N-CSRS 1 a_highyieldtrust.htm PUTNAM HIGH YIELD TRUST a_highyieldtrust.htm
   
UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION 
Washington, D.C. 20549 
 
FORM N-CSR 
 
CERTIFIED SHAREHOLDER REPORT OF REGISTERED 
MANAGEMENT INVESTMENT COMPANIES 
 
Investment Company Act file number: (811- 02796)   
 
Exact name of registrant as specified in charter:  Putnam High Yield Trust 
 
Address of principal executive offices: One Post Office Square, Boston, Massachusetts 02109 
 
Name and address of agent for service:  Beth S. Mazor, Vice President 
  One Post Office Square 
  Boston, Massachusetts 02109 
 
Copy to:  John W. Gerstmayr, Esq. 
  Ropes & Gray LLP 
  One International Place 
  Boston, Massachusetts 02110 
 
Registrant’s telephone number, including area code:  (617) 292-1000 
 
Date of fiscal year end: August 31, 2008     
 
Date of reporting period: September 1, 2007 — February 29, 2008 

Item 1. Report to Stockholders:

The following is a copy of the report transmitted to stockholders pursuant to Rule 30e-1 under the Investment Company Act of 1940:


What makes Putnam different?


In 1830, Massachusetts Supreme Judicial Court Justice Samuel Putnam established The Prudent Man Rule, a legal foundation for responsible money management.

THE PRUDENT MAN RULE

All that can be required of a trustee to invest is that he shall conduct himself faithfully and exercise a sound discretion. He is to observe how men of prudence, discretion, and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of the capital to be invested.


A time-honored tradition in money management

Since 1937, our values have been rooted in a profound sense of responsibility for the money entrusted to us.

A prudent approach to investing

We use a research-driven team approach to seek consistent, dependable, superior investment results over time, although there is no guarantee a fund will meet its objectives.

Funds for every investment goal

We offer a broad range of mutual funds and other financial products so investors and their financial representatives can build diversified portfolios.

A commitment to doing what’s right for investors

With a focus on investment performance, below-average expenses, and in-depth information about our funds, we put the interests of investors first and seek to set the standard for integrity and service.

Industry-leading service

We help investors, along with their financial representatives, make informed investment decisions with confidence.

Putnam
High Yield
Trust

2| 29| 08
Semiannual Report

Message from the Trustees  2 
About the fund  4 
Performance snapshot  6 
Interview with your fund’s Portfolio Leader  7 
Performance in depth  12 
Expenses  15 
Portfolio turnover  17 
Risk  18 
Your fund’s management  19 
Terms and definitions  21 
Trustee approval of management contract  23 
Other information for shareholders  29 
Financial statements  30 

Cover photograph: © Richard H. Johnson

Message from the Trustees

Dear Fellow Shareholder:

In 2008, financial markets and the economy face many challenges. The credit crisis that began as a rise in defaults for a limited segment of the U.S. mortgage market has spread across the global financial sector and produced a severe tightening of credit conditions. Growth has been curtailed as a result, and markets have reacted by sending stock prices lower. In the United States, the economy has weakened considerably, with many predicting that we are now in a recession, or will be soon. The good news is that policymakers are taking decisive action to counter these developments: The Federal Reserve Board has cut interest rates and added liquidity to the credit markets. In February, federal lawmakers, working with the president, approved a $168 billion fiscal stimulus plan, which will deliver tax rebate checks to tens of millions of Americans.

Still, as investors it is natural to feel discouraged. During these challenging times, it is important to remember the value of a long-term perspective and the counsel of your financial representative. The normal condition of the economy and corporate earnings is one of growth, albeit with occasional interruptions. If recent history is any indication, recessions in the United States are short-lived compared to economic expansions. Since 1960, the economy has experienced seven recessions lasting an average of 11 months, versus 64 months for the average expansion.

Starting this month, we have changed the portfolio manager’s commentary in this report to a question-and-answer format. We feel this new approach makes the information more readable and accessible, and we hope you think so as well.

2

Lastly, we would like to take this opportunity to welcome new shareholders to the fund and to thank all of our existing investors for your continued confidence in Putnam. We note that Putnam Investments celebrated its 70th anniversary in November. From modest beginnings in Boston, Massachusetts, the company has grown into a global asset manager that serves millions of investors worldwide. Although the mutual fund industry has undergone many changes since George Putnam introduced his innovative balanced fund in 1937, Putnam’s guiding principles have not. As we celebrate this 70-year milestone, we look forward to Putnam continuing its long tradition of prudent money management.


Putnam High Yield Trust: A disciplined approach
to seeking high current income and capital growth

Unlike most types of fixed-income investments, high-yield bonds are more influenced by the performance of issuing companies than by interest rates. For this reason, distinguishing between opportunities and pitfalls in the high-yield bond market requires a rigorous selection process. With Putnam High Yield Trust, this process is highlighted by exhaustive research, investment diversification, and timely portfolio adjustments.

Because of the risks of high-yield bond investing, in-depth credit research is essential. The fund’s research team — more than 20 professionals, including analysts who specialize by industry — visits with the management of issuing companies and analyzes each company’s profitability and capital structure. The team then considers this information in the context of the bond’s total return profile before deciding whether it is an appropriate investment for the fund.

The fund’s portfolio typically consists of bonds issued by a broad range of companies. Holdings are diversified across industry sectors and among bonds with different credit ratings. While the fund invests primarily in the bonds of U.S. companies, its diversified approach allows it to include foreign bonds as well. Among these securities, investments in emerging-market bonds can enhance the fund’s appreciation potential. The fund also invests in convertible securities as well as bank loans. Although diversification does not ensure a profit or protect against a loss and it is possible to lose money in a diversified portfolio, the fund’s diversification can help reduce the volatility that typically comes with higher-risk investments.

As the bond markets shift over time, the fund’s management team looks for ways to capitalize on developments that affect fixed-income securities in general and high-yield bonds in particular. For example, if credit spreads widen and prices of lower-rated securities decline, the team may look to take advantage of the improved valuation of higher-risk securities. Conversely, if the team believes that credit risk is likely to pick up or volatility is likely to increase, the team may look to reduce risk in the portfolio.

Lower-rated bonds may offer higher yields in return for more risk. Mutual funds that invest in bonds are subject to certain risks, including interest-rate risk, credit risk, and inflation risk. As interest rates rise, the prices of bonds fall. Long-term bonds are more exposed to interest-rate risk than short-term bonds. Unlike bonds, bond funds have ongoing fees and expenses.

What makes a bond “high yield”?

High-yield bonds are fixed-income investments typically issued by companies that lack an established earnings track record or a solid credit history. In general, high-yield bonds offer higher interest rates than investment-grade bonds to compensate for their increased risk. Because of this added risk, these bonds are rated below investment grade by an independent rating agency. (For example, the lowest Moody’s Investors Service rating of investment-grade bonds is Baa.) The lower the rating, the greater the possibility that a bond’s issuer will be unable to make interest payments or repay the principal.

BOND RATINGS   
Moody’s    Grade 
Aaa  Investment 
Aa  Investment 
Baa  Investment 
Ba, B  High yield 
Caa/Ca  High yield 
C  High yield 

High-yield bonds have offered greater return potential
than investment-grade bonds.


Performance snapshot

Putnam High Yield Trust


Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will fluctuate, and you may have a gain or a loss when you sell your shares. Performance of class A shares assumes reinvestment of distributions and does not account for taxes. Fund returns in the bar chart do not reflect a sales charge of 4.00%; had they, returns would have been lower. See pages 7 and 12–14 for additional performance information. For a portion of the periods, this fund may have limited expenses, without which returns would have been lower. A 1% short-term trading fee may apply. To obtain the most recent month-end performance, visit www.putnam.com.

* Returns for the six-month period are not annualized, but cumulative.

† The inception of the JPMorgan Developed High Yield Index was 12/31/94.

6


The period in review

Thanks for taking the time today to talk about High Yield Trust, Paul. How did the fund perform during the past six months?

It held up relatively well during a difficult period for the high-yield bond market. For the six months ending February 29, 2008, the fund returned –1.56%, compared with –1.54% for its benchmark, the JPMorgan Developed High Yield Index, and –2.48% for our Lipper peer group, High Current Yield Funds.

What factors caused the high-yield market to post a negative return during the period?

In response to the subprime mortgage crisis and the resulting contagion that impacted the capital markets, high-yield bonds sold off during the two months that preceded the semiannual period. There was a modest recovery in September and October 2007, but high-yield bond performance subsequently declined in late 2007 due to concerns about the trajectory of the U.S. economy

Broad market index and fund performance

This comparison shows your fund’s performance in the context of broad market indexes for the six months ended 2/29/08. See page 6 and pages 12–14 for additional fund performance information. Index descriptions can be found on page 22.


7

and corporate business fundamentals. Despite historically low default rates, these worries, along with a large overhang of new issuance, have held back the market so far in 2008.

What strategy did you use to weather this challenging environment?

We were well positioned during this difficult period. We had taken down some of our lower-rated positions earlier in 2007 and were overweight in sectors that generally outperformed during this period. Investing in floating-rate bank loans issued by high-yield companies was another method we used to attempt to temper the fund’s volatility. Unfortunately, this asset class suffered price losses as well, and our stance in it detracted from our performance relative to the benchmark.

What other moves did you make with the fund?

As high-yield bond prices declined, we were able to uncover buying opportunities among some lower-quality pockets of the market. During the period, the fund benefited from underweighting the financials and housing industries, and by overweighting energy issues — two postures we’ve maintained. At the same time, fund performance was held back by overweighting the diversified media group. Other areas we overweighted included aerospace and defense, cable TV/wireless, consumer products, and metals/minerals. Grocers, tobacco, forest

Top 10 holdings

This table shows the fund’s top 10 holdings and the percentage of the fund’s net assets that each represented as of 2/29/08. Holdings will vary over time.

COUPON (%) and   
HOLDING (percentage of fund’s net assets)  MATURITY DATE    SECTOR/INDUSTRY 
General Motors Corp. (1.0%)  7.2%, 2011  Consumer cyclicals/Automotive 
NRG Energy, Inc. (0.7%)  7.375%, 2016  Utilities & power/Power producers 
Ford Motor Credit Co., LLC (0.7%)  9.875%, 2011  Consumer cyclicals/Automotive 
Echostar DBS Corp. (0.7%)  6.375%, 2011  Consumer staples/Broadcasting 
Freeport-McMoRan Copper     
& Gold, Inc. (0.7%)  8.375%, 2017  Basic materials/Metals 
GMAC, LLC (0.7%)  6.875%, 2012  Financials/Financials 
Legrand SA (0.6%)  8.5%, 2025  Capital goods/Manufacturing 
SunGard Data Systems, Inc. (0.6%)  9.125%, 2013  Technology/Computers 
CCH I, LLC (0.6%)  11%, 2015  Consumer staples/Cable television 
GMAC, LLC (0.6%)  6.75%, 2014  Financials/Financials 

8

products, gaming, and retail were groups that we chose to underweight.

Let’s talk about some of the fund’s holdings. Which contributed to performance relative to the index?

As mentioned, our stake in energy companies helped performance, including investments in natural gas companies El Paso, Williams, and Chesapeake Energy, all of which profited from the rise in the price of natural gas. Energy companies outperformed because they’re seen as relatively immune to any economic downturn. International Coal also performed well, as the price of that commodity also rose. Relative to the index, the fund benefited further from underweighting index components, including financing company Residential Capital, which was hurt by its subprime mortgage exposure.

Which securities detracted from performance?

Diversified media company Vertis underperformed when its proposed acquisition of a competitor was called off. Restaurant company Buffets defaulted during the period in the aftermath of weak operating results.

Credit quality comparison

This chart shows how the fund’s credit quality has changed over the past six months. Credit qualities are shown as a percentage of portfolio value. A bond rated Baa or higher (MIG3/VMIG3 or higher, for short-term debt) is considered investment grade. The chart reflects Moody’s ratings; percentages may include bonds not rated by Moody’s but considered by Putnam Management to be of comparable quality. Ratings will vary over time.


9

While the fund had a small stake in this company, we fortunately had cut back the position in advance of the announcement. Gaming company Tropicana Entertainment declined as new management lost the license for its top casino site in New Jersey. Cable TV provider Charter Communications lagged because the company’s potential buy-out didn’t come to fruition. Lastly, our stake in bank loans detracted from performance. Loans declined in price as demand for them dropped sharply at the same time a significant calendar of new bank-loan issuance was being prepared for release into the market. We took advantage of these price declines to purchase additional bank loans at what we found to be particularly attractive valuations.

I N   T H E   N E W S

The subprime mortgage financial crisis started with the downturn in the U.S. housing market during the fall of 2006 and became a global financial crisis by July 2007. Lax mortgage-lending practices in 2005 and 2006 resulted in rising debt load for borrowers with weak credit histories. This situation was sustainable when mortgage rates were extremely low and home prices were rising, but when these conditions reversed course, delinquencies and foreclosures began to spike. Many homeowners were unable or unwilling to meet financial commitments, and many lenders were left without a means to recoup their losses. As this report was being prepared, the problem continued to take its toll on markets around the world, most recently with the announced acquisition of Bear Stearns Cos. by JPMorgan Chase & Co. In past economic cycles, defaults would have been limited, but the repackaging, securitization, and wide-scale distribution of subprime mortgage debt by U.S. investment banks enabled the mortgage crisis to take on global proportions.

Paul, what’s your outlook for the coming months?

This is an unusual time in the credit markets. We have had a massive widening in high-yield spreads, which would normally be associated with default rates that are well above average. However, default rates remain low by historic measures, while we believe they will rise, the market appears to have factored in at least some of that increase. We think that corporate business fundamentals are likely to deteriorate along with a weakening national economy, driving this increase in defaults. In addition, market technicals — meaning factors of supply and demand — are currently not working in the asset class’s favor. Specifically, a large amount of issuance remains poised to come to

10

market at a time when investors have not rediscovered an appetite for the added risk inherent in high-yield bonds. On the bright side, this backdrop has increased the spread — or yield advantage — of high-yield bonds over comparable U.S. Treasuries, meaning high-yield bond prices are, in many instances, more attractive than they have been for quite some time. For our part, we are excited about the opportunities the market should present. We believe that this kind of environment is one in which our approach can prove significantly beneficial for our fellow shareholders.

Thanks for your time and insight today, Paul.

The views expressed in this report are exclusively those of Putnam Management. They are not meant as investment advice.

Lower-rated bonds may offer higher yields in return for more risk. 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. Please note that the holdings discussed in this report may not have been held by the fund for the entire period. Portfolio composition is subject to review in accordance with the fund’s investment strategy and may vary in the future.

11

Your fund’s performance

This section shows your fund’s performance, price, and distribution information for periods ended February 29, 2008, the end of the first half of its current fiscal year. In accordance with regulatory requirements for mutual funds, we also include performance as of the most recent calendar quarter-end and expense information taken from the fund’s current prospectus. Performance should always be considered in light of a fund’s investment strategy. Data represents past performance. Past performance does not guarantee future results. More recent returns may be less or more than those shown. Investment return and principal value will fluctuate, and you may have a gain or a loss when you sell your shares. Performance information does not reflect any deduction for taxes a shareholder may owe on fund distributions or on the redemption of fund shares. For the most recent month-end performance, please visit the Individual Investors section of www.putnam.com or call Putnam at 1-800-225-1581. Class Y shares are generally only available to corporate and institutional clients and clients in other approved programs. See the Terms and Definitions section in this report for definitions of the share classes offered by your fund.

Fund performance

Total return for periods ended 2/29/08

  Class A     Class B     Class C      Class M    Class R    Class Y 
(inception dates)  (2/14/78)    (3/1/93)    (3/19/02)    (7/3/95)   (1/21/03)  (12/31/98)
  NAV    POP  NAV    CDSC  NAV    CDSC   NAV  POP   NAV   NAV 
Life of fund                     
Annual average  8.79%  8.64%  7.87%  7.87%  7.96%  7.96%  8.41%  8.29%  8.50%  8.86% 
10 years  43.14  37.40  33.09  33.09  32.38  32.38  39.41  34.90  38.91  45.96 
Annual average  3.65  3.23  2.90  2.90  2.84  2.84  3.38  3.04  3.34  3.85 
5 years  54.62  48.47  49.06  47.06  48.75  48.75  52.56  47.51  51.90  56.17 
Annual average  9.11  8.23  8.31  8.02  8.27  8.27  8.81  8.08  8.72  9.33 
3 years  11.99  7.57  9.60  6.90  9.55  9.55  11.11  7.47  10.78  12.80 
Annual average  3.85  2.46  3.10  2.25  3.09  3.09  3.57  2.43  3.47  4.10 
1 year  –2.76  –6.63  –3.55  –8.06  –3.54  –4.44  –3.18  –6.36  –3.15  –2.62 
6 months  –1.56  –5.55  –1.95  –6.68  –1.95  –2.90  –1.71  –4.87  –1.69  –1.43 

Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. After sales charge returns (public offering price, or POP) for class A and M shares reflect a maximum 4.00% and 3.25% load, respectively. Class B share returns reflect the applicable contingent deferred sales charge (CDSC), which is 5% in the first year, declining to 1% in the sixth year, and is eliminated thereafter. Class C shares reflect a 1% CDSC for the first year and is eliminated thereafter. Class R and Y shares have no initial sales charge or CDSC. Performance for class B, C, M, R, and Y shares before their inception is derived from the historical performance of class A shares, adjusted for the applicable sales charge (or CDSC) and, except for class Y shares, the higher operating expenses for such shares.

For a portion of the period, this fund limited expenses, without which returns would have been lower.

A 1% short-term trading fee may be applied to shares exchanged or sold within 90 days of purchase.

12

Comparative index returns

For periods ended 2/29/08

    Lipper High Current 
  JPMorgan Developed    Yield Funds 
  High Yield Index  category average* 
Annual average     
(life of fund)  —†  8.47% 
10 years  66.43%  42.85 
Annual average  5.23  3.47 
5 years  55.68  47.33 
Annual average  9.26  7.96 
3 years  12.91  9.58 
Annual average  4.13  3.02 
1 year  –2.66  –4.03 
6 months  –1.54  –2.48 

Index and Lipper results should be compared to fund performance at net asset value.

* Over the 6-month and 1-, 3-, 5-, 10-year, and life-of-fund periods ended 2/29/08, there were 470, 446, 382, 333, 157, and 11 funds, respectively, in this Lipper category.

† This index began operations on 12/31/94.

Fund performance as of most recent calendar quarter

Total return for periods ended 3/31/08

     Class A       Class B    Class C      Class M    Class R    Class Y   
(inception dates)   (2/14/78)     (3/1/93)      (3/19/02)      (7/3/95)    (1/21/03)      (12/31/98)  
   NAV  POP   NAV  CDSC  NAV    CDSC      NAV    POP    NAV    NAV   
Annual average                     
(life of fund)  8.76%  8.61%  7.85%  7.85%  7.93%  7.93%  8.38%  8.26%  8.47%  8.83% 
10 years  40.63  35.02  30.90  30.90  30.18  30.18  37.24  32.72  36.46  43.43 
Annual average  3.47  3.05  2.73  2.73  2.67  2.67  3.22  2.87  3.16  3.67 
5 years  50.83  44.72  45.57  43.57  45.48  45.48  49.01  44.14  48.18  52.57 
Annual average  8.57  7.67  7.80  7.50  7.79  7.79  8.30  7.59  8.18  8.82 
3 years  15.21  10.63  12.91  10.13  12.72  12.72  14.46  10.71  13.98  16.05 
Annual average  4.83  3.42  4.13  3.27  4.07  4.07  4.60  3.45  4.46  5.09 
1 year  –3.36  –7.21  –3.90  –8.40  –4.01  –4.91  –3.53  –6.71  –3.74  –3.10 
6 months  –4.14  –7.95  –4.40  –9.02  –4.41  –5.33  –4.16  –7.29  –4.28  –4.03 

13

Fund price and distribution information

For the six-month period ended 2/29/08

Distributions  Class A    Class B    Class C    Class M    Class R    Class Y   
Number  6  6  6  6  6  6 
Income  $0.294  $0.264  $0.264  $0.282  $0.285  $0.305 
Capital gains  —  —  —  —  —  — 
Total  $0.294  $0.264  $0.264  $0.282  $0.285  $0.305 
Share value:  NAV POP    NAV  NAV  NAV POP   NAV  NAV 
8/31/07  $7.82   $8.15†  $7.79  $7.78  $7.83  $8.09†  $7.77  $7.76 
2/29/08  7.41  7.72  7.38  7.37  7.42 7.67   7.36  7.35 
Current yield             
(end of period)             
Current             
dividend rate1  7.94%   7.62%  7.15%  7.16%  7.60%   7.35%  7.83%  8.16% 
Current 30-day             
SEC yield2,3             
(with expense             
limitation)  N/A 8.05   7.62  7.62  N/A 7.87   8.15  8.65 
Current 30-day             
SEC yield3             
(without             
expense             
limitation)  N/A  8.05  7.61  7.62  N/A  7.87  8.15  8.65 

The classifications of distributions, if any, is an estimate. Final distribution will appear on your year-end tax forms.

