Putnam
Income
Fund
Item 1. Report to Stockholders:
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The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
4-30-05
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From the Trustees
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John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
Throughout the period ended April 30, 2005, the Federal Reserve Board's
series of gradual increases in the federal funds rate occupied much of
investors' attention. However, these increases did not begin to have a
significant impact on stock and bond prices until the early months of
the 2005 calendar year. The Fed's more restrictive monetary policy,
along with stubbornly high energy prices, has caused concern about the
sustainability of corporate profits and slowed the stock market's
momentum. Shorter-term bond prices have also been under pressure due to
worries regarding inflation. In addition, credit quality issues have
become a greater concern, particularly in early May, after the end of
the reporting period, when rating agencies downgraded bonds issued by
Ford and General Motors. Given the uncertainties of this environment,
security selection takes on even greater importance and the in-depth,
professional research and active management that mutual funds can
provide makes them an even more intelligent choice for today's
investors.
We want you to know that Putnam Investments' management team, under the
leadership of Chief Executive Officer Ed Haldeman, continues to focus on
investment performance and remains committed to putting the interests of
shareholders first. In keeping with these goals, we are including
additional disclosure about your fund's management team in this report.
Following the Outlook for Your Fund, we provide manager compensation
information that pertains to your fund. Furthermore, in this report we
provide information about the 2004 approval by the Trustees of your
fund's management contract with Putnam. See page 18 for details.
In the following pages, members of your fund's management team discuss
the fund's performance, the strategies used to pursue the fund's
investment objectives during the reporting period, and the team's plan
for responding to recent changes in the market climate.
As always, we thank you for your continuing confidence in Putnam.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
June 15, 2005
Report from Fund Management
Fund highlights
* During the semiannual period ended April 30, 2005, Putnam Income Fund
had a total return of 1.07% without sales charges.
* The fund's primary benchmark, the Lehman Aggregate Bond Index,
returned 0.98%.
* The average return for the fund's Lipper category, Corporate Debt
Funds A Rated, was 0.93%.
* See the Performance Summary beginning on page 10 for additional fund
performance, comparative performance, and Lipper data.
Performance commentary
Your fund's semiannual period was divided into a generally favorable
market environment during the first three months and a less favorable
one in the latter three. The change in atmosphere was driven by the
Federal Reserve Board (the Fed), which continued its program of gradual
interest-rate increases through February and March 2005, and expressed
greater concern about the potential for inflation. This prompted
sell-offs in all sectors of the bond market during those months;
however, sectors with higher credit risk saw greater price declines (and
corresponding yield increases). Rates began to move downward in the
final weeks of the period on news of softer growth, but the sell-off in
February and March still detracted significantly from performance for
the period. Anticipating a potential rise in rates before the period had
begun, your fund's management team had positioned the fund in a more
conservative manner by making the portfolio less sensitive to changes in
interest rates and improving its overall credit quality. As a result,
the fund's performance was in line with both its benchmark index and its
Lipper category average, based on results at net asset value (NAV, or
without sales charges).
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TOTAL RETURN FOR
PERIODS ENDED 4/30/05
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Class A
(inception 11/1/54) NAV POP
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6 months 1.07% -3.43%
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1 year 5.03 0.24
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5 years 38.39 32.25
Annual average 6.71 5.75
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10 years 78.74 70.63
Annual average 5.98 5.49
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Annual average
(life of fund) 8.11 8.01
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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 4.50%. For the most recent month-end
performance, visit www.putnaminvestments.com. For a portion of the
period, this fund limited expenses, without which returns would have
been lower. A short-term trading fee of up to 2% may apply.
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
One of the most important events of the six-month period was the change
in tone from the Fed when it raised the federal funds rate in March.
This rate increase was the seventh in a series of increases that had
begun in June 2004. At the time of that first increase, the Fed's
official comment implied that future rate increases would come at a
"measured pace," and were intended to bring short-term rates back up to
more "normal" levels (from a 46-year low). As a result, long-term bond
investors were less concerned about an abrupt, sharp hike in interest
rates and focused on the economy, which was growing at a moderate pace
with low inflation. Reflecting this favorable environment, yields on
long-term bonds continued to decline through calendar 2004 and into
early 2005.
At its meetings in January, February, and March, the Fed gradually
changed its tone to reflect increased concerns about inflation. The U.S.
and international bond markets saw this change as a signal that future
rate increases could be more frequent and higher. Bonds sold off, with
the lower-quality, higher-yield bond sectors -- including emerging
markets and high-yield corporates -- experiencing the greatest price
declines (and yield increases). In April, the Commerce Department
reported lower-than-expected economic growth for the first quarter,
which brought long-term rates back down somewhat, but did not offset the
sharp rise of the previous two months.
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MARKET SECTOR PERFORMANCE 6 MONTHS ENDED 4/30/05
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Bonds
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Lehman Aggregate Bond Index (broad bond market) 0.98%
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Lehman Global Aggregate Bond Index (international bonds) 3.41%
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Lehman Government Bond Index (U.S. Treasury and agency
securities) 0.87%
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Lehman GNMA Index (Government National Mortgage Association
bonds) 1.49%
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Equities
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S&P 500 Index (broad stock market) 3.28%
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Russell 2000 Growth Index (small-company growth stocks) -1.98%
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Russell 2000 Value Index (small-company value stocks) 1.52%
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These indexes provide an overview of performance in different market
sectors for the six months ended 4/30/05.
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Strategy overview
Prior to the beginning of the semiannual period, we had begun to reduce
the level of both credit risk and interest-rate risk in the portfolio --
a strategy we continued to implement over the past six months. To reduce
credit risk, we sold holdings with lower credit ratings, primarily in
the corporate bond sector, and purchased higher-rated asset-backed and
commercial mortgage-backed securities. We believed that lower-rated
bonds had become overvalued and presented an uncomfortable degree of
risk. A key measure of this risk was the spread, or difference, between
the yields on lower- and higher-quality bonds. This "credit yield
spread" had been narrowing during the 2004 calendar year. However, over
the first four months of 2005, this spread widened, reflecting an
increase in perceived risk for lower-quality bonds, and illustrating a
decline in their performance compared to higher-quality bonds. As a
result, our strategy of underweighting these securities proved
beneficial for the fund's relative returns.
To reduce sensitivity to changes in interest rates, we continued to
shorten the fund's overall duration. Duration, which is measured in
years, is the primary indicator of interest-rate sensitivity. The
shorter a bond's duration, the less sensitive its price will be to
interest-rate changes. The fund's lower interest-rate sensitivity hurt
its performance somewhat at the beginning of the period, but it paid off
during the latter months, when rates rose and the market became more
skittish. While intended as a defensive strategy, this positioning was
also beneficial for the fund's performance.
[GRAPHIC OMITTED: horizontal bar chart TOP SECTOR WEIGHTINGS COMPARED]
TOP SECTOR WEIGHTINGS COMPARED
as of 10/31/04 as of 4/30/05
Mortgage-backed
securities 51.4% 52.6%
Asset-backed
securities 18.9% 27.1%
Investment-grade
bonds 17.1% 16.0%
U.S. government
bonds 11.6% 3.7%
High-yield bonds 1.0% 0.6%
Footnotes read:
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 affected performance
During the semiannual period, interest rates fluctuated within a
relatively moderate range. In such an environment, securitized bonds, or
structured securities, tend to perform well because they typically offer
higher income than corporate bonds of comparable credit quality. They
also came with shorter maturities, so if interest rates were to rise, we
would be able to reinvest the proceeds in higher-yielding securities.
The most common type of securitized bonds are mortgage-backed securities
(MBSs) issued by the Federal National Mortgage Association (Fannie Mae)
and the Government National Mortgage Association (Ginnie Mae). Other
types of securitized bonds include asset-backed securities (ABSs), which
are typically backed by car loans and credit card payments, and
commercial mortgage-backed securities (CMBSs), which are backed by loans
on large commercial real estate projects, such as office parks or
shopping malls. Both of these sectors performed well in comparison to
investment-grade corporate bonds. The fund's holdings in home equity and
manufactured-housing ABSs performed particularly well. The fund was
underweighted in MBSs, which underperformed other types of securitized
bonds, and was overweighted in CMBSs and ABSs, which outperformed. As a
result, our strategies in these sectors were beneficial for the fund's
relative performance.
The fund's holdings of Treasury bonds underperformed most fixed-income
sectors for most of the period. However, we had allocated a smaller
portion of the portfolio to this sector than did many of the fund's
peers, so this underweighting helped relative returns.
In the investment-grade corporate bond portion of the portfolio, we
continued our efforts to reduce lower-rated holdings and replace them with
higher-rated securities, including CMBSs and ABSs. Current holdings
include bonds from the media, cable, and real estate investment trust
(REIT) areas, which have been strong performers. We also found select
opportunities in the strong-performing energy and utilities sectors. The
fund's underweight to the automotive sector was also beneficial to
performance. This industry has performed poorly due to concerns about
General Motors, which has been struggling, and because of rising interest
rates, which have hurt the financial performance of debt-laden auto
companies. The fund's underweight to GM, one of the worst-performing bonds
in the Lehman Aggregate Bond Index, also helped its relative returns.
(Shortly after the end of the period, General Motors debt was downgraded
to below-investment-grade status by Standard & Poor's.)
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW
Aaa (66.7%)
Aa (2.5%)
A (6.7%)
Baa (16.2%)
Ba (4.9%)
B (0.3%)
other (2.6%)
Footnotes read:
As a percentage of market value as of 4/30/05. 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. Due to rounding, percentages may not equal 100%.
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.
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.
During the period, the fund's lower returns reflected a more cautious
bond market and a more mature economic recovery. Our forecast is for
continued steady, moderate growth with a possible slight increase in
inflation. Such an environment would probably result in more short-term
interest-rate increases by the Fed and the likelihood that long-term
bond yields would continue moving upward. In such an environment, we
believe the fund's shorter duration and higher credit quality would help
it weather the impact of the higher interest rates we expect to see. Of
course, we will continue to remain vigilant about any possible
disruptions to the U.S. economy and fixed-income markets, keeping the
fund positioned defensively while remaining well diversified in a broad
range of high-quality fixed-income sectors and securities.
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 of the fund. Rob Bloemker,
Kevin Murphy, and Raman Srivastava are Portfolio Members. The Portfolio
Leader and Portfolio Members coordinate the team's management of the
fund.
For a complete listing of the members of the Putnam Core Fixed-Income
Team, including those who are not Portfolio Leaders or Portfolio Members
of your fund, visit Putnam's Individual Investor Web site at
www.putnaminvestments.com.
Fund ownership
The table below shows how much the fund's current Portfolio Leader and
Portfolio Members have invested in the fund (in dollar ranges).
Information shown is as of April 30, 2005, and April 30, 2004.
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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 2005 *
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Portfolio Leader 2004 *
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Rob Bloemker 2005 *
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Portfolio Member 2004 *
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Kevin Murphy 2005 *
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Portfolio Member N/A
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Raman Srivastava 2005 *
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Portfolio Member N/A
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N/A indicates the individual was not a Portfolio Leader or Portfolio
Member as of 4/30/04.
Fund manager compensation
The total 2004 fund manager compensation that is attributable to your
fund is approximately $850,000. This amount includes a portion of 2004
compensation paid by Putnam Management to the fund managers listed in
this section for their portfolio management responsibilities, calculated
based on the fund assets they manage taken as a percentage of the total
assets they manage. The compensation amount also includes a portion of
the 2004 compensation paid to the Chief Investment Officer of the team
and the Group Chief Investment Officer of the fund's broader investment
category for their oversight responsibilities, calculated based on the
fund assets they oversee taken as a percentage of the total assets they
oversee. This amount does not include compensation of other personnel
involved in research, trading, administration, systems, compliance, or
fund operations. These percentages are determined as of the fund's
fiscal period-end. For personnel who joined Putnam Management during or
after 2004, the calculation reflects annualized 2004 compensation or an
estimate of 2005 compensation, as applicable.
Other Putnam funds managed by the Portfolio Leader and Portfolio Members
Kevin Cronin is also a Portfolio Leader of Putnam American Government
Income Fund, Putnam Global Income Trust, Putnam Limited Duration
Government Income Fund, and Putnam U.S. Government Income Trust. He is
also 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 Diversified Income Trust, Putnam Limited Duration
Government Income Fund, Putnam Master Intermediate Income Trust, Putnam
Premier Income Trust, and Putnam U.S. Government Income Trust.
Kevin Murphy is also a Portfolio Member of Putnam Utilities Growth and
Income Fund.
Raman Srivastava is also a Portfolio Member of The George Putnam Fund of
Boston.
Kevin Cronin, Rob Bloemker, Kevin Murphy, and Raman Srivastava may also
manage other accounts and variable trust funds advised by Putnam
Management or an affiliate.
Changes in your fund's Portfolio Leader and Portfolio Members
During the semiannual period ended April 30, 2005, Kevin Murphy and
Raman Srivastava became Portfolio Members of your fund.
Fund ownership
The table below shows how much the members of Putnam's Executive Board
have invested in the fund (in dollar ranges). Information shown is as of
April 30, 2005, and April 30, 2004.
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PUTNAM EXECUTIVE BOARD
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$1 - $10,001 - $50,001- $100,001
Year $0 $10,000 $50,000 $100,000 and over
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Philippe Bibi 2005 *
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Chief Technology Officer 2004 *
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John Boneparth 2005 *
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Head of Global Institutional Mgmt 2004 *
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Joshua Brooks 2005 *
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Deputy Head of Investments N/A
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Kevin Cronin 2005 *
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Head of Investments 2004 *
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Charles Haldeman, Jr. 2005 *
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President and CEO 2004 *
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Amrit Kanwal 2005 *
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Chief Financial Officer 2004 *
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Steven Krichmar 2005 *
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Chief of Operations 2004 *
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Francis McNamara, III 2005 *
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General Counsel 2004 *
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Richard Monaghan 2005 *
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Head of Retail Management 2004 *
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Richard Robie, III 2005 *
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Chief Administrative Officer 2004 *
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Edward Shadek 2005 *
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Deputy Head of Investments N/A
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N/A indicates the individual was not a member of Putnam's Executive
Board as of 4/30/04.
Performance summary
This section shows your fund's performance during the first half of its
fiscal year, which ended April 30, 2005. 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 4/30/05
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Class A Class B Class C Class M Class R
(inception date) (11/1/54) (3/1/93) (7/26/99) (12/14/94) (1/21/03)
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NAV POP NAV CDSC NAV CDSC NAV POP NAV
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6 months 1.07% -3.43% 0.70% -4.29% 0.69% -0.30% 0.97% -2.34% 1.00%
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1 year 5.03 0.24 4.12 -0.88 4.12 3.12 4.87 1.50 4.86
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5 years 38.39 32.25 33.32 31.32 33.31 33.31 36.74 32.26 36.80
Annual average 6.71 5.75 5.92 5.60 5.92 5.92 6.46 5.75 6.47
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10 years 78.74 70.63 65.96 65.96 65.72 65.72 74.68 68.90 74.57
Annual average 5.98 5.49 5.20 5.20 5.18 5.18 5.74 5.38 5.73
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Annual average
(life of fund) 8.11 8.01 7.10 7.10 7.29 7.29 7.64 7.57 7.84
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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 4.50% and 3.25%, respectively (which
for class A shares does not reflect a reduction in sales charges that
went into effect on April 1, 2005; 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 shares 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. For a portion of the period, this
fund limited expenses, without which returns would have been lower. A 2%
short-term trading fee may be applied to shares exchanged or sold within
5 days of purchase.
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TOTAL RETURN FOR PERIODS ENDED 3/31/05 (MOST RECENT CALENDAR QUARTER)
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Class A Class B Class C Class M Class R
(inception date) (11/1/54) (3/1/93) (7/26/99) (12/14/94) (1/21/03)
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NAV POP NAV CDSC NAV CDSC NAV POP NAV
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6 months 0.61% -3.89% 0.08% -4.87% 0.08% -0.91% 0.35% -2.95% 0.39%
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1 year 1.08 -3.41 0.32 -4.60 0.34 -0.65 0.88 -2.41 0.92
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5 years 35.03 28.94 30.06 28.06 29.86 29.86 33.40 29.10 33.51
Annual average 6.19 5.22 5.40 5.07 5.36 5.36 5.93 5.24 5.95
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10 years 79.15 71.20 66.08 66.08 65.88 65.88 74.80 69.22 74.96
Annual average 6.00 5.52 5.20 5.20 5.19 5.19 5.74 5.40 5.75
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Annual average
(life of fund) 8.09 8.00 7.08 7.08 7.28 7.28 7.63 7.56 7.83
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 4/30/05
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Lehman Lipper Corporate
Aggregate Debt Funds A Rated
Bond Index category average*
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6 months 0.98% 0.93%
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1 year 5.26 4.86
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5 years 43.48 39.74
Annual average 7.49 6.90
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10 years 99.24 89.26
Annual average 7.14 6.56
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Annual average
(life of fund) --+ --+
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Index and Lipper results should be compared to fund performance at net
asset value.
* Over the 6-month and 1-, 5-, and 10-year periods ended 4/30/05, there
were 206, 204, 118, 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 6 MONTHS ENDED 4/30/05
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Class A Class B Class C Class M Class R
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Distributions (number) 6 6 6 6 6
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Income $0.093 $0.067 $0.067 $0.085 $0.088
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Capital gains -- -- -- -- --
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Total $0.093 $0.067 $0.067 $0.085 $0.088
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Share value: NAV POP NAV NAV NAV POP NAV
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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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4/30/05 6.85 7.12* 6.80 6.82 6.78 7.01 6.85
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Current return
(end of period)
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Current dividend rate 1 2.80% 2.70% 2.12% 2.11% 2.65% 2.57% 2.63%
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Current 30-day
SEC yield 2 3.51 3.38 2.77 2.77 3.27 3.16 3.27
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* Reflects a reduction in sales charges that took effect on April 1,
2005.
1 Most recent distribution, excluding capital gains, annualized and
divided by NAV or POP at end of period.
2 Based only on investment income, calculated using SEC guidelines.
Understanding your
fund's expenses
As a mutual fund investor, you pay ongoing expenses, such as management
fees, distribution fees (12b-1 fees), and other expenses. In the most
recent six-month period, your fund limited these expenses; had it not
done so, expenses would have been higher. Using the information below,
you can estimate how these expenses affect your investment and compare
them with the expenses of other funds. You may also pay one-time
transaction expenses, including sales charges (loads) and redemption
fees, which are not shown in this section and would have resulted in
higher total expenses. For more information, see your fund's prospectus
or talk to your financial advisor.
Review your fund's expenses
The table below shows the expenses you would have paid on a $1,000
investment in Putnam Income Fund from November 1, 2004, to April 30,
2005. It also shows how much a $1,000 investment would be worth at the
close of the period, assuming actual returns and expenses.
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EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming actual returns for the 6 months ended 4/30/05
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Class A Class B Class C Class M Class R
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Expenses paid per $1,000* $4.84 $8.56 $8.56 $6.08 $6.08
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Ending value (after
expenses) $1,010.70 $1,007.00 $1,006.90 $1,009.70 $1,010.00
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* Expenses for each share class are calculated using the fund's
annualized expense ratio for each class, which represents the ongoing
expenses as a percentage of net assets for the six months ended 4/30/05.
The expense ratio may differ for each share class (see the table at the
bottom of the next page). Expenses are calculated by multiplying the
expense ratio by the average account value for the period; then
multiplying the result by the number of days in the period; and then
dividing that result by the number of days in the year.
Estimate the expenses you paid
To estimate the ongoing expenses you paid for the six months ended April
30, 2005, use the calculation method below. To find the value of your
investment on November 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 11/01/2004 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 11/1/04 [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 $4.84 (see table above) = $48.40
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Comparing your fund's expenses with those of other funds
Using the SEC's method to compare expenses
The Securities and Exchange Commission (SEC) has established guidelines
to help investors assess fund expenses. Per these guidelines, the table
below shows your fund's expenses based on a $1,000 investment, assuming
a hypothetical 5% annualized return. You can use this information to
compare the ongoing expenses (but not transaction expenses or total
costs) of investing in the fund with those of other funds. All mutual
fund shareholder reports will provide this information to help you make
this comparison. Please note that you cannot use this information to
estimate your actual ending account balance and expenses paid during the
period.
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EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming a hypothetical 5% annualized return for the 6 months ended 4/30/05
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Class A Class B Class C Class M Class R
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Expenses paid per $1,000* $4.86 $8.60 $8.60 $6.11 $6.11
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Ending value (after
expenses) $1,019.98 $1,016.27 $1,016.27 $1,018.74 $1,018.74
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* Expenses for each share class are calculated using the fund's annualized
expense ratio for each class, which represents the ongoing expenses as a
percentage of net assets for the six months ended 4/30/05. 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 the average of its peer
group, as defined by Lipper, an independent fund-rating agency that
ranks funds relative to others that Lipper considers to have similar
investment styles or objectives. The expense ratio for each share class
shown below indicates how much of your fund's net assets have been used
to pay ongoing expenses during the period.
- ------------------------------------------------------------------------------
EXPENSE RATIO COMPARISONS USING ANNUALIZED DATA
- ------------------------------------------------------------------------------
Class A Class B Class C Class M Class R
- ------------------------------------------------------------------------------
Your fund's annualized
expense ratio 0.97% 1.72% 1.72% 1.22% 1.22%
- -------------------------------------------------------------------------------
Average annualized expense
ratio for Lipper peer group+ 1.04% 1.79% 1.79% 1.29% 1.29%
- -------------------------------------------------------------------------------
+ Simple average of the expenses of all front-end load funds in the fund's
Lipper peer group, calculated in accordance with Lipper's standard
method for comparing fund expenses (excluding 12b-1 fees and without
giving effect to any expense offset and brokerage service arrangements
that may reduce fund expenses). This average reflects each fund's
expenses for its most recent fiscal year available to Lipper as of
3/31/05. To facilitate comparison, Putnam has adjusted this average to
reflect the 12b-1 fees carried by each class of shares. The peer group
may include funds that are significantly smaller or larger than the
fund, which may limit the comparability of the fund's expenses to the
simple average, which typically is higher than the asset-weighted
average.
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 or other fixed-income instruments may have
higher turnover than funds that invest only in stocks. Short-term bond
funds tend to have higher turnover than longer-term bond funds, because
shorter-term bonds will mature or be sold more frequently than
longer-term bonds. You can use the table below to compare your fund's
turnover with the average turnover for funds in its Lipper category.
- ------------------------------------------------------------------------------
TURNOVER COMPARISONS
percentage of holdings that change every year
- ------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- ------------------------------------------------------------------------------
Putnam Income Fund 441% 251%* 268%* 234%* 207%
- ------------------------------------------------------------------------------
Lipper Corporate Debt Funds
A Rated category average 173% 167% 151% 166% 143%
- ------------------------------------------------------------------------------
* Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
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 3/31/05.
Risk comparison
This risk comparison is designed to help you understand how your fund
compares with other funds. The comparison utilizes a risk measure
developed by Morningstar, an independent fund-rating agency. This risk
measure is referred to as the fund's Overall Morningstar Risk.
