N-CSR 1 a_masintinc.htm PUTNAM MASTER INTERMEDIATE INCOME TRUST

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

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: (811- 05498 )

Exact name of registrant as specified in charter: Putnam Master Intermediate Income Trust

Address of principal executive offices: One Post Office Square, Boston, Massachusetts 02109

Name and address of agent for service: | Beth S. Mazor, Vice President
| One Post Office Square
| Boston, Massachusetts 02109
Copy to: | John W. Gerstmayr, Esq.
| Ropes & Gray LLP
| One International Place
| Boston, Massachusetts 02110
Registrant’s telephone number, including area code: | (617) 292-1000

Date of fiscal year end: September 30, 2006

Date of reporting period: October 1, 2005— March, 31 2006

Item 1. Report to Stockholders:

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

What makes Putnam different?

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

THE PRUDENT MAN RULE

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

A time-honored tradition in money management

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

A prudent approach to investing

We use a research-driven team approach to seek consistent, dependable, superior investment results over time, although there is no guarantee a fund will meet its objectives.

Funds for every investment goal

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

A commitment to doing what’s right for investors

We have stringent investor protections and provide a wealth of information about the Putnam funds.

Industry-leading service

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

Putnam Master
Intermediate
Income Trust

3| 31| 06
Semiannual Report

Message from the Trustees | 2
About the fund | 4
Report from the fund managers | 7
Performance | 13
Your fund’s management | 15
Terms and definitions | 18
Trustee approval of management contract | 19
Other information for shareholders | 26
Financial statements | 27

Cover photograph: © Richard H. Johnson

Message from the Trustees

Dear Fellow Shareholder

In the early months of 2006, we have seen a continuation of generally benign economic conditions in the United States. The expansion that began in late 2001 is continuing, fueled by gains in worker productivity. The stock market has advanced, driven largely by corporate profit levels that, by some measures, are near all-time highs. Inflation, which can cause problems for stock and bond markets, has remained fairly steady in recent months even as energy prices have resumed their ascent. Investors can be encouraged by these conditions, but should also be mindful of risks. Bond prices have fallen recently in response to stronger job creation. As mortgage rates have risen to higher levels, activity in the housing market has slowed. Our nation’s large trade deficit is also dampening prosperity and could cause the U.S. dollar to weaken, which might make it more difficult for U.S. stocks and bonds to attract investment from abroad.

We consider it fortunate that the Federal Reserve’s (the Fed’s) new Chairman, Ben Bernanke, like his predecessor, Alan Greenspan, regards the Fed’s role in pursuing both price stability and economic growth as essential to maintaining a healthy financial system. In its first months under the leadership of Mr. Bernanke, the Fed has continued Mr. Greenspan’s program of interest-rate increases, while offering some signals that the end of the current tightening cycle might not be far away.

The economy’s significant strengths and notable weaknesses remind us once again that a well-diversified financial program under the guidance of a professional financial representative can help many investors pursue their goals. And in our view, the professional research, diversifi-cation, and active management that mutual funds provide continue to make them an intelligent choice for investors.

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We want you to know that Putnam Investments, under the leadership of Chief Executive Officer Ed Haldeman, continues to focus on delivering consistent, dependable, superior investment performance over time. In the following pages, members of your fund’s management team discuss the fund’s performance and strategies, and their outlook for the months ahead. We thank you for your support of the Putnam funds.

Putnam Master Intermediate Income Trust: seeking
broad diversification across global bond markets

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

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

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

We believe the fund’s multi-strategy approach is well suited to the expanding opportunities of today’s global bond marketplace. As different factors drive the performance of the various fixed-income sectors, the fund’s diversified

Optimizing the risk/return trade-off across multiple sectors

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

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strategy can take advantage of changing market leadership in pursuit of high current income consistent with capital preservation.

International investing involves certain risks, such as currency fluctuations, economic instability, and political developments. Additional risks may be associated with emerging-market securities, including illiquidity and volatility. Lower-rated bonds may offer higher yields in return for more risk. Mutual funds that invest in government securities are not guaranteed. Mortgage-backed securities are subject to prepayment risk. Mutual funds that invest in bonds are subject to certain risks, including interest-rate risk, credit risk, and inflation risk. As interest rates rise, the prices of bonds fall. Long-term bonds are more exposed to interest-rate risk than short-term bonds. Unlike bonds, bond funds have ongoing fees and expenses. While diversification can help protect returns from excessive volatility, it cannot ensure protection against a market loss.

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

More assets at work While open-end funds must maintain a cash position to meet redemptions, closed-end funds have no such requirement and can keep more of their assets invested in the market.

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

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

| GOVERNMENT |
* | U.S.Treasury | 10.5%
* | International Treasury | 7.1%
| (developed markets) |
* | International Treasury | 5.0%
| (emerging markets) |
| CASH/OTHER |
* | Cash/derivatives/equivalents | 14.8%
| (e.g., short-term U.S. Treasuries, |
| commercial paper, and other cash equivalents)

Allocations and holdings in each sector will vary over time. For more information on current fund holdings, see pages 10 and 28.

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Putnam Master Intermediate Income Trust seeks high current income and relative stability by investing in investment-grade, high-yield, and non-U.S. fixed-income securities of limited maturity. Fund holdings and sector classifications reflect the diversification of the fixed-income market. The fund is designed for investors seeking high current income, asset class diversification, or both.

Highlights

* For the six months ended March 31, 2006, Putnam Master Intermediate Income Trust posted total returns of 1.30% at net asset value (NAV) and –1.05% at market price.

* The fund’s primary benchmark, the Lehman Government/Credit Bond Index, returned –0.42% .

* The average return for the fund’s Lipper category, Flexible Income Funds (closed-end), was 1.58% .

* The fund’s dividend was reduced to $0.028 per share in November 2005. See page 11 for details.

* Additional fund performance, comparative performance, and Lipper data can be found in the performance section beginning on page 13.

Performance

Total return for periods ended 3/31/06

Since the fund’s inception (4/29/88), average annual return is 7.74% at NAV and 6.43% at market price.
| Average annual return | Cumulative return
| NAV | Market price | NAV | Market price
10 years | 6.44% | 6.34% | 86.60% | 84.84%
5 years | 7.74 | 5.74 | 45.16 | 32.21
3 years | 8.95 | 5.26 | 29.32 | 16.63
1 year | 3.91 | –0.02 | 3.91 | –0.02
6 months | — | — | 1.30 | –1.05

Data is historical. Past performance does not guarantee future results. More recent returns may be less or more than those shown. Investment return, net asset value, and market price will fluctuate and you may have a gain or a loss when you sell your shares. Performance assumes reinvestment of distributions and does not account for taxes.

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Report from the fund managers

The period in review

The six-month period ended March 31, 2006, was generally favorable for most sectors of the fixed-income market, especially those associated with higher credit risk, such as high-yield and emerging-market bonds. Strong investor demand for yield boosted prices in both of these sectors, particularly during the first calendar quarter of 2006. Because your fund invests in a variety of fixed-income investments, its results at net asset value (NAV) were ahead of the return of its all-bond benchmark index. However, the fund’s results at NAV trailed the average for the fund’s Lipper category because the fund had less exposure than many of its peers to the strong-performing emerging-market and high-yield sectors. The fund continued to benefit from its holdings in securitized bonds, while its currency strategy had a neutral effect on performance over the course of the semiannual period.

Market overview

During the six months ended March 31, 2006, the U.S. economy grew at a solid, moderate pace with low inflation, continuing a trend that has been in place for over four years. Fixed-income securities generally remained in a relatively narrow trading range in the fourth quarter of 2005. During the first quarter of calendar 2006, however, strong demand for high-yield and emerging-market bonds drove their prices up and caused their yields to decline close to the level of comparable Treasuries.

While the bond market has benefited from a supportive environment for the past several years, we have detected growing cautionary signs. The U.S. economy has been posting a steady 3% to 4% growth rate since 2002, but during the past six months, we believe that spare or “excess” capacity to fuel economic growth (i.e., plant and equipment capacity) has all but disappeared. This is an important development, because excess capacity can help keep prices low as companies try to boost sales volume, and consequently, when present, it has a dampening effect on inflation. Furthermore, in what could be a significant development for the

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world’s financial markets, Japan is currently emerging from 15 years of economic difficulty. Japan’s previously stagnant economy and very low interest rates have long been key elements of an important mechanism for keeping long-term interest rates low in the United States. Japanese investors (who have a very high savings rate) have purchased U.S. Treasury and corporate bonds in large volume to take advantage of their higher yields. Recently, real estate prices in Japan have been rising, unemployment has declined, and the Japanese stock market has been strengthening. In addition, Japanese interest rates rose across the board during the past six months.

Japanese investors, noting the changing conditions, have begun to divert some of their capital out of the international markets and back to their domestic markets. We believe these developments could soon mean significantly higher long-term interest rates here, as credit issuers in the United States could be forced to raise interest rates to compete for Japanese capital. We continue to monitor unfolding events in Japan closely.

Strategy overview

As we have noted the beginnings of possible changes in the global economy over the past six months, amid signs

Market sector performance |
These indexes provide an overview of performance in different market sectors for the |
six months ended 3/31/06. |
Bonds |
Lehman Government/Credit Bond Index |
(U.S. Treasury and agency securities and corporate bonds) | -0.42%
JP Morgan Global Diversified Emerging Markets Bond Index |
(global emerging-market bonds) | 3.30%
Citigroup Non-U.S. World Government Bond Index |
(international government bonds) | -2.80%
JP Morgan Global High Yield Index (global high-yield corporate bonds) | 3.65%
Equities |
S&P 500 Index (broad stock market) | 6.38%
Russell 2000 Index (small-company stocks) | 15.23%
MSCI EAFE Index (international stocks) | 13.86%

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that long-term interest rates could rise, our primary goal has been to keep the portfolio’s level of credit risk at a reduced level. (Credit risk is the risk that a bond issuer could default and fail to pay interest and repay principal in a timely manner.) During the six-month period, we de-emphasized the emerging-market sector and increased the average credit quality of the fund’s high-yield holdings by selling lower-quality bonds and purchasing bonds with higher ratings. High-yield securities, which are generally lower in quality than other securities such as Treasuries, are classed among several tiers of credit quality.

In addition, we sought to reduce the fund’s sensitivity to changes in interest rates by maintaining a shorter portfolio duration than in past years. Duration, which is measured in years, is an indicator of interest-rate sensitivity. The shorter a bond’s duration, the less sensitive its price will be to interest-rate changes. Since bond prices move in the opposite direction of interest rates, the fund’s lower interest-rate sensitivity helped performance over the six-month period.

We have also maintained the fund’s position in bank loans. These securities offer floating interest rates that, like an adjustable-rate home mortgage, move in

Comparison of sector weightings

This chart shows how the fund’s weightings have changed over the last six months. Weightings are shown as a percentage of net assets. Holdings will vary over time.

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tandem with market rates and can therefore help to provide some protection from interest-rate risk.

Your fund’s holdings

The portfolio’s significant position in securitized bonds, or structured securities, performed well during the semiannual period, as interest rates fluctuated within a narrow range. Structured securities currently offer higher income than corporate bonds of comparable credit quality. They also carry short maturities, providing us with the flexibility to shift to other fixed-income securities should interest rates rise. The most common types of structured securities are mortgage-backed securities (MBSs) issued by the Federal National Mortgage Association (Fannie Mae) and the Government National Mortgage Association (Ginnie Mae). Other types of structured securities include asset-backed securities (ABSs), which are typically backed by car loans and credit card payments, and commercial mortgage-backed securities (CMBSs), which are backed by loans on large commercial real estate projects, such as office parks or shopping malls.

European government bonds outperformed Treasury bonds and contributed to performance during the six-month period. European bonds benefited from

Top holdings

This table shows the fund’s top holdings, and the percentage of the fund’s net assets that each comprised, as of 3/31/06. The fund’s holdings will change over time.

Holding (percent of fund’s net assets) | Coupon (%) and maturity date
Securitized sector |
Federal National Mortgage Association |
pass-through certificates (5.2%) | 5.5%, 2036
Federal National Mortgage Association |
pass-through certificates (2.6%) | 5.5%, 2036
Structured Asset Investment Loan Trust |
floating-rate bonds (1.0%) | 5.118%, 2034
Credit sector |
Pemex Project Funding Master Trust company guaranty (0.6%) | 5.75%, 2015
VTB Capital SA 144A notes (Luxembourg) (0.5%) | 7.5%, 2011
Gazprom OAO 144A notes (Germany) (0.3%) | 9.625%, 2013
Government sector |
U.S. Treasury notes (5.4%) | 4.25%, 2013
U.S. Treasury notes (3.9%) | 3.25%, 2008
Ireland (Republic of) bonds (1.4%) | 5%, 2013

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the Fed’s continuing series of interest-rate increases and the fact that economic growth on the Continent has generally been slower than in the United States. Although the fund’s benchmark includes bonds from Italy, we avoided these, emphasizing bonds issued in Germany and France instead. In general, the fund has benefited from this strategy.

While the fund continues to deemphasize emerging-market securities, we added some emerging-market bonds during the period, believing them to be more attractive than high-yield corporate bonds. Over the period, the fund benefited from positions in higher-yielding issues from the Philippines, which we sold by period-end to take profits, and Brazil. However, our emphasis on more defensive, lower-yielding bonds from countries such as Mexico and Russia detracted from performance.

In the high-yield corporate bond portion of the portfolio, we continued to emphasize bonds from the energy sector, which has benefited from higher energy prices. These included holdings in Dynegy, a Houston-based power company that sold assets and took excess cash flow along with new financing in order to retire outstanding bonds at a significant premium. One high-yield bond position that detracted from results was the fund’s holdings in MedQuest. This medical diagnostic imaging firm was negatively affected by changes in Medicare reimbursement in the first quarter of 2006, and prices of its securities declined accordingly.

Additionally, we maintained the fund’s allocation in senior-secured bank loans. These floating-rate bank loans are issued by banks to corporations. The interest these loans pay adjusts to reflect changes in short-term interest rates. When rates rise, these securities pay a higher yield. Also, their “senior-secured” status means that they are backed by the assets of each issuing company, such as buildings and equipment. Although the floating-rate feature of these securities does not eliminate interest-rate or inflation risk, floating-rate bank loans can help an income-oriented portfolio weather the ups and downs of a full interest-rate cycle.

Please note that the holdings discussed in this report may not have been held by the fund for the entire period. Portfolio composition is subject to review in accordance with the fund’s investment strategy and may vary in the future.

Of special interest

Fund’s dividend reduced

Shortly after the beginning of the 2006 fiscal year, in November 2005, the fund reduced its dividend to $0.028 per share from $0.035 per share. This reduction reflected the fund’s short portfolio duration and its continued de-emphasis of high-yield bonds, which together have reduced the fund’s earning capacity but are expected to contribute to longer-term performance.

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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.

In the coming months, we believe that the Fed — even with its recent change in leadership — will continue to raise short-term interest rates beyond the market’s current expectations. In the near term, we expect steady economic growth and contained inflation pressure. Valuations in the credit markets, particularly in high-yield bonds, look high but sustainable at present. However, we continue to believe there is increased risk that long-term interest rates could rise sharply at some point, in light of the disappearing excess capacity in the U.S. economy and especially if the rebound in the Japanese economy continues. Over the near term, we will maintain a cautious stance, reflected in a portfolio with higher credit quality and a duration that is shorter than that of the fund’s benchmark. In our view, there is not enough reward available in the form of higher interest rates to make it worthwhile for the fund to take on additional credit or interest-rate risk. Going forward, we will continue to remain vigilant regarding any possible disruptions to the global economy and fixed-income markets, seeking to keep the fund positioned defensively while remaining diversified in a broad range of fixed-income sectors and securities.

The views expressed in this report are exclusively those of Putnam Management. They are not meant as investment advice.

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

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Your fund’s performance

This section shows your fund’s performance for periods ended March 31, 2006, the end of the first half of its current fiscal year. Performance should always be considered in light of a fund’s investment strategy. Data represents past performance. Past performance does not guarantee future results. More recent returns may be less or more than those shown. Investment return, net asset value, and market price will fluctuate, and you may have a gain or a loss when you sell your shares.

Fund performance |  |
Total return for periods ended 3/31/06 |  |
| NAV | Market price
Annual average |  |
Life of fund (since 4/29/88) | 7.74% | 6.43%
10 years | 86.60 | 84.84
Annual average | 6.44 | 6.34
5 years | 45.16 | 32.21
Annual average | 7.74 | 5.74
3 years | 29.32 | 16.63
Annual average | 8.95 | 5.26
1 year | 3.91 | -0.02
6 months | 1.30 | -1.05
Performance assumes reinvestment of distributions and does not account for taxes. |

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Comparative index returns |  |  |
For periods ended 3/31/06 |  |  |  |
|  | Lehman | Citigroup Non- |  | Lipper Flexible
|  | Government/ | U.S. World | JP Morgan | Income Funds
|  | Credit Bond | Government | Global High | (closed-end)
|  | Index | Bond Index | Yield Index | category average†
| Annual average |  |  |  |
| Life of fund (since 4/29/88) | 7.60% | 6.50% | —* | 7.92%
| 10 years | 84.49 | 56.39 | 98.41% | 87.75
| Annual average | 6.32 | 4.57 | 7.09 | 6.33
| 5 years | 29.04 | 49.03 | 54.36 | 44.20
| Annual average | 5.23 | 8.31 | 9.07 | 7.41
| 3 years | 8.72 | 16.11 | 41.37 | 29.72
| Annual average | 2.83 | 5.10 | 12.23 | 8.95
| 1 year | 2.02 | -6.48 | 7.18 | 5.07
| 6 months | -0.42 | -2.80 | 3.65 | 1.58
| Index and Lipper results should be compared to fund performance at net asset value. Lipper calculations for reinvested dividends
| may differ from actual performance. |  |  |  |
* | The inception date of the JP Morgan Global High Yield Index was 12/31/93. |  |
† | Over the 6-month, 1-, 3-, 5-, and 10-year periods ended 3/31/06, there were 8 funds in this Lipper category.
Fund price and distribution information |  |
For the six-month period ended 3/31/06 |  |  |
| Distributions* |  |  |  |
| Number |  |  | 6 |
| Income |  |  | $0.175000 |
| Capital gains |  |  | — |
| Total |  |  | $0.175000 |
| Share value: |  |  | NAV | Market price
| 9/30/05 |  |  | $7.07 | $6.25
| 3/31/06 |  |  | 6.96 | 6.01
| Current yield (end of period) |  |  |  |
| Current dividend rate1 |  |  | 4.83% | 5.59%

* Dividend sources are estimated and may vary based on final tax calculations after the fund’s fiscal year-end. |
1 Most recent distribution, excluding capital gains, annualized and divided by NAV or market price at end of period. |

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Your fund’s management

Your fund is managed by the members of the Putnam Core Fixed-Income and Core Fixed-Income High Yield teams. D. William Kohli is the Portfolio Leader. Rob Bloemker, Jeffrey Kaufman, Paul Scanlon, and David Waldman are Portfolio Members of the fund. The Portfolio Leader and Portfolio Members coordinate the team’s management of the fund.

For a complete listing of the members of the Putnam Core Fixed-Income and Core Fixed-Income High-Yield teams, including those who are not Portfolio Leaders or Portfolio Members of your fund, visit Putnam’s Individual Investor Web site at www.putnam.com.

Fund ownership by the Portfolio Leader and Portfolio Members

The table below shows how much the fund’s current Portfolio Leader and Portfolio Members have invested in the fund (in dollar ranges). Information shown is as of March 31, 2006, and March 31, 2005.

|  |  |  | $1 – | $10,001 – | $50,001 – | $100,001 – | $500,001 – | $1,000,001
| Year | $0 |  | $10,000 | $50,000 | $100,000 | $500,000 | $1,000,000 | and over
D. William Kohli | 2006 | * |  |  |  |  |  |  |
Portfolio Leader | 2005 | * |  |  |  |  |  |  |
Rob Bloemker | 2006 | * |  |  |  |  |  |  |
Portfolio Member | 2005 | * |  |  |  |  |  |  |
Jeffrey Kaufman | 2006 | * |  |  |  |  |  |  |
Portfolio Member | 2005 | * |  |  |  |  |  |  |
Paul Scanlon | 2006 | * |  |  |  |  |  |  |
Portfolio Member | 2005 | * |  |  |  |  |  |  |
David Waldman | 2006 | * |  |  |  |  |  |  |
Portfolio Member | 2005 | * |  |  |  |  |  |

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Fund manager compensation

The total 2005 fund manager compensation that is attributable to your fund is approximately $930,000. This amount includes a portion of 2005 compensation paid by Putnam Management to the fund managers listed in this section for their portfolio management responsibilities, calculated based on the fund assets they manage taken as a percentage of the total assets they manage. The compensation amount also includes a portion of the 2005 compensation paid to the Chief Investment Officer of the team and the Group Chief Investment Officer of the fund’s broader investment category for their oversight responsibilities, calculated based on the fund assets they oversee taken as a percentage of the total assets they oversee. This amount does not include compensation of other personnel involved in research, trading, administration, systems, compliance, or fund operations; nor does it include non-compensation costs. These percentages are determined as of the fund’s fiscal period-end. For personnel who joined Putnam Management during or after 2005, the calculation reflects annualized 2005 compensation or an estimate of 2006 compensation, as applicable.

Other Putnam funds managed by the Portfolio Leader and Portfolio Members

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

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

Jeffrey Kaufman is also a Portfolio Member of Putnam Diversified Income Trust and Putnam Premier Income Trust.

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

David Waldman is also a Portfolio Member of Putnam Diversified Income Trust and Putnam Premier Income Trust.

D. William Kohli, Rob Bloemker, Jeffrey Kaufman, Paul Scanlon, and David Waldman may also manage other accounts and variable trust funds advised by Putnam Management or an affiliate.

Changes in your fund’s Portfolio Leader and Portfolio Members

Your fund’s Portfolio Leader and Portfolio Members did not change during the year ended March 31, 2006.

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Fund ownership by Putnam’s Executive Board

The table below shows how much the members of Putnam’s Executive Board have invested in the fund (in dollar ranges). Information shown is as of March 31, 2006, and March 31, 2005.

|  |  | $1 – | $10,001 – | $50,001– | $100,001
| Year | $0 | $10,000 | $50,000 | $100,000 | and over
Philippe Bibi | 2006 | * |  |  |
Chief Technology Officer | 2005 | * |  |  |
Joshua Brooks | 2006 | * |  |  |
Deputy Head of Investments | 2005 | * |  |  |
William Connolly | 2006 | * |  |  |
Head of Retail Management | N/A |  |  |  |
Kevin Cronin | 2006 | * |  |  |
Head of Investments | 2005 | * |  |  |
Charles Haldeman, Jr. | 2006 |  | * |  |  |
President and CEO | 2005 |  | * |  |  |
Amrit Kanwal | 2006 | * |  |  |
Chief Financial Officer | 2005 | * |  |  |
Steven Krichmar | 2006 | * |  |  |
Chief of Operations | 2005 | * |  |  |
Francis McNamara, III | 2006 | * |  |  |
General Counsel | 2005 | * |  |  |
Richard Robie, III | 2006 | * |  |  |
Chief Administrative Officer | 2005 | * |  |  |
Edward Shadek | 2006 | * |  |  |
Deputy Head of Investments | 2005 | * |  |  |
Sandra Whiston | 2006 | * |  |  |
Head of Institutional Management | N/A |  |  |  |
N/A indicates the individual was not a member of Putnam’s Executive Board as of 3/31/05. |  |

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Terms and definitions

Important terms

Total return shows how the value of the fund’s shares changed over time, assuming you held
the shares through the entire period and reinvested all distributions in the fund.
Net asset value (NAV) is the value of all your fund’s assets, minus any liabilities, divided by the
number of outstanding shares.
Market price is the current trading price of one share of the fund. Market prices are set by
transactions between buyers and sellers on exchanges such as the American Stock Exchange
and the New York Stock Exchange.

Comparative indexes
Citigroup Non-U.S. World Government Bond Index is an unmanaged index of global
investment-grade fixed-income securities, excluding the United States.
JP Morgan Global Diversified Emerging Markets Bond Index is an unmanaged index of global
emerging-market fixed-income securities.
JP Morgan Global High Yield Index is an unmanaged index of global high-yield
fixed-income securities.
Lehman Government/Credit Bond Index is an unmanaged index of U.S. Treasuries, agency
securities, and investment-grade corporate bonds.
Morgan Stanley Capital International (MSCI) EAFE Index is an unmanaged index of equity
securities from developed countries in Western Europe, the Far East, and Australasia.
Russell 2000 Index is an unmanaged index of the 2,000 smallest companies in the
Russell 3000 Index.
S&P 500 Index is an unmanaged index of common stock performance.

