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:
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
9-30-04
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From the Trustees
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John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
During the past several months, Putnam introduced a number of reforms
for the benefit of shareholders, including increasing the amount of
disclosure for our funds. Beginning with this month's reports, we inform
you of any changes during the prior year among the Portfolio Leader and
Portfolio Members of your fund's management team. Additionally, we list
the other fund management responsibilities of your fund's Portfolio
Leader and Portfolio Members. You can find this new information
following the Outlook for Your Fund.
We are also pleased to announce that three new Trustees have joined your
fund's Board of Trustees. Nominated by your fund's independent Trustees,
these individuals have had outstanding careers as leaders in the
investment management industry. Myra R. Drucker is a Vice Chair of the
Board of Trustees of Sarah Lawrence College and serves as Chair of the
New York Stock Exchange (NYSE) Pension Managers Advisory Committee and
as a Trustee of Commonfund, a not-for-profit asset management firm.
Richard B. Worley is Managing Partner of Permit Capital LLC, an
investment management firm. Both Ms. Drucker and Mr. Worley are
independent Trustees (i.e., Trustees who are not "interested persons" of
your fund or its investment advisor). Charles E. Haldeman, Jr., the
third new Trustee, is President and Chief Executive Officer of Putnam
Investments.
During the period covered by the following report, Putnam Master
Intermediate Income Trust delivered respectable results. The fund's
strategy of seeking returns from a variety of sectors and holdings
served it well during a challenging, but positive period for
fixed-income markets. In particular, the fund's allocation to high-yield
bonds made a strong contribution to the fund's solid returns for the
period. In the following pages, the fund managers discuss fund
performance, strategy, and their outlook for fiscal 2005.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
November 17, 2004
Report from Fund Management
Fund highlights
* During its fiscal year ended September 30, 2004, Putnam Master
Intermediate Income Trust had total returns of 9.73% at net asset value
(NAV) and 12.95% at market price.
* The fund's primary benchmark, the Lehman Government/Credit Bond Index,
returned 3.33%.
* The average return for the fund's Lipper category, Flexible Income
Funds (closed-end), was 9.88%.
* See the Performance Summary beginning on page 8 for additional fund
performance, comparative performance, and Lipper data.
Performance commentary
After an exemplary showing during the first half of the fund's fiscal
year, fixed-income returns fell sharply in the spring of 2004, but
recovered in the final three months of the period. High-yield corporate
bonds and emerging-market bonds had exceptional returns as the period
came to a close, while higher-quality bonds had above-average
performance. The fund's strategy of seeking returns from a variety of
fixed-income sources enabled it to outperform its benchmark, based on
results at NAV and market price. Results at NAV were in line with the
average for the fund's Lipper category. 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.
TOTAL RETURN FOR
PERIODS ENDED 9/30/04
Market
(inception 4/29/88) NAV price
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1 year 9.73% 12.95%
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5 years 44.45 60.33
Annual average 7.63 9.90
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10 years 105.78 117.81
Annual average 7.48 8.10
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Annual average
(life of fund) 8.03 7.17
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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 does not
reflect taxes on reinvested distributions.
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
During the first six months of the period, global bond prices generally
rose as yields, though somewhat volatile, generally moved downward.
Bonds rallied in a flight to quality in early 2004, which came as a
result of evidence that the U.S. recovery would not be as strong as
anticipated, and because of geopolitical concerns surrounding the
terrorist bombing in Spain. However, bond prices fell sharply in April
and May on reports of strong job creation, increasing economic strength,
and the Federal Reserve Board's suggestion that it would raise
short-term interest rates. Subsequently, the Fed raised the federal
funds rate, a key short-term interest-rate benchmark, by a quarter of a
point on three separate occasions -- in June, August, and September --
bringing this important borrowing rate to 1.75% at the end of the
period.
In Europe, low inflation reduced the likelihood of a rate increase by
the European Central Bank, and European government bonds and agency
securities produced solid returns that were further enhanced by the
aforementioned flight to quality. However, although both U.S. Treasuries
and European government bonds performed well, investors continued to
seek out alternative bond sectors that could provide higher levels of
income.
High-yield corporate bonds continued to benefit from declining default
rates, offering an attractive yield advantage over government bonds, and
improved credit quality as companies retired or refinanced debt.
Emerging-market bond returns were extremely strong near the end of the
period, with the JP Morgan Global Diversified Emerging Markets Index
returning over 9% in the final three months alone.
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MARKET SECTOR PERFORMANCE 12 MONTHS ENDED 9/30/04
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Bonds
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Lehman Government/Credit Bond Index (U.S. Treasury
and agency securities and corporate bonds 3.33%
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JP Morgan Global Diversified Emerging Markets Index
(global emerging-market bonds) 11.08%
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Citigroup Non-U.S. World Government Bond Index
(international government bonds) 8.16%
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JP Morgan Global High Yield Index (global high-yield
corporate bonds) 13.13%
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Equities
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S&P 500 Index (broad stock market) 13.87%
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Russell 2000 Growth Index (small-company growth stocks) 11.92%
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Russell 2000 Value Index (small-company value stocks) 25.66%
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These indexes provide an overview of performance in different market
sectors for the 12 months ended 9/30/04.
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Strategy overview
One of the key elements of the fund's strategy throughout the past year
has been to reduce the level of risk in the portfolio. In early 2004, we
reduced the emerging-market weighting significantly and pared down the
fund's allocation to high-yield bonds. We also 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.) In
addition, after increasing the fund's allocation to corporate
investment-grade bonds early in the fiscal year, we reduced those
holdings almost entirely by January 2004 after they had made a solid
contribution to performance.
When bond prices declined sharply in April and May 2004, the fund's
lower sensitivity to interest-rate changes was beneficial for relative
returns. During the market's subsequent rally in July, August, and
September, however, the fund underperformed its peers to some extent.
However, stronger relative performance during the spring downturn more
than offset the weaker relative gains late in the period.
The fund benefited from its yield curve strategy in the United States.
As the Federal Reserve started to raise interest rates in June, the most
significant market reaction occurred in shorter-dated bonds. These
yields moved significantly higher as the Fed's policy of stable rates
ended. While longer dated maturities also moved to higher yields, the
changes were more moderate. The fund was positioned in advance for the
yield curve flattening, and benefited significantly over the last six
months.
[GRAPHIC OMITTED: horizontal bar chart SECTOR WEIGHTINGS COMPARED]
SECTOR WEIGHTINGS COMPARED
as of 3/31/04 as of 9/30/04
High yield 46.3% 40.0%
U.S. investment grade 34.2% 38.0%
International 19.5% 22.0%
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.
How fund sectors and holdings affected performance
While the mortgage-backed securities (MBS) sector was subject to
prepayment concerns associated with low mortgage rates, the management
team found two types of securities within this sector that performed
well -- home equity loans and manufactured housing bonds. Home equity
loans, unlike mortgages, are not highly susceptible to prepayments when
interest rates decline, so rate declines can help boost the performance
of securities backed by these loans. Similarly, holdings backed by
manufactured housing companies have benefited from a change in
perception about the industry since the beginning of the year.
Commercial mortgage-backed securities also performed well in the
declining interest-rate environment and made a strong contribution to
the fund's returns.
[GRAPHIC OMITTED: TOP HOLDINGS]
TOP HOLDINGS
(Percent of fund's net assets as of 9/30/04)
High Yield Sector
1 Conseco Finance Securitizations Corp. (0.4%)
Ser. 00-4, Class A6, 8.31s, 2032
Asset-backed security
2 Qwest Corp. (0.4%)
144A notes, 9 18s, 2012
Communications services
3 NRG Energy, Inc (0.3%)
144A sr. sec. notes, 8s, 2013
Utilities and power
International Sector
1 United Kingdom (1.8%)
Treasury bonds, 7 12s, 2006
2 Germany (Federal Republic of) (1.5%)
Bonds Ser. 95 7 38s, 2005
3 Russia (Federation of) (1.4%)
Unsubordinated bonds 8 14s, 2010
U.S. Investment Grade Sector
1 Federal National Mortgage Association (12.7%)
30 yr. conventional, 6 12s TBA
October 31, 2030
2 Federal National Mortgage Association (5.5%)
15 yr. conventional, 5s TBA
September 30, 2015
3 U.S Treasury Bond (3.8%)
3 14s, August 14, 2004
Footnote reads:
The fund's holdings will change over time.
In the high-yield corporate bond portion of the fund, securities issued
by subsidiaries of Edison Interna tional were among the strongest
performers. Edison, which owns California's second-largest electric
utility, Southern California Edison, also owns Edison Mission Energy.
This subsidiary owns a portfolio of independent power plants located
around the world. After poor performance in 2002, the company sold
assets and shored up its balance sheet, which drove strong returns for a
number of Edison Mission securities. Another top performer was
diversified chemicals manufacturer Huntsman International, which
benefited from a rebound in chemical prices. The company carries a
significant debt load, but its cash flow has improved as commodity
prices have risen. Finally, Williams Companies experienced significant
capital appreciation as management strengthened the company's balance
sheet by focusing on its core pipeline business, selling nonproductive
assets, and paying down debt.
We sold the fund's high-yield holdings of Trico Marine, an energy
service company that underperformed, and Dobson Communications, a
wireless communications firm. Dobson has had poor financial performance,
in part because of its reliance on revenues from AT&T Wireless, which
has been struggling. Overall, however, the fund's high-yield corporate
holdings made a significant positive contribution to its performance.
In emerging markets, the fund's holdings in Ecuador, Venezuela, and
Brazil performed well, with each country allocations producing returns
in excess of 20% for the 12-month period. In addition, the fund
benefited from double-digit returns in Bulgaria and Colombia. While
government bonds from Turkey advanced strongly, we were more cautious in
that market, and this underweighting detracted from the fund's relative
performance within its Lipper category.
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.
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
team's plans for responding to them.
The fund's returns during the past fiscal year remained significantly
higher than the historical averages for the sectors in which it invests.
Economic conditions, though varying considerably over the past year,
have remained generally favorable for fixed-income investing, with low
inflation and moderate growth. High-yield bonds continued to benefit
from declining default rates and improving balance sheets, while
emerging markets countries, many of which are exporters of energy and
other commodities, have benefited from high commodity prices, especially
the record-high levels in the price of oil. The Federal Reserve's
well-communicated policy of a measured tightening of the federal funds
rate, a key short-term interest-rate benchmark, has not disrupted bond
prices.
While this positive environment could continue into 2005, we remain
cautious for several reasons. First, we believe the high cost of energy,
which shows no signs of abating, will act like a tax on both businesses
and consumers, reducing the incentive and the ability for both to
continue spending. Second, geopolitical turmoil -- including the war in
Iraq, the ongoing Israeli-Palestinian conflict, and terrorist threats
from Al Queda -- remains a wild card, which could disrupt oil supplies
and cause prices to rise even further. And third, since performance has
been so strong for bonds, yields are low, and credit yield spreads (the
difference between lower- and higher-quality bond yields) are tight. We
believe it is unlikely bond prices will move significantly higher than
their current levels. We therefore believe it is prudent 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. 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. 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.
Your fund's management
Your fund is managed by the members of the Putnam Core Fixed-Income
Team. D. William Kohli is the Portfolio Leader and David Waldman is a
Portfolio Member of your fund. The Portfolio Leader and Portfolio Member
coordinate the team's management of the fund.
For a complete listing of the members of the Putnam Core Fixed-Income
Team, including those who are not Portfolio Leaders or Portfolio Members
of your fund, visit Putnam's Individual Investor Web site at
www.putnaminvestments.com.
Other funds managed by the Portfolio Leader and Portfolio Members
D. William Kohli is also a Portfolio Leader of Putnam Diversified Income
Trust, Putnam Master Income Trust, and Putnam Premier Income Trust. He
is also a Portfolio Member of Putnam Global Income Trust.
David Waldman is also a Portfolio Member of Putnam Diversified Income
Trust, Putnam Master Income Trust, and Putnam Premier Income Trust.
D. William Kohli and David Waldman may also manage other accounts
advised by Putnam Management or an affiliate.
Changes in your fund's Portfolio Leader and Portfolio Members
Your fund's Portfolio Leader and Portfolio Members did not change during
the year ended September 30, 2004.
Performance summary
This section shows your fund's performance during its fiscal year, which
ended September 30, 2004. 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 9/30/04
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NAV Market price
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1 year 9.73% 12.95%
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5 years 44.45 60.33
Annual average 7.63 9.90
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10 years 105.78 117.81
Annual average 7.48 8.10
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Life of fund (since 4/29/88)
Annual average 8.03 7.17
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Performance does not reflect taxes on reinvested distributions.
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 9/30/04
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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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1 year 3.33% 8.16% 13.13% 9.88%
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5 years 45.21 35.47 41.05 38.30
Annual average 7.75 6.26 7.12 6.53
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10 years 111.10 84.38 118.62 110.01
Annual average 7.76 6.31 8.14 7.60
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Life of fund
(since 4/29/88)
Annual average 8.18 7.09 -- 8.17
---------------------------------------------------------------------------------------
Index and Lipper results should be compared to fund performance at net
asset value.
* The JP Morgan Global High Yield Index's inception date was 12/31/93.
+ For each of the 1-, 5-, and 10-year periods ended 9/30/04, there were
11 funds in this Lipper category.
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PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 9/30/04
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Distributions (number) 12
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Income $0.485
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Capital gains --
Total $0.485
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Share value: NAV Market price
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9/30/03 $6.99 $6.41
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9/30/04 7.13 6.73
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Current return (end of period)
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Current dividend rate 1 6.40% 6.78%
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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
government bonds from 10 countries.
JP Morgan Global Diversified Emerging Markets Index is an unmanaged
index of global emerging-market fixed-income securities.
JP Morgan Global High Yield Index is an unmanaged index used to mirror
the investable universe of the U.S. dollar global high-yield corporate
debt market of both developed and emerging markets.
Lehman Government/Credit Bond Index is an unmanaged index of U.S.
Treasury and agency securities and corporate bonds.
Russell 2000 Growth Index is an unmanaged index of those companies in
the Russell 2000 Index chosen for their growth orientation.
Russell 2000 Value Index is an unmanaged index of those companies in the
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.
Putnam's policy on confidentiality
In order to conduct business with our shareholders, we must obtain
certain personal information such as account holders' addresses,
telephone numbers, Social Security numbers, and the names of their
financial advisors. We use this information to assign an account number
and to help us maintain accurate records of transactions and account
balances.
It is our policy to protect the confidentiality of your information,
whether or not you currently own shares of our funds, and in particular,
not to sell information about you or your accounts to outside marketing
firms. We have safeguards in place designed to prevent unauthorized
access to our computer systems and procedures to protect personal
information from unauthorized use.
Under certain circumstances, we share this information with outside
vendors who provide services to us, such as mailing and proxy
solicitation. In those cases, the service providers enter into
confidentiality agreements with us, and we provide only the information
necessary to process transactions and perform other services related to
your account. We may also share this information with our Putnam
affiliates to service your account or provide you with information about
other Putnam products or services. It is also our policy to share
account information with your financial advisor, if you've listed one on
your Putnam account.
If you would like clarification about our confidentiality policies or
have any questions or concerns, please don't hesitate to contact us at
1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or
Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time.
Proxy voting
Putnam is committed to managing our mutual funds in the best interests
of our shareholders. The Putnam funds' proxy voting guidelines and
procedures, as well as information regarding how your fund voted proxies
relating to portfolio securities during the 12-month period ended June
30, 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.
A guide to the financial statements
These sections of the report, as well as the accompanying Notes,
preceded by the Report of Independent Registered Public Accounting Firm,
constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are
subtracted from this total. The result is divided by the number of
shares to determine the net asset value per share, which is calculated
separately for each class of shares. (For funds with preferred shares,
the amount subtracted from total assets includes the net assets
allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or
loss the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal year.
Statement of changes in net assets shows how the fund's net assets were
affected by the fund's net investment gain or loss, by distributions to
shareholders, and by changes in the number of the fund's shares. It
lists distributions and their sources (net investment income or realized
capital gains) over the current reporting period and the most recent
fiscal year-end. The distributions listed here may not match the sources
listed in the Statement of operations because the distributions are
determined on a tax basis and may be paid in a different period from the
one in which they were earned.
Financial highlights provide an overview of the fund's investment
results, per-share distributions, expense ratios, net investment
income ratios, and portfolio turnover in one summary table, reflecting
the five most recent reporting periods. In a semiannual report, the
highlight table also includes the current reporting period. For open-end
funds, a separate table is provided for each share class.
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders
Putnam Master Intermediate Income Trust:
We have audited the accompanying statement of assets and liabilities of
Putnam Master Intermediate Income Trust, including the fund's portfolio,
as of September 30, 2004, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of
the two years in the period then ended and the financial highlights for
each of the five years in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform our audit to obtain reasonable
assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of September 30, 2004 by
correspondence with the custodian and brokers or by other appropriate
auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Putnam Master Intermediate Income Trust as of
September 30, 2004, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the five
years in the period then ended in conformity with accounting principles
generally accepted in the United States of America.
KPMG LLP
Boston, Massachusetts
November 3, 2004
The fund's portfolio
September 30, 2004
Corporate bonds and notes (37.0%) (a)
Principal amount Value
Basic Materials (4.3%)
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$605,000 Acetex Corp. sr. notes 10 7/8s, 2009
(Canada) $665,500
455,000 AK Steel Corp. company guaranty
7 3/4s, 2012 444,763
780,000 Armco, Inc. sr. notes 9s, 2007 785,850
45,000 Avecia Group PLC company guaranty
11s, 2009 (United Kingdom) 39,600
705,000 BCP Caylux Holdings Luxembourg SCA
144A sr. sub. notes 9 5/8s, 2014
(Luxembourg) 761,400
276,000 Century Aluminum Co. 144A company
guaranty 7 1/2s, 2014 289,800
740,000 Compass Minerals Group, Inc. company
guaranty 10s, 2011 828,800
285,000 Compass Minerals International, Inc.
sr. disc. notes stepped-coupon zero %
(12s, 6/1/08), 2013 (STP) 225,150
775,000 Compass Minerals International, Inc.
sr. notes stepped-coupon zero %
(12 3/4s, 12/15/07), 2012 (STP) 651,000
525,000 Crystal US Holdings, LLC/US Sub 3
Corp. 144A sr. disc. notes zero %
(10s, 10/1/09), 2014 (STP) 321,563
653,337 Doe Run Resources Corp. company
guaranty Ser. A1, 11 3/4s, 2008
(PIK) 555,336
765,000 Dow Chemical Co. (The) notes 5 3/4s,
2009 817,010
375,000 Equistar Chemicals LP notes 8 3/4s,
2009 404,063
1,690,000 Equistar Chemicals LP/Equistar
Funding Corp. company guaranty
10 1/8s, 2008 1,897,025
705,000 Georgia-Pacific Corp. company
guaranty 9 3/8s, 2013 830,138
405,000 Georgia-Pacific Corp. company
guaranty 8 7/8s, 2010 473,850
80,000 Georgia-Pacific Corp. debs. 7.7s,
2015 91,200
1,000 Georgia-Pacific Corp. sr. notes
7 3/8s, 2008 1,090
680,000 Gerdau Ameristeel Corp. sr. notes
10 3/8s, 2011 (Canada) 775,200
1,050,000 Hercules, Inc. company guaranty
11 1/8s, 2007 1,246,875
200,000 Huntsman Advanced Materials, LLC
144A sec. FRN 11.86s, 2008 214,000
240,000 Huntsman Advanced Materials, LLC
144A sec. notes 11s, 2010 278,400
793,000 Huntsman Co., LLC sr. disc. notes
zero %, 2008 495,625
505,000 Huntsman ICI Chemicals, Inc. company
guaranty 10 1/8s, 2009 530,250
1,565,000 Huntsman ICI Holdings sr. disc.
notes zero %, 2009 829,450
EUR 415,000 Huntsman International, LLC sr. sub.
notes Ser. EXCH, 10 1/8s, 2009 536,219
$400,000 Huntsman, LLC company guaranty
11 5/8s, 2010 463,000
290,000 Huntsman, LLC 144A company guaranty
11 1/2s, 2012 320,088
225,000 Innophos, Inc. 144A sr. sub. notes
8 7/8s, 2014 239,625
130,000 International Steel Group, Inc. 144A
sr. notes 6 1/2s, 2014 130,000
1,385,000 ISP Chemco, Inc. company guaranty
Ser. B, 10 1/4s, 2011 1,544,275
40,000 Jefferson Smurfit Corp. company
guaranty 7 1/2s, 2013 42,200
80,000 Jefferson Smurfit Corp. company
guaranty 8 1/4s, 2012 88,200
60,000 Kaiser Aluminum & Chemical Corp. sr.
notes Ser. B, 10 7/8s, 2006 (In
default) (NON) 57,900
70,000 Lyondell Chemical Co. bonds 11 1/8s,
2012 81,200
5,000 Lyondell Chemical Co. company
guaranty 9 1/2s, 2008 5,456
1,375,000 Lyondell Chemical Co. notes Ser. A,
9 5/8s, 2007 1,497,031
EUR 440,000 MDP Acquisitions PLC sr. notes
10 1/8s, 2012 (Ireland) 611,413
$235,000 MDP Acquisitions PLC sr. notes
9 5/8s, 2012 (Ireland) 265,550
384,783 MDP Acquisitions PLC sub. notes
15 1/2s, 2013 (Ireland) (PIK) 448,272
1,065,000 Millennium America, Inc. company
guaranty 9 1/4s, 2008 1,174,163
155,000 Millennium America, Inc. 144A sr.
