Putnam
High Yield
Trust II
SEMIANNUAL REPORT
February 28, 1998
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
With the closing of two of our well-established funds, Putnam High Yield
Advantage Fund and Putnam High Yield Trust, we are pleased to welcome
high-yield investors to Putnam High Yield Trust II. In pursuing its objective
of high current income with capital growth as a secondary goal, the fund is
investing primarily in high-yielding lower-rated fixed-income securities;
therefore, it will share a common strategy with Putnam's other high-yield bond
funds even though it is smaller in size. It will also follow the other funds'
lead with regard to portfolio diversification. Manager Jennifer Leichter is
spreading the fund's holdings across a broad range of industries and
companies, both large and small, foreign and domestic.
To pursue the fund's objective, Jennifer has allocated almost half the fund's
assets to the telecommunications and media industries. Her decision to
overweight these sectors was based on two sets of findings. One,
telecommunications has proved to be one of the best performing sectors in the
high-yield market, with bonds issued by competitive local exchange carriers
among the strongest in the sector. Second, the spark of interest in Internet
technology has significantly boosted the performance of cable companies.
Holdings such as NEXTEL Communications Inc., WinStar Communications,
Cablevision Systems Corporation, GST Telecommunications, Inc., to name a few,
have already made a contribution to the fledgling fund's performance. While
these holdings were viewed favorably at the end of the fiscal period, all are
subject to review and adjustment in accordance with the fund's investment
strategy and may well vary in the future.
Today's high-yield market is being driven mainly by deregulation, new
technology, demand for capital abroad, and mergers and acquisitions. It is a
market that has grown dramatically over the past few years and demand for
high-yield bonds is steadily increasing. I share your manager's belief that
the performance potential of high-yield bonds can continue to reward investors
when pursued in combination with the in-depth credit research and careful
selection your manager can provide.
The following semiannual report provides portfolio holdings and financial
statements. A detailed discussion from the fund manager will be included in
the annual report, which will cover the eight months ended August 31, 1998.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
April 15, 1998
The fund invests in lower-rated, high-yield debt securities. The lower ratings
reflect a greater possibility that adverse changes in an issuer's business or
financial condition, or in general economic conditions, may impair the
issuer's ability to pay principal and interest on the securities.
Portfolio of investments owned
Febraury 28, 1998 (Unaudited)
<TABLE>
<CAPTION>
CORPORATE BONDS AND NOTES (84.4%) *
PRINCIPAL AMOUNT VALUE
Advertising (1.4%)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
$ 200,000 Outdoor Comunications Inc. sr. sub. notes 9 1/4s, 2007 $ 208,500
1,200,000 Outdoor Systems, Inc. sr. sub. notes 9 3/8s, 2006 1,278,000
--------------
1,486,500
Aerospace and Defense (3.3%)
- ------------------------------------------------------------------------------------------------------------
460,000 Aviation Sales Co. 144A sr. sub. notes 8 1/8s, 2008 456,550
1,000,000 BE Aerospace, Inc. 144A sr. sub. notes 8s, 2008 995,000
100,000 Derlan Industries Ltd. sr. notes 10s, 2007 (Canada) 105,000
895,000 Hawk Corp. sr. notes 10 1/4s, 2003 971,075
945,000 Sabreliner Corp. sr. notes Ser. B, 12 1/2s, 2003 994,613
--------------
3,522,238
Agriculture (1.0%)
- ------------------------------------------------------------------------------------------------------------
1,000,000 AGCO Corp. sr. sub. notes 8 1/2s, 2006 1,035,000
Airlines (1.2%)
- ------------------------------------------------------------------------------------------------------------
825,000 Trans World Airlines, Inc. 144A sr. notes 11 1/2s, 2004 872,438
370,000 Trans World Airlines, Inc. 144A notes 11 3/8s, 2006 371,850
--------------
1,244,288
Apparel (0.5%)
- ------------------------------------------------------------------------------------------------------------
40,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 40,600
500,000 William Carter Co. sr. sub. notes Ser. A, 10 3/8s, 2006 530,000
--------------
570,600
Automotive Parts (1.1%)
- ------------------------------------------------------------------------------------------------------------
1,130,000 Navistar International Corp. 144A sr. sub.notes 8s, 2008 1,134,238
Banks (3.1%)
- ------------------------------------------------------------------------------------------------------------
550,000 Chevy Chase Savings Bank Inc. sub. deb. 9 1/4s, 2005 574,750
500,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 487,500
600,000 First Nationwide Holdings sr. notes 12 1/2s, 2003 690,000
25,000 Korea Development Bank bonds 7 3/8s, 2004 (Korea) 22,579
75,000 Korea Development Bank bonds 7 1/8s, 2001 (Korea) 70,373
1,400,000 Sumitoma Bank Treasury Co. 144A bonds SEr. A, FRB