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

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

18

Trustee approval of
management contract

General conclusions

The Board of Trustees of the Putnam funds oversees the management of each fund and, as required by law, determines annually whether to approve the continuance of your fund’s management contract with Putnam Management and its sub-management contract with Putnam Management’s affiliate, Putnam Investments Limited (“PIL”). In this regard, the Board of Trustees, with the assistance of its Contract Committee consisting solely of Trustees who are not “interested persons” (as such term is defined in the Investment Company Act of 1940, as amended) of the Putnam funds (the “Independent Trustees”), requests and evaluates all information it deems reasonably necessary under the circumstances. Over the course of several months beginning in March and ending in June 2005, the Contract Committee met five times to consider the information provided by Putnam Management and other information developed with the assistance of the Board’s independent counsel and independent staff. The Contract Committee reviewed and discussed key aspects of this information with all of the Independent Trustees. Upon completion of this review, the Contract Committee recommended and the Independent Trustees approved the continuance of your fund’s management contract and sub-management contract, effective July 1, 2005. Because PIL is an affiliate of Putnam Management and Putnam Management remains fully responsible for all services provided by PIL, the Trustees have not evaluated PIL as a separate entity and all subsequent references to Putnam Management below should be deemed to include reference to PIL as necessary or appropriate in the context.

This approval was based on the following conclusions:

- That the fee schedule currently in effect for your fund, subject to certain changes noted below, represents reasonable compensation in light of the nature and quality of the services being provided to the fund, the fees paid by competitive funds and the costs incurred by Putnam Management in providing such services, and
- That such fee schedule represents an appropriate sharing between fund shareholders and Putnam Management of such economies of scale as may exist in the management of the fund at current asset levels.

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

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Model fee schedules and categories; total expenses

The Trustees’ review of the management fees and total expenses of the Putnam funds focused on three major themes:

* Consistency.The Trustees, working in cooperation with Putnam Management, have developed and implemented a series of model fee schedules for the Putnam funds designed to ensure that each fund’s management fee is consistent with the fees for similar funds in the Putnam family of funds and compares favorably with fees paid by competitive funds sponsored by other investment advisors. Under this approach, each Putnam fund is assigned to one of several fee categories based on a combination of factors, including competitive fees and perceived difficulty of management, and a common fee schedule is implemented for all funds in a given fee category. The Trustees reviewed the model fee schedule then in effect for your fund, including fee levels and breakpoints, and the assignment of the fund to a particular fee category under this structure. (“Breakpoints” refer to reductions in fee rates that apply to additional assets once specified asset levels are reached.)

Since their inception, Putnam’s closed-end funds have generally had management fees that are higher than those of Putnam’s open-end funds pursuing comparable investment strategies. These differences ranged from five to 20 basis points. The Trustees have reexamined this matter and recommended that these differences be conformed to a uniform five basis points. At a meeting on January 13, 2006, the Trustees approved an amended management contract for your fund to memorialize the fee arrangements agreed to in June 2005. Under the new fee schedule, the fund pays a quarterly fee to Putnam Management at the following rates:

0.75% of the first $500 million of the fund’s average weekly assets (as described further
below under “Approval of Amended and Restated Management Contract in July 2005”);
0.65% of the next $500 million;
0.60% of the next $500 million;
0.55% of the next $5 billion;
0.525% of the next $5 billion;
0.505% of the next $5 billion;
0.49% of the next $5 billion;
0.48% of the next $5 billion;
0.47% of the next $5 billion;
0.46% of the next $5 billion;
0.45% of the next $5 billion;
0.44% of the next $5 billion;
0.43% of the next $5 billion; and
0.42% thereafter.

Based on net asset levels as of June 30, 2005, the new fee schedule for your fund will not change the management fees, as a percentage of the fund’s net assets, currently paid by common shareholders. The Trustees approved the new fee schedules for the funds effective as

20

of January 1, 2006, in order to provide Putnam Management an opportunity to accommodate the impact on revenues in its budget process for the coming year.

* Competitiveness. The Trustees also reviewed comparative fee and expense information for competitive funds, which indicated that, in a custom peer group of competitive funds selected by Lipper Inc., your fund ranked in the 67th percentile in management fees and in the 67th percentile in total expenses as of December 31, 2004 (the first percentile being the least expensive funds and the 100th percentile being the most expensive funds). The Trustees expressed their intention to monitor this information closely to ensure that fees and expenses of the Putnam funds continue to meet evolving competitive standards.

* Economies of scale. The Trustees concluded that the fee schedule then in effect for your fund, which as of January 1, 2006, reflects the changes noted above, represents an appropriate sharing of economies of scale at current asset levels. Your fund currently has the benefit of breakpoints in its management fee that provide shareholders with significant economies of scale, which means that the effective management fee rate of a fund (as a percentage of fund assets) declines as a fund grows in size and crosses specified asset thresholds. The Trustees examined the existing breakpoint structure of the Putnam funds’ management fees in light of competitive industry practices. The Trustees considered various possible modifications to the Putnam funds’ current breakpoint structure, but ultimately concluded that the current breakpoint structure continues to serve the interests of fund shareholders. Accordingly, the Trustees continue to believe that the fee schedules currently in effect for the funds, taking into account the changes noted above, represent an appropriate sharing of economies of scale at current asset levels.

In connection with their review of the management fees and total expenses of the Putnam funds, the Trustees also reviewed the costs of the services to be provided and profits to be realized by Putnam Management and its affiliates from the relationship with the funds. This information included trends in revenues, expenses and profitability of Putnam Management and its affiliates relating to the investment management and distribution services provided to the funds. In this regard, the Trustees also reviewed an analysis of Putnam Management’s revenues, expenses and profitability with respect to the funds’ management contracts, allocated on a fund-by-fund basis.

Investment performance

The quality of the investment process provided by Putnam Management represented a major factor in the Trustees’ evaluation of the quality of services provided by Putnam Management under your fund’s management contract. The Trustees were assisted in their review of the funds’ investment process and performance by the work of the Investment Oversight Committees of the Trustees, which meet on a regular monthly basis with the funds’ portfolio teams throughout the year. The Trustees concluded that Putnam Management generally provides a high-quality investment process — as measured by the experience and skills of the individuals assigned to the management of fund portfolios, the resources made available to such personnel, and in general

21

the ability of Putnam Management to attract and retain high-quality personnel — but also recognize that this does not guarantee favorable investment results for every fund in every time period. The Trustees considered the investment performance of each fund over multiple time periods and considered information comparing the fund’s performance with various benchmarks and with the performance of competitive funds. The Trustees noted the satisfactory investment performance of many Putnam funds. They also noted the disappointing investment performance of certain funds in recent years and continued to discuss with senior management of Putnam Management the factors contributing to such underperformance and actions being taken to improve performance. The Trustees recognized that, in recent years, Putnam Management has made significant changes in its investment personnel and processes and in the fund product line to address areas of underperformance. The Trustees indicated their intention to continue to monitor performance trends to assess the effectiveness of these changes and to evaluate whether additional remedial changes are warranted.

In the case of your fund, the Trustees considered that your fund’s common share cumulative total return performance at net asset value was in the following percentiles of its Lipper Inc. peer group (Lipper Flexible Income Funds (closed-end)) for the one-, three- and five-year periods ended December 31, 2004 (the first percentile being the best-performing funds and the 100th percentile being the worst-performing funds):

One-year period | Three-year period | Five-year period
55th | 55th | 55th

(Because of the passage of time, these performance results may differ from the performance results for more recent periods shown elsewhere in this report. Over the one-, three-, and five-year periods ended December 31, 2004, there were 10 funds in your fund’s Lipper peer group.* Past performance is no guarantee of future performance.)

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

* The percentile rankings for your fund’s common share annualized total return performance in the Lipper Flexible Income Funds (closed-end) category for the one-, five-, and ten-year periods ended March 31, 2006, were 78%, 45%, and 56%, respectively. Over the one-, five-, and ten-year periods ended March 31, 2006, the fund ranked 7th out of 8, 4th out of 8, and 5th out of 8 funds, respectively. Note that this more recent information was not available when the Trustees approved the continuance of your fund’s management contract.

22

Brokerage and soft-dollar allocations; other benefits

The Trustees considered various potential benefits that Putnam Management may receive in connection with the services it provides under the management contract with your fund. These include principally benefits related to brokerage and soft-dollar allocations, whereby a portion of the commissions paid by a fund for brokerage is earmarked to pay for research services that may be utilized by a fund’s investment advisor, subject to the obligation to seek best execution. The Trustees believe that soft-dollar credits and other potential benefits associated with the allocation of fund brokerage, which pertains mainly to funds investing in equity securities, represent assets of the funds that should be used for the benefit of fund shareholders. This area has been marked by significant change in recent years. In July 2003, acting upon the Contract Committee’s recommendation, the Trustees directed that allocations of brokerage to reward firms that sell fund shares be discontinued no later than December 31, 2003. In addition, commencing in 2004, the allocation of brokerage commissions by Putnam Management to acquire research services from third-party service providers has been significantly reduced, and continues at a modest level only to acquire research that is customarily not available for cash. The Trustees will continue to monitor the allocation of the funds’ brokerage to ensure that the principle of “best price and execution” remains paramount in the portfolio trading process.

The Trustees’ annual review of your fund’s management contract also included the review of your fund’s custodian and investor servicing agreements with Putnam Fiduciary Trust Company, which provide benefits to an affiliate of Putnam Management.

Comparison of retail and institutional fee schedules

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

23

Approval of amended and restated management contract in July 2005

In July 2005, the Trustees, including the Independent Trustees of your fund, approved an amendment to your fund’s management contract to take into account investment leverage in calculating management fees. The Trustees, including a majority of the Independent Trustees, have concluded that it would be in the best interest of your fund and its common shareholders to compensate Putnam Management on the basis of its “average weekly assets,” rather than its net assets. “Average weekly assets” is defined as the difference (as measured on a weekly basis) between the fund’s total assets (including assets attributable to leverage for investment purposes) and its total liabilities (excluding liabilities attributable to leverage for investment purposes). This formulation effectively allows for Putnam Management to receive management fees on leveraged assets. As your fund’s Agreement and Declaration of Trust prohibits the issuance of preferred shares, for all practical purposes the only form of investment leverage available would be borrowing. In the course of their evaluation, the Trustees considered the benefit to your fund from the additional investment management services that Putnam Management would perform in connection with a leveraged investment strategy, as well as the amount of compensation Putnam Management would receive under the proposed fee structure.

The Trustees noted that the proposed amendment would align the fee arrangements for your fund with those of other closed-end Putnam funds that currently engage in leverage for investment purposes. Furthermore, the Trustees were advised by Putnam Management that it is a customary and widespread practice in the closed-end fund industry to structure leveraged products in a manner that compensates advisors for their management of the assets acquired through leverage.

In evaluating the incentives and potential conflicts of interest created by an average weekly assets-based fee, the Trustees considered that the asset coverage restrictions under the 1940 Act, as well as other legal requirements, limit the extent to which a manager can expose a fund to additional risk through leverage. Furthermore, the Trustees considered the advantages of a management fee reduction mechanism that is included in the amended contract, which reduces the management fee dollar for dollar (subject to a specified maximum reduction) where the costs of carrying investment leverage outweigh the benefits (in terms of net income and short-term capital gains) to common shareholders from managing additional investment assets. In the event that your fund actually engages in leverage, the Trustees will have the opportunity, through regular reports from Putnam Management prepared in connection with the fee reduction mechanism described above, to continue monitoring the conflict of interest between Putnam Management and your fund.

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The Trustees approved the proposed changes to your fund’s management contract in principle at a meeting held on April 15, 2005, and further confirmed their approval in principle by written consent of a majority of the Trustees (including a majority of the Independent Trustees) dated May 18, 2005. Shareholders of your fund approved the amended and restated management contract at the fund’s annual meeting of shareholders on July 14, 2005. The Trustees confirmed their action by written consent at an in-person meeting as required under the 1940 Act prior to the execution of the amended management contract.

The Trustees also approved conforming changes to the sub-management contract between Putnam Management and PIL with respect to your fund, to provide for PIL’s fee to be calculated on the basis of the fund’s average weekly assets. The fee paid under the sub-management contract is paid by Putnam Management and not by your fund. Under the circumstances, the changes to the sub-management contract did not require shareholder approval.

25

Other information
for shareholders

Important notice regarding share repurchase program

In October 2005, the Trustees of your fund authorized Putnam Investments to implement a repurchase program on behalf of your fund, which would allow your fund to repurchase up to 5% of its outstanding shares over the 12 months ending October 6, 2006. In March 2006, the Trustees approved an expansion of this repurchase program to allow the fund to repurchase a total of up to 10% of its outstanding shares over the same period.

Important notice regarding delivery of shareholder documents

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

Proxy voting

Putnam is committed to managing our mutual funds in the best interests of our shareholders. The Putnam funds’ proxy voting guidelines and procedures, as well as information regarding how your fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2005, are available on the Putnam Individual Investor Web site, www.putnam.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

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.

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Financial statements

A guide to financial statements

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

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

Statement of assets and liabilities shows how the fund’s net assets and share price are determined. All investment and 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 liquidation preference of preferred shares.)

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

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

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

27

The fund’s portfolio 3/31/06 (Unaudited) |  |  |  |  |
CORPORATE BONDS AND NOTES (18.5%)* |  |  |  |  |
|  | Principal amount |  | Value
Basic Materials (1.4%) |  |  |  |  |
Chaparral Steel Co. company guaranty 10s, 2013 |  | $ | 486,000 | $ | 541,890
Cognis Holding GmbH & Co. 144A sr. notes 9 1/2s, |  |  |  |  |
2014 (Germany) | EUR |  | 265,000 |  | 364,098
Compass Minerals International, Inc. sr. disc. notes |  |  |  |  |
stepped-coupon Ser. B, zero % (12s, 6/1/08), 2013 †† |  | $ | 285,000 |  | 255,075
Compass Minerals International, Inc. sr. notes |  |  |  |  |
stepped-coupon zero % (12 3/4s, 12/15/07), 2012 †† |  |  | 775,000 |  | 716,875
Crystal US Holdings, LLC sr. disc. notes stepped-coupon |  |  |  |  |
Ser. A, zero % (10s, 10/1/09), 2014 †† |  |  | 345,000 |  | 269,100
Equistar Chemicals LP/Equistar Funding Corp. company |  |  |  |  |
guaranty 10 1/8s, 2008 |  |  | 581,000 |  | 617,313
Gerdau Ameristeel Corp. sr. notes 10 3/8s, 2011 (Canada) |  |  | 680,000 |  | 746,300
Huntsman, LLC company guaranty 11 5/8s, 2010 |  |  | 260,000 |  | 294,450
Huntsman, LLC company guaranty 11 1/2s, 2012 |  |  | 191,000 |  | 219,650
Innophos, Inc. company guaranty 8 7/8s, 2014 |  |  | 225,000 |  | 234,000
International Steel Group, Inc. sr. notes 6 1/2s, 2014 |  |  | 130,000 |  | 129,350
Jefferson Smurfit Corp. company guaranty 7 1/2s, 2013 |  |  | 120,000 |  | 112,800
JSG Holding PLC 144A sr. notes 11 1/2s, 2015 (Ireland) ‡‡ | EUR |  | 171,178 |  | 215,203
Lyondell Chemical Co. company guaranty 10 1/2s, 2013 |  | $ | 155,000 |  | 171,663
MDP Acquisitions PLC sr. notes 9 5/8s, 2012 (Ireland) |  |  | 235,000 |  | 248,513
MDP Acquisitions PLC sr. notes Ser. EUR, 10 1/8s, |  |  |  |  |
2012 (Ireland) | EUR |  | 440,000 |  | 592,827
Nalco Co. sr. sub. notes 9s, 2013 | EUR |  | 75,000 |  | 97,919
Nalco Co. sr. sub. notes 8 7/8s, 2013 |  | $ | 824,000 |  | 856,960
Novelis, Inc. 144A sr. notes 7 3/4s, 2015 |  |  | 805,000 |  | 772,800
PQ Corp. 144A company guaranty 7 1/2s, 2013 |  |  | 92,000 |  | 88,320
Rockwood Specialties Group, Inc. company guaranty |  |  |  |  |
7 5/8s, 2014 | EUR |  | 350,000 |  | 438,111
Steel Dynamics, Inc. company guaranty 9 1/2s, 2009 |  | $ | 695,000 |  | 722,800
Sterling Chemicals, Inc. sec. notes 10s, 2007 ‡‡ |  |  | 146,606 |  | 139,642
Stone Container Corp. sr. notes 9 3/4s, 2011 |  |  | 145,000 |  | 149,350
Stone Container Corp. sr. notes 8 3/8s, 2012 |  |  | 240,000 |  | 236,400
Stone Container Finance company guaranty 7 3/8s, |  |  |  |  |
2014 (Canada) |  |  | 140,000 |  | 130,200
United States Steel Corp. sr. notes 9 3/4s, 2010 |  |  | 324,000 |  | 349,920
|  |  |  |  | 9,711,529
Capital Goods (1.0%) |  |  |  |  |
Allied Waste North America, Inc. company |  |  |  |  |
guaranty Ser. B, 8 1/2s, 2008 |  |  | 732,000 |  | 764,940
BE Aerospace, Inc. sr. notes 8 1/2s, 2010 |  |  | 33,000 |  | 35,063
Blount, Inc. sr. sub. notes 8 7/8s, 2012 |  |  | 541,000 |  | 562,640
Browning-Ferris Industries, Inc. sr. notes 6 3/8s, 2008 |  |  | 73,000 |  | 73,000
Crown Euro Holdings SA company guaranty 6 1/4s, |  |  |  |  |
2011 (France) | EUR |  | 107,000 |  | 138,015

28

CORPORATE BONDS AND NOTES (18.5%)* continued |  |  |  |  |
|  |  | Principal amount |  | Value
Capital Goods continued |  |  |  |  |
Decrane Aircraft Holdings Co. company guaranty zero %, |  |  |  |  |
2008 (acquired 7/23/04, cost $323,523) ‡ |  | $ | 986,000 | $ | 650,760
L-3 Communications Corp. sr. sub. notes 5 7/8s, 2015 |  |  | 854,000 |  | 813,435
Manitowoc Co., Inc. (The) company guaranty 10 1/2s, 2012 |  |  | 55,000 |  | 60,225
Manitowoc Co., Inc. (The) company guaranty 10 3/8s, 2011 | EUR |  | 180,000 |  | 230,977
Manitowoc Co., Inc. (The) sr. notes 7 1/8s, 2013 |  | $ | 220,000 |  | 224,400
Milacron Escrow Corp. sec. notes 11 1/2s, 2011 |  |  | 123,000 |  | 112,545
Mueller Group, Inc. sr. sub. notes 10s, 2012 |  |  | 265,000 |  | 290,175
Owens-Brockway Glass company guaranty 7 3/4s, 2011 |  |  | 181,000 |  | 188,693
Owens-Brockway Glass sr. sec. notes 8 3/4s, 2012 |  |  | 877,000 |  | 938,390
Siebe PLC 144A sr. unsub. 6 1/2s, 2010 (United Kingdom) |  |  | 436,000 |  | 406,570
Terex Corp. company guaranty 9 1/4s, 2011 |  |  | 190,000 |  | 202,113
Terex Corp. company guaranty Ser. B, 10 3/8s, 2011 |  |  | 730,000 |  | 770,150
|  |  |  |  | 6,462,091
Communication Services (1.2%) |  |  |  |  |
Alamosa Delaware, Inc. company guaranty 12s, 2009 |  |  | 268,000 |  | 288,770
Alamosa Delaware, Inc. company guaranty 11s, 2010 |  |  | 332,000 |  | 368,427
American Cellular Corp. company guaranty 9 1/2s, 2009 |  |  | 195,000 |  | 201,825
Cincinnati Bell, Inc. company guaranty 7s, 2015 |  |  | 578,000 |  | 572,220
Cincinnati Bell, Inc. sr. sub. notes 8 3/8s, 2014 |  |  | 59,000 |  | 59,959
Citizens Communications Co. sr. notes 6 1/4s, 2013 |  |  | 1,711,000 |  | 1,663,948
Digicel, Ltd. 144A sr. notes 9 1/4s, 2012 (Jamaica) |  |  | 325,000 |  | 343,688
Inmarsat Finance PLC company guaranty 7 5/8s, 2012 |  |  |  |  |
(United Kingdom) |  |  | 335,000 |  | 343,375
Inmarsat Finance PLC company guaranty stepped-coupon |  |  |  |  |
zero % (10 3/8s, 10/15/08), 2012 (United Kingdom) †† |  |  | 754,000 |  | 640,900
iPCS, Inc. sr. notes 11 1/2s, 2012 |  |  | 300,000 |  | 342,000
IWO Holdings, Inc. sec. FRN 8.8s, 2012 |  |  | 82,000 |  | 85,383
Qwest Communications International, Inc. company guaranty |  |  |  |  |
7 1/2s, 2014 |  |  | 428,000 |  | 440,840
Qwest Corp. notes 8 7/8s, 2012 |  |  | 1,501,000 |  | 1,677,368
Qwest Corp. sr. notes 7 5/8s, 2015 |  |  | 409,000 |  | 437,630
Rogers Cantel, Inc. debs. 9 3/4s, 2016 (Canada) |  |  | 164,000 |  | 200,080
Rural Cellular Corp. sr. sub. notes 9 3/4s, 2010 |  |  | 75,000 |  | 76,125
SBA Communications Corp. sr. notes 8 1/2s, 2012 |  |  | 148,000 |  | 164,280
SBA Telecommunications, Inc./SBA Communications Corp. |  |  |  |  |
sr. disc. notes stepped-coupon zero % (9 3/4s, |  |  |  |  |
12/15/07), 2011 †† |  |  | 208,000 |  | 198,640
|  |  |  |  | 8,105,458
Consumer Cyclicals (3.8%) |  |  |  |  |
ArvinMeritor, Inc. notes 8 3/4s, 2012 |  |  | 285,000 |  | 280,725
Autonation, Inc. company guaranty 9s, 2008 |  |  | 885,000 |  | 955,800
Boyd Gaming Corp. sr. sub. notes 8 3/4s, 2012 |  |  | 585,000 |  | 621,563
Boyd Gaming Corp. sr. sub. notes 7 3/4s, 2012 |  |  | 165,000 |  | 172,838
Boyd Gaming Corp. sr. sub. notes 6 3/4s, 2014 |  |  | 134,000 |  | 133,665
CanWest Media, Inc. company guaranty 8s, 2012 (Canada) |  |  | 454,021 |  | 465,372

29

CORPORATE BONDS AND NOTES (18.5%)* continued |  |  |  |
|  | Principal amount |  | Value
Consumer Cyclicals continued |  |  |  |
Dex Media West, LLC/Dex Media Finance Co. sr. notes |  |  |  |
Ser. B, 8 1/2s, 2010 | $ | 605,000 | $ | 639,788
Dex Media, Inc. notes 8s, 2013 |  | 182,000 |  | 187,460
FelCor Lodging LP company guaranty 9s, 2008 (R) |  | 515,000 |  | 563,925
General Motors Acceptance Corp. FRN 5.55s, 2007 |  | 350,000 |  | 339,864
General Motors Acceptance Corp. FRN Ser. MTN, 5.62s, 2007 |  | 695,000 |  | 680,807
General Motors Acceptance Corp. notes 7 3/4s, 2010 |  | 90,000 |  | 87,751
General Motors Acceptance Corp. notes 6 7/8s, 2012 |  | 90,000 |  | 83,026
General Motors Acceptance Corp. notes 6 3/4s, 2014 |  | 59,000 |  | 53,112
Goodyear Tire & Rubber Co. (The) notes 7.857s, 2011 |  | 1,075,000 |  | 1,050,813
HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 (R) |  | 185,000 |  | 186,388
Host Marriott LP sr. notes Ser. M, 7s, 2012 (R) |  | 725,000 |  | 740,406
Jostens IH Corp. company guaranty 7 5/8s, 2012 |  | 718,000 |  | 709,025
K. Hovnanian Enterprises, Inc. company guaranty 8 7/8s, 2012 |  | 600,000 |  | 627,000
K. Hovnanian Enterprises, Inc. sr. notes 6 1/2s, 2014 |  | 295,000 |  | 276,621
Levi Strauss & Co. sr. notes 9 3/4s, 2015 |  | 651,000 |  | 685,178
Levi Strauss & Co. 144A sr. notes 8 7/8s, 2016 |  | 285,000 |  | 285,713
MeriStar Hospitality Corp. company guaranty 9 1/8s, 2011 (R) |  | 418,000 |  | 483,835
Meritage Homes Corp. company guaranty 6 1/4s, 2015 |  | 235,000 |  | 207,975
Meritor Automotive, Inc. notes 6.8s, 2009 |  | 71,000 |  | 71,000
MGM Mirage, Inc. company guaranty 8 1/2s, 2010 |  | 468,000 |  | 500,760
MGM Mirage, Inc. company guaranty 6s, 2009 |  | 1,009,000 |  | 993,865
Movie Gallery, Inc. sr. unsecd. notes 11s, 2012 |  | 190,000 |  | 94,050
Owens Corning notes 7 1/2s, 2006 (In default) † |  | 534,000 |  | 427,200
Oxford Industries, Inc. sr. notes 8 7/8s, 2011 |  | 460,000 |  | 473,800
Park Place Entertainment Corp. sr. notes 7s, 2013 |  | 495,000 |  | 515,569
Park Place Entertainment Corp. sr. sub. notes 7 7/8s, 2010 |  | 395,000 |  | 419,688
Pinnacle Entertainment, Inc. sr. sub. notes 8 1/4s, 2012 |  | 247,000 |  | 258,733
PRIMEDIA, Inc. sr. notes 8s, 2013 |  | 688,000 |  | 629,520
R.H. Donnelley Corp. sr. notes 6 7/8s, 2013 |  | 268,000 |  | 250,580
R.H. Donnelley Corp. 144A sr. disc. notes Ser. A-2, |  |  |  |
6 7/8s, 2013 |  | 67,000 |  | 62,645
Reader’s Digest Association, Inc. (The) sr. notes 6 1/2s, 2011 |  | 365,000 |  | 364,088
Resorts International Hotel and Casino, Inc. company guaranty |  |  |  |
11 1/2s, 2009 |  | 450,000 |  | 493,875
Russell Corp. company guaranty 9 1/4s, 2010 |  | 466,000 |  | 484,640
Scientific Games Corp. company guaranty 6 1/4s, 2012 |  | 626,000 |  | 612,698
Sealy Mattress Co. sr. sub. notes 8 1/4s, 2014 |  | 735,000 |  | 768,075
Standard Pacific Corp. sr. notes 7 3/4s, 2013 |  | 420,000 |  | 410,025
Starwood Hotels & Resorts Worldwide, Inc. company |  |  |  |
guaranty 7 7/8s, 2012 |  | 560,000 |  | 609,000
Starwood Hotels & Resorts Worldwide, Inc. company |  |  |  |
guaranty 7 3/8s, 2007 |  | 390,000 |  | 396,825
Starwood Hotels & Resorts Worldwide, Inc. |  |  |  |
debs. 7 3/8s, 2015 |  | 520,000 |  | 561,600
Station Casinos, Inc. sr. notes 6s, 2012 |  | 470,000 |  | 463,538
Tenneco Automotive, Inc. company guaranty 8 5/8s, 2014 |  | 420,000 |  | 420,000
Tenneco Automotive, Inc. sec. notes Ser. B, 10 1/4s, 2013 |  | 436,000 |  | 483,960
Texas Industries, Inc. sr. unsecd. notes 7 1/4s, 2013 |  | 161,000 |  | 165,830