notes 9 1/4s, 2008 170,888
EUR 75,000 Nalco Co. sr. notes 7 3/4s, 2011 99,003
EUR 75,000 Nalco Co. sr. sub. notes 9s, 2013 98,909
$1,045,000 Nalco Co. sr. sub. notes 8 7/8s,
2013 1,123,375
570,000 Norske Skog Canada, Ltd. sr. notes
7 3/8s, 2014 (Canada) 595,650
509,465 PCI Chemicals Canada sec. sr. notes
10s, 2008 (Canada) 499,276
243,657 Pioneer Companies, Inc. sec. FRN
5.475s, 2006 238,784
805,000 Potlatch Corp. company guaranty 10s,
2011 909,650
110,000 Resolution Performance Products, LLC
sr. notes 9 1/2s, 2010 113,300
EUR 440,000 SGL Carbon SA 144A sr. notes 8 1/2s,
2012 (Luxembourg) 568,521
$695,000 Steel Dynamics, Inc. company
guaranty 9 1/2s, 2009 780,138
146,606 Sterling Chemicals, Inc. sec. notes
10s, 2007 (PIK) 137,810
660,000 Stone Container Corp. sr. notes
9 3/4s, 2011 730,950
240,000 Stone Container Corp. sr. notes
8 3/8s, 2012 264,600
140,000 Stone Container Finance 144A company
guaranty 7 3/8s, 2014 (Canada) 146,650
80,000 Tembec Industries, Inc. company
guaranty 7 3/4s, 2012 (Canada) 80,400
895,000 Ucar Finance, Inc. company guaranty
10 1/4s, 2012 1,024,775
390,000 United Agri Products 144A sr. notes
8 1/4s, 2011 421,200
509,000 United States Steel Corp. sr. notes
9 3/4s, 2010 582,805
46,812 Wheeling-Pittsburgh Steel Corp. sr.
notes 6s, 2010 32,768
90,991 Wheeling-Pittsburgh Steel Corp. sr.
notes 5s, 2011 63,694
190,000 WHX Corp. sr. notes 10 1/2s, 2005 180,500
--------------
30,821,176
Capital Goods (3.0%)
-------------------------------------------------------------------------------
510,000 AEP Industries, Inc. sr. sub. notes
9 7/8s, 2007 519,563
1,175,000 Allied Waste North America, Inc.
company guaranty Ser. B, 8 1/2s,
2008 1,271,938
20,000 Allied Waste North America, Inc.
company guaranty Ser. B, 7 5/8s,
2006 20,875
550,000 Allied Waste North America, Inc.
sec. notes 6 1/2s, 2010 544,500
247,000 Amsted Industries, Inc. 144A sr.
notes 10 1/4s, 2011 271,700
545,000 Argo-Tech Corp. 144A sr. notes
9 1/4s, 2011 584,513
500,000 BE Aerospace, Inc. sr. sub. notes
9 1/2s, 2008 517,500
600,000 BE Aerospace, Inc. sr. sub. notes
Ser. B, 8s, 2008 592,500
135,000 Berry Plastics Corp. company
guaranty 10 3/4s, 2012 153,225
452,000 Blount, Inc. sr. sub. notes 8 7/8s,
2012 480,250
463,000 Browning-Ferris Industries, Inc. sr.
notes 6 3/8s, 2008 467,630
EUR 80,000 Crown Holdings SA bonds 10 1/4s,
2011 (France) 113,004
$870,000 Crown Holdings SA notes 10 7/8s,
2013 (France) 1,011,375
316,000 Crown Holdings SA notes 9 1/2s, 2011
(France) 352,340
EUR 107,000 Crown Holdings SA 144A notes 6 1/4s,
2011 (France) 133,471
$1,981,000 Decrane Aircraft Holdings Co.
company guaranty 17s, 2008 752,780
715,000 Earle M. Jorgensen Co. sec. notes
9 3/4s, 2012 795,438
1,424,000 FIMEP SA sr. notes 10 1/2s, 2013
(France) 1,666,080
EUR 360,000 Flender Holdings 144A sr. notes 11s,
2010 (Germany) 518,352
$555,000 Flowserve Corp. company guaranty
12 1/4s, 2010 622,988
665,000 Hexcel Corp. sr. sub. notes 9 3/4s,
2009 698,250
950,000 Invensys, PLC notes 9 7/8s, 2011
(United Kingdom) 973,750
510,000 K&F Industries, Inc. sr. sub. notes
Ser. B, 9 5/8s, 2010 567,375
330,000 L-3 Communications Corp. company
guaranty 6 1/8s, 2013 334,125
85,000 Manitowoc Co., Inc. (The) company
guaranty 10 1/2s, 2012 97,963
EUR 180,000 Manitowoc Co., Inc. (The) company
guaranty 10 3/8s, 2011 249,229
$220,000 Manitowoc Co., Inc. (The) sr. notes
7 1/8s, 2013 232,650
218,000 Mueller Group, Inc. 144A sec. FRN
6.444s, 2011 224,540
265,000 Mueller Group, Inc. 144A sr. sub.
notes 10s, 2012 286,200
560,000 Owens-Brockway Glass company
guaranty 8 1/4s, 2013 596,400
520,000 Owens-Brockway Glass company
guaranty 7 3/4s, 2011 553,800
964,000 Owens-Brockway Glass sr. sec. notes
8 3/4s, 2012 1,070,040
515,000 Pliant Corp. sec. notes 11 1/8s,
2009 535,600
1,140,000 Sequa Corp. sr. notes 9s, 2009 1,251,150
260,000 Siebe PLC 144A sr. unsub. 6 1/2s,
2010 (United Kingdom) 236,600
227,000 Solo Cup Co. sr. sub. notes 8 1/2s,
2014 223,595
103,000 Tekni-Plex, Inc. company guaranty
Ser. B, 12 3/4s, 2010 86,263
455,000 Tekni-Plex, Inc. 144A sr. sec. notes
8 3/4s, 2013 432,250
190,000 Terex Corp. company guaranty 9 1/4s,
2011 212,800
730,000 Terex Corp. company guaranty Ser. B,
10 3/8s, 2011 824,900
370,000 Titan Corp. (The) company guaranty
8s, 2011 384,800
--------------
21,462,302
Communication Services (3.0%)
-------------------------------------------------------------------------------
332,000 Alamosa Delaware, Inc. company
guaranty 11s, 2010 375,990
268,000 Alamosa Delaware, Inc. company
guaranty stepped-coupon zero %
(12s, 7/31/05), 2009 (STP) 276,040
301,000 Alamosa Delaware, Inc. sr. notes
8 1/2s, 2012 304,763
195,000 American Cellular Corp. company
guaranty 9 1/2s, 2009 155,025
800,000 American Cellular Corp. sr. notes
Ser. B, 10s, 2011 648,000
365,000 American Tower Corp. sr. notes
7 1/2s, 2012 372,300
750,000 American Towers, Inc. company
guaranty 7 1/4s, 2011 780,000
550,000 Asia Global Crossing, Ltd. sr. notes
13 3/8s, 2010 (Bermuda) (In default)
(NON) 44,000
880,000 Centennial Cellular Operating Co.
company guaranty 10 1/8s, 2013 926,200
490,000 Cincinnati Bell, Inc. company
guaranty 7 1/4s, 2013 471,625
1,085,000 Cincinnati Bell, Inc. sr. sub. notes
8 3/8s, 2014 990,063
749,632 Colo.com, Inc. 144A sr. notes
13 7/8s, 2010 (In default) (NON) 75
765,000 Crown Castle International Corp. sr.
notes 9 3/8s, 2011 879,750
265,000 Eircom Funding notes 8 1/4s, 2013
(Ireland) 290,175
390,000 Fairpoint Communications, Inc. sr.
sub. notes 12 1/2s, 2010 417,300
70,976 Firstworld Communication Corp. sr.
disc. notes zero %, 2008 (In
default) (NON) 7
214,443 Globix Corp. company guaranty 11s,
2008 (PIK) 180,132
855,000 Inmarsat Finance PLC 144A company
guaranty 7 5/8s, 2012 (United
Kingdom) 848,588
300,000 iPCS, Inc. 144A sr. notes 11 1/2s,
2012 315,000
535,000 Level 3 Financing, Inc. 144A sr.
notes 10 3/4s, 2011 450,738
725,000 Madison River Capital Corp. sr.
notes 13 1/4s, 2010 768,500
1,039,000 MCI, Inc. sr. notes 7.735s, 2014 984,453
256,000 MCI, Inc. sr. notes 6.688s, 2009 246,720
1,000 MCI, Inc. sr. notes 5.908s, 2007 991
445,000 Nextel Communications, Inc. sr.
notes 7 3/8s, 2015 478,375
1,211,000 Nextel Communications, Inc. sr.
notes 5.95s, 2014 1,186,780
263,000 Nextel Partners, Inc. sr. notes
12 1/2s, 2009 304,423
1,260,000 Nextel Partners, Inc. sr. notes
8 1/8s, 2011 1,335,600
493,000 Qwest Communications International,
Inc. 144A sr. notes 7 1/2s, 2014 452,328
2,415,000 Qwest Corp. 144A notes 9 1/8s, 2012 2,656,500
360,000 Qwest Services Corp. 144A notes
14 1/2s, 2014 435,600
164,000 Rogers Cantel, Ltd. debs. 9 3/4s,
2016 (Canada) 183,065
280,000 Rogers Wireless, Inc. sec. notes
9 5/8s, 2011 (Canada) 313,600
270,000 Rural Cellular Corp. sr. sub. notes
Ser. B, 9 5/8s, 2008 249,750
165,000 SBA Communications Corp. sr. notes
10 1/4s, 2009 176,550
320,000 SBA Telecommunications Inc./SBA
Communication Corp. sr. disc. notes
stepped-coupon zero % (9 3/4s,
12/15/07), 2011 (STP) 259,200
670,000 TSI Telecommunication Services, Inc.
company guaranty Ser. B, 12 3/4s,
2009 750,400
417,000 UbiquiTel Operating Co. bonds
stepped-coupon zero % (14s,
4/15/05), 2010 (STP) 438,893
365,000 UbiquiTel Operating Co. sr. notes
9 7/8s, 2011 380,056
239,000 UbiquiTel Operating Co. 144A sr.
notes 9 7/8s, 2011 249,755
545,000 Western Wireless Corp. sr. notes
9 1/4s, 2013 555,900
--------------
21,133,210
Consumer Cyclicals (9.0%)
-------------------------------------------------------------------------------
290,000 Ameristar Casinos, Inc. company
guaranty 10 3/4s, 2009 329,150
160,000 Argosy Gaming Co. sr. sub. notes 9s,
2011 180,400
650,000 Argosy Gaming Co. sr. sub. notes 7s,
2014 670,313
455,000 Asbury Automotive Group, Inc. sr.
sub. notes 8s, 2014 448,175
885,000 Autonation, Inc. company guaranty
9s, 2008 1,017,750
155,000 Beazer Homes USA, Inc. company
guaranty 8 3/8s, 2012 171,275
585,000 Boyd Gaming Corp. sr. sub. notes
8 3/4s, 2012 651,544
165,000 Boyd Gaming Corp. sr. sub. notes
7 3/4s, 2012 176,963
320,000 Building Materials Corp. company
guaranty 8s, 2008 332,800
370,000 Chumash Casino & Resort Enterprise
144A sr. notes 9s, 2010 410,700
1,190,000 Coinmach Corp. sr. notes 9s, 2010 1,231,650
770,000 Collins & Aikman Products company
guaranty 10 3/4s, 2011 770,000
105,000 D.R. Horton, Inc. company guaranty
8s, 2009 119,175
630,000 D.R. Horton, Inc. sr. notes 7 7/8s,
2011 722,925
155,000 D.R. Horton, Inc. sr. notes 6 7/8s,
2013 168,175
440,000 D.R. Horton, Inc. sr. notes 5 7/8s,
2013 448,800
160,000 Dana Corp. notes 10 1/8s, 2010 181,600
550,000 Dana Corp. notes 9s, 2011 662,750
295,000 Dana Corp. notes 6 1/2s, 2009 311,963
565,000 Dayton Superior Corp. sec. notes
10 3/4s, 2008 604,550
160,000 Delco Remy International, Inc.
company guaranty 11s, 2009 168,000
525,000 Delco Remy International, Inc. sr.
sub. notes 9 3/8s, 2012 514,500
441,621 Derby Cycle Corp. (The) sr. notes
10s, 2008 (In default) (NON) 44
EUR 92,196 Derby Cycle Corp. (The) sr. notes
9 3/8s, 2008 (In default) (NON) 6
DEM 1,173,682 Derby Cycle Corp. (The) sr. notes
9 3/8s, 2008 (In default) (NON) 74
$1,115,000 Dex Media West, LLC/Dex Media
Finance Co. sr. notes Ser. B,
8 1/2s, 2010 1,265,525
505,000 Dex Media, Inc. disc. notes zero %,
2013 369,913
580,000 Dex Media, Inc. notes 8s, 2013 609,000
190,000 Dura Operating Corp. company
guaranty Ser. B, 8 5/8s, 2012 188,100
61,000 FelCor Lodging LP company guaranty
10s, 2008 (R) 64,050
480,000 Finlay Fine Jewelry Corp. 144A sr.
notes 8 3/8s, 2012 516,000
700,000 Gaylord Entertainment Co. sr. notes
8s, 2013 736,750
1,430,000 Goodyear Tire & Rubber Co. (The)
notes 7.857s, 2011 1,347,775
200,000 Goodyear Tire & Rubber Co. (The)
notes 6 3/8s, 2008 193,000
416,000 HMH Properties, Inc. company
guaranty Ser. B, 7 7/8s, 2008 (R) 427,960
1,383,888 Hollinger Participation Trust 144A
sr. notes 12 1/8s, 2010 (Canada)
(PIK) 1,612,230
995,000 Hollywood Park, Inc. company
guaranty Ser. B, 9 1/4s, 2007 1,019,875
279,000 Host Marriott LP sr. notes Ser. E,
8 3/8s, 2006 (R) 294,345
725,000 Host Marriott LP 144A sr. notes 7s,
2012 R 763,063
340,000 Houghton Mifflin Co. sr. sub. notes
9 7/8s, 2013 357,000
870,000 Icon Health & Fitness company
guaranty 11 1/4s, 2012 930,900
645,000 IESI Corp. company guaranty 10 1/4s,
2012 703,050
280,000 Inn of the Mountain Gods sr. notes
12s, 2010 320,600
520,000 ITT Corp. debs. 7 3/8s, 2015 566,800
585,000 ITT Corp. notes 6 3/4s, 2005 605,475
575,000 JC Penney Co., Inc. notes 9s, 2012 698,625
30,000 JC Penney Co., Inc. notes 8s, 2010 34,163
1,625,000 John Q. Hammons Hotels LP/John Q.
Hammons Hotels Finance Corp. III
1st mtge. Ser. B, 8 7/8s, 2012 1,811,875
940,000 Jostens Holding Corp. sr. disc.
notes stepped-coupon zero %
(10 1/4s, 12/1/08), 2013 (STP) 643,900
857,000 Jostens IH Corp. 144A company
guaranty 7 5/8s, 2012 861,285
510,000 Jostens, Inc. sr. sub. notes
12 3/4s, 2010 570,838
130,000 K. Hovnanian Enterprises, Inc.
company guaranty 10 1/2s, 2007 151,775
600,000 K. Hovnanian Enterprises, Inc.
company guaranty 8 7/8s, 2012 670,500
385,000 K. Hovnanian Enterprises, Inc.
company guaranty 6 3/8s, 2014 389,813
295,000 K. Hovnanian Enterprises, Inc. sr.
notes 6 1/2s, 2014 301,638
355,000 K2, Inc. 144A sr. notes 7 3/8s, 2014 376,300
1,340,000 Laidlaw International, Inc. sr.
notes 10 3/4s, 2011 1,529,275
560,000 Lamar Media Corp. company guaranty
7 1/4s, 2013 602,000
940,000 Levi Strauss & Co. sr. notes
12 1/4s, 2012 994,050
430,000 Mandalay Resort Group sr. notes
6 3/8s, 2011 440,750
700,000 MeriStar Hospital Corp. company
guaranty 9 1/8s, 2011 (R) 733,250
390,000 MeriStar Hospital Corp. company
guaranty 9s, 2008 (R) 407,550
75,000 MeriStar Hospitality Operating
Partnership/MeriStar
Hospitality Finance Corp. company
guaranty 10 1/2s, 2009 82,125
295,000 Meritage Corp. company guaranty
9 3/4s, 2011 331,138
160,000 Meritage Corp. sr. notes 7s, 2014 164,000
405,000 Meritor Automotive, Inc. notes 6.8s,
2009 415,125
420,000 Metaldyne Corp. 144A sr. notes 10s,
2013 390,600
800,000 MGM Mirage, Inc. company guaranty
8 1/2s, 2010 909,000
490,000 MGM Mirage, Inc. company guaranty
6s, 2009 496,738
1,420,000 Mohegan Tribal Gaming Authority sr.
sub. notes 6 3/8s, 2009 1,473,250
1,510,000 Owens Corning notes 7 1/2s, 2005 (In
default) (NON) 687,050
460,000 Oxford Industries, Inc. sr. notes
8 7/8s, 2011 499,100
905,000 Park Place Entertainment Corp. sr.
notes 7 1/2s, 2009 1,013,600
495,000 Park Place Entertainment Corp. sr.
notes 7s, 2013 550,688
395,000 Park Place Entertainment Corp. sr.
sub. notes 8 7/8s, 2008 450,300
455,000 Penn National Gaming, Inc. company
guaranty Ser. B, 11 1/8s, 2008 494,244
955,000 Penn National Gaming, Inc. sr. sub.
notes 8 7/8s, 2010 1,046,919
220,000 Phillips-Van Heusen Corp. sr. notes
7 1/4s, 2011 228,800
555,000 Pinnacle Entertainment, Inc. sr.
sub. notes 8 3/4s, 2013 568,875
255,000 Pinnacle Entertainment, Inc. sr.
sub. notes 8 1/4s, 2012 255,638
1,095,000 PRIMEDIA, Inc. company guaranty
8 7/8s, 2011 1,095,000
350,000 PRIMEDIA, Inc. company guaranty
7 5/8s, 2008 345,625
800,000 PRIMEDIA, Inc. 144A sr. notes 8s,
2013 760,000
365,000 Reader's Digest Association, Inc.
(The) sr. notes 6 1/2s, 2011 375,950
725,000 Resorts International Hotel and
Casino, Inc. company guaranty
11 1/2s, 2009 833,750
125,000 RH Donnelley Finance Corp. I company
guaranty 8 7/8s, 2010 141,250
925,000 RH Donnelley Finance Corp. I 144A
sr. notes 8 7/8s, 2010 1,045,250
475,000 RH Donnelley Finance Corp. I 144A
sr. sub. notes 10 7/8s, 2012 575,938
670,000 Russell Corp. company guaranty
9 1/4s, 2010 726,950
1,107,000 Saks, Inc. company guaranty 7s, 2013 1,129,140
1,190,000 Samsonite Corp. 144A sr. sub. notes
8 7/8s, 2011 1,243,550
385,000 Schuler Homes, Inc. company guaranty
10 1/2s, 2011 442,750
1,100,000 Sealy Mattress Co. sr. sub. notes
8 1/4s, 2014 1,108,250
420,000 Standard Pacific Corp. sr. notes
7 3/4s, 2013 456,750
50,000 Starwood Hotels & Resorts Worldwide,
Inc. company guaranty 7 7/8s, 2012 56,563
390,000 Starwood Hotels & Resorts Worldwide,
Inc. company guaranty 7 3/8s, 2007 420,225
470,000 Station Casinos, Inc. sr. notes 6s,
2012 481,750
335,000 Technical Olympic USA, Inc. company
guaranty 10 3/8s, 2012 375,200
220,000 Technical Olympic USA, Inc. company
guaranty 9s, 2010 240,900
EUR 125,000 Teksid Aluminum 144A company
guaranty 11 3/8s, 2011 (Luxembourg) 134,658
$750,000 Tenneco Automotive, Inc. sec. notes
Ser. B, 10 1/4s, 2013 855,000
501,000 THL Buildco, Inc. (Nortek, Inc.)