9.4s, 2049 (Japan) 1,435,000
--------------
3,280,202
Basic Industrial Products (0.1%)
- ------------------------------------------------------------------------------------------------------------
60,000 Roller Bearing Co. company guaranty Ser. B, 9 5/8s, 2007 62,100
Broadcasting (3.9%)
- ------------------------------------------------------------------------------------------------------------
25,000 Allbritton Communications Co. sr. sub. deb. Ser. B, 9 3/4s, 2007 26,313
350,000 Allbritton Communications Co. 144A sr. sub. notes 8 7/8s, 2008 351,750
75,000 Benedek Communications Corp. sr. disc. notes stepped-
coupon zero % (13 1/4s, 5/15/01), 2006 ++ 58,875
350,000 Fox/Liberty Networks LLC sr. disc. notes stepped-coupon
zero % (9 3/4s, 8/15/02), 2007 ++ 235,638
40,000 Fox/Liberty Networks LLC sr. notes 8 7/8s, 2007 41,400
670,000 Globo Communicacoes 144A company guaranty
10 1/2s, 2006 (Brazil) 665,813
580,000 Globo Communicacoes company guaranty 10 1/2s,
2006 (Brazil) 576,375
110,000 Jacor Communications, Inc. sr. sub. notes 8s, 2010 109,725
50,000 SFX Entertainment Inc. 144A sr. sub. notes 9 1/8s, 2008 50,188
1,000,000 Sinclair Broadcast Group, Inc. sr. sub. notes 8 3/4s, 2007 1,027,500
1,015,000 TV Azteca Sa De CV sr. notes 10 1/2s, 2007 (Mexico) 1,086,050
--------------
4,229,627
Building Products (0.5%)
- ------------------------------------------------------------------------------------------------------------
500,000 Nortek, Inc. sr. sub. notes 9 7/8s, 2004 521,250
Building and Construction (1.7%)
- ------------------------------------------------------------------------------------------------------------
1,000,000 American Architectural Products Corp. 144A sr. notes
11 3/4s, 2007 1,040,000
50,000 Atrium Companies Inc. sub. notes 10 1/2s, 2006 53,000
760,000 Brand Scaffold Services 144A sr. notes 10 1/4s, 2008 775,200
--------------
1,868,200
Business Services (0.7%)
- ------------------------------------------------------------------------------------------------------------
30,000 ATC Group Services Inc. 144A sr. sub. notes 12s, 2008 30,375
588,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 672,525
--------------
702,900
Cable Television (3.6%)
- ------------------------------------------------------------------------------------------------------------
800,000 Adelphia Communications Corp. sr. notes Ser. B, 9 7/8s, 2007 870,000
210,000 Cablevision Systems Corp. sr. sub. notes 9 1/4s, 2005 223,650
1,260,000 Century Communications Corp. 144A sr. disc. notes
zero %, 2008 535,500
350,000 Diamond Cable Communication Co. sr. disc. notes stepped-
coupon zero % (13 1/2s, 9/30/99), 2004 (United Kingdom) ++ 318,500
75,000 Diamond Cable Communication Co. sr. disc. notes stepped-
coupon zero % (10 3/4s, 2/15/02), 2007 (United Kingdom) ++ 49,875
350,000 Fox Kids Worldwide Inc. 144A sr. discount notes stepped-
coupon zero % (10 1/4s, 11/1/02), 2007 ++ 213,500
40,000 Fox Kids Worldwide Inc. 144A sr. notes 9 1/4s, 2007 39,500
130,000 Lenfest Communications, Inc. 144A sr. sub. notes 8 1/4s, 2008 131,138
1,500,000 RBS Participacoes S.A. 144A company guaranty
11s, 2007 (Brazil) 1,485,000
35,000 United International Holdings 144A sr. disc. notes stepped-
coupon zero % (10 3/4s, 2/15/03), 2008 ++ 21,219
--------------
3,887,882
Cellular Communications (5.6%)
- ------------------------------------------------------------------------------------------------------------
1,000,000 CellNet Data Systems, Inc. sr. disc. notes stepped-coupon
zero % (14s, 10/1/02), 2007 ++ 512,500
750,000 Dobson Communications Corp. 11 3/4s, 2007 813,750
400,000 McCaw International Ltd sr. discount notes stepped coupon
zero % (13s, 4/15/02), 2007 ++ 264,000
120,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (10.65s, 9/15/02), 2007 ++ 77,400
1,320,000 NEXTEL Communications, Inc. 144A sr. disc. notes stepped-
coupon zero % (9.95s, 2/15/03), 2008 ++ 818,400
2,520,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (9 3/4s, 10/31/02), 2007 ++ 1,575,000
1,000,000 Sygnet Wireless, Inc. sr. notes 11 1/2s, 2006 1,110,000
780,000 Western Wireless Corp. sr. sub. notes 10 1/2s, 2007 854,100
--------------
6,025,150
Chemicals (0.5%)
- ------------------------------------------------------------------------------------------------------------
75,000 PCI Chemicals & Pharmaceuticals company guaranty
9 1/4s, 2007 (Canada) 75,375
250,000 Polymer Group, Inc. 144A sr. sub. notes 8 3/4s, 2008 251,250
115,000 Sovereign Specialty Chemical 144A sr. sub. notes 9 1/2s, 2007 120,750
130,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 ++ 81,250
--------------
528,625
Computer Services (0.2%)
- ------------------------------------------------------------------------------------------------------------
75,000 Unisys Corp. deb. 9 3/4s, 2016 77,438
60,000 Viasystems Inc. 144A sr. sub. notes 9 3/4s, 2007 63,000
90,000 Viasystems Inc. sr. sub notes 9 3/4s, 2007 94,500
--------------
234,938
Conglomerates (0.8%)
- ------------------------------------------------------------------------------------------------------------
893,000 Axia, Inc. sr. sub. notes Ser. B, 11s, 2001 910,860
Consumer Durables (1.5%)
- ------------------------------------------------------------------------------------------------------------
