 | |
| Total | $909,841 | ||||
| INTEREST RATE SWAP CONTRACTS OUTSTANDING at 8/31/08 | ||||||
| Swap | Notional | Termination | Payments made by | Payments received by | Unrealized | |
| counterparty | amount | date | fund per annum | fund per annum | appreciation | |
| JPMorgan Chase Bank, N.A. | ||||||
| $103,800,000 | 6/9/13 | 3 month USD-LIBOR-BBA | 4.21875% | $1,332,099 | ||
| Lehman Brothers Special Financing, Inc. | ||||||
| 342,250,000 | 9/14/09 | 3 month USD-LIBOR-BBA | 4.715% | 11,388,119 | ||
| Total | $12,720,218 | |||||
| CREDIT DEFAULT CONTRACTS OUTSTANDING at 8/31/08 | Fixed payments | Unrealized | |||||
| Upfront premium | Notional | Termination | received (paid) by | appreciation/ | |||
| Swap counterparty / Referenced debt* | received (paid)** | amount | date | fund per annum | (depreciation) | ||
| Bank of America, N.A. | |||||||
| Abitibibowater Inc., 6 1/2%, 6/15/13 | $— | $1,225,000 | 12/20/08 | 550 bp | $(17,747) | ||
| Nalco, Co. 7.75%,11/15/11 | — | 1,160,000 | 9/20/12 | 350 bp | (4,806) | ||
| Visteon Corp., 7%, 3/10/14 | (494,062) | 1,860,000 | 9/20/13 | (500 bp) | 283,980 | ||
| Bear Stearns Credit Products, Inc. | |||||||
| Claire’s Stores, 9 5/8%, 6/1/15 | — | 730,000 | 6/20/12 | 230 bp | (179,358) | ||
| Citibank, N.A. | |||||||
| Abitibibowater Inc., 6 1/2%, 6/15/13 | — | 1,240,000 | 12/20/08 | 725 bp | (6,855) | ||
| Abitibibowater Inc., 6 1/2%, 6/15/13 | — | 1,225,000 | 12/20/08 | 800 bp | (2,080) | ||
| Abitibibowater Inc., 6 1/2%, 6/15/13 | — | 1,225,000 | 12/20/08 | 825 bp | (503) | ||
| Amkor Technologies, Inc., 7 3/4%, 5/15/13 | — | 2,565,000 | 6/20/13 | 450 bp | (118,670) | ||
| Freescale Semiconductor, 8 7/8%, 12/15/14 | — | 3,225,000 | 9/20/12 | 495 bp | (323,669) | ||
| Lear Corp., term loan | — | 1,025,000 | 6/20/13 | (225 bp) | 110,400 | ||
| Lear Corp., term loan | — | 1,025,000 | 6/20/13 | 700 bp | — | ||
| Sanmina-Sci Corp., 8 1/8%, 3/1/16 | — | 895,000 | 6/20/13 | 585 bp | 4,762 | ||
| Sanmina-Sci Corp., 8 1/8%, 3/1/16 | — | 715,000 | 3/20/09 | 275 bp | 8,213 | ||
| Wind Acquisition 9 3/4%, 12/1/15 | — | EUR | 423,000 | 3/20/13 | (495 bp) | (967) | |
| Credit Suisse International | |||||||
| Advanced Micro Devices, 7 3/4%, 11/1/12 | — | $1,505,000 | 6/20/09 | 165 bp | (111,647) | ||
| Dynegy Holdings Inc., 6 7/8%, 4/1/11 | — | 2,065,000 | 6/20/17 | 297 bp | (198,627) | ||
| Dynegy Holdings Inc., 6 7/8%, 4/1/11 | — | 140,000 | 9/20/12 | 400 bp | (424) | ||
| Harrahs Operating Co. Inc., 5 5/8%, 6/1/15 | — | 2,215,000 | 3/20/09 | 600 bp | (22,091) | ||
| Deutsche Bank AG | |||||||
| Nalco, Co. 7.75%, 11/15/11 | — | 1,115,000 | 12/20/12 | 363 bp | (4,325) | ||
| Goldman Sachs International | |||||||
| Allied Waste, N.A. 7 3/8%, 4/15/14 | — | 535,000 | 9/20/13 | 295 bp | 24,066 | ||
| Any one of the underlying securities in the basket of BBCMBS securities | — | 3,646,000 | a | 2.461% | (618,662) | ||
| General Motors Corp., 7 1/8%, 7/15/13 | — | 1,005,000 | 9/20/08 | 620 bp | 10,574 | ||
| General Motors Corp., 7 1/8%, 7/15/13 | — | 4,715,000 | 9/20/08 | 620 bp | 49,613 | ||
| Wind Acquisition 9 3/4%, 12/1/15 | — | EUR | 960,000 | 12/20/10 | (340 bp) | (2,950) | |
| JPMorgan Chase Bank, N.A. | |||||||
| Sanmina-Sci Corp., 8 1/8%, 3/1/16 | — | $715,000 | 6/20/13 | 595 bp | 7,403 | ||
| Smurfit-Stone Container Enterprises, 7 1/2%, 6/1/13 | — | 1,145,000 | 3/20/13 | 685 bp | (30,892) | ||
32
| CREDIT DEFAULT CONTRACTS OUTSTANDING at 8/31/08 cont. | Fixed payments | Unrealized | |||||
| Upfront premium | Notional | Termination | received (paid) by | appreciation/ | |||
| Swap counterparty / Referenced debt* | received (paid)** | amount | date | fund per annum | (depreciation) | ||
| Lehman Brothers Special Financing, Inc. | |||||||
| Allied Waste, N.A. 7 3/8%, 4/15/14 | $— | $545,000 | 9/20/13 | 275 bp | $18,335 | ||
| Community Health Systems, 8 7/8%, 7/15/15 | — | 2,765,000 | 12/20/12 | 360 bp | (90,526) | ||
| Harrahs Operating Co. Inc., 5 5/8%, 6/1/15 | — | 1,550,000 | 3/20/09 | 610 bp | (14,307) | ||
| Jefferson Smurfit Corp., 7 1/2%, 6/1/13 | — | 1,875,000 | 3/20/13 | 645 bp | (77,233) | ||
| MediaCom LLC/ Cap Corp., 9 1/2%, 1/15/13 | — | 1,615,000 | 6/20/13 | 740 bp | 21,650 | ||
| Sungard Data Systems, Inc., 9 1/8%, 8/15/13 | — | 2,712,000 | 9/20/12 | 395 bp | (26,117) | ||
| Wind Acquisition 9 3/4%, 12/1/15 | — | EUR | 420,000 | 12/20/10 | (357 bp) | (3,701) | |
| Merrill Lynch Capital Services, Inc. | |||||||
| General Motors Corp., 7 1/8%, 7/15/13 | — | $3,235,000 | 9/20/08 | 500 bp | 23,483 | ||
| Merrill Lynch International | |||||||
| Dynegy Holdings Inc., 6 7/8%, 4/1/11 | — | 2,065,000 | 6/20/17 | 295 bp | (201,024) | ||
| Morgan Stanley Capital Services, Inc. | |||||||
| Advanced Micro Devices, 7 3/4%, 11/1/12 | — | 325,000 | 6/20/09 | 190 bp | (23,334) | ||
| Aramark Services, Inc., 8.5%, 2/1/15 | — | 2,235,000 | 12/20/12 | 355 bp | (48,514) | ||
| Dynegy Holdings Inc., 6 7/8%, 4/1/11 | — | 2,065,000 | 6/20/12 | 225 bp | (109,171) | ||
| Nalco, Co. 7.75%, 11/15/11 | — | 1,190,000 | 9/20/12 | 330 bp | (14,883) | ||
| Nalco, Co. 7.75%, 11/15/11 | — | 1,445,000 | 3/20/13 | 460 bp | 44,841 | ||
| Total | $(1,645,763) | ||||||
* Payments related to the reference debt are made upon a credit default event.
** Upfront premium is based on the difference between the original spread on issue and the market spread on day of execution.
a Terminating on the date on which the notional amount is reduced to zero or the date on which the assets securing the reference entity are liquidated.
The accompanying notes are an integral part of these financial statements.
33
| Statement of assets and liabilities 8/31/08 | |
| ASSETS | |
| Investment in securities, at value, including $103,098,430 | |
| of securities on loan (Note 1): | |
| Unaffiliated issuers (identified cost $1,862,668,701) | $1,679,122,116 |
| Affiliated issuers (identified cost $80,997,304) | |
| (Notes 5 and 8) | 72,004,298 |
| Cash | 7,613,227 |
| Foreign currency (cost $354) (Note 1) | 330 |
| Dividends, interest and other receivables | 32,158,788 |
| Receivable for shares of the fund sold | 392,582 |
| Receivable for securities sold | 2,065,814 |
| Receivable from Manager (Note 2) | 154,808 |
| Unrealized appreciation on swap contracts (Note 1) | 13,327,538 |
| Premium paid on swap contracts (Note 1) | 494,062 |
| Receivable for open forward currency contracts (Note 1) | 909,841 |
| Total assets | 1,808,243,404 |
| LIABILITIES | |
| Payable for securities purchased | 8,801,209 |
| Payable for purchases of delayed delivery securities (Notes 1 and 7) | 906,006 |
| Payable for shares of the fund repurchased | 2,825,186 |
| Payable for compensation of Manager (Notes 2 and 5) | 2,634,434 |
| Payable for investor servicing fees (Note 2) | 300,073 |
| Payable for Trustee compensation and expenses (Note 2) | 410,457 |
| Payable for administrative services (Note 2) | 3,039 |
| Payable for distribution fees (Note 2) | 696,782 |
| Payable for open forward currency contracts (Note 1) | 62,344 |
| Unrealized depreciation on swap contracts (Note 1) | 2,253,083 |
| Collateral on securities loaned, at value (Note 1) | 105,851,316 |
| Other accrued expenses | 257,981 |
| Total liabilities | 125,001,910 |
| Net assets | $1,683,241,494 |
| REPRESENTED BY | |
| Paid-in capital (Unlimited shares authorized) (Notes 1 and 4) | $3,212,286,858 |
| Distributions in excess of net investment income (Note 1) | (1,914,988) |
| Accumulated net realized loss on investments and | |
| foreign currency transactions (Notes 1 and 6) | (1,346,501,970) |
| Net unrealized depreciation of investments and | |
| assets and liabilities in foreign currencies (Note 6) | (180,628,406) |
| Total — Representing net assets applicable to | |
| capital shares outstanding | $1,683,241,494 |
| COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE | |
| Net asset value and redemption price per class A share | |
| ($1,298,018,710 divided by 180,041,409 shares) | $7.21 |
| Offering price per class A share (100/96.00 of $7.21)* | $7.51 |
| Net asset value and offering price per class B share | |
| ($113,832,274 divided by 15,836,002 shares)** | $7.19 |
| Net asset value and offering price per class C share | |
| ($39,506,550 divided by 5,508,007 shares)** | $7.17 |
| Net asset value and redemption price per class M share | |
| ($13,272,818 divided by 1,836,969 shares) | $7.23 |
| Offering price per class M share (100/96.75 of $7.23)*** | $7.47 |
| Net asset value, offering price and redemption price per class R share | |
| ($1,446,092 divided by 202,056 shares) | $7.16 |
| Net asset value, offering price and redemption price per class Y share | |
| ($217,165,050 divided by 30,395,816 shares) | $7.14 |
* On single retail sales of less than $100,000. On sales of $100,000 or more the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge.
