| UNITED STATES SECURITIES AND EXCHANGE COMMISSION | ||
| Washington, D.C. 20549 | ||
FORM N-CSR | ||
| CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES | ||
| Investment Company Act file number: | (811-02796) |
| Exact name of registrant as specified in charter: | Putnam High Yield Trust |
| Address of principal executive offices: | One Post Office Square, Boston, Massachusetts 02109 |
| Name and address of agent for service: | Beth S. Mazor, Vice President One Post Office Square Boston, Massachusetts 02109 |
| Copy to: | John W. Gerstmayr, Esq. Ropes & Gray LLP 800 Boylston Street Boston, Massachusetts 02199-3600 |
| Registrant’s telephone number, including area code: | (617) 292-1000 |
| Date of fiscal year end: | August 31, 2011 |
| Date of reporting period: | September 1, 2010 — August 31, 2011 |
Item 1. Report to Stockholders: |
| The following is a copy of the report transmitted to stockholders pursuant to Rule 30e-1 under the Investment Company Act of 1940: | |||
Putnam
High Yield
Trust
Annual report
8 | 31 | 11
| Message from the Trustees | 1 | ||
| About the fund | 2 | ||
| Performance snapshot | 4 | ||
| Interview with your fund’s portfolio manager | 5 | ||
| Your fund’s performance | 10 | ||
| Your fund’s expenses | 13 | ||
| Terms and definitions | 15 | ||
| Trustee approval of management contract | 16 | ||
| Other information for shareholders | 20 | ||
| Financial statements | 21 | ||
| Federal tax information | 64 | ||
| About the Trustees | 65 | ||
| Officers | 67 | ||
Message from the Trustees
Dear Fellow Shareholder:
Markets around the world are grappling with heightened volatility. In the United States, persistently high unemployment and other weak economic data have fueled investors’ risk aversion, while in Europe the sovereign debt crisis shows little sign of abating. Certain bright spots do exist, but it is clear that volatility and uncertainty will remain with us for the near term.
We believe it is important to consult your financial advisor in times like these to consider whether your portfolio reflects an appropriate degree of diversification. In responding to this need, Putnam offers funds with strategies that seek to limit volatility and also employs an active, research-based investment approach that is designed to offer shareholders a potential advantage in this climate by looking for new growth opportunities and seeking to guard against downside risk.
We would like to thank John A. Hill, who has served as Chairman of the Trustees since 2000 and who continues on as a Trustee, for his service. We are pleased to announce that Jameson A. Baxter is the new Chair, having served as Vice Chair since 2005 and a Trustee since 1994. Ms. Baxter is President of Baxter Associates, Inc., a private investment firm, and Chair of the Mutual Fund Directors Forum. In addition, she serves as Chair Emeritus of the Board of Trustees of Mount Holyoke College, Director of the Adirondack Land Trust, and Trustee of the Nature Conservancy’s Adirondack Chapter.
Lastly, we would like to take this opportunity to welcome new shareholders to the fund and to thank all of our investors for your continued confidence in Putnam.
About the fund
A disciplined approach to seeking high current income and capital growth
Unlike most types of fixed-income investments, high-yield bonds are more influenced by the performance of issuing companies than by interest rates. For this reason, distinguishing between opportunities and pitfalls in the high-yield bond market requires a rigorous selection process. With Putnam High Yield Trust, this process includes exhaustive research, investment diversification, and timely portfolio adjustments.
Because of the risks of high-yield bond investing, in-depth credit research is essential. The fund’s research team visits with the management of issuing companies and analyzes each company’s profitability and capital structure. The team then considers this information in the context of the bond’s total return profile before deciding whether it is an appropriate investment for the fund. The fund’s managers seek bonds issued by a broad range of companies. Holdings are diversified across industry sectors and among bonds with different credit ratings. While the fund invests primarily in bonds of U.S. companies, it can target foreign bonds as well. The fund also invests in convertible securities and bank loans.
As the bond markets shift over time, the managers look for ways to capitalize on developments that affect fixed-income securities in general and high-yield bonds in particular. For example, if credit spreads widen and prices of lower-rated securities decline, the managers may look to take advantage of the improved valuation of higher-risk securities. Conversely, if the managers believe that credit risk is likely to pick up or volatility is likely to increase, they may look to reduce risk in the portfolio.
Consider these risks before investing: Lower-rated bonds may offer higher yields in return for more risk. The use of derivatives involves additional risks, such as the potential inability to terminate or sell derivatives positions and the potential failure of the other party to the instrument to meet its obligations. Funds that invest in bonds are subject to certain risks including interest-rate risk, credit risk, and inflation risk. As interest rates rise, the prices of bonds fall. Long-term bonds are more exposed to interest-rate risk than short-term bonds. Unlike bonds, bond funds have ongoing fees and expenses.
What makes a bond “high yield”?
High-yield bonds are fixed-income investments typically issued by companies that lack an established earnings track record or a solid credit history. In general, high-yield bonds offer higher interest rates than investment-grade bonds to compensate for their increased risk. Because of this added risk, these bonds are typically rated below investment grade by an independent rating agency (for example, the lowest Moody’s Investors Service rating of investment-grade bonds is Baa). The lower the rating, the greater the possibility that a bond’s issuer will be unable to make interest payments or repay the principal.
Bond ratings
* Through 8/31/11.
Chart based on net asset value (NAV).
| 2 | 3 |
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will fluctuate, and you may have a gain or a loss when you sell your shares. Performance of class A shares assumes reinvestment of distributions and does not account for taxes. Fund returns in the bar chart do not reflect a sales charge of 4.00%; had they, returns would have been lower. See pages 5 and 10–12 for additional performance information. For a portion of the periods, the fund had expense limitations, without which returns would have been lower. A short-term trading fee of 1% may apply to redemptions or exchanges from certain funds within the time period specified in the fund’s prospectus. To obtain the most recent month-end performance, visit putnam.com.
* The fund’s benchmark, the JPMorgan Developed High Yield Index, was introduced on 12/31/94, which post-dates the inception of the fund’s class A shares.
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Interview with your fund’s portfolio manager
Paul D. Scanlon, CFA
How would you characterize the environment in the high-yield bond market during the year ended August 31, 2011?
For the majority of the fiscal year, high-yield corporate bonds were among the best-performing fixed-income categories, thanks to a generally supportive economic environment, strong corporate fundamentals, and solid demand for high-yield debt. The high-yield market was somewhat choppy during March, due to the disasters in Japan, unrest in North Africa and the Middle East, and resurgent fears about sovereign debt problems in several peripheral European economies. Then, after a turbulent June and July, high-yield bonds sold off dramatically in August, as did a number of riskier asset classes amid renewed investor concerns over the possibility of a double-dip recession, exacerbated by fears of a Greek default. At Putnam, while we believe the likelihood of a recession has increased in recent months, at the moment we still anticipate that the most likely outcome for the economy over the near term is continued moderate growth.
Throughout the period, new issuance of high-yield bonds generally remained high — the slowdown in July and August notwithstanding — as issuers continued to refinance their existing debt, seeking to reduce borrowing costs, extend maturities, and increase their financial flexibility. Lower-rated bonds generally outperformed their higher-rated counterparts during the fund’s fiscal year, although throughout most of 2011 — and especially in the past few months — the trend has been the reverse, with higher-rated bonds outperforming.
Credit fundamentals remained positive, with the number of ratings upgrades outpacing the number of downgrades by a significant
This comparison shows your fund’s performance in the context of broad market indexes for the 12 months ended 8/31/11. See pages 4 and 10–12 for additional fund performance information. Index descriptions can be found on page 15.
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margin. The overall default rate remained low, hovering around 1% at the end of the period, which is well below the 25-year average of 4.2% and the peak rate of more than 16% that was reached in December 2009.
The fund trailed its benchmark. What factors dampened its relative return?
In terms of individual holdings, an overweight position in Harry & David, a specialty retailer of gourmet fruit and food gift baskets, hurt performance, as the company filed for Chapter 11 bankruptcy in March 2011.
The financials sector was the biggest drag on relative performance during the past 12 months, due to an underweight position and poor security selection. Our security selection in consumer goods — both cyclicals and staples — as well as energy also detracted from the fund’s relative returns.
What industry groups and holdings helped versus the index?
First Data, a provider of merchant processing services, was one of the fund’s best-performing holdings. Other positive contributors included Freescale Semiconductor; Petrohawk Energy, which we sold before the close of the period; and Lyondell Chemical, an out-of-benchmark position.
In telecommunication services, one of the best-performing sectors for the fund, an overweight position in wireless carrier Sprint Nextel aided results. Despite losing market share to competitors, the company is making progress as it tries to regain
Credit qualities are shown as a percentage of net assets as of 8/31/11. A bond rated Baa or higher (Prime-3 or higher, for short-term debt) is considered investment grade. The chart reflects Moody’s ratings; percentages may include bonds or derivatives not rated by Moody’s but rated by Standard & Poor’s (S&P) or, if unrated by S&P, by Fitch, and then included in the closest equivalent Moody’s rating. Ratings will vary over time.
Credit quality includes bonds and represents only the fixed-income portion of the portfolio. Derivative instruments, including currency forwards, are only included to the extent of any unrealized gain or loss on such instruments and are shown in the not-rated category. Cash is also shown in the not-rated category. The fund itself has not been rated by an independent rating agency.
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favor with customers. For example, Sprint Nextel added postpaid subscribers for the first time in several years during the fourth quarter of 2010. The company has also done a good job of continuing to add new handsets and smartphones to retain and attract subscribers; for example, Sprint is expected to carry the latest iPhone model when it becomes available later this year.
Three of the fund’s top-performing holdings were automotive companies: Visteon, a components manufacturer; TRW, a manufacturer of integrated safety systems; and Dana, a driveline and auto parts maker, all contributed positively to the fund’s returns relative to the benchmark. We sold our positions in Visteon and Dana before the end of the period.
How do changes in interest rates affect high-yield bonds?
Bond prices generally move in the opposite direction of interest rates, although high-yield bonds typically have less sensitivity to rate changes than Treasuries. That said, declining rates are usually positive for high-yield bonds as the fixed rates on existing bonds become more attractive to investors. But with Treasury yields near all-time lows, investors are right to wonder how much longer interest rates will continue to decline. Rising rates, on
This table shows the fund’s top 10 holdings and the percentage of the fund’s net assets that each represented as of 8/31/11. Short-term holdings are excluded. Holdings will vary over time.
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the other hand, are generally symptomatic of an improving economic environment, which is positive for corporations and, consequently, beneficial from a credit-risk standpoint. But ultimately high-yield bonds are typically less influenced by interest-rate movements, and more influenced by corporate fundamentals and economic conditions.
What is your outlook for the high-yield market over the coming months, and how are you positioning the fund?
A slowly improving U.S. economy provided the fund with a positive backdrop during most of the period. However, during the summer months, the economy appeared to be experiencing a mid-cycle slowdown. Looking ahead, while there are certain macroeconomic concerns that could potentially constrain growth, we believe the economic recovery will continue. What’s more, corporate profit growth is expected to remain strong throughout 2011. Many investors are questioning whether the performance of high-yield bonds has run its course for this market cycle. In our view, the current supportive credit environment likely will continue, and there is still value to be gained by exposure to the high-yield sector. The trauma of the financial crisis of 2008 and 2009, severe as it was, had the beneficial effect of purging the market of its least-creditworthy companies. Put differently, the bulk of today’s high-yield issuers are stronger for having weathered the recession. Most of them have better balance sheets, with substantial amounts of cash and sturdier capital structures.
This chart shows how the fund’s credit quality has changed over the past six months. Credit qualities are shown as a percentage of net assets as of 8/31/11. A bond rated Baa or higher (Prime-3 or higher, for short-term debt) is considered investment grade. The chart reflects Moody’s ratings; percentages may include bonds or derivatives not rated by Moody’s but rated by Standard & Poor’s (S&P) or, if unrated by S&P, by Fitch, and then included in the closest equivalent Moody’s rating. Ratings will vary over time.
Credit quality includes bonds and represents only the fixed-income portion of the portfolio. Derivative instruments, including currency forwards, are only included to the extent of any unrealized gain or loss on such instruments and are shown in the not-rated category. Cash is also shown in the not-rated category. The fund itself has not been rated by an independent rating agency.
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Given this perspective, we have a favorable outlook for the coming months, believing that solid corporate fundamentals and liquid capital markets will continue to bolster supply-and-demand dynamics within the high-yield market. In our view, new issuance to finance mergers and acquisitions, tender offers, and refinancing will continue at a healthy pace, and should be met by similarly healthy demand, given the attractiveness of high-yield bonds versus other asset classes. As a result, we believe defaults likely will remain below the historical average for some time. Moreover, yield spreads remain at attractive levels relative to their risk-adjusted return potential. As for the fund’s positioning, we currently plan to maintain a level of risk that is approximately in line with the market, while keeping the portfolio broadly diversified across issuers and industries.
Thanks for your time and insights today, Paul.
The views expressed in this report are exclusively those of Putnam Management and are subject to change. They are not meant as investment advice.
Please note that the holdings discussed in this report may not have been held by the fund for the entire period. Portfolio composition is subject to review in accordance with the fund’s investment strategy and may vary in the future. Current and future portfolio holdings are subject to risk.
Portfolio Manager Paul D. Scanlon is Co-Head of Fixed Income at Putnam. He has an M.B.A. from The University of Chicago Booth School of Business and a B.A. from Colgate University. A CFA charterholder, Paul joined Putnam in 1999 and has been in the investment industry since 1986.
In addition to Paul, your fund’s portfolio managers are Norman Boucher and Robert Salvin.
IN THE NEWS
Citing “significant downside risks to the economic outlook,” the Federal Reserve in mid-September kicked off a program to “twist” the yield curve by swapping short-maturity government securities for longer-dated securities. The move, following the completion of the Fed’s $600 billion stimulus program at the end of June, is intended to push long-term borrowing costs down further and to jump-start the moribund U.S. economy. Over the next several months, the Fed said it would purchase $400 billion of U.S. Treasury securities that mature in 6 to 30 years and then sell an equal amount of short-term Treasury securities that mature in 3 years or less. The Fed also reiterated its pledge to hold the benchmark interest rate near zero through mid-2013. Dubbed “Operation Twist,” the program is similar to an effort during the Kennedy administration in 1961 in which the Fed bought longer-dated bonds and sold shorter-dated ones.
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Your fund’s performance
This section shows your fund’s performance, price, and distribution information for periods ended August 31, 2011, the end of its most recent fiscal year. In accordance with regulatory requirements for mutual funds, we also include performance as of the most recent calendar quarter-end and expense information taken from the fund’s current prospectus. Performance should always be considered in light of a fund’s investment strategy. Data represent past performance. Past performance does not guarantee future results. More recent returns may be less or more than those shown. Investment return and principal value will fluctuate, and you may have a gain or a loss when you sell your shares. Performance information does not reflect any deduction for taxes a shareholder may owe on fund distributions or on the redemption of fund shares. For the most recent month-end performance, please visit the Individual Investors section at putnam.com or call Putnam at 1-800-225-1581. Class R and class Y shares are not available to all investors. See the Terms and Definitions section in this report for definitions of the share classes offered by your fund.
Fund performance Total return for periods ended 8/31/11
| Class A | Class B | Class C | Class M | Class R | Class Y | |||||
| (inception dates) | (2/14/78) | (3/1/93) | (3/19/02) | (7/3/95) | (1/21/03) | (12/31/98) | ||||
| Before | After | Before | After | Net | Net | |||||
| sales | sales | Before | After | Before | After | sales | sales | asset | asset | |
| charge | charge | CDSC | CDSC | CDSC | CDSC | charge | charge | value | value | |
| Annual average | ||||||||||
| (life of fund) | 8.72% | 8.59% | 7.82% | 7.82% | 7.89% | 7.89% | 8.35% | 8.24% | 8.41% | 8.80% |
| 10 years | 107.19 | 98.84 | 92.88 | 92.88 | 91.77 | 91.77 | 101.94 | 95.42 | 99.59 | 111.27 |
| Annual average | 7.56 | 7.12 | 6.79 | 6.79 | 6.73 | 6.73 | 7.28 | 6.93 | 7.16 | 7.77 |
| 5 years | 38.16 | 32.59 | 33.34 | 31.46 | 32.96 | 32.96 | 36.39 | 32.03 | 35.05 | 39.22 |
| Annual average | 6.68 | 5.80 | 5.92 | 5.62 | 5.86 | 5.86 | 6.40 | 5.71 | 6.19 | 6.84 |
| 3 years | 29.93 | 24.74 | 27.19 | 24.19 | 27.12 | 27.12 | 28.87 | 24.73 | 28.07 | 30.61 |
| Annual average | 9.12 | 7.65 | 8.35 | 7.49 | 8.33 | 8.33 | 8.82 | 7.64 | 8.60 | 9.31 |
| 1 year | 7.07 | 2.76 | 6.24 | 1.25 | 6.34 | 5.34 | 6.74 | 3.26 | 6.49 | 7.18 |
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. After-sales-charge returns for class A and M shares reflect the deduction of the maximum 4.00% and 3.25% sales charge, respectively, levied at the time of purchase. Class B share returns after contingent deferred sales charge (CDSC) reflect the applicable CDSC, which is 5% in the first year, declining over time to 1% in the sixth year, and is eliminated thereafter. Class C share returns after CDSC reflect a 1% CDSC for the first year that is eliminated thereafter. Class R and Y shares have no initial sales charge or CDSC. Performance for class B, C, M, R, and Y shares before their inception is derived from the historical performance of class A shares, adjusted for the applicable sales charge (or CDSC) and the higher operating expenses for such shares, except for class Y shares, for which 12b-1 fees are not applicable.
For a portion of the periods, the fund had expense limitations, without which returns would have been lower.
Class B share performance does not reflect conversion to class A shares.
A short-term trading fee of 1% may apply to redemptions or exchanges from certain funds within the time period specified in the fund’s prospectus.
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Comparative index returns For periods ended 8/31/11
| Lipper High Current | ||
| JPMorgan Developed | Yield Funds | |
| High Yield Index | category average† | |
| Annual average (life of fund) | —* | 8.49% |
| 10 years | 131.61% | 94.10 |
| Annual average | 8.76 | 6.66 |
| 5 years | 49.45 | 33.53 |
| Annual average | 8.37 | 5.80 |
| 3 years | 41.00 | 27.92 |
| Annual average | 12.14 | 8.37 |
| 1 year | 9.57 | 7.20 |
Index and Lipper results should be compared with fund performance before sales charge, before CDSC, or at net asset value.
* The fund’s benchmark, the JPMorgan Developed High Yield Index, was introduced on 12/31/94, which post-dates the inception of the fund’s class A shares.
† Over the 1-year, 3-year, 5-year, 10-year, and life-of-fund periods ended 8/31/11, there were 486, 433, 354, 234 and 10 funds, respectively, in this Lipper category.
Past performance does not indicate future results. At the end of the same time period, a $10,000 investment in the fund’s class B and class C shares would have been valued at $19,288 and $19,177, respectively, and no contingent deferred sales charges would apply. A $10,000 investment in the fund’s class M shares ($9,675 after sales charge) would have been valued at $19,542. A $10,000 investment in the fund’s class R and class Y shares would have been valued at $19,959 and $21,127, respectively.
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Fund price and distribution information For the 12-month period ended 8/31/11
| Distributions | Class A | Class B | Class C | Class M | Class R | Class Y | ||
| Number | 12 | 12 | 12 | 12 | 12 | 12 | ||
| Income | $0.540 | $0.479 | $0.484 | $0.517 | $0.522 | $0.562 | ||
| Capital gains | — | — | — | — | — | — | ||
| Total | $0.540 | $0.479 | $0.484 | $0.517 | $0.522 | $0.562 | ||
| Before | After | Net | Net | Before | After | Net | Net | |
| sales | sales | asset | asset | sales | sales | asset | asset | |
| Share value | charge | charge | value | value | charge | charge | value | value |
| 8/31/10 | $7.40 | $7.71 | $7.39 | $7.35 | $7.42 | $7.67 | $7.30 | $7.31 |
| 8/31/11 | 7.39 | 7.70 | 7.38 | 7.34 | 7.41 | 7.66 | 7.26 | 7.28 |
| Before | After | Net | Net | Before | After | Net | Net | |
| sales | sales | asset | asset | sales | sales | asset | asset | |
| Current yield (end of period) | charge | charge | value | value | charge | charge | value | value |
| Current dividend rate 1 | 7.31% | 7.01% | 6.50% | 6.54% | 6.96% | 6.74% | 7.11% | 7.75% |
| Current 30-day SEC yield 2 | N/A | 6.46 | 5.97 | 5.97 | N/A | 6.27 | 6.48 | 6.97 |
The classification of distributions, if any, is an estimate. Before-sales-charge share value and current dividend rate for class A and M shares, if applicable, do not take into account any sales charge levied at the time of purchase. After-sales-charge share value, current dividend rate, and current 30-day SEC yield, if applicable, are calculated assuming that the maximum sales charge (4.00% for class A shares and 3.25% for class M shares) was levied at the time of purchase. Final distribution information will appear on your year-end tax forms.
1 Most recent distribution, excluding capital gains, annualized and divided by share price before or after sales charge at period-end.
2 Based only on investment income and calculated using the maximum offering price for each share class, in accordance with SEC guidelines.
Fund performance as of most recent calendar quarter
Total return for periods ended 9/30/11
| Class A | Class B | Class C | Class M | Class R | Class Y | |||||
| (inception dates) | (2/14/78) | (3/1/93) | (3/19/02) | (7/3/95) | (1/21/03) | (12/31/98) | ||||
| Before | After | Before | After | Net | Net | |||||
| sales | sales | Before | After | Before | After | sales | sales | asset | asset | |
| charge | charge | CDSC | CDSC | CDSC | CDSC | charge | charge | value | value | |
| Annual average | ||||||||||
| (life of fund) | 8.56% | 8.43% | 7.66% | 7.66% | 7.73% | 7.73% | 8.19% | 8.08% | 8.25% | 8.64% |
| 10 years | 110.31 | 101.78 | 95.56 | 95.56 | 94.73 | 94.73 | 104.48 | 97.95 | 102.64 | 114.05 |
| Annual average | 7.72 | 7.27 | 6.94 | 6.94 | 6.89 | 6.89 | 7.42 | 7.07 | 7.32 | 7.91 |
| 5 years | 30.79 | 25.56 | 26.21 | 24.43 | 25.99 | 25.99 | 28.96 | 24.71 | 27.90 | 31.87 |
| Annual average | 5.52 | 4.66 | 4.77 | 4.47 | 4.73 | 4.73 | 5.22 | 4.52 | 5.04 | 5.69 |
| 3 years | 34.77 | 29.30 | 31.96 | 28.96 | 31.70 | 31.70 | 33.50 | 29.22 | 32.84 | 35.30 |
| Annual average | 10.46 | 8.94 | 9.69 | 8.85 | 9.61 | 9.61 | 10.11 | 8.92 | 9.93 | 10.60 |
| 1 year | –0.53 | –4.55 | –1.31 | –5.95 | –1.24 | –2.17 | –0.81 | –4.10 | –1.04 | –0.39 |
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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. Using the following information, you can estimate how these expenses affect your investment and compare them with the expenses of other funds. You may also pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial representative.
Expense ratios
| Class A | Class B | Class C | Class M | Class R | Class Y | |
| Total annual operating expenses for the fiscal year | ||||||
| ended 8/31/10* | 1.02% | 1.77% | 1.77% | 1.27% | 1.27% | 0.77% |
| Annualized expense ratio for the six-month period | ||||||
| ended 8/31/11† | 1.00% | 1.75% | 1.75% | 1.25% | 1.25% | 0.75% |
Fiscal-year expense information in this table is taken from the most recent prospectus, is subject to change, and may differ from that shown for the annualized expense ratio and in the financial highlights of this report. Expenses are shown as a percentage of average net assets.
* Restated to reflect projected expenses under a management contract effective 1/1/10.
† For the fund’s most recent fiscal half year; may differ from expense ratios based on one-year data in the financial highlights.
Expenses per $1,000
The following table shows the expenses you would have paid on a $1,000 investment in the fund from March 1, 2011, to August 31, 2011. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
| Class A | Class B | Class C | Class M | Class R | Class Y | |
| Expenses paid per $1,000*† | $4.96 | $8.65 | $8.66 | $6.19 | $6.19 | $3.72 |
| Ending value (after expenses) | $966.00 | $962.10 | $963.70 | $965.90 | $964.30 | $968.20 |
* 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 8/31/11. The expense ratio may differ for each share class.
† Expenses are calculated by multiplying the expense ratio by the average account value for the period; then multiplying the result by the number of days in the period; and then dividing that result by the number of days in the year.
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Estimate the expenses you paid
To estimate the ongoing expenses you paid for the six months ended August 31, 2011, use the following calculation method. To find the value of your investment on March 1, 2011, call Putnam at 1-800-225-1581.
