N-CSRS 1 a_highyieldadv.htm PUTNAM HIGH YIELD ADVANTAGE FUND a_highyieldadv.htm


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

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES



Investment Company Act file number: (811-04616)
Exact name of registrant as specified in charter: Putnam High Yield Advantage Fund
Address of principal executive offices: One Post Office Square, Boston, Massachusetts 02109
Name and address of agent for service: Robert T. Burns, Vice President
One Post Office Square
Boston, Massachusetts 02109
Copy to:         John W. Gerstmayr, Esq.
Ropes & Gray LLP
800 Boylston Street
Boston, Massachusetts 02199-3600
Registrant’s telephone number, including area code: (617) 292-1000
Date of fiscal year end: November 30, 2012
Date of reporting period: December 1, 2011 — May 31, 2012



Item 1. Report to Stockholders:

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



Putnam
High Yield
Advantage Fund

Semiannual report
5 | 31 | 12

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

 

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, funds that invest in bonds have ongoing fees and expenses. The price of bonds may fall or fail to rise over extended periods of time for a variety of reasons, including both general financial market conditions and factors related to a specific issuer or industry.

 


Message from the Trustees

Dear Fellow Shareholder:

Markets worldwide continue to be buffeted by headwinds out of Europe and evidence of a slowing global economy. The coming election in the United States has added to uncertainty around important economic issues at the federal and state levels. It is prudent to expect this volatility to stay with us as policymakers around the world work out solutions to debt issues and pave the way to sustained economic growth.

Long-term investors should also understand that Putnam’s experienced investment team is trained to uncover opportunities in precisely this type of environment, while actively seeking to guard against downside risk. As always, it is wise to rely on the expertise and insights of your financial advisor, someone who can help you maintain a long-term focus and a balanced investment approach.

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

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


About the fund

Seeking a high level of current income for investors since 1986

Unlike most types of fixed-income investments, high-yield bond performance is more dependent on the performance of the companies that issue the bonds than on interest rates. For this reason, distinguishing between opportunities and potential pitfalls requires a rigorous investment process that includes analyzing companies. With Putnam High Yield Advantage Fund, this process is highlighted by intensive research, investment diversification, and carefully timed portfolio adjustments.

Because of the risks of high-yield bond investing, in-depth credit research is essential. The fund’s research team — which includes analysts who specialize by industry — visits with the management of issuing companies and analyzes each company’s prospects. The team then compares this information to the bond’s upside or downside potential before deciding whether it is an appropriate investment for the fund.

The fund’s portfolio typically consists of bonds from a broad range of industries and companies. Holdings are diversified across industry sectors and among bonds with differing credit ratings. While the fund invests primarily in the bonds of U.S. companies, its diversified approach allows it to include foreign bonds as well.

As the bond markets shift over time, the fund’s managers look for ways to capitalize on developments that affect fixed-income securities in general and high-yield bonds in particular. For example, when credit spreads are wide and are expected to tighten, the fund may pursue the higher income potential offered by lower-quality issues. On the other hand, when credit spreads are narrow — that is, when the difference in yield between higher- and lower-rated bonds of comparable maturities is small — the fund may shift its emphasis to higher-quality high-yield bonds.

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


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.

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

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Interview with your fund’s portfolio manager


Paul, what was the market environment like for high-yield bonds during the six months ended May 31, 2012?

Thanks to positive corporate fundamentals, robust demand from investors seeking income, and low default rates that, in our view, are unlikely to significantly rise in the near term, high-yield bonds led most fixed-income market sectors for the period. High-yield bonds also outperformed the broad equity market, as measured by the S&P 500 Index.

Shortly before the period began, following several months of significant volatility, improving U.S. economic data encouraged investors to shift from a risk-averse posture to one that was more welcoming of market risk. In December, investor sentiment received a further boost when the European Central Bank introduced its Long-Term Refinancing Operation [LTRO]. LTRO provided much-needed stability to global credit markets by substantially improving liquidity and reducing short-term funding risk for European banks. Fueled by these developments, high-yield bonds rallied strongly from December through February.

During the period’s second half, disappointing U.S. economic data, concern about slowing global economic growth, and renewed fear about the eurozone debt crisis prompted investors to reduce risk and shift back toward more-defensive asset classes and market sectors. As a result, after posting moderately positive returns in March and April, high-yield


This comparison shows your fund’s performance in the context of broad market indexes for the six months ended 5/31/12. See pages 4 and 10–12 for additional fund performance information. Index descriptions can be found on pages 14–15.

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bonds, as well as other riskier asset categories, sold off in May.

Against this backdrop, the fund slightly underperformed its benchmark, but outpaced the average return of its Lipper peer group.

What factors influenced the fund’s relative performance?

At the sector/industry level, overweighting telecommunications, gaming and leisure, and cable/satellite aided the fund’s results versus the index. Conversely, adverse security selection in utilities hampered relative performance, as did holding lighter-than-benchmark stakes in paper/packaging and health care.

From a credit-quality standpoint, modestly overweighting CCC-rated securities helped the fund’s relative performance, as they outperformed BB- and B-rated bonds. Underweighting BB-rated and “crossover” securities provided a further boost to results, because bonds in these ratings tiers lagged the index. Crossover bonds are those that straddle the gap between investment grade and high yield, often receiving an investment-grade rating from one rating agency and a below-investment-grade rating from another.

Which holdings helped versus the index?

Wireless carrier Sprint Nextel was the top individual contributor, as the company posted better-than-expected first-quarter 2012 results on stronger wireless margins resulting from lower expenses and reduced roaming costs. In addition, the firm added more than one million subscribers to its network.

Credit qualities are shown as a percentage of net assets as of 5/31/12. A bond rated Baa or higher (Prime-3 or higher, for short-term debt) is considered investment grade. The chart reflects Moody’s ratings; percentages may include bonds or derivatives not rated by Moody’s but rated by Standard & Poor’s (S&P) or, if unrated by S&P, by Fitch, and then included in the closest equivalent Moody’s rating. Ratings will vary over time.

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

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Hospitality and gaming company MTR Gaming Group also contributed to performance. MTR’s securities received a boost when the Ohio Gaming Commission licensed the firm to operate video lottery terminals at its Scioto Downs racetrack in Columbus, Ohio, which opened on June 1, 2012.

Our position in automotive finance provider Ally Financial also proved beneficial, as investors became more confident in the firm’s ability to extricate itself from mortgage liabilities at its ResCap subsidiary.

Which investments weren’t as productive?

Dallas-based utility Energy Future Holdings detracted from relative performance due to declining natural gas prices and investor concern about the company’s liquidity position. The firm initiated a series of asset sales in an effort to reduce debt and shore up its liquidity.

NII Holdings, which provides mobile communications for business customers in Latin America under the Nextel brand, was a disappointment. The firm missed revenue and earnings expectations due to lower-than-forecast average revenue per user and margin pressure from its expansion and rebranding initiative. NII also indicated that it expects earnings and net subscriber additions to be


This table shows the fund’s top 10 holdings and the percentage of the fund’s net assets that each represented as of 5/31/12. Short-term holdings are excluded. Holdings will vary over time.

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markedly lower compared with the same period last year.

What is your outlook for the high-yield market over the coming months?

We evaluate the high-yield market by looking at three key factors: fundamentals, valuation, and “technicals,” or the balance of supply and demand. As of now, we are neutral on all three.

Looking first at fundamentals, it seems likely that global economic growth is slowing, as evidenced by recent data in the United States and China. Corporate earnings for the first quarter of 2012 were generally strong, although the trend there also appears weaker. Housing starts and automotive sales suggest that the U.S. economy may continue to produce positive, albeit slowing, growth.

The yield advantage high-yield bonds offered versus Treasuries modestly compressed during the period, but remained at a healthy level of 720 basis points at period-end. [A basis point is 1/100 of one percent.] Despite the fact that we believe high-yield defaults are likely to remain low, reducing risk within the asset class, we believe the current level of yield spreads is justified, given global macroeconomic risks. All told, barring another extreme financial crisis, we believe high-yield bond valuations are still attractive.

As for market technicals, while overall demand for high-yield bonds remains intact, retail fund flows recently turned negative, particularly among exchange-traded funds [ETFs], reversing the strong inflows that occurred during the fourth quarter of 2011 and

Credit qualities are shown as a percentage of net assets as of 5/31/12. A bond rated Baa or higher (Prime-3 or higher, for short-term debt) is considered investment grade. The chart reflects Moody’s ratings; percentages may include bonds or derivatives not rated by Moody’s but rated by Standard & Poor’s (S&P) or, if unrated by S&P, by Fitch, and then included in the closest equivalent Moody’s rating. Ratings will vary over time.

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

Data in the chart reflect a new calculation methodology put into effect within the past six months.

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the first quarter of 2012. New issuance has cooled, with most new issues resulting from refinancing, as corporations sought to lock in attractive long-term rates.

High-yield market liquidity, or ease of trading, has diminished, partly due to new regulations designed to limit risk in financial institutions. These regulatory changes have made broker/dealers more reluctant to commit risk capital to support bond inventories at the same level as in the past. As market makers have drawn down their inventories of corporate bonds, marketplace liquidity has declined.

Given this outlook, how have you positioned the fund?

The amount of refinancing that has occurred during the past two years has extended the maturity profile of many high-yield issuers, which helps reduce their current debt load. As a result, we believe the prospects for the default rate to remain below the historical average for some time are quite good. That said, given the continuing uncertainty surrounding potential macroeconomic, U.S. fiscal policy, and geopolitical developments, we have modestly reduced the fund’s overall market risk by, among other measures, moderately increasing cash. Holding a cash cushion may also help the fund should marketplace liquidity remain constrained.

Thanks for your time and for bringing us up to date, 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 P. Boucher and Robert L. Salvin.

IN THE NEWS

Risk-averse investors around the world are stampeding into government bonds, driving yields to record lows. In the United States, the rate on a 10-year U.S. Treasury note recently dipped to levels not seen since 1945. Several factors have driven the prices of U.S. Treasuries higher and their yields lower, including concerns about a U.S. economic slowdown, Europe’s dire economic situation, and the decelerating economies of China and India. In early June, the 10-year Treasury note yield fell to 1.54%, below the prior low of 1.55%, which was reached just after World War II. At the time, the U.S. government had instituted price controls, and interest rates were kept artificially low to foster financial stability. In several developed economies around the globe, 10-year government bond yields are well below those in the United States.

9


Your fund’s performance

This section shows your fund’s performance, price, and distribution information for periods ended May 31, 2012, the end of the first half of its current fiscal year. In accordance with regulatory requirements for mutual funds, we also include performance information 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 5/31/12

  Class A  Class B  Class C  Class M  Class R  Class Y 
(inception dates)  (3/25/86)  (5/16/94)  (3/30/07)  (12/1/94)  (3/30/07)  (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)  7.67%  7.50%  6.77%  6.77%  6.86%  6.86%  7.38%  7.24%  7.41%  7.84% 
10 years  128.06  118.75  111.43  111.43  111.37  111.37  122.65  115.41  122.76  134.22 
Annual average  8.59  8.14  7.77  7.77  7.77  7.77  8.33  7.98  8.34  8.88 
5 years  35.08  29.61  30.25  28.43  30.21  30.21  33.58  29.33  33.70  36.72 
Annual average  6.20  5.32  5.43  5.13  5.42  5.42  5.96  5.28  5.98  6.46 
3 years  49.94  44.02  46.54  43.54  46.51  46.51  48.69  43.97  48.69  50.96 
Annual average  14.46  12.93  13.58  12.80  13.58  13.58  14.14  12.92  14.14  14.72 
1 year  2.87  –1.18  2.19  –2.59  2.06  1.10  2.66  –0.76  2.66  3.14 
6 months  7.85  3.61  7.44  2.44  7.46  6.46  7.74  4.21  7.74  7.87 

 

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.

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 5/31/12

  JPMorgan Developed  Lipper High Current Yield Funds 
  High Yield Index  category average* 
Annual average (life of fund)  —†  7.07% 
10 years  146.39%  106.93 
Annual average  9.44  7.37 
5 years  46.19  29.53 
Annual average  7.89  5.12 
3 years  63.90  51.02 
Annual average  17.90  14.69 
1 year  5.61  2.07 
6 months  8.07  7.02 


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

* Over the 6-month, 1-year, 3-year, 5-year, 10-year, and life-of-fund periods ended 5/31/12, there were 515, 503, 434, 371, 247, and 24 funds, respectively, in this Lipper category.

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

Fund price and distribution information For the six-month period ended 5/31/12

Distributions  Class A  Class B  Class C  Class M  Class R  Class Y 
Number  6 6  6  6  6  6 
Income  $0.217  $0.197  $0.197  $0.211  $0.211  $0.223 
Capital gains  —  —  —  —  —  — 
Total  $0.217  $0.197  $0.197  $0.211  $0.211  $0.223 
  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 
11/30/11  $5.62  $5.85  $5.52  $5.50  $5.62  $5.81  $5.62  $5.81 
5/31/12  5.84  6.08  5.73  5.71  5.84  6.04  5.84  6.04 
  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  6.37%  6.12%  5.65%  5.88%  6.16%  5.96%  6.16%  6.36% 
Current 30-day SEC yield 2  N/A  6.51  6.01  6.02  N/A  6.30  6.52  7.02 

 

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.

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Fund performance as of most recent calendar quarter
Total return for periods ended 6/30/12

  Class A  Class B  Class C  Class M  Class R  Class Y 
(inception dates)  (3/25/86)  (5/16/94)  (3/30/07)  (12/1/94)  (3/30/07)  (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)  7.73%  7.56%  6.83%  6.83%  6.92%  6.92%  7.44%  7.30%  7.47%  7.91% 
10 years  145.08  135.33  126.98  126.98  127.62  127.62  139.24  131.41  139.61  151.78 
Annual average  9.38  8.94  8.54  8.54  8.57  8.57  9.11  8.75  9.13  9.67 
5 years  40.21  34.63  35.28  33.39  35.22  35.22  38.65  34.15  38.79  41.99 
Annual average  6.99  6.13  6.23  5.93  6.22  6.22  6.75  6.05  6.78  7.26 
3 years  48.33  42.34  45.24  42.24  45.21  45.21  47.40  42.54  47.40  49.59 
Annual average  14.05  12.49  13.25  12.46  13.24  13.24  13.81  12.54  13.81  14.37 
1 year  6.30  2.05  5.49  0.55  5.52  4.54  5.91  2.50  6.09  6.48 
6 months  7.22  2.90  6.80  1.80  6.81  5.81  7.11  3.67  7.11  7.43 

 

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 11/30/11  1.04%  1.79%  1.79%  1.29%  1.29%  0.79% 
Annualized expense ratio for the six-month period             
ended 5/31/12  1.05%  1.80%  1.80%  1.30%  1.30%  0.80% 

 

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.

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Expenses per $1,000

The following table shows the expenses you would have paid on a $1,000 investment in the fund from December 1, 2011, to May 31, 2012. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.

  Class A  Class B  Class C  Class M  Class R  Class Y 
Expenses paid per $1,000*†  $5.46  $9.33  $9.34  $6.75  $6.75  $4.16 
Ending value (after expenses)  $1,078.50  $1,074.40  $1,074.60  $1,077.40  $1,077.40  $1,078.70 

 

* 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 5/31/12. The expense ratio may differ for each share class.

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

Estimate the expenses you paid

To estimate the ongoing expenses you paid for the six months ended May 31, 2012, use the following calculation method. To find the value of your investment on December 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*†  $5.30  $9.07  $9.07  $6.56  $6.56  $4.04 
Ending value (after expenses)  $1,019.75  $1,016.00  $1,016.00  $1,018.50  $1,018.50  $1,021.00 

 

* 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 5/31/12. The expense ratio may differ for each share class.

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

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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.

Share classes

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

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

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

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

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

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

Fixed-income terms

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

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

Comparative indexes

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

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

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

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

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

14


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

Other information for shareholders

Important notice regarding delivery of shareholder documents

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

Proxy voting

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

Fund portfolio holdings

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

Trustee and employee fund ownership

Putnam employees and members of the Board of Trustees place their faith, confidence, and, most importantly, investment dollars in Putnam mutual funds. As of May 31, 2012, Putnam employees had approximately $326,000,000 and the Trustees had approximately $77,000,000 invested in Putnam mutual funds. These amounts include investments by the Trustees’ and employees’ immediate family members as well as investments through retirement and deferred compensation plans.

