N-CSRS 1 a_diversifiedinctrust.htm PUTNAM DIVERSIFIED INCOME TRUST a_diversifiedinctrust.htm
UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION 
Washington, D.C. 20549 
 
FORM N-CSR 
 
CERTIFIED SHAREHOLDER REPORT OF REGISTERED 
MANAGEMENT INVESTMENT COMPANIES 
 
Investment Company Act file number: (811- 05635)   
 
Exact name of registrant as specified in charter:  Putnam Diversified 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 
  800 Boylston Street 
  Boston, Massachusetts 02199-3600 
 
Registrant’s telephone number, including area code:  (617) 292-1000 
 
Date of fiscal year end: September 30, 2011     
 
Date of reporting period: October 1, 2010 — March 31, 2011 

 

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




Putnam
Diversified
Income Trust


Semiannual report
3 | 31 | 11

 

Message from the Trustees  1 
About the fund  2 
Performance snapshot  4 
Interview with your fund’s portfolio manager  5 
Your fund’s performance  11 
Your fund’s expenses  13 
Terms and definitions  15 
Other information for shareholders  16 
Financial statements  17 

 

Consider these risks before investing: International investing involves certain risks, such as currency fluctuations, economic instability, and political developments. Additional risks may be associated with emerging-market securities, including illiquidity and volatility. Lower-rated bonds may offer higher yields in return for more risk. Funds that invest in government securities are not guaranteed. Mortgage-backed securities are subject to prepayment risk. The use of derivatives involves special risks and may result in losses. 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.


Message from the Trustees

Dear Fellow Shareholder:

The U.S. economy and markets continue to improve, despite the many headwinds that they face. The stock market has shown resilience, recently hitting multiple-year highs. The number of U.S. companies paying dividends is significantly higher than a year ago, and corporate profits remain strong.

Even with this positive news, Putnam believes that volatility will continue to roil the markets in the months ahead. Federal budget issues, inflationary pressures, stubbornly high unemployment, and global developments from Japan to Libya have created a cloud of uncertainty. In addition, the U.S. fixed-income market faces the end of the Federal Reserve’s quantitative easing program and the prospects of a tighter monetary policy in the future. We believe, however, that Putnam’s active, research-intensive approach is well suited to uncovering opportunities in this environment.

In addition, Putnam would like to thank Richard B. Worley and Myra R. Drucker, who have retired from the Board of Trustees, for their many years of dedicated and thoughtful leadership.

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






Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will fluctuate, and you may have a gain or a loss when you sell your shares. Performance of class A shares assumes reinvestment of distributions and does not account for taxes. Fund returns in the bar chart do not reflect a sales charge of 4.00%; had they, returns would have been lower. See pages 5 and 11–12 for additional performance information. For a portion of the periods, the fund had expense limitations, without which returns would have been lower. To obtain the most recent month-end performance, visit putnam.com.

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

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

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Interview with your fund’s portfolio manager

D. William Kohli

Bill, what was the environment like in global bond markets during the six months ended March 31, 2011?

The fixed-income market generated mixed results during the period. Sectors at the riskier end of the spectrum, such as high-yield corporate bonds, floating-rate bank loan securities, and commercial mortgage-backed securities [CMBS] performed the best. Bonds in these categories are generally less sensitive to interest-rate movements and benefited from an improving economy. U.S. Treasuries struggled during the period. Upward pressure on Treasury yields due to better economic prospects was offset by downward pressure resulting from macroeconomic risks in Europe, the Middle East, North Africa, and Japan. Similarly, increasing inflation expectations placed upward pressure on yields, but this was held in check by the Federal Reserve’s bond purchases under its quantitative easing program.

During the second half of the period, market participants increasingly concluded that the U.S. economy is returning to a more normal growth pattern. As a result, near-term inflation expectations increased considerably, causing yields at the shorter end of the Treasury yield curve to rise more than longer-maturity yields, and the yield curve flattened marginally. [The yield curve is a graphical representation of the difference in yields between shorter- and longer-term bonds.]

In this environment, our decision to limit the fund’s interest-rate risk versus the benchmark and focus on securities we believed could perform well despite rising rates enabled Putnam Diversified Income Trust to outperform its primary benchmark at net asset value by a sizeable margin.


This comparison shows your fund’s performance in the context of broad market indexes for the six months ended 3/31/11. See pages 4 and 11–12 for additional fund performance information. Index descriptions can be found on page 15.

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Looking more closely at the macroeconomic backdrop, leading economic indicators accelerated throughout the winter into the spring, signaling continued economic expansion for the United States in the coming months. Manufacturing activity improved, with a renewal of the inventory cycle potentially providing room for additional growth. Labor market conditions also strengthened, with total private employment increasing substantially during the first three months of 2011. On the downside, U.S. residential housing remained very weak, as sales patterns showed that the excesses of the housing bubble were still being worked through the system.

Leading indicators for many European economies painted a similar picture as those in the United States. While sovereign debt issues remain, economic stability pushed these concerns into the background, at least for now.

Globally, while a majority of both developed and emerging countries showed rising economic indicators, many emerging-market economies have been tightening their monetary policies to combat inflation and are generally in a later phase of the business cycle.

The fund outperformed its primary benchmark by a substantial margin. What factors drove this outperformance?

The fund’s interest-rate strategies were key contributors versus the benchmark. Using interest-rate swaps and futures,


Credit qualities are shown as a percentage of net assets as of 3/31/11. A bond rated Baa or higher (Prime-3 or higher, for short-term debt) is considered investment grade. The chart reflects Moody’s ratings; percentages may include bonds or derivatives not rated by Moody’s but rated by Standard & Poor’s (S&P) or, if unrated by S&P, by Fitch, and then included in the closest equivalent Moody’s rating. Ratings will vary over time.

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

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we successfully positioned the fund for a rising-rate environment and a flatter yield curve. In addition, we kept the fund’s duration — or sensitivity to interest-rate changes — short versus the index, which helped as rates moved higher.


The fund continued to benefit from the strong cash flows generated by our holdings of securitized bonds, specifically non-agency residential mortgage-backed securities [RMBS] and agency interest-only collateralized mortgage obligations [IO CMO]. In general, non-agency RMBS have minimal sensitivity to rising interest rates because of their relatively short durations. Also, in many cases, rising rates help IO CMOs by removing refinancing incentives for lower-rate mortgage pools. Refinancing activity on the mortgage pools underlying the IO CMOs that we held remained at low levels. As a result, these securities generated steady cash flows throughout the period and their prices moved higher. In fact, the returns from our IO CMO


This table shows the fund’s top 10 individual holdings and the percentage of the fund’s net assets that each represented at 3/31/11. Short-term holdings are excluded. Holdings will vary over time.

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positions were so solid that we significantly reduced the fund’s exposure to lock in profits.

In implementing our IO CMO strategy, we used interest-rate swaps and options to hedge the fund’s duration, in order to isolate the prepayment risk that we believed was attractively priced.

A significant allocation to high-yield corporate bonds was another key contributor to the fund’s outperformance, as the high-yield category was the top-performing bond-market sector for the period. Strong corporate fundamentals and positive credit trends bolstered high-yield bonds. High-yield credit spreads — or the yield advantage offered by high-yield bonds over U.S. Treasuries — declined over the period, but demand remained robust as investors moved up the risk spectrum in search of higher yields. The default rate, which is another important aspect of the asset class, declined to low single-digit levels by period-end — well below the historical average.

What other holdings aided the fund’s relative performance?

Security selection in emerging-market debt also boosted performance, with our investments in bonds from Argentina, and oil-rich Russia and Venezuela delivering the best results.

A small position in short-term CMBS rounded out the top contributors. Our holdings of bonds in the highly liquid topmost part of the capital structure benefited from investors’ perception that even though commercial mortgage delinquencies accelerated, senior CMBSs had enough structural protection to withstand losses. However, CMBSs were one of the first sectors to recover from the 2008–2009 credit crisis, and their valuations are not as attractive as they once were.


This chart shows how the fund’s top weightings have changed over the past six months. Weightings are shown as a percentage of net assets. Summary information may differ from the portfolio schedule included in the financial statements due to the inclusion of derivative securities and the exclusion of as-of trades, if any, and the use of different classifications of securities for presentation purposes. Holdings will vary over time.

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Which strategies detracted from results?

Global currencies were volatile during the period, and our active currency management detracted from returns. Specifically, the fund was hurt by the unwinding of the “carry trade” in which we sold currencies from countries with relatively low interest rates and used the proceeds to buy currencies from countries with relatively high interest rates, most notably Australia. Tactical positioning in the British pound sterling and short positions in the Swiss franc and Canadian dollar also dampened results. We used currency-forward contracts to gain exposure to currencies and hedge the portfolio’s foreign exchange risk.

Additionally, the fund was underweight investment-grade corporate bonds versus the benchmark, which detracted modestly from relative performance.

In what additional ways did you use derivatives?

We used options to gain interest-rate exposure. We employed futures to help hedge the fund’s interest-rate risk. And we utilized total return swaps to generally manage the fund’s exposure to various market sectors and industries, and to gain exposure to and hedge the impact of inflation rates in specific countries.

What is your outlook for global economies and the credit markets in the coming months, and how are you positioning the fund?

Developed global economies appear to be transitioning into what I refer to as an “interest-rate normalization” mode. Reflecting its staunch anti-inflation posture, the European Central Bank raised its main policy rate by 0.25% shortly after the period ended — its first increase since 2008 — and is likely to do so again in the next two to three months. In the United States, if economic data continue to come in better than expected, it is likely the Federal Reserve will intensify its discussions about when to begin increasing the federal funds rate.

Overall, we have a positive outlook regarding global economic growth. At the same time, we are mindful of macro risks that do not appear to be fully reflected in the credit markets, such as the rising price of crude oil. Higher oil prices potentially have the dual negative impact of contributing to higher inflation as well as impairing economic growth. Rising oil prices act as a tax on the global economy by impeding consumer spending and squeezing corporate profit margins. At the very least, it is likely that higher oil prices will dampen economic growth over the near term.

In terms of portfolio positioning, as noted previously, we reduced the fund’s risk profile by sharply cutting our allocation to IO CMOs, concluding that their valuations had reached levels that were less compelling from a risk/reward standpoint. However, we continue to closely monitor the IO CMO market, and remain alert for opportunities to reallocate capital to this area when valuations warrant. We also trimmed our holdings of non-agency RMBS, the returns of which are heavily influenced by home prices. Lastly, we are maintaining a short-duration posture, as we anticipate that rates may continue to rise, and plan to continue the fund’s bias toward a flattening yield curve. Overall, the portfolio remains broadly diversified. We continue to believe that a number of attractive opportunities exist outside the broad market indexes for firms like Putnam that have the resources to capitalize on them.

Thanks for your time and for bringing us up to date, Bill.

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

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

Of special interest

Your fund’s dividend rate was decreased twice during the semiannual period ended March 31, 2011. The dividend per class A share declined from $0.067 to $0.061 effective November 2010, and from $0.061 to $0.050 effective February 2011. These reductions were due to an overall decrease in interest income resulting from the current low interest-rate environment, and also due to variable cash flows from mortgage-related securities.


Portfolio Manager D. William Kohli is Co-Head of Fixed Income at Putnam and Team Leader of Portfolio Construction and Global Strategies. He has an M.B.A. from the Haas School of Business at the University of California, Berkeley, and a B.A. from the University of California, San Diego. Bill joined Putnam in 1994 and has been in the investment industry since 1987.

In addition to Bill, your fund is managed by Michael Atkin, Kevin Murphy, Michael Salm, and Paul Scanlon.

IN THE NEWS

The Federal Reserve continues to back its stimulus efforts already underway. Besides maintaining its near-zero interest-rate policy, the Federal Open Market Committee at its April 15 meeting remained committed to completing its second round of quantitative easing, dubbed “QE2.” Last fall, the central bank launched QE2, which involves the purchase of $600 billion in U.S. Treasury securities, with the primary aim of preventing deflation in the U.S. economy. Last summer, the United States teetered perilously on the brink of a deflationary cliff, as inflation rates fell to 50-year lows. Deflation, which occurs when prices fall in an economy, can cause long-term significant damage to growth. QE2 may have worked, as inflation has returned. In March, the most recent data available, prices measured by the Consumer Price Index (CPI) edged up 0.5% after increasing by the same margin in February. Core inflation, which excludes volatile food and energy prices, rose by 0.1% in March, following a 0.2% uptick in February.

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Your fund’s performance

This section shows your fund’s performance, price, and distribution information for periods ended March 31, 2011, the end of the first half of its current fiscal year. In accordance with regulatory requirements for mutual funds, we also include expense information taken from the fund’s current prospectus. Performance should always be considered in light of a fund’s investment strategy. Data represent past performance. Past performance does not guarantee future results. More recent returns may be less or more than those shown. Investment return and principal value will fluctuate, and you may have a gain or a loss when you sell your shares. Performance information does not reflect any deduction for taxes a shareholder may owe on fund distributions or on the redemption of fund shares. For the most recent month-end performance, please visit the Individual Investors section at putnam.com or call Putnam at 1-800-225-1581. Class R and class Y shares are not available to all investors. See the Terms and Definitions section in this report for definitions of the share classes offered by your fund.

Fund performance Total return for periods ended 3/31/11

  Class A  Class B  Class C  Class M  Class R  Class Y 
(inception dates)  (10/3/88)  (3/1/93)  (2/1/99)  (12/1/94)  (12/1/03)  (7/1/96) 
  NAV  POP  NAV  CDSC  NAV  CDSC  NAV  POP  NAV  NAV 
Annual average                     
(life of fund)  7.07%  6.88%  6.25%  6.25%  6.25%  6.25%  6.77%  6.61%  6.78%  7.22% 
10 years  89.28  81.71  75.62  75.62  74.94  74.94  84.35  78.35  83.66  93.00 
Annual average  6.59  6.15  5.79  5.79  5.75  5.75  6.31  5.96  6.27  6.80 
5 years  30.12  24.91  25.52  23.84  25.08  25.08  28.52  24.30  27.84  31.21 
Annual average  5.41  4.55  4.65  4.37  4.58  4.58  5.15  4.45  5.03  5.58 
3 years  23.94  18.93  21.38  18.71  20.96  20.96  23.10  19.07  22.53  24.38 
Annual average  7.42  5.95  6.67  5.88  6.55  6.55  7.17  5.99  7.01  7.54 
1 year  13.51  8.99  12.61  7.61  12.70  11.70  13.21  9.59  13.16  13.64 
6 months  6.34  2.04  5.97  0.97  6.03  5.03  6.27  2.78  6.24  6.40 

 

Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. After-sales-charge returns (public offering price, or POP) for class A and M shares reflect a maximum 4.00% and 3.25% load, respectively. Class B share returns reflect the applicable contingent deferred sales charge (CDSC), which is 5% in the first year, declining over time to 1% in the sixth year, and is eliminated thereafter. Class C shares reflect a 1% CDSC for the first year that is eliminated thereafter. Class R and Y shares have no initial sales charge or CDSC. Performance for class B, C, M, R, and Y shares before their inception is derived from the historical performance of class A shares, adjusted for the applicable sales charge (or CDSC) and the higher operating expenses for such shares, except for class Y shares, for which 12b-1 fees are not applicable.

For a portion of the periods, the fund had expense limitations, without which returns would have been lower.

Class B share performance does not reflect conversion to class A shares.

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Comparative index returns For periods ended 3/31/11

  Barclays Capital  Citigroup Non-U.S.  JPMorgan  Lipper Multi-Sector 
  U.S. Aggregate  World Government  Developed High  Income Funds 
  Bond Index  Bond Index  Yield Index  category average* 
Annual average (life of fund)  7.21%  7.24%  —†  7.73% 
10 years  71.86  117.31  137.24%  98.40 
Annual average  5.56  8.07  9.02  7.01 
5 years  33.98  45.82  55.01  37.37 
Annual average  6.03  7.84  9.16  6.51 
3 years  16.74  10.07  43.46  26.13 
Annual average  5.30  3.25  12.78  8.01 
1 year  5.12  8.51  14.51  9.25 
6 months  –0.88  –0.49  7.67  2.98 

 

Index and Lipper results should be compared to fund performance at net asset value.

* Over the 6-month, 1-year, 3-year, 5-year, 10-year, and life-of-fund periods ended 3/31/11, there were 185, 170, 131, 98, 70, and 5 funds, respectively, in this Lipper category.

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

Fund price and distribution information For the six-month period ended 3/31/11

Distributions  Class A  Class B  Class C  Class M  Class R  Class Y 
Number  6  6  6  6  6  6 
Income  $0.350  $0.318  $0.320  $0.338  $0.338  $0.362 
Capital gains  —  —  —  —  —  — 
Total  $0.350  $0.318  $0.320  $0.338  $0.338  $0.362 
Share value  NAV  POP  NAV  NAV  NAV  POP  NAV  NAV 
9/30/10  $8.08  $8.42  $8.01  $7.97  $7.97  $8.24  $8.00  $8.04 
3/31/11  8.23  8.57  8.16  8.12  8.12  8.39  8.15  8.18 
Current yield (end of period)  NAV  POP  NAV  NAV  NAV  POP  NAV  NAV 
Current dividend rate 1  7.29%  7.00%  6.62%  6.65%  7.09%  6.87%  7.07%  7.63% 
Current 30-day SEC yield 2  N/A  4.47  3.90  3.90  N/A  4.26  4.40  4.90 

 

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

1 Most recent distribution, excluding capital gains, annualized and divided by NAV or POP at end of period.

2 Based only on investment income and calculated using the maximum offering price for each share class, in accordance with SEC guidelines.

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Your fund’s expenses

As a mutual fund investor, you pay ongoing expenses, such as management fees, distribution fees (12b-1 fees), and other expenses. Using the following information, you can estimate how these expenses affect your investment and compare them with the expenses of other funds. You may also pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial representative.

Expense ratios

  Class A  Class B  Class C  Class M  Class R  Class Y 
Total annual operating expenses for the fiscal year             
ended 9/30/10  1.01%  1.76%  1.76%  1.26%  1.26%  0.76% 
Annualized expense ratio for the six-month period             
ended 3/31/11  0.98%  1.73%  1.73%  1.23%  1.23%  0.73% 

 

Fiscal-year expense information in this table is taken from the most recent prospectus, is subject to change, and may differ from that shown for the annualized expense ratio and in the financial highlights of this report. Expenses are shown as a percentage of average net assets.

Expenses per $1,000

The following table shows the expenses you would have paid on a $1,000 investment in the fund from October 1, 2010, to March 31, 2011. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.

  Class A  Class B  Class C  Class M  Class R  Class Y 
Expenses paid per $1,000*†  $5.04  $8.88  $8.89  $6.33  $6.32  $3.76 
Ending value (after expenses)  $1,063.40  $1,059.70  $1,060.30  $1,062.70  $1,062.40  $1,064.00 

 

* Expenses for each share class are calculated using the fund’s annualized expense ratio for each class, which represents the ongoing expenses as a percentage of average net assets for the six months ended 3/31/11. The expense ratio may differ for each share class.

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

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Estimate the expenses you paid

To estimate the ongoing expenses you paid for the six months ended March 31, 2011, use the following calculation method. To find the value of your investment on October 1, 2010, call Putnam at 1-800-225-1581.


Compare expenses using the SEC’s method

The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the following table shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total costs) of investing in the fund with those of other funds. All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.

  Class A  Class B  Class C  Class M  Class R  Class Y 
Expenses paid per $1,000*†  $4.94  $8.70  $8.70  $6.19  $6.19  $3.68 
Ending value (after expenses)  $1,020.04  $1,016.31  $1,016.31  $1,018.80  $1,018.80  $1,021.29 

 

* Expenses for each share class are calculated using the fund’s annualized expense ratio for each class, which represents the ongoing expenses as a percentage of average net assets for the six months ended 3/31/11. The expense ratio may differ for each share class.

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

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Terms and definitions

Important terms

Total return shows how the value of the fund’s shares changed over time, assuming you held the shares through the entire period and reinvested all distributions in the fund.

Net asset value (NAV) is the price, or value, of one share of a mutual fund, without a sales charge. NAVs fluctuate with market conditions. NAV is calculated by dividing the net assets of each class of shares by the number of outstanding shares in the class.

Public offering price (POP) is the price of a mutual fund share plus the maximum sales charge levied at the time of purchase. POP performance figures shown here assume the 4.00% maximum sales charge for class A shares and 3.25% for class M shares.

Contingent deferred sales charge (CDSC) is generally a charge applied at the time of the redemption of class B or C shares and assumes redemption at the end of the period. Your fund’s class B CDSC declines over time from a 5% maximum during the first year to 1% during the sixth year. After the sixth year, the CDSC no longer applies. The CDSC for class C shares is 1% for one year after purchase.

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

Share classes

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

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

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

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

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

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

Comparative indexes

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

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

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

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

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

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

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.

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Other information for shareholders

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, unless a shareholder requests otherwise. If you prefer to receive your own copy of these documents, please call Putnam at 1-800-225-1581, and Putnam will begin sending individual copies within 30 days.

Proxy voting

Putnam is committed to managing our mutual funds in the best interests of our shareholders. The Putnam funds’ proxy voting guidelines and procedures, as well as information regarding how your fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2010, are available in the Individual Investors section of putnam.com, and on the SEC’s website, www.sec.gov. If you have questions about finding forms on the SEC’s website, you may call the SEC at 1-800-SEC-0330. You may also obtain the Putnam funds’ proxy voting guidelines and procedures at no charge by calling Putnam’s Shareholder Services at 1-800-225-1581.

Fund portfolio holdings

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

Trustee and employee fund ownership

Putnam employees and members of the Board of Trustees place their faith, confidence, and, most importantly, investment dollars in Putnam mutual funds. As of March 31, 2011, Putnam employees had approximately $376,000,000 and the Trustees had approximately $69,000,000 invested in Putnam mutual funds. These amounts include investments by the Trustees’ and employees’ immediate family members as well as investments through retirement and deferred compensation plans.

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

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

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

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

17


The fund’s portfolio 3/31/11 (Unaudited)

CORPORATE BONDS AND NOTES (29.0%)*  Principal amount  Value 
 
Basic materials (2.2%)       
Associated Materials, LLC 144A company guaranty sr. notes       
9 1/8s, 2017    $3,183,000  $3,405,810 
Atkore International, Inc. 144A sr. notes 9 7/8s, 2018    3,317,000  3,540,898 
Celanese US Holdings, LLC 144A company guaranty sr. notes       
6 5/8s, 2018 (Germany)    2,505,000  2,580,150 
Chemtura Corp. 144A company guaranty sr. unsec. notes       
7 7/8s, 2018    917,000  969,728 
Clondalkin Acquisition BV 144A company guaranty sr. notes       
FRN 2.31s, 2013 (Netherlands)    989,000  949,440 
Compass Minerals International, Inc. company guaranty sr. unsec.       
notes 8s, 2019    135,000  147,150 
Ferro Corp. sr. unsec. notes 7 7/8s, 2018    4,485,000  4,754,100 
FMG Resources August 2006 Pty, Ltd. 144A sr. notes 7s, 2015       
(Australia)    3,548,000  3,659,896 
FMG Resources August 2006 Pty, Ltd. 144A sr. notes 6 7/8s,       
2018 (Australia)    2,935,000  3,052,335 
Georgia-Pacific, LLC 144A company guaranty 7 1/8s, 2017    2,315,000  2,456,794 
Georgia-Pacific, LLC sr. unsec. unsub. notes 8 1/8s, 2011    230,000  231,438 
Graphic Packaging International, Inc. company guaranty sr.       
unsec. notes 7 7/8s, 2018    966,000  1,033,620 
Hexion U.S. Finance Corp./Hexion Nova Scotia Finance, ULC       
company guaranty sr. notes 8 7/8s, 2018    1,725,000  1,824,188 
Hexion U.S. Finance Corp./Hexion Nova Scotia Finance, ULC       
144A sr. notes 9s, 2020    2,229,000  2,311,194 
Huntsman International, LLC company guaranty sr. unsec. sub.       
notes 8 5/8s, 2020    1,700,000  1,853,000 
Huntsman International, LLC 144A company guaranty sr. unsec.       
sub. notes 8 5/8s, 2021    2,290,000  2,496,100 
Ineos Finance PLC 144A company guaranty sr. notes 9 1/4s,       
2015 (United Kingdom)  EUR  1,150,000  1,772,913 
Ineos Finance PLC 144A company guaranty sr. notes 9s, 2015       
(United Kingdom)    $2,425,000  2,655,375 
Ineos Group Holdings PLC company guaranty sr. unsec.       
notes Ser. REGS, 7 7/8s, 2016 (United Kingdom)  EUR  1,938,000  2,687,686 
JMC Steel Group 144A sr. notes 8 1/4s, 2018    $945,000  966,263 
KRATON Polymers, LLC/KRATON Polymers Capital Corp. 144A       
sr. notes 6 3/4s, 2019    830,000  842,450 
Kronos International, Inc. sr. notes 6 1/2s, 2013 (Germany)  EUR  3,677,600  5,230,679 
Lyondell Chemical Co. sr. notes 11s, 2018    $10,015,000  11,241,838 
Lyondell Chemical Co. 144A company guaranty sr. notes       
8s, 2017    5,298,000  5,841,045 
Momentive Performance Materials, Inc. company       
guaranty sr. notes 12 1/2s, 2014    2,360,000  2,619,600 
Momentive Performance Materials, Inc. 144A notes 9s, 2021    3,930,000  4,062,638 
Nalco Co. 144A sr. notes 6 5/8s, 2019    905,000  931,019 
NewPage Corp. company guaranty sr. notes 11 3/8s, 2014    1,158,000  1,159,448 
Nexeo Solutions, LLC/Nexeo Solutions Finance Corp. 144A       
sr. sub. notes 8 3/8s, 2018    835,000  851,700 

 

18


CORPORATE BONDS AND NOTES (29.0%)* cont.  Principal amount  Value 
 
Basic materials cont.       
Novelis, Inc. company guaranty sr. unsec. notes 7 1/4s, 2015    $2,471,000  $2,520,420 
Novelis, Inc. 144A company guaranty sr. notes 8 3/4s, 2020    4,425,000  4,867,500 
Omnova Solutions, Inc. 144A company       
guaranty sr. notes 7 7/8s, 2018    2,433,000  2,463,413 
PE Paper Escrow GmbH sr. notes Ser. REGS, 11 3/4s, 2014       
(Austria)  EUR  3,742,000  6,052,821 
PE Paper Escrow GmbH 144A sr. notes 12s, 2014 (Austria)    $2,140,000  2,461,000 
Rhodia SA 144A sr. notes 6 7/8s, 2020 (France)    900,000  916,875 
Rockwood Specialties Group, Inc. company       
guaranty sr. unsec. sub. notes 7 5/8s, 2014  EUR  465,000  673,365 
SGL Carbon SE company guaranty sr. sub. notes FRN       
Ser. EMTN, 2.343s, 2015 (Germany)  EUR  1,050,000  1,465,123 
Smurfit Kappa Funding PLC sr. unsec. sub. notes 7 3/4s,       
2015 (Ireland)    $569,000  581,803 
Solutia, Inc. company guaranty sr. unsec. notes 8 3/4s, 2017    1,710,000  1,881,000 
Solutia, Inc. company guaranty sr. unsec. notes 7 7/8s, 2020    2,445,000  2,646,713 
Steel Dynamics, Inc. company guaranty sr. unsec.       
unsub. notes 7 3/8s, 2012    989,000  1,053,285 
Steel Dynamics, Inc. sr. unsec. unsub. notes 7 3/4s, 2016    2,451,000  2,591,933 
Teck Resources Limited sr. notes 10 3/4s, 2019 (Canada)    4,212,000  5,378,724 
Teck Resources Limited sr. notes 10 1/4s, 2016 (Canada)    1,000  1,203 
TPC Group, LLC 144A sr. notes 8 1/4s, 2017    2,370,000  2,506,275 
Tube City IMS Corp. company guaranty sr. unsec.       
sub. notes 9 3/4s, 2015    575,000  600,875 
USG Corp. 144A company guaranty sr. notes 8 3/8s, 2018    895,000  935,275 
Vartellus Specialties, Inc. 144A company       
guaranty sr. notes 9 3/8s, 2015    1,145,000  1,225,150 
Verso Paper Holdings, LLC/Verso Paper, Inc. company       
guaranty Ser. B, 11 3/8s, 2016    1,035,000  1,097,100 
Verso Paper Holdings, LLC/Verso Paper, Inc.       
sr. notes 11 1/2s, 2014    3,408,000  3,723,240 
Verso Paper Holdings, LLC/Verso Paper, Inc. 144A       
sr. notes 8 3/4s, 2019    1,100,000  1,144,000 
      122,915,588 
Capital goods (1.4%)       
Acquisition Co., Lanza Parent 144A sr. notes 10s, 2017    3,155,000  3,478,388 
Alliant Techsystems, Inc. company guaranty sr. unsec.       
sub. notes 6 7/8s, 2020    2,860,000  2,988,700 
Alliant Techsystems, Inc. sr. sub. notes 6 3/4s, 2016    2,229,000  2,287,511 
Allison Transmission, Inc. 144A company guaranty sr. unsec.       
notes 11 1/4s, 2015 ‡‡    3,717,440  4,038,069 
Altra Holdings, Inc. company guaranty sr. notes 8 1/8s, 2016    3,995,000  4,284,638 
Ardagh Packaging Finance PLC sr. notes Ser. REGS, 7 3/8s,       
2017 (Ireland)  EUR  500,000  724,240 
Ardagh Packaging Finance PLC 144A company       
guaranty sr. notes 7 3/8s, 2017 (Ireland)  EUR  685,000  1,007,441 
BE Aerospace, Inc. sr. unsec. unsub. notes 6 7/8s, 2020    $1,645,000  1,700,519 
Berry Plastics Corp. company guaranty sr. notes 9 1/2s, 2018    1,347,000  1,340,265 
Berry Plastics Corp. 144A sr. notes 9 3/4s, 2021    1,542,000  1,526,580 

 

19


CORPORATE BONDS AND NOTES (29.0%)* cont.  Principal amount  Value 
 
Capital goods cont.       
Berry Plastics Holding Corp. company guaranty notes FRN       
4.185s, 2014    $1,565,000  $1,473,056 
Briggs & Stratton Corp. company guaranty sr. unsec.       
notes 6 7/8s, 2020    2,050,000  2,147,375 
Crown Americas, LLC/Crown Americas Capital Corp. III 144A       
sr. notes 6 1/4s, 2021    1,835,000  1,867,113 
Crown European Holdings SA 144A sr. notes 7 1/8s, 2018       
(France)  EUR  475,000  699,205 
Exide Technologies 144A sr. notes 8 5/8s, 2018    $1,240,000  1,323,700 
Griffon Corp. 144A company guaranty sr. unsec.       
notes 7 1/8s, 2018    955,000  971,713 
Kratos Defense & Security Solutions, Inc. company       
guaranty sr. notes 10s, 2017    1,710,000  1,885,275 
Legrand SA unsec. unsub. debs. 8 1/2s, 2025 (France)    2,734,000  3,241,012 
Mueller Water Products, Inc. company guaranty sr. unsec.       
unsub. notes 8 3/4s, 2020    1,335,000  1,485,188 
Polypore International, Inc. 144A sr. notes 7 1/2s, 2017    1,445,000  1,517,250 
Pregis Corp. company guaranty sr. sub. notes 12 3/8s, 2013    1,470,000  1,449,788 
Rexam PLC unsec. sub. bonds FRB 6 3/4s, 2067       
(United Kingdom)  EUR  1,430,000  1,971,843 
Rexel SA company guaranty sr. unsec. notes 8 1/4s, 2016       
(France)  EUR  3,217,000  4,947,698 
Reynolds Group DL Escrow, Inc./Reynolds Group Escrow, LLC       
144A company guaranty sr. notes 7 3/4s, 2016 (Luxembourg)    $1,410,000  1,491,075 
Reynolds Group DL Escrow, Inc./Reynolds Group Escrow, LLC       
144A sr. notes 7 3/4s, 2016 (Luxembourg)  EUR  2,660,000  3,922,269 
Reynolds Group Issuer, Inc. 144A sr. notes 9s, 2019    $4,375,000  4,528,125 
Reynolds Group Issuer, Inc. 144A sr. notes 7 1/8s, 2019    1,600,000  1,640,000 
Reynolds Group Issuer, Inc. 144A sr. notes 6 7/8s, 2021       
(New Zealand)    465,000  468,488 
Reynolds Group Issuer, Inc. 144A sr. unsec. notes 8 1/4s,       
2021 (New Zealand)    680,000  673,200 
Ryerson, Inc. company guaranty sr. notes 12s, 2015    3,661,000  3,972,185 
Tenneco, Inc. company guaranty sr. unsec.       
unsub. notes 7 3/4s, 2018    820,000  875,350 
Tenneco, Inc. company guaranty sr. unsub. notes 6 7/8s, 2020    1,830,000  1,894,050 
Terex Corp. sr. unsec. sub. notes 8s, 2017    808,000  851,430 
Thermadyne Holdings Corp. 144A sr. notes 9s, 2017    3,130,000  3,306,063 
Thermon Industries, Inc. company guaranty sr. notes 9 1/2s, 2017    2,987,000  3,225,960 
TransDigm, Inc. 144A sr. sub. notes 7 3/4s, 2018    2,805,000  3,011,869 
      78,216,631 
Communication services (3.3%)       
Bresnan Broadband Holdings, LLC 144A company       
guaranty sr. unsec. unsub. notes 8s, 2018    940,000  996,400 
CCH II, LLC/CCH II Capital company guaranty sr. unsec.       
notes 13 1/2s, 2016    1,259,504  1,508,256 
CCO Holdings, LLC/CCO Holdings Capital Corp. company       
guaranty sr. unsec. notes 7 7/8s, 2018    2,450,000  2,603,125 

