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:
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
10-31-04
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From the Trustees
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John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
During the past several months, Putnam has introduced a number of
reforms for the benefit of shareholders, including increasing the amount
of disclosure for our funds. For example, in the spring of this year we
began showing expense and risk comparisons in shareholder reports. We
are now including in this report portfolio turnover information for your
fund, which explains how the rate at which a fund buys and sells
portfolio securities might affect its return and its taxable
distributions to shareholders. We are also including additional
disclosure about your fund's management team. Following the Outlook for
Your Fund, we list any changes in your fund's Portfolio Leader and
Portfolio Members during the prior year period, the current Portfolio
Leader's and Portfolio Members' other fund management responsibilities
at Putnam, and the dollar range of fund shares owned by these
individuals.
We are also pleased to announce that three new Trustees have joined your
fund's Board of Trustees. Nominated by your fund's independent Trustees,
these individuals have had outstanding careers as leaders in the
investment management industry. Myra R. Drucker is a Vice Chair of the
Board of Trustees of Sarah Lawrence College and serves as Chair of the
New York Stock Exchange (NYSE) Pension Managers Advisory Committee and
as a Trustee of Commonfund, a not-for-profit asset management firm.
Richard B. Worley is Managing Partner of Permit Capital LLC, an
investment management firm. Both Ms. Drucker and Mr. Worley are
independent Trustees (i.e., Trustees who are not "interested persons" of
your fund or its investment advisor). Charles E. Haldeman, Jr., the
third new Trustee, is President and Chief Executive Officer of Putnam
Investments.
During the period covered by the following report, Putnam Income Fund
delivered respectable results. In the following pages, the fund managers
discuss fund performance, strategy, and their outlook for fiscal 2005.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
December 15, 2004
Report from Fund Management
Fund highlights
* For the fiscal year ended October 31, 2004, Putnam Income Fund's class
A shares returned 5.70% without sales charges and 0.73% with maximum
sales charges reflected.
* The fund's benchmark, the Lehman Aggregate Bond Index, returned 5.53%.
* The average return for the fund's Lipper category, Corporate Debt
Funds A Rated, was 5.18%.
* The fund's class A dividend was reduced to $0.015 per share in March
2004. See page 5 for more information.
* See the Performance Summary beginning on page 8 for additional fund
performance, comparative performance, and Lipper data.
Performance commentary
We're pleased to report that your fund's results at net asset value
(NAV) were in line with those of its benchmark and slightly ahead of the
average return for its peer group. A number of factors contributed to
this performance, including our management of your fund's duration, or
sensitivity to changes in interest rates. We imple mented a defensive
interest-rate posture -- shortening the duration -- at the beginning of
2004, in order to protect the fund's principal in anticipation of an
upward spike in interest rates. That positioning proved of great benefit
from March through May. When the yield curve started to flatten in June,
we switched to a more neutral duration, another move that proved
positive to returns, then resumed a defensive stance again during the
last two months of the fund's fiscal year. Other factors that buoyed
performance included strong security selection among asset-backed
securities, BBB-rated home equity loans, and strategic investments in
securities backed by different income streams provided by mortgages,
including interest-only payments and principal-only securities.
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TOTAL RETURN FOR
PERIODS ENDED 10/31/04
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Class A
(inception 11/1/54) NAV POP
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1 year 5.70% 0.73%
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5 years 37.13 30.63
Annual average 6.52 5.49
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10 years 89.03 79.94
Annual average 6.57 6.05
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Annual average
(life of fund) 8.17 8.06
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Data is historical. Past performance does not guarantee future results.
More recent returns may be less or more than those shown. Investment
return and principal value will fluctuate and you may have a gain or a
loss when you sell your shares. Performance assumes reinvestment of
distributions and does not account for taxes. Returns at NAV do not
reflect a sales charge of 4.75%. For the most recent month-end
performance, visit www.putnaminvestments.com. A 2% short-term trading
fee may be applied to shares exchanged or sold within 5 days of
purchase.
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
At the beginning of your fund's fiscal year, the bond market rallied
amid significant uncertainty about the direction of the economy. Against
that backdrop, most market participants felt that the Federal Reserve
Board (the Fed) would wait to raise interest rates until signs of an
economic rebound emerged. However, interest rates rose sharply in April,
when the March employment report was released, indicating
stronger-than-expected job creation. Investors shifted gears, expecting
that inflation would soon start to appear and that the Fed would boost
rates sooner than originally anticipated. The latter came to pass in
June, when the Fed hiked the benchmark federal funds rate from 1.00% to
1.25%. While this set the stage for interest rates on the short end of
the yield curve to start rising, long-term yields remained relatively
stable, leading to a flatter yield curve. A rising federal budget
deficit was another factor that led to stability on the long end and
more upward pressure on the short end. As the period progressed, the Fed
continued to raise short-term rates, to the point where the federal
funds rate reached 1.75% by the end of October 2004.
Within this environment, bonds fared relatively well, with corporate
bonds outperforming comparable Treasuries due to the relative health of
the economy. Mortgage-backed securities also performed well despite
interest-rate uncertainty and fluctuations in prepayment activity,
largely due to sustained demand for them from Asian investors and
commercial banks. Asset-backed securities -- instruments backed by auto,
credit card, and other loan payments -- also posted positive relative
gains, as did lower-quality home equity loans. Overall, non-Treasury
bonds outperformed government bonds due to low volatility and low
returns in the equity market, as well as demand from yield-hungry
investors looking for additional returns in a low-rate environment.
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MARKET SECTOR PERFORMANCE 12 MONTHS ENDED 10/31/04
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Bonds
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Lehman Aggregate Bond Index (broad bond market) 5.53%
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Lehman Global Aggregate Bond Index (international bonds) 9.68%
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Lehman Government Bond Index (U.S. Treasury and agency
securities) 4.83%
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Lehman GNMA Index (Government National Mortgage Association
bonds) 5.25%
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Equities
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S&P 500 Index (broad stock market) 9.42%
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Russell 2000 Growth Index (small-company growth stocks) 5.53%
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Russell 2000 Value Index (small-company value stocks) 17.99%
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These indexes provide an overview of performance in different market
sectors for the 12 months ended 10/31/04.
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Strategy overview
As we mentioned above, we moved early in 2004 to a defensive positioning
with the fund in anticipation of rising interest rates. When the yield
curve flattened, we adopted a more neutral stance, and then became
defensive once again in the latter stages of the period. Within the
corporate allocation, we had a bias toward lower-quality bonds because
they offered better value and tend to be less susceptible to rising
rates than higher-quality alternatives. Overall, we underweighted the
corporate sector, feeling that current valuations for corporate bonds
may be unsustainable, predicated on strong economic growth and low
inflation. Any surprise regarding interest rates, the relative strength
of the U.S. dollar, or a major credit event could leave the corporate
bond market vulnerable to underperformance relative to Treasuries.
Hence, we are waiting for some sort of dislocation before becoming more
aggressive in that part of the market. We underweighted mortgage-backed
securities relative to the benchmark. However, at the same time, we
favored higher-coupon premium mortgages in that sector due to our belief
that they should outperform in a rising interest-rate environment.
Shorter-maturity asset-backed securities and commercial mortgage-backed
securities were significantly overweighted due to their defensive
qualities. We believed that they would hold up better if rates continue
to rise or if Treasuries start to outperform other asset classes.
[GRAPHIC OMITTED: horizontal bar chart TOP SECTOR WEIGHTINGS COMPARED]
TOP SECTOR WEIGHTINGS COMPARED
as of 4/30/04 as of 10/31/04
Mortgage-backed
securities 56.6% 51.4%
Asset-backed
securities 13.1% 18.9%
Investment-grade
bonds 21.3% 17.1%
U.S. government
bonds 6.9% 11.6%
High-yield bonds 2.1% 1.0%
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 net assets.
Holdings will vary over time.
How fund holdings/sector allocations affected performance
Your fund's performance benefited from our decision to maintain a
defensive approach. In particular, our interest-rate positioning in
March and April of 2004 helped to insulate the portfolio from the
negative effects of rising interest rates. Another contributing factor
for the fund was successful security selection among corporate bonds. We
avoided investments in insurance-related bonds and telecommunications,
two areas that deteriorated earlier in the year. The fund also profited
from investments in "crossover credits," meaning bonds of companies that
started as non-investment-grade but then were rewarded with credit
upgrades and moved into the investment-grade universe. Key contributors
to performance from this area included bonds issued by Waste Management,
Park Place Entertainment, DR Horton, Western Resources, Potomac Edison,
and Monongahela Power.
Other areas that provided positive performance for the fund were our
investments in lower-rated home equity loans, collateralized mortgage
obligations, asset-backed securities, and commercial mortgage-backed
securities.
On the downside, it appears our shifting of the corporate bond
allocation to a more defensive position was a bit premature. We believed
that the sector was fully valued, and underestimated the continued,
intense demand for corporate bonds that caused them to continue their
strong performance. At the same time, we believed that it was important
to pursue this strategy, and feel that it should pay off through the
balance of 2004 and into 2005. In addition, our decision to underweight
mortgage-backed securities also held back performance somewhat. We would
have done better by holding a neutral position in this sector.
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.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW
AAA (67.2%)
AA (2.9%)
A (7.9%)
BBB (15.6%)
BB (3.8%)
B (0.2%)
Other (2.4%)
Footnote reads:
As a percentage of market value as of 10/31/04. A bond rated Baa or
higher is considered investment grade. The chart reflects Moody's
ratings; percentages may include bonds not rated by Moody's but
considered by Putnam Management to be of comparable quality. Ratings
will vary over time.
OF SPECIAL INTEREST
In March 2004, your fund's monthly dividend was reduced to $0.015 for
class A shares. Comparable adjustments were made with regard to the
other share classes. This adjustment was a reflection of the
interest-rate declines that had, at that time, reduced the yield on
10-year Treasuries by over 12% and the yield on 2-year Treasuries by
over 17%. Your fund's dividend is regularly re-evaluated to be sure it
reflects current earnings projections.
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.
We expect the Federal Reserve Board to continue to tighten monetary
policy through the end of 2004 and into the first half of 2005. From
that point -- when we feel the federal funds rate should be in the 3%
range -- we believe the Fed will remain neutral or even slightly
accommodative toward growth. In our opinion, this progression should put
upward pressure on yields, particularly among short-maturity bonds.
Other issues affecting the bond markets likely will be the federal
government's burgeoning budget deficit and expanding current account
deficit. We anticipate that interest rates should continue to climb at a
slow pace, at a time when improving economic growth could prove to be
more challenging to the price performance of non-Treasury credit
markets. Valuations for both investment-grade and high-yield corporate
bonds are currently high, in our opinion, so we expect them to recede to
more neutral levels. Among mortgage-backed securities, we anticipate
that increases in short-term interest rates should reduce prepayment
activity. Therefore, we currently favor premium, high-coupon mortgages
that we believe should be relatively immune to these factors, as well as
such mortgage securities as those backed by interest only streams as the
best-positioned opportunities for outperformance. Overall, we intend to
maintain a defensive positioning for the next several months, feeling
that opportunities to become more aggressive may start to present
themselves by the end of the first quarter of 2005.
Kevin Cronin and Rob Bloemker may also manage other accounts advised by
Putnam Management or an affiliate.
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. Mutual funds that invest in
bonds are subject to certain risks, including interest-rate risk, credit
risk, and inflation risk. As interest rates rise, the prices of bonds
fall. Long-term bonds are more exposed to interest-rate risk than
short-term bonds. Unlike bonds, bond funds have ongoing fees and
expenses.
Your fund's management
Your fund is managed by the members of the Putnam Core Fixed-Income
Team. Kevin Cronin is the Portfolio Leader and Rob Bloemker is a
Portfolio Member of your fund. The Portfolio Leader and Portfolio Member
coordinate the team's management of the fund.
For a complete listing of the members of the Putnam Core Fixed-Income
Team, including those who are not Portfolio Leaders or Portfolio Members
of your fund, visit Putnam's Individual Investor Web site at
www.putnaminvestments.com.
Fund ownership
The table below shows fund ownership, in dollar ranges, by the fund's
current Portfolio Leader and Portfolio Member. Information shown is for
the current and prior year ended November 30.
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FUND PORTFOLIO LEADER AND PORTFOLIO MEMBERS
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$1 - $10,001 - $50,001- $100,001 - $500,001 - $1,000,001
Year $0 $10,000 $50,000 $100,000 $500,000 $1,000,000 and over
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Kevin Cronin 2004 *
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Portfolio Leader 2003 *
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Rob Bloemker 2004 *
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Portfolio Member 2003 *
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Other funds managed by the Portfolio Leader and Portfolio Member
Kevin Cronin is also a Portfolio Leader of Putnam American Government
Income Fund, Putnam Global Income Trust, Putnam Limited Duration
Government Income Fund*, and Putnam U.S. Government Income Trust. He is
a Portfolio Member of The George Putnam Fund of Boston and Putnam Equity
Income Fund.
Rob Bloemker is also a Portfolio Member of Putnam American Government
Income Fund, Putnam Limited Duration Government Income Fund*, and Putnam
U.S. Government Income Trust.
Kevin Cronin and Rob Bloemker may also manage other accounts advised by
Putnam Management or an affiliate.
Changes in your fund's Portfolio Leader and Portfolio Members
During the year ended October 31, 2004, Portfolio Member James Prusko
left your fund's management team.
* Formerly Putnam Intermediate U.S. Government Income Fund.
Performance summary
This section shows your fund's performance during its fiscal year, which
ended October 31, 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 represents past performance. Past performance does not
guarantee future results. More recent returns may be less or more than
those shown. Investment return and principal value will fluctuate and
you may have a gain or a loss when you sell your shares. For the most
recent month-end performance, please visit www.putnaminvestments.com.
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TOTAL RETURN FOR PERIODS ENDED 10/31/04
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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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1 year 5.70% 0.73% 4.79% -0.21% 4.79% 3.79% 5.40% 2.01% 5.47%
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5 years 37.13 30.63 31.89 29.89 31.96 31.96 35.29 30.80 35.45
Annual average 6.52 5.49 5.69 5.37 5.70 5.70 6.23 5.52 6.26
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10 years 89.03 79.94 75.58 75.58 75.21 75.21 84.32 78.31 84.36
Annual average 6.57 6.05 5.79 5.79 5.77 5.77 6.31 5.95 6.31
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Annual average
(life of fund) 8.17 8.06 7.15 7.15 7.35 7.35 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% short-term trading fee may be applied to shares exchanged or sold
within 5 days of purchase.
[GRAPHIC OMITTED: worm chart CHANGE IN THE VALUE OF A $10,000 INVESTMENT]
CHANGE IN THE VALUE OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment, 10/31/94 to 10/31/04
Fund's class A Lehman Aggregate
Date shares at POP Bond Index
10/31/94 9,525 10,000
10/31/95 11,064 11,565
10/31/96 11,737 12,241
10/31/97 12,779 13,330
10/31/98 13,135 14,574
10/31/99 13,123 14,652
10/31/00 13,699 15,721
10/31/01 15,534 18,010
10/31/02 16,144 19,070
10/31/03 17,023 20,006
10/31/04 $17,994 $21,112
Footnote reads:
Past performance does not indicate future results. At the end of the
same time period, a $10,000 investment in the fund's class B and class C
shares would have been valued at $17,558 and $17,521, respectively, and
no contingent deferred sales charges would apply. A $10,000 investment
in the fund's class M shares would have been valued at $18,432 ($17,831
at public offering price). A $10,000 investment in the fund's class R
shares would have been valued at $18,436. See first page of performance
section for performance calculation method.
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 10/31/04
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Lehman Lipper Corporate
Aggregate Debt Funds A Rated
Bond Index category average*
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1 year 5.53% 5.18%
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5 years 44.10 39.04
Annual average 7.58 6.80
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10 years 111.12 100.19
Annual average 7.76 7.16
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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 1-, 5-, and 10-year periods ended 10/31/04, there were 211,
129, and 68 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 12 MONTHS ENDED 10/31/04
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Class A Class B Class C Class M Class R
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Distributions (number) 12 12 12 12 12
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Income $0.196 $0.145 $0.146 $0.183 $0.181
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Capital gains -- -- -- -- --
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Total $0.196 $0.145 $0.146 $0.183 $0.181
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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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10/31/04 6.87 7.19* 6.82 6.84 6.80 7.03 6.87
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Current return
(end of period)
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Current dividend rate 1 2.62% 2.50% 1.94% 1.93% 2.47% 2.39% 2.45%
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Current 30-day
SEC yield 2 2.59 2.47 1.85 1.85 2.34 2.26 2.33
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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.
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TOTAL RETURN FOR PERIODS ENDED 9/30/04 (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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1 year 4.07% -0.92% 3.31% -1.69% 3.31% 2.31% 3.91% 0.46% 3.99%
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5 years 36.14 29.72 31.13 29.13 31.06 31.06 34.51 30.06 34.70
Annual average 6.36 5.34 5.57 5.25 5.56 5.56 6.11 5.40 6.14
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10 years 87.32 78.38 73.96 73.96 73.75 73.75 82.93 77.01 83.00
Annual average 6.48 5.96 5.69 5.69 5.68 5.68 6.23 5.88 6.23
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Annual average
(life of fund) 8.17 8.06 7.15 7.15 7.35 7.35 7.70 7.63 7.90
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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 May 1, 2004, to October 31, 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 10/31/04
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Class A Class B Class C Class M Class R
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Expenses paid per
$1,000* $5.07 $8.90 $8.90 $6.35 $6.35
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Ending value (after
expenses) $1,039.10 $1,034.00 $1,034.10 $1,038.60 $1,038.20
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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 10/31/04. 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
October 31, 2004, use the calculation method below. To find the value of
your investment on May 1, 2004, go to www.putnaminvestments.com and log
on to your account. Click on the "Transaction History" tab in your Daily
Statement and enter 05/01/2004 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 5/1/04 [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 $5.07 (see table above) = $50.70
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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 10/31/04
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Class A Class B Class C Class M Class R
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Expenses paid per
$1,000* $5.03 $8.82 $8.82 $6.29 $6.29
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Ending value (after
expenses) $1,020.16 $1,016.39 $1,016.39 $1,018.90 $1,018.90
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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 10/31/04. 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++ 1.04% 1.79% 1.79% 1.29% 1.29%
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+ For the fund's most recent fiscal half year; may differ from expense
ratios based on one-year data in the financial highlights.
++ 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 9/30/04. To facilitate comparison, 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.
Understanding your fund's
portfolio turnover
Putnam funds are actively managed by teams of experts who buy and sell
securities based on intensive analysis of companies, industries,
economies, and markets. Portfolio turnover is a measure of how often a
fund's managers buy and sell securities for your fund. A portfolio
turnover of 100%, for example, means that the managers sold and replaced
securities valued at 100% of a fund's assets within a one-year period.
Funds with high turnover may be more likely to generate capital gains
and dividends that must be distributed to shareholders as taxable
income. High turnover may also cause a fund to pay more brokerage
commissions and other transaction costs, which may detract from
performance.
Funds that invest in bonds may have higher turnover than funds that
invest only in stocks. Short-term bond funds tend to have higher
turnover than longer-term bond funds, because shorter-term bonds will
mature or be sold more frequently than longer-term bonds. You can use
the table below to compare your fund's turnover with the average
turnover for funds in its Lipper category.
- ------------------------------------------------------------------------------
TURNOVER COMPARISONS
percentage of holdings that change every year
- ------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- ------------------------------------------------------------------------------
Putnam Income Fund 441% 251% 268% 234% 207%
- ------------------------------------------------------------------------------
Lipper Corporate Debt Funds
A Rated category
average 160% 164% 146% 160% 141%
- ------------------------------------------------------------------------------
Turnover data for the fund is calculated based on the fund's fiscal-year
period, which ends on October 31. Turnover data for the fund's Lipper
category is calculated based on the average of the turnover of each fund
in the category for its fiscal year ended during the indicated year.
Fiscal years vary across funds in the Lipper category, which may limit
the comparability of the fund's portfolio turnover rate to the Lipper
average. Comparative data for 2004 is based on information available as
of 9/30/04.
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 0.17
Taxable bond
fund average 0.31
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 September
30, 2004. 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. NAV
is calculated by dividing the net assets of each class of shares by the
number of outstanding shares in the class.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the 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.
Putnam's policy on confidentiality
In order to conduct business with our shareholders, we must obtain
certain personal information such as account holders' addresses,
telephone numbers, Social Security numbers, and the names of their
financial advisors. We use this information to assign an account number
and to help us maintain accurate records of transactions and account
balances.
It is our policy to protect the confidentiality of your information,
whether or not you currently own shares of our funds, and in particular,
not to sell information about you or your accounts to outside marketing
firms. We have safeguards in place designed to prevent unauthorized
access to our computer systems and procedures to protect personal
information from unauthorized use.
Under certain circumstances, we share this information with outside
vendors who provide services to us, such as mailing and proxy
solicitation. In those cases, the service providers enter into
confidentiality agreements with us, and we provide only the information
necessary to process transactions and perform other services related to
your account. We may also share this information with our Putnam
affiliates to service your account or provide you with information about
other Putnam products or services. It is also our policy to share
account information with your financial advisor, if you've listed one on
your Putnam account.
If you would like clarification about our confidentiality policies or
have any questions or concerns, please don't hesitate to contact us at
1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or
Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time.
Proxy voting
Putnam is committed to managing our mutual funds in the best interests
of our shareholders. The Putnam funds' proxy voting guidelines and
procedures, as well as information regarding how your fund voted proxies
relating to portfolio securities during the 12-month period ended June
30, 2004, are available on the Putnam Individual Investor Web site,
www.putnaminvestments.com/individual, and on the SEC's Web site,
www.sec.gov. If you have questions about finding forms on the SEC's Web
site, you may call the SEC at 1-800-SEC-0330. You may also obtain the
Putnam funds' proxy voting guidelines and procedures at no charge by
calling Putnam's Shareholder Services at 1-800-225-1581.