[GRAPHIC OMITTED: chart MORNINGSTAR [REGISTRATION MARK] RISK]
MORNINGSTAR [REGISTRATION MARK] RISK
Fund's Overall
Morningstar Risk 0.16
Taxable bond
fund average 0.30
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 March 31, 2005. 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 4.50% maximum sales charge for class A
shares (since reduced to 3.75%) 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 of U.S.
investment-grade fixed-income securities.
Lehman Global Aggregate Bond Index is an unmanaged index of global
investment-grade fixed-income securities.
Lehman Government Bond Index is an unmanaged index of U.S. Treasury and
agency securities.
Lehman GNMA Index is an unmanaged index of Government National Mortgage
Association bonds.
Russell 2000 Growth Index is an unmanaged index of those companies in
the small-cap Russell 2000 Index chosen for their growth orientation.
Russell 2000 Value Index is an unmanaged index of those companies in the
small-cap Russell 2000 Index chosen for their value orientation.
S&P 500 Index is an unmanaged index of common stock performance.
Indexes assume reinvestment of all distributions and do not account for
fees. Securities and performance of a fund and an index will differ. You
cannot invest directly in an index.
Lipper is a third-party industry ranking entity that ranks 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.
Trustee approval of management contract
General conclusions
The Board of Trustees of the Putnam funds oversees the management of
each fund and, as required by law, determines annually whether to
approve the continuance of each fund's management contract with Putnam
Management. In this regard the Board of Trustees, with the assistance of
its Contract Committee consisting solely of Independent Trustees,
requests and evaluates all information it deems reasonably necessary in
the circumstances. Over the course of several months beginning in March
and ending in June of 2004, the Contract Committee reviewed the
information provided by Putnam Management and other information
developed with the assistance of the Board's independent counsel and
independent staff. The Contract Committee reviewed and discussed key
aspects of this information with all of the Independent Trustees. Upon
completion of this review, the Contract Committee recommended and the
Independent Trustees approved the continuance of your fund's contract,
effective July 1, 2004.
This approval was based on the following conclusions:
* That the fee schedule currently in effect for your fund represents
reasonable compensation in light of the nature and quality of the
services being provided to the fund, the fees paid by competitive funds
and the costs incurred by Putnam Management in providing such service,
and
* That such fee schedule represents an appropriate sharing between fund
shareholders and Putnam Management of such economies of scale as may
exist in the management of the fund at current asset levels.
These conclusions were based on a comprehensive consideration of all
information provided to the Trustees and were not the result of any
single factor. Some of the factors that figured particularly in the
Trustees' deliberations are described below.
Model fee schedules and categories; total expenses
The Trustees, working in cooperation with Putnam Management, have
developed and implemented a series of model fee schedules for the Putnam
funds designed to ensure that each fund's management fee is consistent
with the fees for similar funds in the Putnam complex and compares
favorably with fees paid by competitive funds sponsored by other advisors.
The Trustees reviewed the model fee schedule currently in effect for the
fund, including fee levels and breakpoints, and the assignment of the fund
to a particular fee category under this structure. The Trustees also
reviewed comparative fee and expense information for competitive funds.
The Trustees concluded that no changes should be made in the fund's
current fee schedule at this time. The Trustees noted that expense ratios
for a number of Putnam funds had been increasing recently as a result of
declining net assets and the natural operation of fee breakpoints. They
noted that such expense ratio increases were currently being controlled by
expense limitations implemented in January 2004. They also noted that the
competitive landscape regarding mutual fund fees may be changing as a
result of fee reductions accepted by various other fund groups in
connection with recent regulatory settlements and greater focus on fees
and expenses in the mutual fund industry generally. The Trustees indicated
an intention to monitor these developments closely.
Economies of scale
As noted above, the Trustees concluded that the fee schedule currently
in effect for your fund represents an appropriate sharing of economies
of scale at current asset levels. The Trustees indicated their intention
to continue their ongoing consideration of economies of scale and in
particular to consider further the possible operation of such economies
in the event that a significant recovery in the equity markets or net
fund sales were to raise asset levels substantially above current
levels. In this regard, the Trustees noted that they had reviewed data
relating to the substantial increase in asset levels of the Putnam funds
that occurred during the years leading up to the market peak in 2000,
the subsequent decline in assets and the resulting impact on revenues
and expenses of Putnam Management. The Trustees also noted that recent
declines in net assets in many Putnam funds, together with significant
changes in the cost structure of Putnam Management have altered the
economics of Putnam Management's business in significant ways. The
Trustees concluded that they would monitor these changes carefully and
evaluate the resulting impact on Putnam Management's economics and the
sharing of economies of scale between the parties.
Investment performance
The quality of the investment process provided by Putnam Management
represented a major factor in the Trustees' evaluation of the quality of
services provided by Putnam Management under the Management Contracts.
The Trustees recognized that a high quality investment process -- as
measured by the experience and skills of the individuals assigned to the
management of fund portfolios, the resources made available to such
personnel, and in general the ability of Putnam Management to attract
and retain high-quality personnel -- does not guarantee favorable
investment results for every fund in every time period. The Trustees
considered the investment performance of each fund over multiple time
periods and considered information comparing the fund's performance with
various benchmarks and with the performance of competitive funds. The
Trustees noted the satisfactory investment performance of many Putnam
funds.
They also noted the disappointing investment performance of certain
funds in recent years and continued to discuss with senior management of
Putnam Management the factors contributing to such under-performance and
actions being taken to improve performance. The Trustees recognized
that, in recent years, Putnam Management has made significant changes in
its investment personnel and processes and in the fund product line in
an effort to address areas of underperformance. The Trustees indicated
their intention to continue to monitor performance trends to assess the
effectiveness of these changes and to evaluate whether additional
remedial changes are warranted. As a general matter, the Trustees
concluded that consultation between the Trustees and Putnam Management
represents the most effective way to address investment performance
problems. The Trustees believe that investors in the Putnam funds and
their financial advisors have, as a general matter, effectively placed
their trust in the Putnam organization, under the supervision of the
funds' Trustees, to make appropriate decisions regarding the management
of the funds. The Trustees believe that the termination of the
Management Contract and engagement of a new investment adviser for
under-performing funds, with all the attendant disruptions, would not
serve the interests of fund shareholders at this time and would not
necessarily provide any greater assurance of improved investment
performance.
Brokerage and soft-dollar allocations; other benefits
The Trustees considered various potential benefits that Putnam
Management may receive in connection with the services it provides under
the Management Contract with your fund. These include principally
benefits related to brokerage and soft-dollar allocations, which pertain
mainly to funds investing in equity securities. The Trustees believe
that soft-dollar credits and other potential benefits associated with
the allocation of fund brokerage represent assets of the funds that
should be used for the benefit of fund shareholders. The Trustees noted
recent trends in the allocation of fund brokerage, including commission
costs, the allocation of brokerage to firms that provide research
services to Putnam Management, and the sources and application of
available soft-dollar credits. Effective December 31, 2003, reflecting a
decision made by the Trustees earlier that year, Putnam Management
ceased allocating brokerage in connection with the sale of fund shares.
In addition, in preparing its budget for commission allocations in 2004,
Putnam Management voluntarily reduced substantially the allocation of
brokerage commissions to acquire research services from third-party
service providers. In light of evolving best practices in the mutual
fund industry, the Trustees concluded that this practice should be
further curtailed and possibly eliminated in the near future. The
Trustees indicated that they would continue to monitor the allocation of
the funds' brokerage to ensure that the principle of "best price and
execution" remains paramount in the portfolio trading process.
Comparison of retail and institutional fee schedules
The information examined by the Trustees as part of the annual contract
reviews included information regarding fees charged by Putnam Management
and its affiliates to institutional clients such as defined benefit
pension plans and college endowments. This information included
comparison of such fees with fees charged to the Putnam funds, as well
as a detailed assessment of the differences in the services provided to
these two types of clients. The Trustees devoted special attention to
these issues and reviewed recent articles by critics of mutual fund
fees, articles by the ICI defending such fee differences, and relevant
guidance provided by decisions of the courts. The Trustees observed, in
this regard, that the differences in fee rates between institutional
clients and mutual funds are by no means uniform when examined by
individual asset sectors, suggesting that differences in the pricing of
investment management services to these types of clients reflects to a
substantial degree historical competitive forces operating in separate
market places. In reaching their conclusions, the Trustees considered
the fact that fee rates across all asset sectors are higher on average
for mutual funds than for institutional clients, and also considered the
differences between the services that Putnam provides to the Putnam
funds and those that it provides to institutional clients of the firm.
Settlement of regulatory charges related to market timing
Finally, in reaching their conclusions, the Trustees considered all
matters pertinent to the administrative charges filed against Putnam
Management by the SEC and the Commonwealth of Massachusetts in October
2003 relating to market timing, the firm's settlement of those charges,
and the conclusions and recommendations of the Trustees' Audit and
Pricing Committee based on its review of these matters. The Trustees
considered the actions taken by the owner of Putnam Management and its
new senior management to terminate or discipline the individuals
involved, to implement new compliance systems, to indemnify the funds
against all costs and liabilities related to these matters, and
otherwise to ensure that the interests of the funds and their
shareholders are fully protected. The Trustees noted that, in addition
to the settlements of the regulatory charges which will provide
comprehensive restitution for any losses suffered by shareholders, the
new senior management of Putnam Management has moved aggressively to
control expense ratios of funds affected by market timing, to reduce
charges to new investors, to improve disclosure of fees and expenses,
and to emphasize the paramount role of investment performance in
achieving shareholders' investment goals.
Other information for shareholders
A note about duplicate mailings
In response to investors' requests, the SEC has modified mailing
regulations for proxy statements, semiannual and annual reports, and
prospectuses. Putnam is now able to send a single copy of these
materials to customers who share the same address. This change will
automatically apply to all shareholders except those who notify us. If
you would prefer to receive your own copy, please call Putnam at
1-800-225-1581.
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,
constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to
determine the net asset value per share, which is calculated separately
for each class of shares. (For funds with preferred shares, the amount
subtracted from total assets includes the net assets allocated to
remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or loss
the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal period.
Statement of changes in net assets shows how the fund's net assets were
affected by 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.
The fund's portfolio
April 30, 2005 (Unaudited)
U.S. government and agency mortgage obligations (48.1%) (a)
Principal amount Value
U.S. Government Guaranteed Mortgage Obligations (0.1%)
- -------------------------------------------------------------------------------
Government National Mortgage
Association Graduated Payment
Mortgages
$79,545 11s, with due dates from March 15,
2010 to July 15, 2013 $89,485
Government National Mortgage
Association Pass-Through
Certificates
1,598,910 7s, with due dates from April 15,
2026 to December 15, 2031 1,719,451
--------------
1,808,936
U.S. Government Agency Mortgage Obligations (48.0%)
- -------------------------------------------------------------------------------
Federal Home Loan Mortgage
Corporation
55,417 7 1/2s, December 1, 2029 59,564
54,013 7s, January 1, 2015 56,866
35,659,852 6 1/2s, with due dates from January
1, 2024 to February 1, 2035 37,083,524
211,217 Federal National Mortgage
Association Graduated Payment
Mortgages 8s, December 1, 2008 228,280
Federal National Mortgage
Association Pass-Through
Certificates
26,140 11s, October 1, 2015 29,186
558,673 9s, with due dates from January 1,
2027 to July 1, 2032 622,049
2,402,296 8s, with due dates from January 1,
2025 to July 1, 2033 2,608,765
2,259,549 7 1/2s, with due dates from
September 1, 2022 to July 1, 2033 2,421,680
101,143,603 7s, with due dates from August 1,
2021 to December 1, 2034 106,974,482
2,083,393 7s, with due dates from January 1,
2007 to January 1, 2018 2,195,584
2,400,000 7s, TBA, May 1, 2035 2,533,500
157,222,149 6 1/2s, with due dates from October
1, 2023 to January 1, 2035 163,663,860
290,200 6 1/2s, with due dates from
September 1, 2010 to February 1,
2019 304,529
994,013 6s, with due dates from August 1,
2032 to December 1, 2034 1,021,154
3,604,399 6s, with due dates from August 1,
2013 to November 1, 2017 3,739,140
26,900,000 6s, TBA, May 1, 2035 27,610,327
98 5 1/2s, March 1, 2035 99
66,900,000 5 1/2s, TBA, June 1, 2035 67,406,975
326,492,000 5 1/2s, TBA, May 1, 2035 329,654,891
48,200,000 5 1/2s, TBA, May 1, 2020 49,327,880
19,800,740 5s, with due dates from January 1,
2034 to April 1, 2035 19,640,650
341,834 5s, with due dates from June 1, 2019
to November 1, 2019 344,851
155,000,000 5s, TBA, June 1, 2035 153,123,043
151,300,000 5s, TBA, May 1, 2035 149,846,098
300,000 5s, TBA, May 1, 2020 302,086
168,100,000 4 1/2s, TBA, May 1, 2020 166,300,809
756,054 4s, June 1, 2019 733,963
--------------
1,287,833,835
--------------
Total U.S. government and agency
mortgage obligations
(cost $1,278,474,452) $1,289,642,771
U.S. Treasury obligations (0.2%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
U.S. Treasury Notes
$2,085,000 4 1/4s, November 15, 2013 $2,100,312
3,934,000 3 1/4s, August 15, 2008 3,870,687
--------------
Total U.S. Treasury obligations
(cost $6,125,938) $5,970,999
Asset-backed securities (27.1%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$4,197,958 Aames Mortgage Investment Trust FRN
Ser. 04-1, Class 2A1, 3.36s, 2034 $4,197,958
5,795,750 Aames Mortgage Trust Ser. 03-1,
Class A, Interest Only (IO), 6s,
2005 168,564
17,548 Aames Mortgage Trust 144A Ser.
03-1N, Class A, 7 1/2s, 2033 17,531
3,051,257 ABFS Mortgage Loan Trust Ser. 03-1,
Class A, IO, 4s, 2005 46,605
3,720,952 ABSC NIMS Trust 144A Ser. 05-HE2,
Class A1, 4 1/2s, 2035 (Cayman
Islands) 3,713,510
10,219,000 Ace Securities Corp. Ser. 03-FM1,
Class A, IO, 3 1/2s, 2005 146,132
1,939,000 Advanta Business Card Master Trust
FRN Ser. 04-C1, Class C, 4.04s,
2013 1,972,874
1,471,867 Advanta Mortgage Loan Trust Ser.
00-1, Class A4, 8.61s, 2028 1,498,544
Aegis Asset Backed Securities Trust
144A
261,602 Ser. 04-1N, Class Note, 5s, 2034 261,602
789,898 Ser. 04-4N, Class Note, 5s, 2034 789,898
646,238 Ser. 04-5N, Class Note, 5s, 2034 646,238
987,490 Ser. 04-6N, Class Note, 4 3/4s, 2035 986,256
542,747 Ser. 04-2N, Class N1, 4 1/2s, 2034 541,475
8,097,849 AFC Home Equity Loan Trust Ser.
99-2, Class 1A, 3.26s, 2029 8,097,849
12,666,818 American Express Credit Account
Master Trust 144A Ser. 04-C, Class
C, 3.454s, 2012 12,668,794
American Home Mortgage Investment
Trust FRB
11,818,395 Ser. 05-1, Class 5A1, 5.001s, 2045 11,947,658
13,407,235 Ser. 05-1, Class 4A1, 4.992s, 2045 13,555,973
6,107,888 Ser. 04-3, Class 3A, 3.71s, 2034 6,051,065
9,028,484 Ser. 04-3, Class 2A, 3.59s, 2034 8,935,393
1,020,000 Americredit Automobile Receivables
Trust 144A Ser. 05-1, Class E,
5.82s, 2012 1,022,040
Ameriquest Finance NIM Trust 144A
300,000 Ser. 04-IAN1, Class B, 8.835s, 2034
(Cayman Islands) 298,875
330,643 Ser. 04-IAN, Class 1A, 5.437s, 2034
(Cayman Islands) 329,403
1,333,773 Ser. 04-RN9, 4.8s, 2034 (Cayman
Islands) 1,333,773
Ameriquest Mortgage Securities, Inc.
9,160,873 Ser. 03-6, Class S, IO, 5s, 2033 161,389
6,041,117 Ser. 03-8, Class S, IO, 5s, 2006 163,714
6,836,447 Ser. 03-12, Class S, IO, 5s, 2006 243,548
6,206,703 Amortizing Residential Collateral
Trust Ser. 02-BC3, Class A, IO, 6s,
2005 26,829
119,434 AQ Finance NIM Trust 144A Ser.
03-N9A, Class Note, 7.385s, 2033
(Cayman Islands) 119,733
Arcap REIT, Inc. 144A
1,993,000 Ser. 03-1A, Class E, 7.11s, 2038 2,100,435
1,469,204 Ser. 04-1A, Class E, 6.42s, 2039 1,487,799
Argent NIM Trust 144A
$56,173 Ser. 03-N8, Class A, 5.56s, 2034
(Cayman Islands) $56,173
512,427 Ser. 04-WN9, Class A, 5.19s, 2034
(Cayman Islands) 512,427
312,567 Ser. 04-WN2, Class A, 4.55s, 2034
(Cayman Islands) 312,665
192,428 Ser. 04-WN4, Class A, 4.459s, 2034
(Cayman Islands) 191,887
Asset Backed Funding Corp. NIM Trust
144A
101,447 Ser. 03-OPT1, Class Note, 6.9s, 2033 101,447
574,990 Ser. 03-WMC1, Class Note, 6.9s, 2033 575,818
1,015,208 Ser. 04-AHL1, Class Note, 5.6s, 2033 1,015,170
725,779 Ser. 04-FF1, Class N1, 5s, 2034
(Cayman Islands) 726,730
75,000 Ser. 04-FF1, Class N2, 5s, 2034
(Cayman Islands) 69,127
607,400 Ser. 04-0PT1, Class N1, 4.55s, 2033
(Cayman Islands) 603,225
605,866 Ser. 04-0PT5, Class N1, 4.45s, 2034
(Cayman Islands) 605,866
Asset Backed Securities Corp. Home
Equity Loan Trust
24,190,890 Ser. 03-HE1, Class A, IO, 5s, 2033 187,891
9,342,619 Ser. 03-HE5, Class A, IO, 4s, 2033 246,458
378,870 FRB Ser. 04-HE1, Class A3, 3.354s,
2034 379,404
1,619,048 FRB Ser. 04-HE9, Class A2, 3.39s,
2034 1,622,845
1,904,391 FRB Ser. 05-HE1, Class A3, 3.31s,
2035 1,904,795
1,559,919 Aviation Capital Group Trust 144A
FRB Ser. 03-2A, Class G1, 3.69s,
2033 1,562,234
530,978 Banc of America Funding Corp. 144A
Ser. 04-NIM1, Class Note, 6s, 2034 530,978
1,390,000 Bank One Issuance Trust FRB Ser.
03-C4, Class C4, 3.984s, 2011 1,419,445
Bayview Financial Acquisition Trust
11,926,874 Ser. 03-E, Class A, IO, 4s, 2006 258,123
6,300,000 FRB Ser. 03-G, Class A1, 3.66s, 2039 6,300,000
4,338,557 FRN Ser. 03-F, Class A, 3.56s, 2043 4,354,228
31,393,889 Ser. 04-D, Class A, IO, 3 1/2s, 2007 1,350,625
5,737,065 FRN Ser. 04-D, Class A, 3.45s, 2044 5,737,065
21,783,000 Ser. 05-B, Class A, IO, 2.702s, 2039 816,717
64,043,064 Bayview Financial Asset Trust Ser.
03-X, Class A, IO, 0.9s, 2006 1,101,528
Bayview Financial Asset Trust 144A
2,414,857 FRB Ser. 03-SSRA, Class M, 4.37s,
2038 2,437,557
2,114,502 FRB Ser. 03-SSRA, Class A, 3.72s,
2038 2,122,537
3,066,747 FRB Ser. 04-SSRA, Class A1, 3.62s,
2039 3,074,414
90,242,760 Ser. 03-Z, Class AIO1, IO, 0.439s,
2005 165,051
Bear Stearns Alternate Trust
6,397,000 Ser. 05-5, Class 1A-1, 5.377s, 2035 6,433,983
8,432,000 Ser. 05-4, Class 22A2, 5.27s, 2035 8,565,068
11,983,411 Ser. 04-12, Class 2A2, 5.112s, 2035 12,136,204
2,073,450 Ser. 04-9, Class 1A1, 5.063s, 2034 2,098,255
5,824,648 Ser. 05-3, Class 2A1, 5.056s, 2035 5,895,636
5,002,253 Ser. 04-11, Class 2A2, 4.961s, 2034 5,053,472
2,567,044 Ser. 05-2, Class 2A2A, 4.937s, 2035 2,592,565
Bear Stearns Asset Backed Securities
NIM Trust 144A
542,593 Ser. 04-HE6, Class A1, 5 1/4s, 2034
(Cayman Islands) 543,356
755,735 Ser. 04-HE7N, Class A1, 5 1/4s, 2034 756,916
932,999 Ser. 04-FR1, Class A1, 5s, 2034
(Cayman Islands) 932,999
555,748 Ser. 04-HE5N, Class A1, 5s, 2034
(Cayman Islands) 555,748
322,000 Ser. 04-HE5N, Class A2, 5s, 2034
(Cayman Islands) 322,000
325,647 Ser. 04-HE8N, Class A1, 5s, 2034 325,647
Bear Stearns Asset Backed Securities
NIM Trust 144A
347,000 Ser. 04-HE10, Class A2, 5s, 2034
(Cayman Islands) 347,000
932,711 Ser. 04-HE10, Class A1, 4 1/4s, 2034
(Cayman Islands) 930,379
Bear Stearns Asset Backed Securities, Inc.
11,961,600 Ser. 03-AC1, Class A, IO, 5s, 2005 195,563
14,000,800 Ser. 03-AC4, Class A, IO, 5s, 2006 427,773
2,964,000 FRB Ser. 03-3, Class A2, 3.61s, 2043 2,978,820
1,937,074 FRB Ser. 03-1, Class A1, 3.52s, 2042 1,937,070
880,000 Capital One Multi-Asset Execution
Trust FRB Ser. 02-C1, Class C1,
5.704s, 2010 928,950
826,000 CARMAX Auto Owner Trust Ser. 04-2,
Class D, 3.67s, 2011 818,995
CARSSX Finance, Ltd. 144A FRB
617,666 Ser. 04-AA, Class B4, 8.454s, 2011
(Cayman Islands) 629,561
491,409 Ser. 04-AA, Class B3, 6.304s, 2011
(Cayman Islands) 496,092
4,870,000 CDO Repackaging Trust Series 144A
FRB Ser. 03-2, Class A, 6.621s,
2008 5,198,725
9,615,200 Centex Home Equity Ser. 04-C, Class
A, IO, 3 1/2s, 2006 231,452
2,550,000 Chase Credit Card Master Trust FRB
Ser. 03-3, Class C, 4.034s, 2010 2,608,649
Chase Funding Net Interest Margin
144A
1,202,682 Ser. 04-OPT1, Class Note, 4.458s,
2034 1,199,675
50,602 Ser. 04-1A, Class Note, 3 3/4s, 2035 50,539
CHEC NIM Ltd., 144A
350,000 Ser. 04-2, Class N2, 8s, 2034
(Cayman Islands) 348,002
223,000 Ser. 04-2, Class N3, 8s, 2034
(Cayman Islands) 191,780
845,811 Ser. 04-2, Class N1, 4.45s, 2034
(Cayman Islands) 845,763
1,390,000 Citibank Credit Card Issuance Trust
FRN Ser. 01-C1, Class C1, 4.221s,
2010 1,417,269
77,917,000 Commercial Mortgage Pass-Through
Certificate 144A Ser. 05-LP5, Class
XC, IO, 0.044s, 2043 810,337
Conseco Finance Securitizations Corp.
