Putnam Income Fund NCSRS Certified semi-annual shareholder report (management investment company)

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: (811-00653 )

Exact name of registrant as specified in charter: Putnam Income Fund

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, 2007

Date of reporting period: November 1, 2006— April 30, 2007

Item 1. Report to Stockholders:

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

What makes Putnam different?

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

THE PRUDENT MAN RULE

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

A time-honored tradition in money management

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

A prudent approach to investing

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

Funds for every investment goal

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

A commitment to doing what’s right for investors

We have 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.

Putnam
Income
Fund

4| 30| 07
Semiannual Report

Message from the Trustees	2
About the fund	4
Report from the fund managers	7
Performance	14
Expenses	17
Portfolio turnover	19
Risk	20
Your fund’s management	21
Terms and definitions	24
Trustee approval of management contract	26
Other information for shareholders	32
Financial statements	33

Cover photograph: © Richard H. Johnson

Message from the Trustees

Dear Fellow Shareholder

Reflecting investor uncertainty about the outlook for the U.S. economy, volatility in the financial markets has been on the rise: after a downturn in March, the Dow Jones Industrial Average recently reached new record-high levels. However, it remains to be seen whether the current levels are sustainable. From our perspective, we are encouraged by recent indications of moderate inflation, a low unemployment rate, and a rebound in manufacturing. We consequently believe the resilience of the U.S. economy will enable it to weather this period of uncertainty.

As we communicated in proxy materials recently mailed to all Putnam fund shareholders, on February 1, 2007, Marsh & McLennan Companies, Inc. announced that it had signed a definitive agreement to sell its ownership interest in Putnam Investments Trust, the parent company of Putnam Management and its affiliates, to Great-West Lifeco Inc. Great-West Lifeco is a financial services holding company with operations in Canada, the United States, and Europe and is a member of the Power Financial Corporation group of companies. We are pleased to announce that in mid-May, shareholders voted overwhelmingly in favor of the proposed transaction. While it is still subject to regulatory approvals and other conditions, we currently expect the transaction to be completed in the middle of the year.

We would also like to take this opportunity to announce that Putnam President and Chief Executive Officer Ed Haldeman, one of your fund’s Trustees since 2004, has been named President of the Funds, assuming this role from George Putnam, III. This change will enable George Putnam to become an independent Trustee of the funds upon completion of the transaction with Great-West Lifeco. Both George and Ed will continue serving on the Board of Trustees in our collective role of overseeing the Putnam funds on your behalf.

In the following pages, members of your fund’s management team discuss the fund’s performance and strategies for the fiscal period ended April 30, 2007, and provide their outlook for the months ahead. As always, we thank you for your support of the Putnam funds.

Putnam Income Fund: seeking high current income
across a broad range of fixed-income securities

Over Putnam Income Fund’s 50-year history, the bond landscape has undergone a dramatic transformation. One-third of the U.S. investment-grade sector, the fund’s primary focus, is now composed of “securitized” debt instruments, including mortgage- and asset-backed securities. The high-yield corporate bond sector, which was established in the late 1970s, has also grown significantly and is now considered a mature asset class. And outside the United States, there are new opportunities to invest in the debt of developed and emerging-market countries.

Amid this evolution of the fixed-income markets, the investment objective of Putnam Income Fund has remained constant. In a letter to Putnam shareholders in 1963, George Putnam, Jr. (who is currently Chairman Emeritus of the Trustees of the Putnam Funds), expressed it this way: “We have in mind those people who need a liberal current return…” Mr. Putnam’s choice of “current return” rather than “current income” captures the investment philosophy of the team managing your fund today: that high current income should be pursued within a total return context, and that risk management is as important as yield in maintaining a high current income stream.

Successful investing in today’s global bond market requires broad expertise. Putnam’s 100-member fixed-income group is divided into teams of specialists who focus on varied investment opportunities. Each team identifies compelling opportunities within its area of expertise. Your fund’s management team selects from among these opportunities, systematically building a diversified portfolio that carefully balances risk and return.

Mutual funds that invest in bonds are subject to certain risks, including interest-rate risk, credit risk, and inflation risk. As interest rates rise, the prices of bonds fall. Long-term bonds are more exposed to interest-rate risk than short-term bonds. Unlike bonds, bond funds have ongoing fees and expenses. Lower-rated bonds may offer higher yields in return for more risk. Mutual funds that invest in government securities are not guaranteed. Mortgage-backed securities are subject to prepayment risk. The use of derivatives involves special risks and may result in losses.

Key fixed-income return sources

Government: Interest-rate levels are a primary driver of government bond performance. Generally, bond prices decline when interest rates rise, and rise when interest rates fall. Interest rates —and bond yields — rise and fall according to investor expectations about the overall health of the economy.

Credit: Corporate bond performance tends to track the health of the overall economy more closely than other bonds. These bonds are less sensitive to interest-rate movements; they tend to perform well when the economy strengthens, often in spite of the higher rates that accompany stronger growth.

Securitized: Interest-rate cycles also affect mortgage- and asset-backed securities (MBSs/ABSs). Because MBSs are the securitized cash flows of mortgages, prepayment rates are another consideration. For ABSs, managers monitor the credit quality of the underlying assets, which comprise the securitized cash flow of anything from credit card debt to manufactured housing debt.

Optimizing the risk/return trade-off across multiple sectors

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

Putnam Income Fund seeks high current income consistent with what Putnam Management believes to be a prudent level of risk. The fund invests in a diversified portfolio composed mainly of corporate bonds, U.S. government and agency bonds, and securitized debt.

Highlights

• For the six months ended April 30, 2007, Putnam Income Fund’s class A shares had a total return of 2.84% before sales charges.

• The fund’s benchmark, the Lehman Aggregate Bond Index, returned 2.64% .

• The average return for the fund’s Lipper category, Corporate Debt Funds A Rated, was 2.49% .

• Additional fund performance, comparative performance, and Lipper data can be found in the performance section beginning on page 14.

Performance

Total return for class A shares for periods ended 4/30/07

Since the fund’s inception (11/1/54), average annual return is 7.93% before sales charge and 7.85% after sales charge.

	Average annual return		Cumulative return

	Before sales charge	After sales charge	Before sales charge	After sales charge
10 years	5.01%	4.61%	63.10%	56.97%

5 years	4.69	3.91	25.78	21.13

3 years	4.12	2.81	12.88	8.66

1 year	7.23	3.17	7.23	3.17

6 months	—	—	2.84	–0.98

Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will fluctuate, and you may have a gain or a loss when you sell your shares. Performance of class A shares assumes reinvestment of distributions and does not account for taxes. After sales charge returns reflect a maximum 3.75% load. For a portion of the periods, this fund may have limited expenses, without which returns would have been lower. A 1% short-term trading fee may apply. To obtain the most recent month-end performance, visit www.putnam.com.

Report from the fund managers

The period in review

Amid mixed signals about the direction of U.S. economic growth, investment-grade bonds recorded modest gains over the past six months. Your fund’s performance before sales charges was in line with its benchmark and edged slightly ahead of the average for its Lipper group. Performance benefited from our defensive, or short, duration strategy amid rising interest rates in late 2006 and early 2007. The fund’s holdings in the securitized sector also contributed positively to returns, particularly holdings of commercial mortgage-backed securities (CMBSs) and holdings of asset-backed securities (ABSs) in the manufactured housing sector. Compared with its benchmark, the fund was underweighted in corporate bonds and dollar-based emerging-market debt, both of which continued to rally despite what we see as stretched valuations by many measures. Although holdings in these sectors performed well, the underweighting detracted from results.

Market overview

Expectations that the Federal Reserve’s (the Fed’s) next major move would be to cut interest rates helped fuel a modest rally in the U.S. investment-grade bond market during the six months ended April 30, 2007. Although the Fed held the federal funds rate steady at 5.25% throughout the period, investors’ hopes for a rate cut were focused on a statement accompanying the March rate decision that assigned equal probabilities to the Fed raising or lowering rates in coming months. This neutral stance replaced a former bias to raising rates.

Economic data on the health of the U.S. economy were mixed during the period. Although the 2.5% fourth-quarter GDP growth rate was slightly more robust than the third quarter’s pace, a softening housing sector and a buildup of inventories across industries slowed the pace of the economy somewhat during the first quarter of calendar 2007. Weighing in on the positive side, unemployment remained low and consumer confidence high even after the latter slid modestly toward the end of the period. Although higher than in

the previous year, the level of volatility in the bond market stayed within what we consider normal parameters.

Corporate bonds were the top-performing investment-grade sector, reflecting solid demand from foreign investors and underwriters of structured credit products (e.g., collateralized debt obligations or CDOs). Lower-quality issues outperformed higher-quality issues due to investors’ desire for yield and greater tolerance of risk. MBSs outperformed comparable Treasury and agency bonds during the period. Thirty-year MBSs outperformed 15-year securities, which are generally considered more conservative. Lower-coupon MBSs outpaced those with higher coupons, and the best performers were those with 5.5% coupons. Government National Mortgage Association (Ginnie Mae) certificates jockeyed for position with Federal National Mortgage Association (Fannie Mae) certificates during the period with Fannie Maes outpacing Ginnie Maes overall. Despite weakness in the home equity sector caused by concerns in the subprime mortgage market, ABSs also finished ahead of Treasuries for the period, as strength in the manufactured housing sector offset other weaknesses. Agency bonds also outperformed Treasuries.

Strategy overview

Your fund employs multiple income-generating strategies across the different U.S. investment-grade bond sectors in

Market sector performance

These indexes provide an overview of performance in different market sectors for the six months ended 4/30/07.

Bonds

Lehman Aggregate Bond Index (broad bond market)	2.64%

Lehman Global Aggregate Bond Index (international bonds)	3.54%

Lehman Government Bond Index (U.S. Treasury and agency securities)	2.27%

Lehman GNMA Index (Government National Mortgage Association bonds)	2.82%

Equities

S&P 500 Index (broad stock market)	8.60%

Russell 2000 Growth Index (small-company growth stocks)	7.42%

Russell 2000 Value Index (small-company value stocks)	6.36%

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 focusing on one sector of the market. Generally, our investment decisions involve the following considerations: duration management, yield-curve positioning, sector allocation, and security selection.

In anticipation of continued rising interest rates, we maintained a short duration profile for the fund in late 2006 and early 2007. This strategy helped performance relative to the fund’s Lipper peer group, as rates rose during this period. A shift to a neutral duration position in February 2007 also proved timely as rates fell toward the end of the semiannual period. 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 yield-curve positioning strategy was positive for the period. We had expected the yield curve — a graphical representation of the difference in yields between shorter- and longer-term bonds — to steepen during the period and had positioned the portfolio to take advantage of it. Steepening refers to the widening of this difference in yield. It may occur as a result of a rise in yields of longer-term securities; a fall in yields of shorter-term securities; or when longer- and shorter-term securities

Comparison of top sector weightings

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

rise or fall at the same time, but at differing rates. As the yield curve did steepen modestly late in the period, the fund’s relative performance benefited from this strategy.

In terms of sector and security considerations, we have sought to reduce the level of credit risk in the portfolio 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 period, as these sectors outperformed. An underweight to the agency sector also detracted from relative results. Nevertheless, these negatives were more than offset by the fund’s successful strategies in the securitized sector.

Your fund’s holdings

Portfolio holdings from the securitized bond sector were the strongest contributors to the fund’s performance during the period. This fast-growing sector is now among the largest within the investment-grade bond universe. The most common securitized bonds are MBSs issued by Fannie Mae and

Credit quality overview

Credit qualities shown as a percentage of portfolio value as of 4/30/07. A bond rated Baa or higher is considered investment grade. The chart reflects Moody’s ratings; percentages may include bonds not rated by Moody’s but considered by Putnam Management to be of comparable quality. Ratings will vary over time.

Ginnie Mae. Relative to the benchmark, the fund had an underweight position in this segment of the securi-tized debt market, known as agency debt, which detracted from results during the period. Agency debt has continued to benefit from strong demand from Asian banks. The fund’s moderate exposure to this sector is based on our belief that this demand will taper off, particularly if dollar weakness persists.

Other types of securitized bonds include ABSs, which are backed by subprime home loans, loans on manufactured housing, and credit card payments, and 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. Securitized bonds typically offer higher income than corporate bonds of comparable credit quality. Another reason for favoring CMBSs versus corporates was their valuation. The yield spreads on investment-grade corporate bonds versus Treasuries — one means of evaluating the price of corporates on a relative basis —have been at historically low levels. This means that corporates have become expensive relative to other investment-grade sectors. Based on this measure, we believed that there was greater downside risk in owning corporate bonds and opted to limit the fund’s exposure.

However, prices of corporate bonds continued to rise, and your fund’s underweight position (relative to the benchmark) hurt results.

Strong performance from CMBS holdings, which benefited from continued improvements in underlying loan performance, helped offset the negative effects of the corporate bond underweighting. In addition, security selection among the corporate bonds the fund did own proved successful. For example, overweight positions in shorter-duration Ba-rated corporate bonds issued by General Motors Acceptance Corporation and Ford Motor Credit Company performed particularly well, bolstering relative results.

Another bright spot within the securi-tized bond sector was our emphasis on ABSs backed by manufactured housing. With losses and delinquencies at relatively low levels, manufactured housing ABSs were the strongest performers in the sector. Another benefit of ABSs is that they generally have shorter maturities, which provides us with the flexibility to shift to other fixed-income securities should interest rates rise.

Hybrid adjustable rate mortgages (ARMs) contributed positively to fund results. Hybrid ARMs typically offer borrowers three or five years of payments at a fixed interest rate, after which they become adjustable interest-rate mortgages for which the interest rate is adjusted yearly (3/1 and 5/1 ARMs). According to our analysis, many of these securities have been offering yields that

more than compensate for the level of risk they represent. Therefore, they contribute to an attractive risk/return profile for the fund.

The fund was also underweighted in dollar-based emerging-market debt (EMD), compared to its benchmark. This detracted from relative performance, as this segment of the market continued to perform well. Rising commodity prices are helping to create positive fundamentals for issuers of emerging-market debt. However, after its recent prolonged period of strong performance, we had a more cautious outlook with regard to this segment of the market, so the fund did not benefit from its strength to the same extent as many of its peers.

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.

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.

As the fund began the second half of its fiscal year, markets reflected investor expectations of about a 0.25% cut in the federal funds rate by calendar year-end. We think this is overly optimistic. Global economic growth remains strong, providing a buoyantly supportive environment for U.S. economic activity. Meanwhile, inflation has persistently hovered above the Fed’s target ceiling. Without the emergence of a stumbling block to the domestic economy such as a severe housing-related credit crunch, we believe U.S. rates will likely remain level in coming months, and are as likely to end the year above as below today’s levels.

Accordingly, we expect to continue positioning the fund conservatively. To minimize exposure to fluctuating rates, we are keeping duration neutral; to protect against potential market-adverse events, such as a sudden spike in inflation or greater fallout from subprime lending woes, we continue to favor select segments of the securitized sector over the investment-grade corporate bond sector. The yield advantages offered by bonds from certain higher-risk sectors increased modestly in February and early March, in reaction to subprime worries. However, since then, yield spreads have narrowed to levels that, in our view, do not adequately compensate investors for the bonds’ higher risks. We continue to favor short-maturity, high-quality structured credit securities such as CMBSs and manufactured housing ABSs over pass-through MBSs and corporate issues.

We believe that prices of hybrid ARMs may benefit from their recent inclusion in the Lehman Mortgage Index, and we anticipate that the fund’s position in these securities will contribute to overall returns. As always, we strive to position the fund to take advantage of attractive opportunities without assuming undue risk.

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

Your fund’s performance

This section shows your fund’s performance for periods ended April 30, 2007, the end of the first half of its current fiscal year. In accordance with regulatory requirements for mutual funds, we also include performance as of the most recent calendar quarter-end and expense information taken from the fund’s current prospectus. 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 and clients in other approved programs. See the Terms and Definitions section in this report for definition s of the share classes offered by your fund.

Fund performance

Total return for periods ended 4/30/07

	Class A		Class B		Class C		Class M		Class R	Class Y
(inception dates)	(11/1/54)		(3/1/93)		(7/26/99)		(12/14/94)		(1/21/03)	(6/16/94)
	NAV	POP	NAV	CDSC	NAV	CDSC	NAV	POP	NAV	NAV

Annual average
(life of fund)	7.93%	7.85%	6.94%	6.94%	7.12%	7.12%	7.48%	7.41%	7.67%	8.00%

10 years	63.10	56.97	51.52	51.52	51.17	51.17	59.33	54.17	59.27	67.24
Annual average	5.01	4.61	4.24	4.24	4.22	4.22	4.77	4.42	4.76	5.28

5 years	25.78	21.13	21.27	19.27	21.11	21.11	24.23	20.13	24.35	27.37
Annual average	4.69	3.91	3.93	3.59	3.90	3.90	4.43	3.74	4.45	4.96

3 years	12.88	8.66	10.42	7.42	10.26	10.26	12.17	8.57	12.12	13.71
Annual average	4.12	2.81	3.36	2.41	3.31	3.31	3.90	2.78	3.89	4.38

1 year	7.23	3.17	6.45	1.45	6.29	5.29	6.94	3.46	6.88	7.41

6 months	2.84	–0.98	2.47	–2.53	2.32	1.31	2.61	–0.67	2.60	2.92

Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. After sales charge returns (public offering price, or POP) for class A and M shares reflect a maximum 3.75% and 3.25% load, respectively. Class B share returns reflect the applicable contingent deferred sales charge (CDSC), which is 5% in the first year, declining to 1% in the sixth year, and is eliminated thereafter. Class C shares reflect a 1% CDSC for the first year and 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 periods, this fund may have limited expenses, without which returns would have been lower.

A 1% short-term trading fee may be applied to shares exchanged or sold within 7 days of purchase.

Comparative index returns

For periods ended 4/30/07

		Lipper Corporate
	Lehman Aggregate	Debt Funds A Rated
	Bond Index	category average†

Annual average
(life of fund)	—*	—*

10 years	85.16%	75.17%
Annual average	6.35	5.75

5 years	28.01	27.25
Annual average	5.06	4.92

3 years	13.80	12.56
Annual average	4.40	4.02

1 year	7.36	6.96

6 months	2.64	2.49

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

* The benchmark and the Lipper category were not in existence at the time of the fund’s inception. The Lehman Aggregate Bond Index commenced 12/31/75. The Lipper category commenced 12/31/59.

† Over the 6-month, 1-year, 3-year, 5-year, and 10-year periods ended 4/30/07, there were 174, 174, 158, 117, and 61 funds, respectively, in this Lipper category.

Fund performance as of most recent calendar quarter

Total return for periods ended 3/31/07

	Class A		Class B		Class C		Class M		Class R	Class Y
(inception dates)	(11/1/54)		(3/1/93)		(7/26/99)		(12/14/94)		(1/21/03)	(6/16/94)
	NAV	POP	NAV	CDSC	NAV	CDSC	NAV	POP	NAV	NAV

Annual average
(life of fund)	7.94%	7.86%	6.94%	6.94%	7.13%	7.13%	7.48%	7.41%	7.67%	8.00%

10 years	64.52	58.28	52.85	52.85	52.76	52.76	60.72	55.48	60.90	68.68
Annual average	5.10	4.70	4.33	4.33	4.33	4.33	4.86	4.51	4.87	5.37

5 years	27.44	22.66	22.87	20.87	22.89	22.89	25.87	21.85	26.18	29.05
Annual average	4.97	4.17	4.21	3.86	4.21	4.21	4.71	4.03	4.76	5.23

3 years	9.41	5.29	7.16	4.21	7.17	7.17	8.69	5.14	8.83	10.24
Annual average	3.04	1.73	2.33	1.38	2.34	2.34	2.82	1.68	2.86	3.30

1 year	6.21	2.22	5.60	0.59	5.60	4.60	6.08	2.64	6.18	6.56

6 months	2.83	–1.00	2.62	–2.38	2.61	1.61	2.75	–0.54	2.89	3.06

Fund price and distribution information

For the six-month period ended 4/30/07

Distributions*	Class A		Class B	Class C	Class M		Class R	Class Y

Number	6		6	6	6		6	6

Income	$0.159		$0.134	$0.134	$0.152		$0.153	$0.166

Capital gains	—		—	—	—		—	—

Total	$0.159		$0.134	$0.134	$0.152		$0.153	$0.166

Share value:	NAV	POP	NAV	NAV	NAV	POP	NAV	NAV

10/31/06	$6.74	$7.00	$6.70	$6.72	$6.67	$6.89	$6.74	$6.79

4/30/07	6.77	7.03	6.73	6.74	6.69	6.91	6.76	6.82

Current yield
(end of period)

Current
dividend rate¹	4.79%	4.61%	4.10%	4.09%	4.66%	4.52%	4.62%	4.93%

Current 30-day
SEC yield^2,3
(with expense
limitation)	4.81	4.63	4.05	4.06	4.56	4.41	4.56	5.06

Current 30-day
SEC yield³
(without
expense
limitation)	4.71	4.54	3.95	3.96	4.46	4.32	4.46	4.96

* Dividend sources are estimated and may vary based on final tax calculations after the fund’s fiscal year-end.

1 Most recent distribution, excluding capital gains, annualized and divided by NAV or 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’s annual operating expenses

For the fiscal year ended 10/31/06

	Class A	Class B	Class C	Class M	Class R	Class Y

Net expenses*	1.02%	1.77%	1.77%	1.27%	1.27%	0.77%

Total annual fund
operating expenses	1.05	1.80	1.80	1.30	1.30	0.80

* Reflects Putnam Management’s decision to contractually limit expenses through 10/31/07.

Expense information in this table is taken from the most recent prospectus, is subject to change, and may differ from that shown in the next section and in the financial highlights of this report. Expenses are shown as a percentage of fund assets.

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 Income Fund from November 1, 2006, to April 30, 2007. 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*	$ 4.88	$ 8.63	$ 8.63	$ 6.13	$ 6.13	$ 3.62

Ending value (after expenses)	$1,028.40	$1,024.70	$1,023.20	$1,026.10	$1,026.00	$1,029.20

* 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 4/30/07. 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.

Estimate the expenses you paid

To estimate the ongoing expenses you paid for the six months ended April 30, 2007, use the calculation method below. To find the value of your investment on November 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 11/01/2006 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*	$ 4.86	$ 8.60	$ 8.60	$ 6.11	$ 6.11	$ 3.61

Ending value (after expenses)	$1,019.98	$1,016.27	$1,016.27	$1,018.74	$1,018.74	$1,021.22

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 average 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	0.97%	1.72%	1.72%	1.22%	1.22%	0.72%

Average annualized expense
ratio for Lipper peer group*	0.98%	1.73%	1.73%	1.23%	1.23%	0.73%

* 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 3/31/07. 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.

Your fund’s
portfolio turnover

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 Income Fund	239%*	300%*	441%	251%†	268%†

Lipper Corporate Debt Funds
A Rated category average	138%	152%	163%	166%	166%

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 12/31/06.

* 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 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 Morningstar Risk.

Your fund’s Morningstar^®Risk

Your fund’s Morningstar Risk is shown alongside that of the average fund in its Morningstar category. The risk bar broadens the comparison by translating the fund’s Morningstar Risk into a percentile, which is based on the fund’s ranking among all funds rated by Morningstar as of March 31, 2007. A higher Morningstar Risk generally indicates that a fund’s monthly returns have varied more widely.

Morningstar determines a fund’s Morningstar Risk by assessing variations in the fund’s monthly returns — with an emphasis on downside variations — over a 3-year period, if available. Those measures are weighted and averaged to produce the fund’s Morningstar Risk. The information shown is provided for the fund’s class A shares only; information for other classes may vary. 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 Morningstar Risk does not mean that you cannot lose money on an investment in a fund. Copyright 2007 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 warranted 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.

Your fund’s management

Your fund is managed by the members of the Putnam Core Fixed-Income Team. Kevin Cronin is the Portfolio Leader of the fund. Rob Bloemker, Kevin Murphy, and Raman Srivastava are Portfolio Members. The Portfolio Leader and Portfolio Members coordinate the team’s management of the fund.