30

CORPORATE BONDS AND NOTES (18.5%)* continued |  |  |  |
|  | Principal amount |  | Value
Consumer Cyclicals continued |  |  |  |
THL Buildco, Inc. (Nortek Holdings, Inc.) sr. sub. notes |  |  |  |
8 1/2s, 2014 | $ | 604,000 | $ | 614,570
Trump Entertainment Resorts, Inc. sec. notes 8 1/2s, 2015 |  | 117,000 |  | 113,783
United Auto Group, Inc. company guaranty 9 5/8s, 2012 |  | 515,000 |  | 545,256
Vertis, Inc. company guaranty Ser. B, 10 7/8s, 2009 |  | 736,000 |  | 723,120
Vertis, Inc. 144A sub. notes 13 1/2s, 2009 |  | 730,000 |  | 585,825
WCI Communities, Inc. company guaranty 9 1/8s, 2012 |  | 810,000 |  | 824,175
Wynn Las Vegas, LLC/Wynn Las Vegas Capital Corp. 1st mtge. |  |  |  |
6 5/8s, 2014 |  | 555,000 |  | 539,044
|  |  |  | 25,395,987
Consumer Staples (2.8%) |  |  |  |
Affinity Group, Inc. sr. sub. notes 9s, 2012 |  | 545,000 |  | 547,725
AMC Entertainment, Inc. sr. sub. notes 8s, 2014 |  | 456,000 |  | 406,980
Archibald Candy Corp. company guaranty 10s, 2007 |  |  |  |
(In default) (F) † |  | 90,153 |  | 4,711
Ashtead Holdings PLC 144A sr. notes 8 5/8s, 2015 |  |  |  |
(United Kingdom) |  | 210,000 |  | 218,400
Brand Services, Inc. company guaranty 12s, 2012 |  | 565,000 |  | 605,963
Cablevision Systems Corp. sr. notes Ser. B, 8s, 2012 |  | 167,000 |  | 162,825
CCH I Holdings LLC company guaranty stepped-coupon |  |  |  |
zero %, 2015 |  | 49,000 |  | 21,560
CCH I LLC secd. notes 11s, 2015 |  | 1,347,000 |  | 1,119,694
Charter Communications Holdings II 144A sr. notes |  |  |  |
10 1/4s, 2010 |  | 259,000 |  | 253,820
Charter Communications Holdings, LLC/Capital Corp. |  |  |  |
sr. notes 10 1/4s, 2010 |  | 86,000 |  | 84,495
Church & Dwight Co., Inc. company guaranty 6s, 2012 |  | 444,000 |  | 436,785
Cinemark USA, Inc. sr. sub. notes 9s, 2013 |  | 30,000 |  | 31,875
Cinemark, Inc. sr. disc. notes stepped-coupon zero % |  |  |  |
(9 3/4s, 3/15/07), 2014 †† |  | 990,000 |  | 757,350
Constellation Brands, Inc. company guaranty Ser. B, 8s, 2008 |  | 825,000 |  | 853,875
Constellation Brands, Inc. sr. sub. notes Ser. B, 8 1/8s, 2012 |  | 425,000 |  | 446,781
CSC Holdings, Inc. sr. notes Ser. B, 7 5/8s, 2011 |  | 595,000 |  | 597,975
CSC Holdings, Inc. 144A sr. notes 7 1/4s, 2012 |  | 1,068,000 |  | 1,043,970
Dean Foods Co. sr. notes 6 5/8s, 2009 |  | 918,000 |  | 927,180
Del Monte Corp. company guaranty 6 3/4s, 2015 |  | 320,000 |  | 312,000
Del Monte Corp. sr. sub. notes 8 5/8s, 2012 |  | 560,000 |  | 591,500
DirecTV Holdings, LLC company guaranty 6 3/8s, 2015 |  | 1,026,000 |  | 1,013,175
Echostar DBS Corp. company guaranty 6 5/8s, 2014 |  | 2,119,000 |  | 2,047,484
Interpublic Group of Companies, Inc. notes 6 1/4s, 2014 |  | 118,000 |  | 100,300
Jean Coutu Group, Inc. sr. notes 7 5/8s, 2012 (Canada) |  | 509,000 |  | 495,003
Jean Coutu Group, Inc. sr. sub. notes 8 1/2s, 2014 (Canada) |  | 251,000 |  | 230,293
Pinnacle Foods Holding Corp. sr. sub. notes 8 1/4s, 2013 |  | 741,000 |  | 733,590
Playtex Products, Inc. company guaranty 9 3/8s, 2011 |  | 266,000 |  | 277,970
Playtex Products, Inc. sec. notes 8s, 2011 |  | 770,000 |  | 814,275
Prestige Brands, Inc. sr. sub. notes 9 1/4s, 2012 |  | 450,000 |  | 454,500
Rainbow National Services, LLC 144A sr. notes 8 3/4s, 2012 |  | 482,000 |  | 513,330
Remington Arms Co., Inc. company guaranty 10 1/2s, 2011 |  | 735,000 |  | 606,375

31

CORPORATE BONDS AND NOTES (18.5%)* continued |  |  |  |
|  | Principal amount |  | Value
Consumer Staples continued |  |  |  |
Sbarro, Inc. company guaranty 11s, 2009 | $ | 726,000 | $ | 738,705
Scotts Co. (The) sr. sub. notes 6 5/8s, 2013 |  | 255,000 |  | 256,275
Six Flags, Inc. sr. notes 9 5/8s, 2014 |  | 370,000 |  | 372,775
Young Broadcasting, Inc. company guaranty 10s, 2011 |  | 431,000 |  | 397,598
Young Broadcasting, Inc. sr. sub. notes 8 3/4s, 2014 |  | 365,000 |  | 312,075
|  |  |  | 18,789,187
Energy (3.5%) |  |  |  |
Arch Western Finance, LLC sr. notes 6 3/4s, 2013 |  | 1,347,000 |  | 1,336,898
Bluewater Finance, Ltd. company guaranty 10 1/4s, |  |  |  |
2012 (Cayman Islands) |  | 487,000 |  | 511,350
CHC Helicopter Corp. sr. sub. notes 7 3/8s, 2014 (Canada) |  | 812,000 |  | 828,240
Chesapeake Energy Corp. company guaranty 7 3/4s, 2015 |  | 269,000 |  | 281,105
Chesapeake Energy Corp. sr. notes 7 1/2s, 2013 |  | 1,031,000 |  | 1,077,395
Chesapeake Energy Corp. sr. notes 7s, 2014 |  | 279,000 |  | 285,278
Comstock Resources, Inc. sr. notes 6 7/8s, 2012 |  | 510,000 |  | 502,350
Dresser, Inc. company guaranty 9 3/8s, 2011 |  | 696,000 |  | 729,060
EXCO Resources, Inc. company guaranty 7 1/4s, 2011 |  | 725,000 |  | 721,375
Forest Oil Corp. company guaranty 7 3/4s, 2014 |  | 108,000 |  | 111,240
Forest Oil Corp. sr. notes 8s, 2011 |  | 540,000 |  | 580,500
Forest Oil Corp. sr. notes 8s, 2008 |  | 335,000 |  | 347,981
Gazprom OAO 144A notes 9 5/8s, 2013 (Germany) |  | 1,860,000 |  | 2,199,450
Harvest Operations Corp. sr. notes 7 7/8s, 2011 (Canada) |  | 584,000 |  | 572,320
Hornbeck Offshore Services, Inc. sr. notes Ser. B, 6 1/8s, 2014 |  | 517,000 |  | 496,320
Massey Energy Co. sr. notes 6 5/8s, 2010 |  | 774,000 |  | 787,545
Newfield Exploration Co. sr. notes 7 5/8s, 2011 |  | 700,000 |  | 743,750
Newfield Exploration Co. sr. sub. notes 6 5/8s, 2014 |  | 348,000 |  | 348,870
Offshore Logistics, Inc. company guaranty 6 1/8s, 2013 |  | 655,000 |  | 615,700
Oslo Seismic Services, Inc. 1st mtge. 8.28s, 2011 |  | 490,858 |  | 498,413
Pacific Energy Partners/Pacific Energy Finance Corp. sr. notes |  |  |  |
7 1/8s, 2014 |  | 355,000 |  | 361,213
Pemex Finance, Ltd. bonds 9.69s, 2009 (Cayman Islands) |  | 710,500 |  | 762,374
Pemex Project Funding Master Trust company guaranty |  |  |  |
5 3/4s, 2015 |  | 4,060,000 |  | 3,887,450
Pemex Project Funding Master Trust 144A company guaranty |  |  |  |
5 3/4s, 2015 |  | 1,778,000 |  | 1,702,435
Pioneer Natural Resources Co. company guaranty 6 1/2s, 2008 |  | 115,000 |  | 116,245
Plains Exploration & Production Co. sr. notes 7 1/8s, 2014 |  | 620,000 |  | 637,050
Plains Exploration & Production Co. sr. sub. notes |  |  |  |
8 3/4s, 2012 |  | 485,000 |  | 517,738
Pogo Producing Co. sr. sub. notes Ser. B, 8 1/4s, 2011 |  | 670,000 |  | 697,638
Pride International, Inc. sr. notes 7 3/8s, 2014 |  | 826,000 |  | 867,300
Seabulk International, Inc. company guaranty 9 1/2s, 2013 |  | 600,000 |  | 666,000
Star Gas Partners LP/Star Gas Finance Co. sr. notes |  |  |  |
10 1/4s, 2013 |  | 113,000 |  | 116,955
|  |  |  | 23,907,538

32

CORPORATE BONDS AND NOTES (18.5%)* continued |  |  |  |
|  | Principal amount |  | Value
Financial (1.0%) |  |  |  |
Bosphorus Financial Services, Ltd. 144A sec. FRN 6.549s, |  |  |  |
2012 (Cayman Islands) | $ | 1,445,000 | $ | 1,455,710
Crescent Real Estate Equities LP notes 7 1/2s, 2007 (R) |  | 310,000 |  | 314,263
Finova Group, Inc. notes 7 1/2s, 2009 |  | 474,100 |  | 157,638
UBS Luxembourg SA for Sberbank sub. notes 6.23s, 2015 |  |  |  |
(Luxembourg) |  | 1,400,000 |  | 1,389,500
VTB Capital SA 144A notes 7 1/2s, 2011 (Luxembourg) |  | 3,010,000 |  | 3,183,075
Western Financial Bank sub. debs. 9 5/8s, 2012 |  | 235,000 |  | 262,613
|  |  |  | 6,762,799
Health Care (1.5%) |  |  |  |
Community Health Systems, Inc. sr. sub. notes 6 1/2s, 2012 |  | 183,000 |  | 177,281
Coventry Health Care, Inc. sr. notes 5 7/8s, 2012 |  | 320,000 |  | 316,800
DaVita, Inc. company guaranty 7 1/4s, 2015 |  | 345,000 |  | 346,725
DaVita, Inc. company guaranty 6 5/8s, 2013 |  | 175,000 |  | 174,563
Extendicare Health Services, Inc. |  |  |  |
sr. sub. notes 6 7/8s, 2014 |  | 312,000 |  | 321,360
HCA, Inc. debs. 7.19s, 2015 |  | 51,000 |  | 52,014
HCA, Inc. notes 6 3/8s, 2015 |  | 212,000 |  | 206,334
HCA, Inc. notes 6 1/4s, 2013 |  | 550,000 |  | 533,515
HCA, Inc. notes 5 3/4s, 2014 |  | 260,000 |  | 243,260
MedQuest, Inc. company guaranty Ser. B, 11 7/8s, 2012 |  | 595,000 |  | 455,175
MQ Associates, Inc. sr. disc. notes stepped-coupon |  |  |  |
zero % (12 1/4s, 8/15/08), 2012 †† |  | 669,000 |  | 187,320
Omnicare, Inc. sr. sub. notes 6 1/8s, 2013 |  | 740,000 |  | 710,400
Service Corp. International notes 6 1/2s, 2008 |  | 110,000 |  | 110,550
Service Corp. International notes Ser. *, 7.7s, 2009 |  | 270,000 |  | 278,775
Service Corp. International 144A sr. notes 7 1/4s, 2017 |  | 170,000 |  | 172,975
Service Corp. International 144A sr. notes 6 3/4s, 2016 |  | 535,000 |  | 529,650
Stewart Enterprises, Inc. 144A sr. notes 7 1/4s, 2013 |  | 724,000 |  | 695,040
Tenet Healthcare Corp. notes 7 3/8s, 2013 |  | 390,000 |  | 355,875
Tenet Healthcare Corp. sr. notes 9 7/8s, 2014 |  | 835,000 |  | 845,438
Triad Hospitals, Inc. sr. notes 7s, 2012 |  | 825,000 |  | 825,000
Triad Hospitals, Inc. sr. sub. notes 7s, 2013 |  | 211,000 |  | 207,835
Universal Hospital Services, Inc. sr. notes 10 1/8s, |  |  |  |
2011 (Canada) |  | 840,000 |  | 871,500
US Oncology, Inc. company guaranty 9s, 2012 |  | 420,000 |  | 434,700
Vanguard Health Holding Co. II, LLC sr. sub. notes 9s, 2014 |  | 556,000 |  | 568,510
Ventas Realty LP/Capital Corp. company guaranty 9s, 2012 (R) |  | 305,000 |  | 342,363
Ventas Realty LP/Capital Corp. company guaranty |  |  |  |
6 3/4s, 2010 (R) |  | 201,000 |  | 203,010
Ventas Realty LP/Capital Corp. sr. notes 6 5/8s, 2014 (R) |  | 173,000 |  | 173,000
|  |  |  | 10,338,968
Technology (0.5%) |  |  |  |
Advanced Micro Devices, Inc. sr. notes 7 3/4s, 2012 |  | 334,000 |  | 349,448
Freescale Semiconductor, Inc. sr. notes Ser. B, 7 1/8s, 2014 |  | 1,229,000 |  | 1,275,088
Iron Mountain, Inc. company guaranty 8 5/8s, 2013 |  | 700,000 |  | 730,625

33

CORPORATE BONDS AND NOTES (18.5%)* continued |  |  |  |  |
|  |  | Principal amount |  | Value
Technology continued |  |  |  |  |
New ASAT Finance, Ltd. company guaranty 9 1/4s, 2011 |  |  |  |  |
(Cayman Islands) |  | $ | 13,000 | $ | 11,083
SunGard Data Systems, Inc. 144A sr. unsecd. notes |  |  |  |  |
9 1/8s, 2013 |  |  | 340,000 |  | 359,550
Xerox Corp. sr. notes 9 3/4s, 2009 | EUR |  | 195,000 |  | 272,168
Xerox Corp. sr. notes 7 5/8s, 2013 |  | $ | 623,000 |  | 655,708
|  |  |  |  | 3,653,670
Transportation (0.1%) |  |  |  |  |
Calair, LLC/Calair Capital Corp. company guaranty |  |  |  |  |
8 1/8s, 2008 |  |  | 760,000 |  | 716,300
Utilities & Power (1.7%) |  |  |  |  |
AES Corp. (The) sr. notes 8 7/8s, 2011 |  |  | 54,000 |  | 58,320
AES Corp. (The) sr. notes 8 3/4s, 2008 |  |  | 30,000 |  | 31,275
AES Corp. (The) 144A sec. notes 8 3/4s, 2013 |  |  | 460,000 |  | 493,925
Centrais Electricas Brasileirass SA 144A sr. notes 7 3/4s, |  |  |  |  |
2015 (Brazil) |  |  | 609,000 |  | 640,973
CMS Energy Corp. sr. notes 8.9s, 2008 |  |  | 600,000 |  | 637,500
CMS Energy Corp. sr. notes 7 3/4s, 2010 |  |  | 180,000 |  | 188,550
Colorado Interstate Gas Co. sr. notes 5.95s, 2015 |  |  | 174,000 |  | 166,986
DPL, Inc. sr. notes 6 7/8s, 2011 |  |  | 457,000 |  | 476,562
Dynegy Holdings, Inc. 144A sec. notes 10 1/8s, 2013 |  |  | 872,000 |  | 999,050
El Paso Corp. notes 6 3/8s, 2009 |  |  | 200,000 |  | 197,750
El Paso Natural Gas Co. sr. notes Ser. A, 7 5/8s, 2010 |  |  | 365,000 |  | 378,688
El Paso Production Holding Co. company guaranty |  |  |  |  |
7 3/4s, 2013 |  |  | 993,000 |  | 1,028,996
Ferrellgas LP/Finance sr. notes 6 3/4s, 2014 |  |  | 520,000 |  | 500,500
Mission Energy Holding Co. sec. notes 13 1/2s, 2008 |  |  | 749,000 |  | 859,478
Monongahela Power Co. 1st mtge. 6.7s, 2014 |  |  | 400,000 |  | 421,752
National Power Corp. FRN 9.024s, 2011 (Philippines) |  |  | 900,000 |  | 992,790
National Power Corp. 144A foreign government guaranty |  |  |  |  |
FRN 9.024s, 2011 (Philippines) |  |  | 195,000 |  | 215,105
Northwestern Corp. sec. notes 5 7/8s, 2014 |  |  | 319,000 |  | 314,204
Orion Power Holdings, Inc. sr. notes 12s, 2010 |  |  | 655,000 |  | 738,513
SEMCO Energy, Inc. sr. notes 7 3/4s, 2013 |  |  | 517,000 |  | 535,825
Teco Energy, Inc. notes 7.2s, 2011 |  |  | 185,000 |  | 192,863
Teco Energy, Inc. notes 7s, 2012 |  |  | 280,000 |  | 289,450
Teco Energy, Inc. sr. notes 6 3/4s, 2015 |  |  | 32,000 |  | 32,880
Utilicorp Canada Finance Corp. company |  |  |  |  |
guaranty 7 3/4s, 2011 (Canada) |  |  | 612,000 |  | 631,890
Utilicorp United, Inc. sr. notes 9.95s, 2011 |  |  | 361,000 |  | 399,808
Williams Cos., Inc. (The) notes 8 1/8s, 2012 |  |  | 150,000 |  | 161,063
Williams Cos., Inc. (The) 144A notes 6 3/8s, 2010 |  |  | 172,000 |  | 170,280
York Power Funding 144A notes 12s, 2007 |  |  |  |  |
(Cayman Islands) (In default) (F) † |  |  | 203,730 |  | 16,991
|  |  |  |  | 11,771,967
Total corporate bonds and notes (cost $124,911,371) |  |  |  | $ | 125,615,494

34

ASSET-BACKED SECURITIES (13.2%)* |  |  |  |
|  | Principal amount |  | Value
ABSC NIMS Trust 144A Ser. 03-HE5, Class A, 7s, 2033 | $ | 53,385 | $ | 52,851
Aegis Asset Backed Securities Trust 144A Ser. 04-2N, |  |  |  |
Class N1, 4 1/2s, 2034 |  | 11,710 |  | 11,671
Americredit Automobile Receivables Trust 144A |  |  |  |
Ser. 05-1, Class E, 5.82s, 2012 |  | 607,235 |  | 605,292
Ameriquest Finance NIM Trust 144A Ser. 04-RN9, |  |  |  |
Class N2, 10s, 2034 (Cayman Islands) |  | 302,000 |  | 280,860
Arcap REIT, Inc. 144A |  |  |  |
Ser. 03-1A, Class E, 7.11s, 2038 |  | 383,000 |  | 385,074
Ser. 04-1A, Class E, 6.42s, 2039 |  | 361,000 |  | 353,156
Asset Backed Funding Corp. NIM Trust 144A |  |  |  |
Ser. 04-0PT5, Class N1, 4.45s, 2034 (Cayman Islands) |  | 23,867 |  | 23,805
Ser. 04-FF1, Class N1, 5s, 2034 (Cayman Islands) |  | 8,771 |  | 8,758
Asset Backed Securities Corp. Home Equity |  |  |  |
Loan Trust 144A |  |  |  |
FRB Ser. 06-HE2, Class M10, 7.309s, 2036 |  | 509,000 |  | 439,797
FRB Ser. 06-HE2, Class M11, 7.309s, 2036 |  | 450,000 |  | 358,956
Aviation Capital Group Trust 144A FRB Ser. 03-2A, |  |  |  |
Class G1, 5.476s, 2033 |  | 288,003 |  | 288,430
Bank One Issuance Trust FRB Ser. 03-C4, Class C4, |  |  |  |
5.779s, 2011 |  | 340,000 |  | 346,415
Bayview Financial Asset Trust 144A Ser. 03-X, Class A, |  |  |  |
Interest Only (IO), 0.61s, 2006 |  | 3,505,311 |  | 12,050
Bear Stearns Alternate Trust Ser. 05-5, Class 21A1, |  |  |  |
4.685s, 2035 |  | 1,488,643 |  | 1,470,833
Bear Stearns Asset Backed Securities NIM Trust 144A |  |  |  |
Ser. 04-HE10, Class A1, 4 1/4s, 2034 (Cayman Islands) |  | 38,057 |  | 37,796
Ser. 04-HE6, Class A1, 5 1/4s, 2034 (Cayman Islands) |  | 36,058 |  | 36,007
Ser. 04-HE7N, Class A1, 5 1/4s, 2034 |  | 30,067 |  | 30,025
Bear Stearns Asset Backed Securities, Inc. |  |  |  |
Ser. 04-FR3, Class M6, 8.068s, 2034 |  | 286,000 |  | 286,715
FRB Ser. 06-PC1, Class M9, 6.568s, 2035 |  | 185,000 |  | 148,694
Bombardier Capital Mortgage Securitization Corp. |  |  |  |
Ser. 00-A, Class A2, 7.575s, 2030 |  | 161,878 |  | 108,628
Ser. 00-A, Class A4, 8.29s, 2030 |  | 591,424 |  | 425,825
Ser. 99-B, Class A3, 7.18s, 2015 |  | 1,116,664 |  | 720,248
Ser. 99-B, Class A4, 7.3s, 2016 |  | 760,057 |  | 520,196
FRB Ser. 00-A, Class A1, 4.909s, 2030 |  | 170,121 |  | 85,061
Broadhollow Funding, LLC 144A FRB Ser. 04-A, Class Sub, |  |  |  |
6.57s, 2009 |  | 598,000 |  | 604,937
Capital Auto Receivables Asset Trust 144A Ser. 06-1, |  |  |  |
Class D, 7.39s, 2013 |  | 500,000 |  | 495,703
CARSSX Finance, Ltd. 144A |  |  |  |
FRB Ser. 04-AA, Class B3, 8.099s, 2011 (Cayman Islands) |  | 34,922 |  | 35,821
FRB Ser. 04-AA, Class B4, 10.249s, 2011 (Cayman Islands) |  | 180,214 |  | 189,405
Chase Credit Card Master Trust FRB Ser. 03-3, Class C, |  |  |  |
5.829s, 2010 |  | 350,000 |  | 355,705