 

20


CORPORATE BONDS AND NOTES (29.0%)* cont.  Principal amount  Value 
 
Communication services cont.       
CCO Holdings, LLC/CCO Holdings Capital Corp. company       
guaranty sr. unsub. notes 7s, 2019    $2,815,000  $2,878,338 
Cequel Communications Holdings I LLC/Cequel Capital Corp.       
144A sr. notes 8 5/8s, 2017    5,806,000  6,052,755 
Cincinnati Bell, Inc. company guaranty sr. unsec. notes       
7s, 2015    804,000  814,050 
Cincinnati Bell, Inc. company guaranty sr. unsec.       
sub. notes 8 3/4s, 2018    1,740,000  1,644,300 
Cincinnati Bell, Inc. company guaranty sr. unsec.       
sub. notes 8 1/4s, 2017    1,250,000  1,259,375 
Clearwire Communications, LLC/Clearwire Finance, Inc. 144A       
company guaranty sr. notes 12s, 2015    8,410,000  9,082,800 
CPI International Acquisition, Inc. 144A sr. notes 8s, 2018    705,000  709,406 
Cricket Communications, Inc. company guaranty sr. unsec.       
notes 7 3/4s, 2020    3,625,000  3,652,188 
Cricket Communications, Inc. company guaranty sr. unsec.       
unsub. notes 10s, 2015    2,065,000  2,266,338 
Cricket Communications, Inc. company       
guaranty sr. unsub. notes 7 3/4s, 2016    4,740,000  5,036,250 
Crown Castle International Corp. sr. unsec. notes 7 1/8s, 2019    950,000  995,125 
CSC Holdings LLC sr. notes 6 3/4s, 2012    364,000  377,650 
CSC Holdings LLC sr. unsec. unsub. notes 8 1/2s, 2014    5,803,000  6,506,614 
Digicel Group, Ltd. 144A sr. notes 8 1/4s, 2017 (Jamaica)    4,769,000  5,055,140 
Frontier Communications Corp. sr. unsec. notes 8 1/4s, 2017    2,405,000  2,597,400 
Frontier Communications Corp. sr. unsec. notes 8 1/8s, 2018    5,296,000  5,713,060 
Inmarsat Finance PLC 144A company       
guaranty sr. notes 7 3/8s, 2017 (United Kingdom)    2,005,000  2,115,275 
Intelsat Jackson Holdings SA 144A company       
guaranty sr. notes 7 1/2s, 2021 (Bermuda) ∆    2,960,000  2,967,400 
Intelsat Jackson Holdings SA 144A sr. unsec. notes 7 1/4s,       
2020 (Bermuda)    2,660,000  2,660,000 
Intelsat Luxembourg SA company guaranty sr. unsec.       
notes 11 1/2s, 2017 (Luxembourg) ‡‡    10,735,093  11,781,765 
Intelsat Luxembourg SA company guaranty sr. unsec.       
notes 11 1/4s, 2017 (Luxembourg)    2,801,000  3,060,093 
Kabel BW Erste Beteiligungs GmbH/Kabel Baden-Wurttemberg       
GmbH & Co. KG 144A company guaranty sr. notes 7 1/2s, 2019       
(Germany) ∆  EUR  1,855,000  2,661,746 
Level 3 Financing, Inc. company guaranty sr. unsec.       
unsub. notes 9 1/4s, 2014 ∆    $4,179,000  4,273,028 
Level 3 Financing, Inc. 144A company guaranty sr. unsec.       
unsub. notes 9 3/8s, 2019    1,699,000  1,643,783 
Mediacom LLC/Mediacom Capital Corp. sr. unsec.       
notes 9 1/8s, 2019    386,000  413,020 
MetroPCS Wireless, Inc. company guaranty sr. unsec.       
notes 7 7/8s, 2018    6,804,000  7,280,280 
MetroPCS Wireless, Inc. company guaranty sr. unsec.       
notes 6 5/8s, 2020    1,774,000  1,771,783 
Musketeer GmbH 144A company guaranty sr. notes 9 1/2s, 2021       
(Germany) ∆  EUR  665,000  982,107 

 

21


CORPORATE BONDS AND NOTES (29.0%)* cont.  Principal amount  Value 
 
Communication services cont.       
NII Capital Corp. company guaranty sr. unsec.       
unsub. notes 10s, 2016    $4,595,000  $5,238,300 
NII Capital Corp. company guaranty sr. unsec.       
unsub. notes 7 5/8s, 2021    900,000  920,250 
PAETEC Escrow Corp. 144A sr. unsec. notes 9 7/8s, 2018    4,202,000  4,433,110 
PAETEC Holding Corp. company guaranty sr. notes 8 7/8s, 2017    3,406,000  3,669,965 
PAETEC Holding Corp. company guaranty sr. unsec.       
unsub. notes 9 1/2s, 2015    2,195,000  2,299,263 
Phones4U Finance PLC 144A sr. notes 9 1/2s, 2018       
(United Kingdom)  GBP  2,520,000  3,963,611 
Qwest Communications International, Inc. company       
guaranty 7 1/2s, 2014    $1,530,000  1,554,863 
Qwest Communications International, Inc. company       
guaranty Ser. B, 7 1/2s, 2014    2,400,000  2,439,000 
Qwest Corp. sr. unsec. notes 7 1/2s, 2014    610,000  696,925 
Qwest Corp. sr. unsec. unsub. notes 8 7/8s, 2012    2,497,000  2,671,790 
Qwest Corp. sr. unsec. unsub. notes 7 1/4s, 2025    1,375,000  1,464,375 
SBA Telecommunications, Inc. company guaranty sr. unsec.       
notes 8 1/4s, 2019    3,850,000  4,254,250 
SBA Telecommunications, Inc. company guaranty sr. unsec.       
notes 8s, 2016    1,130,000  1,230,288 
Sprint Capital Corp. company guaranty 6 7/8s, 2028    3,610,000  3,330,225 
Sprint Capital Corp. company guaranty sr. unsec.       
notes 8 3/8s, 2012    2,495,000  2,632,225 
Sprint Nextel Corp. sr. notes 8 3/8s, 2017    9,600,000  10,692,000 
Sprint Nextel Corp. sr. unsec. notes 6s, 2016    3,527,000  3,540,226 
Sunrise Communications Holdings SA 144A company       
guaranty sr. notes 8 1/2s, 2018 (Luxembourg)  EUR  730,000  1,099,913 
Sunrise Communications International SA 144A company       
guaranty sr. notes 7s, 2017 (Luxembourg)  EUR  495,000  733,600 
Sunrise Communications International SA 144A company       
guaranty sr. notes 7s, 2017 (Luxembourg)  CHF  540,000  621,706 
Unitymedia GmbH company guaranty sr. notes Ser. REGS,       
9 5/8s, 2019 (Germany)  EUR  2,398,000  3,733,242 
Unitymedia Hessen/NRW 144A company       
guaranty sr. notes 8 1/8s, 2017 (Germany)  EUR  1,624,000  2,430,071 
UPC Holdings BV sr. notes 9 3/4s, 2018 (Netherlands)  EUR  1,990,000  3,057,652 
Virgin Media Finance PLC company guaranty sr. unsec. bond       
8 7/8s, 2019 (United Kingdom)  GBP  242,000  433,909 
Wind Acquisition Finance SA 144A company       
guaranty sr. notes 7 3/8s, 2018 (Netherlands)  EUR  4,110,000  6,081,943 
Wind Acquisition Holding company       
guaranty sr. notes Ser. REGS, 12 1/4s, 2017       
(Luxembourg) ‡‡  EUR  173,639  292,728 
Windstream Corp. company guaranty sr. unsec.       
unsub. notes 8 1/8s, 2018    $710,000  757,925 
Windstream Corp. company guaranty sr. unsec.       
unsub. notes 7 7/8s, 2017    2,884,000  3,093,090 
Windstream Corp. 144A company guaranty sr. unsec.       
unsub. notes 7 3/4s, 2021    1,895,000  1,925,794 
      180,651,089 

 

22


CORPORATE BONDS AND NOTES (29.0%)* cont.  Principal amount  Value 
 
Conglomerates (—%)     
SPX Corp. sr. unsec. notes 7 5/8s, 2014  $1,096,000  $1,206,970 
SPX Corp. 144A company guaranty sr. unsec. notes 6 7/8s,     
2017  750,000  806,250 
    2,013,220 
Consumer cyclicals (4.8%)     
Affinion Group, Inc. 144A sr. notes 10 3/4s, 2016  1,126,000  1,279,418 
Affinion Group, Inc. company guaranty sr. unsec.     
sub. notes 11 1/2s, 2015  1,615,000  1,703,825 
Affinion Group, Inc. 144A sr. notes 7 7/8s, 2018  6,155,000  5,785,700 
AMC Entertainment, Inc. 144A     
sr. sub. notes 9 3/4s, 2020  3,750,000  4,012,500 
AMC Entertainment, Inc. sr. sub. notes 8s, 2014  1,998,000  2,020,478 
American Axle & Manufacturing, Inc. company     
guaranty sr. unsec. notes 5 1/4s, 2014  2,955,000  2,955,000 
American Casino & Entertainment Properties LLC     
sr. notes 11s, 2014 ∆  1,244,000  1,323,305 
Ameristar Casinos, Inc. 144A sr. notes 7 1/2s, 2021 ∆  2,390,000  2,369,088 
Autonation, Inc. company guaranty sr. unsec. notes 6 3/4s, 2018  2,870,000  3,002,738 
Beazer Homes USA, Inc. 144A sr. notes 9 1/8s, 2019  1,445,000  1,461,256 
Bon-Ton Department Stores, Inc. (The) company     
guaranty 10 1/4s, 2014  3,635,000  3,725,875 
Boyd Gaming Corp. 144A sr. notes 9 1/8s, 2018  600,000  619,500 
Brickman Group Holdings, Inc. 144A sr. notes 9 1/8s, 2018  793,000  850,493 
Building Materials Corp. 144A company     
guaranty sr. notes 7 1/2s, 2020  1,185,000  1,229,438 
Building Materials Corp. 144A sr. notes 7s, 2020  2,425,000  2,515,938 
Building Materials Corp. 144A sr. notes 6 7/8s, 2018  830,000  848,675 
Burlington Coat Factory Warehouse Corp. 144A company     
guaranty sr. unsec. notes 10s, 2019  1,865,000  1,809,050 
Caesars Entertainment Operating Co., Inc. company guaranty     
sr. notes 10s, 2018  4,960,000  4,526,000 
Caesars Entertainment Operating Co., Inc. sr. notes 11 1/4s, 2017  5,125,000  5,823,281 
Cedar Fair LP/Canada’s Wonderland Co./Magnum     
Management Corp. 144A company guaranty sr. unsec.     
notes 9 1/8s, 2018  855,000  927,675 
Cengage Learning Acquisitions, Inc. 144A sr. notes 10 1/2s,2015  1,400,000  1,428,000 
Cenveo Corp. company guaranty sr. notes 8 7/8s, 2018  1,500,000  1,503,750 
Cenveo Corp. 144A company guaranty sr. unsec.     
notes 10 1/2s, 2016  590,000  592,950 
Citadel Broadcasting Corp. 144A company guaranty sr. unsec.     
notes 7 3/4s, 2018  740,000  801,975 
CityCenter Holdings LLC/CityCenter Finance Corp. 144A     
company guaranty sr. notes 10 3/4s, 2017 ‡‡  2,620,000  2,705,150 
Clear Channel Communications, Inc. company guaranty unsec.     
unsub. notes 10 3/4s, 2016  606,000  577,215 
Clear Channel Communications, Inc. 144A company     
guaranty sr. notes 9s, 2021  5,324,000  5,310,690 
Clear Channel Worldwide Holdings, Inc. company     
guaranty sr. unsec. unsub. notes Ser. B, 9 1/4s, 2017  6,329,000  6,938,166 
Compucom Systems, Inc. 144A sr. sub. notes 12 1/2s, 2015  685,000  740,656 

 

23


CORPORATE BONDS AND NOTES (29.0%)* cont.  Principal amount  Value 
 
Consumer cyclicals cont.       
Dana Holding Corp. sr. unsec. notes 6 3/4s, 2021    $1,315,000  $1,315,000 
DIRECTV Holdings, LLC/DIRECTV Financing Co., Inc. company       
guaranty sr. unsec. notes 7 5/8s, 2016    588,000  648,270 
DISH DBS Corp. company guaranty 7 1/8s, 2016    2,345,000  2,503,288 
DISH DBS Corp. company guaranty 6 5/8s, 2014    6,614,000  7,002,573 
DR Horton, Inc. sr. notes 7 7/8s, 2011    140,000  142,100 
FelCor Lodging LP company guaranty sr. notes 10s, 2014 R    4,495,000  5,135,538 
Ford Motor Credit Co., LLC sr. unsec. unsub. notes 5 3/4s, 2021    2,635,000  2,602,057 
Goodyear Tire & Rubber Co. (The) sr. unsec. notes 10 1/2s, 2016    3,667,000  4,107,040 
Gray Television, Inc. company guaranty sr. notes 10 1/2s, 2015    1,000,000  1,063,750 
Grupo Televisa SA sr. unsec. bonds 6 5/8s, 2040 (Mexico)    900,000  953,575 
Grupo Televisa SA sr. unsec. notes 6s, 2018 (Mexico)    1,410,000  1,537,953 
Gymboree Corp. 144A sr. unsec. notes 9 1/8s, 2018    1,090,000  1,057,300 
Hanesbrands, Inc. company guaranty sr. unsec. notes 6 3/8s, 2020    2,197,000  2,142,075 
Hanesbrands, Inc. sr. unsec. notes 8s, 2016    970,000  1,051,238 
Host Hotels & Resorts LP company guaranty sr. unsec.       
unsub. notes Ser. Q, 6 3/4s, 2016 R    2,400,000  2,475,000 
Interactive Data Corp. 144A company       
guaranty sr. notes 10 1/4s, 2018    7,265,000  8,154,963 
Isle of Capri Casinos, Inc. company guaranty 7s, 2014    1,780,000  1,766,650 
Isle of Capri Casinos, Inc. 144A company guaranty sr. unsec. notes       
7 3/4s, 2019    2,425,000  2,412,875 
ISS Holdings A/S sr. sub. notes Ser. REGS, 8 7/8s, 2016       
(Denmark)  EUR  807,000  1,196,048 
Jarden Corp. company guaranty sr. sub. notes Ser. 1,       
7 1/2s, 2020  EUR  265,000  390,199 
Jarden Corp. company guaranty sr. unsec. sub. notes 7 1/2s,       
2017    $3,760,000  4,013,800 
Lamar Media Corp. company guaranty sr. notes 9 3/4s, 2014    655,000  756,525 
Lear Corp. company guaranty sr. unsec. bonds 7 7/8s, 2018    3,205,000  3,485,438 
Lear Corp. company guaranty sr. unsec. notes 8 1/8s, 2020    2,960,000  3,256,000 
Lender Processing Services, Inc. company guaranty sr. unsec.       
unsub. notes 8 1/8s, 2016    5,258,000  5,474,893 
Levi Strauss & Co. sr. unsec. notes 8 7/8s, 2016    340,000  354,450 
Limited Brands, Inc. company guaranty sr. unsec.       
notes 6 5/8s, 2021    2,175,000  2,218,500 
Lottomatica SpA sub. notes FRN Ser. REGS, 8 1/4s, 2066       
(Italy)  EUR  6,292,000  9,133,579 
M/I Homes, Inc. 144A sr. unsec. notes 8 5/8s, 2018    $1,000,000  1,000,000 
Macy’s Retail Holdings, Inc. company guaranty sr. unsec.       
notes 5.9s, 2016    2,075,000  2,228,031 
Mashantucket Western Pequot Tribe 144A bonds 8 1/2s,       
2015 (In default) †    1,765,000  176,500 
Michaels Stores, Inc. company guaranty 11 3/8s, 2016    1,295,000  1,411,550 
MTR Gaming Group, Inc. company guaranty sr. notes 12 5/8s, 2014    2,525,000  2,689,125 
Navistar International Corp. sr. notes 8 1/4s, 2021    3,623,000  4,003,415 
Needle Merger Sub Corp. 144A sr. unsec. notes 8 1/8s, 2019    1,890,000  1,908,900 
Neiman-Marcus Group, Inc. company guaranty sr. unsec.       
notes 9s, 2015    1,092,000  1,141,140 

 

24


CORPORATE BONDS AND NOTES (29.0%)* cont.  Principal amount  Value 
 
Consumer cyclicals cont.       
Nielsen Finance, LLC/Nielsen Finance Co. 144A company       
guaranty sr. unsec. notes 7 3/4s, 2018    $1,790,000  $1,919,775 
Nortek, Inc. company guaranty sr. notes 11s, 2013    2,734,519  2,891,754 
Nortek, Inc. 144A company guaranty sr. unsec. notes 10s, 2018    2,343,000  2,524,583 
Owens Corning company guaranty unsec. unsub. notes 9s, 2019    5,347,000  6,309,460 
Penn National Gaming, Inc. sr. unsec. sub. notes 8 3/4s, 2019    2,466,000  2,721,848 
Penske Automotive Group, Inc. company guaranty sr. unsec.       
sub. notes 7 3/4s, 2016    1,713,000  1,770,814 
PETCO Animal Supplies, Inc. 144A company       
guaranty sr. notes 9 1/4s, 2018    1,280,000  1,369,600 
PHH Corp. 144A sr. unsec. notes 9 1/4s, 2016    1,085,000  1,179,938 
Pinnacle Entertainment, Inc. company guaranty sr. unsec.       
notes 8 5/8s, 2017    2,900,000  3,161,000 
Pinnacle Entertainment, Inc. company guaranty sr. unsec.       
sub. notes 7 1/2s, 2015    1,295,000  1,317,663 
Ply Gem Industries, Inc. 144A sr. notes 8 1/4s, 2018    895,000  919,613 
Polish Television Holding BV sr. notes Ser. REGS, stepped-coupon       
11 1/4s (13s, 11/15/14), 2017 (Netherlands) ††  EUR  3,504,000  5,308,491 
Realogy Corp. 144A company guaranty sr. notes 7 7/8s, 2019    $695,000  689,788 
Realogy Corp. 144A company guaranty sr. unsec.       
notes 11 1/2s, 2017    7,286,000  7,522,795 
Regal Entertainment Group company guaranty sr. unsec.       
notes 9 1/8s, 2018    3,500,000  3,745,000 
Roofing Supply Group, LLC/Roofing Supply Finance, Inc. 144A       
sr. notes 8 5/8s, 2017    4,133,000  4,349,983 
Sabre Holdings Corp. sr. unsec. unsub. notes 8.35s, 2016    3,139,000  3,029,135 
Scotts Miracle-Gro Co. (The) 144A sr. notes 6 5/8s, 2020    1,825,000  1,872,906 
Sealy Mattress Co. sr. sub. notes 8 1/4s, 2014    525,000  530,250 
Sealy Mattress Co. 144A company guaranty sr. sec.       
notes 10 7/8s, 2016    1,700,000  1,925,250 
Sears Holdings Corp. 144A sr. notes 6 5/8s, 2018    1,678,000  1,627,660 
Sirius XM Radio, Inc. 144A sr. notes 9 3/4s, 2015    3,403,000  3,832,629 
Standard Pacific Corp. company guaranty sr. unsec.       
unsub. notes 7s, 2015    206,000  216,300 
Standard Pacific Corp. 144A company guaranty sr. unsec.       
notes 8 3/8s, 2021    693,000  716,389 
Toys R Us, Inc. sr. unsec. unsub. notes 7 7/8s, 2013    375,000  403,125 
Toys R Us — Delaware, Inc. 144A company       
guaranty sr. notes 7 3/8s, 2016    505,000  534,038 
Toys R Us Property Co., LLC company       
guaranty sr. notes 8 1/2s, 2017    2,265,000  2,434,875 
Toys R Us Property Co., LLC company guaranty sr. unsec.       
notes 10 3/4s, 2017    4,385,000  4,976,975 
Travelport LLC company guaranty 11 7/8s, 2016    2,830,000  2,638,975 
Travelport LLC company guaranty 9 7/8s, 2014    958,000  932,853 
Travelport, LLC/Travelport, Inc. company       
guaranty sr. unsec. notes 9s, 2016    2,520,000  2,340,450 
TRW Automotive, Inc. company guaranty sr. unsec.       
unsub. notes Ser. REGS, 6 3/8s, 2014  EUR  1,395,000  2,079,206 

 

25


CORPORATE BONDS AND NOTES (29.0%)* cont.  Principal amount  Value 
 
Consumer cyclicals cont.       
TRW Automotive, Inc. 144A company guaranty sr. notes       
7 1/4s, 2017    $4,530,000  $4,983,000 
TVN Finance Corp. III AB 144A company guaranty sr. unsec.       
notes 7 7/8s, 2018 (Sweden)  EUR  270,000  388,440 
Universal City Development Partners, Ltd. company       
guaranty sr. unsec. notes 8 7/8s, 2015    $2,565,000  2,792,644 
Univision Communications, Inc. 144A company       
guaranty sr. unsec. notes 8 1/2s, 2021    3,015,000  3,120,525 
Univision Communications, Inc. 144A sr. notes 7 7/8s, 2020    2,324,000  2,457,630 
Visteon Corp. 144A sr. notes 6 3/4s, 2019 ∆    1,910,000  1,910,000 
Wynn Las Vegas, LLC/Wynn Las Vegas Capital Corp. company       
guaranty mtge. notes 7 3/4s, 2020    1,160,000  1,229,600 
XM Satellite Radio, Inc. 144A company guaranty sr. unsec.       
notes 13s, 2013    1,831,000  2,174,313 
XM Satellite Radio, Inc. 144A sr. unsec. notes 7 5/8s, 2018    3,182,000  3,357,010 
Yankee Candle Co. company guaranty sr. notes Ser. B,       
8 1/2s, 2015    1,680,000  1,743,000 
YCC Holdings, LLC/Yankee Finance, Inc. 144A sr. unsec.       
notes 10 1/4s, 2016    3,955,000  3,984,663 
Yonkers Racing Corp. 144A sr. notes 11 3/8s, 2016    2,428,000  2,701,150 
      268,932,219 
Consumer staples (1.9%)       
Anheuser-Busch InBev Worldwide, Inc. company       
guaranty sr. unsec. notes 9 3/4s, 2015  BRL  16,800,000  10,184,852 
Archibald Candy Corp. company guaranty sub. notes 10s,       
2011 (In default) † F    $562,539  18,001 
Avis Budget Car Rental, LLC/Avis Budget Finance, Inc.       
company guaranty sr. unsec. unsub. notes 9 5/8s, 2018    1,293,000  1,428,765 
Avis Budget Car Rental, LLC/Avis Budget Finance, Inc.       
company guaranty sr. unsec. unsub. notes 7 3/4s, 2016    5,577,000  5,751,281 
Bumble Bee Acquisition Corp. 144A company guaranty sr. notes       
9s, 2017    1,990,000  2,069,600 
Burger King Corp. company guaranty sr. unsec. notes 9 7/8s, 2018    2,242,000  2,373,718 
Central Garden & Pet Co. company guaranty sr. sub. notes       
8 1/4s, 2018    2,243,000  2,349,543 
CKE Holdings, Inc. 144A sr. notes 10 1/2s, 2016 ‡‡    1,330,000  1,246,875 
CKE Restaurants, Inc. company guaranty sr. notes 11 3/8s, 2018    2,290,000  2,524,725 
Claires Stores, Inc. 144A sr. notes 8 7/8s, 2019    4,065,000  3,882,075 
Constellation Brands, Inc. company guaranty sr. unsec.       
notes 7 1/4s, 2017    2,193,000  2,379,405 
Constellation Brands, Inc. company guaranty sr. unsec.       
unsub. notes 7 1/4s, 2016    2,401,000  2,596,081 
Darling International, Inc. 144A company       
guaranty sr. unsec. notes 8 1/2s, 2018    555,000  603,563 
Dean Foods Co. company guaranty sr. unsec. unsub. notes       
7s, 2016    2,498,000  2,382,468 
Dean Foods Co. 144A sr. notes 9 3/4s, 2018    560,000  574,700 
DineEquity, Inc. 144A sr. unsec. notes 9 1/2s, 2018    4,296,000  4,661,160 
Dole Food Co. 144A sr. notes 8s, 2016    1,710,000  1,814,738 
Dunkin Finance Corp. 144A sr. notes 9 5/8s, 2018    757,000  771,194 

 

26


CORPORATE BONDS AND NOTES (29.0%)* cont.  Principal amount  Value 
 
Consumer staples cont.       
EC Finance PLC company guaranty sr. bonds Ser. REGS,       
9 3/4s, 2017 (United Kingdom)  EUR  624,000  $986,446 
Elizabeth Arden, Inc. sr. unsec. unsub. notes 7 3/8s, 2021    $2,115,000  2,207,531 
Europcar Groupe SA company guaranty sr. sub. bonds FRB       
Ser. REGS, 4.593s, 2013 (France)  EUR  331,000  462,582 
Foodcorp (Pty), Ltd. 144A company guaranty sr. notes       
8 3/4s, 2018 (South Africa)  EUR  1,045,000  1,446,779 
Hertz Corp. company guaranty sr. unsec. notes 8 7/8s, 2014    $230,000  235,750 
Hertz Corp. 144A company guaranty sr. notes 6 3/4s, 2019    925,000  916,906 
Hertz Corp. 144A company guaranty sr. unsec. notes 7 1/2s, 2018    800,000  828,000 
Hertz Holdings Netherlands BV sr. sec. bonds Ser. REGS,       
8 1/2s, 2015 (Netherlands)  EUR  1,000,000  1,533,697 
Hertz Holdings Netherlands BV 144A sr. bonds 8 1/2s, 2015       
(Netherlands)  EUR  2,129,000  3,265,240 
Landry’s Restaurants, Inc. 144A company guaranty sr. notes       
11 5/8s, 2015    $911,000  981,603 
Libbey Glass, Inc. sr. notes 10s, 2015    574,000  625,660 
Prestige Brands, Inc. company guaranty sr. unsec. notes       
8 1/4s, 2018    1,830,000  1,930,650 
Prestige Brands, Inc. 144A company guaranty sr. unsec.       
notes 8 1/4s, 2018    900,000  949,500 
Rite Aid Corp. company guaranty sr. notes 7 1/2s, 2017    5,475,000  5,475,000 
Rite Aid Corp. company guaranty sr. unsec. unsub. notes       
9 1/2s, 2017    1,114,000  1,001,208 
Rite Aid Corp. company guaranty sr. unsub. notes 8s, 2020    595,000  629,956 
Roadhouse Financing, Inc. 144A sr. notes 10 3/4s, 2017    1,410,000  1,512,225 
RSC Equipment Rental, Inc. 144A sr. unsec. notes 8 1/4s, 2021    1,220,000  1,268,800 
Service Corporation International sr. notes 7s, 2019    970,000  1,018,500 
Service Corporation International sr. notes 7s, 2017    3,136,000  3,355,520 
Simmons Foods, Inc. 144A sr. notes 10 1/2s, 2017    1,451,000  1,574,335 
Smithfield Foods, Inc. company guaranty sr. notes 10s, 2014    3,865,000  4,551,038 
Spectrum Brands, Inc. 144A sr. notes 9 1/2s, 2018    3,360,000  3,704,400 
Stewart Enterprises, Inc. sr. notes 6 1/4s, 2013    3,922,000  3,926,903 
Tyson Foods, Inc. sr. unsec. unsub. notes 10 1/2s, 2014    2,070,000  2,484,000 
United Rentals North America, Inc. company guaranty sr. unsec.       
sub. notes 8 3/8s, 2020    900,000  940,500 
Wendy’s/Arby’s Restaurants LLC company guaranty sr. unsec.       
unsub. notes 10s, 2016    5,025,000  5,527,500 
West Corp. 144A sr. notes 7 7/8s, 2019    2,430,000  2,475,563 
West Corp. 144A sr. unsec. notes 8 5/8s, 2018    665,000  699,913 
      104,128,449 
Energy (5.4%)       
Anadarko Finance Co. company guaranty sr. unsec.       
unsub. notes Ser. B, 7 1/2s, 2031    1,505,000  1,661,511 
Anadarko Petroleum Corp. sr. notes 5.95s, 2016    4,895,000  5,321,392 
Anadarko Petroleum Corp. sr. unsec. notes 6 3/8s, 2017    2,960,000  3,258,057 
Arch Coal, Inc. company guaranty sr. unsec. notes 7 1/4s, 2020    3,630,000  3,893,175 
Arch Western Finance, LLC company       
guaranty sr. notes 6 3/4s, 2013    3,278,000  3,310,780 

 

27


CORPORATE BONDS AND NOTES (29.0%)* cont.  Principal amount  Value 
 
Energy cont.     
ATP Oil & Gas Corp. company guaranty sr. notes 11 7/8s, 2015  $643,000  $675,150 
Brigham Exploration Co. 144A company guaranty sr. unsec.     
notes 8 3/4s, 2018  3,619,000  4,017,090 
Carrizo Oil & Gas, Inc. 144A sr. unsec. notes 8 5/8s, 2018  4,411,000  4,675,660 
Chaparral Energy, Inc. company guaranty sr. unsec.     
notes 8 7/8s, 2017  3,970,000  4,168,500 
Chaparral Energy, Inc. 144A company guaranty sr. unsec.     
notes 8 1/4s, 2021  910,000  937,300 
Chaparral Energy, Inc. 144A sr. notes 9 7/8s, 2020  1,640,000  1,820,400 
Chesapeake Energy Corp. company guaranty sr. unsec.     
notes 9 1/2s, 2015  5,240,000  6,497,600 
Complete Production Services, Inc. company guaranty 8s, 2016  1,657,000  1,748,135 
Compton Petroleum Finance Corp. company guaranty sr. unsec.     
notes 10s, 2017 (Canada)  817,887  580,700 
Connacher Oil and Gas, Ltd. 144A sec. notes 10 1/4s, 2015     
(Canada)  3,704,000  3,926,240 
Connacher Oil and Gas, Ltd. 144A sr. sec. notes 11 3/4s,     
2014 (Canada)  2,145,000  2,305,875 
CONSOL Energy, Inc. company guaranty sr. unsec.     
notes 8 1/4s, 2020  1,829,000  2,027,904 
CONSOL Energy, Inc. company guaranty sr. unsec. notes 8s, 2017  8,151,000  8,925,345 
CONSOL Energy, Inc. 144A company guaranty sr. unsec.     
notes 6 3/8s, 2021  375,000  375,469 
Crosstex Energy LP/Crosstex Energy Finance Corp. company     
guaranty sr. unsec. notes 8 7/8s, 2018  5,652,000  6,160,680 
Denbury Resources, Inc. company guaranty sr. unsec.     
sub. notes 8 1/4s, 2020  3,793,000  4,229,195 
Denbury Resources, Inc. company guaranty sr. unsec.     
sub. notes 6 3/8s, 2021  1,285,000  1,317,125 
EXCO Resources, Inc. company guaranty sr. unsec.     
notes 7 1/2s, 2018  5,316,000  5,402,385 
Expro Finance Luxemburg 144A sr. notes 8 1/2s, 2016     
(Luxembourg)  2,135,000  2,113,650 
Ferrellgas LP/Ferrellgas Finance Corp. 144A     
sr. notes 6 1/2s, 2021  1,264,000  1,226,080 
Forest Oil Corp. sr. notes 8s, 2011  3,730,000  3,897,850 
Frac Tech Services, LLC/Frac Tech Finance, Inc. 144A     
company guaranty sr. notes 7 1/8s, 2018  2,260,000  2,316,500 
Gazprom Via Gaz Capital SA sr. unsec. notes Ser. REGS,     
7.288s, 2037 (Russia)  1,810,000  1,954,800 
Gazprom Via Gaz Capital SA 144A company guaranty sr. unsec.     
bond 8.146s, 2018 (Russia)  740,000  870,980 
Gazprom OAO Via Gaz Capital SA 144A sr. sec. bond 9 1/4s, 2019     
(Russia)  3,305,000  4,107,157 
Gazprom OAO Via Gaz Capital SA 144A sr. unsec. 6.51s, 2022     
(Russia)  1,090,000  1,158,125 
Gazprom OAO Via Gaz Capital SA 144A sr. unsec. notes 7.288s,     
2037 (Russia)  1,280,000  1,382,400 
Gazprom OAO Via White Nights Finance BV notes 10 1/2s, 2014     
(Netherlands)  8,525,000  10,243,470 

 