144A sr. sub. notes 8 1/2s, 2014 524,798
1,220,000 Trump Atlantic City Associates
company guaranty 11 1/4s, 2006 1,052,250
515,000 United Auto Group, Inc. company
guaranty 9 5/8s, 2012 567,788
875,000 Vertis, Inc. company guaranty
Ser. B, 10 7/8s, 2009 939,531
730,000 Vertis, Inc. 144A sub. notes
13 1/2s, 2009 730,000
100,000 Von Hoffman Press, Inc. company
guaranty 10 3/8s, 2007 101,875
1,110,000 Von Hoffman Press, Inc. company
guaranty 10 1/4s, 2009 1,230,713
149,142 Von Hoffman Press, Inc. debs. 13s,
2009 (PIK) 155,481
810,000 WCI Communities, Inc. company
guaranty 9 1/8s, 2012 901,125
399,000 William Carter Holdings Co. (The)
company guaranty Ser. B, 10 7/8s,
2011 451,868
540,000 WRC Media Corp. sr. sub. notes
12 3/4s, 2009 491,400
62,000 Yell Finance BV sr. notes 10 3/4s,
2011 (Netherlands) 70,959
--------------
64,521,707
Consumer Staples (5.0%)
-------------------------------------------------------------------------------
40,000 Adelphia Communications Corp. notes
Ser. B, 9 7/8s, 2005 (In default)
(NON) 35,800
215,000 Adelphia Communications Corp. sr.
notes 10 7/8s, 2010 (In default)
(NON) 197,800
50,000 Adelphia Communications Corp. sr.
notes 9 3/8s, 2009 (In default)
(NON) 46,000
341,000 Adelphia Communications Corp. sr.
notes Ser. B, 9 7/8s, 2007 (In
default) (NON) 306,900
580,000 Adelphia Communications Corp. sr.
notes Ser. B, 7 3/4s, 2009 (In
default) (NON) 510,400
545,000 Affinity Group, Inc. sr. sub. notes
9s, 2012 583,150
660,000 AMC Entertainment, Inc. sr. sub.
notes 9 7/8s, 2012 683,100
545,000 AMC Entertainment, Inc. 144A sr.
sub. notes 8s, 2014 512,300
192,228 Archibald Candy Corp. company
guaranty 10s, 2007 (In default)
(NON) (PIK) 76,891
635,000 Armkel, LLC/Armkel Finance sr. sub.
notes 9 1/2s, 2009 692,150
565,000 Brand Services, Inc. company
guaranty 12s, 2012 641,275
1,117,000 Cablevision Systems Corp. 144A sr.
notes 8s, 2012 1,167,265
500,000 Capital Records, Inc. 144A company
guaranty 8 3/8s, 2009 557,500
100,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (12 1/8s,
1/15/07), 2012 (STP) 56,000
525,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (11 3/4s,
5/15/06), 2011 (STP) 325,500
835,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
11 1/8s, 2011 676,350
860,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
10 3/4s, 2009 705,200
420,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
10 1/4s, 2010 337,050
1,560,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 10s,
2011 1,201,200
190,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 8 5/8s,
2009 147,725
650,000 Cinemark USA, Inc. sr. sub. notes
9s, 2013 726,375
990,000 Cinemark, Inc. sr. disc. notes
stepped-coupon zero % (9 3/4s,
3/15/07), 2014 (STP) 680,625
305,000 Constellation Brands, Inc. company
guaranty Ser. B, 8s, 2008 336,644
425,000 Constellation Brands, Inc. sr. sub.
notes Ser. B, 8 1/8s, 2012 468,563
353,000 CSC Holdings, Inc. sr. notes Ser. B,
7 5/8s, 2011 371,974
360,000 CSC Holdings, Inc. 144A sr. notes
6 3/4s, 2012 360,900
170,000 Dean Foods Co. sr. notes 6 5/8s,
2009 180,625
210,000 Del Monte Corp. company guaranty
Ser. B, 9 1/4s, 2011 231,525
560,000 Del Monte Corp. sr. sub. notes
8 5/8s, 2012 623,000
2,742,000 Diva Systems Corp. sr. disc. notes
Ser. B, 12 5/8s, 2008 (In default)
(NON) 3,428
1,370,000 Doane Pet Care Co. sr. sub. debs.
9 3/4s, 2007 1,311,775
260,000 Dole Food Co. sr. notes 8 7/8s, 2011 282,750
200,000 Dole Food Co. sr. notes 8 5/8s, 2009 218,000
485,000 Domino's, Inc. sr. sub. notes
8 1/4s, 2011 525,013
920,000 Echostar DBS Corp. sr. notes 6 3/8s,
2011 931,500
514,000 Echostar DBS Corp. 144A company
guaranty 6 5/8s, 2014 510,145
250,000 Elizabeth Arden, Inc. company
guaranty 7 3/4s, 2014 262,500
1,394,000 Granite Broadcasting Corp. sec.
notes 9 3/4s, 2010 1,289,450
345,000 Jean Coutu Group, Inc. 144A sr.
notes 7 5/8s, 2012 (Canada) 351,038
690,000 Jean Coutu Group, Inc. 144A sr. sub.
notes 8 1/2s, 2014 (Canada) 684,825
1,065,000 Kabel Deutsheland GmbH 144A sr.
notes 10 5/8s, 2014 (Germany) 1,160,850
42,635 Knology, Inc. 144A sr. notes 12s,
2009 (PIK) 41,356
465,000 Land O'Lakes, Inc. sr. notes 8 3/4s,
2011 432,450
910,000 News America Holdings, Inc. company
guaranty 9 1/4s, 2013 1,169,082
365,000 North Atlantic Trading Co. sr. notes
9 1/4s, 2012 350,400
680,000 Pinnacle Foods Holding Corp. 144A
sr. sub. notes 8 1/4s, 2013 640,900
840,000 Playtex Products, Inc. company
guaranty 9 3/8s, 2011 861,000
770,000 Playtex Products, Inc. sec. notes
8s, 2011 816,200
750,000 Prestige Brands, Inc. 144A sr. sub.
notes 9 1/4s, 2012 735,000
165,000 Quebecor Media, Inc. sr. disc. notes
stepped-coupon zero % (13 3/4s,
7/15/06), 2011 (Canada) (STP) 159,225
565,000 Quebecor Media, Inc. sr. notes
11 1/8s, 2011 (Canada) 652,575
694,000 Rainbow National Services, LLC 144A
sr. notes 8 3/4s, 2012 720,025
735,000 Remington Arms Co., Inc. company
guaranty 10 1/2s, 2011 698,250
560,000 Rite Aid Corp. company guaranty
9 1/2s, 2011 616,000
35,000 Rite Aid Corp. debs. 6 7/8s, 2013 30,625
75,000 Rite Aid Corp. notes 7 1/8s, 2007 75,563
380,000 Rite Aid Corp. sec. notes 8 1/8s,
2010 399,000
505,000 Rite Aid Corp. sr. notes 9 1/4s,
2013 517,625
40,000 Rite Aid Corp. 144A notes 6s, 2005 40,300
875,000 Sbarro, Inc. company guaranty 11s,
2009 818,125
255,000 Scotts Co. (The) sr. sub. notes
6 5/8s, 2013 268,069
963,000 Six Flags, Inc. sr. notes 9 5/8s,
2014 900,405
737,000 Six Flags, Inc. sr. notes 8 7/8s,
2010 692,780
290,000 Videotron Ltee company guaranty
6 7/8s, 2014 (Canada) 297,250
770,000 Vivendi Universal SA sr. notes
6 1/4s, 2008 (France) 816,200
720,000 Williams Scotsman, Inc. company
guaranty 9 7/8s, 2007 689,400
771,000 Young Broadcasting, Inc. company
guaranty 10s, 2011 794,130
365,000 Young Broadcasting, Inc. sr. sub.
notes 8 3/4s, 2014 350,400
--------------
35,553,396
Energy (3.1%)
-------------------------------------------------------------------------------
1,005,000 Arch Western Finance, LLC 144A sr.
notes 7 1/2s, 2013 1,080,375
210,000 Belden & Blake Corp. 144A sec. notes
8 3/4s, 2012 223,650
640,000 BRL Universal Equipment sec. notes
8 7/8s, 2008 681,600
565,000 CHC Helicopter Corp. sr. sub. notes
7 3/8s, 2014 (Canada) 589,013
340,000 Chesapeake Energy Corp. company
guaranty 9s, 2012 388,450
269,000 Chesapeake Energy Corp. company
guaranty 7 3/4s, 2015 293,210
1,031,000 Chesapeake Energy Corp. sr. notes
7 1/2s, 2013 1,128,945
279,000 Chesapeake Energy Corp. sr. notes
7s, 2014 295,043
510,000 Comstock Resources, Inc. sr. notes
6 7/8s, 2012 522,750
695,000 Dresser, Inc. company guaranty
9 3/8s, 2011 762,763
144,000 El Paso Energy Partners LP company
guaranty Ser. B, 8 1/2s, 2011 162,000
550,000 Encore Acquisition Co. company
guaranty 8 3/8s, 2012 613,250
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 768,500
108,000 Forest Oil Corp. company guaranty
7 3/4s, 2014 116,640
235,000 Forest Oil Corp. sr. notes 8s, 2011 263,788
335,000 Forest Oil Corp. sr. notes 8s, 2008 369,338
305,000 Forest Oil Corp. 144A sr. notes 8s,
2011 342,363
395,000 Hanover Compressor Co. sr. notes 9s,
2014 433,513
355,000 Hanover Compressor Co. sr. notes
8 5/8s, 2010 385,175
530,000 Hanover Compressor Co. sub. notes
zero %, 2007 447,850
355,000 Hanover Equipment Trust sec. notes
Ser. A, 8 1/2s, 2008 381,625
480,000 Hornbeck Offshore Services, Inc. sr.
notes 10 5/8s, 2008 529,200
365,000 KCS Energy, Inc. sr. notes 7 1/8s,
2012 381,425
390,000 Key Energy Services, Inc. sr. notes
6 3/8s, 2013 390,000
550,000 Massey Energy Co. sr. notes 6 5/8s,
2010 573,375
700,000 Newfield Exploration Co. sr. notes
7 5/8s, 2011 787,500
348,000 Newfield Exploration Co. 144A sr.
sub. notes 6 5/8s, 2014 362,790
655,000 Offshore Logistics, Inc. company
guaranty 6 1/8s, 2013 664,825
581,516 Oslo Seismic Services, Inc. 1st
mtge. 8.28s, 2011 625,406
355,000 Pacific Energy Partners/Pacific
Energy Finance Corp. 144A sr. notes
7 1/8s, 2014 384,288
226,000 Parker Drilling Co. company guaranty
Ser. B, 10 1/8s, 2009 240,690
565,000 Petro Geo-Services notes 10s, 2010
(Norway) 639,863
115,000 Pioneer Natural Resources Co.
company guaranty 6 1/2s, 2008 124,659
380,000 Plains All American Pipeline
LP/Plains All American Finance
Corp. company guaranty 7 3/4s, 2012 446,747
485,000 Plains Exploration & Production Co.
sr. sub. notes 8 3/4s, 2012 544,413
415,000 Plains Exploration & Production Co.
144A sr. notes 7 1/8s, 2014 445,088
670,000 Pogo Producing Co. sr. sub. notes
Ser. B, 8 1/4s, 2011 737,000
826,000 Pride International, Inc. 144A sr.
notes 7 3/8s, 2014 916,860
600,000 Seabulk International, Inc. company
guaranty 9 1/2s, 2013 625,500
270,000 Seven Seas Petroleum, Inc. sr. notes
Ser. B, 12 1/2s, 2005 (In default)
(NON) 3
925,000 Star Gas Partners LP/Star Gas
Finance Co. sr. notes 10 1/4s, 2013 1,012,875
334,231 Star Gas Propane 1st Mtge. 8.04s,
2009 360,969
150,000 Universal Compression, Inc. sr.
notes 7 1/4s, 2010 159,000
670,000 Vintage Petroleum, Inc. sr. notes
8 1/4s, 2012 743,700
145,000 Vintage Petroleum, Inc. sr. sub.
notes 7 7/8s, 2011 155,150
--------------
22,356,167
Financial (0.9%)
-------------------------------------------------------------------------------
1,930,000 China Development Bank notes 4 3/4s,
2014 (China) 1,875,960
310,000 Crescent Real Estate Equities LP
notes 7 1/2s, 2007 (R) 316,975
765,000 Crescent Real Estate Equities LP sr.
notes 9 1/4s, 2009 (R) 826,200
992,000 E*Trade Finance Corp. 144A sr.
notes 8s, 2011 1,031,680
1,451,520 Finova Group, Inc. notes 7 1/2s,
2009 723,946
576,000 iStar Financial, Inc. sr. notes
8 3/4s, 2008 (R) 656,231
125,000 iStar Financial, Inc. sr. notes 7s,
2008 (R) 133,306
425,000 iStar Financial, Inc. sr. notes 6s,
2010 (R) 439,015
540,000 Western Financial Bank sub. debs.
9 5/8s, 2012 610,200
--------------
6,613,513
Government (0.2%)
-------------------------------------------------------------------------------
1,250,000 Aries Vermoegensverwaltungs 144A
notes 9.6s, 2014 (Germany) 1,403,125
Health Care (3.1%)
-------------------------------------------------------------------------------
345,000 Alderwoods Group, Inc. 144A sr.
notes 7 3/4s, 2012 364,838
580,000 AmerisourceBergen Corp. company
guaranty 7 1/4s, 2012 629,300
560,000 AmerisourceBergen Corp. sr. notes
8 1/8s, 2008 618,800
990,000 Ardent Health Services, Inc. sr.
sub. notes 10s, 2013 1,014,750
171,000 Encore Medical Corp. 144A sr. sub.
notes 9 3/4s, 2012 168,863
340,000 Extendicare Health Services, Inc.
company guaranty 9 1/2s, 2010 381,650
535,000 Extendicare Health Services, Inc.
sr. sub. notes 6 7/8s, 2014 545,700
115,000 Hanger Orthopedic Group, Inc.
company guaranty 10 3/8s, 2009 105,800
1,500,000 HCA, Inc. med. term notes 8.85s,
2007 1,645,574
1,240,000 HCA, Inc. notes 7s, 2007 1,324,868
205,000 HCA, Inc. notes 5 3/4s, 2014 203,227
980,000 Healthsouth Corp. notes 7 5/8s, 2012 948,150
510,000 Healthsouth Corp. sr. notes 8 1/2s,
2008 517,650
245,000 Healthsouth Corp. sr. notes 8 3/8s,
2011 243,775
205,000 Healthsouth Corp. sr. notes 7s, 2008 203,719
365,000 Insight Health Services Corp. 144A
company guaranty 9 7/8s, 2011 365,000
252,132 Magellan Health Services, Inc. sr.
notes Ser. A, 9 3/8s, 2008 272,933
595,000 MedQuest, Inc. company guaranty
Ser. B, 11 7/8s, 2012 678,300
805,000 MQ Associates, Inc. 144A sr. disc.
notes zero %, 2012 497,088
740,000 Omnicare, Inc. sr. sub. notes
6 1/8s, 2013 743,700
737,000 PacifiCare Health Systems, Inc.
company guaranty 10 3/4s, 2009 843,865
760,000 Province Healthcare Co. sr. sub.
notes 7 1/2s, 2013 856,900
75,000 Service Corp. International notes
7.2s, 2006 78,375
25,000 Service Corp. International notes
6 7/8s, 2007 26,188
110,000 Service Corp. International notes
6 1/2s, 2008 114,538
270,000 Service Corp. International notes
Ser. (a), 7.7s, 2009 290,925
775,000 Service Corp. International 144A sr.
notes 7s, 2016 775,000
720,000 Stewart Enterprises, Inc. notes
10 3/4s, 2008 793,800
390,000 Tenet Healthcare Corp. notes 7 3/8s,
2013 366,600
45,000 Tenet Healthcare Corp. sr. notes
6 1/2s, 2012 40,275
720,000 Tenet Healthcare Corp. sr. notes
6 3/8s, 2011 646,200
870,000 Tenet Healthcare Corp. 144A sr.
notes 9 7/8s, 2014 909,150
825,000 Triad Hospitals, Inc. sr. notes 7s,
2012 862,125
1,625,000 Triad Hospitals, Inc. sr. sub. notes
7s, 2013 1,653,438
840,000 Universal Hospital Services, Inc.
sr. notes 10 1/8s, 2011 852,600
245,000 US Oncology, Inc. 144A sr. notes 9s,
2012 253,575
175,000 US Oncology, Inc. 144A sr. sub.
notes 10 3/4s, 2014 179,813
422,000 Vanguard Health Holding Co. II, LLC
144A sr. sub. notes 9s, 2014 429,913
305,000 Ventas Realty LP/Capital Corp.
company guaranty 9s, 2012 347,700
345,000 VWR International, Inc. 144A sr.
notes 6 7/8s, 2012 360,525
--------------
22,155,190
Technology (1.2%)
-------------------------------------------------------------------------------
448,000 AMI Semiconductor, Inc. company
guaranty 10 3/4s, 2013 521,920
725,000 Celestica, Inc. sr.sub. notes
7 7/8s, 2011 (Canada) 752,188
509,000 DigitalNet Holdings, Inc. sr. notes
9s, 2010 590,440
690,000 Freescale Semiconductor, Inc. 144A
sr. notes 7 1/8s, 2014 717,600
1,150,000 Iron Mountain, Inc. company guaranty
8 5/8s, 2013 1,250,625
390,000 Iron Mountain, Inc. sr. sub. notes
8 1/4s, 2011 407,063
380,000 Nortel Networks Corp. notes 6 1/8s,
2006 (Canada) 387,600
513,000 ON Semiconductor Corp. company
guaranty 13s, 2008 574,560
330,000 SCG Holding Corp. 144A notes zero %,
2011 452,100
620,000 Seagate Technology Hdd Holdings
company guaranty 8s, 2009 (Cayman
Islands) 657,200
605,000 UGS Corp. 144A sr. sub. notes 10s,
2012 659,450
EUR 195,000 Xerox Corp. sr. notes 9 3/4s, 2009 285,859
$1,255,000 Xerox Corp. sr. notes 7 5/8s, 2013 1,355,400
180,000 Xerox Corp. sr. notes 6 7/8s, 2011 188,100
--------------
8,800,105
Transportation (0.5%)
-------------------------------------------------------------------------------
550,000 American Airlines, Inc. pass-through
certificates Ser. 01-1, 6.817s,
2011 488,125
985,000 Calair, LLC/Calair Capital Corp.
company guaranty 8 1/8s, 2008 797,850
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 194,275
540,000 Northwest Airlines, Inc. company
guaranty 7 5/8s, 2005 531,900
247,692 NWA Trust sr. notes Ser. A, 9 1/4s,
2012 250,169
190,000 Travel Centers of America, Inc.
company guaranty 12 3/4s, 2009 217,550
620,000 United AirLines, Inc. debs. 9 1/8s,
2012 (In default) (NON) 36,425
--------------
3,508,194
Utilities & Power (3.7%)
-------------------------------------------------------------------------------
54,000 AES Corp. (The) sr. notes 8 7/8s,
2011 60,345
30,000 AES Corp. (The) sr. notes 8 3/4s,
2008 32,550
1,885,000 AES Corp. (The) 144A sec. notes
8 3/4s, 2013 2,125,338
540,000 Allegheny Energy Supply 144A bonds
8 1/4s, 2012 596,700
340,000 Allegheny Energy Supply 144A sec.
notes 10 1/4s, 2007 389,300
835,000 Calpine Corp. 144A sec. notes
8 1/2s, 2010 638,775
280,000 CenterPoint Energy Resources Corp.
debs. 6 1/2s, 2008 301,185
240,000 CenterPoint Energy Resources Corp.
sr. notes Ser. B, 7 7/8s, 2013 282,905
90,000 CMS Energy Corp. pass-through
certificates 7s, 2005 90,500
600,000 CMS Energy Corp. sr. notes 8.9s,
2008 654,000
230,000 CMS Energy Corp. sr. notes 8 1/2s,
2011 250,700
180,000 CMS Energy Corp. 144A sr. notes
7 3/4s, 2010 189,900
635,000 DPL, Inc. sr. notes 6 7/8s, 2011 673,100
295,000 Dynegy Holdings, Inc. sr. notes
6 7/8s, 2011 280,988
1,810,000 Dynegy Holdings, Inc. 144A sec.
notes 10 1/8s, 2013 2,081,500
385,000 Dynegy-Roseton Danskamme company
guaranty Ser. A, 7.27s, 2010 388,850
265,000 Edison Mission Energy sr. notes 10s,
2008 310,050
15,000 Edison Mission Energy sr. notes
9 7/8s, 2011 17,475
130,000 Edison Mission Energy sr. notes
7.73s, 2009 136,500
200,000 El Paso CGP Co. notes 6 3/8s, 2009 192,000
275,000 El Paso Corp. notes Ser. MTN, 6.95s,
2007 276,375
670,000 El Paso Corp. sr. notes 7 3/8s, 2012 646,550
365,000 El Paso Natural Gas Co. sr. notes
Ser. A, 7 5/8s, 2010 393,288
1,290,000 El Paso Production Holding Co.
company guaranty 7 3/4s, 2013 1,293,225
650,000 Ferrellgas Partners LP/Ferrellgas
Partners Finance sr. notes 6 3/4s,
2014 663,000
100,000 Gemstone Investor, Ltd. 144A company
guaranty 7.71s, 2004 100,125
845,000 Mission Energy Holding Co. sec.
notes 13 1/2s, 2008 1,068,925
400,000 Monongahela Power Co. 144A 1st.
mtge. 6.7s, 2014 418,173
670,000 Nevada Power Co. 2nd mtge. 9s, 2013 770,500
1,020,000 Northwest Pipeline Corp. company
guaranty 8 1/8s, 2010 1,143,675
115,000 Northwestern Corp. notes 8 3/4s,
2012 (In default) (NON) 101,488
470,000 Northwestern Corp. notes 7 7/8s,
2007 (In default) (NON) 414,775
2,300,000 NRG Energy, Inc. 144A sr. sec. notes
8s, 2013 2,463,875
655,000 Orion Power Holdings, Inc. sr. notes
12s, 2010 818,750
855,000 PG&E Corp. sec. notes 6 7/8s, 2008 925,538
160,000 PG&E Gas Transmission Northwest sr.
notes 7.1s, 2005 166,000
615,000 PSEG Energy Holdings, Inc. notes
7 3/4s, 2007 656,513
485,000 SEMCO Energy, Inc. sr. notes 7 3/4s,
2013 522,588
150,000 Sierra Pacific Power Co. 144A
general ref. mtge. 6 1/4s, 2012 153,000
915,000 Sierra Pacific Resources 144A sr.
notes 8 5/8s, 2014 992,775
90,000 Southern California Edison Co. notes
6 3/8s, 2006 93,863
320,000 Teco Energy, Inc. notes 10 1/2s,
2007 371,200
185,000 Teco Energy, Inc. notes 7.2s, 2011 197,025
280,000 Teco Energy, Inc. notes 7s, 2012 293,300
1,050,000 Utilicorp Canada Finance Corp.
