Putnam
Income
Fund
Item 1. Report to Stockholders:
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The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
4-30-04
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From the Trustees
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John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
We are pleased to report further progress in Putnam's reforms on behalf
of shareholders. The most significant news is the settlement that has
been reached with the Securities and Exchange Commission and with
regulatory authorities in the Commonwealth of Massachusetts regarding
market timing in Putnam funds. Putnam President and Chief Executive
Officer Ed Haldeman has sent a letter to all shareholders describing the
terms of the settlement. Putnam Investment Management, LLC will pay $55
million to the SEC and $55 million to the Commonwealth of Massachusetts.
Most of the amount to be paid is earmarked for restitution to fund
shareholders. An independent consultant will determine the final amount,
as well as the method and timing of distribution, of the restitution
payments.
Over the past several months, Putnam has also introduced a number of
voluntary reforms. We would like to call your attention to two of them.
Following the performance tables in the Performance Summary of this
report you can find expense and risk comparisons for Putnam Income Fund.
The expense comparison information enables you to estimate the amount
you have actually paid for ongoing expenses such as management fees and
distribution (or 12b-1) fees and to compare these expenses with the
average expenses of funds in the same Lipper peer group. The risk
comparison shows the fund's risk relative to similar funds as tracked by
Morningstar, an independent fund-rating company. We believe the expense
and risk information will provide valuable tools for you and your
financial advisor when you make decisions about your financial program.
Putnam Income Fund generated positive returns for the six months ended
April 30, 2004, and outperformed both its primary benchmark index and
its Lipper peer group average for the period based on results at net
asset value. The details are shown on the facing page. In the management
report that follows, the success of several key strategies are cited as
driving the period's results. Going forward, your fund's management team
intends to seek opportunities to increase the fund's level of income in
an environment of rising interest rates, while maintaining what they
believe to be a prudent level of risk.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
June 16, 2004
Report from Fund Management
Fund highlights
* Putnam Income Fund's class A shares returned 1.72% at net asset value
(NAV) and -3.06% at public offering price (POP) for the six months ended
April 30, 2004.
* Based on results at NAV, the fund outpaced its benchmark, the Lehman
Aggregate Bond Index, which returned 1.25% during the same period.
Several portfolio strategies contributed to this outperformance.
* The fund's performance at NAV also exceeded the 1.29% average for its
Lipper category, Corporate Debt Funds A Rated.
* The fund's monthly dividend for class A shares was reduced to $0.015
in March 2004. See page 5 for more information.
* See the Performance Summary beginning on page 7 for complete fund
performance, comparative performance, and Lipper data.
Performance commentary
After a three-year bull run, the momentum of U.S. bond markets slowed in
the six-month period under review. Investors' concerns about inflation
and potential erosion of bond prices were renewed amid gathering signs
that the U.S. economy was continuing to strengthen and that the Federal
Reserve Board would soon begin to lift short-term interest rates.
Nevertheless, bond markets managed to register modestly positive returns
for the period.
While Putnam Income Fund's absolute returns for the first half of its
2004 fiscal year may appear somewhat disappointing, they should be
considered in the context of this challenging environment. It is also
important to note that because of the management team's successful
combination of strategies, the fund at NAV outpaced both its benchmark
and its Lipper peer group. Of particular value were the fund's
yield-curve positioning; overweights to mortgage-backed securities
(MBSs) and asset-backed securities (ABSs), which both performed well in
the period; and favorable security selection within ABSs.
FUND PROFILE
Putnam Income Fund seeks high current income consistent with what Putnam
Management believes to be a prudent level of risk. The fund invests in a
diversified portfolio composed mainly of corporate investment-grade
bonds, U.S. government and agency bonds, and collateralized mortgage
obligations.
Market overview
In the opening months of your fund's 2004 fiscal year, disappointing job
growth, lingering excess manufacturing capacity, and a resurgence in
global terrorism shook investors' confidence in U.S. economic recovery.
Bond markets rallied in this environment, as many market participants
believed that the Fed would delay raising interest rates in the face of
continued economic softness. Further support for U.S. bond markets,
particularly Treasuries, came from massive purchases on behalf of Asian
central banks, primarily the Bank of Japan, as part of their efforts to
manage their home currencies.
In April, however, yields backed up sharply, triggered by an
unexpectedly robust jobs-creation report on April 2. Bond prices
declined broadly and steeply on rising inflation expectations and
indications that the Fed would tighten sooner than previously
anticipated. Corporate bonds and other non-government market segments
such as mortgage-backed securities (MBSs) and asset-backed securities
(ABSs) weathered the backup in yields better than Treasuries.
For the period as a whole, bond markets posted generally modest gains.
Treasuries underperformed other market sectors as yield-hungry investors
poured money into higher-risk, higher-coupon instruments. Corporate
bonds led performance, benefiting from improving fundamentals: solid
earnings growth, strengthening balance sheets, and favorable ratings
actions. MBSs and ABSs also fared relatively well. ABSs posted
especially solid results, driven by stellar returns in bonds backed by
home-equity and manufactured-housing loans.
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MARKET SECTOR PERFORMANCE 6 MONTHS ENDED 4/30/04
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Bonds
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Lehman Aggregate Bond Index (broad bond market) 1.25%
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Lehman Global Aggregate Bond Index (international bonds) 2.81%
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Lehman Government Bond Index (U.S. Treasury and agency
securities) 0.84%
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Lehman GNMA Index (Government National Mortgage Association
bonds) 1.27%
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Equities
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S&P 500 Index (broad stock market) 6.27%
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Russell 2000 Growth Index (small-company growth stocks) 4.01%
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Russell 2000 Value Index (small-company value stocks) 9.09%
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These indexes provide an overview of performance in different market
sectors for the six months ended 4/30/04.
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Strategy overview
As stated previously, several strategies contributed to fund performance
during the period. Yield-curve positioning was especially successful:
the portfolio was often overweighted in bonds within the maturity ranges
that outperformed for the period, and underweighted in bonds from
maturity ranges that underperformed. The adjustments made to duration
over the period were also advantageous. (Duration is a measure of
sensitivity to interest-rate movements; the lower or shorter a
portfolio's duration, the less sensitive it is to changes in rates.) The
portfolio's duration was typically shorter than that of the benchmark
index when interest rates were rising. Since bond prices move in the
opposite direction of interest rates, this positioning helped reduce the
negative impact of rate increases and protected the value of the fund's
portfolio.
Our sector allocations, notably an overweight to the MBS and ABS market
segments relative to the benchmark index, also contributed positively to
performance as these segments outperformed throughout the period.
Security selection within MBS and ABS holdings further benefited
returns.
[GRAPHIC OMITTED: horizontal bar chart TOP SECTOR WEIGHTINGS COMPARED]
TOP SECTOR WEIGHTINGS COMPARED
as of 10/31/03 as of 4/30/04
Mortgage-backed
securities 51.8% 56.6%
Investment-grade
bonds 28.2% 21.3%
Asset-backed
securities 12.4% 13.1%
Government
bonds 4.7% 6.9%
High-yield bonds 2.9% 2.1%
Footnote reads:
This chart shows how the fund's top weightings have changed over the
last six months. Weightings are shown as a percentage of market value.
Holdings will vary over time.
How fund holdings/sector allocations affected performance
Yield-curve positioning was a major source of portfolio outperformance
for the period. We correctly anticipated the timing of yield-curve
flattening, especially in the last month of the period, when short-term
rates rose sharply as investors became convinced that the Fed would act
sooner rather than later to tighten monetary policy. For example, the
fund had a below-index exposure to two-year securities in the period's
final weeks, when the prices of such securities were especially hard hit
by rising rates.
In terms of duration, the fund was defensively short at the beginning of
the period, meaning it was positioned so that its interest-rate
sensitivity was lower than that of the benchmark index. Our positioning
became more neutral in ensuing months, then turned shorter once again
toward period-end. These adjustments were generally well timed; as with
yield-curve positioning, a short duration profile was most rewarding in
April, when interest rates moved sharply up.
With regard to sector allocation, an overweight to MBSs and ABSs, which
outperformed Treasuries in the period, was advantageous. Within the
fund's corporate bond holdings, a bias toward lower-rated,
higher-yielding issues aided returns, as such instruments posted
above-average returns. However, toward the end of the period we began to
reduce exposure to high-yield bonds as part of a general strategy of
risk reduction.
Security selection was another net positive contributor to fund results.
Holdings of ABSs backed by home equity loans were especially beneficial
as these securities recorded excellent returns. Selection in MBS
pass-throughs (securities backed by residential mortgages) was also
favorable; on several occasions during the period we were able to
position the portfolio quickly and correctly to profit from short-term
fluctuations in the relative value of 15- and 30-year securities.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW
Aaa/AAA (66.8%)
Aa/AA (2.3%)
A (10.9%)
Baa/BBB (15.3%)
Ba/BB (3.0%)
B (1.1%)
Other (0.6%)
Footnote reads:
As a percentage of market value as of 4/30/04. A bond rated Baa/BBB or
higher is considered investment grade. The chart reflects Moody's and
Standard & Poor's ratings; percentages may include unrated bonds
considered by Putnam Management to be of comparable quality. Ratings
will vary over time.
Selection among corporate bond holdings aided returns, but to a lesser
degree. An underweight position in bonds issued by automakers, however,
detracted as this subsector outperformed. We continue to underweight
this segment of the market as it remains exceptionally volatile; we do
not believe that investors are currently being sufficiently rewarded for
the higher risk.
Please note that all holdings discussed in this report are subject to
review in accordance with the fund's investment strategy and may vary in
the future.
OF SPECIAL INTEREST
Over the past year, yields on fixed-income investments have continued to
decrease and the difference in yields between higher- and lower-quality
bonds has narrowed. The fund's management has used this opportunity to
increase the fund's focus on higher-quality and shorter-term offerings;
however, the fund's earnings have declined as a result. The dividend for
class A shares was reduced from $0.019 to $0.015 in March 2004. Other
share classes had similar reductions.
The fund's management team
The fund is managed by the Putnam Core Fixed-Income Team. The members of
the team are Kevin Cronin (Portfolio Leader), Rob Bloemker (Portfolio
Member), Carl Bell, Andrea Burke, Steve Horner, D. William Kohli,
Michael Salm, John Van Tassel, and David Waldman.
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.
Putnam's economists believe that the U.S. economy will slow moderately
through the end of 2005 amid low inflation. We expect U.S. monetary
policy to move from accommodative (that is, designed to stimulate
economic growth) to neutral in coming months. In our view, a 2% federal
funds rate by early 2005 would accomplish the removal of extraordinary
stimulus and still support a healthy ongoing expansion. Over the medium
term (six months), we expect the interest-rate environment to be
volatile, as investors rely on fluctuating monthly economic data to
gauge the Fed's tightening timetable and position their portfolios.
Given the potential for upward movement in Treasury yields, we plan to
keep the fund slightly defensive, in other words, to maintain a
short-to-neutral duration profile relative to the benchmark.
In terms of sector allocations, we are reducing the fund's exposure to
investment-grade corporate bonds given that sector's continued high
valuation. Barring unforeseen shocks to the market, we believe the yield
differential between corporate bonds and Treasuries may continue to
narrow in coming months. However, at current valuation levels, we think
the risks resulting from a widening of this differential -- hampering
the returns of corporates compared to Treasuries -- exceed the possible
rewards from further narrowing. We will continue to reduce exposure to
investment-grade corporate bonds gradually where we feel performance has
outrun underlying fundamentals, while maintaining a focus on lower-rated
tiers, where spreads still have room to tighten.
We have reduced the fund's high-yield corporate bond holdings as part of
our overall defensive strategy. However, we expect to maintain a small
exposure to high-yield corporates as we believe them to be more
reasonably priced than their investment-grade counterparts. We expect to
continue overweighting ABSs, collateralized mortgage obligations
(including interest-only securities), and commercial MBSs. We may look
to increase the fund's exposure to MBS pass-throughs as their valuations
have become relatively more appealing.
The views expressed in this report are exclusively those of Putnam
Management. They are not meant as investment advice. 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.
Performance summary
This section shows your fund's performance during the first half of its
fiscal year, which ended April 30, 2004. In accordance with regulatory
requirements, we also include performance for the most current calendar
quarter-end. Performance should always be considered in light of a
fund's investment strategy. Data represent past performance. Past
performance does not guarantee future results. More recent returns may
be less or more than those shown. Investment return and principal value
will fluctuate and you may have a gain or a loss when you sell your
shares. For the most recent month-end performance, please visit
www.putnaminvestments.com.
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TOTAL RETURN FOR PERIODS ENDED 4/30/04
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Class A Class B Class C Class M Class R
(inception dates) (11/1/54) (3/1/93) (7/26/99) (12/14/94) (1/21/03)
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NAV POP NAV CDSC NAV CDSC NAV POP NAV
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6 months 1.72% -3.06% 1.34% -3.66% 1.34% 0.34% 1.48% -1.78% 1.59%
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1 year 2.57 -2.35 1.80 -3.16 1.94 0.95 2.21 -1.04 2.30
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5 years 29.83 23.61 25.02 23.04 25.09 25.09 28.03 23.80 28.21
Annual average 5.36 4.33 4.57 4.23 4.58 4.58 5.07 4.36 5.10
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10 years 81.86 73.18 68.88 68.88 68.59 68.59 77.14 71.34 77.38
Annual average 6.16 5.65 5.38 5.38 5.36 5.36 5.88 5.53 5.90
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Annual average
(life of fund) 8.17 8.06 7.16 7.16 7.36 7.36 7.70 7.63 7.90
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Performance assumes reinvestment of distributions and does not account
for taxes. Returns at public offering price (POP) for class A and M
shares reflect a sales charge of 4.75% and 3.25%, respectively (which
for class A shares does not reflect a reduction in sales charges that
went into effect on January 28, 2004; if this reduction had been in
place for all periods indicated, returns would have been higher). Class
B share returns reflect the applicable contingent deferred sales charge
(CDSC), which is 5% in the first year, declining to 1% in the sixth
year, and is eliminated thereafter. Class C shares reflect a 1% CDSC the
first year that is eliminated thereafter. Class R share returns have no
initial sales charge or CDSC. Performance for class B, C, M, and R
shares before their inception is derived from the historical performance
of class A shares, adjusted for the applicable sales charge (or CDSC)
and higher operating expenses for such shares.
A 2% redemption fee will be applied to shares exchanged or sold within 5
days of purchase.
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TOTAL RETURN FOR PERIODS ENDED 3/31/04 (MOST RECENT CALENDAR QUARTER)
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Class A Class B Class C Class M Class R
(inception dates) (11/1/54) (3/1/93) (7/26/99) (12/14/94) (1/21/03)
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NAV POP NAV CDSC NAV CDSC NAV POP NAV
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6 months 3.59% -1.37% 3.06% -1.94% 3.05% 2.05% 3.36% -0.07% 3.45%
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1 year 6.21 1.23 5.27 0.27 5.26 4.26 5.87 2.48 5.93
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5 years 33.71 27.31 28.76 26.76 28.53 28.53 32.09 27.73 32.06
Annual average 5.98 4.95 5.19 4.86 5.15 5.15 5.72 5.02 5.72
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10 years 84.78 76.11 71.37 71.37 71.27 71.27 80.06 74.26 80.32
Annual average 6.33 5.82 5.53 5.53 5.53 5.53 6.06 5.71 6.07
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Annual average
(life of fund) 8.24 8.13 7.22 7.22 7.42 7.42 7.77 7.70 7.97
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 4/30/04
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Lehman Lipper Corporate
Aggregate Debt Funds A Rated
Bond Index category average*
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6 months 1.25% 1.29%
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1 year 1.82 2.19
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5 years 38.03 32.18
Annual average 6.66 5.73
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10 years 103.13 90.56
Annual average 7.34 6.64
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Annual average
(life of fund) -- + -- +
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Index and Lipper results should be compared to fund performance at net
asset value.
* Over the 6-month and 1-, 5-, and 10-year periods ended 4/30/04, there
were 212, 205, 128, and 63 funds, respectively, in this Lipper
category.
+ The 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. This Lipper category commenced 12/31/59.
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PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 4/30/04
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Class A Class B Class C Class M Class R
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Distributions (number) 6 6 6 6 6
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Income $0.106 $0.080 $0.080 $0.099 $0.097
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Capital gains -- -- -- -- --
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Total $0.106 $0.080 $0.080 $0.099 $0.097
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Share value: NAV POP NAV NAV NAV POP NAV
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10/31/03 $6.69 $7.02 $6.65 $6.67 $6.63 $6.85 $6.69
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4/30/04 6.70 7.02* 6.66 6.68 6.63 6.85 6.70
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Current return
(end of period)
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Current dividend rate 1 2.69% 2.56% 1.98% 1.98% 2.53% 2.45% 2.51%
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Current 30-day
SEC yield 2 2.29 2.18 1.53 1.53 2.04 1.97 2.07
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* Reflects a reduction in sales charges that took effect on January 28,
2004.
1 Most recent distribution, excluding capital gains, annualized and
divided by NAV or POP at end of period.
2 Based only on investment income, calculated using SEC guidelines.
Understanding your
fund's expenses
As a mutual fund investor, you pay ongoing expenses, such as management
fees, distribution fees (12b-1 fees), and other expenses. Using the
information below, you can estimate how these expenses affect your
investment and compare them with the expenses of other funds. You may
also pay one-time transaction expenses, including sales charges (loads)
and redemption fees, which are not shown in this section and would have
resulted in higher total expenses. For more information, see your fund's
prospectus or talk to your financial advisor.
Review your fund's expenses
The table below shows the expenses you would have paid on a $1,000
investment in Putnam Income Fund from October 31, 2003, to April 30,
2004. It also shows how much a $1,000 investment would be worth at the
close of the period, assuming actual returns and expenses.
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EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming actual returns for the 6 months ended 4/30/04
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Class A Class B Class C Class M Class R
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Expenses paid per $1,000* $5 $9 $9 $6 $6
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Ending value
(after expenses) $1,017 $1,013 $1,013 $1,015 $1,016
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* Expenses for each share class are calculated using the fund's
annualized expense ratio for each class, which represents the ongoing
expenses as a percentage of net assets for the six months ended 4/30/04.
The expense ratio may differ for each share class (see the table at the
bottom of the next page). Expenses are calculated by multiplying the
expense ratio by the average account value for the period; then
multiplying the result by the number of days in the period; and then
dividing that result by the number of days in the year.
