Putnam
Master
Intermediate
Income Trust
Item 1. Report to Stockholders:
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The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
3-31-05
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From the Trustees
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John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
Throughout the period ended March 31, 2005, the Federal Reserve Board's
series of gradual increases in the federal funds rate occupied much of
investors' attention. However, these increases did not begin to have a
significant impact on stock and bond prices until approximately March
2005. Also in March, we began to see a measurable increase in
longer-term interest rates, which, along with continued record-high
energy prices, has slowed the stock market's momentum. Concerns about
inflation have also begun to influence the markets once again and may
affect bond prices going forward. In such an environment, security
selection takes on even greater importance and the in-depth,
professional research and active management mutual funds can provide
makes them an even more intelligent choice for today's investors.
Given these trends, we want you to know that Putnam Investments'
management team, under the leadership of Chief Executive Officer Ed
Haldeman, continues to focus on improving investment performance and
remains committed to putting the interests of shareholders first. In
keeping with these goals, we are including additional disclosure about
your fund's management team in this report. Following the Outlook for
Your Fund, we provide manager compensation information that pertains to
your fund, list any changes in your fund's Portfolio Leader and
Portfolio Members during the prior year, and disclose these individuals'
other fund management responsibilities at Putnam. We also show how much
these individuals, as well as the members of Putnam's Executive Board,
have invested in the fund (in dollar ranges). Furthermore, on page 13,
we provide information about the most recent approval by the Trustees of
your fund's management contract with Putnam.
In the following pages, members of your fund's management team discuss
the fund's performance, the strategies used to pursue the fund's
investment objective during the reporting period, and the team's plan
for responding to recent changes in the market climate.
As always, we thank you for your continuing confidence in Putnam.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
May 18, 2005
Report from Fund Management
Fund highlights
* During the semiannual period ended March 31, 2005, Putnam Master
Intermediate Income Trust had total returns of 3.07% at net asset value
(NAV) and -2.00% at market price.
* The fund's primary benchmark, the Lehman Government/Credit Bond Index,
returned 0.13%.
* The average return for the fund's Lipper category, Flexible Income
Funds (closed-end), was 3.45%.
* The fund's dividend was reduced to $0.035 per share during the period.
See page 5 for details.
* See the Performance Summary beginning on page 10 for additional fund
performance, comparative performance, and Lipper data.
Performance commentary
The six-month period under review was generally favorable for global
bond markets until the final two months, when the Federal Reserve Board
(the Fed) again raised short-term interest rates and expressed greater
concern about the potential for inflation. This prompted sell-offs in
all sectors of the bond market; however, those sectors with higher
credit risk saw greater price declines (and yield increases). Because
your fund invests in a variety of fixed-income sources, it was able to
outperform its benchmark, based on results at NAV. However, the fund
underperformed its Lipper category average because it had less exposure
to emerging- market bonds and to non-U.S. dollar denominated bonds than
many of its peers, and these sectors remained strong. The fund's
currency strategy, which has begun to shift toward increasing exposure
to the U.S. dollar, was helpful during the period. It is important to
note that a fund's performance at market price may differ from its
results at NAV. Although market price performance generally reflects
investment results, it may also be influenced by several other factors,
including changes in investor perceptions of the fund or its investment
advisor, market conditions, fluctuations in supply and demand for the
fund's shares, and changes in fund distributions.
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TOTAL RETURN FOR
PERIODS ENDED 3/31/05
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Market
(inception 4/29/88) NAV price
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6 months 3.07% -2.00%
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1 year 5.06 -0.78
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5 years 44.99 65.21
Annual average 7.71 10.56
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10 years 104.65 107.77
Annual average 7.42 7.59
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Annual average
(life of fund) 7.97 6.82
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Data is historical. 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. Performance assumes
reinvestment of distributions and does not account for taxes.
FUND PROFILE
Putnam Master Intermediate Income Trust seeks high current income and
relative stability by investing in limited-maturity bonds in the
investment-grade and high-yield sectors, as well as non-U.S. bond
markets. The fund is designed for investors seeking high current income,
asset class diversification, or both.
Market overview
One of the most important events of the six-month period was the change
in tone from the Fed when it raised short-term interest rates in March.
This rate increase was the seventh in a series of increases that began
in June 2004. At the time of the initial increase, the Fed's official
comments implied that future rate increases would come at a "measured
pace," and were intended to bring short-term rates back to more "normal"
levels (from a 46-year low). As a result, long-term bond investors were
not overly concerned about an abrupt hike in interest rates, and yields
on long-term bonds continued to decline through calendar 2004 and into
early 2005. The economy, meanwhile, continued to grow at a solid,
moderate pace with low inflation.
However, in the first calendar quarter of 2005, there were some
indications of inflation picking up as the economy strengthened.
Record-high energy prices began to affect the prices of goods and
services. More importantly, companies began to see that productivity was
slowing, and that they might try to pass along wage increases in the
form of higher prices for their products. At its meetings in January,
February, and March, the Fed's tone gradually came to reflect concerns
about inflation. In March, the Fed stated it would continue to raise
rates at a measured pace but would "respond to changes in economic
prospects as needed to fulfill its obligation to maintain price
stability."* The U.S. and international bond markets saw this as a
signal that future rate increases could be more frequent and larger.
Bonds sold off, with lower-quality, higher-yield bond sectors --
including emerging markets and high-yield corporates -- experiencing the
greatest price declines (and yield increases).
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MARKET SECTOR PERFORMANCE 6 MONTHS ENDED 3/31/05
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Bonds
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Lehman Government/Credit Bond Index
(U.S. Treasury and agency securities and corporate bonds) 0.13%
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JP Morgan Global Diversified Emerging Markets Bond Index
(global emerging-market bonds) 3.49%
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Citigroup Non-U.S. World Government Bond Index
(international government bonds) 7.21%
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JP Morgan Global High Yield Index (global high-yield corporate bonds) 3.23%
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Equities
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S&P 500 Index (broad stock market) 6.88%
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Russell 2000 Growth Index (small-company growth stocks) 7.23%
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Russell 2000 Value Index (small-company value stocks) 8.70%
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These indexes provide an overview of performance in different market
sectors for the six months ended 3/31/05.
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* From "Text of Federal Reserve's Interest Rate Decision," as reported
by Dow Jones Newswires, March 22, 2005.
Strategy overview
A key element of the fund's strategy has been to continue to reduce the
level of credit risk in the portfolio. During the period, we further
reduced the fund's emerging-market weighting and increased the average
credit quality of the fund's high-yield holdings by selling
lower-quality bonds and buying bonds with higher ratings. (The
high-yield sector, which is generally lower in quality than other
sectors such as Treasuries, has several tiers of credit quality.)
Another component of our strategy during the period was to reduce
sensitivity to changes in interest rates by shortening the fund's
overall duration. Duration, which is measured in years, is the primary
indicator of interest-rate sensitivity. The shorter a bond's duration,
the less sensitive its price will be to interest-rate changes. The
fund's lower interest-rate sensitivity hurt its performance during the
first half of the period, but was significantly helpful in the second
half -- especially during the final month, when rates rose more
substantially. During the period, we continued to increase the fund's
position in bank loans (included in the "high yield" sector in the chart
below). These securities offer a higher level of credit quality than
high-yield bonds. In addition, they offer floating interest rates that,
like an adjustable-rate home mortgage, move in tandem with market rates
and therefore can help provide some protection from interest-rate risk.
We also continued to favor international bonds from developing countries
over emerging-market bonds. These bonds should continue to benefit from
a weak dollar environment. However, we think that going forward, gains
from foreign currencies in the portfolio are likely to be more modest
than those seen in recent years.
[GRAPHIC OMITTED: horizontal bar chart SECTOR WEIGHTINGS COMPARED]
SECTOR WEIGHTINGS COMPARED
as of 9/30/04 as of 3/31/05
U.S. investment grade 38.0% 43.3%
High yield 40.0% 40.7%
International* 22.0% 16.0%
Footnote reads:
This chart shows how the fund's top weightings have changed over the
last six months. Weightings are shown as a percentage of total
investment portfolio. Holdings will vary over time.
* Includes emerging markets.
How fund holdings affected performance
The semiannual period was marked by interest-rate fluctuations within a
moderate range. In such an environment, securitized bonds, or structured
securities, tend to perform well because they typically offer higher
income than corporate bonds of comparable credit quality. They also
offer short maturities, so as interest rates rise, we can reinvest the
proceeds in higher-yielding securities. The most common type of
securitized bonds are mortgage-backed securities (MBSs) issued by the
Federal National Mortgage Association (Fannie Mae) and the Government
National Mortgage Association (Ginnie Mae). Other types of securitized
bonds include asset-backed securities (ABSs), which are typically backed
by car loans and credit card payments, and commercial mortgage-backed
securities (CMBSs), which are backed by loans on large commercial real
estate projects, such as office parks or shopping malls. During the
six-month period, the fund's holdings of ABSs, CMBSs, and MBSs backed by
adjustable-rate mortgages all performed well relative to most other bond
sectors.
[GRAPHIC OMITTED: TOP HOLDINGS]
TOP HOLDINGS
(Percent of fund's net assets as of 3/31/05)
High Yield Sector
1 Conseco Finance Securitizations Corp. (0.4%)
Ser. 01-3, Class A4, 6.91s, 2033
Asset-backed security
2 Conseco Finance Securitizations Corp. (0.4%)
Ser. 00-4, Class A6, 8.31s, 2032
Asset-backed security
3 Qwest Corp. (0.4%)
144A notes 9 1/8s, 2012
Communications services
International Sector
1 Germany (Federal Republic of) (1.5%)
Bonds Ser. 97, 6s, 2007
2 United Mexican States (1.4%)
Notes 6 5/8s, 2015
3 Germany (Federal Republic of) (1.1%)
Bonds Ser. 97, 6s, 2007
U.S. Investment Grade Sector
1 Federal National Mortgage Association (5.8%)
30 yr. conventional, 5 1/2s TBA April 1, 2035
2 U.S. Treasury Notes (3.7%)
3 1/4s, August 15, 2008
3 Federal National Mortgage Association (3.6%)
15 yr. conventional, 4 1/2s TBA April 1, 2020
Footnote reads:
The fund's holdings will change over time.
The fund's holdings of Treasury bonds underperformed most fixed-income
sectors for most of the period (until the final month), but the fund was
underweighted in this sector compared to many of its peers, so this
positioning helped relative returns.
European government bonds made a substantial contribution to returns
during the period, benefiting from slowing growth in Europe and
expectations that these low growth rates would continue through the end of
2005. When U.S. bond markets declined in February and March 2005, European
government bonds outperformed by a considerable margin. Because the fund
was overweighted in these securities, particularly those issued by the
governments of Germany, France, and Sweden, this positioning bolstered
relative returns. While the fund remains significantly underweighted --
relative to its peer group -- in emerging-market securities, we added some
emerging-market bonds during the period, believing them to be more
attractive than high-yield corporate bonds. During the period, we
emphasized bonds from Brazil, Colombia, Mexico, and Russia, while reducing
exposure in Turkey, Uruguay, and Panama.
In the high-yield corporate bond portion of the portfolio, we emphasized
bonds in the chemicals sector, including Huntsman International, which
performed well. In the energy sector, which we favored due to strong
demand and reduced supply, the fund's holdings of Star Gas Partners
detracted from performance. This company, a distributor of home heating
oil in New England, was plagued by operational issues and rising oil
prices. Nevertheless, we are still positive about its prospects and
maintained the holding in the fund. The fund was also overweighted in
bonds issued by wireless telecommunications companies, including Nextel
Communications, because of their strong subscriber growth, attractive
valuations, and industry consolidation.
Finally, we increased the fund's holdings of senior-secured bank loans.
These loans carry floating interest rates, which means they reset in
accordance with changes in short-term interest rates, which is
beneficial if rates rise. The loans' "senior-secured" status means that
they are fully backed by each issuing company's assets, such as plants,
equipment, and inventory. Moreover, senior-secured loan lenders are paid
before any non-secured debt holder in the event of a liquidation of the
company's assets due to bankruptcy.
Please note that all holdings discussed in this report are subject to
review in accordance with the fund's investment strategy and may vary in
the future.
OF SPECIAL INTEREST
Fund's dividend reduced
More than 35% of the fund's portfolio is invested in corporate
high-yield securities. Over the past several years, the high-yield
market has experienced dramatic declines in yield as well as a
significant narrowing of credit yield spreads compared with Treasuries.
Since the beginning of the market rebound in October 2002, the spread
over Treasuries has narrowed considerably, pushing yields dramatically
lower. As a result of these events in the high-yield market, the fund
reduced its dividend to $0.035 per share from $0.038 per share,
effective October 2004.
The outlook for your fund
The following commentary reflects anticipated developments that could
affect your fund over the next six months, as well as your management
teams' plans for responding to them.
During the period, the fund's moderate returns reflected a more cautious
bond market and a more mature global economic recovery. Our forecast is
for continued steady growth with a slight increase in inflation. Such an
environment would probably be consistent with more Fed short-term
interest-rate increases and the possibility for long-term bond yields to
continue moving upward. In such an environment, we believe the fund's
shorter duration and higher credit quality would help it to weather the
impact of higher interest rates, if they come to pass (as we believe
they will). Of course, we will continue to remain vigilant about any
possible disruptions to global economies and fixed-income markets,
keeping the fund positioned defensively while remaining well diversified
in a broad range of fixed-income sectors and securities.
The views expressed in this report are exclusively those of Putnam
Management. They are not meant as investment advice. 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. Mutual funds that invest in government securities are not
guaranteed. Mortgage-backed securities are subject to prepayment risk.
Mutual funds that invest in bonds are subject to certain risks,
including interest-rate risk, credit risk, and inflation risk. As
interest rates rise, the prices of bonds fall. Long-term bonds are more
exposed to interest-rate risk than short-term bonds. Unlike bonds, bond
funds have ongoing fees and expenses. The fund's shares trade on a stock
exchange at market prices, which may be lower than the fund's net asset
value.
Your fund's management
Your fund is managed by the members of the Putnam Core Fixed-Income and
Core Fixed-Income High Yield teams. D. William Kohli is the Portfolio
Leader. Rob Bloemker, Jeffrey Kaufman, Paul Scanlon, and David Waldman
are Portfolio Members of the fund. The Portfolio Leader and Portfolio
Members coordinate the teams' management of the fund.
For a complete listing of the members of the Putnam Core Fixed-Income
and Core Fixed-Income High-Yield teams, including those who are not
Portfolio Leaders or Portfolio Members of your fund, visit Putnam's
Individual Investor Web site at www.putnaminvestments.com.
Fund ownership
The table below shows how much the fund's current Portfolio Leader and
Portfolio Members have invested in the fund (in dollar ranges).
Information shown is for March 31, 2005, and March 31, 2004.
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FUND PORTFOLIO LEADER AND PORTFOLIO MEMBERS
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$1 - $10,001 - $50,001 - $100,001 - $500,001 - $1,000,001
Year $0 $10,000 $50,000 $100,000 $500,000 $1,000,000 and over
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D. William Kohli 2005 *
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Portfolio Leader 2004 *
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Rob Bloemker 2005 *
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Portfolio Member N/A
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Jeffrey Kaufman 2005 *
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Portfolio Member N/A
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Paul Scanlon 2005 *
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Portfolio Member N/A
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David Waldman 2005 *
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Portfolio Member 2004 *
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N/A indicates the individual was not a Portfolio Leader or Portfolio Member as of 3/31/04.
Fund manager compensation
The total 2004 fund manager compensation that is attributable to your
fund is approximately $440,000. This amount includes a portion of 2004
compensation paid by Putnam Management to the fund managers listed in
this section for their portfolio management responsibilities, calculated
based on the fund assets they manage taken as a percentage of the total
assets they manage. The compensation amount also includes a portion of
the 2004 compensation paid to the Chief Investment Officer of the team
and the Group Chief Investment Officer of the fund's broader investment
category for their oversight responsibilities, calculated based on the
fund assets they oversee taken as a percentage of the total assets they
oversee. These percentages are determined as of the fund's fiscal
period-end. For personnel who joined Putnam Management during or after
2004, the calculation reflects annualized 2004 compensation or an
estimate of 2005 compensation, as applicable.
Other Putnam funds managed by the Portfolio Leader and Portfolio Members
D. William Kohli is also a Portfolio Leader of Putnam Diversified Income
Trust and Putnam Premier Income Trust, and a Portfolio Member of Putnam
Global Income Trust.
Rob Bloemker is also a Portfolio Member of Putnam American Government
Income Fund, Putnam Diversified Income Trust, Putnam Income Fund, Putnam
Limited Duration Government Income Fund, Putnam Premier Income Trust,
and Putnam U.S. Government Income Trust.
Jeffrey Kaufman is also a Portfolio Member of Putnam Diversified Income
Trust and Putnam Premier Income Trust.
Paul Scanlon is also a Portfolio Leader of Putnam Floating Rate Income
Fund, Putnam High Yield Advantage Fund, Putnam High Yield Trust, and
Putnam Managed High Yield Trust. He is also a Portfolio Member of Putnam
Diversified Income Trust and Putnam Premier Income Trust.
David Waldman is also a Portfolio Member of Putnam Diversified Income
Trust and Putnam Premier Income Trust.
D. William Kohli, Rob Bloemker, Jeffrey Kaufman, Paul Scanlon, and David
Waldman 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 year ended March 31, 2005, the Putnam Core Fixed-Income
High-Yield Team joined the Putnam Core Fixed-Income Team in assuming
management of the fund. Consequently, Rob Bloemker, Jeffrey Kaufman, and
Paul Scanlon became Portfolio Members of your fund. In addition,
Portfolio Member Stephen Peacher left your fund's management team.
Fund ownership
The table below shows how much the members of Putnam's Executive Board
have invested in the fund (in dollar ranges). Information shown is for
March 31, 2005, and March 31, 2004.
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PUTNAM EXECUTIVE BOARD
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$1 - $10,001 - $50,001 - $100,001
Year $0 $10,000 $50,000 $100,000 and over
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Philippe Bibi 2005 *
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Chief Technology Officer 2004 *
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John Boneparth 2005 *
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Head of Global Institutional Mgmt 2004 *
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Joshua Brooks 2005 *
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Deputy Head of Investment N/A
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Kevin Cronin 2005 *
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Deputy Head of Investments N/A
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Charles Haldeman, Jr. 2005 *
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President and CEO 2004 *
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Amrit Kanwal 2005 *
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Chief Financial Officer 2004 *
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Steven Krichmar 2005 *
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Chief of Operations N/A
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Francis McNamara, III 2005 *
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General Counsel N/A
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Richard Monaghan 2005 *
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Head of Retail Management 2004 *
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Richard Robie, III 2005 *
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Chief Administrative Officer 2004 *
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Edward Shadek 2005 *
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Deputy Head of Investments N/A
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N/A indicates the individual was not a member of Putnam's Executive Board as of 3/31/04.
Performance summary
This section shows your fund's performance during the first half of its
fiscal year, which ended March 31, 2005. 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.
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TOTAL RETURN FOR PERIODS ENDED 3/31/05
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NAV Market price
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6 months 3.07% -2.00%
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1 year 5.06 -0.78
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5 years 44.99 65.21
Annual average 7.71 10.56
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10 years 104.65 107.77
Annual average 7.42 7.59
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Annual average
Life of fund (since 4/29/88) 7.97 6.82
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Performance assumes reinvestment of distributions and does not account
for taxes.
