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UNITED STATES |
SECURITIES AND EXCHANGE COMMISSION |
Washington, D.C. 20549 |
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FORM N-CSR |
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CERTIFIED SHAREHOLDER REPORT OF REGISTERED |
MANAGEMENT INVESTMENT COMPANIES |
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Investment Company Act file number: (811- 02796) | |
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Exact name of registrant as specified in charter: | Putnam High Yield Trust |
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Address of principal executive offices: One Post Office Square, Boston, Massachusetts 02109 |
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Name and address of agent for service: | Beth S. Mazor, Vice President |
| One Post Office Square |
| Boston, Massachusetts 02109 |
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Copy to: | John W. Gerstmayr, Esq. |
| Ropes & Gray LLP |
| One International Place |
| Boston, Massachusetts 02110 |
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Registrant’s telephone number, including area code: | (617) 292-1000 |
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Date of fiscal year end: August 31, 2008 | | |
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Date of reporting period: September 1, 2007 — February 29, 2008 |
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:
What makes Putnam different?
In 1830, Massachusetts Supreme Judicial Court Justice Samuel Putnam established The Prudent Man Rule, a legal foundation for responsible money management.
THE PRUDENT MAN RULE
All that can be required of a trustee to invest is that he shall conduct himself faithfully and exercise a sound discretion. He is to observe how men of prudence, discretion, and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of the capital to be invested.
A time-honored tradition in money management
Since 1937, our values have been rooted in a profound sense of responsibility for the money entrusted to us.
A prudent approach to investing
We use a research-driven team approach to seek consistent, dependable, superior investment results over time, although there is no guarantee a fund will meet its objectives.
Funds for every investment goal
We offer a broad range of mutual funds and other financial products so investors and their financial representatives can build diversified portfolios.
A commitment to doing what’s right for investors
With a focus on investment performance, below-average expenses, and in-depth information about our funds, we put the interests of investors first and seek to set the standard for integrity and service.
Industry-leading service
We help investors, along with their financial representatives, make informed investment decisions with confidence.
Putnam
High Yield
Trust
2| 29| 08
Semiannual Report
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Message from the Trustees | 2 |
About the fund | 4 |
Performance snapshot | 6 |
Interview with your fund’s Portfolio Leader | 7 |
Performance in depth | 12 |
Expenses | 15 |
Portfolio turnover | 17 |
Risk | 18 |
Your fund’s management | 19 |
Terms and definitions | 21 |
Trustee approval of management contract | 23 |
Other information for shareholders | 29 |
Financial statements | 30 |
Cover photograph: © Richard H. Johnson
Message from the Trustees
Dear Fellow Shareholder:
In 2008, financial markets and the economy face many challenges. The credit crisis that began as a rise in defaults for a limited segment of the U.S. mortgage market has spread across the global financial sector and produced a severe tightening of credit conditions. Growth has been curtailed as a result, and markets have reacted by sending stock prices lower. In the United States, the economy has weakened considerably, with many predicting that we are now in a recession, or will be soon. The good news is that policymakers are taking decisive action to counter these developments: The Federal Reserve Board has cut interest rates and added liquidity to the credit markets. In February, federal lawmakers, working with the president, approved a $168 billion fiscal stimulus plan, which will deliver tax rebate checks to tens of millions of Americans.
Still, as investors it is natural to feel discouraged. During these challenging times, it is important to remember the value of a long-term perspective and the counsel of your financial representative. The normal condition of the economy and corporate earnings is one of growth, albeit with occasional interruptions. If recent history is any indication, recessions in the United States are short-lived compared to economic expansions. Since 1960, the economy has experienced seven recessions lasting an average of 11 months, versus 64 months for the average expansion.
Starting this month, we have changed the portfolio manager’s commentary in this report to a question-and-answer format. We feel this new approach makes the information more readable and accessible, and we hope you think so as well.
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Lastly, we would like to take this opportunity to welcome new shareholders to the fund and to thank all of our existing investors for your continued confidence in Putnam. We note that Putnam Investments celebrated its 70th anniversary in November. From modest beginnings in Boston, Massachusetts, the company has grown into a global asset manager that serves millions of investors worldwide. Although the mutual fund industry has undergone many changes since George Putnam introduced his innovative balanced fund in 1937, Putnam’s guiding principles have not. As we celebrate this 70-year milestone, we look forward to Putnam continuing its long tradition of prudent money management.
Putnam High Yield Trust: A disciplined approach
to seeking high current income and capital growth
Unlike most types of fixed-income investments, high-yield bonds are more influenced by the performance of issuing companies than by interest rates. For this reason, distinguishing between opportunities and pitfalls in the high-yield bond market requires a rigorous selection process. With Putnam High Yield Trust, this process is highlighted by exhaustive research, investment diversification, and timely portfolio adjustments.
Because of the risks of high-yield bond investing, in-depth credit research is essential. The fund’s research team — more than 20 professionals, including analysts who specialize by industry — visits with the management of issuing companies and analyzes each company’s profitability and capital structure. The team then considers this information in the context of the bond’s total return profile before deciding whether it is an appropriate investment for the fund.
The fund’s portfolio typically consists of bonds issued by a broad range of companies. Holdings are diversified across industry sectors and among bonds with different credit ratings. While the fund invests primarily in the bonds of U.S. companies, its diversified approach allows it to include foreign bonds as well. Among these securities, investments in emerging-market bonds can enhance the fund’s appreciation potential. The fund also invests in convertible securities as well as bank loans. Although diversification does not ensure a profit or protect against a loss and it is possible to lose money in a diversified portfolio, the fund’s diversification can help reduce the volatility that typically comes with higher-risk investments.
As the bond markets shift over time, the fund’s management team looks 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 team may look to take advantage of the improved valuation of higher-risk securities. Conversely, if the team believes that credit risk is likely to pick up or volatility is likely to increase, the team may look to reduce risk in the portfolio.
Lower-rated bonds may offer higher yields in return for more risk. Mutual funds that invest in bonds are subject to certain risks, including interest-rate risk, credit risk, and inflation risk. As interest rates rise, the prices of bonds fall. Long-term bonds are more exposed to interest-rate risk than short-term bonds. Unlike bonds, bond funds have ongoing fees and expenses.
What makes a bond “high yield”?
High-yield bonds are fixed-income investments typically issued by companies that lack an established earnings track record or a solid credit history. In general, high-yield bonds offer higher interest rates than investment-grade bonds to compensate for their increased risk. Because of this added risk, these bonds are 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.
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BOND RATINGS | | |
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Moody’s | | Grade |
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Aaa | | Investment |
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Aa | | Investment |
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Baa | | Investment |
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Ba, B | | High yield |
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Caa/Ca | | High yield |
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C | | High yield |
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High-yield bonds have offered greater return potential
than investment-grade bonds.
Performance snapshot
Putnam High Yield Trust
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will fluctuate, and you may have a gain or a loss when you sell your shares. Performance of class A shares assumes reinvestment of distributions and does not account for taxes. Fund returns in the bar chart do not reflect a sales charge of 4.00%; had they, returns would have been lower. See pages 7 and 12–14 for additional performance information. For a portion of the periods, this fund may have limited expenses, without which returns would have been lower. A 1% short-term trading fee may apply. To obtain the most recent month-end performance, visit www.putnam.com.
* Returns for the six-month period are not annualized, but cumulative.
† The inception of the JPMorgan Developed High Yield Index was 12/31/94.
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The period in review
Thanks for taking the time today to talk about High Yield Trust, Paul. How did the fund perform during the past six months?
It held up relatively well during a difficult period for the high-yield bond market. For the six months ending February 29, 2008, the fund returned –1.56%, compared with –1.54% for its benchmark, the JPMorgan Developed High Yield Index, and –2.48% for our Lipper peer group, High Current Yield Funds.
What factors caused the high-yield market to post a negative return during the period?
In response to the subprime mortgage crisis and the resulting contagion that impacted the capital markets, high-yield bonds sold off during the two months that preceded the semiannual period. There was a modest recovery in September and October 2007, but high-yield bond performance subsequently declined in late 2007 due to concerns about the trajectory of the U.S. economy
Broad market index and fund performance
This comparison shows your fund’s performance in the context of broad market indexes for the six months ended 2/29/08. See page 6 and pages 12–14 for additional fund performance information. Index descriptions can be found on page 22.
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and corporate business fundamentals. Despite historically low default rates, these worries, along with a large overhang of new issuance, have held back the market so far in 2008.
What strategy did you use to weather this challenging environment?
We were well positioned during this difficult period. We had taken down some of our lower-rated positions earlier in 2007 and were overweight in sectors that generally outperformed during this period. Investing in floating-rate bank loans issued by high-yield companies was another method we used to attempt to temper the fund’s volatility. Unfortunately, this asset class suffered price losses as well, and our stance in it detracted from our performance relative to the benchmark.
What other moves did you make with the fund?
As high-yield bond prices declined, we were able to uncover buying opportunities among some lower-quality pockets of the market. During the period, the fund benefited from underweighting the financials and housing industries, and by overweighting energy issues — two postures we’ve maintained. At the same time, fund performance was held back by overweighting the diversified media group. Other areas we overweighted included aerospace and defense, cable TV/wireless, consumer products, and metals/minerals. Grocers, tobacco, forest
Top 10 holdings
This table shows the fund’s top 10 holdings and the percentage of the fund’s net assets that each represented as of 2/29/08. Holdings will vary over time.
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| COUPON (%) and | | |
HOLDING (percentage of fund’s net assets) | MATURITY DATE | | SECTOR/INDUSTRY |
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General Motors Corp. (1.0%) | 7.2%, 2011 | | Consumer cyclicals/Automotive |
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NRG Energy, Inc. (0.7%) | 7.375%, 2016 | | Utilities & power/Power producers |
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Ford Motor Credit Co., LLC (0.7%) | 9.875%, 2011 | | Consumer cyclicals/Automotive |
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Echostar DBS Corp. (0.7%) | 6.375%, 2011 | | Consumer staples/Broadcasting |
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Freeport-McMoRan Copper | | | |
& Gold, Inc. (0.7%) | 8.375%, 2017 | | Basic materials/Metals |
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GMAC, LLC (0.7%) | 6.875%, 2012 | | Financials/Financials |
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Legrand SA (0.6%) | 8.5%, 2025 | | Capital goods/Manufacturing |
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SunGard Data Systems, Inc. (0.6%) | 9.125%, 2013 | | Technology/Computers |
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CCH I, LLC (0.6%) | 11%, 2015 | | Consumer staples/Cable television |
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GMAC, LLC (0.6%) | 6.75%, 2014 | | Financials/Financials |
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products, gaming, and retail were groups that we chose to underweight.
Let’s talk about some of the fund’s holdings. Which contributed to performance relative to the index?
As mentioned, our stake in energy companies helped performance, including investments in natural gas companies El Paso, Williams, and Chesapeake Energy, all of which profited from the rise in the price of natural gas. Energy companies outperformed because they’re seen as relatively immune to any economic downturn. International Coal also performed well, as the price of that commodity also rose. Relative to the index, the fund benefited further from underweighting index components, including financing company Residential Capital, which was hurt by its subprime mortgage exposure.
Which securities detracted from performance?
Diversified media company Vertis underperformed when its proposed acquisition of a competitor was called off. Restaurant company Buffets defaulted during the period in the aftermath of weak operating results.
Credit quality comparison
This chart shows how the fund’s credit quality has changed over the past six months. Credit qualities are shown as a percentage of portfolio value. A bond rated Baa or higher (MIG3/VMIG3 or higher, for short-term debt) is considered investment grade. The chart reflects Moody’s ratings; percentages may include bonds not rated by Moody’s but considered by Putnam Management to be of comparable quality. Ratings will vary over time.
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While the fund had a small stake in this company, we fortunately had cut back the position in advance of the announcement. Gaming company Tropicana Entertainment declined as new management lost the license for its top casino site in New Jersey. Cable TV provider Charter Communications lagged because the company’s potential buy-out didn’t come to fruition. Lastly, our stake in bank loans detracted from performance. Loans declined in price as demand for them dropped sharply at the same time a significant calendar of new bank-loan issuance was being prepared for release into the market. We took advantage of these price declines to purchase additional bank loans at what we found to be particularly attractive valuations.
I N T H E N E W S
The subprime mortgage financial crisis started with the downturn in the U.S. housing market during the fall of 2006 and became a global financial crisis by July 2007. Lax mortgage-lending practices in 2005 and 2006 resulted in rising debt load for borrowers with weak credit histories. This situation was sustainable when mortgage rates were extremely low and home prices were rising, but when these conditions reversed course, delinquencies and foreclosures began to spike. Many homeowners were unable or unwilling to meet financial commitments, and many lenders were left without a means to recoup their losses. As this report was being prepared, the problem continued to take its toll on markets around the world, most recently with the announced acquisition of Bear Stearns Cos. by JPMorgan Chase & Co. In past economic cycles, defaults would have been limited, but the repackaging, securitization, and wide-scale distribution of subprime mortgage debt by U.S. investment banks enabled the mortgage crisis to take on global proportions.
Paul, what’s your outlook for the coming months?
This is an unusual time in the credit markets. We have had a massive widening in high-yield spreads, which would normally be associated with default rates that are well above average. However, default rates remain low by historic measures, while we believe they will rise, the market appears to have factored in at least some of that increase. We think that corporate business fundamentals are likely to deteriorate along with a weakening national economy, driving this increase in defaults. In addition, market technicals — meaning factors of supply and demand — are currently not working in the asset class’s favor. Specifically, a large amount of issuance remains poised to come to
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market at a time when investors have not rediscovered an appetite for the added risk inherent in high-yield bonds. On the bright side, this backdrop has increased the spread — or yield advantage — of high-yield bonds over comparable U.S. Treasuries, meaning high-yield bond prices are, in many instances, more attractive than they have been for quite some time. For our part, we are excited about the opportunities the market should present. We believe that this kind of environment is one in which our approach can prove significantly beneficial for our fellow shareholders.
Thanks for your time and insight today, Paul.
The views expressed in this report are exclusively those of Putnam Management. They are not meant as investment advice.
Lower-rated bonds may offer higher yields in return for more risk. Mutual funds that invest in bonds are subject to certain risks, including interest-rate risk, credit risk, and inflation risk. As interest rates rise, the prices of bonds fall. Long-term bonds are more exposed to interest-rate risk than short-term bonds. Unlike bonds, bond funds have ongoing fees and expenses. 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.
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Your fund’s performance
This section shows your fund’s performance, price, and distribution information for periods ended February 29, 2008, the end of the first half of its current fiscal year. In accordance with regulatory requirements for mutual funds, we also include performance as of the most recent calendar quarter-end and expense information taken from the fund’s current prospectus. Performance should always be considered in light of a fund’s investment strategy. Data represents past performance. Past performance does not guarantee future results. More recent returns may be less or more than those shown. Investment return and principal value will fluctuate, and you may have a gain or a loss when you sell your shares. Performance information does not reflect any deduction for taxes a shareholder may owe on fund distributions or on the redemption of fund shares. For the most recent month-end performance, please visit the Individual Investors section of www.putnam.com or call Putnam at 1-800-225-1581. Class Y shares are generally only available to corporate and institutional clients and clients in other approved programs. See the Terms and Definitions section in this report for definitions of the share classes offered by your fund.
Fund performance
Total return for periods ended 2/29/08
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| | Class A | | | Class B | | | Class C | | | Class M | | | Class R | | Class Y |
(inception dates) | | (2/14/78) | | | (3/1/93) | | | (3/19/02) | | | (7/3/95) | | | (1/21/03) | | (12/31/98) |
| | NAV | POP | | NAV | CDSC | | NAV | CDSC | | NAV | POP | | NAV | | NAV |
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Life of fund | | | | | | | | | | |
Annual average | 8.79% | 8.64% | 7.87% | 7.87% | 7.96% | 7.96% | 8.41% | 8.29% | 8.50% | 8.86% |
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10 years | 43.14 | 37.40 | 33.09 | 33.09 | 32.38 | 32.38 | 39.41 | 34.90 | 38.91 | 45.96 |
Annual average | 3.65 | 3.23 | 2.90 | 2.90 | 2.84 | 2.84 | 3.38 | 3.04 | 3.34 | 3.85 |
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5 years | 54.62 | 48.47 | 49.06 | 47.06 | 48.75 | 48.75 | 52.56 | 47.51 | 51.90 | 56.17 |
Annual average | 9.11 | 8.23 | 8.31 | 8.02 | 8.27 | 8.27 | 8.81 | 8.08 | 8.72 | 9.33 |
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3 years | 11.99 | 7.57 | 9.60 | 6.90 | 9.55 | 9.55 | 11.11 | 7.47 | 10.78 | 12.80 |
Annual average | 3.85 | 2.46 | 3.10 | 2.25 | 3.09 | 3.09 | 3.57 | 2.43 | 3.47 | 4.10 |
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1 year | –2.76 | –6.63 | –3.55 | –8.06 | –3.54 | –4.44 | –3.18 | –6.36 | –3.15 | –2.62 |
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6 months | –1.56 | –5.55 | –1.95 | –6.68 | –1.95 | –2.90 | –1.71 | –4.87 | –1.69 | –1.43 |
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Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. After sales charge returns (public offering price, or POP) for class A and M shares reflect a maximum 4.00% and 3.25% load, respectively. Class B share returns reflect the applicable contingent deferred sales charge (CDSC), which is 5% in the first year, declining to 1% in the sixth year, and is eliminated thereafter. Class C shares reflect a 1% CDSC for the first year and is eliminated thereafter. Class R and Y shares have no initial sales charge or CDSC. Performance for class B, C, M, R, and Y shares before their inception is derived from the historical performance of class A shares, adjusted for the applicable sales charge (or CDSC) and, except for class Y shares, the higher operating expenses for such shares.
For a portion of the period, this fund limited expenses, without which returns would have been lower.
A 1% short-term trading fee may be applied to shares exchanged or sold within 90 days of purchase.
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Comparative index returns
For periods ended 2/29/08
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| | | | Lipper High Current |
| | JPMorgan Developed | | Yield Funds |
| | High Yield Index | | category average* |
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Annual average | | | | |
(life of fund) | | —† | | 8.47% |
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10 years | | 66.43% | | 42.85 |
Annual average | | 5.23 | | 3.47 |
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5 years | | 55.68 | | 47.33 |
Annual average | | 9.26 | | 7.96 |
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3 years | | 12.91 | | 9.58 |
Annual average | | 4.13 | | 3.02 |
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1 year | | –2.66 | | –4.03 |
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6 months | | –1.54 | | –2.48 |
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Index and Lipper results should be compared to fund performance at net asset value.
* Over the 6-month and 1-, 3-, 5-, 10-year, and life-of-fund periods ended 2/29/08, there were 470, 446, 382, 333, 157, and 11 funds, respectively, in this Lipper category.
† This index began operations on 12/31/94.
Fund performance as of most recent calendar quarter
Total return for periods ended 3/31/08
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| | Class A | | | Class B | | | Class C | | | Class M | | | Class R | | Class Y |
(inception dates) | | (2/14/78) | | | (3/1/93) | | | (3/19/02) | | | (7/3/95) | | | (1/21/03) | | (12/31/98) |
| | NAV | POP | | NAV | CDSC | | NAV | CDSC | | NAV | POP | | NAV | | NAV |
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Annual average | | | | | | | | | | |
(life of fund) | 8.76% | 8.61% | 7.85% | 7.85% | 7.93% | 7.93% | 8.38% | 8.26% | 8.47% | 8.83% |
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10 years | 40.63 | 35.02 | 30.90 | 30.90 | 30.18 | 30.18 | 37.24 | 32.72 | 36.46 | 43.43 |
Annual average | 3.47 | 3.05 | 2.73 | 2.73 | 2.67 | 2.67 | 3.22�� | 2.87 | 3.16 | 3.67 |
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5 years | 50.83 | 44.72 | 45.57 | 43.57 | 45.48 | 45.48 | 49.01 | 44.14 | 48.18 | 52.57 |
Annual average | 8.57 | 7.67 | 7.80 | 7.50 | 7.79 | 7.79 | 8.30 | 7.59 | 8.18 | 8.82 |
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3 years | 15.21 | 10.63 | 12.91 | 10.13 | 12.72 | 12.72 | 14.46 | 10.71 | 13.98 | 16.05 |
Annual average | 4.83 | 3.42 | 4.13 | 3.27 | 4.07 | 4.07 | 4.60 | 3.45 | 4.46 | 5.09 |
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1 year | –3.36 | –7.21 | –3.90 | –8.40 | –4.01 | –4.91 | –3.53 | –6.71 | –3.74 | –3.10 |
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6 months | –4.14 | –7.95 | –4.40 | –9.02 | –4.41 | –5.33 | –4.16 | –7.29 | –4.28 | –4.03 |
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Fund price and distribution information
For the six-month period ended 2/29/08
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Distributions | Class A | Class B | Class C | Class M | Class R | Class Y |
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Number | 6 | 6 | 6 | 6 | 6 | 6 |
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Income | $0.294 | $0.264 | $0.264 | $0.282 | $0.285 | $0.305 |
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Capital gains | — | — | — | — | — | — |
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Total | $0.294 | $0.264 | $0.264 | $0.282 | $0.285 | $0.305 |
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Share value: | NAV | POP | NAV | NAV | NAV | POP | NAV | NAV |
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8/31/07 | $7.82 | $8.15† | $7.79 | $7.78 | $7.83 | $8.09† | $7.77 | $7.76 |
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2/29/08 | 7.41 | 7.72 | 7.38 | 7.37 | 7.42 | 7.67 | 7.36 | 7.35 |
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Current yield | | | | | | |
(end of period) | | | | | | |
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Current | | | | | | |
dividend rate1 | 7.94% | 7.62% | 7.15% | 7.16% | 7.60% | 7.35% | 7.83% | 8.16% |
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Current 30-day | | | | | | |
SEC yield2,3 | | | | | | |
(with expense | | | | | | |
limitation) | N/A | 8.05 | 7.62 | 7.62 | N/A | 7.87 | 8.15 | 8.65 |
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Current 30-day | | | | | | |
SEC yield3 | | | | | | |
(without | | | | | | |
expense | | | | | | |
limitation) | N/A | 8.05 | 7.61 | 7.62 | N/A | 7.87 | 8.15 | 8.65 |
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The classifications of distributions, if any, is an estimate. Final distribution will appear on your year-end tax forms.
† Reflects an increase in sales charges that took effect on 1/2/08.
1 Most recent distribution, excluding capital gains, annualized and divided by NAV or POP at end of period.
2 For a portion of the periods, this fund may have limited expenses, without which yields would have been lower.
3 Based only on investment income and calculated using the maximum offering price for each share class, in accordance with SEC guidelines.
