N-CSRS 1 a_highyieldtrust.htm PUTNAM HIGH YIELD TRUST a_highyieldtrust.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES



Investment Company Act file number: (811-02796)
Exact name of registrant as specified in charter: Putnam High Yield Trust
Address of principal executive offices: One Post Office Square, Boston, Massachusetts 02109
Name and address of agent for service: Robert T. Burns, Vice President
One Post Office Square
Boston, Massachusetts 02109
Copy to:         John W. Gerstmayr, Esq.
Ropes & Gray LLP
800 Boylston Street
Boston, Massachusetts 02199-3600
Registrant’s telephone number, including area code: (617) 292-1000
Date of fiscal year end: August 31, 2012
Date of reporting period: September 1, 2011 — February 29, 2012



Item 1. Report to Stockholders:

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



Putnam
High Yield
Trust

Semiannual report
2 | 29 | 12

Message from the Trustees  1 
About the fund  2 
Performance snapshot  4 
Interview with your fund’s portfolio manager  5 
Your fund’s performance  10 
Your fund’s expenses  12 
Terms and definitions  14 
Other information for shareholders  15 
Financial statements  16 

 


Message from the Trustees

Dear Fellow Shareholder:

Stock markets around the world have rebounded in 2012, despite concerns over the threat of another recession in Europe.

U.S. stocks posted their strongest February in years, thanks to improving industrial output, consumer confidence, and unemployment data. Even the beleaguered housing market is showing early signs of recovery. Asia is benefiting from the global recovery, with China in particular seeing some improvements in manufacturing activity. While the eurozone may slip into another recession this year, economists believe the region could return to growth by the second half of 2012 if European officials devise a lasting plan to address the sovereign debt problem.

We believe that the market turmoil in recent years presents opportunities to pursue returns for our shareholders. Putnam’s bottom-up, fundamental investment approach is designed for this type of environment, and our investment team is committed to uncovering returns, while seeking to guard against downside risk.

Please join us in welcoming the return of Elizabeth T. Kennan to the Board of Trustees. Dr. Kennan, who served as a Trustee from 1992 until 2010, has rejoined the Board, effective January 1, 2012. Dr. Kennan is a Partner of Cambus-Kenneth Farm (thoroughbred horse breeding and general farming), and is also President Emeritus of Mount Holyoke College.

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



About the fund

A disciplined approach to seeking high current income and capital growth

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

Because of the risks of high-yield bond investing, in-depth credit research is essential. The fund’s research team visits with the management of issuing companies and analyzes each company’s profitability and capital structure. The team then considers this information in the context of the bond’s total return profile before deciding whether it is an appropriate investment for the fund. The fund’s managers seek bonds issued by a broad range of companies. Holdings are diversified across industry sectors and among bonds with different credit ratings. While the fund invests primarily in bonds of U.S. companies, it can target foreign bonds as well. The fund also invests in convertible securities and bank loans.

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

Consider these risks before investing: Lower-rated bonds may offer higher yields in return for more risk. The use of derivatives involves additional risks, such as the potential inability to terminate or sell derivatives positions and the potential failure of the other party to the instrument to meet its obligations. Funds that invest in bonds are subject to certain risks including interest-rate risk, credit risk, and inflation risk. As interest rates rise, the prices of bonds fall. Long-term bonds are more exposed to interest-rate risk than short-term bonds. Unlike bonds, bond funds have ongoing fees and expenses. The prices of bonds in the fund’s portfolio may fall or fail to rise over extended periods of time for a variety of reasons, including both general financial market conditions and factors related to a specific issuer or industry.

What makes a bond “high yield”?

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

Bond ratings

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

 




Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will fluctuate, and you may have a gain or a loss when you sell your shares. Performance of class A shares assumes reinvestment of distributions and does not account for taxes. Fund returns in the bar chart do not reflect a sales charge of 4.00%; had they, returns would have been lower. See pages 5 and 10–12 for additional performance information. For a portion of the periods, the fund had expense limitations, without which returns would have been lower. A short-term trading fee of 1% may apply to redemptions or exchanges from certain funds within the time period specified in the fund’s prospectus. To obtain the most recent month-end performance, visit putnam.com.

* The fund’s benchmark, the JPMorgan Developed High Yield Index, was introduced on 12/31/94, which post-dates the inception of the fund’s class A shares.

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

4


Interview with your fund’s portfolio manager


How would you characterize the environment in the high-yield bond market during the six months ended February 29, 2012?

During the summer of 2011, a series of negative events sent investors on a flight to safety, including the political brinksmanship surrounding attempts to raise the U.S. debt ceiling, Standard & Poor’s [S&P’s] downgrade of U.S. Treasury debt, increasing concerns surrounding the sovereign debt situation in Europe, and some weaker-than-expected economic data here at home. The end result was one of the worst months on record in August for high-yield bonds, as their “spread” over Treasuries rose to more than 8% amid sharp price declines.

Since then, high-yield bonds have staged a significant rally. Fundamentals in the market, which had been strong throughout 2011, remained solid, with the default rate well below its long-term average of about 4.2%. Companies continued to post solid profits in the fourth quarter of 2011, supported by extremely healthy balance sheets and generally high levels of cash. This combination of strong fundamentals and unusually high yields eventually drew investors back into the market, although valuations still appear attractive today by historical measures.

The fund trailed its benchmark. What factors dampened its relative return?

The fund’s larger exposures to the B- and CCC-rated tiers of the market were


This comparison shows your fund’s performance in the context of broad market indexes for the six months ended 2/29/12. See pages 4 and 10–12 for additional fund performance information. Index descriptions can be found on pages 14–15.

5


detrimental to performance over the past six months. Investors’ flight to quality, which continued through September 2011, resulted in higher-rated tiers of the market outperforming their lower-quality counterparts. Although that trend has since reversed itself, with lower-rated tiers leading the market, the fund’s positioning was ultimately a net detractor over the semiannual period.

How has the recent default by Greece affected bond markets?

In late February and early March, all three of the major U.S. ratings agencies declared that Greece’s latest debt restructuring constituted a default, which was not particularly surprising to those who had been following the developments in Europe. What many investors had been worried about was whether Greece’s default would be orderly — and therefore relatively contained — or disorderly, with the potential to move other peripheral European countries to default as well, and possibly sparking a crisis in the European banking system. Fortunately, this has not been the case, as Greece — working closely with the European Union, the European Central Bank, and the International Monetary Fund — orchestrated an orderly exchange of its existing bonds for new debts with lower principal values. While much remains to be seen in how other European nations handle getting their fiscal houses in order, investors took this latest development in stride, and we believe the outcome thus far has been generally favorable for the market.


Credit qualities are shown as a percentage of net assets as of 2/29/12. A bond rated Baa or higher (Prime-3 or higher, for short-term debt) is considered investment grade. The chart reflects Moody’s ratings; percentages may include bonds or derivatives not rated by Moody’s but rated by Standard & Poor’s (S&P) or, if unrated by S&P, by Fitch, and then included in the closest equivalent Moody’s rating. Ratings will vary over time.

Credit quality includes bonds and represents only the fixed-income portion of the portfolio. Derivative instruments, including currency forwards, are only included to the extent of any unrealized gain or loss on such instruments and are shown in the net cash category. Cash is also shown in the net cash category. The fund itself has not been rated by an independent rating agency.

6



I should point out that amid all of the uncertainty surrounding the European sovereign debt situation, volatility in the European corporate debt market has created a number of investment opportunities, with what we believe are solid corporations trading at meaningful discounts. We have been selectively pursuing opportunities overseas, including a small tactical position in European high-yield debt.

Which industry groups and holdings helped versus the index?

After a challenging September, the fund’s holdings in the financials sector rallied to close out the semiannual period, especially more recently in 2012. Ally Financial was one of the bigger contributors, while HBOS [a subsidiary of Lloyd Banking Group] and Ceridian boosted results late in the period. In general, the fund’s overweight position in financials was beneficial, as was its increased exposure to the chemicals, broadcasting, and cable and satellite industries.

One of the biggest detractors was our positioning in the industrials sector, where the fund had a sizable underweight throughout the period. Performance in the sector was generally solid, and our limited exposure detracted from relative returns.


This table shows the fund’s top 10 holdings and the percentage of the fund’s net assets that each represented as of 2/29/12. Short-term holdings are excluded. Holdings will vary over time.

7


Interest rates climbed higher in 2012 after declining for much of 2011. How do changes in interest rates affect high-yield bonds?

Bond prices generally move in the opposite direction of interest rates, although high-yield bonds typically have less sensitivity to rate changes than Treasuries. That said, declining rates are usually positive for high-yield bonds as the fixed rates on existing bonds become more attractive to investors. Although the Federal Reserve has indicated that it plans to keep short-term interest rates low for an extended period, we may continue to see some upward pressure on longer-term rates, particularly if the economic outlook continues to improve. In general, interest rates tend to rise during periods of improving economic conditions, which is positive for corporations and, consequently, beneficial from a credit-risk standpoint — all of which stands to benefit high-yield investors. But, in the end, high-yield bonds typically are less influenced by interest-rate movements, and more influenced by corporate fundamentals and economic conditions.

What is your outlook for the high-yield market over the coming months, and how are you positioning the fund?

So far in 2012, most risk assets have continued to benefit from improving macroeconomic conditions. Accommodative central banks, healthy corporate earnings, and signs of a slowly improving U.S. economy have been instilling a sense of confidence in investors. As I mentioned before, we believe the fundamentals in the market have been attractive for some time, and despite the narrowing of


This chart shows how the fund’s credit quality has changed over the past six months. Credit qualities are shown as a percentage of net assets as of 2/29/12. A bond rated Baa or higher (Prime-3 or higher, for short-term debt) is considered investment grade. The chart reflects Moody’s ratings; percentages may include bonds or derivatives not rated by Moody’s but rated by Standard & Poor’s (S&P) or, if unrated by S&P, by Fitch, and then included in the closest equivalent Moody’s rating. Ratings will vary over time.

Credit quality includes bonds and represents only the fixed-income portion of the portfolio. Derivative instruments, including currency forwards, are only included to the extent of any unrealized gain or loss on such instruments and are shown in the net cash category. Cash is also shown in the net cash category. The fund itself has not been rated by an independent rating agency.

8


spreads since August, I believe valuations in the high-yield space suggest some room for continued tightening.

With regard to the technical environment, our outlook is more neutral. Strong flows in high-yield funds, high new issuance activity, and a return to a “risk-on” posture for investors have led to solid demand recently, but we remain cautious on the global macroeconomic picture, given its fluidity and potential for further regulator changes both at home and abroad.

Within the portfolios, we have reduced our target risk profile to be more in line with benchmark levels, while we have been maintaining a slightly larger-than-normal cash buffer to provide a cushion should the market come under the kind of selling pressure we experienced in 2011. Overall, with the economic picture continuing to offer signs of gradual improvement, we believe security selection will become increasingly important for investors, and that the fund is well positioned to capitalize on that trend as we continue into 2012.

Thank you, Paul, for your time and insights today.

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

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

Portfolio Manager Paul D. Scanlon is Co-Head of Fixed Income at Putnam. He has an M.B.A. from The University of Chicago Booth School of Business and a B.A. from Colgate University. A CFA charterholder, Paul joined Putnam in 1999 and has been in the investment industry since 1986.

In addition to Paul, your fund’s portfolio managers are Norman P. Boucher and Robert L. Salvin.

IN THE NEWS

Europe looks as if it may be headed back into recession. Sharp declines in household spending, exports, and manufacturing activity led to an economic downdraft in the final months of 2011. Economic output for the 17 eurozone countries contracted 0.3% from October to December, according to Eurostat, the European Union’s statistics office. Officials are forecasting a recession in 2012, the region’s second slowdown in three years. However, there are vast differences in health among the various eurozone economies. Officials warn that Greece is likely to remain in recession in 2012 and will likely not return to growth until 2014. Conversely, Germany and France, the eurozone’s largest and healthiest economies, are seen avoiding recession this year. If European officials can find a solution to stave off financial crises for the region’s most indebted member countries, economists believe that growth could turn positive in the second half of 2012.

9


Your fund’s performance

This section shows your fund’s performance, price, and distribution information for periods ended February 29, 2012, the end of the first half of its current fiscal year. In accordance with regulatory requirements for mutual funds, we also include performance as of the most recent calendar quarter-end and expense information taken from the fund’s current prospectus. Performance should always be considered in light of a fund’s investment strategy. Data represent past performance. Past performance does not guarantee future results. More recent returns may be less or more than those shown. Investment return and principal value will fluctuate, and you may have a gain or a loss when you sell your shares. Performance information does not reflect any deduction for taxes a shareholder may owe on fund distributions or on the redemption of fund shares. For the most recent month-end performance, please visit the Individual Investors section at putnam.com or call Putnam at 1-800-225-1581. Class R and class Y shares are not available to all investors. See the Terms and Definitions section in this report for definitions of the share classes offered by your fund.

Fund performance Total return for periods ended 2/29/12

  Class A  Class B  Class C  Class M  Class R  Class Y 
(inception dates)  (2/14/78)  (3/1/93)  (3/19/02)  (7/3/95)  (1/21/03)   (12/31/98) 
  Before   After          Before   After  Net  Net 
  sales  sales   Before  After  Before  After  sales  sales  asset  asset 
charge   charge   CDSC   CDSC   CDSC   CDSC   charge   charge   value  value 
Annual average                     
(life of fund)  8.82%  8.69%  7.92%  7.92%  7.99%  7.99%  8.45%  8.34%  8.51%  8.90% 
10 years  125.98  117.04  110.38  110.38  109.08  109.08  120.27  113.18  117.99  130.68 
Annual average  8.49  8.06  7.72  7.72  7.65  7.65  8.22  7.86  8.10  8.72 
5 years  37.32  31.85  32.48  30.61  32.18  32.18  35.39  30.94  34.68  38.43 
Annual average  6.55  5.69  5.79  5.49  5.74  5.74  6.25  5.54  6.14  6.72 
3 years  79.64  72.53  76.00  73.00  75.62  75.62  78.30  72.50  77.65  80.75 
Annual average  21.56  19.94  20.74  20.05  20.65  20.65  21.26  19.93  21.11  21.81 
1 year  3.88  –0.27  3.07  –1.77  3.18  2.21  3.71  0.29  3.72  4.23 
6 months  7.53  3.20  7.12  2.12  7.07  6.07  7.37  3.86  7.55  7.66 

 

Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. After-sales-charge returns for class A and M shares reflect the deduction of the maximum 4.00% and 3.25% sales charge, respectively, levied at the time of purchase. Class B share returns after contingent deferred sales charge (CDSC) reflect the applicable CDSC, which is 5% in the first year, declining over time to 1% in the sixth year, and is eliminated thereafter. Class C share returns after CDSC reflect a 1% CDSC for the first year that is eliminated thereafter. Class R and Y shares have no initial sales charge or CDSC. Performance for class B, C, M, R, and Y shares before their inception is derived from the historical performance of class A shares, adjusted for the applicable sales charge (or CDSC) and the higher operating expenses for such shares, except for class Y shares, for which 12b-1 fees are not applicable.

For a portion of the periods, the fund had expense limitations, without which returns would have been lower.

Class B share performance does not reflect conversion to class A shares.

A short-term trading fee of 1% may apply to redemptions or exchanges from certain funds within the time period specified in the fund’s prospectus.

10


Comparative index returns For periods ended 2/29/12

  JPMorgan Developed  Lipper High Current Yield Funds 
  High Yield Index  category average* 
Annual average (life of fund)  —†  8.61% 
10 years  155.39%  112.66 
Annual average  9.83  7.66 
5 years  50.01  33.40 
Annual average  8.45  5.74 
3 years  97.35  77.78 
Annual average  25.43  21.04 
1 year  8.25  4.84 
6 months  8.87  7.67 

 

Index and Lipper results should be compared with fund performance before sales charge, before CDSC, or at net asset value.

* Over the 6-month, 1-year, 3-year, 5-year, 10-year, and life-of-fund periods ended 2/29/12, there were 510, 498, 425, 358, 241, and 10 funds, respectively, in this Lipper category.

† The fund’s benchmark, the JPMorgan Developed High Yield Index, was introduced on 12/31/94, which post-dates the inception of the fund’s class A shares.

Fund price and distribution information For the six-month period ended 2/29/12

Distributions  Class A  Class B  Class C  Class M  Class R  Class Y 
Number  6  6  6  6  6  6 
Income  $0.270  $0.241  $0.244  $0.260  $0.262  $0.280 
Capital gains  —  —  —  —  —  — 
Total  $0.270  $0.241  $0.244  $0.260  $0.262  $0.280 
  Before  After  Net  Net  Before  After  Net  Net 
  sales  sales  asset  asset  sales  sales  asset  asset 
Share value  charge  charge  value  value  charge  charge  value  value 
8/31/11  $7.39  $7.70  $7.38  $7.34  $7.41  $7.66  $7.26  $7.28 
2/29/12  7.66  7.98  7.65  7.60  7.68  7.94  7.53  7.54 
  Before  After  Net  Net  Before  After  Net  Net 
  sales  sales  asset  asset  sales  sales  asset  asset 
Current yield (end of period)  charge  charge  value  value  charge  charge  value  value 
Current dividend rate 1  7.05%  6.77%  6.27%  6.32%  6.72%  6.50%  6.85%  7.48% 
Current 30-day SEC yield 2  N/A  5.76  5.25  5.25  N/A  5.56  5.76  6.25 

 

The classification of distributions, if any, is an estimate. Before-sales-charge share value and current dividend rate for class A and M shares, if applicable, do not take into account any sales charge levied at the time of purchase. After-sales-charge share value, current dividend rate, and current 30-day SEC yield, if applicable, are calculated assuming that the maximum sales charge (4.00% for class A shares and 3.25% for class M shares) was levied at the time of purchase. Final distribution information will appear on your year-end tax forms.

1 Most recent distribution, excluding capital gains, annualized and divided by share price before or after sales charge at period-end.

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

11


Fund performance as of most recent calendar quarter
Total return for periods ended 3/31/12

  Class A  Class B  Class C  Class M  Class R  Class Y 
(inception dates)  (2/14/78)  (3/1/93)  (3/19/02)  (7/3/95)  (1/21/03)   (12/31/98) 
  Before   After          Before  After  Net  Net 
  sales  sales  Before  After  Before  After  sales  sales  asset  asset 
charge  charge  CDSC  CDSC   CDSC  CDSC   charge  charge  value  value 
Annual average                     
(life of fund)  8.80%  8.67%  7.90%  7.90%  7.97%  7.97%  8.43%  8.32%  8.49%  8.88% 
10 years  120.74  111.85  105.48  105.48  104.12  104.12  114.91  107.84  112.91  125.03 
Annual average  8.24  7.80  7.47  7.47  7.40  7.40  7.95  7.59  7.85  8.45 
5 years  36.75  31.31  32.11  30.24  31.64  31.64  35.02  30.57  33.96  38.01 
Annual average  6.46  5.60  5.73  5.43  5.65  5.65  6.19  5.48  6.02  6.66 
3 years  76.59  69.66  72.69  69.69  72.62  72.62  75.29  69.64  74.39  77.31 
Annual average  20.87  19.27  19.97  19.28  19.96  19.96  20.57  19.26  20.37  21.04 
1 year  3.75  –0.42  2.95  –1.88  3.05  2.08  3.59  0.17  3.44  4.09 
6 months  12.25  7.81  11.84  6.84  11.80  10.80  12.23  8.53  12.21  12.44 

 

Your fund’s expenses

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

Expense ratios

  Class A  Class B  Class C  Class M  Class R  Class Y 
Total annual operating expenses for the fiscal year             
ended 8/31/11  1.00%  1.75%  1.75%  1.25%  1.25%  0.75% 
Annualized expense ratio for the six-month period             
ended 2/29/12  1.03%  1.78%  1.78%  1.28%  1.28%  0.78% 

 

Fiscal-year expense information in this table is taken from the most recent prospectus, is subject to change, and may differ from that shown for the annualized expense ratio and in the financial highlights of this report. Expenses are shown as a percentage of average net assets.

