Putnam
High Yield
Trust
Item 1. Report to Stockholders:
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The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
8-31-04
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From the Trustees
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John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
Over the past several months, Putnam has introduced a number of reforms
to benefit shareholders, including increasing the amount of disclosure
for our funds. Our shareholder reports now include information that
enables you to estimate the amount you paid for ongoing expenses such as
management fees and distribution (or 12b-1) fees, and that measures
portfolio turnover, the rate at which your fund buys and sells portfolio
securities, which can affect its return and its taxable distributions to
shareholders. This new information also enables you to compare your
fund's expenses and portfolio turnover rate with those of other similar
funds tracked by Lipper, an independent fund-rating company. We have
also introduced a risk comparison that illustrates your fund's risk
relative to similar funds as tracked by Morningstar, another independent
fund-rating company. These comparisons should be valuable to you and
your financial advisor as you make your investment decisions.
We are also pleased to announce that your fund's independent Trustees
have nominated three new individuals to serve as Trustees of your fund.
All three have had outstanding careers as leaders in the investment
management industry. Myra R. Drucker is a Vice Chair of the Board of
Trustees of Sarah Lawrence College and serves as Chair of the New York
Stock Exchange (NYSE) Pension Managers Advisory Committee and as a
Trustee of Commonfund, a not-for-profit asset management firm. Richard
B. Worley is Managing Partner of Permit Capital LLC, an investment
management firm. Both Ms. Drucker and Mr. Worley would be independent
trustees (i.e., trustees who are not "interested persons" of your fund
or its investment adviser). Charles E. Haldeman, Jr., the third nominee,
is President and Chief Executive Officer of Putnam Investments. Proxy
voting is now underway to elect the new and existing Trustees of the
Putnam funds, as well as to address other issues specific to individual
funds. If you have not already returned your proxy, we urge you to do
so. If you need any assistance, please contact Putnam at 1-800-225-1581
or call your financial advisor.
Putnam High Yield Trust delivered respectable results for the period
covered by this report. In the following pages, the managers discuss
fund performance, strategy, and their outlook for fiscal 2005.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
October 20, 2004
Report from Fund Management
Fund highlights
* For the fiscal year ended August 31, 2004, Putnam High Yield Trust's
class A shares returned 13.95% without sales charges and 8.49% with
maximum sales charges reflected.
* The fund's benchmark, the JP Morgan Global High Yield Index, returned
14.62%.
* The average return for the fund's Lipper category, High Current Yield
Funds, was 12.37%.
* See the Performance Summary beginning on page 7 for additional fund
performance, comparative performance, and Lipper data.
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TOTAL RETURN FOR
PERIODS ENDED 8/31/04
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Class A
(inception 2/14/78) NAV POP
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1 year 13.95% 8.49%
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5 years 27.74 21.69
Annual average 5.02 4.00
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10 years 83.21 74.51
Annual average 6.24 5.73
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Annual average
(life of fund) 9.24 9.04
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Data is historical. 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 assumes reinvestment of
distributions and does not account for taxes. Returns at NAV do not
reflect a sales charge of 4.75%. For the most recent month-end
performance, visit www.putnam.com. A 2% short-term trading fee will be
imposed on shares exchanged or sold within 5 days of purchase. In
addition, there is a 1% short-term trading fee for this fund on shares
sold or exchanged between 6 and 90 days.
Performance commentary
Lower-quality bonds led the high-yield market's rally during your fund's
fiscal year, especially during the first six months. During the course
of the year, your fund profited from our decision to emphasize these
bonds. We believe this exposure enabled the fund to outperform the
average for its Lipper category, based on results at net asset value
(NAV). However, the fund's returns slightly lagged those of its
benchmark index. We attribute this to the fact that the index included
some deeply distressed securities that the fund did not own, which
rebounded strongly during the fund's fiscal year.
FUND PROFILE
Putnam High Yield Trust seeks high current income through a portfolio of
higher-yielding, lower-rated corporate bonds diversified across
different industry sectors. It has a secondary objective of capital
growth when consistent with high current income. This fund may be
suitable for investors who can accept a higher level of risk in exchange
for a potentially higher level of income than that available from
higher-quality bonds.
Market overview
High-yield debt securities enjoyed a strong run during much of your
fund's fiscal year. Most of the market's upward climb occurred during
the first six months of the period, when a strengthening economy,
falling default rates, an improving equity market, and declining
interest rates provided a constructive backdrop. The overall credit
quality of the market was on the rise, and investors became more
comfortable taking on the additional risk carried by junk bonds in order
to garner more attractive yields. Within this environment, lower-rated
sectors of the market posted the strongest gains.
During the second half of the fiscal year, returns in the high-yield
market remained positive, but more muted. Factors that caused some
concern among investors included the June and August increases in
short-term interest rates by the Federal Reserve Board, indications of a
possible weakening of the U.S. economy, and rising energy prices. As
default rates continued to decline, the high-yield market continued to
perform well but the difference in performance between lower- and
higher-quality bonds became smaller. Overall credit quality continued to
improve, as companies steadily paid down debt and economic growth
remained in positive territory.
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MARKET SECTOR PERFORMANCE 12 MONTHS ENDED 8/31/04
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Bonds
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JP Morgan Global High Yield Index (global high-yield
corporate bonds) 14.62%
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Lehman Aggregate Bond Index (broad bond market) 6.13%
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Lehman Government/Credit Bond Index
(U.S. Treasury and agency securities and corporate bonds) 6.24%
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Lehman Municipal Bond Index (tax-exempt bonds) 7.10%
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Equities
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S&P 500 Index (broad stock market) 11.46%
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Russell 2000 Value Index (small-company value stocks) 19.49%
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Russell 2500 Growth Index (growth stocks of small and
midsize companies) 4.58%
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These indexes provide an overview of performance in different market
sectors for the 12 months ended 8/31/04.
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Strategy overview
During most of the fiscal year, we maintained the same strategy. Our
analysis of the high-yield market cycle led us to anticipate the
continued strong performance of lower-rated debt securities, so we
maintained the fund's focus on that part of the market. At the same
time, we aimed to maintain diversification among companies and
industries. Our research team performed detailed credit analysis,
helping us to select securities that we believed would offer strong
performance. Our analysts looked to find companies offering a
sustainable competitive advantage, a manageable debt structure, and the
ability to generate adequate cash flow. We also tried to make sure that
these companies offered some sort of downside protection in case of a
negative development.
Through the latter stages of the period, we started to take profits on
and reduce the fund's overweight to lower-rated securities. We did this
as the market underwent a transition from a strong rally to a backdrop
characterized by more steady, moderate returns.
[GRAPHIC OMITTED: horizontal bar chart TOP SECTOR WEIGHTINGS COMPARED]
TOP SECTOR WEIGHTINGS COMPARED
as of 2/29/04 as of 8/31/04
Consumer
cyclicals 22.3% 22.1%
Consumer
staples 12.6% 12.8%
Basic
materials 9.9% 10.3%
Utilities
and power 8.7% 9.5%
Capital
goods 9.9% 7.9%
Footnote reads:
This chart shows how the fund's top weightings have changed over the
last six months. Weightings are shown as a percentage of net assets.
Holdings will vary over time.
How fund holdings affected performance
Edison International, which owns California's second-largest electric
utility, Southern California Edison, also owns Edison Mission Energy,
which has a portfolio of independent power plants across the globe. This
independent power portfolio has several types of financing, which were
negatively affected along with much of the industry in 2002. The company
sold assets and shored up its balance sheet, which drove strong returns
for a number of Edison securities. Another top performer was diversified
chemicals manufacturer Huntsman International. This company benefited
from a rebound in chemical prices. Huntsman carries a significant debt
load, but improved its cash flow as commodity prices improved. Finally,
Williams Companies, another company whose bonds had been beaten down,
experienced significant capital appreciation as management improved the
company's balance sheet by focusing on its core pipeline business,
selling nonproductive assets and paying down debt.
[GRAPHIC OMITTED: TOP HOLDINGS]
TOP HOLDINGS
(Percent of fund's net assets as of 8/31/04)
1 Qwest Corp. 144A (0.9%)
Notes 9 1/8s, 2012s
Communication services
2 NRG Energy, Inc. 144A (0.6%)
Sr. sec. notes 8s, 2013
Utilities and power
3 PSF Group Holdings, Inc. 144A (0.6%)
Class A
Consumer staples
4 Equistar Chemicals LP/
Equistar Funding Corp. (0.5%)
Company guarantee 10 1/8s, 2008
Basic materials
5 Triad Hospitals, Inc. (0.5%)
Sr. sub. notes 7s, 2013
Health care
6 Hollinger Participation
Trust 144A (0.5%)
Sr. sub notes 12 1/8s, 2010 (Canada)
Publishing
7 Echostar DBS Corp. (0.5%)
Sr. notes 6 3/8s, 2011
Broadcasting
8 Dynegy Holdings, Inc. 144A (0.5%)
Sec. notes 10 1/8s, 2013
Utilities and power
9 Tenneco Automotive, Inc. (0.5%)
Sec. notes Ser. B, 10 1/4s, 2013
Automotive
10 John Q. Hammons Hotels LP/
John Q. Hammons Hotels
Finance Corp. III (0.5%)
1st mtge. Ser. B, 8 7/8s, 2012
Lodging/tourism
Footnote reads:
The fund's holdings will change over time.
Even though most of the high-yield market posted positive gains, some fund
holdings lagged for company- or industry-specific reasons, although their
negative influence was relatively muted during such a strong year. One such
investment was Trico Marine, an energy service company in the Gulf of
Mexico. We believed that rising oil prices would lead to improving business
prospects for energy service companies in the Gulf, but that development
didn't materialize. Another disappointment was Dobson Communications, a
wireless telecommunications company. The company earns a significant
portion of its revenues through roaming charges from other wireless service
providers outside of smaller cities where big wireless companies haven't
built out their networks. The company is largely dependent on its
relationship with AT&T Wireless, which struggled during the fiscal year.
The latter company also is working on a merger with Cingular that likely
will take roaming minutes away from Dobson. During the course of the fiscal
year we reduced the size of these two positions; while both were still in
the portfolio at the end of the period, they are now a very small
percentage of the portfolio.
Please note that all holdings discussed in this report are subject to
review in accordance with the fund's investment strategy and may vary in
the future.
The fund's management team
The fund is managed by the Putnam Core Fixed-Income High-Yield Team. The
members of the team are Stephen Peacher (Portfolio Leader), Paul Scanlon
(Portfolio Member), Rosemary Thomsen (Portfolio Member), Jeffrey
Kaufman, Geoffrey Kelley, Neal Reiner, Robert Salvin, and Joseph Towell.
The outlook for your fund
The following commentary reflects anticipated developments that could
affect your fund over the next six months, as well as your management
team's plans for responding to them.
Overall, we believe the backdrop for high-yield bonds remains relatively
positive. The continuing economic rebound should help bolster improving
corporate earnings even if the rate of growth moderates. In addition,
defaults continue to subside. At this point in time, we believe that the
high-yield market could outperform Treasuries for the balance of the
year despite the likelihood of additional rate increases.
The high-yield market has enjoyed almost two years of very strong
performance. While the economic backdrop remains supportive, we believe
high-yield bond prices have now risen to the point where their
valuations are less attractive than they were at the beginning of this
most recent rally. The high-yield market also could be held back by
possible increases in short-term interest rates or the negative impact
of higher oil prices.
In any event, we anticipate following the same careful investment
process, looking to maximize returns at the same time that we work to
minimize risk. Our research team will continue to analyze credits with
close scrutiny, as we weigh such factors as new issuance, valuations,
and defaults to construct a portfolio that we feel will respond best to
where we believe we are in the high-yield market cycle.
The views expressed in this report are exclusively those of Putnam
Management. They are not meant as investment advice. 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. Lower-rated bonds may offer higher yields in return for
more risk.
Performance summary
This section shows your fund's performance during its fiscal year, which
ended August 31, 2004. In accordance with regulatory requirements, we
also include performance for the most current calendar quarter-end.
Performance should always be considered in light of a fund's investment
strategy. Data represents past performance. Past performance does not
guarantee future results. More recent returns may be less or more than
those shown. Investment return and principal value will fluctuate and
you may have a gain or a loss when you sell your shares. For the most
recent month-end performance, please visit www.putnaminvestments.com.
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TOTAL RETURN FOR PERIODS ENDED 8/31/04
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Class A Class B Class C Class M Class R
(inception dates) (2/14/78) (3/1/93) (3/19/02) (7/3/95) (1/21/03)
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NAV POP NAV CDSC NAV CDSC NAV POP NAV
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1 year 13.95% 8.49% 13.01% 8.01% 13.15% 12.15% 13.64% 10.00% 13.64%
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5 years 27.74 21.69 23.13 21.61 22.74 22.74 26.19 22.10 26.25
Annual average 5.02 4.00 4.25 3.99 4.18 4.18 4.76 4.07 4.77
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10 years 83.21 74.51 70.15 70.15 69.43 69.43 78.65 72.80 78.74
Annual average 6.24 5.73 5.46 5.46 5.41 5.41 5.97 5.62 5.98
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Annual average
(life of fund) 9.24 9.04 8.30 8.30 8.41 8.41 8.85 8.71 8.97
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Performance assumes reinvestment of distributions and does not account for
taxes. Returns at public offering price (POP) for class A and M shares
reflect a sales charge of 4.75% and 3.25%, respectively (which for class A
shares does not reflect a reduction in sales charges that went into effect
on January 28, 2004; if this reduction had been in place for all periods
indicated, returns would have been higher). 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 the first year that is
eliminated thereafter. Class R share returns have no initial sales charge
or CDSC. Performance for class B, C, M, and R shares before their inception
is derived from the historical performance of class A shares, adjusted for
the applicable sales charge (or CDSC) and higher operating expenses for
such shares.
A 2% short-term trading fee will be imposed on shares exchanged or sold
within 5 days of purchase. In addition, there is a 1% short-term trading
fee for this fund on shares sold or exchanged between 6 and 90 days.
[GRAPHIC OMITTED: worm chart CHANGE IN THE VALUE OF A $10,000 INVESTMENT]
CHANGE IN THE VALUE OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment, 8/31/94 to 8/31/04
JP Morgan
Fund's class A Global High
Date shares at POP Yield Index
8/31/94 9,475 10,000
8/31/95 10,551 11,424
8/31/96 11,720 12,681
8/31/97 13,665 14,616
8/31/98 13,425 14,898
8/31/99 13,661 15,611
8/31/00 13,789 15,889
8/31/01 13,307 15,897
8/31/02 12,629 15,374
8/31/03 15,315 18,803
8/31/04 $17,451 $21,552
Footnote reads:
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 $17,015 and $16,943, respectively, and no
contingent deferred sales charges would apply. A $10,000 investment in the
fund's class M shares would have been valued at $17,865 ($17,280 at public
offering price). A $10,000 investment in the fund's class R shares would
have been valued at $17,874. See first page of performance section for
performance calculation method.
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 8/31/04
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JP Morgan Lipper High Current
Global High Yield Funds
Yield Index* category average+
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1 year 14.62% 12.37%
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5 years 38.05 23.06
Annual average 6.66 4.04
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10 years 115.52 74.66
Annual average 7.98 5.62
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Annual average
(life of fund) -- 8.96
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Index and Lipper results should be compared to fund performance at net
asset value.
* This index began operations on 12/31/93.
+ Over the 1-, 5-, and 10-year periods ended 8/31/04, there were 417,
272, and 86 funds, respectively, in this Lipper category.
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PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 8/31/04
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Class A Class B Class C Class M Class R
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Distributions (number) 12 12 12 12 12
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Income $0.594 $0.534 $0.534 $0.572 $0.572
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Capital gains -- -- -- -- --
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Total $0.594 $0.534 $0.534 $0.572 $0.572
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Share value: NAV POP NAV NAV NAV POP NAV
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8/31/03 $7.55 $7.93 $7.52 $7.52 $7.55 $7.80 $7.55
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8/31/04 7.98 8.36* 7.94 7.95 7.98 8.25 7.98
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Current return
(end of period)
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Current dividend rate 1 7.37% 7.03% 6.65% 6.64% 7.07% 6.84% 7.07%
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Current 30-day
SEC yield 2 6.63 6.32 5.87 5.87 6.37 6.16 6.37
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* Reflects a reduction in sales charges that took effect on January 28, 2004.
1 Most recent distribution, excluding capital gains, annualized and
divided by NAV or POP at end of period.
2 Based only on investment income, calculated using SEC guidelines.
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TOTAL RETURN FOR PERIODS ENDED 9/30/04 (MOST RECENT CALENDAR QUARTER)
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Class A Class B Class C Class M Class R
(inception dates) (2/14/78) (3/1/93) (3/19/02) (7/3/95) (1/21/03)
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NAV POP NAV CDSC NAV CDSC NAV POP NAV
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1 year 12.88% 7.56% 12.09% 7.09% 12.08% 11.08% 12.72% 9.02% 12.59%
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5 years 30.77 24.59 25.94 24.38 25.66 25.66 29.04 24.80 29.21
Annual average 5.51 4.50 4.72 4.46 4.67 4.67 5.23 4.53 5.26
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10 years 85.70 76.83 72.64 72.64 71.72 71.72 81.19 75.35 81.13
Annual average 6.39 5.87 5.61 5.61 5.56 5.56 6.12 5.78 6.12
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Annual average
(life of fund) 9.27 9.07 8.33 8.33 8.44 8.44 8.88 8.74 9.00
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Understanding 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. Using the
information below, 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 advisor.
Review your fund's expenses
The table below shows the expenses you would have paid on a $1,000
investment in Putnam High Yield Trust from March 1, 2004, to August 31,
2004. It also shows how much a $1,000 investment would be worth at the
close of the period, assuming actual returns and expenses.
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EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming actual returns for the 6 months ended 8/31/04
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Class A Class B Class C Class M Class R
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Expenses paid per
$1,000* $5.16 $8.97 $8.95 $6.43 $6.43
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Ending value (after
expenses) $1,031.50 $1,027.70 $1,022.80 $1,030.00 $1,029.90
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* 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 net assets for the six months ended 8/31/04.
The expense ratio may differ for each share class (see the table at the
bottom of this page). 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, 2004, use the calculation method below. To find the value of your
investment on March 1, 2004, go to www.putnaminvestments.com and log on to
your account. Click on the "Transaction History" tab in your Daily
Statement and enter 03/01/2004 in both the "from" and "to" fields.
Alternatively, call Putnam at 1-800-225-1581.
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HOW TO CALCULATE THE EXPENSES YOU PAID
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Total
Value of your Expenses paid expenses
investment on 3/1/04 [DIV] $1,000 X per $1,000 = paid
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Example Based on a $10,000 investment in class A shares of your fund.
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$10,000 [DIV] $1,000 X $5.16 (see table above) = $51.60
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Comparing your fund's expenses with those of other funds
Using the SEC's method to compare expenses
The Securities and Exchange Commission (SEC) has established guidelines to
help investors assess fund expenses. Per these guidelines, the table below
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.
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EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming a hypothetical 5% annualized return for the 6 months ended 8/31/04
- -----------------------------------------------------------------------------
Class A Class B Class C Class M Class R
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Expenses paid per
$1,000* $5.13 $8.92 $8.92 $6.39 $6.39
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Ending value (after
expenses) $1,020.06 $1,016.29 $1,016.29 $1,018.80 $1,018.80
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* 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 net assets for the six months ended 8/31/04.
The expense ratio may differ for each share class (see the table at the
bottom of this page). 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.
Using industry averages to compare expenses
You can also compare your fund's expenses with industry averages, as
determined 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 below indicates
how much of your fund's net assets have been used to pay ongoing expenses
during the period.
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EXPENSE RATIO COMPARISONS USING ANNUALIZED DATA
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Class A Class B Class C Class M Class R
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Your fund's annualized
expense ratio+ 1.01% 1.76% 1.76% 1.26% 1.26%
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Average annualized expense
ratio for Lipper peer
group++ 1.14% 1.89% 1.89% 1.39% 1.39%
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+ For the fund's most recent fiscal half year; may differ from expense
ratios based on one-year data in the financial highlights.
++ For class A shares, expenses shown represent the average of the expenses
of front-end load funds viewed by Lipper as having the same investment
classification or objective as the fund, calculated in accordance with
Lipper's standard reporting methodology for comparing expenses within a
given universe. All Lipper data is for the most recent fiscal periods
available as of 6/30/04. For class B, C, M and R shares, Putnam has
adjusted the Lipper total expense average to reflect higher 12b-1 fees
incurred by these classes of shares. The peer group may include funds
that are significantly larger or smaller than the fund, which may limit
the comparability of the fund's expenses to the Lipper average.
Understanding your fund's
portfolio turnover
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 assets within a one-year period. Funds with high turnover
may be more likely to generate capital gains and dividends 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 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 table below to
compare your fund's turnover with the average turnover for funds in its
Lipper category.
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TURNOVER COMPARISONS
percentage of holdings that change every year
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2004 2003 2002 2001 2000
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Putnam High
Yield Trust 62% 75% 74% 77% 61%
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Lipper High Current
Yield Funds category
average 107% 108% 101% 108% 75%
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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 calendar 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 2004 is based on information available as of 6/30/04.
Risk comparison
As part of new initiatives to enhance disclosure, we are including a risk
comparison 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 Overall Morningstar Risk.
[GRAPHIC OMITTED: chart MORNINGSTAR [REGISTRATION MARK] RISK]
MORNINGSTAR [REGISTRATION MARK] RISK
Fund's Overall
Morningstar Risk 0.57
Taxable bond
fund average 0.31
0% INCREASING RISK 100%
Your fund's Overall Morningstar Risk is shown alongside that of the average
fund in its broad asset class, as determined by Morningstar. The risk bar
broadens the comparison by translating the fund's Overall Morningstar Risk
into a percentile, which is based on the fund's ranking among all funds
rated by Morningstar as of 9/30/04. A higher Overall Morningstar Risk
generally indicates that a fund's monthly returns have varied more widely.
Morningstar determines a fund's Overall Morningstar Risk by assessing
variations in the fund's monthly returns -- with an emphasis on downside
variations -- over 3-, 5-, and 10-year periods, if available. Those
measures are weighted and averaged to produce the fund's Overall
Morningstar Risk. The information shown is provided for the fund's class A
shares only; information for other classes may vary. Overall 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 Overall Morningstar Risk does not mean that you cannot lose money on an
investment in a fund. Copyright 2004 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.