company guaranty 7 3/4s, 2011
(Canada) 1,071,000
361,000 Utilicorp United, Inc. sr. notes
9.95s, 2011 397,100
399,000 Western Resources, Inc. sr. notes
9 3/4s, 2007 454,508
150,000 Williams Cos., Inc. (The) notes
8 1/8s, 2012 172,875
226,429 York Power Funding 144A notes 12s,
2007 (Cayman Islands) (In default)
(NON) 23
--------------
26,732,693
--------------
Total Corporate bonds and notes
(cost $254,141,438) $265,060,778
U.S. government and agency mortgage obligations (26.8%) (a)
Principal amount Value
U.S. Government Agency Mortgage Obligations (26.8%)
-------------------------------------------------------------------------------
Federal National Mortgage
Association Pass-Through
Certificates
$87 8 1/2s, March 1, 2006 $90
20,530 8s, with due dates from October 1,
2025 to July 1, 2028 22,402
14,348 7 1/2s, December 1, 2029 15,417
32,293,499 6 1/2s, with due dates from May 1,
2026 to April 1, 2034 33,945,090
34,313 6 1/2s, October 1, 2018 36,130
86,700,000 6 1/2s, TBA, November 1, 2034 90,723,418
12,873,000 6 1/2s, TBA, October 1, 2034 13,500,559
10,163,000 5 1/2s, TBA, October 1, 2034 10,294,802
252,674 5s, April 1, 2019 257,106
39,100,000 5s, TBA, October 1, 2019 39,710,938
3,590,205 4 1/2s, with due dates from August
1, 2033 to June 1, 2034 3,461,108
--------------
191,967,060
--------------
Total U.S. government and agency
mortgage obligations
(cost $191,626,930) $191,967,060
U.S. treasury obligations (9.8%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$23,608,000 U.S. Treasury Bonds 4 1/4s, August
15, 2013 $23,965,808
U.S. Treasury Notes
7,500,000 6 1/2s, February 15, 2010 8,609,766
27,242,000 3 1/4s, August 15, 2008 27,378,210
10,518,000 1 5/8s, March 31, 2005 10,499,922
--------------
Total U.S. treasury obligations
(cost $70,469,508) $70,453,706
Foreign government bonds and notes (15.7%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$665,000 Brazil (Federal Republic of) bonds
10 1/2s, 2014 $740,810
1,220,000 Bulgaria (Republic of) 144A bonds
8 1/4s, 2015 1,506,700
CAD 3,680,000 Canada (Government of) bonds
Ser. WH31, 6s, 2008 3,131,766
$1,260,000 Colombia (Republic of) bonds
Ser. NOV, 9 3/4s, 2009 1,414,350
2,150,000 Colombia (Republic of) notes
10 3/4s, 2013 2,464,975
325,000 Dominican (Republic of) notes 9.04s,
2013 251,063
EUR 5,530,000 France (Government of) bonds 4s,
2013 6,918,658
EUR 8,330,000 Germany (Federal Republic of) bonds
Ser. 95, 7 3/8s, 2005 10,457,980
EUR 5,500,000 Germany (Federal Republic of) bonds
Ser. 97, 6s, 2007 7,400,197
EUR 1,345,000 Hellenic Greece (Republic of) bonds
3 1/2s, 2008 1,692,602
$185,000 Indonesia (Republic of) FRN 2.005s,
2006 178,525
460,000 Indonesia (Republic of) FRN 2.005s,
2005 453,100
1,600,000 Indonesia (Republic of) 144A sr.
notes 6 3/4s, 2014 1,568,000
NZD 5,470,000 New Zealand (Government of) bonds
Ser. 1106, 8s, 2006 3,819,332
NZD 5,804,000 New Zealand (Government of) bonds
Ser. 709, 7s, 2009 4,052,542
$1,005,000 Philippines (Republic of) sr. notes
8 7/8s, 2015 994,950
9,190,000 Russia (Federation of) unsub.
8 1/4s, 2010 9,998,720
945,000 Russia (Ministry of Finance) deb.
Ser. V, 3s, 2008 855,225
1,925,000 South Africa (Republic of) notes
7 3/8s, 2012 2,170,438
860,000 South Africa (Republic of) notes
6 1/2s, 2014 920,200
EUR 1,000,000 Spain (Government of) bonds 5.4s,
2011 1,370,947
SEK 30,690,000 Sweden (Government of) bonds Ser.
1041, 6 3/4s, 2014 5,009,717
SEK 26,915,000 Sweden (Government of) bonds Ser.
3101, 4s, 2008 4,589,507
$510,000 Turkey (Republic of) notes 7 1/4s,
2015 504,900
287,008 Ukraine (Government of) sr. notes
Ser. REGS, 11s, 2007 312,839
730,000 Ukraine (Government of) 144A bonds
7.65s, 2013 730,000
1,080,000 Ukraine (Government of) 144A unsub.
notes 6 7/8s, 2011 1,061,100
GBP 4,030,000 United Kingdom treasury bonds
7 1/4s, 2007 7,831,048
GBP 3,800,000 United Kingdom treasury bonds 5s,
2012 6,950,969
GBP 6,900,000 United Kingdom treasury bonds
7 1/2s, 2006 13,208,252
GBP 3,900,000 United Kingdom treasury bonds
4 1/2s, 2007 7,024,517
$465,000 Venezuela (Republic of) notes
10 3/4s, 2013 522,195
350,000 Venezuela (Republic of) notes
8 1/2s, 2014 342,125
2,095,000 Venezuela (Republic of) unsub. bonds
5 3/8s, 2010 1,888,643
--------------
Total Foreign government bonds and
notes (cost $100,616,356) $112,336,892
Asset-backed securities (8.0%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$207,655 ABSC NIMS Trust 144A Ser. 03-HE5,
Class A, 7s, 2033 $208,694
Aegis Asset Backed Securities Trust
144A
113,864 Ser. 04-1N, Class Note, 5s, 2034 113,615
258,592 Ser. 04-2N, Class N1, 4 1/2s, 2034 257,137
213,000 Ser. 04-4N, Class Note, 5s, 2034 212,921
214,000 Ameriquest Finance NIM Trust 144A
Ser. 04-RN9, Class N2, 10s, 2034 198,278
3,217,273 Amortizing Residential Collateral
Trust Ser. 02-BC1, Class A, IO, 6s,
2005 77,717
AQ Finance NIM Trust 144A
20,477 Ser. 03-N2, Class Note, 9.3s, 2033 20,551
68,062 Ser. 03-N9A, Class Note, 7.385s,
2033 68,402
Arcap REIT, Inc. 144A
383,000 Ser. 03-1A, Class E, 7.11s, 2038 410,109
361,000 Ser. 04-1A, Class E, 6.42s, 2039 368,389
Argent NIM Trust 144A
123,481 Ser. 03-N6, Class A, 6.4s, 2034 123,790
73,669 Ser. 04-WN2, Class A, 4.55s, 2034 73,485
Asset Backed Funding Corp. NIM Trust
144A
28,599 Ser. 03-WF1, Class N1, 8.35s, 2032 28,599
156,000 Ser. 04-0PT1, Class N2, 6.9s, 2033 155,999
354,000 Ser. 04-FF1, Class N1, 5s, 2034
(Cayman Islands) 352,836
38,000 Ser. 04-FF1, Class N2, 5s, 2034
(Cayman Islands) 37,875
252,000 Ser. 04-HE1, Class N2, 8s, 2034
(Cayman Islands) 244,847
314,278 Aviation Capital Group Trust 144A
FRB Ser. 03-2A, Class G1, 2.511s,
2033 316,144
340,000 Bank One Issuance Trust FRB Ser.
03-C4, Class C4, 2.79s, 2011 346,468
Bayview Financial Acquisition Trust
497,493 Ser. 02-CA, Class A, IO, 0.78s, 2004 1,897
20,167,703 Ser. 03-X, Class A, IO, 0.89s, 2006 322,603
Bear Stearns Asset Backed Securities
NIM Trust 144A
436,764 Ser. 04-HE6, Class A1, 5 1/4s, 2034
(Cayman Islands) 436,218
334,740 Ser. 04-HE7N, Class A1, 5 1/4s, 2034
(Cayman Islands) 334,322
CARSSX Finance, Ltd. 144A
130,000 FRB Ser. 04-AA, Class B3, 5.11s,
2011 (Cayman Islands) 130,065
190,000 FRB Ser. 04-AA, Class B4, 7.26s,
2011 (Cayman Islands) 190,095
350,000 Chase Credit Card Master Trust FRB
Ser. 03-3, Class C, 2.84s, 2010 356,783
151,461 Chase Funding Net Interest Margin
144A Ser. 03-4A, Class NOTE,
6 3/4s, 2036 152,128
Conseco Finance Securitizations Corp.
361,875 Ser. 00-2, Class A4, 8.48s, 2030 369,876
3,191,000 Ser. 00-4, Class A6, 8.31s, 2032 2,776,170
1,088,493 Ser. 00-6, Class M2, 8.2s, 2032 146,947
268,000 Ser. 01-04, Class A4, 7.36s, 2033 276,978
416,000 Ser. 01-1, Class A5, 6.99s, 2032 397,280
13,000 Ser. 01-3, Class A3, 5.79s, 2033 13,306
1,858,000 Ser. 01-3, Class A4, 6.91s, 2033 1,859,115
300,000 Ser. 01-3, Class M2, 7.44s, 2033 57,000
981,294 Ser. 01-4, Class B1, 9.4s, 2033 147,194
2,333,909 Ser. 02-1, Class A, 6.681s, 2033 2,426,555
295,000 FRB Ser. 01-4, Class M1, 3.4s, 2033 120,803
790,000 Consumer Credit Reference IDX
Securities FRB Ser. 02-1A, Class
A, 3.919s, 2007 801,266
Countrywide Asset Backed
Certificates 144A
1,561,142 Ser. 04-6N, Class N1, 6 1/4s, 2035 1,559,190
257,380 Ser. 04-BC1N, Class Note, 5 1/2s,
2035 256,575
431,000 Crest, Ltd. 144A Ser. 03-2A, Class
E2, 8s, 2038 412,709
First Franklin NIM Trust 144A
207,982 Ser. 03-FF3A, Class A, 6 3/4s, 2033 207,174
45,450 Ser. 04-FF1, Class N1, 4 1/2s, 2034 45,323
Fremont NIM Trust 144A
66,850 Ser. 03-B, Class Note, 5.65s, 2033 66,683
405,025 Ser. 04-A, Class Note, 4 3/4s, 2034 403,810
Granite Mortgages PLC
EUR 1,430,000 FRB Ser. 03-2, Class 2C1, 5.2s, 2043
(United Kingdom) 1,823,897
GBP 1,075,000 FRB Ser. 03-2, Class 3C, 6.38s, 2043
(United Kingdom) 1,994,789
$440,000 Granite Mortgages PLC FRB Ser. 02-1,
Class 1C, 2.93s, 2042 (United
Kingdom) 446,908
Green Tree Financial Corp.
368,011 Ser. 94-4, Class B2, 8.6s, 2019 254,921
883,982 Ser. 94-6, Class B2, 9s, 2020 712,711
362,579 Ser. 95-8, Class B1, 7.3s, 2026 279,186
371,000 Ser. 96-8, Class M1, 7.85s, 2027 322,770
112,055 Ser. 99-3, Class A5, 6.16s, 2031 113,841
1,247,000 Ser. 99-5, Class A5, 7.86s, 2030 1,116,829
Greenpoint Manufactured Housing
2,325,933 Ser. 00-3, Class IA, 8.45s, 2031 2,314,536
50,000 Ser. 99-5, Class A4, 7.59s, 2028 53,480
1,180,000 GS Auto Loan Trust 144A Ser. 04-1,
Class D, 5s, 2011 1,164,682
GSAMP Trust 144A
87,266 Ser. 03-HE1N, Class Note, 7 1/4s,
2033 87,004
222,674 Ser. 04, Class Note, 5 1/2s, 2032 222,474
199,573 Ser. 04-FM1N, Class Note, 5 1/4s,
2033 199,366
177,954 Ser. 04-HE1N, Class N1, 5s, 2034 177,634
1,818,000 Ser. 04-NIM1, Class N1, 5 1/2s, 2034 1,818,816
519,000 Ser. 04-NIM1, Class N2, zero %, 2034 383,972
358,534 Ser. 04-SE2N, Class Note, 5 1/2s,
2034 358,534
235,000 Holmes Financing PLC FRB Ser. 8,
Class 2C, 2.79s, 2040 (United
Kingdom) 235,588
Holmes Financing PLC FRB
210,000 Ser. 4, Class 3C, 2.9s, 2040 (United
Kingdom) 212,688
560,000 Ser. 5, Class 2C, 3.05s, 2040
(United Kingdom) 561,568
Home Equity Asset Trust 144A
192,769 Ser. 02-5N, Class A, 8s, 2033 193,733
77,030 Ser. 03-4N, Class A, 8s, 2033 77,608
219,692 Ser. 03-7N, Class A, 5 1/4s, 2034 219,692
124,195 Ser. 04-1N, Class A, 5s, 2034 123,885
1,260,000 LNR CDO, Ltd. FRB Ser. 02-1A, Class
FFL, 4.59s, 2037 (Cayman Islands) 1,228,248
Long Beach Asset Holdings Corp. 144A
89,718 Ser. 03-2, Class N1, 7.627s, 2033 89,718
266,283 Ser. 04-2, Class N1, 4.94s, 2034 266,283
338,814 Ser. 04-5, Class Note, 5s, 2034 339,559
61,290 Long Beach Asset Holdings Corp. NIM
Trust 144A Ser. 03-4, Class N1,
6.535s, 2033 61,290
Long Beach Mortgage Loan Trust
1,990,000 Ser. 04-3, Class S1, IO, 4 1/2s,
2006 120,644
995,000 Ser. 04-3, Class S2, IO, 4 1/2s,
2006 60,322
GBP 900,000 Lothian Mortgages PLC 144A Ser. 3A,
Class D, 5.458s, 2039 (United
Kingdom) 1,628,370
$1,046,356 Madison Avenue Manufactured Housing
Contract FRB Ser. 02-A, Class B1,
5.09s, 2032 575,496
350,000 MBNA Credit Card Master Note Trust
FRN Ser. 03-C5, Class C5, 2.94s,
2010 356,761
110,468 Merrill Lynch Mortgage Investors,
Inc. Ser. 03-WM3N, Class N1, 8s,
2005 111,351
Merrill Lynch Mortgage Investors,
Inc. 144A
201,573 Ser. 04-FM1N, Class N1, 5s, 2035 199,939
156,787 Ser. 04-HE1N, Class N1, 5s, 2006 156,160
173,856 Mid-State Trust Ser. 11, Class B,
8.221s, 2038 176,055
24,729 Morgan Stanley ABS Capital I 144A
Ser. 03-NC9N, Class Note, 7.6s,
2033 24,853
178,000 Morgan Stanley Auto Loan Trust 144A
Ser. 04-HB2, Class E, 5s, 2012 171,548
Morgan Stanley Dean Witter Capital I
390,000 FRN Ser. 01-NC3, Class B1, 4.29s,
2031 387,126
358,000 FRN Ser. 01-NC4, Class B1, 4.34s,
2032 353,470
115,224 New Century Mortgage Corp. NIM Trust
144A Ser. 03-B, Class Note, 6 1/2s,
2033 115,638
136,838 Novastar NIM Trust 144A Ser. 04-N1,
Class Note, 4.458s, 2034 136,838
Oakwood Mortgage Investors, Inc.
1,265,099 Ser. 01-C, Class A2, 5.92s, 2017 836,230
704,298 Ser. 01-C, Class A4, 7.405s, 2030 506,672
1,243,766 Ser. 01-E, Class A2, 5.05s, 2019 1,019,500
2,005,883 Ser. 02-C, Class A1, 5.41s, 2032 1,803,490
777,487 Ser. 99-B, Class A4, 6.99s, 2026 705,570
485,000 Oceanstar 144A FRB Ser. 04, Class E,
8.2s, 2034 485,000
Option One Mortgage Securities Corp.
NIM Trust 144A
25,135 Ser. 03-2B, Class N1, 7.63s, 2033
(Cayman Islands) 25,135
63,876 Ser. 03-5, Class Note, 6.9s, 2033 64,196
71,000 Park Place Securities NIM Trust 144A
Ser. 04-WCW2, Class D, 7.387s, 2034 71,000
335,468 Pass-Through Amortizing Credit Card
Trust Ser. 02-1A, Class A4FL,
7.288s, 2012 336,291
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, 3.063s, 2042
(United Kingdom) 353,360
350,000 Ser. 3, Class 3C, 3.013s, 2042
(United Kingdom) 354,760
1,313,000 Providian Gateway Master Trust Ser.
02, Class B, zero %, 2006 1,165,936
2,867,213 Residential Asset Mortgage Products,
Inc. Ser. 03-RZ1, Class A, IO,
5 3/4s, 2005 100,997
103,608 Rural Housing Trust Ser. 87-1, Class
D, 6.33s, 2026 107,299
58,456 SAIL Net Interest Margin Notes Ser.
03-4, Class A, 7 1/2s, 2033 (Cayman
Islands) 58,392
SAIL Net Interest Margin Notes 144A
353,812 Ser. 03-10A, Class A, 7 1/2s, 2033
(Cayman Islands) 353,793
111,227 Ser. 03-12A, Class A, 7.35s, 2033
(Cayman Islands) 111,194
87,021 Ser. 03-6A, Class A, 7s, 2033
(Cayman Islands) 86,374
190,231 Ser. 03-7A, Class A, 7s, 2033
(Cayman Islands) 188,819
49,846 Ser. 03-8A, Class A, 7s, 2033
(Cayman Islands) 49,595
133,652 Ser. 03-9A, Class A, 7s, 2033
(Cayman Islands) 132,957
260,567 Ser. 03-BC2A, Class A, 7 3/4s, 2033 259,809
577,828 Ser. 04-2A, Class A, 5 1/2s, 2034
(Cayman Islands) 577,828
701,288 Ser. 04-4A, Class A, 5s, 2034
(Cayman Islands) 700,236
369,833 Ser. 04-7A, Class A, 4 3/4s, 2034
(Cayman Islands) 369,319
SAIL Net Interest Margin Notes 144A
48,310 Ser. 04-7A, Class B, 6 3/4s, 2034
(Cayman Islands) 47,508
670,837 Ser. 04-8A, Class A, 5s, 2034 670,837
209,750 Ser. 04-8A, Class B, 6 3/4s, 2034 205,041
14,065 Sasco Arc Net Interest Margin Notes
Ser. 02-BC10, Class A, 7 3/4s, 2033 13,937
Sasco Arc Net Interest Margin Notes
144A
147,441 Ser. 03-3, Class A, 7 3/4s, 2033 146,701
285,778 Ser. 03-5, Class A, 7.35s, 2033
(Cayman Islands) 285,694
219,783 Ser. 03-AM1, Class A, 7 3/4s, 2033 218,712
273,345 Sasco Arc Net Interest Margin Trust
144A Ser. 03-BC1, Class B, zero %,
2033 232,343
143,188 Saxon Net Interest Margin Trust 144A
Ser. 03-A, Class A, 6.656s, 2033 143,188
150,031 Sharp SP I, LLC Net Interest Margin
Trust Ser. 03-NC1N, Class N, 7 1/4s,
2033 150,594
Sharp SP I, LLC Net Interest Margin
Trust 144A
129,549 Ser. 03-0P1N, Class NA, 4.45s, 2033 129,549
90,520 Ser. 03-HS1N, Class N, 7.48s, 2033 90,800
42,998 Ser. 03-TC1N, Class N, 7.45s, 2033 42,998
35,290 Ser. 04-FM1N, Class N, 6.16s, 2033 35,467
44,122 Ser. 04-HS1N, Class Note, 5.92s,
2034 44,122
143,000 Sharps SP I, LLC Net Interest Margin
Trust 144A Ser. 04-HE2N, Class NA,
5.43s, 2034 142,992
140,000 South Coast Funding FRB Ser. 3A,
Class A2, 2.91s, 2038 141,750
Structured Asset Investment Loan
Trust
221,691 Ser. 03-BC1A, Class A, 7 3/4s, 2033 220,614
4,060,735 Ser. 03-BC2, Class A, IO, 6s, 2005 118,103
1,928,005 Ser. 03-BC8, Class A, IO, 6s, 2005 74,899
10,983,737 Ser. 04-1, Class A, IO, 6s, 2005 480,689
390,000 TIAA Commercial Real Estate
Securitization Ser. 02-1A, Class
IV, 6.84s, 2037 311,170
467,000 TIAA Commercial Real Estate
Securitization 144A Ser. 03-1A,
Class E, 8s, 2038 443,370
2,688,535 Washington Mutual Ser. 03-S1, Class
A11, IO, 5 1/2s, 2033 140,728
Wells Fargo Home Equity Trust 144A
1,213,000 Ser. 04-2, Class N1, 4 1/2s, 2034 1,212,928
214,000 Ser. 04-2, Class N2, 8s, 2034 203,300
737,001 Whole Auto Loan Trust 144A Ser.
03-1, Class D, 6s, 2010 737,347
--------------
Total Asset-backed securities
(cost $60,506,538) $57,505,375
Collateralized mortgage obligations (4.2%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$141,000 Banc of America Large Loan 144A FRN
Ser. 02-FL2A, Class L1, 4.696s,
2014 $141,142
350,000 Bear Stearns Commercial Mortgage
Securitization Corp. 144A Ser.
