a_masterintinc.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- 05498)   
 
Exact name of registrant as specified in charter: Putnam Master Intermediate Income Trust 
 
Address of principal executive offices: One Post Office Square, Boston, Massachusetts 02109 
 
Name and address of agent for service:  Beth S. Mazor, Vice President 
  One Post Office Square 
  Boston, Massachusetts 02109 
 
Copy to:  John W. Gerstmayr, Esq. 
  Ropes & Gray LLP 
  One International Place 
  Boston, Massachusetts 02110 
 
Registrant’s telephone number, including area code:  (617) 292-1000 
 
Date of fiscal year end: September 30, 2008     
 
Date of reporting period: October 1, 2007 - September 30, 2008 

Item 1. Report to Stockholders:

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




What makes
Putnam different?

A time-honored tradition in
money management

Since 1937, our values have been rooted in a profound sense of responsibility for the money entrusted to us.

A prudent approach to investing

We use a research-driven team approach to seek superior investment results over time.

Funds for every investment goal

We offer a broad range of mutual funds and other financial products so investors and their financial representatives can build diversified portfolios.

A commitment to doing what’s right
for investors

With a focus on investment performance and in-depth information about our funds, we put the interests of investors first and seek to set the standard for integrity and service.

Industry-leading service

We help investors, along with their financial representatives, make informed investment decisions with confidence.


In 1830, Massachusetts Supreme Judicial Court Justice Samuel Putnam established The Prudent Man Rule, a legal foundation for responsible money management.

THE PRUDENT MAN RULE

All that can be required of a trustee to invest is that he shall conduct himself faithfully and exercise a sound discretion. He is to observe how men of prudence, discretion, and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of the capital to be invested.

 

Putnam Master
Intermediate
Income Trust

9|30|08
Annual Report

Message from the Trustees  1 
About the fund  2 
Performance and portfolio snapshots  4 
Interview with your fund’s Portfolio Leader  5 
Performance in depth.  8 
Your fund’s management.  9 
Terms and definitions  10 
Trustee approval of management contract  11 
Other information for shareholders.  14 
Financial statements  15 
Federal tax information  56 
Compliance certifications  56 
Shareholder meeting results  56 
About the Trustees  57 
Officers  60 

Cover photograph: © Richard H. Johnson


Message from the Trustees

Dear Fellow Shareholder:

The financial markets have been experiencing the kind of upheaval not seen in decades. Investor confidence has been shaken by losses across a range of sectors and by the collapse of several financial industry companies. Coordinated responses by a full array of economic and financial authorities both in the United States and overseas should restore stability in due course, but investors should not expect a reduction in volatility in the near term. The likelihood of a U.S. recession, in particular, now makes the situation more challenging. History has shown that markets are extremely resilient over the long term, and we expect that, in time, they will recover from this crisis.

As a shareholder of this fund, you should feel confident about the financial standing of Putnam Investments. Our parent companies, Great-West Lifeco and Power Financial Corporation, are among the largest and most successful organizations in the financial services industry. All three companies are well capitalized with strong cash flows.

We are pleased to announce that Robert L. Reynolds, a well-known leader and visionary in the mutual fund industry, has joined the Putnam leadership team as President and Chief Executive Officer of Putnam Investments, effective July 1, 2008. Charles E. Haldeman, Jr., former President and CEO, has taken on the role of Chairman of Putnam Investment Management, LLC, the firm’s fund management company. He continues to serve as President of the Funds and as a Trustee.

Mr. Reynolds brings to Putnam Investments substantial industry experience and an outstanding record of success, including serving as Vice Chairman and Chief Operating Officer at Fidelity Investments from 2000 to 2007. We look forward to working with Mr. Reynolds as we continue our efforts to position Putnam Investments to exceed our shareholders’ expectations.

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 during these challenging times.



About the fund

Seeking broad diversification across bond markets


When Putnam Master Intermediate Income Trust was launched in 1988, its three-pronged focus on U.S. investment-grade bonds, high-yield corporate bonds, and non-U.S. bonds was considered innovative. Lower-rated, higher-yielding corporate bonds were relatively new, having just been established in the late 1970s. Additionally, at the time of the fund’s launch, few investors were venturing outside the United States for fixed-income opportunities.

The bond investment landscape has undergone a transformation in the nearly two decades since. New sectors like mortgage- and asset-backed securities now make up a sizable portion of the U.S. investment-grade market. The high-yield corporate bond sector has also grown significantly. Outside the United States, the popularity of the euro has resulted in a large market of European government bonds. There are also growing opportunities to invest in the debt of emerging-market countries.

The fund’s investment perspective has been broadened to keep pace with the market expansion over time. To respond to the market’s increasing complexity, Putnam’s 100-member fixed-income group aligns teams of specialists with varied investment opportunities. Each team identifies compelling strategies within its area of expertise. Your fund’s management team selects from among these strategies, striving to systematically build a diversified portfolio that carefully balances risk and return.

We believe the fund’s multi-strategy approach is well suited to the expanding opportunities of today’s global bond marketplace. As different factors drive the performance of the various fixed-income sectors, the fund’s diversified strategy seeks to take advantage of changing market leadership in pursuit of high current income and relative stability of net asset value.

International investing involves certain risks, such as currency fluctuations, economic instability, and political developments. Additional risks may be associated with emerging-market securities, including illiquidity and volatility. Lower-rated bonds may offer higher yields in return for more risk. Funds that invest in government securities are not guaranteed. Mortgage-backed securities are subject to prepayment risk. Funds that invest in bonds are subject to certain risks, including interest-rate risk, credit risk, and inflation risk. As interest rates rise, the prices of bonds fall. Long-term bonds are more exposed to interest-rate risk than short-term bonds. Unlike bonds, bond funds have ongoing fees and expenses. The use of derivatives involves special risks and may result in losses. The fund’s shares trade on a stock exchange at market prices, which may be lower than the fund’s net asset value.

How do closed-end funds
differ from open-end funds?

More assets at work While open-end funds need to maintain a cash position to meet redemptions, closed-end funds are not subject to redemptions and can keep more of their assets invested in the market.

Traded like stocks Closed-end fund shares are traded on stock exchanges, and their market prices fluctuate in response to supply and demand, among other factors.

Net asset value vs. market price Like an open-end fund’s net asset value (NAV) per share, the NAV of a closed-end fund share is equal to the current value of the fund’s assets, minus its liabilities, divided by the number of shares outstanding. However, when buying or selling closed-end fund shares, the price you pay or receive is the market price. Market price reflects current market supply and demand and may be higher or lower than the NAV.

Putnam Master Intermediate Income Trust


 

Putnam Master Intermediate Income Trust balances
risk and return across multiple sectors

Portfolio composition as of 9/30/08


Putnam believes that building a diversified portfolio with multiple income-generating strategies is the best way to pursue your fund’s objectives. The fund’s portfolio is composed of a broad spectrum of government, credit, and securitized debt instruments.

Weightings are shown as a percentage of the fund’s net assets. Allocations and holdings in each sector will vary over time. For more information on current fund holdings, see pages 17–47.



Performance and portfolio snapshots

Average annual total return (%) comparison as of 9/30/08


Data is historical. Past performance does not guarantee future results. More recent returns may be less or more than those shown. Investment return and net asset value will fluctuate, and you may have a gain or a loss when you sell your shares. Performance assumes reinvestment of distributions and does not account for taxes. Fund returns in the bar chart are at NAV. See pages 5 and 8 for additional performance information, including fund returns at market price. Index and Lipper results should be compared to fund performance at NAV. Lipper calculates performance differently than the closed-end funds it ranks, due to varying methods for determining a fund’s monthly reinvestment NAV.

“The past 12 months for the financial markets
worldwide have been unprecedented. During
the period, investors indiscriminately fled even
high-quality mortgage and credit instruments
for government-backed U.S.Treasury bonds
and international government securities.”

D.William Kohli, Portfolio Leader, Putnam Master Intermediate Income Trust

Credit qualities shown as a percentage of portfolio value as of 9/30/08. A bond rated Baa or higher (MIG3/VMIG3 or higher, for short-term debt) is considered investment grade. The chart reflects Moody’s ratings; percentages may include bonds not rated by Moody’s but considered by Putnam Management to be of comparable quality. Ratings will vary over time.

Credit quality overview


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Bill, thank you for taking the time today to talk about Master Intermediate Income Trust’s most recent annual period. How did the fund perform?

The past 12 months for the financial markets worldwide have been unprecedented, with price volatility, collapses of large financial institutions, and government intervention in the markets on a scale not seen since the 1930s. During the period, investors indiscriminately fled even high-quality mortgage and credit instruments for government-backed U.S. Treasury bonds and international government securities. The fund significantly underperformed its benchmark, which is more highly concentrated in these government securities, despite our emphasis on securities of investment-grade and higher quality, and our continued cautious stance on duration [a measure of portfolio risk]. The fund also underperformed its peer group, Lipper Flexible Income Funds [closed-end].

Could you briefly cover the events of the past 12 months?

November 2007 as well as January and March of this year stand out as periods when securitized bond prices moved sharply lower based on broad-based housing market troubles and the oncoming credit squeeze. From late 2007 through early 2008, global credit markets grew increasingly illiquid, reaching the first of several subsequent low points thus far with the collapse of Bear Stearns in March. Other factors contributing to market volatility earlier in the period included spiking energy and commodity prices [though these prices have since receded somewhat]. In July came the government’s financial rescue of the assets of Fannie Mae and Freddie Mac.

From a Wall Street perspective, September’s events were earth-shaking, as financial pressure on major investment and commercial banks mushroomed and market liquidity dried up. Lehman Brothers made known that it was seeking a buyer or a government bailout but failed on both counts and was liquidated. In addition, Merrill Lynch agreed to be acquired by Bank of America, and the giant insurer AIG teetered on the brink of collapse before the government decided that the company was too critical to global financial market operations to be allowed to fail. Almost immediately afterward, Goldman Sachs and Morgan Stanley, the last two remaining U.S. investment banks, themselves under financial stress,

Broad market index and fund performance

This comparison shows your fund’s performance in the context of broad market indexes for the 12 months ended 9/30/08. See the previous page and page 8 for additional fund performance information. Index descriptions can be found on page 10.


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decided to change to bank holding companies in order to gain access to Federal Reserve lending facilities, thereby subjecting themselves to tighter federal regulation. Thus came the end of the era of the stand-alone investment bank that funds its operations through open-market trading activity.

Meanwhile, short-term credit markets, including the commercial paper market, went from somewhat illiquid to frozen over this period. Banks, fearful of possible toxic assets on one another’s books, became reluctant to lend to other institutions. Credit became extremely tight to virtually unobtainable for businesses of all sizes across the country. Just before the end of the period, federal regulators seized the country’s largest savings and loan, Washington Mutual. In recent months, the stock market has exhibited volatility not seen since the Depression. And last, the near-collapse of several major banks in Europe and bankruptcy for Iceland were extremely problematic for global capital flows.

Bill, what has been the investment team’s approach in managing the fund during the global credit crunch?

Our investment approach has been to focus on credit quality. We also believe this to be the correct approach going forward. Accordingly, we are significantly underweight corporate credit while favoring carefully selected securitized bonds, which we have purchased at what we feel are very attractive terms at several points over the past year, and which we believe should reward fund shareholders over time. We believe that these securities carry minimal fundamental credit risk. In addition, we remain neutral on government bonds. The fund is also underweight emerging-market bonds.

What is your outlook going forward for the economy, the credit markets, and the fund?

From short-term money markets and securitized instruments to corporate bonds and bank loans, all parts of the credit system had ceased to function normally by late September. The longer it takes for normal liquidity to be restored, the greater the negative impact on the real economy. In our judgment, there is now a high probability of a recession, and such a downturn could be severe. This would have major implications for corporate profits and default rates on corporate bonds and bank loans.

Our overall investment themes have not materially changed. We continue to emphasize top-rated securities among commercial mortgage-backed securities, mortgage pass-throughs, agencies, and collateralized mortgage obligations. We also continue to position the portfolio for yield-curve steepening, which helped performance over the past 12 months. This strategy is

Top holdings

This table shows the fund’s top holdings and the percentage of the fund’s net assets that each represented as of 9/30/08. Holdings will vary over time.

HOLDING (percent of fund’s net assets)  COUPON (%) and MATURITY DATE 
Securitized sector   
Federal National Mortgage Association pass-through certificates TBA (4.1%)  6%, 2038 
Credit Suisse Mortgage Capital Certificates Ser. 07-C5, Class A3 (2.5%)  5.694%, 2040 
Wachovia Bank Commercial Mortgage Trust Ser. 07-C30, Class A3 (1.2%)  5.246%, 2043 
Government sector   
Japan (Government of) CPI Linked bonds Ser. 8 (4.1%)  1%, 2016 
Argentina (Republic of) sr. unsec. unsub. bonds FRB (1.0%)  3.127%, 2012 
Colombia (Republic of) notes (1.0%)  10%, 2012 
Credit sector   
VTB Capital SA 144A notes (Luxembourg) (0.7%)  7.5%, 2011 
Charter Communications, Inc. bank term loan FRN (0.4%)  4.8%, 2014 
Echostar DBS Corp. company guaranty (0.4%)  6.625%, 2014 

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based on our view that the yield curve will continue to steepen as global central banks continue to cut short-term rates and longer-term rates trend higher on the liquidity squeeze and inflation concerns. We are also taking a neutral position on non-U.S. government bonds, as substantial new bond issuance by countries for financial bailouts should depress security prices and raise rates over the long term.

Thanks again, Bill, for sharing your insights with us.

The views expressed in this report are exclusively those of Putnam Management. 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.

I N  T H E  N E W S

In early October, federal lawmakers approved the Emergency Economic Stabilization Act of 2008 (EESA), a $700 billion economic package designed to ease the nation’s worsening credit crisis. Under the law, a Troubled Asset Relief Program (TARP) was originally authorized to purchase failed mortgages and mortgage-related securities at the heart of the credit crisis. However, in mid-November, U.S. Treasury Secretary Henry Paulson redirected TARP’s mission to help relieve pressure in the area of consumer credit. TARP will now focus on offering aid to banks and other firms that issue student, auto, and credit card loans.

Comparison of top sector weightings

This chart shows how the fund’s top weightings have changed over the past six months. Weightings are shown as a percentage of total investment portfolio. Holdings will vary over time.


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Your fund’s performance

This section shows your fund’s performance for periods ended September 30, 2008, the end of its most recent fiscal year. Performance should always be considered in light of a fund’s investment strategy. Data represents past performance. Past performance does not guarantee future results. More recent returns may be less or more than those shown. Investment return, net asset value, and market price will fluctuate, and you may have a gain or a loss when you sell your shares.

Fund performance Total return for periods ended 9/30/008

  NAV  Market price 

Annual average (life of fund since 4/29/88)  6.74%  5.90% 

10 years  56.66  50.83 
Annual average  4.59  4.20 

5 years  16.93  16.89 
Annual average  3.18  3.17 

3 years  0.79  4.51 
Annual average  0.26  1.48 

1 year  –10.67  –8.92 


Performance assumes reinvestment of distributions and does not account for taxes.

Comparative index returns For periods ended 9/30/08

        Lipper Flexible 
    Citigroup Non-U.S.    Income Funds 
  Lehman Government/  World Government  JPMorgan Global  (closed-end) 
  Credit Bond Index  Bond Index  High Yield Index  category average* 

Annual average (life of fund)  7.22%  6.66%  —†  6.48% 

10 years  62.93  66.65  64.78%  69.68 
Annual average  5.00  5.24  5.12  5.18 

5 years  17.86  31.05  26.91  20.59 
Annual average  3.34  5.56  4.88  3.79 

3 years  11.19  17.47  5.09  3.34 
Annual average  3.60  5.51  1.67  1.08 

1 year  2.41  5.16  –9.89  –8.03 


Index and Lipper results should be compared to fund performance at net asset value. Lipper calculates performance differently than the closed-end funds it ranks, due to varying methods for determining a fund’s monthly reinvestment NAV.

* Over the 1-year, 3-year, 5-year, 10-year, and life-of-fund periods ended 9/30/08, there were 6, 6, 6, 5, and 2 funds, respectively, in this Lipper category.

† The inception date of the JPMorgan Global High Yield Index was 12/31/93.

Fund price and distribution information For the 12-month period ended 9/30/08

Distributions       

Number    12  

Income    $0.485  

Capital gains     

Total    $0.485  

Share value  NAV    Market price 

9/30/07  $7.13   $6.41

9/30/08  5.88   5.39

Current yield (end of period)   

Current dividend rate*  9.18%   10.02%


The classification of distributions, if any, is an estimate. Final distribution information will appear on your year-end tax forms.

* Most recent distribution, excluding capital gains, annualized and divided by NAV or market price at end of period.

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Your fund’s management

Your fund is managed by the members of the Putnam Taxable Fixed-Income Team. D. William Kohli is the Portfolio Leader, and Michael Atkin, Rob Bloemker, Kevin Murphy, and Paul Scanlon are Portfolio Members of the fund. The Portfolio Leader and Portfolio Members coordinate the team’s management of the fund.

For a complete listing of the members of the Putnam Taxable Fixed-Income Team, including those who are not Portfolio Leaders or Portfolio Members of your fund, please visit the Individual Investors section of www.putnam.com.

Trustee and Putnam employee fund ownership

As of September 30, 2008, 12 of the 13 Trustees of the Putnam funds owned fund shares. The table below shows the approximate value of investments in the fund and all Putnam funds as of that date by the Trustees and Putnam employees. These amounts include investments by the Trustees’ and employees’ immediate family members and investments through retirement and deferred compensation plans.

  Assets in  Total assets in 
  the fund  all Putnam funds 

Trustees  $28,000 $37,000,000

Putnam employees  $3,000 $471,000,000


Other Putnam funds managed by the Portfolio Leader and Portfolio Members

D. William Kohli is also a Portfolio Leader of Putnam Diversified Income Trust, Putnam Global Income Trust, and Putnam Premier Income Trust.

Michael Atkin is also a Portfolio Member of Putnam Diversified Income Trust, Putnam Global Income Trust, and Putnam Premier Income Trust.

Rob Bloemker is also a Portfolio Leader of Putnam U.S. Government Income Trust, Putnam American Government Income Fund, and Putnam Income Fund. He is also a Portfolio Member of Putnam Diversified Income Trust, Putnam Global Income Trust, and Putnam Premier Income Trust.

Kevin Murphy is also a Portfolio Member of Putnam Income Fund, Putnam Diversified Income Trust, Putnam Premier Income Trust, and Putnam Utilities Growth and Income Fund.

Paul Scanlon is also a Portfolio Leader of Putnam High Yield Trust, Putnam High Yield Advantage Fund, and Putnam Floating Rate Income Fund. He is also a Portfolio Member of Putnam Diversified Income Trust and Putnam Premier Income Trust.

D. William Kohli, Michael Atkin, Rob Bloemker, Kevin Murphy, and Paul Scanlon may also manage other accounts and variable trust funds advised by Putnam Management or an affiliate.

Changes in your fund’s Portfolio Leader and Portfolio Members

During the reporting period ended September 30, 2008, Michael Atkin joined your fund’s management team, following the departure of Portfolio Member Jeffrey Kaufman.

Investment team fund ownership

The following table shows how much the fund’s current Portfolio Leader and Portfolio Members have invested in the fund and in all Putnam mutual funds (in dollar ranges). Information shown is as of September 30, 2008, and September 30, 2007.


N/A indicates the individual was not a Portfolio Leader or Portfolio Member as of 9/30/07.

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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.

Net asset value (NAV) is the value of all your fund’s assets, minusany liabilities, divided by the number of outstanding shares.

Market price is the current trading price of one share of the fund. Market prices are set by transactions between buyers and sellers on exchanges such as the New York Stock Exchange.

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.

Comparative indexes

Citigroup Non-U.S. World Government Bond Index is an unmanaged index generally considered to be representative of the world bond market.

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

JPMorgan Global High Yield Index is an unmanaged index of global high-yield fixed-income securities.

Lehman Government/Credit Bond Index is an unmanaged index of U.S. Treasuries, agency securities, and investment-grade corporate bonds.

Merrill Lynch 91-Day Treasury Bill Index is an unmanaged index that seeks to measure the performance of U.S. Treasury bills available in the marketplace.

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

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

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

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Trustee approval of management contract

General conclusions

The Board of Trustees of the Putnam funds oversees the management of each fund and, as required by law, determines annually whether to approve the continuance of your fund’s management contract with Putnam Investment Management (“Putnam Management”) and the sub-management contract, in respect of your fund, between Putnam Management’s affiliate, Putnam Investments Limited (“PIL”), and Putnam Management. In this regard, the Board of Trustees, with the assistance of its Contract Committee consisting solely of Trustees who are not “interested persons” (as such term is defined in the Investment Company Act of 1940, as amended) of the Putnam funds (the “Independent Trustees”), requests and evaluates all information it deems reasonably necessary under the circumstances. Over the course of several months ending in June 2008, the Contract Committee met several times to consider the information provided by Putnam Management and other information developed with the assistance of the Board’s independent counsel and independent staff. The Contract Committee reviewed and discussed key aspects of this information with all of the Independent Trustees. The Contract Committee recommended, and the Independent Trustees approved, the continuance of your fund’s management and sub-management contracts, effective July 1, 2008. (Because PIL is an affiliate of Putnam Management and Putnam Management remains fully responsible for all services provided by PIL, the Trustees have not evaluated PIL as a separate entity, and all subsequent references to Putnam Management below should be deemed to include reference to PIL as necessary or appropriate in the context.)

The Independent Trustees’ approval was based on the following conclusions:

That the fee schedule in effect for your fund represented reasonable compensation in light of the nature and quality of the services being provided to the fund, the fees paid by competitive funds and the costs incurred by Putnam Management in providing such services, and

That this fee schedule represented an appropriate sharing between fund shareholders and Putnam Management of such economies of scale as may exist in the management of the fund at current asset levels.

These conclusions were based on a comprehensive consideration of all information provided to the Trustees, were subject to the continued application of certain expense reductions and waivers and other considerations noted below, and were not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations and how the Trustees considered these factors are described below, although individual Trustees may have evaluated the information presented differently, giving different weights to various factors. It is also important to recognize that the fee arrangements for your fund and the other Putnam funds are the result of many years of review and discussion between the Independent Trustees and Putnam Management, that certain aspects of such arrangements may receive greater scrutiny in some years than others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements in prior years.

Management fee schedules and
categories; total expenses

The Trustees reviewed the management fee schedules in effect for all Putnam funds, including fee levels and breakpoints, and the assignment of funds to particular fee categories. In reviewing fees and expenses, the Trustees generally focused their attention on material changes in circumstances — for example, changes in a fund’s size or investment style, changes in Putnam Management’s operating costs or responsibilities, or changes in competitive practices in the mutual fund industry — that suggest that consideration of fee changes might be warranted. The Trustees concluded that the circumstances did not warrant changes to the management fee structure of your fund, which had been carefully developed over the years, re-examined on many occasions and adjusted where appropriate. In this regard, the Trustees also noted that shareholders of your fund voted in 2007 to approve new management contracts containing an identical fee structure. The Trustees focused on two areas of particular interest, as discussed further below:

Competitiveness. The Trustees reviewed comparative fee and expense information for competitive funds, which indicated that, in a custom peer group of competitive funds selected by Lipper Inc., your fund ranked in the 50th percentile in management fees and in the 50th percentile in total expenses as of December 31, 2007 (the first percentile being the least expensive funds and the 100th percentile being the most expensive funds). The Trustees expressed their intention to monitor this information closely to ensure that fees and expenses of your fund continue to meet evolving competitive standards.

Economies of scale. The Trustees considered that most Putnam funds currently have the benefit of breakpoints in their management fees that provide shareholders with significant economies of scale, which means that the effective management fee rate of a fund (as a percentage of fund assets) declines as a fund grows in size and crosses specified asset thresholds. Conversely, as a fund shrinks in size — as has been the case for many Putnam funds in recent years — these breakpoints result in increasing fee levels. In recent years, the Trustees have examined the operation of the existing breakpoint structure during periods of both growth and decline in asset levels. The Trustees concluded that the fee schedules in effect for the funds represented an appropriate sharing of economies of scale at current asset levels.

In connection with their review of the management fees and total expenses of the Putnam funds, the Trustees also reviewed the costs of the services to be provided and profits to be realized by Putnam Management and its affiliates from the relationship with the funds. This information included trends in

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revenues, expenses and profitability of Putnam Management and its affiliates relating to the investment management and distribution services provided to the funds. In this regard, the Trustees also reviewed an analysis of Putnam Management’s revenues, expenses and profitability with respect to the funds’ management contracts, allocated on a fund-by-fund basis.

Investment performance

The quality of the investment process provided by Putnam Management represented a major factor in the Trustees’ evaluation of the quality of services provided by Putnam Management under your fund’s management contract. The Trustees were assisted in their review of the Putnam funds’ investment process and performance by the work of the Investment Oversight Coordinating Committee of the Trustees and the Investment Oversight Committees of the Trustees, which had met on a regular monthly basis with the funds’ portfolio teams throughout the year. The Trustees concluded that Putnam Management generally provides a high-quality investment process — as measured by the experience and skills of the individuals assigned to the management of fund portfolios, the resources made available to such personnel, and in general the ability of Putnam Management to attract and retain high-quality personnel — but also recognized that this does not guarantee favorable investment results for every fund in every time period. The Trustees considered the investment performance of each fund over multiple time periods and considered information comparing each fund’s performance with various benchmarks and with the performance of competitive funds.

While the Trustees noted the satisfactory investment performance of certain Putnam funds, they considered the disappointing investment performance of many funds in recent periods, particularly over periods in 2007 and 2008. They discussed with senior management of Putnam Management the factors contributing to such underperformance and actions being taken to improve performance. The Trustees recognized that, in recent years, Putnam Management has taken steps to strengthen its investment personnel and processes to address areas of underperformance, including recent efforts to further centralize Putnam Management’s equity research function. In this regard, the Trustees took into consideration efforts by Putnam Management to improve its ability to assess and mitigate investment risk in individual funds, across asset classes, and across the complex as a whole. The Trustees indicated their intention to continue to monitor performance trends to assess the effectiveness of these efforts and to evaluate whether additional changes to address areas of underperformance are warranted.

In the case of your fund, the Trustees considered that your fund’s common share cumulative total return performance at net asset value was in the following percentiles of its Lipper Inc. peer group (Lipper Flexible Income Funds (closed-end)) for the one-year, three-year and five-year periods ended December 31, 2007 (the first percentile being the best-performing funds and the 100th percentile being the worst-performing funds):

One-year period  63rd 

Three-year period  63rd 

Five-year period  58th 


(Because of the passage of time, these performance results may differ from the performance results for more recent periods shown elsewhere in this report.) Over the one-year, three-year, and five-year periods ended December 31, 2007, there were 7, 7, and 6 funds, respectively, in your fund’s Lipper peer group.* Past performance is no guarantee of future returns.

As a general matter, the Trustees believe that cooperative efforts between the Trustees and Putnam Management represent the most effective way to address investment performance problems. The Trustees noted that investors in the Putnam funds have, in effect, placed their trust in the Putnam organization, under the oversight of the funds’ Trustees, to make appropriate decisions regarding the management of the funds. Based on the responsiveness of Putnam Management in the recent past to Trustee concerns about investment performance, the Trustees concluded that it is preferable to seek change within Putnam Management to address performance shortcomings. In the Trustees’ view, the alternative of engaging a new investment adviser for an underperforming fund would entail significant disruptions and would not provide any greater assurance of improved investment performance.

Brokerage and soft-dollar
allocations; other benefits

The Trustees considered various potential benefits that Putnam Management may receive in connection with the services it provides under the management contract with your fund. These include benefits related to brokerage and soft-dollar allocations, whereby a portion of the commissions paid by a fund for brokerage may be used to acquire research services that may be useful to Putnam Management in managing the assets of the fund and of other clients. The Trustees considered changes made in 2008, at Putnam Management’s request, to the Putnam funds’ brokerage allocation policy, which expanded the permitted categories of brokerage and research services payable with soft dollars and increased the permitted soft dollar allocation to third-party services over what had been authorized in previous years. The Trustees indicated their continued intent

* The percentile rankings for your fund’s common share annualized total return performance in the Lipper Flexible Income Funds (closed-end) category for the one-year, five-year, and ten-year periods ended September 30, 2008, were 86%, 86%, and 67%, respectively. Over the one-year, five-year, and ten-year periods ended September 30, 2008, your fund ranked 6th out of 6, 6th out of 6, and 4th out of 5 funds, respectively. Note that this more recent information was not available when the Trustees approved the continuance of your fund’s management contract.

12


to monitor the potential benefits associated with the allocation of fund brokerage and trends in industry practice to ensure that the principle of seeking “best price and execution” remains paramount in the portfolio trading process.

The Trustees’ annual review of your fund’s management contract arrangements also included the review of your fund’s investor servicing agreement with Putnam Fiduciary Trust Company (“PFTC”), which provides benefits to affiliates of Putnam Management. In the case of the investor servicing agreement, the Trustees considered that certain shareholder servicing functions were shifted to a third-party service provider by PFTC in 2007.

Comparison of retail and
institutional fee schedules

The information examined by the Trustees as part of their annual contract review has included for many years information regarding fees charged by Putnam Management and its affiliates to institutional clients such as defined benefit pension plans, college endowments, etc. This information included comparisons of such fees with fees charged to the funds, as well as a detailed assessment of the differences in the services provided to these two types of clients. The Trustees observed, in this regard, that the differences in fee rates between institutional clients and mutual funds are by no means uniform when examined by individual asset sectors, suggesting that differences in the pricing of investment management services to these types of clients reflect to a substantial degree historical competitive forces operating in separate market places. The Trustees considered the fact that fee rates across different asset classes are typically higher on average for mutual funds than for institutional clients, as well as the differences between the services that Putnam Management provides to the Putnam funds and those that it provides to institutional clients of the firm, but did not rely on such comparisons to any significant extent in concluding that the management fees paid by your fund are reasonable.

13


Other information for shareholders

Important notice regarding share
repurchase program

In October 2008, the Trustees of your fund approved the renewal of a share repurchase program that had been in effect since 2005. This renewal will allow your fund to repurchase, in the 12 months beginning October 8, 2008, up to 10% of the fund’s common shares outstanding as of October 7, 2008.

Putnam’s policy on confidentiality

In order to conduct business with our shareholders, we must obtain certain personal information such as account holders’ addresses, telephone numbers, Social Security numbers, and the names of their financial representatives. We use this information to assign an account number and to help us maintain accurate records of transactions and account balances. It is our policy to protect the confidentiality of your information, whether or not you currently own shares of our funds, and, in particular, not to sell information about you or your accounts to outside marketing firms. We have safeguards in place designed to prevent unauthorized access to our computer systems and procedures to protect personal information from unauthorized use. Under certain circumstances, we share this information with outside vendors who provide services to us, such as mailing and proxy solicitation. In those cases, the service providers enter into confidentiality agreements with us, and we provide only the information necessary to process transactions and perform other services related to your account. We may also share this information with our Putnam affiliates to service your account or provide you with information about other Putnam products or services. It is also our policy to share account information with your financial representative, if you’ve listed one on your Putnam account. If you would like clarification about our confidentiality policies or have any questions or concerns, please don’t hesitate to contact us at 1-800-225-1581, Monday through Friday, 8:30 a.m. to 8:00 p.m., or Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time.

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, 2008, are available in the Individual Investors section of www.putnam.com, and on the SEC’s Web site, www.sec.gov. If you have questions about finding forms on the SEC’s Web site, you may call the SEC at 1-800-SEC-0330. You may also obtain the Putnam funds’ proxy voting guidelines and procedures at no charge by calling Putnam’s Shareholder Services at 1-800-225-1581.

Fund portfolio holdings

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

14


Financial statements

These sections of the report, as well as the accompanying Notes, preceded by the Report of Independent Registered Public Accounting Firm, constitute the fund’s financial statements.

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

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

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

Statement of changes in net assets shows how the fund’s net assets were affected by the fund’s net investment gain or loss, by distributions to shareholders, and by changes in the number of the fund’s shares. It lists distributions and their sources (net investment income or realized capital gains) over the current reporting period and the most recent fiscal year-end. The distributions listed here may not match the sources listed in the Statement of operations because the distributions are determined on a tax basis and may be paid in a different period from the one in which they were earned.

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

15


Report of Independent Registered Public Accounting Firm

The Board of Trustees and Shareholders
Putnam Master Intermediate Income Trust:

We have audited the accompanying statement of assets and liabilities of Putnam Master Intermediate Income Trust, including the fund’s portfolio, as of September 30, 2008, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the five years or periods in the period then ended. These financial statements and financial highlights are the responsibility of the fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform our audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of September 30, 2008 by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Putnam Master Intermediate Income Trust as of September 30, 2008, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years or periods in the period then ended, in conformity with U.S. generally accepted accounting principles.


Boston, Massachusetts
November 20, 2008

16


The fund’s portfolio 9/30/08

COLLATERALIZED MORTGAGE    Principal   
OBLIGATIONS (43.6%)*    amount  Value 

Asset Backed Funding Certificates       
144A FRB Ser. 06-OPT3, Class B,       
5.707s, 2036    $52,000  $1,789 

Banc of America Alternative Loan       
Trust Ser. 06-7, Class A2,       
5.707s, 2036    3,981,000  2,508,030 

Banc of America Commercial       
Mortgage, Inc.       
Ser. 01-1, Class G, 7.324s, 2036    325,000  326,313 
FRB Ser. 07-3, Class A3, 5.838s, 2049    168,000  157,446 
Ser. 07-2, Class A2, 5.634s, 2049    513,000  481,297 
Ser. 05-6, Class A2, 5.165s, 2047    1,131,000  1,102,972 
Ser. 07-5, Class XW, Interest Only       
(IO), 0.607s, 2051    113,048,119  2,600,814 

Banc of America Commercial       
Mortgage, Inc. 144A       
Ser. 01-1, Class J, 6 1/8s, 2036    163,000  153,082 
Ser. 01-1, Class K, 6 1/8s, 2036    367,000  278,348 

Banc of America Funding Corp. FRB       
Ser. 06-D, Class 6A1, 5.992s, 2036    2,898,334  1,941,884 

Banc of America Large Loan 144A       
FRB Ser. 05-MIB1, Class K,       
4.488s, 2022    645,000  529,094 

Bayview Commercial       
Asset Trust 144A       
Ser. 07-5A, IO, 1.55s, 2037    1,417,032  174,012 
Ser. 07-1, Class S, IO, 1.211s, 2037    3,896,358  355,348 

Bear Stearns Alternate Trust       
FRB Ser. 06-5, Class 2A2, 6 1/4s, 2036    2,184,390  1,376,166 
FRB Ser. 06-6, Class 2A1, 5.899s, 2036    1,060,410  653,090 

Bear Stearns Commercial Mortgage       
Securities, Inc.       
FRB Ser. 00-WF2, Class F, 8.447s, 2032    410,000  366,628 
Ser. 07-PW17, Class A3, 5.736s, 2050    2,068,000  1,960,526 

Bear Stearns Commercial Mortgage       
Securities, Inc. 144A       
Ser. 07-PW18, Class X1, IO,       
0.062s, 2050    62,631,285  523,773 

Broadgate Financing PLC sec. FRB       
Ser. D, 6.713s, 2023       
(United Kingdom)  GBP  382,375  511,654 

Citigroup Mortgage Loan Trust, Inc.       
FRB Ser. 06-AR5, Class 2A5A,       
6.202s, 2036    $1,427,863  987,415 
FRB Ser. 06-AR7, Class 2A2A,       
5.654s, 2036    250,599  157,877 
IFB Ser. 07-6, Class 2A5, IO,       
3.443s, 2037    1,779,164  122,874 

Citigroup/Deutsche Bank Commercial       
Mortgage Trust Ser. 06-CD3,       
Class A4, 5.658s, 2048    106,000  100,364 

Citigroup/Deutsche Bank Commercial       
Mortgage Trust 144A Ser. 07-CD5,       
Class XS, IO, 0.067s, 2044    36,640,960  262,087 

Commercial Mortgage Pass-Through       
Certificates 144A FRB       
Ser. 05-F10A, Class A1, 2.588s, 2017    253,745  241,358 

Countrywide Alternative Loan Trust       
Ser. 06-45T1, Class 2A2, 6s, 2037    902,017  549,779 
Ser. 06-J8, Class A4, 6s, 2037    2,270,693  1,156,918 
Ser. 07-HY5R, Class 2A1A, 5.544s, 2047    1,745,585  1,429,471 
IFB Ser. 04-2CB, Class 1A5, IO,       
4.393s, 2034    1,830,502  95,672 


COLLATERALIZED MORTGAGE    Principal   
OBLIGATIONS (43.6%)* cont.    amount  Value 

Countrywide Home Loans       
FRB Ser. 05-HYB7, Class 6A1,       
5.714s, 2035    $46,263  $32,847 
Ser. 05-2, Class 2X, IO, 1.16s, 2035    2,691,188  58,344 

Countrywide Home Loans 144A IFB       
Ser. 05-R1, Class 1AS, IO,       
3.523s, 2035    3,222,185  185,276 

Credit Suisse Mortgage Capital Certificates       
FRB Ser. 07-C4, Class A2, 6.004s, 2039    814,000  769,356 
Ser. 07-C5, Class A3, 5.694s, 2040    11,100,000  9,932,402 

CRESI Finance Limited Partnership       
144A FRB Ser. 06-A, Class C,       
3.807s, 2017    251,000  225,498 

CS First Boston Mortgage       
Securities Corp. 144A       
Ser. 98-C1, Class F, 6s, 2040    966,000  801,117 
Ser. 02-CP5, Class M, 5 1/4s, 2035    354,000  70,800 
FRB Ser. 05-TFLA, Class L, 4.338s, 2020    699,000  580,170 

Deutsche Mortgage & Asset       
Receiving Corp. Ser. 98-C1,       
Class X, IO, 0.776s, 2031    3,067,852  75,970 

DLJ Commercial Mortgage Corp.       
Ser. 98-CF2, Class B4, 6.04s, 2031    286,492  245,323 

DLJ Commercial Mortgage Corp. 144A       
Ser. 98-CF2, Class B5, 5.95s, 2031    915,958  725,622 

European Loan Conduit 144A FRB       
Ser. 22A, Class D, 6.646s, 2014 (Ireland)  GBP  507,000  704,018 

European Prime Real Estate PLC       
144A FRB Ser. 1-A, Class D,       
6.641s, 2014 (United Kingdom)  GBP  276,306  401,660 

Fannie Mae       
IFB Ser. 06-70, Class SM, 27.567s, 2036    $212,266  272,700 
IFB Ser. 07-1, Class NR, 23.128s, 2037    912,442  1,004,155 
IFB Ser. 06-62, Class PS, 20.659s, 2036    654,725  801,637 
IFB Ser. 06-76, Class QB, 20.359s, 2036    1,592,216  1,932,857 
IFB Ser. 06-70, Class SJ, 20.359s, 2036    108,693  133,796 
IFB Ser. 06-63, Class SP, 20.059s, 2036    1,743,442  2,084,576 
IFB Ser. 07-W7, Class 1A4,       
19.939s, 2037    572,274  555,105 
IFB Ser. 06-104, Class GS, 17.994s, 2036    330,738  387,253 
IFB Ser. 06-60, Class TK, 15.772s, 2036    483,246  535,277 
IFB Ser. 05-25, Class PS, 14.05s, 2035    663,655  707,637 
IFB Ser. 05-74, Class CP, 12.991s, 2035    456,854  482,301 
IFB Ser. 05-115, Class NQ,       
12.912s, 2036    259,568  259,249 
IFB Ser. 06-27, Class SP, 12.808s, 2036    734,005  796,310 
IFB Ser. 06-8, Class HP, 12.808s, 2036    775,116  837,839 
IFB Ser. 06-8, Class WK, 12.808s, 2036    1,241,323  1,327,413 
IFB Ser. 05-106, Class US, 12.808s, 2035    1,104,947  1,208,965 
IFB Ser. 05-99, Class SA, 12.808s, 2035    536,194  572,045 
IFB Ser. 06-60, Class CS, 12.331s, 2036    814,956  806,523 
IFB Ser. 05-74, Class CS, 11.201s, 2035    520,854  548,675 
IFB Ser. 04-79, Class S, 10.981s, 2032    764,219  768,370 
IFB Ser. 05-114, Class SP,       
10.761s, 2036    324,532  324,610 
IFB Ser. 05-95, Class OP, 10.45s, 2035    334,416  324,697 
IFB Ser. 05-95, Class CP, 10.35s, 2035    78,231  79,752 
IFB Ser. 05-83, Class QP, 9.056s, 2034    186,487  177,662 
Ser. 383, Class 90, IO, 8s, 2037    76,533  13,157 
Ser. 04-T2, Class 1A4, 7 1/2s, 2043    245,086  257,263 
Ser. 02-T19, Class A3, 7 1/2s, 2042    200,055  212,712 
Ser. 02-14, Class A2, 7 1/2s, 2042    1,459  1,542 
Ser. 01-T10, Class A2, 7 1/2s, 2041    194,613  201,587 
Ser. 02-T4, Class A3, 7 1/2s, 2041    874  931 