15


Financial statements

A guide to financial statements

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

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

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

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

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

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

16


The fund’s portfolio 5/31/12 (Unaudited)

CORPORATE BONDS AND NOTES (87.4%)*  Principal amount  Value 
 
Advertising and marketing services (0.4%)       
Affinion Group, Inc. company guaranty sr. unsec.       
notes 7 7/8s, 2018    $1,430,000  $1,208,350 
Affinion Group, Inc. company guaranty sr. unsec.       
sub. notes 11 1/2s, 2015    1,385,000  1,170,325 
Lamar Media Corp. company guaranty sr. sub. notes 7 7/8s, 2018    560,000  602,000 
Lamar Media Corp. 144A sr. sub. notes 5 7/8s, 2022    640,000  644,000 
      3,624,675 
Automotive (2.4%)       
Chrysler Group, LLC/CG Co-Issuer, Inc. company       
guaranty notes 8 1/4s, 2021    2,020,000  2,025,050 
Ford Motor Credit Co., LLC sr. unsec. notes 8 1/8s, 2020    3,055,000  3,868,393 
Ford Motor Credit Co., LLC sr. unsec. unsub. notes 5 7/8s, 2021    3,340,000  3,790,900 
Ford Motor Credit Co., LLC sr. unsec. unsub. notes 5 3/4s, 2021    615,000  700,060 
Navistar International Corp. sr. notes 8 1/4s, 2021    3,099,000  3,253,950 
Schaeffler Finance BV 144A company       
guaranty sr. notes 8 1/2s, 2019 (Germany)    1,325,000  1,397,875 
Schaeffler Finance BV 144A company       
guaranty sr. notes 7 3/4s, 2017 (Germany)    565,000  584,775 
TRW Automotive, Inc. company guaranty sr. unsec.       
unsub. notes Ser. REGS, 6 3/8s, 2014  EUR  1,000,000  1,270,900 
TRW Automotive, Inc. 144A company       
guaranty sr. notes 7 1/4s, 2017    $1,080,000  1,236,600 
UR Merger Sub. Corp. company guaranty sr. unsec.       
unsub. notes 9 1/4s, 2019    2,235,000  2,464,087 
UR Financing Escrow Corp. 144A company       
guaranty notes 5 3/4s, 2018    460,000  468,050 
UR Financing Escrow Corp. 144A sr. unsec. notes 7 5/8s, 2022    685,000  700,413 
      21,761,053 
Basic materials (6.6%)       
Ardagh Glass Finance PLC sr. unsub. notes Ser. REGS,       
9 1/4s, 2016 (Ireland)  EUR  280,000  372,297 
Associated Materials, LLC company       
guaranty sr. notes 9 1/8s, 2017    $250,000  218,438 
Atkore International, Inc. company       
guaranty sr. notes 9 7/8s, 2018    2,730,000  2,716,350 
Celanese US Holdings, LLC company guaranty sr. unsec.       
notes 6 5/8s, 2018 (Germany)    710,000  750,825 
Celanese US Holdings, LLC sr. notes 5 7/8s, 2021 (Germany)    1,895,000  1,975,537 
Cemex Finance, LLC 144A company guaranty sr. bonds       
9 1/2s, 2016    655,000  600,963 
Clondalkin Acquisition BV 144A company       
guaranty sr. notes FRN 2.474s, 2013 (Netherlands)    590,000  531,000 
Compass Minerals International, Inc. company       
guaranty sr. unsec. notes 8s, 2019    1,515,000  1,617,262 
Edgen Murray Corp. company guaranty sr. notes 12 1/4s, 2015    630,000  644,175 
Ferro Corp. sr. unsec. notes 7 7/8s, 2018    1,735,000  1,726,325 
FMG Resources August 2006 Pty, Ltd. 144A company       
guaranty sr. unsec notes 6 3/8s, 2016 (Australia)    860,000  840,650 

 

17


CORPORATE BONDS AND NOTES (87.4%)* cont.  Principal amount  Value 
 
Basic materials cont.       
FMG Resources August 2006 Pty, Ltd. 144A sr. notes 8 1/4s,       
2019 (Australia)    $1,180,000  $1,218,350 
FMG Resources August 2006 Pty, Ltd. 144A sr. notes 7s, 2015       
(Australia)    690,000  690,863 
FMG Resources August 2006 Pty, Ltd. 144A sr. notes 6 7/8s,       
2018 (Australia)    2,020,000  1,982,521 
FMG Resources August 2006 Pty, Ltd. 144A sr. unsec.       
notes 6 7/8s, 2022 (Australia)    920,000  883,795 
Hexion U.S. Finance Corp./Hexion Nova Scotia Finance, ULC       
company guaranty notes 9s, 2020    400,000  349,000 
Hexion U.S. Finance Corp./Hexion Nova Scotia Finance, ULC       
company guaranty sr. notes 8 7/8s, 2018    1,180,000  1,174,100 
Hexion U.S. Finance Corp./Hexion Nova Scotia Finance, ULC       
company guaranty sr. notes FRN 4.967s, 2014    610,000  550,525 
Hexion U.S. Finance Corp./Hexion Nove Scotia Finance, ULC       
144A company guaranty sr. notes 6 5/8s, 2020    570,000  577,125 
Huntsman International, LLC company guaranty sr. unsec.       
sub. notes 8 5/8s, 2021    1,165,000  1,304,800 
Huntsman International, LLC company guaranty sr. unsec.       
sub. notes 8 5/8s, 2020    2,010,000  2,241,150 
INEOS Finance PLC sr. notes company guaranty Ser. REGS,       
9 1/4s, 2015 (United Kingdom)  EUR  100,000  130,426 
INEOS Finance PLC 144A company guaranty sr. notes 9s, 2015       
(United Kingdom)    $1,310,000  1,375,500 
INEOS Finance PLC 144A company guaranty sr. notes 8 3/8s,       
2019 (United Kingdom)    830,000  852,825 
INEOS Finance PLC 144A company guaranty sr. notes 7 1/2s,       
2020 (United Kingdom)    375,000  371,250 
INEOS Group Holdings, Ltd. company guaranty sr. unsec.       
notes Ser. REGS, 7 7/8s, 2016 (United Kingdom)  EUR  1,250,000  1,324,121 
JM Huber Corp. 144A sr. unsec. notes 9 7/8s, 2019    $1,810,000  1,882,400 
Louisiana-Pacific Corp. 144A sr. unsec. notes 7 1/2s, 2020    805,000  821,100 
LyondellBasell Industries NV 144A company       
guaranty sr. notes 6s, 2021 (Netherlands)    2,790,000  2,985,300 
LyondellBasell Industries NV 144A sr. unsec. notes 5 3/4s,       
2024 (Netherlands)    1,915,000  1,962,875 
LyondellBasell Industries NV 144A sr. unsec. notes 5s, 2019       
(Netherlands)    3,455,000  3,515,463 
Momentive Performance Materials, Inc. company       
guaranty notes 9 1/2s, 2021  EUR  465,000  421,288 
Momentive Performance Materials, Inc. notes 9s, 2021    $1,035,000  781,425 
Momentive Performance Materials, Inc. 144A company       
guaranty sr. notes 10s, 2020    465,000  463,838 
New Gold, Inc. 144A company guaranty sr. unsec.       
unsub. notes 7s, 2020 (Canada)    920,000  967,443 
Novelis, Inc. company guaranty sr. unsec. notes 8 3/4s, 2020    1,625,000  1,718,437 
Novelis, Inc. company guaranty sr. unsec. notes 7 1/4s, 2015    1,600,000  1,572,000 
Novelis, Inc. sr. unsec. notes company guaranty 8 3/8s,       
2017 (Canada)    25,000  26,375 

 

18


CORPORATE BONDS AND NOTES (87.4%)* cont.  Principal amount  Value 
 
Basic materials cont.       
Old All, Inc. company guaranty sr. unsec. notes 9s,       
2014 (In default) † F    $1,905,000  $2 
PE Paper Escrow GmbH sr. notes Ser. REGS, 11 3/4s,       
2014 (Austria)  EUR  405,000  534,926 
Resolute Forest Products company       
guaranty sr. notes 10 1/4s, 2018 (Canada)    $605,000  685,163 
Rhodia SA 144A sr. notes 6 7/8s, 2020 (France)    635,000  698,500 
Roofing Supply Group, LLC/Roofing Supply Finance, Inc. 144A       
company guaranty sr. unsec notes 10s, 2020    375,000  378,750 
Roofing Supply Group, LLC/Roofing Supply Finance, Inc. 144A       
sr. notes 8 5/8s, 2017    1,858,000  2,195,543 
Smurfit Kappa Acquisition company       
guaranty sr. bonds 7 1/4s, 2017 (Ireland)  EUR  100,000  128,957 
Smurfit Kappa Funding PLC sr. unsec. sub. notes 7 3/4s,       
2015 (Ireland)    $1,147,000  1,158,470 
Smurfit Kappa Treasury company guaranty sr. unsec.       
unsub. debs 7 1/2s, 2025 (Ireland)    515,000  511,138 
Solutia, Inc. company guaranty sr. unsec. notes 8 3/4s, 2017    560,000  630,000 
Solutia, Inc. company guaranty sr. unsec. notes 7 7/8s, 2020    2,470,000  2,889,900 
Steel Dynamics, Inc. company guaranty sr. unsec.       
unsub. notes 6 3/4s, 2015    80,000  81,000 
Steel Dynamics, Inc. sr. unsec. unsub. notes 7 3/4s, 2016    1,835,000  1,894,638 
Taminco Global Chemical Corp. 144A sr. notes 9 3/4s, 2020    1,415,000  1,439,763 
TPC Group, LLC company guaranty sr. notes 8 1/4s, 2017    1,530,000  1,606,500 
Verso Paper Holdings, LLC/Verso Paper, Inc. company       
guaranty sr. notes 8 3/4s, 2019    945,000  335,475 
Verso Paper Holdings, LLC/Verso Paper, Inc. 144A company       
guaranty sr. notes 11 3/4s, 2019    150,000  114,000 
      59,420,842 
Broadcasting (2.2%)       
Clear Channel Communications, Inc. company       
guaranty sr. notes 9s, 2021    805,000  692,300 
Clear Channel Communications, Inc. company guaranty unsec.       
unsub. notes 10 3/4s, 2016    775,000  503,750 
Clear Channel Communications, Inc. sr. unsec. notes 5 1/2s, 2014    705,000  602,775 
Clear Channel Worldwide Holdings, Inc. company       
guaranty sr. unsec. unsub. notes 9 1/4s, 2017    275,000  294,250 
Clear Channel Worldwide Holdings, Inc. company       
guaranty sr. unsec. unsub. notes Ser. B, 9 1/4s, 2017    1,450,000  1,558,750 
Clear Channel Worldwide Holdings, Inc. 144A company       
guaranty sr. sub. notes 7 5/8s, 2020    1,150,000  1,092,500 
Cumulus Media Holdings, Inc. company guaranty sr. unsec.       
unsub. notes 7 3/4s, 2019    1,645,000  1,496,950 
DISH DBS Corp. company guaranty 7 1/8s, 2016    155,000  165,850 
DISH DBS Corp. company guaranty sr. unsec. notes 7 7/8s, 2019    1,820,000  2,024,750 
DISH DBS Corp. company guaranty sr. unsec. notes 6 3/4s, 2021    2,060,000  2,126,950 
Entercom Radio, LLC company guaranty sr. unsec.       
sub. notes 10 1/2s, 2019    1,590,000  1,717,200 
Gray Television, Inc. company guaranty sr. notes 10 1/2s, 2015    1,740,000  1,792,200 

 

19


CORPORATE BONDS AND NOTES (87.4%)* cont.  Principal amount  Value 
 
Broadcasting cont.       
Nexstar Broadcasting, Inc./Mission Broadcasting, Inc.       
company guaranty sr. notes 8 7/8s, 2017    $1,350,000  $1,410,750 
Univision Communications, Inc. 144A company       
guaranty sr. unsec. notes 8 1/2s, 2021    930,000  897,450 
Univision Communications, Inc. 144A sr. notes 7 7/8s, 2020    435,000  444,788 
XM Satellite Radio, Inc. 144A company guaranty sr. unsec.       
notes 13s, 2013    1,030,000  1,156,175 
XM Satellite Radio, Inc. 144A sr. unsec. notes 7 5/8s, 2018    1,580,000  1,690,600 
      19,667,988 
Building materials (1.6%)       
Building Materials Corp. 144A company       
guaranty sr. notes 7 1/2s, 2020    1,360,000  1,445,000 
Building Materials Corp. 144A sr. notes 7s, 2020    640,000  672,000 
Building Materials Corp. 144A sr. notes 6 7/8s, 2018    1,150,000  1,187,375 
Building Materials Corp. 144A sr. notes 6 3/4s, 2021    530,000  541,925 
Jeld-Wen Escrow Corp. 144A sr. notes 12 1/4s, 2017    2,135,000  2,412,550 
Masonite International Corp., 144A company       
guaranty sr. notes 8 1/4s, 2021 (Canada)    1,915,000  1,948,512 
Nortek, Inc. company guaranty sr. unsec. notes 10s, 2018    1,675,000  1,767,125 
Nortek, Inc. company guaranty sr. unsec. notes 8 1/2s, 2021    415,000  402,550 
Owens Corning company guaranty sr. unsec. notes 9s, 2019    2,925,000  3,568,500 
      13,945,537 
Cable television (2.4%)       
AMC Networks, Inc. 144A company guaranty sr. unsec       
notes 7 3/4s, 2021    415,000  460,650 
Bresnan Broadband Holdings, LLC 144A company       
guaranty sr. unsec. unsub. notes 8s, 2018    1,190,000  1,210,825 
Cablevision Systems Corp. sr. unsec. unsub. notes 8 5/8s, 2017    2,350,000  2,567,375 
Cablevision Systems Corp. sr. unsec. unsub. notes 8s, 2020    470,000  489,975 
CCO Holdings, LLC/CCO Holdings Capital Corp. company       
guaranty sr. unsec. notes 7 7/8s, 2018    1,375,000  1,474,687 
CCO Holdings, LLC/CCO Holdings Capital Corp. company       
guaranty sr. unsec. notes 6 1/2s, 2021    785,000  802,663 
CCO Holdings, LLC/CCO Holdings Capital Corp. company       
guaranty sr. unsec. unsub. notes 7 3/8s, 2020    975,000  1,046,906 
CCO Holdings, LLC/CCO Holdings Capital Corp. company       
guaranty sr. unsec. unsub. notes 6 5/8s, 2022    1,050,000  1,074,938 
CCO Holdings, LLC/CCO Holdings Capital Corp. company       
guaranty sr. unsub. notes 7s, 2019    1,190,000  1,246,525 
Cequel Communications Holdings I, LLC/Cequel Capital Corp.       
144A sr. notes 8 5/8s, 2017    3,375,000  3,556,405 
CSC Holdings, LLC 144A sr. unsec. unsub. notes 6 3/4s, 2021    950,000  961,875 
Mediacom Broadband, LLC/Mediacom Broadband Corp. sr. unsec.       
unsub. notes 8 1/2s, 2015    115,000  118,163 
Mediacom, LLC/Mediacom Capital Corp. sr. unsec.       
notes 9 1/8s, 2019    775,000  838,937 
Mediacom, LLC/Mediacom Capital Corp. sr. unsec.       
notes 7 1/4s, 2022    810,000  812,025 
Quebecor Media, Inc. 144A sr. unsec. notes 7 3/8s, 2021       
(Canada)  CAD  995,000  1,013,304 

 

