Edgar Filing: PUTNAM HIGH INCOME BOND FUND

Document File Name: PUTNAM HIGH INCOME BOND FUND POS EX

As filed with the Securities and Exchange Commission on
February 24, 2005
Registration No. 333-119523
(Investment Company Act Registration No. 811-05133)
---------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM N-14
----

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

----
----
Pre-Effective Amendment No. / /
----
----
Post-Effective Amendment No. 1 /X/

----
(Check appropriate box or boxes)
---------------

PUTNAM HIGH INCOME BOND FUND
(Exact Name of Registrant as Specified in Charter)

One Post Office Square, Boston, Massachusetts 02109
(Address of Principal Executive Offices)
617-292-1000
(Area Code and Telephone Number)

---------------
BETH S. MAZOR, Vice President
PUTNAM HIGH INCOME BOND FUND
One Post Office Square
Boston, Massachusetts 02109
(Name and address of Agent for Service)
---------------

Copy to:
JOHN W. GERSTMAYR, Esquire
ROPES & GRAY LLP
One International Place
Boston, Massachusetts 02110
---------------

It is proposed that this filing will become effective immediately upon
filing pursuant to paragraph (d) of Rule 462. THIS AMENDMENT TO THE
REGISTRATION STATEMENT ON FORM N-14 OF PUTNAM HIGH INCOME FUND FUND, FILED
WITH THE COMMISSION ON OCTOBER 4, 2004 (REGISTRATION NO. 333-119523) (THE
"REGISTRATION STATEMENT"), IS BEING FILED TO ADD EXHIBIT 12 TO THE
REGISTRATION STATEMENT. NO OTHER INFORMATION CONTAINED IN THE REGISTRATION
STATEMENT IS AMENDED, DELETED OR SUPERSEDED HEREBY.

Important information for shareholders of

PUTNAM HIGH INCOME OPPORTUNITIES TRUST AND
PUTNAM HIGH INCOME BOND FUND

The document you hold in your hands contains a combined prospectus/proxy
statement and proxy card. A proxy card is, in essence, a ballot. When
you complete and sign your proxy card, the Trustees of your fund will
vote on your behalf exactly as you have indicated. If you simply sign
the proxy card, it will be voted in accordance with the Trustees'
recommendations on page 12. The Trustees recommend that shareholders
vote in favor of the proposal described in this document and listed on
your proxy card.

Please take a few moments and decide how you want to vote. When
shareholders don't return their proxies in sufficient numbers, follow-up
solicitations are required, which may cost your fund money.

You can vote by returning your proxy card in the envelope provided. Or
you can call our toll-free number, or go to the Web. See your proxy
card for the phone number and Web address. If you have any questions,
please contact Putnam at 1-800-780-7316 or call your financial advisor.

[Putnam Scales Logo]

TABLE OF CONTENTS

A Message from the Chairman 1
Notice of a Joint Meeting of Shareholders 5
Combined Prospectus/Proxy Statement 8

PROXY CARD(S) ENCLOSED

If you have any questions, please call 1-800-780-7316 or your
financial advisor.

A Message from the Chairman

Dear Shareholder of Putnam High Income Bond Fund:

[Photo of John A. Hill]

I am writing to you to ask for your vote on an important matter that
affects your investment in Putnam High Income Bond Fund ("High Income
Bond Fund"). While you are, of course, welcome to join us at the
meeting, most shareholders cast their vote by filling out and signing
the enclosed proxy card, by calling or by voting via the Internet.

We are asking for your vote on the following matter:

Approving a proposed merger of Putnam High Income Opportunities Trust
("High Income Opportunities Trust") into High Income Bond Fund. In this
merger, the shares of High Income Opportunities Trust would, in effect,
be exchanged on a tax-free basis for shares of High Income Bond Fund
with an equal total net asset value.

The proposed merger is not intended to change significantly the nature
of your investment. The investment objectives and policies of High
Income Opportunities Trust and your fund are substantially similar.
Both are closed-end funds that seek to provide high current income as a
primary objective and capital appreciation as a secondary objective by
investing in a portfolio of lower-grade and nonrated convertible
securities and non-convertible, high-yield securities. Although the
proposed merger will not materially affect the operation of your fund,
we are required by the rules of the New York Stock Exchange to solicit
your vote on this matter.

The proposal is intended to result in a combined fund that is more
attractive to investors than either of the two funds separately. Putnam
Investment Management, LLC believes that creating a broader shareholder
base for the combined fund's shares may attract more interest in the
combined fund than is currently the case with either fund, which may
result in higher trading levels for the combined fund's shares. However,
there can be no guarantee that the proposed merger will have the intended
effect.

Your vote is important to us. We appreciate the time and consideration
I am sure you will give this important matter. If you have questions
about the proposal, please call 1-800-780-7316 or call your financial
advisor.

Sincerely yours,

[Signature of John A. Hill]

John A. Hill, Chairman

A Message from the Chairman

Dear Shareholder of Putnam High Income Opportunities Trust:

[Photo of John A. Hill]

I am writing to you to ask for your vote on an important matter that
affects your investment in Putnam High Income Opportunities Trust ("High
Income Opportunities Trust"). While you are, of course, welcome to join
us at the meeting, most shareholders cast their vote by filling out and
signing the enclosed proxy card, by calling or by voting via the
Internet.

We are asking for your vote on the following matter:

Approving a proposed merger of High Income Opportunities Trust into
Putnam High Income Bond Fund ("High Income Bond Fund"). In this merger,
the shares of High Income Opportunities Trust would, in effect, be
exchanged on a tax-free basis for shares of High Income Bond Fund with
an equal total net asset value.

The proposed merger is not intended to change significantly the nature
of your investment. The investment objectives and policies of High
Income Bond Fund and your fund are substantially similar. Both are
closed-end funds that seek to provide high current income as a primary
objective and capital appreciation as a secondary objective by investing
in a portfolio of lower-grade and nonrated convertible securities and
non-convertible, high-yield securities.

The proposal is intended to result in a combined fund that is more
attractive to investors than either of the two funds separately. Putnam
Investment Management, LLC believes that creating a broader shareholder
base for the combined fund's shares may attract more interest in the
combined fund than is currently the case with either fund, which may
result in higher trading levels for the combined fund's shares.
However, there can be no guarantee that the proposed merger will have
the intended effect.

Your vote is important to us. We appreciate the time and consideration
I am sure you will give this important matter. If you have questions
about the proposal, please call 1-800-225-1581 or call your financial
advisor.

Sincerely yours,

[Signature of John A. Hill]

John A. Hill, Chairman

PUTNAM HIGH INCOME OPPORTUNITIES TRUST ("HIGH INCOME OPPORTUNITIES
TRUST") AND PUTNAM HIGH INCOME BOND FUND ("HIGH INCOME BOND FUND")

Notice of a Joint Meeting of Shareholders

* This is the formal agenda for the joint meeting of shareholders. It
tells you what matter will be voted on and the time and place of the
meeting.

To the Shareholders of High Income Opportunities Trust:

A Meeting of Shareholders of High Income Opportunities Trust will be held
on Thursday, January 13, 2005, at 11:00 a.m., Boston time, on the twelfth
floor of One Post Office Square, Boston, Massachusetts, to consider the
following:

Approving an Agreement and Plan of Reorganization and the
transactions contemplated thereby, including the transfer of all of the
assets of High Income Opportunities Trust to High Income Bond Fund in
exchange for the issuance and delivery of shares of beneficial interest
of High Income Bond Fund and the assumption by High Income Bond Fund of
all of the liabilities of High Income Opportunities Trust, and the
distribution of such shares to the shareholders of High Income
Opportunities Trust in complete liquidation of High Income Opportunities
Trust. See page 10.

To the Shareholders of High Income Bond Fund:

A Meeting of Shareholders of High Income Bond Fund will be held on
Thursday, January 13, 2005, at 11:00 a.m., Boston time, on the twelfth
floor of One Post Office Square, Boston, Massachusetts, to consider the
following:

1. Approving an Agreement and Plan of Reorganization and the
transactions contemplated thereby, including the transfer of all of the
assets of High Income Opportunities Trust to High Income Bond Fund in
exchange for the issuance and delivery of shares of beneficial interest
of High Income Bond Fund and the assumption by High Income Bond Fund of
all of the liabilities of High Income Opportunities Trust, and the
distribution of such shares to the shareholders of High Income
Opportunities Trust in complete liquidation of High Income Opportunities
Trust. See page 10.

By the Trustees

John A. Hill, Chairman
George Putnam, III, President

Jameson A. Baxter
Charles B. Curtis
Myra R. Drucker
Charles E. Haldeman, Jr.
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
John H. Mullin, III
Robert E. Patterson
A.J.C. Smith
W. Thomas Stephens
Richard B. Worley

WE URGE YOU TO MARK, SIGN, DATE AND MAIL THE ENCLOSED PROXY IN THE
POSTAGE-PAID ENVELOPE PROVIDED OR RECORD YOUR VOTING INSTRUCTIONS BY
TELEPHONE OR VIA THE INTERNET SO THAT YOU WILL BE REPRESENTED AT THE
MEETING.

November __, 2004

Prospectus/Proxy Statement

November __, 2004

This Prospectus/Proxy Statement relates to the proposed merger of Putnam
High Income Opportunities Trust ("High Income Opportunities Trust") into
Putnam High Income Bond Fund ("High Income Bond Fund"), each located at
One Post Office Square, Boston, MA 02109; 1-617-292-1000. As a result
of the proposed merger, each shareholder of High Income Opportunities
Trust would receive a number of full and fractional shares of High
Income Bond Fund of equal net asset value at the date of the exchange to
the total net asset value of the shareholder's High Income Opportunities
Trust shares.

This Prospectus/Proxy Statement is being mailed on or about November __,
2004. It explains concisely what you should know before voting on the
matter described herein or investing in High Income Bond Fund, a closed-end
management investment company. Please read this Prospectus/Proxy Statement
and keep it for future reference.

A Statement of Additional Information (the "SAI"), dated November __, 2004,
relating to the proposed merger has been filed with the Securities and
Exchange Commission ("SEC") and is incorporated by reference into this
Prospectus/Proxy Statement. For a free copy of the SAI, please contact us
at 1-800-225-1581.

The securities offered by this Prospectus/Proxy Statement have not been
approved or disapproved by the SEC, nor has the SEC passed upon the
accuracy or adequacy of this Prospectus/Proxy Statement. Any
representation to the contrary is a criminal offense.

Shares of High Income Bond Fund are not deposits or obligations of, or
guaranteed or endorsed by, any financial institution, are not insured by
the Federal Deposit Insurance Corporation, the Federal Reserve Board or
any other agency, and involve risk, including the possible loss of
principal amount invested.

This document will give you the information you need to vote on the
proposal. Much of the information is required under rules of the SEC;
some of it is technical. If there is anything you don't understand,
please call 1-800-780-7316, or call your financial advisor. Like High
Income Bond Fund, High Income Opportunities Trust is in the family of
funds managed by Putnam Investment Management, LLC ("Putnam
Management"). High Income Bond Fund and High Income Opportunities Trust
are collectively referred to herein as the "funds," and each is referred
to individually as a "fund."

The common shares of High Income Bond Fund are listed on the New York
Stock Exchange (the "NYSE") under the symbol "PCF," and the common
shares of High Income Opportunities Trust are listed on the NYSE under
the symbol "PCV." You may inspect reports, proxy material and other
information concerning either High Income Bond Fund or High Income
Opportunities Trust at the NYSE.

High Income Bond Fund and High Income Opportunities Trust are subject to
the informational requirements of the Securities Exchange Act of 1934
and, as a result, file reports and other information with the SEC. You
may review and copy information about the funds, including the SAI, at
the SEC's public reference room at 450 Fifth Street, NW, Washington,
D.C.; or at the public reference facilities in its Northeast and Midwest
regional offices, at 233 Broadway, New York, NY, and 175 W. Jackson
Boulevard, Suite 900, Chicago, IL. You may call the SEC at
1-800-SEC-0330 for information about the operation of the public
reference room. You may obtain copies of this information, with payment
of a duplication fee, by electronic request at the following e-mail
address: publicinfo@sec.gov, or by writing the SEC's Public Reference
Section, Washington, D.C. 20549-0102. You may also access reports and
other information about the funds on the EDGAR Database on the SEC's
Internet site at http://www.sec.gov.

I. Synopsis

* The responses to the questions that follow provide an overview of key
points typically of concern to shareholders considering a proposed merger
between closed-end funds. These responses are qualified in their entirety
by the remainder of the Prospectus/Proxy Statement, which contains
additional information and further details regarding the proposed merger.

1. What is being proposed?

The Trustees of the funds are recommending that shareholders of each fund
approve the merger of High Income Opportunities Trust into High Income Bond
Fund and the related transactions contemplated by the Agreement and Plan of
Reorganization among each of the funds and Putnam Management, dated as of
November 18, 2004 (the "Agreement"). The Agreement is attached to this
Prospectus/Proxy Statement as Appendix A. If approved by shareholders of
each fund, all of the assets of High Income Opportunities Trust will be
transferred to High Income Bond Fund in exchange for the issuance and
delivery to High Income Opportunities Trust of shares of High Income Bond
Fund (the "Merger Shares") with a net asset value equal to the value of
High Income Opportunities Trust's assets net of liabilities and for the
assumption by High Income Bond Fund of all of the liabilities of High
Income Opportunities Trust. Immediately following the transfer, the Merger
Shares received by High Income Opportunities Trust will be distributed to
its shareholders, pro rata.

2. What will happen to my shares as a result of the proposed merger?

If you are a shareholder of High Income Opportunities Trust, your shares
will, in effect, be exchanged on a tax-free basis for shares of High
Income Bond Fund with an equal aggregate net asset value on the date of
the merger. It is possible, however, that the market value of such
shares may differ. See question 12 below.

If you are a shareholder of High Income Bond Fund, your shares of High
Income Bond Fund will not be directly affected by the merger, but will
represent interests in a larger fund pursuing the same investment
objectives and policies.

3. Why is the merger being proposed at this time?

Putnam Management proposed the merger of High Income Opportunities Trust
into High Income Bond Fund to the funds' Trustees because it believes
the proposed merger may result in a combined fund that is more
attractive to investors than either of the two funds separately. Putnam
Management believes that creating a broader shareholder base for the
combined fund's shares may attract more interest in the combined fund
than is currently the case with either fund, which may result in higher
trading levels for the combined fund's shares. However, there
can be no guarantee that the proposed merger will have the intended
effect.

In addition, the merger would offer shareholders of both funds the
opportunity to invest in a larger fund with substantially similar
investment policies and the potential to achieve greater economies of scale
and a lower expense ratio. In addition, the funds are managed by the same
investment teams with a common investment process and similar objectives;
therefore, the proposed merger would permit the funds' investment teams to
concentrate their efforts and resources more efficiently.

Both funds invest significantly in both high-yield bonds and convertible
securities. Convertible securities typically are bonds, preferred
stocks or warrants that can be converted into or exchanged for common
stock. The convertible securities portion of High Income Bond Fund is a
heavily income-oriented portfolio composed of so-called "broken"
convertibles, which are convertibles whose underlying equity has fallen
to the point where the convertibles trade based primarily on their
fixed-income attributes. The convertible securities portion of High
Income Opportunities Trust was originally more equity-oriented,
emphasizing smaller capitalization issuers. In 2002, however,
shareholders approved a number of investment policy changes for these
funds, including changing the convertible securities portion of High
Income Opportunities Trust to permit it to focus its convertible
holdings on larger capitalization and "broken" convertibles. As a
result, the management of the two funds has converged, and there is now
no practical difference in how the funds are managed.

For these reasons, Putnam Management recommended that High Income
Opportunities Trust, which had assets of $73.9 million as of October 31,
2004, be combined with High Income Bond Fund, which had assets of $117.3
million as of October 31, 2004. As High Income Bond Fund is larger than
High Income Opportunities Trust, the Trustees believe that it is
appropriate for the smaller High Income Opportunities Trust to be merged
into High Income Bond Fund.

* * *

The Trustees of the Putnam Funds, who serve as Trustees of each of the
funds involved in the proposed merger, have carefully considered Putnam
Management's recommendations. Following a review of the anticipated
benefits and costs of the proposed merger to the shareholders of each
fund, the Trustees of the funds, including all of the independent
Trustees, who are not "interested persons" of Putnam Management, unanimously
determined that the proposed merger is in the best interests of each
fund and recommend that shareholders vote FOR approval of the proposed
merger.

4. How do the investment goals, policies and restrictions of the two
funds compare?

Investment Goals

The investment goals of the funds are identical. Each fund seeks high
current income as a primary objective and capital appreciation as a
secondary objective. The management of the two funds has converged, and
there is now no practical difference in how the funds are managed. As of
July 31, 2004, each fund had 47-48% of its net assets in convertible
securities and 43-44% in high- yield bonds.

Investment Policies

The funds share substantially similar fundamental investment policies,
though there are three differences that Putnam Management believes are
of little practical importance. First, High Income Opportunities Trust
may borrow up to 10% of the value of its total assets. By contrast,
High Income Bond Fund may borrow up to 15% of the value of its total
assets. Second, High Income Bond Fund may not purchase securities
restricted as to resale if, as a result, such investments would exceed
10% of the value of its net assets. By contrast, High Income
Opportunities Trust has a non-fundamental policy under which it may
invest up to 15% of its net assets in securities that are restricted as
to resale. Third, while both funds are generally prohibited from
issuing senior securities (as defined in the Investment Company Act of
1940, as amended (the "1940 Act")), High Income Opportunities Trust is
permitted to issue shares of beneficial interest with preference rights.

The funds share substantially similar non-fundamental investment
policies. Each fund will invest, under normal circumstances, at least
80% of its net assets in fixed income securities (including debt
instruments, convertible securities and preferred stock) rated below
investment grade (e.g., below BBB/Baa) by at least one nationally
recognized rating agency (or nonrated securities Putnam Management
believes are of comparable credit quality). There are two differences in
non-fundamental investment policies that Putnam Management believes are
of little practical importance because, as discussed above, there is now
no practical difference in how the funds are managed. First, High Income
Bond Fund may invest up to 20% if its net assets in securities
principally traded in foreign markets. By contrast, High Income
Opportunities Trust may only invest up to 15% of its assets in
securities principally traded in foreign markets. Second, High Income
Bond Fund may not invest in the securities of registered open-end
investment companies, except as they may be acquired as part of a merger
or consolidation or acquisition of assets or by purchases in the open
market involving only customary brokers' commissions. High Income
Opportunities Trust is not subject to a corresponding restriction.

5. How do the management fees and other expenses of the two funds
compare, and what are they estimated to be following the proposed
merger?

The following tables summarize the maximum fees and expenses you may pay
when investing in the funds, expenses that each of the funds incurred for
its most recent fiscal year as well as the pro forma expenses of High
Income Bond Fund. As shown below, the merger is expected to result in
decreased total expenses for shareholders of each fund. For more
information on the management fees paid by the funds, see "Information
about the Funds--Management" below.

High Income High Income
Opportunities Trust Bond Fund

Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price) None (a) None (a)
Dividend Reinvestment Plan None (b) None (b)

Annual Fund Operating Expenses <>
(expenses that are deducted from fund assets)

High Income High Income High Income Bond Fund
Opportunities Trust Bond Fund (Pro forma combined)

Management Fees 1.35%* 0.75% 0.75%
Other Expenses 0.44% 0.34% 0.29%**
Total Annual Fund
Operating Expenses 1.79% 1.09% 1.04%**+

<> Reflects information for the respective fiscal years ended August 31,
2004 for High Income Bond Fund and February 29, 2004 for High Income
Opportunities Trust.

(a) Shares of either fund purchased on the secondary market are not
subject to sales charges but may be subject to brokerage commissions or
other charges. The table does not include an underwriting commission
paid by shareholders in the initial offering of each fund.

(b) Each participant in a fund's dividend reinvestment plan pays a
proportionate share of the brokerage commissions incurred with respect
to open market purchases in connection with such plan. With respect to
each fund's most recent fiscal year, participants in each fund's dividend
reinvestment plan incurred brokerage commissions representing less than $.01
per share.

* Includes a quarterly investment management fee based on the average
weekly net asset value of the fund at the annual rate of 1.10% and a
quarterly administrative service fee based on the average weekly net
asset value of the fund at the annual rate of 0.25%.

** Does not reflect non-recurring expenses related to the merger
estimated at $77,046 for High Income Opportunities Trust and $26,887 for
High Income Bond Fund. If such expenses had been reflected, Pro Forma
"Other Expenses" and Total Annual Fund Operating Expenses would have
been 0.35% and 1.10%, respectively.

+ Putnam Management estimates that the combined fund will incur lower total
annual fund operating expenses during the year following the completion of
the merger than the expenses incurred by High Income Bond Fund during its
most recent fiscal year due largely to the spreading of certain fixed costs
over a larger fund.

The tables are provided to help you understand the expenses of investing
in the funds and your share of the operating expenses that each fund
incurs and that Putnam Management expects the combined fund to incur in
the first year following the merger. The expenses shown in the table do
not reflect the application of credits related to expense offset
arrangements that reduce certain fund expenses.

Examples

These examples translate the "Total Annual Fund Operating Expenses"
shown in the preceding table into dollar amounts. By doing this, you
can more easily compare the cost of investing in the funds. The
examples make certain assumptions. They assume that you invest $1,000
in a fund for the time periods shown. They also assume, as required by
the SEC, a 5% return on your investment each year and that a fund's
operating expenses remain the same. The examples are hypothetical; your
actual costs and returns may be higher or lower.

1 Year 3 Years 5 Years 10 Years

High Income Bond Fund $11 $35 $60 $133
High Income Opportunities Trust $18 $56 $97 $211
High Income Bond Fund
(Pro forma combined) $11 $33 $57 $127

6. How does the investment performance of the funds compare?

As shown in the table below, over the most recent fiscal year, the total
return at NAV of High Income Opportunities Trust approximated
that of High Income Bond Fund. Each fund's performance at market price
may differ from its results at NAV. Although market price performance
generally reflects investment results, it may also be influenced by
several factors, including changes in investor perceptions of each fund
or its investment adviser, market conditions, fluctuations in supply and
demand for each fund's shares and changes in each fund's distributions.

TOTAL RETURN FOR PERIODS ENDED 8/31/04

High Income Bond Fund High Income Opportunities Trust
NAV Market Price NAV Market Price

1 year 16.40% 12.06% 15.43% 8.01%
5 years 58.79% 36.49% 29.56% 22.95%
Annual average 9.69% 6.42% 5.32% 4.22%
10 years 139.54% 104.14% -- --
Annual average 9.13% 7.40% -- --
Life of High Income
Opportunities Trust* 116.97% 86.36% 91.47% 69.35%
Annual average* 8.81% 7.02% 7.34% 5.91%

* From 6/29/95.

The performance information does not account for taxes.

COMPARATIVE RETURNS FOR PERIODS ENDED 8/31/04

Lipper Convertible
Merrill Lynch JP Morgan Securities Funds
All-Convertible Global High (closed-end)
Index* Yield Index** category average***

1 year 9.72% 14.62% 10.59%
5 years 31.43% 38.05% 21.12%
Annual average 5.62% 6.66% 3.80%
10 years 158.46% 115.52% 113.01%
Annual average 9.96% 7.98% 7.78%
Life of High Income -- -- 341.44%
Bond Fund (7/9/87) -- -- 9.02%
Annual average
Life of High Income
Opportunities Trust
(6/29/95) 132.87% 92.36% 91.30%
Annual average 9.66% 7.40% 7.27%

* Primary benchmark for High Income Bond Fund and High Income
Opportunities Trust. This index began operations on 12/31/87.

** Secondary benchmark for High Income Bond Fund and High Income
Opportunities Trust. This index began operations on 12/31/93.

*** Over the 1-, 5- and 10-year periods ended 8/31/04, there were 13,
8 and 7 funds, respectively, in this Lipper category.

Index and Lipper results should be compared to each fund's performance
at NAV.

7. What are the federal income tax consequences of the proposed merger?

For federal income tax purposes, no gain or loss will be recognized by
the funds or their shareholders directly as a result of the proposed merger.
Certain other tax consequences are discussed below under "Information
about the Proposed Merger--Federal Income Tax Consequences."

8. Will my dividend be affected by the proposed merger?

The merger will not result in a change in dividend policy. Because the
funds' earning rates are currently substantially similar, the merger
will not result in any immediate material change in current dividend
rate. As of August 31, 2004, the dividend rates for High Income Bond
Fund and High Income Opportunities Trust were 6.67% and 6.04%,
respectively, and the estimated dividend rate for shares of High Income
Bond Fund on a pro forma basis, after giving effect to the merger, would
have been 6.67%. As of August 16, 2004, the SEC yields for shares of
High Income Bond Fund and High Income Opportunities Trust were 5.76% and
5.11%, respectively. Over the longer term, the level of dividends will
depend on market conditions and the ability of Putnam Management to
invest the fund's assets, including those received in the merger, in
securities meeting High Income Bond Fund's investment objectives and
policies.

High Income Bond Fund will not permit any holder of High Income
Opportunities Trust shares holding certificates for such shares at the
time of the merger to receive cash dividends or other distributions,
receive certificates for Merger Shares or pledge Merger Shares until
such certificates for High Income Opportunities Trust shares have been
surrendered, or, in the case of lost certificates, until an adequate
surety bond has been posted.

If a shareholder is not, for the reason above, permitted to receive cash
dividends or other distributions on Merger Shares, High Income Bond Fund
will pay all such dividends and distributions in additional shares,
notwithstanding any election the shareholder may have made previously to
receive dividends and distributions on High Income Opportunities Trust
shares in cash.

9. Do the procedures for purchasing and selling shares of the two funds
differ?

No. The procedures for purchasing and selling shares of each fund are
identical. As closed-end funds, the funds are not required to redeem
outstanding shares, and do not continuously offer shares. The funds'
shares currently may be bought and sold at prevailing market prices on
the NYSE. High Income Bond Fund will apply to list the Merger Shares on
the NYSE. It is a condition to the closing of the merger that the
Merger Shares be approved for listing.

10. How will I be notified of the outcome of the vote?

If the proposed merger is approved and you are a shareholder of High
Income Opportunities Trust, you will receive a confirmation after the
reorganization is completed, indicating your new account number, the
number of shares you are receiving and the procedures for surrendering
your certificates, if you have any. Otherwise, you will be notified in
the next annual report of your fund.

11. Will the number of shares I own change?

If you are a shareholder of High Income Opportunities Trust, the number
of shares you own will change, but the total net asset value of the
shares of High Income Bond Fund you receive will equal the total net
asset value of the shares of High Income Opportunities Trust that you
hold at the time of the merger. If you are a shareholder of High Income
Bond Fund, the number of High Income Bond Fund shares you own will not
change. Even though the net asset value per share of each fund is
different, the total net asset value of a shareholder's holdings will
not change as a result of the merger. Of course, the Merger Shares may
trade on the NYSE at a discount from net asset value, which might be
greater or less than the trading discount of High Income Opportunities
Trust shares at the time of the merger.

12. Will the market value of my investment change?

Shares of each fund will continue to be traded on the NYSE (in the case
of High Income Opportunities Trust, until the time of the merger), and
may at times trade at a market price greater or less than net asset
value. In recent years, shares of both funds have traded at a discount
to net asset value. Depending on market conditions immediately prior to
the exchange, shares of High Income Bond Fund may trade at a larger or
smaller discount to net asset value than shares of High Income
Opportunities Trust. This could result in the Merger Shares having a
market value that is greater or less than the market value the High
Income Opportunities Trust shares currently have.

13. Why is the vote of High Income Bond Fund's shareholders being
solicited?

Although High Income Bond Fund will continue its legal existence and
operations as before, we are required by the rules of the NYSE to
solicit the vote of High Income Bond Fund's shareholders on this matter.

14. What percentage of shareholders' votes is required to approve the
merger?

Approval of the merger will require the "yes" vote of the holders of:

* a majority of the outstanding shares of High Income Bond Fund voted,
if holders of more than 50% of such shares vote, and

* the lesser of (1) more than 50% of the outstanding shares of High
Income Opportunities Trust or (2) 67% or more of the shares present at a
meeting if more than 50% of the outstanding shares are represented at
the meeting in person or by proxy.

The Trustees believe that the proposed merger is in the best interests
of each fund's shareholders. Accordingly, the Trustees unanimously
recommend that shareholders vote FOR approval of the proposed merger.

II. Risk Factors

* What are the risks of High Income Bond Fund, and how do they compare with
those of High Income Opportunities Trust?

The risks of an investment in High Income Bond Fund (the "fund" as used
in the following discussion of main risks) are generally similar to the
risks of an investment in High Income Opportunities Trust.

The main risks that could adversely affect the value of the fund's
shares and the total return on your investment include:

* The risk that the issuers of the fund's fixed-income investments will
not make timely payments of interest and principal. Because the fund
invests significantly in junk bonds, it is subject to heightened credit
risk. Investors should carefully consider the risks associated with an
investment in the fund.

* The risk that the stock price of one or more of the companies in the
fund's portfolio will fall, or will fail to rise. Many factors can
adversely affect a stock's performance, including both general financial
market conditions and factors related to a specific company or industry.
This risk is generally greater for small and midsized companies, which
tend to be more vulnerable to adverse developments.

* The risk that movements in financial markets will adversely affect the
value of the fund's investments. This risk includes interest rate risk,
which means that the prices of the fund's investments are likely to fall
if interest rates rise. Interest rate risk is generally higher for
investments with longer maturities.

* The risks of investing outside the United States, such as currency
fluctuations, economic or financial instability, lack of timely or
reliable financial information or unfavorable political or legal
developments. These risks are increased for investments in emerging
markets.

* The risk that the fund's shares may trade at a discount to net asset
value. Although the market price of the fund's shares generally
reflects investment results, it may also be influenced by several
factors, including changes in investor perceptions of the fund or its
investment adviser, market conditions, fluctuations in supply and demand
for the fund's shares and changes in fund distributions. As a result,
the fund cannot predict whether its shares will trade at, below or above
net asset value.

* What are the main investment strategies and related risks of High Income
Bond Fund, and how do they compare with those of High Income Opportunities
Trust?

Because the funds share substantially similar goals and policies, the
risks described below for an investment in High Income Bond Fund are
virtually identical to the risks of an investment in High Income
Opportunities Trust.

Any investment carries with it some level of risk that generally
reflects its potential for reward. Putnam Management pursues High
Income Bond Fund's goal by investing, under normal circumstances, at
least 80% of its net assets in fixed income securities (including debt
instruments, convertible securities and preferred stock) rated below
investment grade (e.g., below BBB/Baa) by at least one nationally
recognized rating agency (or nonrated securities Putnam Management
believes are of comparable credit quality). Convertible securities
typically are bonds, preferred stocks or warrants that can be converted
into or exchanged for common stock. A convertible security tends to
provide a higher yield than the underlying stock, which may cushion it
against declines in the price of that stock. The convertible bonds the
fund buys usually have intermediate- to long-term maturities (three
years or longer). The fund may invest in companies of any
capitalization.

Putnam Management will consider, among other factors, a company's
financial strength, competitive position in its industry, projected
future earning, cash flows and dividends when deciding whether to buy or
sell investments. A description of the risks associated with the fund's
main investment strategies follows:

Interest rate risk. The values of bonds and other debt instruments
usually rise and fall in response to changes in interest rates.
Declining interest rates generally increase the value of existing debt
instruments, and rising interest rates generally decrease the value of
existing debt instruments. Changes in a debt instrument's value usually
will not affect the amount of interest income paid to the fund, but will
affect the value of the fund's shares. Interest rate risk is generally
greater for investments with longer maturities.

Some investments give the issuer the option to call or redeem an
investment before its maturity date. If an issuer calls or redeems an
investment during a time of declining interest rates, we might have to
reinvest the proceeds in an investment offering a lower yield, and
therefore might not benefit from any increase in value as a result of
declining interest rates.

"Premium" investments offer coupon rates higher than prevailing market
rates. However, they involve a greater risk of loss, because their
values tend to decline over time.

Credit risk. Investors normally expect to be compensated in proportion
to the risk they are assuming. Thus, debt of issuers with poor credit
prospects usually offers higher yields than debt of issuers with more
secure credit. Higher-rated investments generally offer lower credit
risk.

The fund invests, under normal circumstances, at least 80% of its net
assets in fixed income securities (including debt instruments,
convertible securities and preferred stock) rated below investment grade
(e.g., below BBB/Baa) by at least one nationally recognized rating
agency (or nonrated securities Putnam believes are of equivalent credit
quality). We will not necessarily sell an investment if its rating is
reduced after we buy it.

Investments rated below BBB or its equivalent are known as "junk bonds."
This rating reflects a greater possibility that the issuers may be
unable to make timely payments of interest and principal and thus
default. If this happens, or is perceived as likely to happen, the
values of those investments will usually be more volatile and are likely
to fall. A default or expected default could also make it difficult for
us to sell the investments at prices approximating the values we had
placed on them. Lower-rated debt usually has a more limited market than
higher-rated debt, which may at times make it difficult for us to buy or
sell certain debt instruments or to establish their fair value. Credit
risk is generally greater for investments that are issued at less than
their face value and that are required to make interest payments only at
maturity rather than at intervals during the life of the investment.
Although investment-grade investments generally have lower credit risk,
they may share some of the risks of lower-rated investments.

Credit ratings are based largely on the issuer's historical financial
condition and the rating agencies' investment analysis at the time of
rating. The rating assigned to any particular investment does not
necessarily reflect the issuer's current financial condition, and does not
reflect an assessment of an investment's volatility or liquidity. Although
Putnam Management considers credit ratings in making investment decisions,
Putnam Management performs its own investment analysis and does not rely on
ratings assigned by the rating agencies. The fund depends more on Putnam
Management's ability in buying lower-rated debt than it does in buying
investment-grade debt. The fund may have to participate in legal
proceedings or take possession of and manage assets that secure the
issuer's obligations. This could increase the fund's operating expenses
and decrease its net asset value.

A company's convertible securities generally receive payments only after
the company has paid the holders of its non-convertible debt; for this
reason, the credit risk of a company's convertible securities is
generally greater than that of its non-convertible debt.

Common stocks. Common stock represents an ownership interest in a
company. The value of a company's stock may fall as a result of factors
directly relating to that company, such as decisions made by its
management or lower demand for the company's products or services. A
stock's value may also fall because of factors affecting not just the
company, but also companies in the same industry or in a umber of
different industries, such as increases in production costs. The value
of a company's stock may also be affected by changes in financial
markets that are relatively unrelated to the company or its industry,
such as changes in interest rates or currency exchange rates. In
addition, a company's stock generally pays dividends only after the
company invests in its own business and makes required payments to
holders of its bonds and other debt. For this reason, the value of a
company's stock will usually react more strongly than its bonds and
other debt to actual or perceived changes in the company's financial
condition or prospects. Stocks of smaller companies may be more
vulnerable to adverse developments than those of larger companies.

The price of a convertible security normally varies with the price of the
underlying stock. Companies Putnam Management believes are undergoing
positive change and whose stock Putnam Management believes is undervalued
by the market may have experienced adverse business developments or may be
subject to special risks that have caused their stocks to be out of favor.
If Putnam Management's assessment of a company's prospects is wrong, or if
other investors do not similarly recognize the value of the company, then
the price of the company's stock may fall or may not approach the value
that Putnam Management has placed on it.

Foreign investments. The fund may invest up to 20% of its net assets in
foreign investments. Foreign investments involve certain special risks.
For example, their values may decline in response to changes in currency
exchange rates, unfavorable political and legal developments, unreliable
or untimely information, and economic and financial instability. In
addition, the liquidity of these investment may be more limited than for
most U.S. investments, which means we may at times be unable to sell
them at desirable prices.

Foreign settlement procedures may also involve additional risks. These
risks are generally greater in the case of developing (also known as
emerging) markets with less developed legal and financial systems.

Certain of these risks may also apply to some extent to U.S.-traded
investments that are denominated in foreign currencies, investments in
U.S. companies that are traded in foreign markets or investments in U.S.
companies that have significant foreign operations. Special U.S. tax
considerations may apply to the fund's foreign investments.

Small and midsized companies. These companies, some of which may have a
market capitalization of less than $1 billion, are more likely than
larger companies to have limited product lines, markets or financial
resources, or to depend on a small, inexperienced management group.
Stocks of these companies often trade less frequently and in limited
volume, and their prices may fluctuate more than stocks of larger
companies. Stocks of small and midsized companies may therefore be more
vulnerable to adverse developments than those of larger companies.

Derivatives. Putnam Management may engage in a variety of transactions
involving derivatives, such as futures, options, warrants and swap
contracts. Derivatives are financial instruments whose value depends
upon, or is derived from, the value of something else, such as one or
more underlying investments, pools of investments, indexes or
currencies. Putnam Management may use derivatives both for hedging and
non-hedging purposes. However, Putnam Management may also choose not to
use derivatives, based on its evaluation of market conditions or the
availability of suitable derivatives. Investments in derivatives may be
applied toward meeting a requirement to invest in a particular kind of
investment if the derivatives have economic characteristics similar to
that investment.

Derivatives involve special risks and may result in losses. The
successful use of derivatives depends on Putnam Management's ability to
manage these sophisticated instruments. The prices of derivatives may
move in unexpected ways due to the use of leverage or other factors,
especially in unusual market conditions, and may result in increased
volatility. The use of derivatives may also increase the amount of
taxes payable by shareholders.

Other risks arise from our potential inability to terminate or sell
derivatives positions. A liquid secondary market may not always exist for
the fund's derivatives positions at any time. In fact, many
over-the-counter instruments (investments not traded on an exchange) will
not be liquid. Over-the-counter instruments also involve the risk that the
other party to the derivative transaction will not meet its obligations.
For further information about the risks of derivatives, see the statement
of additional information (SAI).

Anti-takeover provisions. The fund's agreement and declaration of trust
includes provisions that could limit the ability of other persons or
entities to acquire control of the fund or to cause it to engage in certain
transactions or to modify its structure. Such provisions may have the
effect of depriving shareholders of an opportunity to sell their shares at
a premium over prevailing market prices or inhibiting the fund's conversion
to open-end status.

Possible conversion to open-end status. Under the fund's agreement and
declaration of trust, as amended, because the fund's shares traded
on the NYSE at an average discount of more than 10%, determined as of
the end of the last trading day in each week during the period of twelve
calendar weeks preceding September 1, 2004, the Trustees are required to
submit to the next annual meeting of the fund's shareholders, which is
currently expected to take place in June 2005, a proposal to convert
the fund from a "closed-end company" to an "open-end company," as
defined in the Investment Company Act of 1940, as amended (the "1940
Act"). If the fund's shareholders were to approve this proposal, the
fund's management team may, upon conversion, be forced to maintain a
portion of the fund's portfolio in cash due to cash flows from sales and
redemptions of fund shares. In addition, a conversion to open-end status
may result in a lower yield because of increased fund expenses.

Market price of shares. Shares of closed-end investment companies often
trade at a discount to their net asset values, and the fund's shares may
likewise trade at a discount, although it is possible that they may
trade at a premium above net asset value. Net asset value will be
reduced immediately following the merger as a result of merger-related
expenses. Although the market price of the fund's shares generally
reflects investment results, it may also be influenced by several
factors, including changes in investor perceptions of the fund or its
investment adviser, market conditions, fluctuations in supply and demand
for the fund's shares and changes in fund distributions. As a result,
the fund cannot predict whether its shares will trade at, below or above
net asset value.

Other investments. In addition to the main investment strategies
described above, the fund may make other types of investments, such as
investments in non-convertible preferred stocks and asset-backed
securities, which may be subject to other risks, as described in the
SAI.

Alternative strategies. Under normal market conditions, Putnam
Management keeps the fund's portfolio fully invested, with minimal cash
holdings. However, at times Putnam Management may judge that market
conditions make pursuing the fund's usual investment strategies
inconsistent with the best interests of the fund's shareholders. Putnam
Management then may temporarily use alternative strategies that are
mainly designed to limit losses. However, Putnam Management may choose
not to use these strategies for a variety of reasons, even in very
volatile market conditions. These strategies may cause the fund to miss
out on investment opportunities, and may prevent the fund from achieving
its goal.

Changes in policies. The fund's Trustees may change the fund's goal,
investment strategies and other policies without shareholder approval,
except as otherwise indicated.

An investment in High Income Bond Fund may not be appropriate for all
investors, and there is no assurance that High Income Bond Fund will
achieve its investment objectives. High Income Bond Fund is designed
primarily as a long-term investment and not as a trading vehicle.

III. Information about the Proposed Merger

General. The shareholders of each fund are being asked to approve a
merger between High Income Opportunities Trust and High Income Bond Fund
pursuant to the Agreement, which is attached to this Prospectus/Proxy
Statement as Appendix A. Although the term "merger" is used for ease of
reference, the transaction is structured as a transfer of all of the
assets of High Income Opportunities Trust to High Income Bond Fund in
exchange for the assumption by High Income Bond Fund of all of the
liabilities of High Income Opportunities Trust and for the issuance and
delivery to High Income Opportunities Trust of shares of High Income
Bond Fund equal in aggregate net asset value to the net value of the assets
transferred to High Income Bond Fund.

After receipt of the Merger Shares, High Income Opportunities Trust will
distribute the Merger Shares to its shareholders, in proportion to their
existing shareholdings, in complete liquidation of High Income
Opportunities Trust, and the legal existence of High Income Opportunities
Trust as a separate business trust under Massachusetts law will be
terminated. Each shareholder of High Income Opportunities Trust will
receive a number of full and fractional Merger Shares equal in aggregate
net asset value at the date of the exchange to the aggregate net asset
value of the shareholder's High Income Opportunities Trust shares.

Prior to the date of the transfer (the "Exchange Date"), High Income
Opportunities Trust will declare a dividend that will have the effect of
distributing to shareholders all of its remaining investment company income
(computed without regard to the deduction for dividends paid) and net
realized capital gains, if any, through the Exchange Date.

The Trustees have voted unanimously to approve the proposed merger and
to recommend that shareholders also approve the merger. The actions
contemplated by the Agreement and the related matters described therein
will be consummated only if approved by the affirmative vote of the
holders of a majority of the outstanding shares of High Income Bond Fund
voted, if holders of more than 50% of such shares vote, and the lesser
of (1) more than 50% of the outstanding shares of High Income
Opportunities Trust or (2) 67% or more of the shares present at a
meeting if more than 50% of the outstanding shares of High Income
Opportunities Trust are represented at the meeting in person or by
proxy.

The Agreement provides that the investment restrictions of High Income
Opportunities Trust will be temporarily amended to the extent necessary
to effect the transactions contemplated by the Agreement.

In the event that the merger does not receive the required approvals,
each fund will continue to be managed as a separate fund in accordance
with its current investment objective and policies, and the Trustees may
consider such alternatives as may be in the best interests of each
fund's respective shareholders.

Trustees' Considerations Relating to the Proposed Merger. The Trustees of
the Putnam Funds, who serve as Trustees of each of the funds involved in
the proposed merger, have carefully considered the anticipated benefits
and costs of the proposed merger from the perspective of each fund. The
Contract Committee of the Trustees of the Putnam Funds, which consists
solely of Trustees who are not "interested persons" of the funds as defined
in the 1940 Act (the "independent Trustees"), reviewed the terms of the
proposed merger. The Contract Committee and the Trustees were assisted in
this process by independent legal counsel for both the funds and the
independent Trustees. Following the conclusion of this process, the
Trustees, including all of the independent Trustees, determined that the
proposed merger of High Income Opportunities Trust into High Income Bond
Fund would be in the best interests of each fund and its shareholders, and
that the interests of existing shareholders of each fund would not be
diluted by the proposed merger. The Trustees unanimously approved the
proposed merger and recommended its approval by shareholders of each fund.

In evaluating the proposed merger, the Trustees first considered the
underlying investment rationale articulated by Putnam Management. The
Trustees noted the similarity of the funds' investment objectives,
policies and restrictions. The Trustees also considered the historical
investment performance of each fund and its current distribution rate,
as well as the expected savings in annual fund operating expenses for
shareholders of the combined fund, based on Putnam Management's
unaudited estimates of the funds' expense ratios as of July 31, 2004 and
the expected pro forma expense ratio based on combined assets of the
funds as of the same date, as shown in the table below:

Total Expenses

High Income Bond Fund 1.08%
High Income Opportunities Trust 1.78%
High Income Bond Fund Pro Forma Combined 1.04%

The Trustees also considered the tax effects of the proposed merger. In
particular, using data as of July 31, 2004, they reviewed the historical
and pro forma tax attributes of the funds and examined the effect of a
hypothetical merger occurring as of that date on certain tax losses of
the funds (see "Federal Income Tax Consequences" below). The Trustees
noted that since the funds had relatively similar gain/loss positions at
that time, there was no significant prospect that one fund's
shareholders would have been placed at a disadvantage, for example, due
to the spreading of their losses (which are a potential tax benefit)
among a larger group of shareholders. The Trustees also noted that, at
that time, since each fund had significant capital loss carryforwards of
its own, the impact of the loss limitation rules governing the use of
pre-merger losses by the combined fund was expected to be modest. The
effect of this limitation on the proposed merger, however, will depend
on the amount of losses in each fund at the time of the merger.

The Trustees took into account the expected costs of the proposed merger,
including proxy solicitation costs, fees associated with registering the
sale of High Income Bond Fund's shares to be issued in the proposed merger,
accounting fees and legal fees. The Trustees weighed these costs (and the
estimated portfolio transaction expenses described below) against the
quantifiable expected benefits of the proposed merger and considered Putnam
Management's agreement to bear these costs to the extent they exceed
certain limits established by the Trustees and set forth in the Agreement.
Accordingly, the funds are expected to bear these costs in the following
amounts:

High Income Bond Fund $26,887 (0.02% of July 31, 2004 assets)
High Income Opportunities Trust $77,046 (0.10% of July 31, 2004 assets)

The Trustees also took into account a number of factors, including: (1)
a comparison of the investment objectives and policies of the funds; (2)
the classification and performance rating of each fund by independent
research firms such as Morningstar, Inc. and Lipper Inc.; (3) the
performance history of each fund; (4) the performance history of each
fund as compared to its benchmark indexes; (5) the volatility of each
fund's portfolio relative to the market; (6) the composition of each
fund's management team; (7) the net assets, average duration and average
credit quality of each fund; (8) the current dividend rates and SEC
yield for each fund; and (9) the terms of the Agreement.

Agreement and Plan of Reorganization. The proposed merger will be
governed by the Agreement, a copy of which is attached as Appendix A.
The Agreement provides that High Income Bond Fund will acquire all of
the assets of High Income Opportunities Trust in exchange for the
assumption by High Income Bond Fund of all of the liabilities of High
Income Opportunities Trust and for the issuance of and delivery to High
Income Opportunities Trust of Merger Shares equal in aggregate net asset
value to the value of the transferred assets net of assumed liabilities.
The shares will be issued on the next full business day (the "Exchange
Date") following the time as of which the funds' shares are valued for
determining net asset value for the merger (4:00 p.m., Boston time, on
January 21, 2005, or such other date as may be agreed upon by the
parties (the "Valuation Time")). The following discussion of the
Agreement is qualified in its entirety by the full text of the
Agreement.

High Income Opportunities Trust will sell all of its assets to High
Income Bond Fund, and in exchange, High Income Bond Fund will assume all
of the liabilities of High Income Opportunities Trust and deliver to
High Income Opportunities Trust a number of full and fractional Merger
Shares having an aggregate net asset value equal to the value of assets
of High Income Opportunities Trust, less the value of the liabilities of
High Income Opportunities Trust assumed by High Income Bond Fund. The
Agreement provides that the investment restrictions of High Income
Opportunities Trust will be temporarily amended to the extent necessary
to effect the transactions contemplated by the Agreement.

Immediately following the Exchange Date, High Income Opportunities Trust
will distribute pro rata to its shareholders of record, as of the close of
business on the Exchange Date, the full and fractional Merger Shares
received by High Income Opportunities Trust. As a result of the proposed
merger, each shareholder of High Income Opportunities Trust will receive a
number of Merger Shares equal in aggregate net asset value at the Exchange
Date to the net asset value of High Income Opportunities Trust shares held
by the shareholder. This distribution will be accomplished by the
establishment of accounts on the share records of High Income Bond Fund in
the name of such shareholders, each account representing the respective
number of full and fractional Merger Shares due such shareholder. New
certificates for Merger Shares will be issued only upon written request.
If you hold certificates for shares of High Income Opportunities Trust, you
will not, following the merger, be able to receive any cash dividends or
transfer your High Income Bond Fund shares until you have delivered your
High Income Opportunities Trust share certificates to Putnam Fiduciary
Trust Company.

The consummation of the merger is subject to the conditions set forth in
the Agreement. The Agreement may be terminated and the merger abandoned
at any time, before or after approval by the shareholders, prior to the
Exchange Date, by mutual consent of High Income Bond Fund and High
Income Opportunities Trust or, if any condition set forth in the
Agreement has not been fulfilled and has not been waived by the party
entitled to its benefits, by such party.

If shareholders of each fund approve the proposed merger, High Income
Opportunities Trust will liquidate such of its portfolio securities as
High Income Bond Fund shall indicate it does not wish to acquire. The
Agreement provides that the liquidation will be substantially completed
prior to the Exchange Date, unless otherwise agreed upon by High Income
Opportunities Trust and High Income Bond Fund. High Income
Opportunities Trust shareholders will bear the portfolio trading costs
associated with this liquidation to the extent that it is completed
prior to the Exchange Date. There can be no assurance that such
liquidation will be accomplished prior to the Exchange Date. To the
extent the liquidation is not accomplished prior to the Exchange Date,
the costs of the liquidation will be borne by the shareholders of the
combined fund, including current shareholders of High Income Bond Fund.
Putnam Management does not expect that High Income Bond Fund will require
High Income Opportunities Trust to make any significant dispositions of
securities in connection with the proposed merger.

Except for the trading costs associated with the liquidation described
above, the fees and expenses for the merger and related transactions are
estimated to be $200,428, of which $103,933 is expected to be paid by the
funds and the balance will be paid by Putnam Management. These fees and
expenses, including legal and accounting expenses, portfolio transfer taxes
(if any) or other similar expenses incurred in connection with the
consummation of the proposed merger and related transactions contemplated
by the Agreement, will be allocated ratably between the two funds in
proportion to their net assets as of the Valuation Time, except that the
costs of proxy materials and proxy solicitations for each fund will be
borne by that fund. However, to the extent that any payment by either fund
of such fees or expenses would result in the disqualification of High
Income Bond Fund or High Income Opportunities Trust as a "regulated
investment company" within the meaning of Section 851 of the Internal
Revenue Code of 1986, as amended (the "Code"), such fees and expenses will
be paid directly by the party incurring them.

Description of the Merger Shares. The Merger Shares, which are shares of
High Income Bond Fund, will be issued to High Income Opportunities Trust's
shareholders in accordance with the procedures under the Agreement as
described above. The Merger Shares are fully paid and nonassessable when
issued and will have no preemptive or conversion rights. The Merger Shares
will be transferable without restriction except that Merger Shares received
by affiliated persons of the fund may be resold only in compliance with the
Securities Act of 1933, as amended, or the regulations thereunder.

Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of High
Income Bond Fund. However, High Income Bond Fund's agreement and
declaration of trust disclaims shareholder liability for acts or
obligations of High Income Bond Fund and requires that notice of such
disclaimer be given in each agreement, obligation or instrument entered
into or executed by High Income Bond Fund or its Trustees. The
agreement and declaration of trust provides for indemnification out of
fund property for all loss and expense of any shareholder held
personally liable for the obligations of High Income Bond Fund. Thus,
the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which High Income
Bond Fund would be unable to meet its obligations. The likelihood of
such circumstances is remote. The shareholders of High Income
Opportunities Trust are currently subject to this same risk of
shareholder liability.

Federal Income Tax Consequences. As a condition to each fund's
obligation to consummate the reorganization, each fund will receive a
tax opinion from Ropes & Gray LLP, counsel to the funds (which opinion
would be based on certain factual representations and certain customary
assumptions), to the effect that, on the basis of the existing
provisions of the Code, current administrative rules and court
decisions, for federal income tax purposes:

(i) the acquisition by High Income Bond Fund of substantially all of the
assets of High Income Opportunities Trust solely in exchange for Merger
Shares and the assumption by High Income Bond Fund of liabilities of
High Income Opportunities Trust followed by the distribution by High
Income Opportunities Trust to its shareholders of Merger Shares in
complete liquidation of High Income Opportunities Trust, all pursuant to
the Agreement, constitutes a reorganization within the meaning of
Section 368(a) of the Code, and High Income Opportunities Trust and High
Income Bond Fund will each be a "party to a reorganization" within the
meaning of Section 368(b) of the Code;

(ii) under Section 361 of the Code, no gain or loss will be recognized
by High Income Bond Fund or High Income Opportunities Trust upon the
transfer of High Income Opportunities Trust's assets to and the
assumption of High Income Opportunities Trust's liabilities by High
Income Bond Fund or upon the distribution of the Merger Shares to High
Income Opportunities Trust's shareholders in liquidation of High Income
Opportunities Trust;

(iii) under Section 354 of the Code, no gain or loss will be recognized
by shareholders of High Income Opportunities Trust on the exchange of
their shares of High Income Opportunities Trust for Merger Shares;

(iv) under Section 358 of the Code, the aggregate tax basis of the
Merger Shares received by High Income Opportunities Trust's shareholders
will be the same as the aggregate tax basis of High Income Opportunities
Trust shares exchanged therefor;

(v) under Section 1223(1) of the Code, the holding periods of the Merger
Shares received by the shareholders of High Income Opportunities Trust
will include the holding periods of High Income Opportunities Trust
shares exchanged therefor, provided that at the time of the
reorganization High Income Opportunities Trust shares are held by such
shareholders as a capital asset;

(vi) under Section 1032 of the Code, no gain or loss will be recognized
by High Income Bond Fund upon the receipt of assets of High Income
Opportunities Trust in exchange for Merger Shares and the assumption by
High Income Bond Fund of the liabilities of High Income Opportunities
Trust;

(vii) under Section 362(b) of the Code, the tax basis in the hands of
High Income Bond Fund of the assets of High Income Opportunities Trust
transferred to High Income Bond Fund will be the same as the tax basis
of such assets in the hands of High Income Opportunities Trust
immediately prior to the transfer;

(viii) under Section 1223(2) of the Code, the holding periods of the assets
of High Income Opportunities Trust in the hands of High Income Bond Fund
will include the periods during which such assets were held by High Income
Opportunities Trust; and

(ix) High Income Bond Fund will succeed to and take into account the
items of High Income Opportunities Trust described in Section 381(c) of
the Code, subject to the conditions and limitations specified in
Sections 381, 382, 383 and 384 of the Code and regulations thereunder.

Ropes & Gray LLP will express no view with respect to the effect of the
reorganization on any transferred asset as to which any unrealized gain
or loss is required to be recognized at the end of a taxable year (or on
the termination or transfer thereof) under federal income tax
principles.

High Income Bond Fund will file the tax opinion with the SEC shortly after
the completion of the proposed merger. This description of the federal
income tax consequences of the proposed merger is made without regard to
the particular facts and circumstances of any shareholder. Shareholders
are urged to consult their own tax advisors as to the specific consequences
to them of the proposed merger, including the applicability and effect of
state, local and other tax laws.

High Income Bond Fund's ability to carry forward the pre-merger losses
of High Income Opportunities Trust will be limited as a result of the
merger. The effect of this limitation, however, will depend on the
amount of losses in each fund at the time of the merger. For example,
if the merger were to have occurred on July 31, 2004, approximately 20%
of High Income Opportunities Trust's losses would have been unavailable
post-merger due to the tax law's loss limitation rules. High Income
Bond Fund's losses, however, would have been available to help mitigate
the effect of this limitation. If no merger occurred on July 31, 2004,
High Income Opportunities Trust would have been able to realize gains
equal to approximately 30% of its pre-merger net asset value over the
years remaining until its capital loss carryforwards expire without
creating any tax liability. In contrast, post-merger, the shareholders
of High Income Opportunities Trust would have been shielded from
realized gains of approximately 19% of post-merger net asset value.

