Putnam Income Fund NCSR Certified 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— October 31, 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?

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

With a focus on investment performance, below-average expenses, and in-depth information about our funds, we put the interests of investors first and seek to set the standard for integrity and service.

Industry-leading service

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

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

THE PRUDENT MAN RULE

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

Putnam
Income
Fund

10| 31| 07
Annual Report


Message from the Trustees	1
About the fund	2
Performance and portfolio snapshots	4
Report from the fund managers	5
Performance in depth	9
Expenses	12
Portfolio turnover	14
Risk	14
Your fund’s management	15
Terms and definitions	16
Trustee approval of management contract	17
Other information for shareholders	20
Financial statements	21
Federal tax information	71
Shareholder meeting results	71
About the Trustees	72
Officers	76

Cover photograph: © Richard H. Johnson

Message from the Trustees

Dear Fellow Shareholder:

In November, Putnam Investments celebrated its 70th anniversary. From modest beginnings in Boston, Massachusetts, Putnam has grown into a global asset manager that serves millions of investors worldwide. Coincident with this anniversary, we are pleased to announce that Great-West Lifeco Inc. recently completed its purchase of Putnam Investments from Marsh & McLennan Companies, 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. With this change, Putnam becomes part of a successful organization with a long-standing commitment to high-quality investment management and financial services. The change in ownership is not expected to affect the Putnam funds, the way Putnam manages money, or the funds’ management teams.

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, was named President of the Funds, assuming this role from George Putnam, III. This change, together with the completion of the transaction with Great-West Lifeco, has enabled George Putnam to become an independent Trustee of the funds. Both George and Ed will continue serving on the Board of Trustees in our collective role of overseeing the Putnam funds on your behalf.

Lastly, we are pleased to announce that a new independent Trustee, Robert J. Darretta, has joined your fund’s Board of Trustees. Mr. Darretta brings extensive leadership experience in corporate finance and accounting. He is a former Vice Chairman of the Board of Directors of Johnson & Johnson, one of the leading U.S. health-care and consumer products companies, where he also served as Chief Financial Officer, Executive Vice President, and Treasurer.

Although the mutual fund industry has undergone many changes since George Putnam introduced his innovative balanced fund in 1937, Putnam’s guiding principles have not. As we celebrate Putnam’s 70-year milestone, we look forward to Putnam continuing its long tradition of prudent money management and to the new chapter opened by its recent change in ownership. 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

Securitized: Interest-rate cycles 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.

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.

Government: Interest-rate levels are also 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.

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.

Performance and portfolio snapshots

Putnam Income Fund

Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will fluctuate, and you may have a gain or a loss when you sell your shares. Performance of class A shares assumes reinvestment of distributions and does not account for taxes. Fund returns in the bar chart do not reflect a sales charge. See pages 9–11 for additional performance information. 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.

* The fund’s benchmark and 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.

“Increases in yield-curve volatility and risk
premiums were dramatic in the latter half of
the year. We had anticipated these changes
correctly and positioned the fund to benefit
from them.”

Rob Bloemker, Portfolio Leader, Putnam Income Fund

Credit qualities shown as a percentage of portfolio value at 10/31/07. 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.

Report from the fund managers

The year in review

The 12 months ended October 31, 2007 encompassed two key challenges for the U.S. economy and the fixed-income markets. First, the falling U.S. dollar enhanced the value of bonds denominated in other currencies, but depressed prices of securities issued in this country. Second, the effects of the subprime mortgage crisis continued to spread into many different sectors of the markets. In spite of these challenges, your fund’s performance before sales charges kept pace with that of its benchmark and outpaced the average for its Lipper peer group. We attribute these results to several strategies, particularly our proactive approach with regard to mortgage-backed pass-through securities (MBSs), a type of bond whose cash flows are backed by the principal and interest payments on a pool of mortgage loans. In particular, assets we allocated to this sector were overweighted in high-quality areas and included manufactured housing and A AA-rated commercial mortgage-backed securities (CMBSs), which enabled us to manage the fund’s risk exposure while maintaining an attractive level of income. An underweight position, relative to the benchmark, in the lagging corporate sector was also beneficial because it limited the impact of the sector’s poor relative performance. In addition, favorable security selection enabled this portion of the portfolio to outperform the corporate market overall. Finally, adept yield-curve positioning, which we describe later in this report, allowed the fund to benefit as the yield differential between shorter-term and longer-term securities increased over the course of the year.

Market overview

For the first six months of the fund’s most recent fiscal year, which began in November 2006, the economy proceeded at a slow, yet solid pace. The Federal Reserve Board (the Fed) maintained its neutral stance, leaving interest rates unchanged. While unemployment remained low, housing starts declined moderately, corporate bonds strengthened, and lower-quality securities outperformed their higher-quality counterparts. Early in 2007, the accelerating erosion of the U.S. residential subprime mortgage market had global repercussions. Investors began to demand higher-quality securities. Liquidity concerns in several market sectors heightened through mid-August, when there were widespread fears of a credit crunch. In addition, investors’ hopes for a rate cut faded as the Fed held to its view that inflation remained a threat.

By the end of October 2007, however, the Fed had implemented two widely anticipated rate cuts, reducing the federal funds rate from 5.25% to 4.5% . Housing market data revealed pervasive weakness as housing starts and existing home sales continued to slide, and the monthly

Market sector and fund performance

This comparison shows your fund’s performance in the context of different market sectors for the 12 months ended 10/31/07. See the previous page and pages 9–11 for additional fund performance information. Index descriptions can be found on page 16.

Homebuilders’ Index of housing starts recorded its lowest reading in 14 years. By period-end, credit conditions had improved somewhat, but worries about inflation remained.

Strategy overview

Your fund employs multiple income-generating strategies across the different U.S. investment-grade bond sectors in pursuit of its objectives. We believe that having diversified return sources contributes to more consistent results over time and enables us to manage risk more effectively than 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.

We had set three management goals for the fund during the 2007 fiscal year: keep risk at a low level, develop a bias toward higher-quality securities, and maintain the portfolio’s yield. Early on, our assessment of economic and interest-rate trends led us to determine that the portfolio should be defensively positioned. In the corporate sector, we shifted our risk exposure to shorter maturities through the addition of derivatives. This shift was effective in reducing the fund’s credit risk, which refers to the potential of a bond issuer’s default on scheduled payments of interest and principal.

Duration, which is measured in years, is another key aspect of our risk management approach. It is the primary indicator of sensitivity to interest rates — the shorter a bond’s duration, the less sensitive its price will be to interest-rate changes. As the fiscal year began, we maintained a short portfolio duration, which helped performance relative to the Lipper peer group as rates rose during the period. In February, we began shifting the portfolio toward a neutral duration, where it remained until the close of the fiscal year. The fund’s yield curve positioning also helped results. The yield curve is a graphical representation of the difference in yields between shorter- and longer-term bonds. Toward the end of the fiscal year, we increased holdings in the intermediate portion of the curve, which we expected to benefit most should interest rates decline. As the Fed indicated its intention to begin lowering interest rates, this positioning proved to be the correct strategy.

Midway through the fiscal year, we anticipated increased volatility and maintained the fund’s yield by implementing two significant changes in the MBS area. We established an underweight position, relative to the benchmark, in mortgage pass-throughs — securities that represent an ownership interest in pools of mortgage loans — while overweighting a variety of other types of securitized debt. These included asset-backed securities (ABSs) and AAA-rated CMBSs.

Comparison of top sector weightings*

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

* May include exposure to various derivative investments.

Your fund’s holdings

Despite the negative impact of the subprime problems over the latter part of the year, we were able to sidestep the problems experienced by other similar mutual funds due to Putnam’s expertise in mortgage research and analysis. We consider our collective understanding of this market a particular strength; in fact, we invested quite successfully in the subprime market during its peak, which extended from 2003 through 2005. By 2006, we saw growing evidence of lax underwriting standards and valuations. As a result, we liquidated nearly all of the portfolio’s subprime MBS holdings at that time. In hindsight, this may have been a bit premature, since the potential for further appreciation was still viable at the time. However, when that area of the market imploded this year, your fund’s portfolio had become largely immune to any direct impact.

As noted earlier, the majority of fund assets were invested in higher-rated areas of the mortgage market. These areas, which are called securitized sectors, are now among the largest in the investment-grade bond universe and outperformed other mortgage-related counterparts for the period. Securitized bonds have interest and principal payments that are backed by a cash flow from another source. Collateralized mortgage obligations (CMOs) and ABSs, for example, are typically backed by payments on auto loans and credit card debt. The fund had overweight positions in both of these areas. Additionally, holdings in a related securitized sector, manufactured housing, proved beneficial given its relatively lo w levels of losses and delinquencies.

Successful security selection contributed substantially to results. Of particular note was the fund’s position in Ba-rated bonds from General Motors Acceptance Corporation (GMAC). Also, given our overall underweight position in corporate bonds, we emphasized AAA-rated CMBSs to gain more diversified credit exposure. These securities, which are backed by large, non-residential projects, such as industrial parks and shopping malls, typically offer higher income than corporate bonds of comparable credit quality while carrying a lower risk of prepayment. Holding CMBSs proved to be beneficial to results, especially in comparison to residential MBSs.

The fund’s position in hybrid adjustable-rate mortgages (ARMs) also boosted results. This class of security generally offers borrowers three or five years of payments at a fixed interest rate. After this initial period, the interest rate is adjusted annually. Our research indicated that the potential return on these securities offset their level of prepayment risk. We found them to be a valuable alternative to mortgage pass-throughs for much of the fiscal year.

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.

Looking ahead, we anticipate further interest-rate cuts by the Fed as we move into 2008 and believe several reductions are already priced into the bond market. Therefore, we remain cautious about a potential recession and continue to position the portfolio defensively. We expect to keep the duration neutral relative to the fund’s peers and anticipate a further steepening of the yield curve, given the inflationary trends we have observed thus far. We have increased the fund’s exposure to credit risk slightly, but are still conservatively positioned, given our concerns over the corporate market.

Several areas of opportunity, however, which were not present at the beginning of the fiscal year 2007, are becoming apparent. For instance, our understanding of the subprime market led us to steer clear of bonds issued by financial companies this year. While some have been poor performers for valid reasons, we believe others have been unjustly downgraded and appear to offer attractive income and appreciation potential at compelling prices. We are also looking closely at areas of the mortgage market to uncover what may prove to be buying opportunities. Our research is even pointing to some subprime market issuers that we believe could offer value to the portfolio.

We believe that the new fiscal year will likely give rise to additional opportunities across the full range of U.S. investment-grade fixed-income sectors and securities. We expect to take full advantage of this potential as we continue to pursue the fund’s income objective.

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 October 31, 2007, the end of its most recent 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 th is report for definitions of the share classes offered by your fund.

Fund performance Total return for periods ended 10/31/07


	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)	7.91%	7.83%	6.91%	6.91%	7.09%	7.09%	7.45%	7.38%	7.64%	7.97%

10 years	56.68	50.77	45.28	45.28	45.17	45.17	52.76	47.77	52.91	60.69
Annual average	4.59	4.19	3.81	3.81	3.80	3.80	4.33	3.98	4.34	4.86

5 years	24.03	19.32	19.37	17.36	19.38	19.38	22.28	18.30	22.67	25.45
Annual average	4.40	3.60	3.60	3.25	3.61	3.61	4.10	3.42	4.17	4.64

3 years	11.28	7.07	8.83	5.87	8.82	8.82	10.37	6.75	10.50	12.12
Annual average	3.63	2.30	2.86	1.92	2.86	2.86	3.34	2.20	3.38	3.89

1 year	5.35	1.43	4.43	–0.57	4.41	3.41	4.86	1.51	4.98	5.54

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.

Change in the value of a $10,000 investment ($9,625 after sales charge)

Cumulative total return from 10/31/97 to 10/31/07

Past performance does not indicate future results. At the end of the same time period, a $10,000 investment in the fund’s class B and class C shares would have been valued at $14,528 and $14,517, respectively, and no contingent deferred sales charges would apply. A $10,000 investment in the fund’s class M shares ($9,675 after sales charge) would have been valued at $14,777 at public offering price. A $10,000 investment in the fund’s class R and class Y shares would have been valued at $15,291 and $16,069, respectively.

Comparative index returns For periods ended 10/31/07


		Lipper Corporate
	Lehman Aggregate	Debt Funds A Rated
	Bond Index	category average*
Annual average
(life of fund)	—†	—†

10 years	77.57%	65.37%
Annual average	5.91	5.15

5 years	24.11	24.81
Annual average	4.41	4.50

3 years	12.11	9.88
Annual average	3.88	3.18

1 year	5.38	4.02

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

* Over the 1-year, 3-year, 5-year, and 10-year periods ended 10/31/07, there were 175, 157, 133, and 61 funds, respectively, in this Lipper category.

† The fund’s benchmark and 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.

Fund price and distribution information For the 12-month period ended 10/31/07


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

Number	12		12	12	12		12	12

Income	$0.321		$0.270	$0.270	$0.306		$0.307	$0.336

Capital gains	—		—	—	—		—	—

Total	$0.321		$0.270	$0.270	$0.306		$0.307	$0.336

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

10/31/07	6.77	7.03	6.72	6.74	6.68	6.90	6.76	6.82

Current yield (end of period)

Current dividend rate¹	4.79%	4.61%	4.11%	4.09%	4.67%	4.52%	4.62%	4.93%

Current 30-day SEC yield^2,3
(with expense limitation)	N/A	4.85	4.28	4.28	N/A	4.63	4.78	5.28

Current 30-day SEC yield³
(without expense limitation)	N/A	4.77	4.20	4.20	N/A	4.55	4.70	5.20

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 may have limited expenses, without which yields would have been lower.

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

Fund performance as of most recent calendar quarter Total return for periods ended 9/30/07


	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)	7.90%	7.82%	6.90%	6.90%	7.09%	7.09%	7.45%	7.38%	7.63%	7.97%

10 years	56.18	50.29	45.01	45.01	45.00	45.00	52.48	47.51	52.44	60.18
Annual average	4.56	4.16	3.79	3.79	3.79	3.79	4.31	3.96	4.31	4.82

5 years	21.98	17.41	17.55	15.55	17.57	17.57	20.60	16.71	20.66	23.58
Annual average	4.05	3.26	3.29	2.93	3.29	3.29	3.82	3.14	3.83	4.33

3 years	11.23	7.00	8.78	5.82	8.78	8.78	10.32	6.70	10.30	12.08
Annual average	3.61	2.28	2.84	1.90	2.84	2.84	3.33	2.19	3.32	3.87

1 year	5.03	1.12	4.42	–0.58	4.40	3.40	4.85	1.49	4.82	5.38

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 10/31/08.

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 average net 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 representative.

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 May 1, 2007, to October 31, 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*	$ 5.05	$ 8.86	$ 8.86	$ 6.32	$ 6.32	$ 3.78

Ending value (after expenses)	$1,024.40	$1,019.10	$1,020.50	$1,021.90	$1,023.20	$1,025.40

* Expenses for each share class are calculated using the fund’s annualized expense ratio for each class, which represents the ongoing expenses as a percentage of average net assets for the six months ended 10/31/07. 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 October 31, 2007, use the calculation method below. To find the value of your investment on May 1, 2007, call Putnam at 1-800-225-1581.

Compare expenses using the SEC’s method

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


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

Expenses paid per $1,000*	$ 5.04	$ 8.84	$ 8.84	$ 6.31	$ 6.31	$ 3.77

Ending value (after expenses)	$1,020.21	$1,016.43	$1,016.43	$1,018.95	$1,018.95	$1,021.48

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*	0.99%	1.74%	1.74%	1.24%	1.24%	0.74%

Average annualized expense ratio for Lipper peer group†	1.00%	1.75%	1.75%	1.25%	1.25%	0.75%

* For the fund’s most recent fiscal half year; may differ from expense ratios based on one-year data in the financial highlights.

† Putnam is committed to keeping fund expenses below the Lipper peer group average expense ratio and will limit fund expenses if they exceed the Lipper average. The Lipper average is a simple average of front-end load funds in the peer group that excludes 12b-1 fees as well as any expense offset and brokerage service arrangements that may reduce fund expenses. To facilitate the comparison in this presentation, Putnam has adjusted the Lipper 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. Investors should note that the other funds in the peer group may be significantly smaller or larger than the fund, and that an asset-weighted average would likely be lower than the simple average. Also, the fund and Lipper report expense data at different times and for different periods. The fund’s expense ratio shown here is annualized data for the most recent six-month period, while the quarte rly updated Lipper average is based on the most recent fiscal year-end data available for the peer group funds as of 9/30/07.

Your fund’s portfolio turnover and Morningstar^®Risk

Putnam funds are actively managed by teams of experts who buy and sell securities based on intensive analysis of companies, industries, economies, and markets. Portfolio turnover is a measure of how often a fund’s managers buy and sell securities for your fund. A portfolio turnover of 100%, for example, means that the managers sold and replaced securities valued at 100% of a fund’s average portfolio value within a given period. Funds with high turnover may be more likely to generate capital gains 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


	2007	2006	2005	2004	2003

Putnam Income Fund	323%*	239%*	300%*	441%	251%†

Lipper Corporate Debt Funds A Rated category average	113%	138%	152%	163%	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 2007 is based on information available as of 10/31/07.

* 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 Morningstar^®Risk

This risk comparison is designed to help you understand how your fund compares with other funds. The comparison utilizes a risk measure developed by Morningstar, an independent fund-rating agency. This risk measure is referred to as the fund’s 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 September 30, 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. Nei ther 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. Rob Bloemker is the Portfolio Leader. Kevin Cronin, Kevin Murphy, Michael Salm, and Raman Srivastava are Portfolio Members of the fund. The Portfolio Leader and Portfolio Members coordinate the team’s management of the fund. For a complete listing of the members of the Putnam Core Fixed-Income 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 October 31, 2007, and October 31, 2006.

N/A indicates the individual was not a Portfolio Leader or Portfolio Member as of 10/31/06.

Trustee and Putnam employee fund ownership

As of October 31, 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.


	Assets in the fund	Total assets in all Putnam funds

Trustees	$ 212,000	$ 92,000,000

Putnam employees	$3,366,000	$777,000,000

Other Putnam funds managed by the Portfolio Leader and Portfolio Members

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

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

Michael Salm is also a Portfolio Member of Putnam American Government Income Fund, Putnam Global Income Trust, and Putnam U.S. Government Income Trust.

Raman Srivastava is also a Portfolio Member of The George Putnam Fund of Boston and Putnam Global Income Trust.

Rob Bloemker, Kevin Cronin, Kevin Murphy, Michael Salm, 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

During the year ended October 31, 2007, Portfolio Member Rob Bloemker became Portfolio Leader and Portfolio Leader Kevin Cronin became a Portfolio Member of your fund. In addition, Portfolio Member Michael Salm joined your fund’s management team.

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.

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

Share classes

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

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

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

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

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

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

Comparative indexes

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

Merrill Lynch 91-Day Treasury Bill Index is an unmanaged index that seeks to measure the performance of U.S. Treasury bills available in the marketplace.

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 Investment Management (“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 2007, the Contract Committee met several times to consider the information provided by Putnam Management and other information developed with the assistance of the Board’s independent counsel and independent staff. The Contract Committee reviewed and discussed key aspects of this information with all of the Independent Trustees. The Contract Committee recommended, and the Independent Trustees approved, the continuance of your fund’s management contract, effective July 1, 2007.

In addition, in anticipation of the sale of Putnam Investments to Great-West Lifeco, at a series of meetings ending in March 2007, the Trustees reviewed and approved new management and distribution arrangements to take effect upon the change of control. Shareholders of all funds approved the management contracts in May 2007, and the change of control transaction was completed on August 3, 2007. Upon the change of control, the management contracts that were approved by the Trustees in June 2007 automatically terminated and were replaced by new contracts that had been approved by shareholders. In connection with their review for the June 2007 continuance of the Putnam funds’ management contracts, the Trustees did not identify any facts or circumstances that would alter the substance of the conclusions and recommendations they made in their review of the contracts to take effect upon the change of control.

The Independent Trustees’ 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 this 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 responsibilities, 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, reexamined 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 39th percentile in management fees and in the 36th percentile in total expenses (less any applicable 12b-1 fees) as of December 31, 2006 (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 had committed to maintain at least through 2007. In anticipation of the change of control of Putnam Investments, the Trustees requested, and received a commitment from Putnam Management and Great-West Lifeco, to extend this program through at least June 30, 2009. 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 extend for the twelve months beginning July 1, 2007, an additional expense limitation for certain funds at an amount equal to the average expense ratio (exclusive of 12b-1 charges) of a custom peer group of competitive funds selected by Lipper to correspond to 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 custom peer group data for the period ended December 31, 2006. This additional expense limitation will not be applied to your fund because it had a below-average expense ratio relative to its custom peer group.

• 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 con tinue to work with Putnam Management to plan for an eventual resumption in the growth of assets, and to consider the 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.

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 had met 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 recognized 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 underperformance and actions being taken to improve performance. The Trustees recognized that, in recent years, Putnam Management has made significant changes in its investment personnel and processes and in the fund product line to address areas of underperformance. In particular, they noted the important contributions of Putnam Management’s leadership in attracting, retaining and supporting high-quality investment 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, 2007 (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	39th	55th

(Because of the passage of time, these performance results may differ from the performance results for more recent periods shown elsewhere in this report. Over the one-, three- and five-year periods ended March 31, 2007, there were 169, 155 and 117 funds, respectively, in your fund’s Lipper peer group.* Past performance is no guarantee of future returns.)

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

Brokerage and soft-dollar allocations; other benefits

The Trustees considered various potential benefits that Putnam Management may receive in connection with the services it provides under the management contract with your fund. These include benefits related to brokerage and soft-dollar allocations, whereby a portion of the commissions paid by a fund for brokerage may be used to acquire research services that may be useful to Putnam Management in managing the assets of the fund and of other clients. The Trustees indicated their continued intent to monitor the potential benefits associated with the allocation of fund brokerage to ensure that the principle of seeking “best price and execution” remains paramount in the portfolio trading process.

The Trustees’ annual review of your fund’s management contract also included the review of its distributor’s contract and distribution plan with Putnam Retail Management Limited Partnership and the custodian agreement and investor servicing agreement with Putnam Fiduciary Trust Company (“PFTC”), each of which provides benefits to affiliates of Putnam Management. In the case of the custodian agreement, the Trustees considered that, effective January 1, 2007, the Putnam funds had engaged State Street Bank and Trust Company as custodian and began to transition the responsibility for providing custody services away from PFTC.

*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 September 30, 2007 were 10%, 44% and 91%, respectively. Over the one-, five- and ten-year periods ended September 30, 2007, the fund ranked 17th out of 177, 57th out of 129 and 56th out of 61, respectively. Note that this more recent information was not available when the Trustees approved the continuance of your fund’s management contract.

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.

Other information for shareholders

Putnam’s policy on confidentiality

In order to conduct business with our shareholders, we must obtain certain personal information such as account holders’ addresses, telephone numbers, Social Security numbers, and the names of their financial representatives. We use this information to assign an account number and to help us maintain accurate records of transactions and account balances. It is our policy to protect the confidentiality of your information, whether or not you currently own shares of our funds, and, in particular, not to sell information about you or your accounts to outside marketing firms. We have safeguards in place designed to prevent unauthorized access to our computer systems and procedures to protect personal information from unauthorized use. Under certain circumstances, we share this information with outside vendors who provide services to us, such as mailing and proxy solicitation. In those cases, the service providers enter into confidentiality agreements with us, and we provide only the information necessary to process transactions and perform other services related to your account. We may also share this information with our Putnam affiliates to service your account or provide you with information about other Putnam products or services. It is also our policy to share account information with your financial representative, if you’ve listed one on your Putnam account. If you would like clarification about our confidentiality policies or have any questions or concerns, please don’t hesitate to contact us at 1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time.

Proxy voting

Putnam is committed to managing our mutual funds in the best interests of our shareholders. The Putnam funds’ proxy voting guidelines and procedures, as well as information regarding how your fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2007, 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

These sections of the report, as well as the accompanying Notes, preceded by the Report of Independent Registered Public Accounting Firm, constitute the fund’s financial statements.

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

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

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

Statement of changes in net assets shows how the fund’s net assets were affected by the fund’s net investment gain or loss, by distributions to shareholders, and by changes in the number of the fund’s shares. It lists distributions and their sources (net investment income or realized capital gains) over the current reporting period and the most recent fiscal year-end. The distributions listed here may not match the sources listed in the Statement of operations because the distributions are determined on a tax basis and may be paid in a different period from the one in which they were earned.

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

Report of Independent Registered Public Accounting Firm

The Board of Trustees and Shareholders
Putnam Income Fund:

We have audited the accompanying statement of assets and liabilities of Putnam Income Fund including the fund’s portfolio, as of October 31, 2007, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years or periods in the period then ended. These financial statements and financial highlights are the responsibility of the fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform our audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2007 by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Putnam Income Fund as of October 31, 2007, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years or periods in the period then ended, in conformity with U.S. generally accepted accounting principles.

Boston, Massachusetts
December 14, 2007

The fund’s portfolio 10/31/07


COLLATERALIZED MORTGAGE OBLIGATIONS (50.6%)*

	Principal amount			Value

Amresco Commercial Mortgage
Funding I 144A Ser. 97-C1,
Class H, 7s, 2029	$	693,831	$	691,850
Asset Securitization Corp.
Ser. 96-MD6, Class A7,
7.866s, 2029		2,210,850		2,331,127
FRB Ser. 97-D5, Class A5,
6.925s, 2043		300,000		312,362
Banc of America Commercial
Mortgage, Inc.
FRB Ser. 07-3, Class A3,
5.659s, 2049		2,003,000		2,022,236
Ser. 06-4, Class A4, 5.634s, 2046		4,180,000		4,227,858
Ser. 06-5, Class A4, 5.414s, 2047		4,948,000		4,930,474
FRB Ser. 05-1, Class A5,
4.967s, 2042		163,000		162,170
Ser. 07-1, Class XW, Interest Only
(IO), 0.292s, 2049		19,180,621		404,195
Ser. 06-1, Class XC, IO,
0.053s, 2045		112,641,502		770,896
Banc of America Commercial
Mortgage, Inc. 144A
Ser. 01-PB1, Class K, 6.15s, 2035		880,000		864,593
Ser. 02-PB2, Class XC, IO,
0.186s, 2035		51,190,773		901,837
Ser. 04-4, Class XC, IO,
0.121s, 2042		40,196,040		608,936
Ser. 04-5, Class XC, IO,
0.102s, 2041		62,360,180		779,492
Ser. 05-1, Class XW, IO,
0.086s, 2042		216,756,959		693,176
Ser. 06-4, Class XC, IO,
0.069s, 2046		67,372,902		808,475
Ser. 05-4, Class XC, IO,
0.064s, 2045		104,142,121		730,880
Ser. 06-5, Class XC, IO,
0.048s, 2016		137,521,593		2,064,698
Banc of America Large Loan
FRB Ser. 04-BBA4, Class H,
6.041s, 2018		443,000		441,007
FRB Ser. 04-BBA4, Class G,
5.791s, 2018		595,000		592,808
Banc of America Large Loan 144A
FRB Ser. 05-MIB1, Class K,
7.091s, 2022		669,000		654,132
FRB Ser. 05-MIB1, Class J,
6.141s, 2022		1,805,000		1,760,283
Ser. 03-BBA2, Class X1A, IO,
0.175s, 2015 (F)		6,303,219		1
Banc of America Mortgage Securities
FRB Ser. 03-F, Class 2A1,
3.734s, 2033		721,968		712,943
IFB Ser. 06-2, Class A4, IO,
0.528s, 2046		3,240,651		33,542
Ser. 04-D, Class 2A, IO,
0.335s, 2034		15,548,752		30,368
Ser. 05-E, Class 2, IO,
0.305s, 2035		41,858,774		196,213


COLLATERALIZED MORTGAGE OBLIGATIONS (50.6%)* continued

	Principal amount			Value
Banc of America Structured
Security Trust 144A Ser. 02-X1,
Class A3, 5.436s, 2033	$	2,075,998	$	2,073,222
Bayview Commercial Asset Trust 144A
FRB Ser. 05-1A, Class A1,
5.173s, 2035		1,690,868		1,674,805
Ser. 04-2, IO, 1.72s, 2034		5,182,925		321,341
Ser. 05-3A, IO, 1.6s, 2035		19,529,958		1,408,875
Ser. 05-1A, IO, 1.6s, 2035		7,209,622		482,143
Ser. 04-3, IO, 1.6s, 2035		5,741,034		361,685
Ser. 07-5A, IO, 1.55s, 2037		18,484,139		2,938,978
Ser. 07-2A, IO, 1.3s, 2037		21,510,899		2,714,676
Ser. 07-1, Class S, IO,
1.211s, 2037		16,776,870		1,865,588
Ser. 06-4A, Class IO, IO,
1.14s, 2036		2,728,966		319,698
Ser. 06-2A, IO, 0.879s, 2036		3,594,786		304,108
Bear Stearns Alternate Trust
Ser. 04-9, Class 1A1, 7.215s, 2034		321,127		321,177
Bear Stearns Commercial Mortgage
Securities, Inc.
FRB Ser. 00-WF2, Class F,
8.184s, 2032		619,000		651,687
Ser. 07-PW17, Class A3,
5.736s, 2050		25,117,000		25,343,631
Ser. 04-PR3I, Class X1, IO,
0.092s, 2041		20,238,148		383,047
Ser. 05-PWR9, Class X1, IO,
0.079s, 2042		51,332,012		475,211
Bear Stearns Commercial Mortgage
Securities, Inc. 144A
Ser. 06-BBA7, Class X1A, IO,
1.791s, 2019		23,555,657		41,406
Ser. 06-PW14, Class XW, IO,
0.691s, 2038		25,502,754		1,202,638
Ser. 06-PW14, Class X1, IO,
0.047s, 2038		27,425,347		467,959
Ser. 07-PW15, Class X1, IO,
0.042s, 2044		80,190,774		970,597
Ser. 05-PW10, Class X1, IO,
0.032s, 2040		110,368,579		467,301
Ser. 07-PW16, Class X, IO,
0.021s, 2040		176,054,778		191,407
Bear Stearns Small Balance
Commercial Trust 144A Ser. 06-1A,
Class AIO, IO, 1s, 2034		11,807,000		181,717
Chase Commercial Mortgage
Securities Corp. Ser. 00-3,
Class A2, 7.319s, 2032		736,000		770,380
Chase Commercial Mortgage
Securities Corp. 144A
Ser. 98-1, Class F, 6.56s, 2030		5,896,000		5,900,596
Ser. 98-1, Class G, 6.56s, 2030		1,502,003		1,547,982
Ser. 98-1, Class H, 6.34s, 2030		2,217,000		1,934,581
Citigroup Commercial
Mortgage Trust 144A
Ser. 05-C3, Class XC, IO,
0.092s, 2043		143,787,832		1,437,878
Ser. 06-C5, Class XC, IO,
0.049s, 2049		163,732,279		2,302,485