12


Expenses per $1,000

The following table shows the expenses you would have paid on a $1,000 investment in the fund from September 1, 2011, to February 29, 2012. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.

  Class A  Class B  Class C  Class M  Class R  Class Y 
Expenses paid per $1,000*†  $5.31  $9.17  $9.16  $6.60  $6.61  $4.03 
Ending value (after expenses)  $1,075.30  $1,071.20  $1,070.70  $1,073.70  $1,075.50  $1,076.60 

 

* Expenses for each share class are calculated using the fund’s annualized expense ratio for each class, which represents the ongoing expenses as a percentage of average net assets for the six months ended 2/29/12. The expense ratio may differ for each share class.

† Expenses are calculated by multiplying the expense ratio by the average account value for the period; then multiplying the result by the number of days in the period; and then dividing that result by the number of days in the year.

Estimate the expenses you paid

To estimate the ongoing expenses you paid for the six months ended February 29, 2012, use the following calculation method. To find the value of your investment on September 1, 2011, call Putnam at 1-800-225-1581.


Compare expenses using the SEC’s method

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

  Class A  Class B  Class C  Class M  Class R  Class Y 
Expenses paid per $1,000*†  $5.17  $8.92  $8.92  $6.42  $6.42  $3.92 
Ending value (after expenses)  $1,019.74  $1,016.01  $1,016.01  $1,018.50  $1,018.50  $1,020.98 

 

* Expenses for each share class are calculated using the fund’s annualized expense ratio for each class, which represents the ongoing expenses as a percentage of average net assets for the six months ended 2/29/12. The expense ratio may differ for each share class.

† Expenses are calculated by multiplying the expense ratio by the average account value for the period; then multiplying the result by the number of days in the period; and then dividing that result by the number of days in the year.

13


Terms and definitions

Important terms

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

Before sales charge, or net asset value, is the price, or value, of one share of a mutual fund, without a sales charge. Before-sales-charge figures fluctuate with market conditions, and are calculated by dividing the net assets of each class of shares by the number of outstanding shares in the class.

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

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

Share classes

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

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

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

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

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

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

Fixed-income terms

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

Yield curve is a graph that plots the yields of bonds with equal credit quality against their differing maturity dates, ranging from shortest to longest. It is used as a benchmark for other debt, such as mortgage or bank lending rates.

Comparative indexes

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

BofA (Bank of America) Merrill Lynch U.S. 3-Month Treasury Bill Index is an unmanaged index that seeks to measure the performance of U.S. Treasury bills available in the marketplace.

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

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

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

14


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

Other information for shareholders

Important notice regarding delivery of shareholder documents

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

Proxy voting

Putnam is committed to managing our mutual funds in the best interests of our shareholders. The Putnam funds’ proxy voting guidelines and procedures, as well as information regarding how your fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2011, are available in the Individual Investors section of putnam.com, and on the SEC’s website, www.sec.gov. If you have questions about finding forms on the SEC’s website, you may call the SEC at 1-800-SEC-0330. You may also obtain the Putnam funds’ proxy voting guidelines and procedures at no charge by calling Putnam’s Shareholder Services at 1-800-225-1581.

Fund portfolio holdings

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

Trustee and employee fund ownership

Putnam employees and members of the Board of Trustees place their faith, confidence, and, most importantly, investment dollars in Putnam mutual funds. As of February 29, 2012, Putnam employees had approximately $345,000,000 and the Trustees had approximately $78,000,000 invested in Putnam mutual funds. These amounts include investments by the Trustees’ and employees’ immediate family members as well as investments through retirement and deferred compensation plans.

15


Financial statements

A guide to financial statements

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

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

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

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

Statement of changes in net assets shows how the fund’s net assets were affected by the fund’s net investment gain or loss, by distributions to shareholders, and by changes in the number of the fund’s shares. It lists distributions and their sources (net investment income or realized capital gains) over the current reporting period and the most recent fiscal year-end. The distributions listed here may not match the sources listed in the Statement of operations because the distributions are determined on a tax basis and may be paid in a different period from the one in which they were earned. Dividend sources are estimated at the time of declaration. Actual results may vary. Any non-taxable return of capital cannot be determined until final tax calculations are completed after the end of the fund’s fiscal year.

Financial highlights provide an overview of the fund’s investment results, per-share distributions, expense ratios, net investment income ratios, and portfolio turnover in one summary table, reflecting the five most recent reporting periods. In a semiannual report, the highlights table also includes the current reporting period.

16


The fund’s portfolio 2/29/12 (Unaudited)

CORPORATE BONDS AND NOTES (85.7%)*  Principal amount  Value 
 
Advertising and marketing services (0.5%)       
Affinion Group, Inc. company guaranty sr. unsec. notes       
7 7/8s, 2018    $2,995,000  $2,680,524 
Affinion Group, Inc. company guaranty sr. unsec. sub. notes       
11 1/2s, 2015    1,977,000  1,853,437 
Lamar Media Corp. company guaranty sr. sub. notes 7 7/8s, 2018    1,235,000  1,358,500 
Lamar Media Corp. 144A sr. sub. notes 5 7/8s, 2022    1,100,000  1,148,125 
      7,040,586 
Automotive (2.1%)       
Chrysler Group, LLC/CG Co-Issuer, Inc. company guaranty notes       
8 1/4s, 2021    3,250,000  3,282,500 
Ford Motor Credit Co., LLC sr. unsec. notes 8 1/8s, 2020    4,085,000  5,096,037 
Ford Motor Credit Co., LLC sr. unsec. notes 5s, 2018    3,210,000  3,383,497 
Ford Motor Credit Co., LLC sr. unsec. unsub. notes 5 7/8s, 2021    5,505,000  6,165,600 
Ford Motor Credit Co., LLC sr. unsec. unsub. notes 5 3/4s, 2021    875,000  977,167 
General Motors Escrow notes 8 1/4s, 2023    2,555,000  38,325 
Motors Liquidation Co. (Escrow) notes 8 3/8s, 2033    2,390,000  35,850 
Navistar International Corp. sr. notes 8 1/4s, 2021    5,234,000  5,718,144 
Schaeffler Finance BV 144A company       
guaranty sr. notes 8 1/2s, 2019 (Netherlands)    960,000  1,036,800 
Schaeffler Finance BV 144A company       
guaranty sr. notes 7 3/4s, 2017 (Netherlands)    945,000  1,002,881 
TRW Automotive, Inc. company guaranty sr. unsec. unsub.       
notes Ser. REGS, 6 3/8s, 2014  EUR  1,065,000  1,455,563 
TRW Automotive, Inc. 144A company guaranty sr. notes       
7 1/4s, 2017    $1,055,000  1,173,687 
UR Financing Escrow Corp. 144A company guaranty notes       
5 3/4s, 2018    765,000  782,213 
UR Financing Escrow Corp. 144A sr. unsec. notes 7 5/8s, 2022    1,150,000  1,181,625 
      31,329,889 
Basic materials (6.5%)       
AbitibiBowater, Inc. 144A company guaranty sr. notes 10 1/4s,       
2018 (Canada)    1,455,000  1,662,337 
Ardagh Glass Finance PLC sr. sec. unsub. notes Ser. REGS,       
9 1/4s, 2016 (Ireland)  EUR  1,180,000  1,725,127 
Associated Materials, LLC company guaranty sr. notes       
9 1/8s, 2017    $2,446,000  2,409,310 
Atkore International, Inc. company guaranty sr. notes       
9 7/8s, 2018    4,225,000  4,499,624 
Celanese US Holdings, LLC company guaranty sr. unsec.       
notes 6 5/8s, 2018 (Germany)    1,155,000  1,264,725 
Celanese US Holdings, LLC sr. notes 5 7/8s, 2021 (Germany)    3,018,000  3,289,620 
Cemex Finance, LLC 144A company guaranty sr. bonds       
9 1/2s, 2016    745,000  733,825 
Clondalkin Acquisition BV 144A company guaranty sr. notes       
FRN 2.546s, 2013 (Netherlands)    1,067,000  1,008,315 
Compass Minerals International, Inc. company guaranty sr. unsec.       
notes 8s, 2019    2,532,000  2,785,200 
Edgen Murray Corp. company guaranty sr. notes 12 1/4s, 2015    1,040,000  1,060,800 
Ferro Corp. sr. unsec. notes 7 7/8s, 2018    3,535,000  3,694,074 

 

17


CORPORATE BONDS AND NOTES (85.7%)* cont.  Principal amount  Value 
 
Basic materials cont.       
FMG Resources August 2006 Pty, Ltd. 144A company guaranty       
sr. unsec notes 6 3/8s, 2016 (Australia)    $405,000  $419,175 
FMG Resources August 2006 Pty, Ltd. 144A sr. notes 8 1/4s,       
2019 (Australia)    2,070,000  2,287,350 
FMG Resources August 2006 Pty, Ltd. 144A sr. notes 7s, 2015       
(Australia)    1,910,000  2,024,600 
FMG Resources August 2006 Pty, Ltd. 144A sr. notes 6 7/8s,       
2018 (Australia)    2,677,000  2,817,238 
Hexion U.S. Finance Corp./Hexion Nova Scotia Finance, ULC       
company guaranty notes 9s, 2020    960,000  940,800 
Hexion U.S. Finance Corp./Hexion Nova Scotia Finance, ULC       
company guaranty sr. notes 8 7/8s, 2018    2,050,000  2,121,750 
Huntsman International, LLC company guaranty sr. unsec. sub.       
notes 8 5/8s, 2021    1,903,000  2,150,390 
Huntsman International, LLC company guaranty sr. unsec. sub.       
notes 8 5/8s, 2020    3,010,000  3,401,300 
INEOS Finance PLC sr. sec. notes company guaranty Ser. REGS,       
9 1/4s, 2015 (United Kingdom)  EUR  700,000  987,344 
INEOS Finance PLC 144A company guaranty sr. notes 9s, 2015       
(United Kingdom)    $785,000  828,175 
INEOS Finance PLC 144A company guaranty sr. sec. notes 8 3/8s,       
2019 (United Kingdom)    1,380,000  1,466,250 
INEOS Group Holdings, Ltd. company guaranty sr. unsec. notes       
Ser. REGS, 7 7/8s, 2016 (United Kingdom)  EUR  2,250,000  2,629,440 
JM Huber Corp. 144A sr. unsec. notes 9 7/8s, 2019    $2,950,000  3,112,250 
Lyondell Chemical Co. company guaranty notes 11s, 2018    4,744,564  5,201,227 
LyondellBasell Industries NV 144A company guaranty sr. notes       
6s, 2021 (Netherlands)    4,540,000  4,982,650 
Momentive Performance Materials, Inc. company guaranty notes       
9 1/2s, 2021  EUR  785,000  873,801 
Momentive Performance Materials, Inc. notes 9s, 2021    $3,668,000  3,383,730 
Norbord, Inc. sr. unsub. plants equip. 7 1/4s, 2012 (Canada)    510,000  515,100 
Novelis, Inc. company guaranty sr. unsec. notes 8 3/4s, 2020    2,795,000  3,116,425 
Novelis, Inc. company guaranty sr. unsec. notes 7 1/4s, 2015    2,589,000  2,621,363 
Old All, Inc. company guaranty sr. unsec. notes 9s, 2014       
(In default) † F    4,534,000  5 
PE Paper Escrow GmbH sr. notes Ser. REGS, 11 3/4s, 2014       
(Austria)  EUR  875,000  1,263,674 
Pregis Corp. company guaranty FRN 6.245s, 2013  EUR  30,250  39,159 
Pregis Corp. company guaranty notes FRN 6.245s, 2013  EUR  46,750  60,519 
Pregis Corp. company guaranty sr. sub. notes 12 3/8s, 2013    $1,144,000  1,112,540 
Rhodia SA 144A sr. notes 6 7/8s, 2020 (France)    1,050,000  1,160,250 
Smurfit Kappa Acquisition company guaranty sr. bonds 7 1/4s,       
2017 (Ireland)  EUR  200,000  283,156 
Smurfit Kappa Funding PLC sr. unsec. sub. notes 7 3/4s,       
2015 (Ireland)    $1,918,000  1,932,385 
Smurfit Kappa Treasury company guaranty sr. unsec. unsub.       
debs 7 1/2s, 2025 (Ireland)    841,000  817,873 
Solo Cup Co./Solo Cup Operating Corp. company guaranty       
sr. notes 10 1/2s, 2013    644,000  651,245 

 

18


CORPORATE BONDS AND NOTES (85.7%)* cont.  Principal amount  Value 
 
Basic materials cont.     
Solutia, Inc. company guaranty sr. unsec. notes 8 3/4s, 2017  $2,672,000  $3,026,040 
Solutia, Inc. company guaranty sr. unsec. notes 7 7/8s, 2020  2,500,000  2,931,250 
Steel Dynamics, Inc. company guaranty sr. unsec. unsub. notes     
6 3/4s, 2015  2,682,000  2,728,934 
Taminco Global Chemical Corp. 144A sr. notes 9 3/4s, 2020  1,520,000  1,588,400 
Thompson Creek Metals Co., Inc. company guaranty sr. unsec.     
notes 7 3/8s, 2018 (Canada)  185,000  177,138 
TPC Group, LLC company guaranty sr. notes 8 1/4s, 2017  2,384,000  2,515,120 
Tube City IMS Corp. company guaranty sr. unsec. sub. notes     
9 3/4s, 2015  2,670,000  2,740,088 
Verso Paper Holdings, LLC/Verso Paper, Inc. company guaranty     
sr. notes 8 3/4s, 2019  1,630,000  806,850 
Verso Paper Holdings, LLC/Verso Paper, Inc. sr. notes     
11 1/2s, 2014  2,000,000  2,040,000 
Weyerhaeuser Co. sr. unsec. unsub. debs. 7 3/8s, 2032 R  970,000  1,054,890 
    96,942,831 
Broadcasting (2.2%)     
Clear Channel Communications, Inc. company guaranty sr. notes     
9s, 2021  1,391,000  1,279,720 
Clear Channel Communications, Inc. company guaranty unsec.     
unsub. notes 10 3/4s, 2016  557,000  453,955 
Clear Channel Communications, Inc. sr. unsec. notes 5 1/2s, 2014  1,250,000  1,120,312 
Clear Channel Worldwide Holdings, Inc. company guaranty     
sr. unsec. unsub. notes Ser. B, 9 1/4s, 2017  3,645,000  4,009,500 
Clear Channel Worldwide Holdings, Inc. 144A company guaranty     
sr. sub. notes 7 5/8s, 2020 Δ  1,525,000  1,527,225 
Cumulus Media, Inc. 144A sr. notes 7 3/4s, 2019  2,945,000  2,878,737 
DISH DBS Corp. company guaranty 7 1/8s, 2016  267,000  295,035 
DISH DBS Corp. company guaranty sr. unsec. notes 7 7/8s, 2019  2,050,000  2,408,750 
DISH DBS Corp. company guaranty sr. unsec. notes 6 3/4s, 2021  4,215,000  4,678,650 
Entercom Radio, LLC company guaranty sr. unsec. sub. notes     
10 1/2s, 2019  2,520,000  2,690,100 
Gray Television, Inc. company guaranty sr. notes 10 1/2s, 2015  2,960,000  3,126,500 
Nexstar Broadcasting, Inc./Mission Broadcasting, Inc.     
company guaranty sr. notes 8 7/8s, 2017  2,330,000  2,493,100 
Univision Communications, Inc. 144A company guaranty     
sr. unsec. notes 8 1/2s, 2021  1,917,000  1,902,623 
Univision Communications, Inc. 144A sr. notes 7 7/8s, 2020  45,000  47,925 
XM Satellite Radio, Inc. 144A company guaranty sr. unsec. notes     
13s, 2013  940,000  1,070,424 
XM Satellite Radio, Inc. 144A sr. unsec. notes 7 5/8s, 2018  3,100,000  3,394,500 
    33,377,056 
Building materials (1.8%)     
Building Materials Corp. 144A company guaranty sr. notes     
7 1/2s, 2020  2,170,000  2,349,025 
Building Materials Corp. 144A sr. notes 7s, 2020  1,385,000  1,502,724 
Building Materials Corp. 144A sr. notes 6 7/8s, 2018  1,025,000  1,101,875 
Building Materials Corp. 144A sr. notes 6 3/4s, 2021  955,000  1,038,563 
Jeld-Wen Escrow Corp. 144A sr. notes 12 1/4s, 2017  3,510,000  3,913,650 

 

19


CORPORATE BONDS AND NOTES (85.7%)* cont.  Principal amount  Value 
  
Building materials cont.       
Masonite International Corp., 144A company guaranty sr. notes       
8 1/4s, 2021 (Canada)    $3,715,000  $3,984,338 
Nortek, Inc. company guaranty sr. unsec notes 10s, 2018    2,141,000  2,253,403 
Nortek, Inc. company guaranty sr. unsec. notes 8 1/2s, 2021    1,010,000  977,175 
Owens Corning company guaranty sr. unsec. notes 9s, 2019    5,025,000  6,130,500 
Roofing Supply Group, LLC/Roofing Supply Finance, Inc. 144A       
sr. notes 8 5/8s, 2017    3,152,000  3,408,100 
      26,659,353 
Cable television (2.7%)       
Adelphia Communications Corp. escrow bonds zero %, 2012    4,000  25 
Adelphia Communications Corp. escrow bonds zero %, 2012    4,000  25 
Adelphia Communications Corp. escrow bonds zero %, 2012    2,906,000  18,017 
Adelphia Communications Corp. escrow bonds zero %, 2012    81,000  502 
Adelphia Communications Corp. escrow bonds zero %, 2012    2,223,000  13,783 
Atlantic Broadband Finance, LLC company guaranty 9 3/8s, 2014    1,600,000  1,608,000 
Bresnan Broadband Holdings, LLC 144A company guaranty       
sr. unsec. unsub. notes 8s, 2018    1,805,000  1,899,763 
Cablevision Systems Corp. sr. unsec. unsub. notes 8 5/8s, 2017    4,050,000  4,566,374 
Cablevision Systems Corp. sr. unsec. unsub. notes 8s, 2020    755,000  847,488 
CCO Holdings, LLC/CCO Holdings Capital Corp. company       
guaranty sr. unsec. notes 7 7/8s, 2018    3,035,000  3,315,737 
CCO Holdings, LLC/CCO Holdings Capital Corp. company       
guaranty sr. unsec. notes 6 1/2s, 2021    1,380,000  1,462,800 
CCO Holdings, LLC/CCO Holdings Capital Corp. company       
guaranty sr. unsec. unsub. notes 7 3/8s, 2020    1,885,000  2,064,075 
CCO Holdings, LLC/CCO Holdings Capital Corp. company       
guaranty sr. unsec. unsub. notes 6 5/8s, 2022    1,770,000  1,889,475 
CCO Holdings, LLC/CCO Holdings Capital Corp. company       
guaranty sr. unsub. notes 7s, 2019    1,571,000  1,692,753 
Cequel Communications Holdings I, LLC/Cequel Capital Corp.       
144A sr. notes 8 5/8s, 2017    4,975,000  5,335,688 
CSC Holdings, LLC 144A sr. unsec. unsub. notes 6 3/4s, 2021    1,540,000  1,667,050 
Kabel BW Erste Beteiligungs GmbH/Kabel Baden-Wurttemberg       
GmbH & Co. KG 144A company guaranty sr. notes 7 1/2s, 2019       
(Germany)    1,275,000  1,367,438 
Mediacom Broadband, LLC/Mediacom Broadband Corp.       
sr. unsec. unsub. notes 8 1/2s, 2015    290,000  299,425 
Mediacom, LLC/Mediacom Capital Corp. sr. unsec. notes       
9 1/8s, 2019    1,275,000  1,392,938 
Mediacom, LLC/Mediacom Capital Corp. 144A sr. unsec. notes       
7 1/4s, 2022    1,360,000  1,377,000 
Quebecor Media, Inc. 144A sr. unsec. notes 7 3/8s, 2021       
(Canada)  CAD  1,680,000  1,713,432 
Videotron Ltee sr. notes 6 7/8s, 2021 (Canada)  CAD  1,580,000  1,650,517 
Videotron Ltee 144A sr. unsec. notes 5s, 2022 (Canada)    $3,335,000  3,335,000 
Virgin Media Finance PLC company guaranty sr. notes Ser. 1,       
9 1/2s, 2016 (United Kingdom)    1,015,000  1,157,100 
Virgin Media Finance PLC company guaranty sr. unsec. unsub.       
notes 5 1/4s, 2022 (United Kingdom)    1,000,000  1,017,267 
      39,691,672 