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 3/31/05
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Citigroup Non- JP Morgan Lipper Flexible
Lehman Govt./ U.S. World Global Income Funds
Credit Bond Govt. Bond High Yield (closed-end)
Index Index Index* category average+
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6 months 0.13% 7.21% 3.23% 3.45%
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1 year 0.40 6.98 7.36 5.59
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5 years 42.18 49.29 45.11 38.81
Annual average 7.29 8.34 7.73 6.63
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10 years 100.60 71.75 113.36 115.08
Annual average 7.21 5.56 7.87 7.71
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Annual average
Life of fund
(since 4/29/88) 7.94 7.32 -- 8.14
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Index and Lipper results should be compared to fund performance at net
asset value. Lipper calculations for reinvested dividends may differ
from actual performance.
* The JP Morgan Global High Yield Index's inception date was 12/31/93.
+ Over the 6-month and 1-, 5-, and 10-year periods ended 3/31/05, there
were 9 funds in this Lipper category.
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PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 3/31/05
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Putnam Master Intermediate Income Trust
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Distributions (number) 6
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Income $0.210
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Capital gains --
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Total $0.210
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Share value: NAV Market price
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9/30/04 $7.13 $6.73
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3/31/05 7.12 6.39
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Current return (end of period)
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Current dividend rate 1 5.90% 6.57%
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1 Most recent distribution, excluding capital gains, annualized and
divided by NAV or market price at end of period.
Terms and definitions
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, minus any
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 American Stock Exchange and the New York Stock
Exchange.
Comparative indexes
Citigroup Non-U.S. World Government Bond Index is an unmanaged index of
global investment-grade fixed-income securities, excluding the United
States.
JP Morgan Global Diversified Emerging Markets Bond Index is an unmanaged
index of global emerging-market fixed-income securities.
JP Morgan 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.
Russell 2000 Growth Index is an unmanaged index of those companies in
the small-cap Russell 2000 Index chosen for their growth orientation.
Russell 2000 Value Index is an unmanaged index of those companies in the
small-cap Russell 2000 Index chosen for their value orientation.
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 funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper. Lipper category averages reflect
performance trends for funds within a category and are based on results
at net asset value.
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 each fund's management contract with Putnam
Management. In this regard the Board of Trustees, with the assistance of
its Contract Committee consisting solely of Independent Trustees,
requests and evaluates all information it deems reasonably necessary in
the circumstances. Over the course of several months beginning in March
and ending in June of 2004, the Contract Committee reviewed 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. Upon
completion of this review, the Contract Committee recommended and the
Independent Trustees approved the continuance of your fund's contract,
effective July 1, 2004.
This approval was based on the following conclusions:
* That the fee schedule currently in effect for your fund represents
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 service,
and
* That such fee schedule represents an appropriate sharing between fund
shareholders and Putnam Management of such economies of scale as may
exist in the management of the fund at current asset levels.
These conclusions were based on a comprehensive consideration of all
information provided to the Trustees and were not the result of any
single factor. Some of the factors that figured particularly in the
Trustees' deliberations are described below.
Model fee schedules and categories; total expenses
The Trustees, working in cooperation with Putnam Management, have
developed and implemented a series of model fee schedules for the Putnam
funds designed to ensure that each fund's management fee is consistent
with the fees for similar funds in the Putnam complex and compares
favorably with fees paid by competitive funds sponsored by other advisors.
The Trustees reviewed the model fee schedule currently in effect for the
fund, including fee levels and breakpoints, and the assignment of the fund
to a particular fee category under this structure. The Trustees also
reviewed comparative fee and expense information for competitive funds.
The Trustees concluded that no changes should be made in the fund's
current fee schedule at this time. The Trustees noted that expense ratios
for a number of Putnam funds had been increasing recently as a result of
declining net assets and the natural operation of fee breakpoints. They
noted that such expense ratio increases were currently being controlled by
expense limitations implemented in January 2004. They also noted that the
competitive landscape regarding mutual fund fees may be changing as a
result of fee reductions accepted by various other fund groups in
connection with recent regulatory settlements and greater focus on fees
and expenses in the mutual fund industry generally. The Trustees indicated
an intention to monitor these developments closely.
Economies of scale
As noted above, the Trustees concluded that the fee schedule currently
in effect for your fund represents an appropriate sharing of economies
of scale at current asset levels. The Trustees indicated their intention
to continue their ongoing consideration of economies of scale and in
particular to consider further the possible operation of such economies
in the event that a significant recovery in the equity markets or net
fund sales were to raise asset levels substantially above current
levels. In this regard, the Trustees noted that they had reviewed data
relating to the substantial increase in asset levels of the Putnam funds
that occurred during the years leading up to the market peak in 2000,
the subsequent decline in assets and the resulting impact on revenues
and expenses of Putnam Management. The Trustees also noted that recent
declines in net assets in many Putnam funds, together with significant
changes in the cost structure of Putnam Management have altered the
economics of Putnam Management's business in significant ways. The
Trustees concluded that they would monitor these changes carefully and
evaluate the resulting impact on Putnam Management's economics and the
sharing of economies of scale between the parties.
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 the Management Contracts.
The Trustees recognized that 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 -- 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 the fund's performance with
various benchmarks and with the performance of competitive funds. The
Trustees noted the satisfactory investment performance of many Putnam
funds.
They also noted the disappointing investment performance of certain
funds in recent years and continued to discuss with senior management of
Putnam Management the factors contributing to such under-performance and
actions being taken to improve performance. The Trustees recognized
that, in recent years, Putnam Management has made significant changes in
its investment personnel and processes and in the fund product line in
an effort to address areas of underperformance. The Trustees indicated
their intention to continue to monitor performance trends to assess the
effectiveness of these changes and to evaluate whether additional
remedial changes are warranted. As a general matter, the Trustees
concluded that consultation between the Trustees and Putnam Management
represents the most effective way to address investment performance
problems. The Trustees believe that investors in the Putnam funds and
their financial advisors have, as a general matter, effectively placed
their trust in the Putnam organization, under the supervision of the
funds' Trustees, to make appropriate decisions regarding the management
of the funds. The Trustees believe that the termination of the
Management Contract and engagement of a new investment adviser for
under-performing funds, with all the attendant disruptions, would not
serve the interests of fund shareholders at this time and would not
necessarily 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 principally
benefits related to brokerage and soft-dollar allocations, which pertain
mainly to funds investing in equity securities. The Trustees believe
that soft-dollar credits and other potential benefits associated with
the allocation of fund brokerage represent assets of the funds that
should be used for the benefit of fund shareholders. The Trustees noted
recent trends in the allocation of fund brokerage, including commission
costs, the allocation of brokerage to firms that provide research
services to Putnam Management, and the sources and application of
available soft-dollar credits. Effective December 31, 2003, reflecting a
decision made by the Trustees earlier that year, Putnam Management
ceased allocating brokerage in connection with the sale of fund shares.
In addition, in preparing its budget for commission allocations in 2004,
Putnam Management voluntarily reduced substantially the allocation of
brokerage commissions to acquire research services from third-party
service providers. In light of evolving best practices in the mutual
fund industry, the Trustees concluded that this practice should be
further curtailed and possibly eliminated in the near future. The
Trustees indicated that they would continue to monitor the allocation of
the funds' brokerage to ensure that the principle of "best price and
execution" remains paramount in the portfolio trading process.
Comparison of retail and institutional fee schedules
The information examined by the Trustees as part of the annual contract
reviews included information regarding fees charged by Putnam Management
and its affiliates to institutional clients such as defined benefit
pension plans and college endowments. This information included
comparison of such fees with fees charged to the Putnam funds, as well
as a detailed assessment of the differences in the services provided to
these two types of clients. The Trustees devoted special attention to
these issues and reviewed recent articles by critics of mutual fund
fees, articles by the ICI defending such fee differences, and relevant
guidance provided by decisions of the courts. 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 reflects to a
substantial degree historical competitive forces operating in separate
market places. In reaching their conclusions, the Trustees considered
the fact that fee rates across all asset sectors are higher on average
for mutual funds than for institutional clients, and also considered the
differences between the services that Putnam provides to the Putnam
funds and those that it provides to institutional clients of the firm.
Settlement of regulatory charges related to market timing
Finally, in reaching their conclusions, the Trustees considered all
matters pertinent to the administrative charges filed against Putnam
Management by the SEC and the Commonwealth of Massachusetts in October
2003 relating to market timing, the firm's settlement of those charges,
and the conclusions and recommendations of the Trustees' Audit and
Pricing Committee based on its review of these matters. The Trustees
considered the actions taken by the owner of Putnam Management and its
new senior management to terminate or discipline the individuals
involved, to implement new compliance systems, to indemnify the funds
against all costs and liabilities related to these matters, and
otherwise to ensure that the interests of the funds and their
shareholders are fully protected. The Trustees noted that, in addition
to the settlements of the regulatory charges which will provide
comprehensive restitution for any losses suffered by shareholders, the
new senior management of Putnam Management has moved aggressively to
control expense ratios of funds affected by market timing, to reduce
charges to new investors, to improve disclosure of fees and expenses,
and to emphasize the paramount role of investment performance in
achieving shareholders' investment goals.
Other information for shareholders
A note about duplicate mailings
In response to investors' requests, the SEC has modified mailing
regulations for proxy statements, semiannual and annual reports, and
prospectuses. Putnam is now able to send a single copy of these
materials to customers who share the same address. This change will
automatically apply to all shareholders except those who notify us. If
you would prefer to receive your own copy, please call Putnam at
1-800-225-1581.
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, 2004, are available on the Putnam Individual Investor Web site,
www.putnaminvestments.com/individual, 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
For periods ending on or after July 9, 2004, 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.
The fund's portfolio
March 31, 2005 (Unaudited)
Corporate bonds and notes (31.6%) (a)
Principal amount Value
Basic Materials (3.4%)
-------------------------------------------------------------------------------
$455,000 AK Steel Corp. company guaranty
7 3/4s, 2012 $437,938
3,780,000 ALROSA Finance SA 144A company
guaranty 8 7/8s, 2014 (Luxembourg) 3,907,575
460,000 BCP Caylux Holdings Luxembourg SCA
144A sr. sub. notes 9 5/8s, 2014 524,400
EUR 550,000 Cognis Holding GmbH & Co. 144A sr.
notes 9 1/2s, 2014 (Germany) 789,771
$285,000 Compass Minerals International, Inc.
sr. disc. notes stepped-coupon Ser. B,
zero % (12s, 6/1/08), 2013 (STP) 236,550
775,000 Compass Minerals International, Inc.
sr. notes stepped-coupon zero %
(12 3/4s, 12/15/07), 2012 (STP) 666,500
345,000 Crystal US Holdings, LLC/US Sub 3
Corp. 144A sr. disc. notes
stepped-coupon zero % (10s,
10/1/09), 2014 (STP) 248,400
375,000 Equistar Chemicals LP notes 8 3/4s,
2009 402,188
1,148,000 Equistar Chemicals LP/Equistar
Funding Corp. company guaranty
10 1/8s, 2008 1,262,800
705,000 Georgia-Pacific Corp. company
guaranty 9 3/8s, 2013 787,838
405,000 Georgia-Pacific Corp. company
guaranty 8 7/8s, 2010 452,081
80,000 Georgia-Pacific Corp. debs. 7.7s,
2015 87,700
680,000 Gerdau Ameristeel Corp. sr. notes
10 3/8s, 2011 (Canada) 758,200
860,000 Hercules, Inc. company guaranty
11 1/8s, 2007 984,700
200,000 Huntsman Advanced Materials, LLC
144A sec. FRN 10.89s, 2008 211,000
240,000 Huntsman Advanced Materials, LLC
144A sec. notes 11s, 2010 275,400
260,000 Huntsman, LLC company guaranty
11 5/8s, 2010 304,200
191,000 Huntsman, LLC 144A company guaranty
12s, 2012 223,470
225,000 Innophos, Inc. 144A sr. sub. notes
8 7/8s, 2014 236,250
130,000 International Steel Group, Inc. sr.
notes 6 1/2s, 2014 132,600
646,000 ISP Chemco, Inc. company guaranty
Ser. B, 10 1/4s, 2011 702,525
80,000 Jefferson Smurfit Corp. company
guaranty 8 1/4s, 2012 82,200
40,000 Jefferson Smurfit Corp. company
guaranty 7 1/2s, 2013 39,800
EUR 500,000 JSG Holding PLC sr. notes 11 1/2s,
2015 (Ireland) (PIK) 601,019
$1,375,000 Lyondell Chemical Co. notes Ser. A,
9 5/8s, 2007 1,474,688
235,000 MDP Acquisitions PLC sr. notes
9 5/8s, 2012 (Ireland) 252,625
EUR 440,000 MDP Acquisitions PLC sr. notes
Ser. EUR, 10 1/8s, 2012 (Ireland) 643,253
EUR 75,000 Nalco Co. sr. notes 7 3/4s, 2011 105,211
EUR 75,000 Nalco Co. sr. sub. notes 9s, 2013 108,281
$1,045,000 Nalco Co. sr. sub. notes 8 7/8s,
2013 1,118,150
238,000 Norske Skog Canada, Ltd. sr. notes
7 3/8s, 2014 (Canada) 230,860
805,000 Novelis, Inc. 144A sr. notes 7 1/4s,
2015 (Canada) 788,900
509,465 PCI Chemicals Canada sec. sr. notes
10s, 2008 (Canada) 545,128
134,477 Pioneer Companies, Inc. sec.
sr.notes FRN 6.59s, 2006 141,873
235,000 PQ Corp. 144A company guaranty
7 1/2s, 2013 231,475
EUR 350,000 Rockwood Specialties Group, Inc.
company guaranty 7 5/8s, 2014 458,236
$150,000 Rockwood Specialties Group, Inc.
144A sub. notes 7 1/2s, 2014 150,000
EUR 440,000 SGL Carbon SA 144A sr. notes 8 1/2s,
2012 (Luxembourg) 616,379
$695,000 Steel Dynamics, Inc. company
guaranty 9 1/2s, 2009 748,863
146,606 Sterling Chemicals, Inc. sec. notes
10s, 2007 (PIK) 146,606
145,000 Stone Container Corp. sr. notes
9 3/4s, 2011 155,150
240,000 Stone Container Corp. sr. notes
8 3/8s, 2012 247,800
140,000 Stone Container Finance company
guaranty 7 3/8s, 2014 (Canada) 138,600
80,000 Tembec Industries, Inc. company
guaranty 7 3/4s, 2012 (Canada) 72,800
375,000 Ucar Finance, Inc. company guaranty
10 1/4s, 2012 401,250
243,000 United Agri Products sr. notes 9s,
2011 252,720
509,000 United States Steel Corp. sr. notes
9 3/4s, 2010 563,718
48,060 Wheeling-Pittsburgh Steel Corp. sr.
notes 6s, 2010 (PIK) 39,169
93,174 Wheeling-Pittsburgh Steel Corp. sr.
notes 5s, 2011 (PIK) 75,937
190,000 WHX Corp. sr. notes 10 1/2s, 2005
(In default) (NON) 190,000
--------------
24,252,777
Capital Goods (2.3%)
-------------------------------------------------------------------------------
255,000 AEP Industries, Inc. 144A sr. notes
7 7/8s, 2013 256,083
732,000 Allied Waste North America, Inc.
company guaranty Ser. B, 8 1/2s,
2008 757,620
362,000 Amsted Industries, Inc. 144A sr.
notes 10 1/4s, 2011 394,580
33,000 BE Aerospace, Inc. sr. sub. notes
Ser. B, 8 7/8s, 2011 33,413
282,000 BE Aerospace, Inc. sr. sub. notes
Ser. B, 8s, 2008 279,885
541,000 Blount, Inc. sr. sub. notes 8 7/8s,
2012 570,755
73,000 Browning-Ferris Industries, Inc. sr.
notes 6 3/8s, 2008 70,080
870,000 Crown Euro Holdings SA sec. notes
10 7/8s, 2013 (France) 1,009,200
EUR 80,000 Crown Euro Holdings SA sec. notes
10 1/4s, 2011 (France) 117,475
$316,000 Crown Euro Holdings SA sec. notes
9 1/2s, 2011 (France) 346,810
107,000 Crown Euro Holdings SA sec. notes
6 1/4s, 2011 (France) 147,389
1,981,000 Decrane Aircraft Holdings Co.
company guaranty zero %, 2008 752,780
721,000 Earle M. Jorgensen Co. sec. notes
9 3/4s, 2012 789,495
105,000 FIMEP SA sr. notes 10 1/2s, 2013
(France) 118,650
EUR 360,000 Flender Holdings 144A sr. notes 11s,
2010 (Germany) 566,764
$555,000 Flowserve Corp. company guaranty
12 1/4s, 2010 602,869
515,000 Invensys, PLC notes 9 7/8s, 2011
(United Kingdom) 524,013
330,000 L-3 Communications Corp. company
guaranty 6 1/8s, 2013 325,875
1,450,000 L-3 Communications Corp. sr. sub.
notes 5 7/8s, 2015 1,392,000
55,000 Manitowoc Co., Inc. (The) company
guaranty 10 1/2s, 2012 62,425
EUR 180,000 Manitowoc Co., Inc. (The) company
guaranty 10 3/8s, 2011 256,950
$220,000 Manitowoc Co., Inc. (The) sr. notes
7 1/8s, 2013 226,600
237,000 Milacron Escrow Corp. sec. notes
11 1/2s, 2011 258,330
265,000 Mueller Group, Inc. sr. sub. notes
10s, 2012 286,200
205,000 Mueller Holdings, Inc. disc. notes
stepped-coupon zero % (14 3/4s,
4/15/09), 2014 (STP) 141,450
560,000 Owens-Brockway Glass company
guaranty 8 1/4s, 2013 592,200
520,000 Owens-Brockway Glass company
guaranty 7 3/4s, 2011 544,700
964,000 Owens-Brockway Glass sr. sec. notes
8 3/4s, 2012 1,053,170
515,000 Pliant Corp. sec. notes 11 1/8s,
2009 515,000
EUR 142,000 Polypore, Inc. notes 8 3/4s, 2012 176,225
$258,000 Polypore, Inc. sr. sub. notes
8 3/4s, 2012 241,230
985,000 Sequa Corp. sr. notes 9s, 2009 1,058,875
155,000 Sequa Corp. sr. notes Ser. B,
8 7/8s, 2008 164,300
260,000 Siebe PLC 144A sr. unsub. 6 1/2s,
2010 (United Kingdom) 246,350
190,000 Terex Corp. company guaranty 9 1/4s,
2011 207,100
730,000 Terex Corp. company guaranty Ser. B,
10 3/8s, 2011 795,700
370,000 Titan Corp. (The) company guaranty
8s, 2011 384,800
--------------
16,267,341
Communication Services (2.3%)
-------------------------------------------------------------------------------
332,000 Alamosa Delaware, Inc. company
guaranty 11s, 2010 378,480
268,000 Alamosa Delaware, Inc. company
guaranty stepped-coupon zero %
(12s, 7/31/05), 2009 (STP) 291,450
195,000 American Cellular Corp. company
guaranty 9 1/2s, 2009 180,375
750,000 American Towers, Inc. company
guaranty 7 1/4s, 2011 774,375
529,140 Asia Global Crossing, Ltd. sr. notes
13 3/8s, 2010 (Bermuda) (In default)
(NON) 26,457
805,000 Cincinnati Bell, Inc. sr. sub. notes
8 3/8s, 2014 792,925
564,000 Citizens Communications Co. notes
9 1/4s, 2011 617,580
2,120,000 Citizens Communications Co. sr.