COLLATERALIZED MORTGAGE OBLIGATIONS (50.6%)* continued

		Principal amount		Value
Citigroup Mortgage Loan
Trust, Inc. IFB Ser. 07-6,
Class 2A5, IO, 1.778s, 2037	$	6,503,028	$	301,451
Citigroup/Deutsche Bank Commercial
Mortgage Trust Ser. 06-CD3,
Class A4, 5.658s, 2048		1,266,000		1,269,516
Citigroup/Deutsche Bank
Commercial Mortgage Trust 144A
Ser. 07-CD4, Class XW, IO,
0.378s, 2049		34,889,000		872,225
Ser. 06-CD2, Class X, IO,
0.086s, 2046		105,037,099		562,159
Ser. 07-CD4, Class XC, IO,
0.041s, 2049		116,665,000		1,093,734
Commercial Mortgage
Acceptance Corp. 144A
Ser. 98-C1, Class F, 6.23s, 2031		2,605,530		2,607,749
Ser. 98-C2, Class F, 5.44s, 2030		4,946,000		4,765,594
Commercial Mortgage Pass-Through
Certificates 144A
Ser. 06-CN2A, Class H, 5.57s, 2019		1,271,000		1,255,261
Ser. 06-CN2A, Class J, 5.57s, 2019		1,017,000		997,177
FRB Ser. 01-J2A, Class A2F,
5.56s, 2034		1,960,000		1,950,200
Ser. 03-LB1A, Class X1, IO,
0.425s, 2038		12,043,935		480,553
Ser. 05-C6, Class XC, IO,
0.059s, 2044		86,062,715		561,387
Ser. 05-LP5, Class XC, IO,
0.056s, 2043		74,896,181		702,152
Ser. 06-C8, Class XS, IO,
0.045s, 2046		81,384,766		1,045,957
Countrywide Alternative Loan Trust
Ser. 05-24, Class 1AX, IO,
1.195s, 2035		10,360,344		198,463
Ser. 05-24, Class IIAX, IO,
1.158s, 2035		12,526,887		316,730
IFB Ser. 06-6CB, Class 1A3, IO,
0.228s, 2036		22,726,851		135,547
Countrywide Home Loans
Ser. 05-9, Class 1X, IO,
1.991s, 2035		12,228,670		267,502
Ser. 06-0A5, Class X, IO,
2.435s, 2046		25,425,273		997,149
Ser. 05-2, Class 2X, IO,
1.16s, 2035		13,574,060		260,877
Countrywide Home Loans 144A
IFB Ser. 05-R1, Class 1AS, IO,
0.981s, 2035		8,103,632		340,293
IFB Ser. 05-R2, Class 2A3, 8s, 2035		938,789		966,952
IFB Ser. 05-R2, Class 1AS, IO,
0.602s, 2035		10,562,153		374,079
Credit Suisse Mortgage
Capital Certificates
FRB Ser. 07-C4, Class A2,
5.811s, 2039		6,463,000		6,569,853
Ser. 06-C5, Class AX, IO,
0.065s, 2039		51,750,963		855,806


COLLATERALIZED MORTGAGE OBLIGATIONS (50.6%)* continued

		Principal amount		Value
Credit Suisse Mortgage
Capital Certificates 144A
Ser. 07-C2, Class AX, IO,
0.114s, 2049	$	159,489,279	$	1,651,671
Ser. 06-C4, Class AX, IO,
0.092s, 2039		103,896,344		1,741,337
Ser. 07-C1, Class AX, IO,
0.051s, 2040		104,069,863		1,062,033
Ser. 06-C3, Class AX, IO,
0.023s, 2038		429,358,388		335,329
CRESI Finance Limited
Partnership 144A
FRB Ser. 06-A, Class D,
5.673s, 2017		308,000		292,255
FRB Ser. 06-A, Class C,
5.473s, 2017		913,000		875,621
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		3,490,791
CS First Boston Mortgage
Securities Corp.
Ser. 97-C2, Class F, 7.46s, 2035		1,193,000		1,301,190
Ser. 04-C2, Class A2, 5.416s, 2036		6,060,000		6,048,789
FRB Ser. 04-C3, Class A5,
5.113s, 2036		59,000		57,868
Ser. 04-C3, Class A3, 4.302s, 2036		127,000		124,970
CS First Boston Mortgage
Securities Corp. 144A
FRB Ser. 05-TFLA, Class J,
6.041s, 2020		323,500		321,074
FRB Ser. 04-TF2A, Class J,
6.041s, 2016		414,000		408,825
FRB Ser. 04-TF2A, Class H,
5.791s, 2019		825,000		816,750
Ser. 01-CK1, Class AY, IO,
0.774s, 2035		83,484,000		1,474,014
Ser. 03-C3, Class AX, IO,
0.747s, 2038		105,761,400		4,022,830
Ser. 02-CP3, Class AX, IO,
0.353s, 2035		23,128,042		877,928
Ser. 04-C4, Class AX, IO,
0.184s, 2039		15,261,974		337,580
Ser. 05-C2, Class AX, IO,
0.112s, 2037		84,662,388		1,234,124
Deutsche Mortgage & Asset
Receiving Corp. Ser. 98-C1,
Class X, IO, 0.525s, 2031		483,497		5,949
DLJ Commercial Mortgage Corp.
Ser. 00-CF1, Class A1B,
7.62s, 2033		2,874,775		3,015,068
Ser. 99-CG2, Class B3, 6.1s, 2032		2,455,000		2,464,223
Ser. 99-CG2, Class B4, 6.1s, 2032		3,434,000		3,371,167
Ser. 98-CF2, Class B3, 6.04s, 2031		1,075,367		1,090,840


COLLATERALIZED MORTGAGE OBLIGATIONS (50.6%)* continued

		Principal amount		Value
Fannie Mae
IFB Ser. 07-64, Class LS,
15.188s, 2037	$	1,980,166	$	2,438,079
IFB Ser. 06-70, Class SM,
13.409s, 2036		522,863		614,282
IFB Ser. 07-75, Class JS,
13.38s, 2037		3,381,842		4,128,079
IFB Ser. 07-75, Class CS,
11.393s, 2037		2,115,795		2,566,329
IFB Ser. 07-75, Class ES,
10.965s, 2036		2,141,714		2,458,955
IFB Ser. 06-62, Class PS,
10.665s, 2036		1,167,012		1,363,207
IFB Ser. 07-80, Class AS,
10.38s, 2037		1,260,483		1,427,174
IFB Ser. 07-60, Class SB,
10.365s, 2037		1,306,598		1,441,523
IFB Ser. 06-76, Class QB,
10.365s, 2036		2,267,082		2,641,020
IFB Ser. 06-79, Class PS,
10.365s, 2036		1,260,316		1,516,975
IFB Ser. 06-48, Class TQ,
10.365s, 2036		3,780,404		4,325,340
Ser. 03-W6, Class PT1,
10.069s, 2042		711,063		783,205
IFB Ser. 06-63, Class SP,
10.065s, 2036		2,469,453		2,836,275
IFB Ser. 07-W7, Class 1A4,
9.945s, 2037		1,987,388		2,156,804
IFB Ser. 05-37, Class SU,
9.71s, 2035		3,167,539		3,543,994
IFB Ser. 06-49, Class SE,
9.51s, 2036		3,489,755		3,885,893
Ser. 02-T12, Class A4, 9 1/2s, 2042		266,505		290,985
Ser. 02-T4, Class A4, 9 1/2s, 2041		424,514		464,949
Ser. 02-T6, Class A3, 9 1/2s, 2041		543,634		595,850
Ser. 02-T1, Class A4, 9 1/2s, 2031		57,283		62,821
IFB Ser. 06-104, Class GS,
9.365s, 2036		1,321,447		1,478,142
IFB Ser. 06-60, Class AK,
9.31s, 2036		1,769,717		1,957,908
Ser. 04-T3, Class PT1,
9.163s, 2044		483,490		526,110
IFB Ser. 06-60, Class TK,
9.11s, 2036		1,136,472		1,245,867
IFB Ser. 06-104, Class ES,
9.088s, 2036		2,561,314		2,863,424
IFB Ser. 07-1, Class NK,
8.951s, 2037		5,727,384		6,438,496
IFB Ser. 07-81, Class SC,
8.565s, 2037		2,028,768		2,172,706
IFB Ser. 06-104, Class CS,
7.774s, 2036		2,476,866		2,586,401
Ser. 02-26, Class A2, 7 1/2s, 2048		2,311,826		2,432,876
Ser. 04-T3, Class 1A4, 7 1/2s, 2044		658,547		698,955
Ser. 04-T2, Class 1A4, 7 1/2s, 2043		1,038,588		1,102,312
Ser. 03-W1, Class 2A, 7 1/2s, 2042		2,051,666		2,158,532
Ser. 02-T19, Class A3, 7 1/2s, 2042		4,453,304		4,695,935


COLLATERALIZED MORTGAGE OBLIGATIONS (50.6%)* continued

		Principal amount		Value
Fannie Mae
Ser. 02-T12, Class A3, 7 1/2s, 2042	$	380,693	$	399,873
Ser. 02-14, Class A2, 7 1/2s, 2042		494,810		510,819
Ser. 01-T10, Class A2, 7 1/2s, 2041		2,562,047		2,689,471
Ser. 02-T4, Class A3, 7 1/2s, 2041		151,787		160,180
Ser. 01-T12, Class A2, 7 1/2s, 2041		2,245,414		2,367,685
Ser. 01-T3, Class A1, 7 1/2s, 2040		481,187		506,137
Ser. 01-T1, Class A1, 7 1/2s, 2040		850,888		892,104
Ser. 99-T2, Class A1, 7 1/2s, 2039		282,088		298,462
Ser. 03-W10, Class 1A1,
7 1/2s, 2032		1,041,713		1,094,701
Ser. 02-T1, Class A3, 7 1/2s, 2031		416,693		438,764
Ser. 00-T6, Class A1, 7 1/2s, 2030		1,773,075		1,871,037
Ser. 01-T5, Class A3, 7 1/2s, 2030		252,626		264,810
Ser. 01-T4, Class A1, 7 1/2s, 2028		5,421,828		5,770,668
IFB Ser. 07-30, Class FS,
7.26s, 2037		5,645,981		5,845,281
IFB Ser. 06-115, Class ES,
7.07s, 2036		2,315,439		2,487,847
Ser. 02-26, Class A1, 7s, 2048		1,508,739		1,571,827
Ser. 04-T3, Class 1A3, 7s, 2044		1,524,456		1,596,070
Ser. 04-T2, Class 1A3, 7s, 2043		1,161,910		1,216,734
Ser. 03-W3, Class 1A2, 7s, 2042		706,131		736,244
Ser. 02-T16, Class A2, 7s, 2042		1,444,589		1,505,806
Ser. 02-14, Class A1, 7s, 2042		385,165		400,401
Ser. 01-W3, Class A, 7s, 2041		487,703		509,525
Ser. 05-W4, Class 1A3, 7s, 2035		1,881,430		1,966,282
Ser. 04-W1, Class 2A2, 7s, 2033		3,924,490		4,112,462
IFB Ser. 06-8, Class PK, 6.91s, 2036		3,613,710		3,686,747
IFB Ser. 05-74, Class CP,
6.884s, 2035		1,844,940		1,949,393
IFB Ser. 05-57, Class CD,
6.853s, 2035		1,657,126		1,731,861
IFB Ser. 05-74, Class SK,
6.731s, 2035		3,491,383		3,623,911
IFB Ser. 06-27, Class SP,
6.701s, 2036		2,816,000		2,977,903
IFB Ser. 06-8, Class HP,
6.701s, 2036		3,084,707		3,233,582
IFB Ser. 06-8, Class WK,
6.701s, 2036		4,903,982		5,105,400
IFB Ser. 05-106, Class US,
6.701s, 2035		4,430,794		4,673,006
IFB Ser. 05-99, Class SA,
6.701s, 2035		2,189,449		2,271,500
IFB Ser. 05-115, Class NQ,
6.666s, 2036		1,045,523		1,063,184
IFB Ser. 05-74, Class CS,
6.621s, 2035		2,102,677		2,173,748
IFB Ser. 05-45, Class DA,
6.554s, 2035		3,386,853		3,527,449
IFB Ser. 05-74, Class DM,
6.517s, 2035		4,352,193		4,517,345
Ser. 381, Class 14, IO, 6 1/2s, 2037		2,910,798		697,682
Ser. 381, Class 16, IO, 6 1/2s, 2037		669,787		158,865
Ser. 381, Class 15, IO, 6 1/2s, 2037		1,235,712		306,418
Ser. 371, Class 2, IO, 6 1/2s, 2036		18,839,580		4,699,941
IFB Ser. 05-45, Class DC,
6.444s, 2035		2,671,020		2,770,651


COLLATERALIZED MORTGAGE OBLIGATIONS (50.6%)* continued

		Principal amount		Value
Fannie Mae
IFB Ser. 06-60, Class CS,
6.224s, 2036	$	1,121,074	$	1,096,779
IFB Ser. 05-114, Class SP,
6.181s, 2036		1,295,388		1,286,129
IFB Ser. 05-57, Class DC,
5.939s, 2034		3,084,431		3,175,553
IFB Ser. 07-96, Class AS,
5.788s, 2037		2,348,530		2,326,879
IFB Ser. 05-45, Class PC,
5.633s, 2034		1,432,039		1,461,584
IFB Ser. 05-95, Class CP,
5.415s, 2035		335,438		340,141
IFB Ser. 05-95, Class OP,
5.305s, 2035		1,283,542		1,239,713
IFB Ser. 05-106, Class JC,
5.016s, 2035		783,411		739,324
IFB Ser. 05-83, Class QP,
4.726s, 2034		751,843		718,797
IFB Ser. 05-72, Class SB,
4.694s, 2035		2,516,821		2,445,748
IFB Ser. 07-W6, Class 6A2, IO,
2.928s, 2037		3,045,895		243,228
IFB Ser. 06-90, Class SE, IO,
2.928s, 2036		2,933,903		325,975
IFB Ser. 03-66, Class SA, IO,
2.778s, 2033		3,657,276		343,016
IFB Ser. 07-W6, Class 5A2, IO,
2.418s, 2037		4,009,927		302,290
IFB Ser. 07-W4, Class 4A2, IO,
2.408s, 2037		17,858,208		1,268,392
IFB Ser. 07-W2, Class 3A2, IO,
2.408s, 2037		5,266,827		378,392
IFB Ser. 05-113, Class AI, IO,
2.358s, 2036		953,642		85,743
IFB Ser. 05-113, Class DI, IO,
2.358s, 2036		41,135,586		3,138,802
IFB Ser. 05-52, Class DC, IO,
2.328s, 2035		2,562,905		290,052
IFB Ser. 06-60, Class SI, IO,
2.278s, 2036		5,262,606		458,513
IFB Ser. 04-24, Class CS, IO,
2.278s, 2034		5,111,177		424,448
IFB Ser. 07-W7, Class 3A2, IO,
2.258s, 2037		8,033,667		531,506
IFB Ser. 03-122, Class SA, IO,
2.228s, 2028		6,630,463		382,103
IFB Ser. 03-122, Class SJ, IO,
2.228s, 2028		7,014,296		409,969
Ser. 03-W12, Class 2, IO,
2.226s, 2043		5,268,680		303,490
IFB Ser. 06-60, Class DI, IO,
2.198s, 2035		2,779,782		189,243
IFB Ser. 04-60, Class SW, IO,
2.178s, 2034		9,379,236		816,702
IFB Ser. 05-65, Class KI, IO,
2.128s, 2035		19,947,610		1,351,447
Ser. 03-W10, Class 3, IO,
1.932s, 2043		8,090,218		402,756


COLLATERALIZED MORTGAGE OBLIGATIONS (50.6%)* continued

		Principal amount		Value
Fannie Mae
Ser. 03-W10, Class 1, IO,
1.928s, 2043	$	21,014,468	$	1,034,461
IFB Ser. 07-54, Class CI, IO,
1.888s, 2037		3,482,056		263,623
IFB Ser. 07-39, Class PI, IO,
1.888s, 2037		3,374,307		228,750
IFB Ser. 07-30, Class WI, IO,
1.888s, 2037		28,911,570		1,884,454
IFB Ser. 07-W4, Class 3A2, IO,
1.878s, 2037		17,446,069		1,035,396
IFB Ser. 07-28, Class SE, IO,
1.878s, 2037		3,624,497		261,252
IFB Ser. 06-128, Class SH, IO,
1.878s, 2037		4,100,824		270,268
IFB Ser. 06-56, Class SM, IO,
1.878s, 2036		10,418,585		708,113
IFB Ser. 06-12, Class SD, IO,
1.878s, 2035		13,890,923		1,089,285
IFB Ser. 05-73, Class SI, IO,
1.878s, 2035		2,101,230		129,561
IFB Ser. 05-17, Class ES, IO,
1.878s, 2035		4,186,760		293,900
IFB Ser. 05-17, Class SY, IO,
1.878s, 2035		1,933,881		135,686
IFB Ser. 07-W5, Class 2A2, IO,
1.868s, 2037		1,657,684		71,603
IFB Ser. 07-30, Class IE, IO,
1.868s, 2037		9,482,628		809,088
IFB Ser. 06-123, Class CI, IO,
1.868s, 2037		8,267,571		606,780
IFB Ser. 06-123, Class UI, IO,
1.868s, 2037		3,564,038		253,479
IFB Ser. 05-82, Class SY, IO,
1.858s, 2035		8,582,709		525,779
IFB Ser. 05-45, Class SR, IO,
1.848s, 2035		11,464,547		698,251
IFB Ser. 07-15, Class BI, IO,
1.828s, 2037		6,027,054		422,006
IFB Ser. 06-23, Class SC, IO,
1.828s, 2036		4,906,322		347,049
IFB Ser. 06-16, Class SM, IO,
1.828s, 2036		3,201,308		225,638
IFB Ser. 05-95, Class CI, IO,
1.828s, 2035		4,722,463		350,457
IFB Ser. 05-84, Class SG, IO,
1.828s, 2035		7,951,953		601,453
IFB Ser. 05-54, Class SA, IO,
1.828s, 2035		8,250,610		516,265
IFB Ser. 05-23, Class SG, IO,
1.828s, 2035		6,253,686		471,459
IFB Ser. 05-104, Class NI, IO,
1.828s, 2035		5,421,761		395,069
IFB Ser. 05-17, Class SA, IO,
1.828s, 2035		5,433,411		425,481
IFB Ser. 05-17, Class SE, IO,
1.828s, 2035		5,912,342		457,598
IFB Ser. 05-57, Class DI, IO,
1.828s, 2035		12,186,275		780,272


COLLATERALIZED MORTGAGE OBLIGATIONS (50.6%)* continued

		Principal amount		Value
Fannie Mae
IFB Ser. 05-104, Class SI, IO,
1.828s, 2033	$	6,560,651	$	428,220
IFB Ser. 05-83, Class QI, IO,
1.818s, 2035		1,267,544		103,295
IFB Ser. 06-128, Class GS, IO,
1.808s, 2037		3,978,339		293,933
IFB Ser. 05-83, Class SL, IO,
1.798s, 2035		13,782,640		900,426
Ser. 06-116, Class ES, IO,
1.778s, 2036		2,981,643		181,190
IFB Ser. 07-63, Class SB, IO,
1.778s, 2037		25,006,744		1,436,125
IFB Ser. 06-114, Class IS, IO,
1.778s, 2036		4,183,958		272,173
IFB Ser. 06-115, Class GI, IO,
1.768s, 2036		3,665,095		259,790
IFB Ser. 06-115, Class IE, IO,
1.768s, 2036		3,101,685		225,540
IFB Ser. 06-117, Class SA, IO,
1.768s, 2036		4,758,756		304,994
IFB Ser. 06-121, Class SD, IO,
1.768s, 2036		8,855,810		575,209
IFB Ser. 06-109, Class SG, IO,
1.758s, 2036		5,591,304		367,451
IFB Ser. 06-104, Class IM, IO,
1.748s, 2036		1,379,912		92,533
IFB Ser. 06-104, Class SY, IO,
1.748s, 2036		3,046,572		187,537
IFB Ser. 06-109, Class SH, IO,
1.748s, 2036		4,047,713		319,408
Ser. 06-104, Class SG, IO,
1.728s, 2036		6,987,284		438,941
IFB Ser. 07-W6, Class 4A2, IO,
1.728s, 2037		15,802,033		948,841
IFB Ser. 06-128, Class SC, IO,
1.728s, 2037		13,524,106		898,616
IFB Ser. 06-44, Class IS, IO,
1.728s, 2036		5,785,632		363,752
IFB Ser. 06-45, Class SM, IO,
1.728s, 2036		6,427,240		357,136
IFB Ser. 06-8, Class JH, IO,
1.728s, 2036		14,540,268		1,069,098
IFB Ser. 05-122, Class SG, IO,
1.728s, 2035		3,223,463		225,360
IFB Ser. 05-95, Class OI, IO,
1.718s, 2035		706,986		59,430
IFB Ser. 06-92, Class JI, IO,
1.708s, 2036		2,930,141		192,615
IFB Ser. 06-92, Class LI, IO,
1.708s, 2036		4,615,833		301,390
IFB Ser. 06-96, Class ES, IO,
1.708s, 2036		5,130,930		329,918
IFB Ser. 06-99, Class AS, IO,
1.708s, 2036		3,509,660		237,646
IFB Ser. 06-85, Class TS, IO,
1.688s, 2036		6,972,105		423,870
IFB Ser. 06-61, Class SE, IO,
1.678s, 2036		7,197,448		416,611


COLLATERALIZED MORTGAGE OBLIGATIONS (50.6%)* continued

		Principal amount		Value
Fannie Mae
IFB Ser. 07-75, Class PI, IO,
1.668s, 2037	$	5,024,254	$	304,847
IFB Ser. 07-76, Class SA, IO,
1.668s, 2037		5,151,213		261,762
IFB Ser. 07-W7, Class 2A2, IO,
1.658s, 2037		12,529,549		730,706
Ser. 03-W8, Class 12, IO,
1.638s, 2042		37,795,695		1,727,306
IFB Ser. 07-90, Class S, IO,
1.638s, 2037		7,745,905		311,046
Ser. 06-94, Class NI, IO, 1.628s,
2036		3,403,570		205,670
IFB Ser. 07-W8, Class 2A2, IO,
1.578s, 2037		9,426,512		529,981
IFB Ser. 06-70, Class WI, IO,
1.578s, 2036		3,185,927		136,398
IFB Ser. 07-30, Class JS, IO,
1.568s, 2037		8,403,385		520,899
IFB Ser. 07-30, Class LI, IO,
1.568s, 2037		12,725,557		825,172
IFB Ser. 07-W4, Class 2A2, IO,
1.548s, 2037		20,237,651		1,065,634
IFB Ser. 07-54, Class IA, IO,
1.538s, 2037		4,344,147		277,310
IFB Ser. 07-54, Class IB, IO,
1.538s, 2037		4,344,147		277,310
IFB Ser. 07-54, Class IC, IO,
1.538s, 2037		4,344,147		277,310
IFB Ser. 07-54, Class ID, IO,
1.538s, 2037		4,344,147		277,310
IFB Ser. 07-54, Class IE, IO,
1.538s, 2037		4,344,147		277,310
IFB Ser. 07-54, Class IF, IO,
1.538s, 2037		6,462,891		412,561
IFB Ser. 07-54, Class UI, IO,
1.538s, 2037		5,213,739		355,975
IFB Ser. 07-56, Class SA, IO,
1.538s, 2037		2,963,436		146,986
IFB Ser. 07-91, Class AS, IO,
1.528s, 2037		3,277,757		192,893
IFB Ser. 07-91, Class HS, IO,
1.528s, 2037		3,788,029		222,280
IFB Ser. 07-15, Class CI, IO,
1.508s, 2037		15,208,611		950,322
IFB Ser. 06-123, Class BI, IO,
1.508s, 2037		20,088,828		1,216,921
IFB Ser. 06-115, Class JI, IO,
1.508s, 2036		11,084,467		693,013
IFB Ser. 07-103, Class AI, IO,
1.465s, 2037		21,911,539		1,266,761
IFB Ser. 06-123, Class LI, IO,
1.448s, 2037		7,436,246		436,332
IFB Ser. 07-39, Class AI, IO,
1.248s, 2037		7,780,795		414,225
IFB Ser. 07-32, Class SD, IO,
1.238s, 2037		5,188,399		262,231
IFB Ser. 07-33, Class SD, IO,
1.238s, 2037		14,738,883		765,717


COLLATERALIZED MORTGAGE OBLIGATIONS (50.6%)* continued

		Principal amount		Value
Fannie Mae
IFB Ser. 07-30, Class UI, IO,
1.228s, 2037	$	4,265,272	$	231,476
IFB Ser. 07-32, Class SC, IO,
1.228s, 2037		6,885,973		343,431
IFB Ser. 07-1, Class CI, IO,
1.228s, 2037		5,014,237		263,630
IFB Ser. 05-74, Class SE, IO,
1.228s, 2035		10,252,718		455,823
IFB Ser. 05-82, Class SI, IO,
1.228s, 2035		16,038,371		714,559
IFB Ser. 07-W4, Class 1A2, IO,
1.218s, 2037		60,282,244		2,780,383
IFB Ser. 07-W5, Class 1A2, IO,
1.208s, 2037		9,066,034		323,886
IFB Ser. 07-4, Class PS, IO,
1.183s, 2037		19,520,702		895,969
FRB Ser. 03-W17, Class 12, IO,
1.15s, 2033		10,067,490		385,585
IFB Ser. 05-58, Class IK, IO,
1.128s, 2035		5,325,278		315,967
Ser. 03-W19, IO, 1.097s, 2033		1,138,704		35,776
IFB Ser. 07-75, Class ID, IO,
0.998s, 2037		4,296,752		211,902
Ser. 03-W10, Class 3A, IO,
0.839s, 2043		818,693		13,256
Ser. 03-T2, Class 2, IO,
0.819s, 2042		59,460,781		1,290,138
Ser. 03-W10, Class 1A, IO,
0.816s, 2043		677,934		9,400
Ser. 03-18, Class X1, IO,
0.689s, 2042		27,887,642		357,938
Ser. 03-W6, Class 51, IO,
0.685s, 2042		15,909,988		253,043
Ser. 03-W3, Class 2IO1, IO,
0.68s, 2042		23,629,886		437,052
Ser. 06-W3, Class 1AS, IO,
0.662s, 2046		18,809,416		781,766
Ser. 01-T12, Class IO, 0.565s, 2041		26,835,517		324,600
Ser. 03-W2, Class 1, IO, 0.47s, 2042		31,156,860		343,902
Ser. 01-50, Class B1, IO,
0.458s, 2041		3,736,816		31,874
Ser. 02-T4, IO, 0.452s, 2041		15,027,960		143,406
Ser. 03-W3, Class 1, IO,
0.442s, 2042		20,908,003		278,531
Ser. 02-T1, Class IO, IO,
0.428s, 2031		23,670,921		230,665
Ser. 03-W6, Class 3, IO,
0.367s, 2042		21,438,068		210,318
Ser. 03-W6, Class 23, IO,
0.351s, 2042		22,960,633		216,958
Ser. 03-34, Class P1, Principal
Only (PO), zero %, 2043		103,018		69,505
Ser. 06-84, Class OP, PO,
zero %, 2036		27,263		26,975
Ser. 372, Class 1, PO, zero %, 2036		38,984,427		29,755,027
Ser. 06-56, Class XF, zero %, 2036		318,406		319,693
Ser. 04-38, Class AO, PO,
zero %, 2034		4,927,161		3,538,253