17


COLLATERALIZED MORTGAGE  Principal   
OBLIGATIONS (43.6%)* cont.  amount  Value 

Fannie Mae     
Ser. 01-T3, Class A1, 7 1/2s, 2040  $127,070  $133,735 
Ser. 01-T1, Class A1, 7 1/2s, 2040  384,795  406,749 
Ser. 99-T2, Class A1, 7 1/2s, 2039  151,893  161,202 
Ser. 386, Class 26, IO, 7 1/2s, 2038  117,337  21,971 
Ser. 386, Class 27, IO, 7 1/2s, 2037  78,173  15,771 
Ser. 386, Class 28, IO, 7 1/2s, 2037  81,338  15,973 
Ser. 383, Class 88, IO, 7 1/2s, 2037  123,759  23,010 
Ser. 383, Class 89, IO, 7 1/2s, 2037  96,819  19,043 
Ser. 383, Class 87, IO, 7 1/2s, 2037  154,792  29,888 
Ser. 00-T6, Class A1, 7 1/2s, 2030  73,363  77,005 
Ser. 01-T4, Class A1, 7 1/2s, 2028  362,292  385,686 
Ser. 04-W12, Class 1A3, 7s, 2044  279,864  293,512 
Ser. 01-T10, Class A1, 7s, 2041  767,912  797,909 
Ser. 386, Class 24, IO, 7s, 2038  99,619  24,046 
Ser. 386, Class 25, IO, 7s, 2038  105,648  25,995 
Ser. 386, Class 22, IO, 7s, 2038  136,122  32,033 
Ser. 386, Class 21, IO, 7s, 2037  153,830  37,002 
Ser. 386, Class 23, IO, 7s, 2037  151,367  36,192 
Ser. 383, Class 84, IO, 7s, 2037  141,201  34,249 
Ser. 383, Class 85, IO, 7s, 2037  89,962  22,335 
Ser. 383, Class 86, IO, 7s, 2037  81,549  19,910 
Ser. 383, Class 79, IO, 7s, 2037  143,565  30,560 
Ser. 383, Class 80, IO, 7s, 2037  312,964  57,898 
Ser. 383, Class 81, IO, 7s, 2037  171,773  37,657 
Ser. 383, Class 82, IO, 7s, 2037  171,622  39,922 
Ser. 383, Class 83, IO, 7s, 2037  143,336  34,127 
Ser. 386, Class 14, IO, 6 1/2s, 2038  1,243,791  216,109 
Ser. 386, Class 19, IO, 6 1/2s, 2038  146,978  31,692 
Ser. 386, Class 17, IO, 6 1/2s, 2037  224,810  38,499 
Ser. 386, Class 16, IO, 6 1/2s, 2037  154,586  35,256 
Ser. 383, Class 60, IO, 6 1/2s, 2037  713,858  140,987 
Ser. 383, Class 62, IO, 6 1/2s, 2037  199,171  43,733 
Ser. 383, Class 69, IO, 6 1/2s, 2037  112,636  26,736 
Ser. 383, Class 63, IO, 6 1/2s, 2037  155,328  34,536 
Ser. 383, Class 64, IO, 6 1/2s, 2037  287,162  58,509 
Ser. 383, Class 67, IO, 6 1/2s, 2037  151,485  32,944 
Ser. 383, Class 68, IO, 6 1/2s, 2037  89,293  19,997 
Ser. 383, Class 58, IO, 6 1/2s, 2037  332,688  64,874 
Ser. 383, Class 59, IO, 6 1/2s, 2037  209,260  45,287 
Ser. 383, Class 61, IO, 6 1/2s, 2037  166,841  35,994 
Ser. 383, Class 65, IO, 6 1/2s, 2037  198,356  45,551 
Ser. 383, Class 66, IO, 6 1/2s, 2037  202,505  46,417 
Ser. 383, Class 72, IO, 6 1/2s, 2037  798,341  154,678 
Ser. 383, Class 77, IO, 6 1/2s, 2037  120,239  26,900 
Ser. 383, Class 78, IO, 6 1/2s, 2037  123,187  23,008 
Ser. 383, Class 73, IO, 6 1/2s, 2037  272,718  51,135 
Ser. 383, Class 76, IO, 6 1/2s, 2037  164,057  37,133 
Ser. 383, Class 70, IO, 6 1/2s, 2037  421,610  80,633 
Ser. 383, Class 74, IO, 6 1/2s, 2037  224,389  41,793 
Ser. 383, Class 71, IO, 6 1/2s, 2036  178,438  37,980 
Ser. 383, Class 75, IO, 6 1/2s, 2036  143,845  31,679 
Ser. 371, Class 2, IO, 6 1/2s, 2036  11,576,124  2,561,217 
Ser. 383, Class 101, IO, 6 1/2s, 2022  72,198  13,405 
Ser. 389, Class 6, IO, 6s, 2038  212,234  45,100 
Ser. 08-76, Class JI, IO, 6s, 2038  1,378,377  265,338 
Ser. 386, Class 10, IO, 6s, 2038  108,856  23,130 
Ser. 386, Class 11, IO, 6s, 2038  92,431  17,306 
Ser. 383, Class 41, IO, 6s, 2038  1,209,843  223,821 
Ser. 383, Class 42, IO, 6s, 2038  874,497  159,596 
Ser. 383, Class 43, IO, 6s, 2038  790,284  146,203 
Ser. 383, Class 44, IO, 6s, 2038  721,852  132,640 
Ser. 383, Class 45, IO, 6s, 2038  555,966  102,159 
Ser. 383, Class 46, IO, 6s, 2038  483,164  88,781 
Ser. 383, Class 47, IO, 6s, 2038  428,099  82,409 
Ser. 383, Class 48, IO, 6s, 2038  384,305  73,979 

COLLATERALIZED MORTGAGE  Principal   
OBLIGATIONS (43.6%)* cont.  amount  Value 

Fannie Mae     
Ser. 383, Class 52, IO, 6s, 2038  $155,592  $33,212 
Ser. 386, Class 9, IO, 6s, 2038  693,040  120,416 
Ser. 383, Class 28, IO, 6s, 2038  1,446,272  278,407 
Ser. 383, Class 29, IO, 6s, 2038  1,300,604  250,366 
Ser. 383, Class 30, IO, 6s, 2038  959,808  184,763 
Ser. 383, Class 31, IO, 6s, 2038  846,247  162,903 
Ser. 383, Class 32, IO, 6s, 2038  656,386  126,354 
Ser. 383, Class 33, IO, 6s, 2038  561,981  109,586 
Ser. 383, Class 37, IO, 6s, 2038  217,928  48,345 
Ser. 386, Class 7, IO, 6s, 2038  847,894  165,339 
Ser. 383, Class 34, IO, 6s, 2037  226,750  44,216 
Ser. 383, Class 35, IO, 6s, 2037  187,810  39,719 
Ser. 383, Class 36, IO, 6s, 2037  148,111  31,211 
Ser. 383, Class 38, IO, 6s, 2037  92,728  19,658 
Ser. 383, Class 50, IO, 6s, 2037  262,312  47,544 
Ser. 386, Class 6, IO, 6s, 2037  406,783  75,255 
Ser. 383, Class 39, IO, 6s, 2037  89,377  17,148 
Ser. 383, Class 49, IO, 6s, 2037  197,594  41,668 
Ser. 383, Class 51, IO, 6s, 2037  203,614  42,722 
Ser. 383, Class 53, IO, 6s, 2037  85,636  18,058 
Ser. 383, Class 57, IO, 6s, 2037  124,164  23,570 
Ser. 383, Class 100, IO, 6s, 2022  77,585  15,377 
Ser. 383, Class 98, IO, 6s, 2022  214,776  45,082 
Ser. 383, Class 99, IO, 6s, 2022  94,778  18,760 
Ser. 383, Class 18, IO, 5 1/2s, 2038  761,880  148,567 
Ser. 383, Class 19, IO, 5 1/2s, 2038  695,348  134,724 
Ser. 383, Class 25, IO, 5 1/2s, 2038  119,031  27,057 
Ser. 386, Class 4, IO, 5 1/2s, 2037  172,403  42,742 
Ser. 386, Class 5, IO, 5 1/2s, 2037  110,023  24,497 
Ser. 383, Class 15, IO, 5 1/2s, 2037  105,259  24,396 
Ser. 383, Class 4, IO, 5 1/2s, 2037  1,063,026  212,605 
Ser. 383, Class 5, IO, 5 1/2s, 2037  674,895  136,666 
Ser. 383, Class 6, IO, 5 1/2s, 2037  605,870  122,689 
Ser. 383, Class 7, IO, 5 1/2s, 2037  597,906  121,076 
Ser. 383, Class 8, IO, 5 1/2s, 2037  242,434  51,517 
Ser. 383, Class 9, IO, 5 1/2s, 2037  231,135  49,116 
Ser. 383, Class 20, IO, 5 1/2s, 2037  430,524  87,181 
Ser. 383, Class 21, IO, 5 1/2s, 2037  406,572  82,331 
Ser. 383, Class 22, IO, 5 1/2s, 2037  275,507  57,857 
Ser. 383, Class 23, IO, 5 1/2s, 2037  248,589  51,582 
Ser. 383, Class 24, IO, 5 1/2s, 2037  174,192  40,366 
Ser. 383, Class 26, IO, 5 1/2s, 2037  127,747  31,381 
Ser. 379, Class 2, IO, 5 1/2s, 2037  2,763,674  631,776 
Ser. 363, Class 2, IO, 5 1/2s, 2035  1,951,747  459,051 
Ser. 383, Class 95, IO, 5 1/2s, 2022  342,683  50,546 
Ser. 383, Class 97, IO, 5 1/2s, 2022  143,724  28,099 
Ser. 383, Class 94, IO, 5 1/2s, 2022  172,032  36,158 
Ser. 383, Class 96, IO, 5 1/2s, 2022  186,763  37,659 
Ser. 383, Class 2, IO, 5s, 2037  113,952  26,404 
Ser. 377, Class 2, IO, 5s, 2036  816,531  193,436 
Ser. 383, Class 92, IO, 5s, 2022  149,536  30,277 
Ser. 383, Class 93, IO, 5s, 2022  85,810  16,785 
IFB Ser. 07-W6, Class 6A2, IO,     
4.593s, 2037  1,001,110  83,843 
IFB Ser. 06-90, Class SE, IO,     
4.593s, 2036  2,247,984  271,125 
IFB Ser. 04-51, Class XP, IO,     
4.493s, 2034  2,125,741  217,390 
IFB Ser. 03-66, Class SA, IO,     
4.443s, 2033  887,375  90,845 
IFB Ser. 08-7, Class SA, IO,     
4.343s, 2038  4,495,288  532,696 
IFB Ser. 07-W6, Class 5A2, IO,     
4.083s, 2037  1,483,576  109,414 

18


COLLATERALIZED MORTGAGE  Principal   
OBLIGATIONS (43.6%)* cont.  amount  Value 

Fannie Mae     
IFB Ser. 07-W2, Class 3A2, IO,     
4.073s, 2037  $1,421,952  $107,535 
IFB Ser. 06-115, Class BI, IO,     
4.053s, 2036  1,190,827  82,183 
IFB Ser. 05-113, Class AI, IO,     
4.023s, 2036  712,386  61,517 
IFB Ser. 05-113, Class DI, IO,     
4.023s, 2036  4,678,409  407,999 
IFB Ser. 08-36, Class YI, IO,     
3.993s, 2036  1,686,523  158,069 
IFB Ser. 06-60, Class SI, IO,     
3.943s, 2036  1,419,536  131,307 
IFB Ser. 06-60, Class UI, IO,     
3.943s, 2036  574,611  48,870 
IFB Ser. 07-W7, Class 3A2, IO,     
3.923s, 2037  1,691,053  151,938 
IFB Ser. 06-60, Class DI, IO,     
3.863s, 2035  1,688,698  118,209 
IFB Ser. 03-130, Class BS, IO,     
3.843s, 2033  2,281,362  202,818 
IFB Ser. 03-34, Class WS, IO,     
3.793s, 2029  2,178,947  178,053 
IFB Ser. 08-10, Class LI, IO,     
3.773s, 2038  2,188,285  201,049 
IFB Ser. 07-39, Class LI, IO,     
3.563s, 2037  1,185,965  102,714 
IFB Ser. 07-23, Class SI, IO,     
3.563s, 2037  360,285  24,891 
IFB Ser. 07-54, Class CI, IO,     
3.553s, 2037  1,090,002  98,573 
IFB Ser. 07-39, Class PI, IO,     
3.553s, 2037  888,932  62,012 
IFB Ser. 07-30, Class WI, IO,     
3.553s, 2037  5,113,742  393,763 
IFB Ser. 07-28, Class SE, IO,     
3.543s, 2037  221,734  19,757 
IFB Ser. 07-22, Class S, IO,     
3.543s, 2037  15,775,729  1,311,358 
IFB Ser. 06-128, Class SH, IO,     
3.543s, 2037  977,125  65,353 
IFB Ser. 06-56, Class SM, IO,     
3.543s, 2036  1,248,061  100,503 
IFB Ser. 05-90, Class SP, IO,     
3.543s, 2035  621,044  54,897 
IFB Ser. 05-12, Class SC, IO,     
3.543s, 2035  777,313  65,236 
IFB Ser. 07-W5, Class 2A2, IO,     
3.533s, 2037  535,124  41,472 
IFB Ser. 07-30, Class IE, IO,     
3.533s, 2037  2,701,985  280,469 
IFB Ser. 06-123, Class CI, IO,     
3.533s, 2037  2,193,912  182,909 
IFB Ser. 06-123, Class UI, IO,     
3.533s, 2037  2,112,935  165,073 
IFB Ser. 05-45, Class EW, IO,     
3.513s, 2035  601,445  46,469 
IFB Ser. 07-15, Class BI, IO,     
3.493s, 2037  3,530,305  287,854 
IFB Ser. 06-126, Class CS, IO,     
3.493s, 2037  1,495,572  120,539 
IFB Ser. 06-16, Class SM, IO,     
3.493s, 2036  2,176,622  186,295 
IFB Ser. 05-95, Class CI, IO,     
3.493s, 2035  1,193,410  111,817 

COLLATERALIZED MORTGAGE  Principal   
OBLIGATIONS (43.6%)* cont.  amount  Value 

Fannie Mae     
IFB Ser. 05-84, Class SG, IO,     
3.493s, 2035  $1,968,224  $167,299 
IFB Ser. 05-57, Class NI, IO,     
3.493s, 2035  496,256  38,804 
IFB Ser. 05-29, Class SX, IO,     
3.493s, 2035  820,178  72,421 
IFB Ser. 04-92, Class S, IO,     
3.493s, 2034  2,885,584  201,991 
IFB Ser. 06-104, Class EI, IO,     
3.483s, 2036  1,119,754  106,197 
IFB Ser. 05-83, Class QI, IO,     
3.483s, 2035  325,890  26,687 
IFB Ser. 06-128, Class GS, IO,     
3.473s, 2037  1,217,669  106,300 
IFB Ser. 06-116, Class ES, IO,     
3.443s, 2036  180,520  14,064 
IFB Ser. 06-114, Class IS, IO,     
3.443s, 2036  1,100,803  89,139 
IFB Ser. 04-92, Class SQ, IO,     
3.443s, 2034  1,195,257  108,199 
IFB Ser. 06-115, Class IE, IO,     
3.433s, 2036  855,107  73,158 
IFB Ser. 06-117, Class SA, IO,     
3.433s, 2036  1,269,493  97,602 
IFB Ser. 06-121, Class SD, IO,     
3.433s, 2036  140,493  10,274 
IFB Ser. 06-109, Class SG, IO,     
3.423s, 2036  329,458  24,709 
IFB Ser. 06-104, Class SY, IO,     
3.413s, 2036  295,116  21,787 
IFB Ser. 06-109, Class SH, IO,     
3.413s, 2036  1,037,348  92,820 
IFB Ser. 06-111, Class SA, IO,     
3.413s, 2036  6,863,864  572,982 
IFB Ser. 07-W6, Class 4A2, IO,     
3.393s, 2037  5,985,927  448,945 
IFB Ser. 06-128, Class SC, IO,     
3.393s, 2037  1,304,045  95,948 
IFB Ser. 06-43, Class SI, IO,     
3.393s, 2036  2,253,139  180,100 
IFB Ser. 06-8, Class JH, IO,     
3.393s, 2036  4,187,764  352,317 
IFB Ser. 05-122, Class SG, IO,     
3.393s, 2035  992,534  86,124 
IFB Ser. 05-95, Class OI, IO,     
3.383s, 2035  184,725  15,274 
IFB Ser. 06-92, Class LI, IO,     
3.373s, 2036  1,254,086  100,161 
IFB Ser. 06-99, Class AS, IO,     
3.373s, 2036  348,423  27,221 
IFB Ser. 06-98, Class SQ, IO,     
3.363s, 2036  11,360,729  830,753 
IFB Ser. 06-85, Class TS, IO,     
3.353s, 2036  2,785,128  206,815 
IFB Ser. 07-75, Class PI, IO,     
3.333s, 2037  1,350,966  97,565 
IFB Ser. 07-88, Class MI, IO,     
3.313s, 2037  499,366  33,739 
IFB Ser. 07-103, Class AI, IO,     
3.293s, 2037  5,985,399  433,941 
IFB Ser. 07-15, Class NI, IO,     
3.293s, 2022  2,024,928  129,089 
IFB Ser. 07-106, Class SM, IO,     
3.253s, 2037  3,165,524  231,932 

19


COLLATERALIZED MORTGAGE  Principal   
OBLIGATIONS (43.6%)* cont.  amount  Value 

Fannie Mae     
IFB Ser. 08-3, Class SC, IO,     
3.243s, 2038  $2,426,744  $187,030 
IFB Ser. 07-109, Class XI, IO,     
3.243s, 2037  869,994  71,581 
IFB Ser. 07-109, Class YI, IO,     
3.243s, 2037  1,338,089  96,317 
IFB Ser. 07-W8, Class 2A2, IO,     
3.243s, 2037  2,209,947  140,188 
IFB Ser. 07-88, Class JI, IO,     
3.243s, 2037  1,566,381  120,311 
IFB Ser. 06-79, Class SH, IO,     
3.243s, 2036  1,966,612  164,152 
IFB Ser. 07-54, Class KI, IO,     
3.233s, 2037  671,699  38,951 
IFB Ser. 07-30, Class JS, IO,     
3.233s, 2037  2,410,015  174,726 
IFB Ser. 07-30, Class LI, IO,     
3.233s, 2037  2,366,271  194,541 
IFB Ser. 07-W2, Class 1A2, IO,     
3.223s, 2037  985,947  68,315 
IFB Ser. 07-106, Class SN, IO,     
3.203s, 2037  1,294,779  92,516 
IFB Ser. 07-54, Class IA, IO,     
3.203s, 2037  1,202,718  95,532 
IFB Ser. 07-54, Class IB, IO,     
3.203s, 2037  1,202,718  95,532 
IFB Ser. 07-54, Class IC, IO,     
3.203s, 2037  1,202,718  95,532 
IFB Ser. 07-54, Class ID, IO,     
3.203s, 2037  1,202,718  95,532 
IFB Ser. 07-54, Class IE, IO,     
3.203s, 2037  1,202,718  95,532 
IFB Ser. 07-54, Class IF, IO,     
3.203s, 2037  1,918,642  156,146 
IFB Ser. 07-54, Class NI, IO,     
3.203s, 2037  1,043,882  87,021 
IFB Ser. 07-54, Class UI, IO,     
3.203s, 2037  1,780,828  142,162 
IFB Ser. 07-91, Class AS, IO,     
3.193s, 2037  883,052  66,753 
IFB Ser. 07-91, Class HS, IO,     
3.193s, 2037  944,731  66,832 
IFB Ser. 07-15, Class CI, IO,     
3.173s, 2037  4,090,603  302,729 
IFB Ser. 06-123, Class BI, IO,     
3.173s, 2037  4,982,376  364,082 
IFB Ser. 06-115, Class JI, IO,     
3.173s, 2036  2,970,003  217,181 
IFB Ser. 07-109, Class PI, IO,     
3.143s, 2037  1,445,040  108,746 
IFB Ser. 06-123, Class LI, IO,     
3.113s, 2037  1,975,162  154,129 
IFB Ser. 08-1, Class NI, IO,     
3.043s, 2037  2,626,689  165,810 
IFB Ser. 08-10, Class GI, IO,     
3.023s, 2038  1,548,796  87,126 
IFB Ser. 08-13, Class SA, IO,     
3.013s, 2038  6,274,374  426,400 
IFB Ser. 07-39, Class AI, IO,     
2.913s, 2037  2,223,635  145,418 
IFB Ser. 07-32, Class SD, IO,     
2.903s, 2037  1,422,691  100,478 
IFB Ser. 07-30, Class UI, IO,     
2.893s, 2037  1,162,899  79,530 

COLLATERALIZED MORTGAGE  Principal   
OBLIGATIONS (43.6%)* cont.  amount  Value 

Fannie Mae     
IFB Ser. 07-32, Class SC, IO,     
2.893s, 2037  $2,017,173  $141,121 
IFB Ser. 07-1, Class CI, IO,     
2.893s, 2037  1,361,484  97,168 
IFB Ser. 05-74, Class SE, IO,     
2.893s, 2035  1,592,763  93,898 
IFB Ser. 05-14, Class SE, IO,     
2.843s, 2035  1,012,097  59,774 
IFB Ser. 08-1, Class BI, IO,     
2.703s, 2038  4,067,090  198,946 
IFB Ser. 07-75, Class ID, IO,     
2.663s, 2037  1,379,761  89,580 
Ser. 03-W17, Class 12, IO,     
1.147s, 2033  2,045,031  78,725 
Ser. 03-W10, Class 3A, IO,     
0.703s, 2043  3,383,955  69,610 
Ser. 03-W10, Class 1A, IO,     
0.66s, 2043  2,824,961  46,758 
Ser. 02-T18, IO, 0.514s, 2042  5,684,788  69,349 
Ser. 06-117, Class OA, Principal     
Only (PO), zero %, 2036  78,075  63,391 
Ser. 06-56, Class XF, zero %, 2036  86,757  89,912 
Ser. 04-38, Class AO, PO,     
zero %, 2034  293,157  203,744 
Ser. 04-61, Class CO, PO,     
zero %, 2031  456,069  360,295 
Ser. 99-51, Class N, PO,     
zero %, 2029  55,980  47,023 
Ser. 07-15, Class IM, IO,     
zero %, 2009  1,169,279  85 
Ser. 07-16, Class TS, IO,     
zero %, 2009  4,798,698  337 
FRB Ser. 05-91, Class EF,     
zero %, 2035  80,346  78,467 
FRB Ser. 06-54, Class CF,     
zero %, 2035  122,113  116,714 

Federal Home Loan Mortgage Corp.     
Structured Pass-Through Securities     
Ser. T-58, Class 4A, 7 1/2s, 2043  4,824  5,109 
Ser. T-60, Class 1A2, 7s, 2044  1,414,540  1,501,333 
IFB Ser. T-56, Class 2ASI, IO,     
4.893s, 2043  686,694  74,918 
Ser. T-57, Class 1AX, IO,     
0.451s, 2043  1,866,113  19,736 

FFCA Secured Lending Corp. 144A     
Ser. 00-1, Class X, IO, 1.322s,     
2020 F  4,793,050  304,244 

First Chicago Lennar Trust 144A     
Ser. 97-CHL1, Class E, 8.026s, 2039  375,558  375,558 

Freddie Mac     
IFB Ser. 3153, Class JS, 20.663s, 2036  577,627  663,917 
IFB Ser. 3182, Class PS, 18.65s, 2032  174,721  201,590 
IFB Ser. 3182, Class SP, 18.65s, 2032  412,296  414,101 
IFB Ser. 3393, Class JS,     
18.059998s, 2032  607,998  618,345 
IFB Ser. 3081, Class DC, 17.966s, 2035  441,974  469,589 
IFB Ser. 3211, Class SI, IO, 17.207s, 2036  321,767  155,946 
IFB Ser. 3114, Class GK, 16.45s, 2036  312,078  332,116 
IFB Ser. 2979, Class AS, 15.152s, 2034  195,136  202,598 
IFB Ser. 3149, Class SU, 12.822s, 2036  368,158  355,153 
IFB Ser. 3065, Class DC, 12.398s, 2035  728,480  704,148 
IFB Ser. 3012, Class FS, 10.656s, 2035  500,009  503,764 
IFB Ser. 248, IO, 5 1/2s, 2037  999,346  226,571 

20


COLLATERALIZED MORTGAGE  Principal   
OBLIGATIONS (43.6%)* cont.  amount  Value 

Freddie Mac     
IFB Ser. 3184, Class SP, IO,     
4.863s, 2033  $1,705,958  $141,439 
IFB Ser. 2882, Class LS, IO,     
4.713s, 2034  765,168  68,103 
IFB Ser. 3203, Class SH, IO,     
4.653s, 2036  969,397  99,173 
IFB Ser. 2594, Class SE, IO,     
4.563s, 2030  348,566  26,655 
IFB Ser. 2828, Class TI, IO,     
4.563s, 2030  611,996  46,062 
IFB Ser. 3397, Class GS, IO,     
4.513s, 2037  838,413  64,052 
IFB Ser. 3297, Class BI, IO,     
4.273s, 2037  3,853,941  335,694 
IFB Ser. 3287, Class SD, IO,     
4.263s, 2037  1,303,082  109,170 
IFB Ser. 3281, Class BI, IO,     
4.263s, 2037  689,190  63,380 
IFB Ser. 3281, Class CI, IO,     
4.263s, 2037  747,453  68,842 
IFB Ser. 3249, Class SI, IO,     
4.263s, 2036  626,637  50,562 
IFB Ser. 3028, Class ES, IO,     
4.263s, 2035  3,264,487  292,374 
IFB Ser. 3042, Class SP, IO,     
4.263s, 2035  999,429  73,029 
IFB Ser. 3045, Class DI, IO,     
4.243s, 2035  7,533,999  567,114 
IFB Ser. 3236, Class ES, IO,     
4.213s, 2036  105,634  8,368 
IFB Ser. 3136, Class NS, IO,     
4.213s, 2036  806,953  62,547 
IFB Ser. 3107, Class DC, IO,     
4.213s, 2035  3,564,246  317,147 
IFB Ser. 2950, Class SM, IO,     
4.213s, 2016  507,701  42,462 
IFB Ser. 3256, Class S, IO,     
4.203s, 2036  1,853,711  155,248 
IFB Ser. 3031, Class BI, IO, 4.202s, 2035  642,653  51,235 
IFB Ser. 3370, Class TS, IO,     
4.183s, 2037  3,695,163  274,106 
IFB Ser. 3244, Class SB, IO,     
4.173s, 2036  993,911  70,009 
IFB Ser. 3244, Class SG, IO,     
4.173s, 2036  1,152,679  95,946 
IFB Ser. 3236, Class IS, IO,     
4.163s, 2036  1,926,911  140,905 
IFB Ser. 3033, Class SG, IO,     
4.163s, 2035  827,703  59,851 
IFB Ser. 3114, Class TS, IO,     
4.163s, 2030  3,799,666  299,619 
IFB Ser. 3128, Class JI, IO,     
4.143s, 2036  357,698  29,287 
IFB Ser. 3240, Class S, IO,     
4.133s, 2036  3,439,167  289,660 
IFB Ser. 3229, Class BI, IO,     
4.133s, 2036  113,129  8,869 
IFB Ser. 3153, Class JI, IO,     
4.133s, 2036  1,521,705  97,009 
IFB Ser. 3065, Class DI, IO,     
4.133s, 2035  504,069  39,368 
IFB Ser. 3145, Class GI, IO,     
4.113s, 2036  292,206  25,385 
IFB Ser. 3218, Class AS, IO,     
4.093s, 2036  1,096,981  85,597 

COLLATERALIZED MORTGAGE  Principal   
OBLIGATIONS (43.6%)* cont.  amount  Value 

Freddie Mac     
IFB Ser. 3221, Class SI, IO,     
4.093s, 2036  $1,561,628  $116,652 
IFB Ser. 3153, Class UI, IO,     
4.083s, 2036  1,071,957  104,633 
IFB Ser. 3424, Class XI, IO,     
4.083s, 2036  1,911,779  140,813 
IFB Ser. 3202, Class PI, IO,     
4.053s, 2036  4,311,863  345,975 
IFB Ser. 3355, Class MI, IO,     
4.013s, 2037  938,250  70,174 
IFB Ser. 3201, Class SG, IO,     
4.013s, 2036  1,973,674  149,279 
IFB Ser. 3203, Class SE, IO,     
4.013s, 2036  1,765,610  135,324 
IFB Ser. 3238, Class LI, IO,     
4.003s, 2036  975,339  77,781 
IFB Ser. 3171, Class PS, IO,     
3.998s, 2036  1,405,749  109,824 
IFB Ser. 3152, Class SY, IO,     
3.993s, 2036  3,145,689  287,126 
IFB Ser. 3366, Class SA, IO,     
3.963s, 2037  1,802,873  138,839 
IFB Ser. 3284, Class BI, IO,     
3.963s, 2037  1,125,997  80,776 
IFB Ser. 3260, Class SA, IO,     
3.963s, 2037  1,010,085  66,937 
IFB Ser. 3199, Class S, IO,     
3.963s, 2036  2,791,581  234,125 
IFB Ser. 3284, Class LI, IO,     
3.953s, 2037  3,224,609  244,609 
IFB Ser. 3281, Class AI, IO,     
3.943s, 2037  4,161,831  342,449 
IFB Ser. 3311, Class EI, IO,     
3.923s, 2037  1,190,467  97,646 
IFB Ser. 3311, Class IA, IO,     
3.923s, 2037  1,829,724  155,869 
IFB Ser. 3311, Class IB, IO,     
3.923s, 2037  1,829,724  155,869 
IFB Ser. 3311, Class IC, IO,     
3.923s, 2037  1,829,724  155,869 
IFB Ser. 3311, Class ID, IO,     
3.923s, 2037  1,829,724  155,869 
IFB Ser. 3311, Class IE, IO,     
3.923s, 2037  2,761,699  235,261 
IFB Ser. 3311, Class PI, IO,     
3.923s, 2037  1,276,668  105,640 
IFB Ser. 3375, Class MS, IO,     
3.913s, 2037  5,878,904  421,653 
IFB Ser. 3240, Class GS, IO,     
3.893s, 2036  2,062,801  163,213 
IFB Ser. 3416, Class BI, IO,     
3.763s, 2038  3,797,795  276,252 
IFB Ser. 3339, Class TI, IO,     
3.653s, 2037  2,127,471  143,878 
IFB Ser. 3284, Class CI, IO,     
3.633s, 2037  5,250,474  359,710 
IFB Ser. 3016, Class SQ, IO,     
3.623s, 2035  1,355,288  74,102 
IFB Ser. 3397, Class SQ, IO,     
3.483s, 2037  2,872,220  171,989 
IFB Ser. 3226, Class YS, IO,     
3.363s, 2036  3,366,066  112,023 
IFB Ser. 3424, Class UI, IO,     
3.273s, 2037  1,331,097  77,899 
Ser. 246, PO, zero %, 2037  579,175  470,670 

21


COLLATERALIZED MORTGAGE  Principal   
OBLIGATIONS (43.6%)* cont.  amount  Value 

Freddie Mac     
Ser. 3292, Class DO, PO, zero %, 2037  $95,504  $70,146 
Ser. 3292, Class OA, PO, zero %, 2037  131,105  91,066 
Ser. 3300, PO, zero %, 2037  744,734  577,169 
Ser. 3139, Class CO, PO, zero %, 2036  164,582  132,578 
Ser. 2587, Class CO, PO, zero %, 2032  483,299  399,302 
FRB Ser. 3345, Class TY, zero %, 2037  199,496  195,026 
FRB Ser. 3326, Class XF, zero %, 2037  175,169  153,972 
FRB Ser. 3273, Class HF, zero %, 2037  76,265  80,359 
FRB Ser. 3235, Class TP, zero %, 2036  65,721  58,295 
FRB Ser. 3283, Class KF, zero %, 2036  64,924  52,024 
FRB Ser. 3226, Class YI, IO,     
zero %, 2036  3,366,066  128,580 
Ser. 3226, Class YW, zero %, 2036  313,671  274,129 
FRB Ser. 3332, Class UA, zero %, 2036  68,457  63,974 
FRB Ser. 3251, Class TC, zero %, 2036  766,071  776,497 
FRB Ser. 3130, Class JF, zero %, 2036  289,635  301,266 
FRB Ser. 3326, Class WF, zero %, 2035  167,924  140,297 
FRB Ser. 3030, Class EF, zero %, 2035  87,713  85,827 
FRB Ser. 3412, Class UF, zero %, 2035  425,275  358,457 
FRB Ser. 2980, Class TY, zero %, 2035  55,940  45,669 

GE Capital Commercial     
Mortgage Corp. 144A     
FRB Ser. 00-1, Class F, 7.787s, 2033  170,000  166,105 
Ser. 00-1, Class G, 6.131s, 2033  596,000  375,480 

GMAC Commercial Mortgage     
Securities, Inc. 144A Ser. 99-C3,     
Class G, 6.974s, 2036  529,968  505,597 

Government National     
Mortgage Association     
FRB Ser. 07-41, Class SA, 21.075s, 2037  116,915  139,204 
IFB Ser. 07-51, Class SP, 20.355s, 2037  90,398  104,260 
IFB Ser. 05-66, Class SP, 12.54s, 2035  431,085  424,014 
Ser. 07-17, Class CI, IO, 7 1/2s, 2037  571,781  131,510 
IFB Ser. 08-42, Class AI, IO,     
5.202s, 2038  8,015,582  832,114 
IFB Ser. 04-59, Class SC, IO,     
4.712s, 2034  692,376  65,260 
IFB Ser. 04-26, Class IS, IO,     
4.712s, 2034  729,107  46,058 
IFB Ser. 07-47, Class SA, IO,     
4.612s, 2036  1,151,429  117,317 
IFB Ser. 08-29, Class SA, IO,     
4.593s, 2038  7,026,417  602,494 
IFB Ser. 07-35, Class NY, IO,     
4.412s, 2035  2,024,563  153,413 
IFB Ser. 07-26, Class SD, IO,     
4.312s, 2037  1,963,034  133,732 
IFB Ser. 07-2, Class SA, IO,     
4.193s, 2037  174,734  14,280 
IFB Ser. 06-69, Class SI, IO,     
4.193s, 2036  1,155,280  94,009 
IFB Ser. 06-61, Class SM, IO,     
4.193s, 2036  2,278,415  185,767 
IFB Ser. 06-62, Class SI, IO,     
4.193s, 2036  1,290,280  105,738 
IFB Ser. 07-1, Class SL, IO,     
4.173s, 2037  625,721  50,882 
IFB Ser. 07-1, Class SM, IO,     
4.163s, 2037  625,721  50,747 
IFB Ser. 07-48, Class SB, IO,     
4.162s, 2037  1,343,599  87,392 
IFB Ser. 06-62, Class SA, IO,     
4.153s, 2036  1,609,505  126,869 
IFB Ser. 06-64, Class SB, IO,     
4.153s, 2036  1,594,803  129,101 

COLLATERALIZED MORTGAGE  Principal   
OBLIGATIONS (43.6%)* cont.  amount  Value 

Government National     
Mortgage Association     
IFB Ser. 05-68, Class PU, IO,     
4.113s, 2032  $976,525  $99,474 
IFB Ser. 07-74, Class SI, IO,     
4.082s, 2037  1,014,651  92,288 
IFB Ser. 07-17, Class AI, IO,     
4.062s, 2037  4,376,145  323,852 
IFB Ser. 07-78, Class SA, IO,     
4.042s, 2037  6,569,279  417,832 
IFB Ser. 08-2, Class SM, IO,     
4.012s, 2038  2,495,850  163,281 
IFB Ser. 07-9, Class AI, IO,     
4.012s, 2037  2,237,847  155,481 
IFB Ser. 07-49, Class NY, IO,     
3.913s, 2035  3,960,645  300,637 
IFB Ser. 08-40, Class SA, IO,     
3.912s, 2038  10,349,439  727,648 
IFB Ser. 05-71, Class SA, IO,     
3.872s, 2035  3,612,667  262,655 
IFB Ser. 07-25, Class KS, IO,     
3.712s, 2037  2,083,463  141,044 
IFB Ser. 07-21, Class S, IO,     
3.712s, 2037  78,255  4,639 
IFB Ser. 07-31, Class AI, IO,     
3.692s, 2037  1,133,492  92,677 
IFB Ser. 07-26, Class SG, IO,     
3.663s, 2037  1,917,463  151,619 
IFB Ser. 07-62, Class S, IO,     
3.662s, 2037  1,167,926  70,108 
IFB Ser. 07-9, Class BI, IO,     
3.633s, 2037  3,591,076  243,792 
IFB Ser. 07-31, Class CI, IO,     
3.623s, 2037  1,018,577  70,010 
IFB Ser. 07-25, Class SA, IO,     
3.613s, 2037  1,333,284  92,506 
IFB Ser. 07-25, Class SB, IO,     
3.613s, 2037  2,689,469  184,928 
IFB Ser. 07-22, Class S, IO,     
3.613s, 2037  1,074,192  93,701 
IFB Ser. 07-11, Class SA, IO,     
3.613s, 2037  891,732  68,696 
IFB Ser. 07-14, Class SB, IO,     
3.613s, 2037  845,322  62,346 
IFB Ser. 06-69, Class SA, IO,     
3.613s, 2036  2,222,955  153,125 
IFB Ser. 05-84, Class AS, IO,     
3.613s, 2035  3,122,704  248,475 
IFB Ser. 07-43, Class SC, IO,     
3.612s, 2037  1,507,370  86,775 
IFB Ser. 07-40, Class SC, IO,     
3.563s, 2037  142,683  9,772 
IFB Ser. 07-40, Class SD, IO,     
3.563s, 2037  142,683  9,772 
IFB Ser. 07-40, Class SE, IO,     
3.563s, 2037  142,683  9,772 
IFB Ser. 07-42, Class SC, IO,     
3.563s, 2037  277,273  18,133 
IFB Ser. 07-40, Class SB, IO,     
3.563s, 2037  2,251,392  146,291 
IFB Ser. 07-51, Class SJ, IO,     
3.563s, 2037  1,117,490  90,963 
IFB Ser. 07-53, Class SY, IO,     
3.548s, 2037  1,956,623  171,776 
IFB Ser. 07-41, Class SM, IO,     
3.513s, 2037  403,472  25,217 