20


CORPORATE BONDS AND NOTES (87.4%)* cont.  Principal amount  Value 
 
Cable television cont.       
Unitymedia Hessen GmbH & Co. KG/Unitymedia NRW GmbH 144A     
company guaranty sr. notes 7 1/2s, 2019 (Germany)    $735,000  $775,436 
Videotron Ltee sr. notes 6 7/8s, 2021 (Canada)  CAD  340,000  352,930 
Videotron Ltee 144A sr. unsec. notes 5s, 2022 (Canada)    $1,710,000  1,667,250 
Virgin Media Finance PLC company guaranty sr. notes Ser. 1,       
9 1/2s, 2016 (United Kingdom)    406,000  449,645 
Virgin Media Finance PLC company guaranty sr. unsec.       
unsub. notes 5 1/4s, 2022 (United Kingdom)    600,000  596,315 
      21,516,829 
Capital goods (6.0%)       
Altra Holdings, Inc. company guaranty sr. notes 8 1/8s, 2016    2,420,000  2,583,350 
American Axle & Manufacturing, Inc. company       
guaranty sr. unsec. notes 7 3/4s, 2019    2,275,000  2,411,500 
American Axle & Manufacturing, Inc. company       
guaranty sr. unsec. notes 5 1/4s, 2014    755,000  779,538 
American Axle & Manufacturing, Inc. 144A company       
guaranty sr. notes 9 1/4s, 2017    545,000  600,863 
ARD Finance SA sr. Ser. REGS, 11 1/8s, 2018 (Luxembourg) ‡‡  EUR  211,125  224,811 
ARD Finance SA 144A sr. notes 11 1/8s, 2018 (Luxembourg) ‡‡    $445,049  418,346 
Ardagh Packaging Finance PLC sr. notes Ser. REGS, 7 3/8s,       
2017 (Ireland)  EUR  710,000  904,156 
Ardagh Packaging Finance PLC 144A company       
guaranty sr. notes 7 3/8s, 2017 (Ireland)  EUR  480,000  611,261 
Ardagh Packaging Finance PLC 144A company       
guaranty sr. notes 7 3/8s, 2017 (Ireland)    $200,000  213,000 
Ball Corp. company guaranty sr. unsec. notes 5s, 2022    455,000  459,550 
BE Aerospace, Inc. sr. unsec. unsub. notes 6 7/8s, 2020    410,000  449,975 
BE Aerospace, Inc. sr. unsec. unsub. notes 5 1/4s, 2022    525,000  534,188 
Berry Plastics Corp. company guaranty notes 9 1/2s, 2018    1,295,000  1,327,375 
Berry Plastics Corp. company guaranty unsub. notes 9 3/4s, 2021    705,000  733,200 
Berry Plastics Holding Corp. company guaranty sr. unsec.       
sub. notes 10 1/4s, 2016    630,000  644,175 
Bombardier, Inc. 144A sr. unsec. notes 7 3/4s, 2020 (Canada)    755,000  827,669 
Bombardier, Inc. 144A sr. unsec. notes 5 3/4s, 2022 (Canada)    920,000  894,700 
Briggs & Stratton Corp. company guaranty sr. unsec.       
notes 6 7/8s, 2020    2,100,000  2,241,750 
Crown Euro Holdings SA 144A sr. notes 7 1/8s, 2018 (France)  EUR  370,000  488,858 
Exide Technologies sr. notes 8 5/8s, 2018    $1,135,000  839,900 
Kratos Defense & Security Solutions, Inc. company       
guaranty sr. notes 10s, 2017    2,634,000  2,792,040 
Legrand SA unsec. unsub. debs. 8 1/2s, 2025 (France)    3,065,000  4,005,594 
Mead Products, LLC/ACCO Brands Corp. 144A company       
guaranty sr. unsec notes 6 3/4s, 2020    320,000  328,800 
Meritor, Inc. company guaranty sr. unsec. notes 8 1/8s, 2015    410,000  436,138 
Mueller Water Products, Inc. company guaranty sr. unsec.       
unsub. notes 8 3/4s, 2020    180,000  198,900 
Pittsburgh Glass Works, LLC 144A sr. notes 8 1/2s, 2016    2,555,000  2,401,700 
Polypore International, Inc. company guaranty sr. unsec.       
notes 7 1/2s, 2017    1,550,000  1,619,750 

 

21


CORPORATE BONDS AND NOTES (87.4%)* cont.  Principal amount  Value 
 
Capital goods cont.     
Rexel SA 144A company guaranty sr. unsec.     
unsub. notes 6 1/8s, 2019 (France)  $1,865,000  $1,873,953 
Reynolds Group Issuer, Inc. 144A company     
guaranty sr. notes 7 1/8s, 2019  580,000  595,950 
Reynolds Group Issuer, Inc. 144A company     
guaranty sr. unsec. notes 9s, 2019  635,000  609,600 
Reynolds Group Issuer, Inc. 144A sr. unsec. notes 9 7/8s, 2019  525,000  523,688 
Reynolds Group Issuer, Inc. 144A sr. unsec. notes 8 1/2s,     
2021 (New Zealand)  440,000  408,100 
Reynolds Group Issuer, Inc./Reynolds Group Issuer, LLC 144A     
company guaranty sr. notes 7 3/4s, 2016  780,000  822,900 
Reynolds Group Issuer, Inc./Reynolds Group     
Issuer, LLC/Reynolds Group Issuer Lu 144A     
sr. notes 7 7/8s, 2019  985,000  1,039,175 
Reynolds Group Issuer, Inc./Reynolds Group Issuer,     
LLC/Reynolds Group Issuer Lu 144A sr. unsec. notes 9 7/8s, 2019  940,000  935,300 
Ryerson Holding Corp. sr. disc. notes zero %, 2015  1,795,000  973,788 
Ryerson, Inc. company guaranty sr. notes 12s, 2015  3,140,000  3,202,800 
Silgan Holdings, Inc. 144A sr. notes 5s, 2020  455,000  453,863 
Tenneco, Inc. company guaranty sr. unsec.     
unsub. notes 7 3/4s, 2018  625,000  671,875 
Tenneco, Inc. company guaranty sr. unsub. notes 6 7/8s, 2020  1,240,000  1,317,500 
Terex Corp. company guaranty sr. unsec. notes 10 7/8s, 2016  775,000  868,000 
Terex Corp. sr. unsec. sub. notes 8s, 2017  1,774,000  1,805,045 
Thermadyne Holdings Corp. company guaranty sr. notes 9s, 2017  2,390,000  2,437,800 
Thermadyne Holdings Corp. 144A sr. notes 9s, 2017  1,005,000  1,025,100 
Thermon Industries, Inc. company guaranty sr. notes 9 1/2s, 2017  1,595,000  1,754,500 
TransDigm, Inc. company guaranty unsec. sub. notes 7 3/4s, 2018  1,900,000  2,018,750 
    53,308,774 
Coal (1.7%)     
Alpha Natural Resources, Inc. company guaranty sr. unsec.     
notes 6 1/4s, 2021  460,000  412,850 
Alpha Natural Resources, Inc. company guaranty sr. unsec.     
notes 6s, 2019  1,370,000  1,229,575 
Arch Coal, Inc. company guaranty sr. unsec. notes 7 1/4s, 2020  540,000  461,700 
Arch Coal, Inc. 144A company guaranty sr. unsec. notes 7s, 2019  1,420,000  1,217,650 
CONSOL Energy, Inc. company guaranty sr. unsec. notes 8 1/4s, 2020  4,055,000  4,055,000 
CONSOL Energy, Inc. company guaranty sr. unsec. notes 8s, 2017  1,835,000  1,839,588 
James River Coal Co. company guaranty sr. unsec.     
unsub. notes 7 7/8s, 2019  325,000  178,750 
Peabody Energy Corp. company guaranty sr. unsec.     
notes 7 3/8s, 2016  2,635,000  2,918,262 
Peabody Energy Corp. company guaranty sr. unsec.     
unsub. notes 6 1/2s, 2020  150,000  151,125 
Peabody Energy Corp. 144A sr. unsec. notes 6s, 2018  2,470,000  2,463,825 
    14,928,325 

 

22


CORPORATE BONDS AND NOTES (87.4%)* cont.  Principal amount  Value 
 
Commercial and consumer services (1.9%)       
ARAMARK Holdings Corp. 144A sr. unsec. notes 8 5/8s, 2016 ‡‡    $360,000  $368,104 
Compucom Systems, Inc. 144A sr. sub. notes 12 1/2s, 2015    570,000  594,225 
Interactive Data Corp. company guaranty sr. unsec.       
notes 10 1/4s, 2018    3,685,000  4,081,138 
Lender Processing Services, Inc. company       
guaranty sr. unsec. unsub. notes 8 1/8s, 2016    2,258,000  2,348,320 
PHH Corp. sr. unsec. unsub. notes 9 1/4s, 2016    1,360,000  1,414,400 
Rural/Metro Corp. 144A sr. unsec. notes 10 1/8s, 2019    1,810,000  1,696,875 
Rural/Metro Corp. 144A sr. unsec. notes 10 1/8s, 2019    585,000  538,930 
Sabre Holdings Corp. sr. unsec. unsub. notes 8.35s, 2016    2,430,000  2,223,450 
Sabre, Inc. 144A sr. notes 8 1/2s, 2019    1,035,000  1,035,000 
TransUnion Holding Co., Inc. 144A sr. notes 9 5/8s, 2018 ‡‡    460,000  481,850 
Travelport, LLC company guaranty sr. unsec.       
sub. notes 11 7/8s, 2016    840,000  300,300 
Travelport, LLC company guaranty sr. unsec.       
unsub. notes 9 7/8s, 2014    65,000  45,338 
Travelport, LLC 144A sr. notes 6.47s, 2016 ‡‡    1,312,068  947,968 
Travelport, LLC/Travelport, Inc. company       
guaranty sr. unsec. notes 9s, 2016    1,200,000  774,000 
      16,849,898 
Consumer (0.9%)       
Jarden Corp. company guaranty sr. unsec. notes 8s, 2016    605,000  654,913 
Jarden Corp. company guaranty sr. unsec. sub. notes Ser. 1,       
7 1/2s, 2020  EUR  250,000  316,488 
Scotts Miracle-Gro Co. (The) company guaranty sr. unsec.       
unsub. notes 6 5/8s, 2020    $1,240,000  1,314,400 
Spectrum Brands Holdings, Inc. Company       
guaranty sr. notes 9 1/2s, 2018    1,565,000  1,729,325 
Spectrum Brands Holdings, Inc. 144A company       
guaranty sr. notes 9 1/2s, 2018    690,000  762,450 
Spectrum Brands Holdings, Inc. 144A sr. notes 6 3/4s, 2020    1,330,000  1,346,625 
YCC Holdings, LLC/Yankee Finance, Inc. sr. unsec.       
notes 10 1/4s, 2016 ‡‡    1,590,000  1,593,975 
      7,718,176 
Consumer staples (6.5%)       
Avis Budget Car Rental, LLC company guaranty sr. unsec.       
unsub. notes 9 3/4s, 2020    470,000  513,475 
Avis Budget Car Rental, LLC company guaranty sr. unsec.       
unsub. notes 9 5/8s, 2018    1,530,000  1,661,962 
Avis Budget Car Rental, LLC company guaranty sr. unsec.       
unsub. notes 7 3/4s, 2016    1,475,000  1,515,563 
Avis Budget Car Rental, LLC 144A company       
guaranty sr. unsec. unsub. notes 8 1/4s, 2019    430,000  445,050 
Burger King Corp. company guaranty sr. unsec. notes 9 7/8s, 2018    550,000  620,812 
Carrols Restaurant Group, Inc. 144A company       
guaranty sr. notes 11 1/4s, 2018    915,000  931,012 
CKE Holdings, Inc. 144A sr. notes 10 1/2s, 2016 ‡‡    898,374  967,997 
Claire’s Stores, Inc. company guaranty sr. notes 8 7/8s, 2019    1,040,000  878,800 
Claire’s Stores, Inc. 144A company guaranty sr. unsec.       
notes 9 5/8s, 2015    74,494  62,389 

 

23


CORPORATE BONDS AND NOTES (87.4%)* cont.  Principal amount  Value 
 
Consumer staples cont.       
Claire’s Stores, Inc. 144A sr. notes 9s, 2019    $1,380,000  $1,380,000 
Constellation Brands, Inc. company guaranty sr. unsec.       
unsub. notes 7 1/4s, 2016    1,935,000  2,182,922 
Constellation Brands, Inc. company guaranty sr. unsec.       
unsub. notes 6s, 2022    735,000  780,938 
Corrections Corporation of America company       
guaranty sr. notes 7 3/4s, 2017    2,270,000  2,445,925 
Dave & Buster’s, Inc. company guaranty sr. unsec.       
unsub. notes 11s, 2018    1,730,000  1,859,750 
Dean Foods Co. company guaranty sr. unsec.       
unsub. notes 9 3/4s, 2018    640,000  703,600 
Dean Foods Co. company guaranty sr. unsec. unsub. notes       
7s, 2016    1,830,000  1,905,487 
Del Monte Corp. company guaranty sr. unsec. notes       
7 5/8s, 2019    640,000  620,800 
DineEquity, Inc. company guaranty sr. unsec. notes 9 1/2s, 2018    3,436,000  3,732,354 
Dole Food Co. sr. notes 13 7/8s, 2014    441,000  502,740 
Dole Food Co. 144A sr. notes 8s, 2016    841,000  879,895 
Elizabeth Arden, Inc. sr. unsec. unsub. notes 7 3/8s, 2021    1,415,000  1,544,118 
Hertz Corp. (The) company guaranty sr. unsec. notes 7 1/2s, 2018    570,000  593,513 
Hertz Holdings Netherlands BV 144A sr. bonds 8 1/2s, 2015       
(Netherlands)  EUR  1,450,000  1,907,636 
JBS USA, LLC/JBS USA Finance, Inc. company       
guaranty sr. unsec. notes 11 5/8s, 2014    $585,000  663,975 
JBS USA, LLC/JBS USA Finance, Inc. 144A sr. unsec.       
notes 8 1/4s, 2020    540,000  515,700 
JBS USA, LLC/JBS USA Finance, Inc. 144A sr. unsec.       
notes 7 1/4s, 2021    2,265,000  2,089,463 
Landry’s Acquisition Co. 144A sr. unsec. notes 9 3/8s, 2020    975,000  999,375 
Libbey Glass, Inc. sr. notes 10s, 2015    84,000  89,461 
Libbey Glass, Inc. 144A company guaranty sr. notes 6 7/8s, 2020    865,000  867,163 
Michael Foods, Inc. company guaranty sr. unsec       
notes 9 3/4s, 2018    715,000  773,988 
Post Holdings, Inc. 144A sr. unsec. notes 7 3/8s, 2022    1,120,000  1,139,600 
Prestige Brands, Inc. company guaranty sr. unsec.       
notes 8 1/4s, 2018    1,840,000  2,005,600 
Revlon Consumer Products Corp. company       
guaranty notes 9 3/4s, 2015    1,400,000  1,501,500 
Rite Aid Corp. company guaranty sr. notes 10 1/4s, 2019    515,000  581,950 
Rite Aid Corp. company guaranty sr. notes 7 1/2s, 2017    1,340,000  1,326,600 
Rite Aid Corp. company guaranty sr. unsec.       
unsub. notes 9 1/2s, 2017    2,370,000  2,275,200 
Rite Aid Corp. company guaranty sr. unsub. notes 8s, 2020    445,000  486,719 
Rite Aid Corp. 144A sr. notes 9 1/4s, 2020    1,380,000  1,324,800 
Service Corporation International sr. notes 7s, 2019    660,000  696,300 
Service Corporation International sr. notes 7s, 2017    205,000  228,063 
Service Corporation International sr. unsec.       
unsub. notes 6 3/4s, 2016    2,005,000  2,170,413 
Smithfield Foods, Inc. company guaranty sr. notes 10s, 2014    2,325,000  2,673,750 

 

24


CORPORATE BONDS AND NOTES (87.4%)* cont.  Principal amount  Value 
 
Consumer staples cont.     
Stewart Enterprises, Inc. company guaranty sr. unsec.     
notes 6 1/2s, 2019  $1,125,000  $1,153,124 
Tyson Foods, Inc. sr. unsec. unsub. notes 10 1/2s, 2014  1,510,000  1,728,950 
Wendy’s Co. (The) company guaranty sr. unsec.     
unsub. notes 10s, 2016  2,480,000  2,684,625 
West Corp. company guaranty sr. unsec. notes 8 5/8s, 2018  725,000  755,813 
West Corp. company guaranty sr. unsec. notes 7 7/8s, 2019  1,240,000  1,243,100 
    58,611,970 
Distributors (0.1%)     
HD Supply, Inc. 144A company guaranty sr. notes 8 1/8s, 2019  1,145,000  1,196,525 
    1,196,525 
Energy (oil field) (1.0%)     
FTS International Services, LLC/FTS International Bonds, Inc.     
144A company guaranty sr. unsec. unsub. notes 8 1/8s, 2018  1,550,000  1,534,500 
Key Energy Services, Inc. company guaranty unsec.     
unsub. notes 6 3/4s, 2021  1,420,000  1,425,325 
Key Energy Services, Inc. 144A company guaranty sr. unsec.     
notes 6 3/4s, 2021  365,000  364,544 
Offshore Group Investments, Ltd. company     
guaranty sr. notes 11 1/2s, 2015 (Cayman Islands)  2,285,000  2,433,525 
Offshore Group Investments, Ltd. 144A company     
guaranty sr. notes 11 1/2s, 2015 (Cayman Islands)  2,080,000  2,215,200 
SESI, LLC 144A sr. unsec. notes 7 1/8s, 2021  760,000  828,400 
Trinidad Drilling, Ltd. 144A sr. unsec. notes 7 7/8s, 2019 (Canada)  325,000  341,250 
    9,142,744 
Entertainment (0.8%)     
AMC Entertainment, Inc. company     
guaranty sr. sub. notes 9 3/4s, 2020  2,835,000  3,047,625 
Carmike Cinemas, Inc. 144A company     
guaranty sr. notes 7 3/8s, 2019  820,000  844,600 
Cedar Fair LP/Canada’s Wonderland Co./Magnum Management     
Corp. company guaranty sr. unsec. notes 9 1/8s, 2018  255,000  282,413 
Cinemark USA, Inc. company guaranty sr. unsec.     
notes 8 5/8s, 2019  160,000  174,000 
Cinemark USA, Inc. company guaranty sr. unsec.     
sub. notes 7 3/8s, 2021  805,000  861,350 
Regal Entertainment Group company guaranty sr. unsec.     
notes 9 1/8s, 2018  2,015,000  2,191,312 
    7,401,300 
Financials (8.4%)     
ABN AMRO North American Holding Preferred Capital Repackage     
Trust I 144A jr. unsec. sub. bonds FRB 6.523s, Perpetual maturity  2,605,000  2,246,812 
ACE Cash Express, Inc. 144A sr. notes 11s, 2019  1,060,000  924,850 
Air Lease Corp. 144A sr. notes 5 5/8s, 2017  1,385,000  1,357,300 
Ally Financial, Inc. company guaranty sr. notes 6 1/4s, 2017  1,235,000  1,267,158 
Ally Financial, Inc. company guaranty sr. unsec.     
unsub. notes 8.3s, 2015  1,825,000  1,952,750 
Ally Financial, Inc. company guaranty sr. unsec.     
unsub. notes 8s, 2020  795,000  896,362 
Ally Financial, Inc. company guaranty sr. unsec.     
unsub. notes 7 1/2s, 2020  2,620,000  2,875,450 