Fund’s annual operating expenses
For the fiscal year ended 8/31/07
| | | | | | |
| Class A | Class B | Class C | Class M | Class R | Class Y |
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Total annual fund | | | | | | |
operating expenses | 1.03% | 1.78% | 1.78% | 1.28% | 1.28% | 0.78% |
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Expense information in this table is taken from the most recent prospectus, is subject to change, and may differ from that shown in the next section and in the financial highlights of this report. Expenses are shown as a percentage of average net assets.
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Your fund’s expenses
As a mutual fund investor, you pay ongoing expenses, such as management fees, distribution fees (12b-1 fees), and other expenses. In the most recent six-month period, your fund limited these expenses; had it not done so, expenses would have been higher. Using the information below, you can estimate how these expenses affect your investment and compare them with the expenses of other funds. You may also pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial representative.
Review your fund’s expenses
The table below shows the expenses you would have paid on a $1,000 investment in Putnam High Yield Trust from September 1, 2007, to February 29, 2008. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
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| | Class A | | Class B | | Class C | | Class M | | Class R | | Class Y |
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Expenses paid per $1,000* | $ 5.23 | $ 8.91 | $ 8.91 | $ 6.46 | $ 6.46 | $ 4.00 |
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Ending value (after expenses) | $984.40 | $980.50 | $980.50 | $982.90 | $983.10 | $985.70 |
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* 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 2/29/08. The expense ratio may differ for each share class (see the last table in this section). Expenses are calculated by multiplying the expense ratio by the average account value for the period; then multiplying the result by the number of days in the period; and then dividing that result by the number of days in the year.
Estimate the expenses you paid
To estimate the ongoing expenses you paid for the six months ended February 29, 2008, use the calculation method below. To find the value of your investment on September 1, 2007, call Putnam at 1-800-225-1581.
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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 table below 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.
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| | Class A | | Class B | | Class C | | Class M | | Class R | | Class Y |
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Expenses paid per $1,000* | $ 5.32 | $ 9.07 | $ 9.07 | $ 6.57 | $ 6.57 | $ 4.07 |
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Ending value (after expenses) | $1,019.59 | $1,015.86 | $1,015.86 | $1,018.35 | $1,018.35 | $1,020.84 |
|
* 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 2/29/08. The expense ratio may differ for each share class (see the last table in this section). Expenses are calculated by multiplying the expense ratio by the average account value for the period; then multiplying the result by the number of days in the period; and then dividing that result by the number of days in the year.
Compare expenses using industry averages
You can also compare your fund’s expenses with the average of its peer group, as defined by Lipper, an independent fund-rating agency that ranks funds relative to others that Lipper considers to have similar investment styles or objectives. The expense ratio for each share class shown below indicates how much of your fund’s average net assets have been used to pay ongoing expenses during the period.
| | | | | | |
| Class A | Class B | Class C | Class M | Class R | Class Y |
|
Your fund’s annualized | | | | | | |
expense ratio | 1.06% | 1.81% | 1.81% | 1.31% | 1.31% | 0.81% |
|
Average annualized expense | | | | | | |
ratio for Lipper peer group* | 1.12% | 1.87% | 1.87% | 1.37% | 1.37% | 0.87% |
|
* Putnam is committed to keeping fund expenses below the Lipper peer group average expense ratio and will limit fund expenses if they exceed the Lipper average. The Lipper average is a simple average of front-end load funds in the peer group that excludes 12b-1 fees as well as any expense offset and brokerage service arrangements that may reduce fund expenses. To facilitate the comparison in this presentation, Putnam has adjusted the Lipper average to reflect the 12b-1 fees carried by each class of shares other than class Y shares, which do not incur 12b-1 fees. Investors should note that the other funds in the peer group may be significantly smaller or larger than the fund, and that an asset-weighted average would likely be lower than the simple average. Also, the fund and Lipper report expense data at different times and for different periods. The fund’s expense ratio shown here is annualized data for the most rec ent six-month period, while the quarterly updated Lipper average is based on the most recent fiscal year-end data available for the peer group funds as of 12/31/07.
16
Your fund’s portfolio turnover
Putnam funds are actively managed by teams of experts who buy and sell securities based on intensive analysis of companies, industries, economies, and markets. Portfolio turnover is a measure of how often a fund’s managers buy and sell securities for your fund. A portfolio turnover of 100%, for example, means that the managers sold and replaced securities valued at 100% of a fund’s average portfolio value within a given period. Funds with high turnover may be more likely to generate capital gains that must be distributed to shareholders as taxable income. High turnover may also cause a fund to pay more brokerage commissions and other transaction costs, which may detract from performance.
Funds that invest in bonds or other fixed-income instruments may have higher turnover than funds that invest only in stocks. Short-term bond funds tend to have higher turnover than longer-term bond funds, because shorter-term bonds will mature or be sold more frequently than longer-term bonds. You can use the table below to compare your fund’s turnover with the average turnover for funds in its Lipper category.
Turnover comparisons
Percentage of holdings that change every year
| | | | | |
| 2007 | 2006 | 2005 | 2004 | 2003 |
|
Putnam High Yield Trust | 57% | 46% | 41% | 62% | 75% |
|
Lipper High Current Yield Funds | | | | | |
category average | 83% | 83% | 73% | 95% | 98% |
|
Turnover data for the fund is calculated based on the fund’s fiscal-year period, which ends on August 31. Turnover data for the fund’s Lipper category is calculated based on the average of the turnover of each fund in the category for its fiscal year ended during the indicated year. Fiscal years vary across funds in the Lipper category, which may limit the comparability of the fund’s portfolio turnover rate to the Lipper average. Comparative data for 2007 is based on information available as of 12/31/07.
17
Your fund’s risk
This risk comparison is designed to help you understand how your fund compares with other funds. The comparison utilizes a risk measure developed by Morningstar, an independent fund-rating agency. This risk measure is referred to as the fund’s Morningstar Risk.
Your fund’s Morningstar® Risk
Your fund’s Morningstar Risk is shown alongside that of the average fund in its Morningstar category. The risk bar broadens the comparison by translating the fund’s Morningstar Risk into a percentile, which is based on the fund’s ranking among all funds rated by Morningstar as of March 31, 2008. A higher Morningstar Risk generally indicates that a fund’s monthly returns have varied more widely.
Morningstar determines a fund’s Morningstar Risk by assessing variations in the fund’s monthly returns — with an emphasis on downside variations — over a 3-year period, if available. Those measures are weighted and averaged to produce the fund’s Morningstar Risk. The information shown is provided for the fund’s class A shares only; information for other classes may vary. Morningstar Risk is based on historical data and does not indicate future results. Morningstar does not purport to measure the risk associated with a current investment in a fund, either on an absolute basis or on a relative basis. Low Morningstar Risk does not mean that you cannot lose money on an investment in a fund. Copyright 2008 Morningstar, Inc. All Rights Reserved. The information contained herein (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.
18
Your fund’s management
Your fund is managed by the members of the Putnam Fixed-Income High-Yield Team. Paul Scanlon is the Portfolio Leader, and Norman Boucher and Robert Salvin are Portfolio Members of your fund. The Portfolio Leader and Portfolio Members coordinate the team’s management of the fund.
For a complete listing of the members of the Putnam Fixed-Income High-Yield Team, including those who are not Portfolio Leaders or Portfolio Members of your fund, please visit the Individual Investors section of www.putnam.com.
Investment team fund ownership
The table below shows how much the fund’s current Portfolio Leader and Portfolio Members have invested in the fund and in all Putnam mutual funds (in dollar ranges). Information shown is as of February 29, 2008, and February 28, 2007.
Trustee and Putnam employee fund ownership
As of February 29, 2008, all of the Trustees of the Putnam funds owned fund shares. The table below shows the approximate value of investments in the fund and all Putnam funds as of that date by the Trustees and Putnam employees. These amounts include investments by the Trustees’ and employees’ immediate family members and investments through retirement and deferred compensation plans.
| | |
| | Total assets in |
| Assets in the fund | all Putnam funds |
|
Trustees | $ 618,000 | $ 88,000,000 |
|
Putnam employees | $3,107,000 | $672,000,000 |
|
19
Other Putnam funds managed by the Portfolio Leader and Portfolio Members
Paul Scanlon is also a Portfolio Leader of Putnam High Yield Advantage Fund and Putnam Floating Rate Income Fund. He is also a Portfolio Member of Putnam Diversified Income Trust, Putnam Premier Income Trust, and Putnam Master Intermediate Income Trust.
Norman Boucher is also a Portfolio Member of Putnam High Yield Advantage Fund and Putnam Floating Rate Income Fund.
Robert Salvin is also a Portfolio Leader of Putnam High Income Securities Fund and a Portfolio Member of Putnam High Yield Advantage Fund, Putnam Floating Rate Income Fund, and Putnam Convertible Income-Growth Trust.
Paul Scanlon, Norman Boucher, and Robert Salvin may also manage other accounts and variable trust funds advised by Putnam Management or an affiliate.
20
Terms and definitions
Important terms
Total return shows how the value of the fund’s shares changed over time, assuming you held the shares through the entire period and reinvested all distributions in the fund.
Net asset value (NAV) is the price, or value, of one share of a mutual fund, without a sales charge. NAVs fluctuate with market conditions. NAV is calculated by dividing the net assets of each class of shares by the number of outstanding shares in the class.
Public offering price (POP) is the price of a mutual fund share plus the maximum sales charge levied at the time of purchase. POP performance figures shown here assume the 4.00% maximum sales charge for class A shares and 3.25% for class M shares.
Contingent deferred sales charge (CDSC) is generally a charge applied at the time of the redemption of class B or C shares and assumes redemption at the end of the period. Your fund’s class B CDSC declines from a 5% maximum during the first year to 1% during the sixth year. After the sixth year, the CDSC no longer applies. The CDSC for class C shares is 1% for one year after purchase.
Current yield is the annual rate of return earned from dividends or interest of an investment. Current yield is expressed as a percentage of the price of a security, fund share, or principal investment.
Share classes
Class A shares are generally subject to an initial sales charge and no CDSC (except on certain redemptions of shares bought without an initial sales charge).
Class B shares are not subject to an initial sales charge. They may be subject to a CDSC.
Class C shares are not subject to an initial sales charge and are subject to a CDSC only if the shares are redeemed during the first year.
Class M shares have a lower initial sales charge and a higher 12b-1 fee than class A shares and no CDSC (except on certain redemptions of shares bought without an initial sales charge).
Class R shares are not subject to an initial sales charge or CDSC and are available only to certain defined contribution plans.
Class Y shares are not subject to an initial sales charge or CDSC, and carry no 12b-1 fee. They are generally only available to corporate and institutional clients and clients in other approved programs.
21
Comparative indexes
JPMorgan Developed High Yield Index is an unmanaged index of high-yield fixed-income securities issued in developed countries.
Lehman Aggregate Bond Index is an unmanaged index of U.S. investment-grade fixed-income securities.
Lehman Global Aggregate Bond Index is an unmanaged index of global investment-grade fixed-income securities.
Merrill Lynch 91-Day Treasury Bill Index is an unmanaged index that seeks to measure the performance of U.S. Treasury bills available in the marketplace.
S&P 500 Index is an unmanaged index of common stock performance.
Indexes assume reinvestment of all distributions and do not account for fees. Securities and performance of a fund and an index will differ. You cannot invest directly in an index.
Lipper is a third-party industry-ranking entity that ranks mutual funds. Its rankings do not reflect sales charges. Lipper rankings are based on total return at net asset value relative to other funds that have similar current investment styles or objectives as determined by Lipper. Lipper may change a fund’s category assignment at its discretion. Lipper category averages reflect performance trends for funds within a category.
22
Trustee approval of management contract
General conclusion
The Board of Trustees of the Putnam funds oversees the management of each fund and, as required by law, determines annually whether to approve the continuance of your fund’s management contract with Putnam Investment Management (“Putnam Management”) and the sub-management contract between Putnam Management’s affiliate, Putnam Investments Limited (“PIL”), and Putnam Management. In this regard, the Board of Trustees, with the assistance of its Contract Committee consisting solely of Trustees who are not “interested persons” (as such term is defined in the Investment Company Act of 1940, as amended) of the Putnam funds (the “Independent Trustees”), requests and evaluates all information it deems reasonably necessary under the circumstances. Over the course of several months ending in June 2007, the Contract Committee met several times to consider the information provided by Putnam Management and other information develo ped with the assistance of the Board’s independent counsel and independent staff. The Contract Committee reviewed and discussed key aspects of this information with all of the Independent Trustees. The Contract Committee recommended, and the Independent Trustees approved, the continuance of your fund’s management contract and sub-management contract, effective July 1, 2007. (Because PIL is an affiliate of Putnam Management and Putnam Management remains fully responsible for all services provided by PIL, the Trustees have not evaluated PIL as a separate entity, and all subsequent references to Putnam Management below should be deemed to include reference to PIL as necessary or appropriate in the context.)
In addition, in anticipation of the sale of Putnam Investments to Great-West Lifeco, at a series of meetings ending in March 2007, the Trustees reviewed and approved new management and distribution arrangements to take effect upon the change of control. Shareholders of all funds approved the management contracts in May 2007, and the change of control transaction was completed on August 3, 2007. Upon the change of control, the management contracts that were approved by the Trustees in June 2007 automatically terminated and were replaced by new contracts that had been approved by shareholders. In connection with their review for the June 2007 continuance of the Putnam funds’ management contracts, the Trustees did not identify any facts or circumstances that would alter the substance of the conclusions and recommendations they made in their review of the contracts to take effect upon the change of control.
The Independent Trustees’ approval was based on the following conclusions:
• That the fee schedule in effect for your fund represented reasonable compensation in light of the nature and quality of the services being provided to the fund, the fees paid by competitive funds and the costs incurred by Putnam Management in providing such services, and
• That this fee schedule represented an appropriate sharing between fund shareholders and Putnam Management of such economies of scale as may exist in the management of the fund at current asset levels.
23
These conclusions were based on a comprehensive consideration of all information provided to the Trustees and were not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations and how the Trustees considered these factors are described below, although individual Trustees may have evaluated the information presented differently, giving different weights to various factors. It is also important to recognize that the fee arrangements for your fund and the other Putnam funds are the result of many years of review and discussion between the Independent Trustees and Putnam Management, that certain aspects of such arrangements may receive greater scrutiny in some years than others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements in prior years.
Management fee schedules and categories; total expenses
The Trustees reviewed the management fee schedules in effect for all Putnam funds, including fee levels and breakpoints, and the assignment of funds to particular fee categories. In reviewing fees and expenses, the Trustees generally focused their attention on material changes in circumstances — for example, changes in a fund’s size or investment style, changes in Putnam Management’s operating costs or responsibilities, or changes in competitive practices in the mutual fund industry — that suggest that consideration of fee changes might be warranted. The Trustees concluded that the circumstances did not warrant changes to the management fee structure of your fund, which had been carefully developed over the years, re-examined on many occasions and adjusted where appropriate. The Trustees focused on two areas of particular interest, as discussed further below:
• Competitiveness. The Trustees reviewed comparative fee and expense information for competitive funds, which indicated that, in a custom peer group of competitive funds selected by Lipper Inc., your fund ranked in the 52nd percentile in management fees and in the 41st percentile in total expenses (less any applicable 12b-1 fees) as of December 31, 2006 (the first percentile being the least expensive funds and the 100th percentile being the most expensive funds). (Because the fund’s custom peer group is smaller than the fund’s broad Lipper Inc. peer group, this expense information may differ from the Lipper peer expense information found elsewhere in this report.) The Trustees noted that expense ratios for a number of Putnam funds, which show the percentage of fund assets used to pay for management and administrative services, distributio n (12b-1) fees and other expenses, had been increasing recently as a result of declining net assets and the natural operation of fee breakpoints.
The Trustees noted that the expense ratio increases described above were currently being controlled by expense limitations implemented in January 2004 and which Putnam Management had committed to maintain at least through 2007. In anticipation of the change of control of Putnam Investments, the Trustees requested, and received a commitment from
24
Putnam Management and Great-West Lifeco, to extend this program through at least June 30, 2009. These expense limitations give effect to a commitment by Putnam Management that the expense ratio of each open-end fund would be no higher than the average expense ratio of the competitive funds included in the fund’s relevant Lipper universe (exclusive of any applicable 12b-1 charges in each case). The Trustees observed that this commitment to limit fund expenses has served shareholders well since its inception.
In order to ensure that the expenses of the Putnam funds continue to meet evolving competitive standards, the Trustees requested, and Putnam Management agreed, to extend for the twelve months beginning July 1, 2007, an additional expense limitation for certain funds at an amount equal to the average expense ratio (exclusive of 12b-1 charges) of a custom peer group of competitive funds selected by Lipper to correspond to the size of the fund. This additional expense limitation will be applied to those open-end funds that had above-average expense ratios (exclusive of 12b-1 charges) based on the custom peer group data for the period ended December 31, 2006. This additional expense limitation will not be applied to your fund because it had a below-average expense ratio relative to its custom peer group.
• Economies of scale. Your fund currently has the benefit of breakpoints in its management fee that provide shareholders with significant economies of scale, which means that the effective management fee rate of a fund (as a percentage of fund assets) declines as a fund grows in size and crosses specified asset thresholds. Conversely, as a fund shrinks in size — as has been the case for many Putnam funds in recent years — these breakpoints result in increasing fee levels. In recent years, the Trustees have examined the operation of the existing breakpoint structure during periods of both growth and decline in asset levels. The Trustees concluded that the fee schedules in effect for the funds represented an appropriate sharing of economies of scale at current asset levels. In reaching this conclusion, the Trustees considered the Contract C ommittee’s stated intent to continue to work with Putnam Management to plan for an eventual resumption in the growth of assets, and to consider the potential economies that might be produced under various growth assumptions.
In connection with their review of the management fees and total expenses of the Putnam funds, the Trustees also reviewed the costs of the services to be provided and profits to be realized by Putnam Management and its affiliates from the relationship with the funds. This information included trends in revenues, expenses and profitability of Putnam Management and its affiliates relating to the investment management and distribution services provided to the funds. In this regard, the Trustees also reviewed an analysis of Putnam Management’s revenues, expenses and profitability with respect to the funds’ management contracts, allocated on a fund-by-fund basis.
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Investment performance during the review period
The quality of the investment process provided by Putnam Management represented a major factor in the Trustees’ evaluation of the quality of services provided by Putnam Management under your fund’s management contract. The Trustees were assisted in their review of the Putnam funds’ investment process and performance by the work of the Investment Process Committee of the Trustees and the Investment Oversight Committees of the Trustees, which had met on a regular monthly basis with the funds’ portfolio teams throughout the year. The Trustees concluded that Putnam Management generally provides a high-quality investment process — as measured by the experience and skills of the individuals assigned to the management of fund portfolios, the resources made available to such personnel, and in general the ability of Putnam Management to attract and retain high-quality personnel — but also recognized that this does not guarantee favorable investm ent results for every fund in every time period. The Trustees considered the investment performance of each fund over multiple time periods and considered information comparing each fund’s performance with various benchmarks and with the performance of competitive funds.
The Trustees noted the satisfactory investment performance of many Putnam funds. They also noted the disappointing investment performance of certain funds in recent years and discussed with senior management of Putnam Management the factors contributing to such underperformance and actions being taken to improve performance. The Trustees recognized that, in recent years, Putnam Management has made significant changes in its investment personnel and processes and in the fund product line to address areas of underperformance. In particular, they noted the important contributions of Putnam Management’s leadership in attracting, retaining and supporting high-quality investment professionals and in systematically implementing an investment process that seeks to merge the best features of fundamental and quantitative analysis. The Trustees indicated their intention to continue to monitor performance trends to assess the effectiveness of these changes and to evaluate whether additional changes to address areas of underperformance are warranted.
In the case of your fund, the Trustees considered that your fund’s class A share cumulative total return performance at net asset value was in the following percentiles of its Lipper Inc. peer group (Lipper High Current Yield Funds) for the one-, three- and five-year periods ended March 31, 2007 (the first percentile being the best-performing funds and the 100th percentile being the worst-performing funds):
| | |
One-year period | Three-year period | Five-year period |
|
34th | 28th | 28th |
26
(Because of the passage of time, these performance results may differ from the performance results for more recent periods shown elsewhere in this report. Over the one-, three- and five-year periods ended March 31, 2007, there were 445, 382 and 315 funds, respectively, in your fund’s Lipper peer group.* Past performance is no guarantee of future returns.)
As a general matter, the Trustees concluded that cooperative efforts between the Trustees and Putnam Management represent the most effective way to address investment performance problems. The Trustees noted that investors in the Putnam funds have, in effect, placed their trust in the Putnam organization, under the oversight of the funds’ Trustees, to make appropriate decisions regarding the management of the funds. Based on the responsiveness of Putnam Management in the recent past to Trustee concerns about investment performance, the Trustees concluded that it is preferable to seek change within Putnam Management to address performance shortcomings. In the Trustees’ view, the alternative of terminating a management contract and engaging a new investment adviser for an underperforming fund would entail significant disruptions and would not provide any greater assurance of improved investment performance.
Brokerage and soft-dollar allocations; other benefits
The Trustees considered various potential benefits that Putnam Management may receive in connection with the services it provides under the management contract with your fund. These include benefits related to brokerage and soft-dollar allocations, whereby a portion of the commissions paid by a fund for brokerage may be used to acquire research services that may be useful to Putnam Management in managing the assets of the fund and of other clients. The Trustees indicated their continued intent to monitor the potential benefits associated with the allocation of fund brokerage to ensure that the principle of seeking “best price and execution” remains paramount in the portfolio trading process.
The Trustees’ annual review of your fund’s management contract also included the review of its distributor’s contract and distribution plan with Putnam Retail Management Limited Partnership and the custodian agreement and investor servicing agreement with Putnam Fiduciary Trust Company (“PFTC”), each of which provides benefits to affiliates of Putnam Management. In the case of the custodian agreement, the Trustees considered that, effective January 1, 2007, the Putnam funds had engaged State Street Bank and Trust Company as custodian and began to transition the responsibility for providing custody services away from PFTC.
* The percentile rankings for your fund’s class A share annualized total return performance in the Lipper High Current Yield Funds category for the one-, five-, and ten-year periods ended March 31, 2008, were 37%, 22%, and 54%, respectively. Over the one-, five-, and ten-year periods ended March 31, 2008, the fund ranked 165th out of 453, 73rd out of 332, and 86th out of 160, respectively. Note that this more recent information was not available when the Trustees approved the continuance of your fund’s management contract.