22


COLLATERALIZED MORTGAGE  Principal   
OBLIGATIONS (43.6%)* cont.  amount  Value 

Government National     
Mortgage Association     
IFB Ser. 07-41, Class SN, IO,     
3.513s, 2037  $411,114  $25,695 
IFB Ser. 07-58, Class PS, IO,     
3.513s, 2037  982,873  76,560 
IFB Ser. 04-88, Class S, IO,     
3.513s, 2032  1,666,510  103,611 
IFB Ser. 07-40, Class SG, IO,     
3.493s, 2037  315,879  20,971 
IFB Ser. 07-59, Class PS, IO,     
3.483s, 2037  876,420  63,780 
IFB Ser. 07-59, Class SP, IO,     
3.483s, 2037  192,525  14,300 
IFB Ser. 06-38, Class SG, IO,     
3.463s, 2033  4,008,172  247,245 
IFB Ser. 07-45, Class QA, IO,     
3.453s, 2037  277,043  18,181 
IFB Ser. 07-45, Class QB, IO,     
3.413s, 2037  277,043  16,623 
IFB Ser. 07-53, Class SG, IO,     
3.413s, 2037  648,009  41,216 
IFB Ser. 07-51, Class SG, IO,     
3.393s, 2037  5,829,887  367,264 
IFB Ser. 08-3, Class SA, IO,     
3.363s, 2038  2,385,888  145,996 
IFB Ser. 07-79, Class SY, IO,     
3.363s, 2037  4,019,940  231,147 
IFB Ser. 07-64, Class AI, IO,     
3.363s, 2037  2,099,387  127,101 
IFB Ser. 07-53, Class ES, IO,     
3.363s, 2037  960,578  53,394 
IFB Ser. 08-2, Class SB, IO,     
3.333s, 2038  5,955,482  338,230 
IFB Ser. 07-10, Class SB, IO,     
3.333s, 2037  6,215,876  433,864 
IFB Ser. 08-4, Class SA, IO,     
3.329s, 2038  11,702,092  719,363 
IFB Ser. 07-9, Class DI, IO,     
3.323s, 2037  1,814,065  109,044 
IFB Ser. 07-59, Class SC, IO,     
3.313s, 2037  383,233  25,024 
IFB Ser. 07-57, Class QA, IO,     
3.313s, 2037  2,352,232  147,901 
IFB Ser. 07-58, Class SA, IO,     
3.313s, 2037  1,553,226  91,027 
IFB Ser. 07-58, Class SC, IO,     
3.313s, 2037  1,747,918  95,811 
IFB Ser. 07-59, Class SA, IO,     
3.313s, 2037  7,108,319  450,744 
IFB Ser. 07-61, Class SA, IO,     
3.313s, 2037  1,216,559  73,801 
IFB Ser. 07-53, Class SC, IO,     
3.313s, 2037  1,029,355  55,128 
IFB Ser. 07-53, Class SE, IO,     
3.313s, 2037  231,432  14,938 
IFB Ser. 06-26, Class S, IO,     
3.313s, 2036  5,379,333  380,964 
IFB Ser. 08-15, Class CI, IO,     
3.303s, 2038  9,602,170  582,525 
IFB Ser. 07-58, Class SD, IO,     
3.303s, 2037  1,642,391  90,054 
IFB Ser. 08-9, Class SK, IO,     
3.293s, 2038  3,154,492  214,527 
IFB Ser. 08-6, Class SC, IO,     
3.288s, 2038  9,722,088  532,557 

COLLATERALIZED MORTGAGE  Principal   
OBLIGATIONS (43.6%)* cont.  amount  Value 

Government National     
Mortgage Association     
IFB Ser. 07-59, Class SD, IO,     
3.283s, 2037  $313,074  $17,858 
IFB Ser. 06-49, Class SA, IO,     
3.273s, 2036  2,645,268  167,416 
IFB Ser. 05-65, Class SI, IO,     
3.163s, 2035  1,416,848  88,217 
IFB Ser. 06-7, Class SB, IO,     
3.133s, 2036  331,950  19,800 
IFB Ser. 06-16, Class SX, IO,     
3.103s, 2036  1,887,147  126,013 
IFB Ser. 07-17, Class IB, IO,     
3.063s, 2037  821,521  43,562 
IFB Ser. 06-10, Class SM, IO,     
3.063s, 2036  2,018,265  132,880 
IFB Ser. 06-14, Class S, IO,     
3.063s, 2036  1,340,457  84,650 
IFB Ser. 05-57, Class PS, IO,     
3.063s, 2035  1,445,233  86,154 
IFB Ser. 06-11, Class ST, IO,     
3.053s, 2036  844,266  49,940 
IFB Ser. 07-27, Class SD, IO,     
3.013s, 2037  956,830  55,650 
IFB Ser. 07-19, Class SJ, IO,     
3.013s, 2037  1,692,245  92,686 
IFB Ser. 07-23, Class ST, IO,     
3.013s, 2037  1,866,184  101,020 
IFB Ser. 07-9, Class CI, IO,     
3.013s, 2037  2,359,895  133,719 
IFB Ser. 07-7, Class EI, IO,     
3.013s, 2037  1,062,315  59,336 
IFB Ser. 07-7, Class JI, IO,     
3.013s, 2037  2,445,094  134,480 
IFB Ser. 07-1, Class S, IO,     
3.013s, 2037  2,202,039  121,055 
IFB Ser. 07-3, Class SA, IO,     
3.013s, 2037  2,104,265  117,736 
IFB Ser. 05-17, Class S, IO,     
2.993s, 2035  959,803  58,532 
IFB Ser. 05-3, Class SN, IO,     
2.913s, 2035  4,477,819  270,943 
IFB Ser. 04-41, Class SG, IO,     
2.813s, 2034  2,609,983  94,473 
FRB Ser. 07-71, Class TA,     
zero %, 2037  339,153  330,142 
FRB Ser. 07-71, Class UC,     
zero %, 2037  70,849  76,536 
FRB Ser. 07-61, Class YC,     
zero %, 2037  500,196  498,552 
FRB Ser. 07-33, Class TB,     
zero %, 2037  474,327  426,256 
FRB Ser. 07-6, Class TD,     
zero %, 2037  464,813  430,551 
FRB Ser. 98-2, Class EA, PO,     
zero %, 2028  55,273  47,053 

GS Mortgage     
Securities Corp. II     
FRB Ser. 07-GG10, Class A3,     
5.993s, 2045  334,000  314,307 
Ser. 06-GG6, Class A2, 5.506s, 2038  1,282,000  1,250,847 

HASCO NIM Trust 144A Ser. 05-OP1A,     
Class A, 6 1/4s, 2035     
(Cayman Islands)  88,725  8,872 


23


COLLATERALIZED MORTGAGE  Principal   
OBLIGATIONS (43.6%)* cont.  amount  Value 

HSI Asset Loan Obligation FRB     
Ser. 07-AR1, Class 2A1, 6.133s, 2037  $3,541,771  $2,550,075 

IMPAC Secured Assets Corp. FRB     
Ser. 07-2, Class 1A1A, 3.317s, 2037  350,059  288,279 

IndyMac Index Mortgage Loan Trust     
FRB Ser. 06-AR25, Class 5A1,     
6.313s, 2036  783,588  483,681 
FRB Ser. 07-AR15, Class 1A1,     
6.225s, 2037  988,775  662,480 
FRB Ser. 07-AR9, Class 2A1,     
6.039s, 2037  1,005,682  673,807 
FRB Ser. 07-AR11, Class 1A1,     
5.64s, 2037  1,262,526  770,141 
FRB Ser. 05-AR31, Class 3A1,     
5.633s, 2036  2,861,893  1,946,087 

JPMorgan Alternative Loan Trust     
FRB Ser. 06-A1, Class 5A1,     
5.94s, 2036  702,089  491,462 
FRB Ser. 06-A6, Class 1A1,     
3.367s, 2036 F  1,236,549  738,154 

JPMorgan Chase Commercial Mortgage     
Securities Corp.     
FRB Ser. 07-LD12, Class AM,     
6.261s, 2051  617,000  506,810 
FRB Ser. 07-LD12, Class A3,     
6.189s, 2051  2,956,000  2,770,334 
FRB Ser. 07-LD11, Class A3,     
6.007s, 2049  417,000  372,673 
Ser. 07-CB20, Class A3,     
5.863s, 2051  834,000  766,629 
Ser. 07-CB20, Class A4,     
5.794s, 2051  541,000  475,404 
Ser. 08-C2, Class X, IO,     
0.647s, 2051  30,106,482  776,145 

JPMorgan Chase Commercial Mortgage     
Securities Corp. 144A     
Ser. 07-CB20, Class X1, IO,     
0.068s, 2051  63,662,633  646,812 

LB Commercial Conduit Mortgage     
Trust 144A Ser. 99-C1, Class G,     
6.41s, 2031  253,101  198,279 

LB-UBS Commercial     
Mortgage Trust     
Ser. 07-C6, Class A2, 5.845s, 2012  921,000  864,855 
Ser. 07-C7, Class XW, IO,     
0.526s, 2045  61,455,905  1,321,284 

LB-UBS Commercial Mortgage Trust     
144A Ser. 07-C7, Class XCL, IO,     
0.086s, 2045  25,943,406  248,071 

Lehman Mortgage Trust     
IFB Ser. 07-5, Class 4A3,     
20.839s, 2037  738,856  664,970 
IFB Ser. 07-5, Class 8A2, IO,     
4.513s, 2036  1,279,932  114,222 
IFB Ser. 07-4, Class 3A2, IO,     
3.993s, 2037  1,038,465  86,419 
IFB Ser. 06-5, Class 2A2, IO,     
3.943s, 2036  1,839,386  133,356 
IFB Ser. 07-2, Class 2A13, IO,     
3.483s, 2037  2,034,372  152,578 
IFB Ser. 06-9, Class 2A2, IO,     
3.413s, 2037  2,354,549  184,114 
IFB Ser. 06-7, Class 2A4, IO,     
3.343s, 2036  4,011,244  280,787 

COLLATERALIZED MORTGAGE  Principal   
OBLIGATIONS (43.6%)* cont.  amount  Value 

Lehman Mortgage Trust     
IFB Ser. 06-7, Class 2A5, IO,     
3.343s, 2036  $3,763,615  $263,453 
IFB Ser. 06-6, Class 1A2, IO,     
3.293s, 2036  1,578,085  110,466 
IFB Ser. 06-6, Class 1A3, IO,     
3.293s, 2036  2,282,012  159,741 

Mach One Commercial     
Mortgage Trust 144A     
Ser. 04-1A, Class J, 5.45s, 2040     
(Canada)  594,000  267,300 
Ser. 04-1A, Class K, 5.45s, 2040     
(Canada)  212,000  84,800 
Ser. 04-1A, Class L, 5.45s, 2040     
(Canada)  96,000  36,480 

MASTR Alternative Loans Trust     
Ser. 06-3, Class 1A1, 6 1/4s, 2036  626,497  469,873 

Merrill Lynch Capital     
Funding Corp. Ser. 06-4,     
Class XC, IO, 0.119s, 2049  56,579,812  690,390 

Merrill Lynch Mortgage     
Investors, Inc. Ser. 96-C2,     
Class JS, IO, 2.261s, 2028  1,329,816  95,827 

Merrill Lynch Mortgage Trust FRB     
Ser. 07-C1, Class A3, 6.023s, 2050  222,000  211,675 

Merrill Lynch/Countrywide     
Commercial Mortgage Trust FRB     
Ser. 07-8, Class A2, 6.119s, 2049  402,000  387,667 

Mezz Cap Commercial Mortgage Trust     
Ser. 07-C5, Class X, 4.867s, 2017  2,500,997  427,500 

Mezz Cap Commercial Mortgage Trust     
144A Ser. 04-C1, Class X, IO,     
8.007s, 2037  975,014  214,083 

Morgan Stanley Capital     
Ser. 98-CF1, Class E, 7.35s, 2032  1,252,000  1,245,420 
FRB Ser. 08-T29, Class A3,     
6.458s, 2043  712,000  694,100 
FRB Ser. 07-IQ14, Class AM,     
5.877s, 2049  247,000  195,908 

Morgan Stanley Capital I 144A     
FRB Ser. 04-RR, Class F7, 6s, 2039  1,730,000  951,500 
Ser. 07-HQ13, Class X1, IO,     
0.822s, 2044  56,829,492  1,504,277 

Morgan Stanley Mortgage Loan Trust     
Ser. 05-5AR, Class 2A1, 4.852s, 2035  1,132,931  767,561 

Mortgage Capital     
Funding, Inc.     
FRB Ser. 98-MC2, Class E,     
7.184s, 2030  327,112  327,359 
Ser. 97-MC2, Class X, IO,     
1.988s, 2012  3,016   

Permanent Financing PLC 144A FRB     
Ser. 9A, Class 3A, 2.917s, 2033     
(United Kingdom)  2,839,000  2,569,888 

Permanent Master Issuer PLC FRB     
Ser. 07-1, Class 4A, 2.871s, 2033     
(United Kingdom)  3,443,000  3,283,761 

PNC Mortgage Acceptance Corp. 144A     
Ser. 00-C1, Class J, 6 5/8s, 2010  123,000  72,244 

Residential Asset     
Securitization Trust     
Ser. 07-A5, Class 2A3, 6s, 2037  903,783  632,648 
IFB Ser. 07-A3, Class 2A2, IO,     
3.483s, 2037  4,662,644  303,072 


24


COLLATERALIZED MORTGAGE    Principal   
OBLIGATIONS (43.6%)* cont.    amount  Value 

Residential Mortgage Securities 144A       
FRB Ser. 20A, Class B1A, 6.509s, 2038       
(United Kingdom)  GBP  103,446  $110,369 

SBA CMBS Trust 144A Ser. 05-1A,       
Class E, 6.706s, 2035    $303,000  255,468 

STRIPS 144A       
Ser. 03-1A, Class M, 5s, 2018       
(Cayman Islands)    162,000  111,780 
Ser. 03-1A, Class N, 5s, 2018       
(Cayman Islands)    193,000  125,450 
Ser. 04-1A, Class M, 5s, 2018       
(Cayman Islands)    174,000  111,360 
Ser. 04-1A, Class N, 5s, 2018       
(Cayman Islands)    167,000  96,860 

Structured Adjustable Rate       
Mortgage Loan Trust FRB       
Ser. 06-9, Class 1A1, 5.715s, 2036    956,063  621,994 

Structured Asset       
Securities Corp.       
IFB Ser. 07-4, Class 1A3, IO,       
2.541s, 2037    3,593,605  220,108 
Ser. 07-4, Class 1A4, IO, 1s, 2037    3,863,656  90,669 

Structured Asset Securities Corp.       
144A Ser. 07-RF1, Class 1A, IO,       
3.317s, 2037    4,706,327  205,902 

Titan Europe PLC 144A       
FRB Ser. 05-CT2A, Class E, 7.095s,       
2014 (Ireland)  GBP  226,682  362,374 
FRB Ser. 05-CT1A, Class D, 7.095s,       
2014 (Ireland)  GBP  444,023  638,914 

URSUS EPC 144A FRB Ser. 1-A,       
Class D, 6.938s, 2012 (Ireland)  GBP  239,636  374,487 

Wachovia Bank Commercial       
Mortgage Trust       
Ser. 07-C30, Class A3, 5.246s, 2043    $5,030,000  4,645,077 
Ser. 07-C34, IO, 0.521s, 2046    16,932,578  358,463 

Wachovia Bank Commercial Mortgage       
Trust 144A FRB Ser. 05-WL5A,       
Class L, 5.788s, 2018    477,000  429,300 

Wells Fargo Mortgage Backed       
Securities Trust Ser. 05-AR13,       
Class 1A4, IO, 0.742s, 2035    9,909,662  66,890 

 
Total collateralized mortgage obligations       
(cost $175,088,876)      $170,959,903 

 
CORPORATE BONDS    Principal   

AND NOTES (21.0%)*    amount  Value 
Basic Materials (1.6%)       
Builders FirstSource, Inc. company       
guaranty sr. sec. notes FRN       
7.054s, 2012    $270,000  $174,150 

Compass Minerals       
International, Inc. sr. disc.       
notes Ser. B, 12s, 2013    142,000  146,970 

Domtar Corp. company       
guaranty Ser. *, 7 7/8s, 2011       
(Canada)    145,000  144,275 

Freeport-McMoRan Copper &       
Gold, Inc. sr. unsec.       
notes 8 3/8s, 2017    841,000  824,180 

Freeport-McMoRan Copper &       
Gold, Inc. sr. unsec.       
notes 8 1/4s, 2015    422,000  412,505 


CORPORATE BONDS    Principal   
AND NOTES (21.0%)* cont.    amount  Value 

Basic Materials cont.       
Freeport-McMoRan Copper &       
Gold, Inc. sr. unsec. notes FRN       
5.883s, 2015    $150,000  $142,687 

Georgia-Pacific Corp.       
debs. 9 1/2s, 2011    49,000  48,510 

Georgia-Pacific Corp.       
notes 8 1/8s, 2011    55,000  54,450 

Gerdau Ameristeel Corp.       
sr. notes 10 3/8s, 2011 (Canada)    358,000  369,635 

Hexion U.S. Finance Corp./Hexion       
Nova Scotia Finance, ULC company       
guaranty 9 3/4s, 2014    64,000  50,560 

Huntsman International, LLC       
company guaranty sr. unsec.       
sub. notes 7 7/8s, 2014    921,000  792,060 

Momentive Performance       
Materials, Inc. company guaranty       
sr. unsec. notes 9 3/4s, 2014    262,000  206,980 

Mosaic Co. (The) 144A sr. unsec.       
unsub. notes 7 5/8s, 2016    224,000  228,867 

Mosaic Co. (The) 144A sr. unsec.       
unsub. notes 7 3/8s, 2014    136,000  140,797 

NewPage Corp. company       
guaranty 10s, 2012    376,000  336,520 

NewPage Holding Corp.       
sr. notes FRN 9.986s, 2013 ‡‡    78,868  69,798 

Norske Skog Canada, Ltd. company       
guaranty Ser. D, 8 5/8s, 2011       
(Canada)    15,000  11,850 

Novelis, Inc. company       
guaranty 7 1/4s, 2015    113,000  98,310 

Rhodia SA sr. unsec. FRN 7.713s,       
2013 (France)  EUR  375,000  484,474 

Rockwood Specialties Group, Inc.       
company guaranty 7 5/8s, 2014  EUR  250,000  315,238 

Steel Dynamics, Inc. company       
guaranty sr. unsec.       
unsub. notes 6 3/4s, 2015    $830,000  713,800 

Steel Dynamics, Inc. 144A       
sr. notes 7 3/4s, 2016    164,000  145,960 

Stone Container Corp.       
sr. notes 8 3/8s, 2012    240,000  201,600 

      6,114,176 
Capital Goods (1.2%)       
Alliant Techsystems, Inc.       
sr. sub. notes 6 3/4s, 2016    104,000  97,240 

Berry Plastics Corp. company       
guaranty sr. sec. notes FRN       
7.541s, 2015    680,000  605,200 

Bombardier, Inc. 144A sr. unsec.       
notes FRN 8.09s, 2013 (Canada)  EUR  170,000  236,983 

Bombardier, Inc. 144A unsec.       
notes 6 3/4s, 2012 (Canada)    $1,625,000  1,560,000 

Crown Americas, LLC/Crown Americas       
Capital Corp. sr. notes 7 5/8s, 2013    516,000  508,260 

General Cable Corp. company       
guaranty sr. unsec. notes FRN       
5.166s, 2015    190,000  159,600 

Hawker Beechcraft       
Acquisition Co., LLC       
sr. sub. notes 9 3/4s, 2017    227,000  203,165 


25


CORPORATE BONDS    Principal   
AND NOTES (21.0%)* cont.    amount  Value 

Capital Goods cont.       
Hexcel Corp.       
sr. sub. notes 6 3/4s, 2015    $67,000  $64,320 

L-3 Communications Corp. company       
guaranty sr. unsec.       
sub. notes 6 1/8s, 2014    607,000  561,475 

L-3 Communications Corp.       
sr. sub. notes 5 7/8s, 2015    574,000  519,470 

Ryerson Tull, Inc. 144A sec.       
notes 12s, 2015    409,000  347,650 

      4,863,363 
Communication Services (1.7%)       
American Tower Corp. 144A       
sr. notes 7s, 2017    390,000  372,450 

Cincinnati Bell, Inc. company       
guaranty 7s, 2015    578,000  485,520 

Cricket Communications, Inc.       
company guaranty sr. unsec.       
notes Ser. *, 9 3/8s, 2014    435,000  404,550 

Cricket Communications, Inc. 144A       
company guaranty sr. notes 10s, 2015    354,000  338,070 

Digicel Group, Ltd. 144A       
sr. unsec. notes 8 7/8s, 2015 (Jamaica)    245,000  205,800 

Digicel, Ltd. 144A sr. unsec.       
unsub. notes 9 1/4s, 2012 (Jamaica)    170,000  168,300 

Inmarsat Finance PLC company       
guaranty stepped-coupon zero %       
(10 3/8s, 11/15/08), 2012       
(United Kingdom) ††    768,000  756,480 

iPCS, Inc. company       
guaranty sr. sec. notes FRN       
4.926s, 2013    140,000  114,100 

MetroPCS Wireless, Inc. company       
guaranty sr. unsec. notes 9 1/4s, 2014    90,000  84,150 

PAETEC Holding Corp. company       
guaranty sr. unsec.       
unsub. notes 9 1/2s, 2015    150,000  102,750 

Qwest Communications       
International, Inc. company       
guaranty 7 1/2s, 2014    353,000  305,345 

Qwest Corp. sr. unsec.       
notes 7 1/2s, 2014    75,000  64,875 

Qwest Corp. sr. unsec.       
unsub. notes 8 7/8s, 2012    1,501,000  1,470,980 

West Corp. company       
guaranty 9 1/2s, 2014    129,000  98,685 

Wind Aquisition Finance SA       
notes 9 3/4s, 2015 (Netherlands)  EUR  1,190,000  1,534,048 

      6,506,103 
Consumer Cyclicals (3.0%)       
Allison Transmission 144A company       
guaranty 11s, 2015    $75,000  65,250 

Bon-Ton Stores, Inc. (The) company       
guaranty 10 1/4s, 2014    160,000  48,000 

Boyd Gaming Corp.       
sr. sub. notes 6 3/4s, 2014    134,000  96,145 

CanWest Media, Inc. company       
guaranty 8s, 2012 (Canada)    337,021  281,413 

Cenveo Corp. 144A company       
guaranty sr. unsec.       
notes 10 1/2s, 2016    235,000  217,375 


CORPORATE BONDS  Principal   
AND NOTES (21.0%)* cont.  amount  Value 

Consumer Cyclicals cont.     
D.R. Horton, Inc. company     
guaranty 8s, 2009  $183,000  $180,026 

D.R. Horton, Inc. company     
guaranty sr. unsub. notes 5s, 2009  253,000  246,675 

D.R. Horton, Inc.     
sr. notes 7 7/8s, 2011  765,000  688,500 

FelCor Lodging LP company     
guaranty 8 1/2s, 2011 R  515,000  445,475 

Ford Motor Credit Co., LLC     
sr. notes 9 7/8s, 2011  621,000  414,759 

Ford Motor Credit Co., LLC     
sr. unsec. notes 9 3/4s, 2010  444,000  333,207 

Ford Motor Credit Co., LLC unsec.     
notes 7 3/8s, 2009  195,000  156,773 

Hanesbrands, Inc. company     
guaranty sr. unsec. notes FRN     
Ser. B, 6.508s, 2014  310,000  257,300 

Host Marriott LP sr. notes Ser. M,     
7s, 2012 R  725,000  647,063 

Jostens IH Corp. company     
guaranty 7 5/8s, 2012  600,000  550,500 

K. Hovnanian Enterprises, Inc.     
company guaranty sr. sec.     
notes 11 1/2s, 2013  187,000  183,260 

Lamar Media Corp. sr. unsec.     
sub. notes Ser. C, 6 5/8s, 2015  165,000  136,538 

Levi Strauss & Co. sr. unsec.     
notes 8 7/8s, 2016 S  285,000  228,000 

Levi Strauss & Co. sr. unsec.     
unsub. notes 9 3/4s, 2015  651,000  543,585 

Mashantucket Western Pequot Tribe     
144A bonds 8 1/2s, 2015  390,000  253,500 

Meritage Homes Corp. company     
guaranty 6 1/4s, 2015  140,000  104,300 

Meritage Homes Corp. sr. notes     
7s, 2014  45,000  34,650 

MGM Mirage, Inc. company     
guaranty 8 1/2s, 2010  468,000  430,560 

MGM Mirage, Inc. company     
guaranty 6s, 2009  1,009,000  943,415 

NTK Holdings, Inc. sr. disc.     
notes zero %, 2014  104,000  44,720 

Oxford Industries, Inc.     
sr. notes 8 7/8s, 2011  460,000  415,725 

Pinnacle Entertainment, Inc.     
company guaranty sr. unsec.     
sub. notes 7 1/2s, 2015  320,000  236,800 

Pinnacle Entertainment, Inc.     
sr. sub. notes 8 1/4s, 2012  337,000  325,626 

Pulte Homes, Inc. company     
guaranty 7 7/8s, 2011  730,000  697,150 

Quebecor Media, Inc. sr. unsec.     
notes Ser. *, 7 3/4s, 2016 (Canada)  75,000  65,625 

Realogy Corp. company     
guaranty sr. notes zero %, 2014 ‡‡ R  120,000  45,900 

Realogy Corp. company     
guaranty sr. unsec.     
notes 10 1/2s, 2014 R  195,000  85,800 

Sealy Mattress Co.     
sr. sub. notes 8 1/4s, 2014  75,000  58,875 


26


CORPORATE BONDS  Principal   
AND NOTES (21.0%)* cont.  amount  Value 

Consumer Cyclicals cont.     
Station Casinos, Inc.     
sr. notes 6s, 2012 S  $318,000  $178,080 

Tenneco Automotive, Inc. company     
guaranty 8 5/8s, 2014  40,000  31,800 

Tenneco, Inc. sr. unsec. notes     
company guaranty 8 1/8s, 2015  375,000  320,625 

Texas Industries, Inc. sr. unsec.     
notes 7 1/4s, 2013  361,000  314,070 

Texas Industries, Inc. 144A     
company guaranty sr. unsec.     
notes 7 1/4s, 2013  255,000  221,850 

THL Buildco, Inc. (Nortek     
Holdings, Inc.)     
sr. sub. notes 8 1/2s, 2014  255,000  145,350 

THL Buildco, Inc. (Nortek     
Holdings, Inc.) 144A sr. sec.     
notes 10s, 2013  115,000  101,200 

Toll Brothers, Inc. company     
guaranty sr. unsec.     
sub. notes 8 1/4s, 2011  625,000  603,125 

Trump Entertainment Resorts, Inc.     
sec. notes 8 1/2s, 2015  220,000  90,200 

Vertis, Inc. company     
guaranty Ser. B, 10 7/8s,     
2009 (In default)  661,000  19,830 

Vertis, Inc. 144A unsec.     
sub. notes 13 1/2s,     
2009 (In default)  170,000  1,700 

Wynn Las Vegas, LLC/Wynn Las Vegas     
Capital Corp. 1st mtge. 6 5/8s, 2014  555,000  473,138 

    11,963,458 
Consumer Staples (2.6%)     
Affinity Group, Inc.     
sr. sub. notes 9s, 2012  545,000  403,300 

AMC Entertainment, Inc. company     
guaranty 11s, 2016  251,000  247,235 

AMC Entertainment, Inc.     
sr. sub. notes 8s, 2014  205,000  176,300 

Archibald Candy Corp. company     
guaranty 10s, 2008 (In default) F   90,153  13 

Avis Budget Car Rental, LLC     
company guaranty 7 3/4s, 2016  285,000  178,125 

CCH I Holdings, LLC company     
guaranty 12 1/8s, 2015  8,000  2,840 

CCH II, LLC sr. unsec.     
notes 10 1/4s, 2010  238,000  214,200 

CCH II, LLC sr. unsec.     
notes Ser. B, 10 1/4s, 2010  1,099,000  983,605 

Church & Dwight Co., Inc. company     
guaranty 6s, 2012  444,000  419,580 

Cinemark, Inc. sr. disc.     
notes stepped-coupon zero %     
(9 3/4s, 3/15/09), 2014 ††  500,000  480,625 

Clear Channel Communications, Inc.     
sr. unsec. notes 7.65s, 2010  556,000  500,400 

Clear Channel Communications, Inc.     
sr. unsec. notes 5 1/2s, 2014  58,000  17,980 

CSC Holdings, Inc.     
sr. notes 6 3/4s, 2012  543,000  497,524 

Dean Foods Co. company     
guaranty 7s, 2016  134,000  116,580 


CORPORATE BONDS  Principal   
AND NOTES (21.0%)* cont.  amount  Value 

Consumer Staples cont.     
Del Monte Corp.     
sr. sub. notes 8 5/8s, 2012  $560,000  $554,400 

DirecTV Holdings, LLC company     
guaranty 6 3/8s, 2015  938,000  825,440 

DirecTV Holdings, LLC 144A     
sr. notes 7 5/8s, 2016  117,000  105,885 

Echostar DBS Corp. company     
guaranty 6 5/8s, 2014  2,119,000  1,700,498 

Grupo Televisa SA sr. unsec.     
notes 6s, 2018 (Mexico)  460,000  434,135 

Liberty Media, LLC sr. notes 5.7s, 2013  138,000  114,777 

Liberty Media, LLC sr. unsec.     
notes 7 7/8s, 2009  169,000  169,525 

Nielsen Finance LLC/Nielsen     
Finance Co. company guaranty 10s, 2014  186,000  176,700 

Nielsen Finance LLC/Nielsen     
Finance Co. company     
guaranty stepped-coupon zero %     
(12 1/2s, 8/1/11), 2016 ††  360,000  234,000 

Prestige Brands, Inc.     
sr. sub. notes 9 1/4s, 2012  371,000  352,450 

Rainbow National Services, LLC     
144A sr. notes 8 3/4s, 2012  383,000  383,000 

Rite Aid Corp. company     
guaranty 9 3/8s, 2015  277,000  145,425 

Rite Aid Corp. sec. notes 7 1/2s, 2017  315,000  239,400 

Sara Lee Corp. sr. unsec.     
unsub. notes 6 1/4s, 2011  300,000  302,511 

United Rentals NA, Inc. company     
guaranty 6 1/2s, 2012  355,000  296,425 

Young Broadcasting, Inc. company     
guaranty 10s, 2011  239,000  34,655 

Young Broadcasting, Inc.     
sr. sub. notes 8 3/4s, 2014  83,000  12,450 

    10,319,983 
Energy (2.5%)     
Arch Western Finance, LLC     
sr. notes 6 3/4s, 2013  1,347,000  1,266,180 

Chaparral Energy, Inc. company     
guaranty sr. unsec. notes 8 7/8s, 2017  320,000  252,800 

Chesapeake Energy Corp.     
sr. notes 7 1/2s, 2013  1,031,000  997,493 

Chesapeake Energy Corp.     
sr. notes 7s, 2014  279,000  260,865 

Complete Production Services, Inc.     
company guaranty 8s, 2016  515,000  489,250 

Comstock Resources, Inc.     
sr. notes 6 7/8s, 2012  510,000  461,550 

Connacher Oil and Gas, Ltd. 144A     
sec. notes 10 1/4s, 2015 (Canada)  210,000  201,600 

Denbury Resources, Inc.     
sr. sub. notes 7 1/2s, 2015  315,000  289,800 

Forest Oil Corp. sr. notes 8s, 2011  540,000  540,000 

Gaz Capital SA 144A company     
guaranty sr. unsec. bond 8.146s,     
2018 (Luxembourg)  176,000  156,343 

Gaz Capital SA 144A company     
guaranty sr. unsec. bond 7.343s,     
2013 (Luxembourg)  166,000  153,299 


27


CORPORATE BONDS    Principal   
AND NOTES (21.0%)* cont.    amount  Value 

Energy cont.       
Harvest Operations Corp.       
sr. notes 7 7/8s, 2011 (Canada)    $584,000  $473,040 

Helix Energy Solutions Group, Inc.       
144A sr. unsec. notes 9 1/2s, 2016    390,000  364,650 

Hornbeck Offshore Services, Inc.       
sr. notes Ser. B, 6 1/8s, 2014    517,000  471,763 

Key Energy Services, Inc. 144A       
sr. notes 8 3/8s, 2014    180,000  172,800 

Lukoil International Finance 144A       
company guaranty 6.356s, 2017       
(Netherlands)    420,000  319,200 

Newfield Exploration Co.       
sr. sub. notes 6 5/8s, 2014    348,000  313,200 

Offshore Logistics, Inc. company       
guaranty 6 1/8s, 2013    295,000  264,025 

Oslo Seismic Services, Inc. 1st       
mtge. 8.28s, 2011    314,176  325,590 

Pacific Energy Partners/Pacific       
Energy Finance Corp.       
sr. notes 7 1/8s, 2014    355,000  348,912 

Pemex Finance, Ltd. bonds 9.69s,       
2009 (Cayman Islands)    203,000  207,045 

PetroHawk Energy Corp. company       
guaranty 9 1/8s, 2013    169,000  158,860 

PetroHawk Energy Corp. 144A       
sr. unsec. unsub. notes 7 7/8s, 2015    140,000  121,800 

Petroleum Development Corp.       
company guaranty sr. unsec.       
notes 12s, 2018    215,000  206,400 

Petroplus Finance, Ltd. company       
guaranty 6 3/4s, 2014 (Bermuda)    355,000  299,975 

Plains Exploration &       
Production Co. company       
guaranty 7 3/4s, 2015    70,000  64,400 

Plains Exploration &       
Production Co. company       
guaranty 7s, 2017    80,000  69,600 

Pride International, Inc.       
sr. unsec. notes 7 3/8s, 2014    451,000  430,705 

SandRidge Energy, Inc.       
sr. notes 8s, 2018    310,000  266,600 

Williams Cos., Inc. (The)       
sr. unsec. notes 8 1/8s, 2012    150,000  151,548 

      10,099,293 
Financial (4.0%)       
Banco Do Brasil 144A sr. unsec.       
5.862s, 2017 (Cayman Islands)  BRL  536,000  223,762 

Bear Stearns Cos., Inc. (The)       
notes Ser. MTN, 6.95s, 2012    $1,205,000  1,217,199 

Bosphorus Financial Services, Ltd.       
144A sec. sr. notes FRN 4.604s,       
2012 (Cayman Islands)    1,264,375  1,220,520 

GMAC, LLC sr. unsec.       
unsub. notes 7 3/4s, 2010    90,000  53,889 

GMAC, LLC sr. unsec.       
unsub. notes 7s, 2012    40,000  17,200 

GMAC, LLC sr. unsec.       
unsub. notes 6 7/8s, 2012    637,000  253,193 


CORPORATE BONDS  Principal   
AND NOTES (21.0%)* cont.  amount  Value 

Financial cont.     
GMAC, LLC sr. unsec.     
unsub. notes 6 7/8s, 2011  $85,000  $37,926 

GMAC, LLC sr. unsec.     
unsub. notes 6 3/4s, 2014  725,000  278,265 

GMAC, LLC sr. unsec.     
unsub. notes 6 5/8s, 2012 S  810,000  340,200 

GMAC, LLC sr. unsec.     
unsub. notes FRN 5.011s, 2014  64,000  29,032 

HUB International Holdings, Inc.     
144A sr. sub. notes 10 1/4s, 2015  95,000  75,050 

HUB International Holdings, Inc.     
144A sr. unsec. unsub. notes 9s, 2014  65,000  57,850 

iStar Financial, Inc. sr. unsec.     
notes Ser. B, 4 7/8s, 2009 R  100,000  60,000 

JPMorgan Chase & Co. 144A     
sr. unsec. FRN 6.46s, 2017  1,000,000  892,900 

JPMorgan Chase & Co. 144A     
sr. unsec. notes FRN 9.34s, 2011  RUB 32,000,000  1,246,720 

JPMorgan Chase & Co. 144A unsec.     
unsub. notes 0.18s, 2012  INR  19,000,000  427,257 

Lender Processing Services, Inc.     
144A sr. unsec. notes 8 1/8s, 2016  $795,000  775,125 

Leucadia National Corp. sr. unsec.     
notes 8 1/8s, 2015  100,000  97,250 

Leucadia National Corp. sr. unsec.     
notes 7 1/8s, 2017  252,000  229,320 

Merrill Lynch & Co., Inc.     
notes 5.45s, 2013  840,000  736,555 

Merrill Lynch & Co., Inc.     
notes FRN Ser. MTN, 3s, 2011  365,000  315,383 

Morgan Stanley sr. unsec.     
bonds 6.066s, 2017  BRL  1,850,000  556,449 

Nuveen Investments, Inc. 144A     
sr. notes 10 1/2s, 2015  $194,000  149,380 

RSHB Capital SA for OJSC Russian     
Agricultural Bank notes 6.299s,     
2017 (Luxembourg)  675,000  481,883 

RSHB Capital SA for OJSC Russian     
Agricultural Bank sub. bonds FRB     
6.97s, 2016 (Luxembourg)  250,000  209,990 

UBS Luxembourg SA for Sberbank     
unsec. sub. notes stepped-coupon     
6.23s (7.429s, 2/11/10), 2015     
(Luxembourg) ††  1,400,000  1,259,958 

USI Holdings Corp. 144A sr. unsec.     
notes FRN 6.679s, 2014  60,000  45,600 

VTB Capital unsec. sub. notes FRN     
6.315s, 2015 (Luxembourg)  1,090,000  1,063,404 

VTB Capital SA 144A notes 7 1/2s,     
2011 (Luxembourg)  3,010,000  2,612,891 

VTB Capital SA 144A sec.     
notes 6.609s, 2012 (Luxembourg)  940,000  780,285 

    15,744,436 
Health Care (1.8%)     
Community Health Systems, Inc.     
company guaranty 8 7/8s, 2015  665,000  631,750 

DaVita, Inc. company     
guaranty 6 5/8s, 2013  153,000  145,350 


28


CORPORATE BONDS  Principal   
AND NOTES (21.0%)* cont.  amount  Value 

 
Health Care cont.     
Elan Finance PLC/Elan     
Finance Corp. company     
guaranty 7 3/4s, 2011 (Ireland)  $205,000  $189,369 

HCA, Inc. company guaranty     
sr. sec. notes 9 5/8s, 2016 ‡‡  268,000  254,600 

HCA, Inc. sr. sec. notes 9 1/4s, 2016  645,000  627,263 

HCA, Inc. sr. sec. notes 9 1/8s, 2014  282,000  274,245 

HCA, Inc. sr. unsec. notes 6 3/8s, 2015  212,000  166,950 

HCA, Inc. sr. unsec. notes 5 3/4s, 2014  260,000  202,800 

Omnicare, Inc. company     
guaranty 6 3/4s, 2013  195,000  176,963 

Omnicare, Inc.     
sr. sub. notes 6 1/8s, 2013  545,000  489,138 

Select Medical Corp. company     
guaranty 7 5/8s, 2015  547,000  443,070 

Stewart Enterprises, Inc.     
sr. notes 6 1/4s, 2013  724,000  680,560 

Surgical Care Affiliates, Inc.     
144A sr. sub. notes 10s, 2017  300,000  225,000 

Surgical Care Affiliates, Inc.     
144A sr. unsec. notes 8 7/8s, 2015 ‡‡  110,000  95,700 

Tenet Healthcare Corp.     
notes 7 3/8s, 2013  390,000  354,900 

Tenet Healthcare Corp. sr. unsec.     
unsub. notes 6 3/8s, 2011  571,000  526,748 

US Oncology, Inc. company     
guaranty 9s, 2012  485,000  485,000 

Vanguard Health Holding Co.     
II, LLC sr. sub. notes 9s, 2014  491,000  473,815 

Ventas Realty LP/Capital Corp.     
company guaranty 9s, 2012 R  305,000  317,963 

Ventas Realty LP/Capital Corp.     
company guaranty 6 3/4s, 2010 R  201,000  199,995 

Ventas Realty LP/Capital Corp.     
sr. notes 6 5/8s, 2014 R  173,000  166,080 

    7,127,259 
Technology (1.2%)     
Advanced Micro Devices, Inc.     
sr. notes 7 3/4s, 2012  334,000  257,180 

Ceridian Corp. 144A sr. unsec.     
notes 11 1/4s, 2015  275,000  226,875 

Compucom Systems, Inc.     
sr. sub. notes 12 1/2s, 2015  155,000  137,950 

Freescale Semiconductor, Inc.     
company guaranty sr. unsec.     
notes 8 7/8s, 2014  552,000  380,880 

Freescale Semiconductor, Inc.     
company guaranty sr. unsec.     
sub. notes 10 1/8s, 2016 S  384,000  245,760 

Freescale Semiconductor, Inc.     
company guaranty sr. unsec.     
sub. notes 9 1/8s, 2014 ‡‡  383,000  241,290 

