pnmac-llc_ncsr.htm

The accompanying notes and the attached financial statements of the Master Fund are an integral part of these financial statements.

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PNMAC Mortgage Opportunity Fund, LLC

Statements of Cash Flows

For the Year Ended December 31, 2009 and the Period from August 11, 2008

(commencement of operations) to December 31, 2008

			2009			2008
Cash flows from operating activities:

Net increase (decrease) in net assets resulting from operations		$	12,002,845		$	(5,875,815	)

Adjustments to reconcile net decrease in net assets resulting from operations to net cash used in operating activities:

Purchases of investment in Master Fund			(98,639,331	)		(146,563,548	)
Distributions from Master Fund			23,114,980			2,002,624
Net change in short-term investments			7,516,922			(7,826,697	)
Net investment income allocated from Master Fund			(23,605,278	)		(2,576,277	)
Net unrealized depreciation on investments allocated from Master Fund			8,449,452			6,821,482
Increase in receivable from affiliate			(4,620,184	)		(2,279,173	)
Increase in dividends receivable			(19,236	)		(8,963	)
Increase (decrease) in payable to investment manager			(338,915	)		820,834
Increase (decrease) in payable to affiliate			(511,569	)		511,569
Increase in accrued expenses and other liabilities			104,937			15,563
Increase in interest tax expense payable			225,375			-
Increase in distribution payable to series A preferred shares			10,482			4,750

	Net cash used in operating activities		(76,309,520	)		(154,953,651	)

Cash flows from financing activities:
Proceeds from series A preferred shares issued			-			114,000
Proceeds from common shares issued			108,270,660			169,452,821
Distributions on common shares			(31,961,140	)		(14,471,943	)
Offering costs			-			(141,227	)

	Net cash provided by financing activities		76,309,520			154,953,651

Net increase in cash			-			-

Cash at beginning of period			-			-
Cash at end of period		$	-		$	-

Non-cash financing activity
Declaration of distribution to common shareholders		$	6,639,891		$	-

The accompanying notes and the attached financial statements of the Master Fund are an integral part of these financial statements.

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PNMAC Mortgage Opportunity Fund, LLC

Financial Highlights

As of December 31, 2009 and 2008 and for the Year Ended December 31, 2009 and the

Period from August 11, 2008 (commencement of operations) to December 31, 2008

	2009			2008
	(amounts applicable to common shares)
PER SHARE OPERATING PERFORMANCE:
BEGINNING NET ASSET VALUE	$	861.24		$	1,000.00

OFFERING COSTS: (1)		0.00			(1.07	)

INCOME FROM INVESTMENT OPERATIONS:
Net investment income (1), (2)		83.38			7.19
Distributions to series A preferred shares (1)		(0.04	)		( 0.04	)
Net realized and unrealized loss from investments		(48.86	)		(47.44	)

Total income (loss) from investment operations		34.48			(40.29	)

DISTRIBUTIONS
Ordinary income		(17.67	)		-
Capital gain		(2.78	)		-
Return of capital		(164.91	)		(97.40	)

Total distributions		(185.36	)		(97.40	)
ENDING NET ASSET VALUE	$	710.36		$	861.24

Total return (3),(4)		5.19	%		(4.16	)%
Internal rate of return (5)		(0.24	%)		(12.87	)%

SUPPLEMENTAL DATA AND RATIOS:
Ratio of net investment income to weighted average net assets (2) , (6), (7)		11.17	%		1.81	%
Ratio of expenses to weighted average net assets (2) , (6) , (7)		6.01	%		9.92	%
Net assets attributable to common shares at period-end	$	230,636,310		$	148,963,836
Portfolio turnover rate (3)		0.00	%		0.00	%

Series A preferred shares:
Net assets, end of period	$	114,000		$	114,000
Total shares outstanding		228			228
Asset coverage ratio		202,413	%		130,770	%
Involuntary liquidation preference per share	$	500		$	500

(1)	Calculated using the average shares outstanding during the period.
(2)	Includes proportionate share of income and expenses of the Master Fund.
(3)	Amounts for the period from August 11, 2008 (commencement of operations) to December 31, 2009 are not annualized.
(4)	Total return is calculated for the common share class taken as a whole. An investor’s return may vary from these returns based on the timing of capital transactions.
(5)	Internal rate of return for the period from August 11, 2008 (commencement of operations) to December 31, 2008 and the year ended December 31, 2009 were computed based on the actual dates of the cash inflows (capital contributions), outflows (distributions) and partners’ capital accounts on a life-to date basis.
(6)	2008 amounts annualized.
(7)	Ratios exclude distributions to series A preferred shareholders.

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PNMAC Mortgage Opportunity Fund, LLC

Notes to Financial Statements

As of December 31, 2009 and 2008 and for the Year Ended December 31, 2009 and the

Period from August 11, 2008 (commencement of operations) to December 31, 2008

Note 1—Organization

PNMAC Mortgage Opportunity Fund, LLC (the “Fund”) is a limited liability company organized under the laws of the state of Delaware. The Fund is registered under the Investment Company Act of 1940, as amended, as a closed-end, non-diversified management company. Shares of the Fund are issued solely in private placement transactions that do not involve any “public offering” within the meaning of Section 4(2) of the Securities Act of 1933, as amended (the “1933 Act”). Investments in the Fund may be made only by “accredited investors” within the meaning of Regulation D under the 1933 Act. The investment objective of the Fund is to achieve attractive total returns by capitalizing on dislocations in the mortgage market through opportunistic investments primarily in U.S. residential mortgages and related assets, instruments and entities.

The Fund is managed by PNMAC Capital Management, LLC (the “Investment Manager”). The Investment Manager is a registered investment adviser with the Securities and Exchange Commission (“SEC”).

The Fund invests substantially all of its assets in a limited partnership interest of PNMAC Mortgage Opportunity Fund, LP (the “Master Fund”), a limited partnership formed under the laws of the state of Delaware. The general partner of the Master Fund is PNMAC Opportunity Fund Associates, LLC (the “General Partner”), a Delaware limited liability company and a controlled subsidiary of Private National Mortgage Acceptance Company, LLC, both of which are affiliates of the Fund.

The Master Fund operates as a master fund in a master-feeder fund structure. The Master Fund acts as a central investment mechanism for the Fund and the General Partner. The General Partner has the exclusive right to conduct the operations of the Master Fund. The Fund held a 99.99% interest at both December 31, 2009 and 2008. The Fund is the sole limited partner in the Master Fund.

The Master Fund has the same investment objective as the Fund and conducts its operations through investments in PNMAC Mortgage Co., LLC and PNMAC Mortgage Co (FI), LLC (collectively, the “Mortgage Investments”).

·	PNMAC Mortgage Co., LLC is a wholly owned limited liability company. PNMAC Mortgage Co., LLC acquires, holds and works-out distressed U.S. residential mortgages.

PNMAC Mortgage Co (FI), LLC is an investment company that was formed to pool investor capital and take an interest in the proceeds of FNBN I, LLC (“FNBN”). FNBN is a limited liability company formed to own a $558 million pool of residential loans in partnership with the Federal Deposit Insurance Corporation (the “FDIC”). The FDIC owns a substantial participation interest in the proceeds of the loans held by FNBN that depends on the amount of proceeds collected; the remaining share is owned by PNMAC Mortgage Co (FI), LLC.

As mortgages owned by PNMAC Mortgage Co., LLC become performing, PNMAC Mortgage Co., LLC may transfer them to the Master Fund for securitization for financing purposes or sale. The Master Fund may hold interests in pools of such securities and invest directly in other mortgage-related investment securities.

At December 31, 2009 and 2008, the Master Fund owned 100% and 100% of PNMAC Mortgage Co., LLC and 68.5% and 67.4% of PNMAC Mortgage Co (FI), LLC, respectively.

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PNMAC Mortgage Opportunity Fund, LLC

Notes to Financial Statements

As of December 31, 2009 and 2008 and for the Year Ended December 31, 2009 and the

Period from August 11, 2008 (commencement of operations) to December 31, 2008

The financial statements of the Master Fund, including the Schedule of Investments, are included elsewhere in this report and should be read with the Fund’s financial statements.

The Fund commenced operations on August 11, 2008 and will continue in existence through December 31, 2016, subject to three one-year extensions by the Investment Manager at its discretion, in accordance with the terms of the Limited Liability Company Agreement governing the Fund.

Note 2—Significant Accounting Policies

The Fund prepares its financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Following are the significant accounting policies adopted by the Fund:

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, recognition of distribution income and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.

Investment Valuation

The Fund carries its investments at their estimated fair values. Most of the Fund’s assets are not actively traded. As a result, estimating the assets’ fair values is subject to uncertainties regarding the assumptions market participants would use to value the assets. Due to the inherent uncertainty of estimating fair values for assets that are not actively traded, the estimated fair value of the Fund’s investments may differ significantly from the value that may be realized if the Fund is liquidated and this difference could be material. Fair value considerations are further discussed in Note 3 – Fair Value of Investments.

Master Fund Investment

The Fund receives a proportionate limited partnership interest in the Master Fund equal to its relative contribution of capital to the Master Fund. The net increase (decrease) in net assets resulting from operations includes the Fund’s proportionate share of the Master Fund’s income and losses (including net investment income and net realized and unrealized gains and losses on investments) arising from its investment in the Master Fund as reported by the General Partner of the Master Fund. Dividend income is recorded on the ex-dividend date or, using reasonable diligence, when known to the Fund.

Expenses

The Fund is charged for those expenses that are directly attributable to it, such as, but not limited to, administration and custody fees. Expenses that are not directly attributable to the Fund are generally allocated among the Fund and other entities managed by the Investment Manager in proportion to their respective capital commitments. All general and administrative expenses are recognized on the accrual basis of accounting.

Organizational Costs

Organizational costs of $251,896 and $701,525 have been expensed during the years ended December 31, 2009 and for the period from August 11, 2008 (commencement of operations) to December 31, 2008, respectively.

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PNMAC Mortgage Opportunity Fund, LLC

Notes to Financial Statements

As of December 31, 2009 and 2008 and for the Year Ended December 31, 2009 and the

Period from August 11, 2008 (commencement of operations) to December 31, 2008

Income Taxes

The Fund is treated as a separate taxable entity for Federal income tax purposes. The Fund’s policy is to comply with the provisions of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and to distribute to shareholders all of its distributable net investment income and net realized gain on investments. Accordingly, no provision for Federal income or excise tax is necessary.

Management’s assessment of the requirement to provide for income taxes also includes an assessment of the liability arising from uncertain income tax positions. Management has concluded that there is no tax liability resulting from unrecognized tax benefits relating to uncertain income tax positions taken on the tax return for the fiscal year-end December 31, 2008 or expected to be taken on the tax returns for the fiscal year ended December 31, 2009. The Fund is also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. In developing its conclusion, management of the Fund has analyzed all tax years that are open for examination by the relevant income taxing authority. As of December 31, 2009, open Federal and state income tax years include the tax years ended December 31, 2009 and 2008. The Fund has no examinations in progress.

If applicable, the Fund will recognize interest accrued related to unrecognized tax benefits in “interest expense” and penalties in “other expenses” on the statement of operations.

Dividends to Shareholders

The Fund has outstanding Series A preferred shares. The preferred shares have an 8% cumulative dividend preference and a liquidation preference totaling $114,000. In the event of a liquidation of the Fund, the accumulated preferred dividends and the remaining face amount of the preferred shares would be distributed before any distributions are made to common shareholders.

Dividends to shareholders are recorded on the ex-dividend date. The character of dividends to shareholders made during the year may differ from their ultimate characterization for federal income tax purposes. The Fund will distribute substantially all of its net investment income and all of its capital gains to shareholders at least annually. The character of distributions made during the year from net investment income or net realized gains might differ from the characterization for federal income tax purposes due to differences in the recognition of income and expense items for financial statement and tax purposes.

Indemnifications

Under the Fund’s organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund may enter into contracts that provide general indemnification to other parties. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred, and may not occur. However, the Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.

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PNMAC Mortgage Opportunity Fund, LLC

Notes to Financial Statements

As of December 31, 2009 and 2008 and for the Year Ended December 31, 2009 and the

Period from August 11, 2008 (commencement of operations) to December 31, 2008

Reclassifications

Certain reclassifications were made to conform prior year amounts to the current year presentation, which reported purchases and sales of short-term investments on separate lines on the statements of cash flows.

Recent Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162 (“FASB 168”), which establishes the FASB Accounting Standards Codification (the “Codification” or “ASC”) as the source of authoritative U.S. GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. FASB 168 was incorporated in the Generally Accepted Accounting Principles topic of the Codification. The Codification modified U.S. GAAP to include only two levels of U.S. GAAP, authoritative and non-authoritative. All of the Codification carries the same level of authority and the U.S. GAAP hierarchy is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of FASB 168 did not have a material effect on the Fund’s financial statements.

In April 2009, the FASB issued FASB Staff Position ("FSP") FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments. This FSP amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments (incorporated within ASC 825, Financial Instruments ), to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP requires providing qualitative and quantitative information about fair value estimates for all those financial instruments not measured on the balance sheet at fair value. This FSP is effective for financial statements issued for interim reporting periods ending after June 15, 2009. The adoption of FSP FAS 107-1 and APB 28-1 did not have a material effect on the Fund’s financial statements.

In April 2009, the FASB issued FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity of the Assets or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (incorporated within ASC 820, Financial Instruments ). This FSP provides additional guidance for estimating fair value in accordance with Statement of Financial Accounting Standards No. 157, Fair Value Measurements. This FSP is effective for financial statements issued for fiscal years and interim reporting periods ending after June 15, 2009. The adoption of FSP FAS 157-4 did not have a material effect on the Fund’s financial statements.

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 166, Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140 ("FASB 166"), and Statement of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46(R) ("FASB 167").