35

ASSET-BACKED SECURITIES (13.2%)* continued |  |  |  |
|  | Principal amount |  | Value
CHEC NIM Ltd., 144A |  |  |  |
Ser. 04-2, Class N1, 4.45s, 2034 (Cayman Islands) | $ | 8,164 | $ | 8,151
Ser. 04-2, Class N2, 8s, 2034 (Cayman Islands) |  | 94,000 |  | 93,157
Ser. 04-2, Class N3, 8s, 2034 (Cayman Islands) |  | 58,000 |  | 52,820
Citigroup Mortgage Loan Trust, Inc. |  |  |  |
FRB Ser. 05-HE4, Class M11, 7.318s, 2035 |  | 304,000 |  | 249,043
FRB Ser. 05-HE4, Class M12, 6.868s, 2035 |  | 457,000 |  | 358,459
FRB Ser. 06-WMC1, Class M10, 8.318s, 2035 |  | 90,000 |  | 79,738
Conseco Finance Securitizations Corp. |  |  |  |
Ser. 00-1, Class A5, 8.06s, 2031 |  | 1,180,000 |  | 1,025,681
Ser. 00-2, Class A4, 8.48s, 2030 |  | 115,912 |  | 115,221
Ser. 00-4, Class A4, 7.73s, 2031 |  | 822,197 |  | 779,086
Ser. 00-4, Class A5, 7.97s, 2032 |  | 240,000 |  | 194,220
Ser. 00-4, Class A6, 8.31s, 2032 |  | 3,412,000 |  | 2,850,372
Ser. 00-6, Class A5, 7.27s, 2032 |  | 101,000 |  | 92,291
Ser. 00-6, Class M2, 8.2s, 2032 |  | 106,311 |  | 4,252
Ser. 01-1, Class A5, 6.99s, 2032 |  | 897,000 |  | 816,272
Ser. 01-3, Class A3, 5.79s, 2033 |  | 7,277 |  | 7,271
Ser. 01-3, Class A4, 6.91s, 2033 |  | 3,073,000 |  | 2,906,603
Ser. 01-3, Class M2, 7.44s, 2033 |  | 188,397 |  | 23,550
Ser. 01-4, Class A4, 7.36s, 2033 |  | 268,000 |  | 260,497
Ser. 01-4, Class B1, 9.4s, 2033 |  | 180,362 |  | 14,880
Ser. 02-1, Class A, 6.681s, 2033 |  | 1,591,103 |  | 1,604,583
FRB Ser. 01-4, Class M1, 6.38s, 2033 |  | 295,000 |  | 112,100
Consumer Credit Reference IDX Securities 144A FRB |  |  |  |
Ser. 02-1A, Class A, 6.935s, 2007 |  | 790,000 |  | 801,850
Countrywide Asset Backed Certificates 144A |  |  |  |
Ser. 04-6N, Class N1, 6 1/4s, 2035 |  | 218,737 |  | 217,207
Ser. 04-BC1N, Class Note, 5 1/2s, 2035 |  | 28,672 |  | 28,300
Countrywide Home Loans |  |  |  |
Ser. 05-2, Class 2X, IO, 1.428s, 2035 |  | 7,901,719 |  | 171,616
Ser. 06-0A5, Class X, IO, zero %, 2046 |  | 5,095,000 |  | 254,750
Crest, Ltd. 144A Ser. 03-2A, Class E2, 8s, 2038 |  |  |  |
(Cayman Islands) |  | 431,000 |  | 412,734
First Chicago Lennar Trust 144A Ser. 97-CHL1, Class E, |  |  |  |
7.73s, 2039 |  | 1,870,000 |  | 1,897,758
First Franklin Mortgage Loan Asset Backed Certificates |  |  |  |
FRB Ser. 04-FF7, Class A4, 5.118s, 2034 |  | 6,761,000 |  | 6,774,346
First Franklin Mortgage Loan NIM Trust 144A |  |  |  |
Ser. 04-FF10, Class N1, 4.45s, 2034 (Cayman Islands) |  | 34,179 |  | 34,094
First Horizon Mortgage Pass-Through Trust |  |  |  |
Ser. 05-AR2, Class 1A1, 4.829s, 2035 |  | 1,584,888 |  | 1,566,279
Fremont NIM Trust 144A |  |  |  |
Ser. 04-3, Class A, 4 1/2s, 2034 |  | 79,983 |  | 79,389
Ser. 04-3, Class B, 7 1/2s, 2034 |  | 45,831 |  | 42,200
Gears Auto Owner Trust Ser. 05-AA, Class E1, 8.22s, 2012 |  | 687,000 |  | 678,868
Granite Mortgages PLC |  |  |  |
FRB Ser. 02-1, Class 1C, 5.901s, 2042 (United Kingdom) |  | 440,000 |  | 442,799
FRB Ser. 03-2, Class 2C1, 5.2s, 2043 (United Kingdom) | EUR | 1,430,000 |  | 1,816,642
FRB Ser. 03-2, Class 3C, 6.138s, 2043 (United Kingdom) | GBP | 1,075,000 |  | 1,921,049

36

ASSET-BACKED SECURITIES (13.2%)* continued |  |  |  |  |
|  |  | Principal amount |  | Value
Green Tree Financial Corp. |  |  |  |  |
Ser. 93-1, Class B, 8.45s, 2018 |  | $ | 813,343 | $ | 784,619
Ser. 94-4, Class B2, 8.6s, 2019 |  |  | 371,038 |  | 281,612
Ser. 94-6, Class B2, 9s, 2020 |  |  | 870,032 |  | 751,684
Ser. 95-4, Class B1, 7.3s, 2025 |  |  | 371,800 |  | 366,456
Ser. 95-8, Class B1, 7.3s, 2026 |  |  | 362,579 |  | 281,063
Ser. 96-8, Class M1, 7.85s, 2027 |  |  | 387,000 |  | 325,314
Ser. 99-3, Class A5, 6.16s, 2031 |  |  | 46,417 |  | 46,708
Ser. 99-3, Class A7, 6.74s, 2031 |  |  | 733,000 |  | 697,902
Ser. 99-5, Class A5, 7.86s, 2030 |  |  | 4,480,000 |  | 3,902,056
Greenpoint Manufactured Housing |  |  |  |  |
Ser. 00-3, Class IA, 8.45s, 2031 |  |  | 1,887,168 |  | 1,745,321
Ser. 99-5, Class A4, 7.59s, 2028 |  |  | 92,374 |  | 93,804
GS Auto Loan Trust 144A Ser. 04-1, Class D, 5s, 2011 |  |  | 412,353 |  | 409,211
GSAMP Trust 144A |  |  |  |  |
Ser. 04-NIM1, Class N1, 5 1/2s, 2034 |  |  | 103,084 |  | 103,064
Ser. 04-NIM1, Class N2, zero %, 2034 |  |  | 519,000 |  | 382,244
Ser. 04-NIM2, Class N, 4 7/8s, 2034 |  |  | 299,250 |  | 297,964
Guggenheim Structured Real Estate Funding, Ltd. FRB |  |  |  |  |
Ser. 05-1A, Class E, 6.618s, 2030 (Cayman Islands) |  |  | 371,000 |  | 369,535
Guggenheim Structured Real Estate Funding, Ltd. 144A |  |  |  |  |
FRB Ser. 05-2A, Class E, 6.818s, 2030 (Cayman Islands) |  |  | 379,000 |  | 379,303
HASCO NIM Trust 144A Ser. 05-OP1A, Class A, |  |  |  |  |
6 1/4s, 2035 |  |  | 392,214 |  | 378,862
Holmes Financing PLC |  |  |  |  |
FRB Ser. 4, Class 3C, 5.9s, 2040 (United Kingdom) |  |  | 210,000 |  | 210,438
FRB Ser. 8, Class 2C, 5.32s, 2040 (United Kingdom) |  |  | 235,000 |  | 235,541
LNR CDO, Ltd. 144A FRB Ser. 02-1A, Class FFL, 7.559s, |  |  |  |  |
2037 (Cayman Islands) |  |  | 1,260,000 |  | 1,267,636
Long Beach Asset Holdings Corp. NIM Trust 144A Ser. 04-5, |  |  |  |  |
Class Note, 5s, 2034 |  |  | 19,598 |  | 19,568
Long Beach Mortgage Loan Trust |  |  |  |  |
Ser. 04-3, Class S1, IO, 4 1/2s, 2006 |  |  | 918,461 |  | 25,579
Ser. 04-3, Class S2, IO, 4 1/2s, 2006 |  |  | 459,231 |  | 12,790
FRB Ser. 06-2, Class M10, 7.17s, 2036 |  |  | 318,000 |  | 264,974
Long Beach Mortgage Loan Trust 144A FRB Ser. 06-2, |  |  |  |  |
Class B, 7.17s, 2036 |  |  | 318,000 |  | 247,484
Lothian Mortgages PLC 144A FRB Ser. 3A, |  |  |  |  |
Class D, 5.388s, 2039 (United Kingdom) |  | GBP |  | 900,000 |  | 1,576,791
Madison Avenue Manufactured Housing Contract FRB |  |  |  |  |
Ser. 02-A, Class B1, 8.068s, 2032 |  | $ | 1,046,356 |  | 523,178
MASTR Asset Backed Securities NIM Trust 144A |  |  |  |  |
Ser. 04-CI5, Class N2, 9s, 2034 (Cayman Islands) |  |  | 112,364 |  | 112,901
Ser. 04-HE1A, Class Note, 5.191s, 2034 (Cayman Islands) |  |  | 20,739 |  | 20,698
MBNA Credit Card Master Note Trust FRB Ser. 03-C5, |  |  |  |  |
Class C5, 5.929s, 2010 |  |  | 350,000 |  | 356,849
Merrill Lynch Mortgage Investors, Inc. Ser. 03-WM3N, |  |  |  |  |
Class N1, 8s, 2034 |  |  | 4,588 |  | 4,532

37

ASSET-BACKED SECURITIES (13.2%)* continued |  |  |  |  |
|  |  | Principal amount |  | Value
Merrill Lynch Mortgage Investors, Inc. 144A |  |  |  |  |
Ser. 04-FM1N, Class N1, 5s, 2035 (Cayman Islands) |  | $ | 13,495 | $ | 13,360
Ser. 04-HE1N, Class N1, 5s, 2006 |  |  | 9,287 |  | 9,208
Mid-State Trust Ser. 11, Class B, 8.221s, 2038 |  |  | 143,671 |  | 140,228
Morgan Stanley ABS Capital I FRB Ser. 04-HE8, Class B3, |  |  |  |  |
8.018s, 2034 |  |  | 214,000 |  | 216,669
Morgan Stanley Auto Loan Trust 144A Ser. 04-HB2, Class E, |  |  |  |  |
5s, 2012 |  |  | 178,000 |  | 174,215
Morgan Stanley Dean Witter Capital I |  |  |  |  |
FRB Ser. 01-NC3, Class B1, 8.493s, 2031 |  |  | 65,844 |  | 65,844
FRB Ser. 01-NC4, Class B1, 7.318s, 2032 |  |  | 82,209 |  | 82,288
Morgan Stanley Mortgage Loan Trust Ser. 05-5AR, Class 2A1, |  |  |  |  |
5.433s, 2035 |  |  | 2,083,117 |  | 2,069,610
Navistar Financial Corp. Owner Trust |  |  |  |  |
Ser. 04-B, Class C, 3.93s, 2012 |  |  | 117,720 |  | 114,115
Ser. 05-A, Class C, 4.84s, 2014 |  |  | 272,763 |  | 268,061
Oakwood Mortgage Investors, Inc. |  |  |  |  |
Ser. 00-A, Class A2, 7.765s, 2017 |  |  | 186,068 |  | 148,819
Ser. 00-D, Class A4, 7.4s, 2030 |  |  | 1,022,000 |  | 674,234
Ser. 01-C, Class A2, 5.92s, 2017 |  |  | 1,071,072 |  | 576,787
Ser. 01-D, Class A2, 5.26s, 2019 |  |  | 173,822 |  | 117,407
Ser. 01-D, Class A4, 6.93s, 2031 |  |  | 817,933 |  | 585,573
Ser. 01-E, Class A2, 5.05s, 2019 |  |  | 1,278,104 |  | 979,153
Ser. 02-A, Class A2, 5.01s, 2020 |  |  | 376,501 |  | 291,048
Ser. 02-B, Class A4, 7.09s, 2032 |  |  | 443,000 |  | 389,425
Ser. 02-C, Class A1, 5.41s, 2032 |  |  | 1,601,892 |  | 1,360,950
Ser. 95-B, Class B1, 7.55s, 2021 |  |  | 364,000 |  | 240,240
Ser. 99-B, Class A4, 6.99s, 2026 |  |  | 1,272,080 |  | 1,109,020
Ser. 99-D, Class A1, 7.84s, 2029 |  |  | 1,186,193 |  | 1,044,630
Oakwood Mortgage Investors, Inc. 144A Ser. 01-B, Class A4, |  |  |  |  |
7.21s, 2030 |  |  | 256,411 |  | 227,895
Ocean Star PLC 144A |  |  |  |  |
FRB Ser. 04-A, Class E, 11.24s, 2018 (Ireland) |  |  | 885,000 |  | 937,215
FRB Ser. 05-A, Class E, 9.34s, 2012 (Ireland) |  |  | 238,000 |  | 237,929
Option One Mortgage Loan Trust FRB Ser. 05-4, Class M11, |  |  |  |  |
7.318s, 2035 |  |  | 509,000 |  | 442,532
Park Place Securities, Inc. FRB Ser. 04-MCW1, Class A2, |  |  |  |  |
5.198s, 2034 |  |  | 3,269,900 |  | 3,259,273
Park Place Securities, Inc. 144A FRB Ser. 05-WCW2, |  |  |  |  |
Class M11, 7.318s, 2035 |  |  | 381,000 |  | 282,893
People’s Choice Net Interest Margin Note 144A Ser. 04-2, |  |  |  |  |
Class B, 5s, 2034 |  |  | 90,000 |  | 87,468
Permanent Financing PLC |  |  |  |  |
FRB Ser. 3, Class 3C, 6.03s, 2042 (United Kingdom) |  |  | 350,000 |  | 354,605
FRB Ser. 6, Class 3C, 5.26s, 2042 (United Kingdom) |  | GBP |  | 887,000 |  | 1,538,324
Residential Asset Securities Corp. Ser. 01-KS3, |  |  |  |  |
Class AII, 5.048s, 2031 |  | $ | 4,285,645 |  | 4,286,742
Residential Asset Securities Corp. 144A |  |  |  |  |
Ser. 04-N10B, Class A1, 5s, 2034 |  |  | 109,230 |  | 108,752
FRB Ser. 05-KS10, Class B, 7.331s, 2035 |  |  | 395,000 |  | 345,554

38

ASSET-BACKED SECURITIES (13.2%)* continued |  |  |  |  |
|  |  | Principal amount |  | Value
Residential Mortgage Securities 144A FRB Ser. 20A, |  |  |  |  |
Class B1A, 5.317s, 2038 (United Kingdom) |  | GBP |  | 150,000 | $ | 258,636
Rural Housing Trust Ser. 87-1, Class D, 6.33s, 2026 |  | $ | 48,062 |  | 48,242
SAIL Net Interest Margin Notes 144A |  |  |  |  |
Ser. 03-10A, Class A, 7 1/2s, 2033 (Cayman Islands) |  |  | 52,805 |  | 42,777
Ser. 03-3, Class A, 7 3/4s, 2033 (Cayman Islands) |  |  | 17,341 |  | 15,266
Ser. 03-5, Class A, 7.35s, 2033 (Cayman Islands) |  |  | 16,982 |  | 14,239
Ser. 03-6A, Class A, 7s, 2033 (Cayman Islands) |  |  | 3,464 |  | 2,553
Ser. 03-7A, Class A, 7s, 2033 (Cayman Islands) |  |  | 21,270 |  | 17,388
Ser. 03-8A, Class A, 7s, 2033 (Cayman Islands) |  |  | 7,370 |  | 2,064
Ser. 03-9A, Class A, 7s, 2033 (Cayman Islands) |  |  | 10,896 |  | 1,525
Ser. 03-BC2A, Class A, 7 3/4s, 2033 (Cayman Islands) |  |  | 75,194 |  | 31,044
Ser. 04-10A, Class A, 5s, 2034 (Cayman Islands) |  |  | 160,460 |  | 159,561
Ser. 04-4A, Class A, 5s, 2034 (Cayman Islands) |  |  | 2,423 |  | 2,422
Ser. 04-7A, Class A, 4 3/4s, 2034 (Cayman Islands) |  |  | 17,754 |  | 17,721
Ser. 04-8A, Class A, 5s, 2034 (Cayman Islands) |  |  | 50,748 |  | 50,650
Ser. 04-AA, Class A, 4 1/2s, 2034 (Cayman Islands) |  |  | 46,027 |  | 45,767
Sasco Net Interest Margin Trust 144A |  |  |  |  |
Ser. 03-BC1, Class B, zero %, 2033 (Cayman Islands) |  |  | 273,210 |  | 54,642
Ser. 05-WF1A, Class A, 4 3/4s, 2035 |  |  | 187,690 |  | 186,111
Sharps SP I, LLC Net Interest Margin Trust 144A |  |  |  |  |
Ser. 04-HE2N, Class NA, 5.43s, 2034 |  |  | 18,502 |  | 18,224
Ser. 04-HS1N, Class Note, 5.92s, 2034 |  |  | 4,712 |  | 4,712
Soundview Home Equity Loan Trust 144A FRB Ser. 05-4, |  |  |  |  |
Class M10, 7.318s, 2036 |  |  | 392,000 |  | 339,570
South Coast Funding 144A FRB Ser. 3A, Class A2, 5.92s, |  |  |  |  |
2038 (Cayman Islands) |  |  | 140,000 |  | 140,700
Structured Asset Investment Loan Trust FRB Ser. 04-9, |  |  |  |  |
Class A4, 5.118s, 2034 |  |  | 6,811,000 |  | 6,816,564
Structured Asset Investment Loan Trust 144A FRB |  |  |  |  |
Ser. 05-HE3, Class M11, 7.318s, 2035 |  |  | 436,000 |  | 348,994
Structured Asset Receivables Trust 144A FRB Ser. 05-1, |  |  |  |  |
5.114s, 2015 |  |  | 1,796,701 |  | 1,796,141
TIAA Real Estate CDO, Ltd. Ser. 03-1A, Class E, 8s, |  |  |  |  |
2038 (Cayman Islands) |  |  | 467,000 |  | 460,832
TIAA Real Estate CDO, Ltd. 144A Ser. 02-1A, Class IV, |  |  |  |  |
6.84s, 2037 (Cayman Islands) |  |  | 390,000 |  | 384,707
Wells Fargo Home Equity Trust 144A |  |  |  |  |
Ser. 04-2, Class N1, 4.45s, 2034 (Cayman Islands) |  |  | 57,453 |  | 57,340
Ser. 04-2, Class N2, 8s, 2034 (Cayman Islands) |  |  | 214,000 |  | 214,083
Wells Fargo Mortgage Backed Securities Trust |  |  |  |  |
Ser. 05-AR13, Class 1A4, IO, 0.742s, 2035 |  |  | 16,052,217 |  | 120,392
Whinstone Capital Management, Ltd. 144A FRB Ser. 1A, |  |  |  |  |
Class B3, 5.523s, 2044 (United Kingdom) |  |  | 733,000 |  | 732,817
Whole Auto Loan Trust 144A |  |  |  |  |
Ser. 03-1, Class D, 6s, 2010 |  |  | 50,425 |  | 50,402
Ser. 04-1, Class D, 5.6s, 2011 |  |  | 273,186 |  | 270,910
Total asset-backed securities (cost $91,591,464) |  |  |  | $ | 89,469,585

39

COLLATERALIZED MORTGAGE OBLIGATIONS (12.5%)* |  |  |  |  |
|  |  | Principal amount |  | Value
Amresco Commercial Mortgage Funding I Ser. 97-C1, |  |  |  |  |
Class G, 7s, 2029 |  | $ | 434,000 | $ | 437,452
Banc of America Commercial Mortgage, Inc. Ser. 01-1, |  |  |  |  |
Class G, 7.324s, 2036 |  |  | 325,000 |  | 343,614
Banc of America Commercial Mortgage, Inc. 144A |  |  |  |  |
Ser. 01-1, Class J, 6 1/8s, 2036 |  |  | 163,000 |  | 160,568
Ser. 01-1, Class K, 6 1/8s, 2036 |  |  | 367,000 |  | 274,398
Banc of America Large Loan 144A |  |  |  |  |
FRB Ser. 02-FL2A, Class L1, 7.67s, 2014 |  |  | 141,000 |  | 140,802
FRB Ser. 02-FL2A, Class K1, 7.17s, 2014 |  |  | 100,000 |  | 99,981
FRB Ser. 05-BOCA, Class M, 6.849s, 2016 |  |  | 355,000 |  | 355,852
FRB Ser. 05-MIB1, Class K, 6.749s, 2022 |  |  | 645,000 |  | 633,276
FRB Ser. 05-ESHA, Class K, 6.54s, 2020 |  |  | 712,000 |  | 711,996
FRB Ser. 06-LAQ, Class M, 6.471s, 2021 |  |  | 548,000 |  | 548,000
FRB Ser. 05-BOCA, Class L, 6.449s, 2016 |  |  | 183,000 |  | 183,314
FRB Ser. 06-LAQ, Class L, 6.371s, 2021 |  |  | 342,000 |  | 342,000
FRB Ser. 05-BOCA, Class K, 6.099s, 2016 |  |  | 200,000 |  | 200,344
Bear Stearns Commercial Mortgage Securities, Inc. |  |  |  |  |
144A FRB Ser. 05-LXR1, Class J, 6.399s, 2018 |  |  | 696,000 |  | 696,000
Bear Stearns Commercial Mortgage Securitization Corp. |  |  |  |  |
Ser. 00-WF2, Class F, 8.199s, 2032 |  |  | 410,000 |  | 457,329
Broadgate Financing PLC sec. FRB Ser. D, 5.429s, 2023 |  |  |  |  |
(United Kingdom) |  | GBP |  | 465,500 |  | 805,702
Commercial Mortgage Pass-Through Certificates 144A |  |  |  |  |
FRB Ser. 01-FL5A, Class G, 5.348s, 2013 |  | $ | 1,074,000 |  | 1,068,630
FRB Ser. 05-F10A, Class A1, 4.849s, 2017 |  |  | 3,059,467 |  | 3,058,325
CS First Boston Mortgage Securities Corp. 144A |  |  |  |  |
FRB Ser. 05-TFLA, Class L, 6.599s, 2020 |  |  | 699,000 |  | 698,995
FRB Ser. 05-TFLA, Class K, 6.049s, 2020 |  |  | 388,000 |  | 387,998
Ser. 98-C1, Class F, 6s, 2040 |  |  | 966,000 |  | 841,746
Ser. 02-CP5, Class M, 5 1/4s, 2035 |  |  | 354,000 |  | 272,587
Deutsche Mortgage & Asset Receiving Corp. Ser. 98-C1, |  |  |  |  |
Class X, IO, 0.656s, 2031 |  |  | 18,901,901 |  | 325,623
DLJ Commercial Mortgage Corp. |  |  |  |  |
Ser. 98-CF2, Class B4, 6.04s, 2031 |  |  | 286,492 |  | 283,830
Ser. 98-CF2, Class B5, 5.95s, 2031 |  |  | 915,958 |  | 799,091
DLJ Mortgage Acceptance Corp. 144A |  |  |  |  |
Ser. 97-CF1, Class B2, 8.16s, 2030 |  |  | 275,000 |  | 192,500
Ser. 97-CF1, Class B1, 7.91s, 2030 |  |  | 266,000 |  | 270,799
European Loan Conduit FRB Ser. 6X, Class E, 6.34s, 2010 |  |  |  |  |
(United Kingdom) |  | GBP |  | 372,956 |  | 647,917
European Loan Conduit 144A |  |  |  |  |
FRB Ser. 6A, Class F, 6.84s, 2010 (United Kingdom) |  | GBP |  | 133,198 |  | 231,399
FRB Ser. 22A, Class D, 5.44s, 2014 (Ireland) |  | GBP |  | 507,000 |  | 879,290
European Prime Real Estate PLC 144A FRB Ser. 1-A, |  |  |  |  |
Class D, 5.445s, 2014 (United Kingdom) |  | GBP |  | 360,970 |  | 626,030
Fannie Mae |  |  |  |  |
Ser. 06-20, Class IP, IO, 8s, 2030 |  | $ | 460,000 |  | 94,409
Ser. 04-W8, Class 3A, 7 1/2s, 2044 |  |  | 473,634 |  | 494,641
Ser. 04-W2, Class 5A, 7 1/2s, 2044 |  |  | 1,682,133 |  | 1,756,390