Fund portfolio holdings
For periods ending on or after July 9, 2004, the fund will file a
complete schedule of its portfolio holdings with the SEC for the first
and third quarters of each fiscal year on Form N-Q. Shareholders may
obtain the fund's Forms N-Q on the SEC's Web site at www.sec.gov. In
addition, the fund's Forms N-Q may be reviewed and copied at the SEC's
public reference room in Washington, D.C. You may call the SEC at
1-800-SEC-0330 for information about the SEC's Web site or the operation
of the public reference room.
A guide to the financial statements
These sections of the report, as well as the accompanying Notes,
preceded by the Report of Independent Registered Public Accounting Firm,
constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and 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 year.
Statement of changes in net assets shows how the fund's net assets were
affected by the fund's net investment gain or loss, by distributions to
shareholders, and by changes in the number of the fund's shares. It
lists distributions and their sources (net investment income or realized
capital gains) over the current reporting period and the most recent
fiscal year-end. The distributions listed here may not match the sources
listed in the Statement of operations because the distributions are
determined on a tax basis and may be paid in a different period from the
one in which they were earned.
Financial highlights provide an overview of the fund's investment
results, per-share distributions, expense ratios, net investment
income ratios, and portfolio turnover in one summary table, reflecting
the five most recent reporting periods. In a semiannual report, the
highlight table also includes the current reporting period. For open-end
funds, a separate table is provided for each share class.
Report of Independent Registered
Public Accounting Firm
The Board of Trustees and Shareholders
Putnam Income Fund
We have audited the accompanying statement of assets and liabilities of
Putnam Income Fund, including the fund's portfolio, as of October 31,
2004, and the related statement of operations for the year then ended,
the statements of changes in net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
presented. These financial statements and financial highlights are the
responsibility of the fund's management. Our responsibility is to
express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform our audit to obtain reasonable
assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of October 31, 2004 by
correspondence with the custodian and brokers or by other appropriate
auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Putnam Income Fund as of October 31, 2004, the
results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and the
financial highlights for each of the periods presented, in conformity
with accounting principles generally accepted in the United States of
America.
KPMG LLP
Boston, Massachusetts
December 22, 2004
The fund's portfolio
October 31, 2004
U.S. government and agency mortgage obligations (35.7%) (a)
Principal amount Value
U.S. Government Guaranteed Mortgage Obligations (0.1%)
- -------------------------------------------------------------------------------
Government National Mortgage
Association Graduated Payment Mortgages
$83,756 11s, with due dates from March 15,
2010 to July 15, 2013 $95,564
Government National Mortgage
Association Pass-Through
Certificates
1,984,581 7s, with due dates from April 15,
2026 to December 15, 2031 2,142,746
--------------
2,238,310
U.S. Government Agency Mortgage Obligations (35.6%)
- -------------------------------------------------------------------------------
Federal Home Loan Mortgage
Corporation
67,890 7 1/2s, December 1, 2029 73,046
59,096 7s, January 1, 2015 62,784
266,022 Federal National Mortgage
Association Graduated Payment
Mortgages 8s, December 1, 2008 287,937
Federal National Mortgage
Association Pass-Through Certificates
29,126 11s, October 1, 2015 33,072
687,648 9s, with due dates from January 1,
2027 to July 1, 2032 754,015
2,911,906 8s, with due dates from January 1,
2025 to July 1, 2033 3,172,279
3,276,668 7 1/2s, with due dates from
September 1, 2022 to July 1, 2033 3,515,389
262,494,597 7s, with due dates from August 1,
2021 to September 1, 2034 279,329,836
3,039,585 7s, with due dates from January 1,
2007 to January 1, 2018 3,199,194
13,006,602 6 1/2s, with due dates from October
1, 2023 to August 1, 2034 13,714,496
369,780 6 1/2s, with due dates from
September 1, 2010 to February 1,
2019 392,982
200,500,000 6 1/2s, TBA, November 1, 2034 210,775,625
449,852 6s, with due dates from October 1,
2033 to October 1, 2034 467,178
4,381,390 6s, with due dates from August 1,
2013 to November 1, 2017 4,606,016
214,400,000 6s, TBA, November 1, 2034 222,306,000
1,002,623 6s, TBA, October 1, 2034 1,061,292
114,775,000 5 1/2s, TBA, November 1, 2033 116,873,225
380,946 5s, June 1, 2019 389,383
123,200,000 5s, TBA, November 1, 2019 125,702,500
801,239 4s, June 1, 2019 788,219
--------------
987,504,468
--------------
Total U.S. government and agency
mortgage obligations
(cost $983,466,234) $989,742,778
U.S. government agency obligations (2.1%) (a) (cost $57,178,797)
Principal amount Value
- -------------------------------------------------------------------------------
$49,956,000 Fannie Mae 7 1/4s, January 15, 2010 $58,236,682
U.S. treasury obligations (2.2%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
U.S. Treasury Notes
$14,000,000 4 1/4s, August 15, 2014 $14,249,375
2,085,000 4 1/4s, November 15, 2013 2,128,003
38,700,000 3 7/8s, May 15, 2009 39,794,482
3,934,000 3 1/4s, August 15, 2008 3,965,964
--------------
Total U.S. Treasury Obligations
(cost $60,079,839) $60,137,824
Corporate bonds and notes (17.3%) (a)
Principal amount Value
Basic Materials (1.0%)
- -------------------------------------------------------------------------------
$2,195,000 Avery Dennison Corp. notes 4 7/8s,
2013 $2,235,855
1,850,000 Dow Chemical Co. (The) debs. 8.55s,
2009 2,194,429
880,000 Dow Chemical Co. (The) notes 5 3/4s,
2009 948,031
1,950,000 Dow Chemical Co. (The) Pass Through
Trust 144A company guaranty 4.027s,
2009 1,895,284
1,100,000 Eastman Chemical Co. notes 3 1/4s,
2008 1,080,546
2,000,000 Falconbridge, Ltd. bonds 5 3/8s,
2015 (Canada) 2,015,318
970,000 Georgia-Pacific Corp. sr. notes 8s,
2014 1,115,500
610,000 ICI Wilmington, Inc. company
guaranty 5 5/8s, 2013 (S) 631,219
1,550,000 ICI Wilmington, Inc. company
guaranty 4 3/8s, 2008 1,569,475
770,000 Inco, Ltd. bonds 5.7s, 2015 (Canada) 803,118
1,191,000 ISP Chemco, Inc. company guaranty
Ser. B, 10 1/4s, 2011 1,324,988
1,225,000 Lubrizol Corp. (The) sr. notes
5 1/2s, 2014 1,235,165
2,365,000 Millennium America, Inc. company
guaranty 9 1/4s, 2008 2,636,975
1,118,000 Monsanto Co. notes 4s, 2008 1,127,448
390,000 Monsanto Co. sr. notes 7 3/8s, 2012 459,425
770,000 Praxair, Inc. notes 6 3/8s, 2012 (S) 870,502
1,310,000 Weyerhaeuser Co. debs. 7.95s, 2025 1,594,883
860,000 Weyerhaeuser Co. debs. 7 1/8s, 2023 959,776
1,225,000 Weyerhaeuser Co. notes 6 3/4s, 2012 1,386,412
335,000 WMC Finance USA company guaranty
6 1/4s, 2033 (Australia) 348,005
615,000 WMC Finance USA company guaranty
5 1/8s, 2013 (Australia) 623,303
--------------
27,055,657
Capital Goods (0.7%)
- -------------------------------------------------------------------------------
105,000 Boeing Capital Corp. sr. notes 6.1s,
2011 115,382
990,000 Boeing Co. (The) debs. 6 7/8s, 2043 1,135,577
225,000 Bunge, Ltd. Finance Corp. company
guaranty 7.8s, 2012 267,303
1,165,000 Bunge, Ltd. Finance Corp. company
guaranty 4 3/8s, 2008 1,177,491
705,000 Bunge, Ltd. Finance Corp. notes
5 7/8s, 2013 747,326
380,000 Litton Industries, Inc. sr. notes
8s, 2009 442,565
1,680,000 Lockheed Martin Corp. bonds 8 1/2s,
2029 2,256,164
1,900,000 Northrop Grumman Corp. company
guaranty 7 1/8s, 2011 2,190,738
655,000 Northrop Grumman Corp. notes 4.079s,
2006 666,607
235,000 Raytheon Co. bonds 5 3/8s, 2013 245,610
825,000 Raytheon Co. debs. 7s, 2028 944,183
796,000 Raytheon Co. debs. 6s, 2010 876,620
1,410,000 Raytheon Co. notes 8.3s, 2010 1,691,186
1,105,000 Raytheon Co. notes 4.85s, 2011 1,137,206
1,135,000 Sealed Air Corp. 144A bonds 6 7/8s,
2033 1,214,661
1,315,000 Sealed Air Corp. 144A notes 5 5/8s,
2013 (S) 1,353,601
1,640,000 Waste Management, Inc. sr. notes
7 3/8s, 2010 1,900,140
--------------
18,362,360
Communication Services (2.1%)
- -------------------------------------------------------------------------------
1,135,000 Ameritech Capital Funding company
guaranty 6 1/4s, 2009 1,225,801
30,000 AT&T Wireless Services, Inc. notes
8 1/8s, 2012 36,599
2,000,000 AT&T Wireless Services, Inc. sr.
notes 8 3/4s, 2031 2,685,036
3,665,000 AT&T Wireless Services, Inc. sr.
notes 7 7/8s, 2011 4,366,140
1,800,000 Bellsouth Capital Funding notes
7 3/4s, 2010 2,105,735
2,165,000 Deutsche Telekom International
Finance BV bonds 8 1/2s, 2010
(Netherlands) 2,608,303
2,915,000 Deutsche Telekom International
Finance BV company guaranty
8 3/4s, 2030 (Netherlands) 3,818,446
1,075,000 France Telecom notes 9 1/4s, 2031
(France) 1,451,184
3,935,000 France Telecom notes 7 3/4s, 2011
(France) 4,726,033
1,450,000 Koninklijke (Royal) KPN NV sr.
unsub. notes 8 3/8s, 2030
(Netherlands) 1,889,318
2,265,000 Nextel Communications, Inc. sr.
notes 5.95s, 2014 2,315,963
500,000 SBC Communications, Inc. notes 5.1s,
2014 503,478
495,000 SBC Communications, Inc. notes
4 1/8s, 2009 497,688
3,550,000 Sprint Capital Corp. company
guaranty 7 5/8s, 2011 (S) 4,151,927
5,310,000 Sprint Capital Corp. company
guaranty 6 7/8s, 2028 5,702,542
1,810,000 Telecom Italia Capital SA company
guaranty 6 3/8s, 2033 (Luxembourg)
(S) 1,878,547
1,575,000 Telecom Italia Capital SA company
guaranty 5 1/4s, 2013 (Luxembourg) 1,612,624
2,165,000 Telecom Italia Capital SA company
guaranty 4s, 2008 (Luxembourg) 2,179,415
2,975,000 Telefonica Europe BV company
guaranty 7 3/4s, 2010 (Netherlands) 3,526,550
1,030,000 United States Cellular Corp. notes
6.7s, 2033 1,045,161
4,740,000 Verizon New England, Inc. sr. notes
6 1/2s, 2011 5,270,994
1,420,000 Verizon Virginia, Inc. debs. Ser. A,
4 5/8s, 2013 1,399,781
895,000 Vodafone Group PLC notes 7 7/8s,
2030 (United Kingdom) (S) 1,150,327
1,385,000 Vodafone Group PLC notes 7 3/4s,
2010 (United Kingdom) 1,629,590
--------------
57,777,182
Conglomerates (0.2%)
- -------------------------------------------------------------------------------
1,670,000 Tyco International Group SA company
guaranty 7s, 2028 (Luxembourg) 1,909,341
2,467,000 Tyco International Group SA company
guaranty 6 3/4s, 2011 (Luxembourg) 2,790,199
--------------
4,699,540
Consumer Cyclicals (1.7%)
- -------------------------------------------------------------------------------
1,770,000 Cendant Corp. notes 6 1/4s, 2010 1,931,865
2,150,000 Cendant Corp. sr. notes 7 3/8s, 2013
(S) 2,501,922
2,144,000 D.R. Horton, Inc. company guaranty
8s, 2009 2,417,360
1,335,000 D.R. Horton, Inc. sr. notes 5 7/8s,
2013 1,338,338
4,365,000 DaimlerChrysler NA Holding Corp.
company guaranty 7.2s, 2009 4,921,350
4,980,000 DaimlerChrysler NA Holding Corp.
company guaranty Ser. D, 3.4s, 2004 4,986,347
1,040,000 Federated Department Stores, Inc.
sr. notes 6 5/8s, 2011 (S) 1,167,648
2,875,000 Ford Motor Co. debs. 9.98s, 2047 3,543,271
5,185,000 Ford Motor Credit Corp. notes
7 3/8s, 2009 5,639,216
2,265,000 General Motors Acceptance Corp.
bonds 8s, 2031 2,344,379
630,000 General Motors Acceptance Corp.
notes 6 7/8s, 2012 655,860
315,000 General Motors Corp. notes 7.2s,
2011 (S) 331,827
1,105,000 GTECH Holdings Corp. notes 4 3/4s,
2010 1,120,264
1,215,000 Hilton Hotels Corp. notes 8 1/4s,
2011 1,451,925
680,000 Hilton Hotels Corp. notes 7 5/8s,
2012 802,400
914,000 Lear Corp. company guaranty Ser. B,
8.11s, 2009 1,049,543
1,570,000 Lennar Corp. company guaranty
Ser. B, 9.95s, 2010 (S) 1,705,413
705,000 May Department Stores Co. 144A notes
5 3/4s, 2014 728,065
945,000 Nordstrom, Inc. debs. 6.95s, 2028 1,058,222
465,000 Park Place Entertainment Corp. sr.
notes 7 1/2s, 2009 526,613
555,000 Park Place Entertainment Corp. sr.
notes 7s, 2013 623,681
195,000 PRIMEDIA, Inc. company guaranty
7 5/8s, 2008 195,975
3,200,000 Pulte Homes, Inc. company guaranty
7 7/8s, 2011 (S) 3,734,602
1,570,000 RadioShack Corp. notes 7 3/8s, 2011 1,818,468
--------------
46,594,554
Consumer Staples (1.8%)
- -------------------------------------------------------------------------------
1,245,000 AOL Time Warner, Inc. bonds 7 5/8s,
2031 (S) 1,475,088
1,915,000 Archer Daniels Midland Co. debs.
8 1/8s, 2012 2,377,605
505,000 AT&T Broadband Corp. company
guaranty 8 3/8s, 2013 619,585
2,820,000 Cadbury Schweppes US Finance, LLC
144A notes 3 7/8s, 2008 2,839,768
450,000 Chancellor Media Corp. company
guaranty 8s, 2008 509,807
1,020,000 Clear Channel Communications, Inc.
sr. notes 5 3/4s, 2013 1,056,357
660,000 ConAgra Foods, Inc. notes 7 7/8s,
2010 780,892
910,000 ConAgra Foods, Inc. notes 6 3/4s,
2011 1,033,879
445,000 Cox Communications, Inc. notes
7 3/4s, 2010 510,657
1,665,000 Cox Enterprises, Inc. 144A notes 8s,
2007 1,797,852
1,046,052 CVS Corp. 144A pass-through
certificates 6.117s, 2013 1,132,589
1,110,000 Diageo PLC company guaranty 8s, 2022
(United Kingdom) 1,440,855
595,000 Foster's Finance Corp. 144A notes
4 7/8s, 2014 596,605
2,740,000 Fred Meyer, Inc. Holding Co. company
guaranty 7.45s, 2008 3,064,986
175,000 Grand Metro Investment Corp. company
guaranty 9s, 2011 222,639
2,440,000 Hormel Foods Corp. notes 6 5/8s,
2011 2,752,144
2,435,000 Johnson (SC) & Son, Inc. 144A bonds
5 3/4s, 2033 2,468,944
4,795,000 Jones Intercable, Inc. sr. notes
7 5/8s, 2008 5,362,929
30,000 Liberty Media Corp. bonds 7 7/8s,
2009 33,878
1,655,000 Liberty Media Corp. sr. notes 5.7s,
2013 1,671,765
2,160,000 Miller Brewing Co. 144A notes
5 1/2s, 2013 (S) 2,266,662
900,000 News America Holdings, Inc. company
guaranty 7 3/8s, 2008 1,005,057
255,000 News America, Inc. company guaranty
4 3/4s, 2010 261,204
525,000 TCI Communications, Inc. debs. 9.8s,
2012 676,482
2,290,000 TCI Communications, Inc. debs.
8 3/4s, 2015 2,908,911
1,820,000 TCI Communications, Inc. debs.
7 7/8s, 2013 2,152,043
795,000 Time Warner, Inc. debs. 9.15s, 2023 1,047,385
3,795,000 Time Warner, Inc. debs. 9 1/8s, 2013 4,863,930
1,215,000 Time Warner, Inc. notes 8.18s, 2007 1,367,207
640,000 Tyson Foods, Inc. notes 8 1/4s, 2011 761,117
745,000 USA Interactive notes 7s, 2013 (S) 824,094
765,000 Yum! Brands, Inc. sr. notes 8 7/8s,
2011 954,790
--------------
50,837,706
Energy (0.7%)
- -------------------------------------------------------------------------------
960,000 Amerada Hess Corp. notes 7 3/8s,
2009 1,092,121
390,000 Amerada Hess Corp. unsub notes
6.65s, 2011 435,795
1,210,000 Anadarko Finance Co. company
guaranty Ser. B, 6 3/4s, 2011 1,377,134
844,000 BRL Universal Equipment sec. notes
8 7/8s, 2008 890,420
735,000 Buckeye Partners LP notes 5.3s, 2014 748,629
770,000 Enterprise Products Operating LP
144A sr. notes 5.6s, 2014 784,647
955,000 Enterprise Products Operating LP
144A sr. notes 4 5/8s, 2009 964,840
375,000 Enterprise Products Operating LP
144A sr. notes 4s, 2007 377,954
1,610,000 Kerr-McGee Corp. company guaranty
6 7/8s, 2011 1,828,733
1,950,000 MidAmerican Energy Holdings Co. sr.
notes 4 5/8s, 2007 1,997,789
345,000 MidAmerican Energy Holdings Co. sr.
notes 3 1/2s, 2008 340,795
3,120,000 Motiva Enterprises, LLC 144A sr.
notes 5.2s, 2012 3,224,918
1,100,000 Ocean Energy, Inc. company guaranty
7 1/4s, 2011 1,268,807
940,000 Petro-Canada, Ltd. bonds 5.35s, 2033
(Canada) 863,238
890,000 Phillips Petroleum Co. notes 8 3/4s,
2010 1,102,989
1,420,000 Schlumberger Technology Corp. 144A
notes 6 1/2s, 2012 1,602,788
770,000 Sunoco, Inc. notes 4 7/8s, 2014 767,240
420,000 XTO Energy, Inc. sr. notes 7 1/2s,
2012 496,939
--------------
20,165,776
Financial (5.8%)
- -------------------------------------------------------------------------------
1,695,000 Allfirst Financial, Inc. sub. notes
7.2s, 2007 1,865,700
730,000 American General Finance Corp. sr.
notes Ser. MTN1, 4 5/8s, 2009 750,052
4,265,000 Associates First Capital Corp. debs.
6.95s, 2018 (S) 5,019,090
5,285,000 Associates First Capital Corp. sub.
debs. 8.15s, 2009 6,213,786
2,070,000 AXA Financial, Inc. sr. notes
7 3/4s, 2010 2,432,500
2,415,000 Bank of America Corp. sub. notes
7 3/4s, 2015 2,942,098
5,540,000 Bank of America Corp. sub. notes
7.4s, 2011 6,490,586
735,000 Bank of New York Co., Inc. (The) sr.
sub. notes FRN 3.4s, 2013 721,894
1,697,000 Bank One Corp. sub. notes 7.6s, 2007 1,878,430
5,325,000 Bank United Corp. notes Ser. A, 8s,
2009 6,196,058
980,000 Block Financial Corp. notes 5 1/8s,
2014 974,999
250,000 Capital One Bank notes 6 1/2s, 2013 274,535
735,000 Capital One Bank notes Ser. BKNT,
4 7/8s, 2008 763,245
775,000 Capital One Bank sr. notes
Ser. BKNT, 6.7s, 2008 851,758
1,035,000 CenterPoint Properties Trust notes
Ser. MTN, 4 3/4s, 2010 1,044,059
155,000 CIT Group, Inc. sr. notes 7 3/4s,
2012 185,014
4,820,000 CIT Group, Inc. sr. notes 5s, 2014 4,838,706
3,430,000 Citigroup, Inc. debs. 6 5/8s, 2028 3,828,103
4,379,000 Citigroup, Inc. 144A sub. notes 5s,
2014 4,442,916
870,000 Colonial Properties Trust notes
6 1/4s, 2014 904,166
2,090,000 Countrywide Home Loans, Inc. company
guaranty Ser. K, 5 5/8s, 2007 2,202,480
2,240,000 Countrywide Home Loans, Inc. company
guaranty Ser. MTNL, 4s, 2011 2,185,850
490,000 Credit Suisse First Boston USA, Inc.
notes 6 1/8s, 2011 (S) 537,611
600,000 Developers Diversified Realty Corp.
notes 4 5/8s, 2010 600,600
2,400,000 Equity One, Inc. company guaranty
3 7/8s, 2009 2,337,985
4,955,000 First Chicago NBD Corp. sub. notes
6 3/8s, 2009 5,555,613
6,370,000 First Union National Bank sub. notes
7.8s, 2010 7,540,105
65,000 FleetBoston Financial Corp. sub.
notes 7 3/8s, 2009 74,986
5,215,000 Franchise Finance Corp. of America
sr. notes 8 3/4s, 2010 (R) 6,544,700
2,165,000 Fund American Cos., Inc. notes
5 7/8s, 2013 2,208,852
1,000,000 General Electric Capital Corp. notes
Ser. A, 6 3/4s, 2032 1,166,221
1,190,000 General Electric Capital Corp. notes
Ser. A, 6s, 2012 1,306,564
280,000 General Electric Capital Corp. notes
Ser. MTNA, 6 1/8s, 2011 309,545
2,020,000 Goldman Sachs Group, Inc. (The)
notes 4 3/4s, 2013 1,996,758
790,000 Greenpoint Capital Trust I company
guaranty 9.1s, 2027 912,629
1,300,000 Hartford Financial Services Group,
Inc. (The) sr. notes 7.9s, 2010 1,524,211
1,310,000 Heller Financial, Inc. notes 7 3/8s,
2009 1,517,256
880,000 Heritage Property Investment Trust
company guaranty 5 1/8s, 2014 (R) 857,664
2,585,000 Hospitality Properties Trust notes
6 3/4s, 2013 (R) 2,821,840
4,090,000 Household Finance Corp. notes 8s,
2010 4,856,315
6,135,000 Household Finance Corp. notes 7s,
2012 7,087,735
3,430,000 Household Finance Corp. notes
6 3/4s, 2011 3,879,827
710,000 HRPT Properties Trust bonds 5 3/4s,
2014 (R) 720,479
660,000 HRPT Properties Trust notes 6 1/4s,
2016 (R) 694,993
2,440,000 International Lease Finance Corp.
notes 4.35s, 2008 2,489,770
305,000 iStar Financial, Inc. sr. notes
8 3/4s, 2008 (R) 351,523
1,645,000 iStar Financial, Inc. sr. notes 7s,
2008 (R) 1,789,058
550,000 iStar Financial, Inc. sr. notes 6s,
2010 (R) 582,690
1,090,000 John Hancock Global Funding II 144A
notes 7.9s, 2010 1,293,338
2,195,000 JPMorgan Chase & Co. sub. notes
5 1/8s, 2014 2,230,291
655,000 Kimco Realty Corp. notes Ser. MTNC,
5.19s, 2013 666,333
1,095,000 Lehman Brothers Holdings, Inc. notes
6 5/8s, 2012 1,234,991
955,000 Merrill Lynch & Co., Inc. notes
Ser. B, 4 3/4s, 2009 984,475
665,000 Metlife, Inc. sr. notes 6 1/8s, 2011 724,992
1,060,000 Morgan Stanley Dean Witter & Co. sr.
notes 6 3/4s, 2011 1,203,167
105,000 National City Bank bonds 4 5/8s,
2013 104,213
2,410,000 National City Bank sub. notes
Ser. BKNT, 6 1/4s, 2011 2,649,564
815,000 Nationwide Financial Services, Inc.
notes 5 5/8s, 2015 841,746
3,590,000 Nordea Bank Finland PLC sub. notes
6 1/2s, 2009 (Finland) 3,971,534
965,000 OneAmerica Financial Partners, Inc.