FASB 166 revises Statement of Financial Accounting Standards No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, which establishes sale accounting criteria for transfers of financial assets. FASB 166 was incorporated into ASC 860, Transfers and Servicing .

FASB 167 amends FASB Interpretation 46(R), Consolidation of Variable Interest Entities—an interpretation of ARB No. 51 ("FIN 46R") by changing the criteria an enterprise must use to determine whether it must consolidate a Variable Interest Entity (“VIE”) and requiring the entity to update its assessment quarterly. FIN 46R currently requires that a VIE be consolidated by the enterprise that will absorb a majority of the expected losses or expected residual returns created by the assets of the entity. FASB 167 amends FIN 46R to require that a VIE be consolidated by the enterprise that has both the power to direct the activities that most significantly impact the entity's economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the entity. In December of 2009, the FASB issued an exposure draft proposing an Accounting Standards Update, Amendments to Statement 167 for Certain Investment Funds (the “ED”). The ED proposes to indefinitely defer the application of FASB 167 for certain entities. FASB 167 was incorporated into ASC 810, Consolidations .

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PNMAC Mortgage Opportunity Fund, LLC

Notes to Financial Statements

As of December 31, 2009 and 2008 and for the Year Ended December 31, 2009 and the

Period from August 11, 2008 (commencement of operations) to December 31, 2008

FASB 166 and 167 are effective for financial asset transfers occurring after the beginning of an entity's first fiscal year that begins after November 15, 2009 and early adoption is prohibited. Management of the Fund is assessing the potential effect of these changes, including the effect of the ED, on the Fund.

In January 2010, the FASB issued an Accounting Standards Update (“ASU”), ASU 2010-06 to ASC 820, Fair Value Measurements and Disclosure. The update requires additional disclosures about the transfers of classifications among the fair value classification levels and the reasons for those changes and separate presentation of purchases, sales, issuances and settlements in the presentation of the roll forward of Level 3 assets and liabilities. The ASU also clarifies disclosure requirements relating to the level of disaggregation of disclosures relating to classes of assets and liabilities and disclosures about inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value estimates for Level 2 or Level 3 assets and liabilities. The requirements of the ASU are effective for interim and annual disclosures for interim and annual reporting periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value estimates. Those disclosures are effective for interim and annual reporting periods for fiscal years beginning after December 15, 2010. The adoption of this ASU is not expected to have a material effect on the Fund’s financial statements.

Note 3—Fair Value of Investments

The Fund carries its investments at fair value. The Fund applies the hierarchy described in the Fair Value Measurements and Disclosures topic of the Codification, which prioritizes the inputs to valuation techniques giving the highest priority to readily available unadjusted quoted prices in active market for identical assets (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements) when market prices are not readily available or reliable. Each financial instrument’s level assignment within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement for that particular instrument. The three levels of the hierarchy are described below:

Level 1 – Quoted prices in active market for identical securities.

Level 2 – Prices determined using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayments speeds, credit risk and others.

Level 3 – Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in pricing an investment, and would be based on the best information available.

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PNMAC Mortgage Opportunity Fund, LLC

Notes to Financial Statements

As of December 31, 2009 and 2008 and for the Year Ended December 31, 2009 and the

Period from August 11, 2008 (commencement of operations) to December 31, 2008

Changes in valuation techniques may also result in transfer in or out of an investment’s assigned level within the hierarchy. The level assigned to an asset valuation may not be an indication of the risk associated with investing in the asset in the accompanying financial statements.

Following is a summary of financial statement items that are measured at estimated fair value on a recurring basis as of the dates presented:

	December 31, 2009
Description	Total		Level 1		Level 2		Level 3
Short-term investments	$	309,774	$	309,774	$	-	$	-
Investment in Master Fund		230,995,896		-		-		230,995,896
Total investments	$	231,305,670	$	309,774	$	-	$	230,995,896

	December 31, 2008
Description	Total		Level 1		Level 2		Level 3
Short-term investments	$	7,826,697	$	7,826,697	$	-	$	-
Investment in Master Fund		140,315,719		-		-		140,315,719
Total investments	$	148,142,416	$	7,826,697	$	-	$	140,315,719

The Fund’s Investment in Master Fund is classified within Level 3 and represents 97% and 93% of total assets at December 31, 2009 and 2008, respectively. Following are roll forwards of the Fund’s Investment in Master Fund for the periods presented:

Investment in Master Fund	Year ended December 31, 2009		Period from August 11, 2008 (commencement of operations) to December 31, 2008
Balance at beginning of period	$	140,315,719	$	-
Net purchases, sales and paydowns		75,524,351		144,560,924
Unrealized appreciation (depreciation), net of income allocated from the Master Fund		15,155,826		(4,245,205	)
Balance at end of period	$	230,995,896	$	140,315,719

Management's fair value estimates of investments held by the Master Fund are based on the expected proportionate share of the discounted cash flow projections of the assets and liabilities of these investments. The Master Fund’s Mortgage Investments are valued based on the proportionate share of the discounted cash flow projections of the assets and liabilities from these investments. These Mortgage Investments are valued based on the proportionate share of discounted cash-flow projections of the assets and liabilities of FNBN I, LLC and PNMAC Mortgage Co., LLC (“Mortgage Companies”) given that the loans or loan participation interest held by the Mortgage Companies represent substantially all of the net asset value held by these entities.

PNMAC Mortgage Co (FI), LLC’s operating agreement with the FDIC governing its investment in FNBN limits PNMAC Mortgage Co (FI), LLC’s ability to transfer any of its rights or interests in FNBN. PNMAC Mortgage Co (FI), LLC may only transfer all or any part of its interest or rights if (i) the transferee is a qualified transferee and (ii) it first obtains prior written consent of the FDIC. The contract specifies that the consent shall not be unreasonably withheld, delayed or conditioned, if the transferee is a qualified transferee.

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PNMAC Mortgage Opportunity Fund, LLC

Notes to Financial Statements

As of December 31, 2009 and 2008 and for the Year Ended December 31, 2009 and the

Period from August 11, 2008 (commencement of operations) to December 31, 2008

Short-term investments, which represent money market funds, are valued at the number of shares multiplied by the value per share published by the manager of the money market fund on the valuation date. Fair value of such funds also include assessment of liquidity and credit risk, including lockout provisions, if any, related to these funds.

Note 4—Investment Transactions

During the year ended December 31, 2009, the Fund purchased a limited partnership interest in the Master Fund in the amount of $98,639,331 and received distributions from the Master Fund in the amount of $23,114,980. During the period from August 11, 2008 (commencement of operations) to December 31, 2008, the Fund purchased a limited partnership interest in the Master Fund for $146,563,548 and received distributions from the Master Fund for $2,002,624.

Note 5—Shareholder Services Fee, Administration Fees and Custodian Fees

The Fund has entered into a Shareholder Services Agreement with PNMAC Capital Management, LLC. Under the terms of the agreement, the Fund pays the Investment Manager a fee equal to an annual rate of 0.5% on capital commitments until December 31, 2011 and thereafter a fee equal to an annual rate of 0.5% of the Fund’s net asset value so long as the fee does not exceed 0.5% of the aggregate capital contributions to the Fund. The shareholder services fee is accrued monthly and paid quarterly. The shareholder services fee for the year ended December 31, 2009 and the period from August 11, 2008 (commencement of operations) to December 31, 2008 was $2,064,808 and $820,834, respectively.

The Fund has engaged U.S. Bancorp Fund Services, LLC, an indirect wholly-owned subsidiary of U.S. Bancorp, to serve as the Fund's administrator, fund accountant, transfer agent, and dividend paying agent. The Fund pays the administrator a monthly fee computed at an annual rate of 0.02% of the first $1,000,000,000 of the Fund's total monthly net assets, 0.015% on the next $1,000,000,000 of the Fund's total monthly net assets and 0.01% on the balance of the Fund's total monthly net assets subject to an annual minimum fee of $120,000. The administration fees for the year ended December 31, 2009 and the period from August 11, 2008 (commencement of operations) to December 31, 2008 were $134,400 and $56,230, respectively.

U.S. Bank, N.A. serves as the Fund's custodian. The Fund pays the custodian a monthly fee computed at an annual rate of 0.01% on the Fund's average daily market value subject to an annual minimum fee of $4,800. The custody fee expense for the year ended December 31, 2009 and the period from August 11, 2008 (commencement of operations) to December 31, 2008 was $4,487 and $2,012, respectively.

Note 6—Directors and Officers

The Fund’s and Master Fund’s Board of Directors has overall responsibility for monitoring and overseeing the investment program of the Fund and its management and operations. The Fund and Master Fund share the same Board of Directors. All directors’ fees and expenses are paid by the Master Fund. The independent directors are each paid an annual retainer of $60,000 and a fee per meeting of the Board of Directors of $2,000 for each regular meeting and $1,000 for each telephonic meeting, subject to a cap of $15,000 per year for all telephonic meetings, plus reasonable out-of-pocket expenses. Directors are reimbursed by the Master Fund for their travel expenses related to Board meetings. One of the Directors is an officer of the Investment Manager and the Fund and receives no compensation from the Fund for serving as a Director.

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PNMAC Mortgage Opportunity Fund, LLC

Notes to Financial Statements

As of December 31, 2009 and 2008 and for the Year Ended December 31, 2009 and the

Period from August 11, 2008 (commencement of operations) to December 31, 2008

Certain officers of the Fund are affiliated with the Investment Manager. Such officers receive no compensation from the Fund for serving in their respective roles.

Note 7—Common Shareholders

The Fund is authorized to issue an unlimited number of common shares. The common shares have no preferential, preemptive, conversion, appraisal, exchange or redemption rights and there are no sinking fund provisions applicable to the shares. The Fund issues common shares at the Net Asset Value per Share as calculated within 48 hours prior to receipt of capital called. Shareholders are not able to withdraw from the Fund other than through distributions made upon a realization of the Fund’s investments.

Common shares of the Fund were offered in private placements pursuant to Section 4(2) of the U.S. Securities Act of 1933, as amended on August 11, 2008 (the “Initial Closing”). No additional closings were held after the Initial Closing to accept new or additional Capital Commitments. The minimum initial capital commitment required is $100,000,000.

The Fund raised $393,237,622 in aggregate capital commitments. Capital calls were made against the capital commitments, resulting in the issuance of 151,711 and 172,965 shares for proceeds of $108,270,660 and $169,452,821 during the year ended December 31, 2009 and the period from August 11, 2008 (commencement of operations) to December 31, 2008, respectively.

The Fund made distributions of $31,961,140 and $14,471,943 during the year ended December 31, 2009 and the period from August 11, 2008 (commencement of operations) to December 31, 2008, respectively, all of which may be recalled.

Note 8—Preferred Shares

Series A preferred shares of the Fund were created by the Board of Directors on August 11, 2008. The Fund is authorized to issue up to 5,000 series A preferred shares at $500 per share. As of December 31, 2009 and 2008 the Fund has issued 228. Series A preferred shares are entitled to receive cumulative dividends in an amount equal to 10% per year. As of December 31, 2009 and 2008 accrued but unpaid dividends on preferred shares are $15,232 and $4,750, respectively. Upon redemption by the Fund, series A preferred shareholders are entitled to the liquidation preference which is $500 per series A preferred share plus accumulated and unpaid dividends. Series A preferred shareholders are not entitled to vote on any matter except matters submitted to a vote of the common shares that also affects the series A preferred shares. The Fund shall not issue or sell any preferred shares or pay any dividend or distribution to the common shares unless the preferred shares have an asset coverage of at least 200% immediately following the given action.

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PNMAC Mortgage Opportunity Fund, LLC

Notes to Financial Statements

As of December 31, 2009 and 2008 and for the Year Ended December 31, 2009 and the

Period from August 11, 2008 (commencement of operations) to December 31, 2008

Note 9—Income Tax Information

When appropriate, reclassifications between net asset accounts are made for such differences that are permanent in nature. The reclassifications have no effect on net assets or net asset value per share. For the year ended December 31, 2009, the Fund has recorded the following reclassifications to the accounts listed below:

Paid In Capital	Accumulated Undistributed Net Investment Income	Accumulated Net Realized Loss
$-	$902,979	$(902,979)

For the period from August 11, 2008 (commencement of operations) to December 31, 2008, the Fund has recorded the following reclassifications to the accounts listed below:

Paid In Capital	Accumulated Undistributed Net Investment Income	Accumulated Net Realized Loss
$-	$581,546	$(581,546)

The reclassifications noted above primarily relate to a net operating loss.

At December 31, 2009 and 2008, gross unrealized appreciation and depreciation of investments and distributable ordinary income and long-term capital gains for federal tax purposes were as follows:

		2009			2008

Cost of investments	$	234,792,009		$	153,354,589

Unrealized appreciation	$	-		$	-
Unrealized depreciation		(3,486,340	)		(5,212,173	)
Net unrealized depreciation		(3,486,340	)		(5,212,173	)

Undistributed ordinary income		3,745,533			8,314
Undistributed long-term capital gains		-			-
Total distributable earnings		3,745,533			8,314

Other accumulated losses		(772,054	)		(671,956	)

Total accumulated losses	$	(512,861	)	$	(5,875,815	)

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PNMAC Mortgage Opportunity Fund, LLC

Notes to Financial Statements

As of December 31, 2009 and 2008 and for the Year Ended December 31, 2009 and the

Period from August 11, 2008 (commencement of operations) to December 31, 2008

The tax character of distributions to shareholders during the year ended December 31, 2009 and the period from August 11, 2008 (commencement of operations) to December 31, 2008, was as follows:

	2009		2008
Distributions paid from:
Capital	$	31,961,140	$	14,471,943
Ordinary income		5,736,930		-
Long-term capital gains		902,961		-
Total distributions	$	38,601,031	$	14,471,943

Note 10—Transactions With Affiliates

PNMAC Mortgage Opportunity (Offshore) Fund, Ltd. owns 23.02% of the common shares issued of the Fund. As of December 31, 2008, $2,279,173 in receivable from affiliate on the Statement of Assets and Liabilities, represents funds owed to the Fund from PNMAC Mortgage Opportunity (Offshore) Fund, Ltd. for the December 17, 2008 capital call due December 26, 2008. No such amount was outstanding as of December 31, 2009.