Iron Mountain, Inc. company     
guaranty 8 5/8s, 2013  700,000  693,000 

Iron Mountain, Inc. company     
guaranty sr. unsec.     
sub. notes 8s, 2020  470,000  457,075 

New ASAT Finance, Ltd. company     
guaranty 9 1/4s, 2011     
(Cayman Islands)  13,000  7,816 


CORPORATE BONDS    Principal   
AND NOTES (21.0%)* cont.    amount  Value 

 
Technology cont.       
Nortel Networks, Ltd. company       
guaranty sr. unsec.       
notes 10 3/4s, 2016 (Canada)    $215,000  $131,688 

Nortel Networks, Ltd. company       
guaranty sr. unsec. notes FRN       
7.041s, 2011 (Canada)    235,000  156,863 

Nortel Networks, Ltd. 144A       
sr. unsecd. notes company       
guaranty 10 3/4s, 2016 (Canada)    420,000  257,250 

Sanmina Corp. company       
guaranty sr. unsec.       
sub. notes 6 3/4s, 2013    239,000  209,125 

Sanmina Corp. sr. unsec.       
sub. notes 8 1/8s, 2016    372,000  316,200 

SunGard Data Systems, Inc. company       
guaranty 9 1/8s, 2013    340,000  306,000 

Travelport LLC company       
guaranty 9 7/8s, 2014    166,000  135,290 

Unisys Corp. sr. unsec.       
unsub. notes 12 1/2s, 2016    219,000  208,050 

Xerox Corp. sr. notes 9 3/4s, 2009  EUR  140,000  199,267 

      4,567,559 
Utilities & Power (1.3%)       
AES Corp. (The) sr. unsec.       
unsub. notes 8s, 2017    $130,000  117,325 

AES Corp. (The) 144A sec.       
notes 8 3/4s, 2013    235,000  237,350 

CMS Energy Corp. sr. notes       
7 3/4s, 2010    180,000  185,724 

Edison Mission Energy sr. unsec.       
notes 7 3/4s, 2016    151,000  141,940 

Edison Mission Energy sr. unsec.       
notes 7 1/2s, 2013    172,000  165,120 

Edison Mission Energy sr. unsec.       
notes 7.2s, 2019    275,000  242,000 

Edison Mission Energy sr. unsec.       
notes 7s, 2017    195,000  175,500 

Ferrellgas LP/Finance       
sr. notes 6 3/4s, 2014    520,000  423,800 

Florida Power Corp. 1st mtge. sec.       
bonds 5.65s, 2018    75,000  71,729 

Ipalco Enterprises, Inc. 144A       
sr. sec. notes 7 1/4s, 2016    115,000  109,825 

Kinder Morgan, Inc.       
sr. notes 6 1/2s, 2012    1,589,000  1,529,413 

NRG Energy, Inc. sr. notes 7 3/8s, 2016    235,000  211,500 

Orion Power Holdings, Inc.       
sr. unsec. notes 12s, 2010    655,000  635,350 

PNM Resources, Inc. unsec.       
unsub. notes 9 1/4s, 2015    224,000  220,640 

Teco Finance, Inc. company       
guaranty sr. unsec.       
unsub. notes 7.2s, 2011    185,000  188,523 

Teco Finance, Inc. company       
guaranty sr. unsec.       
unsub. notes 7s, 2012    280,000  284,599 

Teco Finance, Inc. company       
guaranty sr. unsec.       
unsub. notes 6 3/4s, 2015    32,000  30,649 


29


CORPORATE BONDS  Principal   
AND NOTES (21.0%)* cont.  amount  Value 

 
Utilities & Power cont.     
Utilicorp United, Inc. sr. unsec.     
notes 7.95s, 2011  $18,000  $18,638 

Williams Partners LP/ Williams     
Partners Finance Corp. sr. unsec.     
notes 7 1/4s, 2017  145,000  134,850 

    5,124,475 
 
Total corporate bonds and notes (cost $95,407,615)  $82,430,105 

ASSET-BACKED  Principal   
SECURITIES (13.8%)*  amount  Value 

 
Accredited Mortgage Loan Trust     
FRB Ser. 05-1, Class M2, 3.897s, 2035  $160,000  $68,800 
FRB Ser. 05-4, Class A2C, 3.417s, 2035  34,000  31,280 

Ace Securities Corp.     
FRB Ser. 06-OP2, Class A2C,     
3.357s, 2036  107,000  59,385 
FRB Ser. 06-HE3, Class A2C,     
3.357s, 2036  115,000  68,034 

Ameriquest Mortgage     
Securities, Inc. FRB Ser. 03-8,     
Class M2, 4.957s, 2033  216,523  43,305 

Arcap REIT, Inc. 144A     
Ser. 03-1A, Class E, 7.11s, 2038  383,000  288,942 
Ser. 04-1A, Class E, 6.42s, 2039  361,000  231,823 

Argent Securities, Inc.     
FRB Ser. 03-W3, Class M3,     
5.477s, 2033  24,453  2,934 
FRB Ser. 06-W4, Class A2C,     
3.367s, 2036  204,000  123,420 

Asset Backed Funding Certificates     
FRB Ser. 04-OPT2, Class M2,     
4.207s, 2033  225,692  103,818 
FRB Ser. 05-WMC1, Class M1,     
3.647s, 2035  31,000  23,250 

Asset Backed Securities Corp. Home     
Equity Loan Trust     
FRB Ser. 06-HE2, Class A3,     
3.397s, 2036  40,157  29,712 
FRB Ser. 06-HE4, Class A5,     
3.367s, 2036  148,000  119,880 

Aviation Capital Group Trust 144A     
FRB Ser. 03-2A, Class G1, 3.888s, 2033  248,256  124,128 

Bear Stearns Asset Backed     
Securities, Inc.     
FRB Ser. 04-FR3, Class M6,     
6.457s, 2034  286,000  169,470 
FRB Ser. 06-PC1, Class M9,     
4.957s, 2035  185,000  1,850 
FRB Ser. 05-HE1, Class M3,     
4.137s, 2035  223,000  64,670 

Bear Stearns Asset Backed     
Securities, Inc. 144A FRB     
Ser. 06-HE2, Class M10, 5.457s, 2036  270,000  7,732 

Bombardier Capital Mortgage     
Securitization Corp.     
Ser. 00-A, Class A4, 8.29s, 2030  492,293  315,740 
Ser. 00-A, Class A2, 7.575s, 2030  1,309,038  714,508 
Ser. 99-B, Class A4, 7.3s, 2016  647,669  395,979 
Ser. 99-B, Class A3, 7.18s, 2015  1,089,965  660,449 
FRB Ser. 00-A, Class A1,     
2.648s, 2030  141,606  66,721 


ASSET-BACKED    Principal   
SECURITIES (13.8%)* cont.    amount  Value 

Capital Auto Receivables Asset       
Trust 144A Ser. 06-1, Class D,       
7.16s, 2013    $500,000  $475,918 

Citigroup Mortgage Loan Trust, Inc.       
FRB Ser. 05-HE4, Class M11,       
5.707s, 2035    304,000  30,400 
FRB Ser. 05-HE4, Class M12,       
5.257s, 2035    53,839  2,692 
FRB Ser. 05-OPT1, Class M1,       
3.627s, 2035    47,073  29,440 

Conseco Finance       
Securitizations Corp.       
Ser. 00-2, Class A5, 8.85s, 2030    1,379,474  1,101,899 
Ser. 00-4, Class A6, 8.31s, 2032    3,278,798  2,436,209 
Ser. 00-5, Class A7, 8.2s, 2032    476,000  342,625 
Ser. 00-1, Class A5, 8.06s, 2031    935,093  647,365 
Ser. 00-4, Class A5, 7.97s, 2032    185,964  133,950 
Ser. 00-5, Class A6, 7.96s, 2032    668,995  510,242 
Ser. 02-1, Class M1F, 7.954s, 2033    44,000  39,299 
Ser. 01-3, Class M2, 7.44s, 2033    59,427  8,648 
Ser. 01-4, Class A4, 7.36s, 2033    199,080  172,191 
Ser. 00-6, Class A5, 7.27s, 2031    73,383  63,072 
Ser. 01-1, Class A5, 6.99s, 2032    4,329,219  3,968,172 
Ser. 01-3, Class A4, 6.91s, 2033    2,835,114  2,446,440 
Ser. 02-1, Class A, 6.681s, 2033    839,960  805,436 
FRB Ser. 02-1, Class M1A, 4.54s, 2033    2,249,000  1,635,657 
FRB Ser. 01-4, Class M1, 4.24s, 2033    295,000  98,137 

Countrywide Asset       
Backed Certificates       
FRB Ser. 05-BC3, Class M1,       
3.727s, 2035    47,000  28,200 
FRB Ser. 05-14, Class 3A2,       
3.447s, 2036    26,874  24,186 

Crest, Ltd. 144A Ser. 03-2A,       
Class E2, 8s, 2038 (Cayman Islands)    431,000  267,220 

DB Master Finance, LLC 144A       
Ser. 06-1, Class M1, 8.285s, 2031    277,000  207,509 

Equifirst Mortgage Loan Trust FRB       
Ser. 05-1, Class M5, 3.877s, 2035    92,000  21,160 

First Franklin Mortgage Loan Asset       
Backed Certificates FRB       
Ser. 06-FF7, Class 2A3, 3.357s, 2036    173,000  105,945 

Fremont Home Loan Trust       
FRB Ser. 05-E, Class 2A4, 3.537s, 2036    244,000  175,680 
FRB Ser. 06-2, Class 2A3, 3.377s, 2036    353,000  257,690 

Gears Auto Owner Trust 144A       
Ser. 05-AA, Class E1, 8.22s, 2012    687,000  650,525 

Granite Mortgages PLC       
FRB Ser. 03-2, Class 3C, 7.589s,       
2043 (United Kingdom)  GBP  736,381  1,224,319 
FRB Ser. 03-2, Class 2C1, 5.2s,       
2043 (United Kingdom)  EUR  1,430,000  1,909,682 

Green Tree Financial Corp.       
Ser. 94-6, Class B2, 9s, 2020    $861,059  812,065 
Ser. 94-4, Class B2, 8.6s, 2019    365,488  223,240 
Ser. 93-1, Class B, 8.45s, 2018    374,240  334,077 
Ser. 99-5, Class A5, 7.86s, 2030    3,976,395  3,386,537 
Ser. 96-8, Class M1, 7.85s, 2027    387,000  342,056 
Ser. 95-8, Class B1, 7.3s, 2026    362,579  304,380 
Ser. 95-4, Class B1, 7.3s, 2025    371,800  335,116 
Ser. 96-10, Class M1, 7.24s, 2028    41,000  29,750 
Ser. 97-6, Class M1, 7.21s, 2029    1,087,000  809,928 
Ser. 98-2, Class A6, 6.81s, 2027    399,822  390,744 
Ser. 99-3, Class A7, 6.74s, 2031    733,000  687,183 

30


ASSET-BACKED    Principal   
SECURITIES (13.8%)* cont.    amount  Value 

Green Tree Financial Corp.       
FRN 6.53s, 2030    $183,816  $170,366 
Ser. 99-2, Class A7, 6.44s, 2030    45,712  39,236 
Ser. 99-1, Class A6, 6.37s, 2025    18,000  17,411 
Ser. 98-4, Class A5, 6.18s, 2030    463,821  424,241 
Ser. 99-1, Class A5, 6.11s, 2023    223,975  221,804 

Greenpoint Manufactured Housing       
Ser. 00-3, Class IA, 8.45s, 2031    1,660,683  1,424,406 
Ser. 99-5, Class M1A, 8.3s, 2026    157,000  143,255 
Ser. 99-5, Class A4, 7.59s, 2028    44,639  43,746 

GS Auto Loan Trust 144A Ser. 04-1,       
Class D, 5s, 2011    365,777  342,002 

GSAMP Trust FRB Ser. 06-HE5,       
Class A2C, 3.357s, 2036    526,000  322,280 

Guggenheim Structured       
Real Estate Funding, Ltd. 144A       
FRB Ser. 05-2A, Class E, 5.207s,       
2030 (Cayman Islands)    379,000  165,547 
FRB Ser. 05-1A, Class E, 5.007s,       
2030 (Cayman Islands)    83,828  56,165 

Home Equity Asset Trust FRB       
Ser. 06-1, Class 2A4, 3.537s, 2036    122,000  75,030 

JPMorgan Mortgage       
Acquisition Corp. FRB       
Ser. 06-FRE1, Class A4, 3.497s, 2035    103,000  63,088 

Lehman ABS Manufactured Housing       
Contract Ser. 01-B, Class A4,       
5.27s, 2018    1,182,036  1,004,354 

Lehman XS Trust FRB Ser. 07-6,       
Class 2A1, 3.417s, 2037    1,194,566  772,659 

LNR CDO, Ltd. 144A FRB Ser. 02-1A,       
Class FFL, 5.926s, 2037       
(Cayman Islands)    1,260,000  567,000 

Local Insight Media Finance, LLC       
Ser. 07-1W, Class A1, 5.53s, 2012 F    1,715,324  1,368,023 

Long Beach Mortgage Loan Trust       
FRB Ser. 05-2, Class M4,       
3.827s, 2035    255,000  79,050 
FRB Ser. 06-4, Class 2A4, 3       
.467s, 2036    117,000  56,429 
FRB Ser. 06-1, Class 2A3,       
3.397s, 2036    161,000  120,750 

Lothian Mortgages PLC 144A FRB       
Ser. 3A, Class D, 6.597s, 2039       
(United Kingdom)  GBP  900,000  1,478,351 

Madison Avenue Manufactured       
Housing Contract FRB Ser. 02-A,       
Class B1, 6.457s, 2032    $1,046,356  741,093 

MASTR Asset Backed Securities       
Trust FRB Ser. 06-FRE2, Class A4,       
3.357s, 2036    61,000  40,528 

Mid-State Trust Ser. 11, Class B,       
8.221s, 2038    112,436  85,204 

Morgan Stanley ABS Capital I       
FRB Ser. 04-HE8, Class B3,       
6.407s, 2034    69,835  13,967 
FRB Ser. 05-HE2, Class M5,       
3.887s, 2035    160,000  28,800 
FRB Ser. 05-HE1, Class M3,       
3.727s, 2034    160,000  57,600 
FRB Ser. 06-NC4, Class M2,       
3.507s, 2036    223,000  17,840 


ASSET-BACKED  Principal   
SECURITIES (13.8%)* cont.  amount  Value 

Navistar Financial Corp.     
Owner Trust     
Ser. 05-A, Class C, 4.84s, 2014  $72,629  $65,102 
Ser. 04-B, Class C, 3.93s, 2012  44,238  39,024 

New Century Home Equity Loan Trust     
FRB Ser. 03-4, Class M3, 5.257s, 2033  13,595  544 

Novastar Home Equity Loan     
FRB Ser. 06-1, Class A2C,     
3.367s, 2036  146,000  120,450 
FRB Ser. 06-2, Class A2C,     
3.357s, 2036  146,000  101,762 

Oakwood Mortgage     
Investors, Inc.     
Ser. 96-C, Class B1, 7.96s, 2027  1,008,054  565,663 
Ser. 99-D, Class A1, 7.84s, 2029  885,433  717,201 
Ser. 00-A, Class A2, 7.765s, 2017  127,879  99,259 
Ser. 95-B, Class B1, 7.55s, 2021  350,897  222,942 
Ser. 00-D, Class A4, 7.4s, 2030  1,022,000  630,778 
Ser. 02-B, Class A4, 7.09s, 2032  369,919  322,237 
Ser. 99-B, Class A4, 6.99s, 2026  928,948  737,749 
Ser. 00-D, Class A3, 6.99s, 2022  310,700  309,065 
6.97s, 2032  54,122  46,258 
Ser. 01-D, Class A4, 6.93s, 2031  682,742  463,653 
Ser. 01-E, Class A4, 6.81s, 2031  892,547  706,992 
Ser. 99-B, Class A3, 6.45s, 2017  221,305  188,002 
Ser. 01-C, Class A2, 5.92s, 2017  909,648  462,762 
Ser. 02-C, Class A1, 5.41s, 2032  1,127,522  896,154 
Ser. 01-D, Class A2, 5.26s, 2019  136,471  85,444 
Ser. 01-E, Class A2, 5.05s, 2019  947,778  590,917 
Ser. 02-A, Class A2, 5.01s, 2020  238,000  193,255 

Oakwood Mortgage     
Investors, Inc. 144A     
Ser. 01-B, Class A4, 7.21s, 2030  176,355  143,639 
FRB Ser. 01-B, Class A2, 2.863s, 2018  47,612  36,262 

Ocean Star PLC 144A FRB Ser. 05-A,     
Class E, 7.404s, 2012 (Ireland)  238,000  179,976 

Option One Mortgage Loan Trust FRB     
Ser. 05-4, Class M11, 5.707s, 2035  509,000  13,998 

Park Place Securities, Inc.     
FRB Ser. 05-WCH1, Class M4,     
4.037s, 2036  104,000  10,400 
FRB Ser. 04-MCW1, Class A2,     
3.587s, 2034  109,631  96,328 

People’s Financial Realty Mortgage     
Securities Trust FRB Ser. 06-1,     
Class 1A2, 3.337s, 2036  225,000  126,000 

Residential Asset Mortgage     
Products, Inc.     
FRB Ser. 06-NC3, Class A2,     
3.397s, 2036  155,711  127,496 
FRB Ser. 07-RZ1, Class A2,     
3.367s, 2037  176,000  135,080 

Residential Asset     
Securities Corp.     
FRB Ser. 05-EMX1, Class M2,     
3.937s, 2035  362,000  130,320 
Ser. 01-KS3, Class AII, 3.667s, 2031 F  1,482,241  1,217,222 

Residential Asset Securities Corp.     
144A FRB Ser. 05-KS10, Class B,     
5.957s, 2035  385,641  3,856 


31


ASSET-BACKED  Principal   
SECURITIES (13.8%)* cont.  amount  Value 

Securitized Asset Backed     
Receivables, LLC     
FRB Ser. 05-HE1, Class M2,     
3.857s, 2035  $160,000  $36,800 
FRB Ser. 07-NC2, Class A2B,     
3.347s, 2037  165,000  96,525 

SG Mortgage Securities Trust FRB     
Ser. 06-OPT2, Class A3D, PO,     
3.417s, 2036  246,000  105,780 

Soundview Home Equity     
Loan Trust     
FRB Ser. 06-OPT3, Class 2A3,     
3.377s, 2036  117,000  93,289 
FRB Ser. 06-3, Class A3, 3.367s, 2036  529,000  423,888 

Soundview Home Equity Loan Trust     
144A FRB Ser. 05-4, Class M10,     
5.707s, 2036  392,000  9,800 

South Coast Funding 144A FRB     
Ser. 3A, Class A2, 4.003s, 2038     
(Cayman Islands)  140,000  700 

Structured Asset Investment Loan     
Trust FRB Ser. 06-BNC2, Class A6,     
3.467s, 2036  117,000  22,820 

Structured Asset Investment Loan     
Trust 144A FRB Ser. 05-HE3,     
Class M11, 5.707s, 2035  31,494  151 

Structured Asset Receivables Trust     
144A FRB Ser. 05-1, 3.286s, 2015 F  1,756,006  1,568,054 

TIAA Real Estate CDO, Ltd.     
Ser. 03-1A, Class E, 8s, 2038  467,000  194,081 

TIAA Real Estate CDO, Ltd. 144A     
Ser. 02-1A, Class IV, 6.84s, 2037  390,000  245,981 

Whinstone Capital Management, Ltd.     
144A FRB Ser. 1A, Class B3, 3.7s,     
2044 (United Kingdom)  256,909  204,425 

 
Total asset-backed securities (cost $66,085,118)    $53,919,123 
   

  Principal   
SENIOR LOANS (13.2%)* c  amount  Value 

Basic Materials (1.4%)     
Aleris International, Inc. bank     
term loan FRN Ser. B, 5 1/4s, 2013  $409,804  $326,477 

Domtar Corp. bank term loan FRN     
4.804s, 2014 (Canada)  308,000  281,307 

Georgia-Pacific, LLC bank term     
loan FRN Ser. B, 4.544s, 2013  995,258  876,346 

Georgia-Pacific, LLC bank term     
loan FRN Ser. B2, 4.299s, 2012  284,178  250,224 

Graphic Packaging Corp. bank term     
loan FRN Ser. C, 5.981s, 2014  325,199  289,753 

Hexion Specialty Chemicals, Inc.     
bank term loan FRN Ser. C,     
6.063s, 2013  19,750  15,010 

Huntsman International, LLC bank     
term loan FRN Ser. B, 5.459s, 2012  1,420,000  1,238,950 

Momentive Performance     
Materials, Inc. bank term loan     
FRN 6s, 2013  402,625  348,875 

NewPage Holding Corp. bank term     
loan FRN 7s, 2014  337,450  305,498 

Novelis, Inc. bank term loan FRN     
Ser. B, 4.81s, 2014  230,484  200,060 


  Principal   
SENIOR LOANS (13.2%)* c cont.  amount  Value 

Basic Materials cont.     
Novelis, Inc. bank term loan FRN     
Ser. B, 4.81s, 2014  $507,066  $440,133 

Rockwood Specialties Group, Inc.     
bank term loan FRN Ser. E,     
4.299s, 2012  864,675  778,568 

    5,351,201 
Capital Goods (1.1%)     
Allied Waste Industries, Inc. bank     
term loan FRN 6.82s, 2012  340,023  326,665 

Allied Waste Industries, Inc. bank     
term loan FRN 5.471s, 2012  475,803  457,111 

Berry Plastics Holding Corp. bank     
term loan FRN 4.798s, 2015  147,750  119,160 

Graham Packaging Co., LP bank term     
loan FRN 5.059s, 2011  98,500  87,665 

Hawker Beechcraft     
Acquisition Co., LLC bank term     
loan FRN 2.601s, 2014  51,780  45,067 

Hawker Beechcraft     
Acquisition Co., LLC bank term     
loan FRN Ser. B, 5.762s, 2014  973,991  847,720 

Hexcel Corp. bank term loan FRN     
Ser. B, 4.938s, 2012  259,418  249,042 

Manitowoc Co., Inc. (The) bank     
term loan FRN Ser. B, 6 1/2s, 2014 U  575,000  546,538 

Mueller Water Products, Inc. bank     
term loan FRN Ser. B, 4.908s, 2014  354,257  314,108 

Polypore, Inc. bank term loan FRN     
Ser. B, 6.03s, 2014  312,105  287,136 

Sensata Technologies BV bank term     
loan FRN 4.543s, 2013 (Netherlands)  278,249  231,468 

Sequa Corp. bank term loan FRN     
6.812s, 2014  434,094  378,205 

Transdigm, Inc. bank term loan FRN     
5.21s, 2013  435,000  399,113 

Wesco Aircraft Hardware Corp. bank     
term loan FRN 5.96s, 2013  210,000  189,394 

    4,478,392 
Communication Services (1.2%)     
Alltel Communications, Inc. bank     
term loan FRN Ser. B2, 5.316s, 2015  624,844  600,534 

Alltel Communications, Inc. bank     
term loan FRN Ser. B3, 4.997s, 2015  651,359  630,597 

Cricket Communications, Inc. bank     
term loan FRN Ser. B, 7.262s, 2013  34,734  32,979 

Crown Castle International Corp.     
bank term loan FRN 5.376s, 2014  104,207  90,816 

Fairpoint Communications, Inc.     
bank term loan FRN Ser. B,     
5 3/4s, 2015  480,000  393,000 

Intelsat Corp. bank term loan FRN     
Ser. B2, 5.288s, 2011  266,119  240,394 

Intelsat Corp. bank term loan FRN     
Ser. B2-A, 5.288s, 2013  266,199  240,466 

Intelsat Corp. bank term loan FRN     
Ser. B2-C, 5.288s, 2013  266,119  240,394 

Intelsat, Ltd. bank term loan FRN     
6.883s, 2014 (Bermuda)  460,000  391,000 

Intelsat, Ltd. bank term loan FRN     
Ser. B, 5.288s, 2013 (Bermuda)  589,500  533,498 


32


  Principal   
SENIOR LOANS (13.2%)* c cont.  amount  Value 

Communication Services cont.     
Level 3 Communications, Inc. bank     
term loan FRN 4.952s, 2014  $210,000  $175,875 

MetroPCS Wireless, Inc. bank term     
loan FRN 5.4s, 2013  453,405  402,559 

PAETEC Holding Corp. bank term     
loan FRN 4.969s, 2013  69,650  58,158 

PAETEC Holding Corp. bank term     
loan FRN Ser. B1, 6.204s, 2013  204,257  170,555 

Time Warner Telecom, Inc. bank     
term loan FRN Ser. B, 5.71s, 2013  316,772  298,821 

West Corp. bank term loan FRN     
5.813s, 2013  208,939  160,361 

    4,660,007 
Consumer Cyclicals (2.8%)     
Allison Transmission bank term     
loan FRN Ser. B, 5.377s, 2014  439,881  361,802 

Aramark Corp. bank term loan FRN     
2.025s, 2014  12,544  10,823 

Aramark Corp. bank term loan FRN     
Ser. B, 5.637s, 2014  197,456  170,360 

CCM Merger, Inc. bank term loan     
FRN Ser. B, 5.284s, 2012  107,996  89,637 

Cenveo, Inc. bank term loan FRN     
Ser. C, 4.954s, 2014  238,394  206,211 

Cenveo, Inc. bank term loan FRN     
Ser. DD, 4.954s, 2014  7,944  6,871 

Cooper-Standard Automotive, Inc.     
bank term loan FRN Ser. B,     
6.313s, 2012  221,773  188,507 

Cooper-Standard Automotive, Inc.     
bank term loan FRN Ser. C,     
6.313s, 2012  554,121  471,003 

Dana Corp. bank term loan FRN     
6.771s, 2015  491,288  416,059 

Dex Media West, LLC/Dex Media     
Finance Co. bank term loan FRN     
Ser. B, 7.405s, 2014  250,000  215,000 

GateHouse Media, Inc. bank term     
loan FRN Ser. B, 5.07s, 2014  220,000  101,200 

GateHouse Media, Inc. bank term     
loan FRN Ser. B, 4.81s, 2014  513,424  236,175 

GateHouse Media, Inc. bank term     
loan FRN Ser. DD, 4.801s, 2014  191,576  88,125 

Golden Nugget, Inc. bank term loan     
FRN Ser. B, 5.43s, 2014  101,818  79,418 

Golden Nugget, Inc. bank term loan     
FRN Ser. DD, 4.84s, 2014 U  58,182  45,382 

Goodman Global Holdings, Inc. bank     
term loan FRN Ser. B, 7.708s, 2011  898,895  879,809 

Goodyear Tire & Rubber Co. (The)     
bank term loan FRN 4.54s, 2010  1,760,000  1,482,800 

Harrah’s Operating Co., Inc. bank     
term loan FRN Ser. B2, 5.805s, 2015  208,950  167,891 

Isle of Capri Casinos, Inc. bank     
term loan FRN 5.512s, 2014  207,181  165,055 

Isle of Capri Casinos, Inc. bank     
term loan FRN Ser. A, 5.512s, 2014  62,469  49,767 

Isle of Capri Casinos, Inc. bank     
term loan FRN Ser. B, 5.512s, 2014  82,873  66,022 


  Principal   
SENIOR LOANS (13.2%)* c cont.  amount  Value 

Consumer Cyclicals cont.     
Lear Corp bank term loan FRN     
6.045s, 2013  $985,453  $757,978 

Michaels Stores, Inc. bank term     
loan FRN Ser. B, 4.863s, 2013  325,854  237,990 

National Bedding Co. bank term     
loan FRN 5.353s, 2011  90,540  69,263 

Navistar Financial Corp. bank term     
loan FRN 5.695s, 2012  218,667  187,325 

Navistar International Corp. bank     
term loan FRN 6.191s, 2012  601,333  515,142 

Neiman Marcus Group, Inc. (The)     
bank term loan FRN Ser. B,     
4.565s, 2013  464,285  399,671 

Reader’s Digest Association, Inc.     
(The) bank term loan FRN Ser. B,     
4.706s, 2014  418,625  297,224 

Realogy Corp. bank term loan FRN     
2.3s, 2013 R  213,150  157,598 

Realogy Corp. bank term loan FRN     
Ser. B, 5.57s, 2013 R  791,700  585,363 

Tribune Co. bank term loan FRN     
Ser. B, 5.786s, 2014  948,000  495,330 

Tropicana Entertainment bank term     
loan FRN Ser. B, 6 1/4s, 2011  695,000  463,913 

TRW Automotive, Inc. bank term     
loan FRN Ser. B, 4.471s, 2014  183,150  171,245 

United Components, Inc. bank term     
loan FRN Ser. D, 4.81s, 2012  388,444  357,369 

Visant Holding Corp. bank term     
loan FRN Ser. C, 5.171s, 2010  363,793  348,029 

Visteon Corp. bank term loan FRN     
Ser. B, 5.47s, 2013  866,000  498,816 

Visteon Corp. bank term loan FRN     
Ser. B1, 6.1s, 2013  34,000  19,584 

Yankee Candle Co., Inc. bank term     
loan FRN 5.764s, 2014  124,000  101,577 

    11,161,334 
Consumer Staples (3.3%)     
Affinion Group, Inc. bank term     
loan FRN Ser. B, 5.345s, 2013  902,719  825,988 

Cablevision Systems Corp. bank     
term loan FRN 4.569s, 2013  934,784  818,938 

Cebridge Connections, Inc. bank     
term loan FRN Ser. B, 4.792s, 2013  689,500  596,202 

Charter Communications     
Operating, LLC bank term loan FRN     
8.77s, 2014  228,850  213,076 

Charter Communications, Inc. bank     
term loan FRN 6.262s, 2014  200,000  144,000 

Charter Communications, Inc. bank     
term loan FRN 4.8s, 2014  2,184,830  1,729,658 

Cinemark USA, Inc. bank term loan     
FRN 4.615s, 2013  514,548  439,938 

Citadel Communications bank term     
loan FRN Ser. B, 4.277s, 2014  425,000  310,250 

Dean Foods Co. bank term loan FRN     
Ser. B, 5.269s, 2014  738,750  647,145 

DirecTV Holdings, LLC bank term     
loan FRN 5.601s, 2013  279,300  264,357 


33


  Principal   
SENIOR LOANS (13.2%)* c cont.  amount  Value 

Consumer Staples cont.     
Idearc, Inc. bank term loan FRN     
Ser. B, 5.767s, 2014  $1,413,082  $818,175 

Insight Midwest, LP bank term loan     
FRN Ser. B, 4.49s, 2014  130,326  118,661 

Jarden Corp. bank term loan FRN     
Ser. B1, 5.512s, 2012  270,781  235,918 

Jarden Corp. bank term loan FRN     
Ser. B2, 5.512s, 2012  123,092  107,244 

Mediacom Communications Corp. bank     
term loan FRN Ser. C, 4.744s, 2015  816,393  716,385 

Mediacom Communications Corp. bank     
term loan FRN Ser. D2, 4.744s, 2015  117,900  102,720 

MGM Studios, Inc. bank term loan     
FRN Ser. B, 6.051s, 2011  879,750  616,705 

Pinnacle Foods Holding Corp. bank     
term loan FRN Ser. B, 5.44s, 2014  504,667  417,192 

R.H. Donnelley, Inc. bank term     
loan FRN 6.828s, 2011  518,790  452,385 

R.H. Donnelley, Inc. bank term     
loan FRN Ser. D1, 6.826s, 2011  289,569  254,531 

Rental Service Corp. bank term     
loan FRN 6.3s, 2013  445,000  347,100 

Rite-Aid Corp. bank term loan FRN     
Ser. B, 5.014s, 2014  99,500  80,098 

Six Flags Theme Parks bank term     
loan FRN 5.603s, 2015  642,863  515,254 

Spectrum Brands, Inc. bank term     
loan FRN 2.336s, 2013  30,543  22,296 

Spectrum Brands, Inc. bank term     
loan FRN Ser. B1, 6.732s, 2013  529,867  386,803 

Ticketmaster bank term loan FRN     
Ser. B, 6.64s, 2014  305,000  286,700 

Universal City Development     
Partners bank term loan FRN     
Ser. B, 5.921s, 2011  969,872  931,077 

Univision Communications, Inc.     
bank term loan FRN Ser. B,     
5.121s, 2014  285,000  182,400 

VNU Group BV bank term loan FRN     
Ser. B, 4.803s, 2013 (Netherlands)  208,406  179,333 

Warner Music Group bank term loan     
FRN Ser. B, 5.073s, 2011  150,741  134,914 

Young Broadcasting, Inc. bank term     
loan FRN Ser. B, 5.32s, 2012  262,508  198,194 

    13,093,637 
Energy (0.5%)     
CR Gas Storage bank term loan FRN     
4.847s, 2013  50,048  44,731 

CR Gas Storage bank term loan FRN     
4.843s, 2013  20,727  18,524 

CR Gas Storage bank term loan FRN     
Ser. B, 4.847s, 2013  309,195  276,343 

CR Gas Storage bank term loan FRN     
Ser. DD, 4.844s, 2013  33,902  30,300 

Enterprise GP Holdings, LP bank     
term loan FRN 4.916s, 2014  105,000  97,125 

EPCO Holding, Inc. bank term loan     
FRN Ser. A, 4.563s, 2012  220,000  209,275 

Hercules Offshore, Inc. bank term     
loan FRN Ser. B, 4.55s, 2013  244,350  231,318 


  Principal   
SENIOR LOANS (13.2%)* c cont.  amount  Value 

Energy cont.     
MEG Energy Corp. bank term loan     
FRN 5.76s, 2013 (Canada)  $97,500  $90,675 

MEG Energy Corp. bank term loan     
FRN Ser. DD, 5.76s, 2013 (Canada)  99,375  92,419 

Petroleum Geo-Services ASA bank     
term loan FRN 5.51s, 2015 (Norway)  143,000  137,101 

Quicksilver Resources, Inc. bank     
term loan FRN 8.204s, 2013  279,300  266,732 

Targa Resources, Inc. bank term     
loan FRN 5.97s, 2012  269,428  241,138 

Targa Resources, Inc. bank term     
loan FRN 3.637s, 2012  153,871  137,715 

    1,873,396 
Financial (0.1%)     
General Growth Properties, Inc.     
bank term loan FRN Ser. A,     
3.64s, 2010 R  100,000  78,700 

Hub International, Ltd. bank term     
loan FRN Ser. B, 5.301s, 2014  141,544  122,259 

Hub International, Ltd. bank term     
loan FRN Ser. DD, 5.568s, 2014  31,814  27,479 

Nuveen Investments, Inc. bank term     
loan FRN Ser. B, 6.726s, 2014  358,200  304,470 

    532,908 
Health Care (0.9%)     
Community Health Systems, Inc.     
bank term loan FRN Ser. B,     
5.277s, 2014  585,226  512,072 

Community Health Systems, Inc.     
bank term loan FRN Ser. DD,     
0 1/2s, 2014 U  30,270  26,486 

Davita, Inc. bank term loan FRN     
Ser. B, 5.22s, 2012  300,000  269,550 

Health Management Associates, Inc.     
bank term loan FRN 5.512s, 2014  1,325,909  1,112,659 

Healthsouth Corp. bank term loan     
FRN Ser. B, 4.994s, 2013  365,396  327,943 

Hologic, Inc. bank term loan FRN     
Ser. B, 6s, 2013  189,197  185,413 

IASIS Healthcare, LLC/IASIS     
Capital Corp. bank term loan FRN     
8.043s, 2014  366,949  311,907 

IASIS Healthcare, LLC/IASIS     
Capital Corp. bank term loan FRN     
7.62s, 2014  32,503  28,819 

IASIS Healthcare, LLC/IASIS     
Capital Corp. bank term loan FRN     
Ser. B, 5.704s, 2014  351,366  311,545 

IASIS Healthcare, LLC/IASIS     
Capital Corp. bank term loan FRN     
Ser. DD, 5.704s, 2014  121,580  107,801 

LifePoint, Inc. bank term loan FRN     
Ser. B, 4.435s, 2012  232,437  210,355 

Sun Healthcare Group, Inc. bank     
term loan FRN 2.701s, 2014  35,012  31,511 

Sun Healthcare Group, Inc. bank     
term loan FRN Ser. B, 4.804s, 2014  108,913  98,022 

Sun Healthcare Group, Inc. bank     
term loan FRN Ser. DD, 5.422s, 2014  21,195  19,076 

    3,553,159 

34


  Principal   
SENIOR LOANS (13.2%)* c cont.  amount  Value 

Technology (0.7%)     
Activant Solutions Holdings, Inc.     
bank term loan FRN Ser. B,     
4.804s, 2013  $173,827  $139,931 

Compucom Systems, Inc. bank term     
loan FRN 7.21s, 2014  202,950  184,685 

First Data Corp. bank term loan     
FRN Ser. B1, 5.963s, 2014  390,579  331,992 

First Data Corp. bank term loan     
FRN Ser. B3, 5.982s, 2014  292,597  249,805 

Flextronics International, Ltd.     
bank term loan FRN Ser. B,     
6.066s, 2014 (Singapore)  605,203  512,532 

Flextronics International, Ltd.     
bank term loan FRN Ser. B,     
5.041s, 2014 (Singapore)  173,909  147,279 

Freescale Semiconductor, Inc. bank     
term loan FRN Ser. B, 5.47s, 2013  137,947  111,047 

JDA Software Group, Inc. bank term     
loan FRN Ser. B, 5.034s, 2013  23,118  22,194 

Sabre Holdings Corp. bank term     
loan FRN 4.666s, 2014  291,542  195,750 

SunGard Data Systems, Inc. bank     
term loan FRN 4.553s, 2014  799,939  693,447 

Travelport bank term loan FRN     
6.262s, 2013  6,335  5,036 

Travelport bank term loan FRN     
Ser. B, 6.012s, 2013  115,464  91,794 

Travelport bank term loan FRN     
Ser. DD, 5.954s, 2013  125,157  100,689 

    2,786,181 
Transportation (0.4%)     
Ceva Group PLC bank term loan FRN     
7.736s, 2015 (Netherlands)  1,810,000  1,285,100 

Delta Airlines, Inc. bank term     
loan FRN 5.64s, 2012  2,250  1,778 

UAL Corp. bank term loan FRN     
Ser. B, 5.457s, 2014  128,867  78,179 

    1,365,057 
Utilities & Power (0.8%)     
Dynegy Holdings, Inc. bank term     
loan FRN 5.21s, 2013  765,000  650,250 

Energy Future Holdings Corp. bank     
term loan FRN Ser. B2, 6.228s, 2014  688,571  580,982 

Energy Future Holdings Corp. bank     
term loan FRN Ser. B3, 6.28s, 2014  638,550  537,408 

NRG Energy, Inc. bank term loan     
FRN 7.84s, 2014 U  180,000  166,500 

NRG Energy, Inc. bank term loan     
FRN 5.262s, 2014  585,047  512,566 

NRG Energy, Inc. bank term loan     
FRN 4.451s, 2014  287,427  251,818 

Reliant Energy, Inc. bank term     
loan FRN 3.6s, 2014  450,000  372,000 

    3,071,524 
 
Total senior loans (cost $60,459,686)    $51,926,796 

FOREIGN GOVERNMENT BONDS    Principal   
AND NOTES (11.2%)*    amount  Value 

Argentina (Republic of) bonds 7s, 2013    $47,000  $32,383 

Argentina (Republic of) bonds       
Ser. $V, 10 1/2s, 2012  ARS  2,039,000  405,251 

Argentina (Republic of) bonds FRB       
zero %, 2013    $1,431,000  622,485 

Argentina (Republic of) sr. unsec.       
unsub. bonds 7s, 2015    653,000  364,048 

Argentina (Republic of) sr. unsec.       
unsub. bonds FRB 3.127s, 2012    10,819,000  3,921,888 