40

COLLATERALIZED MORTGAGE OBLIGATIONS (12.5%)* continued |  |  |  |
|  | Principal amount |  | Value
Fannie Mae |  |  |  |
Ser. 04-T2, Class 1A4, 7 1/2s, 2043 | $ | 401,222 |  | $ | 418,662
Ser. 03-W4, Class 4A, 7 1/2s, 2042 |  | 126,469 |  | 131,383
Ser. 03-W3, Class 1A3, 7 1/2s, 2042 |  | 267,237 |  | 278,270
Ser. 02-T19, Class A3, 7 1/2s, 2042 |  | 323,214 |  | 336,507
Ser. 03-W2, Class 1A3, 7 1/2s, 2042 |  | 5,986 |  | 6,234
Ser. 02-W1, Class 2A, 7 1/2s, 2042 |  | 540,606 |  | 560,151
Ser. 02-14, Class A2, 7 1/2s, 2042 |  | 2,577 |  | 2,679
Ser. 01-T10, Class A2, 7 1/2s, 2041 |  | 333,875 |  | 346,493
Ser. 02-T4, Class A3, 7 1/2s, 2041 |  | 1,558 |  | 1,617
Ser. 01-T8, Class A1, 7 1/2s, 2041 |  | 4,300 |  | 4,456
Ser. 01-T7, Class A1, 7 1/2s, 2041 |  | 1,305,272 |  | 1,351,756
Ser. 01-T3, Class A1, 7 1/2s, 2040 |  | 198,514 |  | 205,725
Ser. 01-T1, Class A1, 7 1/2s, 2040 |  | 617,848 |  | 641,215
Ser. 99-T2, Class A1, 7 1/2s, 2039 |  | 253,456 |  | 264,254
Ser. 00-T6, Class A1, 7 1/2s, 2030 |  | 124,217 |  | 128,640
Ser. 02-W7, Class A5, 7 1/2s, 2029 |  | 213,920 |  | 222,624
Ser. 01-T4, Class A1, 7 1/2s, 2028 |  | 588,618 |  | 615,195
Ser. 02-W3, Class A5, 7 1/2s, 2028 |  | 1,344 |  | 1,397
IFB Ser. 06-27, Class SP, 7.443s, 2036 |  | 791,000 |  | 781,939
IFB Ser. 05-74, Class CP, 7.084s, 2035 |  | 627,274 |  | 624,396
IFB Ser. 05-76, Class SA, 7.084s, 2034 |  | 887,393 |  | 871,575
Ser. 04-W12, Class 1A3, 7s, 2044 |  | 493,383 |  | 508,956
Ser. 01-T10, Class A1, 7s, 2041 |  | 1,283,861 |  | 1,317,961
IFB Ser. 06-8, Class HP, 6.9s, 2036 |  | 1,012,735 |  | 993,379
IFB Ser. 06-8, Class WK, 6.9s, 2036 |  | 1,521,647 |  | 1,485,159
IFB Ser. 05-106, Class US, 6.9s, 2035 |  | 1,532,765 |  | 1,524,574
IFB Ser. 05-99, Class SA, 6.9s, 2035 |  | 741,549 |  | 726,691
IFB Ser. 05-74, Class CS, 6.77s, 2035 |  | 715,149 |  | 705,435
IFB Ser. 05-114, Class SP, 6.33s, 2036 |  | 427,632 |  | 404,379
IFB Ser. 05-95, Class CP, 5.576s, 2035 |  | 120,340 |  | 116,473
Ser. 350, Class 2, IO, 5 1/2s, 2034 |  | 1,067,686 |  | 259,530
Ser. 329, Class 2, IO, 5 1/2s, 2033 |  | 1,995,866 |  | 487,739
IFB Ser. 05-95, Class OP, 5.473s, 2035 |  | 360,000 |  | 323,539
IFB Ser. 05-83, Class QP, 4.867s, 2034 |  | 236,297 |  | 214,371
IFB Ser. 05-93, Class AS, 4.83s, 2034 |  | 329,173 |  | 292,668
IFB Ser. 05-56, Class TP, 3.696s, 2033 |  | 284,500 |  | 250,121
IFB Ser. 02-36, Class QH, IO, 3.232s, 2029 |  | 296,344 |  | 5,165
IFB Ser. 03-66, Class SA, IO, 2.832s, 2033 |  | 1,496,213 |  | 104,032
IFB Ser. 03-48, Class S, IO, 2.732s, 2033 |  | 665,397 |  | 46,165
IFB Ser. 05-113, Class DI, IO, 2.412s, 2036 |  | 8,525,532 |  | 503,200
IFB Ser. 04-51, Class S0, IO, 2.232s, 2034 |  | 369,616 |  | 18,481
IFB Ser. 06-20, Class BI, IO, 2.01s, 2036 |  | 14,948,000 |  | 679,236
IFB Ser. 06-20, Class PI, IO, 1.93s, 2030 |  | 3,490,000 |  | 134,929
IFB Ser. 05-105, Class S, IO, 1.882s, 2035 |  | 1,091,272 |  | 53,882
IFB Ser. 05-95, Class CI, IO, 1.882s, 2035 |  | 1,592,876 |  | 87,251
IFB Ser. 05-84, Class SG, IO, 1.882s, 2035 |  | 2,820,214 |  | 172,187
IFB Ser. 05-87, Class SG, IO, 1.882s, 2035 |  | 3,577,531 |  | 179,995
IFB Ser. 05-69, Class AS, IO, 1.882s, 2035 |  | 753,195 |  | 39,896
IFB Ser. 05-104, Class NI, IO, 1.882s, 2035 |  | 472,832 |  | 30,548

41

COLLATERALIZED MORTGAGE OBLIGATIONS (12.5%)* continued |  |  |  |
|  | Principal amount |  | Value
Fannie Mae |  |  |  |
IFB Ser. 04-92, Class S, IO, 1.882s, 2034 | $ | 2,284,316 |  | $ | 118,145
IFB Ser. 05-104, Class SI, IO, 1.882s, 2033 |  | 3,565,781 |  | 206,129
IFB Ser. 05-83, Class QI, IO, 1.872s, 2035 |  | 391,644 |  | 25,557
IFB Ser. 05-92, Class SC, IO, 1.862s, 2035 |  | 3,752,112 |  | 205,203
IFB Ser. 05-83, Class SL, IO, 1.852s, 2035 |  | 7,350,510 |  | 372,309
IFB Ser. 06-8, Class NS, IO, 1.812s, 2036 |  | 4,687,073 |  | 256,966
IFB Ser. 05-95, Class OI, IO, 1.772s, 2035 |  | 220,807 |  | 14,245
IFB Ser. 03-112, Class SA, IO, 1.682s, 2028 |  | 1,446,592 |  | 46,368
IFB Ser. 05-67, Class BS, IO, 1.332s, 2035 |  | 1,897,389 |  | 74,413
IFB Ser. 05-74, Class SE, IO, 1.282s, 2035 |  | 2,590,518 |  | 80,330
IFB Ser. 05-87, Class SE, IO, 1.232s, 2035 |  | 14,153,215 |  | 468,825
Ser. 03-W10, Class 1A, IO, 1.195s, 2043 |  | 4,910,500 |  | 73,923
IFB Ser. 04-54, Class SW, IO, 1.182s, 2033 |  | 879,366 |  | 22,561
Ser. 03-W10, Class 3A, IO, 1.178s, 2043 |  | 5,919,899 |  | 98,416
Ser. 03-W17, Class 12, IO, 1.151s, 2033 |  | 3,332,477 |  | 97,817
Ser. 02-T18, IO, 0.525s, 2042 |  | 9,305,363 |  | 110,456
Ser. 05-113, Class DO, Principal Only (PO), zero %, 2036 |  | 1,310,302 |  | 1,032,533
Ser. 363, Class 1, PO, zero %, 2035 |  | 4,550,687 |  | 3,234,852
Ser. 361, Class 1, PO, zero %, 2035 |  | 3,023,028 |  | 2,312,690
Ser. 04-38, Class AO, PO, zero %, 2034 |  | 393,966 |  | 278,792
Ser. 342, Class 1, PO, zero %, 2033 |  | 295,282 |  | 225,171
Ser. 02-82, Class TO, PO, zero %, 2032 |  | 235,500 |  | 179,237
Ser. 04-61, Class CO, PO, zero %, 2031 |  | 517,000 |  | 387,265
Ser. 99-51, Class N, PO, zero %, 2029 |  | 93,711 |  | 75,774
Ser. 99-52, Class MO, PO, zero %, 2026 |  | 9,881 |  | 9,610
FRB Ser. 05-117, Class GF, zero %, 2036 |  | 363,961 |  | 340,020
Federal Home Loan Mortgage Corp. Structured |  |  |  |
Pass-Through Securities |  |  |  |
Ser. T-59, Class 1A3, 7 1/2s, 2043 |  | 543,036 |  | 567,587
Ser. T-58, Class 4A, 7 1/2s, 2043 |  | 8,293 |  | 8,625
Ser. T-41, Class 3A, 7 1/2s, 2032 |  | 1,283,636 |  | 1,332,318
Ser. T-60, Class 1A2, 7s, 2044 |  | 2,465,072 |  | 2,540,282
Ser. T-57, Class 1AX, IO, 0.454s, 2043 |  | 3,108,914 |  | 29,752
FFCA Secured Lending Corp. Ser. 00-1, Class X, IO, |  |  |  |
1.42s, 2020 |  | 6,816,774 |  | 388,910
Freddie Mac |  |  |  |
IFB Ser. 2963, Class SV, 9.605s, 2034 |  | 313,000 |  | 320,788
IFB Ser. 2763, Class SC, 9.605s, 2032 |  | 400,330 |  | 410,404
IFB Ser. 3114, Class GK, 7.405s, 2036 |  | 394,385 |  | 383,241
IFB Ser. 3081, Class DC, 7.791s, 2035 |  | 591,908 |  | 572,742
Ser. 3114, Class BL, IO, 7 1/2s, 2030 |  | 175,957 |  | 33,561
IFB Ser. 2979, Class AS, 6.861s, 2034 |  | 264,563 |  | 255,386
IFB Ser. 3072, Class SA, 6.715s, 2035 |  | 231,247 |  | 213,759
IFB Ser. 3072, Class SM, 6.385s, 2035 |  | 368,231 |  | 335,349
IFB Ser. 3072, Class SB, 6.238s, 2035 |  | 348,487 |  | 315,476
IFB Ser. 3065, Class DC, 5.614s, 2035 |  | 903,371 |  | 816,005
IFB Ser. 3050, Class SA, 5.003s, 2034 |  | 637,500 |  | 566,526
IFB Ser. 2828, Class TI, IO, 2.301s, 2030 |  | 888,103 |  | 57,449
IFB Ser. 3033, Class SF, IO, 2.051s, 2035 |  | 1,312,106 |  | 54,534

42

COLLATERALIZED MORTGAGE OBLIGATIONS (12.5%)* continued |  |  |  |  |
|  | Principal amount |  | Value |
Freddie Mac |  |  |  |  |
IFB Ser. 3028, Class ES, IO, 2.001s, 2035 | $ | 4,296,434 |  | $ | 292,692 |
IFB Ser. 3042, Class SP, IO, 2.001s, 2035 |  | 1,007,082 |  | 65,762 |
IFB Ser. 3045, Class DI, IO, 1.981s, 2035 |  | 12,682,204 |  | 579,580 |
IFB Ser. 3054, Class CS, IO, 1.951s, 2035 |  | 1,016,869 |  | 47,030 |
IFB Ser. 3107, Class DC, IO, 1.951s, 2035 |  | 4,469,004 |  | 326,098 |
IFB Ser. 3066, Class SI, IO, 1.951s, 2035 |  | 2,907,725 |  | 194,024 |
IFB Ser. 3031, Class BI, IO, 1.941s, 2035 |  | 836,723 |  | 53,050 |
IFB Ser. 3067, Class SI, IO, 1.901s, 2035 |  | 3,361,064 |  | 230,772 |
IFB Ser. 3114, Class TS, IO, 1.901s, 2030 |  | 6,148,674 |  | 253,975 |
IFB Ser. 3114, Class BI, IO, 1.901s, 2030 |  | 2,639,375 |  | 101,776 |
IFB Ser. 3065, Class DI, IO, 1.871s, 2035 |  | 656,232 |  | 38,901 |
IFB Ser. 3081, Class DI, IO, 1.731s, 2035 |  | 857,752 |  | 47,976 |
IFB Ser. 3016, Class SP, IO, 1.361s, 2035 |  | 872,000 |  | 26,570 |
IFB Ser. 3016, Class SQ, IO, 1.361s, 2035 |  | 2,078,427 |  | 64,307 |
IFB Ser. 2937, Class SY, IO, 1.351s, 2035 |  | 854,731 |  | 22,864 |
IFB Ser. 2815, Class S, IO, 1.251s, 2032 |  | 2,064,362 |  | 59,322 |
Ser. 236, PO, zero %, 2036 |  | 770,000 |  | 578,241 |
Ser. 3045, Class DO, PO, zero %, 2035 |  | 969,809 |  | 736,055 |
Ser. 231, PO, zero %, 2035 |  | 5,698,874 |  | 4,115,017 |
Ser. 228, PO, zero %, 2035 |  | 3,424,023 |  | 2,589,011 |
Ser. 215, PO, zero %, 2031 |  | 189,209 |  | 160,954 |
Ser. 2235, PO, zero %, 2030 |  | 213,493 |  | 166,057 |
FRB Ser. 3022, Class TC, zero %, 2035 |  | 185,921 |  | 217,993 |
FRB Ser. 2986, Class XT, zero %, 2035 |  | 110,128 |  | 121,382 |
FRB Ser. 3046, Class WF, zero %, 2035 |  | 263,970 |  | 261,050 |
FRB Ser. 3054, Class XF, zero %, 2034 |  | 111,572 |  | 115,825 |
GE Capital Commercial Mortgage Corp. 144A |  |  |  |  |
Ser. 00-1, Class F, 7.52s, 2033 |  | 170,000 |  | 178,980 |
Ser. 00-1, Class G, 6.131s, 2033 |  | 596,000 |  | 546,830 |
GMAC Commercial Mortgage Securities, Inc. 144A |  |  |  |  |
Ser. 99-C3, Class G, 6.974s, 2036 |  | 529,968 |  | 509,689 |
Government National Mortgage Association |  |  |  |  |
IFB Ser. 05-66, Class SP, 4.997s, 2035 |  | 539,004 |  | 479,637 |
IFB Ser. 06-10, Class SM, IO, 1.62s, 2036 |  | 5,106,000 |  | 202,644 |
IFB Ser. 05-65, Class SI, IO, 1.574s, 2035 |  | 2,257,140 |  | 89,659 |
IFB Ser. 06-14, Class S, IO, 1.56s, 2036 |  | 2,188,000 |  | 76,922 |
IFB Ser. 05-68, Class SI, IO, 1.524s, 2035 |  | 7,264,895 |  | 320,320 |
IFB Ser. 05-51, Class SJ, IO, 1.424s, 2035 |  | 2,180,780 |  | 81,779 |
IFB Ser. 05-68, Class S, IO, 1.424s, 2035 |  | 4,311,209 |  | 171,807 |
Ser. 98-2, Class EA, PO, zero %, 2028 |  | 94,090 |  | 74,507 |
GS Mortgage Securities Corp. II 144A FRB |  |  |  |  |
Ser. 03-FL6A, Class L, 7.999s, 2015 |  | 214,000 |  | 214,268 |
LB Commercial Conduit Mortgage Trust 144A Ser. 99-C1, |  |  |  |  |
Class G, 6.41s, 2031 |  | 253,101 |  | 234,114 |
Lehman Brothers Floating Rate Commercial Mortgage |  |  |  |  |
Trust 144A FRB Ser. 03-LLFA, Class L, 8.49s, 2014 |  | 876,000 |  | 874,390 |
Mach One Commercial Mortgage Trust 144A |  |  |  |  |
Ser. 04-1A, Class J, 5.45s, 2040 |  | 594,000 |  | 479,748 |
Ser. 04-1A, Class K, 5.45s, 2040 |  | 212,000 |  | 166,702 |
Ser. 04-1A, Class L, 5.45s, 2040 |  | 96,000 |  | 68,887 |
|  |  |  |  | 43

COLLATERALIZED MORTGAGE OBLIGATIONS (12.5%)* continued |  |  |  |
|  |  | Principal amount |  | Value
Merrill Lynch Mortgage Investors, Inc. Ser. 96-C2, Class JS, |  |  |  |  |
IO, 2.14s, 2028 |  | $ | 5,661,384 |  | $ | 240,830
Mezz Cap Commercial Mortgage Trust 144A Ser. 04-C1, |  |  |  |  |
Class X, IO, 7.444s, 2037 |  |  | 1,019,193 |  | 393,982
Morgan Stanley Capital I Ser. 98-CF1, Class E, 7.35s, 2032 |  |  | 1,252,000 |  | 1,315,157
Morgan Stanley Capital I 144A Ser. 04-RR, Class F7, |  |  |  |  |
6s, 2039 |  |  | 1,730,000 |  | 1,193,667
Mortgage Capital Funding, Inc. |  |  |  |  |
FRB Ser. 98-MC2, Class E, 7.099s, 2030 |  |  | 327,112 |  | 336,667
Ser. 97-MC2, Class X, IO, 0.741s, 2012 |  |  | 2,683,790 |  | 30,297
Permanent Financing PLC FRB Ser. 8, Class 2C, 5.28s, 2042 |  |  |  |  |
(United Kingdom) |  |  | 500,000 |  | 499,869
PNC Mortgage Acceptance Corp. 144A Ser. 00-C1, Class J, |  |  |  |  |
6 5/8s, 2010 |  |  | 123,000 |  | 114,475
QFA Royalties, LLC 144A Ser. 05-1, 7.3s, 2025 |  |  | 638,549 |  | 626,582
Quick Star PLC FRB Class 1-D, 5.501s, 2011 |  |  |  |  |
(United Kingdom) | GBP |  | 445,794 |  | 773,141
SBA CMBS Trust 144A Ser. 05-1A, Class E, 6.706s, 2035 |  | $ | 303,000 |  | 300,053
STRIPS 144A |  |  |  |  |
Ser. 03-1A, Class M, 5s, 2018 (Cayman Islands) |  |  | 162,000 |  | 133,460
Ser. 03-1A, Class N, 5s, 2018 (Cayman Islands) |  |  | 193,000 |  | 145,173
Ser. 04-1A, Class M, 5s, 2018 (Cayman Islands) |  |  | 174,000 |  | 142,884
Ser. 04-1A, Class N, 5s, 2018 (Cayman Islands) |  |  | 167,000 |  | 125,634
Titan Europe PLC 144A |  |  |  |  |
FRB Ser. 05-CT2A, Class E, 5.64s, 2014 (Ireland) | GBP |  | 344,000 |  | 596,599
FRB Ser. 05-CT1A, Class D, 5.64s, 2014 (Ireland) | GBP |  | 627,604 |  | 1,088,454
FRB Ser. 04-2A, Class D, 3.408s, 2014 (Ireland) | EUR |  | 350,545 |  | 424,160
FRB Ser. 04-2A, Class C, 3.008s, 2014 (Ireland) | EUR |  | 437,741 |  | 529,667
URSUS EPC 144A FRB Ser. 1-A, Class D, 5.489s, |  |  |  |  |
2012 (Ireland) | GBP |  | 418,529 |  | 725,855
Wachovia Bank Commercial Mortgage Trust 144A FRB |  |  |  |  |
Ser. 05-WL5A, Class L, 8.049s, 2018 |  | $ | 477,000 |  | 474,958
Total collateralized mortgage obligations (cost $87,410,755) |  |  |  |  | $ | 84,780,970
U.S. GOVERNMENT AND AGENCY MORTGAGE OBLIGATIONS (11.9%)* |  |
|  |  | Principal amount |  | Value
U.S. Government Agency Mortgage Obligations (11.9%) |  |  |  |  |
Federal National Mortgage Association |  |  |  |  |
Pass-Through Certificates |  |  |  |  |
8s, October 1, 2025 |  | $ | 6,325 |  | $ | 6,670
6 1/2s, with due dates from August 1, 2034 to |  |  |  |  |
September 1, 2034 |  |  | 1,153,154 |  | 1,177,207
6 1/2s, October 1, 2018 |  |  | 21,151 |  | 21,511
5 1/2s, with due dates from July 1, 2009 to February 1, 2021 |  |  | 20,597,138 |  | 20,486,912
5 1/2s, TBA, May 1, 2036 |  |  | 18,100,000 |  | 17,647,500
5 1/2s, TBA, April 1, 2036 |  |  | 36,538,000 |  | 35,658,804
5 1/2s, TBA, April 1, 2021 |  |  | 740,000 |  | 735,317

44

U.S. GOVERNMENT AND AGENCY MORTGAGE OBLIGATIONS (11.9%)* continued |  |
|  |  | Principal amount |  | Value
U.S. Government Agency Mortgage Obligations continued |  |  |  |  |
Federal National Mortgage Association |  |  |  |  |
Pass-Through Certificates |  |  |  |  |
5s, with due dates from April 1, 2019 to April 1, 2020 |  | $ | 2,178,533 | $ | 2,124,875
4 1/2s, with due dates from August 1, 2033 to June 1, 2034 |  |  | 3,143,850 |  | 2,914,222
Total U.S. government and agency mortgage obligations (cost $81,470,183) | $ | 80,773,018
U.S. TREASURY OBLIGATIONS (10.4%)* |  |  |  |  |
|  |  | Principal amount |  | Value
U.S. Treasury Notes |  |  |  |  |
6 1/2s, February 15, 2010 |  | $ | 7,500,000 | $ | 7,935,938
4 1/4s, August 15, 2013 |  |  | 38,008,000 |  | 36,558,945
3 1/4s, August 15, 2008 |  |  | 27,242,000 |  | 26,290,658
Total U.S. treasury obligations (cost $73,768,290) |  |  |  | $ | 70,785,541
FOREIGN GOVERNMENT BONDS AND NOTES (11.8%)* |  |  |  |  |
|  |  | Principal amount |  | Value
Argentina (Republic of ) FRB 4.889s, 2012 |  | $ | 6,982,500 | $ | 6,478,568
Austria (Republic of ) 144A notes Ser. EMTN, 3.8s, 2013 | EUR |  | 1,390,000 |  | 1,688,628
Brazil (Federal Republic of ) bonds 10 1/2s, 2014 |  | $ | 1,018,000 |  | 1,267,410
Brazil (Federal Republic of ) notes 11s, 2012 |  |  | 7,240,000 |  | 8,850,900
Canada (Government of ) bonds Ser. WH31, 6s, 2008 | CAD |  | 3,680,000 |  | 3,284,959
Colombia (Republic of ) notes 10s, 2012 |  | $ | 3,122,000 |  | 3,683,960
France (Government of ) bonds 4s, 2013 | EUR |  | 4,730,000 |  | 5,829,181
France (Government of ) bonds Ser. OATe, 3s, 2012 | EUR |  | 4,329,160 |  | 5,724,920
Germany (Federal Republic of ) bonds Ser. 97, 6s, 2007 | EUR |  | 5,500,000 |  | 6,877,943
Germany (Federal Republic of ) bonds Ser. 97, 6s, 2007 | EUR |  | 5,000,000 |  | 6,180,075
Indonesia (Republic of ) 144A notes 7 1/4s, 2015 |  | $ | 280,000 |  | 286,720
Ireland (Republic of ) bonds 5s, 2013 | EUR |  | 7,500,000 |  | 9,808,260
Russia (Ministry of Finance) debs. Ser. V, 3s, 2008 |  | $ | 2,445,000 |  | 2,313,704
South Africa (Republic of ) notes 7 3/8s, 2012 |  |  | 1,495,000 |  | 1,616,843
South Africa (Republic of ) notes 6 1/2s, 2014 |  |  | 1,330,000 |  | 1,389,850
Spain (Government of ) bonds 5.4s, 2011 | EUR |  | 1,000,000 |  | 1,312,245
Spain (Kingdom of ) bonds 5s, 2012 | EUR |  | 800,000 |  | 1,038,664
Sweden (Government of ) debs. Ser. 1041, 6 3/4s, 2014 | SEK |  | 30,690,000 |  | 4,797,590
United Mexican States notes 6 5/8s, 2015 |  | $ | 4,530,000 |  | 4,729,320
Venezuela (Republic of ) notes 10 3/4s, 2013 |  |  | 2,150,000 |  | 2,679,975
Total foreign government bonds and notes (cost $78,579,272) |  |  | $ | 79,839,715

45

SENIOR LOANS (8.5%)* (c) |  |  |  |
|  | Principal amount |  | Value
Basic Materials (0.9%) |  |  |  |
Georgia-Pacific Corp. bank term loan FRN Ser. B, 6.743s, 2013 | $ | 847,875 | $ | 853,506
Graphic Packaging Corp. bank term loan FRN Ser. C, |  |  |  |
6.984s, 2010 |  | 131,094 |  | 133,040
Hercules, Inc. bank term loan FRN Ser. B, 6.058s, 2010 |  | 370,422 |  | 372,969
Huntsman International Corp. bank term loan FRN Ser. B, |  |  |  |
6.32s, 2012 |  | 778,015 |  | 782,635
Innophos, Inc. bank term loan FRN 7.003s, 2010 |  | 271,866 |  | 275,378
Nalco Co. bank term loan FRN Ser. B, 6.534s, 2010 |  | 1,206,873 |  | 1,218,942
Novelis, Inc. bank term loan FRN Ser. B, 6.44s, 2012 |  | 701,085 |  | 708,425
Novelis, Inc. bank term loan FRN Ser. B, 6.44s, 2012 |  | 403,485 |  | 407,709
Rockwood Specialties Group, Inc. bank term loan FRN Ser. E, |  |  |  |
6.918s, 2012 |  | 1,387,990 |  | 1,405,556
|  |  |  | 6,158,160
Capital Goods (0.7%) |  |  |  |
Allied Waste Industries, Inc. bank term loan FRN 4.385s, 2012 |  | 62,900 |  | 63,136
Allied Waste Industries, Inc. bank term loan FRN Ser. B, |  |  |  |
6.796s, 2012 |  | 162,011 |  | 162,652
Amsted Industries, Inc. bank term loan FRN 7.126s, 2010 |  | 94,284 |  | 95,502
Graham Packaging Co., Inc. bank term loan FRN Ser. B, |  |  |  |
6.967s, 2011 |  | 397,990 |  | 402,965
Hexcel Corp. bank term loan FRN Ser. B, 6 3/8s, 2012 |  | 796,424 |  | 803,724
Invensys, PLC bank term loan FRN Ser. B-1, 7.791s, |  |  |  |
2009 (United Kingdom) |  | 34,356 |  | 34,657
Mueller Group, Inc. bank term loan FRN Ser. B, 6.88s, 2012 |  | 796,000 |  | 805,950
Polypore, Inc. bank term loan FRN 7.53s, 2011 |  | 711,411 |  | 717,043
Solo Cup Co. bank term loan FRN 7.027s, 2011 |  | 147,000 |  | 148,409
Terex Corp. bank term loan FRN 6.839s, 2009 |  | 149,612 |  | 151,109
Terex Corp. bank term loan FRN Ser. C, 7.339s, 2009 |  | 748,067 |  | 755,548
Transdigm, Inc. bank term loan FRN Ser. C, 6.99s, 2010 |  | 494,468 |  | 500,495
|  |  |  | 4,641,190
Communication Services (0.6%) |  |  |  |
Centennial Cellular Operating Co., LLC bank term loan |  |  |  |
FRN Ser. B, 7.008s, 2011 |  | 973,277 |  | 986,254
Consolidated Communications Holdings bank term loan |  |  |  |
FRN Ser. D, 6.342s, 2011 |  | 124,255 |  | 125,342
Fairpoint Communications, Inc. bank term loan FRN Ser. B, |  |  |  |
6.313s, 2012 |  | 543,116 |  | 547,054
Intelsat Bermuda, Ltd. bank term loan FRN Ser. B, 6.313s, |  |  |  |
2011 (Bermuda) |  | 595,477 |  | 600,130
Madison River Capital, LLC. bank term loan FRN Ser. B, |  |  |  |
7.05s, 2012 |  | 796,423 |  | 805,632
Qwest Communications International, Inc. bank term loan |  |  |  |
FRN Ser. A, 9.503s, 2007 |  | 78,000 |  | 79,872
Syniverse Holdings, Inc. bank term loan FRN Ser. B, 6.28s, 2012 |  | 557,252 |  | 564,217
Valor Telecommunications Enterprises LLC/Finance Corp. |  |  |  |
bank term loan FRN Ser. B, 6.325s, 2012 |  | 543,333 |  | 544,097
|  |  |  | 4,252,598