Terms and definitions
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested
all distributions in the fund.
Net asset value (NAV) is the 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 4.75% maximum sales charge for class A
shares (since reduced to 4.50%) and 3.25% for class M shares.
Contingent deferred sales charge (CDSC) is 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.
Class A shares are generally subject to an initial sales charge and no
sales charge on redemption (except on certain redemptions of shares
bought without an initial sales charge).
Class B shares may be subject to a sales charge upon redemption.
Class C shares are not subject to an initial sales charge and are
subject to a contingent deferred sales charge 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 sales charge on redemption (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.
Comparative indexes
JP Morgan Global High Yield Index is an unmanaged index used to mirror
the investable universe of the U.S. dollar global high-yield corporate
debt market of both developed and emerging markets.
Lehman Aggregate Bond Index is an unmanaged index used as a general
measure of U.S. fixed-income securities.
Lehman Government/Credit Bond Index is an unmanaged index of U.S.
Treasury and agency securities and corporate bonds.
Lehman Municipal Bond Index is an unmanaged index of long-term
fixed-rate investment-grade tax-exempt bonds.
Russell 2000 Value Index is an unmanaged index of those companies in the
Russell 2000 Index chosen for their value orientation.
Russell 2500 Growth Index is an unmanaged index of the smallest 2,500
companies in the Russell 3000 Index chosen for their growth orientation.
S&P 500 Index is an unmanaged index of common stock performance.
Indexes assume reinvestment of all distributions and do not account for
fees. Securities and performance of a fund and an index will differ. You
cannot invest directly in an index.
Lipper is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper. Lipper category averages reflect
performance trends for funds within a category and are based on results
at net asset value.
Putnam's policy on confidentiality
In order to conduct business with our shareholders, we must obtain
certain personal information such as account holders' addresses,
telephone numbers, Social Security numbers, and the names of their
financial advisors. We use this information to assign an account number
and to help us maintain accurate records of transactions and account
balances.
It is our policy to protect the confidentiality of your information,
whether or not you currently own shares of our funds, and in particular,
not to sell information about you or your accounts to outside marketing
firms. We have safeguards in place designed to prevent unauthorized
access to our computer systems and procedures to protect personal
information from unauthorized use.
Under certain circumstances, we share this information with outside vendors
who provide services to us, such as mailing and proxy solicitation. In
those cases, the service providers enter into confidentiality agreements
with us, and we provide only the information necessary to process
transactions and perform other services related to your account. We may
also share this information with our Putnam affiliates to service your
account or provide you with information about other Putnam products or
services. It is also our policy to share account information with your
financial advisor, if you've listed one on your Putnam account.
If you would like clarification about our confidentiality policies or have
any questions or concerns, please don't hesitate to contact us at
1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or Saturdays
from 9:00 a.m. to 5:00 p.m. Eastern Time.
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, 2004, are
available on the Putnam Individual Investor Web site,
www.putnaminvestments.com/individual, 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 by calling Putnam's
Shareholder Services at 1-800-225-1581.
Fund portfolio holdings
For periods ending on or after July 9, 2004, 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.
A guide to the 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 net assets
allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or
loss the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal 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 semiannual report, the highlight table also
includes the current reporting period. For open-end funds, a separate table
is provided for each share class.
Report of Independent 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 (the "fund"), including the fund's portfolio, as of
August 31, 2004, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in
the period then ended and the financial highlights for each of the periods
presented. 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, 2004 by correspondence with the custodian and brokers or by
other appropriate auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Putnam High Yield Trust as of August 31, 2004, the
results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and the
financial highlights for each of the periods presented in conformity
with accounting principles generally accepted in the United States of
America.
KPMG LLP
Boston, Massachusetts
October 7, 2004
The fund's portfolio
August 31, 2004
Corporate bonds and notes (84.7%) (a)
Principal amount Value
Advertising and Marketing Services (0.1%)
- -------------------------------------------------------------------------------
$3,950,000 Lamar Media Corp. company guaranty
7 1/4s, 2013 $4,206,750
Automotive (1.8%)
- -------------------------------------------------------------------------------
2,615,000 ArvinMeritor, Inc. notes 8 3/4s,
2012 2,876,500
4,309,000 Collins & Aikman Products company
guaranty 10 3/4s, 2011 4,438,270
1,475,000 Dana Corp. notes 10 1/8s, 2010 1,688,875
8,472,000 Dana Corp. notes 9s, 2011 10,124,040
1,199,000 Dana Corp. notes 7s, 2029 1,204,995
1,598,000 Delco Remy International, Inc.
company guaranty 11s, 2009 1,705,865
6,050,000 Delco Remy International, Inc. sr.
sub. notes 9 3/8s, 2012 6,155,875
1,789,000 Dura Operating Corp. company
guaranty Ser. B, 8 5/8s, 2012 1,856,088
3,785,000 Meritor Automotive, Inc. notes 6.8s,
2009 3,898,550
5,925,000 Metaldyne Corp. 144A sr. notes 10s,
2013 5,850,938
12,200,000 Tenneco Automotive, Inc. sec. notes
Ser. B, 10 1/4s, 2013 14,121,500
--------------
53,921,496
Basic Materials (9.7%)
- -------------------------------------------------------------------------------
3,000 Abitibi-Consolidated Finance LP
company guaranty 7 7/8s, 2009 3,150
5,169,000 Acetex Corp. sr. notes 10 7/8s, 2009
(Canada) 5,685,900
777,000 AK Steel Corp. company guaranty
7 7/8s, 2009 749,805
5,699,000 AK Steel Corp. company guaranty
7 3/4s, 2012 5,357,060
4,210,000 Armco, Inc. sr. notes 8 7/8s, 2008 4,167,900
415,000 Avecia Group PLC company guaranty
11s, 2009 (United Kingdom) 332,000
6,905,000 BCP Caylux Holdings Luxembourg SCA
144A sr. sub. notes 9 5/8s, 2014
(Luxembourg) 7,414,244
2,725,000 Century Aluminum Co. 144A company
guaranty 7 1/2s, 2014 2,793,125
6,079,000 Compass Minerals Group, Inc. company
guaranty 10s, 2011 6,747,690
2,540,000 Compass Minerals International, Inc.
sr. disc. notes stepped-coupon zero %
(12s, 6/1/08), 2013 (STP) 1,981,200
7,145,000 Compass Minerals International, Inc.
sr. notes stepped-coupon zero %
(12 3/4s, 12/15/07), 2012 (STP) 5,858,900
11,905,815 Doe Run Resources Corp. company
guaranty Ser. A1, 11 3/4s, 2008 (PIK) 8,929,361
7,020,000 Equistar Chemicals LP notes 8 3/4s,
2009 7,388,550
14,008,000 Equistar Chemicals LP/Equistar
Funding Corp. company guaranty
10 1/8s,2008 15,548,880
2,650,000 Georgia-Pacific Corp. bonds 7 3/4s,
2029 2,756,000
2,985,000 Georgia-Pacific Corp. company
guaranty 8 7/8s, 2010 3,499,913
4,269,000 Georgia-Pacific Corp. debs. 7.7s,
2015 4,770,608
3,860,000 Georgia-Pacific Corp. sr. notes 8s,
2024 4,159,150
1,000 Georgia-Pacific Corp. sr. notes
7 3/8s, 2008 1,093
7,150,000 Gerdau Ameristeel Corp. sr. notes
10 3/8s, 2011 (Canada) 8,115,250
11,733,000 Hercules, Inc. company guaranty
11 1/8s, 2007 13,786,275
6,055,000 Hercules, Inc. 144A sr. sub. notes
6 3/4s, 2029 6,009,588
1,705,000 Huntsman Advanced Materials, LLC
144A sec. FRN 11.86s, 2008 1,790,250
310,000 Huntsman Advanced Materials, LLC
144A sec. notes 11s, 2010 353,400
7,540,000 Huntsman Co., LLC sr. disc. notes
zero %, 2008 4,486,300
6,333,000 Huntsman ICI Chemicals, Inc. company
guaranty 10 1/8s, 2009 6,522,990
15,593,000 Huntsman ICI Holdings sr. disc.
notes zero %, 2009 7,952,430
EUR 7,176,000 Huntsman International, LLC sr. sub.
notes Ser. EXCH, 10 1/8s, 2009 8,793,674
$3,710,000 Huntsman LLC company guaranty
11 5/8s, 2010 4,155,200
2,685,000 Huntsman, LLC 144A company guaranty
11 1/2s, 2012 2,752,125
2,220,000 Innnophos, Inc. 144A sr. sub. notes
8 7/8s, 2014 2,308,800
1,230,000 International Steel Group, Inc. 144A
sr. notes 6 1/2s, 2014 1,186,950
7,839,000 ISP Chemco, Inc. company guaranty
Ser. B, 10 1/4s, 2011 8,720,888
76,000 Jefferson Smurfit Corp. company
guaranty 8 1/4s, 2012 82,840
200,000 Jefferson Smurfit Corp. company
guaranty 7 1/2s, 2013 209,000
260,000 Kaiser Aluminum & Chemical Corp. sr.
notes Ser. B, 10 7/8s, 2006 (In
default) (NON) 254,150
3,547,000 Kaiser Aluminum & Chemical Corp. sr.
sub. notes 12 3/4s, 2003 (In default)
(NON) (DEF) 736,003
3,475,000 Kappa Beheer BV company guaranty
10 5/8s, 2009 (Netherlands) 3,666,125
EUR 360,000 Kappa Beheer BV company guaranty
stepped-coupon Ser. EUR,
12 1/2s, 2009 (Netherlands) 465,869
$660,000 Lyondell Chemical Co. bonds 11 1/8s,
2012 750,750
7,294,000 Lyondell Chemical Co. company
guaranty 9 1/2s, 2008 7,795,463
5,849,000 Lyondell Chemical Co. notes Ser. A,
9 5/8s, 2007 6,251,119
EUR 322,000 MDP Acquisitions PLC sr. notes
10 1/8s, 2012 (Ireland) 436,844
$8,555,000 MDP Acquisitions PLC sr. notes
9 5/8s, 2012 (Ireland) 9,624,375
3,195,674 MDP Acquisitions PLC sub. notes
15 1/2s, 2013 (Ireland) (PIK) 3,706,982
9,966,000 Millennium America, Inc. company
guaranty 9 1/4s, 2008 10,862,940
1,750,000 Millennium America, Inc. 144A sr.
notes 9 1/4s, 2008 1,907,500
EUR 685,000 Nalco Co. 144A sr. notes 7 3/4s,
2011 885,197
EUR 685,000 Nalco Co. 144A sr. sub. notes 9s,
2013 883,949
$8,055,000 Nalco Co. 144A sr. sub. notes
8 7/8s, 2013 8,689,331
3,345,000 Norska Skog Canada Ltd. sr. notes
7 3/8s, 2014 (Canada) 3,403,538
2,553,936 PCI Chemicals Canada sec. sr. notes
10s, 2008 (Canada) 2,490,088
3,078,797 Pioneer Companies, Inc. sec. FRN
5.086s, 2006 2,909,463
5,450,000 Potlatch Corp. company guaranty 10s,
2011 6,158,500
1,060,000 Resolution Performance Products, LLC
sr. notes 9 1/2s, 2010 1,105,050
1,175,000 Rhodia SA sr. notes 10 1/4s, 2010 1,198,500
EUR 4,040,000 SGL Carbon SA 144A sr. notes 8 1/2s,
2012 (Luxembourg) 5,036,638
$400,000 Smurfit Capital Funding PLC notes
6 3/4s, 2005 (Ireland) 413,000
4,379,000 Steel Dynamics, Inc. company
guaranty 9 1/2s, 2009 4,838,795
1,334,122 Sterling Chemicals, Inc. sec. notes
10s, 2007 (PIK) 1,254,075
8,090,000 Stone Container Corp. sr. notes
9 3/4s, 2011 9,040,575
3,555,000 Stone Container Corp. sr. notes
8 3/8s, 2012 3,910,500
1,385,000 Stone Container Finance 144A company
guaranty 7 3/8s, 2014 (Canada) 1,430,013
1,390,000 Tembec Industries, Inc. company
guaranty 7 3/4s, 2012 (Canada) 1,403,900
7,465,000 Ucar Finance, Inc. company guaranty
10 1/4s, 2012 8,472,775
3,660,000 United Agri Products 144A sr. notes
8 1/4s, 2011 3,934,500
1,396,000 United States Steel Corp. sr. notes
9 3/4s, 2010 1,570,500
1,607,000 United States Steel, LLC sr. notes
10 3/4s, 2008 1,882,001
382,617 Wheeling-Pittsburgh Steel Corp. sr.
notes 6s, 2010 267,832
743,687 Wheeling-Pittsburgh Steel Corp. sr.
notes 5s, 2011 520,581
1,646,000 WHX Corp. sr. notes 10 1/2s, 2005 1,563,700
--------------
285,091,610
Beverage (0.1%)
- -------------------------------------------------------------------------------
3,088,000 Constellation Brands, Inc. company
guaranty Ser. B, 8s, 2008 3,404,520
338,000 Constellation Brands, Inc. sr. sub.
notes Ser. B, 8 1/8s, 2012 369,265
--------------
3,773,785
Broadcasting (1.5%)
- -------------------------------------------------------------------------------
23,030,000 Diva Systems Corp. sr. disc. notes
Ser. B, 12 5/8s, 2008 (In default)
(NON) 28,788
3,423,000 Echostar DBS Corp. sr. notes 9 1/8s,
2009 3,778,136
14,745,000 Echostar DBS Corp. sr. notes 6 3/8s,
2011 14,781,863
11,095,000 Granite Broadcasting Corp. sec.
notes 9 3/4s, 2010 10,457,038
1,783,000 Gray Television, Inc. company
guaranty 9 1/4s, 2011 1,992,503
406,874 Knology, Inc. 144A sr. notes 12s,
2009 (PIK) 386,530
6,810,000 Rainbow National Services LLC 144A
sr. notes 8 3/4s, 2012 6,946,200
973,000 Young Broadcasting, Inc. company
guaranty 10s, 2011 994,893
3,385,000 Young Broadcasting, Inc. sr. sub.
notes 8 3/4s, 2014 3,245,369
--------------
42,611,320
Building Materials (0.6%)
- -------------------------------------------------------------------------------
2,869,000 Building Materials Corp. company
guaranty 8s, 2008 2,912,035
5,074,000 Dayton Superior Corp. sec. notes
10 3/4s, 2008 5,403,810
2,075,000 Interface, Inc. sr. sub. notes
9 1/2s, 2014 2,126,875
4,000 Owens Corning bonds 7 1/2s, 2018 (In
default) (NON) 1,840
5,755,000 Owens Corning notes 7 1/2s, 2005 (In
default) (NON) 2,632,913
4,930,000 THL Buildco, Inc. (Nortek, Inc.)
144A sr. sub. notes 8 1/2s, 2014 5,139,525
--------------
18,216,998
Cable Television (3.2%)
- -------------------------------------------------------------------------------
230,000 Adelphia Communications Corp. notes
Ser. B, 9 7/8s, 2005 (In default)
(NON) 207,000
3,211,000 Adelphia Communications Corp. sr.
notes 10 7/8s, 2010 (In default)
(NON) 2,930,038
2,918,000 Adelphia Communications Corp. sr.
notes 7 7/8s, 2009 (In default)
(NON) 2,524,070
2,431,000 Adelphia Communications Corp. sr.
notes Ser. B, 9 7/8s, 2007 (In
default) (NON) 2,187,900
1,340,000 Adelphia Communications Corp. sr.
notes Ser. B, 7 3/4s, 2009 (In
default) (NON) 1,172,500
3,950,000 Atlantic Broadband Finance, LLC 144A
sr. sub. notes 9 3/8s, 2014 3,722,875
5,445,000 Cablevision Systems Corp. 144A sr.
notes 8s, 2012 5,581,125
2,258,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (12 1/8s,
1/15/07), 2012 (STP) 1,320,930
4,938,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (11 3/4s,
5/15/06), 2011 (STP) 3,135,630
10,835,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
11 1/8s, 2011 9,047,225
10,927,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
10 3/4s, 2009 9,178,680
13,360,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 10s,
2011 10,554,400
8,070,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 9 5/8s,
2009 6,516,525
3,616,000 CSC Holdings, Inc. debs. 7 5/8s,
2018 3,634,080
3,495,000 CSC Holdings, Inc. sr. notes Ser. B,
7 5/8s, 2011 3,626,063
3,505,000 CSC Holdings, Inc. 144A sr. notes
6 3/4s, 2012 3,487,475
11,975,000 Kabel Deutsheland GmbH 144A sr.
notes 10 5/8s, 2014 (Germany) 12,274,375
7,354,000 Quebecor Media, Inc. sr. notes
11 1/8s, 2011 (Canada) 8,457,100
2,670,000 Videotron Ltee company guaranty
6 7/8s, 2014 (Canada) 2,696,700
--------------
92,254,691
Capital Goods (7.5%)
- -------------------------------------------------------------------------------
6,780,000 AEP Industries, Inc. sr. sub. notes
9 7/8s, 2007 6,949,500
11,355,121 Air2 US 144A sinking fund Ser. D,
12.266s, 2020 (In default) (NON) 114
9,367,000 Allied Waste North America, Inc.
company guaranty Ser. B, 8 1/2s,
2008 10,280,283
5,065,000 Allied Waste North America, Inc.
sec. notes 6 1/2s, 2010 5,065,000
5,000,000 Argo-Tech Corp. 144A sr. notes
9 1/4s, 2011 5,275,000
3,028,000 BE Aerospace, Inc. sr. sub. notes
Ser. B, 8 7/8s, 2011 2,952,300
5,492,000 BE Aerospace, Inc. sr. sub. notes
Ser. B, 8s, 2008 5,347,835
1,139,000 Berry Plastics Corp. company
guaranty 10 3/4s, 2012 1,278,528
5,540,000 Blount, Inc. company guaranty 13s,
2009 5,907,025
8,745,000 Blount, Inc. company guaranty 7s,
2005 9,051,075
3,395,000 Blount, Inc. sr. sub. notes 8 7/8s,
2012 3,547,775
5,563,000 Browning-Ferris Industries, Inc.
debs. 7.4s, 2035 4,951,070
2,300,000 Browning-Ferris Industries, Inc. sr.
notes 6 3/8s, 2008 2,334,500
EUR 650,000 Crown Holdings SA bonds 10 1/4s,
2011 (France) 894,465
$9,435,000 Crown Holdings SA notes 10 7/8s,
2013 (France) 10,968,188
7,145,000 Crown Holdings SA notes 9 1/2s, 2011
(France) 7,930,950
22,984,000 Decrane Aircraft Holdings Co.
company guaranty 17s, 2008 8,733,920
7,141,000 Earle M. Jorgensen Co. sec. notes
9 3/4s, 2012 7,926,510
2,495,000 FIMEP SA sr. notes 10 1/2s, 2013
(France) 2,881,725
EUR 405,000 Flender Holdings 144A sr. notes 11s,
2010 (Germany) 561,258
$3,802,000 Flowserve Corp. company guaranty
12 1/4s, 2010 4,315,270
DEM 680,000 Impress Metal Packaging Holding NV
sr. sub. notes 9 7/8s, 2007
(Netherlands) 421,408
EUR 6,155,000 Impress Metal Packaging Holding NV
sr. sub. notes 9 7/8s, 2007
(Netherlands) 3,814,362
$8,030,000 Invensys, PLC notes 9 7/8s, 2011
(United Kingdom) 8,150,450
5,340,000 K&F Industries, Inc. sr. sub. notes
Ser. B, 9 5/8s, 2010 5,914,050
1,116,000 K&F Industries, Inc. sr. sub. notes
Ser. B, 9 1/4s, 2007 1,152,270
8,790,000 L-3 Communications Corp. company
guaranty 6 1/8s, 2013 8,658,150
10,310,000 Legrand SA debs. 8 1/2s, 2025
(France) 11,225,013
3,834,000 Manitowoc Co., Inc. (The) company
guaranty 10 1/2s, 2012 4,370,760
EUR 1,550,000 Manitowoc Co., Inc. (The) company
guaranty 10 3/8s, 2011 2,074,571
$2,030,000 Manitowoc Co., Inc. (The) sr. notes
7 1/8s, 2013 2,095,975
1,620,000 Mueller Group, Inc. 144A sec. FRN
6.444s, 2011 1,656,450
2,270,000 Mueller Group, Inc. 144A sr. sub.
notes 10s, 2012 2,434,575
4,000 Owens-Brockway Glass company
guaranty 8 7/8s, 2009 4,350
6,540,000 Owens-Brockway Glass company
guaranty 8 1/4s, 2013 6,899,700
4,810,000 Owens-Brockway Glass company
guaranty 7 3/4s, 2011 5,098,600
8,313,000 Owens-Brockway Glass sr. sec. notes
8 3/4s, 2012 9,227,430
1,555,000 Pliant Corp. sec. notes 11 1/8s,
2009 1,667,738
3,561,000 Sequa Corp. sr. notes 9s, 2009 3,872,588
3,255,000 Sequa Corp. sr. notes Ser. B,
8 7/8s, 2008 3,499,125
2,515,000 Siebe PLC 144A sr. unsub. 6 1/2s,
2010 (United Kingdom) 2,263,500
1,970,000 Solo Cup Co. sr. sub. notes 8 1/2s,
2014 1,910,900
4,868,000 Tekni-Plex, Inc. company guaranty
Ser. B, 12 3/4s, 2010 4,673,280
4,115,000 Tekni-Plex, Inc. 144A sr. sec. notes
8 3/4s, 2013 3,950,400
1,540,000 Terex Corp. company guaranty 9 1/4s,
2011 1,724,800
6,295,000 Terex Corp. company guaranty Ser. B,
10 3/8s, 2011 7,113,350
5,530,000 Titan Corp. (The) company guaranty
8s, 2011 5,709,725
2,277,000 Trimas Corp. company guaranty
9 7/8s, 2012 2,413,620
--------------
219,149,431
Commercial and Consumer Services (0.9%)
- -------------------------------------------------------------------------------
8,593,000 Coinmach Corp. sr. notes 9s, 2010 8,678,930
7,564,711 Derby Cycle Corp. (The) sr. notes
10s, 2008 (In default) (NON) 756
DEM 1,684,596 Derby Cycle Corp. (The) sr. notes
9 3/8s, 2008 (In default) (NON) 105
EUR 5,450,151 Derby Cycle Corp. (The) sr. notes
9 3/8s, 2008 (In default) (NON) 338
$5,997,000 IESI Corp. company guaranty 10 1/4s,
2012 6,491,753
10,430,000 Laidlaw International, Inc. sr.