COLLATERALIZED MORTGAGE OBLIGATIONS (50.6%)* continued

		Principal amount		Value
Fannie Mae
Ser. 04-61, Class CO, PO,
zero %, 2031	$	4,853,768	$	3,969,265
Ser. 07-31, Class TS, IO,
zero %, 2009		12,414,616		150,669
Ser. 07-15, Class IM, IO,
zero %, 2009		4,849,773		54,684
Ser. 07-16, Class TS, IO,
zero %, 2009		20,593,288		239,446
FRB Ser. 07-76, Class SF,
zero %, 2037		208,013		211,374
FRB Ser. 06-115, Class SN,
zero %, 2036		1,738,864		1,824,997
FRB Ser. 06-104, Class EK,
zero %, 2036		519,340		520,880
FRB Ser. 05-117, Class GF,
zero %, 2036		259,317		233,669
FRB Ser. 05-65, Class ER,
zero %, 2035		3,246,725		3,131,693
FRB Ser. 05-57, Class UL,
zero %, 2035		3,059,400		3,010,950
FRB Ser. 05-36, Class QA,
zero %, 2035		599,338		545,494
FRB Ser. 05-65, Class CU,
zero %, 2034		427,612		511,491
FRB Ser. 05-81, Class DF,
zero %, 2033		351,017		363,630
FRB Ser. 06-1, Class HF,
zero %, 2032		375,771		365,526
IFB Ser. 06-75, Class FY,
zero %, 2036		800,730		824,130
Federal Home Loan Mortgage Corp.
Structured Pass-Through Securities
Ser. T-42, Class A6, 9 1/2s, 2042		278,156		297,071
Ser. T-58, Class 4A, 7 1/2s, 2043		1,469,592		1,553,966
Ser. T-51, Class 2A, 7 1/2s, 2042		1,573,751		1,653,655
Ser. T-42, Class A5, 7 1/2s, 2042		1,043,515		1,102,473
Ser. T-60, Class 1A2, 7s, 2044		4,825,733		5,053,985
Ser. T-41, Class 2A, 7s, 2032		109,468		113,778
Ser. T-56, Class A, IO, 0.524s, 2043		13,217,222		189,445
Ser. T-56, Class 3, IO, 0.379s, 2043		13,436,481		94,055
Ser. T-56, Class 1, IO, 0.284s, 2043		16,894,596		67,578
Ser. T-56, Class 2, IO, 0.03s, 2043		15,486,289		15,486
FFCA Secured Lending Corp. 144A
Ser. 00-1, Class A2, 7.77s, 2027		5,032,817		5,422,264
First Union National Bank-Bank
of America Commercial Mortgage
144A Ser. 01-C1, Class 3, IO,
1.685s, 2033		40,155,430		1,762,173
First Union-Lehman Brothers
Commercial Mortgage Trust II
Ser. 97-C2, Class F, 7 1/2s, 2029		3,492,000		3,749,189
Ser. 97-C2, Class G, 7 1/2s, 2029		1,156,000		1,261,208
First Union-Lehman Brothers-Bank
of America 144A Ser. 98-C2,
Class G, 7s, 2035		4,500,000		4,723,650


COLLATERALIZED MORTGAGE OBLIGATIONS (50.6%)* continued

		Principal amount		Value
Freddie Mac
IFB Ser. 3339, Class JS,
9.742s, 2037	$	1,856,019	$	2,137,473
IFB Ser. 3339, Class WS,
9.721s, 2037		2,043,750		2,470,632
IFB Ser. 3355, Class KS,
9.174s, 2037		1,709,577		1,836,727
IFB Ser. 3202, Class PS,
8.692s, 2036		1,092,080		1,245,286
IFB Ser. 3349, Class SA,
8.453s, 2037		6,774,478		7,584,834
IFB Ser. 3331, Class SE,
8.453s, 2037		1,705,128		1,865,731
IFB Ser. 3182, Class PS,
8.235s, 2032		2,930,413		3,314,094
IFB Ser. 3202, Class HM,
7.794s, 2036		773,228		860,973
IFB Ser. 3081, Class DC,
6.249s, 2035		1,773,743		1,851,789
IFB Ser. 3114, Class GK,
6.035s, 2036		1,209,765		1,258,296
Ser. 3382, Class SB, IO, 6s, 2037 ##		8,689,000		266,317
IFB Ser. 2976, Class KL,
5.715s, 2035		3,231,387		3,324,767
IFB Ser. 3149, Class SU,
5.662s, 2036		1,517,477		1,486,236
IFB Ser. 2990, Class DP,
5.605s, 2034		2,781,585		2,841,195
IFB Ser. 2979, Class AS,
5.605s, 2034		789,964		799,262
IFB Ser. 3065, Class DC,
4.586s, 2035		2,772,829		2,660,849
IFB Ser. 3360, Class SC,
4.348s, 2037		2,968,739		2,840,644
IFB Ser. 2990, Class LB,
3.933s, 2034		3,341,678		3,149,573
IFB Ser. 2990, Class WP,
3.893s, 2035		2,060,575		2,023,575
IFB Ser. 2927, Class SI, IO,
3.409s, 2035		4,655,932		562,429
IFB Ser. 2828, Class GI, IO,
2.409s, 2034		5,353,360		533,377
IFB Ser. 3184, Class SP, IO,
2.259s, 2033		5,514,088		439,922
IFB Ser. 2869, Class SH, IO,
2.209s, 2034		2,536,094		167,420
IFB Ser. 2869, Class JS, IO,
2.159s, 2034		12,264,780		794,511
IFB Ser. 3203, Class SH, IO,
2.049s, 2036		3,127,721		284,475
IFB Ser. 2755, Class SG, IO,
2.009s, 2031		5,942,404		428,840
IFB Ser. 2815, Class PT, IO,
1.959s, 2032		5,322,376		400,242
IFB Ser. 2828, Class TI, IO,
1.959s, 2030		2,535,850		177,855
IFB Ser. 3297, Class BI, IO,
1.669s, 2037		13,092,321		975,498
IFB Ser. 3284, Class IV, IO,
1.659s, 2037		3,334,909		264,301


COLLATERALIZED MORTGAGE OBLIGATIONS (50.6%)* continued

		Principal amount		Value
Freddie Mac
IFB Ser. 3287, Class SD, IO,
1.659s, 2037	$	5,346,136	$	378,923
IFB Ser. 3281, Class BI, IO,
1.659s, 2037		2,563,069		181,724
IFB Ser. 3028, Class ES, IO,
1.659s, 2035		13,476,933		1,002,353
IFB Ser. 2922, Class SE, IO,
1.659s, 2035		6,574,458		411,430
IFB Ser. 3045, Class DI, IO,
1.639s, 2035		14,254,231		898,555
Ser. 3236, Class ES, IO,
1.609s, 2036		5,181,568		333,556
IFB Ser. 3136, Class NS, IO,
1.609s, 2036		8,236,405		531,328
IFB Ser. 3118, Class SD, IO,
1.609s, 2036		10,493,604		614,832
IFB Ser. 3054, Class CS, IO,
1.609s, 2035		2,806,718		146,681
IFB Ser. 3107, Class DC, IO,
1.609s, 2035		14,201,501		1,093,035
IFB Ser. 3129, Class SP, IO,
1.609s, 2035		5,875,177		318,891
IFB Ser. 3066, Class SI, IO,
1.609s, 2035		8,930,987		666,347
IFB Ser. 2927, Class ES, IO,
1.609s, 2035		3,676,860		204,831
IFB Ser. 2950, Class SM, IO,
1.609s, 2016		7,242,988		459,888
IFB Ser. 3256, Class S, IO,
1.599s, 2036		6,112,110		454,354
IFB Ser. 3031, Class BI, IO,
1.599s, 2035		2,526,170		204,938
IFB Ser. 3244, Class SB, IO,
1.569s, 2036		3,674,097		250,399
IFB Ser. 3244, Class SG, IO,
1.569s, 2036		4,227,443		297,836
IFB Ser. 3326, Class GS, IO,
1.559s, 2037		20,035,121		1,110,911
IFB Ser. 3236, Class IS, IO,
1.559s, 2036		6,886,396		452,484
IFB Ser. 3147, Class SH, IO,
1.559s, 2036		12,677,089		922,716
IFB Ser. 2962, Class BS, IO,
1.559s, 2035		15,358,874		926,971
IFB Ser. 3114, Class TS, IO,
1.559s, 2030		29,500,046		1,693,165
IFB Ser. 3128, Class JI, IO,
1.539s, 2036		8,713,915		623,709
IFB Ser. 2990, Class LI, IO,
1.539s, 2034		4,976,100		362,822
IFB Ser. 3240, Class S, IO,
1.529s, 2036		12,878,316		877,942
IFB Ser. 3229, Class BI, IO,
1.529s, 2036		1,144,667		69,843
IFB Ser. 3153, Class JI, IO,
1.529s, 2036		6,531,732		383,948
IFB Ser. 3065, Class DI, IO,
1.529s, 2035		1,942,625		156,646


COLLATERALIZED MORTGAGE OBLIGATIONS (50.6%)* continued

		Principal amount		Value
Freddie Mac
IFB Ser. 3145, Class GI, IO,
1.509s, 2036	$	7,134,115	$	538,114
IFB Ser. 3114, Class GI, IO,
1.509s, 2036		2,890,596		236,105
IFB Ser. 3218, Class AS, IO,
1.489s, 2036		4,692,848		284,315
IFB Ser. 3221, Class SI, IO,
1.489s, 2036		5,556,749		353,044
IFB Ser. 3153, Class UI, IO,
1.479s, 2036		13,101,691		1,049,272
IFB Ser. 3202, Class PI, IO,
1.449s, 2036		15,104,263		968,640
IFB Ser. 3355, Class MI, IO,
1.409s, 2037		3,531,531		207,726
IFB Ser. 3355, Class LI, IO,
1.409s, 2037		4,200,066		181,106
IFB Ser. 3201, Class SG, IO,
1.409s, 2036		7,020,799		445,683
IFB Ser. 3203, Class SE, IO,
1.409s, 2036		6,306,970		394,145
IFB Ser. 3171, Class PS, IO,
1.394s, 2036		5,904,715		380,079
IFB Ser. 3152, Class SY, IO,
1.389s, 2036		6,429,876		453,473
IFB Ser. 3284, Class BI, IO,
1.359s, 2037		4,179,081		249,266
IFB Ser. 3199, Class S, IO,
1.359s, 2036		3,565,651		214,157
IFB Ser. 3284, Class LI, IO,
1.349s, 2037		16,917,120		1,078,354
IFB Ser. 3281, Class AI, IO,
1.339s, 2037		15,352,943		980,179
IFB Ser. 3311, Class IA, IO,
1.319s, 2037		6,127,029		404,633
IFB Ser. 3311, Class IB, IO,
1.319s, 2037		6,127,029		404,633
IFB Ser. 3311, Class IC, IO,
1.319s, 2037		6,127,029		404,633
IFB Ser. 3311, Class ID, IO,
1.319s, 2037		6,127,029		404,633
IFB Ser. 3311, Class IE, IO,
1.319s, 2037		8,786,276		580,251
IFB Ser. 3274, Class JS, IO,
1.319s, 2037		12,137,995		653,428
IFB Ser. 3240, Class GS, IO,
1.289s, 2036		7,782,880		481,797
IFB Ser. 3339, Class TI, IO,
1.049s, 2037		6,777,421		378,601
IFB Ser. 3288, Class SJ, IO,
1.039s, 2037		6,888,570		321,614
IFB Ser. 3284, Class CI, IO,
1.029s, 2037		11,657,743		628,127
IFB Ser. 3291, Class SA, IO,
1.019s, 2037		7,380,999		375,944
IFB Ser. 3016, Class SQ, IO,
1.019s, 2035		5,584,179		218,804
IFB Ser. 3284, Class WI, IO,
1.009s, 2037		19,341,250		1,009,245


COLLATERALIZED MORTGAGE OBLIGATIONS (50.6%)* continued

		Principal amount		Value
Freddie Mac
IFB Ser. 3286, Class SA, IO,
1.009s, 2037	$	8,437,853	$	358,604
IFB Ser. 3235, Class SA, IO,
0.859s, 2036		3,278,936		136,928
Ser. 246, PO, zero %, 2037		32,592,737		24,979,915
Ser. 3300, PO, zero %, 2037		3,349,194		2,632,966
Ser. 242, PO, zero %, 2036		51,803,197		39,749,030
Ser. 239, PO, zero %, 2036		16,268,289		12,322,789
FRB Ser. 3349, Class DO,
zero %, 2037		804,948		790,960
FRB Ser. 3327, Class YF,
zero %, 2037		1,508,970		1,518,327
FRB Ser. 3326, Class XF,
zero %, 2037		2,149,708		2,063,863
FRB Ser. 3326, Class YF,
zero %, 2037		5,773,144		6,091,422
FRB Ser. 3263, Class TA,
zero %, 2037		484,944		542,102
FRB Ser. 3239, Class BF,
zero %, 2036		1,914,906		2,062,491
FRB Ser. 3341, Class FA,
zero %, 2036		228,027		222,693
FRB Ser. 3231, Class XB,
zero %, 2036		1,254,473		1,265,475
FRB Ser. 3283, Class HF,
zero %, 2036		168,149		179,222
FRB Ser. 3174, Class SF,
zero %, 2036		817,851		832,692
FRB Ser. 3149, Class XF,
zero %, 2036		760,903		764,644
FRB Ser. 3231, Class X,
zero %, 2036		642,147		679,432
FRB Ser. 3147, Class SF,
zero %, 2036		2,144,576		2,192,450
FRB Ser. 3122, Class GF,
zero %, 2036		1,521,521		1,540,262
FRB Ser. 3117, Class AF,
zero %, 2036		303,640		326,115
FRB Ser. 3326, Class WF,
zero %, 2035		2,924,659		2,762,165
FRB Ser. 3036, Class AS,
zero %, 2035		274,495		275,591
FRB Ser. 3003, Class XF,
zero %, 2035		2,637,758		2,546,886
GE Capital Commercial
Mortgage Corp. 144A
Ser. 05-C3, Class XC, IO,
0.059s, 2045		289,984,367		1,461,231
Ser. 05-C2, Class XC, IO,
0.054s, 2043		120,510,606		874,674
Ser. 07-C1, Class XC, IO,
0.042s, 2019		241,300,928		1,704,353
GMAC Commercial Mortgage
Securities, Inc.
Ser. 99-C3, Class F, 7.833s, 2036		488,000		504,006
Ser. 01-C2, Class A1, 6 1/4s, 2034		269,193		271,401
Ser. 97-C1, Class X, IO, 1.315s, 2029		5,465,835		310,864
Ser. 05-C1, Class X1, IO, 0.
166s, 2043		101,905,898		1,365,335


COLLATERALIZED MORTGAGE OBLIGATIONS (50.6%)* continued

		Principal amount		Value
GMAC Commercial Mortgage
Securities, Inc. 144A
Ser. 99-C3, Class G, 6.974s, 2036	$	2,095,341	$	2,127,989
Ser. 06-C1, Class XC, IO,
0.056s, 2045		172,364,252		1,144,671
Government National
Mortgage Association
IFB Ser. 06-17, Class SN,
32.891s, 2035		178,148		396,779
IFB Ser. 07-26, Class WS,
14.43s, 2037		4,850,194		6,570,565
IFB Ser. 07-38, Class AS,
11.2s, 2037		4,476,493		5,376,003
IFB Ser. 07-44, Class SP,
10.343s, 2036		2,188,388		2,524,888
IFB Ser. 06-34, Class SA,
9.555s, 2036		501,372		554,126
IFB Ser. 07-51, Class SP,
9.495s, 2037		2,700,128		2,969,423
IFB Ser. 07-35, Class DK,
8.561s, 2035		971,520		1,074,270
IFB Ser. 07-64, Class AM,
7.45s, 2037		3,300,000		3,396,422
IFB Ser. 05-7, Class JM,
5.643s, 2034		3,293,825		3,312,110
IFB Ser. 05-66, Class SP,
3.967s, 2035		1,705,219		1,611,302
IFB Ser. 06-62, Class SI, IO,
2.383s, 2036		5,396,404		388,269
IFB Ser. 07-1, Class SL, IO,
2.363s, 2037		2,507,495		196,852
IFB Ser. 07-1, Class SM, IO,
2.353s, 2037		2,506,581		196,017
IFB Ser. 07-26, Class SG, IO,
1.853s, 2037		7,008,306		486,969
IFB Ser. 07-9, Class BI, IO,
1.823s, 2037		16,193,797		1,012,301
IFB Ser. 07-25, Class SA, IO,
1.803s, 2037		5,759,272		339,900
IFB Ser. 07-25, Class SB, IO,
1.803s, 2037		11,174,862		659,517
IFB Ser. 07-26, Class LS, IO,
1.803s, 2037		14,575,285		984,275
IFB Ser. 07-26, Class SA, IO,
1.803s, 2037		16,032,580		924,735
IFB Ser. 07-22, Class S, IO,
1.803s, 2037		3,740,625		285,363
IFB Ser. 07-11, Class SA, IO,
1.803s, 2037		3,890,252		262,227
IFB Ser. 07-14, Class SB, IO,
1.803s, 2037		3,780,208		252,611
IFB Ser. 06-69, Class SA, IO,
1.803s, 2036		8,386,109		512,431
IFB Ser. 07-51, Class SJ, IO,
1.753s, 2037		4,316,884		337,413
IFB Ser. 07-26, Class SD, IO,
1.74s, 2037		7,985,375		524,215


COLLATERALIZED MORTGAGE OBLIGATIONS (50.6%)* continued

		Principal amount		Value
Government National
Mortgage Association
IFB Ser. 07-26, Class SL, IO,
1.74s, 2037	$	725,697	$	46,563
IFB Ser. 06-38, Class SG, IO,
1.653s, 2033		16,307,986		749,264
IFB Ser. 07-53, Class SG, IO,
1.603s, 2037		3,082,454		174,767
IFB Ser. 07-48, Class SB, IO,
1.59s, 2037		7,143,852		377,348
IFB Ser. 07-53, Class ES, IO,
1.553s, 2037		4,903,386		232,082
IFB Ser. 07-58, Class PS, IO,
1.55s, 2037		17,717,142		1,306,639
IFB Ser. 07-59, Class SP, IO,
1.54s, 2037		8,769,000		591,908
IFB Ser. 07-59, Class PS, IO,
1.54s, 2037		3,279,000		223,894
IFB Ser. 07-9, Class DI, IO,
1.513s, 2037		8,183,097		442,183
IFB Ser. 07-53, Class SC, IO,
1.503s, 2037		5,583,566		233,248
IFB Ser. 06-28, Class GI, IO,
1.503s, 2035		5,813,432		309,726
IFB Ser. 07-64, Class AI, IO,
1.49s, 2037		26,300,000		1,333,600
IFB Ser. 07-9, Class AI, IO,
1.44s, 2037		6,355,224		388,322
IFB Ser. 07-36, Class SY, IO,
1.41s, 2037		5,202,413		284,972
IFB Ser. 07-57, Class QA, IO,
1.38s, 2037		10,378,000		535,116
IFB Ser. 07-61, Class SA, IO,
1.369s, 2037		5,525,000		300,512
IFB Ser. 05-65, Class SI, IO,
1.353s, 2035		5,946,220		325,422
IFB Ser. 07-58, Class SA, IO,
1.35s, 2037		34,460,000		1,863,011
IFB Ser. 07-58, Class SC, IO,
1.35s, 2037		8,089,000		364,005
IFB Ser. 07-58, Class SD, IO,
1.34s, 2037		7,592,000		336,379
IFB Ser. 07-59, Class SD, IO,
1.34s, 2037		17,450,000		897,039
IFB Ser. 06-14, Class S, IO,
1.253s, 2036		5,777,975		278,374
IFB Ser. 06-11, Class ST, IO,
1.243s, 2036		3,592,651		169,854
IFB Ser. 07-27, Class SD, IO,
1.203s, 2037		4,103,388		182,247
IFB Ser. 07-19, Class SJ, IO,
1.203s, 2037		6,973,650		301,935
IFB Ser. 07-23, Class ST, IO,
1.203s, 2037		8,519,316		331,851
IFB Ser. 07-8, Class SA, IO,
1.203s, 2037		14,992,569		735,939
IFB Ser. 07-9, Class CI, IO,
1.203s, 2037		10,647,922		471,039


COLLATERALIZED MORTGAGE OBLIGATIONS (50.6%)* continued

		Principal amount		Value
Government National
Mortgage Association
IFB Ser. 07-7, Class EI, IO,
1.203s, 2037	$	7,117,169	$	299,437
IFB Ser. 07-1, Class S, IO,
1.203s, 2037		9,200,020		402,551
IFB Ser. 07-3, Class SA, IO,
1.203s, 2037		8,767,800		379,710
IFB Ser. 07-21, Class S, IO,
1.14s, 2037		8,599,797		417,363
IFB Ser. 07-31, Class AI, IO,
1.12s, 2037		3,725,136		277,057
IFB Ser. 07-43, Class SC, IO,
1.04s, 2037		5,582,701		228,872
Ser. 99-31, Class MP, PO,
zero %, 2029		96,472		81,517
FRB Ser. 07-49, Class UF,
zero %, 2037		560,975		558,457
FRB Ser. 07-35, Class UF,
zero %, 2037		635,071		679,598
FRB Ser. 07-22, Class TA,
zero %, 2037		552,416		593,027
FRB Ser. 98-2, Class EA, PO,
zero %, 2028		852,493		690,178
Government National Mortgage
Association 144A IFB Ser. 06-GG8,
Class X, IO, 0.857s, 2039		35,747,351		1,337,733
Greenpoint Mortgage Funding Trust
Ser. 05-AR1, Class X1, IO,
2.473s, 2045		8,498,614		199,186
Greenwich Capital Commercial
Funding Corp.
Ser. 07-GG9, Class A4, 5.444s, 2039		2,148,000		2,108,061
Ser. 05-GG5, Class XC, IO,
0.05s, 2037		236,277,246		922,958
Greenwich Capital Commercial
Funding Corp. 144A
Ser. 07-GG9, Class X, IO,
0.324s, 2039		33,047,850		748,740
Ser. 05-GG3, Class XC, IO,
0.142s, 2042		122,196,113		1,909,314
GS Mortgage Securities Corp. II
FRB Ser. 07-GG10, Class A3,
5.799s, 2045		3,813,000		3,868,989
FRB Ser. 07-GG10, Class AM,
5.799s, 2045		14,172,000		14,330,882
Ser. 06-GG8, Class A4, 5.56s, 2039		5,341,000		5,341,427
Ser. 04-GG2, Class A6,
5.396s, 2038		5,069,000		5,064,235
Ser. 05-GG4, Class A4,
4.761s, 2039		127,000		121,132
GS Mortgage Securities Corp. II 144A
FRB Ser. 03-FL6A, Class L,
8.341s, 2015		748,000		744,260
Ser. 98-C1, Class F, 6s, 2030		1,627,000		1,626,919
FRB Ser. 07-EOP, Class J,
5.972s, 2009		610,000		590,175


COLLATERALIZED MORTGAGE OBLIGATIONS (50.6%)* continued

		Principal amount		Value
GS Mortgage Securities Corp. II 144A
Ser. 03-C1, Class X1, IO,
0.529s, 2040	$	33,182,895	$	600,918
Ser. 05-GG4, Class XC, IO,
0.178s, 2039		132,749,669		2,167,553
Ser. 04-C1, Class X1, IO,
0.158s, 2028		44,095,532		246,315
Ser. 06-GG6, Class XC, IO,
0.038s, 2038		146,658,632		446,851
GSMPS Mortgage Loan Trust 144A IFB
Ser. 04-4, Class 1AS, IO, 0.6s, 2034		11,363,381		503,928
GSR Mortgage Loan Trust
Ser. 05-AR2, Class 2A1,
4.836s, 2035 (F)		2,482,909		2,459,050
IFB Ser. 06-4F, Class 4A2, IO,
2.278s, 2036		3,396,912		170,825
JPMorgan Chase Commercial
Mortgage Securities Corp.
Ser. 97-C5, Class F, 7.561s, 2029		1,171,000		1,253,286
FRB Ser. 07-LD12, Class AM,
6.063s, 2051		19,592,000		20,127,645
FRB Ser. 07-LD12, Class A3,
5.991s, 2051		41,526,000		42,343,647
Ser. 07-CB20, Class A3,
5.863s, 2051		9,549,000		9,634,082
FRB Ser. 07-LD11, Class A3,
5.819s, 2049		4,755,000		4,822,664
FRB Ser. 07-LD11, Class AM,
5.819s, 2049		6,011,000		6,070,148
Ser. 06-CB15, Class A4,
5.814s, 2043		6,028,000		6,107,390
Ser. 07-CB20, Class A4,
5.794s, 2051		11,459,000		11,657,699
Ser. 06-CB16, Class A4,
5.552s, 2045		5,705,000		5,672,025
Ser. 06-CB14, Class A4,
5.481s, 2044		5,624,000		5,587,107
FRB Ser. 07-LDPX, Class AM,
5.464s, 2049		6,116,000		5,945,914
Ser. 06-CB14, Class AM,
5.441s, 2044		5,894,000		5,834,530
FRB Ser. 04-PNC1, Class A4,
5.372s, 2041		48,000		48,001
Ser. 05-CB12, Class A4,
4.895s, 2037		128,000		123,117
Ser. 04-C3, Class A5, 4.878s, 2042		122,000		117,565
Ser. 05-LDP2, Class AM,
4.78s, 2042		2,030,000		1,928,689
Ser. 06-LDP8, Class X, IO,
0.574s, 2045		47,416,321		1,877,686
Ser. 06-CB17, Class X, IO,
0.514s, 2043		57,743,069		2,129,564
Ser. 06-LDP9, Class X, IO,
0.456s, 2047		36,693,029		1,118,404
Ser. 07-LDPX, Class X, IO,
0.348s, 2049		71,144,516		1,597,906
Ser. 06-CB16, Class X1, IO,
0.057s, 2045		54,105,368		800,759
Ser. 06-LDP7, Class X, IO,
0.009s, 2045		298,474,875		279,820


COLLATERALIZED MORTGAGE OBLIGATIONS (50.6%)* continued

		Principal amount		Value
JPMorgan Chase Commercial
Mortgage Securities Corp. 144A
Ser. 00-C9, Class G, 6 1/4s, 2032	$	1,515,000	$	1,529,306
Ser. 06-FL2A, Class X1, IO,
0.855s, 2018		20,155,455		30,233
Ser. 03-ML1A, Class X1, IO,
0.616s, 2039		19,767,120		634,710
Ser. 05-LDP2, Class X1, IO,
0.11s, 2042		237,171,403		3,937,415
Ser. 05-LDP1, Class X1, IO,
0.096s, 2046		70,273,024		639,594
Ser. 05-CB12, Class X1, IO,
0.096s, 2037		68,915,661		662,237
Ser. 05-LDP3, Class X1, IO,
0.062s, 2042		171,506,648		1,299,700
Ser. 06-CB14, Class X1, IO,
0.06s, 2044		58,403,135		255,514
Ser. 06-LDP6, Class X1, IO,
0.05s, 2043		95,177,679		501,914
Ser. 07-CB20, Class X1, IO,
0.049s, 2051		121,803,000		1,579,785
Ser. 05-LDP5, Class X1, IO,
0.044s, 2044		445,112,449		2,051,692
LB Commercial Conduit
Mortgage Trust 144A
Ser. 99-C1, Class F, 6.41s, 2031		926,463		939,739
Ser. 99-C1, Class G, 6.41s, 2031		991,777		1,035,319
Ser. 98-C4, Class G, 5.6s, 2035		784,000		790,330
Ser. 98-C4, Class H, 5.6s, 2035		1,328,000		1,264,237
LB-UBS Commercial
Mortgage Trust
Ser. 01-C3, Class A2, 6.365s, 2028		43,000		44,320
Ser. 07-C6, Class AM, 6.114s, 2017		13,576,000		13,809,344
Ser. 07-C6, Class A2, 5.845s, 2012		12,934,000		13,253,315
Ser. 04-C7, Class A6, 4.786s, 2029		2,341,000		2,268,798
Ser. 07-C2, Class XW, IO,
0.536s, 2040		15,399,960		600,121
LB-UBS Commercial
Mortgage Trust 144A
Ser. 03-C5, Class XCL, IO,
0.908s, 2037		37,174,340		552,794
Ser. 06-C7, Class XW, IO,
0.719s, 2038		41,027,109		1,830,958
Ser. 05-C3, Class XCL, IO,
0.174s, 2040		70,672,416		1,480,425
Ser. 05-C2, Class XCL, IO,
0.146s, 2040		216,291,843		2,329,402
Ser. 05-C5, Class XCL, IO,
0.12s, 2020		105,486,052		1,470,899
Ser. 05-C7, Class XCL, IO,
0.081s, 2040		156,409,122		1,335,717
Ser. 06-C1, Class XCL, IO,
0.068s, 2041		167,232,983		1,770,189
Ser. 07-C2, Class XCL, IO,
0.065s, 2040		132,332,215		2,136,500
Ser. 06-C7, Class XCL, IO,
0.064s, 2038		63,528,906		1,097,716