As of December 31, 2008, the payable to affiliate of $511,569 represents funds owed to Private National Mortgage Acceptance Company, LLC for offering and organization expenses paid on the Fund’s behalf. The Investment Manager is a wholly owned subsidiary of Private National Mortgage Acceptance Company, LLC. No such amount was outstanding as of December 31, 2009. $511,569 and $331,182 were paid to Private National Mortgage Acceptance Company, LLC during the year ended December 31, 2009 and for the period from August 11, 2008 (commencement of operations) to December 31, 2008, respectively.

PennyMac Loan Services, LLC acts as the principal mortgage servicer for all mortgages owned by the Mortgage Companies. PennyMac Loan Services, LLC is a controlled subsidiary of Private National Mortgage Acceptance Company, LLC.

The Fund’s short-term investment, the BlackRock Liquidity Funds: TempFund Institutional Shares, is managed by BlackRock Institutional Management Corporation which a wholly owned subsidiary of Blackrock, Inc. BlackRock Inc. is an affiliate of the Fund.

Note 11—Risk Factors

Because of the limitation on rights of redemption and the fact that the shares will not be traded on any securities exchange or other market and will be subject to substantial restrictions on transfer, and because of the fact that the Investment Manager invests the Fund's assets in illiquid assets, an investment in the Fund is highly illiquid and involves a substantial degree of risk.

Due to the nature of the “master/feeder” structure, the Fund is materially affected by the actions of the Master Fund and other investors. Investment risks such as market and credit risks of the Master Fund’s investments are discussed in the Master Fund’s notes to the financial statements included herein.

Note 12—Subsequent Events

Management has evaluated all events or transactions through March 1, 2010, the date the Company issued these financial statements. During this period, the Fund did not have any material subsequent events that affected its financial statements.

******

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Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of

PNMAC Mortgage Opportunity Fund, LLC

We have audited the accompanying statements of assets and liabilities of PNMAC Mortgage Opportunity Fund, LLC (the “Fund”), including the schedules of investments, as of December 31, 2009 and 2008, and the related statement of operations, changes in net assets, cash flows, and financial highlights for the year ended December 31, 2009 and for the period from August 11, 2008 (commencement of operations) to December 31, 2008. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of investments owned as of December 31, 2009 and 2008, by correspondence with the custodian and other parties; where replies were not received, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of PNMAC Mortgage Opportunity Fund, LLC as of December 31, 2009 and 2008, the results of its operations, changes in its net assets, cash flows, and financial highlights for the year ended December 31, 2009 and for the period from August 11, 2008 (commencement of operations) to December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 3 to the financial statements, the financial statements include an investment in PNMAC Mortgage Opportunity Fund, LP (“Master Fund”) valued at $230,995,896 (97% of total assets) and $140,315,719 (93% of total assets) as of December 31, 2009 and 2008, respectively, whose fair value has been estimated by management in the absence of readily determinable fair values. Management's estimate is based on the Fund’s proportionate interest in the Master Fund’s partners’ capital, which is reported at fair value as of December 31, 2009 and 2008. Management's fair value estimates of the investments held by the Master Fund are based on the proportionate share of the discounted cash flow projections of the assets and liabilities of the Master Fund.

March 1, 2010

Los Angeles, California

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PNMAC Mortgage Opportunity Fund, LLC

Additional Information

(Unaudited)

Form N-Q

The Fund files its complete schedule of portfolio holdings for the first and third quarters of each fiscal year with the SEC on Form N-Q. The Fund’s Form N-Q is available without charge by visiting the SEC’s Web site at www.sec.gov and may be reviewed and copied at the SEC’s Public Reference Room in Washington D.C. You may obtain information on the operation of the Public Reference Room by calling +1 (800) SEC-0330.

Proxy Voting

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities owned by the Fund and information regarding how the Fund voted proxies relating to the portfolio of securities are available to stockholders (i) without charge, upon request by calling the Fund collect at +1(818) 224-7442; and (ii) on the SEC’s Web site at www.sec.gov.

Board of Directors

The Fund’s Form N-2 includes additional information about the Fund’s directors and is available upon request without charge by calling the Fund collect at (818) 224-7442 or by visiting the SEC’s Web site at www.sec.gov.

Forward-Looking Statements

This report contains "forward-looking statements,'' which are based on current management expectations. Actual future results, however, may prove to be different from expectations. You can identify forward-looking statements by words such as "may'', "will'', "believe'', "attempt'', "seem'', "think'', "ought'', "try'' and other similar terms. The Fund cannot promise future returns. Management’s opinions are a reflection of its best judgment at the time this report is compiled, and it disclaims any obligation to update or alter forward-looking statements as a result of new information, future events, or otherwise.

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PNMAC Mortgage Opportunity Fund, LLC

Directors and Officers

(Unaudited)

Name, Age, and Address	Position(s) Held with Master Fund	Term of Office and Length of Time Served	Principal Occupation(s) During Past Five Years	Number of Portfolios in Master Fund Complex Overseen by Director	Other Directorships/ Trusteeships Held

Independent Directors
Heather Campion (52) c/o PNMAC Capital Management, LLC, 27001 Agoura Road, Suite 350, Calabasas, California 91301	Director; Audit Committee Member	Indefinite Term. Served since May 29, 2008.	Group Executive Vice President and Director of Corporate Affairs of Citizens Financial Group until 2007.	2	Institute of Politics at Harvard University, the John F. Kennedy Presidential Library Foundation, AAA of Southern New England, and the Isabella Stewart Gardner Museum

Thomas P. Gybel (42) c/o PNMAC Capital Management, LLC, 27001 Agoura Road, Suite 350, Calabasas, California 91301	Director; Audit Committee Member	Indefinite Term. Served since May 29, 2008.	Managing Director of White Mountains Capital Inc. since March 2008, Managing Director of Global Corporate Finance for Deutsche Bank Securities Inc. from July 2004 to May 2007.	2	None

Peter W. McClean (65) c/o PNMAC Capital Management, LLC, 27001 Agoura Road, Suite 350, Calabasas, California 91301	Director; Audit Committee Chairman	Indefinite Term. Served since May 29, 2008.	Managing Director of Gulfstream Advisors LLC since 2004 and President and Chief Executive Officer of Measurisk LLC from 2001 through 2003.	2	Member of Board of Directors of Cyrus Reinsurance, Family Health International, Allianz Variable Insurance Products Trust, and Allianz Variable Products Fund of Funds Trust

Richard A. Victor, J.D., Ph.D. (59) c/o PNMAC Capital Management, LLC, 27001 Agoura Road, Suite 350, Calabasas, California 91301	Director; Audit Committee Member	Indefinite Term. Served since May 29, 2008.	Executive Director of the Workers Compensation Institute since 1983.	2	None

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PNMAC Mortgage Opportunity Fund, LLC

Directors and Officers

(Unaudited)

Name, Age and Address	Position(s) Held with Master Fund	Term of Office and Length of Time Served	Principal Occupation(s) During Past Five Years	Number of Portfolios in Master Fund Complex Overseen by Director	Other Directorships/ Trusteeships Held

Interested Directors
David A. Spector (46) c/o PNMAC Capital Management, LLC, 27001 Agoura Road, Suite 350, Calabasas, California 91301	Director, President, Chief Financial Officer, Authorized Person	Indefinite Term. Served since May 29, 2008.	Chief Investment Officer of the Investment Adviser; formerly, Co-Head of Global Residential Mortgages for Morgan Stanley and Senior Managing Director, Secondary Markets for Countrywide Financial Corporation.	2	None

Officers

Stanford L. Kurland (57) c/o PNMAC Capital Management, LLC, 27001 Agoura Road, Suite 350, Calabasas, California 91301	Chief Executive Officer, Authorized Person	Indefinite Term. Served since May 29, 2008.	Founder, Chairman and Chief Executive Officer of the Investment Adviser; formerly, Chief Financial Officer and Chief Operating Officer of Countrywide Financial Corporation.	2	None

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PNMAC Mortgage Opportunity Fund, LLC

Directors and Officers

(Unaudited)

Name, Age and Address

Position(s) Held

with Master Fund

Term of Office

and Length of

Time Served

Principal Occupation(s) During Past Five Years

Number of Portfolios in Master Fund Complex Overseen

by Director

Other Directorships/

Trusteeships Held


Michael L. Muir (44) c/o PNMAC Capital Management, LLC, 27001 Agoura Road, Suite 350, Calabasas, California 91301	Chief Capital Markets Officer	Indefinite Term. Served since May 29, 2008. In February of 2010,	Chief Capital Markets Officer of the Investment Adviser; formerly, Chief Financial Officer, Treasurer and Chief Investment Officer for Countrywide Bank, N.A. and Senior Vice President of Countrywide Home Loans.	2	None

David M. Walker (54) c/o PNMAC Capital Management, LLC, 27001 Agoura Road, Suite 350, Calabasas, California 91301	Chief Credit Officer	Indefinite Term. Served since May 29, 2008.	Chief Credit Officer of the Investment Adviser; formerly, Chief Lending Officer, Chief Credit Officer and Executive Vice President of Secondary Marketing for Countrywide Bank, N.A.	2	None

Anne D. McCallion (55) c/o PNMAC Capital Management, LLC, 27001 Agoura Road, Suite 350, Calabasas, California 91301	Chief Financial Officer	Indefinite Term. Served since April 27, 2009.	Chief Financial Officer of the Investment Advisor; formerly, Senior Managing Director and Deputy Chief Financial Officer for Finance at Countrywide Financial Corporation	2	None

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PNMAC Mortgage Opportunity Fund, LLC

Directors and Officers

(Unaudited)

Name, Age and Address

Position(s) Held

with Master Fund

Term of Office

and Length of

Time Served

Principal Occupation(s) During Past Five Years

Number of Portfolios in Master Fund Complex Overseen

by Director

Other Directorships/

Trusteeships Held


Jeff Grogin (49) c/o PNMAC Capital Management, LLC, 27001 Agoura Road, Suite 350, Calabasas, California 91301	Secretary, Authorized person	Indefinite Term. Served since May 29, 2008.	Independent Counsel	2	None

Julianne Fries (47) c/o PNMAC Capital Management, LLC, 27001 Agoura Road, Suite 350, Calabasas, California 91301	Chief Compliance Officer	Indefinite Term. Served from May 29, 2008 to January 16, 2010 .	Chief Compliance Officer of the Investment Advisor; formerly, Managing Director, Chief Compliance Officer of Countrywide Capital Markets.	2	None

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PNMAC Mortgage Opportunity Fund, LLC

Approval of Investment Management Agreement

(Unaudited)

On May 29, 2008, the Board of Directors of the Master Fund and the Fund (collectively, the “Funds”), including the “non-interested” Directors (the “Independent Directors”), voted to approve the Investment Management Agreements for an initial two-year term.

In considering whether to recommend approval of the Management Agreements, the Independent Directors reviewed materials provided by the Investment Advisor, fund counsel and independent counsel. The Directors also met with senior personnel of the Investment Advisor and discussed a number of topics affecting their determination, including the following.

(i) The nature, extent and quality of services expected to be provided by the Investment Advisor. The Independent Directors reviewed the services that the Investment Advisor are expected to provide to the Funds. In addition, the Independent Directors considered the size, education, background and experience of the Investment Advisor’s staff. Lastly, the Independent Directors reviewed the Investment Advisor’s ability to attract and retain quality and experienced personnel. The Independent Directors concluded that the scope of services expected to be provided by the Investment Advisor to the Funds and the experience and expertise of the personnel performing such services was consistent with the nature, extent and quality expected of an Investment Advisor of investment vehicles such as the Funds.

(ii) Cost of the services to be provided and profits to be realized by the Investment Advisor and its affiliates from the relationship with the Funds. The Independent Directors considered the estimated cost of the services provided by the Investment Advisor. As part of their analysis, the Independent Directors gave substantial consideration to the compensation payable to the Investment Advisor, the terms of which are summarized in the footnotes to the financial statements included in this report. In reviewing the management compensation, the Independent Directors considered the management fees and operating expense ratios of other registered and non-registered funds managed by other advisors that had somewhat comparable investment programs.

The Independent Directors concluded that the proposed management fee and carried interest for the Investment Advisor were reasonable.

In view of the absence of any historical operations by the Funds or the Investment Advisor, the Independent Directors considered the mortgage finance and capital markets experience of the Advisor’s senior management team. However, no single factor was determinative to the decision of the Directors. Rather, after weighing all of the reasons discussed above, the Independent Directors unanimously recommended approval of each of the Management Agreements.

