PUTNAM FUNDS TRUST, N-30D, 2000-10-25

PUTNAM FUNDS TRUST
N-30D, 2000-10-25

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Putnam
Latin America
Fund

ANNUAL REPORT ON PERFORMANCE AND OUTLOOK

8-31-00

[SCALE LOGO OMITTED]

FROM THE TRUSTEES

[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III]

Dear Shareholder:

It is a pleasure to comment on the performance of Putnam Latin America
Fund and its management for the first time in our new roles as Chairman
of the Trustees and President of the Funds. As you know, both of us have
been members of the Board of Trustees for a number of years and have
followed closely your fund's progress since its inception.

We are especially pleased to report that your fund turned in another
period of strong performance during the fiscal year ended August 31,
2000, both on an absolute basis and relative to its benchmark, the MSCI
Emerging Markets Free (EMF) Latin America Index. (Please see page 6 for
more detailed information and an explanation of performance calculation
methods.)

Total return for 12 months ended 8/31/00

NAV POP
-----------------------------------------------------------------------
45.33% 37.08%
-----------------------------------------------------------------------

Past performance is not indicative of future results. Performance
information for longer periods and an explanation of performance
calculation methods begins on page 6.

* CONTINUING EMPHASIS ON MEXICO AND BRAZIL

Fund management began the fiscal year by continuing its emphasis on
stocks with high earnings growth within the telecommunications, media,
and oil sectors. These sectors carried low valuations relative to their
growth rates, particularly in Mexico and Brazil, resulting in strong
total returns for the fiscal year ending August 31, 2000.

At the beginning of this fiscal year, the Board of Trustees appointed
Claudio Brocado as portfolio manager of your fund. Prior to joining
Putnam in 1999, Claudio was with Dresdner RCM Global Investors. Thomas
Haslett and Stephen Oler, the other members of the fund's management
team, have been offering their expertise on Latin America since the
fund's inception in 1998.

[GRAPHIC OMITTED: TOP 10 HOLDINGS]

TOP 10 HOLDINGS

Telefonos de Mexico SA ADR
Class L
Mexico
Communication services

Grupo Financiero Banamex-Accival
(Banacci) SA de CV
Mexico
Financial

Grupo Televisa SA GDR
Mexico
Consumer staples

Companhia Vale do Rio Doce
(CVRD) ADR
Brazil
Basic materials

Petroleo Brasileiro S.A.-Petrobras
(Pfd.)
Brazil
Energy

Petroleo Brasileiro S.A.-Petrobras
Brazil
Energy

Tele Norte Leste Participacoes
S.A. ADR
Brazil
Communication services

Grupo Modelo SA de CV, Series C
Mexico
Consumer staples

Carso Global Telecom
Mexico
Communication services

Banco Itau S.A.
Brazil
Financial

Footnote reads:
These holdings represent 39.2% of the fund's net assets as of 8/31/00.
Portfolio holdings will vary over time.

* TELECOMMUNICATIONS AND FINANCE SECTORS KEY TO PERFORMANCE

After the Nasdaq experienced its severe correction starting in March,
there were aftershocks throughout the Latin American stock markets and
prices fell throughout the region. Meanwhile, solid growth of private
consumption in Mexico confirmed the validity of the team's emphasis on
the media, telecommunications, and financial sectors. One
telecommunications company that has grown tremendously and contributed
significantly to your fund's performance is Telefonos de Mexico SA. No
longer a monopoly, Telmex is Mexico's most dominant telecommunications
company, providing long-distance and local service throughout the
country. As the leading wireless provider in Mexico, Telmex's subsidiary
Telcel, has 8.5 million subscribers, putting it ahead of some large U.S.
counterparts, such as Sprint PCS. While these holdings and others
discussed in this report were viewed favorably at the end of the period,
all holdings are subject to review in accordance with the fund's
investment strategy and may vary in the future.

Outside of the telecommunications sector, the finance industry offered
very attractive stock valuations. One bank in particular, Grupo
Financiero Banamex-Accival (Banacci) SA de CV, is one of the
better-managed financial institutions in Latin America. Under its
universal banking concept, Banacci offers a broad range of services,
including checking and savings accounts, commercial and residential
mortgages, consumer loans, credit cards, brokerage services, insurance,
and pension services. Banacci also participates in the dynamic telecom
sector through a joint venture with WorldCom in Mexico. The bank
leverages this presence through Internet services and a comprehensive
Web portal. While Banacci's stock price soared over 160% during the
fiscal year (in U.S. dollars), it remains attractively valued relative
to other Latin American and global financial institutions.

* BRAZILIAN ECONOMY CONTINUES REBOUND

In addition to Mexico, Brazil has captured the fund management team's
attention. The Brazilian currency, the real, has stabilized after its
abrupt devaluation in early 1999. Inflation, along with interest rates,
has continued to decline. A large Brazilian holding of your fund is
Companhia Vale do Rio Doce (CVRD), the largest mining company in Brazil
and the world's largest producer of iron ore. Although iron ore is
CVRD's primary resource, the company is highly diversified and has
subsidiaries and joint ventures involving steel, aluminum, gold, paper,
and zinc. In addition, CVRD manages substantial railroad assets, and is
one of Brazil's leaders in logistics operations. The company is
embarking on a significant restructuring, which should lead to increased
profitability.

Claudio, Tom and Stephen are maintaining the fund's position in a
long-standing holding, Petroleo Brasileiro of Brazil (Petrobras), whose
main business is the exploration, production, and transportation of oil
and gas. Naturally, Petrobras' revenues and stock price have benefited
from the rise in oil prices, but it also holds a very high level of oil
reserves, which bodes well for many years of above average growth in oil
production and increasing profitability.

* LOOKING AHEAD: POSITIVE DEVELOPMENTS TAKING PLACE

One very positive development that took place during the past fiscal
year in Latin America was the election of Vicente Fox as president of
Mexico. This was the first time in over 70 years that an opposition
party succeeded in Mexican presidential elections -- a clear sign that
the Mexican democracy is maturing. President-elect Fox is widely known
to have a pro-business stance and wants to broaden Mexico's revenues
away from oil. While oil no longer represents more than 10% of Mexico's
exports, the reliance of the Mexican government on oil revenues to
balance its fiscal accounts is still relatively high. A strong private
sector and growing consumer confidence spending bode well for the
long-term growth outlook of your fund's Mexican holdings.

While its domestic recovery is underway but still lagging behind
Mexico's rate of rehabilitation, Brazil is showing many signs of
progress and is not to be underestimated. In general, valuations of
stocks in Brazil are attractive, and falling interest rates reinforce
our positive outlook for the stocks in which your fund invests.

Respectfully yours,

/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III

John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
October 18, 2000

The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 8/31/00, there is no guarantee the fund will
continue to hold these securities in the future. International investing
involves certain risks, including economic instability, political
developments, and currency fluctuations. These risks are increased in
emerging markets. Single sector investments may be subject to more
volatility than those investing in a diverse group of sectors.

PERFORMANCE SUMMARY

This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Latin America Fund is designed for investors seeking long-term capital
appreciation primarily through common stocks of companies located in
Latin America.

TOTAL RETURN FOR PERIODS ENDED 8/31/00

MSCI EMF Consumer
Since 3/23/98 NAV POP Latin America Index price index
------------------------------------------------------------------------
1 year 45.33% 37.08% 37.57% 3.23%
------------------------------------------------------------------------
Life of fund 5.44 -0.64 5.78 6.41
Annual average 2.20 -0.26 2.35 2.60
------------------------------------------------------------------------

Past performance is no assurance of future results. More recent returns
may be more or less than those shown. All returns assume reinvestment of
distributions at NAV. Investment return and principal value will
fluctuate so that an investor's shares when redeemed may be worth more
or less than their original cost. Performance data reflects an expense
limitation currently in effect. Without the expense limitation, returns
would have been lower.

PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 8/31/00

--------------------------------------------------------------------
Distributions
(number) 1
--------------------------------------------------------------------
Income $0.020
--------------------------------------------------------------------
Capital gains --
--------------------------------------------------------------------
Total $0.020
--------------------------------------------------------------------
Share value: NAV POP
--------------------------------------------------------------------
8/31/99 $5.98 $6.34
--------------------------------------------------------------------
8/31/00 8.67 9.20
--------------------------------------------------------------------

TOTAL RETURN FOR PERIODS ENDED 9/30/00 (most recent calendar quarter)

Since 3/23/98 NAV POP
--------------------------------------------------------
1 year 31.78% 24.21%
--------------------------------------------------------
Life of fund -2.95 -8.54
Annual average -1.18 -3.48
--------------------------------------------------------

[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]

GROWTH OF A $10,000 INVESTMENT

Cumulative total return of a $10,000 investment since 3/23/98

MSCI EMF
Fund's shares Latin America Consumer price
Date at POP Index index

3/23/98 9,425 10,000 10,000
8/31/98 4,945 5,461 10,080
2/28/99 5,408 6,071 10,160
8/31/99 6,837 7,689 10,308
2/29/00 10,624 11,018 10,481
8/31/00 $9,936 $10,578 $10,641

Footnote reads:
Past performance is no assurance of future results. See first page of
performance section for performance calculation method.

TERMS AND DEFINITIONS

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

Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.

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 5.75% maximum sales charge.

COMPARATIVE BENCHMARKS

The MSCI EMF (Morgan Stanley Capital International) Latin America Index
is an index of approximately 218 securities representing 7 Latin
American markets, with all values expressed in U.S dollars. This index
assumes reinvestment of all distributions and interest payments and does
not take into account brokerage fees or taxes. Securities in the fund do
not match those in the indexes and performance of the fund will differ.
It is not possible to invest directly in an index.

Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.

A GUIDE TO THE FINANCIAL STATEMENTS

These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.

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

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

Statement of operations shows the fund's net investment gain or loss
for the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that
remain in the portfolio -- any change in unrealized gains or losses over
the period.

Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number
of the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed
here may not match the sources listed in the Statement of operations
because the distributions are determined on a tax basis and may be paid
in a different period from the one in which they were earned.

Financial highlights provide an overview of the fund's investment
results, per-share distributions, expense ratios, net investment income
ratios and portfolio turnover in one summary table, reflecting the five
most recent reporting periods. In a semiannual report, the highlight
table also includes the current reporting period. For open-end funds, a
separate table is provided for each share class.

Report of independent accountants
For the fiscal year ended August 31, 2000

To the Trustees of Putnam Funds Trust and
Shareholders of Putnam Latin America Fund
(a series of Putnam Funds Trust)

In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Putnam Latin
America Fund (the "fund") at August 31, 2000, and the results of its
operations, the changes in its net assets and the financial highlights
for the periods indicated, in conformity with accounting principles
generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the fund's management; our
responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of investments owned at August
31, 2000 by correspondence with the custodian, provide a reasonable
basis for our opinion.

PricewaterhouseCoopers LLP
Boston, Massachusetts
October 12, 2000

THE FUND'S PORTFOLIO
August 31, 2000

COMMON STOCKS (99.2%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Argentina (2.3%)
-------------------------------------------------------------------------------------------------------------------
870 Alto Palermo S.A. $ 4,786
1,300 Grupo Financiero Galicia S.A. ADR (NON) 22,913
1,500 Perez Companc S.A. Class B ADR 25,219
1,000 Telecom Argentina S.A. ADR 23,500
-------------
76,418

Brazil (39.7%)
-------------------------------------------------------------------------------------------------------------------
11,100 Aracruz Celulose S.A. 22,334
6,350 Banco Bradesco S.A. 53,411
910 Banco Itau S.A. 87,048
84 Brasil Telecom S.A. 32,325
1,500 Brasil Telecom Participacoes S.A. (NON) 16,493
500 Brasil Telecom Participacoes S.A. ADR (NON) 35,219
7,000 Centrais Geradoras do Sul do Brasil S.A. (NON) 11,083
153 Centrais Geradoras do Sul do Brasil S.A. Rights (NON) 2
1,300 Companhia Brasileira de Distribuicao Grupo
Pao de Acucar ADR 48,506
3,000 Companhia Cervejaria Brahma ADR 62,250
2,700 Companhia de Transmissao de Energia Eletrica Paulista (NON) 13,359
2,500 Companhia Paranaense de Energia-Copel ADR 24,219
5,000 Companhia Vale do Rio Doce (CVRD) ADR 133,750
460 Eletropaulo Metropolitana 28,323
3,630 Embratel Participacoes S.A. ADR 79,406
4,500 Empresa Brasileira de Aeronautica S.A. 31,913
2,800 Gerdau S.A. 40,176
16,700 Itausa-Investimentos Itau S.A. 17,719
2,190 Petroleo Brasileiro S.A.-Petrobras 69,408
3,335 Petroleo Brasileiro S.A.-Petrobras ADR (NON) 106,095
3,880 Petroleo Brasileiro S.A.-Petrobras ADR (Pfd.) 117,613
8,100 Tele Celular Sul Participacoes S.A. 25,827
300 Tele Celular Sul Participacoes S.A. ADR 11,925
1,500 Tele Centro Oeste Celular Participacoes ADR 19,125
300 Tele Nordeste Celular Participacoes S.A. ADR 18,000
4,028 Tele Norte Leste Participacoes S.A. ADR 102,714
500 Telemig Celular Participacoes S.A. ADR 32,500
1,050 Telesp Celular Participacoes S.A. ADR 38,588
4,690 Usinas Siderurgicas de Minas Gerais S.A. 27,330
1,000 Votorantim Celulose e Papel S.A. ADR 20,125
-------------
1,326,786

Canada (0.3%)
-------------------------------------------------------------------------------------------------------------------
930 Global Light Telecom, Inc. (NON) 9,254

Chile (5.9%)
-------------------------------------------------------------------------------------------------------------------
400 Banco Santiago S.A. ADR 7,850
2,400 Compania de Telecommunicaciones Chile S.A. ADR 42,300
1,500 Cristalerias de Chile ADR 23,625
3,500 Empresa Nacional de Electricidad ADR 37,406
1,100 Gener S.A. ADR 14,025
1,000 Laboratorio Chile S.A. ADR 17,125
1,200 Lan Chile S.A. ADR 8,700
350 Maderas Y Sineticos S.A. ADR 4,463
3,200 Quinenco S.A. ADR 28,400
400 Vina Concha Y Toro S.A. ADR 14,375
-------------
198,269

Mexico (48.4%)
-------------------------------------------------------------------------------------------------------------------
12,800 Alfa SA de CV Class A 35,258
17,600 Alsea SA (NON) 13,387
4,000 Apasco SA 24,731
5,500 Banca Quadrum SA ADR (NON) 3,438
34,000 Carso Global Telecom (NON) 87,558
2,948 Cemex SA de CV ADR 69,094
2,000 Coca-Cola Femsa SA ADR 41,000
19,000 Consorcio ARA SA de CV (NON) 30,349
10,800 Controladora Comercial Mexicana 13,848
2,404 Corporacion Interamericana de Entretenimiento SA Class B (NON) 12,539
14,300 Corporacion Moctezuma, SA de CV 24,861
950 Desc SA de CV ADR 11,400
14,600 Embotelladores Del Valle de Anahuac SA Class B (NON) 8,757
9,300 Fomento Economico Mexicano, SA de CV 42,038
335 Fomento Economico Mexicano, SA de CV ADR 15,263
13,600 Grupo Carso SA de CV Ser. A1 (NON) 48,323
32,800 Grupo Dataflux SA 9,053
3,300 Grupo Elektra SA ADR 33,206
30,200 Grupo Financiero Banamex-Accival (Banacci) SA de CV (NON) 154,232
63,800 Grupo Financiero Bancomer SA de CV (NON) 38,268
44,300 Grupo Financiero Banorte SA de CV (NON) 58,727
4,700 Grupo Financiero Inbursa SA de CV (NON) 17,772
1,000 Grupo Imsa SA de CV ADR 10,438
4,000 Grupo Industrial Saltillo Class B ADR 7,032
10,700 Grupo Mexico SA 47,786
36,100 Grupo Modelo SA de CV Ser. C 90,024
18,350 Grupo Sanborns SA Ser. B1 (NON) 30,507
2,225 Grupo Televisa SA GDR (NON) 144,069
5,500 Organizacion Soriana SA Class B 23,726
5,280 Telefonos de Mexico SA ADR Class L 287,430
2,000 Transportacion Maritima Mexicana SA Class L ADR (NON) 16,875
1,100 Tubos de Acero de Mexico SA ADR 16,569
3,750 TV Azteca SA de CV ADR 50,391
8,000 Walmart de Mexico SA de CV Ser. C (NON) 18,776
33,000 Walmart de Mexico SA de CV Ser. V (NON) 82,473
-------------
1,619,198

United States (2.6%)
-------------------------------------------------------------------------------------------------------------------
2,000 America Online Latin America, Inc. (NON) 15,625
2,790 AT&T Latin America Corp. Class A (NON) 39,060
2,100 Prodigy Communications Corp. Class A (NON) 15,814
1,800 StarMedia Network, Inc. (NON) 15,300
-------------
85,799
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $2,708,407) (b) $ 3,315,724
-------------------------------------------------------------------------------------------------------------------

(a) Percentages indicated are based on net assets of $3,341,837.

(b) The aggregate identified cost on a tax basis is $2,758,757,
resulting in gross unrealized appreciation and depreciation of $717,726
and $160,759, respectively, or net unrealized appreciation of $556,967.

(NON) Non-income-producing security.

ADR or GDR after the name of a foreign holding stands for American Depositary
Receipts or Global Depositary Receipts, respectively, representing ownership
of foreign securities on deposit with a custodian bank.

The fund had the following industry group concentrations greater
than 10% at August 31, 2000 (as a percentage of net assets):

Communication services 27.0%
Consumer staples 22.8
Financial 14.9
Basic materials 12.5

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

</TABLE>

Liabilities
-------------------------------------------------------------------------------------------
Payable for securities purchased 24,344
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 8,821
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 319
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 950
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 7
-------------------------------------------------------------------------------------------
Other accrued expenses 4,093
-------------------------------------------------------------------------------------------
Total liabilities 38,534
-------------------------------------------------------------------------------------------
Net assets $3,341,837

Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $3,217,457
-------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (3,406)
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and
foreign currency transactions (Note 1) (479,557)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 607,343
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $3,341,837

* 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

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

</TABLE>

STATEMENT OF OPERATIONS
Year ended August 31, 2000
<S> <C>
Investment income:
-------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $2,503) $ 45,335
-------------------------------------------------------------------------------------------
Interest 1,782
-------------------------------------------------------------------------------------------
Total investment income 47,117

Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 27,190
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 4,459
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 2,377
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 40
-------------------------------------------------------------------------------------------
Reports to shareholders 4,277
-------------------------------------------------------------------------------------------
Auditing 27,302
-------------------------------------------------------------------------------------------
Legal 3,714
-------------------------------------------------------------------------------------------
Other 354
-------------------------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Note 2) (24,851)
-------------------------------------------------------------------------------------------
Total expenses 44,862
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (2,206)
-------------------------------------------------------------------------------------------
Net expenses 42,656
-------------------------------------------------------------------------------------------
Net investment income 4,461
-------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 176,174
-------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (3,425)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities
in foreign currencies during the year 1,358
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 553,954
-------------------------------------------------------------------------------------------
Net gain on investments 728,061
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $732,522
-------------------------------------------------------------------------------------------

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

</TABLE>

STATEMENT OF CHANGES IN NET ASSETS

Net assets
--------------------------------------------------------------------------------------------------
Beginning of year 1,753,277 1,133,219
--------------------------------------------------------------------------------------------------
End of year (including distributions in excess of
net investment income and undistributed net investment
income of $3,406 and $1,375, respectively) $3,341,837 $1,753,277
--------------------------------------------------------------------------------------------------

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

</TABLE>

FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)

---------------------------------------------------------------------------
For the period
Per-share March 23, 1998+
operating performance Year ended August 31 to August 31
---------------------------------------------------------------------------
2000 1999 1998
---------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $5.98 $4.46 $8.50
---------------------------------------------------------------------------
Investment operations
---------------------------------------------------------------------------
Net investment income (a)(d) .01 .09 .06
---------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 2.70 1.58 (4.10)
---------------------------------------------------------------------------
Total from
investment operations 2.71 1.67 (4.04)
---------------------------------------------------------------------------
Less distributions:
---------------------------------------------------------------------------
From net
investment income (.02) (.15) --
---------------------------------------------------------------------------
Net asset value,
end of period $8.67 $5.98 $4.46
---------------------------------------------------------------------------

Ratios and supplemental data
---------------------------------------------------------------------------
Total return at
net asset value (%)(b) 45.33 38.27 (47.53)*
---------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,342 $1,753 $1,133
---------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c)(d) 1.65 1.65 .73*
---------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(d) .16 1.53 .87*
---------------------------------------------------------------------------
Portfolio turnover (%) 101.74 131.26 44.39*
---------------------------------------------------------------------------

+ Commencement of operations.

* Not annualized.

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

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

(d) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses for the fund for the periods ended
August 31, 2000, August 31, 1999 and August 31, 1998 reflect a reduction
of $0.07, $0.12 and $0.08 per share, respectively (Note 1).

</TABLE>

NOTES TO FINANCIAL STATEMENTS
August 31, 2000

Note 1
Significant accounting policies

Putnam Latin America Fund (the "fund") is a series of Putnam Funds Trust
(the "trust") which is registered under the Investment Company Act of
1940, as amended, as an open-end diversified management investment
company. The objective of the fund is to seek long-term capital
appreciation by investing primarily in equity securities of Latin
American companies.

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 of 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.

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 Investment Management, Inc. ("Putnam Management"), the fund's
manager, a wholly-owned subsidiary of Putnam Investments, Inc. 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.
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 accounted for on the trade date (date the order to buy
or sell is executed). Gains or losses on securities sold are determined
on the identified cost basis.

Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date except that certain dividends from
foreign securities are recorded 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.

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 are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when accrued 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 and the difference between the amount
of investment income and foreign withholding taxes recorded on the
fund's books and the U.S. dollar equivalent amounts actually received or
paid. Net unrealized appreciation and depreciation of assets and
liabilities in foreign currencies arise from changes in the value of
open forward currency contracts and assets and liabilities other than
investments at the period end, resulting from changes in the exchange
rate. Investments in foreign securities involve certain risks, including
those related to economic instability, unfavorable political
developments, and currency fluctuations, not present with domestic
investments.

F) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintain an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the year ended
August 31, 2000, the fund had no borrowings against the line of credit.

G) 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.

At August 31, 2000, the fund had a capital loss carryover of
approximately $429,000 available to offset future capital gains, if any.
The amount of the carryover and the expiration dates are:

Loss Carryover Expiration
-------------- ------------------
$363,000 August 31, 2007
66,000 August 31, 2008

H) 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. These differences include temporary and permanent
differences of losses on wash sale transactions, foreign currency gains
and losses, post-October loss deferrals and foreign taxes.
Reclassifications are made to the fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryovers) under income tax regulations. For the year ended August 31,
2000, the fund reclassified $3,427 to decrease undistributed net
investment income with a corresponding $3,427 to decrease accumulated
net realized losses. The calculation of net investment income per share
in the financial highlights table excludes these adjustments.

I) 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 Trustees 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: 1.00% of the
first $500 million of average net assets, 0.90% of the next $500
million, 0.85% of the next $500 million, 0.80% of the next $5 billion,
0.775% of the next $5 billion, 0.755% of the next $5 billion, 0.74% of
the next $5 billion and 0.73% thereafter.

Putnam Management has agreed to limit its compensation (and, to the
extent necessary, bear other expenses) through August 31, 2001, to the
extent that expenses of the fund (exclusive of brokerage commissions,
interest, taxes, deferred organizational and extraordinary expense,
credits from Putnam Fiduciary Trust Company (PFTC), a subsidiary of
Putnam Investments, Inc. and payments under the Trust's distribution
plan) would exceed an annual rate of 1.65% 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 year ended August 31, 2000, fund expenses were reduced by $2,206
under expense offset arrangements with PFTC. 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 $100
has been allocated to the fund, and an additional fee for each Trustees
meeting attended. Trustees receive additional fees for attendance at
certain committee meetings.

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

The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as a Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in 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 a distribution plan (the "Plan") pursuant to Rule
12b-1 under the Investment Company Act of 1940. The purpose of the Plan
is to compensate Putnam Retail Management, Inc., a wholly-owned
subsidiary of Putnam Investments, Inc., for services provided and
expenses incurred by it in distributing shares of the fund. The Plan
provides for payment by the fund to Putnam Retail Management, Inc. at an
annual rate of up to 0.35% of the fund's average net assets. The
trustees currently have not approved any payments pursuant to the plan.

