UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: (811- 4524 )
Exact name of registrant as specified in charter: Putnam Global Income Trust
Address of principal executive offices: One Post Office Square, Boston, Massachusetts 02109
| Name and address of agent for service: | Beth S. Mazor, Vice President |
| | One Post Office Square |
| | Boston, Massachusetts 02109 |
| |
| Copy to: | John W. Gerstmayr, Esq. |
| | Ropes & Gray LLP |
| | One International Place |
| | Boston, Massachusetts 02110 |
| |
| Registrant’s telephone number, including area code: | (617) 292-1000 |
Date of fiscal year end: October 31, 2006
Date of reporting period: November 1, 2005—October 31, 2006
Item 1. Report to Stockholders:
The following is a copy of the report transmitted to stockholders pursuant to Rule 30e-1 under the Investment Company Act of 1940:
What makes
Putnam different? |
A time-honored tradition in
money management |
Since 1937, our values have been rooted in a profound sense of responsibility for the money entrusted to us.
A prudent approach to investing
We use a research-driven team approach to seek consistent, dependable, superior investment results over time, although there is no guarantee a fund will meet its objectives.
Funds for every investment goal
We offer a broad range of mutual funds and other financial products so investors and their financial representatives can build diversified portfolios.
A commitment to doing what’s right for investors
We have below-average expenses and stringent investor protections, and provide a wealth of information about the Putnam funds.
Industry-leading service
We help investors, along with their financial representatives, make informed investment decisions with confidence.
In 1830, Massachusetts Supreme Judicial Court Justice Samuel Putnam established The Prudent Man Rule, a legal foundation for responsible money management.
THE PRUDENT MAN RULE
All that can be required of a trustee to invest is that he shall conduct himself faithfully and exercise a sound discretion. He is to observe how men of prudence, discretion, and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of the capital to be invested.
| Message from the Trustees | 1 |
| About the fund | 2 |
| Report from the fund managers | 5 |
| Performance | 10 |
| Expenses | 12 |
| Portfolio turnover | 14 |
| Risk | 14 |
| Your fund’s management | 15 |
| Terms and definitions | 17 |
| Trustee approval of management contract | 18 |
| Other information for shareholders | 21 |
| Financial statements | 22 |
| Federal tax information | 55 |
| About the Trustees | 56 |
| Officers | 60 |
Cover photograph: © Richard H. Johnson
Message from the Trustees
Dear Fellow Shareholder:
Beginning in May 2006, leading economic indicators began to point toward slower growth and sparked a correction that undercut much of the market advance achieved in previous months. However, once the Federal Reserve (the Fed) halted its series of interest-rate increases in August, the combination of continued strong corporate profits and a fall in energy and commodity prices contributed to a more favorable market environment. In addition, U.S. export growth is currently strong, thanks to robust economic growth abroad. Growth in exports, combined with the effects of lower energy and commodity prices and recent stock market gains, may offset the economic impact of the housing sector’s continuing slowdown. This may set the stage for stronger domestic economic growth in 2007, which would bode well for markets going forward.
We would like to take this opportunity to announce that a new independent Trustee, Kenneth R. Leibler, has joined your fund’s Board of Trustees. Mr. Leibler has had a distinguished career as a leader in the investment management industry. He is the founding Chairman of the Boston Options Exchange, the nation’s newest electronic marketplace for the trading of derivative securities. He currently serves as a Trustee of Beth Israel Deaconess Hospital in Boston; a lead director of Ruder Finn Group, a global communications and advertising firm; and a director of the Optimum Funds group.
We would also like to announce the retirement of one of your fund’s Trustees, John Mullin, an independent Trustee of the Putnam funds since 1997. We thank him for his service.
In the following pages, members of your fund’s management team discuss the fund’s performance and strategies for the fiscal period ended October 31, 2006, and provide their outlook for the months ahead. As always, we thank you for your support of the Putnam funds.
Putnam Global Income Trust:
investing for income from global sources |
For investors with an appetite for income, it makes sense to look far and wide for income sources. Putnam Global Income Trust searches the world for income-generating securities.
This fund was launched in 1987, when the best international income opportunities involved taking advantage of differences in bond yields and fluctuations in currency exchange rates across international markets. But at the time, only a handful of the world’s markets allowed foreign investors to participate fully.
Since then, income opportunities have changed. Regulatory reforms opened many markets to outside investors. A convergence of interest rates at lower levels limited the effectiveness of traditional strategies. New approaches focused on opportunities in recently opened markets and budding sectors as a broader variety of bonds and specially structured debt securities developed.
Putnam Global Income Trust has kept pace with these evolving opportunities. Today, the portfolio continues to hold bonds issued by foreign governments and tries to benefit from foreign currency exposure, but it invests a greater share of assets in securities backed by mortgage and consumer debt. Examples include mortgage- and asset-backed securities. The advantage of this variety of holdings is that the sources of return are independent and unrelated, rather than dependent on a single factor, like interest-rate trends, that can turn against the fund.
The fund’s management team, working with Putnam’s 100-member fixed-income group, possesses a range of specialized research skills. Putnam analysts sift through thousands of securities, supporting the fund’s management team as it constructs a portfolio seeking high current income.
International investing involves certain risks, such as currency fluctuations, economic instability, and political developments. Additional risks may be associated with emerging-market securities, including illiquidity and volatility. Mortgage-backed securities are subject to prepayment risk. Mutual funds that invest in bonds are subject to certain risks, including interest-rate risk, credit risk, and inflation risk. As interest rates rise, the prices of bonds fall. Long-term bonds are more exposed to interest-rate risk than short-term bonds. Unlike bonds, bond funds have ongoing fees and expenses. Lower-rated bonds may offer higher yields in return for more risk. Mutual funds that invest in government securities are not guaranteed. The fund invests in fewer issuers and involves more risk than a fund that invests more broadly. The use of derivatives involves special risks and may result in losses.
Key drivers of returns
in global bond markets |
U.S. investment-grade bonds Most government, mortgage-backed, and asset-backed securities are investment-grade bonds. The performance of investment-grade bonds is influenced primarily by changes in interest rates. Generally, bond prices rise when interest rates fall, and prices fall when rates rise. The fluctuations are caused by investor expectations about future inflation and the pace of economic growth.
International bonds Bonds issued outside the United States, including sovereign debt of foreign governments, are affected by inflation and economic conditions in the countries where the bonds are issued. Also, changes in currency exchange rates affect the performance of international bonds.
Finding income opportunities in a variety of world markets
The fund’s management team identifies bonds in the United States and international markets that
offer high current income. The fund favors currencies considered to offer relative strength. |
Putnam Global Income Trust seeks high current income by investing principally in debt securities of sovereign and private issuers worldwide, including supranational issuers. Preservation of capital and long-term total return are secondary objectives, but only to the extent consistent with the objective of seeking high current income. The fund may invest up to 20% of its assets in bonds rated below investment grade. The fund may be suitable for fixed-income investors seeking broad diversification.
Highlights
• For the year ended October 31, 2006, Putnam Global Income Trust’s class A shares had a total return of 5.01% without sales charges.
• The fund’s benchmark, the Lehman Global Aggregate Bond Index, returned 5.79% .
• The average return for the fund’s Lipper category, Global Income Funds, was 5.02% .
• Additional fund performance, comparative performance, and Lipper data can be found in the performance section beginning on page 10.
Performance
Total return for class A shares for periods ended 10/31/06
Since the fund's inception (6/1/87), average annual return is 7.22% at NAV and 7.01% at POP.
| | Average annual return | Cumulative return |
| | NAV | POP | NAV | POP |
|
| 10 years | 4.14% | 3.74% | 49.99% | 44.40% |
|
| 5 years | 7.50 | 6.68 | 43.58 | 38.16 |
|
| 3 years | 4.78 | 3.46 | 15.04 | 10.75 |
|
| 1 year | 5.01 | 1.11 | 5.01 | 1.11 |
|
Data is historical. Past performance does not guarantee future results. More recent returns may be less or more than those shown. Investment return and principal value will fluctuate, and you may have a gain or a loss when you sell your shares. Performance assumes reinvestment of distributions and does not account for taxes. Returns at NAV do not reflect a sales charge of 3.75% . For the most recent month-end performance, visit www.putnam.com. For a portion of the period, this fund limited expenses, without which returns would have been lower. A 1% short-term trading fee may apply.
4
Report from the fund managers
The year in review
Fixed-income markets in the U.S.-dominated Anglo group (the United States, the United Kingdom, Canada, and Australia) rallied modestly in the final months of your fund’s fiscal year. We believe the rally was prompted by signs of slower economic growth, a pause in the Fed’s program of interest-rate increases in the United States, and several other factors. The rally helped boost returns that had suffered from a negative bond environment throughout much of the period. Your fund’s performance at net asset value (NAV, or without sales charges) was in line with the average for the fund’s Lipper group, but lagged the return of its benchmark. We attribute this underperformance to the fund’s underweight positions, relative to the benchmark, in the strong-performing Anglo markets and to its below-benchmark weightings in corporate bonds and emerging-market debt — both of which performed well on a relative basis during the period. Howe ver, fund performance benefited from our defensive, or short, duration strategy amid rising interest rates, from the strength of holdings in the securitized sector, and from positive security selection within the securitized and corporate sectors. The impact of our active currency strategy on performance was neutral.
Market overview
Interest rates rose during the fund’s fiscal year, amid signs of stronger-than-expected economic growth and interest-rate tightening by central banks throughout the world. Bond investors closely watch the pace of economic growth because it can lead to rising inflation, which erodes the value of fixed-income investments. In the United States, the Fed raised the federal funds rate six times during the period, pushing up yields on U.S. bonds, which caused their prices to fall. In August 2006, the Fed announced its intention not to raise rates after 17 consecutive increases. This pause in rate tightening helped to fuel a bond rally in the final months of the period.
Data continued to confirm that Japan’s economy has shifted into a growth mode after a long slump. This shift prompted the Bank of Japan to abandon its extremely loose monetary policy, causing yields on Japanese government bonds to rise. The Bank of Japan reported a robust 2% annualized growth rate for the July–September quarter, a number that surprised many analysts and prompted speculation that rate increases may be needed to slow growth.
Market sector performance
These indexes provide an overview of performance in different
market sectors for the 12 months ended 10/31/06. |
| Bonds | |
|
| Lehman Global Aggregate Bond Index | |
| (international bonds) | 5.79% |
|
| Lehman Aggregate Bond Index | |
| (broad bond market) | 5.19% |
|
| Lehman Government Bond Index | |
| (U.S. Treasury and agency securities) | 4.58% |
|
| Citigroup Non-U.S. World Government Bond Index | |
| (international government bonds) | 5.31% |
|
| Equities | |
|
| S&P 500 Index (broad stock market) | 16.34% |
|
| S&P/Citigroup World Ex-U.S. Growth Primary Market Index | |
| (international growth stocks of large companies) | 25.50% |
|
| S&P/Citigroup World Ex-U.S. Value Primary Market Index | |
| (international value stocks of large companies) | 29.33% |
5
Even the euro zone, which had been mired in a prolonged period of relatively slow growth, is showing signs of stronger growth, led by Germany, Europe’s largest economy. In December 2005, the European Central Bank (ECB) raised its key rate for the first time since June 2003. Continued growth prompted four more increases by the ECB during the fund’s fiscal year.
Performance among credit-sensitive issues, such as corporate bonds and emerging-market debt, benefited from improving economies and rising corporate earnings. Performance of all types of mortgage- and asset-backed debt instruments was also strong, spurred by investors who favored the higher yields these securities offered in comparison with lower-risk instruments such as Treasuries.
Strategy overview
Your fund employs multiple income-generating strategies across the different global investment-grade bond sectors in pursuit of its objectives. We believe that having diversified return sources contributes to more consistent results over time and enables us to manage risk more effectively than if the fund had a single-sector focus. Generally, our investment decisions involve the following considerations: duration management, yield curve positioning, country allocation, sector allocation, security selection, and currency management.
In anticipation of continued rising interest rates, we maintained a short duration profile for the fund for much of the period. This strategy generally helped performance, although it slightly limited the fund’s participation in the period-end rally. Duration, which is measured in years, is the primary indicator of interest-rate sensitivity. The shorter a bond’s duration, the less sensitive its price will be to interest-rate changes.
The impact of the fund’s tactical yield-curve positioning strategy was neutral for the period. The yield curve is a graphical representation of differences in yield for bonds of comparable quality plotted from the shortest to the longest maturity. Early in the period, we had positioned the portfolio to take advantage of yield-curve flattening. Flattening occurs when yields on short- and long-term securities converge, as occurred early in the period when short-term rates rose faster than long-term rates. However, based on our conviction that long-term rates would eventually rise, we shifted our strategy to position the fund to benefit from expected yield-curve steepening. This shift initially helped results as long-term rates did rise midway through the period; however, our bias toward steepening detracted slightly as the market rallied and longer-term rates fell in the period-end rally.
Comparison of top country weightings
This chart shows how the fund’s top weightings have changed
over the last six months. Weightings are shown as a percentage of
net assets. Holdings will vary over time. |
6
In terms of sector and security considerations, we have sought to reduce the level of credit risk in the portfolio over the past two years by reducing exposure to corporate and emerging-market debt. Credit risk is the risk that a bond issuer could default and fail to pay interest and repay principal in a timely manner. As interest rates rise, it becomes more expensive for issuers to borrow money. Increased interest-rate expenses are particularly burdensome for highly leveraged companies or economies. While we expect this strategy to prove rewarding over the long term, it detracted from results during the latter six months of the period, when these sectors outperformed.
Your fund’s holdings
Our country allocation strategy had a neutral impact overall on results for the period. Below-benchmark weightings to Europe and Japan had a positive impact, as bond-market performance in these areas was hurt by strong economic growth and investor concern about inflation, which often accompanies growth. However, below-benchmark weightings to the strong-performing Anglo markets offset these positives. These markets outperformed the benchmark, fueled in part by continued strong demand for bonds with longer maturities from institutional investors seeking to match the duration of their pension plans’ liabilities. Another factor was the belief on the part of some investors that the economies in these countries were poised for a slowdown — a conviction made stronger by the Fed’s decision to pause in its monetary tightening policy in the United States. Slower econo mic growth is considered a positive by bond investors concerned about the impact of inflation on their fixed-interest investments.
Similarly, the impact of our active currency strategy was also neutral. Overweights to the strong-performing British sterling and Australian dollar were counterbalanced by underweights to the European Union euro and Japanese yen, which also turned in above-benchmark performance.
Our sector and security selection within the securitized bond sector contributed positively to fund results for the fiscal year. This growing sector is now among the largest within the investment-grade bond universe. The best-known securitized bonds are mortgage-backed securities (MBSs) issued by the Federal National Mortgage Association (Fannie Mae) and the Government National Mortgage Association (Ginnie Mae). MBS pass-throughs are the simplest form of MBS — most Fannie Maes and Ginnie Maes are pass-throughs. With this structure, all principal and interest payments (less a servicing fee) from the pool of mortgages are passed directly to investors each month.
Sector weightings as of 10/31/06
Weightings are shown as a percentage of portfolio value. Holdings
will vary over time. |
7
Other types of securitized bonds include asset-backed securities (ABSs), which are typically backed by car loans and credit card payments, and commercial mortgage-backed securities (CMBSs), which are backed by loans on large commercial real estate projects, such as office parks and shopping malls.
CMBSs were an area of particular focus as we sought to replace the credit risk of corporate bonds with the more diversified credit exposure this type of security can offer. We preferred CMBSs to corporates because we believed these securitized bonds were a better value from a risk/return perspective. The yield spreads on corporate bonds versus Treasuries — one means of evaluating the price of corporates on a relative basis — have been at historically low levels over the past two years. This means that corporates have become quite expensive in comparison with other investment-grade sectors. Based on this measure, we believed that there was greater downside risk in owning corporate bonds. To the surprise of many market participants, corporate bond prices continued to rise against these odds, and your fund’s underweight position (relative to the benchmark) hurt results. Strong relative performance from CMBS holdings helped to offset this somewhat, as did the performance of select corporate bonds the fund held, particularly shorter-duration Ba-rated corporate bonds within the automotive industry.
Another bright spot within the securitized bond sector was our emphasis on ABSs backed by manufactured housing and home equity loans. With losses and delinquencies at relatively low levels, manufactured housing ABSs were the strongest performers in the sector, and securities backed by home equity loans were not far behind. ABSs also carry short maturities, which provides us with the flexibility to shift to other fixed-income securities should interest rates rise. In addition, the fund’s collateralized mortgage obligations (CMOs) performed well on a relative basis. Some CMOs and ABSs can be further divided into interest-only (IO) and principal-only (PO) securities, which separate the interest and principal payments of a bond into separate cash flows. Although these types of securities exhibit much greater prepayment sensitivity than MBSs, they compensate investors by offering much higher yields. The fund has been combining IOs and POs to create a cash flow that is similar to that of a standard MBS, but which can be obtained at a lower cost.
In terms of sector allocation, our strategic underweights to corporates and MBS pass-throughs hindered results. As noted earlier, corporate bonds — both investment-grade and high-yield — continued to outperform in aggregate amid the robust economic environment and continued strong corporate profits. However, with rate spreads versus Treasuries at historically low levels, we believe the rally in this segment of the market has run its course and considered the downside risk of holding corporates too great. The fund’s weighting in emerging-market debt (EMD) was lower than that of its benchmark, which also hurt relative performance, as this segment of the market continued to rally. Again, our valuation measures indicated that EMD was overvalued relative to other sectors within our investment universe and, therefore, represented a greater downside risk that we were not comfortable taking.
Please note that the holdings discussed in this report may not have been held by the fund for the entire period. Portfolio composition is subject to review in accordance with the fund’s investment strategy and may vary in the future.
8
The outlook for your fund
The following commentary reflects anticipated developments that could affect your fund over the next six months, as well as your management team’s plans for responding to them.
Globally, we believe the portfolio is positioned defensively against rising rates. However, the non-U.S positions are not as defensive as those within the United States since we believe that overseas markets already reflect expectations of higher rates. Major central banks outside of the United States, namely the European Central Bank, the Bank of England, and the Bank of Japan, have sent clear signals that they are leaning toward tightening in coming months. Emerging markets have softened in recent weeks, and we remain cautious toward the sector as it may experience further setbacks in an environment of globally rising rates.
We are skeptical about the prospects for Fed rate cuts in coming months. Instead, we believe there is a substantial risk that the Fed will resume tightening. In our opinion, the current housing slowdown appears no more severe than what we have seen in past cycles, core inflation excluding energy and housing is still high, and several Fed governors have warned that inflationary pressures remain worrisome. Also, the global economy is chugging along at a good clip, keeping up demand pressures on prices. Australia, New Zealand, and Britain are good cautionary tales. In all three countries, housing slowdowns last year spurred investors to believe that central banks were done with tightening —but this proved not to be the case.
Accordingly, we are positioning your fund’s portfolio conservatively, and keeping its duration relatively short in order to preserve principal should rates rise.
Among sectors, we look less favorably on corporate bonds, both investment grade and high yield. We consider the current fundamentals for corporates to be reasonably sound, but these bonds remain richly priced and surging new issuance is raising concerns about oversupply.
Nevertheless, given your fund’s flexibility to use multiple income-generating strategies, we believe that the new fiscal year will give rise to additional opportunities across the full range of global fixed-income sectors and securities, enabling your fund to continue to pursue its objectives.
The views expressed in this report are exclusively those of Putnam Management. They are not meant as investment advice.
International investing involves certain risks, such as currency fluctuations, economic instability, and political developments. Additional risks may be associated with emerging-market securities, including illiquidity and volatility. Mortgage-backed securities are subject to prepayment risk. Mutual funds that invest in bonds are subject to certain risks, including interest rate risk, credit risk, and inflation risk. As interest rates rise, the prices of bonds fall. Long-term bonds are more exposed to interest-rate risk than short-term bonds. Unlike bonds, bond funds have ongoing fees and expenses. Lower-rated bonds may offer higher yields in return for more risk. Mutual funds that invest in government securities are not guaranteed. The fund invests in fewer issuers and involves more risk than a fund that invests more broadly. The use of derivatives involves special risks and may result in losses.
9
Your fund’s performance
This section shows your fund’s performance for periods ended October 31, 2006, the end of its fiscal year. In accordance with regulatory requirements for mutual funds, we also include performance as of the most recent calendar quarter-end. Performance should always be considered in light of a fund’s investment strategy. Data represents past performance. Past performance does not guarantee future results. More recent returns may be less or more than those shown. Investment return and principal value will fluctuate, and you may have a gain or a loss when you sell your shares. For the most recent month-end performance, please visit www.putnam.com or call Putnam at 1-800-225-1581. Class Y shares are generally only available to corporate and institutional clients. See the Terms and Definitions section in this report for definitions of the share classes offered by your fund.
Fund performance Total return for periods ended 10/31/06
| | Class A | | Class B | | Class C | | Class M | | Class R | Class Y |
| (inception dates) | (6/1/87) | | (2/1/94) | | (7/26/99) | | (3/17/95) | | (12/1/03) | (10/4/05) |
| | NAV | POP | NAV | CDSC | NAV | CDSC | NAV | POP | NAV | NAV |
|
| Annual average | | | | | | | | | | |
| (life of fund) | 7.22% | 7.01% | 6.38% | 6.38% | 6.42% | 6.42% | 6.91% | 6.73% | 6.95% | 7.24% |
|
| 10 years | 49.99 | 44.40 | 39.20 | 39.20 | 39.17 | 39.17 | 46.45 | 41.63 | 46.48 | 50.48 |
| Annual average | 4.14 | 3.74 | 3.36 | 3.36 | 3.36 | 3.36 | 3.89 | 3.54 | 3.89 | 4.17 |
|
| 5 years | 43.58 | 38.16 | 38.32 | 36.32 | 38.24 | 38.24 | 41.87 | 37.22 | 42.00 | 44.05 |
| Annual average | 7.50 | 6.68 | 6.70 | 6.39 | 6.69 | 6.69 | 7.25 | 6.53 | 7.26 | 7.57 |
|
| 3 years | 15.04 | 10.75 | 12.50 | 9.63 | 12.53 | 12.53 | 14.19 | 10.50 | 14.34 | 15.42 |
| Annual average | 4.78 | 3.46 | 4.00 | 3.11 | 4.01 | 4.01 | 4.52 | 3.38 | 4.57 | 4.90 |
|
| 1 year | 5.01 | 1.11 | 4.31 | -0.67 | 4.32 | 3.33 | 4.79 | 1.36 | 4.86 | 5.34 |
|
Performance assumes reinvestment of distributions and does not account for taxes. Returns at public offering price (POP) for class A and M shares reflect a sales charge of 3.75% and 3.25%, respectively. Class B share returns reflect the applicable contingent deferred sales charge (CDSC), which is 5% in the first year, declining to 1% in the sixth year, and is eliminated thereafter. Class C shares reflect a 1% CDSC the first year that is eliminated thereafter. Class R and Y shares have no initial sales charge or CDSC. Performance for class B, C, M, R, and Y shares before their inception is derived from the historical performance of class A shares, adjusted for the applicable sales charge (or CDSC) and, except for class Y shares, the higher operating expenses for such shares.
For a portion of the period, this fund limited expenses, without which returns would have been lower.
A 1% short-term trading fee may be applied to shares exchanged or sold within 90 days of purchase.
Change in the value of a $10,000 investment ($9,625 after sales charge)
Cumulative total return from 10/31/96 to 10/31/06 |
Past performance does not indicate future results. At the end of the same time period, a $10,000 investment in the fund’s class B and class C shares would have been valued at $13,920 and $13,917, respectively, and no contingent deferred sales charges would apply. A $10,000 investment in the fund’s class M shares ($9,675 after sales charge) would have been valued at $14,163 at public offering price. A $10,000 investment in the fund’s class R and class Y shares would have been valued at $14,648 and $15,048, respectively.
10
Comparative index returns For periods ended 10/31/06
| | | Lipper Global |
| | Lehman Global | Income Funds |
| | Aggregate Bond Index | category average† |
|
| Annual average | | |
| (life of fund) | —* | 7.28% |
|
| 10 years | 70.76% | 68.63 |
| Annual average | 5.50 | 5.27 |
|
| 5 years | 39.70 | 37.34 |
| Annual average | 6.92 | 6.45 |
|
| 3 years | 15.19 | 15.44 |
| Annual average | 4.83 | 4.88 |
|
| 1 year | 5.79 | 5.02 |
|
Index and Lipper results should be compared to fund performance at net asset value.
* The index’s inception date was 12/31/89, after the fund’s inception.
† Over the 1-, 3-, 5-, and 10-year periods ended 10/31/06 , there were 104, 93, 76, and 52 funds, respectively, in this Lipper category.
Fund price and distribution information For the 12-month period ended 10/31/06
| Distributions | | Class A | | Class B | Class C | Class M | | Class R | Class Y |
|
| Number | | 12 | | 12 | 12 | 12 | | 12 | 12 |
|
| Income | | $0.648 | $0.556 | $0.558 | $0.620 | $0.621 | $0.677 |
|
| Capital gains | | — | | — | — | — | | — | — |
|
| Total | | $0.648 | $0.556 | $0.558 | $0.620 | $0.621 | $0.677 |
|
| Share value: | | NAV | POP | NAV | NAV | NAV | POP | NAV | NAV |
|
| 10/31/05 | | $12.18 | $12.65 | $12.13 | $12.14 | $12.10 | $12.51 | $12.17 | $12.18 |
|
| 10/31/06 | | 12.12 | 12.59 | 12.08 | 12.09 | 12.04 | 12.44 | 12.12 | 12.13 |
|
| Current yield (end of period) | | | | | | | | | |
| Current dividend rate1 | | 5.35% | 5.15% | 4.67% | 4.67% | 5.18% | 5.02% | 5.05% | 5.54% |
|
| Current 30-day SEC yield2,3 | | | | | | | | | |
| (with expense limitation) | | 3.83 | 3.68 | 3.08 | 3.08 | 3.58 | 3.46 | 3.58 | 4.08 |
|
| Current 30-day SEC yield3 | | | | | | | | | |
| (without expense limitation) | | 3.57 | 3.44 | 2.82 | 2.83 | 3.32 | 3.21 | 3.32 | 3.82 |
|
1 Most recent distribution, excluding capital gains, annualized and divided by NAV or POP at end of period.
2 For a portion of the period, this fund limited expenses, without which yields would have been lower.
3 Based only on investment income, calculated using SEC guidelines
Fund performance as of most recent calendar quarter Total return for periods ended 9/30/06
| | | Class A | | Class B | | Class C | | Class M | | Class R | Class Y |
| (inception dates) | | (6/1/87) | | (2/1/94) | | (7/26/99) | | (3/17/95) | | (12/1/03) | (10/4/05) |
| | | NAV | POP | NAV | CDSC | NAV | CDSC | NAV | POP | NAV | NAV |
|
| Annual average | | | | | | | | | | | |
| (life of fund) | | 7.19% | 6.98% | 6.36% | 6.36% | 6.39% | 6.39% | 6.88% | 6.70% | 6.93% | 7.21% |
|
| 10 years | | 51.47 | 45.83 | 40.57 | 40.57 | 40.58 | 40.58 | 47.93 | 43.07 | 47.81 | 51.82 |
| Annual average | | 4.24 | 3.84 | 3.46 | 3.46 | 3.46 | 3.46 | 3.99 | 3.65 | 3.98 | 4.26 |
|
| 5 years | | 43.72 | 38.38 | 38.45 | 36.45 | 38.49 | 38.49 | 41.88 | 37.32 | 41.93 | 44.04 |
| Annual average | | 7.52 | 6.71 | 6.72 | 6.41 | 6.73 | 6.73 | 7.25 | 6.55 | 7.25 | 7.57 |
|
| 3 years | | 13.79 | 9.56 | 11.27 | 8.42 | 11.21 | 11.21 | 12.94 | 9.30 | 13.02 | 14.05 |
| Annual average | | 4.40 | 3.09 | 3.62 | 2.73 | 3.61 | 3.61 | 4.14 | 3.01 | 4.16 | 4.48 |
|
| 1 year | | 2.54 | –1.28 | 1.77 | –3.09 | 1.78 | 0.81 | 2.31 | –0.98 | 2.32 | 2.78 |
|
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Your fund’s expenses
As a mutual fund investor, you pay ongoing expenses, such as management fees, distribution fees (12b-1 fees), and other expenses. In the most recent six-month period, your fund limited these expenses; had it not done so, expenses would have been higher. Using the information below, you can estimate how these expenses affect your investment and compare them with the expenses of other funds. You may also pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial advisor.
Review your fund’s expenses
The table below shows the expenses you would have paid on a $1,000 investment in Putnam Global Income Trust from May 1, 2006, to October 31, 2006. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
| | | Class A | Class B | Class C | Class M | Class R | Class Y |
|
| Expenses paid per $1,000* | | $ 5.99 | $ 9.81 | $ 9.81 | $ 7.26 | $ 7.26 | $ 4.71 |
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| Ending value (after expenses) | | $1,030.70 | $1,026.80 | $1,026.90 | $1,028.90 | $1,029.40 | $1,031.90 |
|
* Expenses for each share class are calculated using the fund’s annualized expense ratio for each class, which represents the ongoing expenses as a percentage of average net assets for the six months ended 10/31/06. The expense ratio may differ for each share class (see the last table in this section). Expenses are calculated by multiplying the expense ratio by the average account value for the period; then multiplying the result by the number of days in the period; and then dividing that result by the number of days in the year. Does not reflect the effect of a non-recurring reimbursement by Putnam. If this amount had been reflected in the table above, expenses for each share class would have been lower.