28


CORPORATE BONDS AND NOTES (29.0%)* cont.  Principal amount  Value 
 
Energy cont.       
Goodrich Petroleum Corp. 144A sr. notes 8 7/8s, 2019    $4,480,000  $4,480,000 
Helix Energy Solutions Group, Inc. 144A sr. unsec.       
notes 9 1/2s, 2016    3,440,000  3,629,200 
Hornbeck Offshore Services, Inc. sr. notes Ser. B, 6 1/8s, 2014    3,379,000  3,400,119 
Inergy LP/Inergy Finance Corp. 144A sr. notes 6 7/8s, 2021    2,746,000  2,862,705 
Infinis PLC sr. notes Ser. REGS, 9 1/8s, 2014       
(United Kingdom)  GBP  773,000  1,315,907 
James River Escrow, Inc. 144A sr. notes 7 7/8s, 2019    $965,000  998,775 
Key Energy Services, Inc. company guaranty unsec.       
unsub. notes 6 3/4s, 2021    1,310,000  1,332,925 
Laredo Petroleum, Inc. 144A sr. notes 9 1/2s, 2019    1,641,000  1,708,691 
Lukoil International Finance BV 144A company       
guaranty sr. unsec. unsub. bonds 6.656s, 2022 (Russia)    2,380,000  2,493,050 
Lukoil International Finance BV 144A company       
guaranty sr. unsec. unsub. notes 7 1/4s, 2019 (Russia)    2,920,000  3,223,008 
Massey Energy Co. company guaranty sr. unsec. notes       
6 7/8s, 2013    4,646,000  4,738,920 
MEG Energy Corp. 144A company guaranty sr. unsec.       
notes 6 1/2s, 2021 (Canada)    1,905,000  1,935,956 
Newfield Exploration Co. sr. unsec. sub. notes 6 7/8s, 2020    1,000,000  1,055,000 
Newfield Exploration Co. sr. unsec. sub. notes 6 5/8s, 2014    2,650,000  2,709,625 
OPTI Canada, Inc. company guaranty sr. sec. notes 8 1/4s,       
2014 (Canada)    2,535,000  1,353,056 
OPTI Canada, Inc. company guaranty sr. sec. notes 7 7/8s,       
2014 (Canada)    2,030,000  1,073,363 
OPTI Canada, Inc. 144A company guaranty sr. notes 9 3/4s,       
2013 (Canada)    4,207,000  4,201,741 
OPTI Canada, Inc. 144A sr. notes 9s, 2012 (Canada)    948,000  963,405 
Peabody Energy Corp. company guaranty 7 3/8s, 2016    8,163,000  9,060,930 
Peabody Energy Corp. company guaranty sr. unsec.       
unsub. notes 6 1/2s, 2020    208,000  223,080 
Pemex Project Funding Master Trust company       
guaranty sr. unsec. unsub. bonds 6 5/8s, 2035 (Mexico)    1,140,000  1,143,549 
Pemex Project Funding Master Trust company guaranty unsec.       
unsub. notes 6 5/8s, 2038 (Mexico)    1,500,000  1,493,624 
Petrobras International Finance Co. company       
guaranty sr. unsec. notes 7 7/8s, 2019 (Brazil)    1,575,000  1,848,735 
Petrobras International Finance Co. company       
guaranty sr. unsec. notes 6 7/8s, 2040 (Brazil)    11,705,000  12,102,807 
Petrobras International Finance Co. company       
guaranty sr. unsec. notes 6 3/4s, 2041 (Brazil)    1,782,000  1,835,829 
Petrobras International Finance Co. company       
guaranty sr. unsec. notes 5 3/8s, 2021 (Brazil)    5,375,000  5,391,222 
Petrohawk Energy Corp. company guaranty sr. unsec.       
notes 10 1/2s, 2014    1,350,000  1,550,813 
Petroleos de Venezuela SA company guaranty sr. unsec.       
notes 5 1/4s, 2017 (Venezuela)    27,200,000  16,428,800 
Petroleos de Venezuela SA company guaranty sr. unsec.       
unsub. notes 5 1/2s, 2037 (Venezuela)    3,200,000  1,460,800 

 

29


CORPORATE BONDS AND NOTES (29.0%)* cont.  Principal amount  Value 
 
Energy cont.     
Petroleos de Venezuela SA company guaranty sr. unsec.     
unsub. notes 5 3/8s, 2027 (Venezuela)  $3,000,000  $1,417,500 
Petroleos de Venezuela SA sr. unsec. bonds zero %, 2011     
(Venezuela)  7,960,000  7,780,900 
Petroleos de Venezuela SA sr. unsec. notes 5 1/8s, 2016     
(Venezuela)  5,000,000  3,032,050 
Petroleos de Venezuela SA sr. unsec. notes 4.9s, 2014     
(Venezuela)  24,700,000  18,154,500 
Petroleos de Venezuela SA sr. unsec. sub. bonds 5s, 2015     
(Venezuela)  14,010,000  9,206,251 
Petroleos de Venezuela SA 144A company     
guaranty sr. notes 8 1/2s, 2017 (Venezuela) ∆  7,565,000  5,348,455 
Petroleos de Venezuela SA 144A company guaranty sr. unsec.     
notes 8s, 2013 (Venezuela)  6,425,000  5,959,188 
Petroleos Mexicanos company guaranty sr. unsec.     
unsub. notes 5 1/2s, 2021 (Mexico)  10,500,000  10,657,500 
Petroleum Co. of Trinidad & Tobago Ltd. 144A sr. unsec.     
notes 9 3/4s, 2019 (Trinidad)  1,165,000  1,412,563 
Petroleum Co. of Trinidad & Tobago Ltd. 144A sr. unsec.     
notes 6s, 2022 (Trinidad)  2,295,208  2,324,335 
Petroleum Development Corp. company guaranty sr. unsec.     
notes 12s, 2018  1,465,000  1,660,944 
Plains Exploration & Production Co. company     
guaranty 7 3/4s, 2015  2,900,000  3,026,875 
Plains Exploration & Production Co. company guaranty 7s, 2017  580,000  598,850 
Plains Exploration & Production Co. company     
guaranty sr. unsec. notes 10s, 2016  1,180,000  1,330,450 
Power Sector Assets & Liabilities Management Corp. 144A     
govt. guaranty sr. unsec. notes 7.39s, 2024 (Philippines)  2,790,000  3,180,600 
Power Sector Assets & Liabilities Management Corp. 144A     
govt. guaranty sr. unsec. notes 7 1/4s, 2019 (Philippines)  2,100,000  2,394,000 
Quicksilver Resources, Inc. company guaranty sr. unsec.     
notes 8 1/4s, 2015  500,000  523,750 
Quicksilver Resources, Inc. sr. notes 11 3/4s, 2016  1,710,000  1,992,150 
Range Resources Corp. company     
guaranty sr. sub. notes 6 3/4s, 2020  1,640,000  1,746,600 
Rosetta Resources, Inc. company guaranty sr. unsec.     
notes 9 1/2s, 2018  3,321,000  3,686,310 
Sabine Pass LNG LP sec. notes 7 1/2s, 2016  2,885,000  2,964,338 
SandRidge Energy, Inc. 144A company guaranty sr. unsec.     
notes 7 1/2s, 2021  565,000  586,188 
SandRidge Energy, Inc. 144A company guaranty sr. unsec.     
unsub. notes 8s, 2018  6,510,000  6,819,225 
SM Energy Co. 144A sr. unsec. notes 6 5/8s, 2019  1,105,000  1,134,006 
Williams Cos., Inc. (The) notes 7 3/4s, 2031  844,000  1,002,354 
Williams Cos., Inc. (The) sr. unsec. notes 7 7/8s, 2021  1,115,000  1,387,567 
    301,849,764 

 

30


CORPORATE BONDS AND NOTES (29.0%)* cont.  Principal amount  Value 
 
Financials (5.5%)       
ACE Cash Express, Inc. 144A sr. notes 11s, 2019    $2,380,000  $2,421,650 
Ally Financial, Inc. company guaranty sr. unsec. notes 7s, 2012    212,000  218,625 
Ally Financial, Inc. company guaranty sr. unsec.       
notes 6 7/8s, 2012    1,379,000  1,447,950 
Ally Financial, Inc. company guaranty sr. unsec.       
notes 6 5/8s, 2012    1,304,000  1,356,160 
Ally Financial, Inc. company guaranty sr. unsec.       
unsub. notes 8.3s, 2015    4,595,000  5,037,269 
Ally Financial, Inc. company guaranty sr. unsec.       
unsub. notes FRN 2.511s, 2014    168,000  162,992 
Ally Financial, Inc. unsec. sub. notes 8s, 2018    1,333,000  1,431,309 
Ally Financial, Inc. 144A company guaranty notes 6 1/4s, 2017    1,815,000  1,849,031 
Ally Financial, Inc. 144A company guaranty sr. unsec.       
unsub. notes 7 1/2s, 2020    7,290,000  7,772,963 
American International Group, Inc. jr. sub. bonds FRB       
8.175s, 2058    2,043,000  2,198,779 
Banco Do Brasil 144A sr. unsec. 9 3/4s, 2017 (Brazil)  BRL  1,745,000  1,069,830 
Bosphorus Financial Services, Ltd. 144A sr. notes FRN       
2.113s, 2012    $2,574,750  2,545,748 
Capital One Capital IV company guaranty jr. unsec.       
sub. notes FRN 6.745s, 2037    1,958,000  1,965,343 
CB Richard Ellis Services, Inc. company guaranty sr. unsec.       
notes 6 5/8s, 2020    1,235,000  1,272,050 
CB Richard Ellis Services, Inc. company guaranty sr. unsec.       
sub. notes 11 5/8s, 2017    1,000,000  1,180,000 
CIT Group, Inc. sr. bonds 7s, 2017 ∆    12,809,000  12,825,011 
CIT Group, Inc. sr. bonds 7s, 2016    8,296,000  8,306,370 
CIT Group, Inc. sr. bonds 7s, 2015    1,390,000  1,402,163 
CIT Group, Inc. sr. bonds 7s, 2014    439,000  447,231 
CIT Group, Inc. 144A company guaranty notes 6 5/8s, 2018    2,885,000  2,927,176 
CNO Financial Group, Inc. 144A company       
guaranty sr. notes 9s, 2018    730,000  773,800 
Corrections Corporation of America company       
guaranty sr. notes 7 3/4s, 2017    6,495,000  7,047,075 
E*Trade Financial Corp. sr. unsec. unsub. notes 12 1/2s, 2017    3,000,000  3,577,500 
HSBC Capital Funding LP/ Jersey Channel Islands company       
guaranty sub. FRB 5.13s, 2049 (United Kingdom)  EUR  1,092,000  1,453,730 
HUB International Holdings, Inc. 144A       
sr. sub. notes 10 1/4s, 2015    $375,000  388,125 
HUB International Holdings, Inc. 144A sr. unsec.       
unsub. notes 9s, 2014    270,000  282,150 
Icahn Enterprises LP/Icahn Enterprises Finance Corp.       
company guaranty sr. unsec. notes 8s, 2018    5,270,000  5,414,925 
Industry & Construction Bank St. Petersburg OJSC Via Or-ICB       
for Industry unsec. sub. notes FRN 5.01s, 2015       
(Luxembourg)    1,750,000  1,731,625 
JPMorgan Chase & Co. 144A sr. unsec. notes FRN zero %, 2017    2,500,000  2,519,903 
JPMorgan Chase & Co. 144A sr. unsec. unsub. notes FRN       
3.91s, 2011  RUB  102,000,000  3,586,229 

 

31


CORPORATE BONDS AND NOTES (29.0%)* cont.  Principal amount  Value 
 
Financials cont.       
JPMorgan Chase & Co. 144A unsec. unsub. notes 8s, 2012  INR  76,000,000  $1,719,224 
Leucadia National Corp. sr. unsec. notes 7 1/8s, 2017    $3,482,000  3,656,100 
Liberty Mutual Insurance Co. 144A notes 7.697s, 2097    4,365,000  4,014,137 
MetLife Capital Trust X 144A jr. sub. FRB 9 1/4s, 2038    935,000  1,126,675 
National Money Mart Co. company guaranty sr. unsec.       
unsub. notes 10 3/8s, 2016 (Canada)    2,543,000  2,835,445 
Nuveen Investments, Inc. company guaranty sr. unsec.       
unsub. notes 10 1/2s, 2015    4,159,000  4,273,373 
Offshore Group Investments, Ltd. company       
guaranty sr. notes 11 1/2s, 2015 (Cayman Islands)    1,245,000  1,381,950 
Omega Healthcare Investors, Inc. 144A sr. notes 6 3/4s, 2022 R    2,376,000  2,426,490 
Russian Agricultural Bank OJSC Via RSHB Capital SA       
sub. bonds FRB 6.97s, 2016 (Russia)    30,110,000  30,188,888 
Russian Agricultural Bank OJSC Via RSHB Capital SA 144A       
notes 7 3/4s, 2018 (Russia)    1,890,000  2,114,343 
Russian Agricultural Bank OJSC Via RSHB Capital SA 144A       
notes 7 1/8s, 2014 (Russia)    6,575,000  7,154,915 
Sabra Health Care LP/Sabra Capital Corp. company       
guaranty sr. unsec. unsub. notes 8 1/8s, 2018 R    1,260,000  1,329,300 
Shinhan Bank 144A sr. unsec. bond 6s, 2012 (South Korea)    1,398,000  1,470,047 
SLM Corp. sr. notes Ser. MTN, 6 1/4s, 2016    2,190,000  2,291,639 
Springleaf Finance Corp. sr. unsec. notes Ser. MTN, 6.9s, 2017    7,805,000  7,131,819 
State Bank of India/London 144A sr. unsec. notes 4 1/2s,       
2015 (India)    1,665,000  1,691,940 
UBS AG/ Jersey Branch jr. unsec. sub. FRB 4.28s, 2015       
(Cayman Islands)  EUR  1,771,000  2,266,561 
Ukreximbank Via Biz Finance PLC sr. unsec.       
unsub. bonds 8 3/8s, 2015 (United Kingdom)    $3,400,000  3,504,992 
USI Holdings Corp. 144A company guaranty sr. unsec.       
notes FRN 4.188s, 2014    245,000  238,263 
Vnesheconombank Via VEB Finance, Ltd. 144A bank guaranteed       
bonds 6.8s, 2025 (Russia)    12,300,000  12,472,200 
VTB Bank OJSC Via VTB Capital SA sr. notes 6 1/4s, 2035       
(Russia)    4,335,000  4,595,100 
VTB Bank OJSC Via VTB Capital SA 144A bank       
guaranty sr. unsec. notes 6.551s, 2020 (Russia)    5,000,000  5,068,500 
VTB Bank OJSC Via VTB Capital SA 144A sr. unsec.       
notes 7 1/2s, 2011 (Russia)    2,616,000  2,691,079 
VTB Bank OJSC Via VTB Capital SA 144A sr. unsec.       
notes 6 1/4s, 2035 (Russia)    50,831,000  53,880,860 
VTB Bank OJSC Via VTB Capital SA 144A sr. unsec.       
unsub. notes 6.609s, 2012 (Russia)    12,594,000  13,370,042 
VTB Bank OJSC Via VTB Capital SA 144A sr. unsec.       
unsub. notes 6.465s, 2015 (Russia)    3,000,000  3,213,600 
VTB Bank OJSC Via VTB Capital SA 144A sr. unsec. notes 6 7/8s,       
2018 (Russia)    38,586,000  41,912,113 
      302,632,307 

 

32


CORPORATE BONDS AND NOTES (29.0%)* cont.  Principal amount  Value 
 
Government (0.1%)       
International Bank for Reconstruction & Development       
sr. unsec. unsub. notes Ser. GDIF, 5 1/4s, 2014       
(Supra-Nation)  RUB  123,450,000  $4,205,244 
      4,205,244 
Health care (1.4%)       
Aviv Healthcare Properties LP 144A sr. notes 7 3/4s, 2019 ∆    $2,810,000  2,929,425 
Bayer AG jr. unsec. sub. bonds FRB 5s, 2105 (Germany)  EUR  819,000  1,153,135 
Biomet, Inc. company guaranty sr. unsec. notes 10s, 2017    $1,876,000  2,056,565 
Capella Healthcare, Inc. 144A company       
guaranty sr. notes 9 1/4s, 2017    1,610,000  1,714,650 
CHS/Community Health Systems, Inc. company       
guaranty sr. unsec. sub. notes 8 7/8s, 2015    4,043,000  4,265,365 
ConvaTec Healthcare E SA 144A sr. notes 7 3/8s, 2017       
(Luxembourg)  EUR  865,000  1,264,604 
ConvaTec Healthcare E SA 144A sr. unsec. notes 10 1/2s,       
2018 (Luxembourg)    $5,050,000  5,302,500 
DaVita, Inc. company guaranty sr. unsec. notes 6 5/8s, 2020    595,000  602,438 
DaVita, Inc. company guaranty sr. unsec. notes 6 3/8s, 2018    1,770,000  1,787,700 
Fresenius Medical Care US Finance, Inc. 144A company       
guaranty sr. notes 5 3/4s, 2021    2,950,000  2,857,813 
Fresenius US Finance II, Inc. 144A sr. unsec. notes 9s, 2015    2,160,000  2,475,900 
Giant Funding Corp. 144A sr. notes 8 1/4s, 2018 (Spain)    2,056,000  2,109,970 
HCA Holdings, Inc. 144A sr. unsec. notes 7 3/4s, 2021    4,481,000  4,671,443 
HCA, Inc. company guaranty sr. notes 9 5/8s, 2016 ‡‡    7,361,000  7,931,478 
HCA, Inc. sr. sec. notes 9 1/4s, 2016    5,814,000  6,257,318 
HCA, Inc. sr. sec. notes 9 1/8s, 2014    2,248,000  2,357,590 
Multiplan, Inc. 144A company guaranty sr. notes 9 7/8s, 2018    1,635,000  1,749,450 
Select Medical Corp. company guaranty 7 5/8s, 2015    994,000  1,011,395 
Surgical Care Affiliates, Inc. 144A sr. sub. notes 10s, 2017    1,505,000  1,557,675 
Surgical Care Affiliates, Inc. 144A sr. unsec.       
notes 8 7/8s, 2015 ‡‡    834,910  853,695 
Talecris Biotherapeutics Holdings Corp. company       
guaranty sr. unsec. notes 7 3/4s, 2016    1,754,000  1,925,015 
Tenet Healthcare Corp. company guaranty sr. notes 10s, 2018    1,683,000  1,971,214 
Tenet Healthcare Corp. sr. notes 9s, 2015    4,307,000  4,737,700 
Tenet Healthcare Corp. sr. notes 8 7/8s, 2019    2,627,000  2,994,780 
Tenet Healthcare Corp. sr. unsec. notes 8s, 2020    1,945,000  2,027,663 
Valeant Pharmaceuticals International 144A company       
guaranty sr. notes 7s, 2020    350,000  339,500 
Valeant Pharmaceuticals International 144A company       
guaranty sr. unsec. notes 6 7/8s, 2018    900,000  882,000 
Valeant Pharmaceuticals International 144A       
sr. notes 6 3/4s, 2017    350,000  344,750 
Vanguard Health Systems, Inc. 144A sr. notes zero %, 2016    6,990,000  4,438,650 
Ventas Realty LP/Capital Corp. company guaranty 9s, 2012 R    2,840,000  3,054,051 
      77,625,432 
Technology (1.2%)       
Advanced Micro Devices, Inc. sr. unsec. notes 7 3/4s, 2020    660,000  678,150 
Avaya, Inc. company guaranty sr. unsec. notes 9 3/4s, 2015    3,357,000  3,411,551 
Avaya, Inc. 144A company guaranty sr. notes 7s, 2019    2,500,000  2,437,500 

 

33


CORPORATE BONDS AND NOTES (29.0%)* cont.  Principal amount  Value 
 
Technology cont.       
Buccaneer Merger Sub., Inc. 144A sr. notes 9 1/8s, 2019    $2,680,000  $2,840,800 
Ceridian Corp. company guaranty sr. unsec. notes 12 1/4s, 2015 ‡‡  470,000  491,150 
Ceridian Corp. sr. unsec. notes 11 1/4s, 2015    2,853,000  2,967,120 
CommScope, Inc. 144A sr. notes 8 1/4s, 2019    1,795,000  1,875,775 
Fidelity National Information Services, Inc. company       
guaranty sr. unsec. notes 7 7/8s, 2020    859,000  938,458 
Fidelity National Information Services, Inc. company       
guaranty sr. unsec. notes 7 5/8s, 2017    2,376,000  2,574,990 
First Data Corp. company guaranty sr. unsec. notes 10.55s, 2015 ‡‡ ∆  5,315,285  5,507,964 
First Data Corp. company guaranty sr. unsec. sub. notes       
11 1/4s, 2016    727,000  724,274 
First Data Corp. 144A company guaranty sr. notes 8 7/8s, 2020    820,000  899,950 
First Data Corp. 144A company guaranty sr. notes 7 3/8s, 2019 ∆  680,000  694,450 
First Data Corp. 144A sr. bonds 12 5/8s, 2021    6,080,000  6,596,800 
Freescale Semiconductor, Inc. company guaranty sr. unsec.       
sub. notes 10 1/8s, 2016    10,000  10,625 
Freescale Semiconductor, Inc. 144A company       
guaranty sr. notes 10 1/8s, 2018    6,198,000  6,926,265 
Freescale Semiconductor, Inc. 144A company       
guaranty sr. unsec. notes 10 3/4s, 2020    3,323,000  3,730,068 
Iron Mountain, Inc. company guaranty sr. unsec.       
sub. notes 8s, 2020    2,300,000  2,438,000 
Iron Mountain, Inc. sr. sub. notes 8 3/8s, 2021    4,150,000  4,492,375 
NXP BV/NXP Funding, LLC sec. notes Ser. EXCH, 7 7/8s, 2014       
(Netherlands)    1,695,000  1,760,681 
NXP BV/NXP Funding, LLC 144A company       
guaranty sr. notes 9 3/4s, 2018 (Netherlands)    4,543,000  5,088,160 
Seagate HDD Cayman 144A company guaranty sr. unsec.       
notes 7 3/4s, 2018 (Cayman Islands)    2,399,000  2,482,965 
STATS ChipPAC, Ltd. 144A company guaranty sr. unsec.       
notes 7 1/2s, 2015 (Singapore)    315,000  343,350 
SunGard Data Systems, Inc. company guaranty 10 1/4s, 2015    5,159,000  5,416,950 
SunGard Data Systems, Inc. 144A sr. unsec. notes 7 5/8s, 2020    2,062,000  2,118,705 
Unisys Corp. 144A company guaranty sr. sub. notes 14 1/4s, 2015  1,523,000  1,850,445 
      69,297,521 
Transportation (0.2%)       
AMGH Merger Sub., Inc. 144A company       
guaranty sr. notes 9 1/4s, 2018 ∆    3,325,000  3,566,063 
RailAmerica, Inc. company guaranty sr. notes 9 1/4s, 2017    1,912,000  2,115,150 
Swift Services Holdings, Inc. 144A company       
guaranty sr. notes 10s, 2018    2,715,000  2,945,775 
      8,626,988 
Utilities and power (1.6%)       
AES Corp. (The) sr. unsec. unsub. notes 8s, 2017    6,690,000  7,191,750 
Aguila 3 SA company guaranty sr. notes Ser. REGS, 7 7/8s,       
2018 (Luxembourg)  CHF  4,678,000  5,230,110 
Calpine Corp. 144A company guaranty sr. notes 7 7/8s, 2020    $1,995,000  2,114,700 
Calpine Corp. 144A sr. notes 7 1/4s, 2017    4,592,000  4,775,680 
Cenrais Electricas Brasileiras SA 144A sr. unsec.       
unsub. notes 6 7/8s, 2019 (Brazil)    500,000  560,000 

 

34


CORPORATE BONDS AND NOTES (29.0%)* cont.  Principal amount  Value 
 
Utilities and power cont.       
Colorado Interstate Gas Co. debs. 6.85s, 2037 (Canada)    $2,495,000  $2,697,285 
Dynegy Holdings, Inc. sr. unsec. notes 7 3/4s, 2019    6,270,000  4,867,088 
Edison Mission Energy sr. unsec. notes 7 3/4s, 2016    654,000  555,900 
Edison Mission Energy sr. unsec. notes 7 1/2s, 2013    305,000  303,475 
Edison Mission Energy sr. unsec. notes 7.2s, 2019    605,000  471,900 
Edison Mission Energy sr. unsec. notes 7s, 2017    90,000  72,225 
El Paso Corp. sr. unsec. notes 7s, 2017    4,910,000  5,495,277 
El Paso Natural Gas Co. debs. 8 5/8s, 2022    2,976,000  3,750,959 
Energy Future Holdings Corp. company guaranty sr. notes       
10s, 2020    8,180,000  8,668,142 
Energy Future Intermediate Holdings Co., LLC sr. notes 10s, 2020    3,920,000  4,153,926 
Energy Transfer Equity LP company guaranty sr. unsec.       
notes 7 1/2s, 2020    1,927,000  2,095,613 
GenOn Americas Generation, LLC sr. unsec. notes 8.3s, 2011    530,000  531,325 
GenOn Energy, Inc. sr. unsec. unsub. notes 7 5/8s, 2014    1,500,000  1,552,500 
GenOn Energy, Inc. 144A sr. notes 9 7/8s, 2020    3,475,000  3,631,375 
GenOn Energy, Inc. 144A sr. unsec. notes 9 1/2s, 2018    530,000  551,200 
Ipalco Enterprises, Inc. 144A sr. notes 7 1/4s, 2016    490,000  530,425 
Majapahit Holding BV 144A company guaranty sr. unsec.       
notes 8s, 2019 (Indonesia)    2,575,000  2,922,625 
Majapahit Holding BV 144A company guaranty sr. unsec.       
notes 7 3/4s, 2020 (Indonesia)    7,660,000  8,626,309 
NRG Energy, Inc. company guaranty 7 3/8s, 2017    4,975,000  5,180,219 
NRG Energy, Inc. sr. notes 7 3/8s, 2016    6,949,000  7,192,215 
NV Energy, Inc. sr. unsec. notes 6 1/4s, 2020    1,370,000  1,394,233 
NV Energy, Inc. sr. unsec. unsub. notes 6 3/4s, 2017    955,000  979,503 
Tennessee Gas Pipeline Co. sr. unsec. unsub. debs. 7s, 2028    520,000  577,828 
Vattenfall Treasury AB company guaranty jr. unsec.       
sub. bond FRB 5 1/4s, 2049 (Sweden)  EUR  819,000  1,165,091 
      87,838,878 
 
Total corporate bonds and notes (cost $1,543,899,024)      $1,608,933,330 
 
 
MORTGAGE-BACKED SECURITIES (19.6%)*  Principal amount  Value 
 
Adjustable Rate Mortgage Trust       
FRB Ser. 07-1, Class 2A1, 5.646s, 2037    $6,294,323  $3,817,901 
FRB Ser. 07-1, Class 5A31, 0.39s, 2037    14,525,425  8,025,297 
Banc of America Commercial Mortgage, Inc. Ser. 07-2,       
Class A2, 5.634s, 2049    1,832,588  1,848,377 
Banc of America Commercial Mortgage, Inc. 144A       
Ser. 01-1, Class J, 6 1/8s, 2036    1,170,000  959,400 
Ser. 01-1, Class K, 6 1/8s, 2036    2,633,000  1,965,488 
Ser. 07-5, Class XW, IO, 0.427s, 2051    228,668,861  3,975,843 
Banc of America Funding Corp.       
FRB Ser. 06-D, Class 6A1, 5.429s, 2036    11,426,798  7,484,553 
FRB Ser. 07-6, Class A1, 0.54s, 2037    10,501,056  8,067,226 
FRB Ser. 07-B, Class A1, 0.464s, 2047    24,294,012  16,034,048 
Barclays Capital, LLC Trust FRB Ser. 07-AA1, Class 2A1,       
0.43s, 2037    39,296,113  25,542,473 

 

35


MORTGAGE-BACKED SECURITIES (19.6%)* cont.  Principal amount  Value 
 
Bear Stearns Adjustable Rate Mortgage Trust FRB Ser. 07-1,       
Class 2A1, 5.237s, 2047    $15,691,753  $10,356,557 
Bear Stearns Alt-A Trust       
FRB Ser. 06-5, Class 2A2, 5.999s, 2036    20,245,143  13,969,149 
FRB Ser. 06-5, Class 2A1, 5.637s, 2036    7,055,381  4,797,659 
FRB Ser. 06-1, Class 23A1, 5 1/2s, 2036    3,750,824  2,963,151 
Ser. 06-4, Class 22A1, 5.217s, 2036    9,097,071  4,684,992 
FRB Ser. 07-1, Class 21A1, 5.202s, 2047    7,633,017  4,608,205 
FRB Ser. 05-10, Class 25A1, 2.671s, 2036    9,646,366  6,270,138 
FRB Ser. 05-9, Class 11A1, 0.51s, 2035    7,877,676  4,450,887 
Bear Stearns Alt-A Trust II FRB Ser. 07-1, Class 1A1,       
5.447s, 2047    48,694,420  30,251,408 
Bear Stearns Asset Backed Securities Trust       
FRB Ser. 07-AC4, Class A1, 0.55s, 2037    32,248,089  16,124,045 
FRB Ser. 06-IM1, Class A1, 0.48s, 2036    7,636,902  4,080,779 
Bear Stearns Commercial Mortgage Securities, Inc. 144A       
Ser. 07-PW18, Class X1, IO, 0.121s, 2050    266,714,888  1,650,832 
Citigroup Mortgage Loan Trust, Inc.       
FRB Ser. 05-10, Class 1A5A, 5.581s, 2035    3,868,071  2,668,969 
FRB Ser. 06-AR5, Class 2A5A, 5.473s, 2036    5,548,346  3,228,538 
FRB Ser. 07-AR5, Class 1A1A, 5.411s, 2037    8,824,445  5,496,773 
FRB Ser. 07-6, Class 1A3A, 5.284s, 2046    15,615,902  8,120,269 
FRB Ser. 05-10, Class 1A4A, 2.4s, 2035    6,331,822  4,068,196 
Citigroup/Deutsche Bank Commercial Mortgage Trust 144A       
Ser. 07-CD5, Class XS, IO, 1/8s, 2044    158,453,751  1,027,260 
Cornerstone Titan PLC 144A       
FRB Ser. 05-CT1A, Class D, 1.823s, 2014 (United Kingdom)  GBP  2,491,896  2,802,436 
FRB Ser. 05-CT2A, Class E, 1.789s, 2014 (United Kingdom)  GBP  1,094,530  1,318,854 
Countrywide Alternative Loan Trust       
Ser. 07-16CB, Class 3A1, 6 3/4s, 2037    $8,522,052  5,306,682 
Ser. 07-16CB, Class 4A7, 6s, 2037    4,780,884  3,681,281 
Ser. 06-45T1, Class 2A2, 6s, 2037    6,559,166  4,644,545 
Ser. 06-45T1, Class 2A5, 6s, 2037    8,023,338  5,776,803 
Ser. 06-J8, Class A4, 6s, 2037    6,059,391  3,696,229 
Ser. 06-40T1, Class 1A11, 6s, 2037    6,091,860  4,419,699 
Ser. 06-41CB, Class 1A7, 6s, 2037    8,859,164  6,600,077 
Ser. 07-HY5R, Class 2A1A, 5.544s, 2047    5,214,944  4,993,309 
Ser. 07-8CB, Class A1, 5 1/2s, 2037    7,063,801  5,439,127 
FRB Ser. 05-4, Class 2A7, 3/4s, 2035    14,808,677  10,842,728 
FRB Ser. 06-24CB, Class A13, 0.6s, 2036    10,200,240  6,352,837 
FRB Ser. 06-OC10, Class 2A2A, 0.43s, 2036    10,821,121  5,789,300 
Countrywide Home Loans       
FRB Ser. 06-HYB3, Class 2A1A, 4.696s, 2036 ∆    11,077,726  7,958,338 
FRB Ser. 04-HYB6, Class A2, 3.079s, 2034    5,712,258  4,741,174 
FRB Ser. 05-HYB4, Class 2A1, 2.87s, 2035    3,669,872  2,715,705 
FRB Ser. 06-HYB2, Class 2A1B, 2.741s, 2036    13,749,217  9,211,975 
Countrywide Home Loans 144A       
Ser. 05-R3, Class AS, IO, 5.532s, 2035    324,210  39,851 
FRB Ser. 05-R3, Class AF, 0.65s, 2035    318,702  274,083 

 

36


MORTGAGE-BACKED SECURITIES (19.6%)* cont.  Principal amount  Value 
 
Credit Suisse Mortgage Capital Certificates       
Ser. 07-1, Class 1A4, 6.131s, 2037    $8,417,206  $5,260,754 
Ser. 07-C5, Class A3, 5.694s, 2040    15,375,000  15,853,590 
Ser. 07-C1, Class AAB, 5.336s, 2040    5,087,000  5,335,246 
CS First Boston Mortgage Securities Corp. 144A Ser. 02-CP5,       
Class M, 5 1/4s, 2035    2,599,000  682,533 
Deutsche Alt-A Securities, Inc. Mortgage Loan Trust FRB       
Ser. 06-AR1, Class 1A3, 0.58s, 2036    48,850,000  23,203,750 
Deutsche Alternative Securities, Inc.       
FRB Ser. 06-AR6, Class A6, 0.44s, 2037    27,719,223  16,631,534 
FRB Ser. 06-AR4, Class A2, 0.44s, 2036    8,698,262  4,131,674 
FRB Ser. 06-AR3, Class A1, 0.44s, 2036    10,020,225  5,147,890 
DLJ Commercial Mortgage Corp. Ser. 98-CF2, Class B4,       
6.04s, 2031    2,235,111  2,234,887 
European Prime Real Estate PLC 144A FRB Ser. 1-A, Class D,       
1 5/8s, 2014 (United Kingdom)  GBP  1,626,522  365,844 
Federal Home Loan Mortgage Corp.       
IFB Ser. 3182, Class SP, 27.58s, 2032    $1,272,611  1,973,642 
IFB Ser. 3211, Class SI, IO, 26.593s, 2036    1,762,243  1,075,726 
IFB Ser. 3408, Class EK, 24.767s, 2037    1,130,550  1,598,951 
IFB Ser. 2979, Class AS, 23.338s, 2034    699,179  915,786 
IFB Ser. 3105, Class SI, IO, 18.961s, 2036    4,195,815  2,008,872 
IFB Ser. 3184, Class SP, IO, 7.095s, 2033    5,651,785  643,772 
IFB Ser. 3727, Class PS, IO, 6.445s, 2038    40,604,807  6,550,449 
IFB Ser. 3287, Class SE, IO, 6.445s, 2037    17,348,569  2,706,724 
IFB Ser. 3398, Class SI, IO, 6.395s, 2036    9,417,826  1,174,497 
IFB Ser. 3677, Class KS, IO, 6.295s, 2040    53,250,626  7,564,209 
IFB Ser. 3485, Class SI, IO, 6.295s, 2036    9,206,395  1,368,991 
IFB Ser. 3346, Class SC, IO, 6.295s, 2033    262,092,522  38,158,050 
IFB Ser. 3346, Class SB, IO, 6.295s, 2033    79,533,573  11,493,397 
IFB Ser. 3242, Class SC, IO, 6.035s, 2036    8,744,969  1,180,571 
IFB Ser. 3225, Class EY, IO, 6.035s, 2036    22,137,299  2,892,238 
IFB Ser. 3751, Class SB, IO, 5.785s, 2039    103,076,061  14,430,648 
IFB Ser. 3725, Class CS, IO, 5.745s, 2040    92,679,009  12,372,648 
Ser. 3672, Class PI, IO, 5 1/2s, 2039    23,190,772  4,638,386 
Ser. 3645, Class ID, IO, 5s, 2040    12,700,160  2,176,807 
Ser. 3687, Class CI, IO, 5s, 2038    33,643,256  6,118,699 
Ser. 3653, Class KI, IO, 5s, 2038    47,536,109  8,247,040 
Ser. 3632, Class CI, IO, 5s, 2038    15,076,872  2,693,785 
Ser. 3626, Class DI, IO, 5s, 2037    10,694,197  1,351,853 
Ser. 3623, Class CI, IO, 5s, 2036    9,587,520  1,390,190 
Ser. 3747, Class HI, IO, 4 1/2s, 2037    11,256,424  1,792,408 
Ser. 3738, Class MI, IO, 4s, 2034    99,628,042  13,226,783 
Ser. 3736, Class QI, IO, 4s, 2034    95,384,572  12,399,994 
Ser. 3740, Class KI, IO, 4s, 2033    53,381,698  6,859,548 
Ser. 3707, Class HI, IO, 4s, 2023    23,252,258  2,611,926 
Ser. 3707, Class KI, IO, 4s, 2023    24,939,685  2,479,005 
Ser. T-56, Class A, IO, 0.524s, 2043    351,213  6,585 
Ser. T-57, Class 1AX, IO, 0.425s, 2043    10,357,871  134,427 
Ser. T-56, Class 3, IO, 0.008s, 2043    11,651,908  7,282 
Ser. T-56, Class 1, IO, zero %, 2043    422,850  330 