Capitalization. The following table shows the capitalization of the
funds as of August 31, 2004, and on a pro forma combined basis, giving
effect to the proposed acquisition of assets at net asset value as of
that date:

(UNAUDITED)

High Income
High Income Bond Fund
High Income Opportunities Pro Forma Pro Forma
Bond Fund Trust Adjustment Combined*

Net assets+ (000's omitted) $115,776 $73,025 (104)* $188,697*
Shares outstanding (000's omitted) 13,826 3,713 5,002** 22,541
Net asset value per share $8.37 $19.67 -- $8.37

* Pro forma combined net assets reflect legal, accounting and SEC
registration merger-related costs and, for each fund, its separate
proxy solicitation costs, for an estimated aggregate of $26,887 for
High Income Bond Fund and $77,046 for High Income Opportunities Trust.

** Reflects the issuance of an estimated 8,715,429 shares of High Income Bond
Fund in a tax-free exchange for the net assets of High Income Opportunities
Trust based on the net assets of High Income Opportunities Trust as of
08/31/04, less anticipated merger expenses, divided by the net asset value
per share of High Income Bond Fund on that date.

Unaudited pro forma combining financial statements of the funds as of
August 31, 2004, and for the twelve-month period then ended, are
included in the SAI. Because the Agreement provides that High Income
Bond Fund will be the surviving fund following the proposed merger and
because High Income Bond Fund's investment objective and policies will
remain unchanged, the pro forma combining financial statements reflect
the transfer of the assets and liabilities of High Income Opportunities
Trust to High Income Bond Fund as contemplated by the Agreement.

The Trustees, including the independent Trustees, unanimously recommend
approval of the proposed merger.

IV. Information about the Funds

High Income Bond Fund and High Income Opportunities Trust are both
Massachusetts business trusts and are both diversified, closed-end
management investment companies. High Income Bond Fund was organized on
April 28, 1987, and High Income Opportunities Trust was organized on
February 23, 1995.

Financial Highlights. The financial highlights tables are intended to
help you understand the funds' recent financial performance. Certain
information reflects financial results for a single fund share. The
total returns represent the rate that an investor would have earned or
lost on an investment in the relevant fund, assuming reinvestment of all
dividends and distributions. This information has been derived from the
funds' financial statements. For High Income Bond Fund's last five
fiscal years, High Income Bond Fund's financial statements have been
audited by PricewaterhouseCoopers LLP. Its report and the fund's
financial statements are included in the fund's annual report to
shareholders, which is available upon request. For High Income
Opportunities Trust's last five fiscal years (excluding the unaudited
information for the six months ended August 31, 2004), High Income
Opportunities Trust's financial statements have been audited by KPMG LLP.
Its report and the fund's financial statements are included in the fund's
annual report to shareholders, which is available upon request.

FINANCIAL HIGHLIGHTS
PUTNAM HIGH INCOME BOND FUND
(For a common share outstanding throughout the period)

Per-share Year ended August 31
operating performance 2004 2003 2002 2001 2000 1999

Net asset value, beginning of period $7.73 $6.56 $7.30 $8.09 $8.32 $8.82
Investment operations:
Net investment income (a) 0.57(d) 0.58 0.60 0.67 0.74 0.82
Net realized and unrealized gain
(loss) on investments 0.63 1.15 (0.72) (0.71) (0.12) (0.33)
Total from investment operations 1.20 1.73 (0.12) (0.04) 0.62 0.49
Less distributions:
From net investment income (.56) (0.56) (0.62) (0.75) (0.85) (0.81)
From net realized gains
on investments -- -- -- -- -- (0.18)
Total distributions (.56) (0.56) (0.62) (0.75) (0.85) (0.99)
Net asset value, end of period $8.37 $7.73 $6.56 $7.30 $8.09 $8.32
Market price, end of period $7.62 $7.31 $6.35 $7.45 $7.94 $8.81
Total return at
market price (%) (b) 12.06 24.73 (6.77) 3.91 0.78 10.29
Ratios and supplemental data
Net assets, end of
period (in thousands) $115,776 $106,934 $90,561 $100,130 $110,839 $113,576
Ratio of expenses
to average net
assets (%) (c) 1.09(d) 1.13 1.10 1.14 1.11 1.11
Ratio of net investment
income to average
net assets (%) 6.88(d) 8.20 8.65 8.91 9.03 9.72
Portfolio turnover (%) 61.92 69.94 56.70 106.41 26.31 78.62

Per-share Year ended August 31
operating performance 1998 1997 1996 1995

Net asset value, beginning of period $10.35 $9.48 $9.49 $9.13
Investment operations:
Net investment income 0.90 0.86 0.88 0.79
Net realized and unrealized gain
(loss) on investments (1.20) 0.92 (0.04) 0.42
Total from investment operations (0.30) 1.78 0.84 1.21
Less distributions:
From net investment income (0.85) (0.85) (0.85) (0.85)
From net realized gains
on investments (0.38) (0.06) -- --
Total distributions (1.23) (0.91) (0.85) (0.85)
Net asset value, end of period $8.82 $10.35 $9.48 $9.49
Market price, end of period $8.94 $10.56 $10.13 $10.00
Total return at
market price (%) (b) (4.74) 14.29 10.63 12.60
Ratios and supplemental data
Net assets, end of
period (in thousands) $119,193 $138,400 $125,864 $124,911
Ratio of expenses
to average net
assets (%) (c) 1.13 1.03 1.06 1.00
Ratio of net investment
income to average
net assets (%) 9.01 8.80 9.19 8.73
Portfolio turnover (%) 59.13 58.88 56.82 61.19

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

(b) Total return assumes dividend reinvestment.

(c) The ratio of expenses to average net assets for the period ended August 31, 1996
and thereafter includes amounts paid through expense offset arrangements. Prior
period ratios exclude these amounts.

(d) Reflects waivers of certain fund expenses in connection with investments in
Putnam Prime Money Market Fund during the period. As a result of such waivers,
the expenses of the fund for the period ended August 31, 2004 reflect a reduction
of less than 0.01% of average net assets.

FINANCIAL HIGHLIGHTS
PUTNAM HIGH INCOME OPPORTUNITIES TRUST
(For a common share outstanding throughout the period)

Six months
ended
August 31 Year ended Year ended Year ended
Per-share (Unaudited) February 29 Year ended February 28 February 29 February 28
operating performance 2004 2004 2003 2002 2001 2000 1999 1998

Net asset value,
beginning of period $20.14 $16.39 $17.56 $19.81 $24.03 $22.93 $27.57 $26.40
Investment operations:
Net investment income (a) .64 (e) 1.31 1.11 1.17 1.33 1.38 1.86 1.76
Net realized and unrealized gain
(loss) on investments (.50) 3.76 (1.06) (2.20) (3.69) 1.81 (3.69) 2.49
Total from investment operations .14 5.07 0.05 (1.03) (2.36) 3.19 (1.83) 4.25
Less distributions:
From net investment income (.61) (1.32) (1.22) (1.22) (1.58) (1.73) (1.91) (1.77)
From net realized gain
on investments -- -- -- -- (0.28) (0.36) (0.90) (1.31)
Total distributions (.61) (1.32) (1.22) (1.22) (1.86) (2.09) (2.81) (3.08)
Net asset value, end of period $19.67 $20.14 $16.39 $17.56 $19.81 $24.03 $22.93 $27.57
Market price, end of period $17.50 $18.44 $15.73 $16.55 $18.88 $18.75 $22.50 $27.31
Total return at
market price (%) (b) (1.78)* 26.26 2.77 (5.95) 11.00 (7.49) (7.47) 26.03
Ratios and supplemental data
Net assets, end of period
(total funds) (in thousands) $73,025 $74,778 $60,837 $65,192 $73,540 $89,214 $85,134 $102,112
Ratio of expenses
to average
net assets (%) (c) .87* (e) 1.79 1.81 1.78 1.72 1.71 1.78 1.71
Ratio of net investment
income to average
net assets (%) 3.24* (e) 7.09 6.75 6.34 6.13 5.89 7.31 6.45
Portfolio turnover (%) 29.99* 68.16 111.75 116.87 99.42 65.85 56.58 60.69

FINANCIAL HIGHLIGHTS
PUTNAM HIGH INCOME OPPORTUNITIES TRUST
(For a common share outstanding throughout the period)

For the period
June 29, 1995+ to
Per-share February 29,
operating performance 1997 1996

Net asset value,
beginning of period $26.43 $24.85 (d)
Investment operations:
Net investment income (a) 1.77 1.17
Net realized and unrealized gain
(loss) on investments 1.54 1.63
Total from investment operations 3.31 2.80
Less distributions:
From net investment income (2.00) (1.15)
From net realized gain
on investments (1.34) (0.07)
Total distributions (3.34) (1.22)
Net asset value, end of period $26.40 $26.43
Market price, end of period $24.38 $22.63
Total return at
market price (%) (b) 23.54 (4.53)*
Ratios and supplemental data
Net assets, end of period
(total funds) (in thousands) $97,791 $97,881
Ratio of expenses
to average
net assets (%) (c) 1.72 1.14*
Ratio of net investment
income to average
net assets (%) 6.66 4.56*
Portfolio turnover (%) 70.33 38.92*

+ 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.

(d) Represents initial net asset value of $25.00 less offering expenses of $0.15. Original offering costs were reduced by
$0.03 to reflect actual cost incurred.

(e) Reflects waivers of certain fund expenses in connection with investments in Putnam Prime Money Market Fund during the
period. As a result of such waivers, the expenses of the fund for the period ended August 31, 2004 reflect a reduction
of less than 0.01% of average net assets.

Investment Restrictions. Each fund has adopted the following investment
restrictions that may not be changed without the affirmative vote of a
"majority of the outstanding voting securities" of the fund, which is
defined in the 1940 Act to mean the affirmative vote of the lesser of
(1) more than 50% of the outstanding shares of the fund, or (2) 67% or
more of the shares present at a meeting if more than 50% of the
outstanding shares of the fund are represented at the meeting in person
or by proxy. High Income Bond Fund may not:

(i) Borrow money or issue senior securities (as defined in the 1940
Act), except that the fund may borrow amounts not exceeding 15% of the
value (taken at the lower of cost or current value) of its total assets
(not including the amount borrowed) at the time the borrowing is made
for temporary purposes (including repurchasing its shares while
effecting an orderly liquidation of portfolio securities) or for
emergency purposes.

(ii) Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments,
it may be deemed to be an underwriter under the federal securities laws.

(iii) Purchase securities restricted as to resale if, as a result, such
investments would exceed 10% of the value of the fund's net assets.

(iv) Purchase or sell real estate, although it may purchase securities
of issuers which deal in real estate, securities which are secured by
interests in real estate and securities which represent interests in
real estate or interests in real estate acquired through the exercise of
its rights as a holder of debt obligations secured by real estate or
interests therein.

(v) Purchase or sell commodities or commodity contracts, except that it
may purchase or sell financial futures contracts and related options.
High Income Opportunities Trust may also enter into foreign exchange
contracts and other financial transactions not involving physical
commodities.

(vi) Make loans, except by purchase of debt obligations in which the
fund may invest consistent with its investment policies (including
without limitation debt obligations issued by other Putnam funds), by
entering into repurchase agreements or by lending its portfolio
securities.

(vii) With respect to 75% of its total assets, invest in the securities
of any issuer if, immediately after such investment, more than 5% of the
total assets of the fund (taken at current value) would be invested in
the securities of such issuer; provided that this limitation does not
apply to obligations issued or guaranteed as to interest or principal by
the U.S. government or its agencies or instrumentalities.

(viii) With respect to 75% of its total assets, acquire more than 10% of
the outstanding voting securities of any issuer.

(ix) Purchase securities (other than securities of the U.S. government,
its agencies or instrumentalities) if, as a result of such purchase,
more than 25% of the fund's total assets would be invested in any one
industry.

The following non-fundamental investment policy of High Income Bond Fund
may be changed by the Trustees without shareholder approval:

The fund may not invest in the securities of registered open-end
investment companies, except as they may be acquired as part of a merger
or consolidation or acquisition of assets or by purchases in the open
market involving only customary brokers' commissions.

High Income Opportunities Trust shares substantially the same
fundamental investment restrictions with respect to restrictions (ii)
and (iv) through (ix) above. However, High Income Opportunities Trust
substitutes the following for High Income Bond Fund's restriction (i)
above, so that High Income Opportunties Trust may not:

* Issue senior securities, as defined in the 1940 Act, other than shares
of beneficial interest with preference rights, except to the extent such
issuance might be involved with respect to borrowings described under
the restriction below (borrowing money) or with respect to transactions
involving futures contracts, options and other financial instruments.

* Borrow money in excess of 10% of the value (taken at the lower of cost
or current value) of its total assets (not including the amount
borrowed) at the time the borrowing is made, and then only from banks as
a temporary measure (not for leverage) in situations which might
otherwise require the untimely disposition of portfolio investments or
for extraordinary or emergency purposes. Such borrowings will be repaid
before any additional investments are purchased.

In addition, with respect to High Income Bond Fund's restriction (iii)
above (a prohibition against purchasing securities restricted as to
resale if, as a result, such investments would exceed 10% of the value
of the fund's net assets), High Income Opportunities Trust has no
similarly stated fundamental restriction. Instead, High Income
Opportunities Trust has a non-fundamental policy under which it may
invest up to 15% of its net assets in securities that are restricted as
to resale.

Finally, with respect to High Income Bond Fund's non-fundamental
investment policy regarding investing in the securities of registered
open-end investment companies, High Income Opportunities Trust has no
corresponding restriction.

All percentage limitations on investments will apply at the time of
investment and shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of such
investment. Except for the fundamental investment restrictions listed
above, the other investment policies described in this Prospectus/Proxy
Statement are not fundamental and may be changed by approval of the
Trustees. As a matter of policy, the Trustees would not materially
change the fund's investment objectives without shareholder approval.

Management. Each fund's Trustees oversee the general conduct of each
fund's business. The funds have the same Trustees. The Trustees have
retained Putnam Management to be each fund's investment manager,
responsible for making investment decisions for each fund and managing each
fund's other affairs and business. Putnam Management's address is One Post
Office Square, Boston, MA 02109.

Putnam Management is paid for management and investment advisory
services quarterly based on the average net assets of each fund. High
Income Bond Fund pays such fee at the following annual rates: 0.75% on
the first $500 million of average weekly net assets, 0.65% of the next
$500 million, 0.60% of the next $500 million and 0.55% of any excess
over $1.5 billion of such average net asset value. High Income
Opportunities Trust pays such fee at the annual rate of 1.10% of average
weekly net assets. In addition, High Income Opportunities Trust pays a
separate administrative services fee at the annual rate of 0.25% of
average weekly net assets.

Putnam Management is one of America's oldest and largest money
management firms. Putnam Management's staff of experienced portfolio
managers and research analysts selects securities and constantly
supervises each fund's portfolio. By pooling an investor's money with
that of other investors, a greater variety of securities can be
purchased than would be the case individually; the resulting
diversification helps reduce investment risk. Putnam Management has
been managing mutual funds since 1937.

Putnam Management is a subsidiary of Putnam Investment Management Trust,
a Massachusetts business trust owned by Putnam, LLC, which is also the
parent company of Putnam Retail Management Limited Partnership, Putnam
Advisory Company, LLC (a wholly-owned subsidiary of The Putnam Advisory
Company Trust) and Putnam Fiduciary Trust Company. Putnam, LLC, which
generally conducts business under the name Putnam Investments, is a
wholly-owned subsidiary of Putnam Investments Trust, a holding company
that, except for a minority stake owned by employees, is owned by Marsh
& McLennan Companies, Inc., a publicly-owned holding company whose
principal businesses are international insurance and reinsurance
brokerage, employee benefit consulting and investment management.

Putnam Management has retained its affiliate, Putnam Investments Limited
("PIL"), to manage a separate portion of the assets of each fund as
determined by Putnam Management from time to time. Subject to the
supervision of Putnam Management, PIL is responsible for making investment
decisions for the portion of the assets of each fund that it manages.

PIL provides a full range of international investment advisory services
to institutional and retail clients.

Putnam Management (and not each fund) pays a quarterly sub-management
fee to PIL for its services at the annual rate of 0.40% of the average
aggregate net asset value of the portion of the assets of each fund that
may be managed by PIL from time to time. PIL's address is Cassini House,
57-59 St James's Street, London, England, SW1A 1LD.

Putnam Management's and PIL's investment professionals are organized into
investment management teams, with a particular team dedicated to a specific
asset class. The members of the Large-Cap Value and Core Fixed Income
Teams are responsible for the day-to-day management of each fund. The
names of all team members can be found at www.putnaminvestments.com.

The following team members coordinate the teams' management of each fund's
portfolio. Their experience as investment professionals over the last five
years is shown.

Positions Over Last
Portfolio leader Since Employer Five Years

David L. King 2002 Putnam Management Senior Portfolio Manager
1983 - Present

Positions Over Last
Portfolio member Since Employer Five Years

Robert L. Salvin 2004 Putnam Management Convertible Specialist.
2000 - Present Previously, Analyst,
Equity Capital Market
Specialist

BancBoston Managing Director of
Robertson Stephens High Yield Debt Capital
Prior to July 2000 Markets

The funds pay all expenses not assumed by Putnam Management, including
Trustees' fees, auditing, legal, custodial, investor servicing and
shareholder reporting expenses. The funds also reimburse Putnam
Management for the compensation and related expenses of certain fund
officers and their staff who provide administrative services. The total
reimbursement is determined annually by the Trustees.

Putnam Fiduciary Trust Company, One Post Office Square, Boston,
Massachusetts 02109, is the custodian of the funds' securities. Putnam
Investor Services, P.O. Box 41203, Providence, Rhode Island 02940-1203,
a division of Putnam Fiduciary Trust Company, is the investor
servicing, transfer and dividend disbursing agent for the funds.

Regulatory Matters and Litigation. On April 8, 2004, Putnam Management
entered into agreements with the SEC and the Massachusetts Securities
Division representing a final settlement of all charges brought against
Putnam Management by those agencies on October 28, 2003 in connection with
excessive short-term trading by Putnam employees and, in the case of the
charges brought by the Massachusetts Securities Division, by participants
in some Putnam-administered 401(k) plans. The settlement with the SEC
requires Putnam Management to pay $5 million in disgorgement plus a civil
monetary penalty of $50 million, and the settlement with the Massachusetts
Securities Division requires Putnam Management to pay $5 million in
restitution and an administrative fine of $50 million. The settlements
also leave intact the process established under an earlier partial
settlement with the SEC under which Putnam Management agreed to pay the
amount of restitution determined by an independent consultant, which may
exceed the disgorgement and restitution amounts specified above, pursuant
to a plan to be developed by the independent consultant.

Putnam Management, and not the investors in any Putnam fund, will bear
all costs, including restitution, civil penalties and associated legal
fees stemming from both of these proceedings. The SEC's and
Massachusetts Securities Division's allegations and related matters also
serve as the general basis for numerous lawsuits, including purported
class action lawsuits filed against Putnam Management and certain
related parties, including certain Putnam funds. Putnam Management has
agreed to bear any costs incurred by Putnam funds in connection with
these lawsuits. Based on currently available information, Putnam
Management believes that the likelihood that the pending private
lawsuits and purported class action lawsuits will have a material
adverse financial impact on the fund is remote, and the pending actions
are not likely to materially affect its ability to provide investment
management services to its clients, including the Putnam funds.

Review of these matters by counsel for Putnam Management and by separate
independent counsel for the Putnam funds and their independent Trustees
is continuing.

Description of Fund Shares. The Trustees of each fund have authority to
issue an unlimited number of shares of beneficial interest without par
value. Except for the Merger Shares to be issued in the merger, neither
fund has a present intention of offering additional shares, other than
under its dividend reinvestment plan. See "Dividend Reinvestment Plan"
below. All other offerings of a fund's shares require approval of the
Trustees. Any additional offering would be subject to the requirements of
the 1940 Act that such shares may not be sold at a price below the then
current net asset value per share, exclusive of underwriting discounts and
commissions, except in connection with an offering to existing shareholders
or with the consent of the holders of a majority of a fund's outstanding
common shares.

The outstanding shares of each fund are, and the Merger Shares, when issued
and sold, will be fully paid and non-assessable by the fund. The
outstanding shares of each fund have, and the Merger Shares will have, no
preemptive, conversion, exchange or redemption rights. Each share of a
fund has one vote, with fractional shares voting proportionately, and is
fully transferable, subject to any limitations imposed by the Securities
Act of 1933, as amended, or the regulations thereunder. Common shares of
High Income Bond Fund are traded on the NYSE, with an average weekly
trading volume for the year ended December 31, 2003 of 99,993 shares.
Common shares of High Income Opportunities Trust also are traded on the
NYSE, with an average weekly trading volume for the year ended December 31,
2003 of 35,075 shares.

Set forth below is information about each fund's securities as of July
31, 2004 (except where otherwise noted):

HIGH INCOME BOND FUND

Amount Amount Amount
Title of Class Authorized Held by Fund Outstanding

Common Shares unlimited 0 13,825,527

HIGH INCOME OPPORTUNITIES TRUST

Amount Amount Amount
Title of Class Authorized Held by Fund Outstanding

Common Shares unlimited 0 3,712,567

Repurchase of shares. Because each fund is a closed-end investment
company, shareholders of each fund do not, and will not, have the right
to redeem their shares. A fund, however, may repurchase its shares from
time to time in open-market or private transactions when it can do so at
prices below the current net asset value per share and on terms that
represent a favorable investment opportunity. The funds currently are
authorized to make periodic repurchases of shares in open-market
transactions at times when discount levels make such purchases an
attractive investment, although neither fund has recently done so or has
any current plan to do so.

Shares of the funds trade in the open market at a price which will be a
function of several factors. Shares of closed-end investment companies
frequently trade at a discount from net asset value, but in some cases
trade at a premium. When a fund repurchases its shares at a price below
their net asset value, the net asset value of those shares that remain
outstanding will be increased, but this does not necessarily mean that the
market price of those outstanding shares will be affected either positively
or negatively.

Determination of net asset value. The net asset value of each fund's
shares are valued as of the close of regular trading on the NYSE each
day the exchange is open by dividing the total value of its assets, less
liabilities, by the number of its shares outstanding.

Securities for which market quotations are readily available are valued
at market values. Short-term investments that have remaining maturities
of 60 days or less are valued at amortized cost, which approximates
market value. All other securities and assets are valued at their fair
value following procedures approved by the Trustees.

Dividend reinvestment plan. Each fund offers a dividend reinvestment
plan (each, a "Plan"). If a shareholder is participating in a Plan, all
income dividends and capital gains distributions are automatically
reinvested in additional shares of a fund. Reinvestment transactions
are executed by Investors Bank and Trust Company, 200 Clarendon Street,
Boston, MA (617-937-6300) (the "Plan Agent"). If a shareholder is not
participating in a Plan, every month the shareholder will receive all
dividends and/or capital gains distributions in cash, paid by check and
mailed directly to the shareholder. If a shareholder would like to
participate in a Plan, the shareholder may instruct Putnam Investor
Services (which provides certain administrative and bookkeeping services
to a Plan) to enroll the shareholder. The Plan Agent will automatically
reinvest subsequent distributions, and Putnam Investor Services will
send the shareholder a confirmation in the mail telling the shareholder
how many additional shares were issued to the shareholder's account.
High Income Opportunities Trust shareholders are automatically enrolled
in a Plan and must elect not to participate in a Plan. Holders of High
Income Opportunities Trust shares who have elected not to participate in
High Income Opportunities Trust's Plan will, if the merger is approved,
be deemed to have elected not to participate in High Income Bond Fund's
Plan. Holders of High Income Opportunities Trust shares who are
participating in High Income Opportunities Trust's Plan will, if the
merger is approved, be deemed to have elected to participate in High
Income Bond Fund's plan.

Shareholders may contact Putnam Investor Services either in writing, at
P.O. Box 41203, Providence, RI 02940-1203, or by telephone at
1-800-225-1581 during normal East Coast business hours.

If the market price of a fund's shares is equal to or exceed their net
asset value on the payment date, the shareholder will be issued shares
of the fund at a value equal to the higher of the net asset value or 95%
of the market price on that date. This discount reflects savings in
underwriting and other costs that the fund would otherwise incur. If
net asset value exceeds the market price of the shares at the time, or
if a fund declares any distribution payable only in cash, the Plan Agent
will buy fund shares for participating accounts in the open market. If
the market price of fund shares rises to exceed the net asset value
before the open-market purchase has been completed, or if the Plan Agent
is not able to complete the open-market purchases within a specified
time (generally seven days), the Plan Agent will invest the uninvested
portion in newly issued shares at a value equal to the greatest of:

* The net asset value of the shares on the date they are issued,

* 95% of the fair market value of shares on the payment date for the
distribution, or

* 95% of the fair market value of shares on the date they are issued.

Participants may withdraw from a Plan at any time by notifying Putnam
Investor Services, either in writing or by telephone. If a participant
withdraws from a Plan (or if a Plan is terminated), the participant will
receive certificates for whole shares credited to the participant's
account, as well as a cash payment for any fraction of a share credited
to the participant's account. There is no penalty for withdrawing from
or not participating in a Plan.

Putnam Investor Services maintains all participants' accounts in a Plan
on behalf of the Plan Agent and furnishes written confirmation of all
transactions, including information needed by participants for tax
records. Each participant's shares will be held by Putnam Investor
Services in the participant's name, and each participant's proxy will
include those shares purchased through a Plan.

There are no brokerage charges applied to shares issued directly by a
fund as a result of dividends or capital gains distributions. However,
each participant pays a proportionate share of brokerage commissions
incurred if the Plan Agent purchases additional shares on the open
market, in accordance with a Plan. In each case, the cost of shares
purchased for each participant's account will be the average cost
(including brokerage commissions) of any shares so purchased, plus the
cost of any shares issued by a fund. If a participant instructs the
Plan Agent to sell the participant's shares, the participant will incur
brokerage commissions for the sale.

Reinvesting dividends and capital gains distributions in shares of a
fund does not relieve a participant of tax obligations, which are the
same as if the participant had received cash distributions. Putnam
Investor Services supplies tax information to the participant and to the
IRS annually and complies with all IRS withholding requirements. A fund
reserves the right to amend a Plan to include service charges, to make
other changes or to terminate a Plan upon 30-days' written notice.

If a shareholder's shares are held in the name of a broker or nominee
offering a dividend reinvestment service, the shareholder should consult
the shareholder's broker or nominee to ensure that an appropriate
election is made on the shareholder's behalf. If the broker or nominee
holding the shareholder's shares does not provide a reinvestment
service, the shareholder may need to register the shareholder's shares
in the shareholder's own name in order to participate in a Plan.

In situations where a bank, broker or nominee holds shares for others, a
Plan will be administered according to instructions and information
provided by the bank, broker or nominee.

It may be necessary to suspend operation of High Income Opportunities
Trust's Plan for one or two dividend payments immediately prior to the
combination so that all purchase activity under the Plan is settled in
advance of the effective date of merger. In that event all
shareholders, including those in the Plan, will receive those dividends
in cash.

Dividends and distributions. Each fund has a policy to make monthly
distributions to shareholders from net investment income.

Net investment income of each fund consists of all interest and other
income (excluding capital gains and losses) accrued on portfolio assets,
less all expenses of each fund allocable thereto. Income and expenses
of each fund are accrued each day.

To permit each fund to maintain a more stable monthly distribution, each
fund may from time to time pay out less than the entire amount of
available net investment income to shareholders earned in any particular
period. Any such amount retained by a fund would be available to
stabilize future distributions. As a result, the distributions paid by
a fund for any particular period may be more or less than the amount of
net investment income actually earned by that fund during such period.
For information concerning the tax treatment of distributions to common
shareholders, see the discussion under "Taxation" below. Both funds
intend, however, to make such distributions as are necessary to maintain
qualification as a regulated investment company.

Common shareholders may have their dividend or distribution checks sent
to parties other than themselves. A "Dividend Order" form is available
from Putnam Investor Services, mailing address: P.O. Box 41203,
Providence, Rhode Island 02940-1203. After Putnam Investor Services
receives this completed form with all registered owners' signatures
guaranteed, the shareholder's distribution checks will be sent to the
bank or other person that the shareholder has designated.

For information concerning the tax treatment of such dividends and
distributions to shareholders, see the discussion under "Taxation"
below.

Declaration of Trust and Bylaws. Each fund's agreement and declaration
of trust includes provisions that could have the effect of limiting the
ability of other entities or persons to acquire control of the fund, or
to cause it to engage in certain transactions or to modify its
structure. The affirmative vote of at least two-thirds (three-fourths
in the case of High Income Opportunities Trust) of the outstanding
shares of a fund is required to authorize any of the following actions:

(1) merger or consolidation of the fund,

(2) sale of all or substantially all of the assets of the fund,

(3) conversion of the fund to an open-end investment company, or

(4) amendment of the agreement and declaration of trust to reduce the
two-thirds (three-fourths in the case of High Income Opportunities Trust)
vote required to authorize the actions in (1) through (3) above

unless with respect to any of the foregoing such action has been
authorized by the affirmative vote of two-thirds of the total number of
Trustees (in the case of High Income Opportunities Trust, three-fourths
of the total number of Trustees and three-fourths of the total number of
Continuing Trustees, which is a Trustee (i) who is not a person or an
affiliate of such a person who enters or proposes to enter into any
transaction (e.g., a merger or consolidation) with the Trust and (ii)
who has been a Trustee for a period of at least twelve months), in which
case the affirmative vote of a majority of the shares entitled to vote
(in the case of High Income Opportunities Trust, the lesser of (1) more
than 50% of the outstanding fund shares or (2) 67% or more of the shares
present at a meeting if more than 50% of the outstanding fund shares are
represented at the meeting in person or by proxy) is required.

The Trustees have determined that the two-thirds and three-fourths voting
requirements described above, which are greater than the minimum
requirements under the 1940 Act, are in the best interests of High Income
Bond Fund and High Income Opportunities Trust, respectively, and their
respective shareholders generally. Please refer to the agreement and
declaration of trust of each fund, on file with the SEC, for the full text
of these provisions.

These provisions could have the effect of depriving shareholders of an
opportunity to sell their shares at a premium over prevailing market prices
by discouraging a third party from seeking to obtain control of a fund in a
tender offer or similar transaction and may have the effect of inhibiting
the fund's conversion to open-end status.

Taxation. The following federal tax discussion is based on the advice
of Ropes & Gray LLP, counsel to the funds, and reflects provisions of
the Code, existing treasury regulations, rulings published by the
Service, and other applicable authority, as of the date of this
Prospectus/Proxy Statement.

These authorities are subject to change by legislative or administrative
action.

The following discussion is only a summary of some of the important tax
considerations generally applicable to investments in High Income Bond
Fund. For more detailed information regarding tax considerations, see
the SAI. There may be other tax considerations applicable to particular
investors. In addition, income earned through an investment in High
Income Bond Fund may be subject to state and local taxes. Because High
Income Bond Fund will be the surviving fund if the merger is approved,
the discussion deals only with the taxation of High Income Bond Fund.

High Income Bond Fund intends to qualify each year for taxation as a
regulated investment company under Subchapter M of the Code. If the
fund so qualifies, it will not be subject to federal income tax on
income distributed timely to its shareholders in the form of dividends
or capital gain distributions.

To satisfy the distribution requirement applicable to regulated
investment companies, amounts paid as dividends by High Income Bond Fund
to its shareholders must qualify for the dividends-paid deduction.

The fund's investments in certain debt obligations may cause the fund to
recognize taxable income in excess of the cash generated by such
obligations. Thus, the fund could be required at times to liquidate
other investments in order to satisfy its distribution requirements.

The fund's investments in foreign securities may be subject to foreign
withholding taxes. In that case, the fund's yield on those securities
would be decreased. Shareholders generally will not be entitled to
claim a credit or deduction with respect to foreign taxes. In addition,
the fund's investments in foreign securities or foreign currencies may
increase or accelerate the fund's recognition of ordinary income and may
affect the timing or amount of the fund's distributions.

For federal income tax purposes, distributions of investment income
other than "tax-exempt dividends" are taxable as ordinary income.
Generally, gains realized by a fund on the sale or exchange of
investments will be taxable to its shareholders, even though the income
from such investments generally will be tax-exempt.

Taxes on distributions of capital gains are determined by how long the
fund owned the investments that generated them, rather than how long a
shareholder has owned his or her shares. Distributions are taxable to
shareholders even if they are paid from income or gains earned by the
fund before a shareholder's investment (and thus were included in the
price the shareholder paid). Distributions of gains from investments
that the fund owned for more than one year will be taxable as capital
gains. Distributions of gains from investments that the fund owned for
one year or less will be taxable as ordinary income. Distributions are
taxable whether shareholders receive them in cash or reinvest them in
additional shares through the Dividend Reinvestment Plan.

Any gain resulting from the sale of fund shares will generally also be
subject to tax. You should consult your tax advisor for more information
on your own tax situation, including possible state and local taxes.

For taxable years beginning on or before December 31, 2008, the fund
may designate distributions of investment income derived from dividends
of U.S. corporations and some foreign corporations as "qualified
dividend income," provided the fund meets holding period and other
requirements. Qualified dividend income will be taxed in the hands of
individuals at the rates applicable to long-term capital gain, provided
the shareholder meets the same holding period and other requirements.
Fund dividends representing distributions of interest income and
short-term capital gains cannot be designated as qualified dividend
income and will not qualify for the reduced rates. In light of this,
the fund does not expect a significant portion of fund distributions to
be derived from qualified dividend income.

The long-term capital gain rates applicable to most shareholders will be
15% (with lower rates applying to taxpayers in the 10% and 15% ordinary
income tax brackets) for taxable years beginning on or before December
31, 2008.

Under current law, the backup withholding tax rate is 28% for amounts
paid through 2010 and will be 31% for amounts paid after December 31,
2010. The fund is required to apply backup withholding to certain
taxable distributions including, for example, distributions paid to any
individual shareholder who fails to properly furnish the fund with a
correct taxpayer identification number.

Trading Information. The following chart shows quarterly per share
trading information for the past two fiscal years and the current fiscal
year of the funds, as listed on the NYSE:

HIGH INCOME BOND FUND
(Unaudited)
Market Market Closing Closing Premium or
High Low Market NAV (Discount)
Quarter Price Price Price ($) to NAV (%)
Ended ($) ($) ($)

8/31/02 7.09 5.75 6.35 6.56 (3.20)
11/30/02 6.52 5.80 6.47 6.69 (3.29)
2/28/03 6.97 6.30 6.87 6.91 (0.58)
5/31/03 7.43 6.80 7.39 7.52 (1.73)
8/31/03 7.90 7.10 7.31 7.73 (5.43)
11/30/03 7.70 7.27 7.38 8.14 (9.34)
2/29/04 8.16 7.36 7.92 8.56 (7.48)
5/31/04 8.02 6.95 7.33 8.27 (11.37)
8/31/04 7.68 7.16 7.62 8.37 (8.96)

HIGH INCOME OPPORTUNITIES TRUST
(Unaudited)
Market Market Closing Closing Premium or
High Low Market NAV (Discount)
Quarter Price Price Price ($) to NAV (%)
Ended ($) ($) ($)

2/28/02 17.25 16.35 16.55 17.56 (5.75)
5/31/02 16.87 16.24 16.39 17.63 (7.03)
8/31/02 16.44 14.14 15.20 15.81 (3.86)
11/30/02 15.70 14.00 15.31 15.97 (4.13)
2/28/03 15.74 14.59 15.73 16.39 (4.03)
5/31/03 17.15 15.50 17.04 17.92 (4.91)
8/31/03 18.00 16.90 17.40 18.30 (4.92)
11/30/03 18.22 17.29 17.47 19.20 (9.01)
2/29/04 19.23 17.70 18.44 20.14 (8.44)
5/31/04 18.77 16.42 17.30 19.44 (11.01)
8/31/04 17.53 16.95 17.50 19.67 (11.03)

On October 31, 2004, the latest practicable date for which such
information is available, the market price, net asset value per
share and discount to net asset value were $7.87, $8.48, and -7.19%,
respectively, for High Income Bond Fund and $17.78, $19.91,
and -10.70%, respectively, for High Income Opportunities Trust.

V. Information about Voting and the Shareholder Meeting

General. This Prospectus/Proxy Statement is furnished in connection with
the proposed merger of High Income Opportunities Trust into High Income
Bond Fund and the solicitation of proxies by and on behalf of the Trustees
for use at the Joint Meeting of Shareholders (the "Meeting"). The Meeting
is to be held on January 13, 2005 at 11:00 a.m. at One Post Office Square,
12th Floor, Boston, Massachusetts, or at such later time as is made
necessary by adjournment. The Notice of the Meeting, the combined
Prospectus/Proxy Statement and the enclosed form of proxy are being mailed
to shareholders on or about November __, 2004.

As of July 31, 2004, there were 3,712,567 outstanding shares of
beneficial interest of High Income Opportunities Trust, and 13,825,527
outstanding shares of beneficial interest of High Income Bond Fund. Only
shareholders of record on October 22, 2004 will be entitled to notice of
and to vote at the Meeting. Each share is entitled to one vote, with
fractional shares voting proportionally.

The Trustees know of no matters other than those set forth herein to be
brought before the Meeting. If, however, any other matters properly
come before the Meeting, it is the Trustees' intention that proxies will
be voted on such matters in accordance with the judgment of the persons
named in the enclosed form of proxy.

Shareholders who object to the proposed merger will not be entitled
under Massachusetts law or the agreement and declaration of trust, as
amended, of each fund to demand payment for, or an appraisal of, their
shares. However, shareholders should be aware that the merger as
proposed is not expected to result in recognition of gain or loss to
shareholders for federal income tax purposes and that shares of each
fund may be sold at any time prior to the consummation of the proposed
merger.

Required vote. Proxies are being solicited from each fund's
shareholders by its Trustees for the Meeting. Unless revoked, all valid
proxies will be voted in accordance with the specification thereon or,
in the absence of specifications, FOR approval of the Agreement. The
transactions contemplated by the Agreement will be consummated only if
approved by the affirmative vote of the holders of:

* a majority of the outstanding shares of High Income Bond Fund voted,
if holders of more than 50% of such shares vote, and

Record date, quorum and method of tabulation. Shareholders of record of
each fund at the close of business on October 22, 2004 (the "Record
Date") will be entitled to vote at the Meeting or any adjournment
thereof. The holders of a majority of the shares of each fund
outstanding at the close of business on the Record Date present in
person or represented by proxy will constitute a quorum for action by
shareholders of each fund at the Meeting.

Votes cast by proxy or in person at the meeting will be counted by
persons appointed by the relevant fund as tellers for the Meeting. The
tellers will count the total number of votes cast "for" approval of the
proposal for purposes of determining whether sufficient affirmative
votes have been cast. The tellers will count shares represented by
proxies that reflect abstentions and "broker non-votes" (i.e., shares
held by brokers or nominees as to which (i) instructions have not been
received from the beneficial owners or the persons entitled to vote and
(ii) the broker or nominee does not have the discretionary voting power
on a particular matter) as shares that are present and entitled to vote
on the matter for purposes of determining the presence of a quorum.
Abstentions and broker non-votes have the effect of a negative vote on
the proposal.

Share ownership. As of October 31, 2004, the officers and Trustees of
each fund as a group beneficially owned less than 1% of the outstanding
shares of such fund and, to the knowledge of each fund, no person (other
than The Depository Trust Company ("DTC")) owned of record or
beneficially 5% or more of the outstanding shares of the fund. In
addition, upon consummation of the proposed merger, to the knowledge of
the fund, no person (other than DTC) is expected to own of record
or beneficially 5% or more of the outstanding shares of the combined
fund.

Solicitation of proxies. In addition to soliciting proxies by mail, the
Trustees of each fund and employees of Putnam Management, Putnam
Fiduciary Trust Company and Putnam Retail Management may solicit proxies
in person or by telephone. Each fund may also arrange to have a proxy
solicitation firm call you to record your voting instructions by
telephone. If you wish to speak to a representative, call 1-800-780-7316. The
procedure for solicitation of proxies by telephone is designed to
authenticate shareholders' identities, to allow them to authorize the
voting of their shares in accordance with their instructions and to
confirm that their instructions have been properly recorded. Each fund
has been advised by counsel that these procedures are consistent with
the requirements of applicable law. If these procedures were subject to
a successful legal challenge, such votes would not be counted at the
Meeting. Each fund is unaware of any such challenge at this time.
Shareholders would be called at the phone number Putnam Management has
in its records for their accounts, and would be asked for their Social
Security number or other identifying information. The shareholders
would then be given an opportunity to authorize the proxies to vote
their shares at the meeting in accordance with their instructions. To
ensure that shareholders' instructions have been recorded correctly,
they will also receive a confirmation of their instructions in the mail.
A special toll-free number will be available in case the information
contained in the confirmation is incorrect.

Shareholders of each fund have the opportunity to submit their voting
instructions via the Internet by utilizing a program provided by a
third-party vendor hired by Putnam Fiduciary Trust Company, or by
"touch-tone" telephone voting. The giving of such a proxy will not affect
your right to vote in person should you decide to attend the Meeting. To
use the Internet, please access the Internet address found on your proxy
card. To record your voting instructions by automated telephone, please
call the toll-free number listed on your proxy card. The Internet and
automated telephone voting instructions are designed to authenticate
shareholder identities, to allow shareholders to give their voting
instructions, and to confirm that shareholders' instructions have been
recorded properly. Shareholders submitting their voting instructions via
the Internet should understand that there may be costs associated with
Internet access, such as usage charges from Internet access providers and
telephone companies, that must be borne by the shareholders.

Each fund's Trustees have adopted a general policy of maintaining
confidentiality in the voting of proxies. Consistent with that policy,
each fund may solicit proxies from shareholders who have not voted their
shares or who have abstained from voting.

Persons holding shares as nominees will, upon request, be reimbursed for
their reasonable expenses in soliciting instructions from their
principals. Each fund has retained at its own expense Investor Connect,
60 E. 42nd Street, Suite 405, New York, NY 10165, to aid in the
solicitation of instructions for nominee and registered accounts for a
fee not to exceed $2,000 for High Income Bond Fund and $2,000 for High
Income Opportunities Trust, plus out-of-pocket expenses for mailing and
phone costs. Subject to Putnam Management's agreement to limit such
expenses, the expenses of the preparation of proxy statements and
related materials, including printing and delivery costs, are borne by
each fund.

Revocation of proxies. Proxies, including proxies given by telephone or
over the Internet, may be revoked at any time before they are voted
either (i) by a written revocation received by the Clerk of the funds
(addressed to the funds' Clerk at the principal office of the funds, One
Post Office Square, Boston, Massachusetts 02109), (ii) by properly
executing a later-dated proxy, (iii) by recording later-dated voting
instructions via the Internet or automated telephone or (iv) by
attending the Meeting and voting in person.

Adjournment. If sufficient votes in favor of the proposal set forth in the
Notice of the Meeting are not received by the time scheduled for the
Meeting, the persons named as proxies may propose adjournments of the
Meeting for a period or periods of not more than 60 days in the aggregate
to permit further solicitation of proxies. Any adjournment will require
the affirmative vote of a majority of the votes cast on the question in
person or by proxy at the session of the Meeting to be adjourned. The
persons named as proxies will vote in favor of such adjournment those
proxies that they are entitled to vote in favor of the proposal. They will
vote against adjournment those proxies required to be voted against the
proposal. Each fund pays the costs of any additional solicitation and of
any adjourned session for that fund, subject to Putnam Management's
agreement, as set forth in the Agreement, to limit the expenses incurred by
each fund in connection with the transactions contemplated by the
Agreement.

Appendix A

AGREEMENT AND PLAN OF REORGANIZATION

This Agreement and Plan of Reorganization (the "Agreement") is made as of
November 18, 2004 in Boston, Massachusetts, by and among Putnam High Income
Bond Fund, a Massachusetts business trust ("Acquiring Fund"), Putnam High
Income Opportunities Trust, a Massachusetts business trust ("Acquired
Fund") and Putnam Investment Management, LLC, a Delaware limited liability
company.

PLAN OF REORGANIZATION

(a) Acquired Fund will sell, assign, convey, transfer and deliver to
Acquiring Fund on the Exchange Date (as defined in Section 6) all of its
properties and assets existing at the Valuation Time (as defined in
Section 3(d)). In consideration therefor, Acquiring Fund shall, on the
Exchange Date, assume all of the liabilities of Acquired Fund existing
at the Valuation Time and deliver to Acquired Fund a number of full and
fractional shares of beneficial interest of Acquiring Fund (the "Merger
Shares") having an aggregate net asset value equal to the aggregate
value of the assets of Acquired Fund transferred to Acquiring Fund on
such date less the value of the liabilities of Acquired Fund assumed by
Acquiring Fund on such date. It is intended that the reorganization
described in this Plan shall be a reorganization within the meaning of
Section 368 of the Internal Revenue Code of 1986, as amended (the
"Code"). Prior to the Exchange Date, Acquired Fund will declare and pay
to its shareholders a dividend and/or other distribution in an amount
such that it will have distributed all of its net investment income and
capital gains as described in Section 8(l) hereof.

(b) Upon consummation of the transactions described in paragraph (a) of
this Agreement, Acquired Fund shall distribute in complete liquidation
to its shareholders of record as of the Exchange Date Merger Shares,
each shareholder being entitled to receive that proportion of such
Merger Shares that the number of shares of beneficial interest of
Acquired Fund held by such shareholder bears to the number of such
shares of Acquired Fund outstanding on such date. Certificates
representing the Merger Shares will be issued only if the shareholder so
requests.

AGREEMENT

Acquiring Fund and Acquired Fund agree as follows:

1. Representations and warranties of Acquiring Fund. Acquiring Fund
represents and warrants to and agrees with Acquired Fund that:

(a) Acquiring Fund is a business trust duly established and validly
existing under the laws of The Commonwealth of Massachusetts, and has
power to own all of its properties and assets and to carry out its
obligations under this Agreement. Acquiring Fund is not required to
qualify as a foreign association in any jurisdiction. Acquiring Fund
has all necessary federal, state and local authorizations to carry on
its business as now being conducted and to carry out this Agreement.

(b) Acquiring Fund is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as a closed-end management investment
company, and such registration has not been revoked or rescinded and is
in full force and effect.

(c) A statement of assets and liabilities, statement of operations,
statement of changes in net assets and schedule of investments
(indicating their market values) of Acquiring Fund for the fiscal year
ended August 31, 2004, such statements and schedule having been audited
by PricewaterhouseCoopers LLP, independent registered public accounting
firm, have been furnished to Acquired Fund. Such statements of assets
and liabilities and schedules of investments fairly present the
financial position of Acquiring Fund as of the dates thereof, and such
statements of operations and changes in net assets fairly reflect the
results of its operations and changes in net assets for the periods
covered thereby in conformity with U.S. generally accepted accounting
principles.

(d) There are no material legal, administrative or other proceedings
pending or, to the knowledge of Acquiring Fund, threatened against
Acquiring Fund which assert liability or may, if successfully prosecuted
to their conclusion, result in liability on the part of Acquiring Fund,
other than as have been disclosed in the Prospectuses (as defined
below) or otherwise disclosed in writing to Acquired Fund.

(e) Acquiring Fund has no known liabilities of a material nature,
contingent or otherwise, other than those shown as belonging to it on
its statement of assets and liabilities as of August 31, 2004 and those
incurred in the ordinary course of Acquiring Fund's business as an
investment company since such date.

(f) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by Acquiring
Fund of the transactions contemplated by this Agreement, except such as
may be required under the Securities Act of 1933, as amended (the "1933
Act"), the Securities Exchange Act of 1934, as amended (the "1934 Act"),
the 1940 Act, state securities or blue sky laws (which term as used
herein shall include the laws of the District of Columbia and of Puerto
Rico) or the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"H-S-R Act").

(g) The registration statement and any amendment thereto (including any
post-effective amendment) (the "Registration Statement") filed with the
Securities and Exchange Commission (the "Commission") by Acquiring Fund
on Form N-14 relating to the Merger Shares issuable hereunder, the proxy
statement of Acquired Fund included therein (the "Acquired Fund Proxy
Statement") and the proxy statement of Acquiring Fund included therein
(the "Acquiring Fund Proxy Statement" and, together with the Acquired
Fund Proxy Statement, the "Proxy Statements"), on the effective date of
the Registration Statement (i) will comply in all material respects with
the provisions of the 1933 Act, the 1934 Act and the 1940 Act and the
rules and regulations thereunder and (ii) will not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading; and at the time of the shareholders' meeting referred to in
Section 7(a) and at the Exchange Date, each prospectus contained in the
Registration Statement (collectively, the "Prospectuses"), as amended or
supplemented by any amendments or supplements filed or requested to be
filed with the Commission by Acquired Fund, will not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading; provided however, that none of the representations and
warranties in this subsection shall apply to statements in or omissions
from the Registration Statement, the Prospectuses or the Proxy
Statements made in reliance upon and in conformity with information
furnished by Acquired Fund for use in the Registration Statement, the
Prospectuses or the Proxy Statements.

(h) There are no material contracts outstanding to which Acquiring Fund
is a party, other than as disclosed in the Registration Statement, the
Prospectuses, or the Proxy Statements.

(i) All of the issued and outstanding shares of beneficial interest of
Acquiring Fund have been offered for sale and sold in conformity with
all applicable federal securities laws.

(j) Acquiring Fund is and will at all times through the Exchange Date
qualify for taxation as a "regulated investment company" under Sections
851 and 852 of the Code.

(k) Acquiring Fund has filed or will file all federal and state tax
returns which, to the knowledge of Acquiring Fund's officers, are
required to be filed by Acquiring Fund and has paid or will pay all
federal and state taxes shown to be due on said returns or on any
assessments received by Acquiring Fund. All tax liabilities of Acquiring
Fund have been adequately provided for on its books, and to the
knowledge of Acquiring Fund, no tax deficiency or liability of Acquiring
Fund has been asserted, and no question with respect thereto has been
raised, by the Internal Revenue Service or by any state or local tax
authority for taxes in excess of those already paid. As of the Exchange
Date, Acquiring Fund is not under audit by the Internal Revenue Service
or by any state or local tax authority for taxes in excess of those
already paid.

(l) The issuance of the Merger Shares pursuant to this Agreement will be
in compliance with all applicable federal securities laws.

(m) The Merger Shares to be issued to Acquired Fund have been duly
authorized and, when issued and delivered pursuant to this Agreement,
will be legally and validly issued and will be fully paid and
nonassessable by Acquiring Fund, and no shareholder of Acquiring Fund
will have any preemptive right of subscription or purchase in respect
thereof.

2. Representations and warranties of Acquired Fund. Acquired Fund
represents and warrants to and agrees with Acquiring Fund that:

(a) Acquired Fund is a business trust duly established and validly
existing under the laws of The Commonwealth of Massachusetts, and has
power to own all of its properties and assets and to carry out its
obligations under this Agreement. Acquired Fund is not required to
qualify as a foreign association in any jurisdiction. Acquired Fund has
all necessary federal, state and local authorizations to carry on its
business as now being conducted and to carry out this Agreement.

(b) Acquired Fund is registered under the 1940 Act as a closed-end
management investment company, and such registration has not been
revoked or rescinded and is in full force and effect.

(c) A statement of assets and liabilities, statement of operations,
statement of changes in net assets and schedule of investments
(indicating their market values) of Acquired Fund for the fiscal year
ended February 29, 2004, such statements and schedule having been
audited by KPMG LLP, independent registered public accounting firm, and
an unaudited statement of assets and liabilities, statement of
operations, statement of changes in net assets and schedule of
investments (indicating their market values) of Acquired Fund for the
six months ended August 31, 2004, have been furnished to Acquiring Fund.
Such statements of assets and liabilities and schedules of investments
fairly present the financial position of Acquired Fund as of the dates
thereof and such statements of operations and changes in net assets
fairly reflect the results of its operations and changes in net assets
for the period covered thereby in conformity with U.S. generally
accepted accounting principles.

(d) There are no material legal, administrative or other proceedings
pending or, to the knowledge of Acquired Fund, threatened against Acquired
Fund which assert liability or may, if successfully prosecuted to their
conclusion, result in liability on the part of Acquired Fund, other than as
have been disclosed in the Registration Statement or otherwise disclosed in
writing to Acquiring Fund.

(e) Acquired Fund has no known liabilities of a material nature,
contingent or otherwise, other than those shown as belonging to it on
its statement of assets and liabilities as of February 29, 2004 and those
incurred in the ordinary course of Acquired Fund's business as an
investment company since such date. Prior to the Exchange Date,
Acquired Fund will advise Acquiring Fund of all material liabilities,
contingent or otherwise, incurred by it subsequent to February 29, 2004,
whether or not incurred in the ordinary course of business.

(f) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by Acquired Fund
of the transactions contemplated by this Agreement, except such as may
be required under the 1933 Act, the 1934 Act, the 1940 Act, state
securities or blue sky laws, or the H-S-R Act.

(g) The Registration Statement, the Prospectuses and the Proxy
Statements, on the Effective Date of the Registration Statement and
insofar as they do not relate to Acquiring Fund (i) will comply in all
material respects with the provisions of the 1933 Act, the 1934 Act and
the 1940 Act and the rules and regulations thereunder and (ii) will not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and at the time of the shareholders'
meeting referred to in Section 7(a) below and on the Exchange Date, the
Prospectuses, as amended or supplemented by any amendments or
supplements filed or requested to be filed with the Commission by
Acquiring Fund, will not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided
however, that the representations and warranties in this subsection
shall apply only to statements of fact relating to Acquired Fund
contained in the Registration Statement, the Prospectuses or the Proxy
Statements, or omissions to state in any thereof a material fact
relating to Acquired Fund, as such Registration Statement, Prospectuses
and Proxy Statements shall be furnished to Acquired Fund in definitive
form as soon as practicable following effectiveness of the Registration
Statement and before any public distribution of the Prospectuses or
Proxy Statements.

(h) There are no material contracts outstanding to which Acquired Fund
is a party, other than as will be disclosed in the Prospectuses or the
Proxy Statements.

(i) All of the issued and outstanding shares of beneficial interest of
Acquired Fund have been offered for sale and sold in conformity with all
applicable federal securities laws.

(j) Acquired Fund is and will at all times through the Exchange Date
qualify for taxation as a "regulated investment company" under Sections
851 and 852 of the Code.

(k) Acquired Fund has filed or will file all federal and state tax
returns which, to the knowledge of Acquired Fund's officers, are
required to be filed by Acquired Fund and has paid or will pay all
federal and state taxes shown to be due on said returns or on any
assessments received by Acquired Fund. All tax liabilities of Acquired
Fund have been adequately provided for on its books, and to the
knowledge of Acquired Fund, no tax deficiency or liability of Acquired
Fund has been asserted, and no question with respect thereto has been
raised, by the Internal Revenue Service or by any state or local tax
authority for taxes in excess of those already paid. As of the Exchange
Date, Acquired Fund is not under audit by the Internal Revenue Service
or by any state or local tax authority for taxes in excess of those
already paid.

(l) At both the Valuation Time and the Exchange Date, Acquired Fund will
have full right, power and authority to sell, assign, transfer and
deliver the Investments and any other assets and liabilities of Acquired
Fund to be transferred to Acquiring Fund pursuant to this Agreement. At
the Exchange Date, subject only to the delivery of the Investments and
any such other assets and liabilities as contemplated by this Agreement,
Acquiring Fund will acquire the Investments and any such other assets
and liabilities subject to no encumbrances, liens or security interests
whatsoever and without any restrictions upon the transfer thereof
(except for such restrictions as previously disclosed to Acquiring Fund
by Acquired Fund). As used in this Agreement, the term "Investments"
shall mean Acquired Fund's investments shown on the schedule of its
investments as of February 29, 2004 referred to in Section 2(c) hereof,
as supplemented with such changes as Acquired Fund shall make, and
changes resulting from stock dividends, stock splits, mergers and
similar corporate actions.