04-ESA, Class K, 4.258s, 2016 349,999
286,000 Commercial Mortgage Pass-Through
Certificates 144A FRB Ser. 01-FL4A,
Class E, 3.06s, 2013 254,540
CS First Boston Mortgage Securities
Corp. 144A
966,000 Ser. 98-C1, Class F, 6s, 2040 689,119
356,000 FRB Ser. 03-TF2A, Class L, 5.76s,
2014 353,690
24,101,564 Deutsche Mortgage & Asset Receiving
Corp. Ser. 98-C1, Class X, IO,
1.091s, 2023 623,080
DLJ Commercial Mortgage Corp.
286,492 Ser. 98-CF2, Class B4, 6.04s, 2031 251,760
915,958 Ser. 98-CF2, Class B5, 5.95s, 2031 567,585
Fannie Mae
131,247 Ser. 98-51, Class SG, IO, 24.96s,
2022 60,792
501,224 Ser. 02-36, Class SJ, 16.088s, 2029 547,394
478,480 Ser. 03-W3, Class 1A3, 7 1/2s, 2042 519,307
10,483 Ser. 03-W2, Class 1A3, 7 1/2s, 2042 11,382
1,202 Ser. 02-W1, Class 2A, 7 1/2s, 2042 1,296
4,297 Ser. 02-14, Class A2, 7 1/2s, 2042 4,649
562,786 Ser. 01-T10, Class A2, 7 1/2s, 2041 606,725
2,773 Ser. 02-T4, Class A3, 7 1/2s, 2041 2,997
7,482 Ser. 01-T8, Class A1, 7 1/2s, 2041 8,079
2,211,011 Ser. 01-T7, Class A1, 7 1/2s, 2041 2,384,813
334,432 Ser. 01-T3, Class A1, 7 1/2s, 2040 360,593
990,072 Ser. 01-T1, Class A1, 7 1/2s, 2040 1,070,288
413,301 Ser. 99-T2, Class A1, 7 1/2s, 2039 446,646
209,277 Ser. 00-T6, Class A1, 7 1/2s, 2030 225,728
976,666 Ser. 01-T4, Class A1, 7 1/2s, 2028 1,058,411
2,389 Ser. 02-W3, Class A5, 7 1/2s, 2028 2,591
1,316,888 Ser. 03-118, Class S, IO, 6.26s,
2033 190,949
1,453,292 Ser. 03-118, Class SF, IO, 6.26s,
2033 202,098
1,085,977 Ser. 02-36, Class QH, IO, 6.21s,
2029 49,773
1,026,641 Ser. 03-58, Class ID, IO, 6s, 2033 203,724
1,098,862 Ser. 03-26, Class IG, IO, 6s, 2033 169,619
807,412 Ser. 322, Class 2, IO, 6s, 2032 163,501
1,017,881 Ser. 318, Class 2, IO, 6s, 2032 209,461
3,470,029 Ser. 03-49, Class TS, IO, 5.86s,
2018 409,124
1,358,905 Ser. 03-14, Class KS, IO, 5.76s,
2017 118,055
64,732 Ser. 03-23, Class SC, IO, 5.71s,
2033 131
4,744,194 Ser. 338, Class 2, IO, 5 1/2s, 2033 1,073,374
2,078,217 Ser. 329, Class 2, IO, 5 1/2s, 2033 454,610
2,127,618 Ser. 03-45, Class PI, IO, 5 1/2s,
2029 223,400
2,812,151 Ser. 03-37, Class IC, IO, 5 1/2s,
2027 282,095
449,000 Ser. 03-6, Class IB, IO, 5 1/2s,
2022 13,931
2,975,369 Ser. 03-41, Class SP, IO, 5.36s,
2015 186,508
8,775,074 Ser. 03-34, Class SP, IO, 5.26s,
2032 642,024
7,153,701 Ser. 03-34, Class ES, IO, 5.16s,
2033 555,074
2,977,921 Ser. 03-34, Class SG, IO, 5.16s,
2033 233,019
4,332,767 Ser. 03-23, Class AI, IO, 5s, 2017 479,312
1,880,500 Ser. 03-24, Class IC, IO, 5s, 2015 325,178
8,412,944 Ser. 03-W10, Class 1A, IO, 1.839s,
2043 236,614
9,903,682 Ser. 03-W10, Class 3A, IO, 1.802s,
2043 284,731
5,441,563 Ser. 03-W17, Class 12, IO, 1.162s,
2033 180,108
15,737,092 Ser. 02-T18, IO, 0.52s, 2042 226,416
169,750 Ser. 99-51, Class N, PO, zero %,
2029 146,171
84,318 Ser. 99-52, Class MO, PO, zero %,
2026 81,631
Federal Home Loan Mortgage Corp.
Structured Pass-Through Securities
14,209 Ser. T-58, Class 4A, 7 1/2s, 2043 15,357
5,335,727 Ser. T-57, Class 1AX, IO, 0.445s,
2043 57,543
13,341,171 FFCA Secured Lending Corp. Ser.
00-1, Class X, IO, 1.567s, 2020 848,150
419,810 First Chicago Lennar Trust 144A Ser.
97-CHL1, Class E, 7.856s, 2039 400,328
Freddie Mac
534,270 Ser. 2763, Class SC, 21.56s, 2032 652,712
225,237 Ser. 2478, Class SY, IO, 6.39s, 2021 10,136
1,978,273 Ser. 2448, Class SM, IO, 6.24s, 2032 190,409
3,168,688 Ser. 216, Class IO, IO, 6s, 2032 636,212
2,227,954 Ser. 2579, Class GS, IO, 5.89s, 2017 192,813
1,418,300 Ser. 2515, Class IG, IO, 5 1/2s,
2032 410,411
729,500 Ser. 2590, Class IH, IO, 5 1/2s,
2028 160,946
1,781,000 Ser. 2596, Class IQ, IO, 5 1/2s,
2026 150,174
357,496 Ser. 215, Class PO, PO, zero %, 2031 327,835
339,065 Ser. 2235, PO, zero %, 2030 281,318
GE Capital Commercial Mortgage Corp.
144A
596,000 Ser. 00-1, Class G, 6.131s, 2033 531,728
370,000 Ser. 00-1, Class H, 6.131s, 2033 232,053
529,968 GMAC Commercial Mortgage Securities,
Inc. 144A Ser. 99-C3, Class G,
6.974s, 2036 421,299
Government National Mortgage
Association
31,340 Ser. 02-51, Class SA, IO, 6.289s,
2032 81
479,605 Ser. 01-43, Class SJ, IO, 5.789s,
2029 9,143
4,348,571 Ser. 03-83, Class SI, IO, 4.721s,
2032 263,557
170,964 Ser. 98-2, Class EA, PO, zero %,
2028 144,464
214,000 GS Mortgage Securities Corp. II 144A
FRB Ser. 03-FL6A, Class L, 5.01s,
2015 214,268
GBP 1,161,310 Hermione (European Loan Conduit No.
14) 144A FRB Class A, 5.326s, 2011
(Ireland) 2,113,135
$253,101 LB Commercial Conduit Mortgage Trust
144A Ser. 99-C1, Class G, 6.41s,
2031 199,841
Mach One Commercial Mortgage Trust
144A
422,000 Ser. 04-1A, Class J, 5.45s, 2040 353,854
212,000 Ser. 04-1A, Class K, 5.45s, 2040 173,178
96,000 Ser. 04-1A, Class L, 5.45s, 2040 70,121
8,564,894 Merrill Lynch Mortgage Investors,
Inc. Ser. 96-C2, Class JS,
IO, 2.128s, 2028 469,285
1,022,936 Mezz Cap Commercial Mortgage Trust
144A Ser. 04-C1, Class X, IO, 6.18s,
2037 471,669
1,730,000 Morgan Stanley Capital I 144A Ser.
04-RR, Class F7, 6s, 2039 1,237,583
4,458,814 Mortgage Capital Funding, Inc. Ser.
97-MC2, Class X, IO, 1.495s, 2012 126,603
327,112 Mortgage Capital Funding, Inc. FRB
Ser. 98-MC2, Class E, 7.288s, 2030 363,410
STRIPS 144A
162,000 Ser. 03-1A, Class M, 5s, 2018
(Cayman Islands) 135,448
193,000 Ser. 03-1A, Class N, 5s, 2018 145,329
174,000 Ser. 04-1A, Class M, 5s, 2018 146,317
167,000 Ser. 04-1A, Class N, 5s, 2018 126,870
180,000 Trizechahn Office Properties Trust
144A Ser. 01-TZHA, Class D3, 6.943s,
2013 193,372
--------------
Total Collateralized mortgage
obligations (cost $33,093,536) $30,360,189
Senior loans (1.8%) (a) (c)
Principal amount Value
Basic Materials (0.2%)
-------------------------------------------------------------------------------
$148,500 Graphics Packaging bank term loan
FRN 4.35s, 2010 $149,243
174,125 Hercules, Inc. bank term loan FRN
2.9967s, 2010 175,322
116,037 Nalco Co. bank term loan FRN Ser. B,
4.4199s, 2010 117,307
175,314 SGL Carbon, LLC bank term loan FRN
4.9488s, 2009 175,314
255,000 Wellman 1st. lien bank term loan FRN
5.6938s, 2009 259,250
270,000 Wellman 2nd. lien bank term loan FRN
8.4438s, 2010 273,713
--------------
1,150,149
Capital Goods (0.2%)
-------------------------------------------------------------------------------
152,357 Allied Waste Industries, Inc. bank
term loan FRN 4.5496s, 2010 154,487
25,714 Allied Waste Industries, Inc. bank
term loan FRN Ser. C, 1.3688s, 2010 26,035
188,088 Amsted Industries bank term loan FRN
5.6832s, 2010 190,087
142,820 EaglePicher bank term loan FRN
4.8625s, 2009 143,891
121,905 Flowserve Corp. bank term loan FRN
Ser. C, 4.4688s, 2009 123,429
198,246 Graham Packaging bank term loan FRN
4.6754s, 2010 199,072
118,629 Invensys, PLC bank term loan FRN
Ser. B-1, 5.477s, 2009 (United
Kingdom) 120,112
141,743 Mueller Group bank term loan FRN
4.4165s, 2011 142,452
97,500 Roper bank term loan FRN 3.6101s,
2008 98,759
149,250 Solo Cup Co. bank term loan FRN
4.1587s, 2011 150,400
91,886 SPX Corp. bank term loan FRN Ser. B,
3.8647s, 2009 93,005
49,626 Transdigm, Inc. bank term loan FRN
3.9363s, 2010 50,215
--------------
1,491,944
Communication Services (0.1%)
-------------------------------------------------------------------------------
49,833 Consolidated Communications bank
term loan FRN 4.4088s, 2012 50,332
99,000 Dobson Communications Corp. bank
term loan FRN 5.2787s, 2010 98,319
231,583 Nextel bank term loan FRN Ser. E,
4.1871s, 2010 232,690
80,000 PanAmSat Corp. bank term loan FRN
Ser. B, 4.5612s, 2011 80,020
195,000 Qwest Communications International,
Inc. bank term loan FRN Ser. A,
6 1/2s, 2007 201,663
50,000 SBA Senior Finance, Inc. bank term
loan FRN 5.5443s, 2008 50,375
--------------
713,399
Consumer Cyclicals (0.4%)
-------------------------------------------------------------------------------
61,181 Advance Stores bank term loan FRN
Ser. C, 3.7086s, 2007 61,908
148,779 Borgata Resorts bank term loan FRN
Ser. B, 4.1257s, 2007 149,027
142,511 Coinmach Corp. bank term loan FRN
Ser. B, 4.453s, 2009 143,758
49,239 Corrections Corporation of America
bank term loan FRN 3.36s, 2008 49,977
172,963 Dex Media West, LLC bank term loan
FRN Ser. B, 3.9565s, 2010 175,094
120,000 Goodyear Tire & Rubber Co. (The)
bank term loan FRN 6.43s, 2006 121,230
75,000 Goodyear Tire & Rubber Co. (The)
bank term loan FRN 4 1/2s, 2007 75,750
171,800 Hayes Lemmerz International, Inc.
bank term loan FRN 5.3736s, 2009 174,914
99,000 IESI Corp. bank term loan FRN
4.6064s, 2010 100,238
172,426 Jostens, Inc. bank term loan FRN
Ser. B, 4.15s, 2010 173,546
162,963 Lamar Media bank term loan FRN
3.36s, 2010 164,063
50,000 Landsource bank term loan FRN
4 3/8s, 2010 50,688
106,849 Penn National Gaming, Inc. bank term
loan FRN 4.09s, 2010 108,318
36,018 Pinnacle Entertainment, Inc. bank
term loan FRN 4.84s, 2009 36,378
127,175 PRIMEDIA, Inc. bank term loan FRN
Ser. B, 4 5/8s, 2009 122,406
246,315 RH Donnelley Finance Corp. bank term
loan FRN Ser. B, 3.86s, 2011 249,368
246,884 Scientific Gaming bank term loan FRN
4.1237s, 2008 249,662
110,357 Sealy Mattress Co. bank term loan
FRN Ser. C, 4.2327s, 2012 111,461
104,738 TRW Automotive bank term loan FRN
4 1/8s, 2011 106,396
165,000 WRC Media Corp. bank term loan FRN
6.7613s, 2009 164,484
--------------
2,588,666
Consumer Staples (0.5%)
-------------------------------------------------------------------------------
34,561 Affinity Group Holdings bank term
loan FRN Ser. B1, 5.6571s, 2009 34,892
86,403 Affinity Group Holdings bank term
loan FRN Ser. B2, 5.5828s, 2009 87,231
179,550 AMF Bowling Worldwide bank term loan
FRN 4.9705s, 2009 180,897
900,000 Century Cable Holdings bank term
loan FRN 6 3/4s, 2009 886,661
239,400 Charter bank term loan FRN Ser. B,
4.92s, 2011 237,397
112,500 Constellation Brands, Inc. bank term
loan FRN 3.213s, 2008 112,842
159,395 Del Monte Foods Co. bank term loan
FRN Ser. B, 3.9108s, 2010 161,686
148,665 DirecTV bank term loan FRN Ser. B,
3.9761s, 2010 149,297
16,202 Dole Food Co. bank term loan FRN
Ser. D, 4.4768s, 2009 16,431
120,000 Dole Holding Co. bank term loan FRN
7s, 2010 121,275
69,475 Insight Midwest LP/Insight Capital,
Inc. bank term loan FRN 3.9375s,
2009 70,276
180,000 MGM bank term loan FRN Ser. B,
4.14s, 2011 180,405
500,000 Olympus Cable bank term loan FRN
Ser. B, 6 1/2s, 2010 491,072
108,232 Rayovac Corp. bank term loan FRN
Ser. B, 4.2211s, 2009 109,720
243,763 Roundy's bank term loan FRN 3.11s,
2009 245,895
84,673 Six Flags, Inc. bank term loan FRN
Ser. B, 4.19s, 2009 85,229
153,353 Sum Media bank term loan FRN Ser. B,
3.934s, 2009 154,647
199,000 Warner Music Group bank term loan
FRN Ser. B, 4.2978s, 2011 201,559
--------------
3,527,412
Energy (--%)
-------------------------------------------------------------------------------
180,000 Dresser, Inc. bank term loan FRN
5.19s, 2010 182,700
60,932 Magellan Midstream Holdings bank
term loan FRN 4.65s, 2008 61,694
88,875 Peabody Energy Corp. bank term loan
FRN Ser. B, 3.498s, 2010 89,727
--------------
334,121
Financial (--%)
-------------------------------------------------------------------------------
217,388 Hilb, Rogal & Hamilton Co. bank term
loan FRN Ser. B, 3 7/8s, 2007 219,834
Health Care (0.3%)
-------------------------------------------------------------------------------
123,750 Beverly Enterprises, Inc. bank term
loan FRN 4.258s, 2008 125,400
120,000 Community Health Systems, Inc. bank
term loan FRN Ser. B, 3.54s, 2011 120,064
198,000 Concentra bank term loan FRN 4 3/4s,
2009 200,310
296,494 DaVita, Inc. bank term loan FRN
Ser. B, 3.6074s, 2009 299,042
119,700 Fisher Scientific International,
Inc. bank term loan FRN 3.14s, 2011 120,486
99,000 Hanger Orthopedic Group, Inc. bank
term loan FRN 5.09s, 2009 98,010
114,875 Kinetic Concepts, Inc. bank term
loan FRN Ser. B, 3.59s, 2011 116,072
148,500 Medex, Inc. bank term loan FRN
4.76s, 2009 149,861
480,026 Triad Hospitals, Inc. bank term loan
FRN Ser. B, 3.89s, 2008 486,147
54,920 VWR International, Inc. bank term
loan FRN 4.34s, 2011 55,732
--------------
1,771,124
Transportation (--%)
-------------------------------------------------------------------------------
139,176 Pacer International, Inc. bank term
loan FRN 4.1446s, 2010 140,916
Utilities & Power (0.1%)
-------------------------------------------------------------------------------
149,251 Allegheny Energy, Inc. bank term
loan FRN Ser. C, 4.4485s, 2011 151,490
119,700 Dynegy Holdings, Inc. bank term loan
FRN 5.67s, 2010 121,944
136,154 Teton Power Funding bank term loan
FRN 5.1953s, 2011 137,175
120,000 Unisource Energy bank term loan FRN
5.652s, 2011 118,425
118,505 Williams Products bank term loan FRN
Ser. C, 4.2849s, 2007 120,035
--------------
649,069
--------------
Total Senior loans
(cost $12,319,114) $12,586,634
Brady bonds (0.5%) (a) (cost $2,976,634)
Principal amount Value
-------------------------------------------------------------------------------
$3,708,249 Brazil (Federal Republic of) FRB
2 1/8s, 2012 $3,439,401
Common stocks (0.4%) (a)
Number of shares Value
-------------------------------------------------------------------------------
1,987 AboveNet, Inc. (NON) (S) $47,688
2,305 Alderwoods Group, Inc. (NON) 22,658
820,000 AMRESCO Creditor Trust (acquired
6/17/99 and 2/10/00, cost $138,193)
(RES) (NON) (R) 820
12 Arch Wireless, Inc. Class A (NON) 345
1,770 Archibald Candy Corp. (NON) 89
898 Birch Telecom, Inc. (NON) 9
494 Comdisco Holding Co., Inc. (S) 9,386
3,445,121 Contifinancial Corp. Liquidating
Trust Units 68,902
15,321 Covad Communications Group, Inc.
(NON) (S) 25,739
903 Genesis HealthCare Corp. (NON) (S) 27,460
45,911 Globix Corp. (NON) (S) 149,211
470,000 iPCS Escrow, Inc. (NON) 470
13,393 iPCS, Inc. (NON) 244,422
199 Knology, Inc. (NON) 826
105 Leucadia National Corp. 5,948
6,483 Lodgian, Inc. (NON) 64,182
120,000 Loewen Group International, Inc.
(NON) 12
1,158 Polymer Group, Inc. Class A (NON) 12,854
715 PSF Group Holdings, Inc. 144A Class
A (NON) 1,072,995
53,520 Regal Entertainment Group 1,020,091
110 Sterling Chemicals, Inc. (NON) 2,530
740 Sun Healthcare Group, Inc. (NON) 5,957
948,004 VFB LLC (acquired 10/27/00 and
12/8/03, cost $948,004) (RES) (NON) 180,121
4,438 Washington Group International, Inc.
(NON) (S) 153,644
--------------
Total Common stocks
(cost $9,022,990) $3,116,359
Preferred stocks (0.3%) (a)
Number of shares Value
-------------------------------------------------------------------------------
13,497 Avecia Group PLC $4.00 pfd. (United
Kingdom) (PIK) $254,756
15 Dobson Communications Corp. 13.00%
pfd. (PIK) 6,300
320 First Republic Capital Corp. 144A
10.50% pfd. 329,600
12,814 iStar Financial, Inc. $1.95 cum.
pfd. (R) 323,554
94 Paxson Communications Corp. 14.25%
cum. pfd. (PIK) 712,050
874 Rural Cellular Corp. Ser. B, 11.375%
cum. pfd. (PIK) 725,420
--------------
Total Preferred stocks
(cost $2,502,861) $2,351,680
Convertible preferred stocks (0.1%) (a)
Number of shares Value
-------------------------------------------------------------------------------
9,140 Crown Castle International Corp.
$3.125 cum. cv. pfd. $417,013
53 Paxson Communications Corp. 144A
9.75% cv. pfd. (PIK) 360,400
--------------
Total Convertible preferred stocks
(cost $737,660) $777,413
Units (0.1%) (a)
Number of units Value
-------------------------------------------------------------------------------
870,000 Morrison Knudsen Corp. $56,550
991 XCL Equity Units 439,663
--------------
Total Units (cost $1,718,156) $496,213
Warrants (0.1%) (a) (NON) Expiration
Number of warrants date Value
-------------------------------------------------------------------------------
719 AboveNet, Inc. 9/8/08 $3,775
846 AboveNet, Inc. 9/8/10 3,384
1,020 Dayton Superior Corp. 144A 6/15/09 1
3 Doe Run Resources Corp. 144A 12/31/12 1
1,193 Huntsman Co., LLC 144A 5/15/11 274,390
508 MDP Acquisitions PLC 144A 10/1/13 20,638
390 Mikohn Gaming Corp. 144A 8/15/08 156
400 ONO Finance PLC 144A (United
Kingdom) 2/15/11 4
410 Pliant Corp. 144A 6/1/10 4
1,830 Travel Centers 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 23,013
3,131 Washington Group International, Inc.