46

SENIOR LOANS (8.5%)* (c) continued |  |  |  |
|  | Principal amount |  | Value
Consumer Cyclicals (1.8%) |  |  |  |
Adams Outdoor Advertising, LP bank term loan FRN 6.62s, 2012 | $ | 840,107 | $ | 851,309
Affinion Group, Inc. bank term loan FRN Ser. B, 7.501s, 2013 |  | 867,220 |  | 869,660
BLB (Wembley) bank term loan FRN 6.989s, 2011 |  |  |  |
(United Kingdom) |  | 149,250 |  | 151,489
CCM Merger, Inc. bank term loan FRN Ser. B, 6.924s, 2012 |  | 992,502 |  | 999,698
Coinmach Service Corp. bank term loan FRN Ser. B,7.257s, 2012 |  | 249,748 |  | 253,390
Cooper Tire & Rubber Co. bank term loan FRN Ser. B, 6.563s, 2012 |  | 378,542 |  | 380,434
Cooper Tire & Rubber Co. bank term loan FRN Ser. C, 6.563s, 2012 |  | 610,500 |  | 613,552
Dex Media West, LLC/Dex Media Finance Co. bank term loan |  |  |  |
FRN Ser. B, 6.514s, 2010 |  | 139,054 |  | 140,126
Dex Media West, LLC/Dex Media Finance Co. bank term loan |  |  |  |
FRN Ser. B1, 6.227s, 2010 |  | 594,372 |  | 597,238
Goodman Global Holdings bank term loan FRN Ser. B, 6.286s, 2011 |  | 713,886 |  | 718,794
Goodyear Tire & Rubber Co. (The) bank term loan FRN 7.06s, 2010 |  | 195,000 |  | 197,641
Hayes Lemmerz International, Inc. bank term loan FRN |  |  |  |
7.781s, 2009 |  | 132,940 |  | 133,509
Infor Global Solutions bank term loan FRN Ser. B, 7.286s, 2011 |  | 60,744 |  | 60,744
Infor Global Solutions bank term loan FRN Ser. DD, |  |  |  |
7.286s, 2011 |  | 9,256 |  | 9,256
Jostens IH Corp. bank term loan FRN Ser. C, 7.318s, 2010 |  | 938,506 |  | 950,628
Landsource, Inc. bank term loan FRN Ser. B, 7 1/4s, 2010 |  | 50,000 |  | 50,188
Neiman Marcus Group, Inc. bank term loan FRN Ser. B, |  |  |  |
7.34s, 2013 |  | 474,684 |  | 481,168
Penn National Gaming, Inc. bank term loan FRN Ser. B, |  |  |  |
6 3/8s, 2012 |  | 199,000 |  | 201,488
PRIMEDIA, Inc. bank term loan FRN Ser. B, 6.92s, 2013 |  | 150,000 |  | 148,281
R.H. Donnelley Finance Corp. bank term loan FRN Ser. D, |  |  |  |
6.466s, 2011 |  | 213,122 |  | 214,679
R.H. Donnelley Finance Corp. bank term loan FRN Ser. D, |  |  |  |
5.696s, 2011 |  | 498,737 |  | 502,382
R.H. Donnelley Finance Corp. bank term loan FRN Ser. D1, |  |  |  |
6.69s, 2011 |  | 400,000 |  | 401,650
Raycom Media, Inc. bank term loan FRN Ser. B, 6.188s, 2013 |  | 448,572 |  | 450,254
Sealy Mattress Co. bank term loan FRN Ser. D, 6.525s, 2012 |  | 473,355 |  | 478,976
Sun Media Corp. bank term loan FRN Ser. B, 6.668s, |  |  |  |
2009 (Canada) |  | 150,728 |  | 152,612
Trump Hotel & Casino Resort, Inc. bank term loan FRN |  |  |  |
Ser. B-1, 7.17s, 2012 |  | 174,125 |  | 175,540
Trump Hotel & Casino Resort, Inc. bank term loan FRN |  |  |  |
Ser. DD, 5.62s, 2012 |  | 174,125 |  | 175,540
TRW Automotive, Inc. bank term loan FRN Ser. B, |  |  |  |
6 1/4s, 2010 |  | 520,214 |  | 521,370
TRW Automotive, Inc. bank term loan FRN Ser. B2, |  |  |  |
6 1/8s, 2010 |  | 120,000 |  | 120,150
Venetian Casino Resort, LLC bank term loan FRN |  |  |  |
Ser. B, 6.28s, 2011 |  | 664,302 |  | 670,945
Venetian Casino Resort, LLC bank term loan FRN |  |  |  |
Ser. DD, 6.28s, 2011 |  | 136,969 |  | 138,339

47

SENIOR LOANS (8.5%)* (c) continued |  |  |  |
|  | Principal amount |  | Value
Consumer Cyclicals continued |  |  |  |
Veterinary Centers of America, Inc. bank term loan |  |  |  |
FRN Ser. B, 6 1/8s, 2011 |  | $ | 305,203 | $ | 307,492
William Carter Holdings Co. (The) bank term loan FRN |  |  |  |
Ser. B, 6.489s, 2012 |  | 84,206 |  | 85,154
|  |  |  | 12,203,676
Consumer Staples (2.3%) |  |  |  |
Affinity Group Holdings bank term loan FRN Ser. B2, |  |  |  |
7.208s, 2009 |  | 117,348 |  | 118,521
AMC Entertainment, Inc. bank term loan FRN 6.943s, 2013 |  | 200,000 |  | 202,219
AMF Bowling Worldwide bank term loan FRN Ser. B, |  |  |  |
7.667s, 2009 |  | 104,013 |  | 104,793
Ashtead Group PLC bank term loan FRN Ser. B, 6 1/2s, |  |  |  |
2009 (United Kingdom) |  | 247,500 |  | 249,975
Burger King Corp. bank term loan FRN Ser. B1, 6 1/8s, 2013 |  | 550,861 |  | 553,959
Cablevision Systems Corp. bank term loan FRN 6.286s, 2013 |  | 1,100,000 |  | 1,108,388
Century Cable Holdings bank term loan FRN 9 3/4s, 2009 |  | 900,000 |  | 877,875
Charter Communications bank term loan FRN Ser. B, |  |  |  |
7.92s, 2011 |  | 827,054 |  | 833,804
Cinemark, Inc. bank term loan FRN Ser. C, 6.536s, 2011 |  | 248,101 |  | 251,141
Constellation Brands, Inc. bank term loan FRN Ser. B, |  |  |  |
6.361s, 2011 |  | 796,424 |  | 806,279
DirecTV Holdings, LLC bank term loan FRN Ser. B, |  |  |  |
6.276s, 2013 |  | 733,333 |  | 741,125
Dole Food Co., Inc. bank term loan FRN Ser. B, 6.318s, 2012 |  | 245,023 |  | 245,461
Gray Television, Inc. bank term loan FRN Ser. B, 6.03s, 2012 |  | 149,625 |  | 150,523
Insight Midwest LP/Insight Capital, Inc. bank term loan FRN |  |  |  |
6.563s, 2009 |  | 68,425 |  | 69,350
Jack-in-the-Box, Inc. bank term loan FRN 6.152s, 2008 |  | 197,980 |  | 199,712
Jean Coutu Group, Inc. bank term loan FRN Ser. B, |  |  |  |
6.938s, 2011 (Canada) |  | 535,320 |  | 540,524
Mediacom Communications Corp. bank term loan FRN |  |  |  |
Ser. B, 6.931s, 2012 |  | 987,500 |  | 1,000,307
MGM Studios, Inc. bank term loan FRN Ser. B, 6.78s, 2011 |  | 900,000 |  | 910,688
Olympus Cable Holdings, LLC bank term loan FRN |  |  |  |
Ser. B, 9 3/4s, 2010 |  | 500,000 |  | 489,643
PanAmSat Corp. bank term loan FRN Ser. B1, 6.9s, 2010 |  | 974,493 |  | 986,674
Pinnacle Foods Holding Corp. bank term loan FRN |  |  |  |
7.823s, 2010 |  | 678,604 |  | 688,613
Regal Cinemas, Inc. bank term loan FRN Ser. B, 6.527s, 2010 |  | 540,260 |  | 544,987
Six Flags, Inc. bank term loan FRN Ser. B, 7.111s, 2009 |  | 429,873 |  | 434,508
Spanish Broadcasting Systems, Inc. bank term loan FRN |  |  |  |
6.53s, 2012 |  | 446,617 |  | 451,641
Spectrum Brands, Inc. bank term loan FRN Ser. B, 7.164s, 2013 |  | 739,297 |  | 747,614
Universal City Development bank term loan FRN Ser. B, |  |  |  |
6.671s, 2011 |  | 1,034,895 |  | 1,047,400
Warner Music Group bank term loan FRN Ser. B, 6.669s, 2011 |  | 343,915 |  | 348,106
Young Broadcasting, Inc. bank term loan FRN Ser. B, 6.954s, 2012 |  | 792,431 |  | 792,926
|  |  |  | 15,496,756

48

SENIOR LOANS (8.5%)* (c) continued |  |  |  |
|  | Principal amount |  | Value
Energy (0.3%) |  |  |  |
Dresser, Inc. bank term loan FRN 7.99s, 2010 | $ | 180,000 | $ | 184,050
Key Energy Services, Inc. bank term loan FRN Ser. B, 7.683s, 2012 |  | 897,750 |  | 909,720
Petroleum Geo-Services ASA bank term loan FRN Ser. B, |  |  |  |
7s, 2012 (Norway) |  | 99,750 |  | 100,872
Targa Resources, Inc. bank term loan FRN 7.088s, 2012 |  | 637,923 |  | 646,695
Targa Resources, Inc. bank term loan FRN 4.402s, 2012 |  | 153,871 |  | 155,987
Universal Compression, Inc. bank term loan FRN |  |  |  |
Ser. B, 6.03s, 2012 |  | 147,248 |  | 148,536
|  |  |  | 2,145,860
Financial (0.5%) |  |  |  |
Ameritrade, Inc. bank term loan FRN Ser. B, 6.32s, 2013 |  | 1,000,000 |  | 1,005,438
Capital Automotive bank term loan FRN 6.34s, 2010 (R) |  | 1,150,000 |  | 1,161,294
Fidelity National Information Solutions bank term loan FRN |  |  |  |
Ser. B, 6.47s, 2013 |  | 792,484 |  | 798,428
Hilb, Rogal & Hamilton Co. bank term loan FRN Ser. B, |  |  |  |
6.813s, 2011 |  | 214,671 |  | 216,013
NASDAQ, Inc. bank term loan FRN Ser. B, 6.287s, 2011 |  | 350,000 |  | 352,333
|  |  |  | 3,533,506
Health Care (0.7%) |  |  |  |
Alderwoods Group, Inc. bank term loan FRN 6.738s, 2009 |  | 646,384 |  | 652,039
Community Health Systems, Inc. bank term loan FRN |  |  |  |
Ser. B, 6.559s, 2011 |  | 316,190 |  | 320,142
DaVita, Inc. bank term loan FRN Ser. B, 6.542s, 2012 |  | 894,444 |  | 905,438
Hanger Orthopedic Group, Inc. bank term loan FRN |  |  |  |
8.271s, 2009 |  | 97,750 |  | 98,972
Healthsouth Corp. bank term loan FRN Ser. B, 7.786s, 2013 |  | 1,200,000 |  | 1,208,750
Kinetic Concepts, Inc. bank term loan FRN Ser. B, 6.28s, 2011 |  | 65,596 |  | 66,279
LifePoint, Inc. bank term loan FRN Ser. B, 6.185s, 2012 |  | 916,222 |  | 921,058
Mylan Laboratories, Inc. bank term loan FRN Ser. B, |  |  |  |
6.11s, 2010 |  | 239,193 |  | 241,784
|  |  |  | 4,414,462
Technology (0.3%) |  |  |  |
Avago Technologies Finance bank term loan FRN Ser. B, |  |  |  |
7.13s, 2012 (Singapore) |  | 35,967 |  | 36,039
Avago Technologies Finance bank term loan FRN Ser. DD, |  |  |  |
7.318s, 2012 (Singapore) |  | 149,625 |  | 150,373
Extensity, Inc. bank term loan FRN Ser. B, 7 1/4s, 2011 |  | 50,000 |  | 50,313
SunGard Data Systems, Inc. bank term loan FRN Ser. B, |  |  |  |
7.215s, 2013 |  | 792,431 |  | 802,761
UGS Corp. bank term loan FRN Ser. C, 6.61s, 2012 |  | 425,724 |  | 430,514
Xerox Corp. bank term loan FRN 6.35s, 2008 |  | 200,000 |  | 200,100
|  |  |  | 1,670,100

49

SENIOR LOANS (8.5%)* (c) continued |  |  |  |
|  | Principal amount |  | Value
Transportation (0.1%) |  |  |  |
Travelcenters of America bank term loan FRN Ser. B, |  |  |  |
6.443s, 2011 | $ | 548,625 | $ | 553,700
United Airlines bank term loan FRN Ser. B, 8.286s, 2012 |  | 306,250 |  | 311,227
United Airlines bank term loan FRN Ser. DD, 8.286s, 2012 |  | 43,750 |  | 44,461
|  |  |  | 909,388
Utilities & Power (0.3%) |  |  |  |
Allegheny Energy, Inc. bank term loan FRN Ser. C, 6 3/8s, 2011 |  | 316,251 |  | 317,569
El Paso Corp. bank term loan FRN 4.29s, 2009 |  | 208,000 |  | 210,282
El Paso Corp. bank term loan FRN Ser. B, 7.313s, 2009 |  | 777,872 |  | 787,379
NRG Energy, Inc. bank term loan FRN Ser. B, 6.82s, 2013 |  | 698,000 |  | 706,434
Williams Cos., Inc. (The) bank term loan FRN Ser. C, |  |  |  |
7.015s, 2007 |  | 116,714 |  | 118,099
|  |  |  | 2,139,763
Total senior loans (cost $57,337,926) |  |  | $ | 57,565,459
PREFERRED STOCKS (0.2%)* |  |  |  |
|  | Shares |  | Value
First Republic Capital Corp. 144A 10.50% pfd. |  | 320 | $ | 352,000
Paxson Communications Corp. 14.25% cum. pfd. ‡‡ |  | 20 |  | 174,500
Rural Cellular Corp. Ser. B, 11.375% cum. pfd. |  | 426 |  | 518,655
Total preferred stocks (cost $848,472) |  |  | $ | 1,045,155
UNITS (0.1%)* (cost $1,180,933) |  |  |  |
|  | Units |  | Value
XCL Equity Units (F) |  | 991 | $ | 675,285
COMMON STOCKS (0.1%)* |  |  |  |
|  | Shares |  | Value
Comdisco Holding Co., Inc. |  | 506 | $ | 7,464
Contifinancial Corp. Liquidating Trust Units |  | 3,445,121 |  | 1,077
Crown Castle International Corp. † |  | 497 |  | 14,090
Dobson Communications Corp. † |  | 1,857 |  | 14,893
Genesis HealthCare Corp. † |  | 903 |  | 39,678
iPCS, Inc. † |  | 228 |  | 10,716
Knology, Inc. † |  | 199 |  | 1,359
Northwestern Corp. |  | 3,774 |  | 117,522
Sterling Chemicals, Inc. † |  | 110 |  | 1,128
Sun Healthcare Group, Inc. † |  | 740 |  | 5,580
USA Mobility, Inc. |  | 12 |  | 342
VFB LLC (acquired 10/27/00 and 12/8/03, cost $594,553) (F) ‡ † |  | 948,004 |  | 20,145
WHX Corp. † |  | 18,832 |  | 191,145
Total common stocks (cost $3,892,673) |  |  | $ | 425,139

50

CONVERTIBLE PREFERRED STOCKS (—%)* |  |  |  |  |
|  |  | Shares |  | Value
Emmis Communications Corp. Ser. A, $3.125 cum. cv. pfd. |  | 2,441 | $ | 96,725
Paxson Communications Corp. 144A 9.75s cv. pfd. ‡‡ |  | 21 |  | 147,000
Total convertible preferred stocks (cost $328,075) |  |  |  | $ | 243,725
WARRANTS (—%)*† |  |  |  |  |
| Expiration date | Strike price | Warrants |  | Value
Dayton Superior Corp. 144A | 6/15/09 | .01 | 1,020 | $ | 10
MDP Acquisitions PLC 144A (Ireland) | 10/01/13 | EUR .001 | 508 |  | 14,224
Mikohn Gaming Corp. 144A | 8/15/08 | 7.70 | 390 |  | 2,527
TravelCenters of America, Inc. | 5/01/09 | .001 | 1,830 |  | 2,288
Ubiquitel, Inc. 144A | 4/15/10 | 22.74 | 1,670 |  | 17
Total warrants (cost $116,451) |  |  |  | $ | 19,066
EQUITY VALUE CERTIFICATES (—%)*† (cost $55,184) |  |  |  |
| Maturity date | Certificates |  | Value
ONO Finance PLC 144A (United Kingdom) | 3/16/11 |  | 400 | $ | 4
SHORT-TERM INVESTMENTS (20.1%)* |  |  |  |  |
|  | Principal amount/shares |  |  | Value
Putnam Prime Money Market Fund (e) |  | 135,352,588 | $ | 135,352,588
U.S. Treasury Bills for and effective yield of 4.37%, 4/13/06 # | $ 1,383,000 |  | 1,381,029
Total short-term investments (cost $136,733,617) |  |  |  | $ | 136,733,617
TOTAL INVESTMENTS |  |  |  |  |
Total investments (cost $738,224,666) |  |  |  | $ | 727,971,773

* Percentages indicated are based on net assets of $679,239,537.
† Non-income-producing security.
†† The interest rate and date shown parenthetically represent the new interest rate to be paid and the date the fund will begin
accruing interest at this rate.
‡ Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities held at March 31,
2006 was $670,905 or less than 0.1% of net assets.
‡‡ Income may be received in cash or additional securities at the discretion of the issuer.
# This security was pledged and segregated with the custodian to cover margin requirements for futures contracts at
March 31, 2006.
(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. These loans pay interest at rates which adjust periodically. The interest rate shown for
senior loans are the current interest rates at March 31, 2006. Senior loans are also subject to mandatory and/or optional
prepayment which cannot be predicted. As a result, the remaining maturity may be substantially less than the stated
maturity shown (Notes 1 and 6).

51

(e) See Note 5 to the financial statements regarding investments in Putnam Prime Money Market Fund.
(F) Security is valued at fair value following procedures approved by the Trustees.
At March 31, 2006, liquid assets totaling $179,017,874 have been designated as collateral for open forward commitments,
swap contracts and futures contacts.

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) are the current interest rates at March 31, 2006.

Inverse Floating Rate Bonds (IFB) are securities that pay interest rates that vary inversely to changes in the market interest
rates. As interest rates rise, inverse floaters produce less current income. The interest rates shown are the current interest
rates at March 31, 2006.

DIVERSIFICATION BY COUNTRY

Distribution of investments by country of issue at March 31, 2006: (as a percentage of Portfolio Value)

Argentina | 0.9% |  |  |  |  |  |
Brazil | 1.5 |  |  |  |  |  |
Canada | 1.3 |  |  |  |  |  |
Cayman Islands | 1.2 |  |  |  |  |  |
Colombia | 0.5 |  |  |  |  |  |
France | 1.6 |  |  |  |  |  |
Germany | 2.1 |  |  |  |  |  |
Ireland | 2.2 |  |  |  |  |  |
Luxembourg | 0.6 |  |  |  |  |  |
Mexico | 0.6 |  |  |  |  |  |
Sweden | 0.7 |  |  |  |  |  |
United Kingdom | 2.0 |  |  |  |  |  |
United States | 82.7 |  |  |  |  |  |
Other | 2.1 |  |  |  |  |  |
Total | 100.0% |  |  |  |  |  |

FORWARD CURRENCY CONTRACTS TO BUY at 3/31/06 (aggregate face value $73,141,192) (Unaudited)
|  |  |  | Unrealized
|  | Aggregate | Delivery | appreciation/
| Value | face value | date | (depreciation)
Australian Dollar | $ 5,097,797 | $5,143,559 | 4/19/06 | $ (45,762) |
British Pound | 8,594,589 | 8,653,948 | 6/21/06 | (59,359)
Canadian Dollar | 7,712,195 | 7,799,493 | 4/19/06 | (87,298)
Danish Krone | 1,143,424 | 1,136,435 | 6/21/06 | 6,989
Euro | 17,204,742 | 17,172,083 | 6/21/06 | 32,659
Japanese Yen | 21,763,147 | 21,865,717 | 5/17/06 | (102,570)
Norwegian Krone | 7,384,546 | 7,299,786 | 6/21/06 | 84,760
Polish Zloty | 553,783 | 565,699 | 6/21/06 | (11,916)
South Korean Won | 1,783,656 | 1,782,166 | 5/17/06 | 1,490
Swedish Krona | 1,746,725 | 1,722,306 | 6/21/06 | 24,419
Total |  |  |  | $(156,588) |

52

FORWARD CURRENCY CONTRACTS TO SELL at 3/31/06 (aggregate face value $86,197,664) (Unaudited)

|  |  |  |  |  | Unrealized
|  |  |  | Aggregate | Delivery | appreciation/
|  |  | Value | face value | date | (depreciation)
Australian Dollar |  |  | $ 7,154,894 | $ 7,364,900 | 4/19/06 | $ 210,006
British Pound |  |  | 190,691 | 191,856 | 6/21/06 | 1,165
Canadian Dollar |  |  | 9,766,209 | 9,808,685 | 4/19/06 | 42,476
Euro |  |  | 29,193,761 | 28,886,361 | 6/21/06 | (307,400)
Japanese Yen |  |  | 10,334,671 | 10,389,089 | 5/17/06 | 54,418
New Zealand Dollar |  |  | 1,669,958 | 1,681,121 | 4/19/06 | 11,163
Singapore Dollar |  |  | 1,721,514 | 1,716,222 | 5/17/06 | (5,292)
Swedish Krona |  |  | 17,701,240 | 17,561,547 | 6/21/06 | (139,693)
Swiss Franc |  |  | 8,557,926 | 8,597,883 | 6/21/06 | 39,957
Total |  |  |  |  |  | $ (93,200)
FUTURES CONTRACTS OUTSTANDING at 3/31/06 (Unaudited) |  |
|  |  |  |  |  | Unrealized
|  |  | Number of |  | Expiration | appreciation/
|  |  | contracts | Value | date | (depreciation)
Euro 90 day (Long) |  |  | 1,438 | $340,572,325 | Sep-06 | $ (720,311)
Euro 90 day (Long) |  |  | 6 | 1,751,929 | Dec-06 | (6,184)
Euro 90 day (Short) |  |  | 1,438 | 340,788,025 | Mar-07 | 1,302,053
Euro-Bobl 5yr (Long) |  |  | 96 | 12,785,731 | Jun-06 | (74,633)
Euro-Bund 10 yr (Short) |  |  | 96 | 13,610,467 | Jun-06 | 172,788
Euro-Schatz 2 yr (Long) |  |  | 10 | 1,263,966 | Jun-06 | (2,753)
Japanese Government Bond 10 yr (Long) | 2,000 | 2,262,609 | Jun-06 | (17,809)
U.K. Gilt (Long) |  |  | 22 | 4,259,961 | Jun-06 | (72,942)
U.S. Treasury Long Bond (Long) |  |  | 487 | 53,159,094 | Jun-06 | (1,867,155)
U.S. Treasury Note 10 yr (Short) |  |  | 678 | 72,132,844 | Jun-06 | 1,105,941
U.S. Treasury Note 2 yr (Short) |  |  | 269 | 54,838,172 | Jun-06 | 55,615
U.S. Treasury Note 5 yr (Short) |  |  | 429 | 44,803,688 | Jun-06 | 205,639
Total |  |  |  |  |  | $ 80,249
WRITTEN OPTIONS OUTSTANDING at 3/31/06 (premiums received $468,959) (Unaudited) |
|  |  | Contract | Expiration date/ |
|  |  | amount | strike price |  | Value
Option on an interest rate swap |  |  |  |  |  |
with Citibank for the obligation |  |  |  |  |  |
to pay a fixed rate of 0.60% versus |  |  |  |  |  |
the one year JPY-LIBOR maturing |  |  |  |  |  |
on January 31, 2008. | JPY | 15,458,500,000 | Jan 07 / JPY0.6001 | $746,182
Option on an interest rate swap |  |  |  |  |  |
with Citibank for the right to |  |  |  |  |  |
receive a fixed rate of 1.165% |  |  |  |  |  |
versus the one year JPY-LIBOR |  |  |  |  |  |
maturing on April 3, 2008. | JPY | 13,104,267,000 | Mar 07 / JPY1.165 | 211,000
Total |  |  |  |  |  | $957,182