Compare expenses using the SEC’s method
The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the following table shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total costs) of investing in the fund with those of other funds. All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.
| Class A | Class B | Class C | Class M | Class R | Class Y | |
| Expenses paid per $1,000*† | $5.09 | $8.89 | $8.89 | $6.36 | $6.36 | $3.82 |
| Ending value (after expenses) | $1,020.16 | $1,016.38 | $1,016.38 | $1,018.90 | $1,018.90 | $1,021.42 |
* 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 8/31/11. The expense ratio may differ for each share class.
† Expenses are calculated by multiplying the expense ratio by the average account value for the period; then multiplying the result by the number of days in the period; and then dividing that result by the number of days in the year.
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Terms and definitions
Important terms
Total return shows how the value of the fund’s shares changed over time, assuming you held the shares through the entire period and reinvested all distributions in the fund.
Before sales charge, or net asset value, is the price, or value, of one share of a mutual fund, without a sales charge. Before-sales-charge figures fluctuate with market conditions, and are calculated by dividing the net assets of each class of shares by the number of outstanding shares in the class.
After sales charge is the price of a mutual fund share plus the maximum sales charge levied at the time of purchase. After-sales-charge performance figures shown here assume the 4.00% maximum sales charge for class A shares and 3.25% for class M shares.
Contingent deferred sales charge (CDSC) is generally a charge applied at the time of the redemption of class B or C shares and assumes redemption at the end of the period. Your fund’s class B CDSC declines over time from a 5% maximum during the first year to 1% during the sixth year. After the sixth year, the CDSC no longer applies. The CDSC for class C shares is 1% for one year after purchase.
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.
Comparative indexes
Barclays Capital U.S. Aggregate Bond Index is an unmanaged index of U.S. investment-grade fixed-income securities.
BofA (Bank of America) Merrill Lynch U.S. 3-Month Treasury Bill Index is an unmanaged index that seeks to measure the performance of U.S. Treasury bills available in the marketplace.
JPMorgan Developed High Yield Index is an unmanaged index of high-yield fixed-income securities issued in developed countries.
S&P 500 Index is an unmanaged index of common stock performance.
Indexes assume reinvestment of all distributions and do not account for fees. Securities and performance of a fund and an index will differ. You cannot invest directly in an index.
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.
15
Trustee approval of management contract
General conclusions
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 with respect to your fund between Putnam Management and its affiliate, Putnam Investments Limited (“PIL”).
The Board of Trustees, with the assistance of its Contract Committee, which consists solely of Trustees who are not “interested persons” (as this term is defined in the Investment Company Act of 1940, as amended) of the Putnam funds (“Independent Trustees”), requests and evaluates all information it deems reasonably necessary under the circumstances in connection with its annual contract review. Over the course of several months ending in June 2011, the Contract Committee met on a number of occasions with representatives of Putnam Management, and separately in executive session, to consider the information that Putnam Management provided and other information developed 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 on a number of occasions. At the Trustees’ June 17, 2011 meeting, the Contract Committee recommended, and the Independent Trustees approved, the continuance of your fund’s management and sub-management contracts, effective July 1, 2011. (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.)
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 services, and
• That the 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.
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 management 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 some aspects of the arrangements may receive greater scrutiny in some years than others, and that the Trustees’ conclusions may be based, in part, on their consideration of fee arrangements in previous years.
Management fee schedules and total expenses
The Trustees reviewed the management fee schedules in effect for all Putnam funds, including fee levels and breakpoints. In reviewing management fees, the Trustees
16
generally focus their attention on material changes in circumstances — for example, changes in assets under management or investment style, changes in Putnam Management’s operating costs, 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.
Most of the open-end Putnam funds have new management contracts, with new fee schedules reflecting the implementation of more competitive fee levels for many funds, complex-wide breakpoints for the open-end funds, and performance fees for some funds. These new management contracts have been in effect for a little over a year — since January or, for a few funds, February, 2010. The Trustees approved the new management contracts on July 10, 2009, and fund shareholders subsequently approved the contracts by overwhelming majorities of the shares voted.
Because these management contracts had been implemented only recently, the Contract Committee had limited practical experience with the operation of the new fee structures. Under its new management contract, your fund has the benefit of breakpoints in its management fee that provide shareholders with significant economies of scale in the form of reduced fee levels as assets under management in the Putnam family of funds increase. The Contract Committee observed that the complex-wide breakpoints of the open-end funds had only been in place for a short while, and the Trustees will examine the operation of this new breakpoint structure in future years in light of further experience.
As in the past, the Trustees also focused on the competitiveness of each fund’s total expense ratio. In order to ensure that expenses of the Putnam funds continue to meet evolving competitive standards, the Trustees and Putnam Management agreed in 2009 to implement certain expense limitations. These expense limitations serve in particular to maintain competitive expense levels for funds with large numbers of small shareholder accounts and funds with relatively small net assets. Most funds, including your fund, had sufficiently low expenses that these expense limitations did not apply. The expense limitations were: (i) a contractual expense limitation applicable to all retail open-end funds of 37.5 basis points on investor servicing fees and expenses and (ii) a contractual expense limitation applicable to all open-end funds of 20 basis points on so-called “other expenses” (i.e., all expenses exclusive of management fees, investor servicing fees, distribution fees, investment-related expenses, interest, taxes, brokerage commissions and extraordinary expenses). Putnam Management’s support for these expense limitations was an important factor in the Trustees’ decision to approve the continuance of your fund’s management and sub-management contracts.
The Trustees reviewed comparative fee and expense information for a custom group of competitive funds selected by Lipper Inc. This comparative information included your fund’s percentile ranking for effective management fees and total expenses (excluding any applicable 12b-1 fee), which provides a general indication of your fund’s relative standing. In the custom peer group, your fund ranked in the 3rd quintile in effective management fees (determined for your fund and the other funds in the custom peer group based on fund asset size and the applicable contractual management fee schedule) and in the 3rd quintile in total expenses (excluding any applicable 12b-1 fees) as of December 31, 2010 (the first quintile representing the least expensive funds and the fifth quintile the most expensive funds). The fee and expense data reported by Lipper as of December 31, 2010 reflected the most
17
recent fiscal year-end data available in Lipper’s database at that time.
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 provided and the profits realized by Putnam Management and its affiliates from their contractual relationships with the funds. This information included trends in revenues, expenses and profitability of Putnam Management and its affiliates relating to the investment management, investor servicing and distribution services provided to the funds. In this regard, the Trustees also reviewed an analysis of Putnam Management’s revenues, expenses and profitability, allocated on a fund-by-fund basis, with respect to the funds’ management, distribution, and investor servicing contracts. For each fund, the analysis presented information about revenues, expenses and profitability for each of the agreements separately and for the agreements taken together on a combined basis. The Trustees concluded that, at current asset levels, the fee schedules in place represented reasonable compensation for the services being provided and represented an appropriate sharing of such economies of scale as may exist in the management of the funds at that time.
The information examined by the Trustees as part of their annual contract review for the Putnam funds 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, and the like. This information included comparisons of those fees with fees charged to the funds, as well as an assessment of the differences in the services provided to these different types of clients. The Trustees observed that the differences in fee rates between institutional clients and mutual 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 may reflect historical competitive forces operating in separate markets. The Trustees considered the fact that in many cases fee rates across different asset classes are higher on average for mutual funds than for institutional clients, as well as the differences between the services that Putnam Management provides to the Putnam funds and those that it provides to its institutional clients. The Trustees did not rely on these comparisons to any significant extent in concluding that the management fees paid by your fund are reasonable.
Investment performance
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 several investment oversight committees of the Trustees, which met on a regular basis with the funds’ portfolio teams and with the Chief Investment Officer and other members of Putnam Management’s Investment Division throughout the year. The Trustees concluded that Putnam Management generally provides a high-quality investment process — based on the experience and skills of the individuals assigned to the management of fund portfolios, the resources made available to them, and in general Putnam Management’s ability to attract and retain high-quality personnel — but also recognized that this does not guarantee favorable investment 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.
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The Committee noted the substantial improvement in the performance of most Putnam funds during the 2009–2010 period and Putnam Management’s ongoing efforts to strengthen its investment personnel and processes. The Committee also noted the disappointing investment performance of some funds for periods ended December 31, 2010 and considered information provided by Putnam Management regarding the factors contributing to the underperformance and actions being taken to improve the performance of these particular funds. The Trustees indicated their intention to continue to monitor performance trends to assess the effectiveness of these efforts and to evaluate whether additional actions to address areas of underperformance are warranted.
In the case of your fund, the Trustees considered that its class A share cumulative total return performance at net asset value was in the following quartiles of its Lipper Inc. peer group (Lipper High Current Yield Funds) for the one-year, three-year and five-year periods ended December 31, 2010 (the first quartile representing the best-performing funds and the fourth quartile the worst-performing funds):
| One-year period | 2nd | ||
| Three-year period | 2nd | ||
| Five-year period | 2nd | ||
Over the one-year, three-year and five-year periods ended December 31, 2010, there were 485, 424 and 361 funds, respectively, in your fund’s Lipper peer group. (When considering performance information, shareholders should be mindful that past performance is not a guarantee of future results.)
Brokerage and soft-dollar allocations; investor servicing
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 allocation and the use of soft dollars, whereby a portion of the commissions paid by a fund for brokerage may be used to acquire research services that are expected to be useful to Putnam Management in managing the assets of the fund and of other clients. Subject to policies established by the Trustees, soft-dollar credits acquired through these means are used primarily to supplement Putnam Management’s internal research efforts. However, the Trustees noted that a portion of available soft-dollar credits continues to be allocated to the payment of fund expenses. The Trustees indicated their continued intent to monitor regulatory developments in this area with the assistance of their Brokerage Committee and also indicated their continued intent to monitor the potential benefits associated with fund brokerage and soft-dollar allocations and trends in industry practices to ensure that the principle of seeking best price and execution remains paramount in the portfolio trading process.
Putnam Management may also receive benefits from payments that the funds make to Putnam Management’s affiliates for investor or distribution services. In conjunction with the annual review of your fund’s management contract, the Trustees reviewed your fund’s investor servicing agreement with Putnam Investor Services, Inc. (“PSERV”) and its distributor’s contracts and distribution plans with Putnam Retail Management Limited Partnership (“PRM”), both of which are affiliates of Putnam Management. The Trustees concluded that the fees payable by the funds to PSERV and PRM, as applicable, for such services are reasonable in relation to the nature and quality of such services.
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Other information for shareholders
Important notice regarding Putnam’s privacy policy
In order to conduct business with our shareholders, we must obtain certain personal information such as account holders’ names, addresses, Social Security numbers, and dates of birth. Using this information, we are able to maintain accurate records of accounts and transactions.
It is our policy to protect the confidentiality of our shareholder information, whether or not a shareholder currently owns shares of our funds. In particular, it is our policy not to sell information about you or your accounts to outside marketing firms. We have safeguards in place designed to prevent unauthorized access to our computer systems and procedures to protect personal information from unauthorized use.
Under certain circumstances, we must share account information with outside vendors who provide services to us, such as mailings and proxy solicitations. In these cases, the service providers enter into confidentiality agreements with us, and we provide only the information necessary to process transactions and perform other services related to your account. Finally, it is our policy to share account information with your financial representative, if you’ve listed one on your Putnam account.
Proxy voting
Putnam is committed to managing our mutual funds in the best interests of our shareholders. The Putnam funds’ proxy voting guidelines and procedures, as well as information regarding how your fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2011, are available in the Individual Investors section at putnam.com, and on the SEC’s website, www.sec.gov. If you have questions about finding forms on the SEC’s website, you may call the SEC at 1-800-SEC-0330. You may also obtain the Putnam funds’ proxy voting guidelines and procedures at no charge by calling Putnam’s Shareholder Services at 1-800-225-1581.
Fund portfolio holdings
The fund will file a complete schedule of its portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. Shareholders may obtain the fund’s Forms N-Q on the SEC’s website at www.sec.gov. In addition, the fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. You may call the SEC at 1-800-SEC-0330 for information about the SEC’s website or the operation of the Public Reference Room.
Trustee and employee fund ownership
Putnam employees and members of the Board of Trustees place their faith, confidence, and, most importantly, investment dollars in Putnam mutual funds. As of August 31, 2011, Putnam employees had approximately $323,000,000 and the Trustees had approximately $70,000,000 invested in Putnam mutual funds. These amounts include investments by the Trustees’ and employees’ immediate family members as well as investments through retirement and deferred compensation plans.
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Financial statements
These sections of the report, as well as the accompanying Notes, preceded by the Report of Independent Registered Public Accounting Firm, constitute the fund’s financial statements.
The fund’s portfolio lists all the fund’s investments and their values as of the last day of the reporting period. Holdings are organized by asset type and industry sector, country, or state to show areas of concentration and diversification.
Statement of assets and liabilities shows how the fund’s net assets and share price are determined. All investment and non-investment assets are added together. Any unpaid expenses and other liabilities are subtracted from this total. The result is divided by the number of shares to determine the net asset value per share, which is calculated separately for each class of shares. (For funds with preferred shares, the amount subtracted from total assets includes the liquidation preference of preferred shares.)
Statement of operations shows the fund’s net investment gain or loss. This is done by first adding up all the fund’s earnings — from dividends and interest income — and subtracting its operating expenses to determine net investment income (or loss). Then, any net gain or loss the fund realized on the sales of its holdings — as well as any unrealized gains or losses over the period — is added to or subtracted from the net investment result to determine the fund’s net gain or loss for the fiscal year.
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.
Financial highlights provide an overview of the fund’s investment results, per-share distributions, expense ratios, net investment income ratios, and portfolio turnover in one summary table, reflecting the five most recent reporting periods. In a semiannual report, the highlights table also includes the current reporting period.
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Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of
Putnam High Yield Trust:
We have audited the accompanying statement of assets and liabilities of Putnam High Yield Trust (the fund), including the fund’s portfolio, as of August 31, 2011, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform our audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of August 31, 2011 by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Putnam High Yield Trust as of August 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
October 14, 2011
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The fund’s portfolio 8/31/11
| CORPORATE BONDS AND NOTES (85.2%)* | Principal amount | Value | |
| Advertising and marketing services (0.4%) | |||
| Affinion Group, Inc. company guaranty sr. unsec. notes | |||
| 7 7/8s, 2018 | $2,995,000 | $2,650,575 | |
| Affinion Group, Inc. company guaranty sr. unsec. sub. notes | |||
| 11 1/2s, 2015 | 1,977,000 | 1,937,460 | |