For the year ended August 31, 2000, Putnam Retail Management, Inc.,
acting as underwriter received no net commissions from the sale of
shares. A deferred sales charge of up to 1% is assessed on certain
redemptions of shares. For the year ended August 31, 2000, Putnam Retail
Management, Inc., acting as underwriter received no monies on
redemptions.

Note 3
Purchases and sales of securities

During the year ended August 31, 2000, cost of purchases and proceeds
from sales of investment securities other than short-term investments
aggregated $3,528,372 and $2,685,717, respectively. There were no
purchases and sales of U.S. government obligations.

Note 4
Capital shares

At August 31, 2000, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:

Year ended August 31, 2000
---------------------------------------------------------------------------
Shares Amount
---------------------------------------------------------------------------
Shares sold 119,320 $1,088,701
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 699 5,770
---------------------------------------------------------------------------
120,019 1,094,471

Shares
repurchased (27,680) (232,618)
---------------------------------------------------------------------------
Net increase 92,339 $ 861,853
---------------------------------------------------------------------------

Year ended August 31, 1999
---------------------------------------------------------------------------
Shares Amount
---------------------------------------------------------------------------
Shares sold 62,389 $362,692
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 7,838 38,017
---------------------------------------------------------------------------
70,227 400,709

Shares repurchased (31,254) (191,083)
---------------------------------------------------------------------------
Net increase 38,973 $209,626
---------------------------------------------------------------------------

At August 31, 2000, Putnam Investments, Inc. owned 314,793 shares of the
fund (81.6% of shares outstanding), valued at $2,729,255.

FEDERAL TAX INFORMATION
(Unaudited)

For the period ended August 31, 2000, interest and dividends from
foreign countries were $48,043 or $0.125 per share. Taxes paid to
foreign countries were $2,503 or $0.006 per share.

The Form 1099 you receive in January 2001 will show the tax status of
all distributions paid to your account in calendar 2000.

FUND INFORMATION

WEB SITE

www.putnaminvestments.com

INVESTMENT MANAGER

Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109

MARKETING SERVICES

Putnam Retail Management, Inc.
One Post Office Square
Boston, MA 02109

CUSTODIAN

Putnam Fiduciary Trust Company

LEGAL COUNSEL

Ropes & Gray

INDEPENDENT ACCOUNTANTS

PricewaterhouseCoopers LLP

TRUSTEES

John A. Hill, Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike

OFFICERS

George Putnam, III
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

Ian C. Ferguson
Vice President

Brett C. Browchuk
Vice President

Stephen Oristaglio
Vice President

Thomas R. Haslett
Vice President and Fund Manager

Stephen S. Oler
Vice President and Fund Manager

Claudio Brocado
Vice President and Fund Manager

Richard A. Monaghan
Vice President

Richard G. Leibovitch
Vice President

John R. Verani
Vice President

This report is for the information of shareholders of Putnam Latin
America Fund. 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' Web site:
www.putnaminvestments.com.

Not FDIC Insured, May Lose Value, No Bank Guarantee

21A 64659 10/00

Putnam
Asia Pacific
Fund II

ANNUAL REPORT ON PERFORMANCE AND OUTLOOK

8-31-00

[SCALE LOGO OMITTED]

FROM THE TRUSTEES

[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III]

Dear Shareholder:

It is a pleasure to comment on the performance of Putnam Asia Pacific
Fund II and its management for the first time in our new roles as
Chairman of the Trustees and President of the Funds. As you know, both
of us have been members of the Board of Trustees for a number of years
and have closely followed your fund's progress since its inception. We
are also pleased to announce the addition of Simon Davis to your fund's
management team shortly after the close of the fiscal year. Before
joining Putnam earlier this year, Simon was with Deutsche Asset
Management (Japan), Ltd., and Morgan Grenfell & Co., Ltd. He has 12
years of investment experience.

After an impressive performance in the fourth quarter of 1999, your fund
withstood ensuing global market volatility in the first and second
quarters of 2000 and its performance more than doubled that of the MSCI
Asia Free ex-Japan Index, the fund's benchmark, at the end of the
period.

Total return for 12 months ended 8/31/00

NAV POP
-----------------------------------------------------------------------
8.07% 1.90%
-----------------------------------------------------------------------

Past performance is not indicative of future results. Performance
information for longer periods and an explanation of performance
calculation methods begin on page 6.

* ASIAN MARKETS: STUDY IN RESILIENCY

Following the global rally of growth stocks in 1999 and rising consumer
and business demand, the increase of interest rates in the United States
in the spring of 2000 sparked a decline in leading growth sectors. Asian
technology companies in particular felt the impact of the ensuing stock
price correction, as their exporters suffered a slowdown from European
and U.S. customers. However, your fund's managers, Carmel Peters and
Paul C. Warren were able to use the portfolio's broad diversification to
help cushion it against the worst of the volatility. They also took
advantage of lowered stock prices to increase positions in key holdings
and adhered to the fund's strategy of seeking long-term capital
appreciation through a range of Asian companies (outside Japan) that are
priced below the economic value of their businesses. Your managers'
diligence was rewarded, as Asian markets have shown continued resilience
in the face of global market uncertainty.

[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]

TOP INDUSTRY SECTORS*

Financial 27.8%

Technology 26.7%

Communications
services 8.7%

Consumer
cyclicals 7.4%

Conglomerates 7.0%

Footnote reads:
*Based on net assets as of 8/31/00. Holdings will vary over time.

Taiwan in particular demonstrated its ability to recover from
catastrophe in the form of a devastating earthquake in September 1999.
By the first quarter of 2000, the market had made a remarkably quick
turnaround and held steady through the key political event of the past
12 months in Taiwan, the election of President Chien Shui-bian in March.
This is the first peaceful transfer of power from mainland China since
1949. Since then, however, Taiwan's market has not fared well, partly
due to President Chien's increasingly outspoken stance against the
mainland and subsequent tensions between the ruling parties.

The good news is that Taiwan's foundry companies have for the most part
been unaffected by this bearish market, as export demand for
seminconductor equipment regained its foothold after the second quarter
of 2000. The management team has added to the fund's holdings of Taiwan
Semiconductor Manufacturing Company and United Microelectronics
Corporation, two foundry companies that have benefited during the period
from consistent exports to the United States and Europe, and most
recently from outsourcing orders from Japan.

* RECOVERY APPARENT IN SEVERAL REGIONS

In the second half of 1999, the Hong Kong economy gradually emerged from
a period of prolonged recession, catching up with the rest of the
region. Hong Kong's recovery may have been slower than that of other
Asian countries, but as its export growth has picked up, economic
activity has rebounded.

[GRAPHIC OMITTED: TOP 10 HOLDINGS]

TOP 10 HOLDINGS

Hutchison Whampoa Ltd.
Hong Kong
Conglomerates

Samsung Electronics
South Korea
Technology

Taiwan Semiconductor
Manufacturing Co.
Taiwan
Technology

China Mobile Ltd.
Hong Kong
Communication services

Cheung Kong Infrastructure
Holdings
Hong Kong
Financial

Johnson Electric Holdings Ltd.
Hong Kong
Technology

Korea Electric Power Corp.
South Korea
Utilities

Sun Hung Kai Properties, Ltd.
Hong Kong
Financial

Venture Manufacturing Ltd.
Singapore
Technology

Hang Seng Bank Ltd.
Hong Kong
Financial

Footnote reads:
These holdings represent 33.2% of the fund's net assets as of 8/31/00.
Portfolio holdings will vary over time.

Cyclical earnings have also shown an enormous recovery over the period.
One example from the portfolio is Beijing Yanhua Petrochemical, the
leading producer of ethylene and mainland China's largest plastic maker,
whose earnings increased substantially over the period.

Outside the technology and cyclical sectors, property stocks in Hong
Kong have shown great promise. Because of the island's delayed recovery,
property values in Hong Kong had declined; this, in turn, lowered the
cost of housing and office rentals. Recently the rental market has seen
a remarkable turnaround thanks to dot-com and software companies that
moved into Hong Kong and leased available office property. The
oversupply of office property that existed two years ago is now a thing
of the past.

One of the fund's holdings that has benefited from the land property
boon is Hongkong Land Holdings, a subsidiary of Jardine Matheson
Limited. Hongkong Land Holdings owns five million square feet of prime
office and retail space in Hong Kong, valued at more than 4 billion U.S.
dollars. In addition, the company is currently developing office and
retail real estate in Singapore.

India, like the rest of the region, has been riding out the wave of
global market uncertainty. With more than 30% of its market in
technology, it has been highly influenced by the highs and lows of the
Nasdaq. Infosys Technologies, a provider of Internet and e-commerce
software services, has followed this trend but appears to be fairly
resilient. For example, many of the software companies in the United
States and Europe had difficulty reallocating business priorities from
Y2K solutions to e-commerce software during the first quarter of 2000.
The Y2K "hiccup" did not affect Infosys, however, whose profits were up
260% at the end of 1999, and it managed a much smoother transition than
did its competitors.

* OUTLOOK REMAINS POSITIVE

Although ongoing volatility in the Nasdaq may have more adverse effects
on Asian markets, we believe that fundamentals in the region are strong
and that valuations are especially attractive. There is some speculation
that a slowdown in PC demand and semiconductor equipment could occur in
the near future, but experts also believe that the region's rebound from
the Asian crisis in 1997 and 1998 highlights its continued resilience.
The managers will continue to adhere to their investment strategy of
selecting countries that they believe offer strong fundamentals and
valuations within the context of international investing.

Respectfully yours,

/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III

John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
October 18, 2000

The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 8/31/00, there is no guarantee the fund will
continue to hold these securities in the future. International investing
involves certain risks, such as currency fluctuations, economic
instability, and political developments. Funds investing in a single
region may be subject to more volatility than funds investing in a
diverse group of regions. Currently the fund is offered on a limited
basis and has limited assets.

PERFORMANCE SUMMARY

This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Asia Pacific Fund II is designed for investors seeking long-term capital
appreciation through common stocks and other securities of companies
located in Asia other than Japan.

TOTAL RETURN FOR PERIODS ENDED 8/31/00

MSCI Asia Free Consumer
Since 3/23/98 NAV POP ex-Japan Index price index
----------------------------------------------------------------------
1 year 8.07% 1.90% -5.98% 3.23%
----------------------------------------------------------------------
Life of fund 40.65 32.54 15.15 6.41
Annual average 15.00 12.24 6.00 2.60
----------------------------------------------------------------------

Past performance is no assurance of future results. More recent returns
may be more or less than those shown. Returns reflect the current
maximum initial sales charge of 5.75%. All returns assume reinvestment
of distributions at NAV. Investment return and principal value will
fluctuate so that an investor's shares when redeemed may be worth more
or less than their original cost. Performance data reflects an expense
limitation currently in effect, without which total returns would have
been lower.

PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 8/31/00

------------------------------------------------------------
Distributions
(number)*
------------------------------------------------------------
Share value: NAV POP
------------------------------------------------------------
8/31/99 $10.90 $11.56
------------------------------------------------------------
8/31/00 11.78 12.50
------------------------------------------------------------

*The fund did not make any distributions during the period.

TOTAL RETURN FOR PERIODS ENDED 9/30/00 (most recent calendar quarter)

Since 3/23/98 NAV POP
---------------------------------------------------------------------
1 year 2.24% -3.67%
---------------------------------------------------------------------
Life of fund 25.25 18.03
Annual average 9.35 6.80
---------------------------------------------------------------------

[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]

GROWTH OF A $10,000 INVESTMENT

Cumulative total return of a $10,000 investment since 3/23/98

MSCI Asia Free
Fund's shares ex-Japan Consumer price
Date at POP Index index

3/23/98 9,425 10,000 10,000
8/31/98 5,798 5,572 10,080
2/28/99 8,000 8,156 10,160
8/31/99 12,264 12,248 10,308
2/29/00 16,427 13,561 10,481
8/31/00 $13,254 $11,515 $10,641

Footnote reads:
Past performance is no assurance of future results. See first page of
performance section for performance calculation method.

TERMS AND DEFINITIONS

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

Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.

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 5.75% maximum sales charge.

COMPARATIVE BENCHMARKS

Morgan Stanley Capital International (MSCI) Asia Free ex-Japan Index is
an arithmetic, market value weighted average of the performance of the
securities listed on the stock exchanges of those countries, excluding
issues denominated in yen. The index assumes reinvestment of all
distributions and interest payments and does not take into account
brokerage fees or taxes. Securities in the fund do not match those in
the index and performance of the fund will differ. It is not possible to
invest directly in an index.

Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.

A GUIDE TO THE FINANCIAL STATEMENTS

These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.

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

REPORT OF INDEPENDENT ACCOUNTANTS
For the fiscal year ended August 31, 2000

To the Trustees of Putnam Funds Trust and
Shareholders of Putnam Asia Pacific Fund II
(a series of Putnam Funds Trust)

In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Putnam Asia
Pacific Fund II at August 31, 2000, and the results of its operations,
the changes in its net assets and the financial highlights for the
periods indicated, in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as "financial statements")
are the responsibility of the fund's management; our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits of these financial statements in accordance with
auditing standards generally accepted in the United States of America,
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made
by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
investments owned at August 31, 2000, by correspondence with the
custodian, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
Boston, Massachusetts
October 12, 2000

THE FUND'S PORTFOLIO
August 31, 2000

COMMON STOCKS (96.7%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
China (1.7%)
-------------------------------------------------------------------------------------------------------------------
180,000 Beijung Yanhua Petrochemical Co., Ltd., Class H $ 27,003
60,000 Huaneng Power International, Inc., Class H 25,003
70,000 Yanzhou Coal Mining Co., Ltd. 20,195
-------------
72,201

Hong Kong (34.5%)
-------------------------------------------------------------------------------------------------------------------
7,000 Asia Satellite Telecommunications Holdings, Ltd. 20,464
11,000 Cheung Kong Infrastructure Holdings 143,158
20,000 China Mobile, Ltd. (NON) 153,863
140,000 China Resources Beijing Land, Ltd. 29,798
12,000 China Unicom, Ltd. (NON) 27,849
7,000 Citic Pacific, Ltd. 33,388
7,000 CLP Holdings, Ltd. 31,414
32,000 Cosco Pacific, Ltd. 28,926
9,000 Hang Seng Bank, Ltd. 96,646
6,000 Henderson Land Development Co., Ltd. (R) 33,312
34,000 Hong Kong and China Gas Co., Ltd. 42,287
10,000 Hong Kong Electric Holdings, Ltd. 31,670
14,000 Hong Kong Exchanges and Clearing, Ltd. (NON) 28,991
18,000 Hong Kong Land Holdings, Ltd. 36,000
14,900 Hutchison Whampoa, Ltd. 210,151
52,000 Johnson Electric Holdings, Ltd. 109,013
26,000 Legend Holdings, Ltd. 27,670
13,000 Li & Fung, Ltd. 56,673
12,000 New World Development Co., Ltd. 19,618
27,836 Pacific Century CyberWorks, Ltd. (NON) 51,752
140,000 PetroChina Co., Ltd. 33,388
11,000 Sun Hung Kai Properties, Ltd. 104,724
7,000 Swire Pacific, Ltd., Class A 48,018
14,000 The Wharf (Holdings), Ltd. 33,299
-------------
1,432,072

India (7.7%)
-------------------------------------------------------------------------------------------------------------------
1,000 Dr. Reddy's Laboratories, Ltd. 28,962
400 Himachal Futuristic Communications, Ltd. 12,396
6,000 Hindustan Lever, Ltd. (NON) 31,275
1,800 Housing Development Finance Corp., Ltd. (NON) 20,726
3,000 ICICI Bank, Ltd. ADR (NON) 34,500
460 Infosys Technologies, Ltd. 84,161
1,000 NIIT, Ltd. 41,195
1,500 Reliance Industries GDR 23,625
600 Wipro Corp., Inc. 43,111
-------------
319,951

Malaysia (3.7%)
-------------------------------------------------------------------------------------------------------------------
7,000 Commerce Asset-Holding Berhad 18,421
10,000 Digi.com Berhad (NON) 18,421
5,000 Malayan Banking Berhad 19,211
20,000 Public Bank Berhad 17,158
9,000 Resorts World Berhad 18,592
9,000 Tanjong Public, Ltd. 19,539
7,000 Telekom Malaysia Berhad 19,895
7,000 Tenaga National Berhad 23,395
-------------
154,632

Philippines (0.6%)
-------------------------------------------------------------------------------------------------------------------
16,500 Manila Electric Co., Class B 23,990

Singapore (12.1%)
-------------------------------------------------------------------------------------------------------------------
7,000 Chartered Semiconductor Manufacturing, Ltd. (NON) 58,577
7,815 DBS Group Holdings, Ltd. 94,463
14,000 Keppel Land, Ltd. 21,722
8,250 Overseas-Chinese Banking Corp. 57,052
7,000 Singapore Airlines, Ltd. 67,527
32,000 Singapore Maritime, Ltd. 144A 12,459
2,600 Singapore Press Holdings, Ltd. 41,853
5,801 United Overseas Bank, Ltd. 45,510
8,000 Venture Manufacturing, Ltd. 102,278
-------------
501,441

South Korea (16.2%)
-------------------------------------------------------------------------------------------------------------------
250 Cheil Communications, Inc. 26,382
500 Hankuk Electric Glass 38,559
1,000 H&CB 21,376
1,600 Hyundai Electronics Industries Co., Ltd. (NON) 29,296
1,600 Hyundai Motor Co., Ltd. 24,245
1,100 Kookmin Credit Card Co., Ltd. (NON) 34,130
3,600 Korea Electric Power Corp. 105,854
550 Korea Telecom Corp. ADR 20,831
250 LG Home Shopping, Inc. 25,255
300 Pohang Iron & Steel Company, Ltd. 22,521
770 Samsung Electronics 189,947
400 Samsung SDI Co., Ltd. 17,859
2,200 Shinhan Bank 24,010
500 Shinsegae Department Store Co, 24,894
2,624 SK Telecom Co., Ltd. ADR 67,240
-------------
672,399

Taiwan (15.2%)
-------------------------------------------------------------------------------------------------------------------
200 Acer Peripherals, Inc. 464
900 ASE Test, Ltd. (NON) 21,881
44,000 Bank Sinopac 25,102
11,800 Cathay Life Insurance Co., Ltd. 27,194
37,120 Chinatrust Commercial Bank 29,313
8,750 Delta Electronics Industrial 33,562
17,920 Far Eastern Textile, Ltd. 19,985
4,500 Hon Hai Precision Industry 34,376
13,000 Nan Ya Plastic Corp. 21,579
6,000 President Chain Store Corp. 17,792
3,000 Siliconware Precision Industries ADR (NON) 21,750
30,000 Taishin Intl. Bank 18,179
37,888 Taiwan Semiconductor Manufacturing Co. (NON) 164,253
34,080 United Microelectronics Corp. 90,624
28,000 United World Chinese Commercial Bank Corp. 24,097
2,500 Via Technologies, Inc. (NON) 33,360
1,197 Winbond Electronics Corp. 144A GDR (NON) 29,376
8,000 Winbond Electronics Corp. (NON) 19,855
-------------
632,742

Thailand (3.1%)
-------------------------------------------------------------------------------------------------------------------
2,500 Advanced Information Service Public Co., Ltd. (NON) 30,233
3,500 Bec World Public Co., Ltd. 21,077
5,000 PTT Exploration & Production Public Co., Ltd. 29,865
30,000 TelecomAsia Corp. Public Co., Ltd. (NON) 24,235
37,000 Thai Farmers Bank Public Co., Ltd. (NON) 22,644
-------------
128,054

United Kingdom (1.9%)
-------------------------------------------------------------------------------------------------------------------
5,600 HSBC Holdings PLC 79,702
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $3,098,028) (b) $4,017,184
-------------------------------------------------------------------------------------------------------------------

(a) Percentages indicated are based on net assets of $4,155,693.

(b) The aggregate identified cost on a tax basis is $3,165,425,
resulting in gross unrealized appreciation and depreciation of
$1,065,218 and $213,459, respectively, or net unrealized appreciation of
$851,759.

(NON) Non-income-producing security.

(R) Real Estate Investment Trust.

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.

ADR or GDR after the name of a foreign holding stands for American
Depositary Receipts or Global Depositary Receipts, respectively,
representing ownership of foreign securities on deposit with a domestic
custodian bank.

The fund had the following industry group concentrations greater
than 10% at August 31, 2000 (as a percentage of net assets):

Financial 27.8%
Technology 26.7

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

</TABLE>

STATEMENT OF ASSETS AND LIABILITIES
August 31, 2000
<S> <C>
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $3,098,028) (Note 1) $4,017,184
-------------------------------------------------------------------------------------------
Foreign currency (cost $301,518) 300,453
-------------------------------------------------------------------------------------------
Dividends and other receivables 5,370
-------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 20,000
-------------------------------------------------------------------------------------------
Receivable for securities sold 74,513
-------------------------------------------------------------------------------------------
Total assets 4,417,520

Liabilities
-------------------------------------------------------------------------------------------
Payable to subcustiodian (Note 2) 218,154
-------------------------------------------------------------------------------------------
Payable for securities purchased 32,975
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 4,106
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 1,081
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 950
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 7
-------------------------------------------------------------------------------------------
Other accrued expenses 4,554
-------------------------------------------------------------------------------------------
Total liabilities 261,827
-------------------------------------------------------------------------------------------
Net assets $4,155,693

Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $3,322,248
-------------------------------------------------------------------------------------------
Accumulated net investment loss (Note 1) (13,833)
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and
foreign currency transactions (Note 1) (66,492)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 913,770
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $4,155,693

* 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

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

</TABLE>

STATEMENT OF OPERATIONS
Year ended August 31, 2000
<S> <C>
Investment income:
-------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $4,924) $52,450
-------------------------------------------------------------------------------------------
Interest 504
-------------------------------------------------------------------------------------------
Total investment income 52,954

Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 40,745
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 6,310
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 2,378
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 40
-------------------------------------------------------------------------------------------
Reports to shareholders 5,076
-------------------------------------------------------------------------------------------
Auditing 35,310
-------------------------------------------------------------------------------------------
Legal 3,742
-------------------------------------------------------------------------------------------
Other 288
-------------------------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Note 2) (26,659)
-------------------------------------------------------------------------------------------
Total expenses 67,230
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (401)
-------------------------------------------------------------------------------------------
Net expenses 66,829
-------------------------------------------------------------------------------------------
Net investment loss (13,875)
-------------------------------------------------------------------------------------------
Net realized gain on investments (net of
foreign tax of $30,251) (Notes 1 and 3) 121,911
-------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (15,295)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities
in foreign currencies during the year (789)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments
during the year (net of foreign tax of $4,315) (12,838)
-------------------------------------------------------------------------------------------
Net gain on investments 92,989
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $79,114
-------------------------------------------------------------------------------------------

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

</TABLE>

STATEMENT OF CHANGES IN NET ASSETS

Net assets
--------------------------------------------------------------------------------------------------
Beginning of year 3,129,494 1,330,707
--------------------------------------------------------------------------------------------------
End of year (including accumulated net investment loss
and distributions in excess of net investment income of
$13,833 and $7,411, respectively) $4,155,693 $3,129,494
--------------------------------------------------------------------------------------------------

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

</TABLE>

FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)

---------------------------------------------------------------------------
For the period
Per-share March 23, 1998+
operating performance Year ended August 31 to August 31
---------------------------------------------------------------------------
2000 1999 1998
---------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $10.90 $5.23 $8.50
---------------------------------------------------------------------------
Investment operations
---------------------------------------------------------------------------
Net investment income (loss)(a)(b) (.04) .03 .06
---------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .92 5.75 (3.33)
---------------------------------------------------------------------------
Total from
investment operations .88 5.78 (3.27)
---------------------------------------------------------------------------
Less distributions:
---------------------------------------------------------------------------
From net investment income -- (.03) --
---------------------------------------------------------------------------
In excess of net investment income -- (.06) --
---------------------------------------------------------------------------
From return of capital -- (.02) --
---------------------------------------------------------------------------
Total distributions -- (.11) --
---------------------------------------------------------------------------
Net asset value,
end of period $11.78 $10.90 $5.23
---------------------------------------------------------------------------

Ratios and supplemental data
---------------------------------------------------------------------------
Total return at
net asset value (%)(c) 8.07 111.52 (38.47)*
---------------------------------------------------------------------------
Net assets, end of period
(in thousands) $4,156 $3,129 $1,331
---------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b)(d) 1.65 1.65 .73*
---------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%)(b) (.34) .35 .99*
---------------------------------------------------------------------------
Portfolio turnover (%) 288.55 234.28 202.60*
---------------------------------------------------------------------------

+ Commencement of operations.

* Not annualized.