 

25


CORPORATE BONDS AND NOTES (87.4%)* cont.  Principal amount  Value 
 
Financials cont.     
Ally Financial, Inc. company guaranty sr. unsec.     
unsub. notes 5 1/2s, 2017  $575,000  $575,000 
Ally Financial, Inc. company guaranty sr. unsec.     
unsub. notes FRN 2.688s, 2014  821,000  786,466 
Ally Financial, Inc. unsec. sub. notes 8s, 2018  905,000  977,400 
American International Group, Inc. jr. sub. bonds FRB     
8.175s, 2068  1,900,000  1,973,625 
BankAmerica Capital II bank guaranty jr. unsec.     
sub. notes 8s, 2026  425,000  426,063 
Capital One Capital IV company guaranty jr. unsec.     
sub. notes FRN 6.745s, 2037  1,365,000  1,366,706 
CB Richard Ellis Services, Inc. company guaranty sr. unsec.     
notes 6 5/8s, 2020  885,000  942,525 
CB Richard Ellis Services, Inc. company guaranty sr. unsec.     
sub. notes 11 5/8s, 2017  1,040,000  1,175,200 
CIT Group, Inc. sr. unsec. unsub notes 5 3/8s, 2020  1,145,000  1,099,200 
CIT Group, Inc. sr. unsec. unsub notes 5s, 2017  915,000  898,988 
CIT Group, Inc. sr. unsec. unsub. notes 5 1/4s, 2018  1,505,000  1,482,425 
CIT Group, Inc. 144A bonds 7s, 2017  4,268,780  4,263,443 
CIT Group, Inc. 144A bonds 7s, 2016  777,000  776,029 
CIT Group, Inc. 144A company guaranty notes 6 5/8s, 2018  1,290,000  1,338,375 
CIT Group, Inc. 144A company guaranty notes 5 1/2s, 2019  1,375,000  1,337,188 
CNG Holdings, Inc./OH 144A sr. notes 9 3/8s, 2020  680,000  683,400 
CNO Financial Group, Inc. 144A company     
guaranty sr. notes 9s, 2018  1,015,000  1,075,900 
Community Choice Financial, Inc. 144A sr. notes 10 3/4s, 2019  1,675,000  1,654,062 
Dresdner Funding Trust I 144A bonds 8.151s, 2031  2,550,000  2,001,750 
E*Trade Financial Corp. sr. notes 6 3/4s, 2016  1,040,000  1,055,600 
E*Trade Financial Corp. sr. unsec. unsub. notes 12 1/2s, 2017  960,000  1,101,600 
HBOS Capital Funding LP 144A bank guaranty jr. unsec.     
sub. FRB 6.071s, Perpetual maturity (Jersey)  2,085,000  1,292,700 
HBOS PLC 144A sr. unsec. sub. notes 6 3/4s, 2018     
(United Kingdom)  1,650,000  1,511,873 
HBOS PLC 144A unsec. sub. bonds 6s, 2033 (United Kingdom)  650,000  474,500 
HUB International Holdings, Inc. 144A     
sr. sub. notes 10 1/4s, 2015  555,000  561,243 
Icahn Enterprises LP/Icahn Enterprises Finance Corp.     
company guaranty sr. unsec. notes 8s, 2018  3,215,000  3,403,880 
International Lease Finance Corp. sr. unsec. notes 6 1/4s, 2019  155,000  155,000 
International Lease Finance Corp. sr. unsec.     
unsub. notes 4 7/8s, 2015  630,000  618,975 
iStar Financial, Inc. 144A sr. unsec. notes 9s, 2017 R  1,255,000  1,211,075 
Leucadia National Corp. sr. unsec. notes 8 1/8s, 2015  200,000  223,500 
Liberty Mutual Group, Inc. 144A company guaranty jr. unsec.     
sub. bonds 7.8s, 2037  970,000  945,750 
Liberty Mutual Group, Inc. 144A company guaranty jr. unsec.     
sub. notes FRN 7s, 2037  195,000  173,550 
MPT Operating Partnership LP/MPT Finance Corp. company     
guaranty sr. unsec notes 6 7/8s, 2021 R  640,000  659,200 

 

26


CORPORATE BONDS AND NOTES (87.4%)* cont.  Principal amount  Value 
 
Financials cont.     
MPT Operating Partnership LP/MPT Finance Corp. company     
guaranty sr. unsec. unsub. notes 6 3/8s, 2022 R  $915,000  $912,712 
National Money Mart Co. company guaranty sr. unsec.     
unsub. notes 10 3/8s, 2016 (Canada)  810,000  895,050 
Nationstar Mortgage, LLC/Nationstar Capital Corp. 144A     
company guaranty sr. unsec. notes 9 5/8s, 2019  410,000  426,400 
NB Capital Trust IV jr. unsec. sub. notes 8 1/4s, 2027  400,000  400,880 
Neuberger Berman Group LLC/Neuberger Berman Finance Corp.     
144A sr. notes 5 7/8s, 2022  1,215,000  1,245,375 
Neuberger Berman Group LLC/Neuberger Berman Finance Corp.     
144A sr. notes 5 5/8s, 2020  685,000  700,412 
Nuveen Investments, Inc. company guaranty sr. unsec.     
unsub. notes 10 1/2s, 2015  1,265,000  1,277,650 
Provident Funding Associates LP/PFG Finance Corp. 144A     
sr. notes 10 1/4s, 2017  2,270,000  2,349,450 
Provident Funding Associates LP/PFG Finance Corp. 144A     
sr. notes 10 1/8s, 2019  790,000  707,050 
Regions Bank unsec. sub. notes 7 1/2s, 2018  850,000  952,000 
Regions Financing Trust II company guaranty jr. unsec.     
sub. bonds FRB 6 5/8s, 2047  1,150,000  1,068,063 
Residential Capital LLC company guaranty jr. notes 9 5/8s,     
2015 (In default) †  2,855,000  2,662,287 
Royal Bank of Scotland Group PLC jr. unsec. sub. bonds FRB     
7.648s, Perpetual maturity (United Kingdom)  3,450,000  2,622,000 
Royal Bank of Scotland Group PLC sr. sub. notes FRN 9 1/2s,     
2022 (United Kingdom)  430,000  434,773 
SLM Corp. sr. notes Ser. MTN, 8s, 2020  885,000  905,817 
SLM Corp. sr. unsec. unsub. notes Ser. MTN, 8.45s, 2018  3,495,000  3,687,225 
Springleaf Finance Corp. sr. unsec. notes Ser. MTN, 6.9s, 2017  4,215,000  3,308,775 
Springleaf Finance Corp. sr. unsec. notes Ser. MTNI,     
4 7/8s, 2012  815,000  810,925 
USI Holdings Corp. 144A company guaranty sr. unsec.     
notes FRN 4.342s, 2014  330,000  301,125 
    75,410,842 
Gaming and lottery (3.0%)     
American Casino & Entertainment Properties LLC     
sr. notes 11s, 2014  1,960,000  2,048,200 
Caesars Entertainment Operating Co., Inc. company     
guaranty sr. notes 10s, 2018  3,262,000  2,201,850 
Caesars Entertainment Operating Co., Inc. company     
guaranty sr. notes 10s, 2015  435,000  378,450 
Caesars Entertainment Operating Co., Inc.     
sr. notes 11 1/4s, 2017  5,590,000  5,939,375 
CCM Merger, Inc. 144A company guaranty sr. unsec     
notes 9 1/8s, 2019  1,150,000  1,152,875 
Isle of Capri Casinos, Inc. company guaranty 7s, 2014  2,639,000  2,619,208 
Isle of Capri Casinos, Inc. company guaranty sr. unsec.     
unsub. notes 7 3/4s, 2019  1,145,000  1,157,880 
Mashantucket Western Pequot Tribe 144A bonds Ser. A,     
8 1/2s, 2015 (In default) †  1,995,000  149,625 

 

27


CORPORATE BONDS AND NOTES (87.4%)* cont.  Principal amount  Value 
 
Gaming and lottery cont.       
MTR Gaming Group, Inc. company guaranty notes       
11 1/2s, 2019 ‡‡    $3,859,200  $3,897,791 
Penn National Gaming, Inc. sr. unsec. sub. notes 8 3/4s, 2019    385,000  424,462 
Pinnacle Entertainment, Inc. company guaranty sr. unsec.       
notes 8 5/8s, 2017    410,000  444,850 
ROC Finance, LLC/ROC Finance 1 Corp. 144A notes       
12 1/8s, 2018    1,825,000  2,039,438 
Wynn Las Vegas, LLC/Wynn Las Vegas Capital Corp. company       
guaranty 1st mtge. notes 7 3/4s, 2020    885,000  961,330 
Yonkers Racing Corp. 144A sr. notes 11 3/8s, 2016    3,086,000  3,278,875 
      26,694,209 
Health care (6.5%)       
Aviv Healthcare Properties LP company guaranty sr. unsec.       
notes 7 3/4s, 2019    1,200,000  1,248,000 
Biomet, Inc. company guaranty sr. unsec. notes 10s, 2017    1,980,000  2,106,225 
Biomet, Inc. company guaranty sr. unsec.       
sub. notes 11 5/8s, 2017    200,000  212,000 
Capella Healthcare, Inc. company guaranty sr. unsec.       
notes 9 1/4s, 2017    1,785,000  1,785,000 
Capsugel FinanceCo SCA 144A company guaranty sr. unsec.       
notes 9 7/8s, 2019  EUR  1,690,000  2,200,355 
CHS/Community Health Systems, Inc. company       
guaranty sr. unsec. unsub. notes 8s, 2019    $1,840,000  1,879,100 
ConvaTec Healthcare E SA 144A sr. notes 7 3/8s, 2017       
(Luxembourg)  EUR  610,000  756,800 
ConvaTec Healthcare E SA 144A sr. unsec. notes 10 1/2s,       
2018 (Luxembourg)    $3,110,000  3,063,350 
DaVita, Inc. company guaranty sr. unsec. notes 6 5/8s, 2020    415,000  420,188 
Elan Finance PLC/Elan Finance Corp. company guaranty       
sr. unsec. notes 8 3/4s, 2016 (Ireland)    2,070,000  2,251,125 
Emergency Medical Services Corp. company       
guaranty sr. unsec. notes 8 1/8s, 2019    1,285,000  1,310,700 
Endo Health Solutions, Inc. company guaranty sr. unsec       
notes 7s, 2019    895,000  935,275 
Fresenius Medical Care US Finance II, Inc. 144A company       
guaranty sr. unsec. notes 5 5/8s, 2019    1,315,000  1,305,138 
Grifols, Inc. company guaranty sr. unsec notes 8 1/4s, 2018    1,505,000  1,600,944 
HCA, Inc. company guaranty sr. notes 9 7/8s, 2017    335,000  365,150 
HCA, Inc. company guaranty sr. notes 8 1/2s, 2019    2,865,000  3,162,243 
HCA, Inc. sr. notes 6 1/2s, 2020    5,315,000  5,587,393 
HCA, Inc. sr. unsec. notes 7 1/2s, 2022    1,450,000  1,511,625 
Health Net, Inc. sr. unsec. bonds 6 3/8s, 2017    2,730,000  2,784,600 
IASIS Healthcare, LLC/IASIS Capital Corp. company       
guaranty sr. unsec notes 8 3/8s, 2019    1,950,000  1,833,000 
Jaguar Holding Co. II/Jaguar Merger Sub, Inc. 144A       
sr. unsec. notes 9 1/2s, 2019    1,675,000  1,783,875 
Kinetics Concept/KCI USA 144A company       
guaranty notes 10 1/2s, 2018    3,310,000  3,343,100 
Kinetics Concept/KCI USA 144A company guaranty sr. unsec.       
notes 12 1/2s, 2019    1,610,000  1,432,900 

 

28


CORPORATE BONDS AND NOTES (87.4%)* cont.  Principal amount  Value 
 
Health care cont.     
Multiplan, Inc. 144A company guaranty sr. notes 9 7/8s, 2018  $1,515,000  $1,605,900 
Omega Healthcare Investors, Inc. company     
guaranty sr. unsec. notes 6 3/4s, 2022 R  975,000  1,028,625 
Surgical Care Affiliates, Inc. 144A sr. sub. notes 10s, 2017  2,220,000  2,214,450 
Surgical Care Affiliates, Inc. 144A sr. unsec.     
notes 8 7/8s, 2015 ‡‡  577,149  582,920 
Teleflex, Inc. company guaranty sr. unsec.     
sub. notes 6 7/8s, 2019  1,135,000  1,203,100 
Tenet Healthcare Corp. company guaranty sr. notes 10s, 2018  560,000  638,400 
Tenet Healthcare Corp. sr. notes 8 7/8s, 2019  775,000  862,188 
Tenet Healthcare Corp. 144A company guaranty notes     
6 1/4s, 2018  2,850,000  2,878,500 
USPI Finance Corp. 144A sr. unsec. notes 9s, 2020  1,140,000  1,182,750 
Valeant Pharmaceuticals International 144A company     
guaranty sr. notes 7s, 2020  250,000  241,875 
Valeant Pharmaceuticals International 144A company     
guaranty sr. unsec. notes 6 7/8s, 2018  1,480,000  1,461,500 
Valeant Pharmaceuticals International 144A company     
guaranty sr. unsec. notes 6 1/2s, 2016  1,185,000  1,208,700 
Valeant Pharmaceuticals International 144A     
sr. notes 6 3/4s, 2017  580,000  580,000 
Vanguard Health Systems, Inc. sr. unsec. notes zero %, 2016  59,000  40,858 
    58,607,852 
Homebuilding (1.4%)     
Beazer Homes USA, Inc. company guaranty sr. unsec.     
notes 6 7/8s, 2015  1,325,000  1,222,313 
Beazer Homes USA, Inc. company guaranty sr. unsec.     
unsub. notes 9 1/8s, 2018  190,000  157,700 
Beazer Homes USA, Inc. sr. unsec. notes 9 1/8s, 2019  540,000  448,200 
Beazer Homes USA, Inc. sr. unsec. notes company     
guaranty 8 1/8s, 2016  340,000  310,250 
M/I Homes, Inc. company guaranty sr. unsec. notes 8 5/8s, 2018  2,450,000  2,480,625 
Pulte Group, Inc. company guaranty sr. unsec. notes 7 5/8s, 2017  2,070,000  2,214,900 
Pulte Group, Inc. company guaranty sr. unsec.     
unsub. notes 7 7/8s, 2032  995,000  957,688 
Realogy Corp. company guaranty sr. unsec.     
unsub. notes 11 1/2s, 2017  2,240,000  1,982,400 
Realogy Corp. 144A company guaranty sr. notes 9s, 2020  350,000  350,875 
Realogy Corp. 144A company guaranty sr. notes 7 7/8s, 2019  215,000  204,250 
Realogy Corp. 144A company guaranty sr. notes 7 5/8s, 2020  525,000  539,438 
Taylor Morrison Communities, Inc./Monarch Communities, Inc.     
144A sr. notes 7 3/4s, 2020  1,255,000  1,292,650 
    12,161,289 
Household furniture and appliances (0.1%)     
Sealy Mattress Co. 144A company guaranty sr. notes     
10 7/8s, 2016  699,000  758,422 
    758,422 

 