| Lamar Media Corp. company guaranty sr. sub. notes 7 7/8s, 2018 | 635,000 | 642,938 | |
| 5,230,973 | |||
| Automotive (2.0%) | |||
| Briggs & Stratton Corp. company guaranty sr. unsec. notes | |||
| 6 7/8s, 2020 | 2,360,000 | 2,365,900 | |
| Chrysler Group, LLC/CG Co-Issuer, Inc. 144A company guaranty | |||
| sr. notes 8 1/4s, 2021 | 3,250,000 | 2,778,750 | |
| Ford Motor Credit Co., LLC sr. unsec. notes 8 1/8s, 2020 | 3,590,000 | 4,038,750 | |
| Ford Motor Credit Co., LLC sr. unsec. notes 5s, 2018 | 3,210,000 | 3,115,333 | |
| Ford Motor Credit Co., LLC sr. unsec. unsub. notes 5 7/8s, 2021 | 3,630,000 | 3,630,000 | |
| Ford Motor Credit Co., LLC sr. unsec. unsub. notes 5 3/4s, 2021 | 875,000 | 872,471 | |
| General Motors Escrow notes 8 1/4s, 2023 | 2,555,000 | 19,163 | |
| General Motors Financial Co., Inc. 144A sr. notes 6 3/4s, 2018 | 1,685,000 | 1,676,574 | |
| Motors Liquidation Co. (Escrow) notes 8 3/8s, 2033 | 2,390,000 | 17,925 | |
| Navistar International Corp. sr. notes 8 1/4s, 2021 | 3,765,000 | 3,877,950 | |
| TRW Automotive, Inc. company guaranty sr. unsec. unsub. notes | |||
| Ser. REGS, 6 3/8s, 2014 | EUR | 1,065,000 | 1,524,906 |
| TRW Automotive, Inc. 144A company guaranty sr. notes | |||
| 7 1/4s, 2017 | $1,055,000 | 1,149,950 | |
| 25,067,672 | |||
| Basic materials (6.9%) | |||
| Associated Materials, LLC company guaranty sr. notes | |||
| 9 1/8s, 2017 | 3,367,000 | 2,962,960 | |
| Atkore International, Inc. 144A sr. notes 9 7/8s, 2018 | 3,310,000 | 3,218,975 | |
| Catalyst Paper Corp. 144A company guaranty sr. notes 11s, | |||
| 2016 (Canada) | 315,000 | 207,900 | |
| Celanese US Holdings, LLC company guaranty sr. unsec. notes | |||
| 6 5/8s, 2018 (Germany) | 1,155,000 | 1,224,300 | |
| Celanese US Holdings, LLC sr. notes 5 7/8s, 2021 (Germany) | 2,350,000 | 2,355,874 | |
| CEMEX SAB de CV 144A company guaranty sr. notes 9s, 2018 | |||
| (Mexico) | 520,000 | 429,000 | |
| Clondalkin Acquisition BV 144A company guaranty sr. notes | |||
| FRN 2.247s, 2013 (Netherlands) | 1,067,000 | 1,026,987 | |
| Compass Minerals International, Inc. company guaranty sr. unsec. | |||
| notes 8s, 2019 | 2,532,000 | 2,734,560 | |
| Dynacast International, LLC/Dynacast Finance, Inc. 144A notes | |||
| 9 1/4s, 2019 | 740,000 | 704,850 | |
| Edgen Murray Corp. company guaranty sr. notes 12 1/4s, 2015 | 1,040,000 | 990,600 | |
| Exopack Holding Corp. 144A sr. notes 10s, 2018 | 1,895,000 | 1,866,574 | |
| Ferro Corp. sr. unsec. notes 7 7/8s, 2018 | 4,635,000 | 4,681,350 | |
| FMG Resources August 2006 Pty, Ltd. 144A sr. notes 7s, 2015 | |||
| (Australia) | 1,910,000 | 1,917,162 | |
| FMG Resources August 2006 Pty, Ltd. 144A sr. notes 6 7/8s, | |||
| 2018 (Australia) | 2,677,000 | 2,663,614 | |
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| CORPORATE BONDS AND NOTES (85.2%)* cont. | Principal amount | Value | |
| Basic materials cont. | |||
| Hexion U.S. Finance Corp./Hexion Nova Scotia Finance, ULC | |||
| company guaranty notes 9s, 2020 | $1,410,000 | $1,230,224 | |
| Hexion U.S. Finance Corp./Hexion Nova Scotia Finance, ULC | |||
| company guaranty sr. notes 8 7/8s, 2018 | 2,050,000 | 1,916,750 | |
| Huntsman International, LLC company guaranty sr. unsec. | |||
| sub. notes 8 5/8s, 2021 | 1,903,000 | 1,986,255 | |
| Huntsman International, LLC company guaranty sr. unsec. | |||
| sub. notes 8 5/8s, 2020 | 1,960,000 | 2,038,400 | |
| INEOS Finance PLC 144A company guaranty sr. notes 9s, 2015 | |||
| (United Kingdom) | 1,380,000 | 1,397,250 | |
| Ineos Group Holdings, PLC company guaranty sr. unsec. | |||
| notes Ser. REGS, 7 7/8s, 2016 (United Kingdom) | EUR | 2,135,000 | 2,447,347 |
| JMC Steel Group 144A sr. notes 8 1/4s, 2018 | $551,000 | 538,603 | |
| Kronos International, Inc. sr. notes 6 1/2s, 2013 (Germany) | EUR | 48,000 | 66,771 |
| Lyondell Chemical Co. sr. notes 11s, 2018 | $8,036,259 | 8,970,473 | |
| Lyondell Chemical Co. 144A company guaranty sr. notes | |||
| 8s, 2017 | 2,146,000 | 2,376,695 | |
| Momentive Performance Materials, Inc. notes 9s, 2021 | 4,768,000 | 4,076,640 | |
| NewPage Corp. company guaranty sr. notes 11 3/8s, 2014 | 2,390,000 | 2,103,200 | |
| Nexeo Solutions, LLC/Nexeo Solutions Finance Corp. 144A | |||
| company guaranty sr. sub. notes 8 3/8s, 2018 | 1,850,000 | 1,910,124 | |
| Novelis, Inc. company guaranty sr. unsec. notes 8 3/4s, 2020 | 4,480,000 | 4,715,200 | |
| Novelis, Inc. company guaranty sr. unsec. notes 7 1/4s, 2015 | 2,589,000 | 2,576,054 | |
| Old All, Inc. company guaranty sr. unsec. notes 9s, 2014 | |||
| (In default) † F | 4,534,000 | 5 | |
| PE Paper Escrow GmbH sr. notes Ser. REGS, 11 3/4s, 2014 | |||
| (Austria) | EUR | 875,000 | 1,336,106 |
| Pregis Corp. company guaranty notes FRN 6.605s, 2013 | EUR | 425,000 | 550,451 |
| Pregis Corp. company guaranty sr. sub. notes 12 3/8s, 2013 | $1,660,000 | 1,527,200 | |
| Rhodia SA 144A sr. notes 6 7/8s, 2020 (France) | 1,050,000 | 1,225,874 | |
| Smurfit Kappa Acquisition company guaranty sr. bonds 7 1/4s, | |||
| 2017 (Ireland) | EUR | 305,000 | 416,127 |
| Smurfit Kappa Funding PLC sr. sub. notes 7 3/4s, 2015 | |||
| (Ireland) | EUR | 45,000 | 62,898 |
| Smurfit Kappa Funding PLC sr. unsec. sub. notes 7 3/4s, | |||
| 2015 (Ireland) | $1,808,000 | 1,785,400 | |
| Smurfit Kappa Treasury company guaranty sr. unsec. | |||
| unsub. debs 7 1/2s, 2025 (Ireland) | 496,000 | 477,400 | |
| Solutia, Inc. company guaranty sr. unsec. notes 8 3/4s, 2017 | 2,672,000 | 2,839,000 | |
| Solutia, Inc. company guaranty sr. unsec. notes 7 7/8s, 2020 | 3,127,000 | 3,322,437 | |
| Styrolution Group GmbH 144A sr. notes 7 5/8s, 2016 (Germany) | 780,000 | 916,501 | |
| Thompson Creek Metals Co., Inc. 144A company guaranty | |||
| sr. notes 7 3/8s, 2018 (Canada) | 1,310,000 | 1,195,374 | |
| TPC Group, LLC 144A sr. notes 8 1/4s, 2017 | 3,049,000 | 3,125,224 | |
| Tube City IMS Corp. company guaranty sr. unsec. sub. notes | |||
| 9 3/4s, 2015 | 2,525,000 | 2,518,687 | |
| USG Corp. 144A company guaranty sr. notes 8 3/8s, 2018 | 746,000 | 650,885 | |
| Verso Paper Holdings, LLC/Verso Paper, Inc. company | |||
| guaranty sr. notes 8 3/4s, 2019 | 1,630,000 | 1,299,924 | |
| 88,584,185 | |||
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| CORPORATE BONDS AND NOTES (85.2%)* cont. | Principal amount | Value | |
| Broadcasting (2.1%) | |||
| Clear Channel Communications, Inc. company guaranty sr. notes | |||
| 9s, 2021 | $1,391,000 | $1,119,754 | |
| Clear Channel Communications, Inc. company guaranty unsec. | |||
| unsub. notes 10 3/4s, 2016 | 1,482,000 | 1,029,990 | |
| Clear Channel Communications, Inc. sr. unsec. notes 5 1/2s, 2014 | 1,250,000 | 859,375 | |
| Clear Channel Worldwide Holdings, Inc. company guaranty | |||
| sr. unsec. unsub. notes Ser. B, 9 1/4s, 2017 | 3,600,000 | 3,852,000 | |
| Cumulus Media, Inc. 144A sr. notes 7 3/4s, 2019 | 2,945,000 | 2,584,237 | |
| DISH DBS Corp. company guaranty 7 1/8s, 2016 | 1,317,000 | 1,343,340 | |
| DISH DBS Corp. company guaranty sr. unsec. notes 7 7/8s, 2019 | 2,050,000 | 2,178,125 | |
| DISH DBS Corp. 144A company guaranty sr. unsec. notes | |||
| 6 3/4s, 2021 | 2,435,000 | 2,453,263 | |
| Gray Television, Inc. company guaranty sr. notes 10 1/2s, 2015 | 2,560,000 | 2,470,400 | |
| Nexstar Broadcasting, Inc./Mission Broadcasting, Inc. company | |||
| guaranty sr. notes 8 7/8s, 2017 | 2,330,000 | 2,388,250 | |
| Univision Communications, Inc. 144A company guaranty sr. unsec. | |||
| notes 8 1/2s, 2021 | 2,537,000 | 2,169,135 | |
| Univision Communications, Inc. 144A sr. notes 7 7/8s, 2020 | 45,000 | 43,200 | |
| XM Satellite Radio, Inc. 144A company guaranty sr. unsec. notes | |||
| 13s, 2013 | 1,740,000 | 1,953,150 | |
| XM Satellite Radio, Inc. 144A sr. unsec. notes 7 5/8s, 2018 | 2,210,000 | 2,259,725 | |
| 26,703,944 | |||
| Building materials (1.4%) | |||
| Building Materials Corp. 144A company guaranty sr. notes | |||
| 7 1/2s, 2020 | 2,135,000 | 2,177,700 | |
| Building Materials Corp. 144A sr. notes 7s, 2020 | 1,145,000 | 1,145,000 | |
| Building Materials Corp. 144A sr. notes 6 7/8s, 2018 | 1,025,000 | 1,004,500 | |
| Building Materials Corp. 144A sr. notes 6 3/4s, 2021 | 955,000 | 914,413 | |
| Masonite International Corp. 144A company guaranty sr. notes | |||
| 8 1/4s, 2021 (Canada) | 2,815,000 | 2,589,800 | |
| Nortek, Inc. 144A company guaranty sr. notes 8 1/2s, 2021 | 1,010,000 | 863,550 | |
| Nortek, Inc. 144A company guaranty sr. unsec. notes 10s, 2018 | 2,141,000 | 2,044,655 | |
| Owens Corning company guaranty sr. unsec. notes 9s, 2019 | 2,650,000 | 3,100,500 | |
| Roofing Supply Group, LLC/Roofing Supply Finance, Inc. 144A | |||
| sr. notes 8 5/8s, 2017 | 3,502,000 | 3,370,674 | |
| Vulcan Materials Co. sr. unsec. unsub. notes 7 1/2s, 2021 | 940,000 | 925,818 | |
| 18,136,610 | |||
| Cable television (2.6%) | |||
| Adelphia Communications Corp. escrow bonds zero %, 2012 | 81,000 | 49 | |
| Adelphia Communications Corp. escrow bonds zero %, 2011 | 4,000 | 2 | |
| Adelphia Communications Corp. escrow bonds zero %, 2011 | 4,000 | 2 | |
| Adelphia Communications Corp. escrow bonds zero %, 2012 | 2,906,000 | 1,773 | |
| Adelphia Communications Corp. escrow bonds zero %, 2012 | 2,223,000 | 1,356 | |
| AMC Networks, Inc. 144A company guaranty sr. unsec notes | |||
| 7 3/4s, 2021 | 1,030,000 | 1,066,050 | |
| Atlantic Broadband Finance, LLC company guaranty 9 3/8s, 2014 | 1,781,000 | 1,754,285 | |
| Bresnan Broadband Holdings, LLC 144A company guaranty | |||
| sr. unsec. unsub. notes 8s, 2018 | 1,040,000 | 1,050,400 | |
| Cablevision Systems Corp. sr. unsec. unsub. notes 8 5/8s, 2017 | 3,095,000 | 3,280,700 | |
25
| CORPORATE BONDS AND NOTES (85.2%)* cont. | Principal amount | Value | |
| Cable television cont. | |||
| Cablevision Systems Corp. sr. unsec. unsub. notes 8s, 2020 | $755,000 | $790,863 | |
| Cablevision Systems Corp. sr. unsec. unsub. notes 7 3/4s, 2018 | 1,820,000 | 1,883,700 | |
| CCH II, LLC/CCH II Capital company guaranty sr. unsec. notes | |||
| 13 1/2s, 2016 | 1,928,430 | 2,227,336 | |
| CCO Holdings, LLC/CCO Holdings Capital Corp. company | |||
| guaranty sr. unsec. notes 7 7/8s, 2018 | 490,000 | 509,600 | |
| CCO Holdings, LLC/CCO Holdings Capital Corp. company | |||
| guaranty sr. unsec. notes 6 1/2s, 2021 | 3,095,000 | 3,009,887 | |
| CCO Holdings, LLC/CCO Holdings Capital Corp. company | |||
| guaranty sr. unsub. notes 7s, 2019 | 3,176,000 | 3,160,120 | |
| Cequel Communications Holdings I LLC/Cequel Capital Corp. | |||
| 144A sr. notes 8 5/8s, 2017 | 6,315,000 | 6,567,600 | |
| CSC Holdings LLC sr. unsec. unsub. notes 8 1/2s, 2014 | 552,000 | 597,540 | |
| Kabel BW Erste Beteiligungs GmbH/Kabel Baden-Wurttemberg | |||
| GmbH & Co. KG 144A company guaranty sr. notes 7 1/2s, 2019 | |||
| (Germany) | 1,275,000 | 1,287,750 | |
| Mediacom Broadband, LLC/Mediacom Broadband Corp. | |||
| sr. unsec. unsub. notes 8 1/2s, 2015 | 760,000 | 767,600 | |
| Mediacom LLC/Mediacom Capital Corp. sr. unsec. notes | |||
| 9 1/8s, 2019 | 670,000 | 676,700 | |
| Quebecor Media, Inc. 144A sr. unsec. notes 7 3/8s, 2021 | |||
| (Canada) | CAD | 1,680,000 | 1,690,481 |
| Videotron Ltee sr. notes 6 7/8s, 2021 (Canada) | CAD | 1,580,000 | 1,595,263 |
| Virgin Media Finance PLC company guaranty sr. notes Ser. 1, | |||
| 9 1/2s, 2016 (United Kingdom) | $815,000 | 898,538 | |
| 32,817,595 | |||
| Capital goods (4.8%) | |||
| Altra Holdings, Inc. company guaranty sr. notes 8 1/8s, 2016 | 4,450,000 | 4,600,187 | |
| American Axle & Manufacturing, Inc. company guaranty | |||
| sr. unsec. notes 5 1/4s, 2014 | 1,324,000 | 1,274,350 | |
| American Axle & Manufacturing, Inc. company guaranty | |||
| sr. unsec. unsub. notes 7 7/8s, 2017 | 205,000 | 198,850 | |
| American Axle & Manufacturing, Inc. 144A company guaranty | |||
| sr. notes 9 1/4s, 2017 | 2,181,000 | 2,311,860 | |
| Ardagh Packaging Finance PLC sr. notes Ser. REGS, 7 3/8s, | |||
| 2017 (Ireland) | EUR | 565,000 | 746,043 |
| Ardagh Packaging Finance PLC 144A company | |||
| guaranty sr. notes 7 3/8s, 2017 (Ireland) | EUR | 790,000 | 1,043,141 |
| Berry Plastics Corp. company guaranty notes FRN 4.122s, 2014 | $1,210,000 | 1,052,700 | |
| Berry Plastics Corp. company guaranty sr. notes 9 1/2s, 2018 | 1,565,000 | 1,439,800 | |
| Berry Plastics Corp. notes 9 3/4s, 2021 | 341,000 | 316,278 | |
| Crown Euro Holdings SA 144A sr. notes 7 1/8s, 2018 (France) | EUR | 610,000 | 831,631 |
| Kratos Defense & Security Solutions, Inc. company guaranty | |||
| sr. notes 10s, 2017 | $4,455,000 | 4,577,512 | |
| Kratos Defense & Security Solutions, Inc. 144A company | |||
| guaranty sr. notes 10s, 2017 | 220,000 | 226,050 | |
| Legrand SA unsec. unsub. debs. 8 1/2s, 2025 (France) | 6,886,000 | 8,668,151 | |
| Pittsburgh Glass Works, LLC 144A sr. notes 8 1/2s, 2016 | 3,121,000 | 2,988,357 | |
| Polypore International, Inc. company guaranty sr. unsec. notes | |||
| 7 1/2s, 2017 | 1,615,000 | 1,598,850 | |
26
| CORPORATE BONDS AND NOTES (85.2%)* cont. | Principal amount | Value | |
| Capital goods cont. | |||
| Reynolds Group DL Escrow, Inc./Reynolds Group Escrow, LLC | |||
| 144A company guaranty sr. notes 8 1/2s, 2016 (Luxembourg) | $1,330,000 | $1,359,924 | |
| Reynolds Group Issuer, Inc. 144A company guaranty sr. notes | |||
| 7 1/8s, 2019 | 1,845,000 | 1,748,138 | |
| Reynolds Group Issuer, Inc. 144A company guaranty sr. unsec. | |||
| notes 9s, 2019 | 2,765,000 | 2,488,500 | |
| Reynolds Group Issuer, Inc. 144A sr. notes 6 7/8s, 2021 | |||
| (New Zealand) | 530,000 | 492,900 | |
| Reynolds Group Issuer, Inc. 144A sr. unsec. notes 8 1/4s, 2021 | |||
| (New Zealand) | 785,000 | 661,363 | |
| Reynolds Group Issuer, Inc./Reynolds Group Issuer, LLC/Reynolds | |||
| Group Issuer Lu 144A sr. notes 7 7/8s, 2019 | 835,000 | 835,000 | |
| Reynolds Group Issuer, Inc./Reynolds Group Issuer, LLC/Reynolds | |||
| Group Issuer Lu 144A sr. unsec. notes 9 7/8s, 2019 | 835,000 | 791,163 | |
| Ryerson Holding Corp. sr. disc. notes zero %, 2015 | 1,060,000 | 508,800 | |
| Ryerson, Inc. company guaranty sr. notes 12s, 2015 | 4,913,000 | 5,041,965 | |
| Tenneco, Inc. company guaranty sr. unsec. unsub. notes | |||
| 7 3/4s, 2018 | 1,040,000 | 1,086,800 | |
| Tenneco, Inc. company guaranty sr. unsub. notes 6 7/8s, 2020 | 3,105,000 | 3,151,574 | |
| Terex Corp. sr. unsec. sub. notes 8s, 2017 | 2,650,000 | 2,583,750 | |
| Thermadyne Holdings Corp. company guaranty sr. notes 9s, 2017 | 3,915,000 | 3,973,724 | |
| Thermon Industries, Inc. company guaranty sr. notes 9 1/2s, 2017 | 2,046,000 | 2,148,300 | |
| TransDigm, Inc. 144A sr. sub. notes 7 3/4s, 2018 | 3,090,000 | 3,144,074 | |
| 61,889,735 | |||
| Coal (2.1%) | |||
| Alpha Natural Resources, Inc. company guaranty sr. unsec. notes | |||
| 6 1/4s, 2021 | 1,865,000 | 1,823,038 | |
| Alpha Natural Resources, Inc. company guaranty sr. unsec. notes | |||
| 6s, 2019 | 2,000,000 | 1,970,000 | |
| Arch Coal, Inc. company guaranty sr. unsec. notes 7 1/4s, 2020 | 2,295,000 | 2,260,575 | |
| Arch Coal, Inc. 144A company guaranty sr. unsec. notes 7s, 2019 | 2,480,000 | 2,442,800 | |
| Arch Western Finance, LLC company guaranty sr. notes | |||
| 6 3/4s, 2013 | 1,191,000 | 1,188,023 | |
| CONSOL Energy, Inc. company guaranty sr. unsec. notes | |||
| 8 1/4s, 2020 | 4,745,000 | 5,100,874 | |
| CONSOL Energy, Inc. company guaranty sr. unsec. notes 8s, 2017 | 3,785,000 | 4,026,293 | |
| CONSOL Energy, Inc. 144A company guaranty sr. unsec. notes | |||
| 6 3/8s, 2021 | 405,000 | 401,963 | |
| James River Escrow, Inc. 144A sr. notes 7 7/8s, 2019 | 990,000 | 895,950 | |
| Peabody Energy Corp. company guaranty 7 3/8s, 2016 | 6,158,000 | 6,696,825 | |
| Peabody Energy Corp. company guaranty sr. unsec. unsub. notes | |||
| 6 1/2s, 2020 | 262,000 | 269,860 | |
| 27,076,201 | |||
| Commercial and consumer services (1.9%) | |||
| ARAMARK Holdings Corp. 144A sr. notes 8 5/8s, 2016 ‡‡ | 1,086,000 | 1,088,715 | |
| Brickman Group Holdings, Inc. 144A sr. notes 9 1/8s, 2018 | 648,000 | 591,300 | |
| Compucom Systems, Inc. 144A sr. sub. notes 12 1/2s, 2015 | 1,462,000 | 1,472,965 | |
| Interactive Data Corp. company guaranty sr. unsec. notes | |||
| 10 1/4s, 2018 | 6,560,000 | 6,953,600 | |
27
| CORPORATE BONDS AND NOTES (85.2%)* cont. | Principal amount | Value | |
| Commercial and consumer services cont. | |||
| Lender Processing Services, Inc. company guaranty sr. unsec. | |||
| unsub. notes 8 1/8s, 2016 | $3,282,000 | $3,134,310 | |
| PHH Corp. sr. unsec. unsub. notes 9 1/4s, 2016 | 1,365,000 | 1,416,188 | |
| Sabre Holdings Corp. sr. unsec. unsub. notes 8.35s, 2016 | 4,815,000 | 4,080,712 | |
| Travelport LLC company guaranty 11 7/8s, 2016 | 1,404,000 | 993,330 | |
| Travelport LLC company guaranty 9 7/8s, 2014 | 1,883,000 | 1,605,257 | |
| Travelport, LLC/Travelport, Inc. company guaranty sr. unsec. | |||
| notes 9s, 2016 | 4,330,000 | 3,474,824 | |
| 24,811,201 | |||
| Consumer (1.1%) | |||
| Jarden Corp. company guaranty sr. unsec. notes 8s, 2016 | 1,120,000 | 1,194,200 | |
| Jarden Corp. company guaranty sr. unsec. sub. notes | |||
| 7 1/2s, 2017 | 3,876,000 | 3,963,210 | |
| Jarden Corp. company guaranty sr. unsec. sub. notes Ser. 1, | |||
| 7 1/2s, 2020 | EUR | 410,000 | 582,472 |
| Scotts Miracle-Gro Co. (The) 144A sr. notes 6 5/8s, 2020 | $2,125,000 | 2,101,093 | |
| Yankee Candle Co. company guaranty sr. notes Ser. B, | |||
| 8 1/2s, 2015 | 4,352,000 | 4,297,600 | |
| YCC Holdings, LLC/Yankee Finance, Inc. 144A sr. unsec. notes | |||
| 10 1/4s, 2016 | 2,175,000 | 1,979,250 | |
| 14,117,825 | |||
| Consumer staples (7.4%) | |||
| ACCO Brands Corp. company guaranty sr. notes 10 5/8s, 2015 | 1,755,000 | 1,919,531 | |
| Archibald Candy Corp. company guaranty sub. notes 10s, | |||
| 2011 (In default) † F | 774,063 | 24,770 | |
| Avis Budget Car Rental, LLC company guaranty sr. unsec. | |||
| unsub. notes 9 5/8s, 2018 | 585,000 | 598,163 | |
| Avis Budget Car Rental, LLC company guaranty sr. unsec. | |||
| unsub. notes 7 3/4s, 2016 | 2,987,000 | 2,960,863 | |
| Burger King Corp. company guaranty sr. unsec. notes | |||
| 9 7/8s, 2018 | 1,830,000 | 1,953,524 | |
| Central Garden & Pet Co. company guaranty sr. sub. notes | |||
| 8 1/4s, 2018 | 2,060,000 | 2,013,650 | |
| CKE Holdings, Inc. 144A sr. notes 10 1/2s, 2016 ‡‡ | 1,445,000 | 1,401,650 | |
| CKE Restaurants, Inc. company guaranty sr. notes 11 3/8s, 2018 | 759,000 | 807,386 | |
| Claire’s Stores, Inc. company guaranty sr. notes 8 7/8s, 2019 | 3,655,000 | 3,120,455 | |
| Constellation Brands, Inc. company guaranty sr. unsec. unsub. | |||
| notes 7 1/4s, 2016 | 3,323,000 | 3,534,841 | |
| Corrections Corporation of America company guaranty sr. notes | |||
| 7 3/4s, 2017 | 3,640,000 | 3,858,400 | |
| Dave & Buster’s, Inc. company guaranty sr. unsec. unsub. notes | |||
| 11s, 2018 | 2,895,000 | 3,010,800 | |
| Dean Foods Co. company guaranty sr. unsec. unsub. notes | |||
| 9 3/4s, 2018 | 640,000 | 654,400 | |
| Dean Foods Co. company guaranty sr. unsec. unsub. notes | |||
| 7s, 2016 | 2,915,000 | 2,769,250 | |
| DineEquity, Inc. company guaranty sr. unsec. notes 9 1/2s, 2018 | 3,685,000 | 3,823,187 | |
| Dole Food Co. sr. notes 13 7/8s, 2014 | 672,000 | 781,200 | |
| Dole Food Co. 144A sr. notes 8s, 2016 | 765,000 | 789,863 | |
| Elizabeth Arden, Inc. sr. unsec. unsub. notes 7 3/8s, 2021 | 2,455,000 | 2,436,587 | |
28
| CORPORATE BONDS AND NOTES (85.2%)* cont. | Principal amount | Value | |
| Consumer staples cont. | |||
| Harry & David Operations Corp. company guaranty sr. unsec. | |||
| notes 9s, 2013 (In default) † | $2,624,000 | $104,960 | |
| Harry & David Operations Corp. company guaranty sr. unsec. | |||
| notes FRN zero %, 2012 (In default) † | 1,727,000 | 82,033 | |
| Hertz Corp. company guaranty sr. unsec. notes 8 7/8s, 2014 | 122,000 | 123,525 | |
| Hertz Corp. 144A company guaranty sr. unsec. notes 7 1/2s, 2018 | 920,000 | 901,600 | |
| Hertz Holdings Netherlands BV 144A sr. bonds 8 1/2s, 2015 | |||
| (Netherlands) | EUR | 2,395,000 | 3,320,554 |
| JBS USA LLC/JBS USA Finance, Inc. company guaranty sr. unsec. | |||
| notes 11 5/8s, 2014 | $1,050,000 | 1,165,500 | |
| JBS USA LLC/JBS USA Finance, Inc. 144A sr. unsec. notes | |||
| 7 1/4s, 2021 | 6,075,000 | 5,520,655 | |
| Landry’s Restaurants, Inc. company guaranty sr. notes | |||
| 11 5/8s, 2015 | 465,000 | 489,413 | |
| Landry’s Restaurants, Inc. 144A company guaranty sr. notes | |||
| 11 5/8s, 2015 | 1,061,000 | 1,116,703 | |
| Libbey Glass, Inc. sr. notes 10s, 2015 | 1,417,000 | 1,516,190 | |
| Michael Foods, Inc. company guaranty sr. unsec notes 9 3/4s, 2018 | 1,200,000 | 1,260,000 | |
| Pinnacle Foods Finance LLC/Pinnacle Foods Finance Corp. | |||
| company guaranty sr. unsec. notes 9 1/4s, 2015 | 2,495,000 | 2,538,663 | |