For a complete listing of the members of the Putnam Core Fixed-Income 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 Members have invested in the fund and in all Putnam mutual funds (in dollar ranges). Information shown is as of April 30, 2007, and April 30, 2006.

Trustee and Putnam employee fund ownership

As of April 30, 2007, all of the Trustees 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	$ 206,000	$ 95,000,000

Putnam employees	$3,019,000	$466,000,000

Fund manager compensation

The total 2006 fund manager compensation that is attributable to your fund is approximately $820,000. This amount includes a portion of 2006 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 2006 compensation paid to the Chief Investment Officer of the team and the Group Chief Investment Officer of the fund’s broader investment category for their oversight responsibilities, calculated based on the fund assets they oversee taken as a percentage of the total assets they oversee. This amount does not include compensation of other personnel involved in research, trading, administration, systems, compliance, or fund operations; nor does it include non-compensation costs. These percentages are determined as of the fund’s fisca l period-end. For personnel who joined Putnam Management during or after 2006, the calculation reflects annualized 2006 compensation or an estimate of 2007 compensation, as applicable.

Other Putnam funds managed by the Portfolio Leader and Portfolio Members

Kevin Cronin is also a Portfolio Leader of Putnam American Government Income Fund, Putnam Global Income Trust, Putnam Limited Duration Government Income Fund, and Putnam U.S. Government Income Trust.

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

Kevin Murphy is also a Portfolio Member of Putnam Diversified Income Trust, Putnam Master Intermediate Income Trust, Putnam Premier Income Trust, and Putnam Utilities Growth and Income Fund.

Raman Srivastava is also a Portfolio Member of The George Putnam Fund of Boston.

Kevin Cronin, Rob Bloemker, Kevin Murphy, and Raman Srivastava may also manage other accounts and variable trust funds advised by Putnam Management or an affiliate.

Changes in your fund’s Portfolio Leader and Portfolio Members

Your fund’s Portfolio Leader and Portfolio Members did not change during the year ended April 30, 2007.

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 April 30, 2007, and April 30, 2006.

			$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	2007							•

Chief Technology Officer	2006							•

Joshua Brooks	2007							•

Deputy Head of Investments	2006							•

William Connolly	2007							•

Head of Retail Management	2006							•

Kevin Cronin	2007							•

Head of Investments	2006							•

Charles Haldeman, Jr.	2007							•

President and CEO	2006							•

Amrit Kanwal	2007						•

Chief Financial Officer	2006						•

Steven Krichmar	2007							•

Chief of Operations	2006						•

Francis McNamara, III	2007							•

General Counsel	2006							•

Jeffrey Peters	2007							•

Head of International Business	N/A

Richard Robie, III	2007						•

Chief Administrative Officer	2006						•

Edward Shadek	2007							•

Deputy Head of Investments	2006							•

Sandra Whiston	2007							•

Head of Institutional Management	2006						•


N/A indicates the individual was not a member of Putnam’s Executive Board as of 4/30/06.

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

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.

Lehman GNMA Index is an unmanaged index of Government National Mortgage Association bonds.

Russell 2000 Growth Index is an unmanaged index of those companies in the small-cap Russell 2000 Index chosen for their growth orientation.

Russell 2000 Value Index is an unmanaged index of those companies in the small-cap Russell 2000 Index chosen for their value orientation.

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

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

Lipper is a third-party industry-ranking entity that ranks 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.

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. 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 independent counsel and independent staff. The Contract Committee reviewed and discussed key aspects of this information with all of the Independe nt Trustees. Upon completion of this review, the Contract Committee recommended, and the Independent Trustees approved, the continuance of your fund’s management contract, effective July 1, 2006.

This approval was based on the following conclusions:

• That the fee schedule in effect for your fund represented 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 represented 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 31st percentile in management fees and in the 24th 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 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 Committee’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 funds 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 Committees of the Trustees, which meet on a regular monthly basis with the funds’ portfolio teams throughout the year. The Trustees concluded that Putnam Management generally provides a high-quality investment process — as measured by the experience and skills of the individuals assigned to the management of fund portfolios, the resources made available to such personnel, and in general the ability of Putnam Management to attract and retain high-quality personnel — but also recognize that this does not guarantee favorable investment results for every fund in every time period.

The Trustees considered the investment performance of each fund over multiple time periods and considered information comparing 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 underperfor-mance 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 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 Corporate Debt Funds A Rated) 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

41st	44th	53rd

(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 180, 153, and 114 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

* The percentile rankings for your fund’s class A share annualized total return performance in the Lipper Corporate Debt Funds A Rated category for the one-, five- and ten-year periods ended March 31, 2007, were 41%, 55%, and 91%, respectively. Over the one-, five- and ten-year periods ended March 31, 2007, the fund ranked 69 out of 169, 64 out of 117, and 56 out of 61 funds, respectively. Note that this more recent information was not available when the Trustees approved the continuance of your fund’s management contract.

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 funds are by no means uniform when examined by individual asset sectors, suggesting that differences in the pricing of investment management services to these types of clients reflect to a substantial degree historical competitive forces operating in separate market places. The Trustees considered the fact that fee rates across all asset sectors are higher on average for 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.

Approval of new management and sub-management contracts in connection with pending change in control

As discussed in the “Message from the Trustees” at the beginning of this shareholder report, on February 1, 2007, Marsh & McLennan Companies, Inc. announced that it had signed a definitive agreement to sell its ownership interest in Putnam Investments Trust, the parent company of Putnam Management and its affiliates, to Great-West Lifeco Inc., a member of the Power Financial Corporation group of companies. In mid-May, shareholders voted overwhelmingly in favor of the proposed transaction. While the transaction is still subject to regulatory approvals and other conditions, it is currently expected to be completed by the middle of 2007.

At an in-person meeting on February 8-9, 2007, the Trustees considered the approval of new management contracts for each Putnam fund proposed to become effective upon the closing of the transaction, and the filing of a preliminary proxy statement. At an in-person meeting on March 8-9, 2007, the Trustees considered the approval of the final forms of the proposed new management contracts for each Putnam fund (and, in the case of your fund, the new sub-management contract) and the proxy statement. They reviewed the terms of the proposed new management contracts and the differences between the proposed new management contracts and the current management contracts. They noted that the terms of the proposed new management contracts were substantially identical to the current management contracts, except for certain changes developed at the initiative of the Trustees and designed largely to address inconsistencies among various of the existing contracts, which had been developed and implemented at different times in the past. They noted, in the case of your fund, that the terms of the proposed new sub-management contract were identical to the current sub-management contract, except for the effective date. In considering the approval of the proposed new management contracts (and, in the case of your fund, the new sub-management contract), the Trustees also considered, as discussed further in the proxy statement, various matters relating to the transaction. Finally, in considering the proposed new management contracts (and, in the case of your fund, the new sub-management contract), the Trustees also took into account their deliberations and conclusions (discussed above in the preceding paragraphs of the “Trustee Approval of Management Contract” section) in connection with the most recent annual approval of the continuance of the Putnam funds’ management contracts effective July 1, 2006, and the extensive materials that they had reviewed in connection with that approval process. Based upon the foregoing considerations, on March 9, 2007, the Trustees, including all of the Independent Trustees, unanimously approved the proposed new management contracts (and, in the case of your fund, the new sub-management contract) and determined to recommend their approval to the shareholders of the Putnam funds.

Other information
for shareholders

Important notice regarding delivery of shareholder documents

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

Proxy voting

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

Financial statements

A guide to financial statements

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

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

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

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

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

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

The fund’s portfolio 4/30/07 (Unaudited)

U.S. GOVERNMENT AND AGENCY MORTGAGE OBLIGATIONS (75.7%)*

		Principal amount		Value

U.S. Government Guaranteed Mortgage Obligations (0.4%)
Government National Mortgage Association Graduated
Payment Mortgages 11s, with due dates from March 15, 2010 to
August 15, 2010	$	7,085	$	7,569
Government National Mortgage Association
Pass-Through Certificates 6 1/2s, TBA, May 1, 2037		8,000,000		8,214,375
				8,221,944


U.S. Government Agency Mortgage Obligations (75.3%)
Federal Home Loan Mortgage Corporation
Pass-Through Certificates
7 1/2s, with a due date of December 1, 2029		32,424		33,796
7s, January 1, 2015		36,986		38,344
6 1/2s, TBA, May 1, 2037		1,600,000		1,634,250
6s, with due dates from September 1, 2021 to June 1, 2034		110,868		112,563
5 1/2s, with due dates from December 1, 2034 to July 1, 2035		2,730,187		2,704,012
5 1/2s, April 1, 2020		225,284		225,865
5 1/2s, TBA, May 1, 2037		32,600,000		32,230,704
5s, TBA, May 1, 2037		211,100,000		204,024,857
4 1/2s, TBA, May 1, 2037		7,300,000		6,871,125
Federal National Mortgage Association Graduated Payment
Mortgages 8s, December 1, 2008		46,628		46,905
Federal National Mortgage Association Pass-Through Certificates
11s, October 1, 2015		11,618		12,635
9s, with due dates from January 1, 2027 to July 1, 2032		358,231		390,875
8s, with due dates from January 1, 2025 to July 1, 2033		1,301,136		1,360,184
7 1/2s, with due dates from September 1, 2022 to July 1, 2033		799,033		831,384
7s, with due dates from August 1, 2021 to December 1, 2035		4,804,294		5,024,161
7s, with due dates from November 1, 2007 to
September 1, 2017		866,202		894,040
6 1/2s, October 1, 2034		40,264		41,371
6 1/2s, with due dates from September 1, 2010 to
February 1, 2019		174,821		179,063
6s, with due dates from December 1, 2021 to
December 1, 2036		13,946,463		14,168,501
6s, with due dates from August 1, 2008 to November 1, 2021		408,504,792		415,228,377
6s, TBA, May 1, 2037		76,100,000		76,670,750
6s, TBA, May 1, 2022		13,000,000		13,210,235
5 1/2s, with due dates from October 1, 2036 to April 1, 2037		12,150,678		12,017,611
5 1/2s, with due dates from November 1, 2011 to
February 1, 2021		1,749,657		1,755,226
5 1/2s, TBA, May 1, 2037		349,400,000		345,496,538
5 1/2s, TBA, June 1, 2036		313,700,000		310,134,109
5s, with due dates from January 1, 2034 to June 1, 2036		73,642,411		71,246,857
5s, with due dates from June 1, 2019 to April 1, 2021		58,438		57,631
4 1/2s, with due dates from September 1, 2020 to
September 1, 2035		12,199,644		11,802,484

U.S. GOVERNMENT AND AGENCY MORTGAGE OBLIGATIONS (75.7%)* continued

		Principal amount		Value

Federal National Mortgage Association Pass-Through Certificates
4 1/2s, with due dates from July 1, 2020 to August 1, 2020	$	5,721,232	$	5,545,795
4 1/2s, TBA, May 1, 2022		305,800,000		296,076,508
4s, with due dates from May 1, 2019 to August 1, 2020		877,221		830,242
4s, TBA, May 1, 2022		5,900,000		5,572,734
				1,836,469,732


Total U.S. government and agency mortgage obligations (cost $1,843,535,481)			$	1,844,691,676



U.S. GOVERNMENT AGENCY OBLIGATIONS (0.3%)* (cost $7,058,250)

		Principal amount		Value

Fannie Mae 6s, May 15, 2011	$	6,800,000	$	7,090,461



U.S. TREASURY OBLIGATIONS (0.9%)*

		Principal amount		Value

U.S. Treasury Bonds 7 1/4s, August 15, 2022	$	5,200,000	$	6,530,062
U.S. Treasury Notes
5 1/8s, June 30, 2011		8,300,000		8,491,938
4 7/8s, May 31, 2008		7,800,000		7,798,782

Total U.S. treasury obligations (cost $22,745,225)			$	22,820,782



COLLATERALIZED MORTGAGE OBLIGATIONS (37.1%)*

		Principal amount		Value

AMP CMBS 144A FRB Ser. 06-1A, Class A, 6.105s, 2047
(Cayman Islands)	$	2,520,000	$	2,520,000
Amresco Commercial Mortgage Funding I 144A
Ser. 97-C1, Class G, 7s, 2029		1,092,828		1,092,828
Ser. 97-C1, Class H, 7s, 2029		815,000		812,943
Asset Securitization Corp.
Ser. 96-MD6, Class A7, 8.147s, 2029		2,827,000		3,040,334
FRB Ser. 97-D5, Class A5, 6.875s, 2043		300,000		325,445
Banc of America Commercial Mortgage, Inc.
Ser. 06-2, Class A4, 5.93s, 2045		8,419,000		8,716,393
Ser. 06-4, Class A4, 5.634s, 2046		4,180,000		4,259,783
Ser. 06-5, Class A4, 5.414s, 2047		4,948,000		4,965,374
FRB Ser. 05-1, Class A5, 4.98s, 2042		163,000		162,413
Ser. 07-1, Class XW, IO (Interest only), 0.466s, 2049		19,196,989		456,746
Ser. 06-1, Class XC, IO, 0.054s, 2045		112,974,366		813,842
Banc of America Commercial Mortgage, Inc. 144A
Ser. 01-PB1, Class K, 6.15s, 2035		880,000		905,361
Ser. 02-PB2, Class XC, IO, 0.187s, 2035		51,866,884		972,504
Ser. 05-1, Class XW, IO, 0.157s, 2042		224,661,739		900,107
Ser. 04-4, IO, 0.117s, 2042		41,440,059		665,338
Ser. 04-5, Class XC, IO, 0.088s, 2041		62,697,022		830,018

COLLATERALIZED MORTGAGE OBLIGATIONS (37.1%)* continued

		Principal amount		Value

Banc of America Commercial Mortgage, Inc. 144A
Ser. 05-4, Class XC, IO, 0.072s, 2045	$	104,967,970	$	774,260
Ser. 06-5, Class XC, IO, 0.052s, 2016		104,297,135		1,649,094
Banc of America Large Loan
FRB Ser. 04-BBA4, Class H, 6.27s, 2018		443,000		445,106
FRB Ser. 04-BBA4, Class G, 6.02s, 2018		595,000		595,704
Banc of America Large Loan 144A
FRB Ser. 05-MIB1, Class K, 7.32s, 2022		669,000		669,321
FRB Ser. 05-ESHA, Class K, 7.12s, 2020		2,099,000		2,099,227
FRB Ser. 06-LAQ, Class M, 6.97s, 2021		1,535,000		1,534,992
FRB Ser. 06-LAQ, Class L, 6.87s, 2021		1,899,000		1,901,900
FRB Ser. 05-MIB1, Class J, 6.37s, 2022		1,805,000		1,813,040
FRB Ser. 05-ESHA, Class G, 6.2s, 2020		1,050,000		1,049,625
Ser. 06-LAQ, Class X1, IO, 0.697s, 2021		58,458,486		139,604
Ser. 03-BBA2, Class X1A, IO, 0.175s, 2015 (F)		6,303,219		1
Banc of America Mortgage Securities
Ser. 04-D, Class 2A, IO, 0.389s, 2034		16,767,714		58,372
Ser. 05-E, Class 2, IO, 0.306s, 2035		43,628,000		238,526
IFB Ser. 06-2, Class A4, IO, 0.08s, 2036		3,460,770		22,844
Banc of America Structured Security Trust 144A Ser. 02-X1,
Class A3, 5.436s, 2033		2,131,664		2,132,512
Bayview Commercial Asset Trust 144A Ser. 07-1, Class S, IO,
1.211s, 2037	��	17,090,236		2,255,911
Bayview Commercial Asset Trust 144A
FRB Ser. 05-1A, Class A1, 5.62s, 2035		1,948,155		1,952,441
Ser. 04-2, IO, 1.72s, 2034		6,730,509		462,985
Ser. 05-1A, IO, 1.6s, 2035		8,226,203		610,217
Ser. 04-3, IO, 1.6s, 2035		6,954,857		493,632
Ser. 06-2A, IO, 0.879s, 2036		3,781,278		343,989
Ser. 05-3A, IO, 0.775s, 2035		22,025,192		1,792,986
Bear Stearns Alternate Trust Ser. 04-9, Class 1A1, 4.86s, 2034		784,082		781,441
Bear Stearns Commercial Mortgage Securities, Inc.
FRB Ser. 00-WF2, Class F, 8.194s, 2032		619,000		689,834
Ser. 04-PR3I, Class X1, IO, 0 1/8s, 2041		20,464,331		420,235
Ser. 05-PWR9, Class X1, IO, 0.056s, 2042		51,794,156		528,352
Bear Stearns Commercial Mortgage Securities, Inc. 144A
Ser. 06-BBA7, Class X1A, IO, 1.711s, 2019		27,120,000		239,562
Ser. 06-PW14, Class XW, IO, 0.885s, 2038		25,561,606		1,294,056
Ser. 06-PW14, Class X1, IO, 0.052s, 2038		27,488,637		498,232
Ser. 07-PW15, Class X1, IO, 0.047s, 2044		80,323,604		1,006,897
Ser. 05-PW10, Class X1, IO, 0.032s, 2040		110,770,926		508,594
Bear Stearns Small Balance Commercial Trust 144A Ser. 06-1A,
Class AIO, IO, 1s, 2034		11,807,000		213,540
Chase Commercial Mortgage Securities Corp. Ser. 00-3,
Class A2, 7.319s, 2032		736,000		777,046
Chase Commercial Mortgage Securities Corp. 144A
Ser. 98-1, Class F, 6.56s, 2030		5,896,000		6,166,863
Ser. 98-1, Class G, 6.56s, 2030		1,502,003		1,577,803
Ser. 98-1, Class H, 6.34s, 2030		2,217,000		1,964,437

COLLATERALIZED MORTGAGE OBLIGATIONS (37.1%)* continued

		Principal amount		Value

Citigroup Commercial Mortgage Trust 144A
Ser. 05-C3, Class XC, IO, 0.095s, 2043	$	144,620,283	$	1,525,292
Ser. 06-C5, Class XC, IO, 0.053s, 2049		164,029,585		2,377,148
Citigroup/Deutsche Bank Commercial Mortgage Trust 144A
Ser. 07-CD4, Class XC, IO, 0.044s, 2049		116,665,000		1,125,635
Ser. 07-CD4, Class XW, IO, 0.561s, 2049		34,889,000		985,342
Ser. 06-CD2, Class X, IO, 0.129s, 2046		105,211,227		624,744
Commercial Mortgage Acceptance Corp. Ser. 97-ML1, Class A3,
6.57s, 2030		5,898,532		5,888,139
Commercial Mortgage Acceptance Corp. 144A
Ser. 98-C1, Class F, 6.23s, 2031		2,605,530		2,697,337
Ser. 98-C2, Class F, 5.44s, 2030		4,946,000		4,993,822
Commercial Mortgage Pass-Through Certificates Ser. 04-LB2A,
Class A4, 4.715s, 2039		35,237,000		34,065,758
Commercial Mortgage Pass-Through Certificates 144A
FRB Ser. 01-J2A, Class A2F, 5.82s, 2034		1,960,000		1,960,000
Ser. 06-CN2A, Class H, 5.756s, 2019		1,271,000		1,267,426
Ser. 06-CN2A, Class J, 5.756s, 2019		1,017,000		1,010,802
Ser. 03-LB1A, Class X1, IO, 0.373s, 2038		12,606,004		518,863
Ser. 06-C8, Class XS, IO, 0.049s, 2046		81,429,436		1,036,922
Ser. 05-LP5, Class XC, IO, 0.046s, 2043		75,240,400		699,510
Ser. 05-C6, Class XC, IO, 0.04s, 2044		86,159,198		609,146
Countrywide Alternative Loan Trust
Ser. 05-24, Class IIAX, IO, 2.391s, 2035		15,103,661		420,728
Ser. 06-OA10, Class XBI, IO, 2.257s, 2046		8,874,790		343,898
Ser. 05-24, Class 1AX, IO, 1.201s, 2035		12,214,397		217,758
IFB Ser. 06-6CB, Class 1A3, IO, zero %, 2036		25,449,442		60,641
Credit Suisse Mortgage Capital Certificates
Ser. 06-C4, Class A3, 5.467s, 2039		8,124,000		8,166,765
Ser. 06-C5, Class AX, IO, 0.074s, 2039		51,808,245		910,167
Credit Suisse Mortgage Capital Certificates 144A
Ser. 07-C1, Class AX, IO, 0.058s, 2040		104,183,971		1,151,337
Ser. 06-C3, Class AX, IO, 0.035s, 2038		430,038,548		490,244
CRESI Finance Limited Partnership 144A
FRB Ser. 06-A, Class D, 6.12s, 2017		308,000		308,048
FRB Ser. 06-A, Class C, 5.92s, 2017		913,000		913,143
Criimi Mae Commercial Mortgage Trust 144A Ser. 98-C1,
Class B, 7s, 2033		7,975,000		7,988,558
Crown Castle Towers, LLC 144A Ser. 05-1A, Class D,
5.612s, 2035		3,575,000		3,563,270
CS First Boston Mortgage Securities Corp.
Ser. 97-C2, Class F, 7.46s, 2035		1,193,000		1,314,136
Ser. 04-C2, Class A2, 5.416s, 2036		6,060,000		6,097,693
FRB Ser. 04-C3, Class A5, 5.113s, 2036		59,000		58,250
Ser. 05-C4, Class A5, 5.104s, 2038		21,019,000		20,682,318
Ser. 04-C3, Class A3, 4.302s, 2036		127,000		124,452
CS First Boston Mortgage Securities Corp. 144A
FRB Ser. 05-TFLA, Class J, 6.27s, 2020		323,500		323,498
FRB Ser. 04-TF2A, Class J, 6.27s, 2016		414,000		413,987
FRB Ser. 04-TF2A, Class H, 6.02s, 2019		825,000		825,038