 

20


CORPORATE BONDS AND NOTES (85.7%)* cont.  Principal amount  Value 
 
Capital goods (5.6%)       
Altra Holdings, Inc. company guaranty sr. notes 8 1/8s, 2016    $3,835,000  $4,151,387 
American Axle & Manufacturing, Inc. company guaranty       
sr. unsec. notes 7 3/4s, 2019    3,310,000  3,525,150 
American Axle & Manufacturing, Inc. company guaranty       
sr. unsec. notes 5 1/4s, 2014    1,324,000  1,350,480 
American Axle & Manufacturing, Inc. 144A company guaranty       
sr. notes 9 1/4s, 2017    856,000  958,720 
Ardagh Packaging Finance PLC sr. notes Ser. REGS, 7 3/8s,       
2017 (Ireland)  EUR  2,005,000  2,805,757 
Ardagh Packaging Finance PLC 144A company guaranty       
sr. notes 7 3/8s, 2017 (Ireland)  EUR  790,000  1,105,511 
Ardagh Packaging Finance PLC 144A company guaranty       
sr. notes 7 3/8s, 2017 (Ireland)    $310,000  333,250 
Ball Corp. company guaranty sr. unsec. notes 5s, 2022    765,000  782,213 
Berry Plastics Corp. company guaranty notes FRN 4.421s, 2014    1,210,000  1,158,575 
Berry Plastics Corp. company guaranty sr. notes 9 1/2s, 2018    1,695,000  1,809,412 
Berry Plastics Corp. company guaranty unsub. notes 9 3/4s, 2021    1,856,000  1,985,920 
Berry Plastics Holding Corp. company guaranty sr. unsec. sub.       
notes 10 1/4s, 2016    960,000  993,600 
Bombardier, Inc. 144A sr. unsec. notes 7 3/4s, 2020 (Canada)    1,945,000  2,256,200 
Briggs & Stratton Corp. company guaranty sr. unsec. notes       
6 7/8s, 2020    2,810,000  2,971,575 
Crown Euro Holdings SA 144A sr. notes 7 1/8s, 2018 (France)  EUR  610,000  870,843 
Exide Technologies sr. notes 8 5/8s, 2018    $3,205,000  2,491,888 
Kratos Defense & Security Solutions, Inc. company guaranty       
sr. notes 10s, 2017    4,675,000  5,037,313 
Legrand SA unsec. unsub. debs. 8 1/2s, 2025 (France)    6,886,000  8,228,235 
Meritor, Inc. company guaranty sr. unsec. notes 8 1/8s, 2015    770,000  789,250 
Pittsburgh Glass Works, LLC 144A sr. notes 8 1/2s, 2016    4,326,000  4,380,074 
Polypore International, Inc. company guaranty sr. unsec. notes       
7 1/2s, 2017    2,495,000  2,613,513 
Reynolds Group Issuer, Inc./Reynolds Issuer, LLC       
144A company guaranty sr. notes 7 3/4s, 2016    1,330,000  1,416,450 
Reynolds Group Issuer, Inc. 144A company guaranty sr. notes       
7 1/8s, 2019    1,585,000  1,676,138 
Reynolds Group Issuer, Inc. 144A company guaranty sr. unsec.       
notes 9s, 2019    195,000  195,000 
Reynolds Group Issuer, Inc. 144A sr. unsec. notes 9 7/8s, 2019    875,000  904,531 
Reynolds Group Issuer, Inc. 144A sr. unsec. notes 8 1/4s, 2021       
(New Zealand)    785,000  749,675 
Reynolds Group Issuer, Inc./Reynolds Group Issuer, LLC/       
Reynolds Group Issuer Lu 144A sr. notes 7 7/8s, 2019    1,235,000  1,349,238 
Reynolds Group Issuer, Inc./Reynolds Group Issuer, LLC/       
Reynolds Group Issuer Lu 144A sr. unsec. notes 9 7/8s, 2019    1,245,000  1,285,463 
Ryerson Holding Corp. sr. disc. notes zero %, 2015    1,060,000  439,900 
Ryerson, Inc. company guaranty sr. notes 12s, 2015    4,913,000  5,060,390 
Tenneco, Inc. company guaranty sr. unsec. unsub. notes       
7 3/4s, 2018    1,040,000  1,131,000 
Tenneco, Inc. company guaranty sr. unsub. notes 6 7/8s, 2020    3,105,000  3,330,113 

 

21


CORPORATE BONDS AND NOTES (85.7%)* cont.  Principal amount  Value 
 
Capital goods cont.       
Terex Corp. company guaranty sr. unsec. notes 10 7/8s, 2016    $935,000  $1,062,394 
Terex Corp. sr. unsec. sub. notes 8s, 2017    4,305,000  4,509,487 
Thermadyne Holdings Corp. company guaranty sr. notes 9s, 2017    3,915,000  4,091,175 
Thermon Industries, Inc. company guaranty sr. notes 9 1/2s, 2017    2,046,000  2,250,600 
TransDigm, Inc. company guaranty unsec. sub. notes 7 3/4s, 2018    3,135,000  3,448,500 
      83,498,920 
Coal (2.0%)       
Alpha Natural Resources, Inc. company guaranty sr. unsec. notes       
6 1/4s, 2021    1,865,000  1,809,050 
Alpha Natural Resources, Inc. company guaranty sr. unsec. notes       
6s, 2019    2,000,000  1,960,000 
Arch Coal, Inc. company guaranty sr. unsec. notes 7 1/4s, 2020    2,295,000  2,289,262 
Arch Coal, Inc. 144A company guaranty sr. unsec. notes 7s, 2019    2,480,000  2,480,000 
Arch Western Finance, LLC company guaranty sr. notes       
6 3/4s, 2013    1,191,000  1,196,955 
CONSOL Energy, Inc. company guaranty sr. unsec. notes       
8 1/4s, 2020    4,745,000  5,172,050 
CONSOL Energy, Inc. company guaranty sr. unsec. notes       
8s, 2017    3,785,000  4,116,187 
CONSOL Energy, Inc. 144A company guaranty sr. unsec. notes       
6 3/8s, 2021    405,000  408,038 
James River Coal Co. company guaranty sr. unsec. unsub. notes       
7 7/8s, 2019    990,000  668,250 
Peabody Energy Corp. company guaranty 7 3/8s, 2016    4,188,000  4,732,440 
Peabody Energy Corp. company guaranty sr. unsec. unsub. notes       
6 1/2s, 2020    262,000  283,288 
Peabody Energy Corp. 144A sr. unsec. notes 6s, 2018    3,965,000  4,153,337 
      29,268,857 
Commercial and consumer services (1.7%)       
ARAMARK Holdings Corp. 144A sr. unsec. notes 8 5/8s, 2016 ‡‡    1,086,000  1,113,150 
Brickman Group Holdings, Inc. 144A sr. notes 9 1/8s, 2018    483,000  458,850 
Compucom Systems, Inc. 144A sr. sub. notes 12 1/2s, 2015    1,462,000  1,513,170 
Interactive Data Corp. company guaranty sr. unsec. notes       
10 1/4s, 2018    5,670,000  6,392,924 
Lender Processing Services, Inc. company guaranty sr. unsec.       
unsub. notes 8 1/8s, 2016    3,282,000  3,421,485 
PHH Corp. sr. unsec. unsub. notes 9 1/4s, 2016    2,310,000  2,321,550 
Rural/Metro Corp. 144A sr. unsec. notes 10 1/8s, 2019    3,035,000  2,799,787 
Rural/Metro Corp. 144A sr. unsec. notes 10 1/8s, 2019    980,000  872,200 
Sabre Holdings Corp. sr. unsec. unsub. notes 8.35s, 2016    4,125,000  3,753,750 
Travelport, LLC company guaranty sr. unsec. sub. notes       
11 7/8s, 2016    1,404,000  445,770 
Travelport, LLC company guaranty sr. unsec. unsub. notes       
9 7/8s, 2014    849,000  486,053 
Travelport, LLC/Travelport, Inc. company guaranty sr. unsec.       
notes 9s, 2016    3,380,000  1,791,400 
      25,370,089 
Consumer (0.7%)       
Jarden Corp. company guaranty sr. unsec. notes 8s, 2016    1,120,000  1,225,000 
Jarden Corp. company guaranty sr. unsec. sub. notes Ser. 1,       
7 1/2s, 2020  EUR  410,000  551,306 

 

22


CORPORATE BONDS AND NOTES (85.7%)* cont.  Principal amount  Value 
 
Consumer cont.       
Scotts Miracle-Gro Co. (The) 144A sr. notes 6 5/8s, 2020    $2,125,000  $2,241,874 
Yankee Candle Co. company guaranty sr. notes Ser. B,       
8 1/2s, 2015    4,352,000  4,455,403 
YCC Holdings, LLC/Yankee Finance, Inc. sr. unsec. notes       
10 1/4s, 2016 ‡‡    2,175,000  2,107,031 
      10,580,614 
Consumer staples (6.9%)       
ACCO Brands Corp. company guaranty sr. notes 10 5/8s, 2015    1,755,000  1,937,099 
Avis Budget Car Rental, LLC company guaranty sr. unsec. unsub.       
notes 9 3/4s, 2020    730,000  795,700 
Avis Budget Car Rental, LLC company guaranty sr. unsec. unsub.       
notes 9 5/8s, 2018    1,025,000  1,117,250 
Avis Budget Car Rental, LLC company guaranty sr. unsec. unsub.       
notes 7 3/4s, 2016    2,987,000  3,084,077 
Burger King Corp. company guaranty sr. unsec. notes 9 7/8s, 2018    1,830,000  2,067,900 
CKE Holdings, Inc. 144A sr. notes 10 1/2s, 2016 ‡‡    1,526,732  1,587,801 
Claire’s Escrow II Corp. 144A sr. notes 9s, 2019    2,300,000  2,369,000 
Claire’s Stores, Inc. company guaranty sr. notes 8 7/8s, 2019    1,500,000  1,308,750 
Constellation Brands, Inc. company guaranty sr. unsec. unsub.       
notes 7 1/4s, 2016    3,323,000  3,754,990 
Corrections Corporation of America company guaranty sr. notes       
7 3/4s, 2017    3,640,000  3,967,600 
Dave & Buster’s, Inc. company guaranty sr. unsec. unsub. notes       
11s, 2018    3,162,000  3,367,530 
Dean Foods Co. company guaranty sr. unsec. unsub. notes       
9 3/4s, 2018    640,000  707,200 
Dean Foods Co. company guaranty sr. unsec. unsub. notes       
7s, 2016    2,215,000  2,275,912 
Del Monte Corp. company guaranty sr. unsec. notes 7 5/8s, 2019    2,420,000  2,420,000 
DineEquity, Inc. company guaranty sr. unsec. notes 9 1/2s, 2018    3,685,000  4,062,712 
Dole Food Co. sr. notes 13 7/8s, 2014    672,000  769,440 
Dole Food Co. 144A sr. notes 8s, 2016    765,000  810,900 
Elizabeth Arden, Inc. sr. unsec. unsub. notes 7 3/8s, 2021    2,455,000  2,645,262 
Hertz Corp. company guaranty sr. unsec. notes 8 7/8s, 2014    122,000  122,001 
Hertz Corp. company guaranty sr. unsec. notes 7 1/2s, 2018    920,000  992,450 
Hertz Holdings Netherlands BV 144A sr. bonds 8 1/2s, 2015       
(Netherlands)  EUR  2,395,000  3,441,913 
JBS USA, LLC/JBS USA Finance, Inc. company guaranty       
sr. unsec. notes 11 5/8s, 2014    $1,050,000  1,216,688 
JBS USA, LLC/JBS USA Finance, Inc. 144A sr. unsec. notes       
8 1/4s, 2020    1,080,000  1,115,100 
JBS USA, LLC/JBS USA Finance, Inc. 144A sr. unsec. notes       
7 1/4s, 2021    5,245,000  5,113,874 
Landry’s Acquisition Co. 144A company guaranty notes       
11 5/8s, 2015    665,000  713,213 
Landry’s Restaurant, Inc. company guaranty sr. notes 11 5/8s, 2015    2,326,000  2,541,155 
Libbey Glass, Inc. sr. notes 10s, 2015    1,417,000  1,521,504 
Michael Foods, Inc. company guaranty sr. unsec notes       
9 3/4s, 2018    1,200,000  1,314,000 

 

23


CORPORATE BONDS AND NOTES (85.7%)* cont.  Principal amount  Value 
 
Consumer staples cont.     
Pinnacle Foods Finance, LLC/Pinnacle Foods Finance Corp.     
company guaranty sr. unsec. notes 9 1/4s, 2015  $2,495,000  $2,563,612 
Post Holdings, Inc. 144A sr. unsec. notes 7 3/8s, 2022  970,000  1,033,050 
Prestige Brands, Inc. company guaranty sr. unsec. notes     
8 1/4s, 2018  3,290,000  3,590,212 
Revlon Consumer Products Corp. company guaranty notes     
9 3/4s, 2015  1,770,000  1,913,813 
Rite Aid Corp. company guaranty sr. notes 10 1/4s, 2019  880,000  1,002,100 
Rite Aid Corp. company guaranty sr. notes 7 1/2s, 2017  1,951,000  1,999,775 
Rite Aid Corp. company guaranty sr. unsec. unsub. notes     
9 1/2s, 2017  4,467,000  4,534,004 
Rite Aid Corp. company guaranty sr. unsub. notes 8s, 2020  740,000  843,600 
Rite Aid Corp. 144A sr. notes 9 1/4s, 2020  2,300,000  2,328,750 
Service Corporation International sr. notes 7s, 2019  1,100,000  1,215,500 
Smithfield Foods, Inc. company guaranty sr. notes 10s, 2014  1,660,000  1,946,350 
Spectrum Brands Holdings, Inc. company guaranty sr. notes     
9 1/2s, 2018  1,482,000  1,689,480 
Spectrum Brands Holdings, Inc. company guaranty sr. unsec. sub.     
bonds 12s, 2019  2,824,432  3,103,344 
Spectrum Brands Holdings, Inc. 144A company guaranty sr. notes     
9 1/2s, 2018  1,110,000  1,265,400 
Stewart Enterprises, Inc. company guaranty sr. unsec. notes     
6 1/2s, 2019  2,025,000  2,126,250 
Tyson Foods, Inc. sr. unsec. unsub. notes 10 1/2s, 2014  2,508,000  2,921,820 
United Rentals North America, Inc. company guaranty sr. unsec.     
unsub. notes 9 1/4s, 2019  2,985,000  3,298,425 
Wendy’s Co. (The) company guaranty sr. unsec. unsub. notes     
10s, 2016  4,485,000  4,939,150 
West Corp. company guaranty sr. unsec. notes 8 5/8s, 2018  1,433,000  1,572,718 
West Corp. company guaranty sr. unsec. notes 7 7/8s, 2019  1,959,000  2,118,169 
    103,146,543 
Energy (oil field) (1.3%)     
Complete Production Services, Inc. company guaranty 8s, 2016  1,055,000  1,098,044 
FTS International Services, LLC/FTS International Bonds, Inc.     
144A company guaranty sr. notes 7 5/8s, 2018  2,520,000  2,690,100 
Helix Energy Solutions Group, Inc. 144A sr. unsec. notes     
9 1/2s, 2016  6,787,000  7,126,350 
Key Energy Services, Inc. company guaranty unsec. unsub. notes     
6 3/4s, 2021  2,578,000  2,700,455 
Offshore Group Investments, Ltd. company guaranty sr. notes     
11 1/2s, 2015 (Cayman Islands)  4,050,000  4,515,750 
Trinidad Drilling, Ltd. 144A sr. unsec. notes 7 7/8s, 2019 (Canada)  505,000  540,350 
    18,671,049 
Entertainment (0.7%)     
AMC Entertainment, Inc. company guaranty sr. sub. notes     
9 3/4s, 2020  4,205,000  3,931,674 
Cedar Fair LP/Canada’s Wonderland Co./Magnum     
Management Corp. company guaranty sr. unsec. notes     
9 1/8s, 2018  420,000  469,350 
Cinemark USA, Inc. company guaranty sr. unsec. notes     
8 5/8s, 2019  1,125,000  1,251,563 

 

24


CORPORATE BONDS AND NOTES (85.7%)* cont.  Principal amount  Value 
 
Entertainment cont.     
Cinemark USA, Inc. company guaranty sr. unsec. sub. notes     
7 3/8s, 2021  $565,000  $603,138 
Regal Entertainment Group company guaranty sr. unsec. notes     
9 1/8s, 2018  3,760,000  4,117,200 
    10,372,925 
Financials (7.5%)     
ABN AMRO North American Holding Preferred Capital Repackage     
Trust I 144A jr. unsec. sub. bonds FRB 6.523s, perpetual maturity  4,445,000  3,544,887 
ACE Cash Express, Inc. 144A sr. notes 11s, 2019  1,720,000  1,591,000 
Ally Financial, Inc. company guaranty sr. notes 6 1/4s, 2017  2,065,000  2,134,421 
Ally Financial, Inc. company guaranty sr. unsec. unsub. notes     
8.3s, 2015  2,280,000  2,519,400 
Ally Financial, Inc. company guaranty sr. unsec. unsub. notes     
8s, 2020  1,270,000  1,438,275 
Ally Financial, Inc. company guaranty sr. unsec. unsub. notes     
7 1/2s, 2020  1,350,000  1,486,688 
Ally Financial, Inc. company guaranty sr. unsec. unsub. notes     
5 1/2s, 2017  960,000  969,600 
Ally Financial, Inc. unsec. sub. notes 8s, 2018  1,542,000  1,657,650 
American International Group, Inc. jr. sub. bonds FRB     
8.175s, 2058  3,302,000  3,495,992 
BankAmerica Capital II bank guaranty jr. unsec. sub. notes     
8s, 2026  695,000  697,606 
Capital One Capital IV company guaranty jr. unsec. sub. notes     
FRN 6.745s, 2037  2,338,000  2,367,225 
CB Richard Ellis Services, Inc. company guaranty sr. unsec. notes     
6 5/8s, 2020  1,732,000  1,840,250 
CB Richard Ellis Services, Inc. company guaranty sr. unsec. sub.     
notes 11 5/8s, 2017  1,392,000  1,607,760 
CIT Group, Inc. sr. bonds 7s, 2017  311  311 
CIT Group, Inc. sr. bonds 7s, 2016  42  42 
CIT Group, Inc. 144A bonds 7s, 2017  9,544,000  9,555,929 
CIT Group, Inc. 144A bonds 7s, 2016  1,295,000  1,296,619 
CIT Group, Inc. 144A company guaranty notes 6 5/8s, 2018  2,185,000  2,354,338 
CIT Group, Inc. 144A company guaranty notes 5 1/2s, 2019  2,300,000  2,348,875 
CNO Financial Group, Inc. 144A company     
guaranty sr. notes 9s, 2018  2,180,000  2,346,225 
Community Choice Financial, Inc. 144A sr. notes 10 3/4s, 2019  2,950,000  2,861,500 
Dresdner Funding Trust I 144A bonds 8.151s, 2031  3,365,000  2,792,950 
E*Trade Financial Corp. sr. notes 6 3/4s, 2016  1,750,000  1,780,625 
E*Trade Financial Corp. sr. unsec. unsub. notes 12 1/2s, 2017  1,844,000  2,148,260 
HBOS Capital Funding LP 144A bank guaranty jr. unsec. sub.     
FRB 6.071s, perpetual maturity (Jersey)  3,560,000  2,527,600 
HBOS PLC 144A sr. unsec. sub. notes 6 3/4s, 2018     
(United Kingdom)  2,805,000  2,520,180 
HBOS PLC 144A unsec. sub. bonds 6s, 2033 (United Kingdom)  1,050,000  772,951 
HUB International Holdings, Inc. 144A sr. sub. notes 10 1/4s, 2015  1,156,000  1,184,900 
Icahn Enterprises LP/Icahn Enterprises Finance Corp.     
company guaranty sr. unsec. notes 8s, 2018  5,295,000  5,612,700 
Leucadia National Corp. sr. unsec. notes 8 1/8s, 2015  925,000  1,029,063 