 

37


MORTGAGE-BACKED SECURITIES (19.6%)* cont.  Principal amount  Value 
 
Federal Home Loan Mortgage Corp.     
Ser. T-56, Class 2, IO, zero %, 2043  $380,791  $35 
Ser. 3369, PO, zero %, 2037  11,954  10,894 
Ser. 3314, PO, zero %, 2036  596,184  506,691 
Ser. 3124, Class DO, PO, zero %, 2036  76,450  57,206 
Ser. 2947, Class AO, PO, zero %, 2035  21,136  16,983 
Ser. 2692, Class TO, PO, zero %, 2033  27,634  22,280 
Ser. 1208, Class F, PO, zero %, 2022  184,535  164,237 
FRB Ser. 3251, Class TC, zero %, 2036  292,084  287,779 
FRB Ser. 3072, Class TJ, zero %, 2035  67,114  62,006 
FRB Ser. 3052, Class TJ, zero %, 2035  14,150  13,706 
FRB Ser. 3326, Class WF, zero %, 2035  519,766  486,225 
FRB Ser. 3030, Class EF, zero %, 2035  110,962  97,435 
FRB Ser. 3033, Class YF, zero %, 2035  37,023  36,759 
FRB Ser. 3412, Class UF, zero %, 2035  53,443  47,994 
FRB Ser. 3007, Class LU, zero %, 2035  21,256  17,647 
Federal National Mortgage Association     
IFB Ser. 06-8, Class HP, 23.652s, 2036  2,209,830  3,053,764 
IFB Ser. 05-45, Class DA, 23.505s, 2035  4,581,422  6,565,592 
IFB Ser. 05-83, Class QP, 16.745s, 2034  730,430  901,599 
Ser. 98-T2, Class A4, IO, 6 1/2s, 2036  75,301  13,554 
Ser. 399, Class 2, IO, 5 1/2s, 2039  581,202  114,311 
Ser. 10-21, Class IP, IO, 5s, 2039  23,485,364  4,344,792 
Ser. 09-31, Class PI, IO, 5s, 2038  135,417,148  23,802,306 
Ser. 378, Class 19, IO, 5s, 2035  17,627,445  3,403,895 
Ser. 10-110, Class BI, IO, 5s, 2025  93,865,944  12,021,411 
Ser. 404, Class 2, IO, 4 1/2s, 2040  873,024  216,005 
Ser. 366, Class 22, IO, 4 1/2s, 2035  13,768,268  1,491,654 
Ser. 407, Class 2, IO, 4s, 2041 ∆  14,111,589  3,369,142 
Ser. 406, Class 2, IO, 4s, 2041  79,045,341  18,401,755 
Ser. 406, Class 1, IO, 4s, 2041  49,249,620  11,667,235 
Ser. 405, Class 2, IO, 4s, 2040  946,292  241,304 
Ser. 03-W10, Class 1, IO, 1.554s, 2043  12,181,468  571,006 
Ser. 06-26, Class NB, 1s, 2036  9,268  9,296 
Ser. 00-T6, IO, 0.77s, 2030  11,966,959  249,212 
Ser. 01-T1, Class 1, IO, 0.764s, 2040  713,062  16,640 
Ser. 01-50, Class B1, IO, 0.418s, 2041  716,947  9,410 
Ser. 02-W8, Class 1, IO, 0.34s, 2042  17,247,385  194,033 
Ser. 99-51, Class N, PO, zero %, 2029  220,661  198,955 
IFB Ser. 06-48, Class FG, zero %, 2036  132,644  131,222 
FFCA Secured Lending Corp. 144A Ser. 00-1, Class X, IO,     
1.114s, 2020  16,993,082  506,054 
First Union Commercial Mortgage Trust 144A Ser. 99-C1,     
Class G, 5.35s, 2035  3,121,100  2,132,419 
GMAC Commercial Mortgage Securities, Inc. 144A Ser. 99-C3,     
Class G, 6.974s, 2036  915,838  842,571 
Government National Mortgage Association     
Ser. 06-36, Class OD, PO, zero %, 2036  95,985  89,772 
Ser. 06-64, PO, zero %, 2034  190,384  166,086 
Ser. 99-31, Class MP, PO, zero %, 2029  17,656  15,979 
FRB Ser. 07-73, Class KI, IO, zero %, 2037  786,105  13,634 
FRB Ser. 07-73, Class KM, zero %, 2037  78,735  68,162 

 

38


MORTGAGE-BACKED SECURITIES (19.6%)* cont.  Principal amount  Value 
 
GS Mortgage Securities Corp. II 144A Ser. 05-GG4, Class XC,     
IO, 0.285s, 2039  $458,048,748  $8,915,890 
GSC Capital Corp. Mortgage Trust FRB Ser. 06-2, Class A1,     
0.43s, 2036  3,572,811  1,836,611 
GSMPS Mortgage Loan Trust 144A     
Ser. 05-RP1, Class 1AS, IO, 5.949s, 2035  351,075  49,736 
FRB Ser. 05-RP1, Class 1AF, 0.6s, 2035  351,075  294,903 
Harborview Mortgage Loan Trust FRB Ser. 05-14, Class 5A1A,     
5.6s, 2035  18,433,859  11,982,008 
HSI Asset Loan Obligation FRB Ser. 07-AR1, Class 2A1,     
5.835s, 2037 ∆  21,042,545  14,308,931 
IMPAC Secured Assets Corp. FRB Ser. 07-2, Class 1A1A,     
0.36s, 2037 F  5,720,732  3,089,195 
IndyMac Indx Mortgage Loan Trust     
FRB Ser. 07-AR15, Class 1A1, 5.473s, 2037  16,568,437  11,238,371 
FRB Ser. 06-AR25, Class 5A1, 5.434s, 2036  19,662,495  11,776,228 
FRB Ser. 06-AR25, Class 3A1, 5.399s, 2036 F  7,566,591  4,161,625 
FRB Ser. 07-AR9, Class 2A1, 5.384s, 2037  5,752,216  3,809,002 
FRB Ser. 07-AR13, Class 4A1, 5.124s, 2037  7,090,711  3,585,241 
FRB Ser. 06-AR3, Class 3A1B, 5.088s, 2036  6,235,254  3,865,858 
FRB Ser. 07-AR5, Class 2A1, 5.034s, 2037  12,376,488  7,364,010 
FRB Ser. 07-AR7, Class 2A1, 4.808s, 2037  11,108,755  6,332,213 
FRB Ser. 07-AR11, Class 1A1, 4.742s, 2037  3,955,841  2,314,167 
FRB Ser. 06-AR3, Class 2A1A, 3.012s, 2036  25,076,442  13,737,878 
FRB Ser. 05-AR31, Class 3A1, 2.69s, 2036  9,475,561  6,396,004 
FRB Ser. 06-AR27, Class 2A2, 0.45s, 2036  8,646,540  6,052,578 
FRB Ser. 06-AR39, Class A1, 0.43s, 2037  51,919,325  32,838,973 
FRB Ser. 06-AR35, Class 2A1A, 0.42s, 2037  19,203,395  10,501,070 
FRB Ser. 06-AR15, Class A1, 0.37s, 2036  23,902,511  12,705,619 
JPMorgan Alternative Loan Trust     
FRB Ser. 06-A7, Class 1A1, 0.41s, 2036  15,533,497  8,854,093 
FRB Ser. 06-A6, Class 1A1, 0.41s, 2036  4,411,819  2,657,594 
JPMorgan Chase Commercial Mortgage     
Securities Corp. 144A     
Ser. 07-CB20, Class X1, IO, 0.148s, 2051  286,706,029  2,773,766 
Ser. 05-LDP5, Class X1, IO, 0.078s, 2044  1,960,306,005  6,823,629 
LB Commercial Conduit Mortgage Trust 144A     
Ser. 99-C1, Class G, 6.41s, 2031  1,960,723  1,922,833 
Ser. 98-C4, Class J, 5.6s, 2035  3,535,000  3,578,481 
Lehman XS Trust FRB Ser. 07-8H, Class A1, 0.38s, 2037 F  12,114,231  6,057,116 
Luminent Mortgage Trust FRB Ser. 06-7, Class 1A1, 0.43s,     
2036  14,903,342  9,538,139 
Merrill Lynch Alternative Note Asset FRB Ser. 07-AF1,     
Class AV1, 5.036s, 2037  7,929,831  4,282,108 
Merrill Lynch Mortgage Investors Trust     
FRB Ser. 06-A4, Class 3A1, 4.141s, 2036  17,989,032  11,285,329 
FRB Ser. 06-A1, Class 1A1, 2.854s, 2036  18,030,190  11,568,170 
Merrill Lynch Mortgage Investors, Inc. Ser. 96-C2,     
Class JS, IO, 2.287s, 2028  5,211,516  172,866 
Merrill Lynch Mortgage Trust     
FRB Ser. 07-C1, Class A3, 5.828s, 2050  1,006,000  1,050,420 
FRB Ser. 07-C1, Class A2, 5.724s, 2050  6,683,583  6,855,707 

 

39


MORTGAGE-BACKED SECURITIES (19.6%)* cont.  Principal amount  Value 
 
Merrill Lynch/Countrywide Commercial Mortgage Trust       
Ser. 07-7, Class ASB, 5.745s, 2050    $4,138,000  $4,316,011 
FRB Ser. 06-4, Class A2FL, 0.376s, 2049    6,570,542  6,340,573 
Merrill Lynch/Countrywide Commercial Mortgage Trust 144A       
Ser. 06-4, Class XC, IO, 0.222s, 2049    207,564,670  2,516,514 
Mezz Cap Commercial Mortgage Trust 144A       
Ser. 04-C1, Class X, IO, 7.667s, 2037    6,300,305  370,458 
Ser. 07-C5, Class X, IO, 3.985s, 2049    10,168,835  714,869 
Morgan Stanley Capital I Ser. 07-IQ14, Class A2, 5.61s, 2049    123,738  124,647 
Morgan Stanley Capital I 144A FRB Ser. 04-RR, Class F7, 6s, 2039    13,869,752  11,199,825 
Morgan Stanley Mortgage Loan Trust       
FRB Ser. 06-3AR, Class 3A1, 5.503s, 2036    9,999,285  7,099,493 
FRB Ser. 07-11AR, Class 2A1, 5.068s, 2037    15,726,423  7,934,137 
Ser. 05-5AR, Class 2A1, 2.987s, 2035    5,118,042  3,377,908 
Ser. 06-6AR, Class 2A, 2.674s, 2036    7,237,407  4,414,818 
Mortgage Capital Funding, Inc. Ser. 97-MC2, Class X, IO,       
1.233s, 2012    10,424  103 
PNC Mortgage Acceptance Corp. 144A Ser. 00-C1, Class J,       
6 5/8s, 2033    880,000  35,200 
Residential Accredit Loans, Inc.       
FRB Ser. 07-QA4, Class A1B, 0.46s, 2037    11,362,425  5,283,527 
FRB Ser. 06-QA4, Class A, 0.43s, 2036    9,631,813  4,430,634 
Residential Asset Securitization Trust       
Ser. 07-A5, Class 2A3, 6s, 2037    9,533,685  7,197,932 
Ser. 06-A5CB, Class A6, 6s, 2036    9,333,980  5,553,718 
FRB Ser. 05-A13, Class 1A1, 0.95s, 2035    6,240,938  4,321,849 
FRB Ser. 05-A2, Class A1, 3/4s, 2035    5,852,646  4,738,876 
STRIPS 144A Ser. 03-1A, Class N, 5s, 2018    1,590,000  1,113,000 
Structured Adjustable Rate Mortgage Loan Trust       
FRB Ser. 07-10, Class 1A1, 6s, 2037    11,931,203  6,144,570 
FRB Ser. 06-9, Class 1A1, 5.224s, 2036    3,400,230  2,054,799 
FRB Ser. 05-18, Class 6A1, 2.697s, 2035    9,220,657  7,376,526 
FRB Ser. 07-4, Class 1A1, 0.49s, 2037    13,750,130  7,081,317 
Structured Asset Securities Corp.       
IFB Ser. 07-4, Class 1A3, IO, 5.99s, 2045    138,537,876  19,135,544 
Ser. 07-4, Class 1A4, IO, 1s, 2045    74,020,442  2,044,479 
Structured Asset Securities Corp. 144A       
Ser. 05-RF1, Class A, IO, 5.508s, 2035    19,637,596  2,085,997 
Ser. 05-RF3, Class 1A, IO, 5.315s, 2035    17,572,764  2,280,817 
FRB Ser. 05-RF3, Class 1A, 0.6s, 2035    17,572,764  14,146,075 
FRB Ser. 05-RF1, Class A, 0.6s, 2035    19,637,596  15,857,359 
Ursus PLC 144A       
FRB Ser. 1-A, Class D, 6.938s, 2012 (Ireland)  GBP  1,294,295  103,971 
Ser. 1-A, Class X1, IO, 4.925s, 2012 (Ireland)  GBP  5,000  35 
Wachovia Bank Commercial Mortgage Trust       
FRB Ser. 07-C32, Class A2, 5.735s, 2049    $13,866,683  14,411,498 
Ser. 07-C34, IO, 0.378s, 2046    78,804,267  1,187,580 
Wachovia Bank Commercial Mortgage Trust 144A FRB       
Ser. 05-WL5A, Class L, 3.555s, 2018    3,292,000  1,975,200 
Total mortgage-backed securities (cost $1,034,223,069)      $1,084,432,235 

 

40


U.S. GOVERNMENT AND AGENCY     
MORTGAGE OBLIGATIONS (16.3%)*  Principal amount  Value 
 
U.S. Government Guaranteed Mortgage Obligations (—%)     
Government National Mortgage Association Pass-Through     
Certificates 6 1/2s, November 20, 2038  $1,622,891  $1,814,532 
    1,814,532 
U.S. Government Agency Mortgage Obligations (16.3%)     
Federal Home Loan Mortgage Corporation     
Pass-Through Certificates     
3 1/2s, with due dates from December 1, 2040 to February 1,     
2041 ∆  111,502,737  104,921,466 
3 1/2s, TBA, April 1, 2041  9,000,000  8,457,890 
Federal National Mortgage Association     
Pass-Through Certificates     
4 1/2s, TBA, April 1, 2041  127,000,000  129,252,269 
4s, TBA, April 1, 2041  294,000,000  289,222,500 
3 1/2s, with due dates from December 1, 2040 to March 1,     
2041 ∆  149,350,028  140,826,577 
3 1/2s, TBA, April 1, 2041  243,000,000  228,837,668 
    901,518,370 
 
Total U.S. government and agency mortgage obligations (cost $902,158,897)  $903,332,902 
 
 
U.S. TREASURY OBLIGATIONS (0.6%)*  Principal amount  Value 
 
U.S. Treasury Inflation Protected Securities 1 1/4s,     
July 15, 2020 i  $31,466,813  $32,598,202 
Total U.S. treasury obligations (cost $32,598,202)    $32,598,202 
 
 
ASSET-BACKED SECURITIES (9.9%)*  Principal amount  Value 
 
Accredited Mortgage Loan Trust FRB Ser. 07-1, Class A3,     
0.38s, 2037  $24,078,000  $16,613,820 
Ace Securities Corp.     
FRB Ser. 06-OP2, Class A2C, 0.4s, 2036  478,000  298,252 
FRB Ser. 06-HE3, Class A2C, 0.4s, 2036  429,000  204,605 
Aegis Asset Backed Securities Trust FRB Ser. 04-2,     
Class M1, 0.85s, 2034  5,998,000  4,500,587 
Asset Backed Securities Corp. Home Equity Loan Trust FRB     
Ser. 06-HE4, Class A5, 0.41s, 2036  306,893  218,552 
Bear Stearns Asset Backed Securities, Inc. FRB Ser. 04-FR3,     
Class M6, 5 1/8s, 2034  285,150  63,129 
Bombardier Capital Mortgage Securitization Corp. Ser. 00-A,     
Class A4, 8.29s, 2030  8,829,659  6,269,058 
Citigroup Mortgage Loan Trust, Inc. FRB Ser. 07-OPX1,     
Class A1A, 0.32s, 2037  3,760,442  1,729,804 
Conseco Finance Securitizations Corp.     
Ser. 00-4, Class A6, 8.31s, 2032  7,342,010  5,582,226 
Ser. 00-5, Class A7, 8.2s, 2032  445,024  371,595 
Ser. 00-1, Class A5, 8.06s, 2031  2,830,866  2,208,076 
Ser. 00-4, Class A5, 7.97s, 2032  1,169,399  964,754 
Ser. 00-6, Class A5, 7.27s, 2031  5,311,050  5,523,492 
Ser. 01-3, Class A4, 6.91s, 2033  47,957,691  49,875,999 
FRB Ser. 01-4, Class M1, 2.011s, 2033  2,391,000  1,263,419 

 

41


ASSET-BACKED SECURITIES (9.9%)* cont.  Principal amount  Value 
 
Countrywide Asset Backed Certificates       
FRB Ser. 07-12, Class 2A2, 3/4s, 2047 F    $7,545,000  $5,809,650 
FRB Ser. 06-BC1, Class 2A3, 0.54s, 2036    9,191,000  6,709,430 
FRB Ser. 07-3, Class 2A2, 0.42s, 2047    12,945,000  9,640,077 
FRB Ser. 07-6, Class 2A2, 0.42s, 2037    7,600,000  5,905,960 
FRB Ser. 06-8, Class 2A3, 0.41s, 2046    8,980,000  5,477,800 
FRB Ser. 06-24, Class 2A3, 0.4s, 2047    15,275,000  7,713,875 
FRB Ser. 06-25, Class 2A2, 0.37s, 2047    11,179,000  10,172,890 
FRB Ser. 07-1, Class 2A2, 0.35s, 2037    27,658,502  22,403,387 
Credit-Based Asset Servicing and Securitization       
FRB Ser. 07-CB1, Class AF4, 5.851s, 2037    8,736,080  4,542,762 
FRB Ser. 07-CB3, Class A4, 5.419s, 2037    10,434,000  5,634,360 
FRB Ser. 06-CB9, Class A2, 0.36s, 2036    19,187,000  8,730,085 
FRB Ser. 07-CB1, Class AF1A, 0.32s, 2037    3,651,920  1,179,533 
Crest, Ltd. 144A Ser. 03-2A, Class E2, 8s, 2038    3,636,760  72,735 
First Franklin Mortgage Loan Asset Backed Certificates       
FRB Ser. 07-FF1, Class A2D, 0.47s, 2038    10,316,000  4,925,550 
FRB Ser. 06-FF18, Class A2C, 0.41s, 2037    20,688,000  9,619,920 
FRB Ser. 06-FF11, Class 2A3, 0.4s, 2036    15,794,000  9,338,203 
FRB Ser. 06-FF7, Class 2A3, 0.4s, 2036    4,228,511  2,850,138 
FRB Ser. 07-FF1, Class A2C, 0.39s, 2038    15,718,000  7,185,657 
Fremont Home Loan Trust FRB Ser. 06-2, Class 2A3, 0.42s, 2036    1,320,000  836,770 
G-Star, Ltd. 144A FRB Ser. 02-2A, Class BFL, 2 1/4s, 2037    614,000  104,380 
Granite Mortgages PLC       
FRB Ser. 03-2, Class 2C1, 3.562s, 2043 F  EUR  10,080,000  7,570,729 
FRB Ser. 03-2, Class 3C, 3.326s, 2043 F  GBP  4,838,514  3,634,037 
Green Tree Financial Corp.       
Ser. 94-6, Class B2, 9s, 2020    $6,412,289  4,488,603 
Ser. 94-4, Class B2, 8.6s, 2019    2,435,352  1,255,403 
Ser. 93-1, Class B, 8.45s, 2018    991,071  788,681 
Ser. 99-5, Class A5, 7.86s, 2029    11,567,152  10,583,944 
Ser. 96-8, Class M1, 7.85s, 2027    2,979,000  2,866,318 
Ser. 99-5, Class A6, 7 1/2s, 2030    8,112,977  7,382,809 
Ser. 95-8, Class B1, 7.3s, 2026    2,796,090  2,718,614 
Ser. 95-4, Class B1, 7.3s, 2025    2,737,142  2,577,287 
Ser. 95-F, Class B2, 7.1s, 2021    116,069  114,149 
Ser. 99-3, Class A7, 6.74s, 2031    5,728,208  5,728,208 
Ser. 99-3, Class A9, 6.53s, 2031    5,848,460  5,526,795 
Green Tree Home Improvement Loan Trust Ser. 95-D, Class B2,       
7.45s, 2025    105,356  90,684 
Greenpoint Manufactured Housing Ser. 00-3, Class IA, 8.45s, 2031    13,794,473  14,208,307 
GSAA Home Equity Trust       
FRB Ser. 05-15, Class 2A2, 1/2s, 2036    10,508,000  7,492,309 
FRB Ser. 05-11, Class 3A4, 1/2s, 2035    18,106,070  15,390,160 
FRB Ser. 06-19, Class A3A, 0.49s, 2036    6,137,217  3,160,667 
FRB Ser. 06-11, Class 2A2, 0.41s, 2036    37,301,667  19,583,375 
FRB Ser. 07-4, Class A1, 0.35s, 2037    22,061,857  11,135,612 
FRB Ser. 06-19, Class A1, 0.34s, 2036    13,542,653  6,893,617 
FRB Ser. 06-17, Class A1, 0.31s, 2036    38,425,673  18,828,580 
FRB Ser. 06-12, Class A1, 0.3s, 2036    34,944,584  18,258,545 

 

42


ASSET-BACKED SECURITIES (9.9%)* cont.  Principal amount  Value 
 
GSAMP Trust     
FRB Ser. 07-FM1, Class A2D, 1/2s, 2036  $24,247,000  $9,904,900 
FRB Ser. 07-FM1, Class A2C, 0.42s, 2036  13,499,000  5,446,847 
FRB Ser. 07-HE2, Class A2A, 0.37s, 2047  3,284,563  3,101,448 
Guggenheim Structured Real Estate Funding, Ltd. 144A     
FRB Ser. 05-2A, Class E, 2 1/4s, 2030  2,553,501  114,908 
FRB Ser. 05-1A, Class E, 2.05s, 2030  63,993  11,519 
HSI Asset Securitization Corp. Trust FRB Ser. 06-HE1,     
Class 2A1, 0.3s, 2036  1,648,600  1,205,538 
JPMorgan Mortgage Acquisition Corp. FRB Ser. 06-WMC3,     
Class A4, 0.4s, 2036  13,300,161  5,719,069 
Lehman XS Trust     
FRB Ser. 07-3, Class 1BA2, 6.17s, 2037  13,483,526  6,303,549 
FRB Ser. 07-1, Class 1A3, 0.37s, 2037  53,857,641  22,860,953 
Long Beach Mortgage Loan Trust     
FRB Ser. 06-4, Class 2A4, 0.51s, 2036  524,317  204,373 
FRB Ser. 06-WL1, Class 2A3, 0.49s, 2046  7,447,945  5,176,322 
FRB Ser. 06-6, Class 2A3, 0.4s, 2036  14,022,000  5,749,020 
Madison Avenue Manufactured Housing Contract FRB Ser. 02-A,     
Class B1, 3 1/2s, 2032  8,794,511  8,222,868 
Merrill Lynch First Franklin Mortgage Loan Asset Backed     
Certificates FRB Ser. 07-1, Class A2B, 0.42s, 2037  14,706,009  8,235,365 
Merrill Lynch Mortgage Investors Trust FRB Ser. 07-HE1,     
Class A2B, 0.42s, 2037  15,160,403  5,834,390 
Mid-State Trust Ser. 11, Class B, 8.221s, 2038  866,855  827,773 
Morgan Stanley Capital, Inc.     
FRB Ser. 04-HE8, Class B3, 3.45s, 2034  374,424  82,873 
FRB Ser. 06-WMC2, Class A2C, 0.4s, 2036  13,528,267  4,661,841 
N-Star Real Estate CDO, Ltd. 144A FRB Ser. 1A, Class C1A,     
3.311s, 2038  2,000,000  1,540,000 
Neon Capital, Ltd. 144A     
limited recourse sec. notes Ser. 95, 2.319s, 2013     
(Cayman Islands) F g  2,028,770  735,733 
limited recourse sec. notes Ser. 97, 1.105s, 2013     
(Cayman Islands) F g  2,649,208  726,302 
Novastar Home Equity Loan     
FRB Ser. 06-1, Class A2C, 0.41s, 2036  539,253  292,275 
FRB Ser. 06-2, Class A2C, 0.4s, 2036  663,000  367,997 
FRB Ser. 06-6, Class A2B, 0.35s, 2037  10,473,863  7,000,856 
Oakwood Mortgage Investors, Inc.     
Ser. 99-D, Class A1, 7.84s, 2029  5,183,126  5,234,957 
Ser. 00-D, Class A4, 7.4s, 2030  15,672,955  10,971,068 
Ser. 02-B, Class A4, 7.09s, 2032  2,927,583  2,954,841 
Ser. 99-B, Class A4, 6.99s, 2026  5,250,273  5,250,273 
Ser. 01-D, Class A4, 6.93s, 2031  133,753  111,350 
Ser. 01-C, Class A2, 5.92s, 2017  7,405,347  4,072,941 
Ser. 02-C, Class A1, 5.41s, 2032  11,256,661  10,947,103 
Ser. 01-C, Class A1, 5.16s, 2012  663,519  312,232 
Ser. 01-E, Class A2, 5.05s, 2031  4,962,342  3,994,685 
Ser. 02-A, Class A2, 5.01s, 2020  325,925  297,720 

 

43


ASSET-BACKED SECURITIES (9.9%)* cont.  Principal amount  Value 
 
Oakwood Mortgage Investors, Inc. 144A       
Ser. 01-B, Class A4, 7.21s, 2030    $457,112  $443,398 
FRB Ser. 01-B, Class A2, 0.63s, 2018    194,588  171,953 
Residential Asset Mortgage Products, Inc. FRB Ser. 07-RZ1,       
Class A2, 0.41s, 2037    657,000  428,612 
SG Mortgage Securities Trust FRB Ser. 06-OPT2, Class A3D,       
0.46s, 2036    1,124,000  434,727 
Soundview Home Equity Loan Trust FRB Ser. 06-OPT3,       
Class 2A3, 0.42s, 2036    532,000  430,790 
Structured Asset Securities Corp. 144A Ser. 98-RF3,       
Class A, IO, 6.1s, 2028    1,209,795  182,751 
TIAA Real Estate CDO, Ltd. Ser. 03-1A, Class E, 8s, 2038    3,844,150  461,298 
TIAA Real Estate CDO, Ltd. 144A Ser. 02-1A, Class IV,       
6.84s, 2037    2,403,000  841,050 
Total asset-backed securities (cost $550,835,240)      $546,686,431 
 
 
FOREIGN GOVERNMENT BONDS AND NOTES (7.2%)*  Principal amount/units  Value 
 
Argentina (Republic of) sr. unsec. bonds Ser. VII, 7s, 2013    $3,495,000  $3,557,910 
Argentina (Republic of) sr. unsec. bonds FRB 0.45s, 2013    13,993,000  5,009,494 
Argentina (Republic of) sr. unsec. unsub. bonds 7s, 2015    84,418,000  79,479,547 
Argentina (Republic of) sr. unsec. unsub. bonds Ser. $V,       
10 1/2s, 2012  ARS  6,340,000  1,548,840 
Argentina (Republic of) sr. unsec. unsub. bonds FRB 0.467s, 2012    $286,186,000  69,400,105 
Argentina (Republic of) sr. unsec. unsub. notes Ser. NY,       
8.28s, 2033    5,190,795  4,632,785 
Banco Nacional de Desenvolvimento Economico e Social 144A       
notes 5 1/2s, 2020 (Brazil)    4,080,000  4,151,400 
Banco Nacional de Desenvolvimento Economico e Social 144A       
sr. unsec. unsub. notes 6.369s, 2018 (Brazil)    540,000  587,250 
Brazil (Federal Republic of) notes 10s, 2017  BRL  7,250  4,042,554 
Brazil (Federal Republic of) unsub. notes 10s, 2014  BRL  20,095  11,819,115 
Chile (Republic of) notes 5 1/2s, 2020  CLP  1,856,500,000  3,900,733 
Colombia (Government of) bonds 6 1/8s, 2041    $2,875,000  2,932,500 
Croatia (Republic of) 144A sr. unsec. unsub. notes 6 3/8s, 2021    3,725,000  3,729,656 
Export-Import Bank of Korea 144A sr. unsec. unsub. notes       
5.1s, 2013 (South Korea)  INR  286,400,000  6,081,223 
Ghana (Republic of) 144A unsec. notes 8 1/2s, 2017    $9,340,000  10,367,960 
Hungary (Republic of) sr. unsec. unsub. notes 7 5/8s, 2041    4,000,000  4,017,080 
Hungary (Republic of) sr. unsec. unsub. notes 6 3/8s, 2021    3,945,000  3,949,931 
Indonesia (Republic of) 144A sr. unsec. notes 11 5/8s, 2019    2,560,000  3,642,266 
Indonesia (Republic of) 144A sr. unsec. unsub. bonds 7 3/4s, 2038    1,875,000  2,235,938 
Indonesia (Republic of) 144A sr. unsec. unsub. bonds 6 7/8s, 2018    3,775,000  4,275,188 
Indonesia (Republic of) 144A sr. unsec. unsub. bonds 6 3/4s, 2014    1,310,000  1,450,733 
Indonesia (Republic of) 144A sr. unsec. unsub. bonds 6 5/8s, 2037    3,255,000  3,465,436 
Iraq (Republic of) 144A bonds 5.8s, 2028    2,905,000  2,666,790 
Italy (Republic of) bonds 4 1/4s, 2020  EUR  28,570,000  39,705,047 
Peru (Republic of) bonds 6.95s, 2031  PEN  30,650,000  10,776,892 
Philippines (Republic of) sr. unsec. unsub. bonds 6 1/2s, 2020    $4,450,000  5,034,063 

 

44


FOREIGN GOVERNMENT BONDS AND NOTES (7.2%)* cont.  Principal amount/units  Value 
 
Philippines (Republic of) sr. unsec. unsub. bonds 6 3/8s, 2034    $7,100,000  $7,488,796 
Russia (Federation of) sr. unsec. unsub. bonds 7 1/2s, 2030    884,765  1,026,947 
South Africa (Republic of) sr. unsec. unsub. notes 6 7/8s, 2019    2,565,000  2,978,606 
Sri Lanka (Republic of) 144A notes 7.4s, 2015    1,300,000  1,390,961 
Turkey (Republic of) bonds 16s, 2012  TRY  885,000  609,696 
Turkey (Republic of) sr. unsec. bonds 5 5/8s, 2021    $6,800,000  6,936,000 
Turkey (Republic of) sr. unsec. notes 7 1/2s, 2019    1,660,000  1,913,930 
Turkey (Republic of) sr. unsec. notes 7 1/2s, 2017    11,515,000  13,239,486 
Turkey (Republic of) unsec. notes 6 3/4s, 2040    6,760,000  6,978,416 
Ukraine (Government of ) Financing of Infrastructural       
Projects State Enterprise 144A govt. guaranty notes 8 3/8s, 2017    2,700,000  2,835,000 
Ukraine (Government of) sr. unsec. bonds 6.385s, 2012    2,875,000  2,967,863 
Ukraine (Government of) 144A bonds 7 3/4s, 2020    20,475,000  21,114,844 
Ukraine (Government of) 144A sr. unsec. notes 7.95s, 2021    13,065,000  13,146,526 
Ukraine (Government of) 144A sr. unsec. unsub. notes 7.65s, 2013    4,310,000  4,547,050 
United Mexican States sr. unsec. notes Ser. A, 6.05s, 2040    725,000  746,750 
Venezuela (Republic of) bonds 8 1/2s, 2014    2,850,000  2,583,468 
Venezuela (Republic of) sr. unsec. bonds 9 1/4s, 2027    3,600,000  2,655,000 
Venezuela (Republic of) unsec. notes 10 3/4s, 2013    4,150,000  4,153,196 
Venezuela (Republic of) unsec. notes FRN Ser. REGS, 1.303s, 2011    3,250,000  3,239,340 
Venezuela (Republic of) 144A unsec. bonds 13 5/8s, 2018    4,935,000  4,670,484 
Total foreign government bonds and notes (cost $367,414,675)      $397,682,795 
 