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PNMAC Mortgage Opportunity Fund, LP

Annual Report

as of December 31, 2009 and 2008 and for the

year ended December 31, 2009 and period from August 11, 2008

(commencement of operations) to December 31, 2008

PNMAC Mortgage Opportunity Fund, LP

Table of Contents

	Page
Financial Statements
Statements of Assets and Liabilities	2
Schedules of Investments	3
Statements of Operations	5
Statements of Partners’ Capital	6
Statements of Cash Flows	7
Financial Highlights	8
Notes to Financial Statements	9
Report of Independent Registered Public Accounting Firm	27
Additional Information	28
Directors and Officers	29
Approval of Investment Management Agreement	33

PNMAC Mortgage Opportunity Fund, LP

Statements of Assets and Liabilities

December 31, 2009 and 2008

		2009		2008
Assets:

Investments, at fair value (cost 2009 - $308,801,479; 2008 - $149,908,075)	$	293,530,428	$	143,086,535
Interest receivable		668,319		-
Other assets		675		137,609
Dividends receivable		749		2,473
Total assets		294,200,171		143,226,617

Liabilities:

Securities sold under agreements to repurchase		54,337,400		-
Distributions payable		6,639,892		-
Payable to investment manager		1,445,755		2,462,500
Payable to affiliate		30,956		405,858
Interest payable		17,239		-
Accrued expenses and other liabilities		731,937		41,555
Total liabilities		63,203,179		2,909,913

Partners’ Capital	$	230,996,992	$	140,316,704

Partners’ Capital Consists of:
General partner	$	1,096	$	985
Limited partner		230,995,896		140,315,719
Total partners’ capital	$	230,996,992	$	140,316,704

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

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PNMAC Mortgage Opportunity Fund, LP

Schedule of Investments

December 31, 2009

Description		Shares or Principal Amount		Fair Value

INVESTMENTS – 127.1%*
Mortgage Investments – 56.3%*
PNMAC Mortgage Co., LLC	$	119,956,594	$	97,555,856
PNMAC Mortgage Co (FI), LLC		29,617,341		32,607,396
Total Mortgage Investments (Cost $149,573,935)		149,573,935		130,163,252

Mortgage-Backed Securities – 68.2%*
American General Mortgage Loan Trust, Class A2, Series 2009-1, 5.75%, due 9/25/48**	$	124,444,824	$	95,822,515
Countrywide Asset Backed Certificates, CWL 2005-11 AF6, 5.05%, due 2/25/36		2,853,542		2,339,904
Countrywide Asset Backed Certificates, CWL 2006-SD2 1A1, 0.58%, due 5/25/46		8,839,520		5,303,712
Ellington Loan Acquisition Trust, ELAT 2007-1 A2A1, 1.23%, due 5/26/37		1,466,283		1,261,003
Vericrest Opportunity Loan Transferee, VOLT 2009-PL1A A, 6.00%, due 8/25/50**		59,240,933		52,724,431
Total Mortgage –Backed Securities (Cost $153,311,933)		196,845,102		157,451,565

Short-Term Investments – 2.5%*
BlackRock Liquidity Funds: TempFund Institutional Shares		5,915,611		5,915,611
Total Short-Term Investments (Cost $5,915,611)		5,915,611		5,915,611

TOTAL INVESTMENTS (Cost $352,334,648)				293,530,428

LIABILITIES – (23.5%)*
Securities Sold Under Agreements to Repurchase – (23.5%)*
Agreement with Credit Suisse, 1.825% (Eligible assets are pledged as collateral – see Note 6)				(16,286,400	)

Agreement with Bank of America, Libor +1.50% (Eligible assets are pledged as collateral – see Note 6)				(38,051,000	)
Total Securities Sold Under Agreements to Repurchase				(54,337,400)

Liabilities in excess of other assets – (3.5%)*				(8,196,106	)
TOTAL PARTNERS’ CAPITAL –100.0%*			$	230,996,992

* Percentages are stated as a percent of partners’ capital
** All or a portion of these securities are pledged under repurchase agreements (See Note 6)
All investments are in the United States of America

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

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PNMAC Mortgage Opportunity Fund, LP

Schedule of Investments

December 31, 2008

Description		Shares or Principal Amount		Fair Value

INVESTMENTS – 102.0%*
Mortgage Investments – 101.4%*
PNMAC Mortgage Co., LLC	$	119,956,594	$	113,022,783
PNMAC Mortgage Co (FI), LLC		29,147,705		29,259,976
Total Mortgage Investments (Cost $149,104,299)		149,104,299		142,282,759

Short-Term Investments – 0.6%*
BlackRock Liquidity Funds: TempFund Institutional Shares		803,776		803,776
Total Short-Term Investments (Cost $803,776)		803,776		803,776

TOTAL INVESTMENTS (Cost $149,908,075)				143,086,535
Liabilities in excess of other assets – (2.0%)*				(2,769,831)
TOTAL PARTNERS’ CAPITAL – 100%*			$	140,316,704

* Percentages are stated as a percent of partners’ capital All investments are in the United States of America

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

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PNMAC Mortgage Opportunity Fund, LP

Statements of Operations

For the Year Ended December 31, 2009 and the Period from August 11, 2008

(commencement of operations) to December 31, 2008

		2009			2008
Investment income
Dividend income	$	25,057,465		$	6,071,535
Interest income		6,409,893			-
Total investment income		31,467,358			6,071,535
Expenses:
Investment advisory fees		6,068,401			2,462,500
Professional expenses		631,911			311,609
Administration and other expenses		378,213			294,440
Directors’ fees and expenses		312,012			249,202
Insurance expense		377,237			175,452
Interest expense		87,029			-
Custody fees		7,107			2,012
Total expenses		7,861,910			3,495,215

Net investment income		23,605,448			2,576,320

Net realized and unrealized gain (loss) on investments
Net unrealized loss on investments		(8,449,511	)		(6,821,540	)
Net loss on investments		(8,449,511	)		(6,821,540	)
Net increase/(decrease) in partners’ capital resulting from operations	$	15,155,937		$	(4,245,220	)

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

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PNMAC Mortgage Opportunity Fund, LP

Statements of Partners’ Capital

For the Year Ended December 31, 2009 and the Period from August 11, 2008

(commencement of operations) to December 31, 2008

		General Partner			Limited Partner			Total

Partners’ capital, August 11, 2008	$	-		$	-		$	-

Contributions		1,000			146,563,548			146,564,548
Distributions		-			(2,002,624	)		(2,002,624	)

Increase (decrease) in partners’ capital from operations:
Net investment income		43			2,576,277			2,576,320
Net change in unrealized depreciation on investments		(58	)		(6,821,482	)		(6,821,540	)

Net decrease in partners’ capital from operations		(15	)		(4,245,205	)		(4,245,220	)

Partners’ capital, December 31, 2008		985			140,315,719			140,316,704

Contributions		-			98,639,331			98,639,331
Distributions		-			(23,114,980	)		(23,114,980	)

Increase (decrease) in partners’ capital from operations:
Net investment income		170			23,605,278			23,605,448
Net unrealized loss on investments		(59	)		(8,449,452	)		(8,449,511	)

Net increase in partners’ capital from operations		111			15,155,826			15,155,937

Partners’ capital, December 31, 2009	$	1,096		$	230,995,896		$	230,996,992

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

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PNMAC Mortgage Opportunity Fund, LP

Statements of Cash Flows

For the Year Ended December 31, 2009 and the Period from August 11, 2008

(commencement of operations) to December 31, 2008

			2009			2008
Cash flows from operating activities:

Net increase (decrease) in partners’ capital resulting from operations		$	15,155,937		$	(4,245,220	)

Adjustments to reconcile net increase (decrease) in partners’ capital resulting from operations to net cash used in operating activities:

Purchases of Mortgage Investments			(469,637	)		(149,104,299	)
Purchase of mortgage-backed securities			(153,321,717	)		-
Proceeds from repayment of mortgage-backed securities			2,964,019			-
Net change in short-term investments			(5,111,835	)		(803,776	)
Accretion of discounts on mortgage-backed securities			(2,954,234	)		-
Net change in unrealized depreciation on investments			8,449,511			6,821,540
Increase in interest receivable			(668,319	)		-
(Increase) decrease in other assets			136,934			(137,609	)
(Increase) decrease in dividends receivable			1,724			(2,473	)
Increase (decrease) in payable to investment manager			(1,016,745	)		2,462,500
Increase in interest payable			17,239			-
Increase (decrease) in payable to affiliate			(374,902	)		405,858
Increase in accrued expenses and other liabilities			690,382			41,555

	Net cash used in operating activities		(136,501,643	)		(144,561,924	)

Cash flows from financing activities:
Sale of securities under agreements to repurchase			54,695,400			-
Repayments of securities sold under agreements to repurchase			(358,000	)		-
Capital contributions			98,639,331			146,564,548
Capital distributions			(16,475,088	)		(2,002,624	)

	Net cash provided by financing activities		136,501,643			144,561,924

Net increase in cash			-			-

Cash at beginning of period			-			-
Cash at end of period		$	-		$	-

Non-cash financing activity
Declaration of distribution to partners		$	6,639,892		$	-

Supplemental cash flow information Interest paid during the period		$	69,790		$	-

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

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PNMAC Mortgage Opportunity Fund, LP

Financial Highlights

For the Year Ended December 31, 2009 and the Period from August 11, 2008

(commencement of operations) to December 31, 2008

For the year ended December 31, 2009

SUPPLEMENTAL DATA AND RATIOS	Total	General Partner(1)	Limited Partner

Total return (2)	7.35%	11.25%	7.35%
Internal rate of return (3)	4.88%	6.82%	4.88%
Ratio of net investment income to weighted average partners’ capital	12.63%	16.51%	12.63%
Ratio of expenses to weighted average partners’ capital	4.21%	1.03%	4.21%
Partners’ capital, end of year	$230,996,992	$ 1,096	$230,995,896
Portfolio turnover rate	0.00%

For the period from August 11, 2008 (commencement of operations) to December 31, 2008

SUPPLEMENTAL DATA AND RATIOS	Total	General Partner(1)	Limited Partner

Total return (2) (4)	(3.53%)	(1.46%)	(3.53%)
Internal rate of return (3)	(9.68%)	(3.70%)	(9.68%)
Ratio of net investment income to weighted average partners’ capital (5)	5.07%	10.40%	5.07%
Ratio of expenses to weighted average partners’ capital (5)	6.88%	2.10%	6.88%
Partners’ capital, end of period	$140,316,704	$ 985	$ 140,315,719
Portfolio turnover rate (4)	0.00%

(1) In accordance with the Partnership Agreement, not all expenses are allocated to the General Partner (see Note 8).
(2) Total return is calculated for each partner class taken as a whole. An investor’s return may vary from these returns based on different fee arrangements (as applicable) and the timing of capital transactions.
(3) Internal rate of return for the period from August 11, 2008 to December 31, 2008 and the year ended December 31, 2009 were computed based on the actual dates of the cash inflows (capital contributions), outflows (distributions) and partners’ capital accounts on a life-to date basis.
(4) Amounts for the period from August 11, 2008 (commencement of operations) to December 31, 2009 are not annualized.
(5) Annualized.

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

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PNMAC Mortgage Opportunity Fund, LP

Notes to Financial Statements

For the Year Ended December 31, 2009 and the Period from August 11, 2008

(commencement of operations) to December 31, 2008

Note 1—Organization

PNMAC Mortgage Opportunity Fund, LP (the “Master Fund”) is a limited liability partnership organized under the laws of the state of Delaware. The Master Fund is registered under the Investment Company Act of 1940, as amended. Interests in the Master Fund are issued solely in private placement transactions that do not involve any “public offering” within the meaning of Section 4(2) of the Securities Act of 1933, as amended. The investment objective of the Master Fund is to achieve attractive total returns by capitalizing on dislocations in the mortgage market through opportunistic investments primarily in U.S. residential mortgages and related assets, instruments, and entities.

The Master Fund is managed by PNMAC Capital Management, LLC (the “Investment Manager”). The Investment Manager is a registered investment adviser with the Securities and Exchange Commission (“SEC”). The general partner of the Master Fund is PNMAC Opportunity Fund Associates, LLC (the “General Partner”), a Delaware limited liability company. Both the Investment Manager and General Partner are controlled subsidiaries of Private National Mortgage Acceptance Company, LLC.

The Master Fund operates as a master fund in a master-feeder fund structure. The Master Fund acts as a central investment mechanism for (i) PNMAC Mortgage Opportunity Fund, LLC (the “Fund” or “Limited Partner”) and (ii) the General Partner. The Fund owned 99.99% of the Master Fund at December 31, 2009 and 2008 and is the sole limited partner. The General Partner has the exclusive right to conduct the operations of the Master Fund.

The Master Fund conducts its operations through investments in mortgage-backed securities, PNMAC Mortgage Co., LLC and PNMAC Mortgage Co (FI), LLC (collectively, the “Mortgage Investments”).

·	PNMAC Mortgage Co., LLC is a wholly owned limited liability company. PNMAC Mortgage Co., LLC acquires, holds and works-out distressed U.S. residential mortgages.

PNMAC Mortgage Co (FI), LLC is an investment company that was formed to pool investor capital and take an interest in the proceeds of FNBN I, LLC (“FNBN”). FNBN is a limited liability company formed to own a pool of residential loans in partnership with the Federal Deposit Insurance Corporation (the “FDIC”). The pool of residential loans had an unpaid principal balance totaling $558 million at the inception of FNBN. The FDIC owns a substantial participation interest in the proceeds of the loans held by FNBN that depends on the amount of proceeds collected; the remaining share is owned by PNMAC Mortgage Co (FI), LLC.

As mortgages owned by PNMAC Mortgage Co., LLC become performing, PNMAC Mortgage Co., LLC may transfer them to the Master Fund to be securitized for financing purposes or sale. The Master Fund may hold interests in pools of such securities mortgages and invests directly in other mortgage-related investment securities.

At December 31, 2009 and 2008, the Master Fund owned 100% and 100% of PNMAC Mortgage Co., LLC and 68.4% and 67.4% of PNMAC Mortgage Co (FI), LLC respectively.

The Master Fund began operations on August 11, 2008 and will continue in existence through December 31, 2016, subject to three one-year extensions by the Investment Manager at its discretion, in accordance with the terms of the Limited Partnership Agreement governing the Master Fund.