5,593,000 Ser. 02-1, Class M2, 9.546s, 2033 2,516,850
2,862,283 Ser. 01-4, Class B1, 9.4s, 2033 386,408
8,500,000 Ser. 00-2, Class A5, 8.85s, 2030 7,554,044
11,062,277 Ser. 02-2, Class A, IO, 8 1/2s, 2033 2,902,056
8,633,000 Ser. 00-4, Class A6, 8.31s, 2032 7,626,067
4,808,000 Ser. 00-5, Class A6, 7.96s, 2032 4,222,708
5,455,419 Ser. 00-5, Class A4, 7.47s, 2032 5,580,997
7,948,000 Ser. 01-4, Class A4, 7.36s, 2033 8,087,384
281,000 Ser. 01-1, Class A5, 6.99s, 2032 267,146
6,800,000 Ser. 01-3, Class A4, 6.91s, 2033 6,713,157
13,963,420 Ser. 02-1, Class A, 6.681s, 2033 14,411,149
8,054,338 Ser. 01-1, Class A4, 6.21s, 2032 8,171,891
3,653,000 Consumer Credit Reference IDX
Securities 144A FRB Ser. 02-1A,
Class A, 5.05s, 2007 3,709,793
19,141,000 Countrywide Alternative Loan Trust
Ser. 05-24, Class 1X, IO, 5s, 2035 532,359
Countrywide Asset-Backed
Certificates 144A
81,889 Ser. 03-5NF, Class NF, 6 3/4s, 2034 82,119
3,591,323 Ser. 04-6N, Class N1, 6 1/4s, 2035 3,617,136
2,322,189 Ser. 04-1NIM, Class Note, 6s, 2034 2,336,958
807,368 Ser. 04-BC1N, Class Note, 5 1/2s,
2035 809,639
Countrywide Asset-Backed
Certificates 144A
570,032 Ser. 04-11N, Class N, 5 1/4s, 2036 572,526
977,040 Ser. 04-14N, 5s, 2036 980,850
Countrywide Home Loans
21,148,743 Ser. 04-25, Class 2X, IO, 1.08s,
2035 687,334
40,653,684 Ser. 05-2, Class 2X, IO, 0.978s,
2035 1,333,949
978,924 Countrywide Partnership Trust 144A
Ser. 04-EC1N, Class N, 5s, 2035 982,154
2,157,000 Crest, Ltd. 144A Ser. 03-2A, Class
D2, 6.723s, 2038 (Cayman Islands) 2,239,613
2,890,407 CS First Boston Mortgage Securities
Corp. 144A Ser. 04-FR1N, Class A,
5s, 2034 2,890,407
859,000 Fieldstone Mortgage Investment Corp.
FRB Ser. 05-1, Class M3, 3.56s,
2035 859,000
638,860 Finance America NIM Trust 144A Ser.
04-1, Class A, 5 1/4s, 2034 638,860
6,500,001 First Chicago Lennar Trust 144A Ser.
97-CHL1, Class D, 7.676s, 2039 6,669,219
1,569,316 First Consumers Master Trust FRN
Ser. 01-A, Class A, 3.264s, 2008 1,556,565
13,787,455 First Franklin Mortgage Loan Asset
Backed Certificates Ser.
03-FFB, Class A, IO, 6s, 2005 59,598
First Franklin Mortgage Loan NIM
Trust 144A
122,830 Ser. 03-FF3A, Class A, 6 3/4s, 2033 123,284
752,830 Ser. 04-FF7A, Class A, 5s, 2034 752,981
734,693 Ser. 04-FF10, Class N1, 4.45s, 2034
(Cayman Islands) 734,644
322,337 Ser. 04-FF1, Class N1, 4 1/2s, 2034 321,434
4,877,000 First Horizon Mtge. Pass-Through
Trust Ser. 05-AR2, Class 1A1,
4.842s, 2035 4,913,578
1,200,129 First Plus Home Loan Trust Ser.
97-3, Class B1, 7.79s, 2023 1,200,880
834,000 Fort Point CDO, Ltd. FRN Ser. 03-2A,
Class A2, 3.97s, 2038 842,340
2,600,000 Foxe Basin, Ltd. FRB Ser. 03-1A,
Class A1, 3.51s, 2015 (Cayman
Islands) 2,609,880
Fremont NIM Trust 144A
367,437 Ser. 04-3, Class B, 7 1/2s, 2034 352,299
173,394 Ser. 04-D, Class N2, 7 1/2s, 2034
(Cayman Islands) 172,874
547,235 Ser. 04-A, Class Note, 4 3/4s, 2034 545,046
426,707 Ser. 04-B, Class Note, 4.703s, 2034 426,707
1,492,872 Ser. 04-3, Class A, 4 1/2s, 2034 1,488,244
1,314,747 Ser. 04-D, Class N1, 4 1/2s, 2034
(Cayman Islands) 1,319,611
G-Force CDO, Ltd. 144A
942,000 Ser. 02-1A, Class E, 8 1/4s, 2037
(Cayman Islands) 1,020,009
416,000 Ser. 02-1A, Class D, 7.61s, 2037
(Cayman Islands) 448,580
1,241,000 Ser. 03-1A, Class E, 6.58s, 2038
(Cayman Islands) 1,244,684
417,000 G-Star, Ltd. 144A FRN Ser. 02-2A,
Class BFL, 5.02s, 2037 (Cayman
Islands) 434,776
2,444,480 GE Capital Credit Card Master Note
Trust FRB Ser. 04-2, Class
C, 3.434s, 2010 2,444,480
451,051 GE Corporate Aircraft Financing, LLC
144A Ser. 04-1A, Class B, 3.87s,
2018 451,051
GEBL 144A
1,079,801 Ser. 04-2, Class D, 5.704s, 2032 1,080,449
404,925 Ser. 04-2, Class C, 3.804s, 2032 405,178
GMAC Mortgage Corp. Loan Trust
11,715,000 Ser. 04-HE5, Class A, IO, 6s, 2007 842,016
3,411,704 Ser. 05-AR1, Class 1A2, 4.432s, 2035 3,414,903
750,000 Goldentree Loan Opportunities II,
Ltd. 144A FRN Ser. 2A, Class 4,
6.09s, 2015 (Cayman Islands) 760,313
Granite Mortgages PLC FRB
5,040,000 Ser. 01-1, Class 1C, 4.545s, 2041
(United Kingdom) 5,101,425
1,140,000 Ser. 02-1, Class 1C, 4.445s, 2042
(United Kingdom) 1,157,898
860,000 Ser. 02-2, Class 1C, 4.395s, 2043
(United Kingdom) 873,760
2,130,000 Ser. 04-1, Class 1C, 3.95s, 2044
(United Kingdom) 2,140,650
Green Tree Financial Corp.
19,225,000 Ser. 99-5, Class A5, 7.86s, 2030 17,153,572
1,237,335 Ser. 97-6, Class A9, 7.55s, 2029 1,326,829
500,743 Ser. 97-4, Class A7, 7.36s, 2029 537,047
467,121 Ser. 95-8, Class B1, 7.3s, 2026 363,652
502,640 Ser. 97-6, Class A8, 7.07s, 2029 514,473
393,216 Ser. 97-7, Class A8, 6.86s, 2029 414,351
1,473,000 Ser. 99-3, Class A6, 6 1/2s, 2031 1,509,609
460,576 Ser. 99-3, Class A5, 6.16s, 2031 468,636
5,829,235 Greenpoint Manufactured Housing Ser.
00-3, Class IA, 8.45s, 2031 5,629,310
4,894,000 GS Auto Loan Trust 144A Ser. 04-1,
Class D, 5s, 2011 4,823,510
GSAMP Trust 144A
92,764 Ser. 03-HE1N, Class Note, 7 1/4s,
2033 92,764
3,798,286 Ser. 04-NIM1, Class N1, 5 1/2s, 2034 3,792,589
455,322 Ser. 04-SE2N, Class Note, 5 1/2s,
2034 454,867
323,853 Ser. 04-FM1N, Class Note, 5 1/4s,
2033 323,368
626,394 Ser. 04-HE1N, Class N1, 5s, 2034 625,141
1,313,321 Ser. 05-NC1, Class N, 5s, 2035 1,308,725
3,949,775 Ser. 04-NIM2, Class N, 4 7/8s, 2034 3,942,666
1,990,000 Ser. 04-NIM1, Class N2, zero %, 2034 1,457,675
GSMPS Mortgage Loan Trust 144A
236,159 Ser. 05-RP1, Class 1A3, 8s, 2035 254,578
2,355,000 Ser. 05-RP2, Class 1A3, 8s, 2035 2,544,342
2,947,000 Ser. 05-RP2, Class 1A2, 7 1/2s, 2035 3,144,690
3,320,769 High Income Trust Securities 144A
FRB Ser. 03-1A, Class A, 3.27s,
2036 (Cayman Islands) 3,254,353
Holmes Financing PLC FRB
860,000 Ser. 4, Class 3C, 4.441s, 2040
(United Kingdom) 871,008
22,675,000 Ser. 1, Class 2C, 4.291s, 2040
(United Kingdom) 22,743,025
976,000 Ser. 8, Class 2C, 3.861s, 2040
(United Kingdom) 980,575
Home Equity Asset Trust 144A
67,222 Ser. 02-5N, Class A, 8s, 2033 67,222
46,255 Ser. 03-5N, Class A, 7 1/2s, 2034 46,371
141,176 Ser. 03-7N, Class A, 5 1/4s, 2034 141,264
450,683 Ser. 04-1N, Class A, 5s, 2034 450,683
709,644 Ser. 04-3N, Class A, 5s, 2034 709,644
982,939 Ser. 04-4N, Class A, 5s, 2034 982,939
2,229,164 Ser. 04-5N, Class A, 5 1/4s, 2034 2,229,164
1,516,575 Ser. 05-6N, Class A, 5 1/4s, 2035 1,511,480
4,300,757 Ser. 04-7N, Class A, 4 1/2s, 2035 4,281,403
551,000 Hyundai Auto Receivables Trust Ser.
04-A, Class D, 4.1s, 2011 547,005
1,350,595 IMPAC Secured Assets Corp. Ser.
03-1, Class A, IO, 5s, 2005 17,115
39,096,837 Lehman Manufactured Housing Ser.
98-1, Class 1, IO, 0.811s, 2028 807,322
LNR CDO, Ltd. 144A FRB
4,150,000 Ser. 03-1A, Class EFL, 6.02s, 2036
(Cayman Islands) 4,499,015
6,071,000 Ser. 02-1A, Class FFL, 5.77s, 2037
(Cayman Islands) 5,998,148
Long Beach Asset Holdings Corp. NIM
Trust 144A
1,308,444 Ser. 04-5, Class Note, 5s, 2034 1,311,323
469,046 Ser. 04-2, Class N1, 4.94s, 2034 469,046
3,869,296 Ser. 05-1, Class N1, 4.115s, 2035 3,869,296
Long Beach Mortgage Loan Trust
29,471,981 Ser. 04-3, Class S1, IO, 4 1/2s,
2006 1,547,279
14,735,967 Ser. 04-3, Class S2, IO, 4 1/2s,
2006 773,638
615,692 Ser. 03-2, Class S1, IO, 4 1/4s,
2005 4,474
13,109,371 Ser. 03-2, Class S2, IO, 4 1/4s,
2005 95,257
Madison Avenue Manufactured Housing
Contract
5,098,734 FRB Ser. 02-A, Class B1, 6.27s, 2032 2,498,380
246,243,598 Ser. 02-A IO, 0.3s, 2032 2,770,240
Marriott Vacation Club Owner Trust
144A
247,665 Ser. 04-2A, Class D, 5.389s, 2026 243,089
286,363 Ser. 04-2A, Class C, 4.741s, 2026 280,961
3,545,324 FRB Ser. 02-1A, Class A1, 3.69s,
2024 3,576,332
Master Asset Backed Securities NIM
Trust 144A
800,000 Ser. 04-CI5, Class N2, 9s, 2034 796,800
657,137 Ser. 04-HE1A, Class Note, 5.191s,
2034 659,396
636,248 Ser. 04-CI5, Class N1, 4.946s, 2034 637,202
285,169 Ser. 04-CI3, Class N1, 4.45s, 2034 285,169
3,060,533 Master Reperforming Loan Trust 144A
Ser. 05-1, Class 1A4, 7 1/2s, 2034 3,267,119
2,550,000 MBNA Credit Card Master Note Trust
FRN Ser. 03-C5, Class C5, 4.134s,
2010 2,601,784
9,375,585 Merit Securities Corp. FRB Ser.
11PA, Class 3A1, 3.68s, 2027 9,000,562
Merrill Lynch Mortgage Investors, Inc.
93,245 Ser. 03-WM3N, Class N1, 8s, 2005 93,332
521,925 Ser. 04-OP1N, Class N1, 4 3/4s, 2035
(Cayman Islands) 520,457
Merrill Lynch Mortgage Investors,
Inc. 144A
261,687 Ser. 03-OP1N, Class N1, 7 1/4s, 2034 261,932
270,681 Ser. 03-WM1N, Class N1, 7s, 2033 271,358
279,659 Ser. 04-FM1N, Class N1, 5s, 2035
(Cayman Islands) 279,659
410,894 Ser. 04-HE1N, Class N1, 5s, 2006 408,197
958,898 Ser. 04-HE2N, Class N1, 5s, 2035
(Cayman Islands) 953,504
2,257,771 Ser. 05-WM1N, Class N1, 5s, 2035 2,240,160
730,552 Ser. 04-WM2N, Class N1, 4 1/2s, 2005 727,813
941,689 Ser. 04-WM3N, Class N1, 4 1/2s, 2005 936,981
1,665,000 Metris Master Trust FRN Ser. 04-2,
Class C, 4.34s, 2010 1,674,886
Metris Master Trust 144A
824,000 FRN Ser. 04-2, Class D, 6.251s, 2010 830,674
1,379,000 FRN Ser. 01-2, Class C, 4.89s, 2009 1,377,464
25,000 FRN Ser. 00-3, Class C, 4.37s, 2009 25,042
Mid-State Trust
1,057,014 Ser. 11, Class B, 8.221s, 2038 1,087,858
1,117,243 Ser. 10, Class B, 7.54s, 2036 994,007
3,780,128 MMCA Automobile Trust Ser. 02-1,
Class B, 5.37s, 2010 3,787,689
4,070,303 Morgan Stanley ABS Capital I FRB
Ser. 04-WMC3, Class A2PT, 3.31s,
2035 4,081,159
91,227 Morgan Stanley ABS Capital I 144A
Ser. 04-NC2N, Class Note, 6 1/4s,
2033 91,455
233,559 Morgan Stanley Auto Loan Trust Ser.
04-HB2, Class D, 3.82s, 2012 232,785
Morgan Stanley Auto Loan Trust 144A
1,145,000 Ser. 04-HB1, Class D, 5 1/2s, 2011 1,136,333
633,000 Ser. 04-HB2, Class E, 5s, 2012 607,360
Morgan Stanley Dean Witter Capital I
FRB
734,725 Ser. 01-NC4, Class B1, 5.52s, 2032 727,924
466,886 Ser. 01-NC3, Class B1, 5.47s, 2031 464,894
1,555,000 Navigator CDO, Ltd. 144A FRB Ser.
03-1A, Class A1, 3.284s, 2015
(Cayman Islands) 1,560,909
1,026,842 Neon Capital, Ltd. 144A limited
recourse sec. notes Ser. 96,
1.458s, 2013 (Cayman Islands) (F)
(g) 1,078,963
2,365,000 New Century Home Equity Loan Trust
Ser. 03-5, Class AI7, 5.15s, 2033 2,340,081
New Century Mortgage Corp. NIM Trust
144A
20,024 Ser. 03-5, Class Note, 8s, 2033 20,087
203,635 Ser. 03-B, Class Note, 6 1/2s, 2033 204,144
966,000 Newcastle CDO, Ltd. 144A FRB Ser.
3A, Class 4FL, 6.22s, 2038 (Cayman
Islands) 987,735
1,265,174 Nomura Asset Acceptance Corp. Ser.
04-R3, Class PT, 9.774s, 2035 1,381,412
671,326 Nomura Asset Acceptance Corp. 144A
Ser. 04-R2, Class PT, 10.118s, 2034 729,228
Novastar NIM Trust 144A
548,865 Ser. 04-N1, Class Note, 4.458s, 2034 548,865
712,843 Ser. 04-N2, Class Note, 4.458s, 2034 712,843
7,581,471 Oakwood Mortgage Investors, Inc.
Ser. 02-C, Class A1, 5.41s, 2032 6,679,898
1,120,451 Oakwood Mortgage Investors, Inc.
144A Ser. 01-B, Class A4, 7.21s,
2030 1,053,872
798,000 Ocean Star 144A FRB Ser. 04, Class
D, 5.09s, 2018 (Ireland) 798,000
Option One Mortgage Securities Corp.
NIM Trust 144A
124,879 Ser. 03-5, Class Note, 6.9s, 2033 125,504
2,074,562 Ser. 04-2A, Class N1, 4.213s, 2034
(Cayman Islands) 2,074,562
3,211,682 Option One Woodbridge Loan Trust
144A Ser. 03-1, Class S, IO, 3.7s,
2005 18,325
551,000 Origen Manufactured Housing Ser.
04-B, Class A2, 3.79s, 2017 536,881
Park Place Securities NIM Trust 144A
1,268,000 Ser. 04-WCW2, Class D, 7.387s, 2034
(Cayman Islands) 1,272,818
406,607 Ser. 04-MCWN1, Class A, 4.458s, 2034 407,623
2,259,182 Ser. 04-WHQ2, Class A, 4s, 2035 2,255,793
3,068,311 Park Place Securities, Inc. FRB Ser.
04-WHQ2, Class A3A, 3.37s, 2035 3,071,551
Pass-Through Amortizing Credit Card
Trust
312,302 Ser. 02-1A, Class A4FL, 8.33s, 2012 312,961
156,637 Ser. 02-1A, Class A3FL, 5.83s, 2012 156,911
People's Choice Net Interest Margin
Note 144A
2,529,847 Ser. 04-2, Class A, 5s, 2034 2,535,533
428,000 Ser. 04-2, Class B, 5s, 2034 387,768
2,510,000 Permanent Financing PLC FRB Ser. 3,
Class 3C, 4.12s, 2042 (United
Kingdom) 2,544,136
Providian Gateway Master Trust 144A
1,400,000 FRB Ser. 04-AA, Class D, 4.804s,
2011 1,429,302
1,183,000 Ser. 04-DA, Class D, 4.4s, 2011 1,159,710
850,000 FRN Ser. 04-BA, Class D, 4.354s,
2010 852,014
2,100,000 FRN Ser. 04-EA, Class D, 3.884s,
2011 2,100,506
3,450,000 Providian Gateway Master Trust FRN
Ser. 04-EA, Class E, 5.954s, 2011 3,402,611
2,950,212 Renaissance Home Equity Loan Trust
Ser. 03-2, Class A, IO, 3s, 2005 30,966
Renaissance NIM Trust 144A
1,190,663 Ser. 05-1, Class N, 4.7s, 2035 1,190,663
503,578 Ser. 04-A, Class Note, 4.45s, 2034 502,949
Residential Accredit Loans, Inc.
6,322,000 Ser. 05-QA4, Class A21, 5.306s, 2035 6,425,721
7,006,904 Ser. 04-QA6, Class NB1, 5.005s, 2034 7,084,450
1,288,096 Ser. 04-QA5, Class A2, 5.002s, 2034 1,302,096
Residential Asset Mortgage Products, Inc.
368,000 Ser. 02-SL1, Class AI3, 7s, 2032 368,926
7,622,222 Ser. 04-RZ2, Class A, IO, 3 1/2s,
2006 183,112
854,345 Residential Asset Securities Corp.
Ser. 03-KS4, Class AI, IO, 3 1/2s,
2005 11,574
Residential Asset Securities Corp.
144A
1,888,097 Ser. 04-N10B, Class A1, 5s, 2034 1,888,097
1,728,483 Ser. 04-NT, Class Note, 5s, 2034 1,719,841
784,822 Ser. 04-NT12, Class Note, 4.7s, 2035 784,802
4,535,169 Residential Asset Securities Corp.
NIM Trust 144A Ser. 05-NTR1, Class
Note, 4 1/4s, 2035 4,535,169
7,339,573 Residential Asset Securitization
Trust IFB Ser. 03-A6, Class A5,
IO, 4.48s, 2033 401,383
Residential Funding Mortgage
Securities II
16,201,982 Ser. 03-HS1, Class AI, IO, 5 1/2s,
2033 262,472
6,569,839 Ser. 03-HS2, Class AI, IO, 5 1/2s,
2005 150,897
4,964,958 Ser. 03-HS3, Class AI, IO, 5s, 2006 147,956
SAIL Net Interest Margin Notes 144A
6,378 Ser. 03-3, Class A, 7 3/4s, 2033
(Cayman Islands) 6,415
341,862 Ser. 03-BC2A, Class A, 7 3/4s, 2033
(Cayman Islands) 338,512
372,225 Ser. 03-4, Class A, 7 1/2s, 2033
(Cayman Islands) 374,309
620,000 Ser. 04-4A, Class B, 7 1/2s, 2034
(Cayman Islands) 617,520
303,624 Ser. 03-5, Class A, 7.35s, 2033
(Cayman Islands) 298,523
413,826 Ser. 03-12A, Class A, 7.35s, 2033
(Cayman Islands) 417,799
199,499 Ser. 03-6A, Class A, 7s, 2033
(Cayman Islands) 200,537
314,618 Ser. 03-7A, Class A, 7s, 2033
(Cayman Islands) 311,535
546,221 Ser. 03-9A, Class A, 7s, 2033
(Cayman Islands) 546,385
208,215 Ser. 03-13A, Class A, 6 3/4s, 2033
(Cayman Islands) 209,652
239,529 Ser. 04-7A, Class B, 6 3/4s, 2034
(Cayman Islands) 233,350
701,562 Ser. 04-8A, Class B, 6 3/4s, 2034
(Cayman Islands) 693,073
1,706,375 Ser. 04-2A, Class A, 5 1/2s, 2034
(Cayman Islands) 1,706,717
2,113,120 Ser. 04-4A, Class A, 5s, 2034
(Cayman Islands) 2,113,542
881,626 Ser. 04-8A, Class A, 5s, 2034
(Cayman Islands) 881,890
SAIL Net Interest Margin Notes 144A
3,496,526 Ser. 04-10A, Class A, 5s, 2034
(Cayman Islands) 3,497,575
577,653 Ser. 04-BN2A, Class A, 5s, 2034
(Cayman Islands) 577,827
265,291 Ser. 04-BNCA, Class A, 5s, 2034
(Cayman Islands) 265,370
951,859 Ser. 04-7A, Class A, 4 3/4s, 2034
(Cayman Islands) 950,908
3,435,580 Ser. 04-11A, Class A2, 4 3/4s, 2035
(Cayman Islands) 3,435,580
954,600 Ser. 05-2A, Class A, 4 3/4s, 2035
(Cayman Islands) 954,982
598,867 Ser. 04-5A, Class A, 4 1/2s, 2034
(Cayman Islands) 597,729
2,744,230 Ser. 04-AA, Class A, 4 1/2s, 2034
(Cayman Islands) 2,736,821
3,310,966 Ser. 05-1A, Class A, 4 1/4s, 2035 3,299,377
Sasco Net Interest Margin Trust 144A
3,509,115 Ser. 05-NC1A, Class A, 4 3/4s, 2035 3,509,115
1,126,272 Ser. 05-WF1A, Class A, 4 3/4s, 2035 1,128,862
101,113 Saxon Net Interest Margin Trust 144A
Ser. 03-A, Class A, 6.656s, 2033 101,113
Sharps SP I, LLC Net Interest Margin
Trust 144A
78,983 Ser. 03-TC1N, Class N, 7.45s, 2033 78,983
241,945 Ser. 03-HE1N, Class N, 6.9s, 2033 243,155
449,751 Ser. 04-4N, Class Note, 6.65s, 2034 449,751
381,984 Ser. 04-HS1N, Class Note, 5.92s,
2034 381,984
316,685 Ser. 04-HE2N, Class NA, 5.43s, 2034 315,893
495,047 Ser. 04-HE1N, Class Note, 4.94s,
2034 495,047
721,029 Ser. 03-0P1N, Class NA, 4.45s, 2033 721,029
1,761,128 Ser. 04-RM2N, Class NA, 4s, 2035 1,761,128
3,608,434 Ser. 04-HE4N, Class NA, 3 3/4s, 2034 3,608,434
760,000 South Coast Funding 144A FRB Ser.