notes 6 1/4s, 2013 1,992,800
214,443 Globix Corp. company guaranty 11s,
2008 (PIK) 205,865
580,000 Inmarsat Finance PLC company
guaranty 7 5/8s, 2012 (United
Kingdom) 582,900
754,000 Inmarsat Finance PLC company
guaranty stepped-coupon zero %
(10 3/8s, 10/15/08), 2012 (STP) 531,570
300,000 iPCS, Inc. sr. notes 11 1/2s, 2012 337,500
82,000 IWO Escrow Co. 144A sec. FRN 6.32s,
2012 83,640
82,000 IWO Escrow Co. 144A sr. disc. notes
stepped-coupon zero % (10 3/4s,
1/15/10), 2015 (STP) 52,480
725,000 Madison River Capital Corp. sr.
notes 13 1/4s, 2010 775,750
981,000 MCI, Inc. sr. notes 8.735s, 2014 1,079,100
2,385,000 Nextel Communications, Inc. sr.
notes 5.95s, 2014 2,373,075
275,000 PanAmSat Corp. notes 6 3/8s, 2008 279,125
428,000 Qwest Communications International,
Inc. 144A sr. notes 7 3/4s, 2014 418,370
2,415,000 Qwest Corp. 144A notes 9 1/8s, 2012 2,626,313
360,000 Qwest Services Corp. 144A notes
14 1/2s, 2014 434,700
164,000 Rogers Cantel, Inc. debs. 9 3/4s,
2016 (Canada) 193,520
261,000 Rogers Wireless Communications, Inc.
sec. notes 7 1/2s, 2015 (Canada) 268,178
270,000 Rural Cellular Corp. sr. sub. notes
9 3/4s, 2010 247,050
228,000 SBA Communications Corp. 144A sr.
notes 8 1/2s, 2012 235,980
320,000 SBA Telecommunications Inc./SBA
Communications Corp. sr. disc. notes
stepped-coupon zero % (9 3/4s,
12/15/07), 2011 (STP) 276,000
152,000 TSI Telecommunication Services, Inc.
company guaranty Ser. B, 12 3/4s,
2009 169,480
235,000 Valor Telecommunications Enterprises
LLC/Finance Corp. 144A sr. notes
7 3/4s, 2015 233,825
--------------
16,458,863
Consumer Cyclicals (7.5%)
-------------------------------------------------------------------------------
518,000 Advertising Direct 144A sr. notes
9 1/4s, 2012 (Canada) 543,900
290,000 Ameristar Casinos, Inc. company
guaranty 10 3/4s, 2009 316,825
615,000 ArvinMeritor, Inc. notes 8 3/4s,
2012 639,600
455,000 Asbury Automotive Group, Inc. sr.
sub. notes 8s, 2014 441,350
885,000 Autonation, Inc. company guaranty
9s, 2008 973,500
236,000 Bear Creek Corp. 144A sr. notes 9s,
2013 233,640
155,000 Beazer Homes USA, Inc. company
guaranty 8 3/8s, 2012 164,300
585,000 Boyd Gaming Corp. sr. sub. notes
8 3/4s, 2012 631,800
165,000 Boyd Gaming Corp. sr. sub. notes
7 3/4s, 2012 172,838
134,000 Boyd Gaming Corp. sr. sub. notes
6 3/4s, 2014 132,325
1,041,021 CanWest Media, Inc. 144A sr. sub.
notes 8s, 2012 (Canada) 1,080,059
858,000 Coinmach Corp. sr. notes 9s, 2010 877,305
65,000 Cooper-Standard Automotive, Inc.
144A notes 7s, 2012 60,450
196,000 Cooper-Standard Automotive, Inc.
144A notes 8 3/8s, 2014 159,250
105,000 D.R. Horton, Inc. company guaranty
8s, 2009 112,886
630,000 D.R. Horton, Inc. sr. notes 7 7/8s,
2011 685,125
155,000 D.R. Horton, Inc. sr. notes 6 7/8s,
2013 160,425
440,000 D.R. Horton, Inc. sr. notes 5 7/8s,
2013 432,332
160,000 Dana Corp. notes 10 1/8s, 2010 167,196
550,000 Dana Corp. notes 9s, 2011 605,684
295,000 Dana Corp. notes 6 1/2s, 2009 289,244
565,000 Dayton Superior Corp. sec. notes
10 3/4s, 2008 553,700
160,000 Delco Remy International, Inc.
company guaranty 11s, 2009 156,800
525,000 Delco Remy International, Inc. sr.
sub. notes 9 3/8s, 2012 441,000
605,000 Dex Media West, LLC/Dex Media
Finance Co. sr. notes Ser. B,
8 1/2s, 2010 645,838
505,000 Dex Media, Inc. disc. notes zero %,
2013 383,800
580,000 Dex Media, Inc. notes 8s, 2013 600,300
190,000 Dura Operating Corp. company
guaranty Ser. B, 8 5/8s, 2012 175,275
515,000 FelCor Lodging LP company guaranty
9s, 2008 (R) 553,625
438,000 Finlay Fine Jewelry Corp. sr. notes
8 3/8s, 2012 413,910
700,000 Gaylord Entertainment Co. sr. notes
8s, 2013 724,500
1,430,000 Goodyear Tire & Rubber Co. (The)
notes 7.857s, 2011 1,379,950
200,000 Goodyear Tire & Rubber Co. (The)
notes 6 3/8s, 2008 198,000
185,000 HMH Properties, Inc. company
guaranty Ser. B, 7 7/8s, 2008 (R) 188,700
725,000 Host Marriott LP sr. notes Ser. M,
7s, 2012 (R) 717,750
340,000 Houghton Mifflin Co. sr. sub. notes
9 7/8s, 2013 350,200
590,000 Icon Health & Fitness company
guaranty 11 1/4s, 2012 415,950
575,000 JC Penney Co., Inc. notes 9s, 2012 598,000
30,000 JC Penney Co., Inc. notes 8s, 2010 30,000
1,061,000 John Q. Hammons Hotels LP/John Q.
Hammons Hotels Finance Corp. III
1st mtge. Ser. B, 8 7/8s, 2012 1,148,533
245,000 Jostens Holding Corp. sr. disc.
notes stepped-coupon zero %
(10 1/4s, 12/1/08), 2013 (STP) 178,850
1,140,000 Jostens IH Corp. company guaranty
7 5/8s, 2012 1,128,600
600,000 K. Hovnanian Enterprises, Inc.
company guaranty 8 7/8s, 2012 642,000
385,000 K. Hovnanian Enterprises, Inc.
company guaranty 6 3/8s, 2014 371,525
295,000 K. Hovnanian Enterprises, Inc. sr.
notes 6 1/2s, 2014 288,363
108,000 K2, Inc. sr. notes 7 3/8s, 2014 111,780
232,000 KB Home company guaranty 5 7/8s,
2015 221,665
333,000 KB Home sr. notes 5 3/4s, 2014 318,956
670,000 Laidlaw International, Inc. sr.
notes 10 3/4s, 2011 758,775
560,000 Lamar Media Corp. company guaranty
7 1/4s, 2013 582,400
695,000 Levi Strauss & Co. sr. notes
12 1/4s, 2012 757,550
550,000 Levi Strauss & Co. 144A sr. notes
9 3/4s, 2015 540,375
243,000 Mandalay Resort Group sr. notes
6 3/8s, 2011 245,430
700,000 MeriStar Hospitality Corp. company
guaranty 9 1/8s, 2011 (R) 731,500
75,000 MeriStar Hospitality Operating
Partnership/MeriStar
Hospitality Finance Corp. company
guaranty 10 1/2s, 2009 80,250
160,000 Meritage Homes Corp. sr. notes 7s,
2014 160,000
235,000 Meritage Homes Corp. 144A sr. notes
6 1/4s, 2015 220,900
405,000 Meritor Automotive, Inc. notes 6.8s,
2009 400,950
420,000 Metaldyne Corp. 144A sr. notes 10s,
2013 382,200
675,000 MGM Mirage, Inc. company guaranty
8 1/2s, 2010 739,125
802,000 MGM Mirage, Inc. company guaranty
6s, 2009 790,973
1,510,000 Owens Corning notes 7 1/2s, 2005 (In
default) (NON) 996,600
460,000 Oxford Industries, Inc. sr. notes
8 7/8s, 2011 487,600
905,000 Park Place Entertainment Corp. sr.
notes 7 1/2s, 2009 975,138
495,000 Park Place Entertainment Corp. sr.
notes 7s, 2013 530,888
395,000 Park Place Entertainment Corp. sr.
sub. notes 8 7/8s, 2008 433,019
955,000 Penn National Gaming, Inc. sr. sub.
notes 8 7/8s, 2010 1,012,300
200,000 Penn National Gaming, Inc. 144A sr.
sub. notes 6 3/4s, 2015 197,000
295,000 Pinnacle Entertainment, Inc. sr.
sub. notes 8 3/4s, 2013 305,325
757,000 Pinnacle Entertainment, Inc. sr.
sub. notes 8 1/4s, 2012 757,000
1,355,000 PRIMEDIA, Inc. sr. notes 8s, 2013 1,382,100
335,000 R.H. Donnelley Corp. 144A sr. notes
6 7/8s, 2013 331,650
925,000 R.H. Donnelley Finance Corp. I 144A
company guaranty 8 7/8s, 2010 1,008,250
475,000 R.H. Donnelley Finance Corp. I 144A
sr. sub. notes 10 7/8s, 2012 547,438
125,000 R.H. Donnelley, Inc. company
guaranty 8 7/8s, 2010 136,250
EUR 345,000 Ray Acquisition sr. notes 9 3/8s,
2015 (France) 418,065
$365,000 Reader's Digest Association, Inc.
(The) sr. notes 6 1/2s, 2011 364,088
509,000 Resorts International Hotel and
Casino, Inc. company guaranty
11 1/2s, 2009 579,624
576,000 Russell Corp. company guaranty
9 1/4s, 2010 612,000
1,107,000 Saks, Inc. company guaranty 7s, 2013 1,001,835
1,190,000 Samsonite Corp. sr. sub. notes
8 7/8s, 2011 1,246,525
385,000 Schuler Homes, Inc. company guaranty
10 1/2s, 2011 425,799
626,000 Scientific Games Corp. 144A sr. sub.
notes 6 1/4s, 2012 622,870
735,000 Sealy Mattress Co. sr. sub. notes
8 1/4s, 2014 766,238
420,000 Standard Pacific Corp. sr. notes
7 3/4s, 2013 437,850
560,000 Starwood Hotels & Resorts Worldwide,
Inc. company guaranty 7 7/8s, 2012 611,800
390,000 Starwood Hotels & Resorts Worldwide,
Inc. company guaranty 7 3/8s, 2007 402,675
520,000 Starwood Hotels & Resorts Worldwide,
Inc. debs. 7 3/8s, 2015 559,000
585,000 Starwood Hotels & Resorts Worldwide,
Inc. notes 6 3/4s, 2005 589,388
470,000 Station Casinos, Inc. sr. notes 6s,
2012 466,475
335,000 Technical Olympic USA, Inc. company
guaranty 10 3/8s, 2012 366,825
220,000 Technical Olympic USA, Inc. company
guaranty 9s, 2010 227,700
326,000 Technical Olympic USA, Inc. sr. sub.
notes 7 1/2s, 2015 301,550
EUR 125,000 Teksid Aluminum 144A company
guaranty 11 3/8s, 2011 (Luxembourg) 141,321
$750,000 Tenneco Automotive, Inc. sec. notes
Ser. B, 10 1/4s, 2013 836,250
420,000 Tenneco Automotive, Inc. 144A sr.
sub. notes 8 5/8s, 2014 408,450
604,000 THL Buildco, Inc. (Nortek Holdings,
Inc.) sr. sub. notes 8 1/2s, 2014 582,860
350,000 Toys R Us, Inc. notes 7 5/8s, 2011 329,000
515,000 United Auto Group, Inc. company
guaranty 9 5/8s, 2012 543,325
605,000 Vertis, Inc. company guaranty
Ser. B, 10 7/8s, 2009 577,775
730,000 Vertis, Inc. 144A sub. notes
13 1/2s, 2009 594,950
810,000 WCI Communities, Inc. company
guaranty 9 1/8s, 2012 864,675
399,000 William Carter Holdings Co. (The)
company guaranty Ser. B, 10 7/8s,
2011 443,888
540,000 WRC Media Corp. sr. sub. notes
12 3/4s, 2009 497,475
555,000 Wynn Las Vegas, LLC/Wynn Las Vegas
Capital Corp. 144A 1st mtge. 6 5/8s,
2014 527,250
--------------
53,656,116
Consumer Staples (4.4%)
-------------------------------------------------------------------------------
215,000 Adelphia Communications Corp. sr.
notes 10 7/8s, 2010 (In default)
(NON) 190,275
50,000 Adelphia Communications Corp. sr.
notes 9 3/8s, 2009 (In default)
(NON) 44,500
341,000 Adelphia Communications Corp. sr.
notes Ser. B, 9 7/8s, 2007 (In
default) (NON) 289,850
545,000 Affinity Group, Inc. sr. sub. notes
9s, 2012 572,250
500,000 Affinity Group, Inc. 144A sr. notes
10 7/8s, 2012 485,000
299,000 AMC Entertainment, Inc. sr. sub.
notes 9 7/8s, 2012 315,445
906,000 AMC Entertainment, Inc. sr. sub.
notes 8s, 2014 865,230
119,699 Archibald Candy Corp. company
guaranty 10s, 2007 (In default)
(NON) (PIK) (F) 25,496
565,000 Brand Services, Inc. company
guaranty 12s, 2012 627,150
409,000 Cablevision Systems Corp. 144A sr.
notes 8s, 2012 420,248
100,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (12 1/8s,
1/15/07), 2012 (STP) 62,500
525,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (11 3/4s,
5/15/06), 2011 (STP) 362,250
835,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
11 1/8s, 2011 674,263
860,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
10 3/4s, 2009 705,200
1,560,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 10s,
2011 1,193,400
444,000 Church & Dwight Co., Inc. 144A sr.
sub. notes 6s, 2012 432,900
30,000 Cinemark USA, Inc. sr. sub. notes
9s, 2013 32,550
990,000 Cinemark, Inc. sr. disc. notes
stepped-coupon zero % (9 3/4s,
3/15/07), 2014 (STP) 702,900
825,000 Constellation Brands, Inc. company
guaranty Ser. B, 8s, 2008 876,563
425,000 Constellation Brands, Inc. sr. sub.
notes Ser. B, 8 1/8s, 2012 452,625
353,000 CSC Holdings, Inc. sr. notes Ser. B,
7 5/8s, 2011 367,120
1,068,000 CSC Holdings, Inc. 144A sr. notes
6 3/4s, 2012 1,059,990
918,000 Dean Foods Co. sr. notes 6 5/8s,
2009 934,065
560,000 Del Monte Corp. sr. sub. notes
8 5/8s, 2012 606,200
320,000 Del Monte Corp. 144A sr. sub. notes
6 3/4s, 2015 312,000
2,742,000 Diva Systems Corp. sr. disc. notes
Ser. B, 12 5/8s, 2008 (In default)
(NON) 13,710
1,370,000 Doane Pet Care Co. sr. sub. debs.
9 3/4s, 2007 1,342,600
730,000 Echostar DBS Corp. sr. notes 6 3/8s,
2011 715,400
2,119,000 Echostar DBS Corp. 144A company
guaranty 6 5/8s, 2014 2,047,484
322,000 Elizabeth Arden, Inc. company
guaranty 7 3/4s, 2014 331,660
956,000 Granite Broadcasting Corp. sec.
notes 9 3/4s, 2010 889,080
650,000 Intelsat Bermuda, Ltd. 144A sr.
notes 8 5/8s, 2015 (Bermuda) 663,000
310,000 Intelsat Bermuda, Ltd. 144A sr.
notes 8 1/4s, 2013 (Bermuda) 313,100
285,000 Interpublic Group Companies, Inc.
notes 6 1/4s, 2014 269,325
345,000 Jean Coutu Group, Inc. sr. notes
7 5/8s, 2012 (Canada) 351,900
415,000 Jean Coutu Group, Inc. sr. sub.
notes 8 1/2s, 2014 (Canada) 403,069
820,000 Kabel Deutsheland GmbH 144A sr.
notes 10 5/8s, 2014 (Germany) 906,100
42,635 Knology, Inc. 144A sr. notes 12s,
2009 (PIK) 40,930
970,000 Pinnacle Foods Holding Corp. sr.
sub. notes 8 1/4s, 2013 829,350
840,000 Playtex Products, Inc. company
guaranty 9 3/8s, 2011 873,600
770,000 Playtex Products, Inc. sec. notes
8s, 2011 829,675
450,000 Prestige Brands, Inc. sr. sub. notes
9 1/4s, 2012 474,750
165,000 Quebecor Media, Inc. sr. disc. notes
stepped-coupon zero % (13 3/4s,
7/15/06), 2011 (Canada) (STP) 160,875
694,000 Rainbow National Services, LLC 144A
sr. notes 8 3/4s, 2012 746,050
735,000 Remington Arms Co., Inc. company
guaranty 10 1/2s, 2011 723,975
560,000 Rite Aid Corp. company guaranty
9 1/2s, 2011 593,600
35,000 Rite Aid Corp. debs. 6 7/8s, 2013 32,550
36,000 Rite Aid Corp. notes 7 1/8s, 2007 36,000
505,000 Rite Aid Corp. sr. notes 9 1/4s,
2013 502,475
325,000 Rite Aid Corp. 144A sec. notes
7 1/2s, 2015 312,000
875,000 Sbarro, Inc. company guaranty 11s,
2009 844,375
255,000 Scotts Co. (The) sr. sub. notes
6 5/8s, 2013 257,550
673,000 Six Flags, Inc. sr. notes 9 5/8s,
2014 620,843
EUR 204,000 United Biscuits Finance company
guaranty 10 5/8s, 2011 (United
Kingdom) 276,365
$881,000 United Rentals (North America), Inc.
company guaranty 6 1/2s, 2012 856,773
373,000 Universal City Florida Holding Co.
144A sr. notes 8 3/8s, 2010 380,460
471,000 Universal City Florida Holding Co.