1,500,000 Signature Brands Ltd. sr. sub. notes 13s, 2002 (Canada) 1,620,000
Consumer Non Durables (0.9%)
- ------------------------------------------------------------------------------------------------------------
1,000,000 CLN Holdings, Inc. sr. disc. notes zero %, 2001 650,000
270,000 Packaged Ice, Inc. 144A sr. notes 9 3/4s, 2005 276,075
--------------
926,075
Cosmetics (1.3%)
- ------------------------------------------------------------------------------------------------------------
400,000 Carson, Inc. company guaranty Ser. B, 10 3/8s, 2007 400,000
25,000 Renaissance Cosmetics company guaranty 11 3/4s, 2004 12,500
1,000,000 Revlon Consumer Products 144A sr. sub. notes 8 5/8s, 2008 995,000
--------------
1,407,500
Electric Utilities (2.7%)
- ------------------------------------------------------------------------------------------------------------
500,000 AES China Generating Co. sr. notes 10 1/8s, 2006 (China) 491,250
503,500 Bauang Private Power Corp. Regs. sr. notes 10.17s, 2008
(Philippines) 492,171
250,000 CE Casecnan Water & Energy 144A sr. notes 11.45s, 2005
(Philippines) 260,000
150,000 Midland Funding Corp. deb. Ser. B, 13 1/4s, 2006 193,475
1,200,000 Midland Funding Corp. deb. Ser. A, 11 3/4s, 2005 1,445,604
75,862 Subic Power Corp. 144A sec. 9 1/2s, 2008 (Philippines) 72,828
--------------
2,955,328
Electronics and Electrical Equipment (0.7%)
- ------------------------------------------------------------------------------------------------------------
720,000 Zilog Inc. 144A sr. notes 9 1/2s, 2005 715,500
Entertainment (0.7%)
- ------------------------------------------------------------------------------------------------------------
750,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 783,750
Financial Services (2.8%)
- ------------------------------------------------------------------------------------------------------------
800,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 800,000
5,000 Colonial Capital I 144A company guaranty 8.92s, 2027 5,380
1,200,000 Imperial Credit Industries, Inc. sr. notes 9 7/8s, 2007 1,176,000
25,000 Nationwide Credit Inc. 144A sr. notes 10 1/4s, 2008 25,750
1,000,000 Resource America Inc. 144A bonds 12s, 2004 1,045,000
--------------
3,052,130
Food and Beverages (2.4%)
- ------------------------------------------------------------------------------------------------------------
25,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 26,750
435,000 Chiquita Brands cv. sr. notes 9 5/8s, 2004 459,469
45,000 Eagle Family Foods 144A sr. sub. notes 8 3/4s, 2008 45,225
4,000 Nebco Evans Holding Co. 144A 11 1/4s, 2008 [2 DBL. DAGGERS] 400,000
1,600,000 Windy Hill Pet Food Co. sr. sub. notes 9 3/4s, 2007 1,696,000
--------------
2,627,444
Gaming (2.6%)
- ------------------------------------------------------------------------------------------------------------
50,000 Argosy Gaming Co. 1st mtge. 13 1/4s, 2004 54,250
910,000 Autotote Corp. company guaranty Ser. B, 10 7/8s, 2004 964,600
150,000 Aztar Corp. sr. sub. notes 13 3/4s, 2004 172,500
100,000 Colorado Gaming & Entertainment Co. sr. notes 12s, 2003 108,500
230,000 Fitzgeralds Gaming Corp. 144A company guaranty
12 1/4s, 2004 232,300
300,000 Lady Luck Gaming Corp. 1st mtge. 11 7/8s, 2001 308,250
50,000 Louisiana Casino Cruises Corp. 1st mtge. 11 1/2s, 1998 50,500
900,000 Trump A.C. 1st mtge. 11 1/4s, 2006 925,875
--------------
2,816,775
Health Care (4.8%)
- ------------------------------------------------------------------------------------------------------------
1,000,000 Extendicare Inc. 144A sr. sub. notes 9.35s, 2007 (Canada) 1,040,000
960,000 Genesis Health Ventures, Inc. sr. sub. notes 9 1/4s, 2006 1,000,800
420,000 Magellan Health Services, Inc. 144A sr. sub. notes 9s, 2008 423,150
1,055,000 MedPartners, Inc. sr. notes 7 3/8s, 2006 1,004,888
50,000 Paragon Health Networks, Inc. 144A sr. sub. notes 9 1/2s, 2007 51,500
100,000 Sun Healthcare Group Inc. 144A sr. sub. notes 9 1/2s, 2007 104,500
1,500,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 1,560,000
--------------
5,184,838
Insurance (1.0%)
- ------------------------------------------------------------------------------------------------------------
1,000,000 Reliance Group Holdings, Inc. sr. notes 9s, 2000 1,049,120
Lodging (0.7%)
- ------------------------------------------------------------------------------------------------------------
725,000 Prime Hospitality Corp. sub. notes 9 3/4s, 2007 784,813
Medical Supplies and Devices (0.6%)
- ------------------------------------------------------------------------------------------------------------
130,000 Conmed Corp. 144A sr. sub. notes 9s, 2008 131,300
500,000 Fresenius Medical Care AG 144A company guaranty
7 7/8s, 2008 (Germany) 497,500
--------------
628,800
Metals and Mining (0.8%)
- ------------------------------------------------------------------------------------------------------------
35,000 Anker Coal Group, Inc. 144A sr. notes 9 3/4s, 2007 36,050
800,000 Murrin Murrin Holdings 144A sr. notes 9 3/8s, 2007 (Australia) 781,000
--------------
817,050
Motion Picture Distribution (--%)
- ------------------------------------------------------------------------------------------------------------
