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, 2009     
 
Date of reporting period: September 1, 2008 — February 28, 2009 

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:


Since 1937, when George Putnam created a prudent mix of stocks and bonds in a single, professionally managed portfolio, we have championed the wisdom of the balanced approach. Today, we offer investors a world of equity, fixed-income, multi-asset, and absolute-return portfolios so investors can pursue a range of financial goals. Our seasoned portfolio managers seek superior results over time, backed by original, fundamental research on a global scale. We believe in service excellence, in the value of experienced financial advice, and in putting clients first in everything we do.


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


THE PRUDENT MAN RULE

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


Putnam
High Yield
Trust

2|28|09

Semiannual Report

Message from the Trustees  2 
About the fund  4 
Performance snapshot  6 
Interview with your fund’s Portfolio Manager  7 
Performance in depth  11 
Expenses  13 
Portfolio turnover  15 
Your fund’s management  16 
Terms and definitions  17 
Trustee approval of management contract  18 
Other information for shareholders  22 
Financial statements  23 

Message from the Trustees

Dear Fellow Shareholder:

Financial markets have experienced significant upheaval for well over a year. Responses by governmental and financial authorities, including passage of a nearly $800 billion economic stimulus plan by Congress, have been rapid and often unprecedented in scale.

While it is difficult to predict how markets will perform in the near term, history shows that they have always recovered, with bull markets consistently outlasting bear markets over the long term. Under President and Chief Executive Officer Robert L. Reynolds, Putnam Investments has instituted several changes to prepare Putnam for the eventual recovery. In recent months, Putnam has hired top money management talent, added several seasoned equity analysts, and clarified how investment decisions are made.

We also are pleased to announce that Ravi Akhoury has been elected to the Board of Trustees of the Putnam Funds. Mr. Akhoury brings a wealth of experience and knowledge to the oversight of the Funds that will be of great benefit to Putnam shareholders. From 1992 to 2007, Mr. Akhoury was Chairman and CEO of MacKay Shields, a multi-product investment management firm with over $40 billion in assets under management. He serves as advisor to New York Life Insurance Company, and previously was a member of its Executive Management Committee.

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We would like to take this opportunity to welcome new shareholders to the fund and to thank all of our investors for your continued confidence in Putnam.


About the fund

A disciplined approach to seeking high current income and capital growth

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

Because of the risks of high-yield bond investing, in-depth credit research is essential. The fund’s research team — which includes 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 portfolio managers look 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 managers may look to take advantage of the improved valuation of higher-risk securities. Conversely, if they believe that credit risk is likely to pick up or volatility is likely to increase, the managers may look to reduce risk in the portfolio.

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

What makes a bond “high yield”?

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

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

 

In general, the performance of high-yield bonds tends to be less dependent on interest rates than that of higher-quality bonds.

Over the past 10 years, the JPMorgan Developed High Yield Index (the fund’s benchmark) largely outperformed the Barclays Capital Global Aggregate Bond Index (made up of a variety of investment-grade bonds).

The JPMorgan Developed High Yield Index is an unmanaged index of high-yield fixed-income securities issued in developed countries. The Barclays Capital Global Aggregate Bond Index is an unmanaged index of global investment-grade fixed-income securities. You cannot invest directly in an index.

Past performance is not indicative of future results.

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Performance snapshot


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 11–13 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 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, which was after the inception of the fund.

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Interview with your
fund’s Portfolio Manager

Paul Scanlon

Thanks for taking a few minutes to talk about Putnam High Yield Trust, Paul. How did the fund perform during the six months ending February 28, 2009?

For this period, the fund declined 22.22%, in line with its benchmark, the JPMorgan Developed High Yield Index, which fell 22.21%, and its Lipper peer group, High Current Yield Funds, which retreated 22.23%.

Why was the market environment so challenging during the period?

Two significant factors dominated the market environment during the period. First, the deterioration of the U.S. and global economies signaled a downturn in the outlook for corporate business fundamentals. Growth in the U.S. gross domestic product (GDP) declined sharply by 6.2% in the fourth quarter of 2008, jobless claims were on the rise, durable goods orders were down, and new-home sales plunged. As a result, defaults among high-yield bonds increased.

Second, market technicals — factors of supply and demand — were generally negative for high-yield bonds. Though a reduction in new-issue supply helped technicals over the period, the market saw deleveraging and forced selling across fixed income. This was

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 2/28/09. See page 6 and pages 11–13 for additional fund performance information. Index descriptions can be found on page 17.


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particularly true in the aftermath of the Lehman Brothers bankruptcy in September 2008, which caused a credit-market freeze-up and an exodus away from riskier assets.

What was your strategy in this environment?

The fund’s overall positioning helped it weather this difficult period. In response to uncertainty in the marketplace, we maintained a defensive approach by targeting higher-quality high-yield bonds — those rated Ba or B — and reducing the fund’s exposure to lower-rated issues. When choosing investments, we looked for companies offering resilient cash flows and clarity regarding their capital structures and competitive positions. We also maintained an out-of-benchmark stake in floating-rate bank loans issued by high-yield companies. Dislocations in that market caused many loans to fall to extremely attractive valuations. Further, the loans are higher up in a company’s capital structure —meaning they get paid off first if the firm defaults — an appealing attribute within a difficult economy.

At the sector level, the fund benefited from overweighting energy as well as health care, both of which were seen as being generally immune from a weak economy. Underweighting financials helped, as did underweighting several areas that were hurt by declines in consumer spending: gaming and leisure, retailing, and services. On the downside, fund performance was held back by overweighting diversified media, which suffered from a sharp drop in advertising spending.

Which holdings contributed to the fund’s results?

Within gaming, the fund was underweight to the benchmark in casino operator

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 2/28/09. Holdings will vary over time.

HOLDING  COUPON (%) and   
(percentage of fund’s net assets)  MATURITY DATE  SECTOR/INDUSTRY 
NRG Energy, Inc. (1.1%)  7 3/8%, 2016  Utilities and power/Power producers 
Intelsat Bermuda, Ltd. (Bermuda) (0.9%)  11 1/4%, 2016  Communication services/Telecommunications 
HCA, Inc. (0.9%)  9 1/8%, 2014  Health care/Health care 
DIRECTV Holdings, LLC (0.8%)  6 3/8%, 2015  Consumer cyclicals/Broadcasting 
HCA, Inc. (0.7%)  9 1/4%, 2016  Health care/Health care 
Arch Western Finance, LLC (0.7%)  6 3/4%, 2013  Energy/Coal 
MetroPCS Wireless, Inc. (0.7%)  9 1/4%, 2014  Communication services/Telecommunications 
Legrand SA (France) (0.7%)  8 1/2%, 2025  Capital goods/Manufacturing 
Peabody Energy Corp. (0.7%)  7 3/8%, 2016  Energy/Coal 
Ventas Realty LP/Capital Corp. (0.7%)  9%, 2012  Health care/Medical services 

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Harrah’s. Harrah’s bonds had been issued as part of a leveraged buyout of the company. However, the securities came under pressure as investors became increasingly concerned that a slowing economy would curtail demand for the company’s gaming and hotel operations. The fund also benefited from its overweight in hospital company HCA, which attracted investors due to its defensive nature.

In the food industry, we were helped by avoiding poultry processor Pilgrim’s Pride, which filed for bankruptcy during the period. We also held a position in Tyson Foods, which aided results when the company’s bonds increased in value.

Which holdings detracted from results?

Though we benefited from underweighting financials, our underweight in real estate finance company Residential Capital [ResCap], which we bought and sold during the period, hurt performance. This firm’s bonds had declined in value because ResCap had underwritten a substantial number of subprime mortgage loans. However, the bonds rebounded after ResCap’s parent company, GMAC Financial Services, received a $5 billion infusion from the federal government.

Energy company Stallion Oil Field Services suffered due to falling oil prices, while, as I mentioned, the fund’s

Credit quality comparison

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


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greater-than-benchmark media sector weighting was a main detractor. Bonds issued by diversified media company Vertis also performed poorly when its proposed acquisition by a competitor, American Color Graphics, was called off, and the company subsequently filed for bankruptcy.

Paul, what do you see on the horizon for the economy and the fund?

The environment for high-yield bonds remains mixed. We base our outlook on three factors: corporate business fundamentals, market “technicals” — supply and demand — and valuation.

Fundamentals score as a “negative” in our process as the U.S. economy has weakened and we expect defaults to rise over the next year.

The “technical” environment has been unique. New issuance of bonds has been almost zero in the high-yield market, while at the same time investors have been shifting allocations into the space. However, the trading backdrop has been less liquid as many trading counterparties have cut back capital devoted to their credit trading, and trading spreads have generally been wide versus the 2005–2007 experience.

IN THE NEWS

The Federal Reserve (the Fed) opened a new front in its monetary policy offensive at its March 18, 2009 meeting. Since September 2007, the Fed has slashed its benchmark lending rate from 5.25% to near zero. Without the option of cutting rates further, the Fed moved to buy $300 billion in U.S. Treasury securities and increase the size of its lending programs. The Fed’s actions are designed to reduce mortgage rates, bolster the housing market, and bring an end to what some have described as the worst recession in 60 years. The Fed’s moves should also result in lower interest rates on a variety of consumer and business loans.

The valuation backdrop is positive. Our view is that in most of our scenarios, much of the bad news may already be priced into high-yield bond valuations, and that the fund is being well compensated even when allowing for rising defaults. Moreover, we are seeing some attractive security selection opportunities within the dislocation we have observed over the past six months.

Paul, thanks for your time and insights.

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

Please note that the holdings discussed in this report may not have been held by the fund for the entire period. Portfolio composition is subject to review in accordance with the fund’s investment strategy and may vary in the future. Current and future portfolio holdings are subject to risk.

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Your fund’s performance

This section shows your fund’s performance, price, and distribution information for periods ended February 28, 2009, 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 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 2/28/09

  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)  7.66%  7.52%  6.75%  6.75%  6.84%  6.84%  7.28%  7.17%  7.37%  7.73% 
10 years  24.08  19.09  15.36  15.36  14.80  14.80  20.88  16.97  20.18  26.53 
Annual average  2.18  1.76  1.44  1.44  1.39  1.39  1.91  1.58  1.86  2.38 
5 years  –2.45  –6.30  –5.91  –7.24  –5.98  –5.98  –3.73  –6.86  –4.39  –1.63 
Annual average  –0.49  –1.29  –1.21  –1.49  –1.23  –1.23  –0.76  –1.41  –0.89  –0.33 
3 years  –15.45  –18.80  –17.25  –19.25  –17.44  –17.44  –16.16  –18.90  –16.52  –15.09 
Annual average  –5.44  –6.71  –6.12  –6.88  –6.19  –6.19  –5.71  –6.74  –5.84  –5.31 
1 year  –21.39  –24.54  –21.96  –25.56  –21.97  –22.69  –21.57  –24.13  –21.72  –21.36 
6 months  –22.22  –25.33  –22.59  –26.29  –22.50  –23.24  –22.40  –24.89  –22.47  –22.21 

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 that is eliminated thereafter. Class R and Y shares have no initial sales charge or CDSC. Performance for class B, C, M, R, and Y shares before their inception is derived from the historical performance of class A shares, adjusted for the applicable sales charge (or CDSC) and, except for class Y shares, the higher operating expenses for such shares.

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

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

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Comparative index returns For periods ended 2/28/09

  JPMorgan Developed  Lipper High Current Yield Funds 
  High Yield Index  category average* 
Annual average (life of fund)  —†  7.35% 
10 years  29.92%  16.83 
Annual average  2.65  1.29 
5 years  –2.43  –6.19 
Annual average  –0.49  1.57 
3 years  –14.81  –17.23 
Annual average  –5.20  –6.45 
1 year  –21.91  –22.02 
6 months  –22.21  –22.23 

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

* Over the 6-month, 1-year, 3-year, 5-year, 10-year, and life-of-fund periods ended 2/28/09, there were 491, 471, 394, 335, 202, and 11 funds, respectively, in this Lipper category.

† The inception of the JPMorgan Developed HighYield Index was 12/31/1994, which was after the inception of the fund.

Fund price and distribution information For the six-month period ended 2/28/09

Distributions  Class A  Class B  Class C  Class M  Class R  Class Y 
Number  6  6  6  6  6  6 
Income  $0.270  $0.248  $0.249  $0.263  $0.264  $0.277 
Capital gains  —  —  —  —  —  — 
Total  $0.270  $0.248  $0.249  $0.263  $0.264  $0.277 
Share value  NAV  POP  NAV  NAV  NAV  POP  NAV  NAV 
8/31/08  $7.21  $7.51  $7.19  $7.17  $7.23  $7.47  $7.16  $7.14 
2/28/09  5.34  5.56  5.32  5.31  5.35  5.53  5.29  5.28 
Current yield (end of period)  NAV  POP  NAV  NAV  NAV  POP  NAV  NAV 
Current dividend rate 1  10.11%  9.71%  9.25%  9.49%  9.87%  9.55%  9.98%  10.45% 
Current 30-day SEC yield                 
(with expense limitation) 2,3  N/A  11.71  11.41  11.41  N/A  11.54  11.94  12.46 
Current 30-day SEC yield                 
(without expense limitation) 3  N/A  11.57  11.26  11.25  N/A  11.40  11.79  12.31 

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

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

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

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

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Fund performance as of most recent calendar quarter
Total return for periods ended 3/31/09

  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)  7.70%  7.56%  6.80%  6.80%  6.88%  6.88%  7.32%  7.21%  7.40%  7.77% 
10 years  24.12  19.17  15.61  15.61  14.81  14.81  20.92  17.03  20.22  26.84 
Annual average  2.18  1.77  1.46  1.46  1.39  1.39  1.92  1.59  1.86  2.41 
5 years  –1.31  –5.20  –4.62  –5.96  –4.87  –4.87  –2.59  –5.76  –3.12  –0.16 
Annual average  –0.26  –1.06  –0.94  –1.22  –0.99  –0.99  –0.52  –1.18  –0.63  –0.03 
3 years  –14.35  –17.76  –16.01  –18.04  –16.25  –16.25  –14.97  –17.75  –15.33  –13.71 
Annual average  –5.03  –6.31  –5.65  –6.42  –5.74  –5.74  –5.26  –6.31  –5.40  –4.80 
1 year  –19.87  –23.11  –20.39  –24.06  –20.55  –21.28  –20.16  –22.78  –20.20  –19.67 
6 months  –14.33  –17.80  –14.54  –18.61  –14.70  –15.52  –14.53  –17.27  –14.52  –14.20 

Fund’s annual operating expenses For the fiscal year ended 8/31/08

  Class A  Class B  Class C  Class M  Class R  Class Y 
Total annual fund operating expenses  1.07%  1.82%  1.82%  1.32%  1.32%  0.82% 

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

Your fund’s expenses

As a mutual fund investor, you pay ongoing expenses, such as management fees, distribution fees (12b-1 fees), and other expenses. In the most recent six-month period, your fund limited these expenses; had it not done so, expenses would have been higher. Using the following information, you can estimate how these expenses affect your investment and compare them with the expenses of other funds. You may also pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial representative.

Review your fund’s expenses

The following table shows the expenses you would have paid on a $1,000 investment in Putnam High Yield Trust from September 1, 2008, to February 28, 2009. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.

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  Class A  Class B  Class C  Class M  Class R  Class Y 
Expenses paid per $1,000*  $4.98  $8.27  $8.27  $6.08  $6.07  $3.88 
Ending value (after expenses)  $777.80  $774.10  $775.00  $776.00  $775.30  $777.90 

* 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 2/28/09. 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 28, 2009, use the following calculation method. To find the value of your investment on September 1, 2008, call Putnam at 1-800-225-1581.


Compare expenses using the SEC’s method

The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the following table shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total costs) of investing in the fund with those of other funds. All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.