| Prestige Brands, Inc. company guaranty sr. unsec. notes | |||
| 8 1/4s, 2018 | 2,285,000 | 2,376,400 | |
| Prestige Brands, Inc. 144A company guaranty sr. unsec. notes | |||
| 8 1/4s, 2018 | 1,005,000 | 1,045,200 | |
| Reddy Ice Corp. company guaranty sr. notes 11 1/4s, 2015 | 3,030,000 | 2,749,725 | |
| Revlon Consumer Products Corp. company guaranty notes | |||
| 9 3/4s, 2015 | 1,720,000 | 1,831,800 | |
| Rite Aid Corp. company guaranty sr. notes 10 1/4s, 2019 | 880,000 | 921,800 | |
| Rite Aid Corp. company guaranty sr. notes 7 1/2s, 2017 | 886,000 | 861,635 | |
| Rite Aid Corp. company guaranty sr. unsec. unsub. notes | |||
| 9 1/2s, 2017 | 4,267,000 | 3,733,625 | |
| Rite Aid Corp. company guaranty sr. unsub. notes 8s, 2020 | 740,000 | 777,000 | |
| Roadhouse Financing, Inc. notes 10 3/4s, 2017 | 770,000 | 762,300 | |
| RSC Equipment Rental, Inc. company guaranty sr. unsec. notes | |||
| 8 1/4s, 2021 | 1,565,000 | 1,459,362 | |
| Service Corporation International sr. notes 7s, 2019 | 1,100,000 | 1,124,750 | |
| Smithfield Foods, Inc. company guaranty sr. notes 10s, 2014 | 1,660,000 | 1,875,800 | |
| Spectrum Brands, Inc. sr. notes 9 1/2s, 2018 | 1,482,000 | 1,607,970 | |
| Spectrum Brands, Inc. sr. unsec. sub. bonds 12s, 2019 | 2,824,432 | 3,060,977 | |
| Stewart Enterprises, Inc. company guaranty sr. unsec. notes | |||
| 6 1/2s, 2019 | 2,025,000 | 1,969,313 | |
| Tyson Foods, Inc. sr. unsec. unsub. notes 10 1/2s, 2014 | 2,508,000 | 2,921,820 | |
| United Rentals North America, Inc. company guaranty sr. unsec. | |||
| sub. notes 8 3/8s, 2020 | 1,000,000 | 895,000 | |
| United Rentals North America, Inc. company guaranty sr. unsec. | |||
| unsub. notes 9 1/4s, 2019 | 1,715,000 | 1,787,888 | |
| Wendy’s Co. (The) company guaranty sr. unsec. unsub. notes 10s, 2016 | 4,485,000 | 4,815,769 | |
| West Corp. company guaranty sr. unsec. notes 8 5/8s, 2018 | 1,098,000 | 1,070,550 | |
| West Corp. company guaranty sr. unsec. notes 7 7/8s, 2019 | 1,959,000 | 1,870,845 | |
| 94,117,845 | |||
29
| CORPORATE BONDS AND NOTES (85.2%)* cont. | Principal amount | Value | |
| Energy (oil field) (1.3%) | |||
| Complete Production Services, Inc. company guaranty 8s, 2016 | $2,055,000 | $2,075,550 | |
| Frac Tech Services, LLC/Frac Tech Finance, Inc. 144A | |||
| company guaranty sr. notes 7 1/8s, 2018 | 2,520,000 | 2,608,200 | |
| Helix Energy Solutions Group, Inc. 144A sr. unsec. notes | |||
| 9 1/2s, 2016 | 6,787,000 | 6,922,740 | |
| Key Energy Services, Inc. company guaranty unsec. unsub. notes | |||
| 6 3/4s, 2021 | 2,300,000 | 2,259,750 | |
| Offshore Group Investments, Ltd. company guaranty sr. notes | |||
| 11 1/2s, 2015 (Cayman Islands) | 2,190,000 | 2,332,350 | |
| Offshore Group Investments, Ltd. 144A company guaranty | |||
| sr. notes 11 1/2s, 2015 (Cayman Islands) | 610,000 | 649,650 | |
| 16,848,240 | |||
| Entertainment (0.7%) | |||
| AMC Entertainment, Inc. company guaranty sr. sub. notes | |||
| 9 3/4s, 2020 | 4,585,000 | 4,424,525 | |
| Cedar Fair LP/Canada’s Wonderland Co./Magnum | |||
| Management Corp. company guaranty sr. unsec. notes | |||
| 9 1/8s, 2018 | 420,000 | 443,100 | |
| Cinemark USA, Inc. company guaranty sr. unsec. notes | |||
| 8 5/8s, 2019 | 1,125,000 | 1,181,250 | |
| Cinemark USA, Inc. 144A company guaranty sr. sub. notes | |||
| 7 3/8s, 2021 | 565,000 | 546,638 | |
| Regal Entertainment Group company guaranty sr. unsec. | |||
| notes 9 1/8s, 2018 | 2,020,000 | 2,040,200 | |
| Universal City Development Partners, Ltd. company guaranty | |||
| sr. unsec. notes 8 7/8s, 2015 | 699,000 | 770,648 | |
| 9,406,361 | |||
| Financials (8.6%) | |||
| ABN Amro North American Holding Preferred Capital Repackage | |||
| Trust I 144A jr. sub. bonds FRB 6.523s, perpetual maturity | 4,445,000 | 3,422,650 | |
| ACE Cash Express, Inc. 144A sr. notes 11s, 2019 | 2,325,000 | 2,191,312 | |
| Ally Financial, Inc. company guaranty sr. notes 6 1/4s, 2017 | 2,065,000 | 1,986,357 | |
| Ally Financial, Inc. company guaranty sr. unsec. unsub. notes | |||
| 8.3s, 2015 | 2,485,000 | 2,609,250 | |
| Ally Financial, Inc. company guaranty sr. unsec. unsub. notes | |||
| 8s, 2020 | 1,270,000 | 1,282,700 | |
| Ally Financial, Inc. company guaranty sr. unsec. unsub. notes | |||
| 7 1/2s, 2020 | 1,350,000 | 1,326,374 | |
| Ally Financial, Inc. unsec. sub. notes 8s, 2018 | 1,542,000 | 1,503,450 | |
| American International Group, Inc. jr. sub. bonds FRB | |||
| 8.175s, 2058 | 3,302,000 | 3,278,225 | |
| BAC Capital Trust VI bank guaranty jr. unsec. sub. notes | |||
| 5 5/8s, 2035 | 1,820,000 | 1,440,552 | |
| BankAmerica Capital II bank guaranty jr. unsec. sub. notes | |||
| 8s, 2026 | 695,000 | 691,525 | |
| Capital One Capital IV company guaranty jr. unsec. sub. notes | |||
| FRN 6.745s, 2037 | 2,338,000 | 2,291,240 | |
| CB Richard Ellis Services, Inc. company guaranty sr. unsec. notes | |||
| 6 5/8s, 2020 | 807,000 | 788,843 | |
| CB Richard Ellis Services, Inc. company guaranty sr. unsec. sub. | |||
| notes 11 5/8s, 2017 | 1,392,000 | 1,579,920 | |
30
| CORPORATE BONDS AND NOTES (85.2%)* cont. | Principal amount | Value | |
| Financials cont. | |||
| CIT Group, Inc. sr. bonds 7s, 2017 | $311 | $307 | |
| CIT Group, Inc. sr. bonds 7s, 2016 | 79 | 79 | |
| CIT Group, Inc. 144A bonds 7s, 2017 | 11,044,000 | 10,905,950 | |
| CIT Group, Inc. 144A company guaranty notes 6 5/8s, 2018 | 2,185,000 | 2,185,000 | |
| CNO Financial Group, Inc. 144A company guaranty sr. notes | |||
| 9s, 2018 | 1,430,000 | 1,487,200 | |
| Community Choice Financial, Inc. 144A sr. notes 10 3/4s, 2019 | 2,550,000 | 2,601,000 | |
| Dresdner Funding Trust I 144A bonds 8.151s, 2031 | 3,365,000 | 2,826,600 | |
| E*Trade Financial Corp. sr. notes 6 3/4s, 2016 | 1,750,000 | 1,785,000 | |
| E*Trade Financial Corp. sr. unsec. unsub. notes 12 1/2s, 2017 | 1,844,000 | 2,120,600 | |
| HBOS Capital Funding LP 144A bank guaranty jr. unsec. sub. | |||
| FRB 6.071s, perpetual maturity (Jersey) | 3,560,000 | 2,403,000 | |
| HBOS PLC 144A sr. unsec. sub. notes 6 3/4s, 2018 | |||
| (United Kingdom) | 2,805,000 | 2,595,118 | |
| HBOS PLC 144A unsec. sub. bonds 6s, 2033 (United Kingdom) | 1,050,000 | 751,546 | |
| HUB International Holdings, Inc. 144A sr. sub. notes 10 1/4s, 2015 | 1,156,000 | 1,095,310 | |
| Icahn Enterprises LP/Icahn Enterprises Finance Corp. | |||
| company guaranty sr. unsec. notes 8s, 2018 | 5,295,000 | 5,347,950 | |
| ING Groep NV jr. unsec. sub. notes 5.775s, perpetual maturity | |||
| (Netherlands) | 920,000 | 772,800 | |
| International Lease Finance Corp. sr. unsec. notes 6 1/4s, 2019 | 275,000 | 248,875 | |
| Leucadia National Corp. sr. unsec. notes 8 1/8s, 2015 | 925,000 | 993,219 | |
| Leucadia National Corp. sr. unsec. notes 7 1/8s, 2017 | 1,124,000 | 1,143,670 | |
| Liberty Mutual Group, Inc. 144A company guaranty jr. sub. notes | |||
| FRB 10 3/4s, 2058 | 490,000 | 602,700 | |
| Liberty Mutual Group, Inc. 144A company guaranty jr. unsec. sub. | |||
| bonds 7.8s, 2037 | 1,075,000 | 1,010,500 | |
| Liberty Mutual Group, Inc. 144A company guaranty jr. unsec. sub. | |||
| notes FRN 7s, 2037 | 550,000 | 505,240 | |
| National Money Mart Co. company guaranty sr. unsec. unsub. notes | |||
| 10 3/8s, 2016 (Canada) | 2,995,000 | 3,144,750 | |
| NB Capital Trust IV jr. unsec. sub. notes 8 1/4s, 2027 | 680,000 | 680,000 | |
| Nuveen Investments, Inc. company guaranty sr. unsec. unsub. | |||
| notes 10 1/2s, 2015 | 2,082,000 | 2,009,130 | |
| Omega Healthcare Investors, Inc. company guaranty sr. unsec. | |||
| notes 6 3/4s, 2022 R | 2,700,000 | 2,592,000 | |
| Provident Funding Associates, LP/PFG Finance Corp. 144A | |||
| sr. notes 10 1/4s, 2017 | 2,820,000 | 2,834,100 | |
| Provident Funding Associates, L.P. 144A sr. notes 10 1/8s, 2019 | 1,385,000 | 1,260,350 | |
| Regions Financing Trust II company guaranty jr. unsec. sub. bonds | |||
| FRB 6 5/8s, 2047 | 3,337,000 | 2,794,738 | |
| Residential Capital LLC company guaranty jr. notes 9 5/8s, 2015 | 5,015,000 | 4,444,543 | |
| Royal Bank of Scotland Group PLC jr. unsec. sub. bonds FRB | |||
| 7.648s, perpetual maturity (United Kingdom) | 6,180,000 | 4,696,800 | |
| Sabra Health Care LP/Sabra Capital Corp. company guaranty | |||
| sr. unsec. unsub. notes 8 1/8s, 2018 R | 270,000 | 257,175 | |
| SLM Corp. sr. notes Ser. MTN, 8s, 2020 | 1,975,000 | 2,029,373 | |
| SLM Corp. sr. unsec. unsub. notes Ser. MTN, 8.45s, 2018 | 7,245,000 | 7,670,918 | |
31
| CORPORATE BONDS AND NOTES (85.2%)* cont. | Principal amount | Value | |
| Financials cont. | |||
| Springleaf Finance Corp. sr. unsec. notes Ser. MTN, 6.9s, 2017 | $6,765,000 | $5,716,424 | |
| Springleaf Finance Corp. sr. unsec. notes Ser. MTNI, 5.85s, 2013 | 1,540,000 | 1,478,400 | |
| USI Holdings Corp. 144A company guaranty sr. unsec. notes | |||
| FRN 4.161s, 2014 | 756,000 | 676,620 | |
| Ventas Realty LP/Capital Corp. company guaranty 9s, 2012 R | 2,276,000 | 2,381,216 | |
| 110,440,599 | |||
| Gaming and lottery (3.2%) | |||
| American Casino & Entertainment Properties LLC sr. notes | |||
| 11s, 2014 | 3,016,000 | 3,016,000 | |
| Ameristar Casinos, Inc. 144A sr. notes 7 1/2s, 2021 | 1,525,000 | 1,521,188 | |
| Caesars Entertainment Operating Co., Inc. company guaranty | |||
| sr. notes 10s, 2018 | 8,866,000 | 6,959,810 | |
| Caesars Entertainment Operating Co., Inc. company guaranty | |||
| sr. notes 10s, 2015 | 710,000 | 674,500 | |
| Caesars Entertainment Operating Co., Inc. sr. notes 11 1/4s, 2017 | 4,810,000 | 5,182,775 | |
| Isle of Capri Casinos, Inc. company guaranty 7s, 2014 | 4,445,000 | 4,278,313 | |
| Isle of Capri Casinos, Inc. 144A company guaranty sr. unsec. | |||
| notes 7 3/4s, 2019 | 2,050,000 | 2,009,000 | |
| Mashantucket Western Pequot Tribe 144A bonds Ser. A, 8 1/2s, | |||
| 2015 (In default) † | 4,615,000 | 265,363 | |
| MTR Gaming Group, Inc. 144A notes 11 1/2s, 2019 | 6,605,000 | 5,284,000 | |
| Penn National Gaming, Inc. sr. unsec. sub. notes 8 3/4s, 2019 | 675,000 | 717,188 | |
| Pinnacle Entertainment, Inc. company guaranty sr. unsec. notes | |||
| 8 5/8s, 2017 | 1,475,000 | 1,537,688 | |
| Pinnacle Entertainment, Inc. company guaranty sr. unsec. sub. | |||
| notes 7 1/2s, 2015 | 2,940,000 | 2,932,650 | |
| Wynn Las Vegas, LLC/Wynn Las Vegas Capital Corp. company | |||
| guaranty 1st mtge. notes 7 3/4s, 2020 | 1,485,000 | 1,622,363 | |
| Yonkers Racing Corp. 144A sr. notes 11 3/8s, 2016 | 4,877,000 | 5,096,465 | |
| 41,097,303 | |||
| Health care (6.1%) | |||
| Aviv Healthcare Properties LP company guaranty sr. unsec. | |||
| notes 7 3/4s, 2019 | 2,083,000 | 2,072,585 | |
| Biomet, Inc. company guaranty sr. unsec. notes 10s, 2017 | 1,789,000 | 1,873,978 | |
| Capella Healthcare, Inc. 144A company guaranty sr. notes | |||
| 9 1/4s, 2017 | 2,910,000 | 2,844,525 | |
| Capsugel FinanceCo SCA 144A company guaranty sr. unsec. | |||
| notes 9 7/8s, 2019 (Luxembourg) | 585,000 | 852,414 | |
| CDRT Merger Sub, Inc. 144A company guaranty sr. unsec. notes | |||
| 8 1/8s, 2019 | 2,191,000 | 2,043,108 | |
| CHS/Community Health Systems, Inc. company guaranty | |||
| sr. unsec. sub. notes 8 7/8s, 2015 | 5,719,000 | 5,797,636 | |
| ConvaTec Healthcare E SA 144A sr. notes 7 3/8s, 2017 | |||
| (Luxembourg) | EUR | 1,000,000 | 1,274,314 |
| ConvaTec Healthcare E SA 144A sr. unsec. notes 10 1/2s, | |||
| 2018 (Luxembourg) | $5,475,000 | 4,982,250 | |
| CRC Health Corp. company guaranty sr. unsec. notes | |||
| 10 3/4s, 2016 | 620,000 | 620,000 | |
| DaVita, Inc. company guaranty sr. unsec. notes 6 5/8s, 2020 | 685,000 | 671,300 | |
| DaVita, Inc. company guaranty sr. unsec. notes 6 3/8s, 2018 | 2,040,000 | 2,004,300 | |
32
| CORPORATE BONDS AND NOTES (85.2%)* cont. | Principal amount | Value | |
| Health care cont. | |||
| Elan Finance PLC/Elan Finance Corp. company guaranty sr. unsec. | |||
| notes 8 3/4s, 2016 (Ireland) | $3,550,000 | $3,674,250 | |
| Endo Pharmaceuticals Holdings, Inc. 144A company guaranty | |||
| sr. unsec. notes 7s, 2019 | 1,590,000 | 1,609,875 | |
| Giant Funding Corp. 144A sr. notes 8 1/4s, 2018 (Spain) | 2,809,000 | 2,809,000 | |
| HCA Holdings, Inc. 144A sr. unsec. notes 7 3/4s, 2021 | 1,789,000 | 1,762,165 | |
| HCA, Inc. company guaranty sr. notes 8 1/2s, 2019 | 4,655,000 | 5,073,950 | |
| HCA, Inc. sr. notes 6 1/2s, 2020 | 8,730,000 | 8,773,650 | |
| HCA, Inc. sr. unsec. notes 7 1/2s, 2022 | 2,495,000 | 2,463,813 | |
| Health Management Associates, Inc. sr. notes 6 1/8s, 2016 | 3,165,000 | 3,085,875 | |
| IASIS Healthcare, LLC/IASIS Capital Corp. 144A sr. notes | |||
| 8 3/8s, 2019 | 4,735,000 | 4,143,125 | |
| Multiplan, Inc. 144A company guaranty sr. notes 9 7/8s, 2018 | 2,015,000 | 2,045,225 | |
| Select Medical Corp. company guaranty 7 5/8s, 2015 | 238,000 | 218,960 | |
| Surgical Care Affiliates, Inc. 144A sr. sub. notes 10s, 2017 | 3,850,000 | 3,821,125 | |
| Surgical Care Affiliates, Inc. 144A sr. unsec. notes 8 7/8s, 2015 ‡‡ | 762,852 | 766,666 | |
| Teleflex, Inc. company guaranty sr. unsec. sub. notes 6 7/8s, 2019 | 330,000 | 327,525 | |
| Tenet Healthcare Corp. company guaranty sr. notes 10s, 2018 | 1,340,000 | 1,474,000 | |
| Tenet Healthcare Corp. sr. notes 9s, 2015 | 4,144,000 | 4,392,640 | |
| Tenet Healthcare Corp. sr. notes 8 7/8s, 2019 | 1,950,000 | 2,067,000 | |
| Tenet Healthcare Corp. sr. unsec. notes 8s, 2020 | 1,797,000 | 1,743,090 | |
| United Surgical Partners International, Inc. company guaranty | |||
| sr. unsec. sub. notes 8 7/8s, 2017 | 1,000,000 | 1,030,000 | |
| Valeant Pharmaceuticals International 144A company guaranty | |||
| sr. notes 7s, 2020 | 410,000 | 371,050 | |
| Valeant Pharmaceuticals International 144A company guaranty | |||
| sr. unsec. notes 6 7/8s, 2018 | 1,020,000 | 938,400 | |
| Valeant Pharmaceuticals International 144A sr. notes 6 3/4s, 2017 | 410,000 | 381,300 | |
| Vanguard Health Systems, Inc. sr. unsec. notes zero %, 2016 | 107,000 | 68,480 | |
| 78,077,574 | |||
| Homebuilding (1.3%) | |||
| Beazer Homes USA, Inc. company guaranty sr. unsec. notes | |||
| 6 7/8s, 2015 | 1,515,000 | 1,098,375 | |
| Beazer Homes USA, Inc. company guaranty sr. unsec. unsub. | |||
| notes 9 1/8s, 2018 | 1,390,000 | 959,100 | |
| Beazer Homes USA, Inc. sr. unsec. notes 9 1/8s, 2019 | 898,000 | 617,375 | |
| M/I Homes, Inc. company guaranty sr. unsec. notes 8 5/8s, 2018 | 4,455,000 | 4,109,738 | |
| Pulte Group, Inc. company guaranty sr. unsec. notes 7 5/8s, 2017 | 2,405,000 | 2,332,850 | |
| Pulte Group, Inc. company guaranty sr. unsec. unsub. notes | |||
| 7 7/8s, 2032 | 1,915,000 | 1,637,325 | |
| Realogy Corp. company guaranty sr. unsec. notes 10 1/2s, 2014 | 215,000 | 189,200 | |
| Realogy Corp. company guaranty sr. unsec. unsub. notes | |||
| 11 1/2s, 2017 | 4,625,000 | 3,676,875 | |
| Standard Pacific Corp. company guaranty sr. notes 10 3/4s, 2016 | 1,950,000 | 1,930,500 | |
| Standard Pacific Corp. company guaranty sr. unsec. unsub. notes | |||
| 7s, 2015 | 473,000 | 461,175 | |
| 17,012,513 | |||
33
| CORPORATE BONDS AND NOTES (85.2%)* cont. | Principal amount | Value | |
| Household furniture and appliances (0.1%) | |||
| Sealy Mattress Co. 144A company guaranty sr. sec. notes | |||
| 10 7/8s, 2016 | $886,000 | $965,740 | |
| 965,740 | |||
| Lodging/Tourism (1.1%) | |||
| CityCenter Holdings LLC/CityCenter Finance Corp. 144A | |||
| company guaranty sr. notes 10 3/4s, 2017 ‡‡ | 3,636,484 | 3,491,025 | |
| FelCor Lodging Escrow, LP 144A sr. notes 6 3/4s, 2019 R | 3,800,000 | 3,572,000 | |
| FelCor Lodging LP company guaranty sr. notes 10s, 2014 R | 2,932,000 | 3,115,250 | |
| MGM Resorts International company guaranty sr. notes 9s, 2020 | 515,000 | 549,763 | |
| MGM Resorts International company guaranty sr. unsec. notes | |||
| 6 7/8s, 2016 | 965,000 | 820,250 | |
| MGM Resorts International company guaranty sr. unsec. notes | |||
| 6 5/8s, 2015 | 1,160,000 | 1,044,000 | |
| MGM Resorts International sr. notes 10 3/8s, 2014 | 485,000 | 532,288 | |
| MGM Resorts International sr. notes 6 3/4s, 2012 | 2,000 | 2,005 | |
| SugarHouse HSP Gaming Prop. Mezz LP/SugarHouse HSP | |||
| Gaming Finance Corp. 144A notes 8 5/8s, 2016 | 1,070,000 | 1,061,975 | |
| 14,188,556 | |||
| Media (0.3%) | |||
| Affinion Group Holdings, Inc. company guaranty sr. unsec. notes | |||
| 11 5/8s, 2015 | 1,615,000 | 1,574,625 | |
| Nielsen Finance, LLC/Nielsen Finance Co. company guaranty | |||
| sr. unsec. notes 7 3/4s, 2018 | 2,050,000 | 2,116,625 | |
| 3,691,250 | |||
| Oil and gas (8.0%) | |||
| Anadarko Finance Co. company guaranty sr. unsec. unsub. notes | |||
| Ser. B, 7 1/2s, 2031 | 3,550,000 | 4,139,861 | |
| Anadarko Petroleum Corp. sr. unsec. notes 6.2s, 2040 | 1,140,000 | 1,175,216 | |
| ATP Oil & Gas Corp. company guaranty sr. notes 11 7/8s, 2015 | 1,142,000 | 996,395 | |
| Brigham Exploration Co. company guaranty sr. unsec. notes | |||
| 8 3/4s, 2018 | 2,045,000 | 2,229,050 | |
| Brigham Exploration Co. 144A company guaranty sr. unsec. | |||
| notes 6 7/8s, 2019 | 655,000 | 650,088 | |
| Carrizo Oil & Gas, Inc. company guaranty sr. unsec notes | |||
| 8 5/8s, 2018 | 4,110,000 | 4,192,200 | |
| Chaparral Energy, Inc. company guaranty sr. unsec. notes | |||
| 9 7/8s, 2020 | 1,880,000 | 1,912,900 | |
| Chaparral Energy, Inc. company guaranty sr. unsec. notes | |||
| 8 7/8s, 2017 | 5,058,000 | 5,058,000 | |
| Chesapeake Energy Corp. company guaranty sr. unsec. notes | |||
| 9 1/2s, 2015 | 790,000 | 892,700 | |
| Chesapeake Midstream Partners LP/CHKM Finance Corp. 144A | |||
| company guaranty sr. unsec. notes 5 7/8s, 2021 | 1,047,000 | 1,005,120 | |
| Comstock Resources, Inc. company guaranty sr. unsub. notes | |||
| 8 3/8s, 2017 | 1,255,000 | 1,283,237 | |
| Concho Resources, Inc. company guaranty sr. unsec. notes | |||
| 6 1/2s, 2022 | 2,800,000 | 2,800,000 | |
| Crosstex Energy LP/Crosstex Energy Finance Corp. company | |||
| guaranty sr. unsec. notes 8 7/8s, 2018 | 5,440,000 | 5,630,400 | |
| Denbury Resources, Inc. company guaranty sr. sub. notes | |||
| 9 3/4s, 2016 | 475,000 | 521,313 | |
34
| CORPORATE BONDS AND NOTES (85.2%)* cont. | Principal amount | Value | |
| Oil and gas cont. | |||
| Denbury Resources, Inc. company guaranty sr. unsec. sub. notes | |||
| 8 1/4s, 2020 | $2,062,000 | $2,175,410 | |
| Denbury Resources, Inc. company guaranty sr. unsec. sub. notes | |||
| 6 3/8s, 2021 | 1,280,000 | 1,246,400 | |
| EXCO Resources, Inc. company guaranty sr. unsec. notes | |||
| 7 1/2s, 2018 | 5,480,000 | 5,247,100 | |
| Ferrellgas LP/Ferrellgas Finance Corp. sr. unsec. notes | |||
| 6 1/2s, 2021 | 1,412,000 | 1,267,270 | |
| Forbes Energy Services Ltd. 144A company guaranty sr. unsec. | |||
| notes 9s, 2019 | 1,865,000 | 1,776,412 | |
| Goodrich Petroleum Corp. 144A sr. notes 8 7/8s, 2019 | 4,280,000 | 4,258,600 | |
| Hercules Offshore, Inc. 144A sr. notes 10 1/2s, 2017 | 1,350,000 | 1,329,750 | |
| Inergy LP/Inergy Finance Corp. 144A sr. notes 6 7/8s, 2021 | 3,185,000 | 3,057,600 | |
| Laredo Petroleum, Inc. 144A sr. notes 9 1/2s, 2019 | 2,259,000 | 2,394,540 | |
| MEG Energy Corp. 144A company guaranty sr. unsec. notes 6 1/2s, | |||
| 2021 (Canada) | 2,060,000 | 2,060,000 | |
| Milagro Oil & Gas 144A notes 10 1/2s, 2016 | 2,825,000 | 2,415,374 | |
| Newfield Exploration Co. sr. sub. notes 6 5/8s, 2016 | 1,162,000 | 1,185,240 | |
| Newfield Exploration Co. sr. unsec. sub. notes 7 1/8s, 2018 | 490,000 | 510,825 | |
| Newfield Exploration Co. sr. unsec. sub. notes 6 5/8s, 2014 | 3,939,000 | 3,968,543 | |
| OPTI Canada, Inc. company guaranty sr. sec. notes 8 1/4s, 2014 | |||
| (Canada) (In default) † | 730,000 | 461,725 | |
| OPTI Canada, Inc. company guaranty sr. sec. notes 7 7/8s, 2014 | |||
| (Canada) (In default) † | 2,054,000 | 1,288,884 | |
| Petroleum Development Corp. company guaranty sr. unsec. notes | |||
| 12s, 2018 | 3,685,000 | 3,942,950 | |
| Plains Exploration & Production Co. company guaranty 7 3/4s, 2015 | 787,000 | 810,610 | |
| Plains Exploration & Production Co. company guaranty 7s, 2017 | 4,966,000 | 5,015,660 | |
| Quicksilver Resources, Inc. company guaranty 7 1/8s, 2016 | 1,017,000 | 961,064 | |
| Quicksilver Resources, Inc. company guaranty sr. unsec. notes | |||
| 8 1/4s, 2015 | 1,223,000 | 1,223,000 | |
| Quicksilver Resources, Inc. sr. notes 11 3/4s, 2016 | 1,630,000 | 1,797,075 | |
| Range Resources Corp. company guaranty sr. sub. notes | |||
| 6 3/4s, 2020 | 1,080,000 | 1,131,300 | |
| Rosetta Resources, Inc. company guaranty sr. unsec. notes | |||
| 9 1/2s, 2018 | 3,205,000 | 3,397,300 | |
| Sabine Pass LNG LP sec. notes 7 1/2s, 2016 | 4,321,000 | 4,256,185 | |
| SandRidge Energy, Inc. 144A company guaranty sr. unsec. | |||
| notes 7 1/2s, 2021 | 615,000 | 599,625 | |