27
Comparison of retail and institutional fee schedules
The information examined by the Trustees as part of their annual contract review has included for many years information regarding fees charged by Putnam Management and its affiliates to institutional clients such as defined benefit pension plans, college endowments, etc. This information included comparison of such fees with fees charged to the funds, as well as a detailed assessment of the differences in the services provided to these two types of clients. The Trustees observed, in this regard, that the differences in fee rates between institutional clients and the funds are by no means uniform when examined by individual asset sectors, suggesting that differences in the pricing of investment management services to these types of clients reflect to a substantial degree historical competitive forces operating in separate market places. The Trustees considered the fact that fee rates across all asset sectors are higher on average for funds than for institutional cli ents, as well as the differences between the services that Putnam Management provides to the Putnam funds and those that it provides to institutional clients of the firm, but did not rely on such comparisons to any significant extent in concluding that the management fees paid by your fund are reasonable.
28
Other information for shareholders
Important notice regarding delivery of shareholder documents
In accordance with SEC regulations, Putnam sends a single copy of annual and semiannual shareholder reports, prospectuses, and proxy statements to Putnam shareholders who share the same address, unless a shareholder requests otherwise. If you prefer to receive your own copy of these documents, please call Putnam at 1-800-225-1581, and Putnam will begin sending individual copies within 30 days.
Proxy voting
Putnam is committed to managing our mutual funds in the best interests of our shareholders. The Putnam funds’ proxy voting guidelines and procedures, as well as information regarding how your fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2007, are available in the Individual Investors section of www.putnam.com, and on the SEC’s Web site, www.sec.gov. If you have questions about finding forms on the SEC’s Web site, you may call the SEC at 1-800-SEC-0330. You may also obtain the Putnam funds’ proxy voting guidelines and procedures at no charge by calling Putnam’s Shareholder Services at 1-800-225-1581.
Fund portfolio holdings
The fund will file a complete schedule of its portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. Shareholders may obtain the fund’s Forms N-Q on the SEC’s Web site at www.sec.gov. In addition, the fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. You may call the SEC at 1-800-SEC-0330 for information about the SEC’s Web site or the operation of the Public Reference Room.
29
Financial statements
A guide to financial statements
These sections of the report, as well as the accompanying Notes, constitute the fund’s financial statements.
The fund’s portfolio lists all the fund’s investments and their values as of the last day of the reporting period. Holdings are organized by asset type and industry sector, country, or state to show areas of concentration and diversification.
Statement of assets and liabilities shows how the fund’s net assets and share price are determined. All investment and noninvestment assets are added together. Any unpaid expenses and other liabilities are subtracted from this total. The result is divided by the number of shares to determine the net asset value per share, which is calculated separately for each class of shares. (For funds with preferred shares, the amount subtracted from total assets includes the liquidation preference of preferred shares.)
Statement of operations shows the fund’s net investment gain or loss. This is done by first adding up all the fund’s earnings — from dividends and interest income — and subtracting its operating expenses to determine net investment income (or loss). Then, any net gain or loss the fund realized on the sales of its holdings — as well as any unrealized gains or losses over the period — is added to or subtracted from the net investment result to determine the fund’s net gain or loss for the fiscal period.
Statement of changes in net assets shows how the fund’s net assets were affected by the fund’s net investment gain or loss, by distributions to shareholders, and by changes in the number of the fund’s shares. It lists distributions and their sources (net investment income or realized capital gains) over the current reporting period and the most recent fiscal year-end. The distributions listed here may not match the sources listed in the Statement of operations because the distributions are determined on a tax basis and may be paid in a different period from the one in which they were earned. Dividend sources are estimated at the time of declaration. Actual results may vary. Any non-taxable return of capital cannot be determined until final tax calculations are completed after the end of the fund’s fiscal year.
Financial highlights provide an overview of the fund’s investment results, per-share distributions, expense ratios, net investment income ratios, and portfolio turnover in one summary table, reflecting the five most recent reporting periods. In a semiannual report, the highlight table also includes the current reporting period.
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The fund’s portfolio 2/29/08 (Unaudited)
| | | | |
CORPORATE BONDS AND NOTES (78.8%)* | | | | |
|
| | Principal amount | | Value |
|
Advertising and Marketing Services (0.3%) | | | | |
Lamar Media Corp. company guaranty 7 1/4s, 2013 (S) | $ | 4,050,000 | $ | 3,918,375 |
Lamar Media Corp. sr. unsec. sub. notes Ser. C, 6 5/8s, 2015 | | 1,255,000 | | 1,154,600 |
| | | | 5,072,975 |
|
|
Automotive (3.7%) | | | | |
Allison Transmission 144A company guaranty 11s, 2015 | | 2,160,000 | | 1,846,800 |
ArvinMeritor, Inc. sr. unsec. notes 8 1/8s, 2015 | | 1,460,000 | | 1,208,150 |
Dana Corp. notes 5.85s, 2015 (In default) † | | 6,095,000 | | 426,650 |
Ford Motor Co. notes 7.45s, 2031 | | 5,575,000 | | 3,804,938 |
Ford Motor Credit Co., LLC notes 7 7/8s, 2010 | | 6,665,000 | | 6,142,311 |
Ford Motor Credit Co., LLC sr. notes 9 7/8s, 2011 | | 14,395,000 | | 13,275,332 |
Ford Motor Credit Co., LLC sr. unsec. notes 9 3/4s, 2010 | | 5,420,000 | | 5,042,353 |
Ford Motor Credit Co., LLC unsec. notes 7 3/8s, 2009 (S) | | 6,310,000 | | 5,983,540 |
General Motors Corp. sr. unsec. unsub. notes 7.2s, 2011 | | 20,470,000 | | 18,525,350 |
Lear Corp. company guaranty 8 1/2s, 2013 | | 2,250,000 | | 2,030,625 |
Tenneco Automotive, Inc. company guaranty 8 5/8s, 2014 | | 2,300,000 | | 2,254,000 |
Tenneco Automotive, Inc. sec. notes Ser. B, 10 1/4s, 2013 | | 311,000 | | 330,049 |
Tenneco, Inc. 144A sr. unsec. notes 8 1/8s, 2015 | | 965,000 | | 967,413 |
UCI Holdco, Inc. sr. unsec. FRN 12.491s, 2013 ‡‡ | | 6,116,358 | | 5,412,977 |
| | | | 67,250,488 |
|
|
Basic Materials (6.8%) | | | | |
AK Steel Corp. company guaranty 7 3/4s, 2012 | | 6,250,000 | | 6,296,875 |
Aleris International, Inc. company guaranty 10s, 2016 | | 4,875,000 | | 3,345,469 |
Aleris International, Inc. company guaranty 9s, 2014 ‡‡ | | 4,325,000 | | 3,222,125 |
Algoma Acquisition Corp. 144A unsec. notes 9 7/8s, 2015 (Canada) | | 1,900,000 | | 1,529,500 |
ARCO Chemical Co. debs. 10 1/4s, 2010 | | 1,525,000 | | 1,547,875 |
Builders FirstSource, Inc. company guaranty sr. sec. | | | | |
FRN 7.315s, 2012 | | 4,885,000 | | 3,566,050 |
Century Aluminum Co. company guaranty 7 1/2s, 2014 | | 2,785,000 | | 2,645,750 |
Clondalkin Acquisition BV 144A company guaranty | | | | |
sr. sec. notes FRN 6.991s, 2013 (Netherlands) | | 3,270,000 | | 2,685,488 |
Compass Minerals International, Inc. sr. disc. | | | | |
notes stepped-coupon Ser. B, zero % (12s, 6/1/08), 2013 †† | | 2,540,000 | | 2,616,200 |
Domtar Corp. company guaranty Ser. *, 7 7/8s, 2011 (Canada) | | 1,470,000 | | 1,447,950 |
Freeport-McMoRan Copper & Gold, Inc. sr. unsec. | | | | |
bonds 8 3/8s, 2017 | | 11,865,000 | | 12,532,406 |
Freeport-McMoRan Copper & Gold, Inc. sr. unsec. | | | | |
notes FRN 8.394s, 2015 | | 2,095,000 | | 2,011,200 |
Freeport-McMoRan Copper & Gold, Inc. sr. unsec. | | | | |
notes 8 1/4s, 2015 | | 5,930,000 | | 6,233,913 |
Georgia-Pacific Corp. debs. 9 1/2s, 2011 | | 4,275,000 | | 4,328,438 |
Gerdau Ameristeel Corp. sr. notes 10 3/8s, 2011 (Canada) | | 5,905,000 | | 6,200,250 |
Hercules, Inc. company guaranty 6 3/4s, 2029 | | 4,570,000 | | 4,250,100 |
Hexion U.S. Finance Corp./Hexion Nova Scotia | | | | |
Finance, ULC company guaranty 9 3/4s, 2014 | | 4,470,000 | | 4,626,450 |
31
| | | | | |
CORPORATE BONDS AND NOTES (78.8%)* continued | | | | | |
|
| | | Principal amount | | Value |
|
Basic Materials continued | | | | | |
Huntsman, LLC company guaranty 11 5/8s, 2010 | | $ | 1,000 | $ | 1,060 |
Jefferson Smurfit Corp. company guaranty 8 1/4s, 2012 (S) | | | 1,353,000 | | 1,261,673 |
MacDermid, Inc. 144A sr. sub. notes 9 1/2s, 2017 | | | 1,445,000 | | 1,271,600 |
Metals USA, Inc. sec. notes 11 1/8s, 2015 | | | 6,050,000 | | 5,974,375 |
Momentive Performance Materials, Inc. company | | | | | |
guaranty sr. unsec. notes 9 3/4s, 2014 (S) | | | 10,680,000 | | 9,558,600 |
Mosaic Co. (The) 144A sr. unsec. unsub. notes 7 5/8s, 2016 | | | 1,295,000 | | 1,392,125 |
Mosaic Co. (The) 144A sr. unsec. unsub. notes 7 3/8s, 2014 | | | 780,000 | | 828,750 |
NewPage Corp. company guaranty 10s, 2012 | | | 2,265,000 | | 2,270,663 |
NewPage Corp. sec. notes 10s, 2012 | | | 2,645,000 | | 2,651,613 |
NewPage Holding Corp. sr. notes FRN 11.818s, 2013 ‡‡ | | | 1,568,466 | | 1,309,669 |
Norske Skog Canada, Ltd. company guaranty Ser. D, | | | | | |
8 5/8s, 2011 (Canada) | | | 4,651,000 | | 3,895,213 |
Novelis, Inc. company guaranty 7 1/4s, 2015 | | | 7,057,000 | | 6,351,300 |
Rockwood Specialties Group, Inc. company guaranty | | | | | |
7 5/8s, 2014 | EUR | | 3,140,000 | | 4,256,922 |
Smurfit-Stone Container Enterprises, Inc. sr. unsec. | | | | | |
unsub. notes 8s, 2017 | | $ | 1,620,000 | | 1,433,700 |
Steel Dynamics, Inc. company guaranty sr. unsec. | | | | | |
unsub. notes 6 3/4s, 2015 (S) | | | 8,140,000 | | 7,956,850 |
Tube City IMS Corp. company guaranty 9 3/4s, 2015 | | | 3,295,000 | | 2,907,838 |
Ucar Finance, Inc. company guaranty 10 1/4s, 2012 | | | 108,000 | | 111,510 |
Verso Paper Holdings, LLC/ Verso Paper, Inc. company | | | | | |
guaranty 11 3/8s, 2016 | | | 2,390,000 | | 2,162,950 |
| | | | | 124,682,450 |
|
|
Broadcasting (2.3%) | | | | | |
Clear Channel Communications, Inc. sr. unsec 5 1/2s, 2014 | | | 810,000 | | 534,600 |
DirecTV Holdings, LLC company guaranty 6 3/8s, 2015 | | | 8,927,000 | | 8,279,793 |
Echostar DBS Corp. company guaranty 7s, 2013 | | | 4,245,000 | | 4,181,325 |
Echostar DBS Corp. company guaranty 6 5/8s, 2014 | | | 705,000 | | 678,563 |
Echostar DBS Corp. sr. notes 6 3/8s, 2011 | | | 13,260,000 | | 13,061,100 |
Ion Media Networks, Inc. 144A sr. sec. notes 10.508s, 2013 | | | 2,735,000 | | 2,109,369 |
Ion Media Networks, Inc. 144A sr. sec. notes 7.508s, 2012 | | | 3,300,000 | | 2,739,000 |
Sirius Satellite Radio, Inc. sr. unsec. notes 9 5/8s, 2013 | | | 5,610,000 | | 4,628,250 |
Univision Communications, Inc. 144A company | | | | | |
guaranty unsec. notes 9 3/4s, 2015 ‡‡ | | | 3,150,000 | | 2,173,500 |
Young Broadcasting, Inc. company guaranty 10s, 2011 | | | 4,339,000 | | 2,993,910 |
Young Broadcasting, Inc. sr. sub. notes 8 3/4s, 2014 | | | 1,140,000 | | 769,500 |
| | | | | 42,148,910 |
|
|
Building Materials (0.9%) | | | | | |
Associated Materials, Inc. company guaranty 9 3/4s, 2012 | | | 5,887,000 | | 5,828,130 |
NTK Holdings, Inc. sr. disc. notes zero %, 2014 | | | 6,195,000 | | 3,283,350 |
Texas Industries, Inc. sr. unsec. notes 7 1/4s, 2013 | | | 1,995,000 | | 1,905,225 |
THL Buildco, Inc. (Nortek Holdings, Inc.) | | | | | |
sr. sub. notes 8 1/2s, 2014 | | | 7,430,000 | | 5,758,250 |
| | | | | 16,774,955 |
32
| | | | | |
CORPORATE BONDS AND NOTES (78.8%)* continued | | | | | |
|
| | | Principal amount | | Value |
|
Cable Television (2.4%) | | | | | |
Adelphia Communications Corp. zero %, 2011 | | $ | 90,000 | $ | 6,975 |
Adelphia Communications Corp. zero %, 2009 | | | 5,000 | | 356 |
Adelphia Communications Corp. zero %, 2009 | | | 2,918,000 | | 207,908 |
Adelphia Communications Corp. zero %, 2008 | | | 5,000 | | 369 |
Adelphia Communications Corp. escrow zero %, 2009 | | | 2,471,000 | | 182,236 |
Adelphia Communications Corp. escrow bonds zero %, 2010 | | | 3,231,000 | | 242,325 |
Atlantic Broadband Finance, LLC company guaranty 9 3/8s, 2014 | 1,980,000 | | 1,762,200 |
Cablevision Systems Corp. sr. notes Ser. B, 8s, 2012 | | | 1,130,000 | | 1,087,625 |
CCH I Holdings, LLC company guaranty 12 1/8s, 2015 | | | 187,000 | | 95,370 |
CCH I, LLC sec. notes 11s, 2015 | | | 16,761,000 | | 11,648,895 |
CCH II, LLC sr. unsec. notes 10 1/4s, 2010 | | | 4,325,000 | | 3,957,375 |
CCH II, LLC sr. unsec. notes Ser. B, 10 1/4s, 2010 | | | 9,505,000 | | 8,625,788 |
CSC Holdings, Inc. sr. notes 6 3/4s, 2012 | | | 5,255,000 | | 5,071,075 |
CSC Holdings, Inc. sr. notes Ser. B, 7 5/8s, 2011 | | | 2,560,000 | | 2,544,000 |
Mediacom LLC/Mediacom Capital Corp. sr. unsec. | | | | | |
notes 9 1/2s, 2013 | | | 1,275,000 | | 1,115,625 |
NTL Cable PLC sr. notes 9 1/8s, 2016 (United Kingdom) | | | 2,200,000 | | 1,848,000 |
Rainbow National Services, LLC 144A sr. notes 8 3/4s, 2012 | | | 5,125,000 | | 5,253,125 |
| | | | | 43,649,247 |
|
|
Capital Goods (7.0%) | | | | | |
Alliant Techsystems, Inc. sr. sub. notes 6 3/4s, 2016 | | | 4,922,000 | | 4,811,255 |
Allied Waste North America, Inc. sec. notes 6 1/2s, 2010 | | | 2,325,000 | | 2,295,938 |
Allied Waste North America, Inc. sec. notes Ser. B, 5 3/4s, 2011 | 860,000 | | 838,500 |
Baldor Electric Co. company guaranty 8 5/8s, 2017 | | | 1,665,000 | | 1,631,700 |
BBC Holding Corp. sr. notes 8 7/8s, 2014 | | | 5,620,000 | | 4,959,650 |
Berry Plastics Holding Corp. company guaranty 10 1/4s, 2016 | | | 2,790,000 | | 2,204,100 |
Blount, Inc. sr. sub. notes 8 7/8s, 2012 | | | 3,115,000 | | 3,029,338 |
Bombardier, Inc. 144A sr. notes 8s, 2014 (Canada) | | | 4,480,000 | | 4,603,200 |
Bombardier, Inc. 144A sr. unsec. notes FRN 7.631s, | | | | | |
2013 (Canada) | EUR | | 2,680,000 | | 3,910,119 |
Crown Americas, LLC/Crown Americas Capital Corp. | | | | | |
sr. notes 7 5/8s, 2013 | | $ | 3,470,000 | | 3,513,375 |
General Cable Corp. company guaranty sr. unsec. | | | | | |
notes FRN 7.104s, 2015 | | | 4,895,000 | | 4,209,700 |
Greenbrier Cos., Inc. company guaranty 8 3/8s, 2015 | | | 2,890,000 | | 2,756,338 |
Hawker Beechcraft Acquisition Co., LLC sr. sub. notes | | | | | |
9 3/4s, 2017 | | | 2,878,000 | | 2,856,415 |
Hawker Beechcraft Acquisition Co., LLC sr. unsec. | | | | | |
notes 8 7/8s, 2015 ‡‡ | | | 3,265,000 | | 3,330,300 |
Hawker Beechcraft Acquisition Co., LLC sr. unsec. | | | | | |
notes 8 1/2s, 2015 | | | 1,402,000 | | 1,433,545 |
Hexcel Corp. sr. sub. notes 6 3/4s, 2015 | | | 7,065,000 | | 6,800,063 |
L-3 Communications Corp. company guaranty 6 1/8s, 2013 | | | 490,000 | | 485,100 |
L-3 Communications Corp. company guaranty Ser. B, | | | | | |
6 3/8s, 2015 (S) | | | 6,675,000 | | 6,624,938 |
Legrand SA unsec. unsub. debs. 8 1/2s, 2025 (France) | | | 10,560,000 | | 11,767,895 |
Manitowoc Co., Inc. (The) sr. notes 7 1/8s, 2013 | | | 5,210,000 | | 5,066,725 |
Milacron Escrow Corp. sec. notes 11 1/2s, 2011 | | | 5,456,000 | | 4,092,000 |
33
| | | | | |
CORPORATE BONDS AND NOTES (78.8%)* continued | | | | | |
|
| | | Principal amount | | Value |
|
Capital Goods continued | | | | | |
Mueller Water Products, Inc. company guaranty 7 3/8s, 2017 | | $ | 2,210,000 | $ | 1,922,700 |
Owens-Brockway Glass Container, Inc. company | | | | | |
guaranty 6 3/4s, 2014 | EUR | | 1,505,000 | | 2,080,346 |
Owens-Illinois, Inc. debs. 7 1/2s, 2010 | | $ | 15,000 | | 15,338 |
RBS Global, Inc. / Rexnord Corp. company | | | | | |
guaranty 9 1/2s, 2014 | | | 10,210,000 | | 9,189,000 |
Ryerson Tull, Inc. 144A sec. notes 12s, 2015 (S) | | | 1,645,000 | | 1,546,300 |
SPX Corp. sr. notes 7 5/8s, 2014 | | | 2,155,000 | | 2,219,650 |
TD Funding Corp. company guaranty 7 3/4s, 2014 | | | 6,145,000 | | 6,114,275 |