COLLATERALIZED MORTGAGE OBLIGATIONS (50.6%)* continued

		Principal amount		Value
Lehman Brothers Floating Rate
Commercial Mortgage Trust 144A
FRB Ser. 04-LLFA, Class H,
6.041s, 2017	$	826,000	$	817,740
FRB Ser. 05-LLFA, 5.891s, 2018		534,000		532,665
Lehman Mortgage Trust
IFB Ser. 06-7, Class 1A9,
11.685s, 2036		1,078,481		1,222,889
IFB Ser. 07-5, Class 4A3,
10.845s, 2037		2,935,592		3,260,579
IFB Ser. 06-7, Class 4A2, IO,
2.878s, 2036		4,819,738		316,300
IFB Ser. 07-5, Class 8A2, IO,
2.848s, 2036		5,419,125		329,112
Ser. 07-1, Class 3A2, IO,
2.378s, 2037		5,399,397		407,302
IFB Ser. 06-9, Class 3A2, IO,
2.358s, 2037		3,266,619		225,378
IFB Ser. 07-4, Class 3A2, IO,
2.328s, 2037		4,516,845		267,863
IFB Ser. 06-6, Class 5A2, IO,
1.628s, 2036		5,514,219		158,279
IFB Ser. 06-5, Class 2A2, IO,
2.278s, 2036		10,009,680		540,389
IFB Ser. 07-2, Class 2A13, IO,
1.818s, 2037		7,489,592		441,324
IFB Ser. 07-4, Class 2A2, IO,
1.798s, 2037		17,614,605		1,012,526
IFB Ser. 07-1, Class 2A3, IO,
1.758s, 2037		8,509,619		538,554
Ser. 06-9, Class 2A3, IO,
1.748s, 2036		11,295,899		694,836
IFB Ser. 06-9, Class 2A2, IO,
1.748s, 2037		7,932,265		489,018
IFB Ser. 06-8, Class 2A2, IO,
1.708s, 2036		724,349		32,729
IFB Ser. 06-7, Class 2A4, IO,
1.678s, 2036		15,939,435		705,747
IFB Ser. 06-7, Class 2A5, IO,
1.678s, 2036		14,448,725		824,841
IFB Ser. 06-6, Class 1A2, IO,
1.628s, 2036		5,853,630		261,448
IFB Ser. 06-6, Class 1A3, IO,
1.628s, 2036		8,106,971		414,193
IFB Ser. 07-5, Class 10A2, IO,
1.468s, 2037		8,766,726		348,173
IFB Ser. 06-5, Class 1A3, IO,
0.528s, 2036		2,700,915		25,327
IFB Ser. 06-4, Class 1A3, IO,
0.528s, 2036		2,174,229		29,409
IFB Ser. 06-7, Class 1A3, IO,
0.478s, 2036		6,739,690		72,901
IFB Ser. 06-9, Class 1A6, IO,
0.278s, 2037		5,498,310		45,869
Local Insight Media Finance, LLC
Ser. 07-1W, Class A1, 5.53s, 2012		7,030,000		6,926,747


COLLATERALIZED MORTGAGE OBLIGATIONS (50.6%)* continued

		Principal amount		Value
MASTR Adjustable Rate
Mortgages Trust
Ser. 04-7, Class 2A1, 7.266s, 2034	$	277,667	$	273,336
FRB Ser. 04-13, Class 3A6,
3.786s, 2034		3,642,000		3,549,685
Ser. 06-OA1, Class X, IO,
2.092s, 2046		6,488,773		194,663
Ser. 04-03, Class 4AX, IO,
1.417s, 2034		2,899,662		50,744
Ser. 05-2, Class 7AX, IO,
0.168s, 2035		7,453,475		27,951
Merrill Lynch Capital Funding Corp.
Ser. 06-4, Class XC, IO, 0.062s, 2049		124,912,058		1,795,611
Merrill Lynch Floating Trust 144A
Ser. 06-1, Class X1TM, IO,
6.166s, 2022		12,038,000		1,348
FRB Ser. 06-1, Class TM,
5.591s, 2022		1,221,546		1,224,145
Ser. 06-1, Class X1A, IO,
1.844s, 2022		25,212,185		337,843
Merrill Lynch Mortgage
Investors, Inc.
FRB Ser. 98-C3, Class E,
6.904s, 2030		826,000		890,921
FRB Ser. 05-A9, Class 3A1,
5.278s, 2035		6,113,204		6,089,123
Ser. 96-C2, Class JS, IO, 2.263s,
2028 (F)		1,043,707		84,689
Merrill Lynch Mortgage
Investors, Inc. 144A
Ser. 04-FM1N, Class N1, 5s, 2035
(Cayman Islands) (In default) †		14,631		14,411
Merrill Lynch Mortgage Trust
FRB Ser. 07-C1, Class A3,
5.83s, 2050		2,626,000		2,671,633
FRB Ser. 07-C1, Class A4,
5.83s, 2050		2,411,000		2,447,788
FRB Ser. 07-C1, Class AM,
5.83s, 2050		2,598,000		2,610,916
FRB Ser. 04-BPC1, Class A5,
4.855s, 2041		125,000		120,443
FRB Ser. 05-MCP1, Class A4,
4.747s, 2043		121,000		115,452
Ser. 05-MCP1, Class XC, IO,
0.091s, 2043		86,668,873		1,117,216
Merrill Lynch Mortgage
Trust 144A
Ser. 04-KEY2, Class XC, IO,
0.247s, 2039		19,728,514		416,919
Ser. 05-LC1, Class X, IO,
0.236s, 2044		47,520,307		389,815
Merrill Lynch/Countrywide
Commercial Mortgage Trust FRB
Ser. 07-8, Class A2, 5.92s, 2049		4,620,000		4,716,121
Merrill Lynch/Countrywide
Commercial Mortgage Trust 144A
Ser. 06-1, Class X, IO, 0.134s, 2039		125,561,586		598,379
Ser. 06-3, Class XC, IO,
0.055s, 2046		71,880,031		1,099,764
Ser. 07-7, Class X, IO, 0.02s, 2050		253,693,000		951,349


COLLATERALIZED MORTGAGE OBLIGATIONS (50.6%)* continued

		Principal amount		Value
Mezz Cap Commercial
Mortgage Trust 144A
Ser. 04-C1, Class X, IO,
7.798s, 2037	$	4,045,948	$	1,202,405
Ser. 04-C2, Class X, IO,
6.004s, 2040		1,986,707		572,420
Ser. 05-C3, Class X, IO,
5.555s, 2044		3,670,130		1,023,049
Ser. 06-C4, Class X, IO,
5.095s, 2016		12,962,910		4,214,397
Morgan Stanley Capital 144A
Ser. 05-RR6, Class X, IO, 1 5/8s, 2043		13,275,705		701,621
Morgan Stanley Capital I
FRB Ser. 06-IQ11, Class A4,
5.774s, 2042		6,028,000		6,161,817
FRB Ser. 07-IQ14, Class AM,
5.691s, 2049		2,866,000		2,847,413
Ser. 07-HQ11, Class A4,
5.447s, 2044		3,820,000		3,781,949
Ser. 05-HQ6, Class A4A,
4.989s, 2042		5,354,000		5,277,225
Ser. 04-HQ4, Class A7, 4.97s, 2040		2,771,000		2,695,518
Morgan Stanley Capital I 144A
Ser. 98-HF1, Class F, 7.18s, 2030		498,000		499,464
Ser. 04-RR, Class F5, 6s, 2039		1,350,000		975,537
Ser. 04-RR, Class F6, 6s, 2039		2,030,000		1,307,361
Ser. 05-HQ6, Class X1, IO,
0.1s, 2042		111,976,033		1,131,157
Ser. 05-HQ5, Class X1, IO, 0.095s,
2042 (F)		29,841,878		223,031
Mortgage Capital Funding, Inc. FRB
Ser. 98-MC2, Class E, 7.085s, 2030		1,389,000		1,408,363
Permanent Financing PLC FRB
Ser. 8, Class 2C, 6.124s, 2042
(United Kingdom)		2,413,000		2,399,140
PNC Mortgage Acceptance
Corp. 144A
Ser. 99-CM1, Class B3, 7.1s, 2032		4,971,000		5,092,591
Ser. 00-C1, Class J, 6 5/8s, 2010		309,000		292,169
Ser. 00-C2, Class J, 6.22s, 2033		1,499,000		1,513,735
Residential Asset Securitization Trust
IFB Ser. 07-A3, Class 2A2, IO,
1.818s, 2037		17,574,617		1,029,922
IFB Ser. 06-A7CB, Class 1A6, IO,
0.678s, 2036		1,610,694		26,327
Residential Funding Mortgage
Securities I Ser. 04-S5,
Class 2A1, 4 1/2s, 2019		4,948,887		4,696,014
Salomon Brothers Mortgage
Securities VII 144A Ser. 02-KEY2,
Class X1, IO, 0.772s, 2036		33,684,116		1,590,912
SBA CMBS Trust 144A Ser. 05-1A,
Class D, 6.219s, 2035		770,000		785,666
STRIPS 144A
Ser. 03-1A, Class L, 5s, 2018
(Cayman Islands)		993,000		922,792
Ser. 03-1A, Class M, 5s, 2018
(Cayman Islands)		673,000		604,386
Ser. 04-1A, Class L, 5s, 2018
(Cayman Islands)		443,000		406,729


COLLATERALIZED MORTGAGE OBLIGATIONS (50.6%)* continued

		Principal amount		Value
Structured Adjustable Rate
Mortgage Loan Trust
Ser. 04-8, Class 1A3, 7.22s, 2034	$	17,877	$	18,081
FRB Ser. 07-8, Class 1A2,
6 1/4s, 2037		16,465,211		16,618,338
FRB Ser. 05-18, Class 6A1, 5.249s,
2035 (F)		2,815,083		2,811,761
Ser. 05-9, Class AX, IO,
1.177s, 2035		28,577,646		448,669
Structured Asset Securities Corp.
IFB Ser. 07-4, Class 1A3, IO,
1.378s, 2037		63,426,212		2,931,473
Ser. 07-4, Class 1A4, IO, 1s, 2037		63,426,213		1,952,209
Structured Asset Securities Corp. 144A
Ser. 98-RF3, Class A, IO, 6.1s, 2028		4,173,652		349,644
Ser. 07-RF1, Class 1A, IO,
0.674s, 2037		19,723,456		501,526
Ser. 06-RF4, Class 1A, IO,
0.356s, 2036		9,201,837		310,419
Wachovia Bank Commercial
Mortgage Trust
Ser. 04-C15, Class A4, 4.803s, 2041		4,128,000		3,993,558
Ser. 06-C28, Class XC, IO,
0.381s, 2048		28,359,355		705,014
Ser. 06-C29, IO, 0.374s, 2048		136,879,418		3,743,652
Wachovia Bank Commercial
Mortgage Trust 144A
FRB Ser. 05-WL5A, Class L, 8.391s,
2018		944,000		941,640
Ser. 03-C3, Class IOI, IO,
0.504s, 2035		21,382,248		624,600
Ser. 07-C31, IO, 0.261s, 2047		119,867,631		2,284,677
Ser. 05-C18, Class XC, IO,
0.091s, 2042		50,423,400		513,814
Ser. 06-C27, Class XC, IO,
0.063s, 2045		61,782,190		531,327
Ser. 06-C23, Class XC, IO,
0.053s, 2045		295,716,627		1,762,471
Ser. 06-C26, Class XC, IO,
0.041s, 2045		22,362,581		83,189
WAMU Commercial Mortgage
Securities Trust 144A Ser. 07-SL2,
Class X, IO, 0.854s, 2049		21,423,929		942,310
Washington Mutual 144A
Ser. 06-SL1, Class X, IO, 0.955s, 2043		10,344,636		511,977
Washington Mutual Asset
Securities Corp. 144A
Ser. 05-C1A, Class G, 5.72s, 2036		219,000		202,327
Washington Mutual Mortgage
Pass-Through Certificates
Ser. 07-2, Class CX, IO, 7s, 2037		1,307,511		211,318
Washington Mutual Multi-Fam.,
Mtge. 144A Ser. 01-1, Class B5,
7.188s, 2031 (Cayman Islands)		1,793,000		1,700,547


COLLATERALIZED MORTGAGE OBLIGATIONS (50.6%)* continued

		Principal amount		Value
Wells Fargo Mortgage
Backed Securities Trust
Ser. 06-AR10, Class 3A1,
5.332s, 2036	$	3,743,239	$	3,706,173
Ser. 05-AR2, Class 2A1,
4.546s, 2035		1,804,710		1,778,274
Ser. 04-R, Class 2A1, 4.361s, 2034		1,825,758		1,796,945
Ser. 05-AR9, Class 1A2,
4.353s, 2035		1,453,837		1,430,343
Ser. 05-AR12, Class 2A5,
4.318s, 2035		26,265,000		25,794,077
Ser. 05-AR10, Class 2A18, IO,
0.61s, 2035		56,771,000		435,168


Total collateralized mortgage obligations
(cost $1,134,067,601)			$1,153,928,742



U.S. GOVERNMENT AND AGENCY MORTGAGE OBLIGATIONS (26.5%)*

		Principal amount		Value

U.S. Government Guaranteed
Mortgage Obligations (4.3%)
Government National Mortgage
Association Graduated
Payment Mortgages 11s, with
due dates from March 15, 2010
to August 15, 2010	$	6,055	$	6,478
Government National
Mortgage Association
Pass-Through Certificates
6 1/2s, August 20, 2037		79,619,571		81,865,092
6 1/2s, TBA, November 1, 2036		15,200,00		15,613,250
				97,484,820


U.S. Government Agency
Mortgage Obligations (22.2%)
Federal Home Loan Mortgage
Corporation Pass-Through Certificates
7s, January 1, 2015		34,758		36,282
6 1/2s, TBA, November 1, 2036		10,800,000		11,059,875
6s, September 1, 2021		81,966		83,381
5 1/2s, with due dates from
December 1, 2034 to July 1, 2035		2,543,809		2,511,471
5 1/2s, April 1, 2020		179,220		179,948
5s, TBA, November 1, 2035		9,100,000		8,733,867
Federal National Mortgage
Association Pass-Through Certificates
9s, with due dates from
January 1, 2027 to April 1, 2032		313,882		345,185
8s, with due dates from
May 1, 2025 to July 1, 2033		963,284		1,016,464
7 1/2s, with due dates from
September 1, 2022 to July 1, 2033		723,662		767,287
7s, with due dates from
May 1, 2026 to December 1, 2035		4,439,078		4,638,071
7s, with due dates from
July 1, 2014 to January 1, 2017		641,060		667,495
6 1/2s, August 1, 2037		296,487		303,645


U.S. GOVERNMENT AND AGENCY MORTGAGE OBLIGATIONS (26.5%)*

continued

	Principal amount			Value
U.S. Government Agency Mortgage
Obligations continued
Federal National Mortgage
Association Pass-Through Certificates
6 1/2s, with due dates from
July 1, 2016 to September 1, 2016	$	136,649	$	140,414
6 1/2s, TBA, December 1, 2036		120,300,000		122,992,651
6 1/2s, TBA, November 1, 2034		134,105,000		137,258,560
6s, with due dates from
December 1, 2036 to August 1, 2037		803,725		809,879
6s, with due dates from
August 1, 2008 to July 1, 2021		8,957,530		9,113,603
5 1/2s, with due dates from
August 1, 2022 to August 1, 2037		37,645,085		37,529,867
5 1/2s, with due dates from
November 1, 2011 to July 1, 2022		63,282,656		63,465,770
5s, with due dates from
July 1, 2035 to August 1, 2037		40,464,354		38,891,412
5s, February 1, 2021		24,905		24,571
5s, TBA, November 1, 2034		17,400,000		16,698,563
5s, TBA, November 1, 2019		27,600,000		27,170,906
4 1/2s, with due dates from
September 1, 2020 to
September 1, 2035		13,116,909		12,681,790
4 1/2s, with due dates from
June 1, 2020 to August 1, 2020		3,865,817		3,748,180
4 1/2s, TBA, November 1, 2021		4,900,000		4,739,985
4s, with due dates from
May 1, 2019 to August 1, 2020		815,452		772,130
				506,381,252


Total U.S. government and agency
mortgage obligations (cost $600,883,064)			$	603,866,072



U.S. TREASURY OBLIGATIONS (1.0%)*

	Principal amount			Value

U.S. Treasury Bonds 11 1/4s,
February 15, 2015	$	6,900,000	$	9,856,758
U.S. Treasury Notes
4 7/8s, June 30, 2012		10,600,000		10,926,281
4 1/4s, September 30, 2012		1,502,000		1,507,867


Total U.S. treasury obligations (cost $22,248,698)			$	22,290,906



CORPORATE BONDS AND NOTES (15.2%)*

	Principal amount			Value

Basic Materials (0.4%)
Dow Chemical Co. (The) Pass
Through Trust 144A company
guaranty 4.027s, 2009	$	1,950,000	$	1,919,519
Georgia-Pacific Corp.
debs. 9 1/2s, 2011		830,000		875,650
Georgia-Pacific Corp.
notes 8 1/8s, 2011		815,000		831,300
Lubrizol Corp. (The) sr. notes
5 1/2s, 2014		570,000		559,022


CORPORATE BONDS AND NOTES (15.2%)* continued

		Principal amount		Value

Basic Materials continued
Potash Corp. of Saskatchewan
notes 5 7/8s, 2036 (Canada)	$	1,095,000	$	1,040,844
Steel Dynamics, Inc. 144A
sr. notes 7 3/8s, 2012		985,000		985,000
Steel Dynamics, Inc. 144A
sr. notes 6 3/4s, 2015		1,520,000		1,455,400
Westvaco Corp. unsec.
notes 7 1/2s, 2027		240,000		256,224
Xstrata Finance Canada, Ltd. 144A
company guaranty 5.8s, 2016 (Canada)		1,010,000		1,001,664
				8,924,623


Capital Goods (0.3%)
Caterpillar Financial
Services Corp. sr. unsec.
notes Ser. MTN, 5.85s, 2017		1,315,000		1,340,235
Covidien International Finance SA
144A company guaranty 6.55s,
2037 (Luxembourg)		685,000		698,100
Covidien International Finance SA
144A company guaranty 6s, 2017
(Luxembourg)		785,000		795,614
John Deere Capital Corp. debs.
5.1s, 2013		850,000		838,097
L-3 Communications Corp. company
guaranty Ser. B, 6 3/8s, 2015		750,000		750,000
L-3 Communications Corp.
sr. sub. notes 5 7/8s, 2015		640,000		624,000
Legrand SA debs. 8 1/2s, 2025 (France)		1,160,000		1,357,200
				6,403,246


Communication Services (1.6%)
American Tower Corp. 144A
sr. notes 7s, 2017		1,760,000		1,799,600
Ameritech Capital Funding company
guaranty 6 1/4s, 2009		1,135,000		1,157,700
AT&T Wireless Services, Inc.
sr. notes 8 3/4s, 2031		1,533,000		1,982,281
Bellsouth Capital Funding unsec.
notes 7 7/8s, 2030 (S)		2,235,000		2,629,712
France Telecom notes 8 1/2s,
2031 (France)		560,000		733,793
Nextel Communications, Inc.
sr. notes Ser. E, 6 7/8s, 2013		825,000		827,063
Nextel Communications, Inc.
sr. notes Ser. F, 5.95s, 2014		3,670,000		3,504,850
Pacific Bell debs. 7 1/8s, 2026		1,000,000		1,093,743
Rogers Wireless, Inc. sec.
notes 6 3/8s, 2014 (Canada)		1,020,000		1,041,974
Southwestern Bell Telephone
debs. 7s, 2027		1,245,000		1,264,373
Sprint Capital Corp. company
guaranty 6.9s, 2019		920,000		920,061
Sprint Capital Corp. company
guaranty 6 7/8s, 2028		2,410,000		2,308,650
Telecom Italia Capital SA company
guaranty 7.2s, 2036 (Luxembourg)		515,000		563,554


CORPORATE BONDS AND NOTES (15.2%)* continued

		Principal amount		Value
Communication Services continued
Telecom Italia Capital SA company
guaranty 5 1/4s, 2015 (Luxembourg)	$	1,315,000	$	1,267,239
Telecom Italia Capital SA company
guaranty 5 1/4s, 2013 (Luxembourg)		255,000		250,367
Telecom Italia Capital SA company
guaranty 4s, 2010 (Luxembourg)		525,000		513,109
Telefonica Emisones SAU company
guaranty 7.045s, 2036 (Spain)		1,055,000		1,166,716
Telefonica Emisones SAU company
guaranty 6.421s, 2016 (Spain)		370,000		387,977
Telefonica Emisones SAU company
guaranty 6.221s, 2017 (Spain)		565,000		584,505
Telefonica Europe BV company
guaranty 8 1/4s, 2030 (Netherlands)		725,000		890,079
Telus Corp. notes 8s, 2011 (Canada)		1,460,000		1,583,615
Verizon Communications, Inc.
sr. unsec 5.55s, 2016		1,685,000		1,694,948
Verizon Communications, Inc.
sr. unsec. bonds 5 1/2s, 2017		1,480,000		1,480,024
Verizon New England, Inc.
sr. notes 6 1/2s, 2011		2,600,000		2,701,743
Verizon New Jersey, Inc. debs. 8s, 2022		1,050,000		1,209,986
Verizon Pennsylvania, Inc.
debs. 8.35s, 2030		1,305,000		1,537,511
Verizon Virginia Inc.
debs. Ser. A, 4 5/8s, 2013		364,000		347,831
Vodafone Group PLC unsec.
notes 6.15s, 2037 (United Kingdom)		2,090,000		2,055,766
				37,498,770


Conglomerates (0.1%)
Siemens Financieringsmaatschappij
144A notes 5 3/4s, 2016
(Netherlands)		920,000		927,067


Consumer Cyclicals (0.8%)
D.R. Horton, Inc.
sr. notes 7 7/8s, 2011		765,000		746,935
D.R. Horton, Inc.
sr. notes 5 7/8s, 2013		890,000		797,652
DaimlerChrysler NA Holding Corp.
company guaranty 7.2s, 2009		3,185,000		3,300,068
DaimlerChrysler NA Holding Corp.
notes Ser. MTN, 5 3/4s, 2011		2,345,000		2,388,915
Ford Motor Credit Corp.
notes 6 3/8s, 2008		1,355,000		1,340,382
Hanson PLC company guaranty
6 1/8s, 2016 (United Kingdom)		850,000		841,734
JC Penney Co., Inc. debs. 7.65s, 2016		180,000		197,695
JC Penney Co., Inc. notes 6 7/8s, 2015		465,000		486,743
JC Penney Co., Inc.
sr. notes 6 3/8s, 2036		812,000		774,439
Marriott International, Inc.
notes 6 3/8s, 2017		882,000		896,892
Marriott International, Inc.
sr. unsec. Ser. J, 5 5/8s, 2013		210,000		210,115
Office Depot, Inc. notes 6 1/4s, 2013		751,000		759,833


CORPORATE BONDS AND NOTES (15.2%)* continued

		Principal amount		Value
Consumer Cyclicals continued
Omnicom Group, Inc.
sr. notes 5.9s, 2016	$	885,000	$	886,711
Starwood Hotels & Resorts
Worldwide, Inc. sr. unsec 6 1/4s, 2013		1,255,000		1,259,206
Target Corp. bonds 6 1/2s, 2037		1,605,000		1,626,115
VF Corp. sr. unsec. 5.95s, 2017		1,030,000		1,037,714
				17,551,149


Consumer Staples (1.9%)
Campbell Soup Co. debs. 8 7/8s, 2021		1,185,000		1,520,109
Cox Communications, Inc.
notes 7 1/8s, 2012		1,125,000		1,197,131
Cox Communications, Inc. 144A
notes 5 7/8s, 2016		970,000		956,977
Cox Enterprises, Inc. 144A
notes 7 7/8s, 2010		1,450,000		1,550,750
CVS Caremark, Corp. 144A
pass-through certificates 6.117s, 2013		1,680,331		1,689,741
CVS Corp. sr. unsec. 5 3/4s, 2017		2,750,000		2,735,873
Delhaize Group sr. unsub. 6 1/2s,
2017 (Belgium)		790,000		808,681
Diageo Capital PLC company guaranty
5 3/4s, 2017 (United Kingdom)		575,000		572,016
Diageo Capital PLC company guaranty
5.2s, 2013 (United Kingdom)		245,000		243,824
Diageo Capital PLC company guaranty
5 1/8s, 2012 (United Kingdom)		850,000		845,544
Diageo PLC company guaranty
8s, 2022		1,110,000		1,328,164
Estee Lauder Cos Inc. (The)
sr. unsec. 6s, 2037		1,440,000		1,410,716
Estee Lauder Cos., Inc. (The)
sr. unsec. 5.55s, 2017		380,000		376,671
Fortune Brands, Inc. sr. unsec.
5 1/8s, 2011		850,000		845,898
General Mills, Inc.
sr. unsub. 5.65s, 2012		1,280,000		1,299,884
Kroger Co. company guaranty
6.4s, 2017		1,005,000		1,045,605
McDonald’s Corp. sr. unsec.
6.3s, 2037		880,000		897,935
McDonald’s Corp. sr. unsec.
5.8s, 2017		445,000		449,715
News America Holdings, Inc.
company guaranty 7 3/4s, 2024		1,430,000		1,593,658
News America Holdings, Inc.
debs. 7 3/4s, 2045		2,810,000		3,189,510
TCI Communications, Inc. company
guaranty 7 7/8s, 2026		4,215,000		4,799,583
TCI Communications, Inc.
debs. 9.8s, 2012		1,580,000		1,829,950
TCI Communications, Inc.
debs. 7 7/8s, 2013		1,010,000		1,111,052
Tesco PLC 144A notes 6.15s,
2037 ## (United Kingdom)		2,280,000		2,244,432
Time Warner Cable, Inc. 144A
sr. unsec. 6.55s, 2037		790,000		782,302


CORPORATE BONDS AND NOTES (15.2%)* continued

		Principal amount		Value
Consumer Staples continued
Time Warner Cable, Inc. 144A
sr. unsec. 5.85s, 2017	$	480,000	$	475,225
Time Warner Entertainment Co., LP
debs. 8 3/8s, 2023		90,000		106,153
Time Warner, Inc. debs. 9.15s, 2023		1,110,000		1,372,119
Time Warner, Inc. debs. 9 1/8s, 2013		2,735,000		3,144,186
Viacom, Inc. sr. notes 5 3/4s, 2011		810,000		817,817
Yum! Brands, Inc. sr. unsec.
6 7/8s, 2037		1,055,000		1,054,186
Yum! Brands, Inc. sr. unsec.
6 1/4s, 2018		885,000		887,036
				43,182,443


Energy (1.0%)
Anadarko Finance Co. company
guaranty Ser. B, 7 1/2s, 2031		760,000		850,889
Anadarko Petroleum Corp.
sr. notes 6.45s, 2036		587,000		594,232
Anadarko Petroleum Corp.
sr. notes 5.95s, 2016		485,000		487,648
Canadian Natural Resources, Ltd.
unsec. notes 5.7s, 2017 (Canada)		850,000		842,663
Chesapeake Energy Corp. sr. unsec.
notes 7 5/8s, 2013		1,370,000		1,431,650
Devon Financing Corp. ULC company
guaranty 7 7/8s, 2031		450,000		545,214
Enterprise Products Operating LP
sr. notes Ser. B, 5.6s, 2014		850,000		840,568
EOG Resources, Inc. sr. unsec
5 7/8s, 2017		910,000		928,761
Forest Oil Corp. sr. notes 8s, 2011		755,000		781,425
Hess Corp. bonds 7 7/8s, 2029		2,920,000		3,427,233
Marathon Oil Corp.
unsub. bonds 6.6s, 2037		790,000		823,844
Marathon Oil Corp.
unsub. notes 6s, 2017		305,000		309,982
Motiva Enterprises, LLC 144A
sr. notes 5.2s, 2012		315,000		316,400
Newfield Exploration Co.
sr. sub. notes 6 5/8s, 2016		900,000		884,250
Nexen, Inc. bonds 6.4s,
2037 (Canada)		1,770,000		1,761,115
Peabody Energy Corp.
sr. notes 5 7/8s, 2016		1,095,000		1,040,250
Premcor Refining Group, Inc.
sr. notes 7 1/2s, 2015		2,045,000		2,130,919
Sunoco, Inc. notes 4 7/8s, 2014		770,000		734,993
Tesoro Corp. 144A
sr. notes 6 1/2s, 2017		1,420,000		1,405,800
Valero Energy Corp.
sr. notes 6 1/8s, 2017		60,000		60,898
Valero Energy Corp. sr. unsec.
notes 7 1/2s, 2032		605,000		680,162
Weatherford International, Inc.
144A company guaranty 6.8s, 2037		345,000		361,774
Weatherford International, Inc.
144A company guaranty 6.35s, 2017		400,000		410,083


CORPORATE BONDS AND NOTES (15.2%)* continued

		Principal amount		Value
Energy continued
Weatherford International, Ltd.
company guaranty 6 1/2s, 2036	$	1,120,000	$	1,127,138
Weatherford International, Ltd.
sr. notes 5 1/2s, 2016		650,000		630,208
				23,408,099