3A, Class A2, 3.971s, 2038 (Cayman
Islands) 769,196
Structured Adjustable Rate Mortgage
Loan Trust
13,894,252 Ser. 05-7, Class 1A3, 5.416s, 2035 14,119,951
10,443,288 Ser. 05-4, Class 1A1, 5.394s, 2035 10,608,044
13,726,892 Ser. 05-1, Class 1A1, 5.16s, 2035 13,900,545
4,421,586 Ser. 04-14, Class 1A, 5.113s, 2034 4,477,925
9,054,556 Ser. 04-20, Class 1A2, 5.092s, 2035 9,157,304
4,444,497 Ser. 04-18, Class 1A1, 5.064s, 2034 4,496,135
4,180,101 Ser. 04-12, Class 1A2, 5.041s, 2034 4,228,740
5,328,278 Ser. 04-16, Class 1A2, 5.032s, 2034 5,391,549
2,814,227 Ser. 04-10, Class 1A1, 4.94s, 2034 2,846,414
255,846 Ser. 04-4, Class 1A1, 4.768s, 2034 257,999
99,649 Ser. 04-8, Class 1A3, 4.699s, 2034 100,082
12,144,659 Ser. 04-6, Class 1A, 4.394s, 2034 12,189,400
70,001,700 Ser. 05-9, Class AX, IO, 0.492s,
2035 2,100,051
3,402,879 Structured Adjustable Rate Mortgage
Loan Trust 144A Ser. 04-NP2, Class
A, 3.37s, 2034 3,403,219
Structured Asset Investment Loan
Trust
8,609,622 Ser. 03-BC8, Class A, IO, 6s, 2005 165,445
7,091,153 Ser. 03-BC12, Class A, IO, 6s, 2005 30,652
11,751,857 Ser. 03-BC13, Class A, IO, 6s, 2005 50,798
37,910,598 Ser. 04-1, Class A, IO, 6s, 2005 540,758
27,523,740 Ser. 04-3, Class A, IO, 6s, 2005 665,273
Structured Asset Securities Corp.
6,566,000 IFB Ser. 05-6, Class 5A8, 8.3s, 2035 6,258,409
8,298,340 Ser. 98-RF3, Class A, IO, 6.1s, 2028 1,016,547
Structured Asset Securities Corp.
2,127,622 Ser. 03-40A, Class 1A, 4.928s, 2034 2,154,806
2,565,777 Ser. 04-8, Class 1A1, 4.699s, 2034 2,586,206
3,852,647 Ser. 03-26A, Class 2A, 4.561s, 2033 3,884,872
Structured Asset Securities Corp.
144A
2,599,369 FRB Ser. 03-NP2, Class A2, 3.57s,
2032 2,599,369
483,399 FRN Ser. 03-NP3, Class A1, 3.52s,
2033 483,448
4,234,000 Terwin Mortgage Trust FRB Ser.
04-5HE, Class A1B, 3.44s, 2035 4,230,892
2,298,000 TIAA Real Estate CDO, Ltd. Ser.
03-1A, Class E, 8s, 2038 (Cayman
Islands) 2,217,324
Wells Fargo Home Equity Trust 144A
1,102,000 Ser. 04-2, Class N2, 8s, 2034
(Cayman Islands) 1,046,900
695,564 Ser. 04-1N, Class A, 5s, 2034 697,650
2,367,252 Ser. 04-2, Class N1, 4.45s, 2034
(Cayman Islands) 2,367,112
WFS Financial Owner Trust
826,000 Ser. 05-1, Class D, 4 1/4s, 2012 819,280
1,208,454 Ser. 04-3, Class D, 4.07s, 2012 1,200,479
820,000 Ser. 04-4, Class D, 3.58s, 2012 805,874
731,320 Ser. 04-1, Class D, 3.17s, 2011 723,635
448,570 Whole Auto Loan Trust Ser. 03-1,
Class C, 3.13s, 2010 445,135
Whole Auto Loan Trust 144A
2,204,803 Ser. 03-1, Class D, 6s, 2010 2,209,825
5,587,000 Ser. 04-1, Class D, 5.6s, 2011 5,576,524
--------------
Total Asset-backed securities
(cost $741,917,179) $727,236,249
Collateralized mortgage obligations (23.4%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$815,000 Amresco Commercial Mortgage Funding
I 144A Ser. 97-C1, Class H, 7s,
2029 $841,099
Banc of America Commercial Mortgage,
Inc. 144A
880,000 Ser. 01-PB1, Class K, 6.15s, 2035 917,385
196,000,000 Ser. 05-1, Class XW, IO, 0.106s,
2042 1,179,058
Banc of America Large Loan 144A
552,000 FRB Ser. 02-FL2A, Class L1, 5.89s,
2014 552,172
190,000 FRN Ser. 02-FL2A, Class K1, 5.39s,
2014 190,722
664,000 FRB Ser. 05-BOCA, Class M, 5.054s,
2016 668,150
546,000 FRB Ser. 05-BOCA, Class L, 4.654s,
2016 546,832
250,000 FRB Ser. 05-BOCA, Class K, 4.304s,
2016 250,264
250,000 FRB Ser. 05-BOCA, Class J, 4.054s,
2016 250,264
250,000 FRB Ser. 05-BOCA, Class H, 3.904s,
2016 250,186
116,070,660 Ser. 03-BBA2, Class X1A, IO, 0.826s,
2015 471,955
Banc of America Large Loan FRN
188,000 Ser. 04-BBA4, Class H, 3.904s, 2018 188,246
300,000 Ser. 04-BBA4, Class G, 3.654s, 2018 300,355
2,390,000 Banc of America Structured Security
Trust 144A Ser. 02-X1, Class A3,
5.436s, 2033 2,495,593
Bayview Commercial Asset Trust 144A
2,718,360 FRB Ser. 05-1A, Class A1, 3.32s,
2035 2,718,360
9,630,013 Ser. 04-3, IO, 0.775s, 2035 746,702
10,896,769 Ser. 05-1A, IO, 0.775s, 2035 880,680
9,885,019 Ser. 04-2, IO, 0.72s, 2034 793,118
619,000 Bear Stearns Commercial Mortgage
Securitization Corp. Ser. 00-WF2,
Class F, 8.453s, 2032 731,678
Bear Stearns Commercial
Mortgage Securitization Corp. 144A
1,400,000 Ser. 04-ESA, Class K, 5.45s, 2016 1,399,994
1,034,000 Ser. 04-HS2A, Class G, 4.35s, 2016 1,033,999
736,000 Chase Commercial Mortgage Securities
Corp. Ser. 00-3, Class A2, 7.319s,
2032 823,629
Chase Commercial Mortgage Securities
Corp. 144A
5,896,000 Ser. 98-1, Class F, 6.56s, 2030 6,319,214
1,502,003 Ser. 98-1, Class G, 6.56s, 2030 1,609,178
2,217,000 Ser. 98-1, Class H, 6.34s, 2030 1,921,760
7,083,000 Commercial Mortgage Acceptance Corp.
Ser. 97-ML1, Class A3, 6.57s, 2030 7,362,694
Commercial Mortgage Acceptance Corp.
144A
2,605,530 Ser. 98-C1, Class F, 6.23s, 2031 2,760,627
913,530 Ser. 98-C2, Class F, 5.44s, 2030 927,973
Commercial Mortgage Pass-Through
Certificates 144A
2,628,000 Ser. 01-FL4A, Class D, 3.804s, 2013 2,608,290
1,960,000 FRB Ser. 01-J2A, Class A2F, 3.47s,
2034 1,987,440
13,599,500 Criimi Mae Commercial Mortgage Trust
Ser. 98-C1, Class A2, 7s, 2033 14,364,472
7,975,000 Criimi Mae Commercial Mortgage Trust
144A Ser. 98-C1, Class B, 7s, 2033 8,394,875
1,193,000 CS First Boston Mortgage Securities
Corp. Ser. 97-C2, Class F, 7.46s,
2035 1,292,724
CS First Boston Mortgage Securities
Corp. 144A
1,475,000 FRN Ser. 03-TF2A, Class L, 6.954s,
2014 1,470,053
414,000 FRB Ser. 04-TF2A, Class J, 3.904s,
2016 413,976
391,000 FRB Ser. 05-TFLA, Class J, 3.904s,
2020 390,999
391,000 FRB Ser. 05-TFLA, Class H, 3.704s,
2020 390,999
825,000 FRB Ser. 04-TF2A, Class H, 3.654s,
2019 824,954
83,484,000 Ser. 01-CK1, Class AY, IO, 0.904s,
2035 3,347,708
1,316,023 Deutsche Mortgage & Asset Receiving
Corp. Ser. 98-C1, Class X, IO,
1.071s, 2031 31,719
DLJ Commercial Mortgage Corp.
2,945,000 Ser. 00-CF1, Class A1B, 7.62s, 2033 3,323,802
3,434,000 Ser. 99-CG2, Class B4, 6.1s, 2032 3,546,765
575,367 Ser. 98-CF2, Class B3, 6.04s, 2031 596,405
2,455,000 DLJ Commercial Mortgage Corp. 144A
Ser. 99-CG2, Class B3, 6.1s, 2032 2,541,983
1,170,000 DLJ Mortgage Acceptance Corp. 144A
Ser. 97-CF1, Class A3, 7.76s, 2030 1,229,242
Fannie Mae
4,700,000 IFB Ser. 05-37, Class SU, 18s, 2035 5,771,345
3,724,802 IFB Ser. 04-10, Class QC, 16.52s,
2031 4,209,026
1,246,915 IFB Ser. 02-36, Class SJ, 12.575s,
2029 1,297,821
2,093,000 Ser. 05-45, Class PC, IO, 11 1/4s,
2035 2,296,649
2,832,990 IFB Ser. 03-87, Class SP, 10.395s,
2032 2,818,761
483 Ser. 92-15, Class L, IO, 10.376s,
2022 5,154
928,239 Ser. 04-T3, Class PT1, 9.89s, 2044 1,024,555
Fannie Mae
108,500 Ser. 02-T1, Class A4, 9 1/2s, 2031 117,929
900,034 Ser. 02-T4, Class A4, 9 1/2s, 2041 977,650
1,149,616 Ser. 02-T6, Class A3, 9 1/2s, 2041 1,247,020
554,978 Ser. 02-T12, Class A4, 9 1/2s, 2042 603,923
1,516,323 Ser. 03-W6, Class PT1, 9.334s, 2042 1,649,554
544,667 Ser. 99-T2, Class A1, 7 1/2s, 2039 580,824
3,532,444 Ser. 00-T6, Class A1, 7 1/2s, 2030 3,748,450
1,591,149 Ser. 01-T1, Class A1, 7 1/2s, 2040 1,691,100
907,929 Ser. 01-T3, Class A1, 7 1/2s, 2040 963,939
10,579,108 Ser. 01-T4, Class A1, 7 1/2s, 2028 11,313,368
108,476 Ser. 01-T5, Class A3, 7 1/2s, 2030 114,980
10,121,801 Ser. 01-T7, Class A1, 7 1/2s, 2041 10,740,740
1,295,989 Ser. 01-T8, Class A1, 7 1/2s, 2041 1,375,103
4,926,431 Ser. 01-T10, Class A2, 7 1/2s, 2041 5,238,274
4,800,493 Ser. 01-T12, Class A2, 7 1/2s, 2041 5,102,045
755,897 Ser. 02-14, Class A2, 7 1/2s, 2042 805,155
789,259 Ser. 02-T1, Class A3, 7 1/2s, 2031 839,964
321,811 Ser. 02-T4, Class A3, 7 1/2s, 2041 342,263
8,367,831 Ser. 02-T6, Class A2, 7 1/2s, 2041 8,884,171
804,828 Ser. 02-T12, Class A3, 7 1/2s, 2042 856,476
7,761,963 Ser. 02-T16, Class A3, 7 1/2s, 2042 8,268,236
2,822,131 Ser. 02-T18, Class A4, 7 1/2s, 2042 3,009,717
8,740,734 Ser. 02-T19, Class A3, 7 1/2s, 2042 9,321,229
285,433 Ser. 02-W1, Class 2A, 7 1/2s, 2042 302,907
2,393,827 Ser. 02-W3, Class A5, 7 1/2s, 2028 2,549,821
10,865,149 Ser. 02-W4, Class A5, 7 1/2s, 2042 11,566,339
4,861,324 Ser. 02-W6, Class 2A, 7 1/2s, 2042 5,182,263
2,896,334 Ser. 02-W7, Class A5, 7 1/2s, 2029 3,084,420
2,519,762 Ser. 03-W2, Class 1A3, 7 1/2s, 2042 2,685,407
5,693,167 Ser. 03-W3, Class 1A3, 7 1/2s, 2042 6,065,331
671,011 Ser. 03-W4, Class 4A, 7 1/2s, 2042 713,233
1,184,800 Ser. 03-W10, Class 1A1, 7 1/2s, 2032 1,262,251
1,971,719 Ser. 04-T2, Class 1A4, 7 1/2s, 2043 2,113,683
1,360,688 Ser. 04-T3, Class 1A4, 7 1/2s, 2044 1,455,303
111,030 Ser. 04-W2, Class 5A, 7 1/2s, 2044 118,577
6,715,156 Ser. 04-W8, Class 3A, 7 1/2s, 2044 7,185,634
2,685,041 Ser. 04-W9, Class 2A3, 7 1/2s, 2044 2,869,734
3,437,276 Ser. 04-W12, Class 1A4, 7 1/2s, 2044 3,675,626
695,617 Ser. 04-W14, Class 2A, 7 1/2s, 2044 744,310
5,760,175 Ser. 05-W1, Class 1A4, 7 1/2s, 2044 6,158,980
2,466,789 IFB Ser. 02-97, Class TW, IO,
6 1/2s, 2031 416,715
968,519 Ser. 318, Class 2, IO, 6s, 2032 189,986
30,287,113 Ser. 03-22, IO, 6s, 2033 5,622,335
8,878,561 Ser. 03-58, Class ID, IO, 6s, 2033 1,639,759
10,181,982 Ser. 03-31, Class IM, IO, 5 3/4s,
2032 1,187,219
56,919,716 Ser. 329, Class 2, IO, 5 1/2s, 2033 12,013,864
9,395,214 Ser. 331, Class 1, IO, 5 1/2s, 2032 1,751,268
30,542,066 Ser. 333, Class 2, IO, 5 1/2s, 2033 6,487,004
31,909,054 Ser. 338, Class 2, IO, 5 1/2s, 2033 6,768,274
4,509,842 Ser. 346, Class 2, IO, 5 1/2s, 2033 935,095
38,676,255 Ser. 350, Class 2, IO, 5 1/2s, 2034 8,012,090
Fannie Mae
3,473,389 Ser. 03-6, Class IB, IO, 5 1/2s,
2022 48,627
7,248,959 Ser. 03-8, Class IP, IO, 5 1/2s,
2028 446,775
9,417,909 Ser. 03-26, Class OI, IO, 5 1/2s,
2032 1,500,772
538,000 Ser. 03-29, Class IG, IO, 5 1/2s,
2031 136,485
6,286,817 Ser. 03-71, Class IE, IO, 5 1/2s,
2033 1,228,099
18,064,375 IFB Ser. 03-118, Class SF, IO,
5.08s, 2033 2,115,519
2,701,719 IFB Ser. 02-36, Class QH, IO, 5.03s,
2029 79,110
3,919,808 Ser. 03-24, Class UI, IO, 5s, 2031 571,098
7,583,174 Ser. 343, Class 25, IO, 4 1/2s, 2018 1,154,748
4,274,623 Ser. 343, Class 26, IO, 4 1/2s, 2018 674,097
12,056,511 IFB Ser. 03-122, Class SA, IO,
4.08s, 2028 896,578
12,804,815 IFB Ser. 03-122, Class SJ, IO,
4.08s, 2028 944,735
11,521,730 Ser. 05-45, Class PL, IO, 3 3/4s,
2035 988,564
5,497,627 IFB Ser. 05-17, Class ES, IO, 3.73s,
2035 564,366
2,581,934 IFB Ser. 05-17, Class SY, IO, 3.73s,
2035 254,563
7,673,302 IFB Ser. 05-29, Class SD, IO, 3.73s,
2035 623,456
8,591,019 IFB Ser. 05-17, Class SA, IO, 3.68s,
2035 745,003
9,509,496 IFB Ser. 05-17, Class SE, IO, 3.68s,
2035 771,161
9,794,057 IFB Ser. 05-23, Class SG, IO, 3.68s,
2035 703,948
12,610,989 IFB Ser. 05-29, Class SX, IO, 3.68s,
2035 937,942
7,200,000 FRB Ser. 05-45, Class DC, 3.26s,
2030 8,134,560
10,723,063 Ser. 03-W12, Class 2, IO, 2.215s,
2043 523,770
42,226,677 Ser. 03-W10, Class 1, IO, 1.985s,
2043 2,005,767
15,965,478 Ser. 03-W10, Class 3, IO, 1.952s,
2043 793,285
76,132,103 Ser. 03-W8, Class 12, IO, 1.639s,
2042 2,937,902
15,657,278 Ser. 03-W3, Class 2IO2, IO, 1.542s,
2042 114,592
1,411,552 Ser. 03-W10, Class 1A, IO, 1.525s,
2043 29,113
19,006,679 Ser. 03-W6, Class 11, IO, 1.508s,
2042 144,307
1,667,821 Ser. 03-W10, Class 3A, IO, 1.503s,
2043 35,962
19,126,213 Ser. 03-W17, Class 12, IO, 1.159s,
2033 528,910
2,225,510 Ser. 03-W19, IO, 1.11s, 2033 55,300
41,477,893 Ser. 03-49, Class SV, IO, 1s, 2033 1,263,188
122,562,758 Ser. 03-T2, Class 2, IO, 0.946s,
2042 2,258,908
40,945,628 Ser. 03-W8, Class 11, IO, 0.863s,
2042 69,068
30,655,979 Ser. 03-W6, Class 51, IO, 0.68s,
2042 445,183
44,370,787 Ser. 03-W3, Class 2IO1, IO, 0.672s,
2042 643,415
56,231,465 Ser. 03-18, Class X1, IO, 0.662s,
2042 985,158
17,381,817 Ser. 03-W6, Class 21, IO, 0.658s,
2042 10,280
58,381,166 Ser. 01-T12, Class IO, 0.57s, 2041 671,033
7,671,023 Ser. 01-50, Class B1, IO, 0.475s,
2041 69,936
67,095,089 Ser. 03-W2, Class 1, IO, 0.469s,
2042 628,773
31,398,989 Ser. 02-T4, IO, 0.45s, 2041 272,893
42,688,536 Ser. 03-W3, Class 1, IO, 0.434s,
2042 403,767
45,085,180 Ser. 02-T1, Class IO, IO, 0.422s,
2031 391,898
43,912,085 Ser. 03-W6, Class 3, IO, 0.365s,
2042 350,208
46,165,978 Ser. 03-W6, Class 23, IO, 0.352s,
2042 329,877
30,153,431 Ser. 352, Class 1, Principal Only
(PO), zero %, 2034 23,943,369
81,457,827 Ser. 353, Class 1, PO, zero %, 2034 61,563,217
12,151,227 Ser. 354, Class 1, PO, zero %, 2034 9,635,909
196,848 Ser. 03-34, Class P1, PO, zero %,
2043 138,458
Federal Home Loan Mortgage Corp.
Structured Pass-Through Securities
572,343 Ser. T-42, Class A6, 9 1/2s, 2042 622,415
1,143,587 Ser. T-41, Class 3A, 7 1/2s, 2032 1,215,043
2,127,586 Ser. T-42, Class A5, 7 1/2s, 2042 2,265,180
3,547,990 Ser. T-51, Class 2A, 7 1/2s, 2042 3,768,482
7,939,632 Ser. T-57, Class 1A3, 7 1/2s, 2043 8,470,595
2,885,394 Ser. T-58, Class 4A, 7 1/2s, 2043 3,073,959
10,791,060 Ser. T-60, Class 1A3, 7 1/2s, 2044 11,533,836
28,164,535 Ser. T-56, Class A, IO, 1.132s, 2043 387,262
28,947,787 Ser. T-56, Class 3, IO, 0.352s, 2043 306,847
34,157,840 Ser. T-56, Class 1, IO, 0.285s, 2043 256,184
33,150,030 Ser. T-56, Class 2, IO, 0.036s, 2043 82,875
15,950,817 FFCA Secured Lending Corp. 144A Ser.