Estimate the expenses you paid
To estimate the ongoing expenses you paid for the six months ended October 31, 2006, use the calculation method below. To find the value of your investment on May 1, 2006, go to www.putnam.com and log on to your account. Click on the “Transaction History” tab in your Daily Statement and enter 05/01/2006 in both the “from” and “to” fields. Alternatively, call Putnam at 1-800-225-1581.
Compare expenses using the SEC’s method
The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the table below shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total costs) of investing in the fund with those of other funds. All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.
| | Class A | Class B | Class C | Class M | Class R | Class Y |
|
| Expenses paid per $1,000* | $ 5.96 | $ 9.75 | $ 9.75 | $ 7.22 | $ 7.22 | $ 4.69 |
|
| Ending value (after expenses) | $1,019.31 | $1,015.53 | $1,015.53 | $1,018.05 | $1,018.05 | $1,020.57 |
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* Expenses for each share class are calculated using the fund’s annualized expense ratio for each class, which represents the ongoing expenses as a percentage of average net assets for the six months ended 10/31/06. The expense ratio may differ for each share class (see the last table in this section). Expenses are calculated by multiplying the expense ratio by the average account value for the period; then multiplying the result by the number of days in the period; and then dividing that result by the number of days in the year. Does not reflect the effect of a non-recurring reimbursement by Putnam. If this amount had been reflected in the table above, expenses for each share class would have been lower.
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Compare expenses using industry averages
You can also compare your fund’s expenses with the average of its peer group, as defined by Lipper, an independent fund-rating agency that ranks funds relative to others that Lipper considers to have similar investment styles or objectives. The expense ratio for each share class shown below indicates how much of your fund’s net assets have been used to pay ongoing expenses during the period.
| | Class A | Class B | Class C | Class M | Class R | Class Y |
|
| Your fund's annualized expense ratio* | 1.17% | 1.92% | 1.92% | 1.42% | 1.42% | 0.92% |
|
| Average annualized expense ratio for Lipper peer group† | 1.17% | 1.92% | 1.92% | 1.42% | 1.42% | 0.92% |
|
* For the fund’s most recent fiscal half year; may differ from expense ratios based on one-year data in the financial highlights. Does not reflect the effect of a non-recurring reimbursement by Putnam. If this amount had been reflected in the table above, the expense ratio for each share class would have been lower.
†Simple average of the expenses of all front-end load funds in the fund’s Lipper peer group, calculated in accordance with Lipper’s standard method for comparing fund expenses (excluding 12b-1 fees and without giving effect to any expense offset and brokerage service arrangements that may reduce fund expenses). This average reflects each fund’s expenses for its most recent fiscal year available to Lipper as of 9/30/06. To facilitate comparison, Putnam has adjusted this average to reflect the 12b-1 fees carried by each class of shares other than class Y shares, which do not incur 12b-1 fees. The peer group may include funds that are significantly smaller or larger than the fund, which may limit the comparability of the fund’s expenses to the simple average, which typically is higher than the asset-weighted average.
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Your fund’s portfolio turnover
and Overall Morningstar® Risk |
Putnam funds are actively managed by teams of experts who buy and sell securities based on intensive analysis of companies, industries, economies, and markets. Portfolio turnover is a measure of how often a fund’s managers buy and sell securities for your fund. A portfolio turnover of 100%, for example, means that the managers sold and replaced securities valued at 100% of a fund’s assets within a one-year period. Funds with high turnover may be more likely to generate capital gains and dividends that must be distributed to shareholders as taxable income. High turnover may also cause a fund to pay more brokerage commissions and other transaction costs, which may detract from performance.
Funds that invest in bonds or other fixed-income instruments may have higher turnover than funds that invest only in stocks. Short-term bond funds tend to have higher turnover than longer-term bond funds, because shorter-term bonds will mature or be sold more frequently than longer-term bonds. You can use the table below to compare your fund’s turnover with the average turnover for funds in its Lipper category.
Turnover comparisons
Percentage of holdings that change every year |
| | 2006 | 2005 | 2004 | 2003 | 2002 |
| Putnam Global Income Trust | 98%* | 198%* | 162% | 198% | 331%† |
|
| Lipper Global Income Funds category average | 159% | 158% | 194% | 187% | 176% |
|
Turnover data for the fund is calculated based on the fund's fiscal-year period, which ends on October 31. Turnover data for the fund's Lipper category is calculated based on the average of the turnover of each fund in the category for its fiscal year ended during the indicated year. Fiscal years vary across funds in the Lipper category, which may limit the comparability of the fund's portfolio turnover rate to the Lipper average. Comparative data for 2006 is based on information available as of 10/31/06.
* Portfolio turnover excludes dollar roll transactions.
† Portfolio turnover excludes certain Treasury note transactions executed in connection with a short-term trading strategy.
Your fund’s Overall Morningstar® Risk
This risk comparison is designed to help you understand how your fund compares with other funds. The comparison utilizes a risk measure developed by Morningstar, an independent fund-rating agency. This risk measure is referred to as the fund’s Overall Morningstar Risk.
Your fund’s Overall Morningstar Risk is shown alongside that of the average fund in its broad asset class, as determined by Morningstar. The risk bar broadens the comparison by translating the fund’s Overall Morningstar Risk into a percentile, which is based on the fund’s ranking among all funds rated by Morningstar as of September 30, 2006. A higher Overall Morningstar Risk generally indicates that a fund’s monthly returns have varied more widely.
Morningstar determines a fund’s Overall Morningstar Risk by assessing variations in the fund’s monthly returns — with an emphasis on downside variations — over 3-, 5-, and 10-year periods, if available. Those measures are weighted and averaged to produce the fund’s Overall Morningstar Risk. The information shown is provided for the fund’s class A shares only; information for other classes may vary. Overall Morningstar Risk is based on historical data and does not indicate future results. Morningstar does not purport to measure the risk associated with a current investment in a fund, either on an absolute basis or on a relative basis. Low Overall Morningstar Risk does not mean that you cannot lose money on an investment in a fund. Copyright 2006 Morningstar, Inc. All Rights Reserved. The information contained herein (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warran ted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.
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Your fund’s management
Your fund is managed by the members of the Putnam Core Fixed-Income Team. Kevin Cronin is the Portfolio Leader and D. William Kohli is a Portfolio Member of the fund. The Portfolio Leader and Portfolio Member coordinate the team’s management of the fund.
For a complete listing of the members of the Putnam Core Fixed-Income Team, including those who are not Portfolio Leaders or Portfolio Members of your fund, visit Putnam’s Individual Investor Web site at www.putnam.com.
Investment team fund ownership
The table below shows how much the fund’s current Portfolio Leader and Portfolio Member have invested in the fund and in all Putnam mutual funds (in dollar ranges). Information shown is as of October 31, 2006, and October 31, 2005.
Trustee and Putnam employee fund ownership
As of October 31, 2006, all of the Trustees on the Board of the Putnam funds owned fund shares. The table below shows the approximate value of investments in the fund and all Putnam funds as of that date by the Trustees and Putnam employees. These amounts include investments by the Trustees’ and employees’ immediate family members and investments through retirement and deferred compensation plans.
| | | Total assets in |
| | Assets in the fund | all Putnam funds |
|
| Trustees | $ 86,000 | $ 92,000,000 |
|
| Putnam employees | $1,479,000 | $427,000,000 |
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Fund manager compensation
The total 2005 fund manager compensation that is attributable to your fund is approximately $70,000. This amount includes a portion of 2005 compensation paid by Putnam Management to the fund managers listed in this section for their portfolio management responsibilities, calculated based on the fund assets they manage taken as a percentage of the total assets they manage. The compensation amount also includes a portion of the 2005 compensation paid to the Chief Investment Officer of the team and the Group Chief Investment Officer of the fund’s broader investment category for their oversight responsibilities, calculated based on the fund assets they oversee taken as a percentage of the total assets they oversee. This amount does not include compensation of other personnel involved in research, trading, administration, systems, compliance, or fund operations; nor does it include non-compensation costs. These percentages are det ermined as of the fund’s fiscal period-end. For personnel who joined Putnam Management during or after 2005, the calculation reflects annualized 2005 compensation or an estimate of 2006 compensation, as applicable.
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Other Putnam funds managed by the Portfolio Leader and Portfolio Member
Kevin Cronin is also a Portfolio Leader of Putnam American Government Income Fund, Putnam Income Fund, Putnam Limited Duration Government Income Fund, and Putnam U.S. Government Income Trust. He is also a Portfolio Member of Putnam Equity Income Fund.
D. William Kohli is also a Portfolio Leader of Putnam Diversified Income Trust, Putnam Master Intermediate Income Trust, and Putnam Premier Income Trust.
Kevin Cronin and D. William Kohli may also manage other accounts and variable trust funds advised by Putnam Management or an affiliate.
Changes in your fund’s Portfolio Leader and Portfolio Member
Your fund’s Portfolio Leader and Portfolio Member did not change during the year ended October 31, 2006.
Putnam fund ownership by Putnam’s Executive Board
The table below shows how much the members of Putnam’s Executive Board have invested in all Putnam mutual funds (in dollar ranges). Information shown is as of October 31, 2006, and October 31, 2005.
| | | | $1 – | $10,001 – | $50,001 – | $100,001 – | $500,001 – | $1,000,001 |
| | Year | $0 | $10,000 | $50,000 | $100,000 | $500,000 | $1,000,000 | and over |
|
| Philippe Bibi | 2006 | | | | | | | • |
|
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| Chief Technology Officer | 2005 | | | | | | | • |
|
| Joshua Brooks | 2006 | | | | | | | • |
|
|
| Deputy Head of Investments | 2005 | | | | | | | • |
|
| William Connolly | 2006 | | | | | | | • |
|
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| Head of Retail Management | 2005 | | | | | | | • |
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| Kevin Cronin | 2006 | | | | | | | • |
|
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| Head of Investments | 2005 | | | | | | | • |
|
| Charles Haldeman, Jr. | 2006 | | | | | | | • |
|
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| President and CEO | 2005 | | | | | | | • |
|
| Amrit Kanwal | 2006 | | | | | | • | |
|
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| Chief Financial Officer | 2005 | | | | | | • | |
|
| Steven Krichmar | 2006 | | | | | | • | |
|
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| Chief of Operations | 2005 | | | | | | | • |
|
| Francis McNamara, III | 2006 | | | | | | | • |
|
|
| General Counsel | 2005 | | | | | | | • |
|
| Jeffrey Peters | 2006 | | | | | | | • |
|
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| Head of International Business | N/A | | | | | | | |
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| Richard Robie, III | 2006 | | | | | | • | |
|
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| Chief Administrative Officer | 2005 | | | | | | • | |
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| Edward Shadek | 2006 | | | | | | | • |
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| Deputy Head of Investments | 2005 | | | | | | | • |
|
| Sandra Whiston | 2006 | | | | | | • | |
|
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| Head of Institutional Management | 2005 | | | | | | • | |
|
N/A indicates the individual was not a member of Putnam’s Executive Board as of 10/31/05.
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Terms and definitions
Important terms
Total return shows how the value of the fund’s shares changed over time, assuming you held the shares through the entire period and reinvested all distributions in the fund.
Net asset value (NAV) is the price, or value, of one share of a mutual fund, without a sales charge. NAVs fluctuate with market conditions. NAV is calculated by dividing the net assets of each class of shares by the number of outstanding shares in the class.
Public offering price (POP) is the price of a mutual fund share plus the maximum sales charge levied at the time of purchase. POP performance figures shown here assume the 3.75% maximum sales charge for class A shares and 3.25% for class M shares.
Contingent deferred sales charge (CDSC) is generally a charge applied at the time of the redemption of class B or C shares and assumes redemption at the end of the period. Your fund’s class B CDSC declines from a 5% maximum during the first year to 1% during the sixth year. After the sixth year, the CDSC no longer applies. The CDSC for class C shares is 1% for one year after purchase.
Share classes
Class A shares are generally subject to an initial sales charge and no CDSC (except on certain redemptions of shares bought without an initial sales charge).
Class B shares are not subject to an initial sales charge. They may be subject to a CDSC.
Class C shares are not subject to an initial sales charge and are subject to a CDSC only if the shares are redeemed during the first year.
Class M shares have a lower initial sales charge and a higher 12b-1 fee than class A shares and no CDSC (except on certain redemptions of shares bought without an initial sales charge).
Class R shares are not subject to an initial sales charge or CDSC and are available only to certain defined contribution plans.
Class Y shares are not subject to an initial sales charge or CDSC, and carry no 12b-1 fee. They are only available to eligible purchasers, including eligible defined contribution plans or corporate IRAs.
Comparative indexes
Citigroup Non-U.S. World Government Bond Index is an unmanaged index of international investment-grade fixed-income securities, excluding the United States.
Lehman Aggregate Bond Index is an unmanaged index of U.S. investment-grade fixed-income securities.
Lehman Global Aggregate Bond Index is an unmanaged index of global investment-grade fixed-income securities.
Lehman Government Bond Index is an unmanaged index of U.S. Treasury and agency securities.
S&P/Citigroup World Ex-U.S. Growth Primary Market Index (PMI) is an unmanaged index of mostly large- and some small-cap stocks from developed countries, excluding the United States, chosen for their growth orientation.
S&P/Citigroup World Ex-U.S. Value Primary Market Index (PMI) is an unmanaged index of mostly large- and some small-cap stocks from developed countries, excluding the United States, chosen for their value orientation.
S&P 500 Index is an unmanaged index of common stock performance.
Indexes assume reinvestment of all distributions and do not account for fees. Securities and performance of a fund and an index will differ. You cannot invest directly in an index.
Lipper is a third-party industry-ranking entity that ranks mutual funds. Its rankings do not reflect sales charges. Lipper rankings are based on total return at net asset value relative to other funds that have similar current investment styles or objectives as determined by Lipper. Lipper may change a fund’s category assignment at its discretion. Lipper category averages reflect performance trends for funds within a category.
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Trustee approval
of management contract |
General conclusions
The Board of Trustees of the Putnam funds oversees the management of each fund and, as required by law, determines annually whether to approve the continuance of your fund’s management contract with Putnam Management and the sub-management contract between Putnam Management’s affiliate, Putnam Investments Limited (“PIL”), and Putnam Management. In this regard, the Board of Trustees, with the assistance of its Contract Committee consisting solely of Trustees who are not “interested persons” (as such term is defined in the Investment Company Act of 1940, as amended) of the Putnam funds (the “Independent Trustees”), requests and evaluates all information it deems reasonably necessary under the circumstances. Over the course of several months ending in June 2006, the Contract Committee met four times to consider the information provided by Putnam Management and other information developed with the assistance of the Board’s in dependent counsel and independent staff. The Contract Committee reviewed and discussed key aspects of this information with all of the Independent Trustees. Upon completion of this review, the Contract Committee recommended, and the Independent Trustees approved, the continuance of your fund’s management contract and sub-management contract, effective July 1, 2006. (Because PIL is an affiliate of Putnam Management and Putnam Management remain fully responsible for all services provided by PIL, the Trustees have not evaluated PIL as a separate entity, and all subsequent references to Putnam Management below include reference to PIL as necessary or appropriate in the context.)
This approval was based on the following conclusions:
• That the fee schedule in effect for your fund represents reasonable compensation in light of the nature and quality of the services being provided to the fund, the fees paid by competitive funds and the costs incurred by Putnam Management in providing such services, and
• That such fee schedule represents an appropriate sharing between fund shareholders and Putnam Management of such economies of scale as may exist in the management of the fund at current asset levels.
These conclusions were based on a comprehensive consideration of all information provided to the Trustees and were not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations and how the Trustees considered these factors are described below, although individual Trustees may have evaluated the information presented differently, giving different weights to various factors. It is also important to recognize that the fee arrangements for your fund and the other Putnam funds are the result of many years of review and discussion between the Independent Trustees and Putnam Management, that certain aspects of such arrangements may receive greater scrutiny in some years than others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements in prior years.
Management fee schedules and categories; total expenses
The Trustees reviewed the management fee schedules in effect for all Putnam funds, including fee levels and breakpoints, and the assignment of funds to particular fee categories. In reviewing fees and expenses, the Trustees generally focused their attention on material changes in circumstances — for example, changes in a fund’s size or investment style, changes in Putnam Management’s operating costs, or changes in competitive practices in the mutual fund industry — that suggest that consideration of fee changes might be warranted. The Trustees concluded that the circumstances did not warrant changes to the management fee structure of your fund, which had been carefully developed over the years, re-examined on many occasions and adjusted where appropriate. The Trustees focused on two areas of particular interest, as discussed further below:
• Competitiveness. The Trustees reviewed comparative fee and expense information for competitive funds, which indicated that, in a custom peer group of competitive funds selected by Lipper Inc., your fund ranked in the 18th percentile in management fees and in the 27th percentile in total expenses (less any applicable 12b-1 fees) as of December 31, 2005 (the first percentile being the least expensive funds and the 100th percentile being the most expensive funds). (Because the fund’s custom peer group is smaller than the fund’s broad Lipper Inc. peer group, this expense information may differ from the Lipper peer expense information found elsewhere in this report.) The Trustees noted that expense ratios for a number of Putnam funds, which show the percentage of fund assets used to pay for management and administrative services, distribution (12b-1) fees and other expenses, had been increasing recently as a result of declining net assets and the natural operation of fee breakpoints.
The Trustees noted that the expense ratio increases described above were currently being controlled by expense limitations
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implemented in January 2004 and which Putnam Management, in consultation with the Contract Committee, has committed to maintain at least through 2007. These expense limitations give effect to a commitment by Putnam Management that the expense ratio of each open-end fund would be no higher than the average expense ratio of the competitive funds included in the fund’s relevant Lipper universe (exclusive of any applicable 12b-1 charges in each case). The Trustees observed that this commitment to limit fund expenses has served shareholders well since its inception. In order to ensure that the expenses of the Putnam funds continue to meet evolving competitive standards, the Trustees requested, and Putnam Management agreed, to implement an additional expense limitation for certain funds for the twelve months beginning January 1, 2007 equal to the average expense ratio (exclusive of 12b-1 charges) of a custom peer group of competitive funds selected by Lipper based on the size of the fund. This additional expense limitation will be applied to those open-end funds that had above-average expense ratios (exclusive of 12b-1 charges) based on the Lipper custom peer group data for the period ended December 31, 2005. This additional expense limitation will not be applied to your fund.
• Economies of scale. Your fund currently has the benefit of breakpoints in its management fee that provide shareholders with significant economies of scale, which means that the effective management fee rate of a fund (as a percentage of fund assets) declines as a fund grows in size and crosses specified asset thresholds. Conversely, as a fund shrinks in size — as has been the case for many Putnam funds in recent years — these breakpoints result in increasing fee levels. In recent years, the Trustees have examined the operation of the existing breakpoint structure during periods of both growth and decline in asset levels. The Trustees concluded that the fee schedules in effect for the funds represented an appropriate sharing of economies of scale at current asset levels. In reaching this conclusion, the Trustees considered the Contract Committe e’s stated intent to continue to work with Putnam Management to plan for an eventual resumption in the growth of assets, including a study of potential economies that might be produced under various growth assumptions.
In connection with their review of the management fees and total expenses of the Putnam funds, the Trustees also reviewed the costs of the services to be provided and profits to be realized by Putnam Management and its affiliates from the relationship with the funds. This information included trends in revenues, expenses and profitability of Putnam Management and its affiliates relating to the investment management and distribution services provided to the funds. In this regard, the Trustees also reviewed an analysis of Putnam Management’s revenues, expenses and profitability with respect to the funds’ management contracts, allocated on a fund-by-fund basis. Because many of the costs incurred by Putnam Management in managing the funds are not readily identifiable to particular funds, the Trustees observed that the methodology for allocating costs is an important factor in evaluating Putnam Management’s costs and profitability, both as to the Putnam fu nds in the aggregate and as to individual funds. The Trustees reviewed Putnam Management’s cost allocation methodology with the assistance of independent consultants and concluded that this methodology was reasonable and well-considered.
Investment performance
The quality of the investment process provided by Putnam Management represented a major factor in the Trustees’ evaluation of the quality of services provided by Putnam Management under your fund’s management contract. The Trustees were assisted in their review of the Putnam funds’ investment process and performance by the work of the Investment Process Committee of the Trustees and the Investment Oversight Committee of the Trustees, which meet on a regular monthly basis with the funds’ portfolio teams throughout the year. The Trustees concluded that Putnam Management generally provides a high-quality investment process — as measured by the experience and skills of the individuals assigned to the management of fund portfolios, the resources made available to such personnel, and in general the ability of Putnam Management to attract and retain high-quality personnel — but also recognize that this does not guarantee favorable investment r esults for every fund in every time period. The Trustees considered the investment performance of each fund over multiple time periods and considered information comparing each fund’s performance with various benchmarks and with the performance of competitive funds. The Trustees noted the satisfactory investment performance of many Putnam funds. They also noted the disappointing investment performance of certain funds in recent years and discussed with senior management of Putnam Management the factors contributing to such underperformance and actions being taken to improve performance. The Trustees recognized that, in recent years, Putnam Management has made significant changes in its investment personnel and processes and in the fund product line to address areas of underperformance. In particular, they noted the important contributions of Putnam Management’s leadership in attracting, retaining and supporting high-quality investment
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professionals and in systematically implementing an investment process that seeks to merge the best features of fundamental and quantitative analysis. The Trustees indicated their intention to continue to monitor performance trends to assess the effectiveness of these changes and to evaluate whether additional changes to address areas of underperformance are warranted.
In the case of your fund, the Trustees considered that your fund’s class A share cumulative total return performance at net asset value was in the following percentiles of its Lipper Inc. peer group (Lipper Global Income Funds) for the one-, three- and five-year periods ended March 31, 2006 (the first percentile being the best performing funds and the 100th percentile being the worst performing funds):
| One-year period | Three-year period | Five-year period |
|
| 69th | 40th | 38th |
(Because of the passage of time, these performance results may differ from the performance results for more recent periods shown elsewhere in this report. Over the one-, three- and five-year periods ended March 31, 2006, there were 91, 88 and 71 funds, respectively, in your fund’s Lipper peer group.* Past performance is no guarantee of future performance.)
As a general matter, the Trustees concluded that cooperative efforts between the Trustees and Putnam Management represent the most effective way to address investment performance problems. The Trustees noted that investors in the Putnam funds have, in effect, placed their trust in the Putnam organization, under the oversight of the funds’ Trustees, to make appropriate decisions regarding the management of the funds. Based on the responsiveness of Putnam Management in the recent past to Trustee concerns about investment performance, the Trustees concluded that it is preferable to seek change within Putnam Management to address performance shortcomings. In the Trustees’ view, the alternative of terminating a management contract and engaging a new investment adviser for an underperforming fund would entail significant disruptions and would not provide any greater assurance of improved investment performance.
Brokerage and soft-dollar allocations; other benefits
The Trustees considered various potential benefits that Putnam Management may receive in connection with the services it provides under the management contract with your fund. These include benefits related to brokerage and soft-dollar allocations, whereby a portion of the commissions paid by a fund for brokerage may be used to acquire research services that may be useful to Putnam Management in managing the assets of the fund and of other clients. The Trustees indicated their continued intent to monitor the potential benefits associated with the allocation of fund brokerage to ensure that the principle of seeking “best price and execution” remains paramount in the portfolio trading process.
The Trustees’ annual review of your fund’s management contract also included the review of its distributor’s contract and distribution plan with Putnam Retail Management Limited Partnership and the custodian agreement and investor servicing agreement with Putnam Fiduciary Trust Company, all of which provide benefits to affiliates of Putnam Management.
Comparison of retail and institutional fee schedules
The information examined by the Trustees as part of their annual contract review has included for many years information regarding fees charged by Putnam Management and its affiliates to institutional clients such as defined benefit pension plans, college endowments, etc. This information included comparison of such fees with fees charged to the funds, as well as a detailed assessment of the differences in the services provided to these two types of clients. The Trustees observed, in this regard, that the differences in fee rates between institutional clients and the mutual funds are by no means uniform when examined by individual asset sectors, suggesting that differences in the pricing of investment management services to these types of clients reflect to a substantial degree historical competitive forces operating in separate market places. The Trustees considered the fact that fee rates across all asset sectors are higher on a verage for mutual funds than for institutional clients, as well as the differences between the services that Putnam Management provides to the Putnam funds and those that it provides to institutional clients of the firm, but did not rely on such comparisons to any significant extent in concluding that the management fees paid by your fund are reasonable.
* The percentile rankings for your fund’s class A share annualized total return performance in the Lipper Global Income Funds category for the one-, five- and ten-year periods ended September 30, 2006, were 46%, 26% and 78%, respectively. Over the one-, five- and ten-year periods ended September 30, 2006, the fund ranked 46 out of 99, 20 out of 76, and 41 out of 52 funds, respectively. Note that this more recent information was not available when the Trustees approved the continuance of your fund’s management contract.
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Other information for shareholders
Putnam’s policy on confidentiality
In order to conduct business with our shareholders, we must obtain certain personal information such as account holders’ addresses, telephone numbers, Social Security numbers, and the names of their financial advisors. We use this information to assign an account number and to help us maintain accurate records of transactions and account balances. It is our policy to protect the confidentiality of your information, whether or not you currently own shares of our funds, and in particular, not to sell information about you or your accounts to outside marketing firms. We have safeguards in place designed to prevent unauthorized access to our computer systems and procedures to protect personal information from unauthorized use. Under certain circumstances, we share this information with outside vendors who provide services to us, such as mailing and proxy solicitation. In those cases, the service providers enter into confidentiali ty agreements with us, and we provide only the information necessary to process transactions and perform other services related to your account. We may also share this information with our Putnam affiliates to service your account or provide you with information about other Putnam products or services. It is also our policy to share account information with your financial advisor, if you’ve listed one on your Putnam account. If you would like clarification about our confidentiality policies or have any questions or concerns, please don’t hesitate to contact us at 1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time.
Proxy voting
Putnam is committed to managing our mutual funds in the best interests of our shareholders. The Putnam funds’ proxy voting guidelines and procedures, as well as information regarding how your fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2006, are available on the Putnam Individual Investor Web site, www.putnam.com/individual, and on the SEC’s Web site, www.sec.gov. If you have questions about finding forms on the SEC’s Web site, you may call the SEC at 1-800-SEC-0330. You may also obtain the Putnam funds’ proxy voting guidelines and procedures at no charge by calling Putnam’s Shareholder Services at 1-800-225-1581.
Fund portfolio holdings
The fund will file a complete schedule of its portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. Shareholders may obtain the fund’s Forms N-Q on the SEC’s Web site at www.sec.gov. In addition, the fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. You may call the SEC at 1-800-SEC-0330 for information about the SEC’s Web site or the operation of the Public Reference Room.
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Financial statements
These sections of the report, as well as the accompanying Notes, preceded by the Report of Independent Registered Public Accounting Firm, constitute the fund’s financial statements.
The fund’s portfolio lists all the fund’s investments and their values as of the last day of the reporting period. Holdings are organized by asset type and industry sector, country, or state to show areas of concentration and diversification.
Statement of assets and liabilities shows how the fund’s net assets and share price are determined. All investment and non-investment assets are added together. Any unpaid expenses and other liabilities are subtracted from this total. The result is divided by the number of shares to determine the net asset value per share, which is calculated separately for each class of shares. (For funds with preferred shares, the amount subtracted from total assets includes the liquidation preference of preferred shares.)
Statement of operations shows the fund’s net investment gain or loss. This is done by first adding up all the fund’s earnings — from dividends and interest income — and subtracting its operating expenses to determine net investment income (or loss). Then, any net gain or loss the fund realized on the sales of its holdings — as well as any unrealized gains or losses over the period — is added to or subtracted from the net investment result to determine the fund’s net gain or loss for the fiscal year.
Statement of changes in net assets shows how the fund’s net assets were affected by the fund’s net investment gain or loss, by distributions to shareholders, and by changes in the number of the fund’s shares. It lists distributions and their sources (net investment income or realized capital gains) over the current reporting period and the most recent fiscal year-end. The distributions listed here may not match the sources listed in the Statement of operations because the distributions are determined on a tax basis and may be paid in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund’s investment results, per-share distributions, expense ratios, net investment income ratios, and portfolio turnover in one summary table, reflecting the five most recent reporting periods. In a semiannual report, the highlight table also includes the current reporting period.