(m) No registration under the 1933 Act of any of the Investments would
be required if they were, as of the time of such transfer, the subject
of a public distribution by either of Acquiring Fund or Acquired Fund,
except as previously disclosed to Acquiring Fund by Acquired Fund.

(n) At the Exchange Date, Acquired Fund will have sold such of its
assets, if any, as may be necessary to ensure that, after giving effect
to the acquisition of the assets of Acquired Fund pursuant to this
Agreement, Acquiring Fund will remain in compliance with its investment
restrictions as set forth in the Registration Statement.

3. Reorganization.

(a) Subject to the requisite approval of the shareholders of each of
Acquired Fund and Acquiring Fund and to the other terms and conditions
contained herein (including Acquired Fund's obligation to distribute to
its shareholders all of its net investment income and capital gains as
described in Section 8(l) hereof), Acquired Fund agrees to sell, assign,
convey, transfer and deliver to Acquiring Fund, and Acquiring Fund
agrees to acquire from Acquired Fund, on the Exchange Date all of the
Investments and all of the cash and other properties and assets of
Acquired Fund, whether accrued or contingent (including cash received by
Acquired Fund upon the liquidation by Acquired Fund of any investments
purchased by Acquired Fund after February 29, 2004 and designated by
Acquiring Fund as being unsuitable for it to acquire), in exchange for
that number of Merger Shares provided for in Section 4 and the
assumption by Acquiring Fund of all of the liabilities of Acquired Fund,
whether accrued or contingent, existing at the Valuation Time. Pursuant
to this Agreement, Acquired Fund will, as soon as practicable after the
Exchange Date, distribute all of the Merger Shares received by it to the
shareholders of Acquired Fund, in complete liquidation of Acquired Fund.

(b) As soon as practicable following the requisite approval of the
shareholders of each of Acquired Fund and Acquiring Fund, Acquired Fund
will, at its expense, liquidate such of its portfolio securities as
Acquiring Fund shall indicate it does not wish to acquire. Such
liquidation will be substantially completed prior to the Exchange Date,
unless otherwise agreed by Acquired Fund and Acquiring Fund.

(c) Acquired Fund will pay or cause to be paid to Acquiring Fund any
interest, cash or such dividends, rights and other payments received by
it on or after the Exchange Date with respect to the Investments and
other properties and assets of Acquired Fund, whether accrued or
contingent, received by it on or after the Exchange Date. Any such
distribution shall be deemed included in the assets transferred to
Acquiring Fund at the Exchange Date and shall not be separately valued
unless the securities in respect of which such distribution is made
shall have gone "ex" such distribution prior to the Valuation Time, in
which case any such distribution which remains unpaid at the Exchange
Date shall be included in the determination of the value of the assets
of Acquired Fund acquired by Acquiring Fund.

(d) The Valuation Time shall be 4:00 p.m. Boston time on January 21,
2005 or such earlier or later day as may be mutually agreed upon in
writing by the parties hereto (the "Valuation Time").

4. Exchange date; valuation time.

On the Exchange Date, Acquiring Fund will deliver to Acquired Fund a
number of full and fractional Merger Shares having an aggregate net
asset value equal to the value of assets of Acquired Fund attributable
to shares of Acquired Fund transferred to Acquiring Fund on such date
less the value of the liabilities of Acquired Fund attributable to the
shares of Acquired Fund assumed by Acquiring Fund on that date,
determined as hereafter provided in this Section 4.

(a) The net asset value of the Merger Shares to be delivered to Acquired
Fund, the value of the assets attributable to the shares of Acquired
Fund and the value of the liabilities attributable to the shares of
Acquired Fund to be assumed by Acquiring Fund shall in each case be
determined as of the Valuation Time.

(b) The net asset value of the Merger Shares and the value of the assets
and liabilities of the shares of Acquired Fund shall be determined by
Acquiring Fund, in cooperation with Acquired Fund, pursuant to
procedures customarily used by Acquiring Fund in determining the fair
market value of Acquiring Fund's assets and liabilities.

(c) No adjustment shall be made in the net asset value of either
Acquired Fund or Acquiring Fund to take into account differences in
realized and unrealized gains and losses.

(d) The investment restrictions of Acquired Fund shall be temporarily
amended to the extent necessary to effect the transactions contemplated
by this Agreement.

(e) Acquiring Fund shall issue the Merger Shares to Acquired Fund in a
certificate registered in the name of Acquired Fund. Acquired Fund
shall distribute the Merger Shares to the shareholders of Acquired Fund
by redelivering such certificates to Acquiring Fund's transfer agent,
which will as soon as practicable set up open accounts for each
shareholder of Acquiring Fund in accordance with written instructions
furnished by Acquired Fund. With respect to any Acquired Fund
shareholder holding share certificates as of the Exchange Date,
Acquiring Fund will not permit such shareholder to receive dividends and
other distributions on the Merger Shares (although such dividends and
other distributions shall be credited to the account of such
shareholder), receive certificates representing the Merger Shares or
pledge such Merger Shares until such shareholder has surrendered his or
her outstanding Acquired Fund certificates or, in the event of lost,
stolen or destroyed certificates, posted adequate bond. In the event
that a shareholder shall not be permitted to receive dividends and other
distributions on the Merger Shares as provided in the preceding
sentence, Acquiring Fund shall pay any such dividends or distributions
in additional shares, notwithstanding any election such shareholder
shall have made previously with respect to the payment, in cash or
otherwise, of dividends and distributions on shares of Acquired Fund.
Acquired Fund will, at its expense, request the shareholders of Acquired
Fund to surrender their outstanding Acquired Fund certificates, or post
adequate bond, as the case may be.

(f) Acquiring Fund shall assume all liabilities of Acquired Fund,
whether accrued or contingent, in connection with the acquisition of
assets and subsequent dissolution of Acquired Fund or otherwise.

5. Expenses, fees, etc.

(a) All fees and expenses, including legal and accounting expenses,
portfolio transfer taxes (if any) or other similar expenses incurred in
connection with the consummation by Acquired Fund and Acquiring Fund of the
transactions contemplated by this Agreement (together with the costs
specified below in (i) below, "Expenses") will be allocated ratably between
Acquiring Fund and Acquired Fund in proportion to their net assets as of
the Valuation Time, except that (i) the costs of proxy materials and proxy
solicitation for each fund will be borne by that fund, (ii) the cost of the
SEC registration fee will be borne by Acquiring Fund and (iii) the costs of
liquidating such of Acquired Fund's portfolio securities as Acquiring Fund
shall indicate it does not wish to acquire prior to the Exchange Date shall
be borne by Acquired Fund; provided, however, that the Expenses to be borne
by the Acquired Fund will not exceed $267,888, the Expenses to be borne by the
Acquiring Fund will not exceed $26,887 and the remainder of any Expenses will
be borne by Putnam Investment Management, LLC; and provided further that
such Expenses will in any event be paid by the party directly incurring
such Expenses if and to the extent that the payment by the other party of
such Expenses would result in the disqualification of Acquiring Fund or
Acquired Fund, as the case may be, as a "regulated investment company"
within the meaning of Section 851 of the Code.

(b) In the event the transactions contemplated by this Agreement are not
consummated by reason of Acquiring Fund's being either unwilling or
unable to go forward (other than by reason of the nonfulfillment or
failure of any condition to Acquiring Fund's obligations referred to in
Section 8), or by reason of the nonfulfillment or failure of any
condition to Acquired Fund's obligations referred to in Section 9,
Acquiring Fund shall pay directly all reasonable fees and expenses
incurred by Acquired Fund in connection with such transactions,
including, without limitation, legal, accounting and filing fees.

(c) In the event the transactions contemplated by this Agreement are not
consummated by reason of Acquired Fund's being either unwilling or
unable to go forward (other than by reason of the nonfulfillment or
failure of any condition to Acquired Fund's obligations referred to in
Section 9), or by reason of the nonfulfillment or failure of any
condition to Acquiring Fund's obligations referred to in Section 8,
Acquired Fund shall pay directly all reasonable fees and expenses
incurred by Acquiring Fund in connection with such transactions,
including without limitation legal, accounting and filing fees.

(d) In the event the transactions contemplated by this Agreement are not
consummated for any reason other than (i) Acquiring Fund's or Acquired
Fund's being either unwilling or unable to go forward or (ii) the
nonfulfillment or failure of any condition to Acquiring Fund's or
Acquired Fund's obligations referred to in Section 8 or Section 9 of
this Agreement, then each of Acquiring Fund and Acquired Fund shall bear
all of its own expenses incurred in connection with such transactions.

(e) Notwithstanding any other provisions of this Agreement, if for any
reason the transactions contemplated by this Agreement are not
consummated, no party shall be liable to the other party for any damages
resulting therefrom, including without limitation consequential damages,
except as specifically set forth above.

6. Exchange date.

Delivery of the assets of Acquired Fund to be transferred, assumption of
the liabilities of Acquired Fund to be assumed and the delivery of the
Merger Shares to be issued shall be made at the offices of Ropes & Gray
LLP, One International Place, Boston, Massachusetts, at 10:00 A.M. on
the next full business day following the Valuation Time, or at such
other time and date agreed to by Acquiring Fund and Acquired Fund, the
date and time upon which such delivery is to take place being referred
to herein as the "Exchange Date."

7. Meeting of shareholders; dissolution.

(a) Each of Acquired Fund and Acquiring Fund agrees to call a meeting of
its shareholders as soon as is practicable after the effective date of
the Registration Statement for, among other things, the purpose of
considering the matters contemplated by this Agreement.

(b) Acquired Fund agrees that the liquidation and dissolution of
Acquired Fund will be effected in the manner provided in the Agreement
and Declaration of Trust of Acquired Fund in accordance with applicable
law and that on and after the Exchange Date, Acquired Fund shall not
conduct any business except in connection with its liquidation and
dissolution.

(c) Acquiring Fund has, after the preparation and delivery to Acquiring
Fund by Acquired Fund of a preliminary version of the Proxy Statement
which was satisfactory to Acquiring Fund and to Ropes & Gray LLP for
inclusion in the Registration Statement, filed the Registration
Statement with the Commission. Each of Acquired Fund and Acquiring Fund
will cooperate with the other, and each will furnish to the other the
information relating to itself required by the 1933 Act, the 1934 Act
and the 1940 Act and the rules and regulations thereunder set forth in
the Registration Statement, including the Prospectuses and the Proxy
Statements.

8. Conditions to Acquiring Fund's obligations. The obligations of
Acquiring Fund hereunder shall be subject to the following conditions:

(a) That this Agreement shall have been adopted and the transactions
contemplated hereby shall have been approved by the affirmative vote of
(i) at least three-fourths of the total number of Trustees then in
office and by at least three-fourths of the total number of Continuing
Trustees (a "Continuing Trustee" being a Trustee (1) who is not a person
or an affiliate of such a person who enters or proposes to enter into
any transaction (e.g., a merger or consolidation) with the Trust and (2)
who has been a Trustee for a period of at least twelve months) then in
office of Acquired Fund (including a majority of those Trustees who are
not "interested persons" of Acquired Fund, as defined in Section
2(a)(19) of the 1940 Act); (ii) holders of the lesser of (1) more than
50% of the outstanding shares of Acquired Fund or (2) 67% or more of the
shares present at a meeting if more than 50% of the outstanding shares
of Acquired Fund are represented at the meeting in person or by proxy;
(iii) holders of a majority of the outstanding shares of Acquiring Fund
voted, if holders of more than 50% of such shares are represented at the
meeting in person or by proxy; and (iv) a majority of the Trustees of
Acquiring Fund (including a majority of those Trustees who are not
"interested persons" of Acquiring Fund, as defined in Section 2(a)(19)
of the 1940 Act).

(b) That Acquired Fund shall have furnished to Acquiring Fund a
statement of Acquired Fund's net assets, with values determined as
provided in Section 4 of this Agreement, together with a list of
Investments with their respective tax costs, all as of the Valuation
Time, certified on Acquired Fund's behalf by Acquired Fund's President
(or any Vice President) and Treasurer (or any Assistant Treasurer) and a
certificate of both such officers, dated the Exchange Date, to the
effect that as of the Valuation Time and as of the Effective Date there
has been no material adverse change in the financial position of
Acquired Fund since February 29, 2004 other than changes in the
Investments and other assets and properties since that date or changes
in the market value of the Investments and other assets of Acquired Fund
or changes due to dividends paid or losses from operations.

(c) That Acquired Fund shall have furnished to Acquiring Fund a
statement, dated the Exchange Date, signed on behalf of Acquired Fund by
Acquired Fund's President (or any Vice President) and Treasurer (or any
Assistant Treasurer) certifying that as of the Valuation Time and as of
the Exchange Date all representations and warranties of Acquired Fund
made in this Agreement are true and correct in all material respects as
if made at and as of such dates, and that Acquired Fund has complied
with all of the agreements and satisfied all of the conditions on its
part to be performed or satisfied at or prior to each of such dates.

(d) That Acquired Fund shall have delivered to Acquiring Fund an agreed
upon procedures letter from KPMG LLP dated the Exchange Date, setting
forth findings of KPMG LLP pursuant to its performance of the agreed
upon procedures set forth therein relating to management's assertions
that (i) for the taxable period from March 1, 2004 to the Exchange
Date Acquired Fund qualified as a regulated investment company under the
Code, (ii) as of the Exchange Date, has no liability other than
liabilities stated for federal or state income taxes and (iii) as of the
Exchange Date, has no liability for federal excise tax purposes under
section 4982 of the Code.

(e) That there shall not be any material litigation pending with respect
to the matters contemplated by this Agreement.

(f) That Acquiring Fund shall have received an opinion of Ropes & Gray
LLP, in form satisfactory to Acquiring Fund and dated the Exchange Date,
to the effect that (i) Acquired Fund is a business trust duly
established and validly existing under the laws of The Commonwealth of
Massachusetts, and, to the knowledge of such counsel, is not required to
qualify to do business as a foreign association in any jurisdiction
except as may be required by state securities or blue sky laws, (ii)
this Agreement has been duly authorized, executed, and delivered by
Acquired Fund and, assuming that the Registration Statement, the
Prospectuses and the Proxy Statements comply with the 1933 Act, the 1934
Act and the 1940 Act and assuming due authorization, execution and
delivery of this Agreement by Acquiring Fund, is a valid and binding
obligation of Acquired Fund, (iii) Acquired Fund has power to sell,
assign, convey, transfer and deliver the assets contemplated hereby and,
upon consummation of the transactions contemplated hereby in accordance
with the terms of this Agreement, Acquired Fund will have duly sold,
assigned, conveyed, transferred and delivered such assets to Acquiring
Fund, (iv) the execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, violate
Acquired Fund's Agreement and Declaration of Trust or Bylaws or any
provision of any agreement known to such counsel to which Acquired Fund is
a party or by which it is bound, it being understood that with respect to
investment restrictions as contained in Acquired Fund's Agreement and
Declaration of Trust, Bylaws, then-current prospectus or statement of
additional information or the Registration Statement, such counsel may rely
upon a certificate of an officer of Acquired Fund's whose responsibility it
is to advise Acquired Fund with respect to such matters, (v) no consent,
approval, authorization or order of any court or governmental authority is
required for the consummation by Acquired Fund of the transactions
contemplated hereby, except such as have been obtained under the 1933 Act,
the 1934 Act, the 1940 Act and such as may be required under state
securities or blue sky laws and the H-S-R Act and (vi) such other matters
as Acquiring Fund may reasonably deem necessary or desirable.

(g) That Acquiring Fund shall have received an opinion of Ropes & Gray LLP
dated the Exchange Date (which opinion would be based upon certain factual
representations and subject to certain qualifications), to the effect that,
on the basis of the existing provisions of the Code, current administrative
rules and court decisions, for federal income tax purposes: (i) the
acquisition by Acquiring Fund of substantially all of the assets of
Acquired Fund solely in exchange for Merger Shares and the assumption by
Acquiring Fund of liabilities of Acquired Fund followed by the distribution
of Acquired Fund to its shareholders of Merger Shares in complete
liquidation of Acquired Fund, all pursuant to the plan of reorganization,
constitutes a reorganization within the meaning of Section 368(a) of the
Code and Acquired Fund and Acquiring Fund will each be a "party to a
reorganization" within the meaning of Section 368(b) of the Code, (ii) no
gain or loss will be recognized by Acquiring Fund or its shareholders upon
receipt of the Investments transferred to Acquiring Fund pursuant to this
Agreement in exchange for the Merger Shares, (iii) the basis to Acquiring
Fund of the Investments will be the same as the basis of the Investments in
the hands of Acquired Fund immediately prior to such exchange (iv)
Acquiring Fund's holding periods with respect to the Investments will
include the respective periods for which the Investments were held by
Acquired Fund and (v) Acquiring Fund will succeed to and take into account
the items of Acquired Fund described in Section 381(c) of the Code, subject
to the conditions and limitations specified in Sections 381, 382, 383 and
384 of the Code and Regulations thereunder; however, Ropes & Gray LLP will
express no view with respect to the effect of the reorganization on any
transferred asset as to which any unrealized gain or loss is required to be
recognized at the end of a taxable year (or on the termination or transfer
thereof) under federal income tax principles.

(h) That the assets of Acquired Fund to be acquired by Acquiring Fund
will include no assets which Acquiring Fund, by reason of charter
limitations or of investment restrictions disclosed in the Registration
Statement in effect on the Exchange Date, may not properly acquire.

(i) That the Registration Statement shall have become effective under
the 1933 Act, and no stop order suspending such effectiveness shall have
been instituted or, to the knowledge of Acquiring Fund, threatened by
the Commission.

(j) That Acquiring Fund shall have received from the Commission, any
relevant state securities administrator, the Federal Trade Commission
(the "FTC") and the Department of Justice (the "Department") such order
or orders as Ropes & Gray LLP deems reasonably necessary or desirable
under the 1933 Act, the 1934 Act, the 1940 Act, any applicable state
securities or blue sky laws and the H-S-R Act in connection with the
transactions contemplated hereby, and that all such orders shall be in
full force and effect.

(k) That all proceedings taken by Acquired Fund in connection with the
transactions contemplated by this Agreement and all documents incidental
thereto shall be satisfactory in form and substance to Acquiring Fund
and Ropes & Gray LLP.

(l) That, prior to the Exchange Date, Acquired Fund shall have declared
a dividend or dividends which, together with all previous such
dividends, shall have the effect of distributing to the shareholders of
Acquired Fund (i) all of the excess of (X) Acquired Fund's investment
income excludable from gross income under Section 103 of the Code over
(Y) Acquired Fund's deductions disallowed under Sections 265 and 171 of
the Code, (ii) all of Acquired Fund's investment company taxable income
(as defined in Section 852 of the Code) for its taxable years ending on
or after February 29, 2004, and on or prior to the Exchange Date
(computed in each case without regard to any deduction for dividends
paid), and (iii) all of its net capital gain realized after reduction by
any capital loss carryover in each of its taxable years ending on or
after February 29, 2004, and on or prior to the Exchange Date.

(m) That Acquired Fund's custodian shall have delivered to Acquiring
Fund a certificate identifying all of the assets of Acquired Fund held
by such custodian as of the Valuation Time.

(n) That Acquired Fund's transfer agent shall have provided to Acquiring
Fund (i) the originals or true copies of all of the records of Acquired
Fund in the possession of such transfer agent as of the Exchange Date,
(ii) a certificate setting forth the number of shares of Acquired Fund
outstanding as of the Valuation Time, and (iii) the name and address of
each holder of record of any such shares and the number of shares held
of record by each such shareholder.

(o) That all of the issued and outstanding shares of beneficial interest
of Acquired Fund shall have been offered for sale and sold in conformity
with all applicable state securities or blue sky laws and, to the extent
that any audit of the records of Acquired Fund or its transfer agent by
Acquiring Fund or its agents shall have revealed otherwise, either (i)
Acquired Fund shall have taken all actions that in the opinion of
Acquiring Fund or its counsel are necessary to remedy any prior failure
on the part of Acquired Fund to have offered for sale and sold such
shares in conformity with such laws or (ii) Acquired Fund shall have
furnished (or caused to be furnished) surety, or deposited (or caused to
be deposited) assets in escrow, for the benefit of Acquiring Fund in
amounts sufficient and upon terms satisfactory, in the opinion of
Acquiring Fund or its counsel, to indemnify Acquiring Fund against any
expense, loss, claim, damage or liability whatsoever that may be
asserted or threatened by reason of such failure on the part of Acquired
Fund to have offered and sold such shares in conformity with such laws.

(p) That Acquiring Fund shall have received from KPMG LLP an agreed upon
procedures letter addressed to Acquiring Fund dated as of the Exchange
Date satisfactory in form and substance to Acquiring Fund setting forth
the findings of KPMG LLP pursuant to its performance of the agreed upon
procedures set forth therein relating to management's assertion that as
of the Valuation Time the value of the assets of Acquired Fund to be
exchanged for the Merger Shares has been determined in accordance with
the provisions of Article 10, Section 5 of Acquiring Fund's Bylaws
pursuant to the procedures customarily utilized by Acquiring Fund in
valuing its assets and issuing its shares.

(q) That Acquired Fund shall have executed and delivered to Acquiring
Fund an instrument of transfer dated as of the Exchange Date pursuant to
which Acquired Fund will assign, transfer and convey all of the assets
and other property to Acquiring Fund at the Valuation Time in connection
with the transactions contemplated by this Agreement.

(r) That the Merger Shares shall have been approved for listing by the
New York Stock Exchange.

9. Conditions to Acquired Fund's obligations. The obligations of
Acquired Fund hereunder shall be subject to the following conditions:

(b) That Acquiring Fund shall have furnished to Acquired Fund a
statement of Acquiring Fund's net assets, together with a list of
portfolio holdings with values determined as provided in Section 4 of
this Agreement, all as of the Valuation Time, certified on behalf of
Acquiring Fund by Acquiring Fund's President (or any Vice President) and
Treasurer (or any Assistant Treasurer) and a certificate of both such
officers, dated the Exchange Date, to the effect that as of the
Valuation Time and as of the Exchange Date there has been no material
adverse change in the financial position of Acquiring Fund since August 31,
2004, other than changes in its portfolio securities since that date,
changes in the market value of its portfolio securities or changes due to
dividends paid or losses from operations.

(c) That Acquiring Fund shall have executed and delivered to Acquired
Fund an Assumption of Liabilities dated as of the Exchange Date pursuant
to which Acquiring Fund will assume all of the liabilities of Acquired
Fund existing at the Valuation Time in connection with the transactions
contemplated by this Agreement.

(d) That Acquiring Fund shall have furnished to Acquired Fund a
statement, dated the Exchange Date, signed on behalf of Acquiring Fund
by Acquiring Fund's President (or any Vice President) and Treasurer (or
any Assistant Treasurer) certifying that as of the Valuation Time and as
of the Exchange Date all representations and warranties of Acquiring
Fund made in this Agreement are true and correct in all material
respects as if made at and as of such dates, and that Acquiring Fund has
complied with all of the agreements and satisfied all of the conditions
on its part to be performed or satisfied at or prior to each of such
dates.

(e) That there shall not be any material litigation pending or
threatened with respect to the matters contemplated by this Agreement.

(f) That Acquired Fund shall have received an opinion of Ropes & Gray
LLP, in form satisfactory to Acquired Fund and dated the Exchange Date,
to the effect that (i) Acquiring Fund is a business trust duly
established and validly existing in conformity with the laws of The
Commonwealth of Massachusetts, and, to the knowledge of such counsel, is
not required to qualify to do business as a foreign association in any
jurisdiction except as may be required by state securities or blue sky
laws, (ii) this Agreement has been duly authorized, executed and
delivered by Acquiring Fund and, assuming that the Prospectuses, the
Registration Statement and the Proxy Statements comply with the 1933
Act, the 1934 Act and the 1940 Act and assuming due authorization,
execution and delivery of this Agreement by Acquired Fund, is a valid
and binding obligation of Acquiring Fund, (iii) the Merger Shares to be
delivered to Acquired Fund as provided for by this Agreement are duly
authorized and upon such delivery will be validly issued and will be
fully paid and nonassessable by Acquiring Fund and no shareholder of
Acquiring Fund has any preemptive right to subscription or purchase in
respect thereof, (iv) the execution and delivery of this Agreement did
not, and the consummation of the transactions contemplated hereby will
not, violate Acquiring Fund's Agreement and Declaration of Trust, as
amended, or Bylaws, or any provision of any agreement known to such
counsel to which Acquiring Fund is a party or by which it is bound, it
being understood that with respect to investment restrictions as
contained in Acquiring Fund's Agreement and Declaration of Trust, as
amended, Bylaws or the Registration Statement, such counsel may rely
upon a certificate of an officer of Acquiring Fund whose responsibility
it is to advise Acquiring Fund with respect to such matters, (v) no
consent, approval, authorization or order of any court or governmental
authority is required for the consummation by Acquiring Fund of the
transactions contemplated herein, except such as have been obtained
under the 1933 Act, the 1934 Act, and the 1940 Act and such as may be
required under state securities or blue sky laws and the H-S-R Act and
(vi) the Registration Statement has become effective under the 1933 Act,
and to the best of the knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement has been
issued and no proceedings for that purpose have been instituted or are
pending or contemplated under the 1933 Act.

(g) That Acquired Fund shall have received an opinion of Ropes & Gray
LLP dated the Exchange Date (which opinion would be based upon certain
factual representations and subject to certain qualifications), to the
effect that, on the basis of the existing provisions of the Code,
current administrative rules and court decisions, subject to the
qualification below, for federal income tax purposes: (i) the acquisition
by Acquiring Fund of substantially all of the assets of Acquired Fund
solely in exchange for Merger Shares and the assumption by Acquiring Fund
of liabilities of Acquired Fund followed by the distribution of Acquired
Fund to its shareholders of Merger Shares in complete liquidation of
Acquired Fund, all pursuant to the plan of reorganization, constitutes a
reorganization within the meaning of Section 368(a) of the Code and
Acquired Fund and Acquiring Fund will each be a "party to a reorganization"
within the meaning of Section 368(b) of the Code, (ii) no gain or loss will
be recognized by Acquired Fund upon the transfer of the Investments to
Acquiring Fund and the assumption by Acquiring Fund of the liabilities of
Acquired Fund, or upon the distribution of the Merger Shares by Acquired
Fund to its shareholders, pursuant to this Agreement, (iii) no gain or loss
will be recognized by Acquired Fund shareholders on the exchange of
their shares of Acquired Fund for Merger Shares, (iv) the aggregate
basis of the Merger Shares an Acquired Fund shareholder receives in
connection with the transaction will be the same as the aggregate basis of
his or her Acquired Fund shares exchanged therefor and (v) an Acquired Fund
shareholder's holding period for his or her Merger Shares will be
determined by including the period for which he or she held Acquired Fund
shares exchanged therefor, provided that the shareholder held Acquired
Fund's shares as a capital asset; however, Ropes & Gray LLP will
express no view with respect to the effect of the reorganization on any
transferred asset as to which any unrealized gain or loss is required to
be recognized at the end of a taxable year (or on the termination or
transfer thereof) under federal income tax principles.

(h) That all proceedings taken by or on behalf of Acquiring Fund in
connection with the transactions contemplated by this Agreement and all
documents incidental thereto shall be satisfactory in form and substance
to Acquired Fund and Ropes & Gray LLP.

(j) That Acquired Fund shall have received from the Commission, any
relevant state securities administrator, the FTC and the Department such
order or orders as Ropes & Gray LLP deems reasonably necessary or
desirable under the 1933 Act, the 1934 Act, the 1940 Act, any applicable
state securities or blue sky laws and the H-S-R Act in connection with
the transactions contemplated hereby, and that all such orders shall be
in full force and effect.

(k) That the Merger Shares shall have been approved for listing by the
New York Stock Exchange.

10. Indemnification.

(a) Acquired Fund will indemnify and hold harmless, out of the assets of
Acquired Fund but no other assets, Acquiring Fund, its trustees and its
officers (for purposes of this subparagraph, the "Indemnified Parties")
against any and all expenses, losses, claims, damages and liabilities at
any time imposed upon or reasonably incurred by any one or more of the
Indemnified Parties in connection with, arising out of, or resulting
from any claim, action, suit or proceeding in which any one or more of
the Indemnified Parties may be involved or with which any one or more of
the Indemnified Parties may be threatened by reason of any untrue
statement or alleged untrue statement of a material fact relating to
Acquired Fund contained in the Registration Statement, the Prospectuses,
the Proxy Statements or any amendment or supplement to any of the
foregoing, or arising out of or based upon the omission or alleged
omission to state in any of the foregoing a material fact relating to
Acquired Fund required to be stated therein or necessary to make the
statements relating to Acquired Fund therein not misleading, including,
without limitation, any amounts paid by any one or more of the
Indemnified Parties in a reasonable compromise or settlement of any such
claim, action, suit or proceeding, or threatened claim, action, suit or
proceeding made with the consent of Acquired Fund. The Indemnified
Parties will notify Acquired Fund in writing within ten days after the
receipt by any one or more of the Indemnified Parties of any notice of
legal process or any suit brought against or claim made against such
Indemnified Party as to any matters covered by this Section 10(a).
Acquired Fund shall be entitled to participate at its own expense in the
defense of any claim, action, suit or proceeding covered by this Section
10(a), or, if it so elects, to assume at its expense by counsel
satisfactory to the Indemnified Parties the defense of any such claim,
action, suit or proceeding, and if Acquired Fund elects to assume such
defense, the Indemnified Parties shall be entitled to participate in the
defense of any such claim, action, suit or proceeding at their expense.
Acquired Fund's obligation under this Section 10(a) to indemnify and
hold harmless the Indemnified Parties shall constitute a guarantee of
payment so that Acquired Fund will pay in the first instance any
expenses, losses, claims, damages and liabilities required to be paid by
it under this Section 10(a) without the necessity of the Indemnified
Parties' first paying the same.

(b) Acquiring Fund will indemnify and hold harmless, out of the assets
of Acquiring Fund but no other assets, Acquired Fund, its trustees and
its officers (for purposes of this subparagraph, the "Indemnified
Parties") against any and all expenses, losses, claims, damages and
liabilities at any time imposed upon or reasonably incurred by any one
or more of the Indemnified Parties in connection with, arising out of,
or resulting from any claim, action, suit or proceeding in which any one
or more of the Indemnified Parties may be involved or with which any one
or more of the Indemnified Parties may be threatened by reason of any
untrue statement or alleged untrue statement of a material fact relating
to Acquiring Fund contained in the Registration Statement, the
Prospectuses, the Proxy Statements, or any amendment or supplement to
any thereof, or arising out of, or based upon, the omission or alleged
omission to state in any of the foregoing a material fact relating to
Acquiring Fund required to be stated therein or necessary to make the
statements relating to Acquiring Fund therein not misleading, including
without limitation any amounts paid by any one or more of the
Indemnified Parties in a reasonable compromise or settlement of any such
claim, action, suit or proceeding, or threatened claim, action, suit or
proceeding made with the consent of Acquiring Fund. The Indemnified
Parties will notify Acquiring Fund in writing within ten days after the
receipt by any one or more of the Indemnified Parties of any notice of
legal process or any suit brought against or claim made against such
Indemnified Party as to any matters covered by this Section 10(b).
Acquiring Fund shall be entitled to participate at its own expense in
the defense of any claim, action, suit or proceeding covered by this
Section 10(b), or, if it so elects, to assume at its expense by counsel
satisfactory to the Indemnified Parties the defense of any such claim,
action, suit or proceeding, and, if Acquiring Fund elects to assume such
defense, the Indemnified Parties shall be entitled to participate in the
defense of any such claim, action, suit or proceeding at their own
expense. Acquiring Fund's obligation under this Section 10(b) to
indemnify and hold harmless the Indemnified Parties shall constitute a
guarantee of payment so that Acquiring Fund will pay in the first
instance any expenses, losses, claims, damages and liabilities required
to be paid by it under this Section 10(b) without the necessity of the
Indemnified Parties' first paying the same.

11. No broker, etc.

Each of Acquired Fund and Acquiring Fund represents that there is no
person who has dealt with it who by reason of such dealings is entitled
to any broker's or finder's or other similar fee or commission arising
out of the transactions contemplated by this Agreement.

12. Termination.

Acquired Fund and Acquiring Fund may, by mutual consent of their
trustees, terminate this Agreement, and Acquired Fund or Acquiring Fund,
after consultation with counsel and by consent of their trustees or an
officer authorized by such trustees, may waive any condition to their
respective obligations hereunder. If the transactions contemplated by
this Agreement have not been substantially completed by December 31,
2005, this Agreement shall automatically terminate on that date unless a
later date is agreed to by Acquired Fund and Acquiring Fund.

13. Rule 145.

Pursuant to Rule 145 under the 1933 Act, Acquiring Fund will, in
connection with the issuance of any Merger Shares to any person who at
the time of the transaction contemplated hereby is deemed to be an
affiliate of a party to the transaction pursuant to Rule 145(c), cause
to be affixed upon the certificates issued to such person (if any) a
legend as follows:

"THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT TO
PUTNAM HIGH INCOME BOND FUND OR ITS PRINCIPAL UNDERWRITER UNLESS (I) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (II) IN THE OPINION OF COUNSEL
REASONABLY SATISFACTORY TO PUTNAM HIGH INCOME BOND FUND SUCH
REGISTRATION IS NOT REQUIRED."

and, further, Acquiring Fund will issue stop transfer instructions to
Acquiring Fund's transfer agent with respect to such shares. Acquired
Fund will provide Acquiring Fund on the Exchange Date with the name of
any Acquired Fund shareholder who is to the knowledge of Acquired Fund
an affiliate of Acquired Fund on such date.

14. Covenants, etc. deemed material.

All covenants, agreements, representations and warranties made under
this Agreement and any certificates delivered pursuant to this Agreement
shall be deemed to have been material and relied upon by each of the
parties, notwithstanding any investigation made by them or on their
behalf.

15. Sole agreement; amendments.

This Agreement supersedes all previous correspondence and oral
communications between the parties regarding the subject matter hereof,
constitutes the only understanding with respect to such subject matter,
may not be changed except by a letter of agreement signed by each party
hereto, and shall be construed in accordance with and governed by the
laws of The Commonwealth of Massachusetts.

16. Agreement and declaration of trust.

Copies of the Agreements and Declarations of Trust of Acquired Fund and
Acquiring Fund are on file with the Secretary of The Commonwealth of
Massachusetts, and notice is hereby given that this instrument is
executed by an officer of each Trust, respectively, as officer and not
individually and that the obligations of this instrument are not binding
upon any of the Trustees, officers or shareholders of Acquired Fund or
Acquiring Fund individually but are binding only upon the assets and
property of Acquired Fund and Acquiring Fund, respectively.

This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original.

PUTNAM HIGH INCOME BOND FUND

By: /S/ Charles E. Porter
__________________________
Executive Vice President

PUTNAM HIGH INCOME OPPORTUNITIES TRUST

By: /S/ Charles E. Porter
__________________________
Executive Vice President

PUTNAM INVESTMENT MANAGEMENT, LLC

By: /S/ James P. Pappas
__________________________
Managing Director

For more information about
High Income Bond Fund and High Income Opportunities Trust

High Income Bond Fund's statement of additional information (SAI) and
the funds' annual and semi-annual reports to shareholders include
additional information about the funds. The SAI is incorporated by
reference into this prospectus/proxy statement, which means it is part
of this prospectus/proxy statement for legal purposes. The funds'
annual and semi-annual reports discuss the market conditions and
investment strategies that significantly affected the fund's performance
during the relevant period. Shareholders of the funds may get free
copies of these materials, request other information about the funds, or
make shareholder inquiries, by contacting their financial advisor, by
visiting Putnam's Internet site, or by calling Putnam toll-free at
1-800-225-1581.

TABLE OF CONTENTS

I. Synopsis 10
II. Risk Factors 20
III. Information about the Proposed Merger 27
IV. Information about the Funds 36
V. Information about Voting and the Shareholder Meeting 55
Appendix A--Agreement and Plan of Reorganization A-1

[Putnam Scales Logo]

The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
Toll-free 1-800-225-1581

PUTNAM INVESTMENTS

P.O. BOX 9132
HINGHAM, MA 02043-9132

Your vote is important. For your convenience, you can vote your Proxy
in any of these three ways:

1
TELEPHONE

Call us toll-free at
1-888-221-0697

* Enter the 14-digit control number printed on your proxy card.

* Follow the automated telephone directions.

* There is no need for you to return your proxy card.

2
INTERNET

Go to
https://www.proxyweb.com/Putnam

* Enter the 14-digit control number printed on your proxy card.

* Follow the instructions on the site.

* There is no need for you to return your proxy card. 3

MAIL

Mail in the proxy card attached below:

* Please sign and date your proxy card.

* Detach the card from this proxy form.

* Return the card in the postage-paid envelope provided.

PLEASE FOLD AND DETACH CARD AT PERFORATION BEFORE MAILING

This is your PROXY CARD.

To vote by mail, please record your voting instructions on this card,
sign it below, and return it promptly in the envelope provided. Your
vote is important.

This proxy is solicited on behalf of the Trustees of the Fund.

Proxy for a meeting of shareholders to be held on January 13, 2005, for
Putnam High Income Bond Fund.

The undersigned shareholder hereby appoints John A. Hill and Robert E.
Patterson, and each of them separately, Proxies, with power of
substitution, and hereby authorizes them to represent such shareholder
and to vote, as designated on the reverse side, at the meeting of
shareholders of Putnam High Income Bond Fund on [ ] at 11:00 a.m.,
Boston time, and at any adjournments thereof, all of the shares of the
fund that the undersigned shareholder would be entitled to vote if
personally present.

PLEASE BE SURE TO SIGN AND DATE THIS PROXY.

------------------------ -----------------
Shareholder/Co-owner sign(s) here Date

Please sign your name exactly as it appears on this card. If you are a
joint owner, each owner should sign, When signing as executor,
administrator, attorney, trustee, or guardian, or as custodian for a
minor, please give your full title as such. If you are signing for a
corporation, please sign the full corporate name and indicate the
signer's office. If you are a partner, sign in the partnership name.

Has your address changed?

Please use this form to notify us of any change in address or telephone
number or to provide us with your comments. Detach this form from the proxy
card and return it with your signed card in the enclosed envelope.

Name
--------------------------------------------------------
Street
-----------------------------------------------------------
City State Zip
----------------------------- -------------- -----
Telephone
----------------------------

Do you have any comments?

------------------------------------------------------------------------

PLEASE FOLD AND DETACH CARD AT PERFORATION BEFORE MAILING

DEAR SHAREHOLDER:

Your vote is important. Please help us to eliminate the expense of
follow-up mailings by recording your voting instructions via the
Internet or Automated Telephone or by signing and returning this proxy
card. A postage-paid envelope is enclosed for your convenience.

Thank you!

If you complete and sign the proxy, we'll vote it exactly as you tell
us. The Proxies are authorized to vote in their discretion upon any
matters as may properly come before the meeting or any adjournments of
the meeting. If you simply sign the proxy, or fail to provide your
voting instructions on the proposal, the Proxies will vote in the same
manner as the Trustees recommend.

Please vote by filling in the appropriate box below.

THE TRUSTEES RECOMMEND A VOTE FOR PROPOSAL 1.

FOR AGAINST ABSTAIN

[ ] [ ] [ ]

1. Approval of an Agreement and Plan of Reorganization and the transactions
contemplated thereby, including the transfer of all of the assets of Putnam
High Income Opportunities Trust to Putnam High Income Bond Fund in exchange
for the issuance and delivery of shares of beneficial interest of Putnam
High Income Bond Fund and the assumption by Putnam High Income Bond Fund of
the liabilities of Putnam High Income Opportunities Trust, and the
distribution of such shares to the shareholders of Putnam High Income
Opportunities Trust in complete liquidation of Putnam High Income
Opportunities Trust.

Note: If you have any questions on the proposal, please call 1-800-225-1581

PLEASE SIGN AND DATE ON THE REVERSE SIDE.

PUTNAM INVESTMENTS

P.O. BOX 9132
HINGHAM, MA 02043-9132

Your vote is important. For your convenience, you can vote your Proxy
in any of these three ways:

1
TELEPHONE

Call us toll-free at
1-888-221-0697

* Enter the 14-digit control number printed on your proxy card.

* Follow the automated telephone directions.

* There is no need for you to return your proxy card.

2
INTERNET

Go to
https://www.proxyweb.com/Putnam

* Enter the 14-digit control number printed on your proxy card.

* Follow the instructions on the site.

* There is no need for you to return your proxy card. 3

MAIL

Mail in the proxy card attached below:

* Please sign and date your proxy card.

* Detach the card from this proxy form.

* Return the card in the postage-paid envelope provided.

PLEASE FOLD AND DETACH CARD AT PERFORATION BEFORE MAILING

This is your PROXY CARD.

To vote by mail, please record your voting instructions on this card,
sign it below, and return it promptly in the envelope provided. Your
vote is important.

This proxy is solicited on behalf of the Trustees of the Fund.

Proxy for a meeting of shareholders to be held on January 13, 2005, for
Putnam High Income Opportunities Trust.

The undersigned shareholder hereby appoints John A. Hill and Robert E.
Patterson, and each of them separately, Proxies, with power of
substitution, and hereby authorizes them to represent such shareholder
and to vote, as designated on the reverse side, at the meeting of
shareholders of Putnam High Income Opportunities Trust on [ ] at 11:00
a.m., Boston time, and at any adjournments thereof, all of the shares of
the fund that the undersigned shareholder would be entitled to vote if
personally present.

PLEASE BE SURE TO SIGN AND DATE THIS PROXY.

------------------------ -----------------
Shareholder/Co-owner sign(s) here Date

Has your address changed?

Do you have any comments?

------------------------------------------------------------------------

PLEASE FOLD AND DETACH CARD AT PERFORATION BEFORE MAILING

DEAR SHAREHOLDER:

Thank you!

Please vote by filling in the appropriate box below.

THE TRUSTEES RECOMMEND A VOTE FOR PROPOSAL 1.

FOR AGAINST ABSTAIN

[ ] [ ] [ ]

Note: If you have any questions on the proposal, please call 1-800-225-1581

PLEASE SIGN AND DATE ON THE REVERSE SIDE.

PUTNAM HIGH INCOME BOND FUND

FORM N-14
PART B

STATEMENT OF ADDITIONAL INFORMATION

November 17, 2004

This Statement of Additional Information ("SAI") contains material that may
be of interest to investors but that is not included in the Prospectus/Proxy
Statement (the "Prospectus") of Putnam High Income Bond Fund ("High Income
Bond Fund") dated November 17 relating to the sale of all or substantially
all of the assets of Putnam High Income Opportunities Trust ("High Income
Opportunities Trust" and, together with High Income Bond Fund, the "funds")
to High Income Bond Fund. This SAI is not a Prospectus and is authorized for
distribution only when it accompanies or follows delivery of the Prospectus.
This SAI should be read in conjunction with the Prospectus. Investors may
obtain a free copy of the Prospectus by writing Putnam Investor Services, One
Post Office Square, Boston, MA 02109 or by calling 1-800-225-1581.

CHARGES AND EXPENSES...................................................3
MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS..............9
TAXES.................................................................41
MANAGEMENT............................................................47
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
AND FINANCIAL STATEMENTS............................................. 63
APPENDIX A............................................................97

CHARGES AND EXPENSES

Management fees

Under a Management Contract dated as of July 11, 1991, High Income Bond
Fund pays a quarterly fee to Putnam Management based on the average net
assets of the fund, as determined at the close of each business day during
the quarter. Such fee is based on the annual rate of 0.75% of the first
$500 million of average weekly net assets, 0.65% of the next $500 million,
0.60% of the next $500 million and 0.55% of any excess over $1.5 billion
of such average net asset value.

Under a Management Contract dated as of May 5, 1995, High Income
Opportunities Trust pays a quarterly fee to Putnam Management based on the
average net assets of the fund, as determined at the close of each business
day during the quarter. Such fee is based on the annual rate of 1.10% of
average weekly net assets.

For the past three fiscal years, pursuant to its management contract,
each fund incurred the following fees:

Amount
management fee
Amount of would have been
Fiscal Management management without expense
Fund Name Year fee paid fee waived limitation

HIGH INCOME BOND 2004 $859,774 $1,782 $861,556
FUND 2003 $728,049 -- $728,049
2002 $719,134 -- $719,134

HIGH INCOME 2004 $757,094 -- $757,094
OPPORTUNITIES 2003 $671,383 -- $671,383
TRUST 2002 $752,422 -- $752,422

* Expense limitation. The fund invests a portion of its assets in Putnam
Prime Money Market Fund. In connection with such investments, management
fees paid by the fund are reduced by an amount equal to the management
fees paid by Putnam Prime Money Market Fund with respect to assets
invested by the fund in Putnam Prime Money Market Fund. Net management
fees paid for fiscal 2004 reflect the waiver of $44,468 in management
fees otherwise payable by the fund to Putnam Management in respect of
such investments.

Pursuant to the terms of a sub-management agreement between Putnam
Management and Putnam Investments Limited ("PIL"), Putnam Managment (and
not the fund) pays a quarterly sub-management fee to PIL for its
services at the annual rate of 0.40% of the average aggregate net asset
value of the portion of the fund, if any, managed by PIL from time to
time.

Brokerage commissions

The following table shows brokerage commissions paid during the fiscal
periods indicated:

Fiscal Brokerage
Fund name year commissions

HIGH INCOME BOND FUND 2004 $123,554
2003 $13,900
2002 $12,156

HIGH INCOME OPPORTUNITIES TRUST 2004 $15,431
2003 $47,530
2002 $41,893

The brokerage commissions for High Income Bond Fund's most recent fiscal
year were higher than the brokerage commissions for the fund's previous
two fiscal years due to increases in agency-basis trading volume. The
brokerage commissions for High Income Opportunities Trust's most recent
fiscal year were lower than the brokerage commissions for the fund's
2002 and 2003 fiscal years due to a decrease in trading volume.

The following table shows transactions placed with brokers and dealers
during the most recent fiscal year to recognize research, statistical
and quotation services received by Putnam Management and its affiliates:

Dollar value of Percentage of Amount of
Fund name these transactions total transactions commissions

HIGH INCOME
BOND FUND $2,787,310 1.49% $10,740

HIGH INCOME
OPPORTUNITIES TRUST $481,011 3.74% $665

Administrative Services Fees

Under an Administrative Services Contract dated as of May 5, 1995, High
Income Opportunities Trust pays a quarterly fee to Putnam Management based
on the average net assets of the fund, as determined at the close of each
business day during the quarter. Such fee is based on the annual rate of
0.25% of average weekly net assets.

For the past three fiscal years, pursuant to its administrative services
contract, High Income Opportunities Trust incurred the following fees:

Administrative services
Fiscal year fee paid

2004 $172,216
2003 $152,838
2002 $171,615

Administrative expense reimbursement

Each fund reimbursed Putnam Management for administrative services during
its most recent fiscal year, including compensation of certain fund
officers and contributions to the Putnam Investments Profit Sharing
Retirement Plan for their benefit, as follows:

Portion of total
reimbursement for
Total compensation and
Fund name Reimbursement contributions

HIGH INCOME BOND FUND $8,368 $6,560

HIGH INCOME OPPORTUNITIES TRUST $4,656 $3,654

Trustee responsibilities and fees

The Trustees are responsible for generally overseeing the conduct of each
fund's business. Subject to such policies as the Trustees may determine,
Putnam Management furnishes a continuing investment program for each
fund and makes investment decisions on its behalf. Subject to the
control of the Trustees, Putnam Management also manages each fund's
other affairs and business.

The table below shows the value of each Trustee's holdings in each fund
and in all of the Putnam funds as of December 31, 2003.

Dollar range of Aggregate dollars
Dollar range of High Income range of shares
High Income Opportunities held in all of
Bond Fund Trust the Putnam funds
Name of Trustee shares owned shares owned overseen by Trustee
------------------------------------------------------------------------------
Jameson A. Baxter $1-10,000 $1-10,000 over $100,000
Charles B. Curtis $1-10,000 $1-10,000 over $100,000
+Myra R. Drucker N/A N/A N/A
John A. Hill $1-10,000 $1-10,000 over $100,000
Ronald J. Jackson $1-10,000 $1-10,000 over $100,000
Paul L. Joskow $1-10,000 $1-10,000 over $100,000
Elizabeth T. Kennan $1-10,000 $1-10,000 over $100,000
John H. Mullin, III $1-10,000 $1-10,000 over $100,000
Robert E. Patterson $1-10,000 $1-10,000 over $100,000
W. Thomas Stephens $1-10,000 $1-10,000 over $100,000
+Richard B. Worley N/A N/A N/A
+Charles E. Haldeman, Jr. N/A N/A N/A
*George Putnam, III $1-10,000 $1-10,000 over $100,000
*A.J.C. Smith $1-10,000 $1-10,000 over $100,000

+ Elected to the Board of Trustees after December 31, 2003.

* Trustees who are or may be deemed to be "interested persons" (as
defined in the Investment Company Act of 1940) of the fund, Putnam
Management, Putnam Retail Management Limited Partnership ("Putnam Retail
Management") or Marsh & McLennan Companies, Inc., the parent company of
Putnam Investments and its affiliated companies. Messrs. Putnam, III,
Haldeman and Smith are deemed "interested persons" by virtue of their
positions as officers of the fund, Putnam Management, Putnam Retail
Management, or Marsh & McLennan Companies, Inc., or shareholders of
Marsh & McLennan Companies, Inc. Mr. Haldeman is the Chief Executive of
Putnam Investments. He was elected to the Board of Trustees after
December 31, 2003. Mr. Putnam is the President of the fund and each of
the other Putnam funds. Mr. Smith is the Chairman of Putnam Investments
and serves as a Director of and consultant to Marsh & McLennan
Companies, Inc. The balance of the Trustees are not "interested
persons."

Each independent Trustee of the fund receives an annual retainer fee and
an additional meeting fee for each Trustees' meeting attended.
Independent Trustees who serve on board committees receive additional
fees for attendance at certain committee meetings and for special
services rendered in that connection. All of the current independent
Trustees of the fund are Trustees of all the Putnam funds and receive
fees for their services. Mr. Putnam also receives the foregoing fees
for his services as Trustee.

The Trustees periodically review their fees to ensure that such fees
continue to be appropriate in light of their responsibilities as well as in
relation to fees paid to trustees of other mutual fund complexes. The
Trustees meet monthly over a two-day period, except in August. The Board
Policy and Nominating Committee, which consists solely of independent
Trustees, estimates that committee and Trustee meeting time, together with
the appropriate preparation, requires the equivalent of at least three
business days per Trustee meeting. The committees of the Board of Trustees,
and the number of times each committee met during each fund's most recent
fiscal year, are shown in the tables below:

HIGH INCOME BOND FUND

Audit and Pricing Committee 23
Board Policy and Nominating Committee 8
Brokerage and Custody Committee 7
Communication, Service and Marketing Committee 11
Contract Committee 16
Distributions Committee 5
Executive Committee 1
Investment Oversight Committee 31

HIGH INCOME OPPORTUNITIES TRUST

Audit and Pricing Committee 16
Board Policy and Nominating Committee 6
Brokerage and Custody Committee 4
Communication, Service and Marketing Committee 10
Contract Committee 15
Distributions Committee 6
Executive Committee 1
Investment Oversight Committees 30

The following table shows the year each Trustee was first elected a Trustee
of the Putnam funds, the fees paid to each Trustee by each fund for its
most recent fiscal year, and the fees paid to each Trustee by all of the
Putnam funds during calendar year 2003:

Pension or
Pension or retirement
retirement Aggregate benefits
Aggregate benefits Compensation accrued as Estimated annual Total
Compensation accrued as from High part of High benefits from compensation
from High part of High Income Income all Putnam from all
Income Bond Income Bond Opportunities Opportunities funds upon Putnam
Trustees/Year Fund (1) Fund expenses Trust (1) Trust expenses retirement (2) funds (3)(4)
-----------------------------------------------------------------------------------------------------------------

Jameson A. Baxter/
1994 (5) $871 $231 $628 $191 $100,000 $215,500

Charles B. Curtis/
2001 $859 $288 $619 $185 $100,000 $210,250

Myra R. Drucker/
2004 (10) N/A N/A N/A N/A N/A N/A

Charles E. Haldeman, Jr./
2004 (10) N/A N/A N/A N/A N/A N/A

John A. Hill/
1985 (5)(7) $1,346 $291 $1,022 $225 $200,000 $413,625

Ronald J. Jackson/
1996 (5) $861 $235 $626 $180 $100,000 $214,500

Paul L. Joskow/
1997 (5) $852 $168 $621 $128 $100,000 $215,250

Elizabeth T. Kennan/
1992 $868 $299 $614 $232 $100,000 $207,000

Lawrence J. Lasser/
1992 (8) -- $36 -- $88 $93,333 $0

John H. Mullin, III/
1997 (5) $861 $258 $619 $198 $100,000 $208,750

Robert E. Patterson/
1984 $849 $162 $622 $127 $100,000 $206,500

George Putnam, III/
1984 (7) $1,062 $134 $771 $104 $125,000 $260,500

A.J.C. Smith/
1986 (6) -- -- -- -- -- $0

W. Thomas Stephens/
1997 (5) $852 $235 $613 $179 $100,000 $206,500

W. Nicholas Thorndike/
1992 (9) $672 $385 $622 $300 $100,000 $212,250

Richard B. Worley/
2004 (10) N/A N/A N/A N/A N/A N/A

(1) Includes an annual retainer and an attendance fee for each meeting
attended.

(2) Assumes that each Trustee retires at the normal retirement date. For
Trustees who are not within three years of retirement, estimated
benefits for each Trustee are based on Trustee fee rates in effect
during calendar 2003.

(3) As of December 31, 2003, there were 101 funds in the Putnam family.
For Mr. Hill, amounts shown also include compensation for service as a
trustee of TH Lee, Putnam Emerging Opportunities Portfolio, a closed-end
fund advised by an affiliate of Putnam Management.

(4) Includes amounts (ranging from $2,000 to $11,000 per Trustee) for
which the Putnam funds were reimbursed by Putnam Management for special
Board and committee meetings in connection with certain regulatory and
other matters relating to alleged improper trading by certain Putnam
Management employees and participants in certain 401(k) plans
administered by Putnam Fiduciary Trust Company.

(5) Includes compensation deferred pursuant to a Trustee Compensation
Deferral Plan.

(6) Marsh & McLennan Companies, Inc. compensates Mr. Smith for his service
as Trustee. Mr. Smith has waived any retirement benefits that he is
entitled to receive under the Retirement Plan for Trustees of the Putnam
funds.

(7) Includes additional compensation to Messrs. Hill and Putnam for
service as Chairman of the Trustees and President of the funds,
respectively.

(8) Mr. Lasser resigned from the Board of Trustees of the Putnam funds
on November 3, 2003. The estimated annual retirement benefits shown in
this table for Mr. Lasser reflect benefits earned under the funds'
retirement plan prior to July 1, 2000.

(9) Mr. Thorndike retired from the Board of Trustees of the Putnam
funds on June 30, 2004.

(10) Ms. Drucker and Messrs. Haldeman and Worley were elected to the
Board of Trustees of High Income Opportunities Trust on October 14, 2004
and were appointed to the Board of Trustees of High Income Bond Fund on
October 14, 2004.

Under a Retirement Plan for Trustees of the Putnam funds (the "Plan"),
each Trustee who retires with at least five years of service as a
Trustee of the funds is entitled to receive an annual retirement benefit
equal to one-half of the average annual compensation paid to such
Trustee for the last three years of service prior to retirement. This
retirement benefit is payable during a Trustee's lifetime, beginning the
year following retirement, for a number of years equal to such Trustee's
years of service. A death benefit, also available under the Plan,
ensures that the Trustee and his or her beneficiaries will receive
benefit payments for the lesser of an aggregate period of (i) ten years
or (ii) such Trustee's total years of service.