00-1, Class A2, 7.77s, 2027 17,992,958
44,817,258 First Union National Bank-Bank of
America Commercial Mortgage 144A
Ser. 01-C1, Class 3, IO, 2.009s,
2033 3,571,375
First Union-Lehman Brothers
Commercial Mortgage Trust II
3,492,000 Ser. 97-C2, Class F, 7 1/2s, 2029 4,057,802
7,964,736 Ser. 97-C1, Class A3, 7.38s, 2029 8,241,317
1,800,000 First Union-Lehman Brothers-Bank of
America 144A Ser. 98-C2, Class G,
7s, 2035 2,024,595
Freddie Mac
6,999,987 IFB Ser. 2763, Class SC, 16.785s,
2032 7,892,405
6,600,000 IFB Ser. 2945, Class SA, 6.977s,
2020 6,548,392
2,917,323 Ser. 224, IO, 6s, 2033 561,731
6,978,949 IFB Ser. 2927, Class SI, IO, 5.546s,
2035 1,027,839
5,135,707 Ser. 223, IO, 5 1/2s, 2032 1,043,263
19,552,152 Ser. 226, IO, 5 1/2s, 2034 4,192,575
4,702,548 Ser. 2553, Class IJ, IO, 5 1/2s,
2020 98,517
2,594,654 Ser. 2581, Class IH, IO, 5 1/2s,
2031 711,786
823,295 Ser. 2600, Class CI, IO, 5 1/2s,
2029 197,848
1,312,030 Ser. 2664, Class UD, IO, 5 1/2s,
2028 262,549
8,167,713 Ser. 2437, Class SB, IO, 5.046s,
2032 725,293
81,762,126 Ser. 227, IO, 5s, 2034 19,597,189
2,620,194 Ser. 2676, Class IK, IO, 5s, 2020 458,972
6,951,803 Ser. 2469, Class SH, IO, 4.546s,
2032 538,765
7,633,031 IFB Ser. 2828, Class GI, IO, 4.546s,
2034 974,494
4,152,140 IFB Ser. 2869, Class SH, IO, 4.346s,
2034 383,846
20,080,128 IFB Ser. 2869, Class JS, IO, 4.296s,
2034 1,825,969
4,250,482 IFB Ser. 2882, Class SL, IO, 4.246s,
2034 442,697
10,967,106 IFB Ser. 2594, Class OS, IO, 4.096s,
2032 738,567
7,188,332 IFB Ser. 2815, Class PT, IO, 4.096s,
2032 660,428
21,912,834 IFB Ser. 2962, Class BS, IO, 3.83s,
2035 1,492,812
5,539,937 IFB Ser. 2927, Class ES, IO, 3.746s,
2035 464,872
7,656,086 IFB Ser. 2950, Class SM, IO, 3.746s,
2016 583,777
2,721,797 IFB Ser. 2947, Class US, IO, 3.696s,
2035 142,044
2,344,820 Ser. 2696, PO, zero %, 2033 1,732,295
3,972,198 General Growth Properties-Mall
Properties Trust FRB Ser.
01-C1A, Class D3, 5.204s, 2014 3,977,163
GMAC Commercial Mortgage Securities, Inc.
488,000 Ser. 99-C3, Class F, 8.032s, 2036 518,278
773,980 Ser. 01-C2, Class A1, 6 1/4s, 2034 808,268
7,723,000 Ser. 03-C2, Class A2, 5.446s, 2040 8,091,928
2,237,000 Ser. 04-C2, Class A4, 5.301s, 2038 2,307,242
GMAC Commercial Mortgage Securities,
Inc. 144A
2,095,341 Ser. 99-C3, Class G, 6.974s, 2036 1,676,929
484,591 FRN Ser. 02-FL1A, Class D, 5.66s,
2014 483,992
Government National Mortgage
Association
4,834,176 IFB Ser. 03-114, Class SP, 11.04s,
2027 4,974,512
4,936,460 Ser. 05-13, Class MI, IO, 5 1/2s,
2032 770,849
5,694,316 Ser. 05-13, Class PI, IO, 5 1/2s,
2033 925,326
9,722,140 IFB Ser. 04-86, Class SW, IO, 3.76s,
2034 716,851
22,147,365 IFB Ser. 05-28, Class SA, IO, 3.35s,
2035 1,180,040
1,735,573 Ser. 98-2, Class EA, PO, zero %,
2028 1,461,950
244,502 Ser. 99-31, Class MP, PO, zero %,
2029 214,424
748,000 GS Mortgage Securities Corp. II 144A
FRB Ser. 03-FL6A, Class L, 6.204s,
2015 752,208
1,200,000 Guggenheim Structured Real Estate
Funding, Ltd. 144A Ser. 05-1, Class
D, 5s, 2030 1,198,596
JP Morgan Chase Commercial
Mortgage Securities Corp. 144A
33,032,580 Ser. 04-FL1A, Class X1A, IO, 0.929s,
2019 269,216
47,288,000 Ser. 05-LDP1, Class X1, IO, 0.039s,
2046 453,965
LB Commercial Conduit Mortgage Trust
144A
926,463 Ser. 99-C1, Class F, 6.41s, 2031 963,811
991,777 Ser. 99-C1, Class G, 6.41s, 2031 953,340
784,000 Ser. 98-C4, Class G, 5.6s, 2035 773,946
1,328,000 Ser. 98-C4, Class H, 5.6s, 2035 1,217,556
190,344,000 LB-UBS Commercial Mortgage Trust
144A Ser. 05-C2, Class XCL, IO,
0.102s, 2030 2,190,576
Lehman Brothers Floating Rate
Commercial Mortgage Trust 144A
2,250,000 FRB Ser. 03-LLFA, Class L, 6.7s,
2014 2,174,131
826,000 FRB Ser. 04-LLFA, Class H, 3.904s,
2017 829,139
1,126,726 FRB Ser. 03-C4, Class A, 3.51s, 2015 1,129,543
Merrill Lynch Mortgage Investors, Inc.
826,000 Ser. 98-C3, Class E, 7.143s, 2030 913,523
277,675 Ser. 96-C2, Class A3, 6.96s, 2028 284,464
6,026,258 Ser. 96-C2, Class JS, IO, 2.13s,
2028 260,352
Mezz Cap Commercial Mortgage Trust
144A
4,222,696 Ser. 04-C1, Class X, IO, 6.18s, 2037 1,825,656
1,998,816 Ser. 04-C2, Class X, IO, 5.186s,
2040 778,289
Morgan Stanley Capital I 144A
1,400,000 Ser. 96-C1, Class E, 7.39s, 2028 1,430,579
498,000 Ser. 98-HF1, Class F, 7.18s, 2030 532,612
1,350,000 Ser. 04-RR, Class F5, 6s, 2039 1,161,092
2,030,000 Ser. 04-RR, Class F6, 6s, 2039 1,686,742
65,056,000 Ser. 05-HQ5, Class X1, IO, 0.047s,
2042 543,803
1,455,593 Morgan Stanley Dean Witter Capital I
Ser. 00-LIF2, Class A1, 6.96s, 2033 1,529,028
Morgan Stanley Dean Witter Capital I
144A
558,200 FRB Ser. 01-XLF, Class D, 4.39s,
2013 563,343
817,692 FRB Ser. 01-XLF, Class E, 4.34s,
2013 825,229
1,389,000 Mortgage Capital Funding, Inc. FRB
Ser. 98-MC2, Class E, 7.262s, 2030 1,489,814
PNC Mortgage Acceptance Corp. 144A
4,971,000 Ser. 99-CM1, Class B3, 7.1s, 2032 5,361,258
309,000 Ser. 00-C1, Class J, 6 5/8s, 2010 287,733
1,290,000 Ser. 00-C2, Class J, 6.22s, 2033 1,327,023
Pure Mortgages 144A
3,491,000 FRB Ser. 04-1A, Class F, 6.132s,
2034 (Ireland) 3,494,491
1,374,000 Ser. 04-1A, Class E, 3.882s, 2034
(Ireland) 1,375,374
2,442,363 QUIZNOS 144A Ser. 05-1, 7.3s, 2025 2,440,356
Salomon Brothers Mortgage Securities
VII
1,763,393 Ser. 96-C1, Class E, 8.421s, 2028 1,783,851
124 Ser. 00-C2, Class A1, 7.298s, 2033 125
10,447,274 Salomon Brothers Mortgage Securities
VII 144A Ser. 03-CDCA, Class X3CD,
IO, 1.06s, 2015 195,918
2,041,000 Starwood Asset Receivables Trust FRN
Ser. 02-1A, Class F, 4.395s, 2020 2,042,225
Starwood Asset Receivables Trust
144A
989,086 FRB Ser. 03-1A, Class F, 4.12s, 2022 989,977
1,252,238 FRB Ser. 03-1A, Class E, 4.07s, 2022 1,253,365
STRIPS 144A
993,000 Ser. 03-1A, Class L, 5s, 2018
(Cayman Islands) 862,818
673,000 Ser. 03-1A, Class M, 5s, 2018
(Cayman Islands) 564,849
443,000 Ser. 04-1A, Class L, 5s, 2018
(Cayman Islands) 389,663
372,394 TIAA Real Estate CDO, Ltd. Ser.
01-C1A, Class A1, 5.77s, 2016 375,069
8,696,000 Wachovia Bank Commercial Mortgage
Trust Ser. 05-C17, Class A4,
5.083s, 2042 8,858,876
944,000 Wachovia Bank Commercial Mortgage
Trust 144A FRB Ser. 05-WL5A, Class
L, 6.254s, 2018 931,284
219,000 Washington Mutual Asset Securities
Corp. 144A Ser. 05-C1A, Class G,
5.72s, 2014 218,461
--------------
Total Collateralized mortgage
obligations (cost $648,732,008) $627,385,465
Corporate bonds and notes (14.8%) (a)
Principal amount Value
Basic Materials (0.6%)
- -------------------------------------------------------------------------------
$1,850,000 Dow Chemical Co. (The) debs. 8.55s,
2009 $2,115,240
70,000 Dow Chemical Co. (The) notes 6s,
2012 75,813
1,950,000 Dow Chemical Co. (The) Pass Through
Trust 144A company guaranty 4.027s,
2009 1,901,147
615,000 Falconbridge, Ltd. bonds 5 3/8s,
2015 (Canada) 596,011
970,000 Georgia-Pacific Corp. sr. notes 8s,
2014 1,037,900
1,585,000 ICI Wilmington, Inc. company
guaranty 5 5/8s, 2013 1,609,146
915,000 International Paper Co. notes 5.3s,
2015 905,238
570,000 Lubrizol Corp. (The) sr. notes
5 1/2s, 2014 579,597
830,000 Newmont Mining Corp. notes 5 7/8s,
2035 833,199
670,000 Potash Corp. of Saskatchewan notes
7 3/4s, 2011 (Canada) 772,896
770,000 Praxair, Inc. notes 6 3/8s, 2012 (S) 854,757
1,310,000 Weyerhaeuser Co. debs. 7.95s, 2025 1,533,054
860,000 Weyerhaeuser Co. debs. 7 1/8s, 2023 943,761
1,225,000 Weyerhaeuser Co. notes 6 3/4s, 2012 1,307,735
335,000 WMC Finance USA company guaranty
6 1/4s, 2033 (Australia) 370,742
615,000 WMC Finance USA company guaranty
5 1/8s, 2013 (Australia) 628,056
--------------
16,064,292
Capital Goods (0.6%)
- -------------------------------------------------------------------------------
105,000 Boeing Capital Corp. sr. notes 6.1s,
2011 112,699
990,000 Boeing Co. (The) debs. 6 7/8s, 2043 1,203,218
225,000 Bunge, Ltd. Finance Corp. company
guaranty 7.8s, 2012 265,552
1,165,000 Bunge, Ltd. Finance Corp. company
guaranty 4 3/8s, 2008 1,161,477
705,000 Bunge, Ltd. Finance Corp. notes
5 7/8s, 2013 745,750
380,000 Litton Industries, Inc. sr. notes
8s, 2009 431,932
1,680,000 Lockheed Martin Corp. bonds 8 1/2s,
2029 2,331,675
1,900,000 Northrop Grumman Corp. company
guaranty 7 1/8s, 2011 2,137,012
825,000 Raytheon Co. debs. 7s, 2028 972,172
15,000 Raytheon Co. debs. 6 3/4s, 2018 17,003
797,000 Raytheon Co. debs. 6s, 2010 850,332
1,410,000 Raytheon Co. notes 8.3s, 2010 1,628,457
1,105,000 Raytheon Co. notes 4.85s, 2011 1,113,227
1,315,000 Sealed Air Corp. 144A notes 5 5/8s,
2013 1,338,629
1,600,000 United Technologies Corp. notes
4 7/8s, 2015 1,601,854
1,020,000 Waste Management, Inc. sr. notes
7 3/8s, 2010 1,141,701
--------------
17,052,690
Communication Services (1.6%)
- -------------------------------------------------------------------------------
1,135,000 Ameritech Capital Funding company
guaranty 6 1/4s, 2009 1,205,427
345,000 AT&T Wireless Services, Inc. notes
8 1/8s, 2012 407,889
2,000,000 AT&T Wireless Services, Inc. sr.
notes 8 3/4s, 2031 2,727,508
1,670,000 AT&T Wireless Services, Inc. sr.
notes 7 7/8s, 2011 1,921,419
1,800,000 Bellsouth Capital Funding notes
7 3/4s, 2010 2,042,644
910,000 Citizens Communications Co. sr.
notes 6 1/4s, 2013 848,575
2,165,000 Deutsche Telekom International
Finance BV bonds 8 1/2s, 2010
(Germany) 2,510,863
2,615,000 Deutsche Telekom International
Finance BV company guaranty 8 3/4s,
2030 (Germany) 3,512,023
920,000 France Telecom notes 8 3/4s, 2031
(France) 1,245,526
3,785,000 France Telecom notes 7 3/4s, 2011
(France) 4,362,001
500,000 SBC Communications, Inc. notes 5.1s,
2014 500,227
1,800,000 Sprint Capital Corp. company
guaranty 7 5/8s, 2011 2,031,766
1,565,000 Sprint Capital Corp. company
guaranty 6.9s, 2019 1,748,729
4,930,000 Sprint Capital Corp. company
guaranty 6 7/8s, 2028 5,497,354
400,000 Telecom Italia Capital SA company
guaranty 6 3/8s, 2033 (Luxembourg) 417,051
1,575,000 Telecom Italia Capital SA company
guaranty 5 1/4s, 2013 (Luxembourg) 1,577,867
1,810,000 Telecom Italia Capital SA 144A
company guaranty 4s, 2010
(Luxembourg) 1,744,768
725,000 Telefonica Europe BV company
guaranty 8 1/4s, 2030 (Netherlands) 981,137
390,000 Verizon Global Funding Corp. notes
7 3/4s, 2030 (S) 485,284
2,495,000 Verizon New England, Inc. sr. notes
6 1/2s, 2011 2,696,239
1,050,000 Verizon New Jersey, Inc. debs. 8s,
2022 1,267,426
1,420,000 Verizon Virginia, Inc. debs. Ser. A,
4 5/8s, 2013 1,374,211
1,390,000 Vodafone Group PLC notes 7 7/8s,
2030 (United Kingdom) 1,826,940
--------------
42,932,874
Conglomerates (0.2%)
- -------------------------------------------------------------------------------
1,670,000 Tyco International Group SA company
guaranty 7s, 2028 (Luxembourg) 1,958,803
1,947,000 Tyco International Group SA company
guaranty 6 3/4s, 2011 (Luxembourg) 2,137,528
--------------
4,096,331
Consumer Cyclicals (1.2%)
- -------------------------------------------------------------------------------
1,770,000 Cendant Corp. notes 6 1/4s, 2010 1,867,476
2,150,000 Cendant Corp. sr. notes 7 3/8s, 2013
(S) 2,403,184
495,000 D.R. Horton, Inc. company guaranty
8s, 2009 537,682
1,335,000 D.R. Horton, Inc. sr. notes 5 7/8s,
2013 1,334,192
5,550,000 DaimlerChrysler NA Holding Corp.
company guaranty 7.2s, 2009 5,881,946
400,000 DaimlerChrysler NA Holding Corp.
company guaranty 6 1/2s, 2013 409,000
2,035,000 Ford Motor Co. debs. 9.98s, 2047 1,895,662
5,185,000 Ford Motor Credit Corp. notes
7 3/8s, 2009 4,987,929
2,265,000 General Motors Acceptance Corp.
bonds 8s, 2031 1,905,855
1,435,000 General Motors Acceptance Corp. FRN
Ser. MTN, 4.05s, 2007 1,369,890
630,000 General Motors Acceptance Corp.
notes 6 7/8s, 2012 542,715
1,105,000 GTECH Holdings Corp. notes 4 3/4s,
2010 1,093,331
515,000 Harrah's Operating Co., Inc. company
guaranty 8s, 2011 587,699
1,790,000 Hilton Hotels Corp. notes 8 1/4s,
2011 2,060,767
990,000 JC Penney Co., Inc. debs. 7 1/8s,
2023 1,029,600
1,570,000 Lennar Corp. company guaranty
Ser. B, 9.95s, 2010 1,648,108
440,000 May Department Stores Co. (The)
notes 5 3/4s, 2014 455,591
465,000 Park Place Entertainment Corp. sr.
notes 7 1/2s, 2009 505,688
555,000 Park Place Entertainment Corp. sr.
notes 7s, 2013 600,788
--------------
31,117,103
Consumer Staples (1.6%)
- -------------------------------------------------------------------------------
1,245,000 AOL Time Warner, Inc. bonds 7 5/8s,
2031 (S) 1,517,155
505,000 AT&T Broadband Corp. company
guaranty 8 3/8s, 2013 613,077
450,000 Chancellor Media Corp. company
guaranty 8s, 2008 486,185
145,000 Clear Channel Communications, Inc.
sr. notes 5 3/4s, 2013 (S) 141,445
660,000 ConAgra Foods, Inc. notes 7 7/8s,
2010 761,015
910,000 ConAgra Foods, Inc. notes 6 3/4s,
2011 1,012,959
445,000 Cox Communications, Inc. notes
7 3/4s, 2010 500,063
1,280,000 Cox Communications, Inc. 144A notes
5.45s, 2014 1,275,187
885,000 Cox Enterprises, Inc. 144A notes
7 7/8s, 2010 991,465
645,000 Cox Enterprises, Inc. 144A notes
4 3/8s, 2008 639,181
1,023,039 CVS Corp. 144A pass-through
certificates 6.117s, 2013 1,088,248
1,945,000 Delhaize America, Inc. company
guaranty 8 1/8s, 2011 2,144,189
1,110,000 Diageo PLC company guaranty 8s, 2022 1,475,250
2,740,000 Fred Meyer, Inc. Holding Co. company
guaranty 7.45s, 2008 2,943,176
4,795,000 Jones Intercable, Inc. sr. notes
7 5/8s, 2008 5,194,476
4,365,000 Kraft Foods, Inc. notes 6 1/4s, 2012 4,741,438
2,160,000 Miller Brewing Co. 144A notes
5 1/2s, 2013 2,222,357
1,070,000 News America Holdings, Inc. debs.
7 3/4s, 2045 1,278,103
975,000 News America, Inc. debs. 7 1/4s,
2018 1,122,906
525,000 TCI Communications, Inc. debs. 9.8s,
2012 668,906
2,290,000 TCI Communications, Inc. debs.
8 3/4s, 2015 2,920,513
1,820,000 TCI Communications, Inc. debs.
7 7/8s, 2013 2,147,422
960,000 Time Warner Entertainment Co., LP
debs. 8 3/8s, 2023 1,207,834
1,180,000 Time Warner, Inc. debs. 9.15s, 2023 1,587,157
3,795,000 Time Warner, Inc. debs. 9 1/8s, 2013 4,764,361
685,000 Turner Broadcasting System, Inc. sr.
notes 8 3/8s, 2013 829,912
--------------
44,273,980
Energy (0.3%)
- -------------------------------------------------------------------------------
735,000 Buckeye Partners, LP notes 5.3s,
2014 741,500
735,000 Enbridge Energy Partners, LP sr.
notes 5.35s, 2014 735,885
755,000 Forest Oil Corp. sr. notes 8s, 2011 819,175
3,120,000 Motiva Enterprises, LLC 144A sr.
notes 5.2s, 2012 3,187,237
840,000 Noble Affiliates, Inc. sr. notes 8s,
2027 1,063,942
770,000 Sunoco, Inc. notes 4 7/8s, 2014 765,663
--------------
7,313,402
Financial (5.7%)
- -------------------------------------------------------------------------------
1,695,000 Allfirst Financial, Inc. sub. notes
7.2s, 2007 1,796,713
4,265,000 Associates First Capital Corp. debs.
6.95s, 2018 4,998,107
5,285,000 Associates First Capital Corp. sub.
debs. 8.15s, 2009 6,029,223
2,070,000 AXA Financial, Inc. sr. notes
7 3/4s, 2010 2,376,331
1,350,000 Bank of America Corp. sr. notes
5 3/8s, 2014 1,406,531
2,415,000 Bank of America Corp. sub. notes
7 3/4s, 2015 2,952,898
5,540,000 Bank of America Corp. sub. notes
7.4s, 2011 6,302,393
735,000 Bank of New York Co., Inc. (The) sr.
sub. notes FRN 3.4s, 2013 711,059
515,000 Bank One Corp. sub. notes 5 1/4s,
2013 526,837
5,325,000 Bank United Corp. notes Ser. A, 8s,
2009 5,986,386
980,000 Block Financial Corp. notes 5 1/8s,
2014 965,529
3,675,000 Bosphorus Financial Services, Ltd.
144A sec. FRN 4.81s, 2012 (Cayman
Islands) 3,674,206
250,000 Capital One Bank notes 6 1/2s, 2013 270,427
735,000 Capital One Bank notes Ser. BKNT,
4 7/8s, 2008 741,114
775,000 Capital One Bank sr. notes
Ser. BKNT, 6.7s, 2008 825,105
1,035,000 CenterPoint Properties Trust notes
Ser. MTN, 4 3/4s, 2010 (R) 1,027,143
155,000 CIT Group, Inc. sr. notes 7 3/4s,
2012 180,156
210,000 CIT Group, Inc. sr. notes 5s, 2015 207,878
4,825,000 CIT Group, Inc. sr. notes 5s, 2014
(S) 4,801,348
3,430,000 Citigroup, Inc. debs. 6 5/8s, 2028 3,909,154
4,379,000 Citigroup, Inc. sub. notes 5s, 2014 4,407,910
870,000 Colonial Properties Trust notes
6 1/4s, 2014 (R) 914,766
2,240,000 Countrywide Home Loans, Inc. company
guaranty Ser. MTNL, 4s, 2011 2,143,660
1,040,000 Credit Suisse First Boston USA, Inc.
notes 4 7/8s, 2015 1,029,767
600,000 Developers Diversified Realty Corp.
notes 4 5/8s, 2010 (R) 590,015
2,400,000 Equity One, Inc. company guaranty
3 7/8s, 2009 (R) 2,302,799
735,000 ERP Operating, LP notes 6.584s, 2015 808,188
4,955,000 First Chicago NBD Corp. sub. notes
6 3/8s, 2009 5,288,702
65,000 FleetBoston Financial Corp. sub.
notes 7 3/8s, 2009 72,566
5,215,000 Franchise Finance Corp. of America
sr. notes 8 3/4s, 2010 (R) 6,279,063
2,165,000 Fund American Cos. Inc. notes
5 7/8s, 2013 (S) 2,223,090
1,000,000 General Electric Capital Corp. notes
Ser. A, 6 3/4s, 2032 1,193,386
1,190,000 General Electric Capital Corp. notes
Ser. A, 6s, 2012 1,279,292
280,000 General Electric Capital Corp. notes
Ser. MTNA, 6 1/8s, 2011 303,141
2,315,000 Goldman Sachs Group, Inc. (The)
notes 5 1/8s, 2015 2,311,942
2,020,000 Goldman Sachs Group, Inc. (The)
notes 4 3/4s, 2013 1,985,234
790,000 Greenpoint Capital Trust I company
guaranty 9.1s, 2027 901,931
1,300,000 Hartford Financial Services Group,
Inc. (The) sr. notes 7.9s, 2010 1,472,731
985,000 Heritage Property Investment Trust
company guaranty 5 1/8s, 2014 (R) 968,241
2,585,000 Hospitality Properties Trust notes
6 3/4s, 2013 (R) 2,815,675
855,000 Household Finance Corp. notes 8s,
2010 988,505
5,330,000 Household Finance Corp. notes 7s,
2012 6,012,688
710,000 HRPT Properties Trust bonds 5 3/4s,
2014 (R) 724,764
660,000 HRPT Properties Trust notes 6 1/4s,
2016 (R) 705,586
2,930,000 HSBC Finance Corp. notes 6 3/4s,
2011 3,242,227
1,575,000 HSBC Finance Corp. notes 5 1/4s,
2015 1,594,798
2,530,000 International Lease Finance Corp.