† Reflects an increase in sales charges that took effect on 1/2/08.

1 Most recent distribution, excluding capital gains, annualized and divided by NAV or POP at end of period.

2 For a portion of the periods, this fund may have limited expenses, without which yields would have been lower.

3 Based only on investment income and calculated using the maximum offering price for each share class, in accordance with SEC guidelines.

Fund’s annual operating expenses

For the fiscal year ended 8/31/07

  Class A  Class B  Class C  Class M  Class R  Class Y 
Total annual fund             
operating expenses  1.03%  1.78%  1.78%  1.28%  1.28%  0.78% 

Expense information in this table is taken from the most recent prospectus, is subject to change, and may differ from that shown in the next section and in the financial highlights of this report. Expenses are shown as a percentage of average net assets.

14

Your fund’s expenses

As a mutual fund investor, you pay ongoing expenses, such as management fees, distribution fees (12b-1 fees), and other expenses. In the most recent six-month period, your fund limited these expenses; had it not done so, expenses would have been higher. Using the 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 representative.

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 September 1, 2007, to February 29, 2008. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.

    Class A    Class B    Class C    Class M    Class R    Class Y 
Expenses paid per $1,000*  $ 5.23  $ 8.91  $ 8.91  $ 6.46  $ 6.46  $ 4.00 
Ending value (after expenses)  $984.40  $980.50  $980.50  $982.90  $983.10  $985.70 

* Expenses for each share class are calculated using the fund’s annualized expense ratio for each class, which represents the ongoing expenses as a percentage of average net assets for the six months ended 2/29/08. The expense ratio may differ for each share class (see the last table in this section). Expenses are calculated by multiplying the expense ratio by the average account value for the period; then multiplying the result by the number of days in the period; and then dividing that result by the number of days in the year.

Estimate the expenses you paid

To estimate the ongoing expenses you paid for the six months ended February 29, 2008, use the calculation method below. To find the value of your investment on September 1, 2007, call Putnam at 1-800-225-1581.


15

Compare expenses using the SEC’s method

The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the 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.

   Class A   Class B   Class C   Class M   Class R   Class Y 
Expenses paid per $1,000*  $ 5.32  $ 9.07  $ 9.07  $ 6.57  $ 6.57  $ 4.07 
Ending value (after expenses)  $1,019.59  $1,015.86  $1,015.86  $1,018.35  $1,018.35  $1,020.84 

* Expenses for each share class are calculated using the fund’s annualized expense ratio for each class, which represents the ongoing expenses as a percentage of average net assets for the six months ended 2/29/08. The expense ratio may differ for each share class (see the last table in this section). Expenses are calculated by multiplying the expense ratio by the average account value for the period; then multiplying the result by the number of days in the period; and then dividing that result by the number of days in the year.

Compare expenses using industry averages

You can also compare your fund’s expenses with the average of its peer group, as defined by Lipper, an independent fund-rating agency that ranks funds relative to others that Lipper considers to have similar investment styles or objectives. The expense ratio for each share class shown below indicates how much of your fund’s average net assets have been used to pay ongoing expenses during the period.

  Class A  Class B  Class C  Class M  Class R  Class Y 
Your fund’s annualized             
expense ratio  1.06%  1.81%  1.81%  1.31%  1.31%  0.81% 
Average annualized expense             
ratio for Lipper peer group*  1.12%  1.87%  1.87%  1.37%  1.37%  0.87% 

* Putnam is committed to keeping fund expenses below the Lipper peer group average expense ratio and will limit fund expenses if they exceed the Lipper average. The Lipper average is a simple average of front-end load funds in the peer group that excludes 12b-1 fees as well as any expense offset and brokerage service arrangements that may reduce fund expenses. To facilitate the comparison in this presentation, Putnam has adjusted the Lipper average to reflect the 12b-1 fees carried by each class of shares other than class Y shares, which do not incur 12b-1 fees. Investors should note that the other funds in the peer group may be significantly smaller or larger than the fund, and that an asset-weighted average would likely be lower than the simple average. Also, the fund and Lipper report expense data at different times and for different periods. The fund’s expense ratio shown here is annualized data for the most recent six-month period, while the quarterly updated Lipper average is based on the most recent fiscal year-end data available for the peer group funds as of 12/31/07.

16

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 average portfolio value within a given period. Funds with high turnover may be more likely to generate capital gains that must be distributed to shareholders as taxable income. High turnover may also cause a fund to pay more brokerage commissions and other transaction costs, which may detract from performance.

Funds that invest in bonds or other fixed-income instruments may have higher turnover than funds that invest only in stocks. Short-term bond funds tend to have higher turnover than longer-term bond funds, because shorter-term bonds will mature or be sold more frequently than longer-term bonds. You can use the table below to compare your fund’s turnover with the average turnover for funds in its Lipper category.

Turnover comparisons

Percentage of holdings that change every year

  2007  2006  2005  2004  2003 
Putnam High Yield Trust  57%  46%  41%  62%  75% 
Lipper High Current Yield Funds           
category average  83%  83%  73%  95%  98% 

Turnover data for the fund is calculated based on the fund’s fiscal-year period, which ends on August 31. Turnover data for the fund’s Lipper category is calculated based on the average of the turnover of each fund in the category for its fiscal year ended during the indicated year. Fiscal years vary across funds in the Lipper category, which may limit the comparability of the fund’s portfolio turnover rate to the Lipper average. Comparative data for 2007 is based on information available as of 12/31/07.

17

Your fund’s risk

This risk comparison is designed to help you understand how your fund compares with other funds. The comparison utilizes a risk measure developed by Morningstar, an independent fund-rating agency. This risk measure is referred to as the fund’s Morningstar Risk.

Your fund’s Morningstar® Risk


Your fund’s Morningstar Risk is shown alongside that of the average fund in its Morningstar category. The risk bar broadens the comparison by translating the fund’s Morningstar Risk into a percentile, which is based on the fund’s ranking among all funds rated by Morningstar as of March 31, 2008. A higher Morningstar Risk generally indicates that a fund’s monthly returns have varied more widely.

Morningstar determines a fund’s Morningstar Risk by assessing variations in the fund’s monthly returns — with an emphasis on downside variations — over a 3-year period, if available. Those measures are weighted and averaged to produce the fund’s Morningstar Risk. The information shown is provided for the fund’s class A shares only; information for other classes may vary. Morningstar Risk is based on historical data and does not indicate future results. Morningstar does not purport to measure the risk associated with a current investment in a fund, either on an absolute basis or on a relative basis. Low Morningstar Risk does not mean that you cannot lose money on an investment in a fund. Copyright 2008 Morningstar, Inc. All Rights Reserved. The information contained herein (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.

18

Your fund’s management

Your fund is managed by the members of the Putnam Fixed-Income High-Yield Team. Paul Scanlon is the Portfolio Leader, and Norman Boucher and Robert Salvin are Portfolio Members of your fund. The Portfolio Leader and Portfolio Members coordinate the team’s management of the fund.

For a complete listing of the members of the Putnam Fixed-Income High-Yield Team, including those who are not Portfolio Leaders or Portfolio Members of your fund, please visit the Individual Investors section of www.putnam.com.

Investment team fund ownership

The table below shows how much the fund’s current Portfolio Leader and Portfolio Members have invested in the fund and in all Putnam mutual funds (in dollar ranges). Information shown is as of February 29, 2008, and February 28, 2007.


Trustee and Putnam employee fund ownership

As of February 29, 2008, all of the Trustees of the Putnam funds owned fund shares. The table below shows the approximate value of investments in the fund and all Putnam funds as of that date by the Trustees and Putnam employees. These amounts include investments by the Trustees’ and employees’ immediate family members and investments through retirement and deferred compensation plans.

    Total assets in 
  Assets in the fund  all Putnam funds 
Trustees  $ 618,000  $ 88,000,000 
Putnam employees  $3,107,000  $672,000,000 

19

Other Putnam funds managed by the Portfolio Leader and Portfolio Members

Paul Scanlon is also a Portfolio Leader of Putnam High Yield Advantage Fund and Putnam Floating Rate Income Fund. He is also a Portfolio Member of Putnam Diversified Income Trust, Putnam Premier Income Trust, and Putnam Master Intermediate Income Trust.

Norman Boucher is also a Portfolio Member of Putnam High Yield Advantage Fund and Putnam Floating Rate Income Fund.

Robert Salvin is also a Portfolio Leader of Putnam High Income Securities Fund and a Portfolio Member of Putnam High Yield Advantage Fund, Putnam Floating Rate Income Fund, and Putnam Convertible Income-Growth Trust.

Paul Scanlon, Norman Boucher, and Robert Salvin may also manage other accounts and variable trust funds advised by Putnam Management or an affiliate.

20

Terms and definitions

Important terms

Total return shows how the value of the fund’s shares changed over time, assuming you held the shares through the entire period and reinvested all distributions in the fund.

Net asset value (NAV) is the price, or value, of one share of a mutual fund, without a sales charge. NAVs fluctuate with market conditions. NAV is calculated by dividing the net assets of each class of shares by the number of outstanding shares in the class.

Public offering price (POP) is the price of a mutual fund share plus the maximum sales charge levied at the time of purchase. POP performance figures shown here assume the 4.00% maximum sales charge for class A shares and 3.25% for class M shares.

Contingent deferred sales charge (CDSC) is generally a charge applied at the time of the redemption of class B or C shares and assumes redemption at the end of the period. Your fund’s class B CDSC declines from a 5% maximum during the first year to 1% during the sixth year. After the sixth year, the CDSC no longer applies. The CDSC for class C shares is 1% for one year after purchase.

Current yield is the annual rate of return earned from dividends or interest of an investment. Current yield is expressed as a percentage of the price of a security, fund share, or principal investment.

Share classes

Class A shares are generally subject to an initial sales charge and no CDSC (except on certain redemptions of shares bought without an initial sales charge).

Class B shares are not subject to an initial sales charge. They may be subject to a CDSC.

Class C shares are not subject to an initial sales charge and are subject to a CDSC only if the shares are redeemed during the first year.

Class M shares have a lower initial sales charge and a higher 12b-1 fee than class A shares and no CDSC (except on certain redemptions of shares bought without an initial sales charge).

Class R shares are not subject to an initial sales charge or CDSC and are available only to certain defined contribution plans.

Class Y shares are not subject to an initial sales charge or CDSC, and carry no 12b-1 fee. They are generally only available to corporate and institutional clients and clients in other approved programs.

21

Comparative indexes

JPMorgan Developed High Yield Index is an unmanaged index of high-yield fixed-income securities issued in developed countries.

Lehman Aggregate Bond Index is an unmanaged index of U.S. investment-grade fixed-income securities.

Lehman Global Aggregate Bond Index is an unmanaged index of global investment-grade fixed-income securities.

Merrill Lynch 91-Day Treasury Bill Index is an unmanaged index that seeks to measure the performance of U.S. Treasury bills available in the marketplace.

S&P 500 Index is an unmanaged index of common stock performance.

Indexes assume reinvestment of all distributions and do not account for fees. Securities and performance of a fund and an index will differ. You cannot invest directly in an index.

Lipper is a third-party industry-ranking entity that ranks mutual funds. Its rankings do not reflect sales charges. Lipper rankings are based on total return at net asset value relative to other funds that have similar current investment styles or objectives as determined by Lipper. Lipper may change a fund’s category assignment at its discretion. Lipper category averages reflect performance trends for funds within a category.

22

Trustee approval of management contract

General conclusion

The Board of Trustees of the Putnam funds oversees the management of each fund and, as required by law, determines annually whether to approve the continuance of your fund’s management contract with Putnam Investment Management (“Putnam Management”) and the sub-management contract between Putnam Management’s affiliate, Putnam Investments Limited (“PIL”), and Putnam Management. In this regard, the Board of Trustees, with the assistance of its Contract Committee consisting solely of Trustees who are not “interested persons” (as such term is defined in the Investment Company Act of 1940, as amended) of the Putnam funds (the “Independent Trustees”), requests and evaluates all information it deems reasonably necessary under the circumstances. Over the course of several months ending in June 2007, the Contract Committee met several times to consider the information provided by Putnam Management and other information developed with the assistance of the Board’s independent counsel and independent staff. The Contract Committee reviewed and discussed key aspects of this information with all of the Independent Trustees. The Contract Committee recommended, and the Independent Trustees approved, the continuance of your fund’s management contract and sub-management contract, effective July 1, 2007. (Because PIL is an affiliate of Putnam Management and Putnam Management remains fully responsible for all services provided by PIL, the Trustees have not evaluated PIL as a separate entity, and all subsequent references to Putnam Management below should be deemed to include reference to PIL as necessary or appropriate in the context.)

In addition, in anticipation of the sale of Putnam Investments to Great-West Lifeco, at a series of meetings ending in March 2007, the Trustees reviewed and approved new management and distribution arrangements to take effect upon the change of control. Shareholders of all funds approved the management contracts in May 2007, and the change of control transaction was completed on August 3, 2007. Upon the change of control, the management contracts that were approved by the Trustees in June 2007 automatically terminated and were replaced by new contracts that had been approved by shareholders. In connection with their review for the June 2007 continuance of the Putnam funds’ management contracts, the Trustees did not identify any facts or circumstances that would alter the substance of the conclusions and recommendations they made in their review of the contracts to take effect upon the change of control.

The Independent Trustees’ approval was based on the following conclusions:

• That the fee schedule in effect for your fund represented reasonable compensation in light of the nature and quality of the services being provided to the fund, the fees paid by competitive funds and the costs incurred by Putnam Management in providing such services, and

• That this fee schedule represented an appropriate sharing between fund shareholders and Putnam Management of such economies of scale as may exist in the management of the fund at current asset levels.

23

These conclusions were based on a comprehensive consideration of all information provided to the Trustees and were not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations and how the Trustees considered these factors are described below, although individual Trustees may have evaluated the information presented differently, giving different weights to various factors. It is also important to recognize that the fee arrangements for your fund and the other Putnam funds are the result of many years of review and discussion between the Independent Trustees and Putnam Management, that certain aspects of such arrangements may receive greater scrutiny in some years than others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements in prior years.

Management fee schedules and categories; total expenses

The Trustees reviewed the management fee schedules in effect for all Putnam funds, including fee levels and breakpoints, and the assignment of funds to particular fee categories. In reviewing fees and expenses, the Trustees generally focused their attention on material changes in circumstances — for example, changes in a fund’s size or investment style, changes in Putnam Management’s operating costs or responsibilities, or changes in competitive practices in the mutual fund industry — that suggest that consideration of fee changes might be warranted. The Trustees concluded that the circumstances did not warrant changes to the management fee structure of your fund, which had been carefully developed over the years, re-examined on many occasions and adjusted where appropriate. The Trustees focused on two areas of particular interest, as discussed further below:

• Competitiveness. The Trustees reviewed comparative fee and expense information for competitive funds, which indicated that, in a custom peer group of competitive funds selected by Lipper Inc., your fund ranked in the 52nd percentile in management fees and in the 41st percentile in total expenses (less any applicable 12b-1 fees) as of December 31, 2006 (the first percentile being the least expensive funds and the 100th percentile being the most expensive funds). (Because the fund’s custom peer group is smaller than the fund’s broad Lipper Inc. peer group, this expense information may differ from the Lipper peer expense information found elsewhere in this report.) The Trustees noted that expense ratios for a number of Putnam funds, which show the percentage of fund assets used to pay for management and administrative services, distribution (12b-1) fees and other expenses, had been increasing recently as a result of declining net assets and the natural operation of fee breakpoints.

The Trustees noted that the expense ratio increases described above were currently being controlled by expense limitations implemented in January 2004 and which Putnam Management had committed to maintain at least through 2007. In anticipation of the change of control of Putnam Investments, the Trustees requested, and received a commitment from

24

Putnam Management and Great-West Lifeco, to extend this program through at least June 30, 2009. These expense limitations give effect to a commitment by Putnam Management that the expense ratio of each open-end fund would be no higher than the average expense ratio of the competitive funds included in the fund’s relevant Lipper universe (exclusive of any applicable 12b-1 charges in each case). The Trustees observed that this commitment to limit fund expenses has served shareholders well since its inception.

In order to ensure that the expenses of the Putnam funds continue to meet evolving competitive standards, the Trustees requested, and Putnam Management agreed, to extend for the twelve months beginning July 1, 2007, an additional expense limitation for certain funds at an amount equal to the average expense ratio (exclusive of 12b-1 charges) of a custom peer group of competitive funds selected by Lipper to correspond to the size of the fund. This additional expense limitation will be applied to those open-end funds that had above-average expense ratios (exclusive of 12b-1 charges) based on the custom peer group data for the period ended December 31, 2006. This additional expense limitation will not be applied to your fund because it had a below-average expense ratio relative to its custom peer group.

• Economies of scale. Your fund currently has the benefit of breakpoints in its management fee that provide shareholders with significant economies of scale, which means that the effective management fee rate of a fund (as a percentage of fund assets) declines as a fund grows in size and crosses specified asset thresholds. Conversely, as a fund shrinks in size — as has been the case for many Putnam funds in recent years — these breakpoints result in increasing fee levels. In recent years, the Trustees have examined the operation of the existing breakpoint structure during periods of both growth and decline in asset levels. The Trustees concluded that the fee schedules in effect for the funds represented an appropriate sharing of economies of scale at current asset levels. In reaching this conclusion, the Trustees considered the Contract Committee’s stated intent to continue to work with Putnam Management to plan for an eventual resumption in the growth of assets, and to consider the potential economies that might be produced under various growth assumptions.

In connection with their review of the management fees and total expenses of the Putnam funds, the Trustees also reviewed the costs of the services to be provided and profits to be realized by Putnam Management and its affiliates from the relationship with the funds. This information included trends in revenues, expenses and profitability of Putnam Management and its affiliates relating to the investment management and distribution services provided to the funds. In this regard, the Trustees also reviewed an analysis of Putnam Management’s revenues, expenses and profitability with respect to the funds’ management contracts, allocated on a fund-by-fund basis.

25

Investment performance during the review period

The quality of the investment process provided by Putnam Management represented a major factor in the Trustees’ evaluation of the quality of services provided by Putnam Management under your fund’s management contract. The Trustees were assisted in their review of the Putnam funds’ investment process and performance by the work of the Investment Process Committee of the Trustees and the Investment Oversight Committees of the Trustees, which had met on a regular monthly basis with the funds’ portfolio teams throughout the year. The Trustees concluded that Putnam Management generally provides a high-quality investment process — as measured by the experience and skills of the individuals assigned to the management of fund portfolios, the resources made available to such personnel, and in general the ability of Putnam Management to attract and retain high-quality personnel — but also recognized that this does not guarantee favorable investment results for every fund in every time period. The Trustees considered the investment performance of each fund over multiple time periods and considered information comparing each fund’s performance with various benchmarks and with the performance of competitive funds.

The Trustees noted the satisfactory investment performance of many Putnam funds. They also noted the disappointing investment performance of certain funds in recent years and discussed with senior management of Putnam Management the factors contributing to such underperformance and actions being taken to improve performance. The Trustees recognized that, in recent years, Putnam Management has made significant changes in its investment personnel and processes and in the fund product line to address areas of underperformance. In particular, they noted the important contributions of Putnam Management’s leadership in attracting, retaining and supporting high-quality investment professionals and in systematically implementing an investment process that seeks to merge the best features of fundamental and quantitative analysis. The Trustees indicated their intention to continue to monitor performance trends to assess the effectiveness of these changes and to evaluate whether additional changes to address areas of underperformance are warranted.