Financial (5.4%)
American Express Bank FSB
notes Ser. BKN1, 5.55s, 2012		3,470,000		3,502,035
American Express Co. sr. unsec.
notes 6.15s, 2017		1,000,000		1,019,846
Amvescap PLC company guaranty
5 5/8s, 2012 (United Kingdom)		720,000		709,176
Bank of America Corp.
sub. notes 7 3/4s, 2015		2,415,000		2,685,132
Bank of America Corp.
sub. notes 5.42s, 2017		1,000,000		971,221
Bear Stearns Cos., Inc. (The)
notes Ser. MTN, 6.95s, 2012		2,270,000		2,362,371
Bear Stearns Cos., Inc. (The)
sr. notes 6.4s, 2017		2,240,000		2,238,397
Block Financial Corp.
notes 5 1/8s, 2014		980,000		901,163
Bosphorus Financial Services, Ltd.
144A sec. sr. notes FRN 7.358s,
2012 (Cayman Islands)		2,907,000		2,877,863
Brandywine Operating Partnership
LP sr. unsec. 5.7s, 2017 (R)		1,160,000		1,095,419
Camden Property Trust notes 5.7s,
2017 (R)		1,085,000		1,033,640
Capital One Financial Corp.
sub. notes 6.15s, 2016		1,635,000		1,597,111
Chubb Corp. (The) sr. notes 6s, 2037		3,690,000		3,617,202
CIT Group, Inc. sr. notes 5.4s, 2013		1,930,000		1,823,945
CIT Group, Inc. sr. notes 5s, 2014		3,895,000		3,515,421
Citigroup, Inc. sub. notes 5s, 2014		1,316,000		1,277,357
CNA Financial Corp. unsec.
notes 6 1/2s, 2016		985,000		1,009,929
CNA Financial Corp. unsec.
notes 6s, 2011		985,000		997,641
Colonial Properties Trust
notes 6 1/4s, 2014 (R)		985,000		980,860
Countrywide Financial Corp. FRN
Ser. MTN, 5.315s, 2012		1,800,000		1,568,250
Countrywide Home Loans, Inc.
notes Ser. MTNK, 4 1/4s, 2007		5,090,000		5,029,678
Deutsche Bank Capital Funding
Trust VII 144A FRB 5.628s, 2049		1,540,000		1,435,346
Developers Diversified
Realty Corp. unsec. notes 5 3/8s,
2012 (R)		485,000		479,007
Dresdner Funding Trust I 144A
bonds 8.151s, 2031		100,000		109,408
Duke Realty LP sr. unsec 6 1/2s, 2018		650,000		663,062
Equity One, Inc. notes 5 3/8s, 2015 (R)		965,000		907,641
Erac USA Finance Co. 144A company
guaranty 6 3/8s, 2017 R		1,510,000		1,506,889
ERP Operating LP notes 5 3/4s, 2017		1,160,000		1,123,085


CORPORATE BONDS AND NOTES (15.2%)* continued

		Principal amount		Value
Financial continued
Fund American Cos., Inc.
notes 5 7/8s, 2013	$	2,165,000	$	2,147,963
GATX Financial Corp. notes 5.8s, 2016		755,000		737,009
General Electric Capital Corp.
sr. unsec 5 5/8s, 2017		4,150,000		4,190,446
GMAC LLC bonds 8s, 2031 (S)		1,380,000		1,275,559
GMAC LLC notes 7s, 2012		1,380,000		1,260,523
GMAC LLC unsub. notes FRN
6.808s, 2009		2,815,000		2,648,397
Goldman Sachs Group, Inc (The)
sub. notes 6 3/4s, 2037		2,190,000		2,207,999
Goldman Sachs Group, Inc. (The)
sr. notes 5.45s, 2012		2,195,000		2,211,620
HCP, Inc. sr. unsec. Ser. MTN,
6.7s, 2018 (R)		1,435,000		1,427,903
Health Care REIT, Inc.
sr. notes 6s, 2013 (R)		520,000		519,622
Highwood Properties, Inc.
sr. unsec. bonds 5.85s, 2017 (R)		1,385,000		1,304,101
Hospitality Properties Trust
notes 6 3/4s, 2013 (R)		1,005,000		1,030,124
Hospitality Properties Trust
sr. unsec. 6.7s, 2018 (R)		900,000		908,321
HRPT Properties Trust
bonds 5 3/4s, 2014 (R)		710,000		685,698
HRPT Properties Trust
notes 6 1/4s, 2016 (R)		660,000		648,187
HSBC Holdings PLC
sub. notes 6 1/2s, 2037
(United Kingdom)		9,060,000		8,976,412
iStar Financial, Inc. sr. unsec.
notes 5 7/8s, 2016 (R)		2,205,000		1,952,536
JPMorgan Chase Bank NA
sub. notes 6s, 2017		404,000		409,707
JPMorgan Chase Bank NA
sub. notes Ser. BKNT, 6s, 2017		2,161,000		2,196,118
Kimco Realty Corp.
sr. sub. notes 5.7s, 2017 (R)		810,000		789,750
Lehman Brothers Holdings, Inc.
sr. unsec 6.2s, 2014		2,190,000		2,204,211
Lehman Brothers Holdings, Inc.
sub. notes 5 3/4s, 2017		3,560,000		3,408,924
Liberty Mutual Group 144A
notes 6 1/2s, 2035		2,825,000		2,614,956
Lincoln National Corp. sr. unsec.
6.3s, 2037		1,855,000		1,858,489
Loews Corp. notes 5 1/4s, 2016		630,000		610,491
MetLife, Inc. notes 5.7s, 2035		1,085,000		1,005,732
Nationwide Financial
Services, Inc. notes 5 5/8s, 2015		815,000		807,755
Nationwide Health Properties, Inc.
notes 6 1/2s, 2011 (R)		890,000		905,108
Nationwide Health Properties, Inc.
unsec. notes 6 1/4s, 2013 (R)		1,510,000		1,519,197
Nuveen Investments, Inc.
sr. notes 5 1/2s, 2015		640,000		482,349


CORPORATE BONDS AND NOTES (15.2%)* continued

		Principal amount		Value
Financial continued
OneAmerica Financial
Partners, Inc. 144A bonds 7s, 2033	$	1,670,000	$	1,700,102
ProLogis Trust sr. notes 5 3/4s,
2016 (R)		1,260,000		1,233,653
Prudential Holdings LLC 144A
bonds 8.695s, 2023		2,035,000		2,524,031
Regency Centers LP sr. unsec.
5 7/8s, 2017		895,000		871,024
Rouse Co LP/TRC Co-Issuer Inc.
144A sr. notes 6 3/4s, 2013 (R)		935,000		920,449
Rouse Co. (The) notes 7.2s,
2012 (R)		880,000		889,771
Simon Property Group LP
unsub. bonds 5 3/4s, 2015 (R)		476,000		466,663
SLM Corp. notes Ser. MTNA,
4 1/2s, 2010		1,040,000		973,741
Sovereign Bancorp, Inc.
sr. notes 4.8s, 2010		920,000		900,680
Travelers Cos., Inc. (The)
sr. unsec. notes 6 1/4s, 2037		2,165,000		2,134,463
Tyco Electronics Group S company
guaranty 6s, 2012 (Luxembourg)		1,620,000		1,638,079
UBS AG/Jersey Branch FRN 8.588s,
2008 (Jersey)		5,000,000		5,075,000
Unitrin, Inc. sr. notes 6s, 2017		1,020,000		1,000,276
Washington Mutual Bank/Henderson
NV sub. notes Ser. BKNT, 5.95s, 2013		1,390,000		1,323,445
Westfield Group sr. notes 5.7s,
2016 (Australia)		1,175,000		1,148,584
Willis Group North America, Inc.
company guaranty 6.2s, 2017		840,000		847,670
				123,630,933


Health Care (0.3%)
AstraZeneca PLC sr. unsub. 5.9s,
2017 (United Kingdom)		2,535,000		2,592,017
Bayer Corp. 144A FRB 6.2s, 2008		1,330,000		1,332,885
Hospira, Inc. sr. notes 6.05s, 2017		770,000		768,854
Hospira, Inc. sr. notes 5.55s, 2012		1,075,000		1,076,183
Ventas Realty LP/Capital Corp.
sr. notes 6 3/4s, 2017 (R)		650,000		650,000
				6,419,939


Technology (0.4%)
Arrow Electronics, Inc.
debs. 7 1/2s, 2027		1,015,000		1,093,803
Avnet, Inc. notes 6s, 2015		960,000		951,625
IBM Corp. sr. unsec 5.7s, 2017		1,770,000		1,798,029
Motorola, Inc. sr. unsec. 6 5/8s,
2037		1,640,000		1,623,862
Motorola, Inc. sr. unsec. 6s, 2017		750,000		743,790
Xerox Corp. sr. notes 7 1/8s, 2010		700,000		730,561
Xerox Corp. sr. notes 6.4s, 2016		1,430,000		1,465,251
				8,406,921


CORPORATE BONDS AND NOTES (15.2%)* continued

		Principal amount		Value
Transportation (0.4%)
American Airlines, Inc.
pass-through certificates
Ser. 01-1, 6.817s, 2011	$	160,000	$	156,000
American Airlines, Inc.
pass-through certificates
Ser. 01-2, 7.858s, 2011		705,000		744,656
Continental Airlines, Inc.
pass-through certificates
Ser. 97-4A, 6.9s, 2018		1,489,467		1,519,257
Continental Airlines, Inc.
pass-through certificates
Ser. 98-1A, 6.648s, 2017		505,943		508,473
Delta Air Lines, Inc. 144A
collateralized 6.821s, 2022		1,305,000		1,308,263
Northwest Airlines Corp.
pass-through certificates
Ser. 00-1, 7.15s, 2019		2,134,698		2,198,739
Southwest Airlines Co.
pass-through certificates 6.15s, 2022		410,000		416,953
Union Pacific Corp.
sr. unsub. 5 3/4s, 2017		1,475,000		1,463,318
Union Pacific Corp. 144A pass-through
certificates 5.214s, 2014		470,000		461,282
United AirLines, Inc. pass-through
certificates 6.636s, 2022		995,000		976,344
				9,753,285


Utilities & Power (2.6%)
AEP Texas North Co.
sr. notes Ser. B, 5 1/2s, 2013		840,000		833,482
American Water Capital Corp. 144A
bonds 6.593s, 2037		615,000		624,945
American Water Capital Corp. 144A
bonds 6.085s, 2017		690,000		695,363
Appalachian Power Co.
sr. notes 5.8s, 2035		960,000		896,287
Arizona Public Services Co.
notes 6 1/2s, 2012		1,410,000		1,462,790
Atmos Energy Corp.
sr. unsub. 6.35s, 2017		1,255,000		1,284,882
Beaver Valley II Funding debs. 9s, 2017		1,407,000		1,583,522
Boardwalk Pipelines LP company
guaranty 5 7/8s, 2016		1,620,000		1,615,052
Bruce Mansfield Unit pass-through
certificates 6.85s, 2034		3,275,000		3,427,110
CenterPoint Energy Resources Corp.
notes 7 3/4s, 2011		1,735,000		1,844,435
CenterPoint Energy Resources Corp.
sr. unsec. 6 1/8s, 2017		470,000		474,385
CMS Energy Corp.
unsub. notes 6.55s, 2017		75,000		73,594
Commonwealth Edison Co. 1st mtge.
6.15s, 2017		420,000		430,915
Commonwealth Edison Co. 1st mtge.
5.9s, 2036		1,575,000		1,500,451
Consolidated Natural Gas Co.
sr. notes 5s, 2014		650,000		623,097
Dayton Power & Light Co. (The)
1st mtge. 5 1/8s, 2013		1,035,000		1,025,917


CORPORATE BONDS AND NOTES (15.2%)* continued

		Principal amount		Value
Utilities & Power continued
El Paso Natural Gas Co. 144A
sr. unsec. bond 5.95s, 2017	$	165,000	$	161,628
Enbridge Energy Partners LP
sr. unsec. notes 5 7/8s, 2016		1,045,000		1,045,361
Entergy Gulf States, Inc. 1st
mtge. 5 1/4s, 2015		1,325,000		1,257,421
Exelon Corp. sr. unsec. 4.9s, 2015		900,000		844,396
Florida Power Corp. 1st mtge.
6.35s, 2037		750,000		787,484
Indianapolis Power & Light 144A
1st mtge. 6.3s, 2013		680,000		702,774
Indiantown Cogeneration LP 1st
mtge. Ser. A-10, 9.77s, 2020		1,065,000		1,203,099
Ipalco Enterprises, Inc. sec.
notes 8 3/8s, 2008		335,000		340,025
ITC Holdings Corp. 144A
notes 5 7/8s, 2016		1,470,000		1,470,507
Kansas Gas & Electric
bonds 5.647s, 2021		500,000		482,390
Kinder Morgan, Inc.
sr. notes 6 1/2s, 2012		685,000		681,575
MidAmerican Energy Holdings Co.
bonds 6 1/8s, 2036		3,030,000		2,996,406
MidAmerican Energy Holdings Co.
144A bonds 6 1/2s, 2037		2,090,000		2,143,445
National Fuel Gas Co.
notes 5 1/4s, 2013		980,000		977,975
Nevada Power Co. general ref.
mtge. Ser. L, 5 7/8s, 2015		580,000		581,829
Northwestern Corp. sec.
notes 5 7/8s, 2014		1,475,000		1,475,488
Oncor Electric Delivery Co.
debs. 7s, 2022		800,000		841,650
Oncor Electric Delivery Co. sec.
notes 7 1/4s, 2033		490,000		532,743
Oncor Electric Delivery Co. sec.
notes 6 3/8s, 2012		800,000		822,328
Pacific Gas & Electric Co.
sr. unsub. 5.8s, 2037		1,070,000		1,032,594
PacifiCorp Sinking Fund 1st mtge.
6 1/4s, 2037		760,000		780,019
Potomac Edison Co. 144A 1st mtge.
5.8s, 2016		1,465,000		1,506,207
Power Receivable Finance, LLC 144A
sr. notes 6.29s, 2012		1,159,625		1,194,761
PPL Energy Supply LLC
bonds Ser. A, 5.7s, 2015		855,000		840,581
Progress Energy, Inc. sr. unsec.
notes 5 5/8s, 2016		1,295,000		1,287,002
Public Service Co. of Colorado
sr. notes Ser. A, 6 7/8s, 2009		1,605,000		1,653,811
Public Service Co. of New Mexico
sr. notes 4.4s, 2008		785,000		779,894
Sierra Pacific Power Co. general
ref. mtge. Ser. P, 6 3/4s, 2037		2,495,000		2,607,362
Southern California Edison Co. 1st
mtge. Ser. 06-E, 5.55s, 2037		1,245,000		1,173,343
Southern California Edison Co.
notes 6.65s, 2029		1,410,000		1,491,790


CORPORATE BONDS AND NOTES (15.2%)* continued

		Principal amount		Value
Utilities & Power continued
Southern Natural Gas. Co. 144A
notes 5.9s, 2017	$	630,000	$	614,503
Spectra Energy Capital, LLC
sr. notes 8s, 2019		1,080,000		1,230,234
Teco Energy, Inc. notes 7.2s, 2011		1,485,000		1,549,235
TransAlta Corp. notes 5 3/4s, 2013
(Canada)		880,000		877,745
TransCanada Pipelines, Ltd.
sr. unsec. 6.2s, 2037 (Canada)		1,985,000		1,990,834
Westar Energy, Inc. 1st mtge.
5.15s, 2017		195,000		185,162
Westar Energy, Inc. 1st mtge.
5.1s, 2020		1,015,000		941,442
				59,481,270


Total corporate bonds and notes
(cost $346,797,877)			$	345,587,745



ASSET-BACKED SECURITIES (14.0%)*

		Principal amount		Value

Accredited Mortgage Loan Trust FRB
Ser. 05-4, Class A2C, 5.083s, 2035	$	383,000	$	362,200
Ace Securities Corp.
FRB Ser. 06-OP2, Class A2C,
5.023s, 2036		1,258,000		1,166,908
FRB Ser. 06-HE3, Class A2C,
5.023s, 2036		1,603,000		1,503,430
Adjustable Rate Mortgage Trust FRB
Ser. 04-5, Class 3A1, 4.967s, 2035		4,346,352		4,252,609
Advanta Business Card Master Trust
FRB Ser. 04-C1, Class C, 6.048s, 2013		1,939,000		1,886,918
Aegis Asset Backed
Securities Trust 144A
Ser. 04-5N, Class Note, 5s, 2034		81,163		76,953
Ser. 04-6N, Class Note,
4 3/4s, 2035		74,956		71,114
AFC Home Equity Loan Trust
Ser. 99-2, Class 1A, 5.283s, 2029		4,362,747		4,375,049
American Express Credit Account
Master Trust 144A Ser. 04-C,
Class C, 5.591s, 2012		3,646,009		3,627,779
Ameriquest Mortgage
Securities, Inc. FRB Ser. 06-R1,
Class M10, 7.373s, 2036		1,245,000		286,350
AMP CMBS 144A FRB Ser. 06-1A,
Class A, 6.444s, 2047
(Cayman Islands) (F)		2,520,000		1,912,698
Arcap REIT, Inc. 144A
Ser. 03-1A, Class E, 7.11s, 2038		1,993,000		1,998,780
Ser. 04-1A, Class E, 6.42s, 2039		1,469,204		1,390,988
Argent Securities, Inc. FRB
Ser. 06-W4, Class A2C, 5.033s, 2036		2,865,000		2,721,750
Asset Backed Funding Certificates
FRB Ser. 05-WMC1, Class M1,
5.313s, 2035		893,000		830,490


ASSET-BACKED SECURITIES (14.0%)* continued

		Principal amount		Value
Asset Backed Funding Certificates
144A FRB Ser. 06-OPT3, Class B,
7.373s, 2036	$	166,000	$	24,205
Asset Backed Funding Corp. NIM
Trust 144A FRB Ser. 05-OPT1,
Class B1, 7.373s, 2035		587,000		93,175
Asset Backed Securities Corp.
Home Equity Loan Trust
FRB Ser. 06-HE2, Class A3,
5.063s, 2036		797,000		770,677
FRB Ser. 06-HE4, Class A5,
5.033s, 2036		2,128,000		1,991,763
FRB Ser. 06-HE7, Class A4,
5.013s, 2036		874,000		835,789
Aviation Capital Group Trust 144A
FRB Ser. 03-2A, Class G1, 5.698s, 2033		1,401,891		1,387,872
Bank One Issuance Trust FRB
Ser. 03-C4, Class C4, 6.121s,
2011 (F)		1,390,000		1,387,737
Bay View Auto Trust Ser. 05-LJ2,
Class D, 5.27s, 2014		534,000		524,767
Bayview Financial Acquisition
Trust FRB Ser. 04-D, Class A,
5.209s, 2044		1,884,731		1,658,563
Bayview Financial Asset Trust 144A
FRB Ser. 03-SSRA, Class M,
6.223s, 2038		1,156,835		1,149,200
FRB Ser. 03-SSRA, Class A,
5.573s, 2038		1,012,950		1,002,821
FRB Ser. 04-SSRA, Class A1,
5.473s, 2039		1,367,689		1,354,012
Bear Stearns Asset
Backed Securities, Inc.
FRB Ser. 06-EC1, Class M9,
6.873s, 2035		944,000		136,880
FRB Ser. 06-PC1, Class M9,
6.623s, 2035		546,000		103,740
FRB Ser. 03-3, Class A2,
5.463s, 2043		2,922,079		2,867,290
FRB Ser. 03-1, Class A1,
5.373s, 2042		943,758		926,063
FRB Ser. 05-3, Class A1,
5.323s, 2035		649,815		637,631
Bear Stearns Asset Backed
Securities, Inc. 144A FRB
Ser. 06-HE2, Class M10, 7.123s, 2036		204,000		38,760
Capital Auto Receivables
Asset Trust 144A
Ser. 06-1, Class D, 7.16s, 2013		1,000,000		1,003,672
Ser. 05-1, Class D, 6 1/2s, 2011		1,776,000		1,768,369
CARMAX Auto Owner Trust Ser. 04-2,
Class D, 3.67s, 2011		149,750		148,312
Chase Credit Card Master Trust FRB
Ser. 03-3, Class C, 6.171s, 2010		2,550,000		2,542,637
Chase Funding Net Interest Margin
144A Ser. 04-OPT1, Class Note,
4.458s, 2034		140,821		129,555


ASSET-BACKED SECURITIES (14.0%)* continued

		Principal amount		Value
Citibank Credit Card Issuance
Trust FRB Ser. 01-C1, Class C1,
6.323s, 2010 (F)	$	1,390,000	$	1,388,833
Citigroup Mortgage Loan
Trust, Inc. FRB Ser. 05-OPT1,
Class M1, 5.293s, 2035		596,000		525,929
Conseco Finance Securitizations Corp.
Ser. 00-2, Class A5, 8.85s, 2030		7,867,831		7,043,881
Ser. 02-2, Class A, IO, 8 1/2s, 2033		7,903,483		1,079,197
Ser. 00-4, Class A6, 8.31s, 2032		8,471,435		7,007,461
Ser. 00-5, Class A6, 7.96s, 2032		4,808,000		4,288,640
Ser. 02-1, Class M1F, 7.954s, 2033		1,561,000		1,519,529
Ser. 01-4, Class A4, 7.36s, 2033		6,846,495		6,960,571
Ser. 00-6, Class A5, 7.27s, 2031		1,494,007		1,463,587
Ser. 01-1, Class A5, 6.99s, 2032		255,214		239,671
Ser. 01-3, Class A4, 6.91s, 2033		8,607,212		8,346,267
Ser. 02-1, Class A, 6.681s, 2033		7,360,950		7,534,307
Countrywide Asset Backed Certificates
FRB Ser. 05-BC3, Class M1,
5.393s, 2035		474,000		426,600
FRB Ser. 04-6, Class 2A5,
5.263s, 2034		1,272,567		1,219,628
FRB Ser. 05-14, Class 3A2,
5.113s, 2036		436,000		423,232
Countrywide Asset
Backed NIM Certificates 144A
Ser. 04-BC1N, Class Note,
5 1/2s, 2035		1,286		515
Ser. 04-14, Class N, 5s, 2036		50,875		47,822
Credit-Based Asset Servicing and
Securitization 144A Ser. 06-MH1,
Class B1, 6 1/4s, 2036		625,000		535,938
Crest, Ltd. 144A Ser. 03-2A,
Class D2, 6.723s, 2038
(Cayman Islands)		2,157,000		1,873,220
CS First Boston Mortgage
Securities Corp. 144A
Ser. 04-FR1N, Class A, 5s, 2034		670,816		402,489
DB Master Finance, LLC 144A
Ser. 06-1, Class M1, 8.285s, 2031		1,262,000		1,264,431
FHLMC Structured Pass Through
Securities IFB Ser. T-56,
Class 2ASI, IO, 3.228s, 2043		2,747,764		251,592
Fieldstone Mortgage
Investment Corp. FRB Ser. 05-1,
Class M3, 5.413s, 2035		859,000		859,271
Finance America NIM Trust 144A
Ser. 04-1, Class A, 5 1/4s, 2034		102,049		92
First Franklin Mortgage Loan Asset
Backed Certificates FRB Ser. 06-FF7,
Class 2A3, 5.023s, 2036		1,999,000		1,888,372
First Horizon Alternative Mortgage
Securities FRB Ser. 05-AA10,
Class 2A1, 5.753s, 2035		2,944,452		2,936,170
First Plus Home Loan Trust
Ser. 97-3, Class B1, 7.79s, 2023		387,760		388,003


ASSET-BACKED SECURITIES (14.0%)* continued

		Principal amount		Value
Fort Point CDO, Ltd. FRB
Ser. 03-2A, Class A2, 6.63s, 2038
(Cayman Islands)	$	834,000	$	617,160
Foxe Basin, Ltd. 144A FRB
Ser. 03-1A, Class A1, 6.194s,
2015 (Cayman Islands)		2,600,000		2,588,820
Fremont Home Loan Trust
FRB Ser. 05-E, Class 2A4,
5.203s, 2036		2,801,000		2,668,793
FRB Ser. 06-2, Class 2A3,
5.043s, 2036		4,961,000		4,799,768
Fremont NIM Trust 144A
Ser. 04-3, Class B, 7 1/2s, 2034		266,741		2,134
Ser. 04-3, Class A, 4 1/2s, 2034		7,443		108
G-Star, Ltd. 144A FRB Ser. 02-2A,
Class BFL, 6.873s, 2037
(Cayman Islands)		417,000		408,269
GE Corporate Aircraft
Financing, LLC 144A
FRB Ser. 05-1A, Class C,
6.173s, 2019		1,593,000		1,593,000
Ser. 04-1A, Class B, 5.723s, 2018		105,908		105,990
Gears Auto Owner Trust 144A
Ser. 05-AA, Class E1, 8.22s, 2012		2,523,000		2,478,842
GEBL 144A
Ser. 04-2, Class D, 7.841s, 2032		827,040		678,173
Ser. 04-2, Class C, 5.941s, 2032		310,140		263,619
Granite Mortgages PLC
FRB Ser. 01-1, Class 1C, 6.58s,
2041 (United Kingdom)		2,016,000		2,012,141
FRB Ser. 02-2, Class 1C, 6.43s,
2043 (United Kingdom)		635,230		633,261
Green Tree Financial Corp.
Ser. 96-5, Class M1, 8.05s, 2027		729,203		678,370
Ser. 99-5, Class A5, 7.86s, 2030		18,076,578		16,720,835
Ser. 97-6, Class A9, 7.55s, 2029		930,077		942,665
Ser. 97-4, Class A7, 7.36s, 2029		313,650		316,832
Ser. 95-8, Class B1, 7.3s, 2026		467,121		423,565
Ser. 96-10, Class M1, 7.24s, 2028		1,342,000		1,261,480
Ser. 97-6, Class A8, 7.07s, 2029		261,267		270,390
Ser. 98-4, Class A7, 6.87s, 2030		449,467		438,230
Ser. 97-7, Class A8, 6.86s, 2029		211,927		210,788
Ser. 99-3, Class A6, 6 1/2s, 2031		1,116,225		1,110,644
Ser. 99-2, Class A7, 6.44s, 2030		1,671,045		1,610,279
Ser. 99-1, Class A6, 6.37s, 2025		1,602,000		1,610,010
Greenpoint Manufactured Housing
Ser. 00-3, Class IA, 8.45s, 2031		5,059,555		4,772,638
Ser. 99-5, Class M1A, 8.3s, 2026		669,000		595,300
GS Auto Loan Trust 144A Ser. 04-1,
Class D, 5s, 2011		1,517,046		1,515,863
GSAMP Trust FRB Ser. 06-HE5,
Class A2C, 5.023s, 2036		7,385,000		6,953,576
GSMPS Mortgage Loan Trust
Ser. 05-RP3, Class 1A4,
8 1/2s, 2035		395,129		414,114
Ser. 05-RP3, Class 1A3, 8s, 2035		1,132,418		1,181,282
Ser. 05-RP3, Class 1A2,
7 1/2s, 2035		875,175		902,568


ASSET-BACKED SECURITIES (14.0%)* continued

		Principal amount		Value
GSMPS Mortgage Loan Trust 144A
Ser. 05-RP2, Class 1A3, 8s, 2035	$	1,233,786	$	1,286,888
Ser. 05-RP1, Class 1A3, 8s, 2035		127,784		133,809
Ser. 05-RP2, Class 1A2,
7 1/2s, 2035		1,390,606		1,435,119
Guggenheim Structured
Real Estate Funding, Ltd. 144A
FRB Ser. 05-2A, Class D, 6.423s,
2030 (Cayman Islands)		1,609,000		1,388,889
FRB Ser. 05-1A, Class D, 6.403s,
2030 (Cayman Islands)		533,387		486,382
HASCO NIM Trust 144A Ser. 05-OP1A,
Class A, 6 1/4s, 2035 (Cayman Islands)		657,009		440,196
High Income Trust Securities 144A
FRB Ser. 03-1A, Class A, 5.856s,
2036 (Cayman Islands)		1,991,834		1,693,059
Home Equity Asset Trust FRB
Ser. 06-1, Class 2A4, 5.203s, 2036		1,413,000		1,239,184
Hyundai Auto Receivables Trust
Ser. 04-A, Class D, 4.1s, 2011		329,821		327,030
JPMorgan Mortgage Acquisition Corp.
FRB Ser. 05-OPT2, Class M11,
7.123s, 2035		435,000		65,250
FRB Ser. 06-FRE1, Class A4,
5.163s, 2035		1,186,000		1,135,595
Lehman Manufactured Housing
Ser. 98-1, Class 1, IO, 0.807s, 2028		23,299,851		302,898
Lehman XS Trust
Ser. 07-6, Class 3A6, 6 1/2s, 2037		18,365,922		18,426,181
FRB Ser. 07-6, Class 2A1,
5.083s, 2037		15,800,649		15,524,138
IFB Ser. 07-3, Class 4B, IO,
1.818s, 2037		6,637,429		373,435
LNR CDO, Ltd. 144A
FRB Ser. 03-1A, Class EFL, 7.95s,
2036 (Cayman Islands)		4,150,000		3,890,625
FRB Ser. 02-1A, Class FFL, 7.643s,
2037 (Cayman Islands)		6,071,000		5,255,209
Long Beach Mortgage Loan Trust
FRB Ser. 06-4, Class 2A4,
5.133s, 2036		1,349,000		1,236,990
FRB Ser. 06-1, Class 2A3,
5.063s, 2036		2,262,000		2,148,900
Madison Avenue
Manufactured Housing Contract
FRB Ser. 02-A, Class B1,
8.123s, 2032		5,098,734		3,824,051
FRB Ser. 02-A, Class M2,
7.123s, 2032		453,000		434,311
Ser. 02-A IO, 0.3s, 2032		167,369,866		1,746,036
Marriott Vacation Club
Owner Trust 144A
Ser. 05-2, Class D, 6.205s, 2027		132,153		128,034
FRB Ser. 02-1A, Class A1,
5.698s, 2024		1,621,841		1,609,471
Ser. 04-2A, Class D, 5.389s, 2026		122,201		120,884
Ser. 04-2A, Class C, 4.741s, 2026		141,295		140,009