144A sr. notes FRN 7.493s, 2010 487,485
431,000 Young Broadcasting, Inc. company
guaranty 10s, 2011 440,698
365,000 Young Broadcasting, Inc. sr. sub.
notes 8 3/4s, 2014 345,838
--------------
31,522,615
Energy (3.2%)
-------------------------------------------------------------------------------
770,000 Amerada Hess Corp. unsub notes
6.65s, 2011 824,595
1,347,000 Arch Western Finance, LLC sr. notes
6 3/4s, 2013 1,353,735
487,000 Bluewater Finance, Ltd. company
guaranty 10 1/4s, 2012 (Cayman
Islands) 528,395
565,000 CHC Helicopter Corp. sr. sub. notes
7 3/8s, 2014 (Canada) 550,169
345,000 CHC Helicopter Corp. 144A sr. sub.
notes 7 3/8s, 2014 (Canada) 335,944
340,000 Chesapeake Energy Corp. company
guaranty 9s, 2012 375,700
269,000 Chesapeake Energy Corp. company
guaranty 7 3/4s, 2015 284,468
1,031,000 Chesapeake Energy Corp. sr. notes
7 1/2s, 2013 1,087,705
279,000 Chesapeake Energy Corp. sr. notes
7s, 2014 287,370
510,000 Comstock Resources, Inc. sr. notes
6 7/8s, 2012 507,450
696,000 Dresser, Inc. company guaranty
9 3/8s, 2011 738,630
304,000 Dresser-Rand Group, Inc. 144A sr.
sub. notes 7 3/8s, 2014 304,000
550,000 Encore Acquisition Co. company
guaranty 8 3/8s, 2012 594,000
255,000 Encore Acquisition Co. sr. sub.
notes 6 1/4s, 2014 255,000
725,000 Exco Resources, Inc. company
guaranty 7 1/4s, 2011 735,875
108,000 Forest Oil Corp. company guaranty
7 3/4s, 2014 115,560
540,000 Forest Oil Corp. sr. notes 8s, 2011 594,000
335,000 Forest Oil Corp. sr. notes 8s, 2008 358,450
395,000 Hanover Compressor Co. sr. notes 9s,
2014 422,650
248,000 Hanover Compressor Co. sr. notes
8 5/8s, 2010 259,160
530,000 Hanover Compressor Co. sub. notes
zero %, 2007 466,400
173,000 Hanover Equipment Trust sec. notes
Ser. B, 8 3/4s, 2011 182,515
584,000 Harvest Operations Corp. sr. notes
7 7/8s, 2011 (Canada) 576,700
517,000 Hornbeck Offshore Services, Inc. sr.
notes Ser. B, 6 1/8s, 2014 509,245
620,000 Inergy LP/Inergy Finance Corp. 144A
sr. notes 6 7/8s, 2014 595,200
463,000 Key Energy Services, Inc. sr. notes
6 3/8s, 2013 449,110
774,000 Massey Energy Co. sr. notes 6 5/8s,
2010 777,870
700,000 Newfield Exploration Co. sr. notes
7 5/8s, 2011 763,000
348,000 Newfield Exploration Co. sr. sub.
notes 6 5/8s, 2014 352,350
655,000 Offshore Logistics, Inc. company
guaranty 6 1/8s, 2013 622,250
552,209 Oslo Seismic Services, Inc. 1st
mtge. 8.28s, 2011 582,995
355,000 Pacific Energy Partners/Pacific
Energy Finance Corp. sr. notes
7 1/8s, 2014 367,425
190,000 Parker Drilling Co. company guaranty
Ser. B, 10 1/8s, 2009 199,500
565,000 Petroleum Geo-Services notes 10s,
2010 (Norway) 634,213
115,000 Pioneer Natural Resources Co.
company guaranty 6 1/2s, 2008 120,438
415,000 Plains Exploration & Production Co.
sr. notes 7 1/8s, 2014 433,675
485,000 Plains Exploration & Production Co.
sr. sub. notes 8 3/4s, 2012 528,650
670,000 Pogo Producing Co. sr. sub. notes
Ser. B, 8 1/4s, 2011 713,550
826,000 Pride International, Inc. sr. notes
7 3/8s, 2014 875,560
600,000 Seabulk International, Inc. company
guaranty 9 1/2s, 2013 690,000
699,000 Star Gas Partners LP/Star Gas
Finance Co. sr. notes 10 1/4s, 2013 646,575
326,000 Stone Energy Corp. sr. sub. notes
6 3/4s, 2014 316,220
245,000 Tengizchevroll Finance Co. 144A sec.
notes 6.124s, 2014 (Kazakhstan) 242,550
670,000 Vintage Petroleum, Inc. sr. notes
8 1/4s, 2012 716,900
145,000 Vintage Petroleum, Inc. sr. sub.
notes 7 7/8s, 2011 152,250
--------------
23,027,997
Financial (0.9%)
-------------------------------------------------------------------------------
1,594,000 Bosphorus Financial Services Ltd.
144A sec. FRN 4.83s, 2012 (Cayman
Islands) 1,593,369
585,000 China Development Bank bonds and
notes 4 3/4s, 2014 (China) 563,491
310,000 Crescent Real Estate Equities LP
notes 7 1/2s, 2007 (R) 320,075
462,000 Crescent Real Estate Equities LP sr.
notes 9 1/4s, 2009 (R) 502,425
797,000 E*Trade Finance Corp. sr. notes
8s, 2011 820,910
1,128,960 Finova Group, Inc. notes 7 1/2s,
2009 488,275
1,240,000 VTB Bank (VTB Capital) 144A notes
7 1/2s, 2011 (Luxembourg) 1,274,100
540,000 Western Financial Bank sub. debs.
9 5/8s, 2012 587,250
--------------
6,149,895
Health Care (2.9%)
-------------------------------------------------------------------------------
260,000 Alderwoods Group, Inc. 144A sr.
notes 7 3/4s, 2012 (Canada) 265,850
580,000 AmerisourceBergen Corp. company
guaranty 7 1/4s, 2012 614,800
560,000 AmerisourceBergen Corp. sr. notes
8 1/8s, 2008 600,600
990,000 Ardent Health Services, Inc. sr.
sub. notes 10s, 2013 1,173,150
324,000 Community Health Systems, Inc. 144A
sr. sub. notes 6 1/2s, 2012 315,900
320,000 Coventry Health Care, Inc. 144A sr.
notes 5 7/8s, 2012 318,400
175,000 DaVita, Inc. 144A sr. notes 6 5/8s,
2013 173,250
345,000 DaVita, Inc. 144A sr.sub. notes
7 1/4s, 2015 338,100
297,000 Elan Finance PLC/Elan Finance Corp.
144A sr. notes 7 3/4s, 2011
(Ireland) 222,008
340,000 Extendicare Health Services, Inc.
company guaranty 9 1/2s, 2010 371,875
535,000 Extendicare Health Services, Inc.
sr. sub. notes 6 7/8s, 2014 528,313
1,500,000 HCA, Inc. med. term notes 8.85s,
2007 1,592,964
1,240,000 HCA, Inc. notes 7s, 2007 1,285,007
263,000 HCA, Inc. notes 6 3/8s, 2015 261,065
550,000 HCA, Inc. notes 6 1/4s, 2013 545,713
260,000 HCA, Inc. notes 5 3/4s, 2014 248,171
570,000 Healthsouth Corp. notes 7 5/8s, 2012 552,900
510,000 Healthsouth Corp. sr. notes 8 1/2s,
2008 507,450
245,000 Healthsouth Corp. sr. notes 8 3/8s,
2011 244,388
205,000 Healthsouth Corp. sr. notes 7s, 2008 199,363
595,000 MedQuest, Inc. company guaranty
Ser. B, 11 7/8s, 2012 589,050
805,000 MQ Associates, Inc. sr. disc. notes
stepped-coupon zero % (12 1/4s,
8/15/08), 2012 (STP) 458,850
740,000 Omnicare, Inc. sr. sub. notes
6 1/8s, 2013 721,500
737,000 PacifiCare Health Systems, Inc.
company guaranty 10 3/4s, 2009 812,543
75,000 Service Corp. International notes
7.2s, 2006 76,125
25,000 Service Corp. International notes
6 7/8s, 2007 25,313
110,000 Service Corp. International notes
6 1/2s, 2008 110,275
270,000 Service Corp. International notes
Ser. (a), 7.7s, 2009 278,100
775,000 Service Corp. International 144A sr.
notes 6 3/4s, 2016 744,000
547,000 Stewart Enterprises, Inc. 144A sr.
notes 6 1/4s, 2013 530,590
390,000 Tenet Healthcare Corp. notes 7 3/8s,
2013 367,575
1,226,000 Tenet Healthcare Corp. sr. notes
9 7/8s, 2014 1,275,040
409,000 Tenet Healthcare Corp. sr. notes
6 1/2s, 2012 376,280
825,000 Triad Hospitals, Inc. sr. notes 7s,
2012 833,250
717,000 Triad Hospitals, Inc. sr. sub. notes
7s, 2013 704,453
840,000 Universal Hospital Services, Inc.
sr. notes 10 1/8s, 2011 (Canada) 861,000
420,000 US Oncology, Inc. 144A sr. notes 9s,
2012 443,100
422,000 Vanguard Health Holding Co. II, LLC
sr. sub. notes 9s, 2014 444,155
305,000 Ventas Realty LP/Capital Corp.
company guaranty 9s, 2012 (R) 346,175
173,000 Ventas Realty LP/Capital Corp. sr.
notes 6 5/8s, 2014 (R) 171,703
--------------
20,528,344
Technology (1.3%)
-------------------------------------------------------------------------------
865,000 Advanced Micro Devices, Inc. 144A
sr. notes 7 3/4s, 2012 849,863
457,000 AMI Semiconductor, Inc. company
guaranty 10 3/4s, 2013 544,973
1,385,000 Celestica, Inc. sr.sub. notes
7 7/8s, 2011 (Canada) 1,402,313
1,345,000 Freescale Semiconductor, Inc. sr.
notes Ser. B, 7 1/8s, 2014 1,405,525
1,150,000 Iron Mountain, Inc. company guaranty
8 5/8s, 2013 1,161,500
390,000 Iron Mountain, Inc. sr. sub. notes
8 1/4s, 2011 390,000
330,000 SCG Holding Corp. 144A notes zero %,
2011 495,000
1,237,000 UGS Corp. 144A sr. sub. notes 10s,
2012 1,366,885
EUR 195,000 Xerox Corp. sr. notes 9 3/4s, 2009 301,929
$1,255,000 Xerox Corp. sr. notes 7 5/8s, 2013 1,311,475
--------------
9,229,463
Transportation (0.5%)
-------------------------------------------------------------------------------
550,000 American Airlines, Inc. pass-through
certificates Ser. 01-1, 6.817s,
2011 508,750
760,000 Calair, LLC/Calair Capital Corp.
company guaranty 8 1/8s, 2008 600,400
910,000 Kansas City Southern Railway Co.
company guaranty 9 1/2s, 2008 991,900
190,000 Kansas City Southern Railway Co.
company guaranty 7 1/2s, 2009 193,800
733,000 Navistar International Corp. sr.
notes 7 1/2s, 2011 738,498
335,000 Navistar International Corp. 144A
sr. notes 6 1/4s, 2012 318,250
240,154 NWA Trust sr. notes Ser. A, 9 1/4s,
2012 246,758
190,000 Travelcenters of America, Inc.
company guaranty 12 3/4s, 2009 209,950
620,000 United AirLines, Inc. debs. 9 1/8s,
2012 (In default) (NON) 50,375
--------------
3,858,681
Utilities & Power (2.9%)
-------------------------------------------------------------------------------
54,000 AES Corp. (The) sr. notes 8 7/8s,
2011 58,320
30,000 AES Corp. (The) sr. notes 8 3/4s,
2008 31,650
460,000 AES Corp. (The) 144A sec. notes
8 3/4s, 2013 499,100
340,000 Allegheny Energy Supply 144A sec.
notes 10 1/4s, 2007 375,700
540,000 Allegheny Energy Supply 144A bonds
8 1/4s, 2012 572,400
600,000 CMS Energy Corp. sr. notes 8.9s,
2008 644,250
180,000 CMS Energy Corp. sr. notes 7 3/4s,
2010 187,650
174,000 Colorado Interstate Gas Co. 144A sr.
notes 5.95s, 2015 175,305
635,000 DPL, Inc. sr. notes 6 7/8s, 2011 674,668
1,810,000 Dynegy Holdings, Inc. 144A sec.
notes 10 1/8s, 2013 1,972,900
385,000 Dynegy-Roseton Danskamme company
guaranty Ser. A, 7.27s, 2010 376,338
265,000 Edison Mission Energy sr. notes 10s,
2008 294,481
15,000 Edison Mission Energy sr. notes
9 7/8s, 2011 17,325
130,000 Edison Mission Energy sr. notes
7.73s, 2009 135,525
200,000 El Paso CGP Co. notes 6 3/8s, 2009 192,000
275,000 El Paso Corp. notes Ser. MTN, 6.95s,
2007 278,438
670,000 El Paso Corp. sr. notes 7 3/8s, 2012 648,225
365,000 El Paso Natural Gas Co. sr. notes
Ser. A, 7 5/8s, 2010 382,338
1,290,000 El Paso Production Holding Co.
company guaranty 7 3/4s, 2013 1,306,125
650,000 Ferrellgas Partners LP/Ferrellgas
Partners Finance sr. notes 6 3/4s,
2014 633,750
805,000 FirstEnergy Corp. notes Ser. B,
6.45s, 2011 849,311
749,000 Mission Energy Holding Co. sec.
notes 13 1/2s, 2008 898,800
400,000 Monongahela Power Co. 1st mtge.
6.7s, 2014 439,000
534,000 Nevada Power Co. 2nd mtge. 9s, 2013 599,415
235,000 Nevada Power Co. 144A general ref.
mtge. 5 7/8s, 2015 229,125
319,000 Northwest Corp. 144A sec. notes
5 7/8s, 2014 317,348
480,000 Northwest Pipeline Corp. company
guaranty 8 1/8s, 2010 513,600
1,799,000 NRG Energy, Inc. 144A sr. sec. notes
8s, 2013 1,902,443
655,000 Orion Power Holdings, Inc. sr. notes
12s, 2010 795,825
615,000 PSEG Energy Holdings, Inc. notes
7 3/4s, 2007 631,913
517,000 SEMCO Energy, Inc. sr. notes 7 3/4s,
2013 534,111
150,000 Sierra Pacific Power Co. general
ref. mtge. 6 1/4s, 2012 152,250
725,000 Sierra Pacific Resources sr. notes
8 5/8s, 2014 772,125
90,000 Southern California Edison Co. notes
6 3/8s, 2006 91,674
320,000 Teco Energy, Inc. notes 10 1/2s,
2007 359,200
185,000 Teco Energy, Inc. notes 7.2s, 2011 194,944
280,000 Teco Energy, Inc. notes 7s, 2012 292,250
585,000 Texas Genco LLC/Texas Genco
Financing Corp. 144A sr. notes
6 7/8s, 2014 586,463
612,000 Utilicorp Canada Finance Corp.
company guaranty 7 3/4s, 2011
(Canada) 630,360
361,000 Utilicorp United, Inc. sr. notes
9.95s, 2011 404,320
150,000 Williams Cos., Inc. (The) notes
8 1/8s, 2012 164,250
226,429 York Power Funding 144A notes 12s,
2007 (Cayman Islands) (In default)
(NON) (F) 2
--------------
20,815,217
--------------
Total Corporate bonds and notes
(cost $223,247,001) $225,767,309
U.S. government and agency mortgage obligations (23.2%) (a)
Principal amount Value
U.S. Government Agency Mortgage Obligations (23.2%)
-------------------------------------------------------------------------------
Federal Home Loan Mortgage
Corporation
$10,439,948 6 1/2s, with due dates from June 1,
2024 to October 1, 2034 $10,842,778
11,400,000 6 1/2s, TBA, April 1, 2035 11,824,828
Federal National Mortgage
Association Pass-Through
Certificates
53 8 1/2s, March 1, 2006 54
16,095 8s, with due dates from October 1,
2025 to July 1, 2028 17,443
14,213 7 1/2s, December 1, 2029 15,238
62,013,988 6 1/2s, with due dates from April 1,
2028 to February 1, 2035 64,432,669
28,179 6 1/2s, October 1, 2018 29,345
5,000,000 6 1/2s, TBA, April 1, 2035 5,188,281
41,600,000 5 1/2s, TBA, April 1, 2035 41,661,751
232,448 5s, April 1, 2019 232,566
2,300,000 5s, TBA, April 1, 2020 2,297,305
3,497,097 4 1/2s, with due dates from August
1, 2033 to June 1, 2034 3,327,809
26,200,000 4 1/2s, TBA, April 1, 2020 25,616,641
--------------
Total U.S. government and agency
mortgage obligations
(cost $165,917,538) $165,486,708
U.S. Treasury obligations (8.1%) (a)
Principal amount Value
-------------------------------------------------------------------------------
U.S. Treasury Notes
$7,500,000 6 1/2s, February 15, 2010 $8,259,375
23,608,000 4 1/4s, August 15, 2013 23,287,078
27,242,000 3 1/4s, August 15, 2008 26,586,489
--------------
Total U.S. Treasury obligations
(cost $59,804,493) $58,132,942
Foreign government bonds and notes (9.9%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$3,615,000 Brazil (Federal Republic of) bonds
10 1/2s, 2014 $3,985,538
1,220,000 Bulgaria (Republic of) 144A bonds
8 1/4s, 2015 1,493,280
CAD 3,680,000 Canada (Government of) bonds
Ser. WH31, 6s, 2008 3,267,521
$1,070,000 Colombia (Republic of) notes
10 3/4s, 2013 1,195,725
1,260,000 Colombia (Republic of) unsub.
9 3/4s, 2009 1,375,290
EUR 5,530,000 France (Government of) bonds 4s,
2013 7,459,312
EUR 5,500,000 Germany (Federal Republic of) bonds
Ser. 97, 6s, 2007 7,676,147
EUR 7,700,000 Germany (Federal Republic of) bonds
Ser. 97, 6s, 2007 10,606,519
EUR 1,345,000 Greece (Hellenic Republic of) bonds
3 1/2s, 2008 1,783,658
$185,000 Indonesia (Republic of) FRN 2.795s,
2006 182,919
590,000 Indonesia (Republic of) 144A sr.
notes 6 3/4s, 2014 584,100
1,970,000 Peru (Republic of) bonds 8 3/8s,
2016 2,063,575
1,340,000 Philippines (Republic of) bonds
8 3/8s, 2011 1,348,710
JPY 81,000,000 Philippines (Republic of) 144A sr.
sub. notes 3.2s, 2005 760,464
$945,000 Russia (Ministry of Finance) deb.
Ser. V, 3s, 2008 869,400
925,000 South Africa (Republic of) notes
7 3/8s, 2012 1,017,500
860,000 South Africa (Republic of) notes
6 1/2s, 2014 898,700
EUR 1,000,000 Spain (Government of) bonds 5.4s,
2011 1,456,740
SEK 26,915,000 Sweden (Government of) bonds Ser.
3101, 4s, 2008 4,730,346
SEK 30,690,000 Sweden (Government of) debs. Ser.
1041, 6 3/4s, 2014 5,392,935
$9,620,000 United Mexican States notes 6 5/8s,
2015 10,004,800
160,000 Venezuela (Republic of) notes
10 3/4s, 2013 178,000
820,000 Venezuela (Republic of) notes
8 1/2s, 2014 807,700
2,095,000 Venezuela (Republic of) unsub. bonds
5 3/8s, 2010 1,864,550
--------------
Total Foreign government bonds and
notes (cost $66,358,151) $71,003,429
Asset-backed securities (9.7%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$198,326 ABSC NIMS Trust 144A Ser. 03-HE5,
Class A, 7s, 2033 $198,822
Aegis Asset Backed Securities Trust
144A
54,515 Ser. 04-1N, Class Note, 5s, 2034 54,515
145,908 Ser. 04-2N, Class N1, 4 1/2s, 2034 145,566
132,782 Ser. 04-4N, Class Note, 5s, 2034 132,865
302,000 Ameriquest Finance NIM Trust 144A
Ser. 04-RN9, Class N2, 10s, 2034
(Cayman Islands) 279,743
28,176 AQ Finance NIM Trust 144A Ser.