*** On single retail sales of less than $50,000. On sales of $50,000 or more the offering price is reduced.
The accompanying notes are an integral part of these financial statements.
34
| Statement of operations Year ended 8/31/08 | |
| INVESTMENT INCOME | |
| Interest (net of foreign tax of $15,001)(including interest | |
| income of $2,884,220 from investments in affiliated | |
| issuers) (Note 5) | $158,986,418 |
| Dividends | 1,985,647 |
| Securities lending | 489,158 |
| Total investment income | 161,461,223 |
| EXPENSES | |
| Compensation of Manager (Note 2) | 11,200,460 |
| Investor servicing fees (Note 2) | 3,644,786 |
| Custodian fees (Note 2) | 39,176 |
| Trustee compensation and expenses (Note 2) | 72,589 |
| Administrative services (Note 2) | 44,440 |
| Distribution fees — Class A (Note 2) | 3,633,573 |
| Distribution fees — Class B (Note 2) | 1,539,776 |
| Distribution fees — Class C (Note 2) | 441,513 |
| Distribution fees — Class M (Note 2) | 74,490 |
| Distribution fees — Class R (Note 2) | 6,367 |
| Other | 627,663 |
| Non-recurring costs (Notes 2 and 10) | 3,494 |
| Costs assumed by Manager (Notes 2 and 10) | (3,494) |
| Fees waived and reimbursed by Manager (Note 5) | (63,798) |
| Total expenses | 21,261,035 |
| Expense reduction (Note 2) | (793,182) |
| Net expenses | 20,467,853 |
| Net investment income | 140,993,370 |
| Net realized loss on investments (Notes 1 and 3) | (62,119,273) |
| Net increase from payments by affiliates (Note 2) | 4,712 |
| Net realized loss on swap contracts (Note 1) | (582,050) |
| Net realized loss on foreign currency transactions (Note 1) | (2,778,682) |
| Net unrealized appreciation of assets and liabilities in | |
| foreign currencies during the year | 917,403 |
| Net unrealized depreciation of investments and swap | |
| contracts during the year | (84,054,163) |
| Net loss on investments | (148,612,053) |
| Net decrease in net assets resulting from operations | $(7,618,683) |
| Statement of changes in net assets | ||
| DECREASE IN NET ASSETS | ||
| Year ended | Year ended | |
| 8/31/08 | 8/31/07 | |
| Operations: | ||
| Net investment income | $140,993,370 | $161,621,755 |
| Net realized gain (loss) on investments | ||
| and foreign currency transactions | (65,475,293) | 11,404,814 |
| Net unrealized depreciation of investments | ||
| and assets and liabilities in foreign currencies | (83,136,760) | (18,160,694) |
| Net increase (decrease) in net assets | ||
| resulting from operations | (7,618,683) | 154,865,875 |
| Distributions to shareholders (Note 1): | ||
| From ordinary income | ||
| Net investment income | ||
| Class A | (109,940,378) | (123,781,207) |
| Class B | (10,419,730) | (18,095,563) |
| Class C | (3,009,283) | (4,019,507) |
| Class M | (1,081,810) | (1,337,072) |
| Class R | (94,409) | (55,057) |
| Class Y | (17,842,657) | (16,558,210) |
| Redemption fees (Note 1) | 424,207 | 126,057 |
| Decrease from capital share transactions | ||
| (Note 4) | (223,811,549) | (211,245,950) |
| Total decrease in net assets | (373,394,292) | (220,100,634) |
| NET ASSETS | ||
| Beginning of year | 2,056,635,786 | 2,276,736,420 |
| End of year (including distributions | ||
| in excess of and undistributed net | ||
| investment income of $1,914,988 | ||
| and $4,019,538, respectively) | $1,683,241,494 | $2,056,635,786 |
The accompanying notes are an integral part of these financial statements.
35
Financial highlights (For a common share outstanding throughout the period)
| INVESTMENT OPERATIONS: | LESS DISTRIBUTIONS: | RATIOS AND SUPPLEMENTAL DATA: | ||||||||||||||||||||||||
| Ratio of net | ||||||||||||||||||||||||||
| Net realized and | Total from | Total return | Net assets, | Ratio of expenses | investment income | |||||||||||||||||||||
| Net asset value, | Net investment | unrealized gain (loss) | investment | From net | Total | Redemption | Net asset value, | at net asset | end of period | to average | (loss) to average | Portfolio | ||||||||||||||
| Period ended | beginning of period | income (loss) a,d | on investments | operations | investment income | distributions | fees f | end of period | value (%) b | (in thousands) | net assets (%) c,d | net assets (%) d | turnover (%) | |||||||||||||
| Class A | ||||||||||||||||||||||||||
| August 31, 2008 | $7.82 | .57 | (.60) | (.03) | (.58) | (.58) | — | $7.21 | (.50) | $1,298,019 | 1.07 | 7.51 | 27.59 | |||||||||||||
| August 31, 2007 | 7.87 | .58 | (.04) | .54 | (.59) | (.59) | — | 7.82 | 6.87 | 1,570,488 | 1.03 | 7.17 | 57.18 | |||||||||||||
| August 31, 2006 | 8.10 | .58 e | (.22) | .36 | (.59) | (.59) | — | 7.87 | 4.64 e | 1,657,357 | 1.01 e | 7.26 e | 45.50 | |||||||||||||
| August 31, 2005 | 7.98 | .56 | .16 | .72 | (.60) | (.60) | — | 8.10 | 9.28 | 1,851,371 | .97 | 6.94 | 41.21 | |||||||||||||
| August 31, 2004 | 7.55 | .59 | .43 | 1.02 | (.59) | (.59) | — | 7.98 | 13.95 | 1,924,073 | .99 | 7.55 | 61.68 | |||||||||||||
| Class B | ||||||||||||||||||||||||||
| August 31, 2008 | $7.79 | .51 | (.59) | (.08) | (.52) | (.52) | — | $7.19 | (1.14) | $113,832 | 1.82 | 6.79 | 27.59 | |||||||||||||
| August 31, 2007 | 7.84 | .51 | (.04) | .47 | (.52) | (.52) | — | 7.79 | 6.05 | 197,581 | 1.78 | 6.42 | 57.18 | |||||||||||||
| August 31, 2006 | 8.06 | .51 e | (.20) | .31 | (.53) | (.53) | — | 7.84 | 3.99 e | 342,227 | 1.76 e | 6.52 e | 45.50 | |||||||||||||
| August 31, 2005 | 7.94 | .50 | .16 | .66 | (.54) | (.54) | — | 8.06 | 8.49 | 543,515 | 1.72 | 6.19 | 41.21 | |||||||||||||
| August 31, 2004 | 7.52 | .53 | .42 | .95 | (.53) | (.53) | — | 7.94 | 13.01 | 672,232 | 1.74 | 6.80 | 61.68 | |||||||||||||
| Class C | ||||||||||||||||||||||||||
| August 31, 2008 | $7.78 | .51 | (.60) | (.09) | (.52) | (.52) | — | $7.17 | (1.28) | $39,507 | 1.82 | 6.75 | 27.59 | |||||||||||||
| August 31, 2007 | 7.84 | .52 | (.05) | .47 | (.53) | (.53) | — | 7.78 | 5.95 | 46,276 | 1.78 | 6.42 | 57.18 | |||||||||||||
| August 31, 2006 | 8.06 | .51 e | (.20) | .31 | (.53) | (.53) | — | 7.84 | 4.02 e | 63,687 | 1.76 e | 6.50 e | 45.50 | |||||||||||||
| August 31, 2005 | 7.95 | .50 | .15 | .65 | (.54) | (.54) | — | 8.06 | 8.39 | 75,498 | 1.72 | 6.18 | 41.21 | |||||||||||||
| August 31, 2004 | 7.52 | .54 | .42 | .96 | (.53) | (.53) | — | 7.95 | 13.15 | 63,866 | 1.74 | 6.80 | 61.68 | |||||||||||||
| Class M | ||||||||||||||||||||||||||
| August 31, 2008 | $7.83 | .55 | (.60) | (.05) | (.55) | (.55) | — | $7.23 | (.67) | $13,273 | 1.32 | 7.25 | 27.59 | |||||||||||||
| August 31, 2007 | 7.88 | .56 | (.05) | .51 | (.56) | (.56) | — | 7.83 | 6.54 | 16,162 | 1.28 | 6.92 | 57.18 | |||||||||||||
| August 31, 2006 | 8.10 | .56 e | (.22) | .34 | (.56) | (.56) | — | 7.88 | 4.46 e | 19,785 | 1.26 e | 7.00 e | 45.50 | |||||||||||||
| August 31, 2005 | 7.98 | .54 | .15 | .69 | (.57) | (.57) | — | 8.10 | 8.95 | 23,265 | 1.22 | 6.69 | 41.21 | |||||||||||||
| August 31, 2004 | 7.55 | .57 | .43 | 1.00 | (.57) | (.57) | — | 7.98 | 13.64 | 26,295 | 1.24 | 7.28 | 61.68 | |||||||||||||
| Class R | ||||||||||||||||||||||||||
| August 31, 2008 | $7.77 | .54 | (.59) | (.05) | (.56) | (.56) | — | $7.16 | (.75) | $1,446 | 1.32 | 7.22 | 27.59 | |||||||||||||
| August 31, 2007 | 7.85 | .56 | (.07) | .49 | (.57) | (.57) | — | 7.77 | 6.24 | 1,096 | 1.28 | 6.92 | 57.18 | |||||||||||||
| August 31, 2006 | 8.08 | .55 e | (.21) | .34 | (.57) | (.57) | — | 7.85 | 4.37 e | 390 | 1.26 e | 7.00 e | 45.50 | |||||||||||||
| August 31, 2005 | 7.98 | .53 | .15 | .68 | (.58) | (.58) | — | 8.08 | 8.79 | 905 | 1.22 | 6.60 | 41.21 | |||||||||||||
| August 31, 2004 | 7.55 | .58 | .42 | 1.00 | (.57) | (.57) | — | 7.98 | 13.64 | 70 | 1.24 | 7.29 | 61.68 | |||||||||||||
| Class Y | ||||||||||||||||||||||||||
| August 31, 2008 | $7.76 | .58 | (.60) | (.02) | (.60) | (.60) | — | $7.14 | (.35) | $217,165 | .82 | 7.73 | 27.59 | |||||||||||||
| August 31, 2007 | 7.83 | .60 | (.06) | .54 | (.61) | (.61) | — | 7.76 | 6.96 | 225,031 | .78 | 7.42 | 57.18 | |||||||||||||
| August 31, 2006 | 8.06 | .59 e | (.21) | .38 | (.61) | (.61) | — | 7.83 | 4.99 e | 193,290 | .76 e | 7.51 e | 45.50 | |||||||||||||
| August 31, 2005 | 7.96 | .58 | .14 | .72 | (.62) | (.62) | — | 8.06 | 9.37 | 222,236 | .72 | 7.19 | 41.21 | |||||||||||||
| August 31, 2004 | 7.53 | .61 | .44 | 1.05 | (.62) | (.62) | — | 7.96 | 14.34 | 244,131 | .74 | 7.81 | 61.68 | |||||||||||||
a Per share net investment income (loss) has been determined on the basis of the weighted average number of shares outstanding during the period.
b Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
c Includes amounts paid through expense offset arrangements (Note 2).
d Reflects an involuntary contractual expense limitation and/or waivers of certain fund expenses in connection with investments in Putnam Prime Money Market Fund in effect during the period. As a result of such limitation and/ or waivers, the expenses of each class reflect a reduction of the following amounts (Notes 2 and 5):
| Percentage of average net assets | ||
| August 31, 2008 | <0.01% | |
| August 31, 2007 | <0.01 | |
| August 31, 2006 | <0.01 | |
| August 31, 2005 | <0.01 | |
| August 31, 2004 | <0.01 | |
e Reflects a non-recurring reimbursement from Putnam Investments relating to the calculation of certain amounts paid by the fund to Putnam in previous years for transfer agent services, which amounted to less than $0.01 per share and 0.01% of average net assets for the period ended August 31, 2006 .
f Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial statements.
| 36 | 37 |
Notes to financial statements 8/31/08
Note 1: Significant accounting policies
Putnam High Yield Trust (the “fund”), a Massachusetts business trust, is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The fund seeks high current income by investing primarily in high-yielding, lower-rated fixed-income securities. These securities may have a higher rate of default. Capital growth is a secondary goal when consistent with achieving high current income.
The fund offers class A, class B, class C, class M, class R and class Y shares. Class A and class M shares are sold with a maximum front-end sales charge of 4.00% and 3.25%, respectively, and generally do not pay a contingent deferred sales charge. Class B shares, which convert to class A shares after approximately eight years, do not pay a front-end sales charge and are subject to a contingent deferred sales charge, if those shares are redeemed within six years of purchase. Class C shares have a one-year 1.00% contingent deferred sales charge and do not convert to class A shares. Class R shares, which are offered to qualified employee-benefit plans, are sold at net asset value. The expenses for class A, class B, class C, class M and class R shares may differ based on the distribution fee of each class, which is identified in Note 2. Class Y shares, which are sold at net asset value, are generally subject to the same expenses as class A, class B, class C, class M an d class R shares, but do not bear a distribution fee. Class Y shares are generally only available to corporate and institutional clients and clients in other approved programs.
A 1.00% redemption fee may apply on any shares that are redeemed (either by selling or exchanging into another fund) within 90 days of purchase. The redemption fee is accounted for as an addition to paid-in-capital.
Investment income, realized and unrealized gains and losses and expenses of the fund are borne pro-rata based on the relative net assets of each class to the total net assets of the fund, except that each class bears expenses unique to that class (including the distribution fees applicable to such classes). Each class votes as a class only with respect to its own distribution plan or other matters on which a class vote is required by law or determined by the Trustees. If the fund were liquidated, shares of each class would receive their pro-rata share of the net assets of the fund. In addition, the Trustees declare separate dividends on each class of shares.
In the normal course of business, the fund enters into contracts that may include agreements to indemnify another party under given circumstances. The fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be, but have not yet been, made against the fund. However, the fund’s management team expects the risk of material loss to be remote.
The following is a summary of significant accounting policies consistently followed by the fund in the preparation of its financial statements. The preparation of financial statements is in conformity with accounting principles generally accepted in the United States of America and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
A) Security valuation Investments for which market quotations are readily available are valued at the last reported sales price on their principal exchange, or official closing price for certain markets. If no sales are reported — as in the case of some securities traded over-the-counter — a security is valued at its last reported bid price. Market quotations are not considered to be readily available for certain debt obligations; such investments are valued on the basis of valuations furnished by an independent pricing service approved by the Trustees or dealers selected by Putnam Investment Management, LLC (“Putnam Management”), the fund’s manager, a wholly-owned subsidiary of Putnam, LLC. Such services or dealers determine valuations for normal institutional-size trading units of such securities using methods based on market transactions for comparable securities and various relationships, genera lly recognized by institutional traders, between securities. Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange. Accordingly, on certain days, the fund will fair value foreign equity securities taking into account multiple factors, including movements in the U.S. securities markets. The number of days on which fair value prices will be used will depend on market activity and it is possible that fair value prices will be used by the fund to a significant extent. At August 31, 2008, fair value pricing was used for certain foreign securities in the portfolio. Securities quoted in foreign currencies, if any, are translated into U.S. dollars at the current exchange rate. To the extent a pricing service or dealer is unable to val ue a security or provides a valuation which Putnam Management does not believe accurately reflects the security’s fair value, the security will be valued at fair value by Putnam Management. Certain investments, including certain restricted securities and derivatives, are also valued at fair value following procedures approved by the Trustees. Such valuations and procedures are reviewed periodically by the Trustees. Certain securities may be valued on the basis of a price provided by a single source. The fair value of securities is generally determined as the amount that the fund could reasonably expect to realize from an orderly disposition of such securities over a reasonable period of time. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and does not reflect an actual market price, which may be different by a material amount.
B) Joint trading account Pursuant to an exemptive order from the Securities and Exchange Commission (the “SEC”), the fund may transfer uninvested cash balances, including cash collateral received under security lending arrangements, into a joint trading account along with the cash of other registered investment companies and certain other accounts managed by Putnam Management. These balances may be invested in issues of short-term investments having maturities of up to 397 days for collateral received under security lending arrangements and up to 90 days for other cash investments.
C) Repurchase agreements The fund, or any joint trading account, through its custodian, receives delivery of the underlying securities, the market value of which at the time of purchase is required to be in an amount at least equal to the resale price, including accrued interest. Collateral for certain tri-party repurchase agreements is held at the counterparty’s custodian in a segregated account for the benefit of the fund and the counterparty. Putnam Management is responsible for determining that the value of these underlying securities is at all times at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security transactions are recorded on the trade date (the date the order to buy or sell is executed). Gains or losses on securities sold are determined on the identified cost basis. Interest income is recorded on the accrual basis. Dividend income, net of applicable withholding taxes, is recognized on the ex-dividend date except that certain dividends from foreign securities, if any, are recognized as soon as the fund is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital or capital gains, if any, are reflected as a reduction of cost and/or as a realized gain. All premiums/discounts are amortized/accreted on a yield-to-maturity basis.
Securities purchased or sold on a delayed delivery basis may be settled a month or more after the trade date; interest income is accrued based on the terms of the securities. Losses may arise due to changes in the market value of the underlying securities or if the counterparty does not perform under the contract.
The fund earned certain fees in connection with its senior loan purchasing activities. These fees are treated as market discount and are recorded as income in the Statement of operations.
38
E) Foreign currency translation The accounting records of the fund are maintained in U.S. dollars. The market value of foreign securities, currency holdings, and other assets and liabilities is recorded in the books and records of the fund after translation to U.S. dollars based on the exchange rates on that day. The cost of each security is determined using historical exchange rates. Income and withholding taxes are translated at prevailing exchange rates when earned or incurred. The fund does not isolate that portion of realized or unrealized gains or losses resulting from changes in the foreign exchange rate on investments from fluctuations arising from changes in the market prices of the securities. Such gains and losses are included with the net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net realized exchange gains or losses on closed fo rward currency contracts, disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions and the difference between the amount of investment income and foreign withholding taxes recorded on the fund’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized appreciation and depreciation of assets and liabilities in foreign currencies arise from changes in the value of open forward currency contracts and assets and liabilities other than investments at the period end, resulting from changes in the exchange rate. Investments in foreign securities involve certain risks, including those related to economic instability, unfavorable political developments, and currency fluctuations, not present with domestic investments.