Estimate the expenses you paid
To estimate the ongoing expenses you paid for the six months ended April
30, 2004, use the calculation method below. To find the value of your
investment on October 31, 2003, go to www.putnaminvestments.com and log
on to your account. Click on the "Transaction History" tab in your Daily
Statement and enter 10/31/2003 in both the "from" and "to" fields.
Alternatively, call Putnam at 1-800-225-1581.
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HOW TO CALCULATE THE EXPENSES YOU PAID
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Total
Value of your Expenses paid expenses
investment on 10/31/03 [DIV] $1,000 X per $1,000 = paid
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Example Based on a $10,000 investment in class A shares of your fund.
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$10,000 [DIV] $1,000 X $5 (see table above) = $50
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Comparing your fund's expenses with those of other funds
Using the SEC's method to compare expenses
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.
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EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming a hypothetical 5% annualized return for the 6 months ended 4/30/04
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Class A Class B Class C Class M Class R
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Expenses paid per $1,000* $5 $9 $9 $6 $6
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Ending value
(after expenses) $1,020 $1,016 $1,016 $1,019 $1,019
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* Expenses for each share class are calculated using the fund's
annualized expense ratio for each class, which represents the ongoing
expenses as a percentage of net assets for the six months ended 4/30/04.
The expense ratio may differ for each share class (see the table at the
bottom of this page). 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.
Using industry averages to compare expenses
You can also compare your fund's expenses with industry averages, as
determined by Lipper, an independent fund-rating agency that ranks funds
relative to others that Lipper considers to have similar investment
styles or objectives. The expense ratio for each share class shown below
indicates how much of your fund's net assets have been used to pay
ongoing expenses during the period.
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EXPENSE RATIO COMPARISONS USING ANNUALIZED DATA
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Class A Class B Class C Class M Class R
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Your fund's annualized
expense ratio 0.99% 1.74% 1.74% 1.24% 1.24%
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Average annualized expense
ratio for Lipper peer
group + 0.99% 1.74% 1.74% 1.24% 1.24%
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+ For class A shares, expenses shown represent the average of the
expenses of front-end load funds viewed by Lipper as having the same
investment classification or objective as the fund, calculated in
accordance with Lipper's standard reporting methodology for comparing
expenses within a given universe. All Lipper data is for the most recent
fiscal periods available as of 3/31/04. For class B, C, M, and R shares,
Putnam has adjusted the Lipper total expense average to reflect higher
12b-1 fees incurred by these classes of shares. The peer group may
include funds that are significantly larger or smaller than the fund,
which may limit the comparability of the fund's expenses to the Lipper
average.
Risk comparison
As part of new initiatives to enhance disclosure, we are including a
risk comparison to help you understand how your fund compares with other
funds. The comparison utilizes a risk measure developed by Morningstar,
an independent fund-rating agency. This risk measure is referred to as
the fund's Overall Morningstar Risk.
[GRAPHIC OMITTED: chart MORNINGSTAR [REGISTRATION MARK] RISK]
MORNINGSTAR [REGISTRATION MARK] RISK
Fund's Overall
Morningstar Risk 0.16
Taxable bond
fund average 0.32
0% Increasing Risk 100%
Your fund's Overall Morningstar Risk is shown alongside that of the
average fund in its broad asset class, as determined by Morningstar. The
risk bar broadens the comparison by translating the fund's Overall
Morningstar Risk into a percentile, which is based on the fund's ranking
among all funds rated by Morningstar as of 3/31/04. A higher Overall
Morningstar Risk generally indicates that a fund's monthly returns have
varied more widely.
Morningstar determines a fund's Overall Morningstar Risk by assessing
variations in the fund's monthly returns -- with an emphasis on downside
variations -- over 3-, 5-, and 10-year periods, if available. Those
measures are weighted and averaged to produce the fund's Overall
Morningstar Risk. The information shown is provided for the fund's class
A shares only; information for other classes may vary. Overall
Morningstar Risk is based on historical data and does not indicate
future results. Morningstar does not purport to measure the risk
associated with a current investment in a fund, either on an absolute
basis or on a relative basis. Low Overall Morningstar Risk does not mean
that you cannot lose money on an investment in a fund. Copyright 2004
Morningstar, Inc. All Rights Reserved. The information contained herein
(1) is proprietary to Morningstar and/or its content providers; (2) may
not be copied or distributed; and (3) is not warranted to be accurate,
complete, or timely. Neither Morningstar nor its content providers are
responsible for any damages or losses arising from any use of this
information.
Terms and definitions
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. The
NAV is calculated by dividing the net value of all the fund's assets by
the number of outstanding shares.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the 4.75% maximum sales charge for class A
shares (since reduced to 4.50%) and 3.25% for class M shares.
Contingent deferred sales charge (CDSC) is 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.
Class A shares are generally subject to an initial sales charge and no
sales charge on redemption (except on certain redemptions of shares
bought without an initial sales charge).
Class B shares may be subject to a sales charge upon redemption.
Class C shares are not subject to an initial sales charge and are
subject to a contingent deferred sales charge 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 sales charge on redemption (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.
Comparative indexes
Lehman Aggregate Bond Index is an unmanaged index used as a general
measure of U.S. fixed-income securities.
Lehman Global Aggregate Bond Index is an unmanaged index used as a broad
measure of international investment-grade bonds.
Lehman Government Bond Index is an unmanaged index of U.S. Treasury and
agency securities.
Lehman GNMA Index is an unmanaged index of Government National Mortgage
Association bonds.
Russell 2000 Growth Index is an unmanaged index of those companies in
the Russell 2000 Index chosen for their growth orientation.
Russell 2000 Value Index is an unmanaged index of those companies in the
Russell 2000 Index chosen for their value orientation.
S&P 500 Index is an unmanaged index of common stock performance.
Indexes assume reinvestment of all distributions and do not account for
fees. Securities and performance of a fund and an index will differ. You
cannot invest directly in an index.
Lipper is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper. Lipper category averages reflect
performance trends for funds within a category and are based on results
at net asset value.
A note about duplicate mailings
In response to investors' requests, the SEC has modified mailing
regulations for proxy statements, semiannual and annual reports, and
prospectuses. Putnam is now able to send a single copy of these
materials to customers who share the same address. This change will
automatically apply to all shareholders except those who notify us. If
you would prefer to receive your own copy, please call Putnam at
1-800-225-1581.
Putnam is committed to managing our mutual funds in the best interests
of our shareholders. Our proxy voting guidelines and policies are
available on the Putnam Individual Investor Web site,
www.putnaminvestments.com, by calling Putnam's Shareholder Services at
1-800-225-1581, or on the SEC's Web site, www.sec.gov.
A guide to the financial statements
These sections of the report, as well as the accompanying Notes,
constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to
determine the net asset value per share, which is calculated separately
for each class of shares. (For funds with preferred shares, the amount
subtracted from total assets includes the net assets allocated to
remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or loss
the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal period.
Statement of changes in net assets shows how the fund's net assets were
affected by 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. For open-end
funds, a separate table is provided for each share class.
The fund's portfolio
April 30, 2004 (Unaudited)
U.S. government and agency mortgage obligations (58.2%) (a)
Principal amount Value
U.S. Government Guaranteed Mortgage Obligations (0.1%)
- -------------------------------------------------------------------------------
Government National Mortgage
Association Graduated Payment
Mortgages
$90,454 11s, with due dates from March 15,
2010 to July 15, 2013 $101,895
Government National Mortgage
Association Pass-Through
Certificates
2,898,769 7s, with due dates from April 15,
2026 to December 15, 2031 3,082,770
--------------
3,184,665
U.S. Government Agency Mortgage Obligations (58.1%)
- -------------------------------------------------------------------------------
Federal Home Loan Mortgage
Corporation
87,124 7 1/2s, December 1, 2029 93,662
73,638 7s, January 1, 2015 78,452
340,556 Federal National Mortgage
Association Graduated Payment
Mortgages 8s, December 1, 2008 361,924
Federal National Mortgage
Association Pass-Through
Certificates
40,551 11s, with due dates from September
1, 2014 to October 1, 2015 45,660
951,898 9s, with due dates from January 1,
2027 to July 1, 2032 1,048,733
3,744,097 8s, with due dates from January 1,
2025 to July 1, 2033 4,072,428
5,012,392 7 1/2s, with due dates from
September 1, 2022 to July 1, 2033 5,363,104
3,671,451 7s, with due dates from May 1, 2024
to November 1, 2033 3,884,657
2,977,028 7s, with due dates from January 1,
2007 to July 1, 2015 3,171,803
10,498,823 6 1/2s, with due dates from November
1, 2023 to November 1, 2033 10,937,015
447,176 6 1/2s, with due dates from
September 1, 2010 to September 1,
2016 473,985
780 6s, December 1, 2031 799
5,772,422 6s, with due dates from August 1,
2013 to November 1, 2017 6,024,619
94,100,000 6s, TBA, May 1, 2034 96,246,609
645,538,000 5 1/2s, TBA, May 1, 2034 643,924,155
234,945 5s, with due dates from February 1,
2018 to November 1, 2018 236,600
375,820,000 5s, TBA, May 1, 2034 364,075,625
168,859,000 5s, TBA, May 1, 2019 169,808,832
72,917,000 4 1/2s, TBA, June 1, 2034 68,154,645
94,100,000 4 1/2s, TBA, May 1, 2034 88,307,016
218,800,000 4 1/2s, TBA, May 1, 2019 215,312,766
33,501 4s, October 1, 2018 32,267
--------------
1,681,655,356
--------------
Total U.S. government and agency
mortgage obligations
(cost $1,702,294,716) $1,684,840,021
U.S. government agency obligations (5.6%) (a) (cost $163,175,288)
Principal amount Value
- -------------------------------------------------------------------------------
$139,956,000 Fannie Mae 7 1/4s, January 15, 2010 $161,292,572
U.S. treasury obligations (0.2%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$2,085,000 U.S. Treasury Bonds 4 1/4s, November
15, 2013 $2,045,418
3,934,000 U.S. Treasury Notes 3 1/4s, August
15, 2008 3,909,719
--------------
Total U.S. treasury obligations
(cost $6,154,421) $5,955,137
Corporate bonds and notes (22.8%) (a)
Principal amount Value
Basic Materials (1.0%)
- -------------------------------------------------------------------------------
$3,715,000 Alcoa, Inc. notes 6 1/2s, 2011 $4,097,563
2,195,000 Avery Dennison Corp. notes 4 7/8s,
2013 2,172,640
1,850,000 Dow Chemical Co. (The) debs. 8.55s,
2009 2,191,923
880,000 Dow Chemical Co. (The) notes 5 3/4s,
2009 929,271
1,950,000 Dow Chemical Co. (The) Pass Through
Trust 144A company guaranty 4.027s,
2009 1,867,400
1,100,000 Eastman Chemical Co. notes 3 1/4s,
2008 1,058,282
2,000,000 Falconbridge, Ltd. bonds 5 3/8s,
2015 (Canada) 1,938,942
970,000 Georgia-Pacific Corp. sr. notes 8s,
2014 1,086,400
610,000 ICI Wilmington, Inc. company
guaranty 5 5/8s, 2013 608,852
1,550,000 ICI Wilmington, Inc. company
guaranty 4 3/8s, 2008 1,537,006
3,131,000 ISP Chemco, Inc. company guaranty
Ser. B, 10 1/4s, 2011 3,538,030
2,365,000 Millennium America, Inc. company
guaranty 9 1/4s, 2008 2,577,850
1,118,000 Monsanto Co. notes 4s, 2008 1,110,405
390,000 Monsanto Co. sr. notes 7 3/8s, 2012 446,427
770,000 Praxair, Inc. notes 6 3/8s, 2012 848,244
925,000 Weyerhaeuser Co. notes 6 3/4s, 2012 1,014,037
335,000 WMC Finance USA company guaranty
6 1/4s, 2033 (Australia) 330,051
615,000 WMC Finance USA company guaranty
5 1/8s, 2013 (Australia) 603,846
--------------
27,957,169
Capital Goods (1.0%)
- -------------------------------------------------------------------------------
3,670,000 Allied Waste North America, Inc. sr.
notes 7 7/8s, 2013 3,963,600
895,000 BAE Systems Holdings, Inc. 144A
notes 6.4s, 2011 953,710
290,000 Boeing Capital Corp. sr. notes
4 3/4s, 2008 297,404
990,000 Boeing Co. (The) debs. 6 7/8s, 2043 1,044,763
1,000,000 Bombardier, Inc. 144A notes 6.3s,
2014 (Canada) 991,247
225,000 Bunge, Ltd. Finance Corp. company
guaranty 7.8s, 2012 259,928
705,000 Bunge, Ltd. Finance Corp. notes
5 7/8s, 2013 717,498
1,165,000 Bunge, Ltd. Finance Corp. 144A notes
4 3/8s, 2008 1,160,890
2,345,000 Kennametal, Inc. sr. notes 7.2s,
2012 2,500,037
380,000 Litton Industries, Inc. sr. notes
8s, 2009 442,098
1,680,000 Lockheed Martin Corp. bonds 8 1/2s,
2029 2,126,075
1,900,000 Northrop Grumman Corp. company
guaranty 7 1/8s, 2011 2,136,307
235,000 Raytheon Co. bonds 5 3/8s, 2013 235,597
825,000 Raytheon Co. debs. 7s, 2028 876,253
3,120,000 Raytheon Co. debs. 6s, 2010 3,356,234
1,410,000 Raytheon Co. notes 8.3s, 2010 1,664,065
1,105,000 Raytheon Co. notes 4.85s, 2011 1,092,397
1,135,000 Sealed Air Corp. 144A bonds 6 7/8s,
2033 1,173,537
1,315,000 Sealed Air Corp. 144A notes 5 5/8s,
2013 1,326,619
1,640,000 Waste Management, Inc. sr. notes
7 3/8s, 2010 1,864,408
--------------
28,182,667
Communication Services (3.0%)
- -------------------------------------------------------------------------------
1,135,000 Ameritech Capital Funding company
guaranty 6 1/4s, 2009 1,222,514
2,955,000 AT&T Corp. sr. notes 8.05s, 2011 3,242,412
1,265,000 AT&T Wireless Services, Inc. sr.
notes 8 3/4s, 2031 1,543,210
3,665,000 AT&T Wireless Services, Inc. sr.
notes 7 7/8s, 2011 4,221,413
1,800,000 Bellsouth Capital Funding notes
7 3/4s, 2010 2,081,475
1,820,000 British Telecommunications PLC bonds
8 7/8s, 2030 (United Kingdom) 2,302,349
4,700,000 British Telecommunications PLC notes
8 3/8s, 2010 (United Kingdom) 5,542,476
7,730,000 Cingular Wireless, LLC sr. notes
5 5/8s, 2006 8,184,199
3,020,000 Deutsche Telekom International
Finance BV bonds 8 1/2s, 2010
(Netherlands) 3,568,360
5,155,000 Deutsche Telekom International
Finance BV company guaranty 8 3/4s,
2030 (Netherlands) 6,398,077
2,370,000 France Telecom notes 9 1/2s, 2031
(France) 3,039,409
3,965,000 France Telecom notes 7 3/4s, 2011
(France) 4,687,415
1,450,000 Koninklijke (Royal) KPN NV sr.
unsub. notes 8 3/8s, 2030
(Netherlands) 1,777,641
888,000 Koninklijke (Royal) KPN NV sr.
unsub. notes 8s, 2010 (Netherlands) 1,038,677
2,150,000 Sprint Capital Corp. company
guaranty 8 3/4s, 2032 2,568,203
3,550,000 Sprint Capital Corp. company
guaranty 7 5/8s, 2011 4,003,264
3,985,000 Sprint Capital Corp. company
guaranty 6 7/8s, 2028 3,912,238
400,000 Sprint Capital Corp. company
guaranty 6 1/8s, 2008 428,312
3,380,000 Telecom Italia Capital 144A company
guaranty 6 3/8s, 2033 (Luxembourg) 3,315,178
1,575,000 Telecom Italia Capital 144A company
guaranty 5 1/4s, 2013 (Luxembourg) 1,550,741
2,165,000 Telecom Italia Capital 144A company
guaranty 4s, 2008 (Luxembourg) 2,146,058
2,975,000 Telefonica Europe BV company
guaranty 7 3/4s, 2010 (Netherlands) 3,450,595
1,030,000 United States Cellular Corp. notes
6.7s, 2033 1,006,333
2,965,000 Verizon Global Funding Corp. notes
7 1/4s, 2010 3,351,992
2,180,000 Verizon New England, Inc. sr. notes
6 1/2s, 2011 2,362,270
1,420,000 Verizon Virginia, Inc. debs. Ser. A,
4 5/8s, 2013 1,343,294
2,950,000 Verizon Wireless, Inc. notes 5 3/8s,
2006 3,114,402
895,000 Vodafone Group PLC notes 7 7/8s,
2030 (United Kingdom) 1,069,232
3,010,000 Vodafone Group PLC notes 7 5/8s,
2005 (United Kingdom) 3,143,897
--------------
85,615,636
Conglomerates (0.3%)
- -------------------------------------------------------------------------------
4,005,000 Textron Financial Corp. notes 6s,
2009 4,340,687
1,670,000 Tyco International Group SA company
guaranty 7s, 2028 (Luxembourg) 1,703,165
3,335,000 Tyco International Group SA company
guaranty 6 3/4s, 2011 (Luxembourg) 3,596,587
--------------
9,640,439
Consumer Cyclicals (2.7%)
- -------------------------------------------------------------------------------
1,770,000 Cendant Corp. notes 6 1/4s, 2010 1,908,003
2,055,000 Cendant Corp. sr. notes 7 3/8s, 2013 2,324,421
2,144,000 D.R. Horton, Inc. company guaranty
8s, 2009 2,369,120
2,795,000 D.R. Horton, Inc. sr. notes 5 7/8s,
2013 2,746,088
4,365,000 DaimlerChrysler NA Holding Corp.
company guaranty 7.2s, 2009 4,800,365
4,980,000 DaimlerChrysler NA Holding Corp.
company guaranty Ser. D, 3.4s, 2004 5,028,716
2,815,000 Federated Department Stores, Inc.