144A bonds 7s, 2033 1,003,012
3,155,000 PNC Funding Corp. bonds 5 1/4s, 2015 3,231,966
1,580,000 Popular North America, Inc. sub.
notes 3 7/8s, 2008 1,587,595
2,660,000 Principal Life Global Funding I 144A
sec. notes 5 1/4s, 2013 2,750,844
1,435,000 Protective Life Corp. notes 4.3s,
2013 1,381,762
2,565,000 Prudential Financial, Inc. notes
Ser. MTNB, 4 1/2s, 2013 2,494,078
490,000 Royal Bank of Scotland Group PLC FRB
7.648s, 2049 (United Kingdom) 592,226
870,000 Simon Property Group LP 144A notes
5 5/8s, 2014 (R) (S) 899,104
2,445,000 St. Paul Co., Inc. (The) sr. notes
5 3/4s, 2007 2,588,040
1,490,000 Steers Delaware Business Trust 144A
notes 5.565s, 2005 1,530,498
2,080,000 Suncorp-Metway, Ltd. 144A FRB
3 1/2s, 2013 (Australia) 2,053,024
995,000 Travelers Property Casualty Corp.
sr. notes 3 3/4s, 2008 990,358
5,000,000 UBS AG/Jersey Branch FRN 4.91s, 2008
(United Kingdom) 5,200,000
700,000 Vornado Realty Trust notes 4 3/4s,
2010 (R) 706,831
700,000 Wachovia Corp. sub. notes 5 1/4s,
2014 (S) 723,122
--------------
160,908,659
Health Care (0.2%)
- -------------------------------------------------------------------------------
3,660,000 American Home Products Corp. notes
6.95s, 2011 4,104,642
1,320,000 Bayer Corp. 144A FRB 6.2s, 2008 1,424,452
1,130,000 Hospira, Inc. notes 4.95s, 2009 1,158,504
--------------
6,687,598
Technology (0.1%)
- -------------------------------------------------------------------------------
1,085,000 Fiserv, Inc. notes 4s, 2008 1,102,265
630,000 Motorola, Inc. notes 7 5/8s, 2010 738,991
1,290,000 Motorola, Inc. notes 4.608s, 2007 1,328,321
915,000 SunGard Data Systems, Inc. bonds
4 7/8s, 2014 897,990
--------------
4,067,567
Transportation (0.4%)
- -------------------------------------------------------------------------------
2,230,415 Continental Airlines, Inc.
pass-through certificates Ser.
97-4A, 6.9s, 2018 2,169,078
613,220 Continental Airlines, Inc.
pass-through certificates Ser.
98-1A, 6.648s, 2017 573,361
1,275,000 CSX Corp. notes 6 3/4s, 2011 1,432,399
495,000 CSX Corp. notes 6 1/4s, 2008 538,890
3,010,000 Norfolk Southern Corp. notes 7.05s,
2037 3,471,587
155,000 Norfolk Southern Corp. sr. notes
6 3/4s, 2011 175,279
149,440 Northwest Airlines Corp.
pass-through certificates Ser.
99-2A, 7.575s, 2019 149,657
2,200,000 Union Pacific Corp. notes 6.65s,
2011 2,468,827
470,000 Union Pacific Corp. 144A
pass-through certificates 5.214s,
2014 472,247
--------------
11,451,325
Utilities & Power (2.6%)
- -------------------------------------------------------------------------------
875,000 AEP Texas Central Co. sr. notes
Ser. D, 5 1/2s, 2013 919,503
640,000 AEP Texas North Co. sr. notes
Ser. B, 5 1/2s, 2013 670,455
470,000 American Electric Power Co., Inc.
notes Ser. A, 6 1/8s, 2006 491,960
5,760,000 Arizona Public Services Co. sr.
notes 6 3/4s, 2006 6,171,828
1,115,000 Atmos Energy Corp. notes 4.95s, 2014 1,114,189
380,000 Carolina Power & Light Co. 1st mtge.
6 1/8s, 2033 401,313
440,000 CenterPoint Energy Resources Corp.
debs. 8.9s, 2006 489,869
1,735,000 CenterPoint Energy Resources Corp.
notes 7 3/4s, 2011 2,027,030
1,670,000 Cleveland Electric Illuminating Co.
(The) sr. notes 5.65s, 2013 1,743,749
3,185,000 Consumers Energy Co. 1st mtge.
Ser. B, 5 3/8s, 2013 3,297,698
970,000 Consumers Energy Co. bonds 6 1/4s,
2006 1,024,162
1,035,000 Dayton Power & Light Co. (The) 144A
1st mtge. 5 1/8s, 2013 1,056,617
695,000 Dominion Resources, Inc. unsub.
notes 5.7s, 2012 736,544
2,035,000 Duke Capital Corp. sr. notes Ser. A,
6 1/4s, 2005 2,083,498
2,970,000 Duke Energy Field Services, LLC
notes 7 7/8s, 2010 3,512,675
2,555,000 Exelon Generation Co., LLC sr. notes
6.95s, 2011 (S) 2,909,780
1,285,000 Florida Power & Light Co. 1st mtge.
5.95s, 2033 (S) 1,376,928
825,000 Florida Power & Light Co. 1st mtge.
5 5/8s, 2034 842,941
680,000 Indianapolis Power & Light 144A 1st
mtge. 6.3s, 2013 737,541
2,095,000 Kinder Morgan, Inc. sr. notes
6 1/2s, 2012 (S) 2,321,617
2,940,000 Monongahela Power Co. 1st mtge. 5s,
2006 3,018,336
980,000 National Fuel Gas Co. notes 5 1/4s,
2013 1,009,463
1,630,000 Nevada Power Co. 2nd mtge. 9s, 2013 1,898,950
1,760,000 NiSource Finance Corp. company
guaranty 7 7/8s, 2010 2,089,173
2,635,000 Northern States Power Co. mtge.
Ser. B, 8s, 2012 3,251,171
490,000 Oncor Electric Delivery Co. sec.
notes 7 1/4s, 2033 588,399
2,405,000 Oncor Electric Delivery Co. sec.
notes 6 3/8s, 2012 2,668,364
1,325,000 Pacific Gas & Electric Co. 1st mtge.
6.05s, 2034 1,362,599
715,000 Pacific Gas & Electric Co. 1st mtge.
4.8s, 2014 715,853
490,000 Pacific Gas & Electric Co. 1st.
mtge. 4.2s, 2011 488,409
1,570,000 PacifiCorp Sinking Fund 1st mtge.
5.45s, 2013 1,662,778
1,080,000 Pepco Holdings, Inc. notes 5 1/2s,
2007 1,134,699
955,000 Potomac Edison Co. 1st mtge. 8s,
2024 986,003
1,769,644 Power Receivable Finance, LLC 144A
sr. notes 6.29s, 2012 1,862,532
790,000 PP&L Capital Funding, Inc. company
guaranty Ser. D, 8 3/8s, 2007 883,801
1,395,000 Progress Energy, Inc. sr. notes
6.05s, 2007 1,478,806
785,000 Public Service Company of New Mexico
sr. notes 4.4s, 2008 794,090
1,780,000 Public Service Electric & Gas Co.
1st mtge. FRN 6 3/8s, 2008 1,932,307
1,605,000 Public Services Co. of Colorado sr.
notes Ser. A, 6 7/8s, 2009 1,799,781
995,000 Rochester Gas & Electric notes
6 3/8s, 2033 1,078,118
1,010,000 Southern California Edison Co. 1st
mtge. 6s, 2034 1,066,908
1,285,000 Southern California Edison Co. 1st
mtge. 5s, 2014 1,316,429
875,000 Tampa Electric Co. notes 6 7/8s,
2012 987,904
95,000 Westar Energy, Inc. 1st mtge. 6s,
2014 102,739
990,000 Western Energy, Inc. sr. notes Ser.
(a), 7 1/8s, 2009 1,103,666
840,000 Western Resources, Inc. 1st mtge.
7 7/8s, 2007 930,065
1,098,000 Western Resources, Inc. sr. notes
9 3/4s, 2007 1,248,475
235,965 York Power Funding 144A notes 12s,
2007 (Cayman Islands) (In default)
(NON) 24
--------------
71,389,739
--------------
Total Corporate bonds and notes
(cost $459,175,087) $479,997,663
Asset-backed securities (18.8%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$17,387,250 Aames Mortgage Trust Ser. 03-1,
Class A, Interest Only (IO), 6s,
2005 $763,344
35,362 Aames Mortgage Trust 144A Ser.
03-1N, Class A, 7 1/2s, 2033 35,328
10,219,000 Ace Securities Corp. Ser. 03-FM1,
Class A, IO, 4 1/2s, 2005 363,796
2,528,167 Advanta Mortgage Loan Trust Ser.
00-1, Class A4, 8.61s, 2028 2,614,283
Aegis Asset Backed Securities Trust
144A
573,866 Ser. 04-1N, Class Note, 5s, 2034 572,611
1,229,423 Ser. 04-4N, Class Note, 5s, 2034 1,228,964
980,301 Ser. 04-2N, Class N1, 4 1/2s, 2034 974,634
9,548,360 AFC Home Equity Loan Trust Ser.
99-2, Class 1A, 2.343s, 2029 9,548,360
14,080,000 American Express Credit Account
Master Trust 144A Ser. 04-C, Class
C, 2.37s, 2012 14,082,196
Ameriquest Finance NIM Trust 144A
551,000 Ser. 04-IAN, Class 1A, 2s, 2034 549,623
300,000 Ser. 04-IAN1, Class B, 2s, 2034 299,250
Ameriquest Mortgage Securities, Inc.
12,874,740 Ser. 03-6, Class S, IO, 5s, 2033 509,457
8,539,161 Ser. 03-8, Class S, IO, 5s, 2006 341,566
8,843,166 Ser. 03-12, Class S, IO, 5s, 2006 373,071
725,000 Ser. 02-1, Class S, IO, 2 1/2s, 2032 73
1,918,000 Ameriquest Mortgage Securities, Inc.
144A Ser. 04-RN9, 4.8s, 2034 1,915,698
Amortizing Residential Collateral Trust
3,220,000 Ser. 02-BC1, Class A, IO, 6s, 2005 62,408
12,413,406 Ser. 02-BC3, Class A, IO, 6s, 2005 239,903
12,504,510 Ser. 02-BC9, Class A, IO, 6s, 2004 56,131
10,432,777 Ser. 02-BC10, Class A, IO, 6s, 2004 98,750
AQ Finance NIM Trust 144A
229,193 Ser. 03-N7A, Class Note, 9.07s, 2033 229,838
309,814 Ser. 03-N9A, Class Note, 7.385s,
2033 311,363
167,814 Arc Net Interest Margin Trust Ser.
02-2, Class A, 7 3/4s, 2032 167,535
Arcap REIT, Inc. 144A
1,993,000 Ser. 03-1A, Class E, 7.11s, 2038 2,139,984
1,469,204 Ser. 04-1A, Class E, 6.42s, 2039 1,504,327
Argent NIM Trust 144A
328,269 Ser. 03-N6, Class A, 6.4s, 2034
(Cayman Islands) 329,090
825,000 Ser. 04-WN9, Class A, 5 3/4s, 2034
(Cayman Islands) 825,000
265,819 Ser. 03-N8, Class A, 5.56s, 2034
(Cayman Islands) 265,819
858,407 Ser. 04-WN2, Class A, 4.55s, 2034
(Cayman Islands) 855,188
665,246 Ser. 04-WN4, Class A, 4.459s, 2034
(Cayman Islands) 663,271
Asset Backed Funding Corp. NIM Trust
144A
226,034 Ser. 03-WF1, Class N1, 8.35s, 2032 226,034
439,428 Ser. 03-OPT1, Class Note, 6.9s, 2033 439,428
1,804,343 Ser. 04-AHL1, Class Note, 5.6s, 2033 1,804,275
1,219,357 Ser. 04-FF1, Class N1, 5s, 2034
(Cayman Islands) 1,215,346
75,000 Ser. 04-FF1, Class N2, 5s, 2034
(Cayman Islands) 74,753
1,268,171 Ser. 04-0PT1, Class N1, 4.55s, 2033
(Cayman Islands) 1,260,245
951,000 Ser. 04-0PT5, Class N1, 4 1/2s, 2034
(Cayman Islands) 950,938
Asset Backed Securities Corp. Home
Equity Loan Trust
28,238,768 Ser. 03-HE1, Class A, IO, 5s, 2033 841,007
13,467,931 Ser. 03-HE5, Class A, IO, 4s, 2033 475,405
837,084 FRB Ser. 04-HE1, Class A3, 2.27s,
2034 837,083
1,620,141 Aviation Capital Group Trust 144A
FRB Ser. 03-2A, Class G1, 2.61s,
2033 1,626,216
1,390,000 Bank One Issuance Trust FRB Ser.
03-C4, Class C4, 2.9s, 2011 1,415,854
Bayview Financial Acquisition Trust
15,902,563 Ser. 03-E, Class A, IO, 4s, 2006 557,840
6,300,000 FRB Ser. 03-G, Class A1, 2.559s,
2039 6,300,000
5,356,237 FRN Ser. 03-F, Class A, 2.459s, 2043 5,367,117
83,819,262 Ser. 03-X, Class A, IO, 0.9s, 2006 1,463,300
Bayview Financial Asset Trust 144A
2,917,247 FRB Ser. 03-SSRA, Class M, 3.283s,
2038 2,917,247
2,554,406 FRB Ser. 03-SSRA, Class A, 2.633s,
2038 2,564,112
137,887,593 Ser. 03-Z, Class AIO1, IO, 0.582s,
2005 396,962
Bear Stearns Alternate Trust
2,440,319 Ser. 04-9, Class 1A1, 5.147s, 2007 2,497,780
10,665,000 Ser. 04-12, Class A2, 5s, 2034 10,891,631
6,372,145 Ser. 04-11, Class 2A2, 4.975s, 2034 6,503,737
1,315,383 Ser. 04-11, Class 2A1, 4.912s, 2034 1,341,934
Bear Stearns Asset Backed Securities
NIM Trust 144A
909,297 Ser. 04-HE6, Class A1, 5 1/4s, 2034
(Cayman Islands) 908,018
1,218,306 Ser. 04-HE7N, Class A1, 5 1/4s, 2034
(Cayman Islands) 1,218,306
1,603,368 Ser. 04-FR1, Class A1, 5s, 2034
(Cayman Islands) 1,598,358
1,055,455 Ser. 04-HE5N, Class A1, 5s, 2034
(Cayman Islands) 1,051,332
111,000 Ser. 04-HE5N, Class A2, 5s, 2034
(Cayman Islands) 110,237
509,230 Ser. 04-HE8N, Class A1, 5s, 2034
(Cayman Islands) 509,230
Bear Stearns Asset Backed Securities, Inc.
15,948,800 Ser. 03-AC1, Class A, IO, 5s, 2005 558,018
17,501,000 Ser. 03-AC4, Class A, IO, 5s, 2006 814,164
2,964,000 FRB Ser. 03-3, Class A2, 2.523s,
2043 2,964,000
2,598,280 FRN Ser. 03-1, Class A1, 2.433s,
2042 2,598,277
880,000 Capital One Multi-Asset Execution
Trust FRB Ser. 02-C1, Class C1,
4.62s, 2010 927,850
826,000 CARMAX Auto Owner Trust Ser. 04-2,
Class D, 3.67s, 2011 826,479
CARSSX Finance, Ltd. 144A
550,000 FRB Ser. 04-AA, Class B4, 7.37s,
2011 (Cayman Islands) 550,275
430,000 FRB Ser. 04-AA, Class B3, 5.22s,
2011 (Cayman Islands) 430,215
4,870,000 CDO Repackaging Trust Series 144A
FRB Ser. 03-2, Class A, 6.008s,
2008 5,079,410
14,422,800 Centex Home Equity Ser. 04-C, Class
A, IO, 3 1/2s, 2006 432,407
2,550,000 Chase Credit Card Master Trust FRB
Ser. 03-3, Class C, 2.95s, 2010 2,607,502
Chase Funding Net Interest Margin
144A
109,983 Ser. 03-3A, Class Note, 6 7/8s, 2036 110,121
15,186 Ser. 03-4A, Class Note, 6 3/4s, 2036 15,223
388,095 Ser. 03-C1A, Class Note, 6 3/4s,
2036 389,551
143,182 Ser. 04-1A, Class Note, 3 3/4s, 2035 142,467
CHEC NIM, Ltd. 144A
350,000 Ser. 04-2, Class N2, 8s, 2034
(Cayman Islands) 349,980
223,000 Ser. 04-2, Class N3, 8s, 2034
(Cayman Islands) 191,780
1,392,000 Ser. 04-2, Class N1, 4.45s, 2034
(Cayman Islands) 1,384,052
1,390,000 Citibank Credit Card Issuance Trust
FRN Ser. 01-C1, Class C1, 3.15s,
2010 1,412,645
Conseco Finance Securitizations Corp.
5,593,000 Ser. 02-1, Class M2, 9.546s, 2033 2,516,850
4,506,333 Ser. 01-4, Class B1, 9.4s, 2033 608,355
8,500,000 Ser. 00-2, Class A5, 8.85s, 2030 7,617,700
11,803,229 Ser. 02-2, Class A, IO, 8 1/2s, 2033 3,263,593
8,633,000 Ser. 00-4, Class A6, 8.31s, 2032 7,573,064
4,808,000 Ser. 00-5, Class A6, 7.96s, 2032 4,121,898
5,654,000 Ser. 01-4, Class A4, 7.36s, 2033 5,873,941
281,000 Ser. 01-1, Class A5, 6.99s, 2032 269,630
6,800,000 Ser. 01-3, Class A4, 6.91s, 2033 6,832,640
11,290,056 Ser. 02-1, Class A, 6.681s, 2033 11,838,061
10,953,491 Ser. 01-1, Class A4, 6.21s, 2032 11,079,457
3,653,000 Consumer Credit Reference IDX
Securities FRB Ser. 02-1A, Class A,
3.919s, 2007 3,703,338
Countrywide Asset Backed
Certificates 144A
332,572 Ser. 03-5NF, Class NF, 6 3/4s, 2034 334,546
285,578 Ser. 04-1NIM, Class Note, 6s, 2034 286,664
5,422,968 Ser. 04-6N, Class N1, 6 1/4s, 2035 5,417,545
1,354,122 Ser. 04-BC1N, Class Note, 5 1/2s,
2035 1,348,621
836,000 Countrywide Asset-Backed
Certificates 144A Ser. 04-11N,
Class N, 5 1/4s, 2036 835,553
108,191 Credit-Based Asset Servicing and
Securitization 144A Ser.
03-CB2N, Class Note, 8.35s, 2033 108,326
2,157,000 Crest, Ltd. 144A Ser. 03-2A, Class
D2, 6.723s, 2038 2,271,591
23,582,000 CS First Boston Mortgage Securities
Corp. 144A Ser. 04-C4, Class AX,
IO, 0.078s, 2039 548,093
1,068,797 Finance America NIM Trust 144A Ser.
04-1, Class A, 5 1/4s, 2034 1,069,262
6,500,001 First Chicago Lennar Trust 144A Ser.