F) Forward currency contracts The fund may buy and sell forward currency contracts, which are agreements between two parties to buy and sell currencies at a set price on a future date. These contracts are used to protect against a decline in value relative to the U.S. dollar of the currencies in which its portfolio securities are denominated or quoted (or an increase in the value of a currency in which securities a fund intends to buy are denominated, when a fund holds cash reserves and short term investments), or for other investment purposes. The U.S. dollar value of forward currency contracts is determined using current forward currency exchange rates supplied by a quotation service. The market value of the contract will fluctuate with changes in currency exchange rates. The contract is marked to market daily and the change in market value is recorded as an unrealized gain or loss. When the contract is closed, the fund r ecords a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The fund could be exposed to risk if the value of the currency changes unfavorably, if the counterparties to the contracts are unable to meet the terms of their contracts or if the fund is unable to enter into a closing position. Risks may exceed amounts recognized on the Statement of assets and liabilities. Forward currency contracts outstanding at period end, if any, are listed after the fund’s portfolio.
G) Interest rate swap contracts The fund may enter into interest rate swap contracts, which are arrangements between two parties to exchange cash flows based on a notional principal amount, to manage the fund’s exposure to interest rates. Interest rate swap contracts are marked to market daily based upon quotations from an independent pricing service or market makers and the change, if any, is recorded as an unrealized gain or loss. Payments received or made are recorded as a realized gains or loss. Certain interest rate swap contracts may include extended effective dates. Payments related to these swap contracts is accrued based on the terms of the contract. The fund could be exposed to credit or market risk due to unfavorable changes in the fluctuation of interest rates or if the counterparty defaults on its obligation to perform. Risk of loss may exceed amounts recognized on the Statement of assets and liabilities. Interest rate swap contracts outstanding at period end, if any, are listed after the fund’s portfolio.
H) Credit default contracts The fund may enter into credit default contracts where one party, the protection buyer, makes an upfront or periodic payment to a counterparty, the protection seller, in exchange for the right to receive a contingent payment. The maximum amount of the payment may equal the notional amount, at par, of the underlying index or security as a result of a related credit event. Payments are made upon a credit default event of the disclosed primary referenced obligation or all other equally ranked obligations of the reference entity. An upfront payment received by the fund, as the protection seller, is recorded as a liability on the fund’s books. An upfront payment made by the fund, as the protection buyer, is recorded as an asset on the fund’s books. Periodic payments received or paid by the fund are recorded as realized gains or losses. The credit default c ontracts are marked to market daily based upon quotations from an independent pricing service or market makers and the change, if any, is recorded as an unrealized gain or loss. Payments received or made as a result of a credit event or termination of the contract are recognized, net of a proportional amount of the upfront payment, as realized gains or losses. In addition to bearing the risk that the credit event will occur, the fund could be exposed to market risk due to unfavorable changes in interest rates or in the price of the underlying security or index, the possibility that the fund may be unable to close out its position at the same time or at the same price as if it had purchased comparable publicly traded securities or that the counterparty may default on its obligation to perform. Risks of loss may exceed amounts recognized on the Statement of assets and liabilities. Credit default contracts outstanding at period end, if any, are listed after the fund’s portfolio.
I) Securities lending The fund may lend securities, through its agents, to qualified borrowers in order to earn additional income. The loans are collateralized by cash and/or securities in an amount at least equal to the market value of the securities loaned. The market value of securities loaned is determined daily and any additional required collateral is allocated to the fund on the next business day. The risk of borrower default will be borne by the fund’s agents; the fund will bear the risk of loss with respect to the investment of the cash collateral. Income from securities lending is included in investment income on the Statement of operations. At August 31, 2008, the value of securities loaned amounted to $103,098,430. The fund received cash collateral of $105,851,316 which is pooled with collateral of other Putnam funds into 78 issues of short-term investments.
J) 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 of 1986, as amended (the “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 Code. 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 August 31, 2008, the fund had a capital loss carryover of $1,288,069,475 available to the extent allowed by the Code to offset future net capital gain, if any. The amount of the carryover and the expiration dates are:
| Loss Carryover | Expiration | |
| $311,015,561 | August 31, 2009 | |
| 301,710,244 | August 31, 2010 | |
| 499,955,886 | August 31, 2011 | |
| 61,743,291 | August 31, 2012 | |
| 76,944,480 | August 31, 2013 | |
| 14,070,646 | August 31, 2014 | |
| 2,600,677 | August 31, 2015 | |
| 20,028,690 | August 31, 2016 | |
Pursuant to federal income tax regulations applicable to regulated investment companies, the fund has elected to defer to its fiscal year ending August 31, 2009 $57,095,620 of losses recognized during the period November 1, 2007 to August 31, 2008.
K) Distributions to shareholders Distributions to shareholders from net investment income are recorded by the fund on the ex-dividend date.
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Distributions from capital gains, if any, are recorded on the ex-dividend date and paid at least annually. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. These differences include temporary and/or permanent differences of losses on wash sale transactions, foreign currency gains and losses, post-October loss deferrals, the expiration of a capital loss carryover and income on swap contracts. 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 August 31, 2008, the fund reclassified $4,539,629 to decrease undistributed net investment income and $340,024,934 to decrease paid-in-capital, with a decrease to accumulated net realized losses of $344,564,563.
The tax basis components of distributable earnings and the federal tax cost as of August 31, 2008 were as follows:
| Unrealized appreciation | $16,604,840 | |
| Unrealized depreciation | (210,481,306) | |
| Net unrealized depreciation | (193,876,466) | |
| Undistributed ordinary income | 4,009,011 | |
| Capital loss carryforward | (1,288,069,475) | |
| Post-October loss | (57,095,620) | |
| Cost for federal income tax purposes | $1,945,002,880 | |
Note 2: Management fee, administrative services and other transactions
The fund pays Putnam Management for management and investment advisory services quarterly based on the average net assets of the fund. Such fee is based on the following annual rates: 0.70% of the first $500 million of average net assets, 0.60% of the next $500 million, 0.55% of the next $500 million, 0.50% of the next $5 billion, 0.475% of the next $5 billion, 0.455% of the next $5 billion, 0.44% of the next $5 billion, and 0.43% thereafter.
Putnam Management has agreed to waive fees and reimburse expenses of the fund through June 30, 2009 to the extent necessary to ensure that the fund’s expenses do not exceed the simple average of the expenses of all front-end load funds viewed by Lipper Inc. as having the same investment classification or objective as the fund. The expense reimbursement is based on a comparison of the fund’s expenses with the average annualized operating expenses of the funds in its Lipper peer group for each calendar quarter during the fund’s last fiscal year, excluding 12b-1 fees and without giving effect to any expense offset and brokerage/service arrangements that may reduce fund expenses. For the year ended August 31, 2008, Putnam Management did not waive any of its management fee from the fund.
Putnam Investments Limited (“PIL”), an affiliate of Putnam Management, is authorized by the Trustees to manage a separate portion of the assets of the fund as determined by Putnam Management from time to time. Putnam Management pays a quarterly sub-management fee to PIL for its services at an annual rate of 0.40% of the average net assets of the portion of the fund managed by PIL.
For the year ended August 31, 2008, Putnam Management has assumed $3,494 of legal, shareholder servicing and communication, audit and Trustee fees incurred by the fund in connection with certain legal and regulatory matters (including those described in Note 10).
Putnam Management voluntarily reimbursed the fund $4,712 for a trading error which occurred during the period. The effect of the loss incurred and the reimbursement by Putnam Management of such amounts had no impact on total return.
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 services for the fund’s assets were provided by Putnam Fiduciary Trust Company (“PFTC”), an affiliate of Putnam Management, and by State Street Bank and Trust Company (“State Street”). Custody fees are based on the fund’s asset level, the number of its security holdings, transaction volumes and with respect to PFTC, certain fees related to the transition of assets to State Street. Putnam Investor Services, a division of PFTC, provided investor servicing agent functions to the fund. Putnam Investor Services received fees for investor servicing, subject to certain limitations, based on the number of shareholder accounts in the fund and the level of defined contribution plan assets in the fund. During the year ended August 31, 2008, the fund incurred $3,659,922 for custody and investor servicing agent functions provided by PFTC.
The fund has entered into expense offset arrangements with PFTC and State Street whereby PFTC’s and State Street’s fees are reduced by credits allowed on cash balances. For the year ended August 31, 2008, the fund’s expenses were reduced by $793,182 under the expense offset arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of which $696, as a quarterly retainer, has been allocated to the fund, and an additional fee for each Trustees meeting attended. Trustees receive additional fees for attendance at certain committee meetings and industry seminars and for certain compliance-related matters. Trustees also are reimbursed for expenses they incur relating to their services as Trustees.
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 and were first elected prior to 2004. Benefits under the Pension Plan are equal to 50% of the Trustee’s average annual attendance and retainer fees for the three years ended December 31, 2005. The retirement benefit is payable during a Trustee’s lifetime, beginning the year following retirement, for the number of years of service through December 31, 2006. Pension expense for the fund is included in Trustee compensation and expenses in the Statement of operations. Accrued pension liability is included in Payable for Trustee compensation and expenses in the Statement of assets and liabilities. The Trustees have terminated the Pension Plan with respect to any Trustee first elected after 2003.
The fund has adopted distribution plans (the “Plans”) with respect to its class A, class B, class C, class M and class R shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. The purpose of the Plans is to compensate Putnam Retail Management Limited Partnership, a wholly-owned subsidiary of Putnam, LLC and Putnam Retail Management GP, Inc., for services provided and expenses incurred in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Retail Management Limited Partnership at an annual rate of up to 0.35%, 1.00%, 1.00%, 1.00% and 1.00% of the average net assets attributable to class A, class B, class C, class M and class R shares, respectively. The Trustees have approved payment by the fund at an annual rate of 0.25%, 1.00%, 1.00%, 0.50% and 0.50% of the average net assets attributable to class A, class B, class C, class M and class R shares, respectively.
For the year ended August 31, 2008, Putnam Retail Management Limited Partnership, acting as underwriter, received net commissions of $62,418 and $1,224 from the sale of class A and class M shares, respectively, and received $142,834 and $3,594 in contingent deferred sales charges from redemptions of class B and class C shares, respectively.
A deferred sales charge of up to 1.00% and 0.40% is assessed on certain redemptions of class A and class M shares, respectively. For the year ended August 31, 2008, Putnam Retail Management Limited Partnership, acting as underwriter, received $2,343 and no monies on class A and class M redemptions, respectively.