50,000 Panavision Inc. 144A sr. disc. notes stepped-coupon zero %
(9 5/8s, 2/1/02), 2006 ++ 35,000
Oil and Gas (5.9%)
- ------------------------------------------------------------------------------------------------------------
305,000 Benton Oil & Gas Co. sr. notes 9 3/8s, 2007 312,625
480,000 Dailey International Inc. 144A sr. notes 9 1/2s, 2008 487,200
635,000 Flores & Rucks, Inc. sr. sub. notes 9 3/4s, 2006 696,913
1,200,000 Kelley Oil & Gas Corp. sr. sub. notes Ser. B, 10 3/8s, 2006 1,257,000
130,000 Market Hub Partners 144A sr. notes 8 1/4s, 2008 130,975
700,000 Pogo Producing Co. sr. sub. notes Ser. B, 8 3/4s, 2007 724,500
280,000 RAM Energy Inc. sr. notes 11 1/2s, 2008 278,600
545,000 Texas Petrochemical Corp. sr. sub. notes 11 1/8s, 2006 602,225
680,000 Transamerican Energy sr. disc. notes stepped-coupon
Ser. B, zero % (13s, 6/15/99), 2002 ++ 571,200
1,215,000 Transamerican Energy sr. notes Ser. B, 11 1/2s, 2002 1,231,397
--------------
6,292,635
Packaging and Containers (1.0%)
- ------------------------------------------------------------------------------------------------------------
500,000 Riverwood International Corp. company guranty
10 7/8s, 2008 500,625
510,000 Riverwood International Corp. company guaranty
10 1/4s, 2006 530,400
--------------
1,031,025
Paging (1.2%)
- ------------------------------------------------------------------------------------------------------------
80,000 Metrocall, Inc. sr. sub. notes 10 3/8s, 2007 82,000
1,135,000 Paging Network, Inc. sr. sub. notes 10s, 2008 1,174,725
--------------
1,256,725
Paper and Forest Products (1.9%)
- ------------------------------------------------------------------------------------------------------------
125,000 APP Finance II Mauritius Ltd. bonds stepped-coupon zero %
(12s, 2/15/04), 2049 (Indonesia) ++ 94,375
775,000 Florida Coast Paper LLC 1st mtge. Ser. B, 12 3/4s, 2003 829,250
525,000 Indah Kiat Financial Mauritius Ltd. company guaranty 10s,
2007 (Indonesia) 420,000
900,000 Pindo Deli Finance Mauritius Ltd. 144A company guaranty
10 3/4s, 2007 (India) 715,500
--------------
2,059,125
Pharmaceuticals (1.0%)
- ------------------------------------------------------------------------------------------------------------
1,000,000 NBTY Inc. 144A sr. sub. notes 8 5/8s, 2007 1,027,500
Publishing (--%)
- ------------------------------------------------------------------------------------------------------------
50,000 Perry-Judd 144A sr. sub. notes 10 5/8s, 2007 52,375
Retail (1.1%)
- ------------------------------------------------------------------------------------------------------------
70,000 Color Spot Nurseries sr. sub. notes 10 1/2s, 2007 69,300
3,141,375 K mart Lease bonds stepped-coupon zero %
(10.45s, 8/1/09), 2021 ++ 1,087,701
75,000 K mart Corp. deb. 7.95s, 2023 74,250
--------------
1,231,251
Satellite Services (4.4%)
- ------------------------------------------------------------------------------------------------------------
75,000 Echostar Satellite Broadcast Corp. sr. disc. notes stepped-
coupon zero % (13 1/8s, 3/15/00), 2004 ++ 66,375
100,000 Esat Telecom Group PLC sr. notes stepped-coupon zero %
(12 1/2s, 2/1/02), 2007 (Ireland) ++ 74,000
1,500,000 Globalstar L.P. Capital sr. notes 11 3/8s, 2004 1,545,000
810,000 Iridium LLC/Capital Corp. company guaranty Ser. B, 14s, 2005 921,375
300,000 Iridium LLC/Capital Corp. 144A sr. notes 11 1/4s, 2005 307,500
475,000 Pegasus Communications Corp. sr. notes Ser. B, 9 5/8s, 2005 501,125
790,000 Satelites Mexicanos S.A. de C.V. 144A sr. notes 10 1/8s,
2004 (Mexico) 805,800
465,000 TCI Satellite Entertainment 144A sr. sub. notes 10 7/8s, 2007 492,900
--------------
4,714,075
Semiconductors (0.1%)
- ------------------------------------------------------------------------------------------------------------
50,000 Fairchild Semiconductor Corp. 144A sr. sub. notes 11.74s, 2008 55,500
Shipping (1.3%)
- ------------------------------------------------------------------------------------------------------------
1,270,000 Chemical Leaman Corp. sr. notes 10 3/8s, 2005 1,358,900
50,000 Kitty Hawk, Inc. 144A sr. notes 9.95s, 2004 52,250
--------------
1,411,150
Supermarkets (1.8%)
- ------------------------------------------------------------------------------------------------------------
1,000,000 Fleming Companies, Inc. company guaranty Ser. B, 10 5/8s, 2007 1,060,000
50,000 Ralphs Grocery Co. sr. notes 10.45s, 2004 57,000
630,000 Southland Corp. deb. 4s, 2004 491,778
360,000 Stater Brothers Holdings 144A sr. sub. notes 9s, 2004 379,800
--------------
1,988,578
Telecommunications (6.2%)
- ------------------------------------------------------------------------------------------------------------
90,000 21st Century Telecom Group 144A sr. disc. notes stepped-
coupon zero % (12 1/4s, 2/15/03), 2008 ++ 49,500
425,000 American Communications Services, Inc. sr. disc. notes stepped-
coupon zero % (12 3/4s, 4/1/01), 2006 ++ 336,813
175,000 Focal Communications Corp. 144A sr. disc. notes stepped-
coupon zero % (12 1/8s, 2/15/03), 2008 ++ 96,250
100,000 GST Telecommunications, Inc. company guaranty stepped-
coupon zero % (13 7/8s, 12/15/00), 2005 ++ 80,500