Tekni-Plex, Inc. sec. notes 10 7/8s, 2012 | | | 7,335,000 | | 7,683,413 |
Terex Corp. company guaranty 7 3/8s, 2014 | | | 3,070,000 | | 3,046,975 |
Terex Corp. sr. sub. notes 8s, 2017 | | | 1,070,000 | | 1,070,000 |
Titan International, Inc. company guaranty 8s, 2012 | | | 8,100,000 | | 7,816,500 |
WCA Waste Corp. company guaranty 9 1/4s, 2014 | | | 3,545,000 | | 3,527,275 |
| | | | | 127,451,966 |
|
|
Coal (1.4%) | | | | | |
Arch Western Finance, LLC sr. notes 6 3/4s, 2013 | | | 8,665,000 | | 8,535,025 |
Massey Energy Co. sr. notes 6 5/8s, 2010 | | | 7,124,000 | | 7,088,380 |
Peabody Energy Corp. company guaranty 7 3/8s, 2016 | | | 9,405,000 | | 9,734,175 |
| | | | | 25,357,580 |
|
|
Communication Services (6.8%) | | | | | |
American Tower Corp. sr. notes 7 1/2s, 2012 | | | 2,635,000 | | 2,707,463 |
American Tower Corp. 144A sr. notes 7s, 2017 | | | 2,450,000 | | 2,443,875 |
BCM Ireland Finance Ltd. 144A FRN 9.506s, 2016 | | | | | |
(Cayman Islands) | EUR | | 1,715,000 | | 2,136,170 |
Centennial Cellular Operating Co., LLC company | | | | | |
guaranty 10 1/8s, 2013 | | $ | 3,145,000 | | 3,176,450 |
Centennial Communications Corp. sr. notes 10s, 2013 | | | 1,920,000 | | 1,852,800 |
Centennial Communications Corp. sr. unsec. notes FRN | | | | | |
10.479s, 2013 | | | 1,155,000 | | 1,062,600 |
Cincinnati Bell, Inc. company guaranty 7s, 2015 | | | 2,210,000 | | 2,077,400 |
Citizens Communications Co. notes 9 1/4s, 2011 | | | 4,245,000 | | 4,467,863 |
Cricket Communications, Inc. company guaranty 9 3/8s, 2014 | | | 7,235,000 | | 6,439,150 |
Cricket Communications, Inc. 144A company | | | | | |
guaranty 9 3/8s, 2014 | | | 705,000 | | 627,450 |
Digicel Group, Ltd. 144A sr. notes 8 7/8s, 2015 (Jamaica) | | | 4,830,000 | | 4,226,250 |
Digicel, Ltd. 144A sr. notes 9 1/4s, 2012 (Jamaica) | | | 3,550,000 | | 3,567,750 |
Inmarsat Finance PLC company guaranty stepped-coupon | | | | | |
zero % (10 3/8s, 11/15/08), 2012 (United Kingdom) †† | | | 7,197,000 | | 6,963,098 |
Intelsat Bermuda, Ltd. company guaranty sr. unsec. | | | | | |
notes 11 1/4s, 2016 (Bermuda) | | | 10,665,000 | | 10,718,325 |
Intelsat Intermediate Holding Co., Ltd. company | | | | | |
guaranty stepped-coupon zero % (9 1/4s, 2/1/10), | | | | | |
2015 (Bermuda) †† | | | 2,355,000 | | 1,972,313 |
iPCS, Inc. company guaranty sr. sec. notes FRN | | | | | |
5.364s, 2013 | | | 1,965,000 | | 1,572,000 |
Level 3 Financing, Inc. company guaranty 9 1/4s, 2014 | | | 5,355,000 | | 4,337,550 |
34
| | | | | |
CORPORATE BONDS AND NOTES (78.8%)* continued | | | | | |
|
| | | Principal amount | | Value |
|
Communication Services continued | | | | | |
Level 3 Financing, Inc. company guaranty 8 3/4s, 2017 | | $ | 3,135,000 | $ | 2,374,763 |
MetroPCS Wireless, Inc. company guaranty sr. unsec. | | | | | |
notes 9 1/4s, 2014 | | | 8,510,000 | | 7,488,800 |
Nordic Telephone Co. Holdings ApS 144A | | | | | |
sr. notes 8 7/8s, 2016 (Denmark) | | | 1,035,000 | | 1,019,475 |
PAETEC Holding Corp. company guaranty sr. unsec. | | | | | |
unsub. notes 9 1/2s, 2015 | | | 1,985,000 | | 1,841,088 |
PanAmSat Corp. company guaranty 9s, 2014 | | | 2,065,000 | | 2,065,000 |
Qwest Communications International, Inc. company | | | | | |
guaranty 7 1/2s, 2014 | | | 9,355,000 | | 9,097,738 |
Qwest Corp. sr. unsec. unsub. notes 7 1/4s, 2025 | | | 2,875,000 | | 2,587,500 |
Qwest Corp. sr. unsec. unsub. notes 8 7/8s, 2012 | | | 5,180,000 | | 5,406,625 |
Rural Cellular Corp. sr. unsec. sub. notes FRN | | | | | |
8.124s, 2013 | | | 2,685,000 | | 2,698,425 |
Rural Cellular Corp. sr. unsec. notes 9 7/8s, 2010 | | | 2,105,000 | | 2,162,888 |
Rural Cellular Corp. sr. unsec. sub. FRN 8.989s, 2012 | | | 1,450,000 | | 1,464,500 |
Syniverse Technologies, Inc. sr. sub. notes Ser. B, 7 3/4s, 2013 | | | 3,840,000 | | 3,667,200 |
Time Warner Telecom, Inc. company guaranty 9 1/4s, 2014 | | | 2,300,000 | | 2,300,000 |
West Corp. company guaranty 11s, 2016 | | | 1,540,000 | | 1,289,750 |
West Corp. company guaranty 9 1/2s, 2014 | | | 2,805,000 | | 2,454,375 |
Wind Acquisition Fin. SA notes 9 3/4s, 2015 (Luxembourg) | EUR | | 2,085,000 | | 3,124,359 |
Windstream Corp. company guaranty 8 5/8s, 2016 (S) | | $ | 8,105,000 | | 8,246,838 |
Windstream Corp. company guaranty 8 1/8s, 2013 | | | 4,260,000 | | 4,249,350 |
| | | | | 123,887,181 |
|
|
Consumer (0.6%) | | | | | |
Jostens IH Corp. company guaranty 7 5/8s, 2012 | | | 6,600,000 | | 6,369,000 |
Yankee Acquisition Corp. company guaranty Ser. B, | | | | | |
8 1/2s, 2015 | | | 6,400,000 | | 5,344,000 |
| | | | | 11,713,000 |
|
|
Consumer Goods (1.5%) | | | | | |
Church & Dwight Co., Inc. company guaranty 6s, 2012 | | | 4,520,000 | | 4,373,100 |
Elizabeth Arden, Inc. company guaranty 7 3/4s, 2014 | | | 6,295,000 | | 6,043,200 |
Jarden Corp. company guaranty 7 1/2s, 2017 | | | 4,175,000 | | 3,658,344 |
Prestige Brands, Inc. sr. sub. notes 9 1/4s, 2012 | | | 6,279,000 | | 6,216,210 |
Spectrum Brands, Inc. company guaranty sr. unsec. | | | | | |
sub. notes stepped coupon 11 1/2s (12, 4/2/08), 2013 †† ‡‡ | | | 3,520,000 | | 2,824,800 |
Spectrum Brands, Inc. company guaranty 7 3/8s, 2015 | | | 7,305,000 | | 4,766,513 |
| | | | | 27,882,167 |
|
|
Consumer Services (0.1%) | | | | | |
United Rentals NA, Inc. sr. sub. notes 7s, 2014 | | | 2,475,000 | | 1,980,000 |
|
|
Energy (2.9%) | | | | | |
CHC Helicopter Corp. sr. sub. notes 7 3/8s, 2014 (Canada) | | | 8,235,000 | | 8,173,238 |
Complete Production Services, Inc. company guaranty 8s, 2016 (S) | 4,520,000 | | 4,344,850 |
Dresser-Rand Group, Inc. company guaranty 7 3/8s, 2014 | | | 714,000 | | 697,935 |
Helix Energy Solutions Group, Inc. 144A sr. unsec. 9 1/2s, 2016 | | | 5,830,000 | | 5,830,000 |
35
| | | | |
CORPORATE BONDS AND NOTES (78.8%)* continued | | | | |
|
| | Principal amount | | Value |
|
Energy continued | | | | |
Hornbeck Offshore Services, Inc. sr. notes Ser. B, 6 1/8s, 2014 (S) | $ | 2,350,000 | $ | 2,209,000 |
Inergy LP/Inergy Finance Corp. sr. unsec. notes 6 7/8s, 2014 | | 8,670,000 | | 8,409,900 |
Key Energy Services, Inc. 144A sr. notes 8 3/8s, 2014 | | 2,535,000 | | 2,541,338 |
Offshore Logistics, Inc. company guaranty 6 1/8s, 2013 | | 4,060,000 | | 3,897,600 |
Oslo Seismic Services, Inc. 1st mtge. 8.28s, 2011 | | 3,151,691 | | 3,387,712 |
Pacific Energy Partners/Pacific Energy Finance Corp. | | | | |
sr. notes 7 1/8s, 2014 | | 3,335,000 | | 3,534,823 |
Pride International, Inc. sr. unsec. notes 7 3/8s, 2014 | | 5,765,000 | | 5,995,600 |
Stallion Oilfield Services/Stallion Oilfield | | | | |
Finance Corp. 144A sr. unsec. notes 9 3/4s, 2015 | | 5,355,000 | | 4,176,900 |
| | | | 53,198,896 |
|
|
Entertainment (1.5%) | | | | |
AMC Entertainment, Inc. company guaranty 11s, 2016 | | 3,288,000 | | 3,090,720 |
Avis Budget Car Rental, LLC company guaranty 7 3/4s, 2016 | | 4,160,000 | | 3,473,600 |
Avis Budget Car Rental, LLC company guaranty 7 5/8s, 2014 | | 2,720,000 | | 2,366,400 |
Cinemark, Inc. sr. disc. notes stepped-coupon zero % | | | | |
(9 3/4s, 3/15/09), 2014 †† | | 4,935,000 | | 4,490,850 |
Hertz Corp. company guaranty 8 7/8s, 2014 (S) | | 5,330,000 | | 5,076,825 |
Marquee Holdings, Inc. sr. disc. notes 12s, 2014 | | 5,200,000 | | 3,796,000 |
Universal City Florida Holding Co. sr. notes 8 3/8s, 2010 | | 1,132,000 | | 1,112,190 |
Universal City Florida Holding Co. sr. unsec. | | | | |
notes FRN 7.989s, 2010 | | 3,396,000 | | 3,264,405 |
| | | | 26,670,990 |
|
|
Financial (3.7%) | | | | |
E*Trade Financial Corp. sr. unsec. notes 8s, 2011 | | 3,615,000 | | 3,136,013 |
Finova Group, Inc. notes 7 1/2s, 2009 (In default) † | | 8,809,809 | | 1,409,569 |
GMAC, LLC sr. unsec. unsub. notes FRN 7.324s, 2014 | | 2,709,000 | | 2,033,524 |
GMAC, LLC sr. unsec. unsub. notes 7 3/4s, 2010 (S) | | 8,695,000 | | 7,861,906 |
GMAC, LLC sr. unsec. unsub. notes 7s, 2012 | | 2,490,000 | | 2,018,390 |
GMAC, LLC sr. unsec. unsub. notes 6 7/8s, 2012 (S) | | 15,110,000 | | 12,060,923 |
GMAC, LLC sr. unsec. unsub. notes 6 3/4s, 2014 | | 14,926,000 | | 11,242,383 |
GMAC, LLC sr. unsec. unsub. notes 5.85s, 2009 (S) | | 7,470,000 | | 7,209,514 |
GMAC, LLC sr. unsec. unsub. notes 6 5/8s, 2012 | | 2,265,000 | | 1,813,768 |
HUB International Holdings, Inc. 144A sr. unsec. | | | | |
unsub. notes 9s, 2014 | | 915,000 | | 722,850 |
HUB International Holdings, Inc. 144A sr. sub. notes 10 1/4s, 2015 | | 1,285,000 | | 950,900 |
Leucadia National Corp. sr. unsec. notes 8 1/8s, 2015 | | 1,495,000 | | 1,506,213 |
Leucadia National Corp. sr. unsec. notes 7 1/8s, 2017 | | 3,590,000 | | 3,455,375 |
Nuveen Investments, Inc. 144A sr. notes 10 1/2s, 2015 | | 2,770,000 | | 2,517,238 |
Realogy Corp. company guaranty sr. unsec. notes 10 1/2s, 2014 (R) | | 12,675,000 | | 8,999,250 |
USI Holdings Corp. 144A sr. unsec. notes FRN 6.94s, 2014 | | 840,000 | | 656,250 |
| | | | 67,594,066 |
|
|
Food (0.9%) | | | | |
Archibald Candy Corp. company guaranty 10s, | | | | |
2008 (In default) † (F) | | 878,534 | | 12,906 |
Chiquita Brands International, Inc. sr. unsec. | | | | |
unsub. notes 8 7/8s, 2015 | | 820,000 | | 735,950 |
36
| | | | |
CORPORATE BONDS AND NOTES (78.8%)* continued | | | | |
|
| | Principal amount | | Value |
|
Food continued | | | | |
Chiquita Brands International, Inc. | | | | |
sr. notes 7 1/2s, 2014 | $ | 5,035,000 | $ | 4,380,450 |
Dean Foods Co. company guaranty 7s, 2016 | | 3,405,000 | | 2,979,375 |
Del Monte Corp. sr. sub. notes 8 5/8s, 2012 | | 6,390,000 | | 6,485,850 |
Pinnacle Foods Finance LLC sr. sub. notes 10 5/8s, 2017 | | 2,590,000 | | 2,013,725 |
| | | | 16,608,256 |
|
|
Gaming & Lottery (3.1%) | | | | |
Boyd Gaming Corp. sr. sub. notes 7 3/4s, 2012 (S) | | 3,345,000 | | 3,085,763 |
Boyd Gaming Corp. sr. sub. notes 7 1/8s, 2016 | | 5,755,000 | | 4,690,325 |
Boyd Gaming Corp. sr. sub. notes 6 3/4s, 2014 | | 1,050,000 | | 866,250 |
Mashantucket Western Pequot Tribe 144A bonds 8 1/2s, 2015 | | 5,475,000 | | 4,872,750 |
MGM Mirage, Inc. company guaranty 8 1/2s, 2010 (S) | | 3,382,000 | | 3,496,143 |
MGM Mirage, Inc. company guaranty 6 3/4s, 2013 (S) | | 2,720,000 | | 2,556,800 |
MGM Mirage, Inc. company guaranty 6s, 2009 | | 7,177,000 | | 7,141,115 |
MGM Mirage, Inc. sr. notes 6 3/4s, 2012 | | 2,000 | | 1,880 |
Pinnacle Entertainment, Inc. sr. sub. notes 8 1/4s, 2012 | | 4,935,000 | | 4,688,250 |
Pinnacle Entertainment, Inc. 144A sr. sub. notes 7 1/2s, 2015 | | 5,015,000 | | 3,861,550 |
Station Casinos, Inc. sr. notes 6s, 2012 | | 6,690,000 | | 5,653,050 |
Tropicana Entertainment, LLC sr. sub. notes 9 5/8s, 2014 | | 3,810,000 | | 1,828,800 |
Trump Entertainment Resorts, Inc. sec. notes 8 1/2s, 2015 | | 12,655,000 | | 8,795,225 |
Wynn Las Vegas, LLC/Wynn Las Vegas Capital Corp. 1st mtge. | | | | |
6 5/8s, 2014 (S) | | 5,975,000 | | 5,736,000 |
| | | | 57,273,901 |
|
|
Health Care (7.4%) | | | | |
Accellent, Inc. company guaranty 10 1/2s, 2013 | | 5,320,000 | | 4,202,800 |
Community Health Systems, Inc. company guaranty 8 7/8s, 2015 | | 8,855,000 | | 8,688,969 |
DaVita, Inc. company guaranty 6 5/8s, 2013 (S) | | 4,470,000 | | 4,380,600 |
Elan Finance PLC/Elan Finance Corp. company | | | | |
guaranty 7 3/4s, 2011 (Ireland) | | 5,940,000 | | 5,628,150 |
HCA, Inc. company guaranty sr. sec. notes 9 5/8s, 2016 ‡‡ | | 7,800,000 | | 8,053,500 |
HCA, Inc. sr. unsec. notes 6 3/8s, 2015 | | 2,250,000 | | 1,878,750 |
HCA, Inc. sr. unsec. notes 5 3/4s, 2014 | | 2,385,000 | | 1,973,588 |
HCA, Inc. sr. sec. notes 9 1/4s, 2016 | | 9,070,000 | | 9,296,750 |
HCA, Inc. sec. notes 9 1/8s, 2014 | | 6,215,000 | | 6,339,300 |
HCA, Inc. sr. unsec. notes 7 7/8s, 2011 | | 116,000 | | 114,260 |
Health Management Associates, Inc. sr. notes 6 1/8s, 2016 | | 6,020,000 | | 5,026,700 |
IASIS Healthcare/IASIS Capital Corp. | | | | |
sr. sub. notes 8 3/4s, 2014 | | 400,000 | | 395,000 |
Omnicare, Inc. company guaranty 6 3/4s, 2013 | | 435,000 | | 387,150 |
Omnicare, Inc. sr. sub. notes 6 1/8s, 2013 | | 1,215,000 | | 1,063,125 |
Psychiatric Solutions, Inc. company guaranty 7 3/4s, 2015 | | 4,952,000 | | 4,902,480 |
Select Medical Corp. company guaranty 7 5/8s, 2015 | | 6,010,000 | | 4,928,200 |
Service Corporation International debs. 7 7/8s, 2013 | | 3,897,000 | | 3,882,994 |
Service Corporation International sr. notes 7s, 2017 | | 1,970,000 | | 1,955,225 |
Service Corporation International sr. unsec. | | | | |
unsub. notes 6 3/4s, 2016 | | 6,820,000 | | 6,785,900 |
Stewart Enterprises, Inc. sr. notes 6 1/4s, 2013 | | 8,140,000 | | 7,651,600 |
37
| | | | |
CORPORATE BONDS AND NOTES (78.8%)* continued | | | | |
|
| | Principal amount | | Value |
|
Health Care continued | | | | |
Sun Healthcare Group, Inc. company | | | | |
guaranty sr. unsec. unsub. notes 9 1/8s, 2015 | $ | 3,875,000 | $ | 3,729,688 |
Surgical Care Affiliates, Inc. 144A sr. sub. notes 10s, 2017 | | 4,280,000 | | 3,252,800 |
Surgical Care Affiliates, Inc. 144A sr. unsec. notes 8 7/8s, 2015 ‡‡ | | 2,505,000 | | 2,029,050 |
Tenet Healthcare Corp. sr. unsec. notes 7 3/8s, 2013 | | 7,500,000 | | 6,506,250 |
Tenet Healthcare Corp. sr. unsec. unsub. notes 6 3/8s, 2011 | | 6,865,000 | | 6,152,756 |
US Oncology, Inc. company guaranty 9s, 2012 | | 4,985,000 | | 4,960,075 |
Vanguard Health Holding Co. II, LLC sr. sub. notes 9s, 2014 | | 7,124,000 | | 6,803,420 |
Ventas Realty LP/Capital Corp. company guaranty 9s, 2012 (R) | | 6,415,000 | | 6,864,050 |
Ventas Realty LP/Capital Corp. company guaranty 6 3/4s, 2010 (R) | | 2,255,000 | | 2,271,913 |
Ventas Realty LP/Capital Corp. sr. notes 6 5/8s, 2014 (R) | | 1,730,000 | | 1,721,350 |
Ventas Realty LP/Capital Corp. sr. notes 6 1/2s, 2016 (R) | | 2,310,000 | | 2,252,250 |
| | | | 134,078,643 |
|
|
Homebuilding (0.5%) | | | | |
D.R. Horton, Inc. sr. notes 7 7/8s, 2011 | | 4,000 | | 3,938 |
K. Hovnanian Enterprises, Inc. sr. notes 8 5/8s, 2017 | | 970,000 | | 771,150 |
Meritage Homes Corp. company guaranty 6 1/4s, 2015 (S) | | 5,660,000 | | 4,245,000 |
Meritage Homes Corp. sr. notes 7s, 2014 | | 760,000 | | 570,000 |
Standard Pacific Corp. sr. unsec. notes 6 1/2s, 2008 | | 4,207,000 | | 3,975,615 |
| | | | 9,565,703 |
|
|
Household Furniture and Appliances (0.1%) | | | | |
Sealy Mattress Co. sr. sub. notes 8 1/4s, 2014 (S) | | 2,432,000 | | 2,213,120 |
|
|
Lodging/Tourism (0.8%) | | | | |
FelCor Lodging LP company guaranty 8 1/2s, 2011 (R) | | 2,685,000 | | 2,691,713 |
Host Marriott LP company guaranty Ser. Q, 6 3/4s, 2016 (R) | | 130,000 | | 123,175 |
Host Marriott LP sr. notes 7 1/8s, 2013 (R) | | 100,000 | | 98,500 |
Host Marriott LP sr. notes Ser. M, 7s, 2012 (R) | | 9,300,000 | | 9,067,500 |
Seminole Hard Rock Entertainment, Inc. 144A sr. sec. | | | | |
notes FRN 7.491s, 2014 | | 3,225,000 | | 2,483,250 |
| | | | 14,464,138 |
|
|
Media (2.3%) | | | | |
Affinion Group, Inc. company guaranty 11 1/2s, 2015 | | 3,780,000 | | 3,477,600 |
Affinion Group, Inc. company guaranty 10 1/8s, 2013 | | 6,635,000 | | 6,502,300 |
Affinity Group, Inc. sr. sub. notes 9s, 2012 | | 6,205,000 | | 5,584,500 |
Idearc, Inc. company guaranty 8s, 2016 (S) | | 11,540,000 | | 6,808,600 |
Liberty Media, LLC sr. notes 5.7s, 2013 | | 870,000 | | 777,939 |
Liberty Media, LLC sr. unsec. notes 7 7/8s, 2009 | | 2,340,000 | | 2,379,368 |
Nielsen Finance LLC/Nielsen Finance Co. company guaranty | | | | |
10s, 2014 | | 4,980,000 | | 4,805,700 |
Nielsen Finance LLC/Nielsen Finance Co. company | | | | |
guaranty stepped-coupon zero % (12 1/2s, 8/1/11), 2016 †† | | 9,975,000 | | 6,334,125 |
R.H. Donnelley Corp. sr. disc. notes Ser. A-1, 6 7/8s, 2013 | | 665,000 | | 392,350 |
R.H. Donnelley Corp. sr. disc. notes Ser. A-2, 6 7/8s, 2013 (S) | | 4,210,000 | | 2,483,900 |
R.H. Donnelley Corp. sr. unsec. unsub. notes 8 7/8s, 2017 | | 2,655,000 | | 1,553,175 |
R.H. Donnelley Corp. sr. unsec. notes 6 7/8s, 2013 | | 2,025,000 | | 1,194,750 |
| | | | 42,294,307 |
38
| | | | |
CORPORATE BONDS AND NOTES (78.8%)* continued | | | | |
|
| | Principal amount | | Value |
|
Oil & Gas (6.4%) | | | | |
Chaparral Energy, Inc. company guaranty sr. unsec. notes | | | | |
8 7/8s, 2017 | $ | 6,790,000 | $ | 5,805,450 |
Chesapeake Energy Corp. company guaranty 7 3/4s, 2015 | | 3,787,000 | | 3,891,143 |
Chesapeake Energy Corp. sr. notes 7 1/2s, 2013 (S) | | 6,635,000 | | 6,817,463 |
Chesapeake Energy Corp. sr. notes 7s, 2014 | | 2,775,000 | | 2,781,938 |
Compton Petroleum Corp. company guaranty 7 5/8s, | | | | |
2013 (Canada) | | 9,165,000 | | 8,523,450 |