97-CHL1, Class D, 7.827s, 2039 6,870,876
First Franklin Mortgage Loan Asset
Backed Certificates
17,970,475 Ser. 03-FF3, Class A, IO, 6s, 2005 259,305
16,085,364 Ser. 03-FFB, Class A, IO, 6s, 2005 481,341
First Franklin NIM Trust 144A
395,962 Ser. 03-FF3A, Class A, 6 3/4s, 2033 394,424
1,212,654 Ser. 04-FF7A, Class A, 5s, 2034 1,215,322
933,592 Ser. 04-FF1, Class N1, 4 1/2s, 2034 930,978
1,093,000 Ser. 04-FF10, Class N1, 4 1/2s, 2034
(Cayman Islands) 1,092,928
1,541,316 First Plus Home Loan Trust Ser.
97-3, Class B1, 7.79s, 2023 1,542,280
834,000 Fort Point CDO, Ltd. FRN Ser. 03-2A,
Class A2, 2.85s, 2038 838,670
2,600,000 Foxe Basin, Ltd. FRB Ser. 03-1A,
Class A1, 2.38s, 2015 2,600,000
Fremont NIM Trust 144A
1,478,278 Ser. 04-A, Class Note, 4 3/4s, 2034 1,473,843
954,477 Ser. 04-B, Class Note, 4.703s, 2034 954,477
417,000 G-Star, Ltd. 144A FRN Ser. 02-2A,
Class BFL, 3.933s, 2037 414,450
2,444,480 GE Capital Credit Card Master Note
Trust FRB Ser. 04-2, Class
C, 2.339s, 2010 2,444,480
545,000 GE Corporate Aircraft Financing, LLC
144A Ser. 04-1A, Class B, 2.76s,
2018 545,000
1,000,000 GMAC Mortgage Corp. Ser. 02-HE2,
Class A, IO, 7 1/2s, 2027 1
750,000 Goldentree Loan Opportunities II,
Ltd. 144A FRN Ser. 2A, Class
4, 5.091s, 2015 (Cayman Islands) 764,250
Granite Mortgages PLC
5,040,000 FRN Ser. 01-1, Class 1C, 3.479s,
2041 (United Kingdom) 5,054,962
1,140,000 FRB Ser. 02-1, Class 1C, 3.379s,
2042 (United Kingdom) 1,157,898
860,000 FRB Ser. 02-2, Class 1C, 3.329s,
2043 (United Kingdom) 873,760
2,130,000 FRB Ser. 04-1, Class 1C, 2.81s, 2044
(United Kingdom) 2,138,653
Green Tree Financial Corp.
19,225,000 Ser. 99-5, Class A5, 7.86s, 2030 17,320,969
1,306,729 Ser. 97-6, Class A9, 7.55s, 2029 1,435,311
549,349 Ser. 97-4, Class A7, 7.36s, 2029 601,537
467,121 Ser. 95-8, Class B1, 7.3s, 2026 359,683
567,444 Ser. 97-6, Class A8, 7.07s, 2016 596,641
441,398 Ser. 97-7, Class A8, 6.86s, 2029 476,709
1,473,000 Ser. 99-3, Class A6, 6 1/2s, 2031 1,551,368
584,041 Ser. 99-3, Class A5, 6.16s, 2031 592,801
3,400,914 Greenpoint Manufactured Housing Ser.
00-3, Class IA, 8.45s, 2031 3,396,153
4,894,000 GS Auto Loan Trust 144A Ser. 04-1,
Class D, 5s, 2011 4,830,336
GSAMP Trust 144A
396,426 Ser. 03-HE1N, Class Note, 7 1/4s,
2033 395,237
6,403,930 Ser. 04-NIM1, Class N1, 5 1/2s, 2034 6,403,930
883,196 Ser. 04-RENM, Class Note, 5 1/2s,
2032 882,313
1,057,936 Ser. 04-SE2N, Class Note, 5 1/2s,
2034 1,057,936
780,778 Ser. 04-FM1N, Class Note, 5 1/4s,
2033 780,232
1,031,416 Ser. 04-HE1N, Class N1, 5s, 2034 1,029,560
1,990,000 Ser. 04-NIM1, Class N2, zero %, 2034 1,472,202
3,574,058 High Income Trust Securities 144A
FRB Ser. 03-1A, Class A, 2.21s,
2036 3,448,966
Holmes Financing PLC FRB
1,440,000 Ser. 5, Class 2C, 3.52s, 2040
(United Kingdom) 1,444,032
860,000 Ser. 4, Class 3C, 3.37s, 2040
(United Kingdom) 871,008
976,000 Ser. 8, Class 2C, 2.79s, 2040
(United Kingdom) 978,440
22,675,000 Ser. 1, Class 2C, 3.22s, 2040
(United Kingdom) 22,588,835
Home Equity Asset Trust 144A
184,689 Ser. 02-5N, Class A, 8s, 2033 185,613
9,511 Ser. 03-3N, Class A, 8s, 2033 9,582
307,682 Ser. 03-4N, Class A, 8s, 2033 309,989
309,291 Ser. 03-5N, Class A, 7 1/2s, 2034 310,838
590,132 Ser. 03-7N, Class A, 5 1/4s, 2034 590,132
1,165,609 Ser. 04-1N, Class A, 5s, 2034 1,162,695
1,056,826 Ser. 04-3N, Class A, 5s, 2034 1,052,863
1,363,000 Ser. 04-4N, Class A, 5s, 2034 1,358,574
551,000 Hyundai Auto Receivables Trust Ser.
04-A, Class D, 4.1s, 2011 552,751
43,093,696 Lehman Manufactured Housing Ser.
98-1, Class 1, IO, 0.811s, 2028 931,437
LNR CDO, Ltd. 144A
4,150,000 FRB Ser. 03-1A, Class EFL, 4.933s,
2036 (Cayman Islands) 4,382,815
6,071,000 FRB Ser. 02-1A, Class FFL, 4.683s,
2037 (Cayman Islands) 5,941,081
Long Beach Asset Holdings Corp. NIM
Trust 144A
273,359 Ser. 03-4, Class N1, 6.535s, 2033 273,359
2,200,248 Ser. 04-5, Class Note, 5s, 2034 2,205,089
985,721 Ser. 04-2, Class N1, 4.94s, 2034 985,721
Long Beach Mortgage Loan Trust
37,227,673 Ser. 04-3, Class S1, IO, 4 1/2s,
2006 2,152,225
18,613,870 Ser. 04-3, Class S2, IO, 4 1/2s,
2006 1,076,114
Madison Avenue Manufactured Housing
Contract
5,098,734 FRB Ser. 02-A, Class B1, 5.183s,
2032 3,008,253
264,188,681Ser. 02-A IO, 0.3s, 2032 3,013,389
4,059,685 Marriott Vacation Club Owner Trust
144A FRB Ser. 02-1A, Class A1,
2.61s, 2024 4,098,565
Master Asset Backed Securities NIM
Trust 144A
800,000 Ser. 04-CI5, Class N2, 10s, 2034 791,856
1,246,434 Ser. 04-CI5, Class N1, 4.946s, 2034 1,246,417
796,945 Ser. 04-CI3, Class N1, 4.45s, 2034 796,934
2,550,000 MBNA Credit Card Master Note Trust
FRN Ser. 03-C5, Class C5, 3.05s,
2010 2,606,217
9,908,341 Merit Securities Corp. FRB Ser.
11PA, Class 3A1, 2.579s, 2027 9,512,007
266,763 Merrill Lynch Mortgage Investors,
Inc. Ser. 03-WM3N, Class N1, 8s,
2005 267,990
Merrill Lynch Mortgage Investors,
Inc. 144A
645,759 Ser. 03-OP1N, Class N1, 7 1/4s, 2034 648,084
480,060 Ser. 04-FM1N, Class N1, 5s, 2035 475,740
682,130 Ser. 04-HE1N, Class N1, 5s, 2006 677,355
900,251 Ser. 04-WM2N, Class N1, 4 1/2s, 2005 893,139
1,821,638 Ser. 04-WM3N, Class N1, 4 1/2s, 2005 1,812,530
1,665,000 Metris Master Trust FRN Ser. 04-2,
Class C, 4s, 2034 1,665,000
Mid-State Trust
1,117,102 Ser. 11, Class B, 8.221s, 2038 1,093,586
1,185,541 Ser. 10, Class B, 7.54s, 2036 1,039,689
3,780,128 MMCA Automobile Trust Ser. 02-1,
Class B, 5.37s, 2010 3,803,754
Morgan Stanley ABS Capital I 144A
222,018 Ser. 03-NC8N, Class Note, 7.6s, 2033 223,197
54,716 Ser. 03-NC9N, Class Note, 7.6s, 2033 54,990
654,699 Ser. 04-NC2N, Class Note, 6 1/4s,
2033 656,950
277,000 Morgan Stanley Auto Loan Trust Ser.
04-HB2, Class D, 3.59s, 2012 277,087
Morgan Stanley Auto Loan Trust 144A
1,145,000 Ser. 04-HB1, Class D, 5 1/2s, 2011 1,136,756
633,000 Ser. 04-HB2, Class E, 5s, 2012 612,378
Morgan Stanley Dean Witter Capital I
1,868,000 FRN Ser. 01-NC4, Class B1, 4.433s,
2032 1,846,099
1,520,615 FRN Ser. 01-NC3, Class B1, 4.383s,
2031 1,509,591
1,555,000 Navigator CDO, Ltd. 144A FRB Ser.
03-1A, Class A1, 2.201s, 2015 1,564,952
1,026,842 Neon Capital, Ltd. 144A limited
recourse sec. notes Ser. 96,
1.458s, 2013 (Cayman Islands) (f) 960,216
2,365,000 New Century Home Equity Loan Trust
Ser. 03-5, Class AI7, 5.15s, 2033 2,380,889
New Century Mortgage Corp. NIM Trust
144A
212,646 Ser. 03-5, Class Note, 8s, 2033 214,307
475,007 Ser. 03-B, Class Note, 6 1/2s, 2033 476,714
966,000 Newcastle CDO, Ltd. 144A FRB Ser.
3A, Class 4FL, 5.133s, 2038 973,245
625,315 Nomura Asset Acceptance Corp. 144A
Ser. 04-R2, Class PT, IO, 10.118s,
2034 705,434
Novastar NIM Trust 144A
1,744,833 Ser. 04-N1, Class Note, 4.458s, 2034 1,744,833
1,412,545 Ser. 04-N2, Class Note, 4.458s, 2034 1,412,545
8,213,730 Oakwood Mortgage Investors, Inc.
Ser. 02-C, Class A1, 5.41s, 2032 7,398,107
798,000 Oceanstar 144A FRB Ser. 04, Class D,
4.406s, 2034 798,000
487,520 Option One Mortgage Securities Corp.
NIM Trust 144A Ser. 03-5, Class
Note, 6.9s, 2033 489,957
551,000 Origen Manufactured Housing Ser.
04-B, Class A2, 3.79s, 2017 548,331
Park Place Securities NIM Trust 144A
1,268,000 Ser. 04-WCW2, Class D, 7.387s, 2034 1,268,000
688,000 Ser. 04-MCWN1, Class A, 4.458s, 2034 688,000
Pass-Through Amortizing Credit Card
Trust
1,053,271 Ser. 02-1A, Class A4FL, 7.389s, 2012 1,055,670
528,276 Ser. 02-1A, Class A3FL, 4.889s, 2012 529,492
People's Choice Net Interest Margin
Note 144A
3,672,671 Ser. 04-2, Class A, 5s, 2034 3,680,926
428,000 Ser. 04-2, Class B, 5s, 2034 387,768
2,510,000 Permanent Financing PLC FRB Ser. 3,
Class 3C, 3.013s, 2042 (United
Kingdom) 2,544,136
Providian Gateway Master Trust 144A
1,183,000 Ser. 04-DA, Class D, 4.4s, 2011 1,182,630
1,400,000 FRB Ser. 04-AA, Class D, 3.72s, 2011 1,402,940
850,000 FRN Ser. 04-BA, Class D, 3.27s, 2010 852,848
3,202,000 RALI Ser. 04-QA5, Class A, 5 1/4s,
2034 3,269,542
997,455 Renaissance NIM Trust 144A Ser.
04-A, 4.45s, 2034 997,455
368,000 Residential Asset Mortgage Products,
Inc. Ser. 02-SL1, Class AI3, 7s,
2032 370,718
6,096,774 Residential Asset Securities Corp.
Ser. 02-KS6, Class AIO, IO, 4 1/2s,
2005 82,258
Residential Funding Mortgage
Securities II
21,875,566 Ser. 03-HS1, Class AI, IO, 5 1/2s,
2033 756,895
9,854,758 Ser. 03-HS2, Class AI, IO, 5 1/2s,
2005 325,495
7,419,544 Ser. 03-HS3, Class AI, IO, 5s, 2006 307,911
SAIL Net Interest Margin Notes 144A
28,939 Ser. 03-3, Class A, 7 3/4s, 2033
(Cayman Islands) 28,794
726,653 Ser. 03-BC2A, Class A, 7 3/4s, 2033
(Cayman Islands) 724,541
533,776 Ser. 03-4, Class A, 7 1/2s, 2033
(Cayman Islands) 533,189
620,000 Ser. 04-4A, Class B, 7 1/2s, 2034
(Cayman Islands) 571,578
142,592 Ser. 03-5, Class A, 7.35s, 2033
(Cayman Islands) 142,550
796,231 Ser. 03-12A, Class A, 7.35s, 2033
(Cayman Islands) 795,990
494,106 Ser. 03-6A, Class A, 7s, 2033
(Cayman Islands) 490,433
645,455 Ser. 03-7A, Class A, 7s, 2033
(Cayman Islands) 640,666
1,164,691 Ser. 03-9A, Class A, 7s, 2033
(Cayman Islands) 1,158,633
438,699 Ser. 03-13A, Class A, 6 3/4s, 2033
(Cayman Islands) 438,136
265,555 Ser. 04-7A, Class B, 6 3/4s, 2034
(Cayman Islands) 261,145
792,316 Ser. 04-8A, Class B, 6 3/4s, 2034
(Cayman Islands) 774,529
2,438,896 Ser. 04-2A, Class A, 5 1/2s, 2034
(Cayman Islands) 2,438,896
3,926,357 Ser. 04-4A, Class A, 5s, 2034
(Cayman Islands) 3,920,468
1,445,816 Ser. 04-8A, Class A, 5s, 2034
(Cayman Islands) 1,445,816
454,727 Ser. 04-BNCA, Class A, 5s, 2034
(Cayman Islands) 454,057
2,212,582 Ser. 04-7A, Class A, 4 3/4s, 2034
(Cayman Islands) 2,209,505
1,165,557 Ser. 04-5A, Class A, 4 1/2s, 2034
(Cayman Islands) 1,163,843
1,363,000 Ser. 04-AA, Class A, 4 1/2s, 2034
(Cayman Islands) 1,358,230
Sasco Arc Net Interest Margin Notes
144A
24,306 Ser. 02-BC10, Class A, 7 3/4s, 2033 24,085
173,591 Ser. 03-AM1, Class A, 7 3/4s, 2033 172,745
298,592 Saxon Net Interest Margin Trust 144A
Ser. 03-A, Class A, 6.656s, 2033 298,592
Sharps SP I, LLC Net Interest Margin
Trust 144A
201,600 Ser. 03-TC1N, Class N, 7.45s, 2033 201,600
565,970 Ser. 03-HE1N, 6.9s, 2033 568,799
803,361 Ser. 04-4N, Class Note, 6.65s, 2034 802,397
662,361 Ser. 04-HS1N, Class Note, 5.92s,
2034 662,361
518,358 Ser. 04-HE2N, Class NA, 5.43s, 2034 517,736
931,760 Ser. 04-HE1N, Class Note, 4.94s,
2034 931,760
1,520,066 Ser. 03-0P1N, Class NA, 4.45s, 2033 1,520,066
760,000 South Coast Funding FRB Ser. 3A,
Class A2, 2.91s, 2038 769,500
Structured Adjustable Rate Mortgage
Loan Trust
6,770,022 Ser. 04-14, Class 1A, 5.129s, 2034 6,929,795
6,826,266 Ser. 04-12, Class 1A2, 5.069s, 2034 6,978,526
6,144,000 Ser. 04-16, Class 1A2, 5.037s, 2034 6,280,320
3,469,677 Ser. 04-10, Class 1A1, 4.975s, 2034 3,546,947
Structured Adjustable Rate Mortgage
Loan Trust
22,207 Ser. 04-4, Class 1A1, 4.795s, 2034 22,612
24,834 Ser. 04-8, Class 1A3, 4.739s, 2034 25,237
14,275,627 Ser. 04-6, Class 1A, 4.427s, 2034 14,505,465
Structured Asset Investment Loan
Trust
34,494,249 Ser. 03-BC2, Class A, IO, 6s, 2005 838,931
8,914,198 Ser. 03-BC4, Class A, IO, 6s, 2004 40,014
16,232,681 Ser. 03-BC5, Class A, IO, 6s, 2004 72,866
11,327,562 Ser. 03-BC6, Class A, IO, 6s, 2005 163,451
8,776,689 Ser. 03-BC8, Class A, IO, 6s, 2005 299,359
13,057,333 Ser. 03-BC9, Class A, IO, 6s, 2005 253,068
7,618,474 Ser. 03-BC10, Class A, IO, 6s, 2005 185,551
53,916,942 Ser. 03-BC11, Class A, IO, 6s, 2005 1,576,975
11,818,540 Ser. 03-BC12, Class A, IO, 6s, 2005 263,478
19,586,428 Ser. 03-BC13, Class A, IO, 6s, 2005 436,651
45,492,697 Ser. 04-1, Class A, IO, 6s, 2005 1,775,845
33,028,520 Ser. 04-3, Class A, IO, 6s, 2005 1,613,852
Structured Asset Securities Corp.
2,871,905 Ser. 03-40A, Class 1A, 5.002s, 2034 2,933,938
2,547,768 Ser. 04-8, Class 1A1, 4.739s, 2034 2,598,036
4,963,067 Ser. 03-26A, Class 2A, 4.578s, 2033 5,041,186
9,721,448 Ser. 98-RF3, Class A, IO, 6.1s, 2028 1,648,563
15,402,628 Ser. 02-BC1, Class A, IO, 6s, 2004 69,140
Structured Asset Securities Corp.
144A
3,764,000 FRB Ser. 03-NP2, Class A2, 2.483s,
2032 3,758,708
1,133,033 FRN Ser. 03-NP3, Class A1, 2.433s,
2033 1,133,033
4,234,000 Terwin Mortgage Trust FRB Ser.
04-5HE, Class A1B, 2.353s, 2035 4,229,369
2,298,000 TIAA Real Estate CDO, Ltd. Ser.
03-1A, Class E, 8s, 2038 (Cayman
Islands) 2,235,307
Wells Fargo Home Equity Trust 144A
1,102,000 Ser. 04-2, Class N2, 8s, 2034 1,046,900
1,174,698 Ser. 04-1N, Class A, 5s, 2034 1,170,498
3,872,507 Ser. 04-2, Class N1, 4.45s, 2034 3,872,277
1,376,000 Westo Ser. 04-3, Class D, 4.07s,
2012 1,380,128
820,000 WFS Financial Owner Trust Ser. 04-4,
Class D, 3.58s, 2012 820,000
604,163 Whole Auto Loan Trust Ser. 03-1,
Class C, 3.13s, 2010 597,649
Whole Auto Loan Trust 144A
3,632,646 Ser. 03-1, Class D, 6s, 2010 3,633,214
5,372,000 Ser. 04-1, Class D, 5.6s, 2034 5,371,919
--------------
Total Asset-backed securities
(cost $541,070,688) $523,137,920
Collateralized mortgage obligations (13.0%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$815,000 Amresco Commercial Mortgage Funding
I 144A Ser. 97-C1, Class H, 7s,
2029 $861,375
36,905,000 Banc of America Commercial Mortgage,
Inc. 144A Ser. 04-4, IO, 0.526s,
2019 558,299
Banc of America Large Loan 144A
552,000 FRN Ser. 02-FL2A, Class L1, 4.84s,
2014 552,928
141,007,349 Ser. 03-BBA2, Class X1A, IO, 0.775s,
2015 1,069,738
2,390,000 Banc of America Structured Security
Trust 144A Ser. 02-X1, Class A3,
5.436s, 2033 2,521,078
10,312,514 Bayview Commercial Asset Trust 144A
Ser. 04-2, IO, 0.72s, 2034 849,574
Bear Stearns Commercial
Mortgage Securitization Corp. 144A
1,400,000 Ser. 04-ESA, Class K, 4.368s, 2016 1,399,995
1,034,000 Ser. 04-HS2A, Class G, 3.268s, 2016 1,033,998
53,925,000 Ser. 04-PWR5, Class X1, IO, 1s, 2034 1,044,797
14,111,000 Ser. 04-T16, Class X1, IO, 0.119s,
2046 273,189
3,415,577 Chase Commercial Mortgage Securities
Corp. Ser. 00-1, Class A1, 7.656s,
2032 3,494,127
Chase Commercial Mortgage Securities
Corp. 144A
5,896,000 Ser. 98-1, Class F, 6.56s, 2030 6,459,093
1,502,003 Ser. 98-1, Class G, 6.56s, 2030 1,607,613
7,083,000 Commercial Mortgage Acceptance Corp.
Ser. 97-ML1, Class A3, 6.57s, 2030 7,584,344
Commercial Mortgage Acceptance Corp.
144A
2,605,530 Ser. 98-C1, Class F, 6.23s, 2031 2,810,705
913,530 Ser. 98-C2, Class F, 5.44s, 2030 940,407
1,430,000 Commercial Mortgage Pass-Through
Certificates 144A Ser.
01-FL4A, Class D, 2.72s, 2013 1,386,153
13,599,500 Criimi Mae Commercial Mortgage Trust
Ser. 98-C1, Class A2, 7s, 2033 14,678,960
7,975,000 Criimi Mae Commercial Mortgage Trust
144A Ser. 98-C1, Class B, 7s, 2033 8,488,963
CS First Boston Mortgage Securities
Corp. 144A
1,475,000 FRB Ser. 03-TF2A, Class L, 5.87s,
2014 1,465,809
66,178,316 Ser. 04-C3, Class AX, IO, 0.075s,
2036 1,129,598
1,380,561 Deutsche Mortgage & Asset Receiving
Corp. Ser. 98-C1, Class X,
IO, 0.962s, 2031 34,836
575,367 DLJ Commercial Mortgage Corp. Ser.