Ser. B 1/25/06 18,786
1,692 Washington Group International, Inc.
Ser. C 1/25/06 9,983
590 XM Satellite Radio Holdings, Inc.
144A 3/15/10 36,580
--------------
Total Warrants (cost $680,109) $399,866
Convertible bonds and notes (--%) (a) (cost $2,018,410)
Principal amount Value
-------------------------------------------------------------------------------
$2,430,000 Cybernet Internet Services
International, Inc. 144A cv. sr.
disc. notes 13s, 2009 (Denmark) (In
default) (NON) $24
Short-term investments (14.7%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$5,000,000 Park Granada, LLC for an effective
yield of 1.07%, October 8, 2004 $4,998,250
1,400,000 U.S. Treasury Bills for an effective
yield of 0.91%, October 7, 2004
(SEG) 1,399,650
385,394 Short-term investments held as
collateral for loaned
securities with yields ranging from
1.68% to 2.11% and due dates ranging
from October 1, 2004 to November 16,
2004 (d) 385,048
98,173,108 Putnam Prime Money Market Fund (e) 98,173,108
--------------
Total Short-term investments
(cost $104,956,056) $104,956,056
-------------------------------------------------------------------------------
Total Investments
(cost $847,386,296) $855,807,646
-------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $715,596,108.
(NON) Non-income-producing security.
(S) Securities on loan, in part or in entirety, at September 30, 2004.
(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 September 30, 2004
was $180,941 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 September 30, 2004.
(R) Real Estate Investment Trust.
(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. Theses loans pay interest at rates which adjust
periodically. The interest rate shown for senior loans are the current
interest rates at September 30, 2004. 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.
(d) See Note 1 to the financial statements.
(e) See Note 4 to the financial statements regarding investments in the
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 September 30, 2004.
DIVERSIFICATION BY COUNTRY
Distribution of investments by country of issue at September 30, 2004:
(as a percentage of Market Value excluding collateral for loaned
securities)
Brazil 0.5%
Canada 1.5
Cayman Islands 0.8
Colombia 0.5
France 1.3
Germany 2.4
New Zealand 0.9
Russia 1.3
Sweden 1.1
United Kingdom 5.3
United States 81.6
Other 2.8
--------------------------
Total 100.0%
Forward currency contracts to buy at September 30, 2004
(aggregate face value $47,207,655)
Unrealized
Aggregate Delivery appreciation/
Value face value date (depreciation)
---------------------------------------------------------------------------------------
Australian Dollar $13,737,329 $13,406,791 12/15/04 $330,538
British Pound 2,677,541 2,662,732 12/15/04 14,809
Danish Krone 1,171,046 1,141,183 12/15/04 29,863
Euro 912,166 884,155 12/15/04 28,011
Japanese Yen 25,163,216 25,235,078 12/15/04 (71,862)
Norwegian Krone 389,142 377,787 12/15/04 11,355
Polish Zloty 506,245 484,184 12/15/04 22,061
Swiss Franc 1,262,036 1,231,047 12/15/04 30,989
Taiwan Dollar 1,781,546 1,784,698 12/15/04 (3,152)
---------------------------------------------------------------------------------------
$392,612
---------------------------------------------------------------------------------------
Forward currency contracts to sell at September 30, 2004
(aggregate face value $74,977,072)
Aggregate Delivery Unrealized
Value face value date depreciation
---------------------------------------------------------------------------------------
Australian Dollar $12,584 $12,395 12/15/04 $(189)
British Pound 21,565,389 21,363,707 12/15/04 (201,682)
Canadian Dollar 2,126,120 2,046,093 12/15/04 (80,027)
Euro 36,157,921 35,267,115 12/15/04 (890,806)
New Zealand Dollar 7,636,428 7,356,133 12/15/04 (280,295)
Swedish Krona 8,381,328 8,042,449 12/15/04 (338,879)
Swiss Franc 895,555 889,180 12/15/04 (6,375)
---------------------------------------------------------------------------------------
$(1,798,253)
---------------------------------------------------------------------------------------
Futures contracts outstanding at September 30, 2004
Unrealized
Aggregate Expiration appreciation/
Value face value date (depreciation)
---------------------------------------------------------------------------------------
CBT Interest Rate Swap
10 yr (Long) $1,661,250 $1,631,521 Dec-04 $29,729
Euro-Bobl 5 yr (Long) 17,998,269 17,855,004 Dec-04 143,265
Euro-Bund 10 yr (Long) 18,382,606 18,138,228 Dec-04 244,378
Japanese Government Bond
10 yr (Long) 6,259,982 6,240,039 Dec-04 19,943
Japanese Government Bond
10 yr (Long) 4,258,947 4,207,546 Dec-04 51,401
U.K. Gilt (Long) 17,532,658 17,379,878 Dec-04 152,780
U.S. Treasury Note
10 yr (Long) 3,604,000 3,615,531 Dec-04 (11,531)
U.S. Treasury Note
5 yr (Short) 3,544,000 3,553,904 Dec-04 9,904
---------------------------------------------------------------------------------------
$639,869
---------------------------------------------------------------------------------------
Credit default contracts outstanding at September 30, 2004
Unrealized
Notional appreciation/
amount (depreciation)
------------------------------------------------------------------------------------------------------
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 2.37273% and the
fund pays in the event of a credit default in one of the underlying
securities in the basket of BB CMBS securities. $1,535,111 $2,327
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 1,823
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 2.46% and the fund
pays in the event of a credit default in one of the underlying
securities in the basket of BB CMBS securities. 558,222 878
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. 279,111 441
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. 139,556 223
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. 139,556 232
------------------------------------------------------------------------------------------------------
$5,924
------------------------------------------------------------------------------------------------------
TBA sale commitments outstanding at September 30, 2004
(proceeds receivable $49,821,476)
Principal Settlement
Agency amount date Value
----------------------------------------------------------------------------------------
FNMA, 6 1/2s, October 1, 2034 $37,700,000 10/14/04 $39,537,875
FNMA, 5 1/2s, October 1, 2034 10,163,000 10/14/04 10,294,802
----------------------------------------------------------------------------------------
$49,832,677
----------------------------------------------------------------------------------------
Interest rate swap contracts outstanding at September 30, 2004
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 $421,657
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 1/26/06 110,307
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 (34,734)
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 22,507
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 (236,016)
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 23,864
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 1/26/06 114,808
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 three month
USD-LIBOR-BBA. 9,188,000 12/15/13 242,066
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 27,535
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 (64,047)
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 11/21/05 442,505
Agreement with UBS, AG dated April 23,
2004 to receive annually the notional amount
multiplied by 3.49% and pay quarterly the
notional amount multiplied by the three
month SEK-STIBOR-SIDE. SEK 395,000,000 4/27/06 157,396
------------------------------------------------------------------------------------------------------
$1,227,848
------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities
September 30, 2004
Assets
-------------------------------------------------------------------------------
Investments in securities, at value, including $365,966 of securities on
loan (Note 1)
-------------------------------------------------------------------------------
Unaffiliated Issuers (identified cost $749,213,188) $757,634,538
-------------------------------------------------------------------------------
Affiliated Issuers (identified cost $98,173,108) (Note 4) 98,173,108
-------------------------------------------------------------------------------
Cash 7,999,744
-------------------------------------------------------------------------------
Foreign currency (cost $6,848,198) (Note 1) 6,944,380
-------------------------------------------------------------------------------
Interest and other receivables 9,354,108
-------------------------------------------------------------------------------
Receivable for securities sold 57,380,183
-------------------------------------------------------------------------------
Receivable for open swap contracts (Note 1) 1,562,645
-------------------------------------------------------------------------------
Receivable for open forward currency contracts (Note 1) 481,874
-------------------------------------------------------------------------------
Receivable for open credit default contracts (Note 1) 5,924
-------------------------------------------------------------------------------
Receivable for closed forward currency contracts (Note 1) 120,671
-------------------------------------------------------------------------------
Total assets 939,657,175
Liabilities
-------------------------------------------------------------------------------
Payable for variation margin (Note 1) 138,142
-------------------------------------------------------------------------------
Distributions payable to shareholders 3,788,329
-------------------------------------------------------------------------------
Payable for securities purchased 166,023,157
-------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,241,232
-------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 127,336
-------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 89,126
-------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,513
-------------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 1,887,515
-------------------------------------------------------------------------------
Payable for closed forward currency contracts (Note 1) 130,490
-------------------------------------------------------------------------------
Payable for open swap contracts (Note 1) 334,797
-------------------------------------------------------------------------------
TBA sales commitments, at value (proceeds receivable
$49,821,476) (Note 1) 49,832,677
-------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 385,048
-------------------------------------------------------------------------------
Other accrued expenses 80,705
-------------------------------------------------------------------------------
Total liabilities 224,061,067
-------------------------------------------------------------------------------
Net assets $715,596,108
Represented by
-------------------------------------------------------------------------------
Paid-in capital (Note 1) $838,150,324
-------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 5,000,039
-------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (136,745,588)
-------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and
liabilities in foreign currencies 9,191,333
-------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $715,596,108
Computation of net asset value
-------------------------------------------------------------------------------
Net asset value per share ($715,596,108 divided by
100,313,084 shares) $7.13
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of operations
Year ended September 30, 2004
Investment income:
-------------------------------------------------------------------------------
Interest (including interest income of $525,463 from
investments in affiliated issuers)(Note 4) $45,082,067
-------------------------------------------------------------------------------
Dividends 992,423
-------------------------------------------------------------------------------
Securities lending 1,553
-------------------------------------------------------------------------------
Total investment income 46,076,043
Expenses:
-------------------------------------------------------------------------------
Compensation of Manager (Note 2) 5,108,198
-------------------------------------------------------------------------------
Investor servicing fees (Note 2) 355,305
-------------------------------------------------------------------------------
Custodian fees (Note 2) 339,374
-------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 26,109
-------------------------------------------------------------------------------
Administrative services (Note 2) 13,772
-------------------------------------------------------------------------------
Other 349,668
-------------------------------------------------------------------------------
Fees waived and reimbursed by manager (Note 4) (54,444)
-------------------------------------------------------------------------------
Total expenses 6,137,982
-------------------------------------------------------------------------------
Expense reduction (Note 2) (30,381)
-------------------------------------------------------------------------------
Net expenses 6,107,601
-------------------------------------------------------------------------------
Net investment income 39,968,442
-------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 15,304,673
-------------------------------------------------------------------------------
Net realized gain on swap contracts (Note 1) 899,815
-------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 1,584,647
-------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (2,113,454)
-------------------------------------------------------------------------------
Net realized gain on credit default contracts (Notes 1 and 3) 52,520
-------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the year (469,993)
-------------------------------------------------------------------------------
Net unrealized appreciation of investments, futures
contracts, swap contracts, written options, and TBA sale
commitments during the year 8,325,125
-------------------------------------------------------------------------------
Net gain on investments 23,583,333
-------------------------------------------------------------------------------
Net increase in net assets resulting from operations $63,551,775
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets
Year ended
September 30
Increase in net assets 2004 2003
-------------------------------------------------------------------------------
Operations:
-------------------------------------------------------------------------------
Net investment income $39,968,442 $47,986,218
-------------------------------------------------------------------------------
Net realized gain on investments and foreign
currency transactions 15,728,201 12,488,499
-------------------------------------------------------------------------------
Net unrealized appreciation of investments
and assets and liabilities in foreign
currencies 7,855,132 60,307,044
-------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 63,551,775 120,781,761
-------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
-------------------------------------------------------------------------------
From net investment income (48,649,600) (48,538,019)
-------------------------------------------------------------------------------
Increase from issuance of common shares in
connection with reinvestment of
distributions capital share transactions -- 829,775
-------------------------------------------------------------------------------
Total increase in net assets 14,902,175 73,073,517
Net assets
-------------------------------------------------------------------------------
Beginning of year 700,693,933 627,620,416
-------------------------------------------------------------------------------
End of year (including undistributed net
investment income of $5,000,039 and
$7,010,795, respectively) $715,596,108 $700,693,933
-------------------------------------------------------------------------------
Number of fund shares
-------------------------------------------------------------------------------
Shares outstanding at beginning of year 100,313,084 100,182,745
-------------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions -- 130,339
-------------------------------------------------------------------------------
Shares outstanding at end of year 100,313,084 100,313,084
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
Per-share Year ended September 30
operating performance 2004 2003 2002 2001 2000
----------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.99 $6.26 $6.54 $7.13 $7.57
----------------------------------------------------------------------------------------------------------
Investment operations:
----------------------------------------------------------------------------------------------------------
Net investment income (a) .40 (d) .48 .52 .58 .63
----------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .23 .73 (.26) (.57) (.43)
----------------------------------------------------------------------------------------------------------
Total from
investment operations .63 1.21 .26 .01 .20
----------------------------------------------------------------------------------------------------------
Less distributions:
----------------------------------------------------------------------------------------------------------
From net
investment income (.49) (.48) (.53) (.46) (.64)
----------------------------------------------------------------------------------------------------------
From return of capital -- -- (.01) (.14) --
----------------------------------------------------------------------------------------------------------
Total distributions (.49) (.48) (.54) (.60) (.64)
----------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.13 $6.99 $6.26 $6.54 $7.13
----------------------------------------------------------------------------------------------------------
Market value,
end of period $6.730 $6.410 $6.380 $6.050 $6.438
----------------------------------------------------------------------------------------------------------
Total return at
market value (%)(b) 12.95 8.35 14.81 3.06 10.72
----------------------------------------------------------------------------------------------------------
Ratios and supplemental data
----------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $715,596 $700,694 $627,620 $655,161 $713,894
----------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .86 (d) .89 .87 .90 .87
----------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.61 (d) 7.22 7.97 8.50 8.60
----------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 113.46 141.60 (e) 193.33 (e) 111.45 116.71
----------------------------------------------------------------------------------------------------------
(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 period ended
September 30, 2004 reflect a reduction of less than 0.01% of average net assets for common shares
(Note 4).
(e) Portfolio turnover excludes certain treasury note transactions executed in connection with a
short-term trading strategy.
The accompanying notes are an integral part of these financial statements.
Notes to financial statements
September 30, 2004
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 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 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 issuers 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. All
premiums/discounts are amortized/accreted on a yield-to-maturity basis. The
fund earned certain fees in connection with its senior loan purchasing
activities. These fees are treated as market discount and are 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 an addition 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) 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 September 30, 2004, the value
of securities loaned amounted to $365,966. The fund received cash
collateral of $385,048 which is pooled with collateral of other Putnam
funds into 29 issuers of high grade short-term investments.
L) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code 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 Internal Revenue Code of 1986 (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 tax law to offset future
capital gains, 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.
M) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Distributions from capital gains, if any, are recorded on the ex-dividend
date and paid at least annually. The amount and character of income and
gains to be distributed are determined in accordance with income tax
regulations, which may differ from generally accepted accounting principles.
These differences include temporary and permanent differences of losses on
wash sale transactions, foreign currency gains and losses, post-October loss
deferrals, nontaxable dividends, dividends payable, defaulted bond interest,
realized and unrealized gains and losses on certain futures contracts,
market discount, interest on payment-in-kind securities, and income on swap
contracts. Reclassifications are made to the fund's capital accounts to
reflect income and gains available for distribution (or available capital
loss carryovers) under income tax regulations. For the year ended September
30, 2004, the fund reclassified $6,670,409 to increase undistributed net
investment income and $207,867 to increase paid-in-capital, with an increase
to accumulated net realized losses of $6,878,276.
The tax basis components of distributable earnings and the federal tax
cost as of period end were as follows:
Unrealized appreciation $33,751,001
Unrealized depreciation (27,404,735)
------------
Net unrealized appreciation 6,346,266
Undistributed ordinary income 8,960,083
Capital loss carryforward 134,326,968
Post-October loss 1,976,087
Cost for federal income
tax purposes $849,461,380
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 Manage ment has retained its
affiliate, Putnam Investments Limited ("PIL"), to manage a separate
portion of the assets of the fund. 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 assets 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 year ended September 30, 2004, the
fund paid PFTC $694,679 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 year ended September 30, 2004,
the fund's expenses were reduced by $30,381 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $1,194, 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 year ended September 30, 2004, cost of purchases and proceeds
from sales of investment securities other than U.S. government
securities and short-term investments aggregated $735,622,811 and
$703,622,978, respectively. Purchases and sales of U.S. government
securities aggregated $57,537,974 and $6,182,166, respectively.
Note 4
Investment in Putnam Prime Money
Market Fund
The fund invests in the 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
fees paid by Putnam Prime Money Market Fund with respect to assets
invested by the fund in Putnam Prime Money Market Fund. For the year
ended September 30, 2004, management fees paid were reduced by $54,444
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 $525,463 for the period ended
September 30, 2004.
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
On April 8, 2004, Putnam Management entered into agreements with the
Securities and Exchange Commission ("SEC") and the Massachusetts
Securities Division representing a final settlement of all charges
brought against Putnam Management by those agencies on October 28, 2003
in connection 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. The
settlement with the SEC requires Putnam Management to pay $5 million in
disgorgement plus a civil monetary penalty of $50 million, and the
settlement with the Massachusetts Securities Division requires Putnam
Management to pay $5 million in restitution and an administrative fine
of $50 million. The settlements also leave intact the process
established under an earlier partial settlement with the SEC under which
Putnam Management agreed to pay the amount of restitution determined by
an independent consultant, which may exceed the disgorgement and
restitution amounts specified above, pursuant to a plan to be developed
by the independent consultant.
Putnam Management, and not the investors in any Putnam fund, will bear
all costs, including restitution, civil penalties and associated legal
fees stemming from both of these proceedings. 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 has
agreed to bear any costs incurred by Putnam funds in connection with
these lawsuits. Based on currently available information, 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.
Review of these matters by counsel for Putnam Management and by separate
independent counsel for the Putnam funds and their independent Trustees
is continuing.
Federal tax information
(Unaudited)
The fund has designated 1.22% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
For its tax year ended September 30, 2004, the fund hereby designates
1.22%, or the maximum amount allowable, of its net taxable income as
qualified dividends taxed at individual net capital gain rates.
The Form 1099 you receive in January 2005 will show the tax status of
all distributions paid to your account in calendar 2004.
Results of June 10, 2004
shareholder meeting
(Unaudited)
An annual meeting of shareholders of the fund was held on June 10, 2004.
At the meeting, each of the nominees for Trustees was elected, as
follows:
Votes
Votes for withheld
----------------------------------------------------------------
Jameson A. Baxter 91,750,869 3,900,960
Charles B. Curtis 91,782,834 3,868,996
John A. Hill 91,747,672 3,904,158
Ronald J. Jackson 91,817,872 3,833,958
Paul L. Joskow 91,789,707 3,862,123
Elizabeth T. Kennan 91,749,117 3,902,713
John H. Mullin, III 91,802,827 3,849,003
Robert E. Patterson 91,821,685 3,830,145
George Putnam, III 91,723,286 3,928,544
A.J.C. Smith 91,706,493 3,945,337
W. Thomas Stephens 91,751,596 3,900,234
All tabulations are rounded to nearest whole number.
About the Trustees
Jameson A. Baxter (9/6/43), Trustee since 1994
Ms. Baxter is the President of Baxter Associates, Inc., a private
investment firm that she founded in 1986.
Ms. Baxter serves as a Director of ASHTA Chemicals, Inc., Banta
Corporation (a printing and digital imaging firm), Ryerson Tull, Inc. (a
steel service corporation), Advocate Health Care and BoardSource,
formerly the National Center for Nonprofit Boards. She is Chairman
Emeritus of the Board of Trustees, Mount Holyoke College, having served
as Chairman for five years and as a board member for thirteen years.
Until 2002, Ms. Baxter was a Director of Intermatic Corporation (a
manufacturer of energy control products).
Ms. Baxter has held various positions in investment banking and
corporate finance, including Vice President and Principal of the Regency
Group, and Vice President of and Consultant to First Boston Corporation.
She is a graduate of Mount Holyoke College.
Charles B. Curtis (4/27/40), Trustee since 2001
Mr. Curtis is President and Chief Operating Officer of the Nuclear
Threat Initiative (a private foundation dealing with national security
issues) and serves as Senior Advisor to the United Nations Foundation.
Mr. Curtis is a member of the Council on Foreign Relations and the
Trustee Advisory Council of the Applied Physics Laboratory, Johns
Hopkins University. Until 2003, Mr. Curtis was a member of the Electric
Power Research Institute Advisory Council and the University of Chicago
Board of Governors for Argonne National Laboratory. Prior to 2002, Mr.
Curtis was a Member of the Board of Directors of the Gas Technology
Institute and the Board of Directors of the Environment and Natural
Resources Program Steering Committee, John F. Kennedy School of
Government, Harvard University. Until 2001, Mr. Curtis was a member of
the Department of Defense Policy Board and Director of EG&G Technical
Services, Inc. (a fossil energy research and development support
company).
From August 1997 to December 1999, Mr. Curtis was a Partner at Hogan &
Hartson L.L.P., a Washington, D.C. law firm. Prior to May 1997, Mr.
Curtis was Deputy Secretary of Energy. He served as Chairman of the
Federal Energy Regulatory Commission from 1977 to 1981 and has held
positions on the staff of the U.S. House of Representatives, the U.S.
Treasury Department, and the SEC.
Myra R. Drucker (1/16/48)
Ms. Drucker is a Vice Chair of the Board of Trustees of Sarah Lawrence
College, a Trustee of Commonfund (a not-for-profit firm specializing in
asset management for educational endowments and foundations) and a
member of the Investment Committee of the Kresge Foundation (a
charitable trust). She is also Chair of the New York Stock Exchange
(NYSE) Pension Managers Advisory Committee and a member of the Executive
Committee of the Committee on Investment of Employee Benefit Assets.