03-N9A, Class Note, 7.385s,
2033 (Cayman Islands) 28,246
Arcap REIT, Inc. 144A
383,000 Ser. 03-1A, Class E, 7.11s, 2038
(Cayman Islands) (R) 397,123
361,000 Ser. 04-1A, Class E, 6.42s, 2039
(Cayman Islands) (R) 358,913
29,935 Argent NIM Trust 144A Ser. 04-WN2,
Class A, 4.55s, 2034 (Cayman
Islands) 29,944
Asset Backed Funding Corp. NIM Trust
144A
156,000 Ser. 04-0PT1, Class N2, 6.9s, 2033
(Cayman Islands) 155,999
149,752 Ser. 04-0PT5, Class N1, 4.45s, 2034
(Cayman Islands) 149,752
205,616 Ser. 04-FF1, Class N1, 5s, 2034
(Cayman Islands) 204,940
38,000 Ser. 04-FF1, Class N2, 5s, 2034
(Cayman Islands) 35,024
252,000 Ser. 04-HE1, Class N2, 8s, 2034 244,847
302,234 Aviation Capital Group Trust 144A
FRB Ser. 03-2A, Class G1, 3.55s,
2033 302,683
340,000 Bank One Issuance Trust FRB Ser.
03-C4, Class C4, 3.84s, 2011 347,438
15,411,274 Bayview Financial Acquisition Trust
Ser. 03-X, Class A, Interest Only
(IO), 0.9s, 2006 269,697
Bear Stearns Asset Backed Securities
NIM Trust 144A
160,641 Ser. 04-HE10, Class A1, 4 1/4s, 2034
(Cayman Islands) 160,240
268,549 Ser. 04-HE6, Class A1, 5 1/4s, 2034 268,969
213,318 Ser. 04-HE7N, Class A1, 5 1/4s, 2034 213,718
286,000 Bear Stearns Asset Backed
Securities, Inc. Ser. 04-FR3, Class
M6, 6.1s, 2034 288,860
Bombardier Capital Mortgage
Securitization Corp.
172,988 Ser. 00-A, Class A2, 7.575s, 2030 126,727
632,014 Ser. 00-A, Class A4, 8.29s, 2030 521,411
1,183,363 Ser. 99-B, Class A3, 7.18s, 2015 893,439
805,455 Ser. 99-B, Class A4, 7.3s, 2016 608,937
181,796 Bombardier Capital Mortgage
Securitization Corp. FRB Ser.
00-A, Class A1, 2.97s, 2030 93,815
CARSSX Finance, Ltd. 144A
177,452 FRB Ser. 04-AA, Class B3, 6.16s,
2011 (Cayman Islands) 180,016
564,083 FRB Ser. 04-AA, Class B4, 8.31s,
2011 (Cayman Islands) 580,543
350,000 Chase Credit Card Master Trust FRB
Ser. 03-3, Class C, 3.89s, 2010 358,269
3,608 Chase Funding Net Interest Margin
144A Ser. 03-4A, Class Note,
6 3/4s, 2036 3,608
CHEC NIM Ltd., 144A
241,940 Ser. 04-2, Class N1, 4.45s, 2034
(Cayman Islands) 241,926
94,000 Ser. 04-2, Class N2, 8s, 2034
(Cayman Islands) 93,463
58,000 Ser. 04-2, Class N3, 8s, 2034
(Cayman Islands) 49,880
Conseco Finance Securitizations Corp.
276,655 Ser. 00-2, Class A4, 8.48s, 2030 276,350
1,805,434 Ser. 00-4, Class A4, 7.73s, 2031 1,755,160
240,000 Ser. 00-4, Class A5, 7.97s, 2032 203,028
3,412,000 Ser. 00-4, Class A6, 8.31s, 2032 2,946,667
101,000 Ser. 00-6, Class A5, 7.27s, 2032 94,331
676,132 Ser. 00-6, Class M2, 8.2s, 2032 67,613
268,000 Ser. 01-04, Class A4, 7.36s, 2033 268,707
897,000 Ser. 01-1, Class A5, 6.99s, 2032 838,300
13,000 Ser. 01-3, Class A3, 5.79s, 2033 13,219
3,073,000 Ser. 01-3, Class A4, 6.91s, 2033 2,981,541
300,000 Ser. 01-3, Class M2, 7.44s, 2033 49,500
659,250 Ser. 01-4, Class B1, 9.4s, 2033 88,999
2,062,293 Ser. 02-1, Class A, 6.681s, 2033 2,112,758
295,000 FRB Ser. 01-4, Class M1, 4.44s, 2033 120,950
790,000 Consumer Credit Reference IDX
Securities 144A FRB Ser. 02-1A,
Class A, 5.05s, 2007 801,850
Countrywide Asset Backed
Certificates 144A
1,057,501 Ser. 04-6N, Class N1, 6 1/4s, 2035 1,062,863
168,994 Ser. 04-BC1N, Class Note, 5 1/2s,
2035 169,364
11,196,779 Countrywide Home Loans Ser. 05-2,
Class 2X, IO, 1.295s, 2035 374,392
431,000 Crest, Ltd. 144A Ser. 03-2A, Class
E2, 8s, 2038 (Cayman Islands) 428,586
489,355 CS First Boston Mortgage Securities
Corp. 144A Ser. 05-6N, Class A,
5 1/4s, 2035 487,711
1,770,000 First Chicago Lennar Trust 144A Ser.
97-CHL1, Class E, 7.751s, 2039 1,818,122
470,680 First Consumers Master Trust FRN
Ser. 01-A, Class A, 3.12s, 2008 466,855
262,737 First Franklin Mortgage Loan NIM
Trust 144A Ser. 04-FF10, Class N1,
4.45s, 2034 (Cayman Islands) 262,720
First Franklin NIM Trust 144A
77,651 Ser. 03-FF3A, Class A, 6 3/4s, 2033 77,350
18,033 Ser. 04-FF1, Class N1, 4 1/2s, 2034 17,982
316,014 Fremont NIM Trust 144A Ser. 04-3,
Class A, 4 1/2s, 2034 315,477
Fremont NIM Trust 144A
58,611 Ser. 04-3, Class B, 7 1/2s, 2034 56,554
169,333 Ser. 04-A, Class Note, 4 3/4s, 2034 168,707
Granite Mortgages PLC FRB
EUR 1,430,000 Ser. 03-2, Class 2C1, 5.2s, 2043
(United Kingdom) 1,982,790
GBP 1,075,000 Ser. 03-2, Class 3C, 6.42s, 2043
(United Kingdom) 2,114,380
$440,000 Ser. 02-1, Class 1C, 3.97s, 2042
(United Kingdom) 446,908
Green Tree Financial Corp.
384,299 Ser. 94-4, Class B2, 8.6s, 2019 273,878
883,982 Ser. 94-6, Class B2, 9s, 2020 717,346
371,800 Ser. 95-4, Class B1, 7.3s, 2025 361,692
362,579 Ser. 95-8, Class B1, 7.3s, 2026 276,763
387,000 Ser. 96-8, Class M1, 7.85s, 2027 331,156
90,214 Ser. 99-3, Class A5, 6.16s, 2031 91,877
1,247,000 Ser. 99-5, Class A5, 7.86s, 2030 1,096,590
Greenpoint Manufactured Housing
2,185,222 Ser. 00-3, Class IA, 8.45s, 2031 2,083,776
117,000 Ser. 99-5, Class A4, 7.59s, 2028 121,721
1,180,000 GS Auto Loan Trust 144A Ser. 04-1,
Class D, 5s, 2011 1,160,629
GSAMP Trust 144A
23,223 Ser. 03-HE1N, Class Note, 7 1/4s,
2033 23,223
88,620 Ser. 04-FM1N, Class Note, 5 1/4s,
2033 88,514
110,685 Ser. 04-HE1N, Class N1, 5s, 2034 110,452
1,115,087 Ser. 04-NIM1, Class N1, 5 1/2s, 2034 1,113,638
519,000 Ser. 04-NIM1, Class N2, zero %, 2034 380,427
1,140,023 Ser. 04-NIM2, Class N, 4 7/8s, 2034 1,138,313
169,234 Ser. 04-SE2N, Class Note, 5 1/2s,
2034 169,031
235,000 Holmes Financing PLC FRB Ser. 8,
Class 2C, 3.38s, 2040 (United
Kingdom) 236,469
210,000 Holmes Financing PLC FRB Ser. 4,
Class 3C, 3.96s, 2040 (United
Kingdom) 212,688
Home Equity Asset Trust 144A
68,685 Ser. 02-5N, Class A, 8s, 2033 68,685
62,824 Ser. 03-7N, Class A, 5 1/4s, 2034 62,863
56,352 Ser. 04-1N, Class A, 5s, 2034 56,352
310,337 Ser. 04-5N, Class A, 5 1/4s, 2034 310,337
1,260,000 LNR CDO, Ltd. 144A FRB Ser. 02-1A,
Class FFL, 5.6s, 2037 (Cayman
Islands) 1,267,434
Long Beach Asset Holdings Corp. NIM
Trust 144A
135,454 Ser. 04-2, Class N1, 4.94s, 2034 135,454
209,085 Ser. 04-5, Class Note, 5s, 2034 209,545
Long Beach Mortgage Loan Trust
1,454,234 Ser. 04-3, Class S1, IO, 4 1/2s,
2006 73,584
727,116 Ser. 04-3, Class S2, IO, 4 1/2s,
2006 36,792
GBP 900,000 Lothian Mortgages PLC 144A FRN Ser.
3A, Class D, 5.67s, 2039 (United
Kingdom) 1,700,460
$1,046,356 Madison Avenue Manufactured Housing
Contract FRB Ser. 02-A, Class B1,
6.1s, 2032 502,251
Master Asset Backed Securities NIM
Trust 144A
143,000 Ser. 04-CI5, Class N2, 9s, 2034 142,571
182,551 Ser. 04-HE1A, Class Note, 5.191s,
2034 181,456
350,000 MBNA Credit Card Master Note Trust
FRN Ser. 03-C5, Class C5, 3.99s,
2010 357,304
41,763 Merrill Lynch Mortgage Investors,
Inc. Ser. 03-WM3N, Class N1, 8s,
2005 41,802
Merrill Lynch Mortgage Investors,
Inc. 144A
118,789 Ser. 04-FM1N, Class N1, 5s, 2035
(Cayman Islands) 118,047
100,399 Ser. 04-HE1N, Class N1, 5s, 2006 99,677
164,490 Mid-State Trust Ser. 11, Class B, 8.221s, 2038 166,738
214,000 Morgan Stanley ABS Capital I FRB Ser. 04-HE8, Clas 221,934
178,000 Morgan Stanley Auto Loan Trust 144A
Ser. 04-HB2, Class E, 5s, 2012 170,713
Morgan Stanley Dean Witter Capital I
100,346 FRN Ser. 01-NC3, Class B1, 5.3s,
2031 99,928
210,522 FRN Ser. 01-NC4, Class B1, 5.35s,
2032 208,854
51,576 New Century Mortgage Corp. NIM Trust
144A Ser. 03-B, Class Note, 6 1/2s,
2033 51,689
49,727 Novastar NIM Trust 144A Ser. 04-N1,
Class Note, 4.458s, 2034 49,727
Oakwood Mortgage Investors, Inc.
238,669 Ser. 00-A, Class A2, 7.765s, 2017 204,224
1,022,000 Ser. 00-D, Class A4, 7.4s, 2030 642,085
1,192,950 Ser. 01-C, Class A2, 5.92s, 2017 723,292
687,897 Ser. 01-C, Class A4, 7.405s, 2030 463,338
211,243 Ser. 01-D, Class A2, 5.26s, 2019 158,265
845,000 Ser. 01-D, Class A4, 6.93s, 2031 652,315
1,608,299 Ser. 01-E, Class A2, 5.05s, 2019 1,310,010
581,778 Ser. 02-A, Class A2, 5.01s, 2020 478,263
443,000 Ser. 02-B, Class A4, 7.09s, 2032 390,002
1,922,712 Ser. 02-C, Class A1, 5.41s, 2032 1,673,144
1,413,082 Ser. 99-B, Class A4, 6.99s, 2026 1,274,643
1,335,486 Ser. 99-D, Class A1, 7.84s, 2029 1,243,042
299,426 Oakwood Mortgage Investors, Inc.
144A Ser. 01-B, Class A4, 7.21s,
2030 278,955
485,000 Ocean Star PLC 144A FRB Ser. 04-A,
Class E, 9.29s, 2018 (Ireland) 485,000
20,970 Option One Mortgage Securities Corp.
NIM Trust 144A Ser. 03-5, Class
Note, 6.9s, 2033 21,074
71,000 Park Place Securities NIM Trust 144A
Ser. 04-WCW2, Class D, 7.387s, 2034
(Cayman Islands) 71,000
129,637 Pass-Through Amortizing Credit Card
Trust Ser. 02-1A, Class A4FL, 8.33s,
2012 129,911
90,000 People's Choice Net Interest Margin
Note 144A Ser. 04-2, Class B, 5s,
2034 81,540
Permanent Financing PLC FRB
350,000 Ser. 1, Class 3C, 4.17s, 2042
(United Kingdom) 353,360
GBP 350,000 Ser. 3, Class 3C, 4.12s, 2042
(United Kingdom) 354,760
$887,000 Ser. 6, Class 3C, 5.686s, 2042
(United Kingdom) 1,675,898
1,313,000 Providian Gateway Master Trust Ser.
02, Class B, Principal Only (PO),
zero %, 2006 1,246,696
2,132,446 Residential Asset Mortgage Products,
Inc. Ser. 03-RZ1, Class A,
IO, 5 3/4s, 2005 30,372
407,546 Residential Asset Securities Corp.
144A Ser. 04-N10B, Class A1, 5s,
2034 407,546
150,000 Residential Mortgage Securities 144A
FRB Ser. 20A, Class B1A, 5.766s,
2038 (United Kingdom) 283,410
83,456 Rural Housing Trust Ser. 87-1, Class
D, 6.33s, 2026 84,890
SAIL Net Interest Margin Notes 144A
196,882 Ser. 03-10A, Class A, 7 1/2s, 2033
(Cayman Islands) 197,866
59,812 Ser. 03-12A, Class A, 7.35s, 2033
(Cayman Islands) 60,410
45,016 Ser. 03-3, Class A, 7 3/4s, 2033
(Cayman Islands) 45,353
20,200 Ser. 03-4, Class A, 7 1/2s, 2033
(Cayman Islands) 20,178
106,469 Ser. 03-5, Class A, 7.35s, 2033
(Cayman Islands) 106,438
39,422 Ser. 03-6A, Class A, 7s, 2033
(Cayman Islands) 39,422
103,663 Ser. 03-7A, Class A, 7s, 2033
(Cayman Islands) 102,894
24,509 Ser. 03-8A, Class A, 7s, 2033
(Cayman Islands) 24,386
68,684 Ser. 03-9A, Class A, 7s, 2033
(Cayman Islands) 68,326
116,823 Ser. 03-BC2A, Class A, 7 3/4s, 2033
(Cayman Islands) 116,484
618,134 Ser. 04-10A, Class A, 5s, 2034
(Cayman Islands) 618,381
317,028 Ser. 04-2A, Class A, 5 1/2s, 2034
(Cayman Islands) 317,028
392,419 Ser. 04-4A, Class A, 5s, 2034
(Cayman Islands) 391,830
208,585 Ser. 04-7A, Class A, 4 3/4s, 2034
(Cayman Islands) 208,295
43,458 Ser. 04-7A, Class B, 6 3/4s, 2034
(Cayman Islands) 42,267
422,638 Ser. 04-8A, Class A, 5s, 2034
(Cayman Islands) 422,638
185,866 Ser. 04-8A, Class B, 6 3/4s, 2034
(Cayman Islands) 183,356
237,681 Ser. 04-AA, Class A, 4 1/2s, 2034
(Cayman Islands) 236,849
Sasco Net Interest Margin Trust 144A
7,801 Ser. 03-AM1, Class A, 7 3/4s, 2033
(Cayman Islands) 7,763
273,262 Ser. 03-BC1, Class B, zero %, 2033
(Cayman Islands) 122,968
579,785 Ser. 05-WF1A, Class A, 4 3/4s, 2035 581,119
37,008 Saxon Net Interest Margin Trust 144A
Ser. 03-A, Class A, 6.656s, 2033 37,008
Sharps SP I, LLC Net Interest Margin
Trust 144A
65,066 Ser. 03-0P1N, Class NA, 4.45s, 2033 65,066
30,651 Ser. 03-HS1N, Class N, 7.48s, 2033 30,728
28,787 Ser. 03-NC1N, Class N, 7 1/4s, 2033 28,787
19,278 Ser. 03-TC1N, Class N, 7.45s, 2033 19,278
15,970 Ser. 04-FM1N, Class N, 6.16s, 2033 16,070
91,434 Ser. 04-HE2N, Class NA, 5.43s, 2034 91,205
25,807 Ser. 04-HS1N, Class Note, 5.92s,
2034 25,807
140,000 South Coast Funding 144A FRB Ser.
3A, Class A2, 3.971s, 2038 (Cayman
Islands) 141,274
Structured Asset Investment Loan
Trust
80,590 Ser. 03-BC1A, Class A, 7 3/4s, 2033
(Cayman Islands) 80,842
963,995 Ser. 03-BC8, Class A, IO, 6s, 2005 22,967
9,153,119 Ser. 04-1, Class A, IO, 6s, 2005 172,853
467,000 TIAA Real Estate CD0, Ltd. Ser.
03-1A, Class E, 8s, 2038 (Cayman
Islands) 442,531
390,000 TIAA Real Estate CD0, Ltd. 144A Ser.