notes 10 3/4s, 2011 11,890,200
--------------
27,062,082
Communication Services (6.5%)
- -------------------------------------------------------------------------------
3,170,000 Alamosa Delaware, Inc. company
guaranty 11s, 2010 3,510,775
2,278,000 Alamosa Delaware, Inc. company
guaranty stepped-coupon zero %
(12s, 7/31/05), 2009 (STP) 2,266,610
2,945,000 Alamosa Delaware, Inc. sr. notes
8 1/2s, 2012 2,930,275
1,795,000 American Cellular Corp. company
guaranty 9 1/2s, 2009 1,444,975
3,565,000 American Cellular Corp. sr. notes
Ser. B, 10s, 2011 2,896,563
3,360,000 American Tower Corp. 144A sr. notes
7 1/2s, 2012 3,393,600
6,940,000 American Towers, Inc. company
guaranty 7 1/4s, 2011 7,182,900
5,905,000 Asia Global Crossing, Ltd. sr. notes
13 3/8s, 2010 (Bermuda) (In default)
(NON) 472,400
7,110,000 Centennial Cellular Operating Co.
company guaranty 10 1/8s, 2013 7,305,525
1,564,000 Centennial Cellular Operating Co.,
LLC sr. sub. notes 10 3/4s, 2008 1,614,830
1,335,000 Cincinnati Bell Telephone Co.
company guaranty 6.3s, 2028 1,168,125
3,985,000 Cincinnati Bell, Inc. company
guaranty 7 1/4s, 2013 3,745,900
3,752,000 Cincinnati Bell, Inc. notes 7 1/4s,
2023 3,283,000
7,435,000 Cincinnati Bell, Inc. sr. sub. notes
8 3/8s, 2014 6,579,975
6,323,562 Colo.com, Inc. 144A sr. notes
13 7/8s, 2010 (In default) (NON) 632
8,951,000 Crown Castle International Corp. sr.
notes 9 3/8s, 2011 10,338,405
3,610,000 Fairpoint Communications, Inc. sr.
sub. notes 12 1/2s, 2010 3,862,700
11,420,886 Firstworld Communication Corp. sr.
disc. notes zero %, 2008 (In default)
(NON) 1,142
1,113,102 Globix Corp. company guaranty 11s,
2008 (PIK) 929,440
2,565,000 iPCS, Inc. 144A sr. notes 11 1/2s,
2012 2,686,838
5,200,000 Level 3 Financing Inc. 144A sr.
notes 10 3/4s, 2011 4,394,000
6,660,000 Madison River Capital Corp. sr.
notes 13 1/4s, 2010 7,109,550
12,530,000 MCI, Inc. sr. notes 7.735s, 2014 11,574,588
2,347,000 MCI, Inc. sr. notes 6.688s, 2009 2,212,048
3,000 MCI, Inc. sr. notes 5.908s, 2007 2,951
3,721,000 Nextel Communications, Inc. sr.
notes 9 1/2s, 2011 4,204,730
13,295,000 Nextel Communications, Inc. sr.
notes 7 3/8s, 2015 13,893,275
3,029,000 Nextel Partners, Inc. sr. notes
12 1/2s, 2009 3,528,785
10,280,000 Nextel Partners, Inc. sr. notes
8 1/8s, 2011 10,716,900
699,000 PanAmSat Corp. notes 6 3/8s, 2008 707,738
8,340,000 Qwest Communications International,
Inc. 144A sr. notes 7 1/2s, 2014 7,422,600
600,000 Qwest Communications International,
Inc. 144A sr. notes FRN 5.211s,
2009 558,000
24,908,000 Qwest Corp. 144A notes 9 1/8s, 2012 26,713,830
3,310,000 Qwest Services Corp. 144A notes
14 1/2s, 2014 3,930,625
2,435,000 Rogers Cantel, Ltd. debs. 9 3/4s,
2016 (Canada) 2,812,425
1,312,000 Rogers Wireless, Inc. sec. notes
9 5/8s, 2011 (Canada) 1,489,120
365,000 Rural Cellular Corp. sr. notes
9 7/8s, 2010 362,263
1,525,000 Rural Cellular Corp. sr. sub. notes
Ser. B, 9 5/8s, 2008 1,418,250
1,515,000 SBA Communications Corp. sr. notes
10 1/4s, 2009 1,594,538
2,975,000 SBA Telecommunications Inc./SBA
Communication Corp. sr. disc. notes
stepped-coupon zero % (9 3/4s,
12/15/07), 2011 2,320,500
5,824,000 TSI Telecommunication Services, Inc.
company guaranty Ser. B, 12 3/4s,
2009 6,464,640
3,832,000 UbiquiTel Operating Co. bonds
stepped-coupon zero % (14s,
4/15/05), 2010 (STP) 3,927,800
3,210,000 UbiquiTel Operating Co. sr. notes
9 7/8s, 2011 3,290,250
4,585,000 Western Wireless Corp. sr. notes
9 1/4s, 2013 4,711,088
--------------
190,975,104
Conglomerates (0.6%)
- -------------------------------------------------------------------------------
1,000 Tyco International Group SA company
guaranty 7s, 2028 (Luxembourg) 1,107
3,000 Tyco International Group SA company
guaranty 6 3/8s, 2005 (Luxembourg) 3,090
3,180,000 Tyco International Group SA company
guaranty 6s, 2013 (Luxembourg) 3,404,680
12,253,000 Tyco International Group SA notes
6 3/8s, 2011 (Luxembourg) 13,423,480
--------------
16,832,357
Consumer (1.1%)
- -------------------------------------------------------------------------------
10,514,000 Icon Health & Fitness company
guaranty 11 1/4s, 2012 11,460,260
8,890,000 Jostens Holding Corp. sr. disc.
notes stepped-coupon zero %
(10 1/4s, 12/1/08), 2013 (STP) 5,867,400
3,016,000 Jostens, Inc. sr. sub. notes
12 3/4s, 2010 3,404,310
9,530,000 Samsonite Corp. 144A sr. sub. notes
8 7/8s, 2011 9,815,900
--------------
30,547,870
Consumer Goods (1.4%)
- -------------------------------------------------------------------------------
6,282,000 Armkel, LLC/Armkel Finance sr. sub.
notes 9 1/2s, 2009 6,847,380
2,305,000 Elizabeth Arden, Inc. company
guaranty 7 3/4s, 2014 2,385,675
8,827,000 Playtex Products, Inc. company
guaranty 9 3/8s, 2011 8,970,439
6,910,000 Playtex Products, Inc. 144A secd.
notes 8s, 2011 7,203,675
6,345,000 Prestige Brands, Inc. 144A sr. sub.
notes 9 1/4s, 2012 6,313,275
8,140,000 Remington Arms Co., Inc. company
guaranty 10 1/2s, 2011 7,488,800
2,335,000 Scotts Co. (The) sr. sub. notes
6 5/8s, 2013 2,440,075
--------------
41,649,319
Consumer Services (0.5%)
- -------------------------------------------------------------------------------
6,145,000 Brand Services, Inc. company
guaranty 12s, 2012 7,005,300
7,135,000 Williams Scotsman, Inc. company
guaranty 9 7/8s, 2007 7,027,975
--------------
14,033,275
Energy (7.5%)
- -------------------------------------------------------------------------------
9,375,000 Arch Western Finance, LLC 144A sr.
notes 7 1/2s, 2013 9,703,125
2,035,000 Belden & Blake Corp. 144A sec. notes
8 3/4s, 2012 2,121,488
6,150,000 BRL Universal Equipment sec. notes
8 7/8s, 2008 6,565,125
4,815,000 CHC Helicopter Corp. sr. sub. notes
7 3/8s, 2014 4,869,169
3,334,000 Chesapeake Energy Corp. company
guaranty 9s, 2012 3,800,760
3,742,000 Chesapeake Energy Corp. company
guaranty 7 3/4s, 2015 4,013,295
6,425,000 Chesapeake Energy Corp. sr. notes
7 1/2s, 2013 6,906,875
2,715,000 Chesapeake Energy Corp. sr. notes
7s, 2014 2,796,450
4,485,000 Comstock Resources, Inc. sr. notes
6 7/8s, 2012 4,507,425
5,599,000 Dresser, Inc. company guaranty
9 3/8s, 2011 6,018,925
763,000 El Paso Energy Partners LP company
guaranty Ser. B, 8 1/2s, 2011 858,375
4,873,000 Encore Acquisition Co. company
guaranty 8 3/8s, 2012 5,360,300
2,220,000 Encore Acquisition Co. sr. sub.
notes 6 1/4s, 2014 2,164,500
6,555,000 Exco Resources, Inc. company
guaranty 7 1/4s, 2011 6,882,750
3,151,000 Forest Oil Corp. company guaranty
7 3/4s, 2014 3,340,060
1,149,000 Forest Oil Corp. sr. notes 8s, 2011 1,258,155
2,507,000 Forest Oil Corp. sr. notes 8s, 2008 2,732,630
3,025,000 Forest Oil Corp. 144A sr. notes 8s,
2011 3,319,938
30,000 Grant Prideco Escrow Corp. company
guaranty 9s, 2009 33,300
3,175,000 Hanover Compressor Co. sr. notes 9s,
2014 3,405,188
3,320,000 Hanover Compressor Co. sr. notes
8 5/8s, 2010 3,535,800
4,990,000 Hanover Compressor Co. sub. notes
zero %, 2007 4,204,075
3,330,000 Hanover Equipment Trust sec. notes
Ser. A, 8 1/2s, 2008 3,554,775
3,749,000 Hornbeck Offshore Services, Inc. sr.
notes 10 5/8s, 2008 4,123,900
3,175,000 KCS Energy, Inc. sr. notes 7 1/8s,
2012 3,254,375
2,755,000 Key Energy Services, Inc. sr. notes
6 3/8s, 2013 2,631,025
5,065,000 Massey Energy Co. sr. notes 6 5/8s,
2010 5,242,275
6,220,000 Newfield Exploration Co. sr. notes
7 5/8s, 2011 6,826,450
3,405,000 Newfield Exploration Co. 144A sr.
sub. notes 6 5/8s, 2014 3,464,588
6,060,000 Offshore Logistics, Inc. company
guaranty 6 1/8s, 2013 5,999,400
5,202,213 Oslo Seismic Services, Inc. 1st
mtge. 8.28s, 2011 5,306,258
3,260,000 Pacific Energy Partners/Pacific
Energy Finance Corp. 144A sr. notes
7 1/8s, 2014 3,447,450
4,880,000 Parker Drilling Co. company guaranty
Ser. B, 10 1/8s, 2009 5,185,000
6,615,000 Peabody Energy Corp. sr. notes
5 7/8s, 2016 6,317,325
1,540,000 Pemex Project Funding Master Trust
company guaranty 8 5/8s, 2022 1,734,502
10,955,000 Pemex Project Funding Master Trust
company guaranty 7 3/8s, 2014 11,831,400
5,200,000 Petro Geo-Services notes 10s, 2010
(Norway) 5,590,000
3,296,000 Plains All American Pipeline
LP/Plains All American Finance
Corp. company guaranty 7 3/4s, 2012 3,815,740
5,200,000 Plains Exploration & Production Co.
company guaranty Ser. B, 8 3/4s,
2012 5,798,000
2,770,000 Plains Exploration & Production Co.
sr. sub. notes 8 3/4s, 2012 3,088,550
3,855,000 Plains Exploration & Production Co.
144A sr. notes 7 1/8s, 2014 4,086,300
6,059,000 Pogo Producing Co. sr. sub. notes
Ser. B, 8 1/4s, 2011 6,649,753
6,325,000 Pride International, Inc. 144A sr.
notes 7 3/8s, 2014 6,736,125
5,165,000 Seabulk International, Inc. company
guaranty 9 1/2s, 2013 5,384,513
2,848,000 Seven Seas Petroleum, Inc. sr. notes
Ser. B, 12 1/2s, 2005 (In default)
(NON) 28
8,350,000 Star Gas Partners LP/Star Gas
Finance Co. sr. notes 10 1/4s, 2013 9,018,000
3,221,731 Star Gas Propane 1st Mtge. 8.04s,
2009 3,463,361
1,375,000 Universal Compression, Inc. sr.
notes 7 1/4s, 2010 1,430,000
3,408,000 Vintage Petroleum, Inc. sr. notes
8 1/4s, 2012 3,714,720
3,343,000 Vintage Petroleum, Inc. sr. sub.
notes 7 7/8s, 2011 3,501,793
--------------
219,593,314
Entertainment (1.4%)
- -------------------------------------------------------------------------------
4,760,000 AMC Entertainment, Inc. sr. sub.
notes 9 7/8s, 2012 4,950,400
6,685,000 AMC Entertainment, Inc. sr. sub.
notes 9 1/2s, 2011 6,818,700
4,810,000 AMC Entertainment, Inc. 144A sr.
sub. notes 8s, 2014 4,485,325
5,930,000 Cinemark USA, Inc. sr. sub. notes
9s, 2013 6,567,475
8,560,000 Cinemark, Inc. sr. disc. notes
stepped-coupon zero %
(9 3/4s, 3/15/07), 2014 5,895,700
9,105,000 Six Flags, Inc. sr. notes 9 5/8s,
2014 8,444,888
4,731,000 Six Flags, Inc. sr. notes 8 7/8s,
2010 4,352,520
--------------
41,515,008
Financial (1.5%)
- -------------------------------------------------------------------------------
2,640,000 Crescent Real Estate Equities LP
notes 7 1/2s, 2007 (R) 2,692,800
5,000,000 Crescent Real Estate Equities LP sr.
notes 9 1/4s, 2009 (R) 5,350,000
7,745,000 E(a)Trade Finance Corp. 144A sr.
notes 8s, 2011 7,899,900
14,608,350 Finova Group, Inc. notes 7 1/2s,
2009 7,285,915
3,037,000 iStar Financial, Inc. sr. notes
8 3/4s, 2008 (R) 3,454,588
3,015,000 iStar Financial, Inc. sr. notes 7s,
2008 (R) 3,237,356
3,985,000 iStar Financial, Inc. sr. notes 6s,
2010 (R) 4,074,663
4,570,000 UBS AG/Jersey Branch sr. notes
Ser. EMTN, 9.14s, 2008 (Jersey) 4,752,800
5,204,000 Western Financial Bank sub. debs.
9 5/8s, 2012 5,724,400
--------------
44,472,422
Food (1.5%)
- -------------------------------------------------------------------------------
3,124,803 Archibald Candy Corp. company
guaranty 10s, 2007 (In default)
(NON) (PIK) 2,062,370
1,530,000 Dean Foods Co. sr. notes 6 5/8s,
2009 1,627,538
1,850,000 Del Monte Corp. company guaranty
Ser. B, 9 1/4s, 2011 2,035,000
5,010,000 Del Monte Corp. sr. sub. notes
8 5/8s, 2012 5,573,625
4,291,000 Doane Pet Care Co. sr. sub. debs.
9 3/4s, 2007 4,001,358
2,190,000 Dole Food Co. sr. notes 8 7/8s, 2011 2,343,300
1,840,000 Dole Food Co. sr. notes 8 5/8s, 2009 1,959,600
6,530,000 Eagle Family Foods company guaranty
Ser. B, 8 3/4s, 2008 4,897,500
7,753,000 Land O'Lakes, Inc. sr. notes 8 3/4s,
2011 7,229,673
6,595,000 Pinnacle Foods Holding Corp. 144A
sr. sub. notes 8 1/4s, 2013 6,281,738
5,451,000 Premier International Foods PLC sr.
notes 12s, 2009 (United Kingdom) 5,778,060
--------------
43,789,762
Gaming & Lottery (4.2%)
- -------------------------------------------------------------------------------
3,160,000 Ameristar Casinos, Inc. company
guaranty 10 3/4s, 2009 3,562,900
360,000 Argosy Gaming Co. sr. sub. notes 9s,
2011 403,200
5,215,000 Argosy Gaming Co. sr. sub. notes 7s,
2014 5,319,300
1,514,000 Boyd Gaming Corp. sr. sub. notes
8 3/4s, 2012 1,657,830
1,315,000 Boyd Gaming Corp. sr. sub. notes
7 3/4s, 2012 1,388,969
3,175,000 Chumash Casino & Resort Enterprise
144A sr. notes 9s, 2010 3,492,500
2,600,000 Herbst Gaming, Inc. 144A sr. sub.
notes 8 1/8s, 2012 2,619,500
9,896,000 Hollywood Park, Inc. company
guaranty Ser. B, 9 1/4s, 2007 10,180,510
2,750,000 Inn of the Mountain Gods sr. notes
12s, 2010 3,107,500
4,140,000 Mandalay Resort Group sr. notes
6 3/8s, 2011 4,243,500
809,000 MGM Mirage, Inc. coll. sr. notes
6 7/8s, 2008 865,630
5,549,000 MGM Mirage, Inc. company guaranty
8 1/2s, 2010 6,242,625
2,000 MGM Mirage, Inc. company guaranty
8 3/8s, 2011 2,170
2,900,000 MGM Mirage, Inc. company guaranty
6s, 2009 2,943,500
3,149,000 Mohegan Tribal Gaming Authority sr.
sub. notes 8s, 2012 3,463,900
7,246,000 Mohegan Tribal Gaming Authority sr.
sub. notes 6 3/8s, 2009 7,372,805
1,465,000 Park Place Entertainment Corp. sr.
notes 8 1/2s, 2006 1,604,175
4,189,000 Park Place Entertainment Corp. sr.
notes 7 1/2s, 2009 4,649,790
2,000,000 Park Place Entertainment Corp. sr.
notes 7s, 2013 2,145,000
2,834,000 Park Place Entertainment Corp. sr.
sub. notes 8 7/8s, 2008 3,209,505
1,805,000 Park Place Entertainment Corp. sr.
sub. notes 8 1/8s, 2011 2,044,163
4,820,000 Penn National Gaming, Inc. company
guaranty Ser. B, 11 1/8s, 2008 5,289,950
8,402,000 Penn National Gaming, Inc. sr. sub.
notes 8 7/8s, 2010 9,200,190
4,305,000 Pinnacle Entertainment, Inc. sr.
sub. notes 8 3/4s, 2013 4,434,150
2,250,000 Pinnacle Entertainment, Inc. sr.
sub. notes 8 1/4s, 2012 2,261,250
6,243,000 Resorts International Hotel and
Casino, Inc. company guaranty
11 1/2s, 2009 7,085,805
4,485,000 Station Casinos, Inc. sr. notes 6s,
2012 4,496,213
4,485,000 Station Casinos, Inc. sr. sub. notes
6 7/8s, 2016 4,479,394
11,174,000 Trump Atlantic City Associates
company guaranty 11 1/4s, 2006 9,483,933
4,597,000 Venetian Casino Resort, LLC company
guaranty 11s, 2010 5,234,834
--------------
122,484,691
Health Care (6.6%)
- -------------------------------------------------------------------------------
3,410,000 Alderwoods Group, Inc. 144A sr.
notes 7 3/4s, 2012 3,546,400
5,289,000 AmerisourceBergen Corp. company
guaranty 7 1/4s, 2012 5,659,230
4,730,000 AmerisourceBergen Corp. sr. notes
8 1/8s, 2008 5,191,175
9,095,000 Ardent Health Services, Inc. sr.
sub. notes 10s, 2013 9,777,125
2,950,000 Extendicare Health Services, Inc.
company guaranty 9 1/2s, 2010 3,296,625
4,580,000 Extendicare Health Services, Inc.
sr. sub. notes 6 7/8s, 2014 4,534,200
2,821,000 Hanger Orthopedic Group, Inc.
company guaranty 10 3/8s, 2009 2,623,530
5,993,000 HCA, Inc. debs. 7.19s, 2015 6,466,213
3,080,000 HCA, Inc. med. term notes 8.85s,
2007 3,382,693
3,150,000 HCA, Inc. notes 8.36s, 2024 3,480,876
735,000 HCA, Inc. notes 7.69s, 2025 770,142
716,000 HCA, Inc. notes 7s, 2007 768,490
1,635,000 HCA, Inc. notes 5 3/4s, 2014 1,620,784
116,000 HCA, Inc. sr. notes 7 7/8s, 2011 131,349
8,659,000 Healthsouth Corp. notes 7 5/8s, 2012 8,269,345
3,722,000 Healthsouth Corp. sr. notes 8 1/2s,
2008 3,722,000
2,125,000 Healthsouth Corp. sr. notes 8 3/8s,
2011 2,087,813
2,041,000 Healthsouth Corp. sr. notes 7s, 2008 2,020,590
3,660,000 IASIS Healthcare/IASIS Capital Corp.
144A sr. sub. notes 8 3/4s, 2014 3,843,000
3,215,000 Insight Health Services Corp. 144A
company guaranty 9 7/8s, 2011 3,255,188
2,145,923 Magellan Health Services, Inc. sr.
notes Ser. A, 9 3/8s, 2008 2,317,597
10,442,000 Mediq, Inc. debs. 13s, 2009 (In
default) (NON) 1,044
3,276,000 MedQuest, Inc. company guaranty
Ser. B, 11 7/8s, 2012 3,701,880
7,880,000 MQ Associates, Inc. 144A sr. disc.
notes zero %, 2012 4,905,300
6,090,000 Omnicare, Inc. sr. sub. notes
6 1/8s, 2013 5,907,300
7,409,000 PacifiCare Health Systems, Inc.
company guaranty 10 3/4s, 2009 8,594,440
7,970,000 Province Healthcare Co. sr. sub.
notes 7 1/2s, 2013 8,926,400
3,757,000 Service Corp. International debs.