 
SENIOR LOANS (1.9%)* c  Principal amount  Value 
 
Basic materials (0.1%)       
Georgia-Pacific, LLC bank term loan FRN Ser. B2, 2.303s, 2012    $222,530  $222,303 
Ineos Holdings, Ltd. bank term loan FRN Ser. B2, 7.501s,       
2013 (United Kingdom) ∆    1,212,975  1,246,712 
Ineos Holdings, Ltd. bank term loan FRN Ser. C2, 8.001s,       
2014 (United Kingdom) ∆    1,287,025  1,322,821 
Momentive Performance Materials, Inc. bank term loan FRN       
3.813s, 2013    1,711,593  1,691,268 
Smurfit-Stone Container Enterprises, Inc. bank term loan       
FRN 6 3/4s, 2016    571,282  572,354 
      5,055,458 
Capital goods (—%)       
Pinafore, LLC bank term loan FRN Ser. B1, 4 1/4s, 2016    624,938  626,344 
      626,344 
Communication services (0.2%)       
CCO Holdings, LLC / CCO Holdings Capital Corp. bank term       
loan FRN 2.762s, 2014    900,000  879,750 
Charter Communications Operating, LLC bank term loan FRN       
Ser. l, 7 1/4s, 2014    389,533  390,994 
Charter Communications, Inc. bank term loan FRN Ser. C,       
3.56s, 2016    2,711,165  2,704,371 
Intelsat Jackson Holdings SA bank term loan FRN 3.303s,       
2014 (Luxembourg)    1,987,780  1,946,782 
Level 3 Communications, Inc. bank term loan FRN 2.553s, 2014    3,754,000  3,643,985 
Level 3 Financing, Inc. bank term loan FRN Ser. B, 11 1/2s, 2014    280,000  299,040 
      9,864,922 

 

45


SENIOR LOANS (1.9%)* c cont.  Principal amount  Value 
 
Consumer cyclicals (0.8%)     
Advantage Sales & Marketing, LLC bank term loan FRN 9 1/4s, 2018  $270,000  $274,388 
Brickman Group Holdings, Inc. bank term loan FRN Ser. B,     
7 1/4s, 2016  5,411,438  5,512,902 
Burlington Coat Factory Warehouse Corp. bank term loan FRN     
Ser. B, 6 1/4s, 2017  690,000  680,405 
Caesars Entertainment Operating Co., Inc. bank term loan FRN Ser. B1,     
3.303s, 2015  2,870,000  2,654,302 
Caesars Entertainment Operating Co., Inc. bank term loan FRN Ser. B2,     
3.303s, 2015  3,653,635  3,379,042 
CCM Merger, Inc. bank term loan FRN Ser. B, 7s, 2017  3,470,000  3,511,206 
Cedar Fair LP bank term loan FRN 4s, 2017  844,754  847,916 
Cengage Learning Acquisitions, Inc. bank term loan FRN     
Ser. B, 2.55s, 2014  3,698,468  3,540,847 
Clear Channel Communications, Inc. bank term loan FRN     
Ser. B, 3.912s, 2016  4,284,276  3,767,189 
Compucom Systems, Inc. bank term loan FRN 3.77s, 2014  459,631  443,544 
Dex Media West, LLC bank term loan FRN Ser. A, 7s, 2014  698,103  618,549 
Federal Mogul Corp. bank term loan FRN Ser. B, 2.196s, 2014  879,442  856,828 
Federal Mogul Corp. bank term loan FRN Ser. C, 2.189s, 2015  448,695  437,157 
GateHouse Media, Inc. bank term loan FRN Ser. B, 2.52s, 2014  874,808  388,415 
GateHouse Media, Inc. bank term loan FRN Ser. B, 2.27s, 2014 ∆  2,041,991  906,644 
GateHouse Media, Inc. bank term loan FRN Ser. DD, 2.27s, 2014 ∆  761,937  338,300 
Golden Nugget, Inc. bank term loan FRN 2.268s, 2014 ‡‡  228,566  196,710 
Golden Nugget, Inc. bank term loan FRN Ser. B, 2.27s, 2014 ‡‡  401,536  345,572 
Goodman Global, Inc. bank term loan FRN 9s, 2017  1,758,000  1,805,246 
Goodman Global, Inc. bank term loan FRN 5 3/4s, 2016  3,056,640  3,069,994 
Michaels Stores, Inc. bank term loan FRN Ser. B, 2.584s, 2013  467,248  462,446 
National Bedding Co., LLC bank term loan FRN Ser. B,     
3.818s, 2013  229,870  229,008 
R.H. Donnelley, Inc. bank term loan FRN Ser. B, 9s, 2014  70,767  55,464 
Realogy Corp. bank term loan FRN Ser. B, 4.562s, 2016  1,674,366  1,574,951 
Revel Entertainment, LLC bank term loan FRN Ser. B, 9s, 2017  600,000  579,938 
ServiceMaster Co. (The) bank term loan FRN Ser. B, 2.779s, 2014  2,441,148  2,392,762 
ServiceMaster Co. (The) bank term loan FRN Ser. DD, 2.77s, 2014  242,937  238,122 
Six Flags Theme Parks bank term loan FRN Ser. B, 5 1/4s, 2016  2,075,357  2,086,772 
Texas Competitive Electric Holdings Co., LLC bank term loan FRN     
Ser. B3, 3.761s, 2014 ∆  1,727,783  1,451,338 
Tribune Co. bank term loan FRN Ser. B, 5 1/4s, 2014 (In default) †  3,221,563  2,242,510 
Univision Communications, Inc. bank term loan FRN 4.512s, 2017  1,020,833  992,760 
    45,881,227 
Consumer staples (0.3%)     
Amscan Holdings, Inc. bank term loan FRN 6.752s, 2017  1,492,500  1,500,336 
Claire’s Stores, Inc. bank term loan FRN 3.026s, 2014  2,439,523  2,325,339 
Del Monte Foods Co. bank term loan FRN Ser. B, 4 1/2s, 2018  1,505,000  1,505,235 
Revlon Consumer Products bank term loan FRN 6.001s, 2015  9,405,000  9,428,512 
Rite-Aid Corp. bank term loan FRN Ser. B, 2.013s, 2014  411,157  395,019 
West Corp. bank term loan FRN Ser. B2, 2.743s, 2013  67,761  67,369 
West Corp. bank term loan FRN Ser. B5, 4.618s, 2016  164,805  164,943 
    15,386,753 

 

46


SENIOR LOANS (1.9%)* c cont.  Principal amount  Value 
 
Energy (0.1%)       
EPCO Holdings, Inc. bank term loan FRN Ser. A, 1 1/4s, 2012  $918,182  $899,818 
Hercules Offshore, Inc. bank term loan FRN Ser. B, 7 1/2s, 2013  614,479  603,506 
MEG Energy Corp. bank term loan FRN Ser. B, 4s, 2018 (Canada) ∆  1,590,000  1,598,745 
      3,102,069 
Financials (—%)       
AGFS Funding Co. bank term loan FRN 7 1/4s, 2015    1,040,000  1,040,488 
Fifth Third Processing Solutions, Inc. bank term loan FRN     
8 1/4s, 2017    535,000  542,356 
HUB International Holdings, Inc. bank term loan FRN 6 3/4s, 2014  513,185  509,849 
      2,092,693 
Health care (0.3%)       
Ardent Health Systems bank term loan FRN Ser. B, 6 1/2s, 2015  1,596,840  1,602,163 
Axcan Intermediate Holdings, Inc. bank term loan FRN       
Ser. B, 5 1/2s, 2017    892,763  890,252 
Carestream Health, Inc. bank term loan FRN Ser. B, 5s, 2017  1,960,000  1,916,206 
Grifols SA bank term loan FRN Ser. B, 6s, 2016 (Spain) ∆    1,230,000  1,237,688 
Health Management Associates, Inc. bank term loan FRN     
2.053s, 2014    2,570,061  2,530,868 
IASIS Healthcare Corp. bank term loan FRN 5.554s, 2014 ‡‡  2,783,174  2,746,612 
IASIS Healthcare, LLC bank term loan FRN 7.62s, 2014    115,819  114,733 
IASIS Healthcare, LLC bank term loan FRN Ser. B, 2.262s, 2014  1,220,268  1,208,828 
IASIS Healthcare, LLC bank term loan FRN Ser. DD, 2.262s, 2014  422,377  418,417 
Multiplan, Inc. bank term loan FRN Ser. B, 4 3/4s, 2017    1,742,278  1,747,069 
      14,412,836 
Technology (0.1%)       
Avaya, Inc. bank term loan FRN Ser. B3, 4.811s, 2017    969,546  945,302 
Ceridian Corp. bank term loan FRN 3.253s, 2014    2,755,000  2,672,350 
First Data Corp. bank term loan FRN Ser. B3, 3.002s, 2014  677,148  647,899 
      4,265,551 
Utilities and power (—%)       
NRG Energy, Inc. bank term loan FRN 3.553s, 2015    642,505  637,786 
NRG Energy, Inc. bank term loan FRN 2.245s, 2013    114,729  115,015 
NRG Energy, Inc. bank term loan FRN 2.053s, 2013    246  244 
NRG Energy, Inc. bank term loan FRN Ser. B, 3.553s, 2015  761,080  763,934 
Texas Competitive Electric Holdings Co., LLC bank term loan     
FRN Ser. B2, 3.786s, 2014    1,040,597  875,774 
      2,392,753 
 
Total senior loans (cost $104,290,101)      $103,080,606 
 
 
PURCHASED OPTIONS  Expiration date/  Contract   
OUTSTANDING (0.2%)*  strike price  amount  Value 
 
Option on an interest rate swap with Barclay’s       
Bank PLC for the right to pay a fixed rate       
of 3.96% versus the three month USD-LIBOR-BBA       
maturing June 3, 2021.  Jun-11/3.96  $548,164,500  $2,932,679 
Option on an interest rate swap with Credit       
Suisse International for the right to pay a       
fixed rate of 1.70175% versus the six month       
CHF-LIBOR-BBA maturing January 23, 2014.  Jan-12/1.70175  CHF  186,840,000  720,281 

 

47


PURCHASED OPTIONS  Expiration date/  Contract   
OUTSTANDING (0.2%)* cont.  strike price  amount  Value 
Option on an interest rate swap with Credit       
Suisse International for the right to pay a       
fixed rate of 1.578% versus the six month       
CHF-LIBOR-BBA maturing December 24, 2013.  Dec-11/1.578  CHF  200,160,000  $764,031 
Option on an interest rate swap with Credit       
Suisse International for the right to pay a       
fixed rate of 1.602% versus the six month       
CHF-LIBOR-BBA maturing December 22, 2013.  Dec-11/1.602  CHF  200,160,000  722,680 
Option on an interest rate swap with JPMorgan       
Chase Bank, N.A. for the right to receive a       
fixed rate of 3.59% versus the three month       
USD-LIBOR-BBA maturing April 28, 2021.  Apr-11/3.59  $288,507,567  2,812,949 
Option on an interest rate swap with UBS AG for       
the right to pay a fixed rate of 1.722% versus       
the six month CHF-LIBOR-BBA maturing       
January 23, 2014.  Jan-12/1.722  CHF  213,480,000  795,818 
Total purchased options outstanding (cost $13,491,261)    $8,748,438 
 
 
CONVERTIBLE BONDS AND NOTES (0.1%)*    Principal amount  Value 
 
Advanced Micro Devices, Inc. cv. sr. unsec. notes 6s, 2015  $1,635,000  $1,686,094 
Ford Motor Co. cv. sr. unsec. notes 4 1/4s, 2016    1,064,000  1,929,947 
General Growth Properties, Inc. 144A cv. escrow funding bonds     
zero %, 2027 F R    2,030,000  2,538 
Meritor, Inc. cv. company guaranty sr. unsec. notes 4s, 2027  2,400,000  2,367,000 
Steel Dynamics, Inc. cv. sr. notes 5 1/8s, 2014    1,045,000  1,334,988 
Total convertible bonds and notes (cost $6,085,687)      $7,320,567 
 
 
SHORT-TERM INVESTMENTS (34.8%)*  Principal amount/shares  Value 
 
Putnam Money Market Liquidity Fund 0.13% e    353,247,331  $353,247,331 
U.S. Treasury Bills with an effective yield of 0.24%,       
August 25, 2011 # ##    $22,793,000  22,770,549 
U.S. Treasury Bills with an effective yield of 0.05%,       
April 21, 2011 ##    225,000,000  224,994,202 
U.S. Treasury Bills with effective yields ranging from       
0.20% to 0.27%, June 2, 2011 # ##    266,487,000  266,363,352 
U.S. Treasury Bills with effective yields ranging from       
0.22% to 0.24%, July 28, 2011 # ##    126,394,000  126,288,585 
U.S. Treasury Bills with effective yields ranging from       
0.04% to 0.06%, April 7, 2011    395,000,000  394,996,840 
U.S. Treasury Cash Management Bills with effective yields     
ranging from 0.06% to 0.11%, April 15, 2011    540,000,000  539,984,934 
Total short-term investments (cost $1,928,677,453)      $1,928,645,793 
 
 
TOTAL INVESTMENTS       
 
Total investments (cost $6,483,673,609)      $6,621,461,299 

 

48


Key to holding’s currency abbreviations 
 
ARS  Argentine Peso 
AUD  Australian Dollar 
BRL  Brazilian Real 
CAD  Canadian Dollar 
CHF  Swiss Franc 
CLP  Chilean Peso 
EUR  Euro 
GBP  British Pound 
INR  Indian Rupee 
JPY  Japanese Yen 
MXN  Mexican Peso 
PEN  Peruvian Neuvo Sol 
RUB  Russian Ruble 
SEK  Swedish Krona 
TRY  Turkish Lira 
USD / $  United States Dollar 
 
Key to holding’s abbreviations 
 
EMTN  Euro Medium Term Notes 
FRB  Floating Rate Bonds 
FRN  Floating Rate Notes 
IFB  Inverse Floating Rate Bonds 
IO  Interest Only 
MTN  Medium Term Notes 
OAO  Open Joint Stock Company 
OJSC  Open Joint Stock Company 
PO  Principal Only 
TBA  To Be Announced Commitments 

 

Notes to the fund’s portfolio

Unless noted otherwise, the notes to the fund’s portfolio are for the close of the fund’s reporting period, which ran from October 1, 2010 through March 31, 2011 (the reporting period).

* Percentages indicated are based on net assets of $5,546,643,427.

† Non-income-producing security.

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

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

# These securities, in part or in entirety, were pledged and segregated with the broker to cover margin requirements for futures contracts at the close of the reporting period.

## These securities, in part or in entirety, were pledged and segregated with the custodian for collateral on certain derivatives contracts at the close of the reporting period.

∆ Forward commitments, in part or in entirety (Note 1).

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

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

49


F Is valued at fair value following procedures approved by the Trustees. Securities may be classified as Level 2 or Level 3 for Accounting Standards Codification ASC 820 Fair Value Measurements and Disclosures (ASC 820) based on the securities’ valuation inputs.

g The notes are secured by debt and equity securities and equity participation agreements held by Neon Capital, Ltd.

i Security purchased with cash or security received, that was pledged to the fund for collateral on certain derivatives contracts (Note 1).

R Real Estate Investment Trust.

At the close of the reporting period, the fund maintained liquid assets totaling $3,154,652,963 to cover certain derivatives contracts.

Debt obligations are considered secured unless otherwise indicated.

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

See Note 1 to the financial statements regarding TBA’s.

The rates shown on FRB and FRN are the current interest rates at the close of the reporting period.

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

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 the close of the reporting period.

DIVERSIFICATION BY COUNTRY       
 
Distribution of investments by country of risk at the close of the reporting period (as a percentage of Portfolio Value): 
 
United States  85.6%  Luxembourg  0.6% 
Russia  2.9  Netherlands  0.6 
Argentina  2.5  United Kingdom  0.5 
Venezuela  1.3  Turkey  0.5 
Italy  0.7  Other  3.4 
Ukraine  0.7  Total  100.0% 
Brazil  0.7     

 

FORWARD CURRENCY CONTRACTS at 3/31/11 (aggregate face value $3,139,679,258) (Unaudited)

            Unrealized 
    Contract  Delivery    Aggregate  appreciation/ 
Counterparty  Currency  type  date  Value  face value  (depreciation) 
Bank of America, N.A.           
  Australian Dollar  Buy  4/20/11  $27,966,028  $27,899,107  $66,921 
  Brazilian Real  Buy  4/20/11  4,626,230  4,516,647  109,583 
  British Pound  Sell  4/20/11  53,863,971  54,202,762  338,791 
  Canadian Dollar  Buy  4/20/11  14,322,585  14,034,461  288,124 
  Chilean Peso  Sell  4/20/11  161,387  162,392  1,005 
  Czech Koruna  Sell  4/20/11  2,815,979  2,811,495  (4,484) 
  Euro  Sell  4/20/11  416,943  404,422  (12,521) 
  Japanese Yen  Sell  4/20/11  35,867,000  36,475,246  608,246 
  Mexican Peso  Buy  4/20/11  11,122,387  11,001,454  120,933 
  Norwegian Krone  Buy  4/20/11  27,163,450  26,889,863  273,587 
  Singapore Dollar  Buy  4/20/11  21,925,760  21,683,085  242,675 
  South African Rand  Sell  4/20/11  15,317  14,530  (787) 
  South Korean Won  Buy  4/20/11  12,731,857  12,525,020  206,837 
  Swedish Krona  Sell  4/20/11  9,055,191  9,016,299  (38,892) 

 

50


FORWARD CURRENCY CONTRACTS at 3/31/11 (aggregate face value $3,139,679,258) (Unaudited) cont.

            Unrealized 
    Contract  Delivery    Aggregate  appreciation/ 
Counterparty  Currency  type  date  Value  face value  (depreciation) 
Bank of America, N.A. cont.           
  Swiss Franc  Sell  4/20/11  $31,451,435  $31,695,952  $244,517 
  Taiwan Dollar  Sell  4/20/11  4,951,273  4,940,214  (11,059) 
  Turkish Lira  Sell  4/20/11  5,716,621  5,429,080  (287,541) 
Barclays Bank PLC           
  Australian Dollar  Buy  4/20/11  12,712,442  12,594,750  117,692 
  Brazilian Real  Buy  4/20/11  6,959,176  6,843,741  115,435 
  British Pound  Sell  4/20/11  41,886,222  42,281,474  395,252 
  Canadian Dollar  Sell  4/20/11  19,769,028  19,640,851  (128,177) 
  Chilean Peso  Sell  4/20/11  168,796  169,991  1,195 
  Czech Koruna  Sell  4/20/11  7,750,589  7,722,252  (28,337) 
  Euro  Buy  4/20/11  11,377,994  11,377,650  344 
  Hungarian Forint  Buy  4/20/11  14,131,069  13,975,385  155,684 
  Indian Rupee  Sell  4/20/11  16,170,240  15,888,235  (282,005) 
  Japanese Yen  Sell  4/20/11  56,887,729  57,393,064  505,335 
  Mexican Peso  Sell  4/20/11  2,987,991  2,956,190  (31,801) 
  New Zealand Dollar  Sell  4/20/11  7,715,226  7,446,756  (268,470) 
  Norwegian Krone  Buy  4/20/11  38,167,858  37,965,303  202,555 
  Philippines Peso  Buy  4/20/11  6,527,872  6,551,904  (24,032) 
  Polish Zloty  Sell  4/20/11  2,314,656  2,315,478  822 
  Singapore Dollar  Buy  4/20/11  24,171,226  24,009,194  162,032 
  South Korean Won  Buy  4/20/11  14,367,075  14,076,392  290,683 
  Swedish Krona  Sell  4/20/11  15,726,473  15,699,840  (26,633) 
  Swiss Franc  Sell  4/20/11  27,852,152  28,154,225  302,073 
  Taiwan Dollar  Sell  4/20/11  59,672  59,468  (204) 
  Thai Baht  Buy  4/20/11  6,389,000  6,348,289  40,711 
  Turkish Lira  Sell  4/20/11  1,452,303  1,395,394  (56,909) 
Citibank, N.A.             
  Australian Dollar  Buy  4/20/11  7,347,334  7,180,785  166,549 
  Brazilian Real  Buy  4/20/11  1,700,177  1,676,055  24,122 
  British Pound  Sell  4/20/11  32,472,942  32,716,590  243,648 
  Canadian Dollar  Buy  4/20/11  7,917,043  7,865,268  51,775 
  Chilean Peso  Sell  4/20/11  2,401,693  2,417,573  15,880 
  Czech Koruna  Buy  4/20/11  4,557,866  4,529,588  28,278 
  Danish Krone  Buy  4/20/11  2,041,775  2,005,075  36,700 
  Euro  Buy  4/20/11  29,166,864  29,117,655  49,209 
  Hungarian Forint  Buy  4/20/11  7,764,526  7,771,897  (7,371) 
  Japanese Yen  Sell  4/20/11  39,838,293  40,472,681  634,388 
  Mexican Peso  Buy  4/20/11  10,608,098  10,498,643  109,455 
  New Zealand Dollar  Buy  4/20/11  267,123  257,646  9,477 
  Norwegian Krone  Buy  4/20/11  8,275,485  8,196,072  79,413 
  Polish Zloty  Sell  4/20/11  638,125  635,822  (2,303) 
  Singapore Dollar  Sell  4/20/11  441,256  439,254  (2,002) 
  South African Rand  Buy  4/20/11  423,771  417,625  6,146 
  South Korean Won  Buy  4/20/11  11,524,606  11,322,347  202,259 

 

51


FORWARD CURRENCY CONTRACTS at 3/31/11 (aggregate face value $3,139,679,258) (Unaudited) cont.

            Unrealized 
    Contract  Delivery    Aggregate  appreciation/ 
Counterparty  Currency  type  date  Value  face value  (depreciation) 
Citibank, N.A. cont.           
  Swedish Krona  Buy  4/20/11  $5,526,849  $5,508,827  $18,022 
  Swiss Franc  Buy  4/20/11  9,415,130  9,584,521  (169,391) 
  Taiwan Dollar  Buy  4/20/11  8,544,904  8,514,557  30,347 
  Turkish Lira  Buy  4/20/11  1,656,738  1,592,035  64,703 
Credit Suisse AG           
  Australian Dollar  Buy  4/20/11  4,915,222  4,866,249  48,973 
  Brazilian Real  Buy  4/20/11  7,457,129  7,319,796  137,333 
  British Pound  Sell  4/20/11  34,648,363  34,883,109  234,746 
  Canadian Dollar  Sell  4/20/11  3,292,757  3,271,642  (21,115) 
  Czech Koruna  Sell  4/20/11  333,716  333,464  (252) 
  Euro  Buy  4/20/11  58,463,482  57,092,452  1,371,030 
  Indian Rupee  Sell  4/20/11  2,498,045  2,468,156  (29,889) 
  Japanese Yen  Sell  4/20/11  42,728,807  43,443,048  714,241 
  Malaysian Ringgit  Buy  4/20/11  10,225,644  10,230,358  (4,714) 
  Mexican Peso  Buy  4/20/11  8,389,550  8,372,082  17,468 
  Norwegian Krone  Buy  4/20/11  23,831,453  23,727,940  103,513 
  Polish Zloty  Sell  4/20/11  8,693,903  8,687,692  (6,211) 
  South African Rand  Buy  4/20/11  10,229,079  10,022,771  206,308 
  South Korean Won  Buy  4/20/11  15,141,933  14,987,449  154,484 
  Swedish Krona  Sell  4/20/11  20,465,485  20,432,121  (33,364) 
  Swiss Franc  Sell  4/20/11  24,562,614  24,841,822  279,208 
  Taiwan Dollar  Sell  4/20/11  391,040  389,703  (1,337) 
  Turkish Lira  Buy  4/20/11  1,942,585  1,869,017  73,568 
Deutsche Bank AG           
  Australian Dollar  Buy  4/20/11  23,632,791  23,088,791  544,000 
  Brazilian Real  Buy  4/20/11  3,260,588  3,206,888  53,700 
  British Pound  Sell  4/20/11  31,281,223  31,504,996  223,773 
  Canadian Dollar  Sell  4/20/11  21,008,198  20,864,713  (143,485) 
  Chilean Peso  Buy  4/20/11  2,761,003  2,775,866  (14,863) 
  Czech Koruna  Sell  4/20/11  4,564,730  4,528,042  (36,688) 
  Euro  Buy  4/20/11  24,305,791  23,752,379  553,412 
  Hungarian Forint  Buy  4/20/11  16,464,148  16,370,460  93,688 
  Malaysian Ringgit  Buy  4/20/11  10,964,258  10,962,439  1,819 
  Mexican Peso  Buy  4/20/11  5,089,393  5,059,693  29,700 
  New Zealand Dollar  Sell  4/20/11  4,677,512  4,513,704  (163,808) 
  Norwegian Krone  Buy  4/20/11  26,881,277  26,764,516  116,761 
  Peruvian New Sol  Sell  4/20/11  7,868,437  7,969,278  100,841 
  Philippines Peso  Buy  4/20/11  6,468,313  6,487,628  (19,315) 
  Polish Zloty  Buy  4/20/11  1,024,570  1,014,926  9,644 
  Singapore Dollar  Buy  4/20/11  12,733,855  12,598,899  134,956 
  South Korean Won  Buy  4/20/11  7,942,835  7,817,794  125,041 
  Swedish Krona  Sell  4/20/11  13,685,314  13,614,495  (70,819) 

 

52


FORWARD CURRENCY CONTRACTS at 3/31/11 (aggregate face value $3,139,679,258) (Unaudited) cont.

          Unrealized 
  Contract  Delivery    Aggregate  appreciation/ 
Counterparty  Currency  type  date  Value  face value  (depreciation) 
Deutsche Bank AG cont.           
Swiss Franc  Sell  4/20/11  $18,095,517  $18,338,458  $242,941 
Taiwan Dollar  Sell  4/20/11  44,104  44,013  (91) 
Turkish Lira  Buy  4/20/11  6,073,607  5,922,192  151,415 
Goldman Sachs International           
Australian Dollar  Buy  4/20/11  20,214,117  19,893,511  320,606 
British Pound  Sell  4/20/11  7,591,889  7,713,322  121,433 
Canadian Dollar  Buy  4/20/11  2,733,645  2,682,532  51,113 
Chilean Peso  Buy  4/20/11  149,981  150,947  (966) 
Euro  Sell  4/20/11  16,395,510  16,305,392  (90,118) 
Hungarian Forint  Buy  4/20/11  10,946,076  10,943,537  2,539 
Japanese Yen  Sell  4/20/11  26,474,682  26,925,297  450,615 
Norwegian Krone  Buy  4/20/11  14,167,408  14,012,410  154,998 
Polish Zloty  Sell  4/20/11  5,371,856  5,366,015  (5,841) 
South African Rand  Buy  4/20/11  1,090,984  1,066,036  24,948 
Swedish Krona  Sell  4/20/11  24,819,224  24,778,761  (40,463) 
Swiss Franc  Buy  4/20/11  1,060,096  1,079,150  (19,054) 
HSBC Bank USA, National Association         
Australian Dollar  Buy  4/20/11  10,749,628  10,507,432  242,196 
British Pound  Sell  4/20/11  18,983,071  19,286,766  303,695 
Euro  Buy  4/20/11  33,140,957  32,998,368  142,589 
Indian Rupee  Sell  4/20/11  2,498,049  2,461,635  (36,414) 
Japanese Yen  Sell  4/20/11  34,531,687  34,891,844  360,157 
Norwegian Krone  Buy  4/20/11  22,855,009  22,621,167  233,842 
Philippines Peso  Buy  4/20/11  6,468,313  6,480,145  (11,832) 
Singapore Dollar  Buy  4/20/11  13,426,952  13,264,839  162,113 
South Korean Won  Buy  4/20/11  9,694,557  9,626,814  67,743 
Swiss Franc  Sell  4/20/11  30,683,731  30,221,553  (462,178) 
Taiwan Dollar  Buy  4/20/11  95,315  94,876  439 
JPMorgan Chase Bank, N.A.           
Australian Dollar  Buy  4/20/11  11,737,053  11,624,817  112,236 
Brazilian Real  Buy  4/20/11  10,220,864  10,047,482  173,382 
British Pound  Sell  4/20/11  55,758,289  55,932,043  173,754 
Canadian Dollar  Sell  4/20/11  8,118,171  8,064,171  (54,000) 
Chilean Peso  Sell  4/20/11  1,127,955  1,119,070  (8,885) 
Czech Koruna  Buy  4/20/11  5,368,699  5,308,438  60,261 
Euro  Buy  4/20/11  11,799,480  11,613,938  185,542 
Hungarian Forint  Buy  4/20/11  2,394,324  2,305,001  89,323 
Japanese Yen  Sell  4/20/11  19,179,606  19,507,608  328,002 
Malaysian Ringgit  Buy  4/20/11  12,059,777  12,071,311  (11,534) 
Mexican Peso  Buy  4/20/11  8,465,691  8,312,393  153,298 
New Zealand Dollar  Sell  4/20/11  3,879,956  3,743,137  (136,819) 
Norwegian Krone  Sell  4/20/11  1,856,639  1,838,417  (18,222) 

 

53


FORWARD CURRENCY CONTRACTS at 3/31/11 (aggregate face value $3,139,679,258) (Unaudited) cont.

            Unrealized 
    Contract  Delivery    Aggregate  appreciation/ 
Counterparty  Currency  type  date  Value  face value  (depreciation) 
JPMorgan Chase Bank, N.A. cont.           
  Peruvian New Sol  Sell  4/20/11  $4,011,335  $4,061,278  $49,943 
  Polish Zloty  Sell  4/20/11  13,328,426  13,271,986  (56,440) 
  Singapore Dollar  Buy  4/20/11  22,465,770  22,220,192  245,578 
  South African Rand  Buy  4/20/11  5,257,176  5,181,298  75,878 
  South Korean Won  Buy  4/20/11  7,843,035  7,743,194  99,841 
  Swedish Krona  Sell  4/20/11  19,938,775  19,812,929  (125,846) 
  Swiss Franc  Sell  4/20/11  19,663,232  19,708,230  44,998 
  Taiwan Dollar  Buy  4/20/11  3,295,950  3,318,074  (22,124) 
  Thai Baht  Buy  4/20/11  6,518,056  6,474,716  43,340 
  Turkish Lira  Buy  4/20/11  526,207  505,336  20,871 
Royal Bank of Scotland PLC (The)           
  Australian Dollar  Buy  4/20/11  14,808,459  14,579,101  229,358 
  Brazilian Real  Buy  4/20/11  13,065,880  12,985,142  80,738 
  British Pound  Sell  4/20/11  52,021,377  52,314,135  292,758 
  Canadian Dollar  Sell  4/20/11  18,463,194  18,343,107  (120,087) 
  Chilean Peso  Buy  4/20/11  489,695  479,493  10,202 
  Czech Koruna  Sell  4/20/11  2,583,688  2,581,677  (2,011) 
  Euro  Buy  4/20/11  33,294,844  33,204,679  90,165 
  Hungarian Forint  Buy  4/20/11  10,525,064  10,523,129  1,935 
  Indian Rupee  Sell  4/20/11  13,666,385  13,482,018  (184,367) 
  Japanese Yen  Sell  4/20/11  55,290,531  56,011,850  721,319 
  Malaysian Ringgit  Buy  4/20/11  10,225,677  10,233,768  (8,091) 
  Mexican Peso  Buy  4/20/11  16,639,304  16,486,160  153,144 
  New Zealand Dollar  Sell  4/20/11  8,327,024  8,192,109  (134,915) 
  Norwegian Krone  Buy  4/20/11  391,729  386,504  5,225 
  Polish Zloty  Buy  4/20/11  2,901,277  2,895,963  5,314 
  Singapore Dollar  Buy  4/20/11  16,828,585  16,678,685  149,900 
  South African Rand  Buy  4/20/11  14,949,912  14,603,870  346,042 
  South Korean Won  Buy  4/20/11  12,588,995  12,369,942  219,053 
  Swedish Krona  Sell  4/20/11  21,681,533  21,063,633  (617,900) 
  Swiss Franc  Sell  4/20/11  24,401,957  24,679,066  277,109 
  Taiwan Dollar  Sell  4/20/11  4,746,784  4,742,621  (4,163) 
  Turkish Lira  Buy  4/20/11  1,731,301  1,730,429  872 
State Street Bank and Trust Co.           
  Australian Dollar  Sell  4/20/11  13,097,570  12,382,625  (714,945) 
  Brazilian Real  Buy  4/20/11  4,689,482  4,609,978  79,504 
  British Pound  Sell  4/20/11  24,334,105  24,297,339  (36,766) 
  Canadian Dollar  Sell  4/20/11  14,518,346  14,424,065  (94,281) 
  Euro  Buy  4/20/11  17,475,417  17,207,001  268,416 
  Hungarian Forint  Buy  4/20/11  16,958,950  16,807,505  151,445 
  Japanese Yen  Sell  4/20/11  46,584,709  47,358,476  773,767 
  Malaysian Ringgit  Buy  4/20/11  10,365,359  10,378,013  (12,654) 
  Mexican Peso  Buy  4/20/11  10,489,456  10,388,993  100,463 

 

54


FORWARD CURRENCY CONTRACTS at 3/31/11 (aggregate face value $3,139,679,258) (Unaudited) cont.