98-CF2, Class B3, 6.04s, 2031 606,922
5,889,000 DLJ Commercial Mortgage Corp. 144A
Ser. 99-CG2, Class B3, 6.1s, 2032 6,271,026
1,170,000 DLJ Mortgage Acceptance Corp. 144A
Ser. 97-CF1, Class A3, 7.76s, 2030 1,272,658
Fannie Mae
4,127,545 Ser. 04-10, Class QC, 21.24s, 2031 4,981,865
1,847,160 Ser. 02-36, Class SJ, 15.294s, 2029 2,010,637
5,211,069 Ser. 04-4, Class QM, 10.52s, 2033 5,272,000
631 Ser. 92-15, Class L, IO, 10.38s, 2022 5,925
1,015,619 Ser. 04-T3, Class PT1, 10.136s, 2044 1,173,799
1,597,978 Ser. 03-W6, Class PT1, 9 3/8s, 2042 1,820,728
604,747 Ser. 99-T2, Class A1, 7 1/2s, 2039 654,172
4,235,161 Ser. 00-T6, Class A1, 7 1/2s, 2030 4,669,895
1,710,551 Ser. 01-T1, Class A1, 7 1/2s, 2040 1,872,928
493,602 Ser. 01-T3, Class A1, 7 1/2s, 2040 532,502
11,811,728 Ser. 01-T4, Class A1, 7 1/2s, 2028 12,829,657
123,430 Ser. 01-T5, Class A3, 7 1/2s, 2030 132,836
9,151,712 Ser. 01-T7, Class A1, 7 1/2s, 2041 9,877,398
1,455,413 Ser. 01-T8, Class A1, 7 1/2s, 2041 1,572,689
5,871,249 Ser. 01-T10, Class A2, 7 1/2s, 2041 6,333,389
3,677,447 Ser. 01-T12, Class A2, 7 1/2s, 2041 3,978,967
784,876 Ser. 02-14, Class A2, 7 1/2s, 2042 855,842
958,740 Ser. 02-T1, Class A3, 7 1/2s, 2031 1,037,644
395,467 Ser. 02-T4, Class A3, 7 1/2s, 2041 427,775
10,138,597 Ser. 02-T6, Class A2, 7 1/2s, 2041 10,959,978
441,916 Ser. 02-T12, Class A3, 7 1/2s, 2042 478,593
4,388,458 Ser. 02-T16, Class A3, 7 1/2s, 2042 4,767,932
488,964 Ser. 02-T18, Class A4, 7 1/2s, 2042 531,294
10,322,805 Ser. 02-T19, Class A3, 7 1/2s, 2042 11,187,901
235,793 Ser. 02-W1, Class 2A, 7 1/2s, 2042 254,251
2,791,693 Ser. 02-W3, Class A5, 7 1/2s, 2028 3,030,438
7,136,637 Ser. 02-W4, Class A5, 7 1/2s, 2042 7,748,514
1,990,966 Ser. 02-W7, Class A5, 7 1/2s, 2029 2,157,922
2,881,870 Ser. 03-W2, Class 1A3, 7 1/2s, 2042 3,125,186
5,303,506 Ser. 03-W3, Class 1A3, 7 1/2s, 2042 5,762,482
799,413 Ser. 04-T3, Class 1A4, 7 1/2s, 2044 867,836
5,001,671 Ser. 04-W8, Class 3A, 7 1/2s, 2044 5,431,884
3,241,498 Ser. 04-W9, Class 2A3, 7 1/2s, 2044 3,516,312
20,633,463 Ser. 03-118, Class SF, IO, 6.168s,
2033 2,701,099
4,002,283 Ser. 02-36, Class QH, IO, 6.118s,
2029 172,349
36,575,361 Ser. 03-22, Class IO, IO, 6s, 2033 7,040,757
10,704,608 Ser. 03-58, Class ID, IO, 6s, 2033 1,923,484
15,149,147 Ser. 03-31, Class IM, IO, 5 3/4s,
2032 1,363,423
33,724,237 Ser. 329, Class 2, IO, 5 1/2s, 2033 6,892,391
5,134,103 Ser. 346, Class 2, IO, 5 1/2s, 2033 1,082,975
6,914,000 Ser. 03-6, Class IB, IO, 5 1/2s,
2022 156,429
9,871,535 Ser. 03-8, Class IP, IO, 5 1/2s,
2028 579,984
1,358,879 Ser. 03-15, Class PK, IO, 5 1/2s,
2026 56,478
3,978,790 Ser. 03-17, IO, 5 1/2s, 2025 187,749
538,000 Ser. 03-29, Class IG, IO, 5 1/2s,
2031 149,778
6,548,486 Ser. 03-42, Class JI, IO, 5 1/2s,
2028 300,664
11,335,981 Ser. 03-54, Class IY, IO, 5 1/2s,
2026 1,151,311
7,608,733 Ser. 343, Class 29, IO, 5s, 2033 1,164,136
8,212,567 Ser. 03-16, Class IC, IO, 5s, 2015 1,249,133
7,740,904 Ser. 03-24, Class UI, IO, 5s, 2031 1,201,352
11,814,873 Ser. 03-W12, Class 2, IO, 2.226s,
2043 748,260
49,909,238 Ser. 03-W10, Class 1, IO, 1.999s,
2043 2,620,235
18,973,384 Ser. 03-W10, Class 3, IO, 1.982s,
2043 996,103
1,148,702 Ser. 03-W10, Class 1A1, 1.701s, 2032 1,144,753
27,527,630 Ser. 03-W6, Class 11, IO, 1.684s,
2042 354,709
23,680,534 Ser. 03-W3, Class 2IO2, IO, 1.655s,
2042 314,056
90,980,705 Ser. 03-W8, Class 12, IO, 1.641s,
2042 4,395,531
58,055,226 Ser. 03-W8, Class 11, IO, 1.255s,
2042 388,163
22,602,773 Ser. 03-W17, Class 12, IO, 1.158s,
2033 744,919
25,574,990 Ser. 03-W6, Class 21, IO, 1.119s,
2042 127,091
148,312,875 Ser. 03-T2, Class 2, IO, 1.049s,
2042 3,682,557
46,935,406 Ser. 03-49, Class SV, IO, 1s, 2033 1,433,665
37,088,077 Ser. 03-W6, Class 51, IO, 0.679s,
2042 691,575
52,792,105 Ser. 03-W3, Class 2IO1, IO, 0.673s,
2042 1,081,705
68,628,013 Ser. 03-18, Class X1, IO, 0.648s,
2042 1,236,793
69,041,997 Ser. 01-T12, Class IO, 0.571s, 2041 1,044,155
739,290 Ser. 01-50, Class B1, IO, 0.483s,
2041 9,014
82,827,570 Ser. 03-W2, Class 1, IO, 0.469s,
2042 1,086,814
16,994,883 Ser. 02-T4, IO, 0.449s, 2041 191,720
52,153,598 Ser. 03-W3, Class 1, IO, 0.436s,
2042 628,203
52,623,171 Ser. 02-T1, Class IO, IO, 0.424s,
2031 564,632
53,248,574 Ser. 03-W6, Class 3, IO, 0.367s,
2042 550,987
55,982,601 Ser. 03-W6, Class 23, IO, 0.352s,
2042 556,344
Federal Home Loan Mortgage Corp.
Structured Pass-Through Securities
875 Ser. T-41, Class 3A, 7 1/2s, 2032 945
931,173 Ser. T-42, Class A5, 7 1/2s, 2042 1,008,135
3,458,288 Ser. T-58, Class 4A, 7 1/2s, 2043 3,741,180
33,819,035 Ser. T-56, Class A, IO, 1.433s, 2043 602,402
34,451,318 Ser. T-56, Class 3, IO, 0.364s, 2043 366,045
40,828,019 Ser. T-56, Class 1, IO, 0.265s, 2043 331,728
40,311,025 Ser. T-56, Class 2, IO, 0.065s, 2043 125,972
17,122,000 FFCA Secured Lending Corp. 144A Ser.
00-1, Class A2, 7.77s, 2027 19,714,819
45,463,320 First Union National Bank-Bank of
America Commercial Mortgage
144A Ser. 01-C1, Class 3, IO,
1.747s, 2033 3,870,406
First Union-Lehman Brothers
Commercial Mortgage Trust II
3,492,000 Ser. 97-C2, Class F, 7 1/2s, 2029 4,102,009
9,712,014 Ser. 97-C1, Class A3, 7.38s, 2029 10,449,684
Freddie Mac
9,952,447 Ser. 2437, Class SB, IO, 6.13s, 2032 1,032,566
8,278,097 Ser. 2469, Class SH, IO, 5.63s, 2032 745,029
9,011,202 Ser. 2553, Class IJ, IO, 5 1/2s,
2020 243,584
11,993,800 Ser. 2581, Class IE, IO, 5 1/2s,
2025 1,377,970
8,862,313 Ser. 2596, Class IL, IO, 5s, 2030 1,243,510
5,453,278 Ser. 2626, Class JS, IO, 4.73s, 2023 467,316
2,944,776 Ser. 2696, Principal Only (PO), zero %, 2033 2,105,632
7,668,804 Freddie Mac IFB Ser. 2763, Class SC,
21.12s, 2032 9,316,249
G-Force CDO, Ltd. 144A
942,000 Ser. 02-1A, Class E, 8 1/4s, 2037
(Cayman Islands) 981,741
416,000 Ser. 02-1A, Class D, 7.61s, 2037
(Cayman Islands) 458,900
1,241,000 Ser. 03-1A, Class E, 6.58s, 2038
(Cayman Islands) 1,257,676
1,158,628 G-Force CDO, Ltd. FRB Ser. 01-1A,
Class A, 2.51s, 2033 (Cayman
Islands) 1,160,641
4,992,911 General Growth Properties-Mall
Properties Trust FRB Ser.
01-C1A, Class D3, 4.12s, 2014 4,999,152
804,711 GMAC Commercial Mortgage Securities,
Inc. Ser. 01-C2, Class A1, 6 1/4s,
2034 857,098
GMAC Commercial Mortgage Securities,
Inc. 144A
2,095,341 Ser. 99-C3, Class G, 6.974s, 2036 1,678,775
484,591 FRN Ser. 02-FL1A, Class D, 4.606s,
2014 484,170
Government National Mortgage
Association
5,339,548 Ser. 03-114, Class SP, 14.284s, 2027 5,856,150
321,234 Ser. 99-31, Class MP, PO, zero %,
2029 287,765
2,133,579 Ser. 98-2, Class EA, PO, zero %,
2028 1,815,543
GS Mortgage Securities Corp. II 144A
748,000 FRB Ser. 03-FL6A, Class L, 5.12s,
2015 748,935
32,912,426 Ser. 04-GG2, Class XC, IO, 0.094s,
2038 385,692
43,878,505 JP Morgan Chase Commercial Mortgage
Securities Corp. 144A Ser. 04-FL1A,
Class X1A, IO, 0.864s, 2019 430,009
LB Commercial Conduit Mortgage Trust
144A
926,463 Ser. 99-C1, Class F, 6.41s, 2031 935,872
991,777 Ser. 99-C1, Class G, 6.41s, 2031 788,722
LB-UBS Commercial Mortgage Trust
144A
27,624,000 Ser. 04-C7, Class XCL, IO, 0.15s,
2036 602,614
19,869,808 Ser. 04-C2, Class XCL, IO, 0.137s,
2036 560,705
Lehman Brothers Floating Rate
Commercial Mortgage Trust 144A
826,000 FRB Ser. 04-LLFA, Class H, 2.82s,
2017 829,139
1,885,867 FRB Ser. 03-C4, Class A, 2.456s,
2015 1,890,582
Merrill Lynch Mortgage Investors, Inc.
305,957 Ser. 96-C2, Class A3, 6.96s, 2028 322,689
826,000 Ser. 98-C3, Class E, 6.942s, 2030 922,797
6,248,436 Ser. 96-C2, Class JS, IO, 2.13s,
2028 336,248
41,094,000 Merrill Lynch Mortgage Trust 144A
Ser. 04-KEY2, Class X-C, IO,
0.052s, 2039 823,705
4,227,668 Mezz Cap Commercial Mortgage Trust
144A Ser. 04-C1, Class X, IO,
6.18s, 2037 1,940,103
Morgan Stanley Capital I 144A
1,400,000 Ser. 96-C1, Class E, 7.48s, 2028 1,466,480
498,000 Ser. 98-HF1, Class F, 7.18s, 2030 549,201
1,350,000 Ser. 04-RR, Class F5, 6s, 2039 1,175,869
2,030,000 Ser. 04-RR, Class F6, 6s, 2039 1,698,843
2,013,416 Morgan Stanley Dean Witter Capital I
Ser. 00-LIF2, Class A1, 6.96s, 2033 2,166,483
Morgan Stanley Dean Witter Capital I
144A
659,220 FRB Ser. 01-XLF, Class D, 3.36s,
2013 659,334
861,895 FRB Ser. 01-XLF, Class E, 3.31s,
2013 861,939
1,389,000 Mortgage Capital Funding, Inc. FRB
Ser. 98-MC2, Class E, 7.136s, 2030 1,552,519
PNC Mortgage Acceptance Corp. 144A
4,971,000 Ser. 99-CM1, Class B3, 7.1s, 2032 5,529,670
1,290,000 Ser. 00-C2, Class J, 6.22s, 2033 1,332,675
Salomon Brothers Mortgage Securities
VII
3,380,000 Ser. 96-C1, Class E, 8.384s, 2028 3,551,486
2,575 Ser. 00-C2, Class A1, 7.298s, 2033 2,637
17,180,711 Salomon Brothers Mortgage Securities
VII 144A Ser. 03-CDCA, Class X3CD,
IO, 1.015s, 2015 257,797
2,041,000 Starwood Asset Receivables Trust FRN
Ser. 02-1A, Class F, 3.294s, 2020 2,042,225
Starwood Asset Receivables Trust
144A
989,086 FRB Ser. 03-1A, Class F, 3.033s,
2022 990,372
1,252,238 FRB Ser. 03-1A, Class E, 2.983s,
2022 1,253,866
STRIPS 144A
993,000 Ser. 03-1A, Class L, 5s, 2018
(Cayman Islands) 881,288
673,000 Ser. 03-1A, Class M, 5s, 2018
(Cayman Islands) 566,060
443,000 Ser. 04-1A, Class L, 5s, 2018
(Cayman Islands) 394,492
894,285 TIAA Real Estate CDO, Ltd. Ser.
01-C1A, Class A1, 5.77s,
2016 (Cayman Islands) 916,363
973,000 Trizechahn Office Properties Trust
144A Ser. 01-TZHA, Class D3, 6.943s,
2013 1,041,747
--------------
Total Collateralized mortgage
obligations (cost $367,246,283) $361,314,782
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 Aa3 $1,039,643
1,795,000 NJ State Tpk. Auth. Rev. Bonds,
Ser. B, AMBAC, 4.252s, 1/1/16 Aaa 1,740,845
1,770,000 OR State G.O. Bonds (Taxable
Pension), 5.892s, 6/1/27 Aa3 1,914,113
--------------
Total Municipal bonds and notes
(cost $4,640,000) $4,694,601
Purchased options outstanding (--%) (a) Expiration date/
Contract amount strike price Value
- -------------------------------------------------------------------------------
$1,000,000 US LIBOR Swaption (Call) Dec-04/$3.08 $3,400
1,000,000 US LIBOR Swaption (Put) Dec-04/$3.08 2,440
--------------
Total Purchased options outstanding
(cost $8,300) $5,840
Short-term investments (36.4%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$28,138,537 Short-term investments held as
collateral for loaned
securities with yields ranging from
1.75% to 2.03% and due dates ranging
from November 1, 2004 to December 6,
2004 (d) $28,129,150
343,886,993 Putnam Prime Money Market Fund (e) 343,886,993
25,000,000 American General Finance Corp. for
an effective yield of
1.79%, November 12, 2004 24,986,326
28,067,000 Atlantic Asset Securitization Corp.
for an effective yield of
1.82%, November 15, 2004 28,046,917
55,421,000 Barton Capital Corp. for an
effective yield of 1.80%, November
15, 2004 55,380,912
30,000,000 Citigroup Global Markets Holdings,
Inc. for an effective yield of
1.65%, November 17, 2004 29,975,600
30,000,000 CRC Funding, LLC for an effective
yield of 1.95%, December 14, 2004 29,930,304
30,000,000 Falcon Asset Securitization Corp.
for an effective yield of
1.82%, November 15, 2004 29,978,767
22,000,000 Federal National Mortgage
Association for an effective yield
of 1.79%, November 15, 2004 21,984,935
40,000,000 Federal National Mortgage
Association for an effective yield
of 1.79%, November 16, 2004 39,972,000
30,000,000 General Electric Capital Corp. for
an effective yield of
1.78%, November 15, 2004 29,979,233
30,000,000 Jupiter Securitization Corp. for an
effective yield of 1.85%, November
18, 2004 29,973,792
20,000,000 Old Line Funding Corp. for an
effective yield of 1.82%, November
12, 2004 19,999,136
40,000,000 Park Granada, LLC for an effective
yield of 1.88%, November 15, 2004 39,970,756
30,000,000 Preferred Receivables Funding Corp.
for an effective yield of
1.84%, November 15, 2004 29,978,533
30,000,000 Ranger Funding Co., LLC for an
effective yield of 1.81%, November
15, 2004 29,978,883
40,000,000 Sheffield Receivables Corp. for an
effective yield of 1.83%, November
15, 2004 39,971,456
21,459,000 Thunder Bay Funding, Inc. for an
effective yield of 1.66%, November
15, 2004 21,443,561
30,000,000 Wells Fargo Bank N.A. for an
effective yield of 1.80%, November
15, 2004 30,000,000
40,000,000 Yorktown Capital, LLC for an
effective yield of 1.85%, November
19, 2004 39,963,000
9,415,000 U.S. Treasury Bill zero %, November
4, 2004 (SEG) 9,403,833
58,336,000 Interest in $403,000,000 joint
tri-party repurchase agreement
dated October 29, 2004 with Goldman
Sachs & Co. due November 1,
2004 with respect to various U.S.
Government obligations -- maturity
value of $58,345,042 for an
effective yield of 1.86%
(collateralized by Fannie Mae
securities with a yield of 6.00% and
due dates ranging from August 1,
2034 to September 1, 2034 and
Freddie Mac securities with yields
ranging from 4.50% to 6.00% and due
dates ranging from June 1, 2024 to
September 1, 2034) 58,336,000
--------------
Total Short-term investments
(cost $1,011,270,087) $1,011,270,087
- -------------------------------------------------------------------------------
Total Investments
(cost $3,484,135,315) $3,488,538,177
- -------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $2,775,435,881.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to
be the most recent ratings available at October 31, 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 October 31, 2004. Ratings are not covered by the Report of
Independent Registered Public Accounting Firm.
(NON) Non-income-producing security.
(SEG) This security was pledged and segregated with the custodian to
cover margin requirements for futures contracts at October 31, 2004.
(R) Real Estate Investment Trust.
(S) Securities on loan, in part or in entirety, at October 31, 2004.
(d) See Note 1 to the financial statements.
(e) See Note 5 to the financial statements regarding investments in
Putnam Prime Money Market Fund.
(f) 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 October 31, 2004.
The rates shown on IFB, which are securities paying interest rates that
vary inversely to changes in the market interest rates, are the current
interest rates at October 31, 2004.
AMBAC represents AMBAC Indemnity Corporation.
G.O. Bonds represent General Obligation Bonds.