| SandRidge Energy, Inc. 144A company guaranty sr. unsec. | |||
| unsub. notes 8s, 2018 | 5,452,000 | 5,397,480 | |
| SandRidge Energy, Inc. 144A sr. unsec. notes 9 7/8s, 2016 | 925,000 | 989,750 | |
| SM Energy Co. 144A sr. unsec. notes 6 5/8s, 2019 | 1,255,000 | 1,255,000 | |
| Unit Corp. company guaranty sr. sub. notes 6 5/8s, 2021 | 745,000 | 734,489 | |
| Whiting Petroleum Corp. company guaranty 7s, 2014 | 2,107,000 | 2,233,420 | |
| Williams Cos., Inc. (The) notes 7 3/4s, 2031 | 474,000 | 567,808 | |
| Williams Cos., Inc. (The) sr. unsec. notes 7 7/8s, 2021 | 1,033,000 | 1,299,547 | |
| 102,742,416 | |||
35
| CORPORATE BONDS AND NOTES (85.2%)* cont. | Principal amount | Value | |
| Publishing (0.4%) | |||
| American Media, Inc. 144A notes 13 1/2s, 2018 | $334,251 | $313,360 | |
| Cengage Learning Acquisitions, Inc. 144A sr. notes 10 1/2s, 2015 | 1,800,000 | 1,386,000 | |
| Cenveo Corp. company guaranty sr. notes 8 7/8s, 2018 | 2,195,000 | 1,777,950 | |
| Cenveo Corp. 144A company guaranty sr. unsec. notes | |||
| 10 1/2s, 2016 | 849,000 | 738,630 | |
| McClatchy Co. (The) company guaranty sr. notes 11 1/2s, 2017 | 1,245,000 | 1,201,424 | |
| Vertis, Inc. company guaranty sr. notes 13 1/2s, 2014 | |||
| (In default) † ‡‡ F | 3,373,883 | 168,694 | |
| 5,586,058 | |||
| Regional Bells (0.8%) | |||
| Cincinnati Bell, Inc. company guaranty sr. unsec. notes 7s, 2015 | 1,218,000 | 1,205,820 | |
| Cincinnati Bell, Inc. company guaranty sr. unsec. sub. notes | |||
| 8 3/4s, 2018 | 2,825,000 | 2,648,438 | |
| Frontier Communications Corp. sr. unsec. notes 8 1/2s, 2020 | 2,615,000 | 2,739,212 | |
| Frontier Communications Corp. sr. unsec. notes 8 1/4s, 2017 | 1,465,000 | 1,523,600 | |
| Frontier Communications Corp. sr. unsec. notes 8 1/8s, 2018 | 1,355,000 | 1,405,813 | |
| Qwest Communications International, Inc. company guaranty | |||
| 7 1/2s, 2014 | 462,000 | 467,775 | |
| 9,990,658 | |||
| Retail (3.1%) | |||
| Academy Ltd./Academy Finance Corp. 144A company | |||
| guaranty sr. unsec. notes 9 1/4s, 2019 | 335,000 | 319,925 | |
| Autonation, Inc. company guaranty sr. unsec. notes 6 3/4s, 2018 | 800,000 | 834,000 | |
| Bon-Ton Department Stores, Inc. (The) company guaranty | |||
| 10 1/4s, 2014 | 4,251,000 | 3,836,527 | |
| Burlington Coat Factory Warehouse Corp. 144A company | |||
| guaranty sr. unsec. notes 10s, 2019 | 2,065,000 | 1,925,613 | |
| Limited Brands, Inc. company guaranty sr. unsec. notes | |||
| 6 5/8s, 2021 | 2,265,000 | 2,298,974 | |
| Macy’s Retail Holdings, Inc. company guaranty sr. unsec. unsub. | |||
| notes 8 1/8s, 2015 | 2,580,000 | 3,047,578 | |
| Michaels Stores, Inc. company guaranty 11 3/8s, 2016 | 4,555,000 | 4,725,812 | |
| Needle Merger Sub Corp. 144A sr. unsec. notes 8 1/8s, 2019 | 2,065,000 | 1,920,450 | |
| Neiman-Marcus Group, Inc. company guaranty sr. unsec. sub. | |||
| notes 10 3/8s, 2015 | 1,415,000 | 1,441,531 | |
| Penske Automotive Group, Inc. company guaranty sr. unsec. | |||
| sub. notes 7 3/4s, 2016 | 4,421,000 | 4,476,262 | |
| PETCO Animal Supplies, Inc. 144A company guaranty sr. notes | |||
| 9 1/4s, 2018 | 1,455,000 | 1,498,650 | |
| QVC Inc. 144A sr. notes 7 1/2s, 2019 | 3,215,000 | 3,464,163 | |
| QVC Inc. 144A sr. notes 7 3/8s, 2020 | 1,425,000 | 1,531,874 | |
| Sears Holdings Corp. company guaranty 6 5/8s, 2018 | 1,933,000 | 1,604,390 | |
| Toys R Us — Delaware, Inc. 144A company guaranty sr. notes | |||
| 7 3/8s, 2016 | 610,000 | 593,225 | |
| Toys R Us Property Co., LLC company guaranty sr. notes | |||
| 8 1/2s, 2017 | 2,400,000 | 2,448,000 | |
| Toys R Us Property Co., LLC company guaranty sr. unsec. | |||
| notes 10 3/4s, 2017 | 2,830,000 | 3,056,400 | |
| 39,023,374 | |||
36
| CORPORATE BONDS AND NOTES (85.2%)* cont. | Principal amount | Value | |
| Technology (4.4%) | |||
| Advanced Micro Devices, Inc. sr. unsec. notes 8 1/8s, 2017 | $1,265,000 | $1,299,788 | |
| Advanced Micro Devices, Inc. sr. unsec. notes 7 3/4s, 2020 | 2,215,000 | 2,248,225 | |
| Avaya, Inc. company guaranty sr. unsec. notes 10 1/8s, 2015 ‡‡ | 1,290,000 | 1,114,238 | |
| Avaya, Inc. company guaranty sr. unsec. notes 9 3/4s, 2015 | 4,758,000 | 4,044,300 | |
| Avaya, Inc. 144A company guaranty sr. notes 7s, 2019 | 1,520,000 | 1,368,000 | |
| Buccaneer Merger Sub, Inc. 144A sr. notes 9 1/8s, 2019 | 2,960,000 | 2,960,000 | |
| Ceridian Corp. company guaranty sr. unsec. notes 12 1/4s, 2015 ‡‡ | 2,941,850 | 2,721,211 | |
| Ceridian Corp. sr. unsec. notes 11 1/4s, 2015 | 3,705,000 | 3,454,913 | |
| Eagle Parent Inc. 144A sr. notes 8 5/8s, 2019 (Canada) | 2,810,000 | 2,585,200 | |
| Fidelity National Information Services, Inc. company guaranty | |||
| sr. unsec. notes 7 7/8s, 2020 | 750,000 | 780,000 | |
| Fidelity National Information Services, Inc. company guaranty | |||
| sr. unsec. notes 7 5/8s, 2017 | 1,475,000 | 1,534,000 | |
| First Data Corp. company guaranty sr. unsec. notes 10.55s, 2015 ‡‡ | 3,171,612 | 2,981,315 | |
| First Data Corp. company guaranty sr. unsec. sub. notes | |||
| 11 1/4s, 2016 | 5,217,000 | 4,382,280 | |
| First Data Corp. 144A company guaranty sr. notes 7 3/8s, 2019 | 1,285,000 | 1,207,900 | |
| First Data Corp. 144A sr. bonds 12 5/8s, 2021 | 4,360,000 | 4,120,200 | |
| Freescale Semiconductor, Inc. company guaranty sr. unsec. notes | |||
| 10 3/4s, 2020 | 3,632,000 | 3,804,520 | |
| Freescale Semiconductor, Inc. 144A company guaranty sr. notes | |||
| 10 1/8s, 2018 | 1,127,000 | 1,205,890 | |
| Freescale Semiconductor, Inc. 144A company guaranty sr. notes | |||
| 9 1/4s, 2018 | 2,645,000 | 2,783,863 | |
| Iron Mountain, Inc. sr. sub. notes 8 3/8s, 2021 | 960,000 | 993,600 | |
| Jazz Technologies, Inc. company guaranty sr. unsec. notes 8s, 2015 F | 2,261,000 | 2,227,085 | |
| NXP BV/NXP Funding, LLC 144A company guaranty sr. notes | |||
| 9 3/4s, 2018 (Netherlands) | 3,555,000 | 3,741,638 | |
| Seagate HDD Cayman 144A company guaranty sr. unsec. notes | |||
| 7 3/4s, 2018 (Cayman Islands) | 1,525,000 | 1,513,563 | |
| SunGard Data Systems, Inc. company guaranty 10 1/4s, 2015 | 972,000 | 991,440 | |
| SunGard Data Systems, Inc. 144A sr. unsec. notes 7 5/8s, 2020 | 1,958,000 | 1,869,890 | |
| Unisys Corp. sr. unsec. unsub. notes 12 1/2s, 2016 | 835,000 | 880,925 | |
| 56,813,984 | |||
| Telecommunications (7.0%) | |||
| Alcatel-Lucent USA, Inc. unsec. debs. 6.45s, 2029 | 529,000 | 454,940 | |
| Clearwire Communications, LLC/Clearwire Finance, Inc. 144A | |||
| company guaranty sr. notes 12s, 2015 | 3,646,000 | 3,445,470 | |
| Clearwire Communications, LLC/Clearwire Finance, Inc. 144A | |||
| company guaranty sr. notes 12s, 2015 | 1,759,000 | 1,653,460 | |
| Crown Castle International Corp. sr. unsec. notes 7 1/8s, 2019 | 1,020,000 | 1,045,500 | |
| Digicel Group, Ltd. 144A sr. notes 10 1/2s, 2018 (Jamaica) | 940,000 | 996,400 | |
| Digicel Ltd. 144A sr. unsec. notes 8 1/4s, 2017 (Jamaica) | 1,895,000 | 1,895,000 | |
| EH Holding Corp. 144A sr. notes 6 1/2s, 2019 | 1,865,000 | 1,865,000 | |
| EH Holding Corp. 144A sr. unsec. notes 7 5/8s, 2021 | 3,745,000 | 3,726,275 | |
| Equinix, Inc. sr. unsec. notes 7s, 2021 | 1,640,000 | 1,672,800 | |
| Intelsat Jackson Holdings SA 144A company guaranty sr. notes | |||
| 7 1/2s, 2021 (Bermuda) | 3,081,000 | 2,980,868 | |
37
| CORPORATE BONDS AND NOTES (85.2%)* cont. | Principal amount | Value | |
| Telecommunications cont. | |||
| Intelsat Luxembourg SA company guaranty sr. unsec. notes | |||
| 11 1/2s, 2017 (Luxembourg) ‡‡ | $8,568,562 | $8,322,216 | |
| Intelsat Luxembourg SA company guaranty sr. unsec. notes | |||
| 11 1/4s, 2017 (Luxembourg) | 5,774,000 | 5,600,780 | |
| Intelsat Luxembourg SA 144A company guaranty sr. unsec. | |||
| notes 11 1/2s, 2017 (Luxembourg) ‡‡ | 2,040,000 | 1,981,350 | |
| Level 3 Financing, Inc. company guaranty sr. unsec. unsub. notes | |||
| 9 1/4s, 2014 | 3,136,000 | 3,175,200 | |
| Level 3 Financing, Inc. 144A company guaranty sr. unsec. unsub. | |||
| notes 9 3/8s, 2019 | 868,000 | 859,320 | |
| MetroPCS Wireless, Inc. company guaranty sr. unsec. notes | |||
| 7 7/8s, 2018 | 4,960,000 | 5,046,800 | |
| Nextel Communications, Inc. company guaranty sr. unsec. notes | |||
| Ser. D, 7 3/8s, 2015 | 1,175,000 | 1,155,906 | |
| NII Capital Corp. company guaranty sr. unsec. unsub. notes | |||
| 10s, 2016 | 1,530,000 | 1,721,250 | |
| NII Capital Corp. company guaranty sr. unsec. unsub. notes | |||
| 7 5/8s, 2021 | 1,335,000 | 1,368,375 | |
| PAETEC Holding Corp. company guaranty sr. notes 8 7/8s, 2017 | 1,606,000 | 1,714,405 | |
| PAETEC Holding Corp. company guaranty sr. unsec. notes | |||
| 9 7/8s, 2018 | 3,430,000 | 3,652,950 | |
| Qwest Corp. sr. unsec. unsub. notes 7 1/4s, 2025 | 2,586,000 | 2,560,140 | |
| SBA Telecommunications, Inc. company guaranty sr. unsec. | |||
| notes 8 1/4s, 2019 | 1,510,000 | 1,596,825 | |
| SBA Telecommunications, Inc. company guaranty sr. unsec. | |||
| notes 8s, 2016 | 3,030,000 | 3,189,075 | |
| Sprint Capital Corp. company guaranty 6 7/8s, 2028 | 7,718,000 | 6,907,610 | |
| Sprint Nextel Corp. sr. notes 8 3/8s, 2017 | 5,565,000 | 5,829,338 | |
| Sprint Nextel Corp. sr. unsec. notes 6s, 2016 | 1,420,000 | 1,366,750 | |
| Wind Acquisition Finance SA 144A company guaranty sr. notes | |||
| 7 1/4s, 2018 (Netherlands) | 3,975,000 | 3,726,563 | |
| Wind Acquisition Finance SA 144A sr. notes 11 3/4s, 2017 | |||
| (Netherlands) | 2,225,000 | 2,308,438 | |
| Wind Acquisition Holding company guaranty sr. notes Ser. REGS, | |||
| 12 1/4s, 2017 (Luxembourg) ‡‡ | EUR | 135,000 | 189,439 |
| Wind Acquisition Holdings Finance SA 144A company | |||
| guaranty sr. notes 12 1/4s, 2017 (Italy) ‡‡ | $1,786,780 | 1,786,780 | |
| Windstream Corp. company guaranty sr. unsec. unsub. notes | |||
| 8 1/8s, 2018 | 825,000 | 855,938 | |
| Windstream Corp. company guaranty sr. unsec. unsub. notes | |||
| 8 1/8s, 2013 | 370,000 | 393,125 | |
| Windstream Corp. company guaranty sr. unsec. unsub. notes | |||
| 7 7/8s, 2017 | 2,863,000 | 3,009,729 | |
| Windstream Corp. company guaranty sr. unsec. unsub. notes | |||
| 7 3/4s, 2021 | 1,047,000 | 1,062,705 | |
| 89,116,720 | |||
38
| CORPORATE BONDS AND NOTES (85.2%)* cont. | Principal amount | Value | |
| Telephone (0.6%) | |||
| Cricket Communications, Inc. company guaranty sr. unsec. notes | |||
| 7 3/4s, 2020 | $5,535,000 | $4,926,150 | |
| Cricket Communications, Inc. company guaranty sr. unsub. notes | |||
| 7 3/4s, 2016 | 2,170,000 | 2,197,125 | |
| Level 3 Escrow, Inc. 144A sr. unsec. notes 8 1/8s, 2019 | 470,000 | 446,500 | |
| 7,569,775 | |||
| Textiles (0.4%) | |||
| Hanesbrands, Inc. company guaranty sr. unsec. notes 6 3/8s, 2020 | 1,795,000 | 1,772,563 | |
| Hanesbrands, Inc. sr. unsec. notes 8s, 2016 | 1,810,000 | 1,936,700 | |
| Levi Strauss & Co. sr. unsec. notes 8 7/8s, 2016 | 972,000 | 998,730 | |
| 4,707,993 | |||
| Transportation (0.9%) | |||
| AMGH Merger Sub, Inc. 144A company guaranty sr. notes | |||
| 9 1/4s, 2018 | 3,965,000 | 4,014,563 | |
| Kansas City Southern de Mexico SA de CV sr. unsec. unsub. notes | |||
| 8s, 2018 (Mexico) | 1,090,000 | 1,171,750 | |
| Kansas City Southern de Mexico SA de CV sr. unsec. unsub. notes | |||
| 6 1/8s, 2021 (Mexico) | 545,000 | 543,638 | |
| Swift Services Holdings, Inc. company guaranty sr. notes 10s, 2018 | 3,770,000 | 3,807,700 | |
| Western Express, Inc. 144A sr. notes 12 1/2s, 2015 | 3,020,000 | 2,325,400 | |
| 11,863,051 | |||
| Utilities and power (4.2%) | |||
| AES Corp. (The) sr. unsec. notes 8s, 2020 | 1,291,000 | 1,355,550 | |
| AES Corp. (The) sr. unsec. unsub. notes 9 3/4s, 2016 | 270,000 | 298,350 | |
| AES Corp. (The) sr. unsec. unsub. notes 8s, 2017 | 1,655,000 | 1,737,750 | |
| AES Corp. (The) 144A sr. notes 7 3/8s, 2021 | 1,665,000 | 1,681,650 | |
| Aguila 3 SA 144A company guaranty sr. notes 7 7/8s, 2018 | |||
| (Luxembourg) | 1,820,000 | 1,710,800 | |
| Calpine Corp. 144A company guaranty sr. notes 7 7/8s, 2020 | 2,230,000 | 2,302,475 | |
| Calpine Corp. 144A sr. notes 7 1/4s, 2017 | 4,228,000 | 4,280,850 | |
| Colorado Interstate Gas Co. debs. 6.85s, 2037 (Canada) | 3,247,000 | 3,760,971 | |
| Dynegy Holdings, LLC sr. unsec. notes 7 3/4s, 2019 | 7,230,000 | 4,410,300 | |
| Edison Mission Energy sr. unsec. notes 7 3/4s, 2016 | 1,916,000 | 1,456,160 | |
| Edison Mission Energy sr. unsec. notes 7 1/2s, 2013 | 435,000 | 423,038 | |
| Edison Mission Energy sr. unsec. notes 7.2s, 2019 | 1,900,000 | 1,263,500 | |
| Edison Mission Energy sr. unsec. notes 7s, 2017 | 60,000 | 42,000 | |
| El Paso Corp. sr. unsec. notes Ser. GMTN, 7.8s, 2031 | 121,000 | 135,520 | |
| El Paso Natural Gas Co. debs. 8 5/8s, 2022 | 1,597,000 | 2,134,349 | |
| Energy Future Holdings Corp. company guaranty sr. notes | |||
| 10s, 2020 | 940,000 | 943,639 | |
| Energy Future Intermediate Holding Co., LLC/EFIH Finance, Inc. | |||
| sr. notes 10s, 2020 | 1,354,000 | 1,366,010 | |
| Energy Transfer Equity LP company guaranty sr. unsec. notes | |||
| 7 1/2s, 2020 | 3,560,000 | 3,649,000 | |
| GenOn Americas Generation, Inc. sr. unsec. notes 9 1/8s, 2031 | 685,000 | 643,900 | |
| GenOn Energy, Inc. sr. unsec. notes 9 7/8s, 2020 | 4,020,000 | 4,040,100 | |
| GenOn Energy, Inc. sr. unsec. notes 9 1/2s, 2018 | 610,000 | 610,000 | |
| Ipalco Enterprises, Inc. 144A sr. notes 7 1/4s, 2016 | 562,000 | 602,332 | |
| NRG Energy, Inc. 144A company guaranty sr. unsec. notes | |||
| 7 7/8s, 2021 | 7,490,000 | 7,377,650 | |
39
| CORPORATE BONDS AND NOTES (85.2%)* cont. | Principal amount | Value | |
| Utilities and power cont. | |||
| NV Energy, Inc. sr. unsec. notes 6 1/4s, 2020 | $1,560,000 | $1,681,887 | |
| PNM Resources, Inc. unsec. unsub. notes 9 1/4s, 2015 | 440,000 | 490,600 | |
| Tennessee Gas Pipeline Co. sr. unsec. unsub. debs. 7s, 2028 | 639,000 | 762,328 | |
| Texas Competitive/Texas Competitive Electric Holdings Co., LLC | |||
| company guaranty sr. unsec. notes 10 1/2s, 2016 ‡‡ | 4,059,658 | 1,664,460 | |
| Texas Competitive/Texas Competitive Electric Holdings Co., LLC | |||
| 144A company guaranty sr. notes 15s, 2021 | 2,756,000 | 1,763,840 | |
| Texas Competitive/Texas Competitive Electric Holdings Co., LLC | |||
| 144A company guaranty sr. notes 11 1/2s, 2020 | 2,030,000 | 1,715,350 | |
| 54,304,359 | |||
| Total corporate bonds and notes (cost $1,118,735,938) | $1,092,000,310 | ||
| SENIOR LOANS (5.7%)* | Principal amount | Value | |
| Basic materials (0.4%) | |||
| American Rock Salt Co., LLC / American Rock Capital Corp. | |||
| bank term loan FRN 5 1/2s, 2017 | $188,063 | $180,540 | |
| Exopack, LLC bank term loan FRN Ser. B, 6 1/2s, 2017 | 1,105,000 | 1,049,750 | |
| Ineos Group Holdings, Ltd. bank term loan FRN Ser. C2, 8.001s, | |||
| 2014 (United Kingdom) | 1,773,544 | 1,800,147 | |
| INEOS U.S. Finance, LLC bank term loan FRN Ser. B2, 7.501s, | |||
| 2013 (United Kingdom) | 1,761,320 | 1,787,739 | |
| 4,818,176 | |||
| Broadcasting (0.6%) | |||
| Clear Channel Communications, Inc. bank term loan FRN Ser. A, | |||
| 3.587s, 2014 | 1,170,000 | 997,425 | |
| Clear Channel Communications, Inc. bank term loan FRN Ser. B, | |||
| 3.837s, 2016 | 4,171,422 | 3,149,423 | |
| Cumulus Media, Inc. bank term loan FRN 7 1/2s, 2019 | 1,750,000 | 1,627,500 | |
| Univision Communications, Inc. bank term loan FRN 4.437s, 2017 | 2,979,796 | 2,647,051 | |
| 8,421,399 | |||
| Building materials (0.0%) | |||
| Nortek, Inc. bank term loan FRN Ser. B, 5 1/4s, 2017 | 728,175 | 691,766 | |
| 691,766 | |||
| Capital goods (0.1%) | |||
| SRAM Corp. bank term loan FRN 8 1/2s, 2018 | 750,000 | 735,000 | |
| 735,000 | |||
| Commercial and consumer services (0.1%) | |||
| Compucom Systems, Inc. bank term loan FRN 3.69s, 2014 | 926,998 | 825,029 | |
| 825,029 | |||
| Consumer cyclicals (1.3%) | |||
| Advantage Sales & Marketing, LLC bank term loan FRN | |||
| 9 1/4s, 2018 | 315,000 | 303,188 | |
| Caesars Entertainment Corp. bank term loan FRN Ser. B, | |||
| 9 1/4s, 2017 | 905,000 | 864,275 | |
| CCM Merger, Inc. bank term loan FRN Ser. B, 7s, 2017 | 3,744,121 | 3,631,797 | |
| Ceasars Entertainment Operating Co., Inc. bank term loan | |||
| FRN Ser. B, 9 1/2s, 2016 | 847,100 | 847,100 | |
| GateHouse Media, Inc. bank term loan FRN Ser. B, 2.23s, 2014 | 1,298,926 | 350,710 | |
| GateHouse Media, Inc. bank term loan FRN Ser. DD, 2.23s, 2014 | 484,674 | 130,862 | |
| Golden Nugget, Inc. bank term loan FRN Ser. DD, 2.19s, 2014 ‡‡ | 774,749 | 667,576 | |
40
| SENIOR LOANS (5.7%)* cont. | Principal amount | Value | |
| Consumer cyclicals cont. | |||
| Golden Nugget, Inc. bank term loan FRN Ser. B, 3.19s, 2014 ‡‡ | $1,361,016 | $1,172,743 | |
| Goodman Global, Inc. bank term loan FRN 9s, 2017 | 2,090,000 | 2,079,550 | |
| KAR Auction Services, Inc. bank term loan FRN Ser. B, 5s, 2017 | 890,000 | 849,950 | |
| Neiman Marcus Group, Inc. (The) bank term loan FRN 4 3/4s, 2018 | 1,347,000 | 1,243,281 | |
| Revel Entertainment, LLC bank term loan FRN Ser. B, 9s, 2017 | 670,000 | 560,567 | |
| Six Flags Theme Parks bank term loan FRN Ser. B, 5 1/4s, 2016 | 2,873,571 | 2,801,732 | |
| Tribune Co. bank term loan FRN Ser. B, 5 1/4s, 2014 (In default) † | 2,148,500 | 1,285,518 | |
| 16,788,849 | |||
| Consumer staples (0.6%) | |||
| Claire’s Stores, Inc. bank term loan FRN 3.019s, 2014 | 2,609,217 | 2,270,019 | |
| Del Monte Corp. bank term loan FRN Ser. B, 4 1/2s, 2018 | 1,700,000 | 1,608,625 | |
| Huish Detergents, Inc. bank term loan FRN 4.44s, 2014 | 780,000 | 639,600 | |
| Revlon Consumer Products bank term loan FRN Ser. B, | |||
| 4 3/4s, 2017 | 3,075,000 | 2,954,561 | |
| RiteAid Corp. bank term loan FRN Ser. B, 1.958s, 2014 | 316,638 | 289,328 | |
| 7,762,133 | |||
| Energy (0.1%) | |||
| Frac Tech International, LLC bank term loan FRN Ser. B, | |||
| 6 1/4s, 2016 | 1,812,614 | 1,737,088 | |
| 1,737,088 | |||
| Financials (0.6%) | |||
| AGFS Funding Co. bank term loan FRN Ser. B, 5 1/2s, 2017 | 2,160,000 | 1,988,999 | |
| CNO Financial Group, Inc. bank term loan FRN 6 1/4s, 2016 | 988,103 | 963,400 | |
| HUB International Holdings, Inc. bank term loan FRN 6 3/4s, 2014 | 1,360,763 | 1,306,332 | |
| iStar Financial, Inc. bank term loan FRN Ser. A2, 7s, 2014 | 2,260,000 | 2,174,308 | |
| Nuveen Investments, Inc. bank term loan FRN Ser. B, 5.752s, 2017 | 1,116,987 | 1,038,798 | |
| 7,471,837 | |||
| Gaming and lottery (0.1%) | |||
| Caesars Entertainment Operating Co., Inc. bank term loan FRN | |||
| Ser. B2, 3.241s, 2015 | 1,275,000 | 1,095,438 | |
| 1,095,438 | |||
| Health care (0.6%) | |||
| Ardent Health Services bank term loan FRN 6 1/2s, 2015 | 925,000 | 888,000 | |
| Ardent Health Services bank term loan FRN Ser. B, 6 1/2s, 2015 | 2,656,375 | 2,550,120 | |
| Emergency Medical Services Corp. bank term loan FRN Ser. B, | |||
| 5 1/4s, 2018 | 2,294,250 | 2,137,477 | |
| Fenwal, Inc. bank term loan FRN 5.504s, 2014 | 500,000 | 455,000 | |
| Grifols SA bank term loan FRN Ser. B, 6s, 2016 (Spain) | 1,415,000 | 1,386,700 | |
| 7,417,297 | |||
| Homebuilding (0.3%) | |||
| Realogy Corp. bank term loan FRN Ser. A, 13 1/2s, 2017 | 4,400,000 | 4,422,000 | |
| 4,422,000 | |||
| Publishing (0.2%) | |||
| Cengage Learning Acquisitions, Inc. bank term loan FRN Ser. B, | |||
| 2 1/2s, 2014 | 2,437,995 | 2,024,755 | |
| 2,024,755 | |||
| Retail (0.1%) | |||
| Burlington Coat Factory Warehouse Corp. bank term loan FRN | |||
| Ser. B, 6 1/4s, 2017 | 755,438 | 706,806 | |
| 706,806 | |||
41
| SENIOR LOANS (5.7%)* cont. | Principal amount | Value | |
| Telecommunications (0.0%) | |||
| Level 3 Financing, Inc. bank term loan FRN Ser. B, 11 1/2s, 2014 | $235,000 | $244,547 | |
| 244,547 | |||
| Utilities and power (0.6%) | |||
| Texas Competitive Electric Holdings Co., LLC bank term loan | |||
| FRN 4.74s, 2017 | 10,079,407 | 7,399,968 | |
| 7,399,968 | |||
| Total senior loans (cost $79,227,841) | $72,562,088 | ||
| COMMON STOCKS (2.6%)* | Shares | Value | |
| Alliance HealthCare Services, Inc. † | 248,538 | $395,175 | |
| Alpha Natural Resources, Inc. † | 28,975 | 958,203 | |
| Avis Budget Group, Inc. † | 70,380 | 925,497 | |
| Bohai Bay Litigation, LLC (Escrow) § F | 3,899 | 12,165 | |
| Brigham Exploration Co. † | 70,500 | 2,051,550 | |
| Cincinnati Bell, Inc. † | 728,095 | 2,468,242 | |
| CIT Group, Inc. † | 22,503 | 777,929 | |
| Compton Petroleum Corp. (Rights) (Canada) † | 61,434 | 13,175 | |
| Compton Petroleum Corp. (Canada) † | 120,340 | 962,720 | |
| CONSOL Energy, Inc. | 34,840 | 1,590,794 | |
| Deepocean Group (Shell) (acquired 06/09/2011, cost $1,116,503) | |||
| (Norway) ‡ | 77,000 | 1,078,000 | |
| DineEquity, Inc. † | 23,619 | 989,636 | |
| FelCor Lodging Trust, Inc. † R | 182,130 | 624,706 | |
| Fortescue Metals Group, Ltd. (Australia) | 200,750 | 1,308,641 | |
| Freeport-McMoRan Copper & Gold, Inc. Class B (Indonesia) | 38,470 | 1,813,476 | |