Note 2—Significant Accounting Policies

The Master Fund prepares its financial statements in accordance with accounting principles generally accepted in The United States of America (“U.S. GAAP”). The Master Fund reports its investments in the Mortgage Investments in accordance with the Special Rules of General Application to Registered Investment Companies topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification and the AICPA Audit and Accounting Guide: Investment Companies. These rules do not permit the Master Fund to consolidate its ownership interest in such investments. Following are the significant accounting policies adopted by the Master Fund:

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PNMAC Mortgage Opportunity Fund, LP

Notes to Financial Statements

For the Year Ended December 31, 2009 and the Period from August 11, 2008

(commencement of operations) to December 31, 2008

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in The United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, recognition of distribution income and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.

Investment Valuation

The Master Fund carries its investments at their estimated fair values. Most of the Fund’s assets are not actively traded and are considered illiquid. As a result, estimating the assets’ fair values is subject to uncertainties regarding the assumptions market participants would use to value the assets. Due to the inherent uncertainty of estimating fair values for assets that are not actively traded, the estimated fair value of the Fund’s investments may differ significantly from the value that may be realized if the Fund is liquidated and this difference could be material. Fair value considerations are further discussed in Note 3 – Fair Value of Investments.

Mortgage-Backed Securities

The Master Fund records investment and contractual transactions on the trade/contract date of the investment purchase or sale. The cost of investments sold is determined by use of the specific identification method for both financial reporting and income tax purposes.

Interest Income

Interest income is accrued as earned. Unamortized premiums and unaccreted discounts are amortized and accrued to interest income as an adjustment of the instruments’ yields using the interest method. Yields are estimated using market prepayment expectations for similar securities.

Dividend Income

Dividend income is recorded on the ex-dividend date or, using reasonable diligence, when known to the Master Fund.

Expenses

The Master Fund is charged for those expenses that are directly attributable to it, such as, but not limited to, advisory and custody fees. Expenses that are not directly attributable to the Master Fund are generally allocated among the entities in proportion to their respective capital commitments. All general and administrative expenses are recognized on an accrual basis of accounting.

Income Taxes

The Master Fund has elected to be treated as a partnership for federal income tax purposes. Each partner is responsible for the tax liability or benefit relating to such partner’s distributive share of taxable income or loss. Accordingly, no provision for federal income taxes is reflected in the accompanying financial statements.

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PNMAC Mortgage Opportunity Fund, LP

Notes to Financial Statements

For the Year Ended December 31, 2009 and the Period from August 11, 2008

(commencement of operations) to December 31, 2008

Management’s assessment of the requirement to provide for income taxes also includes an assessment of the liability arising from uncertain income tax positions. Management has concluded that there is no tax liability resulting from unrecognized tax benefits relating to uncertain income tax positions taken on the tax return for the fiscal year ended December 31, 2008 or expected to be taken on the tax returns for the fiscal year ended December 31, 2009. The Master Fund is also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. In developing its conclusion, management of the Master Fund has analyzed all tax years that are open for examination by the relevant income taxing authority. As of December 31, 2009, open Federal and state income tax years include the tax year ended December 31, 2009 and 2008. The Master Fund has no examination in progress.

If applicable, the Master Fund will recognize interest accrued related to unrecognized tax benefits in “interest expense” and penalties in “other expenses” on the statement of operations.

No distributions will be made by the Master Fund to cover any taxes due on Limited Partners’ investments in the Master Fund. Investors may not redeem capital from the Master Fund, and they must have other sources of capital available to them in order to pay such taxes.

Partners’ Capital

Net profits or net losses of the Master Fund for each month are allocated to the capital accounts of partners as of the last day of each month in accordance with partners’ respective investment ownership percentages of the Master Fund. Net profits or net losses are measured as the net change in the value of the partners’ capital of the Master Fund during the fiscal period, before giving effect to any repurchases of interest in the Master Fund, and excluding the amount of any items to be allocated to the capital accounts of the partners of the Master Fund, other than in accordance with the partners’ respective investment ownership percentages.

Capital Distributions and Carried Interest

Distributions are made in accordance with the following distribution priorities but may be recalled by the Master Fund for purposes of making new investments until December 31, 2011. Following is a summary of capital distribution priorities:

1.	First, 100% to such Limited Partner until such Limited Partner has received 100% of such Limited Partner’s capital contributions (irrespective of whether such capital contributions were used to make investment, pay management fees and expenses or any other purpose);

2.	Second, 100% to such Limited Partner, until such Limited Partner has received a preferred return on the amounts described in (1) above calculated at a rate of 8%, compounded annually;

3.	Third, 100% to the General Partner until the General Partner has received an amount equal to 20% of the profits distributed to the Limited Partner pursuant to (2) above; and

4.	Thereafter, (i) 80% to such Limited Partner and (ii) 20% to the General Partner (the “Carried Interest”.

The Carried Interest will be allocated (and subsequently distributed) by the Master Fund to the General Partner as allocable shares of the Master Fund’s gains. As of December 31, 2009, the Master Fund has not paid or accrued any carried interest to the General Partner.

Indemnifications

Under the Master Fund’s organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Master Fund. In addition, in the normal course of business, the Master Fund may enter into contracts that provide general indemnification to other parties. The Master Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Master Fund that have not yet occurred, and may not occur. However, the Master Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.

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PNMAC Mortgage Opportunity Fund, LP

Notes to Financial Statements

For the Year Ended December 31, 2009 and the Period from August 11, 2008

(commencement of operations) to December 31, 2008

Reclassifications

Recent Accounting Pronouncements

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162 (“FASB 168”), which establishes the FASB Accounting Standards Codification ( the “Codification” ” or “ASC”) as the source of authoritative U.S. GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. FASB 168 was incorporated within ASC 825, Generally Accepted Accounting Principles. The Codification modified the U.S. GAAP to include only two levels of U.S. GAAP, authoritative and non-authoritative. All of the Codification carries the same level of authority and the U.S. GAAP hierarchy is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of FASB 168 did not have a material effect on the Master Fund’s financial statements.

In April 2009, the FASB issued FASB Staff Position ("FSP") FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments. This FSP amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments (incorporated within ASC 825, Financial Instruments), to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP requires providing qualitative and quantitative information about fair value estimates for all those financial instruments not measured on the balance sheet at fair value. This FSP is effective for financial statements issued for interim reporting periods ending after June 15, 2009. The adoption of FSP FAS 107-1 and ARB 28-1 did not have a material impact on the Master Fund’s financial statements.

In April 2009, the FASB issued FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity of the Assets or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (incorporated within ASC 820, Fair Value Measurements and Disclosures ). This FSP provides additional guidance for estimating fair value in accordance with FASB Statement No. 157, Fair Value Measurements. This FSP is effective for financial statements issued for fiscal years and interim reporting periods ending after June 15, 2009. The adoption of FSP FAS 157-4 did not have a material impact on the Master Fund’s financial statements.

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 166, Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140 ("FASB 166"), and FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R) ("FASB 167").

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PNMAC Mortgage Opportunity Fund, LP

Notes to Financial Statements

For the Year Ended December 31, 2009 and the Period from August 11, 2008

(commencement of operations) to December 31, 2008

FASB 167 amends FASB Interpretation 46(R), Consolidation of Variable Interest Entities—an interpretation of ARB No. 51 ("FIN 46R") by changing the criteria an enterprise must use to determine whether it must consolidate a Variable Interest Entity (“VIE”) and requiring the entity to update its assessment quarterly. FIN 46R currently requires that a VIE be consolidated by the enterprise that will absorb a majority of the expected losses or expected residual returns created by the assets of the entity. FASB 167 amends FIN 46R to require that a VIE be consolidated by the enterprise that has both the power to direct the activities that most significantly impact the entity's economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the entity. In December of 2009, the FASB issued an exposure draft proposing an Accounting Standards Update, Amendments to Statement 167 for Certain Investment Funds. The exposure draft proposes to indefinitely defer the application of FASB 167 for certain entities. FASB 167 was incorporated into ASC 810, Consolidations. Management of the Master Fund is assessing the potential effect of these changes, including the effect of the exposure draft on the Master Fund.

FASB 166 and 167 are effective for financial asset transfers occurring after the beginning of an entity's first fiscal year that begins after November 15, 2009 and early adoption is prohibited. Management of the Master Fund is assessing the potential effect of these changes, including the effect of the exposure draft, on the Master Fund.

In January 2010, the FASB issued an Accounting Standards Update (“ASU”) ASU 2010-06 to the Fair Value Measurements and Disclosure topic of the Codification. The update requires additional disclosures about the transfers of classifications among the fair value classification levels and the reasons for those changes and separate presentation of purchases, sales, issuances and settlements in the presentation of the roll forward of Level 3 assets and liabilities. The ASU also clarifies disclosure requirements relating to the level of disaggregation of disclosures relating to classes of assets and liabilities and disclosures about inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value estimates for Level 2 or Level 3 assets and liabilities. The requirements of the ASU are effective for interim and annual disclosures for interim and annual reporting periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value estimates. Those disclosures are effective for interim and annual reporting periods for fiscal years beginning after December 15, 2010. The adoption of this ASU is not expected to have a material effect on the Master Fund’s financial statements.

Note 3—Fair Value of Investments

The Master Fund carries its investments at fair value. The Master Fund applies the hierarchy described in the Fair Value Measurements and Disclosures topic of the Codification, which prioritizes the inputs to valuation techniques giving the highest priority to readily available unadjusted quoted prices in active market for identical assets (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements) when market prices are not readily available or reliable. Each financial instrument’s level assignment within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement for that particular instrument. The three levels of the hierarchy are described below:

Level 1 – Quoted prices in active market for identical securities.

Level 3 – Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Master Fund’s own assumptions about the factors market participants would use in pricing an investment, and would be based on the best information available.

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PNMAC Mortgage Opportunity Fund, LP

Notes to Financial Statements

For the Year Ended December 31, 2009 and the Period from August 11, 2008

(commencement of operations) to December 31, 2008

Following is a summary of financial statement items that are measured at estimated fair value on a recurring basis as of the dates presented:

	December 31, 2009
	Total		Level 1		Level 2		Level 3
Assets
Short-term investments	$	5,915,611	$	5,915,611	$	-	$	-
Mortgage-backed securities		157,451,565		-		-		157,451,565
PNMAC Mortgage Co., LLC		97,555,856		-		-		97,555,856
PNMAC Mortgage Co (FI), LLC		32,607,396		-		-		32,607,396
Total assets	$	293,530,428	$	5,915,611	$	-	$	287,614,817

Liabilities
Securities sold under agreements to repurchase	$	54,337,400		-		-	$	54,337,400
	$	54,337,400		-		-	$	54,337,400

	December 31, 2008
Description	Total		Level 1		Level 2		Level 3
Short-term investments	$	803,776	$	803,776	$	-	$	-
PNMAC Mortgage Co., LLC		113,022,783		-		-		113,022,783
PNMAC Mortgage Co(FI), LLC		29,259,976		-		-		29,259,976
Total investments	$	143,086,535	$	803,776	$	-	$	142,282,759

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PNMAC Mortgage Opportunity Fund, LP

Notes to Financial Statements

For the Year Ended December 31, 2009 and the Period from August 11, 2008

(commencement of operations) to December 31, 2008

The following tables presents a roll forward of the assets for the periods presented for items which Level 3 inputs were used to determine value:

	Year Ended December 31, 2009
	Mortgage-backed securities		PNMAC Mortgage Co., LLC			PNMAC Mortgage Co (FI), LLC		Total
Assets
Balance at December 31, 2008	$	-	$	113,022,783		$	29,259,976	$	142,282,759
Net purchases, sales and paydowns		150,357,698		-			469,637		150,827,335
Accretion of discount		2,954,234		-			-		2,954,234
Unrealized gains (losses)		4,139,633		(15,466,927	)		2,877,783		(8,449,511	)
Balance at December 31, 2009	$	157,451,565	$	97,555,856		$	32,607,396	$	287,614,817

	Securities Sold Under Agreements to Repurchase
Liabilities
Balance at December 31, 2008	$	-
Net purchases, sales and paydowns		54,337,400
Balance at December 31, 2009	$	54,337,400

	Period from August 11, 2008 (commencement of operations) to December 31, 2008
	PNMAC Mortgage Co., LLC			PNMAC Mortgage Co (FI), LLC		Total
Balance at August 11, 2008 (commencement of operations)	$	-		$	-	$	-
Net purchases, sales and paydowns		119,956,594			29,147,705		149,104,299
Unrealized gains (losses)		(6,933,811	)		112,271		(6,821,540	)
Balance at December 31, 2008	$	113,022,783		$	29,259,976	$	142,282,759

The information used in the above reconciliation represents activity for any investments identified as using Level 3 inputs at either the beginning or the end of the current fiscal period. Transfer in or out of Level 3 represents either the beginning value (for transfer in), or the ending value (for transfer out) of any investments where a change in the pricing level occurred from the beginning to the end of the period.

Short-term investments that represent money market funds are valued at the number of shares multiplied by the value per share published by the manager of the money market funds on the valuation date. Fair value of such funds also include assessment of liquidity and credit risk, including lockout provisions, if any, related to these funds.

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PNMAC Mortgage Opportunity Fund, LP

Notes to Financial Statements

For the Year Ended December 31, 2009 and the Period from August 11, 2008

(commencement of operations) to December 31, 2008

Mortgage-backed securities have been valued using unadjusted broker indications of value. The broker indications of value are reviewed and approved by the Investment Manager’s Capital Markets staff and Valuation Committee before being recorded on the Master Fund’s general ledger.

Mortgage Investments have been estimated by management in the absence of readily determinable fair values. These Mortgage Investments are valued based on the proportionate share of the discounted cash-flow projections of the underlying assets and liabilities of FNBN I, LLC and PNMAC Mortgage Co., LLC (“Mortgage Companies”) given that the loans or loan participation interest held by the Mortgage Companies represent substantially all of the net asset value held by these entities.