(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) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses for the fund reflect a reduction of
$.08, $.12 and $.07 per share for the periods ended August 31, 2000,
August 31, 1999 and August 31, 1998, respectively (Note 2).

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

</TABLE>

NOTES TO FINANCIAL STATEMENTS
August 31, 2000

Note 1
Significant accounting policies

Putnam Asia Pacific Fund 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 capital appreciation by investing primarily in
common stocks and other securities of companies located in Asia and in
the Pacific Basin, other than Japan.

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 of 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.

F) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintains an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the year ended
August 31, 2000, the fund had no borrowings against the line of credit.

H) 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. These differences include temporary and permanent
differences of losses on wash sale transactions, foreign currency gains
and losses, foreign taxes, post-October loss deferrals and realized and
unrealized gains and losses on passive foreign investment companies.
Reclassifications are made to the fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryovers) under income tax regulations. For the year ended August 31,
2000, the fund reclassified $7,453 to decrease accumulated net
investment losses and $43,704 to decrease paid-in-capital, with a
decrease to accumulated net realized losses of $36,251. The calculation
of net investment income per share in the financial highlights table
excludes these adjustments.

Note 2
Management fee, administrative
services and other transactions

Putnam Management has agreed to limit its compensation (and, to the
extent necessary, bear other expenses) through August 31, 2001, to the
extent that expenses of the fund (exclusive of brokerage commissions,
interest, taxes, deferred organizational and extraordinary expense,
credits from Putnam Fiduciary Trust Company (PFTC), a subsidiary of
Putnam Investments, and payments under the Trust's distribution plan)
would exceed an annual rate of 1.65% of the fund's average net assets.

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.

Under the subcustodian contract between the subcustodian bank and PFTC,
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 August 31, 2000, the payable to the
subcustodian bank represents the amount due for cash advance for the
settlement of a security purchased.

For the year ended August 31, 2000, fund expenses were reduced by $401
under expense offset arrangements with PFTC. 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.

For the year ended August 31, 2000, Putnam Retail Management, Inc.,
acting as underwriter received no net commissions from the sale of
shares of the fund. A deferred sales charge of up to 1% is assessed on
certain redemptions of shares. For the year ended August 31, 2000,
Putnam Retail Management, Inc., acting as underwriter received no monies
on redemptions.

Note 3
Purchase and sales of securities

During the year ended August 31, 2000, cost of purchases and proceeds
from sales of investment securities other than short-term investments
aggregated $12,106,431 and $11,304,236, respectively. There were no
purchases and sales of U.S. government obligations.

Note 4
Capital shares

At August 31, 2000, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:

Year ended August 31, 2000
---------------------------------------------------------------------------
Shares Amount
---------------------------------------------------------------------------
Shares sold 149,557 $2,014,307
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
---------------------------------------------------------------------------
149,557 2,014,307

Shares
repurchased (83,892) (1,067,222)
---------------------------------------------------------------------------
Net increase 65,665 $ 947,085
---------------------------------------------------------------------------

Year ended August 31, 1999
---------------------------------------------------------------------------
Shares Amount
---------------------------------------------------------------------------
Shares sold 43,710 $359,791
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,792 28,025
---------------------------------------------------------------------------
47,502 387,816

Shares
repurchased (15,071) (123,526)
---------------------------------------------------------------------------
Net increase 32,431 $264,290
---------------------------------------------------------------------------

At August 31, 2000, Putnam Investments, Inc. owned 311,276 shares of the
fund (88.2% of shares outstanding), valued at $3,666,831.

FEDERAL TAX INFORMATION
(Unaudited)

Pursuant to Section 852 of the Internal Revenue Code, as amended, the
fund hereby designates $905 as capital gains, for its taxable year ended
August 31, 2000.

For the period, interest and dividends from foreign countries were
$148,180 or $0.420 per share. Taxes paid to foreign countries were
$35,175 or $0.10 per share.

The Form 1099 you receive in January 2001 will show the tax status of
all distributions paid to your account in calendar 2000.

FUND INFORMATION

WEB SITE

www.putnaminvestments.com

INVESTMENT MANAGER

Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109

MARKETING SERVICES

Putnam Retail Management, Inc.
One Post Office Square
Boston, MA 02109

CUSTODIAN

Putnam Fiduciary Trust Company

LEGAL COUNSEL

Ropes & Gray

INDEPENDENT ACCOUNTANTS

PricewaterhouseCoopers LLP

TRUSTEES

OFFICERS

George Putnam, III
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

Ian C. Ferguson
Vice President

Brett C. Browchuk
Vice President

Stephen Oristaglio
Vice President

Carmel Peters
Vice President and Fund Manager

Paul C. Warren
Vice President and Fund Manager

Richard A. Monaghan
Vice President

Richard G. Leibovitch
Vice President

John R. Verani
Vice President

This report is for the information of shareholders of Putnam Asia
Pacific Growth Fund 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' Web site:
www.putnaminvestments.com.

Not FDIC Insured, May Lose Value, No Bank Guarantee

21B 64668 10/00

Putnam
High Yield
Trust II

ANNUAL REPORT ON PERFORMANCE AND OUTLOOK

8-31-00

[SCALE LOGO OMITTED]

FROM THE TRUSTEES

[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III]

Dear Shareholder:

It is a pleasure to greet you in our new roles as Chairman of the
Trustees and President of the Funds. As you know, both of us have been
members of the Board of Trustees for a number of years -- years during
which the global securities markets, the mutual fund industry, and
Putnam itself have experienced tremendous growth and change.

As we look to the future, we are certain that the changes will be
breathtaking in their scope. What will not change is the Trustees'
dedication to serving the best interests of our shareholders.

We welcome the challenges that lie ahead and are confident that Putnam
and your Board will continue to face those challenges successfully as
they have for more than 60 years. We look forward to helping you meet
your financial objectives for many years to come.

Respectfully yours,

/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III

John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
October 18, 2000

REPORT FROM FUND MANAGEMENT

Jennifer E. Leichter
and the Credit Team

Rising interest rates and an increase in defaults made for a difficult
12-month period for the high-yield market. Within this tough
environment, Putnam High Yield Trust II worked to insulate the fund from
problem areas through a methodical approach and gradual repositioning.
While there were some bright spots, performance for fiscal year 2000
reflects the impact of the year's challenges rather than the effect of
its successes.

Total return for 12 months ended 8/31/00

Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
-----------------------------------------------------------------------
0.97% -3.78% 0.21% -4.31% 0.20% -0.71% 0.57% -2.68%
-----------------------------------------------------------------------

Past performance is no indication of future results. Performance
information for longer periods and explanation of performance
calculation methods begin on page 6.

* RISING INTEREST RATES AND INCREASED DEFAULTS CREATE A CHALLENGING
ENVIRONMENT

Rising interest rates ate into the returns of all fixed-income markets
during your fund's fiscal year, but the high-yield market was
particularly affected. The Federal Reserve Board pursued an aggressive
short-term interest-rate hike program in an attempt to cool off economic
growth and keep a lid on inflation. At the same time, the U.S. Treasury
inaugurated buybacks of long-term Treasury debt. This move sparked keen
demand for long-term Treasuries, causing long-term yields to fall. The
end result of these developments was an inverted yield curve. That is,
short-term yields actually rose higher than long-term rates.

High short-term yields made alternatives such as CDs more attractive,
and fears of reduced supply of long-term Treasuries kindled strong
demand for them. Rising interest rates also threatened the credit
quality of high-yield issuers, increasing borrowing costs and
foreshadowing an economic slowdown that could drag down corporate
earnings. Such a backdrop proved very difficult for high-yield bonds.

[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]

TOP INDUSTRY SECTORS*

Telecommunications 12.2%

Broadcasting 6.0%

Telephone 5.4%

Chemicals 3.8%

Paper and
forest products 3.7%

Footnote reads:
*Based on net assets as of 8/31/00. Holdings will vary over time.

"Our focus during the past 12 months was to avoid the credit problems
that were emerging in the market. Over the course of your fund's fiscal
year, we worked to build a more diversified portfolio in order to remain
nimble enough to respond to changing market conditions."

-- Jennifer E. Leichter, portfolio manager, Putnam High Yield Trust II

Historically, if high-yield issuers encounter any difficulties paying
off their debt, the problems tend to arise within three to five years
after coming to market. Such firms often use up the cushion of financing
provided by the funds they raise through their bond offering and may
then enter a period of financial strain. Default rates were on the rise
during your fund's fiscal year, less so because of rising interest rates
than from the fact that we witnessed an incredible amount of new
issuance from 1996 through 1998.

* ADDED DIVERSIFICATION HELPS PERFORMANCE

Our focus during the past 12 months was to avoid the credit problems
that were emerging in the market. Over the course of the fiscal year, we
worked to build a more diversified portfolio in order to remain nimble
enough to respond to changing market conditions. To that end, we
gradually reduced the overweighting in telecommunications issues the
fund had carried since its inception. This move proved to be prudent, as
that sector struggled significantly. Many companies faced an uphill
climb as they switched gears from building systems to gathering
customers, which can be a slower, more gradual process. This is not to
say that we've abandoned telecommunications altogether. On the
contrary, we still found selective pockets of the sector to be fertile
ground for future growth, including some fixed and mobile communications
firms.

[GRAPHIC OMITTED: TOP 10 HOLDINGS]

TOP 10 HOLDINGS

Midland Funding II Corp.
deb. Ser. A, 11 3/4s, 2005
Power producers

Nextel Communications, Inc.
sr. notes 9 3/8s, 2009
Telecommunications

Capstar Broadcasting
sr. disc. notes stepped-coupon zero %
(12 3/4s, 2/1/02), 2009
Broadcasting

Trump A.C.
1st mtge. 11 1/4s, 2006
Gaming & lottery

Millicom International Cellular S.A.
sr. disc. notes stepped-coupon zero %
(13 1/2s, 6/1/01), 2006 (Luxembourg)
Telecommunications

CSC Holdings, Inc.
Ser. M, $11.125 cum. pfd.
Cable television

Dobson Communications
13.00% pfd.
Telecommunications

Starwood Hotels & Resorts
bank term loan FRN 8.763s, 2/23/03
Lodging/tourism

Midland Funding II Corp.
deb. Ser. B, 13 1/4s, 2006
Power producers

Allied Waste Industries, Inc.
company guaranty Ser. B, 10s, 2009
Waste management

Footnote reads:
These holdings represent 7.0% of the fund's net assets as of 8/31/00.
Portfolio holdings will vary over time.

As we reduced telecommunications, we overweighted the portfolio in paper
and forest products, although we tended to avoid other cyclical sectors.
Broadcasting also was attractive, on both the radio and television
sides. This industry benefited from consolidation as well as healthy
advertising revenues arising from the strong economy and the election
season. Financial issues were another area of focus, especially regional
banks like Sovereign Bancorp, Inc. These corporations benefited from a
rising deposit base encouraged by the inverted yield curve, as well as
from the fact that many of them may be poised to participate in
consolidations. Finally, aerospace and defense firms such as BE
Aerospace, Inc. were appealing because of the anticipated increase in
demand for their products and services in 2001.

As far as performance was concerned, standouts included Repap New
Brunswick, which specializes in coated paper products. The company
benefited from improved product prices as well as its acquisition by
UPM-Kymmene Corporation of Finland. Two firms realized significant
appreciation, the result of their forthcoming acquisition by Verizon
Communications. Verizon first announced the acquisition of OnePoint
Communications Corp., which provides cable and other communications
services to apartment buildings. Just a few days later, Verizon
announced the acquisition of NorthPoint Communications Group, Inc.,
which offers digital subscriber lines (DSL) that carry fast Internet
connections. Viasystems Inc., a telecommunications equipment
manufacturing outsourcer, also performed well. While these holdings and
others discussed in this report were viewed favorably at the end of the
period, all holdings are subject to review in accordance with the fund's
investment strategy and may vary in the future.

Improving prospects for the high-yield market

Investment-grade corporate bonds have enjoyed a healthy run-up this year,
but the high-yield bond market has been buffeted by default fears,
bankruptcies, and rising interest rates. Recently, however, the Dow Jones
Newswires commented, "To paraphrase Mark Twain, reports of the death of
the junk bond (high-yield) market are greatly exaggerated . . . the blitz
of merger and acquisition activity is serving as a tonic for the market,
lifting the credit status of billions of dollars in debt and improving
investor confidence in previously out-of-favor sectors . . . Acquisitions
by investment-grade companies can be the ultimate windfall for high-yield
bondholders because their debt either is bought out at a juicy premium
or upgraded in credit quality if assumed by the parent."

On top of that, the outlook for stable interest rates bodes well for the
future of high-yield bonds, because such a backdrop gives investors more
confidence in fixed-income markets in general.

Source: Dow Jones Newswires, September 8, 2000

"After more than two years of suffering for investors in high-yield, or
junk, bonds -- and despite warnings of rising defaults -- a growing
number of fund managers and analysts are calling the bottom of the
market, saying the next 12 months or so could deliver the strongest
returns in years, even rivaling those of stocks."

-- Wall Street Journal, July 27, 2000

On the downside, the fund was exposed to Ameriserve Food, a food
distributor. The company filed for bankruptcy protection because its
suppliers lost confidence in the company's ability to meet its
obligations. We were fortunate to have sold off most of the fund's stake
in Ameriserve before it filed for bankruptcy, and we eliminated the rest
of our holdings shortly thereafter. United Artists also struggled, as
rising film costs, overbuilding, and unprofitable older facilities hurt
the company's movie theater business.

* MORE POSITIVE OUTLOOK SEEN FOR FISCAL 2001

Several factors point to a positive outlook for high-yield bonds over
the months to come. We currently expect defaults to peak in 2001 and
then begin to decline. Yields are very attractive on an historical
basis. It also appears that the Fed is finished with its latest round of
rate increases, having slowed the level of economic growth and
maintaining its historical policy of not changing interest rates just
prior to presidential elections. More importantly, the outlook regarding
the economy, interest rates, and the high-yield market is much less
uncertain than it was over the past year. If the factors that have
caused struggles in the high-yield market become stabilized, the
opportunities offered by high-yield bonds should continue to improve.

The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 8/31/00, there is no guarantee the fund will
continue to hold these securities in the future. The lower credit
ratings of high-yield bonds reflect a greater possibility that adverse
changes in the economy or poor performance by the issuers of these bonds
may affect the issuer's ability to pay principal and interest.

PERFORMANCE SUMMARY

This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
High Yield Trust II is designed for investors seeking high current
income through a diversified portfolio of high-yielding lower-rated
corporate bonds, with a secondary objective of capital growth when
consistent with high current income.

TOTAL RETURN FOR PERIODS ENDED 8/31/00

Class A Class B Class C Class M
(inception dates) (12/31/97) (12/31/97) (7/26/99) (12/31/97)
NAV POP NAV CDSC NAV CDSC NAV POP
------------------------------------------------------------------------------
1 year 0.97% -3.78% 0.21% -4.31% 0.20% -0.71% 0.57% -2.68%
------------------------------------------------------------------------------
Life of fund 3.76 -1.13 1.95 -0.44 1.18 1.18 3.09 -0.30
Annual average 1.39 -0.42 0.73 -0.17 0.44 0.44 1.15 -0.11
------------------------------------------------------------------------------

COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 8/31/00

First Boston
High Yield Consumer
Index price index
-----------------------------------------------------------------------
1 year 2.08% 3.23%
-----------------------------------------------------------------------
Life of fund 4.68 6.67
Annual average 1.73 2.45
-----------------------------------------------------------------------

Past performance is no assurance of future results. More recent returns
may be more or less than those shown. Returns for class A and class M
shares reflect the current maximum initial sales charges of 4.75% and
3.25%, respectively. Class B share returns for the 1-, 5- and 10-year,
if available, and life-of-fund periods reflect the applicable contingent
deferred sales charge (CDSC), which is 5% in the first year, declines to
1% in the sixth year, and is eliminated thereafter. Returns shown for
class B and class M shares for periods prior to their inception are
derived from the historical performance of class A shares, adjusted to
reflect both the initial sales charge or CDSC, if any, currently
applicable to each class and in the case of class B and class M shares
the higher operating expenses applicable to such shares. For class C
shares, returns for periods prior to their inception are derived from
the historical performance of class A shares, adjusted to reflect both
the CDSC currently applicable to class C shares, which is 1% for the
first year and is eliminated thereafter, and the higher operating
expenses applicable to class C shares. All returns assume reinvestment
of distributions at NAV. Investment return and principal value will
fluctuate so that an investor's shares when redeemed may be worth more
or less than their original cost.

[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]

GROWTH OF A $10,000 INVESTMENT

Cumulative total return of a $10,000 investment since 12/31/97

First Boston
Fund's class A High Yield Consumer price
Date shares at POP Index index

12/31/97 9,529 10,000 10,000
3/31/98 10,247 10,301 10,025
6/30/98 10,292 10,431 10,074
9/30/98 9,050 9,790 10,111
12/31/98 9,548 10,058 10,161
3/31/99 9,797 10,224 10,204
6/30/99 9,896 10,342 10,272
9/30/99 9,707 10,176 10,371
12/31/99 9,979 10,388 10,433
3/31/00 9,919 10,255 10,581
6/30/00 9,872 10,301 10,649
8/31/00 $9,887 $10,468 $10,667

Footnote reads:
Past performance is no assurance of future results. At the end of the
same time period, a $10,000 investment in the fund's class B would have
been valued at $10,195 ($9,956 at CDSC). A $10,000 investment in the
fund's class C shares would have been valued at $10,118 and no
contingent deferred sales charge would apply. A $10,000 investment in
the fund's class M shares would have been valued at $10,309 ($9,970 at
public offering price). See first page of performance section for
performance calculation method.

PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 8/31/00

Class A Class B Class C Class M
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Distributions (number) 12 12 12 12
---------------------------------------------------------------------------------------------
Income $0.780070 $0.726044 $0.725128 $0.762038
---------------------------------------------------------------------------------------------
Capital gains -- -- -- --
---------------------------------------------------------------------------------------------
Total $0.780070 $0.726044 $0.725128 $0.762038
---------------------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
---------------------------------------------------------------------------------------------
8/31/99 $7.49 $7.86 $7.50 $7.50 $7.50 $7.75
---------------------------------------------------------------------------------------------
8/31/00 6.78 7.12 6.79 6.79 6.78 7.01
---------------------------------------------------------------------------------------------
Current return (end of period)
---------------------------------------------------------------------------------------------
Current dividend rate1 11.32% 10.78% 10.55% 10.55% 11.07% 10.71%
---------------------------------------------------------------------------------------------
Current 30-day SEC yield2 11.81 11.23 11.04 11.04 11.56 11.18
---------------------------------------------------------------------------------------------

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

2 Based only on investment income, calculated using SEC guidelines.

</TABLE>

TOTAL RETURN FOR PERIODS ENDED 9/30/00 (most recent calendar quarter)

Class A Class B Class C Class M
(inception dates) (12/31/97) (12/31/97) (7/26/99) (12/31/97)
NAV POP NAV CDSC NAV CDSC NAV POP
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 0.39% -4.42% -0.21% -4.72% -0.24% -1.14% 0.28% -3.02%
---------------------------------------------------------------------------------
Life of fund 2.27 -2.55 0.58 -1.76 -0.33 -0.33 1.75 -1.61
Annual average 0.82 -0.93 0.21 -0.64 -0.12 -0.12 0.63 -0.59
---------------------------------------------------------------------------------

Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. Investment
returns and principal value will fluctuate so that an investor's shares
when sold may be worth more or less than their original cost. See first
page of performance section for performance calculation method.

</TABLE>

TERMS AND DEFINITIONS

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

Class A shares are generally subject to an initial sales charge.

Class B shares may be subject to a sales charge upon redemption.

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

Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.

Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.

Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the 4.75% maximum sales charge for class A
shares and 3.25% for class M shares.

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

COMPARATIVE BENCHMARKS

The First Boston High Yield Index is a market-weighted index including
publicly traded bonds having a rating below BBB by Standard & Poor's or
Baa by Moody's. It assumes reinvestment of all distributions and
interest payments and does not take into account brokerage fees or
taxes. Securities in the fund do not match those in the index and
performance of the fund will differ. It is not possible to invest
directly in an index.

Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.

A GUIDE TO THE FINANCIAL STATEMENTS

These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.

REPORT OF INDEPENDENT ACCOUNTANTS
For the fiscal year ended August 31, 2000

To the Trustees of Putnam Funds Trust and
Shareholders of Putnam High Yield Trust II
(a series of Putnam Funds Trust)

In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Putnam High
Yield Trust II (the "fund") at August 31, 2000, and the results of its
operations, the changes in its net assets and the financial highlights
for the periods indicated, in conformity with accounting principles
generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the fund's management; our
responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of investments owned at August
31, 2000 by correspondence with the custodian, provide a reasonable
basis for our opinion.

PricewaterhouseCoopers LLP
Boston, Massachusetts
October 13, 2000

THE FUND'S PORTFOLIO
August 31, 2000

CORPORATE BONDS AND NOTES (78.7%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
Advertising and Marketing Services (0.5%)
-------------------------------------------------------------------------------------------------------------------
$ 3,145,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 3,239,350
480,000 AOA Holdings LLC sr. notes 10 3/8s, 2006 460,800
2,755,700 Interact Operating Co. notes 14s, 2003 826,710
310,000 Lamar Media Corp. company guaranty 9 5/8s, 2006 316,975
1,045,000 Lamar Media Corp. company guaranty 8 5/8s, 2007 1,026,713
2,125,000 TDL Infomedia Holdings PLC sr. disc. notes
stepped-coupon zero % (15 1/2s ,10/15/04), 2010
(United Kingdom) (STP) 1,530,000
-------------
7,400,548

Aerospace and Defense (1.3%)
-------------------------------------------------------------------------------------------------------------------
6,710,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 5,368,000
2,620,000 BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 2,541,400
2,305,000 Decrane Aircraft Holdings company guaranty
Ser. B, 12s, 2008 2,074,500
1,270,000 L-3 Communications Corp. sr. sub. notes Ser. B,
10 3/8s, 2007 1,295,400
3,490,000 L-3 Communications Corp. sr. sub. notes 8 1/2s, 2008 3,245,700
180,000 L-3 Communications Corp. company guaranty
Ser. B, 8s, 2008 162,000
2,590,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 2,583,525
150,000 Sequa Corp. med. term notes 10s, 2001 151,097
640,000 Sequa Corp. sr. notes 9s, 2009 638,400
-------------
18,060,022

Agriculture (--%)
-------------------------------------------------------------------------------------------------------------------
396,812 Premium Standard Farms, Inc. sr. sec. notes
11s, 2003 (PIK) 361,099

Airlines (0.8%)
-------------------------------------------------------------------------------------------------------------------
3,980,000 Airbus Industries 144A notes Ser. D, 12.266s, 2020 4,268,916
3,260,000 Calair LLC 144A company guaranty 8 1/8s, 2008 3,031,800
600,000 Continental Airlines, Inc. notes 8s, 2005 565,458
270,000 Northwest Airlines, Inc. company guaranty
8.52s, 2004 259,492
730,000 Northwest Airlines, Inc. company guaranty
8 3/8s, 2004 695,873
1,510,000 Northwest Airlines, Inc. company guaranty
7 5/8s, 2005 1,403,621
770,000 US Airways, Inc. pass-through certificates Ser. 93A3,
10 3/8s, 2013 696,850
-------------
10,922,010

Automotive (2.6%)
-------------------------------------------------------------------------------------------------------------------
3,220,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 3,171,700
2,480,000 Dura Operating Corp. company guaranty Ser. B,
9s, 2009 2,266,100
2,190,000 Exide Corp. sr. notes 10s, 2005 1,817,700
1,982,857 Federal Mogul Corp. bank term loan Ser. B, FRN
8.69s, 2/10/10 1,844,057
430,000 Federal Mogul Corp. notes 7 7/8s, 2010 313,900
1,230,000 Federal Mogul Corp. notes 7 3/4s, 2006 931,725
3,200,000 Federal Mogul Corp. notes 7 1/2s, 2009 2,336,000
3,380,000 Federal Mogul Corp. notes 7 3/8s, 2006 2,560,350
1,690,000 Hayes Lemmerz International, Inc. company guaranty
Ser. B, 8 1/4s, 2008 1,478,750
3,000,000 Hayes Wheels International, Inc. company guaranty
Ser. B, 9 1/8s, 2007 2,745,000
3,850,000 Lear Corp. sub. notes 9 1/2s, 2006 3,909,059
4,070,000 Navistar International Corp. sr. notes Ser. B, 8s, 2008 3,835,975
4,000,000 Newcor, Inc. company guaranty Ser. B, 9 7/8s, 2008 1,160,000
3,680,000 Oxford Automotive, Inc. company guaranty Ser. D,
10 1/8s, 2007 3,312,000
3,000,000 Safety Components International, Inc. sr. sub. notes
Ser. B, 10 1/8s, 2007 (In default) (NON) 1,200,000
3,670,000 Talon Automotive Group sr. sub. notes Ser. B,
9 5/8s, 2008 1,468,000
2,320,000 Tenneco Automotive, Inc. company guaranty
Ser. B, 11 5/8s, 2009 2,018,400
-------------
36,368,716