| General Motors Co. † | 84,621 | 2,033,443 | |
| Interpublic Group of Companies, Inc. (The) | 133,500 | 1,152,105 | |
| Jarden Corp. | 41,515 | 1,205,596 | |
| L-3 Communications Holdings, Inc. | 20,725 | 1,405,570 | |
| LyondellBasell Industries NV Class A (Netherlands) | 39,040 | 1,352,736 | |
| NII Holdings, Inc. † | 55,760 | 2,148,433 | |
| Quicksilver Resources, Inc. † | 100,635 | 959,052 | |
| Sealy Corp. † | 644,663 | 1,315,113 | |
| Spectrum Brands Holdings, Inc. † | 76,636 | 2,052,312 | |
| Stallion Oilfield Holdings, Ltd. | 16,319 | 595,644 | |
| Terex Corp. † | 49,414 | 797,048 | |
| Trump Entertainment Resorts, Inc. F | 3,732 | 15,861 | |
| TRW Automotive Holdings Corp. † | 18,370 | 765,845 | |
| Vantage Drilling Co. † | 843,255 | 1,290,180 | |
| Verso Paper Corp. † | 12,841 | 28,892 | |
| Total common stocks (cost $35,384,497) | $33,087,739 | ||
| CONVERTIBLE PREFERRED STOCKS (1.7%)* | Shares | Value | |
| Apache Corp. Ser. D, $3.00 cv. pfd. | 39,100 | $2,282,463 | |
| Crown Castle International Corp. $3.125 cum. cv. pfd. | 34,320 | 2,076,360 | |
| Entertainment Properties Trust Ser. C, $1.438 cum. cv. pfd. | 110,563 | 2,150,108 | |
| General Motors Co. Ser. B, $2.375 cv. pfd. | 55,378 | 2,208,198 | |
42
| CONVERTIBLE PREFERRED STOCKS (1.7%)* cont. | Shares | Value | |||
| Hartford Financial Services Group, Inc. (The) $1.182 cv. pfd. | 83,085 | $1,768,149 | |||
| Health Care REIT, Inc. Ser. I, $3.25 cv. pfd. | 58,867 | 2,920,392 | |||
| Lehman Brothers Holdings, Inc. Ser. P, 7.25% cv. pfd. (In default) † | 4,338 | 1,822 | |||
| Lucent Technologies Capital Trust I 7.75% cv. pfd. | 2,098 | 1,940,650 | |||
| MetLife, Inc. $3.75 cv. pfd. | 33,585 | 2,198,138 | |||
| Nielsen Holdings NV $3.125 cv. pfd. | 27,860 | 1,624,586 | |||
| PPL Corp. $4.75 cv. pfd. | 39,965 | 2,291,593 | |||
| Unisys Corp. Ser. A, 6.25% cv. pfd. | 13,142 | 780,306 | |||
| Total convertible preferred stocks (cost $27,323,224) | $22,242,765 | ||||
| CONVERTIBLE BONDS AND NOTES (0.9%)* | Principal amount | Value | |||
| Clearwire Communications, LLC/Clearwire Finance, Inc. | |||||
| 144A cv. company guaranty sr. unsec. notes 8 1/4s, 2040 | $2,029,000 | $1,398,590 | |||
| Ford Motor Co. cv. sr. unsec. notes 4 1/4s, 2016 | 1,173,000 | 1,683,255 | |||
| Meritor, Inc. cv. company guaranty sr. unsec. notes 4s, 2027 | 1,430,000 | 1,049,263 | |||
| Safeguard Scientifics, Inc. cv. sr. unsec. sub. notes 10 1/8s, 2014 | 382,000 | 505,119 | |||
| Steel Dynamics, Inc. cv. sr. notes 5 1/8s, 2014 | 1,357,000 | 1,496,093 | |||
| Trinity Industries, Inc. cv. unsec. sub. notes 3 7/8s, 2036 | 2,269,000 | 2,206,603 | |||
| Virgin Media, Inc. cv. sr. unsec. notes 6 1/2s, 2016 | |||||
| (United Kingdom) | 1,155,000 | 1,811,906 | |||
| XM Satellite Radio, Inc. 144A cv. company guaranty sr. unsec. | |||||
| sub. notes 7s, 2014 | 1,202,000 | 1,567,108 | |||
| Total convertible bonds and notes (cost $11,340,304) | $11,717,937 | ||||
| PREFERRED STOCKS (0.4%)* | Shares | Value | |||
| Ally Financial, Inc. 144A Ser. G, 7.00% cum. pfd. | 2,552 | $1,941,833 | |||
| GMAC Capital Trust I Ser. 2, $2.031 cum. pfd. | 157,265 | 3,357,608 | |||
| Total preferred stocks (cost $5,092,460) | $5,299,441 | ||||
| WARRANTS (0.1%)* † | Expiration | Strike | |||
| date | price | Warrants | Value | ||
| Charter Communications, Inc. Class A | 11/30/14 | $46.86 | 420 | $5,775 | |
| General Motors Co. | 7/10/19 | 18.33 | 17,965 | 189,710 | |
| General Motors Co. | 7/10/16 | 10.00 | 17,965 | 274,685 | |
| Smurfit Kappa Group PLC 144A (Ireland) F | 10/1/13 | EUR | 1.00 | $4,137 | 170,238 |
| Tower Semiconductor, Ltd. 144A (Israel) F | 6/30/15 | $0.01 | 672,570 | 161,417 | |
| Total warrants (cost $933,302) | $801,825 | ||||
| SHORT-TERM INVESTMENTS (1.3%)* | Principal amount/shares | Value | |||
| Putnam Money Market Liquidity Fund 0.05% e | 16,806,061 | $16,806,061 | |||
| SSgA Prime Money Market Fund 0.04% i P | 20,000 | $20,000 | |||
| U.S. Treasury Bills with an effective yield of 0.082%, | |||||
| July 26, 2012 | $50,000 | 49,962 | |||
| U.S. Treasury Bills with an effective yield of 0.127%, | |||||
| May 3, 2012 | 110,000 | 109,905 | |||
| Total short-term investments (cost $16,985,928) | $16,985,928 | ||||
| TOTAL INVESTMENTS | |||||
| Total investments (cost $1,295,023,494) | $1,254,698,033 | ||||
43
Key to holding’s currency abbreviations
| CAD | Canadian Dollar |
| EUR | Euro |
Key to holding’s abbreviations
| FRB | Floating Rate Bonds |
| FRN | Floating Rate Notes |
| GMTN | Global Medium Term Notes |
| MTN | Medium Term Notes |
| MTNI | Medium Term Notes Class I |
Notes to the fund’s portfolio
Unless noted otherwise, the notes to the fund’s portfolio are for the close of the fund’s reporting period, which ran from September 1, 2010 through August 31, 2011 (the reporting period).
* Percentages indicated are based on net assets of $1,281,774,405.
† Non-income-producing security.
‡ Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities held at the close of the reporting period was $1,078,000, or less than 0.1% of net assets.
§ Affiliated Company (Note 8).
‡‡ Income may be received in cash or additional securities at the discretion of the issuer.
e See Note 6 to the financial statements regarding investments in Putnam Money Market Liquidity Fund. The rate quoted in the security description is the annualized 7-day yield of the fund at the close of the reporting period.
F Is valued at fair value following procedures approved by the Trustees. Securities may be classified as Level 2 or Level 3 for Accounting Standards Codification ASC 820 Fair Value Measurements and Disclosures (ASC 820) based on the securities’ valuation inputs. At the close of the reporting period, fair value pricing was also used for certain foreign securities in the portfolio (Note 1).
P The rate quoted in the security description is the annualized 7-day yield of the fund at the close of the reporting period.
i Security purchased with cash or security received, that was pledged to the fund for collateral on certain derivatives contracts (Note 1).
R Real Estate Investment Trust.
At the close of the reporting period, the fund maintained liquid assets totaling $643,216 to cover certain derivatives contracts.
Debt obligations are considered secured unless otherwise indicated.
144A after the name of an issuer represents securities exempt from registration under Rule 144A under the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.
The rates shown on FRB and FRN are the current interest rates at the close of the reporting period.
44
FORWARD CURRENCY CONTRACTS at 8/31/11 (aggregate face value $21,761,635)
| Unrealized | ||||||
| Contract | Delivery | Aggregate | appreciation/ | |||
| Counterparty | Currency | type | date | Value | face value | (depreciation) |
| Bank of America, N.A. | ||||||
| Canadian Dollar | Sell | 9/21/11 | $831,903 | $851,059 | $19,156 | |
| Euro | Sell | 9/21/11 | 1,537,183 | 1,519,034 | (18,149) | |
| Barclays Bank PLC | ||||||
| Euro | Sell | 9/21/11 | 1,711,720 | 1,690,473 | (21,247) | |
| Citibank, N.A. | ||||||
| Euro | Sell | 9/21/11 | 1,943,620 | 1,919,441 | (24,179) | |
| Credit Suisse AG�� | ||||||
| Euro | Sell | 9/21/11 | 1,786,336 | 1,764,623 | (21,713) | |
| Deutsche Bank AG | ||||||
| Euro | Sell | 9/21/11 | 2,020,968 | 1,996,094 | (24,874) | |
| Goldman Sachs International | ||||||
| Euro | Sell | 9/21/11 | 481,053 | 475,025 | (6,028) | |
| HSBC Bank USA, National Association | ||||||
| Euro | Sell | 9/21/11 | 1,200,044 | 1,185,483 | (14,561) | |
| JPMorgan Chase Bank, N.A. | ||||||
| Canadian Dollar | Sell | 9/21/11 | 893,862 | 914,450 | 20,588 | |
| Euro | Sell | 9/21/11 | 747,026 | 737,678 | (9,348) | |
| Royal Bank of Scotland PLC (The) | ||||||
| Euro | Buy | 9/21/11 | 105,671 | 104,384 | 1,287 | |
| State Street Bank and Trust Co. | ||||||
| Euro | Sell | 9/21/11 | 1,263,446 | 1,247,966 | (15,480) | |
| UBS AG | ||||||
| Euro | Sell | 9/21/11 | 2,700,135 | 2,667,203 | (32,932) | |
| Westpac Banking Corp. | ||||||
| Australian Dollar | Sell | 9/21/11 | 1,451,190 | 1,481,476 | 30,286 | |
| Canadian Dollar | Sell | 9/21/11 | 1,597,969 | 1,634,970 | 37,001 | |
| Euro | Sell | 9/21/11 | 1,591,672 | 1,572,276 | (19,396) | |
| Total | $(99,589) | |||||
45
ASC 820 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of the fund’s investments. The three levels are defined as follows:
Level 1 — Valuations based on quoted prices for identical securities in active markets.
Level 2 — Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3 — Valuations based on inputs that are unobservable and significant to the fair value measurement.
The following is a summary of the inputs used to value the fund’s net assets as of the close of the reporting period:
| Valuation inputs | ||||
| Investments in securities: | Level 1 | Level 2 | Level 3 | |
| Common stocks: | ||||
| Basic materials | $3,195,104 | $1,308,641 | $— | |
| Capital goods | 797,048 | — | — | |
| Communication services | 4,616,675 | — | — | |
| Consumer cyclicals | 7,096,808 | — | 15,861 | |
| Consumer staples | 3,967,445 | — | — | |
| Energy | 7,825,674 | 1,673,644 | 12,165 | |
| Financials | 777,929 | — | — | |
| Health care | 395,175 | — | — | |
| Technology | 1,405,570 | — | — | |
| Total common stocks | 30,077,428 | 2,982,285 | 28,026 | |
| Convertible bonds and notes | $— | $11,717,937 | $— | |
| Convertible preferred stocks | — | 22,242,765 | — | |
| Corporate bonds and notes | — | 1,089,579,756 | 2,420,554 | |
| Preferred stocks | — | 5,299,441 | — | |
| Senior loans | — | 72,562,088 | — | |
| Warrants | 464,395 | 5,775 | 331,655 | |
| Short-term investments | 16,826,061 | 159,867 | — | |
| Totals by level | $47,367,884 | $1,204,549,914 | $2,780,235 | |
| Valuation inputs | ||||
| Other financial instruments: | Level 1 | Level 2 | Level 3 | |
| Forward currency contracts | $— | $(99,589) | $— | |
| Totals by level | $— | $(99,589) | $— | |
At the start and/or close of the reporting period, Level 3 investments in securities were not considered a significant portion of the fund’s portfolio.
The accompanying notes are an integral part of these financial statements.
46
Statement of assets and liabilities 8/31/11
| ASSETS | |
| Investment in securities, at value (Note 1): | |
| Unaffiliated issuers (identified cost $1,278,217,433) | $1,237,879,807 |
| Affiliated issuers (identified cost $16,806,061) (Notes 6 and 8) | 16,818,226 |
| Cash | 731,496 |
| Dividends, interest and other receivables | 26,523,875 |
| Receivable for shares of the fund sold | 1,943,621 |
| Receivable for investments sold | 3,956,373 |
| Unrealized appreciation on forward currency contracts (Note 1) | 108,318 |
| Total assets | 1,287,961,716 |
| LIABILITIES | |
| Payable for investments purchased | 2,898,292 |
| Payable for shares of the fund repurchased | 1,088,726 |
| Payable for compensation of Manager (Note 2) | 640,236 |
| Payable for investor servicing fees (Note 2) | 158,974 |
| Payable for custodian fees (Note 2) | 19,114 |
| Payable for Trustee compensation and expenses (Note 2) | 405,337 |
| Payable for administrative services (Note 2) | 5,231 |
| Payable for distribution fees (Note 2) | 561,685 |
| Collateral on certain derivative contracts, at value (Note 1) | 20,000 |
| Unrealized depreciation on forward currency contracts (Note 1) | 207,907 |
| Other accrued expenses | 181,809 |
| Total liabilities | 6,187,311 |
| Net assets | $1,281,774,405 |
| REPRESENTED BY | |
| Paid-in capital (Unlimited shares authorized) (Notes 1 and 4) | $1,722,972,489 |
| Undistributed net investment income (Note 1) | 8,592,765 |
| Accumulated net realized loss on investments and foreign currency transactions (Note 1) | (409,362,489) |
| Net unrealized depreciation of investments and assets and liabilities in foreign currencies | (40,428,360) |
| Total — Representing net assets applicable to capital shares outstanding | $1,281,774,405 |
(Continued on next page)
47
Statement of assets and liabilities (Continued)
| COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE | |
| Net asset value and redemption price per class A share | |
| ($1,108,763,433 divided by 149,959,964 shares) | $7.39 |
| Offering price per class A share (100/96.00 of $7.39)* | $7.70 |
| Net asset value and offering price per class B share ($22,545,128 divided by 3,053,327 shares)** | $7.38 |
| Net asset value and offering price per class C share ($38,588,961 divided by 5,258,348 shares)** | $7.34 |
| Net asset value and redemption price per class M share ($18,768,382 divided by 2,533,132 shares) | $7.41 |
| Offering price per class M share (100/96.75 of $7.41)† | $7.66 |
| Net asset value, offering price and redemption price per class R share | |
| ($8,473,343 divided by 1,166,358 shares) | $7.26 |
| Net asset value, offering price and redemption price per class Y share | |
| ($84,635,158 divided by 11,623,781 shares) | $7.28 |
* 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.
48
Statement of operations Year ended 8/31/11
| INVESTMENT INCOME | |
| Interest (including interest income of $36,132 from investments in affiliated issuers) (Note 6) | $115,055,129 |
| Dividends (net of foreign tax of $914) | 1,962,500 |
| Total investment income | 117,017,629 |
| EXPENSES | |
| Compensation of Manager (Note 2) | 8,201,227 |
| Investor servicing fees (Note 2) | 1,946,969 |
| Custodian fees (Note 2) | 38,779 |
| Trustee compensation and expenses (Note 2) | 121,272 |
| Administrative services (Note 2) | 34,949 |
| Distribution fees — Class A (Note 2) | 2,985,819 |
| Distribution fees — Class B (Note 2) | 345,513 |
| Distribution fees — Class C (Note 2) | 417,236 |
| Distribution fees — Class M (Note 2) | 103,435 |
| Distribution fees — Class R (Note 2) | 35,851 |
| Other | 454,922 |
| Total expenses | 14,685,972 |
| Expense reduction (Note 2) | (16,296) |
| Net expenses | 14,669,676 |
| Net investment income | 102,347,953 |
| Net realized gain on investments (Notes 1 and 3) | 51,682,647 |
| Net realized loss on swap contracts (Note 1) | (264,861) |
| Net realized loss on foreign currency transactions (Note 1) | (1,326,879) |
| Net unrealized depreciation of assets and liabilities in foreign currencies during the year | (638,127) |
| Net unrealized depreciation of investments during the year | (53,677,464) |
| Net loss on investments | (4,224,684) |
| Net increase in net assets resulting from operations | $98,123,269 |
The accompanying notes are an integral part of these financial statements.
49
Statement of changes in net assets
| INCREASE (DECREASE) IN NET ASSETS | Year ended 8/31/11 | Year ended 8/31/10 |
| Operations: | ||
| Net investment income | $102,347,953 | $99,863,917 |
| Net realized gain on investments | ||
| and foreign currency transactions | 50,090,907 | 25,133,804 |
| Net unrealized appreciation (depreciation) of investments | ||
| and assets and liabilities in foreign currencies | (54,315,591) | 101,661,425 |
| Net increase in net assets resulting from operations | 98,123,269 | 226,659,146 |
| Distributions to shareholders (Note 1): | ||
| From ordinary income | ||
| Net investment income | ||
| Class A | (82,752,980) | (83,487,129) |
| Class B | (2,098,112) | (3,572,268) |
| Class C | (2,611,979) | (2,476,238) |
| Class M | (1,367,098) | (1,077,022) |
| Class R | (490,863) | (272,008) |
| Class Y | (9,983,451) | (5,750,399) |
| Increase in capital from settlement payments (Note 9) | 595,081 | 86,505 |
| Redemption fees (Note 1) | 18,784 | 561,720 |
| Decrease from capital share transactions (Note 4) | (41,500,135) | (39,638,707) |
| Total increase (decrease) in net assets | (42,067,484) | 91,033,600 |
| NET ASSETS | ||
| Beginning of year | 1,323,841,889 | 1,232,808,289 |
| End of year (including undistributed net investment | ||
| income of $8,592,765 and $4,880,493, respectively) | $1,281,774,405 | $1,323,841,889 |
The accompanying notes are an integral part of these financial statements.
50
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51
Financial highlights (For a common share outstanding throughout the period)
| INVESTMENT OPERATIONS: | LESS DISTRIBUTIONS: | RATIOS AND SUPPLEMENTAL DATA: | ||||||||||||
| Ratio | Ratio | |||||||||||||
| Net realized | of expenses | of net investment | ||||||||||||
| Net asset value, | and unrealized | Total from | From | Total return | Net assets, | to average | income (loss) | Portfolio | ||||||
| beginning | Net investment | gain (loss) | investment | net investment | Total | Redemption | Non-recurring | Net asset value, | at net asset | end of period | net assets | to average | turnover | |
| Period ended | of period | income (loss) a | on investments | operations | income | distributions | fees b | reimbursements | end of period | value (%) c | (in thousands) | (%) d | net assets (%) | (%) |
| Class A | ||||||||||||||
| August 31, 2011 | $7.40 | .56 | (.03) | .53 | (.54) | (.54) | — | — e,f,g | $7.39 | 7.07 | $1,108,763 | 1.00 | 7.15 | 72 |
| August 31, 2010 | 6.68 | .56 | .70 | 1.26 | (.54) | (.54) | — | — h | 7.40 | 19.29 | 1,120,786 | 1.04 i | 7.67 i | 71 |
| August 31, 2009 | 7.21 | .49 | (.48) | .01 | (.54) | (.54) | — | — j,k | 6.68 | 1.73 | 1,070,781 | 1.13 i | 8.37 i | 44 |
| August 31, 2008 | 7.82 | .57 | (.60) | (.03) | (.58) | (.58) | — | — | 7.21 | (.50) | 1,298,019 | 1.07 i | 7.51 i | 28 |
| August 31, 2007 | 7.87 | .58 | (.04) | .54 | (.59) | (.59) | — | — | 7.82 | 6.87 | 1,570,488 | 1.03 i | 7.17 i | 57 |
| Class B | ||||||||||||||
| August 31, 2011 | $7.39 | .50 | (.03) | .47 | (.48) | (.48) | — | — e,f,g | $7.38 | 6.24 | $22,545 | 1.75 | 6.43 | 72 |
| August 31, 2010 | 6.67 | .50 | .70 | 1.20 | (.48) | (.48) | — | — h | 7.39 | 18.39 | 41,109 | 1.79 i | 6.96 i | 71 |
| August 31, 2009 | 7.19 | .45 | (.47) | (.02) | (.50) | (.50) | — | — j,k | 6.67 | 1.12 | 65,487 | 1.88 i | 7.75 i | 44 |
| August 31, 2008 | 7.79 | .51 | (.59) | (.08) | (.52) | (.52) | — | — | 7.19 | (1.14) | 113,832 | 1.82 i | 6.79 i | 28 |
| August 31, 2007 | 7.84 | .51 | (.04) | .47 | (.52) | (.52) | — | — | 7.79 | 6.05 | 197,581 | 1.78 i | 6.42 i | 57 |
| Class C | ||||||||||||||
| August 31, 2011 | $7.35 | .49 | (.02) | .47 | (.48) | (.48) | — | — e,f,g | $7.34 | 6.34 | $38,589 | 1.75 | 6.39 | 72 |
| August 31, 2010 | 6.65 | .50 | .69 | 1.19 | (.49) | (.49) | — | — h | 7.35 | 18.19 | 38,400 | 1.79 i | 6.92 i | 71 |
| August 31, 2009 | 7.17 | .45 | (.47) | (.02) | (.50) | (.50) | — | — j,k | 6.65 | 1.14 | 34,786 | 1.88 i | 7.58 i | 44 |
| August 31, 2008 | 7.78 | .51 | (.60) | (.09) | (.52) | (.52) | — | — | 7.17 | (1.28) | 39,507 | 1.82 i | 6.75 i | 28 |
| August 31, 2007 | 7.84 | .52 | (.05) | .47 | (.53) | (.53) | — | — | 7.78 | 5.95 | 46,276 | 1.78 i | 6.42 i | 57 |
| Class M | ||||||||||||||
| August 31, 2011 | $7.42 | .54 | (.03) | .51 | (.52) | (.52) | — | — e,f,g | $7.41 | 6.74 | $18,768 | 1.25 | 6.90 | 72 |
| August 31, 2010 | 6.69 | .54 | .71 | 1.25 | (.52) | (.52) | — | — h | 7.42 | 19.12 | 19,218 | 1.29 i | 7.46 i | 71 |
| August 31, 2009 | 7.23 | .47 | (.48) | (.01) | (.53) | (.53) | — | — j,k | 6.69 | 1.36 | 17,087 | 1.38 i | 8.03 i | 44 |
| August 31, 2008 | 7.83 | .55 | (.60) | (.05) | (.55) | (.55) | — | — | 7.23 | (.67) | 13,273 | 1.32 i | 7.25 i | 28 |
| August 31, 2007 | 7.88 | .56 | (.05) | .51 | (.56) | (.56) | — | — | 7.83 | 6.54 | 16,162 | 1.28 i | 6.92 i | 57 |
| Class R | ||||||||||||||
| August 31, 2011 | $7.30 | .52 | (.04) | .48 | (.52) | (.52) | — | — e,f,g | $7.26 | 6.49 | $8,473 | 1.25 | 6.86 | 72 |
| August 31, 2010 | 6.61 | .53 | .69 | 1.22 | (.53) | (.53) | — | — h | 7.30 | 18.80 | 5,085 | 1.29 i | 7.36 i | 71 |
| August 31, 2009 | 7.16 | .46 | (.48) | (.02) | (.53) | (.53) | — | — j,k | 6.61 | 1.23 | 2,296 | 1.38 i | 7.93 i | 44 |
| August 31, 2008 | 7.77 | .54 | (.59) | (.05) | (.56) | (.56) | — | — | 7.16 | (.75) | 1,446 | 1.32 i | 7.22 i | 28 |
| August 31, 2007 | 7.85 | .56 | (.07) | .49 | (.57) | (.57) | — | — | 7.77 | 6.24 | 1,096 | 1.28 i | 6.92 i | 57 |
| Class Y | ||||||||||||||
| August 31, 2011 | $7.31 | .57 | (.04) | .53 | (.56) | (.56) | — | — e,f,g | $7.28 | 7.18 | $84,635 | .75 | 7.41 | 72 |
| August 31, 2010 | 6.61 | .57 | .69 | 1.26 | (.56) | (.56) | — | — h | 7.31 | 19.49 | 99,244 | .79 i | 7.80 i | 71 |
| August 31, 2009 | 7.14 | .54 | (.52) | .02 | (.55) | (.55) | — | — j,k | 6.61 | 1.98 | 42,372 | .88 i | 9.11 i | 44 |
| August 31, 2008 | 7.76 | .58 | (.60) | (.02) | (.60) | (.60) | — | — | 7.14 | (.35) | 217,165 | .82 i | 7.73 i | 28 |
| August 31, 2007 | 7.83 | .60 | (.06) | .54 | (.61) | (.61) | — | — | 7.76 | 6.96 | 225,031 | .78 i | 7.42 i | 57 |
See notes to financial highlights at the end of this section.