29


CORPORATE BONDS AND NOTES (87.4%)* cont.  Principal amount  Value 
 
Lodging/Tourism (1.6%)       
CityCenter Holdings LLC/CityCenter Finance Corp. company       
guaranty 10 3/4s, 2017 ‡‡    $2,204,651  $2,358,976 
CityCenter Holdings LLC/CityCenter Finance Corp. company       
guaranty sr. notes 7 5/8s, 2016    800,000  828,000 
FelCor Lodging LP company guaranty sr. notes 10s, 2014 R    2,324,000  2,649,360 
FelCor Lodging LP company guaranty sr. notes 6 3/4s, 2019 R    2,115,000  2,120,288 
MGM Resorts International company guaranty sr. notes 9s, 2020    140,000  153,300 
MGM Resorts International company guaranty sr. unsec.       
notes 6 7/8s, 2016    535,000  537,675 
MGM Resorts International company guaranty sr. unsec.       
notes 6 5/8s, 2015    1,985,000  2,038,347 
MGM Resorts International company guaranty sr. unsec.       
unsub. notes 7 3/4s, 2022    915,000  915,000 
MGM Resorts International sr. notes 10 3/8s, 2014    260,000  292,500 
MGM Resorts International 144A company guaranty sr. unsec.       
notes 8 5/8s, 2019    1,440,000  1,522,800 
SugarHouse HSP Gaming Prop. Mezz LP/SugarHouse HSP Gaming       
Finance Corp. 144A notes 8 5/8s, 2016    745,000  785,975 
      14,202,221 
Media (0.4%)       
Affinion Group Holdings, Inc. company guaranty sr. unsec.       
notes 11 5/8s, 2015    1,405,000  1,131,025 
Nielsen Finance, LLC/Nielsen Finance Co. company       
guaranty sr. unsec. notes 7 3/4s, 2018    2,154,000  2,315,550 
      3,446,575 
Miscellaneous (0.1%)       
Rivers Pittsburgh Borrower LP/Rivers Pittsburgh       
Finance Corp. 144A sr. notes 9 1/2s, 2019    1,295,000  1,307,950 
      1,307,950 
Oil and gas (9.8%)       
Anadarko Finance Co. company guaranty sr. unsec.       
unsub. notes Ser. B, 7 1/2s, 2031    230,000  287,174 
Anadarko Petroleum Corp. sr. notes 5.95s, 2016    1,035,000  1,173,045 
Anadarko Petroleum Corp. sr. unsec. notes 6.2s, 2040    690,000  789,962 
ATP Oil & Gas Corp. company guaranty sr. notes 11 7/8s, 2015    670,000  356,775 
Atwood Oceanics, Inc. sr. unsec. unsub. notes 6 1/2s, 2020    1,020,000  1,055,700 
Aurora USA Oil & Gas Inc. 144A sr. notes 9 7/8s, 2017    925,000  971,250 
Carrizo Oil & Gas, Inc. company guaranty sr. unsec.       
notes 8 5/8s, 2018    3,729,000  3,896,805 
Chaparral Energy, Inc. company guaranty sr. unsec.       
notes 9 7/8s, 2020    1,235,000  1,373,938 
Chaparral Energy, Inc. company guaranty sr. unsec.       
notes 8 1/4s, 2021    1,700,000  1,802,000 
Chesapeake Energy Corp. company guaranty 6 1/2s, 2017    220,000  209,000 
Chesapeake Energy Corp. company guaranty sr. unsec. bond       
6 1/4s, 2017  EUR  485,000  540,104 
Chesapeake Energy Corp. company guaranty sr. unsec.       
notes 9 1/2s, 2015    $1,625,000  1,714,375 
Chesapeake Energy Corp. company guaranty sr. unsec.       
unsub. notes 6.775s, 2019    605,000  574,750 

 

30


CORPORATE BONDS AND NOTES (87.4%)* cont.  Principal amount  Value 
 
Oil and gas cont.     
Chesapeake Midstream Partners LP/CHKM Finance Corp. company     
guaranty sr. unsec notes 5 7/8s, 2021  $580,000  $553,900 
Chesapeake Midstream Partners LP/CHKM Finance Corp. company     
guaranty sr. unsec. unsub. notes 6 1/8s, 2022  500,000  475,000 
Chesapeake Oilfield Operating, LLC/Chesapeake Oilfield     
Finance, Inc. 144A company guaranty sr. unsec.     
unsub. notes 6 5/8s, 2019  1,650,000  1,427,250 
Comstock Resources, Inc. company     
guaranty sr. unsub. notes 8 3/8s, 2017  1,090,000  1,062,750 
Concho Resources, Inc. company guaranty sr. unsec.     
notes 6 1/2s, 2022  1,570,000  1,636,725 
Concho Resources, Inc. company guaranty sr. unsec.     
unsub. notes 5 1/2s, 2022  730,000  717,225 
Connacher Oil and Gas, Ltd. 144A notes 8 1/2s, 2019 (Canada)  675,000  627,750 
Continental Resources, Inc. 144A company guaranty sr. unsec     
notes 5s, 2022  1,550,000  1,538,375 
Crosstex Energy LP/Crosstex Energy Finance Corp. company     
guaranty sr. unsec. notes 8 7/8s, 2018  3,130,000  3,286,500 
Crosstex Energy LP/Crosstex Energy Finance Corp. 144A     
company guaranty sr. unsec notes 7 1/8s, 2022  555,000  550,837 
Denbury Resources, Inc. company     
guaranty sr. sub. notes 9 3/4s, 2016  330,000  358,875 
Denbury Resources, Inc. company guaranty sr. unsec.     
sub. notes 8 1/4s, 2020  1,240,000  1,339,200 
Denbury Resources, Inc. company guaranty sr. unsec.     
sub. notes 6 3/8s, 2021  825,000  849,750 
Encore Acquisition Co. company     
guaranty sr. sub. notes 9 1/2s, 2016  285,000  310,650 
Everest Acquisition LLC/Everest Acquisition Finance, Inc.     
144A sr. notes 6 7/8s, 2019  625,000  640,625 
Everest Acquisition LLC/Everest Acquisition Finance, Inc.     
144A sr. unsec. notes 9 3/8s, 2020  2,685,000  2,752,125 
EXCO Resources, Inc. company guaranty sr. unsec.     
notes 7 1/2s, 2018  3,565,000  2,994,600 
Ferrellgas LP/Ferrellgas Finance Corp. sr. unsec.     
notes 9 1/8s, 2017  1,370,000  1,417,950 
Ferrellgas LP/Ferrellgas Finance Corp. sr. unsec.     
notes 6 1/2s, 2021  860,000  769,700 
Forbes Energy Services Ltd. company guaranty sr. unsec     
notes 9s, 2019  1,045,000  969,237 
Goodrich Petroleum Corp. company guaranty sr. unsec.     
unsub. notes 8 7/8s, 2019  2,380,000  2,261,000 
Hercules Offshore, Inc. 144A company     
guaranty sr. notes 7 1/8s, 2017  140,000  135,100 
Hercules Offshore, Inc. 144A sr. notes 10 1/2s, 2017  1,820,000  1,820,000 
Inergy LP/Inergy Finance Corp. company guaranty sr. unsec.     
notes 6 7/8s, 2021  1,345,000  1,345,000 
Kodiak Oil & Gas Corp. 144A sr. notes 8 1/8s, 2019  2,480,000  2,554,400 
Laredo Petroleum, Inc. company guaranty sr. unsec.     
unsub. notes 9 1/2s, 2019  2,130,000  2,364,300 

 

31


CORPORATE BONDS AND NOTES (87.4%)* cont.  Principal amount  Value 
 
Oil and gas cont.     
Laredo Petroleum, Inc. 144A company guaranty sr. unsec     
notes 7 3/8s, 2022  $555,000  $567,488 
Lone Pine Resources Canada, Ltd. 144A company     
guaranty sr. notes 10 3/8s, 2017 (Canada)  650,000  617,500 
MEG Energy Corp. 144A company guaranty sr. unsec.     
notes 6 1/2s, 2021 (Canada)  1,350,000  1,377,000 
Milagro Oil & Gas, Inc. company guaranty notes 10 1/2s, 2016  1,980,000  1,524,600 
Newfield Exploration Co. sr. sub. notes 6 5/8s, 2016  300,000  306,750 
Newfield Exploration Co. sr. unsec. notes 5 3/4s, 2022  695,000  731,488 
Newfield Exploration Co. sr. unsec. sub. notes 7 1/8s, 2018  360,000  381,600 
Northern Oil and Gas, Inc. 144A company guaranty sr. unsec     
notes 8s, 2020  1,390,000  1,383,050 
PetroBakken Energy, Ltd. 144A sr. unsec. notes 8 5/8s,     
2020 (Canada)  2,660,000  2,699,900 
Petroleum Development Corp. company guaranty sr. unsec.     
notes 12s, 2018  2,555,000  2,746,625 
Plains Exploration & Production Co. company     
guaranty sr. unsec. notes 7 5/8s, 2018  300,000  315,750 
Plains Exploration & Production Co. company     
guaranty sr. unsec. notes 6 3/4s, 2022  2,525,000  2,499,750 
Quicksilver Resources, Inc. company guaranty sr. unsec.     
notes 8 1/4s, 2015  565,000  552,288 
Quicksilver Resources, Inc. sr. notes 11 3/4s, 2016  1,265,000  1,296,625 
Range Resources Corp. company     
guaranty sr. sub. notes 6 3/4s, 2020  640,000  691,200 
Range Resources Corp. company guaranty sr. unsec.     
sub. notes 5s, 2022  640,000  614,400 
Rosetta Resources, Inc. company guaranty sr. unsec.     
notes 9 1/2s, 2018  2,400,000  2,610,000 
Sabine Pass LNG LP notes 7 1/2s, 2016  2,625,000  2,775,938 
Samson Investment Co. 144A sr. unsec. notes 9 3/4s, 2020  3,415,000  3,397,925 
SandRidge Energy, Inc. company guaranty sr. unsec.     
notes 9 7/8s, 2016  570,000  621,300 
SandRidge Energy, Inc. company guaranty sr. unsec.     
unsub. notes 7 1/2s, 2021  40,000  38,800 
SandRidge Energy, Inc. 144A company guaranty sr. unsec.     
unsub. notes 8s, 2018  3,285,000  3,285,000 
SM Energy Co. sr. unsec. notes 6 5/8s, 2019  715,000  736,450 
SM Energy Co. sr. unsec. notes 6 1/2s, 2021  690,000  705,525 
Unit Corp. company guaranty sr. sub. notes 6 5/8s, 2021  415,000  413,963 
Whiting Petroleum Corp. company guaranty 7s, 2014  1,245,000  1,319,700 
Williams Cos., Inc. (The) notes 7 3/4s, 2031  1,113,000  1,409,662 
Williams Cos., Inc. (The) sr. unsec. notes 7 7/8s, 2021  335,000  435,017 
WPX Energy, Inc. 144A sr. unsec. notes 6s, 2022  555,000  534,187 
WPX Energy, Inc. 144A sr. unsec. notes 5 1/4s, 2017  2,070,000  2,051,887 
    88,145,070 
Publishing (0.2%)     
Cenveo Corp. company guaranty sr. notes 8 7/8s, 2018  1,820,000  1,647,100 
    1,647,100 

 

32


CORPORATE BONDS AND NOTES (87.4%)* cont.  Principal amount  Value 
 
Regional Bells (0.9%)     
Cincinnati Bell, Inc. company guaranty sr. unsec.     
sub. notes 8 3/4s, 2018  $2,605,000  $2,422,650 
Cincinnati Bell, Inc. company guaranty sr. unsec.     
sub. notes 8 1/4s, 2017  655,000  668,100 
Frontier Communications Corp. sr. unsec. notes 9 1/4s, 2021  535,000  553,725 
Frontier Communications Corp. sr. unsec. notes 8 1/2s, 2020  1,295,000  1,298,238 
Frontier Communications Corp. sr. unsec. notes 8 1/4s, 2017  905,000  934,412 
Frontier Communications Corp. sr. unsec. notes 8 1/4s, 2014  570,000  624,150 
Frontier Communications Corp. sr. unsec. notes 8 1/8s, 2018  1,160,000  1,180,300 
    7,681,575 
Retail (3.0%)     
Academy, Ltd./Academy Finance Corp. 144A company     
guaranty sr. unsec. notes 9 1/4s, 2019  995,000  1,049,725 
AmeriGas Finance, LLC/AmeriGas Finance Corp. company     
guaranty sr. unsec notes 7s, 2022  1,155,000  1,131,900 
Autonation, Inc. company guaranty sr. unsec. notes 6 3/4s, 2018  505,000  545,400 
Autonation, Inc. company guaranty sr. unsec.     
unsub. notes 5 1/2s, 2020  450,000  453,375 
Bon-Ton Department Stores, Inc. (The) company     
guaranty 10 1/4s, 2014  2,830,000  1,952,700 
Burlington Coat Factory Warehouse Corp. company     
guaranty sr. unsec notes 10s, 2019  1,475,000  1,522,937 
J Crew Group, Inc. company guaranty sr. unsec.     
notes 8 1/8s, 2019  780,000  782,925 
Limited Brands, Inc. company guaranty sr. unsec.     
notes 6 5/8s, 2021  1,300,000  1,391,000 
Limited Brands, Inc. sr. notes 5 5/8s, 2022  685,000  690,993 
Macy’s Retail Holdings, Inc. company guaranty sr. unsec.     
notes 5.9s, 2016  1,455,000  1,683,123 
Macy’s Retail Holdings, Inc. company guaranty sr. unsec.     
unsub. notes 7 7/8s, 2015  545,000  641,075 
Michaels Stores, Inc. company guaranty 11 3/8s, 2016  2,205,000  2,342,835 
Needle Merger Sub Corp. 144A sr. unsec. notes 8 1/8s, 2019  1,890,000  1,847,475 
Neiman-Marcus Group, Inc. company guaranty sr. unsec.     
sub. notes 10 3/8s, 2015  345,000  360,960 
Penske Automotive Group, Inc. company guaranty sr. unsec.     
sub. notes 7 3/4s, 2016  2,240,000  2,318,400 
PETCO Animal Supplies, Inc. 144A company     
guaranty sr. notes 9 1/4s, 2018  870,000  935,250 
QVC Inc. 144A sr. notes 7 1/2s, 2019  1,280,000  1,392,000 
QVC Inc. 144A sr. notes 7 3/8s, 2020  885,000  964,650 
Sears Holdings Corp. company guaranty 6 5/8s, 2018  775,000  665,530 
Toys R Us — Delaware, Inc. 144A company     
guaranty sr. notes 7 3/8s, 2016  365,000  364,088 
Toys R Us Property Co., LLC company     
guaranty sr. notes 8 1/2s, 2017  1,420,000  1,460,825 
Toys R Us Property Co., LLC company guaranty sr. unsec.     
notes 10 3/4s, 2017  2,040,000  2,218,500 
    26,715,666 

 

33


CORPORATE BONDS AND NOTES (87.4%)* cont.  Principal amount  Value 
 
Technology (4.8%)     
Advanced Micro Devices, Inc. sr. unsec. notes 8 1/8s, 2017  $200,000  $214,500 
Advanced Micro Devices, Inc. sr. unsec. notes 7 3/4s, 2020  2,535,000  2,718,788 
Alcatel-Lucent USA, Inc. unsec. debs. 6.45s, 2029  1,670,000  1,148,125 
Avaya, Inc. company guaranty sr. unsec. notes 10 1/8s, 2015  170,000  140,250 
Avaya, Inc. company guaranty sr. unsec. notes 9 3/4s, 2015  1,095,000  903,375 
Avaya, Inc. 144A company guaranty sr. notes 7s, 2019  2,075,000  1,857,125 
Ceridian Corp. company guaranty sr. unsec. notes     
12 1/4s, 2015 ‡‡  2,281,350  2,087,435 
Ceridian Corp. sr. unsec. notes 11 1/4s, 2015  1,760,000  1,592,800 
Epicor Software Corp. company guaranty sr. unsec     
notes 8 5/8s, 2019  840,000  842,100 
Fidelity National Information Services, Inc. company     
guaranty sr. unsec. notes 7 7/8s, 2020  880,000  974,600 
Fidelity National Information Services, Inc. company     
guaranty sr. unsec. notes 7 5/8s, 2017  590,000  642,363 
First Data Corp. company guaranty sr. unsec. notes     
12 5/8s, 2021  2,625,000  2,474,063 
First Data Corp. company guaranty sr. unsec. notes 10.55s, 2015  1,888,138  1,878,697 
First Data Corp. company guaranty sr. unsec.     
sub. notes 11 1/4s, 2016  2,160,000  1,879,200 
First Data Corp. 144A company guaranty notes 8 1/4s, 2021  2,850,000  2,764,500 
First Data Corp. 144A company guaranty sr. notes 7 3/8s, 2019  1,195,000  1,195,000 
Freescale Semiconductor, Inc. company guaranty sr. unsec.     
notes 10 3/4s, 2020  1,409,000  1,507,630 
Freescale Semiconductor, Inc. 144A company     
guaranty sr. notes 10 1/8s, 2018  654,000  698,145 
Freescale Semiconductor, Inc. 144A company     
guaranty sr. notes 9 1/4s, 2018  2,692,000  2,833,330 
Iron Mountain, Inc. company guaranty 8 3/4s, 2018  155,000  160,038 
Iron Mountain, Inc. company guaranty sr. sub. notes 7 3/4s, 2019  630,000  674,100 
Iron Mountain, Inc. company guaranty sr. unsec. sub. notes 8s, 2020  75,000  78,844 
Iron Mountain, Inc. sr. sub. notes 8 3/8s, 2021  540,000  576,450 
Jazz Technologies, Inc. company guaranty sr. unsec.     
notes 8s, 2015  899,000  714,705 
Lawson Software, Inc. 144A sr. notes 11 1/2s, 2018  1,160,000  1,273,100 
Lawson Software, Inc. 144A sr. notes 9 3/8s, 2019  870,000  896,100 
NXP BV/NXP Funding, LLC 144A company     
guaranty sr. notes 9 3/4s, 2018 (Netherlands)  2,230,000  2,514,325 
Seagate HDD Cayman company guaranty sr. unsec notes 7s,     
2021 (Cayman Islands)  1,055,000  1,107,750 
Seagate HDD Cayman company guaranty sr. unsec.     
unsub. notes 7 3/4s, 2018 (Cayman Islands)  905,000  975,138 
SunGard Data Systems, Inc. company guaranty sr. unsec. Sub.     
notes 10 1/4s, 2015  1,817,000  1,866,968 
SunGard Data Systems, Inc. 144A sr. unsec. notes 7 5/8s, 2020  960,000  984,000 
Syniverse Holdings, Inc. company guaranty sr. unsec.     
notes 9 1/8s, 2019  1,930,000  2,069,925 
Unisys Corp. sr. unsec. unsub. notes 12 1/2s, 2016  356,000  378,250 
    42,621,719 