Brazil (Federal Republic of)       
bonds 6s, 2017    790,000  766,300 

Brazil (Federal Republic of)       
notes zero %, 2017  BRL  3,390  1,477,290 

Brazil (Federal Republic of)       
notes zero %, 2012  BRL  657  314,196 

Colombia (Republic of) notes       
10s, 2012 S    $3,497,000  3,881,670 

Ecuador (Republic of)       
bonds Ser. REGS, 12s, 2012    1,645,056  1,505,226 

Ecuador (Republic of) 144A unsec.       
bonds 12s, 2012    465,120  425,585 

Ecuador (Republic of) regs       
notes 9 3/8s, 2015    125,000  106,250 

Ghana (Republic of) bonds 8 1/2s, 2017    285,000  255,788 

Indonesia (Republic of) 144A       
sr. unsec. bonds 6 3/4s, 2014    1,590,000  1,518,450 

Japan (Government of) CPI Linked       
bonds Ser. 12, 1.2s, 2017  JPY  380,825,600  3,406,369 

Japan (Government of) CPI Linked       
bonds Ser. 8, 1s, 2016  JPY  1,784,316,600  15,901,437 

Mexican (Government of)       
bonds Ser. M 10, 8s, 2015  MXN  17,460,000  1,563,436 

Spain (Government of) bonds 5.4s,       
2011  EUR  1,000,000  1,456,848 

Turkey (Republic of) bonds 16s,       
2012  TRL  1,395,000  1,023,219 

Ukraine (Government of) 144A       
bonds 6 3/4s, 2017    $795,000  612,150 

Ukraine (Government of) 144A       
sr. unsub. 6.58s, 2016    600,000  483,750 

Venezuela (Republic of)       
notes 10 3/4s, 2013    2,485,000  2,261,350 

Venezuela (Republic of) unsec.       
note FRN Ser. REGS, 3.791s, 2011    770,000  619,850 

Venezuela (Republic of)       
unsub. bonds 5 3/8s, 2010    945,000  833,963 

Total foreign government bonds and notes     
(cost $44,847,774)      $43,759,182 

35


U.S. GOVERNMENT AND AGENCY  Principal   
MORTGAGE OBLIGATIONS (10.5%)*  amount  Value 

U.S. Government Guaranteed Mortgage Obligations (0.5%)   
Government National Mortgage Association     
Pass-Through Certificates     
6 1/2s, with due dates from     
August 20, 2037 to October 20, 2037  $1,774,071  $1,818,769 

    1,818,769 
U.S. Government Agency Mortgage Obligations (10.0%)   
Federal Home Loan Mortgage     
Corporation Pass-Through     
Certificates 6s, July 1, 2021  $47,948  $48,847 

Federal National Mortgage Association     
Pass-Through Certificates     
6 1/2s, with due dates from     
March 1, 2036 to December 1, 2036  1,421,715  1,459,201 
6s, with due dates from     
August 1, 2037 to September 1, 2037  4,263,677  4,324,485 

U.S. GOVERNMENT AND AGENCY  Principal   
MORTGAGE OBLIGATIONS (10.5%)* cont.  amount  Value 

Federal National Mortgage Association     
Pass-Through Certificates     
6s, May 1, 2021  $3,753,072  $3,829,893 
6s, TBA, October 1, 2038  16,000,000  16,192,499 
5 1/2s, with due dates from     
May 1, 2037 to December 1, 2037  6,594,220  6,575,416 
5 1/2s, with due dates from     
March 1, 2020 to January 1, 2021  1,435,026  1,449,081 
5 1/2s, TBA, October 1, 2038  3,000,000  2,987,813 
5s, May 1, 2021  85,374  84,904 
4 1/2s, with due dates from     
August 1, 2033 to June 1, 2034  2,506,291  2,371,871 

    39,324,010 
 
Total U.S. government and agency mortgage obligations   
(cost $40,896,316)    $41,142,779 

PURCHASED OPTIONS OUTSTANDING (2.0%)*  Expiration date/  Contract   
  strike price  amount  Value 

Option on an interest rate swap with JPMorgan Chase Bank, N.A. for the right to       
receive a fixed rate of 5.355% versus the three month USD-LIBOR-BBA       
maturing on November 12, 2019.  Nov-09/5.355  $18,927,000  $1,336,814 

Option on an interest rate swap with Goldman Sachs International for the right to       
receive a fixed rate of 5.355% versus the three month USD-LIBOR-BBA       
maturing November 12, 2019.  Nov-09/5.355  18,927,000  1,336,814 

Option on an interest rate swap with Goldman Sachs International for the right to       
pay a fixed rate of 5.355% versus the three month USD-LIBOR-BBA       
maturing on November 12, 2019.  Nov-09/5.355  18,927,000  382,640 

Option on an interest rate swap with JPMorgan Chase Bank, N.A. for the right to       
receive a fixed rate of 4.83% versus the three month USD-LIBOR-BBA maturing on       
November 10, 2018.  Nov-08/4.83  34,218,000  1,150,751 

Option on an interest rate swap with JPMorgan Chase Bank, N.A. for the right to pay       
a fixed rate of 5.355% versus the three month USD-LIBOR-BBA maturing       
November 12, 2019.  Nov-09/5.355  18,927,000  407,498 

Option on an interest rate swap with JPMorgan Chase Bank, N.A. for the right to       
pay a fixed rate of 4.83% versus the three month USD-LIBOR-BBA maturing       
on November 10, 2018.  Nov-08/4.83  34,218,000  265,532 

Option on an interest rate swap with JPMorgan Chase Bank, N.A. for the right       
to receive a fixed rate of 5.03% versus the three month USD-LIBOR-BBA       
maturing on February 16, 2020.  Feb-10/5.03  32,120,000  1,767,564 

Option on an interest rate swap with JPMorgan Chase Bank, N.A. for the right to       
pay a fixed rate of 5.03% versus the three month USD-LIBOR-BBA maturing on       
February 16, 2020.  Feb-10/5.03  32,120,000  1,126,448 

Total purchased options outstandings (cost $6,918,548)      $7,774,061 
   

CONVERTIBLE BONDS AND NOTES (0.1%)*  Principal amount  Value 

General Cable Corp. cv. company guaranty sr. unsec. notes 1s, 2012  $444,000  $341,880 

Total convertible bonds and notes (cost $356,183)    $341,880 
 
COMMON STOCKS (—%)*  Shares  Value 

AboveNet, Inc. †  307  $17,806 

Bohai Bay Litigation, LLC (Units) F  991  14,017 

VFB LLC (acquired 10/27/00, cost $594,553) F ‡ †  948,004  19,610 

Total common stocks (cost $605,468)    $51,433 

36


CONVERTIBLE PREFERRED STOCKS (—%)*  Shares  Value 

Emmis Communications Corp. Ser. A,$3.125 cum. cv. pfd.  2,393  $40,681 

Lehman Brothers Holdings, Inc. Ser. P, 7.25% cv. pfd. (In default) †  667  667 

Total convertible preferred stocks (cost $738,520)    $41,348 
   

WARRANTS (—%)* †  Expiration date  Strike Price  Warrants  Value 

AboveNet, Inc.  9/08/10  $24.00  118  $3,658 

Dayton Superior Corp. 144A F  6/15/09  .01  1,020  1,837 

New ASAT Finance, Ltd. (Cayman Islands) F  2/01/11  .01  3,380  10 

Smurfit Kappa Group PLC 144A (Ireland)  10/01/13  EUR .001  508  11,375 

Total warrants (cost $38,587)        $16,880 
   

SHORT-TERM INVESTMENTS (7.8%)*  Principal amount/shares  Value 

Short-term investments held as collateral for loaned securities with yields ranging from 0.50%       
to 3.01% and due dates ranging from October 1, 2008 to November 10, 2008 d    $1,183,294  $1,182,030 

U.S. Treasury Bills for an effective yield of 0.199%, maturity date October 9, 2008 #    7,300,000  7,299,676 

Federated Prime Obligations Fund    21,304,670  21,304,670 

Egypt Treasury Bill for an effective yield of 10.58%, maturity date December 2, 2008  EGP  4,500,000  810,157 

Total short-term investments (cost $30,596,533)      $30,596,533 
 
TOTAL INVESTMENTS       

Total investments (cost $522,039,224)      $482,960,023 


Key to holding’s currency abbreviations

ARS  Argentine Peso 
AUD  Australian Dollar 
BRL  Brazilian Real 
CAD  Canadian Dollar 
CHF  Swiss Franc 
EGP  Egyptian Pound 
EUR  Euro 
GBP  British Pound 
INR  Indian Rupee 
JPY  Japanese Yen 
MXN  Mexican Peso 
RUB  Russian Ruble 
SEK  Swedish Krona 
TRL  Turkish Lira 
ZAR  South African Rand 

* Percentages indicated are based on net assets of $391,973,353.

  † 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.

  ‡ Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities held at September 30, 2008 was $19,610 or less than 0.1% of net assets.

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

# A portion of this security was pledged and segregated with the custodian to cover margin requirements for futures contracts at September 30, 2008.

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 September 30, 2008. Senior loans are also subject to mandatory and/or optional prepayment which cannot be predicted. As a result, the remaining maturity may be substantially less than the stated maturity shown (Notes 1 and 6).

d See Note 1 to the financial statements.

F Is valued at fair value following procedures approved by the Trustees.

R Real Estate Investment Trust.

37


S Securities on loan, in part or in entirety, at September 30, 2008.

U These securities, in part or in entirety, represent unfunded loan commitments (Note 7).

At September 30, 2008, liquid assets totaling $15,691,457 have been designated as collateral for open forward commitments, swap contracts and forward contracts.

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

TBA after the name of a security represents to be announced securities (Note 1).

The rates shown on Floating Rate Bonds (FRB) and Floating Rate Notes (FRN) are the current interest rates at September 30, 2008.

The dates shown on debt obligations are the original maturity dates.

Inverse Floating Rate Bonds (IFB) are securities that pay interest rates that vary inversely to changes in the market interest rates. As interest rates rise, inverse floaters produce less current income. The interest rates shown are the current interest rates at September 30, 2008.

DIVERSIFICATION BY COUNTRY

Distribution of investments by country of issue at September 30, 2008 (as a percentage of Portfolio Value):

United States  83.2%  Cayman Islands  0.7%  Turkey  0.2% 



Japan  4.0  Brazil  0.5  Singapore  0.1 



United Kingdom  2.6  Ireland  0.5  France  0.1 



Luxembourg  1.4  Ecuador  0.4  Jamaica  0.1 



Argentina  1.1  Mexico  0.4  Ghana  0.1 



Canada  1.0  Indonesia  0.3  Other  0.2 



Colombia  0.8  Spain  0.3  Total  100.0% 


Venezuela  0.8  Bermuda  0.3     


Netherlands  0.7  Ukraine  0.2     



FORWARD CURRENCY CONTRACTS TO BUY at 9/30/08    Aggregate  Delivery  Unrealized appreciation/ 
(aggregate face value $58,606,709)  Value  face value  date  (depreciation) 

Australian Dollar  $9,051,639  $10,474,598  10/15/08  $(1,422,959) 

Canadian Dollar  858,901  892,561  10/15/08  (33,660) 

Danish Krone  255,145  257,369  12/17/08  (2,224) 

Euro  15,527,187  15,803,520  12/17/08  (276,333) 

Japanese Yen  2,530,652  2,456,216  11/19/08  74,436 

Malaysian Ringgit  1,805,354  1,885,880  11/19/08  (80,526) 

Mexican Peso  2,506  2,553  10/15/08  (47) 

Norwegian Krone  9,407,597  9,907,661  12/17/08  (500,064) 

Polish Zloty  4,486,977  4,384,763  12/17/08  102,214 

South African Rand  1,196,652  1,342,391  10/15/08  (145,739) 

Swedish Krona  1,924,840  1,978,738  12/17/08  (53,898) 

Swiss Franc  9,157,697  9,220,459  12/17/08  (62,762) 

Total        $(2,401,562) 

FORWARD CURRENCY CONTRACTS TO SELL at 9/30/08    Aggregate  Delivery  Unrealized appreciation/ 
(aggregate face value $60,628,924)  Value  face value  date  (depreciation) 

Australian Dollar  $2,895,081  $3,002,247  10/15/08  $107,166 

British Pound  15,011,737  14,856,723  12/17/08  (155,014) 

Canadian Dollar  5,115,638  5,215,462  10/15/08  99,824 

Euro  13,173,812  13,435,764  12/17/08  261,952 

Hungarian Forint  3,557,372  3,538,549  12/17/08  (18,823) 

Japanese Yen  2,164,093  2,148,865  11/19/08  (15,228) 

Mexican Peso  1,585,329  1,646,937  10/15/08  61,608 

Norwegian Krone  12,044,751  12,261,843  12/17/08  217,092 

South African Rand  1,196,652  1,231,241  10/15/08  34,589 

Swedish Krona  3,177,113  3,277,939  12/17/08  100,826 

Swiss Franc  13,265  13,354  12/17/08  89 

Total        $694,081 

38


FUTURES CONTRACTS OUTSTANDING at 9/30/08        Unrealized 
  Number of    Expiration  appreciation/ 
  contracts  Value  date  (depreciation) 

Australian Government Treasury Bond 10 yr (Long)  2  $1,122,831  Dec-08  $3,026 

Canadian Government Bond 10 yr (Long)  6  660,733  Dec-08  (8,822) 

Euro-Bobl 5 yr (Long)  197  30,434,469  Dec-08  293,456 

Euro-Bund 10 yr (Short)  27  4,374,812  Dec-08  (100,324) 

Euro-Dollar 90 day (Long)  19  4,585,888  Dec-08  (13,022) 

Euro-Dollar 90 day (Short)  125  30,300,000  Jun-09  64,948 

Euro-Dollar 90 day (Short)  227  54,976,563  Sep-09  54,221 

Euro-Dollar 90 day (Short)  617  148,943,800  Dec-09  344,897 

Euro-Dollar 90 day (Short)  21  5,061,000  Mar-10  (4,182) 

Euro-Schatz 2 yr (Short)  217  31,894,113  Dec-08  (263,471) 

Japanese Government Bond 10 yr (Short)  17  21,991,911  Dec-08  51,941 

Sterling Interest Rate 90 day (Long)  84  17,784,223  Jun-09  39,133 

Sterling Interest Rate 90 day (Long)  59  12,501,791  Sep-09  50,357 

U.K. Gilt 10 yr (Long)  7  1,395,976  Dec-08  1,656 

U.S. Treasury Bond 20 yr (Long)  1553  181,967,922  Dec-08  252,432 

U.S. Treasury Note 2 yr (Short)  3905  833,473,438  Dec-08  (5,512,281) 

U.S. Treasury Note 5 yr (Short)  2333  261,842,797  Dec-08  (1,365,383) 

U.S. Treasury Note 10 yr (Long)  39  4,470,375  Dec-08  (38,060) 

Total        $(6,149,478) 

WRITTEN OPTIONS OUTSTANDING at 9/30/08 (premiums received $2,141,204)  Contract  Expiration date/   
  amount  strike price  Value 

Option on an interest rate swap with JPMorgan Chase Bank, N.A. for the obligation       
to pay a fixed rate of 5.00% versus the three month USD-LIBOR-BBA       
maturing on December 19, 2018.  $1,060,000  Dec-08/5.00  $50,657 

Option on an interest rate swap with JPMorgan Chase Bank, N.A. for the obligation       
to receive a fixed rate of 5.00% versus the three month USD-LIBOR-BBA       
maturing on December 19, 2018.  1,060,000  Dec-08/5.00  10,123 

Option on an interest rate swap with JPMorgan Chase Bank, N.A. for the obligation       
to pay a fixed rate of 5.51% versus the three month USD-LIBOR-BBA       
maturing on May 14, 2022.  25,011,500  May-12/5.51  1,925,886 

Option on an interest rate swap with JPMorgan Chase Bank, N.A. for the obligation       
to receive a fixed rate of 5.51% versus the three month USD-LIBOR-BBA       
maturing on May 14, 2022.  25,011,500  May-12/5.51  1,025,972 

Option on an interest rate swap with JPMorgan Chase Bank, N.A. for the obligation       
to receive a fixed rate of 4.82% versus the three month USD-LIBOR-BBA       
maturing on September 12, 2018.  1,469,000  Sept-13/4.82  55,602 

Option on an interest rate swap with JPMorgan Chase Bank, N.A. for the obligation       
to pay a fixed rate of 4.82% versus the three month USD-LIBOR-BBA       
maturing on September 12, 2018.  1,469,000  Sept-13/4.82  49,020 

Total      $3,117,260 

TBA SALE COMMITMENTS OUTSTANDING at 9/30/08 (proceeds receivable $11,189,844)  Principal  Settlement   
Agency  amount  date  Value 

FNMA, 6s, October 1, 2038  $8,000,000  10/14/08  $8,096,250 

FNMA, 5 1/2s, October 1, 2038  3,000,000  10/14/08  2,987,813 

Total      $11,084,063 

39


INTEREST RATE SWAP CONTRACTS OUTSTANDING at 9/30/08

    Upfront         
                                        premium         
Swap  Notional  received  Termination  Payments made by  Payments received by  Unrealized appreciation/ 
counterparty  amount  (paid)  date  fund per annum  fund per annum  (depreciation) 

Bank of America, N.A.          
  $4,400,000  $—  1/27/14  4.35%  3 month USD-LIBOR-BBA  $(56,126) 

  16,800,000    3/30/09  3.075%  3 month USD-LIBOR-BBA  46,512 

  32,178,000    5/23/10  3 month USD-LIBOR-BBA  3.155%  212,927 

  23,500,000    7/18/13  4.14688%  3 month USD-LIBOR-BBA  (138,106) 

  3,000,000    7/29/18  3 month USD-LIBOR-BBA  4.75%  75,315 

  12,570,000    8/26/18  3 month USD-LIBOR-BBA  4.54375%  92,476 

  20,480,000   E   8/28/28  5.3175%  3 month USD-LIBOR-BBA  (313,549) 

  5,930,000  E   9/4/28  5.2375%  3 month USD-LIBOR-BBA  (67,923) 

  215,046,000    9/10/10  3 month USD-LIBOR-BBA  3.22969%  (412,715) 

  18,200,000  E   9/17/28  3 month USD-LIBOR-BBA  4.9775%  (29,848) 

  12,570,000  E   9/18/28  3 month USD-LIBOR-BBA  4.765%  (153,103) 

  7,133,000    9/18/38  4.36125%  3 month USD-LIBOR-BBA  369,373 

  621,434,000    9/18/10  3 month USD-LIBOR-BBA  2.86667%  (5,700,700) 

  2,000,000    9/19/18  3 month USD-LIBOR-BBA  4.07%  (64,488) 

  13,250,000    9/26/38  3 month USD-LIBOR-BBA  4.725%  125,309 

  5,076,000  15,845  10/1/18  3 month USD-LIBOR-BBA  4.30%  (62,326) 

  55,642,000    9/24/09  3 month USD-LIBOR-BBA  4.7375%  829,035 

  10,000,000    9/1/15  3 month USD-LIBOR-BBA  4.53%  164,450 

  11,889,000    5/8/28  4.95%  3 month USD-LIBOR-BBA  (597,289) 

Citibank, N.A.          
JPY  1,134,000,000    9/11/16  1.8675%  6 month JPY-LIBOR-BBA  (246,486) 

  $42,130,000    9/29/13  5.078%  3 month USD-LIBOR-BBA  (1,835,298) 

  28,000,000    7/21/18  4.80625%  3 month USD-LIBOR-BBA  (835,044) 

MXN  33,510,000  F   7/18/13  1 month MXN-TIIE-BANXICO  9.175%  64,254 

MXN  10,055,000  F   7/22/13  1 month MXN-TIIE-BANXICO  9.21%  20,538 

CAD  3,400,000    8/8/18  4.119%  3 month CAD-BA-CDOR  12,842 

AUD  9,435,000  E   8/13/18  6 month AUD-BBR-BBSW  6.67%  53,300 

  $29,007,000    8/26/10  3 month USD-LIBOR-BBA  3.34125%  9,799 

ZAR  17,770,000  F   8/27/13  9.86%  3 month ZAR-JIBAR-SAFEX  (13,193) 

ZAR  8,885,000  F   9/2/13  9.97%  3 month ZAR-JIBAR-SAFEX  (11,750) 

  $3,726,000    9/8/18  3 month USD-LIBOR-BBA  4.3152%  (42,855) 

  49,031,000    9/10/10  3 month USD-LIBOR-BBA  3.1825%  (138,597) 

AUD  3,800,000  E   9/11/18  6.1%  6 month AUD-BBR-BBSW  31,569 

  $95,602,000    9/17/13  3 month USD-LIBOR-BBA  3.4975%  (2,384,799) 

  6,895,000    9/18/38  4.45155%  3 month USD-LIBOR-BBA  256,709 

  302,431,000    9/18/10  3 month USD-LIBOR-BBA  2.92486%  (2,432,285) 

EUR  8,480,000    9/25/38  6 month EUR-EURIBOR-Reuters  4.9425%  736,691 

  $24,650,000    7/27/09  5.504%  3 month USD-LIBOR-BBA  (549,090) 

  54,651,000    10/26/12  4.6275%  3 month USD-LIBOR-BBA  (2,168,024) 

  14,112,000    11/9/09  4.387%  3 month USD-LIBOR-BBA  (363,724) 

  14,501,000    11/9/17  5.0825%  3 month USD-LIBOR-BBA  (936,437) 

  37,608,000    11/23/17  4.885%  3 month USD-LIBOR-BBA  (1,826,931) 

Citibank, N.A., London          
JPY  1,300,000,000    2/10/16  6 month JPY-LIBOR-BBA  1.755%  206,851 

Credit Suisse International          
CHF  4,730,000    3/13/18  6 month CHF-LIBOR-BBA  3.3175%  69,366 

CHF  20,910,000    3/15/10  2.59%  6 month CHF-LIBOR-BBA  (237,001) 

CHF  20,910,000    3/15/10  2.6625%  6 month CHF-LIBOR-BBA  (262,083) 

CHF  4,730,000    3/14/18  6 month CHF-LIBOR-BBA  3.3%  62,486 

  $563,000    8/29/12  5.04556%  3 month USD-LIBOR-BBA  (24,265) 

EUR  6,340,000  E   8/13/28  6 month EUR-EURIBOR-Reuters  5.22%  218,631 


40


INTEREST RATE SWAP CONTRACTS OUTSTANDING at 9/30/08 cont.

    Upfront         
                                          premium         
Swap  Notional  received  Termination  Payments made by  Payments received by  Unrealized appreciation/ 
counterparty amount  (paid)  date  fund per annum  fund per annum  (depreciation) 

Credit Suisse International cont.          
  $9,550,000  E  $—  8/13/28  5.46%  3 month USD-LIBOR-BBA  $(212,679) 

  11,827,400    9/16/10  3.143%  3 month USD-LIBOR-BBA  42,991 

  9,182,600    9/16/18  4.299%  3 month USD-LIBOR-BBA  119,495 

  4,042,000    9/18/38  4.41338%  3 month USD-LIBOR-BBA  175,321 

  124,287,000    9/18/10  3 month USD-LIBOR-BBA  2.91916%  (1,013,499) 

  3,709,000    9/19/13  3.635%  3 month USD-LIBOR-BBA  72,026 

  13,961,000  F   9/23/10  3 month USD-LIBOR-BBA  3.32%  (21,088) 

SEK  37,490,000    9/29/18  4.80%  3 month SEK-STIBOR-SIDE  (64,828) 

EUR  3,880,000    9/29/18  6 month EUR-EURIBOR-Reuters  4.85%  61,979 

SEK  9,372,500    9/30/18  4.76%  3 month SEK-STIBOR-SIDE  (11,921) 

EUR  970,000    9/30/18  6 month EUR-EURIBOR-Reuters  4.81%  11,277 

  $18,615,000  F   9/23/38  4.7375%  3 month USD-LIBOR-BBA  (183,389) 

Deutsche Bank AG          
  9,268,000    9/23/38  4.75%  3 month USD-LIBOR-BBA  (91,403) 

EUR  9,268,000    9/24/38  6 month EUR-EURIBOR-Reuters  4.977%  877,977 

ZAR  12,120,000    7/6/11  3 month ZAR-JIBAR-SAFEX  9.16%  (44,965) 

  $2,307,000    10/16/17  3 month USD-LIBOR-BBA  5.297%  189,679 

  1,590,000    11/7/17  3 month USD-LIBOR-BBA  5.056%  99,174 

Goldman Sachs International          
SEK  88,030,000  E   3/2/11  3 month SEK-STIBOR-SIDE  4.2475%  (57,115) 

SEK  21,090,000  E   3/4/19  4.80%  3 month SEK-STIBOR-SIDE  (45,866) 

  $24,463,000    3/11/38  5.029%  3 month USD-LIBOR-BBA  (1,365,482) 

EUR  23,940,000    3/26/10  6 month EUR-EURIBOR-Reuters  4.129%  474,770 

GBP  19,950,000    3/29/10  6 month GBP-LIBOR-BBA  5.25%  (98,247) 

GBP  4,830,000    3/27/18  5.0675%  6 month GBP-LIBOR-BBA  805 

  $12,358,000    4/2/18  4.076%  3 month USD-LIBOR-BBA  215,009 

  30,676,000    4/3/18  3 month USD-LIBOR-BBA  4.19%  (245,455) 

CHF  31,980,000    4/5/10  2.89%  6 month CHF-LIBOR-BBA  (59,479) 

CHF  7,290,000    4/3/18  6 month CHF-LIBOR-BBA  3.42%  54,836 

  $120,229,000    4/8/10  3 month USD-LIBOR-BBA  2.64%  (526,739) 

CHF  10,190,000    4/1/10  2.9%  6 month CHF-LIBOR-BBA  (12,935) 

CHF  2,310,000    4/2/18  6 month CHF-LIBOR-BBA  3.44%  18,985 

  $13,189,000    4/23/18  4.43%  3 month USD-LIBOR-BBA  (149,779) 

  17,383,000    5/19/18  4.525%  3 month USD-LIBOR-BBA  (319,096) 

  73,300,000    3/10/10  4.779%  3 month USD-LIBOR-BBA  (1,697,230) 

JPY  3,156,260,000    5/7/10  6 month JPY-LIBOR-BBA  1.09125%  23,274 

JPY  694,380,000  E   5/7/18  2.205%  6 month JPY-LIBOR-BBA  (55,253) 

JPY  743,800,000    6/10/16  1.953%  6 month JPY-LIBOR-BBA  (222,246) 

  $80,600,000  E   3/8/12  3 month USD-LIBOR-BBA  4.99%  1,062,962 

  2,068,000    9/14/14  4.906%  3 month USD-LIBOR-BBA  (81,144) 

  1,009,000    9/14/17  5.0625%  3 month USD-LIBOR-BBA  (49,428) 

  48,973,100    9/19/09  3 month USD-LIBOR-BBA  4.763%  761,866 

  93,857,600    9/21/09  3 month USD-LIBOR-BBA  4.60%  1,266,051 

  26,170,900    9/21/17  5.149%  3 month USD-LIBOR-BBA  (1,417,319) 

GBP  1,990,000  E   1/7/38  4.33625%  6 month GBP-LIBOR-BBA  (107,149) 

JPMorgan Chase Bank, N.A.          
  $112,807,000    4/27/09  5.034%  3 month USD-LIBOR-BBA  (2,870,709) 

      2/5/18  3 month USD-LIBOR-BBA  4.28%  49,665 

  4,665,000    3/7/18  4.45%  3 month USD-LIBOR-BBA  (7,579) 

  17,121,000    3/12/18  3 month USD-LIBOR-BBA  4.4525%  30,546 

  15,289,000    3/11/38  5.0025%  3 month USD-LIBOR-BBA  (788,508) 


41


INTEREST RATE SWAP CONTRACTS OUTSTANDING at 9/30/08 cont.

    Upfront         
                                      premium         
Swap  Notional  received  Termination  Payments made by  Payments received by  Unrealized appreciation/ 
counterparty  amount  (paid)  date  fund per annum  fund per annum  (depreciation) 

JPMorgan Chase Bank, N.A. cont.          
                    $84,261,000  $—  3/14/18  4.775%  3 month USD-LIBOR-BBA  $(2,249,722) 

  35,403,000    3/20/13  3 month USD-LIBOR-BBA  3.145%  (1,241,041) 

  69,999,000    3/26/10  3 month USD-LIBOR-BBA  2.33375%  (979,894) 

  8,000,000    3/6/16  3 month USD-LIBOR-BBA  5.176%  452,547 

  26,533,000    4/8/13  3 month USD-LIBOR-BBA  3.58406%  (215,847) 

  53,631,000    5/23/10  3 month USD-LIBOR-BBA  3.16%  360,128 

  18,000,000    6/13/13  4.47%  3 month USD-LIBOR-BBA  (561,370) 

  12,060,000    10/10/13  5.054%  3 month USD-LIBOR-BBA  (726,301) 

  16,780,000    10/10/13  5.09%  3 month USD-LIBOR-BBA  (1,043,800) 

  2,000,000    6/27/18  3 month USD-LIBOR-BBA  4.8305%  79,647 

  6,423,000    7/16/10  3 month USD-LIBOR-BBA  3.384%  7,715 

  3,400,000    7/17/18  4.52%  3 month USD-LIBOR-BBA  (22,448) 

  19,148,000    7/22/10  3 month USD-LIBOR-BBA  3.565%  90,363 

MXN  33,510,000  F   7/19/13  1 month MXN-TIIE-BANXICO  9.235%  71,609 

  $49,717,000    7/28/10  3 month USD-LIBOR-BBA  3.5141%  185,601 

AUD  19,160,000  EF   8/6/18  6 month AUD-BBR-BBSW  6.865%  289,570 

CAD  6,510,000    8/5/18  4.172%  6 month CAD-BA-CDOR  (771) 

  $17,500,000  E   8/20/28  5.37%  3 month USD-LIBOR-BBA  (311,150) 

ZAR  11,390,000  F   8/27/13  9.86%  3 month ZAR-JIBAR-SAFEX  (8,456) 

AUD  9,435,000  EF   9/2/18  6.53%  6 month AUD-BBR-BBSW  (63,683) 

ZAR  5,695,000  F   9/8/13  9.95%  3 month ZAR-JIBAR-SAFEX  (7,202) 

ZAR  11,390,000  F   9/9/13  9.94%  3 month ZAR-JIBAR-SAFEX  (19,343) 

  $17,500,000  E   9/17/28  3 month USD-LIBOR-BBA  4.9675%  (37,275) 

JPY  8,737,320,000    9/18/15  6 month JPY-LIBOR-BBA  1.19%  (1,654,294) 

JPY  32,620,000    9/18/38  2.17%  6 month JPY-LIBOR-BBA  8,658 

  $17,560,000    9/23/38  4.70763%  3 month USD-LIBOR-BBA  (53,256) 

  30,000,000    6/17/15  3 month USD-LIBOR-BBA  4.5505%  884,420 

  8,700,000    8/13/12  3 month USD-LIBOR-BBA  5.2%  427,232 

  3,583,000    8/29/17  5.2925%  3 month USD-LIBOR-BBA  (238,730) 

  1,255,000    8/29/17  5.263%  3 month USD-LIBOR-BBA  (81,076) 

  19,633,000    9/11/27  5.27%  3 month USD-LIBOR-BBA  (1,515,121) 

  22,964,000    5/4/16  5.62375%  3 month USD-LIBOR-BBA  (2,325,431) 

JPY  7,460,000,000    6/6/13  1.83%  6 month JPY-LIBOR-BBA  (1,727,778) 

  $93,857,600    9/21/09  3 month USD-LIBOR-BBA  4.6125%  1,277,607 

  26,170,900    9/21/17  5.15%  3 month USD-LIBOR-BBA  (1,419,420) 

  1,540,000    9/27/17  5.2335%  3 month USD-LIBOR-BBA  (90,354) 

  58,733,000    10/30/12  4.68375%  3 month USD-LIBOR-BBA  (2,472,794) 

  890,000    11/7/17  3 month USD-LIBOR-BBA  5.05771%  55,634 

  14,112,000    11/9/09  4.3975%  3 month USD-LIBOR-BBA  (366,002) 

  14,501,000    11/9/17  5.0895%  3 month USD-LIBOR-BBA  (944,523) 

  84,001,000    11/30/17  4.705%  3 month USD-LIBOR-BBA  (2,836,562) 

  33,996,000    12/11/17  3 month USD-LIBOR-BBA  4.65%  996,910 

  16,700,000    8/4/16  3 month USD-LIBOR-BBA  5.5195%  1,360,419 

  25,100,000    9/2/15  3 month USD-LIBOR-BBA  4.4505%  292,440 

  78,868,000    1/31/18  3 month USD-LIBOR-BBA  4.25%  (1,028,335) 

Merrill Lynch Capital Services, Inc.          
  54,651,000    10/26/12  4.6165%  3 month USD-LIBOR-BBA  (2,142,516) 

  18,938,000    5/19/10  3.2925%  3 month USD-LIBOR-BBA  (171,154) 

  23,910,000    7/22/10  3 month USD-LIBOR-BBA  3.5375%  100,098 

JPY  743,800,000    6/10/16  1.99625%  6 month JPY-LIBOR-BBA  (245,208) 


42


INTEREST RATE SWAP CONTRACTS OUTSTANDING at 9/30/08 cont.

    Upfront         
                                      premium         
Swap  Notional  received  Termination  Payments made by  Payments received by  Unrealized appreciation/ 
counterparty    amount  (paid)  date  fund per annum  fund per annum  (depreciation) 

Merrill Lynch Derivative Products AG          
JPY  371,900,000  $—  6/11/17  2.05625%  6 month JPY-LIBOR-BBA  $(135,079) 

Morgan Stanley Capital Services, Inc.          
GBP  7,660,000    3/28/18  5.065%  6 month GBP-LIBOR-BBA  4,961 

GBP  31,830,000    3/29/10  6 month GBP-LIBOR-BBA  5.21%  (154,104) 

  $448,000    8/29/17  5.26021%  3 month USD-LIBOR-BBA  (28,851) 

EUR  9,871,000    8/13/18  6 month EUR-EURIBOR-Reuters  4.761%  65,029 

Total            $(44,565,747) 

E See Note 1 to the financial statements regarding extended effective dates.

F Is valued at fair value following procedures approved by the Trustees.

TOTAL RETURN SWAP CONTRACTS OUTSTANDING at 9/30/08

 
        Termi-      Unrealized 
Swap    Notional    nation  Fixed payments received (paid)  Total return received by  appreciation/ 
counterparty    amount    date  by fund per annum  or paid by fund  (depreciation) 

Bank of America, N.A. $23,496,000   1F 11/1/08  Banc of America Securities AAA 10 year  The spread return of Banc of  $(2,720,343) 
          Index multiplied by the modified duration  America Securities CMBS AAA   
          factor minus 20 bp  10 year Index   

 
Goldman Sachs International    1,345,000    9/15/11  678 bp (1 month USD-LIBOR-BBA)  Ford Credit Auto Owner Trust  1,321 
            Series 2005-B Class D   
 
  EUR  19,720,000    3/26/09  (2.27%)  Eurostat Eurozone HICP  201,621 
            excluding tobacco   
 
  EUR  9,600,000    4/30/13  2.375%  French Consumer Price Index  (149,777) 
            excluding tobacco   
 
  EUR  9,600,000    4/30/13  (2.41%)  Eurostat Eurozone HICP  172,351 
            excluding tobacco   
 
  EUR  9,600,000    5/6/13  2.34%  French Consumer Price Index  (165,868) 
            excluding tobacco   
 
  EUR  9,600,000    5/6/13  (2.385%)  Eurostat Eurozone HICP  187,496 
            excluding tobacco   
 
  GBP  5,760,000    5/9/13  3.10%  GBP Non-revised Retail Price  (123,830) 
            Index   

 
  GBP  1,433,000    F 1/7/38  3.485%  GBP Non-revised UK Retail Price  (384,775) 
            Index excluding tobacco   

 
  GBP  1,912,000    1/7/18  (3.11%)  GBP Non-revised UK Retail Price  192,303 
            Index excluding tobacco   

 
Merrill Lynch Capital Services    $68,804,968    10/14/08  (2.87%) 5.00%  FNMA 5.00% 30 YR TBA  (606,657) 

 
UBS AG    133,000,000    10/14/08  (2.87%) 5.50%  FNMA 5.50% 30 YR TBA  3,260,710 

 
Total           $(135,448) 

F Is valued at fair value following procedures approved by the Trustees.

1 Fund receives the net fixed and total return payment if positive and pays the net fixed and total return payment if negative.