Until August 31, 2004, Ms. Drucker was Managing Director and a member of
the Board of Directors of General Motors Asset Management and Chief
Investment Officer of General Motors Trust Bank. Ms. Drucker also served
as a member of the NYSE Corporate Accountability and Listing Standards
Committee and the NYSE/NASD IPO Advisory Committee.
Prior to joining General Motors Asset Management in 2001, Ms. Drucker
held various executive positions in the investment management industry.
Ms. Drucker served as Chief Investment Officer of Xerox Corporation (a
technology and service company in the document industry), where she was
responsible for the investment of the company 's pension assets. Ms.
Drucker was also Staff Vice President and Director of Trust Investments
for International Paper (a paper, paper distribution, packaging and
forest products company) and previously served as Manager of Trust
Investments for Xerox Corporation. Ms. Drucker received a B.A. degree in
Literature and Psychology from Sarah Lawrence College and pursued
graduate studies in economics, statistics and portfolio theory at Temple
University.
John A. Hill (1/31/42), Trustee since 1985 and Chairman since 2000
Mr. Hill is Vice Chairman of First Reserve Corporation, a private equity
buyout firm that specializes in energy investments in the diversified
worldwide energy industry.
Mr. Hill is a Director of Devon Energy Corporation, TransMontaigne Oil
Company, Continuum Health Partners of New York and various private
companies controlled by First Reserve Corporation, as well as a Trustee
of TH Lee, Putnam Investment Trust (a closed-end investment company
advised by an affiliate of Putnam Management). He is also a Trustee of
Sarah Lawrence College.
Prior to acquiring First Reserve Corporation in 1983, Mr. Hill held
executive positions in investment banking and investment management with
several firms and with the federal government, including Deputy
Associate Director of the Office of Management and Budget and Deputy
Director of the Federal Energy Administration. He is active in various
business associations, including the Economic Club of New York, and
lectures on energy issues in the United States and Europe. Mr. Hill
holds a B.A. degree in Economics from Southern Methodist University and
pursued graduate studies there as a Woodrow Wilson Fellow.
Ronald J. Jackson (12/17/43), Trustee since 1996
Mr. Jackson is a private investor.
Mr. Jackson is President of the Kathleen and Ronald J. Jackson
Foundation (a charitable trust). He is also a member of the Board of
Overseers of WGBH (a public television and radio station) as well as a
member of the Board of Overseers of the Peabody Essex Museum.
Mr. Jackson is the former Chairman, President and Chief Executive
Officer of Fisher-Price, Inc. (a major toy manufacturer), from which he
retired in 1993. He previously served as President and Chief Executive
Officer of Stride-Rite, Inc. (a manufacturer and distributor of
footwear) and of Kenner Parker Toys, Inc. (a major toy and game
manufacturer). Mr. Jackson was President of Talbots, Inc. (a distributor
of women's apparel) and has held financial and marketing positions with
General Mills, Inc. and Parker Brothers (a toy and game company). Mr.
Jackson is a graduate of Michigan State University Business School.
Paul L. Joskow (6/30/47), Trustee since 1997
Dr. Joskow is the Elizabeth and James Killian Professor of Economics and
Management, and Director of the Center for Energy and Environmental
Policy Research at the Massachusetts Institute of Technology.
Dr. Joskow serves as a Director of National Grid Transco (a UK-based
holding company with interests in electric and gas transmission and
distribution and telecommunications infrastructure) and TransCanada
Corporation (an energy company focused on natural gas transmission and
power services). He also serves on the board of the Whitehead Institute
for Biomedical Research (a non-profit research institution) and has been
President of the Yale University Council since 1993. Prior to February
2002, he was a Director of State Farm Indemnity Company (an automobile
insurance company), and, prior to March 2000, he was a Director of New
England Electric System (a public utility holding company).
Dr. Joskow has published five books and numerous articles on topics in
industrial organization, government regulation of industry, and
competition policy. He is active in industry restructuring,
environmental, energy, competition and privatization policies -- serving
as an advisor to governments and corporations worldwide. Dr. Joskow
holds a Ph.D. and M. Phil from Yale University and B.A. from Cornell
University.
Elizabeth T. Kennan (2/25/38), Trustee since 1992
Dr. Kennan is a Partner of Cambus-Kenneth Farm (thoroughbred horse and
cattle breeding). She is President Emeritus of Mount Holyoke College.
Dr. Kennan served as Chairman and is now Lead Director of Northeast
Utilities and is a Director of Talbots, Inc. She has served as Director
on a number of other boards, including Bell Atlantic, Chastain Real
Estate, Shawmut Bank, Berkshire Life Insurance and Kentucky Home Life
Insurance. She is a Trustee of the National Trust for Historic
Preservation, of Centre College and of Midway College in Midway,
Kentucky. She is also a member of The Trustees of Reservations. Dr.
Kennan has served on the oversight committee of the Folger Shakespeare
Library, as President of Five Colleges Incorporated, as a Trustee of
Notre Dame University and is active in various educational and civic
associations.
As a member of the faculty of Catholic University for twelve years,
until 1978, Dr. Kennan directed the post-doctoral program in Patristic
and Medieval Studies, taught history and published numerous articles.
Dr. Kennan holds a Ph.D. from the University of Washington in Seattle,
an M.S. from St. Hilda's College at Oxford University and an A.B. from
Mount Holyoke College. She holds several honorary doctorates.
John H. Mullin, III (6/15/41), Trustee since 1997
Mr. Mullin is the Chairman and CEO of Ridgeway Farm (a limited liability
company engaged in timber and farming).
Mr. Mullin serves as a Director of The Liberty Corporation (a
broadcasting company), Progress Energy, Inc. (a utility company,
formerly known as Carolina Power & Light) and Sonoco Products, Inc. (a
packaging company). Mr. Mullin is Trustee Emeritus of The National
Humanities Center and Washington & Lee University, where he served as
Chairman of the Investment Committee. Prior to May 2001, he was a
Director of Graphic Packaging International Corp. Prior to February
2004, he was a Director of Alex Brown Realty, Inc.
Mr. Mullin is also a past Director of Adolph Coors Company; ACX
Technologies, Inc.; Crystal Brands, Inc.; Dillon, Read & Co., Inc.;
Fisher-Price, Inc.; and The Ryland Group, Inc. Mr. Mullin is a graduate
of Washington & Lee University and The Wharton Graduate School,
University of Pennsylvania.
Robert E. Patterson (3/15/45), Trustee since 1984
Mr. Patterson is Senior Partner of Cabot Properties, L.P. and Chairman
of Cabot Properties, Inc. (a private equity firm investing in commercial
real estate).
Mr. Patterson serves as Chairman of the Joslin Diabetes Center and as a
Director of Brandywine Trust Company. Prior to June 2003, he was a
Trustee of Sea Education Association. Prior to December 2001, he was
President and Trustee of Cabot Industrial Trust (a publicly traded real
estate investment trust). Prior to February 1998, he was Executive Vice
President and Director of Acquisitions of Cabot Partners Limited
Partnership (a registered investment adviser involved in institutional
real estate investments). Prior to 1990, he served as Executive Vice
President of Cabot, Cabot & Forbes Realty Advisors, Inc. (the
predecessor company of Cabot Partners) and as a Senior Vice President of
the Beal Companies (a real estate management, investment and development
firm).
Mr. Patterson practiced law and held various positions in state
government and was the founding Executive Director of the Massachusetts
Industrial Finance Agency. Mr. Patterson is a graduate of Harvard
College and Harvard Law School.
W. Thomas Stephens (9/2/42), Trustee since 1997
Mr. Stephens serves on a number of corporate boards.
Effective November 2004, Mr. Stephens is expected to become Chief
Executive Officer of Boise Cascade, L.L.C. (a paper, forest products and
timberland assets company). Mr. Stephens serves as a Director of
TransCanada Pipelines Limited. Until 2004, Mr. Stephens was a Director
of Xcel Energy Incorporated (a public utility company), Qwest
Communications, and Norske Canada, Inc. (a paper manufacturer). Until
2003, Mr. Stephens was a Director of Mail-Well, Inc. (a diversified
printing company). He served as Chairman of Mail-Well until 2001 and as
CEO of MacMillan-Bloedel, Ltd. (a forest products company) until 1999.
Prior to 1996, Mr. Stephens was Chairman and Chief Executive Officer of
Johns Manville Corporation. He holds B.S. and M.S. degrees from the
University of Arkansas.
Richard B. Worley (11/15/45)
Mr. Worley is Managing Partner of Permit Capital, LLC, an investment
management firm.
Mr. Worley serves on the Executive Committee of the University of
Pennsylvania Medical Center, is a Trustee of The Robert Wood Johnson
Foundation (a philanthropic organization devoted to health care issues)
and is a Director of The Colonial Williamsburg Foundation (a historical
preservation organization). Mr. Worley also serves on the investment
committees of Mount Holyoke College and World Wildlife Fund (a wildlife
conservation organization).
Prior to joining Permit Capital LLC in 2002, Mr. Worley served as Chief
Strategic Officer of Morgan Stanley Investment Management. He previously
served as President, Chief Executive Officer and Chief Investment
Officer of Morgan Stanley Dean Witter Investment Management and as a
Managing Director of Morgan Stanley, a financial services firm. Mr.
Worley also was the Chairman of Miller Anderson & Sherrerd, an
investment management firm.
Mr. Worley holds a B.S. degree from University of Tennessee and pursued
graduate studies in economics at the University of Texas.
Charles E. Haldeman, Jr.* (10/29/48)
Mr. Haldeman is President and Chief Executive Officer of Putnam, LLC
("Putnam Investments"). He is a member of Putnam Investments' Executive
Board of Directors and Advisory Council. Prior to November 2003, Mr.
Haldeman served as Co-Head of Putnam Investments' Investment Division.
Prior to joining Putnam Investments in 2002, Mr. Haldeman held executive
positions in the investment management industry. He previously served as
Chief Executive Officer of Delaware Investments and President & Chief
Operating Officer of United Asset Management. Mr. Haldeman was also a
partner and director of Cooke & Bieler, Inc. (an investment management
firm).
Mr. Haldeman currently serves as a Trustee of Dartmouth College and as
Emeritus Trustee of Abington Memorial Hospital. He is a graduate of
Dartmouth College, Harvard Law School and Harvard Business School. Mr.
Haldeman is also a Chartered Financial Analyst (CFA) charterholder.
George Putnam, III* (8/10/51), Trustee since 1984 and President since 2000
Mr. Putnam is President of New Generation Research, Inc. (a publisher of
financial advisory and other research services), and of New Generation
Advisers, Inc. (a registered investment advisor to private funds). Mr.
Putnam founded the New Generation companies in 1986.
Mr. Putnam is a Director of The Boston Family Office, LLC (a registered
investment adviser). He is a Trustee of St. Mark's School, Shore Country
Day School, and until 2002 was a Trustee of the Sea Education
Association.
Mr. Putnam previously worked as an attorney with the law firm of Dechert
LLP (formerly known as Dechert Price & Rhoads) in Philadelphia. He is a
graduate of Harvard College, Harvard Business School and Harvard Law
School.
A.J.C. Smith* (4/13/34), Trustee since 1986
Mr. Smith is the Chairman of Putnam Investments and Director of and
Consultant to Marsh & McLennan Companies, Inc.
Mr. Smith is also a Director of Trident Corp. (a limited partnership
with over thirty institutional investors). He is also a Trustee of the
Carnegie Hall Society, the Educational Broadcasting Corporation, and the
National Museums of Scotland. He is Chairman of the Central Park
Conservancy and a Member of the Board of Overseers of the Joan and
Sanford I. Weill Graduate School of Medical Sciences of Cornell
University. Prior to May 2000 and November 1999, Mr. Smith was Chairman
and CEO, respectively, of Marsh & McLennan Companies, Inc.
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of September 30, 2004, there were 102 Putnam Funds. All Trustees
other than Ms. Drucker and Messrs. Worley and Haldeman serve as Trustees
of all Putnam funds. Ms. Drucker and Messrs. Worley and Haldeman
currently serve as Trustees of 81 Putnam funds.
Each Trustee serves for an indefinite term, until his or her
resignation, retirement at age 72, death, or removal.
* Trustees who are or may be deemed to be "interested persons" (as
defined in the Investment Company Act of 1940) of the fund, Putnam
Management, Putnam Retail Management, or Marsh & McLennan Companies,
Inc., the parent company of Putnam, LLC and its affiliated companies.
Messrs. Haldeman, Putnam, III, and Smith are deemed "interested persons"
by virtue of their positions as officers of the fund, Putnam Management,
Putnam Retail Management or Marsh & McLennan Companies, Inc. and as
shareholders of Marsh & McLennan Companies, Inc. Mr. Putnam, III is the
President of your fund and each of the other Putnam funds. Mr. Haldeman
is President and Chief Executive Officer of Putnam Investments. Mr.
Smith serves as a Director of and Consultant to Marsh & McLennan
Companies, Inc. and as Chairman of Putnam Investments.
Officers
In addition to George Putnam, III, the other officers of the
fund are shown below:
Charles E. Porter (7/26/38)
Executive Vice President, Associate Treasurer
and Principal Executive Officer
Since 1989
Managing Director, Putnam Investments
and Putnam Management
Jonathan S. Horwitz (6/4/55)
Senior Vice President and Treasurer
Since 2004
Managing Director, Putnam Investments
Steven D. Krichmar (6/27/58)
Vice President and Principal Financial Officer
Since 2002
Senior Managing Director, Putnam Investments.
Prior to July 2001, Partner,
PricewaterhouseCoopers LLP
Michael T. Healy (1/24/58)
Assistant Treasurer and Principal
Accounting Officer
Since 2000
Managing Director, Putnam Investments
Beth S. Mazor (4/6/58)
Vice President
Since 2002
Senior Vice President, Putnam Investments
Daniel T. Gallagher (2/27/62)
Vice President and Legal and Compliance
Liaison Officer
Since 2004
Vice President, Putnam Investments. Prior to
2004, Associate, Ropes & Gray LLP; prior to
2000, Law Clerk, Massachusetts Supreme
Judicial Court
Francis J. McNamara, III (8/19/55)
Vice President and Chief Legal Officer
Since 2004
Senior Managing Director, Putnam
Investments, Putnam Management and
Putnam Retail Management. Prior to 2004,
General Counsel, State Street Research &
Management Company
James P. Pappas (2/24/53)
Vice President
Since 2004
Managing Director, Putnam Investments and
Putnam Management. From 2001 to 2002, Chief
Operating Officer, Atalanta/Sosnoff Management
Corporation; prior to 2001, President and Chief
Executive Officer, UAM Investment Services, Inc.
Richard S. Robie, III (3/30/60)
Vice President
Since 2004
Senior Managing Director, Putnam
Investments, Putnam Management and
Putnam Retail Management. Prior to 2003,
Senior Vice President, United Asset
Management Corporation
Charles A. Ruys de Perez (10/17/57)
Vice President and Chief Compliance Officer
Since 2004
Managing Director, Putnam Investments
Mark C. Trenchard (6/5/62)
Vice President and BSA Compliance Officer
Since 2002
Senior Vice President, Putnam Investments
Judith Cohen (6/7/45)
Clerk and Assistant Treasurer
Since 1993
Clerk and Assistant Treasurer, The Putnam Funds
The address of each Officer is One Post Office Square, Boston, MA 02109.
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
Cassini House
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
Independent Registered
Public Accounting Firm
KPMG 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
A.J.C. Smith
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
Beth S. Mazor
Vice President
Daniel T. Gallagher
Vice President and Legal and
Compliance Liaison Officer
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
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
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Shareholders can sign up for email delivery of shareholder
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216527 11/04
Item 2. Code of Ethics:
-----------------------
All officers of the Fund, including its principal executive, financial and
accounting officers, are employees of Putnam Investment Management, LLC,
the Fund's investment manager. As such they are subject to a comprehensive
Code of Ethics adopted and administered by Putnam Investments which is
designed to protect the interests of the firm and its clients. The Fund
has adopted a Code of Ethics which incorporates the Code of Ethics of
Putnam Investments with respect to all of its officers and Trustees who are
employees of Putnam Investment Management, LLC. For this reason, the Fund
has not adopted a separate code of ethics governing its principal
executive, financial and accounting officers.
Item 3. Audit Committee Financial Expert:
-----------------------------------------
The Funds' Audit and Pricing Committee is comprised solely of Trustees
who are "independent" (as such term has been defined by the Securities
and Exchange Commission ("SEC") in regulations implementing Section 407
of the Sarbanes-Oxley Act (the "Regulations")). The Trustees believe
that each of the members of the Audit and Pricing Committee also possess
a combination of knowledge and experience with respect to financial
accounting matters, as well as other attributes, that qualify them for
service on the Committee. In addition, the Trustees have determined
that all members of the Funds' Audit and Pricing Committee meet the
financial literacy requirements of the New York Stock Exchange's rules
and that Mr. Patterson and Mr. Stephens qualify as "audit committee
financial experts" (as such term has been defined by the Regulations)
based on their review of their pertinent experience and education.
Certain other Trustees, although not on the Audit and Pricing Committee,
would also qualify as "audit committee financial experts." The SEC has
stated that the designation or identification of a person as an audit
committee financial expert pursuant to this Item 3 of Form N-CSR does
not impose on such person any duties, obligations or liability that are
greater than the duties, obligations and liability imposed on such
person as a member of the Audit and Pricing Committee and the Board of
Trustees in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services:
-----------------------------------------------
The following table presents fees billed in each of the last two
fiscal years for services rendered to the fund by the fund's
independent auditors:
Audit Audit-Related Tax All Other
Fiscal year ended Fees Fees Fees Fees
----------------- ---------- ------------- ------- ---------
September 30, 2004 $43,250 $-- $4,150 $126
September 30, 2003 $37,600 $-- $3,600 $--
For the fiscal years ended September 30, 2004 and September 30,
2003, the fund's independent auditors billed aggregate non-audit
fees in the amounts of $ 4,276 and $3,600, respectively, to the
fund, Putnam Management and any entity controlling, controlled by or
under common control with Putnam Management that provides ongoing
services to the fund.
Audit Fees represents fees billed for the fund's last two fiscal
years.
Audit-Related Fees represents fees billed in the fund's last two
fiscal years for services traditionally performed by the fund's
auditor, including accounting consultation for proposed transactions
or concerning financial accounting and reporting standards and other
audit or attest services not required by statute or regulation.
Tax Fees represent fees billed in the fund's last two fiscal years
for tax compliance, tax planning and tax advice services. Tax
planning and tax advice services include assistance with tax audits,
employee benefit plans and requests for rulings or technical advice
from taxing authorities.
All Other Fees Fees represent fees billed for services relating
relating interfund trading .
Pre-Approval Policies of the Audit and Pricing Committee. The Audit
and Pricing Committee of the Putnam funds has determined that, as a
matter of policy, all work performed for the funds by the funds'
independent auditors will be pre-approved by the Committee and will
generally not be subject to pre-approval procedures.
Under certain circumstances, the Audit and Pricing Committee
believes that it may be appropriate for Putnam Investment
Management, LLC ("Putnam Management") and certain of its affiliates
to engage the services of the funds' independent auditors, but only
after prior approval by the Committee. Such requests are required
to be submitted in writing to the Committee and explain, among other
things, the nature of the proposed engagement, the estimated fees,
and why this work must be performed by that particular audit firm.
The Committee will review the proposed engagement at its next
meeting.
Since May 6, 2003, all work performed by the independent auditors
for the funds, Putnam Management and any entity controlling,
controlled by or under common control with Putnam Management that
provides ongoing services to the fund was pre-approved by the
Committee or a member of the Committee pursuant to the pre-approval
policies discussed above. Prior to that date, the Committee had a
general policy to pre-approve the independent auditor's engagements
for non-audit services with the funds, Putnam Management and any
entity controlling, controlled by or under common control with
Putnam Management that provides ongoing services to the fund.
The following table presents fees billed by the fund's principal
auditor for services required to be approved pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X.
Audit-Related Tax All Other Total Non-
Fiscal year ended Fees Fees Fees Audit Fees
----------------- ------------- ---- --------- ----------
September 30, 2004 $-- $-- $-- $--
September 30, 2003 $-- $-- $-- $--
Item 5. Audit Committee
------------------------
(a) The fund has a separately-designated audit committee
established in accordance with Section 3(a)(58)(A) of the Securities
Exchange Act of 1934, as amended. The Audit Committee of the fund's
Board of Trustees is composed of the following persons:
Paul L. Joskow (Chairperson)
Robert E. Patterson
W. Thomas Stephens
Elizabeth T. Kennan
(b) Not applicable
Item 6. Schedule of Investments: Not applicable
--------------------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End
-------------------------------------------------------------------------
Management Investment Companies:
--------------------------------
Proxy Voting Guidelines of the Putnam Funds
-------------------------------------------
The proxy voting guidelines below summarize the Funds' positions on
various issues of concern to investors, and give a general indication of
how Fund portfolio securities will be voted on proposals dealing with a
particular issue. The Funds' proxy voting service is instructed to vote
all proxies relating to Fund portfolio securities in accordance with
these guidelines, except as otherwise instructed by the Proxy
Coordinator.
The proxy voting guidelines are just that - guidelines. The guidelines
are not exhaustive and do not include all potential voting issues.