sr. notes 8 1/2s, 2010 3,380,863
2,875,000 Ford Motor Co. debs. 9.98s, 2047 3,478,319
5,185,000 Ford Motor Credit Corp. notes
7 3/8s, 2009 5,604,824
1,115,000 Ford Motor Credit Corp. notes
6 1/2s, 2007 1,180,710
2,265,000 General Motors Acceptance Corp.
bonds 8s, 2031 2,390,535
630,000 General Motors Acceptance Corp.
notes 6 7/8s, 2012 656,875
5,970,000 General Motors Acceptance Corp.
notes Ser. MTN, 5.36s, 2004 6,024,876
1,105,000 GTECH Holdings Corp. notes 4 3/4s,
2010 1,103,423
1,215,000 Hilton Hotels Corp. notes 8 1/4s,
2011 1,412,438
680,000 Hilton Hotels Corp. notes 7 5/8s,
2012 765,000
100,000 Host Marriott LP sr. notes 7 1/8s,
2013 (R) 101,500
1,981,000 International Game Technology sr.
notes 8 3/8s, 2009 2,319,638
4,320,000 JC Penney Co., Inc. notes 7.6s, 2007 4,741,200
3,584,000 K. Hovnanian Enterprises, Inc. sr.
notes 6 1/2s, 2014 3,422,720
914,000 Lear Corp. company guaranty Ser. B,
8.11s, 2009 1,049,958
1,570,000 Lennar Corp. company guaranty
Ser. B, 9.95s, 2010 1,772,138
800,000 MGM Mirage, Inc. company guaranty
9 3/4s, 2007 904,000
2,429,000 MGM Mirage, Inc. company guaranty
8 3/8s, 2011 2,684,045
1,375,000 Mohegan Tribal Gaming Authority sr.
notes 8 1/8s, 2006 1,464,375
1,670,000 Mohegan Tribal Gaming Authority sr.
sub. notes 6 3/8s, 2009 1,703,400
910,000 Park Place Entertainment Corp. sr.
notes 7 1/2s, 2009 1,001,000
1,355,000 Park Place Entertainment Corp. sr.
sub. notes 9 3/8s, 2007 1,497,275
195,000 PRIMEDIA, Inc. company guaranty
7 5/8s, 2008 196,463
3,200,000 Pulte Homes, Inc. company guaranty
7 7/8s, 2011 3,668,192
1,570,000 RadioShack Corp. notes 7 3/8s, 2011 1,805,010
1,095,000 Sears Roebuck Acceptance FRN
Ser. MTN, 3.13s, 2004 1,095,060
2,540,000 SPX Corp. sr. notes 6 1/4s, 2011 2,533,650
1,095,000 Starwood Hotels & Resorts Worldwide,
Inc. company guaranty 7 3/8s, 2007 1,177,125
--------------
78,311,325
Consumer Staples (3.3%)
- -------------------------------------------------------------------------------
3,645,000 AOL Time Warner, Inc. bonds 7 5/8s,
2031 3,989,037
2,865,000 AOL Time Warner, Inc. notes 5 5/8s,
2005 2,968,968
1,915,000 Archer Daniels Midland Co. debs.
8 1/8s, 2012 2,322,573
2,820,000 Cadbury Schweppes US Finance, LLC
144A notes 3 7/8s, 2008 2,790,100
5,060,000 Campbell Soup Co. notes 6 3/4s, 2011 5,670,327
450,000 Chancellor Media Corp. company
guaranty 8s, 2008 515,061
2,910,000 Comcast Corp. company guaranty
7.05s, 2033 3,061,300
2,030,000 Comcast Corp. company guaranty
5.85s, 2010 2,131,906
660,000 ConAgra, Inc. notes 7 7/8s, 2010 769,019
910,000 ConAgra, Inc. notes 6 3/4s, 2011 1,005,136
1,420,000 ConAgra, Inc. notes 6s, 2006 1,511,722
2,015,000 Cox Communications, Inc. notes
7 3/4s, 2010 2,306,105
1,665,000 Cox Enterprises, Inc. 144A notes 8s,
2007 1,864,091
1,068,372 CVS Corp. 144A pass-through
certificates 6.117s, 2013 1,113,354
1,280,000 Dean Foods Co. sr. notes 8.15s, 2007 1,417,600
2,760,000 Diageo PLC company guaranty 8s, 2022
(United Kingdom) 3,341,043
2,740,000 Fred Meyer, Inc. Holding Co. company
guaranty 7.45s, 2008 3,082,475
175,000 Grand Metro Investment Corp. company
guaranty 9s, 2011 220,062
2,440,000 Hormel Foods Corp. notes 6 5/8s,
2011 2,729,572
2,435,000 Johnson (SC) & Son, Inc. 144A bonds
5 3/4s, 2033 2,288,496
4,120,000 Jones Intercable, Inc. sr. notes
7 5/8s, 2008 4,606,621
7,015,000 Kraft Foods, Inc. notes 4 5/8s, 2006 7,255,299
2,030,000 Liberty Media Corp. debs. 8 1/2s,
2029 2,387,252
1,655,000 Liberty Media Corp. sr. notes 5.7s,
2013 1,654,849
2,160,000 Miller Brewing Co. 144A notes
5 1/2s, 2013 2,188,118
1,005,000 News America Holdings, Inc. company
guaranty 9 1/4s, 2013 1,275,756
900,000 News America Holdings, Inc. company
guaranty 7 3/8s, 2008 1,005,971
1,820,000 News America Holdings, Inc. debs.
7 3/4s, 2045 2,092,401
2,585,000 News America Holdings, Inc. debs.
7.7s, 2025 2,947,970
255,000 News America, Inc. company guaranty
4 3/4s, 2010 255,769
1,780,000 News America, Inc. sr. notes 6 5/8s,
2008 1,942,544
1,045,000 Philip Morris Cos., Inc. debs.
7 3/4s, 2027 1,114,203
2,035,000 Procter & Gamble Co. bonds 5 1/2s,
2034 1,924,011
2,335,000 Rogers Cable Inc. sec. notes 6 1/4s,
2013 (Canada) 2,248,470
1,820,000 TCI Communications, Inc. debs.
7 7/8s, 2013 2,100,316
4,035,000 Time Warner, Inc. debs. 9.15s, 2023 5,039,364
1,835,000 Time Warner, Inc. debs. 9 1/8s, 2013 2,263,632
1,215,000 Time Warner, Inc. notes 8.18s, 2007 1,375,723
640,000 Tyson Foods, Inc. notes 8 1/4s, 2011 744,715
1,815,000 USA Interactive notes 7s, 2013 1,974,798
3,445,000 Viacom, Inc. company guaranty 7.7s,
2010 3,993,296
765,000 Yum! Brands, Inc. sr. notes 8 7/8s,
2011 932,566
--------------
96,421,591
Energy (1.0%)
- -------------------------------------------------------------------------------
1,005,000 Amerada Hess Corp. bonds 7 7/8s,
2029 1,088,451
390,000 Amerada Hess Corp. unsub notes
6.65s, 2011 415,715
745,000 Anadarko Finance Co. company
guaranty Ser. B, 6 3/4s, 2011 826,648
2,435,000 Arch Western Finance, LLC 144A sr.
notes 6 3/4s, 2013 2,508,050
844,000 BRL Universal Equipment sec. notes
8 7/8s, 2008 910,465
4,585,000 Conoco Funding Co. company guaranty
6.35s, 2011 5,056,384
1,610,000 Kerr-McGee Corp. company guaranty
6 7/8s, 2011 1,758,500
2,005,000 Louis Dreyfus Natural Gas Corp.
notes 6 7/8s, 2007 2,173,228
1,950,000 MidAmerican Energy Holdings Co. sr.
notes 4 5/8s, 2007 1,986,821
345,000 MidAmerican Energy Holdings Co. sr.
notes 3 1/2s, 2008 334,086
3,120,000 Motiva Enterprises, LLC 144A sr.
notes 5.2s, 2012 3,134,666
1,100,000 Ocean Energy, Inc. company guaranty
7 1/4s, 2011 1,233,449
940,000 Petro-Canada, Ltd. bonds 5.35s, 2033
(Canada) 817,475
890,000 Phillips Petroleum Co. notes 8 3/4s,
2010 1,087,701
843,000 Pride Petroleum Services, Inc. sr.
notes 9 3/8s, 2007 857,753
1,420,000 Schlumberger Technology Corp. 144A
notes 6 1/2s, 2012 1,556,989
2,505,000 Transocean Sedco Forex, Inc. notes
6 5/8s, 2011 2,764,809
--------------
28,511,190
Financial (6.5%)
- -------------------------------------------------------------------------------
1,680,000 Ace INA Holdings, Inc. company
guaranty 8.3s, 2006 1,865,830
1,695,000 Allfirst Financial, Inc. sub. notes
7.2s, 2007 1,859,726
5,075,000 Archstone-Smith Operating Trust
notes 5s, 2007 (R) 5,256,366
4,265,000 Associates First Capital Corp. debs.
6.95s, 2018 4,803,827
5,285,000 Associates First Capital Corp. sub.
debs. 8.15s, 2009 6,190,907
2,070,000 AXA Financial, Inc. sr. notes
7 3/4s, 2010 2,397,404
2,415,000 Bank of America Corp. sub. notes
7 3/4s, 2015 2,852,255
735,000 Bank of New York Co., Inc. (The) sr.
sub. notes FRN 3.4s, 2013 712,076
1,697,000 Bank One Corp. sub. notes 7.6s, 2007 1,889,740
7,560,000 Bank United Corp. notes Ser. A, 8s,
2009 8,809,456
3,110,000 Bear Stearns Cos., Inc. (The) notes
7.8s, 2007 3,505,082
250,000 Capital One Bank notes 6 1/2s, 2013 260,754
735,000 Capital One Bank notes Ser. BKNT,
4 7/8s, 2008 751,368
775,000 Capital One Bank sr. notes
Ser. BKNT, 6.7s, 2008 841,703
1,035,000 CenterPoint Properties Trust notes
Ser. MTN, 4 3/4s, 2010 1,009,118
155,000 CIT Group, Inc. sr. notes 7 3/4s,
2012 179,272
4,705,000 CIT Group, Inc. sr. notes Ser. MTN,
6 7/8s, 2009 5,209,086
1,430,000 CIT Group, Inc. sr. sub. notes
4 1/8s, 2006 1,466,175
3,430,000 Citigroup, Inc. debs. 6 5/8s, 2028 3,622,732
3,710,000 Citigroup, Inc. sub. notes 7 1/4s,
2010 4,237,328
2,090,000 Countrywide Home Loans, Inc. company
guaranty Ser. K, 5 5/8s, 2007 2,217,070
2,240,000 Countrywide Home Loans, Inc. company
guaranty Ser. MTNL, 4s, 2011 2,113,230
490,000 Credit Suisse First Boston USA, Inc.
notes 6 1/8s, 2011 524,366
2,110,000 Developers Diversified Realty Corp.
notes 4 5/8s, 2010 2,065,302
2,270,000 EOP Operating LP sr. notes 7s, 2011 2,518,268
2,400,000 Equity One, Inc. company guaranty
3 7/8s, 2009 2,317,011
4,955,000 First Chicago NBD Corp. sub. notes
6 3/8s, 2009 5,499,581
6,370,000 First Union National Bank sub. notes
7.8s, 2010 7,534,500
695,000 FleetBoston Financial Corp. notes
7 1/4s, 2005 742,091
5,215,000 Franchise Finance Corp. of America
sr. notes 8 3/4s, 2010 (R) 6,441,751
2,165,000 Fund American Cos., Inc. notes
5 7/8s, 2013 2,171,839
3,070,000 General Electric Capital Corp.
company guaranty 7 7/8s, 2006 3,447,377
1,000,000 General Electric Capital Corp. notes
Ser. A, 6 3/4s, 2032 1,076,608
1,190,000 General Electric Capital Corp. notes
Ser. A, 6s, 2012 1,268,878
280,000 General Electric Capital Corp. notes
Ser. MTNA, 6 1/8s, 2011 302,421
2,075,000 Goldman Sachs Group LP sub. notes
6.345s, 2034 1,983,364
4,020,000 Goldman Sachs Group, Inc. (The)
notes 4 3/4s, 2013 3,829,705
1,300,000 Hartford Financial Services Group,
Inc. (The) sr. notes 7.9s, 2010 1,518,202
1,310,000 Heller Financial, Inc. notes 7 3/8s,
2009 1,503,627
880,000 Heritage Property Investment Trust
144A notes 5 1/8s, 2014 830,481
2,585,000 Hospitality Properties Trust notes
6 3/4s, 2013 (R) 2,704,060
6,165,000 Household Finance Corp. notes 8s,
2010 7,257,530
6,135,000 Household Finance Corp. notes 7s,
2012 6,873,537
3,430,000 Household Finance Corp. notes
6 3/4s, 2011 3,797,607
710,000 HRPT Properties Trust bonds 5 3/4s,
2014 (R) 702,141
560,000 HRPT Properties Trust sr. notes
6.7s, 2005 (R) 574,624
2,440,000 International Lease Finance Corp.
notes 4.35s, 2008 2,463,568
302,000 iStar Financial, Inc. sr. notes
8 3/4s, 2008 (R) 338,240
1,645,000 iStar Financial, Inc. sr. notes 7s,
2008 (R) 1,719,025
550,000 iStar Financial, Inc. sr. notes 6s,
2010 (R) 550,000
2,610,000 John Hancock Financial Services,
Inc. sr. notes 5 5/8s, 2008 2,775,239
1,090,000 John Hancock Global Funding II 144A
notes 7.9s, 2010 1,273,369
5,545,000 JPMorgan Chase & Co. sub. notes
5 3/4s, 2013 5,741,570
1,880,000 Kimco Realty Corp. notes Ser. MTNC,
5.19s, 2013 1,849,582
955,000 Merrill Lynch & Co., Inc. notes
Ser. B, 4 3/4s, 2009 974,333
665,000 Metlife, Inc. sr. notes 6 1/8s, 2011 719,252
2,140,000 Morgan Stanley Tracers notes 4 1/4s,
2010 2,107,669
105,000 National City Bank bonds 4 5/8s,
2013 101,005
1,250,000 National City Bank sub. notes
Ser. BKNT, 6 1/4s, 2011 1,366,105
815,000 Nationwide Financial Services, Inc.
notes 5 5/8s, 2015 831,263
3,590,000 Nordea Bank Finland PLC sub. notes
6 1/2s, 2009 (Finland) 3,950,644
965,000 OneAmerica Financial Partners, Inc.
144A bonds 7s, 2033 961,363
3,155,000 PNC Funding Corp. bonds 5 1/4s, 2015 3,088,250
1,580,000 Popular North America, Inc. sub.
notes 3 7/8s, 2008 1,561,498
2,660,000 Principal Life Global Funding I 144A
sec. notes 5 1/4s, 2013 2,672,470
1,435,000 Protective Life Corp. notes 4.3s,
2013 1,341,791
2,245,000 Prudential Financial, Inc. notes
Ser. MTNB, 4 1/2s, 2013 2,120,277
595,000 Rouse Co. (The) notes 5 3/8s, 2013 583,914
655,000 Rouse Co. (The) notes 3 5/8s, 2009 627,715
3,625,000 Sovereign Bancorp, Inc. sr. notes
10 1/2s, 2006 4,228,236
2,780,000 St. Paul Co., Inc. (The) sr. notes
5 3/4s, 2007 2,946,908
1,490,000 Steers Delaware Business Trust 144A
notes 5.565s, 2005 1,564,500
2,080,000 Suncorp-Metway, Ltd. 144A FRB
3 1/2s, 2013 (Australia) 2,019,048
1,000,000 Tanger Properties, Ltd. company
guaranty 7 7/8s, 2004 1,030,000
995,000 Travelers Property Casualty Corp.
sr. notes 3 3/4s, 2008 992,880
5,000,000 UBS AG/Jersey Branch FRN 4.11s, 2008
(United Kingdom) 5,105,000
700,000 Vornado Realty Trust notes 4 3/4s,
2010 685,542
990,000 XL Capital Europe PLC company
guaranty 6 1/2s, 2012 (United
Kingdom) 1,075,949
--------------
188,901,581
Health Care (0.3%)
- -------------------------------------------------------------------------------
3,660,000 American Home Products Corp. notes
6.95s, 2011 4,045,204
1,055,000 AmerisourceBergen Corp. company
guaranty 7 1/4s, 2012 1,123,575
740,000 AmerisourceBergen Corp. sr. notes
8 1/8s, 2008 817,700
1,320,000 Bayer Corp. 144A FRB 6.2s, 2008 1,419,356
1,575,000 HCA, Inc. sr. notes 7 7/8s, 2011 1,738,877
101,000 Service Corp. International notes
6s, 2005 105,545
1,005,000 Wyeth bonds 6 1/2s, 2034 1,004,161
--------------
10,254,418
Technology (0.2%)
- -------------------------------------------------------------------------------
590,000 Computer Associates International,
Inc. sr. notes Ser. B, 6 3/8s, 2005 611,743
1,085,000 Fiserv, Inc. notes 4s, 2008 1,077,979
835,000 Jabil Circuit, Inc. sr. notes
5 7/8s, 2010 867,245
630,000 Motorola, Inc. notes 7 5/8s, 2010 712,449
690,000 Motorola, Inc. notes 6 3/4s, 2006 732,875
915,000 SunGard Data Systems, Inc. 144A
bonds 4 7/8s, 2014 879,041
--------------
4,881,332
Transportation (0.5%)
- -------------------------------------------------------------------------------
2,248,725 Continental Airlines, Inc.
pass-through certificates Ser.
97-4A, 6.9s, 2018 2,226,238
1,132,815 Continental Airlines, Inc.
pass-through certificates Ser.
98-1A, 6.648s, 2017 1,098,830
3,840,000 CSX Corp. notes 6 1/4s, 2008 4,141,498
885,000 CSX Corp. notes 4 7/8s, 2009 900,922
1,670,000 FedEx Corp. 144A notes 2.65s, 2007 1,633,609
1,915,000 Norfolk Southern Corp. sr. notes
7 1/4s, 2031 2,119,894
151,549 Northwest Airlines Corp.
pass-through certificates Ser.