7 7/8s, 2013 3,879,103
670,000 Service Corp. International notes
7.2s, 2006 700,150
228,000 Service Corp. International notes
6 7/8s, 2007 235,980
1,006,000 Service Corp. International notes
6 1/2s, 2008 1,038,695
2,281,000 Service Corp. International notes
Ser. (a), 7.7s, 2009 2,423,563
6,680,000 Service Corp. International 144A sr.
notes 6 3/4s, 2016 6,429,500
5,970,000 Stewart Enterprises, Inc. notes
10 3/4s, 2008 6,596,850
3,285,000 Tenet Healthcare Corp. notes 7 3/8s,
2013 3,038,625
410,000 Tenet Healthcare Corp. sr. notes
6 1/2s, 2012 362,850
7,140,000 Tenet Healthcare Corp. sr. notes
6 3/8s, 2011 6,336,750
8,005,000 Tenet Healthcare Corp. 144A sr.
notes 9 7/8s, 2014 8,345,213
6,370,000 Triad Hospitals, Inc. sr. notes 7s,
2012 6,640,725
15,200,000 Triad Hospitals, Inc. sr. sub. notes
7s, 2013 15,295,000
7,780,000 Universal Hospital Services, Inc.
sr. notes 10 1/8s, 2011 7,896,700
2,385,000 US Oncology, Inc. 144A sr. notes 9s,
2012 2,498,288
1,705,000 US Oncology, Inc. 144A sr. sub.
notes 10 3/4s, 2014 1,794,513
6,360,000 Ventas Realty LP/Capital Corp.
company guaranty 9s, 2012 7,091,400
2,965,000 VWR International, Inc. 144A sr.
notes 6 7/8s, 2012 3,053,950
--------------
192,458,584
Homebuilding (2.1%)
- -------------------------------------------------------------------------------
3,206,000 Beazer Homes USA, Inc. company
guaranty 8 5/8s, 2011 3,486,525
1,405,000 Beazer Homes USA, Inc. company
guaranty 8 3/8s, 2012 1,527,938
5,539,000 D.R. Horton, Inc. sr. notes 7 7/8s,
2011 6,314,460
2,625,000 D.R. Horton, Inc. sr. notes 6 7/8s,
2013 2,828,438
2,628,000 D.R. Horton, Inc. sr. notes 5 7/8s,
2013 2,660,850
1,195,000 K. Hovnanian Enterprises, Inc.
company guaranty 10 1/2s, 2007 1,386,200
4,180,000 K. Hovnanian Enterprises, Inc.
company guaranty 8 7/8s, 2012 4,660,700
3,370,000 K. Hovnanian Enterprises, Inc.
company guaranty 6 3/8s, 2014 3,319,450
2,917,000 K. Hovnanian Enterprises, Inc. sr.
notes 6 1/2s, 2014 2,895,123
2,690,000 Meritage Corp. company guaranty
9 3/4s, 2011 2,999,350
1,670,000 Meritage Corp. sr. notes 7s, 2014 1,640,775
220,000 Ryland Group, Inc. sr. sub. notes
9 1/8s, 2011 246,950
3,450,000 Schuler Homes, Inc. company guaranty
10 1/2s, 2011 3,958,875
6,955,000 Standard Pacific Corp. sr. notes
7 3/4s, 2013 7,320,138
440,000 Standard Pacific Corp. sr. notes
6 7/8s, 2011 456,500
3,405,000 Technical Olympic USA, Inc. company
guaranty 10 3/8s, 2012 3,702,938
1,892,000 Technical Olympic USA, Inc. company
guaranty 9s, 2010 2,005,520
2,309,000 WCI Communities, Inc. company
guaranty 10 5/8s, 2011 2,591,853
6,427,000 WCI Communities, Inc. company
guaranty 9 1/8s, 2012 7,101,835
--------------
61,104,418
Household Furniture and Appliances (0.3%)
- -------------------------------------------------------------------------------
9,510,000 Sealy Mattress Co. 144A sr. sub.
notes 8 1/4s, 2014 9,819,075
Leisure (0.1%)
- -------------------------------------------------------------------------------
3,430,000 K2, Inc. 144A sr. notes 7 3/8s, 2014 3,550,050
Lodging/Tourism (2.2%)
- -------------------------------------------------------------------------------
937,000 FelCor Lodging LP company guaranty
10s, 2008 (R) 986,193
6,500,000 Gaylord Entertainment Co. sr. notes
8s, 2013 6,743,750
9,669,000 Hilton Hotels Corp. notes 7 5/8s,
2012 11,095,178
1,367,000 HMH Properties, Inc. company
guaranty Ser. B, 7 7/8s, 2008 1,408,010
1,695,000 Host Marriott LP company guaranty
Ser. G, 9 1/4s, 2007 (R) 1,898,400
1,200,000 Host Marriott LP sr. notes Ser. E,
8 3/8s, 2006 (R) 1,275,000
7,135,000 Host Marriott LP 144A sr. notes 7s,
2012 7,259,863
4,600,000 ITT Corp. debs. 7 3/8s, 2015 4,876,000
715,000 ITT Corp. notes 6 3/4s, 2005 741,813
12,630,000 John Q. Hammons Hotels LP/John Q.
Hammons Hotels Finance Corp. III
1st mtge. Ser. B, 8 7/8s, 2012 14,114,025
6,580,000 MeriStar Hospitality Corp. company
guaranty 9 1/8s, 2011 (R) 6,777,400
3,520,000 MeriStar Hospitality Corp. company
guaranty 9s, 2008 (R) 3,625,600
715,000 MeriStar Hospitality Operating
Partnership/MeriStar
Hospitality Finance Corp. company
guaranty 10 1/2s, 2009 773,094
186,000 Starwood Hotels & Resorts Worldwide,
Inc. company guaranty 7 7/8s, 2012 208,320
3,374,000 Starwood Hotels & Resorts Worldwide,
Inc. company guaranty 7 3/8s, 2007 3,610,180
--------------
65,392,826
Media (0.4%)
- -------------------------------------------------------------------------------
5,935,000 Affinity Group, Inc. sr. sub. notes
9s, 2012 6,202,075
4,245,000 Capital Records, Inc. 144A company
guaranty 8 3/8s, 2009 4,616,438
--------------
10,818,513
Publishing (4.1%)
- -------------------------------------------------------------------------------
12,045,000 Dex Media West, LLC/Dex Media
Finance Co. sr. notes
Ser. B, 8 1/2s, 2010 13,565,681
4,720,000 Dex Media, Inc. 144A disc. notes
stepped-coupon zero % (9s,
11/15/08), 2013 (STP) 3,457,400
9,295,000 Dex Media, Inc. 144A notes 8s, 2013 9,643,563
13,471,946 Hollinger Participation Trust 144A
sr. notes 12 1/8s, 2010 (Canada)
(PIK) 15,189,619
2,855,000 Houghton Mifflin Co. sr. sub. notes
9 7/8s, 2013 2,979,906
9,212,000 PRIMEDIA, Inc. company guaranty
8 7/8s, 2011 9,027,760
4,517,000 PRIMEDIA, Inc. company guaranty
7 5/8s, 2008 4,426,660
5,095,000 PRIMEDIA, Inc. 144A sr. notes 8s,
2013 4,712,875
3,200,000 Reader's Digest Association, Inc.
(The) sr. notes 6 1/2s, 2011 3,232,000
1,200,000 RH Donnelley Finance Corp. I company
guaranty 8 7/8s, 2010 1,351,500
8,470,000 RH Donnelley Finance Corp. I 144A
sr. notes 8 7/8s, 2010 9,539,338
4,242,000 RH Donnelley Finance Corp. I 144A
sr. sub. notes 10 7/8s, 2012 5,016,165
2,125,000 TDL Infomedia Holdings PLC sr. disc.
notes stepped-coupon zero % (15 1/2s,
10/15/04), 2010 (United Kingdom) (STP) 2,263,125
8,978,000 Vertis, Inc. company guaranty
Ser. B, 10 7/8s, 2009 9,718,685
6,870,000 Vertis, Inc. 144A sub. notes
13 1/2s, 2009 6,947,288
890,000 Von Hoffman Press, Inc. company
guaranty 10 3/8s, 2007 906,688
1,790,000 Von Hoffman Press, Inc. company
guaranty 10 1/4s, 2009 1,991,375
9,997,729 Von Hoffman Press, Inc. debs. 13s,
2009 (PIK) 10,397,638
4,855,000 WRC Media Corp. sr. sub. notes
12 3/4s, 2009 4,418,050
--------------
118,785,316
Restaurants (0.2%)
- -------------------------------------------------------------------------------
7,558,000 Sbarro, Inc. company guaranty 11s,
2009 6,821,095
Retail (2.6%)
- -------------------------------------------------------------------------------
3,430,000 Asbury Automotive Group, Inc. sr.
sub. notes 8s, 2014 3,344,250
7,838,000 Autonation, Inc. company guaranty
9s, 2008 8,954,915
3,850,000 Finlay Fine Jewelry Corp. 144A sr.
notes 8 3/8s, 2012 4,100,250
8,860,000 JC Penney Co., Inc. debs. 7.95s,
2017 10,011,800
1,621,000 JC Penney Co., Inc. debs. 7.65s,
2016 1,795,258
6,590,000 JC Penney Co., Inc. debs. 7 1/8s,
2023 6,837,125
680,000 JC Penney Co., Inc. notes 9s, 2012 816,000
240,000 JC Penney Co., Inc. notes 8s, 2010 270,600
3,400,000 Jean Coutu Group, Inc. 144A sr.
notes 7 5/8s, 2012 (Canada) 3,502,000
6,800,000 Jean Coutu Group, Inc. 144A sr. sub.
notes 8 1/2s, 2014 (Canada) 6,851,000
5,030,000 Rite Aid Corp. company guaranty
9 1/2s, 2011 5,533,000
335,000 Rite Aid Corp. debs. 6 7/8s, 2013 308,200
1,195,000 Rite Aid Corp. notes 7 1/8s, 2007 1,218,900
860,000 Rite Aid Corp. sec. notes 8 1/8s,
2010 903,000
5,189,000 Rite Aid Corp. sr. notes 9 1/4s,
2013 5,474,395
370,000 Rite Aid Corp. 144A notes 6s, 2005 373,700
1,000,000 Saks, Inc. company guaranty 7 1/2s,
2010 1,055,000
9,155,000 Saks, Inc. company guaranty 7s, 2013 9,200,775
3,759,000 United Auto Group, Inc. company
guaranty 9 5/8s, 2012 4,172,490
--------------
74,722,658
Technology (2.9%)
- -------------------------------------------------------------------------------
6,058,000 AMI Semiconductor, Inc. company
guaranty 10 3/4s, 2013 7,042,425
2,945,000 Amkor Technologies, Inc. sr. notes
7 3/4s, 2013 2,473,800
3,160,000 Amkor Technologies, Inc. sr. sub.
notes 10 1/2s, 2009 2,859,800
6,680,000 Celestica Inc. sr.sub. notes 7 7/8s,
2011 (Canada) 6,988,950
3,368,000 DigitalNet Holdings, Inc. sr. notes
9s, 2010 3,654,280
6,810,000 Freescale Semiconductor, Inc. 144A
sr. notes 7 1/8s, 2014 6,920,663
8,626,000 Iron Mountain, Inc. company guaranty
8 5/8s, 2013 9,316,080
1,545,000 Iron Mountain, Inc. company guaranty
6 5/8s, 2016 1,452,300
350,000 Lucent Technologies, Inc. debs.
6 1/2s, 2028 274,750
4,029,000 Lucent Technologies, Inc. debs.
6.45s, 2029 3,162,765
445,000 Lucent Technologies, Inc. notes
5 1/2s, 2008 428,313
2,945,000 New ASAT Finance, Ltd. 144A company
guaranty 9 1/4s, 2011 2,473,800
3,030,000 Nortel Networks Corp. notes 6 1/8s,
2006 (Canada) 3,075,450
4,827,000 ON Semiconductor Corp. company
guaranty 13s, 2008 5,430,375
3,040,000 SCG Holding Corp. 144A notes zero %,
2011 4,271,200
4,850,000 UGS Corp. 144A sr. sub. notes 10s,
2012 5,286,500
4,340,000 Xerox Capital Trust I company
guaranty 8s, 2027 4,155,550
504,000 Xerox Corp. company guaranty 9 3/4s,
2009 585,900
3,715,000 Xerox Corp. notes Ser. MTN, 7.2s,
2016 3,733,575
9,424,000 Xerox Corp. sr. notes 7 5/8s, 2013 10,013,000
845,000 Xerox Corp. sr. notes 6 7/8s, 2011 874,575
--------------
84,474,051
Textiles (0.9%)
- -------------------------------------------------------------------------------
188,000 Levi Strauss & Co. notes 7s, 2006 185,180
9,703,000 Levi Strauss & Co. sr. notes
12 1/4s, 2012 10,066,863
4,250,000 Oxford Industries, Inc. 144A sr.
notes 8 7/8s, 2011 4,547,500
1,935,000 Phillips-Van Heusen Corp. sr. notes
7 1/4s, 2011 1,997,888
6,073,000 Russell Corp. company guaranty
9 1/4s, 2010 6,543,658
3,401,000 William Carter Holdings Co. (The)
company guaranty Ser. B, 10 7/8s,
2011 3,843,130
--------------
27,184,219
Tire & Rubber (0.3%)
- -------------------------------------------------------------------------------
7,845,000 Goodyear Tire & Rubber Co. (The)
notes 7.857s, 2011 7,374,300
1,840,000 Goodyear Tire & Rubber Co. (The)
notes 6 3/8s, 2008 1,794,000
--------------
9,168,300
Tobacco (0.1%)
- -------------------------------------------------------------------------------
3,230,000 North Atlantic Trading Co. sr. notes
9 1/4s, 2012 3,149,250
Transportation (1.1%)
- -------------------------------------------------------------------------------
5,475,000 American Airlines, Inc. pass-through
certificates Ser. 01-1, 6.817s,
2011 4,818,000
7,906,000 Calair, LLC/Calair Capital Corp.
company guaranty 8 1/8s, 2008 5,969,030
2,173,090 Delta Air Lines, Inc. pass-through
certificates Ser. 02-1, 7.779s, 2012 890,967
8,753,000 Kansas City Southern Railway Co.
company guaranty 9 1/2s, 2008 9,507,946
1,685,000 Kansas City Southern Railway Co.
company guaranty 7 1/2s, 2009 1,701,850
1,950,000 Northwest Airlines, Inc. company
guaranty 8 7/8s, 2006 1,601,438
40,000 Northwest Airlines, Inc. company
guaranty 8.7s, 2007 29,400
4,915,000 Northwest Airlines, Inc. company
guaranty 7 5/8s, 2005 4,804,413
1,747,000 Travel Centers of America, Inc.
company guaranty 12 3/4s, 2009 2,026,520
--------------
31,349,564
Utilities & Power (9.2%)
- -------------------------------------------------------------------------------
795,000 AES Corp. (The) sr. notes 8 7/8s,
2011 866,550
171,000 AES Corp. (The) sr. notes 8 3/4s,
2008 183,825
7,235,000 AES Corp. (The) 144A sec. notes 9s,
2015 8,048,938
7,390,000 AES Corp. (The) 144A sec. notes
8 3/4s, 2013 8,221,375
5,190,000 Allegheny Energy Supply 144A bonds
8 1/4s, 2012 5,501,400
3,040,000 Allegheny Energy Supply 144A sec.
notes 10 1/4s, 2007 3,344,000
6,126,000 Calpine Canada Energy Finance
company guaranty 8 1/2s, 2008
(Canada) 3,920,640
13,197,000 Calpine Corp. 144A sec. notes
8 1/2s, 2010 10,359,645
2,490,000 CenterPoint Energy Resources Corp.
debs. 6 1/2s, 2008 2,691,742
2,100,000 CenterPoint Energy Resources Corp.
sr. notes Ser. B, 7 7/8s, 2013 2,477,309
10,000 Cleveland Electric Illuminating Co.
(The) 144A sr. notes Ser. D, 7.88s,
2017 12,075
5,734,000 CMS Energy Corp. pass-through
certificates 7s, 2005 5,769,838
175,000 CMS Energy Corp. sr. notes 9 7/8s,
2007 193,375
2,199,000 CMS Energy Corp. sr. notes 8.9s,
2008 2,391,413
1,254,000 CMS Energy Corp. sr. notes 8 1/2s,
2011 1,360,590
1,730,000 CMS Energy Corp. 144A sr. notes
7 3/4s, 2010 1,825,150
8,230,000 DPL, Inc. sr. notes 6 7/8s, 2011 8,559,200
1,996,000 Dynegy Holdings, Inc. sr. notes
6 7/8s, 2011 1,856,280
12,605,000 Dynegy Holdings, Inc. 144A sec.
notes 10 1/8s, 2013 14,180,625
3,500,000 Dynegy-Roseton Danskamme company
guaranty Ser. A, 7.27s, 2010 3,412,500
5,330,000 Dynegy-Roseton Danskamme company
guaranty Ser. B, 7.67s, 2016 4,703,725
2,399,000 Edison Mission Energy sr. notes 10s,
2008 2,782,840
145,000 Edison Mission Energy sr. notes
9 7/8s, 2011 166,388
1,800,000 El Paso CGP Co. notes 7 3/4s, 2010 1,730,250
3,630,000 El Paso Corp. sr. notes 7 3/8s, 2012 3,394,050
8,470,000 El Paso Corp. sr. notes Ser. MTN,
7 3/4s, 2032 7,188,913
1,745,000 El Paso Natural Gas Co. debs.
8 5/8s, 2022 1,867,150
1,730,000 El Paso Natural Gas Co. sr. notes
Ser. A, 7 5/8s, 2010 1,833,800
8,425,000 El Paso Production Holding Co.
company guaranty 7 3/4s, 2013 8,277,563
5,460,000 Ferrellgas Partners LP/Ferrellgas
Partners Finance sr. notes 6 3/4s,
2014 5,432,700
1,973,000 Kansas Gas & Electric debs. 8.29s,
2016 2,042,055
10,955,000 Midwest Generation LLC sec. notes
8 3/4s, 2034 11,639,688
7,703,000 Mission Energy Holding Co. sec.
notes 13 1/2s, 2008 9,686,523
3,190,000 Monongahela Power Co. 144A 1st.
mtge. 6.7s, 2014 3,333,313
6,200,000 Nevada Power Co. 2nd mtge. 9s, 2013 6,944,000
7,465,000 Northwest Pipeline Corp. company
guaranty 8 1/8s, 2010 8,407,456
515,000 Northwestern Corp. debs. 6.95s, 2028
(In default) (NON) 440,325
915,000 Northwestern Corp. notes 8 3/4s,
2012 (In default) (NON) 796,050
4,195,000 Northwestern Corp. notes 7 7/8s,
2007 (In default) (NON) 3,649,650
18,125,000 NRG Energy, Inc. 144A sr. sec. notes
8s, 2013 19,031,250
6,000,000 Orion Power Holdings, Inc. sr. notes
12s, 2010 7,500,000
7,905,000 PG&E Corp. sec. notes 6 7/8s, 2008 8,576,925
1,430,000 PG&E Gas Transmission Northwest sr.
notes 7.1s, 2005 1,472,900
5,540,000 PSEG Energy Holdings, Inc. notes
7 3/4s, 2007 5,886,250
4,505,000 SEMCO Energy, Inc. sr. notes 7 3/4s,
2013 4,730,250
1,290,000 Sierra Pacific Power Co. 144A
general ref. mtge. 6 1/4s, 2012 1,277,100
7,960,000 Sierra Pacific Resources 144A sr.
notes 8 5/8s, 2014 8,358,000
340,000 Southern California Edison Co. notes
6 3/8s, 2006 356,524
2,840,000 Teco Energy, Inc. notes 10 1/2s,
2007 3,280,200
1,645,000 Teco Energy, Inc. notes 7.2s, 2011 1,731,363
2,730,000 Teco Energy, Inc. notes 7s, 2012 2,825,550
695,000 Tennessee Gas Pipeline Co. debs. 7s,
2028 650,694
2,015,000 Tennessee Gas Pipeline Co. unsecd.
notes 7 1/2s, 2017 2,067,894
900,000 Transcontinental Gas Pipeline Corp.
debs. 7 1/4s, 2026 924,750
9,510,000 Utilicorp Canada Finance Corp.
company guaranty 7 3/4s, 2011
(Canada) 9,700,200
3,385,000 Utilicorp United, Inc. sr. notes
9.95s, 2011 3,689,650
3,539,000 Western Resources, Inc. sr. notes
9 3/4s, 2007 4,057,189
1,330,000 Williams Cos., Inc. (The) notes
8 3/4s, 2032 1,492,925
5,210,000 Williams Cos., Inc. (The) notes
7 5/8s, 2019 5,626,800
6,500,000 Williams Cos., Inc. (The) sr. notes
8 5/8s, 2010 7,540,000
3,454,253 York Power Funding 144A notes 12s,
2007 (Cayman Islands) (In default)
(NON) 345
--------------
270,269,668
--------------
Total Corporate bonds and notes
(cost $2,445,235,838) $2,481,248,872
Senior Loans (2.9%) (a) (c)
Principal amount Value
Automotive (0.3%)
- -------------------------------------------------------------------------------
$2,735,000 Federal Mogul Corp. bank term loan
FRN Ser. A, 3.56s, 2005 $2,540,131
6,365,000 Federal Mogul Corp. bank term loan
FRN Ser. B, 3.81s, 2005 5,919,450
608,458 Hayes Lemmerz International, Inc.