FRN Ser. MTNP, 3.541s, 2010 2,524,092
3,270,000 International Lease Finance Corp.
notes 4 3/4s, 2012 3,213,717
1,290,000 International Lease Finance Corp.
unsub. 4 3/4s, 2009 1,293,749
305,000 iStar Financial, Inc. sr. notes
8 3/4s, 2008 (R) 340,418
1,395,000 iStar Financial, Inc. sr. notes 6s,
2010 (R) 1,437,821
1,090,000 John Hancock Global Funding II 144A
notes 7.9s, 2010 1,259,543
2,195,000 JPMorgan Chase & Co. sub. notes
5 1/8s, 2014 2,215,181
655,000 Kimco Realty Corp. notes Ser. MTNC,
5.19s, 2013 (R) 659,093
30,000 Lehman Brothers Holdings, Inc. notes
4 1/4s, 2010 29,595
1,275,000 Lehman Brothers Holdings, Inc. notes
Ser. MTNG, 4.8s, 2014 1,261,055
5,380,000 Liberty Mutual Group 144A notes
6 1/2s, 2035 5,214,474
630,000 Loews Corp. notes 5 1/4s, 2016 621,757
955,000 Merrill Lynch & Co., Inc. notes
Ser. B, 4 3/4s, 2009 963,284
665,000 MetLife, Inc. sr. notes 6 1/8s, 2011 719,988
1,060,000 Morgan Stanley Dean Witter & Co. sr.
notes 6 3/4s, 2011 1,170,798
105,000 National City Bank bonds 4 5/8s,
2013 103,740
2,795,000 National City Bank sub. notes
Ser. BKNT, 6 1/4s, 2011 3,050,647
815,000 Nationwide Financial Services, Inc.
notes 5 5/8s, 2015 839,320
965,000 OneAmerica Financial Partners, Inc.
144A bonds 7s, 2033 1,092,979
1,575,000 PNC Funding Corp. bonds 5 1/4s, 2015
(S) 1,606,905
1,580,000 Popular North America, Inc. sub.
notes 3 7/8s, 2008 (Puerto Rico) 1,553,786
2,660,000 Principal Life Global Funding I 144A
sec. notes 5 1/4s, 2013 2,755,837
1,435,000 Protective Life Corp. notes 4.3s,
2013 (S) 1,381,050
1,555,000 Prudential Holdings, LLC 144A bonds
8.695s, 2023 2,017,986
870,000 Simon Property Group, LP notes
5 5/8s, 2014 (R) (S) 890,208
1,490,000 Steers Delaware Business Trust 144A
notes 5.565s, 2005 1,503,634
2,080,000 Suncorp-Metway, Ltd. 144A notes FRN
3 1/2s, 2013 (Australia) 2,030,825
5,000,000 UBS AG/Jersey Branch FRN 6.05s, 2008
(Jersey) 5,175,000
3,545,000 Wachovia Bank NA sub. notes 4 7/8s,
2015 3,537,938
695,000 Wachovia Corp. sub. notes 5 1/4s,
2014 711,813
245,000 Washington Mutual Capital Trust I
sr. notes 5s, 2012 248,206
--------------
153,673,644
Health Care (0.3%)
- -------------------------------------------------------------------------------
3,225,000 American Home Products Corp. notes
6.95s, 2011 3,590,496
1,320,000 Bayer Corp. 144A FRB 6.2s, 2008 1,382,502
439,000 HCA, Inc. notes 6.91s, 2005 440,548
605,000 HCA, Inc. sr. notes 6.95s, 2012 630,668
530,000 Hospira, Inc. notes 5.9s, 2014 560,566
685,000 WellPoint, Inc. 144A notes 5s, 2014 690,162
685,000 WellPoint, Inc. 144A notes 4 1/4s,
2009 675,662
10,000 Wyeth notes 5 1/2s, 2013 10,356
--------------
7,980,960
Technology (0.1%)
- -------------------------------------------------------------------------------
1,210,000 Computer Associates International,
Inc. 144A sr. notes 5 5/8s, 2014 1,203,303
630,000 Motorola, Inc. notes 7 5/8s, 2010 716,226
1,290,000 Motorola, Inc. notes 4.608s, 2007 1,299,078
915,000 SunGard Data Systems, Inc. bonds
4 7/8s, 2014 748,854
--------------
3,967,461
Transportation (0.4%)
- -------------------------------------------------------------------------------
2,189,863 Continental Airlines, Inc.
pass-through certificates Ser.
97-4A, 6.9s, 2018 2,140,591
600,887 Continental Airlines, Inc.
pass-through certificates Ser.
98-1A, 6.648s, 2017 570,843
1,275,000 CSX Corp. notes 6 3/4s, 2011 1,407,942
495,000 CSX Corp. notes 6 1/4s, 2008 523,810
3,010,000 Norfolk Southern Corp. notes 7.05s,
2037 3,620,606
155,000 Norfolk Southern Corp. sr. notes
6 3/4s, 2011 172,248
146,894 Northwest Airlines Corp.
pass-through certificates Ser.
99-2A, 7.575s, 2019 146,041
2,200,000 Union Pacific Corp. notes 6.65s,
2011 2,410,085
470,000 Union Pacific Corp. 144A
pass-through certificates 5.214s,
2014 475,692
--------------
11,467,858
Utilities & Power (2.2%)
- -------------------------------------------------------------------------------
875,000 AEP Texas Central Co. sr. notes
Ser. D, 5 1/2s, 2013 903,810
840,000 AEP Texas North Co. sr. notes
Ser. B, 5 1/2s, 2013 872,203
1,115,000 Atmos Energy Corp. notes 4.95s, 2014
(S) 1,102,305
1,220,000 Beaver Valley II Funding debs. 9s,
2017 1,460,328
380,000 Carolina Power & Light Co. 1st mtge.
6 1/8s, 2033 409,349
1,035,000 Carolina Power & Light Co. 1st mtge.
5.7s, 2035 1,060,686
1,735,000 CenterPoint Energy Resources Corp.
notes 7 3/4s, 2011 1,967,497
670,000 Cleveland Electric Illuminating Co.
(The) 144A sr. notes Ser. D, 7.88s,
2017 816,600
650,000 Consolidated Natural Gas Co. sr.
notes 5s, 2014 647,384
290,000 Consumers Energy Co. 1st mtge.
5.65s, 2020 294,591
3,185,000 Consumers Energy Co. 1st mtge.
Ser. B, 5 3/8s, 2013 3,249,257
1,035,000 Dayton Power & Light Co. (The) 144A
1st mtge. 5 5/8s, 2013 1,061,060
640,000 Detroit Edison Co. 144A 1st mtge.
5.45s, 2035 638,164
2,035,000 Duke Capital Corp. sr. notes Ser. A,
6 1/4s, 2005 2,045,704
125,000 FirstEnergy Corp. notes Ser. B,
6.45s, 2011 134,249
1,630,000 FirstEnergy Corp. notes Ser. C,
7 3/8s, 2031 1,921,020
1,285,000 Florida Power & Light Co. 1st mtge.
5.95s, 2033 1,423,262
825,000 Florida Power & Light Co. 1st mtge.
5 5/8s, 2034 874,661
680,000 Indianapolis Power & Light 144A 1st
mtge. 6.3s, 2013 729,021
785,000 Kinder Morgan, Inc. notes 5.15s,
2015 780,190
2,095,000 Kinder Morgan, Inc. sr. notes
6 1/2s, 2012 2,284,577
1,950,000 MidAmerican Energy Holdings Co. sr.
notes 4 5/8s, 2007 1,954,733
345,000 MidAmerican Energy Holdings Co. sr.
notes 3 1/2s, 2008 334,255
2,940,000 Monongahela Power Co. 1st mtge. 5s,
2006 2,962,238
980,000 National Fuel Gas Co. notes 5 1/4s,
2013 998,958
1,118,000 Nevada Power Co. 2nd mtge. 9s, 2013 1,232,595
370,000 Nevada Power Co. 144A general ref.
mtge. 5 7/8s, 2015 358,900
1,760,000 NiSource Finance Corp. company
guaranty 7 7/8s, 2010 2,032,260
2,635,000 Northern States Power Co. 1st mtge.
Ser. B, 8s, 2012 3,173,083
490,000 Oncor Electric Delivery Co. sec.
notes 7 1/4s, 2033 598,334
2,405,000 Oncor Electric Delivery Co. sec.
notes 6 3/8s, 2012 2,615,377
1,590,000 Pacific Gas & Electric Co. 1st mtge.
6.05s, 2034 1,710,998
715,000 Pacific Gas & Electric Co. 1st mtge.
4.8s, 2014 709,500
1,570,000 PacifiCorp Sinking Fund 1st mtge.
5.45s, 2013 1,639,193
1,080,000 Pepco Holdings, Inc. notes 5 1/2s,
2007 1,103,127
1,705,658 Power Receivable Finance, LLC 144A
sr. notes 6.29s, 2012 (S) 1,768,324
790,000 PP&L Capital Funding, Inc. company
guaranty Ser. D, 8 3/8s, 2007 854,639
785,000 Public Service Company of New Mexico
sr. notes 4.4s, 2008 784,658
1,130,000 Public Service Electric & Gas Co.
1st mtge. FRN 6 3/8s, 2008 1,193,214
1,605,000 Public Services Co. of Colorado sr.
notes Ser. A, 6 7/8s, 2009 1,746,744
995,000 Rochester Gas & Electric notes
6 3/8s, 2033 1,119,321
1,010,000 Southern California Edison Co. 1st
mtge. 6s, 2034 1,090,199
1,285,000 Southern California Edison Co. 1st
mtge. 5s, 2014 1,300,911
470,000 Southern California Edison Co. 1st
mtge. 5s, 2016 469,850
875,000 Tampa Electric Co. notes 6 7/8s,
2012 980,305
440,000 TGT Pipeline Co. 144A notes 5 1/2s,
2017 449,114
235,965 York Power Funding 144A notes 12s,
2007 (Cayman Islands) (In default)
(NON) (F) 2
--------------
57,856,750
--------------
Total Corporate bonds and notes
(cost $387,951,803) $397,797,345
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 $1,058,714
1,795,000 NJ State Tpk. Auth. Rev. Bonds,
Ser. B, AMBAC, 4.252s, 1/1/16 Aaa 1,736,860
1,770,000 OR State G.O. Bonds (Taxable
Pension), 5.892s, 6/1/27 Aa3 1,935,814
--------------
Total Municipal bonds and notes
(cost $4,640,000) $4,731,388
Short-term investments (21.5%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$15,000,000 Citigroup Global Markets Holdings,
Inc. for an effective yield of
2.97%, June 13, 2005 $14,946,788
50,000,000 CRC Funding, LLC for an effective
yield of 3.01%, June 7, 2005 49,845,319
40,000,000 Curzon Funding, LLC for an effective
yield of 2.90%, May 11, 2005 39,967,778
45,000,000 Ranger Funding Co., LLC for an
effective yield of 2.91%, May 16,
2005 44,945,437
4,395,000 U.S. Treasury Bill zero %, June 30,
2005 (SEG) 4,374,875
17,915,061 Short-term investments held as
collateral for loaned securities
with yields ranging from 2.80% to
3.15% and due dates ranging from
May 2, 2005 to June 24, 2005 (d) 17,908,748
403,359,054 Putnam Prime Money Market (e) 403,359,054
--------------
Total Short-term investments
(cost $575,347,999) $575,347,999
- -------------------------------------------------------------------------------
Total Investments
(cost $3,643,189,379) $3,628,112,216
- -------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $2,680,841,402.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to
be the most recent ratings available at April 30, 2005 for the
securities listed. Ratings are generally ascribed to securities at the
time of issuance. While the agencies may from time to time revise such
ratings, they undertake no obligation to do so, and the ratings do not
necessarily represent what the agencies would ascribe to these
securities at April 30, 2005. Security ratings are defined in the
Statement of Additional Information.
(NON) Non-income-producing security.
(SEG) This security was pledged and segregated with the custodian to
cover margin requirements for futures contracts at April 30, 2005.
(F) Security is valued at fair value following procedures approved by
the Trustees.
(R) Real Estate Investment Trust.
(S) Securities on loan, in part or in entirety, at April 30, 2005.
(d) See Note 1 to the financial statements.
(e) See Note 5 to the financial statements regarding investments in
Putnam Prime Money Market Fund.
(g) 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 $771,000.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
TBA after the name of a security represents to be announced securities
(Note 1).
The rates shown on Floating Rate Bonds (FRB) and Floating Rate Notes
(FRN) are the current interest rates at April 30, 2005.
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 April 30, 2005.
AMBAC represents AMBAC Indemnity Corporation.
G.O. Bonds represent General Obligation Bonds.
Futures contracts outstanding at April 30, 2005 (Unaudited)
Unrealized
Number of Expiration appreciation/
contracts Value date (depreciation)
- ------------------------------------------------------------------------------------------------------
CBT Interest Rate Swap
10 yr (Long) 32 $3,535,000 Jun-05 $51,186
Euro 90 day (Long) 21 5,070,188 Jun-05 (16,320)
Euro 90 day (Long) 20 4,812,750 Sep-05 (14,592)
Euro 90 day (Long) 20 4,803,250 Dec-05 (11,317)
Euro 90 day (Long) 11 2,638,350 Mar-06 1,884
U.S. Treasury Bond (Long) 3,650 419,179,688 Jun-05 5,864,562
U.S. Treasury Note
5 yr (Long) 386 41,862,907 Jun-05 440,309
U.S. Treasury Note
5 yr (Short) 274 29,716,156 Jun-05 (820)
U.S. Treasury Note
10 yr (Short) 920 102,508,125 Jun-05 (1,195,243)
- ------------------------------------------------------------------------------------------------------
$5,119,649
- ------------------------------------------------------------------------------------------------------
TBA sale commitments outstanding at April 30, 2005 (Unaudited)
(proceeds receivable $421,996,011)
Principal Settlement
Agency amount date Value
- ------------------------------------------------------------------------------------------------------
FNMA, 6s, May 1, 2035 $26,950,000 5/12/05 $27,661,647
FNMA, 5 1/2s, May 1, 2035 15,100,000 5/12/05 15,246,281
FNMA, 5s, June 1, 2035 66,900,000 6/13/05 66,089,881
FNMA, 5s, May 1, 2035 151,300,000 5/12/05 149,846,273
FNMA, 5s, May 1, 2020 600,000 5/17/05 604,172
FNMA, 4 1/2s, June 1, 2020 120,500,000 6/16/05 118,993,750
FNMA, 4 1/2s, May 1, 2020 47,600,000 5/17/05 47,090,533
- ------------------------------------------------------------------------------------------------------
$425,532,537
- ------------------------------------------------------------------------------------------------------
Interest rate swap contracts outstanding at April 30, 2005 (Unaudited)
Unrealized
Notional Termination appreciation/
amount date (depreciation)
- ------------------------------------------------------------------------------------------------------
Agreement with Bank of America, N.A. dated
January 12, 2005 to receive semi-annually
the notional amount multiplied by 4.106%
and pay quarterly the notional amount
multiplied by the three month USD-LIBOR. $134,600,000 1/14/10 $191,047
Agreement with Bank of America, N.A. dated
March 31, 2005 to pay semi-annually the
notional amount multiplied by 4.6375% and
receive quarterly the notional amount
multiplied by the three month USD-LIBOR. 106,100,000 4/6/10 (1,513,073)
Agreement with JP Morgan Chase Bank dated
March 3, 2005 to receive semi-annually the
notional amount multiplied by 4.798% and
pay quarterly the notional amount multiplied
by the three month USD-LIBOR. 58,900,000 3/7/15 905,302
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 4,526,163
Agreement with Bank of America, N.A. dated
December 20, 2004 to pay semi-annually the
notional amount multiplied by 3.965% and
receive quarterly the notional amount
multiplied by the three month USD-LIBOR. 70,599,000 12/22/09 277,424
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 10,170
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 26,824
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 85,478
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 (90,386)
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 6,631,430
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 (9,093,397)
Agreement with Goldman Sachs Capital
Markets, LP 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 4,902,104
Agreement with Goldman Sachs Capital Markets,
LP 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 (6,846,327)
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 (228,055)
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 6,118,139
Agreement with Lehman Brothers Special Financing,
Inc. dated July 31, 2002 to pay semi-annually
the notional amount multiplied by 5.152% and
receive quarterly the notional amount
multiplied by the three month USD-LIBOR-BBA. 53,317,584 8/2/12 (2,487,279)
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 1/26/06 225,824
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 1/23/06 211,043
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 1/23/06 211,043
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 1/26/06 117,185
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 (244,544)
Agreement with Lehman Brothers Special Financing,
Inc. dated December 11, 2003 to pay semi-annually
the notional amount multiplied by 4.710% and
receive quarterly the notional amount multiplied
by the three month USD-LIBOR-BBA. 14,151,000 12/15/13 (334,625)
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 8,512
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 1/23/14 507
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 11,622
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 5,011,886
Agreement with Merrill Lynch Capital Services,
Inc. dated August 8, 2002 to receive quarterly
the notional amount multiplied by the three month
USD-LIBOR-BBA and pay semi-annually the notional
amount multiplied by 4.94%. 53,317,584 8/13/12 (1,686,617)
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 (3,605,319)
- ------------------------------------------------------------------------------------------------------
$3,342,081
- ------------------------------------------------------------------------------------------------------
Total return swap contracts outstanding at April 30, 2005 (Unaudited)
Unrealized
Notional Termination appreciation/
amount date (depreciation)
- ------------------------------------------------------------------------------------------------------
Agreement with Citigroup Financial Products,
Inc. dated April 22, 2005 to receive at maturity
the notional amount multiplied by the nominal
spread appreciation of the Lehman Brothers AAA
8.5+ Commercial Mortgage Backed Securities Index
adjusted by a modified duration factor and an
accrual of 40 basis points plus the beginning
of the period nominal spread of the Lehman
Brothers AAA 8.5+ Commercial Mortgage Backed
Securities Index and pay at maturity the
notional amount multiplied by the nominal
spread depreciation of the Lehman Brothers AAA
8.5+ Commercial Mortgage Backed Securities Index
adjusted by a modified duration factor. $29,935,000 11/1/05 $10,462
Agreement with Citibank dated April 4, 2005 to
pay at maturity the notional amount multiplied by
the nominal spread appreciation of the Lehman
Brothers AAA 8.5+ Commercial Mortgage Backed
Securities Index adjusted by a modified duration
factor and an accrual of 85 basis points plus
the beginning of the period nominal spread of
the Lehman Brothers AAA 8.5+ Commercial
Mortgage Backed Securities Index and receive
at maturity the notional amount multiplied by
the nominal spread depreciation of the Lehman
Brothers AAA 8.5+ Commercial Mortgage Backed
Securities Index adjusted by a modified
duration factor. 30,010,000 6/1/05 85,787
Agreement with Deutsche Bank AG dated
April 13, 2005 to pay at maturity the notional
amount multiplied by the nominal spread
appreciation of the Lehman Brothers AAA 8.5+
Commercial Mortgage Backed Securities Index
adjusted by a modified duration factor and an
accrual of 100 basis points plus the beginning
of the period nominal spread of the Lehman
Brothers AAA 8.5+ Commercial Mortgage Backed
Securities Index and receive at maturity the
notional amount multiplied by the nominal
spread depreciation of the Lehman Brothers AAA
8.5+ Commercial Mortgage Backed Securities
Index adjusted by a modified duration factor. 28,213,000 5/13/05 42,972
Agreement with Citibank dated April 4, 2005 to
pay at maturity the notional amount multiplied
by the nominal spread appreciation of the Lehman
Brothers AAA 8.5+ Commercial Mortgage Backed
Securities Index adjusted by a modified duration
factor and an accrual of 125 basis points plus
the beginning of the period nominal spread of
the Lehman Brothers AAA 8.5+ Commercial Mortgage
Backed Securities Index and receive at maturity
the notional amount multiplied by the nominal
spread depreciation of the Lehman Brothers AAA
8.5+ Commercial Mortgage Backed Securities Index
adjusted by a modified duration factor. 38,000,000 5/1/05 98,072
Agreement with Goldman Sachs Capital Markets, LP
dated December 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 8 basis points. 240,139,000 7/1/05 804,225
Agreement with Goldman Sachs Capital Markets,
LP dated January 1, 2005 to pay on June 6, 2005
the spread change multiplied by the sum of the
notional amount divided by 10,000 and multiplied
by the modified adjusted duration as identified
on Bloomberg as of January 1, 2005 and receive on
June 6, 2005 the notional amount multiplied by
the sum of 0.43% plus the nominal spread of the
the Lehman Brothers Commercial MBS Index on
May 31, 2005. 31,354,337 6/1/05 140,202
Agreement with Citigroup Financial Products, Inc.
dated January 25, 2005 to receive at maturity the
notional amount multiplied by the nominal spread
appreciation of the Lehman Brothers AAA 8.5+
Commercial Mortgage Backed Securities Index adjusted
by a modified duration factor and an accrual of 25
basis points plus the beginning of the period nominal
spread of the Lehman Brothers AAA 8.5+ Commercial
Mortgage Backed Securities Index and pay at maturity
the notional amount multiplied by the nominal spread
depreciation of the Lehman Brothers AAA 8.5+
Commercial Mortgage Backed Securities Index
adjusted by a modified duration factor. 19,200,000 7/31/05 (13,870)
Agreement with Citigroup Financial Products, Inc.