Futures contracts outstanding at October 31, 2004
Unrealized
Aggregate Expiration appreciation/
Value face value date (depreciation)
- ------------------------------------------------------------------------------------------------------
CBT Interest Rate Swap
10 yr (Long) $2,015,438 $1,957,825 Dec-04 $57,613
Euro 90 day (Long) 8,790,750 8,798,665 Dec-04 (7,915)
Euro 90 day (Long) 2,193,075 2,198,513 Mar-05 (5,438)
Euro 90 day (Long) 2,189,138 2,189,513 Jun-05 (375)
Euro 90 day (Long) 2,185,200 2,181,526 Sep-05 3,674
Euro 90 day (Long) 2,180,588 2,174,663 Dec-05 5,925
U.S. Treasury Bond (Long) 214,253,938 206,363,521 Dec-04 7,890,417
U.S. Treasury Note
5 yr (Short) 386,359,875 383,196,440 Dec-04 (3,163,435)
U.S. Treasury Note
10 yr (Long) 536,128,563 526,293,823 Dec-04 9,834,740
- ------------------------------------------------------------------------------------------------------
$14,615,206
- ------------------------------------------------------------------------------------------------------
TBA sale commitments outstanding at October 31, 2004
(proceeds receivable $51,808,711)
Principal Settlement
Agency amount date Value
- ------------------------------------------------------------------------------------------------------
FNMA, 6 1/2s, November 1, 2034 $49,500,000 11/15/04 $52,036,875
- ------------------------------------------------------------------------------------------------------
Interest rate swap contracts outstanding at October 31, 2004
Unrealized
Notional Termination appreciation/
amount date (depreciation)
- ------------------------------------------------------------------------------------------------------
Agreement with Credit Suisse First Boston
International dated October 5, 2004 to
receive semi-annually the notional amount
multiplied by 4.624% and pay quarterly the
notional amount multiplied by the three
month USD-LIBOR. $55,240,000 10/7/14 $906,135
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 3,229,194
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 (51,893)
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 the three month USD-LIBOR. 5,687,000 12/16/05 (2,443)
Agreement with Credit Suisse First Boston
International dated July 7, 2004 to receive
semi-annually the notional amount multiplied
by 2.931% and pay quarterly the notional
amount multiplied by the three month
USD-LIBOR. 34,147,400 7/9/06 349,527
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 6,090,714
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 (7,742,490)
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 4,554,075
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 (5,762,789)
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 4,254,812
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 the three
month USD-LIBOR-BBA. 72,256,000 12/9/05 179,761
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 5,804,142
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 (3,905,804)
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 89,112
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 76,093
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 76,005
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 44,602
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 the three
month USD-LIBOR-BBA. 17,662,000 12/16/13 (555,806)
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 the three
month USD-LIBOR-BBA. 14,151,000 12/15/13 (594,893)
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 (153,488)
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 (163,475)
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 the three
month USD-LIBOR-BBA. 3,382,000 12/15/05 (7,741)
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 4,674,956
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 (3,015,886)
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 (4,640,549)
- ------------------------------------------------------------------------------------------------------
$3,731,871
- ------------------------------------------------------------------------------------------------------
Total return swap contracts outstanding at October 31, 2004
Unrealized
Notional Termination appreciation/
amount date (depreciation)
- ------------------------------------------------------------------------------------------------------
Agreement with Goldman Sachs Capital
Markets, L.P. dated October 29, 2004 to pay
monthly the notional amount multiplied by the
spread depreciation of the Lehman Brothers
AAA Commercial Mortgage Backed Securities
Index adjusted by a modified duration factor and
receive monthly the notional amount multiplied
by the appreciation of the Lehman Brothers
AAA Commercial Mortgage Backed Securities
Index plus 25 basis points. $45,585,330 5/1/05 $--
Agreement with Deutsche Bank AG dated
July 16, 2004 to receive at maturity the notional
amount multiplied by the nominal spread
depreciation of the Lehman Brothers AAA
Commercial Mortgage Backed Securities
Index adjusted by a modified duration factor
and pay at maturity the notional amount
multiplied by the nominal spread appreciation
of the Lehman Brothers AAA Commercial
Mortgage Backed Securities Index and an
accrual of 40 basis points plus the beginning
of the period nominal spread of the Lehman
Brothers AAA Commercial Mortgage Backed
Securities Index. 16,857,000 1/31/05 (55,554)
Agreement with Deutsche Bank AG dated
June 28, 2004 to pay at maturity the notional
amount multiplied by the spread appreciation
of the Lehman Brothers AAA Commercial
Mortgage Backed Securities Index adjusted
by a modified duration factor and receive at
maturity the notional amount multiplied by
the depreciation of the Lehman Brothers
AAA Commercial Mortgage Backed Securities
Index plus 43 basis points. 23,785,500 1/1/05 97,095
Agreement with Goldman Sachs Capital
Markets, L.P. dated June 16, 2004 to pay
monthly the notional amount multiplied by
the spread appreciation of the Lehman
Brothers AAA Commercial Mortgage Backed
Securities Index adjusted by a modified duration
factor and receive monthly the notional
amount multiplied by the depreciation of the
Lehman Brothers AAA Commercial Mortgage
Backed Securities Index plus 43 basis points. 31,296,493 6/1/05 4,502
Agreement with Lehman Brothers Special
Financing, Inc. dated August 12, 2004 to
receive (pay) monthly the notional amount
multiplied by the return of Lehman Brothers
CMBS ERISA-Eligible Index and pay monthly
the one month USD-LIBOR-BBA less 25
basis points. 30,885,806 3/1/05 92,752
Agreement with Morgan Stanley & Co. dated
July 16, 2004 to pay at maturity the notional
amount multiplied by the nominal spread
depreciation of the Lehman Brothers AAA
Commercial Mortgage Backed Securities Index
adjusted by a modified duration factor and receive
at maturity the notional amount multiplied by the
nominal spread appreciation of the Lehman
Brothers AAA Commercial Mortgage Backed
Securities Index and an accrual of 47 basis points
plus the beginning of the period nominal spread
of the Lehman Brothers AAA Commercial
Mortgage Backed Securities Index. 16,857,000 1/31/05 58,078
Agreement with Morgan Stanley & Co. dated
July 16, 2004 to pay at maturity the notional
amount multiplied by the nominal spread
depreciation of the Lehman Brothers AAA
Commercial Mortgage Backed Securities Index
adjusted by a modified duration factor and receive
at maturity the notional amount multiplied by the
nominal spread appreciation of the Lehman
Brothers AAA Commercial Mortgage Backed
Securities Index and an accrual of 47 basis points
plus the beginning of the period nominal spread of
the Lehman Brothers AAA Commercial Mortgage
Backed Securities Index. 33,714,000 1/31/05 143,229
- ------------------------------------------------------------------------------------------------------
$340,102
- ------------------------------------------------------------------------------------------------------
Credit default contracts outstanding at October 31, 2004
Unrealized
Notional appreciation/
amount (depreciation)
- ------------------------------------------------------------------------------------------------------
Agreement with JPMorgan Chase Bank effective September 8,
2004, maturing on December 20, 2009, to receive a premium
equal to 10.09018% times the notional amount. For each credit
default event related to one of the issues within the CDX HY
3.75%, December 20, 2009 Bond Index, the fund makes a
payment of the proportional notional amount times the difference
between the par value and the then-market value of the
defaulted issue. $1,905,000 $16,386
Agreement with Bank of America, N.A. effective August 11,
2004, maturing on April 15, 2010, to receive a premium equal to
4.41761% times the notional amount. Upon a credit default event
of News Corp. Libor plus 85, 2010 the fund makes a payment of
the proportional notional amount times the difference between
the par value and the then-market value of News Corp. Libor
plus 85, 2010. 1,550,000 20,423
Agreement with Merrill Lynch International effective September 7,
2004, maturing on December 20, 2009, to receive a premium
equal to 10.21518% times the notional amount. Upon a credit
default event of CDX HY BB Libor plus 225, December 20,
2009 the fund makes a payment of the proportional notional
amount times the difference between the par value and the
then-market value of CDX HY BB Libor plus 225,
December 20, 2009. 1,905,000 21,130
Agreement with Merrill Lynch International effective July 1,
2004, maturing on July 1, 2007, to receive a premium equal to
1.4413% times the notional amount. Upon a credit default event
of Consolidated Natural Gas, 6.625%, December 12, 2008, the
fund makes a payment of the proportional notional amount times
the difference between the par value and the then-market value
of Consolidated Natural Gas, 6.625%, December 12, 2008. 3,455,000 22,883
Agreement with Goldman Sachs effective September 2, 2004,
terminating on the date on which the notional amount is reduced
to zero or the date on which the assets securing the reference
obligation are liquidated, the fund receives a payment of the
outstanding notional amount times 2.35% and the fund pays in the
event of a credit default in one of the underlying securities in the
basket of BB CMBS securities. 3,265,778 49,201
Agreement with Goldman Sachs effective September 2, 2004,
terminating on the date on which the notional amount is reduced
to zero or the date on which the assets securing the reference
obligation are liquidated, the fund receives a payment of the
outstanding notional amount times 2.55625% and the fund pays
in the event of a credit default in one of the underlying securities
in the basket of BB CMBS securities. 3,265,778 17,025
Agreement with Goldman Sachs effective September 2, 2004,
terminating on the date on which the notional amount is reduced
to zero or the date on which the assets securing the reference
obligation are liquidated, the fund receives a payment of the
outstanding notional amount times 2.4625% and the fund pays in
the event of a credit default in one of the underlying securities in
the basket of BB CMBS securities. 1,632,889 29,126
Agreement with Goldman Sachs effective September 2, 2004,
terminating on the date on which the notional amount is reduced
to zero or the date on which the assets securing the reference
obligation are liquidated, the fund receives a payment of the
outstanding notional amount times 2.433% and the fund pays in
the event of a credit default in one of the underlying securities in
the basket of BB CMBS securities. 1,224,667 23,278
Agreement with Deutsche Bank AG effective September 9, 2004,
maturing on September 20, 2014, to receive a quarterly payment
of 0.58% times the notional amount. Upon a credit default event
of CVS 5.625% due March 15, 2006, the fund makes a payment
of the proportional notional amount times the difference between
the par value and the then-market value of CVS 5.625%,
March 15, 2006. 940,000 9,031
Agreement with Goldman Sachs effective September 2, 2004,
terminating on the date on which the notional amount is reduced
to zero or the date on which the assets securing the reference
obligation are liquidated, the fund receives a payment of the
notional amount times 2.475% and the fund pays in the event of
a credit default in one of the underlying securities in the basket
of BB CMBS securities. 816,444 8,731
Agreement with Goldman Sachs effective September 2, 2004,
terminating on the date on which the notional amount is reduced
to zero or the date on which the assets securing the reference
obligation are liquidated, the fund receives a payment of the
outstanding notional amount times 2.5% and the fund pays in the
event of a credit default in one of the underlying securities in the
basket of BB CMBS securities. 408,222 16,757
Agreement with Goldman Sachs effective September 2, 2004,
terminating on the date on which the notional amount is reduced
to zero or the date on which the assets securing the reference
obligation are liquidated, the fund receives a payment of the
outstanding notional amount times 2.6% and the fund pays in the
event of a credit default in one of the underlying securities in the
basket of BB CMBS securities. 408,222 (10,840)
- ------------------------------------------------------------------------------------------------------
$223,131
- ------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities
October 31, 2004
Assets
- -------------------------------------------------------------------------------
Investment in securities, at value, including $27,503,887 of securities
on loan (Note 1):
- -------------------------------------------------------------------------------
Unaffiliated issuers (identified cost $3,140,248,322) $3,144,651,184
- -------------------------------------------------------------------------------
Affiliated issuers (identified cost $343,886,993) (Note 5) 343,886,993
- -------------------------------------------------------------------------------
Dividends, interest and other receivables 19,838,289
- -------------------------------------------------------------------------------
Receivable for shares of the fund sold 2,182,286
- -------------------------------------------------------------------------------
Receivable for securities sold 82,601,186
- -------------------------------------------------------------------------------
Receivable for open swap contracts (Note 1) 30,724,784
- -------------------------------------------------------------------------------
Receivable for open credit default contracts (Note 1) 153,149
- -------------------------------------------------------------------------------
Receivable for variation margin (Note 1) 2,316,656
- -------------------------------------------------------------------------------
Total assets 3,626,354,527
Liabilities
- -------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 212,488
- -------------------------------------------------------------------------------
Payable for securities purchased 729,208,560
- -------------------------------------------------------------------------------
Payable for shares of the fund repurchased 8,125,915
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Notes 2 and 5) 3,485,961
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 1,374,658
- -------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 208,477
- -------------------------------------------------------------------------------
Payable for administrative services (Note 2) 3,739
- -------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 751,979
- -------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 28,129,150
- -------------------------------------------------------------------------------
Payable for open swap contracts (Note 1) 26,652,811
- -------------------------------------------------------------------------------
Payable for closed swap contracts (Note 1) 14,684
- -------------------------------------------------------------------------------
Credit default contracts outstanding, at value (upfront
payments received $505,087) (Note 1) 424,265
- -------------------------------------------------------------------------------
Payable for open credit default contracts (Note 1) 10,840
- -------------------------------------------------------------------------------
TBA sale commitments, at value (proceeds receivable
$51,808,711) (Note 1) 52,036,875
- -------------------------------------------------------------------------------
Other accrued expenses 278,244
- -------------------------------------------------------------------------------
Total liabilities 850,918,646
- -------------------------------------------------------------------------------
Net assets $2,775,435,881
Represented by
- -------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $2,856,938,417
- -------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 3,693,679
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (108,281,223)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments 23,085,008
- -------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $2,775,435,881
Computation of net asset value and offering price
- -------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($985,938,703 divided by 143,600,195 shares) $6.87
- -------------------------------------------------------------------------------
Offering price per class A share (100/95.50 of $6.87)* $7.19
- -------------------------------------------------------------------------------
Net asset value and offering price per class B share
($323,527,497 divided by 47,421,437 shares)** $6.82
- -------------------------------------------------------------------------------
Net asset value and offering price per class C share
($29,058,542 divided by 4,247,214 shares)** $6.84
- -------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($556,725,389 divided by 81,897,434 shares) $6.80
- -------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $6.80)* $7.03
- -------------------------------------------------------------------------------
Net asset value, offering price and redemption price per
class R share ($62,158 divided by 9,049 shares) $6.87
- -------------------------------------------------------------------------------
Net asset value, offering price and redemption price per
class Y share ($880,123,592 divided by 127,430,047 shares) $6.91
- -------------------------------------------------------------------------------
* 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
Year ended October 31, 2004
Investment income:
- -------------------------------------------------------------------------------
Interest (including interest income of $1,979,388 from
investments in affiliated issuers) (Note 5) $110,718,110
- -------------------------------------------------------------------------------
Dividends 8,900
- -------------------------------------------------------------------------------
Securities lending 7,116
- -------------------------------------------------------------------------------
Total investment income 110,734,126
Expenses:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 14,892,088
- -------------------------------------------------------------------------------
Investor servicing fees (Note 2) 5,176,825
- -------------------------------------------------------------------------------
Custodian fees (Note 2) 654,651
- -------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 78,413
- -------------------------------------------------------------------------------
Administrative services (Note 2) 38,335
- -------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 2,653,115
- -------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 3,857,368
- -------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 325,815
- -------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 3,298,248
- -------------------------------------------------------------------------------
Distribution fees -- Class R (Note 2) 43
- -------------------------------------------------------------------------------
Other 831,892
- -------------------------------------------------------------------------------
Non-recurring costs (Notes 2 and 6) 142,283
- -------------------------------------------------------------------------------
Costs assumed by Manager (Notes 2 and 6) (142,283)
- -------------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Note 5) (206,996)
- -------------------------------------------------------------------------------
Total expenses 31,599,797
- -------------------------------------------------------------------------------
Expense reduction (Note 2) (329,461)
- -------------------------------------------------------------------------------
Net expenses 31,270,336
- -------------------------------------------------------------------------------
Net investment income 79,463,790
- -------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 57,157,415
- -------------------------------------------------------------------------------
Net realized gain on swap contracts (Note 1) 9,397,536
- -------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 18,176,871
- -------------------------------------------------------------------------------
Net realized loss on credit default contracts (Note 1) (2,004,675)
- -------------------------------------------------------------------------------
Net unrealized depreciation of investments, futures
contracts, swap contracts, credit default contracts and TBA
sale commitments during the year (6,192,494)
- -------------------------------------------------------------------------------
Net gain on investments 76,534,653
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $155,998,443
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets
Year ended October 31
Decrease in net assets 2004 2003
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $79,463,790 $132,593,061
- -------------------------------------------------------------------------------
Net realized gain on investments 82,727,147 52,641,074
- -------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments (6,192,494) 11,895,401
- -------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 155,998,443 197,129,536
- -------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
- -------------------------------------------------------------------------------
From net investment income
Class A (30,831,397) (51,454,385)
- -------------------------------------------------------------------------------
Class B (8,440,394) (17,549,785)
- -------------------------------------------------------------------------------
Class C (709,582) (1,369,323)
- -------------------------------------------------------------------------------
Class M (18,188,598) (46,267,697)
- -------------------------------------------------------------------------------
Class R (224) (25)
- -------------------------------------------------------------------------------
Class Y (23,947,431) (22,813,013)
- -------------------------------------------------------------------------------
Redemption fees (Note 1) 2,568 --
- -------------------------------------------------------------------------------
Decrease from capital share transactions
(Note 4) (738,478,401) (547,085,050)
- -------------------------------------------------------------------------------
Total decrease in net assets (664,595,016) (489,409,742)
Net assets
- -------------------------------------------------------------------------------
Beginning of year 3,440,030,897 3,929,440,639
- -------------------------------------------------------------------------------
End of year (including undistributed net
investment income of $3,693,679 and
$136,825, respectively) $2,775,435,881 $3,440,030,897
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS A
- -----------------------------------------------------------------------------------------------------------------------
Per-share Year ended October 31
operating performance 2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.69 $6.59 $6.69 $6.29 $6.44
- -----------------------------------------------------------------------------------------------------------------------
Investment operations:
- -----------------------------------------------------------------------------------------------------------------------
Net investment income (a) .19 (d) .24 .32 .38 .43
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .19 .11 (.07) .43 (.16)
- -----------------------------------------------------------------------------------------------------------------------
Total from
investment operations .38 .35 .25 .81 .27
- -----------------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------------
From net
investment income (.20) (.25) (.35) (.41) (.42)
- -----------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- -- (e) --
- -----------------------------------------------------------------------------------------------------------------------
Total distributions (.20) (.25) (.35) (.41) (.42)
- -----------------------------------------------------------------------------------------------------------------------
Redemption fees -- (e) -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $6.87 $6.69 $6.59 $6.69 $6.29
- -----------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 5.70 5.45 3.93 13.39 4.39
- -----------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $985,939 $1,279,779 $1,339,061 $1,251,190 $946,755
- -----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .99 (d) .93 .92 .95 .95
- -----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.83 (d) 3.64 4.84 5.93 6.86
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 441.06 251.00 (f) 268.10 (f) 233.83 (f) 207.35
- -----------------------------------------------------------------------------------------------------------------------
(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) Reflects waivers of certain fund expenses in connection with investments in Putnam Prime Money Market Fund
during the period. As a result of such waivers, the expenses of the fund for the period ended October 31, 2004
reflect a reduction of less than 0.01% of average net assets for class A shares (Note 5).
(e) Amount represents less than $0.01 per share.
(f) 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
- -----------------------------------------------------------------------------------------------------------------------
Per-share Year ended October 31
operating performance 2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.65 $6.55 $6.65 $6.25 $6.41
- -----------------------------------------------------------------------------------------------------------------------
Investment operations:
- -----------------------------------------------------------------------------------------------------------------------
Net investment income (a) .14 (d) .19 .27 .33 .38
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .18 .11 (.07) .44 (.17)
- -----------------------------------------------------------------------------------------------------------------------
Total from
investment operations .32 .30 .20 .77 .21
- -----------------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------------
From net
investment income (.15) (.20) (.30) (.37) (.37)
- -----------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- -- (e) --
- -----------------------------------------------------------------------------------------------------------------------
Total distributions (.15) (.20) (.30) (.37) (.37)
- -----------------------------------------------------------------------------------------------------------------------
Redemption fees -- (e) -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $6.82 $6.65 $6.55 $6.65 $6.25
- -----------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 4.79 4.68 3.19 12.63 3.46
- -----------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $323,527 $520,692 $555,668 $474,783 $373,336
- -----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.74 (d) 1.68 1.67 1.70 1.70
- -----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.12 (d) 2.90 4.07 5.19 6.11
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 441.06 251.00 (f) 268.10 (f) 233.83 (f) 207.35
- -----------------------------------------------------------------------------------------------------------------------
(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) Reflects waivers of certain fund expenses in connection with investments in Putnam Prime Money Market Fund during
the period. As a result of such waivers, the expenses of the fund for the period ended October 31, 2004 reflect a
reduction of less than 0.01% of average net assets for class B shares (Note 5).
(e) Amount represents less than $0.01 per share.
(f) 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
- -----------------------------------------------------------------------------------------------------------------------
Per-share Year ended October 31
operating performance 2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.67 $6.57 $6.67 $6.27 $6.43
- -----------------------------------------------------------------------------------------------------------------------
Investment operations:
- -----------------------------------------------------------------------------------------------------------------------
Net investment income (a) .14 (d) .20 .26 .32 .39
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .18 .11 (.06) .45 (.17)
- -----------------------------------------------------------------------------------------------------------------------
Total from
investment operations .32 .31 .20 .77 .22
- -----------------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------------
From net
investment income (.15) (.21) (.30) (.37) (.38)
- -----------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- -- (e) --
- -----------------------------------------------------------------------------------------------------------------------
Total distributions (.15) (.21) (.30) (.37) (.38)
- -----------------------------------------------------------------------------------------------------------------------
Redemption fees -- (e) -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $6.84 $6.67 $6.57 $6.67 $6.27
- -----------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 4.79 4.70 3.18 12.61 3.53
- -----------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $29,059 $42,946 $39,017 $34,545 $10,363
- -----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.74 (d) 1.68 1.67 1.70 1.70
- -----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.10 (d) 2.88 4.04 5.03 6.17
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 441.06 251.00 (f) 268.10 (f) 233.83 (f) 207.35
- -----------------------------------------------------------------------------------------------------------------------
(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) Reflects waivers of certain fund expenses in connection with investments in Putnam Prime Money Market Fund during
the period. As a result of such waivers, the expenses of the fund for the period ended October 31, 2004 reflect a
reduction of less than 0.01% of average net assets for class C shares (Note 5).
(e) Amount represents less than $0.01 per share.
(f) 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
- -----------------------------------------------------------------------------------------------------------------------
Per-share Year ended October 31
operating performance 2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.63 $6.54 $6.64 $6.25 $6.41
- -----------------------------------------------------------------------------------------------------------------------
Investment operations:
- -----------------------------------------------------------------------------------------------------------------------
Net investment income (a) .17 (d) .23 .30 .37 .42
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .18 .10 (.06) .42 (.17)
- -----------------------------------------------------------------------------------------------------------------------
Total from
investment operations .35 .33 .24 .79 .25
- -----------------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------------
From net
investment income (.18) (.24) (.34) (.40) (.41)
- -----------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- -- (e) --
- -----------------------------------------------------------------------------------------------------------------------
Total distributions (.18) (.24) (.34) (.40) (.41)
- -----------------------------------------------------------------------------------------------------------------------
Redemption fees -- (e) -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $6.80 $6.63 $6.54 $6.64 $6.25
- -----------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 5.40 5.12 3.77 13.10 4.05
- -----------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $556,725 $884,380 $1,465,393 $1,024,351 $1,066,539
- -----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.24 (d) 1.18 1.17 1.20 1.20
- -----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.62 (d) 3.48 4.56 5.74 6.61
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 441.06 251.00 (f) 268.10 (f) 233.83 (f) 207.35
- -----------------------------------------------------------------------------------------------------------------------
(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) Reflects waivers of certain fund expenses in connection with investments in Putnam Prime Money Market Fund during
the period. As a result of such waivers, the expenses of the fund for the period ended October 31, 2004 reflect a
reduction of less than 0.01% of average net assets for class M shares (Note 5).