 

34


CORPORATE BONDS AND NOTES (87.4%)* cont.  Principal amount  Value 
 
Telecommunications (6.9%)     
Clearwire Communications, LLC/Clearwire Finance, Inc. 144A     
company guaranty sr. notes 12s, 2017  $710,000  $546,700 
Clearwire Communications, LLC/Clearwire Finance, Inc. 144A     
company guaranty sr. notes 12s, 2015  1,205,000  1,051,363 
Clearwire Communications, LLC/Clearwire Finance, Inc. 144A     
company guaranty sr. notes 12s, 2015  525,000  455,438 
Crown Castle International Corp. sr. unsec. notes 7 1/8s, 2019  570,000  612,038 
Digicel Group, Ltd. 144A sr. notes 10 1/2s, 2018 (Jamaica)  925,000  943,500 
Digicel Group, Ltd. 144A sr. unsec. notes 7s, 2020 (Jamaica)  775,000  749,813 
Digicel, Ltd. 144A sr. unsec. notes 8 1/4s, 2017 (Jamaica)  1,195,000  1,200,975 
Equinix, Inc. sr. unsec. notes 7s, 2021  940,000  1,005,800 
Hughes Satellite Systems Corp. company     
guaranty sr. notes 6 1/2s, 2019  1,750,000  1,776,250 
Hughes Satellite Systems Corp. company guaranty sr. unsec.     
notes 7 5/8s, 2021  2,005,000  2,075,175 
Intelsat Jackson Holdings SA company guaranty sr. unsec.     
notes 7 1/2s, 2021 (Bermuda)  1,170,000  1,170,000 
Intelsat Jackson Holdings SA 144A company     
guaranty sr. unsec notes 7 1/4s, 2020 (Bermuda)  1,150,000  1,141,375 
Intelsat Luxembourg SA company guaranty sr. unsec.     
notes 11 1/2s, 2017 (Luxembourg) ‡‡  6,271,093  6,161,349 
Intelsat Luxembourg SA company guaranty sr. unsec.     
notes 11 1/4s, 2017 (Luxembourg)  3,165,000  3,109,613 
Intelsat Luxembourg SA 144A company guaranty sr. unsec.     
notes 11 1/2s, 2017 (Luxembourg) ‡‡  1,130,000  1,098,925 
Level 3 Financing, Inc. company guaranty 8 3/4s, 2017  780,000  805,350 
Level 3 Financing, Inc. company guaranty sr. unsec.     
unsub. notes 9 3/8s, 2019  1,035,000  1,099,688 
Level 3 Financing, Inc. company guaranty sr. unsec.     
unsub. notes 8 1/8s, 2019  270,000  270,000 
Level 3 Financing, Inc. 144A company guaranty sr. unsec.     
notes FRN 8 5/8s, 2020  1,210,000  1,234,200 
MetroPCS Wireless, Inc. company guaranty sr. unsec.     
notes 7 7/8s, 2018  2,325,000  2,359,875 
Nextel Communications, Inc. company guaranty sr. unsec.     
notes Ser. D, 7 3/8s, 2015  615,000  601,163 
Nextel Communications, Inc. company guaranty sr. unsec.     
unsub. notes 5.95s, 2014  1,316,000  1,309,420 
NII Capital Corp. company guaranty sr. unsec.     
unsub. notes 10s, 2016  685,000  712,400 
NII Capital Corp. company guaranty sr. unsec.     
unsub. notes 8 7/8s, 2019  400,000  370,000 
NII Capital Corp. company guaranty sr. unsec.     
unsub. notes 7 5/8s, 2021  2,385,000  2,009,363 
PAETEC Holding Corp. company guaranty sr. notes 8 7/8s, 2017  915,000  983,625 
PAETEC Holding Corp. company guaranty sr. unsec.     
notes 9 7/8s, 2018  2,320,000  2,546,200 
Qwest Corp. notes 6 3/4s, 2021  1,735,000  1,940,940 
Qwest Corp. sr. unsec. unsub. notes 7 1/4s, 2025  1,135,000  1,227,689 

 

35


CORPORATE BONDS AND NOTES (87.4%)* cont.  Principal amount  Value 
 
Telecommunications cont.       
SBA Telecommunications, Inc. company guaranty sr. unsec.       
notes 8 1/4s, 2019    $800,000  $868,000 
SBA Telecommunications, Inc. company guaranty sr. unsec.       
notes 8s, 2016    887,000  946,873 
Sprint Capital Corp. company guaranty 6 7/8s, 2028    3,150,000  2,338,875 
Sprint Nextel Corp. sr. notes 8 3/8s, 2017    2,715,000  2,606,400 
Sprint Nextel Corp. sr. unsec. notes 6s, 2016    3,125,000  2,859,375 
Sprint Nextel Corp. 144A company guaranty sr. unsec.       
notes 9s, 2018    2,960,000  3,196,800 
Sprint Nextel Corp. 144A sr. unsec. notes 9 1/8s, 2017    1,315,000  1,305,138 
Wind Acquisition Finance SA company       
guaranty sr. notes Ser. REGS, 7 3/8s, 2018 (Luxembourg)  EUR  795,000  822,815 
Wind Acquisition Finance SA 144A company       
guaranty sr. notes 7 1/4s, 2018 (Luxembourg)    $1,415,000  1,209,825 
Wind Acquisition Finance SA 144A sr. notes 11 3/4s, 2017       
(Luxembourg)    550,000  467,500 
Wind Acquisition Holdings Finance SA 144A company       
guaranty sr. notes 12 1/4s, 2017 (Italy) ‡‡    554,711  410,486 
Windstream Corp. company guaranty sr. unsec.       
unsub. notes 8 1/8s, 2018    505,000  523,938 
Windstream Corp. company guaranty sr. unsec.       
unsub. notes 7 7/8s, 2017    2,290,000  2,438,850 
Windstream Corp. company guaranty sr. unsec.       
unsub. notes 7 3/4s, 2021    925,000  927,313 
      61,490,415 
Telephone (0.4%)       
Cricket Communications, Inc. company guaranty sr. unsec.       
notes 7 3/4s, 2020    2,575,000  2,356,125 
Cricket Communications, Inc. company       
guaranty sr. unsub. notes 7 3/4s, 2016    1,460,000  1,540,300 
      3,896,425 
Textiles (0.2%)       
Hanesbrands, Inc. company guaranty sr. unsec. notes       
6 3/8s, 2020    1,110,000  1,133,588 
Hanesbrands, Inc. sr. unsec. notes 8s, 2016    980,000  1,074,325 
      2,207,913 
Transportation (1.3%)       
Aguila 3 SA 144A company guaranty sr. notes 7 7/8s, 2018       
(Luxembourg)    2,810,000  2,866,200 
Aguila 3 SA 144A company guaranty sr. notes 7 7/8s, 2018    635,000  647,700 
AMGH Merger Sub, Inc. 144A company       
guaranty sr. notes 9 1/4s, 2018    2,265,000  2,298,975 
CHC Helicopter SA 144A company guaranty sr. notes 9 1/4s,       
2020 (Canada)    2,050,000  1,988,500 
Swift Services Holdings, Inc. company       
guaranty sr. notes 10s, 2018    2,475,000  2,660,625 
Western Express, Inc. 144A sr. notes 12 1/2s, 2015    1,685,000  867,775 
      11,329,775 
Utilities and power (3.9%)       
AES Corp. (The) sr. unsec. notes 8s, 2020    520,000  585,000 
AES Corp. (The) sr. unsec. unsub. notes 8s, 2017    1,855,000  2,059,050 

 

36


CORPORATE BONDS AND NOTES (87.4%)* cont.  Principal amount  Value 
 
Utilities and power cont.     
AES Corp. (The) 144A sr. notes 7 3/8s, 2021  $935,000  $1,009,800 
Calpine Corp. 144A company guaranty sr. notes 7 7/8s, 2020  1,440,000  1,530,000 
Calpine Corp. 144A sr. notes 7 1/4s, 2017  2,707,000  2,855,885 
Colorado Interstate Gas Co., LLC debs. 6.85s, 2037 (Canada)  1,430,000  1,686,982 
Dolphin Subsidiary II, Inc. 144A sr. unsec. notes 7 1/4s, 2021  975,000  1,060,313 
Dolphin Subsidiary II, Inc. 144A sr. unsec. notes 6 1/2s, 2016  2,090,000  2,225,850 
Dynegy Holdings, LLC sr. unsec. notes 7 3/4s, 2019 (In default) †  2,430,000  1,470,150 
Edison Mission Energy sr. unsec. notes 7 3/4s, 2016  755,000  402,038 
Edison Mission Energy sr. unsec. notes 7 1/2s, 2013  1,105,000  643,663 
Edison Mission Energy sr. unsec. notes 7.2s, 2019  1,035,000  545,963 
Edison Mission Energy sr. unsec. notes 7s, 2017  45,000  24,075 
El Paso Natural Gas Co. debs. 8 5/8s, 2022  765,000  972,500 
El Paso Corp. sr. unsec. notes 7s, 2017  1,160,000  1,301,912 
El Paso Corp. sr. unsec. notes Ser. GMTN, 7.8s, 2031  705,000  793,125 
Energy Future Holdings Corp. company     
guaranty sr. notes 10s, 2020  560,000  595,000 
Energy Future Intermediate Holding Co., LLC/EFIH     
Finance, Inc. sr. notes 10s, 2020  1,870,000  2,014,925 
Energy Transfer Equity LP company guaranty sr. unsec.     
notes 7 1/2s, 2020  1,995,000  2,154,600 
GenOn Americas Generation, Inc. sr. unsec. notes 9 1/8s, 2031  405,000  342,225 
GenOn Energy, Inc. sr. unsec. notes 9 7/8s, 2020  2,330,000  2,155,250 
GenOn Energy, Inc. sr. unsec. notes 9 1/2s, 2018  380,000  353,400 
Ipalco Enterprises, Inc. 144A sr. notes 7 1/4s, 2016  230,000  249,550 
NGPL PipeCo, LLC 144A sr. notes 9 5/8s, 2019  655,000  673,013 
NRG Energy, Inc. company guaranty sr. unsec. notes 7 7/8s, 2021  4,195,000  4,037,688 
NRG Energy, Inc. company guaranty sr. unsec. notes 7 5/8s, 2018  260,000  259,350 
NV Energy, Inc. sr. unsec. notes 6 1/4s, 2020  935,000  1,026,146 
PNM Resources, Inc. unsec. unsub. notes 9 1/4s, 2015  166,000  192,145 
Tennessee Gas Pipeline Co., LLC sr. unsec. unsub. debs. 7s, 2028  305,000  383,750 
Texas Competitive/Texas Competitive Electric     
Holdings Co., LLC company guaranty notes 15s, 2021  1,660,000  547,800 
Texas Competitive/Texas Competitive Electric Holdings Co., LLC     
company guaranty sr. unsec. notes 10 1/2s, 2016 ‡‡  2,806,928  515,773 
Texas Competitive/Texas Competitive Electric Holdings Co.,     
LLC 144A company guaranty sr. notes 11 1/2s, 2020  745,000  499,150 
    35,166,071 
 
Total corporate bonds and notes (cost $779,824,766)    $782,585,725 
 
 
SENIOR LOANS (5.4%)* c  Principal amount  Value 
 
Basic materials (0.1%)     
INEOS Group Holdings, Ltd. bank term loan FRN Ser. B,     
6 1/2s, 2018 (United Kingdom)  $655,000  $638,216 
    638,216 
Broadcasting (0.5%)     
Clear Channel Communications, Inc. bank term loan FRN     
Ser. A, 3.639s, 2014  684,065  612,482 
Clear Channel Communications, Inc. bank term loan FRN     
Ser. B, 3.889s, 2016  2,019,084  1,572,001 

 

37


SENIOR LOANS (5.4%)* c cont.  Principal amount  Value 
 
Broadcasting cont.     
Cumulus Media Holdings, Inc. bank term loan FRN 7 1/2s, 2019  $1,000,000  $998,750 
Univision Communications, Inc. bank term loan FRN 4.489s,2017  1,725,281  1,581,435 
    4,764,668 
Capital goods (0.1%)     
SRAM Corp. bank term loan FRN 8 1/2s, 2018  845,000  849,225 
    849,225 
Commercial and consumer services (0.2%)     
Compucom Systems, Inc. bank term loan FRN 3.74s, 2014  378,864  369,392 
Travelport, LLC bank term loan FRN 11s, 2015  215,000  214,261 
Travelport, LLC bank term loan FRN Ser. B, 4.968s, 2015  661,585  594,599 
Travelport, LLC bank term loan FRN Ser. S, 4.97s, 2015  208,415  187,313 
    1,365,565 
Consumer cyclicals (0.7%)     
Caesars Entertainment Corp. bank term loan FRN Ser. B,     
9 1/4s, 2017  500,000  488,125 
Cengage Learning Acquisitions, Inc. bank term loan FRN     
Ser. B, 2.49s, 2014  1,112,417  1,007,134 
Chrysler Group, LLC bank term loan FRN Ser. B, 6s, 2017  74,624  74,406 
GateHouse Media, Inc. bank term loan FRN Ser. B, 2.24s, 2014  647,767  199,459 
GateHouse Media, Inc. bank term loan FRN Ser. DD, 2.24s, 2014  241,704  74,425 
Golden Nugget, Inc. bank term loan FRN Ser. B, 3 1/4s, 2014 ‡‡  747,694  708,752 
Golden Nugget, Inc. bank term loan FRN Ser. DD, 3 1/4s, 2014 ‡‡  425,608  403,441 
Goodman Global, Inc. bank term loan FRN 9s, 2017  1,546,364  1,563,760 
Neiman Marcus Group, Inc. (The) bank term loan FRN 4 3/4s, 2018  1,130,000  1,111,108 
Tribune Co. bank term loan FRN Ser. B, 5 1/4s, 2014  1,239,169  801,517 
    6,432,127 
Consumer staples (0.6%)     
Claire’s Stores, Inc. bank term loan FRN 3.056s, 2014  1,072,033  997,722 
Del Monte Corp. bank term loan FRN Ser. B, 4 1/2s, 2018  486,325  475,991 
Landry’s, Inc. bank term loan FRN Ser. B, 6 1/2s, 2017  1,895,000  1,885,525 
Prestige Brands, Inc. bank term loan FRN Ser. B, 5 1/4s, 2019  189,962  190,041 
Revlon Consumer Products bank term loan FRN Ser. B, 4 3/4s, 2017  1,712,063  1,699,222 
Rite Aid Corp. bank term loan FRN Ser. B, 1.994s, 2014  113,423  110,984 
    5,359,485 
Energy (0.1%)     
EP Energy, LLC bank term loan FRN 6 1/2s, 2018  100,000  99,938 
Frac Tech International, LLC bank term loan FRN Ser. B,     
6 1/4s, 2016  1,376,586  1,226,145 
    1,326,083 
Financials (0.9%)     
AGFS Funding Co. bank term loan FRN Ser. B, 5 1/2s, 2017  1,210,000  1,110,680 
CNO Financial Group, Inc. bank term loan FRN 6 1/4s, 2016  465,318  463,185 
HUB International Holdings, Inc. bank term loan FRN 6 3/4s, 2017  789,750  775,929 
iStar Financial, Inc. bank term loan FRN Ser. A2, 7s, 2017  625,000  626,042 
iStar Financial, Inc. bank term loan FRN Ser. A2, 7s, 2014  1,265,000  1,261,310 
Lone Star Intermediate Super Holdings, LLC bank term loan     
FRN 11s, 2019  1,255,000  1,271,733 
Nuveen Investments, Inc. bank term loan FRN 8 1/4s, 2019  2,365,000  2,381,259 
Nuveen Investments, Inc. bank term loan FRN Ser. B, 5.969s, 2017  423,476  418,442 
    8,308,580 

 