22
Report of Independent Registered Public Accounting Firm
To the Trustees and Shareholders of
Putnam Global Income Trust: |
In our opinion, the accompanying statement of assets and liabilities, including the fund’s portfolio, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Putnam Global Income Trust (the “fund”) at October 31, 2006, and the results of its operations, the changes in its net assets and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements 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 are free of material misstatement. An audit 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, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of investments owned at October 31, 2006, by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 12, 2006 |
23
| The fund’s portfolio 10/31/06 | | |
|
| |
| COLLATERALIZED MORTGAGE OBLIGATIONS (34.6%)* | | |
|
| | | | Principal amount | | Value |
|
| Amresco Commercial Mortgage | | | | |
| Funding I 144A | | | | | |
| Ser. 97-C1, Class G, 7s, 2029 | $ | 100,000 | $ | 100,101 |
| Ser. 97-C1, Class H, 7s, 2029 | | 81,000 | | 81,442 |
| Asset Securitization Corp. | | | | | |
| Ser. 96-MD6, Class A7, | | | | | |
| 8.01s, 2029 | | | 154,000 | | 161,311 |
| Banc of America Commercial | | | | | |
| Mortgage, Inc. | | | | | |
| Ser. 06-4, Class A4, | | | | | |
| 5.634s, 2046 | | | 80,000 | | 81,846 |
| Ser. 06-5, Class A4, | | | | | |
| 5.414s, 2047 | | | 98,000 | | 98,694 |
| Ser. 04-3, Class A5, | | | | | |
| 5.303s, 2039 | | | 160,000 | | 161,475 |
| Banc of America Commercial | | | | | |
| Mortgage, Inc. 144A Ser. 01-PB1, | | | | |
| Class K, 6.15s, 2035 | | | 100,000 | | 100,622 |
| Banc of America Large Loan 144A | | | | |
| FRB Ser. 02-FL2A, Class L1, | | | | | |
| 8.32s, 2014 | | | 100,000 | | 100,000 |
| FRB Ser. 05-ESHA, Class K, | | | | | |
| 7.12s, 2020 | | | 161,000 | | 161,519 |
| FRB Ser. 06-LAQ, Class M, | | | | | |
| 6.97s, 2021 | | | 145,000 | | 145,428 |
| FRB Ser. 06-LAQ, Class L, | | | | | |
| 6.87s, 2021 | | | 132,000 | | 132,586 |
| Banc of America Structured | | | | | |
| Security Trust 144A Ser. 02-X1, | | | | |
| Class A3, 5.436s, 2033 | | | 147,560 | | 148,328 |
| Bayview Commercial | | | | | |
| Asset Trust 144A | | | | | |
| FRB Ser. 06-CD1A, | | | | | |
| Class A1, 4.623s, 2023 | CAD | | 3,180,876 | | 2,836,270 |
| Ser. 06-CD1A, Interest | | | | | |
| Only (IO), 0.84s, 2023 | CAD | | 12,855,476 | | 798,954 |
| Bear Stearns Commercial | | | | | |
| Mortgage Securities, Inc. | | | | | |
| 144A FRB Ser. 05-LXR1, | | | | | |
| Class J, 6.97s, 2018 | | $ | 148,000 | | 148,000 |
| Bear Stearns Commercial Mortgage | | | | |
| Securitization Corp. Ser. 00-WF2, | | | | |
| Class F, 8.195s, 2032 | | | 100,000 | | 112,067 |
| Broadgate Financing PLC sec. | | | | | |
| FRB Ser. D, 5.893s, 2023 | | | | | |
| (United Kingdom) | GBP | | 110,975 | | 211,038 |
| Chase Commercial Mortgage | | | | | |
| Securities Corp. 144A | | | | | |
| Ser. 98-1, Class F, 6.56s, 2030 | $ | 362,000 | | 373,193 |
| Ser. 98-1, Class G, 6.56s, 2030 | | 89,000 | | 93,909 |
| Ser. 98-1, Class H, 6.34s, 2030 | | 203,000 | | 173,350 |
| Commercial Mortgage | | | | | |
| Acceptance Corp. Ser. 97-ML1, | | | | |
| Class A3, 6.57s, 2030 | | | 340,000 | | 340,783 |
| Commercial Mortgage Acceptance | | | | |
| Corp. 144A Ser. 98-C1, | | | | | |
| Class F, 6.23s, 2031 | | | 157,000 | | 162,618 |
| COLLATERALIZED MORTGAGE OBLIGATIONS (34.6%)* continued |
|
| | | Principal amount | | Value |
|
| Commercial Mortgage | | | | |
| Pass-Through Certificates | | | | |
| Ser. 06-C7, Class A4, | | | | |
| 5.769s, 2046 | $ | 1,776,000 | $ | 1,843,156 |
| Ser. 04-LB2A, Class A4, | | | | |
| 4.715s, 2039 | | 367,000 | | 353,355 |
| Countrywide Alternative Loan Trust | | | |
| Ser. 06-OA10, Class XBI, IO, | | | | |
| 1.813s, 2046 | | 448,230 | | 20,871 |
| Ser. 05-24, Class 1AX, IO, | | | | |
| 1.221s, 2035 | | 2,539,649 | | 47,776 |
| Ser. 05-24, Class IIAX, IO, | | | | |
| 1.201s, 2035 | | 1,285,151 | | 38,868 |
| IFB Ser. 06-19CB, Class A2, IO, | | | |
| zero %, 2036 | | 90,150 | | 232 |
| IFB Ser. 06-20CB, Class A14, IO, | | | |
| zero %, 2036 | | 68,992 | | 216 |
| IFB Ser. 06-14CB, Class A9, IO, | | | |
| zero %, 2036 | | 129,613 | | 729 |
| IFB Ser. 06-6CB, Class 1A3, IO, | | | |
| zero %, 2036 | | 1,578,690 | | 3,823 |
| Countrywide Home Loans | | | | |
| Ser. 05-9, Class 1X, IO, | | | | |
| 1.411s, 2035 | | 1,235,880 | | 28,920 |
| Ser. 05-2, Class 2X, IO, | | | | |
| 1.16s, 2035 | | 1,464,786 | | 35,704 |
| Credit Suisse Mortgage Capital | | | | |
| Certificates Ser. 06-C4, | | | | |
| Class A3, 5.467s, 2039 | | 164,000 | | 165,654 |
| CS First Boston Mortgage Securities Corp. | | |
| Ser. 97-C2, Class F, 7.46s, 2035 | 119,000 | | 131,209 |
| Ser. 04-C2, Class A2, 5.416s, 2036 | 180,000 | | 181,260 |
| CS First Boston Mortgage Securities | | | |
| Corp. 144A | | | | |
| Ser. 1998-C2, Class F, 6 3/4s, 2030 | 362,000 | | 386,484 |
| Ser. 02-CP5, Class M, 5 1/4s, 2035 | 81,000 | | 74,143 |
| Ser. 03-C3, Class AX, IO, | | | | |
| 0.426s, 2038 | | 1,416,190 | | 58,842 |
| Ser. 03-CK2, Class AX, IO, | | | | |
| 0.425s, 2036 | | 2,861,180 | | 81,700 |
| DLJ Commercial Mortgage Corp. | | | |
| Ser. 99-CG2, Class B3, 6.1s, 2032 | 129,000 | | 129,567 |
| Ser. 99-CG2, Class B4, 6.1s, 2032 | 219,000 | | 219,574 |
| DLJ Mortgage Acceptance Corp. 144A | | | |
| Ser. 97-CF1, Class B1, 7.91s, 2030 | 61,000 | | 61,409 |
| Ser. 97-CF1, Class A3, 7.76s, 2030 | 160,000 | | 160,192 |
| European Loan Conduit FRB Ser. 6X, | | | |
| Class E, 6.931s, 2010 | | | | |
| (United Kingdom) | GBP | 87,776 | | 167,657 |
| European Loan Conduit 144A | | | | |
| FRB Ser. 6A, Class F, 6.99s, | | | | |
| 2010 (United Kingdom) | GBP | 45,716 | | 87,339 |
| FRB Ser. 22A, Class D, 6.02s, | | | | |
| 2014 (Ireland) | GBP | 103,500 | | 197,395 |
| European Prime Real Estate PLC | | | | |
| 144A FRB Ser. 1-A, Class D, | | | | |
| 5.608s, 2014 (United Kingdom) | GBP | 235,011 | | 447,137 |
24
| COLLATERALIZED MORTGAGE OBLIGATIONS (34.6%)* continued |
|
| | Principal amount | | Value |
|
| Fannie Mae | | | | |
| Ser. 02-T4, Class A4, 9 1/2s, 2041 | $ | 434,282 | $ | 459,384 |
| IFB Ser. 05-37, Class SU, | | | | |
| 7.92s, 2035 | | 243,805 | | 266,169 |
| IFB Ser. 06-76, Class QB, | | | | |
| 7.68s, 2036 | | 212,143 | | 235,186 |
| Ser. 04-W2, Class 5A, 7 1/2s, 2044 | | 495,942 | | 521,831 |
| Ser. 03-W4, Class 4A, 7 1/2s, 2042 | | 156,414 | | 163,459 |
| Ser. 02-W1, Class 2A, 7 1/2s, 2042 | | 246,217 | | 256,438 |
| Ser. 01-T10, Class A2, 7 1/2s, 2041 | | 158,183 | | 164,928 |
| Ser. 02-T4, Class A3, 7 1/2s, 2041 | | 146,607 | | 152,917 |
| Ser. 02-T6, Class A2, 7 1/2s, 2041 | | 56,607 | | 58,948 |
| Ser. 01-T12, Class A2, 7 1/2s, 2041 | | 171,860 | | 179,165 |
| Ser. 01-T7, Class A1, 7 1/2s, 2041 | | 503,126 | | 522,980 |
| Ser. 99-T2, Class A1, 7 1/2s, 2039 | | 314,871 | | 330,959 |
| Ser. 00-T6, Class A1, 7 1/2s, 2030 | | 140,564 | | 146,776 |
| Ser. 02-W3, Class A5, | | | | |
| 7 1/2s, 2028 | | 27,718 | | 28,966 |
| IFB Ser. 06-63, Class SP, | | | | |
| 7.38s, 2036 | | 231,236 | | 254,932 |
| IFB Ser. 06-60, Class TK, | | | | |
| 7.32s, 2036 | | 99,979 | | 105,708 |
| Ser. 02-26, Class A1, 7s, 2048 | | 109,102 | | 112,729 |
| Ser. 03-W8, Class 2A, 7s, 2042 | | 427,467 | | 443,042 |
| Ser. 02-T16, Class A2, 7s, 2042 | | 672,884 | | 696,616 |
| Ser. 02-14, Class A1, 7s, 2042 | | 191,811 | | 197,950 |
| IFB Ser. 06-104, Class ES, | | | | |
| 6.8s, 2036 | | 163,000 | | 175,182 |
| IFB Ser. 05-74, Class SK, | | | | |
| 5.5s, 2035 | | 243,282 | | 247,126 |
| IFB Ser. 05-74, Class CS, | | | | |
| 5.39s, 2035 | | 149,109 | | 150,824 |
| IFB Ser. 05-74, Class CP, | | | | |
| 5.243s, 2035 | | 130,797 | | 133,955 |
| IFB Ser. 05-76, Class SA, | | | | |
| 5.243s, 2034 | | 185,831 | | 187,229 |
| IFB Ser. 05-57, Class CD, | | | | |
| 5.175s, 2035 | | 126,911 | | 128,673 |
| IFB Ser. 06-8, Class PK, | | | | |
| 5.12s, 2036 | | 220,072 | | 220,311 |
| IFB Ser. 06-27, Class SP, | | | | |
| 5.06s, 2036 | | 157,000 | | 160,117 |
| IFB Ser. 06-8, Class HP, | | | | |
| 5.06s, 2036 | | 196,496 | | 199,085 |
| IFB Ser. 06-8, Class WK, | | | | |
| 5.06s, 2036 | | 298,930 | | 299,941 |
| IFB Ser. 05-106, Class US, | | | | |
| 5.06s, 2035 | | 314,905 | | 321,762 |
| IFB Ser. 05-99, Class SA, | | | | |
| 5.06s, 2035 | | 156,311 | | 156,917 |
| IFB Ser. 05-45, Class DA, | | | | |
| 4.913s, 2035 | | 308,926 | | 311,770 |
| IFB Ser. 05-74, Class DM, | | | | |
| 4.877s, 2035 | | 301,237 | | 302,715 |
| IFB Ser. 05-45, Class DC, | | | | |
| 4.803s, 2035 | | 171,626 | | 172,462 |
| IFB Ser. 06-60, Class CS, | | | | |
| 4.583s, 2036 | | 100,554 | | 97,082 |
| COLLATERALIZED MORTGAGE OBLIGATIONS (34.6%)* continued |
|
| | Principal amount | Value |
|
| Fannie Mae | | |
| IFB Ser. 05-57, Class DC, | | | |
| 4.485s, 2034 | $ | 220,170 $ | 220,468 |
| IFB Ser. 05-45, Class PC, | | | |
| 4.29s, 2034 | | 90,879 | 90,410 |
| IFB Ser. 03-66, Class SA, IO, | | | |
| 2.33s, 2033 | | 285,117 | 21,918 |
| IFB Ser. 03-48, Class S, IO, | | | |
| 2.23s, 2033 | | 123,031 | 9,343 |
| Ser. 03-W10, Class 1, IO, | | | |
| 1.952s, 2043 | | 1,294,130 | 58,802 |
| IFB Ser. 05-113, Class DI, IO, | | | |
| 1.91s, 2036 | | 5,089,537 | 297,612 |
| IFB Ser. 04-89, Class EI, IO, | | | |
| 1.83s, 2034 | | 1,026,917 | 71,213 |
| IFB Ser. 04-24, Class CS, IO, | | | |
| 1.83s, 2034 | | 381,671 | 26,793 |
| IFB Ser. 03-122, Class SA, IO, | | | |
| 1.78s, 2028 | | 528,691 | 25,532 |
| IFB Ser. 03-122, Class SJ, IO, | | | |
| 1.78s, 2028 | | 550,188 | 26,993 |
| IFB Ser. 04-60, Class SW, IO, | | | |
| 1.73s, 2034 | | 721,282 | 49,917 |
| IFB Ser. 05-65, Class KI, IO, | | | |
| 1.68s, 2035 | | 575,380 | 29,623 |
| Ser. 03-W8, Class 12, IO, | | | |
| 1.639s, 2042 | | 2,739,784 | 116,989 |
| IFB Ser. 05-42, Class SA, IO, | | | |
| 1.48s, 2035 | | 597,721 | 32,645 |
| IFB Ser. 05-73, Class SI, IO, | | | |
| 1.43s, 2035 | | 147,866 | 8,179 |
| IFB Ser. 05-17, Class ES, IO, | | | |
| 1.43s, 2035 | | 309,721 | 19,977 |
| IFB Ser. 05-17, Class SY, IO, | | | |
| 1.43s, 2035 | | 143,791 | 9,144 |
| IFB Ser. 05-82, Class SY, IO, | | | |
| 1.41s, 2035 | | 674,356 | 33,816 |
| IFB Ser. 05-45, Class SR, IO, | | | |
| 1.4s, 2035 | | 954,544 | 48,647 |
| IFB Ser. 05-95, Class CI, IO, | | | |
| 1.38s, 2035 | | 323,803 | 20,468 |
| IFB Ser. 05-84, Class SG, IO, | | | |
| 1.38s, 2035 | | 562,429 | 33,267 |
| IFB Ser. 05-69, Class AS, IO, | | | |
| 1.38s, 2035 | | 145,346 | 7,820 |
| IFB Ser. 05-54, Class SA, IO, | | | |
| 1.38s, 2035 | | 654,354 | 31,900 |
| IFB Ser. 05-23, Class SG, IO, | | | |
| 1.38s, 2035 | | 464,566 | 28,385 |
| IFB Ser. 05-29, Class SX, IO, | | | |
| 1.38s, 2035 | | 551,926 | 31,087 |
| IFB Ser. 05-29, Class SY, IO, | | | |
| 1.38s, 2035 | | 1,384,476 | 85,331 |
| IFB Ser. 05-57, Class CI, IO, | | | |
| 1.38s, 2035 | | 411,195 | 21,590 |
| IFB Ser. 05-17, Class SA, IO, | | | |
| 1.38s, 2035 | | 417,022 | 25,056 |
25
| COLLATERALIZED MORTGAGE OBLIGATIONS (34.6%)* continued |
|
| | | Principal amount | | Value |
|
| Fannie Mae | | | | |
| IFB Ser. 05-17, Class SE, IO, | | | | |
| 1.38s, 2035 | $ | 442,539 | $ | 26,214 |
| IFB Ser. 05-57, Class DI, IO, | | | | |
| 1.38s, 2035 | | 989,158 | | 50,293 |
| IFB Ser. 04-92, Class S, IO, | | | | |
| 1.38s, 2034 | | 452,037 | | 23,944 |
| IFB Ser. 05-104, Class SI, IO, | | | | |
| 1.38s, 2033 | | 380,258 | | 22,088 |
| IFB Ser. 05-83, Class QI, IO, | | | | |
| 1.37s, 2035 | | 92,407 | | 6,299 |
| IFB Ser. 05-92, Class SC, IO, | | | | |
| 1.36s, 2035 | | 765,063 | | 45,272 |
| IFB Ser. 05-73, Class SD, IO, | | | | |
| 1.36s, 2035 | | 375,381 | | 24,340 |
| IFB Ser. 05-83, Class SL, IO, | | | | |
| 1.35s, 2035 | | 1,040,368 | | 51,808 |
| IFB Ser. 06-20, Class IG, IO, | | | | |
| 1.33s, 2036 | | 1,788,821 | | 77,155 |
| Ser. 03-W6, Class 11, IO, | | | | |
| 1.286s, 2035 | | 67,585 | | 5 |
| IFB Ser. 06-44, Class IS, IO, | | | | |
| 1.28s, 2036 | | 131,421 | | 6,821 |
| IFB Ser. 06-45, Class SM, IO, | | | | |
| 1.28s, 2036 | | 423,237 | | 18,583 |
| IFB Ser. 06-8, Class PS, IO, | | | | |
| 1.28s, 2036 | | 508,609 | | 32,364 |
| IFB Ser. 06-20, Class IB, IO, | | | | |
| 1.27s, 2036 | | 766,638 | | 31,885 |
| IFB Ser. 06-85, Class TS, IO, | | | | |
| 1.24s, 2036 | | 397,740 | | 16,527 |
| IFB Ser. 06-61, Class SE, IO, | | | | |
| 1.23s, 2036 | | 174,576 | | 6,328 |
| IFB Ser. 03-124, Class ST, IO, | | | | |
| 1.18s, 2034 | | 193,009 | | 8,384 |
| IFB Ser. 03-112, Class SA, IO, | | | | |
| 1.18s, 2028 | | 272,556 | | 8,265 |
| Ser. 03-W17, Class 12, IO, | | | | |
| 1.157s, 2033 | | 1,287,726 | | 50,093 |
| IFB Ser. 05-67, Class BS, IO, | | | | |
| 0.83s, 2035 | | 381,863 | | 11,227 |
| IFB Ser. 05-74, Class SE, IO, | | | | |
| 0.78s, 2035 | | 1,211,278 | | 33,815 |
| IFB Ser. 05-82, Class SI, IO, | | | | |
| 0.78s, 2035 | | 1,220,258 | | 37,942 |
| IFB Ser. 05-87, Class SE, IO, | | | | |
| 0.73s, 2035 | | 2,244,059 | | 68,749 |
| IFB Ser. 05-58, Class IK, IO, | | | | |
| 0.68s, 2035 | | 337,414 | | 14,822 |
| IFB Ser. 04-54, Class SW, IO, | | | | |
| 0.68s, 2033 | | 170,728 | | 4,977 |
| Ser. 02-T18, IO, 0.524s, 2042 | | 7,453,078 | | 92,938 |
| Ser. 02-T4, IO, 0.451s, 2041 | | 440,773 | | 4,323 |
| Ser. 02-26, IO, 0.241s, 2048 | | 19,748,899 | | 94,115 |
| Ser. 03-W6, Class 21, IO, | | | | |
| 0.004s, 2042 | | 262,725 | | 2 |
| Ser. 371, Class 1, Principal Only | | | | |
| (PO), zero %, 2036 | | 132,713 | | 112,967 |
| COLLATERALIZED MORTGAGE OBLIGATIONS (34.6%)* continued |
|
| | Principal amount | | Value |
|
| Fannie Mae | | | | |
| Ser. 05-113, Class DO, PO, | | | | |
| zero %, 2036 | $ | 782,488 | $ | 635,376 |
| Ser. 363, Class 1, PO, zero %, 2035 | | 1,404,004 | | 1,050,387 |
| Ser. 361, Class 1, PO, zero %, 2035 | | 571,273 | | 460,772 |
| Ser. 04-38, Class AO, PO, | | | | |
| zero %, 2034 | | 448,482 | | 326,131 |
| Ser. 342, Class 1, PO, zero %, 2033 | | 160,095 | | 126,307 |
| Ser. 02-82, Class TO, PO, | | | | |
| zero %, 2032 | | 107,131 | | 84,985 |
| Ser. 04-61, Class CO, PO, | | | | |
| zero %, 2031 | | 244,000 | | 192,540 |
| FRB Ser. 05-65, Class ER, | | | | |
| zero %, 2035 | | 223,747 | | 218,050 |
| FRB Ser. 05-57, Class UL, | | | | |
| zero %, 2035 | | 233,538 | | 229,397 |
| Federal Home Loan Mortgage Corp. | | | | |
| Structured Pass-Through Securities | | | | |
| Ser. T-59, Class 1A3, 7 1/2s, 2043 | | 501,390 | | 528,753 |
| Ser. T-42, Class A5, 7 1/2s, 2042 | | 50,211 | | 52,416 |
| Ser. T-41, Class 3A, 7 1/2s, 2032 | | 301,246 | | 314,336 |
| Ser. T-60, Class 1A2, 7s, 2044 | | 533,376 | | 553,821 |
| Ser. T-41, Class 2A, 7s, 2032 | | 36,370 | | 37,497 |
| FFCA Secured Lending Corp. | | | | |
| Ser. 99-1A, Class C1, 7.59s, 2025 | | 225,000 | | 168,590 |
| First Union-Lehman Brothers | | | | |
| Commercial Mortgage Trust II | | | | |
| Ser. 97-C2, Class F, 7 1/2s, 2029 | | 209,000 | | 229,468 |
| Ser. 97-C2, Class G, 7 1/2s, 2029 | | 119,000 | | 131,916 |
| First Union-Lehman Brothers-Bank | | | | |
| of America 144A Ser. 98-C2, | | | | |
| Class G, 7s, 2035 | | 285,000 | | 307,529 |
| Freddie Mac | | | | |
| IFB Ser. 2990, Class LB, | | | | |
| 3.348s, 2034 | | 239,429 | | 220,880 |
| IFB Ser. 3153, Class UK, | | | | |
| 7 1/2s, 2036 | | 96,648 | | 110,627 |
| IFB Ser. 3182, Class PS, | | | | |
| 7.32s, 2032 | | 194,421 | | 213,226 |
| IFB Ser. 3202, Class HM, | | | | |
| 6.65s, 2036 | | 99,064 | | 104,472 |
| IFB Ser. 3153, Class SX, | | | | |
| 6.65s, 2036 | | 154,383 | | 165,185 |
| IFB Ser. 3081, Class DC, | | | | |
| 5.22s, 2035 | | 125,611 | | 125,408 |
| IFB Ser. 2976, Class KL, | | | | |
| 4.877s, 2035 | | 232,000 | | 229,694 |
| IFB Ser. 2990, Class DP, | | | | |
| 4.767s,2034 | | 197,776 | | 195,856 |
| IFB Ser. 3153, Class UT, | | | | |
| 4.51s,2036 | | 95,404 | | 92,678 |
| IFB Ser. 3065, Class DC, | | | | |
| 3.9s, 2035 | | 189,191 | | 176,092 |
| IFB Ser. 3031, Class BS, | | | | |
| 3.425s, 2035 | | 267,217 | | 248,291 |
| IFB Ser. 2990, Class WP, | | | | |
| 3.302s, 2035 | | 153,915 | | 146,481 |
26
| COLLATERALIZED MORTGAGE OBLIGATIONS (34.6%)* continued | | |
|
| | Principal amount | | Value |
|
| Freddie Mac | | | | |
| IFB Ser. 2927, Class SI, IO, | | | | |
| 3.18s, 2035 | $ | 353,971 | $ | 37,619 |
| IFB Ser. 2828, Class GI, IO, | | | | |
| 2.18s, 2034 | | 391,476 | | 35,430 |
| IFB Ser. 2869, Class SH, IO, | | | | |
| 1.98s, 2034 | | 200,722 | | 11,567 |
| IFB Ser. 2869, Class JS, IO, | | | | |
| 1.93s, 2034 | | 950,794 | | 53,862 |
| IFB Ser. 2815, Class PT, IO, | | | | |
| 1.73s, 2032 | | 388,483 | | 24,748 |
| IFB Ser. 2594, Class SE, IO, | | | | |
| 1.73s, 2030 | | 357,143 | | 17,643 |
| IFB Ser. 2828, Class TI, IO, | | | | |
| 1.73s, 2030 | | 180,181 | | 10,847 |
| IFB Ser. 3033, Class SF, IO, | | | | |
| 1.48s, 2035 | | 270,832 | | 10,495 |
| IFB Ser. 3028, Class ES, IO, | | | | |
| 1.43s, 2035 | | 911,275 | | 64,250 |
| IFB Ser. 2922, Class SE, IO, | | | | |
| 1.43s, 2035 | | 530,975 | | 26,549 |
| IFB Ser. 3045, Class DI, IO, | | | | |
| 1.41s, 2035 | | 237,367 | | 10,398 |
| IFB Ser. 3136, Class NS, IO, | | | | |
| 1.38s, 2036 | | 223,943 | | 13,317 |
| IFB Ser. 3118, Class SD, IO, | | | | |
| 1.38s, 2036 | | 887,560 | | 36,922 |
| IFB Ser. 3054, Class CS, IO, | | | | |
| 1.38s, 2035 | | 198,832 | | 9,072 |
| IFB Ser. 3107, Class DC, IO, | | | | |
| 1.38s, 2035 | | 431,904 | | 29,964 |
| IFB Ser. 3066, Class SI, IO, | | | | |
| 1.38s, 2035 | | 619,301 | | 41,986 |
| IFB Ser. 2927, Class ES, IO, | | | | |
| 1.38s, 2035 | | 284,146 | | 13,530 |
| IFB Ser. 2950, Class SM, IO, | | | | |
| 1.38s, 2016 | | 396,119 | | 21,430 |
| IFB Ser. 3031, Class BI, IO, | | | | |
| 1.37s, 2035 | | 178,090 | | 12,713 |
| IFB Ser. 3067, Class SI, IO, | | | | |
| 1.33s, 2035 | | 720,640 | | 49,998 |
| IFB Ser. 2986, Class WS, IO, | | | | |
| 1.33s, 2035 | | 214,480 | | 6,216 |
| IFB Ser. 2962, Class BS, IO, | | | | |
| 1.33s, 2035 | | 1,187,978 | | 56,576 |
| IFB Ser. 3114, Class TS, IO, | | | | |
| 1.33s, 2030 | | 1,326,930 | | 59,597 |
| IFB Ser. 3128, Class JI, IO, | | | | |
| 1.31s, 2036 | | 203,613 | | 11,143 |
| IFB Ser. 2990, Class LI, IO, | | | | |
| 1.31s, 2034 | | 349,687 | | 22,236 |
| IFB Ser. 3065, Class DI, IO, | | | | |
| 1.3s, 2035 | | 135,486 | | 8,837 |
| IFB Ser. 3145, Class GI, IO, | | | | |
| 1.28s, 2036 | | 163,746 | | 10,664 |
| IFB Ser. 3114, Class GI, IO, | | | | |
| 1.28s, 2036 | | 183,339 | | 12,310 |
| COLLATERALIZED MORTGAGE OBLIGATIONS (34.6%)* continued |
|
| | | Principal amount | | Value |
|
| Freddie Mac | | | | |
| IFB Ser. 3174, Class BS, IO, | | | | |
| 1.2s, 2036 | $ | 168,438 | $ | 6,629 |
| IFB Ser. 3081, Class DI, IO, | | | | |
| 1.16s, 2035 | | 160,269 | | 8,820 |
| IFB Ser. 3016, Class SP, IO, | | | | |
| 0.79s, 2035 | | 175,335 | | 5,068 |
| IFB Ser. 3016, Class SQ, IO, | | | | |
| 0.79s, 2035 | | 389,333 | | 11,376 |
| IFB Ser. 2957, Class SW, IO, | | | | |
| 0.68s, 2035 | | 908,051 | | 26,515 |
| IFB Ser. 2815, Class S, IO, | | | | |
| 0.68s, 2032 | | 387,730 | | 10,724 |
| Ser. 236, PO, zero %, 2036 | | 782,249 | | 622,328 |
| Ser. 231, PO, zero %, 2035 | | 5,351,190 | | 4,043,546 |
| Ser. 228, PO, zero %, 2035 | | 1,373,125 | | 1,081,876 |
| Ser. 3130, Class KO, PO, | | | | |
| zero %, 2034 | | 88,988 | | 70,573 |
| FRB Ser. 3003, Class XF, | | | | |
| zero %, 2035 | | 236,853 | | 235,743 |
| FRB Ser. 2958, Class FB, | | | | |
| zero %, 2035 | | 382,959 | | 357,831 |
| FRB Ser. 3024, Class CF, | | | | |
| zero %, 2034 | | 265,699 | | 258,531 |
| FRB Ser. 3046, Class UF, | | | | |
| zero %, 2033 | | 101,139 | | 98,356 |
| GE Capital Commercial | | | | |
| Mortgage Corp. Ser. 04-C2, | | | | |
| Class A4, 4.893s, 2040 | | 466,000 | | 452,606 |
| GE Capital Commercial | | | | |
| Mortgage Corp. 144A Ser. 00-1, | | | | |
| Class F, 7.514s, 2033 | | 41,000 | | 43,833 |
| GMAC Commercial Mortgage | | | | |
| Securities, Inc. Ser. 04-C2, | | | | |
| Class A4, 5.301s, 2038 | | 310,000 | | 310,195 |
| Government National | | | | |
| Mortgage Association | | | | |
| IFB Ser. 05-7, Class JM, | | | | |
| 5.016s, 2034 | | 247,208 | | 245,784 |
| IFB Ser. 05-84, Class SL, | | | | |
| 3.1s, 2035 | | 245,650 | | 225,164 |
| IFB Ser. 05-68, Class SN, IO, | | | | |
| 1.88s, 2034 | | 621,412 | | 34,857 |
| IFB Ser. 04-86, Class SW, IO, | | | | |
| 1.43s, 2034 | | 448,919 | | 23,913 |
| IFB Ser. 05-65, Class SI, IO, | | | | |
| 1.03s, 2035 | | 229,430 | | 9,082 |
| IFB Ser. 05-68, Class KI, IO, | | | | |
| 0.98s, 2035 | | 1,310,000 | | 73,811 |
| IFB Ser. 05-68, Class SI, IO, | | | | |
| 0.98s, 2035 | | 1,562,966 | | 69,617 |
| IFB Ser. 06-14, Class S, IO, | | | | |
| 0.93s, 2036 | | 408,435 | | 14,787 |
| IFB Ser. 05-51, Class SJ, IO, | | | | |
| 0.88s, 2035 | | 462,437 | | 19,392 |
| IFB Ser. 05-68, Class S, IO, | | | | |
| 0.88s, 2035 | | 904,008 | | 36,893 |
27
| COLLATERALIZED MORTGAGE OBLIGATIONS (34.6%)* continued |
|
| | Principal amount | | Value |
|
| Government National | | | | |
| Mortgage Association | | | | |
| IFB Ser. 05-28, Class SA, IO, | | | | |
| 0.88s, 2035 | $ | 1,130,894 | $ | 37,491 |
| IFB Ser. 05-60, Class SJ, IO, | | | | |
| 0.46s, 2034 | | 761,765 | | 20,811 |
| GS Mortgage Securities Corp. II | | | | |
| Ser. 06-GG8, Class A4, | | | | |
| 5.56s, 2039 | | 100,000 | | 101,895 |
| Ser. 04-GG2, Class A6, | | | | |
| 5.396s, 2038 | | 316,000 | | 318,057 |
| GS Mortgage Securities Corp. II 144A | | | |
| FRB Ser. 03-FL6A, Class L, | | | | |
| 8.57s, 2015 | | 95,000 | | 95,532 |
| Ser. 98-C1, Class F, 6s, 2030 | | 99,000 | | 99,391 |
| Ser. 03-C1, Class X1, IO, | | | | |
| 0.26s, 2040 | | 7,319,013 | | 132,176 |
| JPMorgan Chase | | | | |
| Commercial Mortgage | | | | |