dated January 25, 2005 to receive at maturity the
notional amount multiplied by the nominal spread
appreciation of the Lehman Brothers AAA Commercial
Mortgage Backed Securities Index adjusted by a
modified duration factor and an accrual of -5 basis
points plus the beginning of the period nominal
spread of the Lehman Brothers AAA Commercial
Mortgage Backed Securities Index and 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. 19,200,000 7/31/05 20,884
Agreement with Goldman Sachs Capital Markets, LP
dated October 29, 2004 to receive at maturity the
notional amount multiplied by the nominal spread
appreciation of the Lehman Brothers AAA 8.5+
Commercial Mortgage Backed Securities Index adjusted
by a modified duration factor and an accrual of 25
basis points plus the beginning of the period nominal
spread of the Lehman Brothers AAA 8.5+ Commercial
Mortgage Backed Securities Index and pay at maturity
the notional amount multiplied by the nominal spread
depreciation of the Lehman Brothers AAA 8.5+
Commercial Mortgage Backed Securities Index
adjusted by a modified duration factor. 45,685,435 5/1/05 74,031
- ------------------------------------------------------------------------------------------------------
$1,262,765
- ------------------------------------------------------------------------------------------------------
Credit default contracts outstanding at April 30, 2005 (Unaudited)
Unrealized
Notional appreciation/
amount (depreciation)
- ------------------------------------------------------------------------------------------------------
Agreement with Bank of America, N.A. effective
February 25, 2005, maturing on March 20, 2010, to
receive quarterly the notional amount times 18.75
basis points per annum. Upon a credit default event
of FNMA, 5.375%, November 15, 2011, the fund makes a
payment of the proportional notional amount times the
difference between the par value and the then-market
value of FNMA, 5.375%, November 15, 2011. $25,900,000 $2,369
Agreement with Bank of America, N.A. effective
January 31, 2005, maturing on March 20, 2010, to
receive quarterly 18.5 basis points times the
notional amount. Upon a credit default event of
any FNMA senior note, the fund makes a payment of
the proportional notional amount times the difference
between the par value and the then-market value of any
FNMA senior note. 18,900,000 (422)
Agreement with Bank of America, N.A. effective
March 31, 2005, maturing on June 20, 2010, to receive
a premium based on the difference between the original
spread on issue and the market spread on day of execution
and receive quarterly 40 basis points times the notional
amount. Upon a credit default event of a reference entity
within the DJ IG 5 year CDX ,Series 4 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 reference entity within the DJ IG 5 year
CDX Series 4 Index. 3,695,000 12,881
Agreement with Bank of America, N.A. effective
March 31, 2005, maturing on June 20, 2010, to receive a
premium based on the difference between the original
spread on issue and the market spread on day of execution
and receive quarterly 67 basis points times the notional
amount. Upon a credit default event of a reference entity
within the DJ IG CDX 5 year Series 4 Index 7-10% tranche,
the fund makes a payment of the proportional notional
amount times the difference between the par value and the
then-market value of the reference entity within the DJ
IG CDX 5 year Series 4 Index 7-10% tranche. 3,695,000 14,265
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 30,374
Agreement with Bank of America, N.A. effective November 24,
2004, maturing on April 15, 2010, to receive a premium equal
to 2.58316% times the notional amount. Upon a credit default
event of any News Corp. senior note or bond 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 News Corp. senior note or bond. 930,000 2,354
Agreement with Credit Suisse First Boston International
effective February 18, 2005, maturing on March 20, 2010,
to receive quarterly the notional amount times 19 basis
points per annum. Upon a credit default event of FNMA, 5.25%,
August 1, 2012, the fund makes a payment of the proportional
notional amount times the difference between the par value
and the then-market value of FNMA, 5.25%, August 1, 2012. 13,000,000 (6,915)
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 any CVS senior note, the fund makes a
payment of the proportional notional amount times the
difference between the par value and the then-market
value of any CVS senior note. 940,000 8,995
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. 3,265,778 159,845
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. 3,265,778 103,962
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 86,597
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 55,219
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 2.475%
and the fund pays in the event of a credit default in one
of the underlying securities in the basket of BB CMBS s
securities. 816,444 26,059
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 s
securities. 408,222 25,185
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 s
securities. 408,222 4,129
Agreement with Lehman Brothers Finance, SA effective
March 30, 2005, maturing on June 20, 2010, to pay a premium
based on the difference between the original spread on issue
and the market spread on day of execution and pay quarterly
40 basis points times the notional amount. Upon a credit
default event of a reference entity within the IG 5 year
CDX Series 4 Index, the fund receives a payment of the
proportional notional amount times the difference between
the par value and the then-market value of the reference
entity within the IG 5 year CDX Series 4 Index. 3,695,000 16,977
Agreement with Lehman Brothers Finance, SA effective
March 30, 2005, maturing on June 20, 2010, to receive
quarterly 63.5 basis points times the notional amount.
Upon a credit default event of any reference entity within
the DJ IG CDX Series 4 Index that the counterparties agree
advances within the 7-10 Loss Basket of the 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 reference entity within the DJ IG CDX Series
4 Index. 3,695,000 (2,178)
Agreement with Goldman Sachs Capital Markets effective
April 4, 2005, maturing on June 20, 2010, to receive a
premium based on the difference between the original spread
on issue and the market spread on day of execution and receive
quarterly 32.5 basis points times the notional amount. Upon a
credit default event of a reference entity within the DJ
IG CDX 4 Index 10-15% tranche, the fund makes a payment of
the proportional notional amount times the difference between
the par value and the then-market value of the reference entity
within the DJ IG CDX 4 Index 10-15% tranche. 30,547,000 (20,093)
Agreement with Lehman Brothers Finance S.A. effective
April 26, 2005, maturing on June 20, 2010, to receive (pay) a
premium based on the difference between the original spread
on issue and the market spread on day of execution and to pay
quarterly 40 basis points times the notional amount. Upon a
credit default event of any reference entity within the
DJ IG CDX Series 4 Index, the fund receives a payment of
the proportional notional amount times the difference between
the par value and the then-market value of the reference
entity within the DJ IG CDX Series 4 Index. 30,070,000 68,711
Agreement with Goldman Sachs Capital Markets effective
April 15 2005, maturing on June 20, 2010, to receive (pay) a
premium based on the difference between the original spread on
issue and the market spread on day of execution and pay
quarterly 40 basis points times the notional amount. Upon a
credit default event of a reference entity within the DJ IG
CDX 4 Index, the fund receives a payment of the proportional
notional amount times the difference between the par value and
the then-market value of the reference entity within the DJ IG
CDX 4 Index. 29,935,000 20,758
Agreement with Lehman Brothers Finance SA effective
April 26, 2005, maturing on June 20, 2010, to receive a
premium based on the difference between the original spread
on issue and the market spread on day of execution and receive
quarterly 56 basis points times the notional amount. Upon a
credit default event of a reference entity within the DJ
IG CDX 4 Index 7-10% tranche, the fund makes a payment of
the proportional notional amount times the difference between
the par value and the then-market value of the reference entity
within the DJ IG CDX 4 Index 7-10% tranche. 30,070,000 (137,320)
Agreement with Goldman Sachs Capital Markets effective
April 15, 2005, maturing on June 20, 2010, to receive a premium
based on the difference between the original spread on issue
and the market spread on day of execution and receive quarterly
66.25 basis points times the notional amount. Upon a credit
default event of a reference entity within the DJ IG CDX 4
Index 7-10% tranche, the fund makes a payment of the
proportional notional amount times the difference between
the par value and the then-market value of the reference
entity within the DJ IG CDX 4 Index 7-10% tranche. 29,935,000 (8,623)
Agreement with Bank of America effective April 4, 2005,
maturing on June 20, 2010, to receive quarterly the notional
amount times 23.25 basis points per annum. Upon a credit default
event of FNMA, 5.375%, November 11, 2010, the fund makes a
payment of the proportional notional amount times the
difference between the par value and the then-market value of
FNMA, 5.375%, November 11, 2010. 21,400,000 45,520
Agreement with Lehman Brothers Finance SA effective
April 15, 2005, maturing on June 20, 2010, to receive (pay) a
premium based on the difference between the original spread on
issue and the market spread on day of execution and to pay
quarterly 40 basis points times the notional amount. Upon a
credit default event of any reference entity within the
DJ IG CDX Series 4 Index, the fund receives a payment of
the proportional notional amount times the difference between
the par value and the then-market value of the reference entity
within the DJ IG CDX Series 4 Index. 14,967,500 7,019
Agreement with Lehman Brothers Finance SA effective
April 21, 2005, maturing on June 20, 2010, to receive a premium
based on the difference between the original spread on issue and
the market spread on day of execution and receive quarterly 57
basis points times the notional amount. Upon a credit default
event of a reference entity within the DJ IG CDX 4 Index 7-10%
tranche, the fund makes a payment of the proportional notional
amount times the difference between the par value and the
then-market value of the reference entity within the DJ IG CDX
4 Index 7-10% tranche. 15,035,000 (60,451)
Agreement with Lehman Brothers Finance SA effective
April 15, 2005, maturing on June 20, 2010, to receive a premium
based on the difference between the original spread on issue
and the market spread on day of execution and receive quarterly
65 basis points times the notional amount. Upon a credit default
event of a reference entity within the DJ IG CDX 4 Index 7-10%
tranche, the fund makes a payment of the proportional notional
amount times the difference between the par value and the
then-market value of the reference entity within the DJ IG CDX
4 Index 7-10% tranche. 14,967,500 (2,493)
Agreement with Lehman Brothers Finance SA effective
April 21, 2005, maturing on June 20, 2010, to receive (pay) a
premium based on the difference between the original spread on
issue and the market spread on day of execution and to pay
quarterly 40 basis points times the notional amount. Upon a
credit default event of any reference entity within the
DJ IG CDX Series 4 Index, the fund receives a payment of
the proportional notional amount times the difference between
the par value and the then-market value of the reference entit
within the DJ IG CDX Series 4 Index. 15,035,000 (224,911)
Agreement with Bank of America, N.A. effective December 16, 2004,
maturing on December 20, 2009, to receive quarterly 18 basis points
times the notional amount. Upon a credit default event of any FNMA
senior note, the fund makes a payment of the proportional
notional amount times the difference between the par value and the
then-market value of any FNMA senior note. 10,000,000 2,296
Agreement with Lehman Brothers Special Financing, Inc.
effective December 16, 2004, maturing on December 20, 2009, to
receive quarterly 18 basis points times the notional amount.
Upon a credit default event of any FNMA senior note, the fund
makes a payment of the proportional notional amount times the
difference between the par value and the then-market value of
any FNMA senior note. 10,000,000 (1,994)
- -----------------------------------------------------------------------------------------------------
$228,115
- -----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of assets and liabilities
April 30, 2005 (Unaudited)
Assets
- -------------------------------------------------------------------------------
Investment in securities, at value, including $17,429,546 of securities
on loan (Note 1):
- -------------------------------------------------------------------------------
Unaffiliated issuers (identified cost $3,239,830,325) $3,224,753,162
- -------------------------------------------------------------------------------
Affiliated issuers (identified cost $403,359,054) (Note 5) 403,359,054
- -------------------------------------------------------------------------------
Cash 20,124,218
- -------------------------------------------------------------------------------
Interest and other receivables 17,476,719
- -------------------------------------------------------------------------------
Receivable for shares of the fund sold 6,645,975
- -------------------------------------------------------------------------------
Receivable for securities sold 55,929,970
- -------------------------------------------------------------------------------
Receivable for sales of delayed delivery securities (Note 1) 479,438,371
- -------------------------------------------------------------------------------
Receivable for open swap contracts (Note 1) 30,748,338
- -------------------------------------------------------------------------------
Receivable for open credit default contracts (Note 1) 660,787
- -------------------------------------------------------------------------------
Premium paid on credit default contracts (Note 1) 688,200
- -------------------------------------------------------------------------------
Total assets 4,239,824,794
Liabilities
- -------------------------------------------------------------------------------
Payable for variation margin (Note 1) 608,812
- -------------------------------------------------------------------------------
Payable for securities purchased 87,695,750
- -------------------------------------------------------------------------------
Payable for purchases of delayed delivery securities (Note 1) 993,198,736
- -------------------------------------------------------------------------------
Payable for shares of the fund repurchased 2,733,364
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Notes 2 and 5) 3,051,035
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 488,711
- -------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 217,933
- -------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,854
- -------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 639,240
- -------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 17,908,748
- -------------------------------------------------------------------------------
Payable for open swap contracts (Note 1) 26,143,492
- -------------------------------------------------------------------------------
Payable for open credit default contracts (Note 1) 465,400
- -------------------------------------------------------------------------------
Credit default contracts outstanding, at value (upfront
payments received $92,496) (Note 1) 59,768
- -------------------------------------------------------------------------------
TBA sale commitments, at value (proceeds receivable
$421,996,011) (Note 1) 425,532,537
- -------------------------------------------------------------------------------
Other accrued expenses 237,012
- -------------------------------------------------------------------------------
Total liabilities 1,558,983,392
- -------------------------------------------------------------------------------
Net assets $2,680,841,402
Represented by
- -------------------------------------------------------------------------------
Paid-in capital (Unlimited shares authorized) (Notes 1 and 4) $2,770,034,539
- -------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 5,526,305
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (86,058,363)
- -------------------------------------------------------------------------------
Net unrealized depreciation of investments (8,661,079)
- -------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $2,680,841,402
Computation of net asset value and offering price
- -------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($925,482,158 divided by 135,159,235 shares) $6.85
- -------------------------------------------------------------------------------
Offering price per class A share (100/96.25 of $6.85)* $7.12
- -------------------------------------------------------------------------------
Net asset value and offering price per class B share
($270,275,343 divided by 39,721,985 shares)** $6.80
- -------------------------------------------------------------------------------
Net asset value and offering price per class C share
($25,642,413 divided by 3,757,843 shares)** $6.82
- -------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($492,565,820 divided by 72,668,365 shares) $6.78
- -------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $6.78)*** $7.01
- -------------------------------------------------------------------------------
Net asset value, offering price and redemption price per
class R share ($322,171 divided by 47,062 shares) $6.85
- -------------------------------------------------------------------------------
Net asset value, offering price and redemption price per
class Y share ($966,553,497 divided by 140,304,824 shares) $6.89
- -------------------------------------------------------------------------------
* On single retail sales of less than $100,000. On sales of $100,000 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.
*** 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.
The accompanying notes are an integral part of these financial
statements.
Statement of operations
Six months ended April 30, 2005 (Unaudited)
Investment income:
- -------------------------------------------------------------------------------
Interest (including interest income of $4,888,048 from
investments in affiliated issuers) (Note 5) $51,551,553
- -------------------------------------------------------------------------------
Securities lending 14,679
- -------------------------------------------------------------------------------
Total investment income 51,566,232
Expenses:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 6,915,780
- -------------------------------------------------------------------------------
Investor servicing fees (Note 2) 2,543,549
- -------------------------------------------------------------------------------
Custodian fees (Note 2) 284,142
- -------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 39,881
- -------------------------------------------------------------------------------
Administrative services (Note 2) 55,079
- -------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,167,172
- -------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 1,470,776
- -------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 136,029
- -------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 1,297,315
- -------------------------------------------------------------------------------
Distribution fees -- Class R (Note 2) 546
- -------------------------------------------------------------------------------
Other 366,540
- -------------------------------------------------------------------------------
Non-recurring costs (Notes 2 and 6) 20,406
- -------------------------------------------------------------------------------
Costs assumed by Manager (Notes 2 and 6) (20,406)
- -------------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Notes 2 and 5) (503,243)
- -------------------------------------------------------------------------------
Total expenses 13,773,566
- -------------------------------------------------------------------------------
Expense reduction (Note 2) (243,220)
- -------------------------------------------------------------------------------
Net expenses 13,530,346
- -------------------------------------------------------------------------------
Net investment income 38,035,886
- -------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 3,721,210
- -------------------------------------------------------------------------------
Net realized gain on swap contracts (Note 1) 4,374,771
- -------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 14,126,879
- -------------------------------------------------------------------------------
Net unrealized depreciation of investments, futures
contracts, swap contracts and TBA sale commitments during
the period (31,746,087)
- -------------------------------------------------------------------------------
Net loss on investments (9,523,227)
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $28,512,659
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of changes in net assets
Six months ended Year ended
April 30 October 31
Decrease in net assets 2005* 2004
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $38,035,886 $79,463,790
- -------------------------------------------------------------------------------
Net realized gain on investments 22,222,860 82,727,147
- -------------------------------------------------------------------------------
Net unrealized depreciation of investments (31,746,087) (6,192,494)
- -------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 28,512,659 155,998,443
- -------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
- -------------------------------------------------------------------------------
From net investment income
Class A (12,799,368) (30,831,397)
- -------------------------------------------------------------------------------
Class B (2,925,106) (8,440,394)
- -------------------------------------------------------------------------------
Class C (269,561) (709,582)
- -------------------------------------------------------------------------------
Class M (6,575,375) (18,188,598)
- -------------------------------------------------------------------------------
Class R (2,895) (224)
- -------------------------------------------------------------------------------
Class Y (13,630,955) (23,947,431)
- -------------------------------------------------------------------------------
Redemption fees (Note 1) 8,043 2,568
- -------------------------------------------------------------------------------
Decrease from capital share transactions
(Note 4) (86,911,921) (738,478,401)
- -------------------------------------------------------------------------------
Total decrease in net assets (94,594,479) (664,595,016)
Net assets
- -------------------------------------------------------------------------------
Beginning of period 2,775,435,881 3,440,030,897
- -------------------------------------------------------------------------------
End of period (including undistributed net
investment income of $5,526,305 and
$3,693,679, respectively) $2,680,841,402 $2,775,435,881
- -------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS A
- -----------------------------------------------------------------------------------------------------------------------------
Six months
ended
April 30
Per-share (Unaudited) Year ended October 31
operating performance 2005 2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.87 $6.69 $6.59 $6.69 $6.29 $6.44
- -----------------------------------------------------------------------------------------------------------------------------
Investment operations:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .10 (d) .19 (d) .24 .32 .38 .43
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.03) .19 .11 (.07) .43 (.16)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .07 .38 .35 .25 .81 .27
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income (.09) (.20) (.25) (.35) (.41) (.42)
- -----------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- -- -- (e) --
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (.09) (.20) (.25) (.35) (.41) (.42)
- -----------------------------------------------------------------------------------------------------------------------------
Redemption fees -- (e) -- (e) -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $6.85 $6.87 $6.69 $6.59 $6.69 $6.29
- -----------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 1.07* 5.70 5.45 3.93 13.39 4.39
- -----------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $925,482 $985,939 $1,279,779 $1,339,061 $1,251,190 $946,755
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .48* (d) .99 (d) .93 .92 .95 .95
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.43* (d) 2.83 (d) 3.64 4.84 5.93 6.86
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 168.48* (f) 441.06 251.00 (g) 268.10 (g) 233.83 (g) 207.35
- -----------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income has been determined on the basis of
the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(c) The ratio of expenses to average net assets includes amounts paid
through expense offset arrangements (Note 2).
(d) Reflects an involuntary contractual expense limitation and waivers
of certain fund expenses in connection with investments in Putnam Prime
Money Market Fund during the period. As a result of such limitation and
waivers, the expenses of the fund for the periods ended April 30, 2005
and October 31, 2004 reflect a reduction of 0.02% and less than 0.01%,
respectively, of average net assets for class A shares (Notes 2 and 5).
(e) Amount represents less than $0.01 per share.
(f) Portfolio turnover excludes dollar roll transactions.
(g) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS B
- -----------------------------------------------------------------------------------------------------------------------------
Six months
ended
April 30
Per-share (Unaudited) Year ended October 31
operating performance 2005 2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.82 $6.65 $6.55 $6.65 $6.25 $6.41
- -----------------------------------------------------------------------------------------------------------------------------
Investment operations:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .07 (d) .14 (d) .19 .27 .33 .38
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.02) .18 .11 (.07) .44 (.17)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .05 .32 .30 .20 .77 .21
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income (.07) (.15) (.20) (.30) (.37) (.37)
- -----------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- -- -- (e) --
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (.07) (.15) (.20) (.30) (.37) (.37)
- -----------------------------------------------------------------------------------------------------------------------------
Redemption fees -- (e) -- (e) -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $6.80 $6.82 $6.65 $6.55 $6.65 $6.25
- -----------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) .70* 4.79 4.68 3.19 12.63 3.46
- -----------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $270,275 $323,527 $520,692 $555,668 $474,783 $373,336
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .85* (d) 1.74 (d) 1.68 1.67 1.70 1.70
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.06* (d) 2.12 (d) 2.90 4.07 5.19 6.11
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 168.48* (f) 441.06 251.00 (g) 268.10 (g) 233.83 (g) 207.35
- -----------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income has been determined on the basis of
the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(c) The ratio of expenses to average net assets includes amounts paid
through expense offset arrangements (Note 2).
(d) Reflects an involuntary contractual expense limitation and waivers
of certain fund expenses in connection with investments in Putnam Prime
Money Market Fund during the period. As a result of such limitation and
waivers, the expenses of the fund for the periods ended April 30, 2005
and October 31, 2004 reflect a reduction of 0.02% and less than 0.01%,
respectively, of average net assets for class B shares (Notes 2 and 5).
(e) Amount represents less than $0.01 per share.
(f) Portfolio turnover excludes dollar roll transactions.
(g) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS C
- -----------------------------------------------------------------------------------------------------------------------------
Six months
ended
April 30
Per-share (Unaudited) Year ended October 31
operating performance 2005 2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.84 $6.67 $6.57 $6.67 $6.27 $6.43
- -----------------------------------------------------------------------------------------------------------------------------
Investment operations:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .07 (d) .14 (d) .20 .26 .32 .39
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.02) .18 .11 (.06) .45 (.17)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .05 .32 .31 .20 .77 .22
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income (.07) (.15) (.21) (.30) (.37) (.38)
- -----------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- -- -- (e) --
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (.07) (.15) (.21) (.30) (.37) (.38)
- -----------------------------------------------------------------------------------------------------------------------------
Redemption fees -- (e) -- (e) -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $6.82 $6.84 $6.67 $6.57 $6.67 $6.27
- -----------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) .69* 4.79 4.70 3.18 12.61 3.53
- -----------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $25,642 $29,059 $42,946 $39,017 $34,545 $10,363
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .85* (d) 1.74 (d) 1.68 1.67 1.70 1.70
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.06* (d) 2.10 (d) 2.88 4.04 5.03 6.17
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 168.48* (f) 441.06 251.00 (g) 268.10 (g) 233.83 (g) 207.35
- -----------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income has been determined on the basis of
the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(c) The ratio of expenses to average net assets includes amounts paid
through expense offset arrangements (Note 2).
(d) Reflects an involuntary contractual expense limitation and waivers
of certain fund expenses in connection with investments in Putnam Prime
Money Market Fund during the period. As a result of such limitation and
waivers, the expenses of the fund for the periods ended April 30, 2005
and October 31, 2004 reflect a reduction of 0.02% and less than 0.01%,
respectively, of average net assets for class C shares (Notes 2 and 5).
(e) Amount represents less than $0.01 per share.
(f) Portfolio turnover excludes dollar roll transactions.
(g) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS M
- -----------------------------------------------------------------------------------------------------------------------------
Six months
ended
April 30
Per-share (Unaudited) Year ended October 31
operating performance 2005 2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.80 $6.63 $6.54 $6.64 $6.25 $6.41
- -----------------------------------------------------------------------------------------------------------------------------
Investment operations:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .09 (d) .17 (d) .23 .30 .37 .42
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.02) .18 .10 (.06) .42 (.17)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .07 .35 .33 .24 .79 .25
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income (.09) (.18) (.24) (.34) (.40) (.41)
- -----------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- -- -- (e) --
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (.09) (.18) (.24) (.34) (.40) (.41)
- -----------------------------------------------------------------------------------------------------------------------------
Redemption fees -- (e) -- (e) -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $6.78 $6.80 $6.63 $6.54 $6.64 $6.25
- -----------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) .97* 5.40 5.12 3.77 13.10 4.05
- -----------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $492,566 $556,725 $884,380 $1,465,393 $1,024,351 $1,066,539
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .60* (d) 1.24 (d) 1.18 1.17 1.20 1.20
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.30* (d) 2.62 (d) 3.48 4.56 5.74 6.61
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 168.48* (f) 441.06 251.00 (g) 268.10 (g) 233.83 (g) 207.35
- -----------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income has been determined on the basis of
the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(c) The ratio of expenses to average net assets includes amounts paid
through expense offset arrangements (Note 2).