COLLATERALIZED MORTGAGE OBLIGATIONS (37.1%)* continued

		Principal amount		Value

CS First Boston Mortgage Securities Corp. 144A
Ser. 01-CK1, Class AY, IO, 0.894s, 2035	$	83,484,000	$	1,826,213
Ser. 02-CP3, Class AX, IO, 0.435s, 2035		23,292,155		893,169
Ser. 03-C3, Class AX, IO, 0.431s, 2038		106,882,518		4,296,693
Ser. 05-C2, Class AX, IO, 0.114s, 2037		85,100,538		1,308,336
Deutsche Mortgage & Asset Receiving Corp. Ser. 98-C1,
Class X, IO, 0.85s, 2031		817,501		8,271
DLJ Commercial Mortgage Corp.
Ser. 00-CF1, Class A1B, 7.62s, 2033		2,926,910		3,101,795
Ser. 99-CG2, Class B3, 6.1s, 2032		2,455,000		2,464,649
Ser. 99-CG2, Class B4, 6.1s, 2032		3,434,000		3,429,262
Ser. 98-CF2, Class B3, 6.04s, 2031		1,075,367		1,094,182
Fannie Mae
Ser. 03-W6, Class PT1, 9.952s, 2042		787,098		843,526
IFB Ser. 06-70, Class SM, 9.605s, 2036		574,920		620,566
Ser. 02-T12, Class A4, 9 1/2s, 2042		291,457		307,105
Ser. 02-T4, Class A4, 9 1/2s, 2041		479,931		506,018
Ser. 02-T6, Class A3, 9 1/2s, 2041		594,497		625,010
Ser. 02-T1, Class A4, 9 1/2s, 2031		62,812		66,390
Ser. 04-T3, Class PT1, 9.205s, 2044		530,157		573,648
IFB Ser. 06-62, Class PS, 7.98s, 2036		1,241,132		1,386,825
IFB Ser. 05-37, Class SU, 7.92s, 2035		3,486,130		3,809,763
IFB Ser. 06-76, Class QB, 7.68s, 2036		2,404,955		2,653,945
IFB Ser. 06-48, Class TQ, 7.68s, 2036		3,925,475		4,271,056
IFB Ser. 06-60, Class AK, 7.52s, 2036		1,870,725		2,006,935
Ser. 02-26, Class A2, 7 1/2s, 2048		2,555,010		2,671,434
Ser. 04-T3, Class 1A4, 7 1/2s, 2044		746,154		785,432
Ser. 04-T2, Class 1A4, 7 1/2s, 2043		1,155,117		1,215,949
Ser. 02-T19, Class A3, 7 1/2s, 2042		4,955,762		5,185,502
Ser. 02-T12, Class A3, 7 1/2s, 2042		417,597		434,966
Ser. 02-14, Class A2, 7 1/2s, 2042		555,520		580,013
Ser. 01-T10, Class A2, 7 1/2s, 2041		2,634,949		2,744,977
Ser. 02-T4, Class A3, 7 1/2s, 2041		171,601		178,685
Ser. 01-T12, Class A2, 7 1/2s, 2041		2,526,876		2,626,903
Ser. 01-T3, Class A1, 7 1/2s, 2040		531,261		552,117
Ser. 01-T1, Class A1, 7 1/2s, 2040		932,848		969,774
Ser. 99-T2, Class A1, 7 1/2s, 2039		310,274		326,701
Ser. 03-W10, Class 1A1, 7 1/2s, 2032		1,158,103		1,208,653
Ser. 02-T1, Class A3, 7 1/2s, 2031		456,914		476,699
Ser. 00-T6, Class A1, 7 1/2s, 2030		1,968,886		2,054,067
Ser. 01-T5, Class A3, 7 1/2s, 2030		57,414		59,731
Ser. 01-T4, Class A1, 7 1/2s, 2028		5,892,793		6,216,685
IFB Ser. 06-63, Class SP, 7.38s, 2036		2,610,751		2,875,144
IFB Ser. 06-60, Class TK, 7.32s, 2036		1,193,312		1,286,976
Ser. 02-26, Class A1, 7s, 2048		1,622,885		1,677,555
Ser. 04-T3, Class 1A3, 7s, 2044		1,609,664		1,673,849
Ser. 04-T2, Class 1A3, 7s, 2043		1,311,783		1,364,398
Ser. 03-W3, Class 1A2, 7s, 2042		767,646		793,957
Ser. 02-T16, Class A2, 7s, 2042		1,595,777		1,650,651
Ser. 02-14, Class A1, 7s, 2042		429,072		442,728

COLLATERALIZED MORTGAGE OBLIGATIONS (37.1%)* continued

		Principal amount		Value

Fannie Mae
Ser. 01-W3, Class A, 7s, 2041	$	560,906	$	581,679
Ser. 05-W4, Class 1A3, 7s, 2035		2,120,008		2,204,755
Ser. 04-W1, Class 2A2, 7s, 2033		4,382,597		4,554,350
IFB Ser. 06-104, Class ES, 6.85s, 2036		2,722,150		2,950,260
IFB Ser. 06-104, Class CS, 5.76s, 2036		2,600,205		2,663,589
Ser. 07-16, Class TS, IO, 5 1/2s, 2009		21,823,287		396,922
IFB Ser. 05-74, Class SK, 5 1/2s, 2035		3,720,615		3,799,380
IFB Ser. 05-74, Class CS, 5.39s, 2035		2,240,732		2,278,399
IFB Ser. 05-74, Class CP, 5.243s, 2035		1,966,072		2,025,613
IFB Ser. 05-57, Class CD, 5.175s, 2035		1,800,846		1,835,350
IFB Ser. 06-8, Class PK, 5.12s, 2036		3,784,553		3,783,018
IFB Ser. 06-27, Class SP, 5.06s, 2036		2,816,000		2,912,233
IFB Ser. 06-8, Class HP, 5.06s, 2036		3,264,296		3,331,398
IFB Ser. 06-8, Class WK, 5.06s, 2036		5,119,354		5,187,662
IFB Ser. 05-106, Class US, 5.06s, 2035		4,731,231		4,872,260
IFB Ser. 05-99, Class SA, 5.06s, 2035		2,345,718		2,380,267
Ser. 07-54, Class IA, IO, 5s, 2037 ##		5,877,000		320,884
Ser. 07-54, Class IB, IO, 5s, 2037 ##		5,877,000		320,884
Ser. 07-54, Class IC, IO, 5s, 2037 ##		5,877,000		320,884
Ser. 07-54, Class ID, IO, 5s, 2037 ##		5,877,000		320,884
Ser. 07-54, Class IE, IO, 5s, 2037 ##		5,877,000		320,884
Ser. 07-54, Class IF, IO, 5s, 2037 ##		6,781,000		370,243
IFB Ser. 05-114, Class SP, 4.95s, 2036		1,375,064		1,337,250
IFB Ser. 05-45, Class DA, 4.913s, 2035		3,593,638		3,649,984
IFB Ser. 05-74, Class DM, 4.877s, 2035		4,619,978		4,678,165
IFB Ser. 05-45, Class DC, 4.803s, 2035		2,834,099		2,866,033
IFB Ser. 06-60, Class CS, 4.583s, 2036		1,156,298		1,115,222
IFB Ser. 05-57, Class DC, 4.485s, 2034		3,413,965		3,442,739
IFB Ser. 05-45, Class PC, 4.29s, 2034		1,582,381		1,582,720
IFB Ser. 05-95, Class CP, 4.089s, 2035		360,909		360,101
IFB Ser. 05-95, Class OP, 3.923s, 2035		1,286,000		1,214,105
IFB Ser. 05-106, Class JC, 3.628s, 2035		807,521		747,755
IFB Ser. 05-72, Class SB, 3.575s, 2035		2,780,324		2,656,952
IFB Ser. 05-83, Class QP, 3.562s, 2034		777,950		734,419
IFB Ser. 02-36, Class QH, IO, 2.73s, 2029		178,618		559
IFB Ser. 06-90, Class SE, IO, 2.48s, 2036		3,200,688		300,690
IFB Ser. 03-66, Class SA, IO, 2.33s, 2033		3,956,071		309,088
Ser. 03-W12, Class 2, IO, 2.235s, 2043		5,865,358		334,066
IFB Ser. 07-W2, Class 3A2, IO, 1.96s, 2037		5,817,667		360,123
Ser. 03-W10, Class 1, IO, 1.937s, 2043		23,046,302		1,123,113
Ser. 03-W10, Class 3, IO, 1.933s, 2043		8,881,527		437,317
IFB Ser. 05-113, Class AI, IO, 1.91s, 2036		1,049,863		81,988
IFB Ser. 05-113, Class DI, IO, 1.91s, 2036		45,886,117		2,927,492
IFB Ser. 05-52, Class DC, IO, 1.88s, 2035		2,629,772		248,025
IFB Ser. 04-24, Class CS, IO, 1.83s, 2034		5,585,245		396,286
IFB Ser. 03-122, Class SA, IO, 1.78s, 2028		7,408,327		366,417
IFB Ser. 03-122, Class SJ, IO, 1.78s, 2028		7,797,418		389,759
IFB Ser. 06-60, Class DI, IO, 1 3/4s, 2035		3,094,798		172,778
IFB Ser. 04-60, Class SW, IO, 1.73s, 2034		10,211,156		777,093

COLLATERALIZED MORTGAGE OBLIGATIONS (37.1%)* continued

		Principal amount		Value

Fannie Mae
IFB Ser. 05-65, Class KI, IO, 1.68s, 2035	$	22,361,679	$	1,432,102
Ser. 03-W8, Class 12, IO, 1.635s, 2042		41,545,213		1,862,912
IFB Ser. 05-42, Class SA, IO, 1.48s, 2035		8,291,255		448,790
IFB Ser. 07-30, Class WI, IO, 1.44s, 2037		31,809,885		1,669,131
IFB Ser. 07-28, Class SE, IO, 1.43s, 2037		3,817,086		261,804
IFB Ser. 07-W2, Class 2A2, IO, 1.43s, 2037		7,540,982		394,761
IFB Ser. 06-128, Class SH, IO, 1.43s, 2037		4,583,844		255,778
IFB Ser. 06-56, Class SM, IO, 1.43s, 2036		11,468,080		631,181
IFB Ser. 06-12, Class SD, IO, 1.43s, 2035		14,668,446		1,059,062
IFB Ser. 05-73, Class SI, IO, 1.43s, 2035		2,242,069		121,544
IFB Ser. 05-17, Class ES, IO, 1.43s, 2035		4,526,730		322,529
IFB Ser. 05-17, Class SY, IO, 1.43s, 2035		2,091,255		148,961
IFB Ser. 07-30, Class IE, IO, 1.42s, 2037		9,909,754		747,768
IFB Ser. 06-123, Class CI, IO, 1.42s, 2037		8,774,958		583,019
IFB Ser. 05-82, Class SY, IO, 1.41s, 2035		9,656,801		473,194
IFB Ser. 05-45, Class SR, IO, 1.4s, 2035		12,848,905		622,475
IFB Ser. 05-95, Class CI, IO, 1.38s, 2035		4,934,316		315,428
IFB Ser. 05-84, Class SG, IO, 1.38s, 2035		8,543,272		553,465
IFB Ser. 05-54, Class SA, IO, 1.38s, 2035		9,206,535		457,450
IFB Ser. 05-23, Class SG, IO, 1.38s, 2035		6,800,089		412,465
IFB Ser. 05-29, Class SX, IO, 1.38s, 2035		7,947,762		470,443
IFB Ser. 05-104, Class NI, IO, 1.38s, 2035		5,719,930		383,807
IFB Ser. 05-17, Class SA, IO, 1.38s, 2035		5,983,072		398,097
IFB Ser. 05-17, Class SE, IO, 1.38s, 2035		6,412,909		420,570
IFB Ser. 05-57, Class DI, IO, 1.38s, 2035		13,349,122		719,786
IFB Ser. 04-92, Class S, IO, 1.38s, 2034		6,822,199		363,494
IFB Ser. 05-83, Class QI, IO, 1.37s, 2035		1,298,716		94,672
IFB Ser. 05-73, Class SD, IO, 1.36s, 2035		5,790,091		367,042
IFB Ser. 05-83, Class SL, IO, 1.35s, 2035		14,981,641		782,362
Ser. 06-116, Class ES, IO, 1.33s, 2036		3,251,735		139,850
IFB Ser. 06-114, Class IS, IO, 1.33s, 2036		4,468,250		251,339
IFB Ser. 06-20, Class IG, IO, 1.33s, 2036		28,442,103		1,221,754
IFB Ser. 06-115, Class GI, IO, 1.32s, 2036		3,787,263		236,522
IFB Ser. 06-121, Class SD, IO, 1.32s, 2036		9,443,181		504,266
IFB Ser. 06-109, Class SG, IO, 1.31s, 2036		5,980,915		331,042
IFB Ser. 06-104, Class IM, IO, 1.3s, 2036		1,426,000		85,084
IFB Ser. 06-104, Class SY, IO, 1.3s, 2036		3,426,876		166,500
IFB Ser. 06-109, Class SH, IO, 1.3s, 2036		4,167,675		310,813
Ser. 06-104, Class SG, IO, 1.28s, 2036		7,724,969		352,164
IFB Ser. 06-128, Class SC, IO, 1.28s, 2037		10,137,963		607,264
IFB Ser. 06-104, Class CI, IO, 1.28s, 2036		1,219,925		75,842
IFB Ser. 06-44, Class IS, IO, 1.28s, 2036		6,155,915		330,034
IFB Ser. 06-45, Class SM, IO, 1.28s, 2036		7,085,557		298,925
IFB Ser. 06-8, Class JH, IO, 1.28s, 2036		15,779,454		916,896
IFB Ser. 06-42, Class IB, IO, 1.27s, 2036		5,843,477		243,633
IFB Ser. 06-20, Class IB, IO, 1.27s, 2036		12,189,473		504,999
IFB Ser. 05-95, Class OI, IO, 1.27s, 2035		728,549		53,824
IFB Ser. 06-92, Class JI, IO, 1.26s, 2036		3,076,833		174,291
IFB Ser. 06-96, Class ES, IO, 1.26s, 2036		5,510,535		298,636

COLLATERALIZED MORTGAGE OBLIGATIONS (37.1%)* continued

		Principal amount		Value

Fannie Mae
IFB Ser. 06-99, Class AS, IO, 1.26s, 2036	$	3,795,930	$	203,841
IFB Ser. 06-85, Class TS, IO, 1.24s, 2036		7,640,184		366,447
IFB Ser. 06-61, Class SE, IO, 1.23s, 2036		8,183,408		318,384
Ser. 06-94, Class NI, IO, 1.18s, 2036		3,832,754		167,968
Ser. 03-W17, Class 12, IO, 1.152s, 2033		10,929,410		424,762
IFB Ser. 07-30, Class LI, IO, 1.12s, 2037		13,343,069		783,905
IFB Ser. 07-W2, Class 1A2, IO, 1.11s, 2037		20,173,763		908,592
Ser. 03-W19, IO, 1.099s, 2033		1,229,089		37,561
IFB Ser. 07-15, Class CI, IO, 1.06s, 2037		16,075,560		888,697
IFB Ser. 06-123, Class BI, IO, 1.06s, 2037		21,321,694		1,132,910
IFB Ser. 06-115, Class JI, IO, 1.06s, 2036		11,812,179		655,242
IFB Ser. 06-123, Class LI, IO, 1s, 2037		7,892,614		400,424
Ser. 03-W10, Class 3A, IO, 0.915s, 2043		903,127		14,971
Ser. 03-W10, Class 1A, IO, 0.908s, 2043		747,251		10,788
Ser. 03-T2, Class 2, IO, 0.823s, 2042		66,224,798		1,418,909
IFB Ser. 07-39, Class AI, IO, 0.8s, 2037		8,180,000		356,290
IFB Ser. 07-32, Class SD, IO, 0.79s, 2037		5,441,249		240,818
IFB Ser. 07-33, Class SD, IO, 0.79s, 2037		15,575,552		599,659
IFB Ser. 07-32, Class SC, IO, 0.78s, 2037		7,221,551		317,353
IFB Ser. 05-74, Class SE, IO, 0.78s, 2035		11,213,224		353,923
IFB Ser. 05-82, Class SI, IO, 0.78s, 2035		17,607,170		592,866
IFB Ser. 05-87, Class SE, IO, 0.73s, 2035		32,550,091		1,033,612
Ser. 03-18, Class X1, IO, 0.685s, 2042		31,820,609		405,776
Ser. 03-W3, Class 2IO1, IO, 0.683s, 2042		25,908,886		473,872
Ser. 03-W6, Class 51, IO, 0.68s, 2042		17,658,606		280,432
IFB Ser. 05-58, Class IK, IO, 0.68s, 2035		5,325,278		253,395
Ser. 06-W3, Class 1AS, IO, 0.662s, 2046		20,071,142		620,951
Ser. 01-T12, Class IO, 0.567s, 2041		29,912,959		355,956
Ser. 03-W2, Class 1, IO, 0.469s, 2042		34,574,687		379,210
Ser. 01-50, Class B1, IO, 0.459s, 2041		4,130,472		35,239
Ser. 02-T4, IO, 0.453s, 2041		16,796,971		155,554
Ser. 03-W3, Class 1, IO, 0.443s, 2042		22,927,565		203,999
Ser. 02-T1, Class IO, IO, 0.423s, 2031		25,927,239		197,169
Ser. 03-W6, Class 3, IO, 0.365s, 2042		23,579,486		226,018
Ser. 03-W6, Class 23, IO, 0.352s, 2042		25,360,142		235,566
Ser. 03-W8, Class 11, IO, 0.03s, 2042		2,015,975		38
Ser. 03-W6, Class 21, IO, 0.004s, 2042		16,800		—
Ser. 03-34, Class P1, PO (Principal only), zero %, 2043		109,181		75,267
Ser. 06-104, Class EK, zero %, 2036		623,915		601,708
Ser. 06-84, Class OP, PO, zero %, 2036		80,599		78,670
Ser. 372, Class 1, PO, zero %, 2036		845,235		677,911
Ser. 371, Class 1, PO, zero %, 2036		2,448,750		2,028,673
Ser. 367, Class 1, PO, zero %, 2036		1,522,281		1,153,726
Ser. 363, Class 1, PO, zero %, 2035		13,048,584		9,908,242
Ser. 361, Class 1, PO, zero %, 2035		10,272,264		8,338,030
Ser. 04-38, Class AO, PO, zero %, 2034		5,244,670		3,812,219
Ser. 04-61, Class CO, PO, zero %, 2031		4,902,000		4,025,518
Ser. 07-31, Class TS, IO, zero %, 2009		13,164,704		239,440
Ser. 07-15, Class IM, IO, zero %, 2009		5,110,484		93,040

COLLATERALIZED MORTGAGE OBLIGATIONS (37.1%)* continued

		Principal amount		Value

Fannie Mae
FRB Ser. 05-117, Class GF, zero %, 2036	$	1,029,809	$	961,609
FRB Ser. 05-65, Class ER, zero %, 2035		3,456,277		3,280,805
FRB Ser. 05-57, Class UL, zero %, 2035		3,321,823		3,197,784
FRB Ser. 05-36, Class QA, zero %, 2035		643,949		588,856
FRB Ser. 05-65, Class CU, zero %, 2034		467,005		518,619
FRB Ser. 05-81, Class DF, zero %, 2033		410,476		408,680
FRB Ser. 06-1, Class HF, zero %, 2032		448,928		422,382
Federal Home Loan Mortgage Corp. Structured
Pass-Through Securities
Ser. T-42, Class A6, 9 1/2s, 2042		309,188		325,629
Ser. T-58, Class 4A, 7 1/2s, 2043		1,638,661		1,718,044
Ser. T-51, Class 2A, 7 1/2s, 2042		1,748,196		1,822,547
Ser. T-42, Class A5, 7 1/2s, 2042		1,158,135		1,206,458
Ser. T-60, Class 1A2, 7s, 2044		5,349,634		5,562,482
Ser. T-41, Class 2A, 7s, 2032		125,720		129,650
Ser. T-56, Class A, IO, 0.555s, 2043		14,885,043		203,949
Ser. T-56, Class 3, IO, 0.363s, 2043		15,015,182		123,342
Ser. T-56, Class 1, IO, 0.285s, 2043		18,974,858		103,556
Ser. T-56, Class 2, IO, 0.049s, 2043		17,363,389		38,064
FFCA Secured Lending Corp. 144A Ser. 00-1, Class A2,
7.77s, 2027		5,546,208		5,832,612
First Union National Bank-Bank of America Commercial
Mortgage 144A Ser. 01-C1, Class 3, IO, 1.951s, 2033		40,652,054		2,124,907
First Union-Lehman Brothers Commercial Mortgage Trust II
Ser. 97-C2, Class F, 7 1/2s, 2029		3,492,000		3,791,716
Ser. 97-C2, Class G, 7 1/2s, 2029		1,156,000		1,255,678
First Union-Lehman Brothers-Bank of America 144A Ser. 98-C2,
Class G, 7s, 2035		4,500,000		4,848,975
Freddie Mac
IFB Ser. 2990, Class LB, 3.348s, 2034		3,525,774		3,248,401
IFB Ser. 3153, Class UK, 7 1/2s, 2036		2,290,600		2,620,362
IFB Ser. 3202, Class PS, 7.32s, 2036		1,186,552		1,297,851
IFB Ser. 3182, Class PS, 7.32s, 2032		3,147,571		3,488,297
IFB Ser. 3202, Class HM, 6.65s, 2036		821,845		877,787
IFB Ser. 3081, Class DC, 5.22s, 2035		1,914,186		1,946,715
IFB Ser. 3114, Class GK, 5.12s, 2036		1,279,254		1,300,095
Ser. 3311, Class IA, IO, 5s, 2037 ##		6,320,000		369,205
Ser. 3311, Class IB, IO, 5s, 2037 ##		6,320,000		369,205
Ser. 3311, Class IC, IO, 5s, 2037 ##		6,320,000		369,205
Ser. 3311, Class ID, IO, 5s, 2037 ##		6,320,000		369,205
Ser. 3311, Class IE, IO, 5s, 2037 ##		6,320,000		369,205
IFB Ser. 2976, Class KL, 4.877s, 2035		3,407,920		3,418,654
IFB Ser. 2990, Class DP, 4.767s, 2034		2,963,827		2,944,449
IFB Ser. 2979, Class AS, 4.767s, 2034		842,776		835,768
IFB Ser. 3065, Class DC, 3.9s, 2035		2,894,831		2,740,705
IFB Ser. 3050, Class SA, 3.575s, 2034		2,109,851		1,948,918
IFB Ser. 2990, Class WP, 3.302s, 2035		2,263,806		2,175,877
IFB Ser. 2927, Class SI, IO, 3.18s, 2035		5,091,102		558,505
IFB Ser. 2828, Class GI, IO, 2.18s, 2034		5,778,326		589,856

COLLATERALIZED MORTGAGE OBLIGATIONS (37.1%)* continued

		Principal amount		Value

Freddie Mac
IFB Ser. 2869, Class SH, IO, 1.98s, 2034	$	2,817,841	$	165,233
IFB Ser. 2869, Class JS, IO, 1.93s, 2034		13,627,334		782,079
IFB Ser. 2815, Class PT, IO, 1.73s, 2032		5,714,947		390,059
IFB Ser. 2828, Class TI, IO, 1.73s, 2030		2,739,268		171,416
IFB Ser. 3284, Class IV, IO, 1.43s, 2037		3,418,887		247,800
IFB Ser. 3287, Class SD, IO, 1.43s, 2037		5,673,515		351,166
IFB Ser. 3028, Class ES, IO, 1.43s, 2035		14,419,517		969,423
IFB Ser. 2922, Class SE, IO, 1.43s, 2035		7,228,509		367,931
IFB Ser. 3045, Class DI, IO, 1.41s, 2035		15,673,985		776,546
Ser. 3236, Class ES, IO, 1.38s, 2036		5,566,454		264,407
IFB Ser. 3136, Class NS, IO, 1.38s, 2036		8,721,290		530,219
IFB Ser. 3118, Class SD, IO, 1.38s, 2036		11,929,861		561,411
IFB Ser. 3054, Class CS, IO, 1.38s, 2035		3,072,500		132,502
IFB Ser. 3107, Class DC, IO, 1.38s, 2035		14,900,655		1,054,207
IFB Ser. 3129, Class SP, IO, 1.38s, 2035		6,234,684		258,153
IFB Ser. 3066, Class SI, IO, 1.38s, 2035		9,451,809		642,980
IFB Ser. 2927, Class ES, IO, 1.38s, 2035		4,051,489		193,724
IFB Ser. 2950, Class SM, IO, 1.38s, 2016		7,909,139		448,153
IFB Ser. 3031, Class BI, IO, 1.37s, 2035		2,667,296		192,900
IFB Ser. 2962, Class BS, IO, 1.33s, 2035		16,754,431		818,546
IFB Ser. 3114, Class TS, IO, 1.33s, 2030		32,662,316		1,631,430
IFB Ser. 3128, Class JI, IO, 1.31s, 2036		9,376,753		577,776
IFB Ser. 2990, Class LI, IO, 1.31s, 2034		5,184,845		331,290
IFB Ser. 3240, Class S, IO, 1.3s, 2036		13,632,722		845,403
IFB Ser. 3229, Class BI, IO, 1.3s, 2036		1,227,658		59,872
IFB Ser. 3065, Class DI, IO, 1.3s, 2035		2,058,278		148,512
IFB Ser. 3145, Class GI, IO, 1.28s, 2036		7,605,178		501,566
IFB Ser. 3114, Class GI, IO, 1.28s, 2036		3,053,112		222,195
IFB Ser. 3174, Class BS, IO, 1.2s, 2036		7,066,778		282,034
IFB Ser. 3152, Class SY, IO, 1.16s, 2036		6,808,856		408,284
IFB Ser. 3199, Class S, IO, 1.13s, 2036		3,803,495		203,844
IFB Ser. 3284, Class LI, IO, 1.12s, 2037		18,022,748		1,024,871
IFB Ser. 3281, Class AI, IO, 1.11s, 2037		16,143,783		922,786
IFB Ser. 3240, Class GS, IO, 1.06s, 2036		8,249,192		448,442
IFB Ser. 3288, Class SJ, IO, 0.81s, 2037		7,276,912		275,158
IFB Ser. 3284, Class CI, IO, 0.8s, 2037		12,211,484		582,110
IFB Ser. 3291, Class SA, IO, 0.79s, 2037		8,046,526		295,307
IFB Ser. 3016, Class SQ, IO, 0.79s, 2035		6,149,503		174,880
IFB Ser. 3284, Class WI, IO, 0.78s, 2037		20,350,975		907,765
Ser. 3300, PO, zero %, 2037		3,560,000		2,875,936
Ser. 242, PO, zero %, 2036 ##		34,560,623		28,167,094
Ser. 239, PO, zero %, 2036		17,242,972		13,779,738
Ser. 3174, PO, zero %, 2036		476,291		409,433
Ser. 236, PO, zero %, 2036		11,754,998		9,451,321
FRB Ser. 3213, Class FX, zero %, 2036		611,432		588,480
FRB Ser. 3231, Class X, zero %, 2036		736,379		732,860
FRB Ser. 3147, Class SF, zero %, 2036		2,389,905		2,217,462
FRB Ser. 3048, Class XG, zero %, 2035		362,021		345,710
FRB Ser. 3022, Class TC, zero %, 2035		401,168		408,721