43


CREDIT DEFAULT CONTRACTS OUTSTANDING at 9/30/08     Fixed payments  Unrealized 
  Upfront premium    Notional  Termination  received (paid) by  appreciation/ 
Swap counterparty / Referenced debt*                       received (paid)**    amount  date  fund per annum  (depreciation) 

Bank of America, N.A.             
Abitibibowater Inc., 6 1/2%, 6/15/13  $—    $125,000  12/20/08  550 bp  $48 

Clear Channel Communications, 5 3/4%, 1/15/13      345,000  9/20/09  635 bp  (508) 

DJ ABX NA CMBX BBB Index  138    200,000  F 10/12/52  (134 bp)  92,770 

DJ CDX NA HY Series 9 Index  10,139    5,407,380  12/20/12  (375 bp)  657,740 

Financial Security Assurance Inc.      555,000  12/20/12  95 bp  (161,118) 

Lehman Brothers Holdings, 6 5/8%, 1/18/12      1,205,000  9/20/13  269 bp  (1,017,415) 

Nalco, Co. 7.75%,11/15/11      80,000  9/20/12  350 bp  (1,241) 

Visteon Corp., 7%, 3/10/14  (127,500)    480,000  9/20/13  (500 bp)  103,802 

Barclays Bank PLC             
Peru CD      1,462,116  1/7/09  170 bp  18,574 

Peru CD      1,387,940  11/10/08  170 bp  17,123 

Bear Stearns Credit Products, Inc.             
Claire’s Stores, 9 5/8%, 6/1/15      70,000  6/20/12  230 bp  (20,757) 

Citibank, N.A.             
Abitibibowater Inc., 6 1/2%, 6/15/13      125,000  12/20/08  725 bp  604 

Abitibibowater Inc., 6 1/2%, 6/15/13      125,000  12/20/08  800 bp  841 

Abitibibowater Inc., 6 1/2%, 6/15/13      125,000  12/20/08  825 bp  922 

Advanced Micro Devices Inc., 7.75%, 11/1/12      2,155,000  3/20/09  575 bp  (130,512) 

DJ ABX HE A Index  2,450,210    3,451,000  1/25/38  369 bp  (696,705) 

DJ ABX HE AAA Index  171,737    906,388  5/25/46  11 bp  40,196 

DJ ABX HE AAA Index  717,663    3,892,880  5/25/46  11 bp  152,703 

DJ ABX HE AAA Index  600,474    2,070,600  1/25/38  76 bp  (423,024) 

DJ ABX NA HE AAA Index  105,675    977,438  7/25/45  18 bp  25,066 

DJ ABX NA HE AAA Index  355,160    4,198,033  7/25/45  18 bp  8,948 

DJ ABX NA HE AAA Index  465,426    4,223,270  7/25/45  18 bp  100,701 

DJ ABX NA HE PEN AAA Index  611,503    4,437,433  5/25/46  11 bp  (32,486) 

DJ ABX NA HE PEN AAA Index  686,668    4,197,110  5/25/46  11 bp  87,893 

Freescale Semiconductor, 8 7/8%, 12/15/14      220,000  9/20/12  495 bp  (32,930) 

Lear Corp., term loan      265,000  F 6/20/13  (225 bp)  35,232 

Lear Corp., term loan      265,000  F 6/20/13  700 bp  (5,148) 

Republic of Argentina, 8.28%, 12/31/33      330,000  F 9/20/13  (1,170 bp)  (17,559) 

Republic of Argentina, 8.28%, 12/31/33      330,000  9/20/13  (945 bp)  7,307 

Republic of Venezuela, 9 1/4%, 9/15/27      300,000  F 9/20/13  940 bp  5,561 

Sanmina-Sci Corp., 8 1/8%, 3/1/16      265,000  6/20/13  585 bp  (6,267) 

Sanmina-Sci Corp., 8 1/8%, 3/1/16      50,000  3/20/09  275 bp  (35) 

Sara Lee Corp., 6 1/8%, 11/1/32      300,000  9/20/11  (43 bp)  133 

Seat Pagine Gialle S.P.A., 8%, 4/30/14    EUR  495,000  3/20/13  815 bp  (99,703) 

Wind Acquisition 9 3/4%, 12/1/15    EUR  240,000  3/20/13  (495 bp)  8,207 

Credit Suisse First Boston International             
Ukraine Government, 7.65%, 6/11/13      $1,105,000  10/20/11  194 bp  (128,098) 

Credit Suisse International             
Advanced Micro Devices, 7 3/4%, 11/1/12      210,000  6/20/09  165 bp  (24,994) 

DJ ABX HE AAA Index  292,504    1,503,147  5/25/46  11 bp  85,849 

DJ ABX NA HE AAA Index  1,595,625    2,875,000  1/25/38  76 bp  186,875 

DJ CDX NA HY Series 10  203,700    1,940,000  6/20/13  500 bp  15,074 

DJ CDX NA HY Series 10  1,402,500    13,200,000  6/20/13  500 bp  119,064 

DJ CDX NA IG Series 10  1,356,745    65,710,000  6/20/13  155 bp  986,633 

DJ CMB NA CMBX AA Index  (17,979)    45,000  F 2/17/51  (165 bp)  (5,505) 

DJ CMB NA CMBX AA Index  (217,053)    971,000  10/12/52  (25 bp)  (36,609) 

DJ CMB NA CMBX AAA Index  154,461    928,000  12/13/49  8 bp  60,733 

DJ CMB NA CMBX AAA Index  769,810    4,914,000  2/17/51  35 bp  333,777 

DJ CMB NA CMBX AAA Index  722,002    5,583,000  2/17/51  35 bp  226,560 

DJ CMB NA CMBX AAA Index  739,618    5,583,000  2/17/51  35 bp  244,177 

DJ CMB NA CMBX AAA Index  622,000    5,583,000  2/17/51  35 bp  126,558 

DJ CMB NA CMBX AAA Index  188,449    1,396,000  2/17/51  35 bp  64,566 


44


CREDIT DEFAULT CONTRACTS OUTSTANDING at 9/30/08 cont.     Fixed payments  Unrealized 
Upfront premium    Notional  Termination  received (paid) by  appreciation/ 
Swap counterparty / Referenced debt*    received (paid)**    amount  date  fund per annum  (depreciation) 

Credit Suisse International cont.            
DJ CMB NA CMBX AAA Index  $785,303    $6,889,000  2/17/51  35 bp  $ 173,966 

DJ CMB NA CMBX AAA Index  (99,505)    1,267,000  2/17/51  (35 bp)  10,191 

DJ CMB NA CMBX AAA Index  (47,211)    633,000  2/17/51  (35 bp)  8,962 

Dynegy Holdings Inc., 6 7/8%, 4/1/11      150,000  6/20/17  297 bp  (30,157) 

Freeport-McMoRan Copper & Gold, Inc., bank term loan      600,000  3/20/12  41 bp  (6,857) 

Freeport-McMoRan Copper & Gold, Inc., bank term loan      597,100  3/20/12  (82 bp)  (970) 

Harrahs Operating Co. Inc., 5 5/8%, 6/1/15      165,000  3/20/09  600 bp  (5,014) 

MediaCom LLC/ Cap Corp., 9 1/2%, 1/15/13      95,000  9/20/13  735 bp  (1,875) 

MediaCom LLC/ Cap Corp., 9 1/2%, 1/15/13      34,000  6/20/13  725 bp  (691) 

Republic of Peru, 8 3/4%, 11/21/33      610,000  4/20/17  125 bp  (39,912) 

Deutsche Bank AG             
DJ ABX NA HE A Index  1,361,360    1,496,000  1/25/38  369 bp  814 

DJ ABX NA HE AAA Index  98,964    941,524  7/25/45  18 bp  21,317 

DJ ABX NA HE AAA Index  229,183    2,979,875  7/25/45  18 bp  (16,567) 

DJ ABX NA HE PEN AAA Index  608,711    4,437,433  5/25/46  11 bp  (31,753) 

DJ CDX NA IG Series 10  1,330,460    58,690,000  6/20/13  155 bp  999,888 

DJ CDX NA IG Series 10  1,391,413    59,270,000  6/20/13  155 bp  1,057,575 

DJ iTraxx Europe Series 8 Version 1  (57,074)  EUR  595,000  12/20/12  (375 bp)  3,665 

DJ iTraxx Europe Series 9 Version 1  164,972  EUR  2,415,000  6/20/13  (650 bp)  90,747 

General Electric Capital Corp., 6%, 6/15/12      $300,000  9/20/13  109 bp  (49,932) 

Grohe Holding GmBh, 8 5/8%, 10/1/14    EUR  140,000  6/20/09  400 bp  (931) 

Grohe Holding GmBh, 8 5/8%, 10/1/14    EUR  505,000  6/20/09  400 bp  (3,358) 

India Government Bond, 5.87%, 1/2/10      $5,800,000  F 1/11/10  170 bp  24,548 

iStar Financial, Inc., 6%, 12/15/10  26,662    395,000  3/20/09  500 bp  (15,101) 

Korea Monetary STAB Bond, 5%, 2/14/09      1,365,000  2/23/09  105 bp  2,225 

Korea Monetary STAB Bond, 5.04%, 1/24/09      1,105,000  2/2/09  130 bp  3,925 

Korea Monetary STAB Bond, 5.15%, 2/12/10      1,365,000  F 2/19/10  115 bp  4,956 

Malaysian Government, 6.844%, 10/1/09      1,684,000  10/1/09  90 bp  (1,558) 

Nalco, Co. 7.75%, 11/15/11      70,000  12/20/12  363 bp  (111) 

Republic of Argentina, 8.28%, 12/31/33      660,000  8/20/12  (380 bp)  117,078 

Republic of Brazil, 12 1/4%, 3/6/30      775,000  10/20/17  105 bp  (60,912) 

Republic of China, zero coupon, 12/5/08      2,275,000  F 12/12/08  115 bp  14,681 

Republic of Indonesia, 6.75%, 2014      575,000  9/20/16  292 bp  (35,188) 

Republic of Peru, 8 3/4%, 11/21/33      610,000  4/20/17  126 bp  (39,220) 

Republic of South Korea, 5.45%, 1/23/10      870,000  F 2/1/10  101 bp  1,712 

Republic of Turkey, 11 7/8%, 1/15/30      920,000  6/20/14  195 bp  (49,672) 

Republic of Venezuela, 9 1/4%, 9/15/27      595,000  6/20/14  220 bp  (144,603) 

Republic of Venezuela, 9 1/4%, 9/15/27      300,000  9/20/13  940 bp  6,598 

Smurfit Kappa Funding, 10 1/8%, 10/1/12    EUR  415,000  6/20/09  135 bp  (5,890) 

Smurfit Kappa Funding, 7 3/4%, 4/1/15    EUR  425,000  9/20/13  715 bp  (20,733) 

United Mexican States, 7.5%, 4/8/33      $1,495,000  3/20/14  56 bp  (68,801) 

United Mexican States, 7.5%, 4/8/33      550,000  4/20/17  66 bp  (39,409) 

Virgin Media Finance PLC, 8 3/4%, 4/15/14    EUR  400,000  9/20/13  477 bp  (37,952) 

Virgin Media Finance PLC, 8 3/4%, 4/15/14    EUR  400,000  9/20/13  535 bp  (26,163) 

Goldman Sachs International             
Advanced Micro Devices, 7 3/4%, 11/1/12      $375,000  3/20/09  515 bp  (23,761) 

Any one of the underlying securities in the basket             
of BB CMBS securities      3,768,000  a  2.461%  (625,233) 

DJ ABX HE A Index  501,237    748,000  1/25/38  369 bp  (180,853) 

DJ ABX HE AAA Index  175,796    748,000  1/25/38  76 bp  (194,385) 

DJ ABX NA HE AAA Index  111,232    1,446,259  7/25/45  18 bp  (8,041) 

DJ CDX NA CMBX AAA Index  56,692    1,550,000  3/15/49  7 bp  (60,106) 

DJ CDX NA HY Series 9 Index  1,073,890    22,314,600  12/20/12  375 bp  (1,598,562) 

DJ CDX NA HY Series 9 Index 25-35% tranche      5,840,000  F 12/20/10  429 bp  137,868 

DJ CDX NA HY Series 9 Index 25-35% tranche      2,840,000  F 12/20/10  108.65 bp  (133,217) 


45


CREDIT DEFAULT CONTRACTS OUTSTANDING at 9/30/08 cont.        Fixed payments  Unrealized 
  Upfront premium    Notional  Termination  received (paid) by  appreciation/ 
Swap counterparty / Referenced debt*  received (paid)**    amount  date  fund per annum  (depreciation) 

Goldman Sachs International cont.             
DJ CDX NA HY Series 9 Index 25-35% tranche  $—    $3,280,000  F 12/20/10  305 bp  $(12,095) 

DJ CDX NA IG Series 10 Index  92,827    4,836,000  6/20/18  (150 bp)  102,813 

DJ CDX NA IG Series 10 Index 30-100% tranche      24,127,000  F 6/20/13  (50 bp)  (34,936) 

Lehman Brothers Holdings, 6 5/8%, 1/18/12      1,205,000  9/20/17  (67.8 bp)  1,018,021 

Lighthouse International Co, SA, 8%, 4/30/14    EUR  420,000  3/20/13  680 bp  (106,000) 

Merrill Lynch & Co., 5%, 1/15/15      $1,205,000  9/20/17  (59.8 bp)  202,118 

Rhodia SA, Euribor+275, 10/15/13    EUR  205,000  9/20/13  (367 bp)  12,568 

Rhodia SA, Euribor+275, 10/15/13    EUR  170,000  9/20/13  (387 bp)  8,588 

Smurfit Kappa Funding, 7 3/4%, 4/1/15    EUR  390,000  9/20/13  720 bp  (19,353) 

Wind Acquisition 9 3/4%, 12/1/15    EUR  420,000  3/20/13  597 bp  5,397 

Wind Acquisition 9 3/4%, 12/1/15    EUR  550,000  12/20/10  (340 bp)  13,272 

JPMorgan Chase Bank, N.A.             
Codere Finance (Luxembourg) S.A., 8.25%, 6/15/15    EUR  420,000  3/20/13  795 bp  (2,210) 

DJ ABX HE AAA Index  189,164    $972,095  5/25/46  11 bp  55,519 

DJ CDX NA HY Series 9 Index 25-35% tranche      2,911,000  F 12/20/10  105.5 bp  (138,567) 

DJ CDX NA IG Series 10 Index  (18,170)    3,040,000  6/20/13  155 bp  (35,293) 

DJ CDX NA IG Series 10 Index  (2,316)    420,000  6/20/13  155 bp  (4,682) 

DJ CDX NA IG Series 9 Index, 30-100% tranche      9,440,000  F 12/20/12  (13.55 bp)  122,400 

DJ CMB NA CMBX AAA Index  (50,232)    645,000  F 2/17/51  (35 bp)  7,974 

DJ iTraxx Europe Crossover Series 8 Version 1  (224,479)  EUR  1,680,000  12/20/12  (375 bp)  (52,980) 

Freeport-McMoRan Copper & Gold, Inc., bank term loan      $1,194,100  3/20/12  (85 bp)  (3,072) 

General Growth Properties, conv. bond 3.98%, 4/15/27      1,375,000  F 9/20/13  775 bp  (289,501) 

iStar Financial, Inc., 6%, 12/15/10  26,600    380,000  3/20/09  500 bp  (13,577) 

Republic of Argentina, 8.28%, 12/31/33      705,000  6/20/14  235 bp  (196,932) 

Republic of Hungary, 4 3/4%, 2/3/15      600,000  4/20/13  (171.5 bp)  1,062 

Republic of Turkey, 11 7/8%, 1/15/30      990,000  5/20/17  230 bp  (61,713) 

Republic of Turkey, 11 7/8%, 1/15/30      730,000  5/20/17  244 bp  (47,551) 

Republic of Turkey, 11 7/8%, 1/15/30      185,000  10/20/12  154 bp  (6,869) 

Russian Federation, 7 1/2%, 3/31/30      1,605,000  5/20/17  60 bp  (220,978) 

Sanmina-Sci Corp., 8 1/8%, 3/1/16      215,000  6/20/13  595 bp  (4,309) 

Smurfit-Stone Container Enterprises, 7 1/2%, 6/1/13      125,000  3/20/13  685 bp  (6,090) 

JPMorgan Securities, Inc.             
DJ CMB NA CMBX AAA Index  1,024,075    11,918,000  F 2/17/51  35 bp  (51,425) 

Merrill Lynch Capital Services, Inc.             
Bombardier, Inc, 6 3/4%, 5/1/12      1,080,000  6/20/12  (150 bp)  11,432 

D.R. Horton Inc., 7 7/8%, 8/15/11      735,000  9/20/11  (426 bp)  8,596 

Pulte Homes Inc., 5.25%, 1/15/14      690,000  9/20/11  (482 bp)  (40,562) 

Merrill Lynch International             
Dynegy Holdings Inc., 6 7/8%, 4/1/11      150,000  6/20/17  295 bp  (30,305) 

KinderMorgan, 6 1/2%, 9/1/12      1,589,000  9/20/12  (128 bp)  16,462 

Morgan Stanley Capital Services, Inc.             
Advanced Micro Devices, 7 3/4%, 11/1/12      500,000  6/20/09  190 bp  (58,658) 

Aramark Services, Inc., 8.5%, 2/1/15      125,000  12/20/12  355 bp  (4,624) 

Bombardier, Inc, 6 3/4%, 5/1/12      545,000  6/20/12  (114 bp)  13,330 

Bundesrepublic of Deutschland, 6%, 6/20/16      2,571,000  6/20/18  8 bp  (20,594) 

DJ ABX NA CMBX AAA Index  276,884    3,890,000  3/15/49  7 bp  (20,678) 

DJ ABX NA CMBX BBB Index  50    68,790  10/12/52  (134 bp)  32,606 

DJ CDX NA HY Series 7 Index  61,321    1,290,960  12/20/09  (325 bp)  96,970 

DJ CDX NA HY Series 9 Index  66,532    1,663,300  12/20/12  375 bp  (132,669) 

DJ CDX NA IG Series 10 Index  416,060    21,356,000  6/20/18  (150 bp)  460,160 

DJ CDX NA IG Series 10 Index 30-100% tranche      43,955,000  F 6/20/13  (52 bp)  (102,635) 

DJ CDX NA IG Series 10 Index 30-100% tranche      11,855,000  F 6/20/13  (38.6 bp)  42,779 

DJ CDX NA IG Series 7 Index 10-15% tranche  52,160    1,304,000  12/20/09  0 bp  (87,798) 

DJ CMB NA CMBX AA Index  (276,753)    1,213,000  10/12/52  (25 bp)  (48,476) 

DJ CMB NA CMBX AAA Index  1,468,890    12,245,000  12/13/49  8 bp  214,909 


46


CREDIT DEFAULT CONTRACTS OUTSTANDING at 9/30/08 cont.      Fixed payments  Unrealized 
  Upfront premium  Notional  Termination  received (paid) by  appreciation/ 
Swap counterparty / Referenced debt*  received (paid)**  amount  date  fund per annum  (depreciation) 

Morgan Stanley Capital Services, Inc. cont.           
DJ CMB NA CMBX AAA Index  $3,570,928  $32,905,500  2/17/51  35 bp  $609,031 

Dominican Republic, 8 5/8%, 4/20/27    1,190,000  11/20/11  (170 bp)  47,353 

Dynegy Holdings Inc., 6 7/8%, 4/1/11    150,000  6/20/12  225 bp  (16,729) 

Freeport-McMoRan Copper & Gold, Inc., bank term loan    1,788,300  3/20/12  44 bp  (18,724) 

Freeport-McMoRan Copper & Gold, Inc., bank term loan    597,100  3/20/12  (83 bp)  (1,157) 

Nalco, Co. 7.75%, 11/15/11    80,000  9/20/12  330 bp  (1,536) 

Nalco, Co. 7.75%, 11/15/11    115,000  3/20/13  460 bp  2,181 

Republic of Austria, 5 1/4%, 1/4/11    2,571,000  6/20/18  (17 bp)  9,569 

Republic of Venezuela, 9 1/4%, 9/15/27    510,000  10/12/12  339 bp  (75,751) 

UBS, AG           
Meritage Homes Corp., 7%, 5/1/14    135,000  F 9/20/13  (760 bp)  (4,238) 

Total          $1,238,694 

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

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

a Terminating on the date on which the notional amount is reduced to zero or the date on which the assets securing the reference entity are liquidated.

F Is valued at fair value following procedures approved by the Trustees.

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

47


Statement of assets and liabilities 9/30/08

ASSETS   

Investment in securities, at value, including $1,154,151   
of securities on loan (Note 1):   
Unaffiliated issuers (identified cost $522,039,224)  $482,960,023 

Cash  8,661,625 

Foreign currency (cost $257,598) (Note 1)  239,911 

Dividends, interest and other receivables  5,585,951 

Receivable for securities sold  3,681,518 

Receivable for sales of delayed delivery securities   
(Notes 1, 6 and 7)  11,213,135 

Unrealized appreciation on swap contracts (Note 1)  29,903,574 

Receivable for variation margin (Note 1)  7,728,548 

Receivable for open forward currency contracts (Note 1)  1,128,489 

Receivable for closed forward currency contracts (Note 1)  1,732,506 

Receivable for open swap contracts (Note 1)  15,845 

Receivable for closed swap contracts (Note 1)  13,803,592 

Premium paid on swap contract (Note 1)  1,138,272 

Total assets  567,792,989 
 
LIABILITIES   

Distributions payable to shareholders  3,070,198 

Payable for securities purchased  5,749,185 

Payable for purchases of delayed delivery securities   
(Notes 1, 6 and 7)  20,086,481 

Payable for shares of the fund repurchased  5,370,074 

Payable for compensation of Manager (Notes 2 and 5)  823,533 

Payable for investor servicing fees (Note 2)  18,305 

Payable for custodian fees (Note 2)  5,901 

Payable for Trustee compensation and expenses (Note 2)  127,951 

Payable for administrative services (Note 2)  1,621 

Payable for open forward currency contracts (Note 1)  2,835,970 

Payable for closed forward currency contracts (Note 1)  3,248,317 

Payable for open swap contracts (Note 1)  1,873,803 

Payable for closed swap contracts (Note 1)  14,231,058 

Premium received on swap contracts (Note 1)  29,399,418 

Written options outstanding, at value   
(premiums received $2,141,204) (Notes 1 and 3)  3,117,260 

Unrealized depreciation on swap contracts (Note 1)  73,366,075 

Payable for receivable purchase agreement (Note 2)  169,014 

TBA sales commitments, at value   
(proceeds receivable $11,189,844) (Note 1)  11,084,063 

Collateral on securities loaned, at value (Note 1)  1,182,030 

Other accrued expenses  59,379 

Total liabilities  175,819,636 
 
Net assets  $391,973,353 


REPRESENTED BY   

Paid-in capital (Unlimited shares authorized) (Notes 1 and 4)  $585,852,423 

Undistributed net investment income (Note 1)  32,192,969 

Accumulated net realized loss on investments and   
foreign currency transactions (Note 1)  (134,913,194) 

Net unrealized depreciation of investments and   
assets and liabilities in foreign currencies  (91,158,845) 

Total — Representing net assets applicable to   
capital shares outstanding  $391,973,353 
 
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE 

Net asset value per share   
($391,973,353 divided by 66,640,509 shares)  $5.88 

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

48


Statement of operations Year ended 9/30/08

INVESTMENT INCOME   

Interest (net of foreign tax of $55,993)(including   
interest income of $800,249 from investments in   
affiliated issuers) (Note 5)  $41,754,623 

Dividends  7,553 

Securities lending  21,792 

Total investment income  41,783,968 
 
EXPENSES   

Compensation of Manager (Note 2)  3,787,224 

Investor servicing fees (Note 2)  255,594 

Custodian fees (Note 2)  95,420 

Trustee compensation and expenses (Note 2)  38,766 

Administrative services (Note 2)  25,989 

Other  664,609 

Fees waived and reimbursed by Manager (Note 5)  (15,864) 

Total expenses  4,851,738 
 
Expense reduction (Note 2)  (115,210) 

Net expenses  4,736,528 
  
Net investment income  37,047,440 

Net realized gain on investments (Notes 1 and 3)  19,653,685 

Net increase from payment by affiliate (Note 2)  179,419 

Net realized loss on swap contracts (Note 1)  (6,766,448) 

Net realized loss on futures contracts (Note 1)  (13,425,043) 

Net realized loss on foreign currency transactions (Note 1)  (3,209,081) 

Net realized gain on written options (Notes 1 and 3)  3,210,299 

Net unrealized depreciation of assets and liabilities in   
foreign currencies during the year  (1,990,850) 

Net unrealized depreciation of investments, futures   
contracts, swap contracts, written options, and TBA sale   
commitments during the year  (92,090,753) 

Net loss on investments  (94,438,772) 

Net decrease in net assets resulting from operations  $(57,391,332) 

Statement of changes in net assets

DECREASE IN NET ASSETS     
  Year ended  Year ended 
  9/30/08  9/30/07 

Operations:     

Net investment income  $37,047,440  $31,959,763 

Net realized loss on investments     
and foreign currency transactions  (357,169)  (4,719,765) 

Net unrealized appreciation (depreciation)     
of investments and assets and liabilities in     
foreign currencies  (94,081,603)  5,592,414 

Net increase (decrease) in net assets     
resulting from operations  (57,391,332)  32,832,412 

Distributions to shareholders (Note 1):     

From net investment income  (36,112,991)  (32,136,740) 

Decrease from shares repurchased (Note 4)  (93,333,036)  (86,295,031) 

Total decrease in net assets  (186,837,359)  (85,599,359) 
 
NET ASSETS     

Beginning of year  578,810,712  664,410,071 

End of year (including undistributed net     
investment income of $32,192,969 and     
$12,989,996, respectively)  $391,973,353  $578,810,712 

 
NUMBER OF FUND SHARES     

Shares outstanding at beginning of year  81,137,030  93,824,140 

Shares repurchased (Note 4)  (14,496,521)  (12,681,340) 

Retirement of shares held by the fund    (5,770) 

Shares outstanding at end of year  66,640,509  81,137,030 

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

49


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

PER-SHARE OPERATING PERFORMANCE      Year ended    

  9/30/08  9/30/07  9/30/06  9/30/05  9/30/04 
Net asset value, beginning of period  $7.13  $7.08  $7.07  $7.13  $6.99 
Investment operations:           

Net investment income a  .49 d  .36 d  .34 d  .32 d  .40 d 

Net realized and unrealized gain (loss) on investments  (1.28)  .01  (.04)  .04  .23 

Total from investment operations  (.79)  .37  .30  .36  .63 
Less distributions:           

From net investment income  (.49)  (.36)  (.35)  (.42)  (.49) 

Total distributions  (.49)  (.36)  (.35)  (.42)  (.49) 
Increase from shares repurchased  .03  .04  .06     

Net asset value, end of period  $5.88  $7.13  $7.08  $7.07  $7.13 

Market value, end of period  $5.39  $6.41  $6.15  $6.25  $6.73 

Total return at market value (%) b  (8.92)  10.15  4.17  (0.98)  12.95 

RATIOS AND SUPPLEMENTAL DATA           

Net assets, end of period (in thousands)  $391,973  $578,811  $664,410  $709,266  $715,596 

Ratio of expenses to average net assets (%) c  .96 d  .90 d  .89 d  .87 d  .86 d 

Ratio of net investment income to average net assets (%)  7.29 d  5.01 d  4.84 d  4.43 d  5.61 d 

Portfolio turnover (%)  158.75 e  77.78 e  113.12 e  165.33 e  113.46 


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

b Total return assumes dividend reinvestment.

c Includes amounts paid through expense offset arrangements (Note 2).

d Reflects waivers of certain fund expenses in connection with investments in Putnam Prime Money Market Fund during the period. As a result of such waivers, the expenses of the fund reflect a reduction of the following amounts (Note 5):

  Percentage of average net assets 
September 30, 2008  <0.01% 

September 30, 2007  0.02 

September 30, 2006  0.02 

September 30, 2005  0.02 

September 30, 2004  <0.01 


e Portfolio turnover excludes dollar roll transactions.

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

50


Notes to financial statements 9/30/08

Note 1: Significant accounting policies

Putnam Master Intermediate Income Trust (the “fund”), a Massachusetts business trust, is registered under the Investment Company Act of 1940, as amended, as a diversified, closed-end management investment company and is authorized to issue an unlimited number of shares. The fund’s investment objective is to seek, with equal emphasis, high current income and relative stability of net asset value, by allocating its investments among the U.S. investment grade sector, high-yield sector and international sector. The fund invests in higher yielding, lower rated bonds that have a higher rate of default. The fund may invest a significant portion of their assets in securitized debt instruments, including mortgage-backed and asset-backed investments. The yields and values of these investments are sensitive to changes in interest rates, the rate of principal payments on the underlying assets and the market’s perception of the issuers. The market for these investments may be volatile and limited, which may make them difficult to buy or sell.

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

The following is a summary of significant accounting policies consistently followed by the fund in the preparation of its financial statements. The preparation of financial statements is in conformity with accounting principles generally accepted in the United States of America and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.

A) Security valuation Investments for which market quotations are readily available are valued at the last reported sales price on their principal exchange, or official closing price for certain markets. If no sales are reported — as in the case of some securities traded over-the-counter — a security is valued at its last reported bid price. Market quotations are not considered to be readily available for certain debt obligations; such investments are valued on the basis of valuations furnished by an independent pricing service approved by the Trustees or dealers selected by Putnam Investment Management, LLC (“Putnam Management”), the fund’s manager, a wholly-owned subsidiary of Putnam, LLC. Such services or dealers determine valuations for normal institutional-size trading units of such securities using methods based on market transactions for comparable securities and various relationships, generally recognized by institutional traders, between securities. Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange. Accordingly, on certain days, the fund will fair value foreign equity securities taking into account multiple factors, including movements in the U.S. securities markets. The number of days on which fair value prices will be used will depend on market activity and it is possible that fair value prices will be used by the fund to a significant extent. Securities quoted in foreign currencies, if any, are 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 which 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 securities and derivatives, are also valued at fair value following procedures approved by the Trustees. Such valuations and procedures are reviewed periodically by the Trustees. Certain securities may be valued on the basis of a price provided by a single source. The fair value of securities is generally determined as the amount that the fund could reasonably expect to realize from an orderly disposition of such securities over a reasonable period of time. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and does not reflect an actual market price, which may be different by a material amount.

B) Joint trading account Pursuant to an exemptive order from the Securities and Exchange Commission (the “SEC”), the fund may transfer uninvested cash balances, including cash collateral received under security lending arrangements, into a joint trading account along with the cash of other registered investment companies and certain other accounts managed by Putnam Management. These balances may be invested in issues of short-term investments having maturities of up to 397 days for collateral received under security lending arrangements and up to 90 days for other cash investments.

C) Security transactions and related investment income Security transactions are recorded on the trade date (the date the order to buy or sell is executed). Gains or losses on securities sold are determined on the identified cost basis.

Interest income is recorded on the accrual basis. Dividend income, net of applicable withholding taxes, is recognized on the ex-dividend date except that certain dividends from foreign securities, if any, are recognized as soon as the fund is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital or capital gains, if any, are reflected as a reduction of cost and/or as a realized gain. All premiums/discounts are amortized/accreted on a yield-to-maturity basis.

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

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

D) Stripped securities The fund may invest in stripped securities which represent a participation in securities that may be structured in classes with rights to receive different portions of the interest and principal. Interest-only securities receive all of the interest and principal-only securities receive all of the principal. If the interest-only securities experience greater than anticipated prepayments of principal, the fund may fail to recoup fully its initial investment in these securities. Conversely, principal-only securities increase in value if prepayments are greater than anticipated and decline if prepayments are slower than anticipated. The market value of these securities is highly sensitive to changes in interest rates.

E) Foreign currency translation The accounting records of the fund are maintained in U.S. dollars. The market value of foreign securities, currency holdings, and other assets and liabilities is recorded in the books and records of the fund after translation to U.S. dollars based on the exchange rates on that day. The cost of each security is determined using historical exchange rates. Income and withholding taxes are translated at prevailing exchange rates when earned or incurred. The fund does not isolate that portion of realized or unrealized gains or losses resulting from changes in the foreign exchange rate on investments from fluctuations arising from changes in the market prices of the securities. Such gains and losses are included with the net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net realized exchange gains or losses on closed 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

51


contracts and assets and liabilities other than investments at the period end, resulting from changes in the exchange rate. Investments in foreign securities involve certain risks, including those related to economic instability, unfavorable political developments, and currency fluctuations, not present with domestic investments.

F) Forward currency contracts The fund may buy and sell forward currency contracts, which are agreements between two parties to buy and sell currencies at a set price on a future date. These contracts are used to protect against a decline in value relative to the U.S. dollar of the currencies in which its portfolio securities are denominated or quoted (or an increase in the value of a currency in which securities a fund intends to buy are denominated, when a fund holds cash reserves and short term investments), or for other investment purposes. The U.S. dollar value of forward currency contracts is determined using current forward currency exchange rates supplied by a quotation service. The market value of the contract will fluctuate with changes in currency exchange rates. The contract is marked to market daily and the change in market value is recorded as an unrealized gain or loss. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The fund could be exposed to risk if the value of the currency changes unfavorably, if the counterparties to the contracts are unable to meet the terms of their contracts or if the fund is unable to enter into a closing position. Risks may exceed amounts recognized on the Statement of assets and liabilities. Forward currency contracts outstanding at period end, if any, are listed after the fund’s portfolio.

G) Futures and options contracts The fund may use futures and options contracts to hedge against changes in the values of securities the fund owns, owned or expects to purchase, or for other investment purposes. The fund may also write options on swaps or securities it owns or in which it may invest to increase its current returns.

The potential risk to the fund is that the change in value of futures and options contracts may not correspond to the change in value of the hedged instruments. In addition, losses may arise from changes in the value of the underlying instruments, if there is an illiquid secondary market for the contracts, or if the counterparty to the contract is unable to perform. Risks may exceed amounts recognized on the Statement of assets and liabilities. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction to the cost of investments.

Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. The fund and the broker agree to exchange an amount of cash equal to the daily fluctuation in the value of the futures contract. Such receipts or payments are known as “variation margin.” Exchange traded options are valued at the last sale price or, if no sales are reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by dealers. Futures and written option contracts outstanding at period end, if any, are listed after the fund’s portfolio.

H) Total return swap contracts The fund may enter into total return swap contracts, which are arrangements to exchange a market linked return for a periodic payment, both based on a notional principal amount. To the extent that the total return of the security, index or other financial measure underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the fund will receive a payment from or make a payment to the counterparty. Total return swap contracts are marked to market daily based upon quotations from market makers and the change, if any, is recorded as an unrealized gain or loss. Payments received or made are recorded as realized gains or losses. Certain total return swap contracts may include extended effective dates. Payments related to these swap contracts is accrued based on the terms of the contract. The fund could be exposed to credit or market risk due to unfavorable changes in the fluctuation of interest rates or in the price of the underlying security or index, the possibility that there is no liquid market for these agreements or that the counterparty may default on its obligation to perform. Risk of loss may exceed amounts recognized on the Statement of assets and liabilities. Total return swap contracts outstanding at period end, if any, are listed after the fund’s portfolio.

I) Interest rate swap contracts The fund may enter into interest rate swap contracts, which are arrangements between two parties to exchange cash flows based on a notional principal amount, to manage the fund’s exposure to interest rates. An interest rate swap can be purchased or sold with an upfront premium. 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. Interest rate swap contracts are marked to market daily based upon quotations from an independent pricing service or market makers and the change, if any, is recorded as an unrealized gain or loss. Payments received or made are recorded as realized gains or losses. Certain interest rate swap contracts may include extended effective dates. Payments related to these swap contracts is accrued based on the terms of the contract. The fund could be exposed to credit or market risk due to unfavorable changes in the fluctuation of interest rates or if the counterparty defaults on its obligation to perform. Risk of loss may exceed amounts recognized on the Statement of assets and liabilities. Interest rate swap contracts outstanding at period end, if any, are listed after the fund’s portfolio.

J) Credit default contracts The fund may enter into credit default contracts where one party, the protection buyer, makes an upfront or periodic payment to a counterparty, the protection seller, in exchange for the right to receive a contingent payment. The maximum amount of the payment may equal the notional amount, at par, of the underlying index or security as a result of a related credit event. Payments are made upon a credit default event of the disclosed primary referenced obligation or all other equally ranked obligations of the reference entity. An upfront payment received by the fund, as the protection seller, is recorded as a liability on the fund’s books. An upfront payment made by the fund, as the protection buyer, is recorded as an asset on the fund’s books. Periodic payments received or paid by the fund are recorded as realized gains or losses. The credit default contracts are marked to market daily based upon quotations from an independent pricing service or market makers and the change, if any, is recorded as an unrealized gain or loss. Payments received or made as a result of a credit event or termination of the contract are recognized, net of a proportional amount of the upfront payment, as realized gains or losses. In addition to bearing the risk that the credit event will occur, the fund could be exposed to market risk due to unfavorable changes in interest rates or in the price of the underlying security or index, the possibility that the fund may be unable to close out its position at the same time or at the same price as if it had purchased comparable publicly traded securities or that the counterparty may default on its obligation to perform. Risks of loss may exceed amounts recognized on the Statement of assets and liabilities. Credit default contracts outstanding at period end, if any, are listed after the fund’s portfolio.

K) TBA purchase commitments The fund may enter into “TBA” (to be announced) commitments to purchase securities for a fixed unit price at a future date beyond customary settlement time. Although the unit price has been established, the principal value has not been finalized. However, the amount of the commitments will not significantly differ from the principal amount. The fund holds, and maintains until settlement date, cash or high-grade debt obligations in an amount sufficient to meet the purchase price, or the fund may enter into offsetting contracts for the forward sale of other securities it owns. Income on the securities will not be earned until settlement date. TBA purchase commitments may be considered securities themselves, and involve a risk of loss if the value of the security to be

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purchased declines prior to the settlement date, which risk is in addition to the risk of decline in the value of the fund’s other assets. Unsettled TBA purchase commitments are valued at fair value of the underlying securities, according to the procedures described under “Security valuation” above. The contract is marked to market daily and the change in market value is recorded by the fund as an unrealized gain or loss.

Although the fund will generally enter into TBA purchase commitments with the intention of acquiring securities for its portfolio or for delivery pursuant to options contracts it has entered into, the fund may dispose of a commitment prior to settlement if Putnam Management deems it appropriate to do so.

L) TBA sale commitments The fund may enter into TBA sale commitments to hedge its portfolio positions or to sell mortgage-backed securities it owns under delayed delivery arrangements. Proceeds of TBA sale commitments are not received until the contractual settlement date. During the time a TBA sale commitment is outstanding, equivalent deliverable securities or an offsetting TBA purchase commitment deliverable on or before the sale commitment date, are held as “cover” for the transaction.

Unsettled TBA sale commitments are valued at the fair value of the underlying securities, generally according to the procedures described under “Security valuation” above. The contract is marked to market daily and the change in market value is recorded by the fund as an unrealized gain or loss. If the TBA sale commitment is closed through the acquisition of an offsetting TBA purchase commitment, the fund realizes a gain or loss. If the fund delivers securities under the commitment, the fund realizes a gain or a loss from the sale of the securities based upon the unit price established at the date the commitment was entered into. TBA sale commitments outstanding at period end, if any, are listed after the fund’s portfolio.

M) Dollar rolls To enhance returns, the fund may enter into dollar rolls (principally using TBAs) in which the fund sells securities for delivery in the current month and simultaneously contracts to purchase similar securities on a specified future date. During the period between the sale and subsequent purchase, the fund will not be entitled to receive income and principal payments on the securities sold. The fund will, however, retain the difference between the initial sales price and the forward price for the future purchase. The fund will also be able to earn interest on the cash proceeds that are received from the initial sale, on settlement date. The fund may be exposed to market or credit risk if the price of the security changes unfavorably or the counterparty fails to perform under the terms of the agreement.

N) Securities lending The fund may lend securities, through its agents, to qualified borrowers in order to earn additional income. The loans are collateralized by cash and/or securities in an amount at least equal to the market value of the securities loaned. The market value of securities loaned is determined daily and any additional required collateral is allocated to the fund on the next business day. The risk of borrower default will be borne by the fund’s agents; the fund will bear the risk of loss with respect to the investment of the cash collateral. Income from securities lending is included in investment income on the Statement of operations. At September 30, 2008, the value of securities loaned amounted to $1,154,151. The fund received cash collateral of $1,182,030 which is pooled with collateral of other Putnam funds into 52 issues of short-term investments.

O) Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time and otherwise comply with the provisions of the Internal Revenue Code of 1986, 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. Therefore, no provision has been made for federal taxes on income, capital gains or unrealized appreciation on securities held nor for excise tax on income and capital gains.

At September 30, 2008 the fund had a capital loss carryover of $118,517,373 available to the extent allowed by the Code to offset future net capital gain, if any. The amount of the carryover and the expiration dates are:

Loss Carryover  Expiration 

$24,593,458  September 30, 2009 

27,431,170  September 30, 2010 

47,564,236  September 30, 2011 

7,342,291  September 30, 2015 

11,586,218  September 30, 2016 


Pursuant to federal income tax regulations applicable to regulated investment companies, the fund has elected to defer to its fiscal year ending September 30, 2009 $20,254,805 of losses recognized during the period November 1, 2007 to September 30, 2008.

P) Distributions to shareholders Distributions to shareholders from net investment income are recorded by the fund on the ex-dividend date. Distributions from capital gains, if any, are recorded on the ex-dividend date and paid at least annually. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. These differences include temporary and/or permanent differences of foreign currency gains and losses, post-October loss deferrals, the expiration of a capital loss carryover, dividends payable, unrealized gains and losses on certain futures contracts, realized gains and losses on certain futures contracts, interest only securities and swaps. Reclassifications are made to the fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. For the year ended September 30, 2008, the fund reclassified $18,268,524 to increase undistributed net investment income and $25,050,309 to decrease paid-in-capital, with an increase to accumulated net realized gains and losses of $6,781,785.

The tax basis components of distributable earnings and the federal tax cost as of September 30, 2008 were as follows:

Unrealized appreciation  $15,149,171 
Unrealized depreciation  (56,585,819) 

Net unrealized depreciation  (41,436,648) 
Undistributed ordinary income  29,459,511 
Capital loss carryforward  (118,517,373) 
Post-October loss  (20,254,805) 

Cost for federal income tax purposes  $524,396,671 

Note 2: Management fee, administrative services and
other transactions

The fund pays Putnam Management for management and investment advisory services quarterly based on the average net assets (including assets, but excluding liabilities, attributable to leverage for investment purposes) of the fund. The fee is based on the following annual rates: 0.75% of the first $500 million of average weekly assets, 0.65% of the next $500 million, 0.60% of the next $500 million and 0.55% of the next $5 billion, with additional breakpoints at higher asset levels.

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 (including assets, but excluding liabilities, attributable to leverage for investment purposes) of the portion of the fund managed by PIL.

In October 2007, Putnam Management agreed to reimburse the fund in the amount of $176,732 in connection with the misidentification in 2006 of the characteristics of certain securities in the fund’s portfolio. The reimbursement by Putnam Management had less than a 0.05% impact on total return during the period.

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Putnam Management voluntarily reimbursed the fund $2,687 for a trading error which occurred during the period. The effect of the loss incurred and the reimbursement by Putnam Management of such amounts had no impact on total return.

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.

On September 26, 2008, the fund entered into an Agreement with another registered investment company (each a “Seller”) managed by Putnam Management. Under the Agreement, the Seller sold to the fund the right to receive, in the aggregate, $655,833 in net payments from Lehman Brothers Special Financing, Inc. in connection with certain terminated derivatives transactions (the “Receivable”), in exchange for an initial payment plus (or minus) additional amounts based on the fund’s ultimate realized gain (or loss) with respect to the Receivable. The Receivable will be offset against the fund’s net payable to Lehman Brothers Special Financing, Inc. The Agreement, which is included in the Statement of assets and liabilities, is valued at fair value following procedures approved by the Trustees. All remaining payments under the Agreement will be recorded as realized gain or loss.