| Securities Corp. | | | | |
| Ser. 06-CB16, Class A4, | | | | |
| 5.552s, 2045 | | 109,000 | | 110,465 |
| Ser. 06-CB14, Class A4, | | | | |
| 5.481s, 2044 | | 140,000 | | 141,159 |
| Ser. 06-CB14, Class AM, | | | | |
| 5.445s, 2044 | | 145,000 | | 146,949 |
| Ser. 05-CB11, Class A4, | | | | |
| 5.335s, 2037 | | 474,000 | | 473,704 |
| Ser. 05-LDP2, Class AM, | | | | |
| 4.78s, 2042 | | 50,000 | | 48,137 |
| Ser. 06-LDP7, Class X, IO, | | | | |
| 0.009s, 2045 | | 48,443,429 | | 45,416 |
| JPMorgan Chase Commercial Mortgage | | | |
| Securities Corp. 144A | | | | |
| Ser. 04-FL1A, Class X1A, IO, | | | | |
| 1.963s, 2019 | | 55,001 | | 138 |
| LB Commercial Conduit Mortgage | | | | |
| Trust 144A Ser. 98-C4, Class J, | | | | |
| 5.6s, 2035 | | 119,000 | | 107,555 |
| LB-UBS Commercial Mortgage Trust | | | |
| Ser. 04-C7, Class A6, 4.786s, 2029 | 128,000 | | 123,714 |
| LB-UBS Commercial | | | | |
| Mortgage Trust 144A | | | | |
| Ser. 05-C2, Class XCL, IO, | | | | |
| 0.112s, 2040 | | 6,463,401 | | 68,416 |
| Ser. 06-C1, Class XCL, IO, | | | | |
| 0.061s, 2041 | | 12,444,895 | | 138,044 |
| Lehman Brothers Floating Rate | | | | |
| Commercial Mortgage Trust 144A | | | | |
| FRB Ser. 03-LLFA, Class L, | | | | |
| 9.07s, 2014 | | 170,000 | | 170,000 |
| FRB Ser. 04-LLFA, Class H, | | | | |
| 6.27s, 2017 | | 66,000 | | 66,124 |
| Lehman Mortgage Trust | | | | |
| IFB Ser. 06-5, Class 2A2, IO, | | | | |
| 1.83s, 2036 | | 645,205 | | 33,008 |
| IFB Ser. 06-5, Class 1A3, IO, | | | | |
| 0.08s, 2036 | | 177,124 | | 751 |
| COLLATERALIZED MORTGAGE OBLIGATIONS (34.6%)* continued |
|
| | | Principal amount | | Value |
| Mach One Commercial Mortgage Trust | | | |
| 144A Ser. 04-1A, Class H, | | | | |
| 6.71s, 2040 | $ | 156,000 | $ | 151,008 |
| Merrill Lynch Floating Trust 144A | | | |
| Ser. 06-1, Class X1A, IO, | | | | |
| zero %, 2022 | | 14,547,000 | | 223,429 |
| Merrill Lynch Mortgage Investors, | | | |
| Inc. Ser. 98-C3, Class E, 6.917s, 2030 | 49,000 | | 52,829 |
| Morgan Stanley Capital I | | | | |
| Ser. 98-CF1, Class E, 7.35s, 2032 | 256,000 | | 268,281 |
| Ser. 05-HQ6, Class A4A, | | | | |
| 4.989s, 2042 | | 293,000 | | 285,298 |
| Ser. 04-HQ4, Class A7, | | | | |
| 4.97s, 2040 | | 151,000 | | 148,090 |
| Morgan Stanley Capital I 144A | | | | |
| Ser. 04-RR, Class F7, 6s, 2039 | | 360,000 | | 257,316 |
| Mortgage Capital Funding, Inc. FRB | | | |
| Ser. 98-MC2, Class E, | | | | |
| 7.094s, 2030 | | 78,000 | | 80,097 |
| PNC Mortgage Acceptance | | | | |
| Corp. 144A | | | | |
| Ser. 00-C1, Class J, 6 5/8s, 2010 | 100,000 | | 98,380 |
| Ser. 00-C2, Class J, 6.22s, 2033 | 76,000 | | 77,860 |
| Pure Mortgages 144A FRB | | | | |
| Ser. 04-1A, Class F, 8.9s, 2034 | | | | |
| (Ireland) | | 255,000 | | 255,638 |
| Titan Europe PLC 144A | | | | |
| FRB Ser. 05-CT1A, Class D, | | | | |
| 6.22s, 2014 (Ireland) | GBP | 144,492 | | 275,576 |
| FRB Ser. 05-CT2A, Class E, | | | | |
| 5.763s, 2014 (Ireland) | GBP | 41,408 | | 78,974 |
| FRB Ser. 04-2A, Class D, | | | | |
| 4.4s, 2014 (Ireland) | EUR | 88,077 | | 112,412 |
| FRB Ser. 04-2A, Class C, | | | | |
| 4s, 2014 (Ireland) | EUR | 36,870 | | 47,057 |
| URSUS EPC 144A FRB | | | | |
| Ser. 1-A, Class D, 5.64s, | | | | |
| 2012 (Ireland) | GBP | 80,146 | | 152,854 |
| Wachovia Bank Commercial | | | | |
| Mortgage Trust Ser. 04-C15, | | | | |
| Class A4, 4.803s, 2041 | $ | 226,000 | | 217,982 |
| Wachovia Bank Commercial Mortgage | | | |
| Trust 144A FRB Ser. 05-WL5A, | | | | |
| Class L, 8.62s, 2018 | | 100,000 | | 99,909 |
| Washington Mutual Asset | | | | |
| Securities Corp. 144A | | | | |
| Ser. 05-C1A, Class G, 5.72s, 2036 | 87,000 | | 84,296 |
|
| Total collateralized mortgage obligations | | | |
| (cost $45,545,241) | | | $ | 44,917,599 |
28
| FOREIGN GOVERNMENT BONDS AND NOTES (25.8%)* | |
|
| | | | Principal amount | | Value |
|
| Austria (Republic of ) | | | | | |
| notes Ser. EMTN, 3 3/8s, 2012 | CHF | | 2,900,000 | $ | 2,452,463 |
| Austria (Republic of ) 144A | | | | | |
| notes Ser. EMTN, 3.8s, 2013 | EUR | | 3,000,000 | | 3,848,427 |
| Canada (Government of ) | | | | | |
| bonds 5 3/4s, 2033 | CAD | | 750,000 | | 848,172 |
| Denmark (Kingdom of ) | | | | | |
| bonds 6s, 2009 | DKK | | 9,640,000 | | 1,757,741 |
| Export Development Canada | | | | | |
| government bonds 4s, 2007 | | | | | |
| (Canada) | | $ | 1,000,000 | | 991,000 |
| France (Government of ) | | | | | |
| bonds 4s, 2013 | EUR | | 63 | | 82 |
| France (Government of ) | | | | | |
| bonds Ser. OATe, 3s, 2012 | EUR | | 1,190,519 | | 1,638,129 |
| Ireland (Republic of ) bonds | | | | | |
| 5s, 2013 | EUR | | 1,700,000 | | 2,329,986 |
| Italy (Republic of ) unsub. | | | | | |
| notes Ser. 11, Tranche 1, | | | | | |
| 3 1/8s, 2010 | CHF | | 1,900,000 | | 1,564,593 |
| Japan (Government of ) | | | | | |
| bonds Ser. 4, 1/2s, 2015 | JPY | | 293,190,000 | | 2,383,714 |
| Japan (Government of ) 30 yr | | | | | |
| bonds Ser. 23, 2 1/2s, 2036 | JPY | | 151,000,000 | | 1,306,032 |
| Japan (Government of ) CPI | | | | | |
| Linked bonds Ser. 8, 1s, 2016 | JPY | | 218,085,000 | | 1,842,092 |
| Netherlands (Government of ) | | | | | |
| bonds 5s, 2012 | EUR | | 4,500,000 | | 6,122,698 |
| Quebec (Province of ) notes 5s, | | | | | |
| 2009 (Canada) | | $ | 500,000 | | 500,013 |
| Spain (Kingdom of ) bonds | | | | | |
| 5s, 2012 | EUR | | 3,000,000 | | 4,078,965 |
| Sweden (Government of ) | | | | | |
| debs. Ser. 1041, 6 3/4s, 2014 | SEK | | 3,585,000 | | 596,002 |
| United Kingdom treasury | | | | | |
| bonds 4 1/4s, 2036 | GBP | | 610,000 | | 1,213,383 |
|
| Total foreign government bonds and notes | | |
| (cost $32,292,236) | | | | $ | 33,473,492 |
|
| |
| |
| ASSET-BACKED SECURITIES (14.3%)* | | | | |
|
| | | | Principal amount | | Value |
| |
| Ameriquest Finance NIM Trust 144A | | | | |
| Ser. 04-RN9, Class N2, 10s, 2034 | | | | |
| (Cayman Islands) | | $ | 71,023 | $ | 66,051 |
| Asset Backed Funding Corp. NIM | | | | |
| Trust 144A FRB Ser. 05-OPT1, | | | | | |
| Class B1, 7.82s, 2035 | | | 37,000 | | 29,261 |
| Asset Backed Securities Corp. Home | | | | |
| Equity Loan Trust FRB | | | | | |
| Ser. 05-HE1, Class A3, 5.61s, 2035 | | 39,818 | | 39,851 |
| Banc of America Mortgage Securities | | | | |
| Ser. 04-D, Class 2A, IO, | | | | | |
| 0.45s, 2034 | | | 1,098,553 | | 4,981 |
| Ser. 05-E, Class 2, IO, | | | | | |
| 0.306s, 2035 | | | 2,681,000 | | 17,069 |
| ASSET-BACKED SECURITIES (14.3%)* continued | | |
|
| | | Principal amount | | Value |
| |
| Bank One Issuance Trust FRB | | | | |
| Ser. 03-C4, Class C4, 6.35s, 2011 | $ | 80,000 | $ | 81,039 |
| Bay View Auto Trust Ser. 05-LJ2, | | | | |
| Class D, 5.27s, 2014 | | 82,000 | | 81,068 |
| Bear Stearns Asset Backed Securities | | | | |
| NIM Trust 144A | | | | |
| Ser. 04-HE10, Class A1, 4 1/4s, | | | | |
| 2034 (Cayman Islands) | | 1,109 | | 1,109 |
| Ser. 04-HE10, Class A2, 5s, 2034 | | | | |
| (Cayman Islands) | | 13,386 | | 13,336 |
| Bear Stearns Asset Backed | | | | |
| Securities, Inc. | | | | |
| FRB Ser. 04-FR3, Class M6, | | | | |
| 8.57s, 2034 | | 81,000 | | 80,190 |
| FRB Ser. 06-EC1, Class M9, | | | | |
| 7.32s, 2035 | | 100,000 | | 82,969 |
| Bear Stearns Asset Backed | | | | |
| Securities, Inc. 144A FRB | | | | |
| Ser. 06-HE2, Class M10, | | | | |
| 7.57s, 2036 | | 100,000 | | 90,031 |
| Bombardier Capital Mortgage | | | | |
| Securitization Corp. | | | | |
| Ser. 00-A, Class A4, 8.29s, 2030 | | 133,613 | | 97,037 |
| Ser. 00-A, Class A2, 7.575s, 2030 | | 37,303 | | 26,119 |
| Ser. 99-B, Class A4, 7.3s, 2016 | | 168,771 | | 114,007 |
| Ser. 99-B, Class A3, 7.18s, 2015 | | 269,454 | | 178,597 |
| Capital One Multi-Asset Execution | | | | |
| Trust FRB Ser. 02-C1, Class C1, | | | | |
| 8.07s, 2010 | | 250,000 | | 255,225 |
| CARMAX Auto Owner Trust | | | | |
| Ser. 04-2, Class D, 3.67s, 2011 | | 18,089 | | 17,820 |
| CARSSX Finance, Ltd. 144A | | | | |
| FRB Ser. 04-AA, Class B4, 10.82s, | | | | |
| 2011 (Cayman Islands) | | 187,363 | | 194,581 |
| FRB Ser. 04-AA, Class B3, 8.67s, | | | | |
| 2011 (Cayman Islands) | | 45,550 | | 46,422 |
| Chase Credit Card Master Trust FRB | | | | |
| Ser. 03-3, Class C, 6.4s, 2010 | | 170,000 | | 172,508 |
| Chase Funding Net Interest Margin | | | | |
| 144A Ser. 04-OPT1, Class Note, | | | | |
| 4.458s, 2034 | | 10,183 | | 10,592 |
| CHEC NIM Ltd., 144A Ser. 04-2, | | | | |
| Class N3, 8s, 2034 (Cayman Islands) | | 11,350 | | 10,960 |
| Chester Asset Receivables Dealings | | | | |
| PLC FRB Ser. 02-B, Class C, | | | | |
| 4.52s, 2009 (United Kingdom) EUR | | 240,000 | | 308,150 |
| Citigroup Mortgage Loan Trust, Inc. | | | | |
| FRB Ser. 05-HE4, Class M11, | | | | |
| 7.82s, 2035 | | $76,000 | | 64,422 |
| FRB Ser. 05-HE4, Class M12, | | | | |
| 7.37s, 2035 | | 91,000 | | 74,471 |
| Conseco Finance Securitizations Corp. | | | | |
| Ser. 02-2, Class A, IO, | | | | |
| 8 1/2s, 2033 | | 360,195 | | 76,198 |
| Ser. 00-2, Class A4, 8.48s, 2030 | | 37,959 | | 37,743 |
| Ser. 00-4, Class A6, 8.31s, 2032 | | 781,000 | | 675,378 |
| Ser. 00-5, Class A7, 8.2s, 2032 | | 192,000 | | 162,336 |
29
| ASSET-BACKED SECURITIES (14.3%)* continued | | |
|
| | | | Principal amount | | Value |
|
| Conseco Finance Securitizations Corp. | | | | |
| Ser. 00-1, Class A5, 8.06s, 2031 | $ | 155,026 | $ | 137,823 |
| Ser. 00-4, Class A5, 7.97s, 2032 | | 56,000 | | 45,024 |
| Ser. 00-4, Class A4, 7.73s, 2031 | | 84,868 | | 79,742 |
| Ser. 01-4, Class A4, 7.36s, 2033 | | 325,000 | | 336,939 |
| Ser. 01-1, Class A5, 6.99s, 2032 | | 449,000 | | 438,538 |
| Countrywide Alternative Loan Trust | | | | |
| IFB Ser. 06-26CB, Class A2, IO, | | | | |
| 0.48s, 2036 | | | 280,849 | | 671 |
| Countrywide Asset Backed | | | | | |
| Certificates 144A | | | | | |
| Ser. 04-6N, Class N1, 6 1/4s, 2035 | | 10,984 | | 10,957 |
| Ser. 04-BC1N, Class Note, | | | | |
| 5 1/2s, 2035 | | | 8,694 | | 8,682 |
| Countrywide Home Loans | | | | | |
| FRB Ser. 05-22, Class 2A1, | | | | |
| 5.302s, 2035 | | | 325,780 | | 324,355 |
| Ser. 06-0A5, Class X, IO, | | | | |
| 1.882s, 2046 | | | 959,040 | | 42,707 |
| Countrywide Home Loans 144A IFB | | | | |
| Ser. 05-R3, Class AS, IO, 0.699s, | | | | |
| 2035 (SN) | | | 3,438,205 | | 94,145 |
| CS First Boston Mortgage | | | | | |
| Securities Corp. 144A | | | | | |
| Ser. 04-FR1N, Class A, 5s, 2034 | | 42,364 | | 41,728 |
| DB Master Finance, LLC 144A | | | | |
| Ser. 06-1, Class M1, 8.285s, 2031 | | 179,000 | | 183,995 |
| First Chicago Lennar Trust 144A | | | | |
| Ser. 97-CHL1, Class E, 7.657s, 2039 | | 397,715 | | 403,930 |
| Fremont NIM Trust 144A | | | | | |
| Ser. 04-3, Class B, 7 1/2s, 2034 | | 31,987 | | 29,283 |
| Ser. 04-3, Class A, 4 1/2s, 2034 | | 357 | | 357 |
| GE Capital Credit Card Master Note | | | | |
| Trust FRB Ser. 04-2, Class C, | | | | |
| 5.8s, 2010 | | | 145,430 | | 145,542 |
| Granite Mortgages PLC | | | | | |
| FRB Ser. 02-1, Class 1C, 6.674s, | | | | |
| 2042 (United Kingdom) | | | 83,109 | | 83,371 |
| FRB Ser. 02-2, Class 1C, 6.626s, | | | | |
| 2043 (United Kingdom) | | | 70,000 | | 70,463 |
| FRB Ser. 03-2, Class 3C, 6.69s, | | | | |
| 2043 (United Kingdom) | GBP | | 340,000 | | 654,349 |
| FRB Ser. 03-2, Class 2C1, 5.2s, | | | | |
| 2043 (United Kingdom) | EUR | | 455,000 | | 596,222 |
| Green Tree Financial Corp. | | | | | |
| Ser. 94-6, Class B2, 9s, 2020 | $ | 199,922 | | 186,904 |
| Ser. 94-4, Class B2, 8.6s, 2019 | | 77,926 | | 57,061 |
| Ser. 99-5, Class A5, 7.86s, 2030 | | 1,275,000 | | 1,129,013 |
| Ser. 95-4, Class B1, 7.3s, 2025 | | 84,541 | | 87,061 |
| Ser. 99-3, Class A7, 6.74s, 2031 | | 280,000 | | 277,032 |
| Ser. 99-3, Class A6, 6 1/2s, 2031 | | 89,000 | | 87,977 |
| Ser. 99-1, Class A5, 6.11s, 2023 | | 126,186 | | 126,341 |
| Greenpoint Manufactured Housing | | | | |
| Ser. 00-3, Class IA, 8.45s, 2031 | | 573,367 | | 532,024 |
| Greenpoint Mortgage Funding Trust | | | | |
| Ser. 05-AR1, Class X1, IO, | | | | | |
| zero %, 2045 | | | 839,421 | | 24,133 |
| GS Auto Loan Trust 144A Ser. 04-1, | | | | |
| Class D, 5s, 2011 | | | 170,180 | | 168,988 |
| ASSET-BACKED SECURITIES (14.3%)* continued | | |
|
| | | | Principal amount | | Value |
|
| GSMPS Mortgage Loan Trust 144A IFB | | | | |
| Ser. 05-RP1, Class 1AS, IO, | | | | | |
| 0.898s, 2035 (SN) | | $ | 1,677,969 | $ | 52,358 |
| Guggenheim Structured Real Estate | | | | |
| Funding, Ltd. 144A FRB | | | | | |
| Ser. 05-1A, Class E, 7.12s, 2030 | | | | |
| (Cayman Islands) | | | 250,000 | | 250,000 |
| High Income Trust Securities 144A | | | | |
| FRB Ser. 03-1A, Class A, 5.95s, | | | | |
| 2036 (Cayman Islands) | | | 224,122 | | 222,441 |
| Holmes Financing PLC FRB Ser. 8, | | | | |
| Class 2C, 6.094s, 2040 | | | | | |
| (United Kingdom) | | | 57,000 | | 57,091 |
| Home Equity Asset Trust 144A | | | | |
| Ser. 04-4N, Class A, 5s, 2034 | | 3,635 | | 3,562 |
| Lehman Mortgage Trust IFB | | | | | |
| Ser. 06-6, Class 1A3, IO, | | | | | |
| 1.18s, 2036 | | | 1,212,290 | | 63,934 |
| LNR CDO, Ltd. 144A FRB Ser. | | | | |
| 02-1A, Class FFL, 8.07s, 2037 | | | | |
| (Cayman Islands) | | | 300,000 | | 300,012 |
| Long Beach Mortgage Loan Trust | | | | |
| 144A FRB Ser. 06-WL3, Class B1, | | | | |
| 7.82s, 2036 | | | 87,000 | | 72,762 |
| Lothian Mortgages PLC 144A FRB | | | | |
| Ser. 3A, Class D, 5.537s, 2039 | | | | |
| (United Kingdom) | GBP | | 200,000 | | 381,440 |
| Marriott Vacation Club Owner | | | | |
| Trust 144A Ser. 04-1A, Class C, | | | | |
| 5.265s, 2026 | | $ | 23,020 | | 22,715 |
| MASTR Adjustable Rate | | | | | |
| Mortgages Trust | | | | | |
| Ser. 04-13, Class 3A6, | | | | | |
| 3.786s, 2034 | | | 224,000 | | 215,387 |
| Ser. 04-03, Class 4AX, | | | | | |
| IO, 1.417s, 2034 | | | 214,641 | | 4,786 |
| Ser. 05-2, Class 7AX, IO, | | | | |
| 0.168s, 2035 | | | 557,135 | | 1,560 |
| MASTR Asset Backed Securities NIM | | | | |
| Trust 144A Ser. 04-HE1A, | | | | | |
| Class Note, 5.191s, 2034 | | | | | |
| (Cayman Islands) | | | 1,812 | | 1,801 |
| MBNA Credit Card Master Note Trust | | | | |
| FRB Ser. 03-C5, Class C5, | | | | | |
| 6 1/2s, 2010 | | | 170,000 | | 172,662 |
| Merrill Lynch Mortgage | | | | | |
| Investors, Inc. | | | | | |
| FRB Ser. 05-A9, Class 3A1, | | | | |
| 5.293s, 2035 | | | 430,953 | | 428,933 |
| Ser. 04-WMC3, Class B3, 5s, 2035 | | 66,000 | | 64,640 |
| Merrill Lynch Mortgage | | | | | |
| Investors, Inc. 144A | | | | | |
| Ser. 04-FM1N, Class N1, 5s, 2035 | | | | |
| (Cayman Islands) | | | 2,338 | | 2,303 |
| Ser. 04-WM3N, Class N1, | | | | |
| 4 1/2s, 2035 | | | 4,438 | | 4,340 |
| Ser. 04-WM2N, Class N1, | | | | |
| 4 1/2s, 2034 | | | 2,562 | | 2,535 |
30
| ASSET-BACKED SECURITIES (14.3%)* continued | | |
|
| | | | Principal amount | | Value |
|
| MMCA Automobile Trust Ser. 02-1, | | | | |
| Class B, 5.37s, 2010 | | $ | 53 | $ | 53 |
| Morgan Stanley ABS Capital I FRB | | | | |
| Ser. 04-HE8, Class B3, 8.52s, 2034 | | 50,000 | | 50,539 |
| Morgan Stanley Auto Loan Trust 144A | | | | |
| Ser. 04-HB1, Class D, 5 1/2s, 2011 | | 9,474 | | 9,440 |
| Ser. 04-HB2, Class E, 5s, 2012 | | 58,280 | | 57,492 |
| Morgan Stanley Mortgage Loan Trust | | | | |
| Ser. 05-5AR, Class 2A1, 5.395s, 2035 | | 493,307 | | 492,629 |
| Nomura Asset Acceptance Corp. | | | | |
| 144A Ser. 04-R2, Class PT, | | | | | |
| 9.087s, 2034 | | | 48,146 | | 50,372 |
| Oakwood Mortgage Investors, Inc. | | | | |
| Ser. 99-D, Class A1, 7.84s, 2029 | | 256,847 | | 226,872 |
| Ser. 00-A, Class A2, 7.765s, 2017 | | 39,779 | | 31,064 |
| Ser. 00-D, Class A4, 7.4s, 2030 | | 309,000 | | 201,330 |
| Ser. 02-B, Class A4, 7.09s, 2032 | | 101,382 | | 90,416 |
| Ser. 01-D, Class A4, 6.93s, 2031 | | 204,289 | | 161,084 |
| Ser. 01-C, Class A2, 5.92s, 2017 | | 112,615 | | 58,791 |
| Ser. 02-C, Class A1, 5.41s, 2032 | | 346,274 | | 299,444 |
| Ser. 01-E, Class A2, 5.05s, 2019 | | 316,406 | | 247,843 |
| Ser. 02-A, Class A2, 5.01s, 2020 | | 184,147 | | 141,586 |
| Oakwood Mortgage Investors, Inc. | | | | |
| 144A Ser. 01-B, Class A4, | | | | | |
| 7.21s, 2030 | | | 76,657 | | 68,251 |
| Ocean Star PLC 144A | | | | | |
| FRB Ser. 04-A, Class E, 11.902s, | | | | |
| 2018 (Ireland) | | | 50,000 | | 51,953 |
| FRB Ser. 05-A, Class E, 10.002s, | | | | |
| 2012 (Ireland) | | | 53,000 | | 54,060 |
| Park Place Securities, Inc. 144A | | | | |
| FRB Ser. 05-WCW2, Class M11, | | | | |
| 7.82s, 2035 | | | 73,000 | | 51,852 |
| Permanent Financing PLC | | | | | |
| FRB Ser. 3, Class 3C, 6.54s, 2042 | | | | |
| (United Kingdom) | | | 120,000 | | 121,268 |
| FRB Ser. 4, Class 3C, 6.19s, 2042 | | | | |
| (United Kingdom) | | | 177,000 | | 178,759 |
| FRB Ser. 5, Class 2C, 6.04s, 2042 | | | | |
| (United Kingdom) | | | 49,000 | | 49,152 |
| FRB Ser. 6, Class 3C, 5.666s, 2042 | | | | |
| (United Kingdom) | GBP | | 204,000 | | 390,041 |
| Pillar Funding PLC 144A | | | | | |
| FRB Ser. 04-1A, Class C1, 6.39s, | | | | |
| 2011 (United Kingdom) | | $ | 120,000 | | 119,992 |
| FRB Ser. 04-2A, Class C, 6.27s, | | | | |
| 2011 (United Kingdom) | | | 100,000 | | 99,680 |
| Providian Gateway Master Trust | | | | |
| 144A FRB Ser. 04-EA, Class D, | | | | |
| 6 1/4s, 2011 | | | 152,000 | | 153,126 |
| Residential Asset Securities Corp. | | | | |
| 144A FRB Ser. 05-KS10, Class B, | | | | |
| 8.07s, 2035 | | | 79,000 | | 70,538 |
| Residential Asset Securitization | | | | |
| Trust IFB Ser. 06-A7CB, | | | | | |
| Class 1A6, IO, 0.23s, 2036 | | | 90,054 | | 1,105 |
| Residential Mortgage Securities | | | | |
| 144A FRB Ser. 20A, Class B1A, | | | | |
| 5.693s, 2038 (United Kingdom) GBP | | 50,000 | | 94,845 |
| ASSET-BACKED SECURITIES (14.3%)* continued | | |
|
| | | Principal amount | | Value |
|
| SAIL Net Interest Margin Notes 144A | | | | |
| Ser. 03-3, Class A, 7 3/4s, 2033 | | | | |
| (Cayman Islands) | $ | 5,540 | $ | 1,053 |
| Ser. 03-BC2A, Class A, 7 3/4s, | | | | |
| 2033 (Cayman Islands) | | 21,746 | | 1,740 |
| Ser. 04-4A, Class B, 7 1/2s, 2034 | | | | |
| (Cayman Islands) | | 31,189 | | 1,772 |
| Ser. 04-10A, Class A, 5s, 2034 | | | | |
| (Cayman Islands) | | 2,971 | | 2,971 |
| Ser. 03-5, Class A, 7.35s, 2033 | | | | |
| (Cayman Islands) | | 6,890 | | 689 |
| Ser. 03-8A, Class A, 7s, 2033 | | | | |
| (Cayman Islands) | | 4,127 | | 248 |
| Ser. 03-9A, Class A, 7s, 2033 | | | | |
| (Cayman Islands) | | 5,147 | | 206 |
| Sasco Net Interest Margin Trust | | | | |
| 144A Ser. 05-WF1A, Class A, | | | | |
| 4 3/4s, 2035 (Cayman Islands) | | 7,805 | | 7,779 |
| Sharps SP I, LLC Net Interest | | | | |
| Margin Trust 144A Ser. 04-HE2N, | | | | |
| Class NA, 5.43s, 2034 | | | | |
| (Cayman Islands) | | 1,975 | | 1,975 |
| Soundview Home Equity Loan Trust | | | | |
| 144A FRB Ser. 05-CTX1, Class B1, | | | | |
| 7.82s, 2035 | | 42,000 | | 35,871 |
| Structured Adjustable Rate Mortgage | | | | |
| Loan Trust | | | | |
| Ser. 04-10, Class 1A1, 4.908s, 2034 | | 40,315 | | 40,644 |
| Ser. 05-9, Class AX, IO, | | | | |
| 0.894s, 2035 | | 2,908,085 | | 43,621 |
| Ser. 04-19, Class 2A1X, IO, | | | | |
| 0.669s, 2035 | | 1,280,158 | | 13,602 |
| Structured Asset Investment Loan | | | | |
| Trust 144A FRB Ser. 06-BNC2, | | | | |
| Class B1, 7.82s, 2036 | | 84,000 | | 75,372 |
| Structured Asset Receivables Trust | | | | |
| 144A FRB Ser. 05-1, 5.874s, 2015 | | 407,745 | | 407,235 |
| Structured Asset | | | | |
| Securities Corp. | | | | |
| IFB Ser. 05-10, Class 3A3, | | | | |
| 5.17s, 2034 | | 247,393 | | 230,620 |
| IFB Ser. 05-6, Class 5A8, | | | | |
| 3.26s, 2035 | | 325,667 | | 275,140 |
| TIAA Real Estate CDO, Ltd. 144A | | | | |
| FRB Ser. 02-1A, Class III, 7.6s, | | | | |
| 2037 (Cayman Islands) | | 188,000 | | 202,481 |
| Wells Fargo Mortgage Backed | | | | |
| Securities Trust Ser. 05-AR12, | | | | |
| Class 2A5, 4.319s, 2035 | | 1,716,000 | | 1,681,932 |
| WFS Financial Owner Trust | | | | |
| Ser. 04-3, Class D, 4.07s, 2012 | | 31,670 | | 31,339 |
| Whole Auto Loan Trust 144A | | | | |
| Ser. 04-1, Class D, 5.6s, 2011 | | 39,612 | | 39,418 |
|
| Total asset-backed securities (cost $18,731,957) | $ | 18,559,425 |
31
| U.S. GOVERNMENT AGENCY MORTGAGE OBLIGATIONS (8.3%)* |
|
| | | Principal amount | | Value |
|
| Federal Home Loan Mortgage | | | | |
| Corporation Pass-Through | | | | |
| Certificates | | | | |
| 6s, with due dates from | | | | |
| July 1, 2021 to July 1, 2034 | $ | 203,473 | $ | 206,491 |
| 5 1/2s, June 1, 2035 | | 161,778 | | 160,401 |
| 5 1/2s, April 1, 2020 | | 171,491 | | 171,772 |
| 5 1/2s, TBA, November 1, 2036 | | 1,000,000 | | 989,219 |
| Federal National Mortgage Association | | | | |
| Pass-Through Certificates | | | | |
| 7s, with due dates from | | | | |
| March 1, 2033 to April 1, 2035 | | 565,172 | | 581,796 |
| 7s, February 1, 2016 | | 24,369 | | 25,367 |
| 6 1/2s, October 1, 2033 | | 13,874 | | 14,186 |
| 6s, with due dates from | | | | |
| May 1, 2021 to March 1, 2035 | | 1,275,608 | | 1,295,310 |
| 5 1/2s, with due dates from | | | | |
| August 1, 2035 to August 1, 2036 | | 1,069,337 | | 1,057,647 |
| 5 1/2s, with due dates from | | | | |
| May 1, 2009 to October 1, 2020 | | 813,311 | | 815,693 |
| 5 1/2s, TBA, November 1, 2036 | | 2,900,000 | | 2,865,789 |
| 5s, with due dates from March 1, | | | | |
| 2021 to September 1, 2035 | | 993,706 | | 961,344 |
| 5s, May 1, 2020 | | 38,071 | | 37,553 |
| 4 1/2s, March 1, 2020 | | 15,295 | | 14,818 |
| 4 1/2s, TBA, November 1, 2021 | | 800,000 | | 774,000 |
| 4s, with due dates from | | | | |
| May 1, 2019 to September 1, 2020 | | 785,229 | | 745,669 |
|
| Total U.S. government agency mortgage obligations | | |
| (cost $10,696,612) | | | $ | 10,717,055 |
|
| |
| |
| U.S. TREASURY OBLIGATIONS (0.6%)* (cost $755,831) | | |
|
| | | Principal amount | | Value |
|
| U.S. Treasury Bonds 6 1/4s, | | | | |