The Mortgage Companies value their investments in mortgage loans based on whether they are committed to be sold. Mortgage loans that are not committed to be sold are recorded at their estimated fair value, which is approximated using a discounted cash flow valuation model. Inputs to the model are classified into directly and non-directly observable inputs. Directly observable inputs are inputs that can be taken directly from observable data or market sources such as current interest rates, loan amount, payment status and property type. Non-directly observable inputs are inputs that cannot be taken directly from observable data or market sources such as forecasts of future interest rates, home prices, prepayment speeds, defaults and loss severities. Loans which are committed to be sold are valued at their quoted market price or market price equivalent. The estimates of value are evaluated by our Manager’s Capital Markets staff and are reviewed and approved by its senior management Valuation Committee. Changes in the estimated fair value of mortgage loans are recognized in current period results of operations. All changes in fair value, including changes arising from the passage of time, are recognized as a component of change in fair value of investments.

Further discussion of the nature of the mortgage loans and the loan participation interests held by the Mortgage Companies is discussed in Note 4–Mortgage Companies.

Securities sold under agreements to repurchase represent the discounted value of the borrowings using the rate required to finance such borrowings as of period end.

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PNMAC Mortgage Opportunity Fund, LP

Notes to Financial Statements

For the Year Ended December 31, 2009 and the Period from August 11, 2008

(commencement of operations) to December 31, 2008

Note 4—Mortgage Companies

Following is a summary of the condensed balance sheet of the Master Fund’s investments in PNMAC Mortgage Co., LLC and PNMAC Mortgage Co (FI), LLC as of the dates presented:

	December 31, 2009
	PNMAC Mortgage Co, LLC		PNMAC Mortgage Co (FI), LLC
Short-term investments, at fair value	$	8,488,993	$	589
Mortgage loans, at fair value		85,280,765		43,654,724
Real estate acquired in settlement of loans, at fair value		2,602,732		3,988,971
Other assets, less liabilities		1,183,366		(13,022	)
Members' equity	$	97,555,856	$	47,631,262

Master Fund's investment in Mortgage Investments at December 31, 2009	$	97,555,856	$	32,607,396

	December 31, 2008
	PNMAC Mortgage Co, LLC		PNMAC Mortgage Co (FI), LLC
Mortgage loans, at fair value	$	110,389,899	$	43,403,757
Other assets, less liabilities		2,632,884		589
Members' equity	$	113,022,783	$	43,404,346

Master Fund's investment in Mortgage Investments at December 31, 2008	$	113,022,783	$	29,259,976

Following is a summary of distributions from the Mortgage Companies for the periods presented:

	Year ended December 31, 2009		Period from August 11, 2008, (commencement of operations) to December 31, 2008
PNMAC Mortgage Co., LLC	$	19,818,386	$	6,069,052
PNMAC Mortgage Co (FI), LLC		5,223,495		-
	$	25,041,881	$	6,069,052

Concentrations of Credit Risk

The Mortgage Companies have assumed a concentration of credit risk in connection with their investments in mortgage-backed securities, mortgage loans and real estate acquired in settlement of loans.

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PNMAC Mortgage Opportunity Fund, LP

Notes to Financial Statements

For the Year Ended December 31, 2009 and the Period from August 11, 2008

(commencement of operations) to December 31, 2008

The following is a summary of the distribution of loans included in the Mortgage Companies’ portfolios as measured by fair value at the dates presented:

December 31, 2009
Occupancy	Fair Value		% Partners’ Capital			Average Note Rate
Owner occupied	$	83,724,215		36.24	%		6.69	%
Investment property		23,164,618		10.03	%		7.88	%
Second property		6,537,522		2.83	%		7.83	%
Total Portfolio	$	113,426,355		49.10	%		6.99	%

Loan Type	Fair Value		% Partners’ Capital			Average Note Rate
ARM/Hybrid1	$	67,962,220		29.42	%		7.29	%
Fixed		37,288,047		16.14	%		6.94	%
Balloon		2,739,238		1.19	%		10.68	%
Step-Rate		5,436,850		2.35	%		3.18	%
Total Portfolio	$	113,426,355		49.10	%		6.99	%

Lien Position	Fair Value		% Partners’ Capital			Average Note Rate
1st lien	$	111,849,042		48.42	%		6.78	%
2nd lien		1,577,313		0.68	%		8.83	%
Total Portfolio	$	113,426,355		49.10	%		6.99	%

Loan Age2	Fair Value		% Partners’ Capital			Average Note Rate
Less than 6 months	$	957,845		0.42	%		5.00	%
6 - 11 months		210,681		0.09	%		2.78	%
12 - 17 months		41,120		0.02	%		4.67	%
18 - 23 months		17,982,455		7.78	%		6.94	%
24 months and greater		94,234,254		40.79	%		7.01	%
Total Portfolio	$	113,426,355		49.10	%		6.99	%

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PNMAC Mortgage Opportunity Fund, LP

Notes to Financial Statements

For the Year Ended December 31, 2009 and the Period from August 11, 2008

(commencement of operations) to December 31, 2008

Origination FICO Score	Fair Value		% Partners’ Capital			Average Note Rate
Less than 600	$	13,216,623		5.72	%		7.27	%
600 – 649		15,172,773		6.57	%		7.00	%
650 – 699		31,435,627		13.61	%		6.97	%
700 – 749		28,132,523		12.18	%		6.80	%
750 or greater		25,468,809		11.02	%		6.70	%
Total Portfolio	$	113,426,355		49.10	%		6.99	%

Current Loan-to-Value3	Fair Value		% Partners’ Capital			Average Note Rate
Less than 80%	$	17,915,933		7.75	%		7.01	%
80% - 99.99%		24,931,178		10.79	%		7.09	%
100% - 119.99%		29,513,691		12.78	%		7.03	%
120% or greater		41,065,553		17.78	%		6.96	%
Total Portfolio	$	113,426,355		49.10	%		6.99	%

Payment Status	Fair Value		% Partners’ Capital			Average Note Rate
Current4	$	85,505,204		37.01	%		6.43	%
30 days delinquent		7,457,832		3.23	%		6.24	%
60 days delinquent		3,183,073		1.38	%		6.32	%
90 days or more delinquent		7,235,898		3.13	%		8.13	%
In foreclosure5		10,044,348		4.35	%		8.03	%
Total Portfolio	$	113,426,355		49.10	%		6.99	%

1	Based on a percentage of loan count, ARMs/Hybrids had distribution of interest rate reset dates after December 31, 2009 as follows: 2.37% in 1-6 months, 1.39% in 7-12 months, 2.79% in 13-24 months, 75.03% in more than 24 months.

2	Loan Age reflects the age of the loan as of December 31, 2009.

3	Current Loan-to-Value measures the ratio of the current balance of the loan and all superior liens (“Loan”) to the estimate of the value of the property securing the liens (“Value”) as of December 31, 2009.

4	Current loans include loans in and adhering to a forbearance plan as of December 31, 2009.

5	Loans “In Foreclosure” include loans for which foreclosure proceedings had begun, but for which ownership had not yet been transferred as of December 31, 2009. This category does not include real estate acquired in settlement of loans.

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PNMAC Mortgage Opportunity Fund, LP

Notes to Financial Statements

For the Year Ended December 31, 2009 and the Period from August 11, 2008

(commencement of operations) to December 31, 2008

Following is a summary of the distribution of real estate acquired in settlement of loans:

Geographic Distribution	Fair Value		% Partners’ Capital
California	$	1,309,560		0.57	%
Arizona		457,400		0.20	%
Maryland		361,300		0.15	%
Nevada		347,275		0.15	%
Texas		325,000		0.14	%
Other		2,612,858		1.13	%
Total Portfolio	$	5,413,393		2.34	%

Property Type	Fair Value		% Partners’ Capital
Single dwelling unit	$	2,812,013		1.22	%
Multiple dwelling units		702,300		0.30	%
Condominium		486,300		0.21	%
Planned unit development		1,331,980		0.58	%
Other		80,800		0.03	%
Total Portfolio	$	5,413,393		2.34	%

December 31, 2008

Occupancy	Fair Value		% Partners’ Capital			Average Note Rate
Owner occupied	$	101,585,321		72.40	%		7.77	%
Investment property		30,215,996		21.53	%		8.20	%
Second property		7,636,243		5.44	%		8.28	%
Total Portfolio	$	139,437,560		99.37	%		7.89	%

Loan Type	Fair Value		% Partners’ Capital			Average Note Rate
ARM/Hybrid1	$	92,841,605		66.16	%		7.61	%
Fixed		42,755,453		30.47	%		7.66	%
Balloon		3,840,502		2.74	%		10.95	%
Total Portfolio	$	139,437,560		99.37	%		7.89	%

Lien Position	Fair Value		% Partners’ Capital			Average Note Rate
1st lien	$	138,994,560		99.05	%		7.61	%
2nd lien		443,000		0.32	%		10.65	%
Total Portfolio	$	139,437,560		99.37	%		7.89	%

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PNMAC Mortgage Opportunity Fund, LP

Notes to Financial Statements

For the Year Ended December 31, 2009 and the Period from August 11, 2008

(commencement of operations) to December 31, 2008

Loan Age2	Fair Value		% Partners’ Capital			Average Note Rate
Less than 6 months	$	88,920		0.06	%		4.78	%
6 - 11 months		23,491,596		16.74	%		7.13	%
12 - 17 months		52,792,115		37.62	%		7.80	%
18 - 23 months		47,548,547		33.89	%		8.03	%
24 months and greater		15,516,382		11.06	%		7.94	%
Total Portfolio	$	139,437,560		99.37	%		7.89	%

Origination FICO Score	Fair Value		% Partners’ Capital			Average Note Rate
Less than 600	$	15,616,034		11.13	%		8.44	%
600 – 649		18,002,719		12.83	%		8.00	%
650 – 699		37,722,460		26.88	%		7.90	%
700 – 749		34,864,406		24.85	%		7.52	%
750 or Greater		33,231,939		23.68	%		7.14	%
Total Portfolio	$	139,437,560		99.37	%		7.89	%

Current Loan-to-Value3	Fair Value		% Partners’ Capital			Average Note Rate
Less than 80%	$	24,327,683		17.34	%		7.37	%
80% - 99.99%		45,273,140		32.26	%		7.41	%
100% - 119.99%		34,968,047		24.92	%		7.56	%
120% or Greater		34,868,690		24.85	%		8.23	%
Total Portfolio	$	139,437,560		99.37	%		7.89	%

Geographic Distribution	Fair Value		% Partners’ Capital			Average Note Rate
California	$	41,767,249		29.77	%		7.28	%
Florida		10,923,433		7.78	%		8.32	%
New York		8,467,685		6.03	%		8.08	%
Arizona		7,577,346		5.40	%		7.74	%
New Jersey		4,141,296		2.95	%		8.08	%
Illinois		6,805,423		4.85	%		7.89	%
Other		59,755,128		42.59	%		7.98	%
Total Portfolio	$	139,437,560		99.37	%		7.89	%

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PNMAC Mortgage Opportunity Fund, LP

Notes to Financial Statements

For the Year Ended December 31, 2009 and the Period from August 11, 2008

(commencement of operations) to December 31, 2008

Payment Status	Fair Value		% Partners’ Capital			Average Note Rate
Current4	$	116,049,135		82.71	%		7.52	%
30 days delinquent		7,350,021		5.22	%		7.95	%
60 days delinquent		4,360,307		3.11	%		7.93	%
90 days or more delinquent		5,679,244		4.05	%		8.99	%
In Foreclosure5		5,998,853		4.28	%		8.43	%
Total Portfolio	$	139,437,560		99.37	%		7.89	%

1	Based on a percentage of loan count, ARMs/Hybrids had a distribution of interest rate reset dates after December 31, 2008 as follows: 7.73% in 1-6 months, 10.64% in 7-12 months, 4.12% in 13-24 months, 77.51% in more than 24 months.

2	Loan Age reflects the age of the loan as of December 31, 2008.

3	Current Loan-to-Value measures the ratio of the current balance of the loan and all superior liens (“Loan”) to the estimate of the value of the property securing the liens (“Value”) as of December 31, 2008.

4	Current loans include loans in and adhering to a forbearance plan as of December 31, 2008.

5	Loans “In Foreclosure” includes loans for which foreclosure proceedings had begun, but for which ownership had not yet been transferred as of December 31, 2008. This category does not include Real Estate Owned (“REO”).

Through their mortgage servicing agreements with PennyMac Loan Services, LLC, the Mortgage Companies proactively work with borrowers to perform loss mitigation activities in order to minimize credit losses. Such activities include the development of loan modification programs and workout options that have the highest probability of successful resolution for both borrowers and the Mortgage Companies.

Note 5 – Mortgage-Backed Securities

Following is a summary of mortgage-backed securities held by the Master Fund:

			Credit Rating
	Total			A	BB+			B+		B	Unrated		% Partners’ Capital

Security collateral type:
Non-Agency Alt-A	$	148,546,946	$	52,724,431	$	-	$	-	$	-	$	95,822,515		64.31	%
Non-Agency Prime Jumbo		8,904,619		-		2,339,904		1,261,003		5,303,712		-		3.85	%
	$	157,451,565	$	52,724,431	$	2,339,904	$	1,261,003	$	5,303,712	$	95,822,515		68.16	%

At December 31, 2009, mortgage-backed securities with a fair value of $81,753,000 were pledged as collateral to secure securities sold under agreements to repurchase.

Note 6 – Securities Sold Under Agreements to Repurchase

During the year ended December 31, 2009, the Master Fund entered into short-term financing arrangements to sell certain of its investment securities under agreements to repurchase (“repurchase agreements”). The repurchase agreements are collateralized by certain of the Master Fund’s mortgage-backed securities. All securities underlying repurchase agreements are delivered to the counterparty during the period they are outstanding. All agreements are to repurchase the same or substantially identical securities.