99-2A, 7.575s, 2019 153,350
1,555,000 Union Pacific Corp. notes 5 3/8s,
2014 1,553,781
--------------
13,828,122
Utilities & Power (3.0%)
- -------------------------------------------------------------------------------
875,000 AEP Texas Central Co. sr. notes
Ser. D, 5 1/2s, 2013 885,182
470,000 American Electric Power Co., Inc.
notes Ser. A, 6 1/8s, 2006 499,828
695,000 American Electric Power Co., Inc.
sr. notes Ser. C, 5 3/8s, 2010 717,690
710,000 Appalachian Power Co. notes 3.6s,
2008 696,574
5,760,000 Arizona Public Services Co. sr.
notes 6 3/4s, 2006 6,237,498
380,000 Carolina Power & Light Co. 1st mtge.
6 1/8s, 2033 374,516
440,000 CenterPoint Energy Resources Corp.
debs. 8.9s, 2006 491,252
1,735,000 CenterPoint Energy Resources Corp.
notes 7 3/4s, 2011 1,942,666
1,780,000 Cleveland Electric Illuminating Co.
(The) 144A sr. notes 5.65s, 2013 1,760,514
3,185,000 Consumers Energy Co. 1st mtge.
Ser. B, 5 3/8s, 2013 3,134,779
970,000 Consumers Energy Co. bonds 6 1/4s,
2006 1,034,279
960,000 Dayton Power & Light Co. (The) 144A
1st mtge. 5 1/8s, 2013 930,420
325,000 Dominion Resources, Inc. sr. notes
8 1/8s, 2010 380,648
2,835,000 Dominion Resources, Inc. unsub.
notes 5.7s, 2012 2,927,843
2,035,000 Duke Capital Corp. sr. notes Ser. A,
6 1/4s, 2005 2,121,644
2,970,000 Duke Energy Field Services, LLC
notes 7 7/8s, 2010 3,433,368
2,555,000 Exelon Generation Co., LLC sr. notes
6.95s, 2011 2,846,510
3,345,000 FirstEnergy Corp. notes Ser. C,
7 3/8s, 2031 3,513,160
1,285,000 Florida Power & Light Co. 1st mtge.
5.95s, 2033 1,273,984
825,000 Florida Power & Light Co. 1st mtge.
5 5/8s, 2034 780,874
680,000 Indianapolis Power & Light 144A 1st
mtge. 6.3s, 2013 710,540
1,555,000 KeySpan Corp. notes 7 5/8s, 2010 1,810,773
1,005,000 Kinder Morgan, Inc. sr. notes
6 1/2s, 2012 1,081,772
2,940,000 Monongahela Power Co. 1st mtge. 5s,
2006 2,980,425
980,000 National Fuel Gas Co. notes 5 1/4s,
2013 987,032
1,870,000 National Rural Utilities Cooperative
Finance Corp. coll. trust 3 7/8s,
2008 1,880,438
1,630,000 Nevada Power Co. 144A 2nd mtge. 9s,
2013 1,801,150
6,115,000 NiSource Finance Corp. company
guaranty 7 7/8s, 2010 7,118,441
2,635,000 Northern States Power Co. mtge.
Ser. B, 8s, 2012 3,168,780
490,000 Oncor Electric Delivery Co. sec.
notes 7 1/4s, 2033 546,989
2,405,000 Oncor Electric Delivery Co. sec.
notes 6 3/8s, 2012 2,605,611
1,325,000 Pacific Gas & Electric Co. 1st mtge.
6.05s, 2034 1,249,417
715,000 Pacific Gas & Electric Co. 1st mtge.
4.8s, 2014 683,705
490,000 Pacific Gas & Electric Co. 1st.
mtge. 4.2s, 2011 471,931
1,570,000 PacifiCorp Sinking Fund 1st mtge.
5.45s, 2013 1,609,101
735,000 Panhandle Eastern Pipe Line sr.
notes 4.8s, 2008 746,476
1,080,000 Pepco Holdings, Inc. notes 5 1/2s,
2007 1,134,519
955,000 Potomac Edison Co. 1st mtge. 8s,
2024 924,022
1,818,522 Power Receivable Finance, LLC 144A
sr. notes 6.29s, 2012 1,867,004
790,000 PP&L Capital Funding, Inc. company
guaranty Ser. D, 8 3/8s, 2007 891,850
940,000 Progress Energy, Inc. sr. notes
6 3/4s, 2006 1,004,252
1,395,000 Progress Energy, Inc. sr. notes
6.05s, 2007 1,485,986
785,000 Public Service Company of New Mexico
sr. notes 4.4s, 2008 783,276
1,780,000 Public Service Electric & Gas Co.
1st mtge. FRN 6 3/8s, 2008 1,927,340
1,605,000 Public Services Co. of Colorado sr.
notes Ser. A, 6 7/8s, 2009 1,785,298
785,000 Rochester Gas & Electric notes
6 3/8s, 2033 773,699
1,455,000 South Carolina Electric & Gas Co.
1st mtge. 5.3s, 2033 1,309,412
1,010,000 Southern California Edison Co. 1st
mtge. 6s, 2034 974,404
1,285,000 Southern California Edison Co. 1st
mtge. 5s, 2014 1,260,640
875,000 Tampa Electric Co. notes 6 7/8s,
2012 949,771
965,000 TransCanada Pipelines, Ltd. notes
4s, 2013 (Canada) 885,773
990,000 Western Energy, Inc. sr. notes Ser.
(a), 7 1/8s, 2009 1,103,850
840,000 Western Resources, Inc. 1st mtge.
7 7/8s, 2007 934,920
1,114,000 Western Resources, Inc. sr. notes
9 3/4s, 2007 1,290,052
235,965 York Power Funding 144A notes 12s,
2007 (Cayman Islands) (In default)
(NON) 24
--------------
86,721,902
--------------
Total Corporate bonds and notes
(cost $643,052,986) $659,227,372
Collateralized mortgage obligations (13.6%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$176,506,563 Banc of America Large Loan 144A Ser.
03-BBA2, Class X1A, Interest Only
(IO), 0.806s, 2015 $1,740,178
1,034,000 Bear Stearns Commercial Mortgage
Securitization Corp. 144A Ser.
04-HS2A, Class G, 2 1/2s, 2016 1,034,000
Chase Commercial Mortgage Securities Corp.
4,646,964 Ser. 00-1, Class A1, 7.656s, 2032 4,778,719
274,424 Ser. 98-1, Class A1, 6.34s, 2030 277,254
7,083,000 Commercial Mortgage Acceptance Corp.
Ser. 97-ML1, Class A3, 6.57s, 2007 7,636,359
13,599,500 Criimi Mae Commercial Mortgage Trust
Ser. 98-C1, Class A2, 7s, 2011 14,585,464
7,975,000 Criimi Mae Commercial Mortgage Trust
144A Ser. 98-C1, Class B, 7s, 2033 8,277,090
1,475,000 CS First Boston Mortgage Securities
Corp. 144A FRB Ser. 03-TF2A, Class
L, 5.1s, 2014 1,463,405
1,467,738 Deutsche Mortgage & Asset Receiving
Corp. Ser. 98-C1, Class X, IO,
1.149s, 2023 44,576
1,170,000 DLJ Mortgage Acceptance Corp. 144A
Ser. 97-CF1, Class A3, 7.76s, 2030 1,286,076
Fannie Mae
4,614,016 Ser. 04-10, Class QC, 24.2s, 2031 5,637,030
3,041,913 Ser. 02-36, Class SJ, 17 3/8s, 2029 3,350,556
5,520,418 Ser. 04-4, Class QM, 12s, 2033 5,443,434
866 Ser. 92-15, Class L, IO, 10.376s,
2022 11,884
1,982,068 Ser. 03-W6, Class PT1, 9.461s, 2042 2,264,513
1,815,163 Ser. 02-T18, Class A4, 7 1/2s, 2042 1,955,318
6,706,598 Ser. 03-W3, Class 1A3, 7 1/2s, 2042 7,224,438
7,270,120 Ser. 02-T16, Class A3, 7 1/2s, 2042 7,831,470
12,372,174 Ser. 02-T19, Class A3, 7 1/2s, 2042 13,327,471
3,630,038 Ser. 03-W2, Class 1A3, 7 1/2s, 2042 3,910,326
7,645,968 Ser. 02-W4, Class A5, 7 1/2s, 2042 8,236,339
296,808 Ser. 02-W1, Class 2A, 7 1/2s, 2042 319,725
938,634 Ser. 02-14, Class A2, 7 1/2s, 2042 1,011,109
7,408,919 Ser. 01-T10, Class A2, 7 1/2s, 2041 7,980,986
496,113 Ser. 02-T4, Class A3, 7 1/2s, 2041 534,420
4,525,742 Ser. 01-T12, Class A2, 7 1/2s, 2041 4,875,190
1,815,449 Ser. 01-T8, Class A1, 7 1/2s, 2041 1,955,626
11,369,311 Ser. 01-T7, Class A1, 7 1/2s, 2041 12,247,174
590,929 Ser. 01-T3, Class A1, 7 1/2s, 2040 636,557
1,803,205 Ser. 01-T1, Class A1, 7 1/2s, 2040 1,942,436
719,121 Ser. 99-T2, Class A1, 7 1/2s, 2039 774,646
5,274,127 Ser. 00-T6, Class A1, 7 1/2s, 2030 5,681,360
160,510 Ser. 01-T5, Class A3, 7 1/2s, 2030 172,904
2,267,198 Ser. 02-W7, Class A5, 7 1/2s, 2029 2,442,257
14,660,706 Ser. 01-T4, Class A1, 7 1/2s, 2028 15,792,709
2,215,602 Ser. 02-W3, Class A5, 7 1/2s, 2028 2,386,677
23,364,571 Ser. 03-118, Class SF, IO, 7s, 2033 3,453,576
6,590,981 Ser. 02-36, Class QH, IO, 6.95s,
2029 428,113
322,157 Ser. 02-27, Class SQ, IO, 6.9s, 2032 4,127
13,229,256 Ser. 03-58, Class ID, IO, 6s, 2033 3,123,345
16,004,607 Ser. 03-63, Class IP, IO, 6s, 2033 3,861,111
46,337,004 Ser. 03-22, IO, 6s, 2033 11,548,062
16,748,079 Ser. 03-31, Class IM, IO, 5 3/4s,
2032 2,195,673
5,830,383 Ser. 346, Class 2, IO, 5 1/2s, 2033 1,585,135
7,746,426 Ser. 343, Class 14, IO, 5 1/2s, 2033 1,884,560
8,094,901 Ser. 343, Class 15, IO, 5 1/2s, 2033 1,976,927
3,740,009 Ser. 343, Class 17, IO, 5 1/2s, 2033 929,743
15,879,887 Ser. 339, Class 10, IO, 5 1/2s, 2033 3,883,129
16,853,520 Ser. 334, Class 3, IO, 5 1/2s, 2033 3,965,844
39,310,954 Ser. 329, Class 2, IO, 5 1/2s, 2033 10,294,556
538,000 Ser. 03-29, Class IG, IO, 5 1/2s,
2031 187,880
11,231,394 Ser. 03-8, Class IP, IO, 5 1/2s,
2028 1,294,839
9,878,502 Ser. 03-42, Class JI, IO, 5 1/2s,
2028 1,021,808
2,112,572 Ser. 03, Class PK, IO, 5 1/2s, 2026 195,413
12,125,900 Ser. 03-54, Class IY, IO, 5 1/2s,
2026 1,690,047
4,218,879 Ser. 03-17, IO, 5 1/2s, 2025 439,027
6,914,000 Ser. 03-6, Class IB, IO, 5 1/2s,
2022 545,612
14,101,203 Ser. 348, Class 4, IO, 5s, 2034 3,653,093
7,502,274 Ser. 348, Class 5, IO, 5s, 2034 1,897,841
8,647,068 Ser. 343, Class 29, IO, 5s, 2033 1,471,353
15,521,112 Ser. 343, Class 5, IO, 5s, 2033 3,860,877
17,480,437 Ser. 343, Class 9, IO, 5s, 2033 4,479,362
9,717,546 Ser. 339, Class 2, IO, 5s, 2033 2,488,663
8,212,567 Ser. 03-16, Class IC, IO, 5s, 2015 1,603,424
14,588,313 Ser. 03-W12, Class 2, IO, 2.236s,
2043 942,657
59,620,966 Ser. 03-W10, Class 1, IO, 2.046s,
2043 3,400,258
22,904,058 Ser. 03-W10, Class 3, IO, 2.041s,
2043 1,345,613
40,382,927 Ser. 03-W6, Class 11, IO, 2.02s,
2042 731,174
34,746,365 Ser. 03-W3, Class 2IO2, IO, 1.978s,
2042 617,160
3,149,702 Ser. 03-W10, Class 1A1, 1.701s, 2032 3,140,843
111,990,829 Ser. 03-W8, Class 12, IO, 1.646s,
2042 5,520,481
37,651,623 Ser. 03-W6, Class 21, IO, 1.63s,
2042 406,536
183,203,388 Ser. 03-T2, Class 2, IO, 1.259s,
2042 4,862,804
81,794,986 Ser. 03-W8, Class 11, IO, 1.207s,
2042 962,340
27,159,067 Ser. 03-W17, Class 12, IO, 1.164s,
2033 911,410
54,710,669 Ser. 03-49, Class SV, IO, 1s, 2033 2,077,296
46,075,692 Ser. 03-W6, Class 51, IO, 0.672s,
2042 800,263
64,406,954 Ser. 03-W3, Class 2IO1, IO, 0.672s,
2042 1,345,782
84,476,682 Ser. 03-18, Class X1, IO, 0.639s,
2042 1,531,140
87,597,250 Ser. 01-T12, Class IO, 0.57s, 2041 1,255,708
932,025 Ser. 01-50, Class B1, IO, 0.488s,
2041 11,351
103,659,799 Ser. 03-W2, Class 1, IO, 0.47s, 2042 1,277,424
21,245,014 Ser. 02-T4, IO, 0.449s, 2041 237,292
65,058,754 Ser. 03-W3, Class 1, IO, 0.437s,
2042 740,676
65,645,013 Ser. 02-T1, IO, 0.421s, 2031 694,243
67,102,890 Ser. 03-W6, Class 3, IO, 0.366s,
2042 706,349
70,452,176 Ser. 03-W6, Class 23, IO, 0.352s,
2042 712,129
Federal Home Loan Mortgage Corp.
Structured Pass-Through Securities
4,203,007 Ser. T-58, Class 4A, 7 1/2s, 2043 4,527,535
1,166,429 Ser. T-42, Class A5, 7 1/2s, 2042 1,256,493
41,764,998 Ser. T-56, Class A, IO, 1.834s, 2043 1,181,166
43,642,302 Ser. T-56, Class 3, IO, 0.371s, 2043 552,348
49,184,251 Ser. T-56, Class 1, IO, 0.276s, 2043 414,992
50,290,279 Ser. T-56, Class 2, IO, 0.059s, 2043 157,157
17,122,000 FFCA Secured Lending Corp. 144A Ser.
00-1, Class A2, 7.77s, 2027 18,635,492
6,500,001 First Chicago Lennar Trust 144A Ser.
97-CHL1, Class D, 7.932s, 2039 6,760,001
11,815,000 First Union-Lehman Brothers
Commercial Mortgage Trust II Ser.
97-C1, Class A3, 7.38s, 2029 12,884,045
Freddie Mac
8,156,868 Ser. 2763, Class SC, 24.2s, 2032 9,972,727
13,063,782 Ser. 2437, Class SB, IO, 6.9s, 2032 1,355,367
19,622,863 Ser. 2575, Class SG, IO, 6 1/2s,
2032 1,692,472
10,271,068 Ser. 2469, Class SH, IO, 6.4s, 2032 962,913
533,692 Ser. 2507, Class TI, IO, 6s, 2026 1
11,993,800 Ser. 2581, Class IE, IO, 5 1/2s,
2025 2,537,438
9,178,127 Ser. 2702, Class DI, IO, 5 1/2s,
2024 1,070,518
6,115,884 Ser. 2626, Class JS, IO, 5 1/2s,
2023 565,719
11,182,084 Ser. 2553, Class IJ, IO, 5 1/2s,
2020 697,133
9,767,469 Ser. 2596, Class IL, IO, 5s, 2030 1,896,530
3,624,383 Ser. 2696, Principal Only (PO),
zero %, 2033 2,217,025
1,210,740 G-Force FRB Ser. 01-1A, Class A,
1.7s, 2033 (Cayman Islands) 1,213,042
G-Force CDO, Ltd. 144A
942,000 Ser. 02-1A, Class E, 8 1/4s, 2037 932,580
416,000 Ser. 02-1A, Class D, 7.61s, 2037 439,270
6,695,035 General Growth Properties-Mall
Properties Trust FRB Ser.
01-C1A, Class D3, 3.35s, 2014 6,703,404
GMAC Commercial Mortgage Securities, Inc.
11,894,000 Ser. 97-C2, Class A2, 6.55s, 2029 11,974,693
860,898 Ser. 01-C2, Class A1, 6 1/4s, 2034 917,029
Government National Mortgage
Association
5,769,290 Ser. 03-114, Class SP, 16.667s, 2027 6,382,277
456,452 Ser. 99-31, Class MP, PO, zero %,
2029 412,002
2,849,401 Ser. 98-2, Class EA, PO, zero %,
2028 2,425,553
748,000 GS Mortgage Securities Corp. II 144A
FRB Ser. 03-FL6A, Class L, 4.35s,
2015 748,935
2,668,332 Lehman Brothers Floating Rate
Commercial Mortgage Trust 144A FRB
Ser. 03-C4, Class A, 1.7s, 2015 2,671,667
Merrill Lynch Mortgage Investors, Inc.
397,126 Ser. 96-C2, Class A3, 6.96s, 2028 425,173
6,877,829 Ser. 96-C2, Class JS, IO, 2.544s,
2028 468,557
4,234,000 Mezz Cap Commercial Mortgage Trust
144A Ser. 04-C1, Class X, IO,
7.653s, 2037 2,007,015
1,400,000 Morgan Stanley Capital I 144A Ser.