ASSET-BACKED SECURITIES (14.0%)* continued

		Principal amount		Value
Mastr Asset Backed Securities
Trust FRB Ser. 06-FRE2, Class A4,
5.023s, 2036	$	705,000	$	676,303
MASTR Reperforming
Loan Trust 144A
Ser. 05-2, Class 1A3, 7 1/2s, 2035		2,373,751		2,485,169
Ser. 05-1, Class 1A4, 7 1/2s, 2034		1,723,600		1,804,944
MBNA Credit Card Master Note Trust
FRB Ser. 03-C5, Class C5,
6.271s, 2010		2,550,000		2,546,567
Merit Securities Corp. 144A FRB
Ser. 11PA, Class 3A1, 5.439s, 2027		7,122,212		6,730,490
Merrill Lynch Mortgage
Investors, Inc. 144A
Ser. 05-WM1N, Class N1, 5s, 2035		15,528		13,363
Ser. 04-HE2N, Class N1, 5s, 2035
(Cayman Islands) (In default) †		37,617		37,052
Ser. 04-WM3N, Class N1, 4 1/2s,
2035 (In default) †		53,738		15,391
Mid-State Trust
Ser. 11, Class B, 8.221s, 2038		785,105		731,976
Ser. 10, Class B, 7.54s, 2036		820,272		678,055
Morgan Stanley Auto Loan Trust
144A Ser. 04-HB2, Class E, 5s, 2012 (F)		51,549		51,382
Morgan Stanley Mortgage Loan Trust
Ser. 05-5AR, Class 2A1, 5.348s, 2035		5,564,324		5,532,497
N-Star Real Estate CDO, Ltd. 144A
FRB Ser. 04-2A, Class C1, 6.819s,
2039 (Cayman Islands)		735,000		742,350
Navigator CDO, Ltd. 144A FRB
Ser. 03-1A, Class A1, 6.048s,
2015 (Cayman Islands)		796,575		793,389
Navistar Financial Corp. Owner Trust
Ser. 05-A, Class C, 4.84s, 2014		417,326		404,184
Ser. 04-B, Class C, 3.93s, 2012		357,145		339,406
New Century Home Equity Loan Trust
Ser. 03-5, Class AI7, 5.15s, 2033		2,202,965		2,082,666
Nomura Asset Acceptance Corp.
Ser. 04-R3, Class PT, 7.778s, 2035		770,503		805,175
Nomura Asset Acceptance Corp. 144A
Ser. 04-R2, Class PT, 9.087s, 2034		361,696		397,865
Novastar Home Equity Loan
FRB Ser. 06-1, Class A2C,
5.033s, 2036		1,677,000		1,612,771
FRB Ser. 06-2, Class A2C,
5.023s, 2036		1,677,000		1,591,125
Oakwood Mortgage Investors, Inc.
Ser. 00-D, Class A3, 6.99s, 2022		334,115		337,289
Ser. 01-D, Class A3, 5.9s, 2022		223,282		178,626
Ser. 02-C, Class A1, 5.41s, 2032		5,070,000		4,530,420
Oakwood Mortgage
Investors, Inc. 144A
Ser. 01-B, Class A4, 7.21s, 2030		761,518		664,595
Ser. 01-B, Class A3, 6.535s, 2023		230,666		211,557
Ocean Star PLC 144A
FRB Ser. 04, Class D, 7.8s,
2018 (Ireland)		798,000		718,200
FRB Ser. 05-A, Class D, 7s,
2012 (Ireland)		908,000		726,400


ASSET-BACKED SECURITIES (14.0%)* continued

		Principal amount		Value
Option One Mortgage Loan Trust FRB
Ser. 05-4, Class M11, 7.373s, 2035	$	298,000	$	89,400
Origen Manufactured Housing
Ser. 04-B, Class A2, 3.79s, 2017		295,066		292,450
Park Place Securities, Inc. FRB
Ser. 04-WHQ2, Class A3A,
5.223s, 2035		293,056		272,499
Park Place Securities, Inc. 144A
FRB Ser. 04-MHQ1, Class M10,
7.373s, 2034		570,000		313,500
People’s Choice Net Interest
Margin Note 144A Ser. 04-2,
Class B, 5s, 2034		27,246		25,884
People’s Financial Realty Mortgage
Securities Trust FRB Ser. 06-1,
Class 1A2, 5.003s, 2036		2,312,000		2,242,640
Permanent Financing PLC FRB
Ser. 3, Class 3C, 6.874s, 2042
(United Kingdom)		2,510,000		2,466,730
Providian Gateway Master Trust FRB
Ser. 04-EA, Class E, 8.611s, 2011		3,450,000		3,452,965
Providian Gateway Master Trust
144A FRB Ser. 04-EA, Class D,
6.021s, 2011		2,100,000		2,100,109
Residential Asset
Mortgage Products, Inc.
Ser. 02-SL1, Class AI3, 7s, 2032		196,225		196,777
FRB Ser. 06-NC3, Class A2,
5.063s, 2036		2,724,000		2,632,296
FRB Ser. 07-RZ1, Class A2,
5.033s, 2037		2,585,000		2,441,825
Residential Asset
Securities Corp. 144A
FRB Ser. 05-KS10, Class B,
7.623s, 2035		1,391,000		222,560
Ser. 04-NT12, Class Note,
4.7s, 2035		7,298		7,026
Ser. 04-NT, Class Note,
4 1/2s, 2034		188,430		141,323
Saco I Trust FRB Ser. 05-10,
Class 1A1, 5.133s, 2033		1,637,132		1,473,419
SAIL Net Interest Margin Notes 144A
Ser. 03-3, Class A, 7 3/4s, 2033
(Cayman Islands) (In default) †		3,662		11
Ser. 03-BC2A, Class A,
7 3/4s, 2033
(Cayman Islands) (In default) †		237,726		7,132
Ser. 04-4A, Class B, 7 1/2s, 2034
(Cayman Islands) (In default) †		380,795		38
Ser. 03-5, Class A, 7.35s, 2033
(Cayman Islands) (In default) †		44,133		883
Ser. 03-9A, Class A, 7s, 2033
(Cayman Islands) (In default) †		99,878		100
Ser. 03-6A, Class A, 7s, 2033
(Cayman Islands) (In default) †		21,771		370
Ser. 03-7A, Class A, 7s, 2033
(Cayman Islands) (In default) †		76,665		307


ASSET-BACKED SECURITIES (14.0%)* continued

		Principal amount		Value
Securitized Asset Backed
Receivables, LLC FRB Ser. 07-NC2,
Class A2B, 5.013s, 2037	$	2,319,000	$	2,203,050
SG Mortgage Securities Trust
FRB Ser. 06-OPT2, Class A3D, PO,
5.083s, 2036		2,860,000		2,687,542
FRB Ser. 06-FRE1, Class A2B,
5.053s, 2036		1,177,000		1,077,900
Sharps SP I, LLC Net Interest
Margin Trust 144A Ser. 04-HE1N,
Class Note, 4.94s, 2034
(Cayman Islands) (In default) †		230,946		—
Soundview Home Equity Loan Trust
FRB Ser. 06-OPT3, Class 2A3,
5.043s, 2036		1,258,000		1,221,636
FRB Ser. 06-3, Class A3,
5.033s, 2036		7,427,000		7,150,326
Soundview Home Equity Loan Trust
144A FRB Ser. 05-CTX1, Class B1,
7.373s, 2035		672,000		235,200
South Coast Funding 144A FRB
Ser. 3A, Class A2, 6.58s, 2038
(Cayman Islands)		760,000		372,400
Structured Adjustable Rate
Mortgage Loan Trust 144A
Ser. 04-NP2, Class A, 5.223s, 2034		984,947		983,716
Structured Asset Investment Loan
Trust FRB Ser. 06-BNC2, Class A6,
5.133s, 2036		1,351,000		1,196,524
Structured Asset Investment Loan
Trust 144A FRB Ser. 05-HE3,
Class M11, 7.373s, 2035		1,284,000		128,400
Structured Asset Receivables Trust
144A FRB Ser. 05-1, 5.87s, 2015		6,609,932		6,601,670
TIAA Real Estate CDO, Ltd.
Ser. 03-1A, Class E, 8s, 2038
(Cayman Islands)		2,298,000		1,979,107
WAMU Mortgage Pass-Through
Certificates FRB Ser. 04-AR1,
Class A, 4.229s, 2034		642,516		634,484
Wells Fargo Home Equity Trust FRB
Ser. 07-1, Class A3, 5.193s, 2037		596,000		533,406
WFS Financial Owner Trust
Ser. 05-1, Class D, 4.09s, 2012		237,202		235,196
Ser. 04-3, Class D, 4.07s, 2012		277,435		275,634
Ser. 04-4, Class D, 3.58s, 2012 (F)		187,801		185,833
Whinstone Capital Management, Ltd.
144A FRB Ser. 1A, Class B3,
5.984s, 2044 (United Kingdom)		1,518,864		1,491,389


Total asset-backed securities
(cost $338,621,004)			$	319,447,698


PURCHASED OPTIONS OUTSTANDING (1.7%)*

	Expiration
	date/	Contract
	strike price	amount	Value

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 on
April 16, 2019.	Apr-09/5.385	$ 68,646,000	$ 1,776,558
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 on
April 16, 2019.	Apr-09/5.385	68,646,000	2,366,914
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 on
April 29, 2013.	Apr-08/4.965	233,000,000	3,234,040
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 on
April 29, 2013.	Apr-08/4.965	233,000,000	2,085,350
Option on an interest
rate swap with
Goldman Sachs
International for the
right to receive a
fixed rate of 5.1975%
versus the three
month USD-LIBOR-BBA
maturing on
May 14, 2018.	May-08/5.198	45,594,000	962,033


PURCHASED OPTIONS OUTSTANDING (1.7%)* continued

	Expiration
	date/	Contract
	strike price	amount	Value

Option on an interest
rate swap with
Goldman Sachs
International for the
right to pay a
fixed rate of 5.1975%
versus the three month
USD-LIBOR-BBA
maturing on
May 14, 2018.	May-08/5.198	$ 45,594,000	$ 766,891
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 on
April 8, 2019.	Apr-09/5.325	84,687,000	2,720,993
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, 2019.	Apr-09/5.325	84,687,000	2,342,442
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	3,082,273
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	574,069


PURCHASED OPTIONS OUTSTANDING (1.7%)* continued

	Expiration
	date/	Contract
	strike price	amount	Value

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	$ 755,644
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	222,048
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, 2018.	Apr-08/5.175	117,000,000	2,304,900
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, 2018.	Apr-08/5.175	117,000,000	1,936,350
Option on an interest
rate swap with
JPMorgan Chase
Bank, N.A. for the
right to receive a
fixed rate of 5.235%
versus the three
month USD-LIBOR-BBA
maturing on
May 8, 2018.	May-08/5.235	58,070,000	1,303,672


PURCHASED OPTIONS OUTSTANDING (1.7%)* 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 5.235% versus
the three month
USD-LIBOR-BBA
maturing on
May 8, 2018.	May-08/5.235	$ 58,070,000	$ 881,503
Option on an interest
rate swap with
JPMorgan Chase
Bank, N.A. for the
right to receive a
fixed rate of 5.215%
versus the three
month USD-LIBOR-BBA
maturing on
May 14, 2018.	May-08/5.215	34,671,000	756,175
Option on an interest
rate swap
with JPMorgan Chase
Bank, N.A. for the
right to pay a fixed
rate of 5.215% versus
the three month
USD-LIBOR-BBA
maturing on
May 14, 2018.	May-08/5.215	34,671,000	562,017
Option on an interest
rate swap with
JPMorgan Chase
Bank, N.A. for the
right to receive a
fixed rate of 5.22%
versus the three month
USD-LIBOR-BBA
maturing on
May 14, 2018.	May-08/5.22	32,578,000	717,368
Option on an interest
rate swap with
JPMorgan Chase
Bank, N.A. for the
right to pay a fixed
rate of 5.22% versus
the three month
USD-LIBOR-BBA
maturing on
May 14, 2018.	May-08/5.22	32,578,000	522,225


PURCHASED OPTIONS OUTSTANDING (1.7%)* continued

	Expiration
	date/	Contract
	strike price	amount	Value

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, 2019.	Apr-09/5.315	$ 84,687,000	$ 2,689,659
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, 2019.	Apr-09/5.315	84,687,000	2,372,930
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-08/5.348	60,369,000	1,460,930
Option on an interest
rate swap with Lehman
Brothers Special
Financing, Inc. for
the right to pay a
fixed rate swap
of 5.3475% versus the
three month
USD-LIBOR-BBA
maturing on
February 4, 2018.	Jan-08/5.348	60,369,000	372,477
Option on an interest
rate swap with Lehman
Brothers Special
Financing, Inc. for
the right to receive
a fixed rate of 5.20%
versus the three
month USD-LIBOR-BBA
maturing on
May 14, 2018.	May-08/5.2	17,336,000	367,523


PURCHASED OPTIONS OUTSTANDING (1.7%)* continued

	Expiration
	date/	Contract
	strike price	amount	Value

Option on an interest
rate swap with Lehman
Brothers Special
Financing, Inc. for
the right to pay a
fixed rate of 5.20%
versus the three
month USD-LIBOR-BBA
maturing on
May 14, 2018.	May-08/5.2	$ 17,336,000	$ 289,858
Option on an interest
rate swap with Lehman
Brothers Special
Financing, Inc. for
the right to receive
a fixed rate of 5.21%
versus the three
month USD-LIBOR-BBA
maturing on
May 14, 2018.	May-08/5.21	6,934,000	149,844
Option on an interest
rate swap with Lehman
Brothers Special
Financing, Inc. for
the right to pay a
fixed rate of 5.21%
versus the three
month USD-LIBOR-BBA
maturing on
May 14, 2018.	May-08/5.21	6,934,000	113,579


Total purchased options outstanding
(cost $40,444,594)			$37,690,265



MUNICIPAL BONDS AND NOTES (0.1%)*

	Rating**	Principal amount	Value

MI Tobacco Settlement
Fin. Auth. Rev.
Bonds, Ser. A,
7.309s, 6/1/34	Baa3	$1,355,000	$ 1,345,312
Tobacco Settlement
Fin. Auth. of WVA
Rev. Bonds, Ser. A,
7.467s, 6/1/47	Baa3	2,075,000	2,053,233


Total municipal bonds and notes (cost $3,429,855)			$ 3,398,545


SHORT-TERM INVESTMENTS (6.5%)*

	Principal amount		Value
Short-term investments held as
collateral for loaned securities
with yields ranging from 4.50%
to 5.69% and due dates ranging
from November 1, 2007 to
November 28, 2007 (d)	$ 3,695,570	$	3,689,580
Interest in $630,000,000 joint
tri-party repurchase agreement
dated October 31, 2007
with Deutsche Bank Securities, Inc.
due November 1, 2007 with respect
to various U.S. Government
obligations — maturity value
of $10,043,381 for an effective
yield of 4.95% (collateralized by
Fannie Mae, Freddie Mac, Federal
Home Loan Banks and Ginnie Mae
securities with coupon rates
ranging from zero % to 12.5%
and due dates ranging from
November 1, 2007 to December 15,
2046 valued at $642,600,168)	10,042,000		10,042,000


SHORT-TERM INVESTMENTS (6.5%)* continued

	Principal amount		Value
Atlantic Asset Sec. Corp., for an
effective yield of 5.03%,
November 19, 2007	$28,700,000	$	28,627,820
Barton Capital Corp., for an
effective yield of 4.80%,
November 8, 2007	25,000,000		24,976,667
Barton Capital Corp., for an
effective yield of 5.09%,
November 16, 2007	16,207,000		16,172,628
BNP Paribas Time Deposit for an
effective yield of 4.72%,
November 1, 2007	58,000,000		58,000,000
U.S. Treasury Bills for an
effective yield of 3.89%,
March 27, 2008 #	7,653,000		7,531,407


Total short-term investments (cost $149,040,102)		$	149,040,102



TOTAL INVESTMENTS

Total investments (cost $2,635,532,795)		$2,635,250,075

* Percentages indicated are based on net assets of $2,279,953,243.

** The Moody’s or Standard & Poor’s ratings indicated are believed to be the most recent ratings available at October 31, 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 October 31, 2007. Ratings are not covered by the Report of Independent Registered Public Accounting Firm. Security ratings are defined in the Statement of Additional Information.

† Non-income-producing security.

# This security was pledged and segregated with the custodian to cover margin requirements for futures contracts at October 31, 2007.

## Forward commitments (Note 1).

(d) See Note 1 to the financial statements.

(F) 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 October 31, 2007.

At October 31, 2007, liquid assets totaling $636,558,093 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 October 31, 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 October 31, 2007.


FUTURES CONTRACTS OUTSTANDING at 10/31/07

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

Euro-Dollar 90 day (Long)	1,417	$ 338,326,463	Mar-08	$ 1,289,159
Euro-Dollar 90 day (Short)	2,442	583,760,100	Jun-08	(2,129,717)
Euro-Dollar 90 day (Short)	4,209	1,006,898,025	Sep-08	(3,884,282)
Euro-Dollar 90 day (Long)	1,087	259,412,550	Sep-09	623,543
U.S. Treasury Bond 20 yr (Long)	1,727	194,449,406	Dec-07	3,645,050
U.S. Treasury Note 2 yr (Long)	1,432	296,580,625	Dec-07	292,511
U.S. Treasury Note 5 yr (Short)	542	58,180,313	Dec-07	(227,629)
U.S. Treasury Note 10 yr (Long)	209	22,993,266	Dec-07	327,803
U.S. Treasury Note 10 yr (Short)	35	3,850,547	Dec-07	9,778

Total				$ (53,784)


WRITTEN OPTIONS OUTSTANDING at 10/31/07 (premiums received $36,726,633)

	Contract	Expiration date/
	amount	strike price	Value

Option on an interest rate swap with Goldman Sachs International for the obligation to
pay a fixed rate of 5.79% versus the three month USD-LIBOR-BBA maturing on
January 16, 2018.	$272,933,000	Jan-08/5.79	$14,533,682
Option on an interest rate swap with Goldman Sachs International for the obligation to
receive a fixed rate of 5.79% versus the three month USD-LIBOR-BBA maturing on
January 16, 2018.	272,933,000	Jan-08/5.79	174,677
Option on an interest rate swap with JPMorgan Chase Bank, N.A. for the obligation to
receive a fixed rate of 5.51% versus the three month USD-LIBOR-BBA maturing on
May 14, 2022.	17,335,500	May-12/5.51	792,232
Option on an interest rate swap with JPMorgan Chase Bank, N.A. for the obligation to
pay a fixed rate of 5.51% versus the three month USD-LIBOR-BBA maturing on
May 14, 2022.	17,335,500	May-12/5.51	756,868
Option on an interest rate swap with JPMorgan Chase Bank, N.A. for the obligation to
pay a fixed rate of 5.395% versus the three month USD-LIBOR-BBA maturing on
August 28, 2018.	67,841,000	Aug-08/5.395	2,191,264
Option on an interest rate swap with JPMorgan Chase Bank, N.A. for the obligation to
receive a fixed rate of 5.395% versus the three month USD-LIBOR-BBA maturing on
August 28, 2018.	67,841,000	Aug-08/5.395	1,076,637
Option on an interest rate swap with Lehman Brothers Special Financing, Inc. for the
obligation to pay a fixed rate of 5.225% versus the three month USD-LIBOR-BBA
maturing on March 5, 2018.	45,268,000	Mar-08/5.225	893,138
Option on an interest rate swap with Lehman Brothers Special Financing, Inc. for the
obligation to receive a fixed rate of 5.225% versus the three month USD-LIBOR-BBA
maturing on March 5, 2018.	45,268,000	Mar-08/5.225	531,899
Option on an interest rate swap with Lehman Brothers Special Financing, Inc. for the
obligation to receive a fixed rate of 5.95% versus the three month USD-LIBOR-BBA
maturing on June 16, 2018.	224,813,000	Jun-08/5.95	708,161
Option on an interest rate swap with Lehman Brothers Special Financing, Inc. for the
obligation to pay a fixed rate of 5.95% versus the three month USD-LIBOR-BBA
maturing on June 16, 2018.	224,813,000	Jun-08/5.95	14,302,603
Option on an interest rate swap with Lehman Brothers Special Financing, Inc. for the
obligation to pay a fixed rate of 5.31% versus the three month USD-LIBOR-BBA
maturing on August 29, 2018.	183,321,000	Aug-08/5.31	5,231,981
Option on an interest rate swap with Lehman Brothers Special Financing, Inc. for the
obligation to receive a fixed rate of 5.31% versus the three month USD-LIBOR-BBA
maturing on August 29, 2018.	183,321,000	Aug-08/5.31	3,393,272


WRITTEN OPTIONS OUTSTANDING at 10/31/07 (premiums received $36,726,633) continued

		Contract	Expiration date/
		amount	strike price	Value

Option on an interest rate swap with Lehman Brothers Special Financing, Inc. for the
obligation to receive a fixed rate of 5.515% versus the three month USD-LIBOR-BBA
maturing on May 14, 2022.	$	8,668,000	May-12/5.515	$ 395,001
Option on an interest rate swap with Lehman Brothers Special Financing, Inc. for the
obligation to pay a fixed rate of 5.515% versus the three month USD-LIBOR-BBA
maturing on May 14, 2022.		8,668,000	May-12/5.515	380,265
Option on an interest rate swap with Lehman Brothers Special Financing, Inc. for the
obligation to pay a fixed rate of 5.52% versus the three month USD-LIBOR-BBA
maturing on May 14, 2022.		3,467,000	May-12/5.52	152,340
Option on an interest rate swap with Lehman Brothers Special Financing, Inc. for the
obligation to receive a fixed rate of 5.52% versus the three month USD-LIBOR-BBA
maturing on May 14, 2022.		3,467,000	May-12/5.52	157,298

Total				$45,671,318



TBA SALE COMMITMENTS OUTSTANDING at 10/31/07 (proceeds receivable $208,062,137)

		Principal	Settlement
		amount	date	Value

FNMA, 4 1/2s, November 1, 2022	$	16,200,000	11/19/07	$ 15,670,970
FNMA, 5s, November 1, 2022		27,600,000	11/19/07	27,170,904
FNMA, 5s, November 1, 2037		17,400,000	11/13/07	16,698,563
FNMA, 5 1/2s, November 1, 2037		9,033,000	11/13/07	8,902,445
FNMA, 6s, November 1, 2037		800,000	11/13/07	805,750
FNMA, 6 1/2s, November 1, 2037	135,505,000		11/13/07	138,691,482

Total				$207,940,114


INTEREST RATE SWAP CONTRACTS OUTSTANDING at 10/31/07

		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.
$ 70,599,000	12/22/09	3.965%	3 month USD-LIBOR-BBA	$ 269,090

5,417,000	10/3/16	5.15631%	3 month USD-LIBOR-BBA	(37,087)

4,590,000	6/24/15	4.39%	3 month USD-LIBOR-BBA	131,249

106,100,000	4/6/10	4.6375%	3 month USD-LIBOR-BBA	(24,676)

25,430,000	6/17/15	4.555%	3 month USD-LIBOR-BBA	476,553

61,500,000	10/21/15	4.943%	3 month USD-LIBOR-BBA	307,693

3,830,000	6/23/15	4.45%	3 month USD-LIBOR-BBA	94,082

9,200,000	6/23/15	4.466%	3 month USD-LIBOR-BBA	216,186

1,000,000	9/1/15	3 month USD-LIBOR-BBA	4.53%	(33,134)

134,600,000	1/14/10	3 month USD-LIBOR-BBA	4.106%	(103,768)

1,320,000	9/24/09	3 month USD-LIBOR-BBA	4.7375%	2,838

91,608,000	1/28/24	3 month USD-LIBOR-BBA	5.2125%	569,663

Bear Stearns Bank plc
84,500,000	4/24/12	5.027%	3 month USD-LIBOR-BBA	(831,126)

Citibank, N.A.
65,880,000	7/27/09	5.504%	3 month USD-LIBOR-BBA	(1,909,880)

5,230,000	4/7/14	5.377%	3 month USD-LIBOR-BBA	(129,368)

31,016,000	10/26/12	4.6275%	3 month USD-LIBOR-BBA	275,441

Credit Suisse First Boston International
55,240,000	10/7/14	3 month USD-LIBOR-BBA	4.624%	(1,111,672)


INTEREST RATE SWAP CONTRACTS OUTSTANDING at 10/31/07 continued

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

Credit Suisse International
$ 5,195,000	3/21/16	3 month USD-LIBOR-BBA	5.20497%	$ 57,500

7,986,000	9/28/16	5.10886%	3 month USD-LIBOR-BBA	(25,979)

7,038,000	8/29/12	5.04556%	3 month USD-LIBOR-BBA	(62,158)

11,742,000	10/16/17	3 month USD-LIBOR-BBA	5.297%	173,023

Deutsche Bank AG
27,130,000	10/16/17	3 month USD-LIBOR-BBA	5.297%	399,772

61,565,504	8/2/32	5.86%	3 month USD-LIBOR-BBA	(4,424,822)

54,861,045	8/2/22	3 month USD-LIBOR-BBA	5.7756%	3,042,762

Goldman Sachs Capital Markets, L.P.
61,565,504	8/12/32	5.689%	3 month USD-LIBOR-BBA	(2,912,291)

54,861,045	8/12/22	3 month USD-LIBOR-BBA	5.601%	1,999,865

Goldman Sachs International
217,245,000	11/21/08	5.0925%	3 month USD-LIBOR-BBA	(3,398,436)

29,390,000	1/8/12	3 month USD-LIBOR-BBA	4.98%	602,882

16,030,000	4/7/14	5.33842%	3 month USD-LIBOR-BBA	(360,870)

5,322,000	5/3/16	5.565%	3 month USD-LIBOR-BBA	(269,650)

19,660,000	9/29/16	3 month USD-LIBOR-BBA	5.1275%	90,833

5,329,000	10/19/16	5.32413%	3 month USD-LIBOR-BBA	(98,732)

61,798,000	9/29/08	5.085%	3 month USD-LIBOR-BBA	(170,019)

49,968,000	11/20/26	3 month USD-LIBOR-BBA	5.261%	292,771

222,080,000	11/20/08	5.16%	3 month USD-LIBOR-BBA	(3,653,278)

48,123,000	11/21/26	3 month USD-LIBOR-BBA	5.2075%	(32,029)

39,245,600	9/21/17	5.149%	3 month USD-LIBOR-BBA	(132,500)

141,023,100	9/21/09	3 month USD-LIBOR-BBA	4.60%	(79,512)

11,999,000	9/14/17	5.0625%	3 month USD-LIBOR-BBA	54,413

24,460,000	9/14/14	4.906%	3 month USD-LIBOR-BBA	111,516

37,000,000	7/25/09	5.327%	3 month USD-LIBOR-BBA	(946,343)

97,832,400	9/19/09	3 month USD-LIBOR-BBA	4.763%	157,601

JPMorgan Chase Bank, N.A.
22,120,000	6/16/15	4.538%	3 month USD-LIBOR-BBA	439,360

49,901,000	11/20/26	3 month USD-LIBOR-BBA	5.266%	323,428

8,389,000	12/19/16	5.0595%	3 month USD-LIBOR-BBA	(88,886)

104,300,000	8/4/16	3 month USD-LIBOR-BBA	5.5195%	3,473,067

200,400,000	8/4/08	3 month USD-LIBOR-BBA	5.40%	895,120

12,553,000	1/19/17	3 month USD-LIBOR-BBA	5.249%	321,041

49,331,000	1/19/09	5.24%	3 month USD-LIBOR-BBA	(964,882)

34,100,000	4/23/17	5.186%	3 month USD-LIBOR-BBA	(254,544)

5,733,000	9/18/16	5.291%	3 month USD-LIBOR-BBA	(87,944)

110,693,000	3/8/17	3 month USD-LIBOR-BBA	5.28%	1,518,969

23,040,000	9/28/16	3 month USD-LIBOR-BBA	5.1223%	97,584

86,260,000	10/10/13	5.09%	3 month USD-LIBOR-BBA	(829,096)

5,510,000	6/24/15	4.387%	3 month USD-LIBOR-BBA	158,660

15,425,000	8/2/15	3 month USD-LIBOR-BBA	4.6570%	(368,231)

62,040,000	10/10/13	5.054%	3 month USD-LIBOR-BBA	(467,819)

80,000,000	6/29/15	3 month USD-LIBOR-BBA	4.296%	(2,779,310)

156,000,000	1/17/16	4.946%	3 month USD-LIBOR-BBA	(1,000,863)

173,000,000	1/31/17	3 month USD-LIBOR-BBA	5.415%	6,696,854

221,852,000	11/20/08	5.165%	3 month USD-LIBOR-BBA	(3,665,550)

58,900,000	3/7/15	3 month USD-LIBOR-BBA	4.798%	(776,413)

41,147,000	8/15/11	5.412%	3 month USD-LIBOR-BBA	(962,596)

55,400,000	10/21/15	4.916%	3 month USD-LIBOR-BBA	375,606

72,402,000	9/28/08	5.096%	3 month USD-LIBOR-BBA	(202,095)

282,300,000	8/13/12	3 month USD-LIBOR-BBA	5.20%	4,455,949


INTEREST RATE SWAP CONTRACTS OUTSTANDING at 10/31/07 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
$ 20,012,000	10/30/12	4.68375%	3 month USD-LIBOR-BBA	$ 118,607

52,021,000	8/29/17	5.2925%	3 month USD-LIBOR-BBA	(546,589)

39,300,000	8/7/12	3 month USD-LIBOR-BBA	5.194%	627,027

14,749,000	8/29/17	5.263%	3 month USD-LIBOR-BBA	(175,016)

6,300,000	7/25/17	3 month USD-LIBOR-BBA	5.652%	357,862

113,530,000	7/5/17	3 month USD-LIBOR-BBA	4.55%	(3,494,647)

17,628,000	9/27/17	5.2335%	3 month USD-LIBOR-BBA	(176,583)

96,800,000	6/27/17	3 month USD-LIBOR-BBA	5.712%	5,983,122

39,245,600	9/21/17	5.15%	3 month USD-LIBOR-BBA	(135,291)

141,023,100	9/21/09	3 month USD-LIBOR-BBA	4.6125%	(46,528)

Lehman Brothers Special Financing, Inc.
19,500,000	3/16/17	5.034%	3 month USD-LIBOR-BBA	95,264