bank term loan FRN 5.19s, 2009 619,487
139,655 Tenneco Automotive, Inc. bank term
loan FRN 4.36s, 2010 142,274
308,793 Tenneco Automotive, Inc. bank term
loan FRN 4.253s, 2010 313,940
518,700 TRW Automotive bank term loan FRN
4 1/8s, 2011 526,913
--------------
10,062,195
Basic Materials (0.4%)
- -------------------------------------------------------------------------------
745,500 Buckeye Technologies, Inc. bank term
loan FRN 4.246s, 2010 753,576
742,500 Graphics Packaging bank term loan
FRN 4.35s, 2010 751,627
872,813 Hercules, Inc. bank term loan FRN
3.497s, 2010 878,541
3,019,268 Huntsman Corp. bank term loan FRN
Ser. A, 5 5/8s, 2007 3,027,356
423,201 Huntsman Corp. bank term loan FRN
Ser. B, 11.438s, 2007 424,334
596,068 Nalco Co. bank term loan FRN Ser. B,
4.182s, 2010 604,689
642,818 SGL Carbon, LLC bank term loan FRN
4.22s, 2009 642,818
597,000 St. Mary's Cement Corp. bank term
loan FRN 4.086s, 2009 601,104
1,355,000 Wellman 1st. lien bank term loan FRN
5.694s, 2009 1,373,631
2,425,000 Wellman 2nd. lien bank term loan FRN
8.444s, 2010 2,386,605
--------------
11,444,281
Beverage (--%)
- -------------------------------------------------------------------------------
398,440 Constellation Brands, Inc. bank term
loan FRN 3.213s, 2008 399,405
Broadcasting (--%)
- -------------------------------------------------------------------------------
524,458 DirecTV bank term loan FRN Ser. B,
3.819s, 2010 530,752
Cable Television (0.6%)
- -------------------------------------------------------------------------------
5,320,000 Century Cable Holdings bank term
loan FRN 6 1/2s, 2009 5,179,398
880,000 Charter bank term loan FRN 4.92s,
2011 867,992
440,000 Frontier Vision bank term loan FRN
Ser. B, 5.775s, 2006 439,817
4,975,000 Insight Midwest LP/Insight Capital,
Inc. bank term loan FRN 3.938s,2009 5,041,073
5,053,836 Olympus Cable bank term loan FRN
Ser. B, 6 1/4s, 2010 4,920,268
--------------
16,448,548
Capital Goods (0.4%)
- -------------------------------------------------------------------------------
830,850 AGCO Corp. bank term loan FRN
3.589s, 2008 834,485
539,598 Allied Waste Industries, Inc. bank
term loan FRN 4.33s, 2010 547,121
91,071 Allied Waste Industries, Inc. bank
term loan FRN Ser. C, 1.369s, 2010 92,255
3,300,000 Decrane Aircraft Holdings Co. bank
term loan FRN 12s, 2008 (acquired
11/25/03 and 1/29/04, cost 3,312,500)
(RES) 3,300,000
714,099 EaglePicher bank term loan FRN
4.41s, 2009 719,455
753,778 Flowserve Corp. bank term loan FRN
Ser. C, 4.245s, 2009 762,022
373,500 Goodman Manufacturing bank term loan
FRN 3 3/4s, 2009 377,235
439,086 Invensys, PLC bank term loan FRN
5.477s, 2009 444,575
519,725 Mueller Group bank term loan FRN
4.232s, 2011 521,024
1,500,000 Owens-Illinois, Inc. bank term loan
FRN 4.66s, 2008 1,520,625
487,500 Roper bank term loan FRN 3.61s, 2008 493,797
547,250 Solo Cup Co. bank term loan FRN
4.027s, 2011 552,267
1,477,575 SPX Corp. bank term loan FRN Ser. B,
3.836s, 2009 1,496,968
248,752 Transdigm, Inc. bank term loan FRN
3.79s, 2010 252,016
--------------
11,913,845
Commercial and Consumer Services (--%)
- -------------------------------------------------------------------------------
246,193 Corrections Corporation of America
bank term loan FRN 3.36s, 2008 249,886
496,250 IESI Corp. bank term loan FRN
4.602s, 2010 503,073
--------------
752,959
Communication Services (0.2%)
- -------------------------------------------------------------------------------
250,000 Consolidated Communications bank
term loan FRN 4.409s, 2012 252,813
496,250 Crown Castle International Corp.
bank term loan FRN 5.09s, 2010 496,388
496,250 Dobson Communications Corp. bank
term loan FRN 5.132s, 2010 494,823
2,321,667 Nextel bank term loan FRN Ser. E,
3.813s, 2010 2,333,379
310,000 PanAmSat Corp. bank term loan FRN
Ser. B, 4.36s, 2011 310,213
690,625 Qwest Communications International,
Inc. bank term loan FRN 6 1/2s,
2007 712,725
250,000 SBA Senior Finance, Inc. bank term
loan FRN 4.687s, 2008 251,641
--------------
4,851,982
Consumer (--%)
- -------------------------------------------------------------------------------
862,128 Jostens, Inc. bank term loan FRN
Ser. B, 4.004s, 2010 872,904
Consumer Goods (--%)
- -------------------------------------------------------------------------------
432,927 Rayovac Corp. bank term loan FRN
Ser. B, 4.147s, 2009 436,896
Consumer Services (--%)
- -------------------------------------------------------------------------------
600,000 Itron, Inc. bank term loan FRN
3 3/4s, 2010 604,500
Energy (0.1%)
- -------------------------------------------------------------------------------
660,000 Dresser, Inc. bank term loan FRN
5.19s, 2010 668,663
215,800 Magellan Midstream Holdings bank
term loan FRN 4.65s, 2008 (acquired
6/13/03, cost $213,642) (RES) 218,498
350,000 Parker Drilling Co. bank term loan
FRN 5.749s, 2007 350,656
314,766 Peabody Energy Corp. bank term loan
FRN Ser. B, 3.266s, 2010 317,717
2,228,905 Trico Marine Services, Inc. bank
term loan FRN 8.389s, 2009 2,017,159
--------------
3,572,693
Entertainment (0.1%)
- -------------------------------------------------------------------------------
658,350 AMF Bowling Worldwide bank term loan
FRN 4.554s, 2009 662,876
660,000 MGM bank term loan FRN 3.98s, 2011 661,980
203,725 Six Flags, Inc. bank term loan FRN
Ser. B, 4.04s, 2009 204,107
--------------
1,528,963
Food (0.1%)
- -------------------------------------------------------------------------------
467,007 Agrilink Foods bank term loan FRN
Ser. B, 4.23s, 2008 472,144
796,963 Del Monte Foods Co. bank term loan
FRN Ser. B, 3.911s, 2010 808,170
150,191 Dole Food Co. bank term loan FRN
Ser. D, 4.355s, 2009 152,193
440,000 Dole Holding Co. bank term loan FRN
7s, 2010 437,250
1,047,375 Pinnacle Foods Holding Corp. bank
term loan FRN 4.259s, 2010 1,057,849
--------------
2,927,606
Gaming & Lottery (0.1%)
- -------------------------------------------------------------------------------
127,564 Pinnacle Entertainment, Inc. bank
term loan FRN 4.84s, 2009 129,158
1,505,995 Scientific Gaming bank term loan FRN
4.007s, 2008 1,522,309
--------------
1,651,467
Health Care (0.2%)
- -------------------------------------------------------------------------------
620,313 Beverly Enterprises, Inc. bank term
loan FRN 4.258s, 2008 628,066
440,000 Community Health Systems, Inc. bank
term loan FRN Ser. B, 3.36s, 2011 439,843
1,080,111 DaVita, Inc. bank term loan FRN
Ser. B, 3.607s, 2009 1,088,791
440,000 Fisher Scientific International,
Inc. bank term loan FRN 2.61s, 2011 443,300
496,250 Hanger Orthopedic Group, Inc. bank
term loan FRN 4.34s, 2009 495,009
621,250 Kinetic Concepts, Inc. bank term
loan FRN 3.59s, 2011 628,757
525,938 Medex, Inc. bank term loan FRN 4.6s,
2009 530,759
1,485,829 Triad Hospitals, Inc. bank term loan
FRN Ser. B, 3.73s, 2008 1,509,045
201,373 VWR International Inc. bank term
loan FRN 4.11s, 2011 203,941
--------------
5,967,511
Homebuilding (--%)
- -------------------------------------------------------------------------------
250,000 Landsource bank term loan FRN
4.188s, 2010 253,281
Household Furniture and Appliances (--%)
- -------------------------------------------------------------------------------
420,357 Sealy Mattress Co. bank term loan
FRN Ser. C, 4.11s, 2012 424,211
Media (0.1%)
- -------------------------------------------------------------------------------
122,784 Affinity Group Holdings bank term
loan FRN Ser. B1, 5.611s, 2009 123,858
306,959 Affinity Group Holdings bank term
loan FRN Ser. B2, 5.571s, 2009 309,645
450,000 Lions Gate Entertainment bank term
loan FRN 4.84s, 2008 (Canada) 452,250
995,000 Warner Music Group bank term loan
FRN Ser. B, 4.173s, 2011 1,007,082
--------------
1,892,835
Publishing (0.1%)
- -------------------------------------------------------------------------------
874,074 Dex Media West, LLC bank term loan
FRN Ser. B, 3.862s, 2010 885,728
220,000 RH Donnelley Finance Corp. bank term
loan FRN Ser. B, 3.86s, 2011 222,448
605,000 WRC Media Corp. bank term loan FRN
6.761s, 2009 603,109
--------------
1,711,285
Retail (0.1%)
- -------------------------------------------------------------------------------
216,684 Advance Stores bank term loan FRN
Ser. C, 3.535s, 2007 219,257
182,755 Couche-Tard bank term loan FRN
3.346s, 2010 183,517
506,749 PETCO Animal Supplies, Inc. bank
term loan FRN 3.98s, 2009 512,450
422,875 Rite Aid Corp. bank term loan FRN
4.536s, 2008 427,104
--------------
1,342,328
Tire & Rubber (--%)
- -------------------------------------------------------------------------------
375,000 Goodyear Tire & Rubber Co. (The)
bank term loan FRN 6.11s, 2007 378,750
440,000 Goodyear Tire & Rubber Co. (The)
bank term loan FRN 6.059s, 2006 444,620
--------------
823,370
Transportation (--%)
- -------------------------------------------------------------------------------
522,083 Pacer International, Inc. bank term
loan FRN 4.132s, 2010 528,609
Utilities & Power (0.1%)
- -------------------------------------------------------------------------------
748,125 Allegheny Energy, Inc. bank term
loan FRN 5.698s, 2011 759,191
440,000 Dynegy Holdings, Inc. bank term loan
FRN 5.53s, 2010 447,425
600,000 Mission Energy Holding Co. bank term
loan FRN 7s, 2006 601,125
499,231 Teton Power Funding bank term loan
FRN 4.8s, 2011 502,975
440,000 Unisource Energy bank term loan FRN
5.652s, 2011 434,225
420,761 Williams Products bank term loan FRN
4.1s, 2007 426,196
--------------
3,171,137
--------------
Total Senior Loans
(cost $82,356,601) $84,113,563
Common stocks (1.5%) (a)
Number of shares Value
- -------------------------------------------------------------------------------
17,730 AboveNet, Inc. (NON) (S) $425,520
18,922 Alderwoods Group, Inc. (NON) 174,272
8,780,000 AMRESCO Creditor Trust (acquired
various dates from 5/5/99 to
3/18/02, cost $1,860,945) (NON)
(RES) (R) 8,780
1,733 Arch Wireless, Inc. Class A (NON) 52,857
16,714 Archibald Candy Corp. (NON) (AFF) 836
10,363 Birch Telecom, Inc. (NON) 104
1,690,908 Capstar Boston Partners, LLC
(acquired 4/14/97, cost $1,859,999)
(NON) (RES) 2,248,908
4,233 Comdisco Holding Co., Inc. (S) 98,417
31,440,192 Contifinancial Corp. Liquidating
Trust Units 628,804
148,962 Covad Communications Group, Inc.
(NON) (S) 217,485
20,904 Crown Castle International Corp.
(NON) (S) 299,136
29,311 Decrane Aircraft Holdings, Inc.
(NON) (AFF) 29
645,566 DigitalGlobe, Inc. 144A (NON) (AFF) 645,566
6,026 Genesis HealthCare Corp. (NON) (S) 187,348
286,810 Globix Corp. (NON) (S) 791,596
5,700,000 iPCS Escrow, Inc. (NON) 5,700
162,430 iPCS, Inc. (NON) 3,021,198
1,894 Knology, Inc. (NON) 6,572
654 Leucadia National Corp. (S) 35,316
59,030 Lodgian, Inc. (NON) 615,093
985,000 Loewen Group International, Inc.
(NON) 99
6,964 Polymer Group, Inc. Class A (NON) 85,657
11,906 PSF Group Holdings, Inc. 144A Class
A (NON) (AFF) 17,859,120
484,229 Regal Entertainment Group 144A 8,919,498
4,358 Sterling Chemicals, Inc. (NON) 100,234
9,048 Sun Healthcare Group, Inc. (NON) (S) 77,813
12,695,838 VFB LLC (acquired 5/15/02, cost
$9,558,415) (NON) (RES) (AFF) 2,412,209
327,451 VS Holdings, Inc. (NON) 16,373
39,019 Washington Group International, Inc.
(NON) 1,372,688
33,000 Wayland Investment Fund II (NON) 3,960,000
--------------
Total Common stocks
(cost $133,030,415) $44,267,228
Preferred stocks (1.2%) (a)
Number of shares Value
- -------------------------------------------------------------------------------
199,315 Avecia Group PLC $4.00 pfd. (United
Kingdom) (PIK) $2,840,239
21,000 Decrane Aircraft Holdings, Inc.
$16.00 pfd. (PIK) 147,000
101,546 Doane Pet Care Co. $7.125 pfd. 4,264,932
140 Dobson Communications Corp. 13.00%
pfd. (PIK) 84,700
6,670 First Republic Capital Corp. 144A
10.50% pfd. 6,970,150
88,879 iStar Financial, Inc. $1.95 cum.
pfd. 2,221,975
853 Paxson Communications Corp. 13.25%
cum. pfd. (PIK) (S) 7,335,800
36,436 PRIMEDIA, Inc. Ser. F, $9.20 cum.
pfd. 3,188,150
1,809 Rural Cellular Corp. Ser. B, 11.375%
cum. pfd. 1,501,470
13,474 Rural Cellular Corp. 12.25% pfd.
(PIK) 7,814,920
--------------
Total Preferred stocks
(cost $42,672,035) $36,369,336
Asset-backed securities (0.8%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$4,315,000 CDO Repackaging Trust Series 144A
Ser. 03-3, Class A, 9.49s, 2008 $4,336,575
1,845,000 Denali Capital CLO III Ltd. FRN
Ser. B-2L, 9.63s, 2015 (Cayman
Islands) 1,892,422
2,020,000 Dryden Leveraged Loan CDO 144A FRN
Ser. 03-4A, Class D, 10.11s, 2015 2,040,200
4,295,000 Goldentree Loan Opportunities II,
Ltd. 144A FRN Ser. 2A, Class
5A, 10.591s, 2015 (Cayman Islands) 4,327,213
1,685,000 Octagon Investment Parties VI, Ltd.
FRN Ser. 03-6A, Class B2L, 9.46s,
2016 1,741,820
6,320,000 Providian Gateway Master Trust Ser.
02, Class B, zero %, 2006 5,379,742
3,010,000 Verdi Synthetic CLO 144A Ser. 1A,
Class E2, 11.15s, 2010 3,013,292
--------------
Total Asset-backed securities
(cost $22,279,240) $22,731,264
Foreign government bonds and notes (0.7%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$2,115,000 Colombia (Republic of) bonds
10 3/8s, 2033 $2,294,775
1,625,000 Colombia (Republic of) bonds
Ser. NOV, 9 3/4s, 2009 1,807,813
1,700,000 Colombia (Republic of) notes
10 3/4s, 2013 1,961,800
6,040,000 Ecuador (Republic of) bonds
stepped-coupon Ser. REGS, 8s (9s,
8/15/05), 2030 (STP) 4,741,400
2,365,000 Peru (Republic of) bonds 8 3/4s,
2033 2,270,400
5,865,000 Ukraine (Government of) 144A bonds
7.65s, 2013 5,894,325
1,440,000 United Mexican States bonds
Ser. MTN, 8.3s, 2031 1,650,960
--------------
Total Foreign government bonds and
notes (cost $18,374,154) $20,621,473
Convertible preferred stocks (0.6%) (a)
Number of shares Value
- -------------------------------------------------------------------------------
83,650 Crown Castle International Corp.
$3.125 cv. pfd. $3,837,444
49,600 Omnicare, Inc. $2.00 cv. pfd. 2,449,000
857 Paxson Communications Corp. 144A
9.75% cv. pfd. (PIK) 6,084,700
63,090 Williams Cos., Inc. (The) 144A $2.75
cv. pfd. 4,424,186
--------------
Total Convertible preferred stocks
(cost $16,399,381) $16,795,330
Collateralized mortgage obligations (0.4%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$1,195,000 Commercial Mortgage Pass-Through
Certificates 144A FRB Ser. 01-FL4A,
Class E, 2.9s, 2013 $1,063,550
DLJ Commercial Mortgage Corp.
1,190,771 Ser. 98-CF2, Class B4, 6.04s, 2031 1,038,948
3,816,434 Ser. 98-CF2, Class B5, 5.95s, 2031 2,363,953
GE Capital Commercial Mortgage Corp.
144A
2,470,000 Ser. 00-1, Class G, 6.131s, 2033 2,185,634
1,341,000 Ser. 00-1, Class H, 6.131s, 2033 831,820
2,202,750 GMAC Commercial Mortgage Securities,
Inc. 144A Ser. 99-C3, Class G,
6.974s, 2036 1,653,763
1,054,300 LB Commercial Conduit Mortgage Trust
144A Ser. 99-C1, Class G, 6.41s,
2031 831,661
Mach One Commercial Mortgage Trust
144A
1,765,000 Ser. 04-1A, Class J, 5.45s, 2040 1,477,981
880,000 Ser. 04-1A, Class K, 5.45s, 2040 717,681
400,000 Ser. 04-1A, Class L, 5.45s, 2040 291,422
--------------
Total Collateralized mortgage
obligations (cost $12,222,893) $12,456,413
U.S. government agency obligations (0.3%) (a) (cost $7,500,000)
Principal amount Value
- -------------------------------------------------------------------------------
$7,500,000 Fannie Mae 1.8s, May 27, 2005 $7,481,625
Convertible bonds and notes (0.2%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$19,813,000 Cybernet Internet Services
International, Inc. 144A cv. sr.
disc. notes stepped-coupon zero %
(13s, 8/15/04) 2009 (Denmark) (In
default) (NON) (STP) $198
2,935,000 Fairchild Semiconductor
International, Inc. cv. company
guaranty 5s, 2008 2,905,650
2,270,000 WCI Communities, Inc. cv. sr. sub.
notes 4s, 2023 2,582,125
--------------
Total Convertible bonds and notes
(cost $21,903,305) $5,487,973
Warrants (0.1%) (a) (NON) Expiration
Number of warrants date Value
- -------------------------------------------------------------------------------
6,435 AboveNet, Inc. 9/8/08 $48,263
7,570 AboveNet, Inc. 9/8/10 45,420
8,414 Dayton Superior Corp. 144A 6/15/09 1
1 Decrane Aircraft Holdings Co. Class B 6/30/10 1
1 Decrane Aircraft Holdings Co. Class B 6/30/10 1
31 Doe Run Resources Corp. 144A 12/31/12 1
11,005 Huntsman Co., LLC 144A 5/15/11 2,090,950
4,453 MDP Acquisitions PLC 144A (Ireland) 10/1/13 123,571
3,334 Mikohn Gaming Corp. 144A 8/15/08 1,000
186 ONO Finance PLC 144A (United
Kingdom) 2/15/11 2
3,668 Pliant Corp. 144A 6/1/10 37
5,247 Travel Centers of America, Inc. 144A 5/1/09 26,230
15,004 Ubiquitel, Inc. 144A 4/15/10 1
24,085 Washington Group International, Inc.
Ser. A 1/25/06 211,948
27,526 Washington Group International, Inc.
Ser. B 1/25/06 185,801
14,879 Washington Group International, Inc.
Ser. C 1/25/06 89,274
9,684 XM Satellite Radio Holdings, Inc.
144A 3/15/10 542,304
300,000 ZSC Specialty Chemicals PLC 144A
(United Kingdom) 6/30/11 150,000
300,000 ZSC Specialty Chemicals PLC
(Preferred) 144A (United Kingdom) 6/30/11 150,000
--------------
Total Warrants (cost $7,803,948) $3,664,805
Brady bonds (0.1%) (a) (cost $3,170,107)
Principal amount Value
- -------------------------------------------------------------------------------
$3,421,600 Peru (Republic of) FRB Ser. PDI, 5s,
2017 $3,109,550
Units (0.1%) (a)
Number of units Value
- -------------------------------------------------------------------------------
7,647,000 Morrison Knudsen Corp., 2032 $477,938
3,124 XCL Equity Units (AFF) 1,386,703
--------------
Total Units (cost $17,380,936) $1,864,641
Short-term investments (4.9%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$25,000,000 Canadian Imperial Bank of Commerce
for an effective yield of 1.11%,
December 20, 2004 (Canada) $24,988,575
17,500,000 Federal National Mortgage Association
for an effective yield of 1.34%,
September 17, 2004 17,489,578
4,931,017 Short-term investments held as
collateral for loaned securities with
yields ranging from 1.52% to 1.71% and
due dates ranging from September 1,
2004 to September 24, 2004 (d) 4,929,660
97,269,050 Putnam Prime Money Market Fund (e) 97,269,050
--------------
Total Short-term investments
(cost $144,676,863) $144,676,863
- -------------------------------------------------------------------------------
Total Investments
(cost $2,975,005,716) $2,884,888,936
- -------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $2,930,666,774.
(DEF) Security is in default of principal and interest.
(NON) Non-income-producing security.
(STP) The interest or dividend rate and date shown parenthetically
represent the new interest or dividend rate to be paid and the date the
fund will begin accruing interest or dividend income at this rate.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at August 31, 2004 was
$8,188,395 or 0.3% of net assets.
(PIK) Income may be received in cash or additional securities at the
discretion of the issuer.
(AFF) Affiliated Companies (Note 6).
(R) Real Estate Investment Trust.
(S) Securities on loan, in part or in entirety, at August 31, 2004.
(c) Senior loans are exempt from registration under the Security 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, 2004. 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.
(d) See Note 1 to the financial statements.
(e) See Note 5 to the financial statements regarding investments in the
Putnam Prime Money Market Fund.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
The rates shown on Floating Rate Bonds (FRB) and Floating Rate Notes
(FRN) are the current interest rates at August 31, 2004.