Comstock Resources, Inc. sr. notes 6 7/8s, 2012 | | 4,580,000 | | 4,259,400 |
Connacher Oil and Gas, Ltd. 144A sec. notes 10 1/4s, | | | | |
2015 (Canada) | | 2,895,000 | | 2,866,050 |
Denbury Resources, Inc. sr. sub. notes 7 1/2s, 2015 | | 4,460,000 | | 4,504,600 |
Encore Acquisition Co. sr. sub. notes 6 1/4s, 2014 | | 2,265,000 | | 2,106,450 |
Encore Acquisition Co. sr. sub. notes 6s, 2015 | | 6,129,000 | | 5,500,778 |
EXCO Resources, Inc. company guaranty 7 1/4s, 2011 | | 5,210,000 | | 5,014,625 |
Forest Oil Corp. sr. notes 8s, 2011 | | 4,319,000 | | 4,491,760 |
Harvest Operations Corp. sr. notes 7 7/8s, 2011 (Canada) | | 6,030,000 | | 5,487,300 |
Hilcorp Energy I LP/Hilcorp Finance Co. 144A | | | | |
sr. unsec. notes 9s, 2016 | | 2,335,000 | | 2,335,000 |
Newfield Exploration Co. sr. sub. notes 6 5/8s, 2014 | | 6,730,000 | | 6,595,400 |
PetroHawk Energy Corp. company guaranty 9 1/8s, 2013 | | 10,770,000 | | 10,985,400 |
Petroleum Development Corp. 144A sr. unsec. notes 12s, 2018 | | 2,085,000 | | 2,100,638 |
Petroplus Finance, Ltd. company guaranty 6 3/4s, 2014 (Bermuda) | 4,925,000 | | 4,469,438 |
Plains Exploration & Production Co. company guaranty 7 3/4s, 2015 | 875,000 | | 872,813 |
Plains Exploration & Production Co. company guaranty 7s, 2017 (S) | 5,520,000 | | 5,299,200 |
Quicksilver Resources, Inc. company guaranty 7 1/8s, 2016 | | 3,675,000 | | 3,518,813 |
Sabine Pass LNG LP sec. notes 7 1/2s, 2016 | | 3,775,000 | | 3,699,500 |
Targa Resources, Inc. company guaranty sr. unsec. | | | | |
notes 8 1/2s, 2013 | | 7,670,000 | | 7,113,925 |
Whiting Petroleum Corp. company guaranty 7s, 2014 | | 7,100,000 | | 7,064,500 |
| | | | 116,105,034 |
|
|
Publishing (1.1%) | | | | |
American Media, Inc. company guaranty 8 7/8s, 2011 | | 835,000 | | 569,888 |
American Media, Inc. company guaranty Ser. B, 10 1/4s, 2009 | | 5,770,000 | | 3,952,450 |
American Media, Inc. company guaranty sr. unsec. | | | | |
sub. notes 8 7/8s, 2011 | | 30,361 | | 20,721 |
American Media, Inc. 144A company guaranty sr. unsec. | | | | |
sub. notes 10 1/4s, 2009 | | 209,797 | | 143,711 |
CanWest Media, Inc. company guaranty 8s, 2012 (Canada) | | 3,499,006 | | 3,289,066 |
Cenveo Corp., sr. sub. notes 7 7/8s, 2013 | | 1,877,000 | | 1,600,143 |
Dex Media, Inc. disc. notes stepped-coupon zero % | | | | |
(9s, 11/15/08), 2013 †† | | 2,710,000 | | 1,951,200 |
Dex Media, Inc. notes 8s, 2013 | | 1,580,000 | | 1,121,800 |
Quebecor Media sr. unsec. notes 7 3/4s, 2016 (Canada) | | 1,020,000 | | 935,850 |
Reader’s Digest Association, Inc. (The) 144A | | | | |
sr. sub. notes 9s, 2017 | | 5,105,000 | | 3,675,600 |
Vertis, Inc. company guaranty Ser. B, 10 7/8s, 2009 | | 8,778,000 | | 3,072,300 |
Vertis, Inc. 144A unsec. sub. notes 13 1/2s, 2009 | | 2,405,000 | | 312,650 |
| | | | 20,645,379 |
39
| | | | |
CORPORATE BONDS AND NOTES (78.8%)* continued | | | | |
|
| | Principal amount | | Value |
|
Restaurants (0.1%) | | | | |
Buffets, Inc. company guaranty 12 1/2s, 2014 (In default) † | $ | 1,920,000 | $ | 48,000 |
OSI Restaurant Partners, Inc. 144A sr. notes 10s, 2015 | | 2,035,000 | | 1,241,350 |
| | | | 1,289,350 |
|
|
Retail (1.9%) | | | | |
Asbury Automotive Group, Inc. sr. sub. notes 8s, 2014 | | 3,595,000 | | 3,109,675 |
Autonation, Inc. company guaranty 7s, 2014 | | 1,070,000 | | 973,700 |
Autonation, Inc. company guaranty sr. unsec. | | | | |
notes FRN 6.258s, 2013 | | 1,650,000 | | 1,353,000 |
Bon-Ton Stores, Inc. (The) company guaranty 10 1/4s, 2014 | | 3,080,000 | | 2,063,600 |
Harry & David Holdings, Inc. company guaranty 9s, 2013 | | 3,645,000 | | 3,207,600 |
Harry & David Holdings, Inc. company guaranty FRN | | | | |
10.124s, 2012 | | 1,125,000 | | 1,046,250 |
Michaels Stores, Inc. company guaranty 11 3/8s, 2016 | | 7,115,000 | | 5,887,663 |
Neiman-Marcus Group, Inc. company guaranty 9s, 2015 (S) | | 4,265,000 | | 4,243,675 |
Rite Aid Corp. company guaranty 9 3/8s, 2015 | | 4,590,000 | | 3,557,250 |
Rite Aid Corp. company guaranty 7 1/2s, 2015 | | 3,420,000 | | 3,069,450 |
Rite Aid Corp. sec. notes 8 1/8s, 2010 | | 500,000 | | 482,500 |
Rite Aid Corp. sec. notes 7 1/2s, 2017 | | 985,000 | | 861,875 |
United Auto Group, Inc. company guaranty 7 3/4s, 2016 | | 4,915,000 | | 4,202,325 |
| | | | 34,058,563 |
|
|
Technology (5.7%) | | | | |
Activant Solutions, Inc. company guaranty 9 1/2s, 2016 | | 2,890,000 | | 2,398,700 |
Advanced Micro Devices, Inc. sr. notes 7 3/4s, 2012 | | 3,891,000 | | 3,268,440 |
Amkor Technologies, Inc. sr. notes 7 3/4s, 2013 (S) | | 6,297,000 | | 5,856,210 |
Avago Technologies Finance company guaranty 11 7/8s, | | | | |
2015 (Singapore) | | 1,160,000 | | 1,203,500 |
Avago Technologies Finance company guaranty 10 1/8s, | | | | |
2013 (Singapore) | | 1,175,000 | | 1,239,625 |
Avago Technologies Finance company guaranty FRN | | | | |
10.624s, 2013 (Singapore) | | 18,000 | | 17,865 |
Celestica, Inc. sr. sub. notes 7 7/8s, 2011 (Canada) | | 1,880,000 | | 1,837,700 |
Celestica, Inc. sr. sub. notes 7 5/8s, 2013 (Canada) | | 2,965,000 | | 2,801,925 |
Ceridian Corp. 144A sr. unsec. notes 11 1/4s, 2015 | | 3,885,000 | | 3,185,700 |
Compucom Systems, Inc. sr. sub. notes 12 1/2s, 2015 | | 1,625,000 | | 1,519,375 |
Freescale Semiconductor, Inc. company | | | | |
guaranty sr. unsec. sub. notes 9 1/8s, 2014 ‡‡ | | 5,620,000 | | 4,271,200 |
Freescale Semiconductor, Inc. company | | | | |
guaranty sr. unsec. notes 8 7/8s, 2014 (S) | | 8,000,000 | | 6,520,000 |
Freescale Semiconductor, Inc. sr. sec. notes 10 1/8s, 2016 (S) | | 6,615,000 | | 4,696,650 |
Iron Mountain, Inc. company guaranty 8 3/4s, 2018 | | 1,860,000 | | 1,948,350 |
Iron Mountain, Inc. company guaranty 8 5/8s, 2013 | | 5,586,000 | | 5,641,860 |
Iron Mountain, Inc. company guaranty 7 3/4s, 2015 | | 125,000 | | 125,313 |
Iron Mountain, Inc. company guaranty 6 5/8s, 2016 | | 235,000 | | 223,838 |
Lucent Technologies, Inc. unsec. debs. 6.45s, 2029 | | 3,889,000 | | 2,916,750 |
Lucent Technologies, Inc. notes 5 1/2s, 2008 | | 1,435,000 | | 1,426,031 |
New ASAT Finance, Ltd. company guaranty 9 1/4s, 2011 | | | | |
(Cayman Islands) | | 3,055,000 | | 2,428,725 |
40
| | | | |
CORPORATE BONDS AND NOTES (78.8%)* continued | | | | |
|
| | Principal amount | | Value |
|
Technology continued | | | | |
Nortel Networks, Ltd. company guaranty sr. unsec. | | | | |
FRN 8.508s, 2011 (Canada) | $ | 4,925,000 | $ | 4,260,125 |
Nortel Networks, Ltd. company guaranty sr. unsec. | | | | |
notes 10 3/4s, 2016 (Canada) | | 1,675,000 | | 1,574,500 |
NXP BV/NXP Funding, LLC company guaranty sr. sec. | | | | |
notes FRN 7.008s, 2013 (Netherlands) | | 4,720,000 | | 3,811,400 |
NXP BV/NXP Funding, LLC sec. notes 7 7/8s, 2014 (Netherlands) | | 7,885,000 | | 7,175,350 |
Open Solutions, Inc. 144A sr. sub. notes 9 3/4s, 2015 | | 3,355,000 | | 2,650,450 |
Seagate Technology Hdd Holdings company | | | | |
guaranty 6.8s, 2016 (Cayman Islands) | | 2,580,000 | | 2,517,873 |
SunGard Data Systems, Inc. company guaranty 10 1/4s, 2015 | | 4,796,000 | | 4,772,020 |
SunGard Data Systems, Inc. company guaranty 9 1/8s, 2013 | | 11,633,000 | | 11,720,248 |
Travelport LLC company guaranty 11 7/8s, 2016 | | 1,450,000 | | 1,225,250 |
Travelport LLC company guaranty 9 7/8s, 2014 | | 3,800,000 | | 3,344,000 |
Unisys Corp. sr. unsec. unsub. notes 8s, 2012 | | 3,745,000 | | 3,239,425 |
Xerox Capital Trust I company guaranty 8s, 2027 | | 3,365,000 | | 3,420,230 |
| | | | 103,238,628 |
|
|
Textiles (1.3%) | | | | |
Hanesbrands, Inc. company guaranty sr. unsec. | | | | |
notes FRN Ser. B, 8.204s, 2014 | | 7,695,000 | | 6,771,600 |
Levi Strauss & Co. sr. unsec. unsub. notes 9 3/4s, 2015 | | 8,088,000 | | 8,027,340 |
Levi Strauss & Co. sr. unsec. notes 8 7/8s, 2016 | | 4,115,000 | | 3,919,538 |
Oxford Industries, Inc. sr. notes 8 7/8s, 2011 | | 4,325,000 | | 4,152,000 |
| | | | 22,870,478 |
|
|
Utilities & Power (5.3%) | | | | |
AES Corp. (The) sr. notes 8 7/8s, 2011 | | 808,000 | | 842,340 |
AES Corp. (The) sr. unsec. unsub. notes 8s, 2017 (S) | | 1,840,000 | | 1,876,800 |
AES Corp. (The) 144A sec. notes 8 3/4s, 2013 | | 4,725,000 | | 4,943,531 |
Cleveland Electric Illuminating Co. (The) 144A | | | | |
sr. notes Ser. D, 7.88s, 2017 | | 10,000 | | 11,576 |
CMS Energy Corp. sr. notes 8 1/2s, 2011 | | 1,294,000 | | 1,392,328 |
CMS Energy Corp. sr. notes 7 3/4s, 2010 | | 1,760,000 | | 1,868,833 |
Colorado Interstate Gas Co. debs. 6.85s, 2037 | | 3,610,000 | | 3,494,097 |
Colorado Interstate Gas Co. sr. notes 5.95s, 2015 | | 325,000 | | 327,215 |
Dynegy-Roseton Danskamme company guaranty Ser. A, | | | | |
7.27s, 2010 | | 2,892,983 | | 2,900,216 |
Dynegy-Roseton Danskamme company guaranty Ser. B, | | | | |
7.67s, 2016 | | 5,430,000 | | 5,430,000 |
Edison Mission Energy sr. unsec. notes 7 3/4s, 2016 | | 2,130,000 | | 2,193,900 |
Edison Mission Energy sr. unsec. notes 7 1/2s, 2013 | | 2,495,000 | | 2,557,375 |
Edison Mission Energy sr. unsec. notes 7.2s, 2019 | | 3,925,000 | | 3,846,500 |
Edison Mission Energy sr. unsec. notes 7s, 2017 | | 2,750,000 | | 2,701,875 |
El Paso Natural Gas Co. debs. 8 5/8s, 2022 | | 1,775,000 | | 2,017,634 |
Ferrellgas LP/Finance sr. notes 8 3/4s, 2012 | | 217,000 | | 221,340 |
Ferrellgas LP/Finance sr. notes 6 3/4s, 2014 | | 5,575,000 | | 5,442,594 |
Mirant Americas Generation, Inc. sr. unsec. notes 8.3s, 2011 | | 4,214,000 | | 4,256,140 |
Mirant North America, LLC company guaranty 7 3/8s, 2013 | | 6,700,000 | | 6,725,125 |
41
| | | | |
CORPORATE BONDS AND NOTES (78.8%)* continued | | | | |
|
| | Principal amount | | Value |
|
Utilities & Power continued | | | | |
NRG Energy, Inc. company guaranty 7 3/8s, 2017 | $ | 2,710,000 | $ | 2,621,925 |
NRG Energy, Inc. sr. notes 7 3/8s, 2016 | | 14,110,000 | | 13,598,513 |
Orion Power Holdings, Inc. sr. unsec. notes 12s, 2010 | | 2,510,000 | | 2,723,350 |
Sierra Pacific Power Co. general ref. mtge. 6 1/4s, 2012 | | 1,238,000 | | 1,297,501 |
Sierra Pacific Resources sr. unsec. notes 8 5/8s, 2014 | | 3,540,000 | | 3,764,365 |
Teco Finance, Inc. sr. unsec. unsub. notes 7s, 2012 | | 2,785,000 | | 3,003,113 |
Teco Finance, Inc. sr. unsec. unsub. notes 7.2s, 2011 | | 1,680,000 | | 1,797,024 |
Teco Finance, Inc. sr. unsec. unsub. notes 6 3/4s, 2015 | | 370,000 | | 379,859 |
Tennessee Gas Pipeline Co. sr. unsec. unsub. debs. 7s, 2028 | | 710,000 | | 705,259 |
Tennessee Gas Pipeline Co. sr. unsec. unsub. debs. 7 1/2s, 2017 | | 1,495,000 | | 1,657,770 |
Transcontinental Gas Pipeline Corp. sr. unsec. debs. 7 1/4s, 2026 | | 5,220,000 | | 5,337,450 |
Utilicorp United, Inc. sr. unsec. notes 9.95s, 2011 | | 173,000 | | 183,897 |
Williams Cos., Inc. (The) sr. unsec. notes 8 1/8s, 2012 | | 25,000 | | 27,250 |
Williams Cos., Inc. (The) sr. unsec. notes 7 5/8s, 2019 | | 1,525,000 | | 1,631,750 |
Williams Cos., Inc. (The) 144A notes 6 3/8s, 2010 | | 1,915,000 | | 1,958,088 |
Williams Partners LP/ Williams Partners | | | | |
Finance Corp. sr. unsec. notes 7 1/4s, 2017 | | 2,050,000 | | 2,065,375 |
| | | | 95,801,908 |
|
Total corporate bonds and notes (cost $1,584,694,997) | | | $ | 1,435,822,279 |
|
|
|
SENIOR LOANS (8.3%)* (c) | | | | |
|
| | Principal amount | | Value |
|
Automotive (0.3%) | | | | |
Allison Transmission bank term loan FRN Ser. B, 6.624s, 2014 | $ | 3,426,413 | $ | 3,016,196 |
Dana Corp. bank term loan FRN 6.88s, 2015 | | 2,545,000 | | 2,330,795 |
| | | | 5,346,991 |
|
|
Basic Materials (0.8%) | | | | |
Domtar Corp. bank term loan FRN 4.491s, 2014 (Canada) | | 4,617,097 | | 4,293,900 |
Georgia-Pacific, LLC bank term loan FRN Ser. B, 6.866s, 2013 | | 6,096,529 | | 5,609,825 |
Huntsman International, LLC bank term loan FRN | | | | |
Ser. B, 5.035s, 2012 | | 1,056,402 | | 1,001,821 |
Ineos Holdings, Ltd. bank term loan FRN Ser. B2, | | | | |
7.356s, 2014 (United Kingdom) | | 613,737 | | 540,242 |
Ineos Holdings, Ltd. bank term loan FRN Ser. C2, | | | | |
7.856s, 2015 (United Kingdom) | | 613,737 | | 540,242 |
NewPage Holding Corp. bank term loan FRN 8.688s, 2014 | | 1,325,000 | | 1,284,697 |
Rockwood Specialties Group, Inc. bank term loan FRN | | | | |
Ser. E, 4.744s, 2012 | | 1,278,538 | | 1,197,565 |
| | | | 14,468,292 |
|
|
Broadcasting (0.2%) | | | | |
Univision Communications, Inc. bank term loan FRN | | | | |
Ser. B, 5.49s, 2014 | | 4,585,772 | | 3,837,057 |
Univision Communications, Inc. bank term loan FRN | | | | |
Ser. DD, 7.61s, 2014 (U) | | 159,228 | | 133,231 |
Young Broadcasting, Inc. bank term loan FRN Ser. B, 5.696s, 2012 | | 237,691 | | 210,951 |
| | | | 4,181,239 |
42
| | | | |
SENIOR LOANS (8.3%)* (c) continued | | | | |
|
| | Principal amount | | Value |
|
Cable Television (0.1%) | | | | |
Cablevision Systems Corp. bank term loan FRN 6.896s, 2013 | $ | 2,482,367 | $ | 2,291,431 |
|
|
Capital Goods (0.3%) | | | | |
Hawker Beechcraft Acquisition Co., LLC bank term | | | | |
loan FRN 4.73s, 2014 | | 32,526 | | 29,995 |
Hawker Beechcraft Acquisition Co., LLC bank term | | | | |
loan FRN Ser. B, 6.83s, 2014 | | 381,513 | | 351,827 |
Sequa Corp. bank term loan FRN 8.08s, 2014 | | 2,325,000 | | 2,184,047 |
Wesco Aircraft Hardware Corp. bank term loan FRN 10.58s, 2014 | 3,425,000 | | 3,236,625 |
| | | | 5,802,494 |
|
|
Communication Services (0.1%) | | | | |
Hawaiian Telcom Communications, Inc. bank term loan | | | | |
FRN Ser. C, 7.08s, 2014 | | 1,699,268 | | 1,369,326 |
Cricket Communications, Inc. bank term loan FRN | | | | |
Ser. B, 7.83s, 2013 | | 82,500 | | 78,627 |
| | | | 1,447,953 |
|
|
Consumer Cyclicals (1.6%) | | | | |
Adesa, Inc. bank term loan FRN 7.08s, 2013 | | 1,192,504 | | 1,065,502 |
CCM Merger, Inc. bank term loan FRN Ser. B, 6.997s, 2012 | | 1,855,245 | | 1,604,787 |
Claire’s Stores, Inc. bank term loan FRN 6.472s, 2014 | | 2,234,700 | | 1,750,887 |
GateHouse Media, Inc. bank term loan FRN Ser. B, 7.07s, 2014 | | 2,399,620 | | 1,698,931 |
GateHouse Media, Inc. bank term loan FRN Ser. DD, 6 1/2s, 2014 | 895,380 | | 633,929 |
Golden Nugget, Inc. bank term loan FRN Ser. B, 5 1/8s, 2014 | | 690,455 | | 593,791 |
Golden Nugget, Inc. bank term loan FRN Ser. DD, 1 3/4s, 2014 (U) | 394,545 | | 339,309 |
Goodyear Tire & Rubber Co. (The) bank term loan FRN | | | | |
6.43s, 2010 | | 8,970,000 | | 8,151,488 |
Isle of Capri Casinos, Inc. bank term loan FRN 6.58s, 2014 | | 1,367,637 | | 1,169,330 |
Isle of Capri Casinos, Inc. bank term loan FRN Ser. A, 4 7/8s, 2014 | 412,353 | | 352,562 |
Isle of Capri Casinos, Inc. bank term loan FRN Ser. B, 6.58s, 2014 | 547,055 | | 467,732 |
Landsource Communities/NWHL Investment bank term | | | | |
loan FRN 7.403s, 2013 | | 1,184,252 | | 830,245 |
Lear Corp bank term loan FRN 6.826s, 2013 | | 2,990,946 | | 2,738,585 |
Standard-Pacific Corp. bank term loan FRN Ser. B, 4.815s, 2013 | 1,235,000 | | 1,002,409 |
Tribune Co. bank term loan FRN Ser. B, 7.91s, 2014 | | 8,716,200 | | 6,354,110 |
United Components, Inc. bank term loan FRN Ser. D, 5.164s, 2012 | 555,556 | | 494,444 |
| | | | 29,248,041 |
|
|
Consumer Staples (0.7%) | | | | |
Charter Communications, Inc. bank term loan FRN 5.26s, 2014 | 711,113 | | 624,255 |
Citadel Communications bank term loan FRN Ser. B, 5.703s, 2014 | 2,175,000 | | 1,628,531 |
Mediacom Communications Corp. bank term loan FRN | | | | |
Ser. C, 4.9s, 2015 | | 4,004,731 | | 3,449,075 |
Pinnacle Foods Holding Corp. bank term loan FRN | | | | |
Ser. B, 7.483s, 2014 | | 1,005,012 | | 883,783 |
Rental Service Corp. bank term loan FRN 8.15s, 2013 | | 5,885,710 | | 5,010,211 |
Six Flags Theme Parks bank term loan FRN 5.374s, 2015 | | 2,228,800 | | 1,880,550 |
| | | | 13,476,405 |
43
| | | | |
SENIOR LOANS (8.3%)* (c) continued | | | | |
|
| | Principal amount | | Value |
|
Energy (0.6%) | | | | |
Enterprise GP Holdings, LP bank term loan FRN 6.237s, 2014 | $ | 775,000 | $ | 747,875 |
Sandridge Energy bank term loan FRN 8 5/8s, 2015 | | 8,245,000 | | 7,956,425 |
Sandridge Energy bank term loan FRN 8.354s, 2014 | | 1,965,000 | | 1,778,325 |
| | | | 10,482,625 |
|
|
Financial (0.6%) | | | | |
Nuveen Investments, Inc. bank term loan FRN Ser. B, 7.29s, 2014 | | 1,270,000 | | 1,173,956 |
Realogy Corp. bank term loan FRN 5.32s, 2013 | | 716,551 | | 599,216 |
Realogy Corp. bank term loan FRN Ser. B, 7.505s, 2013 | | 2,661,474 | | 2,225,658 |
Residential Capital, LLC bank term loan FRN 5.953s, 2008 | | 8,890,000 | | 7,627,620 |
| | | | 11,626,450 |
|
|
Health Care (0.9%) | | | | |
Community Health Systems, Inc. bank term loan FRN | | | | |
Ser. B, 7.331s, 2014 | | 3,919,071 | | 3,580,726 |