In the case of your fund, the Trustees considered that your fund’s class A share cumulative total return performance at net asset value was in the following percentiles of its Lipper Inc. peer group (Lipper High Current Yield Funds) for the one-, three- and five-year periods ended March 31, 2007 (the first percentile being the best-performing funds and the 100th percentile being the worst-performing funds):

One-year period  Three-year period  Five-year period 
34th  28th  28th 

26

(Because of the passage of time, these performance results may differ from the performance results for more recent periods shown elsewhere in this report. Over the one-, three- and five-year periods ended March 31, 2007, there were 445, 382 and 315 funds, respectively, in your fund’s Lipper peer group.* Past performance is no guarantee of future returns.)

As a general matter, the Trustees concluded that cooperative efforts between the Trustees and Putnam Management represent the most effective way to address investment performance problems. The Trustees noted that investors in the Putnam funds have, in effect, placed their trust in the Putnam organization, under the oversight of the funds’ Trustees, to make appropriate decisions regarding the management of the funds. Based on the responsiveness of Putnam Management in the recent past to Trustee concerns about investment performance, the Trustees concluded that it is preferable to seek change within Putnam Management to address performance shortcomings. In the Trustees’ view, the alternative of terminating a management contract and engaging a new investment adviser for an underperforming fund would entail significant disruptions and would not provide any greater assurance of improved investment performance.

Brokerage and soft-dollar allocations; other benefits

The Trustees considered various potential benefits that Putnam Management may receive in connection with the services it provides under the management contract with your fund. These include benefits related to brokerage and soft-dollar allocations, whereby a portion of the commissions paid by a fund for brokerage may be used to acquire research services that may be useful to Putnam Management in managing the assets of the fund and of other clients. The Trustees indicated their continued intent to monitor the potential benefits associated with the allocation of fund brokerage to ensure that the principle of seeking “best price and execution” remains paramount in the portfolio trading process.

The Trustees’ annual review of your fund’s management contract also included the review of its distributor’s contract and distribution plan with Putnam Retail Management Limited Partnership and the custodian agreement and investor servicing agreement with Putnam Fiduciary Trust Company (“PFTC”), each of which provides benefits to affiliates of Putnam Management. In the case of the custodian agreement, the Trustees considered that, effective January 1, 2007, the Putnam funds had engaged State Street Bank and Trust Company as custodian and began to transition the responsibility for providing custody services away from PFTC.

* The percentile rankings for your fund’s class A share annualized total return performance in the Lipper High Current Yield Funds category for the one-, five-, and ten-year periods ended March 31, 2008, were 37%, 22%, and 54%, respectively. Over the one-, five-, and ten-year periods ended March 31, 2008, the fund ranked 165th out of 453, 73rd out of 332, and 86th out of 160, respectively. Note that this more recent information was not available when the Trustees approved the continuance of your fund’s management contract.

27

Comparison of retail and institutional fee schedules

The information examined by the Trustees as part of their annual contract review has included for many years information regarding fees charged by Putnam Management and its affiliates to institutional clients such as defined benefit pension plans, college endowments, etc. This information included comparison of such fees with fees charged to the funds, as well as a detailed assessment of the differences in the services provided to these two types of clients. The Trustees observed, in this regard, that the differences in fee rates between institutional clients and the funds are by no means uniform when examined by individual asset sectors, suggesting that differences in the pricing of investment management services to these types of clients reflect to a substantial degree historical competitive forces operating in separate market places. The Trustees considered the fact that fee rates across all asset sectors are higher on average for funds than for institutional clients, as well as the differences between the services that Putnam Management provides to the Putnam funds and those that it provides to institutional clients of the firm, but did not rely on such comparisons to any significant extent in concluding that the management fees paid by your fund are reasonable.

28

Other information for shareholders

Important notice regarding delivery of shareholder documents

In accordance with SEC regulations, Putnam sends a single copy of annual and semiannual shareholder reports, prospectuses, and proxy statements to Putnam shareholders who share the same address, unless a shareholder requests otherwise. If you prefer to receive your own copy of these documents, please call Putnam at 1-800-225-1581, and Putnam will begin sending individual copies within 30 days.

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, 2007, are available in the Individual Investors section of www.putnam.com, and on the SEC’s Web site, www.sec.gov. If you have questions about finding forms on the SEC’s Web site, you may call the SEC at 1-800-SEC-0330. You may also obtain the Putnam funds’ proxy voting guidelines and procedures at no charge by calling Putnam’s Shareholder Services at 1-800-225-1581.

Fund portfolio holdings

The fund will file a complete schedule of its portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. Shareholders may obtain the fund’s Forms N-Q on the SEC’s Web site at www.sec.gov. In addition, the fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. You may call the SEC at 1-800-SEC-0330 for information about the SEC’s Web site or the operation of the Public Reference Room.

29

Financial statements

A guide to financial statements

These sections of the report, as well as the accompanying Notes, constitute the fund’s financial statements.

The fund’s portfolio lists all the fund’s investments and their values as of the last day of the reporting period. Holdings are organized by asset type and industry sector, country, or state to show areas of concentration and diversification.

Statement of assets and liabilities shows how the fund’s net assets and share price are determined. All investment and noninvestment assets are added together. Any unpaid expenses and other liabilities are subtracted from this total. The result is divided by the number of shares to determine the net asset value per share, which is calculated separately for each class of shares. (For funds with preferred shares, the amount subtracted from total assets includes the liquidation preference of preferred shares.)

Statement of operations shows the fund’s net investment gain or loss. This is done by first adding up all the fund’s earnings — from dividends and interest income — and subtracting its operating expenses to determine net investment income (or loss). Then, any net gain or loss the fund realized on the sales of its holdings — as well as any unrealized gains or losses over the period — is added to or subtracted from the net investment result to determine the fund’s net gain or loss for the fiscal period.

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. Dividend sources are estimated at the time of declaration. Actual results may vary. Any non-taxable return of capital cannot be determined until final tax calculations are completed after the end of the fund’s fiscal year.

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.

30

The fund’s portfolio 2/29/08 (Unaudited)

CORPORATE BONDS AND NOTES (78.8%)*         
 
    Principal amount    Value 
 
Advertising and Marketing Services (0.3%)         
Lamar Media Corp. company guaranty 7 1/4s, 2013 (S)  $  4,050,000  $  3,918,375 
Lamar Media Corp. sr. unsec. sub. notes Ser. C, 6 5/8s, 2015    1,255,000    1,154,600 
        5,072,975 
 
Automotive (3.7%)         
Allison Transmission 144A company guaranty 11s, 2015    2,160,000    1,846,800 
ArvinMeritor, Inc. sr. unsec. notes 8 1/8s, 2015    1,460,000    1,208,150 
Dana Corp. notes 5.85s, 2015 (In default) †    6,095,000    426,650 
Ford Motor Co. notes 7.45s, 2031    5,575,000    3,804,938 
Ford Motor Credit Co., LLC notes 7 7/8s, 2010    6,665,000    6,142,311 
Ford Motor Credit Co., LLC sr. notes 9 7/8s, 2011    14,395,000    13,275,332 
Ford Motor Credit Co., LLC sr. unsec. notes 9 3/4s, 2010    5,420,000    5,042,353 
Ford Motor Credit Co., LLC unsec. notes 7 3/8s, 2009 (S)    6,310,000    5,983,540 
General Motors Corp. sr. unsec. unsub. notes 7.2s, 2011    20,470,000    18,525,350 
Lear Corp. company guaranty 8 1/2s, 2013    2,250,000    2,030,625 
Tenneco Automotive, Inc. company guaranty 8 5/8s, 2014    2,300,000    2,254,000 
Tenneco Automotive, Inc. sec. notes Ser. B, 10 1/4s, 2013    311,000    330,049 
Tenneco, Inc. 144A sr. unsec. notes 8 1/8s, 2015    965,000    967,413 
UCI Holdco, Inc. sr. unsec. FRN 12.491s, 2013 ‡‡    6,116,358    5,412,977 
        67,250,488 
 
Basic Materials (6.8%)         
AK Steel Corp. company guaranty 7 3/4s, 2012    6,250,000    6,296,875 
Aleris International, Inc. company guaranty 10s, 2016    4,875,000    3,345,469 
Aleris International, Inc. company guaranty 9s, 2014 ‡‡    4,325,000    3,222,125 
Algoma Acquisition Corp. 144A unsec. notes 9 7/8s, 2015 (Canada)    1,900,000    1,529,500 
ARCO Chemical Co. debs. 10 1/4s, 2010    1,525,000    1,547,875 
Builders FirstSource, Inc. company guaranty sr. sec.         
FRN 7.315s, 2012    4,885,000    3,566,050 
Century Aluminum Co. company guaranty 7 1/2s, 2014    2,785,000    2,645,750 
Clondalkin Acquisition BV 144A company guaranty         
sr. sec. notes FRN 6.991s, 2013 (Netherlands)    3,270,000    2,685,488 
Compass Minerals International, Inc. sr. disc.         
notes stepped-coupon Ser. B, zero % (12s, 6/1/08), 2013 ††    2,540,000    2,616,200 
Domtar Corp. company guaranty Ser. *, 7 7/8s, 2011 (Canada)    1,470,000    1,447,950 
Freeport-McMoRan Copper & Gold, Inc. sr. unsec.         
bonds 8 3/8s, 2017    11,865,000    12,532,406 
Freeport-McMoRan Copper & Gold, Inc. sr. unsec.         
notes FRN 8.394s, 2015    2,095,000    2,011,200 
Freeport-McMoRan Copper & Gold, Inc. sr. unsec.         
notes 8 1/4s, 2015    5,930,000    6,233,913 
Georgia-Pacific Corp. debs. 9 1/2s, 2011    4,275,000    4,328,438 
Gerdau Ameristeel Corp. sr. notes 10 3/8s, 2011 (Canada)    5,905,000    6,200,250 
Hercules, Inc. company guaranty 6 3/4s, 2029    4,570,000    4,250,100 
Hexion U.S. Finance Corp./Hexion Nova Scotia         
Finance, ULC company guaranty 9 3/4s, 2014    4,470,000    4,626,450 

31

CORPORATE BONDS AND NOTES (78.8%)* continued         
    Principal amount    Value 
 
Basic Materials continued         
Huntsman, LLC company guaranty 11 5/8s, 2010  $  1,000  $  1,060 
Jefferson Smurfit Corp. company guaranty 8 1/4s, 2012 (S)    1,353,000    1,261,673 
MacDermid, Inc. 144A sr. sub. notes 9 1/2s, 2017    1,445,000    1,271,600 
Metals USA, Inc. sec. notes 11 1/8s, 2015    6,050,000    5,974,375 
Momentive Performance Materials, Inc. company         
guaranty sr. unsec. notes 9 3/4s, 2014 (S)    10,680,000    9,558,600 
Mosaic Co. (The) 144A sr. unsec. unsub. notes 7 5/8s, 2016    1,295,000    1,392,125 
Mosaic Co. (The) 144A sr. unsec. unsub. notes 7 3/8s, 2014    780,000    828,750 
NewPage Corp. company guaranty 10s, 2012    2,265,000    2,270,663 
NewPage Corp. sec. notes 10s, 2012    2,645,000    2,651,613 
NewPage Holding Corp. sr. notes FRN 11.818s, 2013 ‡‡    1,568,466    1,309,669 
Norske Skog Canada, Ltd. company guaranty Ser. D,         
8 5/8s, 2011 (Canada)    4,651,000    3,895,213 
Novelis, Inc. company guaranty 7 1/4s, 2015    7,057,000    6,351,300 
Rockwood Specialties Group, Inc. company guaranty         
7 5/8s, 2014  EUR  3,140,000    4,256,922 
Smurfit-Stone Container Enterprises, Inc. sr. unsec.         
unsub. notes 8s, 2017  $  1,620,000    1,433,700 
Steel Dynamics, Inc. company guaranty sr. unsec.         
unsub. notes 6 3/4s, 2015 (S)    8,140,000    7,956,850 
Tube City IMS Corp. company guaranty 9 3/4s, 2015    3,295,000    2,907,838 
Ucar Finance, Inc. company guaranty 10 1/4s, 2012    108,000    111,510 
Verso Paper Holdings, LLC/ Verso Paper, Inc. company         
guaranty 11 3/8s, 2016    2,390,000    2,162,950 
        124,682,450 
 
Broadcasting (2.3%)         
Clear Channel Communications, Inc. sr. unsec 5 1/2s, 2014    810,000    534,600 
DirecTV Holdings, LLC company guaranty 6 3/8s, 2015    8,927,000    8,279,793 
Echostar DBS Corp. company guaranty 7s, 2013    4,245,000    4,181,325 
Echostar DBS Corp. company guaranty 6 5/8s, 2014    705,000    678,563 
Echostar DBS Corp. sr. notes 6 3/8s, 2011    13,260,000    13,061,100 
Ion Media Networks, Inc. 144A sr. sec. notes 10.508s, 2013    2,735,000    2,109,369 
Ion Media Networks, Inc. 144A sr. sec. notes 7.508s, 2012    3,300,000    2,739,000 
Sirius Satellite Radio, Inc. sr. unsec. notes 9 5/8s, 2013    5,610,000    4,628,250 
Univision Communications, Inc. 144A company         
guaranty unsec. notes 9 3/4s, 2015 ‡‡    3,150,000    2,173,500 
Young Broadcasting, Inc. company guaranty 10s, 2011    4,339,000    2,993,910 
Young Broadcasting, Inc. sr. sub. notes 8 3/4s, 2014    1,140,000    769,500 
        42,148,910 
 
Building Materials (0.9%)         
Associated Materials, Inc. company guaranty 9 3/4s, 2012    5,887,000    5,828,130 
NTK Holdings, Inc. sr. disc. notes zero %, 2014    6,195,000    3,283,350 
Texas Industries, Inc. sr. unsec. notes 7 1/4s, 2013    1,995,000    1,905,225 
THL Buildco, Inc. (Nortek Holdings, Inc.)         
sr. sub. notes 8 1/2s, 2014    7,430,000    5,758,250 
        16,774,955 

32

CORPORATE BONDS AND NOTES (78.8%)* continued         
    Principal amount    Value 
 
Cable Television (2.4%)         
Adelphia Communications Corp. zero %, 2011  $  90,000  $  6,975 
Adelphia Communications Corp. zero %, 2009    5,000    356 
Adelphia Communications Corp. zero %, 2009    2,918,000    207,908 
Adelphia Communications Corp. zero %, 2008    5,000    369 
Adelphia Communications Corp. escrow zero %, 2009    2,471,000    182,236 
Adelphia Communications Corp. escrow bonds zero %, 2010    3,231,000    242,325 
Atlantic Broadband Finance, LLC company guaranty 9 3/8s, 2014  1,980,000    1,762,200 
Cablevision Systems Corp. sr. notes Ser. B, 8s, 2012    1,130,000    1,087,625 
CCH I Holdings, LLC company guaranty 12 1/8s, 2015    187,000    95,370 
CCH I, LLC sec. notes 11s, 2015    16,761,000    11,648,895 
CCH II, LLC sr. unsec. notes 10 1/4s, 2010    4,325,000    3,957,375 
CCH II, LLC sr. unsec. notes Ser. B, 10 1/4s, 2010    9,505,000    8,625,788 
CSC Holdings, Inc. sr. notes 6 3/4s, 2012    5,255,000    5,071,075 
CSC Holdings, Inc. sr. notes Ser. B, 7 5/8s, 2011    2,560,000    2,544,000 
Mediacom LLC/Mediacom Capital Corp. sr. unsec.         
notes 9 1/2s, 2013    1,275,000    1,115,625 
NTL Cable PLC sr. notes 9 1/8s, 2016 (United Kingdom)    2,200,000    1,848,000 
Rainbow National Services, LLC 144A sr. notes 8 3/4s, 2012    5,125,000    5,253,125 
        43,649,247 
 
Capital Goods (7.0%)         
Alliant Techsystems, Inc. sr. sub. notes 6 3/4s, 2016    4,922,000    4,811,255 
Allied Waste North America, Inc. sec. notes 6 1/2s, 2010    2,325,000    2,295,938 
Allied Waste North America, Inc. sec. notes Ser. B, 5 3/4s, 2011  860,000    838,500 
Baldor Electric Co. company guaranty 8 5/8s, 2017    1,665,000    1,631,700 
BBC Holding Corp. sr. notes 8 7/8s, 2014    5,620,000    4,959,650 
Berry Plastics Holding Corp. company guaranty 10 1/4s, 2016    2,790,000    2,204,100 
Blount, Inc. sr. sub. notes 8 7/8s, 2012    3,115,000    3,029,338 
Bombardier, Inc. 144A sr. notes 8s, 2014 (Canada)    4,480,000    4,603,200 
Bombardier, Inc. 144A sr. unsec. notes FRN 7.631s,         
2013 (Canada)  EUR  2,680,000    3,910,119 
Crown Americas, LLC/Crown Americas Capital Corp.         
sr. notes 7 5/8s, 2013  $  3,470,000    3,513,375 
General Cable Corp. company guaranty sr. unsec.         
notes FRN 7.104s, 2015    4,895,000    4,209,700 
Greenbrier Cos., Inc. company guaranty 8 3/8s, 2015    2,890,000    2,756,338 
Hawker Beechcraft Acquisition Co., LLC sr. sub. notes         
9 3/4s, 2017    2,878,000    2,856,415 
Hawker Beechcraft Acquisition Co., LLC sr. unsec.         
notes 8 7/8s, 2015 ‡‡    3,265,000    3,330,300 
Hawker Beechcraft Acquisition Co., LLC sr. unsec.         
notes 8 1/2s, 2015    1,402,000    1,433,545 
Hexcel Corp. sr. sub. notes 6 3/4s, 2015    7,065,000    6,800,063 
L-3 Communications Corp. company guaranty 6 1/8s, 2013    490,000    485,100 
L-3 Communications Corp. company guaranty Ser. B,         
6 3/8s, 2015 (S)    6,675,000    6,624,938 
Legrand SA unsec. unsub. debs. 8 1/2s, 2025 (France)    10,560,000    11,767,895 
Manitowoc Co., Inc. (The) sr. notes 7 1/8s, 2013    5,210,000    5,066,725 
Milacron Escrow Corp. sec. notes 11 1/2s, 2011    5,456,000    4,092,000 

33

CORPORATE BONDS AND NOTES (78.8%)* continued         
    Principal amount    Value 
 
Capital Goods continued         
Mueller Water Products, Inc. company guaranty 7 3/8s, 2017  $  2,210,000  $  1,922,700 
Owens-Brockway Glass Container, Inc. company         
guaranty 6 3/4s, 2014  EUR  1,505,000    2,080,346 
Owens-Illinois, Inc. debs. 7 1/2s, 2010  $  15,000    15,338 
RBS Global, Inc. / Rexnord Corp. company         
guaranty 9 1/2s, 2014    10,210,000    9,189,000 
Ryerson Tull, Inc. 144A sec. notes 12s, 2015 (S)    1,645,000    1,546,300 
SPX Corp. sr. notes 7 5/8s, 2014    2,155,000    2,219,650 
TD Funding Corp. company guaranty 7 3/4s, 2014    6,145,000    6,114,275 
Tekni-Plex, Inc. sec. notes 10 7/8s, 2012    7,335,000    7,683,413 
Terex Corp. company guaranty 7 3/8s, 2014    3,070,000    3,046,975 
Terex Corp. sr. sub. notes 8s, 2017    1,070,000    1,070,000 
Titan International, Inc. company guaranty 8s, 2012    8,100,000    7,816,500 
WCA Waste Corp. company guaranty 9 1/4s, 2014    3,545,000    3,527,275 
        127,451,966 
 
Coal (1.4%)         
Arch Western Finance, LLC sr. notes 6 3/4s, 2013    8,665,000    8,535,025 
Massey Energy Co. sr. notes 6 5/8s, 2010    7,124,000    7,088,380 
Peabody Energy Corp. company guaranty 7 3/8s, 2016    9,405,000    9,734,175 
        25,357,580 
 