 

25


CORPORATE BONDS AND NOTES (85.7%)* cont.  Principal amount  Value 
 
Financials cont.     
Leucadia National Corp. sr. unsec. notes 7 1/8s, 2017  $1,124,000  $1,164,745 
Liberty Mutual Group, Inc. 144A company guaranty jr. unsec.     
sub. bonds 7.8s, 2037  1,565,000  1,525,875 
Liberty Mutual Group, Inc. 144A company guaranty jr. unsec.     
sub. notes FRN 7s, 2037  550,000  481,250 
MPT Operating Partnership LP/MPT Finance Corp. company     
guaranty sr. unsec. unsub. notes 6 3/8s, 2022 R  1,530,000  1,579,725 
National Money Mart Co. company guaranty sr. unsec. unsub.     
notes 10 3/8s, 2016 (Canada)  2,270,000  2,516,863 
NB Capital Trust IV jr. unsec. sub. notes 8 1/4s, 2027  680,000  687,650 
Nuveen Investments, Inc. company guaranty sr. unsec. unsub.     
notes 10 1/2s, 2015  1,522,000  1,590,490 
Omega Healthcare Investors, Inc. company guaranty sr. unsec.     
notes 6 3/4s, 2022 R  1,645,000  1,778,656 
Provident Funding Associates LP/PFG Finance Corp. 144A     
sr. notes 10 1/4s, 2017  2,820,000  2,749,500 
Provident Funding Associates LP/PFG Finance Corp. 144A     
sr. notes 10 1/8s, 2019  1,385,000  1,056,063 
Regions Bank unsec. sub. notes 7 1/2s, 2018  1,850,000  2,016,500 
Regions Financing Trust II company guaranty jr. unsec. sub. bonds     
FRB 6 5/8s, 2047  2,447,000  2,226,770 
Residential Capital LLC company guaranty jr. notes 9 5/8s, 2015  5,015,000  4,225,138 
Royal Bank of Scotland Group PLC jr. unsec. sub. bonds FRB     
7.648s, perpetual maturity (United Kingdom)  6,180,000  5,098,500 
SLM Corp. sr. notes Ser. MTN, 8s, 2020  1,060,000  1,166,000 
SLM Corp. sr. unsec. unsub. notes Ser. MTN, 8.45s, 2018  6,505,000  7,285,600 
Springleaf Finance Corp. sr. unsec. notes Ser. MTN, 6.9s, 2017  7,615,000  5,901,625 
USI Holdings Corp. 144A company guaranty sr. unsec. notes     
FRN 4.378s, 2014  756,000  701,190 
Ventas Realty LP/Capital Corp. company guaranty 9s, 2012 R  2,276,000  2,296,630 
    112,532,592 
Gaming and lottery (3.2%)     
American Casino & Entertainment Properties LLC sr. notes     
11s, 2014  3,427,000  3,624,053 
Caesars Entertainment Operating Co., Inc. company guaranty     
sr. notes 10s, 2018  6,016,000  4,647,360 
Caesars Entertainment Operating Co., Inc. company guaranty     
sr. notes 10s, 2015  710,000  646,100 
Caesars Entertainment Operating Co., Inc. sr. notes 11 1/4s, 2017  7,250,000  7,938,750 
Caesars Operating Escrow LLC/Caesars Escrow Corp. 144A     
sr. sub. notes 8 1/2s, 2020  2,135,000  2,177,700 
Isle of Capri Casinos, Inc. company guaranty 7s, 2014  4,445,000  4,428,331 
Isle of Capri Casinos, Inc. company guaranty sr. unsec. unsub.     
notes 7 3/4s, 2019  2,050,000  2,044,875 
Mashantucket Western Pequot Tribe 144A bonds Ser. A, 8 1/2s,     
2015 (In default) †  4,615,000  230,750 
MTR Gaming Group, Inc. 144A notes 11 1/2s, 2019 ‡‡  6,638,025  6,355,909 
Penn National Gaming, Inc. sr. unsec. sub. notes 8 3/4s, 2019  675,000  757,688 
Pinnacle Entertainment, Inc. company guaranty sr. unsec. notes     
8 5/8s, 2017  1,475,000  1,604,063 

 

26


CORPORATE BONDS AND NOTES (85.7%)* cont.  Principal amount  Value 
 
Gaming and lottery cont.       
Pinnacle Entertainment, Inc. company guaranty sr. unsec. sub.       
notes 7 1/2s, 2015    $2,225,000  $2,291,750 
ROC Finance, LLC/ROC Finance 1 Corp. 144A notes       
12 1/8s, 2018    3,021,000  3,338,205 
Wynn Las Vegas, LLC/Wynn Las Vegas Capital Corp. company       
guaranty 1st mtge. notes 7 3/4s, 2020    1,485,000  1,674,338 
Yonkers Racing Corp. 144A sr. notes 11 3/8s, 2016    4,877,000  5,285,449 
      47,045,321 
Health care (6.2%)       
Aviv Healthcare Properties LP company guaranty sr. unsec. notes       
7 3/4s, 2019    2,083,000  2,129,868 
Biomet, Inc. company guaranty sr. unsec. notes 10s, 2017    1,789,000  1,943,301 
Biomet, Inc. company guaranty sr. unsec. sub. notes       
11 5/8s, 2017    1,500,000  1,636,875 
Capella Healthcare, Inc. company guaranty sr. unsec. notes       
9 1/4s, 2017    2,365,000  2,441,863 
Capsugel FinanceCo SCA 144A company guaranty sr. unsec.       
notes 9 7/8s, 2019  EUR  3,145,000  4,525,052 
ConvaTec Healthcare E SA 144A sr. notes 7 3/8s, 2017       
(Luxembourg)  EUR  1,000,000  1,376,812 
ConvaTec Healthcare E SA 144A sr. unsec. notes 10 1/2s, 2018       
(Luxembourg)    $5,475,000  5,646,094 
CRC Health Corp. company guaranty sr. unsec. notes       
10 3/4s, 2016    620,000  568,850 
DaVita, Inc. company guaranty sr. unsec. notes 6 5/8s, 2020    685,000  734,663 
DaVita, Inc. company guaranty sr. unsec. notes 6 3/8s, 2018    2,040,000  2,162,400 
Elan Finance PLC/Elan Finance Corp. company guaranty       
sr. unsec. notes 8 3/4s, 2016 (Ireland)    3,550,000  3,905,000 
Emergency Medical Services Corp. company guaranty sr. unsec.       
notes 8 1/8s, 2019    2,191,000  2,300,550 
Endo Pharmaceutical Holdings, Inc. company guaranty sr. unsec       
notes 7s, 2019    1,590,000  1,749,000 
Fresenius Medical Care US Finance II, Inc. 144A company       
guaranty sr. unsec. notes 5 5/8s, 2019    2,200,000  2,343,000 
Grifols, Inc. company guaranty sr. unsec notes 8 1/4s, 2018    2,809,000  3,047,765 
HCA, Inc. company guaranty sr. notes 8 1/2s, 2019    4,655,000  5,213,600 
HCA, Inc. sr. notes 6 1/2s, 2020    8,730,000  9,384,750 
HCA, Inc. sr. unsec. notes 7 1/2s, 2022    2,495,000  2,700,838 
Health Net, Inc. sr. unsec. bonds 6 3/8s, 2017    2,985,000  3,156,638 
IASIS Healthcare, LLC/IASIS Capital Corp. company guaranty       
sr. unsec notes 8 3/8s, 2019    4,070,000  3,886,850 
Jaguar Holding Co.II/ Jaguar Merger Sub, Inc. 144A sr. unsec.       
notes 9 1/2s, 2019    2,655,000  2,903,906 
Kinetics Concept/KCI USA 144A company guaranty notes       
10 1/2s, 2018    5,660,000  5,886,400 
Kinetics Concept/KCI USA 144A company guaranty sr. unsec.       
notes 12 1/2s, 2019    2,680,000  2,586,200 
Multiplan, Inc. 144A company guaranty sr. notes 9 7/8s, 2018    2,015,000  2,190,053 
Surgical Care Affiliates, Inc. 144A sr. sub. notes 10s, 2017    3,850,000  3,792,250 

 

27


CORPORATE BONDS AND NOTES (85.7%)* cont.  Principal amount  Value 
 
Health care cont.     
Surgical Care Affiliates, Inc. 144A sr. unsec. notes 8 7/8s, 2015 ‡‡  $762,852  $763,806 
Teleflex, Inc. company guaranty sr. unsec. sub. notes 6 7/8s, 2019  330,000  355,575 
Tenet Healthcare Corp. company guaranty sr. notes 10s, 2018  1,340,000  1,561,100 
Tenet Healthcare Corp. sr. notes 8 7/8s, 2019  1,950,000  2,223,000 
Tenet Healthcare Corp. 144A company guaranty notes     
6 1/4s, 2018  3,120,000  3,326,700 
United Surgical Partners International, Inc. company guaranty     
sr. unsec. sub. notes 8 7/8s, 2017  1,000,000  1,043,750 
Valeant Pharmaceuticals International 144A company guaranty     
sr. notes 7s, 2020  410,000  415,638 
Valeant Pharmaceuticals International 144A company guaranty     
sr. unsec. notes 6 7/8s, 2018  1,555,000  1,589,988 
Valeant Pharmaceuticals International 144A sr. notes 6 3/4s, 2017  3,545,000  3,633,625 
Vanguard Health Systems, Inc. sr. unsec. notes zero %, 2016  107,000  70,353 
    93,196,113 
Homebuilding (1.2%)     
Beazer Homes USA, Inc. company guaranty sr. unsec. notes     
6 7/8s, 2015  1,515,000  1,418,419 
Beazer Homes USA, Inc. company guaranty sr. unsec. unsub.     
notes 9 1/8s, 2018  1,390,000  1,195,400 
Beazer Homes USA, Inc. sr. unsec. notes 9 1/8s, 2019  898,000  765,545 
Beazer Homes USA, Inc. sr. unsec. notes company guaranty     
8 1/8s, 2016  355,000  332,369 
M/I Homes, Inc. company guaranty sr. unsec. notes 8 5/8s, 2018  4,455,000  4,299,075 
Pulte Group, Inc. company guaranty sr. unsec. notes 7 5/8s, 2017  3,270,000  3,466,200 
Pulte Group, Inc. company guaranty sr. unsec. unsub. notes     
7 7/8s, 2032  1,915,000  1,761,800 
Realogy Corp. company guaranty sr. unsec. notes 10 1/2s, 2014  215,000  209,088 
Realogy Corp. company guaranty sr. unsec. unsub. notes     
11 1/2s, 2017  4,210,000  3,852,150 
Realogy Corp. 144A company guaranty sr. notes 9s, 2020  585,000  587,925 
Realogy Corp. 144A company guaranty sr. notes 7 5/8s, 2020  625,000  645,313 
    18,533,284 
Household furniture and appliances (0.1%)     
Sealy Mattress Co. 144A company guaranty sr. sec. notes     
10 7/8s, 2016  857,000  934,216 
    934,216 
Lodging/Tourism (1.3%)     
CityCenter Holdings LLC/CityCenter Finance Corp. company     
guaranty 10 3/4s, 2017 ‡‡  3,845,581  4,158,034 
FelCor Lodging LP company guaranty sr. notes 10s, 2014 R  2,932,000  3,313,160 
FelCor Lodging LP company guaranty sr. notes 6 3/4s, 2019 R  3,800,000  3,885,500 
MGM Resorts International company guaranty sr. notes 9s, 2020  515,000  575,513 
MGM Resorts International company guaranty sr. unsec. notes     
6 7/8s, 2016  965,000  965,000 
MGM Resorts International company guaranty sr. unsec. notes     
6 5/8s, 2015  3,275,000  3,315,938 
MGM Resorts International sr. notes 10 3/8s, 2014  485,000  551,688 
MGM Resorts International sr. notes 6 3/4s, 2012  2,000  2,041 

 

28


CORPORATE BONDS AND NOTES (85.7%)* cont.  Principal amount  Value 
 
Lodging/Tourism cont.     
MGM Resorts International 144A company guaranty sr. unsec.     
notes 8 5/8s, 2019  $1,110,000  $1,182,150 
SugarHouse HSP Gaming Prop. Mezz LP/SugarHouse HSP     
Gaming Finance Corp. 144A notes 8 5/8s, 2016  1,070,000  1,110,125 
    19,059,149 
Media (0.2%)     
Affinion Group Holdings, Inc. company guaranty sr. unsec. notes     
11 5/8s, 2015  1,615,000  1,437,350 
Nielsen Finance, LLC/Nielsen Finance Co. company guaranty     
sr. unsec. notes 7 3/4s, 2018  2,050,000  2,280,625 
    3,717,975 
Oil and gas (9.4%)     
Anadarko Finance Co. company guaranty sr. unsec. unsub. notes     
Ser. B, 7 1/2s, 2031  3,550,000  4,572,258 
Anadarko Petroleum Corp. sr. unsec. notes 6.2s, 2040  1,140,000  1,370,092 
ATP Oil & Gas Corp. company guaranty sr. notes 11 7/8s, 2015  1,142,000  742,300 
Atwood Oceanics, Inc. sr. unsec. unsub. notes 6 1/2s, 2020  1,310,000  1,378,775 
Aurora USA Oil & Gas Inc. 144A sr. notes 9 7/8s, 2017  1,545,000  1,591,350 
BreitBurn Energy Partners LP/BreitBurn Finance Corp. 144A     
company guaranty sr. unsec. notes 7 7/8s, 2022  500,000  523,750 
Carrizo Oil & Gas, Inc. company guaranty sr. unsec. notes     
8 5/8s, 2018  5,790,000  6,021,600 
Chaparral Energy, Inc. company guaranty sr. unsec. notes     
9 7/8s, 2020  1,880,000  2,115,000 
Chaparral Energy, Inc. company guaranty sr. unsec. notes     
8 7/8s, 2017  5,333,000  5,559,653 
Chesapeake Energy Corp. company guaranty sr. unsec. notes     
9 1/2s, 2015  790,000  908,500 
Chesapeake Energy Corp. company guaranty sr. unsec. unsub.     
notes 6.775s, 2019  3,065,000  3,080,325 
Chesapeake Midstream Partners LP/CHKM Finance Corp. 144A     
company guaranty sr. unsec notes 6 1/8s, 2022  845,000  874,575 
Chesapeake Midstream Partners LP/CHKM Finance Corp. 144A     
company guaranty sr. unsec. notes 5 7/8s, 2021  1,047,000  1,067,940 
Chesapeake Oilfield Operating, LLC/Chesapeake Oilfield     
Finance, Inc. 144A company guaranty sr. unsec. unsub. notes     
6 5/8s, 2019  2,580,000  2,631,600 
Comstock Resources, Inc. company guaranty sr. unsub. notes     
8 3/8s, 2017  1,255,000  1,217,350 
Concho Resources, Inc. company guaranty sr. unsec. notes     
6 1/2s, 2022  2,800,000  3,097,500 
Connacher Oil and Gas, Ltd. 144A notes 8 1/2s, 2019 (Canada)  1,055,000  1,028,625 
Crosstex Energy LP/Crosstex Energy Finance Corp. company     
guaranty sr. unsec. notes 8 7/8s, 2018  5,440,000  5,902,400 
Denbury Resources, Inc. company guaranty sr. sub. notes     
9 3/4s, 2016  475,000  530,219 
Denbury Resources, Inc. company guaranty sr. unsec. sub. notes     
8 1/4s, 2020  2,062,000  2,345,525 
Denbury Resources, Inc. company guaranty sr. unsec. sub. notes     
6 3/8s, 2021  1,280,000  1,404,800 

 

29


CORPORATE BONDS AND NOTES (85.7%)* cont.  Principal amount  Value 
 
Oil and gas cont.     
EXCO Resources, Inc. company guaranty sr. unsec. notes     
7 1/2s, 2018  $5,480,000  $4,904,600 
Ferrellgas LP/Ferrellgas Finance Corp. sr. unsec. notes     
9 1/8s, 2017  1,010,000  1,070,600 
Ferrellgas LP/Ferrellgas Finance Corp. sr. unsec. notes     
6 1/2s, 2021  2,317,000  2,050,545 
Forbes Energy Services Ltd. company guaranty sr. unsec notes     
9s, 2019  1,865,000  1,837,025 
Goodrich Petroleum Corp. company guaranty sr. unsec. unsub.     
notes 8 7/8s, 2019 Δ  4,280,000  4,194,400 
Hercules Offshore, Inc. 144A sr. notes 10 1/2s, 2017  3,025,000  3,123,313 
Inergy LP/Inergy Finance Corp. company guaranty sr. unsec.     
notes 6 7/8s, 2021  2,334,000  2,252,310 
Kodiak Oil & Gas Corp. 144A sr. notes 8 1/8s, 2019  3,280,000  3,509,600 
Laredo Petroleum, Inc. company guaranty sr. unsec. unsub.     
notes 9 1/2s, 2019  3,829,000  4,221,473 
Lone Pine Resources Canada, Ltd. 144A company guaranty     
sr. notes 10 3/8s, 2017 (Canada)  1,226,000  1,281,170 
MEG Energy Corp. 144A company guaranty sr. unsec. notes     
6 1/2s, 2021 (Canada)  2,060,000  2,204,200 
Milagro Oil & Gas company guaranty notes 10 1/2s, 2016  2,825,000  2,175,250 
Newfield Exploration Co. sr. sub. notes 6 5/8s, 2016  1,162,000  1,193,955 
Newfield Exploration Co. sr. unsec. notes 5 3/4s, 2022  1,070,000  1,155,600 
Newfield Exploration Co. sr. unsec. sub. notes 7 1/8s, 2018  490,000  521,850 
Newfield Exploration Co. sr. unsec. sub. notes 6 5/8s, 2014  3,939,000  3,998,085 
PetroBakken Energy, Ltd. 144A sr. unsec. notes 8 5/8s, 2020     
(Canada)  4,335,000  4,605,938 
Petroleum Development Corp. company guaranty sr. unsec.     
notes 12s, 2018  3,875,000  4,223,750 
Plains Exploration & Production Co. company guaranty sr. unsec.     
notes 7 5/8s, 2018  400,000  430,000 
Plains Exploration & Production Co. company guaranty sr. unsec.     
notes 6 3/4s, 2022  3,945,000  4,319,775 
Quicksilver Resources, Inc. company guaranty sr. unsec. notes     
8 1/4s, 2015  1,223,000  1,244,403 
Quicksilver Resources, Inc. sr. notes 11 3/4s, 2016  1,630,000  1,735,950 
Range Resources Corp. company guaranty sr. sub. notes     
6 3/4s, 2020  1,080,000  1,182,600 
Range Resources Corp. company guaranty sr. unsec. sub. notes     
5s, 2022  1,070,000  1,080,700 
Rosetta Resources, Inc. company guaranty sr. unsec. notes     
9 1/2s, 2018  4,405,000  4,779,425 
Sabine Pass LNG LP sec. notes 7 1/2s, 2016  4,321,000  4,645,075 
Samson Investment Co. 144A sr. unsec. notes 9 3/4s, 2020  5,725,000  6,025,563 
SandRidge Energy, Inc. company guaranty sr. unsec. notes     
9 7/8s, 2016  925,000  1,008,250 
SandRidge Energy, Inc. company guaranty sr. unsec. unsub.     
notes 7 1/2s, 2021  615,000  621,150 
SandRidge Energy, Inc. 144A company guaranty sr. unsec. unsub.     
notes 8s, 2018  5,452,000  5,642,820 

 