Community Health Systems, Inc. bank term loan FRN | | | | |
Ser. DD, 0 1/2s, 2014 (U) | | 201,620 | | 184,214 |
Fenwal Controls of Japan, LTD. bank term loan FRN | | | | |
10.331s, 2014 (Japan) | | 500,000 | | 458,750 |
Fenwal Controls of Japan, LTD. bank term loan FRN | | | | |
7.331s, 2014 (Japan) | | 3,586,524 | | 3,093,378 |
Fenwal Controls of Japan, LTD. bank term loan FRN | | | | |
Ser. DD, 0 1/2s, 2014 (Japan) (U) | | 602,271 | | 519,459 |
Healthsouth Corp. bank term loan FRN Ser. B, 5.671s, 2013 | | 1,893,867 | | 1,736,570 |
IASIS Healthcare, LLC/IASIS Capital Corp. bank term | | | | |
loan FRN 8.494s, 2014 | | 5,603,213 | | 4,482,570 |
Mylan, Inc. bank term loan FRN Ser. B, 7.098s, 2014 | | 1,935,000 | | 1,866,737 |
Psychiatric Solutions, Inc. bank term loan FRN Ser. B, 6.173s, 2012 | | 392,940 | | 360,523 |
| | | | 16,282,927 |
|
|
Media (0.1%) | | | | |
Idearc, Inc. bank term loan FRN Ser. B, 6.83s, 2014 | | 3,114,271 | | 2,562,136 |
|
|
Retail (0.1%) | | | | |
Michaels Stores, Inc. bank term loan FRN Ser. B, 5.432s, 2013 | | 2,247,927 | | 1,929,641 |
|
|
Technology (0.6%) | | | | |
Compucom Systems, Inc. bank term loan FRN 6.78s, 2014 | | 2,788,013 | | 2,467,391 |
First Data Corp. bank term loan FRN Ser. B1, 7.63s, 2014 | | 2,703,225 | | 2,451,674 |
First Data Corp. bank term loan FRN Ser. B3, 7.63s, 2014 | | 2,703,225 | | 2,451,825 |
Flextronics International, Ltd. bank term loan FRN | | | | |
Ser. B, 7.455s, 2014 (Singapore) | | 626,777 | | 581,858 |
Flextronics International, Ltd. bank term loan FRN | | | | |
Ser. B, 7.394s, 2014 (Singapore) | | 2,181,185 | | 2,024,866 |
| | | | 9,977,614 |
|
|
Transportation (0.5%) | | | | |
Navistar Financial Corp. bank term loan FRN 5.957s, 2012 | | 2,241,333 | | 1,997,588 |
Navistar International Corp. bank term loan FRN 6.501s, 2012 | | 6,163,667 | | 5,493,368 |
UAL Corp. bank term loan FRN Ser. B, 6.529s, 2014 | | 890,278 | | 746,720 |
| | | | 8,237,676 |
44
| | | | |
SENIOR LOANS (8.3%)* (c) continued | | | | |
|
| | Principal amount | | Value |
|
Utilities & Power (0.8%) | | | | |
Energy Future Holdings Corp. bank term loan FRN | | | | |
Ser. B2, 6.579s, 2014 | $ | 6,783,000 | $ | 6,186,659 |
Energy Future Holdings Corp. bank term loan FRN | | | | |
Ser. B3, 6.583s, 2014 | | 9,057,300 | | 8,257,586 |
| | | | 14,444,245 |
|
Total senior loans (cost $168,986,160) | | | $ | 151,806,160 |
|
|
|
CONVERTIBLE BONDS AND NOTES (2.6%)* | | | | |
|
| | Principal amount | | Value |
|
Acquicor Technology, Inc. 144A cv. notes 8s, 2011 | $ | 2,357,000 | $ | 1,767,750 |
Alliant Techsystems, Inc. cv. sr. sub. notes 2 3/4s, 2024 | | 2,965,000 | | 4,099,113 |
Chiquita Brands International cv. unsec. sr. notes 4 1/4s, 2016 | | 1,825,000 | | 2,110,156 |
Countrywide Financial Corp. cv. unsec. sr. FRN | | | | |
company guaranty 0.758s, 2037 | | 2,165,000 | | 1,916,025 |
DRS Technologies, Inc. 144A cv. unsec. notes 2s, 2026 | | 7,205,000 | | 7,961,525 |
Intel Corp. cv. sub. bonds 2.95s, 2035 | | 4,395,000 | | 4,153,275 |
International Coal Group, Inc. 144A cv. company guaranty 9s, 2012 | | 3,740,000 | | 4,860,965 |
L-3 Communications Corp. 144A cv. bonds 3s, 2035 | | 5,115,000 | | 6,329,813 |
Level 3 Communications, Inc. cv. sr. notes 3 1/2s, 2012 | | 2,785,000 | | 2,033,050 |
NII Holdings, Inc. 144A cv. sr. unsec. notes 3 1/8s, 2012 | | 3,720,000 | | 3,227,100 |
Safeguard Scientifics, Inc. cv. sr. notes 2 5/8s, 2024 | | 425,000 | | 343,188 |
Sinclair Broadcast Group, Inc. cv. sr. sub. notes stepped-coupon | | | | |
4 7/8s (2s, 1/15/11) 2018 †† | | 3,155,000 | | 2,914,431 |
Transocean, Inc. cv. sr. unsec. notes, Ser. C, 1 1/2s, 2037 | | 2,635,000 | | 2,944,613 |
Trinity Industries, Inc. cv. sub. notes 3 7/8s, 2036 | | 3,812,000 | | 3,364,055 |
|
Total convertible bonds and notes (cost $45,139,041) | | | $ | 48,025,059 |
|
COMMON STOCKS (1.8%)* | | | | |
|
| | Shares | | Value |
|
AboveNet, Inc. † | | 2,194 | $ | 160,162 |
Adelphia Recovery Trust (Ser. ACC-1) † | | 8,448,187 | | 591,373 |
Bohai Bay Litigation, LLC (Units) (F) § | | 3,899 | | 55,172 |
Chesapeake Energy Corp. (S) | | 96,671 | | 4,371,463 |
Cinemark Holdings, Inc. (S) | | 181,700 | | 2,623,748 |
Contifinancial Corp. Liquidating Trust Units † (F) | | 32,554,805 | | 3,255 |
Dana Holding Corp. † | | 211,156 | | 2,491,641 |
Decrane Aircraft Holdings, Inc. † (F) § | | 29,311 | | 29 |
Del Monte Foods Co. | | 154,000 | | 1,382,920 |
DigitalGlobe, Inc. 144A † § | | 645,566 | | 645,566 |
El Paso Corp. (S) | | 187,225 | | 3,051,768 |
Jarden Corp. † (S) | | 95,645 | | 2,304,088 |
Mediq, Inc. † (F) | | 21,441 | | 13,018 |
NRG Energy, Inc. † | | 71,850 | | 2,965,250 |
Pinnacle Entertainment , Inc. † (S) | | 117,825 | | 1,845,140 |
Qwest Communications International, Inc. | | 345,050 | | 1,863,270 |
45
| | | | |
COMMON STOCKS (1.8%)* continued | | | | |
|
| | Shares | | Value |
|
United Rentals, Inc. † | | 98,425 | $ | 1,978,343 |
VFB LLC (acquired various dates from 12/21/99 | | | | |
to 12/8/03, cost $9,772,641) ‡ † (F) § | | 12,955,347 | | 267,994 |
Williams Cos., Inc. (The) | | 145,082 | | 5,225,854 |
XCL Warranty Escrow (F) § | | 3,899 | | 278,279 |
|
Total common stocks (cost $58,776,175) | | | $ | 32,118,333 |
|
|
|
CONVERTIBLE PREFERRED STOCKS (1.7%)* | | | | |
|
| | Shares | | Value |
|
Citigroup Funding, Inc. Ser. GNW, 5.02% cv. pfd. | | 206,540 | $ | 4,820,644 |
Crown Castle International Corp. $3.125 cum. cv. pfd. | | 88,505 | | 4,956,280 |
Digital Realty Trust, Inc. $1.094 cv. pfd. | | 103,440 | | 2,159,310 |
Emmis Communications Corp. Ser. A, $3.125 cum. cv. pfd. | | 83,405 | | 2,168,530 |
Entertainment Properties Trust Ser. C, $1.437 cum. cv. pfd. (R) | | 141,040 | | 2,803,170 |
Freeport-McMoRan Copper & Gold, Inc. $6.75 cv. pfd. | | 26,163 | | 3,859,043 |
Interpublic Group of Companies, Inc. 144A Ser. B, | | | | |
5.25% cum. cv. pfd | | 4,964 | | 4,268,420 |
Northrop Grumman Corp. Ser. B, $7.00 cum. cv. pfd. | | 41,825 | | 6,085,538 |
|
Total convertible preferred stocks (cost $31,633,778) | | | $ | 31,120,935 |
|
COLLATERALIZED MORTGAGE OBLIGATIONS (0.4%)* | | | | |
|
| | Principal amount | | Value |
|
DLJ Commercial Mortgage Corp. 144A Ser. 98-CF2, | | | | |
Class B5, 5.95s, 2031 | $ | 3,816,434 | $ | 3,014,181 |
GE Capital Commercial Mortgage Corp. 144A Ser. 00-1, | | | | |
Class G, 6.131s, 2033 | | 2,470,000 | | 2,046,197 |
Mach One Commercial Mortgage Trust 144A | | | | |
Ser. 04-1A, Class J, 5.45s, 2040 (Canada) | | 2,435,000 | | 1,436,650 |
Ser. 04-1A, Class K, 5.45s, 2040 (Canada) | | 880,000 | | 475,200 |
Ser. 04-1A, Class L, 5.45s, 2040 (Canada) | | 400,000 | | 196,000 |
|
Total collateralized mortgage obligations (cost $7,553,075) | | | $ | 7,168,228 |
|
FOREIGN GOVERNMENT BONDS AND NOTES (0.2%)* (cost $3,741,278) | | |
|
| | Principal amount | | Value |
|
Argentina (Republic of ) sr. unsec. unsub. bonds FRB 3.092s, 2012 $ | 3,978,125 | $ | 3,484,303 |
46
| | | | | |
WARRANTS (—%)* † | | | | | |
|
| Expiration date | Strike price | Warrants | | Value |
|
AboveNet, Inc. | 9/08/10 | $24.00 | 1,086 | $ | 54,300 |
AboveNet, Inc. | 9/08/08 | 20.00 | 923 | | 50,765 |
Decrane Aircraft Holdings Co. Class B | 6/30/10 | 116 | 1 | | 1 |
Decrane Aircraft Holdings Co. Class B | 6/30/10 | 116 | 1 | | 1 |
New ASAT Finance, Ltd. (Cayman Islands) (F) | 2/01/11 | 0.01 | 794,300 | | 18,427 |
Odyssey Investment Partners 144A (F) | 6/15/09 | .01 | 8,614 | | 42,660 |
Smurfit Kappa Group PLC 144A (Ireland) | 10/01/13 | EUR .001 | 4,599 | | 340,021 |
ZSC Specialty Chemicals PLC 144A | | | | | |
(United Kingdom) | 6/30/11 | $.01 | 300,000 | | 3,000 |
ZSC Specialty Chemicals PLC (Preferred) | | | | | |
144A (United Kingdom) | 6/30/11 | .01 | 300,000 | | 3,000 |
|
Total warrants (cost $730,927) | | | | $ | 512,175 |
|
|
|
PREFERRED STOCKS (—%)* (cost $244,766) | | | | | |
|
| | | Shares | | Value |
|
Decrane Aircraft Holdings, Inc. $16.00 pfd. ‡‡ | | | 21,000 | $ | 147,000 |
|
|
|
SHORT-TERM INVESTMENTS (9.2%)* | | | | | |
|
| Principal amount/shares | | Value |
|
Bryant Park Funding LLC for an effective yield | | | | | |
of 3.25%, maturity date March 3, 2008. | | $ 20,000,000 | $ | 19,994,583 |
Interest in $367,500,500 joint tri-party repurchase | | | | |
agreement dated February 29, 2008 with Deutsche | | | | |
Bank Securities Inc.due March 3, 2008, maturity value | | | | |
of $11,530,026 for an effective yield of 3.15% | | | | | |
(Collateralized by a Fannie Mae security with a | | | | | |
coupon rate of 5.0%, and a due date of October 1, | | | | |
2035, valued at $374,850,000). | | 11,527,000 | | 11,527,000 |
Short-term investments held as collateral for loaned | | | | |
securities with yields ranging from 2.80% to 4.48% | | | | | |
and due dates ranging from March 3, 2008 to April 25, 2008 (d) | 89,269,237 | | 89,141,790 |
Putnam Prime Money Market Fund (e) | | 47,164,734 | | 47,164,734 |
|
|
Total short-term investments (cost $167,828,107) | | | $ | 167,828,107 |
|
|
|
TOTAL INVESTMENTS | | | | | |
|
Total investments (cost $2,069,328,304) | | | | $ | 1,878,032,579 |
Key to holding's currency abbreviations
EUR Euro
* Percentages indicated are based on net assets of $1,821,310,906.
† 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.
47
‡ Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities held at February 29, 2008 was $267,994 or less than 0.1% of net assets.
‡‡ Income may be received in cash or additional securities at the discretion of the issuer. § Affiliated Companies (Note 8).
(c) Senior loans are exempt from registration under the Securities Act of 1933, as amended, but contain certain restrictions on resale and cannot be sold publicly. These loans pay interest at rates which adjust periodically. The interest rates shown for senior loans are the current interest rates at February 29, 2008. Senior loans are also subject to mandatory and/or optional prepayment which cannot be predicted. As a result, the remaining maturity may be substantially less than the stated maturity shown (Notes 1 and 6).
(d) See Note 1 to the financial statements.
(e) See Note 5 to the financial statements regarding investments in Putnam Prime Money Market Fund.
(F) Is valued at fair value following procedures approved by the Trustees.
(R) Real Estate Investment Trust.
(S) Securities on loan, in part or in entirety, at February 29, 2008.
(U) These securities, in part or in entirety, represent unfunded loan commitments (Note 7).
At February 29, 2008, liquid assets totaling $54,499,372 have been designated as collateral for open swap contracts and forward contracts.
144A after the name of an issuer represents securities exempt from registration under Rule 144A under the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.
The rates shown on Floating Rate Bonds (FRB) and Floating Rate Notes (FRN) are the current interest rates at February 29, 2008.
The dates shown on debt obligations are the original maturity dates.
| | | | | |
FORWARD CURRENCY CONTRACTS TO BUY at 2/29/08 (Unaudited) | | | |
|
| | Aggregate | | Delivery | Unrealized |
| Value | face value | | date | appreciation |
|
Euro | $4,247,292 | $4,123,591 | | 3/19/08 | $123,701 |
|
|
FORWARD CURRENCY CONTRACTS TO SELL at 2/29/08 (Unaudited) | | | |
|
| | Aggregate | | Delivery | Unrealized |
| Value | face value | | date | depreciation |
|
Euro | $20,838,819 | $20,248,746 | | 3/19/08 | $(590,073) |
| | | | |
INTEREST RATE SWAP CONTRACTS OUTSTANDING at 2/29/08 (Unaudited) | |
|
| | Payments | Payments | |
Swap counterparty / | Termination | made by | received by | Unrealized |
Notional amount | date | fund per annum | fund per annum | appreciation |
|
Lehman Brothers Special Financing, Inc. | | | |
$342,250,000 | 9/14/09 | 3 month USD-LIBOR-BBA | 4.715% | $15,116,944 |
48
| | | | | |
CREDIT DEFAULT CONTRACTS OUTSTANDING at 2/29/08 (Unaudited) | | |
|
| | | | Fixed payments | Unrealized |
Swap counterparty / | Notional | | Termination | received (paid) by | appreciation/ |
Referenced debt* | amount | | date | fund per annum | (depreciation) |
|
Bank of America, N.A. | | | | | |
Abitibibowater Inc., | | | | | |
6 1/2%, 6/15/13 | $1,225,000 | | 12/20/08 | 550 bp | $(179,757) |
|
Nalco, Co. | | | | | |
7.75%,11/15/11 | 1,160,000 | | 9/20/12 | 350 bp | (48,442) |
|
Bear Stearns Credit Products, Inc. | | | | | |
Claire’s Stores, | | | | | |
9 5/8%, 6/1/15 | 730,000 | | 6/20/12 | 230 bp | (106,106) |
|
Citibank, N.A. | | | | | |
Abitibibowater Inc., | | | | | |
6 1/2%, 6/15/13 | 1,225,000 | | 12/20/08 | 825 bp | (146,305) |
|
Abitibibowater Inc., | | | | | |
6 1/2%, 6/15/13 | 1,240,000 | | 12/20/08 | 725 bp | (163,122) |
|
Abitibibowater Inc., | | | | | |
6 1/2%, 6/15/13 | 1,225,000 | | 12/20/08 | 800 bp | (153,174) |
|
Freescale | | | | | |
Semiconductor, 8 7/8%, | | | | | |
12/15/14 | 3,225,000 | | 9/20/12 | 495 bp | (483,782) |
|
Sanmina-Sci Corp., | | | | | |
8 1/8%, 3/1/16 | 715,000 | | 3/20/09 | 275 bp | (5,900) |
|
Wind Acquisition | | | | | |
9 3/4%, 12/1/15 | EUR 423,000 | | 3/20/13 | (495 bp) | 21,284 |
|
Credit Suisse International | | | | | |
Advanced Micro Devices, | | | | | |
7 3/4%, 11/1/12 | $1,505,000 | | 6/20/09 | 165 bp | (123,816) |
|
Dynegy Holdings Inc., | | | | | |
6 7/8%, 4/1/11 | 140,000 | | 9/20/12 | 400 bp | (4,675) |
|
Dynegy Holdings Inc., | | | | | |
6 7/8%, 4/1/11 | 2,065,000 | | 6/20/17 | 297 bp | (276,768) |
|
Harrahs Operating Co. | | | | | |
Inc., 5 5/8%, 6/1/15 | 2,215,000 | | 3/20/09 | 600 bp | (17,033) |
|
Deutsche Bank AG | | | | | |
Nalco, Co. 7.75%, | | | | | |
11/15/11 | 1,115,000 | | 12/20/12 | 363 bp | (45,180) |
|
Goldman Sachs International | | | | | |
Any one of the | | | | | |
underlying securities | | | | | |
in the basket of BB | | | | | |
CMBS securities | 3,646,000 | (F) | (a) | 2.461% | (646,998) |
|
General Motors Corp., | | | | | |
7 1/8%, 7/15/13 | 4,715,000 | | 9/20/08 | 620 bp | 64,454 |
|
General Motors Corp., | | | | | |
7 1/8%, 7/15/13 | 1,005,000 | | 9/20/08 | 620 bp | 13,738 |
|
Wind Acquisition | | | | | |
9 3/4%, 12/1/15 | EUR 960,000 | | 12/20/10 | (340 bp) | 59,023 |
|
49
| | | | | |
CREDIT DEFAULT CONTRACTS OUTSTANDING at 2/29/08 (Unaudited) continued | |
|
| | | | Fixed payments | Unrealized |
Swap counterparty / | Notional | | Termination | received (paid) by | appreciation/ |
Referenced debt* | amount | | date | fund per annum | (depreciation) |
|
Lehman Brothers Special Financing, Inc. | | | | | |
Community Health | | | | | |
Systems, 8 7/8%, 7/15/15 | $2,765,000 | | 12/20/12 | 360 bp | $ (224,601) |
|
Jefferson Smurfit | | | | | |
Corp., 7 1/2%, 6/1/13 | 1,875,000 | | 3/20/13 | 645 bp | (16,559) |
|
HCA inc., T/L Bank Loan | 630,000 | | 3/20/09 | 225 bp | (350) |
|
Harrahs Operating Co. | | | | | |
Inc., 5 5/8%, 6/1/15 | 1,550,000 | | 3/20/09 | 610 bp | (10,454) |
|
Sungard Data Systems, | | | | | |
Inc., 9 1/8%, 8/15/13 | 2,712,000 | | 9/20/12 | 395 bp | (121,281) |
|
Wind Acquisition | | | | | |
9 3/4%, 12/1/15 | EUR 420,000 | | 12/20/10 | (357 bp) | 22,906 |
|
Merrill Lynch Capital Services, Inc. | | | | | |
General Motors Corp., | | | | | |
7 1/8%, 7/15/13 | $3,235,000 | | 9/20/08 | 500 bp | 15,075 |
|
Merrill Lynch International | | | | | |
Dynegy Holdings Inc., | | | | | |
6 7/8%, 4/1/11 | 2,065,000 | | 6/20/17 | 295 bp | (297,711) |
|
Morgan Stanley Capital Services, Inc. | | | | | |
Advanced Micro Devices, | | | | | |
7 3/4%, 11/1/12 | 325,000 | | 6/20/09 | 190 bp | (26,108) |
|
Aramark Services, Inc., | | | | | |
8.5%, 2/1/15 | 2,235,000 | | 12/20/12 | 355 bp�� | (181,482) |
|
Dynegy Holdings Inc., | | | | | |
6 7/8%, 4/1/11 | 2,065,000 | | 6/20/12 | 225 bp | (182,429) |
|
Jefferson Smurfit Corp, | | | | | |
7.5%, 6/1/13 | 1,665,000 | | 9/20/12 | 445 bp | (125,353) |
|
Nalco, Co. 7.75%, | | | | | |
11/15/11 | 1,445,000 | | 3/20/13 | 460 bp | (8,195) |
|
Nalco, Co. 7.75%, | | | | | |
11/15/11 | 1,190,000 | | 9/20/12 | 330 bp | (59,167) |
|
Oshkosh Truck Corp, T/L | | | | | |
Bank Loan | 3,125,000 | | 6/20/12 | 114 bp | (244,938) |
|
Total | | | | | $(3,703,206) |
* Payments related to the reference debt are made upon a credit default event.
(a) Terminating on the date on which the notional amount is reduced to zero or the date on which the assets securing the reference entity are liquidated.
(F) Is valued at fair value following procedures approved by the Trustees.
The accompanying notes are an integral part of these financial statements.