02-1A, Class IV, 6.84s, 2037 (Cayman
Islands) 362,053
Wells Fargo Home Equity Trust 144A
765,450 Ser. 04-2, Class N1, 4.45s, 2034
(Cayman Islands) 765,405
214,000 Ser. 04-2, Class N2, 8s, 2034
(Cayman Islands) 203,300
Whole Auto Loan Trust 144A
539,708 Ser. 03-1, Class D, 6s, 2010 540,938
504,000 Ser. 04-1, Class D, 5.6s, 2011 502,268
--------------
Total Asset-backed securities
(cost $70,538,074) $69,391,718
Senior loans (5.4%) (a) (c)
Principal amount Value
Basic Materials (0.3%)
-------------------------------------------------------------------------------
$136,882 Graphic Packaging Corp. bank term
loan FRN Ser. C, 5.143s, 2010 $139,175
173,250 Hercules, Inc. bank term loan FRN
Ser. B, 3.985s, 2010 175,416
199,755 Koch Cellulose, LLC bank term loan
FRN Ser. B, 4.8s, 2011 202,626
50,245 Koch Cellulose, LLC bank term loan
FRN Ser. C, 4.44s, 2011 50,968
114,449 Nalco Co. bank term loan FRN Ser. B,
4.951s, 2010 116,627
1,000,000 Rockwood Specialties Group, Inc.
bank term loan FRN Ser. D, 4.95s,
2012 1,020,000
172,889 SGL Carbon, LLC bank term loan FRN
5.989s, 2009 (Germany) 175,914
--------------
1,880,726
Capital Goods (0.8%)
-------------------------------------------------------------------------------
270,270 Allied Waste Industries, Inc. bank
term loan FRN 4.564s, 2012 272,534
729,730 Allied Waste Industries, Inc. bank
term loan FRN Class B, 4.564s, 2012 735,866
182,369 Amsted Industries, Inc. bank term
loan FRN 5.439s, 2010 184,801
69,448 Flowserve Corp. bank term loan FRN
Ser. C, 5.473s, 2009 70,664
1,496,250 Goodman Global Holdings bank term
loan FRN Ser. B, 4.813s, 2011 1,521,499
1,000,000 Hexcel Corp. bank term loan FRN
Ser. B, 4 5/8s, 2012 1,013,438
118,629 Invensys, PLC bank term loan FRN
Ser. B-1, 6.091s, 2009 (United
Kingdom) 120,631
341,743 Mueller Group, Inc. bank term loan
FRN 5.569s, 2011 344,733
148,500 Solo Cup Co. bank term loan FRN
5.076s, 2011 150,579
65,678 SPX Corp. bank term loan FRN
Ser. B-1, 4.938s, 2009 65,875
750,000 Terex Corp. bank term loan FRN Class
C, 5.064s, 2009 758,125
150,000 Terex Corp. bank term loan FRN
Ser. B, 4.89s, 2009 151,563
498,243 Transdigm, Inc. bank term loan FRN
Ser. C, 4.935s, 2010 505,407
--------------
5,895,715
Communication Services (0.6%)
-------------------------------------------------------------------------------
49,500 Consolidated Communications Holdings
bank term loan FRN Ser. C, 5.185s,
2012 49,871
45,000 Consolidated Communications Holdings
bank term loan FRN Ser. D, 5.064s,
2011 45,450
1,000,000 Fairpoint Communications, Inc. bank
term loan FRN Ser. B, 4 3/4s, 2012 1,013,250
79,398 PanAmSat Corp. bank term loan FRN
Class B, 5.37s, 2010 80,604
195,000 Qwest Communications International,
Inc. bank term loan FRN
Ser. A, 7.39s, 2007 201,429
1,047,112 SBA Senior Finance, Inc. bank term
loan FRN 5.905s, 2008 1,064,782
1,993,333 Valor Telecommunications Enterprises
LLC/Finance Corp. bank term loan
FRN Ser. B, 6.243s, 2012 2,021,988
--------------
4,477,374
Consumer Cyclicals (1.3%)
-------------------------------------------------------------------------------
445,838 Advertising Directory Solutions,
Inc. bank term loan FRN 4.72s, 2011
(Canada) 446,395
141,780 Coinmach Corp. bank term loan FRN
Ser. B, 5.774s, 2009 143,464
383,333 Cooper Tire & Rubber Co. bank term
loan FRN Ser. B, 4 3/4s, 2012 384,611
616,667 Cooper Tire & Rubber Co. bank term
loan FRN Ser. C, 4 3/4s, 2012 618,722
157,424 Dex Media West, LLC/Dex Media West
Finance Co. bank term loan FRN
Ser. B, 4.654s, 2010 159,867
120,000 Goodyear Tire & Rubber Co. (The)
bank term loan FRN 9 1/4s, 2006 120,900
75,000 Goodyear Tire & Rubber Co. (The)
bank term loan FRN 4.6s, 2007 75,422
170,900 Hayes Lemmerz International, Inc.
bank term loan FRN 6.574s, 2009 173,250
970,000 Jostens IH Corp. bank term loan FRN
Ser. C, 5.19s, 2010 984,954
350,000 Journal Register Co. bank term loan
FRN Ser. B, 4.176s, 2012 352,735
162,556 Lamar Media Corp. bank term loan FRN
Ser. D, 4.531s, 2010 164,384
50,000 Landsource, Inc. bank term loan FRN
Ser. B, 5 3/8s, 2010 50,625
53,197 Penn National Gaming, Inc. bank term
loan FRN Ser. D, 5.553s, 2010 53,330
127,175 PRIMEDIA, Inc. bank term loan FRN
Ser. B, 5.62s, 2009 127,890
214,740 R.H. Donnelley Finance Corp. bank
term loan FRN Ser. D, 4.601s, 2011 218,156
1,300,000 Raycom Media, Inc. bank term loan
FRN Ser. B, 4.563s, 2012 1,316,250
550,000 Resorts International Hotel and
Casino, Inc. bank term loan
FRN 5.064s, 2012 560,771
594,324 Sealy Mattress Co. bank term loan
FRN Ser. C, 4.768s, 2012 605,219
984,933 TransWestern Publishing/TWP Cap bank
term loan FRN Ser. B, 4.201s, 2011 987,806
525,469 TRW Automotive bank term loan FRN
Ser. B, 4 3/8s, 2010 530,286
1,020,798 Venetian Casino Resort, LLC bank
term loan FRN Ser. B, 4.81s, 2011 1,033,302
210,474 Venetian Casino Resort, LLC bank
term loan FRN Ser. DD, 4.314s, 2011
(U) 213,105
165,000 WRC Media Corp. bank term loan FRN
6.761s, 2009 164,588
--------------
9,486,032
Consumer Staples (1.2%)
-------------------------------------------------------------------------------
34,347 Affinity Group Holdings bank term
loan FRN Ser. B1, 5.915s, 2009 34,719
85,867 Affinity Group Holdings bank term
loan FRN Ser. B2, 5.78s, 2009 86,798
105,017 AMF Bowling Worldwide bank term loan
FRN Ser. B, 5.893s, 2009 105,607
900,000 Century Cable Holdings bank term
loan FRN 7 3/4s, 2009 893,571
685,944 Charter Communications Holdings,
LLC/Capital Corp. bank term loan
FRN Ser. B, 5.98s, 2011 (United
Kingdom) 689,006
1,661,667 Constellation Brands, Inc. bank term
loan FRN Ser. B, 4.395s, 2011 1,687,516
147,164 DirecTV Holdings/Finance bank term
loan FRN Ser. B-2, 4.56s, 2010 147,274
13,729 Dole Food Co., Inc. bank term loan
FRN Ser. D, 5.115s, 2009 13,741
69,125 Insight Midwest LP/Insight Capital,
Inc. bank term loan FRN 5.438s,
2009 70,349
350,000 Loews Cineplex bank term loan FRN
Ser. B, 4.901s, 2011 355,852
997,500 Mediacom Communications Corp. bank
term loan FRN Ser. B, 4.963s, 2012 1,014,022
179,100 MGM Studios, Inc. bank term loan FRN
Ser. B, 5.06s, 2011 178,988
500,000 Olympus Cable bank term loan FRN
Ser. B, 7 1/2s, 2010 495,391
1,496,222 Regal Cinemas, Inc. bank term loan
FRN Ser. B, 4.56s, 2010 1,521,069
242,516 Roundy's bank term loan FRN Ser. B,
4.926s, 2009 244,410
84,249 Six Flags, Inc. bank term loan FRN
Ser. B, 5 1/4s, 2009 85,512
152,478 Sun Media Corp. bank term loan FRN
Ser. B, 4.73s, 2009 (Canada) 154,638
848,375 Universal City Development bank term
loan FRN Ser. B, 4.725s, 2011 862,161
198,000 Warner Music Group bank term loan
FRN Ser. B, 5.088s, 2011 199,402
--------------
8,840,026
Energy (0.1%)
-------------------------------------------------------------------------------
180,000 Dresser, Inc. bank term loan FRN
5.84s, 2010 182,700
801,583 Magellan Midstream Holdings bank
term loan FRN Ser. B, 5.09s, 2011 813,607
--------------
996,307
Financial (0.4%)
-------------------------------------------------------------------------------
2,000,000 Fidelity National Information
Solutions bank term loan FRN Class
B, 4.51s, 2013 2,006,250
897,982 General Growth Properties bank term
loan FRN Ser. B, 4.94s, 2008 (R) 912,676
216,845 Hilb, Rogal & Hamilton Co. bank term
loan FRN Ser. B, 4.813s, 2011 220,233
--------------
3,139,159
Health Care (0.3%)
-------------------------------------------------------------------------------
123,125 Beverly Enterprises, Inc. bank term
loan FRN 5.186s, 2008 124,151
119,400 Community Health Systems, Inc. bank
term loan FRN Ser. B, 4.639s, 2011 120,893
196,515 Concentra bank term loan FRN 5.167s,
2009 199,135
486,771 Express Scripts, Inc. bank term loan
FRN Ser. B, 4.131s, 2010 491,030
119,100 Fisher Scientific International,
Inc. bank term loan FRN
Ser. B, 4.17s, 2011 120,092
98,500 Hanger Orthopedic Group, Inc. bank
term loan FRN 6.06s, 2009 99,362
85,188 Kinetic Concepts, Inc. bank term
loan FRN Ser. B, 4.31s, 2011 86,252
474,897 Triad Hospitals, Inc. bank term loan
FRN Ser. B, 4.92s, 2008 482,284
--------------
1,723,199
Technology (0.2%)
-------------------------------------------------------------------------------
605,566 Seagate Technology Hdd Holdings bank
term loan FRN 5 1/8s, 2007 (Cayman
Islands) 615,911
242,210 Seagate Technology Hdd Holdings bank
term loan FRN Ser. B, 5 1/8s, 2007
(Cayman Islands) 246,347
200,000 Xerox Corp. bank term loan FRN
4.314s, 2008 202,429
--------------
1,064,687
Transportation (--%)
-------------------------------------------------------------------------------
114,471 Pacer International, Inc. bank term
loan FRN 4.674s, 2010 116,760
Utilities & Power (0.2%)
-------------------------------------------------------------------------------
208,000 El Paso Corp. bank Corp. term loan
FRN Ser. C, 2.3s, 2009 210,438
790,624 El Paso Corp. bank term loan FRN
Ser. B, Class B, 5.438s, 2009 801,001
117,908 Williams Cos., Inc. bank term loan
FRN Ser. C, 5.315s, 2007 119,529
--------------
1,130,968
--------------
Total Senior loans
(cost $38,533,009) $38,750,953
Collateralized mortgage obligations (4.7%) (a)
Principal amount Value
-------------------------------------------------------------------------------
Banc of America Commercial Mortgage,
Inc. 144A
$163,000 Ser. 01-1, Class J, 6 1/8s, 2036 $159,250
367,000 Ser. 01-1, Class K, 6 1/8s, 2036 271,107
Banc of America Large Loan 144A
141,000 FRN Ser. 02-FL2A, Class L1, 5.746s,
2014 141,238
150,000 FRB Ser. 05-BOCA, Class M, 4.93s,
2016 150,240
183,000 FRB Ser. 05-BOCA, Class L, 4.53s,
2016 183,293
100,000 FRB Ser. 05-BOCA, Class K, 4.18s,
2016 100,109
410,000 Bear Stearns Commercial Mortgage
Securitization Corp. Ser. 00-WF2,
Class F, 8.204s, 2032 476,607
350,000 Bear Stearns Commercial Mortgage
Securitization Corp. 144A Ser.
04-ESA, Class K, 5.3s, 2016 349,999
533,000 Commercial Mortgage Pass-Through
Certificates 144A Ser.
01-FL4A, Class D, 3.66s, 2013 527,721
CS First Boston Mortgage Securities
Corp. 144A
356,000 FRN Ser. 03-TF2A, Class L, 6.81s,
2014 354,761
966,000 Ser. 98-C1, Class F, 6s, 2040 708,617
354,000 Ser. 02-CP5, Class M, 5 1/4s, 2035 250,136
699,000 FRB Ser. 05-TFLA, Class L, 4.66s,
2020 699,000
186,000 FRB Ser. 05-TFLA, Class K, 4.11s,
2020 186,000
22,858,158 Deutsche Mortgage & Asset Receiving
Corp. Ser. 98-C1, Class X, IO,
0.715s, 2031 671,182
DLJ Commercial Mortgage Corp.
286,492 Ser. 98-CF2, Class B4, 6.04s, 2031 277,402
915,958 Ser. 98-CF2, Class B5, 5.95s, 2031 635,804
DLJ Mortgage Acceptance Corp. 144A
275,000 Ser. 97-CF1, Class B2, 8.16s, 2030 165,000
266,000 Ser. 97-CF1, Class B1, 7.91s, 2030 284,153
134,464 EURO 144A FRN Ser. 6A, Class F,
7.116s, 2010 (United Kingdom) 257,334
GBP 376,499 Euro Loan Conduit FRN Ser. 6X, Class
E, 6.616s, 2010 (United Kingdom) 721,174
Fannie Mae
$107,464 Ser. 98-51, Class SG, IO, 22.6s,
2022 51,209
343,104 IFB Ser. 02-36, Class SJ, 13s, 2029 356,347
388,281 Ser. 03-W3, Class 1A3, 7 1/2s, 2042 411,638
8,531 Ser. 03-W2, Class 1A3, 7 1/2s, 2042 9,047
971 Ser. 02-W1, Class 2A, 7 1/2s, 2042 1,025
3,603 Ser. 02-14, Class A2, 7 1/2s, 2042 3,816
471,442 Ser. 01-T10, Class A2, 7 1/2s, 2041 498,626
2,264 Ser. 02-T4, Class A3, 7 1/2s, 2041 2,395
6,115 Ser. 01-T8, Class A1, 7 1/2s, 2041 6,461
1,841,390 Ser. 01-T7, Class A1, 7 1/2s, 2041 1,944,007
275,834 Ser. 01-T3, Class A1, 7 1/2s, 2040 291,331
845,671 Ser. 01-T1, Class A1, 7 1/2s, 2040 894,807
352,305 Ser. 99-T2, Class A1, 7 1/2s, 2039 373,114
174,148 Ser. 00-T6, Class A1, 7 1/2s, 2030 183,853
825,585 Ser. 01-T4, Class A1, 7 1/2s, 2028 877,026
1,961 Ser. 02-W3, Class A5, 7 1/2s, 2028 2,076
866,517 Ser. 03-58, Class ID, IO, 6s, 2033 181,969
814,473 Ser. 03-26, Class IG, IO, 6s, 2033 151,838
679,028 Ser. 322, Class 2, IO, 6s, 2032 149,055
850,194 Ser. 318, Class 2, IO, 6s, 2032 186,363
2,335,272 Ser. 350, Class 2, IO, 5 1/2s, 2034 540,214
5,445,443 Ser. 338, Class 2, IO, 5 1/2s, 2033 1,281,060
2,354,754 Ser. 333, Class 2, IO, 5 1/2s, 2033 554,460
4,796,358 Ser. 329, Class 2, IO, 5 1/2s, 2033 1,118,220
2,415,241 Ser. 03-37, Class IC, IO, 5 1/2s,
2027 243,034
265,065 Ser. 03-6, Class IB, IO, 5 1/2s,
2022 4,836
1,163,732 Ser. 03-118, Class S, IO, 5 1/4s,
2033 136,738
1,284,272 IFB Ser. 03-118, Class SF, IO,
5 1/4s, 2033 155,371
743,386 IFB Ser. 02-36, Class QH, IO, 5.2s,
2029 23,026
7,063,924 Ser. 03-W10, Class 1A, IO, 1.551s,
2043 150,108
8,313,084 Ser. 03-W10, Class 3A, IO, 1.527s,
2043 179,251
4,584,813 Ser. 03-W17, Class 12, IO, 1.16s,
2033 131,918
13,082,488 Ser. 02-T18, IO, 0.519s, 2042 156,029
133,917 Ser. 99-51, Class N, PO, zero %,
2029 111,905
52,785 Ser. 99-52, Class MO, PO, zero %,
2026 50,511
Federal Home Loan Mortgage Corp.
Structured Pass-Through Securities
11,467 Ser. T-58, Class 4A, 7 1/2s, 2043 12,136
4,523,693 Ser. T-57, Class 1AX, IO, 0.446s,
2043 43,880
11,770,271 FFCA Secured Lending Corp. Ser.
00-1, Class X, IO, 1.558s, 2020 765,068
Freddie Mac
491,351 IFB Ser. 2763, Class SC, 17.36s,
2032 538,373
2,639,089 Ser. 216, IO, 6s, 2032 565,293
1,858,478 Ser. 226, IO, 5 1/2s, 2034 442,641
1,418,300 Ser. 2515, Class IG, IO, 5 1/2s,
2032 385,459
677,653 Ser. 2626, Class IK, IO, 5 1/2s,
2030 135,060
729,500 Ser. 2590, Class IH, IO, 5 1/2s,
2028 158,666
503,008 Ser. 2833, Class IK, IO, 5 1/2s,
2023 75,859
285,403 Ser. 215, PO, zero %, 2031 250,116
287,338 Ser. 2235, PO, zero %, 2030 234,090
GE Capital Commercial Mortgage Corp.
144A
596,000 Ser. 00-1, Class G, 6.131s, 2033 535,029
370,000 Ser. 00-1, Class H, 6.131s, 2033 230,214
529,968 GMAC Commercial Mortgage Securities,
Inc. 144A Ser. 99-C3, Class G,
6.974s, 2036 418,801
Government National Mortgage
Association
189,114 Ser. 01-43, Class SJ, IO, 4 3/4s,
2029 1,773
137,036 Ser. 98-2, Class EA, PO, zero %,
2028 113,098
214,000 GS Mortgage Securities Corp. II 144A
FRB Ser. 03-FL6A, Class L, 6.06s,
2015 214,268
GBP 1,064,046 Hermione (European Loan Conduit No.
14) 144A FRB Class A, 5.319s, 2011
(Ireland) 2,021,465
$253,101 LB Commercial Conduit Mortgage Trust
144A Ser. 99-C1, Class G, 6.41s,
2031 238,902
876,000 Lehman Brothers Floating Rate
Commercial Mortgage Trust 144A
FRB Ser. 03-LLFA, Class L, 6.55s,
2014 844,672
Mach One Commercial Mortgage Trust
144A
594,000 Ser. 04-1A, Class J, 5.45s, 2040 486,152
212,000 Ser. 04-1A, Class K, 5.45s, 2040 169,269
96,000 Ser. 04-1A, Class L, 5.45s, 2040 68,640
8,393,162 Merrill Lynch Mortgage Investors,
Inc. Ser. 96-C2, Class JS,
IO, 2.13s, 2028 364,578
1,021,985 Mezz Cap Commercial Mortgage Trust
144A Ser. 04-C1, Class X, IO, 6.18s,
2037 447,597
1,730,000 Morgan Stanley Capital I 144A Ser.
04-RR, Class F7, 6s, 2039 1,204,989
4,097,800 Mortgage Capital Funding, Inc. Ser.