  Class A  Class B  Class C  Class M  Class R  Class Y 
Expenses paid per $1,000*  $5.66  $9.39  $9.39  $6.90  $6.90  $4.41 
Ending value (after expenses)  $1,019.19  $1,015.47  $1,015.47  $1,017.95  $1,017.95  $1,020.43 

* 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 2/28/09. The expense ratio may differ for each share class (see the last table in this section). Expenses are calculated by multiplying the expense ratio by the average account value for the period; then multiplying the result by the number of days in the period; and then dividing that result by the number of days in the year.

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Compare expenses using industry averages

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

  Class A  Class B  Class C  Class M  Class R  Class Y 
Your fund’s annualized             
expense ratio  1.13%  1.88%  1.88%  1.38%  1.38%  0.88% 
Average annualized expense             
ratio for Lipper peer group*  1.14%  1.89%  1.89%  1.39%  1.39%  0.89% 

* Putnam keeps fund expenses below the Lipper peer group average expense ratio by limiting our fund expenses if they exceed the Lipper average. The Lipper average is a simple average of front-end load funds in the peer group that excludes 12b-1 fees as well as any expense offset and brokerage/service arrangements that may reduce fund expenses. To facilitate the comparison in this presentation, Putnam has adjusted the Lipper average to reflect 12b-1 fees. Investors should note that the other funds in the peer group may be significantly smaller or larger than the fund, and that an asset-weighted average would likely be lower than the simple average. Also, the fund and Lipper report expense data at different times; the fund’s expense ratio shown here is annualized data for the most recent six-month period, while the quarterly updated Lipper average is based on the most recent fiscal year-end data available for the peer group funds as of 12/31/08.

Your fund’s portfolio turnover

Putnam funds are actively managed by experts who buy and sell securities based on intensive analysis of companies, industries, economies, and markets. Portfolio turnover is a measure of how often a fund’s managers buy and sell securities for your fund. A portfolio turnover of 100%, for example, means that the managers sold and replaced securities valued at 100% of a fund’s average portfolio value within a given period. Funds with high turnover may be more likely to generate capital gains that must be distributed to shareholders as taxable income. High turnover may also cause a fund to pay more brokerage commissions and other transaction costs, which may detract from performance.

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

Turnover comparisons Percentage of holdings that change every year

  2008  2007  2006  2005  2004 
Putnam High Yield Trust  28%  57%  46%  41%  62% 
Lipper High Current Yield Funds           
category average  81%  83%  83%  73%  95% 

Turnover data for the fund is calculated based on the fund’s fiscal-year period, which ends on August 31. Turnover data for the fund’s Lipper category is calculated based on the average of the turnover of each fund in the category for its fiscal year ended during the indicated year. Fiscal years vary across funds in the Lipper category, which may limit the comparability of the fund’s portfolio turnover rate to the Lipper average. Comparative data for 2008 is based on information available as of 12/31/08.

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Your fund’s management

In addition to Paul Scanlon, your fund’s Portfolio Managers are Norman Boucher and Robert Salvin.

Portfolio management fund ownership

The following table shows how much the fund’s current Portfolio Managers have invested in the fund and in all Putnam mutual funds (in dollar ranges). Information shown is as of February 28, 2009, and February 29, 2008.


Trustee and Putnam employee fund ownership

As of February 28, 2009, 13 of the 14 Trustees of the Putnam funds owned fund shares. The following table shows the approximate value of investments in the fund and all Putnam funds as of that date by the Trustees and Putnam employees. These amounts include investments by the Trustees’ and employees’ immediate family members and investments through retirement and deferred compensation plans.

  Assets in the fund  Total assets in all Putnam funds 
Trustees  $465,000  $29,000,000 
Putnam employees  $2,560,000  $311,000,000 

Other Putnam funds managed by the Portfolio Managers

Paul Scanlon is also a Portfolio Manager of Putnam Diversified Income Trust, Putnam High Yield Advantage Fund, Putnam Floating Rate Income Fund, Putnam Absolute Return 100 Fund, Putnam Absolute Return 300 Fund, Putnam Premier Income Trust, and Putnam Master Intermediate Income Trust.

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

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

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

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Terms and definitions

Important terms

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

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

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

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

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

Share classes

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

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

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

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

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

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

Comparative indexes

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

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

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

Merrill Lynch U.S. 3-Month 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.

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Trustee approval of management contract

General conclusions

The Board of Trustees of the Putnam funds oversees the management of each fund and, as required by law, determines annually whether to approve the continuance of your fund’s management contract with Putnam Investment Management (“Putnam Management”) and the sub-management contract, in respect of your fund, between Putnam Management’s affiliate, Putnam Investments Limited (“PIL”), and Putnam Management. In this regard, the Board of Trustees, with the assistance of its Contract Committee consisting solely of Trustees who are not “interested persons” (as such term is defined in the Investment Company Act of 1940, as amended) of the Putnam funds (the “Independent Trustees”), requests and evaluates all information it deems reasonably necessary under the circumstances. Over the course of several months ending in June 2008, the Contract Committee met several times to consider the information provided by Putnam Management and 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 and sub-management contract, effective July 1, 2008. (Because PIL is an affiliate of Putnam Management and Putnam Management remains fully responsible for all services provided by PIL, the Trustees have not evaluated PIL as a separate entity, and all subsequent references to Putnam Management below should be deemed to include reference to PIL as necessary or appropriate in the context.)

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

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

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

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

Management fee schedules and categories; total expenses

The Trustees reviewed the management fee schedules in effect for all Putnam funds,

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including fee levels and breakpoints, and the assignment of funds to particular fee categories. In reviewing fees and expenses, the Trustees generally focused their attention on material changes in circumstances — for example, changes in a fund’s size or investment style, changes in Putnam Management’s operating costs or responsibilities, or changes in competitive practices in the mutual fund industry — that suggest that consideration of fee changes might be warranted. The Trustees concluded that the circumstances did not warrant changes to the management fee structure of your fund, which had been carefully developed over the years, re-examined on many occasions and adjusted where appropriate. In this regard, the Trustees also noted that shareholders of your fund voted in 2007 to approve new management contracts containing an identical fee structure. The Trustees focused on two areas of particular interest, as discussed further below:

• Competitiveness. The Trustees reviewed comparative fee and expense information for competitive funds, which indicated that, in a custom peer group of competitive funds selected by Lipper Inc., your fund ranked in the 55th percentile in management fees and in the 41st percentile in total expenses (less any applicable 12b-1 fees) as of December 31, 2007 (the first percentile being the least expensive funds and the 100th percentile being the most expensive funds). (Because the fund’s custom peer group is smaller than the fund’s broad Lipper Inc. peer group, this expense information may differ from the Lipper peer expense information found elsewhere in this report.) The Trustees noted that expense ratios for a number of Putnam funds, which show the percentage of fund assets used to pay for management and administrative services, distribution (12b-1) fees and other expenses, had been 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 initially implemented in January 2004. The Trustees have received a commitment from Putnam Management and its parent company to continue this program through at least June 30, 2009. These expense limitations give effect to a commitment by Putnam Management that the expense ratio of each open-end fund would be no higher than the average expense ratio of the competitive funds included in the fund’s relevant Lipper universe (exclusive of any applicable 12b-1 charges in each case). The Trustees observed that this commitment to limit fund expenses has served shareholders well since its inception.

In order to ensure that the expenses of the Putnam funds continue to meet evolving competitive standards, the Trustees requested, and Putnam Management agreed, to extend for the twelve months beginning July 1, 2008, an additional expense limitation for certain funds at an amount equal to the average expense ratio (exclusive of 12b-1 charges) of a custom peer group of competitive funds selected by Lipper to correspond to the size of the fund. This additional expense limitation will be applied to those open-end funds that had above-average expense ratios (exclusive of 12b-1 charges) based on the custom peer group data for the period ended December 31, 2007. This additional expense limitation will not be applied to your fund because it had a below-average expense ratio relative to its custom peer group.

In addition, the Trustees devoted particular attention to analyzing the Putnam funds’ fees and expenses relative to those of competitors in fund complexes of comparable size and with a comparable mix of asset categories. The Trustees concluded that this analysis did not reveal any matters requiring further attention at the current time.

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• Economies of scale. Your fund currently has the benefit of breakpoints in its management fee that provide shareholders with significant economies of scale, which means that the effective management fee rate of the fund (as a percentage of fund assets) declines as the fund grows in size and crosses specified asset thresholds. Conversely, if the fund shrinks in size — as has been the case for many Putnam funds in recent years — these breakpoints result in increasing fee levels. In recent years, the Trustees have examined the operation of the existing breakpoint structure during periods of both growth and decline in asset levels. The Trustees concluded that the fee schedule in effect for your fund represented an appropriate sharing of economies of scale at current asset levels.

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

Investment performance

The quality of the investment process provided by Putnam Management represented a major factor in the Trustees’ evaluation of the quality of services provided by Putnam Management under your fund’s management contract. The Trustees were assisted in their review of the Putnam funds’ investment process and performance by the work of the Investment Oversight Coordinating Committee of the

Trustees and the Investment Oversight Committees of the Trustees, which had met on a regular monthly basis with the funds’ portfolio teams throughout the year. The Trustees concluded that Putnam Management generally provides a high-quality investment process —as measured by the experience and skills of the individuals assigned to the management of fund portfolios, the resources made available to such personnel, and in general the ability of Putnam Management to attract and retain high-quality personnel — but also recognized that this does not guarantee 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.

While the Trustees noted the satisfactory investment performance of certain Putnam funds, they considered the disappointing investment performance of many funds in recent periods, particularly over periods in 2007 and 2008. They discussed with senior management of Putnam Management the factors contributing to such underperformance and actions being taken to improve performance. The Trustees recognized that, in recent years, Putnam Management has taken steps to strengthen its investment personnel and processes to address areas of underperformance, including recent efforts to further centralize Putnam Management’s equity research function. In this regard, the Trustees took into consideration efforts by Putnam Management to improve its ability to assess and mitigate investment risk in individual funds, across asset classes, and across the complex as a whole. The Trustees indicated their intention to continue to monitor performance trends to assess the effectiveness of these efforts and to evaluate whether additional changes to address areas of underperformance are warranted.

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

One-year period  33rd 
Three-year period  28th 
Five-year period  29th 

(Because of the passage of time, these performance results may differ from the performance results for more recent periods shown elsewhere in this report.) Over the one-year, three-year and five-year periods ended December 31, 2007, there were 455, 388, and 334 funds, respectively, in your fund’s Lipper peer group.* Past performance is no guarantee of future returns.

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

Brokerage and soft-dollar allocations; other benefits

The Trustees considered various potential benefits that Putnam Management may receive in connection with the services it provides under the management contract with your fund. These include benefits related to brokerage and soft-dollar allocations, whereby a portion of the commissions paid by a fund for brokerage may be used to acquire research services that may be useful to Putnam Management in managing the assets of the fund and of other clients. The Trustees considered changes made in 2008, at Putnam Management’s request, to the Putnam funds’ brokerage allocation policy, which expanded the permitted categories of brokerage and research services payable with soft dollars and increased the permitted soft dollar allocation to third-party services over what had been authorized in previous years. The Trustees indicated their continued intent to monitor the potential benefits associated with the allocation of fund brokerage and trends in industry practice to ensure that the principle of seeking “best price and execution” remains paramount in the portfolio trading process.

The Trustees’ annual review of your fund’s management contract arrangements also included the review of its distributor’s contract and distribution plan with Putnam Retail Management Limited Partnership and the investor servicing agreement with Putnam

* The percentile rankings for your fund’s class A share annualized total return performance in the Lipper High Current Yield Funds category for the one-year, five-year, and ten-year periods ended March 31, 2009, were 56%, 40%, and 32%, respectively. Over the one-year, five-year, and ten-year periods ended March 31, 2009, your fund ranked 256th out of 461, 132nd out of 335, and 66th out of 207 funds, respectively. Note that this more recent information was not available when the Trustees approved the continuance of your fund’s management contract.

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Fiduciary Trust Company (“PFTC”), each of which provides benefits to affiliates of Putnam Management. In the case of the investor servicing agreement, the Trustees considered that certain shareholder servicing functions were shifted to a third-party service provider by PFTC in 2007.

Comparison of retail and institutional fee schedules

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

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, 2008, are available in the Individual

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

Fund portfolio holdings

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

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Financial statements

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.

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The fund’s portfolio 2/28/09 (Unaudited)

CORPORATE BONDS AND NOTES (78.9%)*  Principal amount  Value 
Advertising and marketing services (0.3%)     
Lamar Media Corp. company guaranty 7 1/4s, 2013  $3,643,000  $2,823,325 
Lamar Media Corp. sr. unsec. sub. notes Ser. C,     
6 5/8s, 2015  50,000  31,250 
    2,854,575 
Automotive (1.4%)     
Dana Corp. escrow sr. notes 5.85s, 2015 (In default) †  5,483,000  548 
Ford Motor Credit Co., LLC notes 7 7/8s, 2010  5,996,000  3,995,890 
Ford Motor Credit Co., LLC sr. notes 9 7/8s, 2011  685,000  404,150 
Ford Motor Credit Co., LLC sr. unsec. notes 9 3/4s, 2010  3,792,000  2,502,720 
Ford Motor Credit Co., LLC unsec. notes 7 3/8s, 2009  5,676,000  4,520,628 
General Motors Corp. sr. unsec. unsub. notes 7.2s, 2011  8,780,000  1,404,800 
Tenneco Automotive, Inc. company guaranty 8 5/8s, 2014  1,525,000  213,500 
Tenneco Automotive, Inc. sec. notes Ser. B, 10 1/4s, 2013  280,000  162,400 
Tenneco, Inc. sr. unsec. notes company     
guaranty 8 1/8s, 2015  868,000  147,560 
TRW Automotive, Inc. 144A company     
guaranty sr. notes 7 1/4s, 2017  2,000,000  560,000 
UCI Holdco, Inc. sr. unsec. notes FRN 9.996s, 2013 ‡‡  3,191,898  255,352 
    14,167,548 
Basic materials (6.5%)     
Airgas, Inc. 144A company     
guaranty sr. sub. notes 7 1/8s, 2018  4,385,000  4,165,750 
AK Steel Corp. company guaranty 7 3/4s, 2012  5,622,000  4,834,920 
Aleris International, Inc. company guaranty     
sr. unsec. sub. notes 10s, 2016 (In default)  396,000  495 
Aleris International, Inc. company     
guaranty sr. unsec. notes 9s, 2014 (In default) ‡‡  4,534,000  13,602 
Builders FirstSource, Inc. company guaranty sr. sec.     
notes FRN 5.484s, 2012  4,394,000  571,220 
Clondalkin Acquisition BV 144A company guaranty     
sr. sec. notes FRN 3.996s, 2013 (Netherlands)  2,207,000  1,368,340 
Compass Minerals International, Inc. sr. disc.     
notes Ser. B, 12s, 2013  1,140,000  1,185,600 
Domtar Corp. company guaranty Ser. *, 7 7/8s, 2011     
(Canada)  3,044,000  2,595,010 
Freeport-McMoRan Copper & Gold, Inc. sr. sec.     
notes 6 7/8s, 2014  1,592,000  1,540,260 
Freeport-McMoRan Copper & Gold, Inc. sr. unsec.     
notes 8 3/8s, 2017  7,896,000  6,790,560 
Freeport-McMoRan Copper & Gold, Inc. sr. unsec.     
notes 8 1/4s, 2015  5,334,000  4,773,930 
Georgia-Pacific Corp. debs. 9 1/2s, 2011  3,846,000  3,807,540 
Gerdau Ameristeel Corp. sr. notes 10 3/8s, 2011     
(Canada)  5,312,000  5,431,520 
Graphic Packaging International Corp     
sr. notes 8 1/2s, 2011  1,970,000  1,733,600 