COLLATERALIZED MORTGAGE OBLIGATIONS (37.1%)* continued

		Principal amount		Value

Freddie Mac
FRB Ser. 3003, Class XF, zero %, 2035	$	2,861,624	$	2,778,010
FRB Ser. 2986, Class XT, zero %, 2035		271,207		264,141
FRB Ser. 2958, Class FL, zero %, 2035		1,164,750		1,048,365
FRB Ser. 3046, Class WF, zero %, 2035		464,071		448,641
FRB Ser. 3054, Class XF, zero %, 2034		267,900		259,654
GE Capital Commercial Mortgage Corp. 144A
Ser. 05-C3, Class XC, IO, 0.059s, 2045		290,748,076		1,556,084
Ser. 05-C2, Class XC, IO, 0.059s, 2043		120,997,869		940,355
Ser. 07-C1, Class XC, IO, 0.048s, 2019 ##		241,470,731		1,910,033
GMAC Commercial Mortgage Securities, Inc.
Ser. 99-C3, Class F, 8.058s, 2036		488,000		515,669
Ser. 01-C2, Class A1, 6 1/4s, 2034		302,462		305,427
Ser. 03-C2, Class A2, 5.461s, 2040		7,723,000		7,821,854
Ser. 04-C2, Class A4, 5.301s, 2038		13,017,000		12,994,481
Ser. 97-C1, Class X, IO, 1.513s, 2029		12,620,364		509,477
Ser. 05-C1, Class X1, IO, 0.111s, 2043		107,421,119		1,493,798
GMAC Commercial Mortgage Securities, Inc. 144A
Ser. 99-C3, Class G, 6.974s, 2036		2,095,341		2,149,899
Ser. 06-C1, Class XC, IO, 0.033s, 2045		172,717,435		1,288,645
Government National Mortgage Association
IFB Ser. 06-34, Class SA, 7.62s, 2036		532,393		573,051
Ser. 2003-41, Class DS, IO, 6.38s, 2037		780,000		41,243
Ser. 07-25, Class SB, IO, 6s, 2037		11,803,000		624,379
Ser. 07-26, Class SA, IO, 6s, 2037		17,100,000		850,946
Ser. 07-26, Class SD, IO, 6s, 2037		8,439,000		455,875
Ser. 07-25, Class SA, IO, 6s, 2037 ##		6,083,000		316,924
IFB Ser. 05-7, Class JM, 5.016s, 2034		3,572,151		3,550,926
IFB Ser. 05-66, Class SP, 3.1s, 2035		1,789,476		1,648,812
IFB Ser. 07-1, Class SL, IO, 2.04s, 2037		2,704,640		185,358
IFB Ser. 07-1, Class SM, IO, 2.03s, 2037		2,703,654		184,480
IFB Ser. 07-9, Class BI, IO, 1 1/2s, 2037		17,562,124		909,815
IFB Ser. 06-69, Class SA, IO, 1.48s, 2036		9,200,974		444,842
IFB Ser. 06-38, Class SG, IO, 1.33s, 2033		17,267,886		668,845
IFB Ser. 07-9, Class DI, IO, 1.19s, 2037		8,826,760		392,043
IFB Ser. 07-9, Class AI, IO, 1.18s, 2037		6,939,429		344,663
IFB Ser. 06-28, Class GI, IO, 1.18s, 2035		6,032,082		272,952
IFB Ser. 05-65, Class SI, IO, 1.03s, 2035		6,553,935		251,253
IFB Ser. 07-19, Class SJ, IO, 0.88s, 2037		7,561,000		241,007
IFB Ser. 07-21, Class S, IO, 0.88s, 2037		9,133,270		315,026
IFB Ser. 07-8, Class SA, IO, 0.88s, 2037		18,731,898		714,154
IFB Ser. 07-9, Class CI, IO, 0.88s, 2037		11,468,432		400,538
IFB Ser. 07-7, Class EI, IO, 0.88s, 2037		3,322,160		108,933
Ser. 99-31, Class MP, PO, zero %, 2029		112,626		96,251
Ser. 98-2, Class EA, PO, zero %, 2028		951,214		782,278
Greenpoint Mortgage Funding Trust Ser. 05-AR1, Class X1, IO,
1.36s, 2045		10,032,801		246,118
Greenwich Capital Commercial Funding Corp.
Ser. 07-GG9, Class A4, 5.444s, 2039		2,148,000		2,170,769
Ser. 05-GG5, Class XC, IO, 0.052s, 2037		236,802,117		1,026,759

COLLATERALIZED MORTGAGE OBLIGATIONS (37.1%)* continued

		Principal amount		Value

Greenwich Capital Commercial Funding Corp. 144A
Ser. 07-GG9, Class X, IO, 0.512s, 2039	$	33,084,281	$	835,378
Ser. 05-GG3, Class XC, IO, 0.137s, 2042		107,067,054		1,713,073
GS Mortgage Securities Corp. II
Ser. 06-GG8, Class A4, 5.56s, 2039		5,341,000		5,405,840
Ser. 04-GG2, Class A6, 5.396s, 2038		5,069,000		5,097,234
Ser. 05-GG4, Class A4, 4.761s, 2039		127,000		122,503
Ser. 05-GG4, Class A4B, 4.732s, 2039		7,685,000		7,374,093
GS Mortgage Securities Corp. II 144A
FRB Ser. 03-FL6A, Class L, 8.57s, 2015		748,000		748,000
Ser. 98-C1, Class F, 6s, 2030		1,627,000		1,634,045
Ser. 03-C1, Class X1, IO, 0.414s, 2040		39,640,505		683,990
Ser. 05-GG4, Class XC, IO, 0.162s, 2039		133,144,834		2,350,838
Ser. 04-C1, Class X1, IO, 0.126s, 2028		44,240,888		293,787
Ser. 06-GG6, Class XC, IO, 0.045s, 2038		146,926,128		510,798
GSR Mortgage Loan Trust Ser. 05-AR2, Class 2A1, 4.853s, 2035		2,696,355		2,655,910
JPMorgan Chase Commercial Mortgage Securities Corp.
Ser. 97-C5, Class F, 7.561s, 2029		1,171,000		1,269,704
Ser. 06-CB14, Class AM, 5.629s, 2044		5,894,000		5,935,965
Ser. 06-CB16, Class A4, 5.552s, 2045		5,705,000		5,767,413
FRB Ser. 04-PNC1, Class A4, 5.372s, 2041		48,000		48,376
Ser. 06-CB14, Class A4, 5.481s, 2044		11,600,000		11,679,808
Ser. 06-LDP9, Class A3, 5.336s, 2047		8,661,000		8,600,460
Ser. 05-CB11, Class A4, 5.335s, 2037		8,740,000		8,738,643
Ser. 05-CB12, Class A4, 4.895s, 2037		128,000		124,059
Ser. 04-C3, Class A5, 4.878s, 2042		122,000		118,439
Ser. 05-LDP2, Class AM, 4.78s, 2042		2,030,000		1,948,582
Ser. 06-CB17, Class X, IO, 0.703s, 2043		57,832,349		2,331,222
Ser. 06-LDP9, Class X, IO, 0.642s, 2047		36,732,594		1,262,867
Ser. 07-LDPX, Class X, IO, 0.527s, 2049		71,194,794		1,757,799
Ser. 06-LDP7, Class X, IO, 0.02s, 2045		299,092,623		257,034
JPMorgan Chase Commercial Mortgage Securities Corp. 144A
Ser. 00-C9, Class G, 6 1/4s, 2032		1,515,000		1,542,606
Ser. 06-FL2A, Class X1, IO, 0.694s, 2018		137,662,285		435,013
Ser. 03-ML1A, Class X1, IO, 0.472s, 2039		19,954,442		708,383
Ser. 05-LDP2, Class X1, IO, 0.105s, 2042		238,424,635		4,163,118
Ser. 05-LDP1, Class X1, IO, 0.101s, 2046		46,595,454		451,393
Ser. 05-CB12, Class X1, IO, 0.097s, 2037		70,278,530		790,633
Ser. 06-CB14, Class X1, IO, 0.069s, 2044		58,554,040		274,472
Ser. 05-LDP3, Class X1, IO, 0.062s, 2042		172,150,949		1,371,828
Ser. 06-LDP6, Class X1, IO, 0.05s, 2043		95,353,899		521,467
Ser. 05-LDP5, Class X1, IO, 0.043s, 2044		446,074,541		2,160,674
LB Commercial Conduit Mortgage Trust 144A
Ser. 99-C1, Class F, 6.41s, 2031		926,463		939,554
Ser. 99-C1, Class G, 6.41s, 2031		991,777		1,030,368
Ser. 98-C4, Class G, 5.6s, 2035		784,000		783,712
Ser. 98-C4, Class H, 5.6s, 2035		1,328,000		1,250,544

COLLATERALIZED MORTGAGE OBLIGATIONS (37.1%)* continued

		Principal amount		Value

LB-UBS Commercial Mortgage Trust
Ser. 01-C3, Class A2, 6.365s, 2028	$	43,000	$	44,728
Ser. 05-C7, Class AM, 5.263s, 2040		9,607,000		9,541,051
Ser. 04-C7, Class A6, 4.786s, 2029		2,341,000		2,272,533
LB-UBS Commercial Mortgage Trust 144A
Ser. 06-C7, Class XW, IO, 0.914s, 2038		41,058,023		2,003,583
Ser. 05-C3, Class XCL, IO, 0.133s, 2040		70,958,152		1,480,431
Ser. 05-C2, Class XCL, IO, 0.122s, 2040		234,838,622		2,448,241
Ser. 05-C5, Class XCL, IO, 0.11s, 2020		105,793,600		1,511,241
Ser. 05-C7, Class XCL, IO, 0.096s, 2040		157,523,053		1,580,256
Ser. 06-C1, Class XCL, IO, 0.082s, 2041		167,588,219		1,869,828
Ser. 06-C7, Class XCL, IO, 0.072s, 2038		29,843,119		537,619
Lehman Brothers Floating Rate Commercial Mortgage Trust 144A
FRB Ser. 04-LLFA, Class H, 6.27s, 2017		826,000		826,903
FRB Ser. 05-LLFA, 6.12s, 2018		534,000		532,665
Lehman Mortgage Trust
IFB Ser. 06-7, Class 1A9, 9s, 2036		1,190,565		1,310,105
IFB Ser. 06-7, Class 4A2, IO, 2.43s, 2036		5,429,969		308,542
Ser. 07-1, Class 3A2, IO, 1.93s, 2037		5,586,075		372,301
IFB Ser. 06-9, Class 3A2, IO, 1.91s, 2037		3,426,615		210,032
IFB Ser. 06-5, Class 2A2, IO, 1.83s, 2036		10,705,987		484,565
IFB Ser. 07-2, Class 2A13, IO, 1.37s, 2037		7,732,450		438,630
Ser. 06-9, Class 2A3, IO, 1.3s, 2036		11,641,853		651,222
IFB Ser. 06-9, Class 2A2, IO, 1.3s, 2037		8,279,401		465,716
IFB Ser. 06-8, Class 2A2, IO, 1.26s, 2036		753,418		28,377
IFB Ser. 06-7, Class 2A4, IO, 1.23s, 2036		16,750,691		618,647
IFB Ser. 06-7, Class 2A5, IO, 1.23s, 2036		15,093,869		785,422
IFB Ser. 06-6, Class 1A2, IO, 1.18s, 2036		6,386,477		241,721
IFB Ser. 06-6, Class 1A3, IO, 1.18s, 2036		8,480,879		406,004
IFB Ser. 06-5, Class 1A3, IO, 0.08s, 2036		2,918,712		13,241
IFB Ser. 06-4, Class 1A3, IO, 0.08s, 2036		2,367,899		19,265
IFB Ser. 06-7, Class 1A3, IO, 0.03s, 2036		6,922,636		38,125
IFB Ser. 06-9, Class 1A6, IO, zero %, 2037		5,992,347		18,824
MASTR Adjustable Rate Mortgages Trust
Ser. 04-7, Class 2A1, 4.688s, 2034		785,218		801,241
Ser. 04-13, Class 3A6, 3.786s, 2034		3,642,000		3,524,111
Ser. 06-OA1, Class X, IO, 2.082s, 2046		7,533,958		249,562
Ser. 04-03, Class 4AX, IO, 1.417s, 2034		3,132,517		45,735
Ser. 05-2, Class 7AX, IO, 0.168s, 2035		8,235,852		20,590
Merrill Lynch Capital Funding Corp. Ser. 06-4, Class XC, IO,
0.049s, 2049		125,078,263		1,881,060
Merrill Lynch Floating Trust 144A
FRB Ser. 06-1, Class TM, 5.82s, 2022		1,222,000		1,227,831
Ser. 06-1, Class X1TM, IO, 5.569s, 2022		12,038,000		265,980
Ser. 06-1, Class X1A, IO, 1.273s, 2022		47,561,060		683,690
Merrill Lynch Mortgage Investors, Inc.
Ser. 98-C3, Class E, 7.116s, 2030		826,000		888,743
FRB Ser. 05-A9, Class 3A1, 5.284s, 2035		6,485,658		6,473,498
Ser. 96-C2, Class JS, IO, 2.282s, 2028		1,178,920		115,037

COLLATERALIZED MORTGAGE OBLIGATIONS (37.1%)* continued

		Principal amount		Value

Merrill Lynch Mortgage Trust
FRB Ser. 04-BPC1, Class A5, 4.855s, 2041	$	125,000	$	121,658
FRB Ser. 05-MCP1, Class A4, 4.747s, 2043		121,000		116,321
Ser. 05-MCP1, Class XC, IO, 0.095s, 2043		87,968,428		1,233,620
Merrill Lynch Mortgage Trust 144A
Ser. 04-KEY2, Class XC, IO, 0.212s, 2039		19,884,069		435,741
Ser. 05-LC1, Class X, IO, 0.067s, 2044		48,654,424		446,632
Merrill Lynch/Countrywide Commercial Mortgage Trust 144A
Ser. 06-1, Class X, IO, 0.039s, 2039		126,898,000		674,146
Mezz Cap Commercial Mortgage Trust 144A
Ser. 04-C1, Class X, IO, 8.047s, 2037		4,073,163		1,321,232
Ser. 06-C4, Class X, IO, 4.33s, 2016		12,962,910		4,430,666
Ser. 04-C2, Class X, IO, 2.594s, 2040		1,986,707		614,637
Ser. 05-C3, Class X, IO, 2.279s, 2044		3,718,282		1,120,713
Morgan Stanley Capital 144A
Ser. 05-RR6, Class X, IO, 1.708s, 2043		13,441,658		732,990
Ser. 05-HQ6, Class X1, IO, 0.083s, 2042		112,454,023		1,209,551
Morgan Stanley Capital I
Ser. 07-HQ11, Class A4, 5.447s, 2044		3,820,000		3,834,773
Ser. 05-HQ6, Class A4A, 4.989s, 2042		5,354,000		5,233,226
Ser. 04-HQ4, Class A7, 4.97s, 2040		2,771,000		2,712,393
Morgan Stanley Capital I 144A
Ser. 98-HF1, Class F, 7.18s, 2030		498,000		502,116
Ser. 04-RR, Class F5, 6s, 2039		1,350,000		1,196,754
Ser. 04-RR, Class F6, 6s, 2039		2,030,000		1,713,447
Morgan Stanley Mortgage Loan Trust Ser. 05-5AR, Class 2A1,
5.387s, 2035		6,222,069		6,220,785
Mortgage Capital Funding, Inc. FRB Ser. 98-MC2, Class E,
7.086s, 2030		1,389,000		1,418,147
Permanent Financing PLC FRB Ser. 8, Class 2C, 5.74s, 2042
(United Kingdom)		2,413,000		2,412,838
PNC Mortgage Acceptance Corp. 144A
Ser. 99-CM1, Class B3, 7.1s, 2032		4,971,000		5,132,905
Ser. 00-C1, Class J, 6 5/8s, 2010		309,000		298,568
Ser. 00-C2, Class J, 6.22s, 2033		1,499,000		1,522,669
Pure Mortgages 144A
FRB Ser. 04-1A, Class F, 8.86s, 2034 (Ireland)		3,491,000		3,569,548
Ser. 04-1A, Class E, 6.61s, 2034 (Ireland)		1,374,000		1,374,824
Residential Asset Securitization Trust IFB Ser. 06-A7CB,
Class 1A6, IO, 0.23s, 2036		1,634,828		20,499
Residential Funding Mortgage Securities I Ser. 04-S5, Class 2A1,
4 1/2s, 2019		5,258,368		5,080,852
Salomon Brothers Mortgage Securities VII 144A Ser. 02-KEY2,
Class X1, IO, 0.953s, 2036		30,284,903		1,422,603
SBA CMBS Trust 144A Ser. 05-1A, Class D, 6.219s, 2035		770,000		778,192
STRIPS 144A
Ser. 03-1A, Class L, 5s, 2018 (Cayman Islands)		993,000		886,718
Ser. 03-1A, Class M, 5s, 2018 (Cayman Islands)		673,000		577,834
Ser. 04-1A, Class L, 5s, 2018 (Cayman Islands)		443,000		395,049

COLLATERALIZED MORTGAGE OBLIGATIONS (37.1%)* continued

		Principal amount		Value

Structured Adjustable Rate Mortgage Loan Trust
FRB Ser. 05-18, Class 6A1, 5.261s, 2035	$	3,151,642	$	3,142,755
Ser. 04-8, Class 1A3, 4.646s, 2034		43,111		43,905
Ser. 05-9, Class AX, IO, 1.018s, 2035		33,894,353		505,026
Wachovia Bank Commercial Mortgage Trust
Ser. 06-C23, Class A4, 5.418s, 2045		15,955,000		16,016,419
Ser. 05-C17, Class A4, 5.083s, 2042		8,696,000		8,554,820
Ser. 04-C15, Class A4, 4.803s, 2041		4,128,000		4,001,100
Ser. 06-C28, Class XC, IO, 0.564s, 2048		28,389,676		781,852
Ser. 06-C29, IO, 0.528s, 2048		136,920,355		4,063,796
Wachovia Bank Commercial Mortgage Trust 144A
FRB Ser. 05-WL5A, Class L, 8.62s, 2018		944,000		943,830
Ser. 03-C3, Class IOI, IO, 0.419s, 2035		22,419,974		675,603
Ser. 05-C18, Class XC, IO, 0.094s, 2042		50,568,302		523,888
Ser. 06-C23, Class XC, IO, 0.061s, 2045		296,377,819		1,834,579
Ser. 06-C26, Class XC, IO, 0.045s, 2045		22,395,103		85,325
WAMU Commercial Mortgage Securities Trust 144A Ser. 07-SL2,
Class X, IO, 0.856s, 2049		21,743,000		1,031,943
Washington Mutual 144A Ser. 06-SL1, Class X, IO, 0.938s, 2043		10,392,373		553,719
Washington Mutual Asset Securities Corp. 144A
Ser. 05-C1A, Class G, 5.72s, 2036		219,000		207,306
Ser. 06-SL1, Class A, 5.421s, 2043		7,489,277		7,497,761
Washington Mutual Multi-Fam., Mtge. 144A Ser. 01-1, Class B5,
7.21s, 2031 (Cayman Islands)		1,793,000		1,831,571
Wells Fargo Mortgage Backed Securities Trust
Ser. 06-AR10, Class 3A1, 5.259s, 2036		4,257,862		4,224,651
Ser. 05-AR2, Class 2A1, 4.545s, 2035		1,957,953		1,930,737
Ser. 04-R, Class 2A1, 4.361s, 2034		1,993,431		1,961,137
Ser. 05-AR9, Class 1A2, 4.354s, 2035		1,631,323		1,603,564
Ser. 05-AR12, Class 2A5, 4.319s, 2035		26,265,000		25,662,371
Ser. 05-AR10, Class 2A18, IO, 0.61s, 2035		56,771,000		569,581

Total collateralized mortgage obligations (cost $908,823,968)			$	905,835,600



CORPORATE BONDS AND NOTES (10.7%)*

		Principal amount		Value

Basic Materials (0.4%)
Alcoa, Inc. notes 5 3/8s, 2013	$	800,000	$	800,126
Dow Chemical Co. (The) sr. notes 6 1/8s, 2011		800,000		821,920
Dow Chemical Co. (The) Pass Through Trust 144A
company guaranty 4.027s, 2009		1,950,000		1,889,446
Georgia-Pacific Corp. debs. 9 1/2s, 2011		1,140,000		1,259,700
Georgia-Pacific Corp. notes 8 1/8s, 2011		815,000		859,825
Lafarge SA notes 6 1/2s, 2016 (France)		440,000		465,740
Lubrizol Corp. (The) sr. notes 5 1/2s, 2014		570,000		559,605
Newmont Mining Corp. notes 5 7/8s, 2035		830,000		779,030
Potash Corp. of Saskatchewan notes 5 7/8s, 2036 (Canada)		1,095,000		1,075,478
Westvaco Corp./NY unsec. notes 7 1/2s, 2027		240,000		253,195

CORPORATE BONDS AND NOTES (10.7%)* continued

		Principal amount		Value

Basic Materials continued
Weyerhaeuser Co. debs. 7 3/8s, 2032	$	450,000	$	475,813
Xstrata Finance Canada, Ltd. 144A company guaranty 5.8s,
2016 (Canada)		1,010,000		1,015,849
				10,255,727


Capital Goods (0.2%)
L-3 Communications Corp. sr. sub. notes 5 7/8s, 2015		640,000		623,200
L-3 Communications Corp. sr. sub. notes Class B, 6 3/8s, 2015		750,000		746,250
Legrand SA debs. 8 1/2s, 2025 (France)		1,160,000		1,363,000
Lockheed Martin Corp. notes Ser. B, 6.15s, 2036		750,000		779,771
				3,512,221