Banking (1.8%)
-------------------------------------------------------------------------------------------------------------------
1,345,000 Bangko Sentral Pilipinas bonds 8.6s, 2027 (Philippines) 968,400
560,000 Bank United Corp. sub. notes 8 7/8s, 2007 555,475
750,000 Chevy Chase Savings Bank, Inc. sub. deb. 9 1/4s, 2008 682,500
1,920,000 Chevy Chase Savings Bank, Inc. sub. deb. 9 1/4s, 2005 1,776,000
2,715,000 Colonial Capital II 144A company guaranty
8.92s, 2027 2,542,777
5,025,000 GS Escrow Corp. sr. notes 7 1/8s, 2005 4,608,176
4,380,000 Hanvit Bank 144A sub. notes 11 3/4s, 2010 (Korea) 4,390,950
1,960,000 Local Financial Corp. sr. notes 11s, 2004 1,960,000
1,310,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 1,063,445
850,000 Riggs Capital Trust II 144A company guaranty
8 7/8s, 2027 708,280
3,860,000 Sovereign Bancorp, Inc. sr. notes 10 1/2s, 2006 3,927,550
2,220,000 Superior Financial 144A sr. notes 8.65s, 2003 2,136,914
10,000 Webster Capital Trust I 144A bonds 9.36s, 2027 8,641
-------------
25,329,108

Beverage (0.3%)
-------------------------------------------------------------------------------------------------------------------
4,470,000 Triarc Consumer Products, Inc. company guaranty
10 1/4s, 2009 4,347,075

Broadcasting (4.9%)
-------------------------------------------------------------------------------------------------------------------
3,830,000 Acme Television sr. disc. notes stepped-coupon
zero % (10 7/8s, 9/30/00), 2004 (STP) 3,638,500
3,720,000 Allbritton Communications Co. sr. sub. notes
Ser. B, 8 7/8s, 2008 3,478,200
3,875,000 Benedek Communications Corp. sr. disc. notes
stepped-coupon zero % (13 1/4s, 5/15/01), 2006 (STP) 3,216,250
2,000,000 Benedek Communications Corp. bank term loan
FRN 8.981s, 11/20/07 1,980,000
11,330,000 Capstar Broadcasting sr. disc. notes stepped-coupon
zero % (12 3/4s, 2/1/02), 2009 (STP) 10,650,200
139,300 Capstar Broadcasting sub. deb. 12s, 2009 (PIK) 160,195
2,085,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 2,137,125
1,631,000 CD Radio, Inc. sec. notes 14 1/2s, 2009 1,435,280
130,000 Central European Media Enterprises, Ltd. sr. notes
9 3/8s, 2004 (Bermuda) 50,700
3,185,300 Citadel Broadcasting, Co. sr. sub. notes 10 1/4s, 2007 3,280,859
12,615,000 Diva Systems Corp. sr. disc. notes, stepped-coupon
Ser. B, zero % (12 5/8s, 3/1/03), 2008 (STP) 5,676,750
4,320,000 Echostar DBS Corp. sr. notes 9 3/8s, 2009 4,266,000
1,740,000 Fox Family Worldwide, Inc. sr. disc. notes stepped-coupon
zero % (10 1/4s, 11/1/02), 2007 (STP) 1,257,150
1,350,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 1,292,625
2,990,000 Golden Sky Systems 144A sr. sub. notes Ser. B,
12 3/8s, 2006 3,318,900
2,040,000 Granite Broadcasting Corp. sr. sub. notes
8 7/8s, 2008 1,581,000
2,960,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon
zero % (11 7/8s, 10/15/02), 2007 (STP) 1,539,200
1,785,000 OnePoint Communications, Corp. company guaranty
Ser. B, 14 1/2s, 2008 1,642,200
1,445,000 Pegasus Communications Corp. sr. notes Ser. B,
12 1/2s, 2007 1,517,250
2,540,000 Pegasus Communications Corp. 144A sr. notes
Ser. B, 9 3/4s, 2006 2,527,300
670,000 Pegasus Communications Corp. sr. notes Ser. B,
9 5/8s, 2005 666,650
340,000 Pegasus Media & Communications notes Ser. B,
12 1/2s, 2005 353,600
790,000 PHI Holdings, Inc. sr. sub. notes zero %, 2001 733,357
1,723,000 Radio One, Inc. company guaranty stepped-coupon
Ser. B, 7s, (12s, 5/15/00), 2004 (STP) 1,809,150
1,530,000 RCN Corp. sr. notes 10 1/8s, 2010 1,231,650
2,160,000 Spanish Broadcasting System, Inc. sr. sub notes
9 5/8s, 2009 2,143,800
3,610,000 TV Azteca S.A. de C.V. sr. notes 10 1/2s, 2007 (Mexico) 3,420,475
630,000 XM Satellite Radio, Inc. 144A sr. notes 14s, 2010 453,600
1,000,000 Young Broadcasting bank term loan FRN
10.23s, 6/26/05 1,000,000
-------------
66,457,966

Building Materials (0.6%)
-------------------------------------------------------------------------------------------------------------------
2,460,000 American Architectural Products Corp. company
guaranty 11 3/4s, 2007 (In default) (NON) 615,000
500,000 American Standard, Inc. company guaranty
7 5/8s, 2010 463,750
1,190,000 Atrium Companies, Inc. company guaranty Ser. B,
10 1/2s, 2009 1,082,900
2,150,000 Building Materials Corp. 144A sr. notes 8s, 2008 1,580,250
2,930,000 Dayton Superior Corp. 144A sr. sub. notes 13s, 2009 2,871,400
1,920,000 NCI Building Systems, Inc. sr. sub. notes Ser. B,
9 1/4s, 2009 1,795,200
-------------
8,408,500

Cable Television (2.6%)
-------------------------------------------------------------------------------------------------------------------
2,208,000 Adelphia Communications Corp. sr. notes Ser. B,
8 3/8s, 2008 1,943,040
780,000 Adelphia Communications Corp. sr. notes
7 7/8s, 2009 661,050
580,000 Century Communications Corp. sr. notes 8 7/8s, 2007 535,050
6,810,000 Charter Communications Holdings LLC sr. notes
8 5/8s, 2009 6,231,150
1,700,000 Charter Communications Holdings LLC bank term
loan FRN 9.24s, 3/31/08 1,691,500
3,500,000 Charter Communications Holdings LLC bank term
loan 7 1/2s, 3/31/08 3,473,750
1,860,000 Classic Cable, Inc. company guaranty 10 1/2s, 2010 1,543,800
510,000 Classic Cable, Inc. company guaranty Ser. B, 9 3/8s, 2009 397,800
520,000 CSC Holdings, Inc. sr. sub. deb. 10 1/2s, 2016 556,400
2,320,000 CSC Holdings, Inc. sr. sub. deb. 9 7/8s, 2023 2,378,000
45,000 NTL Communications Corp. sr. notes Ser. B,
11 1/2s, 2008 45,675
5,150,000 NTL, Inc. sr. notes, stepped-coupon Ser. B, zero %
(9 3/4s, 4/1/03), 2008 (United Kingdom) (STP) 3,296,000
1,390,000 Supercanal Holdings S.A. 144A sr. notes
11 1/2s, 2005 (In default) (Argentina) (NON) 583,800
1,210,000 TeleWest Communications PLC 144A sr. disc. notes
stepped-coupon zero % (11 3/8s, 2/1/05), 2010
(United Kingdom) (STP) 641,300
1,180,000 TeleWest Communications PLC deb. stepped-coupon
zero % (11s, 10/1/00), 2007 (United Kingdom) (STP) 1,131,325
1,260,000 TeleWest Communication PLC structured note
(issued by DLJ International Capital) 10 7/8s, 2005
(United Kingdom) 1,276,002
2,060,000 TeleWest Communications PLC 144A 9 7/8s, 2010
(United Kingdom) 1,957,000
2,210,000 TeleWest Communications PLC sr. disc. notes
stepped-coupon zero % (9 1/2s, 4/15/04) 2009
(United Kingdom) (STP) 1,226,550
7,030,000 United Pan-Europe N.V. sr. disc. notes stepped-coupon
zero % (13 3/4s, 2/01/05), 2010 (Netherlands) 3,172,288
3,140,000 United Pan-Europe N.V. sr. notes 10 7/8s,
2009 (Netherlands) 2,669,000
-------------
35,410,480

Chemicals (3.5%)
-------------------------------------------------------------------------------------------------------------------
4,085,000 Geo Specialty Chemicals, Inc. 144A sr. sub. notes
10 1/8s, 2008 3,676,500
2,185,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 1,977,425
1,620,000 Huntsman Corp. 144A sr. sub. notes FRN 9.188s, 2007 1,409,400
7,010,000 Huntsman ICI Chemicals, Inc. 144A sr. sub. notes
10 1/8s, 2009 7,115,150
870,000 ISP Holdings, Inc. sr. notes Ser. B, 9 3/4s, 2002 843,900
420,000 ISP Holdings, Inc. sr. notes Ser. B, 9s, 2003 403,200
2,530,000 Lyondell Petrochemical Co. sr. sub. notes
10 7/8s, 2009 2,574,275
6,750,000 Lyondell Petrochemical Co. sec. notes Ser. B,
9 7/8s, 2007 6,842,813
5,160,000 PCI Chemicals & Pharmaceuticals company guaranty
9 1/4s, 2007 (India) 2,734,800
4,555,000 Pioneer Americas Acquisition 144A sr. notes
9 1/4s, 2007 2,733,000
2,560,000 Polymer Group, Inc. company guaranty Ser. B,
8 3/4s, 2008 2,016,000
77,390 Polytama International notes 11 1/4s, 2007
(In default) (Indonesia) (NON) 3,870
2,360,000 Royster-Clark, Inc. 144A 1st mtge. 10 1/4s, 2009 1,840,800
5,720,000 Sterling Chemicals Holdings sr. disc. notes stepped-
coupon zero % (13 1/2s, 8/15/01), 2008 (STP) 2,431,000
2,240,000 Sterling Chemicals, Inc. 144A sec. notes Ser. B,
12 3/8s, 2006 2,307,200
7,840,000 Sterling Chemicals, Inc. sr. sub. notes 11 3/4s, 2006 6,115,200
630,000 Texas Petrochemical Corp. sr. sub. notes Ser. B,
11 1/8s, 2006 541,800
3,485,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 2,796,713
-------------
48,363,046

Coal (--%)
-------------------------------------------------------------------------------------------------------------------
3,430,000 Lodestar Holdings, Inc. company guaranty
11 1/2s, 2005 514,500

Commercial and Consumer Services (0.6%)
-------------------------------------------------------------------------------------------------------------------
3,920,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 3,939,600
5,590,000 GS Superhighway Holdings sr. notes 10 1/4s,
2007 (China) 3,985,446
-------------
7,925,046

Communications Equipment (0.1%)
-------------------------------------------------------------------------------------------------------------------
900,000 USA Mobile Communication sr. notes 14s, 2004 729,000
620,000 USA Mobile Communication sr. notes 9 1/2s, 2004 452,600
-------------
1,181,600

Computers (0.3%)
-------------------------------------------------------------------------------------------------------------------
4,500,000 Unisys Corp. sr. notes 11 3/4s, 2004 4,736,250

Conglomerates (0.1%)
-------------------------------------------------------------------------------------------------------------------
1,670,000 Insilco Holding Co. sr. disc. notes stepped-coupon
zero % (14s, 8/15/03), 2008 (STP) 918,500

Construction (0.9%)
-------------------------------------------------------------------------------------------------------------------
6,630,000 Better Minerals & Aggregates Co. company guaranty
13s, 2009 6,464,250
3,190,000 Morrison Knudsen Corp. 144A company guaranty
11s, 2010 3,237,850
2,310,000 Republic Group, Inc. sr. sub. notes 9 1/2s, 2008 2,310,000
-------------
12,012,100

Consumer (0.6%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 Derby Cycle Corp. (The) sr. notes 10s, 2008 600,000
2,000,000 Home Interiors & Gifts, Inc. company guaranty
10 1/8s, 2008 600,000
8,740,000 Samsonite Corp. sr. sub. notes 10 3/4s, 2008 7,144,950
-------------
8,344,950

Consumer Finance (0.3%)
-------------------------------------------------------------------------------------------------------------------
6,270,000 Contifinancial Corp. sr. notes 8 3/8s, 2003
(In default) (NON) 783,750
3,370,000 Contifinancial Corp. sr. notes 8 1/8s, 2008
(In default) (NON) 421,250
3,460,000 Contifinancial Corp. sr. notes 7 1/2s, 2002
(In default) (NON) 380,600
740,000 Finova Capital Corp. sr. notes 7 5/8s, 2009 466,200
770,000 Finova Capital Corp. sr. notes 6 3/4s, 2009 473,550
330,000 Finova Capital Corp. notes 6 1/8s, 2004 221,100
1,920,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B,
11s, 2006 1,632,000
-------------
4,378,450

Consumer Goods (0.9%)
-------------------------------------------------------------------------------------------------------------------
2,150,000 French Fragrances, Inc. company guaranty Ser. D,
10 3/8s, 2007 2,085,500
1,580,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 1,516,800
4,000,000 Leiner Health Products sr. sub. notes 9 5/8s, 2007 2,720,000
4,720,000 NBTY, Inc. 144A sr. sub. notes 8 5/8s, 2007 4,035,600
2,350,000 Revlon Consumer Products sr. notes 9s, 2006 1,692,000
740,000 Revlon Consumer Products sr. notes 8 1/8s, 2006 525,400
-------------
12,575,300

Consumer Services (0.5%)
-------------------------------------------------------------------------------------------------------------------
1,875,000 Iron Mountain, Inc. company guaranty 8 3/4s, 2009 1,767,188
4,383,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 4,514,490
-------------
6,281,678

Consumer Staples (0.1%)
-------------------------------------------------------------------------------------------------------------------
3,090,000 Doskcil Manufacturing Co 144A sr. sub. notes
10 1/8s, 2007 988,800

Containers (1.3%)
-------------------------------------------------------------------------------------------------------------------
4,260,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 3,621,000
3,200,000 Consumers International 144A sr. notes
10 1/4s, 2005 1,280,000
40,000 Owens-Illinois, Inc. sr. notes 8.1s, 2007 37,176
480,000 Owens-Illinois, Inc. deb. 7.8s, 2018 409,219
3,870,000 Owens-Illinois, Inc. sr. notes 7.35s, 2008 3,289,616
1,210,000 Radnor Holdings, Inc. sr. notes 10s, 2003 1,076,900
1,650,000 Stone Container Corp. sr. sub debs. 12 1/4s, 2002 1,662,375
2,236,111 Stone Container Corp. bank term loan Ser. G, FRN
10.188s, 12/31/06 2,236,111
3,520,000 Tekni-Plex, Inc. 144A sr. sub. notes 12 3/4s, 2010 3,555,200
-------------
17,167,597

Distribution (0.2%)
-------------------------------------------------------------------------------------------------------------------
1,940,000 RAB Enterprises, Inc. 144A sr. notes 10 1/2s, 2005 1,377,400
1,900,000 RAB Food Holdings, Inc. 144A sr. notes 13s, 2008 988,000
-------------
2,365,400

Electric Utilities (0.8%)
-------------------------------------------------------------------------------------------------------------------
3,175,000 AES China Generating Co. sr. notes 10 1/8s,
2006 (China) 2,349,500
5,500,000 CMS Energy Corp. pass-through certificates 7s, 2005 5,046,910
690,000 CMS Energy Corp. sr. notes 7 1/2s, 2009 622,725
590,000 CMS Energy Corp. sr. notes Ser. B, 6 3/4s, 2004 548,700
1,424,217 Northeast Utilities System notes Ser. A, 8.58s, 2006 1,442,290
664,533 Northeast Utilities System notes Ser. B, 8.38s, 2005 665,291
650,000 Panda Global Energy Co. company guaranty
12 1/2s, 2004 (China) 292,500
-------------
10,967,916

Energy (1.1%)
-------------------------------------------------------------------------------------------------------------------
200,000 Cliffs Drilling Co. company guaranty Ser. D,
10 1/4s, 2003 206,000
1,930,000 Leviathan Gas Corp. 144A sr. sub notes Ser. B,
10 3/8s, 2009 2,026,500
2,020,000 Parker Drilling Corp. company guaranty Ser. D,
9 3/4s, 2006 1,969,500
650,000 R&B Falcon Corp. company guaranty 9 1/2s, 2008 702,000
5,580,000 R&B Falcon Corp. sr. notes 12 1/4s, 2006 6,584,400
3,580,000 RBF Finance Co. company guaranty 11 3/8s, 2009 4,134,900
-------------
15,623,300

Entertainment (1.8%)
-------------------------------------------------------------------------------------------------------------------
3,060,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2011 1,101,600
2,260,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 813,600
3,700,000 Autotote Corp. 144A company guaranty
12 1/2s, 2010 3,700,000
4,170,000 Carmike Cinemas, Inc. company guaranty Ser. B,
9 3/8s, 2009 (In default) (NON) 917,400
1,000,000 Carmike Cinemas Inc. bank term loan FRN
6.69s, 3/30/05 720,000
2,430,000 Cinemark USA, Inc. sr. sub. notes Ser. B, 9 5/8s,
2008 (Mexico) 947,700
1,880,000 Cinemark USA, Inc. sr. sub. notes Ser. D, 9 5/8s,
2008 (Mexico) 639,200
170,000 Premier Parks, Inc. sr. notes 9 3/4s, 2007 161,925
1,090,000 Premier Parks, Inc. sr. notes 9 1/4s, 2006 1,019,150
6,525,000 Regal Cinemas, Inc. sr. sub. notes 9 1/2s, 2008 587,250
2,530,000 Regal Cinemas, Inc. sr. sub. notes 8 7/8s, 2010 227,700
5,000,000 Regal Cinemas Inc. bank term loan FRN
9.22s, 6/15/06 3,450,000
4,800,000 SFX Entertainment, Inc. company guaranty
9 1/8s, 2008 5,022,000
100,000 SFX Entertainment, Inc. 144A company guaranty
Ser. B, 9 1/8s, 2008 103,000
1,470,000 Silver Cinemas, Inc. sr. sub. notes 10 1/2s, 2005
(In default) (NON) 132,300
3,800,000 Six Flags Corp. sr. notes 8 7/8s, 2006 3,610,000
97,348 United Artists Theatre bank term loan Ser. C,
FRN 8.868s, 2007 68,144
1,362,870 United Artists Theatre bank term loan Ser B, FRN
8.438s, 2006 954,009
796,000 United Artists Theatre 144A notes FRN 10.415s,
2007 (In default) (NON) 15,920
18,716,000 United Artists Theatre sr. sub. notes 9 3/4s,
2008 (In default) (NON) 374,320
-------------
24,565,218

Financial (2.3%)
-------------------------------------------------------------------------------------------------------------------
4,565,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 2,031,425
2,000,000 Advanta Corp. company guaranty Ser. B, 8.99s, 2026 1,247,500
5,250,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 4,974,953
3,000,000 AMRESCO, Inc. sr. sub. notes Ser. 97-A, 10s, 2004 1,170,000
2,950,000 AMRESCO, Inc. sr. sub. notes Ser. 98-A, 9 7/8s, 2005 1,150,500
2,330,000 Conseco Financial Corp. sr. sub. notes 10 1/4s, 2002 1,607,700
1,060,000 Conseco Finance Trust III, Inc. bonds 8.796s, 2027 381,600
1,025,000 CSBI Capital Trust I 144A company guaranty 1,096,750
6,385,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 2,873,250
930,000 Imperial Credit Capital Trust I 144A company
guaranty 10 1/4s, 2002 734,700
4,490,000 Imperial Credit Industries, Inc. sr. notes 9 7/8s, 2007 3,187,900
1,335,000 Nationwide Credit, Inc. sr. notes Ser. A, 10 1/4s, 2008 934,500
1,170,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 596,700
1,890,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 1,752,975
1,481,000 Ocwen Financial Corp. notes 11 7/8s, 2003 1,344,008
5,360,000 Resource America, Inc. 144A sr. notes 12s, 2004 4,797,200
2,200,000 Vesta Insurance Group, Inc. 144A company guaranty
8.525s, 2027 1,298,000
-------------
31,179,661

Food (0.9%)
-------------------------------------------------------------------------------------------------------------------
1,985,000 Aurora Foods Inc. bank term loan Ser. B, FRN
10.37s, 3/1/10 1,786,500
1,420,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 1,114,700
2,910,000 Aurora Foods, Inc. 144A ser. sub. notes Ser. D,
9 7/8s, 2007 2,284,350
3,800,000 Doane Pet Care Corp. sr. sub. notes 9 3/4s, 2007 3,268,000
4,005,000 Eagle Family Foods company guaranty Ser. B,
8 3/4s, 2008 2,142,675
4,460,000 Vlasic Foods Intl., Inc. sr. sub notes Ser. B,
10 1/4s, 2009 2,230,000
-------------
12,826,225

Gaming & Lottery (3.4%)
-------------------------------------------------------------------------------------------------------------------
295,406 Ameristar Casinos, Inc. bonds 8s, 2004 265,865
1,590,281 Ameristar Casinos, Inc. company guaranty
Ser. B, 8s, 2004 1,431,253
1,110,000 Autotote Corp. company guaranty Ser. B,
10 7/8s, 2004 1,208,513
1,020,000 Boyd Gaming Corp. sr. sub. notes 9 1/2s, 2007 979,200
350,000 Fitzgeralds Gaming Corp. company guaranty Ser. B,
12 1/4s, 2004 (In default) (NON) 192,500
4,390,000 Hollywood Casino Corp. company guaranty
11 1/4s, 2007 4,554,625
1,820,000 Hollywood Park, Inc. 144A sr. sub. notes Ser. B,
9 1/4s, 2007 1,865,500
1,580,000 Isle of Capri Casinos company guaranty 8 3/4s, 2009 1,477,300
4,450,000 Isle of Capri Casinos 144A 1st mortgage Ser. B,
13s, 2004 4,850,500
750,000 MGM Mirage company guaranty 9 3/4s, 2007 785,625
810,000 Mohegan Tribal Gaming, Auth. sr. notes 8 1/8s, 2006 789,750
2,610,000 Mohegan Tribal Gaming, Auth. sr. sub. notes
8 3/4s, 2009 2,564,325
3,750,000 Peninsula Gaming LLC company guaranty Ser. B,
12 1/4s, 2006 3,684,375
1,620,000 Riviera Black Hawk, Inc. 1st mtge. 13s, 2005 1,620,000
14,931,000 Trump A.C. 1st mtge. 11 1/4s, 2006 10,078,425
7,760,000 Trump Castle Funding 144A sub. notes 10 1/4s, 2003 7,779,400
2,700,000 Venetian Casino, Inc. company guaranty 12 1/4s, 2004 2,747,250
-------------
46,874,406

Health Care (2.6%)
-------------------------------------------------------------------------------------------------------------------
2,760,000 ALARIS Medical Systems, Inc. company guaranty
9 3/4s, 2006 1,904,400
1,020,000 Bio-Rad Labs Corp. sr. sub. notes 11 5/8s, 2007 1,069,725
3,080,000 Columbia/HCA Healthcare Corp. med. term notes
8.85s, 2007 3,064,600
780,000 Columbia/HCA Healthcare Corp. deb. 8.36s, 2024 717,600
1,050,000 Columbia/HCA Healthcare Corp. notes 7 1/4s, 2008 956,813
2,080,000 Columbia/HCA Healthcare Corp. notes 6.91s, 2005 1,934,400
500,000 Columbia/HCA Healthcare Corp. med term notes
6.63s, 2045 477,480
1,435,000 Conmed Corp. company guaranty 9s, 2008 1,205,400
2,180,000 HCA-The Healthcare Co. notes 8 3/4s, 2010 2,182,725
575,000 Hudson Respiratory Care, Inc. sr. sub. notes
9 1/8s, 2008 405,375
3,890,000 Kinetic Concepts, Inc. company guaranty Ser. B,
9 5/8s, 2007 2,995,300
4,550,000 Magellan Health Services sr. sub. notes 9s, 2008 2,593,500
862,829 Magellan Health Services bank term loan FRN
8s, 2/12/05 707,520
2,800,000 Mediq, Inc. deb. stepped-coupon zero %
(13s, 6/1/03), 2009 (STP) 280
4,180,000 Mediq, Inc. company guaranty 11s, 2008 (In default) (NON) 125,400
10,495,000 Paracelsus Healthcare sr. sub. notes 10s, 2006
(In default) (NON) 3,253,450
7,000,000 Tenet Healthcare Corp. sr. notes Ser. B, 8 1/8s, 2008 6,658,750
3,745,000 Triad Hospitals Holdings company guaranty
Ser. B, 11s, 2009 3,913,525
1,990,002 Vanguard Health bank term loan Ser. B, FRN
11.00s, 9/1/01 1,990,002
-------------
36,156,245