27,294,000	8/3/36	3 month USD-LIBOR-BBA	5.67%	1,297,316

295,943,000	8/3/11	5.445%	3 month USD-LIBOR-BBA	(7,469,949)

246,914,000	8/3/16	5.5675%	3 month USD-LIBOR-BBA	(9,079,181)

223,430,000	8/3/08	3 month USD-LIBOR-BBA	5.425%	1,052,866

124,010,000	12/28/16	5.084%	3 month USD-LIBOR-BBA	(1,651,850)

123,000,000	9/29/13	5.0555%	3 month USD-LIBOR-BBA	(989,433)

24,523,000	10/23/16	5.325%	3 month USD-LIBOR-BBA	(458,225)

183,930,000	9/8/16	5.3275%	3 month USD-LIBOR-BBA	(3,299,640)

24,523,000	10/23/16	3 month USD-LIBOR-BBA	5.3275%	462,653

61,010,000	10/23/08	3 month USD-LIBOR-BBA	5.26%	299,625

61,010,000	10/23/08	5.255%	3 month USD-LIBOR-BBA	(296,506)

51,500,000	3/16/09	4.9275%	3 month USD-LIBOR-BBA	(127,438)

6,277,000	3/15/17	5.043%	3 month USD-LIBOR-BBA	26,264

168,290,000	3/15/09	4.9298%	3 month USD-LIBOR-BBA	(421,960)

34,808,000	4/12/12	3 month USD-LIBOR-BBA	5.087%	414,895

24,607,000	12/20/16	3 month USD-LIBOR-BBA	5.069%	278,718

30,095,000	9/11/17	5.0525%	3 month USD-LIBOR-BBA	161,401

53,305,622	8/29/09	5.005%	3 month USD-LIBOR-BBA	(316,206)

3,314,864	8/29/17	3 month USD-LIBOR-BBA	5.32%	54,246

105,022,000	8/29/09	5.001%	3 month USD-LIBOR-BBA	(631,712)

14,278,000	8/29/17	5.3187%	3 month USD-LIBOR-BBA	(233,619)

12,170,000	8/29/17	5.29125%	3 month USD-LIBOR-BBA	(172,752)

13,779,371	8/29/12	5.075%	3 month USD-LIBOR-BBA	(142,651)

27,850,000	8/24/12	5.085%	3 month USD-LIBOR-BBA	(292,271)

31,016,000	10/26/12	4.61375%	3 month USD-LIBOR-BBA	294,110

39,245,600	9/24/17	5.285%	3 month USD-LIBOR-BBA	(552,278)

30,000,000	10/9/17	5.285%	3 month USD-LIBOR-BBA	(415,198)

190,400,000	5/29/12	5.28%	3 month USD-LIBOR-BBA	(6,206,192)

65,221,600	9/19/09	3 month USD-LIBOR-BBA	4.755%	95,328

141,023,100	9/24/09	3 month USD-LIBOR-BBA	4.695%	188,403

Merrill Lynch Capital Services, Inc.
31,016,000	10/26/12	4.6165%	3 month USD-LIBOR-BBA	290,377

54,861,045	8/12/22	3 month USD-LIBOR-BBA	5.601%	1,999,865

53,317,584	8/13/12	4.94%	3 month USD-LIBOR-BBA	(223,993)

Morgan Stanley Capital Services, Inc.
3,820,000	2/20/17	5.19%	3 month USD-LIBOR-BBA	(28,333)

5,631,000	8/29/17	5.26021%	3 month USD-LIBOR-BBA	(65,553)

28,000,000	10/2/10	6.94%	3 month USD-LIBOR-BBA	(1,778,651)

Total				$(30,444,484)


TOTAL RETURN SWAP CONTRACTS OUTSTANDING at 10/31/07


		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.
$ 75,010,000	5/2/08	5 bp plus change in spread	Banc of America Securities-	$(1,457,250)
		of Banc of America Securities	CMBS AAA 10 year Index
		AAA 10 yr Index multiplied by
		the modified duration factor

24,020,000	5/2/08	10 bp plus change in spread	Banc of America Securities-	(440,068)
		of Banc of America Securities	CMBS AAA 10 year Index
		AAA 10 yr Index multiplied by
		the modified duration factor

22,920,000	5/2/08	Banc of America Securities	Banc of America Securities-	-
		AAA 10 yr Index multiplied by	CMBS AAA 10 year Index
		the modified duration factor

Citibank, N.A.
22,360,000	5/2/08	12.5 bp plus change in spread	Banc of America Securities-	(406,086)
		of Banc of America Securities	CMBS AAA 10 year Index
		AAA 10 yr Index multiplied by
		the modified duration factor

26,520,000	10/31/07	10 bp plus change in spread	Banc of America Securities-	(568,487)
		of Banc of America Securities	CMBS AAA 10 year Index
		AAA 10 yr Index multiplied by
		the modified duration factor

25,020,000	11/2/07	15 bp plus change in spread	Banc of America Securities-	(542,685)
		of Banc of America Securities	CMBS AAA 10 year Index
		AAA 10 yr Index multiplied by
		the modified duration factor

Deutsche Bank AG
17,599,000 (F)	2/1/08	30 bp plus beginning	The spread return of Lehman	76,397
		of period nominal spread	Brothers AAA 8.5+ CMBS Index
		of Lehman Brothers AAA 8.5+	adjusted by modified duration
		Commercial Mortgage Backed	factor
		Securities Index

80,000,000 (F)	2/1/08	30 bp plus beginning	The spread return of Lehman	(526,240)
		of period nominal spread	Brothers AAA 8.5+ CMBS Index
		of Lehman Brothers AAA 8.5+	adjusted by modified duration
		Commercial Mortgage Backed	factor
		Securities Index

Goldman Sachs International
4,951,000	9/15/11	678 bp (1 month USD-LIBOR-BBA)	Ford Credit Auto Owner Trust	115,831
			Series 2005-B Class D

29,470,000	5/1/08	10 bp plus change in spread	Banc of America Securities-	(303,458)
		of Banc of America Securities	CMBS AAA 10 year Index
		AAA 10 yr Index multiplied by
		the modified duration factor

46,150,000 (F)	1/1/08	(10 bp plus beginning	The spread return of Lehman	1,363,640
		of period nominal spread	Brothers AAA 8.5+ CMBS Index
		of Lehman Brothers AAA 8.5+	adjusted by modified duration
		Commercial Mortgage Backed	factor
		Securities Index)

JPMorgan Chase Bank, N.A.
24,110,000	2/1/08	25 bp plus beginning	The spread return of Lehman	53,042
		of period nominal spread	Brothers AAA 8.5+ CMBS Index
		of Lehman Brothers AAA 8.5+	adjusted by modified duration
		Commercial Mortgage Backed	factor
		Securities Index

20,475,000	8/1/08	17.5 bp minus change in	The spread return of Lehman	6,143
		spread of Lehman Brothers AAA	Brothers AAA 8.5+ CMBS Index
		8.5+ Commercial Mortgage	adjusted by modified duration
		Backed Securities Index	factor


TOTAL RETURN SWAP CONTRACTS OUTSTANDING at 10/31/07 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)

Lehman Brothers Special Financing, Inc.
$ 45,713,000 (F)	4/1/08	10 bp minus beginning	The spread return of Lehman	$ (630,794)
		of period nominal spread	Brothers AAA 8.5+ CMBS Index
		of Lehman Brothers AAA 8.5+	adjusted by modified duration
		Commercial Mortgage Backed	factor
		Securities Index

86,400,000 (F)	4/1/08	(175 bp minus beginning	The spread return of Lehman	1,062,979
		of period nominal spread	Brothers AAA 8.5+ CMBS Index
		of Lehman Brothers AAA 8.5+	adjusted by modified duration
		Commercial Mortgage Backed	factor
		Securities Index)

86,400,000 (F)	9/1/08	Beginning of period nominal	The spread return of Lehman	(196,214)
		spread of Lehman Brothers AAA	Brothers AAA 8.5+ CMBS Index
		8.5+ Commercial Mortgage	adjusted by modified duration
		Backed Securities Index	factor

67,018,000 (F)	3/1/08	(2.5 bp plus beginning	The spread return of Lehman	292,534
		of period nominal spread	Brothers AAA 8.5+ CMBS Index
		of Lehman Brothers AAA 8.5+	adjusted by modified duration
		Commercial Mortgage Backed	factor
		Securities Index)

43,516,000 (F)	3/1/08	70 bp minus beginning	The spread return of Lehman	18,625
		of period nominal spread	Brothers AAA 8.5+ CMBS Index
		of Lehman Brothers AAA 8.5+	adjusted by modified duration
		Commercial Mortgage Backed	factor
		Securities Index

60,318,000	3/1/08	(120 bp minus beginning	The spread return of Lehman	143,430
		of period nominal spread	Brothers AAA 8.5+ CMBS Index
		of Lehman Brothers AAA 8.5+	adjusted by modified duration
		Commercial Mortgage Backed	factor
		Securities Index)

80,413,000	2/1/08	(100 bp minus beginning	The spread return of Lehman	(155,921)
		of period nominal spread	Brothers AAA 8.5+ CMBS Index
		of Lehman Brothers AAA 8.5+	adjusted by modified duration
		Commercial Mortgage Backed	factor
		Securities Index)

32,888,000	2/1/08	(45 bp minus beginning	The spread return of Lehman	10,291
		of period nominal spread	Brothers AAA 8.5+ CMBS Index
		of Lehman Brothers AAA 8.5+	adjusted by modified duration
		Commercial Mortgage Backed	factor
		Securities Index)

94,509,000 (F)	2/1/08	30 bp plus beginning	The spread return of Lehman	344,958
		of period nominal spread	Brothers AAA 8.5+ CMBS Index
		of Lehman Brothers AAA 8.5+	adjusted by modified duration
		Commercial Mortgage Backed	factor
		Securities Index

17,598,000 (F)	2/1/08	50 bp minus beginning	The spread return of Lehman	25,218
		of period nominal spread	Brothers AAA 8.5+ CMBS Index
		of Lehman Brothers AAA 8.5+	adjusted by modified duration
		Commercial Mortgage Backed	factor
		Securities Index

34,810,000	2/1/08	57.5 bp plus beginning	The spread return of Lehman	(12,890)
		of period nominal spread	Brothers AAA 8.5+ CMBS Index
		of Lehman Brothers AAA 8.5+	adjusted by modified duration
		Commercial Mortgage Backed	factor
		Securities Index

41,371,000	1/1/08	(5 bp plus beginning	The spread return of Lehman	1,277,206
		of period nominal spread	Brothers AAA 8.5+ CMBS Index
		of Lehman Brothers AAA 8.5+	adjusted by modified duration
		Commercial Mortgage Backed	factor
		Securities Index)

46,150,000 (F)	1/1/08	(Beginning of period nominal	The spread return of Lehman	1,390,269
		spread of Lehman Brothers AAA	Brothers AAA 8.5+ CMBS Index
		8.5+ Commercial Mortgage	adjusted by modified duration
		Backed Securities Index)	factor


TOTAL RETURN SWAP CONTRACTS OUTSTANDING at 10/31/07 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)

Lehman Brothers Special Financing, Inc. continued

$ 46,150,000	1/1/08	(10 bp plus beginning	The spread return of Lehman	$ 1,294,627
		of period nominal spread	Brothers AAA 8.5+ CMBS Index
		of Lehman Brothers AAA 8.5+	adjusted by modified duration
		Commercial Mortgage Backed	factor
		Securities Index)

65,180,000	12/1/07	8 bp plus beginning of period	The spread return of Lehman	(1,918,661)
		nominal spread of Lehman	Brothers AAA 8.5+ CMBS Index
		Brothers AAA 8.5+ Commercial	adjusted by modified duration
		Mortgage Backed Securities	factor
		Index

Morgan Stanley Capital Services, Inc.
14,710,000	10/31/07	10 bp plus change in spread	Banc of America Securities-	(315,516)
		of Banc of America Securities	CMBS AAA 10 year Index
		AAA 10 yr Index multiplied by
		the modified duration factor

22,000,000	4/30/08	15 bp minus change in spread	Banc of America Securities-	(60,628)
		of Banc of America Securities	CMBS AAA 10 year Index
		AAA 10 yr Index multiplied by
		the modified duration factor

79,783,000	1/31/08	110 bp minus change in spread	The spread return of Lehman	(557,739)
		of Lehman Brothers AAA 8.5+	Brothers AAA 8.5+ CMBS Index
		Commercial Mortgage Backed	adjusted by modified duration
		Securities Index	factor

14,953,000 (F)	1/31/08	80 bp minus change in spread	Banc of America Securities-	(96,417)
		of Banc of America Securities	CMBS AAA 10 year Index
		AAA 10 yr Index multiplied by
		the modified duration factor

14,953,000	1/31/08	70 bp minus change in spread	The spread return of Lehman	(75,921)
		of Lehman Brothers AAA 8.5+	Brothers AAA 8.5+ CMBS Index
		Commercial Mortgage Backed	adjusted by modified duration
		Securities Index	factor

16,300,000	11/30/07	7.5 bp plus beginning	The spread return of Lehman	(479,942)
		of period nominal spread	Brothers AAA 8.5+ CMBS Index
		of Lehman Brothers AAA 8.5+	adjusted by modified duration
		Commercial Mortgage Backed	factor
		Securities Index


Total				$ (1,269,727)

(F) Is valued at fair value following procedures approved by the Trustees.


CREDIT DEFAULT CONTRACTS OUTSTANDING at 10/31/07

	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 ABX NA CMBX BBB Index	$ 8,176	$11,890,000	10/12/52	(134 bp)	$ 2,405,640

DJ CDX NA IG Series 8
Index	(20,984)	36,185,000	6/20/17	(60 bp)	548,206

DJ CDX NA IG Series 8
Index	(139,287)	38,250,000	6/20/17	(60 bp)	462,386

L-3 Communications
Corp. 7 5/8%, 6/15/12	—	400,000	6/20/11	(101 bp)	(2,239)

XL Capital Assurance
Inc.	—	220,000	12/20/12	400 bp	486

Bear Stearns International, Ltd.
DJ ABX NA CMBX BBB Index	69,108	14,269,165	10/12/52	(134 bp)	2,949,487

Citibank, N.A.
CMS Energy Corp.,
6.875%, 12/15/15	—	2,155,000	6/20/12	57 bp	(39,921)


CREDIT DEFAULT CONTRACTS OUTSTANDING at 10/31/07 continued

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

Credit Suisse International
Sprint Capital Corp, 8
3/8%, 3/15/12	$ —	$ 3,670,000		6/20/12	(59 bp)	$ 27,757

Deutsche Bank AG
DJ CDX NA IG Series 8
Index 7-10% tranche	—	4,508,000		6/20/12	22 bp	(91,573)

DJ LCDX NA Series 9.1
Index 15-100% tranche	—	4,650,000		12/20/12	61.56 bp	(43,598)

France Telecom, 7.25%,
1/28/13	—	2,375,000		6/20/16	70 bp	48,221

Goldman Sachs International
Any one of the
underlying securities
in the basket of BB
CMBS securities	—	11,022,000		(a)	2.461%	343,764

DJ CDX NA HY Series 8
Index	1,671,539	111,170,000		6/20/12	35 bp	312,856

DJ CDX NA HY Series 9
Index 25-35% tranche	—	4,593,000		12/20/10	108.65 bp	(48,445)

DJ CDX NA IG Series 8
Index	(28)	36,190,000		6/20/17	(60 bp)	569,240

DJ CDX NA IG Series 8
Index	(171,919)	40,845,000		6/20/17	(60 bp)	470,573

DJ CDX NA IG Series 9
Index	(521,440)	157,828,000		12/20/12	60 bp	(389,916)

Lehman Brothers
Holdings, 6 5/8%,
1/18/12	—	2,190,000		9/20/17	(67.8 bp)	50,346

Merrill Lynch & Co.,
5%, 1/15/15	—	2,190,000		9/20/12	48 bp	(32,500)

Merrill Lynch & Co.,
5%, 1/15/15	—	2,190,000		9/20/17	(59.8 bp)	33,162

JPMorgan Chase Bank, N.A.
DJ CDX NA CMBX AAA Index	—	10,150,000		3/15/49	(7 bp)	181,292

DJ CDX NA HY Series 9
Index 25-35% tranche	—	4,709,000		12/20/10	105.5 bp	(54,055)

DJ CDX NA IG Series 9
Index 30-100% tranche	—	15,530,000		12/20/12	(5.8 bp)	14,306

Lehman Brothers Special Financing, Inc.
Bear Stearns Co. Inc.,
5.3%, 10/30/15	—	2,190,000		9/20/17	(77 bp)	39,993

CMS Energy Corp.,
6.875%, 12/15/15	—	540,000		6/20/12	62 bp	(8,870)

DJ ABX NA CMBX BBB Index	13,181	3,198,857		10/12/52	(134 bp)	670,321

DJ CDX NA CMBX AA Index	(97,243)	3,069,000	(F)	3/15/49	(15 bp)	113,983

DJ CDX NA CMBX AAA Index	—	33,848,000		3/15/49	(7 bp)	477,723

DJ CDX NA HY Series 8
Index 35-60% tranche	—	90,742,000		6/20/12	104 bp	(1,715,956)

DJ CDX NA HY Series 9
Index 25-35% tranche	—	18,600,000		12/20/10	90 bp	(292,113)

DJ CDX NA HY Series 9
Index 25-35% tranche	—	18,600,000		12/20/10	104.5 bp	(208,173)

DJ CDX NA IG Series 8
Index	283,930	18,169,000		6/20/12	35 bp	61,875

DJ CDX NA IG Series 8
Index 30-100% tranche	—	64,384,100		6/20/12	(3.125 bp)	122,526

DJ CDX NA IG Series 8
Index 30-100% tranche	—	52,677,900		6/20/12	(8 bp)	(13,431)

DJ CDX NA IG Series 9
Index	(199,521)	40,322,000		12/20/12	60 bp	(175,328)


CREDIT DEFAULT CONTRACTS OUTSTANDING at 10/31/07 continued

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

Lehman Brothers Special Financing, Inc. continued
DJ LCDX NA Series 9.1
Index 15-100% tranche	$ —	$ 4,650,000	(F)	12/20/12	59.3 bp	$ (51,583)

Goldman Sachs Group,
Inc., 6.6%, 1/15/12	—	2,190,000		9/20/17	(58 bp)	1,825

Morgan Stanley Dean
Witter, 6.6%, 4/1/12	—	2,190,000		9/20/12	48 bp	(19,688)

Morgan Stanley Dean
Witter, 6.6%, 4/1/12	—	2,190,000		9/20/17	(60.5 bp)	15,777

XL Capital Assurance
Inc.	—	655,000		12/20/12	400 bp	1,448

Morgan Stanley Capital Services, Inc.
DJ ABX NA CMBX BBB Index	3,608	4,964,000		10/12/52	(134 bp)	1,023,360

DJ CDX NA IG Series 8
Index	812,766	67,600,000		6/20/12	35 bp	(13,418)

DJ CDX NA IG Series 8
Index	—	36,390,000		6/20/17	(60 bp)	572,415

UBS, AG
DJ CDX NA IG Series 8
Index	(30,852)	2,500,000		6/20/17	(60 bp)	8,473

Total						$8,326,634

* 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.

(F) Is valued at fair value following procedures approved by the Trustees.

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

Statement of assets and liabilities 10/31/07


ASSETS

Investment in securities, at value, including $3,600,954 of securities on loan (Note 1):
Unaffiliated issuers (identified cost $2,635,532,795)	$2,635,250,075

Interest and other receivables	14,106,412

Receivable for shares of the fund sold	1,512,681

Receivable for securities sold	74,728,036

Receivable for sales of delayed delivery securities (Note 1)	208,508,342

Receivable from Manager (Note 2)	566,773

Premiums paid on swap contracts (Note 1)	1,181,274

Receivable for closed swap contracts (Note 1)	640,779

Unrealized appreciation on swap contracts (Note 1)	61,181,951

Total assets	2,997,676,323


LIABILITIES

Payable to custodian (Note 2)	1,945,605

Payable for variation margin (Note 1)	755,198

Payable for securities purchased	18,447,487

Payable for purchases of delayed delivery securities (Note 1)	344,450,441

Payable for shares of the fund repurchased	2,730,129

Payable for compensation of Manager (Notes 2 and 5)	2,677,148

Payable for investor servicing (Note 2)	1,085,676

Payable for Trustee compensation and expenses (Note 2)	318,257

Payable for administrative services (Note 2)	2,902

Payable for distribution fees (Note 2)	384,549

Written options outstanding, at value (premiums received $36,726,633) (Notes 1 and 3)	45,671,318

TBA sales commitments, at value (proceeds receivable $208,062,137) (Note 1)	207,940,114

Collateral on securities loaned, at value (Note 1)	3,689,580

Payable for closed swap contracts (Note 1)	1,697

Premiums received on swap contracts (Note 1)	2,862,308

Unrealized depreciation on swap contracts (Note 1)	84,569,528

Other accrued expenses	191,143

Total liabilities	717,723,080

Net assets	$2,279,953,243


REPRESENTED BY

Paid-in capital (Unlimited shares authorized) (Notes 1 and 4)	$2,401,015,455

Undistributed net investment income (Note 1)	39,288,020

Accumulated net realized loss on investments (Note 1)	(127,803,489)

Net unrealized depreciation of investments	(32,546,743)

Total — Representing net assets applicable to capital shares outstanding	$2,279,953,243

(Continued on next page)

Statement of assets and liabilities (Continued)


COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE

Net asset value and redemption price per class A share ($768,016,299 divided by 113,494,527 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 ($110,494,688 divided by 16,436,576 shares)**	$6.72

Net asset value and offering price per class C share ($20,396,140 divided by 3,025,534 shares)**	$6.74

Net asset value and redemption price per class M share ($253,456,930 divided by 37,923,074 shares)	$6.68

Offering price per class M share (100/96.75 of $6.68)***	$6.90

Net asset value, offering price and redemption price per class R share ($1,062,319 divided by 157,233 shares)	$6.76

Net asset value, offering price and redemption price per class Y share ($1,126,526,867 divided by 165,250,482 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 Year ended 10/31/07


INVESTMENT INCOME

Interest (including interest income of $13,457,367 from investments in affiliated issuers) (Note 5)	$136,345,618

Securities lending	3,961

Total investment income	136,349,579


EXPENSES

Compensation of Manager (Note 2)	12,660,762

Investor servicing fees (Note 2)	5,940,652

Custodian fees (Note 2)	311,490

Trustee compensation and expenses (Note 2)	105,037

Administrative services (Note 2)	48,118

Distribution fees — Class A (Note 2)	1,929,932

Distribution fees — Class B (Note 2)	1,301,521

Distribution fees — Class C (Note 2)	206,867

Distribution fees — Class M (Note 2)	1,441,795

Distribution fees — Class R (Note 2)	4,712

Other	584,281

Non-recurring costs (Notes 2 and 6)	1,463

Costs assumed by Manager (Notes 2 and 6)	(1,463)

Fees waived and reimbursed by Manager (Notes 2 and 5)	(1,983,863)

Total expenses	22,551,304

Expense reduction (Note 2)	(836,074)

Net expenses	21,715,230

Net investment income	114,634,349

Net realized loss on investments (Notes 1 and 3)	(8,793,587)

Net increase from payments from affiliates (Note 2)	1,032,118

Net realized gain on swap contracts (Note 1)	5,540,065

Net realized gain on futures contracts (Note 1)	13,299,369

Net realized gain on written options (Notes 1 and 3)	9,494,114

Net unrealized depreciation of investments, futures contracts, swap contracts, written options, and TBA sale commitments during the year	(10,657,815)

Net gain on investments	9,914,264

Net increase in net assets resulting from operations	$124,548,613

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

Statement of changes in net assets


DECREASE IN NET ASSETS

	Year ended	Year ended
	10/31/07	10/31/06

Operations:
Net investment income	$ 114,634,349	$ 102,884,406

Net realized gain (loss) on investments	20,572,079	(22,358,608)

Net unrealized appreciation (depreciation) of investments	(10,657,815)	32,384,500

Net increase in net assets resulting from operations	124,548,613	112,910,298

Distributions to shareholders: (Note 1)

From ordinary income

Net investment income

Class A	(36,686,887)	(34,927,122)

Class B	(5,242,893)	(6,728,554)

Class C	(830,587)	(809,346)

Class M	(13,239,603)	(15,462,715)

Class R	(42,898)	(23,009)

Class Y	(59,801,833)	(49,842,820)

Redemption fees (Note 1)	4,937	5,435

Decrease from capital share transactions (Note 4)	(223,642,431)	(88,538,159)

Total decrease in net assets	(214,933,582)	(83,415,992)


NET ASSETS

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

End of year (including undistributed net investment income of $39,288,020 and $27,876,185, respectively)	$2,279,953,243	$2,494,886,825

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

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
October 31, 2007	$6.74	.31^(d)	.04	.35	(.32)	(.32)	—^(f)	$6.77	5.35	$768,016	.98^(d)	4.67^(d)	322.90^(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)


CLASS B
October 31, 2007	$6.70	.26^(d)	.03	.29	(.27)	(.27)	—^(f)	$6.72	4.43	$110,495	1.73^(d)	3.96^(d)	322.90^(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)


CLASS C
October 31, 2007	$6.72	.26^(d)	.03	.29	(.27)	(.27)	—^(f)	$6.74	4.41	$20,396	1.73^(d)	3.93^(d)	322.90^(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)


CLASS M
October 31, 2007	$6.67	.30^(d)	.02	.32	(.31)	(.31)	—^(f)	$6.68	4.86	$253,457	1.23^(d)	4.45^(d)	322.90^(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)


CLASS R
October 31, 2007	$6.74	.30^(d)	.03	.33	(.31)	(.31)	—^(f)	$6.76	4.98	$1,062	1.23^(d)	4.38^(d)	322.90^(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
October 31, 2007	$6.79	.33^(d)	.04	.37	(.34)	(.34)	—^(f)	$6.82	5.54	$1,126,527	.73^(d)	4.93^(d)	322.90^(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)

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

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


62	63

Financial highlights (Continued)

* Not annualized.

† 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.

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

(d) Reflects an involuntary contractual expense limitation and waivers of certain fund expenses in connection with investments in Putnam Prime Money Market Fund 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

October 31, 2007	0.08%

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 10/31/07

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, a 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. Effective January 1, 2008 the class A maximum front-end sales charge will change to 4.00% . 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 i n Note 2. Class Y shares, which are sold at net asset value, are generally subject to the same expenses as class A, class B, class C, class M and class R shares, but do not bear a distribution fee. Class Y shares are generally only available to corporate and institutional clients and clients in other approved programs.

A 1.00% redemption fee may apply on any shares purchased 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.

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 a mount 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 losses. 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 losses. 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 Statem ent of assets and liabilities. Interest rate swap contracts outstanding at period end, if any, are listed after the fund’s portfolio.

I) Credit default contracts The fund may enter into credit default contracts where one party, the protection buyer, makes an upfront or periodic payment to a counterparty, 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 or in the price of the underlying security or index, the possibility that the fund may be unable to close out its position at the same time or at the same price as if it had purchased comparable publicly traded securities or that the counterparty may default on its obligation to perform. Risks of loss may exceed amounts recognized on the Statement of assets and liabilities. Credit default contracts outstanding at period end, if any, are listed after the fund’s portfolio.

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

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

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

Unsettled TBA sale commitments are valued at 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 October 31, 2007, the value of securities loaned amounted to $3,600,954. The fund received cash collateral of $3,689,580 which is pooled with collateral of other Putnam funds into 54 issues of 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, as amended, (the “Code”) applicable to regulated investment companies. It is also the intention of the fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Code, as amended. Therefore, no provision has been made for federal taxes on income, capital gains or unrealized appreciation on securities held nor for excise tax on income and capital gains.

At October 31, 2007, the fund had a capital loss carryover of $116,404,181 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

$76,761,268	October 31, 2008

9,580,324	October 31, 2009

15,454,954	October 31, 2013

14,607,635	October 31, 2014

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. These differences include temporary and/or permanent differences of income on swap contracts and interest only securities. Reclassifications are made to the fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. For the year ended October 31, 2007, the fund reclassified $12,622,187 to increase undistributed net investment income and $198 to increase paid-in-capital, with an increase to accumulated net re alized losses of $12,622,385.

The tax basis components of distributable earnings and the federal tax cost as of October 31, 2007 were as follows:


Unrealized appreciation	$ 41,911,889
Unrealized depreciation	(53,523,606)
	———————————————
Net unrealized depreciation	(11,611,717)
Undistributed ordinary income	41,191,335
Capital loss carryforward	(116,404,181)
Cost for federal income tax purposes	$2,646,861,789

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 June 30, 2009 to the extent necessary to ensure that the fund’s expenses do not exceed the simple average of the expenses of all front-end load funds viewed by Lipper Inc. as having the same investment classification or objective as the fund. The expense reimbursement is based on a comparison of the fund’s expenses with the average annualized operating expenses of the funds in its Lipper peer group for each calendar quarter during the fund’s last fiscal year, excluding 12b-1 fees and without giving effect to any expense offset and brokerage service arrangements that may reduce fund expenses. For the year ended October 31, 2007, Putnam Management waived $1,764,632 of its management fee from the fund.

Effective August 3, 2007, Marsh & McLennan Companies, Inc. sold its ownership interest in Putnam Management, its parent companies and

affiliates to a wholly-owned subsidiary of Great-West Lifeco, Inc. The fund’s shareholders have approved a new management contract for the fund that became effective upon the sale.