Communication Services (1.2%)
Ameritech Capital Funding company guaranty 6 1/4s, 2009		1,135,000		1,153,728
AT&T Corp. sr. notes 8s, 2031		825,000		1,033,737
AT&T Wireless Services, Inc. sr. notes 8 3/4s, 2031		2,995,000		3,918,829
France Telecom notes 8 1/2s, 2031 (France)		560,000		737,599
Nextel Communications, Inc. sr. notes Ser. E, 6 7/8s, 2013		825,000		847,835
Pacific Bell debs. 7 1/8s, 2026		1,000,000		1,086,265
Rogers Wireless, Inc. sec. notes 6 3/8s, 2014 (Canada)		1,020,000		1,053,150
Southwestern Bell Telephone debs. 7s, 2027		1,245,000		1,273,327
Sprint Capital Corp. company guaranty 8 3/4s, 2032		400,000		472,058
Sprint Capital Corp. company guaranty 6.9s, 2019		920,000		948,004
Sprint Capital Corp. company guaranty 6 7/8s, 2028		2,410,000		2,391,472
Telecom Italia Capital SA company guaranty 7.2s, 2036 (Luxembourg)		515,000		547,486
Telecom Italia Capital SA company guaranty 5 1/4s, 2013
(Luxembourg)		255,000		249,758
Telecom Italia Capital SA company guaranty 4s, 2010 (Luxembourg)		525,000		509,308
Telecom Italia Capital SA notes 5 1/4s, 2015 (Luxembourg)		1,315,000		1,263,940
Telefonica Emisones SAU company guaranty 7.045s, 2036 (Spain)		1,055,000		1,134,825
Telefonica Emisones SAU company guaranty 6.421s, 2016 (Spain)		370,000		387,890
Telefonica Europe BV company guaranty 8 1/4s, 2030 (Netherlands)		725,000		870,943
Telus Corp. notes 8s, 2011 (Canada)		1,460,000		1,595,176
Verizon Communications, Inc. sr. unsec. bond 6 1/4s, 2037		1,475,000		1,478,080
Verizon Communications, Inc. sr. unsec. bond 5 1/2s, 2017		1,480,000		1,473,222
Verizon New England, Inc. sr. notes 6 1/2s, 2011		2,600,000		2,711,160
Verizon New Jersey, Inc. debs. 8s, 2022		1,050,000		1,196,138
Verizon Pennsylvania, Inc. debs. 8.35s, 2030		1,305,000		1,552,472
Verizon Virginia Inc. debs. Ser. A, 4 5/8s, 2013		364,000		347,099
				30,233,501


Conglomerates (—%)
Siemens Financieringsmaatschappij 144A notes 5 3/4s,
2016 (Netherlands)		920,000		933,367


Consumer Cyclicals (0.7%)
Chrysler Corp. debs. 7.45s, 2027		850,000		974,440
D.R. Horton, Inc. sr. notes 7 7/8s, 2011		765,000		815,975
D.R. Horton, Inc. sr. notes 5 7/8s, 2013		890,000		867,716

CORPORATE BONDS AND NOTES (10.7%)* continued

		Principal amount		Value

Consumer Cyclicals continued
DaimlerChrysler NA Holding Corp. company guaranty 7.2s, 2009	$	3,185,000	$	3,316,075
DaimlerChrysler NA Holding Corp. notes Ser. MTN,
5 3/4s, 2011		2,345,000		2,380,768
Federated Retail Holdings, Inc. company guaranty 5.9s, 2016		780,000		780,961
Federated Retail Holdings, Inc. company guaranty 5.35s, 2012		1,760,000		1,753,118
Ford Motor Credit Corp. notes 6 3/8s, 2008		1,355,000		1,341,161
JC Penney Co., Inc. debs. 7.65s, 2016		180,000		200,882
JC Penney Co., Inc. notes 6 7/8s, 2015		465,000		492,906
JC Penney Co., Inc. sr. notes 6 3/8s, 2036		860,000		857,178
JC Penney Co., Inc. sr. notes 5 3/4s, 2018		430,000		429,011
Office Depot, Inc. notes 6 1/4s, 2013		751,000		768,316
Omnicom Group, Inc. sr. notes 5.9s, 2016		885,000		906,586
Wyndham Worldwide Corp. 144A sr. unsec. 6s, 2016		1,050,000		1,041,659
				16,926,752


Consumer Staples (1.3%)
Comcast Corp. company guaranty 5 7/8s, 2018		490,000		494,430
Cox Communications, Inc. notes 7 1/8s, 2012		1,125,000		1,214,939
Cox Communications, Inc. 144A bonds 6.45s, 2036		945,000		953,687
Cox Communications, Inc. 144A notes 5 7/8s, 2016		900,000		907,344
Cox Enterprises, Inc. 144A notes 7 7/8s, 2010		1,450,000		1,559,101
CVS Corp. 144A pass-through certificates 6.117s, 2013		1,731,820		1,776,467
Delhaize America, Inc. company guaranty 8 1/8s, 2011		885,000		979,031
Diageo PLC company guaranty 8s, 2022		1,110,000		1,344,587
Estee Lauder Cos Inc. (The) sr. unsec. 6s, 2037		1,440,000		1,434,528
Estee Lauder Cos Inc. (The) sr. unsec. 5.55s, 2017		380,000		381,330
Fortune Brands, Inc. notes 5 3/8s, 2016		1,240,000		1,177,473
News America Holdings, Inc. company guaranty 7 3/4s, 2024		1,430,000		1,617,662
News America Holdings, Inc. debs. 7 3/4s, 2045		2,810,000		3,201,174
News America, Inc. company guaranty 6.4s, 2035		180,000		181,402
Sara Lee Corp. notes 6 1/4s, 2011		770,000		795,621
TCI Communications, Inc. debs. 9.8s, 2012		1,580,000		1,873,433
TCI Communications, Inc. debs. 8 3/4s, 2015		2,290,000		2,748,213
TCI Communications, Inc. debs. 7 7/8s, 2013		1,010,000		1,133,186
Time Warner Cable, Inc. 144A sr. unsec. 6.55s, 2037		790,000		803,050
Time Warner Cable, Inc. 144A sr. unsec. 5.85s, 2017		480,000		484,208
Time Warner Entertainment Co., LP debs. 8 3/8s, 2023		90,000		107,199
Time Warner, Inc. company guaranty 6 1/2s, 2036		585,000		585,439
Time Warner, Inc. company guaranty 5 7/8s, 2016		200,000		201,373
Time Warner, Inc. debs. 9.15s, 2023		1,110,000		1,395,253
Time Warner, Inc. debs. 9 1/8s, 2013		2,735,000		3,209,736
Viacom, Inc. sr. notes 5 3/4s, 2011		810,000		821,039
				31,380,905


Energy (0.6%)
Anadarko Petroleum Corp. sr. notes 6.45s, 2036		1,175,000		1,180,420
Anadarko Petroleum Corp. sr. notes 5.95s, 2016		965,000		973,036
Chesapeake Energy Corp. sr. unsecd. notes 7 5/8s, 2013		1,370,000		1,452,200

CORPORATE BONDS AND NOTES (10.7%)* continued

		Principal amount		Value

Energy continued
Devon Financing Corp. ULC company guaranty 7 7/8s, 2031	$	450,000	$	544,142
Enterprise Products Operating LP sr. notes Ser. B, 5.6s, 2014		700,000		702,188
Forest Oil Corp. sr. notes 8s, 2011		755,000		790,863
Hess Corp. bonds 7 7/8s, 2029		1,720,000		2,019,648
Motiva Enterprises, LLC 144A sr. notes 5.2s, 2012		715,000		713,608
Newfield Exploration Co. sr. sub. notes 6 5/8s, 2016		900,000		904,500
Peabody Energy Corp. sr. notes 5 7/8s, 2016		1,095,000		1,048,463
Premcor Refining Group, Inc. sr. notes 7 1/2s, 2015		2,045,000		2,110,739
Sunoco, Inc. notes 4 7/8s, 2014		770,000		733,303
Valero Energy Corp. sr. unsecd. notes 7 1/2s, 2032		315,000		365,302
Weatherford International, Ltd. company guaranty 6 1/2s, 2036		1,120,000		1,140,561
Weatherford International, Ltd. sr. notes 5 1/2s, 2016		650,000		638,415
				15,317,388


Financial (3.2%)
Amvescap PLC company guaranty 5 5/8s, 2012 (United Kingdom)		720,000		726,297
Bank of America Corp. sub. notes 7 3/4s, 2015		2,415,000		2,777,153
Bank of America NA sub. notes 5.3s, 2017		2,770,000		2,738,397
Block Financial Corp. notes 5 1/8s, 2014		980,000		920,119
Bosphorus Financial Services, Ltd. 144A sec. FRN 7.16s,
2012 (Cayman Islands)		2,907,000		2,936,337
Brandywine Operating Partnership LP sr. unsec. 5.7s, 2017 (R)		1,160,000		1,158,051
Capital One Financial Corp. sub. notes 6.15s, 2016		1,635,000		1,659,525
CIT Group, Inc. sr. notes 5s, 2015		690,000		659,058
CIT Group, Inc. sr. notes 5s, 2014		4,325,000		4,173,599
Citigroup, Inc. sub. notes 5s, 2014		2,829,000		2,768,137
CNA Financial Corp. unsecd. notes 6 1/2s, 2016		985,000		1,021,635
CNA Financial Corp. unsecd. notes 6s, 2011		985,000		1,007,179
Colonial Properties Trust notes 6 1/4s, 2014 (R)		985,000		1,018,662
Deutsche Bank Capital Funding Trust VII 144A FRB 5.628s, 2049		1,540,000		1,521,070
Developers Diversified Realty Corp. unsecd. notes
5 3/8s, 2012 (R)		485,000		484,974
Dresdner Funding Trust I 144A bonds 8.151s, 2031		1,940,000		2,345,326
Equity One, Inc. notes 5 3/8s, 2015 (R)		965,000		939,329
ERP Operating LP notes 6.584s, 2015		735,000		788,626
Fund American Cos., Inc. notes 5 7/8s, 2013		2,165,000		2,154,575
GATX Financial Corp. notes 5.8s, 2016		755,000		752,756
General Motors Acceptance Corp. bonds 8s, 2031 (S)		1,380,000		1,481,202
General Motors Acceptance Corp. FRN 6.306s, 2007		2,160,000		2,160,814
General Motors Acceptance Corp. notes 7s, 2012 (S)		1,380,000		1,385,262
Greenpoint Capital Trust I company guaranty 9.1s, 2027		790,000		827,658
Health Care REIT, Inc. sr. notes 6s, 2013 (R)		520,000		525,556
Heritage Property Investment Trust company guaranty
5 1/8s, 2014 (R)		985,000		954,556
Highwood Properties, Inc. 144A bonds 5.85s, 2017 (R)		1,385,000		1,377,366
Hospitality Properties Trust notes 6 3/4s, 2013 (R)		1,005,000		1,058,481
HRPT Properties Trust bonds 5 3/4s, 2014 (R)		710,000		713,402
HRPT Properties Trust notes 6 1/4s, 2016 (R)		660,000		686,950
iStar Financial, Inc. sr. unsec 5.15s, 2012 (R)		800,000		783,729

CORPORATE BONDS AND NOTES (10.7%)* continued

		Principal amount		Value

Financial continued
iStar Financial, Inc. sr. unsecd. notes 5 7/8s, 2016 (R)	$	2,205,000	$	2,192,050
Kimco Realty Corp. sr. sub. notes 5.7s, 2017 (R)		810,000		812,414
Lehman Brothers Holdings, Inc. sub. notes 5 3/4s, 2017		3,560,000		3,578,747
Liberty Mutual Group 144A notes 6 1/2s, 2035		2,825,000		2,709,212
Loews Corp. notes 5 1/4s, 2016		630,000		618,588
MetLife, Inc. notes 5.7s, 2035		1,085,000		1,051,679
Mizuho Financial Group Cayman, Ltd. bank guaranty 8 3/8s,
2049 (Cayman Islands)		1,015,000		1,069,810
Nationwide Financial Services, Inc. notes 5 5/8s, 2015		815,000		813,377
Nationwide Health Properties, Inc. notes 6 1/2s, 2011 (R)		890,000		918,440
Nuveen Investments, Inc. sr. notes 5 1/2s, 2015		640,000		630,275
OneAmerica Financial Partners, Inc. 144A bonds 7s, 2033		1,670,000		1,735,845
PNC Bank NA notes 4 7/8s, 2017		1,300,000		1,241,638
ProLogis Trust sr. notes 5 3/4s, 2016 (R)		1,260,000		1,283,599
Prudential Holdings LLC 144A bonds 8.695s, 2023		2,035,000		2,559,643
Rouse Co LP/TRC Co-Issuer Inc. 144A sr. notes 6 3/4s, 2013 (R)		935,000		954,520
Rouse Co. (The) notes 7.2s, 2012 (R)		880,000		921,167
Simon Property Group LP unsub. bonds 5 3/4s, 2015 (R)		950,000		967,320
SLM Corp. notes Ser. MTNA, 4 1/2s, 2010		1,040,000		991,935
Sovereign Bancorp, Inc. sr. notes 4.8s, 2010		920,000		905,629
UBS AG/Jersey Branch FRN 8.35s, 2008 (Jersey)		5,000,000		5,106,250
Washington Mutual Bank/Henderson NV sub. notes Ser. BKNT,
5.95s, 2013		1,390,000		1,416,557
Westfield Group sr. notes 5.7s, 2016 (Australia)		1,175,000		1,188,577
Willis Group North America, Inc. company guaranty 6.2s, 2017		995,000		1,000,614
				79,173,667


Health Care (0.3%)
Bayer Corp. 144A FRB 6.2s, 2008		1,330,000		1,333,272
Hospira, Inc. sr. notes 6.05s, 2017		770,000		777,926
Hospira, Inc. sr. notes 5.55s, 2012		1,075,000		1,080,868
Ventas Realty LP/Capital Corp. company guaranty 6 3/4s, 2010 (R)		370,000		378,325
Ventas Realty LP/Capital Corp. sr. notes 6 3/4s, 2017 (R)		845,000		866,125
Wyeth notes 5.95s, 2037		2,315,000		2,314,817
				6,751,333


Technology (0.2%)
Arrow Electronics, Inc. debs. 7 1/2s, 2027		1,015,000		1,093,654
Avnet, Inc. notes 6s, 2015		960,000		953,089
Xerox Corp. sr. notes 7 1/8s, 2010		700,000		733,808
Xerox Corp. sr. notes 6.4s, 2016		1,430,000		1,473,416
				4,253,967


Transportation (0.2%)
American Airlines, Inc. pass-through certificates Ser. 01-2,
7.858s, 2011		705,000		763,868
Continental Airlines, Inc. pass-through certificates Ser. 97-4A,
6.9s, 2018		1,501,188		1,583,753

CORPORATE BONDS AND NOTES (10.7%)* continued

		Principal amount		Value

Transportation continued
Continental Airlines, Inc. pass-through certificates Ser. 98-1A,
6.648s, 2017	$	538,168	$	557,676
Continental Airlines, Inc. pass-through certificates Ser. A,
5.983s, 2022		645,000		646,613
Ryder System, Inc. notes Ser. MTN, 5.95s, 2011		610,000		621,479
Ryder System, Inc. notes Ser. MTN, 5.85s, 2016		815,000		801,059
Union Pacific Corp. 144A pass-through certificates 5.214s, 2014		470,000		464,976
				5,439,424


Utilities & Power (2.4%)
AEP Texas North Co. sr. notes Ser. B, 5 1/2s, 2013		840,000		842,003
Appalachian Power Co. sr. notes 5.8s, 2035		960,000		929,587
Arizona Public Services Co. notes 6 1/2s, 2012		1,410,000		1,469,785
Atmos Energy Corp. notes 4.95s, 2014		1,525,000		1,453,638
Beaver Valley II Funding debs. 9s, 2017		1,435,000		1,629,270
Boardwalk Pipelines LP company guaranty 5 7/8s, 2016		1,620,000		1,635,589
CenterPoint Energy Resources Corp. notes 7 3/4s, 2011		1,735,000		1,879,656
CenterPoint Energy Resources Corp. sr. notes Ser. B,
7 7/8s, 2013		600,000		670,081
Cleveland Electric Illuminating Co. (The) sr. unsec. bond
5.95s, 2036		2,395,000		2,309,666
Cleveland Electric Illuminating Co. (The) 144A sr. notes Ser. D,
7.88s, 2017		670,000		785,331
Commonwealth Edison Co. 1st mtge. 5.9s, 2036		1,575,000		1,500,778
Consolidated Natural Gas Co. sr. notes 5s, 2014		650,000		632,796
Consumers Energy Co. 1st mtge. Ser. B, 5 3/8s, 2013		1,420,000		1,419,597
Dayton Power & Light Co. (The) 1st mtge. 5 1/8s, 2013		1,035,000		1,023,554
El Paso Natural Gas Co. 144A sr. unsec. bond 5.95s, 2017		165,000		166,473
Enbridge Energy Partners LP sr. unsec. notes 5 7/8s, 2016		1,045,000		1,051,402
Entergy Gulf States, Inc. 1st mtge. 5 1/4s, 2015		1,325,000		1,265,119
Indianapolis Power & Light 144A 1st mtge. 6.3s, 2013		680,000		708,762
Indiantown Cogeneration LP 1st mtge. Ser. A-10, 9.77s, 2020		1,065,000		1,236,050
Ipalco Enterprises, Inc. sec. notes 8 3/8s, 2008		525,000		543,375
ITC Holdings Corp. 144A notes 5 7/8s, 2016		1,470,000		1,479,934
Kansas Gas & Electric bonds 5.647s, 2021		500,000		488,265
Kinder Morgan, Inc. notes 6 3/4s, 2011		750,000		789,317
Kinder Morgan, Inc. sr. notes 6 1/2s, 2012		685,000		705,115
MidAmerican Energy Holdings Co. bonds 6 1/8s, 2036		3,030,000		3,079,822
National Fuel Gas Co. notes 5 1/4s, 2013		980,000		972,488
Nevada Power Co. 2nd mtge. 9s, 2013		755,000		812,721
Nevada Power Co. general ref. mtge. Ser. L, 5 7/8s, 2015		580,000		584,402
Northwestern Corp. sec. notes 5 7/8s, 2014		1,475,000		1,465,747
Oncor Electric Delivery Co. debs. 7s, 2022		800,000		863,962
Oncor Electric Delivery Co. sec. notes 7 1/4s, 2033		490,000		553,306
Pacific Gas & Electric Co. sr. unsub. 5.8s, 2037		1,070,000		1,055,866
PacifiCorp Sinking Fund 1st mtge. 5.45s, 2013		1,570,000		1,575,748
Potomac Edison Co. 144A 1st mtge. 5.8s, 2016		1,465,000		1,494,603
Power Receivable Finance, LLC 144A sr. notes 6.29s, 2012		1,278,300		1,290,699
PPL Energy Supply LLC bonds Ser. A, 5.7s, 2015		855,000		847,635

CORPORATE BONDS AND NOTES (10.7%)* continued

		Principal amount		Value

Utilities & Power continued
Progress Energy, Inc. sr. unsecd. notes 5 5/8s, 2016	$	1,295,000	$	1,308,631
Public Service Co. of Colorado sr. notes Ser. A, 6 7/8s, 2009		1,605,000		1,661,762
Public Service Co. of New Mexico sr. notes 4.4s, 2008		785,000		779,765
Southern California Edison Co. notes 6.65s, 2029		1,410,000		1,547,475
Southern California Edison Co. 06-E 1st mtge. 5.55s, 2037		1,245,000		1,207,208
Southern Natural Gas. Co. 144A notes 5.9s, 2017		630,000		631,720
Spectra Energy Capital, LLC sr. notes 8s, 2019		1,080,000		1,245,254
Teco Energy, Inc. notes 7.2s, 2011		1,485,000		1,581,525
TransAlta Corp. notes 5 3/4s, 2013 (Canada)		880,000		876,116
TXU Energy Co. 144A sr. unsec. FRN 5.85s, 2008		4,370,000		4,369,719
Westar Energy, Inc. 1st mtge. 5.15s, 2017		195,000		185,987
Westar Energy, Inc. 1st mtge. 5.1s, 2020		1,015,000		947,341
				57,554,645


Total corporate bonds and notes (cost $260,025,948)			$	261,732,897



ASSET-BACKED SECURITIES (10.7%)*

		Principal amount		Value

Advanta Business Card Master Trust FRB Ser. 04-C1, Class C,
6.37s, 2013	$	1,939,000	$	1,966,030
Aegis Asset Backed Securities Trust 144A
Ser. 04-5N, Class Note, 5s, 2034		81,892		78,718
Ser. 04-6N, Class Note, 4 3/4s, 2035		79,727		76,588
AFC Home Equity Loan Trust Ser. 99-2, Class 1A, 5.73s, 2029		4,827,210		4,842,501
American Express Credit Account Master Trust 144A
Ser. 04-C, Class C, 5.82s, 2012		5,191,087		5,202,508
Ameriquest Mortgage Securities, Inc. FRB Ser. 06-R1, Class M10,
7.82s, 2036		1,245,000		983,550
Arcap REIT, Inc. 144A
Ser. 03-1A, Class E, 7.11s, 2038		1,993,000		2,007,114
Ser. 04-1A, Class E, 6.42s, 2039		1,469,204		1,462,151
Asset Backed Funding Certificates 144A FRB Ser. 06-OPT3,
Class B, 7.82s, 2036		166,000		113,423
Asset Backed Funding Corp. NIM Trust 144A FRB Ser. 05-OPT1,
Class B1, 7.82s, 2035		587,000		411,603
Asset Backed Securities Corp. Home Equity Loan Trust FRB
Ser. 05-HE1, Class A3, 5.61s, 2035		83,823		83,834
Aviation Capital Group Trust 144A FRB Ser. 03-2A, Class G1,
6.02s, 2033		1,430,912		1,436,949
Bank One Issuance Trust FRB Ser. 03-C4, Class C4, 6.35s, 2011		1,390,000		1,402,543
Bay View Auto Trust Ser. 05-LJ2, Class D, 5.27s, 2014		534,000		528,751
Bayview Commercial Asset Trust 144A Ser. 06-4A, Class IO, IO,
1.14s, 2036		2,792,520		386,205
Bayview Financial Acquisition Trust
FRB Ser. 03-G, Class A1, 5.92s, 2039		6,300,000		6,300,960
FRB Ser. 04-D, Class A, 5.71s, 2044		2,323,772		2,324,134
Ser. 05-B, Class A, IO, 4.412s, 2039		5,585,372		88,106
Ser. 04-D, Class A, IO, 3.938s, 2007		8,949,174		27,311

ASSET-BACKED SECURITIES (10.7%)* continued

		Principal amount		Value

Bayview Financial Asset Trust 144A
FRB Ser. 03-SSRA, Class M, 6.67s, 2038	$	1,294,213	$	1,301,978
FRB Ser. 03-SSRA, Class A, 6.02s, 2038		1,133,241		1,137,547
FRB Ser. 04-SSRA, Class A1, 5.92s, 2039		1,566,752		1,568,319
Bear Stearns Asset Backed Securities, Inc.
FRB Ser. 06-EC1, Class M9, 7.32s, 2035		944,000		566,400
FRB Ser. 06-PC1, Class M9, 7.07s, 2035		546,000		354,900
FRB Ser. 03-3, Class A2, 5.91s, 2043		2,922,079		2,926,645
FRB Ser. 03-1, Class A1, 5.82s, 2042		943,758		945,528
FRB Ser. 05-3, Class A1, 5.77s, 2035		882,078		883,732
Bear Stearns Asset Backed Securities, Inc. 144A FRB Ser. 06-HE2,
Class M10, 7.57s, 2036		204,000		132,600
Broadhollow Funding, LLC 144A FRB Ser. 04-A, Class Sub,
7.32s, 2009		2,169,000		2,071,395
Capital Auto Receivables Asset Trust 144A
Ser. 06-1, Class D, 7.16s, 2013		1,000,000		1,001,914
Ser. 05-1, Class D, 6 1/2s, 2011		1,776,000		1,758,171
Capital One Multi-Asset Execution Trust FRB Ser. 02-C1,
Class C1, 8.07s, 2010		880,000		888,078
CARMAX Auto Owner Trust Ser. 04-2, Class D, 3.67s, 2011		221,961		219,327
CARSSX Finance, Ltd. 144A
FRB Ser. 04-AA, Class B4, 10.82s, 2011 (Cayman Islands)		207,579		213,196
FRB Ser. 04-AA, Class B3, 8.67s, 2011 (Cayman Islands)		101,729		103,112
Chase Credit Card Master Trust FRB Ser. 03-3, Class C,
6.4s, 2010		2,550,000		2,576,994
Chase Funding Net Interest Margin 144A Ser. 04-OPT1,
Class Note, 4.458s, 2034		140,821		136,244
CHEC NIM Ltd., 144A Ser. 04-2, Class N3, 8s, 2034
(Cayman Islands)		13,666		13,467
Citibank Credit Card Issuance Trust FRB Ser. 01-C1, Class C1,
6.436s, 2010		1,390,000		1,398,362
Conseco Finance Securitizations Corp.
Ser. 02-1, Class M2, 9.546s, 2033		3,629,000		2,794,330
Ser. 00-2, Class A5, 8.85s, 2030		8,311,780		7,778,230
Ser. 02-2, Class A, IO, 8 1/2s, 2033		8,436,449		1,614,677
Ser. 00-4, Class A6, 8.31s, 2032		8,633,000		7,640,205
Ser. 00-5, Class A6, 7.96s, 2032		4,808,000		4,436,000
Ser. 02-1, Class M1F, 7.954s, 2033		1,561,000		1,626,820
Ser. 01-4, Class A4, 7.36s, 2033		7,483,418		7,786,347
Ser. 00-6, Class A5, 7.27s, 2031		1,605,110		1,612,444
Ser. 01-1, Class A5, 6.99s, 2032		275,486		269,976
Ser. 01-3, Class A4, 6.91s, 2033		9,017,986		8,951,713
Ser. 02-1, Class A, 6.681s, 2033		8,339,209		8,477,744
Countrywide Asset Backed Certificates 144A
Ser. 04-6N, Class N1, 6 1/4s, 2035		82,029		81,618
Ser. 04-BC1N, Class Note, 5 1/2s, 2035		147,369		142,211
Ser. 04-14N, 5s, 2036		59,378		57,596