The accompanying notes are an integral part of these financial statements.
| 52 | 53 |
Financial highlights (Continued)
a Per share net investment income (loss) has been determined on the basis of the weighted average number of shares outstanding during the period.
b Amount represents less than $0.01 per share.
c Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
d Includes amounts paid through expense offset and brokerage/service arrangements (Note 2).
e Reflects a non-recurring reimbursement pursuant to a settlement between the Securities and Exchange Commission (the SEC) and Zurich Capital Markets, Inc., which amounted to less than $0.01 per share outstanding on December 21, 2010.
f Reflects a non-recurring reimbursement pursuant to a settlement between the SEC and Southwest Securities, which amounted to less than $0.01 per share outstanding on August 22, 2011.
g Reflects a non-recurring reimbursement related to restitution amounts in connection with a distribution plan approved by the SEC which amounted to less than $0.01 per share outstanding on July 21, 2011. Also reflects a non-recurring reimbursement related to short-term trading related lawsuits, which amounted to less than $0.01 per share outstanding on May 11, 2011 (Note 9).
h Reflects a non-recurring reimbursement pursuant to a settlement between the SEC and Prudential Securities, Inc., which amounted to less than $0.01 per share outstanding on March 30, 2010.
i Reflects an involuntary contractual expense limitation in effect during the period. For periods prior to August 31, 2009, certain fund expenses were waived in connection with the fund’s investment in Putnam Prime Money Market Fund. As a result of such limitation and/or waivers, the expenses of each class reflect a reduction of the following amounts:
| Percentage of | |
| average net assets | |
| August 31, 2010 | 0.01% |
| August 31, 2009 | 0.04 |
| August 31, 2008 | <0.01 |
| August 31, 2007 | <0.01 |
j Reflects non-recurring reimbursement pursuant to a settlement between the SEC and Millennium Partners, L.P., Millennium Management, L.L.C and Millennium International Management, LLC, which amounted to less than $0.01 per share outstanding on June 23, 2009.
k Reflects non-recurring reimbursement pursuant to a settlement between the SEC and Bear Stearns & Co., Inc. and Bear Stearns Securities Corp., which amounted to less than $0.01 per share outstanding on May 21, 2009.
The accompanying notes are an integral part of these financial statements.
54
Notes to financial statements 8/31/11
Note 1: Significant accounting policies
Putnam High Yield Trust (the fund) is a Massachusetts business trust, 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 not available to all investors, are sold at net asset value. The expenses for class A, class B, class C, class M and class R shares may differ based on the distribution fee of each class, which is identified in Note 2. Class Y shares, which are sold at net asset value, are generally subject to the same expenses as class A, class B, class C, class M and class R shares, but do not bear a distribution fee. Class Y shares are not available to all investors.
A 1.00% redemption fee may apply on any shares that are redeemed (either by selling or exchanging into another fund) within 30 days of purchase. The redemption fee is accounted for as an addition to paid-in-capital.
Investment income, realized and unrealized gains and losses and expenses of the fund are borne pro-rata based on the relative net assets of each class to the total net assets of the fund, except that each class bears expenses unique to that class (including the distribution fees applicable to such classes). Each class votes as a class only with respect to its own distribution plan or other matters on which a class vote is required by law or determined by the Trustees. If the fund were liquidated, shares of each class would receive their pro-rata share of the net assets of the fund. In addition, the Trustees declare separate dividends on each class of shares.
In the normal course of business, the fund enters into contracts that may include agreements to indemnify another party under given circumstances. The fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be, but have not yet been, made against the fund. However, the fund’s management team expects the risk of material loss to be remote.
The following is a summary of significant accounting policies consistently followed by the fund in the preparation of its financial statements. The preparation of financial statements is in conformity with accounting principles generally accepted in the United States of America and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations. Actual results could differ from those estimates. Subsequent events after the Statement of assets and liabilities date through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. Unless otherwise noted, the “reporting period” represents the period from September 1, 2010 through August 31, 2011.
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, and are classified as Level 1 securities. If no sales are reported — as in the case of some securities traded over-the-counter — a security is valued at its last reported bid price and is generally categorized as a Level 2 security.
Market quotations are not considered to be readily available for certain debt obligations and other investments; such investments are valued on the basis of valuations furnished by an independent pricing service approved by the Trustees or dealers selected by Putnam Investment Management, LLC (Putnam Management), the fund’s manager, an indirect wholly-owned subsidiary of Putnam Investments, LLC. Such services or dealers determine valuations for normal institutional-size trading units of such securities using methods based on market transactions for comparable securities and various relationships, generally recognized by institutional traders, between securities (which considers such factors as security prices, yields, maturities and ratings). These securities will generally be categorized as Level 2.
Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange. Accordingly, on certain days,
55
the fund will fair value foreign equity securities taking into account multiple factors including movements in the U.S. securities markets, currency valuations and comparisons to the valuation of American Depository Receipts, exchange-traded funds and futures contracts. These securities, which will generally represent a transfer from a Level 1 to a Level 2 security, will be classified as Level 2. The number of days on which fair value prices will be used will depend on market activity and it is possible that fair value prices will be used by the fund to a significant extent. At the close of the reporting period, fair value pricing was used for certain foreign securities in the portfolio. Securities quoted in foreign currencies, if any, are translated into U.S. dollars at the current exchange rate.
To the extent a pricing service or dealer is unable to value a security or provides a valuation that Putnam Management does not believe accurately reflects the security’s fair value, the security will be valued at fair value by Putnam Management. Certain investments, including certain restricted and illiquid securities and derivatives, are also valued at fair value following procedures approved by the Trustees. These valuations consider such factors as significant market or specific security events such as interest rate or credit quality changes, various relationships with other securities, discount rates, U.S. Treasury, U.S. swap and credit yields, index levels, convexity exposures and recovery rates. These securities are classified as Level 2 or as Level 3 depending on the priority of the significant inputs.
Such valuations and procedures are reviewed periodically by the Trustees. The fair value of securities is generally determined as the amount that the fund could reasonably expect to realize from an orderly disposition of such securities over a reasonable period of time. By its nature, a fair value price is a good faith estimate of the value of a security in a current sale and does not reflect an actual market price, which may be different by a material amount.
B) 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.
The fund earned certain fees in connection with its senior loan purchasing activities. These fees are treated as market discount and are amortized into income in the Statement of operations.
C) Foreign currency translation The accounting records of the fund are maintained in U.S. dollars. The market value of foreign securities, currency holdings, and other assets and liabilities is recorded in the books and records of the fund after translation to U.S. dollars based on the exchange rates on that day. The cost of each security is determined using historical exchange rates. Income and withholding taxes are translated at prevailing exchange rates when earned or incurred. The fund does not isolate that portion of realized or unrealized gains or losses resulting from changes in the foreign exchange rate on investments from fluctuations arising from changes in the market prices of the securities. Such gains and losses are included with the net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net realized exchange gains or losses on closed forward currency contracts, disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions and the difference between the amount of investment income and foreign withholding taxes recorded on the fund’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized appreciation and depreciation of assets and liabilities in foreign 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. The fund may be subject to taxes imposed by governments of countries in which it invests. Such taxes are generally based on either income or gains earned or repatriated. The fund accrues and applies such taxes to net investment income, net realized gains and net unrealized gains as income and/or capital gains are earned. In some cases, the fund may be entitled to reclaim all or a portion of such taxes, and such reclaim amounts, if any, are reflected as an asset on the fund’s books. In many cases, however, the fund may not receive such amounts for an extended period of time, depending on the country of investment.
D) Forward currency contracts The fund buys and sells forward currency contracts, which are agreements between two parties to buy and sell currencies at a set price on a future date. These contracts are used to hedge foreign exchange risk. 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
56
currency exchange rates. The contract is marked to market daily and the change in market value is recorded as an unrealized gain or loss. When 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. Outstanding forward currency contracts at the close of the reporting period are indicative of the volume of activity during the reporting period.
E) Credit default contracts The fund entered into credit default contracts to gain exposure on individual names and/or baskets of securities. In a credit default contract, the protection buyer typically makes an up front payment and a periodic stream of payments to a counterparty, the protection seller, in exchange for the right to receive a contingent payment upon the occurrence of a credit event on the reference obligation or all other equally ranked obligations of the reference entity. Credit events are contract specific but may include bankruptcy, failure to pay, restructuring and obligation acceleration. An upfront payment received by the fund, as the protection seller, is recorded as a liability on the fund’s books. An upfront payment made by the fund, as the protection buyer, is recorded as an asset on the fund’s books. Periodic payments received or paid by the fund are recorded as realized gains or losses. The credit default contracts are marked to market daily based upon quotations from an independent pricing service or market makers and the change, if any, is recorded as an unrealized gain or loss. Upon the occurrence of a credit event, the difference between the par value and market value of the reference obligation, net of any proportional amount of the upfront payment, is recorded as a realized gain or loss.
In addition to bearing the risk that the credit event will occur, the fund could be exposed to market risk due to unfavorable changes in interest rates or in the price of the underlying security or index or the possibility that the fund may be unable to close out its position at the same time or at the same price as if it had purchased the underlying reference obligations. In certain circumstances, the fund may enter into offsetting credit default contracts which would mitigate its risk of loss. Risks of loss may exceed amounts recognized on the Statement of assets and liabilities. The fund’s maximum risk of loss from counterparty risk, either as the protection seller or as the protection buyer, is the fair value of the contract. This risk may be mitigated by having a master netting arrangement between the fund and the counterparty. Where the fund is a seller of protection, the maximum potential amount of future payments the fund may be required to make is equal to the notional amount of the relevant credit default contract. Credit default contracts outstanding, including their respective notional amounts at period end, if any, are listed after the fund’s portfolio. The fund had an average notional amount of approximately $2,300,000 on credit default swap contracts for the reporting period.
F) Master agreements The fund is a party to ISDA (International Swap and Derivatives Association, Inc.) Master Agreements (Master Agreements) with certain counterparties that govern over-the-counter derivative and foreign exchange contracts entered into from time to time. The Master Agreements may contain provisions regarding, among other things, the parties’ general obligations, representations, agreements, collateral requirements, events of default and early termination. With respect to certain counterparties, in accordance with the terms of the Master Agreements, collateral posted to the fund is held in a segregated account by the fund’s custodian and with respect to those amounts which can be sold or repledged, are presented in the fund’s portfolio. Collateral pledged by the fund is segregated by the fund’s custodian and identified in the fund’s portfolio. Collateral can be in the form of cash or debt securities issued by the U.S. Government or related agencies or other securities as agreed to by the fund and the applicable counterparty. Collateral requirements are determined based on the fund’s net position with each counterparty. Termination events applicable to the fund may occur upon a decline in the fund’s net assets below a specified threshold over a certain period of time. Termination events applicable to counterparties may occur upon a decline in the counterparty’s long-term and short-term credit ratings below a specified level. In each case, upon occurrence, the other party may elect to terminate early and cause settlement of all derivative and foreign exchange contracts outstanding, including the payment of any losses and costs resulting from such early termination, as reasonably determined by the terminating party. Any decision by one or more of the fund’s counterparties to elect early termination could impact the fund’s future derivative activity.
At the close of the reporting period, the fund had a net liability position of $161,012 on derivative contracts subject to the Master Agreements. There was no collateral posted by the fund.
G) Interfund lending The fund, along with other Putnam funds, may participate in an interfund lending program pursuant to an exemptive order issued by the Securities and Exchange Commission (the SEC). This program allows the fund to borrow from or lend to other Putnam funds that permit such transactions. Interfund lending
57
transactions are subject to each fund’s investment policies and borrowing and lending limits. Interest earned or paid on the interfund lending transaction will be based on the average of certain current market rates. During the reporting period, the fund did not utilize the program.
H) Line of credit The fund participates, along with other Putnam funds, in a $325 million unsecured committed line of credit and a $185 million unsecured uncommitted line of credit, both provided by State Street Bank and Trust Company (State Street). Borrowings may be made for temporary or emergency purposes, including the funding of shareholder redemption requests and trade settlements. Interest is charged to the fund based on the fund’s borrowing at a rate equal to the Federal Funds rate plus 1.25% for the committed line of credit and the Federal Funds rate plus 1.30% for the uncommitted line of credit. A closing fee equal to 0.02% of the committed line of credit and $50,000 for the uncommitted line of credit has been paid by the participating funds. In addition, a commitment fee of 0.13% per annum on any unutilized portion of the committed line of credit is allocated to the participating funds based on their relative net assets and paid quarterly. During the reporting period, the fund had no borrowings against these arrangements.
I) Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time period and otherwise comply with the provisions of the Internal Revenue Code of 1986, as amended (the Code), applicable to regulated investment companies. It is also the intention of the fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Code. The fund is subject to the provisions of Accounting Standards Codification ASC 740 Income Taxes (ASC 740). ASC 740 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The fund did not have a liability to record for any unrecognized tax benefits in the accompanying financial statements. No provision has been made for federal taxes on income, capital gains or unrealized appreciation on securities held nor for excise tax on income and capital gains. Each of the fund’s federal tax returns for the prior three fiscal years remains subject to examination by the Internal Revenue Service.
At August 31, 2011 the fund had a capital loss carryover of $409,260,365 available to the extent allowed by the Code to offset future net capital gain, if any. The amounts of the carryovers and the expiration dates are:
| Loss carryover | Expiration | |
| $61,743,291 | August 31, 2012 | |
| 76,944,480 | August 31, 2013 | |
| 14,070,646 | August 31, 2014 | |
| 2,600,677 | August 31, 2015 | |
| 20,028,690 | August 31, 2016 | |
| 96,252,247 | August 31, 2017 | |
| 137,620,334 | August 31, 2018 | |
Under the recently enacted Regulated Investment Company Modernization Act of 2010, the fund will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period. However, any losses incurred during those future years will be required to be utilized prior to the losses incurred in pre-enactment tax years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
J) 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. These differences include temporary and/or permanent differences of foreign currency gains and losses, the expiration of a capital loss carryover, defaulted bond interest and interest on payment-in-kind securities. Reclassifications are made to the fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. For the reporting period ended, the fund reclassified $668,802 to increase undistributed net investment income and $475,585,983 to decrease paid-in-capital, with a decrease to accumulated net realized losses of $474,917,181.
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The tax basis components of distributable earnings and the federal tax cost as of the close of the reporting period were as follows:
| Unrealized appreciation | $38,581,280 |
| Unrealized depreciation | (79,008,865) |
| Net unrealized depreciation | (40,427,585) |
| Undistributed ordinary income | 9,687,266 |
| Capital loss carryforward | (409,260,365) |
| Cost for federal income tax purposes | $1,295,125,618 |
Note 2: Management fee, administrative services and other transactions
The fund pays Putnam Management a management fee (based on the fund’s average net assets and computed and paid monthly) at annual rates that may vary based on the average of the aggregate net assets of most open-end funds, as defined in the fund’s management contract, sponsored by Putnam Management. Such annual rates may vary as follows:
| 0.720% | of the first $5 billion, |
| 0.670% | of the next $5 billion, |
| 0.620% | of the next $10 billion, |
| 0.570% | of the next $10 billion, |
| 0.520% | of the next $50 billion, |
| 0.500% | of the next $50 billion, |
| 0.490% | of the next $100 billion, |
| 0.485% | of any excess thereafter. |
Putnam Management has contractually agreed, through June 30, 2012, to waive fees or reimburse the fund’s expenses to the extent necessary to limit the cumulative expenses of the fund, exclusive of brokerage, interest, taxes, investment-related expenses, extraordinary expenses and payments under the fund’s investor servicing contract, investment management contract and distribution plans, on a fiscal year-to-date basis to an annual rate of 0.20% of the fund’s average net assets over such fiscal year-to-date period. During the reporting period, the fund’s expenses were not reduced as a result of this limit.
Putnam Management had also contractually agreed, through December 30, 2010, to limit the management fee for the fund to an annual rate of 0.60% of the fund’s average net assets. During the reporting period, the fund’s expenses were not reduced as a result of this limit.
Putnam Investments Limited (PIL), an affiliate of Putnam Management, is authorized by the Trustees to manage a separate portion of the assets of the fund as determined by Putnam Management from time to time. Putnam Management pays a quarterly sub-management fee to PIL for its services at an annual rate of 0.40% of the average net assets of the portion of the fund managed by PIL.
The fund reimburses Putnam Management an allocated amount for the compensation and related expenses of certain officers of the fund and their staff who provide administrative services to the fund. The aggregate amount of all such reimbursements is determined annually by the Trustees.
Custodial functions for the fund’s assets are provided by State Street. Custody fees are based on the fund’s asset level, the number of its security holdings and transaction volumes.
Putnam Investor Services, Inc., an affiliate of Putnam Management, provides investor servicing agent functions to the fund. Putnam Investor Services, Inc. received fees for investor servicing based on the fund’s retail asset level, the number of shareholder accounts in the fund and the level of defined contribution plan assets in the fund. Investor servicing fees will not exceed an annual rate of 0.375% of the fund’s average net assets. The amounts incurred for investor servicing agent functions during the reporting period are included in Investor servicing fees in the Statement of operations.
The fund has entered into expense offset arrangements with Putnam Investor Services, Inc. and State Street whereby Putnam Investor Services, Inc.’s and State Street’s fees are reduced by credits allowed on cash balances. The fund also reduced expenses through brokerage/service arrangements. For the reporting period, the fund’s expenses were reduced by $12,605 under the expense offset arrangements and by $3,691 under the brokerage/service arrangements.
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Each independent Trustee of the fund receives an annual Trustee fee, of which $940, as a quarterly retainer, has been allocated to the fund, and an additional fee for each Trustees meeting attended. Trustees also are reimbursed for expenses they incur relating to their services as Trustees.
The fund has adopted a Trustee Fee Deferral Plan (the Deferral Plan) which allows the Trustees to defer the receipt of all or a portion of Trustees fees payable on or after July 1, 1995. The deferred fees remain invested in certain Putnam funds until distribution in accordance with the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan (the Pension Plan) covering all Trustees of the fund who have served as a Trustee for at least five years and were first elected prior to 2004. Benefits under the Pension Plan are equal to 50% of the Trustee’s average annual attendance and retainer fees for the three years ended December 31, 2005. The retirement benefit is payable during a Trustee’s lifetime, beginning the year following retirement, for the number of years of service through December 31, 2006. Pension expense for the fund is included in Trustee compensation and expenses in the Statement of operations. Accrued pension liability is included in Payable for Trustee compensation and expenses in the Statement of assets and liabilities. The Trustees have terminated the Pension Plan with respect to any Trustee first elected after 2003.
The fund has adopted distribution plans (the Plans) with respect to its class A, class B, class C, class M and class R shares pursuant to Rule 12b–1 under the Investment Company Act of 1940. The purpose of the Plans is to compensate Putnam Retail Management Limited Partnership, a wholly-owned subsidiary of Putnam Investments, LLC and Putnam Retail Management GP, Inc., for services provided and expenses incurred in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Retail Management Limited Partnership at an annual rate of up to 0.35%, 1.00%, 1.00%, 1.00% and 1.00% of the average net assets attributable to class A, class B, class C, class M and class R shares, respectively. The Trustees have approved payment by the fund at an annual rate of 0.25%, 1.00%, 1.00%, 0.50% and 0.50% of the average net assets attributable to class A, class B, class C, class M and class R shares, respectively.
For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received net commissions of $90,797 and $1,151 from the sale of class A and class M shares, respectively, and received $18,787 and $804 in contingent deferred sales charges from redemptions of class B and class C shares, respectively.
A deferred sales charge of up to 1.00% and 0.40% is assessed on certain redemptions of class A and class M shares, respectively. For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received $108 and no monies on class A and class M redemptions, respectively.
Note 3: Purchases and sales of securities
During the reporting period, cost of purchases and proceeds from sales of investment securities other than short-term investments aggregated $989,715,249 and $1,029,242,090, respectively. There were no purchases or proceeds from sales of long-term U.S. government securities.