Custodial services for the fund’s assets were provided by Putnam Fiduciary Trust Company (“PFTC”), an affiliate of Putnam Management, and by State Street Bank and Trust Company (“State Street”). Custody fees are based on the fund’s asset level, the number of its security holdings, transaction volumes and with respect to PFTC, certain fees related to the transition of assets to State Street. Putnam Investor Services, a division of PFTC, provided investor servicing agent functions to the fund. Putnam Investor Services was paid a monthly fee for investor servicing at an annual rate of 0.05% of the fund’s average net assets. During the year ended September 30, 2008, the fund incurred $264,843 for custody and investor servicing agent functions provided by PFTC.

The fund has entered into expense offset arrangements with PFTC and State Street whereby PFTC’s and State Street’s fees are reduced by credits allowed on cash balances. For the year ended September 30, 2008, the fund’s expenses were reduced by $115,210 under the expense offset arrangements.

Each independent Trustee of the fund receives an annual Trustee fee, of which $375, as a quarterly retainer, has been allocated to the fund, and an additional fee for each Trustees meeting attended. Trustees receive additional fees for attendance at certain committee meetings and industry seminars and for certain compliance-related matters. Trustees also are reimbursed for expenses they incur relating to their services as Trustees.

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

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

Note 3: Purchases and sales of securities

During the year ended September 30, 2008, cost of purchases and proceeds from sales of investment securities other than U.S. government securities and short-term investments aggregated $785,874,039 and $847,998,479, respectively. Purchases and sales of U.S. government securities aggregated $28,436,179 and $24,740,589, respectively.

Written option transactions during the year ended September 30, 2008 are summarized as follows:

    Contract  Premiums 
    Amounts  Received 

Written options outstanding       
at beginning of period  EUR  5,440,000  $221,499 

  USD  164,259,000  5,145,074 

Options opened  EUR     

  USD  706,280,000  14,706,366 

Options exercised  EUR     

  USD     

Options expired  EUR     

  USD  398,758,000  8,086,585 

Options closed  EUR  5,440,000  221,499 

  USD  416,700,000  9,623,651 

Written options outstanding       
at end of period  EUR     

  USD  55,081,000  $2,141,204 


At September 30, 2008, Putnam, LLC owned 106 class A shares of the fund (less than 0.01% of class A shares outstanding), valued at $573.

Note 4: Share repurchase program

In September 2008, the Trustees approved the renewal of the repurchase program to allow the fund to repurchase up to 10% of its outstanding common shares over the 12-month period ending October 7, 2009 (based on shares outstanding as of October 7, 2008). Prior to this renewal, the Trustees had approved a repurchase program to allow the fund to repurchase up to 10% of its outstanding common shares over the 12 month period ending October 7, 2008 (based on shares outstanding as of October 5, 2007). Repurchases are made when the fund’s shares are trading at less than net asset value and in accordance with procedures approved by the fund’s Trustees.

For the year ended September 30, 2008, the fund repurchased 2,365,955 common shares for an aggregate purchase price of $12,786,078, which reflects a weighted-average discount from net asset value per share of 11.38%.

In April 2008, the fund repurchased 12,130,566 common shares pursuant to an issuer tender offer commenced on February 29, 2008, for up to 15% of its outstanding common shares, at $6.64 per share, for an aggregate purchase price of $80,546,958. The tender offer purchase price represented a discount of 1% from the net asset value of the fund’s common shares as of April 11, 2008.

Note 5: Investment in Putnam Prime Money Market Fund

The fund invested in Putnam Prime Money Market Fund, an open-end management investment company managed by Putnam Management. Investments in Putnam Prime Money Market Fund were valued at its closing net asset value each business day. Management fees paid by the fund were reduced by an amount equal to the management fees paid by Putnam Prime Money Market Fund with respect to assets invested by the fund in Putnam Prime Money Market Fund. For the year ended September 30, 2008, management fees paid were reduced by $15,864 relating to the fund’s investment in Putnam Prime Money Market Fund. Income distributions earned by the fund were recorded as interest income in the Statement of operations and totaled $800,249 for the year ended September 30, 2008. During the year ended September 30, 2008, cost of purchases and proceeds of sales of investments in Putnam Prime Money Market Fund aggregated $241,078,713 and $298,040,815, respectively.

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On September 17, 2008, the Trustees of the Putnam Prime Money Market Fund voted to close that fund effective September 17, 2008. On September 24, 2008 the fund received shares of Federated Prime Obligations Fund, an unaffiliated management investment company registered under the Investment Company Act of 1940, in liquidation of its shares of Putnam Prime Money Market Fund.

Note 6: Senior loan commitments

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

Note 7: Unfunded loan commitments

As of September 30, 2008, the fund had unfunded loan commitments of $619,058, which could be extended at the option of the borrower, pursuant to the following loan agreements with the following borrowers:

Borrower  Unfunded Commitments 

Community Health Systems, Inc  $30,270 

Golden Nugget, Inc.  38,788 

Manitowoc Co., Inc. (The)  370,000 

NRG Energy, Inc.  180,000 


Note 8: Regulatory matters and litigation

In late 2003 and 2004, Putnam Management settled charges brought by the Securities and Exchange Commission and the Massachusetts Securities Division in connection with excessive short-term trading in Putnam funds. Distribution of payments from Putnam Management to certain open-end Putnam funds and their shareholders is expected to be completed in the next several months. These allegations and related matters have served as the general basis for certain lawsuits, including purported class action lawsuits against Putnam Management and, in a limited number of cases, some Putnam funds. Putnam Management believes that these lawsuits will have no material adverse effect on the funds or on Putnam Management’s ability to provide investment management services. In addition, Putnam Management has agreed to bear any costs incurred by the Putnam funds as a result of these matters.

In September 2007, Putnam Management consented to an order issued by the SEC and agreed to pay a monetary penalty to the SEC relating to the omission of required information from notices sent with distributions to shareholders of your fund prior to June 2002.

Note 9: New accounting pronouncements

In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (the “Interpretation”). The Interpretation prescribes a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken by a filer in the filer’s tax return. Upon adoption, the Interpretation did not have a material effect on the fund’s financial statements. However, the conclusions regarding the Interpretation may be subject to review and adjustment at a later date based on factors including, but not limited to, further implementation guidance expected from the FASB, and on-going analysis of tax laws, regulations and interpretations thereof. Each of the fund’s federal tax returns for the prior three fiscal years remains subject to examination by the Internal Revenue Service

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (the “Standard”). The Standard defines fair value, sets out a framework for measuring fair value and expands disclosures about fair value measurements. The Standard applies to fair value measurements already required or permitted by existing standards. The Standard is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. Putnam Management does not believe the adoption of the Standard will impact the amounts reported in the financial statements; however, additional disclosures will be required about the inputs used to develop the measurements of fair value.

In March 2008, Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS 161”) —an amendment of FASB Statement No. 133, was issued and is effective for fiscal years beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about how and why an entity uses derivative instruments and how derivative instruments affect an entity’s financial position. Putnam Management is currently evaluating the impact the adoption of SFAS 161 will have on the fund’s financial statement disclosures.

In September 2008, FASB Staff Position FAS 133-1 and FIN 45-4, “Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161” (“Amendment”) was issued and is effective for annual and interim reporting periods ending after November 15, 2008. The Amendment requires enhanced disclosures regarding a fund’s credit derivatives holdings and hybrid financial instruments containing embedded credit derivatives. Management is currently evaluating the impact the adoption of the Amendment will have on the Funds’ financial statement disclosures.

Note 10: Market conditions

Recent events in the financial sector have resulted in an unusually high degree of volatility in the financial markets. The fund’s investments in the financial sector , as reflected in the fund’s schedule of investments, exposes investors to the negative (or positive) performance resulting from these events.

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Federal tax information (unaudited)

The fund designated 0.01% of ordinary income distributions as qualifying for the dividends received deduction for corporations.

For its tax year ended September 30, 2008, the fund hereby designates 0.01%, or the maximum amount allowable, of its taxable ordinary income distributions as qualified dividends taxed at the individual net capital gain rates.

The Form 1099 you receive in January 2009 will show the tax status of all distributions paid to your account in calender 2008.

Compliance certifications (unaudited)

On February 28, 2008, your fund submitted a CEO annual certification to the New York Stock Exchange (“NYSE”) on which the fund’s principal executive officer certified that he was not aware, as of that date, of any violation by the fund of the NYSE’s Corporate Governance listing standards. In addition, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and related SEC rules, the fund’s principal executive and principal financial officers have made quarterly certifications, included in filings with the SEC on Forms N-CSR and N-Q, relating to, among other things, the fund’s disclosure controls and procedures and internal control over financial reporting.

Shareholder meeting results (unaudited)

January 31, 2008 annual meeting

At the meeting, each of the nominees for Trustees was elected, as follows:

  Votes for  Votes withheld 

Jameson A. Baxter  73,616,877  2,332,146 

Charles B. Curtis  73,589,618  2,359,405 

Robert J, Darretta  73,523,937  2,425,086 

Myra R. Drucker  73,625,095  2,323,928 

John A. Hill  73,605,460  2,343,563 

Paul L. Joskow  73,573,111  2,375,912 

Elizabeth T. Kennan  73,599,542  2,349,481 

Kenneth R. Leibler  73,593,242  2,355,781 

Robert E. Patterson  73,654,056  2,294,967 

W. Thomas Stephens*  73,596,956  2,352,067 

Richard B. Worley  73,630,989  2,318,034 

Charles E. Haldeman, Jr.  73,618,165  2,330,858 

George Putnam, III  73,651,256  2,297,767 


A proposal to convert the fund to an open-end investment company was defeated as follows:

Votes for  Votes against  Abstentions  Broker Non Votes 

9,828,086  32,444,988  935,234  32, 740,715 


All tabulations are rounded to the nearest whole number.

*Mr. Stephens retired from the Board of Trustees of the Putnam funds on March 14, 2008.

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About the Trustees

Jameson A. Baxter

Born 1943, Trustee since 1994,
Vice Chairman since 2005

Ms. Baxter is the President of Baxter Associates, Inc., a private investment firm.

Ms. Baxter serves as a Director of ASHTA Chemicals, Inc., and the Mutual Fund Directors Forum. Until 2007, she was a Director of Banta Corporation (a printing and supply chain management company), Ryerson, Inc. (a metals service corporation), and Advocate Health Care. Until 2004, she was a Director of BoardSource (formerly the National Center for Nonprofit Boards); and until 2002, she was a Director of Intermatic Corporation (a manufacturer of energy control products). She is Chairman Emeritus of the Board of Trustees, Mount Holyoke College, having served as Chairman for five years.

Ms. Baxter has held various positions in investment banking and corporate finance, including Vice President of and Consultant to First Boston Corporation and Vice President and Principal of the Regency Group. She is a graduate of Mount Holyoke College.

Charles B. Curtis

Born 1940, Trustee since 2001

Mr. Curtis is President and Chief Operating Officer of the Nuclear Threat Initiative (a private foundation dealing with national security issues), and serves as Senior Advisor to the United Nations Foundation.

Mr. Curtis is a member of the Council on Foreign Relations and serves as Director of Edison International and Southern California Edison. Until 2006, Mr. Curtis served as a member of the Trustee Advisory Council of the Applied Physics Laboratory, Johns Hopkins University. Until 2003, Mr. Curtis was a member of the Electric Power Research Institute Advisory Council and the University of Chicago Board of Governors for Argonne National Laboratory. Prior to 2002, Mr. Curtis was a member of the Board of Directors of the Gas Technology Institute and the Board of Directors of the Environment and Natural Resources Program Steering Committee, John F. Kennedy School of Government, Harvard University. Until 2001, Mr. Curtis was a member of the Department of Defense Policy Board and Director of EG&G Technical Services, Inc. (a fossil energy research and development support company).

From August 1997 to December 1999, Mr. Curtis was a Partner at Hogan & Hartson LLP, an international law firm headquartered in Washington, D.C. Prior to May 1997, Mr. Curtis was Deputy Secretary of Energy and Under Secretary of the U.S. Department of Energy. He served as Chairman of the Federal Energy Regulatory Commission from 1977 to 1981 and has held positions on the staff of the U.S. House of Representatives, the U.S. Treasury Department, and the SEC.

Robert J. Darretta

Born 1946, Trustee since 2007

Mr. Darretta serves as Director of United-Health Group, a diversified health-care company.

Until April 2007, Mr. Darretta was Vice Chairman of the Board of Directors of Johnson & Johnson, one of the world’s largest and most broadly based health-care companies. Prior to 2007, he had responsibility for Johnson & Johnson’s finance, investor relations, information technology, and procurement function. He served as Johnson & Johnson Chief Financial Officer for a decade, prior to which he spent two years as Treasurer of the corporation and over ten years leading various Johnson & Johnson operating companies.

Mr. Darretta received a B.S. in Economics from Villanova University.

Myra R. Drucker

Born 1948, Trustee since 2004

Ms. Drucker is Chair of the Board of Trustees of Commonfund (a not-for-profit firm specializing in managing assets for educational endowments and foundations), Vice Chair of the Board of Trustees of Sarah Lawrence College, and a member of the Investment Committee of the Kresge Foundation (a charitable trust). She is also a Director of New York Stock Exchange LLC (a wholly-owned subsidiary of NYSE Euronext), and a Director of Interactive Data Corporation (a provider of financial market data and analytics to financial institutions and investors).

Ms. Drucker is an ex-officio member of the New York Stock Exchange (NYSE) Pension Managers Advisory Committee, having served as Chair for seven years. She serves as an advisor to RCM Capital Management (an investment management firm) and to the Employee Benefits Investment Committee of The Boeing Company (an aerospace firm).

From November 2001 until August 2004, Ms. Drucker was Managing Director and a member of the Board of Directors of General Motors Asset Management and Chief Investment Officer of General Motors Trust Bank. From December 1992 to November 2001, Ms. Drucker served as Chief Investment Officer of Xerox Corporation (a document company). Prior to December 1992, Ms. Drucker was Staff Vice President and Director of Trust Investments for International Paper (a paper and packaging company).

Ms. Drucker received a B.A. degree in Literature and Psychology from Sarah Lawrence College and pursued graduate studies in economics, statistics, and portfolio theory at Temple University.

Charles E. Haldeman, Jr.*

Born 1948, Trustee since 2004 and
President of the Funds since 2007

Mr. Haldeman is Chairman of Putnam Investment Management, LLC and President of the Putnam Funds. Prior to July 2008, he was President and Chief Executive Officer of Putnam, LLC (“Putnam Investments”) Prior to November 2003, Mr. Haldeman served as Co-Head of Putnam Investments’ Investment Division.

Prior to joining Putnam in 2002, he held executive positions in the investment management industry. He previously served as Chief Executive Officer of Delaware Investments and President and Chief Operating Officer of United Asset Management. Mr. Haldeman was also a

57


Partner and Director of Cooke & Bieler, Inc. (an investment management firm).

Mr. Haldeman currently serves on the Board of Governors of the Investment Company Institute and as Chair of the Board of Trustees of Dartmouth College. He also serves on the Partners HealthCare Investment Committee, the Tuck School of Business Overseers, and the Harvard Business School Board of Dean’s Advisors. He is a graduate of Dartmouth College, Harvard Law School, and Harvard Business School. Mr. Haldeman is also a Chartered Financial Analyst (CFA) charterholder.

John A. Hill

Born 1942, Trustee since 1985 and
Chairman since 2000

Mr. Hill is founder and Vice-Chairman of First Reserve Corporation, the leading private equity buyout firm specializing in the worldwide energy industry, with offices in Greenwich, Connecticut; Houston, Texas; London, England; and Shanghai, China. The firm’s investments on behalf of some of the nation’s largest pension and endowment funds are currently concentrated in 26 companies with annual revenues in excess of $13 billion, which employ over 100,000 people in 23 countries.

Mr. Hill is Chairman of the Board of Trustees of the Putnam Mutual Funds, a Director of Devon Energy Corporation and various private companies owned by First Reserve, and serves as a Trustee of Sarah Lawrence College where he chairs the Investment Committee.

Prior to forming First Reserve in 1983, Mr. Hill served as President of F. Eberstadt and Company, an investment banking and investment management firm. Between 1969 and 1976, Mr. Hill held various senior positions in Washington, D.C. with the federal government, including Deputy Associate Director of the Office of Management and Budget and Deputy Administrator of the Federal Energy Administration during the Ford Administration.

Born and raised in Midland, Texas, he received his B.A. in Economics from Southern Methodist University and pursued graduate studies as a Woodrow Wilson Fellow.

Paul L. Joskow

Born 1947, Trustee since 1997

Dr. Joskow is an economist and President of the Alfred P. Sloan Foundation (a philanthropic institution focused primarily on research and education on issues related to science, technology, and economic performance). He is on leave from his position as the Elizabeth and James Killian Professor of Economics and Management at the Massachusetts Institute of Technology (MIT), where he has been on the faculty since 1972. Dr. Joskow was the Director of the Center for Energy and Environmental Policy Research at MIT from 1999 through 2007.

Dr. Joskow serves as a Trustee of Yale University, as a Director of TransCanada Corporation (an energy company focused on natural gas transmission and power services) and of Exelon Corporation (an energy company focused on power services), and as a member of the Board of Overseers of the Boston Symphony Orchestra. Prior to August 2007, he served as a Director of National Grid (a UK-based holding company with interests in electric and gas transmission and distribution and telecommunications infrastructure). Prior to July 2006, he served as President of the Yale University Council and continues to serve as a member of the Council. Prior to February 2005, he served on the board of the Whitehead Institute for Biomedical Research (a non-profit research institution). Prior to February 2002, he was a Director of State Farm Indemnity Company (an automobile insurance company), and prior to March 2000, he was a Director of New England Electric System (a public utility holding company).

Dr. Joskow has published six books and numerous articles on industrial organization, government regulation of industry, and competition policy. He is active in industry restructuring, environmental, energy, competition, and privatization policies — serving as an advisor to governments and corporations worldwide. Dr. Joskow holds a Ph.D. and MPhil from Yale University and a B.A. from Cornell University.

Elizabeth T. Kennan

Born 1938, Trustee since 1992

Dr. Kennan is a Partner of Cambus-Kenneth Farm (thoroughbred horse and cattle breeding). She is President Emeritus of Mount Holyoke College.

Dr. Kennan served as Chairman and is now Lead Director of Northeast Utilities. She is a Trustee of the National Trust for Historic Preservation, of Centre College, and of Midway College in Midway, Kentucky. Until 2006, she was a member of The Trustees of Reservations. Prior to 2001, Dr. Kennan served on the oversight committee of the Folger Shakespeare Library. Prior to June 2005, she was a Director of Talbots, Inc., and she has served as Director on a number of other boards, including Bell Atlantic, Chastain Real Estate, Shawmut Bank, Berkshire Life Insurance, and Kentucky Home Life Insurance. Dr. Kennan has also served as President of Five Colleges Incorporated and as a Trustee of Notre Dame University, and is active in various educational and civic associations.

As a member of the faculty of Catholic University for twelve years, until 1978, Dr. Kennan directed the post-doctoral program in Patristic and Medieval Studies, taught history, and published numerous articles and two books. Dr. Kennan holds a Ph.D. from the University of Washington in Seattle, an M.S. from St. Hilda’s College at Oxford University, and an A.B. from Mount Holyoke College. She holds several honorary doctorates.

Kenneth R. Leibler

Born 1949, Trustee since 2006

Mr. Leibler is a founder and former Chairman of the Boston Options Exchange, an electronic marketplace for the trading of derivative securities.

Mr. Leibler currently serves as a Trustee of Beth Israel Deaconess Hospital in Boston. He is also Lead Director of Ruder Finn Group, a global communications and advertising firm, and a Director of Northeast Utilities, which operates New England’s largest energy delivery system. Prior to December 2006, he served as a Director of the Optimum Funds group. Prior to October 2006, he served as a Director of ISO New England, the

58


organization responsible for the operation of the electric generation system in the New England states. Prior to 2000, Mr. Leibler was a Director of the Investment Company Institute in Washington, D.C.

Prior to January 2005, Mr. Leibler served as Chairman and Chief Executive Officer of the Boston Stock Exchange. Prior to January 2000, he served as President and Chief Executive Officer of Liberty Financial Companies, a publicly traded diversified asset management organization. Prior to June 1990, Mr. Leibler served as President and Chief Operating Officer of the American Stock Exchange (AMEX), and at the time was the youngest person in AMEX history to hold the title of President. Prior to serving as AMEX President, he held the position of Chief Financial Officer, and headed its management and marketing operations. Mr. Leibler graduated magna cum laude with a degree in Economics from Syracuse University, where he was elected Phi Beta Kappa.

Robert E. Patterson

Born 1945, Trustee since 1984

Mr. Patterson is Senior Partner of Cabot Properties, LP and Chairman of Cabot Properties, Inc. (a private equity firm investing in commercial real estate).

Mr. Patterson serves as Chairman Emeritus and Trustee of the Joslin Diabetes Center. Prior to June 2003, he was a Trustee of Sea Education Association. Prior to December 2001, Mr. Patterson was President and Trustee of Cabot Industrial Trust (a publicly traded real estate investment trust). Prior to February 1998, he was Executive Vice President and Director of Acquisitions of Cabot Partners Limited Partnership (a registered investment adviser involved in institutional real estate investments). Prior to 1990, he served as Executive Vice President of Cabot, Cabot & Forbes Realty Advisors, Inc. (the predecessor company of Cabot Partners).

Mr. Patterson practiced law and held various positions in state government, and was the founding Executive Director of the Massachusetts Industrial Finance Agency. Mr. Patterson is a graduate of Harvard College and Harvard Law School.

George Putnam, III

Born 1951, Trustee since 1984

Mr. Putnam is Chairman of New Generation Research, Inc. (a publisher of financial advisory and other research services), and President of New Generation Advisers, Inc. (a registered investment adviser to private funds). Mr. Putnam founded the New Generation companies in 1986.

Mr. Putnam is a Director of The Boston Family Office, LLC (a registered investment adviser). He is a Trustee of St. Mark’s School and a Trustee of the Marine Biological Laboratory in Woods Hole, Massachusetts. Until 2006, he was a Trustee of Shore Country Day School, and until 2002, was a Trustee of the Sea Education Association.

Mr. Putnam previously worked as an attorney with the law firm of Dechert LLP (formerly known as Dechert Price & Rhoads) in Philadelphia. He is a graduate of Harvard College, Harvard Business School, and Harvard Law School.

Robert L. Reynolds*

Born 1952, Trustee since 2008

Mr. Reynolds is President and Chief Executive Officer of Putnam Investments, and a member of Putnam Investments’ Executive Board of Directors. He has more than 30 years of investment and financial services experience.

Prior to joining Putnam Investments in 2008, Mr. Reynolds was Vice Chairman and Chief Operating Officer of Fidelity Investments from 2000 to 2007. During this time, he served on the Board of Directors for FMR Corporation, Fidelity Investments Insurance Ltd., Fidelity Investments Canada Ltd., and Fidelity Management Trust Company. He was also a Trustee of the Fidelity Family of Funds. From 1984 to 2000, Mr. Reynolds served in a number of increasingly responsible leadership roles at Fidelity.

Mr. Reynolds serves on several not-for-profit boards, including those of the West Virginia University Foundation, Concord Museum, Dana-Farber Cancer Institute, Lahey Clinic, and Initiative for a Competitive Inner City in Boston. He is a member of the Chief Executives Club of Boston, the National Innovation Initiative, and the Council on Competitiveness.

Mr. Reynolds received a B.S. in Business Administration/Finance from West Virginia University.

Richard B. Worley

Born 1945, Trustee since 2004

Mr. Worley is Managing Partner of Permit Capital LLC, an investment management firm.

Mr. Worley serves as a Trustee of the University of Pennsylvania Medical Center, The Robert Wood Johnson Foundation (a philanthropic organization devoted to health-care issues), and the National Constitution Center. He is also a Director of The Colonial Williamsburg Foundation (a historical preservation organization), and the Philadelphia Orchestra Association. Mr. Worley also serves on the investment committees of Mount Holyoke College and World Wildlife Fund (a wildlife conservation organization).

Prior to joining Permit Capital LLC in 2002, Mr. Worley served as President, Chief Executive Officer, and Chief Investment Officer of Morgan Stanley Dean Witter Investment Management and as a Managing Director of Morgan Stanley, a financial services firm. Mr. Worley also was the Chairman of Miller Anderson & Sherrerd, an investment management firm that was acquired by Morgan Stanley in 1996.

Mr. Worley holds a B.S. degree from the University of Tennessee and pursued graduate studies in economics at the University of Texas.

The address of each Trustee is One Post Office Square, Boston, MA 02109.

As of September 30, 2008, there were 99 Putnam funds. All Trustees serve as Trustees of all Putnam funds.

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

* Trustee who is an “interested person” (as defined in the Investment Company Act of 1940) of the fund, Putnam Management, and/or Putnam Retail Management. Mr. Reynolds is President and Chief Executive Officer of Putnam Investments. Mr. Haldeman is the President of your fund and each of the other Putnam funds and Chairman of Putnam Investment Management, LLC, and prior to July 2008 was President and Chief Executive Officer of Putnam Investments.

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Officers

In addition to Charles E. Haldeman, Jr., the other officers of the fund are shown below:

Charles E. Porter (Born 1938)  James P. Pappas (Born 1953)  Wanda M. McManus (Born 1947) 
Executive Vice President, Principal Executive  Vice President  Vice President, Senior Associate Treasurer 
Officer, Associate Treasurer, and  Since 2004  and Assistant Clerk 
Compliance Liaison  Managing Director, Putnam Investments and  Since 2005 
Since 1989  Putnam Management. During 2002, Chief   
  Operating Officer, Atalanta/Sosnoff  Nancy E. Florek (Born 1957) 
Jonathan S. Horwitz (Born 1955)  Management Corporation   Vice President, Assistant Clerk, Assistant 
Senior Vice President and Treasurer    Treasurer and Proxy Manager 
Since 2004  Francis J. McNamara, III (Born 1955)  Since 2005 
Prior to 2004, Managing Director,  Vice President and Chief Legal Officer   
Putnam Investments  Since 2004   
  Senior Managing Director, Putnam   
Steven D. Krichmar (Born 1958)  Investments, Putnam Management    
Vice President and Principal Financial Officer  and Putnam Retail Management. Prior   
Since 2002  to 2004, General Counsel, State Street   
Senior Managing Director,  Research & Management Company    
Putnam Investments     
  Robert R. Leveille (Born 1969)   
Janet C. Smith (Born 1965)  Vice President and Chief Compliance Officer    
Vice President, Principal Accounting Officer  Since 2007    
and Assistant Treasurer  Managing Director, Putnam Investments,    
Since 2007  Putnam Management, and Putnam Retail    
Managing Director, Putnam Investments and  Management. Prior to 2004, member of    
Putnam Management  Bell Boyd & Lloyd LLC. Prior to 2003,   
  Vice President and Senior Counsel,     
Susan G. Malloy (Born 1957)  Liberty Funds Group LLC    
Vice President and Assistant Treasurer     
Since 2007  Mark C. Trenchard (Born 1962)    
Managing Director, Putnam Investments  Vice President and BSA Compliance Officer    
  Since 2002      
Beth S. Mazor (Born 1958)  Managing Director, Putnam Investments    
Vice President     
Since 2002  Judith Cohen (Born 1945)    
Managing Director, Putnam Investments  Vice President, Clerk and Assistant Treasurer    
  Since 1993   

The address of each Officer is One Post Office Square, Boston, MA 02109.

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Fund information

About Putnam Investments

Founded over 70 years ago, Putnam Investments was built around the concept that a balance between risk and reward is the hallmark
of a well-rounded financial program. We manage nearly 100 mutual funds in growth, value, blend, fixed income, and international.

Investment Manager  Robert E. Patterson  Mark C. Trenchard 
Putnam Investment  George Putnam, III  Vice President and BSA Compliance Officer 
Management, LLC  Robert L. Reynolds   
One Post Office Square   Richard B. Worley   Judith Cohen 
    Vice President, Clerk and Assistant Treasurer 
Investment Sub-Manager  Officers   
Putnam Investments Limited   Charles E. Haldeman, Jr.  Wanda M. McManus 
57–59 St James’s Street  President  Vice President, Senior Associate Treasurer  
London, England SW1A 1LD    and Assistant Clerk 
  Charles E. Porter    
Marketing Services  Executive Vice President, Principal  Nancy E. Florek  
Putnam Retail Management   Executive Officer, Associate Treasurer   Vice President, Assistant Clerk, Assistant   
One Post Office Square  and Compliance Liaison   Treasurer and Proxy Manager  
Boston, MA 02109     
  Jonathan S. Horwitz   
Custodian  Senior Vice President and Treasurer    
State Street Bank and Trust Company      
  Steven D. Krichmar   
Legal Counsel  Vice President and Principal Financial Officer     
Ropes & Gray LLP     
  Janet C. Smith   
Independent Registered Public   Vice President, Principal Accounting Officer    
Accounting Firm  and Assistant Treasurer   
KPMG LLP     
  Susan G. Malloy   
Trustees   Vice President and Assistant Treasurer   
John A. Hill, Chairman     
Jameson A. Baxter, Vice Chairman  Beth S. Mazor   
Charles B. Curtis   Vice President   
Robert J. Darretta  
Myra R. Drucker   James P. Pappas   
Charles E. Haldeman, Jr.  Vice President   
Paul L. Joskow      
Elizabeth T. Kennan   Francis J. McNamara, III   
Kenneth R. Leibler    Vice President and Chief Legal Officer   
 
  Robert R. Leveille   
Vice President and Chief Compliance Officer   

Call 1-800-225-1581 weekdays between 8:30 a.m. and 8:00 p.m. or on Saturday between 9:00 a.m. and 5:00 p.m. Eastern Time, or visit our Web site (www.putnam.com) anytime for up-to-date information about the fund’s NAV.




Item 2. Code of Ethics:

(a) The Fund’s principal executive, financial and accounting officers are employees of Putnam Investment Management, LLC, the Fund's investment manager. As such they are subject to a comprehensive Code of Ethics adopted and administered by Putnam Investments which is designed to protect the interests of the firm and its clients. The Fund has adopted a Code of Ethics which incorporates the Code of Ethics of Putnam Investments with respect to all of its officers and Trustees who are employees of Putnam Investment Management, LLC. For this reason, the Fund has not adopted a separate code of ethics governing its principal executive, financial and accounting officers.

(c ) In May 2008, the Code of Ethics of Putnam Investment Management, LLC was updated in its entirety to include the amendments adopted in August 2007 as well as a several additional technical, administrative and non-substantive changes.

Item 3. Audit Committee Financial Expert:

The Funds' Audit and Compliance Committee is comprised solely of Trustees who are "independent" (as such term has been defined by the Securities and Exchange Commission ("SEC") in regulations implementing Section 407 of the Sarbanes-Oxley Act (the "Regulations")). The Trustees believe that each of the members of the Audit and Compliance Committee also possess a combination of knowledge and experience with respect to financial accounting matters, as well as other attributes, that qualify them for service on the Committee. In addition, the Trustees have determined that each of Mr. Patterson, Mr. Leibler, Mr. Hill and Mr. Darretta meets the financial literacy requirements of the New York Stock Exchange's rules and qualifies as an "audit committee financial expert" (as such term has been defined by the Regulations) based on their review of his pertinent experience and education. Certain other Trustees, although not on the Audit and Compliance Committee, would also qualify as "audit committee financial experts." The SEC has stated that the designation or identification of a person as an audit committee financial expert pursuant to this Item 3 of Form N-CSR does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the Audit and Compliance Committee and the Board of Trustees in the absence of such designation or identification.

Item 4. Principal Accountant Fees and Services:

The following table presents fees billed in each of the last two fiscal years for services rendered to the fund by the fund’s independent auditor:

 
Fiscal    Audit-     
year    Audit  Related  Tax  All Other 
ended    Fees  Fees  Fees  Fees 

September 30, 2008  $89,000  $--  $6,000  $- 

September 30, 2007  $73,650  $--  $5,450  $- 


For the fiscal years ended September 30, 2008 and September 30, 2007, the fund’s independent auditor billed aggregate non-audit fees in the amounts of $74,733 and $5,450 respectively, to the fund, Putnam Management and any entity controlling, controlled by or under common control with Putnam Management that provides ongoing services to the fund.

Audit Fees represent fees billed for the fund's last two fiscal years relating to the audit and review of the financial statements included in annual reports and registration statements, and other services that are normally provided in connection with statutory and regulatory filings or engagements.


Audit-Related Fees represent fees billed in the fund’s last two fiscal years for services traditionally performed by the fund’s auditor, including accounting consultation for proposed transactions or concerning financial accounting and reporting standards and other audit or attest services not required by statute or regulation.

Tax Fees represent fees billed in the fund’s last two fiscal years for tax compliance, tax planning and tax advice services. Tax planning and tax advice services include assistance with tax audits, employee benefit plans and requests for rulings or technical advice from taxing authorities.

Pre-Approval Policies of the Audit and Compliance Committee. The Audit and Compliance Committee of the Putnam funds has determined that, as a matter of policy, all work performed for the funds by the funds’ independent auditors will be pre-approved by the Committee itself and thus will generally not be subject to pre-approval procedures.

The Audit and Compliance Committee also has adopted a policy to pre-approve the engagement by Putnam Management and certain of its affiliates of the funds’ independent auditors, even in circumstances where pre-approval is not required by applicable law. Any such requests by Putnam Management or certain of its affiliates are typically submitted in writing to the Committee and explain, among other things, the nature of the proposed engagement, the estimated fees, and why this work should be performed by that particular audit firm as opposed to another one. In reviewing such requests, the Committee considers, among other things, whether the provision of such services by the audit firm are compatible with the independence of the audit firm.

The following table presents fees billed by the fund’s independent auditor for services required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X.

Fiscal  Audit-    All  Total 
year  Related  Tax  Other  Non-Audit 
ended    Fees  Fees  Fees  Fees 

September 30, 2008  $ -  $ -  $ -  $ - 

September 30, 2007  $ -  $ -  $ -  $ - 


Item 5. Audit Committee of Listed Registrants

(a) The fund has a separately-designated Audit and Compliance Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended. The Audit and Compliance Committee of the fund's Board of Trustees is composed of the following persons:

Robert E. Patterson (Chairperson)
Robert J. Darretta
Myra R. Drucker
John A. Hill
Kenneth R. Leibler

(b) 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:

Proxy voting guidelines of the Putnam funds

The proxy voting guidelines below summarize the funds’ positions on various issues of concern to investors, and give a general indication of how fund portfolio securities will be voted on proposals dealing with particular issues. The funds’ proxy voting service is instructed to vote all proxies relating to fund portfolio securities in accordance with these guidelines, except as otherwise instructed by the Proxy Coordinator, a member of the Office of the Trustees who is appointed to assist in the coordination and voting of the funds’ proxies.

The proxy voting guidelines are just that – guidelines. The guidelines are not exhaustive and do not address all potential voting issues. Because the circumstances of individual companies are so varied, there may be instances when the funds do not vote in strict adherence to these guidelines. For example, the proxy voting service is expected to bring to the Proxy Coordinator’s attention proxy questions that are company-specific and of a non-routine nature and that, even if covered by the guidelines, may be more appropriately handled on a case-by-case basis.

Similarly, Putnam Management’s investment professionals, as part of their ongoing review and analysis of all fund portfolio holdings, are responsible for monitoring significant corporate developments, including proxy proposals submitted to shareholders, and notifying the Proxy Coordinator of circumstances where the interests of fund shareholders may warrant a vote contrary to these guidelines. In such instances, the investment professionals submit a written recommendation to the Proxy Coordinator and the person or persons designated by Putnam Management’s Legal and Compliance Department to assist in processing referral items under the funds’ “Proxy Voting Procedures.” The Proxy Coordinator, in consultation with the funds’ Senior Vice President, Executive Vice President, and/or the Chair of the Board Policy and Nominating Committee, as appropriate, will determine how the funds’ proxies will be voted. When indicated, the Chair of the Board Policy and Nominating Committee may consult with other members of the Committee or the full Board of Trustees.

The following guidelines are grouped according to the types of proposals generally presented to shareholders. Part I deals with proposals submitted by management and approved and recommended by a company’s board of directors. Part II deals with proposals submitted by shareholders. Part III addresses unique considerations pertaining to non-U.S. issuers.

The Trustees of the Putnam funds are committed to promoting strong corporate governance practices and encouraging corporate actions that enhance shareholder value through the judicious voting of the funds’ proxies. It is the funds’ policy to vote their proxies at all shareholder meetings where it is practicable to do so. In furtherance of this,


the funds’ have requested that their securities lending agent recall each domestic issuer’s voting securities that are on loan, in advance of the record date for the issuer’s shareholder meetings, so that the funds may vote at the meetings.

The Putnam funds will disclose their proxy votes not later than August 31 of each year for the most recent 12-month period ended June 30, in accordance with the timetable established by SEC rules.

I. BOARD-APPROVED PROPOSALS

The vast majority of matters presented to shareholders for a vote involve proposals made by a company itself (sometimes referred to as “management proposals”), which have been approved and recommended by its board of directors. In view of the enhanced corporate governance practices currently being implemented in public companies and of the funds’ intent to hold corporate boards accountable for their actions in promoting shareholder interests, the funds’ proxies generally will be voted for the decisions reached by majority independent boards of directors, except as otherwise indicated in these guidelines. Accordingly, the funds’ proxies will be voted for board-approved proposals, except as follows:

Matters relating to the Board of Directors

Uncontested Election of Directors

The funds’ proxies will be voted for the election of a company’s nominees for the board of directors, except as follows:

The funds will withhold votes for the entire board of directors if

the board does not have a majority of independent directors,

the board has not established independent nominating, audit, and compensation committees,

the board has more than 19 members or fewer than five members, absent special circumstances,

the board has not acted to implement a policy requested in a shareholder proposal that received the support of a majority of the shares of the company cast at its previous two annual meetings, or

the board has adopted or renewed a shareholder rights plan (commonly referred to as a “poison pill”) without shareholder approval during the current or prior calendar year.


The funds will on a case-by-case basis withhold votes from the entire board of directors, or from particular directors as may be appropriate, if the board has approved compensation arrangements for one or more company executives that the funds determine are unreasonably excessive relative to the company’s performance.

The funds will withhold votes for any nominee for director:

who is considered an independent director by the company and who has received compensation from the company other than for service as a director (e.g., investment banking, consulting, legal, or financial advisory fees),

who attends less than 75% of board and committee meetings without valid reasons for the absences (e.g., illness, personal emergency, etc.),

of a public company (Company A) who is employed as a senior executive of another company (Company B), if a director of Company B serves as a senior executive of Company A (commonly referred to as an “interlocking directorate”), or

who serves on more than five unaffiliated public company boards (for the purpose of this guideline, boards of affiliated registered investment companies will count as one board).

Commentary:

Board independence: Unless otherwise indicated, for the purposes of determining whether a board has a majority of independent directors and independent nominating, audit, and compensation committees, an “independent director” is a director who (1) meets all requirements to serve as an independent director of a company under the NYSE Corporate Governance Rules (e.g., no material business relationships with the company and no present or recent employment relationship with the company including employment of an immediate family member as an executive officer), and (2) has not accepted directly or indirectly any consulting, advisory, or other compensatory fee from the company other than in his or her capacity as a member of the board of directors or any board committee. The funds’ Trustees believe that the receipt of any amount of compensation for services other than service as a director raises significant independence issues.

Board size: The funds’ Trustees believe that the size of the board of directors can have a direct impact on the ability of the board to govern effectively. Boards that have too many members can be unwieldy and ultimately inhibit their ability to oversee management performance. Boards that have too few members can stifle innovation and lead to excessive influence by management.

Time commitment: Being a director of a company requires a significant time commitment to adequately prepare for and attend the company’s board and committee meetings. Directors must be able to commit the time and attention necessary to perform their fiduciary duties in proper fashion, particularly in times of crisis. The funds’


Trustees are concerned about over-committed directors. In some cases, directors may serve on too many boards to make a meaningful contribution. This may be particularly true for senior executives of public companies (or other directors with substantially full-time employment) who serve on more than a few outside boards. The funds may withhold votes from such directors on a case-by-case basis where it appears that they may be unable to discharge their duties properly because of excessive commitments.

Interlocking directorships: The funds’ Trustees believe that interlocking directorships are inconsistent with the degree of independence required for outside directors of public companies.