ASSET-BACKED SECURITIES (10.7%)* continued

		Principal amount		Value

Countrywide Home Loans
Ser. 06-0A5, Class X, IO, 2.199s, 2046	$	27,127,569	$	1,017,284
Ser. 05-9, Class 1X, IO, 1.802s, 2035		14,665,985		256,655
Ser. 05-2, Class 2X, IO, 1.16s, 2035		16,318,516		349,319
Countrywide Home Loans 144A
IFB Ser. 05-R2, Class 2A3, 8s, 2035		1,073,574		1,133,104
IFB Ser. 05-R1, Class 1AS, IO, 0.802s, 2035		9,120,723		272,011
IFB Ser. 05-R2, Class 1AS, IO, 0.422s, 2035		11,583,765		373,998
Crest, Ltd. 144A Ser. 03-2A, Class D2, 6.723s, 2038
(Cayman Islands)		2,157,000		2,099,705
CS First Boston Mortgage Securities Corp. 144A Ser. 04-FR1N,
Class A, 5s, 2034		888,103		843,698
DB Master Finance, LLC 144A Ser. 06-1, Class M1, 8.285s, 2031		1,262,000		1,295,131
Fieldstone Mortgage Investment Corp. FRB Ser. 05-1, Class M3,
5.86s, 2035		859,000		859,271
Finance America NIM Trust 144A Ser. 04-1, Class A,
5 1/4s, 2034		102,049		104
First Plus Home Loan Trust Ser. 97-3, Class B1, 7.79s, 2023		463,584		463,874
Fort Point CDO, Ltd. FRB Ser. 03-2A, Class A2, 6.398s,
2038 (Cayman Islands)		834,000		836,752
Foxe Basin, Ltd. 144A FRB Ser. 03-1A, Class A1, 5.855s, 2015
(Cayman Islands)		2,600,000		2,601,300
Fremont NIM Trust 144A
Ser. 04-3, Class B, 7 1/2s, 2034		266,741		2,374
Ser. 04-3, Class A, 4 1/2s, 2034		7,443		108
G-Star, Ltd. 144A FRB Ser. 02-2A, Class BFL, 7.32s, 2037
(Cayman Islands)		417,000		430,177
GE Capital Credit Card Master Note Trust FRB Ser. 04-2,
Class C, 5.8s, 2010		2,444,480		2,447,144
GE Corporate Aircraft Financing, LLC 144A
FRB Ser. 05-1A, Class C, 6.62s, 2019		1,593,000		1,592,984
Ser. 04-1A, Class B, 6.17s, 2018		146,107		147,127
Gears Auto Owner Trust 144A Ser. 05-AA, Class E1,
8.22s, 2012		2,523,000		2,514,218
GEBL 144A
Ser. 04-2, Class D, 8.07s, 2032		884,153		870,926
Ser. 04-2, Class C, 6.17s, 2032		331,557		331,557
GMAC Mortgage Corp. Loan Trust Ser. 04-HE5, Class A, IO,
6s, 2007		4,100,250		43,463
Granite Mortgages PLC
FRB Ser. 01-1, Class 1C, 6.758s, 2041 (United Kingdom)		2,650,667		2,668,372
FRB Ser. 02-2, Class 1C, 6.608s, 2043 (United Kingdom)		732,955		737,352
Green Tree Financial Corp.
Ser. 96-5, Class M1, 8.05s, 2027		729,203		695,158
Ser. 99-5, Class A5, 7.86s, 2030		19,084,871		18,226,052
Ser. 97-6, Class A9, 7.55s, 2029		985,662		1,022,565
Ser. 97-4, Class A7, 7.36s, 2029		344,763		356,322
Ser. 95-8, Class B1, 7.3s, 2026		467,121		468,584
Ser. 96-10, Class M1, 7.24s, 2028		1,342,000		1,342,000
Ser. 97-6, Class A8, 7.07s, 2029		299,762		306,232

ASSET-BACKED SECURITIES (10.7%)* continued

		Principal amount		Value

Green Tree Financial Corp.
Ser. 98-4, Class A7, 6.87s, 2030	$	482,225	$	476,197
Ser. 97-7, Class A8, 6.86s, 2029		241,369		245,504
Ser. 99-3, Class A6, 6 1/2s, 2031		1,473,000		1,458,270
Ser. 99-2, Class A7, 6.44s, 2030		1,787,750		1,764,813
Ser. 99-1, Class A6, 6.37s, 2025		833,000		837,165
Ser. 99-3, Class A5, 6.16s, 2031		32,335		32,537
Greenpoint Manufactured Housing Ser. 00-3, Class IA, 8.45s, 2031		4,415,055		4,299,725
GS Auto Loan Trust 144A Ser. 04-1, Class D, 5s, 2011		1,517,046		1,508,718
GSAMP Trust 144A Ser. 05-NC1, Class N, 5s, 2035		5,175		5,123
GSMPS Mortgage Loan Trust
Ser. 05-RP3, Class 1A4, 8 1/2s, 2035		448,419		477,087
Ser. 05-RP3, Class 1A3, 8s, 2035		1,246,769		1,314,967
Ser. 05-RP3, Class 1A2, 7 1/2s, 2035		973,242		1,014,294
GSMPS Mortgage Loan Trust 144A
Ser. 05-RP2, Class 1A3, 8s, 2035		1,368,252		1,442,821
Ser. 05-RP1, Class 1A3, 8s, 2035		140,097		147,721
Ser. 05-RP2, Class 1A2, 7 1/2s, 2035		1,550,393		1,617,417
IFB Ser. 04-4, Class 1AS, IO, 0.754s, 2034		12,560,787		387,158
Guggenheim Structured Real Estate Funding, Ltd. 144A
FRB Ser. 05-2A, Class D, 6.87s, 2030 (Cayman Islands)		1,609,000		1,610,287
FRB Ser. 05-1A, Class D, 6.85s, 2030 (Cayman Islands)		1,179,534		1,162,666
HASCO NIM Trust 144A Ser. 05-OP1A, Class A, 6 1/4s, 2035
(Cayman Islands)		803,512		707,091
High Income Trust Securities 144A FRB Ser. 03-1A, Class A,
5.86s, 2036 (Cayman Islands)		2,210,211		2,193,634
Home Equity Asset Trust 144A Ser. 04-4N, Class A, 5s,
2034 (Cayman Islands)		49,533		47,056
Hyundai Auto Receivables Trust Ser. 04-A, Class D, 4.1s, 2011		530,070		525,620
JPMorgan Mortgage Acquisition Corp. FRB Ser. 05-OPT2,
Class M11, 7.57s, 2035		435,000		295,800
Lehman Manufactured Housing Ser. 98-1, Class 1, IO,
0.807s, 2028		25,964,846		491,865
Lehman Mortgage Trust IFB Ser. 07-1, Class 2A3, IO,
1.31s, 2037		8,789,754		501,198
LNR CDO, Ltd. 144A
FRB Ser. 03-1A, Class EFL, 8.32s, 2036 (Cayman Islands)		4,150,000		4,375,980
FRB Ser. 02-1A, Class FFL, 8.07s, 2037 (Cayman Islands)		6,071,000		6,071,000
Madison Avenue Manufactured Housing Contract
FRB Ser. 02-A, Class B1, 8.57s, 2032		5,098,734		3,977,013
Ser. 02-A IO, 0.3s, 2032		179,100,076		1,908,795
Marriott Vacation Club Owner Trust 144A
Ser. 05-2, Class D, 6.205s, 2027		151,487		150,913
FRB Ser. 02-1A, Class A1, 6.02s, 2024		1,905,447		1,918,563
Ser. 04-2A, Class D, 5.389s, 2026		137,494		133,611
Ser. 04-2A, Class C, 4.741s, 2026		158,978		154,041
MASTR Asset Backed Securities NIM Trust 144A Ser. 04-HE1A,
Class Note, 5.191s, 2034 (Cayman Islands)		12,459		6,229

ASSET-BACKED SECURITIES (10.7%)* continued

		Principal amount		Value

MASTR Reperforming Loan Trust 144A
Ser. 05-2, Class 1A3, 7 1/2s, 2035	$	2,551,938	$	2,663,301
Ser. 05-1, Class 1A4, 7 1/2s, 2034		1,879,220		1,961,876
MBNA Credit Card Master Note Trust FRB Ser. 03-C5, Class C5,
6 1/2s, 2010		2,550,000		2,578,074
Merit Securities Corp. 144A FRB Ser. 11PA, Class 3A1,
5.94s, 2027		7,499,374		7,124,405
Merrill Lynch Mortgage Investors, Inc. 144A
Ser. 05-WM1N, Class N1, 5s, 2035		17,998		17,854
Ser. 04-HE2N, Class N1, 5s, 2035 (Cayman Islands)		38,388		37,813
Ser. 04-FM1N, Class N1, 5s, 2035 (Cayman Islands)		25,947		25,558
Ser. 04-WM3N, Class N1, 4 1/2s, 2035 (In default) †		67,893		65,856
Mid-State Trust
Ser. 11, Class B, 8.221s, 2038		825,827		820,528
Ser. 10, Class B, 7.54s, 2036		871,888		761,482
Morgan Stanley Auto Loan Trust 144A
Ser. 04-HB1, Class D, 5 1/2s, 2011		4,579		4,575
Ser. 04-HB2, Class E, 5s, 2012		227,952		224,248
N-Star Real Estate CDO, Ltd. 144A FRB Ser. 04-2A, Class C1,
7.32s, 2039 (Cayman Islands)		735,000		749,241
Navigator CDO, Ltd. 144A FRB Ser. 03-1A, Class A1, 5.85s,
2015 (Cayman Islands)		1,555,000		1,555,467
Navistar Financial Corp. Owner Trust
Ser. 05-A, Class C, 4.84s, 2014		524,393		514,170
Ser. 04-B, Class C, 3.93s, 2012		433,410		422,701
New Century Home Equity Loan Trust Ser. 03-5, Class AI7,
5.15s, 2033		2,293,334		2,233,159
Newcastle CDO, Ltd. 144A FRB Ser. 3A, Class 4FL, 8.52s, 2038
(Cayman Islands)		966,000		966,000
Nomura Asset Acceptance Corp. Ser. 04-R3, Class PT,
7.981s, 2035		830,682		846,963
Nomura Asset Acceptance Corp. 144A Ser. 04-R2, Class PT,
9.087s, 2034		411,073		426,324
Oakwood Mortgage Investors, Inc.
Ser. 01-D, Class A3, 5.9s, 2022		233,618		186,894
Ser. 02-C, Class A1, 5.41s, 2032		5,456,120		4,992,710
Oakwood Mortgage Investors, Inc. 144A
Ser. 01-B, Class A4, 7.21s, 2030		811,476		726,879
Ser. 01-B, Class A3, 6.535s, 2023		245,799		231,228
Ocean Star PLC 144A
FRB Ser. 04, Class D, 7.66s, 2018 (Ireland)		798,000		805,980
FRB Ser. 05-A, Class D, 6.86s, 2012 (Ireland)		908,000		908,000
Option One Mortgage Loan Trust FRB Ser. 05-4, Class M11,
7.82s, 2035		298,000		211,669
Origen Manufactured Housing Ser. 04-B, Class A2, 3.79s, 2017		432,522		425,680
Park Place Securities, Inc. FRB Ser. 04-WHQ2, Class A3A,
5.67s, 2035		467,043		467,135
Park Place Securities, Inc. 144A FRB Ser. 04-MHQ1, Class M10,
7.82s, 2034		570,000		490,200

ASSET-BACKED SECURITIES (10.7%)* continued

		Principal amount		Value

People’s Choice Net Interest Margin Note 144A Ser. 04-2,
Class B, 5s, 2034	$	36,967	$	34,858
Permanent Financing PLC FRB Ser. 3, Class 3C, 6.49s, 2042
(United Kingdom)		2,510,000		2,529,566
Providian Gateway Master Trust FRB Ser. 04-EA, Class E,
8.32s, 2011		3,450,000		3,510,375
Providian Gateway Master Trust 144A
FRB Ser. 04-EA, Class D, 6 1/4s, 2011		2,100,000		2,108,192
Ser. 04-DA, Class D, 4.4s, 2011		1,183,000		1,173,850
Residential Asset Mortgage Products, Inc. Ser. 02-SL1, Class AI3,
7s, 2032		206,502		205,578
Residential Asset Securities Corp. 144A
FRB Ser. 05-KS10, Class B, 7.8s, 2035		1,391,000		834,600
Ser. 04-NT12, Class Note, 4.7s, 2035		9,074		8,859
Ser. 04-NT, Class Note, 4 1/2s, 2034		189,313		170,382
Residential Asset Securitization Trust IFB Ser. 07-A3, Class 2A2,
IO, 1.37s, 2037		18,130,948		958,317
Saco I Trust FRB Ser. 05-10, Class 1A1, 5.58s, 2033		1,968,934		1,966,472
SAIL Net Interest Margin Notes 144A
Ser. 03-3, Class A, 7 3/4s, 2033 (Cayman Islands)		3,662		11
Ser. 03-BC2A, Class A, 7 3/4s, 2033 (Cayman Islands)		237,726		9,509
Ser. 04-4A, Class B, 7 1/2s, 2034 (Cayman Islands)		380,795		38
Ser. 03-5, Class A, 7.35s, 2033 (Cayman Islands)		45,102		1,326
Ser. 03-9A, Class A, 7s, 2033 (Cayman Islands)		99,878		161
Ser. 03-6A, Class A, 7s, 2033 (Cayman Islands)		21,771		435
Ser. 03-7A, Class A, 7s, 2033 (Cayman Islands)		76,665		383
Sharps SP I, LLC Net Interest Margin Trust 144A Ser. 04-HE1N,
Class Note, 4.94s, 2034 (In default) †		230,946		4,619
Soundview Home Equity Loan Trust 144A FRB Ser. 05-CTX1,
Class B1, 7.82s, 2035		672,000		502,790
South Coast Funding 144A FRB Ser. 3A, Class A2, 6.56s,
2038 (Cayman Islands)		760,000		762,356
Structured Adjustable Rate Mortgage Loan Trust 144A
Ser. 04-NP2, Class A, 5.67s, 2034		1,143,674		1,143,559
Structured Asset Investment Loan Trust 144A FRB Ser. 05-HE3,
Class M11, 6.156s, 2035		1,284,000		665,728
Structured Asset Receivables Trust 144A FRB Ser. 05-1, 5.86s, 2015		6,625,252		6,616,971
Structured Asset Securities Corp.
Ser. 07-6, Class AI, IO, 5s, 2037 ##		79,034,722		2,988,540
Ser. 07-6, Class IA, IO, 5s, 2037 ##		79,034,722		2,394,752
Structured Asset Securities Corp. 144A
Ser. 98-RF3, Class A, IO, 6.1s, 2028		4,594,937		478,880
Ser. 06-RF4, Class 1A, IO, 0.356s, 2036		9,795,213		201,781
TIAA Real Estate CDO, Ltd. Ser. 03-1A, Class E, 8s, 2038
(Cayman Islands)		2,298,000		2,244,686
WFS Financial Owner Trust
Ser. 05-1, Class D, 4.09s, 2012		319,005		315,216
Ser. 04-3, Class D, 4.07s, 2012		405,555		402,396
Ser. 04-4, Class D, 3.58s, 2012		268,756		265,229
Ser. 04-1, Class D, 3.17s, 2011		140,222		139,800

ASSET-BACKED SECURITIES (10.7%)* continued

		Principal amount		Value

Whinstone Capital Management, Ltd. 144A FRB Ser. 1A,
Class B3, 6.255s, 2044 (United Kingdom)	$	1,685,126	$	1,685,092
Whole Auto Loan Trust 144A Ser. 04-1, Class D, 5.6s, 2011		216,265		215,518

Total asset-backed securities (cost $268,540,407)			$	261,043,394

PURCHASED OPTIONS OUTSTANDING (1.3%)*

	Expiration date/		Contract
	strike price		amount		Value

Option on an interest rate swap with
Deutschbank for the right to receive a fixed
rate swap of 5.385% versus the three month
USD-LIBOR-BBA maturing April 16, 2009.	Apr 09/5.385	$	68,646,000	$	2,196,672
Option on an interest rate swap with
Deutschbank for the right to pay a fixed
rate swap of 5.385% versus the three month
USD-LIBOR-BBA maturing April 16, 2009.	Apr 09/5.385		68,646,000		1,716,150
Option on an interest rate swap with Goldman
Sachs, International for the right to pay a fixed
rate swap of 4.965% versus the three month
USD-LIBOR-BBA maturing April 29, 2008.	Apr 08/4.965		233,000,000		2,925,688
Option on an interest rate swap with Goldman
Sachs, International for the right to receive a
fixed rate swap of 4.965% versus the three month
USD-LIBOR-BBA maturing April 29, 2008.	Apr 08/4.965		233,000,000		2,902,504
Option on an interest rate swap with Goldman
Sachs, International for the right to receive a
fixed rate swap of 5.325% versus the three month
USD-LIBOR-BBA maturing April 8, 2009.	Apr 09/5.325		84,687,000		2,524,477
Option on an interest rate swap with Goldman
Sachs, International for the right to pay a fixed
rate swap of 5.325% versus the three month
USD-LIBOR-BBA maturing April 8, 2009.	Apr 09/5.325		84,687,000		2,256,654
Option on an interest rate swap with JPMorgan
Chase Bank, N.A. for the right to pay a fixed
rate of 5.315% versus the three month
USD-LIBOR-BBA maturing on April 8, 2009.	Apr 09/5.315		84,687,000		2,259,534
Option on an interest rate swap with JPMorgan
Chase Bank, N.A. for the right to receive a
fixed rate of 5.315% versus the three month
USD-LIBOR-BBA maturing on April 8, 2009.	Apr 09/5.315		84,687,000		2,483,683
Option on an interest rate swap with JPMorgan
Chase Bank, N.A. for the right to receive a
fixed rate of 5.175% versus the three month
USD-LIBOR-BBA maturing on April 29, 2008.	Apr 08/5.175		117,000,000		2,329,751

PURCHASED OPTIONS OUTSTANDING (1.3%)* continued

	Expiration date/		Contract
	strike price		amount		Value

Option on an interest rate swap with JPMorgan
Chase Bank, N.A. for the right to pay a fixed
rate of 5.175% versus the three month
USD-LIBOR-BBA maturing on April 29, 2008.	Apr 08/5.175	$	117,000,000	$	2,420,379
Option on an interest rate swap with JPMorgan
Chase Bank, N.A. for the right to receive a
fixed rate of 5.39% versus the three month
USD-LIBOR-BBA maturing on
January 29, 2018.	Jan 08/5.39		116,444,000		3,070,663
Option on an interest rate swap with JPMorgan
Chase Bank, N.A. for the right to pay a
fixed rate of 5.39% versus the three month
USD-LIBOR-BBA maturing on
January 29, 2018.	Jan 08/5.39		116,444,000		1,177,889
Option on an interest rate swap with
JPMorgan Chase Bank, N.A. for the right to
pay a fixed rate of 5.34% versus the three
month USD-LIBOR-BBA maturing on
February 15, 2018.	Feb 08/5.34		30,969,000		380,510
Option on an interest rate swap with JPMorgan
Chase Bank, N.A. for the right to receive
a fixed rate of 5.34% versus the three
month USD-LIBOR-BBA maturing on
February 15, 2018.	Feb 08/5.34		30,969,000		757,991
Option on an interest rate swap with Lehman
Brothers International (Europe) for the right to
pay a fixed rate swap of 5.3475% versus the
three month USD-LIBOR-BBA maturing
February 4, 2018.	Jan 08/5.3475		60,369,000		712,596
Option on an interest rate swap with Lehman
Brothers Special Financing, Inc. for the right to
receive a fixed rate of 5.3475% versus the
three month USD-LIBOR-BBA maturing on
February 4, 2018.	Jan 08/5.3475		60,369,000		1,508,078


Total purchased options outstanding (cost $32,680,322)				$	31,623,219



MUNICIPAL BONDS AND NOTES (0.1%)* (cost $1,354,839)

	Rating**		Principal amount		Value

MI Tobacco Settlement Fin. Auth. Rev. Bonds,
Ser. A, 7.309s, 6/1/34	Baa3	$	1,355,000	$	1,402,981

SHORT-TERM INVESTMENTS (14.7%)*

Principal amount/shares				Value

CAFCO, LLC for an effective yield of 5.29%, May 7, 2007	$	10,900,000	$	10,890,444
CHARTA LLC for an effective yield of 5.31%, July 12, 2007		4,200,000		4,155,984
Putnam Prime Money Market Fund (e)		310,740,642		310,740,642
Short-term investments held as collateral for loaned securities
with yields ranging from 5.23% to 5.46% and due dates ranging
from May 1, 2007 to June 22, 2007 (d)	$	2,368,060		2,364,300
STRATFORD REC CO LLC for an effective yield of 5.33%,
May 17, 2007		23,079,000		23,024,636
U.S. Treasury Bills for an effective yield of 4.83%, May 24, 2007 #		3,827,000		3,815,237
U.S. Treasury Bills for an effective yield of 4.98%,
September 27, 2007 #		3,826,000		3,749,040

Total short-term investments (cost $358,740,283)			$	358,740,283


TOTAL INVESTMENTS
Total investments (cost $3,703,504,723)			$	3,694,981,293

* Percentages indicated are based on net assets of $2,438,326,758.

** The Moody’s or Standard & Poor’s ratings indicated are believed to be the most recent ratings available at April 30, 2007 for the securities listed. Ratings are generally ascribed to securities at the time of issuance. While the agencies may from time to time revise such ratings, they undertake no obligation to do so, and the ratings do not necessarily represent what the agencies would ascribe to these securities at April 30, 2007. Securities rated by Putnam are indicated by “/P.” Security ratings are defined in the Statement of Additional Information.

† Non-income-producing security.

# These securities were pledged and segregated with the custodian to cover margin requirements for futures contracts at April 30, 2007.

(d) See Note 1 to the financial statements.

(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.

(R) Real Estate Investment Trust.

(S) Securities on loan, in part or in entirety, at April 30, 2007.

## Forward commitments (Note 1).

At April 30, 2007, liquid assets totaling $983,327,053 have been designated as collateral for open forward commitments, swap contracts, and futures 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 April 30, 2007.

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 April 30, 2007.