53

TBA SALE COMMITMENTS OUTSTANDING at 3/31/06 (proceeds receivable $19,347,766) (Unaudited)

|  |  |  |  | Principal | Settlement |  |
|  |  |  |  | amount | date |  | Value
FNMA, 5 1/2s, April 1, 2036 |  | $19,700,000 | 04/18/06 | $19,225,969
INTEREST RATE SWAP CONTRACTS OUTSTANDING at 3/31/06 (Unaudited) |  |  |
|  |  |  | Fixed payments | Fixed payments |  | Unrealized
Swap counterparty / | Termination | made by | received by |  |  | appreciation/
Notional amount | date | fund per annum | fund per annum |  | (depreciation)
Bank of America, N.A. |  |  |  |  |  |
| $ | 4,400,000 | 1/27/14 | 4.35% | 3 month USD-LIBOR-BBA |  | $ 283,076
|  | 16,800,000 | 3/30/09 | 3.075% | 3 month USD-LIBOR-BBA | 1,010,730
|  | 10,000,000 | 9/1/15 | 3 month USD-LIBOR-BBA | 4.53% |  |  | (629,756)
Citibank, N.A |  |  |  |  |  |
NOK | 47,500,000 | 7/14/10 | 6 month NOK-NIBOR-NIBR | 3.40% |  |  | (57,947)
JPY | 1,300,000,000 | 2/10/16 | 6 month JPY-LIBOR-BBA | 1.755% |  |  | (230,327)
NOK | 18,800,000 | 7/22/10 | 6 month NOK-NIBOR-NIBR | 3.52% |  |  | (8,592)
EUR | 2,300,000 | 7/22/10 | 2.825% | 6 month EUR-EURIBOR-Telerate | 58,144
JPY | 2,400,000,000 | 3/14/13 | 1.54375% | 6 month JPY-LIBOR-BBA |  | 297,937
JPY | 5,500,000,000 | 3/14/09 | 6 month JPY-LIBOR-BBA | 0.84% |  |  | (358,596)
JPY | 5,372,749,000 | 4/3/08 | 1 year JPY-LIBOR-BBA | 1.165% |  |  | (62,668)
EUR | 5,800,000 | 7/14/10 | 2.7515% | 6 month EUR-EURIBOR-Telerate | 167,629
EUR | 16,000,000 | 12/16/15 | 6 month EUR-EURIBOR-Telerate | 3.485% |  |  | (713,258)
EUR | 75,000,000 | 12/17/07 | 2.973% | 6 month EUR-EURIBOR-Telerate | 620,914
Credit Suisse First Boston International |  |  |  |  |
| $ | 5,048,700 | 7/9/06 | 3 month USD-LIBOR-BBA | 2.931% |  |  | (48,405)
|  | 5,699,500 | 7/9/14 | 4.945% | 3 month USD-LIBOR-BBA | 153,546
HSBC Bank USA |  |  |  |  |  |
CAD | 52,747,000 | 2/16/08 | 3 month CAD-BA-CDOR | 4.20% |  |  | (53,434)
CAD | 12,604,000 | 2/16/16 | 4.5875% | 3 month CAD-BA-CDOR |  | 33,980
JPMorgan Chase Bank, N.A. |  |  |  |  |
| $ | 8,000,000 | 3/6/16 | 3 month USD-LIBOR-BBA | 5.176% |  |  | (128,649)
|  | 134,000,000 | 6/17/07 | 4.0825% | 3 month USD-LIBOR-BBA | 604,731
|  | 30,000,000 | 6/17/15 | 3 month USD-LIBOR-BBA | 4.5505% |  |  | (1,469,908)
|  | 25,100,000 | 9/2/15 | 3 month USD-LIBOR-BBA | 4.4505% |  |  | (1,728,477)
JPMorgan Securities, Inc. |  |  |  |  |  |
GBP | 31,810,000 | 2/23/08 | 4.635% | 6 month GBP-LIBOR-BBA |  | 151,314
Lehman Brothers Special Financing, Inc. |  |  |  |  |
| $ | 95,000,000 | 3/6/08 | 3 month USD-LIBOR-BBA | 5.133% |  |  | (234,742)
GBP | 1,365,000 | 3/15/36 | 3,304,437 GBP at maturity | 6 month GBP-LIBOR-BBA |  | 36,812
| $ | 9,188,000 | 12/11/13 | 3 month USD-LIBOR-BBA | 4.641% |  |  | (305,124)
|  | 4,400,000 | 1/26/14 | 4.3375% | 3 month USD-LIBOR-BBA | 286,652
Merrill Lynch Capital Services, Inc. |  |  |  |  |
EUR | 46,900,000 | 2/19/07 | 2.5645% | 6 month EUR-EURIBOR-Telerate | 307,873
NOK | 28,000,000 | 7/26/10 | 6 month NOK-NIBOR-NIBR | 3.54% |  |  | (6,249)
EUR | 3,500,000 | 7/26/10 | 2.801% | 6 month EUR-EURIBOR-Telerate | 92,571
Total |  |  |  |  |  |  | $(1,930,223)

54

TOTAL RETURN SWAP CONTRACTS OUTSTANDING at 3/31/06 (Unaudited) |
|  | Fixed payments |  | Total return | Unrealized
Swap counterparty / | Termination | received (paid) by |  | received by | appreciation/
Notional amount | date | fund per annum |  | or paid by fund | (depreciation)
Goldman Sachs |  |  |  |  |  |
$1,345,000 | 9/15/11 | 1 month USD-LIBOR-BBA | Ford Credit Auto | $ (4,261)
|  |  |  |  | Owner Trust Series |
Lehman Brothers Special Financing, Inc. |  |  |  |
2,381,379 | 3/15/36 | 3.12% |  |  | GBP Non-revised |
|  |  |  |  | Retail Price Index | 17,522
Total |  |  |  |  |  | $13,261
CREDIT DEFAULT CONTRACTS OUTSTANDING at 3/31/06 (Unaudited) |
|  | Upfront |  |  | Fixed payments | Unrealized
Swap counterparty / |  | premium | Notional | Termination | received (paid) by | appreciation/
Referenced Debt* |  | received (paid)** | amount | date | fund per annum | (depreciation)
Bank of America, N.A. |  |  |  |  |  |
DJ CDX NA HY |  |  |  |  |  |
Series 4 Index | $ | (2,831) | $ 1,006,080 | 6/20/10 | (360 bp) | $ (38,992)
DJ CDX NA HY |  |  |  |  |  |
Series 4 Index |  | (10,667) | 2,400,000 | 6/20/10 | (360 bp) | (96,929)
DJ CDX NA HY |  |  |  |  |  |
Series 4 Index |  | 15,991 | 4,800,000 | 6/20/10 | (360 bp) | (156,533)
DJ CDX NA IG HVOL |  |  |  |  |  |
Series 4 Index |  | (25,947) | 3,444,000 | 6/20/10 | (90 bp) | (10,380)
DJ CDX NA HY |  |  |  |  |  |
Series 3 Index |  | 19,890 | 960,000 | 6/20/10 | 360 bp | 54,395
DJ CDX NA HY |  |  |  |  |  |
Series 4 Index |  | 39,703 | 1,824,000 | 6/20/10 | 360 bp | 105,262
Citigroup Financial Products, Inc. |  |  |  |  |
DJ CDX NA HY |  |  |  |  |  |
Series 4 Index |  | (40,050) | 2,342,000 | 6/20/10 | (360 bp) | (124,228)
DJ CDX NA IG |  |  |  |  |  |
Series 4 Index |  |  |  |  |  |
3-7% tranche |  | — | 2,440,000 | 6/20/10 | (677.5 bp) | 52,602
Goldman Sachs Capital Markets, L.P. |  |  |  |  |
DJ CDX NA HY |  |  |  |  |  |
Series 5 Index |  | (223,274) | 13,774,000 | 12/20/10 | (395 bp) | (758,260)
DJ CDX NA IG |  |  |  |  |  |
Series 4 Index |  | (8,404) | 1,695,000 | 6/20/15 | (65 bp) | (4,246)
DJ CDX NA IG |  |  |  |  |  |
Series 4 Index |  |  |  |  |  |
10-15% tranche |  | — | 1,695,000 | 6/20/15 | 57.60 bp | 5,946
DJ CDX NA IG HVOL |  |  |  |  |  |
Series 5 Index |  | (13,713) | 1,623,000 | 12/20/10 | (85 bp) | (17,533)
DJ CDX NA IG HVOL |  |  |  |  |  |
Series 5 Index |  | (10,388) | 1,623,000 | 12/20/10 | (85 bp) | (14,208)
DJ CDX NA HY |  |  |  |  |  |
Series 4 Index |  | 13,029 | 2,400,000 | 6/20/10 | (360 bp) | (73,233)
DJ CDX NA IG |  |  |  |  |  |
Series 4 Index |  | (4,460) | 2,638,000 | 6/20/10 | (90 bp) | 7,464

55

CREDIT DEFAULT CONTRACTS OUTSTANDING at 3/31/06 (Unaudited) continued |
|  | Upfront |  |  |  | Fixed payments | Unrealized
Swap counterparty / |  | premium |  | Notional | Termination | received (paid) by | appreciation/
Referenced Debt* |  | received (paid)** |  | amount | date | fund per annum | (depreciation)
Goldman Sachs Capital Markets, L.P. continued |  |  |  |  |
DJ CDX NA IG |  |  |  |  |  |  |
Series 5 Index |  |  |  |  |  |  |
3-7% tranche | $ | — | $ | 811,000 | 12/20/10 | (113 bp) | $ (13,330)
DJ CDX NA IG |  |  |  |  |  |  |
Series 5 Index |  |  |  |  |  |  |
3-7% tranche |  | — |  | 753,000 | 12/20/10 | (115 bp) | (13,015)
DJ CDX NA HY |  |  |  |  |  |  |
Series 3 Index |  | 11,636 |  | 864,000 | 6/20/10 | (360 bp) | 42,691
DJ CDX NA IG |  |  |  |  |  |  |
Series 4 Index |  |  |  |  |  |  |
3-7% tranche |  | — |  | 2,562,000 | 6/20/15 | 600 bp | (23,450)
DJ CDX NA IG |  |  |  |  |  |  |
Series 4 Index |  |  |  |  |  |  |
3-7% tranche |  | — |  | 1,479,600 | 6/20/15 | 656 bp | 11,506
Goldman Sachs International |  |  |  |  |  |  |
One of the underlying |  |  |  |  |  |  |
securities in the basket |  |  |  |  |  |  |
of BB CMBS securities |  | — |  | 3,768,000 | (a) | 2.55625% | 209,811
JPMorgan Chase Bank, N.A. |  |  |  |  |  |  |
DJ CDX NA HY |  |  |  |  |  |  |
Series 4 Index |  | (33,052) |  | 2,360,640 | 6/20/10 | (360 bp) | (117,900)
Lehman Brothers Special Financing, Inc. |  |  |  |  |
DJ CDX NA IG |  |  |  |  |  |  |
Series 4 Index |  | — |  | 1,167,000 | 6/20/15 | (65 bp) | 2,863
DJ CDX NA IG |  |  |  |  |  |  |
Series 4 Index |  | — |  | 1,168,000 | 12/20/15 | (70 bp) | (5,634)
DJ CDX NA IG |  |  |  |  |  |  |
Series 5 Index |  |  |  |  |  |  |
10-15% tranche |  | — |  | 1,168,000 | 12/20/15 | 57.5 bp | 11,577
DJ CDX NA IG |  |  |  |  |  |  |
Series 4 Index |  |  |  |  |  |  |
10-15% tranche |  | — |  | 1,167,000 | 6/20/15 | 59 bp | 12,904
DJ iTraxx Europe |  |  |  |  |  |  |
Series 4 Version 1 |  | — | EUR | 4,140,000 | 12/20/12 | (230 bp) | (175,515)
DJ iTraxx Index |  | (2) | EUR | 2,308,000 | 6/20/12 | (45 bp) | (8,770)
DJ iTraxx Europe |  |  |  |  |  |  |
Series 4 Version 1 |  | — | EUR | 2,300,000 | 12/20/15 | 616.375 bp | 167,612
DJ iTraxx Index |  |  |  |  |  |  |
6-9% tranche |  | — | EUR | 2,308,000 | 6/20/12 | 46.375 bp | 7,321
DJ CDX NA IG HVOL |  |  |  |  |  |  |
Series 5 Index |  | (4,034) | $ | 753,000 | 12/20/10 | (85 bp) | (5,806)
DJ CDX NA HY |  |  |  |  |  |  |
Series 4 Index |  | (8,304) |  | 2,459,520 | 6/20/10 | (360 bp) | (96,705)
DJ CDX NA HY |  |  |  |  |  |  |
Series 4 Index |  | (25,144) |  | 2,342,400 | 6/20/10 | (360 bp) | (109,307)
DJ CDX NA HY |  |  |  |  |  |  |
Series 4 Index |  | (16,636) |  | 1,411,200 | 6/20/10 | (360 bp) | (67,358)
DJ CDX NA HY |  |  |  |  |  |  |
Series 4 Index |  | 22,098 |  | 4,800,000 | 6/20/10 | (360 bp) | (150,426)
DJ CDX NA IG HVOL |  |  |  |  |  |  |
Series 4 Index |  | (6,235) |  | 551,000 | 6/20/10 | (90 bp) | (3,871)

56

CREDIT DEFAULT CONTRACTS OUTSTANDING at 3/31/06 (Unaudited) continued |
|  | Upfront |  |  |  | Fixed payments | Unrealized
Swap counterparty / |  | premium |  | Notional | Termination | received (paid) by | appreciation/
Referenced Debt* |  | received (paid)** |  | amount | date | fund per annum | (depreciation)
Lehman Brothers Special Financing, Inc. continued |  |  |  |  |
DJ CDX NA IG |  |  |  |  |  |  |
Series 4 Index |  |  |  |  |  |  |
3-7% tranche | $ | — | $ | 2,170,500 | 6/20/10 | (124.5 bp) | $ (40,882)
DJ CDX NA HY |  |  |  |  |  |  |
Series 3 Index |  | 19,702 |  | 864,000 | 6/20/10 | (360 bp) | 50,757
DJ CDX NA IG |  |  |  |  |  |  |
Series 4 Index |  |  |  |  |  |  |
3-7% tranche |  | — |  | 551,000 | 6/20/12 | 309 bp | 17,247
Merrill Lynch International |  |  |  |  |  |  |
DJ CDX NA HY |  | 22,621 |  | 1,056,000 | 6/20/10 | 360 bp | 60,563
Merrill Lynch International & Co. C.V. |  |  |  |  |
DJ CDX NA IG |  |  |  |  |  |  |
Series 5 Index |  |  |  |  |  |  |
3-7% tranche |  | — |  | 753,000 | 12/20/12 | 246 bp | 10,014
Morgan Stanley Capital Services, Inc. |  |  |  |  |  |
DJ CDX NA IG |  |  |  |  |  |  |
Series 4 Index |  |  |  |  |  |  |
3-7% tranche |  | — |  | 551,000 | 6/20/10 | (110.5 bp) | (7,526)
DJ CDX NA IG |  |  |  |  |  |  |
Series 4 Index |  | (7,466) |  | 1,151,000 | 6/20/15 | (65 bp) | (4,642)
DJ CDX NA IG |  |  |  |  |  |  |
Series 4 Index |  |  |  |  |  |  |
10-15% tranche |  | (5,882) |  | 1,151,000 | 6/20/15 | 70.5 bp | 8,764
DJ CDX NA IG |  |  |  |  |  |  |
Series 5 Index |  |  |  |  |  |  |
3-7% tranche |  | — |  | 1,623,000 | 12/20/12 | 305 bp | 75,269
DJ iTraxx EUR |  |  |  |  |  |  |
Series 3 Index |  |  |  |  |  |  |
3-6% tranche |  | — | EUR | 1,048,000 | 6/20/15 | 479 bp | (25,775)
DJ CDX NA IG HVOL |  |  |  |  |  |  |
Series 5 Index |  | (4,230) | $ | 753,000 | 12/20/10 | (85 bp) | (6,002)
DJ CDX NA HY |  |  |  |  |  |  |
Series 5 Index |  | (19,741) |  | 1,065,060 | 12/20/10 | (395 bp) | (61,108)
DJ CDX NA IG |  |  |  |  |  |  |
Series 5 Index |  | (8,938) |  | 642,625 | 12/20/10 | (395 bp) | (33,898)
DJ CDX NA IG |  |  |  |  |  |  |
Series 4 Index |  |  |  |  |  |  |
3-7% tranche |  | — |  | 2,493,000 | 6/20/10 | (114 bp) | (37,395)
DJ CDX NA IG |  |  |  |  |  |  |
Series 4 Index |  | (4,979) |  | 2,336,000 | 6/20/12 | (55 bp) | (4,800)
DJ CDX NA IG |  |  |  |  |  |  |
Series 5 Index |  |  |  |  |  |  |
3-7% tranche |  | — |  | 753,000 | 12/20/10 | (115 bp) | (13,015)
DJ CDX NA HY |  |  |  |  |  |  |
Series 5 Index |  |  |  |  |  |  |
25-35% tranche |  | — |  | 1,325,000 | 12/20/10 | 127 bp | 47,824
DJ CDX NA HY |  |  |  |  |  |  |
Series 5 Index |  |  |  |  |  |  |
25-35% tranche |  | — |  | 2,196,000 | 12/20/10 | 145 bp | 93,688
DJ CDX NA IG |  |  |  |  |  |  |
Series 4 Index |  |  |  |  |  |  |
3-7% tranche |  | — |  | 1,722,000 | 6/20/12 | 275 bp | 23,173

57

CREDIT DEFAULT CONTRACTS OUTSTANDING at 3/31/06 (Unaudited) continued |
|  | Upfront |  |  | Fixed payments | Unrealized
Swap counterparty / |  | premium | Notional | Termination | received (paid) by | appreciation/
Referenced Debt* |  | received (paid)** | amount | date | fund per annum | (depreciation)
Morgan Stanley Capital Services, Inc. continued |  |  |  |
DJ CDX NA IG |  |  |  |  |  |
Series 4 Index |  |  |  |  |  |
3-7% tranche | $ | — | $ 2,619,000 | 6/20/12 | 285 bp | $ 49,001
DJ CDX NA IG |  |  |  |  |  |
Series 4 Index |  |  |  |  |  |
7-10% tranche |  | — | 2,336,000 | 6/20/12 | 48 bp | 16,422
DJ CDX NA IG |  |  |  |  |  |
Series 5 Index |  |  |  |  |  |
3-7% tranche |  | — | 753,000 | 12/20/12 | 248 bp | 10,863
Total |  |  |  |  |  | $(1,165,133)

* Payments related to the reference debt are made upon a credit default event.
** Upfront premium is based on the difference between the original spread on issue and the market spread on day of execution.
(a) Terminating on the date on which the notional amount is reduced to zero or the date on which the assets securing the
reference entity are liquidated.

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

58

Statement of assets and liabilities 3/31/06 (Unaudited) |
ASSETS |
Investment in securities, at value (Note 1): |
Unaffiliated issuers (identified cost $602,872,078) | $592,619,185
Affiliated issuers (identified cost $135,352,588) (Note 5) | 135,352,588
Cash | 5,009,557
Foreign currency (cost $3,962,708) (Note 1) | 3,993,024
Dividends, interest and other receivables | 7,842,102
Receivable for securities sold | 3,622,026
Receivable for sales of delayed delivery securities (Note 1) | 19,405,568
Unrealized appreciation on swap contracts (Note 1) | 5,278,970
Receivable for open forward currency contracts (Note 1) | 510,374
Receivable for closed forward currency contracts (Note 1) | 360,798
Receivable for closed swap contracts (Note 1) | 115,538
Premiums payed on credit default contracts (Note 1) | 319,707
Total assets | 774,429,437
LIABILITIES |
Payable for variation margin (Note 1) | 82,144
Distributions payable to shareholders | 2,752,276
Payable for securities purchased | 5,575,125
Payable for delayed delivery securities (Note 1) | 54,468,800
Payable for shares of the fund repurchased (Note 4) | 987,038
Payable for compensation of Manager (Notes 2 and 5) | 1,190,558
Payable for investor servicing and custodian fees (Note 2) | 28,343
Payable for Trustee compensation and expenses (Note 2) | 103,631
Payable for administrative services (Note 2) | 1,800
Payable for open forward currency contracts (Note 1) | 760,162
Payable for closed forward currency contracts (Note 1) | 636,948
Payable for closed swap contracts (Note 1) | 15,446
Written options outstanding, at value (premiums received $468,959) (Note 1) | 957,182
Unrealized depreciation on swap contracts (Note 1) | 8,361,065
TBA sales commitments, at value (proceeds receivable $19,347,766) (Note 1) | 19,225,969
Other accrued expenses | 43,413
Total liabilities | 95,189,900
Net assets applicable to common shares outstanding | $679,239,537
(Continued on next page) |

59

Statement of assets and liabilities (Continued) |
REPRESENTED BY |
Paid-in capital (Unlimited shares authorized) (Notes 1 and 4) | $ 821,061,308
Undistributed net investment income (Note 1) | 9,576,066
Accumulated net realized loss on investments |
and foreign currency transactions (Note 1) | (137,653,065)
Net unrealized depreciation of investments |
and assets and liabilities in foreign currencies | (13,744,772)
Total — Representing net assets applicable to capital shares outstanding | $ 679,239,537
COMPUTATION OF NET ASSET VALUE |
Net asset value per share |
($679,239,537 divided by 97,526,504 shares) | $6.96

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

60

Statement of operations Six months ended 3/31/06 (Unaudited) |  |
INVESTMENT INCOME |  |
Interest (including interest income of $2,102,357 |  |
from investments in affiliated issuers) (Note 5) | $ | 18,911,725
Dividends |  | 52,277
Total investment income |  | 18,964,002
EXPENSES |  |
Compensation of Manager (Note 2) |  | 2,492,974
Investor servicing fees (Note 2) |  | 173,890
Custodian fees (Note 2) |  | 155,517
Trustee compensation and expenses (Note 2) |  | 20,412
Administrative services (Note 2) |  | 15,700
Other |  | 256,935
Fees waived and reimbursed by Manager (Note 5) |  | (58,598)
Total expenses |  | 3,056,830
Expense reduction (Note 2) |  | (203,108)
Net expenses |  | 2,853,722
Net investment income |  | 16,110,280
Net realized loss on investments (Notes 1 and 3) |  | (4,369,872)
Net realized loss on swap contracts (Note 1) |  | (292,301)
Net realized gain on futures contracts (Note 1) |  | 1,132,589
Net realized loss on foreign currency transactions (Note 1) |  | (1,839,730)
Net unrealized depreciation of assets and liabilities |  |
in foreign currencies during the period |  | (268,770)
Net unrealized depreciation of investments, futures contracts, |  |
swap contracts, written options, and TBA sale commitments |  |
during the period |  | (6,103,270)
Net loss on investments |  | (11,821,968)
Net increase in net assets resulting from operations | $ | 4,368,926

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

61

Statement of changes in net assets |
DECREASE IN NET ASSETS |  |
| Six months ended | Year ended
| 3/31/06* | 9/30/05
Operations: |  |
Net investment income | $ 16,110,280 | $ 31,885,428
Net realized gain (loss) on investments |  |
and foreign currency transactions | (5,369,314) | 20,477,730
Net unrealized depreciation of investments |  |
and assets and liabilities in foreign currencies | (6,372,040) | (16,564,065)
Net increase in net assets resulting from operations | 4,368,926 | 35,799,093
Distributions to shareholders: (Note 1) |  |
From net investment income | (17,356,626) | (42,129,483)
Decrease from shares repurchased (Note 4) | (17,038,481) | —
Total decrease in net assets | (30,026,181) | (6,330,390)
NET ASSETS |  |
Beginning of period | 709,265,718 | 715,596,108
End of period (including undistributed net investment income |  |
of $9,576,066 and $10,822,412, respectively) | $679,239,537 | $709,265,718
NUMBER OF FUND SHARES |  |
Shares outstanding at beginning of period | 100,313,084 | 100,313,084
Shares repurchased (Note 4) | (2,786,580) | —
Shares outstanding at end of period | 97,526,504 | 100,313,084
* Unaudited |  |

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

62

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

PER-SHARE OPERATING PERFORMANCE |  |  |  |
|  | Six months ended** |  |  | Year ended |  |
|  | 3/31/06 | 9/30/05 | 9/30/04 | 9/30/03 | 9/30/02 | 9/30/01
Net asset value, |  |  |  |  |  |  |
beginning of period |  | $7.07 | $7.13 | $6.99 | $6.26 | $6.54 | $7.13
Investment operations: |  |  |  |  |  |  |
Net investment income (a) | .16(d) | .32(d) | .40(d) | .48 | .52 | .58
Net realized and unrealized |  |  |  |  |  |
gain (loss) on investments | (.12) | .04 | .23 | .73 | (.26) | (.57)
Total from |  |  |  |  |  |  |
investment operations | .04 | .36 | .63 | 1.21 | .26 | .01
Less distributions: |  |  |  |  |  |  |
From net investment income | (.18) | (.42) | (.49) | (.48) | (.53) | (.46)
From return of capital |  | — | — | — | — | (.01) | (.14)
Total distributions |  | (.18) | (.42) | (.49) | (.48) | (.54) | (.60)
Increase from |  |  |  |  |  |  |
shares repurchased |  | .03 | — | — | — | — | —
Net asset value, |  |  |  |  |  |  |
end of period |  | $6.96 | $7.07 | $7.13 | $6.99 | $6.26 | $6.54
Market value, |  |  |  |  |  |  |
end of period |  | $6.01 | $6.25 | $6.73 | $6.41 | $6.38 | $6.05
Total return at |  |  |  |  |  |  |
market value (%)(b) |  | (1.05)* | (0.98) | 12.95 | 8.35 | 14.81 | 3.06
RATIOS AND SUPPLEMENTAL DATA |  |  |  |  |
Net assets, end of period |  |  |  |  |  |
(in thousands) |  | $679,240 | $709,266 | $715,596 | $700,694 | $627,620 | $655,161
Ratio of expenses to |  |  |  |  |  |  |
average net assets (%)(c) | .44*(d) | .87(d) | .86(d) | .89 | .87 | .90
Ratio of net investment income |  |  |  |  |
to average net assets (%) | 2.32*(d) | 4.43(d) | 5.61(d) | 7.22 | 7.97 | 8.50
Portfolio turnover (%) |  | 97.92*(e) | 165.33(e) | 113.46 | 141.60(f ) | 193.33(f ) | 111.45

* Not annualized.
** Unaudited.
(a) Per share net investment income has been determined on the basis of weighted average number of shares outstanding
during the period.
(b) Total return does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements (Note 2).
(d) Reflects waivers of certain fund expenses in connection with investments in Putnam Prime Money Market Fund during
the period. As a result of such waivers, the expenses of the fund for the periods ended March 31, 2006, September 30, 2005
and September 30, 2004 reflect a reduction of 0.01%, 0.02% and less than 0.01% respectively, of average net assets for
common shares (Note 5).
(e) Portfolio turnover excludes dollar roll transactions.
(f) 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.