Homebuilding (0.6%)
-------------------------------------------------------------------------------------------------------------------
1,610,000 D.R. Horton, Inc. company guaranty 8s, 2009 1,481,200
500,000 Del Webb Corp. sr. sub. deb. 10 1/4s, 2010 467,500
880,000 Del Webb Corp. sr. sub. deb. 9 3/8s, 2009 748,000
1,260,000 Lennar Corp. sr. notes 7 5/8s, 2009 1,152,900
320,000 Lennar Corp. 144A sr. notes 9.95s, 2010 328,000
1,920,000 Ryland Group, Inc. sr. notes 9 3/4s, 2010 1,939,200
2,150,000 Toll Corp. company guaranty 8 1/8s, 2009 2,029,063
-------------
8,145,863

Household Furniture & Appliances (0.5%)
-------------------------------------------------------------------------------------------------------------------
3,865,000 Albecca, Inc. company guaranty 10 3/4s, 2008 3,439,850
50,000 Sealy Mattress Co. company guaranty stepped-coupon
Ser. B, zero % (10 7/8s, 12/15/02), 2007 (STP) 36,875
3,470,000 Sealy Mattress Co. sr. sub. notes Ser. B, 9 7/8s, 2007 3,365,900
-------------
6,842,625

Lodging/Tourism (1.5%)
-------------------------------------------------------------------------------------------------------------------
2,600,000 Epic Resorts LLC company guaranty Ser. B, 13s, 2005 1,144,000
5,950,000 HMH Properties, Inc. company guaranty Ser. B,
7 7/8s, 2008 5,578,125
1,200,000 Host Marriott L.P. sr. notes Ser. E, 8 3/8s, 2006 1,146,000
2,680,000 ITT Corp. notes 6 3/4s, 2005 2,484,280
8,500,000 Starwood Hotels & Resorts bank term loan FRN
8.763s, 2/23/03 8,521,250
600,000 Starwood Hotels & Resorts notes 9.369s, 2003 573,408
1,227,500 Strategic Hotels bank term loan FRN 10.37s, 11/11/04 1,236,706
-------------
20,683,769

Manufacturing (2.2%)
-------------------------------------------------------------------------------------------------------------------
4,590,000 Blount, Inc. 144A sr. sub. notes 13s, 2009 4,727,700
4,616,742 Blount, Inc. bank term loan Ser. B, FRN 10.66s, 9/1/06 4,634,055
1,620,000 Celestica International, Ltd. 144A sr. sub. notes
10 1/2s, 2006 (Canada) 1,684,800
890,000 Day International Group, Inc. sr. sub. notes
11 1/8s, 2005 876,650
90,000 Day International Group, Inc. company guaranty
9 1/2s, 2008 76,500
3,280,000 Flextronics International, Ltd. 144A sr. sub. notes
9 7/8s, 2010 3,403,000
2,300,000 Flextronics International, Ltd. sr. sub. notes Ser. B,
8 3/4s, 2007 2,259,750
3,090,000 Flowserve Corp. 144A company guaranty
12 1/4s, 2010 3,127,080
1,000,000 Flowserve Corp. bank term loan 9.464s, 6/1/06 1,003,750
320,000 Grove Holdings LLC deb. stepped-coupon zero %
(11 5/8s, 5/1/03), 2009 (STP) 16,000
2,088,631 Grove Investors LLC notes 14 1/2s, 2010 (PIK) 73,102
3,890,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 3,812,200
2,205,000 Roller Bearing Co. company guaranty Ser. B,
9 5/8s, 2007 2,028,600
1,995,000 Transportation Technologies Industries, Inc. bank
term loan FRN 9.859s, 3/1/07 1,980,038
-------------
29,703,225

Medical Services (0.2%)
-------------------------------------------------------------------------------------------------------------------
3,320,000 Extendicare Health Services, Inc. company guaranty
9.35s, 2007 1,826,000
4,390,000 Integrated Health Services, Inc. sr. sub. notes Ser. A,
9 1/2s, 2007 (In default) (NON) 87,800
645,000 Integrated Health Services, Inc. sr. sub. notes Ser. A,
9 1/4s, 2008 (In default) (NON) 12,900
1,355,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B,
9 1/2s, 2007 (In default) (NON) 8,469
9,100,000 Mariner Post-Acute Network, Inc. sr. sub. notes stepped-
coupon Ser. B, zero % (10 1/2s, 11/1/02), 2007
(In default) (STP) (NON) 56,875
7,500,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 (In default) (NON) 403,125
11,055,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B,
9 1/2s, 2007 (In default) (NON) 221,100
3,640,000 Sun Healthcare Group, Inc. 144A sr. sub. notes
9 3/8s, 2008 (In default) (NON) 72,800
-------------
2,689,069

Medical Technology (0.1%)
-------------------------------------------------------------------------------------------------------------------
1,650,000 Hanger Orthopedic Group, Inc. sr. sub. notes
11 1/4s, 2009 1,443,750

Metals (1.6%)
-------------------------------------------------------------------------------------------------------------------
3,110,000 AK Steel Corp. company guaranty 7 7/8s, 2009 2,900,075
29,995 Anker Coal Group, Inc. company guaranty Ser. B,
14 1/4s, 2007 (PIK) 13,498
1,070,000 Armco, Inc. 144A sr. notes 8 7/8s, 2008 1,027,200
1,160,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes
12 3/4s, 2003 1,067,200
90,000 Kaiser Aluminum & Chemical Corp. sr. notes Ser. B,
10 7/8s, 2006 88,650
2,250,000 Kaiser Aluminum & Chemical Corp. sr. notes
9 7/8s, 2002 2,216,250
4,380,000 LTV Corp. company guaranty 11 3/4s, 2009 3,328,800
3,160,000 National Steel Corp. 1st mtge. Ser. D, 9 7/8s, 2009 2,772,900
951,000 Oregon Steel Mills 1st mortgage 11s, 2003 722,760
4,455,000 WCI Steel, Inc. sr. notes Ser. B, 10s, 2004 4,276,800
240,000 Weirton Steel Corp. sr. notes 10 3/4s, 2005 223,200
3,145,000 Wheeling -Pittsburgh Steel Corp. sr. notes
9 1/4s, 2007 2,044,250
1,765,000 WHX Corp. sr. notes 10 1/2s, 2005 1,354,638
-------------
22,036,221

Office Equipment & Supplies (--%)
-------------------------------------------------------------------------------------------------------------------
1,390,000 U.S. Office Products Co. company guaranty
9 3/4s, 2008 264,100

Oil & Gas (2.2%)
-------------------------------------------------------------------------------------------------------------------
2,200,000 Belco Oil & Gas Corp. company guaranty Ser. B,
10 1/2s, 2006 2,205,500
2,550,000 Belco Oil & Gas Corp. sr. sub. notes Ser. B,
8 7/8s, 2007 2,371,500
1,320,000 Giant Industries Corp. company guaranty 9s, 2007 1,227,600
370,000 Gulf Canada Resources, Ltd. sr. sub. notes
9 5/8s, 2005 (Canada) 379,250
620,000 HS Resources, Inc. company guaranty 9 1/4s, 2006 626,200
1,740,000 HS Resources, Inc. sr. sub. notes Ser. B, 9 1/4s, 2006 1,733,475
1,950,000 Nuevo Energy Co. sr. sub. notes Ser. B, 9 1/2s, 2008 1,959,750
2,510,000 Ocean Energy, Inc. company guaranty Ser. B,
8 7/8s, 2007 2,560,200
3,100,000 Ocean Energy, Inc. company guaranty Ser. B,
8 3/8s, 2008 3,092,250
1,040,000 Pioneer Natural Resources Co. company guaranty
9 5/8s, 2010 1,092,000
4,000,000 Port Arthur Finance Corp. 144A sec. notes
12 1/2s, 2009 4,000,000
2,840,000 Seven Seas Petroleum sr. notes Ser. B, 12 1/2s, 2005 653,200
1,975,000 Snyder Oil Corp. sr. sub. notes 8 3/4s, 2007 1,984,875
2,525,000 Stone Energy Corp. company guaranty 8 3/4s, 2007 2,398,750
3,760,000 Vintage Petroleum sr. sub. notes 9 3/4s, 2009 3,854,000
50,000 XCL, Ltd. 144A company guaranty 13 1/2s, 2004
(In default) (NON) 9,000
55,000 XCL Ltd. units sr. sec. notes 13 1/2s, 2004
(In default) (NON) 9,900
-------------
30,157,450

Paper & Forest Products (3.7%)
-------------------------------------------------------------------------------------------------------------------
1,655,206 Al River News bank term loan FRN 8.688s, 12/31/02 1,406,925
4,350,000 APP Finance II Mauritius, Ltd. bonds stepped-coupon
zero % (16s, 2/15/04), 2049 (Indonesia) (STP) 1,957,500
190,000 Boise Cascade Co. med. term notes Ser. A, 7.43s, 2005 183,333
2,000,000 Boise Cascade Co. notes 7.35s, 2004 1,934,380
2,640,000 Doman Industries, Ltd. 144A sec notes 12s,
2004 (Canada) 2,719,200
6,250,000 Doman Industries, Ltd. 144A sr. notes 8 3/4s,
2004 (Canada) 5,125,000
950,000 Four M Corp. sr. notes Ser. B, 12s, 2006 907,250
1,675,000 Gaylord Container Corp. sr. sub. notes 9 7/8s, 2008 837,500
130,000 Gaylord Container Corp. sr. notes Ser. B, 9 3/4s, 2007 104,000
1,555,000 Gaylord Container Corp. sr. notes Ser. B, 9 3/8s, 2007 1,228,450
6,260,000 Indah Kiat Financial Mauritius, Ltd. company guaranty
10s, 2007 (Indonesia) 3,505,600
447,222 Jefferson Smurfit bank term loan FRN
8.65s, 3/31/06 447,222
1,280,000 Kappa Beheer BV company guaranty
10 5/8s, 2009 (Netherlands) 1,315,200
3,480,000 Pacifica Papers, Inc. sr. notes 10s, 2009 (Canada) 3,514,800
6,585,000 Pindo Deli Finance Mauritius, Ltd. company guaranty
10 3/4s, 2007 (Indonesia) 3,687,600
1,225,000 Tjiwi Kimia FN Mauritius company guaranty
10s, 2004 (Indonesia) 777,875
1,730,000 Repap New Brunswick notes 11 1/2s,
2004 (Canada) 1,928,950
3,900,000 Repap New Brunswick sr. notes 10 5/8s,
2005 (Canada) 4,017,000
6,330,000 Riverwood International Corp. company guaranty
10 7/8s, 2008 5,981,850
5,290,000 Riverwood International Corp. company guaranty
10 5/8s, 2007 5,237,100
194,000 Stone Container Corp. sr. notes 12.58s, 2016 201,275
3,240,000 Tembec Industries, Inc. company guaranty
8 5/8s, 2009 (Canada) 3,207,600
-------------
50,225,610

Pharmaceuticals (0.6%)
-------------------------------------------------------------------------------------------------------------------
240,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 3/4s, 2008 237,600
4,115,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 4,073,850
2,780,000 ICN Pharmaceuticals, Inc. 144A sr. notes 8 3/4s, 2008 2,752,200
1,710,000 MedPartners, Inc. sr. sub. notes 6 7/8s, 2000 1,692,900
-------------
8,756,550

Photography/Imaging (0.1%)
-------------------------------------------------------------------------------------------------------------------
1,910,000 Orbital Imaging Corp. sr. notes Ser. D, 11 5/8s, 2005 764,000

Power Producers (2.3%)
-------------------------------------------------------------------------------------------------------------------
1,235,000 Calpine Corp. sr. notes 10 1/2s, 2006 1,272,050
560,000 Calpine Corp. sr. notes 9 1/4s, 2004 557,200
1,580,000 Calpine Corp. sr. notes 8 3/4s, 2007 1,617,399
890,000 Calpine Corp. sr. notes 7 7/8s, 2008 849,606
80,000 Calpine Corp. sr. notes 7 3/4s, 2009 75,600
7,000,000 Midland Funding II Corp. deb. Ser. B, 13 1/4s, 2006 8,293,390
11,190,000 Midland Funding II Corp. deb. Ser. A, 11 3/4s, 2005 12,259,316
6,012,000 York Power Funding 144A notes 12s, 2007
(Cayman Islands) 6,072,120
-------------
30,996,681

Publishing (0.8%)
-------------------------------------------------------------------------------------------------------------------
5,295,000 Affinity Group Holdings sr. notes 11s, 2007 4,421,325
1,706,673 Big Flower Holdings bank term loan FRN
9.625 s, 3/1/10 1,702,406
3,075,000 Garden State Newspapers, Inc. sr. sub. notes
Ser. B, 8 3/4s, 2009 2,829,000
2,000,000 Garden State Newspapers, Inc. sr. sub. notes
8 5/8s, 2011 1,810,000
-------------
10,762,731

Railroads (0.3%)
-------------------------------------------------------------------------------------------------------------------
4,435,000 TFM S.A. de C.V. company guaranty stepped-coupon
zero % (11 3/4s, 6/15/02), 2009 (Mexico) (STP) 3,459,300

Restaurants (0.4%)
-------------------------------------------------------------------------------------------------------------------
2,535,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 1,191,450
3,000,000 Sbarro, Inc. 144A sr. notes 11s, 2009 3,090,000
1,380,000 Tricon Global Restaurants, Inc. sr. notes 7.65s, 2008 1,292,011
-------------
5,573,461

Retail (1.4%)
-------------------------------------------------------------------------------------------------------------------
4,070,000 Amazon.com, Inc. sr. disc. notes stepped-coupon zero %
(10s, 05/01/03), 2008 (STP) 2,035,000
1,000,000 Community Distributors company guaranty Ser. B,
10 1/4s, 2004 780,000
3,950,000 Grupo Elektra S.A de C.V sr. notes 12s, 2008 (Mexico) 3,871,000
1,300,000 Iron Age Corp. company guaranty 9 7/8s, 2008 910,000
7,250,000 Iron Age Holdings Corp. sr. disc. notes stepped-coupon
zero % (12 1/8s, 5/1/03), 2009 (STP) 1,087,500
100,000 K mart Corp. med. term notes 7.55s, 2004 92,643
2,935,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 2,729,550
7,280,000 Saks, Inc. company guaranty 8 1/4s, 2008 5,599,994
2,200,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 1,820,500
880,000 Southland Corp. deb. 4s, 2004 712,800
-------------
19,638,987

Semiconductor (0.2%)
-------------------------------------------------------------------------------------------------------------------
1,220,000 Amkor Technologies, Inc., structured note (issued by
Steers, Credit Linked Trust 2000) 12.58s, 2005 1,223,050
1,120,000 Amkor Technologies, Inc. sr. notes 9 1/4s, 2006 1,115,800
820,000 ChipPac Intl., Ltd. 144A company guaranty Ser. B,
12 3/4s, 2009 877,400
-------------
3,216,250

Shipping (0.2%)
-------------------------------------------------------------------------------------------------------------------
125,000 Eletson Holdings, Inc. 1st pfd. mtge. notes
9 1/4s, 2003 (Greece) 118,125
830,000 Kitty Hawk, Inc. company guaranty 9.95s,
2004 (In default) (NON) 489,700
40,000 MC Shipping, Inc. sr. notes Ser. B, 11 1/4s, 2008 28,400
2,680,000 Pegasus Shipping stepped-coupon zero %
(14 1/2s, 12/20/03), 2008 (STP) 120,600
100,000 Pegasus Shipping 144A company guaranty
11 7/8s, 2004 (In default) (NON) 35,625
2,555,000 Transportacion Maritima Mexicana S.A. de C.V. notes
9 1/4s, 2003 (Mexico) 2,095,100
-------------
2,887,550

Software (--%)
-------------------------------------------------------------------------------------------------------------------
1,630,000 Telehub Communications Corp. company guaranty
stepped-coupon zero % (13 7/8s, 7/31/02), 2005 (STP) 293,400

Specialty Printing (0.3%)
-------------------------------------------------------------------------------------------------------------------
2,610,000 Perry-Judd company guaranty 10 5/8s, 2007 2,322,900
2,301,564 Von Hoffman Press, Inc. 144A sr. sub. notes
13 1/2s, 2009 2,071,408
-------------
4,394,308

Technology (1.1%)
-------------------------------------------------------------------------------------------------------------------
5,500,000 Fairchild Semiconductor Corp. company guaranty
10 3/8s, 2007 5,623,750
4,790,000 Telecommunications Techniques, Inc. company guaranty
9 3/4s, 2008 4,502,600
500,000 Viasystems, Inc. sr. notes Ser. B, 9 3/4s, 2007 452,500
4,800,000 Viasystems, Inc. sr. sub notes 9 3/4s, 2007 4,344,000
-------------
14,922,850

Technology Services (1.5%)
-------------------------------------------------------------------------------------------------------------------
933,333 American Cellular bank term loan FRN 9.609s, 3/1/08 929,833
1,066,667 American Cellular bank term loan FRN 8.941s, 3/1/08 1,062,667
6,770,000 Covad Communications Group, Inc. sr. disc. notes
Ser. B, stepped-coupon zero % (13 1/2s,
03/15/03), 2008 (STP) 3,317,300
1,599,000 Covad Communications Group, Inc. sr. notes
Ser. B, 12s, 2010 1,231,230
6,150,000 Equinix, Inc. sr. notes 13s, 2007 4,920,000
6,090,000 Exodus Communications, Inc. 144A sr. notes
11 5/8s, 2010 6,181,350
610,000 Globix Corp. sr. notes 12 1/2s, 2010 442,250
1,390,000 PsiNet, Inc. sr. notes 11s, 2009 1,195,400
1,620,000 Rhythms Netconnections sr. notes Ser. B, 14s, 2010 1,053,000
-------------
20,333,030

Telecommunications (10.4%)
-------------------------------------------------------------------------------------------------------------------
3,540,000 360Networks, Inc. 144A sr. notes 13s, 2008 (Canada) 3,345,300
360,000 Arch Communications, Inc. sr. notes 13 3/4s, 2008 288,000
200,000 Arch Communications, Inc. sr. notes 13s, 2007 140,000
6,405,000 Barak I.T.C. sr. disc. notes Ser. B stepped-coupon zero %
(12 1/2s, 11/15/02), 2007 (Israel) (STP) 3,330,600
2,640,000 Bestel SA de C.V. sr. disc. notes stepped-coupon zero %
(12 3/4s, 5/15/03), 2005 (Mexico) (STP) 1,729,200
1,680,000 Call-Net Enterprises, Inc. sr. notes 8s, 2008 (Canada) 907,200
3,600,000 Carrier1 Intl. SA sr. notes Ser. B, 13 1/4s, 2009
(Luxembourg) 3,447,000
6,620,000 Celcaribe SA sr. notes stepped-coupon zero %
(13 1/2s, 3/15/04), 2004 (STP) 5,296,000
14,200,000 CellNet Data Systems, Inc. sr. disc. notes stepped-
coupon zero % (14s, 10/1/02), 2007 (STP)
(In default) (NON) 994,000
2,940,000 Crown Castle Intl., Corp. sr. notes 10 3/4s, 2011 3,072,300
1,510,000 Crown Castle Intl. Corp. bank term loan Ser. B,
FRN 9.37s, 3/1/08 1,510,000
210,000 Dobson/Sygnet Communications, Inc. sr. notes
12 1/4s, 2008 215,250
2,870,000 Earthwatch, Inc. sr. disc. notes stepped-coupon zero %
(13s, 7/15/02), 2007 (STP) 1,779,400
1,360,000 Esprit Telecom Group PLC sr. notes 11 1/2s, 2007
(United Kingdom) 775,200
2,880,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 2,563,200
240,000 Global Crossing Holdings, Ltd. company guaranty
9 1/2s, 2009 (Bermuda) 241,200
6,930,000 Global Crossing Holdings, Ltd. company guaranty
9 1/8s, 2006 (Bermuda) 6,878,025
2,385,000 Grupo Iusacell S.A. de C.V. sr. notes 14 1/4s,
2006 (Mexico) 2,581,763
4,940,000 Innova S De R.L. sr. notes 12 7/8s, 2007 (Mexico) 4,791,800
3,740,000 Intira Corp. bonds 13s, 2010 2,244,000
4,360,000 Kookinlet Voicestream bank term loan FRN
10.71s, 12/31/08 4,343,650
2,330,000 Level 3 Communications, Inc. sr. notes 11s, 2008 2,306,700
3,620,000 Level 3 Communication, Inc. sr. notes 9 1/8s, 2008 3,239,900
1,060,000 Loral Space & Communication, Ltd. sr. notes
9 1/2s, 2006 809,575
185,000 McCaw International, Ltd. sr. disc. notes stepped-coupon
zero % (13s, 4/15/02), 2007 (STP) 142,450
680,000 Metrocall, Inc. sr. sub. notes 11s, 2008 510,000
800,000 Metrocall, Inc. sr. sub. notes 9 3/4s, 2007 592,000
2,800,000 Metromedia Fiber Network, Inc. sr. notes 10s, 2009 2,765,000
3,670,000 Metromedia Fiber Network, Inc. sr. notes Ser. B,
10s, 2008 3,614,950
10,558,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/01), 2006
(Luxembourg) (STP) 9,343,830
20,000 Motient Corp. company guaranty Ser. B, 12 1/4s, 2008 14,850
1,400,000 Nextel Communications, Inc. sr. disc. notes stepped-
coupon zero % (12 1/8s, 4/15/03), 2008 (STP) 910,000
5,870,000 Nextel Communications, Inc. sr. notes 12s, 2008 6,222,200
11,230,000 Nextel Communications, Inc. sr. notes 9 3/8s, 2009 11,005,400
3,840,000 Nextel International, Inc. 144A sr. notes 12 3/4s, 2010 3,753,600
2,600,000 Nextel Partners, Inc. 144A sr. notes 11s, 2010 2,600,000
2,370,000 Nextel Partners, Inc. 144A sr. notes 11s, 2010 2,370,000
2,055,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 1,787,850
2,990,000 NorthPoint Communications Group, Inc. sr. notes
12 7/8s, 2010 2,900,300
440,000 Orbital Imaging Corp. sr. notes Ser. B, 11 5/8s, 2005 176,000
2,020,000 Pagemart Wireless, Inc. sr. disc. notes stepped-coupon
zero % (11 1/4s, 2/1/03), 2008 (STP) 797,900
1,550,000 Paging Network, Inc. sr. sub. notes 10s,
2008 (In default) (NON) 527,000
250,000 Paging Network, Inc. sr. sub. notes 8 7/8s, 2006
(In default) (NON) 85,000
125,000 Paging Network Do Brasil sr. notes 13 1/2s, 2005 (Brazil) 8,125
1,665,000 Pathnet, Inc. sr. notes 12 1/4s, 2008 715,950
7,340,000 Pinnacle Holdings, Inc. sr. disc. notes stepped-coupon
zero % (10s, 3/15/03), 2008 (STP) 5,284,800
2,590,000 Price Communications Wireless, Inc. 144A sr. notes
9 1/8s, 2006 2,641,800
1,000,000 Primus Telecommunications Group, Inc. sr. notes
12 3/4s, 2009 640,000
1,680,000 Primus Telecommunications Group, Inc. sr. notes
Ser. B, 9 7/8s, 2008 1,041,600
2,810,000 Rogers Cantel, Inc. sr. sub. notes 8.8s, 2007 (Canada) 2,824,050
1,820,000 RSL Communications PLC company guaranty
12 7/8s, 2010 (United Kingdom) 491,400
1,400,000 RSL Communications PLC 144A company guaranty
10 1/2s, 2008 (United Kingdom) 423,500
5,500,000 RSL Communications PLC company guaranty,
stepped-coupon zero % (10 1/8s, 3/1/03), 2008
(United Kingdom) (STP) 935,000
2,000,000 RSL Communications PLC company guaranty
9 7/8s, 2009 (United Kingdom) 525,000
295,000 RSL Communications PLC company guaranty
9 1/8s, 2008 (United Kingdom) 76,700
1,500,000 Rural Cellular Corp. bank term loan FRN
8.979s, 10/1/08 1,496,250
1,540,000 Satelites Mexicanos S.A. de C.V. 144A sr. notes
10 1/8s, 2004 (Mexico) 1,016,400
1,250,000 Spectrasite Holdings, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (12 7/8s, 3/15/05) 2010 (STP) 706,250
970,000 Spectrasite Holdings, Inc. sr. disc. notes stepped-coupon
zero % (11 1/4s, 4/15/04), 2009 (STP) 577,150
4,620,000 Startec Global Communications Corp. sr. notes
12s, 2008 3,696,000
15,225,000 Viatel, Inc. sr. disc. notes stepped-coupon zero %
(12 1/2s, 4/15/03), 2008 (STP) 5,328,750
2,361,000 Viatel, Inc. sr. notes 11 1/2s, 2009 1,345,770
2,020,000 Williams Communications Group, Inc. sr. notes
10 7/8s, 2009 1,949,300
2,935,000 World Access, Inc. sr. notes Ser. B, 13 1/4s, 2008 2,465,400
-------------
141,136,788