| May 15, 2030 | $ | 646,000 | $ | 780,146 |
|
| |
| |
| CORPORATE BONDS AND NOTES (7.8%)* | | |
|
| | | Principal amount | | Value |
|
| Basic Materials (—%) | | | | |
| Lafarge SA notes 6 1/2s, 2016 | | | | |
| (France) | $ | 5,000 | $ | 5,113 |
|
| |
| Communication Services (0.3%) | | | | |
| Ameritech Capital Funding company | | | | |
| guaranty 6 1/4s, 2009 | | 100,000 | | 101,800 |
| AT&T Wireless Services, Inc. | | | | |
| sr. notes 8 3/4s, 2031 | | 60,000 | | 78,621 |
| Telefonica Europe BV company | | | | |
| guaranty 7 3/4s, 2010 | | | | |
| (Netherlands) | | 150,000 | | 162,313 |
| | | | | 342,734 |
|
| CORPORATE BONDS AND NOTES (7.8%)* continued | | |
|
| | | | Principal amount | | Value |
|
| Consumer Cyclicals (0.1%) | | | | | |
| DaimlerChrysler NA Holding Corp. | | | | |
| company guaranty 7.2s, 2009 | | $ | 40,000 | $ | 41,691 |
| DaimlerChrysler NA Holding Corp. | | | | |
| notes Ser. MTN, 5 3/4s, 2011 | | | 155,000 | | 155,116 |
| | | | | | 196,807 |
|
| |
| Consumer Staples (0.4%) | | | | | |
| Comcast Corp. company | | | | | |
| guaranty 5.9s, 2016 | | | 155,000 | | 156,006 |
| CVS Corp. 144A pass-through | | | | | |
| certificates 6.117s, 2013 | | | 67,831 | | 68,706 |
| Echostar DBS Corp. | | | | | |
| sr. notes 5 3/4s, 2008 | | | 230,000 | | 228,563 |
| News America, Inc. debs. | | | | | |
| 7 1/4s, 2018 | | | 5,000 | | 5,526 |
| | | | | | 458,801 |
|
| |
| Financial (2.0%) | | | | | |
| Bayerische Landesbank | | | | | |
| bonds Ser. 5, 5 1/4s, 2009 | | | | | |
| (Germany) | | EUR | 1,500,000 | | 1,976,670 |
| Bosphorus Financial Services, Ltd. | | | | |
| 144A sec. FRN 7.205s, 2012 | | | | | |
| (Cayman Islands) | | $ | 275,000 | | 272,998 |
| CIT Group, Inc. sr. notes 5s, 2014 | | 155,000 | | 150,272 |
| General Electric Capital Corp. | | | | | |
| 144A sub. notes FRN | | | | | |
| 4 5/8s, 2066 | | EUR | 90,000 | | 115,861 |
| Lehman Brothers Holdings, Inc. | | | | | |
| sub. notes 5 3/4s, 2017 | | $ | 30,000 | | 30,361 |
| Mizuho Financial Group Cayman, | | | | |
| Ltd. bank guaranty 8 3/8s, 2049 | | | | | |
| (Cayman Islands) | | | 80,000 | | 84,344 |
| Nationwide Financial Services, | | | | | |
| Inc. notes 5 5/8s, 2015 | | | 35,000 | | 34,933 |
| | | | | | 2,665,439 |
|
| |
| Government (3.6%) | | | | | |
| European Investment Bank | | | | | |
| supranational bank bonds 3 1/2s, | | | | |
| 2014 (Luxembourg) | | CHF | 700,000 | | 604,056 |
| Norddeutsche Landesbank | | | | | |
| Girozentrale bonds Ser. 7, | | | | | |
| 5 3/4s, 2010 (Germany) | | EUR | 1,500,000 | | 2,056,119 |
| Oester Postspark Bawag foreign | | | | | |
| government guaranty Ser. EMTN, | | | | |
| 3 1/4s, 2011 (Austria) | | CHF | 2,375,000 | | 1,986,324 |
| | | | | | 4,646,499 |
|
| |
| Health Care (0.1%) | | | | | |
| Bayer Corp. 144A FRB 6.2s, 2008 | $ | 75,000 | | 75,293 |
|
| |
| Transportation (0.1%) | | | | | |
| BAA PLC company guaranty 4 1/2s, | | | | |
| 2018 (United Kingdom) | | EUR | 155,000 | | 196,837 |
|
32
| CORPORATE BONDS AND NOTES (7.8%)* continued | | |
|
| | | Principal amount | | Value |
|
| Utilities & Power (1.2%) | | | | | |
| AEP Texas Central Co. | | | | | |
| sr. notes Ser. D, 5 1/2s, 2013 | | $ | 40,000 | $ | 41,443 |
| Arizona Public Services Co. | | | | | |
| notes 6 1/2s, 2012 | | | 25,000 | | 25,896 |
| Consumers Energy Co. 1st mtge. | | | | |
| Ser. B, 5 3/8s, 2013 | | | 265,000 | | 262,816 |
| Fortum Oyj sr. unsecd. | | | | | |
| notes Ser. 14, Class EMTN, | | | | | |
| 4 1/2s, 2016 (Finland) | | EUR | 255,000 | | 330,664 |
| National Fuel Gas Co. | | | | | |
| notes 5 1/4s, 2013 | | $ | 40,000 | | 39,287 |
| Public Service Co. of Colorado | | | | |
| sr. notes Ser. A, 6 7/8s, 2009 | | | 150,000 | | 155,580 |
| Veolia Environnement | | | | | |
| sr. unsub. notes Ser. EMTN, | | | | | |
| 5 3/8s, 2018 (France) | | EUR | 505,000 | | 684,492 |
| York Power Funding 144A | | | | | |
| notes 12s, 2007 | | | | | |
| (Cayman Islands) (In default) (F) † | $ | 31,034 | | 2,588 |
| | | | | | 1,542,766 |
|
| |
| Total corporate bonds and notes (cost $8,799,957) | $ | 10,130,289 |
|
| |
| |
| PURCHASED OPTIONS OUTSTANDING (0.5%)* | | |
|
| | | Contract | Expiration date/ | |
| | | amount | strike price | Value |
|
| Option on an interest rate | | | | | |
| swap with Citibank, N.A. | | | | | |
| London for the right to pay a | | | | | |
| fixed rate swap of 4.1925% | | | | | |
| versus the six month | | | | | |
| EUR-EURIBOR-Telerate | | | | | |
| maturing October 13, 2016. | EUR | 6,676,000 | Oct-11 / 4.193 | $150,303 |
| Option on an interest rate | | | | | |
| swap with Citibank, N.A. | | | | | |
| London for the right to | | | | | |
| receive a fixed rate swap of | | | | | |
| 4.1925% versus the six | | | | | |
| month EUR-EURIBOR- | | | | | |
| Telerate maturing | | | | | |
| October 13, 2016. | EUR 5,263,000 | Oct-11 / 4.193 | 149,591 |
| PURCHASED OPTIONS OUTSTANDING (0.5%)* continued | |
|
| | Contract | Expiration date/ | |
| | amount | strike price | Value |
|
| Option on an interest rate | | | | |
| swap with Lehman Brothers | | | | |
| for the right to receive a | | | | |
| fixed rate swap of 4.148% | | | | |
| versus the six month EUR- | | | | |
| EURIBOR-Telerate maturing | | | | |
| October 10, 2016. | EUR 5,263,000 | Oct-11 / 4.148 | $145,763 |
| Option on an interest rate | | | | |
| swap with Lehman Brothers | | | | |
| for the right to pay a fixed | | | | |
| rate swap of 4.148% versus | | | | |
| the six month EUR- | | | | |
| EURIBOR-Telerate maturing | | | | |
| October 10, 2016. | EUR 6,676,000 | Oct-11 / 4.148 | 155,927 |
|
| |
| Total purchased options outstanding (cost $603,760) | $ | 601,584 |
|
| |
| |
| SHORT-TERM INVESTMENTS (11.9%)* | | | |
|
| | | Principal amount/shares | | Value |
|
| Putnam Prime Money Market | | | | |
| Fund (e) | | 14,753,105 | $ | 14,753,105 |
| U.S. Treasury Bills for an | | | | |
| effective yield of 4.76%, | | | | |
| November 30, 2006 # | $ | 732,000 | | 729,193 |
| U.S. Treasury Bills for an | | | | |
| effective yield of 4.675%, | | | | |
| November 30, 2006 # | | 20,000 | | 19,925 |
|
| |
| Total short-term investments (cost $15,502,223) | $ | 15,502,223 |
|
| |
| |
| TOTAL INVESTMENTS | | | | |
| Total investments (cost $132,927,817) | | $ | 134,681,813 |
* Percentages indicated are based on net assets of $129,777,420.
† Non-income-producing security.
# These securities were pledged and segregated with the custodian to cover margin requirements for futures contracts at October 31, 2006.
(e) See Note 5 to the financial statements regarding investments in Putnam Prime Money Market Fund.
(F) Security is valued at fair value following procedures approved by the Trustees.
(SN) The securities noted above were purchased during the period for an aggregate cost of $198,365. During the period, questions arose regarding a potential misidentification of the characteristics of these securities. As a result of initial inquiries into the matter, the values of these securities were adjusted. As of October 31, 2006, the aggregate values of these securities totaled $146,503. The securities subsequently were sold for a total of $161,324. An investigation of the facts surrounding the acquisition and valuation of these securities is currently underway to determine whether the fund may have claims against other parties in this regard.
At October 31, 2006, liquid assets totaling $46,538,218 have been designated as collateral for open forward commitments, swap contracts, options, and forwards contracts.
144A after the name of an issuer represents securities exempt from registration under Rule 144A under the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.
TBA after the name of a security represents to be announced securities (Note 1).
The rates shown on Floating Rate Bonds (FRB) and Floating Rate Notes (FRN) are the current interest rates at October 31, 2006.
33
The dates shown on debt obligations are the original maturity dates.
Inverse Floating Rate Bonds (IFB) are securities that pay interest rates that vary inversely to changes in the market interest rates. As interest rates rise, inverse floaters produce less current income. The interest rates shown are the current interest rates at October 31, 2006.
DIVERSIFICATION BY COUNTRY
Distribution of investments by country of issue at October 31, 2006 (as a percentage of Portfolio Value):
| Austria | 6.2% | |
| Canada | 1.7 | |
| Cayman Islands | 1.3 | |
| Denmark | 1.3 | |
| France | 1.7 | |
| Germany | 3.0 | |
| Ireland | 2.6 | |
| Italy | 1.2 | |
| Japan | 4.1 | |
| Netherlands | 4.7 | |
| Spain | 3.0 | |
| United Kingdom | 4.1 | |
| United States | 64.0 | |
| Other | 1.1 | |
|
| |
| Total | 100.0% | |
| FORWARD CURRENCY CONTRACTS TO BUY at 10/31/06 (aggregate face value $55,331,790) | | | |
|
| | | | | Unrealized |
| | | Aggregate | Delivery | appreciation/ |
| | Value | face value | date | (depreciation) |
|
| Australian Dollar | $ 6,113,856 | $ 5,938,043 | 1/17/07 | $ 175,813 |
| Brazilian Real | 315,742 | 315,118 | 1/17/07 | 624 |
| British Pound | 5,954,562 | 5,879,647 | 12/20/06 | 74,915 |
| Canadian Dollar | 1,299,531 | 1,291,577 | 1/17/07 | 7,954 |
| Czech Republic Koruna | 143,233 | 143,475 | 12/20/06 | (242) |
| Euro | 15,647,091 | 15,710,936 | 12/20/06 | (63,845) |
| Hungarian Forint | 170,637 | 160,455 | 12/20/06 | 10,182 |
| Japanese Yen | 20,090,780 | 20,553,053 | 11/15/06 | (462,273) |
| Korean Won | 2,378,610 | 2,329,776 | 11/15/06 | 48,834 |
| Malaysian Ringgit | 267,203 | 267,903 | 11/15/06 | (700) |
| Mexican Peso | 590,816 | 579,784 | 1/17/07 | 11,032 |
| Polish Zloty | 462,198 | 451,012 | 12/20/06 | 11,186 |
| Singapore Dollar | 219,503 | 218,072 | 11/15/06 | 1,431 |
| South African Rand | 363,343 | 337,282 | 1/17/07 | 26,061 |
| Swedish Krona | 332,115 | 329,689 | 12/20/06 | 2,426 |
| Swiss Franc | 1,051 | 1,034 | 12/20/06 | 17 |
| Taiwan Dollar | 649,252 | 662,043 | 11/15/06 | (12,791) |
| Thai Baht | 167,717 | 162,891 | 11/15/06 | 4,826 |
|
| Total | | | | $(164,550) |
34
| FORWARD CURRENCY CONTRACTS TO SELL at 10/31/06 (aggregate face value $27,950,089) | | |
|
| | | | | Unrealized |
| | | Aggregate | Delivery | appreciation/ |
| | Value | face value | date | (depreciation) |
|
| British Pound | $ 997,457 | $ 990,830 | 12/20/06 | $ (6,627) |
| Canadian Dollar | 2,123,822 | 2,121,325 | 1/17/07 | (2,497) |
| Danish Krone | 1,152,817 | 1,157,101 | 12/20/06 | 4,284 |
| Euro | 3,340,967 | 3,323,567 | 12/20/06 | (17,400) |
| Japanese Yen | 327,165 | 324,565 | 2/21/07 | (2,600) |
| Japanese Yen | 8,517,235 | 8,634,516 | 11/15/06 | 117,281 |
| Mexican Peso | 324,066 | 321,642 | 1/17/07 | (2,424) |
| Norwegian Krone | 2,042,155 | 2,034,890 | 12/20/06 | (7,265) |
| Swedish Krona | 1,248,244 | 1,240,090 | 12/20/06 | (8,154) |
| Swiss Franc | 7,759,160 | 7,801,563 | 12/20/06 | 42,403 |
|
| Total | | | | $117,001 |
|
| |
| |
| FUTURES CONTRACTS OUTSTANDING at 10/31/06 | | | | |
|
| | | | | Unrealized |
| | Number of | | Expiration | appreciation/ |
| | contracts | Value | date | (depreciation) |
|
| Australian Government Treasury Bond 10 yr (Long) | 4 | $ 292,190 | Dec-06 | $ (169) |
| Canadian Government Bond 10 yr (Short) | 5 | 512,037 | Dec-06 | (6,663) |
| Euro-Bobl 5 yr (Long) | 149 | 20,863,404 | Dec-06 | 24,804 |
| Euro-Bund 10 yr (Long) | 23 | 3,458,594 | Dec-06 | 10,373 |
| Euro-Buxl 30 yr (Long) | 13 | 1,686,069 | Dec-06 | 53,053 |
| Euro-Dollar 90 day (Long) | 154 | 36,490,300 | Mar-07 | (26,056) |
| Euro-Dollar 90 day (Short) | 165 | 39,288,563 | Dec-07 | 5,004 |
| Euro-Schatz 2 yr (Short) | 247 | 32,754,063 | Dec-06 | 5,767 |
| Euro-Sterling 90 day (Long) | 88 | 19,856,807 | Sep-07 | 16,766 |
| Euro-Yen 90 day (Long) | 118 | 25,036,267 | Jun-07 | 65,764 |
| Euro-Yen 90 day (Short) | 59 | 12,551,567 | Dec-06 | (24,218) |
| Euro-Yen 90 day (Short) | 59 | 12,492,901 | Dec-07 | (43,753) |
| Japanese Government Bond 10 yr (Long) | 19 | 21,855,444 | Dec-06 | 73,060 |
| U.K. Gilt 10 yr (Long) | 23 | 4,825,653 | Dec-06 | 9,231 |
| U.S. Treasury Bond 20 yr (Long) | 148 | 16,673,125 | Dec-06 | 128,148 |
| U.S. Treasury Note 10 yr (Long) | 69 | 7,467,094 | Dec-06 | (11,973) |
| U.S. Treasury Note 5 yr (Short) | 236 | 24,912,750 | Dec-06 | (171,373) |
| U.S. Treasury Note 2 yr (Short) | 177 | 36,179,906 | Dec-06 | 27,160 |
|
| Total | | | | $ 134,925 |
|
| WRITTEN OPTIONS OUTSTANDING at 10/31/06 (premiums received $323,410) | | | |
|
| | Contract | Expiration date/ | |
| | amount | strike price | Value |
|
| Option on an interest rate swap with Citibank for the obligation to pay a fixed rate | | | |
| of 1.165% versus the six month JPY-LIBOR maturing on April 3, 2008. | JPY 2,519,922,000 | Mar-07 / 1.165 | $ 74,082 |
| | | |
| Option on an interest rate swap with JPMorgan Chase Bank, N.A. for the | | | |
| obligation to pay a fixed rate of 4.55% versus the three month USD-LIBOR-BBA | | | |
| maturing on July 5, 2017. | $3,570,000 | Jul-07 / 4.55 | 14,730 |
| | | |
| Option on an interest rate swap with JPMorgan Chase Bank, N.A. for the | | | |
| obligation to receive a fixed rate of 4.55% versus the three month USD-LIBOR-BBA | | | |
| maturing on July 5, 2017. | 3,570,000 | Jul-07 / 4.55 | 170,027 |
|
| Total | | | $258,839 |
35
| TBA SALE COMMITMENTS OUTSTANDING at 10/31/06 (proceeds receivable $3,836,254) | | | |
|
| | Principal | Settlement | |
| Agency | amount | date | Value |
|
| FHLMC, 5 1/2s, November 1, 2036 | $ 300,000 | 11/13/06 | $ 296,766 |
| FNMA, 5 1/2s, November 1, 2036 | 3,600,000 | 11/13/06 | 3,557,531 |
|
| Total | | | $3,854,297 |
|
| INTEREST RATE SWAP CONTRACTS OUTSTANDING at 10/31/06 | | |
|
| | | | | | Payments | Payments | Unrealized |
| Swap counterparty / | | Termination | made by | received by | appreciation/ |
| Notional amount | | date | fund per annum | fund per annum | (depreciation) |
|
| Bank of America, N.A. | | | | | |
| | $ | 108,000 | | 10/2/16 | 5.15631% | 3 month USD-LIBOR-BBA | $ (156) |
|
| | | 1,720,000 | | 5/31/16 | 5.58909% | 3 month USD-LIBOR-BBA | (83,735) |
|
| | | 3,200,000 | | 9/1/15 | 4.53% | 3 month USD-LIBOR-BBA | 138,329 |
|
| | | 4,100,000 | | 3/30/09 | 3.075% | 3 month USD-LIBOR-BBA | 189,487 |
|
| Citibank, N.A. | | | | | |
| NOK | 21,600,000 | | 7/14/10 | 6 month NOK-NIBOR-NIBR | 3.40% | (120,178) |
|
| EUR | 2,700,000 | | 7/14/10 | 2.7515% | 6 month | |
| | | | | | | EUR-EURIBOR-Telerate | 134,168 |
|
| | $ | 3,210,000 | | 7/27/09 | 5.504% | 3 month USD-LIBOR-BBA | (81,591) |
|
| JPY | | 230,000,000 | | 4/22/13 | 1.9225% | 6 month JPY-LIBOR-BBA | (47,477) |
|
| JPY | | 1,033,168,000 | (E) | 4/3/08 | 6 month JPY-LIBOR-BBA | 1.165% | 29,083 |
|
| JPY | | 73,000,000 | | 4/21/36 | 6 month JPY-LIBOR-BBA | 2.775% | 25,940 |
|
| | $ | 160,000 | | 4/7/14 | 5.377% | 3 month USD-LIBOR-BBA | (2,822) |
|
| AUD | 6,218,000 | | 8/4/09 | 3 month AUD-BBR-BBSW | 6.315% | (7,014) |
|
| EUR | 1,100,000 | | 7/22/10 | 2.825% | 6 month | |
| | | | | | | EUR-EURIBOR-Telerate | 50,993 |
|
| NOK | 8,600,000 | | 7/22/10 | 6 month NOK-NIBOR-NIBR | 3.52% | (42,433) |
|
| EUR | 1,233,000 | | 9/29/08 | 3.742% | 6 month | |
| | | | | | | EUR-EURIBOR-Telerate | 3,457 |
|
| JPY | | 530,000,000 | | 2/10/16 | 6 month JPY-LIBOR-BBA | 1.755% | (15,027) |
|
| EUR | 1,233,000 | | 9/26/08 | 3.77% | 6 month | |
| | | | | | | EUR-EURIBOR-Telerate | 2,574 |
|
| EUR | 1,233,000 | | 9/19/08 | 3.865% | 6 month | |
| | | | | | | EUR-EURIBOR-Telerate | (274) |
|
| | $ | 12,780,000 | | 9/29/13 | 5.078% | 3 month USD-LIBOR-BBA | 5,954 |
|
| NOK | 42,199,000 | | 9/15/08 | 6 month NOK-NIBOR-NIBR | 4.48% | (9,290) |
|
| NOK | 31,737,000 | | 9/13/10 | 4.5875% | 6 month NOK-NIBOR-NIBR | 12,319 |
|
| JPY | | 222,000,000 | | 9/11/16 | 1.8675% | 6 month JPY-LIBOR-BBA | (2,558) |
|
| CAD | 7,715,500 | | 8/22/08 | 3 month CAD-BA-CDOR | 4.3535% | 19,034 |
|
| CAD | 1,839,000 | | 8/22/16 | 4.6535% | 3 month CAD-BA-CDOR | (30,781) |
|
| CAD | 2,660,000 | | 8/4/09 | 4.497% | 3 month CAD-BA-CDOR | (20,374) |
|
| Credit Suisse First Boston International | | | | |
| | $ | 932,200 | | 7/9/14 | 4.945% | 3 month USD-LIBOR-BBA | (2,335) |
|
| Credit Suisse International | | | | |
| | | 161,000 | | 9/28/16 | 5.10886% | 3 month USD-LIBOR-BBA | 395 |
|
| EUR | 993,000 | | 7/17/21 | 6 month EUR-EURIBOR- | | |
| | | | | | Telerate | 4.445% | 61,875 |
|
| EUR | 3,841,000 | | 7/17/13 | 4.146% | 6 month | |
| | | | | | | EUR-EURIBOR-Telerate | (86,778) |
|
| EUR | 4,635,000 | | 7/17/09 | 6 month EUR-EURIBOR- | | |
| | | | | | Telerate | 3.896% | 16,401 |
|
| GBP | 284,000 | | 4/3/36 | GBP 715,462 at maturity | 6 month GBP-LIBOR-BBA | (22,802) |
|
| | $ | 284,000 | | 3/21/16 | 3 month USD-LIBOR-BBA | 5.20497% | 1,441 |
|
| EUR | 9,446,000 | (E) | 3/7/08 | 3 month EUR-EURIBOR- | | |
| | | | | | Telerate | 3.525% | (50,273) |
|
| EUR | 19,329,000 | (E) | 2/10/08 | 3.313% | 3 month | |
| | | | | | | EUR-EURIBOR-Telerate | 153,405 |
|
36
| INTEREST RATE SWAP CONTRACTS OUTSTANDING at 10/31/06 continued | | |
|
| | | | Payments | Payments | Unrealized |
| Swap counterparty / | Termination | made by | received by | appreciation/ |
| Notional amount | date | fund per annum | fund per annum | (depreciation) |
|
| Deutsche Bank AG | | | | |
| HUF | 157,860,000 | 10/3/11 | 8.18% | 6 month HUF-BUBOR-REUTERS | $ (16,035) |
|
| Goldman Sachs International | | | | |
| $ | 131,000 | 5/3/16 | 5.565% | 3 month USD-LIBOR-BBA | (6,083) |
|
| | 480,000 | 4/7/14 | 5.33842% | 3 month USD-LIBOR-BBA | (7,278) |
|
| | 100,000 | 10/19/16 | 5.32413% | 3 month USD-LIBOR-BBA | (1,429) |
|
| JPMorgan Chase Bank, N.A. | | | | |
| CAD | 5,000,000 | 3/1/08 | 3 month CAD-BA-CDOR | 4.215% | (885) |
|
| JPY | 496,000,000 | 7/24/13 | 1.7875% | 6 month JPY-LIBOR-BBA | (75,516) |
|
| JPY | 2,049,000,000 | 7/24/08 | 6 month JPY-LIBOR-BBA | 0.905% | 49,359 |
|
| $ 3,400,000 | 8/4/16 | 3 month USD-LIBOR-BBA | 5.5195% | 98,944 |
|
| | 6,600,000 | 8/4/08 | 3 month USD-LIBOR-BBA | 5.40% | 26,943 |
|
| | 13,778,000 | 5/4/08 | 3 month USD-LIBOR-BBA | 5.37% | 218,723 |
|
| | 4,462,000 | 5/4/16 | 5.62375% | 3 month USD-LIBOR-BBA | (227,974) |
|
| JPY | 730,000,000 | 6/6/13 | 1.83% | 6 month JPY-LIBOR-BBA | (146,135) |
|
| $ | 487,000 | 8/2/15 | 3 month USD-LIBOR-BBA | 4.6570% | (16,155) |
|
| | 2,000,000 | 5/10/35 | 5.062% | 3 month USD-LIBOR-BBA | 36,403 |
|
| | 4,000,000 | 5/10/15 | 3 month USD-LIBOR-BBA | 4.687% | (77,211) |
|
| | 3,490,000 | 10/10/13 | 5.09% | 3 month USD-LIBOR-BBA | (689) |
|
| | 2,510,000 | 10/10/13 | 5.054% | 3 month USD-LIBOR-BBA | 5,355 |
|
| | 8,000,000 | 5/10/07 | 4.062% | 3 month USD-LIBOR-BBA | 768 |
|
| | 109,000 | 9/18/16 | 5.291% | 3 month USD-LIBOR-BBA | (1,260) |
|
| | 26,000,000 | 12/23/15 | 5.036% | 3 month USD-LIBOR-BBA | (157,491) |
|
| Lehman Brothers International (Europe) | | | | |
| | 554,000 | 10/23/08 | 5.255% | 3 month USD-LIBOR-BBA | (1,626) |
|
| | 223,000 | 10/23/16 | 3 month USD-LIBOR-BBA | 5.3275% | 3,249 |
|
| | 223,000 | 10/23/16 | 5.325% | 3 month USD-LIBOR-BBA | (3,206) |
|
| | 554,000 | 10/23/08 | 3 month USD-LIBOR-BBA | 5.26% | 1,676 |
|
| | 157,000 | 8/3/16 | 5.5675% | 3 month USD-LIBOR-BBA | (5,158) |
|
| | 429,000 | 8/3/11 | 5.445% | 3 month USD-LIBOR-BBA | (7,130) |
|
| EUR | 1,470,000 | 10/5/21 | 6 month EUR-EURIBOR- | | |
| | | | Telerate | 4.093% | 12,279 |
|
| EUR | 5,560,000 | 10/5/13 | 3.8975% | 6 month | |
| | | | | EUR-EURIBOR-Telerate | (5,930) |
|
| EUR | 6,710,000 | 10/5/09 | 6 month EUR-EURIBOR- | | |
| | | | Telerate | 3.825% | (5,018) |
|
| PLN | 4,870,000 | 9/29/08 | 6 month PLZ-WIBOR-WIBO | 5.04% | 5,979 |
|
| PLN | 4,930,000 | 9/26/08 | 6 month PLZ-WIBOR-WIBO | 4.99% | 4,423 |
|
| Lehman Brothers Special Financing, Inc. | | | | |
| JPY | 1,000,000,000 | 10/21/15 | 1.61% | 6 month JPY-LIBOR-BBA | 133,380 |
|
| $ | 287,000 | 8/3/08 | 3 month USD-LIBOR-BBA | 5.425% | 1,312 |
|
| GBP | 280,000 | 3/15/36 | 677,833.33 GBP at maturity | 6 month GBP-LIBOR-BBA | (3,416) |
|
| PLN | 4,930,000 | 9/19/08 | 6 month PLZ-WIBOR-WIBO | 4.96% | 3,803 |
|
| JPY | 365,000,000 | 9/8/13 | 1.58375% | 6 month JPY-LIBOR-BBA | (6,118) |
|
| JPY | 1,540,000,000 | 9/8/08 | 6 month JPY-LIBOR-BBA | 0.80625% | 681 |
|
| GBP | 3,130,000 | 8/16/11 | 5.24% | 3 month GBP-LIBOR-BBA | (19,659) |
|
| Merrill Lynch Capital Services, Inc. | | | | |
| EUR | 2,600,000 | 7/26/10 | 2.801% | 6 month | |
| | | | | EUR-EURIBOR-Telerate | 122,595 |
|
| NOK | 21,500,000 | 7/26/10 | 6 month NOK-NIBOR-NIBR | 3.54% | (106,459) |
|
| NOK | 50,891,000 (E) | 4/11/08 | 3 month NOK-NIBOR-NIBR | 4.13% | (23,732) |
|
| JPY | 247,000,000 | 10/31/16 | 1.90% | 6 month JPY-LIBOR-BBA | (3,330) |
|
| CAD | 1,839,000 | 10/25/16 | 4.65% | 3 month CAD-BA-CDOR | (26,608) |
|
| CAD | 7,715,500 | 10/25/08 | 3 month CAD-BA-CDOR | 4.35% | 20,909 |
|
| JPY | 67,800,000 | 10/18/36 | 6 month JPY-LIBOR-BBA | 2.655% | 8,673 |
|
37
| INTEREST RATE SWAP CONTRACTS OUTSTANDING at 10/31/06 continued | | |
|
| | | | | Payments | Payments | Unrealized |
| Swap counterparty / | | Termination | made by | received by | appreciation/ |
| Notional amount | | date | fund per annum | fund per annum | (depreciation) |
|
| Merrill Lynch Capital Services, Inc. continued | | | |
| JPY | 145,600,000 | | 10/18/16 | 1.9475% | 6 month JPY-LIBOR-BBA | $ (7,915) |
|
| $ | 1,650,000 | (E) | 11/22/16 | 4.1735% | 3 month U.S. Bond Market | |
| | | | | | Association Municipal Swap | |
| | | | | | Index | (68,368) |
|
| | 1,160,000 | (E) | 11/22/16 | 3 month USD-LIBOR-BBA | 5.711% | 51,620 |
|
| CAD | 5,285,000 | | 8/2/09 | 4.464% | 3 month CAD-BA-CDOR | (35,563) |
|
| Total | | | | | | $ (37,346) |
(E) See Note 1 to the financial statements regarding extended effective dates.