Corporate governance practices: Board independence depends not only on its members’ individual relationships, but also on the board’s overall attitude toward management. Independent boards are committed to good corporate governance practices and, by providing objective independent judgment, enhancing shareholder value. The funds may withhold votes on a case-by-case basis from some or all directors who, through their lack of independence or otherwise, have failed to observe good corporate governance practices or, through specific corporate action, have demonstrated a disregard for the interests of shareholders. Such instances may include cases where a board of directors has approved compensation arrangements for one or more members of management that, in the judgment of the funds’ Trustees, are excessive by reasonable corporate standards relative to the company’s record of performance.

Contested Elections of Directors

The funds will vote on a case-by-case basis in contested elections of directors.

Classified Boards

The funds will vote against proposals to classify a board, absent special circumstances indicating that shareholder interests would be better served by this structure.

Commentary: Under a typical classified board structure, the directors are divided into three classes, with each class serving a three-year term. The classified board structure results in directors serving staggered terms, with usually only a third of the directors up for re-election at any given annual meeting. The funds’ Trustees generally believe that it is appropriate for directors to stand for election each year, but recognize that, in special circumstances, shareholder interests may be better served under a classified board structure.

Other Board-Related Proposals

The funds will generally vote for proposals that have been approved by a majority independent board, and on a case-by-case basis on proposals that have been approved by a board that fails to meet the guidelines’ basic independence standards (i.e., majority of independent directors and independent nominating, audit, and compensation committees).


Executive Compensation

The funds generally favor compensation programs that relate executive compensation to a company’s long-term performance. The funds will vote on a case-by-case basis on board-approved proposals relating to executive compensation, except as follows:

Except where the funds are otherwise withholding votes for the entire board of directors, the funds will vote for stock option and restricted stock plans that will result in an average annual dilution of 1.67% or less (based on the disclosed term of the plan and including all equity-based plans).

The funds will vote against stock option and restricted stock plans that will result in an average annual dilution of greater than 1.67% (based on the disclosed term of the plan and including all equity-based plans).

The funds will vote against any stock option or restricted stock plan where the company’s actual grants of stock options and restricted stock under all equity-based compensation plans during the prior three (3) fiscal years have resulted in an average annual dilution of greater than 1.67% .

The funds will vote against stock option plans that permit the replacing or repricing of underwater options (and against any proposal to authorize such replacement or repricing of underwater options).

The funds will vote against stock option plans that permit issuance of options with an exercise price below the stock’s current market price.

Except where the funds are otherwise withholding votes for the entire board of directors, the funds will vote for an employee stock purchase plan that has the following features: (1) the shares purchased under the plan are acquired for no less than 85% of their market value; (2) the offering period under the plan is 27 months or less; and (3) dilution is 10% or less.

Commentary: Companies should have compensation programs that are reasonable and that align shareholder and management interests over the longer term. Further, disclosure of compensation programs should provide absolute transparency to shareholders regarding the sources and amounts of, and the factors influencing, executive compensation. Appropriately designed equity-based compensation plans can be an effective way to align the interests of long-term shareholders with the interests of management. The funds may vote against executive compensation proposals on a case-by-case basis where compensation is excessive by reasonable corporate standards, or where a company fails to provide transparent disclosure of executive compensation. In voting on a proposal relating to executive compensation, the funds will consider whether the proposal has been approved by an independent compensation committee of the board.


Capitalization

Many proxy proposals involve changes in a company’s capitalization, including the authorization of additional stock, the issuance of stock, the repurchase of outstanding stock, or the approval of a stock split. The management of a company’s capital structure involves a number of important issues, including cash flow, financing needs, and market conditions that are unique to the circumstances of the company. As a result, the funds will vote on a case-by-case basis on board-approved proposals involving changes to a company’s capitalization, except that where the funds are not otherwise withholding votes from the entire board of directors:

The funds will vote for proposals relating to the authorization and issuance of additional common stock (except where such proposals relate to a specific transaction).

The funds will vote for proposals to effect stock splits (excluding reverse stock splits).

The funds will vote for proposals authorizing share repurchase programs.

Commentary: A company may decide to authorize additional shares of common stock for reasons relating to executive compensation or for routine business purposes. For the most part, these decisions are best left to the board of directors and senior management. The funds will vote on a case-by-case basis, however, on other proposals to change a company’s capitalization, including the authorization of common stock with special voting rights, the authorization or issuance of common stock in connection with a specific transaction (e.g., an acquisition, merger or reorganization), or the authorization or issuance of preferred stock. Actions such as these involve a number of considerations that may affect a shareholder’s investment and that warrant a case-by-case determination.

Acquisitions, Mergers, Reincorporations, Reorganizations and Other Transactions

Shareholders may be confronted with a number of different types of transactions, including acquisitions, mergers, reorganizations involving business combinations, liquidations, and the sale of all or substantially all of a company’s assets, which may require their consent. Voting on such proposals involves considerations unique to each transaction. As a result, the funds will vote on a case-by-case basis on board-approved proposals to effect these types of transactions, except as follows:

The funds will vote for mergers and reorganizations involving business combinations designed solely to reincorporate a company in Delaware.

Commentary: A company may reincorporate into another state through a merger or reorganization by setting up a “shell” company in a different state and then merging the company into the new company. While reincorporation into states with extensive and established corporate laws – notably Delaware – provides companies and shareholders with a more well-defined legal framework, shareholders must carefully consider the


reasons for a reincorporation into another jurisdiction, including especially an offshore jurisdiction.

Anti-Takeover Measures

Some proxy proposals involve efforts by management to make it more difficult for an outside party to take control of the company without the approval of the company’s board of directors. These include the adoption of a shareholder rights plan, requiring supermajority voting on particular issues, the adoption of fair price provisions, the issuance of blank check preferred stock, and the creation of a separate class of stock with disparate voting rights. Such proposals may adversely affect shareholder rights, lead to management entrenchment, or create conflicts of interest. As a result, the funds will vote against board-approved proposals to adopt such anti-takeover measures, except as follows:

The funds will vote on a case-by-case basis on proposals to ratify or approve shareholder rights plans; and

The funds will vote on a case-by-case basis on proposals to adopt fair price provisions.

Commentary: The funds’ Trustees recognize that poison pills and fair price provisions may enhance shareholder value under certain circumstances. As a result, the funds will consider proposals to approve such matters on a case-by-case basis.

Other Business Matters

Many proxies involve approval of routine business matters, such as changing a company’s name, ratifying the appointment of auditors, and procedural matters relating to the shareholder meeting. For the most part, these routine matters do not materially affect shareholder interests and are best left to the board of directors and senior management of the company. The funds will vote for board-approved proposals approving such matters, except as follows:

The funds will vote on a case-by-case basis on proposals to amend a company’s charter or bylaws (except for charter amendments necessary to effect stock splits, to change a company’s name or to authorize additional shares of common stock).

The funds will vote against authorization to transact other unidentified, substantive business at the meeting.

The funds will vote on a case-by-case basis on proposals to ratify the selection of independent auditors if there is evidence that the audit firm’s independence or the integrity of an audit is compromised.

The funds will vote on a case-by-case basis on other business matters where the funds are otherwise withholding votes for the entire board of directors.


Commentary: Charter and bylaw amendments and the transaction of other unidentified, substantive business at a shareholder meeting may directly affect shareholder rights and have a significant impact on shareholder value. As a result, the funds do not view these items as routine business matters. Putnam Management’s investment professionals and the funds’ proxy voting service may also bring to the Proxy Coordinator’s attention company-specific items that they believe to be non-routine and warranting special consideration. Under these circumstances, the funds will vote on a case-by-case basis.

The fund’s proxy voting service may identify circumstances that call into question an audit firm’s independence or the integrity of an audit. These circumstances may include recent material restatements of financials, unusual audit fees, egregious contractual relationships, and aggressive accounting policies. The funds will consider proposals to ratify the selection of auditors in these circumstances on a case-by-case basis. In all other cases, given the existence of rules that enhance the independence of audit committees and auditors by, for example, prohibiting auditors from performing a range of non-audit services for audit clients, the funds will vote for the ratification of independent auditors.

II. SHAREHOLDER PROPOSALS

SEC regulations permit shareholders to submit proposals for inclusion in a company’s proxy statement. These proposals generally seek to change some aspect of the company’s corporate governance structure or to change some aspect of its business operations. The funds generally will vote in accordance with the recommendation of the company’s board of directors on all shareholder proposals, except as follows:

The funds will vote for shareholder proposals to declassify a board, absent special circumstances which would indicate that shareholder interests are better served by a classified board structure.

The funds will vote for shareholder proposals to require shareholder approval of shareholder rights plans.

The funds will vote for shareholder proposals requiring companies to make cash payments under management severance agreements only if both of the following conditions are met:

the company undergoes a change in control, and

the change in control results in the termination of employment for the person receiving the severance payment.

The funds will vote on a case-by-case basis on shareholder proposals requiring companies to accelerate vesting of equity awards under management severance agreements only if both of the following conditions are met:

the company undergoes a change in control, and


the change in control results in the termination of employment for the person receiving the severance payment.

The funds will vote on a case-by-case basis on shareholder proposals to limit a company’s ability to make excise tax gross-up payments under management severance agreements.

The funds will vote on a case-by-case basis on shareholder proposals requesting that the board adopt a policy to recoup, in the event of a significant restatement of financial results or significant extraordinary write-off, to the fullest extent practicable, for the benefit of the company, all performance-based bonuses or awards that were paid to senior executives based on the company having met or exceeded specific performance targets to the extent that the specific performance targets were not, in fact, met.

The funds will vote for shareholder proposals requiring a company to report on its executive retirement benefits (e.g., deferred compensation, split-dollar life insurance, SERPs and pension benefits).

The funds will vote for shareholder proposals requiring a company to disclose its relationships with executive compensation consultants (e.g., whether the company, the board or the compensation committee retained the consultant, the types of services provided by the consultant over the past five years, and a list of the consultant’s clients on which any of the company’s executives serve as a director).

The funds will vote for shareholder proposals that are consistent with the funds’ proxy voting guidelines for board-approved proposals.

The funds will vote on a case-by-case basis on other shareholder proposals where the funds are otherwise withholding votes for the entire board of directors.

Commentary: In light of the substantial reforms in corporate governance that are currently underway, the funds’ Trustees believe that effective corporate reforms should be promoted by holding boards of directors – and in particular their independent directors – accountable for their actions, rather than by imposing additional legal restrictions on board governance through piecemeal proposals. Generally speaking, shareholder proposals relating to business operations are often motivated primarily by political or social concerns, rather than the interests of shareholders as investors in an economic enterprise. As stated above, the funds’ Trustees believe that boards of directors and management are responsible for ensuring that their businesses are operating in accordance with high legal and ethical standards and should be held accountable for resulting corporate behavior. Accordingly, the funds will generally support the recommendations of boards that meet the basic independence and governance standards established in these guidelines. Where boards fail to meet these standards, the funds will generally evaluate shareholder proposals on a case-by-case basis.


However, the funds generally support shareholder proposals to declassify a board or to require shareholder approval of shareholder rights plans The funds’ Trustees believe that these shareholder proposals further the goals of reducing management entrenchment and conflicts of interest, and aligning management’s interests with shareholders’ interests in evaluating proposed acquisitions of the company. The Trustees also believe that shareholder proposals to limit severance payments may further these goals in some instances. In general, the funds favor arrangements in which severance payments are made to an executive only when there is a change in control and the executive loses his or her job as a result. Arrangements in which an executive receives a payment upon a change of control even if the executive retains employment introduce potential conflicts of interest and may distract management focus from the long term success of the company.

In evaluating shareholder proposals that address severance payments, the funds distinguish between cash and equity payments. The funds generally do not favor cash payments to executives upon a change in control transaction if the executive retains employment. However, the funds recognize that accelerated vesting of equity incentives, even without termination of employment, may help to align management and shareholder interests in some instances, and will evaluate shareholder proposals addressing accelerated vesting of equity incentive payments on a case-by-case basis.

When severance payments exceed a certain amount based on the executive’s previous compensation, the payments may be subject to an excise tax. Some compensation arrangements provide for full excise tax gross-ups, which means that the company pays the executive sufficient additional amounts to cover the cost of the excise tax. The funds are concerned that the benefits of providing full excise tax gross-ups to executives may be outweighed by the cost to the company of the gross-up payments. Accordingly, the funds will vote on a case-by-case basis on shareholder proposals to curtail excise tax gross-up payments. The funds generally favor arrangements in which severance payments do not trigger an excise tax or in which the company’s obligations with respect to gross-up payments are limited in a reasonable manner.

The funds’ Trustees will also consider whether a company’s severance payment arrangements, taking all of the pertinent circumstances into account, constitute excessive compensation.

The funds’ Trustees believe that performance-based compensation can be an effective tool for aligning management and shareholder interests. However, to fulfill its purpose, performance compensation should only be paid to executives if the performance targets are actually met. A significant restatement of financial results or a significant extraordinary write-off may reveal that executives who were previously paid performance compensation did not actually deliver the required business performance to earn that compensation. In these circumstances, it may be appropriate for the company to recoup this performance compensation. The fund will consider on a case by case basis shareholder proposals requesting that the board adopt a policy to recoup, in the event of a significant restatement of financial results or significant extraordinary write-off, performance-based bonuses or awards paid to senior executives based on the company


having met or exceeded specific performance targets to the extent that the specific performance targets were not, in fact, met. The fund does not believe that such a policy should necessarily disadvantage a company in recruiting executives, as executives should understand that they are only entitled to performance compensation based on the actual performance they deliver.

The funds’ Trustees also believe that shareholder proposals that are intended to increase transparency, particularly with respect to executive compensation, without establishing rigid restrictions upon a company’s ability to attract and motivate talented executives, are generally beneficial to sound corporate governance without imposing undue burdens. The funds will generally support shareholder proposals calling for reasonable disclosure.

III. VOTING SHARES OF NON-U.S. ISSUERS

Many of the Putnam funds invest on a global basis, and, as a result, they may hold, and have an opportunity to vote, shares in non-U.S. issuers – i.e., issuers that are incorporated under the laws of foreign jurisdictions and whose shares are not listed on a U.S. securities exchange or the NASDAQ stock market.

In many non-U.S. markets, shareholders who vote proxies of a non-U.S. issuer are not able to trade in that company’s stock on or around the shareholder meeting date. This practice is known as “share blocking.” In countries where share blocking is practiced, the funds will vote proxies only with direction from Putnam Management’s investment professionals.

In addition, some non-U.S. markets require that a company’s shares be re-registered out of the name of the local custodian or nominee into the name of the shareholder for the shareholder to be able to vote at the meeting. This practice is known as “share reregistration.” As a result, shareholders, including the funds, are not able to trade in that company’s stock until the shares are re-registered back in the name of the local custodian or nominee following the meeting. In countries where share re-registration is practiced, the funds will generally not vote proxies.

Protection for shareholders of non-U.S. issuers may vary significantly from jurisdiction to jurisdiction. Laws governing non-U.S. issuers may, in some cases, provide substantially less protection for shareholders than do U.S. laws. As a result, the guidelines applicable to U.S. issuers, which are premised on the existence of a sound corporate governance and disclosure framework, may not be appropriate under some circumstances for non-U.S. issuers. However, the funds will vote proxies of non-U.S. issuers in accordance with the guidelines applicable to U.S. issuers, except as follows:

Uncontested Election of Directors

Germany

For companies subject to “co-determination,” the funds will vote on a case by-case basis for the election of nominees to the supervisory board.


The funds will withhold votes for the election of a former member of the company’s managerial board to chair of the supervisory board.

Commentary: German corporate governance is characterized by a two-tier board system—a managerial board composed of the company’s executive officers, and a supervisory board. The supervisory board appoints the members of the managerial board. Shareholders elect members of the supervisory board, except that in the case of companies with more than 2,000 employees, company employees are allowed to elect half of the supervisory board members. This “co-determination” practice may increase the chances that the supervisory board of a large German company does not contain a majority of independent members. In this situation, under the Fund’s proxy voting guidelines applicable to U.S. issuers, the funds would vote against all nominees. However, in the case of companies subject to “co-determination,” the Funds will vote for supervisory board members on a case-by-case basis, so that the funds can support independent nominees.

Consistent with the funds’ belief that the interests of shareholders are best protected by boards with strong, independent leadership, the funds will withhold votes for the election of former chairs of the managerial board to chair of the supervisory board.

Japan

For companies that have established a U.S.-style corporate governance structure, the funds will withhold votes for the entire board of directors if

the board does not have a majority of outside directors,

the board has not established nominating and compensation committees composed of a majority of outside directors, or

the board has not established an audit committee composed of a majority of independent directors.

The funds will withhold votes for the appointment of members of a company’s board of statutory auditors if a majority of the members of the board of statutory auditors is not independent.

Commentary:

Board structure: Recent amendments to the Japanese Commercial Code give companies the option to adopt a U.S.-style corporate governance structure (i.e., a board of directors and audit, nominating, and compensation committees). The funds will vote for proposals to amend a company’s articles of incorporation to adopt the U.S.-style corporate structure.

Definition of outside director and independent director: Corporate governance principles in Japan focus on the distinction between outside directors and independent directors. Under these principles, an outside director is a director who is not and has


never been a director, executive, or employee of the company or its parent company, subsidiaries or affiliates. An outside director is “independent” if that person can make decisions completely independent from the managers of the company, its parent, subsidiaries, or affiliates and does not have a material relationship with the company (i.e., major client, trading partner, or other business relationship; familial relationship with current director or executive; etc.). The guidelines have incorporated these definitions in applying the board independence standards above.

Korea

The funds will withhold votes for the entire board of directors if

the board does not have a majority of outside directors,

the board has not established a nominating committee composed of at least a majority of outside directors, or

the board has not established an audit committee composed of at least three members and in which at least two-thirds of its members are outside directors.

Commentary: For purposes of these guideline, an “outside director” is a director that is independent from the management or controlling shareholders of the company, and holds no interests that might impair performing his or her duties impartially from the company, management or controlling shareholder. In determining whether a director is an outside director, the funds will also apply the standards included in Article 415-2(2) of the Korean Commercial Code (i.e., no employment relationship with the company for a period of two years before serving on the committee, no director or employment relationship with the company’s largest shareholder, etc.) and may consider other business relationships that would affect the independence of an outside director.

Russia

The funds will vote on a case-by-case basis for the election of nominees to the board of directors.

Commentary: In Russia, director elections are typically handled through a cumulative voting process. Cumulative voting allows shareholders to cast all of their votes for a single nominee for the board of directors, or to allocate their votes among nominees in any other way. In contrast, in “regular” voting, shareholders may not give more than one vote per share to any single nominee. Cumulative voting can help to strengthen the ability of minority shareholders to elect a director.

In Russia, as in some other emerging markets, standards of corporate governance are usually behind those in developed markets. Rather than vote against the entire board of directors, as the funds generally would in the case of a company whose board fails to meet the funds’ standards for independence, the funds may, on a case by case basis, cast all of their votes for one or more independent director nominees. The funds believe that


it is important to increase the number of independent directors on the boards of Russian companies to mitigate the risks associated with dominant shareholders.

United Kingdom

The funds will withhold votes for the entire board of directors if

the board does not have at least a majority of independent non-executive directors,

the board has not established a nomination committee composed of a majority of independent non-executive directors, or

the board has not established compensation and audit committees composed of (1) at least three directors (in the case of smaller companies, two directors) and (2) solely independent non-executive directors.

The funds will withhold votes for any nominee for director who is considered an independent director by the company and who has received compensation from the company other than for service as a director, such as investment banking, consulting, legal, or financial advisory fees.

Commentary:

Application of guidelines: Although the United Kingdom’s Combined Code on Corporate Governance (“Combined Code”) has adopted the “comply and explain” approach to corporate governance, the funds’ Trustees believe that the guidelines discussed above with respect to board independence standards are integral to the protection of investors in U.K. companies. As a result, these guidelines will be applied in a prescriptive manner.

Definition of independence: For the purposes of these guidelines, a non-executive director shall be considered independent if the director meets the independence standards in section A.3.1 of the Combined Code (i.e., no material business or employment relationships with the company, no remuneration from the company for non-board services, no close family ties with senior employees or directors of the company, etc.), except that the funds do not view service on the board for more than nine years as affecting a director’s independence.

Smaller companies: A smaller company is one that is below the FTSE 350 throughout the year immediately prior to the reporting year.

Other Matters

The funds will vote for shareholder proposals calling for a majority of a company’s directors to be independent of management.


The funds will vote for shareholder proposals seeking to increase the independence of board nominating, audit, and compensation committees.

The funds will vote for shareholder proposals that implement corporate governance standards similar to those established under U.S. federal law and the listing requirements of U.S. stock exchanges, and that do not otherwise violate the laws of the jurisdiction under which the company is incorporated.

The funds will vote on a case-by-case basis on proposals relating to (1) the issuance of common stock in excess of 20% of the company’s outstanding common stock where shareholders do not have preemptive rights, or (2) the issuance of common stock in excess of 100% of the company’s outstanding common stock where shareholders have preemptive rights.

As adopted February 15, 2008

Proxy Voting Procedures of the Putnam Funds

The proxy voting procedures below explain the role of the funds’ Trustees, the proxy voting service and the Proxy Coordinator, as well as how the process will work when a proxy question needs to be handled on a case-by-case basis, or when there may be a conflict of interest.

The role of the funds’ Trustees

The Trustees of the Putnam funds exercise control of the voting of proxies through their Board Policy and Nominating Committee, which is composed entirely of independent Trustees. The Board Policy and Nominating Committee oversees the proxy voting process and participates, as needed, in the resolution of issues that need to be handled on a case-by-case basis. The Committee annually reviews and recommends, for Trustee approval, guidelines governing the funds’ proxy votes, including how the funds vote on specific proposals and which matters are to be considered on a case-by-case basis. The Trustees are assisted in this process by their independent administrative staff (“Office of the Trustees”), independent legal counsel, and an independent proxy voting service. The Trustees also receive assistance from Putnam Investment Management, LLC (“Putnam Management”), the funds’ investment advisor, on matters involving investment judgments. In all cases, the ultimate decision on voting proxies rests with the Trustees, acting as fiduciaries on behalf of the shareholders of the funds.

The role of the proxy voting service

The funds have engaged an independent proxy voting service to assist in the voting of proxies. The proxy voting service is responsible for coordinating with the funds’ custodians to ensure that all proxy materials received by the custodians relating to the funds’ portfolio securities are processed in a timely fashion. To the extent applicable, the proxy voting service votes all proxies in accordance with the proxy voting guidelines established by the Trustees. The proxy voting service will refer proxy questions to the Proxy Coordinator (described below) for instructions under circumstances where: (1) the application of the proxy voting guidelines is unclear; (2) a particular proxy question is not covered by the guidelines; or (3) the guidelines call for specific instructions on a case-by-case basis. The proxy voting service is also requested to call to the Proxy Coordinator’s attention specific


proxy questions that, while governed by a guideline, appear to involve unusual or controversial issues. The funds also utilize research services relating to proxy questions provided by the proxy voting service and by other firms.

The role of the Proxy Coordinator

Each year, a member of the Office of the Trustees is appointed Proxy Coordinator to assist in the coordination and voting of the funds’ proxies. The Proxy Coordinator will deal directly with the proxy voting service and, in the case of proxy questions referred by the proxy voting service, will solicit voting recommendations and instructions from the Office of the Trustees, the Chair of the Board Policy and Nominating Committee, and Putnam Management’s investment professionals, as appropriate. The Proxy Coordinator is responsible for ensuring that these questions and referrals are responded to in a timely fashion and for transmitting appropriate voting instructions to the proxy voting service.

Voting procedures for referral items

As discussed above, the proxy voting service will refer proxy questions to the Proxy Coordinator under certain circumstances. When the application of the proxy voting guidelines is unclear or a particular proxy question is not covered by the guidelines (and does not involve investment considerations), the Proxy Coordinator will assist in interpreting the guidelines and, as appropriate, consult with one of more senior staff members of the Office of the Trustees and the Chair of the Board Policy and Nominating Committee on how the funds’ shares will be voted.

For proxy questions that require a case-by-case analysis pursuant to the guidelines or that are not covered by the guidelines but involve investment considerations, the Proxy Coordinator will refer such questions, through a written request, to Putnam Management’s investment professionals for a voting recommendation. Such referrals will be made in cooperation with the person or persons designated by Putnam Management’s Legal and Compliance Department to assist in processing such referral items. In connection with each such referral item, the Legal and Compliance Department will conduct a conflicts of interest review, as described below under “Conflicts of Interest,” and provide a conflicts of interest report (the “Conflicts Report”) to the Proxy Coordinator describing the results of such review. After receiving a referral item from the Proxy Coordinator, Putnam Management’s investment professionals will provide a written recommendation to the Proxy Coordinator and the person or persons designated by the Legal and Compliance Department to assist in processing referral items. Such recommendation will set forth (1) how the proxies should be voted; (2) the basis and rationale for such recommendation; and (3) any contacts the investment professionals have had with respect to the referral item with non-investment personnel of Putnam Management or with outside parties (except for routine communications from proxy solicitors). The Proxy Coordinator will then review the investment professionals’ recommendation and the Conflicts Report with one of more senior staff members of the Office of the Trustees in determining how to vote the funds’ proxies. The Proxy Coordinator will maintain a record of all proxy questions that have been referred to Putnam Management’s investment professionals, the voting recommendation, and the Conflicts Report.

In some situations, the Proxy Coordinator and/or one of more senior staff members of the Office of the Trustees may determine that a particular proxy question raises policy issues requiring consultation with the Chair of the Board Policy and Nominating Committee, who, in turn, may decide to bring the particular proxy question to the Committee or the full Board of Trustees for consideration.

Conflicts of interest

Occasions may arise where a person or organization involved in the proxy voting process may have a conflict of interest. A conflict of interest may exist, for example, if Putnam Management has a business relationship with (or is actively soliciting business from) either the company soliciting the


proxy or a third party that has a material interest in the outcome of a proxy vote or that is actively lobbying for a particular outcome of a proxy vote. Any individual with knowledge of a personal conflict of interest (e.g., familial relationship with company management) relating to a particular referral item shall disclose that conflict to the Proxy Coordinator and the Legal and Compliance Department and otherwise remove himself or herself from the proxy voting process. The Legal and Compliance Department will review each item referred to Putnam Management’s investment professionals to determine if a conflict of interest exists and will provide the Proxy Coordinator with a Conflicts Report for each referral item that (1) describes any conflict of interest; (2) discusses the procedures used to address such conflict of interest; and (3) discloses any contacts from parties outside Putnam Management (other than routine communications from proxy solicitors) with respect to the referral item not otherwise reported in an investment professional’s recommendation. The Conflicts Report will also include written confirmation that any recommendation from an investment professional provided under circumstances where a conflict of interest exists was made solely on the investment merits and without regard to any other consideration.

As adopted March 11, 2005

Item 8. Portfolio Managers of Closed-End Management Investment Companies

(a)(1) Portfolio Managers. The officers of Putnam Management identified below are primarily responsible for the day-to-day management of the fund's portfolio.

Portfolio Manager(s)  Joined     
  Fund  Employer  Positions Over Past Five Years 

William Kohli  2002  Putnam  Team Leader, Portfolio Construction 
    Management  Previously Director, Global Core Team 
    1994 – Present   

Michael Atkin  2007  Putnam  Senior Economist 
    Management  Previously, Team Leader Country 
    1997 – Present  Analysis 

 
Rob Bloemker  2005  Putnam  Deputy Head of Investments 
    Management  CIO Taxable Fixed Income, and Tax 
    1999 – Present  Exempt Fixed Income and Fixed Income 
      Money Market Teams 



Kevin Murphy  2007  Putnam  Team Leader, High Grade Credit Team 
    Management  Previously, Investment Strategist 
    1999 – Present   

 
Paul Scanlon  2005  Putnam  Team Leader, U.S. High Yield Team 
    Management  Previously, Portfolio Manager; Analyst 
    1999 – Present   

(a)(2) Other Accounts Managed by the Fund’s Portfolio Managers.

The following table shows the number and approximate assets of other investment accounts (or portions of investment accounts) that the fund’s Portfolio Manager(s) managed as of the fund’s most recent fiscal year-end. Unless noted, none of the other accounts pays a fee based on the account’s performance.

          Other accounts (including 
          separate accounts, managed 
          account programs and single- 
Portfolio  Other SEC-registered open-  Other accounts that pool assets  sponsor defined contribution 
Manager(s)  end and closed-end funds  from more than one client  plan offerings) 

  Number  Assets  Number  Assets  Number  Assets 
  of    of    of   
  accounts    accounts    accounts   

William Kohli  5  $3,346,700,000  10  $1,289,800,000  9  $2,479,800,000 

 
 
 
Rob Bloemker  15  $9,252,100,000  28  $12,278,100,000  30*  $12,366,000,000 

 
 
 
 
Michael Atkin  5  $3,346,700,000  4  $462,000,000  4  $1,851,800,000 

 
 
 
Paul Scanlon  10  $6,171,600,000  13  $1,143,600,000  5  $437,100,000 

 
 
 
Kevin Murphy  10  $7,046,100,000  21  $8,316,600,000  22  $7,768,400,000 

* 3 accounts, with total assets of $1,614,100,000, pay an advisory fee based on account performance.


Potential conflicts of interest in managing multiple accounts. Like other investment professionals with multiple clients, the fund’s Portfolio Manager(s) may face certain potential conflicts of interest in connection with managing both the fund and the other accounts listed under “Other Accounts Managed by the Fund’s Portfolio Managers” at the same time. The paragraphs below describe some of these potential conflicts, which Putnam Management believes are faced by investment professionals at most major financial firms. As described below, Putnam Management and the Trustees of the Putnam funds have adopted compliance policies and procedures that attempt to address certain of these potential conflicts.

The management of accounts with different advisory fee rates and/or fee structures, including accounts that pay advisory fees based on account performance (“performance fee accounts”), may raise potential conflicts of interest by creating an incentive to favor higher-fee accounts. These potential conflicts may include, among others:

• The most attractive investments could be allocated to higher-fee accounts or performance fee accounts.

• The trading of higher-fee accounts could be favored as to timing and/or execution price. For example, higher-fee accounts could be permitted to sell securities earlier than other accounts when a prompt sale is desirable or to buy securities at an earlier and more opportune time.

• The trading of other accounts could be used to benefit higher-fee accounts (front- running).

• The investment management team could focus their time and efforts primarily on higher-fee accounts due to a personal stake in compensation.

Putnam Management attempts to address these potential conflicts of interest relating to higher-fee accounts through various compliance policies that are generally intended to place all accounts, regardless of fee structure, on the same footing for investment management purposes. For example, under Putnam Management’s policies:

• Performance fee accounts must be included in all standard trading and allocation procedures with all other accounts.

• All accounts must be allocated to a specific category of account and trade in parallel with allocations of similar accounts based on the procedures generally applicable to all accounts in those groups (e.g., based on relative risk budgets of accounts).

• All trading must be effected through Putnam’s trading desks and normal queues and procedures must be followed (i.e., no special treatment is permitted for performance fee accounts or higher-fee accounts based on account fee structure). • Front running is strictly prohibited.

• The fund’s Portfolio Manager(s) may not be guaranteed or specifically allocated any portion of a performance fee.


As part of these policies, Putnam Management has also implemented trade oversight and review procedures in order to monitor whether particular accounts (including higher-fee accounts or performance fee accounts) are being favored over time.

Potential conflicts of interest may also arise when the Portfolio Manager(s) have personal investments in other accounts that may create an incentive to favor those accounts. As a general matter and subject to limited exceptions, Putnam Management’s investment professionals do not have the opportunity to invest in client accounts, other than the Putnam funds. However, in the ordinary course of business, Putnam Management or related persons may from time to time establish “pilot” or “incubator” funds for the purpose of testing proposed investment strategies and products prior to offering them to clients. These pilot accounts may be in the form of registered investment companies, private funds such as partnerships or separate accounts established by Putnam Management or an affiliate. Putnam Management or an affiliate supplies the funding for these accounts. Putnam employees, including the fund’s Portfolio Manager(s), may also invest in certain pilot accounts. Putnam Management, and to the extent applicable, the Portfolio Manager(s) will benefit from the favorable investment performance of those funds and accounts. Pilot funds and accounts may, and frequently do, invest in the same securities as the client accounts. Putnam Management’s policy is to treat pilot accounts in the same manner as client accounts for purposes of trading allocation – neither favoring nor disfavoring them except as is legally required. For example, pilot accounts are normally included in Putnam Management’s daily block trades to the same extent as client accounts (except that pilot accounts do not participate in initial public offerings).

A potential conflict of interest may arise when the fund and other accounts purchase or sell the same securities. On occasions when the Portfolio Manager(s) consider the purchase or sale of a security to be in the best interests of the fund as well as other accounts, Putnam Management’s trading desk may, to the extent permitted by applicable laws and regulations, aggregate the securities to be sold or purchased in order to seek to obtain the best execution and lower brokerage commissions, if any. Aggregation of trades may create the potential for unfairness to the fund or another account if one account is favored over another in allocating the securities purchased or sold – for example, by allocating a disproportionate amount of a security that is likely to increase in value to a favored account. Putnam Management’s trade allocation policies generally provide that each day’s transactions in securities that are purchased or sold by multiple accounts are, insofar as possible, averaged as to price and allocated between such accounts (including the fund) in a manner which in Putnam Management’s opinion is equitable to each account and in accordance with the amount being purchased or sold by each account. Certain exceptions exist for specialty, regional or sector accounts. Trade allocations are reviewed on a periodic basis as part of Putnam Management’s trade oversight procedures in an attempt to ensure fairness over time across accounts.

“Cross trades,” in which one Putnam account sells a particular security to another account (potentially saving transaction costs for both accounts), may also pose a potential conflict


of interest. Cross trades may be seen to involve a potential conflict of interest if, for example, one account is permitted to sell a security to another account at a higher price than an independent third party would pay. Putnam Management and the fund’s Trustees have adopted compliance procedures that provide that any transactions between the fund and another Putnam-advised account are to be made at an independent current market price, as required by law.

Another potential conflict of interest may arise based on the different investment objectives and strategies of the fund and other accounts. For example, another account may have a shorter-term investment horizon or different investment objectives, policies or restrictions than the fund. Depending on another account’s objectives or other factors, the Portfolio Manager(s) may give advice and make decisions that may differ from advice given, or the timing or nature of decisions made, with respect to the fund. In addition, investment decisions are the product of many factors in addition to basic suitability for the particular account involved. Thus, a particular security may be bought or sold for certain accounts even though it could have been bought or sold for other accounts at the same time. More rarely, a particular security may be bought for one or more accounts managed by the Portfolio Manager(s) when one or more other accounts are selling the security (including short sales). There may be circumstances when purchases or sales of portfolio securities for one or more accounts may have an adverse effect on other accounts. As noted above, Putnam Management has implemented trade oversight and review procedures to monitor whether any account is systematically favored over time.

The fund’s Portfolio Manager(s) may also face other potential conflicts of interest in managing the fund, and the description above is not a complete description of every conflict that could be deemed to exist in managing both the fund and other accounts.

(a)(3) Compensation of portfolio managers. Putnam's goal for our products and investors is to deliver top quartile or better performance over a rolling 3-year period versus peers on a pre-tax basis. For this fund, the peer group Putnam compares fund performance against is its broad investment category as determined by Lipper Inc. and identified in the shareholder report included in Item 1. Each portfolio manager is assigned an industry competitive incentive compensation target for achieving this goal. The target is based in part on the type and amount of assets the individual manages. The target increases or decreases depending on whether the portfolio manager's performance is higher or lower than the top quartile, subject to a maximum increase of 50%, for a portfolio manager who outperforms at least 90% of his or her peer group, and a maximum decrease of 100%, for a portfolio manager who outperforms less than 25% of his or her peer group. For example, the target of a portfolio manager who outperforms 50% of his or her peer group would decrease 50%. Investment performance of a portfolio manager is asset-weighted across the products he or she manages.

Portfolio manager incentive compensation targets are also adjusted for company performance/economics. Actual incentive compensation may be greater or less than a portfolio manager's target, as it takes into consideration team/group performance and qualitative performance factors. Incentive compensation includes a cash bonus and may also include grants of restricted stock or options. In addition to incentive compensation, portfolio managers receive fixed annual salaries typically based on level of responsibility and experience.


(a)(4) Fund ownership. The following table shows the dollar ranges of shares of the fund owned by the professionals listed above at the end of the fund’s last two fiscal years, including investments by their immediate family members and amounts invested through retirement and deferred compensation plans.

 

N/A indicates the individual was not a Portfolio Leader or Portfolio Member as of 9/30/07.

(b) Not applicable

Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers:




Registrant Purchase of Equity Securities 
Maximum 
Total Number  Number (or 
of Shares  Approximate 
Purchased  Dollar Value) 
as Part  of Shares 
of Publicly  that May Yet Be 
Total Number  Average  Announced  Purchased 
  of Shares  Price Paid  Plans or  under the Plans 
Period  Purchased  per Share  Programs*  or Programs** 

October 1 -         
October 5, 2007  -  -  -  - 
October 6 -         
October 31, 2007  -  -  -  8,113,703 
November 1 -         
November 30, 2007  215,098  $6.31  215,098  7,898,605 
December 1 -         
December 31, 2007  51,487  $6.36  51,487  7,847,118 
January 1 -         
January 31, 2008  -  -  -  7,847,118 
February 1 -         
February 28, 2008  -  -  -  7,847,118 
March 1 -         
March 31, 2008  -  -  -  7,847,118 
April 1 -         
April 30, 2008  12,130,566  $6.64  12,130,566***  7,847,118 
May 1 -         
May 31, 2008  -  -  -  7,847,118 
June 1 -         
June 30, 2008  -  -  -  7,847,118 
July 1 -         
July 31, 2008  -  -  -  7,847,118 
August 1 -         
August 31, 2008  -  -  -  7,847,118 
September 1 -         
September 30, 2008  2,099,370  $5.29  2,099,370  5,747,748 

*The Board of Trustees announced a repurchase plan on October 7, 2005 for which 5,015,654 shares were approved for repurchase by the fund. The repurchase plan was approved through October 6, 2006. On March 10, 2006, the Trustees announced that the repurchase program was increased to allow repurchases of up to a total of 10,031,308 shares over the original term of the program. On September 15, 2006, the Trustees voted to extend the term of the repurchase program through October 6, 2007. In September 2007, the Trustees announced that the repurchase program was increased to allow repurchases up to a total 8,113,703 shares through October 7, 2008. In September 2008, the Trustees announced that the repurchase program was increased to allow repurchases up to a total of 6,664,051 shares through October 7, 2009.

**Information prior to October 6, 2007 is based on the total number of shares eligible for repurchase under the program, as amended through September 15, 2006. Information from October 6, 2007 forward is based on the total number of shares eligible for repurchase under the program, as amended through September 2007.

*** Includes 12,130,566 shares repurchased by the fund pursuant to an issuer tender offer that concluded during the period. Shares repurchased as part of this tender offer were repurchased at $6.64 per share, which represented approximately 99% of the fund’s per-share net asset value on the expiration date of the tender offer.

Item 10. Submission of Matters to a Vote of Security Holders:

Not applicable


Item 11. Controls and Procedures:

(a) The registrant's principal executive officer and principal financial officer have concluded, based on their evaluation of the effectiveness of the design and operation of the registrant's disclosure controls and procedures as of a date within 90 days of the filing date of this report, that the design and operation of such procedures are generally effective to provide reasonable assurance that information required to be disclosed by the registrant in this report is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms.

(b) Changes in internal control over financial reporting: Not applicable

Item 12. Exhibits:

(a)(1) The Code of Ethics of The Putnam Funds, which incorporates the Code of Ethics of Putnam Investments, is filed herewith.

(a)(2) Separate certifications for the principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Investment Company Act of 1940, as amended, are filed herewith.

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

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Putnam Master Intermediate Income Trust

By (Signature and Title):

/s/Janet C. Smith
Janet C. Smith
Principal Accounting Officer

Date: November 26, 2008

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

By (Signature and Title):

/s/Charles E. Porter
Charles E. Porter
Principal Executive Officer

Date: November 26, 2008

By (Signature and Title):

/s/Steven D. Krichmar
Steven D. Krichmar
Principal Financial Officer

Date: November 26, 2008