The Plan Administrator (currently the Board Policy and Nominating
Committee) may terminate or amend the Plan at any time, but no termination
or amendment will result in a reduction in the amount of benefits (i)
currently being paid to a Trustee at the time of such termination or
amendment, or (ii) to which a current Trustee would have been entitled had
he or she retired immediately prior to such termination or amendment. The
Trustees have terminated the Plan as to any Trustee first elected to the
board after 2003.

For additional information concerning the Trustees, see "Management."

Share ownership

At October 31, 2004, the officers and Trustees of High Income Bond Fund as a
group owned less than 1% of the outstanding shares of the fund, and no
person owned of record or to the knowledge of the fund beneficially 5% or
more of the shares of the fund. At October 31, 2004 the officers and
Trustees of High Income Opportunities Trust as a group owned less than 1%
of the outstanding shares of the fund, and no person owned of record or to
the knowledge of the fund beneficially 5% or more of the shares of the
fund.

Investor servicing and custody fees and expenses

During its most recent fiscal year, each fund incurred the following fees
and out-of-pocket expenses for investor servicing and custody services
provided by Putnam Fiduciary Trust Company:

HIGH INCOME BOND FUND $193,831
HIGH INCOME OPPORTUNITIES TRUST $162,222

MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS

In addition to the principal investment strategies and principal risks
described in the Prospectus, each fund may employ other investment
practices and may be subject to other risks, which are described below.
Certain investment strategies and risks that are described briefly in the
Prospectus are described in greater detail below.

Foreign Investments

Foreign securities are normally denominated and traded in foreign
currencies. As a result, the value of each fund's foreign investments
and the value of its shares may be affected favorably or unfavorably by
changes in currency exchange rates relative to the U.S. dollar. There
may be less information publicly available about a foreign issuer than
about a U.S. issuer, and foreign issuers may not be subject to
accounting, auditing and financial reporting standards and practices
comparable to those in the United States. The securities of some
foreign issuers are less liquid and at times more volatile than
securities of comparable U.S. issuers. Foreign brokerage commissions
and other fees are also generally higher than in the United States.
Foreign settlement procedures and trade regulations may involve certain
risks (such as delay in payment or delivery of securities or in the
recovery of the fund's assets held abroad) and expenses not present in
the settlement of investments in U.S. markets.

In addition, foreign securities may be subject to the risk of
nationalization or expropriation of assets, imposition of currency
exchange controls, foreign withholding taxes or restrictions on the
repatriation of foreign currency, confiscatory taxation, political or
financial instability and diplomatic developments which could affect the
value of the fund's investments in certain foreign countries. Dividends
or interest on, or proceeds from the sale of, foreign securities may be
subject to foreign withholding taxes, and special U.S. tax
considerations may apply.

Legal remedies available to investors in certain foreign countries may
be more limited than those available with respect to investments in the
United States or in other foreign countries. The laws of some foreign
countries may limit each fund's ability to invest in securities of
certain issuers organized under the laws of those foreign countries.

The risks described above, including the risks of nationalization or
expropriation of assets, typically are increased in connection with
investments in "emerging markets." For example, political and economic
structures in these countries may be in their infancy and developing
rapidly, and such countries may lack the social, political and economic
stability characteristic of more developed countries. Certain of these
countries have in the past failed to recognize private property rights
and have at times nationalized and expropriated the assets of private
companies. High rates of inflation or currency devaluations may
adversely affect the economies and securities markets of such countries.
Investments in emerging markets may be considered speculative.

The currencies of certain emerging market countries have experienced
devaluations relative to the U.S. dollar, and future devaluations may
adversely affect the value of assets denominated in such currencies.
Many emerging market countries have experienced substantial, and in some
periods extremely high, rates of inflation or deflation for many years,
and future inflation may adversely affect the economies and securities
markets of such countries.

In addition, unanticipated political or social developments may affect
the value of investments in emerging markets and the availability of
additional investments in these markets. The small size, limited
trading volume and relative inexperience of the securities markets in
these countries may make investments in securities traded in emerging
markets illiquid and more volatile than investments in securities traded
in more developed countries, and each fund may be required to establish
special custodial or other arrangements before making investments in
securities traded in emerging markets. There may be little financial or
accounting information available with respect to issuers of emerging
market securities, and it may be difficult as a result to assess the
value of prospects of an investment in such securities.

Certain of the foregoing risks may also apply to some extent to
securities of U.S. issuers that are denominated in foreign currencies or
that are traded in foreign markets, or securities of U.S. issuers having
significant foreign operations.

Foreign Currency Transactions

To manage its exposure to foreign currencies, each fund may engage in
foreign currency exchange transactions, including purchasing and selling
foreign currency, foreign currency options, foreign currency forward
contracts and foreign currency futures contracts and related options. In
addition, each fund may write covered call and put options on foreign
currencies for the purpose of increasing its current return.

Generally, each fund may engage in both "transaction hedging" and
"position hedging." Each fund may also engage in foreign currency
transactions for non-hedging purposes, subject to applicable law. When
it engages in transaction hedging, a fund enters into foreign currency
transactions with respect to specific receivables or payables, generally
arising in connection with the purchase or sale of portfolio securities.

Each fund may engage in transaction hedging when it desires to "lock in"
the U.S. dollar price of a security it has agreed to purchase or sell,
or the U.S. dollar equivalent of a dividend or interest payment in a
foreign currency. By transaction hedging a fund may protect itself
against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the applicable foreign currency
during the period between the date on which the security is purchased or
sold, or on which the dividend or interest payment is earned, and the
date on which such payments are made or received.

Each fund may purchase or sell a foreign currency on a spot (or cash)
basis at the prevailing spot rate in connection with the settlement of
transactions in portfolio securities denominated in that foreign
currency. If conditions warrant, for hedging or non-hedging purposes a fund
may also enter into contracts to purchase or sell foreign currencies at
a future date ("forward contracts") and purchase and sell foreign
currency futures contracts. A foreign currency forward contract is a
negotiated agreement to exchange currency at a future time at a rate or
rates that may be higher or lower than the spot rate. Foreign currency
futures contracts are standardized exchange-traded contracts and have
margin requirements.

For transaction hedging purposes a fund may also purchase or sell
exchange-listed and over-the-counter call and put options on foreign
currency futures contracts and on foreign currencies. A put option on a
futures contract gives a fund the right to assume a short position in
the futures contract until the expiration of the option. A put option
on a currency gives a fund the right to sell the currency at an exercise
price until the expiration of the option. A call option on a futures
contract gives a fund the right to assume a long position in the futures
contract until the expiration of the option. A call option on a
currency gives a fund the right to purchase the currency at the exercise
price until the expiration of the option.

Each fund may engage in position hedging to protect against a decline in
the value relative to the U.S. dollar of the currencies in which its
portfolio securities are denominated or quoted (or an increase in the
value of the currency in which the securities a fund intends to buy are
denominated, when a fund holds cash or short-term investments). For
position hedging purposes, a fund may purchase or sell, on exchanges or
in over-the-counter markets, foreign currency futures contracts, foreign
currency forward contracts and options on foreign currency futures
contracts and on foreign currencies. In connection with position
hedging, a fund may also purchase or sell foreign currency on a spot
basis.

It is impossible to forecast with precision the market value of
portfolio securities at the expiration or maturity of a forward or
futures contract. Accordingly, it may be necessary for a fund to
purchase additional foreign currency on the spot market (and bear the
expense of such purchase) if the market value of the security or
securities being hedged is less than the amount of foreign currency the
fund is obligated to deliver and a decision is made to sell the security
or securities and make delivery of the foreign currency. Conversely, it
may be necessary to sell on the spot market some of the foreign currency
received upon the sale of the portfolio security or securities if the
market value of such security or securities exceeds the amount of
foreign currency a fund is obligated to deliver.

Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities that a fund owns or intends to
purchase or sell. They simply establish a rate of exchange which one
can achieve at some future point in time. Additionally, although these
techniques tend to minimize the risk of loss due to a decline in the
value of the hedged currency, they tend to limit any potential gain
which might result from the increase in value of such currency. See
"Risk factors in options transactions."

Each fund may seek to increase its current return or to offset some of
the costs of hedging against fluctuations in current exchange rates by
writing covered call options and covered put options on foreign
currencies. A fund receives a premium from writing a call or put
option, which increases a fund's current return if the option expires
unexercised or is closed out at a net profit. A fund may terminate an
option that it has written prior to its expiration by entering into a
closing purchase transaction in which it purchases an option having the
same terms as the option written.

A fund's currency hedging transactions may call for the delivery of one
foreign currency in exchange for another foreign currency and may at
times not involve currencies in which its portfolio securities are then
denominated. Putnam Management will engage in such "cross hedging"
activities when it believes that such transactions provide significant
hedging opportunities for a fund. Cross hedging transactions by a fund
involve the risk of imperfect correlation between changes in the values
of the currencies to which such transactions relate and changes in the
value of the currency or other asset or liability which is the subject
of the hedge.

Each fund may also engage in non-hedging currency transactions. For
example, Putnam Management may believe that exposure to a currency is in
a fund's best interest but that securities denominated in that currency
are unattractive. In that case a fund may purchase a currency forward
contract or option in order to increase its exposure to the currency.
In accordance with SEC regulations, a fund will segregate liquid assets
in its portfolio to cover forward contracts used for non-hedging
purposes.

The value of any currency, including U.S. dollars and foreign
currencies, may be affected by complex political and economic factors
applicable to the issuing country. In addition, the exchange rates of
foreign currencies (and therefore the values of foreign currency
options, forward contracts and futures contracts) may be affected
significantly, fixed, or supported directly or indirectly by U.S. and
foreign government actions. Government intervention may increase risks
involved in purchasing or selling foreign currency options, forward
contracts and futures contracts, since exchange rates may not be free to
fluctuate in response to other market forces.

The value of a foreign currency option, forward contract or futures
contract reflects the value of an exchange rate, which in turn reflects
relative values of two currencies -- the U.S. dollar and the foreign
currency in question. Because foreign currency transactions occurring
in the interbank market involve substantially larger amounts than those
that may be involved in the exercise of foreign currency options,
forward contracts and futures contracts, investors may be disadvantaged
by having to deal in an odd-lot market for the underlying foreign
currencies in connection with options at prices that are less favorable
than for round lots. Foreign governmental restrictions or taxes could
result in adverse changes in the cost of acquiring or disposing of
foreign currencies.

There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations
available through dealers or other market sources be firm or revised on
a timely basis. Available quotation information is generally
representative of very large round-lot transactions in the interbank
market and thus may not reflect exchange rates for smaller odd-lot
transactions (less than $1 million) where rates may be less favorable.
The interbank market in foreign currencies is a global, around-the-clock
market. To the extent that options markets are closed while the markets
for the underlying currencies remain open, significant price and rate
movements may take place in the underlying markets that cannot be
reflected in the options markets.

The decision as to whether and to what extent a fund will engage in
foreign currency exchange transactions will depend on a number of
factors, including prevailing market conditions, the composition of the
fund's portfolio and the availability of suitable transactions.
Accordingly, there can be no assurance that a fund will engage in
foreign currency exchange transactions at any given time or from time to
time.

Currency forward and futures contracts. A forward foreign currency
contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of
the contract as agreed by the parties, at a price set at the time of the
contract. In the case of a cancelable forward contract, the holder has
the unilateral right to cancel the contract at maturity by paying a
specified fee. The contracts are traded in the interbank market
conducted directly between currency traders (usually large commercial
banks) and their customers. A forward contract generally has no deposit
requirement, and no commissions are charged at any stage for trades. A
foreign currency futures contract is a standardized contract for the
future delivery of a specified amount of a foreign currency at a price
set at the time of the contract. Foreign currency futures contracts
traded in the United States are designed by and traded on exchanges
regulated by the CFTC, such as the New York Mercantile Exchange.

Forward foreign currency exchange contracts differ from foreign currency
futures contracts in certain respects. For example, the maturity date
of a forward contract may be any fixed number of days from the date of
the contract agreed upon by the parties, rather than a predetermined
date in a given month. Forward contracts may be in any amount agreed
upon by the parties rather than predetermined amounts. Also, forward
foreign exchange contracts are traded directly between currency traders
so that no intermediary is required. A forward contract generally
requires no margin or other deposit.

At the maturity of a forward or futures contract, a fund either may
accept or make delivery of the currency specified in the contract, or at
or prior to maturity enter into a closing transaction involving the
purchase or sale of an offsetting contract. Closing transactions with
respect to forward contracts are usually effected with the currency
trader who is a party to the original forward contract. Closing
transactions with respect to futures contracts are effected on a
commodities exchange; a clearing corporation associated with the
exchange assumes responsibility for closing out such contracts.

Positions in the foreign currency futures contracts may be closed out
only on an exchange or board of trade which provides a secondary market
in such contracts. Although each fund intends to purchase or sell
foreign currency futures contracts only on exchanges or boards of trade
where there appears to be an active secondary market, there is no
assurance that a secondary market on an exchange or board of trade will
exist for any particular contract or at any particular time. In such
event, it may not be possible to close a futures position and, in the
event of adverse price movements, a fund would continue to be required
to make daily cash payments of variation margin.

Foreign currency options. In general, options on foreign currencies
operate similarly to options on securities and are subject to many of
the risks described above. Foreign currency options are traded
primarily in the over-the-counter market, although options on foreign
currencies are also listed on several exchanges. Options are traded not
only on the currencies of individual nations, but also on the euro, the
joint currency of most countries in the European Union.

Each fund will only purchase or write foreign currency options when
Putnam Management believes that a liquid secondary market exists for
such options. There can be no assurance that a liquid secondary market
will exist for a particular option at any specific time. Options on
foreign currencies are affected by all of those factors which influence
foreign exchange rates and investments generally.

Settlement procedures. Settlement procedures relating to a fund's
investments in foreign securities and to a fund's foreign currency
exchange transactions may be more complex than settlements with respect
to investments in debt or equity securities of U.S. issuers, and may
involve certain risks not present in a fund's domestic investments. For
example, settlement of transactions involving foreign securities or
foreign currencies may occur within a foreign country, and a fund may be
required to accept or make delivery of the underlying securities or
currency in conformity with any applicable U.S. or foreign restrictions
or regulations, and may be required to pay any fees, taxes or charges
associated with such delivery. Such investments may also involve the
risk that an entity involved in the settlement may not meet its
obligations.

Foreign currency conversion. Although foreign exchange dealers do not
charge a fee for currency conversion, they do realize a profit based on
the difference (the "spread") between prices at which they are buying
and selling various currencies. Thus, a dealer may offer to sell a
foreign currency to a fund at one rate, while offering a lesser rate of
exchange should the fund desire to resell that currency to the dealer.

Options on Securities

Writing covered options. Each fund may write covered call options and
covered put options on optionable securities held in its portfolio or that
it has an absolute and immediate right to acquire without additional cash
consideration (or, if additional cash consideration is required, cash or
other assets determined to be liquid by Putnam Management in accordance
with procedures established by the Trustees, in such amount are segregated
by its custodian), when in the opinion of Putnam Management such
transactions are consistent with the fund's investment objective(s) and
policies. Call options written by a fund give the purchaser the right to
buy the underlying securities from the fund at a stated exercise price; put
options give the purchaser the right to sell the underlying securities to
the fund at a stated price.

Each fund may write only covered options, which means that, so long as the
fund is obligated as the writer of a call option, it will own the
underlying securities subject to the option (or comparable securities
satisfying the cover requirements of securities exchanges) or have an
absolute and immediate right to acquire without additional cash
consideration (or, if additional cash consideration is required, cash or
other assets determined to be liquid by Putnam Management in accordance
with procedures established by the Trustees, in such amount are segregated
by its custodian). In the case of put options, a fund will segregate
assets determined to be liquid by Putnam Management in accordance with
procedures established by the Trustees equal to the price to be paid if the
option is exercised. In addition, a fund will be considered to have
covered a put or call option if and to the extent that it holds an option
that offsets some or all of the risk of the option it has written. A fund
may write combinations of covered puts and calls on the same underlying
security.

A fund will receive a premium from writing a put or call option, which
increases the fund's return on the underlying security in the event the
option expires unexercised or is closed out at a profit. The amount of
the premium reflects, among other things, the relationship between the
exercise price and the current market value of the underlying security,
the volatility of the underlying security, the amount of time remaining
until expiration, current interest rates, and the effect of supply and
demand in the options market and in the market for the underlying
security. By writing a call option, if the fund holds the security, the
fund limits its opportunity to profit from any increase in the market
value of the underlying security above the exercise price of the option
but continues to bear the risk of a decline in the value of the
underlying security. If the fund does not hold the underlying security,
the fund bears the risk that, if the market price exceeds the option
strike price, the fund will suffer a loss equal to the difference at the
time of exercise. By writing a put option, a fund assumes the risk that
it may be required to purchase the underlying security for an exercise
price higher than its then-current market value, resulting in a
potential capital loss unless the security subsequently appreciates in
value.

A fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction, in which it
purchases an offsetting option. A fund realizes a profit or loss from
a closing transaction if the cost of the transaction (option premium
plus transaction costs) is less or more than the premium received from
writing the option. If a fund writes a call option but does not own the
underlying security, and when it writes a put option, the fund may be
required to deposit cash or securities with its broker as "margin," or
collateral, for its obligation to buy or sell the underlying security.
As the value of the underlying security varies, the fund may have to
deposit additional margin with the broker. Margin requirements are
complex and are fixed by individual brokers, subject to minimum
requirements currently imposed by the Federal Reserve Board and by stock
exchanges and other self-regulatory organizations.

Purchasing put options. Each fund may purchase put options to protect
its portfolio holdings in an underlying security against a decline in
market value. Such protection is provided during the life of the put
option since a fund, as holder of the option, is able to sell the
underlying security at the put exercise price regardless of any decline
in the underlying security's market price. In order for a put option to
be profitable, the market price of the underlying security must decline
sufficiently below the exercise price to cover the premium and
transaction costs. By using put options in this manner, a fund will
reduce any profit it might otherwise have realized from appreciation of
the underlying security by the premium paid for the put option and by
transaction costs.

Purchasing call options. Each fund may purchase call options to hedge
against an increase in the price of securities that a fund wants
ultimately to buy. Such hedge protection is provided during the life of
the call option since a fund, as holder of the call option, is able to
buy the underlying security at the exercise price regardless of any
increase in the underlying security's market price. In order for a call
option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs.

Risk Factors in Options Transactions

The successful use of a fund's options strategies depends on the ability
of Putnam Management to forecast correctly interest rate and market
movements. For example, if a fund were to write a call option based on
Putnam Management's expectation that the price of the underlying
security would fall, but the price were to rise instead, the fund could
be required to sell the security upon exercise at a price below the
current market price. Similarly, if a fund were to write a put option
based on Putnam Management's expectation that the price of the
underlying security would rise, but the price were to fall instead, the
fund could be required to purchase the security upon exercise at a price
higher than the current market price.

When a fund purchases an option, it runs the risk that it will lose its
entire investment in the option in a relatively short period of time,
unless the fund exercises the option or enters into a closing sale
transaction before the option's expiration. If the price of the
underlying security does not rise (in the case of a call) or fall (in
the case of a put) to an extent sufficient to cover the option premium
and transaction costs, the fund will lose part or all of its investment
in the option. This contrasts with an investment by the fund in the
underlying security, since the fund will not realize a loss if the
security's price does not change.

The effective use of options also depends on a fund's ability to
terminate option positions at times when Putnam Management deems it
desirable to do so. There is no assurance that a fund will be able to
effect closing transactions at any particular time or at an acceptable
price.

If a secondary market in options were to become unavailable, a fund
could no longer engage in closing transactions. Lack of investor
interest might adversely affect the liquidity of the market for
particular options or series of options. A market may discontinue
trading of a particular option or options generally. In addition, a
market could become temporarily unavailable if unusual events -- such as
volume in excess of trading or clearing capability -- were to interrupt
its normal operations.

A market may at times find it necessary to impose restrictions on
particular types of options transactions, such as opening transactions.
For example, if an underlying security ceases to meet qualifications
imposed by the market or the Options Clearing Corporation, new series of
options on that security will no longer be opened to replace expiring
series, and opening transactions in existing series may be prohibited.
If an options market were to become unavailable, a fund as a holder of
an option would be able to realize profits or limit losses only by
exercising the option, and the fund, as option writer, would remain
obligated under the option until expiration or exercise.

Disruptions in the markets for the securities underlying options
purchased or sold by a fund could result in losses on the options. If
trading is interrupted in an underlying security, the trading of options
on that security is normally halted as well. As a result, a fund as
purchaser or writer of an option will be unable to close out its
positions until options trading resumes, and it may be faced with
considerable losses if trading in the security reopens at a
substantially different price. In addition, the Options Clearing
Corporation or other options markets may impose exercise restrictions.
If a prohibition on exercise is imposed at the time when trading in the
option has also been halted, a fund as purchaser or writer of an option
will be locked into its position until one of the two restrictions has
been lifted. If the Options Clearing Corporation were to determine that
the available supply of an underlying security appears insufficient to
permit delivery by the writers of all outstanding calls in the event of
exercise, it may prohibit indefinitely the exercise of put options. A
fund, as holder of such a put option, could lose its entire investment
if the prohibition remained in effect until the put option's expiration.

Foreign-traded options are subject to many of the same risks presented
by internationally-traded securities. In addition, because of time
differences between the United States and various foreign countries, and
because different holidays are observed in different countries, foreign
options markets may be open for trading during hours or on days when
U.S. markets are closed. As a result, option premiums may not reflect
the current prices of the underlying interest in the United States.

Over-the-counter ("OTC") options purchased by a fund and assets held to
cover OTC options written by the fund may, under certain circumstances,
be considered illiquid securities for purposes of any limitation on the
fund's ability to invest in illiquid securities.

Investments in Miscellaneous Fixed-Income Securities

If a fund may invest in inverse floating obligations, premium securities, or
interest-only or principal-only classes of mortgage-backed securities (IOs
and POs), it may do so without limit.

Lower-rated Securities

Each fund may invest in lower-rated fixed-income securities (commonly known
as "junk bonds"). The lower ratings of certain securities held by a fund
reflect a greater possibility that adverse changes in the financial condition
of the issuer or in general economic conditions, or both, or an unanticipated
rise in interest rates, may impair the ability of the issuer to make payments
of interest and principal. The inability (or perceived inability) of issuers
to make timely payment of interest and principal would likely make the values
of securities held by a fund more volatile and could limit the fund's ability
to sell its securities at prices approximating the values the fund had placed
on such securities. In the absence of a liquid trading market for securities
held by it, a fund at times may be unable to establish the fair value of such
securities.

Securities ratings are based largely on the issuer's historical financial
condition and the rating agencies' analysis at the time of rating.
Consequently, the rating assigned to any particular security is not
necessarily a reflection of the issuer's current financial condition, which
may be better or worse than the rating would indicate. In addition, the
rating assigned to a security by Moody's Investors Service, Inc. or Standard
& Poor's (or by any other nationally recognized securities rating agency)
does not reflect an assessment of the volatility of the security's market
value or the liquidity of an investment in the security. See "Securities
ratings."

Like those of other fixed-income securities, the values of lower-rated
securities fluctuate in response to changes in interest rates. A
decrease in interest rates will generally result in an increase in the
value of a fund's assets. Conversely, during periods of rising interest
rates, the value of a fund's assets will generally decline. The values
of lower-rated securities may often be affected to a greater extent by
changes in general economic conditions and business conditions affecting
the issuers of such securities and their industries. Negative publicity
or investor perceptions may also adversely affect the values of
lower-rated securities. Changes by nationally recognized securities
rating agencies in their ratings of any fixed-income security and
changes in the ability of an issuer to make payments of interest and
principal may also affect the value of these investments. Changes in
the value of portfolio securities generally will not affect income
derived from these securities, but will affect a fund's net asset value.
A fund will not necessarily dispose of a security when its rating is
reduced below its rating at the time of purchase. However, Putnam
Management will monitor the investment to determine whether its
retention will assist in meeting a fund's investment objective(s).

Issuers of lower-rated securities are often highly leveraged, so that
their ability to service their debt obligations during an economic
downturn or during sustained periods of rising interest rates may be
impaired. Such issuers may not have more traditional methods of
financing available to them and may be unable to repay outstanding
obligations at maturity by refinancing. The risk of loss due to default
in payment of interest or repayment of principal by such issuers is
significantly greater because such securities frequently are unsecured
and subordinated to the prior payment of senior indebtedness.

At times, a substantial portion of a fund's assets may be invested in an
issue of which the fund, by itself or together with other funds and
accounts managed by Putnam Management or its affiliates, holds all or a
major portion. Although Putnam Management generally considers such
securities to be liquid because of the availability of an institutional
market for such securities, it is possible that, under adverse market or
economic conditions or in the event of adverse changes in the financial
condition of the issuer, a fund could find it more difficult to sell
these securities when Putnam Management believes it advisable to do so
or may be able to sell the securities only at prices lower than if they
were more widely held. Under these circumstances, it may also be more
difficult to determine the fair value of such securities for purposes of
computing a fund's net asset value. In order to enforce its rights in
the event of a default, a fund may be required to participate in various
legal proceedings or take possession of and manage assets securing the
issuer's obligations on such securities. This could increase the fund's
operating expenses and adversely affect the fund's net asset value. The
ability of a holder of a tax-exempt security to enforce the terms of
that security in a bankruptcy proceeding may be more limited than would
be the case with respect to securities of private issuers. In addition,
a fund's intention to qualify as a "regulated investment company" under
the Internal Revenue Code may limit the extent to which the fund may
exercise its rights by taking possession of such assets.

Certain securities held by a fund may permit the issuer at its option to
"call," or redeem, its securities. If an issuer were to redeem
securities held by a fund during a time of declining interest rates, the
fund may not be able to reinvest the proceeds in securities providing
the same investment return as the securities redeemed.

Each fund may invest without limit in so-called "zero-coupon" bonds and
"payment-in-kind" bonds. Zero-coupon bonds are issued at a significant
discount from their principal amount in lieu of paying interest
periodically. Payment-in-kind bonds allow the issuer, at its option, to
make current interest payments on the bonds either in cash or in
additional bonds. Because zero-coupon and payment-in-kind bonds do not
pay current interest in cash, their value is subject to greater
fluctuation in response to changes in market interest rates than bonds
that pay interest currently. Both zero-coupon and payment-in-kind bonds
allow an issuer to avoid the need to generate cash to meet current
interest payments. Accordingly, such bonds may involve greater credit
risks than bonds paying interest currently in cash. Each fund is
required to accrue interest income on such investments and to distribute
such amounts at least annually to shareholders even though such bonds do
not pay current interest in cash. Thus, it may be necessary at times
for a fund to liquidate investments in order to satisfy its dividend
requirements.

To the extent a fund invests in securities in the lower rating
categories, the achievement of the fund's goals is more dependent on
Putnam Management's investment analysis than would be the case if the
fund were investing in securities in the higher rating categories. This
also may be true with respect to tax-exempt securities, as the amount of
information about the financial condition of an issuer of tax-exempt
securities may not be as extensive as that which is made available by
corporations whose securities are publicly traded.

Loan Participations and Other Floating Rate Loans

Each fund may invest in "loan participations." By purchasing a loan
participation, a fund acquires some or all of the interest of a bank or
other lending institution in a loan to a particular borrower. Many such
loans are secured, and most impose restrictive covenants which must be
met by the borrower. These loans are typically made by a syndicate of
banks, represented by an agent bank which has negotiated and structured
the loan and which is responsible generally for collecting interest,
principal, and other amounts from the borrower on its own behalf and on
behalf of the other lending institutions in the syndicate, and for
enforcing its and their other rights against the borrower. Each of the
lending institutions, including the agent bank, lends to the borrower a
portion of the total amount of the loan, and retains the corresponding
interest in the loan.

A fund's ability to receive payments of principal and interest and other
amounts in connection with loan participations held by it will depend
primarily on the financial condition of the borrower. The failure by a
fund to receive scheduled interest or principal payments on a loan
participation would adversely affect the income of the fund and would
likely reduce the value of its assets, which would be reflected in a
reduction in the fund's net asset value. Banks and other lending
institutions generally perform a credit analysis of the borrower before
originating a loan or participating in a lending syndicate. In
selecting the loan participations in which a fund will invest, however,
Putnam Management will not rely solely on that credit analysis, but will
perform its own investment analysis of the borrowers. Putnam
Management's analysis may include consideration of the borrower's
financial strength and managerial experience, debt coverage, additional
borrowing requirements or debt maturity schedules, changing financial
conditions, and responsiveness to changes in business conditions and
interest rates. Putnam Management will be unable to access non-public
information to which other investors in syndicated loans may have
access. Because loan participations in which a fund may invest are not
generally rated by independent credit rating agencies, a decision by the
fund to invest in a particular loan participation will depend almost
exclusively on Putnam Management's, and the original lending
institution's, credit analysis of the borrower. Investments in loan
participations may be of any quality, including "distressed" loans, and
will be subject to a fund's credit quality policy.

Loan participations may be structured in different forms, including
novations, assignments and participating interests. In a novation, a
fund assumes all of the rights of a lending institution in a loan,
including the right to receive payments of principal and interest and
other amounts directly from the borrower and to enforce its rights as a
lender directly against the borrower. The fund assumes the position of
a co-lender with other syndicate members. As an alternative, a fund may
purchase an assignment of a portion of a lender's interest in a loan.
In this case, the fund may be required generally to rely upon the
assigning bank to demand payment and enforce its rights against the
borrower, but would otherwise be entitled to all of such bank's rights
in the loan. A fund may also purchase a participating interest in a
portion of the rights of a lending institution in a loan. In such case,
it will be entitled to receive payments of principal, interest and
premium, if any, but will not generally be entitled to enforce its
rights directly against the agent bank or the borrower, and must rely
for that purpose on the lending institution. A fund may also acquire a
loan participation directly by acting as a member of the original
lending syndicate.

A fund will in many cases be required to rely upon the lending
institution from which it purchases the loan participation to collect
and pass on to the fund such payments and to enforce the fund's rights
under the loan. As a result, an insolvency, bankruptcy or
reorganization of the lending institution may delay or prevent a fund
from receiving principal, interest and other amounts with respect to the
underlying loan. When a fund is required to rely upon a lending
institution to pay to the fund principal, interest and other amounts
received by it, Putnam Management will also evaluate the
creditworthiness of the lending institution.

The borrower of a loan in which a fund holds a participation interest
may, either at its own election or pursuant to terms of the loan
documentation, prepay amounts of the loan from time to time. There is
no assurance that a fund will be able to reinvest the proceeds of any
loan prepayment at the same interest rate or on the same terms as those
of the original loan participation.

Corporate loans in which a fund may purchase a loan participation are
made generally to finance internal growth, mergers, acquisitions, stock
repurchases, leveraged buy-outs and other corporate activities. Under
current market conditions, most of the corporate loan participations
purchased by a fund will represent interests in loans made to finance
highly leveraged corporate acquisitions, known as "leveraged buy-out"
transactions. The highly leveraged capital structure of the borrowers
in such transactions may make such loans especially vulnerable to
adverse changes in economic or market conditions. In addition, loan
participations generally are subject to restrictions on transfer, and
only limited opportunities may exist to sell such participations in
secondary markets. As a result, a fund may be unable to sell loan
participations at a time when it may otherwise be desirable to do so or
may be able to sell them only at a price that is less than their fair
market value.

Certain of the loan participations acquired by a fund may involve
revolving credit facilities under which a borrower may from time to time
borrow and repay amounts up to the maximum amount of the facility. In
such cases, a fund would have an obligation to advance its portion of
such additional borrowings upon the terms specified in the loan
participation. To the extent that a fund is committed to make
additional loans under such a participation, it will at all times hold
and maintain in a segregated account liquid assets in an amount
sufficient to meet such commitments. Certain of the loan participations
acquired by a fund may also involve loans made in foreign currencies. A
fund's investment in such participations would involve the risks of
currency fluctuations described above with respect to investments in the
foreign securities.

With respect to its management of investments in floating rate loans,
Putnam will normally seek to avoid receiving material, non-public
information ("Confidential Information") about the issuers of floating
rate loans being considered for acquisition by a fund or held in a
fund's portfolio. In many instances, issuers may offer to furnish
Confidential Information to prospective purchasers, and to holders, of
the issuer's floating rate loans. Putnam's decision not to receive
Confidential Information may place Putnam at a disadvantage relative to
other investors in floating rate loans (which could have an adverse
effect on the price a fund pays or receives when buying or selling
loans). Also, in instances where holders of floating rate loans are
asked to grant amendments, waivers or consent, Putnam's ability to
assess their significance or desirability may be adversely affected. For
these and other reasons, it is possible that Putnam's decision not to
receive Confidential Information under normal circumstances could
adversely affect a fund's investment performance.

Notwithstanding its intention generally not to receive material,
non-public information with respect to its management of investments in
floating rate loans, Putnam may from time to time come into possession
of material, non-public information about the issuers of loans that may
be held in a fund's portfolio. Possession of such information may in
some instances occur despite Putnam's efforts to avoid such possession,
but in other instances Putnam may choose to receive such information
(for example, in connection with participation in a creditors' committee
with respect to a financially distressed issuer). As, and to the
extent, required by applicable law, Putnam's ability to trade in these
loans for the account of a fund could potentially be limited by its
possession of such information. Such limitations on Putnam's ability to
trade could have an adverse effect on a fund by, for example, preventing
the fund from selling a loan that is experiencing a material decline in
value. In some instances, these trading restrictions could continue in
effect for a substantial period of time.

In some instances, other accounts managed by Putnam may hold other
securities issued by borrowers whose floating rate loans may be held in
a fund's portfolio. These other securities may include, for example,
debt securities that are subordinate to the floating rate loans held in
a fund's portfolio, convertible debt or common or preferred equity
securities. In certain circumstances, such as if the credit quality of
the issuer deteriorates, the interests of holders of these other
securities may conflict with the interests of the holders of the
issuer's floating rate loans. In such cases, Putnam may owe conflicting
fiduciary duties to a fund and other client accounts. Putnam will
endeavor to carry out its obligations to all of its clients to the
fullest extent possible, recognizing that in some cases certain clients
may achieve a lower economic return, as a result of these conflicting
client interests, than if Putnam's client accounts collectively held
only a single category of the issuer's securities.

Floating Rate and Variable Rate Demand Notes

Floating rate and variable rate demand notes and bonds may have a stated
maturity in excess of one year, but may have features that permit a
holder to demand payment of principal plus accrued interest upon a
specified number of days notice. Frequently, such obligations are
secured by letters of credit or other credit support arrangements
provided by banks. The issuer has a corresponding right, after a given
period, to prepay in its discretion the outstanding principal of the
obligation plus accrued interest upon a specific number of days notice
to the holders. The interest rate of a floating rate instrument may be
based on a known lending rate, such as a bank's prime rate, and is reset
whenever such rate is adjusted. The interest rate on a variable rate
demand note is reset at specified intervals at a market rate.

Mortgage Related and Asset-backed Securities

Mortgage-backed securities, including collateralized mortgage
obligations ("CMOs") and certain stripped mortgage-backed securities
represent a participation in, or are secured by, mortgage loans.
Asset-backed securities are structured like mortgage-backed securities,
but instead of mortgage loans or interests in mortgage loans, the
underlying assets may include such items as motor vehicle installment
sales or installment loan contracts, leases of various types of real and
personal property and receivables from credit card agreements. The
ability of an issuer of asset-backed securities to enforce its security
interest in the underlying assets may be limited.

Mortgage-backed securities have yield and maturity characteristics
corresponding to the underlying assets. Unlike traditional debt
securities, which may pay a fixed rate of interest until maturity, when
the entire principal amount comes due, payments on certain
mortgage-backed securities include both interest and a partial repayment
of principal. Besides the scheduled repayment of principal, repayments
of principal may result from the voluntary prepayment, refinancing or
foreclosure of the underlying mortgage loans. If property owners make
unscheduled prepayments of their mortgage loans, these prepayments will
result in early payment of the applicable mortgage-related securities.
In that event a fund may be unable to invest the proceeds from the early
payment of the mortgage-related securities in an investment that
provides as high a yield as the mortgage-related securities.
Consequently, early payment associated with mortgage-related securities
may cause these securities to experience significantly greater price and
yield volatility than that experienced by traditional fixed-income
securities. The occurrence of mortgage prepayments is affected by
factors including the level of interest rates, general economic
conditions, the location and age of the mortgage and other social and
demographic conditions. During periods of falling interest rates, the
rate of mortgage prepayments tends to increase, thereby tending to
decrease the life of mortgage-related securities. During periods of
rising interest rates, the rate of mortgage prepayments usually
decreases, thereby tending to increase the life of mortgage-related
securities. If the life of a mortgage-related security is inaccurately
predicted, a fund may not be able to realize the rate of return it
expected.

Mortgage-backed and asset-backed securities are less effective than
other types of securities as a means of "locking in" attractive
long-term interest rates. One reason is the need to reinvest
prepayments of principal; another is the possibility of significant
unscheduled prepayments resulting from declines in interest rates. These
prepayments would have to be reinvested at lower rates. As a result,
these securities may have less potential for capital appreciation during
periods of declining interest rates than other securities of comparable
maturities, although they may have a similar risk of decline in market
value during periods of rising interest rates. Prepayments may also
significantly shorten the effective maturities of these securities,
especially during periods of declining interest rates.

Conversely, during periods of rising interest rates, a reduction in
prepayments may increase the effective maturities of these securities,
subjecting them to a greater risk of decline in market value in response
to rising interest rates than traditional debt securities, and,
therefore, potentially increasing the volatility of a fund.

Prepayments may cause losses on securities purchased at a premium. At
times, some mortgage-backed and asset-backed securities will have higher
than market interest rates and therefore will be purchased at a premium
above their par value.

CMOs may be issued by a U.S. government agency or instrumentality or by
a private issuer. Although payment of the principal of, and interest
on, the underlying collateral securing privately issued CMOs may be
guaranteed by the U.S. government or its agencies or instrumentalities,
these CMOs represent obligations solely of the private issuer and are
not insured or guaranteed by the U.S. government, its agencies or
instrumentalities or any other person or entity.

Prepayments could cause early retirement of CMOs. CMOs are designed to
reduce the risk of prepayment for investors by issuing multiple classes
of securities, each having different maturities, interest rates and
payment schedules, and with the principal and interest on the underlying
mortgages allocated among the several classes in various ways. Payment
of interest or principal on some classes or series of CMOs may be
subject to contingencies or some classes or series may bear some or all
of the risk of default on the underlying mortgages. CMOs of different
classes or series are generally retired in sequence as the underlying
mortgage loans in the mortgage pool are repaid. If enough mortgages are
repaid ahead of schedule, the classes or series of a CMO with the
earliest maturities generally will be retired prior to their maturities.

Thus, the early retirement of particular classes or series of a CMO
would have the same effect as the prepayment of mortgages underlying
other mortgage-backed securities. Conversely, slower than anticipated
prepayments can extend the effective maturities of CMOs, subjecting them
to a greater risk of decline in market value in response to rising
interest rates than traditional debt securities, and, therefore,
potentially increasing their volatility.

Prepayments could result in losses on stripped mortgage-backed
securities. Stripped mortgage-backed securities are usually structured
with two classes that receive different portions of the interest and
principal distributions on a pool of mortgage loans. The yield to
maturity on an interest only or "IO" class of stripped mortgage-backed
securities is extremely sensitive not only to changes in prevailing
interest rates but also to the rate of principal payments (including
prepayments) on the underlying assets. A rapid rate of principal
prepayments may have a measurable adverse effect on a fund's yield to
maturity to the extent it invests in IOs. If the assets underlying the
IO experience greater than anticipated prepayments of principal, a fund
may fail to recoup fully its initial investment in these securities.
Conversely, principal only or "POs" tend to increase in value if
prepayments are greater than anticipated and decline if prepayments are
slower than anticipated.

The secondary market for stripped mortgage-backed securities may be more
volatile and less liquid than that for other mortgage-backed securities,
potentially limiting a fund's ability to buy or sell those securities at
any particular time.

Hybrid Instruments

These instruments are generally considered derivatives and include
indexed or structured securities, and combine the elements of futures
contracts or options with those of debt, preferred equity or a
depository instrument. A hybrid instrument may be a debt security,
preferred stock, warrant, convertible security, certificate of deposit
or other evidence of indebtedness on which a portion of or all interest
payments, and/or the principal or stated amount payable at maturity,
redemption or retirement, is determined by reference to prices, changes
in prices, or differences between prices, of securities, currencies,
intangibles, goods, articles or commodities (collectively, "underlying
assets"), or by another objective index, economic factor or other
measure, including interest rates, currency exchange rates, or
commodities or securities indices (collectively, "benchmarks"). Hybrid
instruments may take a number of forms, including, but not limited to,
debt instruments with interest or principal payments or redemption terms
determined by reference to the value of an index at a future time,
preferred stock with dividend rates determined by reference to the value
of a currency, or convertible securities with the conversion terms
related to a particular commodity.

The risks of investing in hybrid instruments reflect a combination of
the risks of investing in securities, options, futures and currencies.
An investment in a hybrid instrument may entail significant risks that
are not associated with a similar investment in a traditional debt
instrument that has a fixed principal amount, is denominated in U.S.
dollars or bears interest either at a fixed rate or a floating rate
determined by reference to a common, nationally published benchmark. The
risks of a particular hybrid instrument will depend upon the terms of
the instrument, but may include the possibility of significant changes
in the benchmark(s) or the prices of the underlying assets to which the
instrument is linked. Such risks generally depend upon factors
unrelated to the operations or credit quality of the issuer of the
hybrid instrument, which may not be foreseen by the purchaser, such as
economic and political events, the supply and demand of the underlying
assets and interest rate movements. Hybrid instruments may be highly
volatile and their use by a fund may not be successful.

Hybrid instruments may bear interest or pay preferred dividends at below
market (or even relatively nominal) rates. Alternatively, hybrid
instruments may bear interest at above market rates but bear an
increased risk of principal loss (or gain). The latter scenario may
result if "leverage" is used to structure the hybrid instrument.
Leverage risk occurs when the hybrid instrument is structured so that a
given change in a benchmark or underlying asset is multiplied to produce
a greater value change in the hybrid instrument, thereby magnifying the
risk of loss as well as the potential for gain.

Hybrid instruments can be an efficient means of creating exposure to a
particular market, or segment of a market, with the objective of
enhancing total return. For example, a fund may wish to take advantage
of expected declines in interest rates in several European countries,
but avoid the transaction costs associated with buying and
currency-hedging the foreign bond positions. One solution would be to
purchase a U.S. dollar-denominated hybrid instrument whose redemption
price is linked to the average three year interest rate in a designated
group of countries. The redemption price formula would provide for
payoffs of less than par if rates were above the specified level.
Furthermore, a fund could limit the downside risk of the security by
establishing a minimum redemption price so that the principal paid at
maturity could not be below a predetermined minimum level if interest
rates were to rise significantly. The purpose of this arrangement,
known as a structured security with an embedded put option, would be to
give the fund the desired European bond exposure while avoiding currency
risk, limiting downside market risk, and lowering transaction costs. Of
course, there is no guarantee that the strategy will be successful and a
fund could lose money if, for example, interest rates do not move as
anticipated or credit problems develop with the issuer of the hybrid
instrument.

Hybrid instruments are potentially more volatile and carry greater
market risks than traditional debt instruments. Depending on the
structure of the particular hybrid instrument, changes in a benchmark
may be magnified by the terms of the hybrid instrument and have an even
more dramatic and substantial effect upon the value of the hybrid
instrument. Also, the prices of the hybrid instrument and the benchmark
or underlying asset may not move in the same direction or at the same
time.

Hybrid instruments may also carry liquidity risk since the instruments
are often "customized" to meet the portfolio needs of a particular
investor, and therefore, the number of investors that are willing and
able to buy such instruments in the secondary market may be smaller than
that for more traditional debt securities. Under certain conditions,
the redemption value of such an investment could be zero. In addition,
because the purchase and sale of hybrid investments could take place in
an over-the-counter market without the guarantee of a central clearing
organization, or in a transaction between the fund and the issuer of the
hybrid instrument, the creditworthiness of the counterparty of the
issuer of the hybrid instrument would be an additional risk factor a
fund would have to consider and monitor. Hybrid instruments also may
not be subject to regulation by the CFTC, which generally regulates the
trading of commodity futures by U.S. persons, the SEC, which regulates
the offer and sale of securities by and to U.S. persons, or any other
governmental regulatory authority.

Structured investments. A structured investment is a security having a
return tied to an underlying index or other security or asset class.
Structured investments generally are individually negotiated agreements
and may be traded over-the-counter. Structured investments are
organized and operated to restructure the investment characteristics of
the underlying security. This restructuring involves the deposit with
or purchase by an entity, such as a corporation or trust, or specified
instruments (such as commercial bank loans) and the issuance by that
entity or one or more classes of securities ("structured securities")
backed by, or representing interests in, the underlying instruments. The
cash flow on the underlying instruments may be apportioned among the
newly issued structured securities to create securities with different
investment characteristics, such as varying maturities, payment
priorities and interest rate provisions, and the extent of such payments
made with respect to structured securities is dependent on the extent of
the cash flow on the underlying instruments. Because structured
securities typically involve no credit enhancement, their credit risk
generally will be equivalent to that of the underlying instruments.
Investments in structured securities are generally of a class of
structured securities that is either subordinated or unsubordinated to
the right of payment of another class. Subordinated structured
securities typically have higher yields and present greater risks than
unsubordinated structured securities. Structured securities are
typically sold in private placement transactions, and there currently is
no active trading market for structured securities. Investments in
government and government-related and restructured debt instruments are
subject to special risks, including the inability or unwillingness to
repay principal and interest, requests to reschedule or restructure
outstanding debt and requests to extend additional loan amounts.

Securities of Other Investment Companies. Securities of other
investment companies, including shares of open- and closed-end
investment companies and unit investment trusts (which may include
exchange-traded funds ("ETFs")), represent interests in collective
investment portfolios that, in turn, invest directly in underlying
instruments. The fund may invest in other investment companies when it
has more uninvested cash than Putnam Management believes is advisable,
when it receives cash collateral from securities lending arrangements,
when there is a shortage of direct investments available, or when Putnam
Management believes that investment companies offer attractive values.

Investment companies may be structured to perform in a similar fashion
to a broad-based securities index or may focus on a particular strategy
or class of assets. ETFs typically seek to track the performance or
dividend yield of specific indexes or companies in related industries.
These indexes may be broad-based, sector-based or international.
Investing in investment companies involves substantially the same risks
as investing directly in the underlying instruments, but also involves
expenses at the investment company-level, such as portfolio management
fees and operating expenses. These expenses are in addition to the fees
and expenses of the fund itself, which may lead to duplication of
expenses while the fund owns another investment company's shares. In
addition, investing in investment companies involves the risk that they
will not perform in exactly the same fashion, or in response to the same
factors, as the underlying instruments or index. To the extent the fund
invests in other investment companies that are professionally managed,
its performance will also depend on the investment and research
abilities of investment managers other than Putnam Management.

Open-end investment companies typically offer their shares continuously
at net asset value plus any applicable sales charge and stand ready to
redeem shares upon shareholder request. The shares of certain other
types of investment companies, such as ETFs and closed-end investment
companies, typically trade on a stock exchange or over-the-counter at a
premium or a discount to their net asset value. In the case of
closed-end investment companies, the number of shares is typically
fixed. The securities of closed-end investment companies and ETFs carry
the risk that the price the fund pays or receives may be higher or lower
than the investment company's net asset value. ETFs and closed-end
investment companies are also subject to certain additional risks,
including the risks of illiquidity and of possible trading halts due to
market conditions or other reasons, based on the policies of the
relevant exchange. The shares of investment companies, particularly
closed-end investment companies, may also be leveraged, which would
increase the volatility of the fund's net asset value.

The extent to which the fund can invest in securities of other
investment companies, including ETFs, is generally limited by federal
securities laws.

Tax-exempt Securities

General description. As used in this SAI, the term "Tax-exempt
securities" includes debt obligations issued by a state, its political
subdivisions (for example, counties, cities, towns, villages, districts
and authorities) and their agencies, instrumentalities or other
governmental units, the interest from which is, in the opinion of bond
counsel, exempt from federal income tax and the corresponding state's
personal income tax. Such obligations are issued to obtain funds for
various public purposes, including the construction of a wide range of
public facilities, such as airports, bridges, highways, housing,
hospitals, mass transportation, schools, streets and water and sewer
works. Other public purposes for which Tax-exempt securities may be
issued include the refunding of outstanding obligations or the payment
of general operating expenses.

Short-term Tax-exempt securities are generally issued by state and local
governments and public authorities as interim financing in anticipation
of tax collections, revenue receipts or bond sales to finance such
public purposes.

In addition, certain types of "private activity" bonds may be issued by
public authorities to finance projects such as privately operated
housing facilities; certain local facilities for supplying water, gas or
electricity; sewage or solid waste disposal facilities; student loans;
or public or private institutions for the construction of educational,
hospital, housing and other facilities. Such obligations are included
within the term Tax-exempt securities if the interest paid thereon is,
in the opinion of bond counsel, exempt from federal income tax and state
personal income tax (such interest may, however, be subject to federal
alternative minimum tax). Other types of private activity bonds, the
proceeds of which are used for the construction, repair or improvement
of, or to obtain equipment for, privately operated industrial or
commercial facilities, may also constitute Tax-exempt securities,
although the current federal tax laws place substantial limitations on
the size of such issues.

Stand-by commitments. When a fund purchases Tax-exempt securities, it
has the authority to acquire stand-by commitments from banks and
broker-dealers with respect to those Tax-exempt securities. A stand-by
commitment may be considered a security independent of the Tax-exempt
security to which it relates. The amount payable by a bank or dealer
during the time a stand-by commitment is exercisable, absent unusual
circumstances, would be substantially the same as the market value of
the underlying Tax-exempt security to a third party at any time. A fund
expects that stand-by commitments generally will be available without
the payment of direct or indirect consideration. A fund does not expect
to assign any value to stand-by commitments.

Yields. The yields on Tax-exempt securities depend on a variety of
factors, including general money market conditions, effective marginal
tax rates, the financial condition of the issuer, general conditions of
the Tax-exempt security market, the size of a particular offering, the
maturity of the obligation and the rating of the issue. The ratings of
nationally recognized securities rating agencies represent their
opinions as to the credit quality of the Tax-exempt securities which
they undertake to rate. It should be emphasized, however, that ratings
are general and are not absolute standards of quality. Consequently,
Tax-exempt securities with the same maturity and interest rate but with
different ratings may have the same yield. Yield disparities may occur
for reasons not directly related to the investment quality of particular
issues or the general movement of interest rates and may be due to such
factors as changes in the overall demand or supply of various types of
Tax-exempt securities or changes in the investment objectives of
investors. Subsequent to purchase by a fund, an issue of Tax-exempt
securities or other investments may cease to be rated, or its rating may
be reduced below the minimum rating required for purchase by the fund.
Neither event will require the elimination of an investment from a
fund's portfolio, but Putnam Management will consider such an event in
its determination of whether a fund should continue to hold an
investment in its portfolio.

"Moral obligation" bonds. Each fund does not currently intend to
invest in so-called "moral obligation" bonds, where repayment is backed
by a moral commitment of an entity other than the issuer, unless the
credit of the issuer itself, without regard to the "moral obligation,"
meets the investment criteria established for investments by a fund.

Municipal leases. Each fund may acquire participations in lease
obligations or installment purchase contract obligations (collectively,
"lease obligations") of municipal authorities or entities. Lease
obligations do not constitute general obligations of the municipality
for which the municipality's taxing power is pledged. Certain of these
lease obligations contain "non-appropriation" clauses, which provide
that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such
purpose on a yearly basis. In the case of a "non-appropriation" lease, a
fund's ability to recover under the lease in the event of
non-appropriation or default will be limited solely to the repossession
of the leased property, and in any event, foreclosure of that property
might prove difficult.

Inverse Floaters have variable interest rates that typically move in the
opposite direction from movements in prevailing short-term interest rate
levels - rising when prevailing short-term interest rate fall, and vice
versa. The prices of inverse floaters can be considerably more volatile
than the prices of bonds with comparable maturities.

Additional risks. Securities in which a fund may invest, including
Tax-exempt securities, are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of
creditors, such as the federal Bankruptcy Code (including special
provisions related to municipalities and other public entities), and
laws, if any, that may be enacted by Congress or state legislatures
extending the time for payment of principal or interest, or both, or
imposing other constraints upon enforcement of such obligations. There
is also the possibility that, as a result of litigation or other
conditions, the power, ability or willingness of issuers to meet their
obligations for the payment of interest and principal on their
Tax-exempt securities may be materially affected.

From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax
exemption for interest on debt obligations issued by states and their
political subdivisions. Federal tax laws limit the types and amounts of
tax-exempt bonds issuable for certain purposes, especially industrial
development bonds and private activity bonds. Such limits may affect
the future supply and yields of these types of Tax-exempt securities.
Further proposals limiting the issuance of Tax-exempt securities may
well be introduced in the future. If it appeared that the availability
of Tax-exempt securities for investment by a fund and the value of a
fund's portfolio could be materially affected by such changes in law,
the Trustees of a fund would reevaluate its investment objective and
policies and consider changes in the structure of a fund or its
dissolution.

Convertible Securities

Convertible securities include bonds, debentures, notes, preferred
stocks and other securities that may be converted into or exchanged for,
at a specific price or formula within a particular period of time, a
prescribed amount of common stock or other equity securities of the same
or a different issuer. Convertible securities entitle the holder to
receive interest paid or accrued on debt or dividends paid or accrued on
preferred stock until the security matures or is redeemed, converted or
exchanged.

The market value of a convertible security is a function of its
"investment value" and its "conversion value." A security's "investment
value" represents the value of the security without its conversion
feature (i.e., a nonconvertible fixed income security). The investment
value may be determined by reference to its credit quality and the
current value of its yield to maturity or probable call date. At any
given time, investment value is dependent upon such factors as the
general level of interest rates, the yield of similar nonconvertible
securities, the financial strength of the issuer and the seniority of
the security in the issuer's capital structure. A security's "conversion
value" is determined by multiplying the number of shares the holder is
entitled to receive upon conversion or exchange by the current price of
the underlying security.

If the conversion value of a convertible security is significantly below
its investment value, the convertible security will trade like
nonconvertible debt or preferred stock and its market value will not be
influenced greatly by fluctuations in the market price of the underlying
security. Conversely, if the conversion value of a convertible security
is near or above its investment value, the market value of the
convertible security will be more heavily influenced by fluctuations in
the market price of the underlying security.

A fund's investments in convertible securities may at times include
securities that have a mandatory conversion feature, pursuant to which
the securities convert automatically into common stock or other equity
securities at a specified date and a specified conversion ratio, or that
are convertible at the option of the issuer. Because conversion of the
security is not at the option of the holder, a fund may be required to
convert the security into the underlying common stock even at times when
the value of the underlying common stock or other equity security has
declined substantially.

A fund's investments in convertible securities, particularly securities
that are convertible into securities of an issuer other than the issuer
of the convertible security, may be illiquid. A fund may not be able to
dispose of such securities in a timely fashion or for a fair price,
which could result in losses to the fund.

Alternative Investment Strategies

Under normal market conditions, each fund seeks to remain fully invested
and to minimize its cash holdings. However, at times Putnam Management
may judge that market conditions make pursuing a fund's investment
strategies inconsistent with the best interests of its shareholders.
Putnam Management then may temporarily use alternative strategies that
are mainly designed to limit the fund's losses. In implementing these
strategies, the funds may invest primarily in debt securities, preferred
stocks, U.S. Government and agency obligations, cash or money market
instruments, or any other securities Putnam Management considers
consistent with such defensive strategies.