Forward currency contracts to buy at August 31, 2004
Aggregate Delivery Unrealized
Value face value date appreciation
- -------------------------------------------------------------------------------------------------------
Euro $1,160,513 $1,155,747 12/15/04 $4,766
- -------------------------------------------------------------------------------------------------------
Forward currency contracts to sell at August 31, 2004
Aggregate Delivery Unrealized
Value face value date depreciation
- -------------------------------------------------------------------------------------------------------
Euro $24,198,281 $24,102,071 12/15/04 $(96,210)
- -------------------------------------------------------------------------------------------------------
Total return swap contracts outstanding at August 31, 2004
Notional Termination Unrealized
amount date appreciation
- -------------------------------------------------------------------------------------------------------
Agreement with Lehman Brothers Special
Financing, Inc. dated October 9, 2003 to receive
(pay) semi-annually the notional amount multiplied
by the total rate of return of the Lehman U.S. High
Yield Index and pay semi-annually the notional
amount multiplied by the six month USD-Libor
adjusted by a specified spread. $8,004,794 5/1/06 $199,107
Agreement with Lehman Brothers Special
Financing, Inc. dated June 16, 2003 to receive
(pay) quarterly the notional amount multiplied
by the return of the Lehman U.S. High Yield
Index and pay quarterly the notional amount
multiplied by the three month USD-LIBOR
adjusted by a specified spread. 16,346,297 6/1/05 730,973
Agreement with Lehman Brothers Special
Financing, Inc. dated September 30, 2003
to receive (pay) semi-annually the notional
amount multiplied by the total rate of return
of the Lehman Brothers U.S. High Yield Index
and pay semi-annually the notional amount
multiplied by the six month USD-LIBOR
adjusted by a specified spread. 18,965,363 10/1/04 332,165
Agreement with Merrill Lynch Capital Services, Inc.
dated June 13, 2003 to pay quarterly the notional
amount multiplied by the three month USD-
LIBOR adjusted by a specified spread and receive/
(pay) quarterly the notional amount multiplied
by the return of the Merrill Lynch US High
Yield Cash Pay Index. 10,983,530 1/1/05 318,385
- ----------------------------------------------------------------------------------------------------
$1,580,630
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of assets and liabilities
August 31, 2004
Assets
- -------------------------------------------------------------------------------
Investment in securities, at value, including $4,706,561 of securities
on loan (Note 1):
- -------------------------------------------------------------------------------
Unaffiliated issuers (identified cost $2,813,741,811) $2,765,315,423
- -------------------------------------------------------------------------------
Affiliated issuers (identified cost $161,263,905) (Notes 5
and 6) 119,573,513
- -------------------------------------------------------------------------------
Cash 2,950,859
- -------------------------------------------------------------------------------
Dividends, interest and other receivables 52,267,481
- -------------------------------------------------------------------------------
Receivable for shares of the fund sold 2,172,393
- -------------------------------------------------------------------------------
Receivable for securities sold 5,208,670
- -------------------------------------------------------------------------------
Receivable for open swap contracts (Note 1) 1,580,630
- -------------------------------------------------------------------------------
Receivable for open forward currency contracts (Note 1) 4,766
- -------------------------------------------------------------------------------
Receivable for closed forward currency contracts (Note 1) 5,476
- -------------------------------------------------------------------------------
Total assets 2,949,079,211
Liabilities
- -------------------------------------------------------------------------------
Payable for securities purchased 1,695,349
- -------------------------------------------------------------------------------
Payable for shares of the fund repurchased 4,172,967
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Notes 2 and 5) 4,105,393
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 1,212,921
- -------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 295,126
- -------------------------------------------------------------------------------
Payable for administrative services (Note 2) 3,851
- -------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,452,745
- -------------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 96,210
- -------------------------------------------------------------------------------
Payable for closed forward currency contracts (Note 1) 44,293
- -------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 4,929,660
- -------------------------------------------------------------------------------
Other accrued expenses 403,922
- -------------------------------------------------------------------------------
Total liabilities 18,412,437
- -------------------------------------------------------------------------------
Net assets $2,930,666,774
Represented by
- -------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $4,747,105,993
- -------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (1,713,433)
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (1,726,095,106)
- -------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and
liabilities in foreign currencies (88,630,680)
- -------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $2,930,666,774
Computation of net asset value and offering price
- -------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,924,073,300 divided by 241,008,334 shares) $7.98
- -------------------------------------------------------------------------------
Offering price per class A share (100/95.50 of $7.98)* $8.36
- -------------------------------------------------------------------------------
Net asset value and offering price per class B share
($672,232,076 divided by 84,620,319 shares)** $7.94
- -------------------------------------------------------------------------------
Net asset value and offering price per class C share
($63,865,823 divided by 8,032,611 shares)** $7.95
- -------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($26,294,634 divided by 3,293,898 shares) $7.98
- -------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $7.98)* $8.25
- -------------------------------------------------------------------------------
Net asset value, offering price and redemption price per
class R share ($69,838 divided by 8,752 shares) $7.98
- -------------------------------------------------------------------------------
Net asset value, offering price and redemption price per
class Y share ($244,131,103 divided by 30,688,843 shares) $7.96
- -------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or
more and on group sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
The accompanying notes are an integral part of these financial
statements.
Statement of operations
Year ended August 31, 2004
Investment income:
- -------------------------------------------------------------------------------
Interest (including interest income of $279,203 from
investments in affiliated issuers) (Note 5) $268,202,471
- -------------------------------------------------------------------------------
Dividends 12,171,753
- -------------------------------------------------------------------------------
Securities lending 35,392
- -------------------------------------------------------------------------------
Total investment income 280,409,616
Expenses:
- -------------------------------------------------------------------------------
Compensation of Manager (Notes 2 and 5) 18,182,726
- -------------------------------------------------------------------------------
Investor servicing fees (Note 2) 4,784,088
- -------------------------------------------------------------------------------
Custodian fees (Note 2) 315,782
- -------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 83,742
- -------------------------------------------------------------------------------
Administrative services (Note 2) 41,890
- -------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 5,304,252
- -------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 7,938,882
- -------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 934,400
- -------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 193,711
- -------------------------------------------------------------------------------
Distribution fees -- Class R (Note 2) 290
- -------------------------------------------------------------------------------
Other 874,316
- -------------------------------------------------------------------------------
Non-recurring costs (Notes 2 and 7) 121,413
- -------------------------------------------------------------------------------
Costs assumed by Manager (Notes 2 and 7) (121,413)
- -------------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Note 5) (33,819)
- -------------------------------------------------------------------------------
Total expenses 38,620,260
- -------------------------------------------------------------------------------
Expense reduction (Note 2) (108,678)
- -------------------------------------------------------------------------------
Net expenses 38,511,582
- -------------------------------------------------------------------------------
Net investment income 241,898,034
- -------------------------------------------------------------------------------
Net realized loss on investments (including realized loss of
$10,752,009 on sales of affiliated issuers) (Notes 1,3 and 6) (68,697,190)
- -------------------------------------------------------------------------------
Net realized gain on swap contracts (Note 1) 13,833,429
- -------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 87,585
- -------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (4,578,516)
- -------------------------------------------------------------------------------
Net unrealized appreciation of asset and liabilities in
foreign currencies during the period 359,449
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments, futures
contracts and swap contracts during the year 252,720,533
- -------------------------------------------------------------------------------
Net gain on investments 193,725,290
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $435,623,324
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of changes in net assets
Year ended August 31
Increase (decrease) in net assets 2004 2003
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $241,898,034 $288,750,055
- -------------------------------------------------------------------------------
Net realized loss on investments and foreign
currency transactions (59,354,692) (169,865,396)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments 253,079,982 484,949,927
- -------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 435,623,324 603,834,586
- -------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
- -------------------------------------------------------------------------------
From net investment income
Class A (159,003,102) (192,148,223)
- -------------------------------------------------------------------------------
Class B (53,982,795) (74,674,852)
- -------------------------------------------------------------------------------
Class C (6,324,076) (6,641,986)
- -------------------------------------------------------------------------------
Class M (2,802,647) (3,772,717)
- -------------------------------------------------------------------------------
Class R (4,178) (1,005)
- -------------------------------------------------------------------------------
Class Y (18,727,067) (16,802,807)
- -------------------------------------------------------------------------------
Redemption fees (Note 1) 249,803 --
- -------------------------------------------------------------------------------
Increase (decrease) from capital share
transactions (Note 4) (768,638,567) 369,906,038
- -------------------------------------------------------------------------------
Total increase (decrease) in net assets (573,609,305) 679,699,034
Net assets
- -------------------------------------------------------------------------------
Beginning of year 3,504,276,079 2,824,577,045
- -------------------------------------------------------------------------------
End of year (including distributions in
excess of net investment income of
$1,713,433 and $17,377,751, respectively) $2,930,666,774 $3,504,276,079
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS A
- -------------------------------------------------------------------------------------------------------------
Per-share Year ended August 31
operating performance 2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $7.55 $6.86 $8.10 $9.47 $10.46
- -------------------------------------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------------------------------------
Net investment income (a) .59 (d) .67 .77 .97 1.05
- -------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .43 .71 (1.15) (1.31) (.95)
- -------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.02 1.38 (.38) (.34) .10
- -------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------
From net
investment income (.59) (.69) (.81) (1.00) (1.09)
- -------------------------------------------------------------------------------------------------------------
From return of capital -- -- (.05) (.03) --
- -------------------------------------------------------------------------------------------------------------
Total distributions (.59) (.69) (.86) (1.03) (1.09)
- -------------------------------------------------------------------------------------------------------------
Redemption fees -- (f) -- -- -- --
- -------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.98 $7.55 $6.86 $8.10 $9.47
- -------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 13.95 21.27 (5.10) (3.49) .93
- -------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,924,073 $2,271,756 $1,814,979 $1,584,421 $2,022,516
- -------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .99 (d) .98 1.01 .99 .96
- -------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 7.55 (d) 9.41 10.37 11.40 10.45
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 61.68 75.18 74.29 (e) 77.43 60.55
- -------------------------------------------------------------------------------------------------------------
(a) Per share net investment income 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 waivers of certain fund expenses in connection with
investments in Putnam Prime Money Market Fund during the period. As a
result of such waivers, the expenses of the fund for the period ended
August 31, 2004 reflect a reduction of less than 0.01% of average net
assets for class A shares (Note 5).
(e) Portfolio turnover excludes the impact of assets received from the
acquisition of Putnam High Yield Trust II.
(f) Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS B
- -------------------------------------------------------------------------------------------------------------
Per-share Year ended August 31
operating performance 2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $7.52 $6.84 $8.07 $9.44 $10.42
- -------------------------------------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------------------------------------
Net investment income (a) .53 (d) .62 .71 .91 .98
- -------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .42 .70 (1.14) (1.31) (.94)
- -------------------------------------------------------------------------------------------------------------
Total from
investment operations .95 1.32 (.43) (.40) .04
- -------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------
From net
investment income (.53) (.64) (.76) (.94) (1.02)
- -------------------------------------------------------------------------------------------------------------
From return of capital -- -- (.04) (.03) --
- -------------------------------------------------------------------------------------------------------------
Total distributions (.53) (.64) (.80) (.97) (1.02)
- -------------------------------------------------------------------------------------------------------------
Redemption fees -- (f) -- -- -- --
- -------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.94 $7.52 $6.84 $8.07 $9.44
- -------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 13.01 20.31 (5.69) (4.23) .27
- -------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $672,232 $879,566 $793,713 $274,501 $381,093
- -------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.74 (d) 1.73 1.76 1.74 1.71
- -------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 6.80 (d) 8.67 9.40 10.67 9.72
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 61.68 75.18 74.29 (e) 77.43 60.55
- -------------------------------------------------------------------------------------------------------------
(a) Per share net investment income 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 waivers of certain fund expenses in connection with
investments in Putnam Prime Money Market Fund during the period. As a
result of such waivers, the expenses of the fund for the period ended
August 31, 2004 reflect a reduction of less than 0.01% of average net
assets for class B shares (Note 5).
(e) Portfolio turnover excludes the impact of assets received from the
acquisition of Putnam High Yield Trust II.
(f) Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS C
- -------------------------------------------------------------------------------
For the
period
March 19,
Year ended 2002+ to
Per-share August 31 August 31
operating performance 2004 2003 2002
- -------------------------------------------------------------------------------
Net asset value,
beginning of period $7.52 $6.85 $7.60
- -------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------
Net investment income (a) .54 (d) .62 .29
- -------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .42 .68 (.74)
- -------------------------------------------------------------------------------
Total from
investment operations .96 1.30 (.45)
- -------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------
From net
investment income (.53) (.63) (.28)
- -------------------------------------------------------------------------------
From return of capital -- -- (.02)
- -------------------------------------------------------------------------------
Total distributions (.53) (.63) (.30)
- -------------------------------------------------------------------------------
Redemption fees -- (f) -- --
- -------------------------------------------------------------------------------
Net asset value,
end of period $7.95 $7.52 $6.85
- -------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 13.15 20.08 (6.03)*
- -------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $63,866 $87,008 $48,587
- -------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.74 (d) 1.73 .80*
- -------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 6.80 (d) 8.49 4.17*
- -------------------------------------------------------------------------------
Portfolio turnover (%) 61.68 75.18 74.29 (e)
- -------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income 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 waivers of certain fund expenses in connection with
investments in Putnam Prime Money Market Fund during the period. As a
result of such waivers, the expenses of the fund for the period ended
August 31, 2004 reflect a reduction of less than 0.01% of average net
assets for class C shares (Note 5).
(e) Portfolio turnover excludes the impact of assets received from the
acquisition of Putnam High Yield Trust II.
(f) Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS M
- -------------------------------------------------------------------------------------------------------------
Per-share Year ended August 31
operating performance 2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $7.55 $6.87 $8.10 $9.47 $10.45
- -------------------------------------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------------------------------------
Net investment income (a) .57 (d) .65 .75 .95 1.03
- -------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .43 .70 (1.15) (1.31) (.94)
- -------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.00 1.35 (.40) (.36) .09
- -------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------
From net
investment income (.57) (.67) (.79) (.98) (1.07)
- -------------------------------------------------------------------------------------------------------------
From return of capital -- -- (.04) (.03) --
- -------------------------------------------------------------------------------------------------------------
Total distributions (.57) (.67) (.83) (1.01) (1.07)
- -------------------------------------------------------------------------------------------------------------
Redemption fees -- (f) -- -- -- --
- -------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.98 $7.55 $6.87 $8.10 $9.47
- -------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 13.64 20.80 (5.23) (3.76) .78
- -------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $26,295 $45,017 $34,917 $8,601 $11,005
- -------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.24 (d) 1.23 1.26 1.24 1.21
- -------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 7.28 (d) 9.12 9.79 11.15 10.21
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 61.68 75.18 74.29 (e) 77.43 60.55
- -------------------------------------------------------------------------------------------------------------
(a) Per share net investment income 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 waivers of certain fund expenses in connection with
investments in Putnam Prime Money Market Fund during the period. As a
result of such waivers, the expenses of the fund for the period ended
August 31, 2004 reflect a reduction of less than 0.01% of average net
assets for class M shares (Note 5).
(e) Portfolio turnover excludes the impact of assets received from the
acquisition of Putnam High Yield Trust II.
(f) Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS R
- -------------------------------------------------------------------
For the
period
Year January 21,
ended 2003+ to
Per-share August 31 August 31
operating performance 2004 2003
- -------------------------------------------------------------------
Net asset value,
beginning of period $7.55 $6.99
- -------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------
Net investment income (a) .58 (d) .40
- -------------------------------------------------------------------
Net realized and unrealized
gain on investments .42 .54
- -------------------------------------------------------------------
Total from
investment operations 1.00 .94
- -------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------
From net
investment income (.57) (.38)
- -------------------------------------------------------------------
From return of capital -- --
- -----------------------------------------------------------------
Total distributions (.57) (.38)
- -------------------------------------------------------------------
Redemption fees -- (e) --
- -------------------------------------------------------------------
Net asset value,
end of period $7.98 $7.55
- -------------------------------------------------------------------
Total return at
net asset value (%)(b) 13.64 13.76*
- -------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------
Net assets, end of period
(in thousands) $70 $46
- -----------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.24 (d) .75*
- -----------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 7.29 (d) 5.59*
- -----------------------------------------------------------------
Portfolio turnover (%) 61.68 75.18
- -----------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis of
the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment.
(c) Includes amounts paid through expense offset arrangements (Note 2).
(d) Reflects waivers of certain fund expenses in connection with
investments in Putnam Prime Money Market Fund during the period. As a
result of such waivers, the expenses of the fund for the period ended
August 31, 2004 reflect a reduction of less than 0.01% of average net
assets for class R shares (Note 5).
(e) Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS Y
- -------------------------------------------------------------------------------------------------------------
Per-share Year ended August 31
operating performance 2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $7.53 $6.85 $8.09 $9.47 $10.46
- -------------------------------------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------------------------------------
Net investment income (a) .61 (d) .68 .77 .99 1.08
- -------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .44 .71 (1.13) (1.31) (.95)
- -------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.05 1.39 (.36) (.32) .13
- -------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------
From net
investment income (.62) (.71) (.83) (1.03) (1.12)
- -------------------------------------------------------------------------------------------------------------
From return of capital -- -- (.05) (.03) --
- -------------------------------------------------------------------------------------------------------------
Total distributions (.62) (.71) (.88) (1.06) (1.12)
- -------------------------------------------------------------------------------------------------------------
Redemption fees -- (f) -- -- -- --
- -------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.96 $7.53 $6.85 $8.09 $9.47
- -------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 14.34 21.45 (4.84) (3.34) 1.17
- -------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $244,131 $220,883 $132,382 $14,580 $16,668
- -------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .74 (d) .73 .76 .74 .71
- -------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 7.81 (d) 9.57 10.05 11.61 10.72
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 61.68 75.18 74.29 (e) 77.43 60.55
- -------------------------------------------------------------------------------------------------------------
(a) Per share net investment income 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 waivers of certain fund expenses in connection with
investments in Putnam Prime Money Market Fund during the period. As a
result of such waivers, the expenses of the fund for the period ended
August 31, 2004 reflect a reduction of less than 0.01% of average net
assets for class Y shares (Note 5).
(e) Portfolio turnover excludes the impact of assets received from the
acquisition of Putnam High Yield Trust II.
(f) Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial
statements.
Notes to financial statements
August 31, 2004
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 due to the nature of the investments.
The fund offers class A, class B, class C, class M, class R and class Y
shares. Class A shares are sold with a maximum front-end sales charge of
4.50%. Prior to January 28, 2004, the maximum front-end sales charge for
class A shares was 4.75%. Class B shares, which convert to class A
shares after approximately eight years, do not pay a front-end sales
charge but pay a higher ongoing distribution fee than class A, class M
and class R shares, and are subject to a contingent deferred sales
charge, if those shares are redeemed within six years of purchase. Class
C shares are subject to the same fees and expenses as class B shares,
except that class C shares have a one-year 1.00% contingent deferred
sales charge and do not convert to class A shares. Class M shares are
sold with a maximum front-end sales charge of 3.25% and pay an ongoing
distribution fee that is higher than class A shares but lower than class
B and class C shares. Class R shares are sold without a front-end sales
charge and pay an ongoing distribution fee that is higher than class A
shares, but lower than class B and class C shares. Class R shares are
offered to qualified employee-benefit plans. 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 and class R shares, but do not bear a
distribution fee. Class Y shares are sold to certain eligible purchasers
including certain defined contribution plans (including corporate IRAs),
bank trust departments, trust companies and certain college savings
plans.
Effective December 1, 2003, a redemption fee of 1.00%, which is retained
by the fund, applied to shares of any class redeemed (either by selling
or by exchanging to another fund) within 90 days of purchase. Effective
April 19, 2004 (May 3, 2004 for defined contribution plans administered
by Putnam) a 2.00% redemption fee may apply to any shares that are
redeemed (either by selling or exchanging into another fund) within 5
days of purchase. A 1.00% redemption fee would apply to any shares that
are redeemed (either by selling or exchanging into another fund) within
6-90 days of purchase. The redemption fee is accounted for as an
addition to paid-in-capital.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). 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. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
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 at fair value on the basis of valuations furnished
by an independent pricing service or dealers, approved by the Trustees.
Such services or dealers determine valuations for normal institutional-size
trading units of such securities using methods based on market transactions
for comparable securities and various relationships, generally recognized
by institutional traders, between securities. Many securities markets and
exchanges outside the U.S. close prior to the close of the New York Stock
Exchange and therefore the closing prices for securities in such markets or
on such exchanges may not fully reflect events that occur after such close
but before the close of the New York Stock Exchange. Accordingly, on
certain days, the fund will fair value foreign securities taking into
account multiple factors, including movements in the U.S. securities
markets. The number of days on which fair value prices will be used will
depend on market activity and it is possible that fair value prices will be
used by the fund to a significant extent. Securities quoted in foreign
currencies are translated into U.S. dollars at the current exchange rate.
Short-term investments having remaining maturities of 60 days or less are
valued at amortized cost, which approximates fair value. Other investments,
including restricted securities, are valued at fair value following
procedures approved by the Trustees. Such valuations and procedures are
reviewed periodically by the Trustees.
B) Joint trading account The fund may transfer uninvested cash balances,
including cash collateral received under security lending arrangements,
into a joint trading account along with the cash of other registered
investment companies and certain other accounts managed by Putnam
Investment Management, LLC ("Putnam Management"), the fund's manager, an
indirect wholly-owned subsidiary of Putnam, LLC. These balances may be
invested in issuers of high-grade short-term investments having
maturities of up to 397 days for collateral received under security
lending arrangements and up to 90 days for other cash investments.
C) Security transactions and related investment income Security
transactions are recorded on the trade date (date the order to buy or
sell is executed). Gains or losses on securities sold are determined on
the identified cost basis.
Interest income is recorded on the accrual basis. Dividend income, net
of applicable withholding taxes, is recognized on the ex-dividend date.
Non-cash dividends, if any, are recorded at the fair market value of the
securities received. Securities purchased or sold on a forward
commitment 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.
All premiums/discounts are amortized/accreted on a yield-to-maturity
basis.
D) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when earned or incurred. The fund
does not isolate that portion of realized or unrealized gains or losses
resulting from changes in the foreign exchange rate on investments from
fluctuations arising from changes in the market prices of the securities.