Telephone (5.4%)
-------------------------------------------------------------------------------------------------------------------
2,570,000 Airgate PCS, Inc. sr. sub. notes stepped-coupon zero %
(13 1/2s, 10/1/04), 2009 (STP) 1,625,525
4,660,000 Alamosa PCS Holdings, Inc. company guaranty stepped-
coupon zero % (12 7/8s, 2/15/05), 2010 (STP) 2,656,200
2,170,000 Alaska Communications Systems Corp. company
guaranty 9 3/8s, 2009 1,996,400
240,000 Allegiance Telecom, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (11 3/4s, 2/15/03), 2008 (STP) 170,400
620,000 Birch Telecommunications, Inc. sr. notes 14s, 2008 372,000
3,755,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 2,440,750
5,580,000 Firstworld Communication Corp. sr. disc. notes stepped-
coupon zero % (13, 4/15/03), 2008 (STP) 1,729,800
2,475,000 Focal Communications Corp. sr. disc. notes, stepped-
coupon Ser. B, zero % (12 1/8s, 02/15/03), 2008 (STP) 1,534,500
1,850,000 Focal Communications Corp. sr. notes 11 7/8s, 2010 1,674,250
115,000 Hyperion Telecommunications Corp., Inc. sr. notes
Ser. B, 12 1/4s, 2004 110,975
3,895,000 ICG Holdings, Inc. company guaranty stepped-coupon
zero % (12 1/2s, 5/1/01), 2006 (STP) 1,908,550
5,210,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero %
(10s, 02/15/03), 2008 (STP) 1,771,400
5,940,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero %
(9 7/8s, 5/1/03), 2008 (STP) 2,019,600
1,730,000 Intermedia Communications, Inc. sr. disc. notes stepped-
coupon Ser. B, zero % (121/4s, 3/1/04), 2009 (STP) 856,350
13,095,000 KMC Telecommunications Holdings, Inc. sr. disc. notes
stepped-coupon zero % (12 1/2s, 2/15/03), 2008 (STP) 5,238,000
4,510,000 Madison River Capital Corp. 144A sr. notes
13 1/4s, 2010 3,743,300
5,070,000 MGC Communications, Inc. sr. notes 13s, 2010 4,208,100
3,815,000 Microcell Telecommunications sr. disc. notes stepped-
coupon Ser. B, zero % (14s, 12/1/01), 2006
(Canada) (STP) 3,662,400
1,600,000 Netia Holdings B.V. 144A company guaranty stepped-
coupon zero % (11 1/4s, 11/1/01), 2007 (Poland) (STP) 1,128,000
800,000 Netia Holdings B.V. 144A company guaranty
10 1/4s, 2007 (Poland) 674,000
1,360,000 NEXTLINK Communications, Inc. sr. notes
10 1/2s, 2009 1,305,600
6,540,000 Telecorp PCS, Inc. 144A sr. sub. notes 10 5/8s, 2010 6,801,600
2,390,000 Tele1 Europe B.V. 144A notes 13s, 2009 2,378,050
2,880,000 Transtel pass-through certificates 12 1/2s, 2007 1,180,800
1,160,000 Triton PCS Inc. company guaranty 11s, 2008 875,800
5,200,000 UbiquiTel Operating Co. company guaranty stepped-
coupon zero % (14s, 4/15/05), 2010 (STP) 2,704,000
5,725,000 US Unwired, Inc. company guaranty, stepped-coupon
Ser. B, zero % (13 3/8s, 11/1/04), 2009 (STP) 3,234,625
1,000,000 Versatel Telecom N.V. structured notes (issued by
CRAVE Trust 2000) 15.065s, 2005 (Netherlands) 990,000
1,960,000 Versatel Telecom N.V. sr. notes 13 1/4s, 2008
(Netherlands) 1,871,800
990,000 Versatel Telecom N.V. sr. notes 13 1/4s, 2008
(Netherlands) 945,450
5,510,000 Voicestream Wire, Inc. sr. notes 10 3/8s, 2009 5,950,800
10,589,000 WinStar Communications, Inc. 144A sr. disc. notes
zero % (14 3/4s, 4/15/05), 2010 (STP) 4,182,655
2,228,000 WinStar Communications, Inc. 144A sr. notes
12 3/4s, 2010 1,938,360
-------------
73,880,040

Textiles (1.1%)
-------------------------------------------------------------------------------------------------------------------
2,090,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 1,149,500
3,100,000 Guess, Inc. sr. sub. notes 9 1/2s, 2003 3,076,750
1,500,000 Kasper A.S.L., Ltd. sr. notes 12 3/4s, 2004 855,000
3,090,000 Levi Strauss & Co. notes 6.8s, 2003 2,533,800
3,500,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2008 3,027,500
500,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2005 447,500
10,000 William Carter Holdings Co. sr. sub. notes
Ser. A, 12s, 2008 9,200
4,190,000 William Carter Holdings Co. sr. sub. notes Ser. A,
10 3/8s, 2006 4,022,400
-------------
15,121,650

Tobacco (0.2%)
-------------------------------------------------------------------------------------------------------------------
2,440,000 North Atlantic Trading Co. company guaranty
Ser. B, 11s, 2004 2,098,400

Trucks & Parts (0.2%)
-------------------------------------------------------------------------------------------------------------------
2,850,000 Transportation Manufacturing Operations, Inc.

company guaranty 11 1/4s, 2009 2,280,000

Utilities (0.4%)
-------------------------------------------------------------------------------------------------------------------
6,505,000 Cathay International, Ltd. 144A sr. notes 13s,
2008 (China) 3,382,600
1,995,000 Tnp Enterprises bank term loan FRN 9.04s, 12/31/05 1,997,494
-------------
5,380,094

Waste Management (1.5%)
-------------------------------------------------------------------------------------------------------------------
9,140,000 Allied Waste Industries, Inc. company guaranty
Ser. B, 10s, 2009 8,168,875
2,035,000 Allied Waste Industries, Inc. bank term loan
Ser. B, FRN 9.563s, 7/1/06 1,979,180
2,485,000 Allied Waste Industries, Inc. bank term loan
Ser. C, FRN 9.813s, 7/1/07 2,426,329
1,000,000 Allied Waste Industries, Inc. company guaranty
Ser. B, 7 7/8s, 2009 902,500
350,000 Browning-Ferris Industries, Inc. deb. 7.4s, 2035 259,000
1,150,000 USA Waste Services, Inc. sr. notes 7 1/8s, 2007 1,076,446
3,050,000 Waste Management, Inc. company guaranty
6 7/8s, 2009 2,777,269
2,500,000 WMX Technologies, Inc. notes 6 3/8s, 2003 2,342,475
-------------
19,932,074

Water Utilities (0.1%)
-------------------------------------------------------------------------------------------------------------------
1,570,000 Azurix Corp. 144A notes 10 3/8s, 2007 1,216,750
--------------
Total Corporate Bonds and Notes
(cost $1,236,809,663) $1,078,248,288

PREFERRED STOCKS (6.0%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Banking (0.3%)
-------------------------------------------------------------------------------------------------------------------
89,500 Chevy Chase Capital Corp. Ser. A, 5.188 pfd. (PIK) $ 4,206,500
12,100 Chevy Chase Savings Bank, Inc. 3.25 pfd. 302,500
--------------
4,509,000

Broadcasting (1.1%)
-------------------------------------------------------------------------------------------------------------------
1,610 Benedek Communications 11.50 pfd. (PIK) 1,030,400
12,995 Citadel Broadcasting Inc. 144A 13.25 cum. pfd. (PIK) 1,403,510
5,117 Granite Broadcasting 144A 12.75 pfd. (PIK) 3,837,750
785 Paxson Communications Corp. 13.25 cum. pfd. (PIK) 7,693,000
700 Pegasus Communications Ser. A, 12.75% cum. pfd. (PIK) 735,000
-------------
14,699,660

Cable Television (0.7%)
-------------------------------------------------------------------------------------------------------------------
85,393 CSC Holdings, Inc. Ser. M, 11.125 cum. pfd. (PIK) 9,051,658

Chemicals (0.3%)
-------------------------------------------------------------------------------------------------------------------
135,000 Avecia Group PLC 4.00 pfd. (United Kingdom) (PIK) 3,645,000

Electric Utilities (--%)
-------------------------------------------------------------------------------------------------------------------
159 Public Service Co. of New Hampshire 2.651
1st mtge. pfd. 3,975

Electronics (--%)
-------------------------------------------------------------------------------------------------------------------
566 Trikon Technologies, Inc. Ser. H, 8.125 pfd. (PIK) 5,094

Energy (0.3%)
-------------------------------------------------------------------------------------------------------------------
2,930 R&B Falcon Corp. 13.875% cum. pfd. (PIK) 3,618,550

Financial (0.5%)
-------------------------------------------------------------------------------------------------------------------
2,750 First Rep Cap. Corp. 144A, 10.5% pfd. 2,365,000
169,500 Golden State Bancorp Ser. A, 2.281 pfd. 3,940,875
-------------
6,305,875

Food (0.2%)
-------------------------------------------------------------------------------------------------------------------
68,200 Doane Pet Care Enterprises 7.125 pfd. 2,728,000

Health Care Services (0.3%)
-------------------------------------------------------------------------------------------------------------------
1,455 Fresenius Medical Capital Trust I company guaranty
9.00%, pfd. 1,440,450
3,260 Fresenius Medical Capital Trust II company guaranty
7.875% pfd. 3,048,100
-------------
4,488,550

Insurance (--%)
-------------------------------------------------------------------------------------------------------------------
5,351 CGA Group Ltd. 144A Ser. A, 13.75 pfd. (PIK) 144,477

Manufacturing (0.3%)
-------------------------------------------------------------------------------------------------------------------
157,225 Brand Scaffold Services, Inc. 144A 3.625 pfd. 4,716,750

Telecommunications (1.8%)
-------------------------------------------------------------------------------------------------------------------
8,966 Dobson Communications 13.00% pfd. (PIK) 8,629,775
1,200 Dobson Communications 12.25% pfd. (PIK) 1,145,666
7,842 Intermedia Communication Ser. B, 13.50% pfd. (PIK) 5,097,294
230 Nextel Communications, Inc. 13.00% cum. pfd. (PIK) 243,800
736 Nextel Communications, Inc. Ser. E, 11.125% pfd. (PIK) 710,240
37,708 NEXTLINK Communications 7.00 cum. pfd. (PIK) 1,734,568
5,442 NEXTLINK Communications Ser. B, 13.50% pfd. (PIK) 4,707,330
2,886 Rural Cellular Corp. 12.25% pfd. (PIK) 2,510,820
-------------
24,779,493

Telephone (0.2%)
-------------------------------------------------------------------------------------------------------------------
5,600 ICG Holdings, Inc. 14.25% pfd. (PIK) 1,680,000
4,652 ICG Holdings, Inc. 14.00% pfd. (PIK) 1,395,699
-------------
3,075,699
-------------
Total Preferred Stocks (cost $93,216,970) $ 81,771,781

UNITS (1.9%) (a)
NUMBER OF UNITS VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
4,375 App China Group 144A units 14s, 2010 (Singapore) $ 2,537,500
4,930 CFW Communications Co. units 13s, 2010 4,831,400
2,890 Colo.com 144A units 13 7/8s, 2010 2,947,800
1,340 Huntsman Packaging Corp. units 13s, 2010 1,206,000
3,070 iPCS Inc. units stepped-coupon zero %
(14s, 7/15/05), 2010 (STP) 1,749,900
5,020 Jostens Inc. units 12 3/4s, 2010 5,174,904
3,960 Maxcom Telecom 144A units 13 3/4s, 2007 2,435,400
2,790 Railamerica Transportation Corp. units 12 7/8s, 2010 2,636,550
19,405 XCL, Ltd. 144A units c.v. cum. pfd. zero % (PIK) 9,703
2,620 XM Satellite Radio Inc. 144A units 14s, 2010 2,410,400
-------------
Total Units (cost $30,868,950) $ 25,939,557

FOREIGN GOVERNMENT BONDS AND NOTES (0.5%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
$ 2,660,000 Philippines (Republic of) notes 10 5/8s, 2025 $ 2,364,208
3,730,000 United Mexican States bonds Ser. XW, 10 3/8s, 2009 4,093,675
-------------
Total Foreign Government Bonds and Notes
(cost $6,221,989) $ 6,457,883

CONVERTIBLE BONDS AND NOTES (1.2%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
$ 3,470,000 Cybernet Internet Services 144A cv. sr. disc. notes
stepped-coupon zero % (13s, 8/15/04), 2009 (STP) $ 1,492,100
6,240,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 2,901,600
140,000 HEALTHSOUTH Corp. cv. sub. deb. 3 1/4s, 2003 109,200
4,000,000 Micron Technology, Inc cv. 6 1/2s, 2005 3,360,000
2,300,000 NTL, Inc. 144A cv. sub. notes 5 3/4s, 2009
(United Kingdom) 1,569,750
1,615,000 Parker Drilling Corp. cv. sub. notes 5 1/2s, 2004 1,330,356
3,000,000 Total Renal Care Holdings, Inc. 144A cv. notes 7s, 2009 2,111,250
4,010,000 Waste Management, Inc. cv. sub. notes 4s, 2002 3,739,325
-------------
Total Convertible Bonds and Notes (cost $17,738,799) $ 16,613,581

CONVERTIBLE PREFERRED STOCKS (0.7%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
140,903 Earthwatch, Inc. Ser. C, 8.5 cv. pfd. (PIK) $ 1,409
6,500 Global Crossing 144A 7.00 cv. pfd. (Bermuda) 1,241,500
7,100 Global Crossing Ltd. 7.00 cum cv. pfd. (Bermuda) 1,350,775
4,100 Global Crossing Ltd. 6.75 cum cv. pfd. (Bermuda) 1,000,400
49,200 Global Telesystems Group, Inc. 3.63 cum cv. pfd. 910,200
76,760 Global Telesystems Group, Inc. 144A 3.625
cum cv. pfd. 1,410,465
1,020 Interact Electronic 14.00 cum.cv. pfd 1,020
20,900 LTV Corp. (The) 144A 4.125 cum. cv. pfd. 627,000
91 Paxson Communications Corp. 144A 9.75% cv. pfd. (PIK) 882,700
26,408 Peninsula Gaming 144A 7.14% cv. pfd. 158,445
89,600 PsiNet, Inc. 144A 3.50 cum. cv. pfd. 2,374,400
2,937 XCL, Ltd. 144A Ser. A, 8.075 cum. cv. pfd. 1,469
-------------
Total Convertible Preferred Stocks
(cost $14,521,388) $ 9,959,783

COLLATERALIZED MORTGAGE OBLIGATIONS (1.9%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
$ 2,000,000 Amresco Commercial Mortgage Funding I Ser. 97-C1,
Class G, 7s, 2029 $ 1,631,875
32,959,001 Commercial Mortgage Asset Trust Ser. 99-C1,
Class X, Interest Only (IO), 1.170s, 2020 2,081,824
795,000 Criimi Mae Commercial Mortgage Trust Ser. 98-C1,
Class C, 7s, 2012 603,455
1,275,000 CS First Boston Mortgage Securities Corp. Ser. 99-C1,
Cass E, 8.18s, 2009 1,277,490
Fannie Mae
343,000 Ser. 96-5, Class SW, IO, 12.46s, 2018 122,247
1,872 Ser. 92-184, Class J, IO, 11.46s, 2022 70,017
8,971,247 Ser. 96-39, Class TB, IO, 9.75s, 2021 2,849,773
343,000 Ser. 00-4, Class SX, 9.208s, 2023 334,854
227,570 Ser. 241, Class 2, IO, 8 1/2s, 2023 60,804
515,831 Ser. 158, Class 2, IO, 8 1/2s, 2022 137,824
1,300,486 Ser. 150, Class 2, IO, 8 1/2s, 2022 349,912
720,134 Ser. 181, Class 2, IO, 8 1/2s, 2022 193,761
481,860 Ser. G93-9, IO, 8s, 2023 127,317
640,356 Ser. 203, Class 2, IO, 8s, 2023 182,702
5,326,387 Ser. 218, Class 2, IO, 7 1/2s, 2023 1,537,994
7,182,476 Ser. 221, Class 2, IO, 7 1/2s, 2023 2,069,451
1,114 Ser. 92-181, Class PJ, IO, 7 1/2s, 2022 35,967
446,795 Ser. 215, Class 2, IO, 7s, 2023 127,057
403,000 Ser. 97-23, Class SJ, IO, 6.119s, 2023 90,171
1,595,700 Ser. 92-207, Class S, IO, 5.906s, 2022 329,362
Freddie Mac
1,010,000 Ser. 2033, Class SL, IO, 9.642s, 2021 320,833
847,000 Ser. 2032, Class SK, IO, 9.1s, 2024 431,441
961,800 Ser. 2183, Class SG, 3.963s, 2014 764,781
210,642 Ser. 203, PO, 2029 133,823
3,800,000 General Growth Properties-Ala Moana Ser. 99-C1,
Class F, FRN, 9.37s, 2004 3,800,891
Government National Mortgage Association
1,031,921 Ser. 00-16, Class SA, 8.65s, 2026 928,407
1,045,618 Ser. 00-10, Class SB, 8.65s, 2030 980,431
2,600,000 GS Mortgage Securities Corp. II Ser. 99-FLA2,
Class G, 8.803s, 2013 2,499,250
Merrill Lynch Mortgage Investors, Inc.
1,950,000 Ser. 98-C2, Class F, 6 1/4s, 2030 1,272,070
5,482,361 Ser. 96-C2, IO, 1.935s, 2028 351,214
-------------
Total Collateralized Mortgage Obligations
(cost $25,309,937) $ 25,696,998

WARRANTS (0.4%) (a)(NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
<S> <C> <C> <C>
-------------------------------------------------------------------------------------------------------------------
1,640 Bestel S.A. (Mexico) 5/15/05 $ 196,800
5,160 Birch Telecommunications, Inc. 144A 6/15/08 516,000
3,424 Carrier1 International 2/19/09 924,480
3,230 CellNet Data Systems, Inc. 10/1/07 1
3,200 CGA Group, Ltd. 144A 2/11/07 32
2,930 Dayton Superior Corp. 6/15/09 58,600
7,540 Decrane Holdings 9/30/08 75
375 Destia Communications 144A 7/15/07 22,500
38,765 Diva Systems Corp. 3/1/08 542,710
1,290 Epic Resorts 6/15/05 13
3,730 Firstworld Communication 4/15/08 74,600
60 Globalstar Telecommunications 2/15/04 60
53,776 ICG Communications 10/15/05 53,776
2,045 Insilco Holding Corp. 8/15/07 20
20 Interact Systems, Inc. 8/1/03 1
1,020 Interact Systems, Inc. 144A 12/15/09 10
61,789 Intira Corp. Class A 2/1/10 6
21,233 Intira Corp. Class B 2/1/10 2
470 Iridium World Com 144A 7/15/05 1
3,830 KMC Telecom Holdings, Inc. 4/15/08 11,490
3,815 Knology Holdings 10/22/07 22,890
320 McCaw International, Ltd. 4/15/07 1,280
2,800 Mediq, Inc. 144A 6/1/09 28
30 Metronet Communications 144A 8/15/07 3,000
580 Motient Corp. 144A 4/1/08 20,300
31,929 Network Plus Corp. 12/31/00 1,468,734
5,245 OnePoint Communications, Inc. 6/1/08 472,050
440 Orbital Imaging Corp. 144A 3/1/05 2,200
50 Loral Space & Communications 1/15/07 550
3,562 Pathnet, Inc. 144A 4/15/08 35,620
2,560 Paxson Communications Corp. 144A 6/30/03 14,080
300 Raintree Resort 144A 12/1/04 3
2,480 Startec Global Communications Corp. 5/15/08 2,480
1,580 Telehub Communications Corp. 7/31/05 790
5,200 Ubiquitel, Inc. 144A 4/15/10 364,000
125 UIH Australia/Pacific, Inc. 144A 5/15/06 3,750
110 Versatel Telecom N.V. 144A (Netherlands) 5/15/08 35,200
990 WAM!NET, Inc. 3/1/05 11,509
630 XM Satellite Radio Holdings, Inc. 144A 3/15/10 100,800
125,000 ZSC Specialty Chemicals PLC 144A
(United Kingdom) 6/30/11 203,125
125,000 ZSC Specialty Chemicals PLC 144A pfd.
(United Kingdom) 6/30/11 78,125
-------------
Total Warrants (cost $3,183,502) $ 5,241,691

COMMON STOCKS (0.2%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
138,500 360Networks, Inc. (acquired 5/11/00,
cost 1,551,200) (Canada) (RES) (NON) $ 1,731,250
27,272 Capstar Broadcasting Partners (NON) 109,088
64,112 Celcaribe S.A. (Colombia) (NON) 8,014
6 Intermedia Communications, Inc. (NON) 125
6,876 MGC Communications, Inc. (NON) 126,776
619 Mothers Work, Inc. (NON) 5,687
400 RCN Corp. (NON) 4
400 Spanish Broadcasting System, Inc. (NON) 4,025
42,094 Tele1 Europe Holding AB ADR (Sweden) (NON) 515,652
-------------
Total Common Stocks (cost $1,649,532) $ 2,500,621

ASSET-BACKED SECURITIES (0.1%) (cost $1,655,000) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
$ 2,000,000 Green Tree Home Improvement Loan Trust Ser. 95-F,
Class B2, 7.1s, 2021 $ 1,700,625

U.S. GOVERNMENT AND AGENCY OBLIGATIONS (0.1%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
U.S. Treasury Obligations (0.1%) (cost $767,466)
-------------------------------------------------------------------------------------------------------------------
$ 745,000 U.S. Treasury Notes 6 1/2s, February 15, 2010 $ 777,825

SHORT-TERM INVESTMENTS (5.8%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
$ 44,447,000 Interest in $400,000,000 joint repurchase agreement
dated August 31, 2000 with Merrill Lynch due
September 1, 2000 with respect to various U.S.
Treasury obligations -- maturity value of $44,455,198
for an effective yield of 6.64% $ 44,447,000
35,381,000 Interest in $749,144,000 joint repurchase agreement
dated August 31, 2000 with S.B.C. Warburg, Inc.due
September 1, 2000 with respect to various U.S.
Treasury obligations -- maturity value of $35,387,536
for an effective yield of 6.65% 35,381,000
--------------
Total Short-Term Investments (cost $79,828,000) $ 79,828,000
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,511,771,196) (b) $1,334,736,633
-------------------------------------------------------------------------------------------------------------------

(a) Percentages indicated are based on net assets of $1,370,134,136.

(b) The aggregate identified cost on a tax basis is $1,524,102,897
resulting in gross unrealized appreciation and depreciation of
$13,253,600 and $202,619,864, respectively, or net unrealized
depreciation of $189,366,264.

(NON) Non-income-producing security.

(STP) 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.

(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at August 31, 2000 was
$1,731,250 or 0.1% of net assets.

(PIK) Income may be received in cash or additional securities at the
discretion of the issuer.

ADR after the name of a foreign holding stands for American
Depositary Receipts, representing ownership of foreign securities on
deposit with a domestic custodian bank.

The rates shown on Floating Rate Notes (FRN) are the current
interest rates at August 31, 2000, which are subject to change based on
the terms of the security.