Money market instruments, or short-term debt instruments, consist of
obligations such as commercial paper, bank obligations (i.e.,
certificates of deposit and bankers' acceptances), repurchase agreements
and various government obligations, such as Treasury bills. These
instruments have a remaining maturity of one year or less and are
generally of high credit quality. Money market instruments may be
structured to be, or may employ a trust or other form so that they are,
eligible investments for money market funds. For example, put features
can be used to modify the maturity of a security or interest rate
adjustment features can be used to enhance price stability. If a
structure fails to function as intended, adverse tax or investment
consequences may result. Neither the Internal Revenue Service (IRS) nor
any other regulatory authority has ruled definitively on certain legal
issues presented by certain structured securities. Future tax or other
regulatory determinations could adversely affect the value, liquidity,
or tax treatment of the income received from these securities or the
nature and timing of distributions made by the funds.

Private Placements and Restricted Securities

A fund may invest in securities that are purchased in private placements
and, accordingly, are subject to restrictions on resale as a matter of
contract or under federal securities laws. Because there may be
relatively few potential purchasers for such investments, especially
under adverse market or economic conditions or in the event of adverse
changes in the financial condition of the issuer, a fund could find it
more difficult to sell such securities when Putnam Management believes
it advisable to do so or may be able to sell such securities only at
prices lower than if such securities were more widely held. At times,
it may also be more difficult to determine the fair value of such
securities for purposes of computing the fund's net asset value.

While such private placements may often offer attractive opportunities
for investment not otherwise available on the open market, the
securities so purchased are often "restricted securities," i.e.,
securities which cannot be sold to the public without registration
under the Securities Act of 1933 or the availability of an exemption
from registration (such as Rules 144 or 144A), or which are "not readily
marketable" because they are subject to other legal or contractual
delays in or restrictions on resale.

The absence of a trading market can make it difficult to ascertain a
market value for illiquid investments. Disposing of illiquid
investments may involve time-consuming negotiation and legal expenses,
and it may be difficult or impossible for a fund to sell them promptly
at an acceptable price. A fund may have to bear the extra expense of
registering such securities for resale and the risk of substantial delay
in effecting such registration. Also market quotations are less readily
available. The judgment of Putnam Management may at times play a greater
role in valuing these securities than in the case of publicly traded
securities.

Generally speaking, restricted securities may be sold only to qualified
institutional buyers, or in a privately negotiated transaction to a
limited number of purchasers, or in limited quantities after they have
been held for a specified period of time and other conditions are met
pursuant to an exemption from registration, or in a public offering for
which a registration statement is in effect under the Securities Act of
1933. A fund may be deemed to be an "underwriter" for purposes of the
Securities Act of 1933 when selling restricted securities to the public,
and in such event the fund may be liable to purchasers of such
securities if the registration statement prepared by the issuer, or the
prospectus forming a part of it, is materially inaccurate or misleading.

The SEC Staff currently takes the view that any delegation by the
Trustees of the authority to determine that a restricted security is
readily marketable (as described in the investment restrictions of the
funds) must be pursuant to written procedures established by the
Trustees and the Trustees have delegated such authority to Putnam
Management.

Futures Contracts and Related Options

Subject to applicable law each fund may invest without limit in futures
contracts and related options for hedging and non-hedging purposes, such
as to manage the effective duration of the fund's portfolio or as a
substitute for direct investment. A financial futures contract sale
creates an obligation by the seller to deliver the type of financial
instrument called for in the contract in a specified delivery month for
a stated price. A financial futures contract purchase creates an
obligation by the purchaser to take delivery of the type of financial
instrument called for in the contract in a specified delivery month at a
stated price. The specific instruments delivered or taken,
respectively, at settlement date are not determined until on or near
that date. The determination is made in accordance with the rules of
the exchange on which the futures contract sale or purchase was made.
Futures contracts are traded in the United States only on commodity
exchanges or boards of trade -- known as "contract markets" -- approved
for such trading by the Commodity Futures Trading Commission (the
"CFTC"), and must be executed through a futures commission merchant or
brokerage firm which is a member of the relevant contract market.

Although futures contracts (other than index futures) by their terms
call for actual delivery or acceptance of commodities or securities, in
most cases the contracts are closed out before the settlement date
without the making or taking of delivery. Closing out a futures
contract sale is effected by purchasing a futures contract for the same
aggregate amount of the specific type of financial instrument or
commodity with the same delivery date. If the price of the initial sale
of the futures contract exceeds the price of the offsetting purchase,
the seller is paid the difference and realizes a gain. Conversely, if
the price of the offsetting purchase exceeds the price of the initial
sale, the seller realizes a loss. If a fund is unable to enter into a
closing transaction, the amount of the fund's potential loss is
unlimited. The closing out of a futures contract purchase is effected
by the purchaser's entering into a futures contract sale. If the
offsetting sale price exceeds the purchase price, the purchaser realizes
a gain, and if the purchase price exceeds the offsetting sale price, he
realizes a loss. In general, 40% of the gain or loss arising from the
closing out of a futures contract traded on an exchange approved by the
CFTC is treated as short-term gain or loss, and 60% is treated as
long-term gain or loss.

Unlike when a fund purchases or sells a security, no price is paid or
received by a fund upon the purchase or sale of a futures contract. Upon
entering into a contract, a fund is required to deposit with its
custodian in a segregated account in the name of the futures broker an
amount of liquid assets. This amount is known as "initial margin." The
nature of initial margin in futures transactions is different from that
of margin in security transactions in that futures contract margin does
not involve the borrowing of funds to finance the transactions. Rather,
initial margin is similar to a performance bond or good faith deposit
which is returned to a fund upon termination of the futures contract,
assuming all contractual obligations have been satisfied. Futures
contracts also involve brokerage costs.

Subsequent payments, called "variation margin" or "maintenance margin,"
to and from the broker (or the custodian) are made on a daily basis as
the price of the underlying security or commodity fluctuates, making the
long and short positions in the futures contract more or less valuable,
a process known as "marking to the market." For example, when a fund
has purchased a futures contract on a security and the price of the
underlying security has risen, that position will have increased in
value and the fund will receive from the broker a variation margin
payment based on that increase in value. Conversely, when a fund has
purchased a security futures contract and the price of the underlying
security has declined, the position would be less valuable and the fund
would be required to make a variation margin payment to the broker.

A fund may elect to close some or all of its futures positions at any
time prior to their expiration in order to reduce or eliminate a hedge
position then currently held by the fund. The fund may close its
positions by taking opposite positions which will operate to terminate
the fund's position in the futures contracts. Final determinations of
variation margin are then made, additional cash is required to be paid
by or released to the fund, and the fund realizes a loss or a gain. Such
closing transactions involve additional commission costs.

Each fund does not intend to purchase or sell futures or related options
for other than hedging purposes, if, as a result, the sum of the initial
margin deposits on a fund's existing futures and related options
positions and premiums paid for outstanding options on futures contracts
would exceed 5% of a fund's net assets.

Each fund has claimed an exclusion from the definition of the term
"commodity pool operator" under the Commodity Exchange Act (the "CEA"),
and therefore, is not subject to registration or regulation as a pool
operator under the CEA.

Options on futures contracts. Each fund may purchase and write call and
put options on futures contracts it may buy or sell and enter into
closing transactions with respect to such options to terminate existing
positions. In return for the premium paid, options on futures contracts
give the purchaser the right to assume a position in a futures contract
at the specified option exercise price at any time during the period of
the option. A fund may use options on futures contracts in lieu of
writing or buying options directly on the underlying securities or
purchasing and selling the underlying futures contracts. For example,
to hedge against a possible decrease in the value of its portfolio
securities, a fund may purchase put options or write call options on
futures contracts rather than selling futures contracts. Similarly, a
fund may purchase call options or write put options on futures contracts
as a substitute for the purchase of futures contracts to hedge against a
possible increase in the price of securities which the fund expects to
purchase. Such options generally operate in the same manner as options
purchased or written directly on the underlying investments.

As with options on securities, the holder or writer of an option may
terminate his position by selling or purchasing an offsetting option.
There is no guarantee that such closing transactions can be effected.

A fund will be required to deposit initial margin and maintenance margin
with respect to put and call options on futures contracts written by it
pursuant to brokers' requirements similar to those described above in
connection with the discussion of futures contracts.

Risks of transactions in futures contracts and related options.
Successful use of futures contracts by a fund is subject to Putnam
Management's ability to predict movements in various factors affecting
securities markets, including interest rates. Compared to the purchase
or sale of futures contracts, the purchase of call or put options on
futures contracts involves less potential risk to a fund because the
maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the
purchase of a call or put option on a futures contract would result in a
loss to a fund when the purchase or sale of a futures contract would
not, such as when there is no movement in the prices of the hedged
investments. The writing of an option on a futures contract involves
risks similar to those risks relating to the sale of futures contracts.

The use of options and futures strategies also involves the risk of
imperfect correlation among movements in the prices of the securities
underlying the futures and options purchased and sold by a fund, of the
options and futures contracts themselves, and, in the case of hedging
transactions, of the securities which are the subject of a hedge. The
successful use of these strategies further depends on the ability of
Putnam Management to forecast interest rates and market movements
correctly.

There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at times, render certain market
clearing facilities inadequate, and thereby result in the institution by
exchanges of special procedures which may interfere with the timely
execution of customer orders.

To reduce or eliminate a position held by a fund, a fund may seek to
close out such a position. The ability to establish and close out
positions will be subject to the development and maintenance of a liquid
secondary market. It is not certain that this market will develop or
continue to exist for a particular futures contract or option. Reasons
for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain
contracts or options; (ii) restrictions may be imposed by an exchange on
opening transactions or closing transactions or both; (iii) trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of contracts or options, or underlying
securities; (iv) unusual or unforeseen circumstances may interrupt
normal operations on an exchange; (v) the facilities of an exchange or a
clearing corporation may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue
the trading of contracts or options (or a particular class or series of
contracts or options), in which event the secondary market on that
exchange for such contracts or options (or in the class or series of
contracts or options) would cease to exist, although outstanding
contracts or options on the exchange that had been issued by a clearing
corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.

U.S. Treasury security futures contracts and options. U.S. Treasury
security futures contracts require the seller to deliver, or the
purchaser to take delivery of, the type of U.S. Treasury security called
for in the contract at a specified date and price. Options on U.S.
Treasury security futures contracts give the purchaser the right in
return for the premium paid to assume a position in a U.S. Treasury
security futures contract at the specified option exercise price at any
time during the period of the option.

Successful use of U.S. Treasury security futures contracts by a fund is
subject to Putnam Management's ability to predict movements in the
direction of interest rates and other factors affecting markets for debt
securities. For example, if a fund has sold U.S. Treasury security
futures contracts in order to hedge against the possibility of an
increase in interest rates which would adversely affect securities held
in its portfolio, and the prices of the fund's securities increase
instead as a result of a decline in interest rates, the fund will lose
part or all of the benefit of the increased value of its securities
which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if a fund has
insufficient cash, it may have to sell securities to meet daily
maintenance margin requirements at a time when it may be disadvantageous
to do so.

There is also a risk that price movements in U.S. Treasury security
futures contracts and related options will not correlate closely with
price movements in markets for particular securities. For example, if a
fund has hedged against a decline in the values of tax-exempt securities
held by it by selling Treasury security futures and the values of
Treasury securities subsequently increase while the values of its
tax-exempt securities decrease, the fund would incur losses on both the
Treasury security futures contracts written by it and the tax-exempt
securities held in its portfolio.

Index futures contracts. An index futures contract is a contract to buy
or sell units of an index at a specified future date at a price agreed
upon when the contract is made. Entering into a contract to buy units
of an index is commonly referred to as buying or purchasing a contract
or holding a long position in the index. Entering into a contract to
sell units of an index is commonly referred to as selling a contract or
holding a short position. A unit is the current value of the index. A
fund may enter into stock index futures contracts, debt index futures
contracts, or other index futures contracts appropriate to its
objective(s). A fund may also purchase and sell options on index
futures contracts.

For example, the Standard & Poor's 500 Composite Stock Price Index ("S&P
500") is composed of 500 selected common stocks, most of which are
listed on the New York Stock Exchange. The S&P 500 assigns relative
weightings to the common stocks included in the Index, and the value
fluctuates with changes in the market values of those common stocks. In
the case of the S&P 500, contracts are to buy or sell 500 units. Thus,
if the value of the S&P 500 were $150, one contract would be worth
$75,000 (500 units x $150). The stock index futures contract specifies
that no delivery of the actual stocks making up the index will take
place. Instead, settlement in cash must occur upon the termination of
the contract, with the settlement being the difference between the
contract price and the actual level of the stock index at the expiration
of the contract. For example, if a fund enters into a futures contract
to buy 500 units of the S&P 500 at a specified future date at a contract
price of $150 and the S&P 500 is at $154 on that future date, the fund
will gain $2,000 (500 units x gain of $4). If a fund enters into a
futures contract to sell 500 units of the stock index at a specified
future date at a contract price of $150 and the S&P 500 is at $152 on
that future date, the fund will lose $1,000 (500 units x loss of $2).

There are several risks in connection with the use by a fund of index
futures. One risk arises because of the imperfect correlation between
movements in the prices of the index futures and movements in the prices
of securities which are the subject of the hedge. Putnam Management
will, however, attempt to reduce this risk by buying or selling, to the
extent possible, futures on indices the movements of which will, in its
judgment, have a significant correlation with movements in the prices of
the securities sought to be hedged.

Successful use of index futures by a fund is also subject to Putnam
Management's ability to predict movements in the direction of the
market. For example, it is possible that, where a fund has sold futures
to hedge its portfolio against a decline in the market, the index on
which the futures are written may advance and the value of securities
held in the fund's portfolio may decline. If this occurred, a fund
would lose money on the futures and also experience a decline in value
in its portfolio securities. It is also possible that, if a fund has
hedged against the possibility of a decline in the market adversely
affecting securities held in its portfolio and securities prices
increase instead, the fund will lose part or all of the benefit of the
increased value of those securities it has hedged because it will have
offsetting losses in its futures positions. In addition, in such
situations, if a fund has insufficient cash, it may have to sell
securities to meet daily variation margin requirements at a time when it
is disadvantageous to do so.

In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the index
futures and the portion of the portfolio being hedged, the prices of
index futures may not correlate perfectly with movements in the
underlying index due to certain market distortions. First, all
participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the
index and futures markets. Second, margin requirements in the futures
market are less onerous than margin requirements in the securities
market, and as a result the futures market may attract more speculators
than the securities market does. Increased participation by speculators
in the futures market may also cause temporary price distortions. Due
to the possibility of price distortions in the futures market and also
because of the imperfect correlation between movements in the index and
movements in the prices of index futures, even a correct forecast of
general market trends by Putnam Management may still not result in a
profitable position over a short time period.

Options on stock index futures. Options on index futures are similar to
options on securities except that options on index futures give the
purchaser the right, in return for the premium paid, to assume a
position in an index futures contract (a long position if the option is
a call and a short position if the option is a put) at a specified
exercise price at any time during the period of the option. Upon
exercise of the option, the delivery of the futures position by the
writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer's futures margin
account which represents the amount by which the market price of the
index futures contract, at exercise, exceeds (in the case of a call) or
is less than (in the case of a put) the exercise price of the option on
the index future. If an option is exercised on the last trading day
prior to its expiration date, the settlement will be made entirely in
cash equal to the difference between the exercise price of the option
and the closing level of the index on which the future is based on the
expiration date. Purchasers of options who fail to exercise their
options prior to the exercise date suffer a loss of the premium paid.

Options on Indices

As an alternative to purchasing call and put options on index futures,
each fund may purchase and sell call and put options on the underlying
indices themselves. Such options would be used in a manner identical to
the use of options on index futures.

Index Warrants

Each fund may purchase put warrants and call warrants whose values vary
depending on the change in the value of one or more specified securities
indices ("index warrants"). Index warrants are generally issued by
banks or other financial institutions and give the holder the right, at
any time during the term of the warrant, to receive upon exercise of the
warrant a cash payment from the issuer based on the value of the
underlying index at the time of exercise. In general, if the value of
the underlying index rises above the exercise price of the index
warrant, the holder of a call warrant will be entitled to receive a cash
payment from the issuer upon exercise based on the difference between
the value of the index and the exercise price of the warrant; if the
value of the underlying index falls, the holder of a put warrant will be
entitled to receive a cash payment from the issuer upon exercise based
on the difference between the exercise price of the warrant and the
value of the index. The holder of a warrant would not be entitled to
any payments from the issuer at any time when, in the case of a call
warrant, the exercise price is greater than the value of the underlying
index, or, in the case of a put warrant, the exercise price is less than
the value of the underlying index. If a fund were not to exercise an
index warrant prior to its expiration, then the fund would lose the
amount of the purchase price paid by it for the warrant.

A fund will normally use index warrants in a manner similar to its use
of options on securities indices. The risks of a fund's use of index
warrants are generally similar to those relating to its use of index
options. Unlike most index options, however, index warrants are issued
in limited amounts and are not obligations of a regulated clearing
agency, but are backed only by the credit of the bank or other
institution which issues the warrant. Also, index warrants generally
have longer terms than index options. Although a fund will normally
invest only in exchange-listed warrants, index warrants are not likely
to be as liquid as certain index options backed by a recognized clearing
agency. In addition, the terms of index warrants may limit a fund's
ability to exercise the warrants at such time, or in such quantities, as
the fund would otherwise wish to do.

Short-term Trading

In seeking each fund's objective(s), Putnam Management will buy or sell
portfolio securities whenever Putnam Management believes it appropriate
to do so. From time to time a fund will buy securities intending to
seek short-term trading profits. A change in the securities held by a
fund is known as "portfolio turnover" and generally involves some
expense to the fund. This expense may include brokerage commissions or
dealer markups and other transaction costs on both the sale of
securities and the reinvestment of the proceeds in other securities. If
sales of portfolio securities cause a fund to realize net short-term
capital gains, such gains will be taxable as ordinary income. As a
result of a fund's investment policies, under certain market conditions
a fund's portfolio turnover rate may be higher than that of other mutual
funds. Portfolio turnover rate for a fiscal year is the ratio of the
lesser of purchases or sales of portfolio securities to the monthly
average of the value of portfolio securities -- excluding securities
whose maturities at acquisition were one year or less. A fund's
portfolio turnover rate is not a limiting factor when Putnam Management
considers a change in a fund's portfolio.

Securities Loans

Each fund may make secured loans of its portfolio securities, on either
a short-term or long-term basis, amounting to not more than 25% of its
total assets, thereby realizing additional income. The risks in lending
portfolio securities, as with other extensions of credit, consist of
possible delay in recovery of the securities or possible loss of rights
in the collateral should the borrower fail financially. As a matter of
policy, securities loans are made to broker-dealers pursuant to
agreements requiring that the loans be continuously secured by
collateral consisting of cash or short-term debt obligations at least
equal at all times to the value of the securities on loan,
"marked-to-market" daily. The borrower pays to a fund an amount equal
to any dividends or interest received on securities lent. The fund
retains all or a portion of the interest received on investment of the
cash collateral or receives a fee from the borrower. Although voting
rights, or rights to consent, with respect to the loaned securities may
pass to the borrower, the fund retains the right to call the loans at
any time on reasonable notice, and it will do so to enable the fund to
exercise voting rights on any matters materially affecting the
investment. The fund may also call such loans in order to sell the
securities.

Repurchase Agreements

Each fund may enter into repurchase agreements, amounting to not more than
25% of its total assets. Money market funds may invest without limit in
repurchase agreements. A repurchase agreement is a contract under which a
fund acquires a security for a relatively short period (usually not more
than one week) subject to the obligation of the seller to repurchase and
the fund to resell such security at a fixed time and price (representing
the fund's cost plus interest). It is each fund's present intention to
enter into repurchase agreements only with commercial banks and registered
broker-dealers and only with respect to obligations of the U.S. government
or its agencies or instrumentalities. Repurchase agreements may also be
viewed as loans made by a fund which are collateralized by the securities
subject to repurchase. Putnam Management will monitor such transactions to
ensure that the value of the underlying securities will be at least equal
at all times to the total amount of the repurchase obligation, including
the interest factor. If the seller defaults, a fund could realize a loss
on the sale of the underlying security to the extent that the proceeds of
the sale including accrued interest are less than the resale price provided
in the agreement including interest. In addition, if the seller should be
involved in bankruptcy or insolvency proceedings, a fund may incur delay
and costs in selling the underlying security or may suffer a loss of
principal and interest if the fund is treated as an unsecured creditor and
required to return the underlying collateral to the seller's estate.

Pursuant to an exemptive order issued by the Securities and Exchange
Commission, a fund may transfer uninvested cash balances into a joint
account, along with cash of other Putnam funds and certain other
accounts. These balances may be invested in one or more repurchase
agreements and/or short-term money market instruments.

Forward Commitments

Each fund may enter into contracts to purchase securities for a fixed
price at a future date beyond customary settlement time ("forward
commitments") if a fund sets aside, on the books and records of its
custodian, liquid assets in an amount sufficient to meet the purchase
price, or if a fund enters into offsetting contracts for the forward
sale of other securities it owns. In the case of to-be-announced
("TBA") purchase commitments, the unit price and the estimated principal
amount are established when a fund enters into a contract, with the
actual principal amount being within a specified range of the estimate.
Forward commitments may be considered securities in themselves, and
involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date, which risk is in addition to the
risk of decline in the value of a fund's other assets. Where such
purchases are made through dealers, a fund relies on the dealer to
consummate the sale. The dealer's failure to do so may result in the
loss to the fund of an advantageous yield or price. Although a fund
will generally enter into forward commitments with the intention of
acquiring securities for its portfolio or for delivery pursuant to
options contracts it has entered into, the fund may dispose of a
commitment prior to settlement if Putnam Management deems it appropriate
to do so. A fund may realize short-term profits or losses upon the sale
of forward commitments.

Each fund may enter into TBA sale commitments to hedge its portfolio
positions or to sell securities it owns under delayed delivery
arrangements. Proceeds of TBA sale commitments are not received until
the contractual settlement date. During the time a TBA sale commitment
is outstanding, equivalent deliverable securities, or an offsetting TBA
purchase commitment deliverable on or before the sale commitment date,
are held as "cover" for the transaction. Unsettled TBA sale commitments
are valued at current market value of the underlying securities. If the
TBA sale commitment is closed through the acquisition of an offsetting
purchase commitment, the fund realizes a gain or loss on the commitment
without regard to any unrealized gain or loss on the underlying
security. If a fund delivers securities under the commitment, the fund
realizes a gain or loss from the sale of the securities based upon the
unit price established at the date the commitment was entered into.

Swap Agreements

Each fund may enter into swap agreements and other types of
over-the-counter transactions with broker-dealers or other financial
institutions. Depending on their structures, swap agreements may
increase or decrease a fund's exposure to long-or short-term interest
rates (in the United States or abroad), foreign currency values,
mortgage securities, corporate borrowing rates, or other factors such as
security prices or inflation rates. The value of a fund's swap
positions would increase or decrease depending on the changes in value
of the underlying rates, currency values, or other indices or measures.
A fund's ability to engage in certain swap transactions may be limited
by tax considerations.

A fund's ability to realize a profit from such transactions will depend
on the ability of the financial institutions with which it enters into
the transactions to meet their obligations to the fund. Under certain
circumstances, suitable transactions may not be available to a fund, or
a fund may be unable to close out its position under such transactions
at the same time, or at the same price, as if it had purchased
comparable publicly traded securities.

Derivatives

Certain of the instruments in which a fund may invest, such as futures
contracts, options and forward contracts, are considered to be
"derivatives." Derivatives are financial instruments whose value
depends upon, or is derived from, the value of an underlying asset, such
as a security or an index. Further information about these instruments
and the risks involved in their use is included elsewhere in the
Prospectus or in this SAI. A fund's use of derivatives may cause the
fund to recognize higher amounts of short-term capital gains, generally
taxed to shareholders at ordinary income tax rates. Investments in
derivatives may be applied toward meeting a requirement to invest in a
particular kind of investment if the derivatives have economic
characteristics similar to that investment.

Industry and Sector Groups

Putnam uses a customized set of industry and sector groups for
classifying securities ("Putnam Investment Codes"). The Putnam
Investment Codes are based on an expanded Standard & Poor's industry
classification model, modified to be more representative of global
investing and more applicable to both large and small capitalization
securities.

TAXES

The following discussion of U.S. Federal income tax consequences is
based on the Internal Revenue Code of 1986, as amended (the "Code"),
existing U.S. Treasury regulations, and other applicable authority, as
of the date of this SAI. These authorities are subject to change by
legislative or administrative action, possibly with retroactive effect.
The following discussion is only a summary of some of the important U.S.
Federal tax considerations generally applicable to investments in each
fund. There may be other tax considerations applicable to particular
shareholders. Shareholders should consult their own tax advisers
regarding their particular situation and the possible application of
foreign, state and local tax laws.

Taxation of the funds. Each fund intends to qualify each year as a
regulated investment company under Subchapter M of the Code. In order
to qualify for the special tax treatment accorded regulated investment
companies and their shareholders, a fund must, among other things:

(a) derive at least 90% of its gross income from dividends, interest,
payments with respect to certain securities loans, and gains from the
sale of stock, securities and foreign currencies, or other income
(including but not limited to gains from options, futures, or forward
contracts) derived with respect to its business of investing in such
stock, securities, or currencies;

(b) distribute with respect to each taxable year at least 90% of the sum
of its taxable net investment income, its net tax-exempt income, and the
excess, if any, of net short-term capital gains over net long-term
capital losses for such year; and

(c) diversify its holdings so that, at the end of each fiscal quarter,
(i) at least 50% of the market value of the fund's assets is represented
by cash and cash items, U.S. government securities, securities of other
regulated investment companies, and other securities limited in respect
of any one issuer to a value not greater than 5% of the value of the
fund's total assets and to not more than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of
its assets is invested in the securities (other than those of the U.S.
Government or other regulated investment companies) of any one issuer or
of two or more issuers which the fund controls and which are engaged in
the same, similar, or related trades or businesses.

If a fund qualifies as a regulated investment company that is accorded
special tax treatment, the fund will not be subject to federal income
tax on income distributed in a timely manner, to its shareholders in the
form of dividends (including capital gain dividends).

If a fund failed to qualify as a regulated investment company accorded
special tax treatment in any taxable year, the fund would be subject to
tax on its taxable income at corporate rates, and all distributions from
earnings and profits, including any distributions of net tax-exempt
income and net long-term capital gains, would be taxable to shareholders
as ordinary income. In addition, the fund could be required to
recognize unrealized gains, pay substantial taxes and interest and make
substantial distributions before requalifying as a regulated investment
company that is accorded special tax treatment.

If a fund fails to distribute in a calendar year substantially all of
its ordinary income for such year and substantially all of its capital
gain net income for the one-year period ending October 31 (or later if
the fund is permitted so to elect and so elects), plus any retained
amount from the prior year, the fund will be subject to a 4% excise tax
on the undistributed amounts. A dividend paid to shareholders by the
fund in January of a year generally is deemed to have been paid by the
fund on December 31 of the preceding year, if the dividend was declared
and payable to shareholders of record on a date in October, November or
December of that preceding year. Each fund intends generally to make
distributions sufficient to avoid imposition of the 4% excise tax.

Fund distributions. Distributions from each fund (other than
exempt-interest dividends, as discussed below) will be taxable to
shareholders as ordinary income to the extent derived from the fund's
investment income and net short-term capital gains. Distributions of
net capital gains (that is, the excess of net gains from the sale of
capital assets held more than one year over net losses from the sale of
capital assets held for not more than one year) will be taxable to
shareholders as such, regardless of how long a shareholder has held the
shares in a fund.

For taxable years beginning on or before December 31, 2008, "qualified
dividend income" received by an individual will be taxed at the rates
applicable to long-term capital gain. In order for some portion of the
dividends received by a fund shareholder to be qualified dividend
income, a fund must meet holding period and other requirements with
respect to some portion of the dividend paying stocks in its portfolio
and the shareholder must meet holding period and other requirements with
respect to a fund's shares. A dividend will not be treated as qualified
dividend income (at either the fund or shareholder level) (1) if the
dividend is received with respect to any share of stock held for fewer
than 61 days during the 120-day period beginning on the date which is 60
days before the date on which such share becomes ex-dividend with
respect to such dividend (or, in the case of certain preferred stock, 91
days during the 180-day period beginning 90 days before such date), (2)
to the extent that the recipient is under an obligation (whether
pursuant to a short sale or otherwise) to make related payments with
respect to positions in substantially similar or related property, (3)
if the recipient elects to have the dividend income treated as
investment income for purposes of the limitation on deductibility of
investment interest, or (4) if the dividend is received from a foreign
corporation that is (a) not eligible for the benefits of a comprehensive
income tax treaty with the United States (with the exception of
dividends paid on stock of such a foreign corporation readily tradable
on an established securities market in the United States) or (b) treated
as a foreign personal holding company, foreign investment company, or
passive foreign investment company.

In general, distributions of investment income designated by a fund as
derived from qualified dividend income will be treated as qualified
dividend income by a shareholder taxed as an individual provided the
shareholder meets the holding period and other requirements described
above with respect to the fund's shares. Only qualified dividend income
received by a fund after December 31, 2002 is eligible for pass-through
treatment. If the aggregate qualified dividends received by a fund
during any taxable year are 95% or more of its gross income, then 100%
of the fund's dividends (other than properly designated capital gain
dividends) will be eligible to be treated as qualified dividend income.
For this purpose, the only gain included in the term "gross income" is
the excess of net short-term capital gain over net long-term capital
loss.

Long-term capital gain rates applicable to individuals have been
temporarily reduced--in general, to 15% with lower rates applying to
taxpayers in the 10% and 15% rate brackets-- for taxable years beginning
on or before December 31, 2008.

Exempt-interest dividends. Each fund will be qualified to pay
exempt-interest dividends to its shareholders only if, at the close of
each quarter of a fund's taxable year, at least 50% of the total value
of the fund's assets consists of obligations the interest on which is
exempt from federal income tax. Distributions that a fund properly
designates as exempt-interest dividends are treated as interest
excludable from shareholders' gross income for federal income tax
purposes but may be taxable for federal alternative minimum tax purposes
and for state and local purposes. If a fund intends to be qualified to
pay exempt-interest dividends, the fund may be limited in its ability to
enter into taxable transactions involving forward commitments,
repurchase agreements, financial futures and options contracts on
financial futures, tax-exempt bond indices and other assets.

Part or all of the interest on indebtedness, if any, incurred or
continued by a shareholder to purchase or carry shares of a fund paying
exempt-interest dividends is not deductible. The portion of interest
that is not deductible is equal to the total interest paid or accrued on
the indebtedness, multiplied by the percentage of a fund's total
distributions (not including distributions from net long-term capital
gains) paid to the shareholder that are exempt-interest dividends.
Under rules used by the Internal Revenue Service to determine when
borrowed funds are considered used for the purpose of purchasing or
carrying particular assets, the purchase of shares may be considered to
have been made with borrowed funds even though such funds are not
directly traceable to the purchase of shares.

In general, exempt-interest dividends, if any, attributable to interest
received on certain private activity obligations and certain industrial
development bonds will not be tax-exempt to any shareholders who are
"substantial users" of the facilities financed by such obligations or
bonds or who are "related persons" of such substantial users.

A fund that is qualified to pay exempt-interest dividends will inform
investors within 60 days of the fund's fiscal year-end of the percentage
of its income distributions designated as tax-exempt. The percentage is
applied uniformly to all distributions made during the year. The
percentage of income designated as tax-exempt for any particular
distribution may be substantially different from the percentage of the
fund's income that was tax-exempt during the period covered by the
distribution.

Hedging transactions. If a fund engages in hedging transactions,
including hedging transactions in options, futures contracts, and
straddles, or other similar transactions, it will be subject to special
tax rules (including constructive sale, mark-to-market, straddle, wash
sale, and short sale rules), the effect of which may be to accelerate
income to the fund, defer losses to the fund, cause adjustments in the
holding periods of the fund's securities, convert long-term capital
gains into short-term capital gains or convert short-term capital losses
into long-term capital losses. These rules could therefore affect the
amount, timing and character of distributions to shareholders. Each
fund will endeavor to make any available elections pertaining to such
transactions in a manner believed to be in the best interests of the
fund.

Certain of a fund's hedging activities (including its transactions, if
any, in foreign currencies or foreign currency-denominated instruments)
are likely to produce a difference between its book income and its
taxable income. If a fund's book income exceeds its taxable income, the
distribution (if any) of such excess will be treated as (i) a dividend
to the extent of the fund's remaining earnings and profits (including
earnings and profits arising from tax-exempt income), (ii) thereafter as
a return of capital to the extent of the recipient's basis in the
shares, and (iii) thereafter as gain from the sale or exchange of a
capital asset. If a fund's book income is less than its taxable income,
(or, for tax-exempt funds, the sum of its net tax-exempt and taxable
income), the fund could be required to make distributions exceeding book
income to qualify as a regulated investment company that is accorded
special tax treatment.

Return of capital distributions. If a fund makes a distribution to you
in excess of its current and accumulated "earnings and profits" in any
taxable year, the excess distribution will be treated as a return of
capital to the extent of your tax basis in your shares, and thereafter
as capital gain. A return of capital is not taxable, but it reduces
your tax basis in your shares, thus reducing any loss or increasing any
gain on a subsequent taxable disposition by you of your shares.

Dividends and distributions on a fund's shares are generally subject to
federal income tax as described herein to the extent they do not exceed
the fund's realized income and gains, even though such dividends and
distributions may economically represent a return of a particular
shareholder's investment. Such distributions are likely to occur in
respect of shares purchased at a time when a fund's net asset value
reflects gains that are either unrealized, or realized but not
distributed. Distributions are taxable to a shareholder even if they
are paid from income or gains earned by a fund prior to the
shareholder's investment (and thus included in the price paid by the
shareholder).

Securities issued or purchased at a discount. A fund's investment in
securities issued at a discount and certain other obligations will (and
investments in securities purchased at a discount may) require the fund
to accrue and distribute income not yet received. In order to generate
sufficient cash to make the requisite distributions, a fund may be
required to sell securities in its portfolio that it otherwise would
have continued to hold.

Capital loss carryover. Distributions from capital gains are generally
made after applying any available capital loss carryovers. The amounts
and expiration dates of any capital loss carryovers available to a fund
are shown in Note 1 (Federal income taxes) to the financial statements
included in this SAI or incorporated by reference into this SAI.

Foreign currency-denominated securities and related hedging
transactions. A fund's transactions in foreign currencies, foreign
currency-denominated debt securities and certain foreign currency
options, futures contracts and forward contracts (and similar
instruments) may give rise to ordinary income or loss to the extent such
income or loss results from fluctuations in the value of the foreign
currency concerned.

If more than 50% of a fund's assets at year end consists of the
securities of foreign corporations, the fund may elect to permit
shareholders to claim a credit or deduction on their income tax returns
for their pro rata portion of qualified taxes paid by the fund to
foreign countries in respect of foreign securities the fund has held for
at least the minimum period specified in the Code. In such a case,
shareholders will include in gross income from foreign sources their pro
rata shares of such taxes. A shareholder's ability to claim a foreign
tax credit or deduction in respect of foreign taxes paid by a fund may
be subject to certain limitations imposed by the Code, as a result of
which a shareholder may not get a full credit or deduction for the
amount of such taxes. In particular, shareholders must hold their fund
shares (without protection from risk of loss) on the ex-dividend date
and for at least 15 additional days during the 30-day period surrounding
the ex-dividend date to be eligible to claim a foreign tax credit with
respect to a given dividend. Shareholders who do not itemize on their
federal income tax returns may claim a credit (but no deduction) for
such foreign taxes.

Investment by a fund in "passive foreign investment companies" could
subject the fund to a U.S. federal income tax or other charge on the
proceeds from the sale of its investment in such a company; however,
this tax can be avoided by making an election to mark such investments
to market annually or to treat the passive foreign investment company as
a "qualified electing fund."

A "passive foreign investment company" is any foreign corporation: (i)
75 percent or more of the income of which for the taxable year is
passive income, or (ii) the average percentage of the assets of which
(generally by value, but by adjusted tax basis in certain cases) that
produce or are held for the production of passive income is at least 50
percent. Generally, passive income for this purpose means dividends,
interest (including income equivalent to interest), royalties, rents,
annuities, the excess of gains over losses from certain property
transactions and commodities transactions, and foreign currency gains.
Passive income for this purpose does not include rents and royalties
received by the foreign corporation from active business and certain
income received from related persons.

Sale or redemption of shares. The sale of fund shares may give rise to a
gain or loss. In general, any gain or loss realized upon a taxable
disposition of shares will be treated as long-term capital gain or loss if
the shares have been held for more than 12 months. Otherwise the gain or
loss on the sale of fund shares will be treated as short-term capital gain
or loss. However, if a shareholder sells shares at a loss within six months
of purchase, any loss will be disallowed for Federal income tax purposes to
the extent of any exempt-interest dividends received on such shares. In
addition, any loss (not already disallowed as provided in the preceding
sentence) realized upon a taxable disposition of shares held for six months
or less will be treated as long-term, rather than short-term, to the extent
of any long-term capital gain distributions received by the shareholder
with respect to the shares. All or a portion of any loss realized upon a
taxable disposition of fund shares will be disallowed if other shares of
the same fund are purchased within 30 days before or after the disposition.
In such a case, the basis of the newly purchased shares will be adjusted
to reflect the disallowed loss.

Shares purchased through tax-qualified plans. Special tax rules apply
to investments though defined contribution plans and other tax-qualified
plans. Shareholders should consult their tax advisers to determine the
suitability of shares of a fund as an investment through such plans and
the precise effect of an investment on their particular tax situation.

Backup withholding. Each fund generally is required to withhold and
remit to the U.S. Treasury a percentage of the taxable dividends and
other distributions paid to any individual shareholder who fails to
furnish the fund with a correct taxpayer identification number (TIN),
who has under-reported dividends or interest income, or who fails to
certify to the fund that he or she is not subject to such withholding.
The back-up withholding tax rate is 28% for amounts paid through 2010.
This legislation will expire and the back-up withholding rate will be
31% for amounts paid after December 31, 2010, unless Congress enacts tax
legislation providing otherwise.

In order for a foreign investor to qualify for exemption from the
back-up withholding tax rates and for reduced withholding tax rates
under income tax treaties, the foreign investor must comply with special
certification and filing requirements. Foreign investors in a fund
should consult their tax advisers in this regard.

Tax shelter reporting regulations. Under U.S. Treasury regulations
issued on February 28, 2003, if a shareholder realizes a loss on
disposition of fund shares of $2 million or more for an individual
shareholder or $10 million or more for a corporate shareholder, the
shareholder must file with the Internal Revenue Service a disclosure
statement on Form 8886. Direct shareholders of portfolio securities are
in many cases excepted from this reporting requirement, but under
current guidance, shareholders of a regulated investment company are not
excepted. Future guidance may extend the current exception from this
reporting requirement to shareholders of most or all regulated
investment companies.

MANAGEMENT

Trustees
-----------------------------------------------------------------------------------------------------------
Name, Address (1), Date of
Birth, Position(s) Held
with Fund and Length of Principal
Service as a Putnam Fund Occupation(s) During Other Directorships
Trustee (2) Past 5 Years Held by Trustee
-----------------------------------------------------------------------------------------------------------

Jameson A. Baxter President of Baxter Director of ASHTA Chemicals, Inc., Banta
(9/6/43), Trustee since 1994 Associates, Inc., Corporation (a printing and digital
a private investment firm imaging firm), Ryerson Tull, Inc.
that she founded in 1986. (a steel service corporation),
Advocate Health Care and BoardSource
(formerly the National Center for Nonprofit
Boards). She is Chairman Emeritus of the
Board of Trustees, Mount Holyoke College,
having served as Chairman for five years and
as a board member for thirteen years. Until
2002, Ms. Baxter was a Director of Intermatic
Corporation (a manufacturer of energy control
products).
-----------------------------------------------------------------------------------------------------------
Charles B. Curtis President and Chief Member of the Council on Foreign
(4/27/40), Trustee since 2001 Operating Officer, Relations and the Trustee Advisory Council
Nuclear Threat Initiative of the Applied Physics Laboratory, Johns
(a private foundation Hopkins University. Until 2003, Mr. Curtis was
dealing with national a Member of the Electric Power Research
security issues) and Institute Advisory Council and the University
serves as Senior Advisor of Chicago Board of Governors for Argonne
to the United Nations National Laboratory. Prior to 2002, Mr. Curtis
Foundaton. From August was a Member of the Board of Directors of the
1997 to December 1999, Gas Technology Institute and the Board of
Mr. Curtis was a partner Directors of the Environment and Natural
at Hogan & Hartson Resources Program Steering Committee, John F.
L.L.P., a Washington, DC Kennedy School of Government, Harvard
law firm. University. Until 2001, Mr. Curtis was a Member
of the Department of Defense Policy Board and
Director of EG&G Technical Services, Inc.
(a fossil energy research and development
support company).
-----------------------------------------------------------------------------------------------------------
Myra R. Drucker Managing Director and Vice Chair of Board of Trustees, Sarah Lawrence
(1/16/48), Member of Board of Direc- College; Trustee, Commonfund; Member of
Trustee since 2004 tors, General Motors Asset Investment Committee, Kresge Foundation.
Management; Chief Invest-
ment Officer, General
Motors Trust Bank. Prior
to 2001, Ms. Drucker
served as Chief Investment
Officer at Xerox Corpor-
ation and Staff Vice
President and Director of
Trust Investments for
International Paper.
-----------------------------------------------------------------------------------------------------------
John A. Hill Vice Chairman, First Director of Devon Energy Corporation,
(1/31/42), Reserve Corporation (a TransMontaigne Oil Company, Continuum
Trustee since 1985 and private equity buyout Health Partners of New York and various
Chairman since 2000 firm that specializes private companies controlled by First
in energy investments Reserve Corporation, as well as a Trustee
in the diversified of TH Lee Putnam Investment Trust (a
world-wide energy closed-end investment company advised by an
industry). affiliate of Putnam Management). He is also
a Trustee of Sarah Lawrence College.
-----------------------------------------------------------------------------------------------------------
Ronald J. Jackson Private investor. President of the Kathleen and Ronald J. Jackson
(12/17/43), Foundation (a charitable trust). He is also
Trustee since 1996 a Member of the Board of Overseers of WGBH (a
public television and radio station) as well as
a Member of the Board of Overseers of the
Peabody Essex Museum.
-----------------------------------------------------------------------------------------------------------
Paul L. Joskow (6/30/47), Elizabeth and James Director of National Grid Transco (a UK-based
Trustee since 1997 Killian Professor of holding company with interests in electric and
Economics and Management gas transmission and distribution and
and Director of the telecommunications infrastructure) and
Center for Energy and TransCanada Corporation (an energy company
Environmental Policy focused on natural gas transmission and power
Research at the services). He also serves on the board of the
Massachusetts Institute Whitehead Institute for Biomedical Research
of Technology. (a non-profit research institution) and has
been President of the Yale University Council
since 1993. Prior to February 2002, he was a
Director of State Farm Indemnity Company (an
automobile insurance company), and prior to
March 2000, he was a Director of New England
Electric System (a public utility holding
company).
-----------------------------------------------------------------------------------------------------------
Elizabeth T. Kennan Partner in Cambus-Kenneth Lead Director of Northeast Utilities and is a
(2/25/38), Trustee Farm (thoroughbred horse Director of Talbots, Inc. (a distributor of
since 1992 and cattle breeding). women's apparel). She is a Trustee of National
She is President Emeritus Trust for Historic Preservation, of Centre
of Mount Holyoke College. College and of Midway College (in Midway,
Kentucky). She is also a Member of The Trustees
of Reservations. Prior to 2001, Dr. Kennan
served on the oversight committee of the Folger
Shakespeare Library. Prior to September 2000,
she was a Director of Chastain Real Estate;
prior to June 2000, she was a Director of Bell
Atlantic Corp.; and prior to November 1999,
she was a Director of Kentucky Home Life
Insurance Co.
-----------------------------------------------------------------------------------------------------------
John H. Mullin, III Chairman and CEO of Director of The Liberty Corporation (a
(6/15/41), Trustee Ridgeway Farm (a limited broadcasting company), Progress Energy, Inc. (a
since 1997 liability company engaged utility company, formerly known as Carolina
in timber and farming). Power & Light) and Sonoco Products, Inc. (a
packaging company). Mr. Mullin is Trustee
Emeritus of The National Humanitites Center and
Washington & Lee University, where he served as
Chairman of the Investment Committee. Until
February 2004 and May 2001, he was a Director
of Alex Brown Realty, Inc. and Graphic
Packaging International Corp., respectively.
-----------------------------------------------------------------------------------------------------------
Robert E. Patterson Senior Partner of Cabot Chairman of the Joslin Diabetes Center and a
(3/15/45), Trustee Properties, L.P. and Director of Brandywine Trust Company. Prior to
since 1984 Chairman of Cabot June 2003 and December 2001, Mr. Patterson
Properties, Inc. (a served as a Trustee of Sea Education Association
private equity firm and Cabot Industrial Trust, respectively.
specializing in real
estate investments).
Prior to December 2001,
he was President of Cabot
Industrial Trust (a
publicly traded real
estate investment
trust).
-----------------------------------------------------------------------------------------------------------
W. Thomas Stephens Serves on a number Director of Xcel Energy Incorporated (a public
(9/2/42), Trustee of corporate boards. utility company) and TransCanada Pipelines
since 1997 Limited. Until 2004, Mr. Stephens was a Director
of Qwest Communications and Norske Canada, Inc.
(a paper manufacturer). Until 2003, Mr.
Stephens was a Director of Mail-Well, Inc. (a
diversified printing company). Prior to July
2001, Mr. Stephens was Chairman of Mail-Well;
and prior to October 1999, he was CEO of
MacMillan-Bloedel, Ltd. (a forest products
company).
-----------------------------------------------------------------------------------------------------------
Richard B. Worley Managing Partner, Member, Executive Committee of University of
(11/15/45), Trustee Permit Capital LLC. Pennsylvania Medical Center; Trustee, The
since 2004 Robert Wood Johnson Foundation; Director, The
Colonial Williamsburg Foundation.
-----------------------------------------------------------------------------------------------------------

Interested Trustees
-----------------------------------------------------------------------------------------------------------
*Charles E. Haldeman, Jr. President and Chief Trustee, Dartmouth College; Emeritus Trustee,
(10/29/48), Executive Officer, Abington Memorial Hospital.
Trustee since 2004 Putnam Investments.
Prior to November 2003,
Mr. Haldeman served as
-----------------------------------------------------------------------------------------------------------
*George Putnam III President of New Director of The Boston Family Office, L.L.C.
(8/10/51), Trustee Generation Research, Inc. (a registered investment advisor), and a Trustee
since 1984 and (a publisher of financial of St. Mark's School and Shore Country Day School.
President since advisory and other Until 2002, Mr. Putnam was a Trustee of the Sea
2000 research services) and Education Association.
of New Generation
Advisers, Inc. (a
registered investment
adviser to private funds).
Both firms he founded
in 1986.
-----------------------------------------------------------------------------------------------------------
*A.J.C. Smith Chairman of Putnam Director of Trident Corp. (a limited partnership
(4/13/34), Trustee Investments and Director with over thirty institutional investors). He
since 1986 of and Consultant to is also a Trustee of the Carnegie Hall Society,
Marsh & McLennan the Educational Broadcasting Corporation and the
Companies, Inc. Prior National Museums of Scotland. He is Chairman of
to May 2000 and November the Central Park Conservancy and a Member of the
1999, Mr. Smith was Board of Overseers of the Joan and Sanford I.
Chairman and CEO, Weill Graduate School of Medical Sciences of
respectively, of Marsh Cornell University.
& McLennan Companies, Inc.
-----------------------------------------------------------------------------------------------------------

1 The address of each Trustee is One Post Office Square, Boston, MA
02109. As of December 31, 2003, there were 101 Putnam funds.

2 Each Trustee serves for an indefinite term, until his or her
resignation, retirement at age 72, death or removal.

* Trustees who are or may be deemed to be "interested persons" (as defined
in the Investment Company Act of 1940) of the funds, Putnam Management,
Putnam Retail Management or Marsh & McLennan Companies, Inc., the parent
company of Putnam Investments and its affiliated companies. Messrs. Haldeman,
Putnam, III, and Smith are deemed "interested persons" by virtue of their
positions as officers of the funds, Putnam Management, Putnam Retail
Management or Marsh & McLennan Companies, Inc. and as shareholders of Marsh
& McLennan Companies, Inc. Mr. Haldeman is the Chief Executive Officer of
Putnam Investments. He was elected to the Board of Trustees after December 31,
2003. Mr. Putnam, III is the President of each fund and each of the other
Putnam funds. Mr. Smith is Chairman of Putnam Investments and serves as
Director of and Consultant to Marsh & McLennan Companies, Inc.

Officers

In addition to George Putnam, III, the other officers of the fund are shown below:

-----------------------------------------------------------------------------------------------------------
Name, Address (1), Date of
Birth, Position(s) Held Length of service with
with Fund the Putnam Funds Principal Occupation(s) During Past 5 Years
-----------------------------------------------------------------------------------------------------------

Charles E. Porter Since 1989 Managing Director, Putnam Investments and
(7/26/38), Executive Putnam Management.
Vice President, Associate
Treasurer and Principal
Executive Officer
-----------------------------------------------------------------------------------------------------------
Jonathan S. Horwitz Since 2004 Managing Director, Putnam Investments.
(6/4/55), Senior Vice
President and Treasurer
-----------------------------------------------------------------------------------------------------------
Steven D. Krichmar Since 2002 Senior Managing Director, Putnam Investments.
(6/27/58), Vice President Prior to 2001, Mr. Krichmar was a partner at
and Principal Financial PricewaterhouseCoopers LLP.
Officer
-----------------------------------------------------------------------------------------------------------
Michael T. Healy Since 2000 Managing Director, Putnam Investments.
(1/24/58), Assistant
Treasurer and Principal
Accounting Officer
-----------------------------------------------------------------------------------------------------------
Beth S. Mazor Since 2002 Senior Vice President, Putnam Investments.
(4/6/58), Vice President
-----------------------------------------------------------------------------------------------------------
Daniel T. Gallagher Since 2004 Vice President, Putnam Investments. Prior to 2004,
(2/27/62), Vice President Mr. Gallagher was an attorney for Ropes & Gray
and Legal and Compliance LLP; prior to 2000, he was a law clerk for the
Liaison Officer Massachusetts Supreme Judicial Court.
-----------------------------------------------------------------------------------------------------------
Mark C. Trenchard Since 2002 Senior Vice President, Putnam Investments.
(6/5/62), Vice President
and BSA Compliance Officer
-----------------------------------------------------------------------------------------------------------
Francis J. McNamara, III Since 2004 Senior Managing Director, Putnam Investments,
(8/19/55), Vice President Putnam Management and Putnam Retail Management.
and Chief Legal Officer Prior to 2004, Mr. McNamara was General Counsel
of State Street Research & Management Company.
-----------------------------------------------------------------------------------------------------------
Charles A. Ruys de Perez Since 2004 Managing Director, Putnam Investments.
(6/17/57), Vice President
and Chief Compliance
Officer
-----------------------------------------------------------------------------------------------------------
James P. Pappas Since 2004 Managing Director, Putnam Investments and Putnam
(2/24/53), Vice President Management. During 2002, Mr. Pappas was Chief
Operating Officer of Atalanta/Sosnoff Management
Corporation. Prior to 2001, he was President and
Chief Executive Officer of UAM Investment
Services, Inc.
-----------------------------------------------------------------------------------------------------------
Richard S. Robie, III Since 2004 Senior Managing Director, Putnam Investments,
(3/30/60), Vice President Putnam Management and Putnam Retail Management.
Prior to 2003, Mr. Robie was Senior Vice President
of United Asset Management Corporation.
-----------------------------------------------------------------------------------------------------------
Judith Cohen Since 1993 Clerk and Assistant Treasurer, The Putnam Funds.
(6/7/45), Clerk and
Assistant Treasurer
-----------------------------------------------------------------------------------------------------------
1 The address of each Officer is One Post Office Square, Boston, MA 02109.

Except as stated above, the principal occupations of the officers and
Trustees for the last five years have been with the employers as shown
above, although in some cases they have held different positions with
such employers.

Committees of the Board of Trustees

Audit and Pricing Committee. The Audit and Pricing Committee provides
oversight on matters relating to the preparation of the funds' financial
statements, compliance matters and Code of Ethics issues. This oversight
is discharged by regularly meeting with management and the funds'
independent registered public accounting firms and keeping current on
industry developments. Duties of this Committee also include the review
and evaluation of all matters and relationships pertaining to the funds'
independent registered public accounting firms, including their
independence. The members of the Committee include only Trustees who are
not "interested persons" of the funds or Putnam Management. Each member of
the Committee is "independent" as defined in Sections 303.01(B)(2)(a) and
(3) of the listing standards of the New York Stock Exchange and as defined
in Section 121(A) of the listing standards of the American Stock Exchange.
The Trustees have adopted a written charter for the Committee. The
Committee also reviews the funds' policies and procedures for achieving
accurate and timely pricing of the funds' shares, including oversight of
fair value determinations of individual securities made by Putnam
Management or other designated agents of the funds. The Committee oversees
compliance by money market funds with Rule 2a-7, interfund transactions
pursuant to Rule 17a-7, and the correction of occasional pricing errors.
The Committee also receives reports regarding the liquidity of portfolio
securities. The Audit and Pricing Committee currently consists of Drs.
Joskow (Chairperson) and Kennan, and Messrs. Patterson and Stephens.

Board Policy and Nominating Committee. The Board Policy and Nominating
Committee reviews matters pertaining to the operations of the Board of
Trustees and its Committees, the compensation of the Trustees and their
staff, and the conduct of legal affairs for the funds. The Committee
evaluates and recommends all candidates for election as Trustees and
recommends the appointment of members and chairs of each board
committee. The Committee also reviews policy matters affecting the
operation of the Board and its independent staff and makes
recommendations to the Board as appropriate. The Committee consists
only of Trustees who are not "interested persons" of the funds or Putnam
Management. The Committee also oversees the voting of proxies
associated with portfolio investments of the Putnam funds with the goal
of ensuring that these proxies are voted in the best interest of the
funds' shareholders. The Board Policy and Nominating Committee
currently consists of Dr. Kennan (Chairperson), Ms. Baxter and Messrs.
Hill, Mullin and Patterson. The Board Policy and Nominating Committee
will consider nominees for trustee recommended by shareholders of a fund
provided shareholders submit their recommendations by the date disclosed
in the fund's proxy statement and provided the shareholders'
recommendations otherwise comply with applicable securities laws,
including Rule 14a-8 under the Securities Exchange Act of 1934.

Brokerage and Custody Committee. The Brokerage and Custody Committee
reviews the policies and procedures of the funds regarding the execution
of portfolio transactions for the funds, including policies regarding
the allocation of brokerage commissions and soft dollar credits. The
Committee reviews periodic reports regarding the funds' activities
involving derivative securities. The Committee also reviews and
evaluates matters relating to the funds' custody arrangements. The
Committee currently consists of Messrs. Jackson (Chairperson), Curtis
and Mullin, Ms. Baxter and Dr. Kennan.

Communication, Service, and Marketing Committee. This Committee
examines the quality, cost and levels of services provided to the
shareholders of the Putnam funds. The Committee also reviews
communications sent from the funds to their shareholders, including
shareholder reports, prospectuses, newsletters and other materials. In
addition, this Committee oversees marketing and sales communications of
the funds' distributor. The Committee currently consists of Messrs.
Putnam (Chairperson), Smith and Stephens and Dr. Joskow.