Communication Services (6.8%)         
American Tower Corp. sr. notes 7 1/2s, 2012    2,635,000    2,707,463 
American Tower Corp. 144A sr. notes 7s, 2017    2,450,000    2,443,875 
BCM Ireland Finance Ltd. 144A FRN 9.506s, 2016         
(Cayman Islands)  EUR  1,715,000    2,136,170 
Centennial Cellular Operating Co., LLC company         
guaranty 10 1/8s, 2013  $  3,145,000    3,176,450 
Centennial Communications Corp. sr. notes 10s, 2013    1,920,000    1,852,800 
Centennial Communications Corp. sr. unsec. notes FRN         
10.479s, 2013    1,155,000    1,062,600 
Cincinnati Bell, Inc. company guaranty 7s, 2015    2,210,000    2,077,400 
Citizens Communications Co. notes 9 1/4s, 2011    4,245,000    4,467,863 
Cricket Communications, Inc. company guaranty 9 3/8s, 2014    7,235,000    6,439,150 
Cricket Communications, Inc. 144A company         
guaranty 9 3/8s, 2014    705,000    627,450 
Digicel Group, Ltd. 144A sr. notes 8 7/8s, 2015 (Jamaica)    4,830,000    4,226,250 
Digicel, Ltd. 144A sr. notes 9 1/4s, 2012 (Jamaica)    3,550,000    3,567,750 
Inmarsat Finance PLC company guaranty stepped-coupon         
zero % (10 3/8s, 11/15/08), 2012 (United Kingdom) ††    7,197,000    6,963,098 
Intelsat Bermuda, Ltd. company guaranty sr. unsec.         
notes 11 1/4s, 2016 (Bermuda)    10,665,000    10,718,325 
Intelsat Intermediate Holding Co., Ltd. company         
guaranty stepped-coupon zero % (9 1/4s, 2/1/10),         
2015 (Bermuda) ††    2,355,000    1,972,313 
iPCS, Inc. company guaranty sr. sec. notes FRN         
5.364s, 2013    1,965,000    1,572,000 
Level 3 Financing, Inc. company guaranty 9 1/4s, 2014    5,355,000    4,337,550 

34

CORPORATE BONDS AND NOTES (78.8%)* continued         
 
    Principal amount    Value 
 
Communication Services continued         
Level 3 Financing, Inc. company guaranty 8 3/4s, 2017  $  3,135,000  $  2,374,763 
MetroPCS Wireless, Inc. company guaranty sr. unsec.         
notes 9 1/4s, 2014    8,510,000    7,488,800 
Nordic Telephone Co. Holdings ApS 144A         
sr. notes 8 7/8s, 2016 (Denmark)    1,035,000    1,019,475 
PAETEC Holding Corp. company guaranty sr. unsec.         
unsub. notes 9 1/2s, 2015    1,985,000    1,841,088 
PanAmSat Corp. company guaranty 9s, 2014    2,065,000    2,065,000 
Qwest Communications International, Inc. company         
guaranty 7 1/2s, 2014    9,355,000    9,097,738 
Qwest Corp. sr. unsec. unsub. notes 7 1/4s, 2025    2,875,000    2,587,500 
Qwest Corp. sr. unsec. unsub. notes 8 7/8s, 2012    5,180,000    5,406,625 
Rural Cellular Corp. sr. unsec. sub. notes FRN         
8.124s, 2013    2,685,000    2,698,425 
Rural Cellular Corp. sr. unsec. notes 9 7/8s, 2010    2,105,000    2,162,888 
Rural Cellular Corp. sr. unsec. sub. FRN 8.989s, 2012    1,450,000    1,464,500 
Syniverse Technologies, Inc. sr. sub. notes Ser. B, 7 3/4s, 2013    3,840,000    3,667,200 
Time Warner Telecom, Inc. company guaranty 9 1/4s, 2014    2,300,000    2,300,000 
West Corp. company guaranty 11s, 2016    1,540,000    1,289,750 
West Corp. company guaranty 9 1/2s, 2014    2,805,000    2,454,375 
Wind Acquisition Fin. SA notes 9 3/4s, 2015 (Luxembourg)  EUR  2,085,000    3,124,359 
Windstream Corp. company guaranty 8 5/8s, 2016 (S)  $  8,105,000    8,246,838 
Windstream Corp. company guaranty 8 1/8s, 2013    4,260,000    4,249,350 
        123,887,181 
 
Consumer (0.6%)         
Jostens IH Corp. company guaranty 7 5/8s, 2012    6,600,000    6,369,000 
Yankee Acquisition Corp. company guaranty Ser. B,         
8 1/2s, 2015    6,400,000    5,344,000 
        11,713,000 
 
Consumer Goods (1.5%)         
Church & Dwight Co., Inc. company guaranty 6s, 2012    4,520,000    4,373,100 
Elizabeth Arden, Inc. company guaranty 7 3/4s, 2014    6,295,000    6,043,200 
Jarden Corp. company guaranty 7 1/2s, 2017    4,175,000    3,658,344 
Prestige Brands, Inc. sr. sub. notes 9 1/4s, 2012    6,279,000    6,216,210 
Spectrum Brands, Inc. company guaranty sr. unsec.         
sub. notes stepped coupon 11 1/2s (12, 4/2/08), 2013 †† ‡‡    3,520,000    2,824,800 
Spectrum Brands, Inc. company guaranty 7 3/8s, 2015    7,305,000    4,766,513 
        27,882,167 
 
Consumer Services (0.1%)         
United Rentals NA, Inc. sr. sub. notes 7s, 2014    2,475,000    1,980,000 
 
Energy (2.9%)         
CHC Helicopter Corp. sr. sub. notes 7 3/8s, 2014 (Canada)    8,235,000    8,173,238 
Complete Production Services, Inc. company guaranty 8s, 2016 (S)  4,520,000    4,344,850 
Dresser-Rand Group, Inc. company guaranty 7 3/8s, 2014    714,000    697,935 
Helix Energy Solutions Group, Inc. 144A sr. unsec. 9 1/2s, 2016    5,830,000    5,830,000 

35

CORPORATE BONDS AND NOTES (78.8%)* continued         
    Principal amount    Value 
 
Energy continued         
Hornbeck Offshore Services, Inc. sr. notes Ser. B, 6 1/8s, 2014 (S)  $  2,350,000  $  2,209,000 
Inergy LP/Inergy Finance Corp. sr. unsec. notes 6 7/8s, 2014    8,670,000    8,409,900 
Key Energy Services, Inc. 144A sr. notes 8 3/8s, 2014    2,535,000    2,541,338 
Offshore Logistics, Inc. company guaranty 6 1/8s, 2013    4,060,000    3,897,600 
Oslo Seismic Services, Inc. 1st mtge. 8.28s, 2011    3,151,691    3,387,712 
Pacific Energy Partners/Pacific Energy Finance Corp.         
sr. notes 7 1/8s, 2014    3,335,000    3,534,823 
Pride International, Inc. sr. unsec. notes 7 3/8s, 2014    5,765,000    5,995,600 
Stallion Oilfield Services/Stallion Oilfield         
Finance Corp. 144A sr. unsec. notes 9 3/4s, 2015    5,355,000    4,176,900 
        53,198,896 
 
Entertainment (1.5%)         
AMC Entertainment, Inc. company guaranty 11s, 2016    3,288,000    3,090,720 
Avis Budget Car Rental, LLC company guaranty 7 3/4s, 2016    4,160,000    3,473,600 
Avis Budget Car Rental, LLC company guaranty 7 5/8s, 2014    2,720,000    2,366,400 
Cinemark, Inc. sr. disc. notes stepped-coupon zero %         
(9 3/4s, 3/15/09), 2014 ††    4,935,000    4,490,850 
Hertz Corp. company guaranty 8 7/8s, 2014 (S)    5,330,000    5,076,825 
Marquee Holdings, Inc. sr. disc. notes 12s, 2014    5,200,000    3,796,000 
Universal City Florida Holding Co. sr. notes 8 3/8s, 2010    1,132,000    1,112,190 
Universal City Florida Holding Co. sr. unsec.         
notes FRN 7.989s, 2010    3,396,000    3,264,405 
        26,670,990 
 
Financial (3.7%)         
E*Trade Financial Corp. sr. unsec. notes 8s, 2011    3,615,000    3,136,013 
Finova Group, Inc. notes 7 1/2s, 2009 (In default) †    8,809,809    1,409,569 
GMAC, LLC sr. unsec. unsub. notes FRN 7.324s, 2014    2,709,000    2,033,524 
GMAC, LLC sr. unsec. unsub. notes 7 3/4s, 2010 (S)    8,695,000    7,861,906 
GMAC, LLC sr. unsec. unsub. notes 7s, 2012    2,490,000    2,018,390 
GMAC, LLC sr. unsec. unsub. notes 6 7/8s, 2012 (S)    15,110,000    12,060,923 
GMAC, LLC sr. unsec. unsub. notes 6 3/4s, 2014    14,926,000    11,242,383 
GMAC, LLC sr. unsec. unsub. notes 5.85s, 2009 (S)    7,470,000    7,209,514 
GMAC, LLC sr. unsec. unsub. notes 6 5/8s, 2012    2,265,000    1,813,768 
HUB International Holdings, Inc. 144A sr. unsec.         
unsub. notes 9s, 2014    915,000    722,850 
HUB International Holdings, Inc. 144A sr. sub. notes 10 1/4s, 2015    1,285,000    950,900 
Leucadia National Corp. sr. unsec. notes 8 1/8s, 2015    1,495,000    1,506,213 
Leucadia National Corp. sr. unsec. notes 7 1/8s, 2017    3,590,000    3,455,375 
Nuveen Investments, Inc. 144A sr. notes 10 1/2s, 2015    2,770,000    2,517,238 
Realogy Corp. company guaranty sr. unsec. notes 10 1/2s, 2014 (R)    12,675,000    8,999,250 
USI Holdings Corp. 144A sr. unsec. notes FRN 6.94s, 2014    840,000    656,250 
        67,594,066 
 
Food (0.9%)         
Archibald Candy Corp. company guaranty 10s,         
2008 (In default) † (F)    878,534    12,906 
Chiquita Brands International, Inc. sr. unsec.         
unsub. notes 8 7/8s, 2015    820,000    735,950 

36

CORPORATE BONDS AND NOTES (78.8%)* continued         
    Principal amount    Value 
 
Food continued         
Chiquita Brands International, Inc.         
sr. notes 7 1/2s, 2014  $  5,035,000  $  4,380,450 
Dean Foods Co. company guaranty 7s, 2016    3,405,000    2,979,375 
Del Monte Corp. sr. sub. notes 8 5/8s, 2012    6,390,000    6,485,850 
Pinnacle Foods Finance LLC sr. sub. notes 10 5/8s, 2017    2,590,000    2,013,725 
        16,608,256 
 
Gaming & Lottery (3.1%)         
Boyd Gaming Corp. sr. sub. notes 7 3/4s, 2012 (S)    3,345,000    3,085,763 
Boyd Gaming Corp. sr. sub. notes 7 1/8s, 2016    5,755,000    4,690,325 
Boyd Gaming Corp. sr. sub. notes 6 3/4s, 2014    1,050,000    866,250 
Mashantucket Western Pequot Tribe 144A bonds 8 1/2s, 2015    5,475,000    4,872,750 
MGM Mirage, Inc. company guaranty 8 1/2s, 2010 (S)    3,382,000    3,496,143 
MGM Mirage, Inc. company guaranty 6 3/4s, 2013 (S)    2,720,000    2,556,800 
MGM Mirage, Inc. company guaranty 6s, 2009    7,177,000    7,141,115 
MGM Mirage, Inc. sr. notes 6 3/4s, 2012    2,000    1,880 
Pinnacle Entertainment, Inc. sr. sub. notes 8 1/4s, 2012    4,935,000    4,688,250 
Pinnacle Entertainment, Inc. 144A sr. sub. notes 7 1/2s, 2015    5,015,000    3,861,550 
Station Casinos, Inc. sr. notes 6s, 2012    6,690,000    5,653,050 
Tropicana Entertainment, LLC sr. sub. notes 9 5/8s, 2014    3,810,000    1,828,800 
Trump Entertainment Resorts, Inc. sec. notes 8 1/2s, 2015    12,655,000    8,795,225 
Wynn Las Vegas, LLC/Wynn Las Vegas Capital Corp. 1st mtge.         
6 5/8s, 2014 (S)    5,975,000    5,736,000 
        57,273,901 
 
Health Care (7.4%)         
Accellent, Inc. company guaranty 10 1/2s, 2013    5,320,000    4,202,800 
Community Health Systems, Inc. company guaranty 8 7/8s, 2015    8,855,000    8,688,969 
DaVita, Inc. company guaranty 6 5/8s, 2013 (S)    4,470,000    4,380,600 
Elan Finance PLC/Elan Finance Corp. company         
guaranty 7 3/4s, 2011 (Ireland)    5,940,000    5,628,150 
HCA, Inc. company guaranty sr. sec. notes 9 5/8s, 2016 ‡‡    7,800,000    8,053,500 
HCA, Inc. sr. unsec. notes 6 3/8s, 2015    2,250,000    1,878,750 
HCA, Inc. sr. unsec. notes 5 3/4s, 2014    2,385,000    1,973,588 
HCA, Inc. sr. sec. notes 9 1/4s, 2016    9,070,000    9,296,750 
HCA, Inc. sec. notes 9 1/8s, 2014    6,215,000    6,339,300 
HCA, Inc. sr. unsec. notes 7 7/8s, 2011    116,000    114,260 
Health Management Associates, Inc. sr. notes 6 1/8s, 2016    6,020,000    5,026,700 
IASIS Healthcare/IASIS Capital Corp.         
sr. sub. notes 8 3/4s, 2014    400,000    395,000 
Omnicare, Inc. company guaranty 6 3/4s, 2013    435,000    387,150 
Omnicare, Inc. sr. sub. notes 6 1/8s, 2013    1,215,000    1,063,125 
Psychiatric Solutions, Inc. company guaranty 7 3/4s, 2015    4,952,000    4,902,480 
Select Medical Corp. company guaranty 7 5/8s, 2015    6,010,000    4,928,200 
Service Corporation International debs. 7 7/8s, 2013    3,897,000    3,882,994 
Service Corporation International sr. notes 7s, 2017    1,970,000    1,955,225 
Service Corporation International sr. unsec.         
unsub. notes 6 3/4s, 2016    6,820,000    6,785,900 
Stewart Enterprises, Inc. sr. notes 6 1/4s, 2013    8,140,000    7,651,600 

37

CORPORATE BONDS AND NOTES (78.8%)* continued         
    Principal amount    Value 
 
Health Care continued         
Sun Healthcare Group, Inc. company         
guaranty sr. unsec. unsub. notes 9 1/8s, 2015  $  3,875,000  $  3,729,688 
Surgical Care Affiliates, Inc. 144A sr. sub. notes 10s, 2017    4,280,000    3,252,800 
Surgical Care Affiliates, Inc. 144A sr. unsec. notes 8 7/8s, 2015 ‡‡    2,505,000    2,029,050 
Tenet Healthcare Corp. sr. unsec. notes 7 3/8s, 2013    7,500,000    6,506,250 
Tenet Healthcare Corp. sr. unsec. unsub. notes 6 3/8s, 2011    6,865,000    6,152,756 
US Oncology, Inc. company guaranty 9s, 2012    4,985,000    4,960,075 
Vanguard Health Holding Co. II, LLC sr. sub. notes 9s, 2014    7,124,000    6,803,420 
Ventas Realty LP/Capital Corp. company guaranty 9s, 2012 (R)    6,415,000    6,864,050 
Ventas Realty LP/Capital Corp. company guaranty 6 3/4s, 2010 (R)    2,255,000    2,271,913 
Ventas Realty LP/Capital Corp. sr. notes 6 5/8s, 2014 (R)    1,730,000    1,721,350 
Ventas Realty LP/Capital Corp. sr. notes 6 1/2s, 2016 (R)    2,310,000    2,252,250 
        134,078,643 
 
Homebuilding (0.5%)         
D.R. Horton, Inc. sr. notes 7 7/8s, 2011    4,000    3,938 
K. Hovnanian Enterprises, Inc. sr. notes 8 5/8s, 2017    970,000    771,150 
Meritage Homes Corp. company guaranty 6 1/4s, 2015 (S)    5,660,000    4,245,000 
Meritage Homes Corp. sr. notes 7s, 2014    760,000    570,000 
Standard Pacific Corp. sr. unsec. notes 6 1/2s, 2008    4,207,000    3,975,615 
        9,565,703 
 
Household Furniture and Appliances (0.1%)         
Sealy Mattress Co. sr. sub. notes 8 1/4s, 2014 (S)    2,432,000    2,213,120 
 
Lodging/Tourism (0.8%)         
FelCor Lodging LP company guaranty 8 1/2s, 2011 (R)    2,685,000    2,691,713 
Host Marriott LP company guaranty Ser. Q, 6 3/4s, 2016 (R)    130,000    123,175 
Host Marriott LP sr. notes 7 1/8s, 2013 (R)    100,000    98,500 
Host Marriott LP sr. notes Ser. M, 7s, 2012 (R)    9,300,000    9,067,500 
Seminole Hard Rock Entertainment, Inc. 144A sr. sec.         
notes FRN 7.491s, 2014    3,225,000    2,483,250 
        14,464,138 
 
Media (2.3%)         
Affinion Group, Inc. company guaranty 11 1/2s, 2015    3,780,000    3,477,600 
Affinion Group, Inc. company guaranty 10 1/8s, 2013    6,635,000    6,502,300 
Affinity Group, Inc. sr. sub. notes 9s, 2012    6,205,000    5,584,500 
Idearc, Inc. company guaranty 8s, 2016 (S)    11,540,000    6,808,600 
Liberty Media, LLC sr. notes 5.7s, 2013    870,000    777,939 
Liberty Media, LLC sr. unsec. notes 7 7/8s, 2009    2,340,000    2,379,368 
Nielsen Finance LLC/Nielsen Finance Co. company guaranty         
10s, 2014    4,980,000    4,805,700 
Nielsen Finance LLC/Nielsen Finance Co. company         
guaranty stepped-coupon zero % (12 1/2s, 8/1/11), 2016 ††    9,975,000    6,334,125 
R.H. Donnelley Corp. sr. disc. notes Ser. A-1, 6 7/8s, 2013    665,000    392,350 
R.H. Donnelley Corp. sr. disc. notes Ser. A-2, 6 7/8s, 2013 (S)    4,210,000    2,483,900 
R.H. Donnelley Corp. sr. unsec. unsub. notes 8 7/8s, 2017    2,655,000    1,553,175 
R.H. Donnelley Corp. sr. unsec. notes 6 7/8s, 2013    2,025,000    1,194,750 
        42,294,307 

38

CORPORATE BONDS AND NOTES (78.8%)* continued         
    Principal amount    Value 
 
Oil & Gas (6.4%)         
Chaparral Energy, Inc. company guaranty sr. unsec. notes         
8 7/8s, 2017  $  6,790,000  $  5,805,450 
Chesapeake Energy Corp. company guaranty 7 3/4s, 2015    3,787,000    3,891,143 
Chesapeake Energy Corp. sr. notes 7 1/2s, 2013 (S)    6,635,000    6,817,463 
Chesapeake Energy Corp. sr. notes 7s, 2014    2,775,000    2,781,938 
Compton Petroleum Corp. company guaranty 7 5/8s,         
2013 (Canada)    9,165,000    8,523,450 
Comstock Resources, Inc. sr. notes 6 7/8s, 2012    4,580,000    4,259,400 
Connacher Oil and Gas, Ltd. 144A sec. notes 10 1/4s,         
2015 (Canada)    2,895,000    2,866,050 
Denbury Resources, Inc. sr. sub. notes 7 1/2s, 2015    4,460,000    4,504,600 
Encore Acquisition Co. sr. sub. notes 6 1/4s, 2014    2,265,000    2,106,450 
Encore Acquisition Co. sr. sub. notes 6s, 2015    6,129,000    5,500,778 
EXCO Resources, Inc. company guaranty 7 1/4s, 2011    5,210,000    5,014,625 
Forest Oil Corp. sr. notes 8s, 2011    4,319,000    4,491,760 
Harvest Operations Corp. sr. notes 7 7/8s, 2011 (Canada)    6,030,000    5,487,300 
Hilcorp Energy I LP/Hilcorp Finance Co. 144A         
sr. unsec. notes 9s, 2016    2,335,000    2,335,000 
Newfield Exploration Co. sr. sub. notes 6 5/8s, 2014    6,730,000    6,595,400 
PetroHawk Energy Corp. company guaranty 9 1/8s, 2013    10,770,000    10,985,400 
Petroleum Development Corp. 144A sr. unsec. notes 12s, 2018    2,085,000    2,100,638 
Petroplus Finance, Ltd. company guaranty 6 3/4s, 2014 (Bermuda)  4,925,000    4,469,438 
Plains Exploration & Production Co. company guaranty 7 3/4s, 2015  875,000    872,813 
Plains Exploration & Production Co. company guaranty 7s, 2017 (S)  5,520,000    5,299,200 
Quicksilver Resources, Inc. company guaranty 7 1/8s, 2016    3,675,000    3,518,813 
Sabine Pass LNG LP sec. notes 7 1/2s, 2016    3,775,000    3,699,500 
Targa Resources, Inc. company guaranty sr. unsec.         
notes 8 1/2s, 2013    7,670,000    7,113,925 
Whiting Petroleum Corp. company guaranty 7s, 2014    7,100,000    7,064,500 
        116,105,034 
 