30


CORPORATE BONDS AND NOTES (85.7%)* cont.  Principal amount  Value 
 
Oil and gas cont.     
SM Energy Co. sr. unsec. notes 6 5/8s, 2019  $1,255,000  $1,345,988 
SM Energy Co. 144A sr. unsec. notes 6 1/2s, 2021  1,105,000  1,193,400 
Unit Corp. company guaranty sr. sub. notes 6 5/8s, 2021  745,000  762,694 
Whiting Petroleum Corp. company guaranty 7s, 2014  2,107,000  2,254,490 
Williams Cos., Inc. (The) notes 7 3/4s, 2031  293,000  357,507 
Williams Cos., Inc. (The) sr. unsec. notes 7 7/8s, 2021  639,000  807,065 
WPX Energy, Inc. 144A sr. unsec. notes 6s, 2022  890,000  918,925 
WPX Energy, Inc. 144A sr. unsec. notes 5 1/4s, 2017  3,315,000  3,381,300 
    140,224,881 
Publishing (0.3%)     
American Media, Inc. 144A notes 13 1/2s, 2018  334,251  257,373 
Cengage Learning Acquisitions, Inc. 144A sr. notes 10 1/2s, 2015  405,000  346,275 
Cenveo Corp. company guaranty sr. notes 8 7/8s, 2018  2,850,000  2,764,500 
Cenveo Corp. 144A company guaranty sr. unsec. notes     
10 1/2s, 2016  849,000  832,020 
    4,200,168 
Regional Bells (1.0%)     
Cincinnati Bell, Inc. company guaranty sr. unsec. notes 7s, 2015  1,218,000  1,230,180 
Cincinnati Bell, Inc. company guaranty sr. unsec. sub. notes     
8 3/4s, 2018  2,825,000  2,694,344 
Cincinnati Bell, Inc. company guaranty sr. unsec. sub. notes     
8 1/4s, 2017  1,510,000  1,559,075 
Frontier Communications Corp. sr. unsec. notes 8 1/2s, 2020  2,865,000  3,101,363 
Frontier Communications Corp. sr. unsec. notes 8 1/4s, 2017  1,965,000  2,122,200 
Frontier Communications Corp. sr. unsec. notes 8 1/8s, 2018  2,835,000  3,044,081 
Qwest Communications International, Inc. company guaranty     
7 1/2s, 2014  462,000  463,617 
    14,214,860 
Retail (2.9%)     
Academy, Ltd./Academy Finance Corp. 144A company guaranty     
sr. unsec. notes 9 1/4s, 2019  2,035,000  2,055,350 
AmeriGas Finance, LLC/AmeriGas Finance Corp. company     
guaranty sr. unsec notes 7s, 2022  1,945,000  1,996,056 
Autonation, Inc. company guaranty sr. unsec. notes 6 3/4s, 2018  800,000  872,000 
Autonation, Inc. company guaranty sr. unsec. unsub. notes     
5 1/2s, 2020  760,000  786,600 
Bon-Ton Department Stores, Inc. (The) company guaranty     
10 1/4s, 2014  4,251,000  2,720,640 
Burlington Coat Factory Warehouse Corp. company guaranty     
sr. unsec notes 10s, 2019  2,840,000  2,914,550 
J Crew Group, Inc. company guaranty sr. unsec. notes     
8 1/8s, 2019  1,700,000  1,702,125 
Limited Brands, Inc. company guaranty sr. unsec. notes     
6 5/8s, 2021  2,265,000  2,497,163 
Limited Brands, Inc. sr. notes 5 5/8s, 2022  1,155,000  1,192,538 
Macy’s Retail Holdings, Inc. company guaranty sr. unsec. unsub.     
notes 7 7/8s, 2015  2,580,000  3,045,316 
Michaels Stores, Inc. company guaranty 11 3/8s, 2016  4,555,000  4,827,845 
Needle Merger Sub Corp. 144A sr. unsec. notes 8 1/8s, 2019  2,785,000  2,788,481 

 

31


CORPORATE BONDS AND NOTES (85.7%)* cont.  Principal amount  Value 
 
Retail cont.     
Neiman-Marcus Group, Inc. company guaranty sr. unsec. sub.     
notes 10 3/8s, 2015  $595,000  $619,550 
Penske Automotive Group, Inc. company guaranty sr. unsec.     
sub. notes 7 3/4s, 2016  2,731,000  2,847,095 
PETCO Animal Supplies, Inc. 144A company guaranty sr. notes     
9 1/4s, 2018  1,455,000  1,600,500 
QVC Inc. 144A sr. notes 7 1/2s, 2019  1,955,000  2,170,050 
QVC Inc. 144A sr. notes 7 3/8s, 2020  1,425,000  1,578,188 
Sears Holdings Corp. company guaranty 6 5/8s, 2018  1,258,000  1,085,025 
Toys R Us — Delaware, Inc. 144A company guaranty sr. notes     
7 3/8s, 2016  610,000  626,775 
Toys R Us Property Co., LLC company guaranty sr. notes     
8 1/2s, 2017  2,400,000  2,538,000 
Toys R Us Property Co., LLC company guaranty sr. unsec. notes     
10 3/4s, 2017  2,830,000  3,137,763 
    43,601,610 
Technology (4.6%)     
Advanced Micro Devices, Inc. sr. unsec. notes 8 1/8s, 2017  1,265,000  1,388,338 
Advanced Micro Devices, Inc. sr. unsec. notes 7 3/4s, 2020  3,395,000  3,764,206 
Alcatel-Lucent USA, Inc. unsec. debs. 6.45s, 2029  1,029,000  792,330 
Avaya, Inc. company guaranty sr. unsec. notes 10 1/8s, 2015  380,000  380,950 
Avaya, Inc. company guaranty sr. unsec. notes 9 3/4s, 2015  4,468,000  4,468,000 
Avaya, Inc. 144A company guaranty sr. notes 7s, 2019  2,100,000  2,128,875 
Ceridian Corp. company guaranty sr. unsec. notes 12 1/4s, 2015 ‡‡  3,051,850  2,929,776 
Ceridian Corp. sr. unsec. notes 11 1/4s, 2015  3,705,000  3,538,275 
Epicor Software Corp. 144A company guaranty sr. unsec. notes     
8 5/8s, 2019  2,810,000  2,908,350 
Fidelity National Information Services, Inc. company guaranty     
sr. unsec. notes 7 7/8s, 2020  1,455,000  1,636,875 
Fidelity National Information Services, Inc. company guaranty     
sr. unsec. notes 7 5/8s, 2017  980,000  1,069,425 
First Data Corp. company guaranty sr. unsec notes 12 5/8s, 2021  3,347,000  3,514,350 
First Data Corp. company guaranty sr. unsec. notes 10.55s, 2015  2,588,914  2,666,581 
First Data Corp. company guaranty sr. unsec. sub. notes     
11 1/4s, 2016  4,485,000  4,249,538 
First Data Corp. 144A company guaranty notes 8 1/4s, 2021  4,321,000  4,180,568 
First Data Corp. 144A company guaranty sr. notes 7 3/8s, 2019  1,285,000  1,299,456 
Freescale Semiconductor, Inc. company guaranty sr. unsec. notes     
10 3/4s, 2020  1,672,000  1,847,560 
Freescale Semiconductor, Inc. 144A company guaranty sr. notes     
10 1/8s, 2018  1,361,000  1,524,320 
Freescale Semiconductor, Inc. 144A company guaranty sr. notes     
9 1/4s, 2018  4,545,000  4,999,500 
Iron Mountain, Inc. company guaranty sr. sub. notes 7 3/4s, 2019  975,000  1,077,375 
Iron Mountain, Inc. sr. sub. notes 8 3/8s, 2021  960,000  1,066,800 
Jazz Technologies, Inc. company guaranty sr. unsec. notes     
8s, 2015 F  2,261,000  1,899,240 
NXP BV/NXP Funding, LLC 144A company guaranty sr. notes     
9 3/4s, 2018 (Netherlands)  3,255,000  3,682,219 

 

32


CORPORATE BONDS AND NOTES (85.7%)* cont.  Principal amount  Value 
 
Technology cont.     
Seagate HDD Cayman company guaranty sr. unsec. unsub. notes     
7 3/4s, 2018 (Cayman Islands)  $1,525,000  $1,715,625 
Seagate HDD Cayman 144A company guaranty sr. unsec. notes     
7s, 2021 (Cayman Islands)  1,780,000  1,971,350 
SunGard Data Systems, Inc. company guaranty 10 1/4s, 2015  972,000  1,013,310 
SunGard Data Systems, Inc. 144A sr. unsec. notes 7 5/8s, 2020  3,373,000  3,642,840 
Syniverse Holdings, Inc. company guaranty sr. unsec. notes     
9 1/8s, 2019  2,960,000  3,226,400 
Unisys Corp. sr. unsec. unsub. notes 12 1/2s, 2016  613,000  651,313 
    69,233,745 
Telecommunications (7.1%)     
Clearwire Communications, LLC/Clearwire Finance, Inc. 144A     
company guaranty sr. notes 12s, 2017  1,125,000  956,250 
Clearwire Communications, LLC/Clearwire Finance, Inc. 144A     
company guaranty sr. notes 12s, 2015  1,921,000  1,868,173 
Clearwire Communications, LLC/Clearwire Finance, Inc. 144A     
company guaranty sr. notes 12s, 2015  1,759,000  1,710,628 
Crown Castle International Corp. sr. unsec. notes 7 1/8s, 2019  1,020,000  1,116,900 
Digicel Group, Ltd. 144A sr. notes 10 1/2s, 2018 (Jamaica)  940,000  1,024,600 
Digicel Group, Ltd. 144A sr. unsec. notes 7s, 2020 (Bermuda)  1,520,000  1,535,200 
Digicel, Ltd. 144A sr. unsec. notes 8 1/4s, 2017 (Jamaica)  2,850,000  3,021,000 
Equinix, Inc. sr. unsec. notes 7s, 2021  1,960,000  2,170,700 
Hughes Satellite Systems Corp. company guaranty sr. sec. notes     
6 1/2s, 2019  2,880,000  3,052,800 
Hughes Satellite Systems Corp. company guaranty sr. unsec.     
notes 7 5/8s, 2021  3,200,000  3,472,000 
Intelsat Jackson Holdings SA company guaranty sr. unsec. notes     
7 1/2s, 2021 (Luxembourg)  3,081,000  3,258,158 
Intelsat Luxembourg SA company guaranty sr. unsec. notes     
11 1/2s, 2017 (Luxembourg) ‡‡  9,273,562  9,551,769 
Intelsat Luxembourg SA company guaranty sr. unsec. notes     
11 1/4s, 2017 (Luxembourg)  5,274,000  5,438,813 
Intelsat Luxembourg SA 144A company guaranty sr. unsec.     
notes 11 1/2s, 2017 (Luxembourg) ‡‡  2,040,000  2,080,800 
Level 3 Financing, Inc. company guaranty 8 3/4s, 2017  2,275,000  2,377,375 
Level 3 Financing, Inc. company guaranty sr. unsec. unsub. notes     
9 3/8s, 2019  868,000  959,140 
Level 3 Financing, Inc. 144A company guaranty sr. unsec. notes     
8 1/8s, 2019  470,000  492,325 
Level 3 Financing, Inc. 144A company guaranty sr. unsec. notes     
FRN 8 5/8s, 2020  1,980,000  2,113,650 
MetroPCS Wireless, Inc. company guaranty sr. unsec. notes     
7 7/8s, 2018  3,675,000  3,936,844 
MetroPCS Wireless, Inc. company guaranty sr. unsec. notes     
6 5/8s, 2020  400,000  412,000 
Nextel Communications, Inc. company guaranty sr. unsec. notes     
Ser. D, 7 3/8s, 2015  1,860,000  1,836,750 
NII Capital Corp. company guaranty sr. unsec. unsub. notes     
10s, 2016  1,200,000  1,368,000 

 

33


CORPORATE BONDS AND NOTES (85.7%)* cont.  Principal amount  Value 
Telecommunications cont.       
NII Capital Corp. company guaranty sr. unsec. unsub. notes       
7 5/8s, 2021    $3,550,000  $3,638,750 
PAETEC Holding Corp. company guaranty sr. notes 8 7/8s, 2017    1,606,000  1,750,540 
PAETEC Holding Corp. company guaranty sr. unsec. notes       
9 7/8s, 2018    3,430,000  3,841,600 
Qwest Corp. notes 6 3/4s, 2021    2,690,000  3,053,884 
Qwest Corp. sr. unsec. unsub. notes 7 1/4s, 2025    2,586,000  2,875,663 
SBA Telecommunications, Inc. company guaranty sr. unsec. notes       
8 1/4s, 2019    1,510,000  1,661,000 
SBA Telecommunications, Inc. company guaranty sr. unsec. notes       
8s, 2016    3,030,000  3,264,825 
Sprint Capital Corp. company guaranty 6 7/8s, 2028    6,387,000  4,981,860 
Sprint Nextel Corp. sr. notes 8 3/8s, 2017    5,559,000  5,447,820 
Sprint Nextel Corp. sr. unsec. notes 6s, 2016    5,045,000  4,590,950 
Sprint Nextel Corp. 144A company guaranty sr. unsec. notes       
9s, 2018    3,501,000  3,903,615 
Sprint Nextel Corp. 144A sr. unsec. notes 9 1/8s, 2017    2,210,000  2,221,050 
Wind Acquisition Finance SA company guaranty sr. sec.       
notes Ser. REGS, 7 3/8s, 2018 (Netherlands)  EUR  1,325,000  1,676,961 
Wind Acquisition Finance SA 144A company       
guaranty sr. notes 7 1/4s, 2018 (Netherlands)    $2,375,000  2,315,625 
Wind Acquisition Finance SA 144A sr. notes 11 3/4s, 2017       
(Netherlands)    1,515,000  1,552,875 
Wind Acquisition Holdings Finance SA 144A company guaranty       
sr. notes 12 1/4s, 2017 (Italy) ‡‡    996,220  869,202 
Windstream Corp. company guaranty sr. unsec. unsub. notes       
8 1/8s, 2018    825,000  903,375 
Windstream Corp. company guaranty sr. unsec. unsub. notes       
8 1/8s, 2013    370,000  396,825 
Windstream Corp. company guaranty sr. unsec. unsub. notes       
7 7/8s, 2017    1,938,000  2,185,095 
Windstream Corp. company guaranty sr. unsec. unsub. notes       
7 3/4s, 2021    547,000  597,598 
      105,482,988 
Telephone (0.5%)       
Cricket Communications, Inc. company guaranty sr. unsec. notes       
7 3/4s, 2020    4,888,000  4,863,560 
Cricket Communications, Inc. company guaranty sr. unsec. unsub.       
notes 10s, 2015    645,000  682,088 
Cricket Communications, Inc. company guaranty sr. unsub. notes       
7 3/4s, 2016    1,440,000  1,533,600 
      7,079,248 
Textiles (0.3%)       
Hanesbrands, Inc. company guaranty sr. unsec. notes       
6 3/8s, 2020    1,795,000  1,875,775 
Hanesbrands, Inc. sr. unsec. notes 8s, 2016    1,810,000  2,013,625 
Levi Strauss & Co. sr. unsec. notes 8 7/8s, 2016    972,000  1,003,600 
      4,893,000 

 

34


CORPORATE BONDS AND NOTES (85.7%)* cont.  Principal amount  Value 
 
Transportation (1.1%)     
Aguila 3 SA 144A company guaranty sr. notes 7 7/8s, 2018     
(Luxembourg)  $4,410,000  $4,636,013 
AMGH Merger Sub, Inc. 144A company guaranty sr. notes     
9 1/4s, 2018  4,495,000  4,843,363 
CHC Helicopter SA 144A company guaranty sr. notes 9 1/4s,     
2020 (Luxembourg)  2,650,000  2,656,625 
Swift Services Holdings, Inc. company guaranty sr. notes     
10s, 2018  3,220,000  3,521,875 
Western Express, Inc. 144A sr. notes 12 1/2s, 2015  3,020,000  1,449,600 
    17,107,476 
Utilities and power (4.1%)     
AES Corp. (The) sr. unsec. notes 8s, 2020  1,291,000  1,513,697 
AES Corp. (The) sr. unsec. unsub. notes 9 3/4s, 2016  270,000  321,300 
AES Corp. (The) sr. unsec. unsub. notes 8s, 2017  2,555,000  2,944,637 
AES Corp. (The) 144A sr. notes 7 3/8s, 2021  1,665,000  1,898,100 
Calpine Corp. 144A company guaranty sr. notes 7 7/8s, 2020  2,230,000  2,453,000 
Calpine Corp. 144A sr. notes 7 1/4s, 2017  5,498,000  5,827,880 
Colorado Interstate Gas Co., LLC debs. 6.85s, 2037 (Canada)  3,247,000  3,522,147 
Dolphin Subsidiary II, Inc. 144A sr. unsec. notes 7 1/4s, 2021  1,500,000  1,710,000 
Dolphin Subsidiary II, Inc. 144A sr. unsec. notes 6 1/2s, 2016  3,210,000  3,498,900 
Dynegy Holdings, LLC sr. unsec. notes 7 3/4s, 2019 (In default) †  4,685,000  3,045,250 
Edison Mission Energy sr. unsec. notes 7 3/4s, 2016  1,916,000  1,398,680 
Edison Mission Energy sr. unsec. notes 7 1/2s, 2013  1,280,000  1,206,400 
Edison Mission Energy sr. unsec. notes 7.2s, 2019  1,900,000  1,235,000 
Edison Mission Energy sr. unsec. notes 7s, 2017  60,000  40,200 
El Paso Corp. sr. unsec. notes 7s, 2017  1,000,000  1,117,439 
El Paso Corp. sr. unsec. notes Ser. GMTN, 7.8s, 2031  121,000  144,293 
El Paso Natural Gas Co. debs. 8 5/8s, 2022  1,597,000  1,975,961 
Energy Future Holdings Corp. company guaranty sr. notes 10s, 2020  940,000  1,016,374 
Energy Future Intermediate Holding Co., LLC/EFIH Finance, Inc.     
sr. notes 10s, 2020  2,124,000  2,307,194 
Energy Transfer Equity LP company guaranty sr. unsec. notes     
7 1/2s, 2020  3,560,000  4,076,200 
GenOn Americas Generation, Inc. sr. unsec. notes 9 1/8s, 2031  685,000  619,925 
GenOn Energy, Inc. sr. unsec. notes 9 7/8s, 2020  4,020,000  3,768,750 
GenOn Energy, Inc. sr. unsec. notes 9 1/2s, 2018  610,000  582,550 
Ipalco Enterprises, Inc. 144A sr. notes 7 1/4s, 2016  562,000  623,820 
NRG Energy, Inc. company guaranty sr. unsec. notes 7 7/8s, 2021  7,490,000  7,433,824 
NV Energy, Inc. sr. unsec. notes 6 1/4s, 2020  1,560,000  1,704,852 
PNM Resources, Inc. unsec. unsub. notes 9 1/4s, 2015  265,000  302,763 
Tennessee Gas Pipeline Co. sr. unsec. unsub. debs. 7s, 2028  639,000  728,726 
Texas Competitive/Texas Competitive Electric Holdings Co., LLC     
company guaranty notes 15s, 2021  2,756,000  1,157,520 
Texas Competitive/Texas Competitive Electric Holdings Co., LLC     
company guaranty sr. unsec. notes 10 1/2s, 2016 ‡‡  4,288,013  1,136,323 
Texas Competitive/Texas Competitive Electric Holdings Co., LLC     
144A company guaranty sr. notes 11 1/2s, 2020  2,030,000  1,370,250 
    60,681,955 
 
Total corporate bonds and notes (cost $1,245,711,094)    $1,277,688,965 

 