(e) Amount represents less than $0.01 per share.
(f) 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
- ---------------------------------------------------------------------------
For the
period
Year January 21,
ended 2003+ to
Per-share October 31 October 31
operating performance 2004 2003
- ---------------------------------------------------------------------------
Net asset value,
beginning of period $6.69 $6.65
- ---------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------
Net investment income (a) .18 (d) .18
- ---------------------------------------------------------------------------
Net realized and unrealized
gain on investments .18 .03
- ---------------------------------------------------------------------------
Total from
investment operations .36 .21
- ---------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------
From net
investment income (.18) (.17)
- ---------------------------------------------------------------------------
Total distributions (.18) (.17)
- ---------------------------------------------------------------------------
Redemption fees -- (e) --
- ---------------------------------------------------------------------------
Net asset value,
end of period $6.87 $6.69
- ---------------------------------------------------------------------------
Total return at
net asset value (%)(b) 5.47 3.14*
- ---------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------
Net assets, end of period
(in thousands) $62 $1
- ---------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.24 (d) .92*
- ---------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.57 (d) 2.65*
- ---------------------------------------------------------------------------
Portfolio turnover (%) 441.06 251.00 (f)
- ---------------------------------------------------------------------------
+ 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) Reflects waivers of certain fund expenses in connection with investments
in Putnam Prime Money Market Fund during the period. As a result of such
waivers, the expenses of the fund for the period ended October 31, 2004
reflect a reduction of less than 0.01% of average net assets for class R
shares (Note 5).
(e) Amount represents less than $0.01 per share.
(f) 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
- -----------------------------------------------------------------------------------------------------------------------
Per-share Year ended October 31
operating performance 2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.72 $6.63 $6.72 $6.31 $6.46
- -----------------------------------------------------------------------------------------------------------------------
Investment operations:
- -----------------------------------------------------------------------------------------------------------------------
Net investment income (a) .21 (d) .26 .33 .39 .45
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .19 .10 (.06) .45 (.17)
- -----------------------------------------------------------------------------------------------------------------------
Total from
investment operations .40 .36 .27 .84 .28
- -----------------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------------
From net
investment income (.21) (.27) (.36) (.43) (.43)
- -----------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- -- (e) --
- -----------------------------------------------------------------------------------------------------------------------
Total distributions (.21) (.27) (.36) (.43) (.43)
- -----------------------------------------------------------------------------------------------------------------------
Redemption fees -- (e) -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $6.91 $6.72 $6.63 $6.72 $6.31
- -----------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 6.06 5.50 4.26 13.73 4.58
- -----------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $880,124 $712,232 $530,302 $234,826 $194,267
- -----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .74 (d) .68 .67 .70 .70
- -----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.01 (d) 3.82 5.03 6.23 7.11
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 441.06 251.00 (f) 268.10 (f) 233.83 (f) 207.35
- -----------------------------------------------------------------------------------------------------------------------
(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) Reflects waivers of certain fund expenses in connection with investments in Putnam Prime Money Market Fund during
the period. As a result of such waivers, the expenses of the fund for the period ended October 31, 2004 reflect a
reduction of less than 0.01% of average net assets for class Y shares (Note 5).
(e) Amount represents less than $0.01 per share.
(f) 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
October 31, 2004
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, other Putnam funds and products
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. The redemption fee is accounted for as an
addition to paid-in-capital.
Investment income, realized and unrealized gains and losses and expenses
of the fund are borne pro-rata based on the relative net assets of each
class to the total net assets of the fund, except that each class bears
expenses unique to that class (including the distribution fees
applicable to such classes). Each class votes as a class only with
respect to its own distribution plan or other matters on which a class
vote is required by law or determined by the Trustees. 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 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 in an
amount at least equal to the resale price, including accrued interest.
Collateral for certain tri-party repurchase agreements is held at the
counterparty's custodian in a segregated account for the benefit of the
fund and the counterparty. Putnam Management is responsible for
determining that the value of these underlying securities is at all
times at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are recorded on the trade date (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
except that certain dividends from foreign securities are recognized as
soon as the fund is informed of 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. If a written call
option is exercised, the premium originally received is recorded as an
addition to sales proceeds. If a written put option is exercised, the
premium originally received is recorded as an addition to the cost of
investments.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. The fund and the broker
agree to exchange an amount of cash equal to the daily fluctuation in
the value of the futures contract. Such receipts or payments are known
as "variation margin." Exchange-traded options are valued at the last
sale price, or if no sales are reported, the last bid price for
purchased options and the last ask price for written options. Options
traded over-the-counter are valued using prices supplied by dealers.
Futures and written option contracts outstanding at period end, if any,
are listed after the fund's portfolio.
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. 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. Risk of loss
may exceed amounts recognized on the statement of assets and
liabilities. Total return swap contracts outstanding at period end, if
any, are listed after the fund's portfolio.
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. Risk of loss may exceed amounts recognized on the
statement of assets and liabilities. Interest rate swap contracts
outstanding at period end, if any, are listed after the fund's
portfolio.
H) Credit default contracts The fund may enter into credit default
contracts where one party, the protection buyer, makes an upfront or
periodic payment to a counterparty, the protection seller, in exchange
for the right to receive a contingent payment. The maximum amount of the
payment may equal the notional amount, at par, of the underlying index
or security as a result of a related credit event. An upfront payment
received by the fund, as the protection seller, is recorded as a
liability on the fund's books. An upfront payment made by the fund, as
the protection buyer, is recorded as an asset on the fund's books.
Periodic payments received or paid by the fund are recorded as realized
gains or losses. The credit default contracts are marked-to-market daily
based upon quotations from market makers and the change, if any, is
recorded as unrealized gain or loss. Payments received or made as a
result of a credit event or termination of the contract are recognized,
net of a proportional amount of the upfront payment, as realized gains
or losses. In addition to bearing the risk that the credit event will
occur, the fund could be exposed to market risk due to unfavorable
changes in interest rates or in the price of the underlying security or
index, the possibility that the fund may be unable to close out its
position at the same time or at the same price as if it had purchased
comparable publicly traded securities or that the counterparty may
default on its obligation to perform. Risks of loss may exceed amounts
recognized on the statement of assets and liabilities. Credit default
contracts outstand ing 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) Security lending The fund may lend securities, through its agents, to
qualified borrowers in order to earn additional income. The loans are
collateralized by cash and/or securities in an amount at least equal to
the market value of the securities loaned. The market value of
securities loaned is determined daily and any additional required
collateral is allocated to the fund on the next business day. The risk
of borrower default will be borne by the fund's agents; the fund will
bear the risk of loss with respect to the investment of the cash
collateral. Income from securities lending is included in investment
income on the statement of operations. At October 31, 2004, the value of
securities loaned amounted to $27,503,887. The fund received cash
collateral of $28,129,150, which is pooled with collateral of other
Putnam funds into 23 issuers of high-grade short-term investments.
L) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code of 1986 (the "Code") applicable
to regulated investment companies. It is also the intention of the fund
to distribute an amount sufficient to avoid imposition of any excise tax
under Section 4982 of the Code, as amended. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held nor for excise tax on income and capital
gains.
At October 31, 2004, the fund had a capital loss carryover of
$90,691,223 available to the extent allowed by the Code to offset future
net capital gain, if any. The amount of the carryover and the expiration
dates are:
Loss Carryover Expiration
- --------------------------------
$81,110,899 October 31, 2008
9,580,324 October 31, 2009
M) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Distributions from capital gains, if any, are recorded on the
ex-dividend date and paid at least annually. The amount and character of
income and gains to be distributed are determined in accordance with
income tax regulations, which may differ from generally accepted
accounting principles. These differences include temporary and permanent
differences of losses on wash sale transactions, defaulted bond
interest, both realized and unrealized gains and losses on certain
futures contracts, market discount, income on swap contracts and
interest only securities. Reclassifications are made to the fund's
capital accounts to reflect income and gains available for distribution
(or available capital loss carryovers) under income tax regulations. For
the year ended October 31, 2004, the fund reclassified $6,210,690 to
decrease distributions in excess of net investment income and $18,705 to
decrease paid-in-capital, with an increase to accumulated net realized
loss of $6,191,985.
The tax basis components of distributable earnings and the federal tax
cost as of period end were as follows:
Unrealized appreciation $45,970,109
Unrealized depreciation (44,545,068)
------------
Net unrealized appreciation 1,425,041
Undistributed ordinary
income 5,509,831
Capital loss carryforward (90,691,223)
Cost for federal income
tax purposes $3,487,113,136
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 waive fees
and reimburse expenses of the fund through October 31, 2005 to the
extent necessary to ensure that the fund's expenses do not exceed the
average expenses of the front-end load funds viewed by Lipper Inc. as
having the same investment classification or objective as the fund. The
expense reimbursement is based on a comparison of the fund's expenses
with the average annualized operating expenses of the funds in its
Lipper peer group for each calendar quarter during the fund's last
fiscal year, excluding 12b-1 fees and without giving effect to any
expense offset and brokerage service arrangements that may reduce fund
expenses. For the year ended October 31, 2004, Putnam Management did not
waive any of its management fee to the fund.
For the period ended October 31, 2004, Putnam Management has assumed
$142,283 of legal, shareholder servicing and communication, audit and
Trustee fees incurred by the fund in connection with certain legal and
regulatory matters. (including those described in Note 6).
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 year ended October 31, 2004, the fund
paid PFTC $5,323,632 for these services.
Under the subcustodian contract between the subcustodian bank and PFTC,
the subcustodian bank has a lien on the securities of the fund to the
extent permitted by the fund's investment restrictions to cover any
advances made by the subcustodian bank for the settlement of securities
purchased by the fund. At October 31, 2004, the payable to the
subcustodian bank represents the amount due for cash advanced for the
settlement of a security purchased.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. For the year ended October 31, 2004, the
fund's expenses were reduced by $329,461 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $3,382, 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 Trustees have terminated the Pension Plan with
respect to any Trustee first elected after 2003.
The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B, class C, class M and class R shares pursuant to
Rule 12b-1 under the Investment Company Act of 1940. The purpose of the
Plans is to compensate Putnam Retail Management, a wholly-owned
subsidiary of Putnam, LLC and Putnam Retail Management GP, Inc., for
services provided and expenses incurred in distributing shares of the
fund. The Plans provide for payments by the fund to Putnam Retail
Management at an annual rate of up to 0.35%, 1.00%, 1.00%, 1.00% and
1.00% of the average net assets attributable to class A, class B, class
C, class M and class R shares, respectively. The Trustees have approved
payment by the fund at an annual rate of 0.25%, 1.00%, 1.00%, 0.50% and
0.50% of the average net assets attributable to class A, class B, class
C, class M and class R shares, respectively.
For the year ended October 31, 2004, Putnam Retail Management, acting as
underwriter, received net commissions of $93,128 and $26,700 from the
sale of class A and class M shares, respectively, and received
$1,362,275 and $9,111 in contingent deferred sales charges from
redemptions of class B and class C shares, respectively. A deferred
sales charge of up to 1.00% and 0.40% is assessed on certain redemptions
of class A and class M shares, respectively. For the year ended October
31, 2004, Putnam Retail Management, acting as underwriter, received
$14,940 and no monies on class A and class M redemptions, respectively.
Note 3
Purchases and sales of securities
During the year ended October 31, 2004, cost of purchases and proceeds
from sales of investment securities other than U.S. government
securities and short-term investments aggregated $8,377,848,226 and
$9,083,955,974, respectively. Purchases and sales of U.S. government
securities aggregated $688,172,651 and $627,972,845, respectively.
Note 4
Capital shares
At October 31, 2004, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Year ended October 31, 2004
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 31,909,191 $215,884,659
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 3,924,327 26,568,614
- ----------------------------------------------------------------
35,833,518 242,453,273
Shares repurchased (83,555,493) (563,786,160)
- ----------------------------------------------------------------
Net decrease (47,721,975) $(321,332,887)
- ----------------------------------------------------------------
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)
- ----------------------------------------------------------------
Year ended October 31, 2004
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 5,965,748 $40,111,036
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 1,058,264 7,119,883
- ----------------------------------------------------------------
7,024,012 47,230,919
Shares repurchased (37,941,033) (254,154,887)
- ----------------------------------------------------------------
Net decrease (30,917,021) $(206,923,968)
- ----------------------------------------------------------------
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)
- ----------------------------------------------------------------
Year ended October 31, 2004
- ----------------------------------------------------------------
Class C Shares Amount
- ----------------------------------------------------------------
Shares sold 647,675 $4,369,481
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 83,989 566,659
- ----------------------------------------------------------------
731,664 4,936,140
Shares repurchased (2,926,972) (19,647,559)
- ----------------------------------------------------------------
Net decrease (2,195,308) $(14,711,419)
- ----------------------------------------------------------------
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
- ----------------------------------------------------------------
Year ended October 31, 2004
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 1,986,876 $13,366,689
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 90,333 585,650
- ----------------------------------------------------------------
2,077,209 13,952,339
Shares repurchased (53,602,766) (357,675,112)
- ----------------------------------------------------------------
Net decrease (51,525,557) $(343,722,773)
- ----------------------------------------------------------------
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)
- ----------------------------------------------------------------
Year ended October 31, 2004
- ----------------------------------------------------------------
Class R Shares Amount
- ----------------------------------------------------------------
Shares sold 9,565 $65,384
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 33 224
- ----------------------------------------------------------------
9,598 65,608
Shares repurchased (703) (4,826)
- ----------------------------------------------------------------
Net increase 8,895 $60,782
- ----------------------------------------------------------------
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
- ----------------------------------------------------------------
Year ended October 31, 2004
- ----------------------------------------------------------------
Class Y Shares Amount
- ----------------------------------------------------------------
Shares sold 56,419,971 $384,844,473
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 3,518,688 23,947,431
- ----------------------------------------------------------------
59,938,659 408,791,904
Shares repurchased (38,418,296) (260,640,040)
- ----------------------------------------------------------------
Net increase 21,520,363 $148,151,864
- ----------------------------------------------------------------
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 October 31, 2004, Putnam, LLC owned 158 class R shares of the fund
(1.7% of class R shares outstanding), valued at $1,085.
Note 5
Investment in Putnam
Prime Money Market Fund
The fund invests in Putnam Prime Money Market Fund, an open-end management
investment company managed by Putnam Management. Management fees paid by
the fund are reduced by an amount equal to the management fees paid by
Putnam Prime Money Market Fund with respect to assets invested by the fund
in Putnam Prime Money Market Fund. For the year ended October 31, 2004,
management fees paid were reduced by $206,996 relating to the fund's
investment in Putnam Prime Money Market Fund. Income distributions earned
by the fund are recorded as income in the statement of operations and
totaled $1,979,388 for the period ended October 31, 2004.
Note 6
Regulatory matters and litigation
On April 8, 2004, Putnam Management entered into agreements with the
Securities and Exchange Commission ("SEC") 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.
The fund may experience increased redemptions as a result of these
matters, which could result in increased transaction costs and operating
expenses.
Federal tax information
(Unaudited)
The Form 1099 you receive in January 2005 will show the tax status of
all distributions paid to your account in calendar 2004.
About the Trustees
Jameson A. Baxter (9/6/43), Trustee since 1994
Ms. Baxter is the President of Baxter Associates, Inc., a private
investment firm that she founded in 1986.
Ms. Baxter serves as a Director of ASHTA Chemicals, Inc., Banta
Corporation (a printing and digital imaging firm), Ryerson Tull, Inc. (a
steel service corporation), Advocate Health Care and BoardSource,
formerly the National Center for Nonprofit Boards. She is Chairman
Emeritus of the Board of Trustees, Mount Holyoke College, having served
as Chairman for five years and as a board member for thirteen years.
Until 2002, Ms. Baxter was a Director of Intermatic Corporation (a
manufacturer of energy control products).
Ms. Baxter has held various positions in investment banking and
corporate finance, including Vice President and Principal of the Regency
Group, and Vice President of and Consultant to First Boston Corporation.
She is a graduate of Mount Holyoke College.
Charles B. Curtis (4/27/40), Trustee since 2001
Mr. Curtis is President and Chief Operating Officer of the Nuclear
Threat Initiative (a private foundation dealing with national security
issues) and serves as Senior Advisor to the United Nations Foundation.
Mr. Curtis is a member of the Council on Foreign Relations and the
Trustee Advisory Council of the Applied Physics Laboratory, Johns
Hopkins University. Until 2003, Mr. Curtis was a member of the Electric
Power Research Institute Advisory Council and the University of Chicago
Board of Governors for Argonne National Laboratory. Prior to 2002, Mr.
Curtis was a Member of the Board of Directors of the Gas Technology
Institute and the Board of Directors of the Environment and Natural
Resources Program Steering Committee, John F. Kennedy School of
Government, Harvard University. Until 2001, Mr. Curtis was a member of
the Department of Defense Policy Board and Director of EG&G Technical
Services, Inc. (a fossil energy research and development support
company).
From August 1997 to December 1999, Mr. Curtis was a Partner at Hogan &
Hartson L.L.P., a Washington, D.C. law firm. Prior to May 1997, Mr.
Curtis was Deputy Secretary of Energy. He served as Chairman of the
Federal Energy Regulatory Commission from 1977 to 1981 and has held
positions on the staff of the U.S. House of Representatives, the U.S.
Treasury Department, and the SEC.
Myra R. Drucker (1/16/48)
Ms. Drucker is a Vice Chair of the Board of Trustees of Sarah Lawrence
College, a Trustee of Commonfund (a not-for-profit firm specializing in
asset management for educational endowments and foundations) and a
member of the Investment Committee of the Kresge Foundation (a
charitable trust). She is also Chair of the New York Stock Exchange
(NYSE) Pension Managers Advisory Committee and a member of the Executive
Committee of the Committee on Investment of Employee Benefit Assets.
Until August 31, 2004, Ms. Drucker was Managing Director and a member of
the Board of Directors of General Motors Asset Management and Chief
Investment Officer of General Motors Trust Bank. Ms. Drucker also served
as a member of the NYSE Corporate Accountability and Listing Standards
Committee and the NYSE/NASD IPO Advisory Committee.
Prior to joining General Motors Asset Management in 2001, Ms. Drucker
held various executive positions in the investment management industry.
Ms. Drucker served as Chief Investment Officer of Xerox Corporation (a
technology and service company in the document industry), where she was
responsible for the investment of the company 's pension assets. Ms.
Drucker was also Staff Vice President and Director of Trust Investments
for International Paper (a paper, paper distribution, packaging and
forest products company) and previously served as Manager of Trust
Investments for Xerox Corporation. Ms. Drucker received a B.A. degree in
Literature and Psychology from Sarah Lawrence College and pursued
graduate studies in economics, statistics and portfolio theory at Temple
University.
John A. Hill (1/31/42), Trustee since 1985 and Chairman since 2000
Mr. Hill is Vice Chairman of First Reserve Corporation, a private equity
buyout firm that specializes in energy investments in the diversified
worldwide energy industry.
Mr. Hill is a Director of Devon Energy Corporation, TransMontaigne Oil
Company, Continuum Health Partners of New York and various private
companies controlled by First Reserve Corporation, as well as a Trustee
of TH Lee, Putnam Investment Trust (a closed-end investment company
advised by an affiliate of Putnam Management). He is also a Trustee of
Sarah Lawrence College.
Prior to acquiring First Reserve Corporation in 1983, Mr. Hill held
executive positions in investment banking and investment management with
several firms and with the federal government, including Deputy
Associate Director of the Office of Management and Budget and Deputy
Director of the Federal Energy Administration. He is active in various
business associations, including the Economic Club of New York, and
lectures on energy issues in the United States and Europe. Mr. Hill
holds a B.A. degree in Economics from Southern Methodist University and
pursued graduate studies there as a Woodrow Wilson Fellow.
Ronald J. Jackson (12/17/43), Trustee since 1996
Mr. Jackson is a private investor.
Mr. Jackson is President of the Kathleen and Ronald J. Jackson
Foundation (a charitable trust). He is also a member of the Board of
Overseers of WGBH (a public television and radio station) as well as a
member of the Board of Overseers of the Peabody Essex Museum.
Mr. Jackson is the former Chairman, President and Chief Executive
Officer of Fisher-Price, Inc. (a major toy manufacturer), from which he
retired in 1993. He previously served as President and Chief Executive
Officer of Stride-Rite, Inc. (a manufacturer and distributor of
footwear) and of Kenner Parker Toys, Inc. (a major toy and game
manufacturer). Mr. Jackson was President of Talbots, Inc. (a distributor
of women's apparel) and has held financial and marketing positions with
General Mills, Inc. and Parker Brothers (a toy and game company). Mr.
Jackson is a graduate of Michigan State University Business School.
Paul L. Joskow (6/30/47), Trustee since 1997
Dr. Joskow is the Elizabeth and James Killian Professor of Economics and
Management, and Director of the Center for Energy and Environmental
Policy Research at the Massachusetts Institute of Technology.
Dr. Joskow serves as a Director of National Grid Transco (a UK-based
holding company with interests in electric and gas transmission and
distribution and telecommunications infrastructure) and TransCanada
Corporation (an energy company focused on natural gas transmission and
power services). He also serves on the board of the Whitehead Institute
for Biomedical Research (a non-profit research institution) and has been
President of the Yale University Council since 1993. Prior to February
2002, he was a Director of State Farm Indemnity Company (an automobile
insurance company), and, prior to March 2000, he was a Director of New
England Electric System (a public utility holding company).
Dr. Joskow has published five books and numerous articles on topics in
industrial organization, government regulation of industry, and
competition policy. He is active in industry restructuring,
environmental, energy, competition and privatization policies -- serving
as an advisor to governments and corporations worldwide. Dr. Joskow
holds a Ph.D. and M. Phil from Yale University and B.A. from Cornell
University.