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On September 26, 2008, the fund entered into an Agreement with other registered investment companies (each a “Purchaser”) managed by Putnam Investments. Under the Agreements, the fund transferred to the Purchasers the fund’s right to receive, in the aggregate, $11,983,721 in net payments from Lehman Brothers Special Financing, Inc. in connection with certain terminated derivatives transactions (the “Receivable”), in each case in exchange for an initial payment plus (or minus) additional amounts based on the applicable Purchaser’s ultimate realized gain (or loss) on the Receivable.
Note 3: Purchases and sales of securities
During the year ended August 31, 2008, cost of purchases and proceeds from sales of investment securities other than short-term investments aggregated $494,312,857 and $729,649,209, respectively. There were no purchases or sales of U.S. government securities.
Note 4: Capital shares
At August 31, 2008, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
| Year ended 8/31/08 | Year ended 8/31/07 | |||
| Class A | Shares | Amount | Shares | Amount |
| Shares sold | 15,739,648 | $120,030,441 | 26,586,888 | $214,791,472 |
| Shares issued in | 10,044,638 | 75,744,114 | 10,547,539 | 84,965,963 |
| connection with | ||||
| reinvestment of | ||||
| distributions | ||||
| Shares issued | — | — | 8,467,578 | 67,470,903 |
| in connection | ||||
| with the merger | ||||
| of Putnam | ||||
| Managed High | ||||
| Yield Trust | ||||
| 25,784,286 | 195,774,555 | 45,602,005 | 367,228,338 | |
| Shares | (46,630,689) | (353,461,417) | (55,177,003) | (445,256,876) |
| repurchased | ||||
| Net decrease | (20,846,403) | $(157,686,862) | (9,574,998) | $(78,028,538) |
| Year ended 8/31/08 | Year ended 8/31/07 | |||
| Class B | Shares | Amount | Shares | Amount |
| Shares sold | 2,400,585 | $18,390,435 | 1,673,860 | $13,469,969 |
| Shares issued in | 826,183 | 6,226,902 | 1,356,191 | 10,877,967 |
| connection with | ||||
| reinvestment of | ||||
| distributions | ||||
| 3,226,768 | 24,617,337 | 3,030,051 | 24,347,936 | |
| Shares | (12,761,384) | (96,970,727) | (21,314,604) | (171,652,664) |
| repurchased | ||||
| Net decrease | (9,534,616) | $(72,353,390) | (18,284,553) | $(147,304,728) |
| Year ended 8/31/08 | Year ended 8/31/07 | |||
| Class C | Shares | Amount | Shares | Amount |
| Shares sold | 1,653,066 | $12,670,208 | 1,219,036 | $9,829,098 |
| Shares issued in | 255,686 | 1,920,313 | 347,757 | 2,791,011 |
| connection with | ||||
| reinvestment of | ||||
| distributions | ||||
| 1,908,752 | 14,590,521 | 1,566,793 | 12,620,109 | |
| Shares | (2,349,056) | (17,865,041) | (3,744,943) | (30,088,203) |
| repurchased | ||||
| Net decrease | (440,304) | $(3,274,520) | (2,178,150) | $(17,468,094) |
| Year ended 8/31/08 | Year ended 8/31/07 | |||
| Class M | Shares | Amount | Shares | Amount |
| Shares sold | 391,916 | $3,007,705 | 217,738 | $1,760,219 |
| Shares issued in | 95,043 | 718,427 | 111,003 | 895,759 |
| connection with | ||||
| reinvestment of | ||||
| distributions | ||||
| 486,959 | 3,726,132 | 328,741 | 2,655,978 | |
| Shares | (713,855) | (5,459,933) | (774,388) | (6,263,803) |
| repurchased | ||||
| Net decrease | (226,896) | $(1,733,801) | (445,647) | $(3,607,825) |
| Year ended 8/31/08 | Year ended 8/31/07 | |||
| Class R | Shares | Amount | Shares | Amount |
| Shares sold | 104,292 | $783,361 | 109,373 | $879,853 |
| Shares issued in | 11,798 | 88,175 | 6,847 | 54,906 |
| connection with | ||||
| reinvestment of | ||||
| distributions | ||||
| 116,090 | 871,536 | 116,220 | 934,759 | |
| Shares | (55,012) | (414,466) | (24,965) | (201,142) |
| repurchased | ||||
| Net increase | 61,078 | $457,070 | 91,255 | $733,617 |
| Year ended 8/31/08 | Year ended 8/31/07 | |||
| Class Y | Shares | Amount | Shares | Amount |
| Shares sold | 11,076,389 | $83,004,712 | 7,485,161 | $60,048,108 |
| Shares issued in | 2,389,688 | 17,842,657 | 2,070,650 | 16,558,210 |
| connection with | ||||
| reinvestment of | ||||
| distributions | ||||
| 13,466,077 | 100,847,369 | 9,555,811 | 76,606,318 | |
| Shares | (12,075,284) | (90,067,415) | (5,247,808) | (42,176,700) |
| repurchased | ||||
| Net increase | 1,390,793 | $10,779,954 | 4,308,003 | $34,429,618 |
Note 5: Investment in Putnam Prime Money Market Fund
The fund invested in Putnam Prime Money Market Fund, an open-end management investment company managed by Putnam Management. Investments in Putnam Prime Money Market Fund were valued at its closing net asset value each business day. Management fees paid by the fund were reduced by an amount equal to the management fees paid by Putnam Prime Money Market Fund with respect to assets invested by the fund in Putnam Prime Money Market Fund. For the year ended August 31, 2008, management fees paid were reduced by $63,798 relating to the fund’s investment in Putnam Prime Money Market Fund. Income distributions earned by the fund were recorded as interest income in the Statement of operations and totaled $2,884,220 for the year ended August 31, 2008. During the year ended August 31, 2008, cost of purchases and proceeds of sales of investments in Putnam Prime Money Market Fund aggregated $572,686,716 and $596,828,164, respectively.
On September 17, 2008, the Trustees of the Putnam Prime Money Market Fund voted to close that fund effective September 17, 2008. On September 24, 2008 the fund received shares of Federated Prime Obligations Fund, an unaffiliated management investment company registered under the Investment Company Act of 1940, in liquidation of its shares of Putnam Prime Money Market Fund.
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Note 6: Senior loan commitments
Senior loans are purchased or sold on a when-issued or delayed delivery basis and may be settled a month or more after the trade date, which from time to time can delay the actual investment of available cash balances; interest income is accrued based on the terms of the securities. Senior loans can be acquired through an agent, by assignment from another holder of the loan, or as a participation interest in another holder’s portion of the loan. When the fund invests in a loan or participation, the fund is subject to the risk that an intermediate participant between the fund and the borrower will fail to meet its obligations to the fund, in addition to the risk that the borrower under the loan may default on its obligations.
Note 7: Unfunded loan commitments
As of August 31, 2008, the fund had unfunded loan commitments of $905,702, which could be extended at the option of the borrower, pursuant to the following loan agreements with the following borrowers:
| Borrower | Unfunded Commitments | |||||
| Bausch & Lomb, Inc. | $341,082 | |||||
| Community Health Systems, Inc. | 201,620 | |||||
| Hologic, Inc. | 363,000 | |||||
| Note 8: Transactions with affiliated issuers | ||||||
| Transactions during the year with companies in which the fund owned at | ||||||
| least 5% of the voting securities were as follows: | ||||||
| Purchase | Sales | Dividend | Market | |||
| Affiliates | Cost | Proceeds | Income | Value | ||
| Bohai Bay | ||||||
| Litigation, LLC (Units) | $— | $— | $— | $55,172 | ||
| Decrane Aircraft | ||||||
| Holdings, Inc. | — | — | — | 29 | ||
| DigitalGlobe, Inc. 144A | — | — | — | 645,566 | ||
| VFB LLC | — | — | — | 267,994 | ||
| Total | $968,761 | |||||
Market values are shown for those securities affiliated at period end.
Note 9: Acquisition of Putnam Managed HighYieldTrust Fund
On October 30, 2006, the fund issued 8,467,578 class A shares in exchange for 7,366,381 class A shares of Putnam Managed High Yield Trust to acquire that fund’s net assets in a tax-free exchange approved by the shareholders. The net assets of the fund and Putnam Managed High Yield Trust on October 27, 2006, were $2,292,845,413 and $67,470,903 respectively. On October 27, 2006, Putnam Managed High Yield Trust had distributions in excess of net investment income of $357,620, accumulated net realized loss of $ 34,849,307 and unrealized depreciation of $1,090,127. The aggregate net assets of the fund immediately following the acquisition were $2,360,316,316.
Information presented in the Statement of operations and changes in net assets reflect only the operations of Putnam High Yield Trust.
Note 10: Regulatory matters and litigation
In late 2003 and 2004, Putnam Management settled charges brought by the Securities and Exchange Commission and the Massachusetts Securities Division in connection with excessive short-term trading in Putnam funds. Distribution of payments from Putnam Management to certain open-end Putnam funds and their shareholders is expected to be completed in the next several months. These allegations and related matters have served as the general basis for certain lawsuits, including purported class action lawsuits against Putnam Management and, in a limited number of cases, some Putnam funds. Putnam Management believes that these lawsuits will have no material adverse effect on the funds or on Putnam Management’s ability to provide investment management services. In addition, Putnam Management has agreed to bear any costs incurred by the Putnam funds as a result of these matters.
Note 11: New accounting pronouncements
In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (the “Interpretation”). The Interpretation prescribes a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken by a filer in the filer’s tax return. Upon adoption, the Interpretation did not have a material effect on the fund’s financial statements. However, the conclusions regarding the Interpretation may be subject to review and adjustment at a later date based on factors including, but not limited to, further implementation guidance expected from the FASB, and on-going analysis of tax laws, regulations and interpretations thereof. Each of the fund’s federal tax returns for the prior three fiscal years remains subject to examination by the Internal Revenue Service
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (the “Standard”). The Standard defines fair value, sets out a framework for measuring fair value and expands disclosures about fair value measurements. The Standard applies to fair value measurements already required or permitted by existing standards. The Standard is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. Putnam Management does not believe the adoption of the Standard will impact the amounts reported in the financial statements; however, additional disclosures will be required about the inputs used to develop the measurements of fair value.
In March 2008, Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS 161”) —an amendment of FASB Statement No. 133, was issued and is effective for fiscal years beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about how and why an entity uses derivative instruments and how derivative instruments affect an entity’s financial position. Putnam Management is currently evaluating the impact the adoption of SFAS 161 will have on the fund’s financial statement disclosures.