96-C1, Class E, 7.47s, 2028 1,493,811
2,120,803 Morgan Stanley Dean Witter Capital I
Ser. 00-LIF2, Class A1, 6.96s, 2008 2,298,628
Morgan Stanley Dean Witter Capital I
144A
799,016 FRB Ser. 01-XLF, Class D, 2.61s,
2013 799,392
923,064 FRB Ser. 01-XLF, Class E, 2.56s,
2013 923,199
Mortgage Capital Funding, Inc. FRB
3,211,000 Ser. 98-MC3, Class E, 7.487s, 2031 3,499,637
1,389,000 Ser. 98-MC2, Class E, 7.289s, 2030 1,505,689
3,890 Salomon Brothers Mortgage Securities
VII Ser. 00-C2, Class A1, 7.298s,
2033 3,983
21,406,802 Salomon Brothers Mortgage Securities
VII 144A Ser. 03-CDCA, Class X3CD,
IO, 1.317s, 2015 342,124
2,041,000 Starwood Asset Receivables Trust FRN
Ser. 02-1A, Class F, 2.435s, 2020 2,044,266
Starwood Asset Receivables Trust
144A
989,086 FRB Ser. 03-1A, Class F, 2.2s, 2022 990,966
1,252,238 FRB Ser. 03-1A, Class E, 2.15s, 2022 1,254,617
STRIPS 144A
993,000 Ser. 03-1A, Class L, 5s, 2018
(Cayman Islands) 859,640
673,000 Ser. 03-1A, Class M, 5s, 2018
(Cayman Islands) 550,783
443,000 Ser. 04-1A, Class L, 5s, 2018
(Cayman Islands) 382,974
1,866,102 TIAA Commercial Real Estate
Securitization Ser. 01-C1A, Class
A1, 5.77s, 2016 (Cayman Islands) 1,944,536
973,000 Trizechahn Office Properties Trust
144A Ser. 01-TZHA, Class D3,
6.943s, 2013 1,031,238
--------------
Total Collateralized mortgage
obligations (cost $383,774,724) $394,247,497
Asset-backed securities (13.0%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$23,183,000 Aames Mortgage Trust Ser. 03-1,
Class A, IO, 6s, 2005 $1,346,674
54,676 Aames Mortgage Trust 144A Ser.
03-1N, Class A, 7 1/2s, 2033 54,623
1,129,149 ABSC NIMS Trust 144A Ser. 03-HE7,
Class A, 7s, 2033 1,134,795
10,219,000 Ace Securities Corp. Ser. 03-FM1,
Class A, IO, 4 1/2s, 2005 581,461
3,736,693 Advanta Mortgage Loan Trust Ser.
00-1, Class A4, 8.61s, 2028 3,909,515
Aegis Asset Backed Securities Trust
144A
968,918 Ser. 04-1N, Class Note, 5s, 2034 968,918
1,463,596 Ser. 04-2N, Class N1, 4 1/2s, 2034 1,463,596
11,946,151 AFC Home Equity Loan Trust Ser.
99-2, Class 1A, 1.51s, 2029 11,946,151
Ameriquest Mortgage Securities, Inc.
725,000 Ser. 02-1, Class S, IO, 2 1/2s, 2004 5,774
11,173,000 Ser. 03-12, Class S, IO, 5s, 2006 618,007
17,578,972 Ser. 03-6, Class S, IO, 5s, 2005 691,381
11,035,416 Ser. 03-8, Class S, IO, 5s, 2006 572,738
Amortizing Residential Collateral
Trust
7,296,273 Ser. 01-BC6, Class A, IO, 6s, 2004 211,006
6,440,000 Ser. 02-BC1, Class A, IO, 6s, 2005 217,549
36,514,721 Ser. 02-BC10, Class A, IO, 6s, 2004 642,384
37,240,219 Ser. 02-BC3, Class A, IO, 6s, 2005 704,695
233,756 Ser. 02-BC3N, Class B2, 7s, 2032 231,542
25,315,508 Ser. 02-BC5, Class A, IO, 6s, 2004 356,913
20,164,291 Ser. 02-BC6, Class A, IO, 6s, 2004 384,155
27,141,482 Ser. 02-BC7, Class AIO, IO, 6s, 2004 651,170
41,998,268 Ser. 02-BC8, Class A, IO, 6s, 2004 1,214,582
21,882,893 Ser. 02-BC9, Class A, IO, 6s, 2004 462,079
AQ Finance NIM Trust 144A
1,063,720 Ser. 03-N7A, Class Note, 9.07s, 2033 1,069,038
641,799 Ser. 03-N9A, Class Note, 7.385s,
2033 645,810
471,140 Arc Net Interest Margin Trust Ser.
02-2, Class A, 7 3/4s, 2032 470,355
Arc Net Interest Margin Trust 144A
141,214 Ser. 02-1A, Class A, 7 3/4s, 2032 141,190
55,987 Ser. 02-8A, Class A1, 7 3/4s, 2032 55,525
Arcap REIT, Inc. 144A
1,993,000 Ser. 03-1A, Class E, 7.11s, 2038 2,013,864
1,469,204 Ser. 04-1A, Class E, 6.42s, 2039 1,454,282
525,529 Argent NIM Trust Ser. 03-N8, Class
A, 5.56s, 2034 525,529
Argent NIM Trust 144A
849,309 Ser. 03-N6, Class A, 6.4s, 2034 849,309
1,491,000 Ser. 04-WN2, Class A, 4.55s, 2034 1,491,000
1,204,000 Ser. 04-WN4, Class A, 4.459s, 2034 1,200,710
42,256,143 Argent Securities, Inc. Ser. 03-W2,
Class A, IO, 1.24s, 2004 153,390
Asset Backed Funding Corp. NIM Trust
144A
942,836 Ser. 03-OPT1, Class Note, 6.9s, 2033 942,836
806,325 Ser. 03-WF1, Class N1, 8.35s, 2032 806,325
2,147,395 Ser. 04-0PT1, Class N1, 4.55s, 2033 2,147,294
2,879,000 Ser. 04-AHL1, Class Note, 5.6s, 2033 2,878,891
Asset Backed Securities Corp. Home
Equity Loan Trust
51,925,000 Ser. 02-HE1, Class A, IO, 3.6s, 2032 294,296
32,142,079 Ser. 03-HE1, Class A, IO, 5s, 2033 1,546,480
17,916,797 Ser. 03-HE5, Class A, IO, 4s, 2033 768,821
1,259,378 FRB Ser. 04-HE1, Class A3, 1 1/2s,
2034 1,262,432
1,698,325 Aviation Capital Group Trust 144A
FRB Ser. 03-2A, Class G1, 1.8s,
2033 1,702,571
Bayview Financial Acquisition Trust
2,493,962 Ser. 02-CA, Class A, IO, 5.1s, 2004 59,232
17,890,312 Ser. 03-E, Class A, IO, 4s, 2006 874,271
109,622,955 Ser. 03-X, Class A, IO, 1.36s, 2006 1,575,830
6,300,000 FRB Ser. 03-G, Class A1, 1.7s, 2039 6,300,000
6,933,039 FRN Ser. 03-F, Class A, 1.6s, 2034 6,944,955
218,598,952 Bayview Financial Asset Trust Ser.
03-Z, Class A, IO, 0.839s, 2005 956,370
Bayview Financial Asset Trust 144A
3,202,234 FRB Ser. 03-SSRA, Class A, 1.8s,
2038 3,202,234
3,657,096 FRB Ser. 03-SSRA, Class M, 2.45s,
2038 3,657,096
Bear Stearns Asset Backed Securities, Inc.
19,936,000 Ser. 03-AC1, Class A, IO, 5s, 2005 990,570
17,501,000 Ser. 03-AC4, Class A, IO, 5s, 2006 1,216,866
2,964,000 FRB Ser. 03-3, Class A2, 1.69s, 2043 2,964,000
3,795,340 FRB Ser. 03-1, Class A1, 1.6s, 2042 3,795,340
880,000 Capital One Multi-Asset Execution
Trust FRB Ser. 02-C1, Class C1,
3.85s, 2010 924,825
CARSSX Finance, Ltd. 144A
430,000 FRN Ser. 04-A, Class B3, 4.7s, 2011 430,000
550,000 FRN Ser. 04-A, Class B4, 6.7s, 2011 550,000
4,870,000 CDO Repackaging Trust Series 144A
FRB Ser. 03-2, Class A, 5.23s, 2008 4,943,050
Chase Funding Net Interest Margin
144A
22,017 Ser. 03-2A, Class Note, 8 3/4s, 2035 22,127
525,575 Ser. 03-3A, Class Note, 6 7/8s, 2036 529,517
46,636 Ser. 03-4A, Class Note, 6 3/4s, 2036 46,870
835,860 Ser. 03-C1A, Class Note, 6 3/4s,
2036 842,129
259,479 Ser. 04-1A, Class Note, 3 3/4s, 2035 259,064
Conseco Finance Securitizations Corp.
8,500,000 Ser. 00-2, Class A5, 8.85s, 2029 7,084,223
8,633,000 Ser. 00-4, Class A6, 8.31s, 2032 7,342,303
10,707,000 Ser. 01-04, Class A4, 7.36s, 2019 10,446,065
281,000 Ser. 01-1, Class A5, 6.99s, 2032 255,062
6,800,000 Ser. 01-3, Class A4, 6.91s, 2033 6,244,997
4,730,000 Ser. 01-4, Class B1, 9.4s, 2010 473,000
12,510,322 Ser. 02-1, Class A, 6.681s, 2032 12,881,364
5,593,000 Ser. 02-1, Class M2, 9.546s, 2032 2,796,500
12,596,177 Ser. 02-2, Class A, IO, 8 1/2s, 2010 3,729,859
34,643,563 Conseco Recreational Enthusiast
Consumer Trust Ser. 01-A, Class AP,
IO, 5s, 2025 701,743
3,653,000 Consumer Credit Reference IDX
Securities FRB Ser. 02-1A, Class A,
3.11s, 2007 3,704,077
Countrywide Asset Backed
Certificates 144A
740,590 Ser. 03-5NF, Class NF, 6 3/4s, 2034 746,954
442,635 Ser. 04-1NIM, Class Note, 6s, 2034 440,422
2,051,000 Ser. 04-BC1N, Class Note, 5 1/2s,
2035 2,043,950
575,352 Credit-Based Asset Servicing and
Securitization 144A Ser. 03-CB2N,
Class Note, 8.35s, 2033 575,892
2,157,000 Crest, Ltd. 144A Ser. 03-2A, Class
D2, 6.723s, 2038 2,102,822
22,170,000 Federal Home Loan Mortgage Corp.
Structured Pass-Through Securities
Ser. T-40, Class S, IO, 2 1/2s, 2004 177,138
First Franklin Mortgage Loan Asset
Backed Certificates
11,933,021 Ser. 02-FF3, Class A, IO, 6s, 2004 49,598
40,433,763 Ser. 03-FF3, Class A, IO, 6s, 2005 1,100,773
20,681,182 Ser. 03-FFB, Class A, IO, 6s, 2005 966,518
868,230 First Franklin NIM Trust Ser.
02-FF3, Class Note, 7 3/4s, 2032 859,006
First Franklin NIM Trust 144A
742,113 Ser. 03-FF3A, Class A, 6 3/4s, 2033 739,231
1,598,564 Ser. 04-FF1, Class N1, 4 1/2s, 2034 1,594,233
2,064,766 First Plus Home Loan Trust Ser.
97-3, Class B1, 7.79s, 2023 2,063,619
834,000 Fort Point CDO, Ltd. FRN Ser. 03-2A,
Class A2, 2.17s, 2038 834,521
2,600,000 Foxe Basin, Ltd. FRB Ser. 03-1A,
Class A1, 1.724s, 2015 2,600,000
1,011,000 Freddie Mac Ser. T-39, Class S, IO,
1 1/2s, 2004 4,831
2,630,155 Fremont NIM Trust 144A Ser. 04-A,
Class Note, 4 3/4s, 2034 2,627,524
1,241,000 G-Force CDO, Ltd. 144A Ser. 03-1A,
Class E, 6.58s, 2038 1,217,150
417,000 G-Star, Ltd. 144A FRN Ser. 02-2A,
Class BFL, 3.1s, 2037 414,198
1,000,000 GMAC Mortgage Corp. Ser. 02-HE2,
Class A, IO, 7 1/2s, 2027 23,906
750,000 Goldentree Loan Opportunities II,
Ltd. 144A FRN Ser. 2A, Class 4,
4.37s, 2015 (Cayman Islands) 750,000
Granite Mortgages PLC FRB
5,040,000 Ser. 01-1, Class 1C, 2.55s, 2041
(United Kingdom) 5,061,263
1,140,000 Ser. 02-1, Class 1C, 2.45s, 2042
(United Kingdom) 1,159,415
860,000 Ser. 02-2, Class 1C, 2.4s, 2043
(United Kingdom) 875,750
2,130,000 Ser. 04-1, Class 1C, 2.01s, 2044
(United Kingdom) 2,136,656
Green Tree Financial Corp.
695,742 Ser. 99-3, Class A5, 6.16s, 2031 704,004
19,225,000 Ser. 99-5, Class A5, 7.86s, 2030 16,802,770
4,894,000 GS Auto Loan Trust 144A Ser. 04-1,
Class D, 5s, 2011 4,819,825
GSAMP Trust
2,692 Ser. 02-HE2N, Class Note, 8 1/4s,
2032 2,693
62,025 Ser. 02-WMC, Class Note, 8s, 2032 62,025
GSAMP Trust 144A
892,770 Ser. 03-HE1N, Class Note, 7 1/4s,
2033 891,877
1,380,422 Ser. 04-FM1N, Class Note, 5 1/4s,
2033 1,380,422
253,617 Headlands Mortgage Securities, Inc.
Ser. 98-1, Class X2, IO, 6 1/2s,
2028 12,602
Holmes Financing PLC FRB
1,440,000 Ser. 5, Class 2C, 2.59s, 2005
(United Kingdom) 1,450,351
860,000 Ser. 4, Class 3C, 2.44s, 2040
(United Kingdom) 872,310
22,675,000 Ser. 1, Class 2C, 2.29s, 2040
(United Kingdom) 22,588,835
976,000 Ser. 8, Class 2C, 1.834s, 2040
(United Kingdom) 976,000
106,958 Home Equity Asset Trust Ser. 02-1N,
Class A, 8s, 2032 106,958
Home Equity Asset Trust 144A
439,439 Ser. 02-5N, Class A, 8s, 2033 439,439
41,365 Ser. 03-3N, Class A, 8s, 2033 41,572
999,230 Ser. 03-4N, Class A, 8s, 2033 1,004,226
676,299 Ser. 03-5N, Class A, 7 1/2s, 2034 679,681
881,000 Ser. 03-7N, Class A, 5 1/4s, 2034 878,798
70,349 Housing Securities, Inc. Ser. 94-1,
Class AB1, 6 1/2s, 2009 68,942
47,764,915 Lehman Manufactured Housing Ser.
98-1, Class 1, IO, 0.811s, 2028 1,095,076
6,071,000 LNR CDO, Ltd. FRB Ser. 02-1A, Class
FFL, 3.85s, 2037 (Cayman Islands) 5,918,011
4,150,000 LNR CDO, Ltd. 144A FRB Ser. 03-1A,
Class EFL, 4.1s, 2036 (Cayman
Islands) 4,388,210
1,011,427 Long Beach Asset Holdings Corp. NIM
Trust 144A Ser. 03-4, Class N1,
6.535s, 2033 1,011,427
Madison Avenue Manufactured Housing
Contract
290,196,739 Ser. 02-A IO, 0.3s, 2032 3,264,713
5,098,734 FRB Ser. 02-A, Class B1, 4.35s, 2032 2,804,304
4,688,205 Marriott Vacation Club Owner Trust
144A FRB Ser. 02-1A, Class A1,
1.8s, 2010 4,733,436
1,735,000 MBNA Master Credit Card Trust 144A
FRN Ser. 99-C, Class C, 1.9s, 2006 1,735,174
10,357,009 Merit Securities Corp. FRB Ser.
11PA, Class 3A1, 1.72s, 2027 9,888,516
528,068 Merrill Lynch Mortgage Investors,
Inc. Ser. 03-WM3N, Class N1, 8s,
2005 534,066
Merrill Lynch Mortgage Investors,
Inc. 144A
1,153,083 Ser. 03-OP1N, Class N1, 7 1/4s, 2034 1,153,804
1,469,319 Ser. 04-WMC2, Class N1, 4 1/2s, 2034 1,465,335
Mid-State Trust
1,265,023 Ser. 10, Class B, 7.54s, 2036 1,084,572
1,213,062 Ser. 11, Class B, 8.221s, 2038 1,202,580
Morgan Stanley ABS Capital I 144A
992,679 Ser. 03-NC8N, Class Note, 7.6s, 2033 1,002,606
428,628 Ser. 03-NC9N, Class Note, 7.6s, 2033 432,300
1,549,136 Ser. 04-NC2N, Class Note, 6 1/4s,
2033 1,556,882
Morgan Stanley Dean Witter Capital I
1,895,000 FRN Ser. 01-NC3, Class B1, 3.55s,
2031 1,888,708
1,868,000 FRN Ser. 01-NC4, Class B1, 3.6s,
2032 1,861,965
1,555,000 Navigator CDO, Ltd. 144A FRB Ser.
03-1A, Class A1, 1.69s, 2015 1,555,000
497,177 NC Finance Trust 144A Ser. 03-2,
Class Note, 9s, 2033 501,682
2,365,000 New Century Home Equity Loan Trust
Ser. 03-5, Class AI7, 5.15s, 2033 2,325,460
New Century Mortgage Corp. NIM Trust
144A
503,733 Ser. 03-5, Class Note, 8s, 2033 509,636
870,301 Ser. 03-B, Class Note, 6 1/2s, 2033 874,652
1,026,842 Neon Capital, Ltd. 144A limited
recourse sec. notes Ser. 96,
1.458s, 2013 (e) 955,754
966,000 Newcastle CDO, Ltd. 144A FRB Ser.
3A, Class 4FL, 4.29s, 2038 961,170
3,368,071 Novastar NIM Trust 144A Ser. 04-N1,
Class Note, 4.458s, 2034 3,364,914
8,795,965 Oakwood Mortgage Investors, Inc.
Ser. 02-C, Class A1, 5.41s, 2032 7,835,270
982,770 Option One Mortgage Securities Corp.