FUTURES CONTRACTS OUTSTANDING at 4/30/07 (Unaudited)

				Unrealized
	Number of		Expiration	appreciation/
	contracts	Value	date	(depreciation)

Euro-Dollar 90 day (Long)	1,268	$ 300,516,000	Sep-07	$ (34,799)
Euro-Dollar 90 day (Long)	1,417	337,192,863	Mar-08	155,558
Euro-Dollar 90 day (Short)	5,658	1,349,079,375	Sep-08	(631,850)
Euro-Dollar 90 day (Long)	1,268	301,974,200	Sep-09	75,401
U.S. Treasury Bond 20 yr (Short)	714	79,789,500	Jun-07	(699,874)
U.S. Treasury Note 2 yr (Long)	3,992	817,237,250	Jun-07	777,589
U.S. Treasury Note 5 yr (Long)	86	9,101,219	Jun-07	(45,849)
U.S. Treasury Note 10 yr (Short)	1,553	168,233,578	Jun-07	(202,638)

Total				$(606,462)

WRITTEN OPTIONS OUTSTANDING at 4/30/07 (premiums received $11,916,355) (Unaudited)

	Contract	Expiration date/
	amount	strike price	Value

Option on an interest rate swap with JPMorgan Chase
Bank, N.A. for the obligation to pay a fixed rate of
4.55% versus the three month USD-LIBOR-BBA
maturing on July 5, 2017.	$113,530,000	Jun 07/4.55	$ 16,553
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.	113,530,000	Jun 07/4.55	5,401,995
Option on an interest rate swap with Lehman Brothers
International for the obligation to pay a fixed rate of
5.225% versus the three month USD-LIBOR-BBA
maturing March 5, 2018.	45,268,000	Mar 08/5.225	933,155
Option on an interest rate swap with Lehman Brothers
International for the obligation to receive a fixed rate of
5.225% versus the three month USD-LIBOR-BBA
maturing March 5, 2018.	45,268,000	Mar 08/5.225	762,766


Total			$7,114,469

TBA SALE COMMITMENTS OUTSTANDING at 4/30/07 (proceeds receivable $994,244,254) (Unaudited)

	Principal	Settlement
	amount	date	Value

FHLMC, 4 1/2s, May 1, 2037	$ 7,300,000	5/14/07	$ 6,871,125
FHLMC, 5s, May 1, 2037	211,100,000	5/14/07	204,024,857
FHLMC, 6 1/2s, May 1, 2037	1,600,000	5/14/07	1,634,250
FNMA, 4s, May 1, 2022	2,200,000	5/17/07	2,077,969
FNMA, 6s, May 1, 2022	418,900,000	5/17/07	425,674,409
FNMA, 5 1/2s, May 1, 2037	349,400,000	5/14/07	345,496,538
GNMA, 6 1/2s, May 1, 2037	8,000,000	5/21/07	8,214,375

Total			$993,993,523

INTEREST RATE SWAP CONTRACTS OUTSTANDING at 4/30/07 (Unaudited)

		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.
$ 1,000,000	9/1/15	3 month USD-LIBOR-BBA	4.53%	$ (40,502)

5,417,000	10/2/16	5.15631%	3 month USD-LIBOR-BBA	(5,279)

61,500,000	10/21/15	4.943%	3 month USD-LIBOR-BBA	710,421

4,590,000	6/24/15	4.39%	3 month USD-LIBOR-BBA	170,726

3,830,000	6/23/15	4.45%	3 month USD-LIBOR-BBA	128,106

9,200,000	6/23/15	4.466%	3 month USD-LIBOR-BBA	297,463

25,430,000	6/17/15	4.555%	3 month USD-LIBOR-BBA	649,027

106,100,000	4/6/10	4.6375%	3 month USD-LIBOR-BBA	977,645

134,600,000	1/14/10	3 month USD-LIBOR-BBA	4.106%	(1,607,888)

70,599,000	12/22/09	3.965%	3 month USD-LIBOR-BBA	1,152,636

91,608,000	1/28/24	3 month USD-LIBOR-BBA	5.2125%	48,743

Bear Stearns Bank plc
84,500,000	4/24/12	5.027%	3 month USD-LIBOR-BBA	(139,106)

Citibank, N.A.
65,880,000	7/27/09	5.504%	3 month USD-LIBOR-BBA	(1,593,683)

5,230,000	4/7/14	5.377%	3 month USD-LIBOR-BBA	(97,831)

Credit Suisse First Boston International
55,240,000	10/7/14	3 month USD-LIBOR-BBA	4.624%	(1,556,856)

Credit Suisse International
7,986,000	9/28/16	5.10886%	3 month USD-LIBOR-BBA	23,157

5,195,000	3/21/16	3 month USD-LIBOR-BBA	5.20497%	26,080

Deutsche Bank AG
54,861,045	8/2/22	3 month USD-LIBOR-BBA	5.7756%	2,769,185

61,565,504	8/2/32	5.86%	3 month USD-LIBOR-BBA	(4,165,214)

Goldman Sachs Capital Markets, L.P.
54,861,045	8/12/22	3 month USD-LIBOR-BBA	5.601%	1,741,715

61,565,504	8/12/32	5.689%	3 month USD-LIBOR-BBA	(2,681,846)

Goldman Sachs International
5,322,000	5/3/16	5.565%	3 month USD-LIBOR-BBA	(245,186)

16,030,000	4/7/14	5.33842%	3 month USD-LIBOR-BBA	(262,303)

29,390,000	1/8/12	3 month USD-LIBOR-BBA	4.98%	364,460

48,123,000	11/21/26	3 month USD-LIBOR-BBA	5.2075%	(251,630)

217,245,000	11/21/08	5.0925%	3 month USD-LIBOR-BBA	(2,591,733)

49,968,000	11/20/26	3 month USD-LIBOR-BBA	5.261%	75,259

222,080,000	11/20/08	5.16%	3 month USD-LIBOR-BBA	(2,934,664)

5,329,000	10/19/16	5.32413%	3 month USD-LIBOR-BBA	(70,653)

19,660,000	9/29/16	3 month USD-LIBOR-BBA	5.1275%	(28,633)

61,798,000	9/29/08	5.085%	3 month USD-LIBOR-BBA	76,269

JPMorgan Chase Bank, N.A.
55,400,000	10/21/15	4.916%	3 month USD-LIBOR-BBA	742,779

104,300,000	8/4/16	3 month USD-LIBOR-BBA	5.5195%	2,952,724

200,400,000	8/4/08	3 month USD-LIBOR-BBA	5.40%	505,899

15,425,000	8/2/15	3 month USD-LIBOR-BBA	4.6570%	(487,416)

80,000,000	6/29/15	3 month USD-LIBOR-BBA	4.296%	(3,474,840)

5,510,000	6/24/15	4.387%	3 month USD-LIBOR-BBA	206,050

INTEREST RATE SWAP CONTRACTS OUTSTANDING at 4/30/07 (Unaudited) continued

		Payments	Payments	Unrealized
Swap counterparty /	Termination	made by	received by	appreciation/
Notional amount	date	fund per annum	fund per annum	(depreciation)

JPMorgan Chase Bank, N.A. continued
$ 22,120,000	6/16/15	4.538%	3 month USD-LIBOR-BBA	$ 600,131

23,040,000	9/28/16	3 month USD-LIBOR-BBA	5.1223%	(42,793)

110,693,000	3/8/17	3 month USD-LIBOR-BBA	5.28%	1,007,676

173,000,000	1/31/17	3 month USD-LIBOR-BBA	5.415%	5,812,656

49,331,000	1/19/09	5.24%	3 month USD-LIBOR-BBA	(766,606)

12,553,000	1/19/17	3 month USD-LIBOR-BBA	5.249%	252,636

8,389,000	12/19/16	5.0595%	3 month USD-LIBOR-BBA	(43,381)

49,901,000	11/20/26	3 month USD-LIBOR-BBA	5.266%	106,713

221,852,000	11/20/08	5.165%	3 month USD-LIBOR-BBA	(2,952,142)

86,260,000	10/10/13	5.09%	3 month USD-LIBOR-BBA	(216,369)

62,040,000	10/10/13	5.054%	3 month USD-LIBOR-BBA	(19,067)

58,900,000	3/7/15	3 month USD-LIBOR-BBA	4.798%	(1,158,331)

72,402,000	9/28/08	5.096%	3 month USD-LIBOR-BBA	84,091

5,733,000	9/18/16	5.291%	3 month USD-LIBOR-BBA	(61,185)

156,000,000	1/17/16	4.946%	3 month USD-LIBOR-BBA	5,427

41,147,000	8/15/11	5.412%	3 month USD-LIBOR-BBA	(698,209)

34,100,000	4/23/17	5.186%	3 month USD-LIBOR-BBA	(60,781)

Lehman Brothers International (Europe)
168,290,000	3/15/09	4.9298%	3 month USD-LIBOR-BBA	451,338

24,523,000	10/23/16	5.325%	3 month USD-LIBOR-BBA	(326,974)

61,010,000	10/23/08	5.255%	3 month USD-LIBOR-BBA	(101,141)

24,523,000	10/23/16	3 month USD-LIBOR-BBA	5.3275%	331,401

61,010,000	10/23/08	3 month USD-LIBOR-BBA	5.26%	105,480

246,914,000	8/3/16	5.5675%	3 month USD-LIBOR-BBA	(7,875,219)

295,943,000	8/3/11	5.445%	3 month USD-LIBOR-BBA	(5,404,494)

124,010,000	12/28/16	5.084%	3 month USD-LIBOR-BBA	(882,648)

Lehman Brothers Special Financing, Inc.
34,808,000	4/12/12	3 month USD-LIBOR-BBA	5.087%	145,099

51,500,000	3/16/09	4.9275%	3 month USD-LIBOR-BBA	138,882

19,500,000	3/16/17	5.034%	3 month USD-LIBOR-BBA	197,605

6,277,000	3/15/17	5.043%	3 month USD-LIBOR-BBA	59,299

123,000,000	9/29/13	5.0555%	3 month USD-LIBOR-BBA	(66,372)

183,930,000	9/8/16	5.3275%	3 month USD-LIBOR-BBA	(2,470,780)

27,294,000	8/3/36	3 month USD-LIBOR-BBA	5.67%	1,181,816

223,430,000	8/3/08	3 month USD-LIBOR-BBA	5.425%	644,409

24,607,000	12/20/16	3 month USD-LIBOR-BBA	5.069%	145,768

Merrill Lynch Capital Services, Inc.
53,317,584	8/13/12	4.94%	3 month USD-LIBOR-BBA	190,492

54,861,045	8/12/22	3 month USD-LIBOR-BBA	5.601%	1,741,715

Morgan Stanley Capital Services, Inc.
3,820,000	2/20/17	5.19%	3 month USD-LIBOR-BBA	(8,626)

28,000,000	10/2/10	6.94%	3 month USD-LIBOR-BBA	(1,762,920)

Total				$(20,332,323)

TOTAL RETURN SWAP CONTRACTS OUTSTANDING at 4/30/07 (Unaudited)


		Fixed payments	Total return	Unrealized
Swap counterparty /	Termination	received (paid) by	received by	appreciation/
Notional amount	date	fund per annum	or paid by fund	(depreciation)

Bank of America, N.A.
$24,020,000	5/2/08	10 bp plus	Banc of America	$ 10,706
		change in spread	Securities-CMBS
		of Banc	AAA 10 year Index
		of America
		Securities AAA
		10 yr Index
		multiplied by
		the modified
		duration factor


Bear Stearns Bank plc
89,570,000	6/1/07	41.2 bp plus	The spread	(201,892)
		change 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

Citibank, N.A.
22,360,000	5/2/08	12.5 bp plus	Banc of America	9,270
		change in spread	Securities-CMBS
		of Banc	AAA 10 year Index
		of America
		Securities AAA
		10 yr Index
		multiplied by
		the modified
		duration factor

32,545,000	5/1/07	10 bp plus	The spread	(137,430)
		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

Goldman Sachs International
4,951,000	9/15/11	678 bp (1 month	Ford Credit Auto	52,218
		USD-LIBOR-BBA)	Owner Trust
			Series 2005-B
			Class D

26,800,000	5/1/07	15 bp plus	The spread	(77,586)
		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

TOTAL RETURN SWAP CONTRACTS OUTSTANDING at 4/30/07 (Unaudited) 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)

JPMorgan Chase Bank, N.A.
$15,250,000	10/1/07	175 bp plus	The spread	$ (24,941)
		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

32,655,000	5/1/07	10 bp plus	The spread	(137,151)
		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

Lehman Brothers Special Financing, Inc.
33,848,000	10/1/07	30 bp plus	The spread	(59,302)
		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


Total				$(566,108)

CREDIT DEFAULT CONTRACTS OUTSTANDING at 4/30/07 (Unaudited)

	Upfront			Fixed payments	Unrealized
Swap counterparty /	premium	Notional	Termination	received (paid) by	appreciation/
Referenced debt*	received (paid)**	amount	date	fund per annum	(depreciation)

Bank of America, N.A.
DJ CDX NA IG
Series 8 Index	$(139,287)	$38,250,000	6/20/17	(60 bp)	$ (95,554)

DJ CDX NA IG
Series 8 Index	(20,984)	36,185,000	6/20/17	(60 bp)	16,166

L-3 Communications
Corp. 7 5/8%, 6/15/12	—	400,000	6/20/11	(101 bp)	(2,855)

L-3 Communications
Corp. 7 5/8%, 6/15/12	—	990,000	9/20/11	(111 bp)	(9,083)

Deutsche Bank AG
DJ CDX NA IG Series 7	(2)	4,834,000	12/20/13	(50 bp)	(1,855)

DJ CDX NA IG Series 7
Index 7-10% tranche	—	4,834,000	12/20/13	55 bp	23,695

DJ CDX NA IG Series 8
Index 7-10% tranche	—	4,508,000	6/20/12	22 bp	5,773

France Telecom, 7.25%,
1/28/13	—	2,375,000	6/20/16	70 bp	59,400

Union Pacific Corp.,
6 1/8%, 1/15/12	—	2,250,000	6/20/17	66 bp	(11,449)

CREDIT DEFAULT CONTRACTS OUTSTANDING at 4/30/07 (Unaudited) continued

		Upfront			Fixed payments	Unrealized
Swap counterparty /		premium	Notional	Termination	received (paid) by	appreciation/
Referenced debt*		received (paid)**	amount	date	fund per annum	(depreciation)

Goldman Sachs International
Any one of the underlying
securities in the basket
of BB CMBS securities	$	—	$11,022,000	(a)	2.461%	$ 744,445

DJ CDX NA IG
Series 7 Index		13,364	19,841,000	12/20/13	(50 bp)	7,963

DJ CDX NA IG
Series 7 Index		(2)	8,060,000	12/20/13	(50 bp)	(3,092)

DJ CDX NA IG Series 7
Index 7-10% tranche		—	8,060,000	12/20/13	56 bp	44,196

DJ CDX NA IG Series 7
Index 7-10% tranche		—	19,841,000	12/20/13	48 bp	13,756

DJ CDX NA IG
Series 8 Index		(28)	36,190,000	6/20/17	(60 bp)	37,127

DJ CDX NA IG
Series 8 Index		(171,920)	40,845,000	6/20/17	(60 bp)	(123,858)

JPMorgan Chase Bank, N.A.
DJ CDX NA CMBX AAA Index		—	15,250,000	3/15/49	(70 bp)	(22)

Lehman Brothers Special Financing, Inc.
DJ CDX NA CMBX AAA Index		—	33,848,000	3/15/49	(700 bp)	(2,054)

DJ CDX NA IG
Series 7 Index		4,458	7,515,000	12/20/13	(50 bp)	1,577

DJ CDX NA IG Series 7
Index 7-10% tranche		—	7,515,000	12/20/13	54.37 bp	34,151

Hilton Hotels, 7 5/8%,
12/1/12		—	1,980,000	6/20/13	94 bp	(42,398)

Morgan Stanley Capital Services, Inc.
DJ CDX NA IG
Series 7 Index		4,967	8,365,000	12/20/13	(50 bp)	1,760

DJ CDX NA IG Series 7
Index, 7-10% tranche		—	8,365,000	12/20/13	53 bp	31,355

DJ CDX NA IG
Series 8 Index		—	2,254,000	6/20/12	(35 bp)	747

DJ CDX NA IG
Series 8 Index		—	36,390,000	6/20/17	(60 bp)	33,721

Total						$ 763,612

* Payments related to the reference debt are made upon a credit default event.

** Upfront premium is based on the difference between the original spread on issue and the market spread on day of execution.

(a) Terminating on the date on which the notional amount is reduced to zero or the date on which the assets securing the reference entity are liquidated.

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

Statement of assets and liabilities 4/30/07 (Unaudited)

ASSETS

Investment in securities, at value, including $2,309,710 of securities on loan (Note 1):
Unaffiliated issuers (identified cost $3,392,764,081)	$3,384,240,651
Affiliated issuers (identified cost $310,740,642) (Note 5)	310,740,642

Cash	3,762,271

Interest and other receivables	20,236,887

Receivable for shares of the fund sold	1,663,311

Receivable for securities sold	95,579,073

Receivable for sales of delayed delivery securities (Note 1)	996,484,839

Receivable for open swap contracts (Note 1)	27,940

Premium paid on swap contracts (Note 1)	332,223

Unrealized appreciation on swap contracts (Note 1)	27,949,004

Total assets	4,841,016,841


LIABILITIES

Payable for variation margin (Note 1)	640,395

Payable for purchases of delayed delivery securities (Note 1)	1,302,241,715

Payable for securities purchased	32,381,607

Payable for shares of the fund repurchased	8,392,208

Payable for compensation of Manager (Notes 2 and 5)	2,476,521

Payable for investor servicing and custodian fees (Note 2)	531,987

Payable for Trustee compensation and expenses (Note 2)	274,204

Payable for administrative services (Note 2)	9,042

Payable for distribution fees (Note 2)	405,258

Payable for closed swap contracts (Note 1)	3,536,493

Premium received on swap contracts (Note 1)	22,789

Written options outstanding, at value (premiums received $11,916,355) (Notes 1 and 3)	7,114,469

Unrealized depreciation on swap contracts (Note 1)	48,083,823

TBA sales commitments, at value (proceeds receivable $994,244,254) (Note 1)	993,993,523

Collateral on securities loaned, at value (Note 1)	2,364,300

Other accrued expenses	221,749

Total liabilities	2,402,690,083

Net assets	$2,438,326,758

(Continued on next page)

Statement of assets and liabilities (Continued)

REPRESENTED BY

Paid-in capital (Unlimited shares authorized) (Notes 1 and 4)	$2,558,029,882

Undistributed net investment income (Note 1)	28,721,548

Accumulated net realized loss on investments (Note 1)	(124,212,578)

Net unrealized depreciation of investments	(24,212,094)

Total — Representing net assets applicable to capital shares outstanding	$2,438,326,758


COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE

Net asset value and redemption price per class A share
($772,962,915 divided by 114,171,538 shares)	$6.77

Offering price per class A share
(100/96.25 of $6.77)*	$7.03

Net asset value and offering price per class B share
($129,237,588 divided by 19,216,540 shares)**	$6.73

Net asset value and offering price per class C share
($20,653,263 divided by 3,062,310 shares)**	$6.74

Net asset value and redemption price per class M share
($289,976,787 divided by 43,352,902 shares)	$6.69

Offering price per class M share
(100/96.75 of $6.69)***	$6.91

Net asset value, offering price and redemption price per class R share
($966,260 divided by 142,937 shares)	$6.76

Net asset value, offering price and redemption price per class Y share
($1,224,529,945 divided by 179,590,616 shares)	$6.82

* 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.

Statement of operations Six months ended 4/30/07 (Unaudited)

INVESTMENT INCOME

Interest (including interest income of $6,866,617
from investments in affiliated issuers) (Note 5)	$69,924,409

Securities lending	1,521

Total investment income	69,925,930


EXPENSES

Compensation of Manager (Note 2)	6,360,067

Investor servicing fees (Note 2)	2,900,735

Custodian fees (Note 2)	179,017

Trustee compensation and expenses (Note 2)	37,748

Administrative services (Note 2)	28,971

Distribution fees — Class A (Note 2)	970,630

Distribution fees — Class B (Note 2)	703,439

Distribution fees — Class C (Note 2)	105,185

Distribution fees — Class M (Note 2)	769,675

Distribution fees — Class R (Note 2)	2,083

Other	265,176

Fees waived and reimbursed by Manager (Notes 2 and 5)	(971,661)

Total expenses	11,351,065

Expense reduction (Note 2)	(183,709)

Net expenses	11,167,356

Net investment income	58,758,574

Net realized gain on investments (Notes 1 and 3)	2,891,225

Net realized gain on swap contracts (Note 1)	7,072,828

Net realized gain on futures contracts (Note 1)	979,554

Net realized gain on written options (Notes 1 and 3)	596,998

Net unrealized depreciation of investments, futures contracts, swap contracts,
written options, and TBA sale commitments during the period	(2,323,166)

Net gain on investments	9,217,439

Net increase in net assets resulting from operations	$67,976,013

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

Statement of changes in net assets

DECREASE IN NET ASSETS

	Six months ended	Year ended

	4/30/07*	10/31/06

Operations:
Net investment income	$ 58,758,574	$ 102,884,406

Net realized gain (loss) on investments	11,540,605	(22,358,608)

Net unrealized appreciation (depreciation) of investments	(2,323,166)	32,384,500

Net increase in net assets resulting from operations	67,976,013	112,910,298

Distributions to shareholders (Note 1):

From ordinary income

Net investment income

Class A	(18,350,732)	(34,927,122)

Class B	(2,834,665)	(6,728,554)

Class C	(421,106)	(809,346)

Class M	(7,054,530)	(15,462,715)

Class R	(19,104)	(23,009)

Class Y	(29,233,074)	(49,842,820)

Redemption fees (Note 1)	4,352	5,435

Decrease from capital share transactions (Note 4)	(66,627,221)	(88,538,159)

Total decrease in net assets	(56,560,067)	(83,415,992)


NET ASSETS

Beginning of period	2,494,886,825	2,578,302,817

End of period (including undistributed net investment income
of $28,721,548 and $27,876,185, respectively)	$2,438,326,758	$2,494,886,825

* Unaudited

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

This page left blank intentionally.