Contract Committee. The Contract Committee reviews and evaluates at
least annually all arrangements pertaining to (i) the engagement of
Putnam Investment Management and its affiliates to provide services to
the funds, (ii) the expenditure of the funds' assets for distribution
purposes pursuant to the Distribution Plans of the funds, and (iii) the
engagement of other persons to provide material services to the funds,
including in particular those instances where the cost of services is
shared between the funds and Putnam Investment Management and its
affiliates or where Putnam Investment Management or its affiliates have
a material interest. The Committee recommends to the Trustees such
changes in arrangements that it deems appropriate. After review and
evaluation, the Committee recommends to the Trustees the proposed
organization of new fund products, and proposed structural changes to
existing funds. The Committee is comprised exclusively of Independent
Trustees. The Committee currently consists of Ms. Baxter (Chairperson),
Messrs. Curtis, Jackson, and Mullin and Dr. Kennan.

Distributions Committee. This Committee oversees all fund distributions
and the management of the closed-end funds. In regard to distributions,
the Committee approves the amount and timing of distributions paid by
all the funds to the shareholders when the Trustees are not in session.
This Committee also meets regularly with representatives of Putnam
Investments to review distribution levels and the funds' distribution
policies. Its oversight of the closed-end funds includes (i) investment
performance, (ii) trading activity, (iii) determinations with respect to
sunroof provisions, (iv) disclosure practices, and (v) the use of
leverage. The Committee currently consists of Messrs. Patterson
(Chairperson) and Jackson and Dr. Joskow.

Executive Committee. The functions of the Executive Committee are
twofold. The first is to ensure that the funds' business may be
conducted at times when it is not feasible to convene a meeting of the
Trustees or for the Trustees to act by written consent. The Committee
may exercise any or all of the power and authority of the Trustees when
the Trustees are not in session. The second is to establish annual and
ongoing goals, objectives and priorities for the Board of Trustees and
to insure coordination of all efforts between the Trustees and Putnam
Investments on behalf of the shareholders of the Putnam funds. The
Committee currently consists of Messrs. Hill (Chairman), Jackson, and
Putnam, Dr. Joskow and Ms. Baxter.

Investment Oversight Committees. These Committees regularly meet with
investment personnel of Putnam Investment Management to review the
investment performance and strategies of the Putnam funds in light of
their stated investment objectives and policies. Investment Oversight
Committee A currently consists of Ms. Baxter (Acting Chairperson), and
Mr. Smith. Investment Oversight Committee B currently consists of
Messrs. Curtis (Chairperson), Hill and Stephens. Investment Committee C
currently consists of Messrs. Mullin (Chairperson) and Putnam, and Dr.
Kennan. Investment Oversight Committee D currently consists of Messrs.
Patterson (Chairperson) and Jackson and Dr. Joskow.

The Agreement and Declaration of Trust of each fund provides that the
fund will indemnify its Trustees and officers against liabilities and
expenses incurred in connection with litigation in which they may be
involved because of their offices with the fund, except if it is
determined in the manner specified in the Agreement and Declaration of
Trust that they have not acted in good faith in the reasonable belief
that their actions were in the best interests of the fund or that such
indemnification would relieve any officer or Trustee of any liability to
the fund or its shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of his or her duties.
Each fund, at its expense, provides liability insurance for the benefit
of its Trustees and officers.

Putnam Management and its affiliates

Putnam Management is one of America's oldest and largest money
management firms. Putnam Management's staff of experienced portfolio
managers and research analysts selects securities and constantly
supervises the fund's portfolio. By pooling an investor's money with
that of other investors, a greater variety of securities can be
purchased than would be the case individually; the resulting
diversification helps reduce investment risk. Putnam Management has
been managing mutual funds since 1937.

Putnam Management is a subsidiary of Putnam Investment Management Trust, a
Massachusetts business trust owned by Putnam LLC, which is also the parent
company of Putnam Retail Management, Putnam Advisory Company, LLC (a
wholly-owned subsidiary of The Putnam Advisory Company Trust), Putnam
Investments Limited (a wholly-owned subsidiary of The Putnam Advisory
Company Trust) and Putnam Fiduciary Trust Company. Putnam LLC, which
generally conducts business under the name Putnam Investments, is a
wholly-owned subsidiary of Putnam Investments Trust, a holding company
that, except for a minority stake owned by employees, is owned by Marsh &
McLennan Companies, Inc., a publicly-owned holding company whose principal
businesses are international insurance and reinsurance brokerage, employee
benefit consulting and investment management.

Trustees and officers of the funds who are also officers of Putnam
Management or its affiliates or who are stockholders of Marsh & McLennan
Companies, Inc. will benefit from the advisory fees, sales commissions,
distribution fees, custodian fees and transfer agency fees paid or
allowed by each fund.

The Management Contract

Under a Management Contract between each fund and Putnam Management,
subject to such policies as the Trustees may determine, Putnam
Management, at its expense, furnishes continuously an investment program
for the fund and makes investment decisions on behalf of the fund.
Subject to the control of the Trustees and under a Management Contract
for each fund, Putnam Management also manages, supervises and conducts
the other affairs and business of each fund, furnishes office space and
equipment, provides bookkeeping and clerical services (including
determination of the fund's net asset value, but excluding shareholder
accounting services) and places all orders for the purchase and sale of
the fund's portfolio securities. Putnam Management may place fund
portfolio transactions with broker-dealers that furnish Putnam
Management, without cost to it, certain research, statistical and
quotation services of value to Putnam Management and its affiliates in
advising the fund and other clients. In so doing, Putnam Management may
cause a fund to pay greater brokerage commissions than it might
otherwise pay.

For details of Putnam Management's compensation under the Management
Contract, see "Charges and expenses." Putnam Management's compensation
under the Management Contract may be reduced in any year if a fund's
expenses exceed the limits on investment company expenses imposed by any
statute or regulatory authority of any jurisdiction in which shares of
the fund are qualified for offer or sale. The term "expenses" is
defined in the statutes or regulations of such jurisdictions, and
generally excludes brokerage commissions, taxes, interest, extraordinary
expenses and, if a fund has a distribution plan, payments made under
such plan.

Under the Management Contract, Putnam Management may reduce its
compensation to the extent that a fund's expenses exceed such lower expense
limitation as Putnam Management may, by notice to the fund, declare to be
effective. For the purpose of determining any such limitation on Putnam
Management's compensation, expenses of a fund shall not reflect the
application of commissions or cash management credits that may reduce
designated fund expenses. The terms of any such expense limitation from
time to time in effect are described in the Prospectus.

In addition to the fee paid to Putnam Management, each fund reimburses
Putnam Management for the compensation and related expenses of certain
officers of the fund and their assistants who provide certain
administrative services for the fund and the other Putnam funds, each of
which bears an allocated share of the foregoing costs. The aggregate
amount of all such payments and reimbursements is determined annually by
the Trustees.

The amount of this reimbursement for each fund's most recent fiscal year
is included in "Charges and Expenses." Putnam Management pays all other
salaries of officers of each fund. Each fund pays all expenses not
assumed by Putnam Management including, without limitation, auditing,
legal, custodial, investor servicing and shareholder reporting expenses.
Each fund pays the cost of typesetting for its prospectuses and the cost
of printing and mailing any prospectuses sent to its shareholders.

The Management Contract provides that Putnam Management shall not be
subject to any liability to a fund or to any shareholder of a fund for
any act or omission in the course of or connected with rendering
services to a fund in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of its duties on the part of
Putnam Management.

The Management Contract may be terminated without penalty by vote of the
Trustees or the shareholders of each fund, or by Putnam Management, on
30 days' written notice. It may be amended only by a vote of the
shareholders of a fund. The Management Contract also terminates without
payment of any penalty in the event of its assignment. The Management
Contract provides that it will continue in effect only so long as such
continuance is approved at least annually by vote of either the Trustees
or the shareholders, and, in either case, by a majority of the Trustees
who are not "interested persons" of Putnam Management or the applicable
fund. In each of the foregoing cases, the vote of the shareholders is
the affirmative vote of a "majority of the outstanding voting
securities" as defined in the Investment Company Act of 1940.

In considering the Management Contract, the Trustees consider numerous
factors they believe to be relevant, including the advisor's research
and decision-making processes, the methods adopted to assure compliance
with the fund's investment objectives, policies and restrictions; the
level of research required to select the securities appropriate for
investment by the fund; the education, experience and number of advisory
personnel; the level of skill and effort required to manage a fund; the
value of services provided by the advisor; the economies and
diseconomies of scale reflected in the management fee; the advisor's
profitability; the financial condition and stability of the advisor; the
advisor's trade allocation methods; the standards and performance in
seeking best execution; allocation for brokerage and research and use of
soft dollars; and a fund's total return performance compared with its
peers. Putnam has established several management fee categories to fit
the particular characteristics of different types of funds.

The nature and complexity of international and global funds generally
makes these funds more research intensive than funds that invest mainly
in U.S. companies, due to the greater difficulty of obtaining
information regarding the companies in which a fund invests, and the
governmental, economic and market conditions of the various countries
outside of the U.S. In addition, trade execution and settlement may be
more costly than in the U.S.

Conversely, the research intensity for a U.S. money market or bond fund
is typically less than for a international or global fund or a U.S.
equity fund due to the more ready availability of information regarding
the issuer, the security, the accessibility of the trading market and
the typically lower trading and execution costs. See "Portfolio
Transactions - Brokerage and Research Services."

The Sub-Manager

Putnam Investments Limited ("PIL"), a wholly-owned subsidiary of The
Putnam Advisory Company, LLC and an affiliate of Putnam Management, has
been retained as the sub-manager for a portion of the assets of each
fund as determined by Putnam Management from time to time. PIL may
serve as sub-manager pursuant to the terms of a sub-management agreement
between Putnam Management and PIL. PIL's address is Cassini House,
57-59 St James's Street, London, England, SW1A 1LD.

Under the terms of the sub-management contract, PIL, at its own expense,
furnishes continuously an investment program for that portion of each
fund that is allocated to PIL from time to time by Putnam Management and
makes investment decisions on behalf of such portion of each fund,
subject to the supervision of Putnam Management. Putnam Management may
also, at its discretion, request PIL to provide assistance with
purchasing and selling securities for each fund, including placement of
orders with certain broker-dealers. PIL, at its expense, furnishes all
necessary investment and management facilities, including salaries of
personnel, required for it to execute its duties.

The sub-management contract provides that PIL shall not be subject to
any liability to Putnam Management, each fund or any shareholder of each
fund for any act or omission in the course of or connected with
rendering services to each fund in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of its obligations and
duties on the part of PIL.

The sub-management contract may be terminated with respect to each fund
without penalty by vote of the Trustees or the shareholders of each
fund, or by PIL or Putnam Management, on 30 days' written notice. The
sub-management contract also terminates without payment of any penalty
in the event of its assignment. Subject to applicable law, it may be
amended by a majority of the Trustees who are not "interested persons"
of Putnam Management or the fund. The sub-management contract provides
that it will continue in effect only so long as such continuance is
approved at least annually by vote of either the Trustees or the
shareholders, and, in either case, by a majority of the Trustees who are
not "interested persons" of Putnam Management or each fund. In each of
the foregoing cases, the vote of the shareholders is the affirmative
vote of a "majority of the outstanding voting securities" as defined in
the Investment Company Act of 1940.

The Administrative Services Contract

High Income Opportunities Trust pays Putnam Management a quarterly
administrative service fee at the annual rate of 0.25% of its average net
asset value pursuant to an Administrative Services Contract between the
fund and Putnam Management. Under the terms and conditions of the
Administrative Services Contract, the fund reimburses Putnam Management for
the compensation and related expenses of certain officers of the fund and
their assistants who provide certain administrative services for the fund
and the other Putnam funds, each of which bears an allocated share of the
foregoing costs. The aggregate amount of all such payments and
reimbursements is determined annually by the Trustees.

Portfolio Transactions

Investment decisions. Investment decisions for a fund and for the other
investment advisory clients of Putnam Management and its affiliates are
made with a view to achieving their respective investment objectives.
Investment decisions are the product of many factors in addition to
basic suitability for the particular client involved. Thus, a
particular security may be bought or sold for certain clients even
though it could have been bought or sold for other clients at the same
time. Likewise, a particular security may be bought for one or more
clients when one or more other clients are selling the security. In
some instances, one client may sell a particular security to another
client. It also sometimes happens that two or more clients
simultaneously purchase or sell the same security, in which event each
day's transactions in such security are, insofar as possible, averaged
as to price and allocated between such clients in a manner which in
Putnam Management's opinion is equitable to each and in accordance with
the amount being purchased or sold by each. There may be circumstances
when purchases or sales of portfolio securities for one or more clients
will have an adverse effect on other clients.

Brokerage and research services. Transactions on U.S. stock exchanges,
commodities markets and futures markets and other agency transactions
involve the payment by a fund of negotiated brokerage commissions. Such
commissions vary among different brokers. A particular broker may
charge different commissions according to such factors as the difficulty
and size of the transaction. Transactions in foreign investments often
involve the payment of fixed brokerage commissions, which may be higher
than those in the United States. Each fund pays commissions on certain
securities traded in the over-the-counter markets. In underwritten
offerings, the price paid by a fund includes a disclosed, fixed
commission or discount retained by the underwriter or dealer. It is
anticipated that most purchases and sales of securities by funds
investing primarily in tax-exempt securities and certain other
fixed-income securities will be with the issuer or with underwriters of
or dealers in those securities, acting as principal. Accordingly, those
funds would not ordinarily pay significant brokerage commissions with
respect to securities transactions. See "Charges and expenses" for
information concerning commissions paid by each fund.

It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional
investors to receive brokerage and research services (as defined in the
Securities Exchange Act of 1934, as amended (the "1934 Act")) from
broker-dealers that execute portfolio transactions for the clients of
such advisers and from third parties with which such broker-dealers have
arrangements. Consistent with this practice, Putnam Management receives
brokerage and research services and other similar services from many
broker-dealers with which Putnam Management places the fund's portfolio
transactions and from third parties with which these broker-dealers have
arrangements. These services include such matters as economic analysis,
investment research and database services, industry and company reviews,
evaluations of investments, recommendations as to the purchase and sale
of investments, performance measurement services, subscriptions, pricing
services, quotation services, news services and computer equipment
(investment-related hardware and software) utilized by Putnam
Management's managers and analysts. Where the services referred to
above are used by Putnam Management not exclusively for research
purposes, Putnam Management, based upon its own allocations of expected
use, bears that portion of the cost of these services which directly
relates to their non-research use. Some of these services are of value
to Putnam Management and its affiliates in advising various of their
clients (including the fund), although not all of these services are
necessarily useful and of value in managing the fund. The management
fee paid by a fund is not reduced because Putnam Management and its
affiliates receive these services even though Putnam Management might
otherwise be required to purchase some of these services for cash.

Putnam Management places all orders for the purchase and sale of
portfolio investments for each fund and buys and sells investments for
each fund through a substantial number of brokers and dealers. In so
doing, Putnam Management uses its best efforts to obtain for the fund
the most favorable price and execution available, except to the extent
it may be permitted to pay higher brokerage commissions as described
below. In seeking the most favorable price and execution, Putnam
Management, having in mind each fund's best interests, considers all
factors it deems relevant, including, by way of illustration, price, the
size of the transaction, the nature of the market for the security or
other investment, the amount of the commission, the timing of the
transaction taking into account market prices and trends, the
reputation, experience and financial stability of the broker-dealer
involved and the quality of service rendered by the broker-dealer in
other transactions.

As permitted by Section 28(e) of the 1934 Act, and by the Management
Contract, Putnam Management may cause a fund to pay a broker-dealer
which provides "brokerage and research services" (as defined in the 1934
Act) to Putnam Management an amount of disclosed commission for
effecting securities transactions on stock exchanges and other
transactions for the fund on an agency basis in excess of the commission
which another broker-dealer would have charged for effecting that
transaction. Putnam Management's authority to cause a fund to pay any
such greater commissions is subject to such policies as the Trustees may
adopt from time to time. Putnam Management does not currently intend to
cause the funds to make such payments. It is the position of the staff
of the Securities and Exchange Commission that Section 28(e) does not
apply to the payment of such greater commissions in "principal"
transactions. Accordingly Putnam Management will use its best effort to
obtain the most favorable price and execution available with respect to
such transactions, as described above.

The Management Contract provides that commissions, fees, brokerage or
similar payments received by Putnam Management or an affiliate in
connection with the purchase and sale of portfolio investments of each
fund, less any direct expenses approved by the Trustees, shall be
recaptured by the fund through a reduction of the fee payable by the
fund under the Management Contract. Putnam Management seeks to
recapture for the fund soliciting dealer fees on the tender of the
fund's portfolio securities in tender or exchange offers. Any such fees
which may be recaptured are likely to be minor in amount.

Personal Investments by Employees of Putnam Management and Officers and
Trustees of the Funds

Employees of Putnam Management and officers and Trustees of the funds
are subject to significant restrictions on engaging in personal
securities transactions. These restrictions are set forth in the Codes
of Ethics adopted by Putnam Management (The Putnam Investments' Code of
Ethics) and by the funds (the Putnam Funds' Code of Ethics). The Putnam
Investments' Code of Ethics and the Putnam Funds' Code of Ethics, in
accordance with Rule 17j-1 of the Investment Company Act of 1940, as
amended, contain provisions and requirements designed to identify and
address certain conflicts of interest between personal investment
activities and the interests of the fund.

The Putnam Investments' Code of Ethics does not prohibit personnel from
investing in securities that may be purchased or held by the funds.
However, the Putnam Investments' Code, consistent with standards
recommended by the Investment Company Institute's Advisory Group on
Personal Investing and requirements established by Rule 17j-1, among
other things, prohibits personal securities investments without
pre-clearance, imposes time periods during which personal transactions
may not be made in certain securities by employees with access to
investment information, and requires the timely submission of broker
confirmations and quarterly reporting of personal securities
transactions. Additional restrictions apply to portfolio managers,
traders, research analysts and others involved in the investment
advisory process.

The Putnam Funds' Code of Ethics incorporates and applies the
restrictions of Putnam Investments' Code of Ethics to officers and
Trustees of the funds who are affiliated with Putnam Investments. The
Putnam Funds' Code does not prohibit unaffiliated officers and Trustees
from investing in securities that may be held by the funds; however, the
Putnam Funds' Code regulates the personal securities transactions of
unaffiliated Trustees of the funds, including limiting the time periods
during which they may personally buy and sell certain securities and
requiring them to submit reports of personal securities transactions
under certain circumstances.

The funds' Trustees, in compliance with Rule 17j-1, approved Putnam
Investments' and the Putnam Funds' Codes of Ethics and are required to
approve any material changes to these Codes. The Trustees also provide
continued oversight of personal investment policies and annually evaluate
the implementation and effectiveness of the Codes of Ethics. You may review
and copy the Codes of Ethics at the SEC's public reference room at 450
Fifth Street, NW, Washington, D.C. You may call the SEC at 1-800-SEC-0330
for information about the operation of the public reference room. You may
obtain copies of this information, with payment of a duplication fee, by
electronic request at the following e-mail address: publicinfo@sec.gov, or
by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102.
You may also access this information on the EDGAR Database on the SEC's
Internet site at http://www.sec.gov.

Investor Servicing Agent and Custodian

Putnam Investor Services, a division of Putnam Fiduciary Trust Company
("PFTC"), is the funds' investor servicing agent (transfer, plan and
dividend disbursing agent), for which it receives fees that are paid
monthly by each fund as an expense of each fund's shareholders. The fee
paid to Putnam Investor Services is determined on the basis of the
number of shareholder accounts and the assets of each fund.

PFTC is the custodian of each fund's assets. In carrying out its duties
under its custodian contract, PFTC may employ one or more subcustodians
whose responsibilities include safeguarding and controlling each fund's
cash and securities, handling the receipt and delivery of securities and
collecting interest and dividends on each fund's investments. PFTC and
any subcustodians employed by it have a lien on the securities of each
fund (to the extent permitted by each fund's investment restrictions) to
secure charges and any advances made by such subcustodians at the end of
any day for the purpose of paying for securities purchased by a fund.
Each fund expects that such advances will exist only in unusual
circumstances. Neither PFTC nor any subcustodian determines the
investment policies of each fund or decides which securities each fund
will buy or sell. PFTC pays the fees and other charges of any
subcustodians employed by it. Each fund pays PFTC an annual fee based
on each fund's assets, securities transactions and securities holdings
and reimburses PFTC for certain out-of-pocket expenses incurred by it or
any subcustodian employed by it in performing custodial services.

Each fund may from time to time pay custodial or investor servicing
agent expenses in full or in part through the placement by Putnam
Management of each fund's portfolio transactions with the subcustodians
or with a third party broker having an agreement with the subcustodians.
See "Charges and expenses" for information on fees and reimbursements
for investor servicing and custody received by PFTC. The fees may be
reduced by credits allowed by PFTC.

Counsel to the Funds and the Independent Trustees

Ropes & Gray LLP serves as counsel to the funds and the independent
Trustees, and is located at One International Place, Boston,
Massachusetts 02110.

PROXY VOTING GUIDELINES AND PROCEDURES

The Trustees of the Putnam funds have established proxy voting guidelines
and procedures that govern the voting of proxies for the securities held in
the funds' portfolios. The proxy voting guidelines summarize the funds'
positions on various issues of concern to investors, and provide direction
to the proxy voting service used by the funds as to how fund portfolio
securities should be voted on proposals dealing with particular issues.
The proxy voting procedures explain the role of the Trustees, Putnam
Management, the proxy voting service and the funds' proxy coordinator in
the proxy voting process, describe the procedures for referring matters
involving investment considerations to the investment personnel of Putnam
Management and describe the procedures for handling potential conflicts of
interest. The Putnam funds' proxy voting guidelines and procedures are
included in this SAI as Appendix A. Information regarding how the funds
voted proxies relating to portfolio securities during the 12-month period
ended June 30, 2004 is available on the Putnam Individual Investor Web
site, www.putnam.com/individual, and on the SEC's Web site at www.sec.gov.
If you have questions about finding forms on the SEC's Web site, you may
call the SEC at 1-800-SEC-0330. You may also obtain the Putnam funds' proxy
voting guidelines and procedures by calling Putnam's Shareholder Services
at 1-800-225-1581.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS AND FINANCIAL STATEMENTS

PricewaterhouseCoopers LLP, 125 High Street, Boston, Massachusetts
02110, is the independent registered public accounting firm for High
Income Bond Fund, providing audit services, tax return review and other
tax consulting services and assistance and consultation in connection
with the review of various Securities and Exchange Commission filings
for High Income Bond Fund. KPMG LLP, 99 High Street, Boston,
Massachusetts 02110, is the independent registered public accounting
firm for High Income Opportunities Trust, providing audit services, tax
return review and other tax consulting services and assistance and
consultation in connection with the review of various Securities and
Exchange Commission filings for High Income Opportunities Trust. The
following documents are incorporated by reference into this Statement of
Additional Information: (1) the Report of Independent Registered Public
Accounting Firm and financial statements included in High Income Bond
Fund's Annual Report for the fiscal year ended August 31, 2004, filed
electronically on October 27, 2004 (File No. 811-05133), (ii) the Report
of Independent Registered Public Accounting Firm and financial
statements included in High Income Opportunities Trust's Annual Report
for the fiscal year ended February 29, 2004, filed electronically on May
4, 2004 (File No. 811-07253) and (iii) the unaudited financial
highlights and financial statements included in High Income
Opportunities Trust's Semi-Annual Report for the six months ended August
31, 2004, filed electronically on October 27, 2004 (File No. 811-07253).
The audited financial statements for High Income Bond Fund and High
Income Opportunities Trust incorporated by reference into this Statement
of Additional Information have been so included and incorporated in
reliance upon the reports of PricewaterhouseCoopers LLP and KPMG LLP,
respectively, given on their authority as experts in auditing and
accounting.

Putnam High Income Opportunities Trust

and

Putnam High Income Bond Fund

Proforma Combining Financial Statements
(Unaudited)

The accompanying unaudited proforma combining investment portfolio and
statement of assets and liabilities assumes that the exchange described
in the next paragraph occurred as of August 31, 2004 and the unaudited
proforma combining statement of operations for the twelve months ended
August 31, 2004 presents the results of operations of Putnam High Income
Bond Fund as if the combination with Putnam High Income Opportunities
Trust had been consummated at September 1, 2003. The proforma results
of operations are not necessarily indicative of future operations or the
actual results that would have occurred had the combination been
consummated at September 1, 2003. These historical statements have been
derived from Putnam High Income Bond Fund's and Putnam High Income
Opportunities Trust's books and records utilized in calculating daily
net asset value at August 31, 2004, and for the twelve month period then
ended.

The proforma statements give effect to the proposed transfer of all of
the assets of Putnam High Income Opportunities Trust to Putnam High
Income Bond Fund in exchange for the assumption by Putnam High Income
Bond Fund of all of the liabilities of Putnam High Income Opportunities
Trust and for a number of Putnam High Income Bond Fund's shares equal in
value to the value of the net assets of Putnam High Income
Opportunities Trust transferred to Putnam High Income Bond Fund. Under
generally accepted accounting principles, the historical cost of
investment securities will be carried forward to the surviving entity
and the results of operations of Putnam High Income Bond Fund for
pre-combination periods will not be restated. The proforma statement of
operations does not reflect the expenses of either fund in carrying out
its obligations under the Agreement and Plan of Reorganization.

The unaudited proforma combining statements should be read in
conjunction with the separate financial statements of Putnam High Income
Bond Fund and Putnam High Income Opportunities Trust incorporated by
reference in this statement of additional information.

Putnam High Income Bond Fund
Pro Forma Combining (Unaudited)
Statement of Assets and Liabilities
8/31/04

Putnam Putnam High
High Income Bond Income Opportunities Pro Forma Pro Forma
Fund Fund Adjustments Combined
----------------------------------------------------------------------------------------------------------------------------------

Assets
Investments in securities, at value
Unaffiliated issuers $113,770,037 $72,981,007 $186,751,044
Affiliated issuers 5,733,235 3,322,849 9,056,084
Cash 250 -- 250
Dividends, interest and other receivables 1,295,091 826,029 2,121,120
Receivable for securities sold 24,750 17,686 42,436
Receivable for closed forward currency contracts 177 110 287

Total assets 120,823,540 77,147,681 197,971,221

Liabilities
Payable to subcustodian -- 549 549
Distributions payable to shareholders 637,999 375,035 1,013,034
Payable for securities purchased 1,233,298 782,207 2,015,505
Payable for compensation of Manager 220,347 250,662 471,009
Payable for investor servicing and custodian fees 35,843 26,266 62,109
Payable for Trustee compensation and expenses 31,887 27,899 59,786
Payable for administrative services 781 524 1,305
Payable for open forward currency contracts 1,399 909 2,308
Payable for closed forward currency contracts 334 213 547
Collateral on securities loaned, at value 2,866,478 2,626,461 5,492,939
Other accrued expenses 18,805 31,766 103,933 B 154,504

Total liabilities 5,047,171 4,122,491 103,933 9,273,595

Net assets $115,776,369 $73,025,190 (103,933) $188,697,626

Common Shares
Net assets $115,776,369 $73,025,190 (103,933) B $188,697,626
Shares outstanding 13,825,527 3,712,567 5,002,862 C 22,540,956
Net asset value per share $8.37 $19.67 $8.37

Cost of investments
Unaffiliated issuers $108,568,545 $70,489,146 $179,057,691
Affiliated issuers 5,733,235 3,322,849 9,056,084
Value of securities on loan 2,734,371 2,536,886 5,271,257

Proforma Combining
Statement of Operations
Twelve months ended August 31, 2004 (Unaudited)

Putnam Putnam High
High Income Income Opportunities Pro Forma Pro Forma
Bond Fund Fund Adjustments Combined
---------------------------------------------------------------------------------------------------------------------------------

Investment Income
Interest (including interest income of $15,626,
$8,311 and $23,937 from investments in affiliated
issuers) $6,922,317 $4,637,372 $11,559,689
Dividends 2,214,753 1,388,354 3,603,107
Securities lending 19,215 11,347 30,562
Total investment income 9,156,285 6,037,073 15,193,358

Expenses:
Compensation of Manager 861,556 985,983 (431,527) A 1,416,012
Investor servicing fees 58,227 36,527 94,754
Custodian fees 135,604 118,689 (64,387) A 189,906
Compensation of Trustees and expenses 15,052 10,872 (3,666) A 22,258
Administrative Services 8,368 5,596 13,964
Auditing 69,228 43,245 (33,756) A 78,717
Other Expenses 104,719 80,696 (46,384) A 139,031
Fees waived and reimbursed (1,782) (1,379) (3,161)
---------------------------------------------------------------------------------------------------------------------------------
Total Expenses 1,250,972 1,280,229 (579,720) 1,951,481
---------------------------------------------------------------------------------------------------------------------------------
Expense reduction (1,143) (2,515) (3,658)
---------------------------------------------------------------------------------------------------------------------------------
Net expenses 1,249,829 1,277,714 (579,720) 1,947,823
---------------------------------------------------------------------------------------------------------------------------------
Net investment income 7,906,456 4,759,359 579,720 13,245,535
---------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments 5,740,727 3,306,790 9,047,517
Net realized loss on credit default contracts -- (35,662) (35,662)
Net realized gain (loss) on foreign currency transactions (42,751) 6,560 (36,191)
Net unrealized appreciation of assets and liabilities
in foreign currency during the year 2,660 2,435 5,095
Net unrealized appreciation of investments
and credit default contracts during the year 2,949,166 1,827,680 4,776,846
---------------------------------------------------------------------------------------------------------------------------------
Net gain on investments 8,649,802 5,107,803 13,757,605
---------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations $16,556,258 $9,867,162 $579,720 $27,003,140
---------------------------------------------------------------------------------------------------------------------------------

The Proforma Combining Investment Portfolio Putnam High Income Bond
and Putnam High Income Opportunities Trust

August 31, 2004 (unaudited)
Putnam
Putnam High Income Proforma
High Income Opportunities Combined
Bond Fund Trust

Corporate bonds and notes (a) 42.3% 43.2% 42.7%
--------------------------------------------------------------------------------------------------------------------------------
Principal Principal Principal
Principal amount amount Value amount Value amount Value
--------------------------------------------------------------------------------------------------------------------------------

Basic Materials 4.9% 4.9% 4.9%
--------------------------------------------------------------------------------------------------------------------------------
Abitibi-Consolidated Finance LP company guaranty 7
7/8s, 2009 $1,000 $1,050 $1,000 $1,050 $2,000 $2,100
Acetex Corp. sr. notes 10 7/8s, 2009 (Canada) 105,000 115,500 55,000 60,500 160,000 176,000
AK Steel Corp. company guaranty 7 7/8s, 2009 110,000 106,150 51,000 49,215 161,000 155,365
AK Steel Corp. company guaranty 7 3/4s, 2012 10,000 9,400 10,000 9,400 20,000 18,800
Armco, Inc. sr. notes 8 7/8s, 2008 40,000 39,600 40,000 39,600 80,000 79,200
Avecia Group PLC company guaranty 11s, 2009 (United
Kingdom) 30,000 24,000 15,000 12,000 45,000 36,000
BCP Caylux Holdings Luxembourg SCA 144A sr. sub.
notes 9 5/8s, 2014 (Luxembourg) 160,000 171,800 100,000 107,375 260,000 279,175
Century Aluminum Co. 144A company guaranty 7 1/2s,
2014 50,000 51,250 30,000 30,750 80,000 82,000
Compass Minerals Group, Inc. company guaranty 10s,
2011 145,000 160,950 90,000 99,900 235,000 260,850
Compass Minerals International, Inc. sr. disc. notes
stepped-coupon zero % (12s, 6/1/08), 2013 (STP) 40,000 31,200 25,000 19,500 65,000 50,700
Compass Minerals International, Inc. sr. notes stepped-
coupon zero % (12 3/4s, 12/15/07), 2012 (STP) 110,000 90,200 70,000 57,400 180,000 147,600
Equistar Chemicals LP notes 8 3/4s, 2009 87,000 91,568 61,000 64,203 148,000 155,771
Equistar Chemicals LP/Equistar Funding Corp. company
guaranty 10 1/8s, 2008 219,000 243,090 133,000 147,630 352,000 390,720
Georgia-Pacific Corp. bonds 7 3/4s, 2029 60,000 62,400 35,000 36,400 95,000 98,800
Georgia-Pacific Corp. company guaranty 9 3/8s, 2013 100,000 117,750 65,000 76,538 165,000 194,288
Georgia-Pacific Corp. debs. 7.7s, 2015 170,000 189,975 102,000 113,981 272,000 303,956
Georgia-Pacific Corp. sr. notes 7 3/8s, 2008 4,000 4,370 -- -- 4,000 4,370
Gerdau Ameristeel Corp. sr. notes 10 3/8s, 2011 (Canada) 145,000 164,575 95,000 107,825 240,000 272,400
Hercules, Inc. company guaranty 11 1/8s, 2007 198,000 232,650 136,000 159,800 334,000 392,450
Hercules, Inc. 144A sr. sub. notes 6 3/4s, 2029 110,000 109,175 70,000 69,475 180,000 178,650
Huntsman Advanced Materials, LLC 144A sec. FRN 10s,
2008 30,000 31,500 20,000 21,000 50,000 52,500
Huntsman Advanced Materials, LLC 144A sec. notes 11s,
2010 40,000 45,600 25,000 28,500 65,000 74,100
Huntsman Co., LLC sr. disc. notes zero %, 2008 111,000 66,045 68,000 40,460 179,000 106,505
Huntsman ICI Chemicals, Inc. company guaranty 10 1/8s,
2009 295,000 303,850 190,000 195,700 485,000 499,550
Huntsman ICI Holdings sr. disc. notes zero %, 2009 205,000 104,550 145,000 73,950 350,000 178,500
Huntsman International, LLC sr. sub. notes Ser. EXCH,
10 1/8s, 2009 EUR 10,000 12,254 5,000 6,127 15,000 18,381
Huntsman, LLC company guaranty 11 5/8s, 2010 $ 90,000 100,800 60,000 67,200 150,000 168,000
Huntsman, LLC 144A company guaranty 11 1/2s, 2012 50,000 51,250 30,000 30,750 80,000 82,000
Innophos, Inc. 144A sr. sub. notes 8 7/8s, 2014 75,000 78,000 45,000 46,800 120,000 124,800
International Steel Group, Inc. 144A sr. notes 6 1/2s,
2014 70,000 67,550 15,000 14,475 85,000 82,025
ISP Chemco, Inc. company guaranty Ser. B, 10 1/4s, 2011 170,000 189,125 114,000 126,825 284,000 315,950
ISP Holdings, Inc. sec. sr. notes Ser. B, 10 5/8s, 2009 -- -- 3,000 3,300 3,000 3,300
Kaiser Aluminum & Chemical Corp. sr. notes Ser. B, 10
7/8s, 2006 (In default) (NON) 10,000 9,775 10,000 9,775 20,000 19,550
Kaiser Aluminum & Chemical Corp. sr. sub. notes 12 3/4s,
2003 (In default) (NON)(DEF) 120,000 24,900 85,000 17,638 205,000 42,538
Lyondell Chemical Co. bonds 11 1/8s, 2012 10,000 11,375 10,000 11,375 20,000 22,750
Lyondell Chemical Co. company guaranty 10 1/2s, 2013 165,000 185,625 105,000 118,125 270,000 303,750
Lyondell Chemical Co. notes Ser. A, 9 5/8s, 2007 70,000 74,813 38,000 40,613 108,000 115,426
MDP Acquisitions PLC sr. notes 9 5/8s, 2012 (Ireland) 170,000 191,250 105,000 118,125 275,000 309,375
MDP Acquisitions PLC sub. notes 15 1/2s, 2013 (Ireland)
(PIK) 53,473 62,029 35,214 40,848 88,687 102,877
Millennium America, Inc. company guaranty 9 1/4s, 2008 180,000 196,200 115,000 125,350 295,000 321,550
Millennium America, Inc. 144A sr. notes 9 1/4s, 2008 20,000 21,800 10,000 10,900 30,000 32,700
Nalco Co. 144A sr. notes 7 3/4s, 2011 EUR 10,000 12,923 5,000 6,461 15,000 19,384
Nalco Co. 144A sr. sub. notes 9s, 2013 EUR 70,000 90,331 45,000 58,070 115,000 148,401
Nalco Co. 144A sr. sub. notes 8 7/8s, 2013 $ 170,000 183,388 115,000 124,056 285,000 307,444
Norske Skog Canada, Ltd. sr. notes 7 3/8s, 2014 (Canada) 160,000 162,800 105,000 106,838 265,000 269,638
PCI Chemicals Canada sec. sr. notes 10s, 2008 (Canada) 75,504 73,616 73,318 71,485 148,822 145,101
Pioneer Companies, Inc. sec. FRN 5.086s, 2006 23,909 22,594 23,216 21,939 47,125 44,533
Potlatch Corp. company guaranty 10s, 2011 128,000 144,640 92,000 103,960 220,000 248,600
Resolution Performance Products, LLC sr. notes 9 1/2s,
2010 10,000 10,425 10,000 10,425 20,000 20,850
Rhodia SA unsub. notes 10 1/4s, 2010 (France) 90,000 91,800 60,000 61,200 150,000 153,000
SGL Carbon SA 144A sr. notes 8 1/2s, 2012 (Luxembourg) EUR 65,000 81,035 40,000 49,868 105,000 130,903
Jefferson Smurfit Corp. company guaranty 7 1/2s, 2013 $ 90,000 94,050 60,000 62,700 150,000 156,750
Steel Dynamics, Inc. company guaranty 9 1/2s, 2009 125,000 138,125 55,000 60,775 180,000 198,900
Sterling Chemicals, Inc. sec. notes 10s, 2007 (PIK) -- -- 17,046 16,023 17,046 16,023
Stone Container Corp. sr. notes 9 3/4s, 2011 120,000 134,100 50,000 55,875 170,000 189,975
Stone Container Corp. sr. notes 8 3/8s, 2012 45,000 49,500 50,000 55,000 95,000 104,500
Stone Container Finance 144A company guaranty 7 3/8s,
2014 (Canada) 25,000 25,813 15,000 15,488 40,000 41,301
Tembec Industries, Inc. company guaranty 8 5/8s,
2009 (Canada) -- -- 3,000 3,128 3,000 3,128
Ucar Finance, Inc. company guaranty 10 1/4s, 2012 200,000 227,000 85,000 96,475 285,000 323,475
United Agri Products 144A sr. notes 8 1/4s, 2011 55,000 59,125 35,000 37,625 90,000 96,750
United States Steel Corp. sr. notes 9 3/4s, 2010 172,000 193,500 107,000 120,375 279,000 313,875
Wheeling-Pittsburgh Steel Corp. sr. notes 6s, 2010 6,000 4,200 6,000 4,200 12,000 8,400
Wheeling-Pittsburgh Steel Corp. sr. notes 5s, 2011 11,665 8,165 11,665 8,166 23,330 16,331
WHX Corp. sr. notes 10 1/2s, 2005 20,000 19,000 20,000 19,000 40,000 38,000
------------ ----------- ------------
5,671,074 3,579,510 9,250,584

Capital Goods 3.8% 4.0% 3.9%
--------------------------------------------------------------------------------------------------------------------------------
AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 95,000 97,375 58,000 59,450 153,000 156,825
AGCO Corp. company guaranty 9 1/2s, 2008 190,000 205,675 120,000 129,900 310,000 335,575
Air2 US 144A sinking fund Ser. D, 12.266s, 2020
(In default) (NON) 96,410 1 96,410 1 192,820 2
Allied Waste North America, Inc. company guaranty
Ser. B, 8 1/2s, 2008 177,000 194,258 116,000 127,310 293,000 321,568
Allied Waste North America, Inc. company guaranty
Ser. B, 7 5/8s, 2006 120,000 125,850 110,000 115,363 230,000 241,213
Allied Waste North America, Inc. sec. notes 6 1/2s,
2010 75,000 75,000 45,000 45,000 120,000 120,000
Argo-Tech Corp. 144A sr. notes 9 1/4s, 2011 90,000 94,950 60,000 63,300 150,000 158,250
BE Aerospace, Inc. sr. notes 8 1/2s, 2010 30,000 32,400 20,000 21,600 50,000 54,000
BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 85,000 86,700 40,000 40,800 125,000 127,500
BE Aerospace, Inc. sr. sub. notes Ser. B, 8 7/8s,
2011 2,000 1,950 4,000 3,900 6,000 5,850
BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 40,000 38,950 30,000 29,213 70,000 68,163
Berry Plastics Corp. company guaranty 10 3/4s, 2012 15,000 16,838 8,000 8,980 23,000 25,818
Blount, Inc. company guaranty 13s, 2009 105,000 111,956 68,000 72,505 173,000 184,461
Blount, Inc. company guaranty 7s, 2005 50,000 51,750 31,000 32,085 81,000 83,835
Blount, Inc. sr. sub. notes 8 7/8s, 2012 60,000 62,700 40,000 41,800 100,000 104,500
Browning-Ferris Industries, Inc. debs. 7.4s, 2035 40,000 35,600 25,000 22,250 65,000 57,850
Browning-Ferris Industries, Inc. sr. notes 6 3/8s,
2008 40,000 40,600 30,000 30,450 70,000 71,050
Crown Holdings SA bonds 10 1/4s, 2011 (France) EUR 10,000 13,761 5,000 6,881 15,000 20,642
Crown Holdings SA notes 10 7/8s, 2013 (France) $ 250,000 290,625 90,000 104,625 340,000 395,250
Crown Holdings SA notes 9 1/2s, 2011 (France) 60,000 66,600 100,000 111,000 160,000 177,600
Decrane Aircraft Holdings Co. company guaranty 17s,
2008 119,000 45,220 119,000 45,220 238,000 90,440
Earle M. Jorgensen Co. sec. notes 9 3/4s, 2012 109,000 120,990 90,000 99,900 199,000 220,890
FIMEP SA sr. notes 10 1/2s, 2013 (France) 95,000 109,725 45,000 51,975 140,000 161,700
Flender Holdings 144A sr. notes 11s, 2010 (Germany) EUR 50,000 69,291 30,000 41,575 80,000 110,866
Flowserve Corp. company guaranty 12 1/4s, 2010 $ 78,000 88,530 51,000 57,885 129,000 146,415
Hexcel Corp. sr. sub. notes 9 3/4s, 2009 130,000 136,825 85,000 89,463 215,000 226,288
Impress Metal Packaging Holding NV sr. sub. notes
9 7/8s, 2007 (Netherlands) DEM 10,000 6,197 5,000 3,099 15,000 9,296
Impress Metal Packaging Holding NV sr. sub. notes
9 7/8s, 2007 (Netherlands) EUE 95,000 58,873 60,000 37,183 155,000 96,056
Invensys, PLC notes 9 7/8s, 2011 (United Kingdom) $ 105,000 106,575 65,000 65,975 170,000 172,550
K&F Industries, Inc. sr. sub. notes Ser. B, 9
5/8s, 2010 70,000 77,525 45,000 49,838 115,000 127,363
K&F Industries, Inc. sr. sub. notes Ser. B, 9
1/4s, 2007 16,000 16,520 12,000 12,390 28,000 28,910
L-3 Communications Corp. company guaranty 7 5/8s,
2012 50,000 54,125 50,000 54,125 100,000 108,250
L-3 Communications Corp. company guaranty 6 1/8s,
2013 40,000 39,400 40,000 39,400 80,000 78,800
Legrand SA debs. 8 1/2s, 2025 (France) 265,000 288,519 185,000 201,419 450,000 489,938
Manitowoc Co., Inc. (The) company guaranty 10 1/2s,
2012 117,000 133,380 74,000 84,360 191,000 217,740
Manitowoc Co., Inc. (The) company guaranty 10 3/8s,
2011 EUR 25,000 33,461 20,000 26,769 45,000 60,230
Manitowoc Co., Inc. (The) sr. notes 7 1/8s, 2013 $ 30,000 30,975 20,000 20,650 50,000 51,625
Mueller Group, Inc. 144A sec. FRN 5.89s, 2011 25,000 25,563 15,000 15,338 40,000 40,901
Mueller Group, Inc. 144A sr. sub. notes 10s, 2012 75,000 80,438 45,000 48,263 120,000 128,701
Owens-Brockway Glass company guaranty 8 7/8s, 2009 5,000 5,438 -- -- 5,000 5,438
Owens-Brockway Glass company guaranty 8 1/4s, 2013 145,000 152,975 95,000 100,225 240,000 253,200
Owens-Brockway Glass company guaranty 7 3/4s, 2011 70,000 74,200 45,000 47,700 115,000 121,900
Owens-Brockway Glass sr. sec. notes 8 3/4s, 2012 132,000 146,520 85,000 94,350 217,000 240,870
Pliant Corp. sec. notes 11 1/8s, 2009 50,000 53,625 30,000 32,175 80,000 85,800
Sequa Corp. sr. notes Ser. B, 8 7/8s, 2008 175,000 188,125 110,000 118,250 285,000 306,375
Siebe PLC 144A sr. unsub. 6 1/2s, 2010 (United
Kingdom) 125,000 112,500 80,000 72,000 205,000 184,500
Solo Cup Co. sr. sub. notes 8 1/2s, 2014 75,000 72,750 50,000 48,500 125,000 121,250
Tekni-Plex, Inc. company guaranty Ser. B, 12 3/4s,
2010 95,000 91,200 60,000 57,600 155,000 148,800
Tekni-Plex, Inc. 144A sr. sec. notes 8 3/4s, 2013 65,000 62,400 40,000 38,400 105,000 100,800
Terex Corp. company guaranty 9 1/4s, 2011 25,000 28,000 15,000 16,800 40,000 44,800
Terex Corp. company guaranty Ser. B, 10 3/8s, 2011 46,000 51,980 36,000 40,680 82,000 92,660
Titan Corp. (The) company guaranty 8s, 2011 75,000 77,438 55,000 56,788 130,000 134,226
Trimas Corp. company guaranty 9 7/8s, 2012 53,000 56,180 31,000 32,860 84,000 89,040
Vought Aircraft Industries, Inc. sr. notes 8s, 2011 50,000 49,625 30,000 29,775 80,000 79,400
------------ ----------- ------------
4,388,627 2,897,343 7,285,970

Communication Services 3.3% 3.4% 3.4%
--------------------------------------------------------------------------------------------------------------------------------
Alamosa Delaware, Inc. company guaranty 11s, 2010 29,000 32,117 25,000 27,688 54,000 59,805
Alamosa Delaware, Inc. company guaranty stepped-
coupon zero % (12s, 7/31/05), 2009 (STP) 29,000 28,855 20,000 19,900 49,000 48,755
Alamosa Delaware, Inc. sr. notes 8 1/2s, 2012 55,000 54,725 35,000 34,825 90,000 89,550
American Cellular Corp. company guaranty 9 1/2s, 2009 25,000 20,125 20,000 16,100 45,000 36,225
American Cellular Corp. sr. notes Ser. B, 10s, 2011 65,000 52,813 40,000 32,500 105,000 85,313
American Tower Corp. sr. notes 9 3/8s, 2009 230,000 245,525 145,000 154,788 375,000 400,313
American Tower Corp. 144A sr. notes 7 1/2s, 2012 55,000 55,550 35,000 35,350 90,000 90,900
American Towers, Inc. company guaranty 7 1/4s, 2011 100,000 103,500 65,000 67,275 165,000 170,775
Asia Global Crossing, Ltd. sr. notes 13 3/8s, 2010
(Bermuda) (In default) (NON) 30,000 2,400 30,000 2,400 60,000 4,800
Centennial Cellular Operating Co. company guaranty
10 1/8s, 2013 130,000 133,575 85,000 87,338 215,000 220,913
Cincinnati Bell Telephone Co. company guaranty 6.3s,
2028 20,000 17,500 15,000 13,125 35,000 30,625
Cincinnati Bell, Inc. company guaranty 7 1/4s, 2013 80,000 75,200 55,000 51,700 135,000 126,900
Cincinnati Bell, Inc. notes 7 1/4s, 2023 50,000 43,750 30,000 26,250 80,000 70,000
Cincinnati Bell, Inc. sr. sub. notes 8 3/8s, 2014 115,000 101,775 70,000 61,950 185,000 163,725
Crown Castle International Corp. sr. notes 9 3/8s,
2011 166,000 191,730 106,000 122,430 272,000 314,160
Eircom Funding notes 8 1/4s, 2013 (Ireland) 35,000 37,800 25,000 27,000 60,000 64,800
Fairpoint Communications, Inc. sr. sub. notes 12
1/2s, 2010 50,000 53,500 35,000 37,450 85,000 90,950
Globix Corp. company guaranty 11s, 2008 (PIK) 11,436 9,549 11,436 9,549 22,872 19,098
Inmarsat Finance PLC 144A company guaranty 7 5/8s,
2012 (United Kingdom) 140,000 137,200 90,000 88,200 230,000 225,400
iPCS, Inc. 144A sr. notes 11 1/2s, 2012 45,000 47,138 25,000 26,188 70,000 73,326
Level 3 Financing, Inc. 144A sr. notes 10 3/4s, 2011 110,000 92,950 70,000 59,150 180,000 152,100
Madison River Capital Corp. sr. notes 13 1/4s, 2010 95,000 101,412 65,000 69,388 160,000 170,800
MCI, Inc. sr. notes 7.735s, 2014 235,000 217,081 150,000 138,563 385,000 355,644
MCI, Inc. sr. notes 6.688s, 2009 135,000 127,238 85,000 80,113 220,000 207,351
Nextel Communications, Inc. sr. notes 9 1/2s, 2011 53,000 59,890 45,000 50,850 98,000 110,740
Nextel Communications, Inc. sr. notes 9 3/8s, 2009 5,000 5,300 2,000 2,120 7,000 7,420
Nextel Communications, Inc. sr. notes 7 3/8s, 2015 230,000 240,350 145,000 151,525 375,000 391,875
Nextel Communications, Inc. sr. notes 5.95s, 2014 155,000 147,250 95,000 90,250 250,000 237,500
Nextel Partners, Inc. sr. notes 12 1/2s, 2009 41,000 47,765 27,000 31,455 68,000 79,220
Nextel Partners, Inc. sr. notes 8 1/8s, 2011 175,000 182,438 115,000 119,888 290,000 302,326
Qwest Communications International, Inc. 144A sr.
notes 7 1/2s, 2014 120,000 106,800 80,000 71,200 200,000 178,000
Qwest Corp. 144A notes 9 1/8s, 2012 370,000 396,825 245,000 262,763 615,000 659,588
Qwest Services Corp. 144A notes 14 1/2s, 2014 50,000 59,375 35,000 41,563 85,000 100,938
Qwest Services Corp. 144A notes 14s, 2010 90,000 104,625 60,000 69,750 150,000 174,375
Rogers Cantel, Ltd. debs. 9 3/4s, 2016 (Canada) 20,000 23,100 10,000 11,550 30,000 34,650
Rogers Wireless, Inc. sec. notes 9 5/8s, 2011
(Canada) 65,000 73,775 45,000 51,075 110,000 124,850
Rural Cellular Corp. sr. notes 9 7/8s, 2010 35,000 34,738 20,000 19,850 55,000 54,588
Rural Cellular Corp. sr. sub. notes Ser. B, 9 5/8s,
2008 45,000 41,850 -- -- 60,000 57,638
SBA Communications Corp. sr. notes 10 1/4s, 2009 25,000 26,313 15,000 15,788 55,000 49,713
SBA Telecommunications Inc./SBA Communication Corp.
sr. disc. notes stepped-coupon zero % (9 3/4s,
12/15/07), 45,000 35,100 30,000 23,400 95,000 90,600
TSI Telecommunication Services, Inc. company
guaranty Ser. B, 12 3/4s, 2009 80,000 88,800 50,000 55,500 115,000 124,675
UbiquiTel Operating Co. bonds stepped-coupon zero
% (14s, 4/15/05), 2010 (STP) 52,000 53,300 35,000 35,875 87,000 89,175
UbiquiTel Operating Co. sr. notes 9 7/8s, 2011 50,000 51,250 35,000 35,875 100,000 102,625
Western Wireless Corp. sr. notes 9 1/4s, 2013 80,000 82,200 50,000 51,375 80,000 82,200
------------ ----------- ------------
3,844,052 2,480,872 6,324,924

Conglomerates 0.3% 0.1% 0.2%
--------------------------------------------------------------------------------------------------------------------------------
Tyco International Group SA company guaranty 6 3/4s,
2011 (Luxembourg) 20,000 22,350 12,000 13,410 32,000 35,760
Tyco International Group SA company guaranty 6 3/8s,
2005 (Luxembourg) 1,000 1,030 1,000 1,030 2,000 2,060
Tyco International Group SA company guaranty 6s, 2013
(Luxembourg) 255,000 273,017 20,000 21,413 275,000 294,430
Tyco International Group SA company guaranty 7s, 2028
(Luxembourg) -- -- 2,000 2,213 2,000 2,213
Tyco International Group SA notes 6 3/8s, 2011
(Luxembourg) 38,000 41,630 36,000 39,439 74,000 81,069
------------ ----------- ------------
338,027 77,505 415,532