            Unrealized 
    Contract  Delivery    Aggregate  appreciation/ 
Counterparty  Currency  type  date  Value  face value  (depreciation) 
State Street Bank and Trust Co. cont.           
  Norwegian Krone  Buy  4/20/11  $33,471,164  $33,152,126  $319,038 
  Philippines Peso  Buy  4/20/11  6,468,313  6,499,938  (31,625) 
  Polish Zloty  Sell  4/20/11  4,835,227  4,829,646  (5,581) 
  Singapore Dollar  Buy  4/20/11  13,564,651  13,435,995  128,656 
  South African Rand  Buy  4/20/11  8,423,620  8,301,871  121,749 
  Swedish Krona  Sell  4/20/11  39,300,686  39,162,011  (138,675) 
  Swiss Franc  Sell  4/20/11  40,541,759  40,649,406  107,647 
  Taiwan Dollar  Buy  4/20/11  3,410,704  3,426,347  (15,643) 
  Thai Baht  Buy  4/20/11  6,518,056  6,478,969  39,087 
UBS AG             
  Australian Dollar  Buy  4/20/11  53,989,863  53,511,515  478,348 
  Brazilian Real  Buy  4/20/11  16,693,455  16,594,189  99,266 
  British Pound  Sell  4/20/11  24,140,545  24,499,473  358,928 
  Canadian Dollar  Sell  4/20/11  23,016,276  22,953,884  (62,392) 
  Czech Koruna  Sell  4/20/11  9,031,802  9,016,899  (14,903) 
  Euro  Buy  4/20/11  42,101,333  42,111,011  (9,678) 
  Hungarian Forint  Buy  4/20/11  11,787,669  11,742,296  45,373 
  Indian Rupee  Sell  4/20/11  19,019,054  18,734,295  (284,759) 
  Japanese Yen  Sell  4/20/11  45,716,852  46,487,299  770,447 
  Mexican Peso  Buy  4/20/11  13,928,855  13,872,212  56,643 
  New Zealand Dollar  Sell  4/20/11  8,484,034  8,346,909  (137,125) 
  Norwegian Krone  Buy  4/20/11  26,912,002  26,795,591  116,411 
  Polish Zloty  Sell  4/20/11  4,052,127  4,052,424  297 
  Singapore Dollar  Buy  4/20/11  30,040,501  29,800,319  240,182 
  South African Rand  Buy  4/20/11  15,715,900  15,401,300  314,600 
  South Korean Won  Buy  4/20/11  16,808,187  16,444,879  363,308 
  Swedish Krona  Sell  4/20/11  18,123,499  18,094,010  (29,489) 
  Swiss Franc  Sell  4/20/11  54,268,323  54,613,389  345,066 
  Taiwan Dollar  Sell  4/20/11  73,171  73,119  (52) 
  Thai Baht  Buy  4/20/11  6,389,000  6,344,228  44,772 
  Turkish Lira  Buy  4/20/11  8,250,930  8,209,609  41,321 
Westpac Banking Corp.           
  Australian Dollar  Buy  4/20/11  18,956,114  18,765,226  190,888 
  British Pound  Sell  4/20/11  18,072,721  18,361,458  288,737 
  Canadian Dollar  Buy  4/20/11  1,930,062  1,891,781  38,281 
  Euro  Buy  4/20/11  7,386,753  7,177,043  209,710 
  Japanese Yen  Sell  4/20/11  34,943,760  35,529,646  585,886 
  New Zealand Dollar  Buy  4/20/11  1,773,169  1,672,321  100,848 
  Norwegian Krone  Buy  4/20/11  27,493,005  27,372,600  120,405 
  Swedish Krona  Sell  4/20/11  12,000,799  11,807,716  (193,083) 
  Swiss Franc  Sell  4/20/11  23,888,335  24,160,412  272,077 
Total            $20,651,148 

 

55


FUTURES CONTRACTS OUTSTANDING at 3/31/11 (Unaudited)

        Unrealized 
Number of    Expiration  appreciation/ 
contracts  Value  date  (depreciation) 
Australian Government Treasury         
Bond 10 yr (Short)  275  $26,936,044  Jun-11  $(25,697) 
Canadian Government Bond 10 yr (Long)  924  114,462,682  Jun-11  (433,298) 
Euro-Swiss Franc 3 Month (Short)  534  144,725,160  Dec-11  6,637 
Euro-Swiss Franc 3 Month (Short)  547  147,054,564  Dec-12  18,586 
Euro-Swiss Franc 3 Month (Short)  541  145,840,045  Jun-12  141,532 
Euro-Swiss Franc 3 Month (Short)  538  145,486,332  Mar-12  30,336 
Euro-Swiss Franc 3 Month (Short)  532  144,473,400  Sep-11  21,074 
Euro-Bobl 5 yr (Long)  67  10,900,574  Jun-11  (10,663) 
Euro-Bund 10 yr (Long)  4,249  731,777,887  Jun-11  (8,483,170) 
Euro-Dollar 90 day (Short)  4,136  1,025,159,300  Mar-12  1,442,116 
Euro-Schatz 2 yr (Short)  2,485  378,219,383  Jun-11  (93,080) 
Japanese Government Bond 10 yr (Long)  32  53,750,602  Jun-11  (273,821) 
Japanese Government Bond 10 yr         
Mini (Long)  32  5,375,831  Jun-11  18,556 
U.K. Gilt 10 yr (Long)  2,496  469,860,324  Jun-11  (3,188,121) 
U.S. Treasury Bond 20 yr (Long)  2,203  264,773,063  Jun-11  (109,799) 
U.S. Treasury Bond 30 yr (Long)  4,340  536,261,250  Jun-11  1,659,829 
U.S. Treasury Note 2 yr (Long)  25  5,453,125  Jun-11  (4,822) 
U.S. Treasury Note 10 yr (Short)  760  90,463,750  Jun-11  (105,991) 
Total        $(9,389,796) 

 

WRITTEN OPTIONS OUTSTANDING at 3/31/11 (premiums received $272,442,587) (Unaudited)

  Contract  Expiration date/   
  amount  strike price  Value 
Option on an interest rate swap with Bank of America,       
N.A. for the obligation to pay a fixed rate of 4.475%       
versus the three month USD-LIBOR-BBA maturing       
August 19, 2021.  $49,291,000  Aug-11/4.475  $3,303,483 
Option on an interest rate swap with Bank of America,       
N.A. for the obligation to pay a fixed rate of 4.55%       
versus the three month USD-LIBOR-BBA maturing       
August 17, 2021.  73,698,000  Aug-11/4.55  5,360,056 
Option on an interest rate swap with Bank of America,       
N.A. for the obligation to pay a fixed rate of 4.70%       
versus the three month USD-LIBOR-BBA maturing       
August 8, 2021.  79,191,000  Aug-11/4.70  6,724,108 
Option on an interest rate swap with Bank of America,       
N.A. for the obligation to pay a fixed rate of 4.765%       
versus the three month USD-LIBOR-BBA maturing       
August 16, 2021.  122,408,000  Aug-11/4.765  10,944,500 
Option on an interest rate swap with Bank of America,       
N.A. for the obligation to receive a fixed rate of 4.475%       
versus the three month USD-LIBOR-BBA maturing       
August 19, 2021.  49,291,000  Aug-11/4.475  247,441 
Option on an interest rate swap with Bank of America,       
N.A. for the obligation to receive a fixed rate of 4.55%       
versus the three month USD-LIBOR-BBA maturing       
August 17, 2021.  73,698,000  Aug-11/4.55  300,688 

 

56


WRITTEN OPTIONS OUTSTANDING at 3/31/11 (premiums received $272,442,587) (Unaudited) cont.

  Contract  Expiration date/   
  amount  strike price  Value 
Option on an interest rate swap with Bank of America,       
N.A. for the obligation to receive a fixed rate of 4.70%       
versus the three month USD-LIBOR-BBA maturing       
August 8, 2021.  $79,191,000  Aug-11/4.70  $182,931 
Option on an interest rate swap with Bank of America,       
N.A. for the obligation to receive a fixed rate of 4.765%       
versus the three month USD-LIBOR-BBA maturing       
August 16, 2021.  122,408,000  Aug-11/4.765  279,090 
Option on an interest rate swap with Barclays Bank PLC     
for the obligation to pay a fixed rate of 5.36% versus       
the three month USD-LIBOR-BBA maturing       
February 13, 2025.  17,581,660  Feb-15/5.36  1,410,049 
Option on an interest rate swap with Barclays Bank       
PLC for the obligation to receive a fixed rate of 5.36%       
versus the three month USD-LIBOR-BBA maturing       
February 13, 2025.  17,581,660  Feb-15/5.36  887,874 
Option on an interest rate swap with Citibank,       
N.A. for the obligation to pay a fixed rate of 4.49%       
versus the three month USD-LIBOR-BBA maturing       
August 17, 2021.  147,396,000  Aug-11/4.49  10,058,303 
Option on an interest rate swap with Citibank, N.A. for       
the obligation to pay a fixed rate of 4.52% versus the       
three month USD-LIBOR-BBA maturing July 26, 2021.  138,138,000  Jul-11/4.52  9,968,038 
Option on an interest rate swap with Citibank, N.A. for       
the obligation to pay a fixed rate of 4.5475% versus the       
three month USD-LIBOR-BBA maturing July 26, 2021.  69,069,000  Jul-11/4.5475  5,131,827 
Option on an interest rate swap with Citibank, N.A.       
for the obligation to receive a fixed rate of 4.49%       
versus the three month USD-LIBOR-BBA maturing       
August 17, 2021.  147,396,000  Aug-11/4.49  694,235 
Option on an interest rate swap with Citibank, N.A. for       
the obligation to receive a fixed rate of 4.52% versus the     
three month USD-LIBOR-BBA maturing July 26, 2021.  138,138,000  Jul-11/4.52  381,261 
Option on an interest rate swap with Citibank, N.A.       
for the obligation to receive a fixed rate of 4.5475%       
versus the three month USD-LIBOR-BBA maturing       
July 26, 2021.  69,069,000  Jul-11/4.5475  176,126 
Option on an interest rate swap with Credit Suisse       
International for the obligation to pay a fixed rate of       
0.578% versus the six month CHF-LIBOR-BBA       
maturing December 24, 2013.  CHF  200,160,000  Dec-11/0.578  45,722 
Option on an interest rate swap with Credit Suisse       
International for the obligation to pay a fixed rate of       
0.602% versus the six month CHF-LIBOR-BBA       
maturing December 22, 2013.  CHF  200,160,000  Dec-11/0.602  52,692 
Option on an interest rate swap with Credit Suisse       
International for the obligation to pay a fixed rate       
of 0.70175% versus the six month CHF-LIBOR-BBA       
maturing January 23, 2014.  CHF  186,840,000  Jan-12/0.70175  93,684 

 

57


WRITTEN OPTIONS OUTSTANDING at 3/31/11 (premiums received $272,442,587) (Unaudited) cont.

  Contract  Expiration date/   
  amount  strike price  Value 
Option on an interest rate swap with JPMorgan Chase       
Bank, N.A. for the obligation to pay a fixed rate of 4.04%       
versus the three month USD-LIBOR-BBA maturing       
September 11, 2025.  $403,795,500  Sep-15/4.04  $13,920,398 
Option on an interest rate swap with JPMorgan Chase       
Bank, N.A. for the obligation to pay a fixed rate of       
4.375% versus the three month USD-LIBOR-BBA       
maturing August 10, 2045.  88,935,500  Aug-15/4.375  6,728,860 
Option on an interest rate swap with JPMorgan Chase       
Bank, N.A. for the obligation to pay a fixed rate of 4.46%       
versus the three month USD-LIBOR-BBA maturing       
August 7, 2045.  88,935,500  Aug-15/4.46  7,134,406 
Option on an interest rate swap with JPMorgan Chase       
Bank, N.A. for the obligation to pay a fixed rate of 4.46%       
versus the three month USD-LIBOR-BBA maturing       
July 26, 2021.  147,297,000  Jul-11/4.46  9,948,439 
Option on an interest rate swap with JPMorgan Chase       
Bank, N.A. for the obligation to pay a fixed rate of       
4.525% versus the three month USD-LIBOR-BBA       
maturing July 26, 2021.  147,297,000  Jul-11/4.525  10,686,397 
Option on an interest rate swap with JPMorgan Chase       
Bank, N.A. for the obligation to pay a fixed rate of       
4.745% versus the three month USD-LIBOR-BBA       
maturing July 27, 2021.  220,945,500  Jul-11/4.745  19,801,136 
Option on an interest rate swap with JPMorgan Chase       
Bank, N.A. for the obligation to pay a fixed rate of 4.82%       
versus the three month USD-LIBOR-BBA maturing       
September 12, 2018.  132,437,000  Sep-13/4.82  6,516,855 
Option on an interest rate swap with JPMorgan Chase       
Bank, N.A. for the obligation to pay a fixed rate of       
4.8675% versus the three month USD-LIBOR-BBA       
maturing April 12, 2022.  95,125,800  Apr-12/4.8675  7,739,055 
Option on an interest rate swap with JPMorgan Chase       
Bank, N.A. for the obligation to pay a fixed rate of 5.27%       
versus the three month USD-LIBOR-BBA maturing       
February 12, 2025.  51,844,360  Feb-15/5.27  3,953,132 
Option on an interest rate swap with JPMorgan Chase       
Bank, N.A. for the obligation to pay a fixed rate of 5.51%       
versus the three month USD-LIBOR-BBA maturing       
May 14, 2022.  21,412,000  May-12/5.51  2,647,267 
Option on an interest rate swap with JPMorgan Chase       
Bank, N.A. for the obligation to receive a fixed rate       
of 3.89% versus the three month USD-LIBOR-BBA       
maturing April 28, 2021.  115,403,025  Apr-11/3.89  226,190 
Option on an interest rate swap with JPMorgan Chase       
Bank, N.A. for the obligation to receive a fixed rate       
of 4.04% versus the three month USD-LIBOR-BBA       
maturing September 11, 2025.  403,795,500  Sep-15/4.04  42,539,690 
Option on an interest rate swap with JPMorgan Chase       
Bank, N.A. for the obligation to receive a fixed rate       
of 4.375% versus the three month USD-LIBOR-BBA       
maturing August 10, 2045.  88,935,500  Aug-15/4.375  13,701,403 

 

58


WRITTEN OPTIONS OUTSTANDING at 3/31/11 (premiums received $272,442,587) (Unaudited) cont.

  Contract  Expiration date/   
  amount  strike price  Value 
Option on an interest rate swap with JPMorgan Chase       
Bank, N.A. for the obligation to receive a fixed rate       
of 4.46% versus the three month USD-LIBOR-BBA       
maturing August 7, 2045.  $88,935,500  Aug-15/4.46  $13,039,723 
Option on an interest rate swap with JPMorgan Chase       
Bank, N.A. for the obligation to receive a fixed rate       
of 4.46% versus the three month USD-LIBOR-BBA       
maturing July 26, 2021.  147,297,000  Jul-11/4.46  481,661 
Option on an interest rate swap with JPMorgan Chase       
Bank, N.A. for the obligation to receive a fixed rate       
of 4.525% versus the three month USD-LIBOR-BBA       
maturing July 26, 2021.  147,297,000  Jul-11/4.525  400,648 
Option on an interest rate swap with JPMorgan Chase       
Bank, N.A. for the obligation to receive a fixed rate       
of 4.745% versus the three month USD-LIBOR-BBA       
maturing July 27, 2021.  220,945,500  Jul-11/4.745  355,722 
Option on an interest rate swap with JPMorgan Chase       
Bank, N.A. for the obligation to receive a fixed rate       
of 4.82% versus the three month USD-LIBOR-BBA       
maturing September 12, 2018.  132,437,000  Sep-13/4.82  2,859,429 
Option on an interest rate swap with JPMorgan Chase       
Bank, N.A. for the obligation to receive a fixed rate       
of 4.8675% versus the three month USD-LIBOR-BBA       
maturing April 12, 2022.  95,125,800  Apr-12/4.8675  1,479,378 
Option on an interest rate swap with JPMorgan Chase       
Bank, N.A. for the obligation to receive a fixed rate       
of 5.27% versus the three month USD-LIBOR-BBA       
maturing February 12, 2025.  51,844,360  Feb-15/5.27  2,765,590 
Option on an interest rate swap with JPMorgan Chase       
Bank, N.A. for the obligation to receive a fixed rate       
of 5.51% versus the three month USD-LIBOR-BBA       
maturing May 14, 2022.  21,412,000  May-12/5.51  178,955 
Option on an interest rate swap with UBS AG for the       
obligation to pay a fixed rate of 0.722% versus the six       
month CHF-LIBOR-BBA maturing January 23, 2014.  CHF  213,480,000  Jan-12/0.722  118,308 
Total    $223,464,750 

 

TBA SALE COMMITMENTS OUTSTANDING at 3/31/11 (proceeds receivable $577,109,297) (Unaudited)

  Principal  Settlement   
Agency  amount  date  Value 
Federal Home Loan Mortgage Corporation, 3 1/2s,       
April 1, 2041  $9,000,000  4/13/11  $8,457,890 
Federal National Mortgage Association, 4 1/2s,       
April 1, 2041  127,000,000  4/13/11  129,252,269 
Federal National Mortgage Association, 4s,       
April 1, 2041  294,000,000  4/13/11  289,222,500 
Federal National Mortgage Association, 3 1/2s,       
April 1, 2041  159,000,000  4/13/11  149,733,289 
Total      $576,665,948 

 

59


INTEREST RATE SWAP CONTRACTS OUTSTANDING at 3/31/11 (Unaudited)

    Upfront    Payments  Payments  Unrealized 
Swap counterparty /  premium  Termination  made by  received by  appreciation/ 
Notional amount  received (paid)  date  fund per annum  fund per annum  (depreciation) 
Bank of America, N.A.     
  $1,144,988,600  $(77,717)  12/6/12  0.79%  3 month USD-   
          LIBOR-BBA  $(3,064,855) 
GBP  205,760,000  —  2/3/13  1.875%  6 month GBP-   
          LIBOR-BBA  (852,176) 
GBP  92,060,000  —  2/3/16  3.0625%  6 month GBP-   
          LIBOR-BBA  (1,295,819) 
GBP  64,920,000  —  2/3/21  3.9225%  6 month GBP-   
          LIBOR-BBA  (1,518,690) 
GBP  133,730,000 E  —  2/3/31  6 month GBP-     
        LIBOR-BBA  4.87%  1,185,975 
Barclays Bank PLC       
  $1,100,550,300  (353,081)  2/17/16  3 month USD-     
        LIBOR-BBA  2.56%  12,220,080 
  164,957,000  —  3/9/21  4.2375%  3 month USD-   
          LIBOR-BBA  (10,260,630) 
EUR  83,330,000  —  3/1/21  6 month EUR-     
        EURIBOR-     
        REUTERS  3.425%  (1,698,656) 
  $200,563,900  (939,534)  3/4/21  3.53%  3 month USD-   
          LIBOR-BBA  (1,223,689) 
  103,431,200  —  3/10/41  3 month USD-     
        LIBOR-BBA  4.38%  1,986,485 
  215,694,700  —  3/10/18  3.06%  3 month USD-   
          LIBOR-BBA  (1,002,088) 
AUD  248,160,000  —  3/21/16  5.57%  6 month AUD-   
          BBR-BBSW  1,157,221 
AUD  188,630,000  —  3/21/21  6 month AUD-     
        BBR-BBSW  5.88%  (1,747,318) 
  $655,016,900  775,852  3/30/16  3 month USD-     
        LIBOR-BBA  2.39%  74,547 
  400,360,300  (811,383)  3/30/21  3.55%  3 month USD-   
          LIBOR-BBA  (872,060) 
  6,453,400  8,320  3/30/31  3 month USD-     
        LIBOR-BBA  4.17%  12,507 
  927,596,500  214,607  4/1/13  1%  3 month USD-   
          LIBOR-BBA  (722,266) 
  9,494,000  —  4/1/21  3.562%  3 month USD-   
          LIBOR-BBA  (8,355) 
GBP  113,500,000  —  1/18/21  3.7875%  6 month GBP-   
          LIBOR-BBA  (845,776) 
GBP  123,490,000 E  —  2/3/31  6 month GBP-     
        LIBOR-BBA  4.86%  990,011 
GBP  288,060,000  —  2/3/13  1.895%  6 month GBP-   
          LIBOR-BBA  (1,374,160) 
GBP  47,340,000  —  2/3/21  6 month GBP-     
        LIBOR-BBA  3.95%  1,285,648 
EUR  91,712,000  —  2/9/21  3.53%  6 month EUR-   
          EURIBOR-   
          REUTERS  517,982 

 

60


INTEREST RATE SWAP CONTRACTS OUTSTANDING at 3/31/11 (Unaudited) cont.

    Upfront    Payments  Payments  Unrealized 
Swap counterparty /  premium  Termination  made by  received by  appreciation/ 
Notional amount  received (paid)  date  fund per annum  fund per annum  (depreciation) 
Citibank, N.A.       
  $689,174,200  $132,026  7/9/20  3 month USD-     
        LIBOR-BBA  3.01%  $(20,349,916) 
  511,780,000  —  11/8/20  2.635%  3 month USD-   
          LIBOR-BBA  31,962,267 
SEK  317,440,000  —  11/23/20  3.25%  3 month SEK-   
          STIBOR-SIDE  1,925,665 
  $1,063,165,800  (292,537)  12/10/12  0.81%  3 month USD-   
          LIBOR-BBA  (3,480,292) 
SEK  285,890,000  —  3/24/21  3 month SEK-     
        STIBOR-SIDE  3.8025%  (153,691) 
  $1,060,568,100  (287,170)  6/28/14  1.81%  3 month USD-   
          LIBOR-BBA  (10,979,052) 
  566,582,000  (344,200)  2/3/13  0.8%  3 month USD-   
          LIBOR-BBA  (161,343) 
SEK  205,600,000  —  2/4/21  3.79%  3 month SEK-   
          STIBOR-SIDE  55,786 
GBP  491,000,000  —  8/3/15  2.9225%  6 month GBP-   
          LIBOR-BBA  (6,319,843) 
GBP  145,660,000  —  8/3/20  6 month GBP-     
        LIBOR-BBA  3.885%  3,618,347 
GBP  613,760,000  —  8/3/12  6 month GBP-     
        LIBOR-BBA  1.61%  1,707,907 
SEK  317,440,000  —  11/23/20  3 month SEK-     
        STIBOR-SIDE  3.75%  (291,798) 
Credit Suisse International         
CHF  72,780,000  —  12/14/20  2.1075%  6 month CHF-   
          LIBOR-BBA  898,197 
CHF  278,190,000  —  1/28/13  0.675%  6 month CHF-   
          LIBOR-BBA  559,571 
  $299,404,600  —  2/3/13  0.83125%  3 month USD-   
          LIBOR-BBA  (89,106) 
GBP  147,690,000  —  2/3/16  3.065%  6 month GBP-   
          LIBOR-BBA  (2,105,888) 
GBP  81,650,000  —  2/3/21  6 month GBP-     
        LIBOR-BBA  3.93%  1,994,245 
SEK  205,600,000  —  2/7/21  3.82%  3 month SEK-   
          STIBOR-SIDE  (20,574) 
GBP  41,670,000  —  3/3/21  3.87375%  6 month GBP-   
          LIBOR-BBA  (516,058) 
CHF  41,670,000  —  3/7/21  2.27%  6 month CHF-   
          LIBOR-BBA  124,500 
  $988,351,500  (1,317,266)  3/14/16  3 month USD-     
        LIBOR-BBA  2.35%  (2,676,276) 
  146,568,400  (339,671)  3/14/41  3 month USD-     
        LIBOR-BBA  4.36%  1,901,967 
CHF  83,840,000  —  3/18/21  2.16%  6 month CHF-   
          LIBOR-BBA  1,250,080 

 

61


INTEREST RATE SWAP CONTRACTS OUTSTANDING at 3/31/11 (Unaudited) cont.

    Upfront    Payments  Payments  Unrealized 
Swap counterparty /  premium  Termination  made by  received by  appreciation/ 
Notional amount  received (paid)  date  fund per annum  fund per annum  (depreciation) 
Credit Suisse International cont.         
CHF  41,920,000  $—  3/21/21  2.16%  6 month CHF-   
          LIBOR-BBA  $626,855 
  $381,800,000 E  —  3/21/13  1.15625%  3 month USD-   
          LIBOR-BBA  950,682 
CHF  78,210,000  —  3/22/16  1.5075%  6 month CHF-   
          LIBOR-BBA  606,020 
  $94,900,000  —  3/23/21  3.452%  3 month USD-   
          LIBOR-BBA  722,202 
SEK  199,790,000  —  3/29/21  3 month SEK-     
        STIBOR-SIDE  3.81125%  (86,166) 
SEK  157,310,000  —  4/4/21  3.815%  3 month SEK-   
          STIBOR-SIDE  — 
CHF  78,080,000  —  7/28/15  1.27%  6 month CHF-   
          LIBOR-BBA  238,253 
MXN  364,910,000  —  7/21/20  1 month MXN-     
        TIIE-BANXICO  6.895%  (1,947,851) 
  $178,159,000  (48,976)  11/3/12  0.50%  3 month USD-   
          LIBOR-BBA  281,699 
  862,313,500  —  2/8/13  0.96%  3 month USD-   
          LIBOR-BBA  (2,296,676) 
CHF  412,290,000  —  2/9/13  0.6875%  6 month CHF-   
          LIBOR-BBA  953,820 
  $645,412,900  (132,044)  2/24/15  2.04%  3 month USD-   
          LIBOR-BBA  (3,297,257) 
  541,857,700  (86,765)  2/24/21  3.69%  3 month USD-   
          LIBOR-BBA  (8,935,301) 
  290,545,700  85,015  2/24/26  4.16%  3 month USD-   
          LIBOR-BBA  (6,531,599) 
CHF  41,620,000  —  2/25/21  6 month CHF-     
        LIBOR-BBA  2.2125%  (326,126) 
CHF  39,040,000  —  3/1/21  6 month CHF-     
        LIBOR-BBA  2.24%  (211,656) 
EUR  41,665,000  —  3/4/21  3.46%  6 month EUR-   
          EURIBOR-   
          REUTERS  687,990 
SEK  364,140,000  —  3/4/21  3 month SEK-     
        STIBOR-SIDE  3.78%  (252,156) 
  $1,534,431,400  (837,185)  7/8/20  3 month USD-     
        LIBOR-BBA  3.06%  (39,960,648) 
Deutsche Bank AG           
  1,317,485,700  (37,370)  11/3/12  0.50%  3 month USD-   
          LIBOR-BBA  2,407,975 
  1,389,454,800  3,254,932  7/27/20  3 month USD-     
        LIBOR-BBA  2.94%  (48,980,861) 
MXN  364,910,000  —  7/17/20  1 month MXN-     
        TIIE-BANXICO  6.95%  (1,821,400) 
  $860,492,900  151,712  12/31/14  1.91%  3 month USD-   
          LIBOR-BBA  (4,898,975) 

 

62


INTEREST RATE SWAP CONTRACTS OUTSTANDING at 3/31/11 (Unaudited) cont.

    Upfront    Payments  Payments  Unrealized 
Swap counterparty /  premium  Termination  made by  received by  appreciation/ 
Notional amount  received (paid)  date  fund per annum  fund per annum  (depreciation) 
Deutsche Bank AG cont.         
  $411,071,500  $—  1/14/13  0.85625%  3 month USD-   
          LIBOR-BBA  $(704,191) 
  898,335,000  —  2/5/14  2.44661%  3 month USD-   
          LIBOR-BBA  (28,353,959) 
EUR  299,300,000  —  12/23/20  3.325%  6 month EUR-   
          EURIBOR-   
          REUTERS  7,518,831 
Goldman Sachs International         
  $952,190,300  1,557,315  2/15/15  2.16%  3 month USD-   
          LIBOR-BBA  (8,268,098) 
SEK  204,500,000  —  12/10/20  3.5775%  3 month SEK-   
          STIBOR-SIDE  392,599 
CHF  304,870,000  —  12/15/12  0.538%  6 month CHF-   
          LIBOR-BBA  981,277 
  $1,051,106,600  (248,455)  1/5/13  0.79%  3 month USD-   
          LIBOR-BBA  (1,009,291) 
  715,782,900  (3,172,703)  2/15/20  3 month USD-     
        LIBOR-BBA  3.67%  15,572,359 
  120,599,800  —  2/28/41  3 month USD-     
        LIBOR-BBA  4.31%  999,216 
EUR  41,665,000  —  3/2/21  3.4325%  6 month EUR-   
          EURIBOR-   
          REUTERS  816,845 
SEK  364,140,000  —  3/2/21  3 month SEK-     
        STIBOR-SIDE  3.7575%  (348,730) 
  $267,381,800  (65,842)  10/1/13  0.84%  3 month USD-   
          LIBOR-BBA  1,640,533 
  245,540,700 E  —  3/19/13  1.09375%  3 month USD-   
          LIBOR-BBA  743,988 
  332,419,500  —  4/4/16  3 month USD-     
        LIBOR-BBA  2.415%  — 
GBP  57,360,000  —  1/21/21  3.81%  6 month GBP-   
          LIBOR-BBA  (578,300) 
JPMorgan Chase Bank, N.A.         
JPY  8,172,000,000  —  2/22/21  1.36375%  6 month JPY-   
          LIBOR-BBA  (887,402) 
  $36,780,200  —  3/9/26  3 month USD-     
        LIBOR-BBA  4.07%  389,851 
  667,483,500  314,622  3/11/13  0.91%  3 month USD-   
          LIBOR-BBA  151,080 
  139,525,900  238,405  3/11/21  3.64%  3 month USD-   
          LIBOR-BBA  (1,173,831) 
  723,101,000  (1,485,036)  3/11/20  3 month USD-     
        LIBOR-BBA  3.49%  4,956,599 
  67,418,500  256,854  3/11/41  4.42%  3 month USD-   
          LIBOR-BBA  (1,497,040) 

 

63


INTEREST RATE SWAP CONTRACTS OUTSTANDING at 3/31/11 (Unaudited) cont.

    Upfront    Payments  Payments  Unrealized 
Swap counterparty /  premium  Termination  made by  received by  appreciation/ 
Notional amount  received (paid)  date  fund per annum  fund per annum  (depreciation) 
JPMorgan Chase Bank, N.A. cont.         
  $408,004,600  $—  3/11/13  0.912%  3 month USD-   
          LIBOR-BBA  $(112,660) 
  717,700,000 E  —  3/21/13  1.1685%  3 month USD-   
          LIBOR-BBA  1,700,949 
  385,700,000 E  —  3/22/13  1.185%  3 month USD-   
          LIBOR-BBA  863,968 
  32,800,000  —  3/23/41  4.21%  3 month USD-   
          LIBOR-BBA  382,176 
  160,400,400  —  3/28/41  4.249%  3 month USD-   
          LIBOR-BBA  874,213 
MXN  52,130,000  —  7/16/20  1 month MXN-     
        TIIE-BANXICO  6.99%  (247,734) 
  $28,065,600  (8,506)  3/31/16  2.42%  3 month USD-   
          LIBOR-BBA  (15,766) 
  407,585,600  (816,602)  3/31/41  4.28%  3 month USD-   
          LIBOR-BBA  (762,813) 
  18,147,000  —  3/31/21  3 month USD-     
        LIBOR-BBA  3.57%  32,313 
  24,532,000  —  3/31/21  3 month USD-     
        LIBOR-BBA  3.565%  33,130 
JPY  13,447,610,000  —  5/25/15  0.674375%  6 month JPY-   
          LIBOR-BBA  (1,102,037) 
EUR  97,820,000  —  5/31/15  6 month EUR-     
        EURIBOR-     
        REUTERS  2.0975%  (2,762,693) 
MXN  325,230,000  —  8/19/20  1 month MXN-     
        TIIE-BANXICO  6.615%  (2,287,361) 
  $1,054,315,200  326,080  1/6/13  0.79%  3 month USD-   
          LIBOR-BBA  (422,810) 
GBP  47,340,000  —  2/3/21  6 month GBP-     
        LIBOR-BBA  3.93105%  1,162,457 
JPY  13,410,360,000  —  9/16/15  6 month JPY-     
        LIBOR-BBA  0.59125%  212,719 
CAD  41,210,000  —  9/21/20  3.105%  3 month CAD-   
          BA-CDOR  1,953,498 
JPY  2,192,700,000 E  —  7/28/29  6 month JPY-     
        LIBOR-BBA  2.67%  (346,799) 
JPY  2,948,000,000 E  —  7/28/39  2.40%  6 month JPY-   
          LIBOR-BBA  520,548 
EUR  9,800,000  —  2/4/40  6 month EUR-     
        EURIBOR-     
        REUTERS  3.79%  (194,634) 
MXN  528,640,000  —  11/4/20  1 month MXN-     
        TIIE-BANXICO  6.75%  (3,394,677) 

 

64


INTEREST RATE SWAP CONTRACTS OUTSTANDING at 3/31/11 (Unaudited) cont.