50
Statement of assets and liabilities 2/29/08 (Unaudited)
| |
ASSETS | |
|
Investment in securities, at value, including $86,751,154 of securities on loan (Note 1): | |
Unaffiliated issuers (identified cost $2,011,671,527) | $ 1,829,620,805 |
Affiliated issuers (identified cost $57,656,777) (Notes 5 and 8) | 48,411,774 |
|
Cash | 169,405 |
|
Foreign currency (cost $350) | 342 |
|
Interest and other receivables | 35,998,828 |
|
Receivable for shares of the fund sold | 531,594 |
|
Receivable for securities sold | 4,341,931 |
|
Receivable for open forward currency contracts (Note 1) | 123,701 |
|
Receivable from Manager (Note 2) | 285,052 |
|
Unrealized appreciation on swap contracts (Note 1) | 15,313,424 |
|
Total assets | 1,934,796,856 |
|
|
LIABILITIES | |
|
Payable for securities purchased | 11,253,645 |
|
Payable for purchases of delayed delivery securities (Notes 1 and 7) | 1,331,143 |
|
Payable for shares of the fund repurchased | 2,838,021 |
|
Payable for compensation of Manager (Notes 2 and 5) | 2,781,780 |
|
Payable for investor servicing fees (Note 2) | 295,771 |
|
Payable for Trustee compensation and expenses (Note 2) | 409,937 |
|
Payable for administrative services (Note 2) | 5,797 |
|
Payable for distribution fees (Note 2) | 749,040 |
|
Payable for open forward currency contracts (Note 1) | 590,073 |
|
Unrealized depreciation on swap contracts (Note 1) | 3,899,686 |
|
Collateral on securities loaned, at value (Note 1) | 89,141,790 |
|
Other accrued expenses | 189,267 |
|
Total liabilities | 113,485,950 |
|
Net assets | $ 1,821,310,906 |
|
|
REPRESENTED BY | |
|
Paid-in capital (Unlimited shares authorized) (Notes 1 and 4) | $ 3,643,198,934 |
|
Undistributed net investment income (Note 1) | 5,200,770 |
|
Accumulated net realized loss on investments | |
and foreign currency transactions (Note 1) | (1,646,771,492) |
|
Net unrealized depreciation of investments | |
and assets and liabilities in foreign currencies | (180,317,306) |
|
Total — Representing net assets applicable to capital shares outstanding | $ 1,821,310,906 |
(Continued on next page)
51
Statement of assets and liabilities (Continued)
| |
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE | |
|
Net asset value and redemption price per class A share | |
($1,406,138,530 divided by 189,854,278 shares) | $7.41 |
|
Offering price per class A share | |
(100/96.00 of $7.41)* | $7.72 |
|
Net asset value and offering price per class B share | |
($147,697,345 divided by 20,009,021 shares)** | $7.38 |
|
Net asset value and offering price per class C share | |
($40,876,185 divided by 5,546,187 shares)** | $7.37 |
|
Net asset value and redemption price per class M share | |
($14,209,824 divided by 1,914,630 shares) | $7.42 |
|
Offering price per class M share | |
(100/96.75 of $7.42)*** | $7.67 |
|
Net asset value, offering price and redemption price per class R share | |
($1,171,813 divided by 159,214 shares) | $7.36 |
|
Net asset value, offering price and redemption price per class Y share | |
($211,217,209 divided by 28,755,495 shares) | $7.35 |
* 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.
52
Statement of operations Six months ended 2/29/08 (Unaudited)
| |
INVESTMENT INCOME | |
|
Interest (including interest income of $2,009,209 | |
from investments in affiliated issuers) (Note 5) | $ 84,771,191 |
|
Dividends | 1,043,479 |
|
Securities lending | 194,904 |
|
Total investment income | 86,009,574 |
|
|
EXPENSES | |
|
Compensation of Manager (Note 2) | 5,797,483 |
|
Investor servicing fees (Note 2) | 1,829,661 |
|
Custodian fees (Note 2) | 25,234 |
|
Trustee compensation and expenses (Note 2) | 37,050 |
|
Administrative services (Note 2) | 14,706 |
|
Distribution fees — Class A (Note 2) | 1,898,952 |
|
Distribution fees — Class B (Note 2) | 871,124 |
|
Distribution fees — Class C (Note 2) | 232,758 |
|
Distribution fees — Class M (Note 2) | 38,791 |
|
Distribution fees — Class R (Note 2) | 2,984 |
|
Other | 326,372 |
|
Non-recurring costs (Notes 2 and 10) | 3,494 |
|
Costs assumed by Manager (Notes 2 and 10) | (3,494) |
|
Fees waived and reimbursed by Manager (Note 5) | (31,776) |
|
Total expenses | 11,043,339 |
|
Expense reduction (Note 2) | (644,276) |
|
Net expenses | 10,399,063 |
|
Net investment income | 75,610,511 |
|
Net realized loss on investments (Notes 1 and 3) | (16,664,173) |
|
Net realized loss on swap contracts (Note 1) | (2,679,177) |
|
Net realized loss on foreign currency transactions (Note 1) | (1,836,902) |
|
Net unrealized depreciation of assets and liabilities | |
in foreign currencies during the period | (354,646) |
|
Net unrealized depreciation of investments | |
and swap contracts during the period | (82,471,014) |
|
Net loss on investments | (104,005,912) |
|
Net decrease in net assets resulting from operations | $ (28,395,401) |
The accompanying notes are an integral part of these financial statements.
53
Statement of changes in net assets
| | |
DECREASE IN NET ASSETS | | |
|
| Six months ended | Year ended |
| 2/29/08* | 8/31/07 |
|
Operations: | | |
Net investment income | $ 75,610,511 | $ 161,621,755 |
|
Net realized gain (loss) on investments | | |
and foreign currency transactions | (21,180,252) | 11,404,814 |
|
Net unrealized depreciation of investments | | |
and assets and liabilities in foreign currencies | (82,825,660) | (18,160,694) |
|
Net increase (decrease) in net assets | | |
resulting from operations | (28,395,401) | 154,865,875 |
|
Distributions to shareholders (Note 1): | | |
|
From ordinary income | | |
|
Net investment income | | |
|
Class A | (57,634,796) | (123,781,207) |
|
Class B | (5,900,948) | (18,095,563) |
|
Class C | (1,581,955) | (4,019,507) |
|
Class M | (561,398) | (1,337,072) |
|
Class R | (44,443) | (55,057) |
|
Class Y | (8,705,739) | (16,558,210) |
|
Redemption fees (Note 1) | 211,406 | 126,057 |
|
Decrease from capital share transactions (Notes 4 and 9) | (132,711,606) | (211,245,950) |
|
Total decrease in net assets | (235,324,880) | (220,100,634) |
|
|
NET ASSETS | | |
|
Beginning of period | 2,056,635,786 | 2,276,736,420 |
|
End of period (including undistributed net investment | | |
income of $5,200,770 and $4,019,538, respectively) | $1,821,310,906 | $2,056,635,786 |
* Unaudited
The accompanying notes are an integral part of these financial statements.
54
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55
| | | | | | | | | | | | | |
Financial highlights | (For a common share outstanding throughout the period) | | | | | | | |
|
|
INVESTMENT OPERATIONS: | | | | LESS DISTRIBUTIONS: | | | | RATIOS AND SUPPLEMENTAL DATA: | |
|
| | | Net | | | | | | Total | | | Ratio of net | |
| Net asset | | realized and | Total | From | | | Net asset | return | Net | Ratio of | investment | |
| value, | Net | unrealized | from | net | | | value, | at net | assets, | expenses to | income (loss) | Portfolio |
| beginning | investment | gain (loss) on | investment | investment | Total | Redemption | end | asset | end of period | average net | to average | turnover |
Period ended | of period | income (loss)(a) | investments | operations | income | distributions | fees | of period | value (%)(b) | (in thousands) | assets (%)(c) | net assets (%) | (%) |
|
CLASS A | | | | | | | | | | | | | |
February 29, 2008** | $7.82 | .30(d) | (.42) | (.12) | (.29) | (.29) | —(f) | $7.41 | (1.56)* | $1,406,139 | .53*(d) | 3.84*(d) | 13.15* |
August 31, 2007 | 7.87 | .58(d) | (.04) | .54 | (.59) | (.59) | —(f) | 7.82 | 6.87 | 1,570,488 | 1.03(d) | 7.17(d) | 57.18 |
August 31, 2006 | 8.10 | .58(d,e) | (.22) | .36 | (.59) | (.59) | —(f) | 7.87 | 4.64 | 1,657,357 | 1.01(d,e) | 7.26(d,e) | 45.50 |
August 31, 2005 | 7.98 | .56(d) | .16 | .72 | (.60) | (.60) | —(f) | 8.10 | 9.28 | 1,851,371 | .97(d) | 6.94(d) | 41.21 |
August 31, 2004 | 7.55 | .59(d) | .43 | 1.02 | (.59) | (.59) | —(f) | 7.98 | 13.95 | 1,924,073 | .99(d) | 7.55(d) | 61.68 |
August 31, 2003 | 6.86 | .67 | .71 | 1.38 | (.69) | (.69) | — | 7.55 | 21.27 | 2,271,756 | .98 | 9.41 | 75.18 |
|
|
CLASS B | | | | | | | | | | | | | |
February 29, 2008** | $7.79 | .27(d) | (.42) | (.15) | (.26) | (.26) | —(f) | $7.38 | (1.95)* | $147,697 | .90*(d) | 3.47*(d) | 13.15* |
August 31, 2007 | 7.84 | .51(d) | (.04) | .47 | (.52) | (.52) | —(f) | 7.79 | 6.05 | 197,581 | 1.78(d) | 6.42(d) | 57.18 |
August 31, 2006 | 8.06 | .51(d,e) | (.20) | .31 | (.53) | (.53) | —(f) | 7.84 | 3.99 | 342,227 | 1.76(d,e) | 6.52(d,e) | 45.50 |
August 31, 2005 | 7.94 | .50(d) | .16 | .66 | (.54) | (.54) | —(f) | 8.06 | 8.49 | 543,515 | 1.72(d) | 6.19(d) | 41.21 |
August 31, 2004 | 7.52 | .53(d) | .42 | .95 | (.53) | (.53) | —(f) | 7.94 | 13.01 | 672,232 | 1.74(d) | 6.80(d) | 61.68 |
August 31, 2003 | 6.84 | .62 | .70 | 1.32 | (.64) | (.64) | — | 7.52 | 20.31 | 879,566 | 1.73 | 8.67 | 75.18 |
|
|
CLASS C | | | | | | | | | | | | | |
February 29, 2008** | $7.78 | .27(d) | (.42) | (.15) | (.26) | (.26) | —(f) | $7.37 | (1.95)* | $40,876 | .90*(d) | 3.46*(d) | 13.15* |
August 31, 2007 | 7.84 | .52(d) | (.05) | .47 | (.53) | (.53) | —(f) | 7.78 | 5.95 | 46,276 | 1.78(d) | 6.42(d) | 57.18 |
August 31, 2006 | 8.06 | .51(d,e) | (.20) | .31 | (.53) | (.53) | —(f) | 7.84 | 4.02 | 63,687 | 1.76(d,e) | 6.50(d,e) | 45.50 |
August 31, 2005 | 7.95 | .50(d) | .15 | .65 | (.54) | (.54) | —(f) | 8.06 | 8.39 | 75,498 | 1.72(d) | 6.18(d) | 41.21 |
August 31, 2004 | 7.52 | .54(d) | .42 | .96 | (.53) | (.53) | —(f) | 7.95 | 13.15 | 63,866 | 1.74(d) | 6.80(d) | 61.68 |
August 31, 2003 | 6.85 | .62 | .68 | 1.30 | (.63) | (.63) | — | 7.52 | 20.08 | 87,008 | 1.73 | 8.49 | 75.18 |
|
|
CLASS M | | | | | | | | | | | | | |
February 29, 2008** | $7.83 | .29(d) | (.42) | (.13) | (.28) | (.28) | —(f) | $7.42 | (1.71)* | $14,210 | .65*(d) | 3.71*(d) | 13.15* |
August 31, 2007 | 7.88 | .56(d) | (.05) | .51 | (.56) | (.56) | —(f) | 7.83 | 6.54 | 16,162 | 1.28(d) | 6.92(d) | 57.18 |
August 31, 2006 | 8.10 | .56(d,e) | (.22) | .34 | (.56) | (.56) | —(f) | 7.88 | 4.46 | 19,785 | 1.26(d,e) | 7.00(d,e) | 45.50 |
August 31, 2005 | 7.98 | .54(d) | .15 | .69 | (.57) | (.57) | —(f) | 8.10 | 8.95 | 23,265 | 1.22(d) | 6.69(d) | 41.21 |
August 31, 2004 | 7.55 | .57(d) | .43 | 1.00 | (.57) | (.57) | —(f) | 7.98 | 13.64 | 26,295 | 1.24(d) | 7.28(d) | 61.68 |
August 31, 2003 | 6.87 | .65 | .70 | 1.35 | (.67) | (.67) | — | 7.55 | 20.80 | 45,017 | 1.23 | 9.12 | 75.18 |
|
|
CLASS R | | | | | | | | | | | | | |
February 29, 2008** | $7.77 | .29(d) | (.41) | (.12) | (.29) | (.29) | —(f) | $7.36 | (1.69)* | $1,172 | .65*(d) | 3.72*(d) | 13.15* |
August 31, 2007 | 7.85 | .56(d) | (.07) | .49 | (.57) | (.57) | —(f) | 7.77 | 6.24 | 1,096 | 1.28(d) | 6.92(d) | 57.18 |
August 31, 2006 | 8.08 | .55(d,e) | (.21) | .34 | (.57) | (.57) | —(f) | 7.85 | 4.37 | 390 | 1.26(d,e) | 7.00(d,e) | 45.50 |
August 31, 2005 | 7.98 | .53(d) | .15 | .68 | (.58) | (.58) | —(f) | 8.08 | 8.79 | 905 | 1.22(d) | 6.60(d) | 41.21 |
August 31, 2004 | 7.55 | .58(d) | .42 | 1.00 | (.57) | (.57) | —(f) | 7.98 | 13.64 | 70 | 1.24(d) | 7.29(d) | 61.68 |
August 31, 2003 † | 6.99 | .40 | .54 | .94 | (.38) | (.38) | — | 7.55 | 13.76* | 46 | .75* | 5.59* | 75.18 |
|
|
CLASS Y | | | | | | | | | | | | | |
February 29, 2008** | $7.76 | .30(d) | (.40) | (.10) | (.31) | (.31) | —(f) | $7.35 | (1.43)* | $211,217 | .40*(d) | 3.97*(d) | 13.15* |
August 31, 2007 | 7.83 | .60(d) | (.06) | .54 | (.61) | (.61) | —(f) | 7.76 | 6.96 | 225,031 | .78(d) | 7.42(d) | 57.18 |
August 31, 2006 | 8.06 | .59(d,e) | (.21) | .38 | (.61) | (.61) | —(f) | 7.83 | 4.99 | 193,290 | .76(d,e) | 7.51(d,e) | 45.50 |
August 31, 2005 | 7.96 | .58(d) | .14 | .72 | (.62) | (.62) | —(f) | 8.06 | 9.37 | 222,236 | .72(d) | 7.19(d) | 41.21 |
August 31, 2004 | 7.53 | .61(d) | .44 | 1.05 | (.62) | (.62) | —(f) | 7.96 | 14.34 | 244,131 | .74(d) | 7.81(d) | 61.68 |
August 31, 2003 | 6.85 | .68 | .71 | 1.39 | (.71) | (.71) | — | 7.53 | 21.45 | 220,883 | .73 | 9.57 | 75.18 |
|
See notes to financial highlights at the end of this section.
The accompanying notes are an integral part of these financial statements.
Financial highlights (Continued)
* Not annualized.
** Unaudited.
† For the period January 21, 2003 (commencement of operations) to August 31, 2003.
(a) Per share net investment income (loss) has been determined on the basis of the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements (Note 2).
(d) Reflects an involuntary contractual expense limitation and/or waivers of certain fund expenses in connection with investments in Putnam Prime Money Market Fund in effect during the period. As a result of such limitation and/or waivers, the expenses of each class reflect a reduction of the following amounts (Notes 2 and 5):
| | |
| Percentage | |
| of average | |
| net assets | |
| |
February 29, 2008 | <0.01% | |
| |
August 31, 2007 | <0.01 | |
| |
August 31, 2006 | <0.01 | |
| |
August 31, 2005 | <0.01 | |
| |
August 31, 2004 | <0.01 | |
| |
(e) Reflects a non-recurring reimbursement from Putnam Investments relating to the calculation of certain amounts paid by the fund to Putnam in previous years for transfer agent services, which amounted to less than $0.01 per share and 0.01% of average net assets for the period ended August 31, 2006 .
(f) Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial statements.
58
Notes to financial statements 2/29/08 (Unaudited)
Note 1: Significant accounting policies
Putnam High Yield Trust (the “fund”), a Massachusetts business trust, is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The fund seeks high current income by investing primarily in high-yielding, lower-rated fixed-income securities. These securities may have a higher rate of default. Capital growth is a secondary goal when consistent with achieving high current income.
The fund offers class A, class B, class C, class M, class R and class Y shares. Class A and class M shares are sold with a maximum front-end sales charge of 4.00% and 3.25%, respectively, and generally do not pay a contingent deferred sales charge. Class B shares, which convert to class A shares after approximately eight years, do not pay a front-end sales charge and are subject to a contingent deferred sales charge, if those shares are redeemed within six years of purchase. Class C shares have a one-year 1.00% contingent deferred sales charge and do not convert to class A shares. Class R shares, which are offered to qualified employee-benefit plans, are sold at net asset value. The expenses for class A, class B, class C, class M and class R shares may differ based on the distribution fee of each class, which is identified in Note 2. Class Y shares, which are sold at net asset value, are generally subject to the same expenses as class A, class B, class C, class M an d class R shares, but do not bear a distribution fee. Class Y shares are generally only available to corporate and institutional clients and clients in other approved programs.
A 1.00% redemption fee may apply on any shares that are redeemed (either by selling or exchanging into another fund) within 90 days of purchase. The redemption fee is accounted for as an addition to paid-in-capital.
Investment income, realized and unrealized gains and losses and expenses of the fund are borne pro-rata based on the relative net assets of each class to the total net assets of the fund, except that each class bears expenses unique to that class (including the distribution fees applicable to such classes). Each class votes as a class only with respect to its own distribution plan or other matters on which a class vote is required by law or determined by the Trustees. If the fund were liquidated, shares of each class would receive their pro-rata share of the net assets of the fund. In addition, the Trustees declare separate dividends on each class of shares.
In the normal course of business, the fund enters into contracts that may include agreements to indemnify another party under given circumstances. The fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be, but have not yet been, made against the fund. However, the fund expects the risk of material loss to be remote.
The following is a summary of significant accounting policies consistently followed by the fund in the preparation of its financial statements. The preparation of financial statements is in conformity with accounting principles generally accepted in the United States of America and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
A) Security valuation Investments for which market quotations are readily available are valued at the last reported sales price on their principal exchange, or official closing price for certain markets. If no sales are reported — as in the case of some securities traded over-the-counter — a security is valued at its last reported bid price. Market quotations are not considered to be readily available for certain debt obligations; such investments are valued on the basis of valuations furnished by an independent pricing service approved by the Trustees or dealers selected by Putnam Investment Management, LLC (“Putnam Management”), the fund’s manager, a wholly-owned subsidiary of Putnam, LLC. Such
59
services or dealers determine valuations for normal institutional-size trading units of such securities using methods based on market transactions for comparable securities and various relationships, generally recognized by institutional traders, between securities. Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange. Accordingly, on certain days, the fund will fair value foreign equity securities taking into account multiple factors, including movements in the U.S. securities markets. The number of days on which fair value prices will be used will depend on market activity and it is possible that fair value prices will be used by the fund to a significant extent. Securities quoted in foreign currencies, if any, are t ranslated into U.S. dollars at the current exchange rate. Certain investments, including certain restricted securities and derivatives, are also valued at fair value following procedures approved by the Trustees. Such valuations and procedures are reviewed periodically by the Trustees. Certain securities may be valued on the basis of a price provided by a single source. The fair value of securities is generally determined as the amount that the fund could reasonably expect to realize from an orderly disposition of such securities over a reasonable period of time. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and does not reflect an actual market price, which may be different by a material amount.
B) Joint trading account Pursuant to an exemptive order from the Securities and Exchange Commission (the “SEC”), the fund may transfer uninvested cash balances, including cash collateral received under security lending arrangements, into a joint trading account along with the cash of other registered investment companies and certain other accounts managed by Putnam Management. These balances may be invested in issues of short-term investments having maturities of up to 397 days for collateral received under security lending arrangements and up to 90 days for other cash investments.
C) Repurchase agreements The fund, or any joint trading account, through its custodian, receives delivery of the underlying securities, the market value of which at the time of purchase is required to be in an amount at least equal to the resale price, including accrued interest. Collateral for certain tri-party repurchase agreements is held at the counterparty’s custodian in a segregated account for the benefit of the fund and the counterparty. Putnam Management is responsible for determining that the value of these underlying securities is at all times at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security transactions are recorded on the trade date (the date the order to buy or sell is executed). Gains or losses on securities sold are determined on the identified cost basis. Interest income is recorded on the accrual basis. Dividend income, net of applicable withholding taxes, is recognized on the ex-dividend date except that certain dividends from foreign securities, if any, are recognized as soon as the fund is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital or capital gains, if any, are reflected as a reduction of cost and/or as a realized gain.
All premiums/discounts are amortized/accreted on a yield-to-maturity basis. Securities purchased or sold on a delayed delivery basis may be settled a month or more after the trade date; interest income is accrued based on the terms of the securities. Losses may arise due to changes in the market value of the underlying securities or if the counterparty does not perform under the contract.
The fund earned certain fees in connection with its senior loan purchasing activities. These fees are
60
treated as market discount and are recorded as income in the Statement of operations.
E) Foreign currency translation The accounting records of the fund are maintained in U.S. dollars. The market value of foreign securities, currency holdings, and other assets and liabilities is recorded in the books and records of the fund after translation to U.S. dollars based on the exchange rates on that day. The cost of each security is determined using historical exchange rates. Income and withholding taxes are translated at prevailing exchange rates when earned or incurred. The fund does not isolate that portion of realized or unrealized gains or losses resulting from changes in the foreign exchange rate on investments from fluctuations arising from changes in the market prices of the securities. Such gains and losses are included with the net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net realized exchange gains or losses on closed fo rward currency contracts, disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions and the difference between the amount of investment income and foreign withholding taxes recorded on the fund’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized appreciation and depreciation of assets and liabilities in foreign currencies arise from changes in the value of open forward currency contracts and assets and liabilities other than investments at the period end, resulting from changes in the exchange rate. Investments in foreign securities involve certain risks, including those related to economic instability, unfavorable political developments, and currency fluctuations, not present with domestic investments.
F) Forward currency contracts The fund may buy and sell forward currency contracts, which are agreements between two parties to buy and sell currencies at a set price on a future date. These contracts are used to protect against a decline in value relative to the U.S. dollar of the currencies in which its portfolio securities are denominated or quoted (or an increase in the value of a currency in which securities a fund intends to buy are denominated, when a fund holds cash reserves and short term investments), or for other investment purposes. The U.S. dollar value of forward currency contracts is determined using current forward currency exchange rates supplied by a quotation service. The market value of the contract will fluctuate with changes in currency exchange rates. The contract is marked to market daily and the change in market value is recorded as an unrealized gain or loss. Whe n the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The fund could be exposed to risk if the value of the currency changes unfavorably, if the counterparties to the contracts are unable to meet the terms of their contracts or if the fund is unable to enter into a closing position. Risks may exceed amounts recognized on the Statement of assets and liabilities. Forward currency contracts outstanding at period end, if any, are listed after the fund’s portfolio.