Consumer Cyclicals 9.7% 9.7% 9.7%
--------------------------------------------------------------------------------------------------------------------------------
Ameristar Casinos, Inc. company guaranty 10
3/4s, 2009 60,000 67,650 40,000 45,100 100,000 112,750
Argosy Gaming Co. sr. sub. notes 9s, 2011 50,000 56,000 10,000 11,200 60,000 67,200
Argosy Gaming Co. sr. sub. notes 7s, 2014 95,000 96,900 65,000 66,300 160,000 163,200
ArvinMeritor, Inc. notes 8 3/4s, 2012 40,000 44,000 25,000 27,500 65,000 71,500
Asbury Automotive Group, Inc. sr. sub. notes
8s, 2014 65,000 63,375 40,000 39,000 105,000 102,375
Autonation, Inc. company guaranty 9s, 2008 160,000 182,800 100,000 114,250 260,000 297,050
Beazer Homes USA, Inc. company guaranty 8 5/8s,
2011 50,000 54,375 45,000 48,938 95,000 103,313
Beazer Homes USA, Inc. company guaranty 8 3/8s,
2012 20,000 21,750 15,000 16,313 35,000 38,063
Boyd Gaming Corp. sr. sub. notes 8 3/4s, 2012 30,000 32,850 -- -- 30,000 32,850
Boyd Gaming Corp. sr. sub. notes 7 3/4s, 2012 25,000 26,406 -- -- 25,000 26,406
Building Materials Corp. company guaranty 8s,
2008 40,000 40,600 30,000 30,450 70,000 71,050
CanWest Media, Inc. sr. sub. notes 10 5/8s, 2011
(Canada) 40,000 45,400 50,000 56,750 90,000 102,150
Chumash Casino & Resort Enterprise 144A sr.
notes 9s, 2010 50,000 55,000 35,000 38,500 85,000 93,500
Coinmach Corp. sr. notes 9s, 2010 158,000 159,580 99,000 99,990 257,000 259,570
Collins & Aikman Products company guaranty 10
3/4s, 2011 80,000 82,400 50,000 51,500 130,000 133,900
D.R. Horton, Inc. company guaranty 8s, 2009 20,000 22,700 10,000 11,350 30,000 34,050
D.R. Horton, Inc. sr. notes 7 7/8s, 2011 30,000 34,200 20,000 22,800 50,000 57,000
D.R. Horton, Inc. sr. notes 6 7/8s, 2013 20,000 21,550 15,000 16,163 35,000 37,713
D.R. Horton, Inc. sr. notes 5 7/8s, 2013 130,000 131,625 85,000 86,063 215,000 217,688
Dana Corp. notes 10 1/8s, 2010 20,000 22,900 15,000 17,175 35,000 40,075
Dana Corp. notes 9s, 2011 185,000 221,075 116,000 138,620 301,000 359,695
Dana Corp. notes 7s, 2029 20,000 20,100 5,000 5,025 25,000 25,125
Dayton Superior Corp. sec. notes 10 3/4s, 2008 75,000 79,875 50,000 53,250 125,000 133,125
Delco Remy International, Inc. company guaranty 11s,
2009 20,000 21,350 24,000 25,620 44,000 46,970
Delco Remy International, Inc. sr. sub. notes 9 3/8s,
2012 165,000 167,888 105,000 106,838 270,000 274,726
Dex Media West, LLC/Dex Media Finance Co. sr. notes
Ser. B, 8 1/2s, 2010 150,000 168,938 95,000 106,994 245,000 275,932
Dex Media, Inc. 144A disc. notes stepped-coupon zero
% (9s, 11/15/08), 2013 (STP) 70,000 51,275 45,000 32,963 115,000 84,238
Dex Media, Inc. 144A notes 8s, 2013 280,000 290,500 175,000 181,563 455,000 472,063
Dura Operating Corp. company guaranty Ser. B, 8 5/8s,
2012 25,000 25,938 15,000 15,563 40,000 41,501
FelCor Lodging LP company guaranty 10s, 2008 (R) 29,000 30,523 12,000 12,630 41,000 43,153
Finlay Fine Jewelry Corp. 144A sr. notes 8 3/8s, 2012 65,000 69,225 45,000 47,925 110,000 117,150
Gaylord Entertainment Co. sr. notes 8s, 2013 95,000 98,563 65,000 67,438 160,000 166,001
Goodyear Tire & Rubber Co. (The) notes 8 1/2s, 2007 40,000 41,500 20,000 20,750 60,000 62,250
Goodyear Tire & Rubber Co. (The) notes 7.857s, 2011 265,000 249,100 170,000 159,800 435,000 408,900
Goodyear Tire & Rubber Co. (The) notes 6 3/8s, 2008 30,000 29,250 15,000 14,625 45,000 43,875
Herbst Gaming, Inc. 144A sr. sub. notes 8 1/8s, 2012 45,000 45,338 30,000 30,225 75,000 75,563
Hilton Hotels Corp. notes 7 5/8s, 2012 160,000 183,600 103,000 118,193 263,000 301,793
HMH Properties, Inc. company guaranty Ser. B, 7 7/8s,
2008 119,000 122,570 45,000 46,350 164,000 168,920
Hollinger Participation Trust 144A sr. notes 12 1/8s,
2010 (Canada) (PIK) 177,414 200,034 110,001 124,026 287,415 324,060
Hollywood Park, Inc. company guaranty Ser. B, 9 1/4s,
2007 147,000 151,226 99,000 101,846 246,000 253,072
Host Marriott LP company guaranty Ser. G, 9 1/4s,
2007 (R) 30,000 33,600 30,000 33,600 60,000 67,200
Host Marriott LP sr. notes Ser. E, 8 3/8s, 2006 (R) 75,000 79,688 53,000 56,313 128,000 136,001
Host Marriott LP 144A sr. notes 7s, 2012 130,000 132,275 85,000 86,488 215,000 218,763
Houghton Mifflin Co. sr. sub. notes 9 7/8s, 2013 110,000 114,813 70,000 73,063 180,000 187,876
Icon Health & Fitness company guaranty 11 1/4s, 2012 131,000 142,790 88,000 95,920 219,000 238,710
IESI Corp. company guaranty 10 1/4s, 2012 99,000 107,168 66,000 71,445 165,000 178,613
Inn of the Mountain Gods sr. notes 12s, 2010 35,000 39,550 25,000 28,250 60,000 67,800
Interface, Inc. sr. sub. notes 9 1/2s, 2014 30,000 30,750 20,000 20,500 50,000 51,250
ITT Corp. debs. 7 3/8s, 2015 70,000 74,200 50,000 53,000 120,000 127,200
ITT Corp. notes 6 3/4s, 2005 100,000 103,750 65,000 67,438 165,000 171,188
JC Penney Co., Inc. debs. 7.95s, 2017 90,000 101,700 60,000 67,800 150,000 169,500
JC Penney Co., Inc. debs. 7.65s, 2016 11,000 12,183 17,000 18,828 28,000 31,011
JC Penney Co., Inc. debs. 7 1/8s, 2023 130,000 134,875 90,000 93,375 220,000 228,250
JC Penney Co., Inc. notes 9s, 2012 75,000 90,000 55,000 66,000 130,000 156,000
JC Penney Co., Inc. notes 8s, 2010 5,000 5,638 5,000 5,638 10,000 11,276
John Q. Hammons Hotels LP/John Q. Hammons Hotels
Finance Corp. III 1st mtge. Ser. B, 8 7/8s, 2012 180,000 201,150 120,000 134,100 300,000 335,250
Jostens Holding Corp. sr. disc. notes stepped-coupon
zero % (10 1/4s, 12/1/08), 2013 (STP) 135,000 89,100 85,000 56,100 220,000 145,200
Jostens, Inc. sr. sub. notes 12 3/4s, 2010 80,000 90,300 62,000 69,983 142,000 160,283
K. Hovnanian Enterprises, Inc. company guaranty 10
1/2s, 2007 10,000 11,600 10,000 11,600 20,000 23,200
K. Hovnanian Enterprises, Inc. company guaranty
8 7/8s, 2012 75,000 83,625 55,000 61,325 130,000 144,950
K. Hovnanian Enterprises, Inc. company guaranty
6 3/8s, 2014 55,000 54,175 35,000 34,475 90,000 88,650
K. Hovnanian Enterprises, Inc. sr. notes 6 1/2s,
2014 40,000 39,700 20,000 19,850 60,000 59,550
K2, Inc. 144A sr. notes 7 3/8s, 2014 60,000 62,100 40,000 41,400 100,000 103,500
KB Home sr. sub. notes 9 1/2s, 2011 2,000 2,230 -- -- 2,000 2,230
Laidlaw International, Inc. sr. notes 10 3/4s, 2011 195,000 222,300 125,000 142,500 320,000 364,800
Lamar Media Corp. company guaranty 7 1/4s, 2013 80,000 85,200 50,000 53,250 130,000 138,450
Lear Corp. company guaranty Ser. B, 8.11s, 2009 32,000 37,135 19,000 22,049 51,000 59,184
Levi Strauss & Co. notes 7s, 2006 -- -- 2,000 1,970 2,000 1,970
Levi Strauss & Co. sr. notes 12 1/4s, 2012 201,000 208,538 138,000 143,175 339,000 351,713
Mandalay Resort Group sr. notes 6 3/8s, 2011 60,000 61,500 35,000 35,875 95,000 97,375
MediaNews Group, Inc. sr. sub. notes 6 7/8s, 2013 140,000 141,050 85,000 85,638 225,000 226,688
MeriStar Hospitality Corp. company guaranty 9 1/8s,
2011 (R) 105,000 108,150 65,000 66,950 170,000 175,100
MeriStar Hospitality Corp. company guaranty 9s,
2008 (R) 45,000 46,350 30,000 30,900 75,000 77,250
Meritage Corp. company guaranty 9 3/4s, 2011 40,000 44,600 25,000 27,875 65,000 72,475
Meritage Corp. sr. notes 7s, 2014 30,000 29,475 15,000 14,738 45,000 44,213
Meritor Automotive, Inc. notes 6.8s, 2009 90,000 92,700 55,000 56,650 145,000 149,350
Metaldyne Corp. 144A sr. notes 10s, 2013 85,000 83,938 55,000 54,313 140,000 138,251
MGM Mirage, Inc. company guaranty 8 1/2s, 2010 100,000 112,500 60,000 67,500 160,000 180,000
MGM Mirage, Inc. company guaranty 8 3/8s, 2011 1,000 1,085 1,000 1,085 2,000 2,170
Mohegan Tribal Gaming Authority sr. sub. notes
6 3/8s, 2009 65,000 66,138 75,000 76,313 140,000 142,451
THL Buildco, Inc. (Nortek, Inc.) 144A sr. sub.
notes 8 1/2s, 2014 95,000 99,038 60,000 62,550 155,000 161,588
Oxford Industries, Inc. 144A sr. notes 8 7/8s,
2011 60,000 64,200 40,000 42,800 100,000 107,000
Park Place Entertainment Corp. sr. notes 7 1/2s,
2009 25,000 27,750 5,000 5,550 30,000 33,300
Park Place Entertainment Corp. sr. notes 7s, 2013 65,000 69,713 45,000 48,263 110,000 117,976
Park Place Entertainment Corp. sr. sub. notes 8 7/8s,
2008 161,000 182,333 117,000 132,503 278,000 314,836
Penn National Gaming, Inc. company guaranty Ser. B,
11 1/8s, 2008 110,000 120,725 85,000 93,288 195,000 214,013
Penn National Gaming, Inc. sr. sub. notes 8 7/8s,
2010 132,000 144,540 68,000 74,460 200,000 219,000
Phillips-Van Heusen Corp. sr. notes 7 1/4s, 2011 30,000 30,975 20,000 20,650 50,000 51,625
Pinnacle Entertainment, Inc. sr. sub. notes 8 3/4s,
2013 75,000 77,250 45,000 46,350 120,000 123,600
Pinnacle Entertainment, Inc. sr. sub. notes 8 1/4s,
2012 40,000 40,200 25,000 25,125 65,000 65,325
PRIMEDIA, Inc. company guaranty 8 7/8s, 2011 30,000 29,400 40,000 39,200 70,000 68,600
PRIMEDIA, Inc. company guaranty 7 5/8s, 2008 140,000 137,200 60,000 58,800 200,000 196,000
PRIMEDIA, Inc. 144A sr. notes 8s, 2013 150,000 138,750 110,000 101,750 260,000 240,500
Reader's Digest Association, Inc. (The) sr. notes
6 1/2s, 2011 100,000 101,000 65,000 65,650 165,000 166,650
Resorts International Hotel and Casino, Inc. company
guaranty 11 1/2s, 2009 103,000 116,905 55,000 62,425 158,000 179,330
RH Donnelley Finance Corp. I company guaranty 8 7/8s,
2010 15,000 16,894 10,000 11,263 25,000 28,157
RH Donnelley Finance Corp. I 144A sr. notes 8 7/8s,
2010 134,000 150,918 89,000 100,236 223,000 251,154
RH Donnelley Finance Corp. I 144A sr. sub. notes 10
7/8s, 2012 77,000 91,053 52,000 61,490 129,000 152,543
Russell Corp. company guaranty 9 1/4s, 2010 82,000 88,355 52,000 56,030 134,000 144,385
Saks, Inc. company guaranty 7s, 2013 175,000 175,875 111,000 111,555 286,000 287,430
Samsonite Corp. 144A sr. sub. notes 8 7/8s, 2011 205,000 211,150 130,000 133,900 335,000 345,050
Schuler Homes, Inc. company guaranty 10 1/2s, 2011 64,000 73,440 40,000 45,900 104,000 119,340
Sealy Mattress Co. 144A sr. sub. notes 8 1/4s, 2014 160,000 165,200 100,000 103,250 260,000 268,450
Standard Pacific Corp. sr. notes 7 3/4s, 2013 50,000 52,625 30,000 31,575 80,000 84,200
Standard Pacific Corp. sr. notes 6 7/8s, 2011 10,000 10,375 5,000 5,188 15,000 15,563
Standard Pacific Corp. sr. notes 6 1/4s, 2014 175,000 168,438 110,000 105,875 285,000 274,313
Starwood Hotels & Resorts Worldwide, Inc. company
guaranty 7 7/8s, 2012 74,000 82,880 -- -- 74,000 82,880
Starwood Hotels & Resorts Worldwide, Inc. company
guaranty 7 3/8s, 2007 71,000 75,970 50,000 53,500 121,000 129,470
Station Casinos, Inc. sr. notes 6s, 2012 118,000 118,295 75,000 75,188 193,000 193,483
Station Casinos, Inc. sr. sub. notes 6 7/8s, 2016 75,000 74,906 45,000 44,900 120,000 119,806
Technical Olympic USA, Inc. company guaranty 10
3/8s, 2012 45,000 48,937 30,000 32,625 75,000 81,562
Technical Olympic USA, Inc. company guaranty 9s,
2010 65,000 68,900 40,000 42,400 105,000 111,300
Tenneco Automotive, Inc. company guaranty Ser. B,
11 5/8s, 2009 30,000 32,025 20,000 21,350 50,000 53,375
Tenneco Automotive, Inc. sec. notes Ser. B, 10
1/4s, 2013 100,000 115,750 60,000 69,450 160,000 185,200
Tommy Hilfiger USA, Inc. company guaranty 6.85s,
2008 60,000 61,350 40,000 40,900 100,000 102,250
Toys "R" Us, Inc. notes 7 5/8s, 2011 55,000 54,313 -- -- 55,000 54,313
Trump Atlantic City Associates company guaranty 11
1/4s, 2006 283,000 240,196 143,000 121,371 426,000 361,567
United Auto Group, Inc. company guaranty 9 5/8s,
2012 70,000 77,700 40,000 44,400 110,000 122,100
Venetian Casino Resort, LLC company guaranty 11s,
2010 53,000 60,354 44,000 50,105 97,000 110,459
Vertis, Inc. company guaranty Ser. B, 10 7/8s,
2009 200,000 216,500 126,000 136,395 326,000 352,895
Vertis, Inc. sub. notes 13 1/2s, 2009 100,000 101,125 60,000 60,675 160,000 161,800
Von Hoffman Press, Inc. company guaranty 10 3/8s,
2007 40,000 40,750 10,000 10,188 50,000 50,938
Von Hoffman Press, Inc. company guaranty 10 1/4s,
2009 75,000 83,438 50,000 55,625 125,000 139,063
Von Hoffman Press, Inc. debs. 13s, 2009 (PIK) 63,019 65,540 59,277 61,648 122,296 127,188
WCI Communities, Inc. company guaranty 10 5/8s,
2011 21,000 23,573 16,000 17,960 37,000 41,533
WCI Communities, Inc. company guaranty 9 1/8s,
2012 101,000 111,605 70,000 77,350 171,000 188,955
William Carter Holdings Co. (The) company guaranty
Ser. B, 10 7/8s, 2011 59,000 66,670 40,000 45,200 99,000 111,870
WRC Media Corp. sr. sub. notes 12 3/4s, 2009 80,000 72,800 50,000 45,500 130,000 118,300
------------ ----------- ------------
11,185,427 7,109,214 18,294,641

Consumer Staples 6.3% 6.5% 6.4%
--------------------------------------------------------------------------------------------------------------------------------
Adelphia Communications Corp. notes Ser. B, 9 7/8s,
2005 (In default) (NON) 10,000 9,000 10,000 9,000 20,000 18,000
Adelphia Communications Corp. sr. notes 10 7/8s,
2010 (In default) (NON) 20,000 18,250 20,000 18,250 40,000 36,500
Adelphia Communications Corp. sr. notes Ser. B, 9
7/8s, 2007 (In default) (NON) 235,000 211,500 55,000 49,500 290,000 261,000
Adelphia Communications Corp. sr. notes 10 1/4s,
2011 (In default) (NON) -- -- 60,000 55,500 60,000 55,500
Affinity Group, Inc. sr. sub. notes 9s, 2012 105,000 109,725 70,000 73,150 175,000 182,875
AMC Entertainment, Inc. sr. sub. notes 9 7/8s, 2012 40,000 41,600 30,000 31,200 70,000 72,800
AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2011 29,000 29,580 15,000 15,300 44,000 44,880
AMC Entertainment, Inc. 144A sr. sub. notes 8s, 2014 190,000 177,175 125,000 116,563 315,000 293,738
Armkel, LLC/Armkel Finance sr. sub. notes 9 1/2s,
2009 148,000 161,320 104,000 113,360 252,000 274,680
Atlantic Broadband Finance, LLC 144A sr. sub. notes
9 3/8s, 2014 60,000 56,550 -- -- 60,000 56,550
Brand Services, Inc. company guaranty 12s, 2012 136,000 155,040 88,000 100,320 224,000 255,360
Cablevision Systems Corp. 144A sr. notes 8s, 2012 210,000 215,250 140,000 143,500 350,000 358,750
Capital Records, Inc. 144A company guaranty 8 3/8s,
2009 70,000 76,125 45,000 48,938 115,000 125,063
Charter Communications Holdings, LLC/Capital Corp.
sr. disc. notes stepped-coupon zero % (11 3/4s,
5/15/06), 19,000 12,065 75,000 47,625 94,000 59,690
Charter Communications Holdings, LLC/Capital Corp.
sr. notes 11 1/8s, 2011 365,000 304,775 170,000 141,950 535,000 446,725
Charter Communications Holdings, LLC/Capital Corp.
sr. notes 10 3/4s, 2009 70,000 58,800 50,000 42,000 120,000 100,800
Charter Communications Holdings, LLC/Capital Corp.
sr. notes 10 1/4s, 2010 60,000 49,350 40,000 32,900 100,000 82,250
Charter Communications Holdings, LLC/Capital Corp.
sr. notes 10s, 2011 120,000 94,800 120,000 94,800 240,000 189,600
Charter Communications Holdings, LLC/Capital Corp.
sr. notes 9 5/8s, 2009 63,000 50,873 54,000 43,605 117,000 94,478
Charter Communications Holdings, LLC/Capital Corp.
sr. notes 8 5/8s, 2009 61,000 48,495 13,000 10,335 74,000 58,830
Cinemark USA, Inc. sr. sub. notes 9s, 2013 125,000 138,438 80,000 88,600 205,000 227,038
Cinemark, Inc. sr. disc. notes stepped-coupon zero
% (9 3/4s, 3/15/07), 2014 (STP) 145,000 99,869 90,000 61,988 235,000 161,857
Constellation Brands, Inc. company guaranty Ser.
B, 8s, 2008 70,000 77,175 45,000 49,613 115,000 126,788
Constellation Brands, Inc. sr. sub. notes Ser. B,
8 1/8s, 2012 5,000 5,463 5,000 5,463 10,000 10,926
CSC Holdings, Inc. debs. 7 5/8s, 2018 60,000 60,300 40,000 40,200 100,000 100,500
CSC Holdings, Inc. debs. Ser. B, 8 1/8s, 2009 3,000 3,218 -- -- 3,000 3,218
CSC Holdings, Inc. sr. notes Ser. B, 7 5/8s, 2011 65,000 67,438 40,000 41,500 105,000 108,938
CSC Holdings, Inc. sr. sub. debs. 10 1/2s, 2016 60,000 68,250 70,000 79,625 130,000 147,875
CSC Holdings, Inc. 144A sr. notes 6 3/4s, 2012 65,000 64,675 40,000 39,800 105,000 104,475
Dean Foods Co. sr. notes 6 5/8s, 2009 30,000 31,913 15,000 15,956 45,000 47,869
Del Monte Corp. company guaranty Ser. B, 9 1/4s,
2011 40,000 44,000 30,000 33,000 70,000 77,000
Del Monte Corp. sr. sub. notes 8 5/8s, 2012 80,000 89,000 50,000 55,625 130,000 144,625
DirecTV Holdings, LLC sr. notes 8 3/8s, 2013 175,000 199,063 110,000 125,125 285,000 324,188
Diva Systems Corp. sr. disc. notes Ser. B, 12 5/8s,
2008 (acquired various dates from 2/11/96 to 5/24/01,
cost $98,675, $75,416 and $174,091, respectively) (RES)
(In default) (NON) 271,000 339 193,000 241 464,000 580
Doane Pet Care Co. sr. sub. debs. 9 3/4s, 2007 155,000 144,538 110,000 102,575 265,000 247,113
Dole Food Co. sr. notes 8 7/8s, 2011 35,000 37,450 20,000 21,400 55,000 58,850
Dole Food Co. sr. notes 8 5/8s, 2009 25,000 26,625 20,000 21,300 45,000 47,925
Dole Food Co. company guaranty 7 1/4s, 2010 60,000 60,300 40,000 40,200 100,000 100,500
Domino's, Inc. sr. sub. notes 8 1/4s, 2011 66,000 70,620 40,000 42,800 106,000 113,420
Eagle Family Foods company guaranty Ser. B, 8 3/4s,
2008 20,000 15,000 15,000 11,250 35,000 26,250
Echostar DBS Corp. sr. notes 10 3/8s, 2007 30,000 31,800 20,000 21,200 50,000 53,000
Echostar DBS Corp. sr. notes 9 1/8s, 2009 42,000 46,358 36,000 39,735 78,000 86,093
Echostar DBS Corp. sr. notes 6 3/8s, 2011 220,000 220,550 145,000 145,363 365,000 365,913
Elizabeth Arden, Inc. company guaranty 7 3/4s, 2014 35,000 36,225 25,000 25,875 60,000 62,100
Granite Broadcasting Corp. sec. notes 9 3/4s, 2010 205,000 193,213 130,000 122,525 335,000 315,738
Gray Television, Inc. company guaranty 9 1/4s, 2011 52,000 58,110 35,000 39,113 87,000 97,223
Hasbro, Inc. notes 5.6s, 2005 110,000 113,025 70,000 71,925 180,000 184,950
Jean Coutu Group, Inc. 144A sr. notes 7 5/8s, 2012
(Canada) 60,000 61,800 40,000 41,200 100,000 103,000
Jean Coutu Group, Inc. 144A sr. sub. notes 8 1/2s,
2014 (Canada) 125,000 125,938 80,000 80,600 205,000 206,538
Kabel Deutsheland GmbH 144A sr. notes 10 5/8s, 2014
(Germany) 230,000 235,750 175,000 179,375 405,000 415,125
Knology, Inc. 144A sr. notes 12s, 2009 (PIK) 2,435 2,313 2,435 2,313 4,870 4,626
Land O'Lakes, Inc. sr. notes 8 3/4s, 2011 71,000 66,208 39,000 36,368 110,000 102,576
LCE Acquisition Corp. 144A company guaranty 9s, 2014 35,000 35,525 20,000 20,300 55,000 55,825
North Atlantic Trading Co. sr. notes 9 1/4s, 2012 90,000 87,750 55,000 53,625 145,000 141,375
Paxson Communications Corp. company guaranty 10 3/4s,
2008 105,000 105,525 70,000 70,350 175,000 175,875
Pinnacle Foods Holding Corp. 144A sr. sub. notes 8
1/4s, 2013 150,000 142,875 95,000 90,488 245,000 233,363
Playtex Products, Inc. company guaranty 9 3/8s, 2011 156,000 158,535 102,000 103,658 258,000 262,193
Playtex Products, Inc. 144A sec. notes 8s, 2011 110,000 114,675 70,000 72,975 180,000 187,650
Premier International Foods PLC sr. notes 12s, 2009
(United Kingdom) 80,000 84,800 60,000 63,600 140,000 148,400
Prestige Brands, Inc. 144A sr. sub. notes 9 1/4s, 2012 105,000 104,475 65,000 64,675 170,000 169,150
Quebecor Media, Inc. sr. disc. notes stepped-coupon
zero % (13 3/4s, 7/15/06), 2011 (Canada) (STP) 25,000 23,813 35,000 33,338 60,000 57,151
Quebecor Media, Inc. sr. notes 11 1/8s, 2011 (Canada) 196,000 225,400 121,000 139,150 317,000 364,550
Rainbow National Services, LLC 144A sr. notes 8 3/4s,
2012 125,000 127,500 80,000 81,600 205,000 209,100
Remington Arms Co., Inc. company guaranty 10 1/2s,
2011 160,000 147,200 115,000 105,800 275,000 253,000
Rite Aid Corp. company guaranty 9 1/2s, 2011 80,000 88,000 50,000 55,000 130,000 143,000
Rite Aid Corp. debs. 6 7/8s, 2013 130,000 119,600 85,000 78,200 215,000 197,800
Rite Aid Corp. notes 7 1/8s, 2007 10,000 10,200 5,000 5,100 15,000 15,300
Rite Aid Corp. 144A notes 6s, 2005 5,000 5,050 5,000 5,050 10,000 10,100
Sbarro, Inc. company guaranty 11s, 2009 130,000 117,325 80,000 72,200 210,000 189,525
Scotts Co. (The) sr. sub. notes 6 5/8s, 2013 35,000 36,575 20,000 20,900 55,000 57,475
Sinclair Broadcast Group, Inc. company guaranty
8s, 2012 75,000 77,438 50,000 51,625 125,000 129,063
Six Flags, Inc. sr. notes 9 5/8s, 2014 140,000 129,850 90,000 83,475 230,000 213,325
Six Flags, Inc. sr. notes 8 7/8s, 2010 314,000 288,880 211,000 194,120 525,000 483,000
Videotron Ltee company guaranty 6 7/8s, 2014
(Canada) 40,000 40,400 25,000 25,250 65,000 65,650
Vivendi Universal SA sr. notes 9 1/4s, 2010 (France) 90,000 106,313 55,000 64,969 145,000 171,282
Vivendi Universal SA sr. notes 6 1/4s, 2008 (France) 135,000 144,450 90,000 96,300 225,000 240,750
Warner Music Group 144A sr. sub. notes 7 3/8s, 2011 75,000 74,625 50,000 49,750 125,000 124,375
Williams Scotsman, Inc. company guaranty 9 7/8s,
2007 114,000 112,290 73,000 71,905 187,000 184,195
Young Broadcasting, Inc. company guaranty 10s, 2011 108,000 110,430 81,000 82,823 189,000 193,253
Young Broadcasting, Inc. sr. sub. notes 8 3/4s, 2014 50,000 47,938 35,000 33,556 85,000 81,494
------------ ----------- ------------
7,242,674 4,759,431 12,002,105

Energy 3.0% 3.1% 3.0%
--------------------------------------------------------------------------------------------------------------------------------
Arch Western Finance, LLC 144A sr. notes 7 1/2s,
2013 145,000 150,075 90,000 93,150 235,000 243,225
Belden & Blake Corp. 144A sec. notes 8 3/4s, 2012 75,000 78,188 45,000 46,913 120,000 125,101
BRL Universal Equipment sec. notes 8 7/8s, 2008 90,000 96,075 50,000 53,375 140,000 149,450
CHC Helicopter Corp. sr. sub. notes 7 3/8s, 2014
(Canada) 80,000 80,900 50,000 50,563 130,000 131,463
Chesapeake Energy Corp. company guaranty 9s, 2012 54,000 61,560 37,000 42,180 91,000 103,740
Chesapeake Energy Corp. company guaranty 7 3/4s,
2015 35,000 37,538 25,000 26,813 60,000 64,351
Chesapeake Energy Corp. sr. notes 7 1/2s, 2013 115,000 123,625 75,000 80,625 190,000 204,250
Chesapeake Energy Corp. sr. notes 7s, 2014 50,000 51,500 30,000 30,900 80,000 82,400
Comstock Resources, Inc. sr. notes 6 7/8s, 2012 75,000 75,375 45,000 45,225 120,000 120,600
Dresser, Inc. company guaranty 9 3/8s, 2011 100,000 107,500 65,000 69,875 165,000 177,375
El Paso Energy Partners LP company guaranty Ser.
B, 8 1/2s, 2011 16,000 18,000 7,000 7,875 23,000 25,875
Encore Acquisition Co. company guaranty 8 3/8s,
2012 80,000 88,000 50,000 55,000 130,000 143,000
Encore Acquisition Co. sr. sub. notes 6 1/4s, 2014 35,000 34,125 25,000 24,375 60,000 58,500
Exco Resources, Inc. company guaranty 7 1/4s, 2011 105,000 110,250 65,000 68,250 170,000 178,500
Forest Oil Corp. company guaranty 7 3/4s, 2014 55,000 58,300 45,000 47,700 100,000 106,000
Forest Oil Corp. sr. notes 8s, 2008 62,000 67,580 32,000 34,880 94,000 102,460
Forest Oil Corp. 144A sr. notes 8s, 2011 45,000 49,388 30,000 32,925 75,000 82,313
Hanover Compressor Co. sr. notes 9s, 2014 55,000 58,988 35,000 37,538 90,000 96,526
Hanover Compressor Co. sr. notes 8 5/8s, 2010 50,000 53,250 35,000 37,275 85,000 90,525
Hanover Compressor Co. sub. notes zero %, 2007 75,000 63,188 50,000 42,125 125,000 105,313
Hanover Equipment Trust sec. notes Ser. A, 8 1/2s,
2008 50,000 53,375 35,000 37,363 85,000 90,738
Hornbeck Offshore Services, Inc. sr. notes 10 5/8s,
2008 68,000 74,800 49,000 53,900 117,000 128,700
KCS Energy, Inc. sr. notes 7 1/8s, 2012 50,000 51,250 35,000 35,875 85,000 87,125
Key Energy Services, Inc. sr. notes 6 3/8s, 2013 40,000 38,200 25,000 23,875 65,000 62,075
Massey Energy Co. sr. notes 6 5/8s, 2010 75,000 77,625 45,000 46,575 120,000 124,200
Newfield Exploration Co. sr. notes 7 5/8s, 2011 80,000 87,800 70,000 76,825 150,000 164,625
Newfield Exploration Co. 144A sr. sub. notes 6 5/8s,
2014 65,000 66,138 40,000 40,700 105,000 106,838
Offshore Logistics, Inc. company guaranty 6 1/8s,
2013 100,000 99,000 65,000 64,350 165,000 163,350
Pacific Energy Partners/Pacific Energy Finance Corp.
144A sr. notes 7 1/8s, 2014 60,000 63,450 35,000 37,013 95,000 100,463
Parker Drilling Co. company guaranty Ser. B, 10 1/8s,
2009 90,000 95,625 60,000 63,750 150,000 159,375
Peabody Energy Corp. sr. notes 5 7/8s, 2016 110,000 105,050 70,000 66,850 180,000 171,900
Pemex Project Funding Master Trust company guaranty
7 3/8s, 2014 250,000 270,000 160,000 172,800 410,000 442,800
Petro Geo-Services notes 10s, 2010 (Norway) 113,029 121,506 66,514 71,503 179,543 193,009
Plains All American Pipeline LP/Plains All American
Finance Corp. company guaranty 7 3/4s, 2012 55,000 63,673 37,000 42,834 92,000 106,507
Plains Exploration & Production Co. company guaranty
Ser. B, 8 3/4s, 2012 80,000 89,200 50,000 55,750 130,000 144,950
Plains Exploration & Production Co. sr. sub. notes 8
3/4s, 2012 45,000 50,175 30,000 33,450 75,000 83,625
Plains Exploration & Production Co. 144A sr. notes 7
1/8s, 2014 70,000 74,200 45,000 47,700 115,000 121,900
Pogo Producing Co. sr. sub. notes Ser. B, 8 1/4s,
2011 115,000 126,212 80,000 87,800 195,000 214,012
Pride International, Inc. 144A sr. notes 7 3/8s, 2014 110,000 117,150 80,000 85,200 190,000 202,350
Seabulk International, Inc. company guaranty 9 1/2s,
2013 80,000 83,400 50,000 52,125 130,000 135,525
Star Gas Partners LP/Star Gas Finance Co. sr. notes
10 1/4s, 2013 130,000 140,400 85,000 91,800 215,000 232,200
Universal Compression, Inc. sr. notes 7 1/4s, 2010 20,000 20,800 15,000 15,600 35,000 36,400
Vintage Petroleum, Inc. sr. notes 8 1/4s, 2012 -- -- 7,000 7,630 7,000 7,630
Vintage Petroleum, Inc. sr. sub. notes 7 7/8s, 2011 24,000 25,140 16,000 16,760 40,000 41,900
------------ ----------- ------------
3,457,574 2,255,590 5,713,164

Financial 0.5% 0.6% 0.6%
--------------------------------------------------------------------------------------------------------------------------------
Crescent Real Estate Equities LP notes 7 1/2s,
2007 (R) 35,000 35,700 25,000 25,500 60,000 61,200
Crescent Real Estate Equities LP sr. notes 9 1/4s,
2009 (R) 110,000 117,700 70,000 74,900 180,000 192,600
E*Trade Finance Corp. 144A sr. notes 8s, 2011 140,000 142,800 90,000 91,800 230,000 234,600
Finova Group, Inc. notes 7 1/2s, 2009 206,550 103,017 133,650 66,658 340,200 169,675
iStar Financial, Inc. sr. notes 8 3/4s, 2008 (R) 44,000 50,050 28,000 31,850 72,000 81,900
iStar Financial, Inc. sr. notes 7s, 2008 (R) 10,000 10,738 15,000 16,106 25,000 26,844
iStar Financial, Inc. sr. notes 6s, 2010 (R) 95,000 97,138 60,000 61,350 155,000 158,488
Western Financial Bank sub. debs. 9 5/8s, 2012 70,000 77,000 50,000 55,000 120,000 132,000
------------ ----------- ------------
634,143 423,164 1,057,307

Health Care 2.6% 2.7% 2.6%
--------------------------------------------------------------------------------------------------------------------------------
Alderwoods Group, Inc. 144A sr. notes 7 3/4s, 2012 100,000 104,000 60,000 62,400 160,000 166,400
AmerisourceBergen Corp. company guaranty 7 1/4s,
2012 82,000 87,740 55,000 58,850 137,000 146,590
AmerisourceBergen Corp. sr. notes 8 1/8s, 2008 160,000 175,600 100,000 109,750 260,000 285,350
Ardent Health Services, Inc. sr. sub. notes 10s,
2013 135,000 145,125 90,000 96,750 225,000 241,875
Extendicare Health Services, Inc. company guaranty
9 1/2s, 2010 40,000 44,700 25,000 27,938 65,000 72,638
Extendicare Health Services, Inc. sr. sub. notes
6 7/8s, 2014 75,000 74,250 50,000 49,500 125,000 123,750
Hanger Orthopedic Group, Inc. company guaranty 10
3/8s, 2009 50,000 46,500 30,000 27,900 80,000 74,400
HCA, Inc. debs. 7.19s, 2015 10,000 10,790 57,000 61,501 67,000 72,291
HCA, Inc. notes 5 3/4s, 2014 30,000 29,739 20,000 19,826 50,000 49,565
HCA, Inc. sr. notes 6.95s, 2012 40,000 43,048 30,000 32,286 70,000 75,334
Healthsouth Corp. notes 7 5/8s, 2012 175,000 167,125 114,000 108,870 289,000 275,995
Healthsouth Corp. sr. notes 8 1/2s, 2008 37,000 37,000 26,000 26,000 63,000 63,000
Healthsouth Corp. sr. notes 8 3/8s, 2011 37,000 36,353 24,000 23,580 61,000 59,933
IASIS Healthcare/IASIS Capital Corp. 144A sr. sub.
notes 8 3/4s, 2014 65,000 68,250 40,000 42,000 105,000 110,250
Insight Health Services Corp. 144A company guaranty
9 7/8s, 2011 55,000 55,688 35,000 35,438 90,000 91,126
Magellan Health Services, Inc. sr. notes Ser. A, 9
3/8s, 2008 39,220 42,358 30,816 33,281 70,036 75,639
Mediq, Inc. debs. 13s, 2009 (In default) (NON) 90,000 9 85,000 9 175,000 18
MedQuest, Inc. company guaranty Ser. B, 11 7/8s, 2012 31,000 35,030 -- -- 31,000 35,030
MQ Associates, Inc. 144A sr. disc. notes zero %, 2012 145,000 90,263 95,000 59,138 240,000 149,401
Omnicare, Inc. sr. sub. notes 6 1/8s, 2013 90,000 87,300 65,000 63,050 155,000 150,350
Owens & Minor, Inc. company guaranty 8 1/2s, 2011 70,000 77,000 40,000 44,000 110,000 121,000
PacifiCare Health Systems, Inc. company guaranty
10 3/4s, 2009 100,000 116,000 66,000 76,560 166,000 192,560
Province Healthcare Co. sr. sub. notes 7 1/2s, 2013 155,000 173,600 95,000 106,400 250,000 280,000
Service Corp. International notes 7.2s, 2006 10,000 10,450 5,000 5,225 15,000 15,675
Service Corp. International notes 6 7/8s, 2007 5,000 5,175 -- -- 5,000 5,175
Service Corp. International notes 6 1/2s, 2008 21,000 21,683 14,000 14,455 35,000 36,138
Service Corp. International notes Ser. *, 7.7s,
2009 25,000 26,563 16,000 17,000 41,000 43,563
Service Corp. International 144A sr. notes 6 3/4s,
2016 110,000 105,875 70,000 67,375 180,000 173,250
Stewart Enterprises, Inc. notes 10 3/4s, 2008 60,000 66,300 60,000 66,300 120,000 132,600
Tenet Healthcare Corp. notes 7 3/8s, 2013 70,000 64,750 50,000 46,250 120,000 111,000
Tenet Healthcare Corp. sr. notes 6 1/2s, 2012 10,000 8,850 5,000 4,425 15,000 13,275
Tenet Healthcare Corp. sr. notes 6 3/8s, 2011 170,000 150,875 90,000 79,875 260,000 230,750
Tenet Healthcare Corp. 144A sr. notes 9 7/8s, 2014 145,000 151,163 90,000 93,825 235,000 244,988
Triad Hospitals, Inc. sr. notes 7s, 2012 100,000 104,250 65,000 67,763 165,000 172,013
Triad Hospitals, Inc. sr. sub. notes 7s, 2013 245,000 246,531 160,000 161,000 405,000 407,531
Universal Hospital Services, Inc. sr. notes 10
1/8s, 2011 75,000 76,125 45,000 45,675 120,000 121,800
US Oncology, Inc. 144A sr. notes 9s, 2012 45,000 47,138 30,000 31,425 75,000 78,563
US Oncology, Inc. 144A sr. sub. notes 10 3/4s, 2014 30,000 31,575 20,000 21,050 50,000 52,625
Ventas Realty LP/Capital Corp. company guaranty
9s, 2012 40,000 44,600 25,000 27,875 65,000 72,475
VWR International, Inc. 144A sr. notes 6 7/8s,
2012 55,000 56,650 30,000 30,900 85,000 87,550
------------ ----------- ------------
2,966,021 1,945,445 4,911,466

Other 2.3% 2.5% 2.4%
--------------------------------------------------------------------------------------------------------------------------------
Dow Jones CDX HY 144A pass-through certificates
7 3/4s, 2009 2,680,000 2,690,050 1,830,000 1,836,863 4,510,000 4,526,913

Technology 1.7% 1.7% 1.7%
--------------------------------------------------------------------------------------------------------------------------------
AMI Semiconductor, Inc. company guaranty 10 3/4s,
2013 64,000 74,400 39,000 45,338 103,000 119,738
Amkor Technologies, Inc. sr. notes 7 3/4s, 2013 55,000 46,200 35,000 29,400 90,000 75,600
Amkor Technologies, Inc. sr. sub. notes 10 1/2s,
2009 55,000 49,775 35,000 31,675 90,000 81,450
Celestica, Inc. sr.sub. notes 7 7/8s, 2011 (Canada) 120,000 125,550 75,000 78,469 195,000 204,019
DigitalNet Holdings, Inc. sr. notes 9s, 2010 68,000 73,780 46,000 49,910 114,000 123,690
Freescale Semiconductor, Inc. 144A sr. notes 7
1/8s, 2014 120,000 121,950 80,000 81,300 200,000 203,250
Iron Mountain, Inc. company guaranty 8 5/8s, 2013 211,000 227,880 144,000 155,520 355,000 383,400
Lucent Technologies, Inc. debs. 6.45s, 2029 135,000 105,975 90,000 70,650 225,000 176,625
Lucent Technologies, Inc. notes 5 1/2s, 2008 5,000 4,813 5,000 4,813 10,000 9,626
New ASAT Finance, Ltd. 144A company guaranty 9
1/4s, 2011 (Cayman Islands) 55,000 46,200 35,000 29,400 90,000 75,600
Nortel Networks Corp. notes 6 1/8s, 2006 (Canada) 170,000 172,550 100,000 101,500 270,000 274,050
ON Semiconductor Corp. company guaranty 13s, 2008 119,000 133,875 81,000 91,125 200,000 225,000
Peregrine Systems, Inc. 144A sr. notes 6 1/2s,
2007 106,166 104,043 -- -- 106,166 104,043
SCG Holding Corp. 144A notes zero %, 2011 45,000 63,225 30,000 42,150 75,000 105,375
Seagate Technology Hdd Holdings company guaranty
8s, 2009 (Cayman Islands) 85,000 89,250 60,000 63,000 145,000 152,250
UGS Corp. 144A sr. sub. notes 10s, 2012 120,000 130,800 80,000 87,200 200,000 218,000
Xerox Capital Trust I company guaranty 8s, 2027 105,000 100,538 70,000 67,025 175,000 167,563
Xerox Corp. company guaranty 9 3/4s, 2009 18,000 20,925 10,000 11,625 28,000 32,550
Xerox Corp. notes Ser. MTN, 7.2s, 2016 55,000 55,275 35,000 35,175 90,000 90,450
Xerox Corp. sr. notes 7 5/8s, 2013 144,000 153,000 87,000 92,438 231,000 245,438
Xerox Corp. sr. notes 6 7/8s, 2011 95,000 98,325 65,000 67,275 160,000 165,600
------------ ----------- ------------
1,998,329 1,234,988 3,233,317

Transportation 0.5% 0.5% 0.5%
--------------------------------------------------------------------------------------------------------------------------------
American Airlines, Inc. pass-through certificates
Ser. 01-1, 6.817s, 2011 70,000 61,600 50,000 44,000 120,000 105,600
Calair, LLC/Calair Capital Corp. company guaranty
8 1/8s, 2008 140,000 105,700 100,000 75,500 240,000 181,200
Delta Air Lines, Inc. notes 7.9s, 2009 60,000 19,200 40,000 12,800 100,000 32,000
Kansas City Southern Railway Co. company guaranty
9 1/2s, 2008 185,000 200,956 115,000 124,919 300,000 325,875
Kansas City Southern Railway Co. company guaranty
7 1/2s, 2009 25,000 25,250 15,000 15,150 40,000 40,400
Navistar International Corp. company guaranty Ser.
B, 9 3/8s, 2006 97,000 104,275 60,000 64,500 157,000 168,775
Northwest Airlines, Inc. company guaranty 7 5/8s,
2005 60,000 58,650 50,000 48,875 110,000 107,525
Travel Centers of America, Inc. company guaranty
12 3/4s, 2009 20,000 23,200 20,000 23,200 40,000 46,400
------------ ----------- ------------
598,831 408,944 1,007,775

Utilities & Power 3.4% 3.5% 3.5%
--------------------------------------------------------------------------------------------------------------------------------
AES Corp. (The) sr. notes 8 7/8s, 2011 22,000 23,980 8,000 8,600 30,000 32,580
AES Corp. (The) sr. notes 8 3/4s, 2008 6,000 6,450 70,000 77,875 76,000 84,325
AES Corp. (The) 144A sec. notes 9s, 2015 105,000 116,813 90,000 100,125 195,000 216,938
AES Corp. (The) 144A sec. notes 8 3/4s, 2013 150,000 166,875 45,000 47,700 195,000 214,575
Allegheny Energy Supply 144A bonds 8 1/4s, 2012 75,000 79,500 25,000 27,500 100,000 107,000
Allegheny Energy Supply 144A sec. notes 10 1/4s,
2007 45,000 49,500 65,000 41,600 110,000 91,100
Calpine Canada Energy Finance company guaranty
8 1/2s, 2008 (Canada) 62,000 39,680 157,000 123,245 219,000 162,925
Calpine Corp. 144A sec. notes 8 1/2s, 2010 248,000 194,680 25,000 27,026 273,000 221,706
CenterPoint Energy Resources Corp. debs. 6 1/2s,
2008 35,000 37,836 5,000 5,898 40,000 43,734
CenterPoint Energy Resources Corp. sr. notes Ser.
B, 7 7/8s, 2013 20,000 23,593 10,000 10,063 30,000 33,656
CMS Energy Corp. pass-through certificates 7s,
2005 15,000 15,094 30,000 32,625 45,000 47,719
CMS Energy Corp. sr. notes 8.9s, 2008 30,000 32,625 15,000 16,275 45,000 48,900
CMS Energy Corp. sr. notes 8 1/2s, 2011 55,000 59,675 15,000 15,825 70,000 75,500
CMS Energy Corp. 144A sr. notes 7 3/4s, 2010 25,000 26,375 55,000 57,200 80,000 83,575
DPL, Inc. sr. notes 6 7/8s, 2011 140,000 145,600 10,000 9,300 150,000 154,900
Dynegy Holdings, Inc. sr. notes 6 7/8s, 2011 15,000 13,950 125,000 140,625 140,000 154,575
Dynegy Holdings, Inc. 144A sec. notes 10 1/8s,
2013 190,000 213,750 40,000 39,000 230,000 252,750
Dynegy-Roseton Danskamme company guaranty Ser.
A, 7.27s, 2010 50,000 48,750 50,000 44,125 100,000 92,875
Dynegy-Roseton Danskamme company guaranty Ser.
B, 7.67s, 2016 75,000 66,188 5,000 5,738 80,000 71,926
Edison Mission Energy sr. notes 9 7/8s, 2011 5,000 5,738 35,000 32,725 40,000 38,463
El Paso Corp. sr. notes 7 3/8s, 2012 55,000 51,425 85,000 72,144 140,000 123,569
El Paso Corp. sr. notes Ser. MTN, 7 3/4s, 2032 115,000 97,606 15,000 16,050 130,000 113,656
El Paso Natural Gas Co. debs. 8 5/8s, 2022 25,000 26,750 15,000 15,900 40,000 42,650
El Paso Natural Gas Co. sr. notes Ser. A, 7 5/8s,
2010 25,000 26,500 85,000 83,513 110,000 110,013
El Paso Production Holding Co. company guaranty 7
3/4s, 2013 130,000 127,725 60,000 59,700 190,000 187,425
Ferrellgas Partners LP/Ferrellgas Partners Finance
sr. notes 6 3/4s, 2014 95,000 94,525 20,000 20,700 115,000 115,225
Kansas Gas & Electric debs. 8.29s, 2016 30,000 31,050 105,000 111,563 135,000 142,613
Midwest Generation, LLC sec. sr. notes 8 3/4s,
2034 165,000 175,313 60,000 75,450 225,000 250,763
Mission Energy Holding Co. sec. notes 13 1/2s,
2008 95,000 119,463 35,000 36,572 130,000 156,035
Monongahela Power Co. 144A 1st. mtge. 6.7s, 2014 55,000 57,471 55,000 61,600 110,000 119,071
Nevada Power Co. 2nd mtge. 9s, 2013 90,000 100,800 90,000 101,363 180,000 202,163
Northwest Pipeline Corp. company guaranty 8
1/8s, 2010 135,000 152,044 185,000 194,250 320,000 346,294
NRG Energy, Inc. 144A sr. sec. notes 8s, 2013 335,000 351,750 50,000 62,500 385,000 414,250
Orion Power Holdings, Inc. sr. notes 12s, 2010 75,000 93,750 67,946 66,587 142,946 160,337
PG&E Corp. sec. notes 6 7/8s, 2008 115,000 124,775 75,000 81,375 190,000 206,150
PG&E Gas Transmission Northwest sr. notes 7.1s,
2005 20,000 20,600 15,000 15,450 35,000 36,050
PSEG Energy Holdings, Inc. notes 7 3/4s, 2007 80,000 85,000 55,000 58,438 135,000 143,438
SEMCO Energy, Inc. sr. notes 7 3/4s, 2013 65,000 68,250 45,000 47,250 110,000 115,500
SEMCO Energy, Inc. 144A sr. notes 7 3/4s, 2013 90,000 85,050 55,000 51,975 145,000 137,025
Sierra Pacific Power Co. 144A general ref. mtge.
6 1/4s, 2012 20,000 19,800 15,000 14,850 35,000 34,650
Sierra Pacific Resources 144A sr. notes 8 5/8s,
2014 130,000 136,500 85,000 89,250 215,000 225,750
Teco Energy, Inc. notes 10 1/2s, 2007 40,000 46,200 25,000 28,875 65,000 75,075
Teco Energy, Inc. notes 7.2s, 2011 25,000 26,313 10,000 10,525 35,000 36,838
Teco Energy, Inc. notes 7s, 2012 40,000 41,400 20,000 20,700 60,000 62,100
Tennessee Gas Pipeline Co. debs. 7s, 2028 10,000 9,363 5,000 4,681 15,000 14,044
Tennessee Gas Pipeline Co. unsecd. notes 7 1/2s,
2017 35,000 35,919 25,000 25,656 60,000 61,575
Transcontinental Gas Pipeline Corp. debs. 7 1/4s,
2026 15,000 15,413 10,000 10,275 25,000 25,688
Utilicorp Canada Finance Corp. company guaranty
7 3/4s, 2011 (Canada) 85,000 86,700 55,000 56,100 140,000 142,800
Utilicorp United, Inc. sr. notes 9.95s, 2011 55,000 59,950 40,000 43,600 95,000 103,550
Western Resources, Inc. sr. notes 9 3/4s, 2007 47,000 53,882 34,000 38,978 81,000 92,860
Williams Cos., Inc. (The) notes 8 3/4s, 2032 20,000 22,450 10,000 11,225 30,000 33,675
Williams Cos., Inc. (The) notes 8 1/8s, 2012 20,000 23,000 15,000 17,250 35,000 40,250
Williams Cos., Inc. (The) notes 7 5/8s, 2019 25,000 27,000 25,000 27,000 50,000 54,000
Williams Cos., Inc. (The) sr. notes 8 5/8s, 2010 95,000 110,200 60,000 69,600 155,000 179,800
------------ ----------- ------------
3,970,589 2,564,015 6,534,604
------------ ----------- ------------
Total Corporate bonds and notes (cost $47,535,278,
$30,781,905 and $78,317,183, respectively) $48,985,418 $31,572,884 $80,558,302

Convertible preferred stocks (a) 32.5% 32.3% 32.4%
--------------------------------------------------------------------------------------------------------------------------------
Number of Number of Number of
shares Value shares Value shares Value
--------------------------------------------------------------------------------------------------------------------------------
Basic Materials 3.1% 3.1% 3.1%
--------------------------------------------------------------------------------------------------------------------------------
Freeport-McMoRan Copper & Gold, Inc. 144A 5.50%
cv. pfd. 1,360 $1,328,516 850 $830,323 2,210 $2,158,839
Hercules Trust II 6.50% units cum. cv. pfd. 1,240 936,200 780 588,900 2,020 1,525,100
Smurfit-Stone Container Corp. Ser. A, $1.75 cum.
cv. pfd. 52,400 1,303,450 32,720 813,910 85,120 2,117,360
------------ ----------- ------------
3,568,166 2,233,133 5,801,299

Capital Goods 4.2% 4.2% 4.2%
--------------------------------------------------------------------------------------------------------------------------------
Coltec Capital Trust $2.625 cv. pfd. 21,300 966,019 13,300 603,195 34,600 1,569,214
Northrop Grumman Corp. Ser. B, $7.00 cum. cv. pfd. 19,600 2,548,000 12,300 1,599,000 31,900 4,147,000
Owens-Illinois, Inc. $2.375 cv. pfd. 39,100 1,383,163 24,670 872,701 63,770 2,255,864
------------ ----------- ------------
4,897,182 3,074,896 7,972,078

Communication Services 2.4% 2.4% 2.4%
--------------------------------------------------------------------------------------------------------------------------------
CenturyTel, Inc. $1.719 cv. pfd. 35,020 893,010 21,874 557,787 56,894 1,450,797
Broadwing, Inc. Ser. B, $3.378 cum. cv. pfd. (S) 21,700 873,425 13,600 547,400 35,300 1,420,825
Crown Castle International Corp. $3.125 cum. cv. pfd. 21,923 1,005,718 13,691 628,075 35,614 1,633,793
------------ ----------- ------------
2,772,153 1,733,262 4,505,415

Consumer Cyclicals 3.6% 3.6% 3.6%
--------------------------------------------------------------------------------------------------------------------------------
Central Parking Finance Trust 144A $1.313 cv. pfd. 4,370 77,568 2,500 44,375 6,870 121,943
Ford Motor Company Capital Trust II $3.25 cum. cv.
pfd. 11,200 596,400 7,000 372,750 18,200 969,150
Radio One, Inc. 6.50% cum. cv. pfd. 1,350 1,381,304 850 869,710 2,200 2,251,014
Tower Automotive Capital Trust $3.375 cv. pfd. (S) 31,700 645,888 19,800 403,425 51,560 1,049,313
TXI Capital Trust I $2.75 cv. pfd. 30,300 1,473,338 18,800 914,150 49,100 2,387,488
------------ ----------- ------------
4,174,498 2,604,410 6,778,908

Consumer Staples 2.7% 2.6% 2.6%
--------------------------------------------------------------------------------------------------------------------------------
Albertson's, Inc. $1.813 cv. pfd. 25,100 657,871 15,700 411,497 40,800 1,069,368
Constellation Brands, Inc. Ser. A, $1.438 cv. pfd.
(S) 20,120 643,840 12,567 402,144 32,687 1,045,984
Sinclair Broadcast Group, Inc. Ser. D, $3.00 cv. pfd. 25,200 1,026,900 15,900 647,925 41,100 1,674,825
Six Flags, Inc. $1.813 cum. cv. pfd. (S) 38,900 743,963 24,300 464,738 63,200 1,208,701
------------ ----------- ------------
3,072,574 1,926,304 4,998,878

Energy 1.9% 1.9% 1.9%
--------------------------------------------------------------------------------------------------------------------------------
Amerada Hess Corp. $3.50 cv. pfd. 16,950 1,228,875 10,587 767,558 27,537 1,996,433
Hanover Compressor Capital Trust $3.625 cum. cv.
pfd. (S) 19,700 952,988 12,300 595,013 32,000 1,548,001
------------ ----------- ------------
2,181,863 1,362,571 3,544,434

Financial 5.9% 5.9% 5.9%
--------------------------------------------------------------------------------------------------------------------------------
Capital One Financial Corp. $3.125 cv. pfd. 11,800 588,525 7,400 369,075 19,200 957,600
Chubb Corp. (The) $1.75 cv. pfd. 22,300 613,250 14,000 385,000 36,300 998,250
Decs Trust IX 6.75% cv. pfd. 44,996 421,838 28,105 263,484 73,101 685,322
FelCor Lodging Trust, Inc. Ser. A, $1.95 cum. cv.
pfd. (R) 60,700 1,449,213 38,500 919,188 99,200 2,368,401
Hartford Financial Services Group, Inc. (The)
$3.50 cv. pfd. 15,403 931,882 9,621 582,071 25,024 1,513,953
Host Marriott Financial Trust $3.375 cv. pfd. 28,600 1,458,600 18,120 924,120 46,720 2,382,720
Provident Finance Group $2.25 units cv. pfd. 21,130 787,093 13,420 499,895 34,550 1,286,988
XL Capital, Ltd. $1.625 cv. pfd. (Cayman Islands) 25,600 608,768 16,000 380,480 41,600 989,248
------------ ----------- ------------
6,859,169 4,323,313 11,182,482

Health Care 1.6% 1.6% 1.6%
--------------------------------------------------------------------------------------------------------------------------------
Schering-Plough Corp. $3.00 cv. pfd. 36,650 1,882,894 22,950 1,179,056 59,600 3,061,950

Technology 1.5% 1.5% 1.5%
--------------------------------------------------------------------------------------------------------------------------------
Solectron Corp. $1.813 units cv. pfd. 33,168 456,060 20,697 284,584 53,865 740,644
Xerox Corp. 6.25% cv. pfd. 10,800 1,336,500 6,800 841,500 17,600 2,178,000
------------ ----------- ------------
1,792,560 1,126,084 2,918,644

Utilities & Power 5.6% 5.5% 5.6%
--------------------------------------------------------------------------------------------------------------------------------
Aquila, Inc. $1.688 cv. pfd. (S) 3,700 108,225 2,300 67,275 6,000 175,500
El Paso Energy Capital Trust I $2.375 cv. pfd. 25,250 817,469 13,700 443,538 38,950 1,261,007
Great Plains Energy, Inc. $2.00 cum. cv. pfd. 49,200 1,223,850 30,800 766,150 80,000 1,990,000
ONEOK, Inc. $2.125 units cv. pfd. 20,000 609,000 14,000 426,300 34,000 1,035,300
Public Service Enterprise Group, Inc. $5.125 cv. pfd. 9,000 511,875 5,640 320,775 14,640 832,650
Sempra Energy $2.125 units cv. pfd. (S) 40,900 1,257,675 25,800 793,350 66,700 2,051,025
Sierra Pacific Resources $4.50 units cum. cv. pfd. 17,200 665,468 10,700 413,983 27,900 1,079,451
Williams Cos., Inc. (The) $2.25 cv. pfd. (S) 44,400 571,650 28,029 360,873 72,429 932,523
Williams Cos., Inc. (The) 144A $2.75 cv. pfd. 9,830 689,329 6,160 431,970 15,990 1,121,299
------------ ----------- ------------
6,454,541 4,024,214 10,478,755
------------ ----------- ------------
Total Convertible preferred stocks (cost $34,301,403,
$21,629,792 and 55,931,195, respectively) $37,655,600 $23,587,243 $61,242,843