(d) Reflects an involuntary contractual expense limitation and waivers
of certain fund expenses in connection with investments in Putnam Prime
Money Market Fund during the period. As a result of such limitation and
waivers, the expenses of the fund for the periods ended April 30, 2005
and October 31, 2004 reflect a reduction of 0.02% and less than 0.01%,
respectively, of average net assets for class M shares (Notes 2 and 5).
(e) Amount represents less than $0.01 per share.
(f) Portfolio turnover excludes dollar roll transactions.
(g) 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
Six months period
ended Year January 21,
April 30 ended 2003+ to
Per-share (Unaudited) October 31 October 31
operating performance 2005 2004 2003
- -------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.87 $6.69 $6.65
- -------------------------------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------------------------------
Net investment income (a) .09 (d) .18 (d) .18
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.02) .18 .03
- -------------------------------------------------------------------------------------------------------
Total from investment operations .07 .36 .21
- -------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------
From net investment income (.09) (.18) (.17)
- -------------------------------------------------------------------------------------------------------
Total distributions (.09) (.18) (.17)
- -------------------------------------------------------------------------------------------------------
Redemption fees -- (e) -- (e) --
- -------------------------------------------------------------------------------------------------------
Net asset value,
end of period $6.85 $6.87 $6.69
- -------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 1.00* 5.47 3.14*
- -------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $322 $62 $1
- -------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .60* (d) 1.24 (d) .92*
- -------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.26* (d) 2.57 (d) 2.65*
- -------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 168.48* (f) 441.06 251.00 (g)
- -------------------------------------------------------------------------------------------------------
+ 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 an involuntary contractual expense limitation and waivers of certain fund expenses in
connection with investments in Putnam Prime Money Market Fund during the period. As a result of
such limitation and waivers, the expenses of the fund for the periods ended April 30, 2005
and October 31, 2004 reflect a reduction of 0.02% and less than 0.01%, respectively, of
average net assets for class R shares (Notes 2 and 5).
(e) Amount represents less than $0.01 per share.
(f) Portfolio turnover excludes dollar roll transactions.
(g) Portfolio turnover excludes certain treasury note transactions executed in connection with a
short-term trading strategy.
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS Y
- -----------------------------------------------------------------------------------------------------------------------------
Six months
ended
April 30
Per-share (Unaudited) Year ended October 31
operating performance 2005 2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.91 $6.72 $6.63 $6.72 $6.31 $6.46
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .11 (d) .21 (d) .26 .33 .39 .45
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.03) .19 .10 (.06) .45 (.17)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .08 .40 .36 .27 .84 .28
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net investment income (.10) (.21) (.27) (.36) (.43) (.43)
- ---------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- -- -- (e) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.10) (.21) (.27) (.36) (.43) (.43)
- ---------------------------------------------------------------------------------------------------------------------------------
Redemption fees -- (e) -- (e) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $6.89 $6.91 $6.72 $6.63 $6.72 $6.31
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 1.19* 6.06 5.50 4.26 13.73 4.58
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $966,553 $880,124 $712,232 $530,302 $234,826 $194,267
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .36* (d) .74 (d) .68 .67 .70 .70
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.54* (d) 3.01 (d) 3.82 5.03 6.23 7.11
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 168.48* (f) 441.06 251.00 (g) 268.10 (g) 233.83 (g) 207.35
- ---------------------------------------------------------------------------------------------------------------------------------
* 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 an involuntary contractual expense limitation and waivers
of certain fund expenses in connection with investments in Putnam Prime
Money Market Fund during the period. As a result of such limitation and
waivers, the expenses of the fund for the periods ended April 30, 2005
and October 31, 2004 reflect a reduction of 0.02% and less than 0.01%,
respectively, of average net assets for class Y shares (Notes 2 and 5).
(e) Amount represents less than $0.01 per share.
(f) Portfolio turnover excludes dollar roll transactions.
(g) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
The accompanying notes are an integral part of these financial
statements.
Notes to financial statements
April 30, 2005 (Unaudited)
Note 1
Significant accounting policies
Putnam Income Fund (the "fund"), a Massachusetts business trust, is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The fund seeks high
current income consistent with what Putnam Investment Management, LLC
("Putnam Management"), the fund's manager, an indirect wholly-owned
subsidiary of Putnam, LLC, believes to be prudent risk. The fund invests
in a portfolio of debt securities, both government and corporate
obligations, and may invest in preferred stocks and common stocks.
The fund offers class A, class B, class C, class M, class R and class Y
shares. Class A and class M shares are sold with a maximum front-end
sales charge of 3.75% and 3.25%, respectively, and do not pay a
contingent deferred sales charge. Prior to April 1, 2005 the maximum
front-end sales charge for class A shares was 4.50%. Class B shares,
which convert to class A shares after approximately eight years, do not
pay a front-end sales charge and are subject to a contingent deferred
sales charge, if those shares are redeemed within six years of purchase.
Class C shares are subject to the same fees 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 R shares, which are
offered to qualified employee-benefit plans, are sold without a
front-end sales charge or a contingent deferred sales charge. The
expenses for class A, class B, class C, class M and class R shares may
differ based on each class' distribution fee, which is identified in
Note 2. Class Y shares, which are sold at net asset value, are generally
subject to the same expenses as class A, class B, class C, class M and
class R shares, but do not bear a distribution fee. Class Y shares are
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 certain 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 Pursuant to an exemptive order from the
Securities and Exchange Commission (the "SEC"), the fund may transfer
uninvested cash balances, including cash collateral received under
security lending arrangements, into a joint trading account along with
the cash of other registered investment companies and certain other
accounts managed by Putnam Management. These balances may be invested in
issues of high-grade, short-term investments having maturities of up to
397 days for collateral received under security lending arrangements and
up to 90 days for other cash investments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be in an
amount at least equal to the resale price, including accrued interest.
Collateral for certain tri-party repurchase agreements is held at the
counterparty's custodian in a segregated account for the benefit of the
fund and the counterparty. Putnam Management is responsible for
determining that the value of these underlying securities is at all
times at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are recorded on the trade date (date the order to buy or
sell is executed). Gains or losses on securities sold are determined on
the identified cost basis.
Interest income is recorded on the accrual basis.
All premiums/discounts are amortized/accreted on a yield-to-maturity
basis.
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 a reduction to the cost of
investments.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. The fund and the broker
agree to exchange an amount of cash equal to the daily fluctuation in the
value of the futures contract. Such receipts or payments are known as
"variation margin." Exchange-traded options are valued at the last sale
price, or if no sales are reported, the last bid price for purchased
options and the last ask price for written options. Options traded
over-the-counter are valued using prices supplied by dealers. Futures and
written option contracts outstanding at period end, if any, are listed
after the fund's portfolio.
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 counter party, the protection seller, in exchange
for the right to receive a contingent payment. The maximum amount of the
payment may equal the notional amount, at par, of the underlying index
or security as a result of a related credit event. 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 outstanding at period end, if any, are listed after the fund's
portfolio.
I) TBA purchase commitments The fund may enter into "TBA" (to be
announced) commitments to purchase securities for a fixed unit price at a
future date beyond customary settlement time. Although the unit price has
been established, the principal value has not been finalized. However, the
amount of the commitments will not significantly differ from the principal
amount. The fund holds, and maintains until settlement date, cash or
high-grade debt obligations in an amount sufficient to meet the purchase
price, or the fund may enter into offsetting contracts for the forward
sale of other securities it owns. Income on the securities will not be
earned until settlement date. TBA purchase commitments may be considered
securities themselves, and involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date, which risk
is in addition to the risk of decline in the value of the fund's other
assets. Unsettled TBA purchase commitments are valued at fair value of the
underlying securities, according to the procedures described under
"Security valuation" above. The contract is marked-to-market daily and the
change in market value is recorded by the fund as an unrealized gain or
loss.
Although the fund will generally enter into TBA purchase commitments
with the intention of acquiring securities for its portfolio or for
delivery pursuant to options contracts it has entered into, the fund may
dispose of a commitment prior to settlement if Putnam Management deems
it appropriate to do so.
J) TBA sale commitments The fund may enter into TBA sale commitments to
hedge its portfolio positions or to sell mortgage-backed securities it
owns under delayed delivery arrangements. Proceeds of TBA sale
commitments are not received until the contractual settlement date.
During the time a TBA sale commitment is outstanding, equivalent
deliverable securities or an offsetting TBA purchase commitment
deliverable on or before the sale commitment date, are held as "cover"
for the transaction.
Unsettled TBA sale commitments are valued at fair value of the
underlying securities, generally according to the procedures described
under "Security valuation" above. The contract is marked-to-market daily
and the change in market value is recorded by the fund as an unrealized
gain or loss. If the TBA sale commitment is closed through the
acquisition of an offsetting purchase commitment, the fund realizes a
gain or loss. If the fund delivers securities under the commitment, the
fund realizes a gain or a loss from the sale of the securities based
upon the unit price established at the date the commitment was entered
into. TBA sale commitments outstanding at period end, if any, are listed
after the fund's portfolio.
K) Dollar rolls To enhance returns, the fund may enter into dollar rolls
(principally using TBAs) in which the fund sells securities for delivery
in the current month and simultaneously contracts to purchase similar
securities on a specified future date. During the period between the
sale and subsequent purchase, the fund will not be entitled to receive
income and principal payments on the securities sold. The fund will,
however, retain the difference between the initial sales price and the
forward price for the future purchase. The fund will also be able to
earn interest on the cash proceeds that are received from the initial
sale. The fund may be exposed to market or credit risk if the price of
the security changes unfavorably or the counterparty fails to perform
under the terms of the agreement.
L) 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 April 30, 2005, the value of
securities loaned amounted to $17,429,546. The fund received cash
collateral of $17,908,748, which is pooled with collateral of other
Putnam funds into 17 issuers of high-grade, short-term investments.
M) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code of 1986 (the "Code") applicable to
regulated investment companies. It is also the intention of the fund to
distribute an amount sufficient to avoid imposition of any excise tax
under Section 4982 of the Code, as amended. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held nor for excise tax on income and capital
gains.
At October 31, 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
The aggregate identified cost on a tax basis is $3,646,167,200,
resulting in gross unrealized appreciation and depreciation of
$40,064,057 and $58,119,041, respectively, or net unrealized
depreciation of $18,054,984.
N) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Distributions from capital gains, if any, are recorded on the
ex-dividend date and paid at least annually. The amount and character of
income and gains to be distributed are determined in accordance with
income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations.
Note 2
Management fee, administrative
services and other transactions
Putnam Management is paid for management and investment advisory
services quarterly based on the average net assets of the fund. Such fee
is based on the following annual rates: 0.65% of the first $500 million
of average net assets, 0.55% of the next $500 million, 0.50% of the next
$500 million, 0.45% of the next $5 billion, 0.425% of the next $5
billion, 0.405% of the next $5 billion, 0.39% of the next $5 billion and
0.38% thereafter.
Putnam Management has agreed to waive fees and reimburse expenses of the
fund through October 31, 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 period ended
April 30, 2005, Putnam Management waived $163,522 of its management fee
from the fund.
For the period ended April 30, 2005, Putnam Management has assumed
$20,406 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 six months ended April 30, 2005, the
fund paid PFTC $2,826,300 for these services.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. For the six months ended April 30, 2005,
the fund's expenses were reduced by $243,220 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $3,417, 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 six months ended April 30, 2005, Putnam Retail Management,
acting as underwriter, received net commissions of $33,269 and $8,378
from the sale of class A and class M shares, respectively, and received
$275,911 and $800 in contingent deferred sales charges from redemptions
of class B and class C shares, respectively. A deferred sales charge of
up to 1.00% and 0.40% is assessed on certain redemptions of class A and
class M shares, respectively. For the six months ended April 30, 2005,
Putnam Retail Management, acting as underwriter, received $763 and no
monies on class A and class M redemptions, respectively.
Note 3
Purchases and sales of securities
During the six months ended April 30, 2005, cost of purchases and
proceeds from sales of investment securities other than U.S. government
securities and short-term investments aggregated $3,786,822,910 and
$3,398,000,766, respectively. Purchases and sales of U.S. government
securities aggregated $37,925,838 and $89,882,159, respectively.
Note 4
Capital shares
At April 30, 2005, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended April 30, 2005
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 15,744,493 $107,538,722
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 1,608,337 10,987,393
- ----------------------------------------------------------------
17,352,830 118,526,115
Shares repurchased (25,793,790) (176,272,937)
- ----------------------------------------------------------------
Net decrease (8,440,960) $(57,746,822)
- ----------------------------------------------------------------
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)
- ----------------------------------------------------------------
Six months ended April 30, 2005
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 1,605,260 $10,898,854
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 370,409 2,515,486
- ----------------------------------------------------------------
1,975,669 13,414,340
Shares repurchased (9,675,121) (65,668,747)
- ----------------------------------------------------------------
Net decrease (7,699,452) $(52,254,407)
- ----------------------------------------------------------------
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)
- ----------------------------------------------------------------
Six months ended April 30, 2005
- ----------------------------------------------------------------
Class C Shares Amount
- ----------------------------------------------------------------
Shares sold 374,081 $2,549,646
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 32,370 220,413
- ----------------------------------------------------------------
406,451 2,770,059
Shares repurchased (895,822) (6,101,428)
- ----------------------------------------------------------------
Net decrease (489,371) $(3,331,369)
- ----------------------------------------------------------------
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)
- ----------------------------------------------------------------
Six months ended April 30, 2005
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 723,368 $4,887,268
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 33,230 224,717
- ----------------------------------------------------------------
756,598 5,111,985
Shares repurchased (9,985,667) (67,515,436)
- ----------------------------------------------------------------
Net decrease (9,229,069) $(62,403,451)
- ----------------------------------------------------------------
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)
- ----------------------------------------------------------------
Six months ended April 30, 2005
- ----------------------------------------------------------------
Class R Shares Amount
- ----------------------------------------------------------------
Shares sold 38,406 $262,474
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 424 2,895
- ----------------------------------------------------------------
38,830 265,369
Shares repurchased (817) (5,586)
- ----------------------------------------------------------------
Net increase 38,013 $259,783
- ----------------------------------------------------------------
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
- ----------------------------------------------------------------
Six months ended April 30, 2005
- ----------------------------------------------------------------
Class Y Shares Amount
- ----------------------------------------------------------------
Shares sold 31,618,410 $217,353,258
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 1,983,715 13,630,955
- ----------------------------------------------------------------
33,602,125 230,984,213
Shares repurchased (20,727,348) (142,419,868)
- ----------------------------------------------------------------
Net increase 12,874,777 $88,564,345
- ----------------------------------------------------------------
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
- ----------------------------------------------------------------
Note 5
Investment in Putnam Prime Money Market Fund
Pursuant to an exemptive order from the Securities and Exchange
Commission, 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 and administrative services fees paid by Putnam Prime Money
Market Fund with respect to assets invested by the fund in Putnam Prime
Money Market Fund. For the period ended April 30, 2005, management fees
paid were reduced by $339,721 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
$4,888,048 for the period ended April 30, 2005. During the period ended
April 30, 2005, cost of purchases and cost of sales of investments in
Putnam Prime Money Market Fund aggregated $657,914,819 and $598,442,758,
respectively.
Note 6
Regulatory matters and litigation
Putnam Management has entered into agreements with the Securities and
Exchange Commission and the Massachusetts Securities Division settling
charges connected with excessive short-term trading by Putnam employees
and, in the case of the charges brought by the Massachusetts Securities
Division, by participants in some Putnam-administered 401(k) plans.
Pursuant to these settlement agreements, Putnam Management will pay a
total of $193.5 million in penalties and restitution, with $153.5
million being paid to shareholders and the funds. The restitution amount
will be allocated to shareholders pursuant to a plan developed by an
independent consultant, with payments to shareholders currently expected
by the end of the summer.
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 will bear any costs incurred by Putnam funds in
connection with these lawsuits. Putnam Management believes that the
likelihood that the pending private lawsuits and purported class-action
lawsuits will have a material adverse financial impact on the fund is
remote, and the pending actions are not likely to materially affect its
ability to provide investment management services to its clients,
including the Putnam funds.
Putnam Investments has recorded a charge of $30 million for the
estimated cost that it believes will be necessary to address issues
relating to the calculation of certain amounts paid by the Putnam mutual
funds in previous years. The previous payments were cost reimbursements
by the Putnam funds to Putnam for transfer agent services relating to
defined contribution operations. Putnam currently anticipates that any
payments made by Putnam related to this issue will be paid to the Putnam
funds. Review of this issue is ongoing.
Results of November 11, 2004 shareholder meeting
(Unaudited)
A special meeting of shareholders of the fund was held on November 11,
2004. At the meeting, each of the nominees for Trustees was elected, as
follows:
Votes Votes
For Withheld
- -----------------------------------------------------------------
Jameson A. Baxter 314,066,113 4,408,619
Charles B. Curtis 314,045,762 4,428,970
Myra R. Drucker 314,298,796 4,175,936
Charles E. Haldeman, Jr. 313,648,930 4,825,802
John A. Hill 314,101,726 4,373,006
Ronald J. Jackson 314,123,654 4,351,078
Paul L. Joskow 314,093,042 4,381,690
Elizabeth T. Kennan 314,067,679 4,407,053
John H. Mullin, III 314,132,317 4,342,415
Robert E. Patterson 314,147,030 4,327,702
George Putnam, III 313,990,562 4,484,170
A.J.C. Smith* 314,003,069 4,471,663
W. Thomas Stephens 314,115,169 4,359,563
Richard B. Worley 314,413,701 4,061,031
A proposal to amend the fund's fundamental investment restriction with
respect to borrowing to allow the fund the investment flexibility
permitted by the Investment Company Act was approved as follows:
Votes Votes
For Against Abstentions
- -----------------------------------------------------------------
267,451,887 10,410,303 40,612,542
A proposal to amend the fund's fundamental investment restriction with
respect to making loans to enhance the fund's ability to participate in an
interfund borrowing and lending program was approved as follows:
Votes Votes
For Against Abstentions
- -----------------------------------------------------------------
267,945,926 10,095,695 40,433,111
* Mr. Smith resigned from the Board of Trustees on January 14, 2005.
All tabulations are rounded to nearest whole number.
A proposal to amend the fund's fundamental investment restriction with
respect to diversification of investments to enhance the fund's ability to
invest in registered investment companies such as Putnam Prime Money
Market Fund was approved as follows:
Votes Votes
For Against Abstentions
- -----------------------------------------------------------------
273,825,312 4,245,974 40,403,446
A motion with respect to a proposal to approve an amendment to the fund's
Agreement and Declaration of Trust was not brought before the meeting and
accordingly no vote was taken with respect to the proposal.
All tabulations are rounded to nearest whole number.
Fund information
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition
and practice since 1830. Founded over 65 years ago, Putnam Investments
was built around the concept that a balance between risk and reward is
the hallmark of a well-rounded financial program. We presently manage
over 100 mutual funds in growth, value, blend, fixed income, and
international.
Investment Manager
Putnam Investment
Management, LLC
One Post Office Square
Boston, MA 02109
Marketing Services
Putnam Retail Management
One Post Office Square
Boston, MA 02109
Custodian
Putnam Fiduciary Trust Company
Legal Counsel
Ropes & Gray LLP
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
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
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
Daniel T. Gallagher
Senior Vice President,
Staff Counsel and Compliance Liaison
Beth S. Mazor
Vice President
James P. Pappas
Vice President
Richard S. Robie, III
Vice President
Mark C. Trenchard
Vice President and BSA Compliance Officer
Francis J. McNamara, III
Vice President and Chief Legal Officer
Charles A. Ruys de Perez
Vice President and Chief Compliance Officer
Judith Cohen
Vice President, Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Income
Fund. It may also be used as sales literature when preceded or
accompanied by the current prospectus, the most recent copy of Putnam's
Quarterly Performance Summary, and Putnam's Quarterly Ranking Summary.
For more recent performance, please visit www.putnaminvestments.com.
Investors should carefully consider the investment objective, risks,
charges, and expenses of a fund, which are described in its prospectus.
For this and other information or to request a prospectus, call
1-800-225-1581 toll free. Please read the prospectus carefully before
investing. The fund's Statement of Additional Information contains
additional information about the fund's Trustees and is available
without charge upon request by calling 1-800-225-1581.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
Call 1-800-225-1581 or visit our Web site
www.putnaminvestments.com.
SA035-225018 6/05
Not FDIC Insured May Lose Value No Bank Guarantee
[PUTNAM INVESTMENTS LOGO OMITTED]
Putnam Income Fund
- -----------------------------------------------------------------------------
Supplement to Semiannual Report dated 4/30/05
The following information has been prepared to provide class Y shareholders
with a performance overview specific to their holdings. Class Y shares are
offered exclusively to clients that meet the eligibility requirements
specified in the fund's prospectus for such shares. Performance of class Y
shares, which do not incur a front-end load, a distribution fee, or a
contingent deferred sales charge, will differ from the performance of class
A, B, C, M, and R shares, which are discussed more extensively in the
semiannual report.
RESULTS AT A GLANCE
- -----------------------------------------------------------------------------
Total return for periods ended 4/30/05
NAV
6 months 1.19%
1 year 5.23
5 years 40.27
Annual average 7.00
10 years 83.60
Annual average 6.26
Life of fund (since class A inception, 11/1/54)
Annual average 8.17
Share value: NAV
10/31/04 $6.91
4/30/05 $6.89
- -----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
6 $0.101 -- $0.101
- -----------------------------------------------------------------------------
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.
Performance assumes reinvestment of distributions and does not account for
taxes. 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. Returns have not been adjusted to reflect differences in
operating expenses which, for class Y shares, are lower than the operating
expenses applicable to class A shares. 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.
For a portion of the period, this fund limited expenses, without which
returns would have been lower.
A short-term trading fee of up to 2% may apply.
Please see pages 12-13 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 4/30/05
Class Y
Expenses paid per $1,000* $3.59
Ending value (after expenses) $1,011.90
- -----------------------------------------------------------------------------
EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming a hypothetical 5% annualized return for the 6 months ended 4/30/05
Class Y
Expenses paid per $1,000* $3.61
Ending value (after expenses) $1,021.22
- -----------------------------------------------------------------------------
EXPENSE RATIO COMPARISON USING ANNUALIZED DATA
Your fund's annualized expense ratio 0.72%
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:
- -----------------------
Not applicable
Item 3. Audit Committee Financial Expert:
- -----------------------------------------
Not applicable
Item 4. Principal Accountant Fees and Services:
- -----------------------------------------------
Not applicable
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, that the design and operation of
such procedures are generally effective to provide reasonable
assurance that information required to be disclosed by the registrant
in this report is recorded, processed, summarized and reported within
the time periods specified in the Commission's rules and forms.
(b) Changes in internal control over financial reporting:
Not applicable
Item 11. Exhibits:
- ------------------
(a) Not applicable
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act
of 2002 are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: June 27, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Executive Officer
Date: June 27, 2005
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: June 27, 2005