38


SENIOR LOANS (5.4%)* c cont.  Principal amount  Value 
 
Gaming and lottery (0.5%)     
Caesars Entertainment Operating Co., Inc. bank term loan     
FRN Ser. B, 9 1/2s, 2016  $483,863  $489,373 
Caesars Entertainment Operating Co., Inc. bank term loan     
FRN Ser. B6, 5.489s, 2018  1,731,000  1,526,062 
CCM Merger, Inc. bank term loan FRN Ser. B, 6s, 2017  2,090,876  2,069,967 
    4,085,402 
Health care (0.7%)     
Ardent Health Services bank term loan FRN Ser. B, 6 1/2s, 2015  1,746,471  1,729,007 
Emergency Medical Services Corp. bank term loan FRN Ser. B,     
5 1/4s, 2018  1,552,986  1,528,139 
IASIS Healthcare, LLC bank term loan FRN Ser. B, 5s, 2018  1,039,500  1,020,009 
Pharmaceutical Product Development, Inc. bank term loan FRN     
Ser. B, 6 1/4s, 2018  1,132,163  1,132,446 
Quintiles Transnational Corp. bank term loan FRN 7 1/2s, 2017 ‡‡  500,000  503,125 
    5,912,726 
Homebuilding (0.3%)     
Realogy Corp. bank term loan FRN Ser. A, 13 1/2s, 2017  2,600,000  2,643,875 
    2,643,875 
Oil and gas (0.2%)     
Chesapeake Energy Corp. bank term loan FRN 8 1/2s, 2017  1,355,000  1,320,109 
    1,320,109 
Retail (—%)     
Burlington Coat Factory Warehouse Corp. bank term loan FRN     
Ser. B1, 6 1/4s, 2017  409,118  407,413 
    407,413 
Technology (0.1%)     
Lawson Software, Inc. bank term loan FRN Ser. B, 5 3/4s, 2018  1,125,000  1,122,540 
    1,122,540 
Utilities and power (0.4%)     
Dynegy Power, LLC bank term loan FRN 9 1/4s, 2016  442,775  455,320 
Dynegy, Inc. bank term loan FRN 9 1/4s, 2016  109,450  110,727 
Texas Competitive Electric Holdings Co., LLC bank term loan     
FRN 4.741s, 2017  5,958,299  3,464,006 
    4,030,053 
 
Total senior loans (cost $52,311,253)    $48,566,067 
 
 
CONVERTIBLE BONDS AND NOTES (0.7%)*  Principal amount  Value 
 
Altra Holdings, Inc. 144A cv. company guaranty sr. unsec.     
notes 2 3/4s, 2031  $758,000  $705,888 
DFC Global Corp. 144A cv. sr. unsec. unsub. notes 3 1/4s, 2017  860,000  881,844 
Ford Motor Co. cv. sr. unsec. notes 4 1/4s, 2016  700,000  1,014,125 
Meritor, Inc. cv. company guaranty sr. unsec.     
notes stepped-coupon 4 5/8s (zero %, 3/1/16) 2026 ††  1,895,000  1,667,600 
Steel Dynamics, Inc. cv. sr. notes 5 1/8s, 2014  373,000  387,920 
TRW Automotive, Inc. cv. company guaranty sr. unsec.     
notes 3 1/2s, 2015  550,000  831,710 
XM Satellite Radio, Inc. 144A cv. company     
guaranty sr. unsec. sub. notes 7s, 2014  489,000  634,172 
Total convertible bonds and notes (cost $5,284,765)    $6,123,259 

 

39


ASSET-BACKED SECURITIES (0.2%)*  Principal amount  Value 
 
Neon Capital, Ltd. 144A limited recourse notes Ser. 97,     
1.105s, 2013 (Cayman Islands) F  $6,684,836  $1,821,957 
Total asset-backed securities (cost $519,956)    $1,821,957 
 
 
SHORT-TERM INVESTMENTS (5.0%)*  Principal amount/shares  Value 
 
Putnam Money Market Liquidity Fund 0.12% e  40,707,581  $40,707,581 
SSgA Prime Money Market Fund 0.10% P  330,000  330,000 
Straight-A Funding, LLC asset-backed commercial paper     
with an effective yield of 0.178%, June 15, 2012  $2,500,000  2,499,825 
U.S. Treasury Bills with an effective yield of 0.068%,     
July 26, 2012  1,083,000  1,082,859 
Total short-term investments (cost $44,620,265)    $44,620,265 
 
 
TOTAL INVESTMENTS     
Total investments (cost $882,561,005)    $883,717,273 

 

Key to holding’s currency abbreviations

 

CAD  Canadian Dollar 
EUR  Euro 

 

Key to holding’s abbreviations

 

FRB  Floating Rate Bonds: the rate shown is the current interest rate at the close of the reporting period 
FRN  Floating Rate Notes: the rate shown is the current interest rate at the close of the reporting period 
GMTN  Global Medium Term Notes 
MTN  Medium Term Notes 
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 December 1, 2011 through May 31, 2012 (the reporting period). Within the following notes to the portfolio, references to “ASC 820” represent Accounting Standards Codification ASC 820 Fair Value Measurements and Disclosures.

* Percentages indicated are based on net assets of $895,633,346.

† Non-income-producing security.

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

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

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

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

F Is valued at fair value following procedures approved by the Trustees. Securities may be classified as Level 2 or Level 3 for ASC 820 based on the securities’ valuation inputs.

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

R Real Estate Investment Trust.

40


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 dates shown on debt obligations are the original maturity dates.

FORWARD CURRENCY CONTRACTS at 5/31/12 (aggregate face value $15,702,417) (Unaudited)

  Contract  Delivery    Aggregate  Unrealized 
Counterparty   Currency  type  date  Value  face value  appreciation 
Bank of America, N.A.           
Canadian Dollar  Sell  6/20/12  $483,897  $505,121  $21,224 
Euro  Sell  6/20/12  3,589,815  3,844,344  254,529 
Barclays Bank PLC           
Euro  Sell  6/20/12  956,006  1,024,497  68,491 
Citibank, N.A.           
Euro  Sell  6/20/12  226,296  242,563  16,267 
Credit Suisse AG           
Euro  Sell  6/20/12  1,280,982  1,372,236  91,254 
Goldman Sachs International           
Euro  Sell  6/20/12  1,500,105  1,606,314  106,209 
HSBC Bank USA, National Association         
Euro  Sell  6/20/12  557,578  596,392  38,814 
JPMorgan Chase Bank, N.A.           
Canadian Dollar  Sell  6/20/12  510,511  533,421  22,910 
Euro  Sell  6/20/12  1,586,419  1,693,813  107,394 
Royal Bank of Scotland PLC (The)           
Euro  Sell  6/20/12  245,834  263,340  17,506 
State Street Bank and Trust Co.           
Euro  Sell  6/20/12  2,418,643  2,576,073  157,430 
UBS AG           
Euro  Sell  6/20/12  1,113,919  1,193,506  79,587 
Westpac Banking Corp.           
Canadian Dollar  Sell  6/20/12  240,110  250,797  10,687 
Total          $992,302 

 

41


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

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

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

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

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

    Valuation inputs  
Investments in securities:  Level 1  Level 2  Level 3 
Asset-backed securities  $—  $—  $1,821,957 
Convertible bonds and notes  —  6,123,259  — 
Corporate bonds and notes  —  782,585,723  2 
Senior loans  —  48,566,067  — 
Short-term investment fund  41,037,581  3,582,684  — 
Totals by level  $41,037,581  $840,857,733  $1,821,959 
 
    Valuation inputs  
Other financial instruments:  Level 1  Level 2  Level 3 
Forward currency contracts  $—  $992,302  $— 
Totals by level  $—  $992,302  $— 

 

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.

42


Statement of assets and liabilities 5/31/12 (Unaudited)

ASSETS   
Investment in securities, at value (Note 1):   
Unaffiliated issuers (identified cost $841,853,424)  $843,009,692 
Affiliated issuers (identified cost $40,707,581) (Notes 1 and 6)  40,707,581 
Cash  1,667,195 
Dividends, interest and other receivables  17,548,902 
Receivable for shares of the fund sold  1,467,230 
Receivable for investments sold  801,060 
Unrealized appreciation on forward currency contracts (Note 1)  992,302 
Total assets  906,193,962 
 
LIABILITIES   
Distributions payable to shareholders  194 
Payable for investments purchased  6,729,234 
Payable for shares of the fund repurchased  2,027,757 
Payable for compensation of Manager (Note 2)  443,242 
Payable for investor servicing fees (Note 2)  238,709 
Payable for custodian fees (Note 2)  10,822 
Payable for Trustee compensation and expenses (Note 2)  228,250 
Payable for administrative services (Note 2)  3,847 
Payable for distribution fees (Note 2)  347,051 
Collateral on certain derivative contracts, at value (Note 1)  330,000 
Other accrued expenses  201,510 
Total liabilities  10,560,616 
 
Net assets  $895,633,346 
 
REPRESENTED BY   
Paid-in capital (Unlimited shares authorized) (Notes 1, 4 and 8)  $1,071,065,947 
Undistributed net investment income (Note 1)  3,763,771 
Accumulated net realized loss on investments and foreign currency transactions (Note 1)  (181,325,853) 
Net unrealized appreciation of investments and assets and liabilities in foreign currencies  2,129,481 
Total — Representing net assets applicable to capital shares outstanding  $895,633,346 

 

(Continued on next page)

43


Statement of assets and liabilities (Continued)

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE   
Net asset value and redemption price per class A share   
($584,221,579 divided by 100,037,506 shares)  $5.84 
Offering price per class A share (100/96.00 of $5.84)*  $6.08 
Net asset value and offering price per class B share ($11,723,896 divided by 2,047,643 shares)**  $5.73 
Net asset value and offering price per class C share ($23,898,277 divided by 4,186,494 shares)**  $5.71 
Net asset value and redemption price per class M share   
($125,717,901 divided by 21,533,201 shares)  $5.84 
Offering price per class M share (100/96.75 of $5.84)†  $6.04 
Net asset value, offering price and redemption price per class R share   
($22,105,825 divided by 3,786,647 shares)  $5.84 
Net asset value, offering price and redemption price per class Y share   
($127,965,868 divided by 21,181,811 shares)  $6.04 

 

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

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

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

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

44


Statement of operations Six months ended 5/31/12 (Unaudited)

INVESTMENT INCOME   
Interest (net of foreign tax of $7,843) (including interest income of $14,601 from investments   
in affiliated issuers) (Note 6)  $34,696,553 
Total investment income  34,696,553 
 
EXPENSES   
Compensation of Manager (Note 2)  2,518,024 
Investor servicing fees (Note 2)  702,401 
Custodian fees (Note 2)  13,664 
Trustee compensation and expenses (Note 2)  38,800 
Administrative services (Note 2)  15,448 
Distribution fees — Class A (Note 2)  707,148 
Distribution fees — Class B (Note 2)  50,756 
Distribution fees — Class C (Note 2)  104,164 
Distribution fees — Class M (Note 2)  328,959 
Distribution fees — Class R (Note 2)  50,758 
Other  202,678 
Total expenses  4,732,800 
 
Expense reduction (Note 2)  (596) 
Net expenses  4,732,204 
 
Net investment income  29,964,349 
 
Net realized gain on investments (Notes 1 and 3)  3,435,629 
Net realized gain on swap contracts (Note 1)  90,900 
Net realized gain on foreign currency transactions (Note 1)  342,420 
Net unrealized appreciation of assets and liabilities in foreign currencies during the period  730,596 
Net unrealized appreciation of investments and swap contracts during the period  28,492,888 
Net gain on investments  33,092,433 
 
Net increase in net assets resulting from operations  $63,056,782 

 

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

45


Statement of changes in net assets

INCREASE IN NET ASSETS  Six months ended 5/31/12*  Year ended 11/30/11 
Operations:     
Net investment income  $29,964,349  $59,094,138 
Net realized gain on investments     
and foreign currency transactions  3,868,949  15,702,725 
Net unrealized appreciation (depreciation) of investments     
and assets and liabilities in foreign currencies  29,223,484  (53,516,160) 
Net increase in net assets resulting from operations  63,056,782  21,280,703 
Distributions to shareholders (Note 1):     
From ordinary income     
Net investment income     
Class A  (20,809,099)  (39,484,973) 
Class B  (343,248)  (520,121) 
Class C  (705,725)  (779,513) 
Class M  (4,744,156)  (10,977,830) 
Class R  (717,335)  (1,090,288) 
Class Y  (4,660,539)  (7,412,853) 
Increase in capital from settlement payments (Note 8)  —  423,611 
Redemption fees (Note 1)  9,959  90,811 
Increase from capital share transactions (Note 4)  68,894,219  9,237,077 
Total increase (decrease) in net assets  99,980,858  (29,233,376) 
 
NET ASSETS     
Beginning of period  795,652,488  824,885,864 
End of period (including undistributed net investment     
income of $3,763,771 and $5,779,524, respectively)  $895,633,346  $795,652,488 

 

* Unaudited

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

46

 

 

 

 

 


 

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47


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

INVESTMENT OPERATIONS:    LESS DISTRIBUTIONS:        RATIOS AND SUPPLEMENTAL DATA: 
                        Ratio  Ratio   
      Net realized                  of expenses  of net investment   
  Net asset value,    and unrealized  Total from  From          Total return  Net assets,  to average  income (loss)  Portfolio 
  beginning  Net investment  gain (loss)  investment  net investment  Total  Redemption  Non-recurring  Net asset value,  at net asset  end of period  net assets  to average  turnover 
Period ended  of period  income (loss) a  on investments  operations  income  distributions  fees b  reimbursements  end of period  value (%) c  (in thousands)  (%) d  net assets (%)  (%) 
Class A                             
May 31, 2012**  $5.62  .20  .24  .44  (.22)  (.22)  —  —  $5.84  7.85*  $584,222  .52 *  3.44 *  25 * 
November 30, 2011  5.90  .43  (.27)  .16  (.44)  (.44)  —  — f  5.62  2.58  510,880  1.04  7.25  57 
November 30, 2010  5.56  .44  .32  .76  (.42)  (.42)  —  —  5.90  14.10  535,054  1.05 e  7.66 e  71 
November 30, 2009  4.05  .40  1.55  1.95  (.44)  (.44)  —  —  5.56  50.64  479,094  1.13 e  8.13 e  59 
November 30, 2008  6.05  .42  (1.97)  (1.55)  (.45)  (.45)  —  —  4.05  (27.33)  292,694  1.10 e  7.63 e  34 
November 30, 2007  6.22  .44  (.16)  .28  (.45)  (.45)  —  —  6.05  4.50  373,890  1.08 e  7.04 e  48 
Class B                             
May 31, 2012**  $5.52  .17  .24  .41  (.20)  (.20)  —  —  $5.73  7.44*  $11,724  .90 *  3.03 *  25 * 
November 30, 2011  5.80  .38  (.27)  .11  (.39)  (.39)  —  — f  5.52  1.84  8,076  1.79  6.50  57 
November 30, 2010  5.47  .39  .32  .71  (.38)  (.38)  —  —  5.80  13.28  7,520  1.80 e  6.93 e  71 
November 30, 2009  3.99  .35  1.54  1.89  (.41)  (.41)  —  —  5.47  49.61  9,033  1.88 e  7.41 e  59 
November 30, 2008  5.96  .38  (1.94)  (1.56)  (.41)  (.41)  —  —  3.99  (27.84)  6,036  1.85 e  6.86 e  34 
November 30, 2007  6.14  .39  (.17)  .22  (.40)  (.40)  —  —  5.96  3.58  11,407  1.83 e  6.29 e  48 
Class C                             
May 31, 2012**  $5.50  .17  .24  .41  (.20)  (.20)  —  —  $5.71  7.46*  $23,898  .90 *  3.03 *  25 * 
November 30, 2011  5.78  .37  (.25)  .12  (.40)  (.40)  —  — f  5.50  1.90  15,915  1.79  6.49  57 
November 30, 2010  5.46  .39  .31  .70  (.38)  (.38)  —  —  5.78  13.13  9,464  1.80 e  6.92 e  71 
November 30, 2009  3.98  .35  1.54  1.89  (.41)  (.41)  —  —  5.46  49.80  10,020  1.88 e  7.16 e  59 
November 30, 2008  5.95  .37  (1.93)  (1.56)  (.41)  (.41)  —  —  3.98  (27.87)  684  1.85 e  6.78 e  34 
November 30, 2007†  6.27  .26  (.33)  (.07)  (.25)  (.25)  —  —  5.95  (1.11)*  776  1.23 *e  4.29 *e  48 
Class M                             
May 31, 2012**  $5.62  .20  .23  .43  (.21)  (.21)  —  —  $5.84  7.74*  $125,718  .65 *  3.32 *  25 * 
November 30, 2011  5.90  .42  (.27)  .15  (.43)  (.43)  —  — f  5.62  2.37  130,758  1.29  7.00  57 
November 30, 2010  5.57  .43  .31  .74  (.41)  (.41)  —  —  5.90  13.65  164,632  1.30 e  7.42 e  71 
November 30, 2009  4.05  .39  1.56  1.95  (.43)  (.43)  —  —  5.57  50.52  178,550  1.38 e  7.97 e  59 
November 30, 2008  6.05  .41  (1.97)  (1.56)  (.44)  (.44)  —  —  4.05  (27.50)  155,249  1.35 e  7.36 e  34 
November 30, 2007  6.23  .42  (.17)  .25  (.43)  (.43)  —  —  6.05  4.11  275,959  1.33 e  6.79 e  48 
Class R                             
May 31, 2012**  $5.62  .19  .24  .43  (.21)  (.21)  —  —  $5.84  7.74*  $22,106  .65 *  3.29 *  25 * 
November 30, 2011  5.90  .41  (.26)  .15  (.43)  (.43)  —  — f  5.62  2.37  16,209  1.29  6.98  57 
November 30, 2010  5.56  .43  .32  .75  (.41)  (.41)  —  —  5.90  13.86  11,085  1.30 e  7.34 e  71 
November 30, 2009  4.05  .38  1.56  1.94  (.43)  (.43)  —  —  5.56  50.32  4,728  1.38 e  7.63 e  59 
November 30, 2008  6.05  .41  (1.97)  (1.56)  (.44)  (.44)  —  —  4.05  (27.46)  680  1.35 e  8.31 e  34 
November 30, 2007†  6.35  .29  (.32)  (.03)  (.27)  (.27)  —  —  6.05  (.57)*  1  .89 *e  4.62 *e  48 
Class Y                             
May 31, 2012**  $5.81  .22  .23  .45  (.22)  (.22)  —  —  $6.04  7.87*  $127,966  .40 *  3.56 *  25 * 
November 30, 2011  6.08  .46  (.28)  .18  (.45)  (.45)  —  — f  5.81  2.88  113,815  .79  7.49  57 
November 30, 2010  5.71  .47  .33  .80  (.43)  (.43)  —  —  6.08  14.49  97,130  .80 e  7.87 e  71 
November 30, 2009  4.15  .43  1.58  2.01  (.45)  (.45)  —  —  5.71  50.98  66,691  .88 e  8.35 e  59 
November 30, 2008  6.19  .45  (2.03)  (1.58)  (.46)  (.46)  —  —  4.15  (27.21)  33,660  .85 e  7.94 e  34 
November 30, 2007  6.35  .47  (.17)  .30  (.46)  (.46)  —  —  6.19  4.78  50,146  .83 e  7.27 e  48 

 

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

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

48  49 

 


Financial highlights (Continued)

* Not annualized.