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CORPORATE BONDS AND NOTES (78.9%)* cont.  Principal amount  Value 
Basic materials cont.       
Hexion U.S. Finance Corp./Hexion Nova Scotia       
Finance, ULC company guaranty 9 3/4s, 2014    $2,213,000  $287,690 
Huntsman International, LLC company       
guaranty sr. unsec. sub. notes 7 7/8s, 2014    1,865,000  885,875 
Huntsman, LLC company       
guaranty sr. unsub. notes 11 5/8s, 2010    1,000  990 
International Paper Co. sr. unsec. notes 7.4s, 2014    2,928,000  2,339,729 
Jefferson Smurfit Corp. company guaranty 8 1/4s, 2012    1,217,000  97,360 
Metals USA, Inc. sec. notes 11 1/8s, 2015    5,442,000  3,101,940 
Momentive Performance Materials, Inc. company       
guaranty sr. unsec. notes 9 3/4s, 2014    4,098,000  1,557,240 
Mosaic Co. (The) 144A sr. unsec.       
unsub. notes 7 5/8s, 2016    3,094,000  2,970,240 
Mosaic Co. (The) 144A sr. unsec.       
unsub. notes 7 3/8s, 2014    702,000  682,695 
NewPage Corp. company guaranty 10s, 2012    801,000  242,303 
NewPage Holding Corp. sr. unsec. unsub. notes FRN       
10.265s, 2013 ‡‡    1,572,015  47,160 
Norske Skog Canada, Ltd. company guaranty Ser. D,       
8 5/8s, 2011 (Canada)    4,204,000  1,933,840 
Novelis, Inc. company guaranty 7 1/4s, 2015    5,449,000  1,702,813 
Rockwood Specialties Group, Inc. company       
guaranty 7 5/8s, 2014  EUR  2,310,000  2,162,922 
Smurfit Kappa Funding PLC sr. unsec.       
sub. notes 7 3/4s, 2015 (Ireland)    $3,067,000  1,786,528 
Steel Dynamics, Inc. company guaranty sr. unsec.       
unsub. notes 6 3/4s, 2015    4,492,000  3,492,530 
Stone Container Corp. sr. notes 8 3/8s, 2012    2,163,000  173,040 
Tube City IMS Corp. company guaranty 9 3/4s, 2015    2,964,000  607,620 
Verso Paper Holdings, LLC/ Verso Paper, Inc. company       
guaranty 11 3/8s, 2016    1,250,000  262,500 
Verso Paper Holdings, LLC/Verso Paper, Inc. sec.       
notes 9 1/8s, 2014    4,290,000  1,608,750 
      64,756,112 
Broadcasting (1.9%)       
Clear Channel Communications, Inc. sr. unsec.       
notes 7.65s, 2010    3,481,000  835,440 
Clear Channel Communications, Inc. sr. unsec.       
notes 5 1/2s, 2014    729,000  61,965 
DIRECTV Holdings, LLC company guaranty 6 3/8s, 2015    8,570,000  7,777,275 
DIRECTV Holdings, LLC company guaranty sr. unsec.       
notes 7 5/8s, 2016    1,268,000  1,217,280 
Echostar DBS Corp. company guaranty 7s, 2013    216,000  201,420 
Echostar DBS Corp. sr. notes 6 3/8s, 2011    7,077,000  6,758,535 
Univision Communications, Inc. 144A company       
guaranty unsec. notes 9 3/4s, 2015 ‡‡    2,834,000  212,550 
XM Satellite Radio, Inc. 144A company       
guaranty sr. unsec. notes 13s, 2013    4,125,000  1,815,000 

25

CORPORATE BONDS AND NOTES (78.9%)* cont.  Principal amount  Value 
Broadcasting cont.     
Young Broadcasting, Inc. company guaranty 10s,     
2011 (In default)  $3,903,000  $429 
Young Broadcasting, Inc. sr. sub. notes 8 3/4s,     
2014 (In default) †  1,025,000  513 
    18,880,407 
Building materials (0.8%)     
Associated Materials, Inc. company guaranty 9 3/4s, 2012  5,916,000  4,880,700 
NTK Holdings, Inc. sr. unsec. disc.     
notes stepped-coupon zero % (10 3/4s, 9/1/09), 2014 ††  3,774,000  207,570 
Texas Industries, Inc. sr. unsec. notes 7 1/4s, 2013  1,795,000  1,274,450 
Texas Industries, Inc. 144A company     
guaranty sr. unsec. notes 7 1/4s, 2013  711,000  504,810 
THL Buildco, Inc. (Nortek Holdings, Inc.) sr. sec.     
notes 10s, 2013  850,000  340,000 
THL Buildco, Inc. (Nortek Holdings, Inc.)     
sr. sub. notes 8 1/2s, 2014  6,684,000  1,069,440 
    8,276,970 
Cable television (2.5%)     
Adelphia Communications Corp. escrow bonds zero %, 2011  81,000  1,114 
Adelphia Communications Corp. escrow bonds zero %, 2009  4,000  55 
Adelphia Communications Corp. escrow bonds zero %, 2009  4,000  55 
Adelphia Communications Corp. escrow bonds zero %, 2009  2,625,000  36,094 
Adelphia Communications Corp. escrow bonds zero %, 2009  2,223,000  30,566 
Adelphia Communications Corp. escrow bonds zero %, 2010  2,906,000  39,958 
Atlantic Broadband Finance, LLC company     
guaranty 9 3/8s, 2014  1,781,000  1,375,823 
Cablevision Systems Corp. sr. notes Ser. B, 8s, 2012  3,522,000  3,407,535 
CCH I Holdings, LLC company guaranty 12 1/8s, 2015  168,000  2,100 
CCH I, LLC sec. notes 11s, 2015  6,803,000  578,255 
CCH II, LLC sr. unsec. notes 10 1/4s, 2010  1,714,000  1,379,770 
CCH II, LLC sr. unsec. notes Ser. B, 10 1/4s, 2010  6,165,000  4,932,000 
CCO Holdings LLC/CCO Holdings Capital Corp.     
sr. unsec. notes 8 3/4s, 2013  2,170,000  1,692,600 
CSC Holdings, Inc. sr. notes 6 3/4s, 2012  4,196,000  4,028,160 
CSC Holdings, Inc. sr. notes Ser. B, 7 5/8s, 2011  4,000  3,960 
CSC Holdings, Inc. 144A sr. unsec. notes 8 5/8s, 2019  985,000  916,050 
CSC Holdings, Inc. 144A sr. unsec. notes 8 1/2s, 2014  805,000  772,800 
Mediacom LLC/Mediacom Capital Corp. sr. unsec.     
notes 9 1/2s, 2013  997,000  867,390 
NTL Cable PLC sr. notes 9 1/8s, 2016 (United Kingdom)  1,979,000  1,739,046 
Rainbow National Services, LLC 144A     
sr. notes 8 3/4s, 2012  3,184,000  3,187,980 
    24,991,311 
Capital goods (4.5%)     
Alliant Techsystems, Inc. sr. sub. notes 6 3/4s, 2016  2,422,000  2,337,230 
Allied Waste North America, Inc. sec. notes Ser. B,     
5 3/4s, 2011  774,000  754,650 
Baldor Electric Co. company guaranty 8 5/8s, 2017  1,498,000  1,175,930 
BE Aerospace, Inc. sr. unsec. unsub. notes 8 1/2s, 2018  3,290,000  2,623,775 
Berry Plastics Corp. company guaranty sr. sec.     
notes FRN 5.844s, 2015  1,900,000  1,482,000 

26

CORPORATE BONDS AND NOTES (78.9%)* cont.  Principal amount  Value 
Capital goods cont.       
Bombardier, Inc. 144A sr. unsec. notes FRN 5.084s,       
2013 (Canada)  EUR  1,462,000  $1,215,782 
Crown Americas, LLC/Crown Americas Capital Corp.       
sr. notes 7 5/8s, 2013    $2,478,000  2,490,390 
General Cable Corp. company guaranty sr. unsec.       
notes FRN 3.81s, 2015    3,403,000  2,348,070 
Hawker Beechcraft Acquisition Co., LLC       
sr. sub. notes 9 3/4s, 2017    3,376,000  447,320 
Hexcel Corp. sr. sub. notes 6 3/4s, 2015    3,301,000  2,888,375 
L-3 Communications Corp. company guaranty Ser. B,       
6 3/8s, 2015    4,970,000  4,696,650 
Legrand SA unsec. unsub. debs. 8 1/2s, 2025 (France)    7,826,000  7,067,942 
Owens-Brockway Glass Container, Inc. company       
guaranty 6 3/4s, 2014  EUR  652,000  727,932 
RBS Global, Inc. / Rexnord Corp. company       
guaranty 9 1/2s, 2014    $1,617,000  1,366,365 
Ryerson Tull, Inc. 144A sec. notes 12 1/4s, 2015    3,558,000  2,099,220 
Sequa Corp. 144A company guaranty sr. unsec.       
notes 11 3/4s, 2015    1,043,000  166,880 
TD Funding Corp. company guaranty 7 3/4s, 2014    3,882,000  3,571,440 
Terex Corp. company guaranty 7 3/8s, 2014    4,446,000  3,779,100 
Titan International, Inc. company guaranty 8s, 2012    4,373,000  3,509,333 
WCA Waste Corp. company guaranty 9 1/4s, 2014    770,000  567,875 
      45,316,259 
Coal (1.4%)       
Arch Western Finance, LLC sr. notes 6 3/4s, 2013    7,795,000  7,288,325 
Peabody Energy Corp. company guaranty 7 3/8s, 2016    7,246,000  7,064,850 
      14,353,175 
Commercial and consumer services (0.9%)       
Aramark Corp. company guaranty 8 1/2s, 2015    5,024,000  4,571,840 
Lender Processing Services, Inc. company       
guaranty sr. unsec. unsub. notes 8 1/8s, 2016    4,052,000  4,046,935 
      8,618,775 
Consumer (0.7%)       
Jostens IH Corp. company guaranty 7 5/8s, 2012    3,982,000  3,713,215 
Yankee Acquisition Corp. company guaranty Ser. B,       
8 1/2s, 2015    5,757,000  3,079,995 
      6,793,210 
Consumer staples (3.5%)       
Anheuser-Busch InBev Worldwide, Inc. 144A company       
guaranty sr. notes 7.2s, 2014    4,010,000  4,160,395 
Archibald Candy Corp. company guaranty 10s,       
2009 (In default) † F    790,534  12,208 
Chiquita Brands International, Inc.       
sr. notes 7 1/2s, 2014    4,529,000  3,249,558 
Chiquita Brands International, Inc. sr. unsec.       
unsub. notes 8 7/8s, 2015    738,000  562,725 
Constellation Brands, Inc. company       
guaranty sr. unsec. unsub. notes 7 1/4s, 2016    3,252,000  3,065,010 
Dean Foods Co. company guaranty 7s, 2016    1,478,000  1,404,100 
Del Monte Corp. sr. sub. notes 8 5/8s, 2012    5,748,000  5,791,110 

27

CORPORATE BONDS AND NOTES (78.9%)* cont.  Principal amount  Value 
Consumer staples cont.     
Elizabeth Arden, Inc. company guaranty 7 3/4s, 2014  $3,418,000  $2,460,960 
Jarden Corp. company guaranty 7 1/2s, 2017  3,756,000  2,929,680 
Pinnacle Foods Finance LLC sr. notes 9 1/4s, 2015  1,450,000  1,189,000 
Prestige Brands, Inc. sr. sub. notes 9 1/4s, 2012  4,138,000  3,879,375 
Rite Aid Corp. company guaranty 9 1/2s, 2017  3,472,000  850,640 
Rite Aid Corp. sec. notes 7 1/2s, 2017  886,000  478,440 
Spectrum Brands, Inc. company guaranty 7 3/8s, 2015  5,253,000  1,135,961 
Spectrum Brands, Inc. sr. unsec. sub. notes company     
guaranty 12 1/2s, 2013 (In default) ‡‡  3,166,000  736,095 
Tyson Foods, Inc. sr. unsec. notes 8 1/4s, 2011  322,000  303,180 
Tyson Foods, Inc. 144A sr. unsec. notes 10 1/2s, 2014  1,761,000  1,664,145 
United Rentals NA, Inc. company guaranty 6 1/2s, 2012  1,295,000  1,016,575 
    34,889,157 
Energy (0.6%)     
Inergy LP/Inergy Finance Corp. sr. unsec.     
notes 6 7/8s, 2014  6,799,000  6,255,080 
    6,255,080 
Energy (oil field) (2.0%)     
Complete Production Services, Inc. company     
guaranty 8s, 2016  4,066,000  2,749,633 
Helix Energy Solutions Group, Inc. 144A sr. unsec.     
notes 9 1/2s, 2016  6,787,000  3,800,720 
Hornbeck Offshore Services, Inc. sr. notes Ser. B,     
6 1/8s, 2014  2,114,000  1,574,930 
Key Energy Services, Inc. company     
guaranty sr. unsec. unsub. notes 8 3/8s, 2014  2,280,000  1,482,000 
Offshore Logistics, Inc. company guaranty 6 1/8s, 2013  3,652,000  2,848,560 
Oslo Seismic Services, Inc. 1st mtge. 8.28s, 2011  2,204,744  2,243,098 
Pride International, Inc. sr. unsec. notes 7 3/8s, 2014  2,793,000  2,779,035 
Stallion Oilfield Services/Stallion Oilfield     
Finance Corp. 144A sr. unsec. notes 9 3/4s, 2015  7,008,000  840,960 
Weatherford International, Ltd. company     
guaranty sr. unsec. notes 9 5/8s, 2019  1,205,000  1,230,893 
    19,549,829 
Entertainment (1.2%)     
AMC Entertainment, Inc. company guaranty 11s, 2016  671,000  603,900 
Avis Budget Car Rental, LLC company guaranty 7 3/4s, 2016  3,742,000  748,400 
Avis Budget Car Rental, LLC company guaranty 7 5/8s, 2014  2,447,000  477,165 
Cinemark, Inc. sr. unsec. disc. notes stepped-coupon     
zero % (9 3/4s, 3/15/09), 2014 ††  1,696,000  1,551,840 
Hertz Corp. company guaranty 8 7/8s, 2014  5,725,000  2,805,250 
Marquee Holdings, Inc. sr. disc. notes 12s, 2014  4,678,000  3,134,260 
Universal City Development Partners, Ltd. sr. unsec.     
unsub. notes 11 3/4s, 2010  1,205,000  924,838 
Universal City Florida Holding Co. sr. notes 8 3/8s, 2010  1,018,000  488,640 
Universal City Florida Holding Co. sr. unsec.     
notes FRN 5.92s, 2010  3,055,000  1,466,400 
    12,200,693 