Because proxy issues and the circumstances of individual companies are
so varied, there may be instances when the Funds may not vote in strict
adherence to these guidelines. For example, the proxy voting service is
expected to bring to the Proxy Coordinator's attention proxy questions
that are company-specific and of a non-routine nature and, although
covered by the guidelines, may be more appropriately handled on a
case-by-case basis.
Similarly, Putnam Management's investment professionals, as part of
their ongoing review and analysis of all Fund portfolio holdings, are
responsible for monitoring significant corporate developments, including
proxy proposals submitted to shareholders, and notifying the Proxy
Coordinator of circumstances where the interests of Fund shareholders
may warrant a vote contrary to these guidelines. In such instances, the
investment professionals will submit a written recommendation to the
Proxy Coordinator and the person or persons designated by Putnam
Management's Legal and Compliance Department to assist in processing
referral items pursuant to the Funds' "Proxy Voting Procedures." The
Proxy Coordinator, in consultation with the Senior Vice President,
Executive Vice President and/or the Chair of the Board Policy and
Nominating Committee, as appropriate, will determine how the Funds'
proxies will be voted. When indicated, the Chair of the Board Policy
and Nominating Committee may consult with other members of the Committee
or the full board of Trustees.
The following guidelines are grouped according to the types of proposals
generally presented to shareholders. Part I deals with proposals which
have been approved and recommended by a company's board of directors.
Part II deals with proposals submitted by shareholders for inclusion in
proxy statements. Part III addresses unique considerations pertaining
to foreign issuers.
I. Board-Approved Proposals
---------------------------
The vast majority of matters presented to shareholders for a vote
involve proposals made by a company itself (sometimes referred to as
"management proposals"), which have been approved and recommended by its
board of directors. In view of the enhanced corporate governance
practices currently being implemented in public companies and the Funds'
intent to hold corporate boards accountable for their actions in
promoting shareholder interests, the Funds' proxies generally will be
voted in support of decisions reached by independent boards of
directors. Accordingly, the Funds' proxies will be voted for
board-approved proposals, except as follows:
A. Matters Relating to the Board of Directors
---------------------------------------------
The board of directors has the important role of overseeing management
and its performance on behalf of shareholders. The Funds' proxies will
be voted for the election of the company's nominees for directors and
for board-approved proposals on other matters relating to the board of
directors (provided that such nominees and other matters have been
approved by an independent nominating committee), except as follows:
* The Funds will withhold votes for the entire board of directors if
* The board does not have a majority of independent directors; or
* The board does not have nominating, audit and compensation committees
composed solely of independent directors.
Commentary: While these requirements will likely become mandatory for
most public companies in the near future as a result of pending NYSE and
NASDAQ rule proposals, the Funds' Trustees believe that there is no
excuse for public company boards that fail to implement these vital
governance reforms at their next annual meeting. For these purposes, an
"independent director" is a director who meets all requirements to serve
as an independent director of a company under the pending NYSE rule
proposals (i.e., no material business relationships with the company, no
present or recent employment relationship with the company (including
employment of immediate family members) and, in the case of audit
committee members, no compensation for non-board services). As
indicated below, the Funds will generally vote on a case-by-case basis
on board-approved proposals where the board fails to meet these basic
independence standards.
* The Funds will withhold votes for any nominee for director who is
considered an independent director by the company and who has received
compensation from the company other than for service as a director
(e.g., investment banking, consulting, legal or financial advisory
fees).
Commentary: The Funds' Trustees believe that receipt of compensation
for services other than service as a director raises significant
independence issues. The Funds will withhold votes for any nominee for
director who is considered an independent director by the company and
who receives such compensation.
* The Funds will withhold votes for the entire board of directors if the
board has more than 19 members or fewer than five members, absent
special circumstances.
Commentary: The Funds' Trustees believe that the size of the board of
directors can have a direct impact on the ability of the board to govern
effectively. Boards that have too many members can be unwieldy and
ultimately inhibit their ability to oversee management performance.
Boards that have too few members can stifle innovation and lead to
excessive influence by management.
* The Funds will vote on a case-by-case basis in contested elections of
directors.
* The Funds will withhold votes for any nominee for director who attends
less than 75% of board and committee meetings without valid reasons for
the absences (i.e., illness, personal emergency, etc.).
Commentary: Being a director of a company requires a significant time
commitment to adequately prepare for and attend the company's board and
committee meetings. Directors must be able to commit the time and
attention necessary to perform their fiduciary duties in proper fashion,
particularly in times of crisis.
The Funds' Trustees are concerned about over-committed directors. In
some cases, directors may serve on too many boards to make a meaningful
contribution. This may be particularly true for senior executives of
public companies (or other directors with substantially full-time
employment) who serve on more than a few outside boards. The Funds may
withhold votes from such directors on a case-by-case basis where it
appears that they may be unable to discharge their duties properly
because of excessive commitments.
* The Funds will withhold votes for any nominee for director of a public
company (Company A) who is employed as a senior executive of another
public company (Company B) if a director of Company B serves as a senior
executive of Company A (commonly referred to as an "interlocking
directorate").
Commentary: The Funds' Trustees believe that interlocking directorships
are inconsistent with the degree of independence required for outside
directors of public companies.
Board independence depends not only on its members' individual
relationships, but also the board's overall attitude toward management.
Independent boards are committed to good corporate governance practices
and, by providing objective independent judgment, enhancing shareholder
value. The Funds may withhold votes on a case-by-case basis from some or
all directors that, through their lack of independence, have failed to
observe good corporate governance practices or, through specific
corporate action, have demonstrated a disregard for the interest of
shareholders.
* The Funds will vote against proposals to classify a board, absent
special circumstances indicating that shareholder interests would be
better served by this structure.
Commentary: Under a typical classified board structure, the directors
are divided into three classes, with each class serving a three-year
term. The classified board structure results in directors serving
staggered terms, with usually only a third of the directors up for
re-election at any given annual meeting. The Funds' Trustees generally
believe that it is appropriate for directors to stand for election each
year, but recognize that, in special circumstances, shareholder
interests may be better served under a classified board structure.
B. Executive Compensation
-------------------------
The Funds generally favor compensation programs that relate executive
compensation to a company's long-term performance. The Funds will vote
on a case-by-case basis on board-approved proposals relating to
executive compensation, except as follows:
* Except where the Funds are otherwise withholding votes for the entire
board of directors, the Funds will vote for stock option plans which
will result in an average annual dilution of 1.67% or less (including
all equity-based plans).
* The Funds will vote against stock option plans that permit replacing
or repricing of underwater options (and against any proposal to
authorize such replacement or repricing of underwater options).
* The Funds will vote against stock option plans that permit issuance of
options with an exercise price below the stock's current market price.
* Except where the Funds are otherwise withholding votes for the entire
board of directors, the Funds will vote for employee stock purchase
plans that have the following features: (1) the shares purchased under
the plan are acquired for no less than 85% of their market value, (2)
the offering period under the plan is 27 months or less, and (3)
dilution is 10% or less.
Commentary: Companies should have compensation programs that are
reasonable and that align shareholder and management interests over the
longer term. Further, disclosure of compensation programs should provide
absolute transparency to shareholders regarding the sources and amounts
of, and the factors influencing, executive compensation. Appropriately
designed equity-based compensation plans can be an effective way to
align the interests of long-term shareholders with the interests of
management. The Funds may vote against executive compensation proposals
on a case-by-case basis where compensation is excessive by reasonable
corporate standards, or where a company fails to provide transparent
disclosure of executive compensation. In voting on proposals relating to
executive compensation, the Funds will consider whether the proposal has
been approved by an independent compensation committee of the board.
C. Capitalization
-----------------
Many proxy proposals involve changes in a company's capitalization,
including the authorization of additional stock, the repurchase of
outstanding stock or the approval of a stock split. The management of a
company's capital structure involves a number of important issues,
including cash flow, financing needs and market conditions that are
unique to the circumstances of each company. As a result, the Funds will
vote on a case-by-case basis on board-approved proposals involving
changes to a company's capitalization, except that where the Funds are
not otherwise withholding votes from the entire board of directors:
* The Funds will vote for proposals relating to the authorization of
additional common stock (except where such proposals relate to a
specific transaction).
* The Funds will vote for proposals to effect stock splits (excluding
reverse stock splits.)
* The Funds will vote for proposals authorizing share repurchase
programs.
Commentary: A company may decide to authorize additional shares of
common stock for reasons relating to executive compensation or for
routine business purposes. For the most part, these decisions are best
left to the board of directors and senior management. The Funds will
vote on a case-by-case basis, however, on other proposals to change a
company's capitalization, including the authorization of common stock
with special voting rights, the authorization or issuance of common
stock in connection with a specific transaction (e.g., an acquisition,
merger or reorganization) or the authorization or issuance of preferred
stock. Actions such as these involve a number of considerations that may
impact a shareholder's investment and warrant a case-by-case
determination.
D. Acquisitions, Mergers, Reincorporations, Reorganizations and
Other Transactions
---------------------------------------------------------------
Shareholders may be confronted with a number of different types of
transactions, including acquisitions, mergers, reorganizations involving
business combinations, liquidations and sale of all or substantially all
of a company's assets, which may require their consent. Voting on such
proposals involves considerations unique to each transaction. As a
result, the Funds will vote on a case-by-case basis on board-approved
proposals to effect these types of transactions, except as follows:
* The Funds will vote for mergers and reorganizations involving business
combinations designed solely to reincorporate a company in Delaware.
Commentary: A company may reincorporate into another state through a
merger or reorganization by setting up a "shell" company in a different
state and then merging the company into the new company. While
reincorporation into states with extensive and established corporate
laws - notably Delaware - provides companies and shareholders with a
more well-defined legal framework, generally speaking, shareholders must
carefully consider the reasons for a reincorporation into another
jurisdiction, including especially offshore jurisdictions.
E. Anti-Takeover Measures
-------------------------
Some proxy proposals involve efforts by management to make it more
difficult for an outside party to take control of the company without
the approval of the company's board of directors. These include adoption
of a shareholder rights plan, requiring supermajority voting on
particular issues, adoption of fair price provisions, issuance of blank
check preferred stock and creating a separate class of stock with
disparate voting rights. Such proposals may adversely affect shareholder
rights, lead to management entrenchment, or create conflicts of
interest. As a result, the Funds will vote against board-approved
proposals to adopt such anti-takeover measures, except as follows:
* The Funds will vote on a case-by-case basis on proposals to ratify or
approve shareholder rights plans (commonly referred to as "poison
pills"); and
* The Funds will vote on a case-by-case basis on proposals to adopt fair
price provisions.
Commentary: The Funds' Trustees recognize that poison pills and fair
price provisions may enhance shareholder value under certain
circumstances. As a result, the Funds will consider proposals to approve
such matters on a case-by-case basis.
F. Other Business Matters
-------------------------
Many proxies involve approval of routine business matters, such as
changing the company's name, ratifying the appointment of auditors and
procedural matters relating to the shareholder meeting. For the most
part, these routine matters do not materially affect shareholder
interests and are best left to the board of directors and senior
management of the company. The Funds will vote for board-approved
proposals approving such matters, except as follows:
* The Funds will vote on a case-by-case basis on proposals to amend a
company's charter or bylaws (except for charter amendments necessary or
to effect stock splits to change a company's name or to authorize
additional shares of common stock).
* The Funds will vote against authorization to transact other
unidentified, substantive business at the meeting.
* The Funds will vote on a case-by-case basis on other business matters
where the Funds are otherwise withholding votes for the entire board of
directors.
Commentary: Charter and bylaw amendments and the transaction of other
unidentified, substantive business at a shareholder meeting may directly
affect shareholder rights and have a significant impact on shareholder
value. As a result, the Funds do not view such items as routine business
matters. Putnam Management's investment professionals and the Funds'
proxy voting service may also bring to the Proxy Coordinator's attention
company-specific items which they believe to be non-routine and
warranting special consideration. Under these circumstances, the Funds
will vote on a case-by-case basis.
II. Shareholder Proposals
-------------------------
SEC regulations permit shareholders to submit proposals for inclusion in
a company's proxy statement. These proposals generally seek to change
some aspect of a company's corporate governance structure or to change
some aspect of its business operations. The Funds will vote in
accordance with the recommendation of the company's board of directors
on all shareholder proposals, except as follows:
* The Funds will vote for shareholder proposals to declassify a board,
absent special circumstances which would indicate that shareholder
interests are better served by a classified board structure.
* The Funds will vote for shareholder proposals to require shareholder
approval of shareholder rights plans.
* The Funds will vote for shareholder proposals that are consistent with
the Fund's proxy voting guidelines for board-approved proposals.
* The Funds will vote on a case-by-case basis on other shareholder
proposals where the Funds are otherwise withholding votes for the entire
board of directors.
Commentary: In light of the substantial reforms in corporate governance
that are currently underway, the Funds' Trustees believe that effective
corporate reforms should be promoted by holding boards of directors -
and in particular, their independent directors - accountable for their
actions, rather than imposing additional legal restrictions on board
governance through piecemeal proposals. Generally speaking, shareholder
proposals relating to business operations are often motivated primarily
by political or social concerns, rather than the interests of
shareholders as investors in an economic enterprise. As stated above,
the Funds' Trustees believe that boards of directors and management are
responsible for ensuring that their businesses are operating in
accordance with high legal and ethical standards and should be held
accountable for resulting corporate behavior. Accordingly, the Funds
will generally support the recommendations of boards that meet the basic
independence and governance standards established in these guidelines.
Where boards fail to meet these standards, the Funds will generally
evaluate shareholder proposals on a case-by-case basis.
III. Voting Shares of Foreign Issuers
-------------------------------------
Many of the Funds invest on a global basis and, as a result, they may be
required to vote shares held in foreign issuers - i.e., issuers that are
incorporated under the laws of a foreign jurisdiction and that are not
listed a U.S. securities exchange or the NASDAQ stock market. Because
foreign issuers are incorporated under the laws of countries and
jurisdictions outside the U.S., protection for shareholders may vary
significantly from jurisdiction to jurisdiction. Laws governing foreign
issuers may, in some cases, provide substantially less protection for
shareholders. As a result, the foregoing guidelines, which are premised
on the existence of a sound corporate governance and disclosure
framework, may not be appropriate under some circumstances for foreign
issuers. The Funds will vote proxies of foreign issuers in accordance
with the foregoing guidelines where applicable, except as follows:
* The Funds will vote for shareholder proposals calling for a majority
of the directors to be independent of management.
* The Funds will vote for shareholder proposals seeking to increase the
independence of board nominating, audit and compensation committees.
* The Funds will vote for shareholder proposals that implement corporate
governance standards similar to those established under U.S. federal law
and the listing requirements of U.S. stock exchanges, and that do not
otherwise violate the laws of the jurisdiction under which the company
is incorporated.
* The Funds will vote on case-by-case basis on proposals relating to (1)
the issuance of common stock in excess of 20% of a company's outstanding
common stock where shareholders do not have preemptive rights, or (2)
the issuance of common stock in excess of 100% of a company's
outstanding common stock where shareholders have preemptive rights.
Commentary: In many non-U.S. markets, shareholders who vote proxies for
shares of a foreign issuer are not able to trade in that company's stock
within a given period of time on or around the shareholder meeting date.
This practice is known as "share blocking." In countries where share
blocking is practiced, the Funds will vote proxies only with direction
from Putnam Management's investment professionals.
As adopted March 14, 2003
Proxy Voting Procedures of the Putnam Funds
-------------------------------------------
The Role of the Funds' Trustees
-------------------------------
The Trustees of the Putnam Funds exercise control of the voting of
proxies through their Board Policy and Nominating Committee, which is
composed entirely of independent Trustees. The Board Policy and
Nominating Committee oversees the proxy voting process and participates,
as needed, in the resolution of issues which need to be handled on a
case-by-case basis. The Committee annually reviews and recommends for
approval by the Trustees guidelines governing the Funds' proxy votes,
including how the Funds vote on specific proposals and which matters are
to be considered on a case-by-case basis. The Trustees are assisted in
this process by their independent administrative staff ("Fund
Administration"), independent legal counsel, and an independent proxy
voting service. The Trustees also receive assistance from Putnam
Investment Management, LLC ("Putnam Management"), the Funds' investment
adviser, on matters involving investment judgments. In all cases, the
ultimate decision on voting proxies rests with the Trustees, acting as
fiduciaries on behalf of the shareholders of the Funds.
The Role of the Proxy Voting Service
------------------------------------
The Funds have engaged an independent proxy voting service to assist in
the voting of proxies. The proxy voting service is responsible for
coordinating with the Funds' custodians to ensure that all proxy
materials received by the custodians relating to the Funds' portfolio
securities are processed in a timely fashion. To the extent applicable,
the proxy voting service votes all proxies in accordance with the proxy
voting guidelines established by the Trustees. The proxy voting service
will refer proxy questions to the Proxy Coordinator (described below)
for instructions under circumstances where: (1) the application of the
proxy voting guidelines is unclear, (2) a particular proxy question is
not covered by the guidelines, or (3) the guidelines call for specific
instructions on a case-by-case basis. The proxy voting service is also
requested to call to the Proxy Coordinator's attention specific proxy
questions which, while governed by a guideline, appear to involve
unusual or controversial issues. The Funds also utilize research
services relating to proxy questions provided by the proxy voting
service and by other firms.
The Role of the Proxy Coordinator
---------------------------------
Each year, a member of Fund Administration is appointed Proxy
Coordinator to assist in the coordination and voting of the Funds'
proxies. The Proxy Coordinator will deal directly with the proxy voting
service and, in the case of proxy questions referred by the proxy voting
service, will solicit voting recommendations and instructions from Fund
Administration, the Chair of the Board Policy and Nominating Committee,
and Putnam Management's investment professionals, as appropriate. The
Proxy Coordinator is responsible for ensuring that these questions and
referrals are responded to in a timely fashion and for transmitting
appropriate voting instructions to the proxy voting service.
Voting Procedures for Referral Items
------------------------------------
As discussed above, the proxy voting service will refer proxy questions
to the Proxy Coordinator under certain circumstances. When the
application of the proxy voting guidelines is unclear or a particular
proxy question is not covered by the guidelines (and does not involve
investment considerations), the Proxy Coordinator will assist in
interpreting the guidelines and, as appropriate, consult with the Senior
Vice President of Fund Administration, the Executive Vice President of
Fund Administration and the Chair of the Board Policy and Nominating
Committee on how the Funds' shares will be voted.
For proxy questions that require a case-by-case analysis pursuant to the
guidelines or that are not covered by the guidelines but involve
investment considerations, the Proxy Coordinator will refer such
questions, through a written request, to Putnam Management's investment
professionals for a voting recommendation. Such referrals will be made
in cooperation with the person or persons designated by Putnam
Management's Legal and Compliance Department to assist in processing
such referral items. In connection with each such referral item, the
Legal and Compliance Department will conduct a conflicts of interest
review, as described below under "Conflicts of Interest," and provide a
conflicts of interest report (the "Conflicts Report") to the Proxy
Coordinator describing the results of such review. After receiving a
referral item from the Proxy Coordinator, Putnam Management's investment
professionals will provide a written recommendation to the Proxy
Coordinator and the person or persons designated by the Legal and
Compliance Department to assist in processing referral items. Such
recommendation will set forth (1) how the proxies should be voted, (2)
the basis and rationale for such recommendation, and (3) any contacts
the investment professionals have had with respect to the referral item
with non-investment personnel of Putnam Management or with outside
parties (except for routine communications from proxy solicitors). The
Proxy Coordinator will then review the investment professionals'
recommendation and the Conflicts Report with the Senior Vice President
and/or Executive Vice President in determining how to vote the Funds'
proxies. The Proxy Coordinator will maintain a record of all proxy
questions that have been referred to Putnam Management's investment
professionals, the voting recommendation and the Conflicts Report.
In some situations, the Proxy Coordinator, the Senior Vice President
and/or the Executive Vice President may determine that a particular
proxy question raises policy issues requiring consultation with the
Chair of the Board Policy and Nominating Committee who, in turn, may
decide to bring the particular proxy question to the Committee or the
full board of Trustees for consideration.
Conflicts of Interest
---------------------
Occasions may arise where a person or organization involved in the proxy
voting process may have a conflict of interest. A conflict of interest
may exist, for example, if Putnam Management has a business relationship
with (or is actively soliciting business from) either the company
soliciting the proxy or a third party that has a material interest in
the outcome of a proxy vote or that is actively lobbying for a
particular outcome of a proxy vote. Any individual with knowledge of a
personal conflict of interest (e.g., familial relationship with company
management) relating to a particular referral item shall disclose that
conflict to the Proxy Coordinator and the Legal and Compliance
Department and otherwise remove himself or herself from the proxy voting
process. The Legal and Compliance Department will review each item
referred to Putnam Management's investment professionals to determine if
a conflict of interest exists and will provide the Proxy Coordinator
with a Conflicts Report for each referral item that (1) describes any
conflict of interest; (2) discusses the procedures used to address such
conflict of interest; and (3) discloses any contacts from parties
outside Putnam Management (other than routine communications from proxy
solicitors) with respect to the referral item not otherwise reported in
an investment professional's recommendation. The Conflicts Report will
also include written confirmation that any recommendation from an
investment professional provided under circumstances where a conflict of
interest exists was made solely on the investment merits and without
regard to any other consideration.
As adopted March 14, 2003
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 on Form N-CSR, that the design and
operation of such procedures are generally effective to provide
reasonable assurance that information required to be disclosed by
the investment company in the reports that it files or submits under
the Securities Exchange Act of 1934 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) The Code of Ethics of The Putnam Funds, which incorporates the
Code of Ethics of Putnam Investments, is filed herewith.
(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
an 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: November 30, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Executive Officer
Date: November 30, 2004
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: November 30, 2004