| TOTAL RETURN SWAP CONTRACTS OUTSTANDING at 10/31/06 | | |
|
| |
| | | | Fixed payments | Total return | Unrealized |
| Swap counterparty / | Termination | received (paid) by | received by | appreciation/ |
| Notional amount | date | fund per annum | or paid by fund | (depreciation) |
|
| Citibank, N.A. | | | | |
| | $ 570,000 | 11/1/06 | 7.5 bp plus | The spread | $ 939 |
| | | | beginning | return of Lehman | |
| | | | of period nominal | Brothers AAA | |
| | | | spread of Lehman | 8.5+ CMBS Index | |
| | | | Brothers AAA | adjusted by | |
| | | | 8.5+ Commercial | modified | |
| | | | Mortgage Backed | duration factor | |
| | | | Securities Index | | |
|
| Credit Suisse International | | | | |
| GBP | 284,000 | 4/3/36 | 430,367 GBP | GBP Non-revised | 1,243 |
| | | | at maturity | Retail Price | |
| | | | | Index | |
|
| Deutsche Bank AG London | | | | |
| | $ 570,000 | 11/1/06 | 5 bp plus | The spread | 871 |
| | | | nominal spread | return of Lehman | |
| | | | of Lehman | Brothers AAA | |
| | | | Brothers AAA | 8.5+ CMBS Index | |
| | | | 8.5+ Commercial | adjusted by | |
| | | | Mortgage Backed | modified | |
| | | | Securities Index | duration factor | |
|
| Goldman Sachs Capital Markets, L.P. | | | | |
| | 530,000 | 11/1/06 | 5 bp plus change | The spread | 801 |
| | | | in spread | return of Lehman | |
| | | | of Lehman | Brothers AAA | |
| | | | Brothers AAA | 8.5+ CMBS Index | |
| | | | 8.5+ Commercial | adjusted by | |
| | | | Mortgage Backed | modified | |
| | | | Securities Index | duration factor | |
| | | | multiplied by | | |
| | | | the modified | | |
| | | | duration factor | | |
|
| Goldman Sachs International | | | | |
| | 275,000 | 9/15/11 | 678 bp (1 month | Ford Credit Auto | 662 |
| | | | USD-LIBOR-BBA) | Owner Trust | |
| | | | | Series 2005-B | |
| | | | | Class D | |
|
| | 1,770,000 | 12/1/06 | 5 bp plus change | The spread | 6,386 |
| | | | in spread | return of Lehman | |
| | | | of Lehman | Brothers Aaa | |
| | | | Brothers Aaa | 8.5+ CMBS Index | |
| | | | 8.5+ Commercial | adjusted by | |
| | | | Mortgage Backed | modified | |
| | | | Securities Index | duration factor | |
| | | | multiplied by | | |
| | | | the modified | | |
| | | | duration factor | | |
|
38
| TOTAL RETURN SWAP CONTRACTS OUTSTANDING at 10/31/06 continued | | |
|
| |
| | | | Fixed payments | Total return | Unrealized |
| Swap counterparty / | Termination | received (paid) by | received by | appreciation/ |
| Notional amount | date | fund per annum | or paid by fund | (depreciation) |
|
| Goldman Sachs International continued | | | |
| |
| EUR | 3,238,000 | 10/31/11 | 2.12% | Eurostat | $ 6,612 |
| | | | | Eurozone HICP | |
| | | | | excluding tobacco | |
|
| EUR | 3,238,000 | 10/31/11 | (1.935%) | French Consumer | (1,239) |
| | | | | Price Index | |
| | | | | excluding tobacco | |
|
| JPMorgan Chase Bank, N.A. | | | | |
| EUR | 3,070,000 | 7/21/11 | (2.295%) | Euro Non-revised | (51,711) |
| | | | | Consumer Price | |
| | | | | Index excluding | |
| | | | | tobacco | |
|
| EUR | 3,070,000 | 7/21/11 | 2.2325% | Euro Non-revised | 61,104 |
| | | | | Consumer Price | |
| | | | | Index excluding | |
| | | | | tobacco | |
|
| GBP | 3,130,000 | 8/16/11 | 3.015% | GBP Non-revised | 21,345 |
| | | | | UK Retail Price | |
| | | | | Index excluding | |
| | | | | tobacco | |
|
| Lehman Brothers Special Financing, Inc. | | | |
| EUR | 3,238,000 | 4/26/11 | 2.11% | French Non- | 39,260 |
| | | | | revised Consumer | |
| | | | | Price Index | |
| | | | | excluding tobacco | |
|
| EUR | 3,238,000 | 4/26/11 | (2.115%) | Euro Non-revised | 3,720 |
| | | | | Consumer Price | |
| | | | | Index excluding | |
| | | | | tobacco | |
|
| GBP | 280,000 | 3/15/36 | 423,793 GBP at | GBP Non-revised | 1,655 |
| | | | maturity | Retail Price | |
| | | | | Index | |
|
| |
| Total | | | | | $91,648 |
| CREDIT DEFAULT CONTRACTS OUTSTANDING at 10/31/06 | | | | |
|
| | Upfront | | | | Fixed payments | Unrealized |
| Swap counterparty / | premium | | Notional | Termination | received (paid) by | appreciation/ |
| Referenced debt* | received ** | | amount | date | fund per annum | (depreciation) |
|
| Deutsche Bank AG | | | | | | |
| DJ CDX NA IG Series 7 | $ — | | $257,000 | 12/20/13 | (50 bp) | $ (903) |
|
| DJ CDX NA IG Series 7 | | | | | | |
| Index 7-10% tranche | — | | 257,000 | 12/20/13 | 55 bp | 1,482 |
|
| DJ iTraxx Europe Series | | | | | | |
| 6 Version 1 | 1,391 | EUR | 451,000 | 12/20/13 | (40 bp) | (1,075) |
|
| DJ iTraxx Europe Series | | | | | | |
| 6 Version 1, 6-9% | | | | | | |
| tranche | — | EUR | 451,000 | 12/20/13 | 43 bp | 1,169 |
|
| Goldman Sachs International | | | | | | |
| DJ CDX NA IG Series 6 | | | | | | |
| Index 7-10% tranche | — | | $421,000 | 6/20/13 | 55 bp | 3,512 |
|
| DJ CDX NA IG Series 6 | | | | | | |
| Index | 181 | | 421,000 | 6/20/13 | (50 bp) | (1,528) |
|
| DJ CDX NA IG Series 7 | | | | | | |
| Index | — | | 429,000 | 12/20/13 | (50 bp) | (1,497) |
|
| DJ CDX NA IG Series 7 | | | | | | |
| Index 7-10% tranche | — | | 429,000 | 12/20/13 | 56 bp | 2,715 |
|
39
| CREDIT DEFAULT CONTRACTS OUTSTANDING at 10/31/06 continued | | | |
|
| | Upfront | | | | Fixed payments | Unrealized |
| Swap counterparty / | premium | | Notional | Termination | received (paid) by | appreciation/ |
| Referenced debt* | received ** | | amount | date | fund per annum | (depreciation) |
|
| Lehman Brothers Special Financing, Inc. | | | | | | |
| DJ CDX NA IG Series 7 | | | | | | |
| Index | $ 240 | | $405,000 | 12/20/13 | (50 bp) | $ (1,147) |
|
| DJ CDX NA IG Series 7 | | | | | | |
| Index 7-10% tranche | — | | 405,000 | 12/20/13 | 54.37 bp | 2,117 |
|
| DJ iTraxx EUR Series 5 | | | | | | |
| Index | 1,912 | EUR | 355,000 | 6/20/13 | (50 bp) | (3,003) |
|
| DJ iTraxx EUR Series 5 | | | | | | |
| Index 6-9% tranche | — | EUR | 355,000 | 6/20/13 | 53.5 bp | 5,745 |
|
| DJ iTraxx Europe Series | | | | | | |
| 6 Version 1, 6-9% | | | | | | |
| tranche | — | EUR | 540,000 | 12/20/13 | 45.25 bp | 2,541 |
|
| DJ iTraxx Europe Series | | | | | | |
| 6 Version 1 | 1,332 | EUR | 540,000 | 12/20/13 | (40 bp) | (1,642) |
|
| Morgan Stanley Capital Services, Inc. | | | | | | |
| DJ CDX NA IG Series 7 | | | | | | |
| Index | 263 | | $444,000 | 12/20/13 | (50 bp) | (1,274) |
|
| DJ CDX NA IG Series 7 | | | | | | |
| Index, 7-10% tranche | — | | 444,000 | 12/20/13 | 53 bp | 1,979 |
|
| DJ iTraxx EUR Series 5 | | | | | | |
| Index | 1,700 | EUR | 355,000 | 6/20/13 | (50 bp) | (3,215) |
|
| DJ iTraxx EUR Series 5 | | | | | | |
| Index 6-9% tranche | — | EUR | 355,000 | 6/20/13 | 57 bp | 6,673 |
|
| Total | | | | | | $12,649 |
* Payments related to the reference debt are made upon a credit default event.
** Upfront premium is based on the difference between the original spread on issue and the market spread on day of execution.
The accompanying notes are an integral part of these financial statements.
40
Statement of assets and liabilities 10/31/06
| ASSETS | |
|
| Investment in securities, at value (Note 1): | |
| Unaffiliated issuers (identified cost $118,174,712) | $119,928,708 |
| Affiliated issuers (identified cost $14,753,105) (Note 5) | 14,753,105 |
|
| Cash | 8,768 |
|
| Foreign currency (cost $1,548,903) (Note 1) | 1,572,251 |
|
| Interest and other receivables | 1,197,426 |
|
| Receivable for shares of the fund sold | 110,838 |
|
| Receivable for securities sold | 131,625 |
|
| Receivable for sales of delayed delivery securities (Note 1) | 3,843,404 |
|
| Receivable for variation margin (Note 1) | 248,085 |
|
| Receivable for open forward currency contracts (Note 1) | 586,053 |
|
| Receivable for closed forward currency contracts (Note 1) | 174,111 |
|
| Unrealized appreciation on swap contracts (Note 1) | 1,824,460 |
|
| Receivable for closed swap contracts (Note 1) | 15,442 |
|
| Total assets | 144,394,276 |
|
| |
| LIABILITIES | |
|
| Payable for securities purchased | 2,616,058 |
|
| Payable for purchases of delayed delivery securities (Note 1) | 4,617,306 |
|
| Payable for shares of the fund repurchased | 340,540 |
|
| Payable for compensation of Manager (Notes 2 and 5) | 112,210 |
|
| Payable for investor servicing and custodian fees (Note 2) | 64,173 |
|
| Payable for Trustee compensation and expenses (Note 2) | 89,676 |
|
| Payable for administrative services (Note 2) | 2,331 |
|
| Payable for distribution fees (Note 2) | 43,117 |
|
| Payable for open forward currency contracts (Note 1) | 633,602 |
|
| Payable for closed forward currency contracts (Note 1) | 162,941 |
|
| Written options outstanding, at value (premiums received $323,410) (Notes 1 and 3) | 258,839 |
|
| TBA sale commitments, at value (proceeds receivable $3,836,254) (Note 1) | 3,854,297 |
|
| Unrealized depreciation on swap contracts (Note 1) | 1,757,509 |
|
| Premiums received on swap contracts (Note 1) | 7,019 |
|
| Other accrued expenses | 57,238 |
|
| Total liabilities | 14,616,856 |
|
| Net assets | $129,777,420 |
|
| |
| REPRESENTED BY | |
|
| Paid-in capital (Unlimited shares authorized) (Notes 1 and 4) | $157,257,186 |
|
| Undistributed net investment income (Note 1) | 4,429,761 |
|
| Accumulated net realized loss on investments and foreign currency transactions (Note 1) | (33,889,542) |
|
| Net unrealized appreciation of investments and assets and liabilities in foreign currencies | 1,980,015 |
|
| Total — Representing net assets applicable to capital shares outstanding | $129,777,420 |
(Continued on next page)
41
| Statement of assets and liabilities (Continued) | |
|
| |
| COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE | |
|
| Net asset value and redemption price per class A share ($87,210,149 divided by 7,194,062 shares) | $12.12 |
|
| Offering price per class A share (100/96.25 of $12.12)* | $12.59 |
|
| Net asset value and offering price per class B share ($15,237,918 divided by 1,261,227 shares)** | $12.08 |
|
| Net asset value and offering price per class C share ($2,711,787 divided by 224,292 shares)** | $12.09 |
|
| Net asset value and redemption price per class M share ($21,973,662 divided by 1,824,549 shares) | $12.04 |
|
| Offering price per class M share (100/96.75 of $12.04)*** | $12.44 |
|
| Net asset value, offering price and redemption price per class R share ($126,891 divided by 10,473 shares) | $12.12 |
|
| Net asset value, offering price and redemption price per class Y share ($2,517,013 divided by 207,514 shares) | $12.13 |
|
* On single retail sales of less than $100,000. On sales of $100,000 or more the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge.
*** On single retail sales of less than $50,000. On sales of $50,000 or more the offering price is reduced.
The accompanying notes are an integral part of these financial statements.
42
Statement of operations Year ended 10/31/06
| INVESTMENT INCOME | |
| Interest (including interest income of $430,207 from investments in affiliated issuers) (Note 5) | $ 5,666,903 |
|
| |
| EXPENSES | |
|
| Compensation of Manager (Note 2) | 942,244 |
|
| Investor servicing fees (Note 2) | 254,473 |
|
| Custodian fees (Note 2) | 130,104 |
|
| Trustee compensation and expenses (Note 2) | 32,056 |
|
| Administrative services (Note 2) | 19,086 |
|
| Distribution fees — Class A (Note 2) | 218,780 |
|
| Distribution fees — Class B (Note 2) | 185,835 |
|
| Distribution fees — Class C (Note 2) | 26,494 |
|
| Distribution fees — Class M (Note 2) | 115,210 |
|
| Distribution fees — Class R (Note 2) | 531 |
|
| Auditing | 156,460 |
|
| Other | 137,543 |
|
| Non-recurring costs (Notes 2 and 6) | 1,785 |
|
| Costs assumed by Manager (Notes 2 and 6) | (1,785) |
|
| Fees waived and reimbursed by Manager or affiliate (Notes 2, 5 and 6) | (431,132) |
|
| Total expenses | 1,787,684 |
|
| Expense reduction (Note 2) | (20,561) |
|
| Net expenses | 1,767,123 |
|
| Net investment income | 3,899,780 |
|
| Net realized gain on investments (Notes 1 and 3) | 1,288,591 |
|
| Net realized gain on swap contracts (Note 1) | 759,751 |
|
| Net realized gain on futures contracts (Note 1) | 127,653 |
|
| Net realized loss on foreign currency transactions (Note 1) | (2,016,085) |
|
| Net realized loss on written options (Notes 1 and 3) | (15,937) |
|
| Net unrealized appreciation of assets and liabilities in foreign currencies during the year | 1,546,511 |
|
| Net unrealized appreciation of investments, futures contracts, swap contracts, written options, and TBA sale commitments during the year | 534,471 |
|
| Net gain on investments | 2,224,955 |
|
| Net increase in net assets resulting from operations | $ 6,124,735 |
The accompanying notes are an integral part of these financial statements.
43
Statement of changes in net assets
| DECREASE IN NET ASSETS | | |
|
| | Year ended | Year ended |
| | 10/31/06 | 10/31/05 |
|
| Operations: | | |
| Net investment income | $ 3,899,780 | $ 4,683,724 |
|
| Net realized gain on investments and foreign currency transactions | 143,973 | 8,581,263 |
|
| Net unrealized appreciation (depreciation) of investments and assets and liabilities in foreign currencies | 2,080,982 | (14,131,207) |
|
| Net increase (decrease) in net assets resulting from operations | 6,124,735 | (866,220) |
|
| Distributions to shareholders: (Note 1) | | |
|
| From ordinary income | | |
|
| Net investment income | | |
|
| Class A | (4,681,237) | (4,351,459) |
|
| Class B | (857,353) | (897,091) |
|
| Class C | (123,403) | (81,888) |
|
| Class M | (1,190,629) | (1,079,647) |
|
| Class R | (5,477) | (1,208) |
|
| Class Y | (146,434) | (16,509) |
|
| Redemption fees (Note 1) | 7,030 | 13,898 |
|
| Decrease from capital share transactions (Note 4) | (22,390,062) | (6,591,199) |
|
| Total decrease in net assets | (23,262,830) | (13,871,323) |
|
| |
| NET ASSETS | | |
|
| Beginning of year | 153,040,250 | 166,911,573 |
|
| End of year (including undistributed net investment income of $4,429,761 and $8,014,963, respectively) | $129,777,420 | $153,040,250 |
The accompanying notes are an integral part of these financial statements.
44
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45
Financial highlights (For a common share outstanding throughout the period)
| INVESTMENT OPERATIONS: | | | | | LESS DISTRIBUTIONS: | | | | RATIOS AND SUPPLEMENTAL DATA: | | |
| | | | | | | | | | | | | |
| | | | Net | | | | | | Total | | | Ratio of net | |
| | Net asset | | realized and | Total | From | | | Net asset | return | Net | Ratio of | investment | |
| | value, | Net | unrealized | from | net | | | value, | at net | assets, | expenses to | income (loss) | Portfolio |
| | beginning | investment | gain (loss) on | investment | investment | Total | Redemption | end | asset | end of period | average net | to average | turnover |
| Period ended | of period | income (loss)(a) | investments | operations | income | distributions | fees | of period | value (%)(b) | (in thousands) | assets (%)(c) | net assets (%) | (%) |
|
| CLASS A | | | | | | | | | | | | | |
| October 31, 2006 | $12.18 | .37(d,e) | .22 | .59 | (.65) | (.65) | —(f) | $12.12 | 5.01 | $87,210 | 1.17(d,e) | 3.04(d,e) | 97.83(g) |
| October 31, 2005 | 12.73 | .38(d) | (.42) | (.04) | (.51) | (.51) | —(f) | 12.18 | (.39) | 98,198 | 1.22(d) | 2.96(d) | 197.70(g) |
| October 31, 2004 | 12.65 | .33(d) | .88 | 1.21 | (1.13) | (1.13) | —(f) | 12.73 | 9.99 | 104,736 | 1.29(d) | 2.65(d) | 162.13 |
| October 31, 2003 | 11.39 | .40 | 1.31 | 1.71 | (.45) | (.45) | —(f) | 12.65 | 15.18 | 120,099 | 1.31 | 3.23 | 197.79 |
| October 31, 2002 | 10.97 | .46 | .43 | .89 | (.47) | (.47) | — | 11.39 | 8.35 | 99,140 | 1.29 | 4.21 | 331.06(h) |
|
| |
| CLASS B | | | | | | | | | | | | | |
| October 31, 2006 | $12.13 | .28(d,e) | .23 | .51 | (.56) | (.56) | —(f) | $12.08 | 4.31 | $15,238 | 1.92(d,e) | 2.37(d,e) | 97.83(g) |
| October 31, 2005 | 12.69 | .28(d) | (.42) | (.14) | (.42) | (.42) | —(f) | 12.13 | (1.23) | 23,480 | 1.97(d) | 2.20(d) | 197.70(g) |
| October 31, 2004 | 12.61 | .24(d) | .87 | 1.11 | (1.03) | (1.03) | —(f) | 12.69 | 9.20 | 29,246 | 2.04(d) | 1.93(d) | 162.13 |
| October 31, 2003 | 11.36 | .30 | 1.30 | 1.60 | (.35) | (.35) | —(f) | 12.61 | 14.27 | 41,469 | 2.06 | 2.44 | 197.79 |
| October 31, 2002 | 10.94 | .38 | .43 | .81 | (.39) | (.39) | — | 11.36 | 7.60 | 29,498 | 2.04 | 3.33 | 331.06(h) |
|
| |
| CLASS C | | | | | | | | | | | | | |
| October 31, 2006 | $12.14 | .27(d,e) | .24 | .51 | (.56) | (.56) | —(f) | $12.09 | 4.32 | $2,712 | 1.92(d,e) | 2.28(d,e) | 97.83(g) |
| October 31, 2005 | 12.70 | .29(d) | (.43) | (.14) | (.42) | (.42) | —(f) | 12.14 | (1.19) | 2,699 | 1.97(d) | 2.22(d) | 197.70(g) |
| October 31, 2004 | 12.62 | .23(d) | .88 | 1.11 | (1.03) | (1.03) | —(f) | 12.70 | 9.16 | 1,682 | 2.04(d) | 1.90(d) | 162.13 |
| October 31, 2003 | 11.37 | .29 | 1.32 | 1.61 | (.36) | (.36) | —(f) | 12.62 | 14.30 | 2,337 | 2.06 | 2.35 | 197.79 |
| October 31, 2002 | 10.96 | .37 | .43 | .80 | (.39) | (.39) | — | 11.37 | 7.48 | 1,048 | 2.04 | 3.22 | 331.06(h) |
|
| |
| CLASS M | | | | | | | | | | | | | |
| October 31, 2006 | $12.10 | .34(d,e) | .22 | .56 | (.62) | (.62) | —(f) | $12.04 | 4.79 | $21,974 | 1.42(d,e) | 2.81(d,e) | 97.83(g) |
| October 31, 2005 | 12.66 | .34(d) | (.42) | (.08) | (.48) | (.48) | —(f) | 12.10 | (.73) | 25,065 | 1.47(d) | 2.70(d) | 197.70(g) |
| October 31, 2004 | 12.58 | .30(d) | .87 | 1.17 | (1.09) | (1.09) | —(f) | 12.66 | 9.77 | 31,245 | 1.54(d) | 2.40(d) | 162.13 |
| October 31, 2003 | 11.33 | .37 | 1.29 | 1.66 | (.41) | (.41) | —(f) | 12.58 | 14.86 | 38,446 | 1.56 | 3.02 | 197.79 |
| October 31, 2002 | 10.91 | .44 | .42 | .86 | (.44) | (.44) | — | 11.33 | 8.16 | 43,686 | 1.54 | 4.02 | 331.06(h) |
|
| |
| CLASS R | | | | | | | | | | | | | |
| October 31, 2006 | $12.17 | .32(d,e) | .25 | .57 | (.62) | (.62) | —(f) | $12.12 | 4.86 | $127 | 1.42(d,e) | 2.67(d,e) | 97.83(g) |
| October 31, 2005 | 12.74 | .36(d) | (.44) | (.08) | (.49) | (.49) | —(f) | 12.17 | (.74) | 70 | 1.47(d) | 2.72(d) | 197.70(g) |
| October 31, 2004† | 12.81 | .27(d) | .73 | 1.00 | (1.07) | (1.07) | —(f) | 12.74 | 8.21* | 2 | 1.41*(d) | 2.21*(d) | 162.13 |
|
| |
| CLASS Y | | | | | | | | | | | | | |
| October 31, 2006 | $12.18 | .40(d,e) | .23 | .63 | (.68) | (.68) | —(f) | $12.13 | 5.34 | $2,517 | .92(d,e) | 3.31(d,e) | 97.83(g) |
| October 31, 2005†† | 12.31 | .03(d) | (.10) | (.07) | (.06) | (.06) | —(f) | 12.18 | (.61)* | 3,529 | .07*(d) | .24*(d) | 197.70(g) |
|
See notes to financial highlights at the end of this section.