28

CORPORATE BONDS AND NOTES (78.9%)* cont.  Principal amount  Value 
Financials (2.2%)     
E*Trade Financial Corp. sr. unsec. notes 8s, 2011  $3,252,000  $1,333,320 
GMAC, LLC 144A company guaranty sr. unsec.     
unsub. notes 7 3/4s, 2010  2,924,000  2,339,405 
GMAC, LLC 144A company guaranty sr. unsec.     
unsub. notes 7 1/4s, 2011  2,130,000  1,491,000 
GMAC, LLC 144A company guaranty sr. unsec.     
unsub. notes 7s, 2012  2,455,000  1,463,450 
GMAC, LLC 144A company guaranty sr. unsec.     
unsub. notes 6 7/8s, 2012  8,608,000  4,955,970 
GMAC, LLC 144A company guaranty sr. unsec.     
unsub. notes 6 7/8s, 2011  965,000  628,213 
GMAC, LLC 144A company guaranty sr. unsec.     
unsub. notes 6 3/4s, 2014  4,734,000  2,298,736 
GMAC, LLC 144A company guaranty sr. unsec.     
unsub. notes 6 5/8s, 2012  1,291,000  743,745 
GMAC, LLC 144A company guaranty sr. unsec.     
unsub. notes FRN 4.403s, 2014  624,000  274,560 
HUB International Holdings, Inc. 144A     
sr. sub. notes 10 1/4s, 2015  1,156,000  578,000 
HUB International Holdings, Inc. 144A sr. unsec.     
unsub. notes 9s, 2014  823,000  534,950 
Leucadia National Corp. sr. unsec. notes 8 1/8s, 2015  1,345,000  1,116,350 
Leucadia National Corp. sr. unsec. notes 7 1/8s, 2017  3,230,000  2,374,050 
Liberty Mutual Group 144A company guaranty FRB     
10 3/4s, 2058  1,781,000  960,048 
Nuveen Investments, Inc. 144A sr. notes 10 1/2s, 2015  2,492,000  573,160 
Rouse Co., LP (The) / TRC Property Holdings, Inc.     
144A sr. unsec. unsub. notes 6 3/4s, 2013 R  454,000  136,200 
USI Holdings Corp. 144A company guaranty sr. unsec.     
notes FRN 5.113s, 2014  756,000  359,100 
    22,160,257 
Gaming and lottery (1.8%)     
Boyd Gaming Corp. sr. sub. notes 7 1/8s, 2016  3,072,000  1,566,720 
Boyd Gaming Corp. sr. sub. notes 6 3/4s, 2014  945,000  491,400 
Harrah’s Operating Co., Inc. company     
guaranty sr. unsec. notes 10 3/4s, 2016  8,366,000  1,171,240 
Mashantucket Western Pequot Tribe 144A bonds     
8 1/2s, 2015  4,925,000  1,625,250 
MGM Mirage, Inc. company guaranty 8 1/2s, 2010  1,423,000  647,465 
MGM Mirage, Inc. company guaranty 6s, 2009  4,140,000  3,032,550 
MGM Mirage, Inc. sr. notes 6 3/4s, 2012  2,000  840 
Pinnacle Entertainment, Inc. company     
guaranty sr. unsec. sub. notes 7 1/2s, 2015  495,000  326,700 
Pinnacle Entertainment, Inc. sr. sub. notes     
8 1/4s, 2012  5,104,000  4,542,560 
Station Casinos, Inc. sr. notes 6s, 2012 (In default)  3,504,000  1,086,240 
Trump Entertainment Resorts, Inc. sec. notes 8 1/2s,     
2015 (In default) †  8,703,000  957,330 
Wynn Las Vegas, LLC/Wynn Las Vegas Capital Corp. 1st     
mtge. 6 5/8s, 2014  3,605,000  2,541,525 
    17,989,820 

29

CORPORATE BONDS AND NOTES (78.9%)* cont.  Principal amount  Value 
Health care (9.8%)     
Community Health Systems, Inc. company     
guaranty 8 7/8s, 2015  $6,997,000  $6,620,911 
DaVita, Inc. company guaranty 6 5/8s, 2013  4,021,000  3,920,475 
Elan Finance PLC/Elan Finance Corp. company     
guaranty 7 3/4s, 2011 (Ireland)  5,910,000  5,141,700 
Fresenius US Finance II, Inc. 144A sr. unsec.     
notes 9s, 2015  1,840,000  1,913,600 
HCA, Inc. company guaranty sr. sec. notes 9 5/8s, 2016 ‡‡  3,400,000  2,839,000 
HCA, Inc. sr. sec. notes 9 1/4s, 2016  8,159,000  7,465,485 
HCA, Inc. sr. sec. notes 9 1/8s, 2014  9,207,000  8,631,563 
HCA, Inc. sr. unsec. notes 7 7/8s, 2011  104,000  102,440 
HCA, Inc. sr. unsec. notes 6 3/8s, 2015  2,024,000  1,396,560 
HCA, Inc. sr. unsec. notes 5 3/4s, 2014  2,145,000  1,512,225 
Health Management Associates, Inc. sr. notes 6 1/8s, 2016  4,640,000  3,584,400 
IASIS Healthcare/IASIS Capital Corp.     
sr. sub. notes 8 3/4s, 2014  360,000  345,600 
Omnicare, Inc. company guaranty 6 3/4s, 2013  391,000  363,630 
Omnicare, Inc. sr. sub. notes 6 1/8s, 2013  1,093,000  1,011,025 
Psychiatric Solutions, Inc. company guaranty 7 3/4s, 2015  4,455,000  3,909,263 
Select Medical Corp. company guaranty 7 5/8s, 2015  7,052,000  4,336,980 
Service Corporation International debs. 7 7/8s, 2013  3,506,000  3,409,585 
Service Corporation International sr. unsec.     
unsub. notes 6 3/4s, 2016  715,000  650,650 
Stewart Enterprises, Inc. sr. notes 6 1/4s, 2013  6,211,000  5,434,625 
Sun Healthcare Group, Inc. company     
guaranty sr. unsec. unsub. notes 9 1/8s, 2015  3,486,000  3,198,405 
Surgical Care Affiliates, Inc. 144A     
sr. sub. notes 10s, 2017  3,850,000  2,117,500 
Surgical Care Affiliates, Inc. 144A sr. unsec.     
notes 8 7/8s, 2015 ‡‡  2,474,000  1,484,400 
Tenet Healthcare Corp. sr. unsec. notes 7 3/8s, 2013  1,808,000  1,527,760 
Tenet Healthcare Corp. sr. unsec. notes 6 1/2s, 2012  1,232,000  1,096,480 
Tenet Healthcare Corp. sr. unsec.     
unsub. notes 6 3/8s, 2011  7,539,000  6,709,710 
United Surgical Partners International, Inc. company     
guaranty sr. unsec. sub. notes 8 7/8s, 2017  1,000,000  767,500 
US Oncology, Inc. company guaranty 9s, 2012  4,484,000  4,248,590 
Vanguard Health Holding Co. II, LLC     
sr. sub. notes 9s, 2014  6,408,000  5,863,320 
Ventas Realty LP/Capital Corp. company guaranty 9s, 2012 R  6,916,000  6,829,550 
Ventas Realty LP/Capital Corp. sr. notes 6 5/8s, 2014 R  1,556,000  1,373,170 
    97,806,102 
Homebuilding (0.5%)     
D.R. Horton, Inc. sr. notes 7 7/8s, 2011  4,000  3,690 
Meritage Homes Corp. company guaranty 6 1/4s, 2015  3,891,000  2,373,510 
Meritage Homes Corp. sr. notes 7s, 2014  684,000  436,050 
Realogy Corp. company guaranty sr. unsec.     
notes 10 1/2s, 2014 R  9,170,000  1,925,700 
    4,738,950 

30

CORPORATE BONDS AND NOTES (78.9%)* cont.  Principal amount  Value 
Household furniture and appliances (0.1%)     
Sealy Mattress Co. sr. sub. notes 8 1/4s, 2014  $2,188,000  $886,140 
    886,140 
Lodging/Tourism (0.7%)     
FelCor Lodging LP company guaranty 9s, 2011 R  2,415,000  1,304,100 
Host Marriott LP company guaranty Ser. Q, 6 3/4s, 2016 R  117,000  84,240 
Host Marriott LP sr. notes 7 1/8s, 2013 R  90,000  71,325 
Host Marriott LP sr. notes Ser. M, 7s, 2012 R  5,609,000  4,655,470 
Seminole Hard Rock Entertainment, Inc. 144A sr. sec.     
notes FRN 4.496s, 2014  2,901,000  1,305,450 
    7,420,585 
Media (1.7%)     
Affinion Group, Inc. company guaranty 11 1/2s, 2015  2,366,000  1,502,410 
Affinion Group, Inc. company guaranty 10 1/8s, 2013  4,530,000  3,510,750 
Affinity Group, Inc. sr. sub. notes 9s, 2012  4,466,000  2,456,300 
Idearc, Inc. company guaranty 8s, 2016  10,381,000  155,715 
Liberty Media, LLC sr. notes 5.7s, 2013  1,705,000  1,289,452 
Liberty Media, LLC sr. unsec. notes 7 7/8s, 2009  2,105,000  2,000,150 
Nielsen Finance LLC/Nielsen Finance Co. company     
guaranty 10s, 2014  3,955,000  3,262,875 
Nielsen Finance LLC/Nielsen Finance Co. company     
guaranty sr. unsec. sub. disc. notes stepped-coupon     
zero % (12 1/2s, 8/1/11), 2016 ††  3,640,000  1,419,600 
R.H. Donnelley Corp. sr. unsec. notes 6 7/8s, 2013  19,000  808 
R.H. Donnelley Corp. sr. unsec. unsub. notes 8 7/8s, 2017  65,000  2,925 
R.H. Donnelley, Inc. 144A company     
guaranty sr. unsec. notes 11 3/4s, 2015  5,848,000  818,720 
    16,419,705 
Oil and gas (8.5%)     
Chaparral Energy, Inc. company guaranty sr. unsec.     
notes 8 7/8s, 2017  6,108,000  1,465,920 
Chesapeake Energy Corp. company guaranty sr. unsec.     
notes 9 1/2s, 2015  790,000  734,700 
Chesapeake Energy Corp. sr. notes 7 1/2s, 2013  4,547,000  4,058,198 
Chesapeake Energy Corp. sr. notes 7s, 2014  1,597,000  1,365,435 
Compton Petroleum Corp. company guaranty 7 5/8s,     
2013 (Canada)  8,244,000  2,761,740 
Comstock Resources, Inc. sr. notes 6 7/8s, 2012  4,120,000  3,316,600 
Connacher Oil and Gas, Ltd. 144A sec. notes 10 1/4s,     
2015 (Canada)  4,277,000  1,625,260 
Denbury Resources, Inc. sr. sub. notes 7 1/2s, 2015  4,012,000  3,430,260 
Encore Acquisition Co. sr. sub. notes 6s, 2015  4,513,000  3,497,575 
Forest Oil Corp. sr. notes 8s, 2011  4,280,000  4,066,000 
Harvest Operations Corp. sr. notes 7 7/8s, 2011     
(Canada)  5,424,000  3,715,440 
Hilcorp Energy I LP/Hilcorp Finance Co. 144A     
sr. unsec. notes 7 3/4s, 2015  2,100,000  1,606,500 
Newfield Exploration Co. sr. unsec.     
sub. notes 7 1/8s, 2018  2,172,000  1,922,220 
Newfield Exploration Co. sr. unsec.     
sub. notes 6 5/8s, 2014  6,054,000  5,388,060 

31

CORPORATE BONDS AND NOTES (78.9%)* cont.  Principal amount  Value 
Oil and gas cont.     
OPTI Canada, Inc. company guaranty sr. sec.     
notes 8 1/4s, 2014 (Canada)  $1,250,000  $425,000 
OPTI Canada, Inc. company guaranty sr. sec.     
notes 7 7/8s, 2014 (Canada)  2,830,000  933,900 
Pacific Energy Partners/Pacific Energy Finance Corp.     
sr. notes 7 1/8s, 2014  3,000,000  2,764,824 
PetroHawk Energy Corp. company guaranty 9 1/8s, 2013  4,421,000  4,177,845 
PetroHawk Energy Corp. 144A sr. notes 10 1/2s, 2014  205,000  201,925 
PetroHawk Energy Corp. 144A sr. unsec.     
unsub. notes 7 7/8s, 2015  3,625,000  3,117,500 
Petroleum Development Corp. company     
guaranty sr. unsec. notes 12s, 2018  2,955,000  1,869,038 
Petroplus Finance, Ltd. company guaranty 6 3/4s,     
2014 (Bermuda)  4,430,000  3,433,250 
Plains Exploration & Production Co. company     
guaranty 7 3/4s, 2015  787,000  720,105 
Plains Exploration & Production Co. company     
guaranty 7s, 2017  4,966,000  4,233,515 
Quicksilver Resources, Inc. company guaranty     
7 1/8s, 2016  3,306,000  2,181,960 
Quicksilver Resources, Inc. company     
guaranty sr. unsec. notes 8 1/4s, 2015  1,223,000  996,745 
Sabine Pass LNG LP sec. notes 7 1/2s, 2016  3,396,000  2,283,810 
SandRidge Energy, Inc. company guaranty sr. unsec.     
unsub. FRN 5.06s, 2014  1,768,000  1,161,880 
SandRidge Energy, Inc. company guaranty sr. unsec.     
unsub. notes 8 5/8s, 2015 ‡‡  4,948,000  3,302,790 
SandRidge Energy, Inc. 144A company     
guaranty sr. unsec. unsub. notes 8s, 2018  504,000  393,120 
Targa Resources, Inc. company guaranty sr. unsec.     
notes 8 1/2s, 2013  6,900,000  4,347,000 
Whiting Petroleum Corp. company guaranty 7s, 2014  6,387,000  4,965,893 
Williams Cos., Inc. (The) notes 7 3/4s, 2031  640,000  531,200 
Williams Cos., Inc. (The) sr. unsec. notes 8 1/8s, 2012  22,000  21,670 
Williams Cos., Inc. (The) sr. unsec. notes 7 7/8s, 2021  1,395,000  1,304,325 
Williams Cos., Inc. (The) sr. unsec. notes 7 5/8s, 2019  732,000  684,420 
Williams Cos., Inc. (The) 144A notes 6 3/8s, 2010  1,915,000  1,887,893 
    84,893,516 
Publishing (0.7%)     
American Media, Inc. 144A sr. sub. notes 14s, 2013 ‡‡  3,367,408  3,199,038 
American Media, Inc. 144A sr. unsec. notes 9s,     
2013 ‡‡  285,249  270,987 
CanWest Media, Inc. company guaranty 8s, 2012     
(Canada)  3,148,006  456,461 
Cenveo Corp. 144A company guaranty sr. unsec.     
notes 10 1/2s, 2016  2,429,000  1,481,690 
Dex Media, Inc. sr. unsec. disc. notes 9s, 2013  976,000  63,440 
Quebecor Media, Inc. sr. unsec. notes Ser. *,     
7 3/4s, 2016 (Canada)  918,000  748,170 

32

CORPORATE BONDS AND NOTES (78.9%)* cont.  Principal amount  Value 
Publishing cont.     
Reader’s Digest Association, Inc. (The) company     
guaranty sr. unsec. sub. notes 9s, 2017  $4,592,000  $390,320 
Vertis, Inc. company guaranty sr. notes 13 1/2s,     
2014 ‡‡  2,612,803  19,596 
    6,629,702 
Regional Bells (1.5%)     
Cincinnati Bell, Inc. company guaranty 7s, 2015  1,988,000  1,809,080 
Citizens Communications Co. notes 9 1/4s, 2011  3,819,000  3,895,380 
Qwest Communications International, Inc. company     
guaranty 7 1/2s, 2014  2,652,000  2,247,570 
Qwest Corp. sr. unsec. unsub. notes 8 7/8s, 2012  4,660,000  4,590,100 
Qwest Corp. sr. unsec. unsub. notes 7 1/4s, 2025  2,586,000  1,861,920 
Valor Telecommunications     
Enterprises LLC/Finance Corp. company     
guaranty sr. unsec. unsub. notes 7 3/4s, 2015  495,000  485,100 
    14,889,150 
Retail (1.1%)     
Bon-Ton Stores, Inc. (The) company guaranty 10 1/4s, 2014  2,771,000  332,520 
Burlington Coat Factory Warehouse Corp. company     
guaranty sr. unsec. notes 11 1/8s, 2014  3,666,000  953,160 
Dollar General Corp. company guaranty sr. unsec.     
notes 10 5/8s, 2015  2,080,000  2,085,200 
Harry & David Operations Corp. company     
guaranty sr. unsec. notes 9s, 2013  3,279,000  500,048 
Harry & David Operations Corp. company     
guaranty sr. unsec. notes FRN 7.181s, 2012  1,012,000  156,860 
Michaels Stores, Inc. company guaranty 11 3/8s, 2016  4,555,000  1,076,119 
Neiman-Marcus Group, Inc. company     
guaranty sr. unsec. notes 9s, 2015 ‡‡  5,852,000  2,311,540 
Staples, Inc. sr. unsec. notes 9 3/4s, 2014  1,020,000  1,063,350 
United Auto Group, Inc. company guaranty 7 3/4s, 2016  4,421,000  2,122,080 
    10,600,877 
Technology (3.9%)     
Activant Solutions, Inc. company guaranty     
9 1/2s, 2016  2,600,000  1,501,500 
Advanced Micro Devices, Inc. sr. notes 7 3/4s, 2012  4,000  1,660 
Amkor Technologies, Inc. sr. notes 7 3/4s, 2013  3,530,000  2,082,700 
Avago Technologies Finance company guaranty 11 7/8s,     
2015 (Singapore)  1,043,000  765,114 
Avago Technologies Finance company guaranty 10 1/8s,     
2013 (Singapore)  1,525,000  1,284,813 
Avago Technologies Finance company guaranty FRN     
7.703s, 2013 (Singapore)  16,000  12,560 
Celestica, Inc. sr. sub. notes 7 7/8s, 2011 (Canada)  1,741,000  1,669,184 
Celestica, Inc. sr. sub. notes 7 5/8s, 2013 (Canada)  2,480,000  2,219,600 
Ceridian Corp. sr. unsec. notes 11 1/4s, 2015  3,495,000  1,398,000 
Compucom Systems, Inc. sr. sub. notes 12 1/2s, 2015  1,462,000  760,240 
Expedia, Inc. sr. unsec. notes company     
guaranty 7.456s, 2018  1,090,000  923,775 