    Upfront    Payments  Payments  Unrealized 
Swap counterparty /  premium  Termination  made by  received by  appreciation/ 
Notional amount  received (paid)  date  fund per annum  fund per annum  (depreciation) 
UBS, AG           
CHF  420,800,000  $—  2/11/13  0.6975%  6 month CHF-   
          LIBOR-BBA  $895,417 
CHF  63,280,000  —  2/17/21  2.275%  6 month CHF-   
          LIBOR-BBA  63,648 
CHF  29,910,000  —  3/28/21  6 month CHF-     
        LIBOR-BBA  2.21%  (317,732) 
Total            $(132,202,907) 

 

E See Note 1 to the financial statements regarding extended effective dates.

TOTAL RETURN SWAP CONTRACTS OUTSTANDING at 3/31/11 (Unaudited)

  Upfront    Fixed payments  Total return  Unrealized 
Swap counterparty /  premium  Termination  received (paid) by  received by  appreciation/ 
Notional amount  received (paid)  date  fund per annum  or paid by fund  (depreciation) 
Barclays Bank PLC           
$16,269,985  $—  1/12/40  5.00% (1 month  Synthetic TRS  $205,111 
      USD-LIBOR)  Index 5.00%   
        30 year Fannie Mae   
        pools   
6,217,037  —  1/12/40  4.50% (1 month  Synthetic TRS  35,926 
      USD-LIBOR)  Index 4.50%   
        30 year Fannie Mae   
        pools   
38,290,959  —  1/12/40  5.00% (1 month  Synthetic TRS  482,723 
      USD-LIBOR)  Index 5.00%   
        30 year Fannie Mae   
        pools   
4,942,087  —  1/12/41  3.50% (1 month  Synthetic TRS  22,085 
      USD-LIBOR)  Index 3.50%   
        30 year Fannie Mae   
        pools   
4,546,908  —  1/12/41  5.00% (1 month  Synthetic TRS  66,546 
      USD-LIBOR)  Index 5.00%   
        30 year Fannie Mae   
        pools   
4,942,087  —  1/12/41  3.50% (1 month  Synthetic MBX  (6,207) 
      USD-LIBOR)  Index 3.50%   
        30 year Fannie Mae   
        pools   
4,886,199  —  1/12/41  4.00% (1 month  Synthetic MBX  (9,457) 
      USD-LIBOR)  Index 4.00%   
        30 year Fannie Mae   
        pools   
4,614,580  —  1/12/41  4.50% (1 month  Synthetic MBX  (6,291) 
      USD-LIBOR)  Index 4.50%   
        30 year Fannie Mae   
        pools   

 

65


TOTAL RETURN SWAP CONTRACTS OUTSTANDING at 3/31/11 (Unaudited) cont.

  Upfront    Fixed payments  Total return  Unrealized 
Swap counterparty /  premium  Termination  received (paid) by  received by  appreciation/ 
Notional amount  received (paid)  date  fund per annum  or paid by fund  (depreciation) 
Barclays Bank PLC cont.         
$19,408,147  $—  1/12/40  5.00% (1 month  Synthetic TRS  $244,673 
      USD-LIBOR)  Index 5.00%   
        30 year Fannie Mae   
        pools   
54,612,306  —  1/12/38  (6.50%) 1 month  Synthetic TRS  (612,447) 
      USD-LIBOR  Index 6.50%   
        30 year Fannie Mae   
        pools   
71,218,884  —  1/12/40  4.50% (1 month  Synthetic TRS  411,551 
      USD-LIBOR)  Index 4.50%   
        30 year Fannie Mae   
        pools   
58,098,299  72,623  1/12/40  5.00% (1 month  Synthetic TRS  725,285 
      USD-LIBOR)  Index 5.00%   
        30 year Fannie Mae   
        pools   
33,617,113  (341,424)  1/12/41  5.00% (1 month  Synthetic TRS  72,195 
      USD-LIBOR)  Index 5.00%   
        30 year Fannie Mae   
        pools   
20,235,055  (82,205)  1/12/40  4.50% (1 month  Synthetic TRS  (10,186) 
      USD-LIBOR)  Index 4.50%   
        30 year Fannie Mae   
        pools   
11,563,697  (148,160)  1/12/41  5.00% (1 month  Synthetic TRS  (7,468) 
      USD-LIBOR)  Index 5.00%   
        30 year Fannie Mae   
        pools   
141,541,869  —  1/12/40  5.00% (1 month  Synthetic TRS  1,784,377 
      USD-LIBOR)  Index 5.00%   
        30 year Fannie Mae   
        pools   
38,307,881  —  1/12/40  5.00% (1 month  Synthetic TRS  482,936 
      USD-LIBOR)  Index 5.00%   
        30 year Fannie Mae   
        pools   
104,008,530  —  1/12/40  5.00% (1 month  Synthetic TRS  1,311,205 
      USD-LIBOR)  Index 5.00%   
        30 year Fannie Mae   
        pools   
32,309,630  —  1/12/40  4.50% (1 month  Synthetic TRS  186,707 
      USD-LIBOR)  Index 4.50%   
        30 year Fannie Mae   
        pools   
23,511,203  —  1/12/38  (6.50%) 1 month  Synthetic TRS  (263,665) 
      USD-LIBOR  Index 6.50%   
        30 year Fannie Mae   
        pools   

 

66


TOTAL RETURN SWAP CONTRACTS OUTSTANDING at 3/31/11 (Unaudited) cont.

    Upfront    Fixed payments  Total return  Unrealized 
Swap counterparty /  premium  Termination  received (paid) by  received by  appreciation/ 
Notional amount  received (paid)  date  fund per annum  or paid by fund  (depreciation) 
Barclays Bank PLC cont.         
  $422,959  $—  1/12/39  6.00% (1 month  Synthetic TRS  $4,698 
        USD-LIBOR)  Index 6.00%   
          30 year Fannie Mae   
          pools   
  16,783,923  —  1/12/39  5.50% (1 month  Synthetic TRS  142,661 
        USD-LIBOR)  Index 5.50%   
          30 year Fannie Mae   
          pools   
  48,924,461  —  1/12/38  (6.50%) 1 month  Synthetic TRS  (548,661) 
        USD-LIBOR  Index 6.50%   
          30 year Fannie Mae   
          pools   
Citibank, N.A.           
GBP  73,890,000  —  5/18/13  (3.38%)  GBP Non-revised  2,911,805 
          UK Retail Price   
          Index   
Credit Suisse International         
  $4,546,908  —  1/12/41  5.00% (1 month  Synthetic MBX  (8,571) 
        USD-LIBOR)  Index 5.00%   
          30 year Fannie Mae   
          pools   
Deutsche Bank AG           
  9,417,272  —  1/12/40  4.00% (1 month  Synthetic MBX  (18,227) 
        USD-LIBOR)  Index 4.00%   
          30 year Fannie Mae   
          pools   
Goldman Sachs International         
  36,945,000  —  7/28/11  (0.685%)  USA Non Revised  770,872 
          Consumer Price   
          Index - Urban   
          (CPI-U)   
  36,945,000  —  7/29/11  (0.76%)  USA Non Revised  743,814 
          Consumer Price   
          Index - Urban   
          (CPI-U)   
  36,945,000  —  7/30/11  (0.73%)  USA Non Revised  755,533 
          Consumer Price   
          Index - Urban   
          (CPI-U)   
  4,886,199  —  1/12/41  4.00% (1 month  Synthetic TRS  39,154 
        USD-LIBOR)  Index 4.00%   
          30 year Fannie Mae   
          pools   
  4,614,580  —  1/12/41  4.50% (1 month  Synthetic TRS  51,894 
        USD-LIBOR)  Index 4.50%   
          30 year Fannie Mae   
          pools   
  41,680,000  —  3/1/16  2.47%  USA Non Revised  (82,000) 
          Consumer Price   
          Index - Urban   
          (CPI-U)   

 

67


TOTAL RETURN SWAP CONTRACTS OUTSTANDING at 3/31/11 (Unaudited) cont.

  Upfront    Fixed payments  Total return  Unrealized 
Swap counterparty /  premium  Termination  received (paid) by  received by  appreciation/ 
Notional amount  received (paid)  date  fund per annum  or paid by fund  (depreciation) 
Goldman Sachs International cont.         
$20,840,000  $—  3/2/16  2.45%  USA Non Revised  $(60,297) 
        Consumer Price   
        Index - Urban   
        (CPI-U)   
41,680,000  —  3/3/16  2.45%  USA Non Revised  (118,398) 
        Consumer Price   
        Index - Urban   
        (CPI-U)   
41,680,000  —  3/7/16  2.51%  USA Non Revised  12,743 
        Consumer Price   
        Index - Urban   
        (CPI-U)   
26,905,123  —  1/12/40  (5.00%) 1 month  Synthetic TRS  (339,185) 
      USD-LIBOR  Index 5.00%   
        30 year Fannie Mae   
        pools   
25,098,138  —  1/12/39  5.50% (1 month  Synthetic TRS  213,331 
      USD-LIBOR)  Index 5.50%   
        30 year Fannie Mae   
        pools   
25,764,463  16,103  1/12/40  5.00% (1 month  Synthetic TRS  330,290 
      USD-LIBOR)  Index 5.00%   
        30 year Fannie Mae   
        pools   
57,214,883  —  1/12/39  5.50% (1 month  Synthetic TRS  486,320 
      USD-LIBOR)  Index 5.50%   
        30 year Fannie Mae   
        pools   
8,247,703  —  1/12/39  (6.00%) 1 month  Synthetic MBX  3,512 
      USD-LIBOR  Index 6.00%   
        30 year Fannie Mae   
        pools   
8,660,847  —  1/12/38  6.50% (1 month  Synthetic MBX  26,979 
      USD-LIBOR)  Index 6.50%   
        30 year Fannie Mae   
        pools   
8,768,394  —  1/12/40  (5.00%) 1 month  Synthetic MBX  17,898 
      USD-LIBOR  Index 5.00%   
        30 year Fannie Mae   
        pools   
8,003,233  —  1/12/39  5.50% (1 month  Synthetic MBX  753 
      USD-LIBOR)  Index 5.50%   
        30 year Fannie Mae   
        pools   
8,905,040  —  1/12/40  (4.50%) 1 month  Synthetic MBX  10,750 
      USD-LIBOR  Index 4.50%   
        30 year Fannie Mae   
        pools   
Total          $10,463,267 

 

68


CREDIT DEFAULT CONTRACTS OUTSTANDING at 3/31/11 (Unaudited)

    Upfront      Fixed payments   
    premium    Termi-  received  Unrealized 
Swap counterparty /    received  Notional  nation  (paid) by fund  appreciation/ 
Referenced debt*  Rating***  (paid)**  amount  date  per annum  (depreciation) 
 
Bank of America, N.A.             
Ford Motor Credit             
Co., 7%, 10/1/13  Ba2  $—  $6,000,000  3/20/12  285 bp  $112,625 
Credit Suisse International           
Bonos Y Oblig Del             
Estado, 5 1/2%,             
7/30/17  —  (147,863)  16,610,000  12/20/19  (100 bp)  1,473,347 
Ukraine (Government             
of), 7.65%, 6/11/13  B2  —  4,715,000    10/20/11  194 bp  47,005 
Deutsche Bank AG             
Federal Republic of             
Brazil, 12 1/4%,             
3/6/30  Baa3  —  3,770,000    10/20/17  105 bp  (35,309) 
Russian Federation,             
7 1/2%, 3/31/30  —  —  987,500  4/20/13  (112 bp)  (14,261) 
Smurfit Kappa             
Funding, 7 3/4%,             
4/1/15  B2  —  EUR 2,045,000  9/20/13  715 bp  407,239 
United Mexican             
States, 7.5%, 4/8/33  Baa1  —  $6,115,000  3/20/14  56 bp  (34,639) 
Virgin Media             
Finance PLC,             
8 3/4%, 4/15/14  BB–  —  EUR 1,975,000  9/20/13  477 bp  225,378 
Virgin Media             
Finance PLC,             
8 3/4%, 4/15/14  BB–  —  EUR 1,975,000  9/20/13  535 bp  264,884 
Goldman Sachs International           
Lighthouse             
International Co,             
SA, 8%, 4/30/14  Caa2  —  EUR 1,835,000  3/20/13  680 bp  (1,346,185) 
JPMorgan Chase Bank, N.A.           
DJ CDX NA EM Series             
10 Index  Ba1  134,596  $2,330,000    12/20/13  335 bp  242,166 
DJ CDX NA HY Series             
16 Version 1 Index  B+  (678,541)  32,899,000  6/20/16  500 bp  62,929 
Republic of             
Argentina, 8.28%,             
12/31/33  B3  —  2,860,000  6/20/14  235 bp  (240,160) 
Russian Federation,             
7 1/2%, 3/31/30  Baa1  —  495,000  9/20/13  276 bp  24,699 
Morgan Stanley Capital Services, Inc.         
Dominican Republic,             
8 5/8%, 4/20/27  —  —  5,020,000    11/20/11  (170 bp)  11,100 
Freeport-McMoRan             
Copper & Gold,             
Inc., T/L Bank Loan  Baa1  —  4,877,900  3/20/12  44 bp  1,436 

 

69


CREDIT DEFAULT CONTRACTS OUTSTANDING at 3/31/11 (Unaudited) cont.

    Upfront      Fixed payments   
    premium    Termi-  received  Unrealized 
Swap counterparty /    received  Notional  nation  (paid) by fund  appreciation/ 
Referenced debt*  Rating***  (paid)**  amount  date  per annum  (depreciation) 
Morgan Stanley Capital Services, Inc. cont.         
Republic of             
Venezuela, 9 1/4%,             
9/15/27  B2  $—  $3,545,000  10/20/12  339 bp  $(202,345) 
Total            $999,909 

 

* Payments related to the referenced 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.

*** Ratings are presented for credit default contracts in which the fund has sold protection on the underlying referenced debt. Ratings for an underlying index represent the average of the ratings of all the securities included in that index. The Moody’s, Standard & Poor’s or Fitch ratings are believed to be the most recent ratings available at March 31, 2011.

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

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

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

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

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

    Valuation inputs   
Investments in securities:  Level 1  Level 2  Level 3 
Asset-backed securities  $—  $534,019,630  $12,666,801 
Convertible bonds and notes  —  7,318,029  2,538 
Corporate bonds and notes  —  1,608,915,329  18,001 
Foreign government bonds and notes  —  397,682,795  — 
Mortgage-backed securities  —  1,084,432,235  — 
Purchased options outstanding  —  8,748,438  — 
Senior loans  —  103,080,606  — 
U.S. Government and agency mortgage obligations  —  903,332,902  — 
U.S. Treasury obligations  —  32,598,202  — 
Short-term investments  353,247,331  1,575,398,462  — 
Totals by level  $353,247,331  $6,255,526,628  $12,687,340 

 

70


    Valuation inputs   
Other financial instruments:  Level 1  Level 2  Level 3 
Forward currency contracts  $—  $20,651,148  $— 
Futures contracts  (9,389,796)  —  — 
Written options  —  (223,464,750)  — 
TBA sale commitments  —  (576,665,948)  — 
Interest rate swap contracts  —  (127,816,604)  — 
Total return swap contracts  —  10,946,330  — 
Credit default contracts  —  1,691,717  — 
Totals by level  $(9,389,796)  $(894,658,107)  $— 

 

At the start and/or close of the reporting period, Level 3 investments in securities were not considered a significant portion of the fund’s portfolio.

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

71


Statement of assets and liabilities 3/31/11 (Unaudited)

ASSETS   
Investment in securities, at value, including of securities on loan (Note 1):   
Unaffiliated issuers (identified cost $6,130,426,278)  $6,268,213,968 
Affiliated issuers (identified cost $353,247,331) (Note 6)  353,247,331 
Cash  11,926,740 
Foreign currency (cost $2,061,780) (Note 1)  2,077,711 
Interest and other receivables  52,372,516 
Receivable for shares of the fund sold  40,065,215 
Receivable for investments sold  103,152,823 
Receivable for sales of delayed delivery securities (Notes 1 and 7)  576,141,786 
Unrealized appreciation on swap contracts (Note 1)  131,189,833 
Unrealized appreciation on forward currency contracts (Note 1)  26,533,939 
Premium paid on swap contracts (Note 1)  13,100,236 
Total assets  7,578,022,098 
 
LIABILITIES   
Payable for variation margin (Note 1)  402,732 
Payable for investments purchased  86,241,564 
Payable for purchases of delayed delivery securities (Notes 1 and 7)  826,805,396 
Payable for shares of the fund repurchased  12,980,785 
Payable for compensation of Manager (Note 2)  2,547,246 
Payable for investor servicing fees (Note 2)  604,538 
Payable for custodian fees (Note 2)  82,462 
Payable for Trustee compensation and expenses (Note 2)  513,094 
Payable for administrative services (Note 2)  27,418 
Payable for distribution fees (Note 2)  2,716,387 
Unrealized depreciation on forward currency contracts (Note 1)  5,882,791 
Written options outstanding, at value (premiums received $272,442,587) (Notes 1 and 3)  223,464,750 
Premium received on swap contracts (Note 1)  7,539,062 
Unrealized depreciation on swap contracts (Note 1)  251,929,564 
TBA sale commitments, at value (proceeds receivable $577,109,297) (Note 1)  576,665,948 
Collateral on certain derivative contracts, at value (Note 1)  32,598,202 
Other accrued expenses  376,732 
Total liabilities  2,031,378,671 
 
Net assets  $5,546,643,427 
 
REPRESENTED BY   
Paid-in capital (Unlimited shares authorized) (Notes 1 and 4)  $6,112,522,243 
Distributions in excess of net investment income (Note 1)  (29,673,631) 
Accumulated net realized loss on investments and foreign currency transactions (Note 1)  (613,903,676) 
Net unrealized appreciation of investments and assets and liabilities in foreign currencies  77,698,491 
Total — Representing net assets applicable to capital shares outstanding  $5,546,643,427 

 

(Continued on next page)

72


Statement of assets and liabilities (Continued)

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE   
Net asset value and redemption price per class A share   
($2,787,039,017 divided by 338,821,432 shares)  $8.23 
Offering price per class A share (100/96.00 of $8.23)*  $8.57 
Net asset value and offering price per class B share ($102,641,216 divided by 12,579,068 shares)**  $8.16 
Net asset value and offering price per class C share ($954,482,211 divided by 117,604,195 shares)**  $8.12 
Net asset value and redemption price per class M share ($400,578,394 divided by 49,346,282 shares)  $8.12 
Offering price per class M share (100/96.75 of $8.12)***  $8.39 
Net asset value, offering price and redemption price per class R share   
($4,884,514 divided by 599,461 shares)  $8.15 
Net asset value, offering price and redemption price per class Y share   
($1,297,018,075 divided by 158,546,862 shares)  $8.18 

 

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

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

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

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

73


Statement of operations Six months ended 3/31/11 (Unaudited)

INVESTMENT INCOME   
Interest (net of foreign tax of $535,822) (including interest income   
of $244,121 from investments in affiliated issuers) (Note 6)  $183,554,719 
Total investment income  183,554,719 
 
EXPENSES   
Compensation of Manager (Note 2)  13,885,004 
Investor servicing fees (Note 2)  3,384,936 
Custodian fees (Note 2)  142,335 
Trustee compensation and expenses (Note 2)  252,444 
Administrative services (Note 2)  56,688 
Distribution fees — Class A (Note 2)  3,196,842 
Distribution fees — Class B (Note 2)  494,879 
Distribution fees — Class C (Note 2)  4,392,510 
Distribution fees — Class M (Note 2)  1,046,897 
Distribution fees — Class R (Note 2)  11,070 
Other  722,365 
Total expenses  27,585,970 
 
Expense reduction (Note 2)  (28,935) 
Net expenses  27,557,035 
 
Net investment income  155,997,684 
 
Net realized gain on investments (Notes 1 and 3)  291,957,044 
Net realized loss on swap contracts (Note 1)  (52,675,837) 
Net realized loss on futures contracts (Note 1)  (155,718,693) 
Net realized loss on foreign currency transactions (Note 1)  (37,304,758) 
Net realized gain on written options (Notes 1 and 3)  19,624,840 
Net unrealized depreciation of assets and liabilities in foreign currencies during the period  (49,981) 
Net unrealized appreciation of investments, futures contracts, swap contracts,   
written options and TBA sale commitments during the period  84,535,190 
Net gain on investments  150,367,805 
 
Net increase in net assets resulting from operations  $306,365,489 

 

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

74


Statement of changes in net assets

INCREASE IN NET ASSETS  Six months ended 3/31/11*  Year ended 9/30/10 
Operations:     
Net investment income  $155,997,684  $321,688,395 
Net realized gain on investments and foreign currency transactions  65,882,596  286,168,036 
Net unrealized appreciation (depreciation) of investments     
and assets and liabilities in foreign currencies  84,485,209  (32,898,222) 
Net increase in net assets resulting from operations  306,365,489  574,958,209 
Distributions to shareholders (Note 1):     
From ordinary income     
Net investment income     
Class A  (109,342,932)  (246,442,176) 
Class B  (3,883,680)  (12,030,597) 
Class C  (34,875,485)  (69,763,924) 
Class M  (17,740,999)  (65,530,661) 
Class R  (184,252)  (476,907) 
Class Y  (48,373,389)  (101,862,507) 
Redemption fees (Note 1)  —  24,680 
Increase from capital share transactions (Note 4)  799,650,603  2,064,935,305 
Total increase in net assets  891,615,355  2,143,811,422 
 
NET ASSETS     
Beginning of period  4,655,028,072  2,511,216,650 
End of period (including distributions in excess of net investment     
income of $29,673,631 and undistributed net investment     
income of $28,729,422, respectively)  $5,546,643,427  $4,655,028,072 

 

* Unaudited

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

75


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

INVESTMENT OPERATIONS:  LESS DISTRIBUTIONS:    RATIOS AND SUPPLEMENTAL DATA:   
                          Ratio     
                          of expenses     
                          to average  Ratio   
  Net asset    Net realized                  Ratio  net assets,  of net investment   
  value,    and unrealized  Total from  From      Non-recurring    Total return  Net assets,  of expenses  excluding  income (loss)   
  beginning  Net investment  gain (loss)  investment  net investment  Total  Redemption  reimburse-  Net asset value,  at net asset  end of period  to average  interest expense  to average  Portfolio 
Period ended  of period  income (loss) a  on investments  operations  income  distributions  fees  ments  end of period  value (%) c  (in thousands)  net assets (%) d  (%) d  net assets (%)  turnover (%) e 
Class A                               
March 31, 2011**  $8.08  .25  .25  .50  (.35)  (.35)  —  —  $8.23  6.34 *  $2,787,039  .49*  .49*  3.13*  71* 
September 30, 2010  7.89  .72  .63  1.35  (1.16)  (1.16)  — b  —  8.08  18.39  2,328,480  1.01 f  1.01  8.96  95 
September 30, 2009  8.10  .49  (.02)  .47  (.68)  (.68)  — b  — b,g  7.89  8.23  1,334,298  1.13 f,h  1.09 h  7.44 h  223 
September 30, 2008  9.91  .69  (1.90)  (1.21)  (.60)  (.60)  — b  —  8.10  (12.80)  1,084,321  1.04 h  1.04 h  7.36 h  157 
September 30, 2007  9.93  .52  — b  .52  (.54)  (.54)  — b  —  9.91  5.36  1,457,286  .98 h  .98 h  5.17 h  74 
September 30, 2006  10.20  .53 i  (.05)  .48  (.75)  (.75)  — b  —  9.93  5.03  1,336,319  .95 h,i  .95 h,i  5.32 h,i  71 
Class B                               
March 31, 2011**  $8.01  .22  .25  .47  (.32)  (.32)  —  —  $8.16  5.97 *  $102,641  .86*  .86*  2.79*  71* 
September 30, 2010  7.83  .66  .62  1.28  (1.10)  (1.10)  — b  —  8.01  17.50  96,346  1.76 f  1.76  8.36  95 
September 30, 2009  8.04  .42  — b  .42  (.63)  (.63)  — b  — b,g  7.83  7.43  83,497  1.88 f,h  1.84 h  6.41 h  223 
September 30, 2008  9.83  .61  (1.88)  (1.27)  (.52)  (.52)  — b  —  8.04  (13.40)  109,173  1.79 h  1.79 h  6.57 h  157 
September 30, 2007  9.85  .44  .01  .45  (.47)  (.47)  — b  —  9.83  4.61  201,481  1.73 h  1.73 h  4.45 h  74 
September 30, 2006  10.12  .45 i  (.04)  .41  (.68)  (.68)  — b  —  9.85  4.26  273,563  1.70 h,i  1.70 h,i  4.59 h,i  71 
Class C                               
March 31, 2011**  $7.97  .22  .25  .47  (.32)  (.32)  —  —  $8.12  6.03 *  $954,482  .86*  .86*  2.76*  71* 
September 30, 2010  7.80  .64  .63  1.27  (1.10)  (1.10)  — b  —  7.97  17.47  797,345  1.76 f  1.76  8.10  95 
September 30, 2009  8.03  .48  (.07)  .41  (.64)  (.64)  — b  — b,g  7.80  7.27  298,231  1.88 f,h  1.84 h  7.12 h  223 
September 30, 2008  9.84  .61  (1.89)  (1.28)  (.53)  (.53)  — b  —  8.03  (13.57)  115,325  1.79 h  1.79 h  6.62 h  157 
September 30, 2007  9.87  .44  — b  .44  (.47)  (.47)  — b  —  9.84  4.49  129,666  1.73 h  1.73 h  4.42 h  74 
September 30, 2006  10.14  .45 i  (.04)  .41  (.68)  (.68)  — b  —  9.87  4.25  120,990  1.70 h,i  1.70 h,i  4.61 h,i  71 
Class M                               
March 31, 2011**  $7.97  .25  .24  .49  (.34)  (.34)  —  —  $8.12  6.27 *  $400,578  .61*  .61*  3.07*  71* 
September 30, 2010  7.79  .70  .62  1.32  (1.14)  (1.14)  — b  —  7.97  18.13  436,826  1.26 f  1.26  8.92  95 
September 30, 2009  8.02  .45  (.01)  .44  (.67)  (.67)  — b  — b,g  7.79  7.81  460,240  1.38 f,h  1.34 h  6.98 h  223 
September 30, 2008  9.81  .66  (1.88)  (1.22)  (.57)  (.57)  — b  —  8.02  (12.95)  514,664  1.29 h  1.29 h  7.10 h  157 
September 30, 2007  9.84  .49  — b  .49  (.52)  (.52)  — b  —  9.81  5.05  745,508  1.23 h  1.23 h  4.96 h  74 
September 30, 2006  10.11  .50 i  (.04)  .46  (.73)  (.73)  — b  —  9.84  4.82  1,082,428  1.20 h,i  1.20 h,i  5.10 h,i  71 
Class R                               
March 31, 2011**  $8.00  .24  .25  .49  (.34)  (.34)  —  —  $8.15  6.24 *  $4,885  .61*  .61*  3.03*  71* 
September 30, 2010  7.82  .70  .62  1.32  (1.14)  (1.14)  — b  —  8.00  18.08  4,185  1.26 f  1.26  8.82  95 
September 30, 2009  8.06  .48  (.05)  .43  (.67)  (.67)  — b  — b,g  7.82  7.68  2,956  1.38 f,h  1.34 h  7.20 h  223 
September 30, 2008  9.89  .66  (1.92)  (1.26)  (.57)  (.57)  — b  —  8.06  (13.29)  2,756  1.29 h  1.29 h  7.09 h  157 
September 30, 2007  9.91  .46  .04  .50  (.52)  (.52)  — b  —  9.89  5.13  4,896  1.23 h  1.23 h  4.66 h  74 
September 30, 2006  10.18  .50 i  (.04)  .46  (.73)  (.73)  — b  —  9.91  4.79  703  1.20 h,i  1.20 h,i  5.06 h,i  71 
Class Y                               
March 31, 2011**  $8.04  .26  .24  .50  (.36)  (.36)  —  —  $8.18  6.40 *  $1,297,018  .36*  .36*  3.25*  71* 
September 30, 2010  7.85  .73  .64  1.37  (1.18)  (1.18)  — b  —  8.04  18.84  991,846  .76 f  .76  9.18  95 
September 30, 2009  8.08  .60  (.13)  .47  (.70)  (.70)  — b  — b,g  7.85  8.26  331,995  .88 f,h  .84 h  8.61 h  223 
September 30, 2008  9.92  .71  (1.93)  (1.22)  (.62)  (.62)  — b  —  8.08  (12.88)  82,197  .79 h  .79 h  7.59 h  157 
September 30, 2007  9.93  .54  .01  .55  (.56)  (.56)  — b  —  9.92  5.72  20,550  .73 h  .73 h  5.40 h  74 
September 30, 2006  10.20  .55 i  (.04)  .51  (.78)  (.78)  — b  —  9.93  5.29  16,251  .70 h,i  .70 h,i  5.59 h,i  71 

 

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

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

76  77 

 


Financial highlights (Continued)

* Not annualized.

** Unaudited.

a Per share net investment income (loss) has been determined on the basis of the weighted average number of shares outstanding during the period.

b Amount represents less than $0.01 per share.

c Total return assumes dividend reinvestment and does not reflect the effect of sales charges.

d Includes amounts paid through expense offset arrangements (Note 2).

e Portfolio turnover excludes dollar roll transactions.

f Includes interest accrued in connection with certain terminated derivatives contracts, which amounted to less than 0.01% and 0.04% of average net assets for the periods ended September 30, 2010 and September 30, 2009, respectively.

g Reflects a non-recurring reimbursement pursuant to a settlement between the Securities and Exchange Commission (the SEC) and Bear Stearns & Co., Inc. and Bear Stearns Securities Corp., which amounted to less than $0.01 per share outstanding on May 21, 2009.

h Reflects an involuntary contractual expense limitation in effect during the period. For periods prior to September 30, 2009, certain fund expenses were waived in connection with the fund’s investment in Putnam Prime Money Market Fund. As a result of such limitation and/or waivers, the expenses of each class reflect a reduction of the following amounts:

  Percentage of 
  average net assets 
September 30, 2009  0.03% 
September 30, 2008  <0.01 
September 30, 2007  <0.01 
September 30, 2006  0.01 

 

i Reflects a non-recurring reimbursement from Putnam Investments relating to the calculation of certain amounts paid by the fund to Putnam in previous years for transfer agent services, which amounted to less than $0.01 per share and 0.01% of average net assets for the period ended September 30, 2006.

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

78


Notes to financial statements 3/31/11 (Unaudited)

Note 1: Significant accounting policies

Putnam Diversified Income Trust (the fund), is a Massachusetts business trust, which is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The investment objective of the fund is to seek as high a level of current income as Putnam Investment Management, LLC (Putnam Management), the fund’s manager, an indirect wholly-owned subsidiary of Putnam Investments, LLC, believes is consistent with preservation of capital by investing primarily in bonds that are securitized debt instruments and other obligations of companies and governments worldwide that are either investment-grade or below investment-grade and have intermediate– to long-term maturities. The fund may invest in higher yielding, lower rated bonds that may have a higher rate of default. The fund may invest a significant portion of its assets in securitized debt instruments, including mortgage-backed and asset-backed investments. The yields and values of these investments are sensitive to changes in interest rates, the rate of principal payments on the underlying assets and the market’s perception of the issuers. The market for these investments may be volatile and limited, which may make them difficult to buy or sell.

The fund offers class A, class B, class C, class M, class R and class Y shares. Class A and class M shares are sold with a maximum front-end sales charge of 4.00% and 3.25%, respectively, and generally do not pay a contingent deferred sales charge. Class B shares, which convert to class A shares after approximately eight years, do not pay a front-end sales charge and are subject to a contingent deferred sales charge if those shares are redeemed within six years of purchase. Class C shares have a one-year 1.00% contingent deferred sales charge and do not convert to class A shares. Class R shares, which are not available to all investors, are sold at net asset value. The expenses for class A, class B, class C, class M and class R shares may differ based on the distribution fee of each class, which is identified in Note 2. Class Y shares, which are sold at net asset value, are generally subject to the same expenses as class A, class B, class C, class M and class R shares, but do not bear a distribution fee. Class Y shares are not available to all investors.

Prior to August 2, 2010, a 1.00% redemption fee applied to certain shares that were redeemed (either by selling or exchanging into another fund) within 7 days of purchase. The redemption fee was accounted for as an addition to paid-in-capital. Effective August 2, 2010, this redemption fee no longer applies to shares redeemed.

Investment income, realized and unrealized gains and losses and expenses of the fund are borne pro-rata based on the relative net assets of each class to the total net assets of the fund, except that each class bears expenses unique to that class (including the distribution fees applicable to such classes). Each class votes as a class only with respect to its own distribution plan or other matters on which a class vote is required by law or determined by the Trustees. If the fund were liquidated, shares of each class would receive their pro-rata share of the net assets of the fund. In addition, the Trustees declare separate dividends on each class of shares.

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

The following is a summary of significant accounting policies consistently followed by the fund in the preparation of its financial statements. The preparation of financial statements is in conformity with accounting principles generally accepted in the United States of America and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations. Actual results could differ from those estimates. Subsequent events after the Statement of assets and liabilities date through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. Unless otherwise noted, the “reporting period” represents the period from October 1, 2010 through March 31, 2011.

A) Security valuation Market quotations are not considered to be readily available for certain debt obligations and other investments; such investments are valued on the basis of valuations furnished by an independent pricing service approved by the Trustees or dealers selected by Putnam Management. Such services or dealers determine valuations for normal institutional-size trading units of such securities using methods based on market transactions for comparable securities and various relationships, generally recognized by institutional traders, between securities (which considers such factors as security prices, yields, maturities and ratings). These securities will

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generally be categorized as Level 2. Securities quoted in foreign currencies, if any, are translated into U.S. dollars at the current exchange rate.