Such gains and losses are included with the net realized and unrealized
gain or loss on investments. Net realized gains and losses on foreign
currency transactions represent net realized exchange gains or losses on
closed forward currency contracts, disposition of foreign currencies,
currency gains and losses realized between the trade and settlement dates
on securities transactions and the difference between the amount of
investment income and foreign withholding taxes recorded on the fund's
books and the U.S. dollar equivalent amounts actually received or paid. Net
unrealized appreciation and depreciation of assets and liabilities in
foreign currencies arise from changes in the value of open forward currency
contracts and assets and liabilities other than investments at the period
end, resulting from changes in the exchange rate. Investments in foreign
securities involve certain risks, including those related to economic
instability, unfavorable political developments, and currency fluctuations,
not present with domestic investments.
E) Forward currency contracts The fund may buy and sell forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date. These contracts are used to
protect against a decline in value relative to the U.S. dollar of the
currencies in which its portfolio securities are denominated or quoted
(or an increase in the value of a currency in which securities a fund
intends to buy are denominated, when a fund holds cash reserves and
short term investments). The U.S. dollar value of forward currency
contracts is determined using current forward currency exchange rates
supplied by a quotation service. The market value of the contract will
fluctuate with changes in currency exchange rates. The contract is
marked to market daily and the change in market value is recorded as an
unrealized gain or loss. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed. The fund could be exposed to risk if the value of the currency
changes unfavorably, if the counterparties to the contracts are unable
to meet the terms of their contracts or if the fund is unable to enter
into a closing position. 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.
F) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or in which it may invest to increase its current
returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform. Risks may exceed amounts recognized on the statement
of assets and liabilities. When the contract is closed, the fund records
a realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed. Realized gains and losses on purchased options are included in
realized gains and losses on investment securities. If a written call
option is exercised, the premium originally received is recorded as an
addition to sales proceeds. If a written put option is exercised, the
premium originally received is recorded as an addition to cost of
investments.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. The fund and the broker
agree to exchange an amount of cash equal to the daily fluctuation in
the value of the futures contract. Such receipts or payments are known
as "variation margin." Exchange traded options are valued at the last
sale price, or if no sales are reported, the last bid price for
purchased options and the last ask price for written options. Options
traded over-the-counter are valued using prices supplied by dealers.
Futures and written option contracts outstanding at period end, if any,
are listed after the fund's portfolio.
G) Total return swap contracts The fund may enter into total return swap
contracts, which are arrangements to exchange a market linked return for a
periodic payment, both based on a notional principal amount. To the extent
that the total return of the security or index underlying the transaction
exceeds or falls short of the offsetting interest rate obligation, the fund
will receive a payment from or make a payment to the counterparty,
respectively. Total return swap contracts are marked to market daily based
upon quotations from market makers and the change, if any, is recorded as
unrealized gain or loss. Payments received or made are recorded as realized
gains or loss. The fund could be exposed to credit or market risk due to
unfavorable changes in the fluctuation of interest rates or in the price of
the underlying security or index, the possibility that there is no liquid
market for these agreements or that the counterparty may default on its
obligation to perform. Risks may exceed amounts recognized on the statement
of assets and liabilities. Total return swap contracts outstanding at
period end, if any, are listed after the fund's portfolio.
H) 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 market makers and the change, if
any, is recorded as unrealized gain or loss. Payments received or made
are recorded as realized gains or loss. 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. Risks 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.
I) Security lending The fund may lend securities, through its agents, to
qualified borrowers in order to earn additional income. The loans are
collateralized by cash and/or securities in an amount at least equal to the
market value of the securities loaned. The market value of securities
loaned is determined daily and any additional required collateral is
allocated to the fund on the next business day. The risk of borrower
default will be borne by the fund's agents; the fund will bear the risk of
loss with respect to the investment of the cash collateral. Income from
securities lending is included in investment income on the statement of
operations. At August 31, 2004, the value of securities loaned amounted to
$4,706,561. The fund received cash collateral of $4,929,660 which is pooled
with collateral of other Putnam funds into 20 issuers of high grade
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 applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986 (the "Code"), as amended.
Therefore, no provision has been made for federal taxes on income,
capital gains or unrealized appreciation on securities held nor for
excise tax on income and capital gains.
At August 31, 2004, the fund had a capital loss carryover of
$1,657,591,629 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
- --------------------------------------------
$4,909,410 August 31, 2005
14,566,882 August 31, 2006
135,892,331 August 31, 2007
339,129,540 August 31. 2008
305,968,663 August 31, 2009
298,606,980 August 31, 2010
498,097,278 August 31, 2011
60,420,545 August 31, 2012
Pursuant to federal income tax regulations applicable to regulated
investment companies, the fund has elected to defer to its fiscal year
ending August 31, 2005, $65,092,893 of losses recognized during the
period November 1, 2003 to August 31, 2004.
K) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Distributions from capital gains, if any, are recorded on the ex-dividend
date and paid at least annually. The amount and character of income and
gains to be distributed are determined in accordance with income tax
regulations, which may differ from generally accepted accounting
principles. These differences include temporary and permanent differences
of losses on wash sale transactions, foreign currency gains and losses,
post-October loss deferrals, the expiration of a capital loss carryover,
nontaxable dividends, defaulted bond interest, realized and unrealized
gains and losses on certain futures contracts, interest on payment-in-kind
securities, realized built-in losses and income on swap contract.
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, 2004, the fund
reclassified $14,610,149 to decrease distributions in excess of net
investment income and $3,877,835 to decrease paid-in-capital, with an
increase to accumulated net realized losses of $10,732,314.
The tax basis components of distributable earnings and the federal tax
cost as of period end were as follows:
Unrealized appreciation $153,312,328
Unrealized depreciation (260,870,140)
------------
Net unrealized depreciation (107,557,812)
Undistributed ordinary income 15,421,513
Capital loss carryforward (1,657,591,629)
Post-October loss (65,092,893)
Cost for federal income
tax purposes $2,992,446,748
Note 2
Management fee, administrative
services and other transactions
Putnam Management is paid for management and investment advisory services
quarterly based on the average net assets of the fund. Such fee is based on
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.
Effective January 28, 2004, Putnam Management has agreed to limit its
compensation (and, to the extent necessary, bear other expenses) through
December 31, 2004, to the extent that the fund's net expenses as a
percentage of average net assets exceed the average expense ratio for the
fund's Lipper peer group of front-end load funds. For the year ended August
31, 2004, Putnam did not waive any of its management fee to the fund.
Effective September 13, 2004, Putnam Invest ments 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 period ended August 31, 2004, Putnam Management has assumed
$121,413 of legal, shareholder servicing and communication, audit, and
Trustee fees incurred by the Fund in connection with certain legal and
regulatory matters. (See Note 7.)
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and their
staff who provide administrative services to the fund. The aggregate amount
of all such reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company ("PFTC"), a subsidiary of Putnam, LLC. Putnam Investor
Services, a division of PFTC, provides investor servicing agent functions
to the fund. During the year ended August 31, 2004, the fund paid PFTC
$3,926,661 for these services.
The fund has entered into an arrangement with PFTC whereby credits realized
as a result of uninvested cash balances are used to reduce a portion of the
fund's expenses. For the year ended August 31, 2004, the fund's expenses
were reduced by $108,678 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $3,590 as a quarterly retainer, has been allocated to the fund, and
an additional fee for each Trustees meeting attended. Trustees receive
additional fees for attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with the
Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have served
as a Trustee for at least five years. Benefits under the Pension Plan are
equal to 50% of the Trustee's average total retainer and meeting fees for
the three years preceding retirement. Pension expense for the fund is
included in Trustee compensation and expenses in the statement of
operations. Accrued pension liability is included in Payable for Trustee
compensation and expenses in the statement of assets and liabilities. 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, 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 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, 2004, Putnam Retail Management, acting as
underwriter, received net commissions of $219,887 and $2,207 from the sale
of class A and class M shares, respectively, and received $2,037,032 and
$38,639 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, 2004, Putnam Retail Management, acting as underwriter,
received $117,275 on class A redemptions.
Note 3
Purchases and sales of securities
During the year ended August 31, 2004, cost of purchases and proceeds from
sales of investment securities other than short-term investments aggregated
$1,899,300,254 and $2,555,587,002, respectively. There were no purchases or
sales of U.S. government securities.
Note 4
Capital shares
At August 31, 2004, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Year ended August 31, 2004
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 50,023,108 $392,516,115
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 13,400,828 105,453,710
- ----------------------------------------------------------------
63,423,936 497,969,825
Shares repurchased (123,252,647) (971,979,430)
- ----------------------------------------------------------------
Net decrease (59,828,711) $(474,009,605)
- ----------------------------------------------------------------
Year ended August 31, 2003
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 145,785,467 $1,042,058,741
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 16,597,854 117,784,000
- ----------------------------------------------------------------
162,383,321 1,159,842,741
Shares repurchased (125,950,786) (902,791,022)
- ----------------------------------------------------------------
Net increase 36,432,535 $257,051,719
- ----------------------------------------------------------------
Year ended August 31, 2004
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 15,560,257 $121,439,032
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 4,139,845 32,442,704
- ----------------------------------------------------------------
19,700,102 153,881,736
Shares repurchased (52,110,581) (409,116,906)
- ----------------------------------------------------------------
Net decrease (32,410,479) $(255,235,170)
- ----------------------------------------------------------------
Year ended August 31, 2003
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 44,160,108 $314,502,228
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 5,669,255 40,058,308
- ----------------------------------------------------------------
49,829,363 354,560,536
Shares repurchased (48,893,664) (349,166,755)
- ----------------------------------------------------------------
Net increase 935,699 $5,393,781
- ----------------------------------------------------------------
Year ended August 31, 2004
- ----------------------------------------------------------------
Class C Shares Amount
- ----------------------------------------------------------------
Shares sold 7,314,734 $56,828,327
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 569,122 4,435,878
- ----------------------------------------------------------------
7,883,856 61,264,205
Shares repurchased (11,415,745) (89,931,047)
- ----------------------------------------------------------------
Net decrease (3,531,889) $(28,666,842)
- ----------------------------------------------------------------
Year ended August 31, 2003
- ----------------------------------------------------------------
Class C Shares Amount
- ----------------------------------------------------------------
Shares sold 18,718,402 $133,618,312
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 587,322 4,197,741
- ----------------------------------------------------------------
19,305,724 137,816,053
Shares repurchased (14,837,161) (107,524,031)
- ----------------------------------------------------------------
Net increase 4,468,563 $30,292,022
- ----------------------------------------------------------------
Year ended August 31, 2004
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 1,459,524 $11,428,266
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 262,925 2,070,674
- ----------------------------------------------------------------
1,722,449 13,498,940
Shares repurchased (4,391,949) (34,803,839)
- ----------------------------------------------------------------
Net decrease (2,669,500) $(21,304,899)
- ----------------------------------------------------------------
Year ended August 31, 2003
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 3,402,242 $24,330,666
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 356,289 2,534,391
- ----------------------------------------------------------------
3,758,531 26,865,057
Shares repurchased (2,880,242) (20,781,685)
- ----------------------------------------------------------------
Net increase 878,289 $6,083,372
- ----------------------------------------------------------------
Year ended August 31, 2004
- ----------------------------------------------------------------
Class R Shares Amount
- ----------------------------------------------------------------
Shares sold 2,325 $18,542
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 530 4,178
- ----------------------------------------------------------------
2,855 22,720
Shares repurchased (165) (1,306)
- ----------------------------------------------------------------
Net increase 2,690 $21,414
- ----------------------------------------------------------------
For the period January 21, 2003
(commencement of operations)
to August 31, 2003
- ----------------------------------------------------------------
Class R Shares Amount
- ----------------------------------------------------------------
Shares sold 5,886 $43,500
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 176 1,315
- ----------------------------------------------------------------
6,062 44,815
Shares repurchased -- --
- ----------------------------------------------------------------
Net increase 6,062 $44,815
- ----------------------------------------------------------------
Year ended August 31, 2004
- ----------------------------------------------------------------
Class Y Shares Amount
- ----------------------------------------------------------------
Shares sold 8,040,507 $63,353,008
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,383,872 18,727,067
- ----------------------------------------------------------------
10,424,379 82,080,075
Shares repurchased (9,059,160) (71,523,540)
- ----------------------------------------------------------------
Net increase 1,365,219 $10,556,535
- ----------------------------------------------------------------
Year ended August 31, 2003
- ----------------------------------------------------------------
Class Y Shares Amount
- ----------------------------------------------------------------
Shares sold 14,737,927 $102,795,238
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,179,863 16,802,807
- ----------------------------------------------------------------
16,917,790 119,598,045
Shares repurchased (6,915,851) (48,557,716)
- ----------------------------------------------------------------
Net increase 10,001,939 $71,040,329
- ----------------------------------------------------------------
Note 5
Investment in Putnam Prime Money Market Fund
The fund invests in the Putnam Prime Money Market Fund, an open-end
management investment company managed by Putnam Management. Management fees
paid by the fund are reduced by an amount equal to the management fees paid
by Putnam Prime Money Market Fund with respect to assets invested by the
fund in Putnam Prime Money Market Fund. For the year ended August 31, 2004,
management fees paid were reduced by $33,819 relating to the fund's
investment in Putnam Prime Money Market Fund. Income distributions earned
by the fund are recorded as income in the statement of operations and
totaled $279,203 for the period ended August 31, 2004.
Note 6
Transactions with affiliated issuers
Transactions during the period with companies in which the fund owned at
least 5% of the voting securities were as follows:
Purchase Sales Dividend Market
Affiliates Cost Cost Income Value
- ----------------------------------------------------------------------------------------------------
Archibald Candy Corp. $54,918 $90,834 $-- $836
Decrane Aircraft Holdings Co.* -- -- -- 29
DigitalGlobe, Inc. 144A* -- -- -- 645,566
Mediq -- 8,669,804 -- --
Pioneer -- 1,642,613 -- --
PSF Group Holdings Inc.,
144A Class A -- -- -- 17,859,120
Safety Components -- 11,094,122 -- --
VFB LLC (United Kingdom)* -- -- -- 2,412,209
XCL Equity Units 12,182,999 -- -- 1,386,703
- ----------------------------------------------------------------------------------------------------
Totals $12,237,917 $21,497,373 $-- $22,304,463
- ----------------------------------------------------------------------------------------------------
* Securities received as the result of a corporate action.
Market values are shown for those securities affiliated at period end.
Note 7
Regulatory matters and litigation
On April 8, 2004, Putnam Management entered into agreements with the
Securities and Exchange Commission ("SEC") and the Massachusetts Securities
Division representing a final settlement of all charges brought against
Putnam Management by those agencies on October 28, 2003 in connection with
excessive short-term trading by Putnam employees and, in the case of the
charges brought by the Massachusetts Securities Division, by participants
in some Putnam-administered 401(k) plans. The settlement with the SEC
requires Putnam Management to pay $5 million in disgorgement plus a civil
monetary penalty of $50 million, and the settlement with the Massachusetts
Securities Division requires Putnam Management to pay $5 million in
restitution and an administrative fine of $50 million. The settlements also
leave intact the process established under an earlier partial settlement
with the SEC under which Putnam Management agreed to pay the amount of
restitution determined by an independent consultant, which may exceed the
disgorgement and restitution amounts specified above, pursuant to a plan to
be developed by the independent consultant.
Putnam Management, and not the investors in any Putnam fund, will bear all
costs, including restitution, civil penalties and associated legal fees
stemming from both of these proceedings. The SEC's and Massachusetts
Securities Division's allegations and related matters also serve as the
general basis for numerous lawsuits, including purported class action
lawsuits filed against Putnam Management and certain related parties,
including certain Putnam funds. Putnam Management has agreed to bear any
costs incurred by Putnam funds in connection with these lawsuits. Based on
currently available information, Putnam Management believes that the
likelihood that the pending private lawsuits and purported class action
lawsuits will have a material adverse financial impact on the fund is
remote, and the pending actions are not likely to materially affect its
ability to provide investment management services to its clients, including
the Putnam funds.
Review of these matters by counsel for Putnam Management and by separate
independent counsel for the Putnam funds and their independent Trustees is
continuing. The fund may experience increased redemptions as a result of
these matters, which could result in increased transaction costs and
operating expenses.
Federal tax information
(Unaudited)
The fund has designated 3.13% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
For its tax year ended August 31, 2004, the fund hereby designates 3.06%
or the maximum amount allowable of its net taxable income as qualified
dividends taxed at individual net capital gain rates.
The Form 1099 you receive in January 2005 will show the tax status of
all distributions paid to your account in calendar 2004.
About the Trustees
Jameson A. Baxter (9/6/43), Trustee since 1994
Ms. Baxter is the President of Baxter Associates, Inc., a private
investment firm that she founded in 1986.
Ms. Baxter serves as a Director of ASHTA Chemicals, Inc., Banta
Corporation (a printing and digital imaging firm), Ryerson Tull, Inc. (a
steel service corporation), Advocate Health Care and BoardSource,
formerly the National Center for Nonprofit Boards. She is Chairman
Emeritus of the Board of Trustees, Mount Holyoke College, having served
as Chairman for five years and as a board member for thirteen years.
Until 2002, Ms. Baxter was a Director of Intermatic Corporation (a
manufacturer of energy control products).
Ms. Baxter has held various positions in investment banking and
corporate finance, including Vice President and Principal of the Regency
Group, and Vice President of and Consultant to First Boston Corporation.
She is a graduate of Mount Holyoke College.
Charles B. Curtis (4/27/40), Trustee since 2001
Mr. Curtis is President and Chief Operating Officer of the Nuclear
Threat Initiative (a private foundation dealing with national security
issues) and serves as Senior Advisor to the United Nations Foundation.
Mr. Curtis is a member of the Council on Foreign Relations and the
Trustee Advisory Council of the Applied Physics Laboratory, Johns
Hopkins University. Until 2003, Mr. Curtis was a member of the Electric
Power Research Institute Advisory Council and the University of Chicago
Board of Governors for Argonne National Laboratory. Prior to 2002, Mr.
Curtis was a Member of the Board of Directors of the Gas Technology
Institute and the Board of Directors of the Environment and Natural
Resources Program Steering Committee, John F. Kennedy School of
Government, Harvard University. Until 2001, Mr. Curtis was a member of
the Department of Defense Policy Board and Director of EG&G Technical
Services, Inc. (a fossil energy research and development support
company).
From August 1997 to December 1999, Mr. Curtis was a Partner at Hogan &
Hartson L.L.P., a Washington, D.C. law firm. Prior to May 1997, Mr.
Curtis was Deputy Secretary of Energy. He served as Chairman of the
Federal Energy Regulatory Commission from 1977 to 1981 and has held
positions on the staff of the U.S. House of Representatives, the U.S.
Treasury Department, and the SEC.
John A. Hill (1/31/42), Trustee since 1985 and Chairman since 2000
Mr. Hill is Vice Chairman of First Reserve Corporation, a private equity
buyout firm that specializes in energy investments in the diversified
worldwide energy industry.
Mr. Hill is a Director of Devon Energy Corporation, TransMontaigne Oil
Company, Continuum Health Partners of New York and various private
companies controlled by First Reserve Corporation, as well as a Trustee
of TH Lee, Putnam Investment Trust (a closed-end investment company
advised by an affiliate of Putnam Management). He is also a Trustee of
Sarah Lawrence College.
Prior to acquiring First Reserve Corporation in 1983, Mr. Hill held
executive positions in investment banking and investment management with
several firms and with the federal government, including Deputy Associate
Director of the Office of Management and Budget and Deputy Director of the
Federal Energy Administration. He is active in various business
associations, including the Economic Club of New York, and lectures on
energy issues in the United States and Europe. Mr. Hill holds a B.A. degree
in Economics from Southern Methodist University and pursued graduate
studies there as a Woodrow Wilson Fellow.
Ronald J. Jackson (12/17/43), Trustee since 1996
Mr. Jackson is a private investor.
Mr. Jackson is President of the Kathleen and Ronald J. Jackson
Foundation (a charitable trust). He is also a member of the Board of
Overseers of WGBH (a public television and radio station) as well as a
member of the Board of Overseers of the Peabody Essex Museum.
Mr. Jackson is the former Chairman, President and Chief Executive
Officer of Fisher-Price, Inc. (a major toy manufacturer), from which he
retired in 1993. He previously served as President and Chief Executive
Officer of Stride-Rite, Inc. (a manufacturer and distributor of
footwear) and of Kenner Parker Toys, Inc. (a major toy and game
manufacturer). Mr. Jackson was President of Talbots, Inc. (a distributor
of women's apparel) and has held financial and marketing positions with
General Mills, Inc. and Parker Brothers (a toy and game company). Mr.
Jackson is a graduate of Michigan State University Business School.
Paul L. Joskow (6/30/47), Trustee since 1997
Dr. Joskow is the Elizabeth and James Killian Professor of Economics and
Management, and Director of the Center for Energy and Environmental
Policy Research at the Massachusetts Institute of Technology.
Dr. Joskow serves as a Director of National Grid Transco (a UK-based
holding company with interests in electric and gas transmission and
distribution and telecommunications infrastructure) and TransCanada
Corporation (an energy company focused on natural gas transmission and
power services). He also serves on the board of the Whitehead Institute
for Biomedical Research (a non-profit research institution) and has been
President of the Yale University Council since 1993. Prior to February
2002, he was a Director of State Farm Indemnity Company (an automobile
insurance company), and, prior to March 2000, he was a Director of New
England Electric System (a public utility holding company).
Dr. Joskow has published five books and numerous articles on topics in
industrial organization, government regulation of industry, and competition
policy. He is active in industry restructuring, environmental, energy,
competition and privatization policies -- serving as an advisor to
governments and corporations worldwide. Dr. Joskow holds a Ph.D. and M.
Phil from Yale University and B.A. from Cornell University.
Elizabeth T. Kennan (2/25/38), Trustee since 1992
Dr. Kennan is a Partner 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 and is a Director of Talbots, Inc. She has served as Director
on a number of other boards, including Bell Atlantic, Chastain Real
Estate, Shawmut Bank, Berkshire Life Insurance and Kentucky Home Life
Insurance. She is a Trustee of the National Trust for Historic
Preservation, of Centre College and of Midway College in Midway,
Kentucky. She is also a member of The Trustees of Reservations. Dr.