144A Ser. 03-5, Class Note, 6.9s,
2033 987,683
Pass-Through Amortizing Credit Card
Trust
970,434 Ser. 02-1A, Class A3FL, 4.1s, 2012 973,704
1,934,841 Ser. 02-1A, Class A4FL, 6.6s, 2012 1,941,271
1,140,000 Permanent Financing PLC FRB Ser. 3,
Class 3C, 2.26s, 2042 (United
Kingdom) 1,159,594
1,400,000 Providian Gateway Master Trust 144A
FRB Ser. 04-AA, Class D, 2.948s,
2011 1,400,840
1,447,886 Re NIM Trust 144A Ser. 04-A, 4.45s,
2034 1,437,878
368,000 Residential Asset Mortgage Products,
Inc. Ser. 02-SL1, Class AI3, 7s,
2032 374,555
9,362,903 Residential Asset Securities Corp.
Ser. 02-KS6, Class AIO, IO, 4 1/2s,
2005 255,749
Residential Funding Mortgage
Securities II
33,276,823 Ser. 03-HS1, Class AI, IO, 5 1/2s,
2033 1,557,355
14,453,645 Ser. 03-HS2, Class AI, IO, 5 1/2s,
2005 596,213
9,762,558 Ser. 03-HS3, Class AI, IO, 5s, 2006 521,321
8,024,690 Restructured Asset Securities 144A
FRN Ser. 03-3A, Class A1, 1.776s,
2022 7,934,412
959,745 SAIL Net Interest Margin Notes Ser.
03-4, Class A, 7 1/2s, 2033 (Cayman
Islands) 958,689
SAIL Net Interest Margin Notes 144A
1,289,626 Ser. 03-12A, Class A, 7.35s, 2033 1,289,236
736,454 Ser. 03-13A, Class A, 6 3/4s, 2033 735,509
889,748 Ser. 03-6A, Class A, 7s, 2033 883,132
1,041,123 Ser. 03-7A, Class A, 7s, 2033 1,033,399
657,956 Ser. 03-9A, Class A, 7s, 2033 654,534
1,277,804 Ser. 03-BC2A, Class A, 7 3/4s, 2033 1,274,091
2,158,676 Ser. 04-2A, Class A, 5 1/2s, 2034 2,158,676
283,514 Sasco Arc Net Interest Margin Notes
Ser. 02-BC10, Class A, 7 3/4s, 2033 280,937
Sasco Arc Net Interest Margin Notes
144A
52,428 Ser. 03-3, Class A, 7 3/4s, 2033 52,165
421,107 Ser. 03-AM1, Class A, 7 3/4s, 2033 419,504
609,415 Saxon Net Interest Margin Trust 144A
Ser. 03-A, Class A, 6.656s, 2033 608,939
1,099,946 SHARP 144A Ser. 03-HE1N, 6.9s, 2033 1,105,446
SHARP SP I, LLC Net Interest Margin
Trust 144A
2,631,951 Ser. 03-0P1N, Class NA, 4.45s, 2033 2,631,687
411,411 Ser. 03-TC1N, 7.45s, 2033 411,411
1,036,820 Ser. 04-HS1N, Class Note, 5.92s,
2034 1,036,820
1,540,113 SHARP, LLC Net Interest Margin Trust
144A Ser. 04-HE1N, Class Note,
4.94s, 2034 1,540,113
760,000 South Coast Funding FRB Ser. 3A,
Class A2, 2.33s, 2038 769,500
Structured Asset Investment Loan
Trust
10,157,982 Ser. 03-BC10, Class A, IO, 6s, 2005 467,845
86,267,000 Ser. 03-BC11, Class A, IO, 6s, 2005 4,602,146
16,546,000 Ser. 03-BC12, Class A, IO, 6s, 2005 626,889
27,421,000 Ser. 03-BC13, Class A, IO, 6s, 2005 1,038,918
60,364,936 Ser. 03-BC2, Class A, IO, 6s, 2005 2,461,912
27,015,830 Ser. 03-BC3, Class A, IO, 6s, 2004 781,293
20,056,901 Ser. 03-BC4, Class A, IO, 6s, 2004 347,931
36,523,660 Ser. 03-BC5, Class A, IO, 6s, 2004 633,581
63,191,475 Ser. 03-BC6, Class A, IO, 6s, 2005 2,135,044
10,970,845 Ser. 03-BC8, Class A, IO, 6s, 2005 594,930
16,321,617 Ser. 03-BC9, Class A, IO, 6s, 2005 695,607
60,657,000 Ser. 04-1, Class A, IO, 6s, 2005 3,301,740
44,038,000 Ser. 04-3, Class A, IO, 6s, 2005 2,828,642
Structured Asset Securities Corp.
26,954,600 Ser. 02-BC1, Class A, IO, 6s, 2004 569,173
4,009,455 Ser. 02-HF2, Class A, IO, 6s, 2004 115,953
11,679,676 Ser. 98-RF3, Class A, IO, 6.1s, 2028 1,980,639
Structured Asset Securities Corp.
144A
3,764,000 FRB Ser. 03-NP2, Class A2, 1.65s,
2032 3,758,708
3,247,645 FRN Ser. 03-NP3, Class A1, 1.6s,
2033 3,247,645
4,234,000 Terwin Mortgage Trust FRB Ser.
04-5HE, Class A1B, IO, 1.52s, 2035 4,234,000
2,298,000 TIAA Commercial Real Estate
Securitization 144A Ser. 03-1A,
Class E, 8s, 2038 2,051,683
729,000 Whole Auto Loan Trust Ser. 03-1,
Class C, 3.13s, 2010 722,393
4,779,000 Whole Auto Loan Trust 144A Ser.
03-1, Class D, 6s, 2010 4,744,651
--------------
Total Asset-backed securities
(cost $402,017,083) $377,312,804
Municipal bonds and notes (0.2%) (a)
Principal amount Rating(RAT) Value
- -------------------------------------------------------------------------------
$1,075,000 IL State G.O. Bonds, 5.1s, 6/1/33 AA $975,595
1,795,000 NJ State Tpk. Auth. Rev. Bonds,
Ser. B, AMBAC, 4.252s, 1/1/16 AAA 1,678,881
1,770,000 OR State G.O. Bonds (Taxable
Pension), 5.892s, 6/1/27 AA- 1,800,763
--------------
Total Municipal bonds and notes
(cost $4,640,000) $4,455,239
Short-term investments (41.2%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$50,000,000 American General Finance Corp. for
an effective yield of 1.02%, May 12,
2004 $49,984,417
25,000,000 Amstel Funding Corp. for an
effective yield of 1.03%, May 6,
2004 24,996,424
49,008,000 Atlantic Asset Securitization Corp.
for an effective yield of 1.05%, May
7, 2004 48,997,994
80,000,000 Bank of America Corp. for an
effective yield of 1.03%, May 13,
2004 79,973,907
34,128,000 Barton Capital Corp. for an
effective yield of 1.03%, May 6,
2004 34,123,118
47,000,000 BMW US Capital Corp. for an
effective yield of 1.02%, May 10,
2004 46,988,015
42,830,000 CAFCO, LLC for an effective yield of
1.03%, May 19, 2004 42,807,943
30,000,000 Citibank Credit Card Issuance Trust
(Dakota) for an effective yield of
1.04%, May 4, 2004 29,997,400
75,000,000 Citigroup Global Markets Holdings,
Inc. for an effective yield of
1.02%, May 10, 2004 74,981,882
37,709,000 Falcon Asset Securitization Corp.
for an effective yield of 1.04%, May
13, 2004 37,695,928
60,000,000 GE Capital International Funding for
an effective yield of 1.04%, May 13,
2004 59,979,200
20,000,000 Household Finance Corp. for an
effective yield of 1.04%, May 3,
2004 (United Kingdom) 19,998,267
50,000,000 Household Finance Corp. for an
effective yield of 1.03%, May 11,
2004 (United Kingdom) 49,985,694
50,000,000 Jupiter Securitization Corp. for an
effective yield of 1.02%, May 4,
2004 49,995,750
14,978,000 Merrill Lynch & Co., Inc. for an
effective yield of 1.04%, May 3,
2004 14,976,702
49,000,000 Morgan Stanley Dean Witter & Co. for
an effective yield of 1.03%, May 12,
2004 48,984,579
30,141,000 Morgan Stanley Dean Witter & Co. for
an effective yield of 1.03%, May 11,
2004 30,132,376
25,051,000 Park Granada, LLC for an effective
yield of 1.06%, May 25, 2004 25,033,297
45,048,000 Park Granada, LLC for an effective
yield of 1.04%, May 10, 2004 45,036,288
32,660,000 Procter & Gamble Co. for an
effective yield of 1.01%, May 10,
2004 32,651,753
50,000,000 Sheffield Receivables Corp. for an
effective yield of 1.03%, May 11,
2004 49,985,694
50,000,000 Societe Generale for an effective
yield of 1.03%, May 10,
2004 (France) 49,987,125
80,000,000 Thunder Bay Funding, Inc. for an
effective yield of 1.04%, May 3,
2004 79,993,067
60,000,000 Wells Fargo Bank N.A. for an
effective yield of 1.03%, May 21,
2004 60,000,000
27,000,000 Westpac Capital Corp. for an
effective yield of 1.035%, May 12,
2004 (Australia) 26,991,461
64,848,000 Yorktown Capital, LLC for an
effective yield of 1.03%, May 12,
2004 64,827,591
11,950,000 U.S. Treasury Bill zero %, May 6,
2004 (SEG) 11,948,496
--------------
Total Short-term investments
(cost $1,191,054,368) $1,191,054,368
- -------------------------------------------------------------------------------
Total Investments
(cost $4,496,163,586) $4,478,385,010
- -------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $2,893,852,799.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to
be the most recent ratings available at April 30, 2004 for the
securities listed. Ratings are generally ascribed to securities at the
time of issuance. While the agencies may from time to time revise such
ratings, they undertake no obligation to do so, and the ratings do not
necessarily represent what the agencies would ascribe to these
securities at April 30, 2004. Securities rated by Putnam are indicated
by "/P".
(NON) Non-income-producing security.
(SEG) This security was pledged and segregated with the custodian to
cover margin requirements for futures contracts at April 30, 2004.
(R) Real Estate Investment Trust.
(e) The notes are secured by debt and equity securities and equity
participation agreements held by Neon Capital, Ltd. and are primarily
secured by shares of PSF Group Holdings, Inc. class A common stock
valued at approximately $661,000.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
TBA after the name of a security represents to be announced securities
(Note 1).
The rates shown on Floating Rate Bonds (FRB) and Floating Rate Notes
(FRN) are the current interest rates at April 30, 2004.
AMBAC represents AMBAC Indemnity Corporation.
G.O. Bonds represent General Obligation Bonds.
Futures contracts outstanding at April 30, 2004 (Unaudited)
Unrealized
Aggregate Expiration appreciation/
Value face value date (depreciation)
- ------------------------------------------------------------------------------------------------------
CBT Interest Rate Swap
10 yr (Long) $1,933,313 $2,056,577 Jun-04 $(123,264)
Euro 90 day (Long) 4,440,150 4,445,627 Jun-04 (5,477)
Euro 90 day (Long) 2,210,963 2,215,838 Sep-04 (4,875)
Euro 90 day (Long) 2,200,500 2,207,513 Dec-04 (7,013)
Euro 90 day (Long) 2,189,813 2,198,513 Mar-05 (8,700)
Euro 90 day (Long) 2,179,575 2,189,513 Jun-05 (9,938)
Euro 90 day (Long) 2,170,913 2,181,526 Sep-05 (10,613)
Euro 90 day (Long) 2,163,488 2,174,663 Dec-05 (11,175)
U.S. Treasury Bond (Long) 355,337,063 371,884,165 Jun-04 (16,547,102)
U.S. Treasury Note
5 yr (Short) 15,721,063 15,721,730 Jun-04 667
U.S. Treasury Note
10 yr (Long) 169,617,500 171,234,126 Jun-04 (1,616,626)
- ------------------------------------------------------------------------------------------------------
$(18,344,116)
- ------------------------------------------------------------------------------------------------------
TBA sales commitments outstanding at April 30, 2004 (Unaudited)
(proceeds receivable $483,001,680)
Principal Settlement
Agency amount date Value
- ------------------------------------------------------------------------------------------------------
FNMA, 5s, May 1, 2034 $375,820,000 5/13/04 $364,075,625
FNMA, 5s, May 1, 2019 44,200,000 5/18/04 44,448,625
FNMA, 4 1/2s, June 1, 2034 72,917,000 6/14/04 68,154,645
- ------------------------------------------------------------------------------------------------------
$476,678,895
- ------------------------------------------------------------------------------------------------------
Interest rate swap contracts outstanding at April 30, 2004 (Unaudited)
Unrealized
Notional Termination appreciation/
amount date (depreciation)
- ------------------------------------------------------------------------------------------------------
Agreement with Bank of America, N.A. dated
January 26, 2004 to pay semi-annually the
notional amount multiplied by 3.505% and
receive quarterly the notional amount multiplied
by the three month USD-LIBOR. $167,713,000 1/28/09 $1,999,628
Agreement with Bank of America, N.A. dated
January 14, 2004 to pay semi-annually the
notional amount multiplied by 4.35625% and
receive quarterly the notional amount multiplied
by the three month USD-LIBOR. 158,894,000 1/16/14 5,345,203
Agreement with Bank of America, N.A. dated
January 26, 2004 to receive semi-annually the
notional amount multiplied by 5.2125% and pay
quarterly the notional amount multiplied by the
three month USD-LIBOR. 91,608,000 1/28/24 (2,481,833)
Agreement with Bank of America, N.A. dated
March 25, 2004 to pay semi-annually the
notional amount multiplied by 3.075% and
receive quarterly the notional amount multiplied
by the three month USD-LIBOR. 43,100,000 3/30/09 1,778,917
Agreement with Lehman Brothers Special
Financing, Inc. dated January 22, 2004 to pay
semi-annually the notional amount multiplied
by 1.999% and receive quarterly the notional
amount multiplied by the three month
USD-LIBOR-BBA. 33,294,000 1/26/06 86,144
Agreement with Lehman Brothers Special
Financing, Inc. dated January 21, 2004 to pay
semi-annually the notional amount multiplied
by 2.008% and receive quarterly the notional
amount multiplied by the three month
USD-LIBOR-BBA. 32,489,000 1/23/06 74,514
Agreement with Lehman Brothers Special
Financing, Inc. dated January 21, 2004 to pay
semi-annually the notional amount multiplied
by 2.009% and receive quarterly the notional
amount multiplied by the three month
USD-LIBOR-BBA. 32,489,000 1/23/06 74,426
Agreement with Lehman Brothers Special
Financing, Inc. dated January 22, 2004 to pay
semi-annually the notional amount multiplied
by 2.007% and receive quarterly the notional
amount multiplied by the three month
USD-LIBOR-BBA. 17,454,000 1/26/06 43,046
Agreement with Lehman Brothers Special
Financing, Inc. dated January 22, 2004 to pay
semi-annually the notional amount multiplied
by 4.375% and receive quarterly the notional
amount multiplied by the three month
USD-LIBOR-BBA. 11,007,000 1/26/14 368,925
Agreement with Lehman Brothers Special
Financing, Inc. dated January 21, 2004 to pay
semi-annually the notional amount multiplied
by 4.408% and receive quarterly the notional
amount multiplied by the three month
USD-LIBOR-BBA. 10,740,000 1/23/14 326,068
Agreement with Lehman Brothers Special
Financing, Inc. dated January 21, 2004 to pay
semi-annually the notional amount multiplied
by 4.419% and receive quarterly the notional
amount multiplied by the three month
USD-LIBOR-BBA. 10,740,000 1/23/14 317,155
Agreement with Lehman Brothers Special
Financing, Inc. dated January 22, 2004 to pay
semi-annually the notional amount multiplied
by 4.379% and receive quarterly the notional
amount multiplied by the three month
USD-LIBOR-BBA. 5,639,000 1/26/14 188,945
Agreement with Bank of America, N.A. dated
December 2, 2003 to pay semi-annually the
notional amount multiplied by 2.444% and
receive quarterly the notional amount
multiplied by the three month USD LIBOR. 8,767,000 12/5/05 (87,102)
Agreement with Bank of America N.A. dated
December 12, 2003 to pay semi-annually the
notional amount multiplied by 2.1125% and
receive quarterly the notional amount
multiplied by three month USD-LIBOR. 5,687,000 12/16/05 (15,148)
Agreement with Deutsche Bank AG dated
July 31, 2002 to receive semi-annually the
notional amount multiplied by the three month
USD-LIBOR-BBA and pay quarterly the
notional amount multiplied by 5.86%. 61,565,504 8/2/32 (3,125,996)
Agreement with Deutsche Bank AG dated
July 31, 2002 to pay quarterly the notional
amount multiplied by the three month
USD-LIBOR-BBA and receive semi-annually
the notional amount multiplied by 5.7756%. 54,861,045 8/2/22 2,536,504
Agreement with Goldman Sachs Capital
Markets, L.P. dated August 8, 2002 to receive
quarterly the notional amount multiplied by
the three month USD-LIBOR-BBA and pay
semi-annually the notional amount multiplied
by 5.689%. 61,565,504 8/12/32 (1,354,716)
Agreement with Goldman Sachs Capital
Markets, L.P. dated August 8, 2002 to pay
quarterly the notional amount multiplied by
the three month USD-LIBOR-BBA and
receive semi-annually the notional amount
multiplied by 5.601%. 54,861,045 8/12/22 1,130,760
Agreement with Lehman Brothers Special
Financing, Inc. dated August 1, 2003 to receive
semi-annually the notional amount multiplied
by 3.93% and pay quarterly the notional amount
multiplied by the three month USD-LIBOR. 183,930,000 8/5/08 2,002,793
Agreement with Lehman Brothers Special
Financing, Inc. dated December 5, 2003 to
receive semi-annually the notional amount
multiplied by 2.23762% and pay quarterly the
notional amount multiplied by three month
USD-LIBOR-BBA. 72,256,000 12/9/05 395,766
Agreement with Lehman Brothers Special
Financing, Inc. dated July 31, 2002 to receive
semi-annually the notional amount multiplied
by 5.7756% and pay quarterly the notional
amount multiplied by the three month
USD-LIBOR-BBA. 54,861,045 8/2/22 2,363,516
Agreement with Lehman Brothers Special
Financing, Inc. dated July 31, 2002 to pay
semi-annually the notional amount multiplied
by 5.152% and receive quarterly the notional
amount multiplied by the three month
USD-LIBOR-BBA. 53,317,584 8/2/12 (2,017,548)
Agreement with Lehman Brothers Special
Financing, Inc. dated December 9, 2003 to
receive semi-annually the notional amount
multiplied by 4.641% and pay quarterly the
notional amount multiplied by three month
USD-LIBOR-BBA. 34,324,000 12/15/13 (217,071)
Agreement with Lehman Brothers Special
Financing, Inc. dated December 12, 2003 to
pay semi-annually the notional amount
multiplied by 4.579% and receive quarterly the
notional amount multiplied by three month
USD-LIBOR-BBA. 17,662,000 12/16/13 207,477
Agreement with Lehman Brothers Special
Financing, Inc. dated December 11, 2003 to
pay semi-annually the notional amount
multiplied by 4.71% and receive quarterly the
notional amount multiplied by three month
USD-LIBOR-BBA. 14,151,000 12/15/03 13,526
Agreement with Lehman Brothers Special
Financing, Inc. dated December 11, 2003 to
pay semi-annually the notional amount multiplied
by 2.235% and receive quarterly the notional
amount multiplied by three month
USD-LIBOR-BBA. 3,382,000 12/15/05 (16,890)
Agreement with Merrill Lynch Capital Services,
Inc. dated August 8, 2002 to pay quarterly the
notional amount multiplied by the three month
USD-LIBOR-BBA and receive semi-annually
the notional amount multiplied by 5.601%. 54,861,045 8/12/22 1,115,410
Agreement with Merrill Lynch Capital Services,
Inc. dated August 8, 2002 to receive quarterly
the notional amount multiplied by the three
month USD-LIBOR-BBA and pay semi-annually
the notional amount multiplied by 4.94%. 53,317,584 8/13/12 (1,120,177)
Agreement with Morgan Stanley Capital
Services, Inc. dated September 28, 2000 to
pay semi-annually the notional amount
multiplied by 6.94% and receive quarterly the
notional amount multiplied by the three
month USD-LIBOR-BBA. $28,000,000 10/2/10 (4,054,299)
- ------------------------------------------------------------------------------------------------------
$5,877,943
- ------------------------------------------------------------------------------------------------------
Total return swap contracts outstanding at April 30, 2004 (Unaudited)
Unrealized
Notional Termination appreciation/
amount date (depreciation)
- ------------------------------------------------------------------------------------------------------
Agreement with JP Morgan Chase Bank
dated February 26, 2004 to receive (pay)
at termination the notional amount multiplied
by CMBS Lehman Brothers Investment Grade
Index and pay at termination the notional
amount multiplied by the six month
USD-LIBOR-BBA adjusted by a
specified spread. $11,427,979 9/1/04 $(276,881)
Agreement with Lehman Brothers Special
Financing, Inc. dated February 26, 2004 to
receive (pay) semi-annually the notional
amount multiplied by Lehman Brothers
CMBS ERISA-Eligible Index and pay monthly
the notional amount multiplied by the one month
USD-LIBOR-BBA adjusted by a spread. 11,525,028 4/2/04 (368,132)
Agreement with Lehman Brothers Special
Financing, Inc. dated March 3, 2004 to receive
monthly the notional amount multiplied by
Lehman Brothers CMBS ERISA-Eligible Index and
pay monthly the absolute value of the spread
return amount. 7,382,965 9/1/04 19,125
- ------------------------------------------------------------------------------------------------------
$(625,888)
- ------------------------------------------------------------------------------------------------------
Credit default contracts outstanding at April 30, 2004 (Unaudited)
(premiums received $243,944)
Notional
amount Value
- ------------------------------------------------------------------------------------------------------
Agreement with Merrill Lynch International effective
June 26, 2003, maturing on September 20, 2008, to
receive a premium equal to 11.08838% times the notional
amount. Upon a credit default event of The Gap, Inc.