Note 12: Market conditions
Recent events in the financial sector have resulted in an unusually high degree of volatility in the financial markets. The fund’s investments in the financial sector, as reflected in the fund’s schedule of investments, exposes investors to the negative (or positive) performance resulting from these events.
42
Federal tax information (unaudited)
The fund designated 1.21% of ordinary income distributions as qualifying for the dividends received deduction for corporations.
For its tax year ended August 31, 2008, the fund hereby designates 1.21%, or the maximum amount allowable, of its taxable ordinary income distributions as qualified dividends taxed at the individual net capital gain rates.
The Form 1099 you receive in January 2009 will show the tax status of all distributions paid to your account in calendar 2008.
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About the Trustees
Jameson A. Baxter
Born 1943, Trustee since 1994, Vice Chairman since 2005
Ms. Baxter is the President of Baxter Associates, Inc., a private investment firm.
Ms. Baxter serves as a Director of ASHTA Chemicals, Inc., and the Mutual Fund Directors Forum. Until 2007, she was a Director of Banta Corporation (a printing and supply chain management company), Ryerson, Inc. (a metals service corporation), and Advocate Health Care. Until 2004, she was a Director of BoardSource (formerly the National Center for Nonprofit Boards); and until 2002, she was a Director of Intermatic Corporation (a manufacturer of energy control products). She is Chairman Emeritus of the Board of Trustees, Mount Holyoke College, having served as Chairman for five years.
Ms. Baxter has held various positions in investment banking and corporate finance, including Vice President of and Consultant to First Boston Corporation and Vice President and Principal of the Regency Group. She is a graduate of Mount Holyoke College.
Charles B. Curtis
Born 1940, Trustee since 2001
Mr. Curtis is President and Chief Operating Officer of the Nuclear Threat Initiative (a private foundation dealing with national security issues), and serves as Senior Advisor to the United Nations Foundation.
Mr. Curtis is a member of the Council on Foreign Relations and serves as Director of Edison International and Southern California Edison. Until 2006, Mr. Curtis served as a member of the Trustee Advisory Council of the Applied Physics Laboratory, Johns Hopkins University. Until 2003, Mr. Curtis was a member of the Electric Power Research Institute Advisory Council and the University of Chicago Board of Governors for Argonne National Laboratory. Prior to 2002, Mr. Curtis was a member of the Board of Directors of the Gas Technology Institute and the Board of Directors of the Environment and Natural Resources Program Steering Committee, John F. Kennedy School of Government, Harvard University. Until 2001, Mr. Curtis was a member of the Department of Defense Policy Board and Director of EG&G Technical Services, Inc. (a fossil energy research and development support company).
From August 1997 to December 1999, Mr. Curtis was a Partner at Hogan & Hartson LLP, an international law firm headquartered in Washington, D.C. Prior to May 1997, Mr. Curtis was Deputy Secretary of Energy and Under Secretary of the U.S. Department of Energy. He served as Chairman of the Federal Energy Regulatory Commission from 1977 to 1981 and has held positions on the staff of the U.S. House of Representatives, the U.S. Treasury Department, and the SEC.
Robert J. Darretta
Born 1946, Trustee since 2007
Mr. Darretta serves as Director of United-Health Group, a diversified health-care company.
Until April 2007, Mr. Darretta was Vice Chairman of the Board of Directors of Johnson & Johnson, one of the world’s largest and most broadly based health-care companies. Prior to 2007, he had responsibility for Johnson & Johnson’s finance, investor relations, information technology, and procurement function. He served as Johnson & Johnson Chief Financial Officer for a decade, prior to which he spent two years as Treasurer of the corporation and over ten years leading various Johnson & Johnson operating companies.
Mr. Darretta received a B.S. in Economics from Villanova University.
Myra R. Drucker
Born 1948, Trustee since 2004
Ms. Drucker is Chair of the Board of Trustees of Commonfund (a not-for-profit firm specializing in managing assets for educational endowments and foundations), Vice Chair of the Board of Trustees of Sarah Lawrence College, and a member of the Investment Committee of the Kresge Foundation (a charitable trust). She is also a Director of New York Stock Exchange LLC (a wholly-owned subsidiary of NYSE Euronext), and a Director of Interactive Data Corporation (a provider of financial market data and analytics to financial institutions and investors).
Ms. Drucker is an ex-officio member of the New York Stock Exchange (NYSE) Pension Managers Advisory Committee, having served as Chair for seven years. She serves as an advisor to RCM Capital Management (an investment management firm) and to the Employee Benefits Investment Committee of The Boeing Company (an aerospace firm).
From November 2001 until August 2004, Ms. Drucker was Managing Director and a member of the Board of Directors of General Motors Asset Management and Chief Investment Officer of General Motors Trust Bank. From December 1992 to November 2001, Ms. Drucker served as Chief Investment Officer of Xerox Corporation (a document company). Prior to December 1992, Ms. Drucker was Staff Vice President and Director of Trust Investments for International Paper (a paper and packaging company).
Ms. Drucker received a B.A. degree in Literature and Psychology from Sarah Lawrence College and pursued graduate studies in economics, statistics, and portfolio theory at Temple University.
Charles E. Haldeman, Jr.*
Born 1948, Trustee since 2004 and President of the Funds since 2007
Mr. Haldeman is Chairman of Putnam Investment Management, LLC and President of the Putnam Funds. Prior to July 2008, he was President and Chief Executive Officer of Putnam, LLC (“Putnam Investments”). Prior to November 2003, Mr. Haldeman served as Co-Head of Putnam Investments’ Investment Division.
Prior to joining Putnam in 2002, he held executive positions in the investment management industry. He previously served as Chief Executive Officer of Delaware Investments and President and Chief Operating Officer of United Asset Management. Mr. Haldeman was also a
44
Partner and Director of Cooke & Bieler, Inc. (an investment management firm).
Mr. Haldeman currently serves on the Board of Governors of the Investment Company Institute and as Chair of the Board of Trustees of Dartmouth College. He also serves on the Partners HealthCare Investment Committee, the Tuck School of Business Overseers, and the Harvard Business School Board of Dean’s Advisors. He is a graduate of Dartmouth College, Harvard Law School, and Harvard Business School. Mr. Haldeman is also a Chartered Financial Analyst (CFA) charterholder.
John A. Hill
Born 1942, Trustee since 1985 and Chairman since 2000
Mr. Hill is founder and Vice-Chairman of First Reserve Corporation, the leading private equity buyout firm specializing in the worldwide energy industry, with offices in Greenwich, Connecticut; Houston, Texas; London, England; and Shanghai, China. The firm’s investments on behalf of some of the nation’s largest pension and endowment funds are currently concentrated in 26 companies with annual revenues in excess of $13 billion, which employ over 100,000 people in 23 countries.
Mr. Hill is Chairman of the Board of Trustees of the Putnam Mutual Funds, a Director of Devon Energy Corporation and various private companies owned by First Reserve, and serves as a Trustee of Sarah Lawrence College where he chairs the Investment Committee.
Prior to forming First Reserve in 1983, Mr. Hill served as President of F. Eberstadt and Company, an investment banking and investment management firm. Between 1969 and 1976, Mr. Hill held various senior positions in Washington, D.C. with the federal government, including Deputy Associate Director of the Office of Management and Budget and Deputy Administrator of the Federal Energy Administration during the Ford Administration.
Born and raised in Midland, Texas, he received his B.A. in Economics from Southern Methodist University and pursued graduate studies as a Woodrow Wilson Fellow.
Paul L. Joskow
Born 1947, Trustee since 1997
Dr. Joskow is an economist and President of the Alfred P. Sloan Foundation (a philanthropic institution focused primarily on research and education on issues related to science, technology, and economic performance). He is on leave from his position as the Elizabeth and James Killian Professor of Economics and Management at the Massachusetts Institute of Technology (MIT), where he has been on the faculty since 1972. Dr. Joskow was the Director of the Center for Energy and Environmental Policy Research at MIT from 1999 through 2007.
Dr. Joskow serves as a Trustee of Yale University, as a Director of TransCanada Corporation (an energy company focused on natural gas transmission and power services) and of Exelon Corporation (an energy company focused on power services), and as a member of the Board of Overseers of the Boston Symphony Orchestra. Prior to August 2007, he served as a Director of National Grid (a UK-based holding company with interests in electric and gas transmission and distribution and telecommunications infrastructure). Prior to July 2006, he served as President of the Yale University Council and continues to serve as a member of the Council. Prior to February 2005, he served on the board of the Whitehead Institute for Biomedical Research (a non-profit research institution). Prior to February 2002, he was a Director of State Farm Indemnity Company (an automobile insurance company), and prior to March 2000, he was a Director of New England Electric System (a public utility holding comp any).
Dr. Joskow has published six books and numerous articles on industrial organization, government regulation of industry, and competition policy. He is active in industry restructuring, environmental, energy, competition, and privatization policies — serving as an advisor to governments and corporations worldwide. Dr. Joskow holds a Ph.D. and MPhil from Yale University and a B.A. from Cornell University.
Elizabeth T. Kennan
Born 1938, Trustee since 1992
Dr. Kennan is a Partner of Cambus-Kenneth Farm (thoroughbred horse and cattle breeding). She is President Emeritus of Mount Holyoke College.
Dr. Kennan served as Chairman and is now Lead Director of Northeast Utilities. She is a Trustee of the National Trust for Historic Preservation, of Centre College, and of Midway College in Midway, Kentucky. Until 2006, she was a member of The Trustees of Reservations. Prior to 2001, Dr. Kennan served on the oversight committee of the Folger Shakespeare Library. Prior to June 2005, she was a Director of Talbots, Inc., and she has served as Director on a number of other boards, including Bell Atlantic, Chastain Real Estate, Shawmut Bank, Berkshire Life Insurance, and Kentucky Home Life Insurance. Dr. Kennan has also served as President of Five Colleges Incorporated and as a Trustee of Notre Dame University, and is active in various educational and civic associations.