33

CORPORATE BONDS AND NOTES (78.9%)* cont.  Principal amount  Value 
Technology cont.       
Expedia, Inc. 144A company       
guaranty sr. notes 8 1/2s, 2016    $2,805,000  $2,307,113 
Freescale Semiconductor, Inc. company       
guaranty sr. unsec. notes 9 1/8s, 2014 ‡‡    18,000  1,170 
Freescale Semiconductor, Inc. company       
guaranty sr. unsec. notes 8 7/8s, 2014    7,196,000  1,295,280 
Freescale Semiconductor, Inc. company       
guaranty sr. unsec. sub. notes 10 1/8s, 2016    2,884,000  374,920 
Iron Mountain, Inc. company guaranty 8 3/4s, 2018    698,000  694,510 
Iron Mountain, Inc. company guaranty 8 5/8s, 2013    1,881,000  1,883,351 
Iron Mountain, Inc. company guaranty 7 3/4s, 2015    112,000  111,160 
Iron Mountain, Inc. company guaranty 6 5/8s, 2016    211,000  196,230 
Iron Mountain, Inc. company guaranty sr. unsec.       
sub. notes 8s, 2020    2,438,000  2,291,720 
Lucent Technologies, Inc. unsec. debs. 6.45s, 2029    2,105,000  763,063 
New ASAT Finance, Ltd. company guaranty 9 1/4s, 2011       
(Cayman Islands) (In default) †    2,748,000  41,220 
Open Solutions, Inc. 144A sr. sub. notes 9 3/4s, 2015    3,018,000  475,335 
Sanmina Corp. sr. unsec. sub. notes 8 1/8s, 2016    410,000  143,500 
Seagate Technology Hdd Holdings company       
guaranty 6.8s, 2016 (Cayman Islands)    2,321,000  1,302,079 
SunGard Data Systems, Inc. company guaranty       
10 1/4s, 2015    1,658,000  1,135,730 
SunGard Data Systems, Inc. company guaranty       
9 1/8s, 2013    7,657,000  6,508,450 
SunGard Data Systems, Inc. 144A sr. unsec.       
notes 10 5/8s, 2015    589,000  497,705 
Syniverse Technologies, Inc. sr. sub. notes Ser. B,       
7 3/4s, 2013    3,058,000  2,201,760 
Travelport LLC company guaranty 11 7/8s, 2016    1,304,000  430,320 
Travelport LLC company guaranty 9 7/8s, 2014    3,418,000  1,384,290 
Unisys Corp. sr. unsec. unsub. notes 12 1/2s, 2016    1,445,000  419,050 
Xerox Capital Trust I company guaranty 8s, 2027    3,027,000  2,263,212 
      39,340,314 
Telecommunications (6.9%)       
American Tower Corp. sr. notes 7 1/2s, 2012    2,370,000  2,364,075 
American Tower Corp. 144A sr. notes 7s, 2017    1,554,000  1,522,920 
BCM Ireland Finance Ltd. 144A FRN 6.959s, 2016       
(Cayman Islands)  EUR  1,543,000  666,058 
Centennial Cellular Operating Co., LLC company       
guaranty 10 1/8s, 2013    $2,829,000  2,924,479 
Centennial Communications Corp. sr. unsec. notes FRN       
7.185s, 2013    1,039,000  1,033,805 
Crown Castle International Corp. sr. unsec.       
notes 9s, 2015    580,000  567,675 
Digicel Group, Ltd. 144A sr. unsec. notes 8 7/8s,       
2015 (Jamaica)    2,789,000  2,077,805 
Digicel, Ltd. 144A sr. unsec. unsub. notes 9 1/4s,       
2012 (Jamaica)    3,988,000  3,599,170 

34

CORPORATE BONDS AND NOTES (78.9%)* cont.  Principal amount  Value 
Telecommunications cont.       
Inmarsat Finance PLC company guaranty 10 3/8s, 2012       
(United Kingdom)    $5,154,000  $5,257,080 
Intelsat Bermuda, Ltd. company guaranty sr. unsec.       
notes 11 1/4s, 2016 (Bermuda)    9,594,000  9,066,330 
Intelsat Intermediate Holding Co., Ltd. company       
guaranty sr. unsec. notes stepped-coupon zero %       
(9 1/4s, 2/1/10), 2015 (Bermuda) ††    2,118,000  1,704,990 
Intelsat Subsidiary Holding Co., Ltd. 144A       
sr. unsec. notes 8 1/2s, 2013 (Bermuda)    1,907,000  1,811,650 
Level 3 Financing, Inc. company guaranty 9 1/4s, 2014    4,817,000  3,058,795 
Level 3 Financing, Inc. company guaranty 8 3/4s, 2017    1,088,000  622,880 
MetroPCS Wireless, Inc. company guaranty sr. unsec.       
notes 9 1/4s, 2014    7,655,000  7,233,975 
Nextel Communications, Inc. company       
guaranty sr. unsec. notes Ser. D, 7 3/8s, 2015    6,135,000  2,822,100 
Nextel Communications, Inc. sr. notes Ser. E,       
6 7/8s, 2013    1,228,000  572,484 
Nordic Telephone Co. Holdings ApS 144A sr. sec. bond       
8 7/8s, 2016 (Denmark)    931,000  847,210 
PAETEC Holding Corp. company guaranty sr. unsec.       
unsub. notes 9 1/2s, 2015    2,276,000  1,598,890 
Sprint Capital Corp. company guaranty 6 7/8s, 2028    7,768,000  4,291,820 
West Corp. company guaranty 9 1/2s, 2014    3,843,000  2,690,100 
Wind Aquisition Finance SA notes 9 3/4s, 2015       
(Netherlands)  EUR  1,876,000  2,107,866 
Windstream Corp. company guaranty 8 5/8s, 2016    $6,072,000  5,829,120 
Windstream Corp. company guaranty 8 1/8s, 2013    5,150,000  4,995,500 
      69,266,777 
Telephone (1.0%)       
Cricket Communications, Inc. company       
guaranty 9 3/8s, 2014    7,142,000  6,517,075 
iPCS, Inc. company guaranty sr. sec. notes FRN       
3.295s, 2013    1,768,000  1,272,960 
Time Warner Telecom, Inc. company guaranty       
9 1/4s, 2014    1,732,000  1,641,070 
      9,431,105 
Textiles (1.2%)       
Hanesbrands, Inc. company guaranty sr. unsec.       
notes FRN Ser. B, 5.698s, 2014    5,820,000  3,841,200 
Levi Strauss & Co. sr. unsec. notes 8 7/8s, 2016    1,727,000  1,321,155 
Levi Strauss & Co. sr. unsec. unsub. notes       
9 3/4s, 2015    5,466,000  4,536,780 
Oxford Industries, Inc. sr. notes 8 7/8s, 2011    3,229,000  2,389,460 
      12,088,595 
Utilities and power (9.1%)       
AES Corp. (The) sr. unsec. unsub. notes 8s, 2017    1,655,000  1,406,750 
AES Corp. (The) 144A sec. notes 8 3/4s, 2013    4,565,000  4,519,350 
AES Corp. (The) 144A sr. notes 8s, 2020    1,291,000  1,071,530 
Allegheny Energy Supply 144A sr. unsec. bond       
8 1/4s, 2012    2,978,000  3,022,670 
CMS Energy Corp. sr. notes 8 1/2s, 2011    1,164,000  1,174,766 

35

CORPORATE BONDS AND NOTES (78.9%)* cont.  Principal amount  Value 
Utilities and power cont.     
CMS Energy Corp. sr. notes 7 3/4s, 2010  $1,583,000  $1,586,486 
Colorado Interstate Gas Co. debs. 6.85s, 2037  3,247,000  2,539,105 
Dynegy-Roseton Danskamme company guaranty Ser. B,     
7.67s, 2016  4,885,000  3,663,750 
Edison Mission Energy sr. unsec. notes 7 3/4s, 2016  1,916,000  1,743,560 
Edison Mission Energy sr. unsec. notes 7 1/2s, 2013  2,244,000  2,058,870 
Edison Mission Energy sr. unsec. notes 7.2s, 2019  3,531,000  2,939,558 
Edison Mission Energy sr. unsec. notes 7s, 2017  1,474,000  1,245,530 
El Paso Corp. sr. notes Ser. MTN, 7.8s, 2031  121,000  94,380 
El Paso Corp. sr. unsec. notes 12s, 2013  855,000  906,300 
El Paso Natural Gas Co. debs. 8 5/8s, 2022  1,597,000  1,534,866 
Ferrellgas LP/Finance sr. notes 8 3/4s, 2012  195,000  166,725 
Ferrellgas LP/Finance sr. notes 6 3/4s, 2014  5,015,000  4,312,900 
Ferrellgas LP/Finance 144A sr. notes 6 3/4s, 2014  1,214,000  1,044,040 
Ipalco Enterprises, Inc. sr. sec. notes 7 5/8s, 2011  1,754,000  1,701,380 
Ipalco Enterprises, Inc. 144A sr. sec. notes 7 1/4s, 2016  562,000  517,040 
Mirant Americas Generation, Inc. sr. unsec.     
notes 8.3s, 2011  3,936,000  3,817,920 
Mirant North America, LLC company guaranty     
7 3/8s, 2013  6,027,000  5,514,705 
NiSource Finance Corp. company guaranty sr. unsec.     
unsub. notes 6.8s, 2019  2,645,000  2,074,164 
NiSource Finance Corp. company guaranty sr. unsec.     
unsub. notes 5.4s, 2014  1,265,000  993,262 
NRG Energy, Inc. company guaranty 7 3/8s, 2017  2,440,000  2,220,400 
NRG Energy, Inc. sr. notes 7 3/8s, 2016  12,430,000  11,466,675 
Oncor Electric Delivery Co. 144A 1st mtge. sec. bond     
5.95s, 2013  4,102,000  4,025,264 
Orion Power Holdings, Inc. sr. unsec. notes 12s, 2010  4,255,000  4,366,694 
PP&L Electric Utilities Corp. 1st mtge. sr. sec.     
bond 7 1/8s, 2013  3,261,000  3,691,238 
Sierra Pacific Power Co. general ref. mtge. 6 1/4s, 2012  1,114,000  1,122,152 
Sierra Pacific Resources sr. unsec. notes 8 5/8s, 2014  4,467,000  4,307,077 
Teco Finance, Inc. company guaranty sr. unsec.     
unsub. notes 7.2s, 2011  1,511,000  1,493,432 
Teco Finance, Inc. company guaranty sr. unsec.     
unsub. notes 7s, 2012  2,505,000  2,370,374 
Teco Finance, Inc. company guaranty sr. unsec.     
unsub. notes 6 3/4s, 2015  333,000  290,373 
Tennessee Gas Pipeline Co. sr. unsec.     
unsub. debs. 7 1/2s, 2017  1,345,000  1,264,221 
Tennessee Gas Pipeline Co. sr. unsec.     
unsub. debs. 7s, 2028  639,000  525,447 
Transcontinental Gas Pipeline Corp. sr. unsec.     
debs. 7 1/4s, 2026  4,696,000  4,287,955 
Utilicorp United, Inc. sr. unsec. notes 7.95s, 2011  156,000  152,809 
    91,233,718 
Total corporate bonds and notes (cost $1,130,596,242)    $787,698,414 

36

SENIOR LOANS (10.0%)* .cX%)* cont.  Principal amount  Value 
Automotive (0.1%)     
Dana Corp. bank term loan FRN 7 1/4s, 2015  $2,253,259  $685,635 
    685,635 
Basic materials (0.9%)     
Celanese Corp. bank term loan FRN Ser. B, 2.935s, 2014  1,341,586  1,091,529 
Georgia-Pacific, LLC bank term loan FRN Ser. B,     
4.189s, 2013  4,299,329  3,710,858 
Huntsman International, LLC bank term loan FRN     
Ser. B, 2.229s, 2012  2,931,402  2,022,668 
Lyondell Chemical Co. bank term loan FRN 11.425s, 2009  490,000  478,887 
NewPage Holding Corp. bank term loan FRN 5.313s, 2014  1,832,493  1,116,155 
Rockwood Specialties Group, Inc. bank term loan FRN     
Ser. E, 1.979s, 2012  529,192  464,807 
    8,884,904 
Broadcasting (0.2%)     
Univision Communications, Inc. bank term loan FRN     
Ser. B, 2.729s, 2014  4,027,282  1,810,598 
    1,810,598 
Capital goods (0.6%)     
Hawker Beechcraft Acquisition Co., LLC bank term     
loan FRN 3.459s, 2014  90,591  41,622 
Hawker Beechcraft Acquisition Co., LLC bank term     
loan FRN Ser. B, 2.801s, 2014  1,751,585  804,755 
Manitowoc Co., Inc. (The) bank term loan FRN Ser. B,     
6 1/2s, 2014  2,175,000  1,639,406 
Sensata Technologies BV bank term loan FRN 2.934s,     
2013 (Netherlands)  1,000,399  446,428 
Sequa Corp. bank term loan FRN 3.702s, 2014  1,589,439  969,557 
Wesco Aircraft Hardware Corp. bank term loan FRN     
6.23s, 2014  1,180,000  823,050 
Wesco Aircraft Hardware Corp. bank term loan FRN     
2.73s, 2013  1,590,000  1,311,750 
    6,036,568 
Communication services (0.6%)     
Cebridge Connections, Inc. bank term loan FRN     
9.868s, 2014  2,385,000  1,460,813 
Charter Communications, Inc. bank term loan FRN     
3.959s, 2014  2,430,000  1,502,804 
Mediacom Communications Corp. bank term loan FRN     
Ser. C, 1.87s, 2015  3,964,279  3,292,830 
    6,256,447 
Consumer cyclicals (2.7%)     
Allison Transmission, Inc. bank term loan FRN     
Ser. B, 3.2s, 2014  3,345,247  2,216,226 
CCM Merger, Inc. bank term loan FRN Ser. B, 7.298s, 2012  2,942,127  1,662,302 
Cinemark USA, Inc. bank term loan FRN 2.6s, 2013  416,228  368,420 
Citadel Communications bank term loan FRN Ser. B,     
2.213s, 2014  1,175,000  446,500 
Dex Media West, LLC/Dex Media Finance Co. bank term     
loan FRN Ser. B, 7s, 2014  970,000  465,600 