35


SENIOR LOANS (5.2%)* c  Principal amount  Value 
 
Basic materials (0.1%)     
Exopack, LLC bank term loan FRN Ser. B, 6 1/2s, 2017  $1,326,405  $1,323,089 
INEOS Group Holdings, Ltd. bank term loan FRN Ser. C2,     
8.001s, 2014  114,158  118,249 
    1,441,338 
Broadcasting (0.5%)     
Clear Channel Communications, Inc. bank term loan FRN Ser. A,     
3.67s, 2014  1,169,758  1,096,062 
Clear Channel Communications, Inc. bank term loan FRN Ser. B,     
3.92s, 2016  4,170,560  3,420,606 
Univision Communications, Inc. bank term loan FRN 4.546s, 2017  2,979,796  2,772,453 
    7,289,121 
Building materials (—%)     
Nortek, Inc. bank term loan FRN Ser. B, 5 1/4s, 2017  495,103  490,771 
    490,771 
Capital goods (0.1%)     
SRAM Corp. bank term loan FRN 8 1/2s, 2018  1,370,000  1,376,850 
    1,376,850 
Commercial and consumer services (0.1%)     
Travelport, LLC bank term loan FRN Ser. B, 5.081s, 2015  1,079,828  915,925 
Travelport, LLC bank term loan FRN Ser. S, 5.079s, 2015  340,172  288,538 
    1,204,463 
Consumer cyclicals (1.0%)     
Caesars Entertainment Corp. bank term loan FRN Ser. B, 9 1/4s, 2017  905,000  880,113 
CCM Merger, Inc. bank term loan FRN Ser. B, 7s, 2017  4,123,682  4,119,817 
Chrysler Group, LLC bank term loan FRN Ser. B, 6s, 2017  94,762  95,058 
Cumulus Media Holdings, Inc. bank term loan FRN 7 1/2s, 2019  1,750,000  1,745,625 
GateHouse Media, Inc. bank term loan FRN Ser. B, 2.27s, 2014  1,298,926  382,371 
GateHouse Media, Inc. bank term loan FRN Ser. DD, 2.27s, 2014  484,674  142,676 
Golden Nugget, Inc. bank term loan FRN Ser. B, 3.3s, 2014 ‡‡  1,360,940  1,273,612 
Golden Nugget, Inc. bank term loan FRN Ser. DD, 3.3s, 2014 ‡‡  774,691  724,982 
Goodman Global, Inc. bank term loan FRN 9s, 2017  2,411,959  2,439,094 
Neiman Marcus Group, Inc. (The) bank term loan FRN 4 3/4s, 2018  1,347,000  1,334,996 
Tribune Co. bank term loan FRN Ser. B, 5 1/4s, 2014  2,148,500  1,397,868 
    14,536,212 
Consumer staples (0.5%)     
Claire’s Stores, Inc. bank term loan FRN 3.068s, 2014  2,609,217  2,467,476 
Del Monte Corp. bank term loan FRN Ser. B, 4 1/2s, 2018  776,100  763,553 
Huish Detergents, Inc. bank term loan FRN 4.52s, 2014  780,000  638,300 
Prestige Brands, Inc. bank term loan FRN Ser. B, 5 1/4s, 2019  357,500  358,766 
Revlon Consumer Products bank term loan FRN Ser. B, 4 3/4s, 2017  3,059,625  3,054,806 
Rite Aid Corp. bank term loan FRN Ser. B, 2.038s, 2014  316,638  309,514 
    7,592,415 
Energy (0.2%)     
Frac Tech International, LLC bank term loan FRN Ser. B, 6 1/4s, 2016  2,741,922  2,725,275 
    2,725,275 
Financials (0.9%)     
AGFS Funding Co. bank term loan FRN Ser. B, 5 1/2s, 2017  2,410,000  2,191,092 
CNO Financial Group, Inc. bank term loan FRN 6 1/4s, 2016  816,670  821,774 
HUB International Holdings, Inc. bank term loan FRN 6 3/4s, 2014  1,353,838  1,352,991 
iStar Financial, Inc. bank term loan FRN Ser. A2, 7s, 2014  2,260,000  2,247,853 
Lone Star Intermediate Super Holdings, LLC bank term loan FRN     
11s, 2019  2,085,000  2,111,063 

 

36


SENIOR LOANS (5.2%)* c cont.  Principal amount  Value 
 
Financials cont.     
Nuveen Investments, Inc. bank term loan FRN 8 1/4s, 2019  $3,930,000  $3,969,300 
Nuveen Investments, Inc. bank term loan FRN Ser. B, 6.065s, 2017  1,116,987  1,114,195 
    13,808,268 
Gaming and lottery (0.1%)     
Caesars Entertainment Operating Co., Inc. bank term loan FRN     
Ser. B, 9 1/2s, 2016  842,800  868,505 
Caesars Entertainment Operating Co., Inc. bank term loan FRN     
Ser. B2, 3.276s, 2015  1,275,000  1,193,719 
    2,062,224 
Health care (0.6%)     
Ardent Health Services bank term loan FRN Ser. B, 6 1/2s, 2015  1,645,487  1,641,374 
Emergency Medical Services Corp. bank term loan FRN Ser. B,     
5 1/4s, 2018  2,482,247  2,473,560 
Pharmaceutical Product Development, Inc. bank term loan FRN     
Ser. B, 6 1/4s, 2018  3,310,000  3,340,737 
Quintiles Transnational Corp. bank term loan FRN 7 1/2s, 2017  830,000  826,888 
    8,282,559 
Homebuilding (0.3%)     
Realogy Corp. bank term loan FRN Ser. A, 13 1/2s, 2017  4,700,000  4,841,000 
    4,841,000 
Publishing (0.2%)     
Cengage Learning Acquisitions, Inc. bank term loan FRN Ser. B,     
2.52s, 2014  2,425,331  2,244,442 
    2,244,442 
Retail (0.1%)     
Burlington Coat Factory Warehouse Corp. bank term loan FRN     
Ser. B, 6 1/4s, 2017  732,488  732,263 
J Crew Group, Inc. bank term loan FRN Ser. B, 4 3/4s, 2018  1,396,482  1,368,243 
    2,100,506 
Utilities and power (0.5%)     
Dynegy Power, LLC bank term loan FRN 9 1/4s, 2016  1,271,813  1,305,516 
Dynegy, Inc. bank term loan FRN 9 1/4s, 2016  389,025  385,204 
Texas Competitive Electric Holdings Co., LLC bank term loan     
FRN 4.795s, 2017  10,079,407  5,613,665 
    7,304,385 
 
Total senior loans (cost $82,894,545)    $77,299,829 
 
COMMON STOCKS (1.9%)*  Shares  Value 
 
Alpha Natural Resources, Inc. †  28,975  $537,776 
Avis Budget Group, Inc. †  70,380  907,902 
Bohai Bay Litigation, LLC (Escrow) F §  3,899  12,165 
Chesapeake Energy Corp.  43,880  1,097,000 
Cincinnati Bell, Inc. †  173,939  652,271 
CIT Group, Inc. †  22,503  916,097 
Compton Petroleum Corp. (Canada) †  120,340  505,428 
CONSOL Energy, Inc.  34,840  1,247,969 
Crown Castle International Corp. †  24,095  1,248,362 
Deepocean Group (Shell) (acquired 06/09/2011, cost $1,116,503)     
(Norway) ‡  76,862  1,306,654 
DISH Network Corp. Class A  46,755  1,363,843 
FelCor Lodging Trust, Inc. † R  182,130  699,379 

 

37


COMMON STOCKS (1.9%)* cont.  Shares  Value 
 
Fortescue Metals Group, Ltd. (Australia)  200,750  $1,184,939 
Freeport-McMoRan Copper & Gold, Inc. Class B (Indonesia)  38,470  1,637,283 
General Motors Co. †  85,011  2,211,986 
Harry & David Holdings, Inc.  2,716  215,922 
Interpublic Group of Companies, Inc. (The)  133,500  1,564,620 
LyondellBasell Industries NV Class A (Netherlands)  39,040  1,685,747 
Magellan Health Services, Inc. †  1,331  62,903 
Newfield Exploration Co. †  29,820  1,073,520 
NII Holdings, Inc. †  55,760  996,989 
Quicksilver Resources, Inc. †  100,635  557,518 
Spectrum Brands Holdings, Inc. †  76,636  2,177,995 
Stallion Oilfield Holdings, Ltd.  16,319  587,484 
Terex Corp. †  49,414  1,254,621 
Trump Entertainment Resorts, Inc.  3,732  3,732 
TRW Automotive Holdings Corp. †  18,370  840,244 
Vantage Drilling Co. †  843,255  1,104,664 
Vertis Holdings, Inc. F  8,815  88 
Total common stocks (cost $33,062,249)    $27,655,101 
 
CONVERTIBLE PREFERRED STOCKS (1.1%)*  Shares  Value 
 
Entertainment Properties Trust Ser. C, $1.438 cum. cv. pfd. R  114,663  $2,317,626 
General Motors Co. Ser. B, $2.375 cv. pfd.  55,378  2,363,948 
Health Care REIT, Inc. Ser. I, $3.25 cv. pfd. R  58,867  3,104,057 
Lehman Brothers Holdings, Inc. Ser. P, 7.25% cv. pfd. (In default) †  4,338  868 
Lucent Technologies Capital Trust I 7.75% cv. pfd.  2,198  1,799,613 
MetLife, Inc. $3.75 cv. pfd.  33,585  2,431,218 
Nielsen Holdings NV $3.125 cv. pfd.  27,860  1,594,985 
PPL Corp. $4.75 cv. pfd.  39,965  2,204,469 
Total convertible preferred stocks (cost $20,830,118)    $15,816,784 
 
CONVERTIBLE BONDS AND NOTES (0.5%)*  Principal amount  Value 
 
Altra Holdings, Inc. 144A cv. company guaranty sr. unsec. notes     
2 3/4s, 2031  $1,169,000  $1,166,078 
Ford Motor Co. cv. sr. unsec. notes 4 1/4s, 2016  1,173,000  1,865,070 
Meritor, Inc. cv. company guaranty sr. unsec. notes stepped-coupon     
4 5/8s (0s, 3/1/16) 2026 ††  2,545,000  2,258,688 
Safeguard Scientifics, Inc. cv. sr. unsec. sub. notes 10 1/8s, 2014  382,000  502,330 
Steel Dynamics, Inc. cv. sr. notes 5 1/8s, 2014  602,000  684,775 
XM Satellite Radio, Inc. 144A cv. company guaranty sr. unsec. sub.     
notes 7s, 2014  772,000  1,134,879 
Total convertible bonds and notes (cost $6,037,906)    $7,611,820 
 
PREFERRED STOCKS (0.4%)*  Shares  Value 
 
Ally Financial, Inc. 144A 7.00% cum. pfd.  2,552  $2,214,339 
GMAC Capital Trust I Ser. 2, $2.031 cum. pfd.  157,265  3,692,582 
Total preferred stocks (cost $5,092,460)    $5,906,921 

 

38


WARRANTS (0.1%)* †  Expiration  Strike     
  date  price  Warrants  Value 
 
Charter Communications, Inc. Class A  11/30/14  0.01  420  $8,824 
General Motors Co.  7/10/19  18.33  18,319  210,302 
General Motors Co.  7/10/16  10.00  18,319  310,873 
Smurfit Kappa Group PLC 144A (Ireland) F  10/1/13  EUR       1.00  4,137  218,860 
Tower Semiconductor, Ltd. 144A (Israel) F  6/30/15  0.01  672,570  161,417 
Total warrants (cost $933,302)        $910,276 
   

 

SHORT-TERM INVESTMENTS (4.3%)*  Principal amount/shares  Value 
 
Putnam Money Market Liquidity Fund 0.09% e  52,568,520  $52,568,520 
SSgA Prime Money Market Fund 0.13% P  30,000  30,000 
U.S. Treasury Bills with effective yields ranging from 0.058%     
to 0.096%, August 23, 2012 ##  $983,000  982,439 
U.S. Treasury Bills with an effective yield of 0.082%,     
July 26, 2012  50,000  49,978 
U.S. Treasury Bills with an effective yield of 0.126%,     
May 3, 2012  110,000  109,986 
U.S. Treasury Bills with an effective yield of 0.178%,     
May 9, 2012  10,000,000  9,996,623 
Total short-term investments (cost $63,737,640)    $63,737,546 
 
TOTAL INVESTMENTS     
Total investments (cost $1,458,299,314)    $1,476,627,242 

 

Key to holding’s currency abbreviations 
 
CAD  Canadian Dollar 
EUR  Euro 
 
Key to holding’s abbreviations 
 
FRB  Floating Rate Bonds: the rate shown is the current interest rate at the close of the reporting period 
FRN  Floating Rate Notes: the rate shown is the current interest rate at the close of the reporting period 
GMTN  Global Medium Term Notes 
MTN  Medium Term Notes 

 

Notes to the fund’s portfolio

Unless noted otherwise, the notes to the fund’s portfolio are for the close of the fund’s reporting period, which ran from September 1, 2011 through February 29, 2012 (the reporting period). Within the following notes to the portfolio, references to “ASC 820” represent Accounting Standards Codification ASC 820 Fair Value Measurements and Disclosures.

* Percentages indicated are based on net assets of $1,490,529,777.

† Non-income-producing security.

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

‡ Security is restricted with regard to public resale. The total market value of this security and any other restricted securities (excluding 144A securities), if any, held at the close of the reporting period was $1,306,654, or less than 0.1% of net assets.

‡‡ Income may be received in cash or additional securities at the discretion of the issuer.

§ Affiliated Company (Note 8).

39


## This security, in part or in entirety, was pledged and segregated with the custodian for collateral on certain derivative contracts at the close of the reporting period.

Δ Forward commitment, in part or in entirety (Note 1).

c Senior loans are exempt from registration under the Securities Act of 1933, as amended, but contain certain restrictions on resale and cannot be sold publicly. These loans pay interest at rates which adjust periodically. The interest rates shown for senior loans are the current interest rates at the close of the reporting period. Senior loans are also subject to mandatory and/or optional prepayment which cannot be predicted. As a result, the remaining maturity may be substantially less than the stated maturity shown (Notes 1 and 7).

e See Note 6 to the financial statements regarding investments in Putnam Money Market Liquidity Fund. The rate quoted in the security description is the annualized 7-day yield of the fund at the close of the reporting period.

F Is valued at fair value following procedures approved by the Trustees. Securities may be classified as Level 2 or Level 3 for ASC 820 based on the securities’ valuation inputs. At the close of the reporting period, fair value pricing was also used for certain foreign securities in the portfolio (Note 1).

P Security purchased with cash or security received that was pledged to the fund for collateral on certain derivatives contracts. The rate quoted in the security description is the annualized 7-day yield of the fund at the close of the reporting period (Note 1).

R Real Estate Investment Trust.

At the close of the reporting period, the fund maintained liquid assets totaling $6,495,446 to cover certain derivatives contracts.

Debt obligations are considered secured unless otherwise indicated.

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

FORWARD CURRENCY CONTRACTS at 2/29/12 (aggregate face value $30,149,174) (Unaudited)

  Contract  Delivery    Aggregate  Unrealized 
Counterparty  Currency  type  date  Value  face value  depreciation 
Bank of America, N.A.           
Canadian Dollar  Sell  3/22/12  $823,319  $816,715  $(6,604) 
Euro  Sell  3/22/12  1,276,442  1,264,742  (11,700) 
Barclays Bank PLC           
Euro  Sell  3/22/12  1,586,359  1,569,195  (17,164) 
Citibank, N.A.           
Euro  Sell  3/22/12  2,138,640  2,114,559  (24,081) 
Credit Suisse AG           
Euro  Sell  3/22/12  2,806,706  2,784,060  (22,646) 
Deutsche Bank AG           
Euro  Sell  3/22/12  1,872,958  1,852,010  (20,948) 
Goldman Sachs International           
Euro  Sell  3/22/12  2,886,251  2,852,907  (33,344) 
HSBC Bank USA, National Association         
Euro  Sell  3/22/12  1,891,612  1,869,873  (21,739) 
JPMorgan Chase Bank, N.A.           
Canadian Dollar  Sell  3/22/12  884,638  877,930  (6,708) 
Euro  Sell  3/22/12  2,300,660  2,274,237  (26,423) 

 

40


FORWARD CURRENCY CONTRACTS at 2/29/12 (aggregate face value $30,149,174) (Unaudited) cont.

    Contract  Delivery    Aggregate  Unrealized 
Counterparty  Currency  type  date  Value  face value  depreciation 
Royal Bank of Scotland PLC (The)           
  Euro  Sell  3/22/12  $2,626,032  $2,596,405  $(29,627) 
State Street Bank and Trust Co.           
  Euro  Sell  3/22/12  1,792,082  1,773,248  (18,834) 
UBS AG             
  Euro  Sell  3/22/12  2,130,778  2,108,385  (22,393) 
Westpac Banking Corp.           
  Australian Dollar  Sell  3/22/12  1,456,406  1,453,403  (3,003) 
  Canadian Dollar  Sell  3/22/12  1,581,479  1,569,431  (12,048) 
  Euro  Sell  3/22/12  2,397,792  2,372,074  (25,718) 
Total            $(302,980) 
   

 

CREDIT DEFAULT CONTRACTS OUTSTANDING at 2/29/12 (Unaudited)

    Upfront      Fixed payments   
    premium    Termi-  received   
Swap counterparty /    received  Notional  nation  (paid) by fund  Unrealized 
Referenced debt*  Rating***  (paid)**  amount  date  per annum  appreciation 
Barclays Bank PLC             
DJ CDX NA HY Series             
17 Version 2 Index  B+/P  $382,813  $6,062,500  12/20/16 500 bp   $336,556 
Total            $336,556 

 

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

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

*** Ratings are presented for credit default contracts in which the fund has sold protection on the underlying referenced debt. Ratings for an underlying index represent the average of the ratings of all the securities included in that index. The Moody’s, Standard & Poor’s or Fitch ratings are believed to be the most recent ratings available at February 29, 2012. Securities rated by Putnam are indicated by “/P.” Securities rated by Fitch are indicated by “/F.”

41


ASC 820 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of the fund’s investments. The three levels are defined as follows:

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

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

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

The following is a summary of the inputs used to value the fund’s net assets as of the close of the reporting period:

    Valuation inputs   
Investments in securities:  Level 1  Level 2  Level 3 
Common stocks:       
Basic materials  $3,323,030  $1,184,939  $— 
Capital goods  1,254,621  —  — 
Communication services  4,261,465  —  — 
Consumer cyclicals  5,316,229  3,732  88 
Consumer staples  3,301,819  —  — 
Energy  6,123,875  1,894,138  12,165 
Financials  916,097  —  — 
Health care  62,903  —  — 
Total common stocks  24,560,039  3,082,809  12,253 
 
Convertible bonds and notes  $—  $7,611,820  $— 
Convertible preferred stocks  —  15,816,784  — 
Corporate bonds and notes  —  1,275,789,720  1,899,245 
Preferred stocks  —  5,906,921  — 
Senior loans  —  77,299,829  — 
Warrants  521,175  8,824  380,277 
Short-term investments  52,598,520  11,139,026  — 
Totals by level  $77,679,734  $1,396,655,733  $2,291,775 
 
    Valuation inputs   
Other financial instruments:  Level 1  Level 2  Level 3 
Forward currency contracts  $—  $(302,980)  $— 
Credit default contracts  —  (46,257)  — 
Totals by level  $—  $(349,237)  $— 

 

At the start and/or close of the reporting period, Level 3 investments in securities and other financial instruments were not considered a significant portion of the fund’s portfolio.