Kennan has served on the oversight committee of the Folger Shakespeare
Library, as President of Five Colleges Incorporated, as a Trustee of
Notre Dame University and is active in various educational and civic
associations.
As a member of the faculty of Catholic University for twelve years,
until 1978, Dr. Kennan directed the post-doctoral program in Patristic
and Medieval Studies, taught history and published numerous articles.
Dr. Kennan holds a Ph.D. from the University of Washington in Seattle,
an M.S. from St. Hilda's College at Oxford University and an A.B. from
Mount Holyoke College. She holds several honorary doctorates.
John H. Mullin, III (6/15/41), Trustee since 1997
Mr. Mullin is the Chairman and CEO of Ridgeway Farm (a limited liability
company engaged in timber and farming).
Mr. Mullin serves as a Director of The Liberty Corporation (a
broadcasting company), Progress Energy, Inc. (a utility company,
formerly known as Carolina Power & Light) and Sonoco Products, Inc. (a
packaging company). Mr. Mullin is Trustee Emeritus of The National
Humanities Center and Washington & Lee University, where he served as
Chairman of the Investment Committee. Prior to May 2001, he was a
Director of Graphic Packaging International Corp. Prior to February
2004, he was a Director of Alex Brown Realty, Inc.
Mr. Mullin is also a past Director of Adolph Coors Company; ACX
Technologies, Inc.; Crystal Brands, Inc.; Dillon, Read & Co., Inc.;
Fisher-Price, Inc.; and The Ryland Group, Inc. Mr. Mullin is a graduate
of Washington & Lee University and The Wharton Graduate School,
University of Pennsylvania.
Robert E. Patterson (3/15/45), Trustee since 1984
Mr. Patterson is Senior Partner of Cabot Properties, L.P. and Chairman
of Cabot Properties, Inc. (a private equity firm investing in commercial
real estate).
Mr. Patterson serves as Chairman of the Joslin Diabetes Center and as a
Director of Brandywine Trust Company. Prior to June 2003, he was a
Trustee of Sea Education Association. Prior to December 2001, he was
President and Trustee of Cabot Industrial Trust (a publicly traded real
estate investment trust). Prior to February 1998, 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) and as a Senior Vice President of
the Beal Companies (a real estate management, investment and development
firm).
Mr. Patterson practiced law and held various positions in state
government and was the founding Executive Director of the Massachusetts
Industrial Finance Agency. Mr. Patterson is a graduate of Harvard
College and Harvard Law School.
W. Thomas Stephens (9/2/42), Trustee since 1997
Mr. Stephens serves on a number of corporate boards.
Effective November 2004, Mr. Stephens is expected to become Chief
Executive Officer of Boise Cascade, L.L.C. (a paper, forest products and
timberland assets company). Mr. Stephens serves as a Director of
TransCanada Pipelines Limited. Until 2004, Mr. Stephens was a Director
of Xcel Energy Incorporated, a public utility company, Qwest
Communications, and Norske Canada, Inc. (a paper manufacturer). Until
2003, Mr. Stephens was a Director of Mail-Well, Inc. (a diversified
printing company). He served as Chairman of Mail-Well until 2001 and as
CEO of MacMillan-Bloedel, Ltd. (a forest products company) until 1999.
Prior to 1996, Mr. Stephens was Chairman and Chief Executive Officer of
Johns Manville Corporation. He holds B.S. and M.S. degrees from the
University of Arkansas.
George Putnam, III* (8/10/51), Trustee since 1984 and President
since 2000
Mr. Putnam is President of New Generation Research, Inc. (a publisher of
financial advisory and other research services), and of New Generation
Advisers, Inc. (a registered investment advisor to private funds). Mr.
Putnam founded the New Generation companies in 1986.
Mr. Putnam is a Director of The Boston Family Office, LLC (a registered
investment adviser). He is a Trustee of St. Mark's School, Shore Country
Day School, and until 2002 was a Trustee of the Sea Education
Association.
Mr. Putnam previously worked as an attorney with the law firm of Dechert
LLP (formerly known as Dechert Price & Rhoads) in Philadelphia. He is a
graduate of Harvard College, Harvard Business School and Harvard Law
School.
A.J.C. Smith* (4/13/34), Trustee since 1986
Mr. Smith is the Chairman of Putnam Investments and Director of and
Consultant to Marsh & McLennan Companies, Inc.
Mr. Smith is also a Director of Trident Corp. (a limited partnership with
over thirty institutional investors). He is also a Trustee of the Carnegie
Hall Society, the Educational Broadcasting Corporation, and the National
Museums of Scotland. He is Chairman of the Central Park Conservancy and a
Member of the Board of Overseers of the Joan and Sanford I. Weill Graduate
School of Medical Sciences of Cornell University. Prior to May 2000 and
November 1999, Mr. Smith was Chairman and CEO, respectively, of Marsh &
McLennan Companies, Inc.
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of August 31, 2004, there were 103 Putnam Funds, each of which is
overseen by each Trustee.
Each Trustee serves for an indefinite term, until his or her
resignation, retirement at age 72, death, or removal.
* Trustees who are or may be deemed to be "interested persons" (as defined
in the Investment Company Act of 1940) of the fund, Putnam Management,
Putnam Retail Management, or Marsh & McLennan Companies, Inc., the parent
company of Putnam, LLC and its affiliated companies. Messrs. Putnam, III,
and Smith are deemed "interested persons" by virtue of their positions as
officers of the fund, Putnam Management, Putnam Retail Management or Marsh
& McLennan Companies, Inc. and as shareholders of Marsh & McLennan
Companies, Inc. Mr. Putnam, III is the President of your fund and each of
the other Putnam funds. Mr. Smith serves as a Director of and Consultant to
Marsh & McLennan Companies, Inc. and as Chairman of Putnam Investments.
Officers
In addition to George Putnam, III, the other officers of the
fund are shown below:
Charles E. Porter (7/26/38)
Executive Vice President, Associate Treasurer
and Principal Executive Officer
Since 1989
Managing Director, Putnam Investments
and Putnam Management
Jonathan S. Horwitz (6/4/55)
Senior Vice President and Treasurer
Since 2004
Managing Director, Putnam Investments
Steven D. Krichmar (6/27/58)
Vice President and Principal Financial Officer
Since 2002
Senior Managing Director, Putnam Investments.
Prior to July 2001, Partner,
PricewaterhouseCoopers LLP
Michael T. Healy (1/24/58)
Assistant Treasurer and Principal
Accounting Officer
Since 2000
Managing Director, Putnam Investments
Beth S. Mazor (4/6/58)
Vice President
Since 2002
Senior Vice President, Putnam Investments
Daniel T. Gallagher (2/27/62)
Vice President and Legal and Compliance
Liaison Officer
Since 2004
Vice President, Putnam Investments. Prior to
2004, Associate, Ropes & Gray LLP; prior to
2000, Law Clerk, Massachusetts Supreme
Judicial Court
Francis J. McNamara, III (8/19/55)
Vice President and Chief Legal Officer
Since 2004
Senior Managing Director, Putnam
Investments, Putnam Management and
Putnam Retail Management. Prior to 2004,
General Counsel, State Street Research &
Management Company
James P. Pappas (2/24/53)
Vice President
Since 2004
Managing Director, Putnam Investments and
Putnam Management. From 2001 to 2002, Chief
Operating Officer, Atalanta/Sosnoff Management
Corporation; prior to 2001, President and Chief
Executive Officer, UAM Investment Services, Inc.
Richard S. Robie, III (3/30/60)
Vice President
Since 2004
Senior Managing Director, Putnam
Investments, Putnam Management and
Putnam Retail Management. Prior to 2003,
Senior Vice President, United Asset
Management Corporation
Charles A. Ruys de Perez (10/17/57)
Vice President and Chief Compliance Officer
Since 2004
Managing Director, Putnam Investments
Mark C. Trenchard (6/5/62)
Vice President and BSA Compliance Officer
Since 2002
Senior Vice President, Putnam Investments
Judith Cohen (6/7/45)
Clerk and Assistant Treasurer
Since 1993
Clerk and Assistant Treasurer, The Putnam Funds
The address of each Officer is One Post Office Square,
Boston, MA 02109.
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds.
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
Intermediate U.S. Government
Income Fund
Money Market Fund++
U.S. Government Income Trust
Tax-free Income Funds
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund++
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds
Arizona, California, Florida, Massachusetts,
Michigan, Minnesota, New Jersey, New York,
Ohio and Pennsylvania
Asset Allocation Funds
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
* A 1% redemption fee on total assets redeemed or exchanged between 6 and
90 days of purchase may be imposed for all share classes of these funds.
+ Closed to new investors.
++ 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 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 2% redemption fee will be
applied to shares exchanged or sold within 5 days of purchase.
Check your account balances and the most recent month-end
performance at www.putnaminvestments.com.
Services for shareholders
Investor services
Help your investment grow Set up a program for systematic investing with
as little as $25 a month from a Putnam fund or from your own savings or
checking account. (Regular investing does not guarantee a profit or protect
against loss in a declining market.)
Switch funds easily* You can move money from one Putnam fund to another
within the same class of shares without a service charge.
Access your money easily You can have checks sent regularly or redeem
shares any business day at the then-current net asset value, which may be
more or less than the original cost of the shares. Class B and class C
shares carry a sales charge that is applied to certain withdrawals.
How to buy additional shares You may buy shares through your financial
advisor or directly from Putnam. To open an account by mail, send a check
made payable to the name of the fund along with a completed fund
application. To add to an existing account, complete the investment slip
found at the top of your Confirmation of Activity statement and return it
with a check payable to your fund.
For more information
Visit www.putnaminvestments.com
A secure section of our Web site contains complete information on your
account, including balances and transactions, updated daily. You may also
conduct transactions, such as exchanges, additional investments, and
address changes. Log on today to get your password.
Use our toll-free number 1-800-225-1581 Ask a helpful Putnam representative
or your financial advisor for details about any of these or other services,
or see your prospectus.
* This privilege is subject to change or termination. An exchange of funds
may result in a taxable event. In addition, a 2% redemption fee will be
applied to shares exchanged or sold within 5 days of purchase, and certain
funds have imposed a 1% redemption fee on total assets redeemed or
exchanged between 6 and 90 days of purchase.
Putnam puts your interests first
In January, Putnam announced a number of voluntary initiatives designed to
reduce fund expenses, provide investors with more useful information, and
help safeguard the interests of all Putnam investors. For details, visit
www.putnaminvestments.com.
Cost-cutting initiatives
Reduced sales charges
Effective immediately, the maximum sales charge for class A shares has been
reduced to 5.25% for equity funds (formerly 5.75%) and 4.50% for most
income funds (formerly 4.75%).*
Lower class B purchase limit
To help ensure that investors are in the most cost-effective share class,
the maximum amount that can be invested in class B shares has been reduced
to $100,000. (Larger trades or accumulated amounts will be directed to
class A shares.)
Ongoing expenses will be limited
During calendar 2004, total ongoing expenses, including management fees for
all funds, will be maintained at or below the average of each fund's
industry peers in its Lipper load-fund universe. For more information,
please see the Statement of Additional information.
Additional measures are being taken to reduce expenses for shareholders in
the six global and international funds that had short-term trading issues.
Improved disclosure
Putnam fund prospectuses and shareholder reports are being revised to
disclose additional information that will help shareholders compare funds
and weigh their costs and risks along with their potential benefits.
Shareholders will find easy-to-understand information about fund expense
ratios, portfolio manager compensation, risk comparisons, brokerage
commissions, and employee and trustee ownership of Putnam funds. Disclosure
of breakpoint discounts is also being enhanced to alert investors to
potential cost savings.
Protecting investors' interests
New short-term trading fee introduced
To discourage short-term trading, which can interfere with a fund's
long-term strategy, a 2% short-term trading fee will be imposed on any
Putnam fund shares redeemed or exchanged within five calendar days of
purchase.
* The maximum sales charge for class A shares of Putnam U.S. Intermediate
Government Income Fund and Putnam Floating Rate Income Fund remains 3.25%.
Fund information
About Putnam Investments
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition
and practice since 1830. Founded over 65 years ago, Putnam Investments
was built around the concept that a balance between risk and reward is
the hallmark of a well-rounded financial program. We presently manage
over 100 mutual funds in growth, value, blend, fixed income, and
international.
Investment Manager
Putnam Investment
Management, LLC
One Post Office Square
Boston, MA 02109
Marketing Services
Putnam Retail Management
One Post Office Square
Boston, MA 02109
Custodian
Putnam Fiduciary Trust Company
Legal Counsel
Ropes & Gray LLP
Independent Registered
Public Accounting Firm
KPMG LLP
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
John H. Mullin, III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
Officers
George Putnam, III
President
Charles E. Porter
Executive Vice President,
Associate Treasurer and
Principal Executive Officer
Jonathan S. Horwitz
Senior Vice President
and Treasurer
Steven D. Krichmar
Vice President and Principal
Financial Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
Beth S. Mazor
Vice President
Daniel T. Gallagher
Vice President and Legal and
Compliance Liaison Officer
James P. Pappas
Vice President
Richard S. Robie, III
Vice President
Mark C. Trenchard
Vice President and BSA
Compliance Officer
Francis J. McNamara, III
Vice President and
Chief Legal Officer
Charles A. Ruys de Perez
Vice President and
Chief Compliance Officer
Judith Cohen
Clerk and Assistant Treasurer
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.putnaminvestments.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.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
Call 1-800-225-1581 or visit our Web site
www.putnaminvestments.com.
AN034-216507 10/04
Not FDIC Insured May Lose Value No Bank Guarantee
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ----------------------------------------------------------------------------
Putnam High Yield Trust
Supplement to Annual Report dated 8/31/04
The following information has been prepared to provide class Y shareholders
with a performance overview specific to their holdings. Class Y shares are
offered exclusively to clients that meet the eligibility requirements
specified in the fund's prospectus for such shares. Performance of class Y
shares, which do not incur a front-end load, a distribution fee, or a
contingent deferred sales charge, will differ from the performance of class
A, B, C, M, and R shares, which are discussed more extensively in the
annual report.
RESULTS AT A GLANCE
- ----------------------------------------------------------------------------
Total return for periods ended 8/31/04
NAV
1 year 14.34%
5 years 29.24
Annual average 5.26
10 years 85.62
Annual average 6.38
Life of fund (since class A inception, 2/14/78)
Annual average 9.30
Share value: NAV
8/31/03 $7.53
8/31/04 $7.96
- ----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
12 $0.618 -- $0.618
- ----------------------------------------------------------------------------
Please note that past performance is not indicative of future results. More
recent returns may be more or less than those shown. Returns shown for
class Y shares for periods prior to their inception on 12/31/98 are derived
from the historical performance of class A shares, and are not adjusted to
reflect the initial sales charge currently applicable to class A shares.
These returns have not been adjusted to reflect differences in operating
expenses which, for class Y shares, typically are lower than the operating
expenses applicable to class A shares. All returns assume reinvestment of
distributions at net asset value. Investment return and principal value
will fluctuate so your shares, when redeemed, may be worth more or less
than their original cost. A short-term trading fee of up to 2% may apply.
See full report for information on comparative benchmarks. If you have
questions, please consult your fund prospectus or call Putnam toll free at
1-800-752-9894.
Please see pages 10-11 of the accompanying shareholder report for a
discussion of the information appearing in the tables below:
- ----------------------------------------------------------------------------
EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming actual returns for the 6 months ended 8/31/04
Class Y
Expenses paid per $1,000* $3.88
Ending value (after expenses) $1,033.10
- ----------------------------------------------------------------------------
EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming a hypothetical 5% annualized return for the 6 months ended 8/31/04
Class Y
Expenses paid per $1,000* $3.86
Ending value (after expenses) $1,021.32
- ----------------------------------------------------------------------------
EXPENSE RATIO COMPARISON USING ANNUALIZED DATA
Your fund's annualized expense ratio+ 0.76%
Average annualized expense ratio for Lipper peer group++ 0.89%
++ For class Y shares, Putnam has adjusted the Lipper total expense average
to reflect that class Y shares do not incur 12b-1 fees.
- ----------------------------------------------------------------------------
Item 2. Code of Ethics:
- -----------------------
All officers of the Fund, including its principal executive, financial and
accounting officers, are employees of Putnam Investment Management, LLC,
the Fund's investment manager. As such they are subject to a comprehensive
Code of Ethics adopted and administered by Putnam Investments which is
designed to protect the interests of the firm and its clients. The Fund
has adopted a Code of Ethics which incorporates the Code of Ethics of
Putnam Investments with respect to all of its officers and Trustees who are
employees of Putnam Investment Management, LLC. For this reason, the Fund
has not adopted a separate code of ethics governing its principal
executive, financial and accounting officers.
Item 3. Audit Committee Financial Expert:
- -----------------------------------------
The Funds' Audit and Pricing Committee is comprised solely of Trustees
who are "independent" (as such term has been defined by the Securities
and Exchange Commission ("SEC") in regulations implementing Section 407
of the Sarbanes-Oxley Act (the "Regulations")). The Trustees believe
that each of the members of the Audit and Pricing Committee also possess
a combination of knowledge and experience with respect to financial
accounting matters, as well as other attributes, that qualify them for
service on the Committee. In addition, the Trustees have determined
that all members of the Funds' Audit and Pricing Committee meet the
financial literacy requirements of the New York Stock Exchange's rules
and that Mr. Patterson and Mr. Stephens qualify as "audit committee
financial experts" (as such term has been defined by the Regulations)
based on their review of their pertinent experience and education.
Certain other Trustees, although not on the Audit and Pricing Committee,
would also qualify as "audit committee financial experts." The SEC has
stated that the designation or identification of a person as an audit
committee financial expert pursuant to this Item 3 of Form N-CSR does
not impose on such person any duties, obligations or liability that are
greater than the duties, obligations and liability imposed on such
person as a member of the Audit and Pricing Committee and the Board of
Trustees in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services:
- -----------------------------------------------
The following table presents fees billed in each of the last two
fiscal years for services rendered to the fund by the fund's
independent auditors:
Audit Audit-Related Tax All Other
Fiscal year ended Fees Fees Fees Fees
- ----------------- ---------- ------------- ------- ---------
August 31, 2004 $46,543* $-- $4,150 $659
August 31, 2003 $36,800 $24,500** $3,600 $1,731
* Includes fees of $ 4,194 billed by the fund's independent auditor
to the fund for audit procedures necessitated by regulatory and
litigation matters. These fees were reimbursed to the fund by
Putnam.
** Includes fees billed to the fund for services relating to a fund
merger.
For the fiscal years ended August 31, 2004 and August 31, 2003, the
fund's independent auditors billed aggregate non-audit fees in the
amounts of $ 4,809 and $29,831 , respectively, to the fund, Putnam
Management and any entity controlling, controlled by or under common
control with Putnam Management that provides ongoing services to the
fund.
Audit Fees represents fees billed for the fund's last two fiscal
years.
Audit-Related Fees represents fees billed in the fund's last two
fiscal years for services traditionally performed by the fund's
auditor, including accounting consultation for proposed transactions
or concerning financial accounting and reporting standards and other
audit or attest services not required by statute or regulation.
Tax Fees represent fees billed in the fund's last two fiscal years
for tax compliance, tax planning and tax advice services. Tax
planning and tax advice services include assistance with tax audits,
employee benefit plans and requests for rulings or technical advice
from taxing authorities.
All Other Fees Fees represent fees billed for services relating
relating to calculation of investment performance and interfund
trading .
Pre-Approval Policies of the Audit and Pricing Committee. The Audit
and Pricing Committee of the Putnam funds has determined that, as a
matter of policy, all work performed for the funds by the funds'
independent auditors will be pre-approved by the Committee and will
generally not be subject to pre-approval procedures.
Under certain circumstances, the Audit and Pricing Committee
believes that it may be appropriate for Putnam Investment
Management, LLC ("Putnam Management") and certain of its affiliates
to engage the services of the funds' independent auditors, but only
after prior approval by the Committee. Such requests are required
to be submitted in writing to the Committee and explain, among other
things, the nature of the proposed engagement, the estimated fees,
and why this work must be performed by that particular audit firm.
The Committee will review the proposed engagement at its next
meeting.
Since May 6, 2003, all work performed by the independent auditors
for the funds, Putnam Management and any entity controlling,
controlled by or under common control with Putnam Management that
provides ongoing services to the fund was pre-approved by the
Committee or a member of the Committee pursuant to the pre-approval
policies discussed above. Prior to that date, the Committee had a
general policy to pre-approve the independent auditor's engagements
for non-audit services with the funds, Putnam Management and any
entity controlling, controlled by or under common control with
Putnam Management that provides ongoing services to the fund.
The following table presents fees billed by the fund's principal
auditor for services required to be approved pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X.
Audit-Related Tax All Other Total Non-
Fiscal year ended Fees Fees Fees Audit Fees
- ----------------- ------------- ---- --------- ----------
August 31, 2004 $-- $-- $-- $--
August 31, 2003 $-- $-- $-- $--
Item 5. Audit Committee: Not applicable
- -------------------------
Item 6. Schedule of Investments: Not applicable
- --------------------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End
- -------------------------------------------------------------------------
Management Investment Companies: Not applicable
--------------------------------
Item 8. Purchases of Equity Securities by Closed-End Management Investment
- --------------------------------------------------------------------------
Companies and Affiliated Purchasers: Not applicable
------------------------------------
Item 9. Submission of Matters to a Vote of Security Holders:
- ------------------------------------------------------------
Not applicable
Item 10. Controls and Procedures:
- --------------------------------
(a) The registrant's principal executive officer and principal
financial officer have concluded, based on their evaluation of the
effectiveness of the design and operation of the registrant's
disclosure controls and procedures as of a date within 90 days of
the filing date of this report on Form N-CSR, that the design and
operation of such procedures are generally effective to provide
reasonable assurance that information required to be disclosed by
the investment company in the reports that it files or submits under
the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the
Commission's rules and forms.
(b) Changes in internal control over financial reporting:
Not applicable
Item 11. Exhibits:
- ------------------
(a) The Code of Ethics of The Putnam Funds, which incorporates the
Code of Ethics of Putnam Investments, is filed herewith.
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act
of 2002 are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: October 27, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Executive Officer
Date: October 27, 2004
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: October 27, 2004