37

SENIOR LOANS (10.0%)* c cont.  Principal amount  Value 
Consumer cyclicals cont.     
GateHouse Media, Inc. bank term loan FRN Ser. B,     
2.48s, 2014  $2,399,620  $580,907 
GateHouse Media, Inc. bank term loan FRN Ser. DD,     
2.452s, 2014  895,380  216,756 
Goodman Global Holdings, Inc. bank term loan FRN     
Ser. B, 7.708s, 2011  3,489,650  2,936,540 
Goodyear Tire & Rubber Co. (The) bank term loan FRN     
2.23s, 2010  4,558,000  3,169,437 
Isle of Capri Casinos, Inc. bank term loan FRN     
3.209s, 2014  1,353,892  880,876 
Isle of Capri Casinos, Inc. bank term loan FRN     
Ser. A, 3.209s, 2014  408,229  265,604 
Isle of Capri Casinos, Inc. bank term loan FRN     
Ser. B, 3.209s, 2014  541,557  352,350 
Lear Corp bank term loan FRN 3.544s, 2013  3,991,631  1,374,263 
Navistar Financial Corp. bank term loan FRN     
4.363s, 2012  1,468,000  1,050,843 
Navistar International Corp. bank term loan FRN     
3.729s, 2012  4,037,000  2,889,818 
Six Flags Theme Parks bank term loan FRN 2.987s, 2015  6,543,192  4,687,733 
Tribune Co. bank term loan FRN Ser. B, 5 1/4s,     
2014 (In default)  8,650,500  2,254,537 
Tropicana Entertainment bank term loan FRN Ser. B,     
6 1/2s, 2011  2,650,000  575,429 
United Components, Inc. bank term loan FRN Ser. D,     
3 1/4s, 2012  527,778  366,806 
Visteon Corp. bank term loan FRN Ser. B, 4.426s, 2013  1,860,000  318,858 
    27,079,805 
Consumer staples (0.6%)     
Dole Food Co., Inc. bank term loan FRN Ser. B,     
2.597s, 2013  431,782  387,045 
Dole Food Co., Inc. bank term loan FRN Ser. C,     
2.97s, 2013  1,608,695  1,442,017 
Dole Food Co., Inc. bank term loan FRN Ser. C,     
0.66s, 2013  244,239  218,933 
Pinnacle Foods Holding Corp. bank term loan FRN     
Ser. B, 3.247s, 2014  1,674,912  1,357,203 
Rental Service Corp. bank term loan FRN 4.719s, 2013  4,300,710  2,435,277 
Rite-Aid Corp. bank term loan FRN Ser. B, 2.217s, 2014  332,488  213,762 
    6,054,237 
Energy (—%)     
Enterprise GP Holdings, LP bank term loan FRN     
3.262s, 2014  371,250  337,838 
    337,838 
Financials (0.1%)     
General Growth Properties, Inc. bank term loan FRN     
Ser. A, 1.7s, 2010 R  350,000  86,000 
Nuveen Investments, Inc. bank term loan FRN Ser. B,     
3.821s, 2014  1,260,475  594,224 
    680,224 

38

SENIOR LOANS (10.0%)* c cont.  Principal amount  Value 
Health care (1.8%)     
Bausch & Lomb, Inc. bank term loan FRN Ser. B,     
4.709s, 2015  $1,786,352  $1,523,424 
Bausch & Lomb, Inc. bank term loan FRN Ser. DD,     
4.709s, 2015 U  451,099  384,703 
Biomet, Inc. bank term loan FRN Ser. B, 4.459s, 2015  632,620  563,110 
Community Health Systems, Inc. bank term loan FRN     
Ser. B, 3.438s, 2014  3,540,568  2,997,816 
Community Health Systems, Inc. bank term loan FRN     
Ser. DD, 2.729s, 2014  184,991  156,633 
Fenwal Controls of Japan, LTD. bank term loan FRN     
3.504s, 2014 (Japan)  4,846,717  3,198,834 
Fenwal Controls of Japan, LTD. bank term loan FRN     
Ser. DD, 3.506s, 2014 (Japan)  820,159  541,305 
Fenwal, Inc. bank term loan FRN 6.506s, 2014  500,000  175,000 
Healthsouth Corp. bank term loan FRN Ser. B, 4.536s, 2013  3,537,599  3,121,932 
IASIS Healthcare, LLC/IASIS Capital Corp. bank term     
loan FRN 6.434s, 2014  6,648,691  2,725,963 
Surgical Care Affiliates, Inc. bank term loan FRN     
Ser. B, 3.459s, 2015  664,039  398,423 
United Surgical Partners International, Inc. bank     
term loan FRN 2.797s, 2014  2,571,333  2,095,636 
    17,882,779 
Homebuilding (0.2%)     
Realogy Corp. bank term loan FRN 0 1/4s, 2013 R  709,350  401,177 
Realogy Corp. bank term loan FRN Ser. B, 3.438s, 2013 R  2,634,725  1,490,085 
    1,891,262 
Media (0.1%)     
Idearc, Inc. bank term loan FRN Ser. B, 3.418s, 2014  3,082,814  1,075,131 
    1,075,131 
Oil and gas (0.2%)     
Quicksilver Resources, Inc. bank term loan FRN     
6 3/4s, 2013  1,005,287  836,901 
Targa Resources, Inc. bank term loan FRN 5.93s, 2012  774,015  554,195 
Targa Resources, Inc. bank term loan FRN 1.334s, 2012  442,088  316,535 
    1,707,631 
Retail (0.2%)     
Dollar General Corp. bank term loan FRN Ser. B1     
3.58s, 2013  1,620,000  1,398,723 
Michaels Stores, Inc. bank term loan FRN Ser. B,     
2.824s, 2013  655,707  366,650 
    1,765,373 
Technology (0.5%)     
Compucom Systems, Inc. bank term loan FRN 3.98s, 2014  1,189,065  927,471 
First Data Corp. bank term loan FRN Ser. B1,     
3.223s, 2014  2,408,513  1,580,887 
First Data Corp. bank term loan FRN Ser. B3,     
3.223s, 2014  729,514  476,616 
Flextronics International, Ltd. bank term loan FRN     
Ser. B, 3.681s, 2014 (Singapore)  2,159,319  1,414,354 

39

SENIOR LOANS (10.0%)* c cont.  Principal amount  Value 
Technology cont.     
Flextronics International, Ltd. bank term loan FRN     
Ser. B, 3.344s, 2014 (Singapore)  $620,494  $406,423 
Freescale Semiconductor, Inc. bank term loan FRN     
Ser. B, 2.247s, 2013  737,017  318,497 
    5,124,248 
Utilities and power (1.2%)     
Calpine Corp. bank term loan FRN Ser. B, 4.335s, 2014  3,007,406  2,181,443 
Energy Future Holdings Corp. bank term loan FRN     
Ser. B2, 3.951s, 2014  8,105,416  5,056,677 
Energy Future Holdings Corp. bank term loan FRN     
Ser. B3, 3.951s, 2014  8,112,213  5,059,993 
    12,298,113 
Total senior loans (cost $153,846,168)    $99,570,793 
 
CONVERTIBLE BONDS AND NOTES (2.9%)*  Principal amount  Value 
Acquicor Technology, Inc. 144A cv. notes 8s, 2011  $2,120,000  $477,000 
Advanced Micro Devices, Inc. cv. sr. unsec.     
notes 5 3/4s, 2012  1,889,000  757,961 
Alliant Techsystems, Inc. cv. sr. sub. notes 2 3/4s, 2024  1,717,000  1,766,364 
General Cable Corp. cv. company guaranty sr. unsec.     
notes 1s, 2012  1,799,000  1,216,574 
General Growth Properties, Inc.     
144A cv. sr. notes 3.98s, 2027 R  3,085,000  169,675 
Intel Corp. cv. sub. bonds 2.95s, 2035  2,154,000  1,661,273 
L-3 Communications Corp. 144A cv. bonds 3s, 2035  2,016,000  1,960,560 
Lamar Advertising Co. cv. sr. unsec.     
unsub. notes Ser. B, 2 7/8s, 2010  2,082,000  1,535,475 
Leap Wireless International, Inc.     
144A cv. sr. unsec. notes 4 1/2s, 2014  1,575,000  1,094,310 
LifePoint Hospitals, Inc. cv. sr. sub. notes 3 1/2s, 2014  4,350,000  3,170,063 
Massey Energy Co. cv. company     
guaranty sr. unsub. notes 3 1/4s, 2015  6,564,000  4,168,140 
NII Holdings, Inc. 144A cv. sr. unsec. notes 3 1/8s, 2012  3,346,000  2,225,090 
Pantry, Inc. (The) cv. sr. sub. notes 3s, 2012  4,669,000  3,233,283 
Regal Entertainment Group 144A cv. sr. unsec.     
notes 6 1/4s, 2011  1,130,000  1,025,475 
Safeguard Scientifics, Inc. cv. sr. notes 2 5/8s, 2024  382,000  272,653 
Transocean, Inc. cv. sr. unsec. notes Ser. C,     
1 1/2s, 2037 (Switzerland)  3,085,000  2,471,856 
Trinity Industries, Inc. cv. sub. notes 3 7/8s, 2036  3,429,000  1,483,043 
Total convertible bonds and notes (cost $36,106,046)    $28,688,795 

40

COMMON STOCKS (0.8%)*.X%)* cont.  Shares  Value 
AboveNet, Inc. †  2,530  $106,134 
Adelphia Recovery Trust (Ser. ACC-1) †  7,599,586  75,996 
American Media, Inc. 144A  63,915  1,406,130 
Bohai Bay Litigation, LLC (Units) § F  3,899  181,347 
Chesapeake Energy Corp.  35,700  558,348 
Dana Holding Corp. †  120,744  43,468 
Decrane Aircraft Holdings, Inc. † F  29,311  29 
DigitalGlobe, Inc. 144A † §  645,566  645,566 
El Paso Corp.  120,275  811,856 
Elizabeth Arden, Inc. †  64,017  354,654 
Pinnacle Entertainment , Inc. †  100,547  755,108 
Qwest Communications International, Inc.  310,391  1,052,225 
Service Corporation International  240,756  813,755 
Time Warner Cable, Inc. Class A †  2,315  42,202 
Titan Europe PLC (United Kingdom)  226,408  56,681 
Titan International, Inc.  26,812  147,466 
Vertis Holdings, Inc. † F  135,886  136 
Williams Cos., Inc. (The)  66,735  754,106 
Total common stocks (cost $18,662,853)    $7,805,207 
 
CONVERTIBLE PREFERRED STOCKS (0.7%)*  Shares  Value 
Crown Castle International Corp. $3.125 cum. cv. pfd.  55,412  $2,403,496 
Digital Realty Trust, Inc. $1.094 cv. pfd.  93,050  1,488,800 
Emmis Communications Corp. Ser. A, $3.125     
cum. cv. pfd. (acquired various dates from 12/2/04     
to 11/03/05, cost $3,223,649) ‡  73,590  139,821 
Freeport-McMoRan Copper & Gold, Inc. $6.75 cv. pfd.  23,535  1,267,948 
Interpublic Group of Companies, Inc. 144A Ser. B,     
5.25% cum. cv. pfd  4,465  1,667,990 
Lehman Brothers Holdings, Inc. Ser. P,     
7.25% cv. pfd. (In default) †  4,338  2,820 
Total convertible preferred stocks (cost $18,315,550)    $6,970,875 
 
FOREIGN GOVERNMENT BONDS AND NOTES (0.2%)*  Principal amount  Value 
Argentina (Republic of) bonds FRB 3s, 2013  $4,885,000  $1,592,938 
Total foreign government bonds and notes (cost $2,491,350)    $1,592,938 
 
PREFERRED STOCKS (0.1%)*  Shares  Value 
Decrane Aircraft Holdings, Inc. $16.00 pfd. ‡‡  21,000  $147,000 
GMAC Preferred Blocker, Inc. 144A 7.00% cum. pfd.  4,142  707,247 
Total preferred stocks (cost $1,609,154)    $854,247 

41

COLLATERALIZED MORTGAGE OBLIGATIONS (0.1%)*  Principal amount  Value 
GE Capital Commercial Mortgage Corp. 144A Ser. 00-1,     
Class G, 6.131s, 2033  $2,222,000  $444,400 
Mach One Commercial Mortgage Trust 144A     
Ser. 04-1A, Class J, 5.45s, 2040 (Canada)  2,190,000  197,100 
Ser. 04-1A, Class K, 5.45s, 2040 (Canada)  880,000  70,400 
Ser. 04-1A, Class L, 5.45s, 2040 (Canada)  400,000  28,000 
Total collateralized mortgage obligations (cost $4,792,533)    $739,900 
   

WARRANTS (—%)* †  Expiration  Strike     
  date  price  Warrants  Value 
AboveNet, Inc.  9/08/10  $24.00  977  $14,655 
Dayton Superior Corp. 144A F  6/15/09  0.01  7,749  4,598 
Decrane Aircraft Holdings Co. Class B  6/30/10  116.00  1  — 
Decrane Aircraft Holdings Co. Class B  6/30/10  116.00  1  — 
New ASAT (Finance), Ltd. (Cayman Islands) F  2/01/11  0.01  714,514  — 
Smurfit Kappa Group PLC 144A (Ireland)  10/01/13  EUR 0.001  4,137  36,816 
Vertis Holdings, Inc. F  10/18/15  $0.01  9,578  1 
ZSC Specialty Chemicals PLC 144A         
(United Kingdom)  6/30/11  0.01  269,866  2,699 
ZSC Specialty Chemicals PLC (Preferred) 144A         
(United Kingdom)  6/30/11  0.01  269,866  2,699 
Total warrants (cost $700,110)        $61,468 

SHORT-TERM INVESTMENTS (2.6%)*  Principal amount/shares  Value 
Federated Prime Obligations Fund  24,949,144  $24,949,144 
U.S. Treasury Bill for an effective yield of 0.70%,     
maturity date December 17, 2009 #  $710,000  706,000 
Total short-term investments (cost $25,655,144)    $25,655,144 
 
TOTAL INVESTMENTS     
Total investments (cost $1,392,775,150)    $959,637,781 

Key to holding’s currency abbreviations

EUR  Euro 

* Percentages indicated are based on net assets of $998,350,467.

† Non-income-producing security.

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

‡ Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities held at February 28, 2009 was $139,821 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 28, 2009. 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).

# This security was pledged and segregated with the custodian to cover collateral on certain swap contracts at February 28, 2009.

42

F Is valued at fair value following procedures approved by the Trustees. Securities may be classified as a Level 2 or Level 3 for FASB 157 disclosures based on the securities valuation inputs. On February 28, 2009, fair value pricing was also used for certain foreign securities in the portfolio (Note 1).

R Real Estate Investment Trust.

U This security, in part or in entirety, represents unfunded loan commitments (Note 7).

At February 28, 2009, liquid assets totaling $12,278,501 have been designated as collateral for open swap contracts and forward contracts.

Debt obligations are considered secured unless otherwise indicated.

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 28, 2009.