97-MC2, Class X, IO, 0.847s, 2012 94,471
327,112 Mortgage Capital Funding, Inc. FRB
Ser. 98-MC2, Class E, 7.106s, 2030 347,930
123,000 PNC Mortgage Acceptance Corp. 144A
Ser. 00-C1, Class J, 6 5/8s, 2010 106,818
GBP 448,594 Quick Star PLC FRN Class 1-D,
5.758s, 2011 (Ireland) 852,150
$726,000 QUIZNOS 144A Ser. 05-1, 7.3s, 2025 719,770
STRIPS 144A
162,000 Ser. 03-1A, Class M, 5s, 2018
(Cayman Islands) 131,317
193,000 Ser. 03-1A, Class N, 5s, 2018
(Cayman Islands) 140,890
174,000 Ser. 04-1A, Class M, 5s, 2018
(Cayman Islands) 143,480
167,000 Ser. 04-1A, Class N, 5s, 2018
(Cayman Islands) 125,317
Titan Europe PLC 144A
EUR 398,000 FRN Ser. 04-2A, Class D, 3.044s,
2014 (Ireland) 517,201
EUR 497,000 FRN Ser. 04-2A, Class C, 2.644s,
2014 645,852
--------------
Total Collateralized mortgage
obligations (cost $37,077,637) $33,774,095
Common stocks (0.5%) (a)
Number of shares Value
-------------------------------------------------------------------------------
1,987 AboveNet, Inc. (NON) (S) $65,571
2,305 Alderwoods Group, Inc. (NON)
(Canada) 28,674
820,000 AMRESCO Creditor Trust (acquired
6/17/99 and 2/10/00, cost $138,193)
(NON) (RES) (F) (R) 820
898 Birch Telecom, Inc. (NON) (F) 1
504 Comdisco Holding Co., Inc. 9,198
3,445,121 Contifinancial Corp. Liquidating
Trust Units 4,306
15,321 Covad Communications Group, Inc.
(NON) (S) 18,385
497 Crown Castle International Corp.
(NON) 7,982
903 Genesis HealthCare Corp. (NON) (S) 38,730
45,911 Globix Corp. (NON) 169,871
470,000 iPCS Escrow, Inc. (NON) (F) 470
6,975 iPCS, Inc. (NON) 230,873
199 Knology, Inc. (NON) 472
157 Leucadia National Corp. (S) 5,393
3,774 Northwestern Corp. 99,520
1,158 Polymer Group, Inc. Class A (NON)
(S) 27,734
715 PSF Group Holdings, Inc. 144A Class
A (NON) (F) 1,251,828
53,520 Regal Entertainment Group (F) 1,125,526
110 Sterling Chemicals, Inc. (NON) 4,510
740 Sun Healthcare Group, Inc. (NON) 4,906
12 USA Mobility, Inc. (NON) 389
948,004 VFB LLC (acquired 10/27/00, cost
$948,004) (NON) (RES) 194,341
4,438 Washington Group International, Inc.
(NON) (S) 199,666
--------------
Total Common stocks
(cost $8,392,379) $3,489,166
Brady bonds (0.5%) (a) (cost $2,829,499)
Principal amount Value
-------------------------------------------------------------------------------
$3,476,498 Brazil (Federal Republic of) FRB
Ser. 18 YR, 3 1/8s, 2012 $3,263,737
Preferred stocks (0.2%) (a)
Number of shares Value
-------------------------------------------------------------------------------
15 Dobson Communications Corp. 13.00%
pfd. (PIK) $11,100
320 First Republic Capital Corp. 144A
10.50% pfd. 336,000
32 Paxson Communications Corp. 14.25%
cum. pfd. (PIK) (S) 217,600
874 Rural Cellular Corp. Ser. B, 11.375%
cum. pfd. (PIK) 777,860
--------------
Total Preferred stocks
(cost $1,404,404) $1,342,560
Units (0.1%) (a)
Number of units Value
-------------------------------------------------------------------------------
870,000 Morrison Knudsen Corp. $77,213
991 XCL Equity Units (F) 439,663
--------------
Total Units (cost $1,722,804) $516,876
Convertible preferred stocks (--%) (a)
Number of shares Value
-------------------------------------------------------------------------------
2,441 Emmis Communications Corp. Ser. A,
$3.125 cum. cv. pfd. $111,676
55 Paxson Communications Corp. 144A
9.75% cv. pfd. (PIK) 231,000
--------------
Total Convertible preferred stocks
(cost $554,784) $342,676
Warrants (--%) (a) (NON) Expiration
Number of warrants date Value
-------------------------------------------------------------------------------
719 AboveNet, Inc. 9/8/08 $7,190
846 AboveNet, Inc. 9/8/10 5,076
1,020 Dayton Superior Corp. 144A 6/15/09 1
508 MDP Acquisitions PLC 144A 10/1/13 14,224
390 Mikohn Gaming Corp. 144A 8/15/08 7,706
400 ONO Finance PLC 144A (United
Kingdom) 2/15/11 4
410 Pliant Corp. 144A 6/1/10 4
1,830 TravelCenters of America, Inc. 144A 5/1/09 9,150
1,670 Ubiquitel, Inc. 144A 4/15/10 1
2,740 Washington Group International, Inc.
Ser. A 1/25/06 46,031
3,131 Washington Group International, Inc.
Ser. B 1/25/06 42,424
1,692 Washington Group International, Inc.
Ser. C 1/25/06 19,966
590 XM Satellite Radio Holdings, Inc.
144A 3/15/10 41,300
--------------
Total Warrants (cost $539,709) $193,077
Convertible bonds and notes (--%) (a) (NON) (cost $2,018,410)
Principal amount Value
-------------------------------------------------------------------------------
$2,430,000 Cybernet Internet Services
International, Inc. 144A cv. sr.
disc. notes 13s, 2009 (Canada) (In
default) (NON) $24
Short-term investments (16.9%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$700,000 U.S. Treasury Bills for an effective
yield of 2.18%, June 30, 2005 (SEG) $695,138
300,778 Short-term investments held as
collateral for loaned securities with
yields ranging from 2.70% to 3.03%
and due dates ranging from April 1,
2005, 2005 to May 3, 2005 (d) 300,347
119,818,144 Putnam Prime Money Market Fund (e) 119,818,144
--------------
Total Short-term investments
(cost $120,813,629) $120,813,629
-------------------------------------------------------------------------------
Total Investments
(cost $799,751,521) $792,268,899
-------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $714,238,552.
(NON) Non-income-producing security.
(STP) 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.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at March 31, 2005 was
$195,161 or less than 0.1% of net assets.
(PIK) Income may be received in cash or additional securities at the
discretion of the issuer.
(SEG) This security was pledged and segregated with the custodian to
cover margin requirements for futures contracts at March 31, 2005.
(F) Security is valued at fair value following procedures approved by
the Trustees.
(R) Real Estate Investment Trust
(S) Securities on loan, in part or in entirety, at March 31, 2005.
(U) A portion of the position represents unfunded loan commitments,
which could be extended at the option of the borrower, pursuant to the
loan agreements. The total market value of the unfunded loan commitments
at March 31, 2005, was less than 0.01% of net assets.
(c) Senior loans are exempt from registration under the Security 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 rate shown for senior loans are the current
interest rates at March 31, 2005. 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 5).
(d) See Note 1 to the financial statements.
(e) See Note 4 to the financial statements regarding investments in
Putnam Prime Money Market Fund.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. 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 March 31, 2005.
The rates shown on IFB, which are securities paying interest rates that
vary inversely to changes in the market interest rates, are the current
interest rates at March 31, 2005.
DIVERSIFICATION BY COUNTRY
Distribution of investments by country of issue at March 31, 2005: (as a
percentage of Market Value excluding collateral for loaned securities)
Brazil 0.9%
Canada 1.8
Cayman Islands 1.8
France 1.2
Germany 2.6
Ireland 0.7
Luxembourg 0.7
Mexico 1.3
Sweden 1.3
United Kingdom 1.7
United States 83.5
Other 2.5
-----
Total 100.0%
Forward currency contracts to buy at March 31, 2005 (Unaudited)
(aggregate face value $76,131,951)
Unrealized
Aggregate Delivery appreciation/
Value face value date (depreciation)
------------------------------------------------------------------------------------------------------
Australian Dollar $19,280,365 $19,310,802 4/20/05 $(30,437)
British Pound 10,959,052 11,005,460 6/15/05 (46,408)
Canadian Dollar 2,321,382 2,311,137 4/20/05 10,245
Danish Krone 1,226,728 1,240,224 6/15/05 (13,496)
Euro 4,374,566 4,497,188 6/15/05 (122,622)
Japanese Yen 22,672,485 23,791,389 5/18/05 (1,118,904)
Norwegian Krone 5,302,984 5,451,316 6/15/05 (148,332)
Polish Zloty 568,812 596,948 6/15/05 (28,136)
Singapore Dollar 1,777,696 1,781,652 5/18/05 (3,956)
South Korean Won 1,788,425 1,796,635 5/18/05 (8,210)
Swiss Franc 2,498,747 2,508,650 6/15/05 (9,903)
Taiwan Dollar 1,881,910 1,840,550 5/18/05 41,360
------------------------------------------------------------------------------------------------------
$(1,478,799)
------------------------------------------------------------------------------------------------------
Forward currency contracts to sell at March 31, 2005 (Unaudited)
(aggregate face value $91,490,731)
Unrealized
Aggregate Delivery appreciation/
Value face value date (depreciation)
------------------------------------------------------------------------------------------------------
Australian Dollar $3,032,466 $3,034,154 4/20/05 $1,688
British Pound 6,203,125 6,210,244 6/15/05 7,119
Canadian Dollar 25,028,749 24,913,965 4/20/05 (114,784)
Euro 22,872,969 23,100,373 6/15/05 227,404
Japanese Yen 2,785,157 2,792,563 5/18/05 7,406
Norwegian Krone 2,922,859 2,948,357 6/15/05 25,498
Swedish Krona 21,886,356 22,344,210 6/15/05 457,854
Swiss Franc 5,987,313 6,146,865 6/15/05 159,552
------------------------------------------------------------------------------------------------------
$771,737
------------------------------------------------------------------------------------------------------
Futures contracts outstanding at March 31, 2005 (Unaudited)
Unrealized
Number of Expiration appreciation/
contracts Value date (depreciation)
------------------------------------------------------------------------------------------------------
CBT Interest Rate Swap
10 yr (Long) 15 $1,616,719 Jun-05 $(17,125)
Euro-Bobl 5 yr (Long) 119 17,410,968 Jun-05 55,379
Euro-Bund 10 yr (Long) 32 4,932,278 Jun-05 37,321
Japanese Government
Bond 10yr (Long) 9 11,732,654 Jun-05 152,291
Japanese Government
Bond 10 yr Mini (Long) 32 4,171,311 Jun-05 54,640
U.K. Gilt (Long) 9 1,871,356 Jun-05 4,637
U.S. Treasury Bond
10 yr (Short) 104 11,583,000 Jun-05 192,133
U.S. Treasury Note
10 yr (Long) 97 10,598,766 Jun-05 (127,603)
U.S. Treasury Note
5 yr (Long) 5 535,469 Jun-05 (5,874)
------------------------------------------------------------------------------------------------------
$345,799
------------------------------------------------------------------------------------------------------
TBA sale commitments outstanding at March 31, 2005
(proceeds receivable $43,054,773) (Unaudited)
Principal Settlement
Agency amount date Value
------------------------------------------------------------------------------------------------------
FNMA, 6 1/2s, April 1, 2035 $40,300,000 4/13/05 $41,817,545
FNMA, 5 1/2s, April 1, 2035 1,200,000 4/13/05 1,201,781
------------------------------------------------------------------------------------------------------
$43,019,326
------------------------------------------------------------------------------------------------------
Interest rate swap contracts outstanding at March 31, 2005 (Unaudited)
Unrealized
Notional Termination appreciation/
amount date (depreciation)
------------------------------------------------------------------------------------------------------
Agreement with Bank of America,
N.A. dated March 25, 2004 to pay
semi-annually the notional amount
multiplied by 3.075% and receive
quarterly the notional amount
multiplied by the three month
USD-LIBOR. $16,800,000 3/30/09 $885,037
Agreement with Bank of America,
N.A. dated January 22, 2004 to pay
semi-annually the notional amount
multiplied by 1.97375% and receive
quarterly the notional amount
multiplied by the three month
USD-LIBOR. 13,900,000 1/26/06 208,827
Agreement with Bank of America,
N.A. dated December 2, 2003 to pay
semi-annually the notional amount
multiplied by 2.444% and receive
quarterly the notional amount
multiplied by the three month
USD-LIBOR. 6,270,000 12/5/05 11,720
Agreement with Bank of America,
N.A. dated January 22, 2004 to pay
semi-annually the notional amount
multiplied by 4.35% and receive
quarterly the notional amount
multiplied by the three month
USD-LIBOR. 4,400,000 1/27/14 154,136
Agreement with Credit Suisse
First Boston International dated
July 7, 2004 to pay semi-annually
the notional amount multiplied by
4.945% and receive quarterly the
notional amount multiplied by the
three month USD-LIBOR. 5,699,500 7/9/14 (45,187)
Agreement with Credit Suisse
First Boston International dated
July 7, 2004 to receive semi-annually
the notional amount multiplied by
2.931% and pay quarterly the
notional amount multiplied by the
three month USD-LIBOR. 5,048,700 7/9/06 (58,881)
Agreement with Lehman Brothers
Special Financing, Inc. dated
January 22, 2004 to pay semi-annually
the notional amount multiplied by
1.955% and receive quarterly the
notional amount multiplied by the
three month USD-LIBOR-BBA. 13,900,000 1/26/06 209,231
Agreement with Lehman Brothers
Special Financing, Inc. dated
December 9, 2003 to receive semi-
annually the notional amount
multiplied by 4.641% and pay
quarterly the notional amount
multiplied by the three month
USD-LIBOR-BBA. 9,188,000 12/15/13 (40,338)
Agreement with Lehman Brothers
Special Financing, Inc. dated
January 22, 2004 to pay semi-annually
the notional amount multiplied by
4.3375% and receive quarterly the
notional amount multiplied by the
three month USD-LIBOR-BBA. 4,400,000 1/26/14 157,391
Agreement with Merrill Lynch
Capital Services, Inc. dated
February 16, 2005 to receive
semi-annually the notional
amount multiplied by the six
month Euribor and pay at
maturity the notional amount
multiplied by 2.5645%. EUR 46,900,000 2/19/07 16,467
Agreement with Merrill Lynch
Capital Services, Inc. dated
September 27, 2002 to receive
semi-annually the notional
amount multiplied by the six
month JPY-LIBOR-BBA and
pay semi-annually the notional
amount multiplied by 0.399%. JPY 2,443,000,000 10/1/07 (117,483)
Agreement with Merrill Lynch
Capital Services, Inc. dated
November 17, 2000 to pay
semi-annually the notional
amount multiplied by the three
month USD-LIBOR-BBA and
receive the notional amount
multiplied by 6.68%. $6,500,000 11/21/05 263,309
------------------------------------------------------------------------------------------------------
$1,644,229
------------------------------------------------------------------------------------------------------
Credit default contracts outstanding at March 31, 2005 (Unaudited)
Unrealized
Notional appreciation/
amount (depreciation)
------------------------------------------------------------------------------------------------------
Agreement with Citigroup effective January 6, 2005,
maturing on December 20, 2009, to receive a premium
based on the difference between the original spread on
issue and the market spread on day of execution and pay
quarterly 375 basis points times the notional amount.
Upon a credit default event of a reference entity within
the CDX BB HY Series 3 Index, the fund receives a
payment of the proportional notional amount times the
difference between the par value and the then-market
value of the reference entity within the CDX BB HY
Series 3 Index. $5,000,000 $103,701
Agreement with Deutsche Bank AG effective January 6, 2005,
maturing on December 20, 2009, to receive a premium based
on the difference between the original spread on issue and the
market spread on day of execution and pay quarterly 375 basis
points times the notional amount. Upon a credit default event
of a reference entity within the CDX HY Series 3 Index, the fund
receives a payment of the proportional notional amount times the
difference between the par value and the then-market value of
the reference entity within the CDX HY Series 3 Index. 3,000,000 65,841
Agreement with Goldman Sachs effective January 13, 2005,
maturing on December 20, 2009, to receive a premium
based on the difference between the original spread on
issue and the market spread on day of execution and pay
quarterly 375 basis points time the notional amount.