5.75% due 3/15/09 the fund makes a payment of the
proportional notional amount times the difference
between the par value and the then-market value of
The Gap, Inc. 5.75%, 2009. $2,200,000 $77,242
- ------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities
April 30, 2004 (Unaudited)
Assets
- -------------------------------------------------------------------------------
Investments in securities, at value (identified cost
$4,496,163,586) (Note 1) $4,478,385,010
- -------------------------------------------------------------------------------
Cash 19,306,045
- -------------------------------------------------------------------------------
Dividends, interest and other receivables 26,540,221
- -------------------------------------------------------------------------------
Receivable for shares of the fund sold 3,134,464
- -------------------------------------------------------------------------------
Receivable for securities sold 743,504,794
- -------------------------------------------------------------------------------
Receivable for open swap contracts (Note 1) 20,387,848
- -------------------------------------------------------------------------------
Receivable for variation margin (Note 1) 2,192,477
- -------------------------------------------------------------------------------
Total assets 5,293,450,859
Liabilities
- -------------------------------------------------------------------------------
Payable for securities purchased 1,893,889,919
- -------------------------------------------------------------------------------
Payable for shares of the fund repurchased 8,349,554
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 3,736,513
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 510,155
- -------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 185,493
- -------------------------------------------------------------------------------
Payable for administrative services (Note 2) 3,637
- -------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 834,551
- -------------------------------------------------------------------------------
Credit default contracts outstanding, at value (premiums
received $243,944) (Note 1) 77,242
- -------------------------------------------------------------------------------
Payable for open swap contracts (Note 1) 15,135,793
- -------------------------------------------------------------------------------
TBA sales commitments, at value (proceeds receivable
$483,001,680) (Note 1) 476,678,895
- -------------------------------------------------------------------------------
Other accrued expenses 196,308
- -------------------------------------------------------------------------------
Total liabilities 2,399,598,060
- -------------------------------------------------------------------------------
Net assets $2,893,852,799
Represented by
- -------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $3,042,797,800
- -------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (4,236,185)
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (120,327,666)
- -------------------------------------------------------------------------------
Net unrealized depreciation of investments (24,381,150)
- -------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $2,893,852,799
Computation of net asset value and offering price
- -------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,030,693,364 divided by 153,890,506 shares) $6.70
- -------------------------------------------------------------------------------
Offering price per class A share (100/95.50 of $6.70)* $7.02
- -------------------------------------------------------------------------------
Net asset value and offering price per class B share
($374,803,371 divided by 56,312,765 shares)** $6.66
- -------------------------------------------------------------------------------
Net asset value and offering price per class C share
($31,857,567 divided by 4,772,321 shares)** $6.68
- -------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($651,775,067 divided by 98,239,836 shares) $6.63
- -------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $6.63)* $6.85
- -------------------------------------------------------------------------------
Net asset value, offering price and redemption price per
class R share ($1,813 divided by 271 shares) $6.70
- -------------------------------------------------------------------------------
Net asset value, offering price and redemption price per
class Y share ($804,721,617 divided by 119,473,577 shares) $6.74
- -------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or
more and on group sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
Statement of operations
Six months ended April 30, 2004 (Unaudited)
Interest income: $58,225,826
- -------------------------------------------------------------------------------
Expenses:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 7,706,711
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 2,973,645
- -------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 38,825
- -------------------------------------------------------------------------------
Administrative services (Note 2) 19,793
- -------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,402,513
- -------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 2,128,948
- -------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 175,862
- -------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 1,789,140
- -------------------------------------------------------------------------------
Distribution fees -- Class R (Note 2) 3
- -------------------------------------------------------------------------------
Other 445,296
- -------------------------------------------------------------------------------
Non-recurring costs (Note 5) 90,599
- -------------------------------------------------------------------------------
Costs assumed by Manager (Note 5) (90,599)
- -------------------------------------------------------------------------------
Total expenses 16,680,736
- -------------------------------------------------------------------------------
Expense reduction (Note 2) (140,536)
- -------------------------------------------------------------------------------
Net expenses 16,540,200
- -------------------------------------------------------------------------------
Net investment income 41,685,626
- -------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 43,815,641
- -------------------------------------------------------------------------------
Net realized gain on swap contracts (Note 1) 4,661,762
- -------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 18,188,899
- -------------------------------------------------------------------------------
Net realized loss on credit default contracts (Note 1) (2,177,583)
- -------------------------------------------------------------------------------
Net unrealized depreciation of investments, futures
contracts, swap contracts, credit default contracts and TBA
sale commitments during the period (53,658,652)
- -------------------------------------------------------------------------------
Net gain on investments 10,830,067
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $52,515,693
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets
Six months ended Year ended
April 30 October 31
Decrease in net assets 2004* 2003
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $41,685,626 $132,593,061
- -------------------------------------------------------------------------------
Net realized gain on investments 64,488,719 52,641,074
- -------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments (53,658,652) 11,895,401
- -------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 52,515,693 197,129,536
- -------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
- -------------------------------------------------------------------------------
From net investment income
Class A (17,576,832) (51,454,385)
- -------------------------------------------------------------------------------
Class B (5,097,467) (17,549,785)
- -------------------------------------------------------------------------------
Class C (416,615) (1,369,323)
- -------------------------------------------------------------------------------
Class M (10,611,596) (46,267,697)
- -------------------------------------------------------------------------------
Class R (17) (25)
- -------------------------------------------------------------------------------
Class Y (12,356,109) (22,813,013)
- -------------------------------------------------------------------------------
Decrease from capital share transactions
(Note 4) (552,635,155) (547,085,050)
- -------------------------------------------------------------------------------
Total decrease in net assets (546,178,098) (489,409,742)
Net assets
- -------------------------------------------------------------------------------
Beginning of period 3,440,030,897 3,929,440,639
- -------------------------------------------------------------------------------
End of period (including distributions in
excess of net investment income and
undistributed net investment income of
$4,236,185 and $136,825, respectively) $2,893,852,799 $3,440,030,897
- -------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS A
- ---------------------------------------------------------------------------------------------------------------------------------
Six months
ended
April 30
Per-share (Unaudited) Year ended October 31
operating performance 2004 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.69 $6.59 $6.69 $6.29 $6.44 $6.87
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .10 .24 .32 .38 .43 .40
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .02 .11 (.07) .43 (.16) (.40)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .12 .35 .25 .81 .27 --
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.11) (.25) (.35) (.41) (.42) (.42)
- ---------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- -- (d) -- (.01)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.11) (.25) (.35) (.41) (.42) (.43)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $6.70 $6.69 $6.59 $6.69 $6.29 $6.44
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 1.72* 5.45 3.93 13.39 4.39 (.09)
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,030,693 $1,279,779 $1,339,061 $1,251,190 $946,755 $1,160,121
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .49* .93 .92 .95 .95 .96
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.43* 3.64 4.84 5.93 6.86 5.95
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 163.78* 251.00 (e) 268.10 (e) 233.83 (e) 207.35 209.02
- ---------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(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) The ratio of expenses to average net assets includes amounts paid
through expense offset arrangements (Note 2).
(d) Amount represents less than $0.01 per share.
(e) 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.
Financial highlights
(For a common share outstanding throughout the period)
CLASS B
- ---------------------------------------------------------------------------------------------------------------------------------
Six months
ended
April 30
Per-share (Unaudited) Year ended October 31
operating performance 2004 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.65 $6.55 $6.65 $6.25 $6.41 $6.83
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .07 .19 .27 .33 .38 .35
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .02 .11 (.07) .44 (.17) (.39)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .09 .30 .20 .77 .21 (.04)
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.08) (.20) (.30) (.37) (.37) (.37)
- ---------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- -- (d) -- (.01)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.08) (.20) (.30) (.37) (.37) (.38)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $6.66 $6.65 $6.55 $6.65 $6.25 $6.41
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 1.34* 4.68 3.19 12.63 3.46 (.69)
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $374,803 $520,692 $555,668 $474,783 $373,336 $458,766
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .87* 1.68 1.67 1.70 1.70 1.71
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.07* 2.90 4.07 5.19 6.11 5.20
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 163.78* 251.00 (e) 268.10 (e) 233.83 (e) 207.35 209.02
- ---------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(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) The ratio of expenses to average net assets includes amounts paid
through expense offset arrangements (Note 2).
(d) Amount represents less than $0.01 per share.
(e) 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.
Financial highlights
(For a common share outstanding throughout the period)
CLASS C
- ---------------------------------------------------------------------------------------------------------------------------------
Six months For the
ended period
April 30 July 26, 1999+
Per-share (Unaudited) Year ended October 31 to October 31
operating performance 2004 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.67 $6.57 $6.67 $6.27 $6.43 $6.54
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .07 .20 .26 .32 .39 .10
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .02 .11 (.06) .45 (.17) (.11)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .09 .31 .20 .77 .22 (.01)
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.08) (.21) (.30) (.37) (.38) (.10)
- ---------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- -- (d) -- -- (d)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.08) (.21) (.30) (.37) (.38) (.10)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $6.68 $6.67 $6.57 $6.67 $6.27 $6.43
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 1.34* 4.70 3.18 12.61 3.53 (.13)*
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $31,858 $42,946 $39,017 $34,545 $10,363 $1,869
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .87* 1.68 1.67 1.70 1.70 .46*
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.06* 2.88 4.04 5.03 6.17 1.36*
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 163.78* 251.00 (e) 268.10 (e) 233.83 (e) 207.35 209.02
- ---------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(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) The ratio of expenses to average net assets includes amounts paid
through expense offset arrangements (Note 2).
(d) Amount represents less than $0.01 per share.
(e) 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.
Financial highlights
(For a common share outstanding throughout the period)
CLASS M
- ---------------------------------------------------------------------------------------------------------------------------------
Six months
ended
April 30
Per-share (Unaudited) Year ended October 31
operating performance 2004 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.63 $6.54 $6.64 $6.25 $6.41 $6.84
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .09 .23 .30 .37 .42 .38
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .01 .10 (.06) .42 (.17) (.40)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .10 .33 .24 .79 .25 (.02)
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.10) (.24) (.34) (.40) (.41) (.40)
- ---------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- -- (d) -- (.01)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.10) (.24) (.34) (.40) (.41) (.41)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $6.63 $6.63 $6.54 $6.64 $6.25 $6.41
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 1.48* 5.12 3.77 13.10 4.05 (.26)
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $651,775 $884,380 $1,465,393 $1,024,351 $1,066,539 $1,623,061
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .62* 1.18 1.17 1.20 1.20 1.21
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.32* 3.48 4.56 5.74 6.61 5.68
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 163.78* 251.00 (e) 268.10 (e) 233.83 (e) 207.35 209.02
- ---------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(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) The ratio of expenses to average net assets includes amounts paid
through expense offset arrangements (Note 2).
(d) Amount represents less than $0.01 per share.
(e) 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.
Financial highlights
(For a common share outstanding throughout the period)
CLASS R
- -------------------------------------------------------------------------------------------------------------------------
Six months For the
ended period
April 30 January 21, 2003+
Per-share (Unaudited) to October 31
operating performance 2004 2003
- -------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.69 $6.65
- -------------------------------------------------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .09 .18
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments .02 .03
- -------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .11 .21
- -------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------------------
From net
investment income (.10) (.17)
- -------------------------------------------------------------------------------------------------------------------------
Total distributions (.10) (.17)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $6.70 $6.69
- -------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 1.59* 3.14*
- -------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2 $1
- -------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .62* .92*
- -------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.30* 2.65*
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 163.78* 251.00 (d)
- -------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(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.
(c) The ratio of expenses to average net assets includes amounts paid through expense offset arrangements (Note 2).
(d) 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.
Financial highlights
(For a common share outstanding throughout the period)
CLASS Y
- ---------------------------------------------------------------------------------------------------------------------------------
Six months
ended
April 30
Per-share (Unaudited) Year ended October 31
operating performance 2004 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.72 $6.63 $6.72 $6.31 $6.46 $6.88
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .10 .26 .33 .39 .45 .41
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .03 .10 (.06) .45 (.17) (.39)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .13 .36 .27 .84 .28 .02
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.11) (.27) (.36) (.43) (.43) (.43)
- ---------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- -- (d) -- (.01)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.11) (.27) (.36) (.43) (.43) (.44)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $6.74 $6.72 $6.63 $6.72 $6.31 $6.46
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 1.98* 5.50 4.26 13.73 4.58 .27
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $804,722 $712,232 $530,302 $234,826 $194,267 $255,873
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .37* .68 .67 .70 .70 .71
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.51* 3.82 5.03 6.23 7.11 6.19
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 163.78* 251.00 (e) 268.10 (e) 233.83 (e) 207.35 209.02
- ---------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(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.
(c) The ratio of expenses to average net assets includes amounts paid
through expense offset arrangements (Note 2).
(d) Amount represents less than $0.01 per share.
(e) 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
April 30, 2004 (Unaudited)
Note 1
Significant accounting policies
Putnam Income Fund (the "fund") is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The fund seeks high current income consistent with
what Putnam Investment Management, LLC ("Putnam Management"), the fund's
manager, an indirect wholly-owned subsidiary of Putnam, LLC, believes to
be prudent risk. The fund invests in a portfolio of debt securities,
both government and corporate obligations, and may invest in preferred
stocks and common stocks.
The fund offers class A, class B, class C, class M, class R and class Y
shares. Class A shares are sold with a maximum front-end sales charge of
4.50%. Prior to January 28, 2004, the maximum front-end sales charge for
class A shares was 4.75%. Class B shares, which convert to class A
shares after approximately eight years, do not pay a front-end sales
charge but pay a higher ongoing distribution fee than class A, class M
and class R shares, and are subject to a contingent deferred sales
charge, if those shares are redeemed within six years of purchase. Class
C shares are subject to the same fees and expenses as class B shares,
except that class C shares have a one-year 1.00% contingent deferred
sales charge and do not convert to class A shares. Class M shares are
sold with a maximum front-end sales charge of 3.25% and pay an ongoing
distribution fee that is higher than class A shares but lower than class
B and class C shares. Class R shares are sold without a front-end sales
charge and pay an ongoing distribution fee that is higher than class A
shares, but lower than class B and class C shares. Class R shares are
offered to qualified employee-benefit plans. 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 sold to certain eligible purchasers
including certain defined contribution plans (including corporate IRAs),
bank trust departments, trust companies and certain college savings
plans.
Effective April 19, 2004 (May 3, 2004 for defined contribution plans
administered by Putnam) a 2.00% redemption fee may apply to any shares
that are redeemed (either by selling or exchanging into another fund)
within 5 days of purchase.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
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 Investments for which market quotations are
readily available are valued at the last reported sales price on their
principal exchange, or official closing price for certain markets. If no
sales are reported -- as in the case of some securities traded
over-the-counter -- a security is valued at its last reported bid price.