Publishing (1.1%)         
American Media, Inc. company guaranty 8 7/8s, 2011    835,000    569,888 
American Media, Inc. company guaranty Ser. B, 10 1/4s, 2009    5,770,000    3,952,450 
American Media, Inc. company guaranty sr. unsec.         
sub. notes 8 7/8s, 2011    30,361    20,721 
American Media, Inc. 144A company guaranty sr. unsec.         
sub. notes 10 1/4s, 2009    209,797    143,711 
CanWest Media, Inc. company guaranty 8s, 2012 (Canada)    3,499,006    3,289,066 
Cenveo Corp., sr. sub. notes 7 7/8s, 2013    1,877,000    1,600,143 
Dex Media, Inc. disc. notes stepped-coupon zero %         
(9s, 11/15/08), 2013 ††    2,710,000    1,951,200 
Dex Media, Inc. notes 8s, 2013    1,580,000    1,121,800 
Quebecor Media sr. unsec. notes 7 3/4s, 2016 (Canada)    1,020,000    935,850 
Reader’s Digest Association, Inc. (The) 144A         
sr. sub. notes 9s, 2017    5,105,000    3,675,600 
Vertis, Inc. company guaranty Ser. B, 10 7/8s, 2009    8,778,000    3,072,300 
Vertis, Inc. 144A unsec. sub. notes 13 1/2s, 2009    2,405,000    312,650 
        20,645,379 

39

CORPORATE BONDS AND NOTES (78.8%)* continued         
    Principal amount    Value 
 
Restaurants (0.1%)         
Buffets, Inc. company guaranty 12 1/2s, 2014 (In default) †  $  1,920,000  $  48,000 
OSI Restaurant Partners, Inc. 144A sr. notes 10s, 2015    2,035,000    1,241,350 
        1,289,350 
 
Retail (1.9%)         
Asbury Automotive Group, Inc. sr. sub. notes 8s, 2014    3,595,000    3,109,675 
Autonation, Inc. company guaranty 7s, 2014    1,070,000    973,700 
Autonation, Inc. company guaranty sr. unsec.         
notes FRN 6.258s, 2013    1,650,000    1,353,000 
Bon-Ton Stores, Inc. (The) company guaranty 10 1/4s, 2014    3,080,000    2,063,600 
Harry & David Holdings, Inc. company guaranty 9s, 2013    3,645,000    3,207,600 
Harry & David Holdings, Inc. company guaranty FRN         
10.124s, 2012    1,125,000    1,046,250 
Michaels Stores, Inc. company guaranty 11 3/8s, 2016    7,115,000    5,887,663 
Neiman-Marcus Group, Inc. company guaranty 9s, 2015 (S)    4,265,000    4,243,675 
Rite Aid Corp. company guaranty 9 3/8s, 2015    4,590,000    3,557,250 
Rite Aid Corp. company guaranty 7 1/2s, 2015    3,420,000    3,069,450 
Rite Aid Corp. sec. notes 8 1/8s, 2010    500,000    482,500 
Rite Aid Corp. sec. notes 7 1/2s, 2017    985,000    861,875 
United Auto Group, Inc. company guaranty 7 3/4s, 2016    4,915,000    4,202,325 
        34,058,563 
 
Technology (5.7%)         
Activant Solutions, Inc. company guaranty 9 1/2s, 2016    2,890,000    2,398,700 
Advanced Micro Devices, Inc. sr. notes 7 3/4s, 2012    3,891,000    3,268,440 
Amkor Technologies, Inc. sr. notes 7 3/4s, 2013 (S)    6,297,000    5,856,210 
Avago Technologies Finance company guaranty 11 7/8s,         
2015 (Singapore)    1,160,000    1,203,500 
Avago Technologies Finance company guaranty 10 1/8s,         
2013 (Singapore)    1,175,000    1,239,625 
Avago Technologies Finance company guaranty FRN         
10.624s, 2013 (Singapore)    18,000    17,865 
Celestica, Inc. sr. sub. notes 7 7/8s, 2011 (Canada)    1,880,000    1,837,700 
Celestica, Inc. sr. sub. notes 7 5/8s, 2013 (Canada)    2,965,000    2,801,925 
Ceridian Corp. 144A sr. unsec. notes 11 1/4s, 2015    3,885,000    3,185,700 
Compucom Systems, Inc. sr. sub. notes 12 1/2s, 2015    1,625,000    1,519,375 
Freescale Semiconductor, Inc. company         
guaranty sr. unsec. sub. notes 9 1/8s, 2014 ‡‡    5,620,000    4,271,200 
Freescale Semiconductor, Inc. company         
guaranty sr. unsec. notes 8 7/8s, 2014 (S)    8,000,000    6,520,000 
Freescale Semiconductor, Inc. sr. sec. notes 10 1/8s, 2016 (S)    6,615,000    4,696,650 
Iron Mountain, Inc. company guaranty 8 3/4s, 2018    1,860,000    1,948,350 
Iron Mountain, Inc. company guaranty 8 5/8s, 2013    5,586,000    5,641,860 
Iron Mountain, Inc. company guaranty 7 3/4s, 2015    125,000    125,313 
Iron Mountain, Inc. company guaranty 6 5/8s, 2016    235,000    223,838 
Lucent Technologies, Inc. unsec. debs. 6.45s, 2029    3,889,000    2,916,750 
Lucent Technologies, Inc. notes 5 1/2s, 2008    1,435,000    1,426,031 
New ASAT Finance, Ltd. company guaranty 9 1/4s, 2011         
(Cayman Islands)    3,055,000    2,428,725 

40

CORPORATE BONDS AND NOTES (78.8%)* continued         
    Principal amount    Value 
 
Technology continued         
Nortel Networks, Ltd. company guaranty sr. unsec.         
FRN 8.508s, 2011 (Canada)  $  4,925,000  $  4,260,125 
Nortel Networks, Ltd. company guaranty sr. unsec.         
notes 10 3/4s, 2016 (Canada)    1,675,000    1,574,500 
NXP BV/NXP Funding, LLC company guaranty sr. sec.         
notes FRN 7.008s, 2013 (Netherlands)    4,720,000    3,811,400 
NXP BV/NXP Funding, LLC sec. notes 7 7/8s, 2014 (Netherlands)    7,885,000    7,175,350 
Open Solutions, Inc. 144A sr. sub. notes 9 3/4s, 2015    3,355,000    2,650,450 
Seagate Technology Hdd Holdings company         
guaranty 6.8s, 2016 (Cayman Islands)    2,580,000    2,517,873 
SunGard Data Systems, Inc. company guaranty 10 1/4s, 2015    4,796,000    4,772,020 
SunGard Data Systems, Inc. company guaranty 9 1/8s, 2013    11,633,000    11,720,248 
Travelport LLC company guaranty 11 7/8s, 2016    1,450,000    1,225,250 
Travelport LLC company guaranty 9 7/8s, 2014    3,800,000    3,344,000 
Unisys Corp. sr. unsec. unsub. notes 8s, 2012    3,745,000    3,239,425 
Xerox Capital Trust I company guaranty 8s, 2027    3,365,000    3,420,230 
        103,238,628 
 
Textiles (1.3%)         
Hanesbrands, Inc. company guaranty sr. unsec.         
notes FRN Ser. B, 8.204s, 2014    7,695,000    6,771,600 
Levi Strauss & Co. sr. unsec. unsub. notes 9 3/4s, 2015    8,088,000    8,027,340 
Levi Strauss & Co. sr. unsec. notes 8 7/8s, 2016    4,115,000    3,919,538 
Oxford Industries, Inc. sr. notes 8 7/8s, 2011    4,325,000    4,152,000 
        22,870,478 
 
Utilities & Power (5.3%)         
AES Corp. (The) sr. notes 8 7/8s, 2011    808,000    842,340 
AES Corp. (The) sr. unsec. unsub. notes 8s, 2017 (S)    1,840,000    1,876,800 
AES Corp. (The) 144A sec. notes 8 3/4s, 2013    4,725,000    4,943,531 
Cleveland Electric Illuminating Co. (The) 144A         
sr. notes Ser. D, 7.88s, 2017    10,000    11,576 
CMS Energy Corp. sr. notes 8 1/2s, 2011    1,294,000    1,392,328 
CMS Energy Corp. sr. notes 7 3/4s, 2010    1,760,000    1,868,833 
Colorado Interstate Gas Co. debs. 6.85s, 2037    3,610,000    3,494,097 
Colorado Interstate Gas Co. sr. notes 5.95s, 2015    325,000    327,215 
Dynegy-Roseton Danskamme company guaranty Ser. A,         
7.27s, 2010    2,892,983    2,900,216 
Dynegy-Roseton Danskamme company guaranty Ser. B,         
7.67s, 2016    5,430,000    5,430,000 
Edison Mission Energy sr. unsec. notes 7 3/4s, 2016    2,130,000    2,193,900 
Edison Mission Energy sr. unsec. notes 7 1/2s, 2013    2,495,000    2,557,375 
Edison Mission Energy sr. unsec. notes 7.2s, 2019    3,925,000    3,846,500 
Edison Mission Energy sr. unsec. notes 7s, 2017    2,750,000    2,701,875 
El Paso Natural Gas Co. debs. 8 5/8s, 2022    1,775,000    2,017,634 
Ferrellgas LP/Finance sr. notes 8 3/4s, 2012    217,000    221,340 
Ferrellgas LP/Finance sr. notes 6 3/4s, 2014    5,575,000    5,442,594 
Mirant Americas Generation, Inc. sr. unsec. notes 8.3s, 2011    4,214,000    4,256,140 
Mirant North America, LLC company guaranty 7 3/8s, 2013    6,700,000    6,725,125 

41

CORPORATE BONDS AND NOTES (78.8%)* continued         
    Principal amount    Value 
 
Utilities & Power continued         
NRG Energy, Inc. company guaranty 7 3/8s, 2017  $  2,710,000  $  2,621,925 
NRG Energy, Inc. sr. notes 7 3/8s, 2016    14,110,000    13,598,513 
Orion Power Holdings, Inc. sr. unsec. notes 12s, 2010    2,510,000    2,723,350 
Sierra Pacific Power Co. general ref. mtge. 6 1/4s, 2012    1,238,000    1,297,501 
Sierra Pacific Resources sr. unsec. notes 8 5/8s, 2014    3,540,000    3,764,365 
Teco Finance, Inc. sr. unsec. unsub. notes 7s, 2012    2,785,000    3,003,113 
Teco Finance, Inc. sr. unsec. unsub. notes 7.2s, 2011    1,680,000    1,797,024 
Teco Finance, Inc. sr. unsec. unsub. notes 6 3/4s, 2015    370,000    379,859 
Tennessee Gas Pipeline Co. sr. unsec. unsub. debs. 7s, 2028    710,000    705,259 
Tennessee Gas Pipeline Co. sr. unsec. unsub. debs. 7 1/2s, 2017    1,495,000    1,657,770 
Transcontinental Gas Pipeline Corp. sr. unsec. debs. 7 1/4s, 2026    5,220,000    5,337,450 
Utilicorp United, Inc. sr. unsec. notes 9.95s, 2011    173,000    183,897 
Williams Cos., Inc. (The) sr. unsec. notes 8 1/8s, 2012    25,000    27,250 
Williams Cos., Inc. (The) sr. unsec. notes 7 5/8s, 2019    1,525,000    1,631,750 
Williams Cos., Inc. (The) 144A notes 6 3/8s, 2010    1,915,000    1,958,088 
Williams Partners LP/ Williams Partners         
Finance Corp. sr. unsec. notes 7 1/4s, 2017    2,050,000    2,065,375 
        95,801,908 
  
Total corporate bonds and notes (cost $1,584,694,997)      $  1,435,822,279 
 
 
SENIOR LOANS (8.3%)* (c)         
    Principal amount    Value 
 
Automotive (0.3%)         
Allison Transmission bank term loan FRN Ser. B, 6.624s, 2014  $  3,426,413  $  3,016,196 
Dana Corp. bank term loan FRN 6.88s, 2015    2,545,000    2,330,795 
        5,346,991 
 
Basic Materials (0.8%)         
Domtar Corp. bank term loan FRN 4.491s, 2014 (Canada)    4,617,097    4,293,900 
Georgia-Pacific, LLC bank term loan FRN Ser. B, 6.866s, 2013    6,096,529    5,609,825 
Huntsman International, LLC bank term loan FRN         
Ser. B, 5.035s, 2012    1,056,402    1,001,821 
Ineos Holdings, Ltd. bank term loan FRN Ser. B2,         
7.356s, 2014 (United Kingdom)    613,737    540,242 
Ineos Holdings, Ltd. bank term loan FRN Ser. C2,         
7.856s, 2015 (United Kingdom)    613,737    540,242 
NewPage Holding Corp. bank term loan FRN 8.688s, 2014    1,325,000    1,284,697 
Rockwood Specialties Group, Inc. bank term loan FRN         
Ser. E, 4.744s, 2012    1,278,538    1,197,565 
        14,468,292 
 
Broadcasting (0.2%)         
Univision Communications, Inc. bank term loan FRN         
Ser. B, 5.49s, 2014    4,585,772    3,837,057 
Univision Communications, Inc. bank term loan FRN         
Ser. DD, 7.61s, 2014 (U)    159,228    133,231 
Young Broadcasting, Inc. bank term loan FRN Ser. B, 5.696s, 2012    237,691    210,951 
        4,181,239 

42

SENIOR LOANS (8.3%)* (c) continued         
    Principal amount    Value 
 
Cable Television (0.1%)         
Cablevision Systems Corp. bank term loan FRN 6.896s, 2013  $  2,482,367  $  2,291,431 
 
Capital Goods (0.3%)         
Hawker Beechcraft Acquisition Co., LLC bank term         
loan FRN 4.73s, 2014    32,526    29,995 
Hawker Beechcraft Acquisition Co., LLC bank term         
loan FRN Ser. B, 6.83s, 2014    381,513    351,827 
Sequa Corp. bank term loan FRN 8.08s, 2014    2,325,000    2,184,047 
Wesco Aircraft Hardware Corp. bank term loan FRN 10.58s, 2014  3,425,000    3,236,625 
        5,802,494 
 
Communication Services (0.1%)         
Hawaiian Telcom Communications, Inc. bank term loan         
FRN Ser. C, 7.08s, 2014    1,699,268    1,369,326 
Cricket Communications, Inc. bank term loan FRN         
Ser. B, 7.83s, 2013    82,500    78,627 
        1,447,953 
 
Consumer Cyclicals (1.6%)         
Adesa, Inc. bank term loan FRN 7.08s, 2013    1,192,504    1,065,502 
CCM Merger, Inc. bank term loan FRN Ser. B, 6.997s, 2012    1,855,245    1,604,787 
Claire’s Stores, Inc. bank term loan FRN 6.472s, 2014    2,234,700    1,750,887 
GateHouse Media, Inc. bank term loan FRN Ser. B, 7.07s, 2014    2,399,620    1,698,931 
GateHouse Media, Inc. bank term loan FRN Ser. DD, 6 1/2s, 2014  895,380    633,929 
Golden Nugget, Inc. bank term loan FRN Ser. B, 5 1/8s, 2014    690,455    593,791 
Golden Nugget, Inc. bank term loan FRN Ser. DD, 1 3/4s, 2014 (U)  394,545    339,309 
Goodyear Tire & Rubber Co. (The) bank term loan FRN         
6.43s, 2010    8,970,000    8,151,488 
Isle of Capri Casinos, Inc. bank term loan FRN 6.58s, 2014    1,367,637    1,169,330 
Isle of Capri Casinos, Inc. bank term loan FRN Ser. A, 4 7/8s, 2014  412,353    352,562 
Isle of Capri Casinos, Inc. bank term loan FRN Ser. B, 6.58s, 2014  547,055    467,732 
Landsource Communities/NWHL Investment bank term         
loan FRN 7.403s, 2013    1,184,252    830,245 
Lear Corp bank term loan FRN 6.826s, 2013    2,990,946    2,738,585 
Standard-Pacific Corp. bank term loan FRN Ser. B, 4.815s, 2013  1,235,000    1,002,409 
Tribune Co. bank term loan FRN Ser. B, 7.91s, 2014    8,716,200    6,354,110 
United Components, Inc. bank term loan FRN Ser. D, 5.164s, 2012  555,556    494,444 
        29,248,041 
 
Consumer Staples (0.7%)         
Charter Communications, Inc. bank term loan FRN 5.26s, 2014  711,113    624,255 
Citadel Communications bank term loan FRN Ser. B, 5.703s, 2014  2,175,000    1,628,531 
Mediacom Communications Corp. bank term loan FRN         
Ser. C, 4.9s, 2015    4,004,731    3,449,075 
Pinnacle Foods Holding Corp. bank term loan FRN         
Ser. B, 7.483s, 2014    1,005,012    883,783 
Rental Service Corp. bank term loan FRN 8.15s, 2013    5,885,710    5,010,211 
Six Flags Theme Parks bank term loan FRN 5.374s, 2015    2,228,800    1,880,550 
        13,476,405 

43

SENIOR LOANS (8.3%)* (c) continued         
    Principal amount    Value 
 
Energy (0.6%)         
Enterprise GP Holdings, LP bank term loan FRN 6.237s, 2014  $  775,000  $  747,875 
Sandridge Energy bank term loan FRN 8 5/8s, 2015    8,245,000    7,956,425 
Sandridge Energy bank term loan FRN 8.354s, 2014    1,965,000    1,778,325 
        10,482,625 
 
Financial (0.6%)         
Nuveen Investments, Inc. bank term loan FRN Ser. B, 7.29s, 2014    1,270,000    1,173,956 
Realogy Corp. bank term loan FRN 5.32s, 2013    716,551    599,216 
Realogy Corp. bank term loan FRN Ser. B, 7.505s, 2013    2,661,474    2,225,658 
Residential Capital, LLC bank term loan FRN 5.953s, 2008    8,890,000    7,627,620 
        11,626,450 
 
Health Care (0.9%)         
Community Health Systems, Inc. bank term loan FRN         
Ser. B, 7.331s, 2014    3,919,071    3,580,726 
Community Health Systems, Inc. bank term loan FRN         
Ser. DD, 0 1/2s, 2014 (U)    201,620    184,214 
Fenwal Controls of Japan, LTD. bank term loan FRN         
10.331s, 2014 (Japan)    500,000    458,750 
Fenwal Controls of Japan, LTD. bank term loan FRN         
7.331s, 2014 (Japan)    3,586,524    3,093,378 
Fenwal Controls of Japan, LTD. bank term loan FRN         
Ser. DD, 0 1/2s, 2014 (Japan) (U)    602,271    519,459 
Healthsouth Corp. bank term loan FRN Ser. B, 5.671s, 2013    1,893,867    1,736,570 
IASIS Healthcare, LLC/IASIS Capital Corp. bank term         
loan FRN 8.494s, 2014    5,603,213    4,482,570 
Mylan, Inc. bank term loan FRN Ser. B, 7.098s, 2014    1,935,000    1,866,737 
Psychiatric Solutions, Inc. bank term loan FRN Ser. B, 6.173s, 2012    392,940    360,523 
        16,282,927 
 