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

</TABLE>

STATEMENT OF ASSETS AND LIABILITIES
August 31, 2000
<S> <C>
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,511,771,196) (Note 1) $1,334,736,633
-------------------------------------------------------------------------------------------
Cash 5,257,349
-------------------------------------------------------------------------------------------
Dividends, interest and other receivables 29,964,777
-------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 5,953,610
-------------------------------------------------------------------------------------------
Receivable for securities sold 16,004,455
-------------------------------------------------------------------------------------------
Total assets 1,391,916,824

Liabilities
-------------------------------------------------------------------------------------------
Distributions payable to shareholders 5,229,557
-------------------------------------------------------------------------------------------
Payable for securities purchased 11,142,024
-------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 2,090,456
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 2,136,466
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 158,434
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 23,942
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,818
-------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 902,842
-------------------------------------------------------------------------------------------
Other accrued expenses 96,149
-------------------------------------------------------------------------------------------
Total liabilities 21,782,688
-------------------------------------------------------------------------------------------
Net assets $1,370,134,136

Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,687,140,117
-------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (8,520,758)
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (131,450,660)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (177,034,563)
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $1,370,134,136

Computation of net asset value and offering price
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($561,605,506 divided by 82,884,681 shares) $6.78
-------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $6.78)* $7.12
-------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($758,381,289 divided by by 111,703,818)** $6.79
-------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($17,219,585 divided by 2,537,506 shares)** $6.79
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($32,927,756 divided by 4,853,266 shares) $6.78
-------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $6.78)* $7.01
-------------------------------------------------------------------------------------------

* 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>

STATEMENT OF OPERATIONS
Year ended August 31, 2000
<S> <C>
Investment income:
-------------------------------------------------------------------------------------------
Interest $156,081,059
-------------------------------------------------------------------------------------------
Dividends 9,604,623
-------------------------------------------------------------------------------------------
Total investment income 165,685,682

Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 8,791,447
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,348,714
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 38,043
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 16,816
-------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,417,881
-------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 8,045,910
-------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 95,588
-------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 181,503
-------------------------------------------------------------------------------------------
Other expenses 589,926
-------------------------------------------------------------------------------------------
Total expenses 20,525,828
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (299,493)
-------------------------------------------------------------------------------------------
Net expenses 20,226,335
-------------------------------------------------------------------------------------------
Net investment income 145,459,347
-------------------------------------------------------------------------------------------
Net realized loss on investments (Note 1) (86,263,035)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the year (51,770,200)
-------------------------------------------------------------------------------------------
Net loss on investments (138,033,235)
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 7,426,112
-------------------------------------------------------------------------------------------

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

</TABLE>

STATEMENT OF CHANGES IN NET ASSETS

Year ended August 31
---------------------------------
2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment income $ 145,459,347 $ 111,689,272
--------------------------------------------------------------------------------------------------
Net realized loss on investments (86,263,035) (32,153,771)
--------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (51,770,200) (40,438,269)
--------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 7,426,112 39,097,232
--------------------------------------------------------------------------------------------------
Distributions to shareholders:
--------------------------------------------------------------------------------------------------
From net investment income
Class A (60,710,198) (45,606,325)
--------------------------------------------------------------------------------------------------
Class B (80,007,377) (62,136,212)
--------------------------------------------------------------------------------------------------
Class C (949,620) (7,209)
--------------------------------------------------------------------------------------------------
Class M (3,792,152) (3,191,936)
--------------------------------------------------------------------------------------------------
In excess of net investment income
Class A (797,140) (1,343,193)
--------------------------------------------------------------------------------------------------
Class B (1,050,517) (1,830,029)
--------------------------------------------------------------------------------------------------
Class C (12,469) (212)
--------------------------------------------------------------------------------------------------
Class M (49,792) (94,009)
--------------------------------------------------------------------------------------------------
From return of capital
Class A -- (1,827,387)
--------------------------------------------------------------------------------------------------
Class B -- (2,489,718)
--------------------------------------------------------------------------------------------------
Class C -- (289)
--------------------------------------------------------------------------------------------------
Class M -- (127,897)
--------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 18,817,746 828,779,452
--------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (121,125,407) 749,222,268

Net assets
--------------------------------------------------------------------------------------------------
Beginning of year 1,491,259,543 742,037,275
--------------------------------------------------------------------------------------------------
End of year (Including distributions in excess of net
investment income of $8,520,758 and
$7,115,324, respectively) $1,370,134,136 $1,491,259,543
--------------------------------------------------------------------------------------------------

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

</TABLE>

FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)

CLASS A
---------------------------------------------------------------------------
For the period
Per-share Dec. 31, 1997+
operating performance Year ended August 31 to August 31
---------------------------------------------------------------------------
2000 1999 1998
---------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $7.49 $8.02 $8.50
---------------------------------------------------------------------------
Investment operations
---------------------------------------------------------------------------
Net investment income (a) .77 .78 .41(d)
---------------------------------------------------------------------------
Net realized and unrealized
loss on investments (.70) (.48) (.47)
---------------------------------------------------------------------------
Total from
investment operations .07 .30 (.06)
---------------------------------------------------------------------------
Less distributions
---------------------------------------------------------------------------
From net
investment income (.77) (.78) (.32)
---------------------------------------------------------------------------
In excess of net
investment income (.01) (.02) (.05)
---------------------------------------------------------------------------
Return of capital -- (.03) (.05)
---------------------------------------------------------------------------
Total distributions (.78) (.83) (.42)
---------------------------------------------------------------------------
Net asset value,
end of period $6.78 $7.49 $8.02
---------------------------------------------------------------------------

Ratios and supplemental data
---------------------------------------------------------------------------
Total return at
net asset value (%)(b) .97 3.85 (1.08)*
---------------------------------------------------------------------------
Net assets, end of period
(in thousands) $561,606 $594,559 $278,847
---------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.01 1.06 .84(d)*
---------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 10.71 9.99 4.57(d)*
---------------------------------------------------------------------------
Portfolio turnover (%) 87.91 51.30(f) 44.05*
---------------------------------------------------------------------------

+ Commencement of operations.

* Not annualized.

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

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

(d) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses for the fund reflect a reduction of
less than $0.01 per share for class A, class B, and class M for the
period ended August 31, 1998.

(e) Distributions were less than $0.01 per share.

(f) Portfolio turnover excludes the impact of assets received from the
acquisition of Putnam High Yield Total Return Fund.

</TABLE>

FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)

CLASS B
---------------------------------------------------------------------------
For the period
Per-share Dec. 31, 1997+
operating performance Year ended August 31 to August 31
---------------------------------------------------------------------------
2000 1999 1998
---------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $7.50 $8.01 $8.50
---------------------------------------------------------------------------
Investment operations
---------------------------------------------------------------------------
Net investment income (a) .71 .72 .36(d)
---------------------------------------------------------------------------
Net realized and unrealized
loss on investments (.69) (.46) (.46)
---------------------------------------------------------------------------
Total from
investment operations .02 .26 (.10)
---------------------------------------------------------------------------
Less distributions
---------------------------------------------------------------------------
From net
investment income (.72) (.72) (.29)
---------------------------------------------------------------------------
In excess of net
investment income (.01) (.02) (.05)
---------------------------------------------------------------------------
Return of capital -- (.03) (.05)
---------------------------------------------------------------------------
Total distributions (.73) (.77) (.39)
---------------------------------------------------------------------------
Net asset value,
end of period $6.79 $7.50 $8.01
---------------------------------------------------------------------------

Ratios and supplemental data
---------------------------------------------------------------------------
Total return at
net asset value (%)(b) 0.21 3.33 (1.58)*
---------------------------------------------------------------------------
Net assets, end of period
(in thousands) $758,381 $855,729 $444,096
---------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.76 1.81 1.34(d)*
---------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 9.96 9.24 4.07(d)*
---------------------------------------------------------------------------
Portfolio turnover (%) 87.91 51.30(f) 44.05*
---------------------------------------------------------------------------

+ Commencement of operations.

* Not annualized.

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

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

(e) Distributions were less than $0.01 per share.

(f) Portfolio turnover excludes the impact of assets received from the
acquisition of Putnam High Yield Total Return Fund.

</TABLE>

FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)

CLASS C
--------------------------------------------------------------
For the period
Per-share Year ended July 26, 1999+
operating performance August 31 to August 31
--------------------------------------------------------------
2000 1999
--------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $7.50 $7.69
--------------------------------------------------------------
Investment operations
--------------------------------------------------------------
Net investment income (a) .71 .08
--------------------------------------------------------------
Net realized and unrealized
loss on investments (.69) (.20)
--------------------------------------------------------------
Total from
investment operations .02 (.12)
--------------------------------------------------------------
Less distributions
--------------------------------------------------------------
From net
investment income (.72) (.07)
--------------------------------------------------------------
In excess of net
investment income (.01) --(e)
--------------------------------------------------------------
Return of capital -- --(e)
--------------------------------------------------------------
Total distributions (.73) (.07)
--------------------------------------------------------------
Net asset value,
end of period $6.79 $7.50
--------------------------------------------------------------

Ratios and supplemental data
--------------------------------------------------------------
Total return at
net asset value (%)(b) .20 (1.52)*
--------------------------------------------------------------
Net assets, end of period
(in thousands) $17,220 $1,528
--------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.76 .18*
--------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 9.97 1.18*
--------------------------------------------------------------
Portfolio turnover (%) 87.91 51.30(f)
--------------------------------------------------------------

+ Commencement of operations.

* Not annualized.

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

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

(e) Distributions were less than $0.01 per share.

(f) Portfolio turnover excludes the impact of assets received from the
acquisition of Putnam High Yield Total Return Fund.

</TABLE>

FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)

CLASS M
---------------------------------------------------------------------------
For the period
Per-share Dec. 31, 1997+
operating performance Year ended August 31 to August 31
---------------------------------------------------------------------------
2000 1999 1998
---------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $7.50 $8.01 $8.50
---------------------------------------------------------------------------
Investment operations
---------------------------------------------------------------------------
Net investment income (a) .75 .77 .40(d)
---------------------------------------------------------------------------
Net realized and unrealized
loss on investments (.71) (.47) (.48)
---------------------------------------------------------------------------
Total from
investment operations .04 .30 (.08)
---------------------------------------------------------------------------
Less distributions
---------------------------------------------------------------------------
From net
investment income (.75) (.76) (.31)
---------------------------------------------------------------------------
In excess of net
investment income (.01) (.02) (.05)
---------------------------------------------------------------------------
Return of capital -- (.03) (.05)
---------------------------------------------------------------------------
Total distributions (.76) (.81) (.41)
---------------------------------------------------------------------------
Net asset value,
end of period $6.78 $7.50 $8.01
---------------------------------------------------------------------------

Ratios and supplemental data
---------------------------------------------------------------------------
Total return at
net asset value (%)(b) .57 3.86 (1.33)*
---------------------------------------------------------------------------
Net assets, end of period
(in thousands) $32,928 $39,443 $19,094
---------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.26 1.31 1.01(d)*
---------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 10.46 9.71 4.49(d)*
---------------------------------------------------------------------------
Portfolio turnover (%) 87.91 51.30(f) 44.05*
---------------------------------------------------------------------------

+ Commencement of operations.

* Not annualized.

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

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

(e) Distributions were less than $0.01 per share.

(f) Portfolio turnover excludes the impact of assets received from the
acquisition of Putnam High Yield Total Return Fund.

</TABLE>

NOTES TO FINANCIAL STATEMENTS
August 31, 2000

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, class C and class M shares. Effective
October 2, 2000 the fund will begin offering class Y shares. 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 C shares are subject to the same fees and expenses as
class B shares, except that class C shares have a one-year 1.00%
contingent deferred sales charge and do not convert to class A shares.
Class M shares are sold with a maximum front-end sales charge of 3.25%
and pay an ongoing distribution fee that is higher than class A but
lower than class B or class C 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 of 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 stated at market value, which is determined using
the last reported sales price on its principal exchange, 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. 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 or dealers, approved by the
Trustees, which determine valuations for normal institutional-size
trading units of such securities using methods based on market
transactions for comparable securities and variable 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.

Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date, except that certain dividends from
foreign securities are recorded 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. 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) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintain an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the year ended
August 31, 2000, the fund had no borrowings against the line of credit.

F) 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.

At August 31, 2000, the fund had a capital loss carryover of
approximately $47,966,000 available to offset future capital gains, if
any. The amount of the carryover and the expiration dates are:

Loss Carryover Expiration
-------------- ------------------
$ 3,691,000 August 31, 2005
4,909,000 August 31, 2006
14,565,000 August 31, 2007
24,801,000 August 31, 2008

G) Distributions to shareholders The fund declares a distribution each
day based upon the projected net investment income, for a specified
period, calculated as if earned prorated throughout the period on a
daily basis. Such distributions are recorded daily and paid monthly.
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. These differences include temporary and permanent
differences of losses on wash sale transactions, post-October loss
deferrals, defaulted bond interest, paydown gains and losses on
mortgage-backed securities, and interest on payment-in-kind securities.
Reclassifications are made to the fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryovers) under income tax regulations. For the year ended August 31,
2000, the fund reclassified $504,484 to decrease distributions in excess
of net investment income and $8,558,991 to increase paid-in-capital,
with an increase to accumulated net losses of $9,063,475. The
calculation of net investment income per share in the financial
highlights table excludes these adjustments.

H) 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 Trustees 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, 0.455% of the next $5 billion, 0.44% of
the next $5 billion and 0.43% thereafter.

Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments, Inc.
Investor servicing agent functions are provided by Putnam Investor
Services, a division of PFTC.

For the year ended August 31, 2000, fund expenses were reduced by
$299,493 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 $1,579
has been allocated to the fund, and an additional fee for each Trustees
meeting attended. Trustees receive additional fees for attendance at
certain committee meetings.

The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B, class C 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 Retail Management, Inc., 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 Retail Management, Inc. at an annual rate up to
0.35%, 1.00%, 1.00% and 1.00% of the average net assets attributable to
class A, class B, class C and class M shares, respectively. The Trustees
have approved payment by the fund at an annual rate of 0.25%, 1.00%,
1.00% and 0.50% of the average net assets attributable to class A, class
B, class C and class M shares, respectively.

For the year ended August 31, 2000, Putnam Retail Management, Inc.,
acting as underwriter received net commissions of $429,028 and $7,198
from the sale of class A and class M shares, respectively, and received
$2,728,389 and $14,967 in contingent deferred sales charges from
redemptions of class B and class C shares, respectively. A deferred
sales charge of up to 1% is assessed on certain redemptions of class A
shares. For the year ended August 31, 2000, Putnam Retail Management,
Inc., acting as underwriter received $31,554 on class A redemptions.

Note 3
Purchases and sales of securities

During the year ended August 31, 2000, cost of purchases and proceeds
from sales of investment securities other than U.S. government
obligations and short-term investments aggregated $1,135,710,137 and
$1,230,681,235, respectively. Purchases and sales of U.S. government
obligations aggregated $34,498,986 and $19,053,681, respectively.

Note 4
Capital shares

At August 31, 2000, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:

Year ended August 31, 2000
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 38,354,680 $274,464,327
---------------------------------------------------------------------------
Shares issued in
connection with
the reinvestment
of distributions 5,534,131 39,296,574
---------------------------------------------------------------------------
43,888,811 313,760,901

Shares
repurchased (40,370,639) (290,560,712)
---------------------------------------------------------------------------
Net increase 3,518,172 $ 23,200,189
---------------------------------------------------------------------------

Year ended August 31, 1999
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 73,533,980 $573,657,962
---------------------------------------------------------------------------
Shares issued in
connection with
the merger of
Putnam High Yield
Total Return Fund 6,137,823 47,322,612
---------------------------------------------------------------------------
Shares issued in
connection with
the reinvestment
of distributions 3,711,267 28,848,255
---------------------------------------------------------------------------
83,383,070 649,828,829

Shares
repurchased (38,798,612) (302,759,530)
---------------------------------------------------------------------------
Net increase 44,584,458 $347,069,299
---------------------------------------------------------------------------

Year ended August 31, 2000
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 37,471,914 $269,523,743
---------------------------------------------------------------------------
Shares issued in
c onnection with
the reinvestment
of distributions 5,847,880 41,666,608
---------------------------------------------------------------------------
43,319,794 311,190,351

Shares
repurchased (45,701,856) (329,347,698)
---------------------------------------------------------------------------
Net decrease (2,382,162) $(18,157,347)
---------------------------------------------------------------------------

Year ended August 31, 1999
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 77,290,503 $603,463,176
---------------------------------------------------------------------------
Shares issued in
connection with
the merger of
Putnam High Yield
Total Return Fund 6,884,889 53,151,342
---------------------------------------------------------------------------
Shares issued in
connection with
the reinvestment
of distributions 4,473,846 34,805,857
---------------------------------------------------------------------------
88,649,238 691,420,375

Shares
repurchased (30,023,426) (233,784,443)
---------------------------------------------------------------------------
Net increase 58,625,812 $457,635,932
---------------------------------------------------------------------------

Year ended August 31, 2000
---------------------------------------------------------------------------
Class C Shares Amount
---------------------------------------------------------------------------
Shares sold 3,081,154 $22,067,176
---------------------------------------------------------------------------
Shares issued in
connection with
the reinvestment
of distributions 93,380 655,959
---------------------------------------------------------------------------
3,174,534 22,723,135

Shares
repurchased (840,750) (6,013,222)
---------------------------------------------------------------------------
Net increase 2,333,784 $16,709,913
---------------------------------------------------------------------------

For the period July 26, 1999
(commencement of operations) to
August 31, 1999
---------------------------------------------------------------------------
Class C Shares Amount
---------------------------------------------------------------------------
Shares sold 203,605 $1,541,201
---------------------------------------------------------------------------
Shares issued in
connection with
the reinvestment
of distributions 540 4,053
---------------------------------------------------------------------------
204,145 1,545,254

Shares
repurchased (423) (3,181)
---------------------------------------------------------------------------
Net increase 203,722 $1,542,073
---------------------------------------------------------------------------

Year ended August 31, 2000
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 1,999,081 $14,393,083
---------------------------------------------------------------------------
Shares issued in
connection with
the reinvestment
of distributions 372,264 2,654,760
---------------------------------------------------------------------------
2,371,345 17,047,843

Shares
repurchased (2,780,245) (19,982,852)
---------------------------------------------------------------------------
Net decrease (408,900) $(2,935,009)
---------------------------------------------------------------------------

Year ended August 31, 1999
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 4,887,291 $38,180,718
---------------------------------------------------------------------------
Shares issued in
connection with
the merger of
Putnam High Yield
Total Return Fund 409,132 3,158,496
---------------------------------------------------------------------------
Shares issued in
connection with
the reinvestment
of distributions 281,920 2,191,787
---------------------------------------------------------------------------
5,578,343 43,531,001

Shares
repurchased (2,701,176) (20,998,853)
---------------------------------------------------------------------------
Net increase 2,877,167 $22,532,148
---------------------------------------------------------------------------

Note 5
Acquisition of Putnam High Yield
Total Return Fund

On July 12, 1999, the fund issued 6,137,823, 6,884,889, and 409,132 of
Class A, Class B, and Class M shares to the shareholders of Putnam High
Yield Total Return Fund to acquire that fund's net assets in a tax-free
exchange approved by the shareholders. The net assets of the fund and
Putnam High Yield Total Return Fund on July 9, 1999, were $1,404,712,997
and $103,632,450, respectively. On July 9, 1999, Putnam High Yield Total
Return Fund had unrealized depreciation of $6,731,909,

The aggregate net assets of the fund immediately following the
acquisition were $1,508,345,447.

FEDERAL TAX INFORMATION
(Unaudited)

The fund has designated 1.21% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.

The Form 1099 you receive in January 2001 will show the tax status of
all distributions paid to your account in calendar 2000.

WELCOME TO WWW.PUTNAMINVESTMENTS.COM

Now you can use your PC to get up-to-date information about your funds,
learn more about investing and retirement planning, and access market
news and economic outlooks from Putnam.

VISIT PUTNAM'S SITE ON THE WORLD WIDE WEB FOR:

* the benefits of investing with Putnam

* Putnam's money management philosophy

* complete fund information, daily pricing and long-term performance

* your current account value, portfolio value and transaction history

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You can also read Putnam economist Dr. Robert Goodman's commentary and
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The site can be accessed through any of the major online services
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you can also access it via Netscape or Microsoft Internet Explorer,
using an independent Internet service provider.

New features will be added to the site regularly. So be sure to bookmark us at
http://www.putnaminvestments.com

THE PUTNAM FAMILY OF FUNDS

The following is a complete list of Putnam's open-end mutual funds.
Please call your financial advisor or Putnam at 1-800-225-1581 to obtain
a prospectus for any Putnam fund. It contains more complete information,
including charges and expenses. Please read it carefully before you
invest or send money.

GROWTH FUNDS

Asia Pacific Growth Fund
Capital Appreciation Fund
Capital Opportunities Fund
Europe Growth Fund
Global Equity Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Century Growth Fund
New Opportunities Fund
OTC & Emerging Growth Fund
Research Fund
Technology Fund
Tax Smart Equity Fund
Vista Fund
Voyager Fund
Voyager Fund II

GROWTH AND INCOME FUNDS

Balanced Fund
Balanced Retirement Fund
Classic Equity Fund *
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
International Growth and Income Fund
New Value Fund
Small Cap Value Fund
Utilities Growth and Income Fund

INCOME FUNDS

American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGER]
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Intermediate U.S. Government Income Fund
Money Market Fund **
Preferred Income Fund
Strategic Income Fund *
U.S. Government Income Trust

TAX-FREE INCOME FUNDS

Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund **
Tax-Free High Yield Fund
Tax-Free Insured Fund

State tax-free income funds [SECTION MARK]

Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania

State tax-free money market funds [SECTION MARK] **

California, New York

ASSET ALLOCATION FUNDS

Putnam Asset Allocation Funds--three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments.

The three portfolios:

Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio

* Formerly Putnam Growth and Income Fund II

[DBL. DAGGER] Closed to new investors. Some exceptions may apply.
Contact Putnam for details.

[SECTION MARK] Not available in all states.

** An investment in a money market fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the funds seek to preserve your investment at $1.00 per share, it
is possible to lose money by investing in the fund.

Check your account balances and current performance at
www.putnaminvestments.com.

FUND INFORMATION

WEB SITE

www.putnaminvestments.com

INVESTMENT MANAGER

Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109

MARKETING SERVICES

Putnam Retail Management, Inc.
One Post Office Square
Boston, MA 02109

CUSTODIAN

Putnam Fiduciary Trust Company

LEGAL COUNSEL

Ropes & Gray

INDEPENDENT ACCOUNTANTS

PricewaterhouseCoopers LLP

TRUSTEES

OFFICERS

George Putnam, III
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

Ian C. Ferguson
Vice President

Brett C. Browchuk
Vice President

Stephen Oristaglio
Vice President

Edward H. D'Alelio
Vice President

Stephen C. Peacher
Vice President

Jennifer E. Leichter
Vice President and Fund Manager

Richard A. Monaghan
Vice President

Richard G. Leibovitch
Vice President

John R. Verani
Vice President

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 and
Putnam's Quarterly Ranking Summary. For more information or to request a
prospectus, call toll free: 1-800-225-1581.

You can also learn more at Putnam Investments' Web site:
www.putnaminvestments.com.

Not FDIC Insured, May Lose Value, No Bank Guarantee

[LOGO OMITTED]

PUTNAM INVESTMENTS

The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109

---------------------
PRST STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
---------------------

For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com

AN064-64663 2HB/2HD/2HE 10/00

Putnam
Equity
Fund 2000

SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK

8-31-00

[SCALE LOGO OMITTED]

FROM THE TRUSTEES

[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM, III]

Dear Shareholder:

It is a pleasure to comment on the performance and management of Putnam
Equity Fund 2000 for the first time in our new roles as Chairman of the
Trustees and President of the Funds. As you know, both of us have been
members of the Board of Trustees for a number of years and have followed
your fund with interest since its inception on July 25, 2000. Given the
market volatility into which the fund was introduced, it seems to be off
to a solid start.

Total return from 7/25/00 through 8/31/00

NAV POP
-----------------------------------------
5.65% -0.44%
-----------------------------------------

Past performance is not indicative of future results. Performance
information for longer periods begins on page 7.

* CAREFUL STOCK SELECTION IS KEY STRATEGY FOCUS

Performance numbers at such an early stage provide little clue to the
fund's potential over the long term. Nevertheless, the fund's positive
results at net asset value at the end of its brief initial semiannual
period are heartening. In the current environment of uncertainty over
interest rates, the course of the economy, and shifting investor
sentiment, Steven L. Kirson and Michael J. Mufson, your fund's managers,
have built a portfolio of promising small companies in the quest for
capital appreciation.