For the year ended October 31, 2007, Putnam Management has assumed $1,463 of legal, shareholder servicing and communication, audit and Trustee fees incurred by the fund in connection with certain legal and regulatory matters (including those described in Note 6).

In October 2007, Putnam Management agreed to reimburse the fund in the amount of $1,032,118 in connection with the misidentification in 2006 of the characteristics of certain securities in the fund’s portfolio. The reimbursement by Putnam Management had less than a 0.01% impact on total return during the period.

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 services for the fund’s assets were provided by Putnam Fiduciary Trust Company (“PFTC”), an affiliate of Putnam Management, and by State Street Bank and Trust Company (“State Street”). Custody fees are based on the fund’s asset level, the number of its security holdings, transaction volumes and with respect to PFTC, certain fees related to the transition of assets to State Street. Putnam Investor Services, a division of PFTC, provided investor servicing agent functions to the fund. Putnam Investor Services received fees for investor servicing, subject to certain limitations, based on the number of shareholder accounts in the fund and the level of defined contribution plan assets in the fund. During the year ended October 31, 2007 the fund incurred $6,154,417 for custody and investor servicing agent functions provided by PFTC.

Under the custodian contract between the fund and State Street, the custodian bank has a lien on the securities of the fund to the extent permitted by the fund’s investment restrictions to cover any advances made by the custodian bank for the settlement of securities purchased by the fund. At October 31, 2007, the payable to the custodian bank represents the amount due for cash advanced for the settlement of securities purchased.

The fund has entered into arrangements with PFTC and State Street whereby PFTC’s and State Street’s fees are reduced by credits allowed on cash balances. For the year ended October 31, 2007, the fund’s expenses were reduced by $836,074 under these arrangements.

Each independent Trustee of the fund receives an annual Trustee fee, of which $747, 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 and industry seminars and for certain compliance-related matters. Trustees also are reimbursed for expenses they incur relating to their services as Trustees.

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

The fund has adopted an unfunded noncontributory defined benefit pension plan (the “Pension Plan”) covering all Trustees of the fund who have served as a Trustee for at least five years and were first elected prior to 2004. Benefits under the Pension Plan are equal to 50% of the Trustee’s average annual attendance and retainer fees for the three years ended December 31, 2005. The retirement benefit is payable during a Trustee’s lifetime, beginning the year following retirement, for the number of years of service through December 31, 2006. Pension expense for the fund is included in Trustee compensation and expenses in the Statement of operations. Accrued pension liability is included in Payable for Trustee compensation and expenses in the Statement of assets and liabilities. The Trustees have terminated the Pension Plan with respect to any Trustee first elected after 2003.

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

For the year ended October 31, 2007, Putnam Retail Management, acting as underwriter, received net commissions of $56,496 and $1,992 from the sale of class A and class M shares, respectively, and received $139,691 and $1,134 in contingent deferred sales charges from redemptions of class B and class C shares, respectively.

A deferred sales charge of up to 1.00% and 0.40% is assessed on certain redemptions of class A and class M shares, respectively. For the year ended October 31, 2007, Putnam Retail Management, acting as underwriter, received $1,003 and no monies on class A and class M redemptions, respectively.

Note 3: Purchases and sales of securities

During the year ended October 31, 2007, cost of purchases and proceeds from sales of investment securities other than U.S. government securities and short-term investments aggregated $6,250,135,014 and $6,208,019,407, respectively. Purchases and sales of U.S. government securities aggregated $265,531,156 and $255,627,596, respectively.

Written option transactions during the year ended October 31, 2007 are summarized as follows:


	Contract	Premiums
	Amounts	Received

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

Options opened	1,650,057,889	35,912,759
Options exercised	—	—
Options expired	(227,060,000)	(8,781,545)
Options closed	(93,300,889)	(2,320,935)

Written options outstanding
at end of year	$1,647,293,000	$36,726,633

Note 4: Capital shares

At October 31, 2007, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:


CLASS A	Shares	Amount

Year ended 10/31/07:
Shares sold	21,065,263	$ 141,935,434

Shares issued in connection with
reinvestment of distributions	4,666,388	31,380,871

	25,731,651	173,316,305

Shares repurchased	(29,680,681)	(199,970,922)

Net decrease	(3,949,030)	$ (26,654,617)

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

Year ended 10/31/07:
Shares sold	2,043,378	$ 13,682,242

Shares issued in connection with
reinvestment of distributions	694,505	4,642,191

	2,737,883	18,324,433

Shares repurchased	(9,400,717)	(62,921,114)

Net decrease	(6,662,834)	$(44,596,681)

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

Year ended 10/31/07:
Shares sold	444,163	$ 2,977,328

Shares issued in connection with
reinvestment of distributions	100,263	672,080

	544,426	3,649,408

Shares repurchased	(754,052)	(5,059,479)

Net decrease	(209,626)	$(1,410,071)

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

Year ended 10/31/07:
Shares sold	387,398	$ 2,578,562

Shares issued in connection with
reinvestment of distributions	71,890	477,841

	459,288	3,056,403

Shares repurchased	(12,340,684)	(82,080,849)

Net decrease	(11,881,396)	$(79,024,446)

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

Year ended 10/31/07:
Shares sold	89,701	$ 602,799

Shares issued in connection with
reinvestment of distributions	6,371	42,817

	96,072	645,616

Shares repurchased	(50,845)	(341,578)

Net increase	45,227	$ 304,038

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

Year ended 10/31/07:
Shares sold	54,773,479	$ 371,309,420

Shares issued in connection with
reinvestment of distributions	8,829,919	59,795,640

	63,603,398	431,105,060

Shares repurchased	(74,170,365)	(503,365,714)

Net decrease	(10,566,967)	$ (72,260,654)

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 fees paid by Putnam Prime Money Market Fund with respect to assets invested by the fund in Putnam Prime Money Market Fund. For the year ended October 31, 2007, management fees paid were reduced by $219,231 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 $13,457,367 for the year ended October 31, 2007. During the year ended October 31, 2007, cost of purchases and proceeds of sales of investments in Putnam Prime Money Market Fund aggregated $1,359,779,790 and $1,705,157,859, 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 in connection with excessive short-term trading in Putnam funds. Payments from Putnam Management will be distributed to certain open-end Putnam funds and their shareholders. These allegations and related matters have served as the general basis for certain lawsuits, including purported class action lawsuits against Putnam Management and, in a limited number of cases, some Putnam funds. Putnam Management believes that these lawsuits will have no material adverse effect on the funds or on Putnam Management’s ability to provide investment management services. In addition, Putnam Management has agreed to bear any costs incurred by the Putnam funds as a result of these matters.

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 is not expected to have a material effect on the fund’s financial statements. However, the conclusions regarding the Interpretation may be subject to review and adjustment at a later date based on factors including, but not limited to, further implementation guidance expected from the FASB, and on-going analysis of tax laws, regulations and interpretations thereof.

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.

Federal tax information (unaudited)

The Form 1099 you receive in January 2008 will show the tax status of all distributions paid to your account in calendar 2007.

Shareholder meeting results (unaudited)

May 15, 2007 meeting

A proposal to approve a new management contract between the fund and Putnam Investment Management, LLC was approved as follows:


Votes for	Votes against	Abstentions

298,940,895	2,373,466	4,227,068

All tabulations are rounded to the nearest whole number.

About the Trustees

Jameson A. Baxter (Born 1943), Trustee since 1994, Vice Chairman since 2005

Ms. Baxter is the President of Baxter Associates, Inc., a private investment firm.

Ms. Baxter serves as a Director of ASHTA Chemicals, Inc., Ryerson, Inc. (a metals service corporation), the Mutual Fund Directors Forum, and Advocate Health Care. She is Chairman Emeritus of the Board of Trustees, Mount Holyoke College, having served as Chairman for five years. Until 2007, she was a Director of Banta Corporation (a printing and supply chain management company). Until 2004, she was a Director of BoardSource (formerly the National Center for Nonprofit Boards), and until 2002, she was a Director of Intermatic Corporation (a manufacturer of energy control products).

Ms. Baxter has held various positions in investment banking and corporate finance, including Vice President and Principal of the Regency Group, and Vice President of and Consultant to First Boston Corporation. She is a graduate of Mount Holyoke College.

Charles B. Curtis (Born 1940), Trustee since 2001

Mr. Curtis is President and Chief Operating Officer of the Nuclear Threat Initiative (a private foundation dealing with national security issues) and serves as Senior Advisor to the United Nations Foundation.

Mr. Curtis is a member of the Council on Foreign Relations and serves as a Director of Edison International and Southern California Edison. Until 2006, Mr. Curtis served as a member of the Trustee Advisory Council of the Applied Physics Laboratory, Johns Hopkins University. Until 2003, Mr. Curtis was a member of the Electric Power Research Institute Advisory Council and the University of Chicago Board of Governors for Argonne National Laboratory. Prior to 2002, Mr. Curtis was a Member of the Board of Directors of the Gas Technology Institute and the Board of Directors of the Environment and Natural Resources Program Steering Committee, John F. Kennedy School of Government, Harvard University. Until 2001, Mr. Curtis was a member of the Department of Defense Policy Board and Director of EG&G Technical Services, Inc. (a fossil energy research and development support company).

From August 1997 to December 1999, Mr. Curtis was a Partner at Hogan & Hartson L.L.P., a Washington, D.C. law firm. Prior to May 1997, Mr. Curtis was Deputy Secretary of Energy and Under Secretary of the U.S. Department of Energy. He served as Chairman of the Federal Energy Regulatory Commission from 1977 to 1981 and has held positions on the staff of the U.S. House of Representatives, the U.S. Treasury Department, and the SEC.

Robert J. Darretta (Born 1946), Trustee since 2007

Mr. Darretta serves as Director of UnitedHealth Group, a diversified health-care conglomerate.

Until April 2007, Mr. Darretta was Vice Chairman of the Board of Directors of Johnson & Johnson, a diversified health-care conglomerate. Prior to 2007, Mr. Darretta held several accounting and finance positions with Johnson & Johnson, including Chief Financial Officer, Executive Vice President, and Treasurer.

Mr. Darretta received a B.S. in Economics from Villanova University.

Myra R. Drucker (Born 1948), Trustee since 2004

Ms. Drucker is Chair of the Board of Trustees of Commonfund (a not-for-profit firm specializing in asset management for educational endowments and foundations), Vice Chair of the Board of Trustees of Sarah Lawrence College, and a member of the Investment Committee of the Kresge Foundation (a charitable trust). She is also a director of New York Stock Exchange LLC, a wholly-owned subsidiary of the publicly-traded NYSE Group, Inc., a director of Interactive Data Corporation (a provider of financial market data, analytics, and related services to financial institutions and individual investors), and an advisor to RCM Capital Management (an investment management firm).

Ms. Drucker is an ex-officio member of the New York Stock Exchange (NYSE) Pension Managers Advisory Committee, having served as Chair for seven years.

Until August 31, 2004, Ms. Drucker was Managing Director and a member of the Board of Directors of General Motors Asset Management and Chief Investment Officer of General Motors Trust Bank. Ms. Drucker also served as a member of the NYSE Corporate Accountability and Listing Standards Committee and the NYSE/NASD IPO Advisory Committee.

Prior to joining General Motors Asset Management in 2001, Ms. Drucker held various executive positions in the investment management industry. Ms. Drucker served as Chief Investment Officer of Xerox Corporation (a technology and service company in the document industry), where she was responsible for the investment of the company’s pension assets. Ms. Drucker was also Staff Vice President and Director of Trust Investments for International Paper (a paper products, paper distribution, packaging and forest products company) and previously served as Manager of Trust Investments for Xerox Corporation. Ms. Drucker received a B.A. degree in Literature and Psychology from Sarah Lawrence College and pursued graduate studies in economics, statistics and portfolio theory at Temple University.

John A. Hill (Born 1942), Trustee since 1985 and Chairman since 2000

Mr. Hill is Vice Chairman of First Reserve Corporation, a private equity buyout firm that specializes in energy investments in the diversified worldwide energy industry.

Mr. Hill is a Director of Devon Energy Corporation and various private companies controlled by First Reserve Corporation, as well as Chairman of TH Lee, Putnam Investment Trust (a closed-end investment company advised by an affiliate of Putnam Management). He is also a Trustee of Sarah Lawrence College. Until 2005, he was a Director of Continuum Health Partners of New York.

Prior to acquiring First Reserve Corporation in 1983, Mr. Hill held executive positions in investment banking and investment management with several firms and with the federal government, including Deputy Associate Director of the Office of Management and Budget and Deputy Director of the Federal Energy Administration. He is active in various business associations, including the Economic Club of New York, and lectures on energy issues in the United States and Europe. Mr. Hill holds a B.A. degree in Economics from Southern Methodist University and pursued graduate studies there as a Woodrow Wilson Fellow.

Paul L. Joskow (Born 1947), Trustee since 1997

Dr. Joskow is the Elizabeth and James Killian Professor of Economics and Management, and Director of the Center for Energy and Environmental Policy Research at the Massachusetts Institute of Technology.

Dr. Joskow serves as a Director of TransCanada Corporation (an energy company focused on natural gas transmission and power services) and Exelon Corporation (an energy company focused on power services), and as a Member of the Board of Overseers of the Boston Symphony Orchestra. Prior to August 2007, he served as a Director of National Grid (a UK-based holding company with interests in electric and gas transmission and distribution and telecommunications infrastructure). Prior to July 2006, he served as President of the Yale University Council and continues to serve as a Member of the Council. Prior to February 2005, he served on the board of the Whitehead Institute for Biomedical Research (a non-profit research institution). Prior to February 2002, he was a Director of State Farm Indemnity Company (an automobile insurance company), and prior to March 2000, he was a Director of New England Electric System (a public utility holding company).

Dr. Joskow has published six books and numerous articles on topics in industrial organization, government regulation of industry, and competition policy. He is active in industry restructuring, environmental, energy, competition and privatization policies —serving as an advisor to governments and corporations worldwide. Dr. Joskow holds a Ph.D. and M. Phil from Yale University and a B.A. from Cornell University.

Elizabeth T. Kennan (Born 1938), Trustee since 1992

Dr. Kennan is a Partner of Cambus-Kenneth Farm (thoroughbred horse and cattle breeding). She is President Emeritus of Mount Holyoke College.

Dr. Kennan served as Chairman and is now Lead Director of Northeast Utilities. She is a Trustee of the National Trust for Historic Preservation, of Centre College and of Midway College in Midway, Kentucky. Until 2006, she was a member of The Trustees of Reservations. Prior to 2001, Dr. Kennan served on the oversight committee of the Folger Shakespeare Library. Prior to June 2005, she was a Director of Talbots, Inc., and she has served as Director on a number of other boards, including Bell Atlantic, Chastain Real Estate, Shawmut Bank, Berkshire Life Insurance, and Kentucky Home Life Insurance. Dr. Kennan has also served as President of Five Colleges Incorporated and as a Trustee of Notre Dame University, and is active in various educational and civic associations.

As a member of the faculty of Catholic University for twelve years, until 1978, Dr. Kennan directed the post-doctoral program in Patristic and Medieval Studies, taught history and published numerous articles. Dr. Kennan holds a Ph.D. from the University of Washington in Seattle, an M.S. from St. Hilda’s College at Oxford University and an A.B. from Mount Holyoke College. She holds several honorary doctorates.

Kenneth R. Leibler (Born 1949), Trustee since 2006

Mr. Leibler is a founding partner and former Chairman of the Boston Options Exchange, an electronic marketplace for the trading of listed derivative securities.

Mr. Leibler currently serves as a Trustee of Beth Israel Deaconess Hospital in Boston. He is also lead director of Ruder Finn Group, a global communications and advertising firm, and a director of Northeast Utilities, which operates New England’s largest energy delivery system. Prior to December 2006, he served as a director of the Optimum Funds group. Prior to October 2006, he served as a director of ISO New England, the organization responsible for the operation of the electric generation system in the New England states. Prior to 2000, Mr. Leibler was a director of the Investment Company Institute in Washington, D.C.

Prior to January 2005, Mr. Leibler served as Chairman and Chief Executive Officer of the Boston Stock Exchange. Prior to January 2000, he served as President and Chief Executive Officer of Liberty Financial Companies, a publicly traded diversified asset management organization. Prior to June 1990, he served as President and Chief Operating Officer of the American Stock Exchange (AMEX), and at the time was the youngest person in AMEX history to hold the title of President. Prior to serving as AMEX President, he held the position of Chief Financial Officer and headed its management and marketing operations. Mr. Leibler graduated magna cum laude with a degree in economics from Syracuse University, where he was elected Phi Beta Kappa.

Robert E. Patterson (Born 1945), Trustee since 1984

Mr. Patterson is Senior Partner of Cabot Properties, L.P. and Chairman of Cabot Properties, Inc. (a private equity firm investing in commercial real estate).

Mr. Patterson serves as Chairman Emeritus and Trustee of the Joslin Diabetes Center. Prior to June 2003, he was a Trustee of Sea Education Association. Prior to December 2001, he was President and Trustee of Cabot Industrial Trust (a publicly traded real estate investment trust). Prior to February 1998, he was Executive Vice President and Director of Acquisitions of Cabot Partners Limited Partnership (a registered investment adviser involved in institutional real estate investments). Prior to 1990, he served as Executive Vice President of Cabot, Cabot & Forbes Realty Advisors, Inc. (the predecessor company of Cabot Partners).

Mr. Patterson practiced law and held various positions in state government and was the founding Executive Director of the Massachusetts Industrial Finance Agency. Mr. Patterson is a graduate of Harvard College and Harvard Law School.

George Putnam, III (Born 1951), Trustee since 1984

Mr. Putnam is Chairman of New Generation Research, Inc. (a publisher of financial advisory and other research services), and President of New Generation Advisers, Inc. (a registered investment advisor to private funds). Mr. Putnam founded the New Generation companies in 1986.

Mr. Putnam is a Director of The Boston Family Office, LLC (a registered investment adviser). He is a Trustee of St. Mark’s School. Until 2006, he was a Trustee of Shore Country Day School, and until 2002 was a Trustee of the Sea Education Association.

Mr. Putnam previously worked as an attorney with the law firm of Dechert LLP (formerly known as Dechert Price & Rhoads) in Philadelphia. He is a graduate of Harvard College, Harvard Business School and Harvard Law School.

W. Thomas Stephens (Born 1942), Trustee since 1997

Mr. Stephens is Chairman and Chief Executive Officer of Boise Cascade, L.L.C. (a paper, forest products and timberland assets company).

Mr. Stephens is a Director of TransCanadaPipelines, Ltd. (an energy infrastructure company). Until 2004, Mr. Stephens was a Director of Xcel Energy Incorporated (a public utility company), Qwest Communications, and Norske Canada, Inc. (a paper manufacturer). Until 2003, Mr. Stephens was a Director of Mail-Well, Inc. (a diversified printing company). He served as Chairman of Mail-Well until 2001 and as CEO of MacMillan-Bloedel, Ltd. (a forest products company) until 1999.

Prior to 1996, Mr. Stephens was Chairman and Chief Executive Officer of Johns Manville Corporation. He holds B.S. and M.S. degrees from the University of Arkansas.

Richard B. Worley (Born 1945), Trustee since 2004

Mr. Worley is Managing Partner of Permit Capital LLC, an investment management firm.

Mr. Worley serves as a Trustee of the University of Pennsylvania Medical Center, The Robert Wood Johnson Foundation (a philanthropic organization devoted to health care issues), and the National Constitution Center. He is also a Director of The Colonial Williamsburg Foundation (a historical preservation organization) and the Philadelphia Orchestra Association.

Mr. Worley also serves on the investment committees of Mount Holyoke College and World Wildlife Fund (a wildlife conservation organization).

Prior to joining Permit Capital LLC in 2002, Mr. Worley served as Chief Strategic Officer of Morgan Stanley Investment Management. He previously served as President, Chief Executive Officer and Chief Investment Officer of Morgan Stanley Dean Witter Investment Management and as a Managing Director of Morgan Stanley, a financial services firm. Mr. Worley also was the Chairman of Miller Anderson & Sherrerd, an investment management firm. Mr. Worley holds a B.S. degree from the University of Tennessee and pursued graduate studies in economics at the University of Texas.

Charles E. Haldeman, Jr.* (Born 1948), Trustee since 2004 and President of the Funds since 2007

Mr. Haldeman is President and Chief Executive Officer of Putnam, LLC (“Putnam Investments”) and President of the Putnam Funds. He is a member of Putnam Investments’ Executive Board of Directors and Advisory Council. Prior to November 2003, Mr. Haldeman served as Co-Head of Putnam Investments’ Investment Division.

Prior to joining Putnam Investments in 2002, Mr. Haldeman held executive positions in the investment management industry. He previously served as Chief Executive Officer of Delaware Investments and President and Chief Operating Officer of United Asset Management. Mr. Haldeman was also a partner and director of Cooke & Bieler, Inc. (an investment management firm).

Mr. Haldeman currently serves on the Board of Governors of the Investment Company Institute and as Chair of the Board of Trustees of Dartmouth College. He also serves on the Partners HealthCare Investment Committee, the Tuck School of Business and Dartmouth College Board of Overseers, and the Harvard Business School Board of Dean’s Advisors. He is a graduate of Dartmouth College, Harvard Law School and Harvard Business School. Mr. Haldeman is also a Chartered Financial Analyst (CFA) charterholder.

The address of each Trustee is One Post Office Square, Boston, MA 02109.

As of October 31, 2007, there were 103 Putnam funds. All Trustees serve as Trustees of all Putnam funds.

Each Trustee serves for an indefinite term, until his or her resignation, retirement at age 72, death, or removal.

* Trustee who is an “interested person” (as defined in the Investment Company Act of 1940) of the fund, Putnam Management, and/or Putnam Retail Management. Mr. Haldeman is the President of your fund and each of the other Putnam funds, and is President and Chief Executive Officer of Putnam Investments.

Officers

In addition to Charles E. Haldeman, Jr., the other officers of the fund are shown below:

Charles E. Porter (Born 1938)
Executive Vice President, Principal Executive Officer, Associate
Treasurer, and Compliance Liaison
Since 1989

Jonathan S. Horwitz (Born 1955)
Senior Vice President and Treasurer
Since 2004

Prior to 2004, Managing Director,
Putnam Investments

Steven D. Krichmar (Born 1958)
Vice President and Principal Financial Officer
Since 2002

Senior Managing Director, Putnam Investments

Janet C. Smith (Born 1965)
Vice President, Principal Accounting Officer and Assistant Treasurer
Since 2007

Managing Director, Putnam Investments and Putnam Management

Susan G. Malloy (Born 1957)
Vice President and Assistant Treasurer
Since 2007

Managing Director, Putnam Investments

Beth S. Mazor (Born 1958)
Vice President
Since 2002

Managing Director, Putnam Investments

James P. Pappas (Born 1953)
Vice President
Since 2004

Managing Director, Putnam Investments and Putnam Management.
During 2002, Chief Operating Officer, Atalanta/Sosnoff
Management Corporation

Richard S. Robie, III (Born 1960)
Vice President
Since 2004

Senior Managing Director, Putnam Investments, Putnam Management
and Putnam Retail Management. Prior to 2003, Senior Vice President,
United Asset Management Corporation

Francis J. McNamara, III (Born 1955)
Vice President and Chief Legal Officer
Since 2004

Senior Managing Director, Putnam Investments, Putnam Management
and Putnam Retail Management. Prior to 2004, General Counsel,
State Street Research & Management Company

Robert R. Leveille (Born 1969)
Vice President and Chief Compliance Officer
Since 2007

Managing Director, Putnam Investments, Putnam Management,
and Putnam Retail Management. Prior to 2004, member of Bell
Boyd & Lloyd LLC. Prior to 2003, Vice President and Senior Counsel,
Liberty Funds Group LLC

Mark C. Trenchard (Born 1962)
Vice President and BSA Compliance Officer
Since 2002

Managing Director, Putnam Investments

Judith Cohen (Born 1945)
Vice President, Clerk and Assistant Treasurer
Since 1993

Wanda M. McManus (Born 1947)
Vice President, Senior Associate Treasurer and Assistant Clerk
Since 2005

Nancy E. Florek (Born 1957)
Vice President, Assistant Clerk, Assistant Treasurer
and Proxy Manager
Since 2005

The address of each Officer is One Post Office Square, Boston, MA 02109.

Fund information

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

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:

(a) The fund’s principal executive, financial and accounting officers are employees of Putnam Investment Management, LLC, the Fund's investment manager. As such they are subject to a comprehensive Code of Ethics adopted and administered by Putnam Investments which is designed to protect the interests of the firm and its clients. The Fund has adopted a Code of Ethics which incorporates the Code of Ethics of Putnam Investments with respect to all of its officers and Trustees who are employees of Putnam Investment Management, LLC. For this reason, the Fund has not adopted a separate code of ethics governing its principal executive, financial and accounting officers.

(c) In August 2007, the Code of Ethics of Putnam Investment Management, LLC was amended to reflect the change in ownership of Putnam Investments Trust, the parent company of Putnam Investment Management, LLC, from Marsh & McLennan Companies, Inc. (“MMC”) to Great-West Lifeco Inc., a subsidiary of Power Financial Corporation. In addition to administrative and non-substantive changes, the Code of Ethics was amended to remove a prohibition, which applied to members of Putnam Investments’ Executive Board and senior members of the staff of the Chief Financial Officer of Putnam Investments, on transactions in MMC securities during the period between the end of a calendar quarter and the public announcement of MMC’s earnings for that quarter.

Item 3. Audit Committee Financial Expert:

The Funds' Audit and Compliance Committee is comprised solely of Trustees who are "independent" (as such term has been defined by the Securities and Exchange Commission ("SEC") in regulations implementing Section 407 of the Sarbanes-Oxley Act (the "Regulations")). The Trustees believe that each of the members of the Audit and Compliance Committee also possess a combination of knowledge and experience with respect to financial accounting matters, as well as other attributes, that qualify them for service on the Committee. In addition, the Trustees have determined that each of Mr. Patterson, Mr. Stephens, Mr. Leibler, Mr. Hill and Mr. Darretta meets the financial literacy requirements of the New York Stock Exchange's rules and qualifies as an "audit committee financial expert" (as such term has been defined by the Regulations) based on their review of his pertinent experience and education. Certain other Trustees, although not on the Audit and Compliance Committee, would also qualify as "audit committee financial experts." The SEC has stated that the designation or identification of a person as an audit committee financial expert pursuant to this Item 3 of Form N-CSR does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the Audit and Compliance Committee and the Board of Trustees in the absence of such designation or identification.

Item 4. Principal Accountant Fees and Services:

The following table presents fees billed in each of the last two fiscal years for services rendered to the fund by the fund’s independent auditor:


Fiscal		Audit-
year	Audit	Related	Tax	All Other
ended	Fees	Fees	Fees	Fees

October 31, 2007	$93,178	$--	$5,450	$-
October 31, 2006	$91,349*	$--	$4,680	$ 1,643

* Includes fees of $23,869 billed by the fund’s independent auditor to the fund for procedures necessitated by regulatory and litigation matters for the fiscal year ended October 31, 2006,

respectively. These fees were reimbursed to the fund by Putnam Investment Management, LLC (“Putnam Management”).

For the fiscal years ended October 31, 2007 and October 31, 2006, the fund’s independent auditor billed aggregate non-audit fees in the amounts of $5,450 and $6,323 respectively, to the fund, Putnam Management and any entity controlling, controlled by or under common control with Putnam Management that provides ongoing services to the fund.

Audit Fees represent fees billed for the fund’s last two fiscal years.

Audit-Related Fees represent fees billed in the fund’s last two fiscal years for services traditionally performed by the fund’s auditor, including accounting consultation for proposed transactions or concerning financial accounting and reporting standards and other audit or attest services not required by statute or regulation.

Tax Fees represent fees billed in the fund’s last two fiscal years for tax compliance, tax planning and tax advice services. Tax planning and tax advice services include assistance with tax audits, employee benefit plans and requests for rulings or technical advice from taxing authorities.

All Other Fees represent fees billed for services relating to expense allocation methodology.

Pre-Approval Policies of the Audit and Compliance Committee. The Audit and Compliance Committee of the Putnam funds has determined that, as a matter of policy, all work performed for the funds by the funds’ independent auditors will be pre-approved by the Committee itself and thus will generally not be subject to pre-approval procedures.

The Audit and Compliance Committee also has adopted a policy to pre-approve the engagement by Putnam Management and certain of its affiliates of the funds’ independent auditors, even in circumstances where pre-approval is not required by applicable law. Any such requests by Putnam Management or certain of its affiliates are typically submitted in writing to the Committee and explain, among other things, the nature of the proposed engagement, the estimated fees, and why this work should be performed by that particular audit firm as opposed to another one. In reviewing such requests, the Committee considers, among other things, whether the provision of such services by the audit firm are compatible with the independence of the audit firm.

The following table presents fees billed by the fund’s independent auditor for services required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X.


Fiscal	Audit-		All	Total
year	Related	Tax	Other	Non-Audit
ended	Fees	Fees	Fees	Fees
October 31,
2007	$ -	$ -	$ -	$ -
October 31,
2006	$ -	$ -	$ -	$ -

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: During the period, Putnam Fiduciary Trust Company, the fund's transfer agent, began utilizing shareholder systems and systems support provided by DST Systems, Inc. and certain of its affiliates.

Item 12. Exhibits:

(a)(1) The Code of Ethics of The Putnam Funds, which incorporates the Code of Ethics of Putnam Investments, is filed herewith.

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

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

SIGNATURES

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

Putnam Income Fund

By (Signature and Title):

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

Date: December 28, 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: December 28, 2007

By (Signature and Title):

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

Date: December 28, 2007

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