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	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^(a)	investments	operations	income	distributions	fees	of period	value (%)^(b)	(in thousands)	assets (%)^(c)	net assets (%)	(%)

CLASS A
April 30, 2007^**	$6.74	.16^(d)	.03	.19	(.16)	(.16)	—^(f)	$6.77	2.84^*	$772,963	.48^*(d)	2.37^*(d)	90.00^*(g)
October 31, 2006	6.73	.27^(d,e)	.03	.30	(.29)	(.29)	—^(f)	6.74	4.53	791,970	.95^(d,e)	4.07^(d,e)	238.67^(g)
October 31, 2005	6.87	.23^(d)	(.16)	.07	(.21)	(.21)	—^(f)	6.73	1.05	872,931	.98^(d)	3.42^(d)	300.04^(g)
October 31, 2004	6.69	.19^(d)	.19	.38	(.20)	(.20)	—^(f)	6.87	5.70	985,939	.99^(d)	2.83^(d)	441.06
October 31, 2003	6.59	.24	.11	.35	(.25)	(.25)	—	6.69	5.45	1,279,779	.93	3.64	251.00^(h)
October 31, 2002	6.69	.32	(.07)	.25	(.35)	(.35)	—	6.59	3.93	1,339,061	.92	4.84	268.10^(h)


CLASS B
April 30, 2007^**	$6.70	.13^(d)	.03	.16	(.13)	(.13)	—^(f)	$6.73	2.47^*	$129,238	.85^*(d)	2.00^*(d)	90.00^*(g)
October 31, 2006	6.68	.22^(d,e)	.04	.26	(.24)	(.24)	—^(f)	6.70	3.92	154,775	1.70^(d,e)	3.37^(d,e)	238.67^(g)
October 31, 2005	6.82	.18^(d)	(.16)	.02	(.16)	(.16)	—^(f)	6.68	.28	229,794	1.73^(d)	2.64^(d)	300.04^(g)
October 31, 2004	6.65	.14^(d)	.18	.32	(.15)	(.15)	—^(f)	6.82	4.79	323,527	1.74^(d)	2.12^(d)	441.06
October 31, 2003	6.55	.19	.11	.30	(.20)	(.20)	—	6.65	4.68	520,692	1.68	2.90	251.00^(h)
October 31, 2002	6.65	.27	(.07)	.20	(.30)	(.30)	—	6.55	3.19	555,668	1.67	4.07	268.10^(h)


CLASS C
April 30, 2007^**	$6.72	.13^(d)	.02	.15	(.13)	(.13)	—^(f)	$6.74	2.32^*	$20,653	.85^*(d)	2.00^*(d)	90.00^*(g)
October 31, 2006	6.70	.22^(d,e)	.04	.26	(.24)	(.24)	—^(f)	6.72	3.92	21,736	1.70^(d,e)	3.33^(d,e)	238.67^(g)
October 31, 2005	6.84	.18^(d)	(.16)	.02	(.16)	(.16)	—^(f)	6.70	.28	24,644	1.73^(d)	2.66^(d)	300.04^(g)
October 31, 2004	6.67	.14^(d)	.18	.32	(.15)	(.15)	—^(f)	6.84	4.79	29,059	1.74^(d)	2.10^(d)	441.06
October 31, 2003	6.57	.20	.11	.31	(.21)	(.21)	—	6.67	4.70	42,946	1.68	2.88	251.00^(h)
October 31, 2002	6.67	.26	(.06)	.20	(.30)	(.30)	—	6.57	3.18	39,017	1.67	4.04	268.10^(h)


CLASS M
April 30, 2007^**	$6.67	.15^(d)	.02	.17	(.15)	(.15)	—^(f)	$6.69	2.61^*	$289,977	.61^*(d)	2.25^*(d)	90.00^*(g)
October 31, 2006	6.66	.25^(d,e)	.03	.28	(.27)	(.27)	—^(f)	6.67	4.38	331,997	1.20^(d,e)	3.85^(d,e)	238.67^(g)
October 31, 2005	6.80	.21^(d)	(.15)	.06	(.20)	(.20)	—^(f)	6.66	.84	420,886	1.23^(d)	3.15^(d)	300.04^(g)
October 31, 2004	6.63	.17^(d)	.18	.35	(.18)	(.18)	—^(f)	6.80	5.40	556,725	1.24^(d)	2.62^(d)	441.06
October 31, 2003	6.54	.23	.10	.33	(.24)	(.24)	—	6.63	5.12	884,380	1.18	3.48	251.00^(h)
October 31, 2002	6.64	.30	(.06)	.24	(.34)	(.34)	—	6.54	3.77	1,465,393	1.17	4.56	268.10^(h)


CLASS R
April 30, 2007^**	$6.74	.15^(d)	.02	.17	(.15)	(.15)	—^(f)	$6.76	2.60^*	$966	.61^*(d)	2.23^*(d)	90.00^*(g)
October 31, 2006	6.72	.25^(d,e)	.04	.29	(.27)	(.27)	—^(f)	6.74	4.50	755	1.20^(d,e)	3.70^(d,e)	238.67^(g)
October 31, 2005	6.87	.23^(d)	(.18)	.05	(.20)	(.20)	—^(f)	6.72	.72	400	1.23^(d)	3.29^(d)	300.04^(g)
October 31, 2004	6.69	.18^(d)	.18	.36	(.18)	(.18)	—^(f)	6.87	5.47	62	1.24^(d)	2.57^(d)	441.06
October 31, 2003^†	6.65	.18	.03	.21	(.17)	(.17)	—	6.69	3.14^*	1	.92^*	2.65^*	251.00^(h)


CLASS Y
April 30, 2007^**	$6.79	.17^(d)	.03	.20	(.17)	(.17)	—^(f)	$6.82	2.92^*	$1,224,530	.36^*(d)	2.49^*(d)	90.00^*(g)
October 31, 2006	6.77	.29^(d,e)	.03	.32	(.30)	(.30)	—^(f)	6.79	4.89	1,193,654	.70^(d,e)	4.30^(d,e)	238.67^(g)
October 31, 2005	6.91	.25^(d)	(.16)	.09	(.23)	(.23)	—^(f)	6.77	1.28	1,029,647	.73^(d)	3.69^(d)	300.04^(g)
October 31, 2004	6.72	.21^(d)	.19	.40	(.21)	(.21)	—^(f)	6.91	6.06	880,124	.74^(d)	3.01^(d)	441.06
October 31, 2003	6.63	.26	.10	.36	(.27)	(.27)	—	6.72	5.50	712,232	.68	3.82	251.00^(h)
October 31, 2002	6.72	.33	(.06)	.27	(.36)	(.36)	—	6.63	4.26	530,302	.67	5.03	268.10^(h)

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.

** Unaudited.

† For the period January 21, 2003 (commencement of operations) to October 31, 2003.

(a) Per share net investment income 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.

(d) Reflects an involuntary contractual expense limitation and waivers of certain fund expenses in connection with investments in Putnam Prime Money Market Fund in effect during the period. As a result of such limitation and waivers, the expenses of each class reflect a reduction of the following amounts (Notes 2 and 5):

	Percentage
	of average
	net assets

April 30, 2007	0.04%

October 31, 2006	0.05

October 31, 2005	0.03

October 31, 2004	<0.01

(e) Reflects a non-recurring reimbursement to the fund 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 0.03% of average net assets for the period ended October 31, 2006.

(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.

Notes to financial statements 4/30/07 (Unaudited)

Note 1: Significant accounting policies

Putnam Income Fund (the “fund”), a Massachusetts business trust, is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The fund seeks high current income consistent with what Putnam Investment Management, LLC (“Putnam Management”), the fund’s manager, an indirect wholly-owned subsidiary of Putnam, LLC, believes to be prudent risk. The fund invests in a portfolio of debt securities, both government and corporate obligations, and may invest in preferred stocks and common stocks.

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, trust companies, other Putnam funds and products, and certain college savings plans.

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 7 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.

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

In the normal course of business, the fund enters into contracts that may include agreements to indemnify another party under given circumstances. The fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be, but have not yet been, made against the fund. However, the fund 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 Management. Such services or dealers determine valuations for normal institutional-size trading units of such securities using methods based on market transactions for comparable securities and various relationships, generally recognized by institutional traders, between securities. 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 and 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) Joint trading account Pursuant to an exemptive order from the Securities and Exchange Commission (the “SEC”), the fund may transfer uninvested cash balances, including cash collateral received under security lending arrangements, into a joint trading account along with the cash of other registered investment companies and certain other accounts managed by Putnam Management. These balances may be invested in issues of high-grade short-term investments having maturities of up to 397 days for collateral received under security lending arrangements and up to 90 days for other cash investments.

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

D) Security transactions and related investment income Security transactions are recorded on the trade date (the date the order to buy or sell is executed). Gains or losses on securities sold are determined on the identified cost basis.

Interest income is recorded on the accrual basis. All premiums/discounts are amortized/accreted on a yield-to-maturity basis.

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

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

F) 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. Interes t 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 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 o r 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 the fair value of the underlying securities, generally according to the procedures described under “Security valuation” above. The contract is marked to market daily and the change in market value is recorded by the fund as an unrealized gain or loss. If the TBA sale commitment is closed through the acquisition of an offsetting 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) Securities lending The fund may lend securities, through its agents, to qualified borrowers in order to earn additional income. The loans are collateralized by cash and/or securities in an amount at least equal to the market value of the securities loaned. The market value of securities loaned is determined daily and any additional required collateral is allocated to the fund on the next business day. The risk of borrower default will be borne by the fund’s agents; the fund will bear the risk of loss with respect to the investment of the cash collateral. Income from securities lending is included in investment income on the Statement of operations. At April 30, 2007, the value of securities loaned amounted to $2,309,710. The fund received cash collateral of $2,364,300 which is pooled with collateral of other Putnam funds into 35 issues of high grade short-term investments.

N) Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time and otherwise comply with the provisions of the Internal Revenue Code of 1986 (the “Code”) applicable to regulated investment companies. It is also the intention of the fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Code, as amended. Therefore, no provision has been made for federal taxes on income, capital gains orunrealized 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 $120,753,811 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

$81,110,898	October 31, 2008

9,580,324	October 31, 2009

15,454,954	October 31, 2013

14,607,635	October 31, 2014

The aggregate identified cost on a tax basis is $3,713,468,961, resulting in gross unrealized appreciation and depreciation of $16,154,563 and $34,642,231, respectively, or net unrealized depreciation of $18,487,668.

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

Note 2: Management fee, administrative services and other transactions

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: 0.65% of the

first $500 million of average net assets, 0.55% of the next $500 million, 0.50% of the next $500 million, 0.45% of the next $5 billion, 0.425% of the next $5 billion, 0.405% of the next $5 billion, 0.39% of the next $5 billion and 0.38% 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 period ended April 30, 2007, Putnam Management waived $852,807 of its management fee from the fund.

In July 2006, questions arose regarding a potential misidentification of the characteristics of certain securities in the fund’s portfolio, and the value of these securities was adjusted. The fund currently expects to be reimbursed for losses relating to this matter by Putnam. The amount of such reimbursement has not yet been determined, but is not expected to be material to the fund.

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 were provided by Putnam Fiduciary Trust Company (“PFTC”), a subsidiary of Putnam, LLC, and by State Street Bank and Trust Company. Custody fees are based on the fund’s asset level, the number of its security holdings and transaction volumes. Putnam Investor Services, a division of PFTC, provided investor servicing agent functions to the fund.

Putnam Investor Services received 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 period ended April 30, 2007, the fund incurred $3,070,038 for custody and investor servicing agent functions provided by PFTC.

The fund has entered into arrangements with PFTC and State Street Bank and Trust Company whereby PFTC’s and State Street Bank and Trust Company’s fees are reduced by credits allowed on cash balances. For the six months ended April 30, 2007, the fund’s expenses were reduced by $183,709 under these arrangements.

Each independent Trustee of the fund receives an annual Trustee fee, of which $730, 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 was not an independent Trustee during the period, 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 six months ended April 30, 2007, Putnam Retail Management, acting as underwriter, received net commissions of $26,344 and $1,107 from the sale of class A and class M shares, respectively, and received $90,468 and $449 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 six months ended April 30, 2007, Putnam Retail Management, acting as underwriter, received $159 and no monies on class A and class M redemptions, respectively.

Note 3: Purchases and sales of securities

During the six months ended April 30, 2007, cost of purchases and proceeds from sales of investment securities other than U.S. government securities and short-term investments aggregated $1,777,957,822 and $1,859,642,189, respectively. Purchases and sales of U.S. government securities aggregated $133,541,727 and $123,004,551, respectively.

Written option transactions during the period ended April 30, 2007 are summarized as follows:

	Contract	Premiums
	Amounts	Received

Written options
outstanding at
beginning of period	$317,596,000	$11,916,354

Options opened	93,300,000	2,102,019
Options exercised	—	—
Options expired	—	—
Options closed	(93,300,000)	(2,102,018)

Written options
outstanding at
end of period	$317,596,000	$11,916,355

Note 4: Capital shares

At April 30, 2007, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:

CLASS A	Shares		Amount

Six months ended 4/30/07:
Shares sold	10,681,832	$	72,210,609

Shares issued
in connection
with reinvestment
of distributions	2,328,711		15,703,514

	13,010,543		87,914,123

Shares
repurchased	(16,282,562)		(110,063,545)

Net decrease	(3,272,019)	$	(22,149,422)

Year ended 10/31/06:
Shares sold	19,865,158	$	132,603,695

Shares issued
in connection
with reinvestment
of distributions	4,497,838		29,973,325

	24,362,996		162,577,020

Shares
repurchased	(36,688,023)		(244,947,539)

Net decrease	(12,325,027)	$	(82,370,519)

CLASS B	Shares	Amount

Six months ended 4/30/07:
Shares sold	1,143,087	$ 7,681,773

Shares issued
in connection
with reinvestment
of distributions	373,545	2,502,731

	1,516,632	10,184,504

Shares
repurchased	(5,399,502)	(36,249,759)

Net decrease	(3,882,870)	$(26,065,255)

Year ended 10/31/06:
Shares sold	2,156,920	$ 14,310,483

Shares issued
in connection
with reinvestment
of distributions	885,021	5,865,049

	3,041,941	20,175,532

Shares
repurchased	(14,321,590)	(94,952,140)

Net decrease	(11,279,649)	$(74,776,608)


CLASS C	Shares	Amount

Six months ended 4/30/07:
Shares sold	172,189	$ 1,160,277

Shares issued
in connection
with reinvestment
of distributions	50,964	342,402

	223,153	1,502,679

Shares
repurchased	(396,003)	(2,664,719)

Net decrease	(172,850)	$(1,162,040)

Year ended 10/31/06:
Shares sold	663,619	$ 4,427,282

Shares issued
in connection
with reinvestment
of distributions	99,094	658,308

	762,713	5,085,590

Shares
repurchased	(1,203,882)	(8,025,360)

Net decrease	(441,169)	$(2,939,770)

CLASS M	Shares	Amount

Six months ended 4/30/07:
Shares sold	196,325	$ 1,312,860

Shares issued
in connection
with reinvestment
of distributions	37,536	250,185

	233,861	1,563,045

Shares
repurchased	(6,685,429)	(44,611,631)

Net decrease	(6,451,568)	$(43,048,586)

Year ended 10/31/06:
Shares sold	557,067	$ 3,683,868

Shares issued
in connection
with reinvestment
of distributions	79,585	524,809

	636,652	4,208,677

Shares
repurchased	(14,063,029)	(92,858,510)

Net decrease	(13,426,377)	$(88,649,833)


CLASS R	Shares	Amount

Six months ended 4/30/07:
Shares sold	40,876	$ 275,884

Shares issued
in connection
with reinvestment
of distributions	2,820	18,996

	43,696	294,880

Shares
repurchased	(12,765)	(86,017)

Net increase	30,931	$ 208,863

Year ended 10/31/06:
Shares sold	67,633	$ 450,278

Shares issued
in connection
with reinvestment
of distributions	3,460	23,009

	71,093	473,287

Shares
repurchased	(18,614)	(123,847)

Net increase	52,479	$ 349,440

CLASS Y	Shares		Amount

Six months ended 4/30/07:
Shares sold	28,833,159	$	196,126,218

Shares issued
in connection
with reinvestment
of distributions	4,304,690		29,230,056

	33,137,849		225,356,274

Shares
repurchased	(29,364,682)		(199,767,055)

Net increase	3,773,167	$	25,589,219

Year ended 10/31/06:
Shares sold	58,853,385	$	396,031,832

Shares issued
in connection
with reinvestment
of distributions	7,436,682		49,837,687

	66,290,067		445,869,519

Shares
repurchased	(42,583,483)		(286,020,388)

Net increase	23,706,584	$	159,849,131

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 period ended April 30, 2007, management fees paid were reduced by $118,854 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 $6,866,617 for the period ended April 30, 2007. During the period ended April 30, 2007, cost of purchases and proceeds of sales of investments in Putnam Prime Money Market Fund aggregated $751,028,098 and $785,665,525 , respectively.

Note 6: Regulatory matters and litigation

In late 2003 and 2004, Putnam Management settled charges brought by the SEC and the Massachusetts Securities Division (“MSD”) in connection with excessive short-term trading by certain former Putnam employees and, in the case of charges brought by the MSD, excessive short-term trading by participants in some Putnam-administered 401(k) plans. Putnam Management agreed to pay $193.5 million in penalties and restitution, of which $153.5 million will be distributed to certain open-end Putnam funds and their shareholders after the SEC and MSD approve a distribution plan being developed by an independent consultant. The allegations of the SEC and MSD and related matters have served as the general basis for certain lawsuits, including purported class action lawsuits filed against Putnam Management and, in a limited number of cases, against some Putnam funds. Putnam Management believes that these lawsuits will have no material adverse effect on the funds or on Putn am Management’s ability to provide investment management services. In addition, Putnam Management has agreed to bear any costs incurred by the Putnam funds as a result of these matters.

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. The effects of implementing this pronouncement, if any, will be noted in the fund’s next semiannual 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.

Putnam puts your interests first

In January 2004, Putnam began introducing a number of voluntary initiatives designed to reduce fund expenses, provide investors with more useful information, and help safeguard the interests of all Putnam investors. Visit www.putnam.com for details.

Cost-cutting initiatives

Reduced sales charges The maximum sales charge for class A shares has been reduced to 5.25% for equity funds (formerly 5.75%) and 3.75% for most income funds (formerly 4.50%) . The maximum sales charge for class M shares has been reduced to 3.25% for equity funds (formerly 3.50%) .*

Lower class B purchase limit To help ensure that investors are in the most cost-effective share class, the maximum amount that can be invested in class B shares has been reduced to $100,000. (Larger trades or accumulated amounts will be refused.)

Ongoing expenses will be limited Through calendar 2007, total ongoing expenses, including management fees for all funds, will be maintained at or below the average of each fund’s industry peers in its Lipper load-fund universe. For more information, please see the Statement of Additional information.

Improved disclosure

Putnam fund prospectuses and shareholder reports have been revised to disclose additional information that will help shareholders compare funds and weigh their costs and risks along with their potential benefits. Shareholders will find easy-to-understand information about fund expense ratios, portfolio manager compensation, risk comparisons, turnover comparisons, brokerage commissions, and employee and trustee ownership of Putnam funds. Disclosure of breakpoint discounts has also been enhanced to alert investors to potential cost savings.

Protecting investors’ interests

Short-term trading fee introduced To discourage short-term trading, which can interfere with a fund’s long-term strategy, a 1% short-term trading fee may be imposed on any Putnam fund shares (other than money market funds) redeemed or exchanged within seven calendar days of purchase (for certain funds, this fee applies for 90 days).

* The maximum sales charge for class A shares of Putnam Limited Duration Government Income Fund and Putnam Floating Rate Income Fund remains 3.25% .

The Putnam
family of funds

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

Growth funds
Discovery Growth Fund
Growth Opportunities Fund
Health Sciences Trust
International New Opportunities Fund*
New Opportunities Fund
OTC & Emerging Growth Fund
Small Cap Growth Fund*
Vista Fund
Voyager Fund

Blend funds
Capital Appreciation Fund
Capital Opportunities Fund*
Europe Equity Fund*
Global Equity Fund*
Global Natural Resources Fund*
International Capital
Opportunities Fund*
International Equity Fund*
Investors Fund
Research Fund
Tax Smart Equity Fund®
Utilities Growth and Income Fund

Value funds
Classic Equity Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth
and Income
International Growth and Income Fund*
Mid Cap Value Fund
New Value Fund
Small Cap Value Fund*

Income funds
American Government Income Fund
Diversified Income Trust
Floating Rate Income Fund
Global Income Trust*
High Yield Advantage Fund*
High Yield Trust*
Income Fund
Limited Duration Government
Income Fund
Money Market Fund†
U.S. Government Income Trust

* A 1% redemption fee on total assets redeemed or exchanged within 90 days of purchase may be imposed for all share classes of these funds.

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

Tax-free income funds
AMT-Free Insured Municipal Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund§
Tax-Free High Yield Fund

State tax-free income funds:
Arizona, California, Massachusetts, Michigan,
Minnesota, New Jersey, New York, Ohio,
and Pennsylvania

Asset allocation funds
Income Strategies Fund

Putnam Asset Allocation Funds — three
investment portfolios that spread your
money across a variety of stocks, bonds,
and money market investments.

The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio

Putnam RetirementReady® Funds
Putnam RetirementReady Funds — ten
investment portfolios that offer diversifica-
tion among stocks, bonds, and money
market instruments and adjust to become
more conservative over time based on a
target date for withdrawing assets.

The ten funds:
Putnam RetirementReady 2050 Fund
Putnam RetirementReady 2045 Fund
Putnam RetirementReady 2040 Fund
Putnam RetirementReady 2035 Fund
Putnam RetirementReady 2030 Fund
Putnam RetirementReady 2025 Fund
Putnam RetirementReady 2020 Fund
Putnam RetirementReady 2015 Fund
Putnam RetirementReady 2010 Fund
Putnam RetirementReady Maturity Fund

With the exception of money market funds, a 1% redemption fee may be applied to shares exchanged or sold within 7 days of purchase (90 days, for certain funds).

Check your account balances and the most recent month-end performance at www.putnam.com.

Services for shareholders

Investor services

Help your investment grow Set up a program for systematic investing from a Putnam fund or from your own savings or checking account. (Regular investing does not guarantee a profit or protect against loss in a declining market.)

Switch funds easily* You can move money from one Putnam fund to another within the same class of shares without a service charge.

Access your money easily You can have checks sent regularly or redeem shares any business day at the then-current net asset value, which may be more or less than the original cost of the shares. Class B and class C shares carry a sales charge that is applied to certain withdrawals.

How to buy additional shares You may buy shares through your financial advisor or directly from Putnam. To open an account by mail, send a check made payable to the name of the fund along with a completed fund application. To add to an existing account, complete the investment slip found at the top of your Confirmation of Activity statement and return it with a check payable to your fund.

For more information

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

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

*This privilege is subject to change or termination. An exchange of funds may result in a taxable event. In addition, a 1% redemption fee will be applied to shares exchanged or sold within 7 days of purchase, and, for certain funds, this fee applies on total assets redeemed or exchanged within 90 days of purchase.

Fund information

Founded nearly 70 years ago, Putnam Investments was built around the concept that a balance between risk and reward is the hallmark of a well-rounded financial program. We manage over 100 mutual funds in growth, value, blend, fixed income, and international.

Investment Manager	Officers	Francis J. McNamara, III
Putnam Investment	Charles E. Haldeman, Jr.	Vice President and
Management, LLC	President	Chief Legal Officer
One Post Office Square
Boston, MA 02109	Charles E. Porter	Robert R. Leveille
	Executive Vice President,	Chief Compliance Officer
Marketing Services	Principal Executive Officer,
Putnam Retail Management	Associate Treasurer and	Mark C. Trenchard
One Post Office Square	Compliance Liaison	Vice President and
Boston, MA 02109		BSA Compliance Officer
	Jonathan S. Horwitz
Custodians	Senior Vice President	Judith Cohen
Putnam Fiduciary Trust	and Treasurer	Vice President, Clerk and
Company, State Street Bank		Assistant Treasurer
and Trust Company	Steven D. Krichmar
	Vice President and	Wanda M. McManus
Legal Counsel	Principal Financial Officer	Vice President, Senior Associate
Ropes & Gray LLP		Treasurer and Assistant Clerk
	Janet C. Smith
Trustees	Vice President, Principal	Nancy E. Florek
John A. Hill, Chairman	Accounting Officer and	Vice President, Assistant Clerk,
Jameson Adkins Baxter,	Assistant Treasurer	Assistant Treasurer and
Vice Chairman		Proxy Manager
Charles B. Curtis	Susan G. Malloy
Myra R. Drucker	Vice President and
Charles E. Haldeman, Jr.	Assistant Treasurer
Paul L. Joskow
Elizabeth T. Kennan	Beth S. Mazor
Kenneth R. Leibler	Vice President
Robert E. Patterson
George Putnam, III	James P. Pappas
W. Thomas Stephens	Vice President
Richard B. Worley
	Richard S. Robie, III
	Vice President

This report is for the information of shareholders of Putnam Income Fund. 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:

Not applicable

Item 3. Audit Committee Financial Expert:

Not applicable

Item 4. Principal Accountant Fees and Services:

Not applicable

Item 5. Audit Committee of Listed Registrants

Not applicable

Item 6. Schedule of Investments:

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

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

Not applicable

Item 8. Portfolio Managers of Closed-End Investment Companies

Not Applicable

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

Not applicable

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

Not applicable

Item 11. Controls and Procedures:

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

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

Item 12. Exhibits:

(a)(1) Not applicable

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

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

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 Income Fund
By (Signature and Title):

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

Date: June 29, 2007

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: June 29, 2007

By (Signature and Title):

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

Date: June 29, 2007

Putnam Income Fund (PINCX) N-CSRSCertified semi-annual shareholder report (management investment company)