The accompanying notes are an integral part of these financial statements.
Financial highlights (Continued)
* Not annualized.
† For the period December 1, 2003 (commencement of operations) to October 31, 2004.
†† For the period October 4, 2005 (commencement of operations) to October 31, 2005.
(a) Per share net investment income (loss) has been determined on the basis of the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements (Note 2).
(d) Reflects an involuntary contractual expense limitation and waivers of certain fund expenses in connection with investments in Putnam Prime Money Market Fund during the period. As a result of such limitation and waivers, the expenses of each class, as a percentage of its average net assets, reflect a reduction of the following amounts (Notes 2 and 5):
| | 10/31/06 | 10/31/05 | 10/31/04 |
|
| Class A | 0.31% | 0.14% | 0.09% |
|
| Class B | 0.31 | 0.14 | 0.09 |
|
| Class C | 0.31 | 0.14 | 0.09 |
|
| Class M | 0.31 | 0.14 | 0.09 |
|
| Class R | 0.31 | 0.12 | 0.09 |
|
| Class Y | 0.31 | 0.02 | N/A |
|
(e) Reflects a non-recurring reimbursement from Putnam Investments relating to the calculation of certain amounts paid by the fund to Putnam in previous years for transfer agent services, which amounted to less than $0.01 per share and 0.01% of average net assets for the period ended October 31, 2006 (Note 6).
(f) Amount represents less than $0.01 per share.
(g) Portfolio turnover excludes dollar roll transactions.
(h) Portfolio turnover excludes certain treasury note transactions executed in connection with a short-term trading strategy.
The accompanying notes are an integral part of these financial statements.
48
Notes to financial statements 10/31/06
Note 1: Significant accounting policies
Putnam Global Income Trust (the “fund”), a Massachusetts business trust, is registered under the Investment Company Act of 1940, as amended, as a non-diversified, open-end management investment company. The fund seeks high current income by investing primarily in debt securities of sovereign and private issuers worldwide, including supranational issuers. The fund’s secondary objectives are preservation of capital and long-term total return, but only to the extent that these are consistent with the objective of seeking high current income. The fund invests in higher yielding, lower rated bonds that may have a higher rate of default.
The fund offers class A, class B, class C, class M, class R and class Y shares. Class A and class M shares are sold with a maximum front-end sales charge of 3.75% and 3.25%, respectively, and generally do not pay a contingent deferred sales charge. Class B shares, which convert to class A shares after approximately eight years, do not pay a front-end sales charge and are subject to a contingent deferred sales charge, if those shares are redeemed within six years of purchase. Class C shares have a one-year 1.00% contingent deferred sales charge and do not convert to class A shares. Class R shares, which are offered to qualified employee-benefit plans, are sold without a front-end sales charge or a contingent deferred sales charge. The expenses for class A, class B, class C, class M and class R shares may differ based on the distribution fee of each class, which is identified in Note 2. Class Y shares, which are sold at net asset value, are generally subject to the sa me expenses as class A, class B, class C, class M and class R shares, but do not bear a distribution fee. Class Y shares are sold to certain eligible purchasers including certain defined contribution plans (including corporate IRAs), bank trust departments and trust companies.
Effective October 2, 2006, a 1.00% redemption fee may apply on any shares purchased on or after such date that are redeemed (either by selling or exchanging into another fund) within 90 days of purchase. The redemption fee is accounted for as an addition to paid-in-capital. Prior to October 2, 2006, a 2.00% redemption fee applied to any shares that were redeemed (either by selling or exchanging into another fund) within 5 days of purchase. A 1.00% redemption fee applied to any shares that were redeemed (either by selling or exchanging into another fund) within 6-90 days of purchase.
Investment income, realized and unrealized gains and losses and expenses of the fund are borne pro-rata based on the relative net assets of each class to the total net assets of the fund, except that each class bears expenses unique to that class (including the distribution fees applicable to such classes). Each class votes as a class only with respect to its own distribution plan or other matters on which a class vote is required by law or determined by the Trustees. Shares of each class would receive their pro-rata share of the net assets of the fund, if the fund were liquidated. In addition, the Trustees declare separate dividends on each class of shares.
In the normal course of business, the fund enters into contracts that may include agreements to indemnify another party under given circumstances. The fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be, but have not yet been, made against the fund. However, the fund expects the risk of material loss to be remote.
The following is a summary of significant accounting policies consistently followed by the fund in the preparation of its financial statements. The preparation of financial statements is in conformity with accounting principles generally accepted in the United States of America and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
A) Security valuation Market quotations are not considered to be readily available for certain debt obligations; such investments are valued on the basis of valuations furnished by an independent pricing service approved by the Trustees or dealers selected by Putnam Investment Management, LLC (“Putnam Management”), the fund’s manager, an indirect wholly-owned subsidiary of Putnam, LLC. Such services or dealers determine valuations for normal institutional-size trading units of such securities using methods based on market transactions for comparable securities and various relationships, generally recognized by institutional traders, between securities. Securities quoted in foreign currencies, if any, are translated into U.S. dollars at the current exchange rate. Certain investments, including certain restricted securities, are also valued at fair value following procedures approved by the Trustees. Such valuations a nd procedures are reviewed periodically by the Trustees. The fair value of securities is generally determined as the amount that the fund could reasonably expect to realize from an orderly disposition of such securities over a reasonable period of time. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and does not reflect an actual market price, which may be different by a material amount.
B) Security transactions and related investment income Security transactions are recorded on the trade date (the date the order to buy or sell is executed). Gains or losses on securities sold are determined on the identified cost basis.
Interest income is recorded on the accrual basis. All premiums/discounts are amortized/accreted on a yield-to-maturity basis.
Securities purchased or sold on a delayed delivery basis may be settled a month or more after the trade date; interest income is accrued based on the terms of the securities. Losses may arise due to changes in the market value of the underlying securities or if the counterparty does not perform under the contract.
C) Stripped securities The fund may invest in stripped securities which represent a participation in securities that may be structured in classes with rights to receive different portions of the interest and principal. Interest-only securities receive all of the interest and principal-only securities receive all of the principal. If the interest-only securities experience greater than anticipated prepayments of principal, the fund may fail to recoup fully its initial investment in these securities. Conversely, principal-only securities increase in value if prepayments are greater than anticipated and decline if prepayments are slower than anticipated. The market value of these securities is highly sensitive to changes in interest rates.
D) Foreign currency translation The accounting records of the fund are maintained in U.S. dollars. The market value of foreign securities, currency holdings, and other assets and liabilities are recorded in the books and records of the fund after translation to U.S. dollars based on the exchange rates on that day. The cost of each security is determined using historical exchange rates. Income and withholding taxes are translated at prevailing exchange rates when earned or incurred. The fund does not isolate that portion of realized or unrealized gains or losses resulting from
49
changes in the foreign exchange rate on investments from fluctuations arising from changes in the market prices of the securities. Such gains and losses are included with the net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net realized exchange gains or losses on closed forward currency contracts, disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions and the difference between the amount of investment income and foreign withholding taxes recorded on the fund’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized appreciation and depreciation of assets and liabilities in foreign currencies arise from changes in the value of open forward currency contracts and assets and liabilities other than investments at the period end, resulting from changes in the exchange rate. Investments in foreign securities involve certain risks, including those related to economic instability, unfavorable political developments, and currency fluctuations, not present with domestic investments.
E) Forward currency contracts The fund may buy and sell forward currency contracts, which are agreements between two parties to buy and sell currencies at a set price on a future date. These contracts are used to protect against a decline in value relative to the U.S. dollar of the currencies in which its portfolio securities are denominated or quoted (or an increase in the value of a currency in which securities a fund intends to buy are denominated, when a fund holds cash reserves and short term investments), or for other investment purposes. The U.S. dollar value of forward currency contracts is determined using current forward currency exchange rates supplied by a quotation service.The market value of the contract will fluctuate with changes in currency exchange rates. The contract is marked to market daily and the change in market value is recorded as an unrealized gain or loss. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The fund could be exposed to risk if the value of the currency changes unfavorably, if the counterparties to the contracts are unable to meet the terms of their contracts or if the fund is unable to enter into a closing position. Risks may exceed amounts recognized on the statement of assets and liabilities. Forward currency contracts outstanding at period end, if any, are listed after the fund’s portfolio.
F) Futures and options contracts The fund may use futures and options contracts to hedge against changes in the values of securities the fund owns or expects to purchase, or for other investment purposes. The fund may also write options on swaps or securities it owns or in which it may invest to increase its current returns.
The potential risk to the fund is that the change in value of futures and options contracts may not correspond to the change in value of the hedged instruments. In addition, losses may arise from changes in the value of the underlying instruments, if there is an illiquid secondary market for the contracts, or if the counterparty to the contract is unable to perform. Risks may exceed amounts recognized on the statement of assets and liabilities. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction to the cost of investments.
Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. The fund and the broker agree to exchange an amount of cash equal to the daily fluctuation in the value of the futures contract. Such receipts or payments are known as “variation margin.” Exchange traded options are valued at the last sale price or, if no sales are reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by dealers. Futures and written option contracts outstanding at period end, if any, are listed after the fund’s portfolio.
G) Total return swap contracts The fund may enter into total return swap contracts, which are arrangements to exchange a market linked return for a periodic payment, both based on a notional principal amount. To the extent that the total return of the security, index or other financial measure underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the fund will receive a payment from or make a payment to the counterparty. Total return swap contracts are marked to market daily based upon quotations from market makers and the change, if any, is recorded as unrealized gain or loss. Payments received or made are recorded as realized gains or loss. Certain total return swap contracts may include extended effective dates. Income related to these swap contracts is accrued based on the terms of the contract. The fund could be exposed to credit or market risk due to unfavorable changes in the fluctuation of interest rates or in the price of the underlying security or index, the possibility that there is no liquid market for these agreements or that the counterparty may default on its obligation to perform. Risk of loss may exceed amounts recognized on the statement of assets and liabilities. Total return swap contracts outstanding at period end, if any, are listed after the fund’s portfolio.
H) Interest rate swap contracts The fund may enter into interest rate swap contracts, which are arrangements between two parties to exchange cash flows based on a notional principal amount, to manage the fund’s exposure to interest rates. Interest rate swap contracts are marked to market daily based upon quotations from an independent pricing service or market makers and the change, if any, is recorded as unrealized gain or loss. Payments received or made are recorded as realized gains or loss. Certain interest rate swap contracts may include extended effective dates. Income related to these swap contracts is accrued based on the terms of the contract. The fund could be exposed to credit or market risk due to unfavorable changes in the fluctuation of interest rates or if the counterparty defaults on its obligation to perform. Risk of loss may exceed amounts recognized on the statement of assets and liabilities. Interest rate swap contracts outstanding at period end, if any, are listed after the fund’s portfolio.
I) Credit default contracts The fund may enter into credit default contracts where one party, the protection buyer, makes an upfront or periodic payment to a counter party, the protection seller, in exchange for the right to receive a contingent payment. The maximum amount of the payment may equal the notional amount, at par, of the underlying index or security as a result of a related credit event. Payments are made upon a credit default event of the disclosed primary referenced obligation or all other equally ranked obligations of the reference entity. An upfront payment received by the fund, as the protection seller, is recorded as a
50
liability on the fund’s books. An upfront payment made by the fund, as the protection buyer, is recorded as an asset on the fund’s books. Periodic payments received or paid by the fund are recorded as realized gains or losses. The credit default contracts are marked to market daily based upon quotations from an independent pricing service or market makers and the change, if any, is recorded as unrealized gain or loss. Payments received or made as a result of a credit event or termination of the contract are recognized, net of a proportional amount of the upfront payment, as realized gains or losses. In addition to bearing the risk that the credit event will occur, the fund could be exposed to market risk due to unfavorable changes in interest rates or in the price of the underlying security or index, the possibility that the fund may be unable to close out its position at the same time or at the same price as if it had purchased comparable publicly traded securities or that the counterparty may default on its obligation to perform. Risks of loss may exceed amounts recognized on the statement of assets and liabilities. Credit default contracts outstanding at period end, if any, are listed after the fund’s portfolio.
J) TBA purchase commitments The fund may enter into “TBA” (to be announced) commitments to purchase securities for a fixed unit price at a future date beyond customary settlement time. Although the unit price has been established, the principal value has not been finalized. However, the amount of the commitments will not significantly differ from the principal amount. The fund holds, and maintains until settlement date, cash or high-grade debt obligations in an amount sufficient to meet the purchase price, or the fund may enter into offsetting contracts for the forward sale of other securities it owns. Income on the securities will not be earned until settlement date. TBA purchase commitments may be considered securities themselves, and involve a risk of loss if the value of the security to be purchased declines prior to the settlement date, which risk is in addition to the risk of decline in the value of the fund’s other assets. Unsettled TBA purchase commitments are valued at fair value of the underlying securities, according to the procedures described under “Security valuation” above. The contract is “marked-to-market” daily and the change in market value is recorded by the fund as an unrealized gain or loss.
Although the fund will generally enter into TBA purchase commitments with the intention of acquiring securities for its portfolio or for delivery pursuant to options contracts it has entered into, the fund may dispose of a commitment prior to settlement if Putnam Management deems it appropriate to do so.
K) TBA sale commitments The fund may enter into TBA sale commitments to hedge its portfolio positions or to sell mortgage-backed securities it owns under delayed delivery arrangements. Proceeds of TBA sale commitments are not received until the contractual settlement date. During the time a TBA sale commitment is outstanding, equivalent deliverable securities or an offsetting TBA purchase commitment deliverable on or before the sale commitment date, are held as “cover” for the transaction.
Unsettled TBA sale commitments are valued at fair value of the underlying securities, generally according to the procedures described under “Security valuation” above. The contract is “marked-to-market” daily and the change in market value is recorded by the fund as an unrealized gain or loss. If the TBA sale commitment is closed through the acquisition of an offsetting purchase commitment, the fund realizes a gain or loss. If the fund delivers securities under the commitment, the fund realizes a gain or a loss from the sale of the securities based upon the unit price established at the date the commitment was entered into. TBA sale commitments outstanding at period end, if any, are listed after the fund’s portfolio.
L) Dollar rolls To enhance returns, the fund may enter into dollar rolls (principally using TBAs) in which the fund sells securities for delivery in the current month and simultaneously contracts to purchase similar securities on a specified future date. During the period between the sale and subsequent purchase, the fund will not be entitled to receive income and principal payments on the securities sold. The fund will, however, retain the difference between the initial sales price and the forward price for the future purchase. The fund will also be able to earn interest on the cash proceeds that are received from the initial sale. The fund may be exposed to market or credit risk if the price of the security changes unfavorably or the counterparty fails to perform under the terms of the agreement.
M) Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time and otherwise comply with the provisions of the Internal Revenue Code of 1986 (the “Code”) applicable to regulated investment companies. It is also the intention of the fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Code, as amended. Therefore, no provision has been made for federal taxes on income, capital gains or unrealized appreciation on securities held nor for excise tax on income and capital gains.
At October 31, 2006, the fund had a capital loss carryover of $33,881,860 available to the extent allowed by the Code to offset future net capital gain, if any. The amount of the carryover and the expiration dates are:
| Loss Carryover | Expiration |
|
| $21,627,332 | October 31, 2007 |
|
| 7,903,488 | October 31, 2008 |
|
| 1,114,179 | October 31, 2009 |
|
| 3,236,861 | October 31, 2010 |
|
N) Distributions to shareholders Distributions to shareholders from net investment income are recorded by the fund on the ex-dividend date. Distributions from capital gains, if any, are recorded on the ex-dividend date and paid at least annually. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. These differences include temporary and permanent differences of foreign currency gains and losses, the expiration of a capital loss carryover, realized and unrealized gains and losses on certain futures contracts, income on swap contracts, and interest only securities. Reclassifications are made to the fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. For the year ended October 31, 2006, the fund reclassi fied $480,449 to decrease undistributed net investment income and $20,084,589 to decrease paid-in-capital, with a decrease to accumulated net realized losses of $20,565,038.
The tax basis components of distributable earnings and the federal tax cost as of October 31, 2006 were as follows:
| Unrealized appreciation | $ 3,410,212 |
| Unrealized depreciation | (2,165,051) |
| | ————————————— |
| Net unrealized appreciation | 1,245,161 |
| Undistributed ordinary income | 4,576,304 |
| Capital loss carryforward | (33,881,860) |
| Cost for federal income tax purposes | $133,436,652 |
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Note 2: Management fee, administrative services
and other transactions
Putnam Management is paid for management and investment advisory services quarterly based on the average net assets of the fund. Such fee is based on the following annual rates: 0.70% of the first $500 million of average net assets, 0.60% of the next $500 million, 0.55% of the next $500 million, 0.50% of the next $5 billion, 0.475% of the next $5 billion, 0.455% of the next $5 billion, 0.44% of the next $5 billion and 0.43% thereafter.
Putnam Management has agreed to waive fees and reimburse expenses of the fund through October 31, 2007, to the extent necessary to ensure that the fund’s expenses do not exceed the simple average of the expenses of all front-end load funds viewed by Lipper Inc. as having the same investment classification or objective as the fund. The expense reimbursement is based on a comparison of the fund’s expenses with the average annualized operating expenses of the funds in its Lipper peer group for each calendar quarter during the fund’s last fiscal year, excluding 12b-1 fees and without giving effect to any expense offset and brokerage service arrangements that may reduce fund expenses. For the year ended October 31, 2006, Putnam Management waived $403,376 of its management fee from the fund.
For the year ended October 31, 2006, Putnam Management has assumed $1,785 of legal, shareholder servicing and communication, audit and Trustee fees incurred by the fund in connection with certain legal and regulatory matters (including those described in Note 6).
Putnam Investments Limited ("PIL"), an affiliate of Putnam Management, is authorized by the Trustees to manage a separate portion of the assets of the fund as determined by Putnam Management from time to time. Putnam Management pays a quarterly sub-management fee to PIL for its services at an annual rate of 0.40% of the average net assets of the portion of the fund managed by PIL.
The fund reimburses Putnam Management an allocated amount for the compensation and related expenses of certain officers of the fund and their staff who provide administrative services to the fund. The aggregate amount of all such reimbursements is determined annually by the Trustees.
Custodial functions for the fund’s assets are provided by Putnam Fiduciary Trust Company (“PFTC”), a subsidiary of Putnam, LLC. PFTC receives fees for custody services based on the fund’s asset level, the number of its security holdings and transaction volumes. Putnam Investor Services, a division of PFTC, provides investor servicing agent functions to the fund. Putnam Investor Services receives fees for investor servicing based on the number of shareholder accounts in the fund and the level of defined contribution plan assets in the fund. During the year ended October 31, 2006, the fund incurred $384,577 for these services.
The fund has entered into an arrangement with PFTC whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the fund's expenses. For the year ended October 31, 2006, the fund's expenses were reduced by $20,561 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of which $268, as a quarterly retainer, has been allocated to the fund, and an additional fee for each Trustees meeting attended. Trustees receive additional fees for attendance at certain committee meetings, industry seminars and for certain compliance-related matters. Trustees also are reimbursed for expenses they incur relating to their services as Trustees. George Putnam, III, who is not an independent Trustee, also receives the foregoing fees for his services as Trustee.
The fund has adopted a Trustee Fee Deferral Plan (the “Deferral Plan”) which allows the Trustees to defer the receipt of all or a portion of Trustees fees payable on or after July 1, 1995. The deferred fees remain invested in certain Putnam funds until distribution in accordance with the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan (the “Pension Plan”) covering all Trustees of the fund who have served as a Trustee for at least five years and were first elected prior to 2004. Benefits under the Pension Plan are equal to 50% of the Trustee's average annual attendance and retainer fees for the three years ended December 31, 2005. The retirement benefit is payable during a Trustee’s lifetime, beginning the year following retirement, for the number of years of service through December 31, 2006. Pension expense for the fund is included in Trustee compensation and expenses in the statement of operations. Accrued pension liability is included in Payable for Trustee compensation and expenses in the statement of assets and liabilities. The Trustees have terminated the Pension Plan with respect to any Trustee first elected after 2003.
The fund has adopted distribution plans (the “Plans”) with respect to its class A, class B, class C, class M and class R shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. The purpose of the Plans is to compensate Putnam Retail Management, a wholly-owned subsidiary of Putnam, LLC and Putnam Retail Management GP, Inc., for services provided and expenses incurred in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Retail Management at an annual rate of up to 0.35%, 1.00%, 1.00% ,1.00% and 1.00% of the average net assets attributable to class A, class B, class C, class M and class R shares, respectively. The Trustees have approved payment by the fund at an annual rate of 0.25%, 1.00%, 1.00%, 0.50% and 0.50% of the average net assets attributable to class A, class B, class C, class M and class R shares, respectively.
For the year ended October 31, 2006, Putnam Retail Management, acting as underwriter, received net commissions of $8,901 and $315 from the sale of class A and class M shares, respectively, and received $34,560 and $125 in contingent deferred sales charges from redemptions of class B and class C shares, respectively.
A deferred sales charge of up to 1.00% and 0.40% is assessed on certain redemptions of class A and class M shares, respectively. For the year ended October 31, 2006, Putnam Retail Management, acting as underwriter, received $16,228 and no monies on class A and class M redemptions, respectively.
Note 3: Purchases and sales of securities
During the year ended October 31, 2006, cost of purchases and proceeds from sales of investment securities other than U.S. government securities and short-term investments aggregated $120,949,630 and $161,000,780, respectively. Purchases and sales of U.S. government securities aggregated $1,086,083 and $1,086,083, respectively.
Written option transactions during the year ended October 31, 2006 are summarized as follows:
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| | Contract | Premiums |
| | Amounts | Received |
|
| Written options outstanding | | |
| at beginning of year | 7,140,000 | $276,140 |
|
| Options opened | 5,657,422,000 | 92,560 |
| Options exercised | — | — |
| Options expired | — | — |
| Options closed | (3,137,500,000) | (45,290) |
|
| Written options outstanding | | |
| at end of year | 2,519,922,000 | $ 47,270 |
| | 7,140,000 | $276,140 |
| |
| Note 4: Capital shares | | |
|
| At October 31, 2006, there was an unlimited number of shares of beneficial |
| interest authorized. Transactions in capital shares were as follows: |
|
| |
| CLASS A | Shares | Amount |
|
| Year ended 10/31/06: | | |
| Shares sold | 1,478,688 | $ 17,834,823 |
|
| Shares issued in connection with | | |
| reinvestment of distributions | 331,093 | 3,978,901 |
|
| | 1,809,781 | 21,813,724 |
|
| Shares repurchased | (2,681,235) | (32,280,079) |
|
| Net decrease | (871,454) | $(10,466,355) |
| |
| Year ended 10/31/05: | | |
| Shares sold | 2,489,167 | $ 32,181,032 |
|
| Shares issued in connection with | | |
| reinvestment of distributions | 285,079 | 3,635,392 |
|
| | 2,774,246 | 35,816,424 |
|
| Shares repurchased | (2,934,332) | (37,460,638) |
|
| Net decrease | (160,086) | $ (1,644,214) |
|
| |
| CLASS B | Shares | Amount |
|
| Year ended 10/31/06: | | |
| Shares sold | 312,047 | $ 3,754,769 |
|
| Shares issued in connection with | | |
| reinvestment of distributions | 60,693 | 727,368 |
|
| | 372,740 | 4,482,137 |
|
| Shares repurchased | (1,046,402) | (12,552,265) |
|
| Net decrease | (673,662) | $ (8,070,128) |
| |
| Year ended 10/31/05: | | |
| Shares sold | 606,184 | $ 7,798,421 |
|
| Shares issued in connection with | | |
| reinvestment of distributions | 61,364 | 780,763 |
|
| | 667,548 | 8,579,184 |
|
| Shares repurchased | (1,037,085) | (13,242,214) |
|
| Net decrease | (369,537) | $ (4,663,030) |
| CLASS C | Shares | Amount |
|
| Year ended 10/31/06: | | |
| Shares sold | 91,210 | $ 1,096,587 |
|
| Shares issued in connection with | | |
| reinvestment of distributions | 7,023 | 84,190 |
|
| | 98,233 | 1,180,777 |
|
| Shares repurchased | (96,143) | (1,156,763) |
|
| Net increase | 2,090 | $ 24,014 |
| |
| Year ended 10/31/05: | | |
| Shares sold | 139,129 | $ 1,789,364 |
|
| Shares issued in connection with | | |
| reinvestment of distributions | 4,056 | 51,571 |
|
| | 143,185 | 1,840,935 |
|
| Shares repurchased | (53,391) | (678,788) |
|
| Net increase | 89,794 | $ 1,162,147 |
|
| |
| CLASS M | Shares | Amount |
|
| Year ended 10/31/06: | | |
| Shares sold | 149,176 | $ 1,793,502 |
|
| Shares issued in connection with | | |
| reinvestment of distributions | 11,292 | 134,897 |
|
| | 160,468 | 1,928,399 |
|
| Shares repurchased | (407,157) | (4,866,568) |
|
| Net decrease | (246,689) | $(2,938,169) |
| |
| Year ended 10/31/05: | | |
| Shares sold | 132,753 | $ 1,696,990 |
|
| Shares issued in connection with | | |
| reinvestment of distributions | 6,064 | 76,581 |
|
| | 138,817 | 1,773,571 |
|
| Shares repurchased | (535,887) | (6,859,527) |
|
| Net decrease | (397,070) | $(5,085,956) |
|
| |
| CLASS R | Shares | Amount |
|
| Year ended 10/31/06: | | |
| Shares sold | 5,901 | $ 71,043 |
|
| Shares issued in connection with | | |
| reinvestment of distributions | 456 | 5,477 |
|
| | 6,357 | 76,520 |
|
| Shares repurchased | (1,613) | (19,336) |
|
| Net increase | 4,744 | $ 57,184 |
| |
| Year ended 10/31/05: | | |
| Shares sold | 5,922 | $ 75,607 |
|
| Shares issued in connection with | | |
| reinvestment of distributions | 96 | 1,208 |
|
| | 6,018 | 76,815 |
|
| Shares repurchased | (475) | (6,185) |
|
| Net increase | 5,543 | $ 70,630 |
53
| CLASS Y | Shares | Amount |
|
| Year ended 10/31/06: | | |
| Shares sold | 44,451 | $ 537,315 |
|
| Shares issued in connection with | | |
| reinvestment of distributions | 12,180 | 146,434 |
|
| | 56,631 | 683,749 |
|
| Shares repurchased | (138,939) | (1,680,357) |
|
| Net decrease | (82,308) | $ (996,608) |
| |
| For the period 10/4/05 (commencement of operations) to 10/31/05: | |
| Shares sold | 310,273 | $ 3,820,369 |
|
| Shares issued in connection with | | |
| reinvestment of distributions | 1,350 | 16,509 |
|
| | 311,623 | 3,836,878 |
|
| Shares repurchased | (21,801) | (267,654) |
|
| Net increase | 289,822 | $ 3,569,224 |
Note 5: Investment in Putnam Prime Money Market Fund
The fund invests in Putnam Prime Money Market Fund, an open-end management investment company managed by Putnam Management. Investments in Putnam Prime Money Market Fund are valued at its closing net asset value each business day. Management fees paid by the fund are reduced by an amount equal to the management and administrative services fees paid by Putnam Prime Money Market Fund with respect to assets invested by the fund in Putnam Prime Money Market Fund. For the year ended October 31, 2006, management fees paid were reduced by $10,547 relating to the fund's investment in Putnam Prime Money Market Fund. Income distributions earned by the fund are recorded as income in the statement of operations and totaled $430,207 for the year ended October, 31, 2006. During the year ended October 31, 2006, cost of purchases and proceeds of sales of investments in Putnam Prime Money Market Fund aggregated $87,959,794 and $73,822,724, respectively.