500,000 Hyperion Telecommunication Corp. sr. disc. notes stepped-
coupon Ser. B, zero % (13s, 4/15/01), 2003 ++ 370,000
50,000 Intermedia Communications, Inc. 144A sr. notes 8 1/2s, 2008 51,938
275,000 International Cabletel, Inc. sr. notes stepped-coupon Ser. B,
zero % (11 1/2s, 2/01/01), 2006 ++ 220,000
550,000 Ionica Group PLC sr. disc. notes stepped-coupon zero %
(15s, 5/1/02), 2007 (United Kingdom) ++ 220,000
1,400,000 Ionica Group PLC sr. notes 13 1/2s, 2006 (United Kingdom) 1,120,000
650,000 MGC Communications, Inc. 144A sr. notes 13s, 2004 653,250
25,000 Microcell Telecommunications sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 12/1/01), 2006 (Canada) ++ 17,500
500,000 Netia Holdings B.V. 144A company guaranty 10 1/4s,
2007 (Poland) 505,000
250,000 Netia Holdings B.V. 144A company guaranty stepped-
coupon zero % (11 1/4s, 11/1/02), 2007 (Poland) 166,250
250,000 RCN Corp. 144A sr. disc. notes stepped-coupon zero %
(9.8s, 2/15/03), 2008 ++ 151,875
900,000 Sprint Spectrum L.P. sr. notes 11s, 2006 1,028,250
2,240,000 Teligent, Inc. 144A sr. disc. notes stepped-coupon zero %
(11 1/2s, 3/1/03), 2008 ++ 1,226,400
300,000 USN Communications, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (14 5/8s, 8/15/00), 2004 ++ 238,500
125,000 WinStar Communications. Inc. 144A sr. sub. notes
zero %, 2007 167,500
--------------
6,699,526
Telephone Services (3.3%)
- ------------------------------------------------------------------------------------------------------------
630,000 Econophone Inc. 144A sr. disc. notes stepped-coupon zero %
(11s, 2/15/03), 2008 ++ 371,700
30,000 Facilicom International 144A sr. notes 10 1/2s, 2008 30,075
1,110,000 Flag Limited 144A sr. notes 8 1/4s, 2008 (Bermuda) 1,129,425
1,500,000 IDT Corp. 144A sr. notes 8 3/4s, 2006 1,500,000
440,000 RSL Communications, Ltd. 144A sr. disc. notes stepped-
coupon zero % (10 1/8s, 3/1/03), 2008 ++ 267,850
285,000 RSL Communications, Ltd. 144A sr. notes 9 1/8s, 2008 283,575
--------------
3,582,625
Textiles (0.3%)
- ------------------------------------------------------------------------------------------------------------
200,000 Polysindo Inernational Eka company guaranty 13s, 2001
(Indonesia) 126,000
50,000 Polysindo International Finance company guaranty 9 3/8s,
2007 (Indonesia) 28,000
200,000 Tultex Corp. sr. notes 10 5/8s, 2005 214,000
--------------
368,000
Transportation (0.9%)
- ------------------------------------------------------------------------------------------------------------
830,000 Johnstown America Industries, Inc. company guaranty
Ser. C, 11 3/4s, 2005 925,450
Wireless Communications (1.3%)
- ------------------------------------------------------------------------------------------------------------
500,000 Omnipoint Corp, 144A sr. notes FRN 8.906s, 2006 499,500
750,000 Orbcomm Global Capital Corp. sr. notes Ser. B, 14s, 2004 847,500
--------------
1,347,000
--------------
Total Corporate Bonds and Notes (cost $90,907,203) $ 90,691,261
PREFERRED STOCKS (10.1%) *
NUMBER OF SHARES VALUE
Banks (1.0%)
- ------------------------------------------------------------------------------------------------------------
37,500 California Federal Bancorp Inc. Ser. A, $2.281 pfd. $ 1,035,938
Broadcasting (1.0%)
- ------------------------------------------------------------------------------------------------------------
50 Spanish Broadcasting Systems 14.25% cum. pfd. 53,750
950 Spanish Broadcasting Systems 144A 14.25% pfd. [2 DBL. DAGGERS] 1,021,250
--------------
1,075,000
Building and Construction (0.1%)
- ------------------------------------------------------------------------------------------------------------
3,910 Brand Scaffold Services, Inc. 144A $3.625 cum. pfd. 131,427
Cable Television (1.6%)
- ------------------------------------------------------------------------------------------------------------
5,000 Adelphia Communications Corp. Ser. B, $13.00 cum. pfd. 582,500
9,460 Cablevision Systems Corp. Ser. M, $11.125 dep. shs. pfd. [2 DBL. DAGGERS] 1,090,265
--------------
1,672,765
Cellular Communications (1.4%)
- ------------------------------------------------------------------------------------------------------------
890 Dobson Communications 144A $12.25 pfd. [2 DBL. DAGGERS] 921,150
550 NEXTEL Communications, Inc. 144A Ser. E, $11.125 pfd. [2 DBL. DAGGERS] 567,875
--------------
1,489,025
Health Care (1.5%)
- ------------------------------------------------------------------------------------------------------------
1,500 Fresenius Medical Care AG Ser. D, $9.00 pfd. (Germany) 1,605,000
Telecommunications (3.5%)
- ------------------------------------------------------------------------------------------------------------
1,100 Hyperion Telecommunications Ser. B, $12.875 pfd. [2 DBL. DAGGERS] 1,245,750
1,050 IXC Communications, Inc. Ser. B 12.50% pfd. [2 DBL. DAGGERS] 1,260,000
1,075 WinStar Communications. Inc. 144A $14.25 cum. pfd. [2 DBL. DAGGERS] 1,300,750
--------------
3,806,500
--------------
Total Preferred Stocks (cost $10,840,909) $ 10,815,655
UNITS (5.5%) *
NUMBER OF UNITS VALUE
- ------------------------------------------------------------------------------------------------------------
130 21st Century Telecom Group 144A units cum. pfd.