To the extent a pricing service or dealer is unable to value a security or provides a valuation that Putnam Management does not believe accurately reflects the security’s fair value, the security will be valued at fair value by Putnam Management. Certain investments, including certain restricted and illiquid securities and derivatives, are also valued at fair value following procedures approved by the Trustees. These valuations consider such factors as significant market or specific security events such as interest rate or credit quality changes, various relationships with other securities, discount rates, U.S. Treasury, U.S. swap and credit yields, index levels, convexity exposures and recovery rates. These securities are classified as Level 2 or as Level 3 depending on the priority of the significant inputs.

Such valuations and procedures are reviewed periodically by the Trustees. Certain securities may be valued on the basis of a price provided by a single source. The fair value of securities is generally determined as the amount that the fund could reasonably expect to realize from an orderly disposition of such securities over a reasonable period of time. By its nature, a fair value price is a good faith estimate of the value of a security in a current sale and does not reflect an actual market price, which may be different by a material amount.

B) Joint trading account Pursuant to an exemptive order from the Securities and Exchange Commission (the SEC), the fund may transfer uninvested cash balances into a joint trading account along with the cash of other registered investment companies and certain other accounts managed by Putnam Management. These balances may be invested in issues of short-term investments having maturities of up to 90 days.

C) Repurchase agreements The fund, or any joint trading account, through its custodian, receives delivery of the underlying securities, the market value of which at the time of purchase is required to be in an amount at least equal to the resale price, including accrued interest. Collateral for certain tri-party repurchase agreements is held at the counterparty’s custodian in a segregated account for the benefit of the fund and the counterparty. Putnam Management is responsible for determining that the value of these underlying securities is at all times at least equal to the resale price, including accrued interest. In the event of default or bankruptcy by the other party to the agreement, retention of the collateral may be subject to legal proceedings.

D) 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.

All premiums/discounts are amortized/accreted on a yield-to-maturity basis.

Securities purchased or sold on a forward commitment or delayed delivery basis may be settled a month or more after the trade date; interest income is accrued based on the terms of the securities. Losses may arise due to changes in the market value of the underlying securities or if the counterparty does not perform under the contract.

The fund earned certain fees in connection with its senior loan purchasing activities. These fees are treated as market discount and are amortized into income in the Statement of operations.

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

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

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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. The fund may be subject to taxes imposed by governments of countries in which it invests. Such taxes are generally based on either income or gains earned or repatriated. The fund accrues and applies such taxes to net investment income, net realized gains and net unrealized gains as income and/or capital gains are earned. In some cases, the fund may be entitled to reclaim all or a portion of such taxes, and such reclaim amounts, if any, are reflected as an asset on the fund’s books. In many cases, however, the fund may not receive such amounts for an extended period of time, depending on the country of investment.

G) Futures contracts The fund uses futures contracts to hedge interest rate risk and to gain exposure to interest rates. The potential risk to the fund is that the change in value of futures 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, if interest or exchange rates move unexpectedly or if the counterparty to the contract is unable to perform. With futures, there is minimal counterparty credit risk to the fund since futures are exchange traded and the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default. 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.

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.” Futures contracts outstanding at period end, if any, are listed after the fund’s portfolio. The fund had an average number of contracts of approximately 22,500 on futures contracts for the reporting period.

H) Options contracts The fund uses options contracts to hedge duration, convexity and prepayment risk and to gain exposure to interest rates. The potential risk to the fund is that the change in value of 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, if interest or exchange rates move unexpectedly or if the counterparty to the contract is unable to perform. 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.

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. Written option contracts outstanding at period end, if any, are listed after the fund’s portfolio. See Note 3 for the volume of written options contracts activity for the reporting period. The fund had an average contract amount of approximately 2,137,700,000 on purchased options contracts for the reporting period.

I) Forward currency contracts The fund buys and sells forward currency contracts, which are agreements between two parties to buy and sell currencies at a set price on a future date. These contracts are used to hedge foreign exchange risk and to gain exposure on currency. The U.S. dollar value of forward currency contracts is determined using current forward currency exchange rates supplied by a quotation service. The market value of the contract will fluctuate with changes in currency exchange rates. The contract is marked to market daily and the change in market value is recorded as an unrealized gain or loss. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The fund could be exposed to risk if the value of the currency changes unfavorably, if the counterparties to the contracts are unable to meet the terms of their contracts or if the fund is unable to enter into a closing position. Risks may exceed amounts recognized on the Statement of assets and liabilities. Forward currency contracts outstanding at period end, if any, are listed after the fund’s portfolio. The fund had an average contract amount of approximately $2,762,100,000 on forward currency contracts for the reporting period.

J) Total return swap contracts The fund enters 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 hedge sector exposure, to manage exposure to specific sectors or industries, to gain exposure to specific sectors/industries, to gain exposure to rates of inflation in specific regions/countries and to hedge inflation in specific regions/countries. To the extent that the total return of the security, index or other financial measure underlying the transaction

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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 an independent pricing service or market makers and the change, if any, is recorded as an unrealized gain or loss. Payments received or made are recorded as realized gains or losses. Certain total return swap contracts may include extended effective dates. Payments related to these swap contracts are accrued based on the terms of the contract. The fund could be exposed to credit or market risk due to unfavorable changes in the fluctuation of interest rates or in the price of the underlying security or index, the possibility that there is no liquid market for these agreements or that the counterparty may default on its obligation to perform. The fund’s maximum risk of loss from counterparty risk is the fair value of the contract. This risk may be mitigated by having a master netting arrangement between the fund and the counterparty. 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. The fund had an average notional amount of approximately $983,400,000 on total return swap contracts for the reporting period.

K) Interest rate swap contracts The fund enters into interest rate swap contracts, which are arrangements between two parties to exchange cash flows based on a notional principal amount, to hedge interest rate risk and to gain exposure on interest rates. An interest rate swap can be purchased or sold with an upfront premium. An upfront payment received by the fund is recorded as a liability on the fund’s books. An upfront payment made by the fund is recorded as an asset on the fund’s books. Interest rate swap contracts are marked to market daily based upon quotations from an independent pricing service or market makers and the change, if any, is recorded as an unrealized gain or loss. Payments received or made are recorded as realized gains or losses. Certain interest rate swap contracts may include extended effective dates. Payments related to these swap contracts are accrued based on the terms of the contract. The fund could be exposed to credit or market risk due to unfavorable changes in the fluctuation of interest rates or if the counterparty defaults on its obligation to perform. The fund’s maximum risk of loss from counterparty risk is the fair value of the contract. This risk may be mitigated by having a master netting arrangement between the fund and the counterparty. 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. The fund had an average notional amount of approximately $41,439,200,000 on interest rate swap contracts for the reporting period.

L) Credit default contracts The fund enters into credit default contracts to hedge credit risk and to gain exposure on individual names and/or baskets of securities. In a credit default contract, the protection buyer typically makes an up front payment and a periodic stream of payments to a counterparty, the protection seller, in exchange for the right to receive a contingent payment upon the occurrence of a credit event on the reference obligation or all other equally ranked obligations of the reference entity. Credit events are contract specific but may include bankruptcy, failure to pay, restructuring and obligation acceleration. An upfront payment received by the fund, as the protection seller, is recorded as a liability on the fund’s books. An upfront payment made by the fund, as the protection buyer, is recorded as an asset on the fund’s books. Periodic payments received or paid by the fund are recorded as realized gains or losses. The credit default contracts are marked to market daily based upon quotations from an independent pricing service or market makers and the change, if any, is recorded as an unrealized gain or loss. Upon the occurrence of a credit event, the difference between the par value and market value of the reference obligation, net of any proportional amount of the upfront payment, is recorded as a realized gain or loss.

In addition to bearing the risk that the credit event will occur, the fund could be exposed to market risk due to unfavorable changes in interest rates or in the price of the underlying security or index or the possibility that the fund may be unable to close out its position at the same time or at the same price as if it had purchased the underlying reference obligations. In certain circumstances, the fund may enter into offsetting credit default contracts which would mitigate its risk of loss. Risks of loss may exceed amounts recognized on the Statement of assets and liabilities. The fund’s maximum risk of loss from counterparty risk, either as the protection seller or as the protection buyer, is the fair value of the contract. This risk may be mitigated by having a master netting arrangement between the fund and the counterparty. Where the fund is a seller of protection, the maximum potential amount of future payments the fund may be required to make is equal to the notional amount of the relevant credit default contract. Credit default contracts outstanding, including their respective notional amounts at period end, if any, are listed after the fund’s portfolio. Outstanding notional amount on credit default swap contracts at the close of the reporting period are indicative of the volume of activity during the reporting period.

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M) Master agreements The fund is a party to ISDA (International Swap and Derivatives Association, Inc.) Master Agreements (Master Agreements) with certain counterparties that govern over-the-counter derivative and foreign exchange contracts entered into from time to time. The Master Agreements may contain provisions regarding, among other things, the parties’ general obligations, representations, agreements, collateral requirements, events of default and early termination. With respect to certain counterparties, in accordance with the terms of the Master Agreements, collateral posted to the fund is held in a segregated account by the fund’s custodian and with respect to those amounts which can be sold or repledged, are presented in the fund’s portfolio. Collateral posted to the fund which cannot be sold or repledged totaled $14,236,720 at the close of the reporting period. Collateral pledged by the fund is segregated by the fund’s custodian and identified in the fund’s portfolio. Collateral can be in the form of cash or debt securities issued by the U.S. Government or related agencies or other securities as agreed to by the fund and the applicable counterparty. Collateral requirements are determined based on the fund’s net position with each counterparty. Termination events applicable to the fund may occur upon a decline in the fund’s net assets below a specified threshold over a certain period of time. Termination events applicable to counterparties may occur upon a decline in the counterparty’s long-term and short-term credit ratings below a specified level. In each case, upon occurrence, the other party may elect to terminate early and cause settlement of all derivative and foreign exchange contracts outstanding, including the payment of any losses and costs resulting from such early termination, as reasonably determined by the terminating party. Any decision by one or more of the fund’s counterparties to elect early termination could impact the fund’s future derivative activity.

At the close of the reporting period, the fund had a net liability position of $343,940,150 on derivative contracts subject to the Master Agreements. Collateral posted by the fund totaled $360,636,957.

N) 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, it is anticipated that 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.

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

Unsettled TBA sale commitments are valued at the fair value of the underlying securities, generally according to the procedures described under “Security valuation” above. The contract is marked to market daily and the change in market value is recorded by the fund as an unrealized gain or loss. If the TBA sale commitment is closed through the acquisition of an offsetting TBA purchase commitment, the fund realizes a gain or loss. If the fund delivers securities under the commitment, the fund realizes a gain or a loss from the sale of the securities based upon the unit price established at the date the commitment was entered into. TBA sale commitments outstanding at period end, if any, are listed after the fund’s portfolio.

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

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

R) Line of credit The fund participates, along with other Putnam funds, in a $285 million unsecured committed line of credit and a $165 million unsecured uncommitted line of credit, both provided by State Street Bank and Trust Company (State Street). Borrowings may be made for temporary or emergency purposes, including the funding of shareholder redemption requests and trade settlements. Interest is charged to the fund based on the fund’s borrowing at a rate equal to the Federal Funds rate plus 1.25% for the committed line of credit and the Federal Funds rate plus 1.30% for the uncommitted line of credit. A closing fee equal to 0.03% of the committed line of credit and $100,000 for the uncommitted line of credit has been paid by the participating funds. In addition, a commitment fee of 0.15% per annum on any unutilized portion of the committed line of credit is allocated to the participating funds based on their relative net assets and paid quarterly. During the reporting period, the fund had no borrowings against these arrangements.

S) Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time period and otherwise comply with the provisions of the Internal Revenue Code of 1986, as amended (the Code), applicable to regulated investment companies. It is also the intention of the fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Code. The fund is subject to the provisions of Accounting Standards Codification ASC 740 Income Taxes (ASC 740). ASC 740 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The fund did not have a liability to record for any unrecognized tax benefits in the accompanying financial statements. No provision has been made for federal taxes on income, capital gains or unrealized appreciation on securities held nor for excise tax on income and capital gains. Each of the fund’s federal tax returns for the prior three fiscal years remains subject to examination by the Internal Revenue Service.

At September 30, 2010, the fund had a capital loss carryover of $657,697,922 available to the extent allowed by the Code to offset future net capital gain, if any. The amounts of the carryovers and the expiration dates are:

Loss carryover Expiration 
$311,230,234  September 30, 2011 
4,275,641  September 30, 2012 
13,963,696  September 30, 2015 
18,714,447  September 30, 2016 
146,525,581  September 30, 2017 
162,988,323  September 30, 2018 

 

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

Pursuant to federal income tax regulations applicable to regulated investment companies, the fund has elected to defer to its fiscal year ending September 30, 2011 $4,255,635 of losses recognized during the period from November 1, 2009 to September 30, 2010.

The aggregate identified cost on a tax basis is $6,505,781,389, resulting in gross unrealized appreciation and depreciation of $190,331,467 and $74,651,557, respectively, or net unrealized appreciation of $115,679,910.

T) 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

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determined until final tax calculations are completed after the end of the fund’s fiscal year. Reclassifications are made to the fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations.

Note 2: Management fee, administrative services and other transactions

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

0.700%  of the first $5 billion, 
0.650%  of the next $5 billion, 
0.600%  of the next $10 billion, 
0.550%  of the next $10 billion, 
0.500%  of the next $50 billion, 
0.480%  of the next $50 billion, 
0.470%  of the next $100 billion, 
0.465%  of any excess thereafter. 

 

Putnam Management has contractually agreed, through June 30, 2011, to waive fees or reimburse the fund’s expenses to the extent necessary to limit the cumulative expenses of the fund, exclusive of brokerage, interest, taxes, investment-related expenses, extraordinary expenses and payments under the fund’s investor servicing contract, investment management contract and distribution plans, on a fiscal year-to-date basis to an annual rate of 0.20% of the fund’s average net assets over such fiscal year-to-date period. During the reporting period, the fund’s expenses were not reduced as a result of this limit.

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

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

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

Putnam Investor Services, Inc., an affiliate of Putnam Management, provides investor servicing agent functions to the fund. Putnam Investor Services, Inc. received fees for investor servicing based on the fund’s retail asset level, the number of shareholder accounts in the fund and the level of defined contribution plan assets in the fund. Investor servicing fees will not exceed an annual rate of 0.375% of the fund’s average net assets. The amounts incurred for investor servicing agent functions during the reporting period are included in Investor servicing fees in the Statement of operations.

The fund has entered into expense offset arrangements with Putnam Investor Services, Inc. and State Street whereby Putnam Investor Services, Inc.’s and State Street’s fees are reduced by credits allowed on cash balances. For the reporting period, the fund’s expenses were reduced by $28,935 under the expense offset arrangements.

Each independent Trustee of the fund receives an annual Trustee fee, of which $3,119, as a quarterly retainer, has been allocated to the fund, and an additional fee for each Trustees meeting attended. Trustees also are reimbursed for expenses they incur relating to their services as Trustees.

The fund has adopted a Trustee Fee Deferral Plan (the Deferral Plan) which allows the Trustees to defer the receipt of all or a portion of Trustees fees payable on or after July 1, 1995. The deferred fees remain invested in certain Putnam funds until distribution in accordance with the Deferral Plan.

The fund has adopted an unfunded noncontributory defined benefit pension plan (the Pension Plan) covering all Trustees of the fund who have served as a Trustee for at least five years and were first elected prior to 2004. Benefits under the Pension Plan are equal to 50% of the Trustee’s average annual attendance and retainer fees for the three years ended December 31, 2005. The retirement benefit is payable during a Trustee’s lifetime, beginning the year following retirement, for the number of years of service through December 31, 2006. Pension expense for the fund is included in Trustee compensation and expenses in the Statement of operations. Accrued pension

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liability is included in Payable for Trustee compensation and expenses in the Statement of assets and liabilities. The Trustees have terminated the Pension Plan with respect to any Trustee first elected after 2003.

The fund has adopted distribution plans (the Plans) with respect to its class A, class B, class C, class M and class R shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. The purpose of the Plans is to compensate Putnam Retail Management Limited Partnership, a wholly-owned subsidiary of Putnam Investments, LLC and Putnam Retail Management GP, Inc., for services provided and expenses incurred in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Retail Management Limited Partnership at an annual rate of up to 0.35%, 1.00%, 1.00%, 1.00% and 1.00% of the average net assets attributable to class A, class B, class C, class M and class R shares, respectively. The Trustees have approved payment by the fund at an annual rate of 0.25%, 1.00%, 1.00%, 0.50% and 0.50% of the average net assets attributable to class A, class B, class C, class M and class R shares, respectively.

For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received net commissions of $587,266 and $4,843 from the sale of class A and class M shares, respectively, and received $59,012 and $63,334 in contingent deferred sales charges from redemptions of class B and class C shares, respectively.

A deferred sales charge of up to 1.00% and 0.40% is assessed on certain redemptions of class A and class M shares, respectively. For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received $10,877 and no monies on class A and class M redemptions, respectively.

Note 3: Purchases and sales of securities

During the reporting period, cost of purchases and proceeds from sales of investment securities other than short-term investments aggregated $2,968,857,564 and $3,490,483,671, respectively. There were no purchases or proceeds from sales of long-term U.S. government securities.

Written option transactions during the reporting period are summarized as follows:

    Contract amounts  Premiums received 
Written options outstanding at the  USD  5,115,352,440  $299,099,514 
beginning of the reporting period  CHF  —  $— 
Options  USD  115,403,025  1,066,035 
opened  CHF  800,640,000  879,514 
Options  USD  (720,211,600)  (19,298,069) 
exercised  CHF  —  — 
Options  USD  (188,092,400)  (8,595,823) 
expired  CHF  —  — 
Options  USD  (17,452,800)  (708,584) 
closed  CHF  —  — 
Written options outstanding at the  USD  4,304,998,665  $271,563,073 
end of the reporting period  CHF  800,640,000  $879,514 

 

Note 4: Capital shares

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

  Six months ended 3/31/11  Year ended 9/30/10 
Class A  Shares  Amount  Shares  Amount 
Shares sold  91,708,396  $746,393,458  154,665,822  $1,237,672,467 
Shares issued in connection with         
reinvestment of distributions  9,857,194  79,851,349  22,201,951  175,493,519 
  101,565,590  826,244,807  176,867,773  1,413,165,986 
Shares repurchased  (51,046,452)  (415,064,790)  (57,777,770)  (461,960,217) 
Net increase  50,519,138  $411,180,017  119,090,003  $951,205,769 

 

86


  Six months ended 3/31/11  Year ended 9/30/10 
Class B  Shares  Amount  Shares  Amount 
Shares sold  2,145,520  $17,314,032  5,127,624  $40,708,764 
Shares issued in connection with         
reinvestment of distributions  298,820  2,401,525  1,006,764  7,896,336 
  2,444,340  19,715,557  6,134,388  48,605,100 
Shares repurchased  (1,889,498)  (15,270,550)  (4,772,005)  (37,995,022) 
Net increase  554,842  $4,445,007  1,362,383  $10,610,078 
 
  Six months ended 3/31/11  Year ended 9/30/10 
Class C  Shares  Amount  Shares  Amount 
Shares sold  28,580,378  $229,550,669  66,730,096  $527,822,004 
Shares issued in connection with         
reinvestment of distributions  2,268,584  18,137,677  3,932,320  30,735,278 
  30,848,962  247,688,346  70,662,416  558,557,282 
Shares repurchased  (13,245,190)  (106,235,161)  (8,897,931)  (70,267,303) 
Net increase  17,603,772  $141,453,185  61,764,485  $488,289,979 
 
  Six months ended 3/31/11  Year ended 9/30/10 
Class M  Shares  Amount  Shares  Amount 
Shares sold  499,281  $4,012,744  2,371,302  $18,784,290 
Shares issued in connection with         
reinvestment of distributions  101,143  808,703  318,147  2,483,671 
  600,424  4,821,447  2,689,449  21,267,961 
Shares repurchased  (6,043,086)  (48,541,058)  (6,949,534)  (54,903,618) 
Net decrease  (5,442,662)  $(43,719,611)  (4,260,085)  $(33,635,657) 
 
  Six months ended 3/31/11  Year ended 9/30/10 
Class R  Shares  Amount  Shares  Amount 
Shares sold  207,705  $1,674,098  233,673  $1,849,913 
Shares issued in connection with         
reinvestment of distributions  18,768  150,608  51,412  402,715 
  226,473  1,824,706  285,085  2,252,628 
Shares repurchased  (150,005)  (1,206,136)  (140,101)  (1,112,906) 
Net increase  76,468  $618,570  144,984  $1,139,722 
 
  Six months ended 3/31/11  Year ended 9/30/10 
Class Y  Shares  Amount  Shares  Amount 
Shares sold  68,749,966  $556,985,162  120,399,707  $959,062,690 
Shares issued in connection with         
reinvestment of distributions  2,816,429  22,696,089  6,100,578  48,023,811 
  71,566,395  579,681,251  126,500,285  1,007,086,501 
Shares repurchased  (36,447,787)  (294,007,816)  (45,341,548)  (359,761,087) 
Net increase  35,118,608  $285,673,435  81,158,737  $647,325,414 

 

87


Note 5: Summary of derivative activity

The following is a summary of the market values of derivative instruments as of the close of the reporting period:

Market values of derivative instruments as of the close of the reporting period

  Asset derivatives  Liability derivatives 
Derivatives not         
accounted for as  Statement of    Statement of   
hedging instruments  assets and    assets and   
under ASC 815  liabilities location  Market value  liabilities location  Market value 
Credit contracts  Receivables  $3,564,616  Payables  $1,872,899 
Foreign exchange         
contracts  Receivables  26,533,939  Payables  5,882,791 
  Investments,    Payables,   
  Receivables, Net    Net assets —   
  assets — Unrealized    Unrealized   
Interest rate  appreciation /    appreciation /   
contracts  (depreciation)  146,374,916*  (depreciation)  487,351,298* 
Total    $176,473,471    $495,106,988 

 

* Includes cumulative appreciation/depreciation of futures contracts as reported in The fund’s portfolio. Only current day’s variation margin is reported within the Statement of assets and liabilities.

The following is a summary of realized and change in unrealized gains or losses of derivative instruments on the Statement of operations for the reporting period (see Note 1):

Amount of realized gain or (loss) on derivatives recognized in net gain or (loss) on investments

Derivatives not           
accounted for as      Forward     
hedging instruments      currency     
under ASC 815  Options  Futures  contracts  Swaps  Total 
Credit contracts  $—  $—  $—  $1,170,151  $1,170,151 
Foreign exchange           
contracts  —  —  (36,780,279)  —  $(36,780,279) 
Interest rate contracts  15,690,718  (155,718,693)  —  (53,845,988)  $(193,873,963) 
Total  $15,690,718  $(155,718,693)  $(36,780,279)  $(52,675,837)  $(229,484,091) 

 

Change in unrealized appreciation or (depreciation) on derivatives recognized in net gain or (loss) on investments

 

Derivatives not           
accounted for as      Forward     
hedging instruments      currency     
under ASC 815  Options  Futures  contracts  Swaps  Total 
Credit contracts  $—  $—  $—  $556,466  $556,466 
Foreign exchange           
contracts  —  —  (106,433)  —  $(106,433) 
Interest rate contracts  54,343,373  (8,126,812)  —  123,152,862  $169,369,423 
Total  $54,343,373  $(8,126,812)  $(106,433)  $123,709,328  $169,819,456 

 

88


Note 6: Investment in Putnam Money Market Liquidity Fund

The fund invested in Putnam Money Market Liquidity Fund, an open-end management investment company managed by Putnam Management. Investments in Putnam Money Market Liquidity Fund are valued at its closing net asset value each business day. Income distributions earned by the fund are recorded as interest income in the Statement of operations and totaled $244,121 for the reporting period. During the reporting period, cost of purchases and proceeds of sales of investments in Putnam Money Market Liquidity Fund aggregated $1,379,871,165 and $1,142,964,578, respectively. Management fees charged to Putnam Money Market Liquidity Fund have been waived by Putnam Management.

Note 7: Senior loan commitments

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

Note 8: Regulatory matters and litigation

In late 2003 and 2004, Putnam Management settled charges brought by the SEC and the Massachusetts Securities Division in connection with excessive short-term trading in Putnam funds. Distribution of payments from Putnam Management to certain open-end Putnam funds and their shareholders is expected to be completed in the next several months. These allegations and related matters have served as the general basis for certain lawsuits, including purported class action lawsuits against Putnam Management and, in a limited number of cases, some Putnam funds. Putnam Management believes that these lawsuits will have no material adverse effect on the funds or on Putnam Management’s ability to provide investment management services. In addition, Putnam Management has agreed to bear any costs incurred by the Putnam funds as a result of these matters.

Note 9: Market and credit risk

In the normal course of business, the fund trades financial instruments and enters into financial transactions where risk of potential loss exists due to changes in the market (market risk) or failure of the contracting party to the transaction to perform (credit risk). The fund may be exposed to additional credit risk that an institution or other entity with which the fund has unsettled or open transactions will default.

89


The Putnam family of funds

The following is a list of Putnam’s open-end mutual funds offered to the public. Investors should carefully consider the investment objective, risks, charges, and expenses of a fund before investing. For a prospectus, or a summary prospectus if available, containing this and other information for any Putnam fund or product, call your financial advisor at 1-800-225-1581 and ask for a prospectus. Please read the prospectus carefully before investing.

Growth  Value 
Growth Opportunities Fund  Convertible Securities Fund 
International Growth Fund  Prior to September 30, 2010, the fund was known as 
Prior to January 1, 2010, the fund was known as  Putnam Convertible Income-Growth Trust 
Putnam International New Opportunities Fund  Equity Income Fund 
Multi-Cap Growth Fund  George Putnam Balanced Fund 
Prior to September 1, 2010, the fund was known as  Prior to September 30, 2010, the fund was known as 
Putnam New Opportunities Fund  The George Putnam Fund of Boston 
Small Cap Growth Fund  The Putnam Fund for Growth and Income 
Voyager Fund  International Value Fund 
  Prior to January 1, 2010, the fund was known as 
Blend  Putnam International Growth and Income Fund 
Asia Pacific Equity Fund  Multi-Cap Value Fund 
Capital Opportunities Fund  Prior to September 1, 2010, the fund was known as 
Capital Spectrum Fund  Putnam Mid Cap Value Fund 
Emerging Markets Equity Fund  Small Cap Value Fund 
Equity Spectrum Fund   
Europe Equity Fund  Income 
Global Equity Fund  American Government Income Fund 
International Capital Opportunities Fund  Diversified Income Trust 
International Equity Fund  Floating Rate Income Fund 
Investors Fund  Global Income Trust 
Multi-Cap Core Fund  High Yield Advantage Fund 
Research Fund  High Yield Trust 
  Income Fund 
  Money Market Fund* 
  U.S. Government Income Trust 

 

* An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.

90


Tax-free income  Asset allocation 
AMT-Free Municipal Fund  Income Strategies Fund 
Tax Exempt Income Fund  Putnam Asset Allocation Funds — three 
Tax Exempt Money Market Fund*  investment portfolios that spread your 
Tax-Free High Yield Fund  money across a variety of stocks, bonds, 
  and money market investments. 
State tax-free income funds:   
Arizona, California, Massachusetts, Michigan,  The three portfolios: 
Minnesota, New Jersey, New York, Ohio,  Asset Allocation: Balanced Portfolio 
and Pennsylvania  Asset Allocation: Conservative Portfolio 
  Asset Allocation: Growth Portfolio 
Absolute Return   
Absolute Return 100 Fund  Putnam RetirementReady® 
Absolute Return 300 Fund  Putnam RetirementReady Funds — 10 
Absolute Return 500 Fund  investment portfolios that offer diversifi- 
Absolute Return 700 Fund  cation among stocks, bonds, and money 
  market instruments and adjust to become 
Global Sector  more conservative over time based on a 
Global Consumer Fund  target date for withdrawing assets. 
Global Energy Fund   
Global Financials Fund  The 10 funds: 
Global Health Care Fund  Putnam RetirementReady 2055 Fund 
Global Industrials Fund  Putnam RetirementReady 2050 Fund 
Global Natural Resources Fund  Putnam RetirementReady 2045 Fund 
Global Sector Fund  Putnam RetirementReady 2040 Fund 
Global Technology Fund  Putnam RetirementReady 2035 Fund 
Global Telecommunications Fund  Putnam RetirementReady 2030 Fund 
Global Utilities Fund  Putnam RetirementReady 2025 Fund 
  Putnam RetirementReady 2020 Fund 
  Putnam RetirementReady 2015 Fund 
  Putnam RetirementReady Maturity Fund 

 

A short-term trading fee of 1% may apply to redemptions or exchanges from certain funds within the time period specified in the fund's prospectus.

Check your account balances and the most recent month-end performance in the Individual Investors section at putnam.com.

91


Services for shareholders

Investor services

Systematic investment plan Tell us how much you wish to invest regularly — weekly, semimonthly, or monthly — and the amount you choose will be transferred automatically from your checking or savings account. There’s no additional fee for this service, and you can suspend it at any time. This plan may be a great way to save for college expenses or to plan for your retirement.

Please note that regular investing does not guarantee a profit or protect against loss in a declining market. Before arranging a systematic investment plan, consider your financial ability to continue making purchases in periods when prices are low.

Systematic exchange You can make regular transfers from one Putnam fund to another Putnam fund. There are no additional fees for this service, and you can cancel or change your options at any time.

Dividends PLUS You can choose to have the dividend distributions from one of your Putnam funds automatically reinvested in another Putnam fund at no additional charge.

Free exchange privilege You can exchange money between Putnam funds free of charge, as long as they are the same class of shares. A signature guarantee is required if you are exchanging more than $500,000. The fund reserves the right to revise or terminate the exchange privilege.

Reinstatement privilege If you’ve sold Putnam shares or received a check for a dividend or capital gain, you may reinvest the proceeds with Putnam within 90 days of the transaction and they will be reinvested at the fund’s current net asset value — with no sales charge. However, reinstatement of class B shares may have special tax consequences. Ask your financial or tax representative for details.

Check-writing service You have ready access to many Putnam accounts. It’s as simple as writing a check, and there are no special fees or service charges. For more information about the check-writing service, call Putnam or visit our website.

Dollar cost averaging When you’re investing for long-term goals, it’s time, not timing, that counts. Investing on a systematic basis is a better strategy than trying to figure out when the markets will go up or down. This means investing the same amount of money regularly over a long period. This method of investing is called dollar cost averaging. When a fund’s share price declines, your investment dollars buy more shares at lower prices. When it increases, they buy fewer shares. Over time, you will pay a lower average price per share.

For more information

Visit the Individual Investors section at putnam.com A secure section of our website contains complete information on your account, including balances and transactions, updated daily. You may also conduct transactions, such as exchanges, additional investments, and address changes. Log on today to get your password.

Call us toll free at 1-800-225-1581 Ask a helpful Putnam representative or your financial advisor for details about any of these or other services, or see your prospectus.

92


Fund information

Founded over 70 years ago, Putnam Investments was built around the concept that a balance between risk and reward is the hallmark of a well-rounded financial program. We manage over 100 funds across income, value, blend, growth, asset allocation, absolute return, and global sector categories.

Investment Manager  George Putnam, III  Francis J. McNamara, III 
Putnam Investment  Robert L. Reynolds  Vice President and 
Management, LLC  W. Thomas Stephens  Chief Legal Officer 
One Post Office Square     
Boston, MA 02109  Officers  James P. Pappas 
  Robert L. Reynolds  Vice President 
Investment Sub-Manager  President   
Putnam Investments Limited    Judith Cohen 
57–59 St James’s Street  Jonathan S. Horwitz  Vice President, Clerk and 
London, England SW1A 1LD  Executive Vice President,  Assistant Treasurer 
  Principal Executive   
Marketing Services  Officer, Treasurer and  Michael Higgins 
Putnam Retail Management  Compliance Liaison  Vice President, Senior Associate 
One Post Office Square    Treasurer and Assistant Clerk 
Boston, MA 02109  Steven D. Krichmar   
  Vice President and  Nancy E. Florek 
Custodian  Principal Financial Officer  Vice President, Assistant Clerk, 
State Street Bank    Assistant Treasurer and 
and Trust Company  Janet C. Smith  Proxy Manager 
  Vice President, Assistant   
Legal Counsel  Treasurer and Principal  Susan G. Malloy 
Ropes & Gray LLP  Accounting Officer  Vice President and 
    Assistant Treasurer 
Trustees  Beth S. Mazor   
John A. Hill, Chairman  Vice President   
Jameson A. Baxter,     
Vice Chairman  Robert R. Leveille   
Ravi Akhoury  Vice President and   
Barbara M. Baumann  Chief Compliance Officer   
Charles B. Curtis     
Robert J. Darretta  Mark C. Trenchard   
Paul L. Joskow  Vice President and   
Kenneth R. Leibler  BSA Compliance Officer   
Robert E. Patterson     

 

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




Item 2. Code of Ethics:

Not applicable

Item 3. Audit Committee Financial Expert:

Not applicable

Item 4. Principal Accountant Fees and Services:

Not applicable

Item 5. Audit Committee of Listed Registrants

Not applicable

Item 6. Schedule of Investments:

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

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

Not applicable

Item 8. Portfolio Managers of Closed-End Investment Companies

Not Applicable

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

Not applicable

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

Not applicable

Item 11. Controls and Procedures:

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

(b) Changes in internal control over financial reporting: Not applicable

Item 12. Exhibits:

(a)(1) Not applicable


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

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

Putnam Diversified Income Trust

By (Signature and Title):

/s/Janet C. Smith
Janet C. Smith
Principal Accounting Officer

Date: May 27, 2011

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

By (Signature and Title):

/s/Jonathan S. Horwitz
Jonathan S. Horwitz
Principal Executive Officer

Date: May 27, 2011

By (Signature and Title):

/s/Steven D. Krichmar
Steven D. Krichmar
Principal Financial Officer

Date: May 27, 2011