Note 4: Capital shares
At the close of the reporting period, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
| Year ended 8/31/11 | Year ended 8/31/10 | |||
| Class A | Shares | Amount | Shares | Amount |
| Shares sold | 24,009,975 | $186,911,319 | 16,339,921 | $119,272,563 |
| Shares issued in connection with | ||||
| reinvestment of distributions | 7,643,807 | 59,095,581 | 7,803,731 | 56,766,141 |
| 31,653,782 | 246,006,900 | 24,143,652 | 176,038,704 | |
| Shares repurchased | (33,074,023) | (256,269,201) | (32,947,995) | (239,860,126) |
| Net decrease | (1,420,241) | $(10,262,301) | (8,804,343) | $(63,821,422) |
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| Year ended 8/31/11 | Year ended 8/31/10 | |||
| Class B | Shares | Amount | Shares | Amount |
| Shares sold | 653,595 | $5,090,834 | 1,363,615 | $10,067,495 |
| Shares issued in connection with | ||||
| reinvestment of distributions | 196,893 | 1,521,011 | 311,974 | 2,260,394 |
| 850,488 | 6,611,845 | 1,675,589 | 12,327,889 | |
| Shares repurchased | (3,359,908) | (26,196,242) | (5,932,555) | (43,107,472) |
| Net decrease | (2,509,420) | $(19,584,397) | (4,256,966) | $(30,779,583) |
| Year ended 8/31/11 | Year ended 8/31/10 | |||
| Class C | Shares | Amount | Shares | Amount |
| Shares sold | 1,272,470 | $9,831,860 | 1,219,229 | $8,900,797 |
| Shares issued in connection with | ||||
| reinvestment of distributions | 234,756 | 1,803,515 | 218,598 | 1,580,863 |
| 1,507,226 | 11,635,375 | 1,437,827 | 10,481,660 | |
| Shares repurchased | (1,469,771) | (11,311,017) | (1,451,508) | (10,469,845) |
| Net increase (decrease) | 37,455 | $324,358 | (13,681) | $11,815 |
| Year ended 8/31/11 | Year ended 8/31/10 | |||
| Class M | Shares | Amount | Shares | Amount |
| Shares sold | 318,419 | $2,468,076 | 1,529,701 | $11,393,027 |
| Shares issued in connection with | ||||
| reinvestment of distributions | 147,414 | 1,142,322 | 114,195 | 830,139 |
| 465,833 | 3,610,398 | 1,643,896 | 12,223,166 | |
| Shares repurchased | (524,206) | (4,087,552) | (1,604,675) | (11,668,101) |
| Net increase (decrease) | (58,373) | $(477,154) | 39,221 | $555,065 |
| Year ended 8/31/11 | Year ended 8/31/10 | |||
| Class R | Shares | Amount | Shares | Amount |
| Shares sold | 830,760 | $6,386,934 | 597,409 | $4,298,248 |
| Shares issued in connection with | ||||
| reinvestment of distributions | 58,803 | 447,572 | 34,174 | 246,140 |
| 889,563 | 6,834,506 | 631,583 | 4,544,388 | |
| Shares repurchased | (419,960) | (3,213,283) | (282,137) | (2,033,142) |
| Net increase | 469,603 | $3,621,223 | 349,446 | $2,511,246 |
| Year ended 8/31/11 | Year ended 8/31/10 | |||
| Class Y | Shares | Amount | Shares | Amount |
| Shares sold | 21,624,376 | $165,261,256 | 13,821,378 | $100,563,899 |
| Shares issued in connection with | ||||
| reinvestment of distributions | 1,134,844 | 8,675,835 | 719,317 | 5,192,751 |
| 22,759,220 | 173,937,091 | 14,540,695 | 105,756,650 | |
| Shares repurchased | (24,716,295) | (189,058,955) | (7,369,113) | (53,872,478) |
| Net increase (decrease) | (1,957,075) | $(15,121,864) | 7,171,582 | $51,884,172 |
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Note 5: Summary of derivative activity
The following is a summary of the market values of derivative instruments as of the close of the reporting period:
Market values of derivative instruments as of the close of the reporting period
| Asset derivatives | Liability derivatives | |||
| Derivatives not | ||||
| accounted for as | Statement of | Statement of | ||
| hedging instruments | assets and | assets and | ||
| under ASC 815 | liabilities location | Market value | liabilities location | Market value |
| Foreign exchange | ||||
| contracts | Receivables | $108,318 | Payables | $207,907 |
| Equity contracts | Investments | 801,825 | — | |
| Total | $910,143 | $207,907 | ||
The following is a summary of realized and change in unrealized gains or losses of derivative instruments on the Statement of operations for the reporting period (see Note 1):
Amount of realized gain or (loss) on derivatives recognized in net gain or (loss) on investments
| Derivatives not accounted for | Forward | |||
| as hedging instruments under | currency | |||
| ASC 815 | Warrants* | contracts | Swaps | Total |
| Credit contracts | $— | $— | $(264,861) | $(264,861) |
| Foreign exchange contracts | — | (1,321,435) | — | $(1,321,435) |
| Equity contracts | 88,795 | — | — | $88,795 |
| Total | $88,795 | $(1,321,435) | $(264,861) | $(1,497,501) |
Change in unrealized appreciation or (depreciation) on derivatives recognized in net gain or (loss) on investments
| Derivatives not accounted for as hedging | Forward currency | ||
| instruments under ASC 815 | Warrants* | contracts | Total |
| Foreign exchange contracts | $— | $(638,067) | $(638,067) |
| Equity contracts | (153,688) | — | (153,688) |
| Total | $(153,688) | $(638,067) | $(791,755) |
*For the reporting period, the transaction volume for warrants was minimal.
Note 6: Investment in Putnam Money Market Liquidity Fund
The fund invested in Putnam Money Market Liquidity Fund, an open-end management investment company managed by Putnam Management. Investments in Putnam Money Market Liquidity Fund are valued at its closing net asset value each business day. Income distributions earned by the fund are recorded as interest income in the Statement of operations and totaled $36,132 for the reporting period. During the reporting period, cost of purchases and proceeds of sales of investments in Putnam Money Market Liquidity Fund aggregated $579,682,564 and $577,125,942, respectively. Management fees charged to Putnam Money Market Liquidity Fund have been waived by Putnam Management.
Note 7: Senior loan commitments
Senior loans are purchased or sold on a when-issued or delayed delivery basis and may be settled a month or more after the trade date, which from time to time can delay the actual investment of available cash balances; interest income is accrued based on the terms of the securities. Senior loans can be acquired through an agent, by assignment from another holder of the loan, or as a participation interest in another holder’s portion of the loan. When the fund invests in a loan or participation, the fund is subject to the risk that an intermediate participant between the fund and the borrower will fail to meet its obligations to the fund, in addition to the risk that the borrower under the loan may default on its obligations.
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Note 8: Transactions with affiliated issuers
Transactions during the reporting period with companies in which the fund owned at least 5% of the voting securities were as follows:
| Market | |||||
| value at the | Market | ||||
| beginning | value at the | ||||
| of the | end of the | ||||
| reporting | Purchase | Sales | Dividend | reporting | |
| Name of affiliate | period | cost | proceeds | income | period |
| Bohai Bay Litigation, LLC (Escrow) | $12,165 | $— | $— | $— | $12,165 |
| Totals | $12,165 | $— | $— | $— | $12,165 |
Market values are shown for those securities affiliated at the close of the reporting period.
Note 9: Regulatory matters and litigation
In late 2003 and 2004, Putnam Management settled charges brought by the SEC and the Massachusetts Securities Division in connection with excessive short-term trading in Putnam funds. In July 2011, the fund recorded a receivable of $547,977 related to restitution amounts in connection with a distribution plan approved by the SEC.
This amount is reported in the Increase in capital from settlement payments line on the Statement of changes in net assets. These allegations and related matters have served as the general basis for certain lawsuits, including purported class action lawsuits against Putnam Management and, in a limited number of cases, some Putnam funds. In May 2011, the fund received a payment of $13,338 related to settlement of those lawsuits. This amount is reported in the Increase in capital from settlement payments line on the Statement of changes in net assets. Putnam Management has agreed to bear any costs incurred by the Putnam funds as a result of these matters.
Note 10: Market and credit risk
In the normal course of business, the fund trades financial instruments and enters into financial transactions where risk of potential loss exists due to changes in the market (market risk) or failure of the contracting party to the transaction to perform (credit risk). The fund may be exposed to additional credit risk that an institution or other entity with which the fund has unsettled or open transactions will default.
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Federal tax information (Unaudited)
The fund designated 1.52% of ordinary income distributions as qualifying for the dividends received deduction for corporations.
For its tax year ended August 31, 2011, the fund hereby designates 1.76%, or the maximum amount allowable, of its taxable ordinary income distributions as qualified dividends taxed at the individual net capital gain rates.
For the tax year ended August 31, 2011, pursuant to §871(k) of the Internal Revenue Code, the fund hereby designates $92,754,254 of distributions paid as qualifying to be taxed as interest-related dividends, and no monies to be taxed as short-term capital gain dividends for nonresident alien shareholders.
The Form 1099 that will be mailed to you in January 2012 will show the tax status of all distributions paid to your account in calendar 2011.
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About the Trustees
Independent Trustees
| Name | ||
| Year of birth | ||
| Position held | Principal occupations during past five years | Other directorships |
| Ravi Akhoury | Advisor to New York Life Insurance Company. Trustee of | Jacob Ballas Capital |
| Born 1947 | American India Foundation and of the Rubin Museum. | India, a non-banking |
| Trustee since 2009 | From 1992 to 2007, was Chairman and CEO of MacKay | finance company |
| Shields, a multi-product investment management firm | focused on private | |
| with over $40 billion in assets under management. | equity advisory services; | |
| RAGE Frameworks, | ||
| Inc., a private software | ||
| company | ||
| Barbara M. Baumann | President and Owner of Cross Creek Energy Corporation, | SM Energy Company, a |
| Born 1955 | a strategic consultant to domestic energy firms and direct | domestic exploration |
| Trustee since 2010 | investor in energy projects. Trustee of Mount Holyoke | and production |
| College and member of the Investment Committee for the | company; UniSource | |
| college’s endowment. Former Chair and current board | Energy Corporation, | |
| member of Girls Incorporated of Metro Denver. Member of | an Arizona utility; CVR | |
| the Finance Committee, The Children’s Hospital of Denver. | Energy, a petroleum | |
| refiner and fertilizer | ||
| manufacturer; Cody | ||
| Resources Management, | ||
| LLP, a privately held | ||
| energy, ranching, and | ||
| commercial real estate | ||
| company | ||
| Jameson A. Baxter | President of Baxter Associates, Inc., a private investment | None |
| Born 1943 | firm. Chair of Mutual Fund Directors Forum. Chair Emeritus | |
| Trustee since 1994, | of the Board of Trustees of Mount Holyoke College. | |
| Vice Chair from 2005 | Director of the Adirondack Land Trust and Trustee of the | |
| to 2011, and Chair | Nature Conservancy’s Adirondack Chapter. | |
| since 2011 | ||
| Charles B. Curtis | Former President and Chief Operating Officer of the | Edison International; |
| Born 1940 | Nuclear Threat Initiative, a private foundation dealing | Southern California |
| Trustee since 2001 | with national security issues. Senior Advisor to the Center | Edison |
| for Strategic and International Studies. Member of the | ||
| Council on Foreign Relations. | ||
| Robert J. Darretta | Health Care Industry Advisor to Permira, a global private | UnitedHealth |
| Born 1946 | equity firm. Until April 2007, was Vice Chairman of the | Group, a diversified |
| Trustee since 2007 | Board of Directors of Johnson & Johnson. Served as | health-care company |
| Johnson & Johnson’s Chief Financial Officer for a decade. | ||
| John A. Hill | Founder and Vice-Chairman of First Reserve | Devon Energy |
| Born 1942 | Corporation, the leading private equity buyout firm | Corporation, a leading |
| Trustee since 1985 and | focused on the worldwide energy industry. Serves as a | independent natural gas |
| Chairman from 2000 | Trustee and Chairman of the Board of Trustees of Sarah | and oil exploration and |
| to 2011 | Lawrence College. Also a member of the Advisory Board | production company |
| of the Millstein Center for Corporate Governance and | ||
| Performance at the Yale School of Management. | ||
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| Name | ||
| Year of birth | ||
| Position held | Principal occupations during past five years | Other directorships |
| Paul L. Joskow | Economist and President of the Alfred P. Sloan | TransCanada |
| Born 1947 | Foundation, a philanthropic institution focused primarily | Corporation, an energy |
| Trustee since 1997 | on research and education on issues related to science, | company focused on |
| technology, and economic performance. Elizabeth and | natural gas transmission | |
| James Killian Professor of Economics, Emeritus at the | and power services; | |
| Massachusetts Institute of Technology (MIT). Prior to | Exelon Corporation, an | |
| 2007, served as the Director of the Center for Energy and | energy company focused | |
| Environmental Policy Research at MIT. | on power services | |
| Kenneth R. Leibler | Founder and former Chairman of Boston Options | Northeast Utilities, |
| Born 1949 | Exchange, an electronic marketplace for the trading | which operates New |
| Trustee since 2006 | of derivative securities. Vice Chairman of the Board of | England’s largest energy |
| Trustees of Beth Israel Deaconess Hospital in Boston, | delivery system | |
| Massachusetts. Until November 2010, director of Ruder | ||
| Finn Group, a global communications and advertising firm. | ||
| Robert E. Patterson | Senior Partner of Cabot Properties, LP and Co-Chairman | None |
| Born 1945 | of Cabot Properties, Inc., a private equity firm investing in | |
| Trustee since 1984 | commercial real estate. Past Chairman and Trustee of the | |
| Joslin Diabetes Center. | ||
| George Putnam, III | Chairman of New Generation Research, Inc., a publisher | None |
| Born 1951 | of financial advisory and other research services, and | |
| Trustee since 1984 | founder and President of New Generation Advisors, LLC, | |
| a registered investment advisor to private funds. | ||
| Director of The Boston Family Office, LLC, a registered | ||
| investment advisor. | ||
| W. Thomas Stephens | Retired as Chairman and Chief Executive Officer of Boise | TransCanadaPipelines |
| Born 1942 | Cascade, LLC, a paper, forest products, and timberland | Ltd., an energy |
| Trustee from 1997 to 2008 | assets company, in December 2008. Prior to 2010, | infrastructure company |
| and since 2009 | Director of Boise Inc., a manufacturer of paper and | |
| packaging products. | ||
| Interested Trustee | ||
| Robert L. Reynolds* | President and Chief Executive Officer of Putnam | None |
| Born 1952 | Investments since 2008. Prior to joining Putnam | |
| Trustee since 2008 and | Investments, served as Vice Chairman and Chief | |
| President of the Putnam | Operating Officer of Fidelity Investments from | |
| Funds since July 2009 | 2000 to 2007. | |
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of August 31, 2011, there were 106 Putnam funds. All Trustees serve as Trustees of all Putnam funds.
Each Trustee serves for an indefinite term, until his or her resignation, retirement at age 72, removal, or death.
* Mr. Reynolds is an “interested person” (as defined in the Investment Company Act of 1940) of the fund, Putnam Management, and/or Putnam Retail Management. He is President and Chief Executive Officer of Putnam Investments, as well as the President of your fund and each of the other Putnam funds.
66
Officers
In addition to Robert L. Reynolds, the other officers of the fund are shown below:
| Jonathan S. Horwitz (Born 1955) | Robert T. Burns (Born 1961) |
| Executive Vice President, Principal Executive | Vice President and Chief Legal Officer |
| Officer, Treasurer and Compliance Liaison | Since 2011 |
| Since 2004 | General Counsel, Putnam Investments and |
| Putnam Management | |
| Steven D. Krichmar (Born 1958) | |
| Vice President and Principal Financial Officer | James P. Pappas (Born 1953) |
| Since 2002 | Vice President |
| Chief of Operations, Putnam Investments and | Since 2004 |
| Putnam Management | Director of Trustee Relations, |
| Putnam Investments and Putnam Management | |
| Janet C. Smith (Born 1965) | |
| Vice President, Assistant Treasurer and | Judith Cohen (Born 1945) |
| Principal Accounting Officer | Vice President, Clerk and Assistant Treasurer |
| Since 2007 | Since 1993 |
| Director of Fund Administration Services, | |
| Putnam Investments and Putnam Management | Michael Higgins (Born 1976) |
| Vice President, Senior Associate Treasurer and | |
| Beth S. Mazor (Born 1958) | Assistant Clerk |
| Vice President | Since 2010 |
| Since 2002 | Manager of Finance, Dunkin’ Brands (2008– |
| Manager of Trustee Relations, Putnam | 2010); Senior Financial Analyst, Old Mutual Asset |
| Investments and Putnam Management | Management (2007–2008); Senior Financial |
| Analyst, Putnam Investments (1999–2007) | |
| Robert R. Leveille (Born 1969) | |
| Vice President and Chief Compliance Officer | Nancy E. Florek (Born 1957) |
| Since 2007 | Vice President, Assistant Clerk, Assistant |
| Chief Compliance Officer, Putnam Investments, | Treasurer and Proxy Manager |
| Putnam Management, and Putnam Retail | Since 2000 |
| Management | |
| Susan G. Malloy (Born 1957) | |
| Mark C. Trenchard (Born 1962) | Vice President and Assistant Treasurer |
| Vice President and BSA Compliance Officer | Since 2007 |
| Since 2002 | Director of Accounting & Control Services, |
| Director of Operational Compliance, | Putnam Management |
| Putnam Investments and Putnam | |
| Retail Management |
The principal occupations of the officers for the past five years have been with the employers as shown above although in some cases, they have held different positions with such employers. The address of each Officer is One Post Office Square, Boston, MA 02109.
67
Services for shareholders
Investor services
Systematic investment plan Tell us how much you wish to invest regularly — weekly, semimonthly, or monthly — and the amount you choose will be transferred automatically from your checking or savings account. There’s no additional fee for this service, and you can suspend it at any time. This plan may be a great way to save for college expenses or to plan for your retirement.
Please note that regular investing does not guarantee a profit or protect against loss in a declining market. Before arranging a systematic investment plan, consider your financial ability to continue making purchases in periods when prices are low.
Systematic exchange You can make regular transfers from one Putnam fund to another Putnam fund. There are no additional fees for this service, and you can cancel or change your options at any time.
Dividends PLUS You can choose to have the dividend distributions from one of your Putnam funds automatically reinvested in another Putnam fund at no additional charge.
Free exchange privilege You can exchange money between Putnam funds free of charge, as long as they are the same class of shares. A signature guarantee is required if you are exchanging more than $500,000. The fund reserves the right to revise or terminate the exchange privilege.
Reinstatement privilege If you’ve sold Putnam shares or received a check for a dividend or capital gain, you may reinvest the proceeds with Putnam within 90 days of the transaction and they will be reinvested at the fund’s current net asset value — with no sales charge. However, reinstatement of class B shares may have special tax consequences. Ask your financial or tax representative for details.
Check-writing service You have ready access to many Putnam accounts. It’s as simple as writing a check, and there are no special fees or service charges. For more information about the check-writing service, call Putnam or visit our website.
Dollar cost averaging When you’re investing for long-term goals, it’s time, not timing, that counts. Investing on a systematic basis is a better strategy than trying to figure out when the markets will go up or down. This means investing the same amount of money regularly over a long period. This method of investing is called dollar cost averaging. When a fund’s share price declines, your investment dollars buy more shares at lower prices. When it increases, they buy fewer shares. Over time, you will pay a lower average price per share.
For more information
Visit the Individual Investors section at putnam.com A secure section of our website contains complete information on your account, including balances and transactions, updated daily. You may also conduct transactions, such as exchanges, additional investments, and address changes. Log on today to get your password.
Call us toll free at 1-800-225-1581 Ask a helpful Putnam representative or your financial advisor for details about any of these or other services, or see your prospectus.
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 funds across income, value, blend, growth, asset allocation, absolute return, and global sector categories.
| Investment Manager | Robert E. Patterson | Robert T. Burns |
| Putnam Investment | George Putnam, III | Vice President and |
| Management, LLC | Robert L. Reynolds | Chief Legal Officer |
| One Post Office Square | W. Thomas Stephens | |
| Boston, MA 02109 | James P. Pappas | |
| Officers | Vice President | |
| Investment Sub-Manager | Robert L. Reynolds | |
| Putnam Investments Limited | President | Judith Cohen |
| 57–59 St James’s Street | Vice President, Clerk and | |
| London, England SW1A 1LD | Jonathan S. Horwitz | Assistant Treasurer |
| Executive Vice President, | ||
| Marketing Services | Principal Executive | Michael Higgins |
| Putnam Retail Management | Officer, Treasurer and | Vice President, Senior Associate |
| One Post Office Square | Compliance Liaison | Treasurer and Assistant Clerk |
| Boston, MA 02109 | ||
| Steven D. Krichmar | Nancy E. Florek | |
| Custodian | Vice President and | Vice President, Assistant Clerk, |
| State Street Bank | Principal Financial Officer | Assistant Treasurer and |
| and Trust Company | Proxy Manager | |
| Janet C. Smith | ||
| Legal Counsel | Vice President, Assistant | Susan G. Malloy |
| Ropes & Gray LLP | Treasurer and Principal | Vice President and |
| Accounting Officer | Assistant Treasurer | |
| Independent Registered | ||
| Public Accounting Firm | Beth S. Mazor | |
| KPMG LLP | Vice President | |
| Trustees | Robert R. Leveille | |
| Jameson A. Baxter, Chair | Vice President and | |
| Ravi Akhoury | Chief Compliance Officer | |
| Barbara M. Baumann | ||
| Charles B. Curtis | Mark C. Trenchard | |
| Robert J. Darretta | Vice President and | |
| John A. Hill | BSA Compliance Officer | |
| Paul L. Joskow | ||
| Kenneth R. Leibler |
This report is for the information of shareholders of Putnam High Yield Trust. It may also be used as sales literature when preceded or accompanied by the current prospectus, the most recent copy of Putnam’s Quarterly Performance Summary, and Putnam’s Quarterly Ranking Summary. For more recent performance, please visit putnam.com. Investors should carefully consider the investment objectives, risks, charges, and expenses of a fund, which are described in its prospectus. For this and other information or to request a prospectus or summary prospectus, call 1-800-225-1581 toll free. Please read the prospectus carefully before investing. The fund’s Statement of Additional Information contains additional information about the fund’s Trustees and is available without charge upon request by calling 1-800-225-1581.
| Item 2. Code of Ethics: |
| (a) The fund’s principal executive, financial and accounting officers are employees of Putnam Investment Management, LLC, the Fund’s investment manager. As such they are subject to a comprehensive Code of Ethics adopted and administered by Putnam Investments which is designed to protect the interests of the firm and its clients. The Fund has adopted a Code of Ethics which incorporates the Code of Ethics of Putnam Investments with respect to all of its officers and Trustees who are employees of Putnam Investment Management, LLC. For this reason, the Fund has not adopted a separate code of ethics governing its principal executive, financial and accounting officers. |
| (c) In May 2008, the Code of Ethics of Putnam Investment Management, LLC was updated in its entirety to include the amendments adopted in August 2007 as well as a several additional technical, administrative and non-substantive changes. In May of 2009, the Code of Ethics of Putnam Investment Management, LLC was amended to reflect that all employees will now be subject to a 90-day blackout restriction on holding Putnam open-end funds, except for portfolio managers and their supervisors (and each of their immediate family members), who will be subject to a one-year blackout restriction on the funds that they manage or supervise. In June 2010, the Code of Ethics of Putnam Investments was updated in its entirety to include the amendments adopted in May of 2009 and to change certain rules and limits contained in the Code of Ethics. In addition, the updated Code of Ethics included numerous technical, administrative and non-substantive changes, which were intended primarily to make the document easier to navigate and understand. In July 2011, the Code of Ethics of Putnam Investments was updated to reflect several technical, administrative and non-substantive changes resulting from changes in employee titles. |
| Item 3. Audit Committee Financial Expert: |
| The Funds’ Audit and Compliance Committee is comprised solely of Trustees who are “independent” (as such term has been defined by the Securities and Exchange Commission (“SEC”) in regulations implementing Section 407 of the Sarbanes-Oxley Act (the “Regulations”)). The Trustees believe that each of the members of the Audit and Compliance Committee also possess a combination of knowledge and experience with respect to financial accounting matters, as well as other attributes, that qualify them for service on the Committee. In addition, the Trustees have determined that each of Mr. Leibler, Mr. Hill, Mr. Darretta and Ms. Baumann qualifies as an “audit committee financial expert” (as such term has been defined by the Regulations) based on their review of his or her pertinent experience and education. The SEC has stated that the designation or identification of a person as an audit committee financial expert pursuant to this Item 3 of Form N-CSR does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the Audit and Compliance Committee and the Board of Trustees in the absence of such designation or identification. |
| Item 4. Principal Accountant Fees and Services: |
| The following table presents fees billed in each of the last two fiscal years for services rendered to the fund by the fund’s independent auditor: |
| Fiscal year ended | Audit Fees | Audit-Related Fees | Tax Fees | All Other Fees | |
| August 31, 2011 | $67,958 | $-- | $6,000 | $ — | |
| August 31, 2010 | $62,286 | $-- | $5,800 | $ — | |
| For the fiscal years ended August 31, 2011 and August 31, 2010, the fund’s independent auditor billed aggregate non-audit fees in the amounts of $6,000 and $5,800 respectively, to the fund, Putnam Management and any entity controlling, controlled by or under common control with Putnam Management that provides ongoing services to the fund. |
| Audit Fees represent fees billed for the fund’s last two fiscal years relating to the audit and review of the financial statements included in annual reports and registration statements, and other services that are normally provided in connection with statutory and regulatory filings or engagements. |
| Audit-Related Fees represent fees billed in the fund’s last two fiscal years for services traditionally performed by the fund’s auditor, including accounting consultation for proposed transactions or concerning financial accounting and reporting standards and other audit or attest services not required by statute or regulation. |
| Tax Fees represent fees billed in the fund’s last two fiscal years for tax compliance, tax planning and tax advice services. Tax planning and tax advice services include assistance with tax audits, employee benefit plans and requests for rulings or technical advice from taxing authorities. |
| Pre-Approval Policies of the Audit and Compliance Committee. The Audit and Compliance Committee of the Putnam funds has determined that, as a matter of policy, all work performed for the funds by the funds’ independent auditors will be pre-approved by the Committee itself and thus will generally not be subject to pre-approval procedures. |
| The Audit and Compliance Committee also has adopted a policy to pre-approve the engagement by Putnam Management and certain of its affiliates of the funds’ independent auditors, even in circumstances where pre-approval is not required by applicable law. Any such requests by Putnam Management or certain of its affiliates are typically submitted in writing to the Committee and explain, among other things, the nature of the proposed engagement, the estimated fees, and why this work should be performed by that particular audit firm as opposed to another one. In reviewing such requests, the Committee considers, among other things, whether the provision of such services by the audit firm are compatible with the independence of the audit firm. |
| The following table presents fees billed by the fund’s independent auditor for services required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X. |
| Fiscal year ended | Audit-Related Fees | Tax Fees | All Other Fees | Total Non-Audit Fees | |
| August 31, 2011 | $ — | $ — | $ — | $ — | |
| August 31, 2010 | $ — | $ — | $ — | $ — | |
| 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) The Code of Ethics of The Putnam Funds, which incorporates the Code of Ethics of Putnam Investments, is filed herewith. |
| (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: October 27, 2011 |
| Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. |
| By (Signature and Title): |
| /s/Jonathan S. Horwitz Jonathan S. Horwitz Principal Executive Officer |
| Date: October 27, 2011 |
| By (Signature and Title): |
| /s/Steven D. Krichmar Steven D. Krichmar Principal Financial Officer |
| Date: October 27, 2011 |