Note 6: Regulatory matters and litigation
Putnam Management has entered into agreements with the Securities and Exchange Commission and the Massachusetts Securities Division settling charges connected with excessive short-term trading by Putnam employees and, in the case of the charges brought by the Massachusetts Securities Division, by participants in some Putnam-administered 401(k) plans. Pursuant to these settlement agreements, Putnam Management will pay a total of $193.5 million in penalties and restitution, with $153.5 million being paid to certain open-end funds and their shareholders. The amount will be allocated to shareholders and funds pursuant to a plan developed by an independent consultant, and will be paid following approval of the plan by the SEC and the Massachusetts Securities Division.
The Securities and Exchange Commission’s and Massachusetts Securities Division's allegations and related matters also serve as the general basis for numerous lawsuits, including purported class action lawsuits filed against Putnam Management and certain related parties, including certain Putnam funds. Putnam Management will bear any costs incurred by Putnam funds in connection with these lawsuits. Putnam Management believes that the likelihood that the pending private lawsuits and purported class action lawsuits will have a material adverse financial impact on the fund is remote, and the pending actions are not likely to materially affect its ability to provide investment management services to its clients, including the Putnam funds.
In connection with a settlement between Putnam and the fund’s Trustees in September 2006, the fund received $17,209 from Putnam to address issues relating to the calculation of certain amounts paid by the Putnam mutual funds to Putnam for transfer agent services. This amount is included in Fees waived and reimbursed by Manager or affiliate on the Statement of operations. Putnam Management and Putnam Retail Management are named as defendants in a civil suit in which the plaintiffs allege that the management and distribution fees paid by certain Putnam funds were excessive and seek recovery under the Investment Company Act of 1940.
Putnam Management and Putnam Retail Management have contested the plaintiffs’ claims and the matter is currently pending in the U.S. District Court for the District of Massachusetts. Based on currently available information, Putnam Management believes that this action is without merit and that it is unlikely to have a material effect on Putnam Management’s and Putnam Retail Management’s ability to provide services to their clients, including the fund.
Note 7: New accounting pronouncements
In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (the “Interpretation”). The Interpretation prescribes a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken by a filer in the filer’s tax return. The Interpretation will become effective for fiscal years beginning after December 15, 2006 but will also apply to tax positions reflected in the fund’s financial statements as of that date. No determination has been made whether the adoption of the Interpretation will require the fund to make any adjustments to its net assets or have any other effect on the fund’s financial statements.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (the “Standard”). The Standard defines fair value, sets out a framework for measuring fair value and requires additional disclosures about fair value measurements. The Standard applies to fair value measurements already required or permitted by existing standards. The Standard is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. Putnam Management is currently evaluating what impact the adoption of the Standard will have on the fund’s financial statements.
54
Federal tax information (Unaudited)
Federal tax information
The Form 1099 you receive in January 2007 will show the tax status of all distributions paid to your account in calendar 2006.
55
About the Trustees
Jameson A. Baxter (Born 1943), Trustee since 1994, Vice Chairman since 2005
Ms. Baxter is the President of Baxter Associates, Inc., a private investment firm that she founded in 1986.
Ms. Baxter serves as a Director of ASHTA Chemicals, Inc., Banta Corporation (a printing and digital imaging firm), Ryerson Tull, Inc. (a steel service corporation), the Mutual Fund Directors Forum, Advocate Health Care and BoardSource, formerly the National Center for Nonprofit Boards. She is Chairman Emeritus of the Board of Trustees, Mount Holyoke College, having served as Chairman for five years and as a board member for thirteen years Until 2002, Ms. Baxter was a Director of Intermatic Corporation (a manufacturer of energy control products).
Ms. Baxter has held various positions in investment banking and corporate finance, including Vice President and Principal of the Regency Group, and Vice President of and Consultant to First Boston Corporation. She is a graduate of Mount Holyoke College
Charles B. Curtis (Born 1940), Trustee since 2001
Mr. Curtis is President and Chief Operating Officer of the Nuclear Threat Initiative (a private foundation dealing with national security issues) and serves as Senior Advisor to the United Nations Foundation.
Mr. Curtis is a member of the Council on Foreign Relations and the Trustee Advisory Council of the Applied Physics Laboratory, Johns Hopkins University. Until 2003, Mr. Curtis was a member of the Electric Power Research Institute Advisory Council and the University of Chicago Board of Governors for Argonne National Laboratory. Prior to 2002, Mr. Curtis was a Member of the Board of Directors of the Gas Technology Institute and the Board of Directors of the Environment and Natural Resources Program Steering Committee, John F. Kennedy School of Government, Harvard University. Until 2001, Mr. Curtis was a member of the Department of Defense Policy Board and Director of EG&G Technical Services, Inc. (a fossil energy research and development support company).
From August 1997 to December 1999, Mr. Curtis was a Partner at Hogan & Hartson L.L.P., a Washington, D.C. law firm. Prior to May 1997, Mr. Curtis was Deputy Secretary of Energy and Under Secretary of the U.S. Department of Energy. He served as Chairman of the Federal Energy Regulatory Commission from 1977 to 1981 and has held positions on the staff of the U.S. House of Representatives, the U.S. Treasury Department, and the SEC.
Myra R. Drucker (Born 1948), Trustee since 2004
Ms. Drucker is Chair of the Board of Trustees of Commonfund (a not-for-profit firm specializing in asset management for educational endowments and foundations), Vice Chair of the Board of Trustees of Sarah Lawrence College, and a member of the Investment Committee of the Kresge Foundation (a charitable trust). She is also a director of New York Stock Exchange LLC, a wholly-owned subsidiary of the publicly-traded NYSE Group, Inc. She is an advisor to Hamilton Lane LLC and RCM Capital Management (investment management firms).
Ms. Drucker is an ex-officio member of the New York Stock Exchange (NYSE) Pension Managers Advisory Committee, having served as Chair for seven years and a member of the Executive Committee of the Committee on Investment of Employee Benefit Assets.
Until August 31, 2004, Ms. Drucker was Managing Director and a member of the Board of Directors of General Motors Asset Management and Chief Investment Officer of General Motors Trust Bank. Ms. Drucker also served as a member of the NYSE Corporate Accountability and Listing Standards Committee and the NYSE/NASD IPO Advisory Committee.
Prior to joining General Motors Asset Management in 2001, Ms. Drucker held various executive positions in the investment management industry. Ms. Drucker served as Chief Investment Officer of Xerox Corporation (a technology and service company in the document industry), where she was responsible for the investment of the company’s pension assets. Ms. Drucker was also Staff Vice President and Director of Trust Investments for International Paper (a paper, paper distribution, packaging and forest products company) and previously served as Manager of Trust Investments for Xerox Corporation. Ms. Drucker received a B.A. degree in Literature and Psychology from Sarah Lawrence College and pursued graduate studies in economics, statistics and portfolio theory at Temple University.
John A. Hill (Born 1942), Trustee since 1985 and Chairman since 2000
Mr. Hill is Vice Chairman of First Reserve Corporation, a private equity buyout firm that specializes in energy investments in the diversified worldwide energy industry.
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Mr. Hill is a Director of Devon Energy Corporation, TransMontaigne Oil Company and various private companies controlled by First Reserve Corporation, as well as Chairman of TH Lee, Putnam Investment Trust (a closed-end investment company advised by an affiliate of Putnam Management). He is also a Trustee of Sarah Lawrence College. Until 2005, he was a Director of Continuum Health Partners of New York.
Prior to acquiring First Reserve Corporation in 1983, Mr. Hill held executive positions in investment banking and investment management with several firms and with the federal government, including Deputy Associate Director of the Office of Management and Budget and Deputy Director of the Federal Energy Administration. He is active in various business associations, including the Economic Club of New York, and lectures on energy issues in the United States and Europe. Mr. Hill holds a B.A. degree in Economics from Southern Methodist University and pursued graduate studies there as a Woodrow Wilson Fellow.
Paul L. Joskow (Born 1947), Trustee since 1997
Dr. Joskow is the Elizabeth and James Killian Professor of Economics and Management, and Director of the Center for Energy and Environmental Policy Research at the Massachusetts Institute of Technology.
Dr. Joskow serves as a Director of National Grid plc (a UK-based holding company with interests in electric and gas transmission and distribution and telecommunications infrastructure) and TransCanada Corporation (an energy company focused on natural gas transmission and power services). He also serves on the Board of Overseers of the Boston Symphony Orchestra. Prior to February 2005, he served on the board of the Whitehead Institute for Biomedical Research (a non-profit research institution) and has been President of the Yale University Council since 1993. Prior to February 2002, he was a Director of State Farm Indemnity Company (an automobile insurance company), and, prior to March 2000, he was a Director of New England Electric System (a public utility holding company).
Dr. Joskow has published five books and numerous articles on topics in industrial organization, government regulation of industry, and competition policy. He is active in industry restructuring, environmental, energy, competition and privatization policies — serving as an advisor to governments and corporations worldwide. Dr. Joskow holds a Ph.D. and M. Phil from Yale University and a B.A. from Cornell University.
Elizabeth T. Kennan (Born 1938), Trustee since 1992
Dr. Kennan is a Partner of Cambus-Kenneth Farm (thoroughbred horse and cattle breeding). She is President Emeritus of Mount Holyoke College.
Dr. Kennan served as Chairman and is now Lead Director of Northeast Utilities. Until 2005, she was a Director of Talbots, Inc. She has served as Director on a number of other boards, including Bell Atlantic, Chastain Real Estate, Shawmut Bank, Berkshire Life Insurance and Kentucky Home Life Insurance. She is a Trustee of the National Trust for Historic Preservation, of Centre College and of Midway College in Midway, Kentucky. Until 2006, she was a member of The Trustees of Reservations. Dr. Kennan has served on the oversight committee of the Folger Shakespeare Library, as President of Five Colleges Incorporated, as a Trustee of Notre Dame University and is active in various educational and civic associations.
As a member of the faculty of Catholic University for twelve years, until 1978, Dr. Kennan directed the post-doctoral program in Patristic and Medieval Studies, taught history and published numerous articles. Dr. Kennan holds a Ph.D. from the University of Washington in Seattle, an M.S. from St. Hilda’s College at Oxford University and an A.B. from Mount Holyoke College. She holds several honorary doctorates.
Kenneth R. Leibler (Born 1949), Trustee since 2006
Mr. Leibler is founding Chairman of the Boston Options Exchange, the nation’s newest electronic marketplace for the trading of derivative securities.
Mr. Leibler currently serves as a Trustee of Beth Israel Deaconess Hospital in Boston. He is also lead director of Ruder Finn Group, a global communications and advertising firm. Since 2003, he has served as a director of the Optimum Funds group. Prior to October 2006, he served as a director of ISO New England, the organization responsible for the operation of the electric generation system in the New England states. Prior to 2000, Mr. Leibler was a director of the Investment Company Institute in Washington, D.C.
Prior to January 2005, Mr. Leibler served as Chairman and Chief Executive Officer of the Boston Stock Exchange. Prior to January 2000, he served as President and Chief Executive Officer of Liberty Financial Companies, a publicly traded diversified asset management organization. Prior to June 1990, he served as President and Chief Operating Officer of the American Stock Exchange, and is the youngest person in Exchange history to hold
57
the title of President. Prior to serving as Amex President, he held the position of Chief Financial Officer, and headed its management and marketing operations. Mr. Leibler graduated magna cum laude with a degree in economics from Syracuse University, where he was elected Phi Beta Kappa.
Robert E. Patterson (Born 1945), Trustee since 1984
Mr. Patterson is Senior Partner of Cabot Properties, L.P. and Chairman of Cabot Properties, Inc. (a private equity firm investing in commercial real estate).
Mr. Patterson serves as Chairman Emeritus and Trustee of the Joslin Diabetes Center and as a Director of Brandywine Trust Group, LLC. Prior to June 2003, he was a Trustee of Sea Education Association. Prior to December 2001, he was President and Trustee of Cabot Industrial Trust (a publicly traded real estate investment trust). Prior to February 1998, he was Executive Vice President and Director of Acquisitions of Cabot Partners Limited Partnership (a registered investment adviser involved in institutional real estate investments). Prior to 1990, he served as Executive Vice President of Cabot, Cabot & Forbes Realty Advisors, Inc. (the predecessor company of Cabot Partners).
Mr. Patterson practiced law and held various positions in state government and was the founding Executive Director of the Massachusetts Industrial Finance Agency. Mr. Patterson is a graduate of Harvard College and Harvard Law School.
W. Thomas Stephens (Born 1942), Trustee since 1997
Mr. Stephens is Chairman and Chief Executive Officer of Boise Cascade, L.L.C. (a paper, forest products and timberland assets company).
Until 2005, Mr. Stephens was a director of TransCanadaPipelines, Ltd. Until 2004, Mr. Stephens was a Director of Xcel Energy Incorporated (a public utility company), Qwest Communications, and Norske Canada, Inc. (a paper manufacturer). Until 2003, Mr. Stephens was a Director of Mail-Well, Inc. (a diversified printing company). He served as Chairman of Mail-Well until 2001 and as CEO of MacMillan-Bloedel, Ltd. (a forest products company) until 1999.
Prior to 1996, Mr. Stephens was Chairman and Chief Executive Officer of Johns Manville Corporation. He holds B.S. and M.S. degrees from the University of Arkansas.
Richard B. Worley (Born 1945), Trustee since 2004
Mr. Worley is Managing Partner of Permit Capital LLC, an investment management firm.
Mr. Worley serves on the Executive Committee of the University of Pennsylvania Medical Center, is a Trustee of The Robert Wood Johnson Foundation (a philanthropic organization devoted to health care issues) and is a Director of The Colonial Williamsburg Foundation (a historical preservation organization). Mr. Worley also serves on the investment committees of Mount Holyoke College and World Wildlife Fund (a wildlife conservation organization).
Prior to joining Permit Capital LLC in 2002, Mr. Worley served as Chief Strategic Officer of Morgan Stanley Investment Management. He previously served as President, Chief Executive Officer and Chief Investment Officer of Morgan Stanley Dean Witter Investment Management and as a Managing Director of Morgan Stanley, a financial services firm. Mr. Worley also was the Chairman of Miller Anderson & Sherrerd, an investment management firm. Mr. Worley holds a B.S. degree from University of Tennessee and pursued graduate studies in economics at the University of Texas.
Charles E. Haldeman, Jr.* (Born 1948), Trustee since 2004
Mr. Haldeman is President and Chief Executive Officer of Putnam, LLC (“Putnam Investments”). He is a member of Putnam Investments’ Executive Board of Directors and Advisory Council. Prior to November 2003, Mr. Haldeman served as Co-Head of Putnam Investments’ Investment Division.
Prior to joining Putnam Investments in 2002, Mr. Haldeman held executive positions in the investment management industry. He previously served as Chief Executive Officer of Delaware Investments and President & Chief Operating Officer of United Asset Management. Mr. Haldeman was also a partner and director of Cooke & Bieler, Inc. (an investment management firm).
Mr. Haldeman currently serves on the Board of Governors of the Investment Company Institute and as a Trustee of Dartmouth College, and he is a member of the Partners HealthCare Systems Investment Committee. He is a graduate of Dartmouth College, Harvard Law School and Harvard Business School. Mr. Haldeman is also a Chartered Financial Analyst (CFA) charterholder.
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George Putnam, III* (Born 1951), Trustee since 1984 and President since 2000
Mr. Putnam is President of New Generation Research, Inc. (a publisher of financial advisory and other research services), and of New Generation Advisers, Inc. (a registered investment advisor to private funds). Mr. Putnam founded the New Generation companies in 1986.
Mr. Putnam is a Director of The Boston Family Office, LLC (a registered investment adviser). He is a Trustee of St. Mark’s School and Shore Country Day School, and until 2002 was a Trustee of the Sea Education Association.
Mr. Putnam previously worked as an attorney with the law firm of Dechert LLP (formerly known as Dechert Price & Rhoads) in Philadelphia. He is a graduate of Harvard College, Harvard Business School and Harvard Law School.
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of October 31, 2006, there were 107 Putnam Funds. All Trustees serve as Trustees of all Putnam funds.
Each Trustee serves for an indefinite term, until his or her resignation, retirement at age 72, death, or removal.
* Trustees who are or may be deemed to be “interested persons” (as defined in the Investment Company Act of 1940) of the fund, Putnam Management, Putnam Retail Management, or Marsh & McLennan Companies, Inc., the parent company of Putnam, LLC and its affiliated companies. Messrs. Haldeman and Putnam, III are deemed “interested persons” by virtue of their positions as officers of the fund, Putnam Management or Putnam Retail Management and as shareholders of Marsh & McLennan Companies, Inc. Mr. Putnam, III is the President of your fund and each of the other Putnam funds. Mr. Haldeman is President and Chief Executive Officer of Putnam Investments.
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Officers
In addition to George Putnam, III, the other officers of the fund are shown below:
| Charles E. Porter (Born 1938) | Richard S. Robie, III (Born 1960) |
| Executive Vice President, Principal Executive Officer, Associate | Vice President |
| Treasurer, and Compliance Liaison | Since 2004 |
| Since 1989 | |
| Senior Managing Director, Putnam Investments, Putnam Management |
| Jonathan S. Horwitz (Born 1955) | and Putnam Retail Management. Prior to 2003, Senior Vice President, |
| Senior Vice President and Treasurer | United Asset Management Corporation |
| Since 2004 | |
| Francis J. McNamara, III (Born 1955) |
| Prior to 2004, Managing Director, | Vice President and Chief Legal Officer |
| Putnam Investments | Since 2004 |
| |
| Steven D. Krichmar (Born 1958) | Senior Managing Director, Putnam Investments, Putnam Management |
| Vice President and Principal Financial Officer | and Putnam Retail Management. Prior to 2004, General Counsel, |
| Since 2002 | State Street Research & Management Company |
| |
| Senior Managing Director, Putnam Investments. | Charles A. Ruys de Perez (Born 1957) |
| Prior to July 2001, Partner, PricewaterhouseCoopers LLP | Vice President and Chief Compliance Officer |
| Since 2004 |
| Michael T. Healy (Born 1958) | |
| Assistant Treasurer and Principal Accounting Officer | Managing Director, Putnam Investments |
| Since 2000 | |
| Mark C. Trenchard (Born 1962) |
| Managing Director, Putnam Investments | Vice President and BSA Compliance Officer |
| Since 2002 |
| Beth S. Mazor (Born 1958) | |
| Vice President | Managing Director, Putnam Investments |
| Since 2002 | |
| Judith Cohen (Born 1945) |
| Managing Director, Putnam Investments | Vice President, Clerk and Assistant Treasurer |
| Since 1993 |
| James P. Pappas (Born 1953) | |
| Vice President | Wanda M. McManus (Born 1947) |
| Since 2004 | Vice President, Senior Associate Treasurer and Assistant Clerk |
| Since 2005 |
| Managing Director, Putnam Investments and Putnam Management. | |
| During 2002, Chief Operating Officer, Atalanta/Sosnoff Management | Nancy E. Florek (Born 1957) |
| Corporation; prior to 2001, President and Chief Executive Officer, | Vice President, Assistant Clerk, Assistant Treasurer |
| UAM Investment Services, Inc. | and Proxy Manager |
| | Since 2005 |
The address of each Officer is One Post Office Square, Boston, MA 02109.
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Fund information
Founded over 65 years ago, Putnam Investments was built around the concept that a balance between risk and reward is the hallmark of a well-rounded financial program. We manage over 100 mutual funds in growth, value, blend, fixed income, and international.
| Investment Manager | Officers | Wanda M. McManus |
| Putnam Investment | George Putnam, III | Vice President, Senior Associate Treasurer |
| Management, LLC | President | and Assistant Clerk |
| One Post Office Square | | |
| Boston, MA 02109 | Charles E. Porter | Nancy E. Florek |
| Executive Vice President, Principal | Vice President, Assistant Clerk, Assistant |
| Investment Sub-Manager | Executive Officer, Associate Treasurer, | Treasurer and Proxy Manager |
| Putnam Investments Limited | and Compliance Liaison | |
| 57-59 St. James Street | | |
| London, England SW1A 1LD | Jonathan S. Horwitz | |
| Senior Vice President and Treasurer | |
| Marketing Services | | |
| Putnam Retail Management | Steven D. Krichmar | |
| One Post Office Square | Vice President and Principal Financial Officer | |
| Boston, MA 02109 | | |
| Michael T. Healy | |
| Custodian | Assistant Treasurer and Principal | |
| Putnam Fiduciary Trust Company | Accounting Officer | |
| | |
| Legal Counsel | Beth S. Mazor | |
| Ropes & Gray LLP | Vice President | |
| | |
| Independent Registered Public | James P. Pappas | |
| Accounting Firm | Vice President | |
| PricewaterhouseCoopers LLP | | |
| Richard S. Robie, III | |
| Trustees | Vice President | |
| John A. Hill, Chairman | | |
| Jameson Adkins Baxter, Vice Chairman | Francis J. McNamara, III | |
| Charles B. Curtis | Vice President and Chief Legal Officer | |
| Myra R. Drucker | | |
| Charles E. Haldeman, Jr. | Charles A. Ruys de Perez | |
| Paul L. Joskow | Vice President and Chief Compliance Officer | |
| Elizabeth T. Kennan | | |
| Kenneth R. Leibler | Mark C. Trenchard | |
| Robert E. Patterson | Vice President and BSA Compliance Officer | |
| George Putnam, III | | |
| W. Thomas Stephens | Judith Cohen | |
| Richard B. Worley | Vice President, Clerk and Assistant Treasurer | |
| | |
| | |
| | |
This report is for the information of shareholders of Putnam Global Income Trust. It may also be used as sales literature when preceded or accompanied by the current prospectus, the most recent copy of Putnam's Quarterly Performance Summary, and Putnam's Quarterly Ranking Summary. For more recent performance, please visit www.putnam.com. Investors should carefully consider the investment objective, risks, charges, and expenses of a fund, which are described in its prospectus. For this and other information or to request a prospectus, call 1-800-225-1581 toll free. Please read the prospectus carefully before investing. The fund's Statement of Additional Information contains additional information about the fund's Trustees and is available without charge upon request by calling 1-800-225-1581.
Item 2. Code of Ethics:
(a) The fund’s principal executive, financial and accounting officers are employees of Putnam Investment Management, LLC, the Fund's investment manager. As such they are subject to a comprehensive Code of Ethics adopted and administered by Putnam Investments which is designed to protect the interests of the firm and its clients. The Fund has adopted a Code of Ethics which incorporates the Code of Ethics of Putnam Investments with respect to all of its officers and Trustees who are employees of Putnam Investment Management, LLC. For this reason, the Fund has not adopted a separate code of ethics governing its principal executive, financial and accounting officers.
(c) None
Item 3. Audit Committee Financial Expert:
The Funds' Audit and Compliance Committee is comprised solely of Trustees who are "independent" (as such term has been defined by the Securities and Exchange Commission ("SEC") in regulations implementing Section 407 of the Sarbanes-Oxley Act (the "Regulations")). The Trustees believe that each of the members of the Audit and Compliance Committee also possess a combination of knowledge and experience with respect to financial accounting matters, as well as other attributes, that qualify them for service on the Committee. In addition, the Trustees have determined that each of Mr. Patterson, Mr. Stephens, Mr. Leibler and Mr. Hill meets the financial literacy requirements of the New York Stock Exchange's rules and qualifies as an "audit committee financial expert" (as such term has been defined by the Regulations) based on their review of his pertinent experience and education. Certain other Trustees, although not on the Audit and Compliance Committee, would also quali fy as "audit committee financial experts." The SEC has stated that the designation or identification of a person as an audit committee financial expert pursuant to this Item 3 of Form N-CSR does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the Audit and Compliance Committee and the Board of Trustees in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services:
The following table presents fees billed in each of the last two fiscal years for services rendered to the fund by the fund’s independent auditor:
| Fiscal | | Audit- | | |
| year | Audit | Related | Tax | All Other |
| ended | Fees | Fees | Fees | Fees |
| |
| October 31, 2006 | $142,172* | $35 | $10,202 | $5,083 |
| October 31, 2005 | $75,596* | $-- | $8,630 | $ 99 |
* Includes fees of $118 and $99 billed by the fund’s independent auditor to the fund for audit procedures necessitated by regulatory and litigation matters for the fiscal years ended October 31, 2006 and October 31, 2005, respectively. These fees were reimbursed to the fund by Putnam Investment Management, LLC (“Putnam Management”).
For the fiscal years ended October 31, 2006 and October 31, 2005, the fund’s independent auditor billed aggregate non-audit fees in the amounts of $239,032 and $172,408 respectively, to the fund, Putnam Management and any entity controlling, controlled by or under common control with Putnam Management that provides ongoing services to the fund.
Audit Fees represent fees billed for the fund’s last two fiscal years.
Audit-Related Fees represent fees billed in the fund’s last two fiscal years for services traditionally performed by the fund’s auditor, including accounting consultation for proposed transactions or concerning financial accounting and reporting standards and other audit or attest services not required by statute or regulation.
Tax Fees represent fees billed in the fund’s last two fiscal years for tax compliance, tax planning and tax advice services. Tax planning and tax advice services include assistance with tax audits, employee benefit plans and requests for rulings or technical advice from taxing authorities.
All Other Fees represent fees billed for services relating to valuation of derivative securities, an analysis of the funds proposed market timing distribution plan and an analysis of recordkeeping fees.
Pre-Approval Policies of the Audit and Compliance Committee. The Audit and Compliance Committee of the Putnam funds has determined that, as a matter of policy, all work performed for the funds by the funds’ independent auditors will be pre-approved by the Committee itself and thus will generally not be subject to pre-approval procedures.
The Audit and Compliance Committee also has adopted a policy to pre-approve the engagement by Putnam Management and certain of its affiliates of the funds’ independent auditors, even in circumstances where pre-approval is not required by applicable law. Any such requests by Putnam Management or certain of its affiliates are typically submitted in writing to the Committee and explain, among other things, the nature of the proposed engagement, the estimated fees, and why this work should be performed by that particular audit firm as opposed to another one. In reviewing such requests, the Committee considers, among other things, whether the provision of such services by the audit firm are compatible with the independence of the audit firm.
The following table presents fees billed by the fund’s independent auditor for services required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X.
| Fiscal | Audit- | | All | Total |
| year | Related | Tax | Other | Non-Audit |
| ended | Fees | Fees | Fees | Fees |
| | | | | |
| October 31, | | | | |
| 2006 | $ - | $ 95,192 | $ - | $ - |
| October | | | | |
| 31, 2005 | $ - | $ 62,968 | $ - | $ - |
Item 5. Audit Committee of Listed Registrants
Not applicable
Item 6. Schedule of Investments:
The registrant’s schedule of investments in unaffiliated issuers is included in the report to shareholders in Item 1 above.
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End Management
Investment Companies:
Not applicable
Item 8. Portfolio Managers of Closed-End Investment Companies
Not Applicable
Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and
Affiliated Purchasers:
Not applicable
Item 10. Submission of Matters to a Vote of Security Holders:
Not applicable
Item 11. Controls and Procedures:
(a) The registrant's principal executive officer and principal financial officer have concluded, based on their evaluation of the effectiveness of the design and operation of the registrant's disclosure controls and procedures as of a date within 90 days of the filing date of this report, that the design and operation of such procedures are generally effective to provide reasonable assurance that information required to be disclosed by the registrant in this report is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms.
(b) Changes in internal control over financial reporting: Not applicable
Item 12. Exhibits:
(a)(1) The Code of Ethics of The Putnam Funds, which incorporates the Code of Ethics of Putnam Investments, is filed herewith.
(a)(2) Separate certifications for the principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Investment Company Act of 1940, as amended, are filed herewith.
(b) The certifications required by Rule 30a-2(b) under the Investment Company Act of 1940, as amended, are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Putnam Global Income Trust
By (Signature and Title):
/s/Michael T. Healy
Michael T. Healy
Principal Accounting Officer
Date: December 28, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title):
/s/Charles E. Porter
Charles E. Porter
Principal Executive Officer
Date: December 28, 2006
By (Signature and Title):
/s/Steven D. Krichmar
Steven D. Krichmar
Principal Financial Officer
Date: December 28, 2006