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

FORWARD CURRENCY CONTRACTS TO BUY at 2/28/09 (Unaudited)     
    Aggregate  Delivery  Unrealized 
  Value  face value  date  depreciation 
Euro  $4,455,660  $4,548,553  3/18/09  $(92,893) 
Total        $(92,893) 
   

FORWARD CURRENCY CONTRACTS TO SELL at 2/28/09 (Unaudited)     
    Aggregate  Delivery  Unrealized 
  Value  face value  date  appreciation 
Euro  $11,421,794  $11,653,189  3/18/09  $231,395 
Total        $231,395 
   

CREDIT DEFAULT CONTRACTS OUTSTANDING at 2/28/09 (Unaudited)   
    Upfront      Fixed payments   
  premium    Termi-  received  Unrealized 
Swap counterparty/    received  Notional  nation  (paid) by fund  appreciation/ 
Referenced debt*  Rating***  (paid)**  amount  date  per annum  (depreciation) 
Bank of America, N.A.             
Nalco Co., 7.75%,             
11/15/11  B1  $—  $1,160,000  9/20/12  350 bp  $(101,989) 
Visteon Corp., 7%,             
3/10/14  —  (494,062)  1,860,000  9/20/13  (500 bp)  1,195,407 
Citibank, N.A.             
Lear Corp., T/L             
Bank Loan  —  —  1,025,000  6/20/13  (225 bp)  696,475 
Lear Corp., T/L             
Bank Loan  B  —  1,025,000  6/20/13  700 bp  (625,571) 
Sanmina-Sci Corp.,             
8 1/8%, 3/1/16  B3  —  715,000  3/20/09  275 bp  (11,640) 
Credit Suisse International             
Advanced Micro             
Devices, Inc.,             
7 3/4%, 11/1/12  Caa1  —  1,505,000  6/20/09  165 bp  (125,152) 
Harrahs Operating             
Co. Inc., 5 5/8%,             
6/1/15  Caa3  —  2,215,000  3/20/09  600 bp  (114,503) 

43

CREDIT DEFAULT CONTRACTS OUTSTANDING at 2/28/09 (Unaudited) cont.   
    Upfront      Fixed payments   
  premium    Termi-  received  Unrealized 
Swap counterparty/    received  Notional  nation  (paid) by fund  appreciation/ 
Referenced debt*  Rating***  (paid)**  amount  date  per annum  (depreciation) 
Deutsche Bank AG             
Nalco Co., 7.75%,             
11/15/11  B1  $—  $1,115,000  12/20/12  363 bp  $(98,413) 
JPMorgan Chase Bank, N.A.             
Claire’s Stores,             
9 5/8%, 6/1/15  CCC  —  730,000  6/20/12  230 bp  (348,379) 
Sanmina-Sci Corp.,             
8 1/8%, 3/1/16  B3  —  715,000  6/20/13  595 bp  (362,616) 
Morgan Stanley Capital Services, Inc.           
Advanced Micro             
Devices, Inc.,             
7 3/4%, 11/1/12  Caa1  —  325,000  6/20/09  190 bp  (26,623) 
Nalco Co., 7.75%,             
11/15/11  B1  —  1,190,000  9/20/12  330 bp  (112,068) 
Nalco Co., 7.75%,             
11/15/11  B1  —  1,445,000  3/20/13  460 bp  (86,517) 
UBS, AG             
Meritage Homes             
Corp., 7%, 5/1/14  —  —  3,730,000  9/20/13  (760 bp)  409,977 
Total            $288,388 

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

**Upfront premium is based on the difference between the original spread on issue and the market spread on day of execution.

***Ratings are presented for credit default contracts in which the fund has sold protection on the underlying referenced debt. Ratings for an underlying index represents the average of the ratings of all the securities included in that index. The Moody’s or Standard & Poor’s ratings are believed to be the most recent ratings available at February 28, 2009.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157). SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. While the adoption of SFAS 157 does not have a material effect on the fund’s net asset value, it does require additional disclosures about fair value measurements. The Standard establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of the fund’s investments. The three levels are defined as follows:

Level 1 — Valuations based on quoted prices for identical securities in active markets.

Level 2 — Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

Level 3 — Valuations based on inputs that are unobservable and significant to the fair value measurement.

The following is a summary of the inputs used to value the fund’s net assets as of February 28, 2009:

Valuation inputs  Investments in securities  Other financial instruments 
Level 1  $30,403,121  $— 
Level 2  929,036,341  426,890 
Level 3  198,319  — 
Total  $959,637,781  $426,890 

44

Other financial instruments include futures, written options, TBA sale commitments, swaps and forward contracts which are valued at the unrealized appreciation/(depreciation) on the instrument.

The following is a reconciliation of Level 3 assets as of February 28, 2009:

  Investment in securities  Other financial instruments 
Balance as of August 31, 2008  $358,212  $— 
Accrued discounts/premiums  —  — 
Realized gain/(loss)  (9,641,545)  — 
Change in net unrealized appreciation/(depreciation)  9,717,821  — 
Net purchases/sales  (236,169)  — 
Net transfers in and/or out of Level 3  —  — 
Balance as of February 28, 2009  $198,319  $— 

Other financial instruments include futures, written options, TBA sale commitments, swaps and forward contracts which are valued at the unrealized appreciation/(depreciation) on the instrument.

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

45

Statement of assets and liabilities 2/28/09 (Unaudited)

ASSETS   
Investment in securities, at value (Note 1):   
Unaffiliated issuers (identified cost $1,392,775,150)  $959,637,781 
Cash  3,071,377 
Foreign currency (cost $5,884) (Note 1)  9,323 
Dividends, interest and other receivables  24,661,288 
Receivable for shares of the fund sold  562,032 
Receivable for securities sold  10,824,406 
Receivable for sales of delayed delivery securities (Notes 1, 6 and 7)  160,642 
Receivable from Manager (Note 2)  25,838 
Unrealized appreciation on swap contracts (Note 1)  2,301,859 
Receivable for open forward currency contracts (Note 1)  231,395 
Receivable for closed swap contracts (Note 1)  12,217,915 
Receivable for receivable purchase agreement (Note 2)  3,088,375 
Premium paid on swap contracts (Note 1)  494,062 
Total assets  1,017,286,293 
LIABILITIES   
Payable for securities purchased  11,233,776 
Payable for purchases of delayed delivery securities (Notes 1, 6 and 7)  341,386 
Payable for shares of the fund repurchased  2,279,227 
Payable for compensation of Manager (Note 2)  1,438,509 
Payable for investor servicing fees (Note 2)  366,902 
Payable for Trustee compensation and expenses (Note 2)  315,351 
Payable for administrative services (Note 2)  6,838 
Payable for distribution fees (Note 2)  440,577 
Payable for open forward currency contracts (Note 1)  92,893 
Payable for closed forward currency contracts (Note 1)  101 
Payable for closed swap contracts (Note 1)  229,738 
Unrealized depreciation on swap contracts (Note 1)  2,013,471 
Other accrued expenses  177,057 
Total liabilities  18,935,826 
 
Net assets  $998,350,467 
 
REPRESENTED BY   
Paid-in capital (Unlimited shares authorized) (Notes 1 and 4)  $2,962,799,437 
Distributions in excess of net investment income (Note 1)  (1,136,179) 
Accumulated net realized loss on investments and foreign currency transactions (Note 1)  (1,533,686,806) 
Net unrealized depreciation of investments and assets and liabilities in foreign currencies  (429,625,985) 
Total — Representing net assets applicable to capital shares outstanding  $998,350,467 
(Continued on next page)   

46 

Statement of assets and liabilities (Continued)

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE   
Net asset value and redemption price per class A share ($859,410,044 divided by 161,078,251 shares)  $5.34 
Offering price per class A share (100/96.00 of $5.34)*  $5.56 
Net asset value and offering price per class B share ($65,843,712 divided by 12,372,169 shares)**  $5.32 
Net asset value and offering price per class C share ($26,903,684 divided by 5,069,067 shares)**  $5.31 
Net asset value and redemption price per class M share ($13,458,699 divided by 2,517,714 shares)  $5.35 
Offering price per class M share (100/96.75 of $5.35)***  $5.53 
Net asset value, offering price and redemption price per class R share   
($2,033,299 divided by 384,569 shares)  $5.29 
Net asset value, offering price and redemption price per class Y share   
($30,701,029 divided by 5,814,273 shares)  $5.28 

* 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.

Statement of operations Six months ended 2/28/09 (Unaudited)

INVESTMENT INCOME   
Interest (including interest income of $111,860 from investments in affiliated issuers) (Note 5)  $62,919,492 
Dividends  600,057 
Securities lending  70,129 
Total investment income  63,589,678 
 
EXPENSES   
Compensation of Manager (Note 2)  3,792,935 
Investor servicing fees (Note 2)  1,473,783 
Custodian fees (Note 2)  14,980 
Trustee compensation and expenses (Note 2)  36,922 
Administrative services (Note 2)  20,064 
Distribution fees — Class A (Note 2)  1,198,188 
Distribution fees — Class B (Note 2)  391,148 
Distribution fees — Class C (Note 2)  143,798 
Distribution fees — Class M (Note 2)  30,050 
Distribution fees — Class R (Note 2)  3,370 
Other  222,986 
Fees waived and reimbursed by Manager (Notes 2 and 5)  (291,743) 
Total expenses  7,036,481 
 
Expense reduction (Note 2)  (35,621) 
 
Net expenses  7,000,860 
 
Net investment income  56,588,818 
 
Net realized loss on investments (including loss of $9,538,149 on affiliated issues) (Notes 1, 3 and 8)  (205,559,384) 
Net realized gain on swap contracts (Note 1)  16,275,607 
Net realized gain on foreign currency transactions (Note 1)  2,098,941 
Net unrealized depreciation of assets and liabilities in   
foreign currencies during the period  (702,109) 
Net unrealized depreciation of investments and swap contracts during the period  (248,295,470) 
Net loss on investments  (436,182,415) 
 
Net decrease in net assets resulting from operations  $(379,593,597) 

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

48

Statement of changes in net assets     
 
DECREASE IN NET ASSETS  Six months ended 2/28/09*  Year ended 8/31/08 
Operations:     
Net investment income  $56,588,818  $140,993,370 
Net realized loss on investments and foreign currency transactions  (187,184,836)  (65,475,293) 
Net unrealized depreciation of investments and assets and     
liabilities in foreign currencies  (248,997,579)  (83,136,760) 
Net decrease in net assets resulting from operations  (379,593,597)  (7,618,683) 
Distributions to shareholders: (Note 1)     
From ordinary income     
Net investment income     
Class A  (45,304,188)  (109,940,378) 
Class B  (3,353,534)  (10,419,730) 
Class C  (1,257,796)  (3,009,283) 
Class M  (568,754)  (1,081,810) 
Class R  (65,407)  (94,409) 
Class Y  (5,260,330)  (17,842,657) 
Redemption fees (Note 1)  45,220  424,207 
Decrease from capital share transactions (Note 4)  (249,532,641)  (223,811,549) 
Total decrease in net assets  (684,891,027)  (373,394,292) 
NET ASSETS     
Beginning of period  1,683,241,494  2,056,635,786 
End of period (including distributions in excess of net investment     
income of $1,136,179 and $1,914,988, respectively)  $998,350,467  $1,683,241,494 
* Unaudited     

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

49 

Financial highlights (For a common share outstanding throughout the period)

INVESTMENT OPERATIONS:       LESS DISTRIBUTIONS:     RATIOS AND SUPPLEMENTAL DATA:   
                      Ratio  Ratio of net   
      Net realized                of expenses  investment   
  Net asset value,    and unrealized  Total from        Net asset  Total return  Net assets,  to average  income (loss)   
  beginning  Net investment  gain (loss) on  investment  From net investment  Total  Redemption  value, end of  at net asset  end of period  net assets  to average  Portfolio 
Period ended  of period  income (loss) a,d  investments  operations  income  distributions  fees f  period  value (%) b  (in thousands)  (%) c,d  net assets (%) d  turnover (%) 
Class A                           
February 28, 2009 **  $7.21  .27  (1.87)  (1.60)  (.27)  (.27)  —  $5.34  (22.22) *  $859,410  .56 *  4.71 *  13.56 * 
August 31, 2008  7.82  .57  (.60)  (.03)  (.58)  (.58)  —  7.21  (.50)  1,298,019  1.07  7.51  27.59 
August 31, 2007  7.87  .58  (.04)  .54  (.59)  (.59)  —  7.82  6.87  1,570,488  1.03  7.17  57.18 
August 31, 2006  8.10  .58 e  (.22)  .36  (.59)  (.59)  —  7.87  4.64 e  1,657,357  1.01 e  7.26 e  45.50 
August 31, 2005  7.98  .56  .16  .72  (.60)  (.60)  —  8.10  9.28  1,851,371  .97  6.94  41.21 
August 31, 2004  7.55  .59  .43  1.02  (.59)  (.59)  —  7.98  13.95  1,924,073  .99  7.55  61.68 
Class B                           
February 28, 2009 **  $7.19  .25  (1.87)  (1.62)  (.25)  (.25)  —  $5.32  (22.59) *  $65,844  .93 *  4.32 *  13.56 * 
August 31, 2008  7.79  .51  (.59)  (.08)  (.52)  (.52)  —  7.19  (1.14)  113,832  1.82  6.79  27.59 
August 31, 2007  7.84  .51  (.04)  .47  (.52)  (.52)  —  7.79  6.05  197,581  1.78  6.42  57.18 
August 31, 2006  8.06  .51 e  (.20)  .31  (.53)  (.53)  —  7.84  3.99 e  342,227  1.76 e  6.52 e  45.50 
August 31, 2005  7.94  .50  .16  .66  (.54)  (.54)  —  8.06  8.49  543,515  1.72  6.19  41.21 
August 31, 2004  7.52  .53  .42  .95  (.53)  (.53)  —  7.94  13.01  672,232  1.74  6.80  61.68 
Class C                           
February 28, 2009 **  $7.17  .25  (1.86)  (1.61)  (.25)  (.25)  —  $5.31  (22.50) *  $26,904  .93 *  4.32 *  13.56 * 
August 31, 2008  7.78  .51  (.60)  (.09)  (.52)  (.52)  —  7.17  (1.28)  39,507  1.82  6.75  27.59 
August 31, 2007  7.84  .52  (.05)  .47  (.53)  (.53)  —  7.78  5.95  46,276  1.78  6.42  57.18 
August 31, 2006  8.06  .51 e  (.20)  .31  (.53)  (.53)  —  7.84  4.02 e  63,687  1.76 e  6.50 e  45.50 
August 31, 2005  7.95  .50  .15  .65  (.54)  (.54)  —  8.06  8.39  75,498  1.72  6.18  41.21 
August 31, 2004  7.52  .54  .42  .96  (.53)  (.53)  —  7.95  13.15  63,866  1.74  6.80  61.68 
Class M                           
February 28, 2009 **  $7.23  .26  (1.88)  (1.62)  (.26)  (.26)  —  $5.35  (22.40) *  $13,459  .68 *  4.64 *  13.56 * 
August 31, 2008  7.83  .55  (.60)  (.05)  (.55)  (.55)  —  7.23  (.67)  13,273  1.32  7.25  27.59 
August 31, 2007  7.88  .56  (.05)  .51  (.56)  (.56)  —  7.83  6.54  16,162  1.28  6.92  57.18 
August 31, 2006  8.10  .56 e  (.22)  .34  (.56)  (.56)  —  7.88  4.46 e  19,785  1.26 e  7.00 e  45.50 
August 31, 2005  7.98  .54  .15  .69  (.57)  (.57)  —  8.10  8.95  23,265  1.22  6.69  41.21 
August 31, 2004  7.55  .57  .43  1.00  (.57)  (.57)  —  7.98  13.64  26,295  1.24  7.28  61.68 
Class R                           
February 28, 2009 **  $7.16  .26  (1.87)  (1.61)  (.26)  (.26)  —  $5.29  (22.47) *  $2,033  .68 *  4.59 *  13.56 * 
August 31, 2008  7.77  .54  (.59)  (.05)  (.56)  (.56)  —  7.16  (.75)  1,446  1.32  7.22  27.59 
August 31, 2007  7.85  .56  (.07)  .49  (.57)  (.57)  —  7.77  6.24  1,096  1.28  6.92  57.18 
August 31, 2006  8.08  .55 e  (.21)  .34  (.57)  (.57)  —  7.85  4.37 e  390  1.26 e  7.00 e  45.50 
August 31, 2005  7.98  .53  .15  .68  (.58)  (.58)  —  8.08  8.79  905  1.22  6.60  41.21 
August 31, 2004  7.55  .58  .42  1.00  (.57)  (.57)  —  7.98  13.64  70  1.24  7.29  61.68 
Class Y                           
February 28, 2009 **  $7.14  .28  (1.86)  (1.58)  (.28)  (.28)  —  $5.28  (22.21) *  $30,701  .44 *  4.73 *  13.56 * 
August 31, 2008  7.76  .58  (.60)  (.02)  (.60)  (.60)  —  7.14  (.35)  217,165  .82  7.73  27.59 
August 31, 2007  7.83  .60  (.06)  .54  (.61)  (.61)  —  7.76  6.96  225,031  .78  7.42  57.18 
August 31, 2006  8.06  .59 e  (.21)  .38  (.61)  (.61)  —  7.83  4.99 e  193,290  .76 e  7.51 e  45.50 
August 31, 2005  7.96  .58  .14  .72  (.62)  (.62)  —  8.06  9.37  222,236  .72  7.19  41.21 
August 31, 2004  7.53  .61  .44  1.05  (.62)  (.62)  —  7.96  14.34  244,131  .74  7.81  61.68 

See notes to financial highlights at the end of this section. 
The accompanying notes are an integral part of these financial statements. 