Market quotations are not considered to be readily available for certain
debt obligations; such investments are valued at fair value on the basis
of valuations furnished by an independent pricing service or dealers,
approved by the Trustees. 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. Many securities markets and exchanges outside the
U.S. close prior to the close of the New York Stock Exchange and,
therefore, the closing prices for securities in such markets or on such
exchanges may not fully reflect events that occur after such close but
before the close of the New York Stock Exchange. Accordingly, on certain
days, the fund will fair value foreign securities taking into account
multiple factors, including movements in the U.S. securities markets.
The number of days on which fair value prices will be used will depend
on market activity and it is possible that fair value prices will be
used by the fund to a significant extent. Securities quoted in foreign
currencies are translated into U.S. dollars at the current exchange
rate. Short-term investments having remaining maturities of 60 days or
less are valued at amortized cost, which approximates fair value. Other
investments, including restricted securities, are valued at fair value
following procedures approved by the Trustees. Such valuations and
procedures are reviewed periodically by the Trustees.
B) Joint trading account 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 issuers 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 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 (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. Dividend income, net
of applicable withholding taxes, is recognized on the ex-dividend date.
Non-cash dividends, if any, are recorded at the fair market value of the
securities received.
All premiums/discounts are amortized/accreted on a yield-to-maturity
basis.
E) 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. The fund may also write options on
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.
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.
F) 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 or index 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, respectively. Total return swap contracts are
marked-to-market daily based upon quotations from market makers and the
change, if any, is recorded as unrealized gain or loss. Payments
received or made are recorded as realized gains or loss. 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. Risks 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.
G) 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 market makers and the
change, if any, is recorded as unrealized gain or loss. Payments
received or made are recorded as realized gains or loss. 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. Risks may exceed amounts recognized on the
statement of assets and liabilities. Interest rate swap contracts
outstanding at period end, if any, are listed after the fund's
portfolio.
H) Credit default contracts The fund may enter into credit default
contracts where one party, the protection buyer, makes an upfront
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. 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. The
credit default 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 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. The risk of loss may exceed the fair value of
these contracts recognized on the Statement of assets and liabilities.
Credit default contracts outstanding at period end, if any, are listed
after the fund's portfolio.
I) 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.
J) TBA sale commitments The fund may enter into TBA sale commitments to
hedge its portfolio positions or to sell mortgage-backed securities it
owns under delayed delivery arrangements. Proceeds of TBA sale
commitments are not received until the contractual settlement date.
During the time a TBA sale commitment is outstanding, equivalent
deliverable securities or an offsetting TBA purchase commitment
deliverable on or before the sale commitment date, are held as "cover"
for the transaction.
Unsettled TBA sale commitments are valued at fair value of the
underlying securities, generally according to the procedures described
under "Security valuation" above. The contract is marked-to-market daily
and the change in market value is recorded by the fund as an unrealized
gain or loss. If the TBA sale commitment is closed through the
acquisition of an offsetting purchase commitment, the fund realizes a
gain or loss. If the fund delivers securities under the commitment, the
fund realizes a gain or a loss from the sale of the securities based
upon the unit price established at the date the commitment was entered
into. TBA sale commitments outstanding at period end, if any, are listed
after the fund's portfolio.
K) 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 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 Internal Revenue Code of 1986 (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, 2003, the fund had a capital loss carryover of
$171,955,005 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
- --------------------------------
$38,149,657 October 31, 2007
124,225,024 October 31, 2008
9,580,324 October 31, 2009
The aggregate identified cost on a tax basis is $4,500,492,732,
resulting in gross unrealized appreciation and depreciation of
$43,420,394 and $65,528,116, respectively, or net unrealized
depreciation of $22,107,722.
L) 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. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations.
Note 2
Management fee, administrative
services and other transactions
Putnam Management is paid for management and investment advisory
services quarterly based on the average net assets of the fund. Such fee
is based on the following annual rates: 0.65% of the first $500 million
of average net assets, 0.55% of the next $500 million, 0.50% of the next
$500 million, 0.45% of the next $5 billion, 0.425% of the next $5
billion, 0.405% of the next $5 billion, 0.39% of the next $5 billion and
0.38% thereafter.
Effective January 28, 2004, Putnam Management has agreed to limit its
compensation (and, to the extent necessary, bear other expenses) through
December 31, 2004, to the extent that the fund's net expenses as a
percentage of average net assets exceed the average expense ratio for
the fund's Lipper peer group of front-end load funds.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The
aggregate amount of all such reimbursements is determined annually by
the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company ("PFTC"), a subsidiary of Putnam, LLC. Putnam
Investor Services, a division of PFTC, provides investor servicing agent
functions to the fund. During the six months ended April 30, 2004, the
fund paid PFTC $2,562,881 for these services.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. For the six months ended April 30, 2004,
the fund's expenses were reduced by $140,536 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $3,410, 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.
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. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. 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 fund has adopted distribution plans (the "Plans") with respect to
its class A, class B, class C, class M and class R shares pursuant to
Rule 12b-1 under the Investment Company Act of 1940. The purpose of the
Plans is to compensate Putnam Retail Management, a wholly-owned
subsidiary of Putnam, LLC and Putnam Retail Management GP, Inc., for
services provided and expenses incurred in distributing shares of the
fund. The Plans provide for payments by the fund to Putnam Retail
Management at an annual rate of up to 0.35%, 1.00%, 1.00%, 1.00% and
1.00% of the average net assets attributable to class A, class B, class
C, class M and class R shares, respectively. The Trustees have approved
payment by the fund at an annual rate of 0.25%, 1.00%, 1.00%, 0.50% and
0.50% of the average net assets attributable to class A, class B, class
C, class M and class R shares, respectively.
For the six months ended April 30, 2004, Putnam Retail Management,
acting as underwriter, received net commissions of $58,819 and $21,441
from the sale of class A and class M shares, respectively, and received
$990,589 and $6,495 in contingent deferred sales charges from
redemptions of class B and class C shares, respectively. A deferred
sales charge of up to 1.00% and 0.40% is assessed on certain redemptions
of class A and class M shares, respectively. For the six months ended
April 30, 2004, Putnam Retail Management, acting as underwriter,
received $12,792 and no monies on class A and class M redemptions,
respectively.
Note 3
Purchases and sales of securities
During the six months ended April 30, 2004, cost of purchases and
proceeds from sales of investment securities other than U.S. government
securities and short-term investments aggregated $2,848,282,017 and
$3,655,586,705, respectively. Purchases and sales of U.S. government
securities aggregated $513,220,278 and $506,944,302, respectively.
Note 4
Capital shares
At April 30, 2004, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended April 30, 2004
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 19,504,393 $132,333,574
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 2,228,753 15,142,188
- ----------------------------------------------------------------
21,733,146 147,475,762
Shares repurchased (59,164,810) (399,782,155)
- ----------------------------------------------------------------
Net decrease (37,431,664) $(252,306,393)
- ----------------------------------------------------------------
Year ended October 31, 2003
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 64,320,405 $430,702,454
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 6,680,278 44,601,520
- ----------------------------------------------------------------
71,000,683 475,303,974
Shares repurchased (82,729,679) (553,385,989)
- ----------------------------------------------------------------
Net decrease (11,728,996) $(78,082,015)
- ----------------------------------------------------------------
Six months ended April 30, 2004
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 3,866,080 $26,041,314
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 633,464 4,274,502
- ----------------------------------------------------------------
4,499,544 30,315,816
Shares repurchased (26,525,237) (177,904,717)
- ----------------------------------------------------------------
Net decrease (22,025,693) $(147,588,901)
- ----------------------------------------------------------------
Year ended October 31, 2003
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 33,665,735 $223,472,856
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 2,225,072 14,761,328
- ----------------------------------------------------------------
35,890,807 238,234,184
Shares repurchased (42,340,422) (281,470,527)
- ----------------------------------------------------------------
Net decrease (6,449,615) $(43,236,343)
- ----------------------------------------------------------------
Six months ended April 30, 2004
- ----------------------------------------------------------------
Class C Shares Amount
- ----------------------------------------------------------------
Shares sold 385,799 $2,611,949
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 49,200 332,997
- ----------------------------------------------------------------
434,999 2,944,946
Shares repurchased (2,105,200) (14,148,862)
- ----------------------------------------------------------------
Net decrease (1,670,201) $(11,203,916)
- ----------------------------------------------------------------
Year ended October 31, 2003
- ----------------------------------------------------------------
Class C Shares Amount
- ----------------------------------------------------------------
Shares sold 5,047,846 $33,637,238
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 165,444 1,100,822
- ----------------------------------------------------------------
5,213,290 34,738,060
Shares repurchased (4,705,577) (31,352,525)
- ----------------------------------------------------------------
Net increase 507,713 $3,385,535
- ----------------------------------------------------------------
Six months ended April 30, 2004
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 1,498,809 $10,091,281
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 53,930 362,888
- ----------------------------------------------------------------
1,552,739 10,454,169
Shares repurchased (36,735,894) (245,210,650)
- ----------------------------------------------------------------
Net decrease (35,183,155) $(234,756,481)
- ----------------------------------------------------------------
Year ended October 31, 2003
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 31,342,625 $207,455,675
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 204,214 1,351,032
- ----------------------------------------------------------------
31,546,839 208,806,707
Shares repurchased (122,204,015) (812,521,239)
- ----------------------------------------------------------------
Net decrease (90,657,176) $(603,714,532)
- ----------------------------------------------------------------
Six months ended April 30, 2004
- ----------------------------------------------------------------
Class R Shares Amount
- ----------------------------------------------------------------
Shares sold 116 $789
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 3 17
- ----------------------------------------------------------------
119 806
Shares repurchased (2) (15)
- ----------------------------------------------------------------
Net increase 117 $791
- ----------------------------------------------------------------
For the period January 21, 2003
(commencement of operations)
to October 31, 2003
- ----------------------------------------------------------------
Class R Shares Amount
- ----------------------------------------------------------------
Shares sold 151 $1,000
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 3 25
- ----------------------------------------------------------------
154 1,025
Shares repurchased -- --
- ----------------------------------------------------------------
Net increase 154 $1,025
- ----------------------------------------------------------------
Six months ended April 30, 2004
- ----------------------------------------------------------------
Class Y Shares Amount
- ----------------------------------------------------------------
Shares sold 29,719,595 $203,300,141
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 1,808,304 12,356,109
- ----------------------------------------------------------------
31,527,899 215,656,250
Shares repurchased (17,964,006) (122,436,505)
- ----------------------------------------------------------------
Net increase 13,563,893 $93,219,745
- ----------------------------------------------------------------
Year ended October 31, 2003
- ----------------------------------------------------------------
Class Y Shares Amount
- ----------------------------------------------------------------
Shares sold 59,108,522 $398,637,818
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 3,400,711 22,813,013
- ----------------------------------------------------------------
62,509,233 421,450,831
Shares repurchased (36,627,948) (246,889,551)
- ----------------------------------------------------------------
Net increase 25,881,285 $174,561,280
- ----------------------------------------------------------------
At April 30, 2004, Putnam, LLC owned 156 class R shares of the fund
(57.6% of class R shares outstanding), valued at $1,045.
Note 5
Regulatory matters and litigation
On April 8, 2004, Putnam Management entered into agreements with the
Securities and Exchange Commission and the Massachusetts Securities
Division representing a final settlement of all charges brought against
Putnam Management by those agencies on October 28, 2003 in connection
with excessive short-term trading by Putnam employees and, in the case
of the charges brought by the Massachusetts Securities Division, by
participants in some Putnam-administered 401(k) plans. The settlement
with the SEC requires Putnam Management to pay $5 million in
disgorgement plus a civil monetary penalty of $50 million, and the
settlement with the Massachusetts Securities Division requires Putnam
Management to pay $5 million in restitution and an administrative fine
of $50 million. The settlements also leave intact the process
established under an earlier partial settlement with the SEC under which
Putnam Management agreed to pay the amount of restitution determined by
an independent consultant, which may exceed the disgorgement and
restitution amounts specified above, pursuant to a plan to be developed
by the independent consultant.
Putnam Management, and not the investors in any Putnam fund, will bear
all costs, including restitution, civil penalties and associated legal
fees stemming from both of these proceedings. The SEC's and
Massachusetts Securities Division's allegations and related matters also
serve as the general basis for numerous lawsuits, including purported
class-action lawsuits filed against Putnam Management and certain
related parties, including certain Putnam funds. Putnam Management has
agreed to bear any costs incurred by Putnam funds in connection with
these lawsuits. Based on currently available information, Putnam
Management believes that the likelihood that the pending private
lawsuits and purported class-action lawsuits will have a material
adverse financial impact on the fund is remote, and the pending actions
are not likely to materially affect its ability to provide investment
management services to its clients, including the Putnam funds.
For the period ended April 30, 2004, Putnam Management has assumed
$90,599 of legal, shareholder servicing and communication, audit, and
Trustee fees incurred by the fund in connection with these matters.
Review of these matters by counsel for Putnam Management and by separate
independent counsel for the Putnam funds and their independent Trustees
is continuing. The fund may experience increased redemptions as a result
of these matters, which could result in increased transaction costs and
operating expenses.
Fund information
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition
and practice since 1830. Founded over 65 years ago, Putnam Investments
was built around the concept that a balance between risk and reward is
the hallmark of a well-rounded financial program. We presently manage
over 100 mutual funds in growth, value, blend, fixed income, and
international.
Investment Manager
Putnam Investment
Management, LLC
One Post Office Square
Boston, MA 02109
Marketing Services
Putnam Retail Management
One Post Office Square
Boston, MA 02109
Custodian
Putnam Fiduciary
Trust Company
Legal Counsel
Ropes & Gray LLP
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
John H. Mullin, III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
Officers
George Putnam, III
President
Charles E. Porter
Executive Vice President,
Associate Treasurer and Principal Executive
Officer
Jonathan S. Horwitz
Senior Vice President
and Treasurer
Patricia C. Flaherty
Senior Vice President
Steven D. Krichmar
Vice President and
Principal Financial Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
Beth S. Mazor
Vice President
James P. Pappas
Vice President
Richard S. Robie, III
Vice President
Mark C. Trenchard
Vice President and BSA
Compliance Officer
Francis J. McNamara, III
Vice President and
Chief Legal Officer
Judith Cohen
Clerk and Assistant Treasurer
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.putnaminvestments.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.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
Call 1-800-225-1581 or visit our Web site
www.putnaminvestments.com.
SA035-214215 004/312/510/514 6/04
Not FDIC Insured May Lose Value No Bank Guarantee
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ----------------------------------------------------------------------------
Putnam Income Fund
Supplement to Semiannual Report dated 4/30/04
The following information has been prepared to provide class Y
shareholders with a performance overview specific to their holdings.
Class Y shares are offered exclusively to clients that meet the
eligibility requirements specified in the fund's prospectus for such
shares. Performance of class Y shares, which do not incur a front-end
load, a distribution fee, or a contingent deferred sales charge, will
differ from the performance of class A, B, C, M, and R shares, which are
discussed more extensively in the semiannual report.
RESULTS AT A GLANCE
- ----------------------------------------------------------------------------
Total return for periods ended 4/30/04
NAV
6 months 1.98%
1 year 2.95
5 years 31.58
Annual average 5.64
10 years 86.47
Annual average 6.43
Life of fund (since class A inception, 11/1/54)
Annual average 8.23
Share value: NAV
10/31/03 $6.72
4/30/04 $6.74
- ----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
6 $0.114 -- $0.114
- ----------------------------------------------------------------------------
Please note that past performance is not indicative of future results.
More recent returns may be more or less than those shown. Returns shown
for class Y shares for periods prior to their inception are derived from
the historical performance of class A shares, and are not adjusted to
reflect the initial sales charge currently applicable to class A shares.
These returns have not been adjusted to reflect differences in operating
expenses which, for class Y shares, typically are lower than the
operating expenses applicable to class A shares. All returns assume
reinvestment of distributions at net asset value. Investment return and
principal value will fluctuate so your shares, when redeemed, may be
worth more or less than their original cost. See full report for
information on comparative benchmarks. If you have questions, please
consult your fund prospectus or call Putnam toll free at 1-800-752-9894.
Item 2. Code of Ethics:
- -----------------------
Not applicable
Item 3. Audit Committee Financial Expert:
- -----------------------------------------
Not applicable
Item 4. Principal Accountant Fees and Services:
- -----------------------------------------------
Not applicable
Items 5-6. [Reserved]
- ---------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed End
- -------------------------------------------------------------------------
Management Investment Companies: Not applicable
--------------------------------
Item 8. [Reserved]
- ------------------
Item 9. Submission of Matters to a Vote of Security Holders:
- ------------------------------------------------------------
Not applicable
Item 10. 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 on Form N-CSR, that the design and
operation of such procedures are generally effective to provide
reasonable assurance that information required to be disclosed by
the investment company in the reports that it files or submits under
the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the
Commission's rules and forms.
Although such officers reached the conclusion expressed in the
preceding paragraph, they are aware of matters that raise concerns
with respect to controls, each of which arose in connection with the
administration of 401(k) plans by Putnam Fiduciary Trust Company.
The first matter, which occurred in early 2001, involved the willful
circumvention of controls by certain Putnam employees in connection
with the correction of operational errors with respect to a 401(k)
client's investment in certain Putnam Funds, which led to losses in
five Putnam Funds (not including the registrant). Such officers
became aware of this matter in February 2004. The second matter,
which occurred in 2002, involved the willful circumvention by
certain Putnam employees of policies and procedures in connection
with the payment of Putnam corporate expenses. Such officers did
not learn that this matter involved a Putnam Fund until January
2004. Putnam has made restitution to the affected Funds,
implemented a number of personnel changes, including senior
personnel, begun to implement changes in procedures to address these
items and informed the SEC, the Funds' Trustees and independent
auditors. An internal investigation and review of procedures and
controls are currently ongoing.
In reaching the conclusion expressed herein, the registrant's
principal executive officer and principal financial officer
considered a number of factors, including the nature of the matters
described above, when the matters occurred, the individuals
involved, personnel changes that have occurred since these matters
occurred, the results to date of the current ongoing investigation
and the overall quality of controls at Putnam at this time.
(b) Changes in internal control over financial reporting:
Not applicable
Item 11. Exhibits:
- ------------------
(a) Not applicable
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act
of 2002 are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
an 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.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: June 28, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Executive Officer
Date: June 28, 2004
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: June 28, 2004