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PNMAC Mortgage Opportunity Fund, LP

Notes to Financial Statements

For the Year Ended December 31, 2009 and the Period from August 11, 2008

(commencement of operations) to December 31, 2008

Scheduled maturities of securities sold under agreements to repurchase were as follows:

	December 31, 2009
	Amount		Interest Rate
Due within 30 days	$	--
After 30 days but within 90 days		16,286,400	1.83%
After 90 days but within 180 days		-
After 180 days but within one year		38,051,000	1.74%
Total securities sold under agreements to repurchase	$	54,337,400	1.74% to 1.83%

Interest expense relating to securities sold under agreements to repurchase totaled $87,029 for the year ended December 31, 2009. The Master Fund had pledged mortgage-backed securities with a fair value of totaling $81,753,000 to secure advances made under securities sold under agreements to repurchase at December 31, 2009.

Note 7—Investment Transactions

For the period from August 11, 2008 (commencement of operations) to December 31, 2008, the Master Fund purchased investments for $149,104,299. For the year-end December 31, 2009, the Master Fund purchased investments in the amount of $153,791,354, comprised of $153,321,717 of mortgage-backed securities and $469,637 of additional contributions to PNMAC Mortgage Co (FI), LLC.

Note 8—Investment Advisory, Administration and Custodian Fees

The Master Fund entered into an Investment Management Agreement with PNMAC Capital Management, LLC. Under the terms of the agreement, the Master Fund will pay the Investment Manager a fee equal to an annual rate of 1.5% on capital commitments until December 31, 2011, and thereafter a fee equal to an annual rate of 1.5% of the Master Fund’s net asset value so long as the fee does not exceed 1.5% of the aggregate capital contributions to the Master Fund. The General Partner is not charged a management fee. The only expenses charged to the Genreal Partner are those specifically relating to it.

Investment advisory fees for the year ended December 31, 2009 and for the period from August 11, 2008 (commencement of operations) to December 31, 2008 were $6,068,401 and $2,462,500, respectively. Of this amount, $1,445,755 and $2,462,500 was payable to the Investment Manager as of December 31, 2009 and 2008.

The Master Fund has engaged U.S. Bancorp Fund Services, LLC to serve as the Master Fund's administrator, fund accountant, transfer agent, and dividend paying agent. The Master Fund pays the administrator a monthly fee computed at an annual rate of 0.04% of the first $1,000,000,000 of the Master Fund's total monthly net assets, 0.03% on the next $1,000,000,000 of the Master Fund's total monthly net assets, and 0.02% on the balance of the Master Fund's total monthly net assets subject to an annual minimum fee of $180,000. The administration expense for the year ended December 31, 2009 was $183,257 and for period from August 11, 2008 (commencement of operations) to December 31, 2008 was $85,984.

The Master Fund and an affiliated fund have engaged U.S. Bank, N.A. to provide mortgage loan accounting to the investments held in the mortgage subsidiary. The Master Fund and an affiliated fund pay U.S. Bank, N.A. a monthly fee computed at an annual rate of 0.9% of assets subject to an annual minimum fee of $20,000. The loan accounting fee allocated to the Master Fund for the year ended December 31, 2009 was $13,489 and period from August 11, 2008 (commencement of operations) to December 31, 2008 was $ 6,667.

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PNMAC Mortgage Opportunity Fund, LP

Notes to Financial Statements

For the Year Ended December 31, 2009 and the Period from August 11, 2008

(commencement of operations) to December 31, 2008

U.S. Bank, N.A. serves as the Master Fund's custodian. The Master Fund pays the custodian a monthly fee computed at an annual rate of 0.01% on the Master Fund's average daily market value subject to an annual minimum fee of $4,800.

Note 9—Directors and Officers

The Master Fund’s board of directors has overall responsibility for monitoring and overseeing the investment program of the Master Fund and its management and operations. The Fund and Master Fund share the same board of directors. All directors’ fees and expenses are paid by the Master Fund. The independent directors are each paid an annual retainer of $60,000 and a fee per meeting of the board of directors of $2,000 for each regular meeting and $1,000 for each telephonic meeting, subject to a cap of $15,000 per year for all telephonic meetings, plus reasonable out-of-pocket expenses. Directors are reimbursed by the Master Fund for their travel expenses related to board meetings. The total directors fees and expenses incurred for the year ended December 31, 2009 and for the period from August 11, 2008 to December 31, 2008 was $312,012 and $249,202, respectively. Of this amount, $75,015 and $10,515 was payable as of December 31, 2009 and 2008.

One of the directors is an officer of the advisor and the Master Fund and receives no compensation from the Master Fund for serving as a Director.

Certain officers of the Master Fund are affiliated with the Investment Manager. Such officers receive no compensation from the Master Fund for serving in their respective roles.

Note 10—Transactions with Affiliates

As of December 31, 2009 and 2008, the payable to affiliate of $30,956 and $405,858, respectively, represents funds owed to Private National Mortgage Acceptance Company, LLC for offering and organization expenses paid on the Master Fund’s behalf. The Investment Manager is a wholly owned subsidiary of Private National Mortgage Acceptance Company, LLC.

The Master Fund’s short-term investment, the BlackRock Liquidity Funds: TempFund Institutional Shares, is managed by BlackRock Institutional Management Corporation which is a wholly owned subsidiary of BlackRock, Inc. BlackRock Inc. is an affiliate of the Master Fund.

Note 11—Risk Factors

The Master Fund’s investment activities expose it to the various types of risk, which are associated with the financial instruments and markets in which it invests.

Investments in mortgage-backed securities and mortgage loans have exposure to certain degrees of risk, including interest rate, market risk, and the potential non-payment of principal and interest, including default or bankruptcy of the issuer or the intermediary in the case of a participation. Mortgage loans are subject to prepayment risk, which will affect the maturity of such investments.

Investments in real estate acquired in settlement of loans are subject to various risk factors. Generally, real estate investments could be adversely affected by a recession or general economic downturn where the properties are located as well as the availability of similar properties in the immediate area. Real estate investment performance is also subject to the success that a particular property manager has in managing the property.

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PNMAC Mortgage Opportunity Fund, LP

Notes to Financial Statements

For the Year Ended December 31, 2009 and the Period from August 11, 2008

(commencement of operations) to December 31, 2008

The Master Fund is indirectly subject to interest rate risk. Interest rate risk is the risk that investment in loans held by the Mortgage Investments will decline in value because of changes in market interest rates. Investments in mortgage loans with long-term maturities may experience significant price declines if long-term interest rates increase.

Market risk represents the potential loss in value of financial instruments caused by movements in market factors including, but not limited to, market liquidity, investor sentiment, interest and foreign exchange rates. The Master Fund’s portfolio includes certain investments that are generally illiquid and have a greater amount of market risk than more liquid investments. These investments may trade in limited markets or have restrictions on resale or transfer and may not be able to be liquidated on demand if needed. The value assigned to these investments may differ significantly from the values that would have been used had a ready market existed and such differences could be material to the financial statements.

Adverse changes in economic conditions are more likely to lead to a weakened capacity of borrowers to make principal payments and interest payments. An economic downturn could severely affect the ability of highly leveraged borrowers to service their debt obligations or to repay their obligations. Under adverse market or economic conditions, the secondary market could contract further as well, increasing the illiquid nature of the loans. As a result, the Mortgage Investments could find it more difficult to sell loans or may be able to sell only at prices lower than if such investments were widely traded.

An investment in the Master Fund is subject to investment risk, including the possible loss of the entire principal invested. An investment in the Master Fund represents an indirect investment in the loans held by the Mortgage Companies. The value, like other market investments, may move up or down, sometimes rapidly and unpredictably. An investment in the Master Fund at any point in time may be worth less than the original investment. Investment values can fluctuate for several reasons including the general condition of the mortgage market or when political or economic events affecting the issuers occur.

As part of its investment strategy, the Master Fund may utilize borrowings. Master Fund investments may also use borrowings in the ordinary course of their operations. The use of borrowings may materially affect the operations of the Master Fund or its investment and thus its ultimate value. Financing may not always be available on acceptable terms, in the necessary amounts, or for the period needed. This could have a material negative impact on the performance of the Master Fund.

The Master Fund clears substantially all of its investment purchases and sales and maintains substantially all of its investments and cash positions at U.S. Bank, N.A. Credit risk is measured by the loss the Master Fund would record if U.S. Bank, N.A. failed to perform pursuant to terms of their obligations.

Due to the nature of the master fund/feeder fund structure, the Master Fund could be materially affected by subscription or redemption activity.

In light of financial market events that occurred in 2009 and 2008 and the United States government’s involvement in supporting the financial markets, it is reasonably possible that the investment management industry will be subject to future regulation. The impact of potential regulation may have a negative impact on the ability to unwind the investments of the Master Fund and Mortgage Investments, but such impact is not quantifiable.

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PNMAC Mortgage Opportunity Fund, LP

Notes to Financial Statements

For the Year Ended December 31, 2009 and the Period from August 11, 2008

(commencement of operations) to December 31, 2008

Note 12—Subsequent Events

Management has evaluated all events or transactions through March 1, 2010, the date the Company issued these financial statements. During this period, the Master Fund did not have any material subsequent events that affected its financial statements.

******

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Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of

PNMAC Mortgage Opportunity Fund, LP:

We have audited the accompanying statement of assets and liabilities of PNMAC Mortgage Opportunity Fund, LP (the “Master Fund”), including the schedule of investments, as of December 31, 2009 and 2008, and the related statements of operations, changes in partners’ capital, cash flows, and financial highlights for the year ended December 31, 2009, and for the period from August 11, 2008 (commencement of operations) to December 31, 2008. These financial statements and financial highlights are the responsibility of the Master Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Master Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Master Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of investments owned as of December 31, 2009 and 2008, by correspondence with the custodian and other parties; where replies were not received, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of PNMAC Mortgage Opportunity Fund, LP as of December 31, 2009 and 2008, the results of its operations, changes in its partners’ capital, cash flows, and financial highlights for the year ended December 31, 2009, and for the period from August 11, 2008 (commencement of operations) to December 31, 2008 in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 3 to the financial statements, the financial statements include investments in mortgage backed-securities, an investment in PNMAC Mortgage Co (FI), LLC and an investment in PNMAC Mortgage Co, LLC valued at $287,614,817 (98% of total assets) and $142,282,759 (99% of total assets) as of December 31, 2009 and 2008, respectively, whose fair values have been estimated by management in the absence of readily determinable fair values.

March 1, 2010

Los Angeles, California

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PNMAC Mortgage Opportunity Fund, LP

Additional Information

(Unaudited)

Form N-Q

The Master Fund files its complete schedule of portfolio holdings for the first, second and third quarters of each fiscal year with the SEC on Form N-Q. The Master Fund’s Form N-Q is available without charge by visiting the SEC’s Web site at www.sec.gov and may be reviewed and copied at the SEC’s Public Reference Room in Washington D.C. You may obtain information on the operation of the Public Reference Room by calling (800) SEC-0330.

Proxy Voting

A description of the policies and procedures that the Master Fund uses to determine how to vote proxies relating to portfolio securities owned by the Master Fund and information regarding how the Master Fund voted proxies relating to the portfolio of securities are available to stockholders (i) without charge, upon request by calling the Master Fund collect at (818) 224-7442; and (ii) on the SEC’s Web site at www.sec.gov.

Board of Directors

The Master Fund’s Form N-2 includes additional information about the Master Fund’s directors and is available upon request without charge by calling the Master Fund collect at (818) 224-7442 or by visiting the SEC’s Web site at www.sec.gov.

Forward-Looking Statements

This report contains “forward-looking statements,'' which are based on current management expectations. Actual future results, however, may prove to be different from expectations. You can identify forward-looking statements by words such as “may,'' “will,'' “believe,'' “attempt,'' “seem,'' “think,'' “ought,'' “try,'' and other similar terms. The Master Fund cannot promise future returns. Management’s opinions are a reflection of its best judgment at the time this report is compiled, and it disclaims any obligation to update or alter forward-looking statements as a result of new information, future events, or otherwise.