As a member of the faculty of Catholic University for twelve years, until 1978, Dr. Kennan directed the post-doctoral program in Patristic and Medieval Studies, taught history, and published numerous articles and two books. Dr. Kennan holds a Ph.D. from the University of Washington in Seattle, an M.S. from St. Hilda’s College at Oxford University, and an A.B. from Mount Holyoke College. She holds several honorary doctorates.
Kenneth R. Leibler
Born 1949, Trustee since 2006
Mr. Leibler is a Founding Partner and former Chairman of the Boston Options Exchange, an electronic marketplace for the trading of derivative securities.
Mr. Leibler currently serves as a Trustee of Beth Israel Deaconess Hospital in Boston. He is also Lead Director of Ruder Finn Group, a global communications and advertising firm, and a Director of Northeast Utilities, which operates New England’s largest energy delivery system. Prior to December 2006, he served as a Director of the Optimum Funds group. Prior to October 2006, he served as a Director of ISO New England, the
45
organization responsible for the operation of the electric generation system in the New England states. Prior to 2000, Mr. Leibler was a Director of the Investment Company Institute in Washington, D.C.
Prior to January 2005, Mr. Leibler served as Chairman and Chief Executive Officer of the Boston Stock Exchange. Prior to January 2000, he served as President and Chief Executive Officer of Liberty Financial Companies, a publicly traded diversified asset management organization. Prior to June 1990, Mr. Leibler served as President and Chief Operating Officer of the American Stock Exchange (AMEX), and at the time was the youngest person in AMEX history to hold the title of President. Prior to serving as AMEX President, he held the position of Chief Financial Officer, and headed its management and marketing operations. Mr. Leibler graduated magna cum laude with a degree in Economics from Syracuse University, where he was elected Phi Beta Kappa.
Robert E. Patterson
Born 1945, Trustee since 1984
Mr. Patterson is Senior Partner of Cabot Properties, LP and Chairman of Cabot Properties, Inc. (a private equity firm investing in commercial real estate).
Mr. Patterson serves as Chairman Emeritus and Trustee of the Joslin Diabetes Center. Prior to June 2003, he was a Trustee of Sea Education Association. Prior to December 2001, Mr. Patterson was President and Trustee of Cabot Industrial Trust (a publicly traded real estate investment trust). Prior to February 1998, he was Executive Vice President and Director of Acquisitions of Cabot Partners Limited Partnership (a registered investment adviser involved in institutional real estate investments). Prior to 1990, he served as Executive Vice President of Cabot, Cabot & Forbes Realty Advisors, Inc. (the predecessor company of Cabot Partners).
Mr. Patterson practiced law and held various positions in state government, and was the founding Executive Director of the Massachusetts Industrial Finance Agency. Mr. Patterson is a graduate of Harvard College and Harvard Law School.
George Putnam, III
Born 1951, Trustee since 1984
Mr. Putnam is Chairman of New Generation Research, Inc. (a publisher of financial advisory and other research services), and President of New Generation Advisers, Inc. (a registered investment adviser to private funds). Mr. Putnam founded the New Generation companies in 1986.
Mr. Putnam is a Director of The Boston Family Office, LLC (a registered investment adviser). He is a Trustee of St. Mark’s School and a Trustee of the Marine Biological Laboratory in Woods Hole, Massachusetts. Until 2006, he was a Trustee of Shore Country Day School, and until 2002, was a Trustee of the Sea Education Association.
Mr. Putnam previously worked as an attorney with the law firm of Dechert LLP (formerly known as Dechert Price & Rhoads) in Philadelphia. He is a graduate of Harvard College, Harvard Business School, and Harvard Law School.
Robert L. Reynolds*
Born 1952, Trustee since 2008
Mr. Reynolds is President and Chief Executive Officer of Putnam Investments, and a member of Putnam Investments’ Executive Board of Directors. He has more than 30 years of investment and financial services experience.
Prior to joining Putnam Investments in 2008, Mr. Reynolds was Vice Chairman and Chief Operating Officer of Fidelity Investments from 2000 to 2007. During this time, he served on the Board of Directors for FMR Corporation, Fidelity Investments Insurance Ltd., Fidelity Investments Canada Ltd., and Fidelity Management Trust Company. He was also a Trustee of the Fidelity Family of Funds. From 1984 to 2000, Mr. Reynolds served in a number of increasingly responsible leadership roles at Fidelity.
Mr. Reynolds serves on several not-for-profit boards, including those of the West Virginia University Foundation, Concord Museum, Dana-Farber Cancer Institute, Lahey Clinic, and Initiative for a Competitive Inner City in Boston. He is a member of the Chief Executives Club of Boston, the National Innovation Initiative, and the Council on Competitiveness.
Mr. Reynolds received a B.S. in Business Administration/Finance from West Virginia University.
Richard B.Worley
Born 1945, Trustee since 2004
Mr. Worley is Managing Partner of Permit Capital LLC, an investment management firm.
Mr. Worley serves as a Trustee of the University of Pennsylvania Medical Center, The Robert Wood Johnson Foundation (a philanthropic organization devoted to health-care issues), and the National Constitution Center. He is also a Director of The Colonial Williamsburg Foundation (a historical preservation organization), and the Philadelphia Orchestra Association. Mr. Worley also serves on the investment committees of Mount Holyoke College and World Wildlife Fund (a wildlife conservation organization).
Prior to joining Permit Capital LLC in 2002, Mr. Worley served as President, Chief Executive Officer, and Chief Investment Officer of Morgan Stanley Dean Witter Investment Management and as a Managing Director of Morgan Stanley, a financial services firm. Mr. Worley also was the Chairman of Miller Anderson & Sherrerd, an investment management firm that was acquired by Morgan Stanley in 1996.
Mr. Worley holds a B.S. degree from the University of Tennessee and pursued graduate studies in economics at the University of Texas.
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of August 31, 2008, there were 99 Putnam funds. All Trustees serve as Trustees of all Putnam funds.
Each Trustee serves for an indefinite term, until his or her resignation, retirement at age 72, death, or removal.
* Trustee who is an “interested person” (as defined in the Investment Company Act of 1940) of the fund, Putnam Management, and/or Putnam Retail Management. Mr. Reynolds is President and Chief Executive Officer of Putnam Investments. Mr. Haldeman is the President of your fund and each of the other Putnam funds and Chairman of Putnam Investment Management, LLC, and prior to July 2008 was President and Chief Executive Officer of Putnam Investments.
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Officers
In addition to Charles E. Haldeman, Jr., the other officers of the fund are shown below:
| Charles E. Porter (Born 1938) | James P. Pappas (Born 1953) | Wanda M. McManus (Born 1947) |
| Executive Vice President, Principal Executive | Vice President | Vice President, Senior Associate Treasurer |
| Officer, Associate Treasurer, and | Since 2004 | and Assistant Clerk |
| Compliance Liaison | Managing Director, Putnam Investments and | Since 2005 |
| Since 1989 | Putnam Management. During 2002, Chief | |
| Operating Officer, Atalanta/Sosnoff | Nancy E. Florek (Born 1957) | |
| Jonathan S. Horwitz (Born 1955) | Management Corporation | Vice President, Assistant Clerk, Assistant |
| Senior Vice President and Treasurer | Treasurer and Proxy Manager | |
| Since 2004 | Francis J. McNamara, III (Born 1955) | Since 2005 |
| Prior to 2004, Managing Director, | Vice President and Chief Legal Officer | |
| Putnam Investments | Since 2004 | |
| Senior Managing Director, Putnam | ||
| Steven D. Krichmar (Born 1958) | Investments, Putnam Management | |
| Vice President and Principal Financial Officer | and Putnam Retail Management. Prior | |
| Since 2002 | to 2004, General Counsel, State Street | |
| Senior Managing Director, | Research & Management Company | |
| Putnam Investments | ||
| Robert R. Leveille (Born 1969) | ||
| Janet C. Smith (Born 1965) | Vice President and Chief Compliance Officer | |
| Vice President, Principal Accounting Officer | Since 2007 | |
| and Assistant Treasurer | Managing Director, Putnam Investments, | |
| Since 2007 | Putnam Management, and Putnam Retail | |
| Managing Director, Putnam Investments and | Management. Prior to 2004, member of | |
| Putnam Management | Bell Boyd & Lloyd LLC. Prior to 2003, | |
| Vice President and Senior Counsel, | ||
| Susan G. Malloy (Born 1957) | Liberty Funds Group LLC | |
| Vice President and Assistant Treasurer | ||
| Since 2007 | Mark C. Trenchard (Born 1962) | |
| Managing Director, Putnam Investments | Vice President and BSA Compliance Officer | |
| Since 2002 | ||
| Beth S. Mazor (Born 1958) | Managing Director, Putnam Investments | |
| Vice President | ||
| Since 2002 | Judith Cohen (Born 1945) | |
| Managing Director, Putnam Investments | Vice President, Clerk and Assistant Treasurer | |
| Since 1993 |
The address of each Officer is One Post Office Square, Boston, MA 02109.
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The Putnam Family of Funds
The following is a list of Putnam’s open-end mutual funds offered to the public. Investors should carefully consider the investment objective, risks, charges, and expenses of a fund before investing. For a prospectus containing this and other information for any Putnam fund or product, call your financial advisor at 1-800-225-1581 and ask for a prospectus. Please read the prospectus carefully before investing.
Growth funds
Discovery Growth Fund
Growth Opportunities Fund
Health Sciences Trust
International New Opportunities Fund*
New Opportunities Fund
OTC & Emerging Growth Fund
Small Cap Growth Fund*
Vista Fund
Voyager Fund
Blend funds
Capital Appreciation Fund
Capital Opportunities Fund*
Europe Equity Fund*
Global Equity Fund*
Global Natural Resources Fund*
International Capital Opportunities Fund*
International Equity Fund*
Investors Fund
Research Fund
Tax Smart Equity Fund®
Utilities Growth and Income Fund
Value funds
Classic Equity Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
International Growth and Income Fund*
Mid Cap Value Fund
New Value Fund
Small Cap Value Fund*
Income funds
American Government Income Fund
Diversified Income Trust
Floating Rate Income Fund
Global Income Trust*
High Yield Advantage Fund*
High Yield Trust*
Income Fund
Money Market Fund†
U.S. Government Income Trust
Tax-free income funds
AMT-Free Insured Municipal Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund†
Tax-Free High Yield Fund
State tax-free income funds:
Arizona, California, Massachusetts, Michigan, Minnesota,
New Jersey, New York, Ohio, and Pennsylvania
Asset allocation funds
Income Strategies Fund
Putnam Asset Allocation Funds — three investment portfolios that spread your money across a variety of stocks, bonds, and money market investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
Putnam RetirementReady® Funds
Putnam RetirementReady Funds — ten investment portfolios that offer diversification among stocks, bonds, and money market instruments and adjust to become more conservative over time based on a target date for withdrawing assets.