Elizabeth T. Kennan (2/25/38), Trustee since 1992
Dr. Kennan is a Partner of Cambus-Kenneth Farm (thoroughbred horse and
cattle breeding). She is President Emeritus of Mount Holyoke College.
Dr. Kennan served as Chairman and is now Lead Director of Northeast
Utilities and is a Director of Talbots, Inc. She has served as Director
on a number of other boards, including Bell Atlantic, Chastain Real
Estate, Shawmut Bank, Berkshire Life Insurance and Kentucky Home Life
Insurance. She is a Trustee of the National Trust for Historic
Preservation, of Centre College and of Midway College in Midway,
Kentucky. She is also a member of The Trustees of Reservations. Dr.
Kennan has served on the oversight committee of the Folger Shakespeare
Library, as President of Five Colleges Incorporated, as a Trustee of
Notre Dame University and is active in various educational and civic
associations.
As a member of the faculty of Catholic University for twelve years,
until 1978, Dr. Kennan directed the post-doctoral program in Patristic
and Medieval Studies, taught history and published numerous articles.
Dr. Kennan holds a Ph.D. from the University of Washington in Seattle,
an M.S. from St. Hilda's College at Oxford University and an A.B. from
Mount Holyoke College. She holds several honorary doctorates.
John H. Mullin, III (6/15/41), Trustee since 1997
Mr. Mullin is the Chairman and CEO of Ridgeway Farm (a limited liability
company engaged in timber and farming).
Mr. Mullin serves as a Director of The Liberty Corporation (a
broadcasting company), Progress Energy, Inc. (a utility company,
formerly known as Carolina Power & Light) and Sonoco Products, Inc. (a
packaging company). Mr. Mullin is Trustee Emeritus of The National
Humanities Center and Washington & Lee University, where he served as
Chairman of the Investment Committee. Prior to May 2001, he was a
Director of Graphic Packaging International Corp. Prior to February
2004, he was a Director of Alex Brown Realty, Inc.
Mr. Mullin is also a past Director of Adolph Coors Company; ACX
Technologies, Inc.; Crystal Brands, Inc.; Dillon, Read & Co., Inc.;
Fisher-Price, Inc.; and The Ryland Group, Inc. Mr. Mullin is a graduate
of Washington & Lee University and The Wharton Graduate School,
University of Pennsylvania.
Robert E. Patterson (3/15/45), Trustee since 1984
Mr. Patterson is Senior Partner of Cabot Properties, L.P. and Chairman
of Cabot Properties, Inc. (a private equity firm investing in commercial
real estate).
Mr. Patterson serves as Chairman of the Joslin Diabetes Center and as a
Director of Brandywine Trust Company. Prior to June 2003, he was a
Trustee of Sea Education Association. Prior to December 2001, he was
President and Trustee of Cabot Industrial Trust (a publicly traded real
estate investment trust). Prior to February 1998, he was Executive Vice
President and Director of Acquisitions of Cabot Partners Limited
Partnership (a registered investment adviser involved in institutional
real estate investments). Prior to 1990, he served as Executive Vice
President of Cabot, Cabot & Forbes Realty Advisors, Inc. (the
predecessor company of Cabot Partners) and as a Senior Vice President of
the Beal Companies (a real estate management, investment and development
firm).
Mr. Patterson practiced law and held various positions in state
government and was the founding Executive Director of the Massachusetts
Industrial Finance Agency. Mr. Patterson is a graduate of Harvard
College and Harvard Law School.
W. Thomas Stephens (9/2/42), Trustee since 1997
Mr. Stephens serves on a number of corporate boards.
Mr. Stephens is Chairman and Chief Executive Officer of Boise Cascade,
L.L.C. (a paper, forest products and timberland assets company). Mr.
Stephens serves as a Director of TransCanada Pipelines Limited. Until
2004, Mr. Stephens was a Director of Xcel Energy Incorporated (a public
utility company), Qwest Communications, and Norske Canada, Inc. (a paper
manufacturer). Until 2003, Mr. Stephens was a Director of Mail-Well,
Inc. (a diversified printing company). He served as Chairman of
Mail-Well until 2001 and as CEO of MacMillan-Bloedel, Ltd. (a forest
products company) until 1999.
Prior to 1996, Mr. Stephens was Chairman and Chief Executive Officer of
Johns Manville Corporation. He holds B.S. and M.S. degrees from the
University of Arkansas.
Richard B. Worley (11/15/45)
Mr. Worley is Managing Partner of Permit Capital, LLC, an investment
management firm.
Mr. Worley serves on the Executive Committee of the University of
Pennsylvania Medical Center, is a Trustee of The Robert Wood Johnson
Foundation (a philanthropic organization devoted to health care issues)
and is a Director of The Colonial Williamsburg Foundation (a historical
preservation organization). Mr. Worley also serves on the investment
committees of Mount Holyoke College and World Wildlife Fund (a wildlife
conservation organization).
Prior to joining Permit Capital LLC in 2002, Mr. Worley served as Chief
Strategic Officer of Morgan Stanley Investment Management. He previously
served as President, Chief Executive Officer and Chief Investment
Officer of Morgan Stanley Dean Witter Investment Management and as a
Managing Director of Morgan Stanley, a financial services firm. Mr.
Worley also was the Chairman of Miller Anderson & Sherrerd, an
investment management firm.
Mr. Worley holds a B.S. degree from University of Tennessee and pursued
graduate studies in economics at the University of Texas.
Charles E. Haldeman, Jr.* (10/29/48)
Mr. Haldeman is President and Chief Executive Officer of Putnam, LLC
("Putnam Investments"). He is a member of Putnam Investments' Executive
Board of Directors and Advisory Council. Prior to November 2003, Mr.
Haldeman served as Co-Head of Putnam Investments' Investment Division.
Prior to joining Putnam Investments in 2002, Mr. Haldeman held executive
positions in the investment management industry. He previously served as
Chief Executive Officer of Delaware Investments and President & Chief
Operating Officer of United Asset Management. Mr. Haldeman was also a
partner and director of Cooke & Bieler, Inc. (an investment management
firm).
Mr. Haldeman currently serves as a Trustee of Dartmouth College and as
Emeritus Trustee of Abington Memorial Hospital. He is a graduate of
Dartmouth College, Harvard Law School and Harvard Business School. Mr.
Haldeman is also a Chartered Financial Analyst (CFA) charterholder.
George Putnam, III* (8/10/51), Trustee since 1984 and President
since 2000
Mr. Putnam is President of New Generation Research, Inc. (a publisher of
financial advisory and other research services), and of New Generation
Advisers, Inc. (a registered investment advisor to private funds). Mr.
Putnam founded the New Generation companies in 1986.
Mr. Putnam is a Director of The Boston Family Office, LLC (a registered
investment adviser). He is a Trustee of St. Mark's School, Shore Country
Day School, and until 2002 was a Trustee of the Sea Education
Association.
Mr. Putnam previously worked as an attorney with the law firm of Dechert
LLP (formerly known as Dechert Price & Rhoads) in Philadelphia. He is a
graduate of Harvard College, Harvard Business School and Harvard Law
School.
A.J.C. Smith* (4/13/34), Trustee since 1986
Mr. Smith is the Chairman of Putnam Investments and Consultant to Marsh
& McLennan Companies, Inc.
Mr. Smith is also a Director of Trident Corp. (a limited partnership
with over thirty institutional investors). He is also a Trustee of the
Carnegie Hall Society, the Educational Broadcasting Corporation, and the
National Museums of Scotland. He is Chairman of the Central Park
Conservancy and a Member of the Board of Overseers of the Joan and
Sanford I. Weill Graduate School of Medical Sciences of Cornell
University. Prior to November 2004, Mr. Smith was a Director of Marsh &
McLennan Companies, Inc. Prior to May 2000 and November 1999, Mr. Smith
was Chairman and CEO, respectively, of Marsh & McLennan Companies, Inc.
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of October 31, 2004, there were 110 Putnam Funds. All Trustees other
than Ms. Drucker and Messrs. Worley and Haldeman serve as Trustees of
all Putnam funds. Ms. Drucker and Messrs. Worley and Haldeman currently
serve as Trustees of 82 Putnam funds.
Each Trustee serves for an indefinite term, until his or her
resignation, retirement at age 72, death, or removal.
* Trustees who are or may be deemed to be "interested persons" (as
defined in the Investment Company Act of 1940) of the fund, Putnam
Management, Putnam Retail Management, or Marsh & McLennan Companies,
Inc., the parent company of Putnam, LLC and its affiliated companies.
Messrs. Haldeman, Putnam, III, and Smith are deemed "interested persons"
by virtue of their positions as officers of the fund, Putnam Management,
Putnam Retail Management or Marsh & McLennan Companies, Inc. and as
shareholders of Marsh & McLennan Companies, Inc. Mr. Putnam, III is the
President of your fund and each of the other Putnam funds. Mr. Haldeman
is President and Chief Executive Officer of Putnam Investments. Mr.
Smith serves as a Consultant to Marsh & McLennan Companies, Inc. and as
Chairman of Putnam Investments.
Officers
In addition to George Putnam, III, the other officers of the
fund are shown below:
Charles E. Porter (7/26/38)
Executive Vice President, Associate Treasurer and Principal
Executive Officer
Since 1989
Managing Director, Putnam Investments
and Putnam Management
Jonathan S. Horwitz (6/4/55)
Senior Vice President and Treasurer
Since 2004
Managing Director, Putnam Investments
Steven D. Krichmar (6/27/58)
Vice President and Principal Financial Officer
Since 2002
Senior Managing Director, Putnam Investments. Prior to July
2001, Partner, PricewaterhouseCoopers LLP
Michael T. Healy (1/24/58)
Assistant Treasurer and Principal
Accounting Officer
Since 2000
Managing Director, Putnam Investments
Beth S. Mazor (4/6/58)
Vice President
Since 2002
Senior Vice President, Putnam Investments
Daniel T. Gallagher (2/27/62)
Vice President and Legal and Compliance Liaison Officer
Since 2004
Vice President, Putnam Investments. Prior to 2004,
Associate, Ropes & Gray LLP; prior to 2000, Law Clerk,
Massachusetts Supreme Judicial Court
Francis J. McNamara, III (8/19/55)
Vice President and Chief Legal Officer
Since 2004
Senior Managing Director, Putnam
Investments, Putnam Management and
Putnam Retail Management. Prior to 2004, General Counsel,
State Street Research & Management Company
James P. Pappas (2/24/53)
Vice President
Since 2004
Managing Director, Putnam Investments and Putnam Management.
During 2002, Chief Operating Officer, Atalanta/Sosnoff
Management Corporation; prior to 2001, President and Chief
Executive Officer, UAM Investment Services, Inc.
Richard S. Robie, III (3/30/60)
Vice President
Since 2004
Senior Managing Director, Putnam
Investments, Putnam Management and
Putnam Retail Management. Prior to 2003, Senior Vice
President, United Asset Management Corporation
Charles A. Ruys de Perez (10/17/57)
Vice President and Chief Compliance Officer
Since 2004
Managing Director, Putnam Investments
Mark C. Trenchard (6/5/62)
Vice President and BSA Compliance Officer
Since 2002
Senior Vice President, Putnam Investments
Judith Cohen (6/7/45)
Clerk and Assistant Treasurer
Since 1993
Clerk and Assistant Treasurer, The Putnam Funds
The address of each Officer is One Post Office Square,
Boston, MA 02109.
Services for shareholders
Investor services
Help your investment grow Set up a program for systematic investing with
as little as $25 a month from a Putnam fund or from your own savings or
checking account. (Regular investing does not guarantee a profit or
protect against loss in a declining market.)
Switch funds easily* You can move money from one Putnam fund to another
within the same class of shares without a service charge.
Access your money easily You can have checks sent regularly or redeem
shares any business day at the then-current net asset value, which may
be more or less than the original cost of the shares. Class B and class
C shares carry a sales charge that is applied to certain withdrawals.
How to buy additional shares You may buy shares through your financial
advisor or directly from Putnam. To open an account by mail, send a
check made payable to the name of the fund along with a completed fund
application. To add to an existing account, complete the investment
slip found at the top of your Confirmation of Activity statement and
return it with a check payable to your fund.
For more information
Visit www.putnaminvestments.com
A secure section of our Web site contains complete information on your
account, including balances and transactions, updated daily. You may
also conduct transactions, such as exchanges, additional investments,
and address changes. Log on today to get your password.
Use our toll-free number 1-800-225-1581 Ask a helpful Putnam
representative or your financial advisor for details about any of these
or other services, or see your prospectus.
* This privilege is subject to change or termination. An exchange of
funds may result in a taxable event. In addition, a 2% redemption fee
will be applied to shares exchanged or sold within 5 days of purchase,
and certain funds have imposed a 1% redemption fee on total assets
redeemed or exchanged between 6 and 90 days of purchase.
Putnam puts your interests first
In January, Putnam announced a number of voluntary initiatives designed
to reduce fund expenses, provide investors with more useful information,
and help safeguard the interests of all Putnam investors. For details,
visit www.putnaminvestments.com.
Cost-cutting initiatives
Reduced sales charges
Effective immediately, the maximum sales charge for class A shares has
been reduced to 5.25% for equity funds (formerly 5.75%) and 4.50% for
most income funds (formerly 4.75%).*
Lower class B purchase limit
To help ensure that investors are in the most cost-effective share
class, the maximum amount that can be invested in class B shares has
been reduced to $100,000. (Larger trades or accumulated amounts will be
directed to class A shares.)
Ongoing expenses will be limited
During calendar 2004, total ongoing expenses, including management fees
for all funds, will be maintained at or below the average of each fund's
industry peers in its Lipper load-fund universe. For more information,
please see the Statement of Additional information.
Additional measures are being taken to reduce expenses for shareholders
in the six global and international funds that had short-term trading
issues.
Improved disclosure
Putnam fund prospectuses and shareholder reports are being revised to
disclose additional information that will help shareholders compare
funds and weigh their costs and risks along with their potential
benefits. Shareholders will find easy-to-understand information about
fund expense ratios, portfolio manager compensation, risk comparisons,
brokerage commissions, and employee and trustee ownership of Putnam
funds. Disclosure of breakpoint discounts is also being enhanced to
alert investors to potential cost savings.
Protecting investors' interests
New short-term trading fee introduced To discourage short-term trading,
which can interfere with a fund's long-term strategy, a 2% short-term
trading fee will be imposed on any Putnam fund shares redeemed or
exchanged within five calendar days of purchase.
* The maximum sales charge for class A shares of Putnam U.S. Intermediate
Government Income Fund and Putnam Floating Rate Income Fund remains 3.25%.
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
Independent Registered Public Accounting Firm
KPMG LLP
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Myra R. Drucker
Charles E. Haldeman, Jr.
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
Richard B. Worley
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
Steven D. Krichmar
Vice President and
Principal Financial Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
Beth S. Mazor
Vice President
Daniel T. Gallagher
Vice President and Legal and
Compliance Liaison Officer
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
Charles A. Ruys de Perez
Vice President and Chief Compliance 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.
AN035-216544 12/04
Not FDIC Insured May Lose Value No Bank Guarantee
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ----------------------------------------------------------------------------
Putnam Income Fund
Supplement to Annual Report dated 10/31/04
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 annual report.
RESULTS AT A GLANCE
- ----------------------------------------------------------------------------
Total return for periods ended 10/31/04
NAV
1 year 6.06%
5 years 38.75
Annual average 6.77
10 years 94.15
Annual average 6.86
Life of fund (since class A inception, 11/1/54)
Annual average 8.22
Share value: NAV
10/31/03 $6.72
10/31/04 $6.91
- ----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
12 $0.211 -- $0.211
- ----------------------------------------------------------------------------
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 (6/16/94) 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.
Please see pages 11-12 of the accompanying shareholder report for a
discussion of the information appearing in the tables below:
- ----------------------------------------------------------------------------
EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming actual returns for the 6 months ended 10/31/04
Class Y
Expenses paid per $1,000* $3.79
Ending value (after expenses) $1,040.00
- ----------------------------------------------------------------------------
EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming a hypothetical 5% annualized return for the 6 months ended 10/31/04
Class Y
Expenses paid per $1,000* $3.76
Ending value (after expenses) $1,021.42
- ----------------------------------------------------------------------------
EXPENSE RATIO COMPARISON USING ANNUALIZED DATA
Your fund's annualized expense ratio + 0.74%
Average annualized expense ratio for Lipper peer group ++ 0.79%
++ For class Y shares, Putnam has adjusted the Lipper total expense average
to reflect that class Y shares do not incur 12b-1 fees.
- ----------------------------------------------------------------------------
Item 2. Code of Ethics:
- -----------------------
All officers of the Fund, including its principal executive, financial and
accounting officers, are employees of Putnam Investment Management, LLC,
the Fund's investment manager. As such they are subject to a comprehensive
Code of Ethics adopted and administered by Putnam Investments which is
designed to protect the interests of the firm and its clients. The Fund
has adopted a Code of Ethics which incorporates the Code of Ethics of
Putnam Investments with respect to all of its officers and Trustees who are
employees of Putnam Investment Management, LLC. For this reason, the Fund
has not adopted a separate code of ethics governing its principal
executive, financial and accounting officers.
Item 3. Audit Committee Financial Expert:
- -----------------------------------------
The Funds' Audit and Pricing Committee is comprised solely of Trustees
who are "independent" (as such term has been defined by the Securities
and Exchange Commission ("SEC") in regulations implementing Section 407
of the Sarbanes-Oxley Act (the "Regulations")). The Trustees believe
that each of the members of the Audit and Pricing Committee also possess
a combination of knowledge and experience with respect to financial
accounting matters, as well as other attributes, that qualify them for
service on the Committee. In addition, the Trustees have determined
that all members of the Funds' Audit and Pricing Committee meet the
financial literacy requirements of the New York Stock Exchange's rules
and that Mr. Patterson, Mr. Stephens and Mr. Worley qualify as "audit
committee financial experts" (as such term has been defined by the
Regulations) based on their review of their pertinent experience and
education. Certain other Trustees, although not on the Audit and Pricing
Committee, would also qualify as "audit committee financial experts."
The SEC has stated that the designation or identification of a person as
an audit committee financial expert pursuant to this Item 3 of Form N-CSR
does not impose on such person any duties, obligations or liability that
are greater than the duties, obligations and liability imposed on such
person as a member of the Audit and Pricing Committee and the Board of
Trustees in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services:
- -----------------------------------------------
The following table presents fees billed in each of the last two
fiscal years for services rendered to the fund by the fund's
independent auditors:
Audit Audit-Related Tax All Other
Fiscal year ended Fees Fees Fees Fees
- ----------------- ---------- ------------- ------- ---------
October 31, 2004 $46,890* $-- $4,100 $ 655
October 31, 2003 $37,400 $-- $3,600 $5,250
*Includes fees of $ 3,790 billed by the fund's independent auditor
to the fund for audit procedures necessitated by regulatory and
litigation matters. These fees were reimbursed to the fund by
Putnam.
For the fiscal years ended October 31, 2004 and October 31, 2003,
the fund's independent auditors billed aggregate non-audit fees in
the amounts of $4,755 and $8,850, respectively, to the fund, Putnam
Management and any entity controlling, controlled by or under common
control with Putnam Management that provides ongoing services
to the fund.
Audit Fees represents fees billed for the fund's last two fiscal
years.
Audit-Related Fees represents fees billed in the fund's last two
fiscal years for services traditionally performed by the fund's
auditor, including accounting consultation for proposed transactions
or concerning financial accounting and reporting standards and other
audit or attest services not required by statute or regulation.
Tax Fees represent fees billed in the fund's last two fiscal years
for tax compliance, tax planning and tax advice services. Tax
planning and tax advice services include assistance with tax audits,
employee benefit plans and requests for rulings or technical advice
from taxing authorities.
All Other Fees Fees represent fees billed for services relating
relating interfund trading and the registration of securities in
Japan.
Pre-Approval Policies of the Audit and Pricing Committee. The Audit
and Pricing Committee of the Putnam funds has determined that, as a
matter of policy, all work performed for the funds by the funds'
independent auditors will be pre-approved by the Committee and will
generally not be subject to pre-approval procedures.
Under certain circumstances, the Audit and Pricing Committee
believes that it may be appropriate for Putnam Investment
Management, LLC ("Putnam Management") and certain of its affiliates
to engage the services of the funds' independent auditors, but only
after prior approval by the Committee. Such requests are required
to be submitted in writing to the Committee and explain, among other
things, the nature of the proposed engagement, the estimated fees,
and why this work must be performed by that particular audit firm.
The Committee will review the proposed engagement at its next
meeting.
Since May 6, 2003, all work performed by the independent auditors
for the funds, Putnam Management and any entity controlling,
controlled by or under common control with Putnam Management that
provides ongoing services to the fund was pre-approved by the
Committee or a member of the Committee pursuant to the pre-approval
policies discussed above. Prior to that date, the Committee had a
general policy to pre-approve the independent auditor's engagements
for non-audit services with the funds, Putnam Management and any
entity controlling, controlled by or under common control with
Putnam Management that provides ongoing services to the fund.
The following table presents fees billed by the fund's principal
auditor for services required to be approved pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X.
Audit-Related Tax All Other Total Non-
Fiscal year ended Fees Fees Fees Audit Fees
- ----------------- ------------- ---- --------- ----------
October 31, 2004 $-- $-- $-- $--
October 31, 2003 $-- $-- $-- $--
Item 5. Audit Committee: Not applicable
- -------------------------
Item 6. Schedule of Investments: Not applicable
- --------------------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End
- -------------------------------------------------------------------------
Management Investment Companies: Not applicable
--------------------------------
Item 8. Purchases of Equity Securities by Closed-End Management Investment
- --------------------------------------------------------------------------
Companies and Affiliated Purchasers: Not applicable
------------------------------------
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.
(b) Changes in internal control over financial reporting:
Not applicable
Item 11. Exhibits:
- ------------------
(a) The Code of Ethics of The Putnam Funds, which incorporates the
Code of Ethics of Putnam Investments, is filed herewith.
(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: December 29, 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: December 29, 2004
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: December 29, 2004