zero %, 2010 [2 DBL. DAGGERS] $ 136,500
400 Allegiance Telecom Inc. units stepped-coupon zero %,
(11 3/4s, 2/15/03), 2008 ++ 226,000
100 Club Regina/CS Resort 144A units 13s, 2004 102,500
990 Diva Systems Corp. 144A units stepped-coupon zero %
(12 5/8s, 3/1/03), 2008 ++ 542,025
930 DTI Holdings Inc. units stepped-coupon zero % (12 1/2s,
3/1/03), 2008 ++ 504,525
1,500 KMC Telecom Holdings, Inc. units stepped-coupon zero %
(12 1/2s, 2/15/03), 2008 ++ 855,000
1,290 Knology Holdings Inc. units stepped-coupon zero % (11 7/8s,
10/15/02), 2007 ++ 722,400
370 Orbital Imaging Corp. units 11 5/8s, 2005 382,025
280 WAM!NET, Inc. 144A units stepped-coupon zero % (13 1/4s,
3/1/02), 2005 ++ 170,800
17,605 XCL Ltd. units cum. pfd. 9.50%, 2006 2,288,650
--------------
Total Units (cost $5,904,195) $ 5,930,425
CONVERTIBLE BONDS AND NOTES (1.4%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$ 1,000,000 Argosy Gaming cv. sub. notes 12s, 2001 $ 922,500
100,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 67,000
390,000 WinStar Communications. Inc. 144A cv. sr. disc. notes stepped-
coupon zero % (14s, 10/15/00), 2005 ++ 534,300
--------------
Total Convertible Bonds and Notes (cost $1,511,613) $ 1,523,800
WARRANTS (0.8%) * + Expiration
NUMBER OF WARRANTS DATE VALUE
- ------------------------------------------------------------------------------------------------------------
43,776 IGC Communications 10/15/05 $ 875,520
650 MGC Communications, Inc. 144A 10/1/04 22,750
--------------
Total Warrants (cost $942,046) $ 898,270
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $110,105,966) *** $ 109,859,411
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $107,503,696.
*** The aggregate cost on a tax basis is $110,105,966, resulting in gross unrealized appreciation
and depreciation of $6,050,249 and $6,296,804, respectively or net unrealized depreciation of
$246,555.
+ 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 receiving interest at this rate.
[2 DOUBLE DAGGERS] Income may be received in cash or additional securities at the discretion of the issuer.
144A after the name of a security represents those exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally
to qualified institutional buyers.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
February 28, 1998 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $110,105,966) (Note 1) $ 109,859,411
- ---------------------------------------------------------------------------------------------------
Interest and other receivables 1,669,071
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 17,386,225
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 2,104,103
- ---------------------------------------------------------------------------------------------------
Receivable from Manager 28,132
- ---------------------------------------------------------------------------------------------------
Total assets 131,046,942
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 7,201,718
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 15,953,777
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 291,463
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 15,383
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 64
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,000
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 26,465
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 53,376
- ---------------------------------------------------------------------------------------------------
Total liabilities 23,543,246
- ---------------------------------------------------------------------------------------------------
Net assets $ 107,503,696
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1, 4 and 5) $ 107,465,888
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 239,009
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments (Notes 1 and 3) 45,354
- ---------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (246,555)
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $ 107,503,696
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($44,471,799 divided by 4,965,291 shares) $8.96
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $8.96)* $9.41
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($60,276,394 divided by 6,738,024 shares)** $8.95
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($2,755,503 divided by 307,907 shares) $8.95
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $8.95)* $9.25
- ---------------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales the
offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent deferred
sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
For the period
January 2, 1998
(commencement
of operations)
to February 28, 1998*
- --------------------------------------------------------------------------------------------------
<S> <C>
Interest income $ 307,866
- --------------------------------------------------------------------------------------------------
Expenses:
Compensation of Manager (Note 2) 30,334
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 16,758
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 331
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 1,000
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 5,299
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 20,851
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 682
- --------------------------------------------------------------------------------------------------
Reports to shareholders 6,500
- --------------------------------------------------------------------------------------------------
Registration fees 32,502
- --------------------------------------------------------------------------------------------------
Auditing 11,375
- --------------------------------------------------------------------------------------------------
Legal 2,700
- --------------------------------------------------------------------------------------------------
Postage 300
- --------------------------------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Note 2) (58,467)
- --------------------------------------------------------------------------------------------------
Total expenses 70,165
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (1,308)
- --------------------------------------------------------------------------------------------------
Net expenses 68,857
- --------------------------------------------------------------------------------------------------
Net investment income 239,009
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 45,354
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the period (246,555)
- --------------------------------------------------------------------------------------------------
Net loss on investments (201,201)
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 37,808
- --------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
For the period
January 2, 1998
(commencement
of operations)
to February 28, 1998*
- ----------------------------------------------------------------------------------------------------------------------
Increase in net assets
<S> <C>
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 239,009
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments 45,354
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (246,555)
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 37,808
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 105,463,888
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 105,501,696
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period (Note 5) 2,002,000
- ----------------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income of $239,009) $107,503,696
- ----------------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share January 2, 1998+
operating performance to February 28
- ------------------------------------------------------------------------------------------------------------------------------------
1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $8.50
- ------------------------------------------------------------------------------------------------------------------------------------