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

42


Statement of assets and liabilities 2/29/12 (Unaudited)

ASSETS   
Investment in securities, at value (Note 1):   
Unaffiliated issuers (identified cost $1,405,730,794)  $1,424,046,557 
Affiliated issuers (identified cost $52,568,520) (Notes 1 and 6)  52,580,685 
Cash  78,784 
Dividends, interest and other receivables  28,547,199 
Receivable for shares of the fund sold  2,450,927 
Receivable for investments sold  19,124,031 
Receivable for sales of delayed delivery securities (Note 1)  239,498 
Unrealized appreciation on swap contracts (Note 1)  336,556 
Total assets  1,527,404,237 
 
LIABILITIES   
Payable for investments purchased  26,366,857 
Payable for purchases of delayed delivery securities (Note 1)  5,994,727 
Payable for shares of the fund repurchased  1,819,832 
Payable for compensation of Manager (Note 2)  670,503 
Payable for investor servicing fees (Note 2)  183,412 
Collateral on certain derivative contracts, at value (Note 1)  30,000 
Payable for custodian fees (Note 2)  15,062 
Payable for Trustee compensation and expenses (Note 2)  418,452 
Payable for administrative services (Note 2)  5,628 
Payable for distribution fees (Note 2)  561,775 
Premium received on swap contracts (Note 1)  382,813 
Unrealized depreciation on forward currency contracts (Note 1)  302,980 
Other accrued expenses  122,419 
Total liabilities  36,874,460 
 
Net assets  $1,490,529,777 
 
REPRESENTED BY   
Paid-in capital (Unlimited shares authorized) (Notes 1 and 4)  $1,877,823,262 
Undistributed net investment income (Note 1)  7,157,094 
Accumulated net realized loss on investments and foreign currency transactions (Note 1)  (412,819,072) 
Net unrealized appreciation of investments and assets and liabilities in foreign currencies  18,368,493 
Total — Representing net assets applicable to capital shares outstanding  $1,490,529,777 

 

(Continued on next page)

43


Statement of assets and liabilities (Continued)

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE   
Net asset value and redemption price per class A share   
($1,227,426,335 divided by 160,169,385 shares)  $7.66 
Offering price per class A share (100/96.00 of $7.66)*  $7.98 
Net asset value and offering price per class B share ($20,343,160 divided by 2,658,046 shares)**  $7.65 
Net asset value and offering price per class C share ($48,928,538 divided by 6,435,285 shares)**  $7.60 
Net asset value and redemption price per class M share ($20,860,938 divided by 2,715,712 shares)  $7.68 
Offering price per class M share (100/96.75 of $7.68)†  $7.94 
Net asset value, offering price and redemption price per class R share   
($9,825,208 divided by 1,305,626 shares)  $7.53 
Net asset value, offering price and redemption price per class Y share   
($163,145,598 divided by 21,632,653 shares)  $7.54 

 

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

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

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

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

44


Statement of operations Six months ended 2/29/12 (Unaudited)

INVESTMENT INCOME   
Interest (including interest income of $18,124 from investments in affiliated issuers) (Note 6)  $54,224,927 
Dividends (net of foreign tax of $34,171)  1,136,002 
Total investment income  55,360,929 
 
EXPENSES   
Compensation of Manager (Note 2)  3,879,135 
Investor servicing fees (Note 2)  1,011,086 
Custodian fees (Note 2)  14,325 
Trustee compensation and expenses (Note 2)  57,423 
Administrative services (Note 2)  18,496 
Distribution fees — Class A (Note 2)  1,408,279 
Distribution fees — Class B (Note 2)  100,696 
Distribution fees — Class C (Note 2)  210,339 
Distribution fees — Class M (Note 2)  48,739 
Distribution fees — Class R (Note 2)  23,094 
Other  238,572 
Total expenses  7,010,184 
 
Expense reduction (Note 2)  (4,891) 
Net expenses  7,005,293 
 
Net investment income  48,355,636 
 
Net realized loss on investments (Notes 1 and 3)  (4,852,834) 
Net realized loss on swap contracts (Note 1)  (75,512) 
Net realized gain on foreign currency transactions (Note 1)  1,471,763 
Net unrealized depreciation of assets and liabilities in foreign currencies during the period  (193,092) 
Net unrealized appreciation of investments and swap contracts during the period  58,989,945 
Net gain on investments  55,340,270 
 
Net increase in net assets resulting from operations  $103,695,906 

 

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

45


Statement of changes in net assets

INCREASE (DECREASE) IN NET ASSETS  Six months ended 2/29/12*  Year ended 8/31/11 
Operations:     
Net investment income  $48,355,636  $102,347,953 
Net realized gain (loss) on investments     
and foreign currency transactions  (3,456,583)  50,090,907 
Net unrealized appreciation (depreciation) of investments     
and assets and liabilities in foreign currencies  58,796,853  (54,315,591) 
Net increase in net assets resulting from operations  103,695,906  98,123,269 
Distributions to shareholders (Note 1):     
From ordinary income     
Net investment income     
Class A  (41,330,483)  (82,752,980) 
Class B  (659,263)  (2,098,112) 
Class C  (1,419,123)  (2,611,979) 
Class M  (687,859)  (1,367,098) 
Class R  (341,470)  (490,863) 
Class Y  (5,353,109)  (9,983,451) 
Increase in capital from settlement payments (Note 9)  —  595,081 
Redemption fees (Note 1)  99,339  18,784 
Increase (decrease) from capital share transactions (Note 4)  154,751,434  (41,500,135) 
Total increase (decrease) in net assets  208,755,372  (42,067,484) 
 
NET ASSETS     
Beginning of period  1,281,774,405  1,323,841,889 
End of period (including undistributed net investment     
income of $7,157,094 and $8,592,765, respectively)  $1,490,529,777  $1,281,774,405 

 

* Unaudited

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

46

 

 

 

 


 

This page left blank intentionally. 
 
 
 
 
 
 
 
 
 

 

47


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

INVESTMENT OPERATIONS:        LESS DISTRIBUTIONS:          RATIOS AND SUPPLEMENTAL DATA:   
                        Ratio  Ratio   
      Net realized                  of expenses  of net investment   
  Net asset value,    and unrealized  Total from  From          Total return  Net assets,  to average  income (loss)  Portfolio 
  beginning  Net investment  gain (loss)  investment  net investment  Total  Redemption  Non-recurring   Net asset value,  at net asset  end of period  net assets  to average  turnover 
Period ended  of period  income (loss) a  on investments  operations  income  distributions  fees b  reimbursements   end of period  value (%) c  (in thousands)  (%) d  net assets (%)  (%) 
Class A                             
February 29, 2012**  $7.39  .26  .28  .54  (.27)  (.27)  —  — g  $7.66  7.53*  $1,227,426  .51*  3.58*  29* 
August 31, 2011  7.40  .56  (.03)  .53  (.54)  (.54)  —  — e,f,g  7.39  7.07  1,108,763  1.00  7.15  72 
August 31, 2010  6.68  .56  .70  1.26  (.54)  (.54)  —  — h  7.40  19.29  1,120,786  1.04 i  7.67 i  71 
August 31, 2009  7.21  .49  (.48)  .01  (.54)  (.54)  —  — j,k  6.68  1.73  1,070,781  1.13 i  8.37 i  44 
August 31, 2008  7.82  .57  (.60)  (.03)  (.58)  (.58)  —  —  7.21  (.50)  1,298,019  1.07 i  7.51 i  28 
August 31, 2007  7.87  .58  (.04)  .54  (.59)  (.59)  —  —  7.82  6.87  1,570,488  1.03 i  7.17 i  57 
Class B                             
February 29, 2012**  $7.38  .24  .27  .51  (.24)  (.24)  —  — g  $7.65  7.12*  $20,343  .88*  3.21*  29* 
August 31, 2011  7.39  .50  (.03)  .47  (.48)  (.48)  —  — e,f,g  7.38  6.24  22,545  1.75  6.43  72 
August 31, 2010  6.67  .50  .70  1.20  (.48)  (.48)  —  — h  7.39  18.39  41,109  1.79 i  6.96 i  71 
August 31, 2009  7.19  .45  (.47)  (.02)  (.50)  (.50)  —  — j,k  6.67  1.12  65,487  1.88 i  7.75 i  44 
August 31, 2008  7.79  .51  (.59)  (.08)  (.52)  (.52)  —  —  7.19  (1.14)  113,832  1.82 i  6.79 i  28 
August 31, 2007  7.84  .51  (.04)  .47  (.52)  (.52)  —  —  7.79  6.05  197,581  1.78 i  6.42 i  57 
Class C                             
February 29, 2012**  $7.34  .23  .27  .50  (.24)  (.24)  —  — g  $7.60  7.07*  $48,929  .88*  3.21*  29* 
August 31, 2011  7.35  .49  (.02)  .47  (.48)  (.48)  —  — e,f,g  7.34  6.34  38,589  1.75  6.39  72 
August 31, 2010  6.65  .50  .69  1.19  (.49)  (.49)  —  — h  7.35  18.19  38,400  1.79 i  6.92 i  71 
August 31, 2009  7.17  .45  (.47)  (.02)  (.50)  (.50)  —  — j,k  6.65  1.14  34,786  1.88 i  7.58 i  44 
August 31, 2008  7.78  .51  (.60)  (.09)  (.52)  (.52)  —  —  7.17  (1.28)  39,507  1.82 i  6.75 i  28 
August 31, 2007  7.84  .52  (.05)  .47  (.53)  (.53)  —  —  7.78  5.95  46,276  1.78 i  6.42 i  57 
Class M                             
February 29, 2012**  $7.41  .25  .28  .53  (.26)  (.26)  —  — g  $7.68  7.37*  $20,861  .63*  3.46*  29* 
August 31, 2011  7.42  .54  (.03)  .51  (.52)  (.52)  —  — e,f,g  7.41  6.74  18,768  1.25  6.90  72 
August 31, 2010  6.69  .54  .71  1.25  (.52)  (.52)  —  — h  7.42  19.12  19,218  1.29 i  7.46 i  71 
August 31, 2009  7.23  .47  (.48)  (.01)  (.53)  (.53)  —  — j,k  6.69  1.36  17,087  1.38 i  8.03 i  44 
August 31, 2008  7.83  .55  (.60)  (.05)  (.55)  (.55)  —  —  7.23  (.67)  13,273  1.32 i  7.25 i  28 
August 31, 2007  7.88  .56  (.05)  .51  (.56)  (.56)  —  —  7.83  6.54  16,162  1.28 i  6.92 i  57 
Class R                             
February 29, 2012**  $7.26  .25  .28  .53  (.26)  (.26)  —  — g  $7.53  7.55*  $9,825  .63*  3.46*  29* 
August 31, 2011  7.30  .52  (.04)  .48  (.52)  (.52)  —  — e,f,g  7.26  6.49  8,473  1.25  6.86  72 
August 31, 2010  6.61  .53  .69  1.22  (.53)  (.53)  —  — h  7.30  18.80  5,085  1.29 i  7.36 i  71 
August 31, 2009  7.16  .46  (.48)  (.02)  (.53)  (.53)  —  — j,k  6.61  1.23  2,296  1.38 i  7.93 i  44 
August 31, 2008  7.77  .54  (.59)  (.05)  (.56)  (.56)  —  —  7.16  (.75)  1,446  1.32 i  7.22 i  28 
August 31, 2007  7.85  .56  (.07)  .49  (.57)  (.57)  —  —  7.77  6.24  1,096  1.28 i  6.92 i  57 
Class Y                             
February 29, 2012**  $7.28  .27  .27  .54  (.28)  (.28)  —  — g  $7.54  7.66*  $163,146  .39*  3.70*  29* 
August 31, 2011  7.31  .57  (.04)  .53  (.56)  (.56)  —  — e,f,g  7.28  7.18  84,635  .75  7.41  72 
August 31, 2010  6.61  .57  .69  1.26  (.56)  (.56)  —  — h  7.31  19.49  99,244  .79 i  7.80 i  71 
August 31, 2009  7.14  .54  (.52)  .02  (.55)  (.55)  —  — j,k  6.61  1.98  42,372  .88 i  9.11 i  44 
August 31, 2008  7.76  .58  (.60)  (.02)  (.60)  (.60)  —  —  7.14  (.35)  217,165  .82 i  7.73 i  28 
August 31, 2007  7.83  .60  (.06)  .54  (.61)  (.61)  —  —  7.76  6.96  225,031  .78 i  7.42 i  57 

 

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

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

48  49 

 


Financial highlights (Continued)

* Not annualized.

** Unaudited.

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

b Amount represents less than $0.01 per share.

c Total return assumes dividend reinvestment and does not reflect the effect of sales charges.

d Includes amounts paid through expense offset and brokerage/service arrangements (Note 2).

e Reflects a non-recurring reimbursement pursuant to a settlement between the Securities and Exchange Commission (the SEC) and Zurich Capital Markets, Inc., which amounted to less than $0.01 per share outstanding on December 21, 2010.

f Reflects a non-recurring reimbursement pursuant to a settlement between the SEC and Southwest Securities, which amounted to less than $0.01 per share outstanding on August 22, 2011.

g Reflects a non-recurring reimbursement related to restitution amounts in connection with a distribution plan approved by the SEC which amounted to less than $0.01 per share outstanding on July 21, 2011. Also reflects a non-recurring reimbursement related to short-term trading related lawsuits, which amounted to less than $0.01 per share outstanding on May 11, 2011.

h Reflects a non-recurring reimbursement pursuant to a settlement between the SEC and Prudential Securities, Inc., which amounted to less than $0.01 per share outstanding on March 30, 2010.

i Reflects an involuntary contractual expense limitation in effect during the period. For periods prior to August 31, 2009, certain fund expenses were waived in connection with the fund’s investment in Putnam Prime Money Market Fund. As a result of such limitation and/or waivers, the expenses of each class reflect a reduction of the following amounts:

  Percentage of 
  average net assets 
August 31, 2010  0.01% 
August 31, 2009  0.04 
August 31, 2008  <0.01 
August 31, 2007  <0.01 

 

j Reflects non-recurring reimbursement pursuant to a settlement between the SEC and Millennium Partners, L.P., Millennium Management, LLC and Millennium International Management, LLC, which amounted to less than $0.01 per share outstanding on June 23, 2009.

k Reflects non-recurring reimbursement pursuant to a settlement between the SEC and Bear Stearns & Co., Inc. and Bear Stearns Securities Corp., which amounted to less than $0.01 per share outstanding on May 21, 2009.

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

50 

 


Notes to financial statements 2/29/12 (Unaudited)

Note 1: Significant accounting policies

Within the following Notes to financial statements, references to “State Street” represent State Street Bank and Trust Company, references to “the SEC” represent the Securities and Exchange Commission and references to “Putnam Management” represent Putnam Investment Management, LLC, the fund’s manager, an indirect wholly-owned subsidiary of Putnam Investments, LLC.

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

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

A 1.00% redemption fee may apply on any shares that are redeemed (either by selling or exchanging into another fund) within 30 days of purchase. The redemption fee is accounted for as an addition to paid-in-capital.

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

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

The following is a summary of significant accounting policies consistently followed by the fund in the preparation of its financial statements. The preparation of financial statements is in conformity with accounting principles generally accepted in the United States of America and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations. Actual results could differ from those estimates. Subsequent events after the Statement of assets and liabilities date through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. Unless otherwise noted, the “reporting period” represents the period from September 1, 2011 through February 29, 2012.

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, and are classified as Level 1 securities. 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 and is generally categorized as a Level 2 security.

Investments in other open-end investment companies, which are classified as Level 1 securities, are based on their net asset value. The net asset value of an investment company equals the total value of its assets less its liabilities and divided by the number of its outstanding shares. Shares are only valued as of the close of regular trading on the New York Stock Exchange each day that the exchange is open.

Market quotations are not considered to be readily available for certain debt obligations and other investments; such investments are valued on the basis of valuations furnished by an independent pricing service approved

51


by the Trustees or dealers selected by Putnam Management. 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 (which considers such factors as security prices, yields, maturities and ratings). These securities will generally be categorized as Level 2.

Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange. Accordingly, on certain days, the fund will fair value foreign equity securities taking into account multiple factors including movements in the U.S. securities markets, currency valuations and comparisons to the valuation of American Depository Receipts, exchange-traded funds and futures contracts. These securities, which will generally represent a transfer from a Level 1 to a Level 2 security, will be classified as Level 2. The number of days on which fair value prices will be used will depend on market activity and it is possible that fair value prices will be used by the fund to a significant extent. At the close of the reporting period, fair value pricing was used for certain foreign securities in the portfolio. Securities quoted in foreign currencies, if any, are translated into U.S. dollars at the current exchange rate.

To the extent a pricing service or dealer is unable to value a security or provides a valuation that Putnam Management does not believe accurately reflects the security’s fair value, the security will be valued at fair value by Putnam Management. Certain investments, including certain restricted and illiquid securities and derivatives, are also valued at fair value following procedures approved by the Trustees. These valuations consider such factors as significant market or specific security events such as interest rate or credit quality changes, various relationships with other securities, discount rates, U.S. Treasury, U.S. swap and credit yields, index levels, convexity exposures and recovery rates. These securities are classified as Level 2 or as Level 3 depending on the priority of the significant inputs.

Such valuations and procedures are reviewed periodically by the Trustees. The fair value of securities is generally determined as the amount that the fund could reasonably expect to realize from an orderly disposition of such securities over a reasonable period of time. By its nature, a fair value price is a good faith estimate of the value of a security in a current sale and does not reflect an actual market price, which may be different by a material amount.

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

All premiums/discounts are amortized/accreted on a yield-to-maturity basis.

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

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

Foreign currency translation The accounting records of the fund are maintained in U.S. dollars. The market value of foreign securities, currency holdings, and other assets and liabilities is recorded in the books and records of the fund after translation to U.S. dollars based on the exchange rates on that day. The cost of each security is determined using historical exchange rates. Income and withholding taxes are translated at prevailing exchange rates when earned or incurred. The fund does not isolate that portion of realized or unrealized gains or losses resulting from changes in the foreign exchange rate on investments from fluctuations arising from changes in the market prices of the securities. Such gains and losses are included with the net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net realized exchange gains or losses on closed forward currency contracts, disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions and the difference between the amount of investment income and foreign withholding taxes recorded on the fund’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized appreciation and depreciation of assets and liabilities in foreign

52


currencies arise from changes in the value of open forward currency contracts and assets and liabilities other than investments at the period end, resulting from changes in the exchange rate.

Forward currency contracts The fund buys and sells forward currency contracts, which are agreements between two parties to buy and sell currencies at a set price on a future date. These contracts are used to hedge foreign exchange risk and to gain exposure on currency.

The U.S. dollar value of forward currency contracts is determined using current forward currency exchange rates supplied by a quotation service. The market value of the contract will fluctuate with changes in currency exchange rates. The contract is marked to market daily and the change in market value is recorded as an unrealized gain or loss. The fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed when the contract matures or by delivery of the currency. The fund could be exposed to risk if the value of the currency changes unfavorably, if the counterparties to the contracts are unable to meet the terms of their contracts or if the fund is unable to enter into a closing position. Risks may exceed amounts recognized on the Statement of assets and liabilities.

Forward currency contracts outstanding at period end, if any, are listed after the fund’s portfolio. The fund had an average contract amount of approximately $26,600,000 on forward currency contracts for the reporting period.

Credit default contracts The fund entered into credit default contracts to hedge credit risk, to hedge market risk and to gain exposure on individual names and/or baskets of securities.

In a credit default contract, the protection buyer typically makes an up front payment and a periodic stream of payments to a counterparty, the protection seller, in exchange for the right to receive a contingent payment upon the occurrence of a credit event on the reference obligation or all other equally ranked obligations of the reference entity. Credit events are contract specific but may include bankruptcy, failure to pay, restructuring and obligation acceleration. An upfront payment received by the fund, as the protection seller, is recorded as a liability on the fund’s books. An upfront payment made by the fund, as the protection buyer, is recorded as an asset on the fund’s books. Periodic payments received or paid by the fund are recorded as realized gains or losses. The credit default contracts are marked to market daily based upon quotations from an independent pricing service or market makers and the change, if any, is recorded as an unrealized gain or loss. Upon the occurrence of a credit event, the difference between the par value and market value of the reference obligation, net of any proportional amount of the upfront payment, is recorded as a realized gain or loss.

In addition to bearing the risk that the credit event will occur, the fund could be exposed to market risk due to unfavorable changes in interest rates or in the price of the underlying security or index or the possibility that the fund may be unable to close out its position at the same time or at the same price as if it had purchased the underlying reference obligations. In certain circumstances, the fund may enter into offsetting credit default contracts which would mitigate its risk of loss. Risks of loss may exceed amounts recognized on the Statement of assets and liabilities. The fund’s maximum risk of loss from counterparty risk, either as the protection seller or as the protection buyer, is the fair value of the contract. This risk may be mitigated by having a master netting arrangement between the fund and the counterparty. Where the fund is a seller of protection, the maximum potential amount of future payments the fund may be required to make is equal to the notional amount of the relevant credit default contract.

Credit default contracts outstanding, including their respective notional amounts at period end, if any, are listed after the fund’s portfolio. The fund had an average notional amount of approximately $5,300,000 on credit default swap contracts for the reporting period.