Convertible bonds and notes (a) 17.9% 17.6% 17.8%
--------------------------------------------------------------------------------------------------------------------------------
Principal Principal Principal
amount Value amount Value amount Value
--------------------------------------------------------------------------------------------------------------------------------
Capital Goods 0.6% 0.6% 0.6%
--------------------------------------------------------------------------------------------------------------------------------
Titan International, Inc. 144A cv. sr. notes 5 1/4s,
2009 $660,000 $679,800 $410,000 $422,300 $1,070,000 $1,102,100

Communication Services 1.1% 1.0% 1.0%
--------------------------------------------------------------------------------------------------------------------------------
Charter Communications, Inc. cv. sr. notes 5 3/4s,
2005 1,300,000 1,217,125 800,000 749,000 2,100,000 1,966,125
Cybernet Internet Services International, Inc.
144A cv. sr. disc. notes 13s, 2009 (In default) (NON) 400,000 4 380,000 4 780,000 8
------------ ----------- ------------
1,217,129 749,004 1,966,133

Conglomerates 1.1% 1.1% 1.1%
--------------------------------------------------------------------------------------------------------------------------------
GenCorp, Inc. cv. sub. notes 5 3/4s, 2007 1,250,000 1,254,688 780,000 782,925 2,030,000 2,037,613

Consumer Cyclicals 2.2% 2.2% 2.3%
--------------------------------------------------------------------------------------------------------------------------------
Amazon.com, Inc. cv. sub. debs. 4 3/4s, 2009 612,000 606,645 396,000 392,535 1,008,000 999,180
Mediacom Communications Corp. cv. sr. notes 5 1/4s,
2006 650,000 612,625 400,000 377,000 1,050,000 989,625
Meristar Hospitality Corp. cv. notes 9 1/2s, 2010 614,000 713,775 386,000 448,725 1,000,000 1,162,500
WCI Communities, Inc. cv. sr. sub. notes 4s, 2023 595,000 676,813 370,000 420,875 965,000 1,097,688
------------ ----------- ------------
2,609,858 1,639,135 4,248,993

Consumer Staples 1.1% 0.9% 1.0%
--------------------------------------------------------------------------------------------------------------------------------
Rite Aid Corp. cv. notes 4 3/4s, 2006 1,260,000 1,289,925 400,000 409,500 1,660,000 1,699,425
Rite Aid Corp. 144A cv. notes 4 3/4s, 2006 -- -- 264,000 270,270 264,000 270,270
------------ ----------- ------------
1,289,925 679,770 1,969,695

Financial 1.5% 1.5% 1.5%
--------------------------------------------------------------------------------------------------------------------------------
E*Trade Group, Inc. cv. sub. notes 6s, 2007 310,000 316,975 200,000 204,500 510,000 521,475
Providian Financial Corp. cv. sr. notes 3 1/4s,
2005 1,410,000 1,383,563 900,000 883,125 2,310,000 2,266,688
------------ ----------- ------------
1,700,538 1,087,625 2,788,163

Technology 7.3% 7.2% 7.2%
--------------------------------------------------------------------------------------------------------------------------------
Agere Systems, Inc. cv. notes 6 1/2s, 2009 600,000 604,500 380,000 382,850 980,000 987,350
Amkor Technologies, Inc. cv. notes 5 3/4s, 2006 1,170,000 1,083,713 745,000 690,056 1,915,000 1,773,769
Aspen Technology, Inc. cv. sub. debs. 5 1/4s, 2005 1,297,000 1,293,758 801,000 798,998 2,098,000 2,092,756
Avaya, Inc. cv. liquid yield option notes (LYON)
zero %, 2021 980,000 541,450 620,000 342,550 1,600,000 884,000
Fairchild Semiconductor International, Inc. cv.
company guaranty 5s, 2008 600,000 594,000 380,000 376,200 980,000 970,200
Lucent Technologies, Inc. cv. sub. debs. 8s, 2031 1,200,000 1,291,500 750,000 807,188 1,950,000 2,098,688
Manugistics Group, Inc. cv. sub. notes 5s, 2007 930,000 831,188 570,000 509,438 1,500,000 1,340,626
ON Semiconductor Corp. 144A cv. bonds zero %, 2024 920,000 605,452 580,000 385,700 1,500,000 991,152
Safeguard Scientifics, Inc. 144A cv. sr. notes 2
5/8s, 2024 1,730,000 1,193,700 1,070,000 738,300 2,800,000 1,932,000
Silicon Graphics, Inc. cv. notes 6 1/2s, 2009 280,000 372,400 170,000 226,100 450,000 598,500
------------ ----------- ------------
8,411,661 5,257,380 13,669,041

Transportation 0.4% 0.4% 0.4%
--------------------------------------------------------------------------------------------------------------------------------
Continental Airlines, Inc. cv. notes 4 1/2s, 2007 750,000 523,125 450,000 313,875 1,200,000 837,000

Utilities & Power 2.6% 2.7% 2.7%
--------------------------------------------------------------------------------------------------------------------------------
AES Corp. (The) cv. sub. notes 4 1/2s, 2005 605,000 602,731 375,000 373,594 980,000 976,325
El Paso Corp. cv. debs. zero %, 2021 1,400,000 687,750 900,000 442,125 2,300,000 1,129,875
Sierra Pacific Resources 144A cv. notes 7 1/4s, 2010 526,000 1,120,380 324,000 690,120 850,000 1,810,500
XCEL Energy, Inc. 144A cv. notes 7 1/2s, 2007 440,000 671,550 280,000 427,350 720,000 1,098,900
------------ ----------- ------------
3,082,411 1,933,189 5,015,600
------------
Total Convertible bonds and notes (cost $18,817,584,
$11,596,886 and $30,414,470, respectively) $20,769,135 $12,865,203 $33,634,338

Common stocks (a) 2.1% 2.2% 2.1%
--------------------------------------------------------------------------------------------------------------------------------
Number of Number of Number of
shares Value shares Value shares Value
--------------------------------------------------------------------------------------------------------------------------------
AboveNet, Inc. (NON) (S) 214 $5,136 179 $4,296 393 $9,432
Altria Group, Inc. 11,800 577,610 7,400 362,230 19,200 939,840
AMRESCO Creditor Trust (acquired 9/20/00 and
10,16,02, cost $38,655, $18,344 and $56,999) (RES)
(NON)(R) 50,000 50 90,000 90 140,000 140
Arch Wireless, Inc. Class A (NON) 28 854 28 854 56 1,708
Birch Telecom, Inc. (acquired various dates from
9/30/02 to 1/9/04, cost $--, $- and $-) (RES) (NON) 156 2 137 1 293 3
Contifinancial Corp. Liquidating Trust Units 293,993 5,880 280,214 5,604 574,207 11,484
Covad Communications Group, Inc. (NON) (S) 2,031 2,965 1,401 2,045 3,432 5,010
Crown Castle International Corp. (NON) 305 4,365 196 2,805 501 7,170
GATX Corp. (S) 28,300 763,202 17,700 477,369 46,000 1,240,571
Genesis HealthCare Corp. (NON) (S) 144 4,477 139 4,322 283 8,799
Globix Corp. (NON) 3,492 9,638 2,901 8,007 6,393 17,645
iPCS Escrow, Inc. (NON) 75,000 75 70,000 70 145,000 145
iPCS, Inc. (NON) 2,137 39,748 1,994 37,088 4,131 76,836
Knology, Inc. (NON) 16 56 16 56 32 112
Leucadia National Corp. (S) 64 3,456 38 2,052 102 5,508
Polymer Group, Inc. Class A (NON) 227 2,792 159 1,956 386 4,748
PSF Group Holdings, Inc. 144A Class A (NON) 334 501,450 220 330,375 554 831,825
Service Corp. International (NON) 83,600 502,436 52,400 314,924 136,000 817,360
Sterling Chemicals, Inc. (NON) 25 575 25 575 50 1,150
Sun Healthcare Group, Inc. (NON) 102 877 100 860 202 1,737
VS Holdings, Inc. (acquired various dates from
11/1/00 to 10/23/02, cost $180,000, $170,000 and
$350,000) (RES) 14,550 728 13,742 687 28,292 1,415
Washington Group International, Inc. (NON) 408 14,353 408 14,353 816 28,706
------------ ----------- ------------
Total Common stocks (cost $3,658,197, $2,756,911
and $6,415,108, respectively) $2,440,725 $1,570,619 $4,011,344

Foreign government bonds and notes (a) 0.5% 0.5% 0.5%
--------------------------------------------------------------------------------------------------------------------------------
Principal Principal Principal
amount Value amount Value amount Value
--------------------------------------------------------------------------------------------------------------------------------
Colombia (Republic of) bonds Ser. NOV, 9 3/4s, 2009 $70,000 $77,875 $40,000 $44,500 $110,000 $122,375
Colombia (Republic of) notes 10 3/4s, 2013 25,000 28,850 20,000 23,080 48,850 51,930
Ecuador (Republic of) bonds Ser. REGS, stepped-coupon
8s (9s, 8/15/05), 2030 (STP) 95,000 74,575 60,000 47,100 134,575 121,675
Indonosia (Republic of) 144A sr. notes 6 3/4s, 2014 110,000 105,325 70,000 67,025 175,325 172,350
Peru (Republic of) bonds 8 3/4s, 2033 40,000 38,400 25,000 24,000 63,400 62,400
Russia (Federation of) unsub. stepped-coupon 5s (7
1/2s, 3/31/07), 2030 (STP) 110,000 105,490 70,000 67,130 175,490 172,620
Ukraine (Government of) 144A bonds 7.65s, 2013 100,000 100,500 100,000 100,500 200,500 201,000
------------ ----------- ------------
Total Foreign government bonds and notes (cost
$492,729, $349,556 and $842,285, respectively) $531,015 $373,335 $904,350

Preferred stocks (a) 0.3% 0.3% 0.3%
--------------------------------------------------------------------------------------------------------------------------------
Number of Number of Number of
shares Value shares Value shares Value
--------------------------------------------------------------------------------------------------------------------------------
Avecia Group PLC $4.00 pfd. (United Kingdom) (PIK) 4,281 $61,004 2,754 $39,245 63,758 $100,249
Dobson Communications Corp. 13.00% pfd. (PIK) 2 1,210 1 605 1,211 1,815
iStar Financial, Inc. Ser. F, $1.95 cum. pfd. [REGISTERED
TRADEMARK] 1,714 42,850 1,106 27,650 43,956 70,500
Paxson Communications Corp. 14.25% cum. pfd. (PIK) (S) 13 111,800 8 68,800 111,808 180,600
Rural Cellular Corp. Ser. B, 11.375% cum. pfd. (PIK) -- -- 18 14,940 18 14,940
Rural Cellular Corp. 12.25% pfd. (PIK) 196 113,825 138 80,301 113,963 194,126
------------ ----------- ------------
Total Preferred stocks (cost $399,827, $298,395 and
$698,222, respectively) $330,689 $231,541 $562,230

Units (a) 0.1% 0.1% 0.1%
--------------------------------------------------------------------------------------------------------------------------------
Number of Number of Number of
units Value units Value units Value
--------------------------------------------------------------------------------------------------------------------------------
Morrison Knudsen Corp. 80,000 $5,000 80,000 $5,000 85,000 $10,000
XCL Equity Units (acquired various dates from 7/30/97
to 6/19/03, cost $303,520, $290,830 and $594,350)(RES) 208 92,328 198 87,934 92,526 180,262
------------ ----------- ------------
Total Units (cost $354,027, $341,400 and $695,427,
respectively) $97,328 $92,934 $190,262

Brady bonds (a) (cost $54,802, $33,725 and $88,527,
respectively) 0.0% 0.0% 0.0%
--------------------------------------------------------------------------------------------------------------------------------
Principal Principal Principal
amount Value amount Value amount Value
--------------------------------------------------------------------------------------------------------------------------------
Peru (Republic of) FRB Ser. PDI, 5s, 2017 $59,150 $53,756 $36,400 $33,080 $95,550 $86,836

Warrants (a) (NON) 0.0% 0.0% 0.0%
--------------------------------------------------------------------------------------------------------------------------------
Expiration Number of Number of Number of
Date warrants Value warrants Value warrants Value
--------------------------------------------------------------------------------------------------------------------------------

AboveNet, Inc. 9/8/08 71 $533 59 $443 592 $976
AboveNet, Inc. 9/8/10 83 498 69 414 567 912
Dayton Superior Corp. 144A 6/15/09 140 1 130 1 131 2
Huntsman Co., LLC 144A 5/15/11 161 30,588 103 19,570 30,691 50,158
MDP Acquisitions PLC 144A 10/1/13 72 1,998 47 1,304 2,045 3,302
Pliant Corp. 144A 6/1/10 60 1 60 1 61 2
Travel Centers of America, Inc. 144A 5/1/09 240 1,200 180 900 1,380 2,100
Ubiquitel, Inc. 144A 4/15/10 220 1 200 1 201 2
Washington Group International, Inc.
Ser. A 1/25/06 250 2,200 250 2,200 2,450 4,400
Washington Group International, Inc.
Ser. B 1/25/06 287 1,937 287 1,937 2,224 3,874
Washington Group International, Inc.
Ser. C 1/25/06 156 936 156 936 1,092 1,872
------------ ----------- ------------
Total Warrants (cost $88,220, $74,115 and
$162,335, respectively) $39,893 $27,707 $67,600

Short-term investments (a) 7.4% 8.1% 7.7%
--------------------------------------------------------------------------------------------------------------------------------
Principal Principal Principal
amount Value amount Value amount Value
--------------------------------------------------------------------------------------------------------------------------------

Putnam Prime Money Market Fund (e) $5,733,235 $5,733,235 $3,322,849 $3,322,849 $9,056,084 $9,056,084
Short-term investments held as collateral for
loaned securities with yields ranging from 1.52%
to 1.71% and d 2,867,267 2,866,478 2,627,184 2,626,461 5,494,451 5,492,939
------------ ----------- ------------
Total Short-term investments (cost $8,599,713,
$5,949,310 and 14,549,023, respectively) $8,599,713 $5,949,310 $14,549,023
--------------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $114,301,780, $73,811,995
and $188,113,775, respectively) $119,503,272 $76,303,856 $195,807,128
--------------------------------------------------------------------------------------------------------------------------------

Because the Funds are actively managed, their porfolio holdings as of
August 31, 2004 are unlikely to reflect what their portfolio holdings
will be as of the date the merger is completed. Accordingly, no
adjustments have been made to indicate holdings that would be sold in
anticipation of the merger to accommodate the investment strategies of
Putnam High Income Bond Fund.

(a) Percentages indicated are based on net assets as follows:

Putnam High Income Bond Fund : $115,776,369
Putnam High Income
Opportunities Fund : $73,025,190
Proforma Combined : $188,697,626

(DEF) Security is in default of principal and interest.

(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 accruing
interest at this rate.

(RES) Restricted, excluding 144a securities, as to public resale. The
total market value of restricted securities held at August 31, 2004 was
as follows:

Putnam High Income Bond Fund: $93,447 or 0.1% of net assets
Putnam High Income Opportunities Fund: $88,953 or 0.1% of net
assets Proforma Combined: $182,400 or 0.1% of net assets

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

(R) Real Estate Investment Trust.

(S) Securities on loan, in part, or in entirety, at August 31, 2004

(e) The fund invests in the Putnam Prime Money Market Fund, an open-end
management investment company managed by Putnam Management. Management
fees paid by the fund are reduced by an amount equal to the management
fees paid by Putnam Prime Money Market Fund with respect to assets
invested by the fund in Putnam Prime Money Market Fund. Income
distributions earned by Putnam High Income Bond Fund and Putnam High
Income Opportunities Trust totaled $15,626 and $8,311 respectively,
for the period ended August 31, 2004.

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.

FLIRB represents Front Loaded Interest Reduction Bond.

The rates shown on Floating Rate Notes (FRN) are the current interest
rates shown at August 31, 2004.

Putnam High Income Bond Fund:
-----------------------------

Forward currency contracts to sell at August 31, 2004
(aggregate face value $344,729)

Aggregate Delivery Unrealized
Value face value date depreciation
---------------------------------------------------------------------------
Euro $346,128 $344,729 12/15/04 ($1,399)
---------------------------------------------------------------------------

Putnam High Income Opportunities Fund:
--------------------------------------

Forward currency contracts to sell at August 31, 2004
(aggregate face value $224,540)

Aggregate Delivery Unrealized
Value face value date depreciation
---------------------------------------------------------------------------
Euro $225,449 $225,540 12/15/04 ($909)
---------------------------------------------------------------------------

Putnam High Income Bond Fund

Notes to Proforma Combining Statements

(Unaudited)

August 31, 2004

Putnam High Income Bond Fund
Notes to Proforma Combining Statements
(Unaudited)
August 31, 2004

Use of Estimates

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

Security Valuation

Investments for which market quotations are readily available are valued at
the last reported sales price on their principal exchange, or official
closing price for certain markets. If no sales are reported-- as in the
case of some securities traded over-the-counter-- a security is valued at
its last reported bid price. Market quotations are not considered to be
readily available for certain debt obligations; such investments are valued
at fair value on the basis of valuations furnished by an independent
pricing service or dealers, approved by the Trustees. Such services or
dealers determine valuations for normal institutional-size trading units of
such securities using methods based on market transactions for comparable
securities and various relationships, generally recognized by institutional
traders, between securities. Many securities markets and exchanges outside
the U.S. close prior to the close of the New York Stock Exchange and
therefore the closing prices for securities in such markets or on such
exchanges may not fully reflect events that occur after such close but
before the close of the New York Stock Exchange. Accordingly, on certain
days, the fund will fair value foreign securities taking into account
multiple factors, including movements in the U.S. securities markets. The
number of days on which fair value prices will be used will depend on
market activity and it is possible that fair value prices will be used by
the fund to a significant extent. Securities quoted in foreign currencies
are translated into U.S. dollars at the current exchange rate. Short-term
investments having remaining maturities of 60 days or less are valued at
amortized cost, which approximates fair value. Other investments,
including restricted securities, are valued at fair value following
procedures approved by the Trustees. Such valuations and procedures are
reviewed periodically by the Trustees.

Federal taxes

It is the policy of each fund to distribute all of its taxable income
within the prescribed time and otherwise comply with the provisions of the
Internal Revenue Code of 1986 (the "Code") applicable to regulated
investment companies.

Proforma Adjustments

The pro forma adjustments to these pro forma financial statements are
comprised of the following:

(A) Elimination and reduction of duplicative expenses as a result of the
merger.

(B) $89,244 relates to proxy costs, which will be borne by Putnam High
Income Bond Fund and Putnam High Income Opportunities Trust. $9,184 relates
to SEC registration fees that will be borne by Putnam High Income Bond
Fund. The remaining $102,000 consists of $75,000 of legal costs and
$27,000 of accounting costs. These are related merger costs which will be
allocated ratably between the two funds upon consummation of the merger.
As set forth in the Agreement, Putnam Mangement will bear merger- related
costs to the extent that they exceed certain limits specified for each
fund. As of August 31, 2004, the costs that Putnam Management is expected
to bear based on this Agreement are estimated to be $96,495.

(C) Issuance of common shares of Putnam High Income Bond Fund to the
holders of common shares of Putnam High Income Opportunities Trust.

SECURITIES RATINGS

The ratings of securities in which each fund may invest will be measured
at the time of purchase and, to the extent a security is assigned a
different rating by one or more of the various rating agencies, Putnam
Management will use the highest rating assigned by any agency. Putnam
Management will not necessarily sell an investment if its rating is
reduced. The following rating services describe rated securities as
follows:

Moody's Investors Service, Inc.

Bonds

Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.

Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risk appear
somewhat larger than the Aaa securities.

A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations.
Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future.

Baa -- Bonds which are rated Baa are considered as medium grade
obligations, (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.

Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection
of interest and principal payments may be very moderate, and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.

B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.

Caa -- Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.

Ca -- Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings.

C -- Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.

Notes

MIG 1/VMIG 1 -- This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.

MIG 2/VMIG 2 -- This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.

Commercial Paper

Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by the following
characteristics:

-- Leading market positions in well established industries.

-- High rates of return on funds employed.

-- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.

-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.

-- Well established access to a range of financial markets and assured
sources of alternate liquidity.

Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above to a lesser
degree. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.

Standard & Poor's
Bonds

AAA -- An obligation rated AAA has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.

AA -- An obligation rated AA differs from the highest-rated obligations
only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.

A -- An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity
to meet its financial commitment on the obligation is still strong.

BBB -- An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity of the obligor to meet its
financial commitment on the obligation.

Obligations rated BB, B, CCC, CC and C are regarded as having
significant speculative characteristics. BB indicates the lowest degree
of speculation and C the highest. While such obligations will likely
have some quality and protective characteristics, these are outweighed
by large uncertainties or major exposures to adverse conditions.

BB -- An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.

B -- An obligation rated B is more vulnerable to nonpayment than
obligations rated BB, but the obligor currently has the capacity to meet
its financial commitment on the obligations. Adverse business,
financial, or economic conditions will likely impair the obligor's
capacity or willingness to meet its financial commitment on the
obligation.

CCC -- An obligation rated CCC is currently vulnerable to nonpayment,
and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the
obligation. In the event of adverse business, financial, or economic
conditions, the obligor is not likely to have the capacity to meet its
financial commitment on the obligation.

CC -- An obligation rated CC is currently highly vulnerable to
nonpayment.

C -- The C rating may be used to cover a situation where a bankruptcy
petition has been filed, or similar action has been taken, but payments
on this obligation are being continued.

D -- An obligation rated D is in payment default. The D rating category
is used when interest payments or principal payments are not made on the
date due even if the applicable grace period has not expired, unless
Standard & Poor's believes that such payments will be made during such
grace period. The D rating also will be used upon the filing of a
bankruptcy petition, or the taking of a similar action if payments on an
obligation are jeopardized.

Notes

SP-1 -- Strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are given a
plus (+) designation.

SP-2 -- Satisfactory capacity to pay principal and interest.

SP-3 -- Speculative capacity to pay principal and interest.

Commercial Paper

A-1 -- This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.

A-2 -- Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated `A-1'.

A-3 -- Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.

Duff & Phelps Corporation

Long-Term Debt

AAA -- Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.

AA+, AA, AA- -- High credit quality. Protection factors are strong. Risk
is modest but may vary slightly from time to time because of economic
conditions.

A+, A, A- -- Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.

BBB+, BBB, BBB- -- Below-average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk
during economic cycles.

BB+, BB, BB- -- Below investment grade but deemed likely to meet
obligations when due. Present or prospective financial protection
factors fluctuate according to industry conditions or company fortunes.
Overall quality may move up or down frequently within this category.

B+, B, B- -- Below investment grade and possessing risk that obligations
will not be met when due. Financial protection factors will fluctuate
widely according to economic cycles, industry conditions and/or company
fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade.

CCC -- Well below investment-grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred
dividends. Protection factors are narrow and risk can be substantial
with unfavorable economic/industry conditions, and/or with unfavorable
company developments.

DD -- Defaulted debt obligations. Issuer failed to meet scheduled
principal and/or interest payments.

Fitch Investors Service, Inc.

AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.

AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA.

A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.

BBB -- Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have adverse
impact on these bonds, and therefore impair timely payment. The
likelihood that the ratings of these bonds will fall below investment
grade is higher than for bonds with higher ratings.

BB -- Bonds considered to be speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified which could assist the obligor in satisfying its debt service
requirements.

B -- Bonds are considered highly speculative. Bonds in this class are
lightly protected as to the obligor's ability to pay interest over the
life of the issue and repay principal when due.

CCC -- Bonds have certain characteristics which, with passing of time,
could lead to the possibility of default on either principal or interest
payments.

CC -- Bonds are minimally protected. Default in payment of interest
and/or principal seems probable.

C -- Bonds are in actual or imminent default in payment of interest or
principal.

DDD -- Bonds are in default and in arrears in interest and/or principal
payments. Such bonds are extremely speculative and should be valued only
on the basis of their value in liquidation or reorganization of the
obligor.

APPENDIX A

Proxy voting guidelines of the Putnam funds

The proxy voting guidelines below summarize the funds' positions on
various issues of concern to investors, and give a general indication of
how fund portfolio securities will be voted on proposals dealing with
particular issues. The funds' proxy voting service is instructed to
vote all proxies relating to fund portfolio securities in accordance
with these guidelines, except as otherwise instructed by the Proxy
Coordinator, a member of the Office of the Trustees who is appointed to
assist in the coordination and voting of the funds' proxies.

The proxy voting guidelines are just that - guidelines. The guidelines
are not exhaustive and do not include all potential voting issues.
Because proxy issues and the circumstances of individual companies are
so varied, there may be instances when the funds may not vote in strict
adherence to these guidelines. For example, the proxy voting service is
expected to bring to the Proxy Coordinator's attention proxy questions
that are company-specific and of a non-routine nature and that, even if
covered by the guidelines, may be more appropriately handled on a
case-by-case basis.

Similarly, Putnam Management's investment professionals, as part of
their ongoing review and analysis of all fund portfolio holdings, are
responsible for monitoring significant corporate developments, including
proxy proposals submitted to shareholders, and notifying the Proxy
Coordinator of circumstances where the interests of fund shareholders
may warrant a vote contrary to these guidelines. In such instances, the
investment professionals will submit a written recommendation to the
Proxy Coordinator and the person or persons designated by Putnam
Management's Legal and Compliance Department to assist in processing
referral items pursuant to the funds' "Proxy Voting Procedures." The
Proxy Coordinator, in consultation with the funds' Senior Vice
President, Executive Vice President, and/or the Chair of the Board
Policy and Nominating Committee, as appropriate, will determine how the
funds' proxies will be voted. When indicated, the Chair of the Board
Policy and Nominating Committee may consult with other members of the
Committee or the full Board of Trustees.

The following guidelines are grouped according to the types of proposals
generally presented to shareholders. Part I deals with proposals that
have been put forth by management and approved and recommended by a
company's board of directors. Part II deals with proposals submitted by
shareholders for inclusion in proxy statements. Part III addresses
unique considerations pertaining to non-U.S. issuers.

The Putnam funds will disclose their proxy votes in accordance with the
timetable established by SEC rules (i.e., not later than August 31 of
each year for the most recent 12-month period ended June 30).

I. BOARD-APPROVED PROPOSALS

The vast majority of matters presented to shareholders for a vote
involve proposals made by a company itself (sometimes referred to as
"management proposals"), which have been approved and recommended by its
board of directors. In view of the enhanced corporate governance
practices currently being implemented in public companies and of the
funds' intent to hold corporate boards accountable for their actions in
promoting shareholder interests, the funds' proxies generally will be
voted for the decisions reached by majority independent boards of
directors, except as otherwise indicated in these guidelines.
Accordingly, the funds' proxies will be voted for board-approved
proposals, except as follows:

Matters relating to the Board of Directors

Uncontested Election of Directors

The funds' proxies will be voted for the election of a company's
nominees for the board of directors, except as follows:

* The funds will withhold votes for the entire board of directors if

* the board does not have a majority of independent directors,

* the board has not established independent nominating, audit, and
compensation committees, or

* the board has more than 19 members or fewer than five members, absent
special circumstances.

* The funds will withhold votes for any nominee for director who:

* is considered an independent director by the company and who has
received compensation from the company other than for service as a
director (e.g., investment banking, consulting, legal, or financial
advisory fees),

* attends less than 75% of board and committee meetings without valid
reasons for the absences (e.g., illness, personal emergency, etc.), or

* as a director of a public company (Company A), is employed as a senior
executive of another public company (Company B) if a director of Company
B serves as a senior executive of Company A (commonly referred to as an
"interlocking directorate").

Commentary:

Board independence: Unless otherwise indicated, for the purposes of
determining whether a board has a majority of independent directors and
independent nominating, audit, and compensation committees, an
"independent director" is a director who (1) meets all requirements to
serve as an independent director of a company under the final NYSE
Corporate Governance Rules (e.g., no material business relationships
with the company and no present or recent employment relationship with
the company (including employment of an immediate family member as an
executive officer)), and (2) has not accepted directly or indirectly any
consulting, advisory, or other compensatory fee from the company other
than in his or her capacity as a member of the board of directors or any
board committee. The funds' Trustees believe that the receipt of
compensation for services other than service as a director raises
significant independence issues.

Board size: The funds' Trustees believe that the size of the board of
directors can have a direct impact on the ability of the board to govern
effectively. Boards that have too many members can be unwieldy and
ultimately inhibit their ability to oversee management performance.
Boards that have too few members can stifle innovation and lead to
excessive influence by management.

Time commitment: Being a director of a company requires a significant
time commitment to adequately prepare for and attend the company's board
and committee meetings. Directors must be able to commit the time and
attention necessary to perform their fiduciary duties in proper fashion,
particularly in times of crisis. The funds' Trustees are concerned
about over-committed directors. In some cases, directors may serve on
too many boards to make a meaningful contribution. This may be
particularly true for senior executives of public companies (or other
directors with substantially full-time employment) who serve on more
than a few outside boards. The funds may withhold votes from such
directors on a case-by-case basis where it appears that they may be
unable to discharge their duties properly because of excessive
commitments.

Interlocking directorships: The funds' Trustees believe that
interlocking directorships are inconsistent with the degree of
independence required for outside directors of public companies.

Corporate governance practices: Board independence depends not only on
its members' individual relationships, but also on the board's overall
attitude toward management. Independent boards are committed to good
corporate governance practices and, by providing objective independent
judgment, enhancing shareholder value. The funds may withhold votes on
a case-by-case basis from some or all directors who, through their lack
of independence, have failed to observe good corporate governance
practices or, through specific corporate action, have demonstrated a
disregard for the interest of shareholders.

Contested Elections of Directors

* The funds will vote on a case-by-case basis in contested elections of
directors.

Classified Boards

* The funds will vote against proposals to classify a board, absent
special circumstances indicating that shareholder interests would be
better served by this structure.

Commentary: Under a typical classified board structure, the directors
are divided into three classes, with each class serving a three-year
term. The classified board structure results in directors serving
staggered terms, with usually only a third of the directors up for
re-election at any given annual meeting. The funds' Trustees generally
believe that it is appropriate for directors to stand for election each
year, but recognize that, in special circumstances, shareholder
interests may be better served under a classified board structure.

Other Board-Related Proposals

The funds will generally vote for board-approved proposals that have
been approved by a majority independent board, and on a case-by-case
basis on board-approved proposals where the board fails to meet the
guidelines' basic independence standards (i.e., majority of independent
directors and independent nominating, audit, and compensation
committees).

Executive Compensation

The funds generally favor compensation programs that relate executive
compensation to a company's long-term performance. The funds will vote
on a case-by-case basis on board-approved proposals relating to
executive compensation, except as follows:

* Except where the funds are otherwise withholding votes for the entire
board of directors, the funds will vote for stock option plans that will
result in an average annual dilution of 1.67% or less (based on a
10-year plan and including all equity-based plans).

* The funds will vote against stock option plans that permit the
replacing or repricing of underwater options (and against any proposal
to authorize such replacement or repricing of underwater options).

* The funds will vote against stock option plans that permit issuance of
options with an exercise price below the stock's current market price.

* Except where the funds are otherwise withholding votes for the entire
board of directors, the funds will vote for an employee stock purchase
plan that has the following features: (1) the shares purchased under
the plan are acquired for no less than 85% of their market value; (2)
the offering period under the plan is 27 months or less; and (3)
dilution is 10% or less.

Commentary: Companies should have compensation programs that are
reasonable and that align shareholder and management interests over the
longer term. Further, disclosure of compensation programs should
provide absolute transparency to shareholders regarding the sources and
amounts of, and the factors influencing, executive compensation.
Appropriately designed equity-based compensation plans can be an
effective way to align the interests of long-term shareholders with the
interests of management. The funds may vote against executive
compensation proposals on a case-by-case basis where compensation is
excessive by reasonable corporate standards, or where a company fails to
provide transparent disclosure of executive compensation. In voting on
a proposal relating to executive compensation, the funds will consider
whether the proposal has been approved by an independent compensation
committee of the board.

Capitalization

Many proxy proposals involve changes in a company's capitalization,
including the authorization of additional stock, the issuance of stock,
the repurchase of outstanding stock, or the approval of a stock split.
The management of a company's capital structure involves a number of
important issues, including cash flow, financing needs, and market
conditions that are unique to the circumstances of the company. As a
result, the funds will vote on a case-by-case basis on board-approved
proposals involving changes to a company's capitalization, except that
where the funds are not otherwise withholding votes from the entire
board of directors:

* The funds will vote for proposals relating to the authorization and
issuance of additional common stock (except where such proposals relate
to a specific transaction).

* The funds will vote for proposals to effect stock splits (excluding
reverse stock splits).

* The funds will vote for proposals authorizing share repurchase
programs.

Commentary: A company may decide to authorize additional shares of
common stock for reasons relating to executive compensation or for
routine business purposes. For the most part, these decisions are best
left to the board of directors and senior management. The funds will
vote on a case-by-case basis, however, on other proposals to change a
company's capitalization, including the authorization of common stock
with special voting rights, the authorization or issuance of common
stock in connection with a specific transaction (e.g., an acquisition,
merger or reorganization), or the authorization or issuance of preferred
stock. Actions such as these involve a number of considerations that
may affect a shareholder's investment and that warrant a case-by-case
determination.

Acquisitions, Mergers, Reincorporations, Reorganizations and Other
Transactions

Shareholders may be confronted with a number of different types of
transactions, including acquisitions, mergers, reorganizations involving
business combinations, liquidations, and the sale of all or
substantially all of a company's assets, which may require their
consent. Voting on such proposals involves considerations unique to
each transaction. As a result, the funds will vote on a case-by-case
basis on board-approved proposals to effect these types of transactions,
except as follows:

* The funds will vote for mergers and reorganizations involving business
combinations designed solely to reincorporate a company in Delaware.

Commentary: A company may reincorporate into another state through a
merger or reorganization by setting up a "shell" company in a different
state and then merging the company into the new company. While
reincorporation into states with extensive and established corporate
laws - notably Delaware - provides companies and shareholders with a
more well-defined legal framework, shareholders must carefully consider
the reasons for a reincorporation into another jurisdiction, including
especially an offshore jurisdiction.

Anti-Takeover Measures

Some proxy proposals involve efforts by management to make it more
difficult for an outside party to take control of the company without
the approval of the company's board of directors. These include the
adoption of a shareholder rights plan, requiring supermajority voting on
particular issues, the adoption of fair price provisions, the issuance
of blank check preferred stock, and the creation of a separate class of
stock with disparate voting rights. Such proposals may adversely affect
shareholder rights, lead to management entrenchment, or create conflicts
of interest. As a result, the funds will vote against board-approved
proposals to adopt such anti-takeover measures, except as follows:

* The funds will vote on a case-by-case basis on proposals to ratify or
approve shareholder rights plans (commonly referred to as "poison
pills"); and

* The funds will vote on a case-by-case basis on proposals to adopt fair
price provisions.

Commentary: The funds' Trustees recognize that poison pills and fair
price provisions may enhance shareholder value under certain
circumstances. As a result, the funds will consider proposals to
approve such matters on a case-by-case basis.

Other Business Matters

Many proxies involve approval of routine business matters, such as
changing a company's name, ratifying the appointment of auditors, and
procedural matters relating to the shareholder meeting. For the most
part, these routine matters do not materially affect shareholder
interests and are best left to the board of directors and senior
management of the company. The funds will vote for board-approved
proposals approving such matters, except as follows:

* The funds will vote on a case-by-case basis on proposals to amend a
company's charter or bylaws (except for charter amendments necessary or
to effect stock splits to change a company's name or to authorize
additional shares of common stock).

* The funds will vote against authorization to transact other
unidentified, substantive business at the meeting.

* The funds will vote on a case-by-case basis on other business matters
where the funds are otherwise withholding votes for the entire board of
directors.

Commentary: Charter and bylaw amendments and the transaction of other
unidentified, substantive business at a shareholder meeting may directly
affect shareholder rights and have a significant impact on shareholder
value. As a result, the funds do not view such items as routine
business matters. Putnam Management's investment professionals and the
funds' proxy voting service may also bring to the Proxy Coordinator's
attention company-specific items that they believe to be non-routine and
warranting special consideration. Under these circumstances, the funds
will vote on a case-by-case basis.

II. SHAREHOLDER PROPOSALS

SEC regulations permit shareholders to submit proposals for inclusion in
a company's proxy statement. These proposals generally seek to change
some aspect of the company's corporate governance structure or to change
some aspect of its business operations. The funds generally will vote
in accordance with the recommendation of the company's board of
directors on all shareholder proposals, except as follows:

* The funds will vote for shareholder proposals to declassify a board,
absent special circumstances which would indicate that shareholder
interests are better served by a classified board structure.

* The funds will vote for shareholder proposals to require shareholder
approval of shareholder rights plans.

* The funds will vote for shareholder proposals that are consistent with
the funds' proxy voting guidelines for board-approved proposals.

* The funds will vote on a case-by-case basis on other shareholder
proposals where the funds are otherwise withholding votes for the entire
board of directors.

Commentary: In light of the substantial reforms in corporate governance
that are currently underway, the funds' Trustees believe that effective
corporate reforms should be promoted by holding boards of directors -
and in particular their independent directors - accountable for their
actions, rather than imposing additional legal restrictions on board
governance through piecemeal proposals. Generally speaking, shareholder
proposals relating to business operations are often motivated primarily
by political or social concerns, rather than the interests of
shareholders as investors in an economic enterprise. As stated above,
the funds' Trustees believe that boards of directors and management are
responsible for ensuring that their businesses are operating in
accordance with high legal and ethical standards and should be held
accountable for resulting corporate behavior. Accordingly, the funds
will generally support the recommendations of boards that meet the basic
independence and governance standards established in these guidelines.
Where boards fail to meet these standards, the funds will generally
evaluate shareholder proposals on a case-by-case basis.

III. VOTING SHARES OF NON-U.S. ISSUERS

Many of the Putnam funds invest on a global basis, and, as a result,
they may be required to vote shares held in non-U.S. issuers - i.e.,
issuers that are incorporated under the laws of foreign jurisdictions
and that are not listed on a U.S. securities exchange or the NASDAQ
stock market. Because non-U.S. issuers are incorporated under the laws
of countries and jurisdictions outside the U.S., protection for
shareholders may vary significantly from jurisdiction to jurisdiction.
Laws governing non-U.S. issuers may, in some cases, provide
substantially less protection for shareholders. As a result, the
foregoing guidelines, which are premised on the existence of a sound
corporate governance and disclosure framework, may not be appropriate
under some circumstances for non-U.S. issuers.

In many non-U.S. markets, shareholders who vote proxies of a non-U.S.
issuer are not able to trade in that company's stock on or around the
shareholder meeting date. This practice is known as "share blocking."
In countries where share blocking is practiced, the funds will vote
proxies only with direction from Putnam Management's investment
professionals.

In addition, some non-U.S. markets require that a company's shares be
re-registered out of the name of the local custodian or nominee into the
name of the shareholder for the meeting. This practice is known as
"share re-registration." As a result, shareholders, including the
funds, are not able to trade in that company's stock until the shares
are re-registered back in the name of the local custodian or nominee. In
countries where share re-registration is practiced, the funds will
generally not vote proxies.

The funds will vote proxies of non-U.S. issuers in accordance with the
foregoing guidelines where applicable, except as follows:

Uncontested Election of Directors

Japan

* For companies that have established a U.S.-style corporate structure,
the funds will withhold votes for the entire board of directors if

* the board does not have a majority of outside directors,

* the board has not established nominating and compensation committees
composed of a majority of outside directors, or

* the board has not established an audit committee composed of a
majority of independent directors.

* The funds will withhold votes for the appointment of members of a
company's board of statutory auditors if a majority of the members of
the board of statutory auditors is not independent.

Commentary:

Board structure: Recent amendments to the Japanese Commercial Code give
companies the option to adopt a U.S.-style corporate structure (i.e., a
board of directors and audit, nominating, and compensation committees).
The funds will vote for proposals to amend a company's articles of
incorporation to adopt the U.S.-style corporate structure.

Definition of outside director and independent director: Corporate
governance principles in Japan focus on the distinction between outside
directors and independent directors. Under these principles, an outside
director is a director who is not and has never been a director,
executive, or employee of the company or its parent company,
subsidiaries or affiliates. An outside director is "independent" if
that person can make decisions completely independent from the managers
of the company, its parent, subsidiaries, or affiliates and does not
have a material relationship with the company (i.e., major client,
trading partner, or other business relationship; familial relationship
with current director or executive; etc.). The guidelines have
incorporated these definitions in applying the board independence
standards above.

Korea

* The funds will withhold votes for the entire board of directors if

* the board does not have a majority of outside directors,

* the board has not established a nominating committee composed of at
least a majority of outside directors, or

* the board has not established an audit committee composed of at least
three members and in which at least two-thirds of its members are
outside directors.

Commentary: For purposes of these guidelines, an "outside director" is
a director that is independent from the management or controlling
shareholders of the company, and holds no interests that might impair
performing his or her duties impartially from the company, management or
controlling shareholder. In determining whether a director is an
outside director, the funds will also apply the standards included in
Article 415-2(2) of the Korean Commercial Code (i.e., no employment
relationship with the company for a period of two years before serving
on the committee, no director or employment relationship with the
company's largest shareholder, etc.) and may consider other business
relationships that would affect the independence of an outside director.

United Kingdom

* The funds will withhold votes for the entire board of directors if

* the board does not have at least a majority of independent
non-executive directors,

* the board has not established nomination committees composed of a
majority of independent non-executive directors, or

* the board has not established compensation and audit committees
composed of (1) at least three directors (in the case of smaller
companies, two directors) and (2) solely of independent non-executive
directors.

* The funds will withhold votes for any nominee for director who is
considered an independent director by the company and who has received
compensation from the company other than for service as a director
(e.g., investment banking, consulting, legal, or financial advisory
fees).

Commentary:

Application of guidelines: Although the U.K.'s Combined Code on
Corporate Governance ("Combined Code") has adopted the "comply and
explain" approach to corporate governance, the funds' Trustees believe
that the guidelines discussed above with respect to board independence
standards are integral to the protection of investors in U.K. companies.
As a result, these guidelines will be applied in a prescriptive manner.

Definition of independence: For the purposes of these guidelines, a
non-executive director shall be considered independent if the director
meets the independence standards in section A.3.1 of the Combined Code
(i.e., no material business or employment relationships with the
company, no remuneration from the company for non-board services, no
close family ties with senior employees or directors of the company,
etc.), except that the funds do not view service on the board for more
than nine years as affecting a director's independence.

Smaller companies: A smaller company is one that is below the FTSE 350
throughout the year immediately prior to the reporting year.

Canada

In January 2004, Canadian securities regulators issued proposed policies
that would impose new corporate governance requirements on Canadian
public companies. The recommended practices contained in these new
corporate governance requirements mirror corporate governance reforms
that have been adopted by the NYSE and other U.S. national securities
exchanges and stock markets. As a result, the funds will vote on
matters relating to the board of directors of Canadian issuers in
accordance with the guidelines applicable to U.S. issuers.

Commentary: Like the U.K.'s Combined Code, the proposed policies on
corporate governance issued by Canadian securities regulators embody the
"comply and explain" approach to corporate governance. Because the
funds' Trustees believe that the board independence standards contained
in the proxy voting guidelines are integral to the protection of
investors in Canadian companies, these standards will be applied in a
prescriptive manner.

Other Matters

* The funds will vote for shareholder proposals calling for a majority
of a company's directors to be independent of management.

* The funds will vote for shareholder proposals seeking to increase the
independence of board nominating, audit, and compensation committees.

* The funds will vote for shareholder proposals that implement corporate
governance standards similar to those established under U.S. federal law
and the listing requirements of U.S. stock exchanges, and that do not
otherwise violate the laws of the jurisdiction under which the company
is incorporated.

* The funds will vote on a case-by-case basis on proposals relating to
(1) the issuance of common stock in excess of 20% of the company's
outstanding common stock where shareholders do not have preemptive
rights, or (2) the issuance of common stock in excess of 100% of the
company's outstanding common stock where shareholders have preemptive
rights.

As adopted May 14, 2004

Proxy voting procedures of the Putnam funds

The proxy voting procedures below explain the role of the funds'
Trustees, the proxy voting service and the Proxy Coordinator, as well as
how the process will work when a proxy question needs to be handled on a
case by case basis, or when there may be a conflict of interest.

The role of the funds' Trustees

The Trustees of the Putnam funds exercise control of the voting of
proxies through their Board Policy and Nominating Committee, which is
composed entirely of independent Trustees. The Board Policy and
Nominating Committee oversees the proxy voting process and participates,
as needed, in the resolution of issues that need to be handled on a
case-by-case basis. The Committee annually reviews and recommends, for
Trustee approval, guidelines governing the funds' proxy votes, including
how the funds vote on specific proposals and which matters are to be
considered on a case-by-case basis. The Trustees are assisted in this
process by their independent administrative staff ("Fund
Administration"), independent legal counsel, and an independent proxy
voting service. The Trustees also receive assistance from Putnam
Investment Management, LLC ("Putnam Management"), the funds' investment
advisor, on matters involving investment judgments. In all cases, the
ultimate decision on voting proxies rests with the Trustees, acting as
fiduciaries on behalf of the shareholders of the funds.

The role of the proxy voting service

The funds have engaged an independent proxy voting service to assist in
the voting of proxies. The proxy voting service is responsible for
coordinating with the funds' custodians to ensure that all proxy
materials received by the custodians relating to the funds' portfolio
securities are processed in a timely fashion. To the extent applicable,
the proxy voting service votes all proxies in accordance with the proxy
voting guidelines established by the Trustees. The proxy voting service
will refer proxy questions to the Proxy Coordinator (described below)
for instructions under circumstances where: (1) the application of the
proxy voting guidelines is unclear; (2) a particular proxy question is
not covered by the guidelines; or (3) the guidelines call for specific
instructions on a case-by-case basis. The proxy voting service is also
requested to call to the Proxy Coordinator's attention specific proxy
questions that, while governed by a guideline, appear to involve unusual
or controversial issues. The funds also utilize research services
relating to proxy questions provided by the proxy voting service and by
other firms.

The role of the Proxy Coordinator

Each year, a member of Fund Administration is appointed Proxy
Coordinator to assist in the coordination and voting of the funds'
proxies. The Proxy Coordinator will deal directly with the proxy voting
service and, in the case of proxy questions referred by the proxy voting
service, will solicit voting recommendations and instructions from Fund
Administration, the Chair of the Board Policy and Nominating Committee,
and Putnam Management's investment professionals, as appropriate. The
Proxy Coordinator is responsible for ensuring that these questions and
referrals are responded to in a timely fashion and for transmitting
appropriate voting instructions to the proxy voting service.

Voting procedures for referral items

As discussed above, the proxy voting service will refer proxy questions
to the Proxy Coordinator under certain circumstances. When the
application of the proxy voting guidelines is unclear or a particular
proxy question is not covered by the guidelines (and does not involve
investment considerations), the Proxy Coordinator will assist in
interpreting the guidelines and, as appropriate, consult with the Senior
Vice President of Fund Administration, the Executive Vice President of
Fund Administration, and the Chair of the Board Policy and Nominating
Committee on how the funds' shares will be voted.

For proxy questions that require a case-by-case analysis pursuant to the
guidelines or that are not covered by the guidelines but involve
investment considerations, the Proxy Coordinator will refer such
questions, through a written request, to Putnam Management's investment
professionals for a voting recommendation. Such referrals will be made
in cooperation with the person or persons designated by Putnam
Management's Legal and Compliance Department to assist in processing
such referral items. In connection with each such referral item, the
Legal and Compliance Department will conduct a conflicts of interest
review, as described below under "Conflicts of Interest," and provide a
conflicts of interest report (the "Conflicts Report") to the Proxy
Coordinator describing the results of such review. After receiving a
referral item from the Proxy Coordinator, Putnam Management's investment
professionals will provide a written recommendation to the Proxy
Coordinator and the person or persons designated by the Legal and
Compliance Department to assist in processing referral items. Such
recommendation will set forth (1) how the proxies should be voted; (2)
the basis and rationale for such recommendation; and (3) any contacts
the investment professionals have had with respect to the referral item
with non-investment personnel of Putnam Management or with outside
parties (except for routine communications from proxy solicitors). The
Proxy Coordinator will then review the investment professionals'
recommendation and the Conflicts Report with the Senior Vice President
and/or Executive Vice President in determining how to vote the funds'
proxies. The Proxy Coordinator will maintain a record of all proxy
questions that have been referred to Putnam Management's investment
professionals, the voting recommendation, and the Conflicts Report.

In some situations, the Proxy Coordinator, the Senior Vice President,
and/or the Executive Vice President may determine that a particular
proxy question raises policy issues requiring consultation with the
Chair of the Board Policy and Nominating Committee, who, in turn, may
decide to bring the particular proxy question to the Committee or the
full Board of Trustees for consideration.

Conflicts of interest

Occasions may arise where a person or organization involved in the proxy
voting process may have a conflict of interest. A conflict of interest
may exist, for example, if Putnam Management has a business relationship
with (or is actively soliciting business from) either the company
soliciting the proxy or a third party that has a material interest in
the outcome of a proxy vote or that is actively lobbying for a
particular outcome of a proxy vote. Any individual with knowledge of a
personal conflict of interest (e.g., familial relationship with company
management) relating to a particular referral item shall disclose that
conflict to the Proxy Coordinator and the Legal and Compliance
Department and otherwise remove himself or herself from the proxy voting
process. The Legal and Compliance Department will review each item
referred to Putnam Management's investment professionals to determine if
a conflict of interest exists and will provide the Proxy Coordinator
with a Conflicts Report for each referral item that (1) describes any
conflict of interest; (2) discusses the procedures used to address such
conflict of interest; and (3) discloses any contacts from parties
outside Putnam Management (other than routine communications from proxy
solicitors) with respect to the referral item not otherwise reported in
an investment professional's recommendation. The Conflicts Report will
also include written confirmation that any recommendation from an
investment professional provided under circumstances where a conflict of
interest exists was made solely on the investment merits and without
regard to any other consideration.

As adopted March 14, 2003

PUTNAM HIGH INCOME BOND FUND

FORM N-14
PART C

OTHER INFORMATION

Item 15. Indemnification

Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement on Form N-14 (333-119523), filed with
the SEC on November 23, 2004 ("Pre-Effective Amendment No. 1").

Item 16. Exhibits

(1) Amended and Restated Agreement and Declaration of Trust dated August
15, 2002 -- Incorporated by reference to the Registrant's Registration
Statement on Form N-14 (333-119523). Filed with the SEC on October 4, 2004.
(2)(a) Bylaws, as amended through June 7, 1991 -- Incorporated by
reference to the Registrant's Registration Statement on Form N-14
(333-119523). Filed with the SEC on October 4, 2004.
(2)(b) Amendment to Bylaws dated March 9, 2001 -- Incorporated by
reference to the Registrant's Registration Statement on Form N-14
(333-119523). Filed with the SEC on October 4, 2004.
(3) Not applicable.
(4) Agreement and Plan of Reorganization -- Constitutes Exhibit A to Part
A hereof.
(5)(a) Portions of Amended and Restated Agreement and Declaration of Trust
Relating to Shareholders' Rights -- Incorporated by reference to the
Registrant's Registration Statement on Form N-14 (333-119523). Filed with
the SEC on October 4, 2004.
(5)(b) Portions of Bylaws, as amended, Relating to Shareholders' Rights
-- Incorporated by reference to the Registrant's Registration Statement on
Form N-14 (333-119523). Filed with the SEC on October 4, 2004.
(6) Management Contract dated as of July 11, 1991 -- Incorporated by
reference to the Registrant's Registration Statement on Form N-14
(333-119523). Filed with the SEC on October 4, 2004.
(7) Not applicable.
(8) Trustee Retirement Plan as adopted October 4, 1996, as amended July 21,
2000 -- Incorporated by reference to the Registrant's Pre-Effective
Amendment No. 1.
(9) Custodian Agreement with Putnam Fiduciary Trust Company, as amended and
restated as of June 1, 2001 -- Incorporated by reference to the Registrant's
Registration Statement on Form N-14 (333-119523). Filed with the SEC on
October 4, 2004.
(10) Not applicable.
(11) Opinion of Ropes & Gray LLP, including consent -- Incorporated by
reference to the Registrant's Pre-Effective Amendment No. 1.
(12) Opinion of Ropes & Gray LLP as to Tax Matters -- Filed herewith.
(13) Not applicable.
(14)(a) Consent of PricewaterhouseCoopers LLP, Independent Registered Public
Accounting Firm to Putnam High Income Bond Fund -- Incorporated by reference
to the Registrant's Pre-Effective Amendment No. 1.
(14)(b) Consent of KPMG LLP, Independent Registered Public Accounting Firm
to Putnam High Income Opportunities Trust -- Incorporated by reference to
the Registrant's Pre-Effective Amendment No. 1.
(15) Not applicable.
(16) Power of Attorney -- Incorporated by reference to the Registrant's
Pre-Effective Amendment No. 1.
(17) Not applicable.

Item 17. Undertakings

(a) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a prospectus
which is a part of this Registration Statement by any person or party
who is deemed to be an underwriter within the meaning of Rule 145(c)
under the Securities Act of 1933, as amended, the reoffering prospectus
will contain the information called for by the applicable registration
form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the
applicable form.

(b) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (a) above will be filed as a part of an amendment
to this Registration Statement and will not be used until the amendment
is effective, and that, in determining any liability under the Act, each
post-effective amendment shall be deemed to be a new Registration
Statement for the securities offered therein, and the offering of the
securities at that time shall be deemed to be the initial bona fide
offering of them.

NOTICE

A copy of the Agreement and Declaration of Trust, as amended, of the
Registrant is on file with the Secretary of The Commonwealth of
Massachusetts, and notice is hereby given that this Registration
Statement has been executed on behalf of the Registrant by an officer of
the Registrant as an officer and not individually, and the obligations
of or arising out of this Registration Statement are not binding upon
any of the Trustees, officers, or shareholders of the Registrant
individually, but are binding only upon the assets and property of the
Registrant.

SIGNATURES

As required by the Securities Act of 1933, as amended, this Registration
Statement has been signed on behalf of the Registrant, in the City of
Boston and The Commonwealth of Massachusetts on the 24th day of
February, 2005.

PUTNAM HIGH INCOME BOND FUND

By: /s/ Charles E. Porter
----------------------------
Executive Vice President,
Associate Treasurer and
Principal Executive Officer

As required by the Securities Act of 1933, as amended, this Registration
Statement has been signed by the following persons in the capacities and
on the dates indicated.

Signature Title

John A. Hill Chairman of the Trustees

George Putnam, III President; Trustee

Charles E. Porter Executive Vice President, Associate Treasurer
and Principal Executive Officer

Steven D. Krichmar Vice President; Principal Financial Officer

Michael T. Healy Principal Accounting Officer; Assistant
Treasurer

Jameson A. Baxter Trustee

Charles B. Curtis Trustee

Myra R. Drucker Trustee

Charles E. Haldeman, Jr. Trustee

Ronald J. Jackson Trustee

Paul L. Joskow Trustee

Robert E. Patterson Trustee

W. Thomas Stephens Trustee

Richard B. Worley Trustee

By: Charles E. Porter,
as Attorney-in-Fact
February 24, 2005

EXHIBIT INDEX

(12) Opinion of Ropes & Gray LLP as to Tax Matters -- Exhibit 1.