G) Interest rate swap contracts The fund may enter into interest rate swap contracts, which are arrangements between two parties to exchange cash flows based on a notional principal amount, to manage the fund’s exposure to interest rates. Interest rate swap 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. Payments received or made are recorded as a realized gains or loss. Certain interest rate swap contracts may include extended effective dates. Income related to these swap contracts is accrued based on the terms of the contract. The fund could be exposed to credit or market risk due to unfavorable changes in the fluctuation of interest rates or if the counterparty defaults on its obligation to perform. Risk of loss may exceed amounts recognized on the Statement of assets and liabilities. In terest rate swap contracts outstanding at period end, if any, are listed after the fund’s portfolio.
61
H) Credit default contracts The fund may enter into credit default contracts where one party, the protection buyer, makes an upfront or periodic payment to a counterparty, the protection seller, in exchange for the right to receive a contingent payment. The maximum amount of the payment may equal the notional amount, at par, of the underlying index or security as a result of a related credit event. Payments are made upon a credit default event of the disclosed primary referenced obligation or all other equally ranked obligations of the reference entity. 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. Payments received or made as a result of a credit event or termination of the contract are recognized, net of a proportional amount of the upfront payment, as realized gains or losses. 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, 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 comparable publicly traded securities or that the counterparty may default on its obligation to perform. Risks of loss may exceed amounts recognized on the Statement of assets and liabilities. Credit default contracts outstanding at period end, if any, are listed after the fund’s portfolio.
I) Securities lending The fund may lend securities, through its agents, to qualified borrowers in order to earn additional income. The loans are collateralized by cash and/or securities in an amount at least equal to the market value of the securities loaned. The market value of securities loaned is determined daily and any additional required collateral is allocated to the fund on the next business day. The risk of borrower default will be borne by the fund’s agents; the fund will bear the risk of loss with respect to the investment of the cash collateral. Income from securities lending is included in investment income on the Statement of operations. At February 29, 2008, the value of securities loaned amounted to $86,751,154. The fund received cash collateral of $89,141,790 which is pooled with collateral of other Putnam funds into 53 issues of short-term investments.
J) Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time and otherwise comply with the provisions of the Internal Revenue Code of 1986 (the “Code”), as amended, 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, as amended. Therefore, no provision has been made for federal taxes on income, capital gains or unrealized appreciation on securities held nor for excise tax on income and capital gains.
At August 31, 2007, the fund had a capital loss carryover of $1,608,329,955 available to the extent allowed by the Code to offset future net capital gain, if any. The amount of the carryover and the expiration dates are:
| | |
Loss Carryover | Expiration | |
| |
$342,232,804 | August 31, 2008 | |
| |
309,071,927 | August 31, 2009 | |
| |
301,710,244 | August 31, 2010 | |
| |
499,955,886 | August 31, 2011 | |
| |
61,743,291 | August 31, 2012 | |
| |
76,944,480 | August 31, 2013 | |
| |
14,070,646 | August 31, 2014 | |
| |
2,600,677 | August 31, 2015 | |
| |
Pursuant to federal income tax regulations applicable to regulated investment companies, the fund has elected to defer to its fiscal year ending
62
August 31, 2008 $15,779,599 of losses recognized during the period November 1, 2006 to August 31, 2007, a portion of which could be limited by Section 381 of the Code.
The aggregate identified cost on a tax basis is $2,070,809,989, resulting in gross unrealized appreciation and depreciation of $25,238,381 and $218,015,791, respectively, or net unrealized depreciation of $192,777,410.
K) 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
Putnam Management is paid for management and investment advisory services quarterly based on the average net assets of the fund. Such fee is based on the following annual rates: 0.70% of the first $500 million of average net assets, 0.60% of the next $500 million, 0.55% of the next $500 million, 0.50% of the next $5 billion, 0.475% of the next $5 billion, 0.455% of the next $5 billion, 0.44% of the next $5 billion, and 0.43% thereafter.
Putnam Management has agreed to waive fees and reimburse expenses of the fund through June 30, 2009 to the extent necessary to ensure that the fund’s expenses do not exceed the simple average of the expenses of all front-end load funds viewed by Lipper Inc. as having the same investment classification or objective as the fund. The expense reimbursement is based on a comparison of the fund’s expenses with the average annualized operating expenses of the funds in its Lipper peer group for each calendar quarter during the fund’s last fiscal year, excluding 12b-1 fees and without giving effect to any expense offset and brokerage service arrangements that may reduce fund expenses. For the period ended February 29, 2008, Putnam Management did not waive any of its management fee from the fund.
Putnam Investments Limited (“PIL”), an affiliate of Putnam Management, is authorized by the Trustees to manage a separate portion of the assets of the fund as determined by Putnam Management from time to time. Putnam Management pays a quarterly sub-management fee to PIL for its services at an annual rate of 0.40% of the average net assets of the portion of the fund managed by PIL.
For the period ended February 29, 2008, Putnam Management has assumed $3,494 of legal, shareholder servicing and communication, audit and Trustee fees incurred by the fund in connection with certain legal and regulatory matters (including those described in Note 10).
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 services for the fund’s assets were provided by Putnam Fiduciary Trust Company (“PFTC”), an affiliate of Putnam Management, and by State Street Bank and Trust Company (“State Street”). Custody fees are based on the fund’s asset level, the number of its security holdings, transaction volumes and with respect to PFTC, certain fees related to the transition of assets to State Street. Putnam Investor Services, a division of PFTC, provided investor servicing agent functions to the fund. Putnam Investor Services received fees
63
for investor servicing, subject to certain limitations, based on the number of shareholder accounts in the fund and the level of defined contribution plan assets in the fund. During the period ended February 29, 2008, the fund incurred $1,842,835 for custody and investor servicing agent functions provided by PFTC.
The fund has entered into expense offset arrangements with PFTC and State Street whereby PFTC’s and State Street’s fees are reduced by credits allowed on cash balances. For the six months ended February 29, 2008, the fund’s expenses were reduced by $644,276 under the expense offset arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of which $663, as a quarterly retainer, has been allocated to the fund, and an additional fee for each Trustees meeting attended. Trustees receive additional fees for attendance at certain committee meetings and industry seminars and for certain compliance-related matters. Trustees also are reimbursed for expenses they incur relating to their services as Trustees.
The fund has adopted a Trustee Fee Deferral Plan (the “Deferral Plan”) which allows the Trustees to defer the 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, LLC and Putnam Retail Management GP, Inc., for services provided and expenses incurred in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Retail Management Limited Partnership at an annual rate of up to 0.35%, 1.00%, 1.00% , 1.00% and 1.00% of the average net assets attributable to class A, class B, class C, class M and class R shares, respectively. The Trustees have approved payment by the fund at an annual rate of 0.25%, 1.00%, 1.00%, 0.50% and 0.50% of the average net assets attributable to class A, class B, class C, class M and class R shares, respectively.
For the six months ended February 29, 2008, Putnam Retail Management Limited Partnership, acting as underwriter, received net commissions of $21,916 and $455 from the sale of class A and class M shares, respectively, and received $85,972 and $1,832 in contingent deferred sales charges from redemptions of class B and class C shares, respectively.
A deferred sales charge of up to 1.00% and 0.40% is assessed on certain redemptions of class A and class M shares, respectively. For the six months ended February 29, 2008, Putnam Retail Management, acting as underwriter, received $140 and no monies on class A and class M redemptions, respectively.
Note 3: Purchases and sales of securities
During the six months ended February 29, 2008, cost of purchases and proceeds from sales of investment securities other than short-term investments aggregated $244,492,642 and
64
$357,603,438, respectively. There were no purchases or sales of U.S. government securities.
Note 4: Capital shares
At February 29, 2008, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
| | | |
CLASS A | Shares | Amount | |
| |
Six months ended 2/29/08: | | |
| | | |
Shares sold | 8,107,184 | $ 63,169,374 | |
| |
Shares issued | | | |
in connection | | | |
with reinvestment | | | |
of distributions | 5,163,023 | 39,677,287 | |
| |
| 13,270,207 | 102,846,661 | |
| |
Shares | | | |
repurchased | (24,303,741) | (187,935,771) | |
| |
Net decrease | (11,033,534) | $ (85,089,110) | |
| |
Year ended 8/31/07: | | | |
| | | |
Shares sold | 26,586,888 | $ 214,791,472 | |
| |
Shares issued | | | |
in connection | | | |
with reinvestment | | | |
of distributions | 10,547,539 | 84,965,963 | |
| |
Shares issued | | | |
in connection | | | |
with the merger | | | |
of Putnam Managed | | | |
High Yield Trust | 8,467,578 | 67,470,903 | |
| |
| 45,602,005 | 367,228,338 | |
| |
Shares | | | |
repurchased | (55,177,003) | (445,256,876) | |
| |
Net decrease | (9,574,998) | $ (78,028,538) | |
| | | |
CLASS B | Shares | Amount | |
| |
Six months ended 2/29/08: | | |
| | | |
Shares sold | 1,339,006 | $10,498,949 | |
| |
Shares issued | | | |
in connection | | | |
with reinvestment | | | |
of distributions | 459,582 | 3,524,088 | |
| |
| 1,798,588 | 14,023,037 | |
| |
Shares | | | |
repurchased | (7,160,185) | (55,457,661) | |
| |
Net decrease | (5,361,597) | $ (41,434,624) | |
| |
| | | |
Year ended 8/31/07: | | | |
| | | |
Shares sold | 1,673,860 | $ 13,469,969 | |
| |
Shares issued | | | |
in connection | | | |
with reinvestment | | | |
of distributions | 1,356,191 | 10,877,967 | |
| |
| 3,030,051 | 24,347,936 | |
| |
Shares | | | |
repurchased | (21,314,604) | (171,652,664) | |
| |
Net decrease | (18,284,553) | $(147,304,728) | |
| |
| |
CLASS C | Shares | Amount | |
| |
Six months ended 2/29/08: | | |
| | | |
Shares sold | 967,819 | $ 7,571,667 | |
| |
Shares issued | | | |
in connection | | | |
with reinvestment | | | |
of distributions | 132,925 | 1,017,059 | |
| |
| 1,100,744 | 8,588,726 | |
| |
Shares | | | |
repurchased | (1,502,868) | (11,571,967) | |
| |
Net decrease | (402,124) | $ (2,983,241) | |
| |
| | | |
Year ended 8/31/07: | | | |
| | | |
Shares sold | 1,219,036 | $ 9,829,098 | |
| |
Shares issued | | | |
in connection | | | |
with reinvestment | | | |
of distributions | 347,757 | 2,791,011 | |
| |
| 1,566,793 | 12,620,109 | |
| |
Shares | | | |
repurchased | (3,744,943) | (30,088,203) | |
| |
Net decrease | (2,178,150) | $(17,468,094) | |
65
| | | |
CLASS M | Shares | Amount | |
| |
Six months ended 2/29/08: | | |
| | | |
Shares sold | 210,168 | $ 1,647,934 | |
| |
Shares issued | | | |
in connection | | | |
with reinvestment | | | |
of distributions | 48,255 | 371,701 | |
| |
| 258,423 | 2,019,635 | |
| |
Shares | | | |
repurchased | (407,658) | (3,182,189) | |
| |
Net decrease | (149,235)�� | $(1,162,554) | |
| |
| | | |
Year ended 8/31/07: | | | |
| | | |
Shares sold | 217,738 | $ 1,760,219 | |
| |
Shares issued | | | |
in connection | | | |
with reinvestment | | | |
of distributions | 111,003 | 895,759 | |
| |
| 328,741 | 2,655,978 | |
| |
Shares | | | |
repurchased | (774,388) | (6,263,803) | |
| |
Net decrease | (445,647) | $(3,607,825) | |
| |
| |
CLASS R | Shares | Amount | |
| |
Six months ended 2/29/08: | | |
| | | |
Shares sold | 50,649 | $ 387,758 | |
| |
Shares issued | | | |
in connection | | | |
with reinvestment | | | |
of distributions | 5,439 | 41,524 | |
| |
| 56,088 | 429,282 | |
| |
Shares | | | |
repurchased | (37,852) | (287,987) | |
| |
Net increase | 18,236 | $ 141,295 | |
| |
| | | |
Year ended 8/31/07: | | | |
| | | |
Shares sold | 109,373 | $ 879,853 | |
| |
Shares issued | | | |
in connection | | | |
with reinvestment | | | |
of distributions | 6,847 | 54,906 | |
| |
| 116,220 | 934,759 | |
| |
Shares | | | |
repurchased | (24,965) | (201,142) | |
| |
Net increase | 91,255 | $ 733,617 | |
| | | |
CLASS Y | Shares | Amount | |
| |
Six months ended 2/29/08: | | |
| | | |
Shares sold | 3,815,730 | $ 29,154,750 | |
| |
Shares issued | | | |
in connection | | | |
with reinvestment | | | |
of distributions | 1,142,833 | 8,705,739 | |
| |
| 4,958,563 | 37,860,489 | |
| |
Shares | | | |
repurchased | (5,208,091) | (40,043,861) | |
| |
Net decrease | (249,528) | $ (2,183,372) | |
| |
| | | |
Year ended 8/31/07: | | | |
| | | |
Shares sold | 7,485,161 | $ 60,048,108 | |
| |
Shares issued | | | |
in connection | | | |
with reinvestment | | | |
of distributions | 2,070,650 | 16,558,210 | |
| |
| 9,555,811 | 76,606,318 | |
| |
Shares | | | |
repurchased | (5,247,808) | (42,176,700) | |
| |
Net increase | 4,308,003 | $ 34,429,618 | |
Note 5: Investment in Putnam Prime
Money Market Fund
The fund invests in Putnam Prime Money Market Fund, an open-end management investment company managed by Putnam Management. Investments in Putnam Prime Money Market Fund are valued at its closing net asset value each business day. Management fees paid by the fund are reduced by an amount equal to the management fees paid by Putnam Prime Money Market Fund with respect to assets invested by the fund in Putnam Prime Money Market Fund. For the period ended February 29, 2008, management fees paid were reduced by $31,776 relating to the fund’s investment in Putnam Prime Money Market Fund. Income distributions earned by the fund are recorded as income in the Statement of operations and totaled $2,009,209 for the period ended February 29, 2008. During the period ended February 29, 2008, cost of purchases and proceeds of sales of investments in Putnam Prime
66
Money Market Fund aggregated $309,042,997 and $357,055,248, respectively.
Note 6: Senior loan commitments
Senior loans are purchased or sold on a when-issued or delayed delivery basis and may be settled a month or more after the trade date, which from time to time can delay the actual investment of available cash balances; interest income is accrued based on the terms of the securities. Senior loans can be acquired through an agent, by assignment from another holder of the loan, or as a participation interest in another holder’s portion of the loan. When the fund invests in a loan or participation, the fund is subject to the risk that an intermediate participant between the fund and the borrower will fail to meet its obligations to the fund, in addition to the risk that the borrower under the loan may default on its obligations.
Note 7: Unfunded loan commitments
As of February 29, 2008, the fund had unfunded loan commitments of $1,357,664, which could be extended at the option of the borrower, pursuant to the following loan agreements with the following borrowers:
| | |
Borrower | Unfunded Commitments | |
| |
Community Health | | |
Systems, Inc. | $201,620 | |
| |
Fenwal Controls of | | |
Japan, LTD. (Japan) | 602,271 | |
| |
Golden Nugget, Inc. | 394,545 | |
| |
Univision | | |
Communications, Inc. | 159,228 | |
| |
Note 8: Transactions with affiliated issuers
Transactions during the period with companies in which the fund owned at least 5% of the voting securities were as follows:
| | | | |
| Purchase | Sales | Dividend | Market |
Affiliates | cost | proceeds | Income | Value |
|
Bohai Bay Litigation, LLC (Units) | $ — | $ — | $ — | $ 55,172 |
|
Decrane Aircraft Holdings, Inc. | — | — | — | 29 |
|
DigitalGlobe, Inc. 144A | — | — | — | 645,566 |
|
VFB LLC | — | — | — | 267,994 |
|
XCL Warranty Escrow | — | — | — | 278,279 |
|
Totals | $ — | $ — | $ — | $1,247,040 |
Market values are shown for those securities affiliated at period end.
Note 9: Acquisition of Putnam Managed
High Yield Trust
On October 30, 2006, the fund issued 8,467,578 class A shares in exchange for 7,366,381 class A shares of Putnam Managed High Yield Trust to acquire that fund’s net assets in a tax-free exchange approved by the shareholders. The net assets of the fund and Putnam Managed High Yield Trust on October 27, 2006, were $2,292,845,413 and $67,470,903, respectively. On October 27, 2006, Putnam Managed High Yield Trust had distributions in excess of net investment income of $357,620, accumulated net realized loss of $ 34,849,307 and unrealized depreciation of
67
$1,090,127. The aggregate net assets of the fund immediately following the acquisition were $2,360,316,316.
Information presented in the Statement of operations and changes in net assets reflect only the operations of Putnam High Yield Trust.
Note 10: Regulatory matters and litigation
In late 2003 and 2004, Putnam Management settled charges brought by the Securities and Exchange Commission (the “SEC”) and the Massachusetts Securities Division in connection with excessive short-term trading in Putnam funds. Payments from Putnam Management will be distributed to certain open-end Putnam funds and their shareholders. These allegations and related matters have served as the general basis for certain lawsuits, including purported class action lawsuits against Putnam Management and, in a limited number of cases, some Putnam funds. Putnam Management believes that these lawsuits will have no material adverse effect on the funds or on Putnam Management’s ability to provide investment management services. In addition, Putnam Management has agreed to bear any costs incurred by the Putnam funds as a result of these matters.
Note 11: New accounting pronouncements
In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (the “Interpretation”). The Interpretation prescribes a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken by a filer in the filer’s tax return. Upon adoption, the Interpretation did not have a material effect on the fund’s financial statements. However, the conclusions regarding the Interpretation may be subject to review and adjustment at a later date based on factors including, but not limited to, further implementation guidance expected from the FASB, and on-going analysis of tax laws, regulations and interpretations thereof. In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (the “Standard”). The Standard defines fair value, sets out a framework for measuring fair value and expands disclosures about fair value measurements. The Standard applies to fair value measurements already required or permitted by existing standards. The Standard is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. Putnam Management does not believe the adoption of the Standard will impact the amounts reported in the financial statements; however, additional disclosures will be required about the inputs used to develop the measurements of fair value.
68
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 mutual funds in growth, value, blend, fixed income, and international.
| | |
Investment Manager | Kenneth R. Leibler | James P. Pappas |
Putnam Investment | Robert E. Patterson | Vice President |
Management, LLC | George Putnam, III | |
One Post Office Square | Richard B. Worley | Francis J. McNamara, III |
Boston, MA 02109 | | Vice President and |
| Officers | Chief Legal Officer |
Investment Sub-Manager | Charles E. Haldeman, Jr. | |
Putnam Investments Limited | President | Robert R. Leveille |
57–59 St James’s Street | | Vice President and |
London, England SW1A 1LD | Charles E. Porter | Chief Compliance Officer |
| Executive Vice President, | |
Marketing Services | Principal Executive Officer, | Mark C. Trenchard |
Putnam Retail Management | Associate Treasurer and | Vice President and |
One Post Office Square | Compliance Liaison | BSA Compliance Officer |
Boston, MA 02109 | | |
| Jonathan S. Horwitz | Judith Cohen |
Custodian | Senior Vice President | Vice President, Clerk and |
State Street Bank | and Treasurer | Assistant Treasurer |
and Trust Company | | |
| Steven D. Krichmar | Wanda M. McManus |
Legal Counsel | Vice President and | Vice President, Senior Associate |
Ropes & Gray LLP | Principal Financial Officer | Treasurer and Assistant Clerk |
| | |
Trustees | Janet C. Smith | Nancy E. Florek |
John A. Hill, Chairman | Vice President, Principal | Vice President, Assistant Clerk, |
Jameson Adkins Baxter, | Accounting Officer and | Assistant Treasurer and |
Vice Chairman | Assistant Treasurer | Proxy Manager |
Charles B. Curtis | | |
Robert J. Darretta | Susan G. Malloy | |
Myra R. Drucker | Vice President and | |
Charles E. Haldeman, Jr. | Assistant Treasurer | |
Paul L. Joskow | | |
Elizabeth T. Kennan | Beth S. Mazor | |
| Vice President | |
| | |
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 www.putnam.com. Investors should carefully consider the investment objective, risks, charges, and expenses of a fund, which are described in its prospectus. For this and other information or to request a prospectus, call 1-800-225-1581 toll free. Please read the prospectus carefully before investing. The fund’s Statement of Additional Information contains additional information about the fund’s Trustees and is available without charge upon request by calling 1-800-225-1581.
Item 2. Code of Ethics:
Not applicable
Item 3. Audit Committee Financial Expert:
Not applicable
Item 4. Principal Accountant Fees and Services:
Not applicable
Item 5. Audit Committee of Listed Registrants:
Not applicable
Item 6. Schedule of Investments:
The registrant’s schedule of investments in unaffiliated issuers is included in the report to shareholders in Item 1 above.
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End Management Investment Companies:
Not applicable
Item 8. Portfolio Managers of Closed-End Investment Companies:
Not Applicable
Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers:
Not applicable
Item 10. Submission of Matters to a Vote of Security Holders:
Not applicable
Item 11. Controls and Procedures:
(a) The registrant's principal executive officer and principal financial officer have concluded, based on their evaluation of the effectiveness of the design and operation of the registrant's disclosure controls and procedures as of a date within 90 days of the filing date of this report, that the design and operation of such procedures are generally effective to provide reasonable assurance that information required to be disclosed by the registrant in this report is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms.
(b) Changes in internal control over financial reporting: Not applicable
Item 12. Exhibits:
(a)(1) Not applicable
(a)(2) Separate certifications for the principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Investment Company Act of 1940, as amended, are filed herewith.
(b) The certifications required by Rule 30a-2(b) under the Investment Company Act of 1940, as amended, are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Putnam High Yield Trust
By (Signature and Title):
/s/Janet C. Smith
Janet C. Smith
Principal Accounting Officer
Date: April 29, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title):
/s/Charles E. Porter
Charles E. Porter
Principal Executive Officer
Date: April 29, 2008
By (Signature and Title):
/s/Steven D. Krichmar
Steven D. Krichmar
Principal Financial Officer
Date: April 29, 2008