Investment activities
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .06(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments .40
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .46
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.96
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 5.41*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period --
(in thousands) $44,472
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .21*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .91*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 10.30*
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period includes amounts paid through
expense offset arrangements. (Note 2)
(c) Per share net investment income has been determined on the basis of the weighted average
number of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share January 2, 1998+
operating performance to February 28
- ------------------------------------------------------------------------------------------------------------------------------------
1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $8.50
- ------------------------------------------------------------------------------------------------------------------------------------
Investment activities
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .05(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments .40
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .45
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.95
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 5.29*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $60,276
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .33*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .89*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 10.30*
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period includes amounts paid through
expense offset arrangements. (Note 2)
(c) Per share net investment income has been determined on the basis of the weighted average
number of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share January 2, 1998+
operating performance to February 28
- ------------------------------------------------------------------------------------------------------------------------------------
1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $8.50
- ------------------------------------------------------------------------------------------------------------------------------------
Investment activities
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .05(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .40
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .45
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.95
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 5.29*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,756
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .25*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.03*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 10.30*
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period includes amounts paid through
expense offset arrangements. (Note 2)
(c) Per share net investment income has been determined on the basis of the weighted average
number of shares outstanding during the period.
</TABLE>
Notes to financial statements
February 28, 1998 (Unaudited)
Note 1
Significant accounting policies
Putnam High Yield Trust II ("the fund") is a series of Putnam Funds Trust (the
"Trust") which 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 constituting a portfolio that Putnam Investment
Management, Inc. ("Putnam Management"), the fund's Manager, a wholly-owned
subsidiary of Putnam Investments, Inc. believes does not involve undue risk to
income or principal.
The fund offers class A, class B and class M shares. The fund commenced
operations of class A, class B, and class M shares on January 2, 1998. Class A
shares are sold with a maximum front-end sales charge of 4.75%. Class B shares,
which convert to class A shares after approximately eight years, do not pay a
front-end sales charge, but pay a higher ongoing distribution fee than class A
shares, and are subject to a contingent deferred sales charge, if those shares
are redeemed within six years of purchase. Class M shares are sold with a
maximum front-end sales charge of 3.25% and pay an ongoing distribution fee
that is lower than class B shares and higher than class A shares.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class (including
the distribution fees applicable to such class). Each class votes as a class
only with respect to its own distribution plan or other matters on which a
class vote is required by law or determined by the Trustees. Shares of each
class would receive their pro-rata share of the net assets of the fund, if the
fund were liquidated. In addition, the Trustees declare separate dividends on
each class of shares.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with generally accepted
accounting principles and requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities. Actual
results could differ from those estimates.
A) Security valuation Investments for which quotations are readily available
are stated at market value, which is determined using the last reported sale
price, or, if no sales are reported -- as in the case of some securities
traded over-the-counter -- the last reported bid price. Securities quoted in
foreign currencies are translated into U.S. dollars at the current exchange
rate. Short-term investments having remaining maturities of 60 days or less
are stated at amortized cost, which approximates market value, and other
investments, including restricted securities, are stated at fair value
following procedures approved by the Trustees. Market quotations are not
considered to be readily available for certain debt obligations, such
investments are stated at fair value on the basis of valuations furnished by
a pricing service, approved by the Trustees, or dealers which determine
valuations for normal institutional-size trading units of such securities
using methods based on market transactions for comparable securities and
various relationships between securities that are generally recognized by
institutional traders.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account along with the cash of other registered
investment companies and certain other accounts managed by Putnam Management.
These balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through its
custodian, receives delivery of the underlying securities, the market value of
which at the time of purchase is required to be in an amount at least equal to
the resale price, including accrued interest. Putnam Management is responsible
for determining that the value of these underlying securities is at all times
at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed). Interest income is recorded on the accrual basis. Dividend income
is recorded on the ex-dividend date. Discounts on zero coupon bonds, original
issue discount bonds, stepped-coupon bonds and payment in kind bonds are
accreted according to the yield-to-maturity basis. Any premium resulting from
the purchase of stepped-coupon securities is amortized on a yield-to-maturity
basis.
E) Federal taxes It is the policy of the fund to distribute all of its taxable
income within the prescribed time and otherwise comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies. It is
also the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code
of 1986, as amended. Therefore, no provision has been made for federal taxes
on income, capital gains or unrealized appreciation on securities held nor for
excise tax on income and capital gains.
F) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date. Capital
gain distributions, if any, are recorded on the ex-dividend date and paid at
least annually. The amount and character of income and gains to be distributed
are determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. 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.