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PNMAC Mortgage Opportunity Fund, LLC

Approval of Investment Management Agreement

(Unaudited)

Name, Age, and Address	Position(s) Held with Master Fund	Term of Office and Length of Time Served	Principal Occupation(s) During Past Five Years	Number of Portfolios in Master Fund Complex Overseen by Director and Officers	Other Directorships/ Trusteeships Held

Independent Directors
Heather Campion (52) c/o PNMAC Capital Management, LLC, 27001 Agoura Road, Suite 350, Calabasas, California 91301	Director; Audit Committee Member	Indefinite Term. Served since May 29, 2008.	Group Executive Vice President and Director of Corporate Affairs of Citizens Financial Group until 2007.	2	Institute of Politics at Harvard University, the John F. Kennedy Presidential Library Foundation, AAA of Southern New England, and the Isabella Stewart Gardner Museum

Thomas P. Gybel (42) c/o PNMAC Capital Management, LLC, 27001 Agoura Road, Suite 350, Calabasas, California 91301	Director; Audit Committee Member	Indefinite Term. Served since May 29, 2008.	Managing Director of White Mountains Capital Inc. since March 2008, Managing Director of Global Corporate Finance for Deutsche Bank Securities Inc. from July 2004 to May 2007.	2	None

Peter W. McClean (65) c/o PNMAC Capital Management, LLC, 27001 Agoura Road, Suite 350, Calabasas, California 91301	Director; Audit Committee Chairman	Indefinite Term. Served since May 29, 2008.	Managing Director of Gulfstream Advisors LLC since 2004 and President and Chief Executive Officer of Measurisk LLC from 2001 through 2003.	2	Member of Board of Directors of Cyrus Reinsurance, Family Health International, Allianz Variable Insurance Products Trust, and Allianz Variable Products Fund of Funds Trust

Richard A. Victor, J.D., Ph.D. (59) c/o PNMAC Capital Management, LLC, 27001 Agoura Road, Suite 350, Calabasas, California 91301	Director; Audit Committee Member	Indefinite Term. Served since May 29, 2008.	Executive Director of the Workers Compensation Institute since 1983.	2	None

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PNMAC Mortgage Opportunity Fund, LLC

Approval of Investment Management Agreement

(Unaudited)

Name, Age and Address	Position(s) Held with Master Fund	Term of Office and Length of Time Served	Principal Occupation(s) During Past Five Years	Number of Portfolios in Master Fund Complex Overseen by Director	Other Directorships/ Trusteeships Held

Interested Directors
David A. Spector (46) c/o PNMAC Capital Management, LLC, 27001 Agoura Road, Suite 350, Calabasas, California 91301	Director, President, Chief Financial Officer, Authorized Person	Indefinite Term. Served since May 29, 2008.	Chief Investment Officer of the Investment Adviser; formerly, Co-Head of Global Residential Mortgages for Morgan Stanley and Senior Managing Director, Secondary Markets for Countrywide Financial Corporation.	2	None

Officers

Stanford L. Kurland (57) c/o PNMAC Capital Management, LLC, 27001 Agoura Road, Suite 350, Calabasas, California 91301	Chief Executive Officer, Authorized Person	Indefinite Term. Served since May 29, 2008.	Founder, Chairman and Chief Executive Officer of the Investment Adviser; formerly, Chief Financial Officer and Chief Operating Officer of Countrywide Financial Corporation.	2	None

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PNMAC Mortgage Opportunity Fund, LLC

Approval of Investment Management Agreement

(Unaudited)

Name, Age and Address

Position(s) Held

with Master Fund

Term of Office

and Length of

Time Served

Principal Occupation(s)

During Past Five Years

Number of Portfolios in Master Fund Complex Overseen

by Director

Other Directorships/

Trusteeships Held


Michael L. Muir (44) c/o PNMAC Capital Management, LLC, 27001 Agoura Road, Suite 350, Calabasas, California 91301	Chief Capital Markets Officer	Indefinite Term. Served since May 29, 2008. In February of 2010, Mr. Muir tendered his resignation, effective March, 2010.	Chief Capital Markets Officer of the Investment Adviser; formerly, Chief Financial Officer, Treasurer and Chief Investment Officer for Countrywide Bank, N.A. and Senior Vice President of Countrywide Home Loans.	2	None

David M. Walker (54) c/o PNMAC Capital Management, LLC, 27001 Agoura Road, Suite 350, Calabasas, California 91301	Chief Credit Officer	Indefinite Term. Served since May 29, 2008.	Chief Credit Officer of the Investment Adviser; formerly, Chief Lending Officer, Chief Credit Officer and Executive Vice President of Secondary Marketing for Countrywide Bank, N.A.	2	None

Anne D. McCallion (55) c/o PNMAC Capital Management, LLC, 27001 Agoura Road, Suite 350, Calabasas, California 91301	Chief Financial Officer	Indefinite Term. Served since April 27, 2009.	Chief Financial Officer of the Investment Advisor; formerly Senior Managing Director and Deputy Chief Financial Officer for Countrywide Financial Corporation	2	None

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PNMAC Mortgage Opportunity Fund, LLC

Approval of Investment Management Agreement

(Unaudited)

Name, Age and Address

Position(s) Held

with Master Fund

Term of Office

and Length of

Time Served

Principal Occupation(s) During Past Five Years

Number of Portfolios in Master Fund Complex Overseen

by Director

Other Directorships/

Trusteeships Held


Jeff Grogin (49) c/o PNMAC Capital Management, LLC, 27001 Agoura Road, Suite 350, Calabasas, California 91301	Secretary, Authorized person	Indefinite Term. Served since May 29, 2008.	Independent Counsel	2	None
Julianne Fries (47) c/o PNMAC Capital Management, LLC, 27001 Agoura Road, Suite 350, Calabasas, California 91301	Chief Compliance Officer	Indefinite Term. Served from May 29, 2008 to January 16, 2010 .	Chief Compliance Officer of the Investment Advisor; formerly, Managing Director, Chief Compliance Officer of Countrywide Capital Markets.	2	None

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PNMAC Mortgage Opportunity Fund, LLC

Approval of Investment Management Agreement

(Unaudited)

On May 29, 2008, the board of directors of the Master Fund and the Fund (collectively, the “Funds”), including the “non-interested” Directors (the “Independent Directors”), voted to approve the Investment Management Agreements for an initial two-year term.

In considering whether to recommend approval of the Management Agreements, the Independent Directors reviewed materials provided by the Investment Advisor, fund counsel, and independent counsel. The Directors also met with senior personnel of the Investment Advisor and discussed a number of topics affecting their determination, including the following.

(i) The nature, extent, and quality of services expected to be provided by the Investment Advisor. The Independent Directors reviewed the services that the Investment Advisor is expected to provide to the Funds. In addition, the Independent Directors considered the size, education, background, and experience of the Investment Advisor’s staff. Lastly, the Independent Directors reviewed the Investment Advisor’s ability to attract and retain quality and experienced personnel. The Independent Directors concluded that the scope of services expected to be provided by the Investment Advisor to the Funds and the experience and expertise of the personnel performing such services was consistent with the nature, extent, and quality expected of an Investment Advisor of investment vehicles such as the Funds.

The Independent Directors concluded that the proposed management fee and carried interest for the Investment Advisor were reasonable.

Description		Shares or Principal Amount		Fair Value

INVESTMENTS – 100.2%*
Investment in Master Fund – 100.1%*
PNMAC Mortgage Opportunity Fund, LP	$	220,085,275	$	230,995,896
Total Investment in Master Fund (Cost $220,085,275)		220,085,275		230,995,896

Short-Term Investment – 0.1%*
BlackRock Liquidity Funds: TempFund Institutional Shares		309,774		309,774
Total Short-Term Investment (Cost $309,774)		309,774		309,774

TOTAL INVESTMENTS (Cost $220,395,049)				231,305,670
Liabilities in excess of other assets – (0.2)%*				(555,360	)
TOTAL NET ASSETS – 100.0%*			$	230,750,310
* Percentages are stated as a percent of net assets All investments are in the United States of America

		2009			2008
Investment income allocated from Master Fund:
Interest income	$	6,409,864		$	-
Dividend income		25,057,315			6,071,483
Total investment income		31,467,179			6,071,483
Expenses allocated from Master Fund:
Investment advisory fees		6,068,401			2,462,500
Professional expenses		631,907			311,606
Insurance expense		377,235			175,450
Administration fees		314,338			85,984
Directors’ fees and expenses		313,630			249,200
Interest expense		87,029			-
Portfolio accounting fees		62,253			208,454
Custodian fees		7,108			2,012
Total expenses		7,861,901			3,495,206

Net investment income allocated from Master Fund		23,605,278			2,576,277

Investment income:
Dividend income		8,953			85,462
Total investment income		8,953			85,462

Expenses:
Shareholder services fee		2,064,808			820,834
Organization costs		251,896			701,525
Insurance		229,434			-
Interest tax expense		225,375			-
Professional expenses		222,911			130,721
Administration fees		134,400			56,230
Registration fees		18,141			-
Custody fees		4,487			2,012
Total expenses		3,151,452			1,711,322

Net investment income		20,462,779			950,417

Distributions to series A preferred shareholders		(10,482	)		(4,750	)

Net unrealizedloss on investments allocated from Master Fund:
Net change in unrealized loss on investments		(8,449,452	)		(6,821,482	)
Net unrealized loss on investments allocated from Master Fund		(8,449,452	)		(6,821,482	)
Net increase (decrease) in net assets resulting from operations	$	12,002,845		$	(5,875,815	)

		2009			2008
Increase (decrease) in net assets resulting from operations:
Net investment income	$	20,462,779		$	950,417
Distributions to series A preferred shareholders		(10,482	)		(4,750	)
Net change in unrealized depreciation on investments		(8,449,452	)		(6,821,482	)
Net increase (decrease) in net assets resulting from operations		12,002,845			(5,875,815	)

Increase (decrease) in net assets resulting from capital transactions:
Proceeds from series A preferred shares issued		-			114,000
Proceeds from common shares issued		108,270,660			169,452,821
Distributions on common shares issued		(38,601,031	)		(14,471,943	)
Offering costs		-			(141,227	)
Net increase in net assets resulting from capital transactions		69,669,629			154,953,651

Net increase in net assets		81,672,474			149,077,836

Net Assets:
Beginning of period		149,077,836			-
End of period	$	230,750,310		$	149,077,836

	Page
Letter to Shareholders	1
Financial Statements
Statements of Assets and Liabilities	4
Schedules of Investments	5
Statements of Operations	7
Statements of Changes in Net Assets	8
Statements of Cash Flows	9
Financial Highlights	10
Notes to Financial Statements	11
Report of Independent Registered Public Accounting Firm	21
Additional Information	22
Directors and Officers	23
Approval of Investment Management Agreement	27
Contained herein:
Audited financial statements of PNMAC Mortgage Opportunity Fund, LP (“Master Fund”)

	FYE 12/31/2009	FYE 12/31/2008
Audit Fees	$58,000	$50,000
Audit-Related Fees	$16,722	$59,927
Tax Fees	$24,775	$20,793
All Other Fees	$0	$0

Non-Audit Related Fees	FYE 12/31/2009	FYE 12/31/2008
Registrant	None	None
Registrant’s Investment Adviser	None	None

Name	Title	Length of Service	Business Experience During Past 5 Years	Role of Portfolio Manager
Stanford L. Kurland (57) c/o PNMAC Capital Management, LLC, 27001 Agoura Road, Suite 350, Calabasas, California 91301	Founder, Chairman and Chief Executive Officer of the Investment Adviser	Served since May 29, 2008	Formerly, Chief Financial Officer and Chief Operating Officer of Countrywide Financial Corporation.	Chairman and Chief Executive Officer of the Investment Adviser
David A. Spector (46) c/o PNMAC Capital Management, LLC, 27001 Agoura Road, Suite 350, Calabasas, California 91301	Chief Investment Officer	Served since May 29, 2008	Formerly, Co-Head of Global Residential Mortgages for Morgan Stanley and Senior Managing Director, Secondary Markets for Countrywide Financial Corporation.	As Chief Investment Officer, is responsible for oversight of all activities pertaining to investments, and directs the activities of portfolio management, capital markets, and credit as each relates to mortgage credit and company credit risk
Michael L. Muir (44) c/o PNMAC Capital Management, LLC, 27001 Agoura Road, Suite 350, Calabasas, California 91301	Chief Capital Markets Officer	Served since May 29, 2008. In February 2010, Mr. Muir tendered his resignation effective March 2010.	Formerly, Chief Financial Officer, Treasurer and Chief Investment Officer for Countrywide Bank, N.A. and Senior Vice President of Countrywide Home Loans.	As Chief Capital Markets Officer, is responsible for maintaining loan pricing systems, distressed asset pricing models, overseeing trading systems, managing pooling, securitization activities, and market surveillance, as well as executing hedge transactions
David M. Walker (54) c/o PNMAC Capital Management, LLC, 27001 Agoura Road, Suite 350, Calabasas, California 91301	Chief Credit Officer	Served since May 29, 2008	Formerly, Chief Lending Officer, Chief Credit Officer and Executive Vice President of Secondary Marketing for Countrywide Bank, N.A.	As Chief Credit Officer, is responsible for developing and maintaining the loan grading system, default curves, the loan loss severity matrix, new loan underwriting and modification standards, overseeing representation and warranty claims, and evaluating and determining the adequacy of reserves and valuation model loss assumptions.
Andy S. Chang (32) c/o PNMAC Capital Management, LLC, 27001 Agoura Road, Suite 350, Calabasas, California 91301	Chief Development Officer	Served since May 29, 2008	Formerly, Director at Blackrock and leader of its Advisory Services practice.	As Chief Development Officer, is responsible for establishing relationships with sellers, negotiating purchase/sales agreements, and coordinating transaction details.

Name of Manager	Total Number of Accounts Managed	Total Assets in Accounts Managed	Number of Accounts for Which Advisory Fee is Based on Performance	Assets in Accounts for Which Advisory Fee is Based on Performance
Stanford L. Kurland
Registered investment companies	2	$238,233,226	2	$238,233,226
Other pooled investment vehicles	2	$454,130,109	2	$454,130,109
Other accounts				$0
David A. Spector
Registered investment companies	2	$238,233,226	2	$238,233,226
Other pooled investment vehicles	2	$454,130,109	2	$454,130,109
Other accounts				$0
Michael L. Muir
Registered investment companies	2	$238,233,226	2	$238,233,226
Other pooled investment vehicles	2	$454,130,109	2	$454,130,109
Other accounts				$0
David M. Walker
Registered investment companies	2	$238,233,226	2	$238,233,226
Other pooled investment vehicles	2	$454,130,109	2	$454,130,109
Other accounts				$0
Andy S. Chang
Registered investment companies	2	$238,233,226	2	$238,233,226
Other pooled investment vehicles	2	$454,130,109	2	$454,130,109
Other accounts				$0

Name of Manager	Aggregate Dollar Range of Holdings in the Registrant
Stanford L. Kurland	None
David A. Spector	None
Michael L. Muir	None
David M. Walker	None
Andy S. Chang	None

/s/Stanford L. Kurland Stanford L. Kurland CEO, PNMAC Mortgage Opportunity Fund, LLC	/s/Anne McCallion Anne McCallion CFO, PNMAC Mortgage Opportunity Fund, LLC
Dated: 3/11/2010