63

Notes to financial statements 3/31/06 (Unaudited)

Note 1: Significant accounting policies

Putnam Master Intermediate Income Trust (the “fund”), a Massachusetts business trust, is registered under the Investment Company Act of 1940, as amended, as a diversified, closed-end management investment company and is authorized to issue an unlimited number of shares. The fund’s investment objective is to seek, with equal emphasis, high current income and relative stability of net asset value, by allocating its investments among the U.S. investment grade sector, high-yield sector and international sector. The fund invests a substantial portion of its assets in higher yielding, lower rated bonds that have a higher rate of default.

In the normal course of business, the fund enters into contracts that may include agreements to indemnify another party under given circumstances. The fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be, but have not yet been, made against the fund. However, the fund expects the risk of material loss to be remote.

The following is a summary of significant accounting policies consistently followed by the fund in the preparation of its financial statements. The preparation of financial statements is in conformity with accounting principles generally accepted in the United States of America and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.

A) Security valuation Investments for which market quotations are readily available are valued at the last reported sales price on their principal exchange, or official closing price for certain markets. If no sales are reported — as in the case of some securities traded over-the-counter — a security is valued at its last reported bid price. Market quotations are not considered to be readily available for certain debt obligations; such investments are valued on the basis of valuations furnished by an independent pricing service approved by the Trustees or dealers selected by Putnam Investment Management, LLC (“Putnam Management”), the fund’s manager, an indirect wholly-owned subsidiary of Putnam, LLC. Such services or dealers determine valuations for normal institutional-size trading units of such securities using methods based on market transactions for comparable securities and various relationships, generally recognized by institutional traders, between securities. Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange. Accordingly, on certain days, the fund will fair value foreign equity securities taking into account multiple factors, including movements in the U.S. securities markets. The number of days on which fair value prices will be used will depend on market activity and it is possible that fair value prices will be used by the fund to a significant extent. Securities quoted in foreign currencies, if any, are translated into U.S. dollars at the current exchange rate. Other investments, including certain restricted securities, are valued at fair value following procedures approved by the Trustees. Such valuations and procedures are reviewed periodically by the Trustees.

B) Joint trading account Pursuant to an exemptive order from the Securities and Exchange Commission, the fund may transfer uninvested cash balances, including cash collateral received under security lending arrangements, into a joint trading account along with the cash of other registered investment companies and certain other accounts managed by Putnam Investment Management, LLC (“Putnam Management”), the fund’s manager, an indirect wholly-owned subsidiary of Putnam, LLC. These balances may be invested in issues of high-grade short-term investments having maturities of up to 397 days for collateral received under security lending arrangements and up to 90 days for other cash investments.

64

C) Security transactions and related investment income Security transactions are recorded on the trade date (the date the order to buy or sell is executed).

Gains or losses on securities sold are determined on the identified cost basis. Interest income is recorded on the accrual basis. Dividend income, net of applicable withholding taxes, is recognized on the ex-dividend date except that certain dividends from foreign securities, if any, are recognized as soon as the fund is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair market value of the securities received. All premiums/discounts are amortized/accreted on a yield-to-maturity basis. All premiums/discounts are amortized/accreted on a yield-to-maturity basis.

D) Stripped mortgage-backed securities The fund may invest in stripped mortgage-backed securities which represent a participation in mortgage loans and may be structured in classes with rights to receive different portions of the interest and principal. Interest-only securities receive all of the interest and principal-only securities receive all of the principal. If the interest-only securities experience greater than anticipated prepayments of principal, the fund may fail to recoup fully its initial investment in these securities. Conversely, principal-only securities increase in value if prepayments are greater than anticipated and decline if prepayments are slower than anticipated. The market value of these securities is highly sensitive to changes in interest rates.

E) Foreign currency translation The accounting records of the fund are maintained in U.S. dollars. The market value of foreign securities, currency holdings, and other assets and liabilities 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.

F) Forward currency contracts The fund may buy and sell forward currency contracts, which are agreements between two parties to buy and sell currencies at a set price on a future date. These contracts are used to protect against a decline in value relative to the U.S. dollar of the currencies in which its portfolio securities are denominated or quoted (or an increase in the value of a currency in which securities a fund intends to buy are denominated, when a fund holds cash reserves and short term investments), or for other investment purposes. The U.S. dollar value of forward currency contracts is determined using current forward currency exchange rates supplied by a quotation service. The market value of the contract will fluctuate with changes in currency exchange rates. The contract is marked to market daily and the change in market value is recorded as an unrealized gain or loss. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The fund could be

65

exposed to risk if the value of the currency changes unfavorably, if the counterparties to the contracts are unable to meet the terms of their contracts or if the fund is unable to enter into a closing position. Risks may exceed amounts recognized on the statement of assets and liabilities. Forward currency contracts outstanding at period end, if any, are listed after the fund’s portfolio.

G) Futures and options contracts The fund may use futures and options contracts to hedge against changes in the values of securities the fund owns or expects to purchase, or for other investment purposes. The fund may also write options on swaps or securities it owns or in which it may invest to increase its current returns.

The potential risk to the fund is that the change in value of futures and options contracts may not correspond to the change in value of the hedged instruments. In addition, losses may arise from changes in the value of the underlying instruments, if there is an illiquid secondary market for the contracts, or if the counterparty to the contract is unable to perform. Risks may exceed amounts recognized on the statement of assets and liabilities. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction to the cost of investments.

Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. The fund and the broker agree to exchange an amount of cash equal to the daily fluctuation in the value of the futures contract. Such receipts or payments are known as “variation margin.” Exchange traded options are valued at the last sale price, or if no sales are reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by dealers. Futures and written option contracts outstanding at period end, if any, are listed after the fund’s portfolio.

H) Total return swap contracts The fund may enter into total return swap contracts, which are arrangements to exchange a market linked return for a periodic payment, both based on a notional principal amount. To the extent that the total return of the security, index or other financial measure underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the fund will receive a payment from or make a payment to the counterparty. Total return swap contracts are marked to market daily based upon quotations from market makers and the change, if any, is recorded as 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 in the price of the underlying security or index, the possibility that there is no liquid market for these agreements or that the counterparty may default on its obligation to perform. Risk of loss may exceed amounts recognized on the statement of assets and liabilities. Total return swap contracts outstanding at period end, if any, are listed after the fund’s portfolio.

I) Interest rate swap contracts The fund may enter into interest rate swap contracts, which are arrangements between two parties to exchange cash flows based on a notional principal amount, to manage the fund’s exposure to interest rates. Interest rate swap contracts are marked to market daily based upon quotations from an independent pricing service or market makers and the change, if any, is recorded as 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

66

defaults on its obligation to perform. Risk of loss may exceed amounts recognized on the statement of assets and liabilities. Interest rate swap contracts outstanding at period end, if any, are listed after the fund’s portfolio.

J) Credit default contracts The fund may enter into credit default contracts where one party, the protection buyer, makes an upfront or periodic payment to a 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 an independent pricing service or 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.

K) TBA purchase commitments The fund may enter into “TBA” (to be announced) commitments to purchase securities for a fixed unit price at a future date beyond customary settlement time.

Although the unit price has been established, the principal value has not been finalized. However, the amount of the commitments will not significantly differ from the principal amount. The fund holds, and maintains until settlement date, cash or high-grade debt obligations in an amount sufficient to meet the purchase price, or the fund may enter into offsetting contracts for the forward sale of other securities it owns. Income on the securities will not be earned until settlement date. TBA purchase commitments may be considered securities themselves, and involve a risk of loss if the value of the security to be purchased declines prior to the settlement date, which risk is in addition to the risk of decline in the value of the fund’s other assets. Unsettled TBA purchase commitments are valued at fair value of the underlying securities, according to the procedures described under “Security valuation” above. The contract is “marked-to-market” daily and the change in market value is recorded by the fund as an unrealized gain or loss.

Although the fund will generally enter into TBA purchase commitments with the intention of acquiring securities for its portfolio or for delivery pursuant to options contracts it has entered into, the fund may dispose of a commitment prior to settlement if Putnam Management deems it appropriate to do so.

L) TBA sale commitments The fund may enter into TBA sale commitments to hedge its portfolio positions or to sell mortgage-backed securities it owns under delayed delivery arrangements. Proceeds of TBA sale commitments are not received until the contractual settlement date. During the time a TBA sale commitment is outstanding, equivalent deliverable securities or an offsetting TBA purchase commitment deliverable on or before the sale commitment date, are held as “cover” for the transaction.

Unsettled TBA sale commitments are valued at 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

67

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.

M) Dollar rolls To enhance returns, the fund may enter into dollar rolls (principally using TBAs) in which the fund sells securities for delivery in the current month and simultaneously contracts to purchase similar securities on a specified future date. During the period between the sale and subsequent purchase, the fund will not be entitled to receive income and principal payments on the securities sold. The fund will, however, retain the difference between the initial sales price and the forward price for the future purchase. The fund will also be able to earn interest on the cash proceeds that are received from the initial sale. The fund may be exposed to market or credit risk if the price of the security changes unfavorably or the counterparty fails to perform under the terms of the agreement.

N) Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time and otherwise comply with the provisions of the Internal Revenue Code of 1986 (the “Code”) applicable to regulated investment companies. It is also the intention of the fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Code, as amended. Therefore, no provision has been made for federal taxes on income, capital gains or unrealized appreciation on securities held nor for excise tax on income and capital gains.

At September 30, 2005, the fund had a capital loss carryover of $132,218,587 available to the extent allowed by the Code to offset future net capital gain, if any. The amount of the carryover and the expiration dates are:

Loss Carryover | Expiration
$ 6,989,186 | 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

The aggregate identified cost on a tax basis is $739,688,201, resulting in gross unrealized appreciation and depreciation of $71,780,822 and $83,497,250, respectively, or net unrealized depreciation of $11,716,428.

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

Note 2: Management fee, administrative services and other transactions

Putnam Management is paid for management and investment advisory services quarterly based on the “average weekly assets” of the fund. “Average weekly assets” is defined to mean the average of the weekly determinations of the difference between the total assets of the fund (including any assets attributable to leverage for investment purposes through incurrence of indebtedness) and the total liabilities of the fund (excluding liabilities incurred in connection with leverage for investment purposes). This fee is based on the following annual rates: 0.75% of the first

68

$500 million of average weekly assets, 0.65% of the next $500 million, 0.60% of the next $500 million and 0.55% of the next $5 billion, with additional breakpoints at higher asset levels.

Prior to January 1, 2006, the fund’s management fee was based on the following annual rates: 0.75% of the first $500 million of average weekly assets, 0.65% of the next $500 million, 0.60% of the next $500 million and 0.55% thereafter.

Putnam Investments Limited (“PIL”), an affiliate of Putnam Management, is authorized by the Trustees to manage a separate portion of the assets of the fund as determined by Putnam Management from time to time. Putnam Management pays a quarterly sub-management fee to PIL for its services at an annual rate of 0.40% of the average weekly assets (calculated in the same manner as under the fund’s management contract with Putnam Management) of the portion of the fund managed by PIL.

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

Custodial functions for the fund’s assets are provided by Putnam Fiduciary Trust Company (“PFTC”), a subsidiary of Putnam, LLC. PFTC receives fees for custody services based on the fund’s asset level, the number of its security holdings and transaction volumes. Putnam Investor Services, a division of PFTC, provides investor servicing agent functions to the fund. Putnam Investor Services is paid a monthly fee for investor servicing at an annual rate of 0.05% of the fund’s average net assets. During the period ended March 31, 2006, the fund incurred $329,407 for these services.

The fund has entered into an arrangement with PFTC whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the fund’s expenses. For the six months ended March 31, 2006, the fund’s expenses were reduced by $203,108 under these arrangements.

Each independent Trustee of the fund receives an annual Trustee fee, of which $371, 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, industry seminars and for certain compliance-related matters. Trustees also are reimbursed for expenses they incur relating to their services as Trustees. George Putnam, III, who is not an independent Trustee, also receives the foregoing fees for his services as Trustee.

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 noncontribu-tory defined benefit pension plan (the “Pension Plan”) covering all Trustees of the fund who have served as a Trustee for at least five years and were first elected prior to 2004. Benefits under the Pension Plan are equal to 50% of the Trustee’s average annual attendance and retainer fees for the three years ended December 31, 2005. Pension expense for the fund is included in Trustee compensation and expenses in the statement of operations. Accrued pension liability is included in Payable for Trustee compensation and expenses in the statement of assets and liabilities. The Trustees have terminated the Pension Plan with respect to any Trustee first elected after 2003.

Note 3: Purchases and sales of securities

During the six months ended March 31, 2006, cost of purchases and proceeds from sales of investment securities other than U.S. government securities and short-term investments aggregated $552,813,236 and $664,296,880, respectively. Purchases and sales of U.S. government securities aggregated $6,050,397 and $4,985,578, respectively.

69

Written option transactions during the period ended March 31, 2006 are summarized as follows:

| Contract | Premiums
| Amounts | Received
Written options |  |  |
outstanding at |  |  |
beginning of period | — | $ | —
Options opened | JPY 28,562,767,000 |  | 468,959
Options exercised | — |  | —
Options expired | — |  | —
Options closed | — |  | —
Written options |  |  |
outstanding at |  |  |
end of period | JPY 28,562,767,000 | $ | 468,959

Note 4: Share repurchase program

In October 2005, the Trustees of your fund authorized Putnam Investments to implement a repurchase program on behalf of your fund, which would allow your fund to repurchase up to 5% of its outstanding shares over the 12 months following the announcement. In March 2006, the Trustees approved an extension of this repurchase program to allow the fund to repurchase a total of up to 10% of its outstanding shares over the same period. Repurchases will only be made when the fund’s shares are trading at less than net asset value and in accordance with procedures approved by the fund’s Trustees.

For the period ended March 31, 2006, the fund repurchased 2,786,580 common shares for an aggregate purchase price of $17,038,481, which reflects a weighted-average discount from net asset value per share of 12.8% .

Note 5: Investment in Putnam Prime Money Market Fund

Pursuant to an exemptive order from the Securities and Exchange Commission, the fund invests in Putnam Prime Money Market Fund, an open-end management investment company managed by Putnam Management. Management fees paid by the fund are reduced by an amount equal to the management and administrative services fees paid by Putnam Prime Money Market Fund with respect to assets invested by the fund in Putnam Prime Money Market Fund. For the period ended March 31, 2006, management fees paid were reduced by $58,598 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 $2,102,357 for the period ended March 31, 2006. During the period ended March 31, 2006, cost of purchases and cost of sales of investments in Putnam Prime Money Market Fund aggregated $189,294,772 and $99,057,508, respectively.

Note 6: Senior loan commitments

Senior loans are purchased or sold on a when-issued or delayed delivery basis and may be settled a month or more after the trade date, which from time to time can delay the actual investment of available cash balances; interest income is accrued based on the terms of the securities. Senior loans can be acquired through an agent, by assignment from another holder of the loan, or as a participation interest in another holder’s portion of the loan. When the fund invests in a loan or participation, the fund is subject to the risk that an intermediate participant between the fund and the borrower will fail to meet its obligations to the fund, in addition to the risk that the borrower under the loan may default on its obligations.

Note 7: Regulatory matters and litigation

Putnam Management has entered into agreements with the Securities and Exchange Commission and the Massachusetts Securities Division settling charges connected with excessive short-term trading by Putnam employees and, in the case of the charges brought by the Massachusetts Securities Division, by participants in some Putnam-administered 401(k) plans. Pursuant to these settlement agreements, Putnam Management will pay a total of $193.5 million in penalties and restitution, with $153.5 million being paid to certain open-end funds and their

70

shareholders. The amount will be allocated to shareholders and funds pursuant to a plan developed by an independent consultant, and will be paid following approval of the plan by the SEC and the Massachusetts Securities Division.

The Securities and Exchange Commission’s and Massachusetts Securities Division’s allegations and related matters also serve as the general basis for numerous lawsuits, including purported class action lawsuits filed against Putnam Management and certain related parties, including certain Putnam funds. Putnam Management will bear any costs incurred by Putnam funds in connection with these lawsuits. Putnam Management believes that the likelihood that the pending private lawsuits and purported class action lawsuits will have a material adverse financial impact on the fund is remote, and the pending actions are not likely to materially affect its ability to provide investment management services to its clients, including the Putnam funds.

The Staff of the SEC has indicated that it believes that Putnam Management did not comply with certain disclosure requirements in connection with dividend payments to shareholders of your fund. Putnam Management is currently engaged in settlement negotiations with the SEC Staff regarding this matter.

Putnam Management and Putnam Retail Management are named as defendants in a civil suit in which the plaintiffs allege that the management and distribution fees paid by certain Putnam funds were excessive and seek recovery under the Investment Company Act of 1940. Putnam Management and Putnam Retail Management have contested the plaintiffs’ claims and the matter is currently pending in the U.S. District Court for the District of Massachusetts. Based on currently available information, Putnam Management believes that this action is without merit and that it is unlikely to have a material effect on Putnam Management’s and Putnam Retail Management’s ability to provide services to their clients, including the fund.

71

Fund information

About Putnam Investments
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
manage over 100 mutual funds in growth, value, blend, fixed income, and international.

Investment Manager | Robert E. Patterson | James P. Pappas
Putnam Investment | George Putnam, III | Vice President
Management, LLC | W. Thomas Stephens |
One Post Office Square | Richard B. Worley | Richard S. Robie, III
Boston, MA 02109 |  | Vice President
| Officers | Francis J. McNamara, III
Investment Sub-Manager | George Putnam, III | Vice President and
Putnam Investments Limited | President | Chief Legal Officer
57–59 St. James Street |  |
London, England SW1A 1LD | Charles E. Porter | Charles A. Ruys de Perez
| Executive Vice President, | Vice President and
Marketing Services | Associate Treasurer and | Chief Compliance Officer
Putnam Retail Management | Principal Executive Officer |
One Post Office Square |  | Mark C. Trenchard
Boston, MA 02109 |  | Vice President and
| Jonathan S. Horwitz | BSA Compliance Officer
| Senior Vice President |
Custodian | and Treasurer |
Putnam Fiduciary |  | Judith Cohen
Trust Company |  | Vice President, Clerk and
| Steven D. Krichmar | Assistant Treasurer
| Vice President and |
Legal Counsel | Principal Financial Officer |
Ropes & Gray LLP |  | Wanda M. McManus
| Michael T. Healy | Vice President, Senior Associate
Trustees | Assistant Treasurer and | Treasurer and Assistant Clerk
John A. Hill, Chairman | Principal Accounting Officer |
Jameson Adkins Baxter, |  | Nancy E. Florek
Vice Chairman | Daniel T. Gallagher | Vice President, Assistant Clerk,
Charles B. Curtis | Senior Vice President, | Assistant Treasurer and
Myra R. Drucker | Staff Counsel and | Proxy Manager
Charles E. Haldeman, Jr. | Compliance Liaison |
Paul L. Joskow |  |
Elizabeth T. Kennan | Beth S. Mazor |
John H. Mullin, III | Vice President |

Call 1-800-225-1581 weekdays between 9:00 a.m. and 5:00 p.m. Eastern Time, or visit our Web site (www.putnam.com) anytime for up-to-date information about the fund’s NAV.

72

Item 2. Code of Ethics:

Not Applicabe

Item 3. Audit Committee Financial Expert:

Not Applicabe

Item 4. Principal Accountant Fees and Services:

Not Applicabe

Item 5. Audit Committee

Not Applicabe

Item 6. Schedule of Investments:

The registrant’s schedule of investments in unaffiliated issuers is included in the report to shareholders in Item 1 above.

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

Not applicable

Item 8. Portfolio Managers of Closed-End Management Investment Companies

(a) Not applicable

(b) Not applicable

Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers:

Registrant Purchase of Equity Securities |  |
|  |  |  | Maximum
|  |  | Total Number | Number (or
|  |  | of Shares | Approximate
|  |  | Purchased | Dollar Value )
|  |  | as Part | of Shares
|  |  | of Publicly | that May Yet Be
| Total Number | Average | Announced | Purchased
| of Shares | Price Paid | Plans or | under the Plans
Period | Purchased | per Share | Programs | or Programs *
October 7- |  |  |  |
October |  |  |  |
31,2005 |  |  |  |
| 186,364 | $6.23 | 186,364 | 9,844,944
November 1 - |  |  |  |
November 30, | 501,565 | $6.05 | 501,565 | 9,343,379

2005 |  |  |  |
December 1 - |  |  |  |
December 31, |  |  |  |
2005 | 501,565 | $6.06 | 501,565 | 8,841,814
January 1 - |  |  |  |
January 31, |  |  |  |
2006 | 501,565 | $6.19 | 501,565 | 8,340,249
February 1 - |  |  |  |
February 28, |  |  |  |
2006 | 501,575 | $6.14 | 501,575 | 7,838,674
March 1 - |  |  |  |
March 31, 2006 | 593,946 | $6.10 | 593,946 | 7,244,728

The Board of Trustees announced a repurchase plan on October 7, 2005 for which 5,015,654 shares were approved for repurchase by the fund. The repurchase plan was approved through October 6, 2006. . On March 10, 2006, the Trustees announced that the repurchase program was increased to allow repurchases of up to a total of 10,031,308 shares over the original term of the program

*Information is based on the total number of shares eligible for repurchase under the program, as amended on March 10, 2006.

Item 10. Submission of Matters to a Vote of Security Holders:

Not applicable

Item 11. Controls and Procedures:

(a) The registrant's principal executive officer and principal financial officer have concluded, based on their evaluation of the effectiveness of the design and operation of the registrant's disclosure controls and procedures as of a date within 90 days of the filing date of this report, that the design and operation of such procedures are generally effective to provide reasonable assurance that information required to be disclosed by the registrant in this report is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms.

(b) Changes in internal control over financial reporting:

Not applicable Item 12. Exhibits: (a)(1) Not applicable

(a)(2) Separate certifications for the principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Investment Company Act of 1940, as amended, are filed herewith.

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

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Putnam Master Intermediate Income Trust By (Signature and Title): /s/Michael T. Healy Michael T. Healy Principal Accounting Officer

Date: May 26, 2006

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

By (Signature and Title): /s/Charles E. Porter Charles E. Porter Principal Executive Officer Date: May 26, 2006 By (Signature and Title): /s/Steven D. Krichmar Steven D. Krichmar Principal Financial Officer Date: May 26, 2006