 

50

51


 

Financial highlights (Continued)

* Not annualized.

** Unaudited.

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 28, 2009  0.02% 
August 31, 2008  <0.01 
August 31, 2007  <0.01 
August 31, 2006  <0.01 
August 31, 2005  <0.01 
August 31, 2004  <0.01 

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

f Amount represents less than $0.01 per share.

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

52

Notes to financial statements 2/28/09 (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’s management team expects the risk of material loss to be remote.

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

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

53

movements in the U.S. securities markets. The number of days on which fair value prices will be used will depend on market activity and it is possible that fair value prices will be used by the fund to a significant extent. At February 28, 2009, fair value pricing was used for certain foreign securities in the portfolio. Securities quoted in foreign currencies, if any, are translated into U.S. dollars at the current exchange rate. To the extent a pricing service or dealer is unable to value a security or provides a valuation which Putnam Management does not believe accurately reflects the security’s fair value, the security will be valued at fair value by Putnam Management. Certain investments, including certain restricted and illiquid securities and derivatives, are also valued at fair value following procedures approved by the Trustees. Such valuations and procedures are reviewed periodically by the Trustees. Certain securities may be valued on the basis of a price provided by a single source. The fair value of securities is generally determined as the amount that the fund could reasonably expect to realize from an orderly disposition of such securities over a reasonable period of time. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and does not reflect an actual market price, which may be different by a material amount.

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

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

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

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

The fund earned certain fees in connection with its senior loan purchasing activities. These fees are treated as market discount and are recorded as income in the Statement of operations.

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

54

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 agree ments 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 securi ties 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 arrange ments between two parties to exchange cash flows based on a notional principal amount, to manage the fund’s exposure to interest rates. An interest rate swap can be purchased or sold with an upfront premium An upfront payment received by the fund is recorded as a liability on the fund’s books. An upfront payment made by the fund is recorded as an asset on the fund’s books. Interest rate swap contracts are marked to market daily based upon quotations from an inde pendent 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 realized gains or losses. Certain interest rate swap contracts may include extended effective dates. Payments related to these swap contracts are accrued based on the terms of the contract. The fund could be exposed to credit or market risk due to unfavorable changes in the fluctuation of interest rates or if the counterparty defaults on its obligation to perform. Risk of loss may exceed amounts recognized on the Statement of assets and liabilities. Interest rate swap contracts outstanding at period end, if any, are listed after the fund’s portfolio.

H) Credit default contracts The fund may enter into credit default contracts to provide a measure of protection against risk of loss following a default, or other credit event in respect of issuers within an underlying index or a single issuer, or to gain credit exposure to an underlying index or issuer. In a credit default contract, the protection buyer typically makes an up front payment and a periodic stream of payments to a counterparty, the protection seller, in exchange for the right to receive a contingent payment upon the occurrence of a credit event on the reference obligation or all other equally ranked obligations of the reference entity. Credit events are contract specific but may include bankruptcy, failure to pay, restructuring and obligation acceleration. 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. Upon the occurrence of a credit event, the difference between the par value and market value of the reference obligation, net of any proportional amount of the upfront payment, is recorded as a realized gain or loss.

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 or 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 the underlying reference obligations. In certain circumstances, the fund may enter into offsetting credit default contracts which would mitigate its risk of loss. Risks of loss may exceed amounts recognized on the Statement of assets and liabilities. The fund’s maximum risk of loss from counterparty risk, either as the protection seller or as the protection buyer, is the fair value of the contract. This risk is mitigated by having a master netting arrangement between the fund and the counterparty. Where the fund is a seller of protection, the maximum potential amount of future payments the fund may be required to make is equal to the notional amount of the relevant credit default contract. Credit default contracts outstanding, including their respective

55

 

notional amounts at period end, if any, are listed after the fund’s portfolio.

I) Master agreements The fund is a party to ISDA (International Swap and Derivatives Association, Inc.) Master Agreements (“Master Agreements”) with certain counterparties that govern over the counter derivative and foreign exchange contracts entered into from time to time. The Master Agreements may contain provisions regarding, among other things, the parties’ general obligations, representations, agreements, collateral requirements, events of default and early termination. With respect to certain counter-parties, in accordance with the terms of the Master Agreement, collateral posted to the fund is held in a segregated account by the fund’s custodian; collateral pledged by the fund is segregated by the fund’s custodian and identified in the fund’s portfolio. Collateral can be in the form of cash or debt securities issued by the U.S. Government or related agencies or other securities as agreed to by the fund and the applicable counterparty Termination events applicable to the fund may occur upon a decline in the fund’s net assets below a specified threshold over a certain period of time. Termination events applicable to counterparties may occur upon a decline in the counterparty’s long and short term ratings below a specified level. In each case, upon occurrence, the other party may elect to terminate early and cause settlement of all derivative and foreign exchange contracts outstanding, including the payment of any losses and costs resulting from such early termination, as reasonably determined by the terminating party. Any decision by one or more of the fund’s counterparties to elect early termination could impact the fund’s future derivative activity.

J) 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 28, 2009, the fund had no securities out on loan.

K) Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time and otherwise comply with the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), applicable to regulated investment companies. It is also the intention of the fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Code.The fund is subject to the provisions of FASB Interpretation No. 48, Accounting for Uncertainties in Income Taxes (“FIN 48”). FIN 48 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The fund did not have any unrecognized tax benefits in the accompanying financial statements. 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. Each of the fund’s federal tax returns for the prior three fiscal years remains subject to examination by the Internal Revenue Service.

At August 31, 2008, the fund had a capital loss carryover of $1,288,069,475 available to the extent allowed by the Code to offset future net capital gain, if any. The amount of the carryover and the expiration dates are:

Loss Carryover  Expiration 
$311,015,561  August 31, 2009 
301,710,244  August 31, 2010 
499,955,886  August 31, 2011 
61,743,291  August 31, 2012 
76,944,480  August 31, 2013 
14,070,646  August 31, 2014 
2,600,677  August 31, 2015 
20,028,690  August 31, 2016 

Pursuant to federal income tax regulations applicable to regulated investment companies, the fund has elected to defer to its fiscal year ending August 31, 2009 $57,095,620 of losses recognized during the period November 1, 2007 to August 31, 2008.

The aggregate identified cost on a tax basis is $1,394,112,025, resulting in gross unrealized appreciation and depreciation of $6,389,090 and $440,863,334, respectively, or net unrealized depreciation of $434,474,244.

L) 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

56

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

The fund pays Putnam Management for management and investment advisory services quarterly based on the average net assets of the fund. Such fee is based on the following annual rates: 0.70% of the first $500 million of average net assets, 0.60% of the next $500 million, 0.55% of the next $500 million, 0.50% of the next $5 billion, 0.475% of the next $5 billion, 0.455% of the next $5 billion, 0.44% of the next $5 billion, and 0.43% thereafter.

Putnam Management has agreed to waive fees and reimburse expenses of the fund through June 30, 2009 to the extent necessary to ensure that the fund’s expenses do not exceed the simple average of the expenses of all front-end load funds viewed by Lipper Inc. as having the same investment classification or objective as the fund. The expense reimbursement is based on a comparison of the fund’s expenses with the average annualized operating expenses of the funds in its Lipper peer group for each calendar quarter during the fund’s last fiscal year, excluding 12b-1 fees and without giving effect to any expense offset and brokerage/service arrangements that may reduce fund expenses. For the period ended February 28, 2009, Putnam Management waived $286,681 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.

On September 26, 2008, the fund entered into Agreements with other registered investment companies (each a “Purchaser”) managed by Putnam Management. Under the Agreements, the fund sold to the Purchasers the fund’s right to receive, in the aggregate, $11,983,721 in net payments from Lehman Brothers Special Financing, Inc. in connection with certain terminated derivatives transactions (the“Receivable”), in each case in exchange for an initial payment plus (or minus) additional amounts based on the applicable Purchaser’s ultimate realized gain (or loss) on the Receivable. The Receivable will be offset against the funds net receivable from Lehman Brothers Special Financing, Inc. which is included in the Statement of assets and liabilities within Receivable for closed swap contracts. The Agreements, which are included in the Statement of assets and liabilities, are valued at fair value following procedures approved by the Trustees. All remaining payments under the agreement will be recorded as realized gain or loss.

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

Custodial functions for the fund’s assets were provided 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 and transaction volumes.

Putnam Investor Services, Inc., an affiliate of Putnam Management, provided investor servicing agent functions to the fund. Prior to December 31, 2008, these services were provided by Putnam Investor Services, a division of Putnam Fiduciary Trust Company (“PFTC”), which is an affiliate of Putnam Management. Putnam Investor Services, Inc. and Putnam Investor Services received fees for investor servicing, subject to certain limitations, based on the number of shareholder accounts in the fund and the level of defined contribution plan assets in the fund. The amounts incurred for investor servicing agent functions provided by affiliates of Putnam Management during the six months ended February 28, 2009 are included in Investor servicing fees in the Statement of operations.

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 28, 2009, the fund’s expenses were reduced by $35,621 under the expense offset arrangements.

Each independentTrustee of the fund receives an annual Trustee fee, of which $708, 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

57

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 Investments, 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 28, 2009, Putnam Retail Management Limited Partnership, acting as underwriter, received net commissions of $30,402 and $188 from the sale of class A and class M shares, respectively, and received $43,181 and $2,808 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 28, 2009, Putnam Retail Management Limited Partnership, acting as underwriter, received $32 and no monies on class A and class M redemptions, respectively.

Note 3: Purchases and sales of securities

During the six months ended February 28, 2009, cost of purchases and proceeds from sales of investment securities other than short-term investments aggregated $155,840,726 and $364,389,757, respectively. There were no purchases or sales of U.S. government securities.

Note 4: Capital shares

At February 28, 2009, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:

  Six months ended 2/28/09  Year ended 8/31/08 
Class A  Shares  Amount  Shares  Amount 
Shares sold  8,800,951  $49,403,120  15,739,648  $120,030,441 
Shares issued in connection with  5,639,864  31,086,517  10,044,638  75,744,114 
reinvestment of distributions         
  14,440,815  80,489,637  25,784,286  195,774,555 
Shares repurchased  (33,403,973)  (188,791,298)  (46,630,689)  (353,461,417) 
Net decrease  (18,963,158)  $(108,301,661)  (20,846,403)  $(157,686,862) 
 
  Six months ended 2/28/09  Year ended 8/31/08 
Class B  Shares  Amount  Shares  Amount 
Shares sold  1,178,510  $6,235,931  2,400,585  $18,390,435 
Shares issued in connection with  368,186  2,025,707  826,183  6,226,902 
reinvestment of distributions         
  1,546,696  8,261,638  3,226,768  24,617,337 
Shares repurchased  (5,010,529)  (28,840,153)  (12,761,384)  (96,970,727) 
Net decrease  (3,463,833)  $(20,578,515)  (9,534,616)  $(72,353,390) 

58

  Six months ended 2/28/09  Year ended 8/31/08 
Class C  Shares  Amount  Shares  Amount 
Shares sold  721,228  $3,833,086  1,653,066  $12,670,208 
Shares issued in connection with  144,463  792,292  255,686  1,920,313 
reinvestment of distributions         
  865,691  4,625,378  1,908,752  14,590,521 
Shares repurchased  (1,304,631)  (7,489,640)  (2,349,056)  (17,865,041) 
Net decrease  (438,940)  $(2,864,262)  (440,304)  $(3,274,520) 
 
  Six months ended 2/28/09  Year ended 8/31/08 
Class M  Shares  Amount  Shares  Amount 
Shares sold  938,524  5,046,187  391,916  $3,007,705 
Shares issued in connection with  77,397  421,385  95,043  718,427 
reinvestment of distributions         
  1,015,921  5,467,572  486,959  3,726,132 
Shares repurchased  (335,176)  (1,895,049)  (713,855)  (5,459,933) 
Net increase (decrease)  680,745  $3,572,523  (226,896)  $(1,733,801) 
 
  Six months ended 2/28/09  Year ended 8/31/08 
Class R  Shares  Amount  Shares  Amount 
Shares sold  238,764  1,303,706  104,292  $783,361 
Shares issued in connection with  11,286  61,385  11,798  88,175 
reinvestment of distributions         
  250,050  1,365,091  116,090  871,536 
Shares repurchased  (67,537)  (376,982)  (55,012)  (414,466) 
Net increase  182,513  $988,109  61,078  $457,070 
 
  Six months ended 2/28/09  Year ended 8/31/08 
Class Y  Shares  Amount  Shares  Amount 
Shares sold  2,950,175  $16,684,700  11,076,389  $83,004,712 
Shares issued in connection with  941,476  5,260,330  2,389,688  17,842,657 
reinvestment of distributions         
  3,891,651  21,945,030  13,466,077  100,847,369 
Shares repurchased  (28,473,194)  (144,293,865)  (12,075,284)  (90,067,415) 
Net increase (decrease)  (24,581,543)  $(122,348,835)  1,390,793  $10,779,954 

Note 5: Investment in Putnam Prime Money Market Fund

The fund invested in Putnam Prime Money Market Fund, an open-end management investment company managed by Putnam Management. Investments in Putnam Prime Money Market Fund were valued at its closing net asset value each business day. Management fees paid by the fund were reduced by an amount equal to the management fees paid by Putnam Prime Money Market Fund with respect to assets invested by the fund in Putnam Prime Money Market Fund. For the period ended February 28, 2009, management fees paid were reduced by $5,062 relating to the fund’s investment in Putnam Prime Money Market Fund. Income distributions earned by the fund were recorded as interest income in the Statement of operations and totaled $111,860 for the period ended February 28, 2009. During the period ended February 28, 2009, cost of purchases and proceeds of sales of investments in Putnam Prime Money Market Fund aggregated $13,750,839 and $84,786,376, respectively.

On September 17, 2008, the Trustees of the Putnam Prime Money Market Fund voted to close that fund effective September 17, 2008. On September 24, 2008,

59

the fund received shares of Federated Prime Obligations Fund, an unaffiliated management investment company registered under the Investment Company Act of 1940, in liquidation of its shares of Putnam Prime Money Market Fund.

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 28, 2009, the fund had unfunded loan commitments of $180,440, which could be extended at the option of the borrower, pursuant to the following loan agreement with the following borrower:

Borrower  Unfunded Commitments 
Bausch & Lomb, Inc.  $180,440 

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)  $—  $—  $—  $181,347 
DigitalGlobe, Inc. 144A  —  —  —  645,566 
VFB LLC  —  234,492  —  — 
Total        $826,913 

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

Note 9: 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. Distribution of payments from Putnam Management to certain open-end Putnam funds and their shareholders is expected to be completed in the next several months. These allegations and related matters have served as the general basis for certain lawsuits, including purported class action lawsuits against Putnam Management and, in a limited number of cases, some Putnam funds. Putnam Management believes that these lawsuits will have no material adverse effect on the funds or on Putnam Management’s ability to provide investment management services. In addition, Putnam Management has agreed to bear any costs incurred by the Putnam funds as a result of these matters.

Note 10: New accounting pronouncement

In March 2008, Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS 161”) — an amendment of FASB Statement No. 133, was issued and is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about how and why an entity uses derivative instruments and how derivative instruments affect an entity’s financial position. Putnam Management is currently evaluating the impact the adoption of SFAS 161 will have on the fund’s financial statement disclosures.

Note 11: Market and credit risk

In the normal course of business, the fund trades financial instruments and enters into financial transactions where risk of potential loss exists due to changes in the market (market risk) or failure of the contracting party to the transaction to perform (credit risk). The fund may be exposed to additional credit risk that an institution or other entity with which the funds have unsettled or open transactions will default.

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Fund information

Founded over 70 years ago, Putnam Investments was built around the concept that a balance between risk and reward is the hallmark of a well-rounded financial program. We manage 100 mutual funds across income, value, blend, growth, asset allocation, absolute return, and global sector categories.

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

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 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, 2009

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, 2009

By (Signature and Title):

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

Date: April 29, 2009