** Unaudited.

† For the period March 30, 2007 (commencement of operations) to November 30, 2007.

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 arrangements (Note 2).

e Reflects an involuntary contractual expense limitation in effect during the period. For periods prior to November 30, 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 
November 30, 2010  0.01% 
November 30, 2009  0.09 
November 30, 2008  0.02 
November 30, 2007  <0.01 

 

f Reflects a non-recurring reimbursement related to restitution amounts in connection with a distribution plan approved by the Securities and Exchange Commission (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 8).

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

50


Notes to financial statements 5/31/12 (Unaudited)

Within the following Notes to financial statements, references to “State Street” represent State Street Bank and Trust Company, references to “the SEC” represent the Securities and Exchange Commission and references to “Putnam Management” represent Putnam Investment Management, LLC, the fund’s manager, an indirect wholly-owned subsidiary of Putnam Investments, LLC. Unless otherwise noted, the “reporting period” represents the period from December 1, 2011 through May 31, 2012.

Putnam High Yield Advantage Fund (the fund) is a Massachusetts business trust, which is registered under the Investment Company Act of 1940, as amended, as a diversified open-end management investment company. The investment objective of the fund is to seek high current income with capital growth as a secondary objective when consistent with achieving high current income. The fund invests mainly in bonds that are obligations of U.S.  companies, are below investment-grade in quality (sometimes referred to as “junk bonds”), and have intermediate- to long-term maturities (three years or longer). The fund may consider, among other factors, credit, interest rate and prepayment risks, as well as general market conditions, when deciding whether to buy or sell investments.

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.

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.

Note 1: Significant accounting policies

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.

A 1.00% redemption fee may apply on 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.

Security valuation Investments for which market quotations are readily available are valued at the last reported sales price on their principal exchange, or official closing price for certain markets, and are classified as Level 1 securities. If no sales are reported, as in the case of some securities traded over-the-counter, a security is valued at its last reported bid price and is generally categorized as a Level 2 security.

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

51


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 Management. Such services or dealers determine valuations for normal institutional-size trading units of such securities using methods based on market transactions for comparable securities and various relationships, generally recognized by institutional traders, between securities (which considers such factors as security prices, yields, maturities and ratings). These securities will generally be categorized as Level 2.

Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange. Accordingly, on certain days, the fund will fair value foreign equity securities taking into account multiple factors including movements in the U.S. securities markets, currency valuations and comparisons to the valuation of American Depository Receipts, exchange-traded funds and futures contracts. These securities, which will generally represent a transfer from a Level 1 to a Level 2 security, will be classified as Level 2. The number of days on which fair value prices will be used will depend on market activity and it is possible that fair value prices will be used by the fund to a significant extent. 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. Certain securities may be valued on the basis of a price provided by a single source. The fair value of securities is generally determined as the amount that the fund could reasonably expect to realize from an orderly disposition of such securities over a reasonable period of time. By its nature, a fair value price is a good faith estimate of the value of a security in a current sale and does not reflect an actual market price, which may be different by a material amount.

Security transactions and related investment income Security transactions are recorded on the trade date (the date the order to buy or sell is executed). Gains or losses on securities sold are determined on the identified cost basis. Interest income is recorded on the accrual basis. Dividend income, net of applicable withholding taxes, is recognized on the ex-dividend date except that certain dividends from foreign securities, if any, are recognized as soon as the fund is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital or capital gains, if any, are reflected as a reduction of cost and/or as a realized gain. All premiums/discounts are amortized/accreted on a yield-to-maturity basis. The fund earned certain fees in connection with its senior loan purchasing activities. These fees are treated as market discount and are amortized into income in the Statement of operations.

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

52


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

Forward currency contracts outstanding at period end, if any, are listed after the fund’s portfolio. Outstanding forward currency contracts at the close of the reporting period are indicative of the volume of activity during the reporting period.

Credit default contracts The fund entered into credit default contracts to hedge market credit risk.

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 is recorded as a liability on the fund’s books. An upfront payment made by the fund 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 $1,400,000 on credit default swap contracts for the reporting period.

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

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

53


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 did not have a net liability position on derivative contracts subject to the Master Agreements.

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

Line of credit The fund participates, along with other Putnam funds, in a $315 million ($325 million prior to June 29, 2012) unsecured committed line of credit and a $185 million unsecured uncommitted line of credit, both provided by State Street. Borrowings may be made for temporary or emergency purposes, including the funding of shareholder redemption requests and trade settlements. Interest is charged to the fund based on the fund’s borrowing at a rate equal to the Federal Funds rate plus 1.25% for the committed line of credit and the Federal Funds rate plus 1.30% for the uncommitted line of credit. A closing fee equal to 0.02% of the committed line of credit and $50,000 for the uncommitted line of credit has been paid by the participating funds. In addition, a commitment fee of 0.11% (0.13% prior to June 29, 2012) per annum on any unutilized portion of the committed line of credit is allocated to the participating funds based on their relative net assets and paid quarterly. During the reporting period, the fund had no borrowings against these arrangements.

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

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

At November 30, 2011, the fund had a capital loss carryover of $185,184,027 available to the extent allowed by the Code to offset future net capital gain, if any. The amounts of the carryovers and the expiration dates are:

Loss carryover
Short-term  Long-term  Total  Expiration 
$95,929,758  $—  $95,929,758  November 30, 2012 
8,720,272  —  8,720,272  November 30, 2014 
21,153,748  —  21,153,748  November 30, 2016 
59,380,249  —  59,380,249  November 30, 2017 

 

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

The aggregate identified cost on a tax basis is $882,571,780, resulting in gross unrealized appreciation and depreciation of $33,538,876 and $32,393,383, respectively, or net unrealized appreciation of $1,145,493.

54


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

Note 2: Management fee, administrative services and other transactions

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

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

 

Putnam Management has contractually agreed, through June 30, 2013, to waive fees or reimburse the fund’s expenses to the extent necessary to limit the cumulative expenses of the fund, exclusive of brokerage, interest, taxes, investment-related expenses, extraordinary expenses and payments under the fund’s investor servicing contract, investment management contract and distribution plans, on a fiscal year-to-date basis to an annual rate of 0.20% of the fund’s average net assets over such fiscal year-to-date period. During the reporting period, the fund’s expenses were not reduced as a result of this limit.

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

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

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

Putnam Investor Services, Inc., an affiliate of Putnam Management, provides investor servicing agent functions to the fund. Putnam Investor Services, Inc. received fees for investor servicing based on the fund’s retail asset level, the number of shareholder accounts in the fund and the level of defined contribution plan assets in the fund. Investor servicing fees will not exceed an annual rate of 0.32% of the fund’s average net assets. Prior to March 1, 2012, investor servicing fees could 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 $596 under the expense offset arrangements.

Each independent Trustee of the fund receives an annual Trustee fee, of which $692, 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.

55


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, an indirect wholly-owned subsidiary of Putnam Investments, LLC., 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 $50,120 and $199 from the sale of class A and class M shares, respectively, and received $7,487 and $574 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 $56 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 $226,726,068 and $204,500,297, respectively. There were no purchases or proceeds from sales of long-term U.S. government securities.

Note 4: Capital shares

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

  Six months ended 5/31/12  Year ended 11/30/11 
Class A  Shares  Amount  Shares  Amount 
Shares sold  16,513,252  $96,636,827  31,716,690  $186,377,117 
Shares issued in connection with         
reinvestment of distributions  3,013,099  17,559,609  5,518,193  32,561,824 
  19,526,351  114,196,436  37,234,883  218,938,941 
Shares repurchased  (10,359,095)  (60,765,916)  (37,041,355)  (217,782,415) 
Net increase  9,167,256  $53,430,520  193,528  $1,156,526 

 

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  Six months ended 5/31/12  Year ended 11/30/11 
Class B  Shares  Amount  Shares  Amount 
Shares sold  815,181  $4,714,289  733,560  $4,262,414 
Shares issued in connection with         
reinvestment of distributions  43,147  246,826  59,583  344,477 
  858,328  4,961,115  793,143  4,606,891 
Shares repurchased  (274,423)  (1,586,560)  (626,545)  (3,666,745) 
Net increase  583,905  $3,374,555  166,598  $940,146 
 
  Six months ended 5/31/12  Year ended 11/30/11 
Class C  Shares  Amount  Shares  Amount 
Shares sold  1,583,032  $9,089,679  1,927,302  $11,121,958 
Shares issued in connection with         
reinvestment of distributions  96,894  552,644  103,310  593,405 
  1,679,926  9,642,323  2,030,612  11,715,363 
Shares repurchased  (386,321)  (2,225,698)  (773,873)  (4,450,044) 
Net increase  1,293,605  $7,416,625  1,256,739  $7,265,319 
 
  Six months ended 5/31/12  Year ended 11/30/11 
Class M  Shares  Amount  Shares  Amount 
Shares sold  241,529  $1,428,176  300,112  $1,767,025 
Shares issued in connection with         
reinvestment of distributions  26,245  152,792  51,102  301,599 
  267,774  1,580,968  351,214  2,068,624 
Shares repurchased  (1,992,845)  (11,701,318)  (4,979,524)  (29,615,987) 
Net decrease  (1,725,071)  $(10,120,350)  (4,628,310)  $(27,547,363) 
 
  Six months ended 5/31/12  Year ended 11/30/11 
Class R  Shares  Amount  Shares  Amount 
Shares sold  1,246,310  $7,298,450  2,150,158  $12,830,531 
Shares issued in connection with         
reinvestment of distributions  123,056  717,335  184,638  1,088,241 
  1,369,366  8,015,785  2,334,796  13,918,772 
Shares repurchased  (466,469)  (2,742,622)  (1,328,919)  (7,830,007) 
Net increase  902,897  $5,273,163  1,005,877  $6,088,765 
 
  Six months ended 5/31/12  Year ended 11/30/11 
Class Y  Shares  Amount  Shares  Amount 
Shares sold  3,746,512  $22,702,053  11,775,479  $71,189,142 
Shares issued in connection with         
reinvestment of distributions  545,560  3,287,990  1,016,265  6,188,538 
  4,292,072  25,990,043  12,791,744  77,377,680 
Shares repurchased  (2,707,987)  (16,470,337)  (9,171,417)  (56,043,996) 
Net increase  1,584,085  $9,519,706  3,620,327  $21,333,684 

 

At the close of the reporting period, a shareholder of record owned 6.4% of the outstanding shares of the fund.

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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  $992,302  Payables  $— 
Total    $992,302    $— 

 

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):

 

Derivatives not accounted for as hedging  Forward currency     
instruments under ASC 815  contracts  Swaps  Total 
Credit contracts  $—  $90,900  $90,900 
Foreign exchange contracts  372,821  —  372,821 
Total  $372,821  $90,900  $463,721 

 

Change in unrealized appreciation or (depreciation) on derivatives recognized in income

 

Derivatives not accounted for as hedging  Forward currency     
instruments under ASC 815  contracts  Swaps  Total 
Credit contracts  $—  $(37,856)  $(37,856) 
Foreign exchange contracts  737,815  —  737,815 
Total  $737,815  $(37,856)  $699,959 

 

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 $14,601 for the reporting period. During the reporting period, cost of purchases and proceeds of sales of investments in Putnam Money Market Liquidity Fund aggregated $136,052,156 and $133,410,418, 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.

Note 8: 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 $417,577 related to restitution amounts in connection with a distribution plan approved by the SEC. This amount, which was received by the fund in December 2011, is reported as part of Increase in capital from settlement payments on the Statement of changes in net assets. These allegations and related matters have served as the general basis for certain lawsuits, including purported class action lawsuits against Putnam Management and,

58


in a limited number of cases, some Putnam funds. In May 2011, the fund received a payment of $6,034 related to settlement of those lawsuits. This amount is reported as a part of Increase in capital from settlement payments on the Statement of changes in net assets. Putnam Management has agreed to bear any costs incurred by the Putnam funds as a result of these matters.

Note 9: Market, credit and other risks

In the normal course of business, the fund trades financial instruments and enters into financial transactions where risk of potential loss exists due to changes in the market (market risk) or failure of the contracting party to the transaction to perform (credit risk). The fund may be exposed to additional credit risk that an institution or other entity with which the fund has unsettled or open transactions will default. Investments in foreign securities involve certain risks, including those related to economic instability, unfavorable political developments, and currency fluctuations. The fund may invest in higher yielding, lower rated bonds that may have a higher rate of default.

Note 10: New accounting pronouncements

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011–04 “Fair Value Measurements and Disclosures (Topic 820) — Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS”. ASU 2011–04 amends FASB Topic 820 “Fair Value Measurement” and seeks to develop common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP. ASU 2011–04 is effective for fiscal years and interim periods beginning after December 15, 2011. The application of ASU 2011–04 will not have a material impact on the fund’s financial statements.

In December 2011, the FASB issued ASU No. 2011–11 “Disclosures about Offsetting Assets and Liabilities”. The update creates new disclosure requirements requiring entities to disclose both gross and net information for derivatives and other financial instruments that are either offset in the Statement of assets and liabilities or subject to an enforceable master netting arrangement or similar agreement. The disclosure requirements are effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods. Putnam Management is currently evaluating the application of ASU 2011–11 and its impact, if any, on the fund’s financial statements.

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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.

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Fund information

Founded 75 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  Elizabeth T. Kennan  Mark C. Trenchard 
Putnam Investment  Kenneth R. Leibler  Vice President and 
Management, LLC  Robert E. Patterson  BSA Compliance Officer 
One Post Office Square  George Putnam, III   
Boston, MA 02109  Robert L. Reynolds  Robert T. Burns 
  W. Thomas Stephens  Vice President and 
Investment Sub-Manager    Chief Legal Officer 
Putnam Investments Limited  Officers   
57–59 St James’s Street  Robert L. Reynolds  James P. Pappas 
London, England SW1A 1LD  President  Vice President 
 
Marketing Services  Jonathan S. Horwitz  Judith Cohen 
Putnam Retail Management  Executive Vice President,  Vice President, Clerk, and 
One Post Office Square  Principal Executive Officer,  Assistant Treasurer 
Boston, MA 02109  and Compliance Liaison   
    Michael Higgins 
Custodian  Steven D. Krichmar  Vice President and Treasurer 
State Street Bank  Vice President and   
and Trust Company  Principal Financial Officer Nancy E. Florek 
Vice President, Assistant Clerk, 
Legal Counsel  Janet C. Smith  Assistant Treasurer, and 
Ropes & Gray LLP  Vice President,  Proxy Manager 
  Assistant Treasurer, and  
Trustees  Principal Accounting Officer Susan G. Malloy 
Jameson A. Baxter, Chair  Vice President and 
Ravi Akhoury  Robert R. Leveille  Assistant Treasurer 
Barbara M. Baumann  Vice President and   
Charles B. Curtis  Chief Compliance Officer  
Robert J. Darretta   
John A. Hill     
Paul L. Joskow     

 

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

 



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

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

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

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

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

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

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

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

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

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

Date: July 27, 2012