Upon a credit default event of a reference entity within
CDX HY Series 3 Index, the fund receives a payment
of the proportional notional amount times the difference
between the par value and the then-market value of the
reference entity within the CDX HY Series 3 Index. 2,000,000 27,952
Agreement with Goldman Sachs effective September 2, 2004,
terminating on the date on which the notional amount is
reduced to zero or the date on which the assets securing the
reference obligation are liquidated, the fund receives a payment
of the outstanding notional amount times 2.35% and the fund
pays in the event of a credit default in one of the underlying
securities in the basket of BB CMBS securities. 1,116,444 54,626
Agreement with Goldman Sachs effective September 2, 2004,
terminating on the date on which the notional amount is
reduced to zero or the date on which the assets securing the
reference obligation are liquidated, the fund receives a payment
of the outstanding notional amount times 2.55625% and the fund
pays in the event of a credit default in one of the underlying
securities in the basket of BB CMBS securities. 1,116,444 28,882
Agreement with Goldman Sachs effective September 2, 2004,
terminating on the date on which the notional amount is
reduced to zero or the date on which the assets securing the
reference obligation are liquidated, the fund receives a payment
of the outstanding notional amount times 2.4625% and the fund
pays in the event of a credit default in one of the underlying
securities in the basket of BB CMBS securities. 558,222 25,506
Agreement with Goldman Sachs effective September 2, 2004,
terminating on the date on which the notional amount is
reduced to zero or the date on which the assets securing the
reference obligation are liquidated, the fund receives a payment
of the outstanding notional amount times 2.433% and the fund
pays in the event of a credit default in one of the underlying
securities in the basket of BB CMBS securities. 418,667 18,062
Agreement with Goldman Sachs effective September 2, 2004,
terminating on the date on which the notional amount is
reduced to zero or the date on which the assets securing the
reference obligation are liquidated, the fund receives a payment
of the outstanding notional amount times 2.475% and the fund
pays in the event of a credit default in one of the underlying
securities in the basket of BB CMBS securities. 279,111 8,961
Agreement with Goldman Sachs effective September 2, 2004,
terminating on the date on which the notional amount is
reduced to zero or the date on which the assets securing the
reference obligation are liquidated, the fund receives a payment
of the outstanding notional amount times 2.5% and the fund
pays in the event of a credit default in one of the underlying
securities in the basket of BB CMBS securities. 139,556 8,730
Agreement with Goldman Sachs effective September 2, 2004,
terminating on the date on which the notional amount is
reduced to zero or the date on which the assets securing the
reference obligation are liquidated, the fund receives a payment
of the outstanding notional amount times 2.6% and the fund
pays in the event of a credit default in one of the underlying
securities in the basket of BB CMBS securities. 139,556 1,367
Agreement with JP Morgan effective January 18, 2005, maturing
on December 20, 2009, to receive a premium based on the
difference between the original spread on issue and the market
spread on day of execution and pay quarterly 375 basis points
time the notional amount. Upon a credit default event of a
reference entity within CDX HY Series 3 Index, the fund
receives a payment of the proportional notional amount times
the difference between the par value and the then-market value
of the reference entity within the CDX HY Series 3 Index. 3,000,000 28,659
Agreement with JP Morgan effective January 10, 2005, maturing
on December 20, 2009, to receive a premium based on the
difference between the original spread on issue and the market
spread on day of execution and pay quarterly 375 basis points
time the notional amount. Upon a credit default event of a
reference entity within CDX HY Series 3 Index, the fund
receives a payment of the proportional notional amount times
the difference between the par value and the then-market value
of the reference entity within the CDX HY Series 3 Index. 3,000,000 47,473
Agreement with JP Morgan effective January 14, 2005, maturing
on December 20, 2009, to receive a premium based on the
difference between the original spread on issue and the market
spread on day of execution and pay quarterly 375 basis points
time the notional amount. Upon a credit default event of a
reference entity within CDX HY Series 3 Index, the fund
receives a payment of the proportional notional amount times
the difference between the par value and the then-market value
of the reference entity within the CDX HY Series 3 Index. 2,000,000 23,888
Agreement with Bank of America, N.A. effective March 2, 2005,
maturing on December 20, 2009, to receive a premium based
on the difference between the original spread on issue and the
market spread on day of execution and pay quarterly 375 basis
points times the notional amount. Upon a credit default event of
a reference entity within the CDX HY Series 3 Index, the fund
receives a payment of the proportional notional amount times the
difference between the par value and the then-market value of
the reference entity within the CDX HY Series 3 Index. 2,000,000 48,287
Agreement with Lehman Brothers Finance, S.A. effective March 24,
2005, maturing on December 20, 2009, to pay quarterly 116 basis
points times the notional amount. Upon a credit default event of
any reference entity within the DJ IG CDX Series 3 Index that the
counterparties agree advances within the 25-35 Loss Basket of the
Index, the fund receives a payment of the proportional notional
amount times the difference between the par value and the
then-market value of the reference entity within the DJ IG CDX
Series 3 Index. 933,000 (8,841)
Agreement with Lehman Brothers effective January 14, 2005,
maturing on December 20, 2009, to receive a premium based
on the difference between the original spread on issue and the
market spread on day of execution and pay quarterly 375 basis
points times the notional amount. Upon a credit default event of
a reference entity within the CDX HY Series 3 Index, the fund
receives a payment of the proportional notional amount times
the difference between the par value and the then-market value
of the reference entity within the CDX HY Series 3 Index. 1,000,000 10,797
------------------------------------------------------------------------------------------------------
$493,891
------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities
March 31, 2005 (Unaudited)
Assets
-------------------------------------------------------------------------------
Investment in securities, at value, including $283,482 of securities on
loan (Note 1):
-------------------------------------------------------------------------------
Unaffiliated issuers (identified cost $679,933,377) $672,450,755
-------------------------------------------------------------------------------
Affiliated issuers (identified cost $119,818,144) (Note 4) 119,818,144
-------------------------------------------------------------------------------
Cash 7,136,710
-------------------------------------------------------------------------------
Foreign currency (cost $1,465,234) (Note 1) 1,646,582
-------------------------------------------------------------------------------
Dividends, interest and other receivables 8,988,477
-------------------------------------------------------------------------------
Receivable for securities sold 5,292,784
-------------------------------------------------------------------------------
Receivable for sales of delayed delivery securities (Note 1) 43,144,290
-------------------------------------------------------------------------------
Receivable for open swap contracts (Note 1) 1,906,118
-------------------------------------------------------------------------------
Receivable for variation margin (Note 1) 195,216
-------------------------------------------------------------------------------
Receivable for open forward currency contracts (Note 1) 1,166,914
-------------------------------------------------------------------------------
Receivable for closed forward currency contracts (Note 1) 1,623,633
-------------------------------------------------------------------------------
Receivable for open credit default contracts (Note 1) 502,732
-------------------------------------------------------------------------------
Total assets 863,872,355
Liabilities
-------------------------------------------------------------------------------
Distributions payable to shareholders 3,487,539
-------------------------------------------------------------------------------
Payable for securities purchased 10,526,384
-------------------------------------------------------------------------------
Payable for purchases of delayed delivery securities (Note 1) 86,869,925
-------------------------------------------------------------------------------
Payable for compensation of Manager (Notes 2 and 4) 1,221,510
-------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 35,840
-------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 93,121
-------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,679
-------------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 1,873,976
-------------------------------------------------------------------------------
Payable for closed forward currency contracts (Note 1) 1,507,261
-------------------------------------------------------------------------------
Payable for open swap contracts (Note 1) 261,889
-------------------------------------------------------------------------------
Payable for open credit default contracts (Note 1) 8,841
-------------------------------------------------------------------------------
Premium received on credit default contracts (Note 1) 423,088
-------------------------------------------------------------------------------
TBA sales commitments, at value (proceeds receivable
$43,054,773) (Note 1) 43,019,326
-------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 300,347
-------------------------------------------------------------------------------
Other accrued expenses 3,077
-------------------------------------------------------------------------------
Total liabilities 149,633,803
-------------------------------------------------------------------------------
Net assets $714,238,552
Represented by
-------------------------------------------------------------------------------
Paid-in capital (Unlimited shares authorized) (Note 1) $838,150,324
-------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (838,208)
-------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (117,828,197)
-------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and
liabilities in foreign currencies (5,245,367)
-------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $714,238,552
Computation of net asset value
-------------------------------------------------------------------------------
Net asset value per share ($714,238,552 divided by
100,313,084 shares) $7.12
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of operations
Six months ended March 31, 2005 (Unaudited)
Investment income:
-------------------------------------------------------------------------------
Interest (including interest income of $1,220,950 from
investments in affiliated issuers) (Note 4) $18,015,515
-------------------------------------------------------------------------------
Dividends 132,930
-------------------------------------------------------------------------------
Securities lending 691
-------------------------------------------------------------------------------
Total investment income 18,149,136
Expenses:
-------------------------------------------------------------------------------
Compensation of Manager (Note 2) 2,600,689
-------------------------------------------------------------------------------
Investor servicing fees (Note 2) 191,275
-------------------------------------------------------------------------------
Custodian fees (Note 2) 171,445
-------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 13,988
-------------------------------------------------------------------------------
Administrative services (Note 2) 21,192
-------------------------------------------------------------------------------
Other 133,960
-------------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Note 4) (91,203)
-------------------------------------------------------------------------------
Total expenses 3,041,346
-------------------------------------------------------------------------------
Expense reduction (Note 2) (118,715)
-------------------------------------------------------------------------------
Net expenses 2,922,631
-------------------------------------------------------------------------------
Net investment income 15,226,505
-------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 15,322,897
-------------------------------------------------------------------------------
Net realized gain on swap contracts (Note 1) 883,728
-------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 1,813,723
-------------------------------------------------------------------------------
Net realized loss on credit default contracts (Note 1) (150,515)
-------------------------------------------------------------------------------
Net realized gain foreign currency transactions (Note 1) 1,065,595
-------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the period 792,309
-------------------------------------------------------------------------------
Net unrealized depreciation of investments, futures
contracts, swap contracts, credit default contracts and TBA
sale commitments during the period (15,247,046)
-------------------------------------------------------------------------------
Net gain on investments 4,480,691
-------------------------------------------------------------------------------
Net increase in net assets resulting from operations $19,707,196
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets
Six months ended Year ended
March 31 September 30
Increase (decrease) in net assets 2005* 2004
-------------------------------------------------------------------------------
Operations:
-------------------------------------------------------------------------------
Net investment income $15,226,505 $39,968,442
-------------------------------------------------------------------------------
Net realized gain on investments and foreign
currency transactions 18,935,428 15,728,201
-------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments and assets and liabilities in
foreign currencies (14,457,737) 7,855,132
-------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 19,707,196 63,551,775
-------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
-------------------------------------------------------------------------------
From net investment income (21,064,752) (48,649,600)
-------------------------------------------------------------------------------
Total increase (decrease) in net assets (1,357,556) 14,902,175
Net assets
-------------------------------------------------------------------------------
Beginning of period 715,596,108 700,693,933
-------------------------------------------------------------------------------
End of period (including distributions in
excess of and undistributed net investment
income of $838,208 and $5,000,039,
respectively) $714,238,552 $715,596,108
-------------------------------------------------------------------------------
Number of fund shares
-------------------------------------------------------------------------------
Shares outstanding at beginning and end of
period 100,313,084 100,313,084
-------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
Six months
ended
March 31
Per-share (Unaudited) Year ended September 30
operating performance 2005 2004 2003 2002 2001 2000
---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $7.13 $6.99 $6.26 $6.54 $7.13 $7.57
---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .15 (d) .40 (d) .48 .52 .58 .63
---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .05 .23 .73 (.26) (.57) (.43)
---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .20 .63 1.21 .26 .01 .20
---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.21) (.49) (.48) (.53) (.46) (.64)
---------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- (.01) (.14) --
---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.21) (.49) (.48) (.54) (.60) (.64)
---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.12 $7.13 $6.99 $6.26 $6.54 $7.13
---------------------------------------------------------------------------------------------------------------------------------
Market value,
end of period $6.390 $6.730 $6.410 $6.380 $6.050 $6.438
---------------------------------------------------------------------------------------------------------------------------------
Total return at
market value (%)(b) (2.00)* 12.95 8.35 14.81 3.06 10.72
---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $714,239 $715,596 $700,694 $627,620 $655,161 $713,894
---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .42* (d) .86 (d) .89 .87 .90 .87
---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.10* (d) 5.61 (d) 7.22 7.97 8.50 8.60
---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 109.62* (f) 113.46 141.60 (e) 193.33 (e) 111.45 116.71
---------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(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 does not reflect the effect of sales charges.
(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 for the periods ended March 31, 2005 and
September 30, 2004 reflect a reduction of 0.01% and less than 0.01% respectively, of average net assets (Note 4).
(e) Portfolio turnover excludes certain treasury note transactions executed in connection with a short-term trading strategy.
(f) Portfolio turnover excludes dollar roll transactions.
The accompanying notes are an integral part of these financial statements.
Notes to financial statements
March 31, 2005 (Unaudited)
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 due to the nature of the
investments.
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 at fair value on the basis
of valuations furnished by an independent pricing service or dealers,
approved by the Trustees. 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 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 are translated into U.S. dollars at the current exchange
rate. Short-term investments having remaining maturities of 60 days or
less are valued at amortized cost, which approximates fair value. Other
investments, including certain restricted securities, are valued at fair
value following procedures approved by the Trustees. Such valuations and
procedures are reviewed periodically by the Trustees.
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 Investment Management, LLC ("Putnam
Management"), the fund's manager, an indirect wholly-owned subsidiary of
Putnam, LLC. These balances may be invested in issues of high-grade
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 (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 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. 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) 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 are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when earned or incurred. The
fund does not isolate that portion of realized or unrealized gains or
losses resulting from changes in the foreign exchange rate on
investments from fluctuations arising from changes in the market prices
of the securities. Such gains and losses are included with the net
realized and unrealized gain or loss on investments. Net realized gains
and losses on foreign currency transactions represent net realized
exchange gains or losses on closed forward currency contracts,
disposition of foreign currencies, currency gains and losses realized
between the trade and settlement dates on securities transactions and
the difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized
appreciation and depreciation of assets and liabilities in foreign
currencies arise from changes in the value of open forward currency
contracts and assets and liabilities other than investments at the
period end, resulting from changes in the exchange rate. Investments in
foreign securities involve certain risks, including those related to
economic instability, unfavorable political developments, and currency
fluctuations, not present with domestic investments.
E) 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). 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.
F) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
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.
G) Interest rate swap contracts The fund may enter into interest rate
swap contracts, which are arrangements between two parties to exchange
cash flows based on a notional principal amount, to manage the fund's
exposure to interest rates. Interest rate swap contracts are marked to
market daily based upon quotations from market makers and the change, if
any, is recorded as unrealized gain or loss. Payments received or made
are recorded as realized gains or loss. 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.
H) Credit default contracts The fund may enter into credit default
contracts where one party, the protection buyer, makes an upfront or
periodic payment to a counter party, 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. 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 market makers and the change, if any, is
recorded as unrealized gain or loss. Payments received or made as a
result of a credit event or termination of the contract are recognized,
net of a proportional amount of the upfront payment, as realized gains
or losses. In addition to bearing the risk that the credit event will
occur, the fund could be exposed to market risk due to unfavorable
changes in interest rates or in the price of the underlying security or
index, the possibility that the fund may be unable to close out its
position at the same time or at the same price as if it had purchased
comparable publicly traded securities or that the counterparty may
default on its obligation to perform. Risks of loss may exceed amounts
recognized on the statement of assets and liabilities. Credit default
contracts outstanding at period end, if any, are listed after the fund's
portfolio.
I) 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 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.
J) 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 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 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.
K) 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. 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.
L) Security 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 March 31, 2005, the value of
securities loaned amounted to $283,482. The fund received cash
collateral of $300,347 which is pooled with collateral of other Putnam
funds into 28 issuers of high grade short-term investments.
M) Federal taxes It is the policy of the fund to distribute all of its
taxable (for tax exempt and municipal bond funds exclude "taxable")
income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code of 1986 (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, as amended. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held nor for excise tax on income and capital
gains.
At September 30, 2004, the fund had a capital loss carryover of
$134,326,968 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
--------------------------------------
$9,097,567 September 30, 2007
25,640,537 September 30, 2008
24,593,458 September 30, 2009
27,431,170 September 30, 2010
47,564,236 September 30, 2011
Pursuant to federal income tax regulations applicable to regulated
investment companies, the fund has elected to defer to its fiscal year
ending September 30, 2005, $1,976,087 of losses recognized during the
period November 1, 2003 to September 30, 2004.
The aggregate identified cost on a tax basis is $801,826,605, resulting
in gross unrealized appreciation and depreciation of $17,839,431 and
$27,397,137, respectively, or net unrealized depreciation of $9,557,706.
N) 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. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations.
Note 2
Management fee, administrative
services and other transactions
Putnam Management is paid for management and investment advisory
services quarterly based on the average net assets of the fund. Such fee
is based on the following annual rates: 0.75% of the first $500 million
of average weekly net assets, 0.65% of the next $500 million, 0.60% of
the next $500 million, and 0.55% thereafter.
Effective September 13, 2004, Putnam Investments Limited ("PIL"), an
affiliate of Putnam Management is authorized by the Trustees to manage a
separate portion of the assets of the fund as determined by Putnam
Management from time to time. Putnam Management pays a quarterly
sub-management fee to PIL for its services at an annual rate of 0.40% of
the average net assets of the portion of the fund managed by PIL.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The
aggregate amount of all such reimbursements is determined annually by
the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company ("PFTC"), a subsidiary of Putnam, LLC. Putnam
Investor Services, a division of PFTC, provides investor servicing agent
functions to the fund. During the six months ended March 31, 2005, the
fund paid PFTC $362,720 for these services.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. For the six months ended March 31, 2005,
the fund's expenses were reduced by $118,715 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $1,193, 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.
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. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. 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 six months ended March 31, 2005, cost of purchases and
proceeds from sales of investment securities other than U.S. government
securities and short-term investments aggregated $615,930,190 and
$605,054,628, respectively. Purchases or sales of U.S. government
securities aggregated $0 and $10,518,000, respectively.
Note 4
Investment in Putnam Prime Money
Market Fund
Pursuant to an exemptive order from the Securities and Exchange
Commission, the fund invests in Putnam Prime Money Market Fund, an
open-end management investment company managed by Putnam Management.
Management fees paid by the fund are reduced by an amount equal to the
management and administrative services fees paid by Putnam Prime Money
Market Fund with respect to assets invested by the fund in Putnam Prime
Money Market Fund. For the period ended March 31, 2005, management fees
paid were reduced by $91,203 relating to the fund's investment in Putnam
Prime Money Market Fund. Income distributions earned by the fund are
recorded as income in the statement of operations and totaled $1,220,950
for the period ended March 31, 2005. During the period ended March 31,
2005, cost of purchases and cost of sales of investments in Putnam Prime
Money Market Fund aggregated $224,081,948 and $202,436,912,
respectively.
Note 5
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; 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 6
Regulatory matters and litigation
Putnam Management has entered into agreements with the Securities and
Exchange Commission and the Massachusetts Securities Division settling
charges connected with excessive short-term trading by Putnam employees
and, in the case of the charges brought by the Massachusetts Securities
Division, by participants in some Putnam-administered 401(k) plans.
Pursuant to these settlement agreements, Putnam Management will pay a
total of $193.5 million in penalties and restitution, with $153.5
million being paid to shareholders and the funds. The restitution amount
will be allocated to shareholders pursuant to a plan developed by an
independent consultant, with payments to shareholders currently expected
by the end of the summer.
The SEC's and Massachusetts Securities Division's allegations and
related matters also serve as the general basis for numerous lawsuits,
including purported class action lawsuits filed against Putnam
Management and certain related parties, including certain Putnam funds.
Putnam Management will bear any costs incurred by Putnam funds in
connection with these lawsuits. Putnam Management believes that the
likelihood that the pending private lawsuits and purported class action
lawsuits will have a material adverse financial impact on the fund is
remote, and the pending actions are not likely to materially affect its
ability to provide investment management services to its clients,
including the Putnam funds.
Compliance certifications
(Unaudited)
On July 8, 2004, 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.
Fund information
About Putnam Investments
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition
and practice since 1830. Founded over 65 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 presently manage
over 100 mutual funds in growth, value, blend, fixed income, and
international.
Investment Manager
Putnam Investment
Management, LLC
One Post Office Square
Boston, MA 02109
Investment Sub-Manager
Putnam Investments Limited
57-59 St. James Street
London, England SW1A 1LD
Marketing Services
Putnam Retail Management
One Post Office Square
Boston, MA 02109
Custodian
Putnam Fiduciary Trust Company
Legal Counsel
Ropes & Gray LLP
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Myra R. Drucker
Charles E. Haldeman, Jr.
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
John H. Mullin, III
Robert E. Patterson
George Putnam, III
W. Thomas Stephens
Richard B. Worley
Officers
George Putnam, III
President
Charles E. Porter
Executive Vice President,
Associate Treasurer and
Principal Executive Officer
Jonathan S. Horwitz
Senior Vice President
and Treasurer
Steven D. Krichmar
Vice President and
Principal Financial Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
Daniel T. Gallagher
Senior Vice President,
Compliance Liaison
and Staff Counsel
Beth S. Mazor
Vice President
James P. Pappas
Vice President
Richard S. Robie, III
Vice President
Mark C. Trenchard
Vice President and
BSA Compliance Officer
Francis J. McNamara, III
Vice President and
Chief Legal Officer
Charles A. Ruys de Perez
Vice President and
Chief Compliance Officer
Judith Cohen
Vice President, Clerk and
Assistant Treasurer
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or
visit our Web site (www.putnaminvestments.com) any time for up-to-date
information about the fund's NAV.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
Do you want to save paper and receive this document faster?
Shareholders can sign up for email delivery of shareholder
reports on www.putnaminvestments.com.
223902 5/05
Item 2. Code of Ethics:
-----------------------
Not applicable
Item 3. Audit Committee Financial Expert:
-----------------------------------------
Not applicable
Item 4. Principal Accountant Fees and Services:
-----------------------------------------------
Not applicable
Item 5. Audit Committee: Not applicable
-------------------------
Item 6. Schedule of Investments: Not applicable
--------------------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End
-------------------------------------------------------------------------
Management Investment Companies: Not applicable
--------------------------------
Item 8. Purchases of Equity Securities by Closed-End Management Investment
--------------------------------------------------------------------------
Companies and Affiliated Purchasers: Not applicable
------------------------------------
Item 9. Submission of Matters to a Vote of Security Holders:
------------------------------------------------------------
Not applicable
Item 10. 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 11. Exhibits:
------------------
(a) Not applicable
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act
of 2002 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.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: May 27, 2005
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: May 27, 2005
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: May 27, 2005