Master agreements The fund is a party to ISDA (International Swaps and Derivatives Association, Inc.) Master Agreements (Master Agreements) with certain counterparties that govern over-the-counter derivative and foreign exchange contracts entered into from time to time. The Master Agreements may contain provisions regarding, among other things, the parties’ general obligations, representations, agreements, collateral requirements, events of default and early termination. With respect to certain counterparties, in accordance with the terms of the Master Agreements, collateral posted to the fund is held in a segregated account by the fund’s custodian and with respect to those amounts which can be sold or repledged, are presented in the fund’s portfolio.

Collateral pledged by the fund is segregated by the fund’s custodian and identified in the fund’s portfolio. Collateral can be in the form of cash or debt securities issued by the U.S. Government or related agencies or other securities as agreed to by the fund and the applicable counterparty. Collateral requirements are determined based on the fund’s net position with each counterparty.

Termination events applicable to the fund may occur upon a decline in the fund’s net assets below a specified threshold over a certain period of time. Termination events applicable to counterparties may occur upon a decline

53


in the counterparty’s long-term and short-term credit ratings below a specified level. In each case, upon occurrence, the other party may elect to terminate early and cause settlement of all derivative and foreign exchange contracts outstanding, including the payment of any losses and costs resulting from such early termination, as reasonably determined by the terminating party. Any decision by one or more of the fund’s counterparties to elect early termination could impact the fund’s future derivative activity.

At the close of the reporting period, the fund had a net liability position of $349,237 on derivative contracts subject to the Master Agreements. Collateral posted by the fund totaled $128,910.

Interfund lending The fund, along with other Putnam funds, may participate in an interfund lending program pursuant to an exemptive order issued by the SEC. This program allows the fund to borrow from or lend to other Putnam funds that permit such transactions. Interfund lending transactions are subject to each fund’s investment policies and borrowing and lending limits. Interest earned or paid on the interfund lending transaction will be based on the average of certain current market rates. During the reporting period, the fund did not utilize the program.

Line of credit The fund participates, along with other Putnam funds, in a $325 million unsecured committed line of credit and a $185 million unsecured uncommitted line of credit, both provided by State Street. Borrowings may be made for temporary or emergency purposes, including the funding of shareholder redemption requests and trade settlements. Interest is charged to the fund based on the fund’s borrowing at a rate equal to the Federal Funds rate plus 1.25% for the committed line of credit and the Federal Funds rate plus 1.30% for the uncommitted line of credit. A closing fee equal to 0.02% of the committed line of credit and $50,000 for the uncommitted line of credit has been paid by the participating funds. In addition, a commitment fee of 0.13% per annum on any unutilized portion of the committed line of credit is allocated to the participating funds based on their relative net assets and paid quarterly. During the reporting period, the fund had no borrowings against these arrangements.

Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time period and otherwise comply with the provisions of the Internal Revenue Code of 1986, as amended (the Code), applicable to regulated investment companies. It is also the intention of the fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Code.

The fund is subject to the provisions of Accounting Standards Codification ASC 740 Income Taxes (ASC 740). ASC 740 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The fund did not have a liability to record for any unrecognized tax benefits in the accompanying financial statements. No provision has been made for federal taxes on income, capital gains or unrealized appreciation on securities held nor for excise tax on income and capital gains. Each of the fund’s federal tax returns for the prior three fiscal years remains subject to examination by the Internal Revenue Service.

The fund may also be subject to taxes imposed by governments of countries in which it invests. Such taxes are generally based on either income or gains earned or repatriated. The fund accrues and applies such taxes to net investment income, net realized gains and net unrealized gains as income and/or capital gains are earned. In some cases, the fund may be entitled to reclaim all or a portion of such taxes, and such reclaim amounts, if any, are reflected as an asset on the fund’s books. In many cases, however, the fund may not receive such amounts for an extended period of time, depending on the country of investment.

At August 31, 2011, the fund had a capital loss carryover of $409,260,365 available to the extent allowed by the Code to offset future net capital gain, if any. The amounts of the carryovers and the expiration dates are:

Loss carryover
Short-term  Long-term  Total  Expiration 
$61,743,291  $—  $61,743,291  August 31, 2012 
76,944,480  —  76,944,480  August 31, 2013 
14,070,646  —  14,070,646  August 31, 2014 
2,600,677  —  2,600,677  August 31, 2015 
20,028,690  —  20,028,690  August 31, 2016 
96,252,247  —  96,252,247  August 31, 2017 
137,620,334  —  137,620,334  August 31, 2018 

 

54


Under the recently enacted Regulated Investment Company Modernization Act of 2010, the fund will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period. However, any losses incurred during those future years will be required to be utilized prior to the losses incurred in pre-enactment tax years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.

The aggregate identified cost on a tax basis is $1,458,401,438, resulting in gross unrealized appreciation and depreciation of $77,411,632 and $ 59,185,828, respectively, or net unrealized appreciation of $18,225,804.

Distributions to shareholders Distributions to shareholders from net investment income are recorded by the fund on the ex-dividend date. Distributions from capital gains, if any, are recorded on the ex-dividend date and paid at least annually. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Dividend sources are estimated at the time of declaration. Actual results may vary. Any non-taxable return of capital cannot be determined until final tax calculations are completed after the end of the fund’s fiscal year. Reclassifications are made to the fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations.

Note 2: Management fee, administrative services and other transactions

The fund pays Putnam Management a management fee (based on the fund’s average net assets and computed and paid monthly) at annual rates that may vary based on the average of the aggregate net assets of most open-end funds, as defined in the fund’s management contract, sponsored by Putnam Management. Such annual rates may vary as follows:

0.720%  of the first $5 billion, 
0.670%  of the next $5 billion, 
0.620%  of the next $10 billion, 
0.570%  of the next $10 billion, 
0.520%  of the next $50 billion, 
0.500%  of the next $50 billion, 
0.490%  of the next $100 billion and 
0.485%  of any excess thereafter. 

 

Putnam Management has contractually agreed, through June 30, 2012, to waive fees or reimburse the fund’s expenses to the extent necessary to limit the cumulative expenses of the fund, exclusive of brokerage, interest, taxes, investment-related expenses, extraordinary expenses and payments under the fund’s investor servicing contract, investment management contract and distribution plans, on a fiscal year-to-date basis to an annual rate of 0.20% of the fund’s average net assets over such fiscal year-to-date period. During the reporting period, the fund’s expenses were not reduced as a result of this limit.

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

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

Custodial functions for the fund’s assets are provided by State Street. Custody fees are based on the fund’s asset level, the number of its security holdings and transaction volumes.

Putnam Investor Services, Inc., an affiliate of Putnam Management, provides investor servicing agent functions to the fund. Putnam Investor Services, Inc. received fees for investor servicing based on the fund’s retail asset level, the number of shareholder accounts in the fund and the level of defined contribution plan assets in the fund. Investor servicing fees will not exceed an annual rate of 0.375% of the fund’s average net assets. The amounts incurred for investor servicing agent functions during the reporting period are included in Investor servicing fees in the Statement of operations. Effective March 1, 2012, investor servicing fees will not exceed an annual rate of 0.32% of the fund’s average net assets.

55


The fund has entered into expense offset arrangements with Putnam Investor Services, Inc. and State Street whereby Putnam Investor Services, Inc.’s and State Street’s fees are reduced by credits allowed on cash balances. The fund also reduced expenses through brokerage/service arrangements. For the reporting period, the fund’s expenses were reduced by $1,826 under the expense offset arrangements and by $3,065 under the brokerage/service arrangements.

Each independent Trustee of the fund receives an annual Trustee fee, of which $1,075, as a quarterly retainer, has been allocated to the fund, and an additional fee for each Trustees meeting attended. Trustees also are reimbursed for expenses they incur relating to their services as Trustees.

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

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

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

For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received net commissions of $21,663 and $171 from the sale of class A and class M shares, respectively, and received $7,824 and $434 in contingent deferred sales charges from redemptions of class B and class C shares, respectively.

A deferred sales charge of up to 1.00% and 0.40% is assessed on certain redemptions of class A and class M shares, respectively. For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received $452 and no monies on class A and class M redemptions, respectively.

Note 3: Purchases and sales of securities

During the reporting period, cost of purchases and proceeds from sales of investment securities other than short-term investments aggregated $377,214,977 and $530,194,275, respectively. There were no purchases or proceeds from sales of long-term U.S. government securities.

Note 4: Capital shares

At the close of the reporting period, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:

  Six months ended 2/29/12  Year ended 8/31/11 
Class A  Shares  Amount  Shares  Amount 
Shares sold  22,347,519  $163,649,949  24,009,975  $186,911,319 
Shares issued in connection with         
reinvestment of distributions  4,247,142  31,127,078  7,643,807  59,095,581 
  26,594,661  194,777,027  31,653,782  246,006,900 
Shares repurchased  (16,385,240)  (120,206,820)  (33,074,023)  (256,269,201) 
Net increase (decrease)  10,209,421  $74,570,207  (1,420,241)  $(10,262,301) 

 

56


  Six months ended 2/29/12  Year ended 8/31/11 
Class B  Shares  Amount  Shares  Amount 
Shares sold  425,038  $3,131,177  653,595  $5,090,834 
Shares issued in connection with         
reinvestment of distributions  71,717  524,721  196,893  1,521,011 
  496,755  3,655,898  850,488  6,611,845 
Shares repurchased  (892,036)  (6,552,448)  (3,359,908)  (26,196,242) 
Net decrease  (395,281)  $(2,896,550)  (2,509,420)  $(19,584,397) 
 
  Six months ended 2/29/12  Year ended 8/31/11 
Class C  Shares  Amount  Shares  Amount 
Shares sold  1,531,137  $11,209,882  1,272,470  $9,831,860 
Shares issued in connection with         
reinvestment of distributions  143,076  1,041,571  234,756  1,803,515 
  1,674,213  12,251,453  1,507,226  11,635,375 
Shares repurchased  (497,276)  (3,624,216)  (1,469,771)  (11,311,017) 
Net increase  1,176,937  $8,627,237  37,455  $324,358 
 
  Six months ended 2/29/12  Year ended 8/31/11 
Class M  Shares  Amount  Shares  Amount 
Shares sold  266,671  $1,960,706  318,419  $2,468,076 
Shares issued in connection with         
reinvestment of distributions  79,824  586,336  147,414  1,142,322 
  346,495  2,547,042  465,833  3,610,398 
Shares repurchased  (163,915)  (1,206,279)  (524,206)  (4,087,552) 
Net increase (decrease)  182,580  $1,340,763  (58,373)  $(477,154) 
 
  Six months ended 2/29/12  Year ended 8/31/11 
Class R  Shares  Amount  Shares  Amount 
Shares sold  417,836  $3,001,471  830,760  $6,386,934 
Shares issued in connection with         
reinvestment of distributions  42,955  309,197  58,803  447,572 
  460,791  3,310,668  889,563  6,834,506 
Shares repurchased  (321,523)  (2,301,398)  (419,960)  (3,213,283) 
Net increase  139,268  $1,009,270  469,603  $3,621,223 
 
  Six months ended 2/29/12  Year ended 8/31/11 
Class Y  Shares  Amount  Shares  Amount 
Shares sold  14,832,381  $106,822,104  21,624,376  $165,261,256 
Shares issued in connection with         
reinvestment of distributions  427,621  3,085,046  1,134,844  8,675,835 
  15,260,002  109,907,150  22,759,220  173,937,091 
Shares repurchased  (5,251,130)  (37,806,643)  (24,716,295)  (189,058,955) 
Net increase (decrease)  10,008,872  $72,100,507  (1,957,075)  $(15,121,864) 

 

57


Note 5: Summary of derivative activity

The following is a summary of the market values of derivative instruments as of the close of the reporting period:

Market values of derivative instruments as of the close of the reporting period

  Asset derivatives  Liability derivatives 
Derivatives not         
accounted for as  Statement of    Statement of   
hedging instruments  assets and    assets and   
under ASC 815  liabilities location  Market value  liabilities location  Market value 
Credit contracts  Receivables  $—  Payables  $46,257 
Foreign exchange         
contracts  Receivables  —  Payables  302,980 
Equity contracts  Investments  910,276  Payables  — 
Total    $910,276    $349,237 

 

The following is a summary of realized and change in unrealized gains or losses of derivative instruments on the Statement of operations for the reporting period (see Note 1):

Amount of realized gain or (loss) on derivatives recognized in net gain or (loss) on investments

Derivatives not accounted for as hedging  Forward currency     
instruments under ASC 815  contracts  Swaps  Total 
Credit contracts  $—  $(75,512)  $(75,512) 
Foreign exchange contracts  1,512,018  —  $1,512,018 
Total  $1,512,018  $(75,512)  $1,436,506 

 

Change in unrealized appreciation or (depreciation) on derivatives recognized in net gain or (loss) on investments

Derivatives not accounted for    Forward     
as hedging instruments under    currency     
ASC 815  Warrants*  contracts  Swaps  Total 
Credit contracts  $—  $—  $336,556  $336,556 
Foreign exchange contracts  —  (203,391)  —  $(203,391) 
Equity contracts  108,451  —  —  $108,451 
Total  $108,451  $(203,391)  $336,556  $241,616 

 

*For the reporting period, the transaction volume for warrants was minimal.

Note 6: Investment in Putnam Money Market Liquidity Fund

The fund invested in Putnam Money Market Liquidity Fund, an open-end management investment company managed by Putnam Management. Investments in Putnam Money Market Liquidity Fund are valued at its closing net asset value each business day. Income distributions earned by the fund are recorded as interest income in the Statement of operations and totaled $18,124 for the reporting period. During the reporting period, cost of purchases and proceeds of sales of investments in Putnam Money Market Liquidity Fund aggregated $270,021,538 and $234,259,079, respectively. Management fees charged to Putnam Money Market Liquidity Fund have been waived by Putnam Management.

Note 7: Senior loan commitments

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

58


Note 8: Transactions with affiliated issuers

Transactions during the reporting period with a company which is under common ownership or control, or with companies in which the fund owned at least 5% of the voting securities, were as follows:

  Market         
  value at the        Market value 
  beginning of        at the end of 
  the reporting  Purchase  Sales  Dividend  the reporting 
Name of affiliate  period  cost  proceeds  income  period 
Bohai Bay Escrow  $12,165  $—  $—  $—  $12,165 
Totals  $12,165  $—  $—  $—  $12,165 

 

Market values are shown for those securities affiliated at the close of the reporting period.

Note 9: Market, credit and other risks

In the normal course of business, the fund trades financial instruments and enters into financial transactions where risk of potential loss exists due to changes in the market (market risk) or failure of the contracting party to the transaction to perform (credit risk). The fund may be exposed to additional credit risk that an institution or other entity with which the fund has unsettled or open transactions will default. Investments in foreign securities involve certain risks, including those related to economic instability, unfavorable political developments, and currency fluctuations, not present with domestic investments. The fund may invest in higher yielding, lower rated bonds that may have a higher rate of default. Investments in foreign securities involve certain risks, including those related to economic instability, unfavorable political developments, and currency fluctuations, not present with domestic investments.

Note 10: Regulatory matters and litigation

In late 2003 and 2004, Putnam Management settled charges brought by the SEC and the Massachusetts Securities Division in connection with excessive short-term trading in Putnam funds. In July 2011, the fund recorded a receivable of $547,977 related to restitution amounts in connection with a distribution plan approved by the SEC. This amount, which was received by the fund in December 2011, is reported as part of Increase in capital from settlement payments on the Statement of changes in net assets. These allegations and related matters have served as the general basis for certain lawsuits, including purported class action lawsuits against Putnam Management and, in a limited number of cases, some Putnam funds. In May 2011, the fund received a payment of $13,338 related to settlement of those lawsuits. This amount is reported as a part of Increase in capital from settlement payments on the Statement of changes in net assets. Putnam Management has agreed to bear any costs incurred by the Putnam funds as a result of these matters.

Note 11: New accounting pronouncement

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011–04 “Fair Value Measurements and Disclosures (Topic 820) — Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS”. ASU 2011–04 amends FASB Topic 820 “Fair Value Measurement” and seeks to develop common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP. ASU 2011–04 is effective for fiscal years and interim periods beginning after December 15, 2011. Putnam Management is currently evaluating the application of ASU 2011–04 and its impact, if any, on the fund’s financial statements.

59


Services for shareholders

Investor services

Systematic investment plan Tell us how much you wish to invest regularly — weekly, semimonthly, or monthly — and the amount you choose will be transferred automatically from your checking or savings account. There’s no additional fee for this service, and you can suspend it at any time. This plan may be a great way to save for college expenses or to plan for your retirement.

Please note that regular investing does not guarantee a profit or protect against loss in a declining market. Before arranging a systematic investment plan, consider your financial ability to continue making purchases in periods when prices are low.

Systematic exchange You can make regular transfers from one Putnam fund to another Putnam fund. There are no additional fees for this service, and you can cancel or change your options at any time.

Dividends PLUS You can choose to have the dividend distributions from one of your Putnam funds automatically reinvested in another Putnam fund at no additional charge.

Free exchange privilege You can exchange money between Putnam funds free of charge, as long as they are the same class of shares. A signature guarantee is required if you are exchanging more than $500,000. The fund reserves the right to revise or terminate the exchange privilege.

Reinstatement privilege If you’ve sold Putnam shares or received a check for a dividend or capital gain, you may reinvest the proceeds with Putnam within 90 days of the transaction and they will be reinvested at the fund’s current net asset value — with no sales charge. However, reinstatement of class B shares may have special tax consequences. Ask your financial or tax representative for details.

Check-writing service You have ready access to many Putnam accounts. It’s as simple as writing a check, and there are no special fees or service charges. For more information about the check-writing service, call Putnam or visit our website.

Dollar cost averaging When you’re investing for long-term goals, it’s time, not timing, that counts. Investing on a systematic basis is a better strategy than trying to figure out when the markets will go up or down. This means investing the same amount of money regularly over a long period. This method of investing is called dollar cost averaging. When a fund’s share price declines, your investment dollars buy more shares at lower prices. When it increases, they buy fewer shares. Over time, you will pay a lower average price per share.

For more information

Visit the Individual Investors section at putnam.com A secure section of our website contains complete information on your account, including balances and transactions, updated daily. You may also conduct transactions, such as exchanges, additional investments, and address changes. Log on today to get your password.

Call us toll free at 1-800-225-1581 Ask a helpful Putnam representative or your financial advisor for details about any of these or other services, or see your prospectus.

60


Fund information

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

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

 

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



Item 2. Code of Ethics:
Not applicable
Item 3. Audit Committee Financial Expert:
Not applicable
Item 4. Principal Accountant Fees and Services:
Not applicable
Item 5. Audit Committee of Listed Registrants
Not applicable
Item 6. Schedule of Investments:
The registrant’s schedule of investments in unaffiliated issuers is included in the report to shareholders in Item 1 above.

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

Not applicable
Item 8. Portfolio Managers of Closed-End Investment Companies
Not Applicable
Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers:

Not applicable
Item 10. Submission of Matters to a Vote of Security Holders:
Not applicable
Item 11. Controls and Procedures:
(a) The registrant’s principal executive officer and principal financial officer have concluded, based on their evaluation of the effectiveness of the design and operation of the registrant’s disclosure controls and procedures as of a date within 90 days of the filing date of this report, that the design and operation of such procedures are generally effective to provide reasonable assurance that information required to be disclosed by the registrant in this report is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms.

(b) Changes in internal control over financial reporting: Not applicable
Item 12. Exhibits:
(a)(1) Not applicable
(a)(2) Separate certifications for the principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Investment Company Act of 1940, as amended, are filed herewith.

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

Putnam High Yield Trust
By (Signature and Title):
/s/Janet C. Smith
Janet C. Smith
Principal Accounting Officer

Date: April 27, 2012
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By (Signature and Title):
/s/Jonathan S. Horwitz
Jonathan S. Horwitz
Principal Executive Officer

Date: April 27, 2012
By (Signature and Title):
/s/Steven D. Krichmar
Steven D. Krichmar
Principal Financial Officer

Date: April 27, 2012