The ten funds:
Putnam RetirementReady 2050 Fund
Putnam RetirementReady 2045 Fund
Putnam RetirementReady 2040 Fund
Putnam RetirementReady 2035 Fund
Putnam RetirementReady 2030 Fund
Putnam RetirementReady 2025 Fund
Putnam RetirementReady 2020 Fund
Putnam RetirementReady 2015 Fund
Putnam RetirementReady 2010 Fund
Putnam RetirementReady Maturity Fund
* A 1% redemption fee on total assets redeemed or exchanged within 90 days of purchase may be imposed for all share classes of these funds.
†An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.
With the exception of money market funds, a 1% redemption fee may be applied to shares exchanged or sold within 7 days of purchase (90 days, for certain funds).
Check your account balances and the most recent month-end performance in the Individual Investors section at www.putnam.com.
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Fund information
Founded over 70 years ago, Putnam Investments was built around the concept that a balance between risk and reward is the hallmark of a well-rounded financial program. We manage nearly 100 mutual funds in growth, value, blend, fixed income, and international.
| Investment Manager | Officers | Wanda M. McManus |
| Putnam Investment | Charles E. Haldeman, Jr. | Vice President, Senior Associate Treasurer |
| Management, LLC | President | and Assistant Clerk |
| One Post Office Square | ||
| Boston, MA 02109 | Charles E. Porter | Nancy E. Florek |
| Executive Vice President, Principal | Vice President, Assistant Clerk, Assistant | |
| Investment Sub-Manager | Executive Officer, Associate Treasurer | Treasurer and Proxy Manager |
| Putnam Investments Limited | and Compliance Liaison | |
| 57–59 St James’s Street | ||
| London, England SW1A 1LD | Jonathan S. Horwitz | |
| Senior Vice President and Treasurer | ||
| Marketing Services | ||
| Putnam Retail Management | Steven D. Krichmar | |
| One Post Office Square | Vice President and Principal Financial Officer | |
| Boston, MA 02109 | ||
| Janet C. Smith | ||
| Custodian | Vice President, Principal Accounting Officer | |
| State Street Bank and Trust Company | and Assistant Treasurer | |
| Legal Counsel | Susan G. Malloy | |
| Ropes & Gray LLP | Vice President and Assistant Treasurer | |
| Independent Registered Public | Beth S. Mazor | |
| Accounting Firm | Vice President | |
| PricewaterhouseCoopers LLP | ||
| James P. Pappas | ||
| Trustees | Vice President | |
| John A. Hill, Chairman�� | ||
| Jameson A. Baxter, Vice Chairman | Francis J. McNamara, III | |
| Charles B. Curtis | Vice President and Chief Legal Officer | |
| Robert J. Darretta | ||
| Myra R. Drucker | Robert R. Leveille | |
| Charles E. Haldeman, Jr. | Vice President and Chief Compliance Officer | |
| Paul L. Joskow | ||
| Elizabeth T. Kennan | Mark C. Trenchard | |
| Kenneth R. Leibler | Vice President and BSA Compliance Officer | |
| Robert E. Patterson | ||
| George Putnam, III | Judith Cohen | |
| Robert L. Reynolds | Vice President, Clerk and Assistant Treasurer | |
| Richard B. Worley | ||
This report is for the information of shareholders of Putnam High Yield Trust. It may also be used as sales literature when preceded or accompanied by the current prospectus, the most recent copy of Putnam’s Quarterly Performance Summary, and Putnam’s Quarterly Ranking Summary. For more recent performance, please visit www.putnam.com. Investors should carefully consider the investment objective, risks, charges, and expenses of a fund, which are described in its prospectus. For this and other information or to request a prospectus, call 1-800-225-1581 toll free. Please read the prospectus carefully before investing. The fund’s Statement of Additional Information contains additional information about the fund’s Trustees and is available without charge upon request by calling 1-800-225-1581.
Item 2. Code of Ethics:
(a) The fund’s principal executive, financial and accounting officers are employees of Putnam Investment Management, LLC, the Fund's investment manager. As such they are subject to a comprehensive Code of Ethics adopted and administered by Putnam Investments which is designed to protect the interests of the firm and its clients. The Fund has adopted a Code of Ethics which incorporates the Code of Ethics of Putnam Investments with respect to all of its officers and Trustees who are employees of Putnam Investment Management, LLC. For this reason, the Fund has not adopted a separate code of ethics governing its principal executive, financial and accounting officers.
(c) In May 2008, the Code of Ethics of Putnam Investment Management, LLC was updated in its entirety to include the amendments adopted in August 2007 as well as a several additional technical, administrative and non-substantive changes.
Item 3. Audit Committee Financial Expert:
The Funds' Audit and Compliance Committee is comprised solely of Trustees who are "independent" (as such term has been defined by the Securities and Exchange Commission ("SEC") in regulations implementing Section 407 of the Sarbanes-Oxley Act (the "Regulations")). The Trustees believe that each of the members of the Audit and Compliance Committee also possess a combination of knowledge and experience with respect to financial accounting matters, as well as other attributes, that qualify them for service on the Committee. In addition, the Trustees have determined that each of Mr. Patterson, Mr. Leibler, Mr. Hill and Mr. Darretta meets the financial literacy requirements of the New York Stock Exchange's rules and qualifies as an "audit committee financial expert" (as such term has been defined by the Regulations) based on their review of his pertinent experience and education. Certain other Trustees, although not on the Audit and Compliance Committee, would also quali fy as "audit committee financial experts." The SEC has stated that the designation or identification of a person as an audit committee financial expert pursuant to this Item 3 of Form N-CSR does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the Audit and Compliance Committee and the Board of Trustees in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services:
The following table presents fees billed in each of the last two fiscal years for services rendered to the fund by the fund’s independent auditor:
| Fiscal | Audit- | |||
| year | Audit | Related | Tax | All Other |
| ended | Fees | Fees | Fees | Fees |
| August 31, 2008 | $66,000 | $-- | $6,000 | $- |
| August 31, 2007 | $61,050 | $-- | $5,450 | $ - |
For the fiscal years ended August 31, 2008 and August 31, 2007, the fund’s independent auditor billed aggregate non-audit fees in the amounts of $74,733 and $5,450 respectively, to the fund, Putnam Management and any entity controlling, controlled by or under common control with Putnam Management that provides ongoing services to the fund.
Audit Fees represent fees billed for the fund's last two fiscal years relating to the audit and review of the financial statements included in annual reports and registration statements, and other
services that are normally provided in connection with statutory and regulatory filings or engagements.
Audit-Related Fees represent fees billed in the fund’s last two fiscal years for services traditionally performed by the fund’s auditor, including accounting consultation for proposed transactions or concerning financial accounting and reporting standards and other audit or attest services not required by statute or regulation.
Tax Fees represent fees billed in the fund’s last two fiscal years for tax compliance, tax planning and tax advice services. Tax planning and tax advice services include assistance with tax audits, employee benefit plans and requests for rulings or technical advice from taxing authorities.
Pre-Approval Policies of the Audit and Compliance Committee. The Audit and Compliance Committee of the Putnam funds has determined that, as a matter of policy, all work performed for the funds by the funds’ independent auditors will be pre-approved by the Committee itself and thus will generally not be subject to pre-approval procedures.
The Audit and Compliance Committee also has adopted a policy to pre-approve the engagement by Putnam Management and certain of its affiliates of the funds’ independent auditors, even in circumstances where pre-approval is not required by applicable law. Any such requests by Putnam Management or certain of its affiliates are typically submitted in writing to the Committee and explain, among other things, the nature of the proposed engagement, the estimated fees, and why this work should be performed by that particular audit firm as opposed to another one. In reviewing such requests, the Committee considers, among other things, whether the provision of such services by the audit firm are compatible with the independence of the audit firm.
The following table presents fees billed by the fund’s independent auditor for services required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X.
| Fiscal | Audit- | All | Total | |
| year | Related | Tax | Other | Non-Audit |
| ended | Fees | Fees | Fees | Fees |
| August 31, 2008 | $ - | $ - | $ - | $ - |
| August 31, 2007 | $ - | $ - | $ - | $ - |
Item 5. Audit Committee of Listed Registrants
Not applicable
Item 6. Schedule of Investments:
The registrant’s schedule of investments in unaffiliated issuers is included in the report to shareholders in Item 1 above.
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End Management Investment Companies:
Not applicable
Item 8. Portfolio Managers of Closed-End Investment Companies
Not Applicable
Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers:
Not applicable
Item 10. Submission of Matters to a Vote of Security Holders:
Not applicable
Item 11. Controls and Procedures:
(a) The registrant's principal executive officer and principal financial officer have concluded, based on their evaluation of the effectiveness of the design and operation of the registrant's disclosure controls and procedures as of a date within 90 days of the filing date of this report, that the design and operation of such procedures are generally effective to provide reasonable assurance that information required to be disclosed by the registrant in this report is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms.
(b) Changes in internal control over financial reporting: Not applicable
Item 12. Exhibits:
(a)(1) The Code of Ethics of The Putnam Funds, which incorporates the Code of Ethics of Putnam Investments, is filed herewith.
(a)(2) Separate certifications for the principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Investment Company Act of 1940, as amended, are filed herewith.
(b) The certifications required by Rule 30a-2(b) under the Investment Company Act of 1940, as amended, are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Putnam High Yield Trust
By (Signature and Title):
/s/Janet C. Smith
Janet C. Smith
Principal Accounting Officer
Date: October 28, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title):
/s/Charles E. Porter
Charles E. Porter
Principal Executive Officer
Date: October 28, 2008
By (Signature and Title):
/s/Steven D. Krichmar
Steven D. Krichmar
Principal Financial Officer
Date: October 28, 2008