G) Expenses of the trust Expenses directly charged or attributable to any fund
will be paid from the assets of that fund. Generally, expenses of the trust
will be allocated among and charged to the assets of each fund on a basis that
the Trustee deem fair and equitable, which may be based on the relative assets
of each fund or the nature of the services performed and relative
applicability to each fund.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund. Such
fee is based on the following annual rates: 0.70% 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, 0.445%
of the next $5 billion, 0.44% of the next $5 billion and 0.43% thereafter.
As part of the subcustodian contract between the subcustodian bank and Putnam
Fiducairy Trust Company (PFTC), a subsidary of Putnam Investments, Inc., the
subcustodian bank has a lien on the securities of the fund to the extent
permitted by the fund's investment restrictions to cover any advances made by
the subcustodian bank for the settlement of securities purchased by the fund.
At February 28, 1998, the payable to the subcustodian bank represents the
amount due for cash advance for the settlement of a security purchased.
Putnam Management has agreed to limit its compensation (and, to the extent
necessary, bear other expenses) through February 28, 1998, to the extent that
expenses of the fund (exclusive of brokerage commissions, interest, taxes,
deferred organizational and extraordinary expense, credits from PFTC and
payments under the Trust's distribution plan) would exceed an annual rate of
1.00% of the fund's average net assets.
The fund reimburses Putnam Management an allocated amount for the compensation
and related expenses of certain officers of the fund and their staff who
provide administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by PFTC Investor
servicing agent functions are provided by Putnam Investor Services, a division
of PFTC.
For the period ended February 28, 1998, fund expenses were reduced by $1,308
under expense offset arrangements with PFTC and brokerage service
arrangements. Investor servicing and custodian fees reported in the Statement
of operations exclude these credits. The fund could have invested a portion of
the assets utilized in connection with the expense offset arrangements in an
income producing asset if it had not entered into such arrangements.
Each Trustee of the fund receives an annual Trustee fee, of which $133 has
been allocated to the fund, and an additional fee for each Trustee's meeting
attended. Trustees who are not interested persons of Putnam Management and who
serve on committees of the Trustees receive additional fees for attendance at
certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which
allows the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund and are
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
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to its
class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to compensate
Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments
Inc., for services provided and expenses incurred by it in distributing shares
of the fund. The Plans provide for payments by the fund to Putnam Mutual Funds
Corp. at an annual rate up to 0.35%, 1.00% and 1.00% of the average net assets
attributable to class A, class B and class M shares, respectively. The
Trustees currently limit payment by the fund to an annual rate of 0.25%, 1.00%
and 0.50% of the average net assets attributable to class A, class B and class
M shares respectively.
For the period ended February 28, 1998, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $117,266 and $3,402 from the sale of
class A and class M shares, respectively and $254 in contingent deferred sales
charges from redemptions of class B shares. A deferred sales charge of up to
1% is assessed on certain redemptions of class A shares. For the period ended
February 28, 1998, Putnam Mutual Funds Corp., acting as underwriter received
no monies on class A redemptions.
Note 3
Purchase and sales of securities
During the period ended February 28, 1998, purchases and sales of investment
securities other than short-term investments aggregated $116,108,885 and
$6,108,385, respectively. There were no purchases and sales of U.S. government
obligations. In determining the net gain or loss on securities sold, the cost
of securities has been determined on the identified cost basis.
Note 4
Capital shares
At February 28, 1998, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
For the period
January 2, 1998
(commencement of
operations) to
February 28, 1998
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 5,058,518 $45,290,230
- ------------------------------------------------------------
Shares
repurchased (328,521) (2,943,748)
- ------------------------------------------------------------
Net increase 4,729,997 $42,346,482
- ------------------------------------------------------------
For the period
January 2, 1998
(commencement of
operations) to
February 28, 1998
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 6,879,875 $61,630,303
- ------------------------------------------------------------
Shares
repurchased (141,969) (1,272,241)
- ------------------------------------------------------------
Net increase 6,737,906 $60,358,062
- ------------------------------------------------------------
For the period
January 2, 1998
(commencement of
operations) to
February 28, 1998
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 320,888 $2,876,932
- ------------------------------------------------------------
Shares
repurchased (13,099) (117,588)
- ------------------------------------------------------------
Net increase 307,789 $2,759,344
- ------------------------------------------------------------
Note 5
Initial capitalization and
offering of shares
The fund was established as a Massachusetts business trust on January
22, 1996. During the period January 22, 1996 to January 2, 1998 the fund had
no operations other than those related to organizational matters, including
the initial capital contribution of $2,000,000, $1,000 and $1,000 of initial
organizational expenses, and the issuance of 235,294, 118 and 118 shares of
classes A, B and M, respectively to Putnam Mutual Funds Corp., a wholly-owned
subsidiary of Putnam Investments, Inc.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
William J. Curtin
Vice President
Ian C. Ferguson
Vice President
Edward D'Alelio
Vice President
Jennifer Leichter
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam High Yield Trust
II. It may also be used as sales literature when preceded or accompanied by
the current prospectus, which gives details of sales charges, investment
objectives, and operating policies of the fund, and the most recent copy of
Putnam's Quarterly Performance Summary. For more information or to request a
prospectus, call toll free: 1-800-225-1581. You can also learn more at Putnam
Investments' website: http://www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed or
endorsed by, any financial institution; are not insured by the Federal Deposit
Insurance Corporation (FDIC), the Federal Reserve Board, or any other agency;
and involve risk, including the possible loss of the principal amount
invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
SA064-41236 2HB/2HD/2HE 4/98