The stocks in which your fund invests have higher valuations, on
average, than the overall market. As a result, they are susceptible to
wide swings in perceived value and experience greater-than- average
volatility. You can expect this to be a consistent pattern for this
fund. Because stocks of growing small companies are likely to come in
and out of favor, your fund's management team focuses its research on
identifying the highest-quality companies with the best long-term
fundamentals for inclusion in the portfolio.

Using Putnam's proprietary research and analysis, Steve and Mike
calculate earnings forecasts that, in their opinion, enable them to
identify the long-term winners earlier than other investors. While the
market may punish some of these holdings in the intermediate term, the
management team is confident that over time, performance of its
selections should more than justify their inclusion in the portfolio.

* INTERNET PROVIDES WEALTH OF OPPORTUNITIES

As might be expected, technology provided the most fertile area to focus
the search for fund holdings as demand for Internet and related
technologies accelerated the pace of innovation. Despite the swelling
ranks of individual Internet users, the greatest growth by far in
Internet-related innovation is found in the online business-to-business
(B2B) market. Companies are using the Internet in new ways to foster
greater ties with customers, increase productivity, and increase profit
margins. This burgeoning market has created unprecedented demand for
new products and services and has increased Internet traffic
exponentially.

[GRAPHIC OMITTED: TOP 10 HOLDINGS]

TOP 10 HOLDINGS

Manugistics Group, Inc.
Software

Click Commerce, Inc.
Software

Blue Martini Software, Inc.
Computers

Exar Corp.
Electronics

AudioCodes, Ltd. (Israel)
Semiconductors

Metasolv Software, Inc.
Software

Centrillium Communications, Inc.
Semiconductors

Natural Microsystems Corp.
Communications equipment

Manhattan Associates, Inc.
Technology services

Support.com, Inc.
Computers

Footnote reads:
These holdings represent 31.8% of the fund's net assets as of 8/31/00.
Portfolio holdings will vary over time.

This tidal wave of demand has necessitated a re-engineering of our
nation's information technology (IT) infrastructure, and we are
witnessing a vast race to develop and upgrade the software, hardware,
networking equipment, and services that support online transactions. It
is not surprising, then, that a great number of emerging-growth
investment opportunities are found in the industries deeply involved in
this re-engineering process.

[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]

TOP INDUSTRY SECTORS*

Software 21.4%

Semiconductors 10.6%

Computers 9.1%

Technology services 7.0%

Telecommunications 6.7%

Footnote reads:
*Based on net assets as of 8/31/00. Holdings will vary over time.

* SOFTWARE, SEMICONDUCTORS, AND BANDWIDTH ARE KEYS TO GROWTH

Software development is a critical component of the re-engineering
process. Among your fund's software holdings is Manugistics Group,
makers of supply chain management software. Manugistics helps companies
manage their supply chains more efficiently in order to cut costs and to
serve their customers better. The company is now shifting its focus
toward the B2B market, to streamline and automate its clients' supply
chain processes.

Click Commerce is another fund holding that helps companies manage their
business in the B2B market. Click Commerce provides B2B software that
manufacturing companies can use to manage their channel partners,
enabling them to mediate relationships between business partner and
client. The B2B market has demonstrated tremendous growth potential and,
unlike its business-to-consumer market counterpart, shows no signs of
abatement. For example, Click Commerce's sales growth over the past year
was more than 300%.

While these and other holdings discussed in this report 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
vary in the future.

In the semiconductor sector, two of your fund's holdings achieved
favorable results. Centillium Communications is a semiconductor company
that develops digital subscriber line (DSL) chip sets for use in such
devices as modems and routers in a customer's home or office. Because of
its success in creating higher bandwidth speeds for DSL, its market cap
has increased to nearly $3 billion, which is close to mid-cap status.

The second semiconductor holding, AudioCodes, has a smaller market cap
of $2.2 billion but we believe the company has a similar potential for
success as Centillium. AudioCodes has created voice compression products
that can send audio signals over data networks as "packets" -- a
cheaper, more efficient way to send multiple communications such as
data, video, or voice across one data network -- instead of traditional
telephone networks. While the quality of sound is not yet perfect, its
technology is evolving at a rapid pace.

While software, hardware, and telecommunications equipment are key to
the re-engineering of corporate America, information technology and
telecom services should also benefit. Your fund's managers believe that
the major effort under way to transform the IT infrastructure will
require more qualified personnel than are currently available and that
hiring outside service providers will be necessary to satisfy demand. IT
companies should benefit, and fund management expects stocks of these
companies to trade higher.

* OUTLOOK: PROSPECTS ARE POSITIVE ON CUTTING EDGE OF TECHNOLOGY

Stocks in the telecom services sector have not fared well lately, in
part because of investors' fears that such companies will have
difficulty raising capital in a volatile market with rising interest
rates. However, Steve and Mike believe that increasing demand for
telecom high bandwidth services will continue to drive these companies'
strong performance and will provide more revenue sources and better
opportunities for them to raise capital. They expect the companies that
own fiber-optic networks and thus control the mode of transport for the
vast and constantly expanding volume of Internet traffic will prove to
be profitable investments.

In keeping with the fund's investment strategy, Steve and Mike will
remain focused on small companies with above-average growth potential
and healthy fundamentals. They continue to seek opportunities that lie
on the cutting edge of innovation, wherever that may be.

Respectfully yours,

/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III

John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
October 18, 2000

PERFORMANCE SUMMARY

This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Equity Fund 2000 is designed for investors seeking capital appreciation
by investing mainly in common stocks of small and midsize companies.

TOTAL RETURN FOR PERIODS ENDED 8/31/00

Since 7/25/00 Russell 2000 Consumer
NAV POP Growth Index price index
----------------------------------------------------------------------------
Life of fund 5.65% -0.44% 10.52% -0.06%
----------------------------------------------------------------------------

TOTAL RETURN FOR PERIODS ENDED 9/30/00(most recent calendar quarter)

Since 7/25/00 NAV POP
----------------------------------------------------------------------------
Life of fund 4.59% -1.44%
----------------------------------------------------------------------------

Past performance is no assurance of future results. More recent returns
may be more or less than those shown. Returns reflect the current
maximum initial sales charge of 5.75%. All returns assume reinvestment
of distributions at NAV. Investment return and principal value will
fluctuate so that an investor's shares when redeemed may be worth more
or less than their original cost. Performance data do not take into
account any adjustments for taxes payable on reinvested distributions
and reflect an expense limitation which is currently in effect. Without
the expense limitation, total returns would have been lower.

PRICE AND DISTRIBUTION INFORMATION FOR PERIOD ENDED 8/31/00

---------------------------------------------------------------------------
Distributions (number)* --
---------------------------------------------------------------------------
Share value: NAV POP
---------------------------------------------------------------------------
7/25/00 $8.50 $9.02
---------------------------------------------------------------------------
8/31/00 8.98 9.53
---------------------------------------------------------------------------
*The fund did not make any distributions during the period.

TERMS AND DEFINITIONS

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

Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.

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 5.75% maximum sales charge for class A
shares.

COMPARATIVE BENCHMARKS

Russell 2000 Growth Index measures the performance of those Russell 2000
companies with higher price-to-book ratios and higher forecasted growth
values. The index assumes reinvestment of all distributions and interest
payments and does not take into account brokerage fees or taxes.
Securities in the fund do not match those in the index and performance
of the fund will differ. It is not possible to invest directly in an
index.

Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.

A GUIDE TO THE FINANCIAL STATEMENTS

These sections of the report constitute the fund's financial statements.

THE FUND'S PORTFOLIO
August 31, 2000 (Unaudited)

COMMON STOCKS (94.0%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Aerospace/Defense (1.4%)
-------------------------------------------------------------------------------------------------------------------
1,518 Aeroflex, Inc. (NON) $ 55,787

Biotechnology (1.4%)
-------------------------------------------------------------------------------------------------------------------
480 Applied Molecular Evolution, Inc. (NON) 15,450
354 Cephalon, Inc. (NON) 17,811
908 Genaissance Pharmaceuticals (NON) 20,260
-------------
53,521

Commercial and Consumer Services (0.4%)
-------------------------------------------------------------------------------------------------------------------
1,338 iBeam Broadcasting Corp. (NON) 14,216

Communications Equipment (6.0%)
-------------------------------------------------------------------------------------------------------------------
198 Avici Systems, Inc. (NON) 29,663
1,016 Natural Microsystems Corp. (NON) 75,756
660 SeaChange International, Inc. (NON) 19,800
340 Tollgrade Communications, Inc. (NON) 37,804
544 Tut Systems, Inc. (NON) 54,740
824 Westell Technologies, Inc. (NON) 13,184
-------------
230,947

Computer Software and Services (3.2%)
-------------------------------------------------------------------------------------------------------------------
1,586 Retek, Inc. (NON) 54,618
814 Selectica, Inc. (NON) 38,818
1,000 Telecommunication Systems, Inc. (NON) 28,688
-------------
122,124

Computers (9.1%)
-------------------------------------------------------------------------------------------------------------------
2,314 Blue Martini Software, Inc. (NON) 160,823
1,244 Opnet Technologies, Inc. (NON) 37,320
2,380 Software Technologies Corp. (NON) 46,410
828 Stratos Lightwave, Inc. (NON) 38,916
2,264 Support.com, Inc. (NON) 70,219
-------------
353,688

Consumer Goods (0.6%)
-------------------------------------------------------------------------------------------------------------------
1,102 Yankee Candle Company, Inc. (The) (NON) 21,696

Consumer Services (2.3%)
-------------------------------------------------------------------------------------------------------------------
4,094 Be Free, Inc. (NON) 24,820
450 Freemarkets, Inc. (NON) 36,619
1,190 Multex.com, Inc. (NON) 25,883
-------------
87,322

Electronics (5.7%)
-------------------------------------------------------------------------------------------------------------------
274 Ditech Communications Corp. (NON) 16,166
1,012 Exar Corp. (NON) 122,073
680 Keithley Instruments, Inc. 51,638
400 Plexus Corp. (NON) 30,950
-------------
220,827

Engineering & Construction (1.0%)
-------------------------------------------------------------------------------------------------------------------
706 Dycom Industries, Inc. (NON) 37,418

Health Care Services (1.3%)
-------------------------------------------------------------------------------------------------------------------
2,320 AmSurg Corp. (NON) 16,820
908 RehabCare Group, Inc. (NON) 33,937
-------------
50,757

Manufacturing (1.3%)
-------------------------------------------------------------------------------------------------------------------
592 GSI Lumonics, Inc. (Canada) (NON) 15,503
618 Shaw Group, Inc. (NON) 34,415
-------------
49,918

Media (3.0%)
-------------------------------------------------------------------------------------------------------------------
1,064 About.com, Inc. (NON) 46,417
1,146 Citadel Communications Corp. (NON) 23,493
1,338 Entravision Communications Corp. (NON) 26,509
864 Radio One, Inc. Class A (NON) 18,198
-------------
114,617

Medical Technology (1.4%)
-------------------------------------------------------------------------------------------------------------------
841 ArthroCare Corp. (NON) 37,425
630 Nanogen, Inc. (NON) 15,199
-------------
52,624

Pharmaceuticals (1.0%)
-------------------------------------------------------------------------------------------------------------------
852 Discovery Partners International, Inc. (NON) 17,786
200 Ista Pharmaceuticals, Inc. (NON) 2,638
800 Medicines Co. (NON) 20,000
-------------
40,424

Publishing (0.8%)
-------------------------------------------------------------------------------------------------------------------
966 Information Holdings, Inc. (NON) 31,033

Restaurants (0.6%)
-------------------------------------------------------------------------------------------------------------------
846 P.F. Chang's China Bistro, Inc. (NON) 25,327

Retail (4.5%)
-------------------------------------------------------------------------------------------------------------------
520 99 Cents Only Stores (NON) 23,368
696 Cost Plus, Inc. (NON) 23,403
628 Factory 2-U Stores, Inc. (NON) 21,705
584 HomeStore.com, Inc. (NON) 31,646
1,348 I-Manny, Inc. (NON) 18,872
520 Michaels Stores, Inc. (NON) 18,200
652 Tweeter Home Entertainment Group, Inc. (NON) 23,431
940 Wet Seal, Inc. (NON) 13,160
-------------
173,785

Schools (1.4%)
-------------------------------------------------------------------------------------------------------------------
450 Learning Tree International, Inc. (NON) 30,797
466 SmartForce Public Limited Co. ADR (Ireland) (NON) 24,232
-------------
55,029

Semiconductor (10.6%)
-------------------------------------------------------------------------------------------------------------------
684 Alpha Industries, Inc. 34,499
1,074 AudioCodes, Ltd. (Israel) (NON) 120,691
918 Aware, Inc. (NON) 41,138
1,218 Centillium Communications, Inc. (NON) 90,741
228 Microtune, Inc. (NON) 12,426
400 Pemstar, Inc. (NON) 7,425
826 Sawtek, Inc. (NON) 41,661
970 Zoran Corp. (NON) 59,958
-------------
408,539

Semiconductor Production Equipment (1.9%)
-------------------------------------------------------------------------------------------------------------------
574 Veeco Instruments, Inc. (NON) 51,445
280 Zygo Corp. (NON) 22,225
-------------
73,670

Software (21.4%)
-------------------------------------------------------------------------------------------------------------------
570 Agile Software Corp. (NON) 39,579
2,438 BackWeb Technologies, Ltd. (Israel) (NON) 44,798
6,158 Click Commerce, Inc. (NON) 184,740
524 Informatica Corp. (NON) 52,400
2,634 Manugistics Group, Inc. (NON) 231,125
2,352 Metasolv Software, Inc. (NON) 96,138
536 Netegrity, Inc. (NON) 47,168
892 Resonate, Inc. (NON) 39,304
836 Saba Software, Inc. (NON) 23,931
406 SilverStream Software, Inc. (NON) 14,109
1,182 Verity, Inc. (NON) 54,077
-------------
827,369

Technology Services (7.0%)
-------------------------------------------------------------------------------------------------------------------
2,536 Breakaway Solutions, Inc. (NON) 37,723
1,430 C-Bridge Internet Solutions, Inc. (NON) 24,131
332 Diamond Technology Partners, Inc. (NON) 21,186
1,012 Digitas, Inc. (NON) 13,915
400 Equinix, Inc. (NON) 6,475
430 Forrester Research, Inc. (NON) 26,284
736 Globix Corp. (NON) 19,734
2,260 Management Network Group, Inc. (The) (NON) 45,341
1,612 Manhattan Associates, Inc. (NON) 74,757
-------------
269,546

Telecommunications (6.7%)
-------------------------------------------------------------------------------------------------------------------
372 Airgate PCS, Inc. (NON) 25,319
706 Choice One Communications, Inc. (NON) 11,296
1,972 Covad Communications Group, Inc. 144A (NON) 32,168
1,550 Focal Communications Corp. (NON) 47,953
1,352 Giganet, Ltd. (Israel) (NON) 39,440
312 Lexent, Inc. (NON) 10,472
1,734 Mpower Communications Corp. (NON) 31,971
2,116 Network Plus Corp. (NON) 17,986
560 Peco II, Inc. (NON) 21,840
294 Rural Cellular Corp. Class A (NON) 22,344
--------------
260,789
--------------
Total Common Stocks (cost $3,341,125) $ 3,630,973

SHORT-TERM INVESTMENTS (7.8%) (a) (cost $302,000)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
$ 302,000 Interest in $749,144,000 joint repurchase agreement
dated August 31, 2000 with S.B.C Warburg, Inc. due
September 1, 2000 with respect to various U.S.
Treasury obligations -- maturity value of $302,056
for an effective yield of 6.65% $ 302,000
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $3,643,125) (b) $ 3,932,973
-------------------------------------------------------------------------------------------------------------------

(a) Percentages indicated are based on net assets of $3,863,278.

(b) The aggregate identified cost on a tax basis is $3,643,125,
resulting in gross unrealized appreciation and depreciation of $520,054
and $230,206, respectively, or net unrealized appreciation of $289,848.

(NON) Non-income-producing security.

ADR after the name of a foreign holding stands for American
Depositary Receipts representing ownership of foreign securities on
deposit with a domestic custodian bank.

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

</TABLE>

STATEMENT OF ASSETS AND LIABILITIES
August 31, 2000 (Unaudited)
<S> <C>
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $3,643,125) (Note 1) $3,932,973
-------------------------------------------------------------------------------------------
Cash 29,219
-------------------------------------------------------------------------------------------
Other receivable 1,400
-------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 150
-------------------------------------------------------------------------------------------
Unamortized offering costs (Note 1) 1,792
-------------------------------------------------------------------------------------------
Total assets 3,965,534

Liabilities
-------------------------------------------------------------------------------------------
Payable for securities purchased 96,546
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,797
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 321
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 207
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2
-------------------------------------------------------------------------------------------
Payable for offering costs (Note 1) 2,000
-------------------------------------------------------------------------------------------
Other accrued expenses 1,383
-------------------------------------------------------------------------------------------
Total liabilities 102,256
-------------------------------------------------------------------------------------------
Net assets $3,863,278

Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Notes 1, 4 and 5) $3,600,454
-------------------------------------------------------------------------------------------
Accumulated net investment loss (Note 1) (1,824)
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investment (Note 1) (25,200)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 289,848
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $3,863,278

* 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.

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

</TABLE>

STATEMENT OF OPERATIONS
Period from July 25, 2000 (commencement of operations) to August 31, 2000 (Unaudited)
<S> <C>
Investment income:
-------------------------------------------------------------------------------------------
Interest $ 2,300
-------------------------------------------------------------------------------------------
Total investment income 2,300

Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 3,172
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 321
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 207
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 2
-------------------------------------------------------------------------------------------
Amortization of offering costs (Note 1) 208
-------------------------------------------------------------------------------------------
Reports to shareholders 456
-------------------------------------------------------------------------------------------
Auditing 713
-------------------------------------------------------------------------------------------
Legal 405
-------------------------------------------------------------------------------------------
Other 15
-------------------------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Note 2) (1,375)
-------------------------------------------------------------------------------------------
Total expenses 4,124
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) --
-------------------------------------------------------------------------------------------
Net expenses 4,124
-------------------------------------------------------------------------------------------
Net investment loss (1,824)
-------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (25,200)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 289,848
-------------------------------------------------------------------------------------------
Net gain on investments 264,648
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $262,824
-------------------------------------------------------------------------------------------

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

</TABLE>

STATEMENT OF CHANGES IN NET ASSETS

For the period July 25, 2000
(commencement of operations)
to August 31, 2000*
--------------------------------------------------------------------------------------------------
<S> <C>
Increase in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment loss (1,824)
--------------------------------------------------------------------------------------------------
Net realized loss on investments (25,200)
--------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 289,848
--------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 262,824
--------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 1,600,454
--------------------------------------------------------------------------------------------------
Total increase in net assets 1,863,278

Net assets
--------------------------------------------------------------------------------------------------
Beginning of period (Note 5) 2,000,000
--------------------------------------------------------------------------------------------------
End of period (including accumulated net
investment loss of $1,824) $3,863,278
--------------------------------------------------------------------------------------------------

* Unaudited

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

</TABLE>

FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
--------------------------------------------------
For the period
July 25, 2000+
Per-share to August 31
operating performance (Unaudited)
--------------------------------------------------
2000
--------------------------------------------------
Net asset value,
beginning of period $8.50
--------------------------------------------------
Investment operations
--------------------------------------------------
Net investment loss (b)(d) (.01)
--------------------------------------------------
Net realized and unrealized
gain on investments .49
--------------------------------------------------
Total from
investment operations .48
--------------------------------------------------
Net asset value,
end of period $8.98
--------------------------------------------------

Ratios and supplemental data
--------------------------------------------------
Total return at
market value (%)(a) 5.65*
--------------------------------------------------
Net assets, end of period
(in thousands) $3,863
--------------------------------------------------
Ratio of expenses to
average net assets (%)(b)(c) .13*
--------------------------------------------------
Ratio of net investment income
to average net assets (%)(b) (.06)*
--------------------------------------------------
Portfolio turnover (%) 15.33*
--------------------------------------------------

+ Commencement of operations.

* Not annualized.

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

(b) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses of the fund reflect a reduction of
less than $.01 per share (Note 2).

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

NOTES TO FINANCIAL STATEMENTS
August 31, 2000 (Unaudited)

Note 1
Significant accounting policies

Putnam Equity Fund 2000 (the "fund") is one of a series of Putnam Funds
Trust (the "trust") which is registered under the Investment Company Act
of 1940, as amended, as a diversified, open-ended management investment
company. The fund seeks capital appreciation by investing mainly in
common stocks of U.S. companies, with a focus on growth stocks which
Putnam Investments Management, Inc. ("Putnam Management"), the fund's
manager, a wholly-owned subsidiary of Putnam Investments, Inc. believes
are currently undervalued.

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 of 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.

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.

Interest income is recorded on the accrual basis. Non cash dividends, if
any, are recorded at the fair market value of the securities received.

E) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintain an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the period ended
August 31, 2000, the fund had no borrowings against the line of credit.

G) 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.

I) Unamortized offering costs The offering costs of $2,000 are being
amoritized on a straight line basis over a twelve month period. The fund
will reimburse Putnam Management for the payment of these expenses.

Note 2
Management fee, administrative
services and other transactions

Putnam Management has agreed to limit its compensation (and, to the
extent necessary, bear other expenses) through February 28, 2001, to the
extent that expenses of the fund (exclusive of brokerage commissions,
interest, taxes, deferred organizational and extraordinary expense,
credits from Putnam Fiduciary Trust Company (PFTC), a subsidiary of
Putnam Investments, Inc. and payments under the Trust's distribution
plan) would exceed an annual rate of 1.30% of the fund's average net
assets.

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 August 31, 2000, fund expenses were not reduced by
expense offset arrangements with PFTC. 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.

The fund has adopted a distribution plan (the "Plan") pursuant to Rule
12b-1 under the Investment Company Act of 1940. The purpose of the Plan
is to compensate Putnam Retail Management, Inc., a wholly-owned
subsidiary of Putnam Investments, Inc., for services provided and
expenses incurred by it in distributing shares of the fund. The Plan
provides for payment by the fund to Putnam Retail Management, Inc. at an
annual rate of up to 0.35% of the fund's average net assets. The
Trustees currently have not approved payments pursuant to the plan.

For the period ended August 31, 2000, Putnam Retail Management, Inc.,
acting as underwriter received no net commissions from the sale of
shares. A deferred sales charge of up to 1% is assessed on certain
redemptions of shares. For the period ended August 31, 2000, Putnam
Retail Management, Inc., acting as underwriter received no monies on
redemptions.

Note 3
Purchases and sales of securities

During the period ended August 31, 2000, cost of purchases and proceeds
from sales of investment securities other than U.S. government
obligations and short-term investments aggregated $3,788,807 and
$422,482, respectively. There were no purchases and sales of U.S.
government obligations.

Note 4
Capital shares

At August 31, 2000, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:

For the period July 25, 2000
(commencement of operations) to
August 31, 2000
---------------------------------------------------------------------------
Shares Amount
---------------------------------------------------------------------------
Shares sold 194,975 $1,601,346
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
---------------------------------------------------------------------------
194,975 1,601,346

Shares
repurchased (106) (892)
---------------------------------------------------------------------------
Net increase 194,869 $1,600,454
---------------------------------------------------------------------------

Note 5
Initial capitalization and
offering of shares

The trust was established as a Massachusetts business trust on January
22, 1996. During the period January 22, 1996 to July 25, 2000, the fund
had no operations other than those related to organizational matters,
including the initial capital contribution of $2,000,000 and the
issuance of 235,294 shares to Putnam Retail Management, Inc., a wholly-
owned subsidiary of Putnam Investments, Inc. on July 25, 2000.

At August 31, 2000, Putnam Investments, Inc. owned 235,294 shares of the
fund (100% of shares outstanding), valued at $2,112,940.

FUND INFORMATION

WEB SITE

www.putnaminvestments.com

INVESTMENT MANAGER

Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109

MARKETING SERVICES

Putnam Retail Management, Inc.
One Post Office Square
Boston, MA 02109

CUSTODIAN

Putnam Fiduciary Trust Company

LEGAL COUNSEL

Ropes & Gray

TRUSTEES

OFFICERS

George Putnam, III
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

Ian C. Ferguson
Vice President

Brett C. Browchuk
Vice President

Stephen Oristaglio
Vice President

Steven L. Kirson
Vice President and Fund Manager

Michael J. Mufson
Vice President and Fund Manager

Richard A. Monaghan
Vice President

Richard G. Leibovitch
Vice President

John R. Verani
Vice President

This report is for the information of shareholders of Putnam Equity Fund
2000. 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' Web site:
www.putnaminvestments.com.

Not FDIC Insured, May Lose Value, No Bank Guarantee

2SX 64669 10/00