Media (0.1%)         
Idearc, Inc. bank term loan FRN Ser. B, 6.83s, 2014    3,114,271    2,562,136 
 
Retail (0.1%)         
Michaels Stores, Inc. bank term loan FRN Ser. B, 5.432s, 2013    2,247,927    1,929,641 
 
Technology (0.6%)         
Compucom Systems, Inc. bank term loan FRN 6.78s, 2014    2,788,013    2,467,391 
First Data Corp. bank term loan FRN Ser. B1, 7.63s, 2014    2,703,225    2,451,674 
First Data Corp. bank term loan FRN Ser. B3, 7.63s, 2014    2,703,225    2,451,825 
Flextronics International, Ltd. bank term loan FRN         
Ser. B, 7.455s, 2014 (Singapore)    626,777    581,858 
Flextronics International, Ltd. bank term loan FRN         
Ser. B, 7.394s, 2014 (Singapore)    2,181,185    2,024,866 
        9,977,614 
 
Transportation (0.5%)         
Navistar Financial Corp. bank term loan FRN 5.957s, 2012    2,241,333    1,997,588 
Navistar International Corp. bank term loan FRN 6.501s, 2012    6,163,667    5,493,368 
UAL Corp. bank term loan FRN Ser. B, 6.529s, 2014    890,278    746,720 
        8,237,676 

44

SENIOR LOANS (8.3%)* (c) continued         
    Principal amount    Value 
 
Utilities & Power (0.8%)         
Energy Future Holdings Corp. bank term loan FRN         
Ser. B2, 6.579s, 2014  $  6,783,000  $  6,186,659 
Energy Future Holdings Corp. bank term loan FRN         
Ser. B3, 6.583s, 2014    9,057,300    8,257,586 
        14,444,245 
 
Total senior loans (cost $168,986,160)      $  151,806,160 
 
 
CONVERTIBLE BONDS AND NOTES (2.6%)*         
    Principal amount    Value 
 
Acquicor Technology, Inc. 144A cv. notes 8s, 2011  $  2,357,000  $  1,767,750 
Alliant Techsystems, Inc. cv. sr. sub. notes 2 3/4s, 2024    2,965,000    4,099,113 
Chiquita Brands International cv. unsec. sr. notes 4 1/4s, 2016    1,825,000    2,110,156 
Countrywide Financial Corp. cv. unsec. sr. FRN         
company guaranty 0.758s, 2037    2,165,000    1,916,025 
DRS Technologies, Inc. 144A cv. unsec. notes 2s, 2026    7,205,000    7,961,525 
Intel Corp. cv. sub. bonds 2.95s, 2035    4,395,000    4,153,275 
International Coal Group, Inc. 144A cv. company guaranty 9s, 2012    3,740,000    4,860,965 
L-3 Communications Corp. 144A cv. bonds 3s, 2035    5,115,000    6,329,813 
Level 3 Communications, Inc. cv. sr. notes 3 1/2s, 2012    2,785,000    2,033,050 
NII Holdings, Inc. 144A cv. sr. unsec. notes 3 1/8s, 2012    3,720,000    3,227,100 
Safeguard Scientifics, Inc. cv. sr. notes 2 5/8s, 2024    425,000    343,188 
Sinclair Broadcast Group, Inc. cv. sr. sub. notes stepped-coupon         
4 7/8s (2s, 1/15/11) 2018 ††    3,155,000    2,914,431 
Transocean, Inc. cv. sr. unsec. notes, Ser. C, 1 1/2s, 2037    2,635,000    2,944,613 
Trinity Industries, Inc. cv. sub. notes 3 7/8s, 2036    3,812,000    3,364,055 
Total convertible bonds and notes (cost $45,139,041)      $  48,025,059 
 
COMMON STOCKS (1.8%)*         
    Shares    Value 
 
AboveNet, Inc. †    2,194  $  160,162 
Adelphia Recovery Trust (Ser. ACC-1) †    8,448,187    591,373 
Bohai Bay Litigation, LLC (Units) (F) §    3,899    55,172 
Chesapeake Energy Corp. (S)    96,671    4,371,463 
Cinemark Holdings, Inc. (S)    181,700    2,623,748 
Contifinancial Corp. Liquidating Trust Units † (F)    32,554,805    3,255 
Dana Holding Corp. †    211,156    2,491,641 
Decrane Aircraft Holdings, Inc. † (F) §    29,311    29 
Del Monte Foods Co.    154,000    1,382,920 
DigitalGlobe, Inc. 144A † §    645,566    645,566 
El Paso Corp. (S)    187,225    3,051,768 
Jarden Corp. † (S)    95,645    2,304,088 
Mediq, Inc. † (F)    21,441    13,018 
NRG Energy, Inc. †    71,850    2,965,250 
Pinnacle Entertainment , Inc. † (S)    117,825    1,845,140 
Qwest Communications International, Inc.    345,050    1,863,270 

45

COMMON STOCKS (1.8%)* continued         
    Shares    Value 
 
United Rentals, Inc. †    98,425  $  1,978,343 
VFB LLC (acquired various dates from 12/21/99         
to 12/8/03, cost $9,772,641) ‡ † (F) §    12,955,347    267,994 
Williams Cos., Inc. (The)    145,082    5,225,854 
XCL Warranty Escrow (F) §    3,899    278,279 
Total common stocks (cost $58,776,175)      $  32,118,333 
 
 
CONVERTIBLE PREFERRED STOCKS (1.7%)*         
    Shares    Value 
 
Citigroup Funding, Inc. Ser. GNW, 5.02% cv. pfd.    206,540  $  4,820,644 
Crown Castle International Corp. $3.125 cum. cv. pfd.    88,505    4,956,280 
Digital Realty Trust, Inc. $1.094 cv. pfd.    103,440    2,159,310 
Emmis Communications Corp. Ser. A, $3.125 cum. cv. pfd.    83,405    2,168,530 
Entertainment Properties Trust Ser. C, $1.437 cum. cv. pfd. (R)    141,040    2,803,170 
Freeport-McMoRan Copper & Gold, Inc. $6.75 cv. pfd.    26,163    3,859,043 
Interpublic Group of Companies, Inc. 144A Ser. B,         
5.25% cum. cv. pfd    4,964    4,268,420 
Northrop Grumman Corp. Ser. B, $7.00 cum. cv. pfd.    41,825    6,085,538 
 
Total convertible preferred stocks (cost $31,633,778)      $  31,120,935 
  
COLLATERALIZED MORTGAGE OBLIGATIONS (0.4%)*         
    Principal amount    Value 
 
DLJ Commercial Mortgage Corp. 144A Ser. 98-CF2,         
Class B5, 5.95s, 2031  $  3,816,434  $  3,014,181 
GE Capital Commercial Mortgage Corp. 144A Ser. 00-1,         
Class G, 6.131s, 2033    2,470,000    2,046,197 
Mach One Commercial Mortgage Trust 144A         
Ser. 04-1A, Class J, 5.45s, 2040 (Canada)    2,435,000    1,436,650 
Ser. 04-1A, Class K, 5.45s, 2040 (Canada)    880,000    475,200 
Ser. 04-1A, Class L, 5.45s, 2040 (Canada)    400,000    196,000 
 
Total collateralized mortgage obligations (cost $7,553,075)      $  7,168,228 
 
FOREIGN GOVERNMENT BONDS AND NOTES (0.2%)* (cost $3,741,278)     
    Principal amount    Value 
 
Argentina (Republic of ) sr. unsec. unsub. bonds FRB 3.092s, 2012 $  3,978,125  $  3,484,303 

46

WARRANTS (—%)* †           
  Expiration date   Strike price   Warrants    Value 
 
AboveNet, Inc.  9/08/10  $24.00  1,086  $  54,300 
AboveNet, Inc.  9/08/08  20.00  923    50,765 
Decrane Aircraft Holdings Co. Class B  6/30/10  116  1    1 
Decrane Aircraft Holdings Co. Class B  6/30/10  116  1    1 
New ASAT Finance, Ltd. (Cayman Islands) (F)  2/01/11  0.01  794,300    18,427 
Odyssey Investment Partners 144A (F)  6/15/09  .01  8,614    42,660 
Smurfit Kappa Group PLC 144A (Ireland)  10/01/13  EUR .001  4,599    340,021 
ZSC Specialty Chemicals PLC 144A           
(United Kingdom)  6/30/11  $.01  300,000    3,000 
ZSC Specialty Chemicals PLC (Preferred)           
144A (United Kingdom)  6/30/11  .01  300,000    3,000 
Total warrants (cost $730,927)        $  512,175 
 
 
PREFERRED STOCKS (—%)* (cost $244,766)           
      Shares    Value 
  
Decrane Aircraft Holdings, Inc. $16.00 pfd. ‡‡      21,000  $  147,000 
 
 
SHORT-TERM INVESTMENTS (9.2%)*           
  Principal amount/shares    Value 
 
Bryant Park Funding LLC for an effective yield           
of 3.25%, maturity date March 3, 2008.    $ 20,000,000  $  19,994,583 
Interest in $367,500,500 joint tri-party repurchase         
agreement dated February 29, 2008 with Deutsche         
Bank Securities Inc.due March 3, 2008, maturity value         
of $11,530,026 for an effective yield of 3.15%           
(Collateralized by a Fannie Mae security with a           
coupon rate of 5.0%, and a due date of October 1,         
2035, valued at $374,850,000).    11,527,000    11,527,000 
Short-term investments held as collateral for loaned         
securities with yields ranging from 2.80% to 4.48%           
and due dates ranging from March 3, 2008 to April 25, 2008 (d)  89,269,237    89,141,790 
Putnam Prime Money Market Fund (e)    47,164,734    47,164,734 
 
Total short-term investments (cost $167,828,107)      $  167,828,107 
 
 
TOTAL INVESTMENTS           
Total investments (cost $2,069,328,304)        $  1,878,032,579 

       Key to holding's currency abbreviations

          EUR                  Euro

    * Percentages indicated are based on net assets of $1,821,310,906.

   † Non-income-producing security.

†† The interest rate and date shown parenthetically represent the new interest rate to be paid and the date the fund will begin accruing interest at this rate.

47

  ‡ Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities held at February 29, 2008 was $267,994 or less than 0.1% of net assets.

‡‡ Income may be received in cash or additional securities at the discretion of the issuer. § Affiliated Companies (Note 8).

(c) Senior loans are exempt from registration under the Securities Act of 1933, as amended, but contain certain restrictions on resale and cannot be sold publicly. These loans pay interest at rates which adjust periodically. The interest rates shown for senior loans are the current interest rates at February 29, 2008. Senior loans are also subject to mandatory and/or optional prepayment which cannot be predicted. As a result, the remaining maturity may be substantially less than the stated maturity shown (Notes 1 and 6).

(d) See Note 1 to the financial statements.

(e) See Note 5 to the financial statements regarding investments in Putnam Prime Money Market Fund.

(F) Is valued at fair value following procedures approved by the Trustees.

(R) Real Estate Investment Trust.

(S) Securities on loan, in part or in entirety, at February 29, 2008.

(U) These securities, in part or in entirety, represent unfunded loan commitments (Note 7).

At February 29, 2008, liquid assets totaling $54,499,372 have been designated as collateral for open swap contracts and forward contracts.

144A after the name of an issuer represents securities exempt from registration under Rule 144A under the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.

The rates shown on Floating Rate Bonds (FRB) and Floating Rate Notes (FRN) are the current interest rates at February 29, 2008.

The dates shown on debt obligations are the original maturity dates.

FORWARD CURRENCY CONTRACTS TO BUY at 2/29/08 (Unaudited)     
    Aggregate  Delivery  Unrealized 
  Value  face value  date  appreciation 
Euro  $4,247,292  $4,123,591  3/19/08  $123,701 
 
FORWARD CURRENCY CONTRACTS TO SELL at 2/29/08 (Unaudited)     
    Aggregate  Delivery  Unrealized 
  Value  face value  date  depreciation 
Euro  $20,838,819  $20,248,746  3/19/08  $(590,073) 

INTEREST RATE SWAP CONTRACTS OUTSTANDING at 2/29/08 (Unaudited)   
    Payments  Payments   
Swap counterparty /  Termination  made by  received by  Unrealized 
Notional amount  date  fund per annum  fund per annum  appreciation 
Lehman Brothers Special Financing, Inc.       
$342,250,000  9/14/09  3 month USD-LIBOR-BBA  4.715%  $15,116,944 

48

CREDIT DEFAULT CONTRACTS OUTSTANDING at 2/29/08 (Unaudited)     
      Fixed payments  Unrealized 
Swap counterparty /  Notional    Termination  received (paid) by  appreciation/ 
Referenced debt*  amount  date  fund per annum  (depreciation) 
Bank of America, N.A.         
Abitibibowater Inc.,         
6 1/2%, 6/15/13  $1,225,000  12/20/08  550 bp  $(179,757) 
Nalco, Co.         
7.75%,11/15/11  1,160,000  9/20/12  350 bp  (48,442) 
Bear Stearns Credit Products, Inc.         
Claire’s Stores,         
9 5/8%, 6/1/15  730,000  6/20/12  230 bp  (106,106) 
Citibank, N.A.         
Abitibibowater Inc.,         
6 1/2%, 6/15/13  1,225,000  12/20/08  825 bp  (146,305) 
Abitibibowater Inc.,         
6 1/2%, 6/15/13  1,240,000  12/20/08  725 bp  (163,122) 
Abitibibowater Inc.,         
6 1/2%, 6/15/13  1,225,000  12/20/08  800 bp  (153,174) 
Freescale         
Semiconductor, 8 7/8%,         
12/15/14  3,225,000  9/20/12  495 bp  (483,782) 
Sanmina-Sci Corp.,         
8 1/8%, 3/1/16  715,000  3/20/09  275 bp  (5,900) 
Wind Acquisition         
9 3/4%, 12/1/15  EUR 423,000  3/20/13  (495 bp)  21,284 
Credit Suisse International         
Advanced Micro Devices,         
7 3/4%, 11/1/12  $1,505,000  6/20/09  165 bp  (123,816) 
Dynegy Holdings Inc.,         
6 7/8%, 4/1/11  140,000  9/20/12  400 bp  (4,675) 
Dynegy Holdings Inc.,         
6 7/8%, 4/1/11  2,065,000  6/20/17  297 bp  (276,768) 
Harrahs Operating Co.         
Inc., 5 5/8%, 6/1/15  2,215,000  3/20/09  600 bp  (17,033) 
Deutsche Bank AG         
Nalco, Co. 7.75%,         
11/15/11  1,115,000  12/20/12  363 bp  (45,180) 
Goldman Sachs International         
Any one of the         
underlying securities         
in the basket of BB         
CMBS securities  3,646,000  (F)  (a)  2.461%  (646,998) 
General Motors Corp.,         
7 1/8%, 7/15/13  4,715,000  9/20/08  620 bp  64,454 
General Motors Corp.,         
7 1/8%, 7/15/13  1,005,000  9/20/08  620 bp  13,738 
Wind Acquisition         
9 3/4%, 12/1/15  EUR 960,000  12/20/10  (340 bp)  59,023 

49

CREDIT DEFAULT CONTRACTS OUTSTANDING at 2/29/08 (Unaudited) continued   
      Fixed payments  Unrealized 
Swap counterparty /  Notional    Termination  received (paid) by  appreciation/ 
Referenced debt*  amount  date  fund per annum  (depreciation) 
Lehman Brothers Special Financing, Inc.         
Community Health         
Systems, 8 7/8%, 7/15/15  $2,765,000  12/20/12  360 bp  $ (224,601) 
Jefferson Smurfit         
Corp., 7 1/2%, 6/1/13  1,875,000  3/20/13  645 bp  (16,559) 
HCA inc., T/L Bank Loan  630,000  3/20/09  225 bp  (350) 
Harrahs Operating Co.         
Inc., 5 5/8%, 6/1/15  1,550,000  3/20/09  610 bp  (10,454) 
Sungard Data Systems,         
Inc., 9 1/8%, 8/15/13  2,712,000  9/20/12  395 bp  (121,281) 
Wind Acquisition         
9 3/4%, 12/1/15  EUR 420,000  12/20/10  (357 bp)  22,906 
Merrill Lynch Capital Services, Inc.         
General Motors Corp.,         
7 1/8%, 7/15/13  $3,235,000  9/20/08  500 bp  15,075 
Merrill Lynch International         
Dynegy Holdings Inc.,         
6 7/8%, 4/1/11  2,065,000  6/20/17  295 bp  (297,711) 
Morgan Stanley Capital Services, Inc.         
Advanced Micro Devices,         
7 3/4%, 11/1/12  325,000  6/20/09  190 bp  (26,108) 
Aramark Services, Inc.,         
8.5%, 2/1/15  2,235,000  12/20/12  355 bp  (181,482) 
Dynegy Holdings Inc.,         
6 7/8%, 4/1/11  2,065,000  6/20/12  225 bp  (182,429) 
Jefferson Smurfit Corp,         
7.5%, 6/1/13  1,665,000  9/20/12  445 bp  (125,353) 
Nalco, Co. 7.75%,         
11/15/11  1,445,000  3/20/13  460 bp  (8,195) 
Nalco, Co. 7.75%,         
11/15/11  1,190,000  9/20/12  330 bp  (59,167) 
Oshkosh Truck Corp, T/L         
Bank Loan  3,125,000  6/20/12  114 bp  (244,938) 
Total        $(3,703,206) 

* Payments related to the reference debt are made upon a credit default event.

(a) Terminating on the date on which the notional amount is reduced to zero or the date on which the assets securing the reference entity are liquidated.

(F) Is valued at fair value following procedures approved by the Trustees.

The accompanying notes are an integral part of these financial statements.

50

Statement of assets and liabilities 2/29/08 (Unaudited)

ASSETS   
Investment in securities, at value, including $86,751,154 of securities on loan (Note 1):   
Unaffiliated issuers (identified cost $2,011,671,527)  $ 1,829,620,805 
Affiliated issuers (identified cost $57,656,777) (Notes 5 and 8)  48,411,774 
Cash  169,405 
Foreign currency (cost $350)  342 
Interest and other receivables  35,998,828 
Receivable for shares of the fund sold  531,594 
Receivable for securities sold  4,341,931 
Receivable for open forward currency contracts (Note 1)  123,701 
Receivable from Manager (Note 2)  285,052 
Unrealized appreciation on swap contracts (Note 1)  15,313,424 
Total assets  1,934,796,856 
 
LIABILITIES   
Payable for securities purchased  11,253,645 
Payable for purchases of delayed delivery securities (Notes 1 and 7)  1,331,143 
Payable for shares of the fund repurchased  2,838,021 
Payable for compensation of Manager (Notes 2 and 5)  2,781,780 
Payable for investor servicing fees (Note 2)  295,771 
Payable for Trustee compensation and expenses (Note 2)  409,937 
Payable for administrative services (Note 2)  5,797 
Payable for distribution fees (Note 2)  749,040 
Payable for open forward currency contracts (Note 1)  590,073 
Unrealized depreciation on swap contracts (Note 1)  3,899,686 
Collateral on securities loaned, at value (Note 1)  89,141,790 
Other accrued expenses  189,267 
Total liabilities  113,485,950 
Net assets  $ 1,821,310,906 
 
 
REPRESENTED BY   
Paid-in capital (Unlimited shares authorized) (Notes 1 and 4)  $ 3,643,198,934 
Undistributed net investment income (Note 1)  5,200,770 
Accumulated net realized loss on investments   
and foreign currency transactions (Note 1)  (1,646,771,492) 
Net unrealized depreciation of investments   
and assets and liabilities in foreign currencies  (180,317,306) 
Total — Representing net assets applicable to capital shares outstanding  $ 1,821,310,906 

(Continued on next page)

51

Statement of assets and liabilities (Continued)

 
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE   
Net asset value and redemption price per class A share   
($1,406,138,530 divided by 189,854,278 shares)  $7.41 
Offering price per class A share   
(100/96.00 of $7.41)*  $7.72 
Net asset value and offering price per class B share   
($147,697,345 divided by 20,009,021 shares)**  $7.38 
Net asset value and offering price per class C share   
($40,876,185 divided by 5,546,187 shares)**  $7.37 
Net asset value and redemption price per class M share   
($14,209,824 divided by 1,914,630 shares)  $7.42 
Offering price per class M share   
(100/96.75 of $7.42)***  $7.67 
Net asset value, offering price and redemption price per class R share   
($1,171,813 divided by 159,214 shares)  $7.36 
Net asset value, offering price and redemption price per class Y share   
($211,217,209 divided by 28,755,495 shares)  $7.35 

    * On single retail sales of less than $100,000. On sales of $100,000 or more the offering price is reduced.

  ** Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge.

*** On single retail sales of less than $50,000. On sales of $50,000 or more the offering price is reduced.

The accompanying notes are an integral part of these financial statements.

52

Statement of operations Six months ended 2/29/08 (Unaudited)

INVESTMENT INCOME   
Interest (including interest income of $2,009,209   
from investments in affiliated issuers) (Note 5)  $ 84,771,191 
Dividends  1,043,479 
Securities lending  194,904 
Total investment income  86,009,574 
 
EXPENSES   
Compensation of Manager (Note 2)  5,797,483 
Investor servicing fees (Note 2)  1,829,661 
Custodian fees (Note 2)  25,234 
Trustee compensation and expenses (Note 2)  37,050 
Administrative services (Note 2)  14,706 
Distribution fees — Class A (Note 2)  1,898,952 
Distribution fees — Class B (Note 2)  871,124 
Distribution fees — Class C (Note 2)  232,758 
Distribution fees — Class M (Note 2)  38,791 
Distribution fees — Class R (Note 2)  2,984 
Other  326,372 
Non-recurring costs (Notes 2 and 10)  3,494 
Costs assumed by Manager (Notes 2 and 10)  (3,494) 
Fees waived and reimbursed by Manager (Note 5)  (31,776) 
Total expenses  11,043,339 
Expense reduction (Note 2)  (644,276) 
Net expenses  10,399,063 
Net investment income  75,610,511 
Net realized loss on investments (Notes 1 and 3)  (16,664,173) 
Net realized loss on swap contracts (Note 1)  (2,679,177) 
Net realized loss on foreign currency transactions (Note 1)  (1,836,902) 
Net unrealized depreciation of assets and liabilities   
in foreign currencies during the period  (354,646) 
Net unrealized depreciation of investments   
and swap contracts during the period  (82,471,014) 
Net loss on investments  (104,005,912) 
Net decrease in net assets resulting from operations  $ (28,395,401) 

The accompanying notes are an integral part of these financial statements.

53

Statement of changes in net assets

DECREASE IN NET ASSETS     
  Six months ended  Year ended 
  2/29/08*  8/31/07 
Operations:     
Net investment income  $ 75,610,511  $ 161,621,755 
Net realized gain (loss) on investments     
and foreign currency transactions  (21,180,252)  11,404,814 
Net unrealized depreciation of investments     
and assets and liabilities in foreign currencies  (82,825,660)  (18,160,694) 
Net increase (decrease) in net assets     
resulting from operations  (28,395,401)  154,865,875 
Distributions to shareholders (Note 1):     
From ordinary income     
Net investment income     
Class A  (57,634,796)  (123,781,207) 
Class B  (5,900,948)  (18,095,563) 
Class C  (1,581,955)  (4,019,507) 
Class M  (561,398)  (1,337,072) 
Class R  (44,443)  (55,057) 
Class Y  (8,705,739)  (16,558,210) 
Redemption fees (Note 1)  211,406  126,057 
Decrease from capital share transactions (Notes 4 and 9)  (132,711,606)  (211,245,950) 
Total decrease in net assets  (235,324,880)  (220,100,634) 
 
NET ASSETS     
Beginning of period  2,056,635,786  2,276,736,420 
End of period (including undistributed net investment     
income of $5,200,770 and $4,019,538, respectively)  $1,821,310,906  $2,056,635,786 

* Unaudited

The accompanying notes are an integral part of these financial statements.

54

This page left blank intentionally.

55

Financial highlights  (For a common share outstanding throughout the period)               
 
INVESTMENT OPERATIONS:        LESS DISTRIBUTIONS:        RATIOS AND SUPPLEMENTAL DATA:   
      Net            Total      Ratio of net   
  Net asset    realized and  Total  From      Net asset  return  Net  Ratio of  investment   
  value,  Net  unrealized  from  net      value,  at net  assets,  expenses to  income (loss)  Portfolio 
  beginning  investment  gain (loss) on  investment  investment  Total  Redemption  end  asset  end of period  average net  to average  turnover 
Period ended  of period  income (loss)(a)  investments  operations  income  distributions  fees  of period  value (%)(b)  (in thousands)  assets (%)(c)  net assets (%)   (%) 
 
CLASS A                           
February 29, 2008**  $7.82  .30(d)  (.42)  (.12)  (.29)  (.29)  —(f)  $7.41  (1.56)*  $1,406,139  .53*(d)  3.84*(d)  13.15* 
August 31, 2007  7.87  .58(d)  (.04)  .54  (.59)  (.59)  —(f)  7.82  6.87  1,570,488  1.03(d)  7.17(d)  57.18 
August 31, 2006  8.10  .58(d,e)  (.22)  .36  (.59)  (.59)  —(f)  7.87  4.64  1,657,357  1.01(d,e)  7.26(d,e)  45.50 
August 31, 2005  7.98  .56(d)  .16  .72  (.60)  (.60)  —(f)  8.10  9.28  1,851,371  .97(d)  6.94(d)  41.21 
August 31, 2004  7.55  .59(d)  .43  1.02  (.59)  (.59)  —(f)  7.98  13.95  1,924,073  .99(d)  7.55(d)  61.68 
August 31, 2003  6.86  .67  .71  1.38  (.69)  (.69)  —    7.55  21.27  2,271,756  .98  9.41  75.18 
 
CLASS B                           
February 29, 2008**  $7.79  .27(d)  (.42)  (.15)  (.26)  (.26)  —(f)  $7.38  (1.95)*  $147,697  .90*(d)  3.47*(d)  13.15* 
August 31, 2007  7.84  .51(d)  (.04)  .47  (.52)  (.52)  —(f)  7.79  6.05  197,581  1.78(d)  6.42(d)  57.18 
August 31, 2006  8.06  .51(d,e)  (.20)  .31  (.53)  (.53)  —(f)  7.84  3.99  342,227  1.76(d,e)  6.52(d,e)  45.50 
August 31, 2005  7.94  .50(d)  .16  .66  (.54)  (.54)  —(f)  8.06  8.49  543,515  1.72(d)  6.19(d)  41.21 
August 31, 2004  7.52  .53(d)  .42  .95  (.53)  (.53)  —(f)  7.94  13.01  672,232  1.74(d)  6.80(d)  61.68 
August 31, 2003  6.84  .62  .70  1.32  (.64)  (.64)  —    7.52  20.31  879,566  1.73  8.67  75.18 
 
CLASS C                           
February 29, 2008**  $7.78  .27(d)  (.42)  (.15)  (.26)  (.26)  —(f)  $7.37  (1.95)*  $40,876  .90*(d)  3.46*(d)  13.15* 
August 31, 2007  7.84  .52(d)  (.05)  .47  (.53)  (.53)  —(f)  7.78  5.95  46,276  1.78(d)  6.42(d)  57.18 
August 31, 2006  8.06  .51(d,e)  (.20)  .31  (.53)  (.53)  —(f)  7.84  4.02  63,687  1.76(d,e)  6.50(d,e)  45.50 
August 31, 2005  7.95  .50(d)  .15  .65  (.54)  (.54)  —(f)  8.06  8.39  75,498  1.72(d)  6.18(d)  41.21 
August 31, 2004  7.52  .54(d)  .42  .96  (.53)  (.53)  —(f)  7.95  13.15  63,866  1.74(d)  6.80(d)  61.68 
August 31, 2003  6.85  .62  .68  1.30  (.63)  (.63)  —    7.52  20.08  87,008  1.73  8.49  75.18 
 
CLASS M                           
February 29, 2008**  $7.83  .29(d)  (.42)  (.13)  (.28)  (.28)  —(f)  $7.42  (1.71)*  $14,210  .65*(d)  3.71*(d)  13.15* 
August 31, 2007  7.88  .56(d)  (.05)  .51  (.56)  (.56)  —(f)  7.83  6.54  16,162  1.28(d)  6.92(d)  57.18 
August 31, 2006  8.10  .56(d,e)  (.22)  .34  (.56)  (.56)  —(f)  7.88  4.46  19,785  1.26(d,e)  7.00(d,e)  45.50 
August 31, 2005  7.98  .54(d)  .15  .69  (.57)  (.57)  —(f)  8.10  8.95  23,265  1.22(d)  6.69(d)  41.21 
August 31, 2004  7.55  .57(d)  .43  1.00  (.57)  (.57)  —(f)  7.98  13.64  26,295  1.24(d)  7.28(d)  61.68 
August 31, 2003  6.87  .65  .70  1.35  (.67)  (.67)  —    7.55  20.80  45,017  1.23  9.12  75.18 
 
CLASS R                           
February 29, 2008**  $7.77  .29(d)  (.41)  (.12)  (.29)  (.29)  —(f)  $7.36  (1.69)*  $1,172  .65*(d)  3.72*(d)  13.15* 
August 31, 2007  7.85  .56(d)  (.07)  .49  (.57)  (.57)  —(f)  7.77  6.24  1,096  1.28(d)  6.92(d)  57.18 
August 31, 2006  8.08  .55(d,e)  (.21)  .34  (.57)  (.57)  —(f)  7.85  4.37  390  1.26(d,e)  7.00(d,e)  45.50 
August 31, 2005  7.98  .53(d)  .15  .68  (.58)  (.58)  —(f)  8.08  8.79  905  1.22(d)  6.60(d)  41.21 
August 31, 2004  7.55  .58(d)  .42  1.00  (.57)  (.57)  —(f)  7.98  13.64  70  1.24(d)  7.29(d)  61.68 
August 31, 2003 †  6.99  .40  .54  .94  (.38)  (.38)  —    7.55  13.76*  46  .75*  5.59*  75.18 
 
CLASS Y                           
February 29, 2008**  $7.76  .30(d)  (.40)  (.10)  (.31)  (.31)  —(f)  $7.35  (1.43)*  $211,217  .40*(d)  3.97*(d)  13.15* 
August 31, 2007  7.83  .60(d)  (.06)  .54  (.61)  (.61)  —(f)  7.76  6.96  225,031  .78(d)  7.42(d)  57.18 
August 31, 2006  8.06  .59(d,e)  (.21)  .38  (.61)  (.61)  —(f)  7.83  4.99  193,290  .76(d,e)  7.51(d,e)  45.50 
August 31, 2005  7.96  .58(d)  .14  .72  (.62)  (.62)  —(f)  8.06  9.37  222,236  .72(d)  7.19(d)  41.21 
August 31, 2004  7.53  .61(d)  .44  1.05  (.62)  (.62)  —(f)  7.96  14.34  244,131  .74(d)  7.81(d)  61.68 
August 31, 2003  6.85  .68  .71  1.39  (.71)  (.71)  —    7.53  21.45  220,883  .73  9.57  75.18 

See notes to financial highlights at the end of this section.

The accompanying notes are an integral part of these financial statements.

56  57 

Financial highlights (Continued)

   * Not annualized.

 ** Unaudited.

  † For the period January 21, 2003 (commencement of operations) to August 31, 2003.

(a) Per share net investment income (loss) has been determined on the basis of the weighted average number of shares outstanding during the period.

(b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.

(c) Includes amounts paid through expense offset arrangements (Note 2).

(d) Reflects an involuntary contractual expense limitation and/or waivers of certain fund expenses in connection with investments in Putnam Prime Money Market Fund in effect during the period. As a result of such limitation and/or waivers, the expenses of each class reflect a reduction of the following amounts (Notes 2 and 5):

  Percentage 
  of average 
  net assets 
February 29, 2008  <0.01% 
August 31, 2007  <0.01 
August 31, 2006  <0.01 
August 31, 2005  <0.01 
August 31, 2004  <0.01 

(e) Reflects a non-recurring reimbursement from Putnam Investments relating to the calculation of certain amounts paid by the fund to Putnam in previous years for transfer agent services, which amounted to less than $0.01 per share and 0.01% of average net assets for the period ended August 31, 2006 .

(f) Amount represents less than $0.01 per share.

The accompanying notes are an integral part of these financial statements.

58

Notes to financial statements 2/29/08 (Unaudited)

Note 1: Significant accounting policies

Putnam High Yield Trust (the “fund”), a Massachusetts business trust, is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The fund seeks high current income by investing primarily in high-yielding, lower-rated fixed-income securities. These securities may have a higher rate of default. Capital growth is a secondary goal when consistent with achieving high current income.

The fund offers class A, class B, class C, class M, class R and class Y shares. Class A and class M shares are sold with a maximum front-end sales charge of 4.00% and 3.25%, respectively, and generally do not pay a contingent deferred sales charge. Class B shares, which convert to class A shares after approximately eight years, do not pay a front-end sales charge and are subject to a contingent deferred sales charge, if those shares are redeemed within six years of purchase. Class C shares have a one-year 1.00% contingent deferred sales charge and do not convert to class A shares. Class R shares, which are offered to qualified employee-benefit plans, are sold at net asset value. The expenses for class A, class B, class C, class M and class R shares may differ based on the distribution fee of each class, which is identified in Note 2. Class Y shares, which are sold at net asset value, are generally subject to the same expenses as class A, class B, class C, class M and class R shares, but do not bear a distribution fee. Class Y shares are generally only available to corporate and institutional clients and clients in other approved programs.

A 1.00% redemption fee may apply on any shares that are redeemed (either by selling or exchanging into another fund) within 90 days of purchase. The redemption fee is accounted for as an addition to paid-in-capital.

Investment income, realized and unrealized gains and losses and expenses of the fund are borne pro-rata based on the relative net assets of each class to the total net assets of the fund, except that each class bears expenses unique to that class (including the distribution fees applicable to such classes). Each class votes as a class only with respect to its own distribution plan or other matters on which a class vote is required by law or determined by the Trustees. If the fund were liquidated, shares of each class would receive their pro-rata share of the net assets of the fund. In addition, the Trustees declare separate dividends on each class of shares.

In the normal course of business, the fund enters into contracts that may include agreements to indemnify another party under given circumstances. The fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be, but have not yet been, made against the fund. However, the fund expects the risk of material loss to be remote.

The following is a summary of significant accounting policies consistently followed by the fund in the preparation of its financial statements. The preparation of financial statements is in conformity with accounting principles generally accepted in the United States of America and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.

A) Security valuation Investments for which market quotations are readily available are valued at the last reported sales price on their principal exchange, or official closing price for certain markets. If no sales are reported — as in the case of some securities traded over-the-counter — a security is valued at its last reported bid price. Market quotations are not considered to be readily available for certain debt obligations; such investments are valued on the basis of valuations furnished by an independent pricing service approved by the Trustees or dealers selected by Putnam Investment Management, LLC (“Putnam Management”), the fund’s manager, a wholly-owned subsidiary of Putnam, LLC. Such

59

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 equity securities taking into account multiple factors, including movements in the U.S. securities markets. The number of days on which fair value prices will be used will depend on market activity and it is possible that fair value prices will be used by the fund to a significant extent. Securities quoted in foreign currencies, if any, are translated into U.S. dollars at the current exchange rate. Certain investments, including certain restricted securities and derivatives, are also valued at fair value following procedures approved by the Trustees. Such valuations and procedures are reviewed periodically by the Trustees. Certain securities may be valued on the basis of a price provided by a single source. The fair value of securities is generally determined as the amount that the fund could reasonably expect to realize from an orderly disposition of such securities over a reasonable period of time. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and does not reflect an actual market price, which may be different by a material amount.

B) Joint trading account Pursuant to an exemptive order from the Securities and Exchange Commission (the “SEC”), the fund may transfer uninvested cash balances, including cash collateral received under security lending arrangements, into a joint trading account along with the cash of other registered investment companies and certain other accounts managed by Putnam Management. These balances may be invested in issues of short-term investments having maturities of up to 397 days for collateral received under security lending arrangements and up to 90 days for other cash investments.

C) Repurchase agreements The fund, or any joint trading account, through its custodian, receives delivery of the underlying securities, the market value of which at the time of purchase is required to be in an amount at least equal to the resale price, including accrued interest. Collateral for certain tri-party repurchase agreements is held at the counterparty’s custodian in a segregated account for the benefit of the fund and the counterparty. Putnam Management is responsible for determining that the value of these underlying securities is at all times at least equal to the resale price, including accrued interest.

D) Security transactions and related investment income Security transactions are recorded on the trade date (the date the order to buy or sell is executed). Gains or losses on securities sold are determined on the identified cost basis. Interest income is recorded on the accrual basis. Dividend income, net of applicable withholding taxes, is recognized on the ex-dividend date except that certain dividends from foreign securities, if any, are recognized as soon as the fund is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital or capital gains, if any, are reflected as a reduction of cost and/or as a realized gain.

All premiums/discounts are amortized/accreted on a yield-to-maturity basis. Securities purchased or sold on a delayed delivery basis may be settled a month or more after the trade date; interest income is accrued based on the terms of the securities. Losses may arise due to changes in the market value of the underlying securities or if the counterparty does not perform under the contract.

The fund earned certain fees in connection with its senior loan purchasing activities. These fees are

60

treated as market discount and are recorded as income in the Statement of operations.

E) Foreign currency translation The accounting records of the fund are maintained in U.S. dollars. The market value of foreign securities, currency holdings, and other assets and liabilities is recorded in the books and records of the fund after translation to U.S. dollars based on the exchange rates on that day. The cost of each security is determined using historical exchange rates. Income and withholding taxes are translated at prevailing exchange rates when earned or incurred. The fund does not isolate that portion of realized or unrealized gains or losses resulting from changes in the foreign exchange rate on investments from fluctuations arising from changes in the market prices of the securities. Such gains and losses are included with the net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net realized exchange gains or losses on closed 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.

F) Forward currency contracts The fund may buy and sell forward currency contracts, which are agreements between two parties to buy and sell currencies at a set price on a future date. These contracts are used to protect against a decline in value relative to the U.S. dollar of the currencies in which its portfolio securities are denominated or quoted (or an increase in the value of a currency in which securities a fund intends to buy are denominated, when a fund holds cash reserves and short term investments), or for other investment purposes. The U.S. dollar value of forward currency contracts is determined using current forward currency exchange rates supplied by a quotation service. The market value of the contract will fluctuate with changes in currency exchange rates. The contract is marked to market daily and the change in market value is recorded as an unrealized gain or loss. When the contract is closed, the fund 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.

G) Interest rate swap contracts The fund may enter into interest rate swap contracts, which are arrangements between two parties to exchange cash flows based on a notional principal amount, to manage the fund’s exposure to interest rates. Interest rate swap contracts are marked to market daily based upon quotations from an independent pricing service or market makers and the change, if any, is recorded as an unrealized gain or loss. Payments received or made are recorded as a realized gains or loss. Certain interest rate swap contracts may include extended effective dates. Income related to these swap contracts is accrued based on the terms of the contract. The fund could be exposed to credit or market risk due to unfavorable changes in the fluctuation of interest rates or if the counterparty defaults on its obligation to perform. Risk of loss may exceed amounts recognized on the Statement of assets and liabilities. Interest rate swap contracts outstanding at period end, if any, are listed after the fund’s portfolio.

61

H) Credit default contracts The fund may enter into credit default contracts where one party, the protection buyer, makes an upfront or periodic payment to a counterparty, the protection seller, in exchange for the right to receive a contingent payment. The maximum amount of the payment may equal the notional amount, at par, of the underlying index or security as a result of a related credit event. Payments are made upon a credit default event of the disclosed primary referenced obligation or all other equally ranked obligations of the reference entity. An upfront payment received by the fund, as the protection seller, is recorded as a liability on the fund’s books. An upfront payment made by the fund, as the protection buyer, is recorded as an asset on the fund’s books. Periodic payments received or paid by the fund are recorded as realized gains or losses. The credit default contracts are marked to market daily based upon quotations from an independent pricing service or market makers and the change, if any, is recorded as an unrealized gain or loss. Payments received or made as a result of a credit event or termination of the contract are recognized, net of a proportional amount of the upfront payment, as realized gains or losses. In addition to bearing the risk that the credit event will occur, the fund could be exposed to market risk due to unfavorable changes in interest rates or in the price of the underlying security or index, the possibility that the fund may be unable to close out its position at the same time or at the same price as if it had purchased comparable publicly traded securities or that the counterparty may default on its obligation to perform. Risks of loss may exceed amounts recognized on the Statement of assets and liabilities. Credit default contracts outstanding at period end, if any, are listed after the fund’s portfolio.

I) Securities lending The fund may lend securities, through its agents, to qualified borrowers in order to earn additional income. The loans are collateralized by cash and/or securities in an amount at least equal to the market value of the securities loaned. The market value of securities loaned is determined daily and any additional required collateral is allocated to the fund on the next business day. The risk of borrower default will be borne by the fund’s agents; the fund will bear the risk of loss with respect to the investment of the cash collateral. Income from securities lending is included in investment income on the Statement of operations. At February 29, 2008, the value of securities loaned amounted to $86,751,154. The fund received cash collateral of $89,141,790 which is pooled with collateral of other Putnam funds into 53 issues of short-term investments.

J) Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time and otherwise comply with the provisions of the Internal Revenue Code of 1986 (the “Code”), as amended, applicable to regulated investment companies. It is also the intention of the fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Code, 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, 2007, the fund had a capital loss carryover of $1,608,329,955 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 
$342,232,804  August 31, 2008 
309,071,927  August 31, 2009 
301,710,244  August 31, 2010 
499,955,886  August 31, 2011 
61,743,291  August 31, 2012 
76,944,480  August 31, 2013 
14,070,646  August 31, 2014 
2,600,677  August 31, 2015 

Pursuant to federal income tax regulations applicable to regulated investment companies, the fund has elected to defer to its fiscal year ending

62

August 31, 2008 $15,779,599 of losses recognized during the period November 1, 2006 to August 31, 2007, a portion of which could be limited by Section 381 of the Code.

The aggregate identified cost on a tax basis is $2,070,809,989, resulting in gross unrealized appreciation and depreciation of $25,238,381 and $218,015,791, respectively, or net unrealized depreciation of $192,777,410.

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. Dividend sources are estimated at the time of declaration. Actual results may vary. Any non-taxable return of capital cannot be determined until final tax calculations are completed after the end of the fund’s fiscal year. 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.

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.

Putnam Management has agreed to waive fees and reimburse expenses of the fund through June 30, 2009 to the extent necessary to ensure that the fund’s expenses do not exceed the simple average of the expenses of all front-end load funds viewed by Lipper Inc. as having the same investment classification or objective as the fund. The expense reimbursement is based on a comparison of the fund’s expenses with the average annualized operating expenses of the funds in its Lipper peer group for each calendar quarter during the fund’s last fiscal year, excluding 12b-1 fees and without giving effect to any expense offset and brokerage service arrangements that may reduce fund expenses. For the period ended February 29, 2008, Putnam Management did not waive any of its management fee from the fund.

Putnam Investments Limited (“PIL”), an affiliate of Putnam Management, is authorized by the Trustees to manage a separate portion of the assets of the fund as determined by Putnam Management from time to time. Putnam Management pays a quarterly sub-management fee to PIL for its services at an annual rate of 0.40% of the average net assets of the portion of the fund managed by PIL.

For the period ended February 29, 2008, Putnam Management has assumed $3,494 of legal, shareholder servicing and communication, audit and Trustee fees incurred by the fund in connection with certain legal and regulatory matters (including those described in Note 10).

The fund reimburses Putnam Management an allocated amount for the compensation and related expenses of certain officers of the fund and their staff who provide administrative services to the fund. The aggregate amount of all such reimbursements is determined annually by the Trustees.

Custodial services for the fund’s assets were provided by Putnam Fiduciary Trust Company (“PFTC”), an affiliate of Putnam Management, and by State Street Bank and Trust Company (“State Street”). Custody fees are based on the fund’s asset level, the number of its security holdings, transaction volumes and with respect to PFTC, certain fees related to the transition of assets to State Street. Putnam Investor Services, a division of PFTC, provided investor servicing agent functions to the fund. Putnam Investor Services received fees

63

for investor servicing, subject to certain limitations, based on the number of shareholder accounts in the fund and the level of defined contribution plan assets in the fund. During the period ended February 29, 2008, the fund incurred $1,842,835 for custody and investor servicing agent functions provided by PFTC.

The fund has entered into expense offset arrangements with PFTC and State Street whereby PFTC’s and State Street’s fees are reduced by credits allowed on cash balances. For the six months ended February 29, 2008, the fund’s expenses were reduced by $644,276 under the expense offset arrangements.

Each independent Trustee of the fund receives an annual Trustee fee, of which $663, as a quarterly retainer, has been allocated to the fund, and an additional fee for each Trustees meeting attended. Trustees receive additional fees for attendance at certain committee meetings and industry seminars and for certain compliance-related matters. Trustees also are reimbursed for expenses they incur relating to their services as Trustees.

The fund has adopted a Trustee Fee Deferral Plan (the “Deferral Plan”) which allows the Trustees to defer the receipt of all or a portion of Trustees fees payable on or after July 1, 1995. The deferred fees remain invested in certain Putnam funds until distribution in accordance with the Deferral Plan.

The fund has adopted an unfunded noncontributory defined benefit pension plan (the “Pension Plan”) covering all Trustees of the fund who have served as a Trustee for at least five years and were first elected prior to 2004. Benefits under the Pension Plan are equal to 50% of the Trustee’s average annual attendance and retainer fees for the three years ended December 31, 2005. The retirement benefit is payable during a Trustee’s lifetime, beginning the year following retirement, for the number of years of service through December 31, 2006. Pension expense for the fund is included in Trustee compensation and expenses in the Statement of operations. Accrued pension liability is included in Payable for Trustee compensation and expenses in the Statement of assets and liabilities. The Trustees have terminated the Pension Plan with respect to any Trustee first elected after 2003.

The fund has adopted distribution plans (the “Plans”) with respect to its class A, class B, class C, class M and class R shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. The purpose of the Plans is to compensate Putnam Retail Management Limited Partnership, a wholly-owned subsidiary of Putnam, LLC and Putnam Retail Management GP, Inc., for services provided and expenses incurred in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Retail Management Limited Partnership at an annual rate of up to 0.35%, 1.00%, 1.00% , 1.00% and 1.00% of the average net assets attributable to class A, class B, class C, class M and class R shares, respectively. The Trustees have approved payment by the fund at an annual rate of 0.25%, 1.00%, 1.00%, 0.50% and 0.50% of the average net assets attributable to class A, class B, class C, class M and class R shares, respectively.

For the six months ended February 29, 2008, Putnam Retail Management Limited Partnership, acting as underwriter, received net commissions of $21,916 and $455 from the sale of class A and class M shares, respectively, and received $85,972 and $1,832 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 six months ended February 29, 2008, Putnam Retail Management, acting as underwriter, received $140 and no monies on class A and class M redemptions, respectively.

Note 3: Purchases and sales of securities

During the six months ended February 29, 2008, cost of purchases and proceeds from sales of investment securities other than short-term investments aggregated $244,492,642 and

64

$357,603,438, respectively. There were no purchases or sales of U.S. government securities.

Note 4: Capital shares

At February 29, 2008, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:

CLASS A  Shares  Amount 
 
Six months ended 2/29/08:   
 
Shares sold  8,107,184  $ 63,169,374 
Shares issued     
in connection     
with reinvestment     
of distributions  5,163,023  39,677,287 
  13,270,207  102,846,661 
Shares     
repurchased  (24,303,741)  (187,935,771) 
Net decrease  (11,033,534)  $ (85,089,110) 
  
Year ended 8/31/07:     
  
Shares sold  26,586,888  $ 214,791,472 
Shares issued     
in connection     
with reinvestment     
of distributions  10,547,539  84,965,963 
Shares issued     
in connection     
with the merger     
of Putnam Managed     
High Yield Trust  8,467,578  67,470,903 
  45,602,005  367,228,338 
Shares     
repurchased  (55,177,003)  (445,256,876) 
Net decrease  (9,574,998)  $ (78,028,538) 

CLASS B  Shares  Amount 
 
Six months ended 2/29/08:   
 
Shares sold  1,339,006  $10,498,949 
Shares issued     
in connection     
with reinvestment     
of distributions  459,582  3,524,088 
  1,798,588  14,023,037 
Shares     
repurchased  (7,160,185)  (55,457,661) 
 
Net decrease  (5,361,597)  $ (41,434,624) 
   
  
Year ended 8/31/07:     
 
Shares sold  1,673,860  $  13,469,969 
Shares issued     
in connection     
with reinvestment     
of distributions  1,356,191  10,877,967 
  3,030,051  24,347,936 
Shares     
repurchased  (21,314,604)  (171,652,664) 
Net decrease  (18,284,553)  $(147,304,728) 
 
CLASS C  Shares  Amount 
 
Six months ended 2/29/08:   
 
Shares sold  967,819  $ 7,571,667 
Shares issued     
in connection     
with reinvestment     
of distributions  132,925  1,017,059 
  1,100,744  8,588,726 
Shares     
repurchased  (1,502,868)  (11,571,967) 
Net decrease  (402,124)  $ (2,983,241) 
 
Year ended 8/31/07:     
 
Shares sold  1,219,036  $ 9,829,098 
Shares issued     
in connection     
with reinvestment     
of distributions  347,757  2,791,011 
  1,566,793  12,620,109 
Shares     
repurchased  (3,744,943)  (30,088,203) 
Net decrease  (2,178,150)  $(17,468,094) 

65

CLASS M  Shares  Amount 
 
Six months ended 2/29/08:   
 
Shares sold  210,168  $ 1,647,934 
Shares issued     
in connection     
with reinvestment     
of distributions  48,255  371,701 
  258,423  2,019,635 
Shares     
repurchased  (407,658)  (3,182,189) 
 
Net decrease  (149,235)  $(1,162,554) 
  
 
Year ended 8/31/07:     
  
Shares sold  217,738  $ 1,760,219 
Shares issued     
in connection     
with reinvestment     
of distributions  111,003  895,759 
  328,741  2,655,978 
Shares     
repurchased  (774,388)  (6,263,803) 
Net decrease  (445,647)  $(3,607,825) 
 
  
CLASS R  Shares  Amount 
  
Six months ended 2/29/08:   
  
Shares sold  50,649  $ 387,758 
Shares issued     
in connection     
with reinvestment     
of distributions  5,439  41,524 
  56,088  429,282 
Shares     
repurchased  (37,852)  (287,987) 
Net increase  18,236  $ 141,295 
  
  
Year ended 8/31/07:     
  
Shares sold  109,373  $ 879,853 
 
Shares issued     
in connection     
with reinvestment     
of distributions  6,847  54,906 
  116,220  934,759 
Shares     
repurchased  (24,965)  (201,142) 
Net increase  91,255  $ 733,617 

CLASS Y  Shares  Amount 
 
Six months ended 2/29/08:   
  
Shares sold  3,815,730  $ 29,154,750 
 
Shares issued     
in connection     
with reinvestment     
of distributions  1,142,833  8,705,739 
  4,958,563  37,860,489 
Shares     
repurchased  (5,208,091)  (40,043,861) 
 
Net decrease  (249,528)  $ (2,183,372) 
  
 
Year ended 8/31/07:     
 
Shares sold  7,485,161  $ 60,048,108 
Shares issued     
in connection     
with reinvestment     
of distributions  2,070,650  16,558,210 
  9,555,811  76,606,318 
Shares     
repurchased  (5,247,808)  (42,176,700) 
Net increase  4,308,003  $ 34,429,618 

Note 5: Investment in Putnam Prime
Money Market Fund

The fund invests in Putnam Prime Money Market Fund, an open-end management investment company managed by Putnam Management. Investments in Putnam Prime Money Market Fund are valued at its closing net asset value each business day. 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 period ended February 29, 2008, management fees paid were reduced by $31,776 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 $2,009,209 for the period ended February 29, 2008. During the period ended February 29, 2008, cost of purchases and proceeds of sales of investments in Putnam Prime

66

Money Market Fund aggregated $309,042,997 and $357,055,248, respectively.

Note 6: Senior loan commitments

Senior loans are purchased or sold on a when-issued or delayed delivery basis and may be settled a month or more after the trade date, which from time to time can delay the actual investment of available cash balances; interest income is accrued based on the terms of the securities. Senior loans can be acquired through an agent, by assignment from another holder of the loan, or as a participation interest in another holder’s portion of the loan. When the fund invests in a loan or participation, the fund is subject to the risk that an intermediate participant between the fund and the borrower will fail to meet its obligations to the fund, in addition to the risk that the borrower under the loan may default on its obligations.

Note 7: Unfunded loan commitments

As of February 29, 2008, the fund had unfunded loan commitments of $1,357,664, which could be extended at the option of the borrower, pursuant to the following loan agreements with the following borrowers:

Borrower  Unfunded Commitments 
Community Health   
Systems, Inc.  $201,620 
Fenwal Controls of   
Japan, LTD. (Japan)  602,271 
Golden Nugget, Inc.  394,545 
Univision   
Communications, Inc.  159,228 

Note 8: 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  proceeds  Income  Value 
Bohai Bay Litigation, LLC (Units)  $ —  $ —  $ —  $ 55,172 
Decrane Aircraft Holdings, Inc.  —  —  —  29 
DigitalGlobe, Inc. 144A  —  —  —  645,566 
VFB LLC  —  —  —  267,994 
XCL Warranty Escrow  —  —  —  278,279 
Totals  $ —  $ —  $ —  $1,247,040 

Market values are shown for those securities affiliated at period end.

Note 9: Acquisition of Putnam Managed
High Yield Trust

On October 30, 2006, the fund issued 8,467,578 class A shares in exchange for 7,366,381 class A shares of Putnam Managed High Yield Trust to acquire that fund’s net assets in a tax-free exchange approved by the shareholders. The net assets of the fund and Putnam Managed High Yield Trust on October 27, 2006, were $2,292,845,413 and $67,470,903, respectively. On October 27, 2006, Putnam Managed High Yield Trust had distributions in excess of net investment income of $357,620, accumulated net realized loss of $ 34,849,307 and unrealized depreciation of

67

$1,090,127. The aggregate net assets of the fund immediately following the acquisition were $2,360,316,316.

Information presented in the Statement of operations and changes in net assets reflect only the operations of Putnam High Yield Trust.

Note 10: Regulatory matters and litigation

In late 2003 and 2004, Putnam Management settled charges brought by the Securities and Exchange Commission (the “SEC”) and the Massachusetts Securities Division in connection with excessive short-term trading in Putnam funds. Payments from Putnam Management will be distributed to certain open-end Putnam funds and their shareholders. These allegations and related matters have served as the general basis for certain lawsuits, including purported class action lawsuits against Putnam Management and, in a limited number of cases, some Putnam funds. Putnam Management believes that these lawsuits will have no material adverse effect on the funds or on Putnam Management’s ability to provide investment management services. In addition, Putnam Management has agreed to bear any costs incurred by the Putnam funds as a result of these matters.

Note 11: New accounting pronouncements

In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (the “Interpretation”). The Interpretation prescribes a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken by a filer in the filer’s tax return. Upon adoption, the Interpretation did not have a material effect on the fund’s financial statements. However, the conclusions regarding the Interpretation may be subject to review and adjustment at a later date based on factors including, but not limited to, further implementation guidance expected from the FASB, and on-going analysis of tax laws, regulations and interpretations thereof. In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (the “Standard”). The Standard defines fair value, sets out a framework for measuring fair value and expands disclosures about fair value measurements. The Standard applies to fair value measurements already required or permitted by existing standards. The Standard is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. Putnam Management does not believe the adoption of the Standard will impact the amounts reported in the financial statements; however, additional disclosures will be required about the inputs used to develop the measurements of fair value.

68

Fund information

Founded over 70 years ago, Putnam Investments was built around the concept that a balance between risk and reward is the hallmark of a well-rounded financial program. We manage over 100 mutual funds in growth, value, blend, fixed income, and international.

Investment Manager  Kenneth R. Leibler  James P. Pappas 
Putnam Investment  Robert E. Patterson  Vice President 
Management, LLC  George Putnam, III 
One Post Office Square  Richard B. Worley  Francis J. McNamara, III 
Boston, MA 02109  Vice President and 
Officers  Chief Legal Officer 
Investment Sub-Manager  Charles E. Haldeman, Jr. 
Putnam Investments Limited  President  Robert R. Leveille 
57–59 St James’s Street  Vice President and 
London, England SW1A 1LD  Charles E. Porter    Chief Compliance Officer 
Executive Vice President,   
Marketing Services   Principal Executive Officer,  Mark C. Trenchard 
Putnam Retail Management  Associate Treasurer and  Vice President and 
One Post Office Square  Compliance Liaison  BSA Compliance Officer 
Boston, MA 02109   
Jonathan S. Horwitz   Judith Cohen 
Custodian   Senior Vice President  Vice President, Clerk and 
State Street Bank  and Treasurer  Assistant Treasurer 
and Trust Company   
Steven D. Krichmar   Wanda M. McManus 
Legal Counsel   Vice President and  Vice President, Senior Associate 
Ropes & Gray LLP  Principal Financial Officer  Treasurer and Assistant Clerk 
 
Trustees   Janet C. Smith   Nancy E. Florek 
John A. Hill, Chairman  Vice President, Principal  Vice President, Assistant Clerk, 
Jameson Adkins Baxter,  Accounting Officer and  Assistant Treasurer and 
Vice Chairman  Assistant Treasurer  Proxy Manager 
Charles B. Curtis   
Robert J. Darretta  Susan G. Malloy 
Myra R. Drucker  Vice President and   
Charles E. Haldeman, Jr.  Assistant Treasurer   
Paul L. Joskow   
Elizabeth T. Kennan  Beth S. Mazor    
Vice President   
 

This report is for the information of shareholders of Putnam High Yield Trust. It may also be used as sales literature when preceded or accompanied by the current prospectus, the most recent copy of Putnam’s Quarterly Performance Summary, and Putnam’s Quarterly Ranking Summary. For more recent performance, please visit www.putnam.com. Investors should carefully consider the investment objective, risks, charges, and expenses of a fund, which are described in its prospectus. For this and other information or to request a prospectus, call 1-800-225-1581 toll free. Please read the prospectus carefully before investing. The fund’s Statement of Additional Information contains additional information about the fund’s Trustees and is available without charge upon request by calling 1-800-225-1581.


Item 2. Code of Ethics:

Not applicable

Item 3. Audit Committee Financial Expert:

Not applicable

Item 4. Principal Accountant Fees and Services:

Not applicable

Item 5. Audit Committee of Listed Registrants:

Not applicable

Item 6. Schedule of Investments:

The registrant’s schedule of investments in unaffiliated issuers is included in the report to shareholders in Item 1 above.

Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End Management Investment Companies:

Not applicable

Item 8. Portfolio Managers of Closed-End Investment Companies:

Not Applicable

Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers:

Not applicable

Item 10. Submission of Matters to a Vote of Security Holders:

Not applicable

Item 11. Controls and Procedures:

(a) The registrant's principal executive officer and principal financial officer have concluded, based on their evaluation of the effectiveness of the design and operation of the registrant's disclosure controls and procedures as of a date within 90 days of the filing date of this report, that the design and operation of such procedures are generally effective to provide reasonable assurance that information required to be disclosed by the registrant in this report is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms.

(b) Changes in internal control over financial reporting: Not applicable

Item 12. Exhibits:

(a)(1) Not applicable

(a)(2) Separate certifications for the principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Investment Company Act of 1940, as amended, are filed herewith.

(b) The certifications required by Rule 30a-2(b) under the Investment Company Act of 1940, as amended, are filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Putnam High Yield Trust

By (Signature and Title):

/s/Janet C. Smith
Janet C. Smith
Principal Accounting Officer

Date: April 29, 2008

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By (Signature and Title):

/s/Charles E. Porter
Charles E. Porter
Principal Executive Officer

Date: April 29, 2008

By (Signature and Title):

/s/Steven D. Krichmar
Steven D. Krichmar
Principal Financial Officer

Date: April 29, 2008